U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
AMENDMENT NO. 1 TO FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS
ISSUERS UNDER SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE
ACT OF 1934
NORTECH FOREST TECHNOLOGIES, INC.
ame of Small Business Issuer in its charter)
Delaware 06-1342912
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2233 University Avenue, Suite 225
St. Paul, Minnesota 55114-1696
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code
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Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
each class is to be registered
None N/A
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Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
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(Title of class)
Item 1. Description of Business
Business Development
Through February 2, 2000, Nortech Forest Technologies, Inc.
("Nortech") was engaged in the business of manufacturing and
marketing TREE GUARD (R) brand deer repellent and the development
of products designed to protect plants, trees and landscaping
from damage by animals and certain acts of nature. On February
3, 2000, Nortech entered into a stock sale agreement to purchase
all of the outstanding stock of Floral Inc. and FL Flowers, Inc.,
in exchange for 3,206,245 shares of common stock, plus an
additional 6,412,474 shares of common stock contingent upon
achieving certain annual gross sales targets, and changed its
business focus to retail flower sales.
As a result of the stock sale agreement, Nortech acquires an
ongoing floral business with 12 florist shops located in the
Minneapolis/St. Paul metropolitan area, operating under the names
FL Floral, Inc. and FL Flowers, Inc., d.b.a. Stems and Vines,
including equipment, inventory and goodwill.
On February 3, 2000, in a move to effectuate the change of the
principal business of Nortech from animal repellent sales to
floral sales, Nortech sold all of the assets associated with its
animal repellent business to Becker Underwood, Inc. for the sum
of $850,000, subject to adjustment to equal the actual 1999 sales
of Nortech, reduced dollar for dollar in the event Nortech's
independent auditors determine that gross sales for 1999 are less
than $789,119.
Prior to the 1999 Annual Meeting of Stockholders, a proposal to
increase the authorized capital of Nortech from 3,750,000 to
15,000,000 common shares was approved by a majority of the
stockholders.
THE FLORAL SALES BUSINESS
IN GENERAL
Nortech is an integrated retailer and marketer of flowers,
plants, and complementary gifts and decorative accessories. It
operates the largest chain of floral specialty retail stores in
the Minneapolis/St. Paul metropolitan area. The Company's plan
is to build brand name recognition in the North Central United
States, and then attempt to expand that brand name recognition
nationally. Nortech has sought to accomplish this by integrating
its operations throughout the floral supply chain, from product
sourcing to delivery, and by managing every interaction with the
customer, from order generation to order fulfillment. Nortech
ultimately intends to provide all of its retail customers with a
unique and enhanced shopping experience under the Stems and Vines
brand.
Nortech's retail locations all utilize the brand name, Stems and
Vines, and a common advertising theme. The design focus for each
location centers on a European garden look. This common theme
allows for the inter-company exchange of products and services
among Nortech's retail locations. The inter-company computer
system allows for the centralized location and location-targeted
production of arrangements, thereby reducing or eliminating
significant cross-location delivery issues.
Nortech serves customers who do not visit or phone our retail
stores through its Internet web site, www.stemsandvines.com.
Nortech currently promotes its web site on leading Internet
properties, including Yahoo! To ensure superior customer service
and efficient order processing, Nortech operates a central call
center. To distribute orders in markets where Nortech does not
have its own stores, Nortech uses several flowers-by-wire
services, including FTD, Florafax and American Floral Services
(AFS).
Management believes that the execution of this integrated
operating model will make the stems and vines brand synonymous
with superior service, quality and value.
Nortech operates twelve floral retail stores and one central
production/call center. Each store sells fresh cut flowers,
green plants, blooming plant, dried floral arrangements, silk
flowers and gifts. Nortech provides a wide array of traditional
and contemporary designs for over 150 weddings annually. Nortech
also performs plant maintenance for corporate customers.
THE FLORAL INDUSTRY.
Supply Chain
The majority of cut flowers sold at retail in the United States
are grown outside of the United States, principally in Colombia,
Mexico, Ecuador and the Netherlands. Flowers grown outside of the
United States are shipped from the farms to importers in the
United States. The majority of European products arrive in New
York while most Central American and South American products
arrive in Miami. After clearing customs and inspections, floral
importers divide the flowers into smaller lot sizes and repack
the flowers for shipment to wholesalers or bouquet companies.
Wholesalers then market the flowers to retail florists,
supermarkets, other mass market outlets, and bouquet companies.
Flowers sold to bouquet companies are usually arranged and
packaged for the consumer market and the bouquets are then sold
in bulk by the bouquet companies to supermarkets and mass-market
retailers. In aggregate, the supply chain typically delivers a
flower to the retailer approximately 10 to 12 days after the
flower is first cut. Moreover, the extensive handling of the
product and the temperature fluctuations to which it is subjected
adversely affect the life of the flower.
Order Generation
Order generators market and advertise in various media to
generate floral orders via dial-up numbers, the Internet or
direct mail. As order generators typically lack fulfillment
capabilities, they forward these orders through a wire service to
a retail florist for delivery. Order generators typically receive
a fee equal to 20% of the order for their services. Some order
generators also impose a service charge on the customer for
handling the order. Large order generators typically receive
rebates from wire services for sending orders through their
services.
Wire Services
Wire services establish networks of retail florists and
facilitate the transmission and financial settlement of floral
orders among the network members. Wire services publish a
membership directory that enables florists to select which
florist will deliver an arrangement outside the sending florist's
own delivery area. Alternatively, florists can allow the wire
service to choose which florist will deliver an arrangement. Some
wire services also supply various goods, including vases and
other materials, that florists may use in the ordinary course of
business.
Wire services typically collect a fee of approximately 7% of the
value of an order exchanged via the wire service; however, the
fee collected from larger florists and order generators is often
offset by a rebate. Wire services also typically charge a monthly
membership fee to member florists. Since wire services generally
do not own their member florists, they have little control over
the quality of the product and service of the delivering florist.
Retail
Retailers sell flowers, plants and, in certain cases,
complementary gifts and decorative accessories to customers.
Retailers include floral shops, supermarkets, garden centers,
discount warehouses and lawn and garden centers. Floral shops
also receive orders for out-of-town delivery that they forward,
typically through wire services, to other floral shops for
fulfillment and local delivery.
THE FLORAL INDUSTRY'S SIZE AND OPPORTUNITY.
Size
The domestic retail floral industry is a large and growing
industry with attractive business economics. According to
industry sources:
- Retail floral industry revenue was approximately $15
billion in 1998.
- When added to the complementary gifts and accessories
market, the combined industry exceeds $60 billion.
- Sales by florists grew by 5.5% in 1998.
- Gross margins for retailers average approximately 60%.
Opportunity to Create a National Network
Management believes that the domestic retail floral industry
presents opportunities for innovation, differentiation and the
creation of a national brand due to the following industry
characteristics:
- Highly fragmented, with the top ten floral chains
accounting for less than 5% of total retail sales.
- Absence of a national retail brand.
- Unique customer purchasing characteristics, with 40%
of product orders placed outside of a retail location,
approximately 90% of which are local calls made to
local florists.
- Inefficient and decentralized supply chain, with
transactions among growers, importers, wholesalers and
retailers creating substantial incremental costs but
providing little additional value to the end user.
- Lack of integrated order generation and fulfillment
companies.
- Under-marketed, with marketing expenditures typically
less than 3% of sales.
- Large, under-marketed customer lists.
Opportunity to Grow the Market
We believe the retail floral industry also presents opportunities
to expand floral consumption as a result of the following
factors:
- The United States is not among the top ten countries in the
world in per capita consumption of flowers; per capita spending
in the United States is significantly less than that of most
western European countries, according to the Floral Council of
Holland.
- Favorable customer demographics and lifestyle trends should
generate additional industry growth.
- Customers value an extended vase life for flowers, which can be
achieved by streamlining the supply chain.
- Retail florists have focused on the gift-giving customer,
largely ignoring the opportunity to increase self-consumption.
- The Internet allows for visual merchandising and targeted
marketing of flowers.
BUSINESS STRATEGY
Nortech's goal is to become a primary floral and gift retailer
and marketer in the United States. It intends to accomplish this
by selling a broad selection of floral and floral-related
products, providing superior customer service and building strong
customer loyalty. Because of our management team's extensive
experience in floral sales, and the expansion of Nortech's retail
presence, we have become the second largest retail floral chain
in the Minneapolis/St. Paul metropolitan area. Nortech believes
its management has the skills and experience necessary to
establish Stems and Vines as a prominent brand in the floral
industry. Key elements of its strategy include:
BUILD A REGIONAL NETWORK OF RETAIL STORES.
Nortech plans to expand its retail operations in order to
increase its market share in existing markets and to open and/or
acquire stores in new markets where the opportunity exists to
become a leading floral retailer, such as Nortech has done in the
Minneapolis/St. Paul market. Over the next five years, Nortech's
strategy is to develop an expanded retail network in the areas
where Nortech has identified a significant market and opportunity
to acquire smaller retail operations and integrate them with
Nortech's operations.
Nortech's retailing network is based on a "hub-and-satellite"
system, which Nortech's management believes is the most
efficient operating structure for the retail floral industry
based upon the success of the leading floral retail chains. A hub
facility serves as a distribution center and warehouse for
surrounding satellite stores within a market. Nortech currently
operates one hub facility in one market, and it plans to have at
least one hub in each of the the major markets in which we will
operate, either through acquisition or construction. Management
believes that a hub facility will eliminate cost redundancies and
delivery inefficiencies resulting from the typically
decentralized floral supply chain.
Nortech has developed a concept store that is designed to
maximize revenue within the hub-and-satellite network by catering
to the walk-in customer. This store will create a unique and
enhanced shopping experience through an expanded product mix,
innovative merchandising and store design, a knowledgeable staff
of professional florists and exceptional customer service. Each
of Nortech's retail stores follow this concept store plan, use
Nortech's brand name, Stems and Vines, and follow a European
garden theme.
BUILD THE ORDER-GENERATION BUSINESSES.
Nortech has developed a customer base which allows it to serve
customers who do not visit its retail stores, in order to target
Nortech's advertising and promotions. Through the use of more
sophisticated database marketing techniques, our strategy is to
use our order-generation capabilities to increase non-holiday and
advance sales to customers in all channels. Where possible, we
expect to distribute orders generated by these businesses through
our retail store network, assuring our customers of high-quality
products and superior customer service. Most order generators
lack fulfillment capabilities and transmit their orders through
wire services to independent local florists for production and
delivery. We believe our retail stores will provide us with a
significant competitive advantage over order generators who lack
fulfillment capabilities, particularly at holidays and other peak
times.
Nortech intends to promote its e-commerce operations. Similar to
traditional order-generation businesses, we believe that online
flower order generation must be coupled with an owned or
affiliated local delivery network. This approach provides the
greatest ability to manage all aspects of an order, from order
taking to delivery confirmation, and ensures product quality and
customer service consistency. Our e-commerce strategy is to
position Nortech as a premier online floral and related gift
marketer through a multi-branded strategy targeted at specific
audiences. To promote its web site, Nortech has marketing
contracts with major online portals, including Yahoo! We also
intend to continually upgrade our website offerings in order to
provide existing and new customers with broad product offerings
and convenient ordering processes.
IMPROVED INFORMATION SYSTEMS.
Nortech's plan is to develop information systems that will give
us a competitive advantage. Improved information systems will
allow us to enhance the customer's overall experience across our
retail network and throughout our order-generation businesses. By
combining enhanced information systems with sophisticated
merchandising, database and supply chain management techniques,
we believe these information systems will improve our
profitability.
THE MARKET
In general, the geographic market area for walk-in traffic for
each store extends approximately to a six mile radius. Telephone
sales and long terms relationships have created an extended
customer base for Nortech. Wire service orders account for
approximately 20% of Nortech's business.
PRODUCTS AND SERVICES
Retail Stores
Nortech owns twelve retail flower stores in the Minneapolis/St.
Paul metropolitan area, and one production/call center, which
receives and distributes inventory to each of the stores. Each
location sells fresh cut flowers, green plants, blooming plants,
dried floral arrangements, silk flowers, balloon bouquets, and
gifts. Each store draws walk-in traffic from an approximate six
mile radius. The stores also each have established a customer
base which extends beyond the six mile area. These customers
place telephone sales with Nortech for flower deliveries. The
central production facility is located at 2509 West County Road
B, Roseville, MN 55113. The locations of the retail stores are:
Stems and Vines on Grand
949 Grand Avenue
St. Paul, MN 55105
JDB Florist
515 Owens
Stillwater, MN 55082
Holm & Olson
Carriage Hill Plaza-Holm & Olson
Lowry Medical Building
350 St. Peter Street
St. Paul, MN 55102
Holm & Olson
2100 North Snelling
Roseville, MN 55113
Rossi's Floral Shop
386 West Bernard Street
West St. Paul, MN 55118
Lake Elmo Floral
3479 Lake Elmo Blvd.
Lake Elmo, MN 55042
Northfield Floral
640 South Water Street
Riverpark Mall
Northfield, MN 55057
Stems and Vines of White Bear Lake
1971 Whitaker Street
White Bear Lake, MN 55110
Julie's Stems and Vines on 50th
813 West 50th Street
Minneapolis, MN 55419
Cedar Lake Floral
1822 East Lake Street
Minneapolis, MN 55419
Rosacker's Flowers and Gifts
2315 18th Avenue NE
Minneapolis, MN 55418
Valerie's Fresh Flowers
582 Prarie Center Drive
Eden Prarie, MN 55344
Nortech's retail stores follow a European garden theme and
creates a unique and enhanced shopping experience for our
customers. Our stores feature specially designed fixtures, are
divided into easy-to-shop categories and feature professionals
demonstrating the art of flower arranging. The store design is
intended to give customers a warm, inviting place to browse and
learn about Nortech's products.
In our stores, customers will find fresh-cut flowers and bouquets
displayed creatively and in abundance, with informational tags
and signage to guide the customer through the store. The traffic
pattern of Nortech's stores draws customers through the store in
a logical progression, exposing the customer to the breadth of
available floral products and gift items. In addition to flowers
and plants, our stores carry a number of complementary gifts and
decorative accessories, gourmet confections, gift baskets,
decorative accessories, collectibles and seasonal/holiday
decorations. We believe that expanding the product mix of our
stores to include these products is a natural extension of our
floral product offerings since these products, like flowers, are
commonly used as gifts to communicate personal expressions to
others and for self-consumption to create a warm and friendly
home environment. We believe that offering gifts and decorative
accessories will not only enable us to meet the needs of our
existing customers who currently purchase these products at
competing specialty retailers, but will also allow us to attract
new customers who do not normally purchase flowers or plants.
In addition to providing our customers with a unique and enhanced
in-store experience and a broader array of merchandise, we are
committed to providing superior customer service. We intend to
provide same-day delivery on a regional scale from all
distribution points, and expanded hours through our call center,
and to offer customers the opportunity to place orders 24 hours a
day, 7 days a week.
WIRE SALES
Nortech receives and forwards wire orders and fills wire orders
for flowers. Nortech is a member of all three major wire
services; FTD, American Floral Service (AFS) and Teleflora.
WEDDINGS
Nortech provides a wide array of traditional and contemporary
wedding floral designs for approximately 150 weddings annually.
RAW MATERIALS AND SUPPLIERS
Nortech obtains fresh cut flowers from many different
suppliers; primarily Everflora and Koehler-Dramm, Inc.
PATENTS AND TRADEMARKS
Nortech is the owner of the domain name, www.stemsandvines.com.
Nortech applied in March, 2000 for federal registration of the
trademark, "Stems and Vines."
EMPLOYEES
Nortech currently has 140 employees; primarily retailers and
florists. Nortech is not subject to any collective bargaining
agreements and believes that its labor relations are good.
COMPETITION
Nortech faces intense competition throughout the retail floral
industry. Our retail stores compete with traditional floral
shops, supermarkets, garden centers,vendors and other retailers
based upon price, credit terms, breadth of product offering,
product quality, customer service and location. We also compete
with gift and other specialty retailers with our non-floral
products. Nortech's Internet order-generation businesses faces
significant competition from many other companies whose financial
resources are superior to that of Nortech, who provide similar
services, such as Bachman's.
GOVERNMENT REGULATION
Nortech is subject to laws and regulations that are applicable to
various Internet activities. There are many legislative and
regulatory proposals under consideration by federal, state, local
and foreign governments and agencies, including matters relating
to online content, Internet privacy, Internet taxation, access
charges, liability for information retrieved from or transmitted
over the Internet, domain names, database protection, unsolicited
commercial e-mail messages and jurisdiction. New regulations may
increase our costs of compliance and doing business, decrease the
growth in Internet use, decrease the demand for our services or
otherwise have a material adverse effect on our business.
Nortech is also subject to federal, state and local
environmental, health and safety laws and regulations. Under
environmental laws, we may be responsible for investigating and
remediating environmental conditions relating to conditions at
the numerous real properties at which we operate. These
obligations could arise whether we own or lease the property. We
are not aware of any pending federal environmental legislation
that we expect to have a material adverse impact on our company.
Item 2. Management's Discussion and Analysis of Plan of
Operations
The following discussion and analysis provides information that
management of Nortech believes is relevant to an assessment and
understanding of the Company's results of operations and
financial condition. This discussion should be read in
conjunction with the accompanying audited financial statements
and footnotes.
FORWARD LOOKING STATEMENTS
Certain statements contained herein are forward-looking
statements within the meaning of the Securities Act of 1933 and
the Securities and exchange Act of 1934 that involve a number of
risks and uncertainties. Such forward-looking information may be
indicated by words such as will, maybe, expects or anticipates.
In addition to the factors discussed herein, among the other
factors that could cause Nortech's actual results to differ
materially from current expectations are the following: business
conditions and growth in the plant protection industry and the
general economy; competitive factors such as rival manufacturers
and sellers of plant and tree protection products and price
pressures; availability of product component chemicals at
reasonable prices; inventory risks due to shifts in market
demand; and risks presented from time to time in reports filed by
Nortech with the Securities and Exchange Commission, including,
but not limited to Nortech's audited financial statements for the
year ended December 31, 1999, enclosed herein.
GENERAL
Nortech has developed, introduced and marketed a ready to use
deer repellent called TREE GUARD. It is formulated to discourage
animals from browsing on plants such as flowers, shrubs and
trees. Nortech believes based on it own testing and experience
that TREE GUARD fills a significant niche in the commercial as
well as lawn and garden repellent market.
TREE GUARD sales occur primarily among independent lawn and
garden centers (51%). The second largest segment is commercial
(26%) which consists of forestry and professional accounts. The
TREE GUARD formula is sold and marketed under two alternate brand
names commonly referred to as private brands. They are "This One
Works" and "Grants Deer Repellent".
The largest market segment is retail lawn and garden centers
served by independent lawn and garden distributors. Nortech's
independent distributors sell to lawn and garden retailers.
Bachman's is an example of the lawn and garden retailer in the
Minneapolis area.
Besides TREE GUARD sales, Nortech marketed private brand products
to Voluntary Purchasing Group and Grant's. Voluntary Purchasing
Group sells to independent lawn and garden markets. "This One
Works" consisted of ten percent of sales and Grant's Deer
Repellent consisted of eighteen percent of sales in the year
ending December 31, 1999.
Grant's was added as a private brand distributor in order to
penetrate the mass merchandise market. Grant's is a wholly owned
subsidiary of Central Garden and Pet, a major distributor in the
green industry. Central Garden & Pet Company is headquartered in
Lafayette, California. It has 28 regional offices across the
United States with three hundred salesmen. Grant's was selected
as a partner because it markets to mass merchandisers like Wal-
Mart. Nortech has not been successful in penetrating the mass
merchandise market. The arrangement with Grant's allowed Nortech
to begin participating in the mass merchandise market without the
usual exposure to mass merchandiser performance and pricing
policies. Sales to Grants constituted thirteen percent of sales
in 1998 and 1999.
On February 3, 2000, Nortech purchased all of the outstanding
stock of FL Floral, Inc. and Floral, Inc., and began operating a
chain of "Stems and Vines" retail floral stores along with a
floral sales Internet web site. Simultaneously with the
acquisition of FL Floral, Inc. and Floral, Inc., Nortech sold all
of the assets and goodwill associated with its animal repellent
business, and began to focus on operating the floral stores and
expanding the commerce on its Internet site.
RESULTS OF OPERATIONS
Year Ended December 31, 1998 Compared to Year Ended December 31,
1999
Sales for the year ended December 31, 1999 were $789,119 compared
to $712,461 reported in 1997. The increased sales were a direct
result of targeting the best independent distributors and then
working with them to sell TREE GUARD. Nortech attended an
increased number of distributors shows and regional trade shows.
Nortech conducted a limited direct mail campaign to garden
centers and garden writers. Nortech offered seasonal sales
discounts and dating to traditional independent distributors.
Gross profit for the year ended December 31, 1999 was $531,255 or
67.5% of sales as compared to $475,348 or 66% for 1998. The
increase in margin is a result of increased direct sales of TREE
GUARD and production efficiencies associated with increased
volume.
Sales and marketing expense increased to $197,096 during the year
ended December 31, 1999, compared to $160,066 during 1998. The
increase is made up almost entirely of advertising and public
relations.
Administrative Expense decreased to $235,553 during the year
ended December 31, 1999, compared to $273,546 during 1998.
Interest expense decreased to $22,230 for the year ended December
31, 1999, down from $31,682 during 1998.
Nortech incurred a net loss of $28,832 or $(.01) per share, for
the year ended December 31, 1999, compared to a net income of
$13,538 or $.01 per share, for the year ended December 31, 1998.
Although income from operations contributed $98,607 a one time
write-off of a failed acquisition of $109,445 created the net
loss for 1999.
Liquidity and Capital Resources
At December 31, 1998, Nortech had current assets of $238,907 and
current liabilities of $224,867, resulting in a working capital
surplus of $14,040, compared to current assets of $275,071 and
current liabilities of $189,045, resulting in a working capital
surplus of $86,026. The increase in working capital is primarily
attributable to the sale of common stock.
Nortech's primary source of financing has been proceeds from
sales of equity and receivable financing. Nortech continues to
pursue an equity infusion from a private offering of its common
stock.
During the first half of 2000, Nortech intends to raise
additional capital through private offerings or debt financing.
Furthermore, Nortech believes that, in order to achieve
aggressive market penetration objectives it may be required to
raise additional capital during 2000. No assurances can be given
that Nortech will be successful in acquiring short-term or long-
term financing necessary for operations, or that such a sales
program will be successful. Failure to obtain the necessary
financing will materially adversely affect Nortech's ability to
continue operations.
PLAN OF OPERATIONS
Nortech is engaged in the business of retail sales of flowers and
gifts through its twelve retail locations in the Minneapolis/St.
Paul metropolitan area, telephone sales, and e commerce sales
through its Internet web site. Nortech has recently shifted its
business emphasis to retail floral sales.
Nortech has financed its operations to date through the sale of
its securities. Nortech's plan of operations over the next 12
months to expand its retail presence and to promote Internet
sales from its e-commerce web site. This will require the raising
of additional capital, and there can be no assurance that Nortech
will be able to raise the capital required to accomplish these
goals. The predecessor to the floral business, FL Floral, Inc.
and FL Flowers, Inc., generated $2,702,285 in net sales in the
year ended December 31, 1999, which resulted in a gross profit of
$1,883,818. Management predicts that Nortech's cash flow will be
equal to or surpass these figures for the current fiscal year.
Nortech will rely on this pro forma cash flow, and additional
equity financing to satisfy its cash requirements during the next
twelve months. There can be no assurance that Nortech will be
successful in raising additional equity financing. Nortech
intends to undertake a subsequent private placement of its common
stock in order to raise future development and operating capital.
Nortech depends upon capital to be derived from future financing
activities such as subsequent offerings of its stock. Nortech
anticipates no research and development costs over the next
twelve months. Nortech does not expect the purchase or sale of
plant or any significant equipment, and it does not anticipate
any change in the number of its employees. Nortech has no current
material commitments, except for its employment contracts with
management.
Item 3. Description of Property
Nortech leases approximately 1,650 square feet of office space in
a light industrial complex in the Saint Paul Midway area.
Nortech's current lease expires October 30, 2001. Under the
current lease, gross monthly rent is $1,700 including utilities,
janitorial service and property taxes.
Management believes Nortech's current facility, or a similar
facility, can accommodate its needs, for the foreseeable future.
Nortech leases a central production facility is located at 2509
West County Road B, Roseville, MN 55113, consisting of 10,701
square feet of warehouse space and 512 square feet of office
space, for a 36 month term which expires on October 31, 2001, at
a monthly rental of $4,616.02. The monthly rent will increase to
$4800.66 on November 1, 2000.
Nortech owns office equipment, computer systems, and leasehold
improvements on its retail floral stores. It holds leases on each
of its locations, which are all entered into with unrelated
parties, with the exception of 1822 East Lake Street,
Minneapolis, MN, which is leased to Nortech by FL Properties,
LLC, a Minnesota limited liability company beneficially owned by
C.E.O. Donald Lindstedt and president Steve Fahrner. A schedule
of the leases is as follows:
Location Term Monthly Rent
Stems and Vines on Grand Exp. 11/30/03 $1,250 plus taxes
949 Grand Avenue
St. Paul, MN 55105
JDB Florist Exp. 1/31/01 $1,525
515 Owens
Stillwater, MN 55082
Holm & Olson Month to Month $1,750 plus taxes
Carriage Hill Plaza
Holm&Olson
Lowry Medical Building
350 St. Peter Street
St. Paul, MN 55102
(1000 square feet)
Holm & Olson Exp. 2000 $2,315.33 plus taxes
2100 North Snelling and 7% gross sales
Roseville, MN 55113
Rossi's Floral Shop Exp. 8/31/04 $1,255.00 plus
common area
386 West Bernard Street
West St. Paul, MN 55118
1,250 square feet
Lake Elmo Floral Month to Month $1,500
3479 Lake Elmo Blvd.
Lake Elmo, MN 55042
Northfield Floral Month to Month $2,000
640 South Water Street
Riverpark Mall
Northfield, MN 55057
Stems and Vines of
White Bear Lake Exp. 6/20/02 $1,673
1971 Whitaker Street
White Bear Lake, MN 55110
Julie's Stems and Vines Exp. 8/31/2001 $1,765 plus common
813 West 50th Street area charges
Minneapolis, MN 55419
1,253 square feet
Cedar Lake Floral Exp. 3/31/2004 $3,183 plus taxes
1822 East Lake Street
Minneapolis, MN 55419
Rosacker's Flowers and Gifts Exp. 10/31/2003 $5,462.08
2315 18th Avenue NE With option to
Minneapolis, MN 55418 triple net
6013 square feet
Valerie's Fresh Flowers Exp.12/31/00 $2,698
582 Prarie Center Drive
Eden Prarie, MN 55344
Item 4. Securities Ownership of Certain Beneficial Owners and
Management
The following table sets forth certain information regarding the
beneficial ownership of the shares of Common Stock of the Company
as of the end of the fiscal year, 1998, by (I) each person who is
known by the Company to be the beneficial owner of more than five
percent (5%) of the issued and outstanding shares of common
stock, (ii) each of the Company's directors and executive
officers, and (iii) all directors and executive officers as a
group.
Name and Address Number of Shares Percentage Owned
---------------- ---------------- ----------------
Don Lindstedt 1,522,967 18.835%
Post Office Box 15103
Minneapolis, MN 55145
Steve Fahrner 1,522,966 18.835%
Post Office Box 15103
Minneapolis, MN 55145
Gary Borglund 100,000 1.24%
400 South 4th Street
Minneapolis, MN 55415
Calvin Blanchard 100,000 1.24%
Post Office Box 15103
Minneapolis, MN 55145
Richard Neslund 561,315 7%
15210 Wayzata Blvd.
Wayzata, MN 55391
All directors and
officers as a group 3,305,933 40.15%
_____________
Based on 8,084,354 shares outstanding as of May 24, 2000
Item 5. Directors, Executive Officers, Promoters and Control
Persons
Directors are elected by the shareholders to terms of one year.
Officers serve at the pleasure of the Board of Directors, and
serve one year terms unless removed by the Board prior to their
terms. On February 3, 2000, pursuant to the share purchase
agreement with FL Floral and Floral, Inc., the Board of Directors
of Nortech appointed Don Lindstedt and Steven Fahrner as the
provisional Board of Directors, to serve until the next election.
The Executive Officers of Nortech and their ages are as follows:
Name Age Position
Don Lindstedt 47 Director, CEO
Gary L. Borglund 52 Chairman
Steven Fahrner 47 President, Director,
Operating Officer
Calvin E. Blanchard 47 Chief Operating officer
Secretary, Director
Don Lindstedt. Mr. Lindstedt is the Director, and Chief Executive
Officer of Nortech since February 3, 2000. Prior to February 3,
2000, he was the Chief Executive Officer of FL Flowers, Inc. and
FL Floral, Inc., from December 1, 1998 through February 3, 2000.
From 1996 through May, 1999 he was a partner in REM Rehab-
ilitation, a rehabilitation company, where he was Chief Operating
Officer of an $8 million four state operation with nearly 200
employees. From 1994 through 1996, he was owner and Chief
Financial Officer of Comprehension Rehabilitation, Inc. From 1995
though 1998 he was Co-founder and owner of Infinite Health,
L.L.C. From 1993 through 1995, he was Vice President/Operations
of Express Systems, Inc. From 1990 through 1993, he was General
Manager for River Ridge Rehabilitation, Inc. From 1988 through
1996, he also acted as an independent business consultant,
providing management and financial consulting services, as
President of CityView Financial Services, Inc. Mr. Lindstedt
holds a Bachelor of Arts degree in Accounting from Metropolitan
University, 1993.
Steve Fahrner. Mr. Fahrner is the President and Director of
Nortech since February 3, 2000. He was the President of FL
Flowers, Inc. and FL Floral, Inc., from December, 1998 through
February 3, 2000. From 1997 through May, 1999, he was the head of
the Physical Therapy Division of REM Rehabilitation and the
Company's clinical administrator. From 1984 through 1997, he
owned and operated Renew Rehabilitation, which he sold to his
partner upon joining REM. Mr. Fahrner holds a Bachelor of
Science degree in Physical Therapy from the University of
Wisconsin, 1976.
Gary L. Borglund. Mr. Borglund is Chairman and Director of
Nortech, since February 3, 2000, and formerly served as President
and Chief Executive Officer of Nortech, from January 3, 1998 to
February 3, 2000. He also serves as President, Director and Chief
Executive Officer of Global Games, Inc., since August 21, 1997.
He also serves as a Director of Red Oak Management Company. From
1990 through 1996, Mr. Borglund was Executive Vice President of
Northern Financial Partners, a direct mail contractor. From 1988
through 1990, he was Vice President of Sales for Greenhaven
Marketing Corp., a direct mail/insurance company. Prior to that
time, Mr. Borglund was a self employed management consultant. Mr.
Borglund attended the University of Minnesota, where he majored
in Business.
Calvin E. Blanchard. Mr. Blanchard is the Chief Operating Officer
and director of Nortech, and has been since January, 1997. He
served as Nortech's Chief Operating Officer and General Manager
since April 1994. Prior to this, from 1988 to 1994, he served as
a Pesticide Registration Supervisor with the Minnesota Department
of Agriculture. From 1986 to 1988, he served as the supervisor of
technical services for CENEX. Prior to this, from 1977 through
1979, he was employed as a crop consultant with Servi-Tech in
Kansas. Mr. Blanchard created Treeguard, the original Nortech
product, and guided Nortech through its developmental stages. He
graduated in 1977 from Iowa State with a double-major in Plant
Pathology and Pest Management. He received his M.S. in Entomology
from Texas A&M in 1981. He received an M.B.A. from Carlson School
of Business, University of Minnesota in 1986.
Item 6. Executive Compensation
Nortech has written employment agreements with its officers. The
only non_cash compensation paid by Nortech is reflected in the
following table of shares and warrants granted to executive
officers. There were no grants of options or SAR grants given to
any executive officers during the last fiscal year.
The salaries of Nortech's officers are set forth in the table
below:
Name Position Salary Bonus
Don Lindstedt CEO $87,500 0
Steve Fahrner President $87,500 0
Gary Borglund Chairman $30,000 0
Calvin Blanchard COO $87,500 0
Item 7. Certain Relationships and Related Transactions
In connection with the acquisition of the assets of FL Floral,
Inc and Fl Flowers, Inc. on February 3, 2000, Don Lindstedt was
issued 1,552,967 shares of common stock of Nortech; Steve Fahrner
was issued 1,552,966 shares of common stock, and Gary Borglund
was issued 100,000 shares of common stock.
Calvin Blanchard is the founder of the Company and could be
deemed to be its promoter. Don Lindstedt and Steve Fahrner are
the major controlling shareholders of Nortech and could also be
considered to be promoters. No other persons are known to
Management that would be deemed to be promoters.
There have been no other transactions since the beginning of
fiscal year 1999 or any currently proposed transactions, or
series of similar transactions, to which the Company was or is to
be a party, in which the amount involved exceeds $60,000,
inclusive of cash and noncash transactions, and in which any of
the officers, or directors, or holders of over 5% of the
Company's stock have or will have any direct or indirect material
interest. The Company does not currently have any policy toward
entering into any future transactions with related parties.
Item 8. Legal Proceedings
Nortech is not a party to any litigation.
Item 9. Market Price of and Dividends on the Registrant's Common
Equity and Other Shareholder Matters
MARKET INFORMATION
Nortech's Common Stock is traded in the over-the-counter market,
and is quoted on the NASD OTC Bulletin Board ("Bulletin Board"),
under the trading symbol "NRTC". The market for the Company's
Common Stock must be characterized as a limited market due to the
relatively low trading volume and the small number of brokerage
firms trading in Nortech's Common Stock and acting as market
makers. No assurance can be given that the over-the-counter
market for Nortech's securities will continue or that the prices
in such market will be maintained at their present levels.
The NASD recently added an "E" qualifier to Nortech's symbol,
making in "NRTCE," and signifying that Nortech did not comply
with the NASD's eligibility rule. If This means that if Nortech
fails to bring its financial reports with the SEC current, its
quotation on the Bulletin Board will be dropped, and Nortech will
then petition for a quotation on the pink sheets. Nortech has
recently filed its annual report on Form 10KSB, and has only to
file its quarterly report on Form 10Q for the first quarter of
2000 to be compliant. However, there is no assurance that Nortech
will accomplish this and thus remain eligible for its quote to
remain on the Bulletin Board.
The following table sets forth, for the periods indicated,
certain
information with respect to the high and low bid quotations of
Company's shares of Common Stock. The quotations represent inter-
dealer quotations without
retail markups, markdowns or commissions and may not represent
actual
transactions.
Bid
--------------------------
Quarter Ended High Low
------------- ----- -----
March 31, 1999 $.56 $.44
June 30, 1999 $.38 $.19
September 30, 1999 $.44 $.25
December 31, 1999 $.63 $.13
On March 1, 2000, the high bid and low asked prices for Nortech's
shares quoted on the Bulletin Board were $.69 and $.63,
respectively.
As of December 31, 1999, there were 4,474,130 shares of Nortech
Common Stock issued and outstanding held by approximately 300
holders of record. This number does not include shareholders
whose shares are held of record by brokerage houses and clearing
corporations on behalf of their customers.
PENNY STOCK STATUS
Nortech's common stock is a "penny stock," as the term is defined
by Rule 3a51(1)of the Securities Exchange Act of 1934. This makes
it subject to reporting, disclosure and other rules imposed on
broker_dealers by the Securities and Exchange Commission
requiring brokers and dealers to do the following in connection
with transactions in penny stocks:
1. Prior to the transaction, to approve the person's account
for transactions in penny stocks by obtaining information from
the person regarding his or her financial situation, investment
experience and objectives, to reasonably determine based on that
information that transactions in penny stocks are suitable for
the person, and that the person has sufficient knowledge and
experience in financial matters that the person or his or her
independent advisor reasonably may be expected to be capable of
evaluating the risks of transactions in penny stocks. In
addition, the broker or dealer must deliver to the person a
written statement setting forth the basis for the determination
and advising in highlighted format that it is unlawful for the
broker or dealer to effect a transaction in a penny stock unless
the broker or dealer has received, prior to the transaction, a
written agreement from the person. Further, the broker or dealer
must receive a manually signed and dated written agreement from
the person in order to effectuate any transactions is a penny
stock.
2. Prior to the transaction, the broker or dealer must
disclose to the customer the inside bid quotation for the penny
stock and, if there is no inside bid quotation or inside offer
quotation, he or she must disclose the offer price for the
security transacted for a customer on a principal basis unless
exempt from doing so under the rules.
3. Prior to the transaction, the broker or dealer must
disclose the aggregate amount of compensation received or to be
received by the broker or dealer in connection with the
transaction, and the aggregate amount of cash compensation
received or to be received by any associated person of the broker
dealer, other than a person whose function in solely clerical or
ministerial.
4. The broker or dealer who has effected sales of penny stock
to a customer, unless exempted by the rules, is required to send
to the customer a written statement containing the identity and
number of shares or units of each such security and the estimated
market value of the security. The imposition of these reporting
and disclosure requirements on a broker or dealer make it
unlawful for the broker or dealer to effect transactions in penny
stocks on behalf of customers. Brokers or dealers may be
discouraged from dealing in penny stocks, due to the additional
time, responsibility involved, and, as a result, this may have a
deleterious effect on the market for Nortech's stock.
(1) The above quotations reflect inter-dealer prices, without
retail mark up,
mark down or commission and may not represent actual
transactions.
(2) Source of information: Stockmaster Stock Quotation Service
(Stockmaster.com) and Freerealtime.com, NASD Bulletin Board.
SECURITY HOLDERS
The approximate number of record holders of shares of the common
stock of Nortech outstanding as of December 31, 1999 was 300.
DIVIDENDS
No dividends have been declared or paid on Nortech's common
stock, and Nortech does not intend to pay dividends in the near
future.
Item 10. Recent Sales of Unregistered Securities
Each of the following issuances by Nortech of the securities sold
in the transactions referred to below were not registered under
the Securities Act of 1933, as amended, pursuant to the exemption
provided under Section 4 (2) thereof for transactions not
involving a public offering.
During 1998, Nortech completed an offshore offering of common
stock for $.30 per share. Nortech issued 400,000 shares in this
offering and received subscriptions totaling $120,000. During
1999, Nortech completed an additional offshore offering of common
stock for $.50 per share. In this offering, Nortech issued
1,350,000 shares of common stock and received subscriptions of
$675,000. All of the subscriptions are still outstanding and
accrue interest at 10%, mature on various dates, and are secured
by the underlying stock. Due to the uncertainly of collecting
interest due on the subscriptions, interest has not been accrued
at December 31, 1999 and 1998.
During 1998, Nortech sold 100,000 shares of its common stock and
received proceeds of $107,460, net of issuance costs. During
1999, Nortech sold units consisting of Nortech's common stock and
warrants to purchase common stock. Nortech issued 675,000 shares
of common stock and 135,000 warrants to purchase common stock and
received proceeds of $39,960, net of issuance costs. The warrants
are exercisable for three years.
Item 11. Description of Securities
Common Stock
The Company is authorized to issue 15,000,000 shares of common
Stock at a par value of $.001. The presently outstanding shares
of Common Stock are fully paid and non-assessable. There are
currently outstanding 4,474,130 shares of Common Stock.
Holders of shares of Common Stock are entitled to one vote per
share on all matters to be voted upon by the stockholders
generally. The approval of proposals submitted to stockholders at
a meeting other than for the election of directors requires the
favorable vote of a majority of the shares voting, except in the
case of certain fundamental matters (such as certain amendments
to the Articles of Incorporation, and certain mergers and
reorganizations), in which cases Delaware law and the Company's
Bylaws require the favorable vote of at least a majority of all
outstanding shares. Stockholders are entitled to receive such
dividends as may be declared from time to time by the Board of
Directors out of funds legally available therefor, and in the
event of liquidation, dissolution or winding up of the Company to
share ratably in all assets remaining after payment of
liabilities. The holders of shares of Common Stock have no
preemptive, conversion, subscription or cumulative voting rights.
Under current Delaware law, a shareholder is afforded dissenters'
rights which, if properly exercised, may require the Company to
purchase his shares. Dissenters' rights commonly arise in
extraordinary transactions such as mergers, consolidations,
reorganizations, substantial asset sales, liquidating
distributions, and certain amendments to the Company's
certificate of incorporation.
Item 12. Indemnification of Directors and Officers
DELAWARE STATUTES
Section 145 of the Delaware General Corporation Law, as amended,
indemnifies the Company's officers and directors and affects
their liability in that capacity, for any expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation) by reason
of the fact that he is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was
unlawful.
CERTIFICATE OF INCORPORATION AND BY-LAWS
The Company's Certificate of Incorporation provides that the
directors of the Company shall be protected from personal
liability to the fullest extent permitted by law. This provision
indemnifies the Company's officers and directors and affects
their liability in that capacity, for any expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation) by reason
of the fact that he is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was
unlawful.
The Company's By-laws also contain a provision for the
indemnification of the Company's directors (see "Indemnification
of the Company's directors (see "Indemnification of Directors and
Officers-By-Laws" below.) This provision indemnifies the
Company's officers and directors and affects their liability in
that capacity, for any expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that
he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was
unlawful.
Item 13. Financial Statements
Independent Auditor's Report dated January 11, 2000
Financial Statements
Balance Sheet
Statement of Operations
Statements of Cash Flows
Statement of Changes in Stockholder's Equity
Notes to Financial Statements
Interim Unaudited financial Statements as of March 31, 2000
Balance Sheet (unaudited)
Statement of Operations (unaudited)
Statement of Cash Flows (unaudited)
Notes to Financial Statements (unaudited)
[CAPTION]
To The Board of Directors
NORTECH FOREST TECHNOLOGIES, INC.
Minneapolis, Minnesota
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheets of Nortech Forest
Technologies,
Inc. as of December 31, 1999 and the related statements of
operations, stockholders' equity and cash flows for the years
then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The
financial statements of Nortech Forest Technologies, Inc. as of
December 31, 1998, were audited by other auditors whose report
dated January 21, 1999, expressed an unqualified opinion.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Nortech Forest Technologies, Inc. as of December 31, 1999, and
the results of its operations and its cash flows for the years
then ended, in conformity with generally accepted accounting
principles.
LUND KOEHLER COX & ARKEMA, LLP
---------------------------------
Lund Koehler Cox & Arkema, LLP
Minneapolis, Minnesota
January 11, 2000
<TABLE>
<CAPTION>
NORTECH FOREST TECHNOLOGIES, INC.
BALANCE SHEETS
<S> <C> <C>
DECEMBER 31,
---------------------------
1999 1998
----------- -----------
ASSETS
------
Current assets:
Cash $ 10,812 $ 30,874
Accounts receivable 203,992 126,014
Inventories 51,847 77,269
Prepaid expenses 8,490 4,750
----------- -----------
Total current assets 275,071 238,907
----------- -----------
Furniture and equipment, net 12,896 21,098
Other assets:
Deferred offering costs 37,500 0
Security Deposit 1,665 1,665
Total other assets 39,165 1,665
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt $ 100,637 $ 58,522
Line-of-credit 27,256 77,392
Accounts payable 42,625 67,659
Accrued expenses 18,527 21,294
----------- -----------
Total current liabilities 189,045 224,867
----------- -----------
Long-term debt, net of current portion 0 27,031
----------- -----------
Total liabilities 189,045 251,898
----------- -----------
Stockholders' equity:
Preferred stock, par value $.01 per share, 500,000 shares
authorized; none issued and outstanding 0 0
Common stock, par value $.01 per share, 15,000,000 shares
authorized, 4,474,130 and 2,169,130 shares issued
and outstanding 44,741 21,691
Additional paid-in capital 2,585,369 1,843,772
Subscriptions receivable (727,500) (120,000)
Accumulated deficit (1,764,523) (1,735,691)
----------- ----------
Total stockholders' equity 138,087 9,772
----------- ----------
$ 327,132 $ 261,670
=========== ===========
<FN> See Accompanying Notes to Financial Statements
</TABLE>
[CAPTION]
NORTECH FOREST TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<S> <C> <C>
YEARS ENDED DECEMBER 31,
-----------------------------
1999 1998
----------- -----------
Sales $ 789,119 $ 712,461
Cost of sales 257,863 237,113
----------- -----------
Gross profit 531,256 475,348
----------- -----------
Operating expenses:
Administrative expenses 235,553 273,546
Sales and marketing 197,096 160,066
----------- -----------
Total operating expenses 432,649 433,612
----------- -----------
Income from operations 98,607 41,736
Other income (expense): (22,230) (31,682)
Interest expense
Other income 4,236 3,484
Write-off of failed acquisition costs (109,445) 0
----------- -----------
Total other income (expense) $ (127,439) $ (28,198)
=========== ===========
Net income (loss) before income taxes (28,832) 13,538
Provision for income taxes 0 0
Net income (loss) $ (28,832) $ (13,538)
=========== ===========
Basic and diluted earnings (loss) per common share $ (0.01) $ .01
diluted earnings (loss) per common share 3,234,711 2,022,255
=========== ===========
<FN> See Notes to Financial Statements
</TABLE>
[CAPTION]
NORTECH FOREST TECHNOLOGIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCK
---------------- PAID-IN SUBSCRIPTION ACCUMULATED
SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT TOTAL
------ ------ ------- ------------ ---------- ------
BALANCE, December 31, 1997 1,762,880 $17,629 $1,842,907 $ -- $(1,749,229) $111,307
Redemption of common stock 93,750 (938) (149,062) -- -- (150,000)
Issuance of common stock, net of
issuance costs 500,000 5,000 149,927 (120,000) - 34,927
Net income -- -- -- -- 13,538 13,538
------ ------ ------- ------------ ---------- ------
BALANCE, December 31, 1998 2,169,130 21,691 1,843,772 (120,000) (1,735,691) 9,772
Issuance of common stock, net
of issuance costs 2,025,000 20,250 694,710 (607,500) -- 107,460
Shares issued for services
Rendered 280,000 2,800 46,887 -- -- 49,687
Net loss -- -- -- -- (28,832) (28,832)
------ ------ ------- ------------ ---------- ------
BALANCE, December 31, 1999 4,474,130 $44,741 $2,585,369 $(727,500) $(1,764,523)$138,087
====== ======= ======= ============ =========== =======
<FN> See accompanying notes to financial statements
</TABLE>
[CAPTION]
NORTECH FOREST TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
Increase (Decrease) In Cash
<TABLE>
<S> <C> <C>
YEARS ENDED DECEMBER 31,
-------------------------
1999 1998
--------- ---------
Cash flows from operating activities:
Net income (loss) $(28,832) $(13,538)
Adjustments to reconcile net income (loss) to net cash
flows from operating activities:
Depreciation 9,807 10,846
Issuance of common stock for services rendered 12,187 0
Issuance of notes payable for services rendered 0 7,500
Changes in operating assets and liabilities:
Accounts receivable (77,908) 89,405
Inventories 25,422 3,755
Prepaid expenses (3,740) 606
Other assets 0 3,484
Accounts payable (25,034) (3,188)
Accrued expenses 2,676 2,138
Cash flows from operating activities (90,865) (128,084)
--------- ---------
Cash flows from investing activities:
Purchase of furniture and equipment (1,605) 0
Net cash flows from investing activities (1,605) 0
--------- ---------
Cash flows from financing activities:
Net increase (decrease in lien of credit 42,115 (93,358)
Payments of long-term debt (77,167) (53,077)
Proceeds from issuance of common stock, net
of issuance costs (107,460) 34,927
--------- ---------
Cash flows from financing activities 72,408 (111,508)
--------- ---------
Increase (decrease in cash (20,062) 16,576
Cash, beginning of year 30,874 14,298
Cash, beginning of year $ 10,812 $ 30,874
========= =========
Supplemental cash flows information:
Cash paid for interest $ 22,829 $ 30,910
Cash paid for income taxes 0 0
Non-cash investing and financing activities:
Stock subscriptions receivable received from
issuance of common stock, net of issuance costs $ 607,500 $ 120,000
Issuance of common stock for deferred offering costs $ 37,500 $ 0
Redemption of common stock and reimbursement for
services rendered through issuance of common stock $ 0 $ 157,500
========= =========
<FN> See accompanying notes to financial statements
</TABLE>
[CAPTION]
NORTECH FOREST TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1. GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Nature of Business-
Nortech Forest Technologies, Inc. (Nortech), manufacturers and
markets Tree Guard(R) brand deer repellent and is engaged in the
development of
products designed to protect plants, trees and landscaping from
damage by animals and certain acts of nature.
In addition to Tree Guard(R), the Company sells a deer repellent
to Voluntary Purchasing Groups (VPG) of Bonham, Texas, and Grant
Laboratories of San Leandro, California, under private label
agreements. Under these agreements, the Tree Guard(R) formulation
is sold in bulk, tanker truckloads, for repacking under the
Ferti-lome "This 1 Works" brand name owned by VPG and "Grants
Deer Repellent" brand name owned by Grant Laboratories (see note
9)
Accounts receivable - The Company considers all accounts
receivable to be fully collectible, accordingly, no allowance for
uncollectible accounts has been established. If accounts became
uncollectible, they are charged to operations when that
determination is made. The Company extends unsecured credit to
customers in the normal course of business.
Inventories - Inventories are recorded at the lower of cost
(first-in, first out) or market value.
Depreciation - Property and equipment are recorded at cost.
Depreciation is provided for using straight-line method over
periods ranging from three to seven years. Maintenance, repairs
and minor renewals are expensed when incurred.
Advertising costs - Advertising costs are charged to expense as
incurred. Advertising expense for the years ended December 31,
1999 and 1998 was $59,877 and $27,557.
Earnings per common share - During 1999, the Company adopted
Statement of Financial Accounting Standards No. 128 "Earnings Per
Share" (Statement 128). Statement 128 requires disclosures of
basic earnings (loss) per share (EPS) and diluted EPS. Basic EPS
is computed by dividing net income (loss) by the weighted average
number of shares of common stock outstanding during the year.
Diluted EPS is computed by dividing net income by the weighted
average common shares outstanding and dilutive common equivalent
shares assumed to be outstanding during each period. Dilutive
common stock equivalents are not included in computations of
diluted EPS if their inclusion would be antidilutive.
Antidilutive common equivalent shares issuable based on future
exercise of stock options and warrants could potentially dilute
EPS in future years.
Management's use of estimates - The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
<PAGE>F-6
the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
Fair value of financial instruments - The carrying amounts for
all financial instruments approximates fair value. The carrying
amounts for cash, accounts receivable, accounts payable and
accrued expenses approximate fair value because of the short
maturity of these instruments. The fair value of debt
approximates the current rates at which the Company could borrow
funds with similar remaining maturities.
Reclassifications - Certain accounts in the prior year financial
statements have been reclassified for comparative purposes to
conform with the presentation in the current year financial
statements. These reclassifications had no effect on net income
or stockholders' equity.
(2) INVENTORIES
Inventories consisted of the following at December 31:
1999 1998
-----------------------
Raw materials $ 37,123 $ 55,638
Finished goods 14,724 21,631
-----------------------
Total inventories $ 51,847 $ 77,269
-----------------------
(3) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at
December 31:
1999 1998
-----------------------
Furniture and fixtures $ 33,356 $ 33,356
Office equipment 24,288 22,683
Warehouse equipment 6,639 6,639
Less: accumulated depreciation (51,387) (41,580)
-----------------------
Total property and equipment $ 12,896 $ 21,098
-----------------------
(4) LINE OF CREDIT
The Company has a $200,000 revolving line of credit with Itasca
Business Credit, LLC, which is due on demand. The Company can
obtain advances of up to 75% of accounts receivable to a maximum
of $200,000. Borrowings under the revolving line of credit bear
interest at prime plus 9% (17.5% at December 31, 1999) and are
secured by substantially all of the Company's assets.
Outstanding Borrowings were $100,637 and $58,522 at December 31,
1999 and 1998.
<PAGE>F-7
(5) LONG-TERM DEBT
Long-term debt consists of a note payable issued to a former
employee as part of a lawsuit settlement. The note is payable in
monthly installments of $7,000, bears interest at 9.5%, matures
in 2000 and is secured substantially all of the Company's assets.
The outstanding balance was $27,256 and $104,423 at December 31,
1999 and 1998.
(6) INCOME TAXES
The Company has incurred net operating losses for both financial
reporting and income tax purposes. As of December 31, 1999, the
Company had net operating loss carryforwards of approximately
$1,763,000, which, if not used, will begin to expire in 2007.
Future changes in the ownership of the Company may place
limitations on the use of these net operating loss carryforwards.
The Company has recorded a full valuation allowance against the
net deferred tax asset due to the uncertainty of realizing the
related benefits.
1999 1998
--------- -----
Net operating loss carryforwards $ 705,000 $ 684,400
Less: valuation allowance (705,000) (684,400)
--------- -----
Net deferred taxes $ 0 $ 0
(7) STOCKHOLDER'S EQUITY
Regulation S offerings-During 1998, the Company completed an
offering of common stock for $.30 a share. The Company issued
400,000 shares of common stock and received stock subscription
agreements totaling $120,000. During 1999, the Company completed
an additional offering of common stock for $.50 a share. The
Company issued 1,350,000 shares of common stock and received
stock subscription agreements totaling $675,000 and incurred
$67,500 of issuance costs. These costs will be paid as proceeds
from collection of the stock subscriptions are received. All of
the outstanding stock subscription agreements accrue interest at
10%, mature at various dates through July 2000 and are secured by
the underlying common stock. Due to the uncertainty of collecting
interest on the notes, interest has not been accrued at December
31, 1999 and 1998.
Sales of common stock-During 1998, the Company sold 100,000
shares of its common stock and received proceeds of $34,927, net
of issuance costs. During 1999, the Company sold units consisting
of the Company's common stock and warrants to purchase common
stock. The Company issued 675,000 shares of common stock and
135,000 warrants to purchase stock at $.80 per share and received
proceeds of $107,460, net of issuance costs. The warrants are
exercisable for three years.
<PAGE>F-7
Stock warrants-Outstanding stock warrants consisted of the
following:
Number of Per share
Warrants Price
----------- -----------
Outstanding-December 31, 1997 249,088 $1.50-$4.00
Granted 0 .00
Canceled or expired (50,000) 1.00
----------- ------------
Outstanding-December 31, 1998 199,088 $1.50-$4.00
Granted 135,000 .80
Canceled or expired (100,000) 1.30
----------- ------------
Outstanding-December 31, 1999 234,088 $ .80-$4.00
Stock option plan - The Company has a qualified stock option
plan, which authorizes a maximum of 200,000 shares of common
stock for issuance under the plan. The Board of Directors may
grant options at their discretion, provided the purchase price of
the option equals the market price of the Company's stock on the
date of the grant. In addition, the Company has nonqualified
stock option plan that allows for issuance of 200,000 shares of
common stock under the plan under terms outlined in the
agreement. The options under both plans are exercisable for a
period of ten years from the date of grant and vest over various
periods.
Information regarding the Company's stock options is summarized
below:
<TABLE>
<S> <C> <C> <C>
Weighted Range of
Number of Average Option
Options Exercise Price Exercise Price
-----------------------------------------------
Options outstanding - December 31, 1997 153,938 $ 1.60 $ 1.50-4.00
Granted 75,000 1.60 1.60
Canceled or expired (2,500) 1.00 1.00
Exercised 0
---------- ---------- ------------
Options outstanding - December 31, 1998 226,438 1.61 1.50-4.00
Granted 0 - -
Canceled or expired 0 - -
Exercised 0 - -
---------- ---------- ------------
Options outstanding - December 31, 1999 226,438 1.61 1.50-4.00
---------- ---------- ------------
Options exercisable - December 31, 1999 226,438 1.61 1.50-4.00
Weighted average fair value of options granted
during the year ended December 31, 1999. $ .00
</TABLE>
<PAGE>F-8
Options outstanding at December 31, 1999 have a weighted average remaining
contractual life of 7.56 years.
The Company applies APB Opinion 25 "Accounting for Stock Issued to Employees"
and related Interpretations in accounting for its stock options. Accordingly,
no compensation cost has been recognized for its stock options. Had
compensation cost for the Company's stock options been determined based on the
fair value at the grant dates consistent with the method of Statement of
Financial Accounting Standards No. 123 "Accounting for Stock Based
Compensation" (Statement 123), the Company's net income (loss) and EPS would
not have changed.
In determining the compensation cost of the options granted during 1998, as
specified by Statement 123, the fair value of each option grant has been
estimated on the date of grant using the Black-Scholes option pricing model
and the weighted average assumptions used in these calculations are summarized
below:
Risk free interest rate 6.50%
Expected life of the options granted 10 years
Expected volatility of options granted 25%
Expected dividend yield 0.00%
(8) COMMITMENTS AND CONTINGENCIES
Operating leases - The Company leases office space under a lease
expiring October 2001. Base rent is $1,700 per month, increasing to $1,734
during the term of the lease. In addition, the lease requires the Company to
pay its pro rata share of real estate taxes. Rent expense was $20,770 and
$24,000 for the years ended December 31, 1999 and 1998.
Future minimum rental payments are as follows for the years ending December
31:
2000 $ 20,465
2001 17,344
---- ------
Total $ 37,809
Major customers - The Company had sales to two customers representing
approximately 26% of total sales for the year ended December 31, 1998. The
Company had accounts receivable from five customers representing approximately
66% of total accounts receivable at December 31, 1999 and accounts receivable
from four customers representing approximately 76% of total accounts
receivable at December 31, 1998.
Employment agreement - The Company has an employment agreement with one of its
officers. The agreement requires minimum annual compensation of $65,000
through December 2000.
(9) SUBSEQUENT EVENTS (UNAUDITED)
Sale of Tree Guard(R) Assets - On February 3, 2000, the Company sold all of
the assets, net of certain liabilities associates with its Tree Guard brand
deer repellant, including accounts receivable, inventories and certain prepaid
expenses for $850,000.
<PAGE>F-9
Acquisition of FL Floral, Inc. and FL Flowers, Inc. - On February 4, 2000, the
Company acquired 100% of the outstanding stock of FL Floral, Inc. and FL
Flowers, Inc. The Company issued 3,206,245 shares of common stock for these
acquisitions. The purchase agreement contains stock incentives based on future
sales up to a maximum of 6,412,474 shares of common stock. In conjunction with
the purchase, the Company entered into employment agreements with the two
previous owners of the Fl Floral, Inc. and FL Flowers, Inc. and a current
officer of the Company. The agreements require annual compensation ranging
between $36,000 and $87,500 expiring through December 2002.
<PAGE>F-10
Item 14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
The former accountant, Stirtz, Bernards, Boyden,Surdel & Larter, did not
resign, or decline to stand for re election. It was dismissed by the Company
in June, 1999. The decision to change accountants was approved by the Board of
Directors. There were no disagreements with the former accountant on any
matter
of accounting principle, or practice, financial statements disclosure or
auditing scope or procedure. The former accountant has indicated its agreement
with the statements made by the Company concerning the change in the Company's
independent accountant. The Company has fully authorized the former accountant
to respond fully to the inquiries of the successor accountant concerning all
of the Company's financial reports and audits. The new accountant, Lund
Koehler Cox & Arkema LLP was engaged in June, 1999.
<TABLE>
<CAPTION>
NORTECH FOREST TECHNOLOGIES, INC.
BALANCE SHEETS
March 31, 2000(unaudited) and December 31, 1999
<S> <C> <C>
December 31, March 31,
1999 2000
----------- ----------
ASSETS
------
Current assets:
Cash $ 10,812 $ 403,043
Accounts receivable 203,992 317,545
Inventories 51,847 284,000
Prepaid expenses 8,490 27,025
----------- -----------
Total current assets 275,071 1,031,613
----------- -----------
Property and equipment
Furniture and equipment, net 12,896 549,444
----------- -----------
Total property and equipment 12,896 549,444
Other assets:
Deferred offering costs 37,500 0
Goodwill 0 333,655
Security Deposit/Start up costs 1,665 77,957
----------- -----------
Total other assets 39,165 411,612
Total Assets $ 327,132 $ 1,992,669
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt $ 100,637 $ 0
Line-of-credit 27,256 0
Accounts payable 42,625 418,380
Taxes payable 0
16,318
Accrued wages 0
48,640
Accrued expenses 18,527 47,395
----------- -----------
Total current liabilities 189,045 530,733
----------- -----------
Long-term debt, net of current portion 0 823,648
----------- -----------
Total liabilities 189,045 1,354,381
----------- -----------
Stockholders' equity:
Preferred stock, par value $.01 per share, 500,000 shares
authorized; none issued and outstanding 0 0
Common stock, par value $.01 per share, 15,000,000 shares
authorized, 4,474,130 shares issued
and outstanding 44,741 244,741
Additional paid-in capital 2,585,369 2,585,369
Subscriptions receivable (727,500) ( 765,000)
Accumulated deficit (1,764,523) (1,849,142)
Net income 0 422,320
----------- ----------
Total stockholders' equity 138,087 638,288
----------- ----------
Total liabilities and equity $ 327,132 $1,992,669
=========== ===========
</TABLE>
<PAGE>F-2
[CAPTION]
NORTECH FOREST TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<S> <C> <C>
March 31, March 31,
1999 2000
----------- -----------
Sales $ 164,856 $ 918,704
Cost of sales 67,646 324,050
----------- -----------
Gross profit 97,210 594,654
----------- -----------
Operating expenses:
Administrative expenses 57,118 706,833
Sales and marketing 42,765 114,653
----------- -----------
Total operating expenses 99,883 821,486
----------- -----------
Income from operations (2,673) (226,832)
Other income (expense):
Interest expense (7,059) (21,264)
Interest income 94 0
Other income 0 7,142
Sale of Tree Guard assets 749,488
Marketing - Mall of America (21,251)
Depreciation
(25,591)
Prior year adjustments (39,370)
----------- -----------
Total other income (expense) $ (7,153) $ 649,154
=========== ===========
Net income (loss) before income taxes (9,638) 422,322
Provision for income taxes 0 0
Net income (loss) $ ( 9,638) $ 422,322
============ ============
Basic and diluted earnings (loss) per common share $ (0.01) $ .05
============ ============
Outstanding shares of common stock 4,474,130 8,084,354
<PAGE>F-3
</TABLE>
[CAPTION]
NORTECH FOREST TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED MARCH 31, 1999 AND 2000
<TABLE>
<S> <C> <C>
March 31
-------------------------
1999 2000
--------- ---------
Cash flows from operating activities:
Net income (loss) $( 9,638) $422,322
Adjustments to reconcile net income (loss) to net cash
flows from operating activities:
Depreciation 2,432 39,370
Changes in operating assets and liabilities:
Accounts receivable (6,686) 403,043
Inventories 23,263 284,000
Prepaid expenses 0 27,025
Other assets 39,165 411,612
Accounts payable (9,932) 418,380
Accrued expenses (2,475) 47,395
------- ------------
Cash flows from operating activities ( 920) 1,169,133
------- ------------
Cash flows from investing activities:
Purchase of furniture and equipment 0 0
Net cash flows from investing activities 0 0
------- -------------
Cash flows from financing activities:
Net increase (decrease) in line of credit 6,152 0
Payments of long-term debt 0 0
------- -------------
Cash flows from financing activities 6,152 0
------- ------------
Net increase (decrease) in cash (12,393)
Cash, beginning of period 30,874 10,812
Cash, end of period $ 10,812 $ 30,874
========= ============
Supplemental cash flows information:
</TABLE>
[CAPTION]
NORTECH FOREST TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
PERIOD ENDED MARCH 31, 2000
1. CONDENSED FINANCIAL STATEMENTS
The financial statements included herein have been prepared by Nortech Forest
Technologies, Inc., without audit, pursuant to the rules and regulations of
the Securities Exchange Commission. Certain information and note disclosures
normally included in financial statements have been prepared in accordance
with generally accepted accounting principles have been condensed or omitted
as allowed by such rules and regulations. Nortech Forest Technologies, Inc.
believes that the disclosures are adequate to make the information presented
not misleading. It is suggested that these financial statements be read in
conjunction with the December 31, 1999 audited financial statements and the
accompanying notes thereto.
Management of Nortech Forest Technologies, Inc. believes that the accompanying
financial statements contain all adjustments necessary to present fairly the
operations and cash flows for the periods presented.
2. SALE OF TREE GUARD ASSETS AND ACQUISITION OF FLORAL BUSINESS ASSETS
Sale of Tree Guard(R) Assets - On February 3, 2000, the Company sold all of
the assets, net of certain liabilities associates with its Tree Guard brand
deer repellant, including accounts receivable, inventories and certain prepaid
expenses for $850,000.
Acquisition of FL Floral, Inc. and FL Flowers, Inc. - On February 4, 2000, the
Company acquired 100% of the outstanding stock of FL Floral, Inc. and FL
Flowers, Inc. The Company issued 3,206,245 shares of common stock for these
acquisitions. The purchase agreement contains stock incentives based on future
sales up to a maximum of 6,412,474 shares of common stock. In conjunction with
the purchase, the Company entered into employment agreements with the two
previous owners of the Fl Floral, Inc. and FL Flowers, Inc. and a current
officer of the Company. The agreements require annual compensation ranging
between $36,000 and $87,500 expiring through December 2002.
Item 15. Exhibits, Financial Statements
(a)Report of Independent Certified Public Accountant dated January 11, 2000
Financial Statements
Balance Sheets
Statement of Loss And Accumulated Deficit
Statements of Stockholder's Equity
Statements of Cash Flows
Notes to Consolidated Financial Statements
(b) Reports on Form 8-K
March 31, 2000
April 13, 2000 (amended)
(c) Exhibits
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Nortech Forest Technologies, Inc.
DON LINDSTEDT
By___________________________________
DON LINDSTEDT, C.E.O. and Director
Date: May 30, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
------------------- ------ ----
Don Lindstedt CEO, Director May 30, 2000
Steve Fahrner President, Director May 30, 2000
Gary Borglund Chairman, Director May 30, 2000
Calvin E. Blanchard COO, Director May 30, 2000
[CAPTION]
NORTECH FOREST TECHNOLOGIES, INC.
EXHIBIT INDEX TO FORM 10-SB
<TABLE>
<S> <C> <C>
PAGE NUMBER IN SEQUENTIALLY
NUMBERED FORM 10-KSB OR
ITEM NO. ITEM INCORPORATION BY REFERENCE TO
-------- ---- -----------------------------
3.1 Certificate of Incorporation of the Exhibit 3.1 to Nortech's Form
Company, as amended 10-KSB for the fiscal year ended 12/31/95
3.2 Bylaws of Nortech, as amended Exhibit 3-2 to Nortech's Form
10-KSB for the fiscal year ended 12/31/93
10.1* 1995-1996 Incentive Stock Option Exhibit 10-1 to Nortech's Form
Plan and form of Agreement 10-KSB for the fiscal year ended 12/31/95
10.2* 1995-1996 Nonqualified Stock Exhibit 10-2 to Nortech's Form
Option Plan and form of Agreement 10-KSB for the fiscal year ended 12/31/95
10.3* Employment Agreement dated /98 Exhibit 10.3 to Nortech's Form
with Calvin E. Blanchard 10-KSB for the fiscal year ended 12/31/95
10.4 Toll Manufacturing and Packaging Exhibit 10-3 to Nortech's Form
Agreement with Dyno Polymers 10-KSB for the fiscal year ended 12/31/94
Minnesota Incorporated dated 4/5/94
10.5 Security Agreement dated 7/30/97 ----
between Nortech Forest Technologies, Inc.
and Itasca Business Credit
10.6 Security Agreement dated 3/6/98 ----
between Nortech Forest Technologies, Inc.
and Samuel D. Garst
10.7 Repackaging Agreement dated 7/3/96 with Voluntary ----
Purchasing Groups (VPG)
10.8** Distribution/Repackaging Agreement dated 8/1/96 ----
with LESCO, Inc.
10.9 Technology Licensing Agreement dated 11/1/96 with ----
Macfarlan Smith Ltd.
10.10** Supply Agreement dated 11/1/96 with
Macfarlan Smith Ltd. ----
10.11 Investment Agreement dated 10/9/96
with Richard Neslund ----
10.12 Employment agreement of Don Lindstedt
dated Janaury 1, 2000 Exhibit 1 to Form 8-K Filed April 13, 2000
10.13 Employment agreement of Steven Fahrner
dated January 1, 2000 Exhibit 2 to Form 8-K Filed April 13, 2000
10.14 Employment agreement of Gary Borglund
dated February 3, 2000 Exhibit 3 to Form 8-K Filed April 13, 2000
16 Letter on change in certifying accountant
(To be filed within 10 business days of the
filing of this report)
27 Financial Data Schedule (filed with electronic version ----
only)
--------------------
* Management agreement or compensatory plan or arrangement.
** Confidential Treatment has been requested on certain information pertaining
</TABLE>
