UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 2000
Commission File Number 0-26673
FORESTINDUSTRY.COM, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE
(State of other jurisdiction of 98-0207081
incorporation or organization) (I.R.S. Employer Identification Number)
---------------------------------------- --------------------------------------
2480 Kenworth Road, Suite 11
Nanaimo, British Columbia V9T 3Y3
----------------------------------------- -----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including area code: (604) 632-3802
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the issuer was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days:
YES XX NO
Common stock, $.0001 par value, 13,783,666 issued and outstanding as of August
31, 2000.
<PAGE>2
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INDEX
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited) ..............................................3
ITEM 2. Management's Discussion and Analysis .........................................13
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.............................................................15
ITEM 2. Changes in Securities.........................................................15
ITEM 3. Defaults upon Senior Securities...............................................15
ITEM 4. Submission of Matters to a Vote of Security Holders...........................15
ITEM 5. Other Information.............................................................16
ITEM 6. Exhibits and Reports on Form 8-K..............................................16
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<PAGE>3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
forestindustry.com, Inc.
and Subsidiary
Condensed Consolidated Balance Sheet
(unaudited)
(in U.S. Dollars)
August 31,
2000
------------
Assets
Current:
Cash and cash equivalents $ 165,181
Accounts receivable (Net allowance for doubtful
accounts - August 31, 2000 - $21,068) 60,497
Work in process 17,266
Prepaid expenses and deposits 7,135
Due from related parties 201
------------
Total current assets 250,280
Deposit on business acquisition (Note 3) 40
Property and equipment 125,963
------------
$ 376,283
============
Liabilities and Stockholders' Equity
Current:
Accounts payable and accrued liabilities $ 143,154
Unearned revenues 47,781
------------
Total current liabilities $ 190,935
------------
Stockholders' equity:
Share capital (Note 4)
Common stock - $0.0001 par value
30,000,000 authorized; issued and outstanding:
13,783,666 (May 31, 2000- 12,966,521) 1,378
Preferred stock -$0.0001 par value
5,000,000 authorized; issued and outstanding:
200 Series "A" Convertible
and 200 Series "B" Convertible 1
Additional paid in capital 1,167,819
Deferred stock compensation (12,317)
Cumulative translation adjustment 12,766
Deficit (984,299)
------------
Total stockholders' equity $ 185,348
------------
$ 376,283
============
Commitments (Note 6)
Subsequent events (Note 7)
<PAGE>4
forestindustry.com, Inc. and Subsidiary
Condensed Consolidated Statement of Operations
(unaudited)
For the Three Months Ended August 31, 2000 and 1999
(in U.S. Dollars)
2000 1999
-------------- -------------
Revenue:
Sales $ 122,518 $ 75,620
-------------- -------------
Expenses:
Depreciation 11,828 3,944
Consulting fees 21,134 204
General and administrative 514,277 99,893
Professional fees 52,382 8,114
-------------- -------------
599,621 112,155
-------------- -------------
Net loss for the period 477,103 36,535
Deficit, beginning of period 507,196 86,445
-------------- -------------
Deficit, end of period $ 984,299 $ 122,980
============== =============
Basic and diluted loss per share ($0.07) ($0.01)
-------------- -------------
Weighted average number of shares 13,398,262 10,000,000
-------------- -------------
<PAGE>5
forestindustry.com, Inc. and Subsidiary
Condensed Consolidated Statement of Cash Flows
(unaudited)
For the Three Months Ended August 31, 2000 and 1999
(in U.S. Dollars)
2000 1999
--------- ----------
Operating Activities:
Net loss for the period (477,103) (36,535)
Adjustments to reconcile net loss to net
cash used in operating activities -
Depreciation 11,828 3,944
Shares issued for services rendered 212,500 --
Changes in operating assets and liabilities -
Accounts receivable (23,654) (430)
Prepaid expenses and deposits 2,002 (2,961)
Due from related parties (201) 108
Accounts payable and accrued liabilities 62,845 (2,983)
Unearned revenues (3,904) (1,725)
--------- ----------
Cash flows (used in) operating activities (215,687) (40,582)
--------- ----------
Investing Activity:
Acquisition of capital assets (16,095) (3,299)
--------- ----------
Financing activities:
Demand bank loan and operating line of
credit advances (repayment) -- (1,611)
Advances from affiliated company -- 471
Net proceeds from issuance of preferred stock 200,000 --
--------- ----------
Cash flows provided by (used in) financing activities 200,000 (1,140)
--------- ----------
Net decrease in cash and cash equivalents (31,782) (45,021)
Cash and cash equivalents, beginning of period 196,963 13,135
--------- ----------
Cash and cash equivalents, end of period 165,181 (31,886)
========= ==========
<PAGE>6
forestindustry.com, Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(unaudited)
For the Three Months Ended August 31, 2000
1 - BASIS OF PRESENTATION
The condensed interim consolidated financial statements included herein have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. However, the Company believes that the disclosures are adequate to
make the information presented not misleading. The condensed interim
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's annual report
on Form 10-KSB for the year ended May 31, 2000.
The unaudited condensed interim consolidated financial statements included
herein reflect, in the opinion of management, all adjustments (consisting
primarily only of normal recurring adjustments) necessary to present fairly the
results for the interim periods. The results of operations for the three months
ended August 31, 2000 are not necessarily indicative of results to be expected
for the entire year ending May 31, 2001.
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Nature and Continuance of Operations
forestindustry.com, Inc. (the "Company") was incorporated in Delaware on
December 18, 1997 under the name of Autoeye Inc. On February 25, 2000, the
Company changed its name to forestindustry.com, Inc. Prior to its acquisition of
The Forest Industry Online Inc. ("Forest"), the Company was inactive.
On January 31, 2000, the Company acquired all of the issued and outstanding
shares of Forest by issuing to Forest's stockholders 10,000,000 shares of common
stock and control of the Company. The acquisition was a reverse takeover with
Forest being the deemed accounting acquiror for financial statement purposes.
The acquisition has been accounted for as a capital transaction effectively
representing an issue of stocks by Forest for the net assets of the Company.
Under the terms of the agreement, the Company issued 10,000,000 common shares
for all of the 100 common issued and outstanding shares of Forest. As at January
31, 2000, there were 4,927,040 common shares of the Company (after reflecting a
21:1 stock consolidation that occurred on August 20, 1999 and a subsequent stock
split of 1:40 which occurred on August 21, 1999. These stock adjustments have
been retroactively adjusted and presented as of May 31, 1999 in the Consolidated
Statements of Stockholders' Equity). The acquisition was accounted for as a
recapitalization of Forest. The transaction has been accounted for as a capital
transaction effectively representing an issue of shares by Forest for the net
assets of the Company. On January 31, 2000 the net assets of the Company
consisted of:
Cash and Equivalents $ 750,000
Accounts Payable (19,530)
----------
$ 730,470
==========
Total costs related to this recapitalization transaction were estimated at
$15,863. They include cash expense in the estimated amount of $15,000 and
non-cash expense in the amount of $863. The non-cash expense relates to the
issuance of 37,500 shares of common stock of the Company. The fair value of
these services was estimated based upon the estimated fair value of the
<PAGE>7
forestindustry.com, Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(unaudited)
For the Three Months Ended August 31, 2000
shares at $0.023 per share. Total transaction costs have been recorded as a
charge to the stockholders' equity of the Company.
The Company's current business activities include designing web sites and
operating and maintaining a computer internet web site for companies associated
with the forest and wood product industries.
These interim consolidated financial statements have been prepared on a going
concern basis in accordance with United States generally accepted accounting
principles. The going concern basis of presentation assumes the Company will
continue in operation for the foreseeable future and will be able to realize its
assets and discharge its liabilities and commitments in the normal course of
business. Certain conditions, discussed below, currently exist which raise
substantial doubt upon the validity of this assumption. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
To August 31, 2000, the Company has not been profitable and has experienced
negative cash flows from operations. Operations have been financed through the
issuance of preferred stocks and other external financing. The Company's future
operations are dependent upon continued external funding, its ability to
increase revenues and reduce expenses, and the success of its proposed
development of an online business exchange auction website for the forest and
wood industries. There are no assurances that the above conditions will occur.
The accompanying interim consolidated balance sheet as of August 31, 2000
includes the accounts of the Company and Forest. The related accompanying
interim consolidated statements of operations and cash flows include the results
of operations and cash flows of the Company and Forest for the period ended
August 31, 2000 and of Forest only for the period ended August 31, 1999. All
significant intercompany transactions and balances have been eliminated.
b) Work in Process
Work in process is recorded a the lower of cost determined using a
percentage-of-completion method based on the contract price and net realizable
value.
c) Property and Equipment and Depreciation
Property and equipment are recorded at cost and are depreciated using the
straight-line method over their estimated useful lives ranging from five to ten
years, or their lease terms.
d) Cash and Cash Equivalents
The Company considers all short-term investments with a maturity date at
purchase of three months or less to be cash equivalents.
e) Revenue Recognition and Unearned Revenues
Revenues on advertising fees and hosting revenues are recorded on the billed
basis. Customers are invoiced on a quarterly basis in advance for advertising
and hosting spaces. Unearned revenues relate to the period of the billing that
has not yet transpired and therefore not earned.
Revenues on fixed contract website designs are recognized on the
percentage-of-completion method of accounting.
<PAGE>8
forestindustry.com, Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(unaudited)
For the Three Months Ended August 31, 2000
f) 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 the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
g) Net Earnings (Loss) Per Share
Basic earnings (loss) per share is computed using the weighted average number of
common stock outstanding during the periods. Diluted loss per share is computed
using the weighted average number of common and potentially dilutive common
stock outstanding during the period. As the Company has losses in the periods
presented, basic and diluted loss per share are the same.
h) Stock-Based Compensation
The Company accounts for its stock-based compensation arrangement in accordance
with provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees", and related interpretations. As such,
compensation expense under fixed plans would be recorded on the date of grant
only if the fair value of the underlying stock at the date of grant exceeded the
exercise price. The Company recognizes compensation expense for stock options,
common stock and other equity instruments issued to non-employees for services
received based upon the fair value of the services or equity instruments issued,
whichever is more reliably determined. This information is presented in note
8(c).
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock Based Compensation", required entities that continue to apply the
provision of APB Opinion No. 25 for transactions with employees to provide for
forma net income and pro forma earnings per share disclosures for employee stock
option grants made in 1995 and future years as if the fair-value-based method
defined in SFAS No. 123 had been applied to these transactions.
i) Income Taxes
The Company follows the asset and liability method of accounting for income
taxes. Under this method, current taxes are recognized for the estimated income
taxes payable for the current period.
Deferred income taxes are provided based on the estimated future tax effects of
temporary differences between financial statement carrying amounts of assets and
liabilities and their respective tax bases as well as the benefit of losses and
tax credits available to be carried forward to future years for tax purposes.
Deferred tax assets and liabilities are measured using enacted tax rates that
are expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in operations in
the period that includes the substantive enactment date. A valuation allowance
is recorded for deferred tax assets when it is more likely than not that such
deferred tax assets will not be realized.
j) Foreign Currency Translation
The functional currency of the Company is the United States dollar and for its
Canadian subsidiary the Canadian dollar. Transactions in foreign currencies are
translated to United States dollars at the rates in effect on the transaction
<PAGE>9
forestindustry.com, Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(unaudited)
For the Three Months Ended August 31, 2000
date. Exchange gains or losses arising on translation or settlement of foreign
currency denominated monetary items are included in the consolidated statement
of operations.
3 - PENDING ACQUISITION
On August 16, 2000, the Company signed a non-binding letter of intent to acquire
C.C. Crow Publishing, Inc. for $330,000 in cash and 400,000 shares of our common
stock. Crow was established in 1921 and publishes market reports for the
softwood industry. This acquisition is subject to several conditions including
the Company's ability to pay the cash portion of this transaction by the closing
date of December 31, 2000. There is no assurance that this acquisition will be
consummated. The Company has issued and placed the 400,000 shares in escrow
pending the closing of this transaction. 125,000 shares of this amount are a
non-refundable deposit, which will be issued to the owner of Crow's whether this
acquisition closes or not.
4 - STOCKHOLDERS' EQUITY
a) Preferred Stock
On January 31, 2000, the Company issued through a private placement 750 shares
of Series "A" convertible preferred stock at a price of $1,000 per share.
Holders of Series "A" preferred stocks are entitled to distribution of $1,000
per share prior to any distribution to the holders of the Company's common
stocks in the event of any liquidation or dissolution of the Company.
The Series "A" preferred stock is convertible, at the option of the holder, and
at any time after March 16, 2000, into common stock at 75% of the last ten day
average closing bid price of the Company subject to a maximum conversion rate of
5,000 shares of common stock for one share of preferred stock and a minimum
conversion rate of 250 shares of common stock for one share of preferred stock.
In addition, if a registration statement in respect of the common stock
underlying the preferred stock is effective, all Series "A" preferred stock will
be deemed to convert into common stock on or before January 31, 2001, the first
anniversary date.
On May 10, 2000 the Company issued 249,221 shares of its common stock on the
conversion of 375 Series "A" convertible preferred stocks.
On June 15, 2000 the Company issued 217,145 shares of its common stock on the
conversion of 175 Series "A" convertible preferred stocks.
In August, 2000, our board of directors established our Series "B" preferred
stock and authorized the issuance of up to 1,200 shares of Series "B" preferred
stock as part of this series. Upon any liquidation or dissolution of our
Company, each outstanding Series "B" preferred share is entitled to a
distribution of $1,000 prior to any distribution to the holders of our common
stock. The Series "B" preferred stocks are not entitled to any dividends or
voting rights.
In August 2000, the Company sold 200 Series "B" preferred stock to two
accredited institutional investors for $1,000 per share. Each Series "B"
preferred share may be converted, at the option of the holder, into shares of
our common stock equal in number to the amount determined by dividing $1,000 by
70% of the average closing price of our common stock for the five trading days
preceding the conversion date, subject to a maximum of 5,000 shares of common
stock being issued for each Series "B" preferred share and a minimum of 250
shares of common stock being issued for each Series "B" preferred share. Holders
of Series "B" preferred stocks are entitled to distribution of $1,000 per share
prior to any distribution to the holders of the Company's common stocks in the
event of any liquidation or dissolution of the Company.
<PAGE>10
forestindustry.com, Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(unaudited)
For the Three Months Ended August 31, 2000
b) Common Stock
On June 15, 2000 certain holders of the Company's Class "A" convertible
preferred stock converted 175 shares into 217,145 shares of common stock.
On June 7, 2000, the Company issued 200,000 shares of common stock, valued at
$212,500, for advertising and marketing services rendered. The Company recorded
an expense of $212,500 for the issuance of the common shares based on the fair
market value of the shares on the date of issuance.
On August 16, 2000, the Company issued 400,000 share of common stock, recorded
at $40.00, to be held in escrow pending the acquisition of a company and to be
applied toward the final acquisition price on or before December 31, 2000.
5 - STOCK OPTIONS
a) Employees
In February 2000, the Company adopted a fixed stock option plan that provides
for the issuance of incentive and non-qualified stock options to officers,
directors, employees and non-employees to acquire up to 250,000 shares of the
Company's common stock. The plan was amended in June 2000 to increase the
allowable number of stock options to be issued under this plan to 500,000
shares. The Board of Directors determines the terms of the options granted,
including the number of options granted, the exercise price and the vesting
schedule. The exercise price for qualified incentive and non-qualified stock
options is not to be less than the fair market value of the underlying stock at
the date of grant, and to have terms no longer than ten years from the date of
grant.
On February 29, 2000, the Company granted options to purchase a total of 33,000
shares of the Company's common stock at a price of $4.00 per share to employees
of the Company. The options vest on or after February 29, 2001 and expire
between February and April 2005. Between March and August 2000, the Company
cancelled options to purchase a total of 4,000 shares as the employees who were
granted the options left the Company.
On June 12, 2000, the Company granted options to purchase a total of 54,000
shares of the Company's common stock at a price of $2.00 per share to employees
of the Company. The options vest on or after June 11, 2001 and expire June 2005.
Between June and August 2000, the Company cancelled options to purchase a total
of 9,500 shares as the employees who were granted the options left the Company.
The Company continues to account for its employee stock-based awards using the
intrinsic value method in accordance with APB No. 25, "Accounting for Stock
Issued to Employees", and its related interpretations. Accordingly, no
compensation expense has been recognized in the financial statements for
employee stock arrangements, because the fair value of common stock at the
measurement date is not greater than the option exercise price.
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that statement. The fair
value for these options was estimated at the date of grant using a Black-
Scholes option pricing model with the following weighted-average assumptions:
risk-free interest rate of 6.0%; dividend yield of 0%; volatility factors of the
expected market price of the Company's stock of 232%; and an expected life of
the options of 2.5 years. Accordingly, compensation expense using the fair value
method would have been $130,310, amortized over their respective vesting period.
<PAGE>11
forestindustry.com, Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(unaudited)
For the Three Months Ended August 31, 2000
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
The Statement's pro forma information from the options is as follows:
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Three Months Ended Three Months Ended
August 31, 2000 August 31, 1999
$ $
------------------ ------------------
Net (loss) as reported (477,103) (36,535)
Compensation expense from stock options under SFAS No. 123 (32,578) --
------------------ ------------------
Pro forma net (loss) (509,681) (36,535)
------------------ ------------------
Pro forma (loss) per common share:
Basic and Diluted (0.04) (0.01)
------------------ ------------------
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b) Non-Employees
On May 26, 2000, the Company granted options to purchase a total of 40,000
shares of the Company's common stock at a price of $2.00 per share to
non-employees of the Company. The options vest on or after May 1, 2001 and
expire May 2005. Stock options issued to non-employees are accounted for in
accordance with the provisions of SFAS No. 123, "Accounting for Stock Based
Compensation", using the fair value method. Accordingly, a compensation expense
to these stock options in the amount of $17,253 was recorded as deferred stock
compensation to be amortized over their respective vesting periods. For the
quarter ended August 31, 2000 the Company recognized an amortization expense of
$4,936.
c) Additional Stock Option Plan Information
A summary status of the Company's fixed stock option plan and changes during the
period ended August 31, 2000 are as follows. There were no stock options as of
August 31, 1999.
Weighted
Average
Number of Exercise Price
Shares $
----------- --------------
Outstanding, August 31, 1999 -- --
Granted 127,000 2.52
Forfeited (13,500) 2.59
----------- --------------
Outstanding, August 31, 2000 113,500 2.51
----------- --------------
Options exercisable at end of period Nil --
----------- --------------
<PAGE>12
forestindustry.com, Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(unaudited)
For the Three Months Ended August 31, 2000
The following table summarizes information about the Company's fixed stock
options outstanding at August 31, 2000:
Options Outstanding
------------------------------------------------------
Weighted
Weighted Average Average
Range of Number Remaining Exercise
Exercise Prices Outstanding at Contractual Life Price
$ August 31, 2000 (in years) $
----------------- ----------------- ----------------- ---------
4.00 - 4.00 29,000 5 4.00
2.00 - 2.00 84,500 5 2.00
--------------- ----------------- ---------
113,500 5 2.51
--------------- ----------------- ---------
The options outstanding at August 31, 2000 will expire between February and June
2005.
6 - COMMITMENTS
a) The Company has entered into an agreement to lease office premises in
Nanaimo, B.C., Canada to May 31, 2001. The monthly lease payment is, excluding
operating costs, $1,789.
b) The Company has entered into an agreement to lease a vehicle to March 09,
2003. The monthly lease payment is $529 with an option to purchase the vehicle
at the end of the lease for $14,717.
c) The Company has entered into an agreement to lease an internet
telecommunication line to December 31, 2002. The monthly lease payment is $959.
d) The Company entered into an agreement for advertising and marketing services
for a fee of $160,000, which was settled by the issuance of 200,000 common
shares of the Company at $1.25 per share. The contract term is from June 7, 2000
until September 7, 2000.
e) The Company entered into an agreement to lease office premises in Vancouver,
B.C. Canada to September 30, 2001. The monthly lease payment was, excluding
operating costs, $2,561. On August 31, 2000 the Company was released from its
obligations under the lease in return for payment of four months rent of
$10,244.
f) The Company entered into a consulting contract with an individual to perform
various investor relations and corporate development for an initial fee of
$4,600, which was settled by the issuance of 200,000 common shares of the
Company at $0.023 per share, and a monthly fee of $2,414. In August 2000, the
Company provided fourteen days notice to the consultant that the agreement would
be terminated effective August 31, 2000. On August 31, 2000 the consultant
resigned from his position as Vice President, Corporate Relations and the
resignation was accepted by the Board of Directors.
g) The Company entered into an employment contract with the Chief Information
Officer ("CIO") to oversee the Company's technical systems and applications for
a signing bonus of $3,450, which was settled by the issuance of 150,000 common
shares of the Company at $0.023 per share, and an annual salary of $51,000. The
employment contract was from February 29, 2000 to February 28, 2001. On July 21,
2000, the CIO resigned.
h) The Company entered into a consulting contract with a consulting firm to
provide strategic management services for a monthly fee of $3,450. The contract
was from May 26, 2000 to November 26, 2000. The Company also granted to the
principals of the consulting firm stock options allowing the principals to
acquire 40,000 common shares at an exercise price of $2.00 per share. The
consultants terminated the contract by way of mutual release effective July 31,
2000.
<PAGE>13
forestindustry.com, Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(unaudited)
For the Three Months Ended August 31, 2000
7 - SUBSEQUENT EVENTS
a) On September 25, 2000 the Company entered into a consulting contract with an
individual to perform the duties of Chief Operating Officer for a monthly fee of
$4,078. Either party may terminate the agreement on fourteen days written
notice.
b) On October 5, 2000 the Company appointed Greg Millbank as a Director of
the Company.
Item 2. Management's Discussion and Analysis
This discussion, other than the historical financial information, may consist of
forward-looking statements that involve risks and uncertainties, including
quarterly and yearly fluctuations in results, the timely availability of new
communication products, the impact of competitive products and services, and the
other risks and uncertainties, including those relating to the recent
acquisition of a new line of business described below. These forward-looking
statements speak only as of the date hereof and should not be given undue
reliance. Actual results may vary significantly from those projected.
The Company was formed on December 18, 1997 under the name Autoeye, Inc.
Autoeye's business was to evaluate businesses for possible acquisition. On
January 31, 2000, we acquired 100% of The Forest Industry Online, Inc. Following
the transaction, the shareholders of The Forest Industry Online, Inc. owned a
majority of Autoeye's outstanding shares of common stock. Accordingly, for
financial reporting purposes the transaction was accounted for as a reverse
acquisition with The Forest Industry Online, Inc. considered the accounting
acquirer. (See Notes 2(a) and 3 to the May 31, 2000 consolidated financial
statements). As such, The Forest Industry Online, Inc.'s historical financial
statements are now reported as the Company's financial statements. On February
25, 2000, the Company changed its name from Autoeye, Inc. to forestindustry.com,
Inc. Prior to the acquisition of The Forest Industry Online, Inc., the Company
had not generated any revenue and had not commenced any operations other than
initial corporate formation and capitalization.
Overview
The Company is an internet service provider to the forest and wood products
industry. The Company's website includes information and advertising relating to
forest and logging; wood processing and logs; and lumber and wood products. The
Company is also in the process of establishing a business-to-business exchange
to support the purchase and sale of wood, wood products and wood related
services. The Company's strategy is to become an internet leader in supporting
an e-focused marketplace for the highly fragmented global forest industry.
For the Three Months ended August 31, 2000 and August 31, 1999
Revenues. Revenues increased 62% to $122,518 for the three months ended August
31, 2000 as compared to sales of $75,620 for the three months ended August 31,
1999. Increased sales were attributable to an increase in subscribers to the
Company's web site services and web design services. The customer base increased
to approximately 1100 customers by August 31, 2000 as compared to approximately
360 at August 31, 1999. $66,373 or 54% of revenues were derived from website
design services while the remaining $56,145 or 46% of revenues were derived from
web site advertising.
Expenses. Total expenses for the three months ended August 31, 2000 increased to
$599,621 as compared to $112,155 for the comparative period ended August 31,
1999. Selling, general and administrative expenses represented the largest
portion of expenses increasing over 500% from $99,893 for the three months ended
August 31, 1999 to $514,277 for the comparable period in 2000. This increase is
due to the hiring of additional sales and technical staff, attendance at more
<PAGE>14
trade shows during this period and acquisition costs and related public company
reporting requirements. The Company also recorded a compensation expense for
stock issued for services rendered in the amount of $212,500. Consulting and
professional fees were $52,382 for the period ended August 31, 2000 compared to
$8,114 for the three months ended August 31, 1999. The Company's professional
fees increased by over 600% due to the private placement conducted in August,
the pending acquisition and compliance with reporting requirements. Professional
fees also included legal and accounting fees relating to the preparation of a
registration statement and audited financial statements for the year ending May
31, 2000.
Net and Comprehensive Loss. The Company recorded a net loss of $477,103 for the
three months ended August 31, 2000 compared to a net loss of $36,535 for the
three months ended August 31, 1999. The increase in losses for the period ended
August 31, 2000 is due to the significant increase in operating, administrative
and professional expenses and the recording of compensation expenses relating to
the issuance of common stock for services and granting of stock options to
non-employees.
Liquidity and Capital Resources
The Company is in a growth stage in which expenses are expected to increase as
the Company implements its business plan. The Company has not been profitable
and has experienced negative cash flows from operations. Due to the fact that
the Company has not generated sufficient cash flow to fund all of its operating
costs, the Company has relied heavily on outside sources of capital. During the
year ended May 31, 2000, the Company raised $750,000 through the sale of its
Series A Convertible Preferred Stock. During the three months ended August 31,
2000, the Company also raised $200,000 through the sale of its Series B
Convertible Preferred Stock. The Company's future operations are dependent upon
continued external funding from additional capital investments or borrowed
funds. The Company's future success will also depend on its ability to increase
revenues and to reduce expenses and establish its online business exchange
auction website for the forest and wood industries. There can be no assurance
that the Company will be able to raise capital from these outside sources in
sufficient amounts to fund the Company's business operations or to successfully
expand its online business. The failure to secure adequate outside funding or
establish the forest and wood industry auction website would have an adverse
affect on the Company's operating results.
Investing activities during the three months ended August 31, 2000 have
consisted mainly of purchasing property and equipment, primarily computer
hardware and software. Capital expenditures totalled $16,095 for the three
months ended August 31, 2000 and $119,377 for the year ended May 31, 2000. The
Company expects capital expenditures will increase and growth in its personnel
and infrastructure will be required to support the growing customer base.
To date, the Company has not invested in derivative securities or any other
financial instruments that involve a high level of complexity or risk. The
Company expects, that in the future, cash in excess of current requirements will
continue to be invested in high credit quality, interest-bearing securities
until utilized in business operations.
As of August 31, 2000, the Company had working capital of approximately $59,345.
The Company anticipates obtaining the additional capital which it will require
through revenues from operations and through a combination of debt and equity
financing. The Company will also consider joint ventures or strategic alliances
to develop future programs. There is no assurance that the Company will be able
to obtain capital it will need or that the estimates of its capital requirements
will prove to be accurate.
Factors Affecting Future Operating Results
The Company is still in the early stages of developing its website and marketing
its internet services. Consequently, it has only a limited history of revenues
and business track record.
<PAGE>15
The Company expects its expenses will increase during the remainder of the
fiscal year as a result of increased marketing expenses and the expansion of its
online services. The Company's ability to successfully operate and expand its
website and market its services will depend on, among other things:
o the continued improvement of its internet technology to support the
forest and wood industry
o the development and expansion of its internet services
o the expansion of its subscriber base
o the establishment of its website as an effective advertising and
business medium for the forest and wood industry.
The success of the Company will also depend on its ability to respond to
technological advances and emerging industry standards in a cost-effective and
timely manner. The Company may not have the technical or financial ability to
respond to these technical challenges.
Until revenues are sufficient to support the Company's business, it will
depend to a significant extent on outside capital to pay for the development of
its e-commerce business. Such outside capital may include the sale of additional
stock and/or commercial borrowing. There can be no assurance that capital will
be available if necessary to the Company to meet these operational costs or, if
the capital is available, it will be on terms acceptable to the Company. The
issuance of additional equity securities by the Company would result in a
further dilution in the equity interests of the current stockholders. Obtaining
commercial loans, assuming those loans would be available, will increase the
Company's liabilities and future cash commitments. As of August 31, 2000, the
Company did not have any commitments from any source to provide additional
capital.
PART II
Other Information
Items 1, 3 and 4
None.
Item 2. Changes in Securities and Use of Proceeds
In August, the Company's Board of Directors authorized the issuance of up to
1,200 shares of Series "B" Preferred Stock. Among the terms of the Series B
Preferred Stock is the requirement that upon any liquidation and dissolution of
the Company, each outstanding share of Series B Preferred Stock is entitled to a
distribution of $1,000 prior to any distribution to the holders of common stock.
The Series B preferred stockholders are not entitled to any dividends or voting
rights. Each share of Series B Preferred Stock may be converted, at the option
of the holder, into shares of the Company's common stock equal in number to the
amount determined by dividing $1,000 by 70% of the average closing price of the
Company's common stock for the five trading days preceding the conversion date,
subject to a maximum of 5,000 shares of common stock being issued for each
Series B preferred share and a minimum of 250 shares of common stock being
issued for each Series B preferred share. On August 1, 2000, the Company sold
200 shares of its Series B Convertible Preferred Stock to two accredited
institutional investors for aggregate proceeds of $200,000. The sale of the
Company's Series B Preferred Stock was exempt from registration pursuant
<PAGE>16
to Rule 506 of Regulation D of the Securities and Exchange Commission and
Regulation S. All shares of the preferred stock were acquired for investment
purposes only and without a view to distribution. All of the persons who
acquired the Company's Series B preferred stock were fully informed and advised
about matters concerning the Company, including its business, financial affairs
and other matters. The certificates evidencing the Series B Preferred Stock bear
legends stating that they may not be offered, sold or transferred other than
pursuant to an effective registration statement under the Securities Act of
1933, or pursuant to an applicable exemption from registration.
Item 5. Other Information
On August 16, 2000 the Company signed a non-binding letter of intent to acquire
all of the issued and outstanding shares of C.C. Crow Publications, Inc. in
exchange for 400,000 shares of the Company's common stock and $330,000 in cash.
The transaction is subject to several conditions prior to closing. The Company
has issued 400,000 shares of its common stock, which has been placed in escrow
pending the consummation of this transaction. The Company has until December 31,
2000 to raise sufficient capital to acquire the business. The Company plans to
obtain the necessary capital through debt and/or equity financing. If the
Company fails to raise sufficient capital or for some other reason decides not
to consummate this acquisition, it will forfeit a deposit in the amount of
125,000 shares of its common stock.
Subsequent to the end of the fiscal quarter the Company appointed Greg Millbank
as a Director and Chief Operating Officer of the Company.
Item 6. Exhibits and Reports on Form 8-K
The Exhibits in the following table have been filed as part of this Quarterly
Report on Form 10-QSB:
a) Exhibit Number Description of Exhibit
-------------- ------------------------
27 Financial data schedule
b) Reports on Form 8-K
1. On August 24, 2000, the Company filed a Form 8-K/A amending the
Form 8-K previously filed on February 15, 2000 and amended on
February 16, 2000. The Form 8-K/A amended the previously reported
Item 1 event relating to the acquisition of The Forest Industry
Online, Inc. by the Company and the resulting change in control of
the Company.
2. On August 24, 2000, the Company filed a Form 8-K/A amending the
Form 8-K previously filed on March 8, 2000. The Form 8-K/A amended
the previously reported Item 4 event relating to its change of
accountants and an Item 5 event relating to its name change to
forestindustry.com, Inc.
3. On August 30, 2000, the Company filed a Form 8-K to report an Item
2 event relating to the proposed acquisition of C.C. Crow
Publications, Inc.
<PAGE>17
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
forestindustry.com, Inc.
Date: October 12, 2000 /s/ JOE PERRATON
-------------------------
Joe Perraton
President
(Principal Financial and
Accounting Officer)
