As filed with the Commission on November 22, 2000 File No. 333-37648
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
PRE-EFFECTIVE AMENDMENT NO. 2
to
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
FORESTINDUSTRY.COM, INC.
(Name of small business issuer in its charter)
Delaware 7372 98-0207081
-------- ---- ----------
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Identification No.)
organization) Classification Code)
2480 Kenworth Road, Suite 11, Nanaimo, British Columbia V9T 3Y3
(Address and telephone number of principal executive offices)
2480 Kenworth Road, Suite 11, Nanaimo, British Columbia V9T 3Y3
(Address of principal place of business or intended principal place of
business)
Joe Perraton, President and CEO
forestindustry.com, Inc.
2480 Kenworth Road
Suite 11
Nanaimo, British Columbia V9T 3Y3
604-632-3802
(Name, address and telephone number of agent for service)
Copy to:
Roger D. Linn, Esq.
Bartel Eng Linn & Schroder
300 Capitol Mall, Suite 1100
Sacramento, California 95814
Telephone: 916-442-0400
Approximate date of proposed sale to the public: As soon as practicable after
the registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following blocks and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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<S> <C> <C> <C> <C>
CALCULATION OF REGISTRATION FEE
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Proposed Proposed
maximum maximum Amount of
Title of each class of Amount to be offering aggregate registration
securities to be registered registered price per offering price fee
share
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Common stock to be offered by
selling stockholders 703,866 $1.75(1) $1,231,765 $325
Common stock for resale by holders
of series A preferred stock
assuming the conversion of such
preferred stock 1,000,000 $1.75(2) $1,750,000 $462
Total 1,703,866 $2,981,765 $787(3)
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(1) Fee calculated in accordance with Rule 457(c) of the Securities Act of
1933, as amended ("Securities Act"). Estimated for the sole purpose of
calculating the registration fee and based upon the average quotation of
the high and low price per share of our common stock on May 17, 2000, as
quoted on the OTC Bulletin Board.
(2) Assumes that the holder of the series A preferred stock has converted
such stock. Maximum offering price per share is based upon the average
quotation of the high and low price per share of our common stock on May
17, 2000, as reported on the OTC Bulletin Board.
(3) This filing fee was previously paid.
The registrant hereby amends this registration statement on the date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on the date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PROSPECTUS Subject to Completion
November 22, 2000
FORESTINDUSTRY.COM, INC.
RESALE OF COMMON STOCK
----------------
This prospectus relates to the resale of up to 1,703,866 shares of common
stock. These shares include up to 1,000,000 shares that are issuable upon the
conversion of series A preferred stock. The selling stockholders may sell the
common stock from time to time in the over-the-counter market at the prevailing
market price or in private negotiated transactions. The selling stockholders
will determine the price they may offer or sell shares of our common stock
independent of us. We will not receive any proceeds from the resale of shares of
common stock.
Our common stock is quoted on the OTC Bulletin Board under the symbol
"FXCH." On November 14, 2000, the closing bid quotation for one share of common
stock was $0.875. We do not have any other securities that are currently traded
on any other exchange or quotation system.
--------------------------------
Investing in the common stock involves a high degree of risk. You should
purchase shares only if you can afford a complete loss.
Neither the Securities and Exchange Commission nor any State Securities
Commission has approved or disapproved of these securities or determined if this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
--------------------------------
The date of this Prospectus is ______________, 2000.
<PAGE> 2
TABLE OF CONTENTS
PROSPECTUS SUMMARY............................................................ 5
RISK FACTORS.................................................................. 7
THE OFFERING..................................................................11
MARKET FOR OUR COMMON STOCK...................................................11
DIVIDEND POLICY...............................................................12
FORWARD-LOOKING STATEMENTS....................................................12
MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATIONS...................12
BUSINESS......................................................................16
PROPERTY......................................................................20
Management....................................................................20
EXECUTIVE COMPENSATION........................................................21
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................25
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................26
PLAN OF DISTRIBUTION..........................................................26
SELLING STOCKHOLDERS..........................................................28
DESCRIPTION OF SECURITIES.....................................................29
LEGAL PROCEEDINGS.............................................................30
LEGAL MATTERS.................................................................30
EXPERTS.......................................................................31
AVAILABLE INFORMATION.........................................................31
FINANCIAL STATEMENTS..........................................................32
<PAGE> 3
PROSPECTUS SUMMARY
This summary is intended to highlight information contained elsewhere in
this prospectus. You should carefully read the entire prospectus. All dollar
amounts refer to United States dollars unless otherwise noted.
Our Business
As used in this prospectus, the reference to "we" and "forestindustry" and
the business operations discussed in this prospectus refer to
forestindustry.com, Inc. and its subsidiaries. Business operations referred to
prior to January 31, 2000 relate to The Forest Industry Online Inc.
We provide a full range of internet services for the forest and wood
products industry. Our website address is "forestindustry.com." Our internet
site provides a directory of companies associated with the forest and wood
products industry. Our website is divided into three categories: Forest and
Logging, Wood Processing and Logs, Lumber and Wood Products. Companies may
advertise their services on our website and exchange information through our
online discussion forums. Our website includes The World Wood Exchange which
allows manufacturers, buyers and intermediaries to list all types of wood
products for purchase and sale through the website. It also provides information
on industry related trade shows, conferences and news items. All updates and
changes made to the website are completed by our in-house technical staff. We
generate revenues by charging a monthly fee to customers using our website based
on the size of advertisements and charging for internet related services
provided to forest and wood-related businesses.
To date, approximately 60% of revenues are generated from our website
advertisers and the other 40% through website design services. Prior to January
31, 2000 we had no source of revenues. On January 31, 2000 we acquired The
Forest Industry Online Inc. and our current business is now that which was being
conducted by them.
The internet related services which we provide include all services which a
business needs to promote itself and to advertise and/or sell its forest or wood
related products and services through the internet, including the design,
development and hosting of websites for our customers.
Our corporate offices and operations are located at Suite 11, 2480 Kenworth
Road, Nanaimo, British Columbia V9T 3Y3. Our telephone number is 604-632-3802.
We have one wholly-owned subsidiary, The Forest Industry Online, Inc. which
maintains business offices at our principal business office in Nanaimo.
<PAGE> 4
Offering Summary
The selling stockholders are registering for resale up to 1,703,866 shares
of our common stock, which they currently own or may acquire upon conversion of
shares of our series A convertible preferred stock.
Securities offered by selling stockholders......... 1,703,866 shares (1)
Common stock outstanding before the offering...... 13,783,666 (2)
Common stock to be outstanding after the
offering.......................................... 14,783,666 (1)(2)
Use of proceeds................................... We will not receive any
proceeds from this offering
Offering price.................................... Market price or negotiated
prices at the time of resale.
Symbol for our common stock....................... FXCH
Market for common stock........................... Our shares are currently
listed for trading on the
over-the-counter electronic
bulletin board.
---------------------
(1) Assumes (a) the conversion of the 200 shares of our series A
convertible preferred stock, which are currently outstanding, into a
maximum of 1,000,000 shares of our common stock and (b) the inclusion of
400,000 shares of common stock issued for a proposed acquisition.
(2) The number of shares of our common stock outstanding as of October 31,
2000 excludes options outstanding to purchase 115,000 shares of our common
stock at an exercise price between $2.00 and $4.00 per share.
<PAGE> 5
Summary of Consolidated Financial Data
Ten Months Ended May 31 Three Months Ended August 31
(Unaudited) (Unaudited)
2000 1999 2000 1999
----------------------- ----------------------------
Revenues 335,287 270,176 122,518 75,620
Operating Expenses 793,868 228,105 599,621 112,155
Earnings(Loss) (458,581) 42,071 (477,103) (36,535)
Earnings (Loss)
Per Share (0.043) 0.004 (0.07) (0.01)
Ten Months Ended May 31 Three Months Ended August 31
2000 2000
----------------------- ----------------------------
Total Assets 415,591 376,283
Working Capital (Deficit) 118,409 59,345
Stockholders' Equity
(Deficit) 242,201 185,348
RISK FACTORS
An investment in our securities involves a high degree of risk. Before
deciding whether to invest, you should read and consider carefully the following
risk factors.
We expect continued losses in 2001 since current revenues are insufficient to
cover expenses and for the three months ending August 31, 2000 we had a net loss
of $477,103
We have incurred losses since our merger in January 2000. Our current revenues
are not enough to pay all our expenses. Our net losses are expected to continue
through the current fiscal year. As a result of these losses and negative cash
flows from operations, our ability to continue operations will depend on our
ability to generate revenues for working capital, the availability of outside
capital and our efforts at reducing expenses until we achieve profitability.
Our audited consolidated financial statements for the fiscal year ended May
31, 2000 were prepared on a going concern basis in accordance with United States
generally accepted accounting principles. The going concern basis of
presentation assumes we will continue in operation for the foreseeable future
and will be able to utilize our assets and discharge our liabilities and
commitments in the normal course of business. Certain conditions currently exist
which raise substantial doubt upon the validity of this assumption.
To August 31, 2000, we have not been profitable and have experienced
negative cash flows from operations. Operations have been financed through the
issuance of preferred stock and other external financing. Our future operations
are dependent upon continued external funding, our ability to increase revenues
and reduce expenses, and the success of our 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.
<PAGE> 6
We will need to raise additional capital to finance our website business
operations
Because we do not have sufficient revenues to support our activities, we
intend to fund our operations with additional outside capital. If we are unable
to obtain financing in the amounts and on terms acceptable to us, our business
and future success may be adversely affected. Our management has limited
experience in raising capital, which may reduce the likelihood of obtaining
capital.
Traditionally, we have relied primarily on revenues from our website and
the sale of equity securities to meet our operations and capital requirements.
Any equity financing could result in dilution to our stockholders. Debt
financing will result in interest expense and the risk we cannot pay it back in
time.
If our competitors develop better internet services than ours for forest and
wood companies then our future financial success may be at risk
Our competitors may develop internet services that are superior to, or have
greater market acceptance than, our services. If we are unable to compete
successfully against our competitors, our business, financial condition and
operating results will be adversely affected.
Many of our competitors have greater financial, marketing and other
resources than we do. This may place us at a disadvantage in responding to our
competitors' pricing strategies, technological advances, advertising campaigns,
strategic alliances and other initiatives.
If the forest and wood industry does not adopt the electronic commerce market
for its business, our internet business could fail in the long term
The success of our internet based business will depend on several factors
including:
o Electronic commerce is still developing and may not be suitable for
the wood and forest industry;
o We have no long term contracts or agreements with our customers and as
a result, no assurance of ongoing revenues;
o We have not obtained and installed the necessary internet operating
programs to implement our proposed lumber and equipment exchange;
o We do not have the expertise in house to design our proposed market
information services and training and compliance programs; and,
o Government regulation or taxation may adversely affect the user of
electronic commerce.
Our forest and wood related internet services and new products may not attract
customers or result in profits
Our business is based on electronic commerce, which refers to the purchase
and sale of products and services advertised on internet websites. Although
electronic commerce is growing in volume, many businesses have failed to capture
the audience required to generate sufficient revenues. The forest and wood
products industry in particular has traditionally relied on non-electronic means
for conducting business.
Our future success depends on our ability to deliver internet content and
services that are seen as valuable to the forest and wood product industry. If
we are unable to design products and services that attract a loyal user base, it
could have a material adverse affect on our business, financial condition and
operating results.
Traditionally, the forest and wood products industry has been slow to adopt
new methods of doing business which may mean our products take longer to
introduce or they may be rejected altogether.
<PAGE> 7
All of our products and services are based on the electronic commerce market and
depend on our customers' willingness to use internet based services. If we
cannot increase the attractiveness of our products and services within the
industry, our financial condition, business and operating results may be
adversely affected.
If we cannot manage the rapid growth in our customer base and effectively
deliver our internet based services, we may lose our customers and revenue
sources
Our customer base has increased by over 550 customers in the past five
months. If this growth continues, it will likely put a significant strain on our
resources, managers and systems. To manage growth, we must develop and implement
effective systems and train and manage our employees to perform all of the
functions necessary to effectively develop, service and manage our customer
base. In addition, some of the requests for technical services may be too
complex for our current staff and systems. If we cannot service our customers
through our staff or systems or through our consultants, our business, revenues
and operating results may be adversely affected.
We may not be able to upgrade our technical systems to match our growth. As
of October 2000, our technology systems were operating at 30% capacity. We do
not need to upgrade systems until they reach 70% capacity. We anticipate needing
to upgrade in twelve months time. If we are unable to finance the cost of the
upgrades, then we risk an interruption in service to our customers and
potentially a loss in revenues.
Since we rely on one provider for our telecommunication T1 lines, our technical
systems could fail if their service is interrupted
Although we have back up facilities for our computer systems, we rely on
one provider for our telecommunication lines. If the telecom provider failed to
provide service to our systems, we would be unable to maintain website
availability. Interruptions could result from natural disasters as well as power
loss, telecommunications failure and similar events. Our business depends on the
efficient and uninterrupted operation of our computer and communications
hardware systems. Any system interruptions that cause our website to be
unavailable may reduce our attractiveness to advertisers and could materially
adversely affect our business.
If we are unable to retain our President and other senior management experienced
in the forest and internet industry, our future business success could be
adversely affected
We believe our success will depend on the continued employment of our
President, Joe Perraton. If he was unable or unwilling to continue in his
present position, our business, financial condition and operating results could
be materially adversely affected. While we have an employment agreement with Mr.
Perraton, there is no guarantee he will remain with us indefinitely. We do not
carry key person life insurance on any members of our management.
Furthermore, we are in need of additional senior management to support our
business and operations. If we are not able to offer a compensation package
comparable within the industry, we will not be able to recruit senior
management. To date, we have had insufficient working capital to support the
filling of several senior positions.
We are developing products based on information we obtain from third parties in
the forest industry which could expose us to legal liability
We may be subject to legal claims relating to the content in our website
and related products. Some of the content proposed for our lumber and equipment
exchange, market information service and
<PAGE> 8
training and compliance programs may be drawn from data compiled by other
parties, including governmental and commercial sources. We will then reformat
that data and produce specialized products and information based on that market
segment. This data may have errors. If our content is improperly used or if we
supply incorrect information, it could result in unexpected liability. Our
business, financial condition and operating results could suffer a material
adverse effect if costs or losses resulting from these claims are not covered by
our insurance or exceed our coverage.
Since the market price of our common stock has ranged in price from $0.937 to
$8.00 since March 2000, investors may not be able to resell at prices similar or
higher than they purchased
The average daily trading volume of our common stock has generally been
low, which we believe has a significant effect on the historical market price of
our common stock. As a result, the market price has been highly volatile and may
not be indicative of the market price in a more liquid market. Consequently,
investors may not be able to resell their shares of our common stock at prices
similar to or higher than their purchase price. The market price of our common
stock could be subject to significant fluctuations in response to a number of
factors, including investor perception, depth and liquidity of the market for
our common stock, public announcements by us, our clients and our competitors,
and general market conditions, which may or may not relate to our performance.
Trading in our stock is restricted by the SEC's penny stock regulations which
may limit a stockholder's ability to buy and sell our stock.
Trading in our common stock is subject to the SEC's penny stock
regulations, which may limit a stockholder's ability to buy or sell our common
stock. The U.S. Securities and Exchange Commission has adopted regulations which
generally define "penny stock" to be any equity security that has a market price
(as defined) of less than $5.00 per share or an exercise price of less than
$5.00 per share, subject to certain exceptions. Our common stock is currently
covered by the penny stock rules, which impose additional sales practice
requirements on broker-dealers who sell to persons other than established
customers and financially qualified investors. For transactions covered by this
rule, the broker-dealers must make a special suitability determination of the
purchaser and receive the purchaser's written agreement of the transaction prior
to the sale. Consequently, these rules may affect the ability of broker-dealers
to trade our common stock and affect the ability of existing stockholders to
sell their shares in the secondary market.
<PAGE> 9
THE OFFERING
We are registering, on behalf of the selling stockholders, for resale up to
1,703,866 shares of common stock, including up to 1,000,000 shares of common
stock assuming the conversion of outstanding Series A Preferred Stock. You will
find listed below the sources of the shares of common stock being registered for
resale in this prospectus.
o Series A preferred stock that has or will be converted into common
shares.
o 466,366 shares of common stock previously converted from
preferred stock
o up to 1,000,000 shares of common stock issuable upon conversion
of 200 shares of series A preferred stock
o The series A preferred stock were sold in a private placement to three
institutional investors at $1,000 per preferred share on January 31,
2000.
o 200,000 shares of common stock issued as part of 10,000,000 shares
issued in exchange for all of the outstanding stock of The Forest
Industry Online Inc. on January 31, 2000.
o 37,500 shares of common stock issued as compensation to one entity for
services rendered in connection with the transactions on January 31,
2000.
The shares of common stock offered for resale and the shares of common
stock to be issued upon the conversion of the remaining outstanding Series A
Preferred Stock may be sold in a secondary offering by the selling shareholders
by means of this prospectus.
MARKET FOR OUR COMMON STOCK
As of October 31, 2000, we had 13,783,666 shares of common stock
outstanding and approximately 58 stockholders of record. The number of
stockholders of record does not include shares held in street name. We believe
the number of beneficial owners may be greater due to shares held by brokers,
banks, and others for the benefit of their customers. Since December 1999 our
common stock has been quoted on the National Association of Securities Dealers'
OTC Bulletin Board, but a trading market only developed on March 1, 2000. Set
forth below are the range of high and low bid quotations for the monthly periods
indicated as reported by the NASD since March, 2000. The market quotations
reflect interdealer prices, without retail mark-up, mark-down or commissions and
may not represent actual transactions.
Common Stock
Month Ended High Low
October 31, 2000 $1.47 $0.94
September 30, 2000 $2.25 $1.13
August 31, 2000 $1.69 $1.06
July 31, 2000 $1.31 $1.25
June 30, 2000 $2.75 $2.75
May 31, 2000 $1.25 $1.25
April 30, 2000 $3.00 $3.00
March 31, 2000 $8.00 $7.81
The provisions in our Articles of Incorporation relating to our preferred
stock would allow our directors to issue additional preferred stock with rights
to multiple votes per share and dividend rights
<PAGE> 10
which would have priority over any dividends paid with respect to our common
stock. The issuance of preferred stock with such rights may make the removal of
management difficult even if such removal would be considered beneficial to
stockholders generally. It would have the effect of limiting stockholder
participation in certain transactions such as mergers or tender offers if such
transactions are not favored by our management.
We authorized 5,000,000 blank check preferred shares when we incorporated.
The board of directors recently authorized the creation of 1,200 shares of
series B convertible preferred stock of which 200 have been issued to date.
There are no current plans, arrangements, commitments or undertakings to issue
additional preferred stock. However, the board of directors has the authority to
issue additional shares of preferred stock at any time up to the amount
authorized in our Certificate of Incorporation.
DIVIDEND POLICY
Holders of our common stock are entitled to receive such dividends as may
be declared by our board of directors and, in the event of liquidation, to share
pro rata in any distribution of our assets after payment of liabilities. Our
board of directors is not obligated to declare a dividend. We have not paid any
dividends on our common stock and we do not have any current plans to pay any
common stock dividends. The series A and B preferred stocks are not entitled to
any dividends.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements, as that term is
defined in the Private Securities Litigation Reform Act of 1995. These
statements relate to future events or our future financial performance. In some
cases, you can identify forward-looking statements by terminology such as "may,"
"will," "should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential" or "continue" or the negative of these terms or other
comparable terminology. These statements are only predictions and involve known
and unknown risks, uncertainties and other factors, including the risks in the
section entitled "Risk Factors," that may cause our or our industry's actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Except as required by applicable law,
including the securities laws of the United States, we do not intend to update
any of the forward-looking statements to conform these statements to actual
results. All dollar amounts refer to United States dollars unless otherwise
noted.
MANAGEMENT'S DISCUSSION AND ANALYSIS
AND PLAN OF OPERATIONS
General
Forestindustry and its current business are a result of a combination
transaction between Autoeye Inc., a Delaware corporation, and The Forest
Industry Online Inc., a British Columbia corporation. At the time of the
combination on January 31, 2000, Autoeye was a reporting company under the
Securities Exchange Act of 1934 with no active business other than to evaluate
businesses for possible acquisition. The Forest Industry Online Inc. had been in
the business of providing internet services to the forest and wood products
industry since January 1997. As a result of the combination, The Forest Industry
Online Inc. became a wholly-owned subsidiary of Autoeye and Autoeye changed its
name to forestindustry.com, Inc. and continues the business 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
<PAGE> 11
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
audited consolidated financial statements). As such, The Forest Industry Online,
Inc.'s historical financial statements are now reported as our financial
statements.
Plan of Operations
In order to expand our operations we will need additional capital. We do
not have any commitments from any source to provide additional capital. We will
need to raise significant outside capital to fund our anticipated capital
requirements over the next twelve months. Approximately $1.75 million has been
budgeted to finance the development of our technology, development of new
products and services and increase sales and marketing during the current fiscal
year. We anticipate needing approximately $300,000 to acquire additional
equipment during the current fiscal year to support the Lumber and Equipment
Exchange. Capital commitments for the current fiscal year include approximately
$21,468 in lease obligations for one office premise; consultant agreements
totaling $82,000; 18,000 for other leases; and employment agreements totaling
$50,000. As a result of this increased business activity and anticipated
increase in employees, we expect general and administrative expenses and
compensation costs to increase significantly from current levels.
An element of our business plan is to obtain license technology and
hardware to support our proposed Lumber and Equipment Exchange or LEE. The LEE
program is expected to cost between $300,000 and $400,000 to implement.
Alternatively, we will identify an alliance partner who has already built a
functioning exchange model. We will then need to spend approximately $100,000 on
system upgrades that will integrate our systems with theirs.
We plan on offering two new products to our customers over the next twelve
months. We will require approximately $100,000 to develop a training and
compliance component and $180,000 to research and develop a market information
system. We will require an additional $260,000 to upgrade our computer systems
and hardware.
Since inception, we have relied on equity financings to fund our
operations. Funds required to finance our future internet services, marketing
efforts and ongoing business are expected to come primarily from debt and equity
financing and strategic alliances with the remainder provided from operating
revenues. Operating revenues to date have been substantially less than the cost
of operations. Future financings will be necessary to meet our anticipated
working capital needs over the current fiscal year. Potential sources of
additional capital include private placements with institutional investors
and/or a public offering of our common stock.
In order to reduce expenses in the next quarter, we laid off 17 of our
employees in November, 2000. We plan on building our operations and re-hiring
our employees once revenues and operations justify additional staff.
Results of operations
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 our web site services and web design services. The customer base increased to
approximately 1,100 customers by August 31, 2000 as compared to approximately
360 at August 31, 1999. $66,373 or 54% of revenues were derived from website
<PAGE> 12
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 comparable period ended in
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
trade shows during this period and acquisition costs and related public company
reporting requirements. We also recorded a general and administrative 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. Our professional fees
increased by over 600% due to the private placement conducted in August 2000,
the proposed acquisition of C.C. Crow 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. We 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.
For the fiscal years ended May 31, 2000 (10 months) and July 31,1999
forestindustry commenced business operations in January of 2000 with the
acquisition of The Forest Industry Online Inc. As of May 31, 1999 and up to
January, 2000, forestindustry (formerly known as Autoeye) was not conducting any
business operations. Consequently, a comparison of the fiscal years ended May
31, 2000 and 1999 would not be meaningful. Instead, the more meaningful
discussion compares our latest fiscal year ended May 31, 2000 with the prior
fiscal year of The Forest Industry Online, Inc. ending July 31, 1999. However,
our most recent fiscal year consists of only ten months rather than a full
twelve-month fiscal year.
Revenues. Revenues increased 11% to $335,287 for the ten months ended May
31, 2000 as compared to sales of $300,362 for the year ended July 31, 1999.
Increased sales were attributable to an increase in subscribers to our web site
services and web design services. The customer base increased to approximately
640 customers by May 31, 2000 as compared to approximately 350 at July 31, 1999.
$215,504 or 64% of revenues were attributable to web site advertising while the
remaining $119,783 or 36% of revenues were derived from website design services.
Expenses. Selling, general and administrative expenses for the ten months
ended May 31, 2000 increased 94% to $534,976 as compared to $275,061 for the
year ended July 31, 1999. This increase is due to the hiring of additional sales
and technical staff and attendance at more trade shows during this period.
Consulting and professional fees were $231,066 for the period ended May 31, 2000
compared to $18,079 for the year ended July 31, 1999. Our professional fees
increased by over 600% due to the business acquisition in January 2000 and
ongoing public reporting obligations under the 1934 Act. Professional fees also
include legal and accounting fees relating to the preparation of our
registration statement.
Net and Comprehensive Loss. We recorded a net loss of $458,581 and a
comprehensive loss of $450,017 for the ten months ended May 31, 2000 compared to
a net loss of $541 and a comprehensive
<PAGE> 13
loss of $82 for the year ended July 31, 1999. The increase in losses for the
period ended May 31, 2000 is due to the significant increase in operating,
administrative and professional expenses.
For the fiscal years ending July 31, 1999 and 1998
Revenues. Revenues during the year ended July 31, 1999 increased by 133% to
$300,362 over the prior year period as we added customers to our website.
Revenues for the year ended July 31, 1998 were $128,685.
Expenses. Expenses during the year ended July 31, 1999 increased by 54% to
$300,900 from the year ended July 31, 1998 of $194,352. The increase was due to
the addition of customer service and technical support personnel who were
required due to our higher level of activity.
Net and comprehensive loss. We recorded a net loss of $541 for the year
ended July 31, 1999 compared to a net loss of $65,667 for the previous year of
1998. The lower net loss for 1999 reflected revenues increasing at a higher rate
than expenses.
Liquidity and Capital Resources
We are in a growth stage in which expenses are expected to increase as we
implement our business plan. Due to the fact that we have not generated
sufficient cash flow to fund all of our operations, we have relied heavily on
outside sources of capital. During the year ended May 31, 2000, we raised
$750,000 through the sale of our series A convertible preferred stock. During
the three months ended August 31, 2000, we raised an additional $200,000 through
the sale of our series B convertible preferred stock. We will require additional
capital investments or borrowed funds to meet cash flow projections. There can
be no assurance that we will be able to raise capital from these outside sources
in sufficient amounts to fund our business expansion. The failure to secure
adequate outside funding would have an adverse affect on our operating results.
We expect our expenses will continue to increase during the next twelve
months as a result of increased marketing expenses and the expansion of our
online services. We estimate that we will need $1.75 million during the current
fiscal year 2001 to implement our business plans and pay for operational
expenses.
We plan to develop the Lumber and Equipment Exchange, or LEE, which will
conduct auctions of lumber, equipment and other wood products by means of the
internet. Once we obtain outside financing, we believe the exchange will take
six weeks to build and 12-18 months to fully launch and introduce to our
customers. We will earn commissions on any sales made through the LEE. A license
for the computer system needed for the LEE is expected to cost approximately
$300,000 in addition to approximately $100,000 of installation services.
Alternatively, we may establish a joint venture or similar arrangement with a
company, which has the rights to such a computer system. The initial cost of the
license would be less but we would be required to share any revenues earned from
the LEE with our joint venture partner. As of October 31, 2000, we had not
obtained any license for the computer programs which will be required for the
LEE and the launch date of the LEE will remain uncertain until additional
sources of capital are obtained.
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. We
expect capital expenditures will increase and future growth in our personnel and
infrastructure will be required to support the growing customer base.
<PAGE> 14
To date, we have not invested in derivative securities or any other
financial instruments that involve a high level of complexity or risk. We
expect, 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, we had working capital of approximately $59,345. We
anticipate obtaining the additional capital that we will require through
revenues from our operations and through a combination of debt and equity
financing. We will also consider joint ventures or strategic alliances to
develop future programs. Current cash and cash equivalents are projected to
sustain the Nanaimo operations but alternate sources will be required to fund
additional expenses. We will seek to raise additional funds through public and
private equity financings, borrowed funds or from other sources. There is no
assurance that we will be able to obtain capital we will need or that our
estimates of our capital requirements will prove to be accurate. As of the date
of this prospectus, we did not have any commitments from any source to provide
additional capital.
BUSINESS
General
We are an internet service provider to the forest and wood products
industry. Our website includes information and advertising relating to forest
and logging; wood processing and logs; and lumber and wood products. We plan on
introducing the following products and services during 2001:
o a business to business exchange to support the purchase and sale of
wood, wood products and wood related services;
o market information services; and,
o training and compliance programs.
Our strategy is to become an internet leader in supporting an e-focused
marketplace for the forest and wood products industry.
Corporate History
Forestindustry, formerly known as Autoeye Inc., is a Delaware corporation
carrying on the business originally started by The Forest Industry Online Inc.
in 1995. Prior to the consolidation transaction with Autoeye, Inc., The Forest
Industry Online initially operated as a proprietorship and after January 1997,
as a British Columbia corporation. Prior to January 31, 2000, forestindustry was
known as Autoeye Inc., a Delaware corporation formed on December 18, 1997. Prior
to the transaction with The Forest Industry Online Inc., Autoeye had not
commenced any operations other than its initial corporate formation and
capitalization.
On January 31, 2000 Autoeye acquired all of the issued and outstanding
common shares of The Forest Industry Online Inc. in exchange for 10,000,000
shares of Autoeye common stock. The Forest Industry Online, Inc. has been in
operation since 1995, first as a proprietorship and since January 1997 as a
British Columbia corporation. The value attributed to the share exchange was CDN
$335,000. 10,000,000 shares of Autoeye Inc.'s common stock were issued to the
principals of The Forest Industry Online who were Joe Perraton, Lara Perraton
and Teaco Properties Ltd. (which is beneficially owned by Marc White and Dave
McNaught). Autoeye's then president, Andrew Hromyk, represented the interests of
Autoeye. Concurrent with the acquisition of The Forest Industry Online Inc.,
Autoeye issued 750 shares of its series A convertible preferred stock at a price
of $1,000 per share for gross proceeds of $750,000. The subscribers of the
preferred shares were Augustine Fund, LP, Ascent Financial, Inc. and Indenture
Trust of James F. Cool. Autoeye also issued 37,500 shares of its common stock to
Century Capital Management Ltd, as consideration for consulting services
provided in connection with Autoeye's
<PAGE> 15
acquisition of The Forest Industry Online Inc. These consulting services
included advice on structuring the transaction and financial analysis. Century
Capital Management Ltd. is controlled by Andrew Hromyk, the former President of
Autoeye.
Following the acquisition of The Forest Industry Online Inc. Mr. Perraton,
a principal of The Forest Industry Online Inc., was appointed Autoeye's
President as well as a director. Mr. Marc White was also appointed a director.
Autoeye's former President, Andrew Hromyk, resigned from that position and was
appointed Autoeye's Secretary. Mr. Hromyk resigned as an officer and director in
May 2000. Mr. White resigned as a director in July 2000.
On February 25, 2000, Autoeye changed its name to "forestindustry.com,
Inc." We have also done business under the name "The Forest Industry Network."
On October 5, 2000, we appointed Greg Millbank, our Chief Operating
Officer, to our board of directors.
Our business is a continuation of that which was previously being conducted
by The Forest Industry Online, Inc. which remains a wholly owned subsidiary.
Products and Services
Website Hosting/Advertising
Our primary business is supporting our website located at
"www.forestindustry.com." This site provides a directory of companies associated
with the forest and wood products industry. Our website is divided into three
categories: Forest and Logging, Wood Processing and Lumber and Wood Products.
Within Forest and Logging we list services pertaining to logging equipment,
reforestation, trucks, safety supplies, computer services, contractors and
ancillary services. The Wood Processing section contains services related to
mills including equipment, safety services, computers, consultants and ancillary
services. The Lumber and Wood Product section of our website contains services
related to pallets, boxes and containers, mill and woodworking machinery and
consulting services. All sections are linked through an alphabetical listing of
all customers who list on our website.
Our website includes The World Wood Exchange which allows manufacturers,
buyers and intermediaries to purchase and sell all types of wood products
through the website. Our website also provides information on industry related
trade shows, conferences and news items and allows for the exchange of
information through our online discussion forums. All updates and changes made
to the website are completed by our in-house technical staff.
Our website also allows companies to advertise their products or services.
We charge a monthly fee to customers based on the size of the advertisement. Our
monthly fees for basic advertising services currently range from $40 to $120.
Internet Services
The internet related services we provide are essentially all services,
which a business needs to promote itself and to advertise and/or sell its
products and services through the internet. We charge either a monthly fee for
these services or a fee based upon the number of hours involved in the project.
Our services, all of which can be customized to the specific needs of the
customer, include:
o complete web site design and maintenance
o design and maintenance of databases for new and used:
<PAGE> 16
o equipment
o parts and supplies
o inventories of wood products
o real estate listings
o customers
o design of forms used to pay for products and services with a credit
card
o customized layouts for order forms, multi-state tax calculations,
international taxes
o database administration programs which provide customers with the
ability to:
o modify product prices
o provide product and service descriptions
o shipping methods based on price, quantity and weight variables
o transaction and billing reports
o online storefronts and catalogues for products and services offered by
our members
o online classified advertisements
o email accounts for members
We have technical and customer support staff who are available during
business hours to assist all members with the use of our services.
New Products
We plan to develop an online business exchange for the forest and wood
industry called the Lumber and Equipment Exchange, or "LEE." The LEE will host
auctions of lumber, equipment and other wood products. Revenue will be generated
by a commission earned on sales made through the LEE. To establish the LEE, we
will need to license from a third party the sophisticated computer software
systems needed to operate an internet-based auction site. We have identified and
reviewed potential third parties and have identified a company from whom we will
obtain a license. Their model was less expensive and easily adaptable to
multiple platforms. We have identified a software design company to develop the
LEE program. Once financing has been secured, we anticipate it will take the
software design company approximately 6 weeks to design the basic framework for
the LEE. We will require ongoing design and technical assistance from our
alliance partner in the following areas: e-commerce infrastructure, systems
integration and installation of enabling internet software. We estimate that it
will take between 12-18 months to have a fully integrated exchange developed and
operational. Related services, which we plan to offer to customers of the LEE,
include credit verification, delivery scheduling, inspection services and
payment settlement.
Alternatively, we may seek an alliance partner who has a fully operational
exchange service and who wants to partner with us to provide a broader range of
services. If this occurs, we will not proceed with the online business exchange,
but instead integrate our systems with the alliance partners' systems.
As of November 7, 2000, we are offering our customers licensed ready-made,
customizable web sites and related products and services. We entered into a
reseller company agreement with ImageCafe Inc., which allows us to sublicense
their web site products to our customers and receive a referral fee for those
sales.
We also plan to design a standard storefront for our members. We intend to
upgrade existing storefronts used by our members to increase their efficiency.
Once our standard storefront is developed, we will be able to adapt it to the
needs of any of our customers with minimal effort.
We further plan on developing a data and training component to our online
services. Training programs will be standardized, hosted on an application
service provider model and marketed to the forest and wood industry.
<PAGE> 17
We plan on providing market information services within the next year. We
will gather industry data from several sources in the industry, analyze the data
and repackage the information for specific areas of the industry.
Sales and Marketing
We promote our website by participating in the following:
o industry trade shows and conferences
o advertising in industry journals
o working with key forest associations to advertise our products and
services
o publishing a yearly guidebook which includes information on our
products and services
o upcoming industry conferences and events as well as a directory
listing of organizations which utilize our online services.
Due to the seasonal nature of the forest industry, our advertising and
marketing expenses will normally be higher in the second and fourth quarters.
We currently have over 1200 customers and have no reliance on any specific
customer or small group of customers. Approximately 70% of our customers are
U.S. companies, 20% are from Canada and approximately 5% are from Europe, Asia
and Australia.
Competition
There are currently very few internet websites devoted to the forest
industry sector. Our competitors include "e-wood.com," "Talpx.com,"
"VerticalNet," and other startup company's such as forestweb.com. We also
compete with various regional and national commodity exchanges.
e-wood.com and Talpx Inc. provide internet websites, which connect buyers
and sellers of wood and related products and include news and information for
the wood products industry.
VerticalNet provides websites for companies in the forest and wood products
industry but does not currently provide any news or information on its websites,
which relate to the forest or wood products industry.
Indirect competitors include various webhosting and web design companies
ranging from large corporate internet service providers to small home-based
businesses. These competitors comprise a small proportion of our competition and
often have little or no specific knowledge of the forest industry.
Intellectual Property, Government Approvals and Regulation
Our internet services, web site design and database programs are not
protected by any patents or copyrights. Our website domain name is registered
with Network Solutions, Inc. We also have registered the names
"forestindustry.net;" "logsandlumber.com" and other web addresses. We are not
subject to government regulation nor do we require any government approvals in
either Canada or the United States to provide internet or web design services to
our customers. We may be subject to regulations in the future if state or
federal agencies choose to impose regulations applicable to the Internet.
<PAGE> 18
Employees
As of November 15, 2000 we had reduced our staff to 10 full-time employees.
We anticipate re-hiring several of these former employees as revenues and
business operations necessitate. We also utilize the services of one consultant.
PROPERTY
Our corporate and operational offices are located at 2480 Kenworth Road,
Suite 11, Nanaimo, British Columbia, Canada V9T 3Y3. We lease approximately
4,000 square feet of office space under a lease, which expires May 31, 2001.
All of our computer and telecommunications equipment are located at our
Nanaimo offices. As of October 31, 2000 we were operating at 20% to 30% capacity
and do not foresee the need to upgrade our systems for twelve months or more.
MANAGEMENT
Directors and Executive Officers
Our directors and executive officers, and their ages and positions, and
duration as such, are as follows:
Name Position Age Period
Joe PerratON President, Secretary and 36 January 31, 2000 -
Director Present
Greg Millbank Chief Operating Officer and 53 October 1, 2000 -
Director Present
Business Experience
Officers and Directors
The following is a description of our executive officers and directors and
their business background for at least the past five years.
Joe Perraton has served as president, chief financial officer and a
director since January 31, 2000 and as Secretary since May 11, 2000. Prior to
the acquisition by Autoeye, Mr. Perraton served as president, co-founder and
operations manager since the inception of the business "forest industry online"
as a proprietorship in 1995. He became president of The Forest Industry Online,
Inc. upon its incorporation in January 1997. As co-founder Mr. Perraton had a
unique vision of how the forest industry could use the internet to improve the
industry as a whole. With over 10 years experience directly in the forest
industry and over five years working with internet and client/sever
technologies. Mr. Perraton has insight on how technologies relate to the forest
industry. Prior to establishing The Forest Industry Online Inc. Mr. Perraton was
engaged in the forest industry as an independent logging contractor.
Greg Millbank has served as our Chief Operating Officer since October 1,
2000 and as a Director since October 5, 2000. Prior to joining us, Mr. Millbank
spent the past fifteen years as the Managing Director of Praxis Technical Group,
Inc. Praxis is a software development company that specializes in electronic
training development software for the continuous process industries and java
middleware for large ERP systems. Clients of Praxis include ARCO, Exxon,
Weyerhaeuser, Canfor, Suncor and many
<PAGE> 19
other similar companies. Mr. Millbank has also served on the boards of various
companies and public service organizations. Mr. Millbank has a masters degree in
mathematical communications studies, has published many papers, and is a well
known speaker at conferences of the American Petroleum Institute, and other
conferences dealing with automatic data analysis.
Each director holds office until his successor is duly elected by the
stockholders. Executive officers serve at the pleasure of the board of
directors.
Family Relationships
Lara Perraton, our Production Manager, is the sister of Joe Perraton.
EXECUTIVE COMPENSATION
The following table sets forth the compensation of our Chief Executive
Officer during the last two complete fiscal years. No other officers or
directors received annual compensation in excess of $100,000 during the last two
complete fiscal years.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
------------------------------------- -----------------------------------------------
Awards Payout
---------------------- --------
Restricted Securities LTIP All Other
Other Annual Stock Underlying Payout Compensation
Year Salary Bonus ($) Compensation ($) Award(s) Options (#) ($) ($)
------- -------- ---------- ----------------- ---------- ----------- -------- -------------
Joe Perraton 2000(1) $15,022 -0- -0- -0- -0- -0- -0-
President
Andrew Hromyk 2000(2) $-0- -0- $9,375(3) -0- -0- -0- -0-
Prior President
1999 $-0- -0- -0- -0- -0- -0- -0-
1998 $-0- -0- -0- -0- -0- -0- -0-
-----------------
</TABLE>
(1) For the period January 31, 2000 to May 31, 2000.
(2) For the period June 1, 1999 to January 31, 2000.
(3) Value of 37,500 common shares issued to Century Capital Management
Ltd. as compensation for services.
In January 2000, Joe Perraton replaced Andrew Hromyk as President. Mr.
Hromyk continued to serve as the Secretary and a director until May 11, 2000 at
which time he resigned from both positions.
Employment/Consulting Agreements
On January 31,2000, we acquired The Forest Industry Online Inc. In
connection with this acquisition we entered into an employment agreement with
Joe Perraton, the President of The Forest Industry Online. The employment
agreement provides for a term of three years and an annual salary of CDN $70,000
(approximately $50,000 at current exchange rates).
In February 2000, our wholly owned subsidiary The Forest Industry Online
Inc. entered into an employment agreement with John Carmichael pursuant to which
Mr. Carmichael agreed to serve as our Chief Information Officer. The employment
agreement provides for a term of one year and an annual salary of CDN $75,000
(approximately $50,000 at current exchange rates). In addition, Mr. Carmichael
was issued 150,000 shares of our common stock as consideration for entering into
this employment
<PAGE> 20
agreement. Mr. Carmichael resigned as of July 21, 2000 and voluntarily returned
the shares issued in conjunction with the employment agreement.
In February 2000, our wholly owned subsidiary The Forest Industry Online
Inc. entered into a consulting agreement with Todd Hilditch pursuant to which
Mr. Hilditch agreed to serve as our corporate relations officer. The consulting
agreement provides for a term of one year with monthly payments of CDN $3,500
(approximately $2,400 at current exchange rates). In addition, Mr. Hilditch was
issued 200,000 shares of our common stock as consideration for entering into
this consulting agreement. Mr. Hilditch was also appointed as our Vice-President
of Corporate Relations by the board of directors as of the 24th of February
2000. Mr. Hilditch subsequently resigned as an officer and director on August
31, 2000.
On March 1, 2000, we entered into a consulting agreement with Summit Media
Partners. The agreement had a term of 92 days and a cost of $15,000. On June 7,
2000, we entered into a second consulting agreement with Summit Media Partners.
The agreement had a term of 92 days and expired on September 7, 2000. We issued
200,000 shares of our common stock in payment for these services valued at
$212,500. Summit Media is providing advertising and marketing services through
featured advertorial mailings.
On May 26, 2000, we entered into a consulting agreement with e-Bridge
Consulting Inc. The agreement had a term of 6 months. e-Bridge was engaged to
write a business and strategic plan for us. They were also to assist management
with negotiating agreements with alliance partners, assist with the marketing
plan, prepare a three-year cash flow model, assist with effecting a channel
strategy and general consultation on operational issues. e-Bridge received a
monthly fee of CDN $5,000 and was issued options to purchase up to 40,000 shares
of our common stock at an exercise price of $2.00 and a term of 5 years. The
consulting agreement was terminated by mutual consent effective July 31, 2000.
In October 2000, we entered into a consulting agreement with Greg Millbank
pursuant to which Mr. Millbank agreed to serve as our Chief Operating Officer.
The consulting agreement provides for a term of one year and annual compensation
of CDN $72,000 (approximately $50,000 at current exchange rates). He is expected
to devote 75% of his time to the operations of forestindustry. In addition, Mr.
Millbank was appointed as a Director on October 5, 2000.
Employee Pension, Profit Sharing or other Retirement Plans
We do not have a defined benefit, pension plan, profit sharing or other
retirement plan, although we may adopt one or more of such plans in the future.
Director's Compensation
At present we do not pay our directors for attending meetings of the board
of directors, although we expect to adopt a director compensation policy in the
future. We have no standard arrangement pursuant to which our directors are
compensated for any services provided as a director or for committee
participation or special assignments.
Except as disclosed elsewhere in this prospectus no director received any
form of compensation from us during the year ended May 31, 2000.
<PAGE> 21
Stock Option Plan
In February, 2000 our board of directors adopted a stock option plan which
authorizes the issuance of options to purchase up to 250,000 shares of our
common stock. The option plan will remain in effect until February 2010, unless
earlier terminated by action of the board of directors. Pursuant to the option
plan, our employees and officers are eligible to be granted options. Our
directors may not be granted options unless they also serve as officers. The
option exercise price is determined by the board of directors. On May 26, 2000,
our board of directors amended the 2000 stock option plan to authorize the
issuance of options to purchase up to 500,000 shares of our common stock and
expanded the definition of an eligible person for the purpose of authorizing
stock options.
Options granted pursuant to the option plan terminate on the date
established by the board of directors when the option was granted and in any
event cannot exceed ten years from the date of grant.
Options granted pursuant to the option plan may be either incentive stock
options within the meaning of Section 422 of the Internal Revenue Code or
nonqualified stock options.
The exercise price of options granted pursuant to the option plan cannot be
less than the fair market value of the shares of our common stock on the date of
the grant and, in the case of incentive stock options granted to any of our
employees who own more than 10% of the voting power of all classes of our
shares, the exercise price cannot be less than 110% of the fair market value of
the shares of our common stock on the date of the grant.
The option plan is administered by our board of directors. Our board of
directors has the authority to interpret the provisions of the option plan and
supervise the administration of the option plan. In addition, our board of
directors is empowered to select those persons to whom options are to be
granted, to determine the number of shares subject to each grant of an option
and to determine when, and upon what conditions options granted under the option
plan will vest or otherwise be subject to forfeiture and cancellation.
In the discretion of our board of directors, any option granted pursuant to
the option plan may include installment exercise terms such that the option
becomes fully exercisable in a series of cumulating portions. Our board of
directors may also accelerate the date upon which any option (or any part of any
options) is first exercisable. Any options granted pursuant to the option plan
will be forfeited if the "vesting" schedule established by the board of
directors at the time of the grant is not met. For this purpose, vesting means
the period during which the employee must remain an employee of
forestindustry.com or our subsidiary The Forest Industry Online Inc. At the time
an employee ceases working for us any options not fully vested will be forfeited
and cancelled. Payment for the shares of our common stock underlying the options
granted to our officers may be paid through the delivery of shares of our common
stock having an aggregate fair market value equal to the option price, provided
such shares have been owned by the option holder for at least one year prior to
such exercise. A combination of cash and shares of our common stock may also be
permitted at the discretion of the board of directors. Options are generally
non-transferable except upon death of the option holder.
Our board of directors may at any time, and from time to time, amend,
terminate, or suspend the option plan in any manner it deems appropriate,
provided that such amendment, termination or suspension cannot adversely affect
rights or obligations with respect to shares or options previously granted.
The option plan is not qualified under Section 401(a) of the Internal
Revenue Code, nor is it subject to any provisions of the Employee Retirement
Income Security Act of 1974.
No directors or officers were granted any options during the past fiscal
year.
<PAGE> 22
Advisory Committee
On October 30, 2000, our board of directors approved the formation of an
advisory committee. The primary function of the committee is to assist the board
of directors in fulfilling its corporate objectives, primarily through:
1. making recommendations to management on specific plans of operations
and strategic planning;
2. monitoring the performance and direction of our business plans as it
pertains to the overall forest industry; and
3. providing an avenue of communication from external industry sources.
The committee shall have at least one (1) member and no more than ten (10)
members at all times, each of whom must be independent of management and
forestindustry. Members of the committee shall be considered independent if in
the sole discretion of our board, it is determined that they have no
relationship that may interfere with the exercise of their independent judgment.
Members of the committee shall be appointed by our board of directors and shall
serve until the earlier to occur of the date on which he or she shall: 1) be
replaced by the board or 2) resign from the committee. All members of the
committee shall have a basic understanding of the forest and wood products
industry and/or the internet service industry.
The committee's principal responsibility is one of an advisory role.
forestindustry's management is responsible for all policy-making decisions and
implementation of all policies. In carrying out these advisory responsibilities,
the committee is not providing any expert or special assurance as to our fiscal
or business success.
Each committee member is entitled to be granted non-qualified options to
purchase, in the aggregate, 10,000 shares of our common stock upon their
appointment. We will enter into an option agreement as per normal policy on the
date the committee member is appointed and the options will be priced at or
above the fair market value of the common shares on the date of grant, at the
sole discretion of the board of directors.
For each successive year that a member remains on the committee he or she
will be entitled to be granted non-qualified options to purchase, in the
aggregate, 5,000 shares of our common stock. The options will only be granted
upon the completion of one full year term on the committee, unless otherwise
approved by our board of directors.
We are currently in the process of identifying and interviewing potential
members of the Advisory Committee.
Limitation of Liability and Indemnification Matters
The General Corporation Law of the State of Delaware permits
indemnification of directors, officers, and employees of corporations under
certain conditions subject to certain limitations. Article XIII of our
Certificate of Incorporation states that we may provide indemnification of our
agents, including our officers and directors to the maximum extent permitted by
the Delaware Corporation Law.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons pursuant
to the foregoing provisions, or otherwise, we have been advised that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by us of expenses incurred or paid by a
<PAGE> 23
director, officer or controlling person in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, we will, unless in the
opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except as otherwise indicated below, we have not been a party to any
transaction, proposed transaction, or series of transactions in which the amount
involved exceeds $60,000, and in which, to our knowledge, any of our directors,
officers, five percent beneficial security holder, or any member of the
immediate family of the foregoing persons has had or will have a direct or
indirect material interest.
Should a transaction, proposed transaction, or series of transactions
involve an officer or director of forestindustry or a related entity or an
affiliate of a related entity, or holders of stock representing 5% or more of
the voting power (a "related entity") of the then outstanding voting stock, the
transactions must be approved by the unanimous consent of our board of
directors. In the event a member of the board of directors is a related party,
that member will abstain from the vote.
We have issued shares of our common stock to the following persons during
the past two years, who, at the time of issuance, were affiliated with us:
<TABLE>
<S> <C> <C> <C> <C>
Date of Number of
Name Issuance Shares Share Value Consideration
---- -------- ------ ----------- -------------
Century Capital Management 01/00 37,500 $9,375 Consulting services
Ltd. (1)
Todd Hilditch 02/00 200,000 $50,000 Services Rendered
----------------------
</TABLE>
(1) The beneficial owner of Century Capital Management Ltd. is Andrew Hromyk, a
former officer and director.
In May 2000 Bona Vista West Ltd., a former principal shareholder, returned
2,597,240 shares of common stock to us for cancellation by way of a stock
retirement agreement dated May 11, 2000. Bona Vista West Ltd. agreed with us
that in order to attract future financings it would be in our best interest to
reduce our issued and outstanding share capital through the surrender and
retirement of certain control stock originally issued to Bona Vista West Ltd.
upon our formation. We released Bona Vista West Ltd. from all claims, demands,
acts, omissions and causes of action, in return for the 2,597,240 shares of
common stock.
In October 2000, our wholly owned subsidiary The Forest Industry Online
Inc. entered into a memorandum of understanding with Praxis Technical Group,
Inc. The memorandum provides for the provision of technical design for web-based
training programs and secure internet server services by Praxis. The memorandum
also provides that we pay a preferential hourly rate of CDN $60 and CDN $80 per
hour for Praxis' services. Our Director, Mr. Millbank, is the beneficial owner
of Praxis and will abstain from all policy decisions relating to both companies.
<PAGE> 24
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of October 31, 2000, information with
respect to those persons owning beneficially 5% or more of our outstanding
common stock and the number and percentage of outstanding shares owned by each
of our directors and officers and by our officers and directors as a group.
Unless otherwise indicated, each owner has sole voting and investment powers
over his shares of common stock.
Shares of Percent of
Name and Address Common Stock Class (2)
---------------- ------------ ---------
Teaco Properties Ltd. (1) 6,900,000 50.1%
5299 Budd Crescent
Nanaimo, British Columbia
V9T 5N9
Joe Perraton 2,400,000 17.4%
7491 Elizabeth Way
Lantzville, British Columbia
V0R 2H0
Lara Perraton(3) 700,000 5.1%
485 Howard Avenue
Nanaimo, British Columbia
V9R 3S2
All Officers and Directors 2,400,000 17.4%
as a Group (2 persons)
---------------------
(1) Teaco Properties Ltd. is beneficially owned by Marc White and David
McNaught, former directors.
(2) Computed without giving effect to any common stock which may be issued upon
the conversion of the remaining 200 shares of series A preferred stock
outstanding or the 200 shares of series B convertible preferred stock
outstanding since the ownership represents less than 5% of our outstanding
common stock.
(3) Lara Perraton is the sister of Joe Perraton who disclaims any beneficial
interest in the shares held by Ms. Perraton.
PLAN OF DISTRIBUTION
The selling stockholders may, from time to time, sell all or a portion of
the shares of common stock on any market upon which the common stock may be
quoted (currently the OTC Bulletin Board), in privately negotiated transactions
or otherwise. Such sales may be at fixed prices that may be changed, at market
prices prevailing at the time of sale, at prices related to the market prices or
at negotiated prices. The shares of common stock may be sold by the selling
stockholders by one or more of the following methods, without limitation:
(a) block trades in which the broker or dealer so engaged will attempt to
sell the shares of common stock as agent but may position and resell a
portion of the block as principal to facilitate the transaction;
(b) purchases by broker or dealer as principal and resale by the broker or
dealer for its account pursuant to this prospectus;
(c) an exchange distribution in accordance with the rules of the exchange;
<PAGE> 25
(d) ordinary brokerage transactions and transactions in which the broker
solicits purchasers;
(e) privately negotiated transactions;
(f) market sales (both long and short to the extent permitted under the
federal securities laws); and
(g) a combination of any aforementioned methods of sale.
In effecting sales, brokers and dealers engaged by the selling stockholders
may arrange for other brokers or dealers to participate.
Brokers or dealers may receive commissions or discounts from the selling
stockholders or, if any of the broker-dealers act as an agent for the purchaser
of said shares, from the purchaser in amounts to be negotiated which are not
expected to exceed those customary in the types of transactions involved.
Broker-dealers may agree with the selling stockholders to sell a specified
number of the shares of common stock at a stipulated price per share. Such an
agreement may also require the broker-dealer to purchase as principal any unsold
shares of common stock at the price required to fulfill the broker-dealer
commitment to the selling stockholders if said broker-dealer is unable to sell
the shares on behalf of the selling stockholders. Broker-dealers who acquire
shares of common stock as principal may thereafter resell the shares of common
stock from time to time in transactions which may involve block transactions and
sales to and through other broker-dealers, including transactions of the nature
described above. Such sales by a broker-dealer could be at prices and on terms
then prevailing at the time of sale, at prices related to the then-current
market price or in negotiated transactions. In connection with such resales, the
broker-dealer may pay to or receive from the purchasers of the shares,
commissions as described above. The selling stockholders may also sell the
shares of common stock in accordance with Rule 144 under the Securities Act,
rather than pursuant to this prospectus.
The selling stockholders and any broker-dealers or agents that participate
with the selling stockholders in the sale of the shares of common stock may be
deemed to be "underwriters" within the meaning of the Securities Act in
connection with these sales. In that event, any commissions received by the
broker-dealers or agents and any profit on the resale of the shares of common
stock purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Furthermore, selling stockholders are
subject to Regulation M of the Securities Exchange Act of 1934. Regulation M
prohibits any activities that could artificially influence the market for
forestindustry's common stock during the period when shares are being sold
pursuant to this prospectus. Consequently, selling stockholders, particularly
those who are officers and directors of forestindustry, must refrain from
directly or indirectly attempting to induce any person to bid for or purchase
the common stock being offered pursuant to this prospectus. Regulation M also
prohibits any bids or purchases made in order to stabilize the price of
forestindustry's common stock in connection with the stock offered pursuant to
this prospectus.
A selling stockholder may enter into hedging transactions with
broker-dealers and the broker-dealers may engage in short sales of our common
stock in the course of hedging the positions they assume with such selling
stockholder, including, without limitation, in connection with the distribution
of our common stock by such broker-dealers. A selling stockholder may also enter
into option or other transactions with broker-dealers that involve the delivery
of the common stock to the broker-dealers, who may then resell or otherwise
transfer such common stock. A selling stockholder may also loan or pledge the
common stock to a broker-dealer and the broker-dealer may sell the common stock
so loaned or upon default may sell or otherwise transfer the pledged common
stock.
<PAGE> 26
All expenses of the registration statement including but not limited to,
legal, accounting, printing and mailing fees are and will be paid by us.
SELLING STOCKHOLDERS
Set forth below is a list of all stockholders who may sell shares pursuant
to this prospectus. The number of shares column represents the number of shares
owned by the selling shareholder and the number of shares underlying series A
preferred stock" column represents the number of shares that may be acquired by
such selling shareholder within sixty days upon conversion of the series A
preferred stock. The "total" column represents the number of shares beneficially
owned by the selling stockholders and is the sum of the number of shares and
number of shares underlying series A preferred stock columns. The common shares
beneficially owned following the offering column assumes all shares registered
are sold by the selling shareholder.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Number Common Shares
Common Beneficially
Shares Owned
Common Stock Beneficially Offered Following
Name of Shareholder Owned Prior to the Offering Hereby the Offering
------------------- --------------------------- ------- ------------
No. of Shares
Underlying
No. of Series A No. Of
Shares Preferred Stock Total % Shares %
--------- --------------- --------- ----- --------- -----
Indenture of Trust for James
F. Cool (1) 155,039 -0- 155,039 1.1% 155,039 0 0%
Augustine Fund L.P. (2) 62,106 169,362 (4) 231,468 1.6% 231,468 (4) 0 0%
Ascent Financial Inc. (3) 249,221 -0- 249,221 1.8% 249,221 0 0%
Teaco Properties Ltd. 6,900,000 -0- 6,900,000 50.0% 138,000 6,762,000 49%
Joe Perraton 2,400,000 -0- 2,400,000 17.4% 48,000 2,352,000 17.1%
Lara Perraton 700,000 -0- 700,000 5% 14,000 686,000 5%
Century Capital Management 37,500 -0- 37,500 0.3% 37,500 0 0%
-------------------------
</TABLE>
(1) This trust is managed by Anthony Advisors for the benefit of James F.
Cool.
(2) The General Partner is Augustine Capital Management, LLC. The Managing
members are Thomas Duszynski and John Porter.
(3) The managing director of Ascent Financial Inc. is Paul Winder.
(4) The actual number of shares issuable upon the conversion of the
preferred stock will vary depending upon the price of our common stock
on the date of conversion. As of October 31, 2000, the bid price of
our common stock was $0.968 per share. Accordingly, in computing the
number of shares of common stock shown in the table we used a
conversion price of $0.968 which results in each preferred share
converting into 1033 shares of common stock. Additional shares may be
issued upon the conversion of series A preferred shares if the market
price of our common stock falls below $0.968 per share.
<PAGE> 27
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 30,000,000 shares of common stock,
$.0001 par value, and 5,000,000 shares of preferred stock, $.0001 par value. As
of October 31, 2000, there were 13,783,666 shares of common stock outstanding
and 200 shares of series A and 200 shares of series B preferred stock
outstanding.
Common Stock
Holders of common stock are each entitled to cast one vote for each share
held of record on all matters presented to our stockholders. Cumulative voting
is not allowed; therefore, the holders of a majority of the outstanding common
stock can elect all directors.
Holders of our common stock are entitled to receive such dividends as may
be declared by our board of directors out of funds legally available for
dividends and, in the event of liquidation, to share pro rata in any
distribution of our assets after payment of liabilities. Our board of directors
is not obligated to declare a dividend. It is not anticipated that dividends
will be paid in the foreseeable future.
Holders of our common stock do not have preemptive rights to subscribe to
additional shares if issued by us. There are no conversion, redemption, sinking
fund or similar provisions regarding the common stock. All of the outstanding
shares of common stock are fully paid and nonassessable and all of the shares of
common stock issued upon the conversion of the series A preferred stock will be,
upon issuance, fully paid and non-assessable.
On June 16, 1999 we consolidated our outstanding share capital by way of a
reverse stock split on the basis of two old shares for each one new share. No
fractional shares were issued. This transaction was undertaken for the purpose
of reducing our outstanding share capital to facilitate the acquisition of a
business opportunity.
On August 20, 1999 we consolidated our outstanding share capital by way of
reverse stock split on the basis of twenty-one old shares for each one new
share. No fractional shares were issued. This transaction was undertaken for the
purpose of eliminating shareholders owning less than twenty-one shares of our
common stock as the costs to transfer such small blocks of shares far outweighed
their value. This transaction reduced our issued and outstanding shares to
123,176 shares of common stock.
On August 21, 1999 we increased our outstanding share capital by way of a
forward stock split on the basis of forty new shares for each one old share.
This transaction increased our issued and outstanding shares to 4,927,040 shares
of common stock.
Preferred Stock
Our Articles of Incorporation provide that our board of directors has the
authority to divide the preferred stock into series and, within the limitations
provided by Delaware statute, to fix by resolution the voting power,
designations, preferences, and relative participation, special rights, and the
qualifications, limitations or restrictions of the shares of any series so
established. As our board of directors has authority to establish the terms of,
and to issue, the preferred stock without stockholder approval, the preferred
stock could be issued to defend against any attempted takeover of us.
In January, 2000, our board of directors established our series A preferred
stock and authorized the issuance of up to 750 shares of series A preferred
stock as part of this series. Upon any liquidation or dissolution, each
outstanding series A preferred share is entitled to a distribution of $1,000
prior to any distribution to the holders of our common stock. The series A
preferred shares are not entitled to any
<PAGE> 28
dividends or voting rights. In January 2000, we sold 750 series A preferred
shares to a group of private investors for $1,000 per share. Each series A
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
75% of the average closing bid price of our common stock for the ten trading
days preceding the conversion date, subject to a maximum of 5,000 shares of
common stock being issued for each series A preferred share and a minimum of 250
shares of common stock being issued for each series A preferred share. In
addition, all outstanding series A preferred shares will automatically convert
into shares of common stock on January 31, 2001 at the conversion rate described
above. The shares of series A preferred stock are not quoted or traded on any
exchange or quotation system.
In May 2000 Ascent Financial Inc. converted 375 series A preferred shares
into 249,221 shares of common stock. In June 2000, Indenture Trust of James F.
Cool converted 125 series A preferred shares into 155,039 shares of common stock
and Augustine Fund, LP converted 50 series A preferred shares into 62,106 shares
of common stock. Augustine Fund, LP continues to hold 200 series A convertible
preferred shares. The shares of common stock issuable upon the conversion of the
remaining series A preferred shares are being offered for sale to the public by
means of this prospectus.
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, 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 shares are not entitled to any dividends or voting rights. In August
2000, we sold 200 series B preferred shares 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.
Options
As of October 31, 2000 we had issued options to purchase 109,500 shares of
common stock to twenty-two individuals. Of the total, 84,500 are exercisable at
$2.00 per share and 25,000 are exercisable at $4.00 per share. All options are
exercisable for up to 5 years unless the option holder's association with us is
terminated, in which case, the options must be exercised at the time of such
termination and are cancelled thereafter.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Interwest Transfer
Company, Salt Lake City, Utah.
LEGAL PROCEEDINGS
We are not a party to any pending or threatened legal proceeding.
LEGAL MATTERS
The validity of the shares of common stock offered by the selling
stockholders will be passed upon by the law firm of Bartel Eng Linn & Schroder,
Sacramento, California.
<PAGE> 29
EXPERTS
The financial statements of Autoeye, Inc. at May 31, 1999 and 1998, and for
the year ended May 31, 1999 and for each of the periods from December 18, 1997
(date of incorporation) to May 31, 1999 and 1998 (all of which were prepared
prior to the reverse acquisition), appearing in this prospectus have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report given on the authority of such firm as experts in accounting and
auditing.
Our consolidated balance sheet as of May 31, 2000 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year ended May 31, 2000 and the audited balance sheets of The Forest
Industry Online Inc. as of July 31, 1998 and 1999, and the combined statements
of operations and retained earnings (deficit) and cash flows for two years then
ended have been included herein in reliance on the report of Watson Dauphinee &
Masuch, Chartered Accountants, given on the authority of that firm as experts in
accounting and auditing.
Change in our certifying accountant
Effective February 24, 2000 we retained Watson Dauphinee & Masuch
("Watson") to act as our independent certified public accountant. In this regard
Watson replaced Ernst & Young LLP ("E&Y") which audited the financial statements
of Autoeye for the fiscal years ended May 31, 1999 and 1998. The reports of E&Y
for these fiscal years did not contain an adverse opinion, or disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principles. During our two most recent fiscal years and subsequent
interim periods, there were no disagreements with E&Y on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedures, which disagreements, if not resolved to the satisfaction of
E&Y, would have caused it to make reference to such disagreements in its
reports.
The change in our auditors was recommended and approved by our board of
directors as a result of the change in our business and management after January
31, 2000. We do not have an audit committee.
AVAILABLE INFORMATION
We have filed a registration statement on Form SB-2, together with all
amendments and exhibits, with the Securities and Exchange Commission. This
prospectus, which forms a part of that registration statement, does not contain
all information included in the registration statement. Certain information is
omitted and you should refer to the registration statement and its exhibits.
With respect to references made in this prospectus to any of our contracts or
other documents, the references are not necessarily complete and you should
refer to the exhibits attached to the registration statement for copies of the
actual contracts or documents. You may review a copy of the registration
statement at the Securities and Exchange Commission's public reference room, and
at Securities and Exchange Commission's regional offices located at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade
Center, 13th Floor, New York, New York 10048. Please call the Securities and
Exchange Commission at 1-800-SEC-0330 for further information on the operation
of the public reference rooms. Our filings and the registration statement can
also be reviewed by accessing the Securities and Exchange Commission's website
at http://www.sec.gov.
<PAGE> 30
FINANCIAL STATEMENTS
Our financial statements are filed as follows:
Report of Independent Accountants.......................................... F-1
Year-end Consolidated Balance Sheets....................................... F-2
Year-end Consolidated Statements of Operations............................. F-3
Year-end Consolidated Statements of Stockholders' Equity................... F-4
Year-end Consolidated Statements of Cash Flows............................. F-5
Notes to Consolidated Financial Statements.........................F-6 thru F-17
Consolidated Balance Sheet (unaudited) as of August 31, 2000................F-18
Consolidated Statement of Operations (unaudited) for the three months
ended August 31, 2000......................................................F-19
Consolidated Statements of Cash Flow (unaudited) for the three months
ended August 31, 2000......................................................F-20
Notes to Condensed Consolidated Financial Statements..............F-21 thru F-28
The financial statements pertaining to The Forest Industry Online, Inc. are
as follows:
Report of Independent Accountants...........................................F-29
Year-end Balance Sheets.....................................................F-30
Year-end Statements of Operations and Comprehensive Loss....................F-31
Statements of Shareholders' Deficit.........................................F-32
Year-end Statements of Cash Flows...........................................F-33
Notes to Financial Statements.....................................F-34 thru F-39
The following pro forma financial statements pertaining to the acquisition
of The Forest Industry Online are as follows:
Pro Forma Statements of Operations................................F-40 thru F-41
Notes to Pro Forma Financial Statements...........................F-42 thru F-43
<PAGE>
forestindustry.com, Inc.
(formerly Autoeye Inc.)
Consolidated Financial Statements
May 31, 2000 and July 31, 1999
(In U.S. $)
<PAGE>F-1
Independent Auditors' Report
-------------------------------------------------------------------------------
To the Shareholders and Board of Directors of:
forestindustry.com, Inc.
(formerly Autoeye Inc.)
We have audited the Consolidated Balance Sheets of forestindustry.com, Inc. and
subsidiary as of May 31, 2000 and July 31, 1999 and the related Consolidated
Statements of Operations and Comprehensive Income, Stockholders' Equity and Cash
Flows for the ten month period ended May 31, 2000 and year ended July 31, 1999.
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 audits.
We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance 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, these consolidated financial statements present fairly, in all
material respects, the financial position of forestindustry.com, Inc. and
subsidiary as of May 31, 2000 and July 31, 1999 and the results of their
operations and their cash flows for the ten month period ended May 31, 2000 and
the year ended July 31, 1999, in conformity with United States generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in note 1 to the
consolidated financial statements, the Company has suffered recurring losses and
negative cash flows from operations that raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ "Watson Dauphinee & Masuch"
Chartered Accountants
Vancouver, B.C., Canada
August 11, 2000
<PAGE>F-2
forestindustry.com, Inc.
(formerly Autoeye Inc.)
Consolidated Balance Sheets
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
(Audited) (Unaudited) (Audited)
May 31, 2000 May 31, 1999 July 31, 1999
US $ US $ US $
------------ ------------ --------------
ASSETS
CURRENT
Cash and Equivalents 196,963 13,135 2,819
Accounts Receivable (Net of Allowance for Doubtful Accounts -
May 31, 2000 - $20,697; July 31, 1999 - $8,630) 84,151 54,133 64,657
Work in Process 9,137 -- --
Prepaid Expenses 1,548 228 1,795
Due from Affiliated Company -- 326 166
------------ ------------ --------------
291,799 67,822 69,437
Property and Equipment (Note 4) 123,792 28,195 32,481
------------ ------------ --------------
415,591 96,017 101,918
============ ============ ==============
LIABILITIES and STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Operating Line of Credit (Note 5) -- 9,770 13,278
Accounts Payable and Accrued Liabilities 129,513 17,651 39,265
Unearned Revenues 43,877 22,797 52,281
Due to Shareholders (Note 6) -- 73,496 68,013
Demand Bank Loan (Note 7) -- 57,756 55,695
------------ ------------ --------------
173,390 181,470 228,532
------------ ------------ --------------
Commitments (Note 10)
Subsequent Events (Note 11)
STOCKHOLDERS' EQUITY
Share Capital (Note 8)
Common Stock, $0.0001 par value
30,000,000 Authorized; Issued and Outstanding:
May 31, 2000 - 12,966,521; July 31, 1999 - 10,000,000 1,296 1,000 1,000
Preferred Stock, $0.0001 par value
5,000,000 Authorized; Issued and Outstanding:
May 31, 2000 - 375; July 31, 1999 - Nil 1 -- --
Additional Paid in Capital 834,789 (999) (999)
Deferred Stock Compensation (17,253) -- --
Cumulative Translation Adjustment 10,014 991 1,450
Deficit (586,646) (86,445) (128,065)
------------ ------------ --------------
242,201 (85,453) (126,614)
------------ ------------ --------------
415,591 96,017 101,918
============ ============ ==============
See notes to consolidated financial statements
</TABLE>
<PAGE>F-3
forestindustry.com, Inc.
(formerly Autoeye Inc.)
Consolidated Statements of Operations and Comprehensive Income
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
(Audited) (Unaudited) (Audited)
Ten Months Ended Year Ended
---------------------------------- --------------
May 31, 2000 May 31,1999 July 31, 1999
US $ US $ US $
------------ ------------- -------------
REVENUES 335,287 270,176 300,362
------------ ------------- --------------
EXPENSES
Consulting Fees 125,099 487 487
Depreciation 27,826 2,316 7,763
General and Administrative 534,976 213,846 275,061
Professional Fees 105,967 11,456 17,592
------------ ------------- -------------
793,868 228,105 300,903
------------ ------------- -------------
NET INCOME (LOSS)
FOR THE PERIOD (458,581) 42,071 (541)
Foreign Currency Translation Adjustment 8,564 -- 459
------------ ------------- -------------
COMPREHENSIVE INCOME (LOSS) FOR THE PERIOD
(450,017) 42,071 (82)
============ ============= =============
Weighted Average Number of Shares Outstanding,
Basic and Diluted 10,521,802 10,000,000 10,000,000
============ ============= =============
Earnings (Loss) per Common Share,
Basic and Diluted (0.043) 0.004 (0.001)
============ ============= =============
</TABLE>
See notes to consolidated financial statements
<PAGE>F-4
forestindustry.com, Inc.
(formerly Autoeye Inc.)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statements of Stockholders' Equity For the Periods from July 31,
1998 to May 31, 2000
-------------------------------------------------------------------------------
Common Stock Preferred Stock Deficit Total
------------------ -------------------
Additional Deferred Cumulative
Number Number Paid in Stock Translation
of Amount of Amount Capital Compensation Adjustment
Shares US $ Shares US $ US $ US $ US $ US $ US $
---------- ----- -------- ------ ---------- ------------- ----------- --------- ---------
Balance, July 31, 1998 10,000,000 1,000 -- -- (999) -- 991 (127,524) (126,532)
Translation Adjustment
for the Year Ended July 31, 1999 -- -- -- -- -- -- 459 -- 459
Net Loss for the Year Ended
July 31, 1999 -- -- -- -- -- -- -- (541) (541)
Common stock issued to purchase all
issued and outstanding shares of
The Forest Industry Online Inc., 4,927,040 493 -- -- (493) -- -- -- --
January 31, 2000 (note 3)
Adjustment to comply with
recapitalization accounting
(note 3) -- -- -- -- (28,042) -- -- -- (28,042)
750 Series `A' convertible preferred
stocks issued for cash, January 31,
2000 at $1,000 per share (note 3) -- -- 750 1 749,999 -- -- -- 750,000
Common stock issued for service,
January 31, 2000, valued at $0.25
per share (note 3) 37,500 4 -- -- 9,371 -- -- -- 9,375
Common stock issued for services in
February, 2000, valued at $0.25
per share (note 8(c)) 350,000 35 -- -- 87,465 -- -- -- 87,500
Common stock issued on conversion
of Series `A' convertible
preferred stock 249,221 24 (375) -- (25) -- -- -- (1)
Retirement of common stock returned
to the Company at no cost by the
founding shareholder (2,597,240) (260) -- -- 260 -- -- -- --
Deferred Compensation -- -- -- -- 17,253 (17,253) -- -- --
Translation Adjustment for the
Period Ended May 31, 2000 -- -- -- -- -- -- 8,564 -- 8,564
Net Loss for the Period Ended
May 31, 2000 -- -- -- -- -- -- -- (458,581) (458,581)
---------- ----- -------- ------ ---------- ------------- ----------- --------- ---------
Balance, May 31, 2000 12,966,521 1,296 375 1 834,789 (17,253) 10,014 (586,646) 242,201
========== ===== ======== ====== ========== ============= =========== ========= =========
See notes to consolidated financial statements
</TABLE>
<PAGE>F-5
Consolidated Statements of Cash Flows
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
(Audited) (Unaudited) (Audited)
Ten Months Ended Year Ended
-------------------------------- --------------
May 31, 2000 May 31,1999 July 31, 1999
US $ US $ US $
------------ ------------ --------------
CASH WAS PROVIDED FROM, UTILIZED (FOR):
OPERATING ACTIVITIES
Net Income (Loss) for the Period (458,581) 42,071 (541)
Non-Cash Items:
Depreciation 27,826 2,316 7,763
Common Stocks Issued in Exchange for Services 87,500 -- --
Change in Non-Cash Working Capital Accounts:
Accounts Receivable (19,494) (30,635) (41,159)
Work in Process (9,137) -- --
Note Receivable -- 14,406 14,406
Prepaid Expenses 247 186 (1,381)
Accounts Payable and Accrued Liabilities 80,384 (16,547) 5,067
Unearned Revenues (8,404) (365) 29,119
------------ ------------ --------------
Net Cash Provided by (Used in) Operating Activities (299,659) 11,432 13,274
------------ ------------ --------------
FINANCING ACTIVITIES
Demand Bank Loan and Operating Line of
Credit Advances (Repayments) (68,973) 67,526 68,973
Advances from (to) Affiliated Company 166 (326) (166)
Advances (to) Shareholders (68,013) (49,559) (55,042)
Net Proceeds from Issuance of Preferred Stocks 750,000 -- --
------------ ------------ --------------
Net Cash Provided by Financing Activities 613,180 17,641 13,765
------------ ------------ --------------
INVESTING ACTIVITY
Acquisition of Property and Equipment (Net) (119,377) (18,727) (27,009)
------------ ------------ --------------
NET INCREASE
IN CASH AND EQUIVALENTS 194,144 10,346 30
Cash and Equivalents, Beginning of the Period 2,819 2,789 2,789
------------ ------------ --------------
CASH AND EQUIVALENTS, END OF THE PERIOD 196,963 13,135 2,819
============= ============ ==============
Supplemental Disclosure
Interest Paid 10,035 12,309 14,534
============= ============ ==============
See notes to consolidated financial statements
</TABLE>
<PAGE>F-6
forestindustry.com, Inc.
(formerly Autoeye Inc.)
Notes to the Consolidated Financial Statements
Ten Months Ended May 31, 2000 and Year Ended July 31, 1999
(Expressed in U.S. Dollars)
-------------------------------------------------------------------------------
NOTE 1 - 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") (note 2(a)), the Company was
inactive.
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 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 May 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.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
a) Reverse Takeover and Basis of Presentation
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
forestindustry.com, Inc.
The Company's historical financial statements reflect the financial position,
results of operations and cash flows of Forest from the date of its
incorporation on January 09, 1997 under the laws of the Province of British
Columbia, Canada. The historical stockholders' equity gives effect to the shares
issued to the stockholders of Forest. The results of operations of
forestindustry.com, Inc. are included only from the date of acquisition, January
31, 2000.
b) Basis of Consolidation
These consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, The Forest Industry Online Inc. All significant
intercompany balances and transactions have been eliminated in the consolidated
financial statements.
c) Work in Process
Work in process is recorded at the lower of cost determined using a
percentage-of-completion method based on the contract price and net realizable
value.
<PAGE>F-7
forestindustry.com, Inc.
(formerly Autoeye Inc.)
Notes to the Consolidated Financial Statements
Ten Months Ended May 31, 2000 and Year Ended July 31, 1999
(Expressed in U.S. Dollars)
--------------------------------------------------------------------------------
Note 2 - Significant Accounting Policies (continued)
d) 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.
e) Cash and Equivalents
The Company considers all short-term investments with a maturity date at
purchase of three months or less to be cash equivalents.
f) 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.
g) 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.
h) 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.
i) 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.
<PAGE>F-8
forestindustry.com, Inc.
(formerly Autoeye Inc.)
Notes to the Consolidated Financial Statements
Ten Months Ended May 31, 2000 and Year Ended July 31, 1999
(Expressed in U.S. Dollars)
--------------------------------------------------------------------------------
Note 2 - Significant Accounting Policies (continued)
j) 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.
k) 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
date. Exchange gains or losses arising on translation or settlement of foreign
currency denominated monetary items are included in the consolidated statement
of operations.
l) Impairment of Long-Lived Assets
The recoverability of the excess of cost over fair value of net assets acquired
is evaluated by an analysis of operating results and consideration of other
significant events or changes in the business environment. If the Company
believes an impairment exists, the carrying amount of these assets is reduced to
fair value as defined in SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of."
m) Comparative Figures
Certain figures presented for comparative purposes have been reclassified to
conform with current period financial statement presentation. These
reclassifications had no effect on net loss or stockholders' equity.
<PAGE>F-9
forestindustry.com, Inc.
(formerly Autoeye Inc.)
Notes to the Consolidated Financial Statements
Ten Months Ended May 31, 2000 and Year Ended July 31, 1999
(Expressed in U.S. Dollars)
-------------------------------------------------------------------------------
Note 3 - Acquisition
On January 31, 2000, the Company acquired all of the issued and outstanding
shares of Forest. The acquisition was a reverse takeover with Forest being the
deemed accounting acquiror for financial statement purposes.
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 which 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
$24,375. They include cash expense in the estimated amount of $15,000 and
non-cash expense in the amount of $9,375. 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 shares
at $0.25 per share. Total transaction costs have been recorded as a charge to
the stockholders' equity of the Company.
Cash and equivalents held by the Company in the amount of $750,000 were obtained
through subscriptions for a private placement of 750 shares of Series "A"
convertible preferred stock at a price of $1,000 per share. The closing of this
private placement and the release of funds held in escrow were contingent on
this acquisition being completed. The shares of Series "A" preferred stock are
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.
The following table reflects pro forma information which combines the operations
of forestindustry.com, Inc. for the ten months ended May 31, 2000 and year ended
July 31, 1999 as if the acquisition of forestindustry.com, Inc. had taken place
at the beginning of the period. There were no pro forma adjustments required in
combining this information of these two entities. This pro forma information
does not reflect any non-recurring charges or credits directly attributable to
the transaction. This pro forma information does not purport to be indicative of
the revenues and net loss that could have resulted had the acquisition been in
effect for the period presented and is not intended to be a projection of future
results or trends.
<PAGE>F-10
forestindustry.com, Inc.
(formerly Autoeye Inc.)
Notes to the Consolidated Financial Statements
Ten Months Ended May 31, 2000 and Year Ended July 31, 1999
(Expressed in U.S. Dollars)
--------------------------------------------------------------------------------
Note 3 - Acquisition (continued)
Ten Months Ended Year Ended
May 31, 2000 July 31, 1999
$ $
---------------- ---------------
Revenues 335,287 300,362
Expenses
Consulting Fees 125,099 487
Depreciation 27,826 7,763
General and Administrative 539,008 275,061
Professional Fees 109,822 27,344
---------------- ---------------
Net (Loss) for the Period (466,468) (10,293)
================ ===============
Net (Loss) Per Share (0.044) (0.001)
================ ===============
NOTE 4 - PROPERTY AND EQUIPMENT
Accumulated Net Book Value
Cost Depreciation May 31, 2000 July 31, 1999
$ $ $ $
---------- ------------- --------------- --------------
Computer Equipment 110,076 25,176 84,900 26,542
Furniture and Fixtures 33,927 3,884 30,043 3,477
Software 15,549 10,445 5,104 2,462
Leasehold Improvements 4,161 416 3,745 -
---------- ------------- --------------- --------------
163,713 39,921 123,792 32,481
========== ============= =============== ==============
Note 5 - Operating Line of Credit
The Company has a NIL (1999 -$13,278 (CDN $20,000)) revolving operating line of
credit with the Royal Bank of Canada. The line of credit was repaid in March
2000 and the general security agreement as well as the guarantees were
cancelled.
<PAGE>F-11
forestindustry.com, Inc.
(formerly Autoeye Inc.)
Notes to the Consolidated Financial Statements
Ten Months Ended May 31, 2000 and Year Ended July 31, 1999
(Expressed in U.S. Dollars)
--------------------------------------------------------------------------------
NOTE 6 - DUE TO SHAREHOLDERS
Amounts due to shareholders were unsecured and had no specific terms of
repayment except for $49,840 which bore interest at prime plus 5% per annum. The
amounts due to shareholders were repaid in March 2000.
May 31, 2000 July 31, 1999
$ $
-------------- ----------------
Due to Shareholders - 68,013
============== ================
NOTE 7 - DEMAND BANK LOAN
Demand Bank Loan, Royal Bank of Canada
The demand loan was repayable in monthly
instalments of $1,992 including
interest at prime plus 2% per annum and
was secured by a general security
agreement over all the assets of the
Company, guarantees by the corporate
shareholder and personal guarantees
of the principals of the Company. The
loan was repaid in March 2000. - 55,695
============== ================
Note 8 - 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.
<PAGE>F-12
forestindustry.com, Inc.
(formerly Autoeye Inc.)
Notes to the Consolidated Financial Statements
Ten Months Ended May 31, 2000 and Year Ended July 31, 1999
(Expressed in U.S. Dollars)
-------------------------------------------------------------------------------
Note 8 - Stockholders' Equity (continued)
b) Stock Options
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 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. There was no
stock option plan prior to February 2000.
Issued to Employees
On February 29, 2000, the Company granted options to purchase a total of 29,000
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.
As discussed in Note 2(i), 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 78%; and an expected life of the options
of 2.5 years. Accordingly, compensation expense using the fair value method
would have been $4,870, amortized over their respective vesting period.
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.
<PAGE>F-13
forestindustry.com, Inc.
(formerly Autoeye Inc.)
Notes to the Consolidated Financial Statements
Ten Months Ended May 31, 2000 and Year Ended July 31, 1999
(Expressed in U.S. Dollars)
-------------------------------------------------------------------------------
Note 8 - Stockholders' Equity (continued)
b) Stock Options (continued)
Issued to Employees (continued)
The Statement's pro forma information from the options is as follows:
Ten Months Ended Year Ended
May 31, 2000 July 31, 1999
$ $
----------------- --------------
Net (loss) as reported (458,581) (541)
Compensation expense from stock options under
SFAS No. 123 (1,217) -
----------------- --------------
Pro forma net (loss) (459,798) (541)
================= ==============
Pro forma (loss) per common share:
Basic and Diluted (0.043) (0.001)
================= ==============
Issued to 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 and expire on May 01, 2001 and
May 01, 2005, respectively. 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, compensation
expense relating to these stock options in the amount of $17,253 was recorded as
deferred stock compensation to be amortized over their respective vesting
period.
Additional Stock Option Plan Information
A summary status of the Company's fixed stock option plan and changes during the
period ended May 31, 2000 are as follows. There were no stock options as of July
31, 1999.
Number of Weighted Average
Shares Exercise Price
$
----------- ----------------
Outstanding, August 01, 1999 - -
Granted 73,000 2.90
Forfeited (4,000) 4.00
----------- ----------------
Outstanding, May 31, 2000 69,000 2.84
=========== ================
Options exercisable at end of period Nil -
=========== ================
<PAGE>F-14
forestindustry.com, Inc.
(formerly Autoeye Inc.)
Notes to the Consolidated Financial Statements
Ten Months Ended May 31, 2000 and Year Ended July 31, 1999
(Expressed in U.S. Dollars)
--------------------------------------------------------------------------------
Note 8 - Stockholders' Equity (continued)
b) Stock Options (continued)
Additional Stock Option Plan Information (continued)
The following table summarizes information about the Company's fixed stock
options outstanding at May 31, 2000:
Options Outstanding
Number Weighted Average Weighted Average
Range of Outstanding at Remaining Contractual Exercise
Exercise Prices May 31, 2000 Life (in years) Price
$ $
---------------- -------------- ---------------------- -----------------
4.00 - 4.00 29,000 5 4.00
2.00 - 2.00 40,000 5 2.00
-------------- ---------------------- -----------------
69,000 5 2.84
============== ====================== =================
The options outstanding at May 31, 2000 will expire between February and May
2005.
c) Stock-Based Compensation
In January 2000, the Company issued 37,500 shares of common stock to a company
controlled by the Company's former president in exchange for services relating
to the acquisition of Forest. The fair value of these services was estimated
based upon the estimated fair value of the shares at $0.25 per share or $9,375.
The costs were deducted from the additional paid-in capital from the said
acquisition.
In February 2000, the Company recorded non-cash compensation expense of $87,500
relating to the issuance of 350,000 shares of common stock to certain
consultants to the Company. The fair value of the shares was estimated at $0.25
per share at the time of the transaction.
As discussed in Note 2(i), the Company recognizes compensation expense for
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.
d) Retirement of Common Stocks
By way of a stock retirement agreement dated May 11, 2000 and for a nominal
amount of $1.00, a former principal shareholder of the Company returned
2,597,240 shares of common stock to the Company for cancellation. The
shareholder agreed that in order for the Company to attract future financing,
the Company should reduce its issued and outstanding share capital of its common
stock through the surrender and retirement of these shares.
<PAGE>F-15
forestindustry.com, Inc.
(formerly Autoeye Inc.)
Notes to the Consolidated Financial Statements
Ten Months Ended May 31, 2000 and Year Ended July 31, 1999
(Expressed in U.S. Dollars)
------------------------------------------------------------------------------
Note 8 - Stockholders' Equity (continued)
e) Stock Splits
The Company consolidated its share capital on June 16, 1999 by way of a reverse
stock split on the basis of one new common share for each two old common shares,
on August 20, 1999 by way of a reverse stock split on the basis of one new
common share for each twenty-one old common shares, and on August 21, 1999 by
way of a stock split on the basis of forty new common shares for one old common
share. Issued and outstanding shares as of May 31, 1999 have been adjusted to
reflect these share splits.
Note 9 - INCOME TAXES
Deferred tax assets and liabilities
<TABLE>
<S> <C> <C>
May 31, 2000 July 31, 1999
$ $
--------------- --------------
Preferred tax assets:
Operating loss carryforward 210,000 56,000
--------------- --------------
Total deferred tax assets before valuation allowance 210,000 56,000
Valuation allowance (210,000) (56,000)
--------------- --------------
Net deferred tax assets - -
=============== ==============
</TABLE>
Management believes that it is more likely than not that it will not create
sufficient taxable income sufficient to realize its deferred tax assets. It is
reasonably possible these estimates could change due to future income and the
timing and manner of the reversal of deferred tax liabilities.
The Company has no income tax expense due to its operating losses.
The Company has Canadian operating loss carryforwards for Canadian income tax
purposes at May 31, 2000 of approximately $480,000 (CDN $705,000). These
operating losses begin to expire in fiscal year 2004.
Note 10 - 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 office premises in
Vancouver, B.C., Canada to September 30, 2001. The monthly lease payment is,
excluding operating costs, $2,561.
c) 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.
<PAGE>F-16
forestindustry.com, Inc.
(formerly Autoeye Inc.)
Notes to the Consolidated Financial Statements
Ten Months Ended May 31, 2000 and Year Ended July 31, 1999
(Expressed in U.S. Dollars)
--------------------------------------------------------------------------------
Note 10 - Commitments (continued)
d) The Company has entered into an agreement to lease an internet
telecommunication line to December 31, 2002. The monthly lease payment is
$959.
e) The Company has entered into a consulting contract with an individual to
perform various investor relations and corporate development functions for
an initial fee of $50,000, which was settled by the issuance of 200,000
common shares of the Company at $0.25 per share, and a monthly fee of
$2,414. The contract term is from February 29, 2000 to February 28, 2001.
The Company may terminate the agreement on fourteen days written notice.
f) The Company has entered into an employment contract with the President of
the Company for management and administrative services for an annual salary
of $47,600. The employment contract term is from February 01, 2000 to
January 31, 2003. The Company may terminate the agreement only with cause.
g) The Company has 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 $37,500, which was settled by the
issuance of 150,000 common shares of the Company at $0.25 per share, and an
annual salary of $51,000. The employment contract term is from February 29,
2000 to February 28, 2001. Subsequent to year end, on July 21, 2000, the CIO
resigned.
h) The Company has entered into a consulting contract with a consulting firm to
provide strategic management services for a monthly fee of $3,450. The
contract term is from May 26, 2000 to November 26, 2000. The Company may
terminate the agreement on thirty days written notice. 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 options vest on May 01, 2001 and expire on May 01, 2005 (see note
8(b)).
Minimum future lease payments under operating leases are as follows:
Year $
2001 70,056
2002 28,100
2003 11,474
NOTE 11 - SUBSEQUENT EVENTS
a) On June 07, 2000, the Company entered into an agreement for advertising and
marketing services for a term of three months. In consideration, the Company
issued 200,000 shares of its common stock as compensation for services
rendered. The Company will record a non-cash compensation expense of
$212,500 based upon the estimated fair value of the shares which
approximates the value of the services received.
b) On June 12, 2000, the Company granted 54,000 stock options to employees with
an exercise price of $2.00 per share. The options vest on June 11, 2001 and
expire on June 11, 2005.
<PAGE>F-17
forestindustry.com, Inc.
(formerly Autoeye Inc.)
Notes to the Consolidated Financial Statements
Ten Months Ended May 31, 2000 and Year Ended July 31, 1999
(Expressed in U.S. Dollars)
--------------------------------------------------------------------------------
NOTE 11 - SUBSEQUENT EVENTS (continued)
c) On June 15, 2000, the Company issued 217,145 shares of its common stock on
the conversion of 175 shares of its Series "A" convertible preferred stock.
d) On August 01, 2000, the Company issued through a private placement 200
shares of Series "B" convertible preferred stock with a par value of $0.0001
at a price of $1,000 per 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.
The Series "B" preferred stock is convertible, at the option of the holder,
and at any time after August 01, 2000, into common stock at 70% of the last
five 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 Series "B" preferred stock.
Note 12 - RELATED PARTY TRANSACTIONS
<TABLE>
<S> <C> <C>
Ten Months Ended Year Ended
May 31, 2000 July 31, 1999
$ $
------------------ --------------
Wages paid to the President of the Company for management,
administration and supervision services 28,428 31,761
Interest paid to shareholders for funds loaned to the Company 3,490 10,420
</TABLE>
Note 13 - Financial Instruments
Financial instruments include cash and equivalents, accounts receivable, and
accounts payable and accrued liabilities. The estimated fair value of such
financial instruments approximates their carrying value.
<PAGE>F-18
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>F-19
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>F-20
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>F-21
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>F-22
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>F-23
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>F-24
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>F-25
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>F-26
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:
<TABLE>
<S> <C> <C>
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)
------------------ ------------------
</TABLE>
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>F-27
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>F-28
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.
<PAGE>F-29
Auditors' Report
--------------------------------------------------------------------------------
To the Directors of: FOREST INDUSTRY ONLINE INC.
We have audited the Balance Sheets of Forest Industry Online Inc. as at July 31,
1999 and 1998 and the Statements of Operations, Shareholders' Deficit 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at July 31, 1999 and 1998 and
the results of its operations and the changes in its cash flows for the years
then ended in accordance with generally accepted accounting principles in
Canada, which except as disclosed in Note 16 to the financial statements, also
conform in all material respects with accounting principles generally accepted
in the United States.
/s/ "WATSON DAUPHINEE & MASUCH"
Chartered Accountants
Vancouver, B.C., Canada
November 05, 1999
<PAGE>F-30
FOREST INDUSTRY ONLINE INC.
Balance Sheets
AS AT JULY 31, 1999 AND 1998 (In U.S. $)
------------------------------------------------------------------------------
1999 1998
$ $
--------- ---------
ASSETS
CURRENT
Cash 2,819 2,789
Accounts Receivable (Net of allowance
for Doubtful Accounts 64,657 23,498
1999 - $ 8,630; 1998 - $ 2,978)
Note Receivable -- 14,406
Prepaid Expenses 1,795 414
Due from Affiliated Company (Note 3) 166 --
--------- ---------
69,437 41,107
Capital (Note 4) 32,481 12,776
--------- ---------
101,918 53,883
========= =========
LIABILITIES
CURRENT
Operating Line of Credit (Note 5) 13,278 --
Accounts Payable and Accrued Liabilities 39,265 34,198
Unearned Revenues 52,281 23,162
Due to Parent Company (Note 6) 50,341 123,055
Due to Shareholders (Note 7) 17,672 --
Demand Bank Loan (Note 8) 55,695 --
--------- ---------
228,532 180,415
--------- ---------
Commitments (Note 11)
SHAREHOLDERS' DEFICIENCY
Share Capital (Note 9) 1 1
Cumulative Translation Adjustment 1,450 991
Deficit (128,065) (127,524)
--------- ---------
(126,614) (126,532)
--------- ---------
101,918 53,883
========= =========
<PAGE>F-31
FOREST INDUSTRY ONLINE INC.
Statements of Operations and Comprehensive Loss
FOR THE YEARS ENDED JULY 31, 1999 AND 1998 (In U.S. $)
--------------------------------------------------------------------------------
1999 1998
$ $
----------- ----------
REVENUES 300,362 128,685
----------- ----------
EXPENSES
Advertising and Promotion 2,282 3,164
Depreciation 7,763 3,036
Automobile 540 4,055
Bad Debts 7,782 3,155
Interest 14,534 12,655
Consulting Fees 487 1,898
Insurance, Licenses and Dues 1,827 2,127
Internet and Connecting Fees 8,034 12,869
Office Supplies 11,812 6,200
Printing 11,167 --
Professional Fees 17,592 12,657
Rent, Property Taxes and Utilities 10,150 6,147
Repair and Maintenance 2,222 442
Salaries and Benefits 172,339 95,723
Telephone 13,664 15,610
Trade Shows 7,985 3,513
Travel and Lodging 10,723 11,101
----------- ----------
300,903 194,352
----------- ----------
NET (LOSS) FOR THE YEAR (541) (65,667)
Translation Adjustment Gain 459 991
----------- ----------
COMPREHENSIVE (LOSS) FOR THE YEAR (82) (64,676)
=========== ==========
<PAGE>F-32
FOREST INDUSTRY ONLINE INC.
Statements of Shareholders' Deficit
FROM JANUARY 09, 1997 (INCEPTION) TO JULY 31, 1999 (In U.S. $)
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
Common Shares Cumulative
Translation Deficit
Shares Amount Adjustment Accumulated Total
# $ $ $ $
-------- -------- ------------ ------------ -----------
Issuance of Shares for Cash
in January 1997 100 1 -- -- 1
Net (Loss) from Inception to
July 31, 1997 -- -- -- (61,857) (61,857)
-------- -------- ------------ ------------ -----------
Balance, July 31, 1997 100 1 -- (61,857) (61,856)
Translation Adjustment -- -- 991 -- 991
Net (Loss) for the Year Ended
July 31, 1998 -- -- -- (65,667) (65,667)
-------- -------- ------------ ------------ -----------
Balance, July 31, 1998 100 1 991 (127,524) (126,532)
Translation Adjustment -- -- 459 -- 459
Net (Loss) for the Year Ended
July 31, 1999 -- -- -- (541) (541)
-------- -------- ------------ ------------ -----------
Balance, July 31, 1999 100 1 1,450 (128,065) (126,614)
======== ======== ============ ============ ===========
</TABLE>
<PAGE>F-33
FOREST INDUSTRY ONLINE INC.
Statements of Cash Flows
FOR THE YEARS ENDED JULY 31, 1999 AND 1998 (In U.S. $)
--------------------------------------------------------------------------------
1999 1998
$ $
---------- ----------
CASH WAS PROVIDED FROM, UTILIZED (FOR):
OPERATING ACTIVITIES:
Net (Loss) for the Year (541) (65,667)
Non-Cash Items:
Depreciation 7,763 3,036
Change in Non-Cash Working Capital 6,052 15,722
Accounts (Note 13)
---------- ----------
13,274 (46,909)
---------- ----------
FINANCING ACTIVITIES
Bank Loan (net of repayments) 55,695 --
Advances (to) Affiliated Company (166) --
Advances from (to) Parent Company (72,714) 47,406
Advances from (to) Shareholders 17,672 (1,759)
---------- ----------
487 45,647
---------- ----------
INVESTING ACTIVITY
Acquisition of Capital Assets (27,009) (4,120)
---------- ----------
DECREASE IN CASH (13,248) (5,382)
Cash, Beginning of the Year 2,789 8,171
---------- ----------
CASH (BANK INDEBTEDNESS),
END OF THE YEAR (10,459) 2,789
========== =========
Cash (Bank Indebtedness) comprised of:
Cash 2,819 2,789
Operating Line of Credit (13,278) --
========== =========
(10,459) 2,789
Supplemental Disclosure
Interest Paid 14,534 12,655
========== =========
<PAGE>F-34
FOREST INDUSTRY ONLINE INC.
Notes to the Financial Statements
AS AT JULY 31, 1999 AND 1998 (In U.S. $)
-------------------------------------------------------------------------------
NOTE 1 - NATURE OF OPERATIONS
Forest Industry Online Inc. ("the Company") was incorporated on January 09, 1997
under the laws of the Province of British Columbia, Canada. The Company's
principal business activities include designing web sites and operating and
maintaining a computer internet web site for companies associated with the
forest industry.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
a) Capital Assets and Depreciation
Capital assets are recorded at cost. Depreciation is provided for at the
following annual rates on the straight line basis:
Automotive Equipment - 20%
Computer Equipment - 20%
Furniture and Fixtures - 10%
Software - 100%
One half of the above rates are applied in the year of acquisition and no
amortization is taken in the year of disposal.
b) Revenue Recognition and Unearned Revenues
Revenues are recorded on the billed basis. Customers are billed on a quarterly
basis in advance for advertising fees and hosting revenue. Unearned revenues
relate to the period of the billing that has not yet transpired and therefore
not earned.
c) 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 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.
d) Income Taxes
The Company uses the liability method of accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on the
difference between financial statement and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that are expected to be in
effect when the differences are expected to reverse. Deferred tax assets are
reduced by a valuation allowance in respect of amounts considered by management
to be less likely than not a realization in future periods.
<PAGE>F-35
FOREST INDUSTRY ONLINE INC.
Notes to the Financial Statements
AS AT JULY 31, 1999 AND 1998 (In U.S. $)
--------------------------------------------------------------------------------
NOTE 3 - DUE FROM AFFILIATED COMPANY
Amounts due from an affiliated company are unsecured, are non-interest bearing
and have no formal terms of repayment.
1999 1998
$ $
Seaspray Log Scaling Ltd. 166 -
======== =======
NOTE 4 - CAPITAL ASSETS
Accumulated Net Book Value
Cost Depreciation 1999 1998
$ $ $ $
--------- -------------- -------- ---------
Automotive Equipment 710 71 639 --
Computer Equipment 35,388 8,846 26,542 12,526
Furniture and Fixtures 3,013 175 2,838 100
Software 5,225 2,763 2,462 150
--------- -------------- -------- ---------
44,336 11,855 32,481 12,776
========= ============== ======== =========
NOTE 5 - OPERATING LINE OF CREDIT
The Company has a $16,600 (CDN$25,000) revolving operating line of
credit with the Royal Bank of Canada. The line of credit is
payable on demand, bears interest at prime plus 1.75% per annum
payable monthly, and is secured by a general security agreement
over all the assets of the Company, guarantees by the corporate
shareholder and personal guarantees of the principals of the
Company.
NOTE 6 - DUE TO PARENT COMPANY
Amounts due to parent company, Teaco Properties Ltd. who owns 78%
of the Company, are unsecured and have no specific terms of
repayment except for $49,840 (1998 - $111,152) which bears
interest at prime plus 5% per annum. The parent company has
indicated that it will not seek repayment in year 2000.
1999 1998
$ $
Teaco Properties Ltd. 50,341 123,055
========= ========
<PAGE>F-36
FOREST INDUSTRY ONLINE INC.
Notes to the Financial Statements
AS AT JULY 31, 1999 AND 1998 (In U.S. $)
-----------------------------------------------------------------------------
NOTE 7 - DUE TO SHAREHOLDERS
Amounts due to shareholders are non-interest bearing, unsecured,
and have no specific terms of repayment. The shareholders have
indicated that they will not seek repayment in year 2000.
1999 1998
$ $
17,672 -
======= =====
NOTE 8 - DEMAND BANK LOAN
1999 1998
$ $
Demand Bank Loan, Royal Bank 55,695 -
The demand loan is repayable in monthly
instalments of $1,992 including interest
at prime plus 2% per annum and is secured
by a general security agreement over all
the assets of the Company, guarantees by
the corporate shareholder and personal
guarantees of the principals of the Company.
-------- ------
55,695 -
======== ======
NOTE 9 - SHARE CAPITAL
Authorized:
10,000 Class "A" voting common shares with no par value
Issued: 1999 1998
$ $
100 Class "A" voting common shares 1 1
====== =====
The shares were issued on January 09, 1997 for cash proceeds of
$0.01 per share.
<PAGE>F-37
FOREST INDUSTRY ONLINE INC.
Notes to the Financial Statements
AS AT JULY 31, 1999 AND 1998 (In U.S. $)
--------------------------------------------------------------------------------
NOTE 10 - INCOME TAXES
The Company has non-capital losses available for carry-forward
totalling $129,921. These losses may be carried forward to be
applied against future income for Canadian tax purposes. The
losses expire as follows:
Year $
2004 56,828
2005 72,031
2006 1,062
---------
129,921
=========
No future benefit for these losses has been recognized in these
financial statements.
NOTE 11 - COMMITMENTS
A) The Company has entered into an agreement to lease office
premise to March 31, 2000. The monthly lease payment,
excluding operating costs, is $1,007.
B) The Company has entered into an agreement to lease a vehicle
to November 30, 1999. The monthly lease payment is $213 with
an option to purchase the vehicle at the end of the lease for
$11,950. The Company does not plan to exercise the option to
purchase the vehicle when the lease expires.
C) The Company has entered into an agreement to lease an internet
telecommunication line to December 31, 2002. The monthly lease
payment is $863.
NOTE 12 - RELATED PARTY TRANSACTIONS
In addition to those transactions disclosed elsewhere in these
financial statements, the Company had the following transactions
with related parties:
1999 1998
$ $
--------- --------
Salaries paid to shareholders of the 49,410 25,325
Company for management, administration,
sales, supervision, and product development
services.
Interest paid to the parent company for 9,905 11,031
funds advanced to the Company.
Professional fees paid to the parent 12,220 8,275
company for accounting services provided.
<PAGE>F-38
FOREST INDUSTRY ONLINE INC.
Notes to the Financial Statements
AS AT JULY 31, 1999 AND 1998 (In U.S. $)
-------------------------------------------------------------------------------
NOTE 13 - CHANGE IN NON-CASH WORKING CAPITAL ACCOUNTS
1999 1998
$ $
------------ ---------
Accounts Receivable (41,159) (12,870)
Note Receivable 14,406 (14,406)
Prepaid Expenses (1,381) (414)
Accounts Payable and Accrued Liabilities 5,067 20,250
Unearned Revenues 29,119 23,162
------------ ---------
6,052 15,722
============ =========
NOTE 14 - FINANCIAL INSTRUMENTS
Financial instruments include cash, accounts receivable, due from
affiliated company, operating line of credit, accounts payable and
accrued liabilities, demand bank loan, amounts due to parent
company and shareholders. The estimated fair value of such
financial instruments approximates their carrying value.
NOTE 15 - UNCERTAINTY DUE TO YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use
two digits rather than four to identify a year. Date sensitive
systems may recognize the year 2000 as 1900 or some other date,
resulting in errors when information using year 2000 dates is
processed. In addition, similar problems may arise in some systems
which use certain dates in 1999 to represent something other than
a date. The effects of the Year 2000 Issue may be experienced
before, on, or after January 01, 2000, and, if not addressed, the
impact on operations and financial reporting may range from minor
errors to significant systems failure which could affect an
entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue
affecting the Company, including those related to the efforts of
customers, suppliers, or other parties, will be fully resolved.
<PAGE>F-39
FOREST INDUSTRY ONLINE INC.
Notes to the Financial Statements
AS AT JULY 31, 1999 AND 1998 (In U.S. $)
------------------------------------------------------------------------------
NOTE 16 - UNITED STATES ACCOUNTING PRINCIPLES
These financial statements have been prepared in accordance with accounting
principles generally accepted in Canada. They do not differ materially from
accounting principles generally accepted in the United States.
<PAGE>
FORESTINDUSTRY.COM, INC.
(formerly Autoeye Inc.)
forestindustry.com, Inc.
(formerly Autoeye Inc.)
Pro Forma Combined Statements of Operations
For the Nine Months Ended February 29, 2000 and the Year Ended May 31, 1999
(In U.S. $)
Unaudited
<PAGE>F-40
Pro Forma Combined Statement of Operations For the Nine Months Ended February
29, 2000 (In U.S. $)
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
Pro forma
---------------------------------
The Forest Forestindustry. Acquisition
Industry com, Adjustments
Online Inc. Inc. (Note 2) Combined
$ $ $ $
------------- ----------------- -------------- -----------
REVENUES 264,144 -- -- 264,144
------------- ----------------- -------------- -----------
EXPENSES
Administrative and selling 198,672 11,789 -- 210,461
Wages and Benefits 169,158 -- -- 169,158
------------- ----------------- -------------- -----------
367,830 11,789 -- 379,619
------------- ----------------- -------------- -----------
NET LOSS FOR THE PERIOD 103,686 11,789 -- 115,475
============= ================= ============== ===========
Basic and diluted loss
per share (0.01)
===========
</TABLE>
Unaudited - "See accompanying notes to the pro forma combined financial
statements"
<PAGE>F-41
Pro Forma Combined Statement of Operations
For the Year Ended May 31, 1999 (In U.S. $)
-------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
Pro forma
-----------------------------
The Forest Forestindustry. Acquisition
Industry com, Inc. Adjustments
Online Inc. (Note 2) Combined
$ $ $ $
-------------- ----------------- --------------- ---------
REVENUES 302,313 - - 302,313
-------------- ----------------- --------------- ---------
EXPENSES
Advertising and Promotion 1,826 - - 1,826
Bad Debts 5,048 - - 5,048
Bank Charges and Interest 16,322 - - 16,322
Consulting Fees 2,365 - - 2,365
Depreciation 5,389 - - 5,389
Office 10,955 - - 10,955
Printing 4,767 - - 4,767
Professional Fees 17,712 9,752 - 27,464
Rent and Utilities 8,662 - - 8,662
Telephone and Internet Connecting Fees 30,673 - - 30,673
Travel 10,038 - - 10,038
Trade Shows 2,592 - - 2,592
Wages and Benefits 171,101 - - 171,101
-------------- ----------------- --------------- ---------
287,450 9,752 - 297,202
-------------- ----------------- --------------- ---------
NET INCOME (LOSS)
FOR THE YEAR 14,863 (9,752) - 5,111
============== ================= =============== =========
Basic Earnings per share -
=========
</TABLE>
Unaudited - "See accompanying notes to the pro forma combined financial
statements"
<PAGE>F-42
Notes to the Pro Forma Combined Statement of Operations
For the Nine Months Ended February 29, 2000 and
-------------------------------------------------------------------------------
Year Ended May 31, 1999
Note 1 - General
The unaudited pro forma combined statements of operations of forestindustry.com,
Inc. (the "Company") have been compiled from and include:
(a) the audited balance sheets of forestindustry.com, Inc. (formerly Autoeye
Inc.) as at May 31, 1999 and 1998 and the audited statements of operations,
stockholders' equity and cash flows for the periods then ended;
(b) the audited balance sheets of The Forest Industry Online Inc. (Forest) as
at July 31, 1999 and 1998 and the audited statements of operations,
stockholders' deficit and cash flows for the years then ended; and
(c) the unaudited balance sheet of the Company as at February 29, 2000 and the
unaudited statements of operations and cash flows for the periods ended
February 29, 2000 and February 28, 1999.
For more detailed information, readers should refer to the financial statements
of the Company and Forest included elsewhere in this Registration Statement.
The unaudited pro forma combined statements of operations give effect to the
transactions described in note 2 below. The pro forma combined statements of
operations have been presented as though the transactions occurred on June 01,
1998.
The pro forma combined statements of operations may not necessarily be
indicative of the results and financial position which would have resulted had
the transactions been effected on the date indicated above. Further, the pro
forma financial information is not necessarily indicative of the financial
position that may be attained in the future.
Unaudited
<PAGE>F-43
Notes to the Pro Forma Combined Statement of Operations
For the Nine Months Ended February 29, 2000 and
Year Ended May 31, 1999
--------------------------------------------------------------------------------
Note 2 - Basis of Presentation
On January 31, 2000, the Company merged with Forest. The acquisition was a
reverse takeover with Forest being the deemed accounting acquiror for financial
statement purposes.
Under the terms of 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 which occurred on August 20, 1999 and a subsequent stock
split of 1:40 which occurred on August 21, 1999). 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 Cash Equivalents $ 750,000
Accounts Payable (19,703)
---------
$ 730,297
=========
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 shares
at $0.023 per share. Total transaction costs have been recorded as a charge to
the stockholders' equity of the Company.
Cash and cash equivalents held by the Company in the amount of $750,000 were
obtained through subscriptions for a private placement of 750 shares of Series
"A" Convertible Preferred Stock at a price of $1,000 per share. The closing of
this private placement and the release of funds held in escrow were contingent
on this acquisition being completed. The shares of Series "A" preferred stock
are 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 stocks will be deemed to convert into common
stocks on or before January 31, 2001, the first anniversary date.
The pro forma combined statements of operation combine the operations of
forestindustry.com, Inc. for the nine months ended February 29, 2000 and year
ended May 31, 1999 as if the acquisition of forestindustry.com, Inc. had taken
place on June 01, 1998. There were no pro forma adjustments required in
combining this information of these two entities. This pro forma information
does not reflect any non-recurring charges or credits directly attributable to
the transaction. This pro forma information does not purport to be indicative of
the revenues and net loss that could have resulted had the acquisition been in
effect for the period presented and is not intended to be a projection of future
results or trends.
<PAGE> II-1
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Officers and Directors The Delaware General
Corporation Law and our Certificate of Incorporation and Bylaws provide
that we may indemnify any and all of our officers, directors, employees or
agents or former officers, directors, employees or agents, against expenses
actually and necessarily incurred by them, in connection with the defense of any
legal proceeding or threatened legal proceeding, except as to matters in which
such persons shall be determined to not have acted in good faith and in our best
interest.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, or persons controlling us
pursuant to the foregoing provisions, we have been informed that, in the opinion
of the SEC, that type of indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses payable by us in
connection with the issuance and distribution of the securities being registered
hereunder. No expenses shall be borne by the selling stockholder. All of the
amounts shown are estimates, except for the SEC Registration Fees.
SEC Filing Fee $ 787
NASD Filing Fee 500
Blue Sky Fees and Expenses 2,000
Printing and Engraving Expenses 200
Legal Fees and Expenses 25,000
Accounting Fees and Expenses 25,000
Miscellaneous Expenses 1,817
-------
TOTAL $55,304
=======
All expenses other than the SEC and NASD filing fees are estimated.
Item 26. Recent Sales of Unregistered Securities.
The following information sets forth all securities, which have been sold
by us and which securities were not registered under the Securities Act of 1933,
as amended. Unless otherwise indicated, the consideration paid for the shares
was cash. All historical share data in this prospectus has been adjusted to
reflect the various recapitalizations of our common stock.
On December 11, 1997, Autoeye, Inc., a Colorado corporation, issued
4,761,960 shares of its common stock to one entity in conjunction with
organization of the Colorado corporation. The shares were issued for gross
proceeds of $5,000. The transaction was private in nature and the issuer had
reasonable grounds to believe that the Purchaser was capable of evaluating the
merits and risks of its investment and leaving the economic risks of its
investment. Accordingly, this issuance was deemed to be exempt from registration
by Section 4(2) of the Securities Act.
On December 19, 1997, we, Autoeye, Inc., a Delaware Corporation, issued 80
shares of our common stock to one entity in conjunction with our formation. The
shares were issued for an investment of $10.
<PAGE> II-2
On January 9, 1998, we issued an additional 165,000 shares of our common
stock in exchange for 175,456 shares of series "H" common stock of STB Corp.
This exchange was for the purpose of expanding our shareholder base. The shares
were exchanged with 291 STB shareholders. This share exchange was valued at
$175. On January 15, 1998, we issued 4,761,880 in conjunction with a merger to
reincorporate Autoeye-Colorado into us. The issued shares were exchanged for all
of the outstanding shares of Autoeye-Colorado. After the merger,
Autoeye-Colorado disappeared and we became the surviving entity. With regard to
all three transactions described above, we had reasonable grounds to believe
that each purchaser was capable of evaluating the merits and risks of his
investment and bearing the economic risks of his investment. We had not raised
over the prior twelve months, more than one million dollars inclusive of the
proceeds from the exchange transactions. We relied on Rule 504 of Regulation D
as an exemption from registration. No commissions were paid in conjunction with
any of the above transactions.
On January 31, 2000, we issued 10,000,000 shares of our common stock in
exchange for all of the outstanding stock of The Forest Industry Online, Inc.
from 3 shareholders of The Forest Industry Online, Inc. In conjunction with this
acquisition, 37,500 shares of common stock were issued to one consultant for
services rendered relating to the acquisition, valued at $9,375. The shares were
issued to investors residing outside of the United States. The issuance of our
shares of common stock were deemed exempt pursuant to Regulation S. No
commissions were paid.
On January 31, 2000, we sold 750 shares of its series A convertible
preferred stock to three institutional investors for aggregate proceeds of
$750,000. All sales of our series A preferred stocks were exempt from
registration pursuant to Rule 506 of the Securities and Exchange Commission. All
shares of the preferred stock were acquired for investment purposes only and
without a view to distribution. All of the persons who acquired our series A
preferred stock were fully informed and advised about matters concerning us,
including our business, financial affairs and other matters. The purchasers of
our series A preferred stock acquired the securities for their own accounts. The
certificates evidencing the series A 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. All series A preferred shares are
"restricted" securities as defined in Rule 144 of the Rules and Regulations of
the SEC.
On February 24, 2000 we issued 150,000 shares of our common stock to one
consultant in payment for services rendered. The services were valued at
$37,500. On February 24, 2000 we issued 200,000 shares of our common stock to
one consultant in payment for services rendered, valued at $50,000. These
transactions were private in nature and involved investors who were not
residents of the United States. Accordingly, the issuances were deemed to be
exempt from registration by Regulation S and the stock is deemed to be
restricted securities.
On May 26, 2000, we issued options to purchase 40,000 shares of common
stock to one consultant in partial payment for services rendered. The issuance
was deemed to be a private placement exempt from registration by section (4)2 of
the Securities Act. The consulting agreement was subsequently terminated.
On June 7, 2000 we issued 200,000 shares of our common stock to one
consultant in payment for services rendered. The services were valued at
$212,500. This transaction was private in nature and involved one investor who
was deemed sophisticated and had access to all relevant information about us.
Accordingly, the issuance was deemed to be exempt from registration by Section
4(2) of the Securities Act.
<PAGE> II-3
On August 1, 2000, we sold 200 shares of our series B convertible preferred
stock to two accredited institutional investors for aggregate proceeds of
$200,000. All sales of our series B preferred stocks were exempt from
registration pursuant to Rule 506 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 our series B preferred stock were fully informed and advised about
matters concerning us, including our business, financial affairs and other
matters. The purchasers of our series B preferred stock acquired the securities
for their own accounts. 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. All series B
preferred shares are "restricted" securities as defined in Rule 144 of the Rules
and Regulations of the SEC.
On August 16, 2000 we 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 our common stock. The transaction is subject to several
conditions prior to closing. We have issued 400,000 shares of our common stock
to the owner of Crow Publications, which has been placed in escrow pending the
consummation of this transaction. When and if released from escrow, the shares
will be issued to one person in a private placement deemed to be exempt from
registration by Section 4(2) of the Securities Act. This issuance involved one
investor who was deemed sophisticated and had access to all relevant information
concerning us, including our business, financial affairs and other matters. He
has acquired the common stock for his own account. 125,000 shares to be
issued are a non-refundable deposit and the remaining 275,000 shares to be
issued upon consummation of the acquisition will be deemed to be restricted
securities. On October 6, 2000, the pending acquisition was cancelled by both
parties and the owner of Crow Publications volunteered to return the 400,000
shares of common stock to us. The 400,000 shares of common stock will be
returned to treasury.
Item 27. Exhibits
The following Exhibits are filed with this prospectus:
Exhibits Page Number
-------- -----------
1 Underwriting Agreement N/A
----------------
3.1(1) Certificate of Incorporation ---
----------------
3.2(1) Amended Certificate of Incorporation ---
----------------
3.3(1) Bylaws ---
----------------
4.1(1) Certificate of Designation of
series A preferred stock ---
----------------
4.2(1) Stock Option Plan ---
----------------
4.3 Certificate of Designation
of series B preferred stock Filed Herewith
----------------
5(5) Opinion of Counsel ---
----------------
<PAGE> II-4
10.1(1) Share Exchange Agreement with
The Forest Industry Online, Inc. ---
----------------
10.2(5) Stock Retirement Agreement with
Bona Vista West ---
----------------
10.3(4) Consulting agreement with
Todd Hilditch ---
----------------
10.4(4) Consulting agreement with
Summit Media Partners ---
----------------
10.5(3) Letter of Intent to acquire
C.C. Crows Publications Inc. ---
----------------
10.6(5) Lease Agreements with The
Globe Foundation
and Seebros Holdings Ltd. ---
----------------
10.7(4) Employment Agreement for
Joe Perraton. ---
----------------
10.8 Consulting Agreement with
Century Capital
Management Ltd. Filed Herewith
----------------
10.9 Consulting Agreement with
Greg Millbank Filed Herewith
----------------
10.10 Memorandum of Understanding
with Praxis Technical
Group, Inc. Filed Herewith
----------------
16.1(2) Letter Regarding Change in
Certifying Accountant ---
----------------
23.1 Consent of Bartel Eng Linn &
Schroder See Exhibit 5
----------------
23.2 Consent of Ernst & Young LLP Filed Herewith
----------------
23.3 Consent of Watson, Dauphinee
& Masuch Filed Herewith
----------------
24. Power of Attorney Included as part of
the Signature Page
----------------
(1) Previously filed with forestindustrty's initial registration statement
on Form SB-2 filed with the SEC on May 19, 2000.
(2) Previously filed with forestindustry's Form 8-K filed with the SEC on
March 8, 2000.
(3) Previously filed with forestindustry's Form 8-K dated August 16, 2000
(filed August 30, 2000)
(4) Previously filed with forestindustry's Form 10-KSB filed with the SEC
on September 13, 2000.
(5) Previously filed with forestindustry's registration statement on Form
SB-2 pre-effective statement No. 1 filed with the SEC on September 22,
2000.
Item 28. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement.
(i) To include any prospectus required by Section l0(a)(3) of the
Securities Act of l933;
<PAGE> II-5
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement;
(iii)To include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement, including (but not limited to) any
addition or deletion of a managing underwriter.
(2) That, for the purpose of determining any liability under the Securities
Act of l933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) Insofar as indemnification for liabilities arising under the Securities
Act of l933 may be permitted to directors, officers and controlling persons of
the Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
<PAGE> II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of l933, the Registrant
has duly caused this Registration Statement to be signed on our behalf by the
undersigned, thereunto duly authorized, in Vancouver, British Columbia, on the
20th day of November, 2000.
FORESTINDUSTRY.COM, INC.
By /S/ JOE PERRATON
---------------------------------------
Joe Perraton, President and Chief
Financial and Accounting Officer
Pursuant to the requirements of the Securities Act of l933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Title Date
-------- ----
S/ JOE PERRATON Director November 20, 2000
-------------------
Joe Perraton
S/ GREG MILLBANK Director November 20, 2000
-------------------
Greg Millbank
