As filed with the Commission on September 25, 2000 File No. 333-37648
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
PRE-EFFECTIVE AMENDMENT NO. 1
to
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
FORESTINDUSTRY.COM, INC.
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(Name of small business issuer in its charter)
Delaware 7372 98-0207081
------------------------------ ---------------------------- ------------------
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code) Identification No.)
2480 Kenworth Road, Suite 11, Nanaimo, British Columbia V9T 3Y3
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(Address and telephone number of principal executive offices)
2480 Kenworth Road, Suite 11, Nanaimo, British Columbia V9T 3Y3
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(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
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(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. [ ]
<PAGE>2
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
Proposed maximum Proposed maximum
Title of each class of Amount to be offering price aggregate Amount of
securities to be registered registered per share offering price registration fee
-------------------------------------- --------------- ---------------- ---------------- -----------------
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)
</TABLE>
-------------------------------
(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 the Company's 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 the Company's common stock on May
17, 2000, as reported on the OTC Bulletin Board.
(3) $354 of this filing fee was previously paid; the balance of $433 is
submitted with this filing.
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>3
PROSPECTUS Subject to Completion
September 25, 2000
FORESTINDUSTRY.COM, INC.
COMMON STOCK
----------------
This prospectus relates to the resale by the selling stockholders of up
to 1,703,866 shares of common stock of forestindustry.com. These shares include
up to 1,000,000 shares of common stock that may be resold by a selling
stockholder upon the conversion of Series A Preferred Stock. The actual number
of shares issuable upon the conversion of the Series A Preferred Stock will vary
depending upon the price of our common stock at the time the preferred stock is
converted into common 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 negotiated transactions. We will not receive any proceeds from the resale
of shares of common stock by the selling stockholders.
Our common stock is quoted on the OTC Bulletin Board under the symbol
"FXCH." On August 31, 2000, the closing bid quotation for one share of common
stock was $1.687. We do not have any other securities that are currently traded
on any other exchange or quotation system.
--------------------------------
Our business is subject to many risks and an investment in our common
stock will also involve significant risks. You should carefully consider the
various Risk Factors described beginning on page 7 before investing in the
common stock.
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>4
TABLE OF CONTENTS
PROSPECTUS SUMMARY...........................................................5
RISK FACTORS.................................................................7
THE OFFERING................................................................11
MARKET FOR OUR COMMON STOCK.................................................12
DIVIDEND POLICY.............................................................13
FORWARD-LOOKING STATEMENTS..................................................13
MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATIONS.................13
BUSINESS....................................................................16
PROPERTY....................................................................20
Management..................................................................20
EXECUTIVE COMPENSATION......................................................22
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...................................................28
LEGAL PROCEEDINGS...........................................................30
LEGAL MATTERS...............................................................30
EXPERTS.....................................................................30
AVAILABLE INFORMATION.......................................................31
FINANCIAL STATEMENTS........................................................31
<PAGE>5
PROSPECTUS SUMMARY
This summary is intended to highlight information contained elsewhere
in this prospectus. Consequently, this summary does not contain all of the
information that you should consider before investing in our common stock. You
should carefully read the entire prospectus. All dollar amounts refer to United
States dollars unless otherwise noted.
Our Business
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
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.
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 the Company's principal business office
in Nanaimo.
Summary of Risk Factors
An investment in our common stock involves a number of risks, which
should be carefully considered and evaluated. These risks include:
o that we are a company in the early stage of development and have only a
limited history of operating revenues;
o that our current revenues are dependent on revenues generated by our
website; and
o since inception, we have incurred losses.
For a more complete discussion of risk factors relevant to an
investment in our common stock, see the "Risk Factors" section.
<PAGE>6
Offering Summary
Total shares of common stock outstanding as 13,783,666(includes
of August28, 2000 400,000 shares issued
and held in escrow for a
pending acquisition).
Shares of common stock being offered for Up to 1,703,866 shares
resale by the selling stockholders including up to 1,000,000
shares that may be resold
by a selling stockholder
upon the conversion of
outstanding Series A
Preferred Stock.
Offering price Market price or
negotiated prices at the
time of resale.
Use of proceeds We will not receive any
of the proceeds of the
shares offered for resale
by the selling
stockholders.
OTC Bulletin Board Symbol FXCH
Summary of Consolidated Financial Data
<TABLE>
<S> <C> <C> <C>
(Unaudited)
Ten Months Ended Ten Months Ended Year Ended
May 31, 2000 May 31, 1999 July 31, 1999
------------------ ----------------- -------------
Revenues $ 335,287 $ 270,176 $ 300,362
Operating Expenses $ 714,418 228,105 300,903
Net Income (Loss) (379,131) 42,071 (541)
Earnings (Loss) Per Share (0.035) 0.004 (0.001)
Total Assets $ 415,591 $ 96,017 $ 101,918
Working Capital (Deficit) 118,409 (113,648) (159,095)
Stockholders' Equity (Deficit) 242,201 (85,453) (126,614)
</TABLE>
<PAGE>7
RISK FACTORS
An investment in the shares of our common stock offered for resale by
the selling stockholders is very risky. You should carefully consider the risks
described below in addition to other information in this prospectus. Our
business, operating results and financial condition could be seriously harmed
due to any of the following risks. The trading price of the shares of our common
stock could decline due to any of these risks, and you could lose all or part of
your investment.
The Company has a limited operating history that makes future performance very
difficult to predict.
The current management assumed control of the Company's business in
January 2000. Consequently, our officers and directors are in the early stages
of developing the Company's website and marketing its internet services.
Although management has a historical record of revenues with The Forest Industry
Online, Inc., the Company has not established a business track record.
Our ability to successfully operate our website and market our internet
services will depend on, among other things:
o The continued improvements of our internet technology to support the forest
and wood industry;
o The development and expansion of our internet services; and
o The establishment of our website as an effective advertising and business
medium for the forest and wood industry.
Given the Company's limited operating history and revenues, there can
be no assurance that we will be able to achieve any of these goals and develop a
sufficiently large subscriber base to be profitable.
We have incurred losses since our merger with Forest Industry Online, Inc. and
expect such losses to continue for the foreseeable future.
We have incurred losses since our merger on January 31, 2000. For the
ten months ended May 31, 2000, we incurred comprehensive net losses of $370,567.
Our net losses are expected to continue through at least the current calendar
year 2000 and the foreseeable future. As a result of these losses and negative
cash flows from operations, our ability to continue operations will be dependent
upon our ability to generate revenues for working capital and the availability
of capital from the other outside sources until we achieve profitability.
We will need additional capital to finance our operations and to develop new
products.
Because we currently do not have sufficient revenues to support our
activities, we intend to fund our operations with additional outside capital.
Further, approximately $2.6 million has been budgeted to finance the development
and expansion of the internet technology and to provide new services over the
next 12 months. 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 then-existing
stockholders. Debt financing will result in interest expense, and if convertible
into equity, could also dilute then-existing stockholders. If we were unable to
<PAGE>8
obtain financing in the amounts and on terms deemed acceptable, our business and
future success may be adversely affected.
Our long-term success depends on the development of the electronic commerce
market for the wood and forest industry
Our business is based on electronic commerce or "e-commerce" which
refers to the purchase and sale of products and services advertised on internet
websites. Although e-commerce is growing in volume, many e-commerce businesses
have already failed or experienced lower than expected revenues. The forest and
wood industry in particular has traditionally relied on non-electronic means for
conducting business.
The success of our web-based business will depend on several factors
including the following:
o E-commerce is still developing and may not be suitable for the wood and
forest industries;
o Internet users could use "filter" software programs that limit exposure to
internet advertising;
o We have no long-term contracts or agreements with our customers and as a
result, no assurance of ongoing revenues;
o We have yet to obtain and install the necessary internet operating programs
to implement our proposed Lumber and Equipment Exchange service; and
o Government regulation or taxation may adversely affect the user of
electronic commerce.
There is intense competition for advertising and customers on the internet
Competition for internet advertising and customers is intense and
continued competition in the future is anticipated. Barriers to entry are
minimal, and competitors can launch new web sites at a relatively low cost. We
compete for a share of a customer's advertising budget with online services and
traditional off-line media, such as print and trade associations. Although we
believe there are no internet companies with a larger number of forest industry
specific clients than ours, several companies offer similar websites.
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 name recognition and 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.
Concerns regarding security of transactions and transmitting confidential
information over the internet may negatively impact our electronic commerce
business
We believe that concern regarding the security of confidential
information transmitted over the internet, such as credit card numbers, prevents
many potential customers from using the internet to buy or sell products or
services. Specifically, it may discourage forest companies from using our
proposed Lumber and Equipment Exchange.
<PAGE>9
Although our system has security features to protect the privacy and
integrity of customer data, such as password requirements, our website is
potentially vulnerable to physical or electronic break-ins, viruses or similar
problems. If a person circumvents our security measures, he or she could
misappropriate proprietary information or cause interruptions in our operations.
Security breaches that result in access to confidential information could damage
our reputation and expose us to a risk of loss or liability. We may be required
to make significant investments and changes to protect against or remedy
security breaches. If we do not adequately address these concerns, our business,
financial condition and operating results could be adversely affected.
Our internet advertising and content may not attract users with demographic
characteristics valuable to our advertisers
Our future success depends upon our ability to deliver internet content
about the forest industry that will attract users with demographic
characteristics valuable to our advertising customers. If we are unable to
develop internet content that attracts a loyal user base possessing demographic
characteristics attractive to advertisers, it could have a material adverse
effect on our business, financial condition and operating results. Internet
users can freely navigate and instantly switch among a large number of web
sites. Many of these internet sites offer original content. Consequently, it may
be difficult for us to distinguish our content and attract users.
Our advertising revenues could decrease if we do not develop the
"forestindustry.com" brand and our proposed lumber and equipment exchange
To be successful, we must establish and strengthen awareness of the
"forestindustry.com" name as well as the brands associated with our proposed
Lumber and Equipment Exchange. If our brand awareness is weak, it could decrease
our subscriber base which attracts advertisers, which could result in decreasing
advertising revenues. If our proposed Lumber and Equipment Exchange is delayed
or provides poor service, our business, financial condition and operating
results would be adversely affected.
We anticipate growing rapidly and effectively managing our growth is vital to
realizing profitability
We have grown and expect to continue to grow rapidly both by adding new
services and hiring new employees. This growth is likely to place a significant
strain on our resources, managers and systems. To manage our 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 subscriber base and business. If we are unable to effectively manage
this rapid growth, we may not achieve profits from operations in the time frame
we anticipated if at all.
Our success also depends on having a highly trained sales force and
telesales group. We will need to continue to hire additional personnel as our
business grows. A shortage in the number of trained salespeople or technicians
could limit our ability to increase sales. Many of our employees have only
recently joined us. Of our present employees, 16 have worked for us less than
one year. We cannot assure you that our management will be able to effectively
manage our growth.
The e-commerce business requires fast and accurate services to promote
customer use. If our employees fail to establish and maintain highly reliable
internet systems and services, our business and future operating results would
be adversely affected.
<PAGE>10
We may not be able to protect our proprietary rights and we may infringe the
proprietary rights of others
Proprietary rights are important to our success and our competitive
position. We have not applied for any trademarks, though we intend to do so in
the future. There is no guarantee that our applications will be accepted.
Although we seek to protect our proprietary rights, our actions may be
inadequate to protect any trademarks and other proprietary rights or to prevent
others from claiming violations of their trademarks and other proprietary
rights. In addition, effective trademark protection may be unenforceable or
limited in certain countries. Our business is based on the utilization of
existing available computer technologies. Consequently, other competitors could
copy our systems and services.
We may be subject to legal liability for publishing or distributing content over
the internet
We may be subject to legal claims relating to the content in our
vertical trade communities, or the downloading and distribution of such content.
Claims could involve matters such as defamation, invasion of privacy, and
copyright infringement. Providers of internet products and services have been
sued in the past, sometimes successfully, based on the content of material. In
addition, some of the content proposed to be provided on our Lumber and
Equipment Exchange may be drawn from data compiled by other parties, including
governmental and commercial sources, and we would then reformat the data. This
data may have errors. If our content is improperly used or if we supply
incorrect information, it could result in unexpected liability. Our insurance
may not cover claims of this type, or may not provide sufficient coverage. 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.
Risk of internet system failure or poor performance as we rely on one provider
of telecommunications for TI lines
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 or to respond poorly to web browsers may
reduce our attractiveness to advertisers and could materially adversely affect
our business and operating results. We maintain most of our computer systems in
our facility in Nanaimo, British Columbia.
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.
Capacity limits on our technology, transaction processing system and network
hardware and software may be difficult to project and we may not be able to
expand and upgrade our systems to meet increased use
If traffic on our website increases, we must expand and upgrade our
technology, transaction processing systems and network hardware and software. We
may not be able to accurately project the rate of increase in traffic on our
website. In addition, we may not be able to expand and upgrade our systems and
network hardware and software capabilities to accommodate these increases. If we
do not appropriately upgrade our systems and network hardware and software,
either due to technical difficulties or lack of funds to pay for such upgrades,
our business and operating results will be materially adversely affected.
<PAGE>11
We may not be able to adjust to technological changes in a cost-effective manner
The e-commerce industry is characterized by rapid technological change
and frequent new product and function announcements. Significant technological
changes could render our website and proposed Lumber and Equipment Exchange
obsolete. To be successful, we must adapt to our rapidly changing market by
continually improving the responsiveness, services and features of our website
and by developing new features to meet customer needs. We will also need to
respond to technological advances and emerging industry standards in a
cost-effective and timely basis. If we are unable to successfully respond to
these developments or do not respond in a cost-effective way, our business,
financial condition and operating results will be materially adversely affected.
Our success is dependent on our key personnel who we may not be able to retain
We believe that our success will depend on continued employment of our
management team and key technical personnel including Joe Perraton and Michael
Tyner. If one or more members of our management team were unable or unwilling to
continue in their present positions, our business, financial condition and
operating results could be materially adversely affected. While we have
employment agreements with certain members of our management, others are not
subject to formal agreements. We do not carry key person life insurance on any
members of our management.
The price of our common stock is likely to be highly volatile
The market price of our common stock is likely to be highly volatile as
the stock market in general, and the market for internet-related and technology
companies in particular, has been highly volatile. In addition, our common stock
began trading on the OTC Bulletin Board in March 2000 and has a very short
trading history which also suggests future price volatility should be
anticipated. Consequently, investors may not be able to resell their shares of
our common stock at prices similar to or higher than their purchase price.
In addition, the sale of substantial amounts of our common stock in the
public market pursuant to or following this offering, could depress the market
price of our common stock.
Many of these factors are beyond our control and may materially
adversely affect the market price of our common stock, regardless of our
operating performance.
THE OFFERING
The selling stockholders are offering 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. Set forth below are the
sources of the shares of common stock being registered for resale in this
prospectus.
466,366 shares of common stock and up to 1,000,000 shares of common
stock issuable upon conversion of certain Series A Preferred Stock, were or will
be issued upon conversion of 200 shares of Series A Preferred Stock sold in a
private placement to three institutional investors at $1,000 per preferred
share. The sales occurred on January 31, 2000.
200,000 shares of common stock were issued as part of 10,000,000 shares
issued in exchange for all of the outstanding stock of Forest Industry Online,
Inc. This exchange transaction occurred on January 31, 2000.
<PAGE>12
The remaining 37,500 shares of common stock were issued as compensation
to one entity for services rendered in connection with the merger of Autoeye,
Inc. and Forest Industry Online, Inc. 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 August 28, 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, 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
---------------- ------ ------
August 31, 2000 $1.687 $1.062
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 preferred stock with rights
to multiple votes per share and dividends rights 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, and would have
the effect of limiting stockholder participation in certain transactions such as
mergers or tender offers if such transactions are not favored by incumbent
management.
Trading in our common stock may be restricted by 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) less than $5.00 per share or an exercise price of less than $5.00
per share, subject to certain exceptions. Our common stock may be 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>
The Board of Directors recently authorized the creation of 1200 shares
of Series B Convertible Preferred Stock. 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 the Company's
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 Preferred Stock is 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.
As used in this prospectus, the terms "we," "us," "our," and
"forestindustry" means forestindustry.com, Inc. and its subsidiaries, unless
otherwise indicated. All dollar amounts refer to United States dollars unless
otherwise noted.
MANAGEMENT'S DISCUSSION AND ANALYSIS
AND PLAN OF OPERATIONS
General
The following discussion may contain forward-looking statements and
projections. Because these forward-looking statements and projections are based
on a number of assumptions and are subject to significant uncertainties and
contingencies, many of which are beyond the Company's control, there is no
assurance that they will be realized, and actual results may vary significantly
from those shown.
The Company was formed on December 18, 1997 under the name Autoeye,
Inc. Autoeye's business was to evaluate businesses for possible acquisition. On
January 31, 2000, we acquired 100% of The Forest Industry Online, Inc. Following
the transaction, the shareholders of The Forest Industry Online, Inc. owned a
majority of Autoeye's outstanding shares of common stock. Accordingly, for
financial reporting purposes the transaction was accounted for as a reverse
acquisition with The Forest Industry Online, Inc. considered the accounting
acquirer. (See Notes 2(a) and 3 to the May 31, 2000 consolidated financial
statements). As such, The Forest Industry Online, Inc.'s historical financial
<PAGE>14
statements are now reported as the Company's financial statements. On February
25, 2000, the Company changed its name from Autoeye, Inc. to forestindustry.com,
Inc. Prior to the acquisition of The Forest Industry Online, Inc., the Company
had not generated any revenue and had not commenced any operations other than
initial corporate formation and capitalization.
Plan of Operations
In order to expand the Company's operations it will need additional
capital. The Company does not have any commitments from any source to provide
additional capital. It will need to raise significant outside capital to fund
its anticipated capital requirements over the next twelve months. Approximately
$2.6 million has been budgeted to finance the development of the Company's
technology, development of new products and services and increased sales and
marketing during the current fiscal year. The Company anticipates needing
approximately $300,000 to acquire additional equipment during the current fiscal
year to support the Lumber and Equipment Exchange. The Company will need capital
to finance anticipated acquisitions during the current fiscal year. The Company
will need $330,000 by December 31, 2000 if it decides to consummate a pending
corporate acquisition. Capital commitments for the current fiscal year include
approximately $21,468 in lease obligations for the one office premise;
consultant agreements totaling $50,000; other leases $18,000; and employment
agreements totaling $47,600. As a result of this increased business activity and
anticipated increase in employees, the Company expects general and
administrative expenses and compensation costs to increase significantly from
current levels.
An essential element of the Company's business plan is to obtain
license technology and hardware to support its proposed Lumber and Equipment
Exchange or LEE. The LEE program is expected to cost between $300,000 and
$400,000 to implement.
Since inception, the Company has relied on equity financings to fund
its operations. Funds required to finance its 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 the
Company's 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 its common stock.
Results of Operations
For the Fiscal Years Ended May 31, 2000 (10 months) and July 31,1999
As indicated above, the Company commenced business operations in
January of 2000. As of May 31, 1999 and up to January, 2000, the Company 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 management's discussion compares the Company's latest fiscal year
ended May 31, 2000 with the prior fiscal year of The Forest Industry Online,
Inc. ending July 31, 1999. However, the Company's 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 the Company's
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.
<PAGE>15
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 $151,616 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 acquisition in January 2000 and the change
from a privately held company to a public reporting company. Professional fees
also included legal and accounting fees relating to the preparation of a
registration statement.
Net and Comprehensive Loss. The company recorded a net loss of $379,131
and a comprehensive loss of $370,567 for the ten months ended May 31, 2000
compared to a net loss of $541 and a comprehensive 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 the Company added customers to
its 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 the Company's higher level of activity.
Net and Comprehensive Loss. The Company 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
The Company is in a growth stage in which expenses are expected to
increase as the Company implements its business plan. Due to the fact that the
Company has not generated sufficient cash flow to fund all of its operations,
the Company has relied heavily on outside sources of capital. During the year
ended May 31, 2000, the Company raised $750,000 through the sale of its Series A
Convertible Preferred Stock. The Company will require additional capital
investments or borrowed funds to meet cash flow projections. There can be no
assurance that the Company will be able to raise capital from these outside
sources in sufficient amounts to fund the Company's business expansion. The
failure to secure adequate outside funding would have an adverse affect on the
Company's 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 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. 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 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. In the alternative, we may attempt to establish a joint venture or
similar arrangement with a company which has the rights to such a computer
system, in which case the initial cost of the license would be less but we would
<PAGE>16
be required to share any revenues earned from the LEE with our joint venture
partner. As of August 28, 2000 the Company 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 ten months ended May 31, 2000 have
consisted mainly of purchasing property and equipment, primarily computer
hardware and software. Capital expenditures totaled $27,009 in 1999 and $119,377
in 2000. We expect capital expenditures will increase and growth in our
personnel and infrastructure will be required to support the growing customer
base.
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 May 31, 2000, we had working capital of approximately $118,409.
We anticipate obtaining the additional capital which 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 report, we did not have any commitments from any source to provide
additional capital.
We have signed a letter of intent to acquire a business whereby the
Company will issue 400,000 shares of its common stock and pay $330,000 in cash
in exchange for all the issued and outstanding shares of the business. We have
until December 31, 2000 to raise sufficient capital to acquire the business. We
plan to obtain the capital through debt and/or equity financing. If we fail to
raise sufficient capital or for some other reason decide not to consummate this
acquisition, we will forfeit a deposit in the amount of 125,000 shares of our
common stock.
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 are also
in the process of establishing a business to business exchange to support the
purchase and sale of wood, wood products and wood related services. Our strategy
is to become an internet leader in supporting an e-focused marketplace for the
highly fragmented global forest industry.
Corporate History
We were originally incorporated in Delaware on December 18, l997 under
the name "Autoeye Inc." Autoeye's initial plan of business was to merge with a
company in the industry of vehicle surveillance systems, but this plan was
abandoned prior to any operations. Prior to Autoeye's acquisition of The Forest
Industry Online Inc., it had not commenced any operations other than initial
corporate formation and capitalization.
<PAGE>17
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. The principals of The Forest Industry Online 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 acquisition of The
Forest Industry Online Inc. Century Capital Management is controlled by Andrew
Hromyk.
Following the acquisition of The Forest Industry Online Inc. Mr.
Perraton, a principal of The Forest Industry Online Inc., was appointed as
Autoeye's President as well as a director. Mr. Marc White was also appointed as
a director. Autoeye's former President, Andrew Hromyk, resigned from that
position and was appointed as 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."
Our business is a continuation of that which was previously being
conducted by The Forest Industry Online, Inc. which remains a wholly owned
subsidiary of the Company.
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 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 ancilliary services.
The Wood Processing section contains services related to mills including
equipment, safety services, computers, consultants and ancilliary 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 $39 to $86.
<PAGE>18
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:
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
on a commission basis. We will need to license sophisticated software and
hardware to support the LEE program. We hope to attract an alliance partner to
help finance and develop the LEE program. Once an alliance partner is found and
financing has been secured, we anticipate it will take approximately 6 weeks to
design the basic framework for the LEE. We will require ongoing design and
technical assistance from an 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.
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>19
Pending Acquisition
On August 16, 2000, we signed a non-binding letter of intent to acquire
C.C. Crow Publishing, Inc. for $330,000 and 400,000 shares of our common stock.
Crow was established in 1921 and publishes market reports for the softwood
industry. Crow currently publishes seven weekly market reports which include the
Crow's Weekly Market Report of Lumber and Panel Prices. Crow also publishes
monthly the Crow's Forest Industry Journal which is a trade journal directed
toward major issues facing the wood and lumber 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 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.
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.
<PAGE>20
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.
Employees
As of August 31, 2000 we had 26 full-time employees. We anticipate
hiring 5 more employees over the next six months to service customers using our
web site. 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 is located at our
Nanaimo offices. As of August 31, 2000 we were operating at 30% to 40% capacity
and do not foresee the need to upgrade until our customer base doubles.
MANAGEMENT
Directors and Executive Officers
Our directors and executive officers, and their ages and positions, and
duration as such, are as follows:
<TABLE>
<S> <C> <C> <C>
Name Position Age Period
-------------- ----------------------------------- ----- ------------------
Joe Perraton President, Secretary and Director 35 January 31, 2000 -
Present
Todd Hilditch Vice President, Corporate Relations 32 February 24, 2000 -
August 31, 2000
</TABLE>
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, secretary and a director of the
Company 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
<PAGE>21
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.
Each director holds office until his successor is duly elected by the
stockholders. Executive officers serve at the pleasure of the board of
directors.
Key Employees
Michael Tyner has served as Operations Manager for the Company since
April, 2000. For the past year, he was employed by a lumber transportation
company as its operations manager. Mr. Tyner is a specialist in growth
management and niche marketing, with over 27 years of general management
experience with a variety of companies. For the 6 years prior to his most recent
position, Mr. Tyner was involved primarily in the waste industry holding senior
management positions with companies such as Laidlaw Waste Systems in Canada. He
has also been a member of Canada's Coast Waste Management Association and was
involved in recent changes to the Provincial Waste Management Act. Prior to the
1990's, he was involved in the conception and inception of the Granville Island
Brewing Company which was Canada's first microbrewery. He holds a Bachelors
Degree in Sales and Marketing Management.
Family Relationships
Lara Perraton is the sister of Joe Perraton.
<PAGE>22
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- -0- -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.
In January 2000, Joe Perraton replaced Andrew Hromyk as President of
the Company. Mr. Hromyk continued to serve as the Secretary and a director of
the Company 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 the Company's 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 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 the Company's 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
<PAGE>23
of February 2000. Mr. Hilditch subsequently resigned from the Company on August
31, 2000.
On March 1, 2000, the Company 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 the Company entered into a second consulting agreement
with Summit Media Partners. The agreement had a term of 92 days and expires on
September 7, 2000. The Company issued 200,000 shares of its common stock in
payment for these services valued at 160,000. Summit Media is providing
advertising and marketing services through featured advertorial mailings.
On May 26, 2000 the Company 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 the Company. 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 the Company's 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.
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 the Company during the year ended May 31, 2000.
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.
<PAGE>24
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.
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
forestindustry's Certificate of Incorporation states that the Company may
provide indemnification of its agents, including its 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 of
forestindustry pursuant to the foregoing provisions, or otherwise,
forestindustry has 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 forestindustry of expenses
incurred or paid by a director, officer or controlling person of forestindustry
<PAGE>25
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, forestindustry 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 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.
We have issued shares of our common stock to the following persons
during the past two years, who are or were affiliated with us:
<TABLE>
<S> <C> <C> <C> <C>
Date of
Name Issuance Number of Shares Share Value(3) Consideration
------------------------------------- ---------- ------------------ --------------- ------------------------
Teaco Properties Ltd. (1) 01/00 6,900,000 $158,700 69 shares of The Forest
Industry Online, Inc.
Joe Perraton 01/00 2,400,000 $ 55,200 24 shares of The Forest
Industry Online, Inc.
Lara Perraton 01/00 700,000 $ 16,100 7 shares of The Forest
Industry Online, Inc.
Century Capital Management Ltd. (2) 01/00 37,500 $ 862.50 Consulting services
Todd Hilditch 02/00 200,000 $ 4,600 Services Rendered
</TABLE>
----------------------
(1) The beneficial owners of Teaco Properties are Marc Ralph White (a former
director) and David McNaught a former director of the Company's subsidiary.
(2) The beneficial owner of Century Capital Management Ltd. is Andrew Hromyk, a
former officer and director.
(3) Price per share deemed value was $0.023.
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 formation of the Company.
<PAGE>26
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of August 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
All Officers and Directors 2,400,000 17.4%
as a Group (1 person)
---------------------
(1) Teaco Properties Ltd. is beneficially owned by Marc Ralph 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.
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;
(d) ordinary brokerage transactions and transactions in which the broker
solicits purchasers;
(e) privately negotiated transactions;
<PAGE>27
(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.
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.
All expenses of the registration statement including but not limited
to, legal, accounting, printing and mailing fees are and will be paid by us.
<PAGE>28
SELLING STOCKHOLDERS
Set forth below is a list of all stockholders who may sell shares
pursuant to this prospectus. The "No. of Shares" column represents the number of
shares owned by the selling shareholder and the "No. 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" assumes all shares registered are
sold by the selling shareholder.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Number of
Common Common Shares
Shares Beneficially Owned
Common Stock Beneficially Offered Following
Name of Shareholder Owned Prior to the Offering Hereby the Offering
--------------------------------- --------------------------- ---------- ----------------------
No. of Shares
No. of Underlying Series No. of
Shares A 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 .003% 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 August 31, 2000, the bid price of our common stock was
$1.687 per share. Accordingly, in computing the number of shares of common
stock shown in the table we used a conversion price of $1.687 which results
in each preferred share converting into 847 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 $1.687 per
share.
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 August 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; hence, the holders of a majority of the outstanding
common stock can elect all directors.
<PAGE>29
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 of
our Company, 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 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
<PAGE>30
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. See "Selling Stockholders".
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 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 August 31, 2000 the Company had issued options to purchase 115,000
shares of Common Stock to twenty-six individuals. Of the total, 86,000 are
exercisable at $2.00 per share and 29,000 are exercisable at $4.00 per share.
All options are exercisable for up to 5 years unless the optionholder's
association with the Company 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.
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.
<PAGE>31
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 the Company's auditors was recommended and approved by
the Board of Directors of the Company as a result of the change in business and
management of the Company after January 31, 2000. The Company does 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 Commissions'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.
<TABLE>
<S> <C>
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-18
<PAGE>32
The financial statements pertaining to The Forest Industry Online, Inc. are as follows:
Report of Independent Accountants..............................................................................F-19
Year-end Balance Sheets........................................................................................F-20
Year-end Combined Statements of Operations and Retained Earnings...............................................F-21
Statements of Shareholders' Deficit............................................................................F-22
Year-end Statements of Cash Flows..............................................................................F-23
Notes to Financial Statements........................................................................F-24 thru F-29
The following pro forma financial statements pertaining to the acquisition
of The Forest Industry Online are as follows:
Pro Forma Statements of Operations...................................................................F-30 thru F-31
Notes to Pro Forma Financial Statements..............................................................F-32 thru F-33
</TABLE>
<PAGE>F-1
To the Stockholders 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.
Chartered Accountants
/S/ Watson Dauphinee & Masuch
Vancouver, B.C., Canada
August 11, 2000
<PAGE>F-2
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 Stockholders (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 755,339 (999) (999)
Deferred Stock Compensation (17,253) - -
Cumulative Translation Adjustment 10,014 991 1,450
Deficit (507,196) (86,445) (128,065)
-------------- -------------- --------------
242,201 (85,453) (126,614)
-------------- -------------- --------------
415,591 96,017 101,918
============== ============== ==============
</TABLE>
See notes to consolidated financial statements
<PAGE>F-3
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 45,649 487 487
Depreciation 27,826 2,316 7,763
General and Administrative 534,976 213,846 275,061
Professional Fees 105,967 11,456 17,592
--------------- -------------- --------------
714,418 228,105 300,903
--------------- -------------- --------------
NET INCOME (LOSS)
FOR THE PERIOD (379,131) 42,071 (541)
Foreign Currency Translation Adjustment 8,564 - 459
--------------- -------------- --------------
COMPREHENSIVE INCOME (LOSS) FOR THE PERIOD (370,567) 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 (0.035) 0.004 (0.001)
=============== ============== ==============
</TABLE>
See notes to consolidated financial statements
<PAGE>F-4
Consolidated Statements of Stockholders' Equity For the Periods from July 31,
1998 to May 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Common Stock Preferred Stock Deficit Total
------------------ -------------------- Additional Deferred Cumulative
Number of Number of Paid in Stock Translation
Shares Amount Shares Amount Capital Compensation Adjustment
US $ 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 Period -- -- -- -- -- -- 459 -- 459
Net Loss for the Year -- -- -- -- -- -- -- (541) (541)
Common stock issued to
purchase all issued and
outstanding shares of The
Forest Industry Online Inc.,
January 31, 2000 (note 3) 4,927,040 493 -- -- (493) -- -- -- --
Adjustment to comply with
recapitalization accounting
(note 3) -- -- -- -- (19,530) -- -- -- (19,530)
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 approximately
$0.023 per share (note 3) 37,500 4 -- -- 859 -- -- -- 863
Common stock issued for
services in February, 2000,
valued at approximately $0.023
per share (note 5(c)) 350,000 35 -- -- 8,015 -- -- -- 8,050
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 stockholder (2,597,240) (260) -- -- 260 -- -- -- --
Deferred Compensation -- -- -- -- 17,253 (17,253) -- -- --
Translation Adjustment for the
Period -- -- -- -- -- -- 8,564 -- 8,564
Net Loss for the Period -- -- -- -- -- -- -- (379,131) (379,131)
------------ ------ ----------- ------ ---------- ------------ ----------- --------- ---------
Balance, May 31, 2000 12,966,521 1,296 375 1 755,339 (17,253) 10,014 (507,196) 242,201
============ ====== =========== ====== ========== ============ ========== ========= =========
</TABLE>
See notes to consolidated financial statements
<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 (379,131) 42,071 (541)
Non-Cash Items:
Depreciation 27,826 2,316 7,763
Common Stock Issued in Exchange for Services 8,050 - -
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
Long-term Debt and Operating Line of Credit Advances (Repayments) (68,973) 67,526 68,973
Advances from (to) Affiliated Company 166 (326) (166)
Advances (to) Stockholders (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 Capital Assets (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
============ ============ ==============
</TABLE>
See notes to consolidated financial statements
<PAGE>F-6
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. 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
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 term.
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
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 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
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 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 (19,703)
----------
$ 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 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
<PAGE>F-10
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-11
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 45,649 487
Depreciation 27,826 7,763
General and Administrative 539,008 275,061
Professional Fees 109,822 27,344
----------------- --------------
Net (Loss) for the Period (387,018) (10,293)
================= ==============
Net (Loss) Per Share (0.037) (0.001)
================= ==============
NOTE 4 - PROPERTY AND EQUIPMENT
<TABLE>
<S> <C> <C> <C> <C>
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
=========== ============== ============== ==============
</TABLE>
Note 5 - Operating Line of Credit
The Company has a NIL (1999 -$10,347 (CDN $15,000)) revolving operating line of
credit with the Royal Bank of Canada. The line of credit was paid off in March
2000 and the general security agreement as well as the guarantees were
cancelled.
<PAGE>F-12
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 STOCKHOLDERS
Amounts due to stockholders 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 stockholders were repaid in March 2000.
May 31, 2000 July 31, 1999
$ $
Due to Stockholders - 68,013
============== ============
NOTE 7 - DEMAND BANK LOAN
Demand Bank Loan, Royal Bank
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
stockholder 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-13
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-14
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:
<TABLE>
<S> <C> <C>
Ten Months Ended Year Ended
May 31, 2000 July 31, 1999
$ $
----------------- ---------------
Net (loss) as reported (379,131) (541)
Compensation expense from stock options under SFAS No. 123 (1,217) -
----------------- ---------------
Pro forma net (loss) (380,348) (541)
================= ===============
Pro forma (loss) per common share:
Basic and Diluted (0.036) (0.001)
================= ===============
</TABLE>
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-15
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 April 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 forestindustry.com, Inc. The fair value of these services
was estimated based upon the estimated fair value of the shares at $0.023 per
share or $863. 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 $8,050
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 $0.023
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 stockholder of the Company returned
2,547,240 shares of common stock to the Company for cancellation. The
stockholder 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-16
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
$ $
------------- --------------
Deferred 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 $490,000 (CDN $739,000). 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-17
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 $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. 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 $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 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.
c) On June 15, 2000, the Company issued 217,145 on the conversion of 175
shares of its Series "A" convertible preferred stock.
<PAGE>F-18
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)
d) On July 12, 2000, the Company accepted the resignation of a director of the
Company.
e) On August 01, 2000, the Company issued through a private placement 200
shares of Series "B" convertible preferred stock 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 28,428 31,761
Interest paid to stockholders 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>
Forest Industry Online Inc.
Financial Statements
July 31, 1999 and 1998
(In U.S. $)
1999 1998
$ $
Revenues 300,362 128,685
Expenses 300,903 194,352
Net (Loss) (541) (65,667)
<PAGE>F-19
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-20
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-21
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-22
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-23
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-24
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-25
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-26
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-27
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-28
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-29
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-30
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-31
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-32
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-33
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.
Unaudited
<PAGE>II-1
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Officers and Directors The Delaware General
Corporation Law and the Company's 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
forestindustry 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.
The shares of common stock issued or sold subsequent to January 30,
2000 were issued or sold in reliance upon the exemption provided by Section 4(2)
of the Act. The persons who acquired these shares were either accredited or
sophisticated investors. The shares of common stock were acquired for investment
purposes only and without a view to distribution. The persons who acquired these
shares were fully informed and advised about matters concerning us, including
our business, financial affairs and other matters. The persons acquired these
shares for their own accounts. The certificates representing these shares of
common stock bear legends stating that the shares 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
<PAGE>II-2
registration. The shares are "restricted" securities as defined in Rule 144 of
the Securities and Exchange Commission.
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, Autoeye, Inc., a Delaware Corporation (the
"Company"), issued 80 shares of its common stock to one entity in conjunction
with its formation. The shares were issued for an investment of $10.
On January 9, 1998, the Company issued an additional 165,000 shares of
its common stock in exchange for 175,456 shares of Series "H" common stock of
STB Corp. This exchange was for the purpose of expanding the Company's
shareholder base. The shares were exchanged with 291 STB shareholders. This
share exchange was valued at $175. On January 15, 1998, the Company issued
4,761,880 in conjunction with a merger to reincorporate Autoeye-Colorado into
the Company. The issued shares were exchanged for all of the outstanding shares
of Autoeye-Colorado. After the merger, Autoeye-Colorado disappeared and the
Company was the surviving entity. With regard to all three transactions
described above, the Company 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. The Company had not raised over
the prior twelve months, more than one million dollars inclusive of the proceeds
from the exchange transactions. The Company 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, the Company issued 10,000,000 shares of its 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. The shares
were issued to investors residing outside of the United States. The issuance of
the Company's shares of common stock were deemed exempt pursuant to Regulation
S. No commissions were paid.
On January 31, 2000, the Company sold 750 shares of its Series A
Convertible Preferred Stock to three institutional investors for aggregate
proceeds of $750,000. All sales of the Company's 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 the Company's Series A preferred stock were fully informed and advised
about matters concerning the Company, including its business, financial affairs
and other matters. The purchasers of the Company's 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 the Company issued 150,000 shares of its common stock
to one consultant in payment for services rendered to the Company. The services
were valued at $3,450. On February 24, 2000 the Company issued 200,000 shares of
its common stock to one consultant in payment for services rendered to the
Company, valued at $4,600. These transactions were private in nature and
<PAGE>II-3
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 June 7, 2000 the Company issued 200,000 shares of its common stock to
one consultant in payment for services rendered to the Company. The services
were valued at $160,000. This transaction was private in nature and involved one
investor who was deemed sophisticated and had access to all relevant information
about the Company. Accordingly, the issuance was deemed to be exempt from
registration by Section 4(2) of the Securities Act.
On August 1, 2000, the Company sold 200 shares of its Series B Convertible
Preferred Stock to two accredited institutional investors for aggregate proceeds
of $200,000. All sales of the Company's 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 the Company's Series B preferred stock were fully informed and advised
about matters concerning the Company, including its business, financial affairs
and other matters. The purchasers of the Company's 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 the Company signed a non-binding letter of intent to
acquire all of the issued and outstanding shares of C.C. Crow Publications, Inc.
in exchange for 400,000 shares of the Company's common stock. The transaction is
subject to several conditions prior to closing. The Company has issued 400,000
shares of its common stock, which has been placed in escrow pending the
consummation of this transaction. When and if issued, 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. The 125,000 shares to be issued as 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.
Item 27. Exhibits
The following Exhibits are filed with this prospectus:
<TABLE>
<S> <C>
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 ---
5 Opinion of Counsel Filed Herewith
<PAGE>II-4
10.1(1) Share Exchange Agreement with
The Forest Industry Online, Inc. ---
10.2 Stock Retirement Agreement with Bona Vista West Filed Herewith
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 Lease Agreements with The Globe Foundation
and Seebros Holdings Ltd. Filed Herewith
10.7(4) Employment Agreement for Joe Perraton. ---
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
----------------
</TABLE>
(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.
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;
(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;
<PAGE>II-5
(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 21st day of September, 2000.
FORESTINDUSTRY.COM, INC.
By /s/ JOE PERRATON
-------------------------
Joe Perraton, President
By /s/ JOE PERRATON
-------------------------
Joe Perraton, Secretary
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 September 21, 2000
--------------------
Joe Perraton
