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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB-A
(Amendment No. 1 filed on January 16, 2001)
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Commission File Number 0-26673
Ended May 31, 2000 -------
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FORESTINDUSTRY.COM, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE
(State of other jurisdiction of 98-0207081
incorporation or organization) (I.R.S. Employer Identification Number)
-------------------------------- ---------------------------------------
2480 Kenworth Road, Suite 11
Nanaimo, British Columbia V9T 3Y3
(Address of Principal Executive Offices) (Zip Code)
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Registrant's telephone number including area code: (250) 758-0665
-----------------------------
Securities registered under Section 12(b) of the Exchange Act: None. Securities
registered under Section 12(g) of the Exchange Act: Common Stock, par value
$0.0001.
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the issuer was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
YES X NO
----- -----
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $335,287
The aggregate market value of the issuer's voting stock held by non-affiliates
of the issuer based upon the average bid and asked prices of such stock as of
August 28, 2000, was $4,550,499
The number of shares outstanding of the issuer's common stock as of August 28,
2000, was 13,783,666.
Documents Incorporated By Reference:
Certain exhibits required by Item 13 have been incorporated by reference
from our Form 10-SB filed on November 4, 1999 and our Registration
Statement on Form SB-2 filed May 19, 2000.
Transitional Small Business Disclosure Format: Yes No X
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<PAGE> 2
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Principal Market
----------------
Since December 1999 the Company's common stock has been quoted on the
National Association of Securities Dealers' OTC Bulletin Board, initially under
the symbol "AUYE", and after February 25, 2000 under the symbol "FXCH". A
trading market only developed on March 1, 2000. Prior to that date, there was no
public market for the Company's common stock. Set forth below are the range of
high and low bid quotations for the periods indicated as reported by the NASD.
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
-------------- ---- ---
March 31, 2000 $8.00 $7.81
April 30, 2000 $3.00 $3.00
May 31, 2000 $1.25 $1.25
Approximate number of holders of common stock dividends. As of August 28,
2000 there were 58 holders of record of the Company's common stock. This number
does not include stockholders who hold the Company's stock in street name.
Dividends
---------
Holders of the Company's common stock are entitled to receive such
dividends as may be declared by the Board of Directors. The Board of Directors
is not obligated to declare a dividend. The Company has not paid any dividends
on its common stock and it does not have any current plans to pay any dividends
in the foreseeable future.
Capital Stock
-------------
During the Company's last fiscal year ended May 31, 2000, it sold the
following equity securities pursuant to exemptions from registration under the
Securities Act of 1933.
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 was 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. Each Series A preferred share may be converted, at the
option of the holder, into shares of common stock equal in number to the amount
determined by dividing $1,000 by 75% of the average closing bid price of the
Company's 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. In May 2000, 375 Series
A preferred shares were converted into 249,221 shares of common stock.
<PAGE> 3
Subsequent to the year-end, an additional 125 Series A preferred shares were
converted into 155,039 shares of common stock and another 50 Series A preferred
shares were converted into 62,106 shares of common stock. As of August 28, 2000,
200 Series A Convertible Preferred Shares remained outstanding. 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 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 200,000 shares of its common stock
to one consultant in payment for services to the Company, valued at $50,000. On
February 29, 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 $37,500. These transactions were private in nature and involved
investors who were not residents of the United States. 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 $212,500. This
transaction was private in nature and involved one sophisticated investor.
Accordingly, the above issuances were deemed to be exempt from registration by
Regulation S or Section 4(2) of the Securities Act and the stock is deemed to be
restricted securities.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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 our control, there is no assurance that
they will be realized, and actual results may vary significantly from those
shown.
Forestindustry and our current business is a result of a combination
transaction between Autoeye Inc., a Delaware corporation, and The Forest
Industry Online Inc., a British Columbia corporation. At the time of the
combination on January 31, 2000, Autoeye was a reporting company under the
Securities Exchange Act of 1934 with no active business other than to evaluate
businesses for possible acquisition. Autoeye was incorporated on December 19,
1997 and was formed to acquire Autoeye Inc., an Alberta corporation, that
developed and proposed to manufacture a multi-vehicle surveillance system to
monitor large vehicle lots such as car dealerships, fleets and storage lots.
This proposed acquisition of Autoeye Inc., an Alberta corporation, was
terminated in February 1998. The Forest Industry Online Inc. had been in the
business of providing internet services to the forest and wood products industry
since January 1997. As a result of the combination, The Forest Industry Online
Inc. became a wholly-owned subsidiary of Autoeye and Autoeye changed our name to
forestindustry.com, Inc. and continues the business of The Forest Industry
Online Inc. Following the transaction, the shareholders of The Forest Industry
Online, Inc. owned a majority of Autoeye's outstanding shares of common stock.
Accordingly, for financial reporting purposes the transaction was accounted for
as a reverse acquisition with The Forest Industry Online, Inc. considered the
accounting acquirer. (See Notes 2(a) and 3 to the May 31, 2000 audited
consolidated financial statements). As such, The Forest Industry Online, Inc.'s
historical financial statements are now reported as our financial statements.
<PAGE> 4
Plan of Operations
In order to expand our operations we will need additional capital. We do
not have any commitments from any source to provide additional capital. We will
need to raise significant outside capital to fund our anticipated capital
requirements over the next twelve months. Approximately $2.6 million has been
budgeted to finance the development of our technology, development of new
products and services and increased sales and marketing over the next 12 months.
We anticipate needing approximately $200,000 to acquire additional equipment
over the next 12 months to support the Lumber and Equipment Exchange. We will
need capital to finance anticipated acquisitions during the next 12 months. We
will need $330,000 by December 31, 2000 if it determines to consummate a pending
corporate acquisition. Capital commitments for the next 12 month period 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 $98,600. As a result of this increased business activity and
anticipated increase in employees, we expect general and administrative expenses
and compensation costs to increase significantly from current levels.
An essential element of our business plan is to obtain license technology
and hardware to support our proposed Lumber and Equipment Exchange or LEE. The
LEE program is expected to cost between $300,000 and $400,000 to implement.
Since inception, we have relied on equity financings to fund our
operations. Funds required to finance our future internet services, marketing
efforts and ongoing business are expected to come primarily from debt and equity
financing and alliance partners with the remainder provided from operating
revenues. Operating revenues to date have been substantially less than the cost
of operations. Future financings will be necessary to meet our anticipated
working capital needs over the next 12 months. Potential sources of additional
capital include private placements with institutional investors and/or a public
offering of our common stock.
Results of Operations
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For the Fiscal Years Ended May 31, 2000 (10 months) and July 31,1999
--------------------------------------------------------------------
As indicated above, we commenced business operations in January of 2000. As
of May 31, 1999 and up to January 2000, we were 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 our latest fiscal year ended May 31, 1999 with the prior
fiscal year of The Forest Industry Online, Inc. ending July 31, 1999. However,
our most recent fiscal year consists of only ten months rather than a full
twelve-month fiscal year.
Revenues. Revenues increased 11% to $335,287 for the ten months ended May
31, 2000 as compared to sales of $300,362 for the year ended July 31, 1999.
Increased sales were attributable to an increase in subscribers to our web site
services and web design services. The customer base increased to approximately
640 customers by May 31, 2000 as compared to approximately 350 at July 31, 1999.
$215,504 or 64% of revenues were attributable to web site advertising while the
remaining $119,783 or 36% of revenues were derived from website design services.
Expenses. Selling, general and administrative expenses for the ten months
ended May 31, 2000 increased 94% to $534,976 as compared to $275,061 for the
year ended July 31, 1999. This increase is due to the hiring of additional sales
and technical staff and attendance at more trade shows during this period.
Consulting and professional fees were $231,066 for the period ended May 31, 2000
compared to $18,079 for the year ended July 31, 1999. Our professional fees
increased by over 600% due to the acquisition in January 2000 and the change
from a privately held company to a public reporting company. Professional fees
<PAGE> 5
also include legal and accounting fees relating to the preparation of our
registration statement.
Net and Comprehensive Loss. We recorded a net loss of $458,581 and a
comprehensive loss of $450,017 for the ten months ended May 31, 2000 compared to
a net loss of $541 and a comprehensive 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.
Liquidity and Capital Resources
We are in a growth stage in which expenses are expected to increase as we
implement our business plan. Due to the fact that we have not generated
sufficient cash flow to fund all of our operations, we have relied heavily on
outside sources of capital. During the year ended May 31, 2000, we raised
$750,000 through the sale of our series A convertible preferred stock. We will
require additional capital investments or borrowed funds to meet cash flow
projections. There can be no assurance that we will be able to raise capital
from these outside sources in sufficient amounts to fund our business expansion.
The failure to secure adequate outside funding would have an adverse affect on
our operating results.
We expect our expenses will continue to increase during the next twelve
months as a result of increased marketing expenses and the expansion of our
online services.
We 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 have identified and reviewed potential third parties and have
identified a company from whom we will obtain a license. Their model was less
expensive and easily adaptable to multiple platforms. Once we obtain outside
financing, we believe the exchange will take six weeks to build and 12-18 months
to fully launch and introduce to our customers. We will earn commissions on any
sales made through the LEE. A license for the computer system needed for the LEE
is expected to cost approximately $300,000 in addition to approximately $100,000
of installation services. Alternatively, we may establish a joint venture or
similar arrangement with a company, which has the rights to such a computer
system. The initial cost of the license would be less but we would be required
to share any revenues earned from the LEE with our joint venture partner. As of
August 31, 2000, we had not obtained any license for the computer programs which
will be required for the LEE and the launch date of the LEE will remain
uncertain until additional sources of capital are obtained.
Subsequent to the year-end, we signed a letter of intent to acquire a
business whereby we agreed to issue 400,000 shares of our 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
decides not to consummate this acquisition, we will pay a non-refundable deposit
in the amount of 125,000 shares of our common stock.
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, including those under capital
leases, 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.
<PAGE> 6
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.
Capital commitments for the next 12 month period include approximately
$21,468 in lease obligations for 1 office premises; consultant agreements
totaling $50,000; other leases $18,000; and employment agreements totaling
$98,600.
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.
ITEM 7. FINANCIAL STATEMENTS
Our financial statements, including notes thereto, together with the report
of independent certified public accountants thereon, are presented as an exhibit
under Item 13 beginning on page F-1.
<PAGE> 7
ITEM 10. 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- 9,375(3)
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. Prior to January 31, 2000,
Mr. Perraton was paid the following salary by The Forest Industry Online,
Inc. (a subsidiary of the Company); June 1, 1999 to January 30, 2000 -
$13,406; fiscal year 1999 - $49,410; fiscal year 1998 - $25,325.
(2) For the period June 1, 1999 to January 31, 2000.
(3) Value of 37,500 shares of common stock issued to Century Capital Management
Ltd. as compensation for consulting services.
In January 2000, Joe Perraton replaced Andrew Hromyk as our President of
the Company. Mr. Hromyk continued to serve as the Secretary and a director until
May 11, 2000 at which time he resigned from both positions.
Employment/Consulting Agreements
--------------------------------
On January 31,2000 we acquired The Forest Industry Online Inc. In
connection with this acquisition we entered into an employment agreement with
Joe Perraton, the President of The Forest Industry Online. The employment
agreement provides for a term of three years and an annual salary of CDN $70,000
(approximately $50,000 at current exchange rates).
In February 2000 our wholly owned subsidiary The Forest Industry Online
Inc. entered into an employment agreement with John Carmichael pursuant to which
Mr. Carmichael agreed to serve as that 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 50,000 common shares of 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 that 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
<PAGE> 8
Vice-President of Corporate Relations by the Board of Directors as of the 24th
of February 2000.
On March 1, 2000, we entered into a consulting agreement with Summit Media
Partners. The agreement had a term of 92 days and a cost of CDN $15,000.
Subsequent to the year-end we entered into a second consulting agreement with
Summit Media Partners. The agreement had a term of 92 days and expires on
September 7, 2000. We issued 200,000 shares of our common stock valued at
$212,500 in payment for these services. Summit Media is providing advertising
and marketing services through featured advertorial mailings.
Employee Pension, Profit Sharing or other Retirement Plans
----------------------------------------------------------
We do not have a defined benefit, pension plan, profit sharing or other
retirement plan, although we may adopt one or more of such plans in the future.
Director's Compensation
-----------------------
At present we do not pay our directors for attending meetings of the board
of directors, although we expect to adopt a director compensation policy in the
future. We have no standard arrangement pursuant to which our directors are
compensated for any services provided as a director or for committee
participation or special assignments.
Except as disclosed elsewhere in this prospectus no director received any
form of compensation from us during the year ended May 31, 2000.
Stock Option Plan
-----------------
In February, 2000 our board of directors adopted a stock option plan which
authorizes the issuance of options to purchase up to 250,000 shares of our
common stock. The option plan will remain in effect until February 2010, unless
earlier terminated by action of the board of directors. Pursuant to the option
plan, our employees and officers are eligible to be granted options. Our
directors may not be granted options unless they also serve as officers. The
option exercise price is determined by the board of directors. On May 26, 2000,
our board of directors amended the 2000 stock option plan to authorize the
issuance of options to purchase up to 500,000 shares of our common stock and
expanded the definition of an eligible person for the purpose of authorizing
stock options.
Options granted pursuant to the option plan terminate on the date
established by the board of directors when the option was granted and in any
event cannot exceed ten years from the date of grant.
Options granted pursuant to the option plan may be either incentive stock
options within the meaning of Section 422 of the Internal Revenue Code or
nonqualified stock options.
The exercise price of options granted pursuant to the option plan cannot be
less than the fair market value of the shares of our common stock on the date of
the grant and, in the case of incentive stock options granted to any of our
employees who own more than 10% of the voting power of all classes of our
shares, the exercise price cannot be less than 110% of the fair market value of
the shares of our common stock on the date of the grant.
The option plan is administered by our board of directors. Our board of
directors has the authority to interpret the provisions of the option plan and
supervise the administration of the option plan. In addition, our board of
directors is empowered to select those persons to whom options are to be
<PAGE> 9
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. Options to purchase 69,000 shares of common stock were issued to thirteen
employees and two non-employees. These options had exercise prices of $2.00 and
$4.00 per share and expire in April and May of 2005.
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 we may provide
indemnification of our agents, including our officers and directors to the
maximum extent permitted by the Delaware Corporation Law.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons 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
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 our counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
<PAGE> 10
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except as otherwise indicated below, we have not been a party to any
transaction, proposed transaction, or series of transactions in which the amount
involved exceeds $60,000, and in which, to our knowledge, any of our directors,
officers, five percent beneficial security holder, or any member of the
immediate family of the foregoing persons has had or will have a direct or
indirect material interest.
Should a transaction, proposed transaction, or series of transactions
involve an officer or director of forestindustry or a related entity or an
affiliate of a related entity, or holders of stock representing 5% or more of
the voting power (a "related entity") of the then outstanding voting stock, the
transactions must be approved by the unanimous consent of our board of
directors. In the event a member of the board of directors is a related party,
that member will abstain from the vote.
We have issued shares of our common stock to the following persons during
the past two years, who, at the time of issuance, were affiliated with us:
<TABLE>
<S> <C> <C> <C> <C>
Date of Number of
Name Issuance Shares Share Value Consideration
---- -------- ------ ----------- -------------
Century Capital Management 01/00 37,500 $9,375 Consulting services
Ltd. (1)
Todd Hilditch 02/00 200,000 $50,000 Services Rendered
----------------------
</TABLE>
1) The beneficial owner of Century Capital Management Ltd. is Andrew Hromyk, a
former officer and director.
In May 2000 Bona Vista West Ltd., a former principal shareholder, returned
2,597,240 shares of common stock to us for cancellation by way of a stock
retirement agreement dated May 11, 2000. Bona Vista West Ltd. agreed with us
that in order to attract future financings it would be in our best interest to
reduce our issued and outstanding share capital through the surrender and
retirement of certain control stock originally issued to Bona Vista West Ltd.
upon our formation. We released Bona Vista West Ltd. from all claims, demands,
acts, omissions and causes of action, in return for the 2,597,240 shares of
common stock.
We engaged Century Capital Management Ltd. as an advisor in connection with
our acquisition of The Forest Industry Online Inc. For our services, we issued
Century Capital Management Ltd. 37,500 shares of our common stock. Century
Capital Management Ltd. is owned by Andrew Hromyk, a former officer and
director.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) The following documents are being filed as part of this report:
(1) Financial Statements
--------------------
Report of Independent Accountants F-1
Year-end Consolidated Balance Sheets F-2
Year-end Consolidated Statements of
Operations and Comprehensive Income F-3
Year-end Consolidated Statements of
Stockholders' Equity F-4
Year-end Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6 thru F-17
<PAGE> F-1
Independent Auditors' Report
--------------------------------------------------------------------------------
To the Shareholders and Board of Directors of:
forestindustry.com, Inc.
(formerly Autoeye Inc.)
We have audited the Consolidated Balance Sheets of forestindustry.com, Inc. and
subsidiary as of May 31, 2000 and July 31, 1999 and the related Consolidated
Statements of Operations and Comprehensive Income, Stockholders' Equity and Cash
Flows for the ten month period ended May 31, 2000 and year ended July 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of forestindustry.com, Inc. and
subsidiary as of May 31, 2000 and July 31, 1999 and the results of their
operations and their cash flows for the ten month period ended May 31, 2000 and
the year ended July 31, 1999, in conformity with United States generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in note 1 to the
consolidated financial statements, the Company has suffered recurring losses and
negative cash flows from operations that raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
"Watson Dauphinee & Masuch"
Chartered Accountants
Vancouver, B.C., Canada
August 11, 2000
<PAGE> F-2
forestindustry.com, Inc.
(formerly Autoeye Inc.)
<TABLE>
<S> <C> <C> <C>
Consolidated Balance Sheets
----------------------------------------------------------------------------------------------
(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 - 84,151 54,133 64,657
May 31, 2000 - $20,697; July 31, 1999 - $8,630)
Work in Process 9,137 - -
Prepaid Expenses 1,548 228 1,795
Due from Affiliated Company - 326 166
-------------------------------------------
291,799 67,822 69,437
Property and Equipment (Note 4) 123,792 28,195 32,481
-------------------------------------------
415,591 96,017 101,918
===========================================
LIABILITIES and STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Operating Line of Credit (Note 5) - 9,770 13,278
Accounts Payable and Accrued Liabilities 129,513 17,651 39,265
Unearned Revenues 43,877 22,797 52,281
Due to Shareholders (Note 6) - 73,496 68,013
Demand Bank Loan (Note 7) - 57,756 55,695
-------------------------------------------
173,390 181,470 228,532
-------------------------------------------
Commitments (Note 10)
Subsequent Events (Note 11)
STOCKHOLDERS' EQUITY
Share Capital (Note 8)
Common Stock, $0.0001 par value
30,000,000 Authorized; Issued and
Outstanding: May 31, 2000 - 12,966,521;
July 31, 1999 - 10,000,000 1,296 1,000 1,000
Preferred Stock, $0.0001 par value 5,000,000
Authorized; Issued and Outstanding:
May 31, 2000 - 375; July 31, 1999 - Nil 1 - -
Additional Paid in Capital 834,789 (999) (999)
Deferred Stock Compensation (17,253) - -
Cumulative Translation Adjustment 10,014 991 1,450
Deficit (586,646) (86,445) (128,065)
-------------------------------------------
242,201 (85,453) (126,614)
-------------------------------------------
415,591 96,017 101,918
===========================================
</TABLE>
See notes to consolidated financial statements
<PAGE> F-3
forestindustry.com, Inc.
(formerly Autoeye Inc.)
<TABLE>
<S> <C> <C> <C>
Consolidated Statements of Operations and Comprehensive Income
-----------------------------------------------------------------------------------------------
(Audited) (Unaudited) (Audited)
Ten Months Ended Year Ended
May 31, 2000 May 31,1999 July 31, 1999
US $ US $ US $
REVENUES 335,287 270,176 300,362
----------------------------------------------------
EXPENSES
Consulting Fees 125,099 487 487
Depreciation 27,826 2,316 7,763
General and Administrative 534,976 213,846 275,061
Professional Fees 105,967 11,456 17,592
----------------------------------------------------
793,868 228,105 300,903
----------------------------------------------------
NET INCOME (LOSS)
FOR THE PERIOD (458,581) 42,071 (541)
Foreign Currency Translation Adjustment 8,564 - 459
----------------------------------------------------
COMPREHENSIVE INCOME (LOSS) FOR THE
PERIOD (450,017) 42,071 (82)
====================================================
Weighted Average Number of Shares
Outstanding, Basic and Diluted 10,521,802 10,000,000 10,000,000
====================================================
Earnings (Loss) per Common Share,
Basic and Diluted (0.043) 0.004 (0.001)
====================================================
</TABLE>
See notes to consolidated financial statements
<PAGE> F-4
forestindustry.com, Inc.
(formerly Autoeye Inc.)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statements of Stockholders' Equity
For the Periods from July 31, 1998 to May 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
Common Stock Preferred Stock Deficit Total
----------------------------------------
Additional Deferred Cumulative
Number Number Paid in Stock Translation
of Shares Amount of 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 Year Ended
July 31, 1999 - - - - - - 459 - 459
Net Loss for the Year
Ended July 31, 1999 - - - - - - (541) (541)
Common stock issued to
purchase all issued
and outstanding shares
of The Forest Industry
Online Inc.,
January 31, 2000 (note 3) 4,927,040 493 - - (493) - - - -
Adjustment to comply with
recapitalization
accounting (note 3) - - - - (28,042) - - - (28,042)
750 Series `A' convertible
preferred stocks issued for
cash, January 31, 2000 at
$1,000 per share (note 3) - - 750 1 749,999 - - - 750,000
Common stock issued for
service, January 31, 2000,
valued at $0.25 per share
(note 3) 37,500 4 - - 9,371 - - - 9,375
Common stock issued for
services in February,
2000, valued at $0.25
per share (note 8(c)) 350,000 35 - - 87,465 - - - 87,500
Common stock issued on
conversion of Series`A'
convertible preferred stock 249,221 24 (375) - (25) - - - (1)
Retirement of common stock
returned to the Company
at no cost by the founding
shareholder (2,597,240) (260) - - 260 - - - -
Deferred Compensation - - - - 17,253 (17,253) - - -
Translation Adjustment for
the Period Ended
May 31, 2000 - - - - - - 8,564 - 8,564
Net Loss for the Period
Ended May 31, 2000 - - - - - - - (458,581) (458,581)
------------------------------------------------------------------------------------------------------------------------------------
Balance, May 31, 2000 12,966,521 1,296 375 1 834,789 (17,253) 10,014 (586,646) 242,201
------------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements
</TABLE>
<PAGE> F-5
forestindustry.com, Inc.
(formerly Autoeye Inc.)
<TABLE>
<S> <C> <C> <C>
Consolidated Statements of Cash Flows
-------------------------------------------------------------------------------------------------
(Audited) (Unaudited) (Audited)
Ten Months Ended Year Ended
May 31, 2000 May 31,1999 July 31, 1999
US $ US $ US $
CASH WAS PROVIDED FROM, UTILIZED (FOR):
OPERATING ACTIVITIES
Net Income (Loss) for the Period (458,581) 42,071 (541)
Non-Cash Items:
Depreciation 27,826 2,316 7,763
Common Stocks Issued in Exchange for Services 87,500 - -
Change in Non-Cash Working Capital Accounts:
Accounts Receivable (19,494) (30,635) (41,159)
Work in Process (9,137) - -
Note Receivable - 14,406 14,406
Prepaid Expenses 247 186 (1,381)
Accounts Payable and Accrued Liabilities 80,384 (16,547) 5,067
Unearned Revenues (8,404) (365) 29,119
-------------------------------------------
Net Cash Provided by (Used in) Operating Activities (299,659) 11,432 13,274
-------------------------------------------
FINANCING ACTIVITIES
Demand Bank Loan and Operating Line of
Credit Advances (Repayments) (68,973) 67,526 68,973
Advances from (to) Affiliated Company 166 (326) (166)
Advances (to) Shareholders (68,013) (49,559) (55,042)
Net Proceeds from Issuance of Preferred Stocks 750,000 - -
-------------------------------------------
Net Cash Provided by Financing Activities 613,180 17,641 13,765
-------------------------------------------
INVESTING ACTIVITY
Acquisition of Property and Equipment (Net) (119,377) (18,727) (27,009)
-------------------------------------------
NET INCREASE
IN CASH AND EQUIVALENTS 194,144 10,346 30
Cash and Equivalents, Beginning of the Period 2,819 2,789 2,789
-------------------------------------------
CASH AND EQUIVALENTS, END OF THE PERIOD 196,963 13,135 2,819
===========================================
Supplemental Disclosure
Interest Paid 10,035 12,309 14,534
===========================================
See notes to consolidated financial statements
</TABLE>
<PAGE> F-6
forestindustry.com, Inc.
(formerly Autoeye Inc.)
Notes to the Consolidated Financial Statements
Ten Months Ended May 31, 2000 and Year Ended July 31, 1999
(Expressed in U.S. Dollars)
--------------------------------------------------------------------------------
NOTE 1 - NATURE AND CONTINUANCE OF OPERATIONS
forestindustry.com, Inc. (the "Company") was incorporated in Delaware on
December 18, 1997 under the name of Autoeye Inc. On February 25, 2000, the
Company changed its name to forestindustry.com, Inc. Prior to its acquisition of
The Forest Industry Online Inc. ("Forest") (note 2(a)), the Company was
inactive.
The Company's current business activities include designing web sites and
operating and maintaining a computer internet web site for companies associated
with the forest and wood product industries.
These consolidated financial statements have been prepared on a going concern
basis in accordance with United States generally accepted accounting principles.
The going concern basis of presentation assumes the Company will continue in
operation for the foreseeable future and will be able to realize its assets and
discharge its liabilities and commitments in the normal course of business.
Certain conditions, discussed below, currently exist which raise substantial
doubt upon the validity of this assumption. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
To May 31, 2000, the Company has not been profitable and has experienced
negative cash flows from operations. Operations have been financed through the
issuance of preferred stocks and other external financing. The Company's future
operations are dependent upon continued external funding, its ability to
increase revenues and reduce expenses, and the success of its proposed
development of an online business exchange auction website for the forest and
wood industries. There are no assurances that the above conditions will occur.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
a) Reverse Takeover and Basis of Presentation
On January 31, 2000, the Company acquired all of the issued and outstanding
shares of Forest by issuing to Forest's stockholders 10,000,000 shares of common
stock and control of the Company. The acquisition was a reverse takeover with
Forest being the deemed accounting acquiror for financial statement purposes.
The acquisition has been accounted for as a capital transaction effectively
representing an issue of stocks by Forest for the net assets of
forestindustry.com, Inc.
The Company's historical financial statements reflect the financial position,
results of operations and cash flows of Forest from the date of its
incorporation on January 09, 1997 under the laws of the Province of British
Columbia, Canada. The historical stockholders' equity gives effect to the shares
issued to the stockholders of Forest. The results of operations of
forestindustry.com, Inc. are included only from the date of acquisition, January
31, 2000.
b) Basis of Consolidation
These consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, The Forest Industry Online Inc. All significant
intercompany balances and transactions have been eliminated in the consolidated
financial statements.
c) Work in Process
Work in process is recorded at the lower of cost determined using a
percentage-of-completion method based on the contract price and net realizable
value.
<PAGE> F-7
forestindustry.com, Inc.
(formerly Autoeye Inc.)
Notes to the Consolidated Financial Statements
Ten Months Ended May 31, 2000 and Year Ended July 31, 1999
(Expressed in U.S. Dollars)
--------------------------------------------------------------------------------
Note 2 - Significant Accounting Policies (continued)
d) Property and Equipment and Depreciation
Property and equipment are recorded at cost and are depreciated using the
straight-line method over their estimated useful lives ranging from five to ten
years, or their lease terms.
e) Cash and Equivalents
The Company considers all short-term investments with a maturity date at
purchase of three months or less to be cash equivalents.
f) Revenue Recognition and Unearned Revenues
Revenues on advertising fees and hosting revenues are recorded on the billed
basis. Customers are invoiced on a quarterly basis in advance for advertising
and hosting spaces. Unearned revenues relate to the period of the billing that
has not yet transpired and therefore not earned.
Revenues on fixed contract website designs are recognized on the
percentage-of-completion method of accounting.
g) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
h) Net Earnings (Loss) Per Share
Basic earnings (loss) per share is computed using the weighted average number of
common stock outstanding during the periods. Diluted loss per share is computed
using the weighted average number of common and potentially dilutive common
stock outstanding during the period. As the Company has losses in the periods
presented, basic and diluted loss per share are the same.
i) Stock-Based Compensation
The Company accounts for its stock-based compensation arrangement in accordance
with provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees", and related interpretations. As such,
compensation expense under fixed plans would be recorded on the date of grant
only if the fair value of the underlying stock at the date of grant exceeded the
exercise price. The Company recognizes compensation expense for stock options,
common stock and other equity instruments issued to non-employees for services
received based upon the fair value of the services or equity instruments issued,
whichever is more reliably determined. This information is presented in note
8(c).
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock Based Compensation", required entities that continue to apply the
provision of APB Opinion No. 25 for transactions with employees to provide for
forma net income and pro forma earnings per share disclosures for employee stock
option grants made in 1995 and future years as if the fair-value-based method
defined in SFAS No. 123 had been applied to these transactions.
<PAGE> F-8
forestindustry.com, Inc.
(formerly Autoeye Inc.)
Notes to the Consolidated Financial Statements
Ten Months Ended May 31, 2000 and Year Ended July 31, 1999
(Expressed in U.S. Dollars)
--------------------------------------------------------------------------------
Note 2 - Significant Accounting Policies (continued)
j) Income Taxes
The Company follows the asset and liability method of accounting for income
taxes. Under this method, current taxes are recognized for the estimated income
taxes payable for the current period.
Deferred income taxes are provided based on the estimated future tax effects of
temporary differences between financial statement carrying amounts of assets and
liabilities and their respective tax bases as well as the benefit of losses and
tax credits available to be carried forward to future years for tax purposes.
Deferred tax assets and liabilities are measured using enacted tax rates that
are expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in operations in
the period that includes the substantive enactment date. A valuation allowance
is recorded for deferred tax assets when it is more likely than not that such
deferred tax assets will not be realized.
k) Foreign Currency Translation
The functional currency of the Company is the United States dollar and for its
Canadian subsidiary the Canadian dollar. Transactions in foreign currencies are
translated to United States dollars at the rates in effect on the transaction
date. Exchange gains or losses arising on translation or settlement of foreign
currency denominated monetary items are included in the consolidated statement
of operations.
l) Impairment of Long-Lived Assets
The recoverability of the excess of cost over fair value of net assets acquired
is evaluated by an analysis of operating results and consideration of other
significant events or changes in the business environment. If the Company
believes an impairment exists, the carrying amount of these assets is reduced to
fair value as defined in SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of."
m) Comparative Figures
Certain figures presented for comparative purposes have been reclassified to
conform with current period financial statement presentation. These
reclassifications had no effect on net loss or stockholders' equity.
<PAGE> F-9
forestindustry.com, Inc.
(formerly Autoeye Inc.)
Notes to the Consolidated Financial Statements
Ten Months Ended May 31, 2000 and Year Ended July 31, 1999
(Expressed in U.S. Dollars)
--------------------------------------------------------------------------------
Note 3 - Acquisition
On January 31, 2000, the Company acquired all of the issued and outstanding
shares of Forest. The acquisition was a reverse takeover with Forest being the
deemed accounting acquiror for financial statement purposes.
Under the terms of the agreement, the Company issued 10,000,000 common shares
for all of the 100 common issued and outstanding shares of Forest. As at January
31, 2000, there were 4,927,040 common shares of the Company (after reflecting a
21:1 stock consolidation which occurred on August 20, 1999 and a subsequent
stock split of 1:40 which occurred on August 21, 1999. These stock adjustments
have been retroactively adjusted and presented as of May 31, 1999 in the
Consolidated Statements of Stockholders' Equity). The acquisition was accounted
for as a recapitalization of Forest. The transaction has been accounted for as a
capital transaction effectively representing an issue of shares by Forest for
the net assets of the Company. On January 31, 2000 the net assets of the Company
consisted of:
Cash and Equivalents $ 750,000
Accounts Payable (19,530)
--------------
$ 730,470
==============
Total costs related to this recapitalization transaction were estimated at
$24,375. They include cash expense in the estimated amount of $15,000 and
non-cash expense in the amount of $9,375. The non-cash expense relates to the
issuance of 37,500 shares of common stock of the Company. The fair value of
these services was estimated based upon the estimated fair value of the shares
at $0.25 per share. Total transaction costs have been recorded as a charge to
the stockholders' equity of the Company.
Cash and equivalents held by the Company in the amount of $750,000 were obtained
through subscriptions for a private placement of 750 shares of Series "A"
convertible preferred stock at a price of $1,000 per share. The closing of this
private placement and the release of funds held in escrow were contingent on
this acquisition being completed. The shares of Series "A" preferred stock are
convertible, at the option of the holder, and at any time after March 16, 2000,
into common stock at 75% of the last ten day average closing bid price of the
Company subject to a maximum conversion rate of 5,000 shares of common stock for
one share of preferred stock and a minimum conversion rate of 250 shares of
common stock for one share of preferred stock. In addition, if a registration
statement in respect of the common stock underlying the preferred stock is
effective, all Series "A" preferred stock will be deemed to convert into common
stock on or before January 31, 2001, the first anniversary date.
The following table reflects pro forma information which combines the operations
of forestindustry.com, Inc. for the ten months ended May 31, 2000 and year ended
July 31, 1999 as if the acquisition of forestindustry.com, Inc. had taken place
at the beginning of the period. There were no pro forma adjustments required in
combining this information of these two entities. This pro forma information
does not reflect any non-recurring charges or credits directly attributable to
the transaction. This pro forma information does not purport to be indicative of
the revenues and net loss that could have resulted had the acquisition been in
effect for the period presented and is not intended to be a projection of future
results or trends.
<PAGE> F-10
forestindustry.com, Inc.
(formerly Autoeye Inc.)
Notes to the Consolidated Financial Statements
Ten Months Ended May 31, 2000 and Year Ended July 31, 1999
(Expressed in U.S. Dollars)
--------------------------------------------------------------------------------
Note 3 - Acquisition (continued)
Ten Months Ended Year Ended
May 31, 2000 July 31, 1999
$ $
Revenues 335,287 300,362
Expenses
Consulting Fees 125,099 487
Depreciation 27,826 7,763
General and Administrative 539,008 275,061
Professional Fees 109,822 27,344
-----------------------------------
Net (Loss) for the Period (466,468) (10,293)
===================================
Net (Loss) Per Share (0.044) (0.001)
===================================
NOTE 4 - PROPERTY AND EQUIPMENT
<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 -$13,278 (CDN $20,000)) revolving operating line of
credit with the Royal Bank of Canada. The line of credit was repaid in March
2000 and the general security agreement as well as the guarantees were
cancelled.
<PAGE> F-11
forestindustry.com, Inc.
(formerly Autoeye Inc.)
Notes to the Consolidated Financial Statements
Ten Months Ended May 31, 2000 and Year Ended July 31, 1999
(Expressed in U.S. Dollars)
--------------------------------------------------------------------------------
NOTE 6 - DUE TO SHAREHOLDERS
Amounts due to shareholders were unsecured and had no specific terms of
repayment except for $49,840 which bore interest at prime plus 5% per annum. The
amounts due to shareholders were repaid in March 2000.
May 31, 2000 July 31, 1999
$ $
Due to Shareholders - 68,013
=================================
NOTE 7 - DEMAND BANK LOAN
Demand Bank Loan, Royal Bank of Canada
The demand loan was repayable in monthly
instalments of $1,992 including interest
at prime plus 2% per annum and was secured
by a general security agreement over all
the assets of the Company, guarantees by
the corporate shareholder and personal
guarantees of the principals of the Company.
The loan was repaid in March 2000. - 55,695
=================================
Note 8 - Stockholders' Equity
a) Preferred Stock
On January 31, 2000, the Company issued through a private placement 750 shares
of Series "A" convertible preferred stock at a price of $1,000 per share.
Holders of Series "A" preferred stocks are entitled to distribution of $1,000
per share prior to any distribution to the holders of the Company's common
stocks in the event of any liquidation or dissolution of the Company.
The Series "A" preferred stock is convertible, at the option of the holder, and
at any time after March 16, 2000, into common stock at 75% of the last ten day
average closing bid price of the Company subject to a maximum conversion rate of
5,000 shares of common stock for one share of preferred stock and a minimum
conversion rate of 250 shares of common stock for one share of preferred stock.
In addition, if a registration statement in respect of the common stock
underlying the preferred stock is effective, all Series "A" preferred stock will
be deemed to convert into common stock on or before January 31, 2001, the first
anniversary date.
On May 10, 2000, the Company issued 249,221 shares of its common stock on the
conversion of 375 Series "A" convertible preferred stocks.
<PAGE> F-12
forestindustry.com, Inc.
(formerly Autoeye Inc.)
Notes to the Consolidated Financial Statements
Ten Months Ended May 31, 2000 and Year Ended July 31, 1999
(Expressed in U.S. Dollars)
--------------------------------------------------------------------------------
Note 8 - Stockholders' Equity (continued)
b) Stock Options
In February 2000, the Company adopted a fixed stock option plan that provides
for the issuance of incentive and non-qualified stock options to officers,
directors, employees and non-employees to acquire up to 250,000 shares of the
Company's common stock. The plan was amended in June 2000 to increase the
allowable number of stock options to be issued under this plan to 500,000
shares. The Board of Directors determines the terms of the options granted,
including the number of options granted, the exercise price and the vesting
schedule. The exercise price for qualified incentive stock options is not to be
less than the fair market value of the underlying stock at the date of grant,
and to have terms no longer than ten years from the date of grant. There was no
stock option plan prior to February 2000.
Issued to Employees
On February 29, 2000, the Company granted options to purchase a total of 29,000
shares of the Company's common stock at a price of $4.00 per share to employees
of the Company. The options vest on or after February 29, 2001 and expire
between February and April 2005.
As discussed in Note 2(i), the Company continues to account for its employee
stock-based awards using the intrinsic value method in accordance with APB No.
25, "Accounting for Stock Issued to Employees", and its related interpretations.
Accordingly, no compensation expense has been recognized in the financial
statements for employee stock arrangements, because the fair value of common
stock at the measurement date is not greater than the option exercise price.
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions: risk-free
interest rate of 6.0%; dividend yield of 0%; volatility factors of the expected
market price of the Company's stock of 78%; and an expected life of the options
of 2.5 years. Accordingly, compensation expense using the fair value method
would have been $4,870, amortized over their respective vesting period.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
<PAGE> F-13
forestindustry.com, Inc.
(formerly Autoeye Inc.)
Notes to the Consolidated Financial Statements
Ten Months Ended May 31, 2000 and Year Ended July 31, 1999
(Expressed in U.S. Dollars)
--------------------------------------------------------------------------------
Note 8 - Stockholders' Equity (continued)
b) Stock Options (continued)
Issued to Employees (continued)
The Statement's pro forma information from the options is as follows:
Ten Months Ended Year Ended
May 31, 2000 July 31, 1999
$ $
Net (loss) as reported (458,581) (541)
Compensation expense from
stock options under
SFAS No. 123 (1,217) -
----------------------------------------
Pro forma net (loss) (459,798) (541)
========================================
Pro forma (loss) per common share:
Basic and Diluted (0.043) (0.001)
========================================
Issued to Non-Employees
On May 26, 2000, the Company granted options to purchase a total of 40,000
shares of the Company's common stock at a price of $2.00 per share to
non-employees of the Company. The options vest and expire on May 01, 2001 and
May 01, 2005, respectively. Stock options issued to non-employees are accounted
for in accordance with the provisions of SFAS No. 123, "Accounting for Stock
Based Compensation", using the fair value method. Accordingly, compensation
expense relating to these stock options in the amount of $17,253 was recorded as
deferred stock compensation to be amortized over their respective vesting
period.
Additional Stock Option Plan Information
A summary status of the Company's fixed stock option plan and changes during the
period ended May 31, 2000 are as follows. There were no stock options as of July
31, 1999.
Number of Weighted Average
Shares Exercise Price
$
Outstanding, August 01, 1999 - -
Granted 73,000 2.90
Forfeited (4,000) 4.00
---------------------------------
Outstanding, May 31, 2000 69,000 2.84
=================================
Options exercisable at end of period Nil -
=================================
<PAGE> F-14
forestindustry.com, Inc.
(formerly Autoeye Inc.)
Notes to the Consolidated Financial Statements
Ten Months Ended May 31, 2000 and Year Ended July 31, 1999
(Expressed in U.S. Dollars)
--------------------------------------------------------------------------------
Note 8 - Stockholders' Equity (continued)
b) Stock Options (continued)
Additional Stock Option Plan Information (continued)
The following table summarizes information about the Company's fixed stock
options outstanding at May 31, 2000:
<TABLE>
<S> <C> <C> <C>
Options Outstanding
-------------------
Number Weighted Average Weighted Average
Range of Outstanding at Remaining Exercise
Exercise Prices May 31, 2000 Contractual Life Price
$ $ (in years)
4.00 - 4.00 29,000 5 4.00
2.00 - 2.00 40,000 5 2.00
---------------------------------------------------------------
69,000 5 2.84
===============================================================
</TABLE>
The options outstanding at May 31, 2000 will expire between February and May
2005.
c) Stock-Based Compensation
In January 2000, the Company issued 37,500 shares of common stock to a company
controlled by the Company's former president in exchange for services relating
to the acquisition of Forest. The fair value of these services was estimated
based upon the estimated fair value of the shares at $0.25 per share or $9,375.
The costs were deducted from the additional paid-in capital from the said
acquisition.
In February 2000, the Company recorded non-cash compensation expense of $87,500
relating to the issuance of 350,000 shares of common stock to certain
consultants to the Company. The fair value of the shares was estimated at $0.25
per share at the time of the transaction.
As discussed in Note 2(i), the Company recognizes compensation expense for
equity instruments issued to non-employees for services received based upon the
fair value of the services or equity instruments issued, whichever is more
reliably determined.
d) Retirement of Common Stocks
By way of a stock retirement agreement dated May 11, 2000 and for a nominal
amount of $1.00, a former principal shareholder of the Company returned
2,597,240 shares of common stock to the Company for cancellation. The
shareholder agreed that in order for the Company to attract future financing,
the Company should reduce its issued and outstanding share capital of its common
stock through the surrender and retirement of these shares.
<PAGE> F-15
forestindustry.com, Inc.
(formerly Autoeye Inc.)
Notes to the Consolidated Financial Statements
Ten Months Ended May 31, 2000 and Year Ended July 31, 1999
(Expressed in U.S. Dollars)
--------------------------------------------------------------------------------
Note 8 - Stockholders' Equity (continued)
e) Stock Splits
The Company consolidated its share capital on June 16, 1999 by way of a reverse
stock split on the basis of one new common share for each two old common shares,
on August 20, 1999 by way of a reverse stock split on the basis of one new
common share for each twenty-one old common shares, and on August 21, 1999 by
way of a stock split on the basis of forty new common shares for one old common
share. Issued and outstanding shares as of May 31, 1999 have been adjusted to
reflect these share splits.
Note 9 - INCOME TAXES
Deferred tax assets and liabilities
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 - -
====================================
Management believes that it is more likely than not that it will not create
sufficient taxable income sufficient to realize its deferred tax assets. It is
reasonably possible these estimates could change due to future income and the
timing and manner of the reversal of deferred tax liabilities.
The Company has no income tax expense due to its operating losses.
The Company has Canadian operating loss carryforwards for Canadian income tax
purposes at May 31, 2000 of approximately $480,000 (CDN $705,000). These
operating losses begin to expire in fiscal year 2004.
Note 10 - Commitments
a) The Company has entered into an agreement to lease office premises in
Nanaimo, B.C., Canada to May 31, 2001. The monthly lease payment is,
excluding operating costs, $1,789.
b) The Company has entered into an agreement to lease office premises in
Vancouver, B.C., Canada to September 30, 2001. The monthly lease payment
is, excluding operating costs, $2,561.
c) The Company has entered into an agreement to lease a vehicle to March 09,
2003. The monthly lease payment is $529 with an option to purchase the
vehicle at the end of the lease for $14,717.
<PAGE> F-16
forestindustry.com, Inc.
(formerly Autoeye Inc.)
Notes to the Consolidated Financial Statements
Ten Months Ended May 31, 2000 and Year Ended July 31, 1999
(Expressed in U.S. Dollars)
--------------------------------------------------------------------------------
Note 10 - Commitments (continued)
d) The Company has entered into an agreement to lease an internet
telecommunication line to December 31, 2002. The monthly lease payment is
$959.
e) The Company has entered into a consulting contract with an individual to
perform various investor relations and corporate development functions for
an initial fee of $50,000, which was settled by the issuance of 200,000
common shares of the Company at $0.25 per share, and a monthly fee of
$2,414. The contract term is from February 29, 2000 to February 28, 2001.
The Company may terminate the agreement on fourteen days written notice.
f) The Company has entered into an employment contract with the President of
the Company for management and administrative services for an annual salary
of $47,600. The employment contract term is from February 01, 2000 to
January 31, 2003. The Company may terminate the agreement only with cause.
g) The Company has entered into an employment contract with the Chief
Information Officer ("CIO") to oversee the Company's technical systems and
applications for a signing bonus of $37,500, which was settled by the
issuance of 150,000 common shares of the Company at $0.25 per share, and an
annual salary of $51,000. The employment contract term is from February 29,
2000 to February 28, 2001. Subsequent to year end, on July 21, 2000, the
CIO resigned.
h) The Company has entered into a consulting contract with a consulting firm
to provide strategic management services for a monthly fee of $3,450. The
contract term is from May 26, 2000 to November 26, 2000. The Company may
terminate the agreement on thirty days written notice. The Company also
granted to the principals of the consulting firm stock options allowing the
principals to acquire 40,000 common shares at an exercise price of $2.00
per share. The options vest on May 01, 2001 and expire on May 01, 2005 (see
note 8(b)).
Minimum future lease payments under operating leases are as follows:
Year $
2001 70,056
2002 28,100
2003 11,474
NOTE 11 - SUBSEQUENT EVENTS
a) On June 07, 2000, the Company entered into an agreement for advertising and
marketing services for a term of three months. In consideration, the
Company issued 200,000 shares of its common stock as compensation for
services rendered. The Company will record a non-cash compensation expense
of $212,500 based upon the estimated fair value of the shares which
approximates the value of the services received.
b) On June 12, 2000, the Company granted 54,000 stock options to employees
with an exercise price of $2.00 per share. The options vest on June 11,
2001 and expire on June 11, 2005.
<PAGE> F-17
forestindustry.com, Inc.
(formerly Autoeye Inc.)
Notes to the Consolidated Financial Statements
Ten Months Ended May 31, 2000 and Year Ended July 31, 1999
(Expressed in U.S. Dollars)
--------------------------------------------------------------------------------
NOTE 11 - SUBSEQUENT EVENTS (continued)
c) On June 15, 2000, the Company issued 217,145 shares of its common stock on
the conversion of 175 shares of its Series "A" convertible preferred stock.
d) On August 01, 2000, the Company issued through a private placement 200
shares of Series "B" convertible preferred stock with a par value of
$0.0001 at a price of $1,000 per share. Holders of Series "B" preferred
stocks are entitled to distribution of $1,000 per share prior to any
distribution to the holders of the Company's common stocks in the event of
any liquidation or dissolution of the Company.
The Series "B" preferred stock is convertible, at the option of the holder,
and at any time after August 01, 2000, into common stock at 70% of the last
five day average closing bid price of the Company subject to a maximum
conversion rate of 5,000 shares of common stock for one share of preferred
stock and a minimum conversion rate of 250 shares of common stock for one
share of Series "B" preferred stock.
Note 12 - RELATED PARTY TRANSACTIONS
Ten Months Ended Year Ended
May 31, 2000 July 31, 1999
$ $
Wages paid to the President of
the Company for management,
administration and supervision
services 28,428 31,761
Interest paid to shareholders
for funds loaned to the Company 3,490 10,420
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> 11
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the
registrant caused this amendment number 1 to its annual report to be signed on
our behalf by the undersigned, thereunto duly authorized.
FORESTINDUSTRY.COM, INC.
By /S/JOE PERRATON
----------------------
Joe Perraton, President and
Chief Financial and Accounting Officer
Pursuant to the requirements of the Securities Act of l933, this report has
been signed by the following persons in the capacities and on the dates
indicated.
Title Date
-------- ----------------
/S/JOE PERRATON Director January 12, 2001
-------------------
Joe Perraton
/S/GREG MILLBANK Director January 12, 2001
-------------------
Greg Millbank
