UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED November 30, 2000
Commission File Number 0-26673
FORESTINDUSTRY.COM, INC.
-------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 98-0207081
------------------------------------- -------------------------------
(State of other jurisdiction of (I.R.S. Employer Identification
incorporation or organization Number)
11-2480 Kenworth Road
Nanaimo, British Columbia V9T 3Y3
---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including area code: (250) 758-0665
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days:
YES X NO
Common stock, $.0001 par value, 13,783,666 issued and outstanding as of November
30, 2000.
<PAGE>2
INDEX
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited) ..............................3
ITEM 2. Management's Discussion and Analysis .........................13
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.............................................15
ITEM 2. Changes in Securities.........................................15
ITEM 3. Defaults upon Senior Securities...............................15
ITEM 4. Submission of Matters to a Vote of Security Holders...........15
ITEM 5. Other Information.............................................16
ITEM 6. Exhibits and Reports on Form 8-K..............................16
<PAGE>3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
forestindustry.com, Inc.
and Subsidiary
Condensed Consolidated Balance Sheet
(unaudited)
<TABLE>
<S> <C>
(in U.S. Dollars)
Assets
November 30, 2000
-----------------
Current:
Cash and cash equivalents $ 23,065
Accounts receivable (Net allowance for doubtful
accounts - November 30, 2000 - $9,765) 55,608
Work in process 4,477
Prepaid expenses and deposits 2,882
-----------------
Total current assets 86,032
Deposit on business acquisition (Note 3) 40
Property and equipment 104,167
-----------------
$ 190,239
=================
Liabilities and Stockholders' Equity
Current:
Accounts payable and accrued liabilities $ 163,275
Unearned revenues 35,538
-----------------
Total current liabilities $ 198,813
-----------------
Stockholders' equity:
Share capital (Note 4)
Common stock - $0.0001 par value
30,000,000 authorized; issued and outstanding: 13,783,666
(May 31, 2000- 12,966,521) 1,378
Preferred stock -$0.0001 par value
5,000,000 authorized; issued and outstanding: 200 Series "A" Convertible
and 200 Series "B" Convertible 1
Additional paid in capital 1,247,269
Deferred stock compensation (8,627)
Cumulative translation adjustment 805
Deficit (1,249,400)
-----------------
Total stockholders' equity $ (8,574)
-----------------
$ 190,239
=================
Commitments (Note 6)
Subsequent events (Note 7)
</TABLE>
<PAGE>4
forestindustry.com, Inc. and Subsidiary
Condensed Consolidated Statement of Operations
(unaudited)
For the Six Months Ended November 30, 2000 and 1999
(in U.S. Dollars)
2000 1999
------------- -------------
Revenue:
Sales $ 205,195 $ 92,382
------------- -------------
Expenses:
Depreciation 66,471 2,669
Consulting fees 28,076 --
General and administrative 707,719 78,419
Professional fees 65,683 10,100
------------- -------------
867,949 91,188
------------- -------------
Net loss (profit) for the period 662,754 (1,194)
Deficit, beginning of period 586,646 14,863
------------- -------------
Deficit, end of period $ 1,249,400 $ 13,669
============= =============
Basic and diluted loss per share ($0.09) ($0.001)
------------- -------------
Weighted average number of shares 13,556,376 10,000,000
============= =============
<PAGE>5
forestindustry.com, Inc. and Subsidiary
Condensed Consolidated Statement of Cash Flows
(unaudited)
For the Six Months Ended November 30, 2000 and 1999
<TABLE>
<S> <C> <C>
(in U.S. Dollars)
2000 1999
---------- ----------
Net loss for the period (662,754) (1,194)
Adjustments to reconcile net loss to net cash used in operating
activities -
Depreciation 54,643 2,669
Shares issued for services rendered 212,500 --
Changes in operating assets and liabilities -
Accounts receivable (28,543) (10,428)
Prepaid expenses and deposits 1,334 1,447
Due from related parties -- 14,113
Accounts payable and accrued liabilities 33,762 6,378
Unearned revenues (8,339) (529)
---------- ----------
Cash flows (used in) operating activities (397,397) 12,456
---------- ----------
Investing Activity:
Acquisition of capital assets 23,499 9,313
---------- ----------
Financing activities:
Demand bank loan and operating line of
credit advances (repayment) -- (4,788)
Advances from affiliated company -- --
Net proceeds from issuance of preferred stock 200,000 --
---------- ----------
Cash flows provided by (used in) financing activities 200,000 (4,788)
---------- ----------
Net decrease in cash and cash equivalents (173,898) 16,981
Cash and cash equivalents, beginning of period 196,963 13,135
---------- ----------
Cash and cash equivalents, end of period 23,065 30,116
========== ==========
</TABLE>
<PAGE>6
forestindustry.com, Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(unaudited)
For the Six Months Ended November 30, 2000
1 - BASIS OF PRESENTATION
The condensed interim consolidated financial statements included herein have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. However, the Company believes that the disclosures are adequate to
make the information presented not misleading. The condensed interim
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's annual report
on Form 10-KSB for the year ended May 31, 2000.
The unaudited condensed interim consolidated financial statements included
herein reflect, in the opinion of management, all adjustments (consisting
primarily only of normal recurring adjustments) necessary to present fairly the
results for the interim periods. The results of operations for the six months
ended November 30, 2000 are not necessarily indicative of results to be expected
for the entire year ending May 31, 2001.
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Nature and Continuance of Operations
forestindustry.com, Inc. (the "Company") was incorporated in Delaware on
December 18, 1997 under the name of Autoeye Inc. On February 25, 2000, the
Company changed its name to forestindustry.com, Inc. Prior to its acquisition of
The Forest Industry Online Inc. ("Forest"), the Company was inactive.
On January 31, 2000, the Company acquired all of the issued and outstanding
shares of Forest by issuing to Forest's stockholders 10,000,000 shares of common
stock and control of the Company. The acquisition was a reverse takeover with
Forest being the deemed accounting acquiror for financial statement purposes.
The acquisition has been accounted for as a capital transaction effectively
representing an issue of stocks by Forest for the net assets of the Company.
Under the terms of the agreement, the Company issued 10,000,000 common shares
for all of the 100 common issued and outstanding shares of Forest. As at January
31, 2000, there were 4,927,040 common shares of the Company (after reflecting a
21:1 stock consolidation that occurred on August 20, 1999 and a subsequent stock
split of 1:40 which occurred on August 21, 1999. These stock adjustments have
been retroactively adjusted and presented as of May 31, 1999 in the Consolidated
Statements of Stockholders' Equity). The acquisition was accounted for as a
recapitalization of Forest. The transaction has been accounted for as a capital
transaction effectively representing an issue of shares by Forest for the net
assets of the Company. On January 31, 2000 the net assets of the Company
consisted of:
Cash and Equivalents $ 750,000
Accounts Payable (19,530)
-----------
$ 730,470
-==========
Total costs related to this recapitalization transaction were estimated at
$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
<PAGE>7
forestindustry.com, Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(unaudited)
For the Three Months Ended August 31, 2000
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.
The Company's current business activities include designing web sites and
operating and maintaining a computer internet web site for companies associated
with the forest and wood product industries.
These interim consolidated financial statements have been prepared on a going
concern basis in accordance with United States generally accepted accounting
principles. The going concern basis of presentation assumes the Company will
continue in operation for the foreseeable future and will be able to realize its
assets and discharge its liabilities and commitments in the normal course of
business. Certain conditions, discussed below, currently exist which raise
substantial doubt upon the validity of this assumption. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
To November 30, 2000, the Company has not been profitable and has experienced
negative cash flows from operations. Operations have been financed through the
issuance of preferred stocks and other external financing. The Company's future
operations are dependent upon continued external funding, its ability to
increase revenues and reduce expenses, and the success of its proposed
development of an online business exchange auction website for the forest and
wood industries. There are no assurances that the above conditions will occur.
The accompanying interim consolidated balance sheet as of November 30, 2000
includes the accounts of the Company and Forest. The related accompanying
interim consolidated statements of operations and cash flows include the results
of operations and cash flows of the Company and Forest for the period ended
November 30, 2000 and of Forest only for the period ended November 30, 1999. All
significant intercompany transactions and balances have been eliminated.
b) Work in Process
Work in process is recorded as the lower of cost determined using a
percentage-of-completion method based on the contract price and net realizable
value.
c) Property and Equipment and Depreciation
Property and equipment are recorded at cost and are depreciated using the
straight-line method over their estimated useful lives ranging from one to ten
years, or their lease terms.
d) Cash and Cash Equivalents
The Company considers all short-term investments with a maturity date at
purchase of three months or less to be cash equivalents.
e) Revenue Recognition and Unearned Revenues
Revenues on advertising fees and hosting revenues are recorded on the billed
basis. Customers are invoiced on a quarterly basis in advance for advertising
and hosting spaces. Unearned revenues relate to the period of the billing that
has not yet transpired and therefore not earned.
<PAGE>8
forestindustry.com, Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(unaudited)
For the Six Months Ended November 30, 2000
Revenues on fixed contract website designs are recognized on the
percentage-of-completion method of accounting.
f) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
g) Net Earnings (Loss) Per Share
Basic earnings (loss) per share is computed using the weighted average number of
common stock outstanding during the periods. Diluted loss per share is computed
using the weighted average number of common and potentially dilutive common
stock outstanding during the period. As the Company has losses in the periods
presented, basic and diluted loss per share are the same.
h) Stock-Based Compensation
The Company accounts for its stock-based compensation arrangement in accordance
with provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees", and related interpretations. As such,
compensation expense under fixed plans would be recorded on the date of grant
only if the fair value of the underlying stock at the date of grant exceeded the
exercise price. The Company recognizes compensation expense for stock options,
common stock and other equity instruments issued to non-employees for services
received based upon the fair value of the services or equity instruments issued,
whichever is more reliably determined. This information is presented in note
8(c).
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock Based Compensation", required entities that continue to apply the
provision of APB Opinion No. 25 for transactions with employees to provide for
forma net income and pro forma earnings per share disclosures for employee stock
option grants made in 1995 and future years as if the fair-value-based method
defined in SFAS No. 123 had been applied to these transactions.
i) Income Taxes
The Company follows the asset and liability method of accounting for income
taxes. Under this method, current taxes are recognized for the estimated income
taxes payable for the current period.
Deferred income taxes are provided based on the estimated future tax effects of
temporary differences between financial statement carrying amounts of assets and
liabilities and their respective tax bases as well as the benefit of losses and
tax credits available to be carried forward to future years for tax purposes.
Deferred tax assets and liabilities are measured using enacted tax rates that
are expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in operations in
the period that includes the substantive enactment date. A valuation allowance
is recorded for deferred tax assets when it is more likely than not that such
deferred tax assets will not be realized.
<PAGE>9
forestindustry.com, Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(unaudited)
For the Six Months Ended November 30, 2000
j) Foreign Currency Translation
The functional currency of the Company is the United States dollar and for its
Canadian subsidiary the Canadian dollar. Transactions in foreign currencies are
translated to United States dollars at the rates in effect on the transaction
date. Exchange gains or losses arising on translation or settlement of foreign
currency denominated monetary items are included in the consolidated statement
of operations.
3 - PENDING ACQUISITION
On August 16, 2000, the Company signed a non-binding letter of intent to acquire
C.C. Crow Publishing, Inc. for $330,000 in cash and 400,000 shares of our common
stock. Crow was established in 1921 and publishes market reports for the
softwood industry. This acquisition is subject to several conditions including
the Company's ability to pay the cash portion of this transaction by the closing
date of December 31, 2000. There is no assurance that this acquisition will be
consummated. The Company has issued and placed the 400,000 shares in escrow
pending the closing of this transaction. 125,000 shares of this amount are a
non-refundable deposit, which will be issued to the owner of Crow's whether this
acquisition closes or not.
On October 6, 2000, the pending acquisition was cancelled by both parties and
the owner of Crow volunteered to return the 400,000 shares of common stock to
us. As of November 30, 2000 the 400,000 shares of common stock had not yet been
returned to treasury.
4 - STOCKHOLDERS' EQUITY
a) Preferred Stock
On January 31, 2000, the Company issued through a private placement 750 shares
of Series "A" convertible preferred stock at a price of $1,000 per share.
Holders of Series "A" preferred stocks are entitled to distribution of $1,000
per share prior to any distribution to the holders of the Company's common
stocks in the event of any liquidation or dissolution of the Company.
The Series "A" preferred stock is convertible, at the option of the holder, and
at any time after March 16, 2000, into common stock at 75% of the last ten day
average closing bid price of the Company subject to a maximum conversion rate of
5,000 shares of common stock for one share of preferred stock and a minimum
conversion rate of 250 shares of common stock for one share of preferred stock.
In addition, if a registration statement in respect of the common stock
underlying the preferred stock is effective, all Series "A" preferred stock will
be deemed to convert into common stock on or before January 31, 2001, the first
anniversary date.
On May 10, 2000 the Company issued 249,221 shares of its common stock on the
conversion of 375 Series "A" convertible preferred stocks.
On June 15, 2000 the Company issued 217,145 shares of its common stock on the
conversion of 175 Series "A" convertible preferred stocks.
In August, 2000, our board of directors established our Series "B" preferred
stock and authorized the issuance of up to 1,200 shares of Series "B" preferred
stock as part of this series. Upon any liquidation or dissolution of our
Company, each outstanding Series "B" preferred share is entitled to a
distribution of $1,000 prior to any distribution to the holders of our common
stock. The Series "B" preferred stocks are not entitled to any dividends or
voting rights.
<PAGE>10
forestindustry.com, Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(unaudited)
For the Six Months Ended November 30, 2000
In August 2000, the Company sold 200 Series "B" preferred stock to two
accredited institutional investors for $1,000 per share. Each Series "B"
preferred share may be converted, at the option of the holder, into shares of
our common stock equal in number to the amount determined by dividing $1,000 by
70% of the average closing price of our common stock for the five trading days
preceding the conversion date, subject to a maximum of 5,000 shares of common
stock being issued for each Series "B" preferred share and a minimum of 250
shares of common stock being issued for each Series "B" preferred share. Holders
of Series "B" preferred stocks are entitled to distribution of $1,000 per share
prior to any distribution to the holders of the Company's common stocks in the
event of any liquidation or dissolution of the Company.
b) Common Stock
On June 15, 2000 certain holders of the Company's Class "A" convertible
preferred stock converted 175 shares into 217,145 shares of common stock.
On June 7, 2000, the Company issued 200,000 shares of common stock, valued at
$212,500, for advertising and marketing services rendered. The Company recorded
an expense of $212,500 for the issuance of the common shares based on the fair
market value of the shares on the date of issuance.
On August 16, 2000, the Company issued 400,000 share of common stock, valued at
$400,000, to be held in escrow pending the acquisition of a company and to be
applied toward the final acquisition price on or before December 31, 2000. The
Company recorded an expense of $40 for the issuance of the common shares based
on the fair market value of the shares on the date of issuance. On October 6,
2000, the pending acquisition was cancelled by both parties and the owner of the
company volunteered to return the 400,000 shares of common stock to treasury.
5 - STOCK OPTIONS
a) Employees
In February 2000, the Company adopted a fixed stock option plan that provides
for the issuance of incentive and non-qualified stock options to officers,
directors, employees and non-employees to acquire up to 250,000 shares of the
Company's common stock. The plan was amended in June 2000 to increase the
allowable number of stock options to be issued under this plan to 500,000
shares. The Board of Directors determines the terms of the options granted,
including the number of options granted, the exercise price and the vesting
schedule. The exercise price for qualified incentive and non-qualified stock
options is not to be less than the fair market value of the underlying stock at
the date of grant, and to have terms no longer than ten years from the date of
grant.
On February 29, 2000, the Company granted options to purchase a total of 33,000
shares of the Company's common stock at a price of $4.00 per share to employees
of the Company. The options vest on or after February 29, 2001 and expire
between February and April 2005. Between March and November 2000, the Company
cancelled options to purchase a total of 16,000 shares as the employees who were
granted the options left the Company.
On June 12, 2000, the Company granted options to purchase a total of 54,000
shares of the Company's common stock at a price of $2.00 per share to employees
of the Company. The options vest on or after June 11, 2001 and expire June 2005.
Between June and November 2000, the Company cancelled options to purchase a
total of 40,000 shares as the employees who were granted the options left the
Company.
<PAGE>11
forestindustry.com, Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(unaudited)
For the Six Months Ended November 30, 2000
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 230%; and an expected life of the options
of 2.5 years. Accordingly, compensation expense using the fair value method
would have been $22,550, 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.
The Statement's pro forma information from the options is as follows:
<TABLE>
<S> <C> <C>
Six Months Ended Six Months Ended
November 30, 2000 November 30, 1999
$ $
--------------------- -----------------
Net (loss) as reported (662,754) (1,194)
Compensation expense from stock options under SFAS No. 123 (11,275) -
--------------------- -----------------
Pro forma net (loss) (674,029) (1,194)
===================== =================
Pro forma (loss) per common share:
Basic and Diluted (0.05) (0.001)
===================== =================
</TABLE>
b) Non-Employees
On May 26, 2000, the Company granted options to purchase a total of 40,000
shares of the Company's common stock at a price of $2.00 per share to
non-employees of the Company. The options vest on or after May 1, 2001 and
expire May 2005. Stock options issued to non-employees are accounted for in
accordance with the provisions of SFAS No. 123, "Accounting for Stock Based
Compensation", using the fair value method. Accordingly, a compensation expense
to these stock options in the amount of $17,253 was recorded as deferred stock
compensation to be amortized over their respective vesting periods. For the
quarter ended November 30, 2000 the Company recognized an amortization expense
of $3,690.
<PAGE>12
forestindustry.com, Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(unaudited)
For the Six Months Ended November 30, 2000
c) Additional Stock Option Plan Information
A summary status of the Company's fixed stock option plan and changes during the
period ended November 30, 2000 are as follows. There were no stock options as of
November 30, 1999.
Number of Weighted Average
Shares Exercise Price
$
-------------- ----------------
Outstanding, November 30, 1999
Granted 127,000 2.52
Forfeited (56,000) 2.57
-------------- ----------------
Outstanding, November 30, 2000 71,000 2.48
============== ================
Options exercisable at end of period Nil -
============== ================
The following table summarizes information about the Company's fixed stock
options outstanding at November 30, 2000:
<TABLE>
<S> <C> <C> <C>
Options Outstanding
Weighted Average Weighted Average
Range of Number Remaining Contractual Exercise
Exercise Prices Outstanding at Life Price
$ November 30, 2000 (in years) $
---------------- ----------------- ----------------------- -------------------
4.00 - 4.00 17,000 5 4.00
2.00 - 2.00 54,000 5 2.00
----------------- ----------------------- -------------------
71,000 5 2.48
================= ======================= ===================
</TABLE>
The options outstanding at November 30, 2000 will expire between February and
June 2005.
6 - COMMITMENTS
a) The Company has entered into an agreement to lease office premises in
Nanaimo, B.C., Canada to May 31, 2001. The monthly lease payment is, excluding
operating costs, $1,789.
b) The Company has entered into an agreement to lease a vehicle to March 09,
2003. The monthly lease payment is $529 with an option to purchase the vehicle
at the end of the lease for $14,717.
c) The Company has entered into an agreement to lease an internet
telecommunication line to December 31, 2002. The monthly lease payment is $959.
d) The Company entered into an agreement for advertising and marketing services
for a fee of $212,500, which was settled by the issuance of 200,000 common
shares of the Company at $1.25 per share. The contract term is from June 7, 2000
until September 7, 2000.
e) The Company entered into an agreement to lease office premises in Vancouver,
B.C. Canada to September 30, 2001. The monthly lease payment was, excluding
operating costs, $2,561. On August 31, 2000 the Company was released from its
obligations under the lease in return for payment of four months rent of
$10,244.
<PAGE>13
forestindustry.com, Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(unaudited)
For the Six Months Ended November 30, 2000
b) The Company entered into a consulting contract with an individual to perform
various investor relations and corporate development 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. In August 2000, the
Company provided fourteen days notice to the consultant that the agreement would
be terminated effective August 31, 2000. On August 31, 2000 the consultant
resigned from his position as Vice President, Corporate Relations and the
resignation was accepted by the Board of Directors.
c) The Company entered into an employment contract with the Chief Information
Officer ("CIO") to oversee the Company's technical systems and applications for
a signing bonus of $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 was from February 29, 2000 to February 28, 2001. On July 21,
2000, the CIO resigned.
d) The Company entered into a consulting contract with a consulting firm to
provide strategic management services for a monthly fee of $3,450. The contract
was from May 26, 2000 to November 26, 2000. The Company also granted to the
principals of the consulting firm stock options allowing the principals to
acquire 40,000 common shares at an exercise price of $2.00 per share. The
consultants terminated the contract by way of mutual release effective July 31,
2000.
e) On September 25, 2000 the Company entered into a consulting contract with an
individual to perform the duties of Chief Operating Officer for a monthly fee of
$4,078. Either party may terminate the agreement on fourteen days written
notice.
7 - SUBSEQUENT EVENTS
a) On December 4, 2000, the Company terminated its agreement to lease a vehicle
to March 09, 2003. The buyout of the lease was $1928 and the vehicle was
returned to the dealership.
b) On December 18, 2000, the Company granted options to purchase a total of
45,000 shares of the Company's common stock at a price of $0.60 per share to
employees of the Company. The options vest on or after January 31, 2001 and
expire December 2005.
Item 2. Management's Discussion and Analysis
This discussion, other than the historical financial information, may consist of
forward-looking statements that involve risks and uncertainties, including
quarterly and yearly fluctuations in results, the timely availability of new
communication products, the impact of competitive products and services, and the
other risks and uncertainties, including those relating to the recent
acquisition of a new line of business described below. These forward-looking
statements speak only as of the date hereof and should not be given undue
reliance. Actual results may vary significantly from those projected.
The Company was formed on December 18, 1997 under the name Autoeye, Inc. Autoeye
Inc., was formed to acquire Autoeye Inc., an Alberta corporation, that developed
and proposed to manufacture its existing design for a multi-vehicle surveillance
system to monitor large vehicle lots such as car dealerships, fleets and storage
lots. The proposed acquisition of Autoeye Inc., an Alberta corporation, was
terminated in February 1998. Thereafter 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
<PAGE>14
transaction was accounted for as a reverse acquisition with The Forest Industry
Online, Inc. considered the accounting acquirer. (See Notes 2(a) and 3 to the
May 31, 2000 consolidated financial statements). As such, The Forest Industry
Online, Inc.'s historical financial statements are now reported as the Company's
financial statements. On February 25, 2000, the Company changed its name from
Autoeye, Inc. to forestindustry.com, Inc. Prior to the acquisition of The Forest
Industry Online, Inc., the Company had not generated any revenue and had not
commenced any operations other than initial corporate formation and
capitalization.
Overview
The Company is an internet service provider to the forest and wood products
industry. The Company's website includes information and advertising relating to
forest and logging; wood processing and logs; and lumber and wood products. The
Company is also in the process of establishing a business-to-business exchange
to support the purchase and sale of wood, wood products and wood related
services. The Company also plans on designing web-based training and compliance
programs and establishing a market information service. The Company's strategy
is to become an internet leader in supporting an e-focused marketplace for the
highly fragmented global forest industry.
For the Six Months ended November 30, 2000 and November 30, 1999
Revenues. Revenues increased 122% to $205,195 for the six months ended November
30, 2000 as compared to sales of $92,382 for the six months ended November 30,
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 1200 customers by November 30, 2000 as compared to
approximately 400 at November 30, 1999. $108,015 or 53% of revenues were derived
from website design services while the remaining $97,180 or 47% of revenues were
derived from web site advertising.
Expenses. Total expenses for the six months ended November 30, 2000 increased to
$867,949 as compared to $91,188 for the comparative period ended November 30,
1999. Selling, general and administrative expenses represented the largest
portion of expenses increasing over 900% from $78,419 for the six months ended
November 30, 1999 to $707,719 for the comparable period in 2000. This increase
is due to the hiring of additional sales and technical staff, attendance at more
trade shows during this period and termination of office leases and other
commitments. The Company also recorded a compensation expense for stock issued
for services rendered in the amount of $212,500. Consulting and professional
fees were $28,076 for the period ended November 30, 2000 compared to nil for the
six months ended November 30, 1999. The Company's professional fees increased
due to the private placement conducted in August, the pending acquisition and
compliance with public reporting requirements. Professional fees also included
legal and accounting fees relating to the preparation of a registration
statement and audited financial statements for the year ending May 31, 2000.
Net and Comprehensive Loss. The Company recorded a net loss of $662,754 for the
six months ended November 30, 2000 compared to a net gain of $1,194 for the six
months ended November 30, 1999. The increase in losses for the period ended
November 30, 2000 is due to the significant increase in operating,
administrative and professional expenses and the recording of compensation
expenses relating to the issuance of common stock for services and granting of
stock options to non-employees.
Liquidity and Capital Resources
The Company is in a growth stage in which expenses are expected to increase as
the Company implements its business plan. The Company has not been profitable
and has experienced negative cash flows from operations. Due to the fact that
the Company has not generated sufficient cash flow to fund all of its operating
costs, the Company has relied heavily on outside sources of capital. During the
year ended May 31, 2000, the Company raised $750,000 through the sale of its
Series A Convertible Preferred Stock. During the six months ended November 30,
2000, the Company also raised $200,000 through the sale of its Series B
Convertible Preferred Stock. The Company's future operations are dependent upon
<PAGE>15
continued external funding from additional capital investments or borrowed
funds. The Company's future success will also depend on its ability to increase
revenues and to reduce expenses and establish its online business exchange
auction website for the forest and wood industries. There can be no assurance
that the Company will be able to raise capital from these outside sources in
sufficient amounts to fund the Company's business operations or to successfully
expand its online business. The failure to secure adequate outside funding or
establish the forest and wood industry auction website would have an adverse
affect on the Company's operating results.
Investing activities during the six months ended November 30, 2000 have
consisted mainly of purchasing property and equipment, primarily computer
hardware and software. Capital expenditures totalled $23,499 for the six months
ended November 30, 2000 and $119,377 for the year ended May 31, 2000. The
Company expects capital expenditures will increase and growth in its technical
infrastructure will be required to support the growing customer base.
To date, the Company has not invested in derivative securities or any other
financial instruments that involve a high level of complexity or risk. The
Company expects, that in the future, cash in excess of current requirements will
continue to be invested in high credit quality, interest-bearing securities
until utilized in business operations.
As of November 30, 2000, the Company had negative working capital of
approximately $112,781. The Company anticipates obtaining the additional capital
which it will require through revenues from operations and through a combination
of debt and equity financing. The Company will also consider joint ventures or
strategic alliances to develop future programs. There is no assurance that the
Company will be able to obtain capital it will need or that the estimates of its
capital requirements will prove to be accurate.
In order to reduce our expenses, we laid off 17 of our employees in November,
2000. We plan on building our operations and re-hiring our employees once
revenues exceed our operating costs.
Factors Affecting Future Operating Results
The Company is still in the early stages of developing its website and marketing
its internet services. Consequently, it has only a limited history of revenues
and business track record.
The Company expects its expenses will increase during the remainder of the
fiscal year as a result of increased marketing expenses and the expansion of its
online services. The Company's ability to successfully operate and expand its
website and market its services will depend on, among other things:
o the continued improvement of its internet technology to support the forest
and wood industry;
o the development and expansion of its internet services;
o the expansion of its subscriber base; and
o the establishment of its website as an effective advertising and business
medium for the forest and wood industry.
The success of the Company will also depend on its ability to respond to
technological advances and emerging industry standards in a cost-effective and
timely manner. The Company may not have the technical or financial ability to
respond to these technical challenges.
Until revenues are sufficient to support the Company's business, it will depend
to a significant extent on outside capital to pay for the development of its
e-commerce business. Such outside capital may include the sale of additional
stock and/or commercial borrowing. There can be no assurance that capital will
be available if necessary to the Company to meet these operational costs or, if
the capital is available, it will be on terms acceptable to the Company. The
issuance of additional equity securities by the Company would result in a
further dilution in the equity interests of the current stockholders. Obtaining
commercial loans, assuming those loans would be available, will increase the
Company's liabilities and future cash commitments. As of November 30, 2000, the
Company did not have any commitments from any source to provide additional
capital.
<PAGE>16
PART II
Other Information
Items 1, 2, 3 and 4
None.
Item 5. Other Information
On August 16, 2000 the Company signed a non-binding letter of intent to acquire
all of the issued and outstanding shares of C.C. Crow Publications, Inc. in
exchange for 400,000 shares of the Company's common stock and $330,000 in cash.
The transaction is subject to several conditions prior to closing. The Company
has issued 400,000 shares of its common stock, which has been placed in escrow
pending the consummation of this transaction. The Company has until December 31,
2000 to raise sufficient capital to acquire the business. The Company plans to
obtain the necessary capital through debt and/or equity financing. If the
Company fails to raise sufficient capital or for some other reason decides not
to consummate this acquisition, it will forfeit a deposit in the amount of
125,000 shares of its common stock. On October 6, 2000, both parties agreed to
terminate the letter of intent and the owner of C.C. Crow Publications, Inc.
volunteered to return the 400,000 shares to the Company. As of November 30, 2000
the 400,000 common shares had not yet been returned.
Item 6. Exhibits and Reports on Form 8-K
The Exhibits in the following table have been filed as part of this Quarterly
Report on Form 10-QSB:
a) Exhibit Number Description of Exhibit
-------------- ------------------------
27 Financial data schedule
b) Reports on Form 8-K
1. On August 24, 2000, the Company filed a Form 8-K/A amending the Form 8-K
previously filed on February 15, 2000 and amended on February 16, 2000. The
Form 8-K/A amended the previously reported Item 1 event relating to the
acquisition of The Forest Industry Online, Inc. by the Company and the
resulting change in control of the Company.
2. On August 24, 2000, the Company filed a Form 8-K/A amending the Form 8-K
previously filed on March 8, 2000. The Form 8-K/A amended the previously
reported Item 4 event relating to its change of accountants and an Item 5
event relating to its name change to forestindustry.com, Inc.
3. On August 30, 2000, the Company filed a Form 8-K to report an Item 2 event
relating to the proposed acquisition of C.C. Crow Publications, Inc.
<PAGE>17
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
forestindustry.com, Inc.
Date: January 12, 2001 /S/JOE PERRATON
------------------------------
Joe Perraton, President
(Principal Financial and
Accounting Officer)