Form 10-QSB
QUARTERLY OR TRANSITION REPORT
UNDER SECTION 13 OR 15(d)
(As last amended by 34-2231, eff. 6/3/93)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
/ X / QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: June 30, 1996
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Forestry International, Inc.
- ------------------------------------------------------------------------------
(Name of small business issuer as specified in its charter)
0-23310
- ------------------------------------------------------------------------------
Commission File Number
Colorado 84-1116284
- ---------------------------------- ----------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3573 E. Sunrise Dr. Ste 225,
Tucson, AZ 85718
- ---------------------------------- ---------------------------------------
(Address of principal executive (Zip Code)
officers)
Issuer's telephone number: (520) 299-9447
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the 12 months (or for such
shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for he past 90 days.
/ X / Yes / / No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange
Act after the distribution of securities under a plan confirmed
by a court. N/A Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
As of December 31, 1996, registrant had one class
of commons stock, of which 14,300,000 shares were
outstanding.
Transitional Small Business Disclosure Format (Check one):
/ / Yes / X / No
(Added by Exch Act Rel No. 31905, eff 4/26/93)
==============================================================================
PART 1 -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FORESTRY INTERNATIONAL, INC
(A Development Stage Company)
BALANCE SHEET
JUNE 30, 1996
(UNAUDITED) MARCH 31, 1996
------------- --------------
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $4,489 $0
NOTES AND ACCOUNTS RECEIVABLE,
NET OF ALLOWANCE 6,184 2,609
INVENTORY 39,627 46,165
PREPAID EXPENSES AND DEPOSITS 44,387 46,131
---------- ----------
TOTAL CURRENT ASSETS 94,687 94,905
---------- ----------
INVESTMENT - FORESTRY DEVELOPMENT COSTS 871,189 882,359
---------- ----------
PROPERTY AND EQUIPMENT (NOTES 4 AND 8):
LAND 985,423 1,149,766
BUILDING AND NURSERY FACILITIES 332,273 334,057
MACHINERY AND EQUIPMENT 144,500 141,442
OFFICE EQUIPMENT 44,335 22,204
COMPUTERS AND SOFTWARE 22,374 22,374
VEHICLES 65,813 65,814
---------- ----------
1,594,718 1,735,657
LESS ACCUMULATED DEPRECIATION 94,295 79,928
---------- ----------
NET PROPERTY AND EQUIPMENT 1,500,423 1,655,729
---------- ----------
OTHER ASSETS:
DEFERRED ACQUISITION COST 306,139 306,139
ORGANIZATION EXPENSE , NET OF $7,059
AND $6,555 ACCUMULATED
AMORTIZATION 3,024 3,528
INTANGIBLE ASSETS (NOTE 5) 1 1
DEFERRED INCOME TAX BENEFIT, NET
OF $891,973 AND $798,000
VALUATION ALLOWANCE (NOTE 10) 0 0
----------- -----------
TOTAL OTHER ASSETS 309,164 309,668
----------- -----------
TOTAL ASSETS $2,775,463 $2,942,661
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
CURRENT PORTION OF LONG TERM DEBT
(NOTE 8) $13,041 $12,184
NOTES PAYABLE (NOTE 7) 49,874 172,831
ACCOUNTS PAYABLE 213,804 545,559
ACCRUED PAYROLL AND OTHER EXPENSES 146,725 101,594
INCOME TAX PAYABLE (NOTE 10) 382,243 382,243
DUE TO RELATED PARTIES (NOTE 9) 128,050 127,050
---------- ----------
TOTAL CURRENT LIABILITIES 933,737 1,341,461
---------- ----------
LONG TERM DEBT - UNRELATED (NOTE 8) 1,698,260 1,881,809
COMMITMENTS, CONTINGENCIES AND
SUBSEQUENT EVENTS (NOTES 3, 6, 12
AND 13) 0 0
STOCKHOLDERS' EQUITY (DEFICIT) (NOTE 11):
PREFERRED STOCK, PAR VALUE $.0001
PER SHARE, AUTHORIZED 10,000,000
SHARES 0 0
COMMON STOCK, PAR VALUE $.0001 PER
SHARE, AUTHORIZED 100,000,000 SHARES;
ISSUED AND OUTSTANDING 11,827,934
SHARES 1,183 921
CAPITAL IN EXCESS OF PAR VALUE 4,209,748 3,550,953
DEFICIT ACCUMULATED DURING THE
DEVELOPMENT STAGE (4,067,465) (3,832,483)
----------- ------------
TOTAL STOCKHOLDERS' EQUITY
(DEFICIT) 143,466 (280,609)
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $2,775,463 $2,942,661
=========== ============
(SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS)
==============================================================================
FORESTRY INTERNATIONAL, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
Three months ended June 30, 1996 and 1995 and cumulative
amounts from inception July 1, 1992 to June 30, 1996
THREE MONTHES ENDED JUNE 30
1996 1995
UNAUDITED) CUMULATIVE
---------- ---------- ----------
OPERATING REVENUE $19,119 $3,888 $638,282
COST OF SALES 8,738 949 312,056
---------- ---------- ----------
GROSS MARGIN 10,381 2,939 326,225
---------- ---------- ----------
OPERATING EXPENSES:
GENERAL AND ADMINISTRATIVE
EXPENSES (NOTE 8) 154,028 304,221 3,679,295
RESEARCH AND DEVELOPMENT 0 1,980 216,321
----------- ---------- -----------
TOTAL OPERATING EXPENSES 154,028 306,201 3,895,615
----------- ---------- -----------
OPERATING LOSS (143,646) (303,262) (3,569,390)
----------- ---------- -----------
OTHER INCOME (EXPENSE):
INTEREST AND DIVIDENDS 0 78 152,116
REALIZED GAIN ( LOSS) ON SALE
OF MKT SECURITIES 0 0 (48,727)
INTEREST EXPENSE (NOTE 10) (62,374) (62,284) (573,232)
LOSS ON SALE OF LAND (27,220) 0 (27,220)
LOSS ON OFFERING 0 0 (254,084)
GAIN (LOSS) FROM ABANDONMENT OF
AUSTRALIAN OPERATIONS (NOTE
6 AND 9):
GAIN FROM NET ASSETS ABANDONED 0 0 16,798
PROVISION FOR BAD DEBT ON NOTES
AND ACCOUNTS RECEIVABLE (1,741) 0 (626,270)
PENALTIES (NOTE 10) 0 0 (165,506)
OTHER 0 255 31,337
----------- ---------- -----------
TOTAL OTHER INCOME
AND EXPENSE (91,335) (61,951) (1,494,788)
----------- ---------- -----------
LOSS BEFORE INCOME TAXES (234,982) (365,213) (5,064,179)
INCOME TAXES BENEFIT (NOTE 10) 0 (145,000) (996,713)
----------- ----------- -----------
NET LOSS ($234,982) ($220,213) ($4,067,466)
=========== =========== ==========
NET LOSS PER COMMON SHARE ($0.02) ($0.03)
=========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES 10,690,717 7,949,197
=========== ===========
(SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS)
=============================================================================
<TABLE>
FORESTRY INTERNATIONAL, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
For the period from July 1, 1992 (inception) through June 30, 1996
<CAPTION>
COMMON STOCK PAID IN FOREIGN
--------- ------- CAPITAL IN CURRENCY NET
NUMBER PAR EXCESS OF ACCUMULATED TRANSLATION STOCKHOLDERS'
OF SHARES VALUE PAR VALUE DEFICIT ADJUSTMENT EQUITY
--------- ------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BEGINNING SHARES AFTER THE EFFECTS
OF A 1-10 STOCK SPLIT AS OF
DECEMBER 31, 1992 639,781 6,398 (6,398)
ISSUANCE OF RESTRICTED COMMON STOCK 1,500,000 1,500 18,500 20,000
CHANGE OF PAR VALUE TO $.0001 PER
SHARE AS OF DECEMBER 31, 1992 (7,684) 7,684
ISSUANCE OF COMMON STOCK FOR
MARKETABLE SECURITIES VALUED
AT TRANSFEROR'S HISTORICAL
COST AS OF JANUARY 31, 1993 2,750,000 275 (226) 49
ISSUANCE OF COMMON STOCK FOR
CONTRACTSAND TECHNOLOGY
VALUED AT $1 AS OF
JANUARY 31, 1993 2,000,000 200 (199) 1
ISSUANCE OF COMMON STOCK FOR CASH 114,588 11 114,394 114,405
NET LOSS (61,898) (61,898)
--------- ------- --------- ---------- --------- ----------
BALANCES AT MARCH 31, 1993 7,004,369 700 133,755 (61,898) 72,557
ISSUANCE OF COMMON STOCK FOR CASH 824,633 83 1,021,028 1,021,111
GAIN REALIZED ON SALE OF MARKETABLE
SECURITIES RECEIVED JANUARY 31,
1993 IN EXCHANGE FOR COMMON
STOCK, NET OF $1,057,800
INCOME TAX 1,613,462 1,613,462
FOREIGN CURRENCY TRANSLATION
ADJUSTMENT (988) (988)
NET LOSS (584,835) (584,835)
--------- ------- --------- ---------- ---------- ----------
BALANCES AT MARCH 31, 1994 7,829,002 783 2,768,245 (646,733) (988) 2,121,307
ISSUANCE OF COMMON STOCK FOR CASH 69,244 7 112,155 112,162
ISSUANCE OF COMMON STOCK TO
EMPLOYEES AS COMPENSATION 24,567 2 5,247 5,249
ISSUANCE OF COMMON STOCK IN
EXCHANGE FOR RELATED
PARTY STOCK 286,887 29 429,971 430,000
EXCHANGE OF RELATED PARTY STOCK
FOR COMMON STOCK (286,887) (29) (395,171) (395,200)
GAIN REALIZED ON SALE OF MARKETABLE
SECURITIES RECEIVED 1/31/93 IN
EXCHANGE FOR COMMON STOCK, NET
OF $39,600 INCOME TAX 60,398 60,398
FOREIGN CURRENCY TRANSLATION
ADJUSTMENT (146,811) (146,811)
NET LOSS (1,192,727) (1,192,727)
--------- ------- --------- ---------- --------- -----------
BALANCES AT MARCH 31, 1995 7,922,813 792 2,980,845 (1,839,460) (147,799) 994,378
ISSUANCE OF COMMON STOCK FOR CASH 1,124,000 113 503,889 504,002
ISSUANCE OF COMMON STOCK TO
EMPLOYEES AS COMPENSATION 115,000 12 28,739 28,751
ISSUANCE OF COMMON STOCK FOR
ADVERTISING SERVICES 33,886 3 27,481 27,484
ISSUANCE OF COMMON STOCK TO SETTLE
DISPUTE WITH FORMER EMPLOYEE 10,000 1 9,999 10,000
FOREIGN CURRENCY TRANSLATION
ADJUSTMENT 147,799 147,799
NET LOSS (1,993,023) (1,993,023)
--------- ------- --------- ---------- ---------- -----------
BALANCES AT MARCH 31, 1996 9,205,699 921 3,550,953 (3,832,483) 0 (280,609)
ISSUANCE OF COMMON STOCK FOR NOTE
PAYMENTS IN LIEU OF CASH 1,231,727 123 301,573 301,696
ISSUANCE OF COMMON STOCK FOR
SERVICES 1,390,508 139 357,222 357,361
NET LOSS (234,982) (234,982)
---------- ------- --------- ---------- ---------- -----------
BALANCES AT JUNE 30, 1996 11,827,934 $1,183 $4,209,748 $4,067,465) $0 $143,466
========== ======= ========= ========== ========== ===========
</TABLE>
(See Accompanying Notes to Financial Statements)
==============================================================================
FORESTRY INTERNATIONAL, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
Three Months Ended June 30, 1996 and 1995 and cumulative
amounts from inception July 1, 1992 and June 30, 1996
1996 1995 CUMULATIVE
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS ($234,982) ($220,213) (4,067,465)
ADJUSTMENTS TO RECONCILE NET LOSS:
AMORTIZATION AND DEPRECIATION 14,871 25,854 158,482
COMMON STOCK ISSUED FOR SERVICES 357,361 0 443,596
SALE OF LAND AND TREES IN
EXCHANGE FOR NOTE RECEIVABLE 0 0 (703,199)
LOSS FROM ABANDONMENT OF AUSTRALIAN
OPERATIONS 0 0 607,731
LOSS ON SALE OF MARKETABLE
SECURITIES 0 0 59,028
LOSS ON SALE OF PROPERTY AND
EQUIPMENT 27,220 0 27,220
(INCREASE) DECREASE IN:
NOTES AND ACCOUNTS RECEIVABLE (3,575) 57,342 (2,684)
INVENTORY 6,538 (26,773) (395,908)
PREPAID EXPENSES AND DEPOSITS 1,744 17,597 (69,988)
OTHER ASSETS 0 0 0
INCREASE (DECREASE) IN:
INTEREST RECEIVABLE 0 0 (3,376)
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (286,624) (19,036) 596,298
INCOME TAX PAYABLE 0 (145,000) (715,157)
---------- ---------- -----------
NET CASH USED BY OPERATING ACTIVITIES (117,447) (310,229) (4,065,422)
---------- ---------- -----------
CASH FLOWS FROM (APPLIED TO) INVESTING ACTIVITIES:
NOTES RECEIVABLE, NET 0 5,376 88,953
PURCHASE OF MARKETABLE SECURITIES 0 0 (593,916)
PROCEEDS FROM SALE OF MARKETABLE
SECURITIES 0 0 569,735
PURCHASE OF INTANGIBLE ASSETS 0 7,885 (224,886)
PURCHASE OF PROPERTY AND EQUIPMENT (23,404) (78,395) (1,670,008)
PROCEEDS FROM SALE OF PROPERTY
AND EQUIPMENT 137,123 0 200,921
INCREASE IN FORESTRY DEVELOPMENT
COSTS 11,170 (83,430) (495,665)
DEFERRED ACQUISITION COST 0 0 (306,139)
---------- ---------- -----------
NET CASH PROVIDEDD BY INVESTING
ACTIVITIES 124,889 (148,564) (2,431,005)
---------- ---------- -----------
CASH FLOWS FROM (APPLIED TO) FINANCING ACTIVITIES:
ISSUANCE OF NOTES PAYABLE 87,172 47,301 2,838,100
REPAYMENT OF DEBT (91,125) (15,770) (569,680)
NET (INCREASE) IN RELATED PARTY DEBT 1,000 28,166 (304,862)
GAIN REALIZED ON SALE OF MARKETABLE
SECURITIES RECEIVED IN EXCHANGE
FOR STOCK 0 0 2,771,260
ISSUANCE OF COMMON STOCK 0 332,682 1,756,929
OTHER ITEMS 0 (34,786) 9,169
---------- ----------- ----------
NET CASH USED BY FINANCING ACTIVITIES (2,953) 357,593 6,500,916
---------- ----------- ----------
TRANSLATION ADJUSTMENT 0 (52,017) 0
---------- ---------- ----------
NET DECREASE IN CASH 4,489 (153,217) 4,489
CASH, BEGINNING OF PERIOD 0 206,954 0
---------- ---------- ----------
CASH, END OF PERIOD $4,489 $53,737 $4,489
========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID FOR INTEREST $49,316 $27,550 $265,759
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
NOTE PAYABLE RELATING TO PURCHASE OF LAND - 80,825 1,715,000
NOTE PAYABLE RELATING TO PURCHASE OF
EQUIPMENT - - 48,426
NOTE PAYABLE RELATING TO PURCHASE OF
VEHICLE - - 25,870
PROVISION FOR INCOME TAX RELATING TO
GAIN ON MARKETABLE SECURITIES APPLIED
TO ADDITIONAL PAID IN CAPITAL - - 1,097,400
NOTES RECEIVABLE IN EXCHANGE FOR SALE
OF LAND AND TREES - - 703,199
COMMON STOCK ISSUED FOR MARKETABLE
SECURITIES - - 49
COMMON STOCK ISSUED FOR CONTRACTS AND
TECHNOLOGY - - 1
COMMON STOCK ISSUED FOR REPAYMENT OF
DEBT 301,696 - 301,696
(SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS)
==============================================================================
FORESTRY INTERNATIONAL, INC.
(A Development Stage Company)
Notes to Financial Statements
June 30, 1996
(1) Organization and Purposes
Plantation Capital corporation ("Plantation"), was incorporated
in the State of Colorado on August 9, 1988, for the primary
purpose of seeking selected mergers or acquisitions with a small
number of business entities expected to be private companies,
partnerships or sole proprietorships. On August 10, 1990,
Plantation acquired RehabNet, Inc. through an exchange of stock.
Subsequently, RehabNet, Inc. was merged into Plantation with a
name change to RehabNet, Inc.
On September 18, 1992, the stockholders of RehabNet, Inc.
approved the acquisition of all assets and the assumption of all
liabilities of RehabNet, Inc. by an unrelated public entity in a
tax-free stock exchange.
On January 2, 1993, the stockholders approved a name change to
Forestry International, Inc. (The "Company").
On March 1, 1993, the Company acquired the exclusive right to the
use of clonal research and development pertaining to the
paulownia tree, a hardwood species developed by BioTech Plants
Pty, Ltd. The company now plants, grows, develops and markets
this rapid growing hardwood tree on a global basis. Future
revenues of the Company are anticipated from the sale and
distribution of seedlings, woodchips, saw logs, quality hardwood
and syndication of plantations. The Company is in its development
stage.
(2) Summary of Significant Accounting Policies
(a) Cash and Cash Equivalents
All short-term investments purchased with an original maturity of
three months or less are considered to be cash equivalents. Cash
and cash equivalents primarily include cash on hand and amounts
on deposit with financial institutions.
(b) Property and Equipment
Property and equipment are stated at cost. Property and
equipment are depreciated using the straight-line method over the
estimated useful lives of the respective assets, which has been
determined to be forty years for buildings and five to seven
years for equipment.
(c) Trading Securities
The Company has adopted the reporting requirements of Statement
of Financial Accounting Standards No. 115 whereby trading
securities are reported at market value.
(d) Inventory
The Company recorded inventory at cost for seedlings. Seedlings
are expected to be sold within the next operating cycle.
(e) Capitalized Forestry Development Costs
Forestry development costs consisting of items such as seedling
costs, labor, fertilizer, equipment rental, etc. are capitalized
during the term from inception of the forest to the end of the
term when the forest requires maintenance. This is normally
after three years. These capitalized costs will be charged to
expense on a per-tree allocation basis as the trees are
harvested. No amortization expense has been recognized as of
June 30, 1996.
(f) Intangible Assets
Intangible assets includes certain technology, contracts and a
covenant not to compete which allows the Company an exclusive
right to develop and utilize clonal tissue of the paulownia tree.
This asset was acquired from an unrelated third party in exchange
for 2,000,000 shares of common stock. The asset was valued at a
nominal amount of $1.
(g) Organization Costs
Organization costs were recorded at cost and amortized over 60
months using the straight-line method. Amortization expense of
$504 is included in operating expenses in each of the quarters
ended June 30, 1996 and 1995.
(h) Revenue Recognition
The Company will recognize revenues from sales of seedlings,
woodchips, saw logs, and high quality hardwood as such sales
occur.
(I) Advertising
All advertising costs are expensed in the year incurred.
Advertising expense was $0 and $9,139 for the quarters ending
June 30, 1996 and 1995 respectively.
(j) Income Taxes
The Company uses the asset and liability method of accounting for
income taxes. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences
between the financial statement carrying amounts of the existing
assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates
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 the period that includes the enactment
date.
(k) Computation of Earnings Per Share
Earnings per share is based upon the weighted average number of
common shares outstanding. Outstanding stock options are non-dilutive
as of June 30, 1996 and 1995.
(l) 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 amounts reported
in the consolidated financial statements and related notes to the
financial statements. Changes in such estimates may affect
amounts reported in future periods.
(3) Liquidity
The Company's financial statements have been presented on the
basis that it is a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business. The Company has a working capital
deficit of $839,050 and shareholders' equity of $143,466 as of
June 30, 1996. The Company did not generate cash flow from
operations in the quarter ended June 30, 1996 or 1995. The
consolidated financial statements also include capitalized
forestry development costs of $871,189, the recoverability of
which is dependent on the future market value of the harvested
trees. Further, the Company has not paid its fiscal 1994 Federal
and state corporate income tax liabilities including penalties
and interest (note 10). The Company's business plan calls for
the issuance of equity securities which management believes will
be adequate to provide the Company with cash flow to acquire
additional operating companies ( note 13), to pay income taxes,
interest and penalties and to fund its operations.
(4) Property and Equipment
On March 1, 1994, the Company purchased 1,634 acres of land and
buildings from an unrelated party in Hancock, Georgia, USA for
$1,346,648 and issued a note to the seller for $927,500. More
than 1,000 acres of the property have been planted with
paulownia, pine and pecan plantations.
On March 1, 1994, the Company purchased 449 acres of land from an
unrelated party in Hancock, Georgia, USA for $231,968 cash. On
March 10, 1995, the Company sold 125.55 acres of the 449 acres of
land to an unrelated party. In May of 1996 the Company sold the
remaining acreage to an unrelated party for $137,123 resulting in
a loss of approximately $27,220.
(5) Intangible Assets
The Company's acquired technology consists of (I) a stock of
paulownia trees selectively propagated for rapid growth and
disease free reproductive capability and (ii) certain proprietary
silviculture procedures designed to improve or enhance the
natural properties, traits and characteristics of this tree
species. The technology provides the necessary knowledge for
laboratory reproduction of the paulownia tree through clonal
tissue procedures and required years of research and
development. The technology allows the Company to produce vast
quantities of genealogically similar disease free trees in a
fraction of the time normally required for natural reproduction.
The Company is utilizing this technology to provide a supply of
paulownia seedlings for sale to domestic and world markets and to
provide seedlings for paulownia plantations owned by the Company
and its potential joint venture partners.
The technology was acquired January 31, 1993 in exchange for
2,000,000 shares of common stock. The agreement commits the
sellers to a covenant not to compete for 20 years and also grants
them a five-year option to purchase an additional 2,750,000
shares of restricted common stock at a price of $1 per share.
The technology was recorded by the Company at a nominal value of
$1.
(6) Notes Receivable
On March 15, 1994, the company's subsidiary sold land and trees
to an unrelated party for total consideration of $703,198 which
consisted of a down payment of $210,960 and a note receivable of
$492,238 due in quarterly installments through March 15, 1995,
plus interest at 17%. The buyer defaulted on the loan and the
debt was restructured in a settlement in May 1995 which requires
the loan to be secured by 210,000 shares of common stock of
Wincanton Corporation, a U.S. public reporting entity, and
200,000 shares of common stock of Work Recovery, Inc., a U.S.
public reporting entity. Under the terms of the settlement
agreement, the Company was to receive 12 monthly principal
installments of $45,906 plus a balloon payment of $110,175 by
June 30, 1996. Additionally, interest will be calculated daily
and paid monthly in arrears at the rate of 12%. As of June 30,
1996, this note was nineteen months in arrears. The Company is
attempting to collect on its collateral and guarantees at this
time but does not expect payment. As of March 31, 1996, a bad
debt allowance of $624,529 representing 100% of the outstanding
balance receivable plus accrued interest was established. The
Company intends to pursue all legal means available to recover
these funds.
(7) Notes Payable
On September 11, 1995, the Company borrowed $75,000 from an
individual to finance operations. The note accrues interest at
the rate of 15% per annum plus a bonus of 18,750 shares. The
Company defaulted on the note and signed a settlement agreement
on February 28, 1996. Under the terms of the agreement, the Company
transferred 175,000 free trading Forestry International shares to
the note holder. On April 24, 1996, after the sale and liquidation
of the shares, the net proceeds were applied against the principal
and accrued interest on the note. The remaining principal balance or
accrued interest after the sale of the shares must be satisfied by the
Company, with the Company arranging for the delivery of
additional shares to the individual for continued sale and
liquidation until such time as the principal and interest are
paid in full. Management is negotiating a further final
settlement on this note.
On September 22, 1995, the Company signed a note in the amount of
$95,218 due in twelve equal monthly installments with interest at
12% per annum for legal fees due a former attorney of the
Company. In the event of default interest would increase to 18%.
The note was secured by a parcel of land in Georgia owned by the
Company. The property was sold in May 1996 and net proceeds
satisfied the note plus accrued interest in full.
In September 1995 a dispute with a former employee was settled
and the agreement included the issuance of a note for $4,180 due
in eight monthly installments without interest. At maturity any
unpaid principal will bear interest at 10%. The balance of the
note at June 30, 1996 was $3,135.
(8) Long-term Debt
A summary of unrelated long-term debt at June 30, 1996 follows:
June 30, 1996 March 31, 1996
------------------ ------------------
Note payable to unrelated party, 8%
interest bearing; interest payments
are due quarterly through March 1,
1999 at which time the total
principal balance becomes due;
secured by Georgia plantation and
buildings. $ 927,500 $ 927,500
Note payable to unrelated party,
12% interest bearing; principal and
interest due April 1, 1999; secured
by Georgia plantation and buildings. 728,855 905,329
Other - equipment notes 44,739 50,374
Capital lease for machinery and
equipment costing $10,790 and
accumulated depreciation of $514
and $128 as of June 30,1996 and
1995. 10,206 10,790
---------------- ----------------
1,711,301 1,893,993
Less current maturities 13,041 12,184
---------------- ----------------
$ 1,698,260 $ 1,881,809
================ ================
Maturities of long-term debt for the next five years as of June
30, 1996 are as follows:
Long Term Debt Capital Leases Total
-------------- -------------- ----------
1997 $ 10,299 $ 5,457 $ 15,686
1998 11,435 5,457 16,892
1999 939,941 4,093 944,034
2000 738,693 - 738,692
2001 797 - 797
-------------- ------------- -----------
1,701,094 15,007 1,716,102
Less interest - 9,801 4,801
-------------- ------------- -----------
$1,701,094 $ 10,206 $1,711,301
============== ============= ===========
(9) Due to Related Parties and Related Party Expenses
The Company has a note payable due to a corporation related to
the Company president through common ownership. The principal
balance is $114,550 and the interest accrues on the note at 12%
per annum. The note is secured by office furniture and an
automobile and is due on demand.
As of June 30, 1996, the Company owed $13,500 to the brother of
the Company president for loans made through the period ended
March 31, 1996. Subsequent to the balance sheet date, the loan
and accrued interest were paid in full.
(10) Income Taxes
At June 30, 1996, the Company had a deferred tax asset resulting
from net operating loss carryforwards of $891,973. Realization
of this tax benefit depends upon the Company's future revenue
from its post balance sheet date acquisition, Dixieland Forest
Products (note 13) and future income from sales of trees
currently growing on the Company plantation in Georgia.
Management is unable to predict whether such revenues will be
adequate to generate taxable income before expiration of the loss
carryforwards. Therefore, a valuation allowance of $891,973 has
been provided to reflect the estimated value of the deferred tax
asset. If the Company achieves sufficient profitability to
utilized the net operating loss carryforwards the valuation
allowance will be reduced by a credit to income at that time.
At March 31, 1996, the Company had a deferred tax asset with a
100% valuation allowance of $798,000.
Significant components of the provision for income taxes for the
year ended March 31, 1996 and 1995 are as follows:
Three Months Ended June 30
1996 1995
------------ ------------
Current income tax (benefit):
Federal $ - $ (124,170)
State - (20,830)
------------ ------------
$ - $ (145,000)
============ ============
June 30, March 31,
1996 1996
------------ ------------
Deferred income tax (benefit):
Federal $718,877 639,000
Less allowance (718,877) (639,000)
------------ ------------
- -
------------ ------------
State 173,096 159,000
Less Allowance (173,096) (159,000)
------------ ------------
- -
------------ ------------
Total deferred tax benefit $ - $ -
============ ============
The current income tax liability consists of the following:
Balance due from year ended March 31, 1994:
Federal tax $ -
Federal penalties 164,410
Federal interest 100,979
State tax 100,637
State penalties - waived -
State interest 16,217
---------
$ 382,243
=========
The 1994 tax returns have been audited by both the federal and
state taxing authorities and the tax returns have been accepted
as filed. The penalties assessed relate to the late filing and
late payment. All federal tax liabilities were eliminated by
subsequent net operating loss carrybacks. Management is
negotiating for reduction of the assessed penalties. A federal
tax lien has been filed against the Georgia plantation for the
unpaid federal tax liability. A reconciliation of the provision
for income taxes to the federal statutory rate is:
June 30, March 31,
1996 1996
------------ -------------
Statutory federal rate 34.0% 34.0 %
Change in valuation allowance - ( 3.7)
------------ ------------
34.0 % 30.3%
============ ============
Subsequent to the balance sheet date, a payment plan was
negotiated with the state taxing authorities which permits the
Company to pay the balance due in monthly installments of $10,000
beginning in January 1997.
(11) Stock Options
The company granted stock options to three shareholders in
January 1993 in conjunction with the acquisition of technology.
The options are exercisable for five years from the date of
grant. The options allow the holders to obtain up to 2,750,000
shares of common stock at a price of $1.00 per share. No options
have been exercised or canceled as of June 30, 1996. These
options are exchangeable for restricted stock that upon issuance
cannot be converted to free trading common stock for two years.
Thus, it is considered non-dilutive. The Company has placed
500,000 options on legal hold and will pursue legal alternatives
to cancel 1,750,000 options issued above because of violations of
the covenant against competition from the holders of these
options.
On December 20, 1995, the stockholders approved a Stock Option
Plan for a maximum of 1,000,000 shares of the Company's common
stock to be sold to employees and others providing valuable
services to the Company at option prices equal to the market
price of the stock at the time of the grant. The options can be
exercised for a period of up to ten years and are registerable by
the Company at the time of exercise under the Securities Act of
1933. At June 30, 1996 there were no options exercisable or
exercised.
(12) Subsequent Events
On September 17, 1996, the company entered into an agreement to
form a joint venture with an English investment firm which would
require the Company to locate and acquire existing operating
companies by use of funds to be provided by the investment firm.
As of February 3, 1997, no action has been taken by either party
to proceed with the joint venture.
On November 26, 1996, an escrow agent received $1,125,000 on
behalf of the Company to be used only in connection with the
acquisition of Dixieland Forest Products, Inc. If the acquisition
is not completed the escrow agent is to return the funds. If the
acquisition is completed 1,500,000 shares of common stock are to
be issued under a Regulation S subscription agreement. The
acquisition was completed December 16, 1996 (note 13).
(13) Acquisition
On December 16, 1996, the Company completed the acquisition of
100% of the outstanding stock of Dixieland Forest Products, Inc.
("DFP") for total consideration of $1,850,000. The total price
is to be paid by $400,000 cash as closing, by delivery of 250,000
shares of common restricted stock of the Company on January 3,
1997, by delivery of 400,000 free tradeable shares of the company
on or before January 3, 1997 and, at closing, a $750,000 note
bearing interest at 7% due in quarterly installments over 10
years. The Company is obligated to remove the seller from all
personal guarantees of Dixieland debt by March 30, 1997. The
agreement is collateralized by a stock pledge agreement. The
seller also received a two-year employment contract requiring an
annual salary of $100,000 plus benefits and "bonus payments"
based on defined operating results. The Company has signed a
five-year lease for real property owned by the seller for annual
rent of $100,000 triple net. The seller had previously been paid
$200,000 as a down payment on December 1, 1995 and the Company
incurred legal and accounting fees of $106,139 to June 30, 1996
all of which is included in other assets as deferred acquisition
costs.
====================================================================
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
Results of Operations
Cash was used during the quarter ended June 30, 1996, in
part, to pay accounts payable and accrued expenses in the amount
of $286,624. In addition, the Company paid principal on notes
payable in the amount of $91,125 and purchased property and
equipment amounting to $23,404. Depreciation and amortization
expense of $14,871 reduced income but did not effect cash from
operations. The result of capital asset transactions resulted in
a net asset decrease from $1,054,634 in the quarter ended June
30, 1995 to $143,466 in the quarter ended June 30, 1996. The
Company borrowed $87,172 from its investment bankers and $1,000
from a related party during the quarter ended June 30, 1996. The
total of cash transactions resulted in a cash increase of $4,489
and resulted in an ending cash balance of the same amount.
Revenues during the quarter ended June 30, 1996 increased to
$19,119 from $3,888 in the same period of fiscal 1996 as the
Company implemented its Dixieland acquisition plan as discussed
below. Revenues were not considered significant in either period
as the development stage continued. It is anticipated that the
balance of fiscal 1997 will see more substantial operating
revenues as a result of the acquisition of Dixieland Forest
Products (discussed below), which is presently generating
revenues and the further implementation of the acquisition
program (also discussed below). It is not possible to predict the
amount which the foregoing will contribute to revenues in the
remainder of fiscal 1997. The cost of sales in the quarter ended
June 30, 1996 increased to $8,738 from $949 as of June 30, 1995.
Gross profit increased $7,442 to $10,381.
During the quarter ended June 30, 1996, the Company's
operating expenses decreased $148,173 (98.79%) to $154,028 from
$306,201 in the quarter ended June 30, 1995 even though the
Company stepped up operations for the purpose of fully
implementing its acquisition program, as discussed immediately
above regarding the revenue figures. Also, the Company was fully
operational in Australia and Georgia in fiscal 1996. Research and
development costs, which were included in the immediately
foregoing operating expense figures, were $0 in the quarter ended
June 30, 1996 down from $1,980 in the quarter ended June 30, 1995
as the Company had already completed the formulation of its
technology and further efforts and money were unnecessary to
refine the same.
Other expenses of the Company during the quarter increased
to $91,335 from $61,951 in the quarter ended June 30, 1995
largely due to a loss of $27,220 sustained on the sale of a
parcel of land in Georgia.
The total estimate of taxes due at June 30, 1996,
approximated $382,243; however, management believes that it will
be able to negotiate the penalties involved in its failure to
file, but that it will not be able to negotiate either the amount
of tax or the interest accrued on the amount owed. It is not
possible to specify the amount by which the penalty figure may be
negotiated downwards by management in this regard.
Liquidity & Capital Resources
During the quarter ended June 30, 1996, a significant part
of the Company's cash needs were provided by two sources: (i)
the sale of restricted common stock of the Company and; (ii)
continued borrowing from sources of short and long term debt.
After the quarter ended June 30, 1996, the Company needed to find
sources of funds in addition to those specified above to provide
working capital for its day-to-day operations (see below).
As of June 30, 1996, the Company owed approximately $382,243
in unpaid taxes, which included approximately $117,196 in
interest and $164,410 in penalties concerning the Company's 1993
and 1994 federal and state corporate tax return filings. These
taxes relate to the income which resulted from the sale of
securities during fiscal 1993 and fiscal 1994. The proceeds from
these sales have been the single most significant source of
liquidity to the Company since fiscal 1993 and the Company would
not have survived without them. Management believes that it will
be able to negotiate the penalties involved, but that it will not
be able to negotiate either the amount of tax or the interest
accrued on the amount owed. It is not possible to specify the
amount by which the penalty figure may be negotiated downward, if
any, but this should be considered a substantial risk against the
current working capital of the Company. Subsequent to the balance
sheet date, the Company negotiated a payment plan with state
taxing authorities which permits the Company to pay the balance
due in monthly installments of $10,000 beginning in January 1997.
The Company also owed, as of June 30, 1996, $1,711,301 in
long term debt to various parties which was evidenced by notes
and a capital lease payable. Repayment of $13,041 of principal
is required in the next twelve months. . Management believes that
it will be successful in its efforts to repay long term debt
with stock and will be successful in negotiating extended terms
in this fiscal year, although there can be no assurance of this.
Long-term debt and notes payable decreased by $301,696 in the
quarter ended June 30, 1996 as a result of the issuance of the
Company's common stock. Stock was also issued to reduce accounts
payable by $357,361.
Operating costs during fiscal 1997 will not be met from
existing cash deposits or committed sources of cash available at
June 30, 1996. The Company cannot expand its forestry operations
without capital from outside sources, which, as discussed above,
had not yet been identified June 30, 1996. Such funds were
obtained during November, 1996 and the acquisition of Dixieland
Forest Products ("Dixieland") was completed on December 16, 1996.
Funds in the amount of $1,975,000 were raised and $1,125,000 in
excess of the purchase price cash needs of $850,000 was obtained
to reduce debt and provide for operating capital.
The Company intends to continue diversification into a full
spectrum of timber industry products and services. Dixieland is
actively involved in land and timber purchasing, plantation
thinning, logging and trucking services and landowner assistance
programs. Taken in conjunction with the Company's existing
plantations and greenhouse/nursery facilities and Company plans
to diversify into the introduction and promotion of alternative,
fast-growing tree species, the acquisition of Dixieland should
result in the Company becoming a fully diversified timber
products business.
The Company is continuing to seek acquisition opportunities
and merger candidates in the forest products industry and expects
these activities to provide additional growth in the coming year.
=================================================================
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Forestry International, Inc.
(Registrant)
By: /s/ David L. Shorey, President
(Signature and Title)
February 5, 1997
(Date)
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> JUN-30-1996
<CASH> 4,489
<SECURITIES> 0
<RECEIVABLES> 632,454
<ALLOWANCES> 626,270
<INVENTORY> 39,627
<CURRENT-ASSETS> 94,687
<PP&E> 1,594,718
<DEPRECIATION> 94,295
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<COMMON> 1,183
<OTHER-SE> 142,283
<TOTAL-LIABILITY-AND-EQUITY> 2,775,463
<SALES> 19,119
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<CGS> 8,738
<TOTAL-COSTS> 154,028
<OTHER-EXPENSES> 27,220
<LOSS-PROVISION> 1,741
<INTEREST-EXPENSE> 62,374
<INCOME-PRETAX> (234,982)
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