Form 10-KSB
ANNUAL OR TRANSITION REPORT
UNDER SECTION 13 OR 15(d)
(As last amended by Exch Act Rel No. 35113, eff.1/30/95)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended March 31, 1996
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from
Forestry International, Inc.
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(Name of small business issuer as specified in its charter)
Colorado 84-1116284
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3573 E. Sunrise Dr. Ste 225
Tucson, AZ 85718
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(Address of principal executive (Zip Code)
offices)
Issuer's telephone number: (520) 299-9447
Securities register under Section 12(b) of the Exchange Act: None
Securities register under Section 12(g) of the Exchange Act:
Common Stock, $0.0001 Par Value per Share
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(Title of class)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) ofthe 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
the past 90 days. X Yes No
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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
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State issuer's revenues for its most recent fiscal year $213,115 .
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State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock
was sold, or the average bid and asked prices of such stock, as of a
specified date within the past 60 days. (See definition of affiliated
in Rule 12b-2 of the Exchange Act).
As of December 31, 1996, 14,300,000 voting shares were
outstanding, 9,154,772 of which were held by non-affiliates.
On that date the bid and ask prices were $1.38. Therefore,
the aggregate market value of voting stock held by non-affiliates
as of December 31, 1996 was $12,633,585.
Note: If determining whether a person is an affiliate will
involve an unreasonable effort and expense, the issuer may
calculate the aggregate market value of the common equity held by
non-affiliates on the basis of reasonable assumptions, if the
assumptions are stated.
(ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports
required to be filed by Section12, 13 or 15(d) of the Exchange
Act after distribution of securities under a plan
confirmed by a court. N/A
(APPLICABLE TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable
date: 14,300,000 as of December 31, 1996
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DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly
describe them and identify the part of the Form 10-KSB (e.g.,Part I,
Part II, etc.) into which the document is incorporated: (1) any annual
report to security holders; (2) any proxy or information statement: and
(3) any prospectus filed pursuant to Rule 424 (b) or (c) of the Securities
Act of 1933 (Securities Act"). The listed documents should be
clearly described for identification purposes (e.g., annual report to
security holders for fiscal year ended December 24, 1990). N/A
Transitional Small Business Disclosure Format (Check one):
Yes No X
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(Added by Exch Act Rel No. 31905, eff 4/26/93)
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PART 1
Item 1: DESCRIPTION OF BUSINESS
Development:
The Company was formed in December, 1992 and is
implementing a business plan of becoming an integrated,
diversified operation in the forest products industry, supplying
forest products and services to meet industry demands for pulp
and lumber from clonal tissue produced seedlings. On January 2,
1993, the Company merged with a public company, Plantation
Capital Corporation (later known as RehabNet, Inc.) and the
stockholders approved a name change to Forestry International,
Inc. (The "Company"). In 1993 the Company completed a private
offering of common stock in exchange for cash and proprietary
technology. The Company's common stock became publicly traded
in January, 1993 after filing Form-10 registration statement and
received Securities and Exchange Commission Form-10 approval for
trading in December, 1994. The assets acquired through the stock
placement related to the exclusive right to use certain clonal
research and development technology pertaining to the Paulownia
tree, a hardwood species which attains significantly higher
growth rates than conventional wood sources known to the U.S.
Using this technology, as well as state-of-the-art laboratory
facilities, the Company developed a supply of high quality clonal
Paulownia seedlings and is a marketing niche for supply of
seedlings to the world markets.
On March 1, 1994, the Company acquired a tract of
land in Sparta, Georgia (the "Dickson Plantation") containing
1,634 acres of prime farmland, various buildings and a 475 acre
pine plantation. After acquisition, a portion of the land was
planted with clonal Paulownia seedlings. During fiscal 1995, the
Dickson Plantation was outfitted with a greenhouse and nursery,
which are presently being used to produce seedlings and root
stock for planting on acreage owned by the Company and for resale
to world markets. The Company began marketing to the
wholesale/retail nursery market in the Southeastern U.S. in 1995
and a Georgia-based marketing arm was established to provide this
greenhouse and nursery facility with marketing and promotional
support.
In February, 1995, the Company, through wholly-owned
subsidiaries, purchased a greenhouse and nursery in Queensland,
Australia. This facility was foreclosed on by its original owner
in February, 1996 due to lack of sales performance and the
inability of the Company to refinance the mortgages on the
property. All operations in Australia were abandoned by the
company before its fiscal year ended March 31,1996. (See Item 3.
Legal Proceedings)
The Company and its subsidiaries have begun
generating revenues from the sale of seedlings and other product
from its Georgia properties and have now embarked upon the second
phase of their growth, which is to seek acquisitions of operating
companies involved in the forest products industry, all of which
is set forth in detail below in this Item 1 under "Future
Operations".
On December 16, 1996 the Company finalized the
acquisition of Dixieland Forest Products, Inc., a Southeastern US
timber supply company that has been established for over 18
years. The company staff of professional foresters and industry
experienced executives will assist the Company in accomplishing
its goals of expansion and product development in the forest
products industry. Dixieland's net sales, adjusted to fiscal
year ended March 31, 1996 were $8,087,768, on a combined basis
with the operations of the Company.
Significant 1996 Operating Results And Subsequent Developments:
Australian Operations:
On February 17, 1995 the company entered into an agreement
to acquire Canungra Flower Company, Pty. Ltd., an operating
nursery and greenhouse located in the State of Queensland,
Australia. The purpose of the purchase was to supply tree
seedlings and other nursery grown products to the Australian and
Asian markets. Canungra was purchased, with encumbrances on the
properties, for a price of $825,000 US, to be paid as follows:
(i) a promise to refinance bank mortgages and other debt in the
amount of $618,750, (ii) cash payments in the amount of $37,500
and (iii) delivery of an interest free promissory note due in
five years for the amount of $168,750.
The Company had pledged a note receivable in the amount of
$525,000 from a previous sale of property to the project in order
to facilitate the refinancing of the debt. The company owing the
pledged note to the Company defaulted on the note and Australian
banks were unwilling to refinance the mortgages in favor of
Forestry without additional collateral.
On February 29, 1996 the Company had exhausted all means of
refinancing the assets acquired in the transaction and elected to
abandon the project. The previous owners foreclosed on the
assets they had previously sold to the Company. The Company
sustained a loss on the abandonment of approximately $35,000.
On February 29, 1996 the Company elected to abandon the net
assets of Forestry International, Pty Ltd., another wholly owned
Australian subsidiary. The Company realized a gain on the
abandonment due to elimination of liabilities related to the
assets abandoned of approximately $52,000 US which is included in
the March 31, 1996 consolidated statement of operations.
The operating loss for the year ended March 31, 1996
includes a loss of approximately $288,000 from Australian
operations prior to abandonment of Australian subsidiaries.
As of March 31, 1996 all assets from Australian operations
have been removed from the asset accounts and intangible assets.
Private Placement Offering:
On July 5, 1995 the Company commenced a confidential private
placement offering under Regulation D of the Securities Act of
1933 seeking subscriptions for up to $2,500,000. The offering was
underwritten by Argent Securities, Inc., an Atlanta, Georgia
based firm, on a best efforts basis. The proceeds of the
offering were to be directed to the acquisition of an operating
business and for funding operations. As of March 31, 1996 the
offering had been abandoned. A charge of $254,084 was written
off against income in the current year for costs incurred in this
transaction.
Dixieland Share Purchase Agreement:
On December 16, 1996, the Company entered into a Share
Purchase Agreement with an unaffiliated third party, Mr. Randy
Pope, to acquire a business (as well as certain real and personal
properties being used therein) which is engaged in the timber
industry known as Dixieland Forest Products, Inc. The business
provides an integrated timber purchasing, harvesting and
transportation operation in and around the towns of Meridian,
Hazelhurst, Ackerman, Jackson and Union, Mississippi, and has
been in operations for approximately 18 years. Dixieland sells
its timber supply to a number of the nation's largest pulp, paper
and lumber companies including International Paper, Georgia
Pacific and Weyerhauser Corporation. Dixieland presently has 15
employees, including an internal staff of five graduate
foresters. Recast unaudited financial statements prepared by
Dixieland for the twelve months ended March 31 1996 reported net
sales of $7,874,653. Sales increases, due to additional
operating capital and industry price increases, are expected to
increase sales from Dixieland's operations in 1997.
The parties had previously closed the purchase of the
company on December 1, 1995, but were unable to complete the
transaction until December 16, 1996. Shortly after the first
closing, the Company failed to provide the full amount of cash
and debt assumption to complete the transaction. On February 28,
1996, the previous owner declared the transaction in default and
he retained full ownership of the business while agreeing to
maintain the transaction on a non-exclusive basis. The Company
continued to pursue the completion of the acquisition throughout
the year and the necessary financing was placed in November and
the second closing was accomplished on December 16, 1996. The
Company finalized its financing arrangements and purchased 100%
of Dixieland stock and, as of the signature date of this report,
Dixieland is a wholly owned subsidiary of Forestry International.
The acquisition required that the Company raise
capital sufficient to provide for the total purchase price of
$1,850,000, which was paid as follows: (i) $400,000 - cash; (ii)
250,000 restricted common shares of the Company valued at $1
each; (iii) by delivery of 200,000 free trading common shares
valued at $1.00 each and 200,000 free trading shares valued at
$1.25 each and a guarantee from a buyer for the shares in the
amount of $450,000; and (iv) $750,000 in the form of a ten (10)
year promissory note payable quarterly with interest at 7% per
annum. The Company also leased the corporate offices and
woodyard realty of Dixieland from Mr. Pope at a fair market rate
of $100,000 annually. Mr. Pope has entered into an employment
contract to operate Dixieland for a period of two (2) years
renewable for further one year terms, at an annual salary of
$100,000. Mr. Pope and the team which operates and manages
Dixieland will also receive a fiscal year end bonus for each
year, beginning with the 1998 fiscal year, equal to 10% of
Dixieland's pre-tax profits and 1% of Dixieland's gross sales, if
sales exceed $8,000,000 in the year ended March 31, 1998. The
bonus will be paid one-half in cash and one-half in the
restricted common stock of the Company valued at 50% of the
average bid price during the 30-day trading period following each
fiscal year end.
The Company intends to raise an aggregate of $1,975,000, the
entire amount of the financing required in this transaction and the
current working capital needs of the two companies, by the placement
of Regulation "S" common stock valued at an average price of $.76
per share and issue 2,603,333 shares of common stock for the funds.
It is anticipated that these shares will become free trading in 1997.
The Company paid the seller $200,000 as a down payment on
December 1, 1995 and incurred legal and accounting fees of
$106,139 through March 31, 1996, all of which is included in
other assets as deferred acquisition costs and will be
capitalized as costs of the acquisition.
Future Operations
The Company's first projects have involved the introduction
of genetically enhanced Paulownia trees to its U.S. plantations
and the management of those plantations. Management believes that
the potential evidenced by those first projects exists for other
tree species and, as a result, is now engaged in identifying and
selecting species which, when properly planted and managed, will
result in the establishment of additional plantations featuring
rapid-growth tree species, with special emphasis on species that
supply the pulp and paper and the oriented strand board industry.
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 the
diversification of the Company into the introduction and
promotion of alternative, fast-growing tree species, the
acquisition of Dixieland would 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 1997.
Item 2. DESCRIPTION OF PROPERTY
The principal business offices of the Company are located at
3573 East Sunrise Drive, Suite 225, Tucson, Arizona 85718. The
telephone number at this address is 520-299-9447. These
facilities were leased for a four-year term from an unaffiliated
third party at rates which management believes are competitive in
the market As of March 31, 1996 the Company leased or owned the
following properties:
TYPE LOCATION
Administrative Offices Tucson, Arizona
Dickson Plantation Hancock County, GA
Greenhouse/Nursery Facilities
Dickson Plantation Hancock County, GA
(Please also see "Item 1 - Description of Business - Development")
ITEM 3. LEGAL PROCEEDINGS
The Company filed a Civil Action in the United States
District Court in the District of Colorado in September of 1996
against a shareholder of the Company and the corporation
affiliated with that shareholder. The complaint filed by the
Company alleges breach of a covenant not to compete, breach of
contract, securities fraud under state and federal law and
contract fraud. The complaint also alleges the basis for
declaratory and equitable relief against the named defendants.
The Company is seeking a return of up to 1,500,000 shares of
stock issued to the shareholders and the return of unexercised
options to purchase an additional 1,750,000 shares of stock
granted to the shareholder and monetary damages in an amount to
be determined by the court. The defendants in the Civil Action
have filed an Answer in the case and are contesting the claims of
the Company. Although the case is in the early stages of
discovery the Company anticipates a favorable outcome. The
Company has taken action to stop transfer of the shares of stock.
The Company is also investigating the feasibility of a
second legal action to recover monetary damages for default on an
obligation involving the sale of assets of the Company. The
default arises from a contractual obligation to pay the Company
approximately $650,000 previously collateralized by real property
located in Australia. The Company's legal counsel in Australia
reported to the Company that actions may have been taken to
deprive the Company of the collateral position in the property.
The Company reserved the potential full loss on the obligation in
its financial statements and is attempting to settle the
transaction through the recovery of other valuable property.
No other legal proceedings to which the Company is a party
or to which the property of the Company is subject is currently
pending against the company, and no such material proceeding is
known to be contemplated against any officer or director which is
adverse to the Company, except as mentioned in the preceding
paragraphs. Additionally, the Company is not aware of any other
proceedings against an affiliate or owner of record or
beneficiary of more than five percent of the common stock of the
Company, except for the Australian individual mentioned in the
above paragraphs, who holds more than five percent of the common
stock of the Company.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
The annual meeting of the shareholders was held on December
20, 1995. The shareholders took the following action at the
meeting:
1) David L. Shorey, James Gibson and Douglas W. Shorey were
elected to the Company's Board of Directors. Mr. David Shorey was
elected by vote of 3,732,909 in favor and 197,500 against with
261 votes abstaining. Mr. James Gibson was elected with
3,733,909 votes in favor, 196,500 votes against and 1,261 votes
abstaining. Mr. Douglas Shorey was elected with 3,732,909 votes
in favor, 196,500 votes against and 1,261 votes abstaining.
2) The shareholders approved the adoption of a Stock Option Plan
for a maximum of 1,000,000 shares of the company's common stock
available 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 option 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. The shareholders voted 3,708,625 in favor, 221,684 votes
against and 361 votes abstained.
3) The shareholders ratified the selection of KPMG Peat Marwick
as Certified Public Accountants for the Company for fiscal 1996.
The shareholders voted 3,928,909 in favor, 500 votes against and
1,261 votes abstained. KPMG later declined the nomination and the
company selected other auditors.
4) The shareholders ratified the authority of David L. Shorey to
conduct other business coming before the meeting by a vote of
3,732,409 in favor, 198,000 votes against and 261 votes
abstaining.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The common stock of the Company is quoted on the Bulletin
Board maintained by the NASD. The following table sets forth the
range of closing bid and ask quotations for the common stock in
each full quarterly period since January 1, 1993.
CLOSING BID CLOSING ASK
March 31, 1993 1.50 2.50
June 30, 1993 1.875 2.50
September 30, 1993 2.50 4.00
December 31, 1993 2.75 4.00
March 31, 1994 3.00 4.50
June 30, 1994 3.00 5.00
September 30, 1994 3.00 4.00
December 31, 1994 3.00 3.875
March 31, 1995 2.00 4.00
June 30, 1995 2.00 3.00
September 30, 1995 .75 1.125
December 31, 1995 .47 .53
March 31, 1996 .29 .30
The above prices were obtained from National Quotation
Bureau, Inc. These quotations represent inter-dealer quotations,
without retail mark-up, mark-down or commission, and may not
necessarily represent actual transactions. On December 31, 1996,
the closing bid was $1.38 and the closing ask price was $1.38, as
quoted on the Bulletin Board for the common stock of the Company.
On that date, there were ten broker-dealers publishing quotes.
Dividends
Neither the Company nor any of its subsidiaries have, during
their respective existences, declared or paid or set apart for
payment any cash dividends on their common shares and no
dividends are contemplated at any time in the foreseeable future.
There are no current or contemplated restrictions attributable to
any contractual commitment of the Company which will limit the
ability of the Company to declare and pay dividends.
ITEM 6. MANAGEMENT' DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Liquidity & Capital Resources
The Company, during the fiscal year ended March 31, 1996,
provided a significant part of their cash needs from three
sources: (i) the sale of restricted common stock of the Company
in the amount of $570,237; (ii) proceeds received from the sale
of Mountain Top Plantation note receivable, which were $98,814
(U.S.), (Pursuant to a revised Purchase Agreement made June 9,
1995 the payments on this note were to continue through August
,1996, but the payee has defaulted and no payments have been
received for 16 months. Management is pursuing legal action for
collection, but does not expect results from this action in the
near future. See ITEM 3. LEGAL PROCEEDINGS); (iii) continuing
borrowing from sources of short and long term debt in the amount
of $612,831.
The Company, after fiscal 1996, will need to obtain a source
of funds in addition to those specified above in paragraph one of
this item to provide working capital for its day-to-day
operations.
The Company, as at March 31, 1996, 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. Management also believes
that they can negotiate an extended repayment schedule for the
taxes due.
The Company also owed, as of March 31, 1996, approximately
$1,893,993 in long term debt to various parties which were
evidenced by notes payable, which require repayment of $12,184
of principal during fiscal 1997. The Company was successful in
negotiating new and extended payment terms with regard to those
notes, and paid in excess of $640,183 of this debt by the
issuance of stock subsequent to March 31,1996. 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 increased by approximately
$950,753 as a result of borrowing, mostly from the Company's
Investment Banking Group.
Operating costs during fiscal 1997 will not be met from
existing cash deposits or committed sources of cash available at
March 31, 1996. The Company cannot expand its forestry operations
without capital from outside sources, which, as discussed above,
had not yet been identified at fiscal year end. Such funds were
obtained during November, 1996 and the acquisition of Dixieland
Forest Products 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.
Results of Operations
Fiscal 1996 as Compared to Fiscal 1995
Cash was used during fiscal 1996, in part, to purchase
inventory in the amount of $5,201 and for the increase in prepaid
expenses amounting to $11,597. In addition, the Company paid
principal on notes payable in the amount of $78,555. Investment
in forestry development costs amounted to $196,583 and purchases
of property and equipment amounted to $142,176. Thus, the Company
expended actual cash of $601,893 for investing activities. During
fiscal 1996 the Company acquired additional equipment for the
U.S. plantations, increasing the Company's investment in land,
buildings, and equipment by $142,175. Depreciation and
amortization expense of $98,228 reduced income but did not effect
cash from operations. The result of capital asset transactions
resulted in a net asset decrease from $994,378 in fiscal 1995 to
$(280,609) deficit in fiscal 1996. The Company borrowed $612,831
from its investment bankers and $77,050 from one of its officers
during the year ended March 31, 1996. The total of all of the
above transactions resulted in a cash decrease of $206,954 and
resulted in an ending balance of $ 0.
Revenues during fiscal 1996 increased to $213,115 from
$5,737 in fiscal 1995 as the Company continued to implement its
acquisition program, as discussed above in Item 1. Fiscal 1996
revenues were higher as a result of the sales of the Australian
subsidiary and increased seedling sales in the US operations.
Neither were significant in fiscal 1996 as the development stage
of the Company continued. It is anticipated that fiscal 1997 will
see more substantial operating revenues as a result of (i) the
Dixieland acquisition, which is presently generating revenues,
(ii) the marketing operation recently established in Georgia, and
(iii) the further implementation of the acquisition program
discussed in Item 1 above. It is not possible to predict the
amount which the foregoing will contribute to revenues in fiscal
1997. The cost of sales in fiscal 1996 increased in tandem with
the revenue figure by an amount equaling $88,900, which resulted
in costs of $91,181 in fiscal 1996 as compared to $2,281 in
fiscal 1995. Gross profit, therefore, increased $118,478 (3,428
%) to $121,934 from $3,456 in fiscal 1995.
Operating expenses of the Company during fiscal 1996
decreased $253,158 (17.69%) to $1,178,132 from $1,431,290 in
fiscal 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, decreased
in fiscal 1996 by $32,274 to $1,980 from $34,254 in fiscal 1995
as the Company completed the formulation of its technology and
only devoted such further efforts and moneys as were necessary to
refine the same. It is anticipated that fiscal 1997 research and
development costs will continue in line with 1996 figures.
Other expenses of the Company during fiscal 1996 increased
significantly to $1,135,808 from $267,223 in fiscal 1995 due in
part to the cost of the failed offering of $254,084 and the bad
debt write off of the note on the Australian land sale amounting
to $624,529.
Penalties associated with the failure of the Company
to file and timely pay federal and state taxes on the income
resulting from the sale of securities during 1994 decreased by
$40,494 due to negotiation and carryback of net operating losses.
Interest expense increased $154,222 due to the increased level of
debt in fiscal 1996 as compared to fiscal 1995.
The total estimate of taxes due at March 31,1996,
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.
ITEM 7. FINANCIAL STATEMENTS
The audited consolidated financial statements and supporting
schedules required under this item are listed under Item 13
below, and are set forth in the pages immediately following Item
13.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
In October, 1996, Gary Gethmann, CPA , LTD. who was
previously engaged as the principal independent accountants to
audit the Company's consolidated financial statements for 1994,
was re-engaged by the Company. The Company had previously
appointed KPMG Peat Marwick LLP in this capacity to audit the
consolidated financial statements for fiscal 1995 and had
intended to use KPMG for the audit of fiscal 1996. However, due
to circumstances unknown to the Company, KPMG decided to
disengage from the Company's audit responsibility. No
disagreements with KPMG existed and their letter stating such was
filed with the Company's form 8-K notification of a change in
Certified Public Accountants. The previous principal accountant's
report on the consolidated financial statements of the Company
for March 31, 1995 did not contain an adverse opinion or a
disclaimer opinion, but the opinion included a going concern
uncertainty. The opinion was not qualified or modified for audit
scope or accounting principles.
The Company's audit committee consists of its Board
of Directors and the change of auditors was recommended and
approved by the Board. During the Company's two most recent
fiscal years and any subsequent interim period preceding the
resignation of KPMG, there were not any disagreements with the
former accountant on any matter of accounting principals or
practices, financial statement disclosure or auditing scope of
procedure.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS: COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following table sets forth all current directors,
executive officers and significant employees of the Company and
of each significant subsidiary, as well as their ages:
Name Age Positions With the Company
David L. Shorey 54 Chairman of the Board of Directors and
Chief Executive, Accounting and
Financial Officer and Treasurer of the
Company and Director of Subsidiaries
James M. Gibson 48 Senior Vice President and Secretary for
and Director of the Company
Douglas W. Shorey 51 National Director of Forestry for the
Company and Director of the Company
No Director or executive officer has any arrangement
or understanding whereby they have been or will be selected as a
director. Further, no executive officer or director is related to
any other executive officer or director, other than Messrs. David
L. and Douglas W. Shorey, who are brothers. All directors hold
office until the next annual meeting of shareholders, and until
their successors have been duly elected and qualified. Executive
officers are elected by the board at its annual meeting and hold
office until the first to occur of their death, resignation or
removal from office.
Biographical Profiles
The following biographical profiles relate to each
individual currently serving as a director, executive officer or
significant employee of the Company and of each significant
subsidiary.
David L. Shorey has been Chairman of the Board of the
Company since September 18, 1992. He has, at various times,
served as President, Chief Executive and Financial Officer and
Treasurer, and presently serves in these positions. He has been a
Director of FII-AUS since its acquisition by the Company on
December 24, 1992. Mr. Shorey, during the past ten years, has
also served in executive positions with four other
publicly-listed companies. His work experience has included
employment in the lumber industry with Ketchikan Pulp Company,
Roseburg Lumber Company, Evans Products Company and Sitka Spruce
Company. Mr. Shorey is licensed as a Certified Public Accountant
in the states of Arizona, California and New Hampshire. His
experience also includes consulting and auditing for
publicly-held companies and investment banking firms. He
graduated from the University of Oregon, Eugene, in 1971 with a
Bachelor of Arts Degree in Accounting and a Minor in
Anthropology.
James M. Gibson has been Senior Vice President for the
Company since January 11, 1993, and a Director since May 9, 1995.
His background includes ten years of private legal practice in
the areas of corporate, commercial and real estate law. Mr.
Gibson previously served in several senior management capacities
for several publicly-listed companies, including Senior Vice
President of Corporate Relations for Australian Beverage
Corporation, a NASD/VSE listed company, and Director of Financial
Planning for Western Canada for Equion Securities, Inc., a
licensed broker-dealer. Mr. Gibson has also been involved in the
areas of newspaper production and publication and corporate
communications. He currently serves as Director for the state of
Arizona on behalf of the American Paulownia Association, Inc. He
received a Bachelor of Arts in English & Psychology, (1968), and
a Bachelor of Laws (1971), both from the University of British
Columbia.
Douglas W. Shorey, the brother of David L. Shorey, has been
the National Director of Forestry for the Company since June 1,
1993, and a Director since May 9, 1995. Over the past twenty
years, he has worked extensively in the areas of biological
research, environmental biology and plant life ecosystems, and
has become well known for his strong working knowledge of forest
products and the North American timber industry. In addition to
his involvement with biological studies, Mr. Shorey has served in
a consulting capacity to various governmental agencies and
private sector interests in studies pertaining to environmental
biology, tree growth monitoring and plant life ecosystems. Mr.
Shorey currently serves as Director for the state of Oregon on
behalf of the American Paulownia Association, Inc. Mr. Shorey
received a Bachelor of Science Degree in Biology from Southern
Oregon University in 1971, and a Master of Science in Biology
from Idaho State University in 1975. He also holds a teaching
certificate from the state of Oregon.
ITEM 10. EXECUTIVE COMPENSATION
No compensation was paid in fiscal 1993, 1994 or 1995 to the
Board of Directors of the Company in their capacities as such.
There are no agreements concerning compensation of Directors or
executive officers. The following table sets forth all cash and
any other compensation paid for each of the three years ended
March 31, 1996.
LONG TERM
NAME AND COMPEN- OTHER COMPEN-
PRINCIPAL SATION COMPEN- SATION
POSITION YEAR SALARY BONUS SATION OPTIONS
- --------------- ----- ------- ------- ---------- --------
David L. Shorey 1993 nil nil $26,000(1) nil
Chairman 1994 nil nil $96,000(1) nil
1995 $51,562 nil $44,438(1) nil
1996 $92,153 7,500 $ 6,000(1) nil
James M. Gibson 1993 nil nil $ 9,000(2) nil
Senior VP 1994 nil nil $56,000(2) nil
1995 nil nil $72,000(2) nil
1996 $68,044 7,250 $ 6,000(2) nil
Douglas W. Shorey 1993 nil nil nil nil
1994 $37,809 nil nil nil
1995 $65,211 nil nil nil
1996 $58,788 5,000 nil nil
(1) Except for automobile allowance of $6,000 per year, the funds disclosed as
"Other Compensation" were paid by the Company to SSI Development Corporation, a
company which David L. Shorey controls through his shareholdings therein.
(2) The funds disclosed as "Other Compensation" were paid by the Company to
Magazette Communications, Inc., a company in which James M. Gibson holds a 20%
equity interest.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Based upon information which has been made available
to the Company by its stock transfer agent, the following table
sets forth, as of December 31, 1996, the shares of common stock
owned by each current Director and executive officer, by directors and
officers as a group and by each person known by the Company toown more
than 5% of the outstanding common shares:
Title Of Name & Address Of Amount of Percent of
Class Beneficial Owner Beneficial Ownership Class (1)
- --------------------------------------------------------------------------------
Common Stock David L. Shorey (2) 810,114 5.67%
3573 E. Sunrise Dr.
Suite 225
Tucson, AZ 85718
Common Stock Lorraine Bourgoin 790,114 5.53%
4740 E. Sunrise Dr.
Box 143
Tucson, AZ 85718
Common Stock Walter Doyle 1,500,000 (3) 10.49%
Options 38 Orchid Ave. 1,750,000 (4)
Surfers Paradise
Queensland, Australia
Q4812
Common Stock James M. Gibson 25,000 0.17%
3573 E. Sunrise Dr.
Suite 225
Tucson, AZ 85718
Common Stock Douglas W. Shorey 520,000 3.64%
3573 E. Sunrise Dr.
Suite 225
Tucson, AZ 85718
Common Stock FAI Overseas 1,500,000 10.49%
Investments, Pty. Ltd.
18 Macquarie Street
Sydney, NSW 2000, Aus
Officers and Directors as a
Group (three persons) 1,355,114 9.61%
____________________________________________________________________________
(1) The figures in this column are based upon approximately 14,300,000
common shares which had been or were to be issued and were outstanding on
December 31, 1996.
(2) These shares are owned by SSI Development Corporation, which Mr. Shorey
controls through his shareholdings, as well as his positions as an officer
and director.
(3) These shares include 700,000 owned by Vitae International, Inc. which Mr.
Doyle controls through his shareholdings and 300,000 owned by Lorne Camozzi
which Mr. Doyle controls by a separate agreement between the parties. These
shares are the subject of litigation initiated by the Company. See ITEM 3.
LEGAL PROCEEDINGS.
(4) These options were granted on December 24, 1992, and became immediately
exercisable until and including December 24, 1997, at a price of $1 per
share, and were part of a 2,500,000 option block issued as a part of the
consideration used to acquire certain clonal research and development
technology. The options in this table are exercisable in whole or in part at
any time and from time to time to acquire up to 1,750,000 shares of common
stock of the Company, which will not be registered under the Securities Act.
The shares of common stock underlying these options are not included in the
percentage figure. If exercised, Mr. Doyle would own a significantly higher
percentage of the outstanding common stock; however, Mr. Doyle has agreed to
reduce and maintain his proprietary share interest in the Company to less
than 5% (See "Item 1 - Significant 1995 Operating Results - Mountain Top
Plantation") These shares are the subject of litigation initiated by the
Company. See ITEM 3. LEGAL PROCEEDINGS.
(5) Douglas Shorey's spouse owns 250,000 of these shares, all of which he
disclaims beneficial ownership of.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
At March 31, 1996, the Company had received a secured loan
on a promissory note in the amount of $113,550 from a corporation
owned by an officer of the Company which bears interest at 12%
per annum and is payable on demand. As at March 31, 1996, the
amount of $123,394 remained owing, including accrued interest.
Interest accrued to this corporation during fiscal 1996 amounted
to $9,844.
At March 31, 1996 the company owed an unsecured promissory
note in the amount of $13,500 to the Brother of the Company's CEO
for loans made to the company through the period ended March
31,1996.
At March 31, 1996 the company owed $59,731 borrowed on
credit cards of the CEO of the Company.
At March 31, 1996 the company owed accrued salary to James
Gibson, V.P., in the amount of $15,428, to David L. Shorey, CEO
in the amount of $16,071 and to Douglas Shorey, V.P., in the
amount of $10,549. Total accrued salaries due to officers and
included in annual compensation tables above is $42,048.
Consulting expenses of $3,163 were paid to a relative of the
CEO for computer services and the CEO receives approximately
$6,000 per year in auto allowance.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
The following report have been filed as a part of this
report:
1) Report of Gary L. Gethmann, CPA, Ltd.
The following Form 8-K reports where filed on the dates
indicated:
1) A report on form 8-K was filed on December 13th, 1995
concerning the first acquisition of Dixieland Forest Products,
Inc. This transaction was not completed in the fiscal year ended
March 31,1996 due to failure of the financial transactions, but
was completed December 16, 1996 as disclosed herein and in an
Form 8-K filed January 22, 1997.
2) A report on Form 8-K was filed by the Company February
12, 1996 reporting the resignation of KPMG Peat Marwick as
auditors for the Company.
3) A report on form 8-K was filed by the Company October 14,
1996 reporting the engagement of Gary L. Gethmann, CPA, LTD. as
auditor for the Company.
__________________________________________________________________________
Independent Auditor's Report
Board of Directors
Forestry International, Inc.
We have audited the accompanying consolidated balance sheet of
Forestry International, Inc. and subsidiaries (a development
stage company) as of March 31, 1996 and the related consolidated
statements of operations, stockholders' equity (deficit), and
cash flows for the year then ended. The consolidated financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audit. The consolidated balance sheet as
of March 31, 1995 and the related consolidated statements of
operations, stockholders' equity and cash flows for the year then
ended were audited by other auditors whose report dated July 21,
1995 thereon expressed an unqualified opinion on those
statements. Our opinion, in so far as it relates to the
cumulative amounts included for the year ended March 31, 1995, is
based solely on the report of other auditors.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about 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 statement. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement preparation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Forestry International, Inc. and subsidiaries (a
development stage company) as of March 31, 1996, and the results
of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed
in Note 3 to the financial statements, the Company has suffered
recurring losses from operations and has a net capital deficiency
that raises substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to the
matters are also described in Note 3. The financial statements
do not include any adjustments that might result from the outcome
of this uncertainty.
/s/ Gary L. Gethmann, CPA, Ltd.
Tucson Arizona
December 11, 1996
except for Note 18 which is as of December 16, 1996
______________________________________________________________________________
FORESTRY INTERNATIONAL, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 0
NOTES AND ACCOUNTS RECEIVABLE,
NET OF ALLOWANCE OF $624,529 (NOTE 9) 2,609
INVENTORY 46,165
PREPAID EXPENSES AND DEPOSITS 46,131
----------
TOTAL CURRENT ASSETS 94,905
----------
INVESTMENT - FORESTRY DEVELOPMENT COSTS 882,359
----------
PROPERTY AND EQUIPMENT (NOTES 6, 7 AND 11):
LAND 1,149,766
BUILDING AND NURSERY FACILITIES 334,057
MACHINERY AND EQUIPMENT 141,442
OFFICE EQUIPMENT 22,204
COMPUTERS AND SOFTWARE 22,374
VEHICLES 65,814
----------
1,735,657
LESS ACCUMULATED DEPRECIATION 79,928
----------
NET PROPERTY AND EQUIPMENT 1,655,729
----------
OTHER ASSETS:
DEFERRED ACQUISITION COST 306,139
ORGANIZATION EXPENSE,
NET OF $6,555 ACCUMULATED AMORTIZATION 3,528
INTANGIBLE ASSETS (NOTE 8) 1
DEFERRED INCOME TAX BENEFIT, NET OF $798,000
VALUATION ALLOWANCE (NOTE 13) 0
----------
TOTAL OTHER ASSETS 309,668
----------
TOTAL ASSETS $2,942,661
==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
CURRENT PORTION OF LONG TERM DEBT (NOTE 11) $ 12,184
NOTES PAYABLE (NOTE 10) 172,831
ACCOUNTS PAYABLE 545,559
ACCRUED PAYROLL AND OTHER EXPENSES 101,594
INCOME TAX PAYABLE (NOTE 13) 382,243
DUE TO RELATED PARTIES (NOTE 12) 127,050
----------
TOTAL CURRENT LIABILITIES 1,341,461
----------
LONG TERM DEBT - UNRELATED (NOTE 11) 1,881,809
COMMITMENTS, CONTINGENCIES AND SUBSEQUENT
EVENTS (NOTES 3, 9, 17 AND 18) 0
STOCKHOLDERS' EQUITY (DEFICIT) (NOTE 15):
PREFERRED STOCK, PAR VALUE $.0001 PER SHARE,
AUTHORIZED 10,000,000 SHARES 0
COMMON STOCK, PAR VALUE $.0001 PER SHARE,
AUTHORIZED 100,000,000 SHARES; ISSUED AND
OUTSTANDING 9,205,699 SHARES 921
CAPITAL IN EXCESS OF PAR VALUE 3,550,953
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE (3,832,483)
----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (280,609)
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $2,942,661
==========
(SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS)
_____________________________________________________________________________
FORESTRY INTERNATIONAL, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
Years ended March 31, 1996 and 1995 and cumulative
amounts from inception July 1, 1992 to March 31, 1996
YEARS ENDED MARCH 31
1996 1995 CUMULATIVE
--------------------- ----------
OPERATING REVENUE $213,115 $5,737 $619,163
COST OF SALES 91,181 2,281 303,318
---------- ---------- ----------
GROSS MARGIN 121,934 3,456 315,845
----------- ---------- ----------
OPERATING EXPENSES:
GENERAL AND ADMINISTRATIVE
EXPENSES (NOTES 11 AND 14) 1,176,152 1,397,036 3,525,267
RESEARCH AND DEVELOPMENT 1,980 34,254 216,321
----------- ---------- ----------
TOTAL OPERATING EXPENSES 1,178,132 1,431,290 3,741,588
----------- ---------- ----------
OPERATING LOSS (1,056,198) (1,427,834) (3,425,743)
----------- ---------- ----------
OTHER INCOME (EXPENSE):
INTEREST AND DIVIDENDS 11,858 120,210 152,116
REALIZED LOSS ON SALE OF
MKT SECURITIES 0 (40,647) (48,727)
INTEREST EXPENSE (NOTE 13) (326,345) (172,123) (510,858)
LOSS ON OFFERING (NOTE 4) (254,084) 0 (254,084)
GAIN (LOSS) FROM ABANDONMENT
OF AUSTRALIAN OPERATIONS
(NOTE6 AND 9):
GAIN FROM NET ASSETS
ABANDONED 16,798 0 16,798
PROVISION FOR BAD DEBT
ON NOTE RECEIVABLE (624,529) 0 (624,529)
PENALTIES (NOTE 13) 40,494 (206,000) (165,506)
OTHER 0 31,337 31,337
---------- ---------- ----------
TOTAL OTHER INCOME AND EXPENSE(1,135,808) (267,223) (1,403,453)
---------- ---------- ----------
LOSS BEFORE INCOME TAXES (2,192,006) (1,695,057) (4,829,196)
INCOME TAXES BENEFIT (NOTE 13) (198,983) (502,330) (996,713)
---------- ---------- ----------
NET LOSS ($1,993,023 ($1,192,727) ($3,832,483)
========== =========== ==========
NET LOSS PER COMMON SHARE ($0.22) ($0.15)
========== ==========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES 9,112,798 7,897,101
========== ==========
(SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS)
- ------------------------------------------------------------------------------
FORESTRY INTERNATIONAL, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
For the period from July 1, 1992 (inception) through March 31, 1996
FOREIGN
COMMON STOCK PAID IN CURRENCY
--------- ------- CAPITAL TRANS- NET
N0 IN ACCUMU- LATION STOCK-
OF PAR EXCESS OF LATED ADJUST HOLDERS'
SHARES VALUE PAR VALUE DEFICIT MENT EQUITY
--------- ------- --------- ---------- --------- -----------
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 MARKET-
ABLE SECURITIES
VALUED AT
TRANSFEROR'S
HISTORICAL COST
AS OF JANUARY 31,
1993 2,750,000 275 (226) 49
ISSUANCE OF
COMMON STOCK
FOR CONTRACTS
AND 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)
========== ======= ========== =========== ======= ===========
(See Accompanying Notes to Consolidated Financial Statement)
____________________________________________________________________________
FORESTRY INTERNATIONAL, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
Years Ended March 31, 1996 and 1995 and cumulative
amounts from inception July 1, 1992 and March 31, 1996
1996 1995 CUMULATIVE
------- -------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS ($1,993,023) ($1,192,727) (3,832,483)
ADJUSTMENTS TO RECONCILE NET LOSS:
AMORTIZATION AND DEPRECIATION 98,228 38,467 143,611
COMMON STOCK ISSUED FOR SERVICES 66,235 0 86,235
SALE OF LAND AND TREES IN EXCHANGE
FOR NOTE RECEIVABLE 0 0 (703,199)
LOSS FROM ABANDONMENT OF AUSTRALIAN
OPERATIONS 607,731 0 607,731
LOSS ON SALE OF MARKETABLE SECURITIES 0 40,647 59,028
(INCREASE) DECREASE IN:
NOTES AND ACCOUNTS RECEIVABLE 891 0 891
INVENTORY 5,201 (407,647) (402,446)
PREPAID EXPENSES AND DEPOSITS 11,597 (46,113) (71,732)
OTHER ASSETS 98,290 (98,290) 0
INCREASE (DECREASE) IN:
INTEREST RECEIVABLE 0 0 (3,376)
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 446,689 279,868 882,922
INCOME TAX PAYABLE (210,027) (209,730) (715,157)
---------- ---------- ----------
NET CASH USED BY OPERATING ACTIVITIES (868,188) (1,595,525) (3,947,975)
---------- ---------- ----------
CASH FLOWS FROM (APPLIED TO) INVESTING ACTIVITIES:
NOTES RECEIVABLE, NET 43,005 303,065 88,953
PURCHASE OF MARKETABLE SECURITIES 0 (290,000) (593,916)
PROCEEDS FROM SALE OF MARKETABLE SECURITIES 0 569,735 569,735
PURCHASE OF INTANGIBLE ASSETS 0 (224,886) (224,886)
PURCHASE OF PROPERTY AND EQUIPMENT (142,176) (785,819 (1,646,604)
PROCEEDS FROM SALE OF PROPERTY
AND EQUIPMENT 0 63,798 63,798
INCREASE IN FORESTRY DEVELOPMENT COSTS (196,583) (178,480) (506,835)
DEFERRED ACQUISITION COST (306,139) 0 (306,139)
---------- ---------- ----------
NET CASH USED BY INVESTING ACTIVITIES (601,893) (542,587) (2,555,894)
---------- ---------- ----------
CASH FLOWS FROM (APPLIED TO) FINANCING ACTIVITIES:
ISSUANCE OF NOTES PAYABLE 612,831 1,738,097 2,750,928
REPAYMENT OF DEBT (78,555) (400,000) (478,555)
NET (INCREASE) IN RELATED PARTY DEBT 77,050 (382,912) (305,862)
GAIN REALIZED ON SALE OF MARKETABLE
SECURITIES RECEIVED IN EXCHANGE
FOR STOCK 0 99,998 2,771,260
ISSUANCE OF COMMON STOCK 504,002 117,411 1,756,929
OTHER ITEMS 0 0 9,169
---------- ---------- ----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 1,115,328 1,172,594 6,503,869
---------- ---------- ----------
TRANSLATION ADJUSTMENT 147,79 (146,811) 0
---------- ---------- ----------
NET DECREASE IN CASH (206,954) (1,112,329) 0
CASH, BEGINNING OF PERIOD 206,954 1,319,283 0
---------- ---------- ----------
CASH, END OF PERIOD $ 0 $ 206,954 $ 0
========== ========== ==========
1996 1995 CUMULATIVE
---------- ---------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
CASH PAID FOR INTEREST $113,309 $90,744 $216,443
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
NOTE PAYABLE RELATING TO PURCHASE
OF LAND - 787,500 1,715,000
NOTE PAYABLE RELATING TO PURCHASE
OF EQUIPMENT 48,426 - 48,426
NOTE PAYABLE RELATING TO PURCHASE
OF VEHICLE 25,870 - 25,870
PROVISION FOR INCOME TAX RELATING
TO GAIN ON MARKETABLE SECURITIES
APPLIED TO ADDITIONAL PAID IN
CAPITAL - 39,600 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
(SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS)
______________________________________________________________________________
FORESTRY INTERNATIONAL, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statement
(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) Basis of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Forestry International Pty Ltd. and
International Forestry Products Pty Ltd., both of which are Australian based
entities. All intercompany accounts and transactions have been eliminated
in the consolidated financial statements. The subsidiary operates in a
foreign currency which has been translated to U.S. dollars in consolidation.
As of February 29, 1996 both subsidiary companies were abandoned and net
assets were written off. A resulting gain net of the translation adjustment
is reported in the consolidated statement of operations under other income
(expense).
(b) 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.
(c) 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.
(d) 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.
(e) Inventory
The Company recorded inventory at cost for seedlings. Seedlings are expected
to be sold within the next operating cycle.
(f) 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 March 31, 1996.
(g) 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.
(h) Organization Costs
Organization costs were recorded at cost and amortized over 60 months using the
straight-line method. Amortization expense of $2,016 and $2,000 is included in
operating expenses in the year ended March 31, 1996 and 1995 respectively.
(i) Revenue Recognition
The Company will recognize revenues from sales of seedlings, woodchips, saw
logs, and high quality hardwood as such sales occur.
(j) Advertising
All advertising costs are expensed in the year incurred. Advertising expense
was $41,920 and $5,860 for the years ended March 31, 1996 and 1995.
(k) 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.
(l) 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 March 31, 1996
and 1995.
(m) Foreign Currency Translation
Assets and liabilities denominated in foreign currencies are translated to U.S.
dollars at the exchange rate at the balance sheet date. Income statement items
are translated at an average currency exchange rate. The resulting
translation adjustment has been recognized in the statement of operations due to
the abandonment of all foreign operations as of February 29, 1996.
(n) 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 consolidated 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 $1,246,556 and a shareholders' deficit of $280,609
as of March 31, 1996. The Company did not generate cash flow from operations in
1996 or 1995. The consolidated financial statements also include
capitalized forestry development costs of $882,359, 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 13). 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 18), to pay income taxes, interest and
penalties and to fund its operations.
(4) Private Placement Offering
On July 5, 1995 the Company commenced a confidential private placement offering
under Regulation D of the Securities Act of 1933 in the maximum amount of
$2,500,000. The offering was underwritten by Argent Securities, Inc. on a best
efforts basis. The proceeds of the offering were to be directed to the
acquisition of an operating business and for funding operations. As of
March 31, 1996 the offering had been abandoned. Management is pursuing
other avenues to complete its financial placement needs. A charge of $254,084
was written off against income in the current year for costs incurred in this
transaction.
(5) Acquisition
On February 17, 1995, the company, through newly-formed corporations in
Australia, Bio-Nursery Pty Ltd ("Bio-Nursery") and Bio-Plants Pty Ltd
("Bio-Plants"), entered into an agreement with Mr. Timothy David Rundle and
Mrs. Roslyn Lee Rundle, neither of whom were then affiliated with the
Company or any of its subsidiaries, to acquire a business from the Rundles,
as well as certain personal assets (including goodwill and intellectual
property) and real estate then being used by the Rundles in the conduct of their
business (collectively, "Canungra"), which involved the provision of volume
production nursery facilities, as well as the research and development of plant
varieties, the propagation and maintenance of bio-stock and the growing and
harvesting of bio-stock.
Canungra was purchased for $825,000. The purchase price was allocated as
follows: $262,500 - land;$150,000 - buildings and improvements;$206,250 - plant
and equipment; and $206,250 - cost in excess of net assets acquired. The
purchase price for Canungra was paid as follows: (i) a promise to pay or
otherwise satisfy $618,750 of debts of Canungra, (ii) $37,500 in cash on or
before March 31, 1995, and (iii) a $168,750 note payable due in five years,
which is interest free but is secured by a lien against the real estate
purchased.
The Rundles, as a part of their agreement with Bio-Nursery and Bio-Plants, have
greed not to compete against either entity in the same or any similar business
of Canungra. Mr. Rundle, at closing, also entered into an employment agreement
with Bio-Nursery and Bio-Plants pursuant to which Mr. Rundle has agreed to
act as the manager of Canungra for a five year term which began on
January 31, 1995, and will end on January 31, 2000, in exchange for a salary and
bonus.
(6) Abandonment of Australian Subsidiaries
On February 29, 1996, the Company had exhausted all means of refinancing the
assets acquired from the Rundles (note 5) and elected to abandon the project.
The Rundles foreclosed on the assets they had previously sold to the Company.
The Company sustained a loss on the abandonment of approximately $35,000 which
is included in the consolidated statement of operations as part of the "Gain
(Loss) from Abandonment of Australian Operations".
On the same date the Company elected to abandon the net assets of Forestry
International, Pty. Ltd., another wholly-owned Australian subsidiary. The
Company realized a gain on the abandonment due to elimination of liabilities
related to the assets abandoned of approximately $52,000 which is included
in the March 31, 1996 consolidated statement of operations and classified as
part of the "Gain (Loss) from Abandonment of Australian Operations".
Operating loss for the year ended March 31, 1996 includes a loss of
approximately $288,000 from Australian operations prior to the abandonment of
Australian subsidiaries.
As of March 31, 1996, all assets from the Australian operations have been
removed from the asset accounts and intangible assets.
(7) Property and Equipment
On March 1, 1994, the company purchases 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 . Over 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.
Subsequent to the balance sheet date the Company sold the remaining acreage
to an unrelated party for $137,271 resulting in a loss of approximately
$27,000.
(8) 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 which allows the Company to produce vast quantities and
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 an option for five years 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.
(9) 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, 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 December 11, 1996 this note was
sixteen 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 in
the future.
(10) Notes Payable
On February 17, 1995, the company entered into a contract to purchase Canungra
Flower Co. including land, buildings, plant and equipment and assumed $614,288
under secured bank loans. The loans are secured in full by a floating charge
over all of the assets, including land and buildings of the Canungra
property. Interest at approximately 12% is due monthly with the entire
principal balance due by February 17, 1996. This refinancing note was being
negotiated with the banking institution and the due date had been extended to
February 29, 1996. On February 29, 1996, the company had exhausted all means of
refinancing the assets acquired in this transaction and had elected to abandon
the project. No further liability is due on this note because the assumption of
the debt was not completed.
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. Any 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 is secured by a parcel of land in Georgia owned by
the Company. The property was sold subsequent to year end and net proceeds
satisfied the note plus accrued interest in full. (note 17)
In September, 1995 a dispute with a former employee was settled and 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 March 31, 1996 was $2,613.
(11) Long-term Debt
A summary of unrelated long-term debt at March 31, 1996 follows:
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
Note payable to unrelated party, 12% interest
bearing; principal and interest due April 1,
1999; secured by Georgia plantation and
buildings. 905,329
Other - equipment notes 50,374
Capital lease for machinery and equipment
costing $10,790 and accumulated depreciation
as of March 31, 1996 of $128. 10,790
------------
1,893,993
Less current maturities 12,184
------------
$ 1,881,809
============
Maturities of long-term debt for the next five years as of March 31, 1996 are
as follows:
Long Term Debt Capital Leases Total
--------------- --------------- ----------
1997 $ 9,569 $ 5,457 $ 15,026
1998 10,699 5,457 16,156
1999 939,463 5,457 944,920
2000 915,067 - 915,067
2001 8,405 - 8,405
--------------- --------------- ----------
1,883,203 16,371 1,899,574
Less interest - 5,581 5,581
--------------- --------------- ----------
$1,883,203 $ 10,790 $1,893,993
=============== =============== ==========
(12) 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 $113,550 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 March 31, 1996, the Company owed $13,500 to the brother of the Company
president for loans made through the period ended March 31, 1996.
Consulting expenses of $6,000 were paid to an officer of the Company and $3,163
to a relative of an officer of the Company during the year ended March 31, 1996.
Both amounts were included in operating expenses for the year.
(13) Income Taxes
At March 31, 1996 the Company had net operating loss carryforwards for federal
and state income tax purposes of approximately $1,880,000 and $2,221,000
respectively. The federal loss is from operations for the year ended March 31,
1996 and will expire after the year ended March 31, 2011. The state loss is
also from operations of which $159,000 relates to the year ended March 31,
1994, $841,000 relates to the year ended March 31, 1995 and $1,221,000
relates to the yare ended March 31, 1996. The state loss carryovers will expire
in the following years:
2000 $ 318,000
2001 444,000
2009 159,000
2010 523,000
2011 777,000
-----------
$2,221,000
===========
Other temporary differences between carrying amounts of the assets for financial
reporting purposes and the amount used for income tax purposes are insignificant
and are not included in the deferred tax asset. The deferred tax asset
resulting from net operating loss carryforwards amount to approximately
$798,000. Realization of this tax benefit depends upon the Company's future
revenue from its post balance sheet date acquisition, Dixieland Forest
Products (note 18) 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 $798,000 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 December 31, 1995 the Company had a deferred tax asset with a 100% valuation
allowance of $200,300 relating to net operating losses of Australian
subsidiaries. Due to the abandonment of the Australian operations February 29,
1996 (note 6) the deferred tax asset and related allowance have been eliminated.
Significant components of the provision for income taxes for the year ended
March 31, 1996 and 1995 are as follows:
Years Ended March 31
--------------------------------
1996 1995
-------------- -------------
Current income tax (benefit):
Federal $ (198,983) $ (502,330)
State - -
-------------- -------------
$ (198,983) $ (502,330)
============== =============
Deferred income tax (benefit):
Federal $ 639,000 $ -
Australia - 200,300
Less allowance (639,000) (200,300)
-------------- -------------
- -
-------------- -------------
State 159,000 86,480
Less Allowance (159,000) (86,480)
-------------- -------------
Total deferred tax benefit $ - $ -
============== =============
The current income tax liability consist 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:
Years Ended March 31
----------------------
1996 1995
---------- ----------
Statutory federal rate 34.0% 34.0 %
Change in valuation allowance - ( 3.7)
---------- ----------
34.0 % 30.3 %
========== ==========
(14) Operating Lease
The company shares office space in Tucson, Arizona with an unrelated company.
Both companies have signed a lease beginning March 1, 1995 which expires
February 28, 1999 requiring a fixed monthly rent which increases annually a the
greater of the CPI or 4%. Each company pays its share of rent based upon an
allocation measured by area used. Rent expense for the years ended March 31,
1996 and 1995 were $21,774 and $31,103. Future minimum rentals for the years
ending March 31 are as follows:
1997 $ 16,938
1998 17,509
1999 16,683
Thereafter -
---------
$ 51,130
=========
(15) Stock Options
The company granted stock options to three shareholder 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 March 31, 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
option 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
March 31, 1996 there were no options exercisable or exercised.
(16) Segment and Foreign Operations
The Company operates in one industry segment: the development, planting,
growth and marketing of a hardwood tree species. The foreign subsidiaries
operated in Australia until February 29, 1996 at which time all foreign
operations and net assets were abandoned (note 6).
(17) Subsequent Events
Subsequent to March 31, 1996 the Company has settled $640,183 in liabilities
by the issuance of 2,490,985 shares of common stock.
In August and September, 1996 the Company sold 3,915 growing Paulownia trees at
its Georgia Plantation for $43,500. The sales agreement requires the Company to
identify the trees or the acreage on which they stand and maintain the trees
for one year.
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 December 11, 1996 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 18).
(18) 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 to 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 March 31, 1996 all of which is included in
other assets as deferred acquisition costs.
DFP reports financial information on a calendar year. The following
unaudited pro forma condensed combined financial information assumes the
acquisition occurred at the beginning of the Company's fiscal year and
includes information for DFP for its year ended December 31, 1995 and the
Company for its year ended March 31, 1996.
Net sales $ 8.087,768
(Loss) from operations (815,211)
Net (loss) (1,881,069)
Net (loss) per share (0.19)
_____________________________________________________________________________
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, therunto
duly authorized.
Forestry International, Inc.
- ----------------------------------
(Registrant)
By: /s/ David L. Shorey, President
-------------------------------
(Signature and Title)
January 28, 1997
- ----------------------------------
Date
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