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)
- ---- ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended
X TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
- ---- THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from April 1, 1996 to December 31, 1996.
Forestry International, Inc.
(Name of small business issuer as specified in its charter)
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 offices) (Zip Code)
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
(Title of class)
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
the past 90 days. X Yes No
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-KSB or any amendment to this Form 10-KSB. X
State issuer's revenues for its most recent fiscal year $215,786 .
-------------
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, 15,599,517 voting shares were
outstanding, 14,022,628 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 $19,351,227.
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 Section 12, 13 or 15(d) of the Exchange Act after
distribution of securities under a plan
confirmed by a court. N/A Yes No
(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:
15,753,030 as of June 16, 1996
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).
Not Applicable
Transitional Small Business Disclosure Format (Check one):
Yes X No
(Added by Exch Act Rel No. 31905, eff 4/26/93)
PART 1
ITEM 1. DESCRIPTION OF BUSINESS
Development
On December 16, 1996, the Company completed the acquisition
of a business (as well as certain real and personal properties
being used therein) engaged in the U.S. timber industry and known
as Dixieland Forest Products, Inc. ("Dixieland"). Dixieland
provides integrated timber purchasing, harvesting and
transportation services in and around the towns of Meridian,
Jackson, Hazelhurst and Ackerman, Mississippi, and has been in
operation for approximately 18 years. According to recast
financial statements prepared by Dixieland, sales approximated
$12,000,000 in 1994, with an approximate gross margin of
$2,080,000 and an operating income of approximately $658,000.
In November of 1996, the parties restructured the terms of
the proposed acquisition and agreed upon a final completion date
of December 16, 1996. The purchase price for Dixieland was to be
paid and delivered to Randy Pope, the owner, as follows: (i) on
the completion date, $400,000 cash; (ii) on January 3, 1997,
250,000 restricted common shares of the Company; (iii) on January
3, 1997, 400,000 freely tradable common shares of the Company;
and, (iv) on the completion date, $750,000 in the form of a
Promissory Note, the said Note bearing interest at the rate of 7%
per annum, with payments of principal and interest to be made
quarterly for a term of ten years..
The terms of acquisition also required that the Company, at
Mr. Pope's option, locate a buyer for the free-trading shares
referred to in (iii) above. Of those free-trading shares, 200,000
were to be purchased from Mr. Pope at $1.00 per share on or
before January 16, 1997, with the balance to be purchased from
Mr. Pope on or before April 1, 1997. Regarding the latter
purchase, Mr. Pope had the option of accepting a price of $1.25
per share, or $1.00 per share. Upon exercising the latter option,
Mr. Pope would receive an additional 50,000 restricted common
shares.
Also at the completion date, Mr. Pope entered into an
employment contract with Dixieland wherein it was provided, inter
alia; that Mr. Pope would receive an annual gross base salary of
$100,000 plus benefits and "bonus payments" based upon defined
operating results. Mr. Pope's employment contract has a term of
two years commencing as at the completion date and is renewable
for an additional one year period.
The Company has, since 1992, been working toward the goal of
becoming an integrated, diversified presence in the highly
fragmented forest products industry, supplying forest products
and services to meet industry demands from clonal seedlings to
timber and wood products.
During the first calendar quarter of 1993, the Company took
its first step towards achieving this goal by selling its
restricted securities on a private basis in exchange for cash and
proprietary technology. The proceeds of those private placements
amounted to $3.675 million and the Company's proprietary interest
in the hereinafter referred to technology was acquired in
exchange for 2 million restricted common shares. The assets
acquired through this 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 within the United States. Using this technology, as well as
certain laboratory facilities provided by a third party in
Australia, the Company developed a supply of clonal Paulownia
seedlings.
During fiscal 1993, the company established its first
Paulownia plantation, the "Mountain Top" plantation, in New South
Wales, Australia, through a wholly-owned Australian subsidiary,
Forestry International, Pty Ltd. ("FII-AUS"). The land was
planted in clonal Paulownia seedlings during December of 1993 and
was managed by FII-AUS until its sale on March 15, 1994.
The Dickson Plantation, a 1,633 acre tract of land located
in Hancock county, Georgia, was acquired by the Company on March
1, 1994. Immediately following that acquisition, the Company
shipped its clonal Paulownia seedlings from Australia to the
United States and commenced the establishment of its first U.S.
Paulownia project at the Dickson Plantation site.
On March 1, 1994, the Company purchased 449 acres of land
from an unrelated party in Hancock County, Georgia, for $231,968
cash. On March 10, 1995, the Company sold 125.55 acres of that
parcel to an unrelated third party. In May of 1996, the Company
sold the remaining acreage to an unrelated party.
On February 17, 1995, the Company, through newly-formed
corporations in Australia, Bio-Tech Nursery Pty Ltd ("Bio-Nursery")
and Bio-Plants Pty Ltd ("Bio-Plants") entered into an
agreement to acquire a business, as well as certain personal
assets (including good will and intellectual property) and real
estate then being used in the operation of a nursery stock
business (collectively "Canungra"). Canungra was engaged in the
research and development of plant varieties, the propagation and
maintenance of bio-stock and the growing, harvesting and sale of
bio-stock, tree seedlings and other nursery products..
The total purchase price payable for Canungra was $825,000
and included, inter alia, a promise to refinance or otherwise
satisfy debts of Canungra amounting to $618,750. Due partially to
Australian management's inability to operate Canungra on a
profitable basis, the Company was unable to comply with the
condition pertaining to the Canungra debt. Accordingly, on
February 29, 1996, having exhausted all means of refinancing, the
Company elected to abandon the Canungra project.
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 applied to the
acquisition of Dixieland Forest Products, Inc. and for funding
operations. As of March 31, 1996, the offering had been
abandoned. Management elected to pursue other means of obtaining
capital and went on to acquire Dixieland Forest Products, Inc. on
December 16, 1996.
Significant Calendar 1996 Operating Results and Subsequent
Developments
Subsequent to the completion of the Dixieland acquisition
(see "Item 1. Description of Business, Development"), the Company
elected to change its fiscal year end from March 31, to December
31. This decision was based primarily on the resulting
simplification of the preparation of consolidated financial
statements.
The Company has been in dispute with the Department of the
Treasury, Internal Revenue Service, regarding the IRS assessment
of the Company's penalty and interest liability arising from
federal and state corporate tax return filings for fiscal 1994.
By letter dated March 14, 1997, the IRS accepted an Offer in
Compromise made by the Company in the amount of $160,000. As at
March 20, 1997, the said settlement amount of $160,000 had been
paid in full by the Company.
The Company was assessed a total of $100,637 by the State of
Arizona regarding taxes owed for fiscal 1993 and fiscal 1994,
plus a penalty amount of $10,064 and interest of $21,947. The
penalty amount has been waived and, as at December 31, 1996, the
total owed by the Company to the State of Arizona was $91,820. As
at the date of this report, the total owed by the Company to the
State of Arizona is $43,584.
Sale of Dickson Plantation
Effective March 31, 1997, the company sold its interest in
the Dickson Plantation, in Hancock County, Georgia, to an
unaffiliated third party for the price of $1.234 million. The
Company also entered into leasing agreements with the purchaser
of the property whereby the Company would have full and
unrestricted rights and access to the field planted Paulownia
trees at the plantation site (the "Field Lease") and also to the
Paulownia trees located within the tree nursery site of
approximately 23 acres (the "Nursery Lease").
The Nursery Lease has a term of up to twelve years
commencing April 1, 1997, at an aggregate lease cost of $7,200
over the said term. The Field Lease has a term of up to twelve
years commencing April 1, 1997, at an aggregate lease cost of
$105,062 over the said term.
The proceeds of sale of the Dickson Plantation were applied
to the reduction of long and short term debt owed by the Company:
primarily the retirement of a mortgage in the principal sum of
$927,500, with interest accrued to the date of sale.
Anticipated Settlement of Legal Proceedings
In September of 1996, the Company filed a Civil Action (the
"Action") in the United States District Court, District of
Colorado, against a shareholder of the Company and a corporation
affiliated with that shareholder (see "Item 3. Legal
Proceedings").
As a result of communications between the Company and the
defendants, the terms of a settlement proposal were mutually
agreed to and placed into written form (the "Settlement
Agreement") during May of 1997.
The terms of the Settlement Agreement provide that, inter
alia, the defendants shall surrender all of their respective
rights entitlements and interests in 1,500,000 common shares and
unexercised option rights on 1,750,000 common shares in
consideration of their retaining such number of free-trading
common shares of the Company as have a market value equivalent to
$100,000. The Settlement Agreement is structured so as to provide
that the Company will obtain a Declaratory Order from the U.S.
District Court confirming the terms of the Settlement Agreement.
As of the signature date of this report, the Settlement
Agreement has been executed by the parties and counsel for the
Company will be submitting the Stipulation and Order to the U.S.
District Court for a Declaratory Order confirming terms of same.
Future Operations
Throughout 1997 Company management intends to be
consistently involved in the identification and analysis of
potential acquisition targets within the timber and forest
product industry, including undertakings such as saw mills, chip
mills, pole production plants and timber lots. The Company
expects that these activities will result in further acquisitions
and anticipates that such will provide additional corporate
growth during 1997.
The Company's first projects have involved the introduction
of genetically enhanced Paulownia trees to U.S. plantations and
the management of those plantations. Management is of the opinion
that similar projects involving short-rotation tree species in
other locales should prove to be financially viable, particularly
where emphasis is placed upon tree species which are appropriate
to the pulp and paper and oriented strand board markets.
In this regard, the Company is actively involved in the
planning and development of plantation projects involving
Paulownia or other short-rotation species within the State of
Hawaii and in the Philippines.
The Company also intends to actively pursue diversification
into a full spectrum of timber industry products and services.
Dixieland is involved in timberland management, timber
purchasing, plantation thinning, logging and trucking services
and landowner assistance programs.
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 that address is 520-299-9447, or 800-790-9951.
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 December 31, 1996, the Company
leased or owned the following properties:
TYPE LOCATION
Central Corporate & Administrative Office - Leasehold Tucson,Arizona
Branch Administrative Office (Dixieland) - Leasehold Meridian,Mississippi
Branch Administrative Office (Dixieland) - Leasehold Jackson,Mississippi
Branch Administrative Office (Dixieland) - Leasehold Ackerman,Mississippi
Wood Yard (Dixieland) - Leasehold Hazelhurst,Mississippi
Tree Nursery & Field Lease Sparta, Georgia
Greenhouse Facility Sparta, Georgia
(See also "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 a 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 laws and common law
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
defendant shareholder and the return of unexercised options to
purchase an additional 1,750,000 shares of stock granted to the
shareholder defendant and monetary damages in an amount to be
determined by the court. The defendants have filed an Answer in
the case and are contesting the claims of the Company. The
Company has taken action to stop transfer of the shares of stock.
(see also "ITEM 1. DESCRIPTION OF BUSINESS, Significant 1996
Operations And Subsequent Developments").
Dixieland Forest Products, Inc., a wholly-owned subsidiary
is a defendant in a lawsuit that claims damages for breach of
contract in an undisclosed amount greater than $45,000 and
punitive damages of $200,000. Attorney for DFP has indicated
that DFP has defenses to all claims for actual damages involved
in this litigation. The claim for punitive damages appears
doubtful. The case has been taken under advisement by the
presiding Judge and is awaiting disposition of DFP's Motion to
Dismiss the entire controversy at this time.
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 preceeding
paragraphs.
Additionally, the Company is not aware of any other
proceedings against an officer, director or beneficial owner of
record of more than five per cent of the common stock of the
Company where such party is adverse or has a material adverse
interest to the Company, save and except for the above-referred
to shareholder defendant, who holds more than five percent of the
common stock of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There has not, during the period covered by this report, up
to and including the date of signature of this report, been any
submission of matters to a vote of security holders.
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 2.7 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 0.75 1.125
December 31, 1995 0.47 0.53
March 31, 1996 0.29 0.30
June 30, 1996 0.12 0.12
September 30, 1996 1.00 1.07
December 31, 1996 1.38 1.38
The above prices were obtained from National Quotation
Bureau, Inc. These quotations represent inter-dealer quotations,
without retail mark-up, markdown or commission, and may not
necessarily represent actual transactions. On June 16, 1997, the
closing bid was $0.43 and the closing ask price was $0.50, as
quoted on the Bulletin Board for the common stock of the Company.
On that date, there were 10 broker-dealers publishing quotes.
Dividends
Neither the Company nor any of its subsidiaries have, during
their respective existences, declared or paid or set aside 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. MANAGEMENTS' DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Liquidity & Capital Resources
The Company, during the period ended December 31, 1996,
provided a significant portion of its cash needs from two
sources: (i) the sale of restricted common stock of the Company
in the amount of $1,559,500; and, (ii) periodical borrowing from
sources of short and long-term debt in the amount of $315,970.
On December 31, 1996 the Company owed approximately $252,400
in unpaid taxes, which included interest and penalties
concerning the Company's 1994 federal and state corporate tax
return filings. These taxes relate to the income which resulted
from the sale of securities . The proceeds from those sales have
been the Company's single most significant source of liquidity
since fiscal 1993 and the Company would not have survived without
them. Management was able to negotiate the penalties involved and
the Company has fully paid all Federal taxes and owes
approximately $43,000 to the State of Arizona as of June 16,
1997. (see also "Item 1: Description of Business, Significant
1996 Operating Results and Subsequent Developments")
As of December 31, 1996 the Company also owed $2,902,092 in
long term debt to various parties which were evidenced by notes
payable, which require repayment of $494,218 of principal during
calendar 1997. (see also "Item 1: Description of Business,
Significant 1996 Operating Results and Subsequent Developments").
The Company was successful in negotiating new and extended
payment terms with regard to those notes. 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
during calendar 1997, although there can be no assurance of this.
Funds in the amount of $1,975,000 were raised during
November and December of 1996 for the acquisition of Dixieland
and for working capital for the combined entities. $1,125,000 in
excess of the purchase price cash needs of $850,000 was obtained
to reduce debt and provide for operating capital. (See also "Item
1. Description of Business, Development").
Results of Operations
Nine Months Ended December 31, 1996 Compared to the Year Ended
March 31, 1996
In the nine months ended December 31, 1997 depreciation and
amortization expense of $47,109 reduced income but did not effect
cash from operations. Cash used for operating activities during
the period total $444,669. The Company issued notes payable in
the amount of $315,970 and repaid debt of $172,174. Cash was
used to decrease related party debt by $113,550. The Company
obtained working capital in the amount of $1,559,500 through the
issuance of common stock. Net cash proved by financing
activities totaled $1,589,746. Overall, cash increased by
$855,436 during the nine months ended December 31, 1996.
During the nine months ended December 31, 1996 cash in the
amount of $692,772 net of cash acquired was used towards the
acquisition of Dixieland Forest Products, Inc., (see "Item 1.
Description of Business, Development"). In addition, the company
paid principal on notes payable in the amount of $1,993.
Investment in forestry development costs amounted to $11,154 and
purchases of property, equipment $26,984. Proceeds from the sale
of property and equipment totaled $137,123 Thus, the Company
expended net cash of $289,641 for investing activities.
Revenues during calendar 1996 increased to $215,786 from
$213,115 in fiscal 1996 as the Company continued to implement its
acquisition program. Calendar 1996 revenues were higher as a
result of the Dixieland acquisition and increased seedling and
greenhouse product sales in the U.S. operations. Neither items
was significant in calendar 1996. Fourteen days of Dixieland
sales are recorded in the consolidated financial statements. The
consolidated twelve month sales of the two entities totaled
$6,077,783.
It is anticipated that calendar 1997 will see more
substantial operating revenues as a result of the Dixieland
acquisition and the further implementation of the Company's
acquisition program. It is not possible to predict the amount
which the foregoing will contribute to revenues in calendar 1997.
The cost of sales in the nine months ended December 31, 1996
increased in tandem with the revenue figure by an amount of
$37,477, which resulted in costs of $128,658 in the nine months
ended December 31, 1996, as compared to $91,181 in the year ended
March 31, 1996. Gross profit, however, decreased $34,806 to
$87,128 in the nine months ended December 31, 1996 from $121,934
in the year ended March 31, 1996.
Operating expenses of the Company during calendar 1996
decreased $421,853 (36%) to $756,279 from $1,178,132 in the year
ended March 31, 1996. Research and development costs, which were
included in the immediately foregoing operating expense figures,
decreased in calendar 1996 to$0 from $1,980 in fiscal 1996 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 calendar 1997 research
and development costs will continue in line with 1996 figures.
Other expenses of the Company during the nine months ended
December 31, 1996 decreased to $316,022 from $1,135,808 in the
year ended March 31,1996 due in part to the writeoff of
Australian operations and the related provision for bad debt in
the year ended March 31, 1996. In the nine months ended December
31, 1996 the Company realized an income tax benefit of $94,586--the
result of a negotiated settlement with the IRS which
partially abated interest and penalties related to a stock
transaction in fiscal 1994.
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
There have been no changes in or disagreements with the
Company's accountants during the subject reporting period. The
Company's audit committee consists of its Board of Directors.
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,
Chief Executive, Accounting and
Financial Officer, Treasurer and
Director of Subsidiaries.
James M. Gibson 50 Senior Vice President, Secretary
and Director of the Company.
Douglas W. Shorey 53 National Director of Forestry for
the Company and Director of the
Company.
Randy Pope 46 President of Dixieland Forest
Products, Inc., a wholly-
owned subsidiary of the Company.
Stephen Busby 44 Vice President of Dixieland
Forest Products,Inc., a wholly-
owned subsidiary of the Company.
No Director or executive officer has any arrangement or
understanding whereby they have been or will be selected as a
director of the Company. Further, no executive officer or
director of the Company is related to any other executive officer
or director, other than Messrs. David L. and Douglas W. Shorey,
who are brothers. All directors of the Company hold office until
the next annual meeting of shareholders, and until their
successors have been duly elected and qualified. Executive
officers are selected 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 biological 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 - A founder of the Company and Chairman, CEO
and CFO since September 18, 1992, Mr. Shorey has a strong
background in the timber industry. He has held a practicing
license as a Certified Public Accountant in Arizona, California
and New Hampshire and has worked with Ketchikan Pulp Company,
Roseburg Lumber Company, Evans Products Company and Sitka Spruce
company. He is also experienced in the operation of publicly-traded
companies, with emphasis on audit work, acquisitions,
mergers and financing. Mr. Shorey is a graduate of the University
of Oregon, Eugene, with a Bachelor of Arts Degree in Accounting
(1971).
James M. Gibson - A founder of the Company and Senior Vice
President (January, 1993) and Director (May, 1995), Mr. Gibson's
background includes ten years of private legal practice in the
areas of corporate and commercial law. He has served in senior
management capacities for several publicly-listed companies and
is highly experienced in corporate communications. Mr. Gibson is
a graduate of the University of British Columbia, where he
obtained a Bachelor of Arts Degree in English Literature and
Psychology (1968) and a Bachelor of Laws (1971).
Douglas W. Shorey - Mr. Shorey (brother of David L. Shorey)
has been the Director of Forestry for the Company since June,
1993, and a Company Director since May, 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. 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 presently
serves as Director for the State of Oregon on behalf of the
American Paulownia Association, Inc. Mr. Shorey received a Master
of Science in Biology from Idaho State University in 1975.
Randy Pope - President of Dixieland Forest Products, Inc.
for 18 years (a wholly-owned subsidiary of the Company), Mr. Pope
holds a Bachelor of Science Degree in Forest Research from
Mississippi State University (1974). Mr. Pope has served as the
Area Forester for the State of Mississippi and for five years,
was employed by Container Corp. of America. Deeply involved with
natural resource management, his memberships and associations
include the Mississippi Forest Association, the American Pulpwood
Association and the Institute of Legislative Affairs.
Stephen L. Busby - Vice President of Timber Procurement of
Dixieland Forest Products, Inc. Having worked as a procurement
forester for in the southern U.S. since 1975, Mr. Busby's past
experience includes twenty years as a procurement manager for
Georgia Pacific Corporation. His background also includes rate of
return studies on future timber stand growth, business plan
development, forecasting and purchasing timber tracts, developing
landowner assistance programs for timber and wildlife management
and production of weekly cost reports and analysis.
ITEM 10. EXECUTIVE COMPENSATION
No compensation was paid in fiscal 1993, 1994, 1995, 1996 or
calendar 1996 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 and the calendar
year 1996.
Annual Long Term
Name And Compensation Other Compensation
Principal Position Year Salary ($) Bonus Compensation Options
David L. Shorey 1993 nil nil $26,000(1) nil
Chairman 1994 nil nil $96,000(1) nil
1995 $51,56 nil $44,438(1) nil
1996 $92,153 7,500 $ 6,000(1) nil
9 months 1996(cal) $57,692(3) nil $ 4,500 nil
James M. Gibson 1993 nil nil $ 9,000(2) nil
Vice President 1994 nil nil $56,000(2) nil
1995 nil nil $72,000(2) nil
1996 $68,044 7,250 $ 6,000 nil
9 months 1996(cal $54,000 nil nil nil
Douglas Shorey 1993 nil nil nil nil
Forestry Director 1994 $37,809 nil nil nil
1995 $65,211 nil nil nil
1996 $58,788 5,000 nil nil
9 months 1996(cal) $46,154(4) nil 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.
(3) Total compensation paid to David Shorey during the nine months ended
December 31, 1996 amount to $0. All compensation listed in this column
remains unpaid at the signature date of this report.
(4) Total compensation paid to Douglas Shorey during the nine months ended
December 31, 1996, amount to $4,615. All compensation listed in this column
remains unpaid at the signature date of this report.
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 June 16, 1997, 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 to the Company to own 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 David L. Shorey 971,889 6.2
3573 E. Sunrise Dr., Ste. 225
Tucson, AZ 85718
Common Lorraine Bourgoin 790,114 5.1
4740 E. Sunrise Dr. Box 143
Tucson, AZ 85718
Common James M. Gibson 35,000 _________
5573 N. Sapphire Dr.
Tucson, AZ 85750
Common Douglas W. Shorey 570,000 (3) 3.6
3573 E. Sunrise Dr., Ste. 225
Tucson, AZ. 85718
Common FAI Overseas Investments, 1,400,000 9.0
Pty Ltd., 18 Macquarie St.
Sydney, NSW 2000
Australia
Officers & Directors 1,576,889 10.1
as a Group (3 persons)
(1) The figures in this column are based upon approximately 15,600,000 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) Douglas Shorey's spouse owns 250,000 of these shares, all of which Douglas
Shorey disclaims beneficial ownership of.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Douglas Shorey, a director and officer of the Company, loaned
400,000 free-trading common shares of the Company to the Company to
facilitate the completion of the Dixieland acquisition in December
of 1996. In consideration of the said loan, Douglas Shorey received
50,000 restricted common shares of the Company, plus the return of
the aforementioned 400,000 shares.
David L. Shorey, a director and officer of the Company,
received from the Company, in his capacity as an officer and
director of SSI Development Corporation, the sum of $132,000 as
repayment of a loan made to the Company by SSI Development
Corporation.
David L. Shorey, in his personal capacity, purchased 200,000
shares of the Company during December of 1996 and January of 1997,
the said share purchases all being at the then current market
value.
David L. Shorey is owed $72,245 in accrued salary as of
December 31, 1996.
Douglas W. Shorey is owed $51,264 in accrued salary as of
December 31, 1996.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
The following reports have been filed as a part of this
report:
(1) Report of Gary Gethmann, CPA, Ltd.
The following 8-K reports were filed on the dates indicated:
(1) A report on Form 8-K was filed by the Company on October
14, 1996, reporting the engagement of Gary L. Gethmann, CPA, Ltd.
as auditor for the Company.
(2) A report on Form 8-K was filed by the Company on
February 14, 1997, reporting the change of the Company's fiscal
year end from March 31, to December 31.
(3) A report on Form 8-K was filed by the Company on January
22, 1997, reporting the Company's acquisition of Dixieland Forest
Products, Inc.
(4) A report on Form 8-K/A was filed by the Company on
February 28, 1997, reporting the Company's acquisition of
Dixieland Forest Products, Inc. This report amended the January
22, 1997 8-K to include financial statements.
- -----------------------------------------------------------------------------
Independent Auditor's Report
Board of Directors
Forestry International, Inc.
We have audited the accompanying consolidated balance sheet of Forestry
International, Inc. and subsidiaries as fo December 31, 1996 and March
31, 1996 and the related consolidated statements of operations,
stockholders'equity (deficit), and cash flows for the nine months ended
December 31, 1996 and year ended March 31, 1996. The consolidatd financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audit in accordannce 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 missstatement. 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, an all material respects the financial position of
Forestry International, Inc. and subsidiaries as of December 31, 1996
and March 31, 1996, and the consolidated results of its operations and its
cash flows for the nine months ended December 31, 1996 and the year ended
March 31, 1996 in conformity with generally accepted accounting principles.
/s/ Gary L. Gethmann, CPA, Ltd.
Tucson, Arizona
June 18, 1997
except for Note 22 which is as of June 20, 1997
- -----------------------------------------------------------------------------
FORESTRY INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31,1996 AND MARCH 31, 1996
DEC 31, 199 MAR 31, 1996
----------- ------------
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $855,436 $0
NOTES AND ACCOUNTS RECEIVABLE,
NET OF ALLOWANCE (NOTES 7 AND 19) 399,509 2,609
ACCRUED INTEREST 1,336 0
EQUIPMENT HELD FOR SALE 129,496 0
INVENTORY (NOTE 2) 498,453 46,165
PREPAID EXPENSES AND DEPOSITS 27,402 46,131
DUE FROM RELATED PARTY 10,763 0
--------- ----------
TOTAL CURRENT ASSETS 1,922,395 94,905
INVESTMENT - FORESTRY DEVELOPMENT COSTS 883,131 882,359
NOTES RECEIVABLE - LONG TERM 404,102 0
PROPERTY AND EQUIPMENT (NOTES 2 AND 10):
LAND 907,423 1,149,766
BUILDING AND NURSERY FACILITIES 262,093 334,057
MACHINERY AND EQUIPMENT 264,707 141,442
OFFICE EQUIPMENT 54,445 22,204
COMPUTERS AND SOFTWARE 22,374 22,374
VEHICLES 162,323 65,814
---------- ----------
1,673,365 1,735,657
LESS ACCUMULATED DEPRECIATION 114,572 79,928
---------- ----------
NET PROPERTY AND EQUIPMENT 1,558,793 1,655,729
---------- ----------
OTHER ASSETS:
INTANGIBLE ASSETS (NOTES 2 AND 11) 2,108,835 1
CASH SURRENDER VALUE, LIFE INSURANCE 4,450 0
ORGANIZATION EXPENSE , NET OF $8,067
AND $6,555 ACCUMULATED AMORTIZATION 2,016 3,528
DEFERRED ACQUISITION COSTS 0 306,139
DEFERRED INCOME TAX BENEFIT, NET OF
$1,263,000 AND $798,000 VALUATION
ALLOWANCE (NOTE 15) 0 0
---------- ----------
TOTAL OTHER ASSETS 2,115,301 309,668
---------- ----------
TOTAL ASSETS $6,883,723 $2,942,661
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
CURRENT PORTION OF LONG TERM DEBT (NOTE 13) $494,218 $12,184
NOTES PAYABLE (NOTE 12) 511,554 172,831
ACCOUNTS PAYABLE 356,880 545,559
ACCRUED PAYROLL AND OTHER EXPENSES 230,998 101,594
INCOME TAX PAYABLE (NOTE 15) 252,420 382,243
DUE TO RELATED PARTIES (NOTE 14) 13,500 127,050
---------- ----------
TOTAL CURRENT LIABILITIES 1,859,570 1,341,461
---------- ----------
LONG TERM DEBT - UNRELATED (NOTE 13) 2,902,092 1,881,809
COMMITMENTS, CONTINGENCIES AND SUBSEQUENT
EVENTS (NOTES 21 AND 22) 0 0
STOCKHOLDERS' EQUITY (DEFICIT) (NOTE 17 AND 22):
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 15,599,517
SHARES 1,560 921
CAPITAL IN EXCESS OF PAR VALUE 6,844,571 3,550,953
ACCUMULATED DEFICIT (4,724,070) (3,832,483)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 2,122,061 (280,609)
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $6,883,723 $2,942,661
========== ==========
- ------------------------------------------------------------------------------
FORESTRY INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Nine months ended December 31, 1996 and year ended March 31, 1996
DEC 31, 1996 MAR 31, 1996
------------ ------------
OPERATING REVENUE $215,786 $213,115
COST OF SALES 128,658 91,181
---------- ----------
GROSS MARGIN 87,128 121,934
---------- ----------
GENERAL AND ADMINISTRATIVE EXPENSES 608,670 1,176,152
RESEARCH AND DEVELOPMENT 0 1,980
IMPAIRMENT LOSS ON LONG-LIVED
ASSET (NOTE 8) 147,609 0
---------- ----------
TOTAL OPERATING EXPENSES 756,279 1,178,132
---------- ----------
OPERATING LOSS (669,151) (1,056,198)
---------- ----------
OTHER INCOME (EXPENSE):
INTEREST AND DIVIDENDS 6,626 11,858
INTEREST EXPENSE (231,608) (326,345)
FINANCE COST (27,709) 0
LOSS ON SALE OF LAND (NOTE 10) (27,220) 0
LOSS ON SEEDLING SPOILAGE (36,111) 0
GAIN (LOSS) FROM ABANDONMENT OF
AUSTRALIAN OPERATIONS
GAIN FROM NET ASSETS ABANDONED 0 16,798
PROVISION FOR BAD DEBT ON NOTE
RECEIVABLE 0 (624,529)
PENALTIES ABATED 0 40,494
LOSS ON OFFERING 0 (254,084)
---------- ----------
TOTAL OTHER INCOME AND EXPENSE (316,022) (1,135,808)
---------- ----------
LOSS BEFORE INCOME TAXES (985,173) (2,192,006)
INCOME TAXES BENEFIT (NOTE 15) (94,586) (198,983)
EQUITY IN LOSS OF FORESTRY INTERNATIONAL
PHILIPPINES, INC. 1,000 0
---------- ----------
NET LOSS ($891,587) ($1,993,023)
========== ==========
NET LOSS PER COMMON SHARE ($0.08) ($0.22)
========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 11,854,489 9,112,798
========== ==========
- -----------------------------------------------------------------------------
FORESTRY INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
For the year ended March 31, 1996 andhe nine months ended December 31, 1996
<TABLE>
<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>
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 CASH 2,101,583 210 1,469,290 1,469,500
ISSUANCE OF COMMON STOCK FOR DEBT
PAYMENTS IN LIEU OF CASH 3,072,235 307 946,949 947,257
ISSUANCE OF COMMON STOCK FOR
SERVICES 120,000 12 89,988 90,000
ISSUANCE OF COMMON STOCK FOR
INTEREST 50,000 5 37,495 37,500
ISSUANCE OF COMMON STOCK FOR
ACQUISITION OF DIXIELAND
FOREST PRODUCTS 1,050,000 105 749,895 750,000
NET LOSS (891,587) (891,587)
---------- ------- --------- --------- ---------- ----------
BALANCES AT DECEMBER 31, 1996 15,599,517 1,560 6,844,571 (4,724,070) 0 2,122,061
========== ======= ========= =========== ========== ==========
</TABLE>
- ----------------------------------------------------------------------------
FORESTRY INTERNATIONAL, INC.
STATEMENT OF CASH FLOWS
Nine Months Ended December 31,1996 and Year Ended March 31, 1996
DEC 31, 1996 MAR 31, 1996
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS ($891,587) ($1,993,023)
ADJUSTMENTS TO RECONCILE NET LOSS:
AMORTIZATION AND DEPRECIATION 47,109 98,228
COMMON STOCK ISSUED FOR INTEREST 37,500 66,235
LOSS ON IMPAIRMENT OF LONG-LIVED ASSET 147,609 0
LOSS FROM ABANDONMENT OF AUSTRALIAN
OPERATIONS 0 607,731
LOSS ON SALE OF PROPERTY AND EQUIPMENT 27,220 0
(INCREASE) DECREASE IN:
NOTES AND ACCOUNTS RECEIVABLE (7,735) 891
ACCRUED INTEREST RECEIVABLE (1,336) 0
INVENTORY (40,606) 5,201
PREPAID EXPENSES AND DEPOSITS 50,995 11,597
DUE FROM RELATED PARTY (10,763) 0
OTHER ASSETS (4,450) 98,290
INCREASE (DECREASE) IN:
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 331,198 446,689
INCOME TAX PAYABLE (129,823) (210,027)
------------- ------------
NET CASH USED BY OPERATING ACTIVITIES (444,669) (868,188)
------------- ------------
CASH FLOWS FROM (APPLIED TO)
INVESTING ACTIVITIES:
NOTES RECEIVABLE, NET (1,993) 43,005
PURCHASE OF BUSINESS, NET OF
CASH ACQUIRED (692,772) 0
PURCHASE OF PROPERTY AND EQUIPMENT (26,984) (142,176)
PROCEEDS FROM SALE OF PROPERTY AND
EQUIPMENT 137,123 0
DECREASE (INCREASE) IN FORESTRY
DEVELOPMENT COSTS (11,154) (196,583)
DEFERRED ACQUISITION COST 306,139 (306,139)
-------------- ------------
NET CASH PROVIDED BY (USED BY)
INVESTING ACTIVITIES (289,641) (601,893)
-------------- ------------
CASH FLOWS FROM (APPLIED TO) FINANCING
ACTIVITIES:
ISSUANCE OF NOTES PAYABLE 315,970 612,831
REPAYMENT OF DEBT (172,174) (78,555)
NET INCREASE (DECREASE) IN RELATED
PARTY DEBT (113,550) 77,050
ISSUANCE OF COMMON STOCK 1,559,500 504,002
------------- -------------
NET CASH PROVIDED BY (USED BY)
FINANCING ACTIVITIES 1,589,746 1,115,328
------------- -------------
TRANSLATION ADJUSTMENT 0 147,799
-------------- -------------
NET INCREASE (DECREASE) IN CASH 855,436 (206,954)
CASH, BEGINNING OF PERIOD 0 206,954
--------------- ------------
CASH, END OF PERIOD $855,436 $0
=============== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID FOR INTEREST $117,557 $113,309
CASH PAID FOR INCOME TAX 43,772 -
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
COMMON STOCK ISSUED FOR PURCHASE OF
DIXIELAND FOREST PRODUCTS 750,000 -
COMMON STOCK ISSUED FOR DEBT PAYMENTS 947,257 -
NOTE PAYABLE RELATING TO PURCHASE OF
EQUIPMENT - 48,426
NOTE PAYABLE RELATING TO PURCHASE OF
VEHICLE - 25,870
PURCHASE OF BUSINESS, NET OF CASH ACQUIRED:
WORKING CAPITAL OTHER THAN CASH 89,804 -
LONG TERM NOTES RECEIVABLE (402,109) -
EQUIPMENT (225,240) -
GOODWILL (2,108,835) -
LONG TERM DEBT 1,203,608 -
COMMON STOCK ISSUED 750,000 -
------------- ------------
(692,772) -
============= ============
(SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS)
- -----------------------------------------------------------------------------
FORESTRY INTERNATIONAL, INC
Notes to Consolidated Financial Statements
December 31, 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.
The Company was in its development stage until December 16, 1996
when it acquired Dixieland Forest Products, Inc ("DFP"), a
Mississippi corporation. DFP, a wholly owned subsidiary,
supplies timber to pulp, paper, and lumber mills and provides
landowner assistance with replanting, thinning, and timber
transportation.
Future revenues of the Company are anticipated from the sale and
distribution of seedlings, woodchips, saw logs, and syndication
of timber tract partnerships.
(2) Summary of Significant Accounting Policies
(a) Change of Fiscal Year
On December 16, 1996 the company completed the acquisition of
100% of the outstanding stock of Dixieland Forest Products, Inc
(note 5). On February 13, 1997 the Board of Directors of the
Company approved a change of year end for the Company to December
31 to coincide with the year end of the operating wholly-owned
subsidiary. The result is a short period for the nine months
ended December 31, 1996.
(b) Basis of Consolidation
The consolidated financial statements include the accounts of the
Company, its wholly-owned subsidiary, Dixieland Forest Products,
Inc. ("DFP"), DFP's wholly-owned subsidiary Dixieland Trucking,
Inc., Forestry International Pty Ltd. and International Forestry
Products Pty Ltd. The latter two companies are Australian based
entities. The Australian subsidiaries operate in Australian
currency which has been translated to U.S. dollars in
consolidation. All intercompany accounts and transactions have
been eliminated in the consolidated financial statements. As of
February 29, 1996 both Australian subsidiaries were abandoned and
net assets were written off. A resulting gain net of the foreign
currency translation adjustment is reported in the consolidated
statement of operations under other income (expense) for the year
ended March 31, 1996.
(c) 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.
(d) Property and Equipment
Property and equipment are stated at cost. Property and
equipment of the Company 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. Equipment of DFP and its
subsidiary are depreciated using the declining balance method
over estimated useful lives of five to seven years.
(e) Inventory
Inventory consists of timber purchased. The value of timber is
determined by reducing original cost by depletion which is
determined by an allocation of original cost to the estimated
volume of each species on a tract by tract basis and then
applying the resulting unit value to harvested quantities..
(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
December 31, 1996.
(g) Impairment of Long-Lived Assets
As of April 1, 1996 the Company adapted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of". SFAS No. 121 requires an impairment loss be
recognized in the event that facts and circumstances indicate
that the carrying amount of an asset may not be recoverable and
an estimate of future cash flows is less than the carrying amount
of the asset (note 8).
(h) 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.
Intangible assets also consists of the excess of purchase price
over estimated fair value of net assets acquired of Dixieland
Forest Products, Inc. and its wholly-owned subsidiary. The
asset, which appears as "Goodwill" on the consolidated balance
sheet, will be amortized using the straight-line method over 40
years beginning in 1997.
(i) Organization Costs
Organization costs were recorded at cost and amortized over 60
months using the straight-line method. Amortization expense of
$1,512 and $2,016 is included in operating expenses in the nine
months ended December 31, 1996 and the year ended March 31, 1996
respectively.
(j) Revenue Recognition
The Company will recognize revenues from sales of seedlings,
woodchips, saw logs, and high quality hardwood as such sales
occur.
(k) Advertising
All advertising costs are expensed in the year incurred.
Advertising expense was $677 and $41,920 for the nine months
ended December 31, 1996 and the year ended March 31, 1996
respectively.
(l) 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.
(m) 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 December 31, 1996 and March 31, 1996.
(n) Foreign Currency Translation
Assets and liabilities denominated in foreign currencies are
translated in 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.
(o) 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 consolidated financial
statements also include capitalized forestry development costs of
$883,131, the recoverability of which is dependent on the future
market value of the harvested trees. The Company's business
plan calls for the use of investment bankers to raise capital to
fund its operations and to provide capital to acquire additional
operating companies with positive cash flow.
(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 Dixieland Forest Products, Inc. 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 year ended March 31, 1996. Management pursued other means
of obtaining capital and acquired DFP on December 16, 1996 (note
5).
(5) Acquisition
On December 16, 1996, the Company entered into a share purchase
agreement (the "Agreement) with Dixieland Forest Products, Inc.,
a Mississippi corporation, and Mr. Randy Pope ("Pope") , a
resident of Mississippi. The Agreement provided that as of
December 16, 1996, the Company would acquire all of the business,
operations and prospects of Dixieland Forest Products, Inc.
("DFP").
Under the terms of the Agreement, the purchase price paid for DFP
by the Company was $1,850,000. The consideration given by the
Company to Pope consisted of the following:
(I) $400,000 cash at closing.
(II) $250,000 on January 3, 1997 through delivery of 250,000
shares of the Company's restricted common stock.
(III) $450,000 through an agreement whereby an unrelated
third party would supply 400,000 shares of free trading stock to
Pope subject to a stock repurchase agreement. The stock
repurchase agreement provided as follows:
(i) $200,000 would be provided to Pope on or
prior to January 3, 1997 through performance by the third party
on a pledge to acquire two hundred thousand shares of the
Company's common stock held by Pope at $1.00 per share, and;
(ii) $250,0000 on or prior to January 3, 1997
through performance by the third party on a pledge to acquire
two hundred thousand shares of the Company's common stock held by
Pope at $1.25 per share. Pope would have the option to sell the
shares for $1.00 per share and receive 50,000 restricted common
shares or to sell the shares for $1.25 per share and the Company
would provide 50,000 restricted common shares to the non-affiliated
third party. The shares were acquired in 1997 at
$1.00 per share and Pope opted for 50,000 shares of restricted
stock.
(IV) $750,000 through a note executed at closing bearing
interest at 7% due in quarterly installments over ten years. The
note is secured 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 Company was also obligated to remove Pope from all personal
guarantees to DFP debt by March 30, 1997. As of the report date,
the Company is negotiating with a bank to satisfy this
requirement.
The acquisition has been recorded under the purchase method of
accounting and accordingly the results of operations of DFP and
its wholly-owned subsidiary have been included in the
consolidated financial statements of the Company for the nine
months ended December 31, 1996. The fair value of assets
acquired and liabilities assumed is summarized as follows:
Current assets $ 1,013,866
Long term notes receivable 402,109
Equipment 225,240
Goodwill 2,108,834
Current liabilities (1,024.850)
Long term liabilities ( 560,343)
---------------
$ 2,164,856
===============
The following unaudited pro forma condensed combined financial
information assumes the acquisition occurred at the beginning of
the Company's current fiscal period (i.e. April 1, 1996) and
consequently is for the nine months ended December 31, 1996.
Net sales $4,811,462
Income from operations 852,358
Net (loss) (938,381)
Net (loss) per share (.08)
On February 17, 1995 the Company, through newly-formed
corporations in Australia, Bio-Nursery Pty Ltd and Bio-Plants
Pty Ltd entered into an agreement to acquire Canungra--a nursery
facility involved in the propagation of nursery stock, research
and development of plant varieties, and the growing and
harvesting of bio-stock for tree species.
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.
(6) Fair Value of Financial Instruments
The fair values of cash and cash equivalents, notes and accounts
receivable, notes payable and accounts payable approximate cost
because of the short-term maturity of these financial
instruments. Long term notes receivable, notes payable and most
long term debt including current maturities are at variable rates
tied to the prime rate and therefore carrying values approximate
fair values. The estimated fair values of the Company's
financial instruments are as follows:
12-31-96 3-31-96
Carrying Fair Carrying Fair
Amount Value Amount Value
Financial assets:
Cash and cash equivalent $855,436 $855,436 $ 0 $ 0
Notes and accounts
receivable 399,509 399,509 2,609 2,609
Long term notes
receivable 404,102 404,102 0 0
Financial liabilities:
Notes payable 511,554 511,554 172,831 172,381
Accounts payable 356,880 356,880 554,559 554,559
Long term debt including
current maturities 2,904,204 2,904,204 1,881,809 1,881,809
(7) Notes Receivable
On March 15, 1994, the Company's Australian 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%. 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 continues to pursue all legal means available to recover
these funds.
DFP holds notes with various loggers which are all secured by
various pieces of equipment. Interest rates vary from 8 1/2% to
10 1/4% and are equal to rates of related bank notes payable.
The notes required monthly payments and DFP has the right to
withhold payment from weekly settlement with the logger for
services provided to DFP. At December 16 and December 31, 1996
loans in default or doubtful were determined to exceed the value
of underlying collateral by an estimated $45,000 and an allowance
for doubtful accounts in that amount was established. Scheduled
payments due on the notes as of December 31, 1996 are as follows:
Year Ended Amount
12-31-97 $ 311,022
12-31-98 266,229
12-31-99 137,873
---------
$ 715,124
=========
(8) Impairment of Long-Lived Assets
On March 31, 1997 the Company sold its Georgia plantation to an
unrelated third party. Simultaneously, the Company leased back
from the buyer approximately 243 acres which contain the
paulownia plantation and nursery on a one year lease renewable
annually for eleven years at an annual rental of $8,756. The
sales price of $1,234,318 will result in a loss of $147,609 which
has been recognized as an impairment loss on long-lived assets at
December 31, 1996.
(9) Abandonment of Australian Subsidiaries
On February 29, 1996, the Company had exhausted all means of
refinancing the assets of Canungra and elected to abandon the
project. 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" and has no further
obligation to Canungra or its creditors or principals.
On the same date the Company elected to abandon the net assets of
Canungra, the Company abandoned the operations of Forestry
International, Pty. Ltd., another wholly-owned Australian
subsidiary. The Company realized a gain on the abandonment due
to the 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.
(10) Property and Equipment
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.
Since the acquisition of Dixieland Forest Products, the Company
management has made the decision to sell or otherwise dispose of
all unproductive assets and efforts in order to focus on the
operation of DFP and other acquisitions.
(11) 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 can utilize 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. The Company filed a lawsuit against one of the sellers
alleging breach of the covenant not to compete, breach of
contract, securities fraud under state and federal law and common
law fraud. The lawsuit was settled June 20, 1997 requiring
cancellation of some of the shares and options (note 22).
(12) 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 on the note. The remaining principal balance and
accrued interest after the sale of the shares was satisfied by
the Company under the terms of a third agreement executed on May
6, 1997. The agreement called for a cash payment of $35,000 and
the provision of 15,000 free-trading shares of the Company's
common stock. The cash and shares were delivered for final
settlement in May, 1997.
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. (note 10)
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 December 31, 1996 was $3,135.
(13) Long-term Debt
A summary of unrelated long-term debt follows:
Dec 31, 1996 March31, 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. 754,480 905,329
Notes payable to Deposit Guaranty
National bank, 9% to 10% interest
bearing, due in monthly to quarterly
payments of principal and interest
due 1997 to 1999 secured by various
pieces of equipment and timber. 278,506 -
Notes payable to Bank Plus, 7.05% -
10.25% interest bearing, due at maturity
or quarterly to 12-1-99; secured by
equipment, timber and a shareholder's
personal certificate of deposit. 146,593 -
Notes payable to various credit
companies, 8 1/2 % - 10 1/2 % interest
bearing due in monthly payments of
principal and interest to 7-31-99;
secured by various pieces of equipment
and vehicles. 569,341 -
Note payable to seller of Dixieland
Forest Products, Inc., 7% interest
bearing, due in quarterly payments of
$26,762 principal and interest to
1-1-07; discounted to a fair market
rate of 10%; secured by all out-standing
stock of DFP. 668,835 -
Other - equipment notes 42,153 50,374
Capital lease for machinery and
equipment costing $10,790 and
accumulated depreciation of $1,285
and $128 as December 31, 1996 and
March 31, 1997, respectively. 8,902 10,790
-------------- ---------------
3,396,310 1,893,993
Less current maturities 494,218 12,184
-------------- ---------------
$2,902,092 $1,881,809
============== ===============
Maturities of long-term debt for the next five years as of
December 31, 1996 are as follows:
Long Term Debt Capital Leases Total
1997 $ 490,964 $ 5,457 $ 496,421
1998 403,151 5,457 408,608
1999 1,936,743 1,364 1,938,107
2000 63,471 - 63,471
2001 59,943 - 59,943
Thereafter 433,136 - 433,136
------------ ---------- ----------
3,387,408 12,278 3,480,851
Less interest - 3,376 3,376
------------ ---------- -----------
$ 3,387,408 $ 8,902 $3,396,310
============ ========== ==========
(14) Due to Related Parties and Related Party Expenses
As of December 31 , 1996, the Company owed $13,500 to the
brother of the Company president for loans made through the
period ended March 31, 1996. On January 3, 1997, the loan and
accrued interest were paid in full.
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.
(15) Income Taxes
At December 31, 1996 the Company had net operating loss
carryforwards for federal and state income tax purposes of
approximately $3,246,000 and $1,893,000 respectively. The
federal loss is from operations for the nine months ended
December 31, 1996 and the year ended March 31, 1996 and will
expire after December 31, 2011 and March 31, 2011. The state
loss is also from operations of which $318,000 relates to the
year ended March 31, 1995, $1,224,000 relates to the year ended
March 31, 1996 and $351,000 relates to the nine months ended
December 31, 1996. the state loss carryovers will expire in the
following years:
2000 $ 318,000
2001 954,000
2002 271,000
2011 270,000
2012 80,000
-----------
$1,893,000
===========
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 $1,263.000
at December 31, 1996 and $798,000 at March 31, 1996. Realization
of this tax benefit depends upon the Company's future revenue
from its acquisition, Dixieland Forest Products (note 5) 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 general taxable income
before expiration of the loss carryforwards. Therefore a
valuation allowance of $1,263,000 and $798,000 has been provided
at December 31, 1996 and March 31, 1996 respectively to reflect
the estimated value of the deferred tax asset. If the Company
achieves sufficient profitability to utilize the net operating
loss carryforwards the valuation allowance will be reduced by a
credit to income at that time.
Significant components of the provision for income taxes for the
nine months ended December 31, 1996 and the year ended March 31,
1996 are as follows:
Nine
Months Year
Ended Ended
Dec 31, 1996 Mar 31, 1996
------------ -----------
Current income tax (benefit):
Federal $ (94,586) $ (198,983)
State - -
------------ ------------
$ (94,586) $ (198,983)
============ ============
Deferred income tax (benefit):
Federal $1,103,000 $ 639,000
Less allowance (1,103,000) (639,000)
------------ ------------
- -
------------ ------------
States 160,000 159,000
Less Allowance (160,000) (159,000)
------------ ------------
- -
------------ ------------
Total deferred tax benefit $ - $ -
============ ============
The current income tax liability consists of the following:
Dec 31, 1996 Mar 31, 1996
---------------- ----------------
Balance due from year ended March 31, 1994:
Federal tax $ - $ -
Federal penalties and interest 160,600 265,389
State tax 91,820 100,637
State penalties - waived - -
State interest - 16,217
----------------- -----------------
$ 252,420 $ 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 has
negotiated a settlement with the IRS on March 14, 1997 and the
remaining liability was paid in full shortly thereafter. An
installment arrangement has been made with the state of Arizona
requiring a monthly payment of $10,000 until the liability has
been satisfied.. A reconciliation of the provision for income
taxes to the federal statutory rate is:
Nine Months Year
Ended Ended
Dec 31,1996 Mar 31, 1996
---------------- ---------------
Statutory federal rate 34.0% 34.0 %
Change in valuation allowance - -
---------------- ---------------
34.0 % 34.0%
================ ==============
(16) Operating Lease
The Company shares office space n 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 at 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 nine
months ended December 31, 1996 and the year ended March 31, 1996
were $9,355 and $21,774. The Company has negotiated a
termination of the lease effective June 30, 1997 at a cost of
$1,654.
A lease at a new location has been negotiated by the Company for
a three year term beginning July 1, 1997 which requires a base
monthly rent plus utilities and janitorial costs and a pro rata
share of increased operating expense and real estate tax after
the first year. Future minimum rentals for the years ending
December 31 are as follows:
1997 $ 18,294
1998 18,650
1999 20,702
2000 10,527
Thereafter -
--------
$ 68,173
========
(17) 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 December 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 negotiated a
settlement subsequent to December 31, 1996 which will cancel
1,750,000 options issued above because of violations of the
covenant against competition from the holders of these options
(note 22).
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 December 31, 1996 there were no options exercisable or
exercised.
(18) Segment and Foreign Operations
The Company operates in one industry segment: the development,
planting, growth and marketing of hardwood tree species. The
foreign subsidiaries operating in Australia until February 29,
1996 at which time all foreign operations and net assets were
abandoned (note 9).
(19) Concentrations
The Company sells its product to a broad base of customers
comprised of wood processing mills primarily in the state of
Mississippi. Georgia-Pacific Corporation accounted for 25% of
the calendar year 1996 unaudited sales of approximately
$6,000,000. No other customer exceeded 10% of total sales in the
1996 year.
On December 31, 1996 cash in banks and an escrow account exceeded
federally insured limits by approximately $572,800.
Accounts receivable from mills for timber totaled approximately
$102,700 at December 31, 1996. It is a standard in the Company's
industry for such accounts to be settled in 14 days or less.
The
Company experiences normal settlement in 7 days and consequently
does not require collateral on accounts receivable.
(20) Litigation
Dixieland Forest Products, Inc., a wholly-owned subsidiary is a
defendant in a lawsuit that claims damages for a breach of
contract in an undisclosed amount greater than $45,000 and
punitive damages of $200,000. Attorney for DFP has indicated
that DFP has defenses to all claims for actual damages involved
in this litigation. The claim for punitive damage appears
doubtful. The case has been taken under advisement by the
presiding Judge and is awaiting disposition of DFP's Motion to
Dismiss the entire controversy at this time.
In March of 1997 a subsidiary of the Company was named co-defendant
in a lawsuit alleging damage from an auto accident.
The accident involved a truck driven by an employee of a third
party who was providing a service to the subsidiary. The
Company's attorney believes that the co-defendant will not be
held liable. However, if the Company is held liable, the
attorney believes payment will be adequately covered by
insurance.
(21) Subsequent Events
On January 15, 1997 the Company settled a liability of $125,000
with an individual by a stock transfer from a shareholder with
whom the Company has a dispute over a non-compete covenant.
On April 3, 1997 the Board of Directors authorized the granting
of stock options to David Shorey, Chairman of the Board, CEO, CFO
and Treasurer and James Gibson, Senior Vice President and
Secretary to purchase up to 100,000 shares each of common stock
of the Company at $1.00 per share for a period of five years.
The options are granted in recognition of past services and the
shares received by their exercise will be subject to Rule 144 of
the Securities Act of 1933.
On May 5, 1997 the Company settled a note payable whose balance
at December 31, 1996 was $46,739 for cash of $35,000 and issuance
of 15,000 shares of free-trading common shares of Forestry
International, Inc.
(22) Settlement of Lawsuit Against a Shareholder
In September 1996 the Company filed a lawsuit against a
shareholder and a corporation affiliated with the shareholder
alleging breach of a covenant not to compete, breach of contract,
securities fraud under state and federal law and common law
fraud. As of June 20, 1997 counsel for the Company has received
a signed settlement agreement wherein the shareholder
acknowledges that he received 1,500,000 shares of common stock
and 1,750,000 options to purchase additional shares without full
consideration. The settlement agreement allows the shareholder
to retain shares aggregating $100,000 market value as a specified
date with a requirement that all stock options and the remaining
shares be canceled or returned to the Company. Counsel warns
that the Company may be subject to claims by any third parties to
whom the shareholder may have transferred shares. The Company is
aware of one individual holding 200,000 shares who may be a
transferee but believes that this party had notice of the claims
and may not have given full consideration.
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)
June 26, 1997
- ----------------------------------
Date
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 855,436
<SECURITIES> 0
<RECEIVABLES> 448,880
<ALLOWANCES> 49,371
<INVENTORY> 1,381,584
<CURRENT-ASSETS> 1,922,395
<PP&E> 1,673,365
<DEPRECIATION> 114,572
<TOTAL-ASSETS> 6,883,723
<CURRENT-LIABILITIES> 1,859,570
<BONDS> 0
0
0
<COMMON> 1560
<OTHER-SE> 2,120,501
<TOTAL-LIABILITY-AND-EQUITY> 2,122,061
<SALES> 215,786
<TOTAL-REVENUES> 215,786
<CGS> 128,658
<TOTAL-COSTS> 884,967
<OTHER-EXPENSES> 316,022
<LOSS-PROVISION> 49,371
<INTEREST-EXPENSE> 231,608
<INCOME-PRETAX> (985,173)
<INCOME-TAX> (94,586)
<INCOME-CONTINUING> (891,587)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (891,587)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
