Form 10-QSB
QUARTERLY OR TRANSITION REPORT
UNDER SECTION 13 OR 15(d)
(As last amended by 34-2231, eff. 6/3/93)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter year ended June 30, 1997
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to
Forestry International, Inc.
(Name of small business issuer as specified in its charter)
0-23310
Commission File Number
Mississippi 84-1116284
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4640 Poplar Springs Dr.Suite A29 Meridian, MS 39305
(Address of principal executive offices) (Zip Code)
Issuer s telephone number (601) 485-3199
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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. N/A Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer s classes of
common equity, as of the latest practicable date:
As of June 30, 1997, registrant had one class of commons stock, of
which 15,599,517 shares were outstanding.
Transitional Small Business Disclosure Format (Check one): Yes X No
(Added by Exch Act Rel No. 31905, eff 4/26/93)
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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Forestry International, Inc.
Consolidated Balance Sheet
June 30, 1997
Assets
Current Assets:
Cash and Cash Equivalents $228,702
Notes and Accounts Receivable, Net of Allowance $305,661
Equipment held for sale $209,564
Inventory $1,209,465
Prepaid Expenses and Deposits $30,385
___________
Total Current Assets $1,983,777
Investment - Forestry Development Costs $758,884
Notes Receivable - Long Term $368,818
Property and Equipment
Building and Nursery Facilities $40,000
Machinery and Equipment $211,055
Office Equipment $55,643
Computers and Software $25,098
Vehicles $158,761
___________
Less Accumulated Depreciation $137,050
___________
Net Property and Equipment $353,508
Other Assets:
Goodwill $2,092,432
Deferred Income Tax Benefit
Net of Valuation Allowance of $1,334,000. $0
Other Assets $10,105
___________
Total Other Assets $2,102,537
Total Assets $5,567,523
(See Accompanying Notes to Financial Statements)
Forestry International, Inc.
Consolidated Balance Sheet
June 30, 1997
Liabilities and Stockholders' Equity
Current Liabilities
Notes Payable $2,269,254
Accounts Payable $236,576
Accrued Payroll and Other Expenses $175,421
Income Tax Payable $40,803
Total Current Liabilities $2,722,055
Long Term Debt $1,798,741
Commitments, Contingencies, and Subsequent Events
Stockholders' Equity:
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 15,599,517 Shares $1,560
Additional Paid in Capital $6,844,571
Retained Earnings ($5,799,404)
Total Stockholders' Equity $1,046,727
Total Liabilities and Stockholders' Equity $5,567,523
(See Accompanying Notes to Financial Statements)
Forestry International, Inc.
Statement of Operations and Charge in Related Earnings
Consolidated
Three Months Ended June 30 Six Months Ended June 30
1997 1996 1997 1996
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Operating Revenue $1,847,374 $19,119 $2,989,515 $50,001
Cost of Sales $1,717,423 $8,738 $2,808,198 $38,102
_________ _________ _________ _________
Gross Margin $129,951 $10,381 $181,317 $11,899
Op Exp-Gen & Adm $598,724 $154,028 $1,089,359 $458,557
_________ _________ _________ _________
Operating Loss ($468,773) ($143,647) ($908,042) ($446,658)
_________ _________ _________ _________
Other Income (Expense):
Interest and Dividends $19,300 $23,047 $5,582
Gain on Brandon Settlement $95,009
Interest Expense($137,607) ($62,374) ($220,408) ($199,540)
Loss on Sale of Asset($64,429)($27,220) ($72,494) ($27,220)
Loss on Offering ($254,084)
Gain (Loss) from abandonment of
Australian Operations
Gain from net assets abandoned $16,798.
Prov for bad debt on N/R ($1,741) ($626,270.)
Penalties Waived $40,494
Other $3,206 $7,554
_________ _________ _________ _________
Total Other Inc/Exp ($179,530) ($91,335) ($167,292) ($1,044,240)
_________ _________ _________ _________
Loss Before Income Taxes($648,303)($234,982) ($1,075,334) ($1,490,898
Income Tax (Benefit) $175,453
_________ _________ _________ _________
Net Loss ($648,303) ($234,982) ($1,075,334) ($1,666,351)
_________ _________ _________ _________
Retained Earnings, Beginning ($4,724,070)
Retained Earnings, Ending ($5,799,404)
Net Loss per Common Share($0.042)($0.022) ($0.069) ($0.167)
Weighted Average Number of
Common Shares 15,599,517 10,690,717 15,599,517 9,981,185
(See Accompanying Notes to Financial Statements)
Forestry International, Inc.
Consolidated Statement of Cash Flows
Three Months Ended June 30 Six Months Ended June 30
1997 1996 1997 1996
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
_________________________________________________________
Cash Flows from Operating Activities:
Net Loss ($648,303) ($234,982) ($1,075,334) ($1,666,353)
Adjustments to Reconcile Net Loss
Amort & Depr $43,566 $14,871 $89,625 $34,461
Common Stock issued for services $357,361 $367,096
Gain on Brandon Settlement $95,009
Loss from Abandonment of Australian
Operations $607,731
Loss on Sale
of Prop and Equip $64,429 $27,220 $56,364 $27,221
(Increase) Decrease in:
Notes and A/R $48,035 ($3,575) $105,944 ($21,100)
Inventory ($224,520) $6,538 ($711,012) $58,697
Ppd Exp and Deposits ($3,684) $1,744 ($10,351) ($12,156)
Other Assets ($96,455) ($94,713) $98,290
Increase (Decrease) in:
Acct Pay & Accrd Exp $32,256 ($286,624) ($270,889) ($84,234)
Income Tax Payable ($22,610) ($211,617) $164,409
Due to Related Parties ($77,833)
Net Cash Used by
Oper. Activities ($807,286) ($117,447) ($2,026,974) ($503,771)
Cash Flows from (Applied to) Investing Activities
Notes Receivable, Net $49,416 $35,287 $44,705
Investment in Dixieland $314,114
Purchase of Prop.
And Equip. ($10,812) ($23,404) ($37,572) ($105,077)
Proc. from Sale of
Prop. and Equip $12,360 $137,123 $1,255,924 $137,123
Increase in Forestry
Devel. Costs ($30) $11,170 ($30) ($20,296)
Deferred Acquisition Cost ($167,047)
Net Cash Used by
Investing Activities $50,934 $124,889 $1,253,609 $203,522
Cash Flows From (Applied to) Financing Activities
Issue of Notes Pay $1,557,489 $87,172 $242,619 $625,003
Repayment of Debt ($1,066,114) ($91,125) ($2,279,560) ($352,204)
Net Decrease In
Related Party Debt $1,000 $78,050
Cancellation of Common Stock ($292,653)
Other Items $13,283
Net Cash Provided by
Fin. Activities $491,375 ($2,953) $146,631 $71,479
Translation Adjustment $203,033
Net Decrease in Cash ($264,977) $4,489 ($626,734) ($25,737)
Cash, Beginning of period $493,679 $855,436 $30,226
Cash, End of Period $228,702 $4,489 $228,702 $4,489
(See Accompanying Notes to Financial Statement)
<PAGE>
FORESTRY INTERNATIONAL, INC.
Notes to Financial Statements
June 30, 1997
(1) Basis of Presentation
The consolidated financial statements include the accounts of Forestry
International, Inc.(Forestry) and its wholly-owned subsidiary, Dixieland
Forest Products, Inc. All significant intercompany balances and transactions
have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been
prepared by Forestry in accordance with generally accepted accounting
principles pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, the accompanying financial
statements include all adjustments (of a normal recurring nature) which are
necessary for fair presentation of the financial results for the interim
periods presented. Certain information and footnote disclosures normally
included in financial statements have been condensed or omitted pursuant
to such rules and regulations. Although Forestry believes that the
disclosures are adequate to make the information presented not misleading,
it is suggested that these financial statements be read in conjunction with
the consolidated financial statements and the notes thereto included in the
Company s 1996 Annual Report on Form 10-KSB. The results of operations for
the six months ended June 30, 1997 are not necessarily indicative of the
results to be expected for the full year. In preparing this quarterly report,
management has relied on information maintained and provided by the prior
officers and directors of the company.
(2) Computation of Net Income Per Share
Net Income per common and common equivalent share is computed using the weighted
average number of common shares outstanding during the periods. Outstanding
stock options are non-dilutive as of June 30, 1997.
(3) 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. 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.
FORESTRY INTERNATIONAL, INC.
Notes to Financial Statements
June 30, 1997
(4) Liquidity
The company s financial statements have been presented on the basis that it
is a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The company
has a shareholders equity of $ 1,046,727 at the quarter ended
June 30, 1997. The company generated operating revenue of $ 2,989,515 for
the six months ended June 30, 1997. The company plans to provide for future
cash flow requirements to acquire additional operating companies, with
positive cash flow and fund operations through internal cash flow, and
bank credit facilities.
(5) 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.
(6) Operating Lease
The Company pays a total of $100,000\ year net, net, net for its 4 operating
offices in Mississippi.
(7) 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 approximately 20% of the 2,989,515 in sales for the
six months ended June 30, 1997. No other customer exceeded 10% of total
sales in the quarter.
On June 30, 1997 cash in banks and an escrow account exceeded federally
insured limits by approximately $ 28,000.
Accounts receivable from mills for timber totaled approximately $83,113 at
June 30, 1997. 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.
FORESTRY INTERNATIONAL, INC.
Notes to Financial Statements
June 30, 1997
(8) 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 codefendant 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 codefendant will
not be held liable. However, if the Company is held liable, the attorney
believes payment will be adequately covered by insurance.
Forestry has received a Motion for Default Judgment in a lawsuit against
them in Kansas, filed on behalf of CEA Lab, Inc. The settlement negotiations
with respect to this matter have broken down over the amount of stock that
was requested. The stock was required to be issued immediately and the
Plaintiff s request for a back dating of the stock certificates as a
condition to settling this lawsuit. Forestry could not meet any of the
specific requests, and as of today, Forestry has not attempted to negotiate
further with the plaintiff and they have not offered any further
counterproposal. The Company intends to further consult with counsel
and, if possible, to negotiate a compromise between the parties.
(9) Subsequent Events
In June 1997 the Company made a deposit of $100,000 for an Asset Purchase
Agreement on a chip mill located in Southeast Louisiana. The total purchase
price for the chip mill was $3.7 Million.
On July 18, 1997, Mr. Randy Pope accepted an invitation to serve as a
Director of Forestry International, Inc.
In August 1997, Mr. Randy Pope resigned as a Director of Forestry
International, Inc.
FORESTRY INTERNATIONAL, INC.
Notes to Financial Statements
June 30, 1997
On September 5, 1997 Mr. David Shorey resigned from his position as Chairman
of the Board, Treasure, Chief Executive Officer, Chief Financial Officer, and
President of Forestry International, Inc.
On the same day, Mr. James Gibson also resigned his positions as Director,
Senior Vice- President, and Secretary of Forestry International, Inc.
Consequently, on September 5, 1997 Mr. Louis Turp was appointed as the new Chief
Executive Officer and President of Forestry International, Inc. Mr. Pierre
Bournaki was appointed to serve on the Board of Directors as Director and
Vice-president as well as Mr. Steve Busby, to serve as a Director of Forestry.
Subsequently, the new management closed the corporate offices in Tucson,
Arizona on September 15, 1997 to establish their new headquarters in
Meridian, Mississippi.
On October 20, 1997 Forestry International, Inc. made a settlement with the
lessor of the Tucson office to release the company from a three year lease.
The amount of the settlement was $5,000.
On October 23, 1997, Forestry International, through its subsidiary Dixieland
Forest Products, Inc. invested $33,333.33 to acquire a 33% interest in a
joint venture with Choctaw Pole and Piling Inc., AMpole Inc. and Shelby
County Forest Products, LLC. The new entity, Precision Pole and Piling LLC.,
is leasing a wood pole peeling facility from Gordon Redd Lumber Company in
Brookhaven, Mississippi. Dixieland will be the exclusive supplier of pole
quality timber. Projected sales will reach approximately $3M with expected
net profits of $150,000 per year for Forestry.
The Company has secured financing for the purchase of a chip mill in
Southeast Louisiana, but at this time is unable to obtain a long term
contract commitment for the sale of wood chips. This project is on hold for
the present.
In November 1997, Forestry International, Inc. received from Randy Pope a
Notice of Default which alleged that Forestry failed to obtain the release of
Mr. Pope s personal guarantees of indebtedness for Dixieland Forest Products,
Inc. At that time Forestry's Officers were continuing to seek financing to
enable the Company to obtain the said release.
As of December 1997 the Company was negotiating with Mr. Randy Pope and a large
southeastern bank in order to obtain the financing required which would cure
the alleged default.
FORESTRY INTERNATIONAL, INC.
Notes to Financial Statements
June 30, 1997
In related developments, Mr. Steve Busby resigned as a Director of the
Company to prevent any possible conflict of interest with Dixieland Forest
Products, Inc.
On November 24, 1997 Mr. Perry Gower was appointed to serve on the Board of
Directors of Forestry International, Inc. as a Director.
On November 26, 1997 Forestry International, Inc moved their headquarters
to 4640 Poplar Springs Drive, Suite A-29, Meridian, Mississippi 39305.
On February 25, 1998 Mr. Louis Turp met with Mr. Randy Pope and Dixieland
Forest Products CPA firm. During that meeting Mr. Pope asked Forestry
International to renegotiate the original offer and change the financial
structure of the buyout. He wanted an all cash offer without notes and
restricted common shares in order to complete the acquisition. On
February 26, 1998 Forestry proposed an all cash offer of $ 320,211 to Mr.
Pope. On March 20, 1998 Forestry received a counter proposal from Mr. Pope.
Upon intial review this offer seems unacceptable. The company intends to
consult with counsel in order to determine the appropriate remedies and
measures available to protect this investment.
(10) 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 at 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.
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.
ITEM 2. MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION OR PLAN OF OPERATION.
Results of Operations
The six months ended June 30, 1997 saw results of the newly acquired
subsidiary Dixieland Forest Products Incorporated in our results. As such,
activity and sales were up considerably from the same period in 1996. The
company continues to focus on diversification into a full spectrum of timber
industry products and services. Specifically the company has targeted a chip
mill operation in Louisiana which management feels will be a good synergistic
fit with Dixieland s timber brokerage and purchasing expertise. The company
is also considering a pole mill operation for inclusion in their asset base,
which again would fit the vertical diversification parameters management has
set as an objective going forward. Beyond these two projects, management
continues to seek other acquisition opportunities and merger candidates in
the forest products industry, and expects these activities to provide
additional growth in the coming year.
Cash was used in the six months ended June 30, 1997 to pay accounts
payable and accrued expenses in the amount of $270,889. The company also paid
principal on notes payable in the amount of $ 2,279,560. and purchased
property and equipment in the amount of $37,572. Depreciation and
amortization expense was $ 89,625.
Revenues during the six months ended June 30, 1997 totaled $2,989,515,
exclusively from Dixieland Forest Products compared to sales of $50,001 for
the year ended March 1996. It is anticipated that the balance of fiscal 1997
will see a substantial increase in revenues as the full impact of the
Dixieland acquisition takes hold. Net income for the six months ended
June 30, 1997 was a loss of $1,075,334 compared to a loss of $1,490,898 for
the year ended June 30, 1996.
The cost of sales in the quarter increased to 2,808,199 compared to
virtually zero as Dixieland s operations were consolidated into the company
s operation. Operating expenses increased to $1,089,359 for the six month
period ended June 30, 1997 compared to $458,557 for the first quarter ended
June 30, 1996.
There are no income taxes due for the six months ended June 30, 1997. The
company also owed approximately $48,803 to the Arizona State Commission, and
is currently in discussion for a settlement schedule. Management believes a
favorable arrangement will be worked out within the next few quarters.
Management believes that all or a portion of the principal amount of a note
payable of approximately $930,000 may not be a legally valid obligation of
the Company as a result of the Company s failure to receive consideration for
the indebtedness incurred under prior management. The Company has been
notified that Dylan Hutton, the party to whom the note has been made payable,
has attempted to assign its obligations under the note in the process of
liquidation and the Company has been contacted by various parties alleging to
be holders of the obligation from the Company. The Company, at the present
time, has not determined whether to contest the payment of the note or to
affirmatively seek a declaratory judgment that no indebtedness is owing.
Prior to taking any further action the Company intends to further consult
with counsel and, if possible, to negotiate a compromise resolution with the
parties who are alleging that they are the holders of the note.
Liquidity & Capital Resources
During the six months ended June 30, 1997, the company s cash needs were
met partially by internal cash flow from Dixieland, and partially from a
working capital infusion of $314,356 from the previous sale of restricted
common stock. Forestry also loaned Dixieland $283,974 in the first six months
for working capital.
As of June 30, 1997 the company owed approximately $40,000 in unpaid taxes,
arising from penalties and interest from the company s 1993 and 1994 federal
and state corporate tax return filings. This amount is down from the original
amount of $382, 243, and management is currently working out a favorable
payment schedule with the government.
These taxes relate to the income which resulted in the sale of securities in
fiscal 1993, and 1994, which had been the most significant source of
liquidity to the company at that point.
Currently management is lessening the company s dependency on the sale of
securities for its capital requirements, and seeking alternate sources, such
as institutional credit financing as well as internal cash flow.
As of June 30, 1997 the company owed $4,520,796 in short and long term
debt to various parties which was evidenced by notes and capital lease
payable. Management believes it will be successful in its efforts to repay
long term debt out of operations, and refinancing, although there can be no
assurances of this. Accounts payable decreased by $270,889 for the six months.
Management also believes operating costs during fiscal 1997 should be met
by internal cash flow and bank credit facilities, although there is no
assurance of this. The company will not be able to expand its forestry
operations without capital from outside sources, which have not been
identified as of June 30, 1997.
Going forward management intends to considerably reduce the use of
restricted stock sales as a method of providing for operating capital.
Funds were last obtained during November 1996 from the sale of restricted
stock and the acquisition of Dixieland Forest Products was completed in
December 1996. Funds in the amount of $1,975,000 were raised and $1,125,000
in excess of the purchase price cash need of $850,000 was obtained to
reduce debt and provide for operating capital.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
N\A
Item 2. Changes in Securities
N\A
Item 3. Defaults Upon Senior Securities
N\A
Item 4. Submission to a Vote of Security Holders
N\A
Item 5. Other Information
N\A
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Forestry International, Inc.
(Registrant)
By: /s/ Louis R.. Turp, President
(Signature and Title)
March 21,1998
Date
