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
March 31, 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 Drive Suite A 29 Meridian, MS 39305
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (601) 485-3911
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 March 31, 1997, registrant had one class of
common 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
March 31, 1997
Assets
Current Assets:
Cash and Cash Equivalents $493,679
Notes and Accounts Receivable, Net of Allowance 353,696
Equipment Held for Sale 123,446
Inventory 984,945
Prepaid Expenses and Deposits 34,069
Total Current Assets
$1,989,835
Investment - Forestry Development Costs 758,854
Notes Receivable - Long Term 418,234
Property and Equipment
Building and Nursery Facilities 40,000
Machinery and Equipment 264,707
Office Equipment 54,831
Computers and Software 25,098
Vehicles 185,973
Less Accumulated Depreciation 128,653
Net Property and Equipment $441,956
Other Assets:
Goodwill
$2,095,654
Deferred Income Tax Benefit
Net of Valuation Allowance of $1,334,000. 0
Other Assets
10,271
Total Other Assets
$2,105,925
Total Assets
$5,714,804
(See Accompanying Notes to Financial Statements)
Forestry International, Inc.
Consolidated Balance Sheet
March 31, 1997
Liabilities and Stockholders' Equity
Current Liabilities
Notes Payable $1,200,620
Accounts Payable 148,840
Accrued Payroll and Other Expenses 230,901
Income Tax Payable 63,413
Total Current Liabilities $1,643,774
Long Term Debt $2,376,000
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
(5,151,101)
Total Stockholders' Equity $1,695,030
Total Liabilities and Stockholders' Equity $5,714,804
(See Accompanying Notes to Financial Statements)
Forestry International, Inc.
Statement of Operations and Change in Retained Earnings
Consolidated
Three Months Ended
March 31
1997
1996
(Unaudited) (Unaudited)
Operating Revenue $1,142,141 $ 30,882
Cost of Sales 1,090,775 29,364
Gross Margin 51,366 1,518
Operating Expenses - General and Admin. 490,635 304,529
Operating Loss (439,269) (303,011)
Other Income (Expense):
Interest and Dividends 3,747 5,582
Gain on Brandon Settlement 95,009 Interest Expense
(82,001) (137,166)
Loss on Sale of Asset (8,065)
Loss on Offering 254,084
Gain (Loss) from abandonment
of Australian Operations
Gain from Net Assets Abandoned 16,798
Prov. for Bad Debt on Note Rec. (624,529)
Penalties Waived 40,494
Other 4,348
Total Other Income & Expenses $12,238 ($952,905)
Loss Before Income Tax ($427,031) ($1,255,916)
Income Tax (Benefit) 175,453
Net Loss ($427,031) ($1,431,369)
Retained Earnings, Beginning ($4,724,070)
Retained Earnings, Ending ($5,151,101)
Net Loss Per Common Share ($0.027) ($0.156)
Weighted Average Number of Common Shares 15,599,517 9,189,866
(See Accompanying Notes to Financial Statements)
Forestry International
Consolidated Statement of Cash Flows
Three Months
Ended March 31
1997 1996
(Unaudited) (Unaudited)
Cash Flow from Operating Activities:
Net Loss ($427,031) ($1,431,369)
Adjustments to Reconcile Net Loss
Amortization & Depreciation 46,059 19,589
Common Stock Issued for Services 9,735
Gain on Brandon Settlement 95,009
Loss from Abandonment of
Australian Operations 607,731
Loss on Sale Ppty. & Equip. (8,065)
(Increase) Decrease in:
Notes & Accounts Receivable 57,909 (17,525)
Inventory (486,492) 52,159
Ppd. Expenses & Deposits (6,667) (13,900)
Other Assets 1,742 98,290
Increase (Decrease) in:
Acct. Payable & Accrued Exp. (303,145) 202,390
Income Tax Payable (189,007) 164,409
Due to Related Parties (77,833)
Net Cash Used By Operating Activities ($1,219,688) ($386,324)
Cash Flows from (Applied to) Investing Activities
Notes Receivable, Net (14,129) 44,705
Investment in Dixieland 314,114
Purchase of Intangible Assets 2,493
Purchase of Ppty and Equipment (26,760) (84,166)
Proceeds form Sale Ppty & Equip. 1,243,564
Increase in Forestry Devel. Costs (31,466)
Deferred Acquisition Cost (167,047)
Net Cash Used by Investing Activities $1,202,675 $78,633
Cash Flows From (Applied to) Financing Activities
Issuance of Notes Payable $868,702 $537,831
Repayment of Debt (1,213,446) (261,079)
Net Decrease in Related Party Debt 77,050
Cancellation of Common Stock (292,653)
Other Items 13,283
Net Cash Provided by Financing Activities ($344,744) $74,432
Translation Adjustment 203,033
Net Decrease in Cash (361,757) (30,226)
Cash, Beginning of Period 855,436 30,226
Cash, End of Period $493,679 $0
(See Accompanying Notes to Financial Statements)
FORESTRY INTERNATIONAL, INC.
Notes to Financial Statements
March 31, 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 three months ended March 31, 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 March 31, 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
March 31, 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 $ 1,695,030 at the quarter ended
March 31, 1997.
The company generated operating revenue of $ 1,142,141 for the quarter
ended March 31, 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 1,142,141 in sales for
the three months ended March 31, 1997. No other customer exceeded 10% of
total sales in the quarter.
On March 31, 1997 cash in banks and an escrow account exceeded federally
insured limits by approximately $ 310,000.
Accounts receivable from mills for timber totaled approximately $119,510 at
March 31, 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
March 31, 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 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.
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 have not attempted to negotiate further with the plaintiff and
they
have not offered any further counter-proposal. 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.
In July 1997 Dixieland sold equipment at a loss of in excess $120,000.
By the
end of 1997 the loss on sale of equipment was approximately $142,000.
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
March 31, 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.
The Officers of the Company are negotiating at the present time with Mr.
Randy Pope and a large southeastern bank in order to obtain the financing
required which will cure the alleged default.
FORESTRY INTERNATIONAL, INC.
Notes to Financial Statements
March 31, 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.
(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 first quarter ended March 31, 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 three months ended March 31, 1997 to pay accounts
payable and accrued expenses in the amount of $303,145. The company also
paid principal on notes payable in the amount of $ 1,213,446. and purchased
property and equipment in the amount of $26,760. Depreciation and
amortization expense was $ 46,059. The sale of the company's 1634 acre
Dickson Plantation, in Hancock County, Georgia for $ 1.234 million resulted
in a reduction of a $927,500 long term liability. The balance was applied
to
an outstanding IRS account, reducing this liability to zero as well.
Revenues during the three months ended March 31, 1997 totaled
$1,236,837, exclusively from Dixieland Forest Products compared to sales of
$213,115 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 quarter ended March
31, 1997 was a loss of $427,031 compared to a loss of $1,431,369 for the
year
ended March 31, 1996.
The cost of sales in the quarter increased to 1,090,775 compared to
virtually
zero as Dixieland's operations were consolidated into the company's
operation. Operating expenses increased to 490,635 for the three month
period ended March 31, 1997 compared to 304,529 for the year ended March
31, 1996.
There are no income taxes due for the quarter ended March 31, 1997. The
company also owed approximately $63,303 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 judgement 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 compro- mise
resolution with the parties who
are alleging that they are the holders of the
note.
Liquidity & Capital Resources
During the quarter ended March 31, 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.
As of March 31, 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 March 31, 1997 the company owed $4,019,774 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 $303,145 in the quarter.
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 March 31, 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
On March 3, 1997 the company filed a Form 8-K
outlining
transactions in connection with the acquisition by the registrant of
Dixieland
Forest Products , Inc.
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)
February 25,1998
Date
