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
X ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the fiscal year ended December 31, 1998
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the period from
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.)
1205, Ampere Street
Suite 206
Boucherville, Quebec
Canada
J4B 7M6
(Address of principal executive offices) (Zip
Code)
Issuer's telephone number (514) 495-7747
Securities registered 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 $
0 .
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, 1998, 17,377,833 voting shares were
outstanding, 15,650,763 of which were held by
non-affiliates.
On that date the bid and ask prices were $0.14 to $0.17.
Therefore,
the aggregate market value of voting stock held by
non-affiliates
as of December 31, 1998 was $2,191,107.
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
(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:
18,721,833 as of June 30, 1999 which 1,038,678 shares in Stop
Transfer
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
Established in December of 1992, Forestry International is a
Colorado based
company. Initial involvement in the wood industry was the
acquisition of
clonal technology relating to the accelerated development of
rapid-growth
hardwood trees as an alternative wood species source. In
September of 1997,
a new management team evolved from major shareholders that saw
the need
for change. The company took another direction with this new
management
team and established a growth strategy plan.
Management's corporate objective is highly focused on growth
via niche
markets in order to increase Forestry's net asset worth and
enhance
shareholder value via the acquisition of businesses which are
active within
the timber and wood products industry, led by strong and
professional
management teams. As it expands, the Company should gain
competitive
advantages relative to smaller operators, including greater
purchasing power
for large timber tracts, a lower cost of capital, significant
market recognition,
and the ability to provide customers with a broader range of
products and
services in response to customer demand.
By way of careful analysis and evaluation of private and public
acquisition
targets, management intends to develop a vertically integrated
corporate
operation within the forest products industry.
Sale of Significant Amount of Assets not in the Ordinary Course
of
Business
Dickson Plantation Assets
The Paulownia trees were planted in Elongata, the fastest
growing species of
Paulownia, in 1994, with expectations of a harvest within five
to seven years.
Thereafter, with self regeneration, the harvest would be every
ten years for
the next forty years. The plantation was sold in March of 1997
with a lease
being paid yearly on the existing acreage of Paulownia. As the
lease became
due in April of 1998, and with the annual expenses continuing,
management
decided to evaluate the Paulownia investment to determine its
viability by
looking at the present net worth, annual equivalent value, and
internal rate of
return.
In May 1998 the new management realized the excessive costs of
keeping the
Paulownia project alive, so the Company sold its interest in
the lease along
with the trees, greenhouses, equipment and all assets
affiliated with the
Paulownia project.
Loss of Control of Dixieland Forest Products, Inc.
On February 25, 1998 Mr. Louis Turp met with Mr. Randy Pope and
Dixieland Forest Products' CPA firm. During that meeting Mr.
Pope imposed
upon 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 in addition to the $1,000,000 cash that he had previously
received. On
March 20, 1998 Forestry received a counter proposal from Mr.
Pope. This
counter offer, a minimum of $900,000 cash, was rejected as
unrealistic
according to the economic equivalent and relative performance
to be
received. A letter dated March 23rd was sent to Mr. Pope to
that effect and
the Company would continue in good faith to negotiate the
transaction for its
true value. It was also mentioned that if there was no mutual
agreement, the
Company would have no other alternative than to exercise its
right to protect
this investment for the benefit of the shareholders. There was
no further
written communication received concerning this offer and Mr.
Pope was
avoiding all subsequent communications with Forestry
International.
On July 8, 1998 a letter was sent to Mr. Pope concerning the
audit of Forestry
and Dixieland for the year ended December 1997. After a period
of two
months and several inquires, Mr. Pope set forth a proposal that
the Company
felt would jeopardize its legal position with respect to claim
its capital
investment in Dixieland. At this point, upon advise of its
attorney, Forestry
determined to proceed without the financial information from
Dixieland.
It is the position of management that Mr. Randy Pope
unilaterally recaptured
the Dixieland common shares sold to Forestry. The alleged
default was
without merit and was based on the non-release of Mr. Pope's
personal
guarantees. Officers of Forestry, with the knowledge of Mr.
Pope, were still
negotiating with financial institutions to execute that
obligation. Forestry had
performed such that the alleged default was not sufficiently
material to allow
Mr. Pope to assert a breach of the agreement. On the contrary,
Forestry
contends that Mr. Pope in fact breached the contract with poor
management
and excessive losses during the year. The financial
institutions made this
clear and plain to Forestry.
The status of a public company places a heightened
responsibility to protect
the assets of the company for the benefit of the public
shareholders. Because
of the delay and intransigence of the various parties involved
with Dixieland,
Forestry took on November 17, 1998 legal action against Randy
Pope.
Forestry has incurred a substantial loss which has materially
affected the
operations and management intends to pursue these legal actions
to attempt
to redress the losses incurred.
Growth Strategy
Forestry International has targeted several acquisitions to
fulfill its
management objectives. The Company is seeking to acquire
timberland and
companies of varying size. In evaluating potential acquisition
targets, the
Company considers a number of factors, including their market
niche, the
quality of the assets and management, the opportunities to
improve operating
margins and increase internal growth of the target, the
economic prospects of
the region in which the target is located, and the potential
for additional
acquisitions in the region. The Company will seek expansion
opportunities
in the United States, with an emphasis in the southeast.
Canada will also be
considered in our future development program. Management will
pursue
acquisition candidates with varying types of equipment (Chip
mills,
Sawmills, Lumber mills) and customer specializations within the
domestic
and export markets. Forestry believes that geographic and
customer
diversification will enhance the Company's stability to
fluctuations in
regional economic conditions or changes that affect particular
market
segments.
Management believes there will be significant opportunities to
improve
operating margins of acquired companies through the efficient
integration of
these acquisitions, the elimination of duplicated costs,
reduction in overhead
and the centralization of functions. A lack of capital has
constrained
expansion and modernization of many small and medium sized
companies
within the industry. As a result there is significant potential
to increase
internal growth of many acquired entities through capital
investment. The
Company will seek efficiency by investing in additional and
upgraded
equipment, using advanced technology systems to improve asset
utilization.
The Company intends also to establish a sales and marketing
program
targeted toward the major domestic and export players within
the industry.
Management will continually evaluate its organizational
structure and
manufacturing operations to identify opportunities to more
effectively meet
its customers' requirements and to reduce cost.
Industry Outlook
Mergers, acquisitions, divestitures and alliances are among the
tools for
rationalizing and restructuring to achieve greater cost
efficiencies and higher
return on investments. For example, since the former
Abitibi-Price Inc. and
Stone Consolidated Corp. merged in 1998, the successor company
has
reduced costs by over $200 million.
To reduce the volatility in pulp and paper markets, companies
have focused
on consolidation. In two blockbuster mergers in 1999,
International Paper
Co. acquired rival Union Camp Corp. for $7.9 billion and it is
expected to
create $425 million in savings for International Paper and a
second one,
Weyerhaeuser Co., announced a takeover of MacMillan Bloedel
Ltd.,
Canada's largest paper and forest products group. This follows
last year's
$2.5 billion merger of Avenor Inc., a Montreal-based company,
and Bowater
Inc., creating the second largest newsprint manufacturer in
North America.
Louisiana-Pacific Corp., the largest U.S. maker of OSB emerged
as the
winner against Boise Cascade Corp. in the bidding war for
Canada's leading
producer of oriented strand board (OSB) Le Groupe Forex, with a
total offer
of $33 per share or U.S. $512 million. The Forex deal fills a
geographic hole
for Louisiana-Pacific in the Northeast and parts of the Midwest
and will
become No. 1 in the North American OSB industry and is
expecting to grow
from its current 50 percent share in structural paneling to a
70 to 80 percent
market share within 8 to 10 years.
Companies are purchasing paper mill assets rather than building
new
greenfield operations, a trend which has been pushed by Wall
Street
observers for years. Today's basic structures under which the
industry
operates is different. There is room for new thinking and being
more
innovative in this fragmented industry with a disciplined
approach. The
balance of production, supply, and demand has changed in the
Forest
Products Industry. According to current market dynamics, the
overall picture
appears brighter by looking at capacity, consumption, pricing,
and inventory.
Another positive change has occurred in forest practices, as a
direct result of
activism by environmentalists. Their efforts have helped create
a more
sensitive and environmentally responsible industry.
The market pulp industry is showing signs of sustainable
recovery. Prices
began turning upward in April 1999, reaching $520/mton in
Europe for
benchmark northern bleached softwood kraft (NBSK). This
momentum
could enable producers to seek modest increases in the fall,
setting the stage
for NBSK to reach as high as $650/mton by the end of 2000. The
other
immediate good news for producers is from Asia, where demand
has been
picking up for some months now as the region recovers from the
financial
crisis that began in mid-1997 and sent the pulp industry into a
tailspin.
The newsprint market has seen some positive signs of late,
including lower
operating rates, declining mill inventories, and the continued
removal of
capacity from the market. In May 1999, Canadian operating
rates dropped
to 88% from 95% in April, the lowest since November. Total
North
American mill inventories also dropped for the first time since
November.
Canadian mill stocks were down 3.5% from April while U.S. mill
stocks
were basically flat, according to CPPA. Still, North American
mill inventory
levels in May were about 25% higher than May 1998.
The expansion and consolidation activity in the North American
tissue
market continues to be very active with a number of projects
completed
earlier this year and 11 new machines are scheduled for
start-up in the period
1999 to 2001 in the U.S. which indicates that capacity growth
will remain
strong. Global Tissue LLC (formerly Shepherd Tissue Inc.) from
Memphis,
Tenn., was acquired by Montreal-based Kruger Inc. in February.
Georgia-
Pacific Corp. and Chesapeake Corp. announced that they will
form a joint
venture combining their away-from-home tissue businesses.
The merger of two of North America's largest papermakers
dominated
developments in the printing/writing paper markets during the
first-half of
1999. International Paper and Union Camp Corp. completed their
merger in
April and the combination radically changed the makeup of the
North
American uncoated free-sheet and containerboard markets,
boosting
International Paper's share of the former to more than 20% of
capacity.
Georgia-Pacific also merge with distributorship Unisource
Worldwide Inc.
the U.S.'s largest merchant with a $851 million offer.
Georgia-Pacific said
it could deliver $75 million annually in savings over the next
two years.
U.S. containerboard prices moved from their trough at the end
of December
1998 to a new peak by July. The rapid turnaround was caused by
North
American producers eliminating 6% of containerboard capacity at
the end of
1998, and demand for corrugated containers remaining steady,
growing at or
nearly 2% above 1998 volume. In the U.S. and Canada, box
makers followed
the containerboard price increases in February and March 1999
with an
increase on boxes of 10% to 14% in primarily March and April.
Box makers
also proposed increases of 10% to 12% for July and August.
Capital investments by North American paper and forest product
companies
are expected to increase slightly in 1999 following three years
of declines.
Current fiscal 1999 spending estimates by 54 U.S. and
Canadian-based
companies total $9.52 billion, an increase of 6.7% over actual
spending in
1998.
Due to the highly fragmented nature of the industry, Forestry
believes that
there is a large number of attractive acquisition opportunities
in the Forest
Products Industry. The inability of many small and mid-sized
companies to
expand and modernize due to capital constraints, and the desire
of many
long-time owners for liquidity which Forestry has identified,
will allow the
company to immediately start its strategic acquisition program
and capitalize
with these niche markets.
Today's industry competes mostly on the basis of price,
quality, availability,
product choice, sustainability and environmental impact.
Consequently, the
future of U.S. and Canadian Forest Products Industry depends
mainly upon
factors which are products that are second-to-none, access to
world markets,
industry innovation, and a comprehensive global approach to
sustainable
forestry practices. Market competitiveness starts with economic
viability and
the outlook is favorable. Notwithstanding the cyclical nature
of the industry,
being a low cost producer with adequate and attractive
financial returns is
acceptable, but the ultimate goal for a company is to earn it's
cost of capital.
Significant Calendar 1998 Operating Results and Subsequent
Developments
Tax Assessments
The Arizona Department of Revenue is asserting a tax lien for
fiscal 1993
and 1994 in the amount of $10,869.34 for unpaid Arizona state
taxes against
the Company. As of March 9, 1999, the total amount including
interest was
approximately $42,763.66 .
Sale of Dickson Plantation
In April 1998 the new management realized the excessive costs
of keeping
the Paulownia project alive, so the Company sold its interest
in the lease
along with the trees, greenhouses, equipment and all assets
affiliated with the
Paulownia project.
Future Operations
New management has been 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 the coming years.
Future Project Acquisition
Forestry International, Inc. has reached a final agreement to
purchase all
common shares of a fully integrated wood products operation
located in the
southeast of the United States. Under the terms of the
agreement, Forestry
International is acquiring the company for US $22 million,
payable in cash
and stock, including the assumption of all liabilities at the
time of closing.
The transaction is subject to the completion of the financing
which Forestry
International expects to take place at any time before the end
of 1999.
ITEM 2. DESCRIPTION OF PROPERTY
As of August 26, 1998, the principal business office of the
Company is
located at 1205, Ampere Street, Suite 206, Boucherville,
Quebec, Canada
J4B 7M6. The telephone number is (514) 495-7747.
ITEM 3. LEGAL PROCEEDINGS
A civil action for back-wages claims for approximately $97,000
was filed on
March 19, 1998 by David L. Shorey, former President of the
Company in
Arizona Superior Court against Forestry International. The
Company is
vigorously defending the lawsuit against it, and has several
defenses and
claims that Forestry believes eliminate all of David Shorey's
claims.
Forestry's defense is based upon the fact that there are no
written documents
or materials that support David Shorey's claims for compensation
independent of his own assertions. Moreover, there are claims
and setoffs
based upon Mr. Shorey's actions while he was President, which
more than
offsets his claims for compensation.
To that effect, on October 2, 1998, Forestry filed a
counterclaim against Mr.
David Shorey based on the alleged conversion of Company
property to his
own use, and also a second claim contending a breach of
fiduciary duty as an
officer and director of Forestry International, Inc. The latter
claim stipulates
that Mr. Shorey substituted a promissory note to allow the
conversion of that
debt into a recourse debt convertible into Forestry common
shares without
any consideration to the Company. Although final resolution of
this matter
may not occur until December 1999 or thereafter, it is Forestry
International's
position that David Shorey's claims are not valid claims
against the company.
Forestry filed, on July 24, 1998 in Tucson Arizona Superior
Court, a
Declaratory Judgement action against several individuals and
entities
claiming benefits under a Promissory Note on the basis that the
Company
never received consideration for the Note or Notes. To that
effect, on May
4 and May 17, 1999, Forestry obtained default judgments in its
favor against
six (6) defendants which constitutes final judgment confirming
the
Company's contention that $763,225 of principal amount of
certain
indebtedness previously reflected on the Company's balance
sheet is not
owed to the defendants.
Although Forestry International's books and records reflect an
indebtedness
in the amount of $146,606 plus interest attributable to a
promissory note
executed by the former President of Forestry, in favor of
Dylan-Hutton, Inc.
Forestry's position is that the debt is not valid. Forestry is
undertaking steps
to obtain declaration from the appropriate court that this debt
is null, void and
unenforceable as against Forestry International, Inc.
The case is continuing as to $125,000 plus interest of the
indebtedness that
is held by Mr. David Shorey where he will represent himself in
this litigation
on a trial that is set for December 17, 1999. Management
expects to achieve
the same results where the Court will ultimately declare this
debt invalid.
On November 17, 1998 in the United States District Court of
Jackson
Mississippi, Forestry filed a $35,000,000 civil action against
Randy Pope,
President of Dixieland Forest Products, Inc. for breach of
contract, breach of
duty of good faith and fair dealing including wrongful
foreclosure. The
Company is seeking restitution in equity as well as
compensatory and
punitive damages as a result of Defendant's actions. By this
action, Forestry
intends to redress the losses incurred by the loss of control
of Dixieland
Forest Products. A trial has been set for the trial calender
commencing
February 7, 2000 and ending February 25, 2000. Unless there is
a settlement
before such time, the trial should proceed within that time
frame.
On March 17, 1999 the Arizona Department of Revenue filed an
amended
complaint against Forestry International, Inc. claiming
$10,869.34 in unpaid
income taxes, plus interest as of March 9, 1999 in the amount
of $31,894.32,
for the audited period of March 31, 1993 through March 31,
1994. Although
the initial audit by the Arizona Department of Revenue
reflected a tax
liability base on the sale of certain common shares by
Forestry. It appears
that Forestry may not have owned the common shares in question
and
therefore, no gain should have been recognize on the
transaction. If this
assumption is correct, there should be no tax liability related
to the
transaction. Although one can never predict with absolute
accuracy the
outcome of litigation, it is our opinion that Forestry has a
good case and is
prepared to see it through conclusion. The result of this case
is presently
indeterminable.
No other legal proceedings to which the Company is a party or
to which the
property of the Company is subject is currently pending against
the
Company, and no such material proceeding is known to be
contemplated
against any officer or director which is adverse to the
Company, except as
mentioned in the preceding paragraphs.
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 2.75 4.00
March 31, 1994 3.00 4.50
June 30, 1994 3.00 5.00
September 30, 1994 3.00 4.00
December 31, 1994 3.00 3.875
March 31, 1995 2.00 4.00
June 30, 1995 2.00 3.00
September 30, 1995 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
March 31, 1997 1.20 1.22
June 30, 1997 0.375 0.4375
September 30, 1997 0.18 0.21
December 31, 1997 0.08 0.10
March 31, 1998 0.09 0.15
June 30, 1998 0.09 0.10
September 30, 1998 0.055 0.065
December 31, 1998 0.14
0.17
March 31, 1999 0.21
0.25
June 30, 1999 0.22
0.23
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 August 25, 1999, the closing bid was $0.21 and
the closing
ask price was $0.24, as quoted on the Bulletin Board for the
common stock
of the Company. On that date, there were 11 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' PLAN OF OPERATION
Forestry International's initial involvement and primary
business was the
acquisition of clonal technology relating to the accelerated
development of
rapid-growth hardwood trees as an alternative wood species
source. Effective
September 5, 1997, the Company took another direction with a new
management team and a growth strategy plan.
The Company sold its interest in the remaining Paulownia
plantation located
in Sparta Georgia to pursue other business opportunities. While
actively
negotiating on an acquisition and until a new business venture
is determined,
the Company has eliminated the majority of its payroll and will
utilize
contract consultants to maintain its reporting requirements.
It is anticipated
that only nominal funding should be necessary for the next
several months,
which amounts should be available from equity or debt financing.
The Company, as of December 31, 1998 had net operating loss
carryforwards
for federal and state income tax purposes of approximately
$3,374,000 and
$2,021,000 respectively and a net capital loss carryforwards
for federal and
state income taxes of approximately $1,318,000. Management
plans to use
these losses to its advantage to save taxes on the operations
of future
acquisitions and against capital gains. Forestry will consult
tax specialists to
determine to which extent this may be used to its greatest
benefit.
New management has determined that the Company's new business
strategy
plan is primarily to seek one or more potential businesses
which may, in the
opinion of its Board of Directors, warrant the Company's
involvement. In
seeking to attain its business objective, the Company will
mainly focus on
targets within the Forest Products Industry but will not
restrict its search to
that industry. Forestry may investigate businesses of
essentially any kind or
nature, including but not limited to, high technology,
manufacturing, service,
research and development, communications and others.
Management's
discretion is otherwise unrestricted, and it may participate in
any business
whatsoever which may, in the opinion of management, meet the
business
objectives discussed herein.
The Company may acquire any entity or position in a company
which is (i)
a fully integrated corporation in a specific segment of its
industry; or (ii) in
its preliminary or development stage; or (iii) is a going
concern. In other
instances, possible business endeavors may involve the
acquisition of or a
merger with a company that does not need additional equity, but
seeks to
establish a public trading market for its securities.
Businesses that seek the
Company's participation in their operations may desire to do so
to avoid what
such businesses deem to be adverse factors related to
undertaking a public
offering. Such factors include substantial time requirements
and legal costs,
along with other conditions or requirements imposed by Federal
and State
securities laws.
Since new management got involved in the daily operation of
Forestry
International, the analysis of potential business endeavors
will be undertaken
by or under the supervision of the Company's Directors and
their principal
consultants. The Directors and principal consultants are
comprised of
individuals of varying business experiences, and management
will rely on
their own business judgment in formulating decisions as to the
types of
businesses that the Company may acquire or in which the Company
may
participate.
In analyzing prospective businesses, management will consider
such factors
as available technical, financial and managerial resources,
working capital
and other financial requirements such businesses history of
operations, if any,
and prospect for the future, the nature of present and expected
compensation,
the quality and experience of management services, the depth of
that
management, the potential for further research and development
and risk
factors. Forestry will also consider their niche market, the
opportunities to
improve operating margins, potential growth and expansion, the
economic of
the region in which the target is located, the potential for
profit, the perceived
public recognition or acceptance of such businesses, products,
services and
other relevant factors. The Company will seek opportunities in
the United
States, with an emphasis in the southeast. Canada will also be
considered in
future development program. Management believes that geographic
and
customer diversification will enhance the Company's stability
to fluctuations
in regional economic conditions or changes that affect
particular market
segments. Generally, the Company will analyze all available
information and
make a determination based upon a composite of available facts,
without
reliance upon a single factor as controlling.
Forestry has targeted several acquisitions to fulfill its
management objectives.
Also, it is anticipated that prospective businesses will be
available to the
Company from various sources, including its management, its
professional
advisors, securities broker dealers, venture capitalists
members of the
financial community, and others who may present unsolicited
proposals. In
some instances, the Company may publish notices or
advertisements in
financial or trade publications seeking potential business
acquisition. In
certain circumstances, the Company may agree, in connection
with an
acquisition, to pay a finder's fee or other compensation to an
investment
banking firm or other person who submits to the Company a
business in
which Forestry participates.
ITEM 7. FINANCIAL STATEMENTS
The audited 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. 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
Louis R. Turp 41 President and CEO
Andrea Audet 47 Secretary / Treasurer
Richard Jamieson 64 Chief Financial Officer
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 Louis R. Turp
and Andrea
Audet, who are husband and wife. 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 biographical profiles relate to each individual
currently serving
as a director, and executive officer of the Company.
Louis R. Turp - Portfolio manager associated with several major
Canadian
brokerage firms for 14 years. Accepted the invitation to serve
as a director
of FII on July 21 1997 and became President and CEO on
September 1997.
Corporate restructuring objective with fundamental emphasis on
selected
strategic acquisitions and business combinations with
profitable operating
companies in niche markets, within the Paper and Forest
Products Industry.
Richard Jamieson - Chief Financial Officer of FII, Mr. Jamieson
has been
associated as a Vice President Finance with Commercial Credit
Corporation
Ltd. and Royal Insurance Company Ltd. He brings an impressive
array of
financial, administrative and marketing skills with a strong
background in the
commercial credit industry.
Andrea Audet - Mrs. Audet has been involved internationally
with various
companies as a Bookkeeper. As the Director of public relations
for a family
business for several years, Mrs. Audet is also a real estate
agent and a
graduate with honors in computer applications. She offers to
the Company
an international experience with evidence of administrative
competence.
ITEM 10. EXECUTIVE COMPENSATION
No compensation was paid in fiscal 1996 and 1997 to the Board
of Directors
of the Company in their capacities as such. On December 1,
1998 the Board
of Directors authorized the granting of stock options to Louis
R. Turp,
President and Andrea Audet, Secretary-Treasurer. The options
were granted
in recognition of past services and the shares to be received
by their exercise
are subjected to Rule 144 of the Securities Act of 1933. The
following table
sets forth all cash and any other compensation paid for each of
the two years
ended March 31, 1996 and the calendar years ended 1996, 1997
and 1998:
Annual
Long Term
Name And Compensation Other
Compensation
Principal Year Salary ($) Bonus
Compensation Options
David L. Shorey
9 months (cal) 1996 $57,692(1) nil $
4,500 nil
1997 $43,269 nil
nil nil
James M. Gibson 1996 $68,044 $7,250 $ 6,000
nil
9 months(cal) 1996 $54,000 nil
nil nil
1997 $52,615
nil nil nil
Douglas Shorey 1996 $58,788 $5,000 nil
nil
9 months(cal) 1996 $46,154 nil
nil nil
1997 $30,000
nil nil nil
Randy Pope 1997 $87,500 nil nil
nil
Steve Busby 1997 $5,417 nil nil
nil
Louis R. Turp 1997 nil nil
nil nil
1998 $75,000(2)
100,000(3)
Perry Gower 1997 nil nil
nil nil
1998 $36,000
nil nil nil
Andrea Audet 1998 nil
nil nil 50,000(4)
(1) See Item 3 Legal Proceedings.
(2) Was paid in 500,000 restricted common shares at $0.10 per
share and the
remaining portion of $25,000 cash is to be paid.
(3) Right to purchase up to a maximum of 100,000 shares each of
common
stock of the company at $0.05 per share for a period of five
years.
(4) Right to purchase up to a maximum of 50,000 shares each of
common
stock of the company at $0.05 per share for a period of five
years.
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
July 27, 1999, 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 Louis R. Turp 1,414,414
7.5
474 Cote Ste-Catherine
Montreal, (QC) Canada
H2V 2B4
Common Richard Jamieson 87,500
0.5
543 Croissant Simonet
Ile Bizard, (QC) Canada
H9C 2R9
Common Andrea Audet 225,156
1.2
474, Cote Ste-Catherine
Outremont, (QC) Canada
H2V 2B4
Officers & Directors
1,727,070 9.2
as a Group (3 persons)
(1) The figures in this column are based upon approximately
18,721,833
common shares which had been or were to be issued and were
outstanding
on August 24, 1999.
ITEM 12. EXHIBITS AND REPORTS ON FORM 8-K
The following reports have been filed as a part of this report:
(1) Report of Sylvie Monette-Houle, CA and Robert
Kliaman, CA, CPA
(Massachusetts).
The following 8-K reports were filed on the dates indicated:
(1) A report on Form 8-K was filed by the company on
February 9, 1998
reporting an new director, change of address of the registrant,
receipt of a
notice of default from Randy Pope, President of Dixieland
Forest Products,
Inc. and resignation of a director of the Company.
(2) A report on Form 8-K was filed by the company on August
7, 1998
reporting the sale of common stock.
(3) A report on Form 8-K was filed by the company on
September 17,
1998 reporting the appointment of a director, change in
registrant's certifying
accountant, and resignation of a director.
(4) A report on Form 8-K was filed by the company on
November 10,
1998 reporting the new address of principal executive offices.
(5) A report on Form 8-K was filed by the company on
November 12,
1998 reporting that Mr. Robert Kliaman, CA, CPA (Massachusetts)
was
joining Mrs. Sylvie Monette-Houle as an auditor of the Company.
(6) A report on Form 8-K A was filed by the company on
February 16,
1999 clarifying the Form 8 K that was filed on November 12,
1998.
Independent Auditor's Report
Board of Directors
Forestry International, Inc.
We have audited the accompanying balance sheets of Forestry
International,
Inc. as of December 31, 1998 and December 31, 1997 and the
related
statements of operations, stockholders' equity (deficit) , and
cash flows for
years ended December 31, 1998 and December 31, 1997. The
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 accordance with United States'
generally accepted
auditing standards. Those standards require that we plan and
perform the
audit to obtain reasonable assurance about whether the
financial statements
are free of material misstatement. An audit includes
examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial
statement. An audit also includes assessing the accounting
principles used
and significant estimates made by management, as well as
evaluating the
overall financial statement preparation. We believe that our
audit provides
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all
material respects the financial position of Forestry
International, Inc. as of
December 31, 1998 and December 31, 1997 and the results of its
operations
and its cash flows for the years then ended in conformity with
United States
generally accepted accounting principles.
/s/ Sylvie Monette-Houle, CA
Calgary, Alberta
Canada
August 26, 1999
/s/ Robert Kliaman, CA, CPA (Massachusetts)
Toronto, Ontario
Canada
August 26, 1999
Forestry International, Inc.
Balance Sheets
December 31, 1998 and 1997
1998 1997
Assets
Current Assets:
Cash and Cash Equivalents(Note 2) $ 967
$2,772
Equipment held for sale -
60,175
Prepaid Expenses and Deposits
330
Total Current Assets 1,297
62,947
Property and Equipment
Office Equipment 6,000
6,000
Computers and Software 6,000
6,000
12,000 12,000
Less Accumulated Depreciation 10,400
8,000
Net Property and Equipment 1,600
4,000
Total Assets $ 2,897 $
66,947
(See Accompanying Notes to Financial Statements)
Forestry International, Inc.
Balance Sheets
December 31, 1998 and 1997
1998 1997
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities
Current portion of long term debt (Note 6) 323,568
-
Accounts Payable 131,049 109,779
Accrued Payroll and Other Expenses 152,540
118,158
Income Tax Payable (Note 7) 40,308
40,908
Due to Related Party
9,895
_________ _________
Total Current Liabilities 647,465
278,740
Long Term Debt - Unrelated -
1,052,127
(Note 6)
Contingency (Note 9)
Stockholders' Equity (Deficit):
Preferred Stock, Par Value $.0001 Per
Share, Authorized 10,000,000 Shares
Common Stock, Par Value $.0001 Per
Share, Authorized 100,000,000 Shares:
Issued and Outstanding 17,377,833 Shares 1,738
1,542
Common stock subscribed 325,000 shares 18,275
-
Capital in Excess of Par Value 7,078,223 6,941,327
Accumulated deficit (7,742,804)
(8,206,789)
Total Stockholders' Equity (644,568)
(1,263,920)
Total Liabilities and Stockholders' Equity $ 2,897
$ 66,947
(See Accompanying Notes to Financial Statements)
Forestry International, Inc.
Statement of Operations
For the years ended December 31, 1998 and 1997
1998
1997
Operating Revenue $ -
$ 9,375
Cost of Sales
- - - 6,467
Gross Margin
- - - 2,908
Operating Expenses:
General & Administrative 257,683
598,710
Operating Loss (257,683)
(595,802)
Other Income (Expense):
Interest and Dividends -
11,702
Interest Expense (41,557)
(183,789)
Gain on Settlement of debt -
95,009
Loss on DFP investment
- (1,519,375)
Total Other Income and Expense
(41,557) (1,596,453)
Loss Before Discontinued Operations,
and Extraordinary Item
(299,240) (2,192,255)
Loss from operations of
Discontinued Operations
- - - (475,546)
Loss on disposal of Segment Assets (Note 5)
- (814,918)
Net Loss Before taxes and Extraordinary Item ($
299,240) ($ 3,482,719)
Extraordinary gain (Note 6)
763,225 -
Net Income (Loss)
$463,985 ($ 3,482,719)
Earnings per Common Share:
Net loss before Extraordinary Item
$ ( 0.02) ($ 0.22)
Extraordinary Item
0.05 -
Net Income (Loss)
$ 0.03 $ (0.22)
Weighted Average Number
of Common Shares 17,319,249
15,599,517
(See Accompanying Notes to Financial Statements)
Forestry International, Inc.
Statement of Stockholder's Equity (Deficit)
For the years ended December 31, 1998 and 1997
Common Stock Paid in
Common Stock
Capital in Subscribed
Net
Number Par
Excess of
Accumulated
Stockholders
of Shares Value
Par Value
Deficit
Equity
Balances at
Dec. 31, 1996
as stated 15,599,517
1,560 6,844,571 -
(4,724,070)
2,122,061
Issuance of
Common stock
for cash 440,000
44 96,756 -
-
96,800
Cancellation of
Common Stock (1,200,000)
(120) - -
-
(120)
Issuance of
Common stock
for Services 578,316
58 -
- - - -
58
Net Loss -
- -
- (3,482,719)
(3,482,719)
Balances at
Dec. 31, 1997 15,417,833
1,542 6,941,327 -
(8,206,789)
(1,263,920)
Subscription and
Issuance of
Common Stock
for Cash 1,860,000
186 96,361 18,275
114,822
Cancellation of
Common Stock (241,375)
(24) - -
-
(24)
Issuance of
Common Stock
for Services 341,375
34 40,535 -
-
40,569
Net Income -
- -
- (463,985)
(463,985)
Balances at
Dec. 31, 1998 17,377,833 1,738
7,078,223 18,275
(7,742,804)
(644,568)
(See Accompanying Notes to Financial Statements)
Forestry International, Inc.
Statement of Cash Flows
For the years ended December 31, 1998 and 1997
1998 1997
Cash Flows from Operating Activities:
Net Loss before Extraordinary Item ($ 299,240)
($3,482,719)
Adjustments to Reconcile Net Loss
Amortization & Depreciation 2,400
85,524
Amortization of Note Receivable Discount
- (10,000)
Loss on investment on Dixieland Forest
Products, Inc.
- 1,519,375
Loss from operations of Discontinued
Operations -
475,546
Loss on disposal of segment assets -
814,918
(Increase) Decrease in:
Notes and Accounts Receivable -
30,461
Equipment held for sale
60,175 -
Prepaid Expenses and Deposits (330)
3,698
Increase (Decrease) in:
Accounts Payable and Accrued Expenses 55,652
(168,426)
Income Tax Payable (600)
(211,512)
Net Cash Used by Operating Activities (163,175)
(704,035)
Cash Flows from (Applied to) Investing Activities:
Purchase of Property and Equipment -
(3,110)
Proceeds from Loss of DFP -
141,251
Proceeds from Sale of
Property & Equipment -
1,174,235
Proceeds from Sale of
Forestry Development Costs
- 131,160
Increase in Forestry Devel. Costs
- (6,390)
Increase in Long-Term Investments
- (88,187)
Net Cash Used by Investing Activities:
- 1,348,959
Cash Flows From (Applied to) Financing Activities:
Repayment of Note Payable -
(2,090)
Increase in Long-Term Debt 34,666
80,547
Repayment of Long-Term Debt -
(1,669,390)
Net decrease in Related Party Debt (9,895)
(3,455)
Issuance of Common Stock 137,092
96,800
Subscription of common stock
18,275 -
Net Cash applied to
Financing Activities
180,138 (1,497,588)
Net increase (decrease) in Cash (1,805)
(852,664)
Cash, beginning of period 2,772
855,436
Cash, end of Period $ 967 $
2,772
1998 1997
Supplemental Disclosure of
Cash Flow Information:
Cash Paid for Income Tax
600 160,000
Supplemental Schedule of
Noncash Financing and Investing:
Extinguishment of long-term debt 763,225
Note payable relating to
disposal of Dickson Plantation
- 927,500
Note Payable relating to loss of
DFP, Inc. Investment
- 614,390
Intercompany advances, receivable
relating to loss of DFP, Inc. Investment -
441,915
Disposal of business - Dickson Plantation:
Total assets disposed on sale
of Dickson Plantation
- 1,245,040
Total debt reduced on sale
of Dickson Plantation
- 1,171,641
Disposal of Business DFP, Inc.:
Working capital other than cash
- - - (839,562)
Advances receivable
- (441,915)
Equipment
- (225,240
Cash Surrender Value
- (4,450)
Long-term debt
- 1,650,771
Note payable
- 508,419
Goodwill
- (2,167,398)
- (1,519,375)
(See Accompanying Notes to Financial Statement)
FORESTRY INTERNATIONAL, INC
Notes to Financial Statements
December 31, 1998
(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. At that time the Company planted, grew, developed and
marketed 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, supplied
timber to pulp, paper, and lumber mills and provided landowner
assistance with replanting, thinning,
and timber transportation.
On November 12, 1997 the Company loss control of Dixieland
Forest Products, Inc. through a
unilateral decision of Mr. Randy Pope that was not recognized by
Forestry.
In May 1998 the Company has also discontinued the operations of
planting, developing and
marketing Paulownia trees.
The Company has restructured its operations for the primary
purpose of seeking selected acquisitions
with a number of entities primarily in the forest products
industry.
(2) Summary of Significant Accounting Policies
(a) Cash and Cash Equivalents
All short-term investments purchased with an original maturity
of three months or less are considered
to be cash equivalents. Cash and cash equivalents primarily
include cash on hand.
(b) 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 five to seven years for equipment.
(c) 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.
(d) 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,
1998.
(e) 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
financial statements and related notes to the financial
statements. Changes in such estimates may
affect amounts reported in future periods.
(3) Going Concern
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's business plan calls for the use of
banks, investment and merchant bankers,
and venture capital firms to provide capital to acquire future
investments.
Since the Company lost control of Dixieland, it has lost
substantially all of the assets of the
Company. In order to meet its liability requirements, management
has proceeded to dispose of certain
assets and substantially reduce and delay expenditures. It is
likely that management's plans for
dealing with such adverse circumstances can be implemented for
the duration of the fiscal year
ending December 31, 1999.
(4) Fair Value of Financial Instruments
The fair values of cash and cash equivalents, notes payable and
accounts payable approximate cost
because of the short-term maturity of these financial
instruments. 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:
December 1998 December 1997
Carrying Fair Carrying Fair
Amount Value Amount Value
Financial assets:
Cash and cash
equivalents $ 967 $ 967 $
2,772 $ 2,772
Financial Liabilities:
Accounts Payable 109,717 109,717 131,049
131,049
Long term debt
Incl Maturities 323,568 323,568 1,052,127
1,052,127
(5) Discontinued Operations
On May 5, 1998, the Company sold all greenhouses, all associated
supplies and equipment, and all
Paulownia trees located on the Dickson Plantation. The sale
price of $42,000 resulted in a loss of
$734,361 which has been recognized as a loss from disposal of
segment assets in the year 1997.
Other assets relating to the operation of the plantation have
been sold. The sales price of those assets
of $90,490 has resulted in a loss of $33,841 which has been
recognized as a loss from disposal of
segment assets in the year 1997.
Due to the discontinued operations the value of certain
long-lived assets has been reduced to net
realizable value, this has resulted in a loss of $35,994 which
has also been recognized as a loss from
disposal of segment assets in the year 1997.
(6) Long Term Debt
A summary of unrelated long-term debt follows:
Dec 31, 1998 Dec 31, 1997
-----------------
-------------------
Notes payable to unrelated parties,
12% interest bearing; convertible
into common shares; principal
and interest was due December 31,
1997
$ 323,568 $ 1,052,127
-------------- ---------------
Less: current portion of long-term debt $ 323,568
------------- ---------------
- $ 1,052,127
------------- ---------------
New management disputes the validity or existence of this debt.
In that regard, the Company has
initiated litigation to have the debt declared invalid and is
otherwise seeking to have the debt
determined invalid.
(7) Income Taxes
At December 31, 1998 the Company had net operating loss
carryforwards for federal and state
income tax purposes of approximately $3,374,000 and $2,021,000
respectively.
Year of loss Year of
Losses
expiration
Federal State
March 1995 2000 -
318,000
March 1996 2001 -
781,000
March 1996 2011 2,485,000
270,000
December 1996 2012 237,000
-
December 1997 2013 353,000
353,000
December 1998 2014 299,000
299,000
- - ------------- -------------
3,374,000 2,021,000
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 $1,318,000 at December 31, 1998 and $1,513,000 at
December 31, 1997. Realization
of this tax benefit depends upon the Company's future revenue
from acquisitions.
A loss limitation applies if there is an acquisition of control
of the Company. Generally the amount
of net operating loss carryforwards would be limited to the
value of the Company when control
changed times the long-term tax-exempt rate.
At December 31, 1998, the Company also had net capital loss
carryforwards for federal and state
income tax purposes of approximately $1,500,000. Capital losses
are deductible only to the extent
of capital gains for a period of five years and may not offset
operating income. The tax benefit will
be reflected when realized.
Management is unable to predict whether future revenues will be
adequate to generate taxable income
before expiration of the loss carryforwards. Therefore
valuation allowances of $1,318,000 and
$1,513,000 have been provided at December 31, 1998 and December
31, 1997, 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
year ended December 31, 1998 and
year ended December 31, 1997 are as follows:
Dec
31, 1998 Dec 31, 1997
- - --------------- ----------------
Deferred income tax (benefit):
Federal
$1,147,000 $ 1,303,000
Less allowance (1,147,000)
(1,303,000)
- - ------_------- -------_------
- - --------------- --------------
States
171,000 210,000
Less Allowance (171,000)
(210,000)
Total deferred tax benefit $ -
$ -
The current income tax liability consists of the following:
1998 1997
- - ---------------- ----------------
Balance due from year
ended March 31, 1993 and 1994:
State tax $
10,869 10,869
Penalty and Interest 29,439
30,039
- - ------------- ---------------
$ 40,308 $ 40,908
======== ==========
A reconciliation of the provision for income taxes to the
federal statutory rate is:
1998 1997
- - ---------------- ---------------
Statutory federal rate 34.0%
34.0 %
Change in valuation allowance -
-
- - ---------------- ---------------
34.0
% 34.0%
==========
=========
(8) Stock Options
On December 20, 1995, the stockholders approved a Stock Option
Plan for a maximum of 1,000,000
shares of the Company's common stock to be sold to employees and
others providing valuable
services to the Company at option prices equal to the market
price of the stock at the time of the
grant. The options can be exercised for a period of up to ten
years and are registerable by the
Company at the time of exercise under the Securities Act of
1933. At December 31, 1998 there were
options exercisable but none were exercised.
On December 1, 1998 the Board of Directors authorized the
granting of stock options to Louis Turp,
President and CEO, to purchase up to 100,000 shares each of
common stock of the company at $.05
per share for a period of five years and Andrea Audet,
Secretary-Treasurer, to purchase up to 50,000
shares of common stock of the Company at $.05 per share for a
period of five years. The options were
granted in recognition of past services and the shares to be
received by their exercise are subjected
to Rule 144 of the Securities Act of 1933.
(9) Contingency
A civil action for back-wages claims for approximately $97,000
was filed on March 19, 1998 by
David L. Shorey, former President of the Company in Arizona
Superior Court against Forestry
International. The Company is vigorously defending the lawsuit
against it, and has several defenses
and claims that Forestry believes eliminate all of David
Shorey's claims. Forestry's defense is based
upon the fact that there are no written documents or materials
that support David Shorey's claims for
compensation independent of his own assertions. Moreover, there
are claims and setoffs based upon
Mr. Shorey's actions while he was President, which more than
offsets his claims for compensation.
To that effect, on October 2, 1998, Forestry filed a
counterclaim against Mr. David Shorey based on
the alleged conversion of Company property to his own use, and
also a second claim contending a
breach of fiduciary duty as an officer and director of Forestry
International, Inc. The latter claim
stipulates that Mr. Shorey substituted a promissory note to
allow the conversion of that debt into a
recourse debt convertible into Forestry common shares without
any consideration to the Company.
Although final resolution of this matter may not occur until
1999 or thereafter, the occurrence of the
future judgement is not determinable. As of December 31, 1997
the Company has accrued salaries
payable to Mr. David Shorey in the amount of $59,774.
(10) Extraordinary Gain
As a result of a Judgment in a lawsuit filed by the Company
against certain creditors, debts totalling
$763,225 (net of tax of $323,989 and valuation allowance
reduction of $323,989), were rendered null
and void. This gain results in increased earnings of $0.05 per
common share.
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)
August 30, 1999
- - ----------------------------------
Date
August 26, 1999
Mr. Louis R. Turp
Forestry International, Inc.
1205 Ampere Street
Suite 206
Boucherville, Quebec
Canada J4B 7M6
Dear Louis,
I hereby consent to the use of my name as joint auditor in the
Annual Report pursuant to Section 13
or 15 (d) of the Securities Exchange Act of 1934 for the fiscal
year ended December 31, 1998 and
year ended December 31, 1997 filed by Forestry International,
Inc. on Form 10-KSB.
/s/
Sylvie Monette-Houle, CA
August 26, 1999
Calgary, Alberta
Canada
August 30, 1999
Mr. Louis R. Turp
Forestry International, Inc.
1205 Ampere Street
Suite 206
Boucherville, Quebec
Canada J4B 7M6
Dear Louis,
I hereby consent to the use of my name as joint auditor in the
Annual Report pursuant to Section 13
or 15 (d) of the Securities Exchange Act of 1934 for the fiscal
year ended December 31, 1998 and
year ended December 31, 1997 filed by Forestry International,
Inc. on Form 10-KSB.
/s/
Robert Kliaman, CA, CPA (Mass)
August 30, 1999
Toronto, Ontario
Canada
