UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2005 Commission File
Number 0-25909
AUSTRALIAN FOREST INDUSTRIES (f/k/a Multi-Tech International, Corp.)
(Name of small business issuer in its charter)
Nevada 86-0931332
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4/95 Salmon Street, Port Melbourne, Victoria
Australia, 3207
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 011 61 3 8645 4340
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
NONE NONE
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.001 par value
(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 past 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. YES [X] 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 the 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. [_]
The aggregate market value of the voting common stock held by non-affiliates of
the registrant as of May 9, 2006 was approximately $380,646 based on 400,680
shares of common stock. The number of shares of Common Stock of the registrant
outstanding on May 9, 2006 was 257,400,680.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
HISTORY
Australian Forest Industries f/k/a Multi-Tech International, Corp., hereinafter
referred to as "the Company", "we' or "us", was originally organized by the
filing of Articles of Incorporation with the Secretary of State of the State of
Nevada on September 21, 1998 under the name Oleramma, Inc. The Articles of
Incorporation authorized the issuance of one hundred five million (105,000,000)
shares, consisting of one hundred million (100,000,000) shares of Common Stock
at par value of $0.001 per share and five million (5,000,000) shares of
Preferred Stock at par value of $0.001.
On April 28, 1999, the Company changed its name to BuckTV,Com, Inc. on the basis
that the Company would market consumer products through an InteractiveWeb site.
The Company again changed its name in November 2002 to Multi-Tech International,
Corp.
On September 1, 2004, we entered into a Share Exchange Agreement with Timbermans
Group Pty Ltd, an Australian corporation and its wholly-owned subsidiary at the
time Integrated Forest Products Pty Ltd, an Australian corporation as well
("Share Exchange Agreement" and "Share Exchange", respectively). Pursuant to
such Share Exchange Agreement, we:
o completed a 200-1 reverse stock split of our common stock
o increased our authorized number of shares from 100,000,000 to 300,000,000
o changed our name from Multi-Tech International, Inc. to Australian Forest
Industries
o appointed Messrs. Michael Timms, Norman Backman, Colin Baird, Antony
Esplin and Roger Timms to the board of directors
o issued 257,000,000 shares of our common stock as a result of the Share
Exchange Agreement
Thus, upon completion of the Share Exchange, Integrated Forest Products Pty Ltd
("IFP") became a wholly-owned subsidiary of the Company and the Company's symbol
on the OTC-BB was changed from "MLTI" to "AUFI".
GENERAL
The majority of the issued and outstanding ordinary shares in the capital of the
Company are held by Timbermans Group, a leading supplier of softwood timber
products in Australia. The shareholders of Timbermans Group are the same
individuals who comprise our board of directors.
IFP owns a minority interest in Radiata Forest Services Pty Ltd which is a
company owned jointly by a number of timber companies in the Canberra region.
Radiata purchases logs on behalf of its shareholders and distributes them among
those shareholders.
The timber industry in Australia experienced a strong demand from internal
growth in residential and commercial construction along the Eastern coast of
Australia. Additionally, export demand from China and elsewhere in Asia for
lumber and other wood products continued to be very strong in recent years and
management expects that this trend will continue in the foreseeable future.
The facilities of the Company are located in Australia. The business of the
Company consists of a pine sawmilling and timber facility at Canberra, which has
a capacity to process 200,000 cubic meters of sawn timber. This sawmill produced
120,000 cubic meters of log in the Fiscal Year 2005. The Company is currently in
the process of arranging the financing for the construction of a second sawmill.
With this second sawmill, the Company intends to exploit the log resource
generated by our contract with Timbermans Group which grants us the right to the
Bombala Agreement described below.
1
In April 2003, Timbermans Group Pty Ltd entered into an agreement with the
government of New South Wales which granted Timbermans the 20 year wood supply
rights to timber from the Bombala forest, equal to approximately 300,000 cubic
meters of wood ("Bombala Agreement"). This Agreement was assigned to the Company
at that time with the full knowledge of New South Wales government. Management
believes that this is the last significant undeveloped pine forest in Eastern
Australia. The Bombala Agreement provides, inter alia, that the log purchase
price review mechanism is linked to the sawn timber actual price achieved for
the products produced at the new sawmill to be built at Bombala, the market
price for structural radiata pine timber, the ABS producer price index for
softwood in Sydney and input costs such as wages and fuel. This mechanism is
expected to adequately protect the Company from any decreasing market prices and
in part from increased costs during the term of the Bombala Agreement. With the
signing of the Bombala Agreement, the Company has insured its supply for at
least 20 years and is renewable at the Company's option. With this asset the
Company believes it has secured a major asset.
The Company's core markets are Australia and Southern Asia. The Company's
revenues are generated solely in its core markets.
Recent events
The proposed new sawmill at Bombala is planned to begin construction in the 3rd
quarter of 2006 after the approvals of the government of New South Wales and
local council have been obtained.
The new mill operation will be situated on approximately 300 acres of land on
the Monaro Highway, just south of Bombala. Management believes that the new mill
will be a state of the art mill. It will be constructed by industry experts,
including Acora Reneco Group, and will utilize state of the art machinery and
technology.
The mill is expected to comprise sawing machines from the USA, Canada, Europe
and Australia, and to have proven production capabilities, as well as safety,
environmental and efficiency capabilities.
The total mill and ancillary investment are expected to be approximately $30
million (US). Most of the timber from the new mill will be transported in green
form to the Integrated Forest Products plant at Canberra, for drying and
dressing processing. The balance will be sold in green form.
The new mill is expected to initially process 300,000 cubic meters per year of
log, although designed to cut in excess of 400,000 cubic meters per year, under
the Bombala Agreement.
Furthermore, negotiations are at an advanced stage for the sale of all mill
residues of sawdust, bark and waste wood chips.
The new sawmill at Bombala is expected to put the Company in a position to
produce at a lower cost relative to its current cost level, and in compliance
with all applicable safety standards. In addition, it is expected to provide
access to the Company to a large and high quality log supply, to Acora Reneco
Group as leading Australian timber technology, mill and equipment suppliers, low
cost production from expanding Integrated Forest Products and will allow the
Company to concentrate on structural timber. Finally, the new sawmill is
expected to create competitive economics of scale and to generate profits from
the future integration of the Company's operations in Canberra and Bombala.
In early 2005, the Company recently purchased a new timber treatment facility
for its operations in Canberra. With this new timber treatment facility,
management has been able to offer treated pine framing to the market since March
2005. With the new facility, the Company has been able to meet an increased
demand for treated timber as a result of changing rules and regulations for the
construction of new homes that require the use of such timber for framing to be
termite resistant.
Furthermore, Integrated Forest Products commissioned a new sawlog line in 2005
which has lifted the log intake rate of its facility in Canberra to over 160,000
cubic meters per year, thereby increasing its sawing capacity by 38%, providing
a recovery increase, a higher sawing accuracy, greater operator safety and a
better timber finish.
2
Strategy
The Company's strategy is to maximize shareholder value, inter alia, by
realizing economics of scale and profits, initially through the securing of
access to additional log supplies from private forests, the installation of a
new log sawing line at Integrated Forest Products to improve its efficiency, and
the continuation of the meeting of milestones laid down in the Bombala
Agreement. The medium term strategy of the Company is to build a new green
sawmill in Bombala, and to expand its drying and planing facilities for the
intake of green sawn timber from the facilities then operated at Bombala. The
long term strategy of the Company is to combine its wood chip production
facilities, and to export wood chips with its strategic partner the State Forest
of New South Wales, utilizing both the Company's and the State Forest of New
South Wales' supply, or, alternatively, to establish a fibre board factory at
Bombala utilizing its available wood chips. Other options are also being
investigated.
Employees
At the end of December 2005, we employed 121 full time equivalents. In the
Company's vision, employees play a crucial role in the success of the Company.
We encourage our employees to take initiative to further enhance our efficiency
in timber production. In order to assist our employees, we constantly seek to
train and educate them, either on an individual basis (product knowledge and
quality control) or on a more collective basis (office automation and management
skills). We have never experienced a work stoppage resulting from labor
problems.
Our employees are members of the CFMEU which is one of the largest unions in
Australia. As a result, each non-executive employee is a party to a collective
bargaining agreement known as an Enterprise Bargaining Agreement which
determines the terms of employment of each non-executive employee. Management
believes that its relations with such union are impeccable and the risk of work
stoppages is extremely unlikely.
Competition
The Australian wood products market is a competitive market and could become
more competitive in the future. Our competitors are diverse and offer products
similar to our products. Some of our competitors have access to significantly
greater financial, marketing and other resources than us. Increased competition
may result in price reductions for our products, reduced revenues and gross
margins and loss of market share. We are committed to executing our strategy as
set out above, inter alia, by focusing on our ability to source capital
equipment at very competitive prices and effectively manage facilities as a
result of management's extensive consulting experience.
At the time many sawmills in Australia are facing limitations on log supply as
older forests are becoming less productive and a series of significant forest
fires over the past five years have diminished the availability of high quality
logs.
We believe that we have certain competitive advantages our (i) ability to
construct efficient low cost mills, as a result of our strategic alliance with
Acora Reneco Group, (ii) access to log resources through the Bombala Agreement,
(iii) excess drying and dressing capacity in the Canberra processing facilities,
(iv) low cost operating and management techniques, and (v) operations management
system, which we believe to be superior to the systems of our competitors.
Finally, unlike most of our competitors, we believe that we have the ability for
low cost incremental expansion of our Canberra and future Bombala facilities,
mainly because of our spare processing capacity, subject to the availability of
logs - the supply of which we believe to have secured through our Bombala
Agreement, our log merchandising facility at Bombala for greater fibre recovery
from whole log, and the availablity of in-house process control and selective
hi-tech equipment.
It is our belief that, when we get the new facility in operation in 2007, we can
record operating performance equal or better than that shown by the large
capital forestry companies including the high growth ones.
3
ITEM 2. DESCRIPTION OF PROPERTY
Our main facility is located in Australia which consists of pine sawmilling and
timber facility at Canberra, which has a capacity to process 200,000 cubic
meters of log. We are currently in the process of arranging the financing for
the construction of a second in the Bombala region to further exploit the log
resources generated by the Bombala Agreement.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any material pending legal proceedings or government
actions, including any bankruptcy, receivership, or similar proceedings.
Management of the Company does not believe that there are any proceedings to
which any director, officer, or affiliate of the Company, any owner of record of
the beneficially or more than five percent of the common stock of the Company,
or any associate of any such director, officer, affiliate of the Company, or
security holder is a party adverse to the Company or has a material interest
adverse to the Company.
4
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) The Company's Common Stock is traded on the OTC-Bulletin Board under the
symbol AUFI. The following sets forth the range of the closing bid prices for
the Company's Common Stock for the period January 1, 2003 through May 9, 2006.
Such prices represent inter-dealer quotations, do not represent actual
transactions, and do not include retail mark-ups, mark-downs or commissions.
Such prices were determined from information provided by a majority of the
market makers for the Company's Common Stock.
High Close Low Close
2004
First Quarter 0.015 0.015
Second Quarter 0.015 0.015
Third Quarter 0.015 0.015
Fourth Quarter 2.50 0.60
2005
First Quarter 1.51 1.50
Second Quarter 1.50 1.50
Third Quarter 1.75 1.60
Fourth Quarter 8.00 1.25
2006
First Quarter 4.35 .75
Second Quarter
(through May 15th) 1.00 .75
(b) The approximate number of holders of the Common Stock of the Company as of
May 16, 2006 was 900.
(c) No cash dividends were declared by the Company during the fiscal year ended
December 31, 2005. While the payment of dividends rests within the discretion
of the Board of Directors, it is not anticipated that cash dividends will be
paid in the foreseeable future, as the Company intends to retain earnings, if
any, for use in the development of its business. The payment of dividends is
contingent upon the Company's future earnings, if any, the Company's financial
condition and its capital requirements, general business conditions and other
factors.
5
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
It should be noted that this Management's Discussion and Analysis of Financial
Condition and Results of Operations may contain "forward-looking statements."
The terms "believe," "anticipate," "intend," "goal," "expect," and similar
expressions may identify forward-looking statements. These forward-looking
statements represent the Company's current expectations or beliefs concerning
future events. The matters covered by these statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those set forth in the forward-looking statements, including the Company's
dependence on weather-related factors, introduction and customer acceptance of
new products, the impact of competition and price erosion, as well as supply and
manufacturing restraints and other risks and uncertainties. The foregoing list
should not be construed as exhaustive, and the Company disclaims any obligation
subsequently to revise any forward-looking statements to reflect events or
circumstances after the date of such statements, or to reflect the occurrence of
anticipated or unanticipated events. In light of the significant uncertainties
inherent in the forward-looking information included herein, the inclusion of
such information should not be regarded as a representation that the strategy,
objectives or other plans of the Company will be achieved. The Company wishes to
caution readers not to place undue reliance on any such forward-looking
statements, which speak only as of the date made.
RESULTS OF OPERATIONS
We are currently in the third year of operations and have generated significant
revenues to date. Our activities from inception to date were related to our
formation, preparation of our business model, arranging and planning financing
and the acquiring all rights, title and interest to our timber rights located in
the Canberra region in addition to the implementation and construction of our
first sawmill also in the Canberra region.
Operating costs for the year ended December 31, 2004 aggregated $13,916,006.
This includes costs incurred in procuring our rights under the Bombala Agreement
and operating expenses for our Canberra sawmill. We incurred an operating loss
of $(925,448) and a total net loss of $(252,422) or $(0.01) per share.
Operating costs for the twelve-month period ended December 31, 2005 aggregated
$17,279,622. This includes an increase in costs of goods sold of $(3,756,490)
which were a result of general costs associated with the growth of our business.
As a result of the above we realized a loss of $(3,779,823) for the twelve-month
period ended December 31, 2005 or $(0.01) per share.
LIQUIDITY AND CAPITAL RESOURCES
On December 31, 2004 and 2005 we had current assets of $3,962,334 and
$3,722,067, respectively.
Net cash used in operating activities for the period from inception to December
31, 2004 was $252,141. Net cash used in operating activities for the period from
inception to December 31, 2005 was $(1,635,993). The decrease in net cash was
partially a result of an increase in related party payables and decrease in
relate party receivables of $797,543 which was a consequence of our growing
business and the addition of a significant number of employees.
The Company completed a new sawline in Canberra which was operational in the
third quarter of 2005 which is used primarily for processing the logs resulting
from the Bombala Agreement.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's discussion and analysis of its financial condition and results of
operations are based upon its financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires the Company to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, the Company evaluates its estimates,
including those related to bad debts, income taxes and contingencies and
litigation. The Company bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
6
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Recent Accounting Pronouncements Affecting The Company:
In December 2004, the FASB issued SFAS No. 123 (revised 2004), or SFAS 123R,
"Share-Based Payment." This statement replaces SFAS 123, "Accounting for
Stock-Based Compensation" and supersedes Accounting Principles Board's Opinion
No. 25 (ABP 25), "Accounting for Stock Issued to Employees." SFAS 123R will
require us to measure the cost our employee stock-based compensation awards
granted after the effective date based on the grant date fair value of those
awards and to record that cost as compensation expense over the period during
which the employee is required to perform services in exchange for the award
(generally over the vesting period of the award). SFAS 123R addresses all forms
of share-based payments awards, including shares issued under employee stock
purchase plans, stock option, restricted stock and stock appreciation rights. In
addition, we will be required to record compensation expense (as previous awards
continue to vest) for the unvested portion of previously granted awards that
remain outstanding at the date of adoption. SFAS 123R is effective for fiscal
periods beginning after June 15, 2005. Therefore, we are required to implement
the standard no later than our third fiscal quarter which begins on July 1,
2005. SFAS 123R permits public companies to adopt its requirements using the
following methods: (1) a "modified prospective" method in which compensation
cost is recognized beginning with the effective date (a) based on the
requirements of SFAS 123R for all share-based payments granted after the
effective date and (b) based on the requirements of SFAS 123 for all awards
granted to employees prior to the effective date of SFAS 123R that remain
unvested on the effective date; or (2) a "modified retrospective" method which
includes the requirements of the modified prospective method described above,
but also permits entities to restate their financial statements based on the
amounts previously recognized under SFAS 123 for purposes of pro forma
disclosures for either (a) all prior periods presented or (b) prior interim
periods of the year of adoption.
7
CONTENTS
--------------------------------------------------------------------------------
Report of Independent Registered Public Accounting Firm Page 1
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Cash Flows 4
Consolidated Statement of Stockholders' Equity 5
Notes to Consolidated Financial Statements 6
MEYLER & COMPANY, LLC
CERTIFIED PUBLIC ACCOUNTANTS
ONE ARIN PARK
1715 HIGHWAY 35
MIDDLETOWN, NJ 07748
Report of Independent Registered Public Accounting Firm
To the Board of Directors
Australian Forest Industries
Melbourne, Australia
We have audited the accompanying balance sheets of Australian Forest Industries
as of December 31, 2005 and 2004 and the related statements of operations,
stockholders' equity, and cash flows for each of the two years in the period
ended December 31, 2005. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the control over financial reporting. Accordingly, we express no
such opinion. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. 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 Australian Forest Industries as
of December 31, 2005 and 2004, and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 2005, in
conformity with accounting principles generally accepted in the United Staes of
America.
/s/ Meyler & Company, LLC
Middletown, NJ
May 17, 2005
F-1
AUSTRALIAN FOREST INDUSTRIES
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
2005 2004
------------ ------------
(Restated)
------------ ------------
CURRENT ASSETS
Cash $ 127,014 $ 225,189
Accounts receivable 1,622,974 1,611,756
Inventory 1,778,340 1,983,039
Prepaid expenses and other 193,739 142,350
------------ ------------
Total Current Assets 3,722,067 3,962,334
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation of $2,402,939 and $2,349,923 in 2005
and 2004, respectively 13,040,126 10,317,803
OTHER ASSETS
Receivable from related party 273,175
Long-term timber supply contract, net
of amortization of $91,843 and
$36,943 in 2005 and 2004, respectively 794,805 849,705
------------ ------------
$ 17,556,998 $ 15,403,017
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft $ 117,772 $ 421,097
Accounts payable 2,690,957 3,154,507
Current portion of capitalized lease obligations 1,076,013 731,217
Due to Timberman shareholders 3,213,912 660,010
Related party payable 592,844
Accrued payroll, related taxes and benefits 599,389 571,186
------------ ------------
Total Current Liabilities 8,290,887 5,538,017
OTHER LIABILITIES
Capitalized lease obligations 3,512,882 2,797,975
Deferred capital gain 1,396,481
Due to National Australian Bank 4,818,000 5,229,350
------------ ------------
Total Liabilities 18,018,250 13,565,342
STOCKHOLDERS' EQUITY
Preferred stock, par value $0.001, 5,000,000 shares
authorized, none issued and outstanding
Common stock, par value $0.001, 300,000,000 shares
authorized, 257,400,680 issued and outstanding 257,400 257,400
Additional paid-in capital 4,503,417 4,503,417
Accumulated other comprehensive income 333,619 21,796
Accumulated deficit (5,555,688) (2,944,938)
------------ ------------
Total Stockholders' Equity (461,252) 1,837,675
------------ ------------
Total Liabilities and Stockholders' Equity $ 17,556,998 $ 15,403,017
============ ============
See accompanying notes to financial statements.
F-2
AUSTRALIAN FOREST INDUSTRIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended
December 31,
2005 2004
------------- -------------
(Restated)
REVENUE - SALES $ 13,499,799 $ 12,990,558
COSTS AND EXPENSES
Cost of goods sold 15,441,948 11,685,458
Selling, general and administrative 653,091 1,285,332
Stock based compensation 255,000
Interest expense 703,757 374,847
Depreciation and amortization 480,826 315,369
------------- -------------
Total Costs and Expenses 17,279,622 13,916,006
------------- -------------
OPERATING LOSS (3,779,823) (925,448)
NON-OPERATING INCOME
Other income 225,851 443,041
Interest income 164,941 1,328
Gain on disposal of assets 778,281 228,657
------------- -------------
Total Non-Operating Income 1,169,073 673,026
------------- -------------
NET LOSS $ (2,610,750 $ (252,422)
============= =============
Net Loss per share (Basic and Diluted) $ (0.01) $ (0.01)
============= =============
Weighted Average Common Shares Outstanding 257,400,680 257,400,680
============= =============
See accompanying notes to financial statements.
F-3
AUSTRALIAN FOREST INDUSTRIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended
---------------------------
December 31,
2005 2004
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES (Restated)
Net income (loss) $ (2,610,750) $ (252,422)
Adjustments to reconcile net income to cash flows
used in operating activities:
Depreciation 438,947 315,369
Amortization of Timber contract 41,878
Amortization of leaseback gain 224,492 255,000
Changes in operating activities:
(Increase) decrease in prepaid expenses 18,048 (59,895)
(Increase) decreasein inventories 204,699 (952,240)
(Increase) decrease in receivables (11,217) 261,247
(Increase) decrease in related party receivable 273,175 (273,175)
(Increase) in Timber contract (886,648)
Increase (decrease) in accounts payable and other
liabilities (463,550) 1,392,082
Increase (decrease) in bank overdraft (303,325) 421,097
Increase (decrease) in related party payable 592,844
Increase (decrease) in accrued payroll 28,203 31,726
Increase in taxes payable (69,437)
Net Cash (Used in) Provided by
Operating Activities (1,635,993) 252,141
CASH FLOWS FROM INVESTING ACTIVITIES
Capital additions (5,327,925) (5,078,041)
Disposition of capital assets 1,716,416 815,150
------------ ------------
Net Cash Used in Investing Activities (3,611,509) (4,262,891)
CASH FLOWS FROM FINANCING ACTIVITIES
Loans from shareholders 2,553,902 660,010
Capital leases 1,059,703 3,172,256
National Australian bank loan (411,350) 5,229,350
Sale/leaseback deferred credit 1,611,320
Timberman controlling interest (5,307,400)
------------ ------------
Net Cash Provided by (Used In)
Financing Activities 4,813,575 3,754,216
EFFECT OF EXCHANGE RATES ON CASH 335,752 21,796
------------ ------------
(DECREASE) INCREASE IN CASH (98,175) (234,738)
CASH AT BEGINNING OF PERIOD 225,189 459,927
------------ ------------
CASH AT END OF PERIOD $ 127,014 $ 225,189
============ ============
See accompanying notes to financial statements.
F-4
AUSTRALIAN FOREST INDUSTRIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Preferred Stock Common Stock Additional
--------------- -------------------------- Paid-In
shares Amounts Shares Amount Capital
--------------------------------------------------------------------------------------------
Balance, December 31, 2002 5,319,764 $ 9,813,217
Net loss for the year ended
December 31, 2003
Adjustments from exchange
rate changes
------ ------ ----------- -------------- ------------
Balance, December 31, 2003
and prior to Reverse Merger 5,319,764 9,813,217
Reverse Merger (Note 1)
Exchange of Integrated
Forest Products Pty Ltd
shares for Australian
Forest Industries
Shareholders equity of
Australian Forest
Industries at date of
merger 400,680
Reverse Merger capitalization
Issuance of shares at date of
merger
Issuance of shares for
consulting agreement 17,000,000 17,000 238,000
Timbermans Group Pty. Ltd.
investment in Company (5,307,400)
Cumulative losses of Timber-
man's Group Pty. Ltd.
Adjustment from exchange
rate changes
Net loss for the year ended
December 31, 2004
------ ------ ----------- -------------- ------------
Balance, December 31, 2004 257,400,680 257,400 4,503,417
Adjustments from exchange
rate changes
Net loss for the year ended
December 31, 2005
------ ------ ----------- -------------- ------------
Balance, December 31, 2005 257,400,680 $ 257,400 $ 9,810,817
====== ====== =========== ============== ============
Other Total
Accumulated Comprehensive Stockholders'
Deficit Income (loss) Equity
-------------------------------------------------------------------------------
Balance, December 31, 2002 $ (2,034,164) $ 7,779,053
Net loss for the year ended
December 31, 2003 (56,369) (56,369)
Adjustments from exchange
rate changes $ 65,590
------------- -------------- -------------
65,590
Balance, December 31, 2003
and prior to Reverse Merger (2,090,533) 65,590 7,788,274
Reverse Merger (Note 1)
Exchange of Integrated
Forest Products Pty Ltd
shares for Australian
Forest Industries (5,319,764) (9,813,217) $ 9,813,217
Shareholders equity of
Australian Forest
Industries at date of
merger 400 11,257,463 (11,257,863)
Reverse Merger capitalization (11,257,863) 11,257,863
Issuance of shares at date of
merger 240,000,000 240,000 (240,000)
Issuance of shares for
consulting agreement 255,000
Timbermans Group Pty. Ltd.
investment in Company (5,307,400)
Cumulative losses of Timber-
man's Group Pty. Ltd. (601,983) (601,983)
Adjustment from exchange
rate changes (43,794) (43,794)
Net loss for the year ended
December 31, 2004 (252,422) (252,422)
------------- -------------- -------------
Balance, December 31, 2004 (2,944,938) 21,796 1,837,675
Adjustments from exchange
rate changes 311,823 311,823
Net loss for the year ended
December 31, 2005 (2,610,750) (2,610,750)
------------- -------------- -------------
Balance, December 31, 2005 $ (5,555,688) $ 333,619 $ (461,252)
============= ============== =============
See accompanying notes to financial statements.
F-5
AUSTRALIAN FOREST INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Australian Forest Industries ("the Company"), through its wholly owned
subsidiary Integrated Forest Products Pty Ltd ("Integrated"), operates a
saw mill in Australia which cuts pine timber into building products to
supply the commercial and residential industry along the eastern coast
of Australia.
Reverse Merger
On September 1, 2004, Integrated, owned by the Timbermans Group Pty Ltd
("Timbermans"), entered into a share exchange agreement with the Company
and issued 240,000,000 shares of its common stock to acquire Integrated.
In connection with the share exchange agreement, Integrated became a
wholly owned subsidiary of the Company and Integrated's officers and
directors became the officers and directors of the Company. Prior to the
merger, the Company was a non-operating "shell" corporation. Pursuant to
Securities and Exchange Commission rules, the merger of a private
operating company (Integrated) into a non-operating public shell
corporation with nominal net assets is considered a capital transaction.
Accordingly, for accounting purposes, the merger has been treated as an
acquisition of the Company by Integrated and a recapitalization of the
Company. The historical financial statements for the years ended
December 31, 2005 and 2004 are those of Integrated. Since the merger is
a recapitalization and not a business combination, pro forma information
is not presented.
Foreign Currency Translation
For 2005 and 2004, the Company considered the Australian dollar to be
its functional currency. Assets and liabilities were translated into US
dollars at the year-end exchange rates. Statement of operations amounts
were translated using the average rate during the year. Gains and losses
resulting from translating foreign currency financial statements were
accumulated in other comprehensive income, a separate component of
stockholders' equity.
Cash Equivalents
For purposes of reporting cash flows, cash equivalents include
investment instruments purchased with a maturity of three months or
less. There were no cash equivalents in 2005 or 2004.
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 reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Inventories
Inventories are stated at the lower of cost or market value. Cost is
determined using the first-in, first-out (FIFO) method.
F-6
AUSTRALIAN FOREST INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Equipment and Depreciation
Equipment is stated at cost and is depreciated using the straight line
method over the estimated useful lives of the respective assets. Routine
maintenance, repairs and replacement costs are expensed as incurred and
improvements that extend the useful life of the assets are capitalized.
When equipment is sold or otherwise disposed of, the cost and related
accumulated depreciation are eliminated from the accounts and any
resulting gain or loss is recognized in operations.
Net Loss Per Common Share
The Company computes per share amounts in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share".
SFAS No. 128 requires presentation of basic and diluted EPS. Basic EPS
is computed by dividing the income (loss) available to Common
Stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS is based on the weighted-average number of
shares of Common Stock and Common Stock equivalents outstanding during
the periods.
Comprehensive Income (Loss)
SFAS No. 130 establishes standards for the reporting and disclosure of
comprehensive income and its components to be presented in association
with a company's financial statements. Comprehensive income is defined
as the change in a business enterprise's equity during a period arising
from transactions, events or circumstances relating to non-owner
sources, such as foreign currency translation adjustments and unrealized
gains or losses on available-for-sale securities. It includes all
changes in equity during a period except those resulting from
investments by or distributions to owners. Comprehensive income is
accumulated in accumulated other comprehensive income (loss), a separate
component of stockholders' equity.
Stock Based Compensation
The Company accounts for stock issued for services using the fair value
method. In accordance with the Emergency Issues Task Force ("EITF")
96-18 , the measurement date of shares issued for service is the date at
which the counterpart's performance is complete.
Fair Values of Financial Instruments
The Company uses financial instruments in the normal course of business.
The carrying values of cash, accounts receivable, advance receivable,
bank overdraft, accounts payable and accrued expenses approximate their
fair value due to the short-term maturities of these assets and
liabilities. The carrying values of notes payable and loans payable
approximate their fair value based upon management's estimates using the
best available information.
Recent Accounting Pronouncements
In December 2004, the FASB issued Statement of Financial Accounting
Standards No. 153 (SFAS 153), "Exchanges of Non-monetary Assets."
SFAS 153 amends the guidance in APB No. 29,
F-7
AUSTRALIAN FOREST INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting Pronouncements (Continued)
"Accounting for Non-monetary Assets." APB No.29 was based on the
principle that exchanges of non-monetary assets should be measured on
the fair value of the assets exchanged. SFAS 153 amends APB No. 29 to
eliminate the exception for non-monetary exchanges of similar productive
assets and replaces it with a general exception for exchanges of
non-monetary assets that do not have commercial substance if the future
cash flows of the entity are expected to change significantly as a
result of the exchange. SFAS 151 is effective for financial statements
issued for fiscal years beginning after June 15, 2005. The adoption of
SFAS 153 is not expected to have a material effect on the Company's
financial position or results of operations.
In December 2004, the FASB revised Statement of Financial Accounting
Standards No. 123 (SFAS 123(R)), "Accounting for Stock-Based
Compensation." The SFAS 123(R) revision established standards for the
accounting for transactions in which an entity exchanges its equity
instruments for goods or services and focuses primarily on accounting
for transactions in which an entity obtains employee services in
share-based payment transactions. It does not change the accounting
guidance for share-based payment transactions with parties other than
employees. For public entities that file as small business issuers, the
revisions to SFAS 123(R) are effective as of the beginning of the first
interim or annual reporting period that begins after December 15, 2005.
The adoption of SFAS 123(R) is not expected to have a material effect on
the Company's financial position or results of operations.
In May 2005, the FASB issued SFAS no. 154, "Accounting Changes and Error
Corrections ("SFAS No. 154") which replaces APB Opinion No. 20,
"Accounting Changes" and SFAS No. 3, "Reporting Accounting Changes in
Interim Financial Statements-An Amendment of ABP Opinion No. 28. SFAS
No. 154 provides guidance on the accounting for and reporting of
accounting changes and error corrections. Specially, this statement
requires "retrospective application" of the direct effect for a
voluntary change in accounting principle to prior periods' financial
statements, if it is practical to do so. SFAS No. 154 also strictly
defines the term "restatement" to mean the correction of an error
revising previously issued financial statements. SFAS No. 154 is
effective for accounting changes and corrections of errors made in
fiscal years beginning after December 15, 2005 and are required to be
adopted by the Company in the first quarter of fiscal year 2006.
Management does not anticipate that adoption will have a material impact
on our results of operations, financial position or cash flows.
Revenue Recognition
The Company's policy is to recognize revenue at the time products are
shipped from its facilities.
NOTE B - VARIABLE INTEREST ENTITIES
In January 2003, the FASB issued FIN 46 and in December 2003, it issued
a revised interpretation of FIN 46 (FIN 46-R), which supersedes FIN 46
and clarifies and expands current accounting guidance for determining
whether certain entities should be consolidated in the Company's
consolidated financial statements. An entity is subject to FIN 46 and is
called a Variable Interest Entity (VIE) if it has (1) equity that is
insufficient to permit the entity to finance its activities without
additional subordinated financial support from other parties, or (2)
equity investors that cannot make significant decisions about
F-8
AUSTRALIAN FOREST INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
NOTE B - VARIABLE INTEREST ENTITIES (CONTINUED)
the entity's operations, or that do not absorb the expected losses or
receive the expected returns of the entity. A VIE is consolidated by its
primary beneficiary, which is the party that has a majority of the
expected losses or a majority of the expected residual returns of the
VIE, or both.
The Company has concluded that the entity, Timbermans Group Pty. Ltd. is
deemed to be VIE under FIN 46 and accordingly has been consolidated in
the financial statements for 2005 and 2004. Timbermans Group, a holding
company, had total assets of $7,357,379 and $5,307,658, total
liabilities of $8,050,323 and $5,181,152, accumulated earnings
(deficits) of $(693,017) and $126,428 at December 31, 2005 and 2004,
respectively, and income (losses) of $(354,176) and $243,935 for the
years then ended.
NOTE C - INVENTORY
Inventory consists of the following at December 31,
2005 2004
---------- ----------
Raw materials and supplies $ 228,547 $ 53,298
Work in progress 605,692 456,694
Finished goods 944,101 1,473,047
---------- ----------
$1,778,340 $1,938,039
========== ==========
NOTE D - EQUIPMENT
Equipment is comprised of the following at December 31,
Useful Life 2005 2004
------------ -------------- --------------
Land $ 1,133,042 $ 1,166,139
Buildings 40 1,261,795 1,343,034
Plant and equipment 40 11,866,257 9,607,919
Capital works in progress 987,936 395,134
Motor vehicles 5 194,035 155,500
-------------- --------------
15,443,065 12,667,726
Less: accumulated depreciation 2,402,939 2,349,923
------------- -------------
$13,040,126 $10,317,803
NOTE E - RELATED PARTY TRANSACTIONS
Due to Related Party
At December 31, 2005 and 2004, the Company was indebted to the
shareholders of Timbermans for $3,213,912 and $660,010, respectively.
The loans are non interest bearing, they are unsecured and have no
specific repayment date.
Long-Term Log Supply Contract
In November 2004, the Timbermans Group entered into a 20 year long-term
log supply contract with the New South Wales State Government. To obtain
the contract, the Timbermans Group paid $886,648. In February 2005, it
assigned the contract to the Company's wholly owned subsidiary in
Australia - Integrated Forest Products Pty, Ltd. The contract is being
amortized over 20 years.
F-9
AUSTRALIAN FOREST INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
NOTE F - SHORT TERM BORROWING
The Company has an overdraft facility with the National Bank of
Australia in the amount of $780,000 at the Australian base rate plus
1.80% annually. The amount of the overdraft at December 31, 2005 and
2004 was $117,772 and $421,097, respectively.
The Company, in connection with the Long Term Timber Supply Contract,
has placed a bank guarantee in the amount of $780,000 with the New South
Wales Government to insure a steady supply of timber.
All of the credit facilities are secured by a first ranking mortgage
debenture over all the assets and undertakings of Integrated, a first
ranking mortgage over the land and buildings at Morwell, Canberra, a
fixed charge over all the Company's receivables, a term deposit letter
of set-off over Integrated for $1,000,000, a master lease agreement with
Directors Guarantee and Indemnity for $1,666,080, and a $1,560,000
guarantee and indemnity from the Directors of Integrated.
To the extent that the Timbermans Group advances funds to Integrated,
the Timbermans Group loan facility with the National Bank of Australia
has a letter of subordination up to $1,800,000.
NOTE G - CAPITAL LEASE OBLIGATIONS
The Company has obtained various pieces of equipment under capital
leases expiring through 2010. The assets and liabilities under these
capital leases ($5,354,455) with the National Bank of Australia) are
recorded at the lower of the present values of the minimum lease
payments or the fair values of the assets. The assets are included in
property and equipment and are being depreciated over their estimated
useful lives. The capitalized leases are secured by the equipment
purchased.
As of December 31, 2005, minimum future lease payments under these
capital leases are:
For the
Years Ending
December 31, Amount
------------- ----------
2006 $1,376,073
2007 1,376,073
2008 1,376,073
2009 962,772
2010 263,463
==========
Total minimum lease payments $5,354,455
December 31,
2005 2004
---------- ----------
Total minimum lease payments $5,354,455 $4,136,976
Less: amounts representing interest 765,560 607,784
---------- ----------
Net minimum lease payments 4,588,895 3,529,192
Less: current portion 1,076,013 731,217
---------- ----------
Long-term portion $3,512,882 $2,797,975
========== ==========
F-10
AUSTRALIAN FOREST INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
NOTE H - DUE TO AUSTRALIAN NATIONAL BANK
The Timbermans Group has a loan with the National Bank of Austraila in
the amount of $4,818,000 at December 31, 2005. The loan is secured by
the assets of the Company and personal guarantees of the Company's
Directors. The loan bears interest at the rate of 5.9% and is due July
7, 2008.
NOTE I - INCOME TAXES
The Company has adopted Financial Accounting Statement SFAS No. 109,
Accounting for Income Taxes. Under this method, the Company recognizes a
deferred tax liability or asset for temporary differences between the
tax basis of an asset or liability and the related amount reported on
the financial statements. The principal types of differences, which are
measured at current tax rates, are net operating loss carry forwards. At
December 31, 2004, these differences resulted in a deferred tax asset of
approximately $887,700. SFAS No. 109 requires the establishment of a
valuation allowance to reflect the likelihood of realization of deferred
tax assets. Since realization is not assured, the Company has
recorded a valuation allowance for the entire deferred tax asset, and
the accompanying financial statements do not reflect any net asset for
deferred taxes at December 31, 2005.
The Company's net operating loss carry forwards amounted to
approximately $2,958,000 at December 31, 2004, which have unlimited
expiration.
NOTE J - STOCKHOLDERS' EQUITY
In connection with the Reverse Merger on September 1, 2005, the company
issued 17,000,000 shares to a consultant. The shares were valued at
$0.015 per share which was the average trading price for the third
quarter.
NOTE K - SALE - LEASEBACK TRANSACTION
Under the terms of the sale-leaseback arrangement, a gain of $1,611,320
was realized on the transaction and has been deferred and will be
amortized to income over a five year period. $214,839 has been included
in other income for the period ended December 31, 2005.
The amortization of the gain for the next five years is as follows.
Gain
Year Amortization
---- ------------
2006 $ 322,264
2007 322,264
2008 322,264
2009 322,264
2010 107,425
-----------
$ 1,396,481
NOTE L - RESTATEMENT
The financial statements for the year ended December 31, 2004 have been
restated to include the financial statements of the Timbermans Group which
the Company has considered a VIE.
F-11
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Through the September 30, 2004 reporting period, our accountants were Michael
Johnson & Co., LLC. In January 2005, we changed accountants to Meyler & Company
LLC, independent certified public accountants. At no time has there been any
disagreement with such accountants regarding any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure.
ITEM 8A. DISCLOSURE CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures.
As of the end of the period covering this Form 10-KSB, we evaluated the
effectiveness of the design and operation of our "disclosure controls and
procedures". The Company's President conducted this evaluation by himself.
(i) Definition of Disclosure Controls and Procedures.
Disclosure controls and procedures are controls and other procedures that are
designed with the objective of ensuring that information required to be
disclosed in our periodic reports filed under the Exchange Act, such as this
report, is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms. As defined by the SEC, such disclosure
controls and procedures are also designed with the objective of ensuring that
such information is accumulated and communicated to our management, including
the President and Chief Financial Officer, in such a manner as to allow timely
disclosure decisions.
(ii) Limitations on the Effectiveness of Disclosure Controls and Procedures and
Internal Controls.
The Company recognizes that a system of disclosure controls and procedures (as
well as a system of internal controls), no matter how well conceived and
operated, cannot provide absolute assurance that the objectives of the system
are met. Further, the design of such a system must reflect the fact that there
are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control issues have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. Additionally, controls can be
circumvented in a number of ways. Because of the inherent limitations in a
cost-effective control system, system failures may occur and not be detected.
However, our officers and directors believe that our system of disclosure
controls and procedures provides reasonable assurance of achieving their
objectives.
(iii) Conclusions with Respect to Our Evaluation of Disclosure Controls and
Procedures.
Our officers and directors have concluded, based on the evaluation of these
controls and procedures, that our disclosure controls and procedures are
effective in timely alerting them to material information relating to the
Company required to be included in our periodic SEC filings.
(b) Changes in Internal Controls.
There have been no changes in our internal controls over financial reporting
during the last fiscal quarter of 2005 that has materially affected or is
reasonably likely to affect the Company's internal control over financial
reporting.
ITEM 8B. OTHER INFORMATION
Not applicable.
9
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
OFFICERS AND DIRECTORS
We have 5 executive officers who also serve as our board of directors. Our
directors are elected at each annual meeting of shareholders. The following
individuals are all of our executive officers and directors:
Positions and Offices
Name Age With The Company
---- --- --------------------------------
Michael Timms 55 Chief Executive Officer;
President; Chairman of the Board
Norman Backman 57 Chief Operating Officer;
Director
Colin Baird 47 Chief Financial Officer;
Director
Tony Esplin 43 Executive Vice President -
Marketing; Director
Roger Timms 50 Executive Vice President -
Engineering; Director
The following is a biographical summary of the directors and officers of the
Company:
Michael Timms
Mr. Michael Bruce Timms was born at 30 May 1950 in Bega, New South Wales,
Australia. He has spent over thirty years in the sawmilling industry. He has
been involved with design and construction of over seven greenfield sawmill
facilities and scores of equipment upgrades across Australia and Canada in both
the Hardwood and Softwood sectors, through his engineering business, Acora
Reneco Group Pty Ltd. Among other responsibilities he works as Chief Executive
Officer and President of the Company and is Chairman of the Board.
Norman Backman
Mr. Norman William Backman was born at 20 September 1948 in Melbourne,
Australia. He has over thirty years of experience in the sawmilling industry. He
has worked for a long period with Amcor and Brown & Dureau as Mill Manager at
the Morwell facility. At Integrated Forest Industries Pty Ltd he will work as
Director of Operations. Mr. Backman has access to a team of industry experienced
individuals possessing relevant and highly refined sawmill information
technology systems technology and cost accounting experience.
Colin Baird
Mr. Colin Baird was born at 22 June 1958 in Melbourne, Australia. He is a
qualified accountant who has operated his own practice, Colib Pty Ltd since
1987. He has been involved in the timber industry through his association with
some of his clients since 1983. At present his practice has in excess of 500
clients. Mr. Baird is Director of Finance of the Company.
Tony Esplin
Mr. Tony Esplin was born at 23 August 1962 in Melbourne, Australia. He has had
twelve years of experience in the sawmill industry covering fabrication of
sawmill equipment, project management of new sawmills through his own business,
Acora Reneco Group Pty Ltd. Over the last four years he has been involved in the
on site management of Integrated Forest Products, covering all aspects of
sawmill administration, including log procurement and product marketing. He
works as Director of Marketing & Log Procurement for the Company.
10
Roger Timms
Mr. Roger Kenneth Timms was born 24 April 1956 in Bega, New South Wales,
Australia. He has spent over twenty-five years in the sawmilling industry. He is
currently involved in the design, supply and installation of sawmill equipment
in Australia and part owns a company, Acora Reneco Group Pty Ltd, which performs
these functions. He is the Company's Director of Engineering.
Director Positions in Other Public Companies
No director holds any directorship in a company with a class of securities
registered pursuant to Section 12 of the Securities Exchange Act of 1934 or
subject to the requirements of Section 15(d) of such Act. No director holds any
directorship in a company registered as an investment company under the
Investment Company Act of 1940. However, with the exception of Norman Backman,
the remaining directors have other business interest and work for the Company on
a part-time basis at the present time.
Code of Conduct
The Company does not have an Audit or Strategy committee. Neither does the
Company have a standing nominating committee or any committee performing a
similar function. For the above reasons, the Company has not adopted a code of
ethics.
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires executive officers
and directors who beneficially own more than ten percent (10%) of the Company's
Common Stock to file initial reports of ownership and reports of changes of
ownership with the Securities and Exchange Commission. Executive officers,
directors and greater than ten percent (10%) beneficial owners are required by
Commission regulations to furnish the Company with copies of all Section 16(a)
forms they file.
The information required to be compliant with Section 16(a) is found herein.
However, at the present time the required individuals have not filed the
appropriate Section 16(a) forms although it has been represented to the Company
that such are being prepared and will be filed shortly after the filing of this
annual report.
11
ITEM 10. EXECUTIVE COMPENSATION
The table below sets forth all annual and long-term compensation paid by the
Company through the latest practicable date to the Chief Executive Officer of
the Company and to all executive officers of the Company who received total
annual salary and bonus in excess of $100,000 for services rendered in all
capacities to the Company and its subsidiaries during the fiscal years ended
December 31, 2004 and 2005.
The following table sets forth information concerning all remuneration paid by
the Company as of December 31, 2005 to the Company's Directors and Executive
Officers:
Summary Compensation Table
Long-Term Compensation Awards
--------------------------------------------
Securities
Underlying
Options (#) All Other
Name and Principal Position Year Salary Bonus /SARS Compensation
--------------------------- ---- --------- ----- ---------- ------------
Michael Timms -
Chairman of the Board; CEO
and President 2005 $ 75,000
2004 56,000
Coin Baird - Chief
Financial Officer and
Director 2005 60,000
2004 28,000
Tony Esplin - Executive
Vice President -
Marketing; Director 2005 75,000
2004 56,000
Norman Backman - Chief
Operating Officer;
Director 2005 140,000
2004 140,000
Roger Timms - Executive
Vice President -
Marketing; Director 2005 20,000
2004 20,000
12
Directors' Compensation
Other than minimal expenses incurred for traveling to Canberra which were
reimbursed by the Company, during the fiscal year ended December 31, 2005 our
Directors did not received a fee for serving in that capacity.
Employment Contracts
There are no employment agreements with the executive officers at this time.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
The following table sets forth information regarding the beneficial ownership of
the shares of the Common Stock (the only class of shares previously issued by
the Company) at May 15, 2006 by (i) each person known by the Company to be the
beneficial owner of more than five percent (5%) of the Company's outstanding
shares of Common Stock, (ii) each director of the Company, (iii) the executive
officers of the Company, and (iv) by all directors and executive officers of the
Company as a group. Other than the Timbermans Group Pty Ltd, each person named
in the table, has sole voting and investment power with respect to all shares
shown as beneficially owned by such person and can be contacted at the address
of the Company.
Title of Class Name of Beneficial Shares of Common Percent of
Owner Stock Class
Common Timbermans Group Pty 140,000,000 54.47%
Ltd(1)
Common Jeffrey Reade 17,000,000 6.61%
Common Norman Backman(2) 20,000,000 7.78%
Common Colin Baird(3) 20,000,000 7.78%
Common Tony Esplin(4) 20,000,000 7.78%
Common Michael Timms(5) 20,000,000 7.78%
Common Roger Timms(6) 20,000,000 7.78%
Directors and
Officers as a 240,000,000 93.39%
group
(1)Timbermans Group Pty Ltd is an Australian corporation with 5 shareholders who
are the same individuals as our officers and directors. For the purposes of
aggregating the securities ownership of officers and directors, we have included
those shares held by Timbermans Group.
(2)Mr. Backman maintains his shares in his and his wife's name
(3)Mr. Baird maintains his shares in his and his wife's name
(4)Mr. Esplin maintains his shares in his and his wife's name
(5)Mr. Michael Timms maintains his shares in his and his wife's name
(6)Mr. Roger Timms maintains his shares in his and his wife's name
13
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS
Timbermans Group Pty Ltd owns the majority of the shares of common stock of the
Company and its shareholders are the same individuals as our officers and
directors. Three of the directors of our Company also own 100% of Acora Reneco
Group which is the largest Australian manufacturer and designer of original
sawmilling equipment as well as an agent for sales and distribution for
sawmilling equipment manufactured by other companies. The Company presently has
an agreement in place pursuant to which Acora supplies the Company's sawmill
equipment needs. All transactions between Acora and the Company are at arms
length terms.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit Number Exhibit Description
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certification of the Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K.
None.
14
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
For the Company's fiscal year ended December 31, 2005, the cost for professional
services rendered for the audit of our financial statements and the review of
the Form 10-KSB aggregated $15,000.
All Other Fees
The Company did not incur any other fees related to services rendered by our
principal accountant for the fiscal year ended December 31, 2005.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
AUSTRALIAN FOREST INDUSTRIES
/s/ Michael Timms
-------------------------------------------------------
Name: Michael Timms
Title: Chief Executive Officer, President and Chairman
Date: May 15, 2006
/s/ Colin Baird
-------------------------------------------------------
Name: Colin Baird
Title: Chief Financial Officer and Director
Date: May 15, 2006
/s/ Roger Timms
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Name: Roger Timms
Title: Executive Vice President and Director
Date: May 15, 2006
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