UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D. C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly
period ended June 30, 2006
Commission file number 0-25909
Australian Forest Industries
(Exact name of small business issuer as specified in its charter)
Nevada 86-0931332
(State or other jurisdiction of (I.R.S. Employer
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
Check whether the issuer (1) has 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_______
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
The number of shares of the issuer's outstanding common stock, which is the only
class of its common equity, on August 15, 2006 was 257,400,680.
ITEM 1 FINANCIAL STATEMENTS
Description Page
No.
FINANCIAL INFORMATION:
Financial Statements
Consolidated Balance Sheets at June 30, 2006 (Unaudited).................. 1
Consolidated Statement of Operations
(Unaudited)............................................................... 2
Consolidated Statements of Cash Flows (Unaudited) ........................ 3
Notes to Consolidated Financial Statements (Unaudited).................... 4
Item 1. Condensed Financial Statements
AUSTRALIAN FOREST INDUSTRIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
2006 2005
------------ ------------
(Unaudited)
CURRENT LIABILITIES
Bank overdraft $ 1,617,446 $ 117,772
Accounts payable 3,782,209 2,690,957
Current portion of capitalized lease obligations 1,076,013 1,076,013
Due to Timberman shareholders 5,702,293 3,213,912
Related party payable 592,925 592,844
Accrued payroll, related taxes and benefits 643,171 599,389
------------ ------------
Total Current Liabilities 13,414,057 8,290,887
OTHER LIABILITIES
Capitalized lease obligations 4,293,539 3,512,882
Deferred capital gain 1,235,554 1,396,481
Due to National Australian Bank 4,818,660 4,818,000
------------ ------------
Total Liabilities 23,761,810 18,018,250
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 256,165 333,619
Accumulated deficit (6,766,385) (5,555,688)
------------ ------------
Total Stockholders' Equity (1,749,403) (461,252)
------------ ------------
Total Liabilities and Stockholders' Equity $ 22,012,407 $ 17,556,998
============ ============
See accompanying notes to financial statements.
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AUSTRALIAN FOREST INDUSTRIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended For the Six Months Ended
------------------------------ ------------------------------
June 30, June 30,
2006 2005 2006 2005
------------- ------------- ------------- -------------
(Restated) (Restated)
REVENUE - SALES $ 3,892,949 $ 3,439,748 $ 7,342,061 $ 6,746,314
COSTS AND EXPENSES
Cost of goods sold 2,315,311 822,929 4,110,147 3,859,151
Selling, general and administrative 1,970,657 3,208,714 4,030,781 3,941,458
Provision for Doubtful Accounts 631 132,495
Interest expense 191,986 154,472 393,084 279,733
Depreciation and amortization 147,119 173,495 287,125 372,254
------------- ------------- ------------- -------------
Total Costs and Expenses 4,625,704 4,359,610 8,953,632 8,452,596
------------- ------------- ------------- -------------
OPERATING LOSS (732,755) (919,862) (1,611,571) (1,706,282)
NON-OPERATING INCOME
Other income 40,788 (1,371) 133,288 2,533
Interest income 82,406 164,031
Gain on disposal of assets 493 1,164,303 103,555 1,164,303
------------- ------------- ------------- -------------
Total Non-Operating Income 123,687 1,162,932 400,874 1,166,836
NET INCOME (LOSS) $ (609,068) $ 243,070 $ (1,210,697) $ (539,446)
============= ============= ============= =============
NET LOSS PER SHARE $ 0.01 $ 0.01 $ (0.01) $ 0.01
============= ============= ============= =============
See accompanying notes to financial statements.
2
AUSTRALIAN FOREST INDUSTRIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six Months Ended
June 30,
------------------------
2006 2005
---------- ----------
(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(1,210,697) $ (539,446)
Adjustments to reconcile net income to cash flows used
in operating activities:
Depreciation 170,362 372,254
Amortization of Timber contract 3,133
Amortization of leaseback gain (161,148)
Changes in operating activities:
(Increase) decrease in prepaid expenses (26,347) 110,021
(Increase) decrease in inventories (537,597) (197,888)
(Increase) decrease in receivables (1,260,223) (574,235)
(Increase) decrease in related party receivable (273,175)
(Increase) decrease in timber contract 84,998 13,249
Increase (decrease) in accounts payable and other liabilities 1,091,252 1,082,439
Increase (decrease) in bank overdraft 1,499,674 (421,097)
Increase (decrease) in related party payable 81 (7,956)
Increase (decrease) in accrued payroll 43,782 (27,294)
Increase (decrease) in taxes payable 69,437
---------- ----------
Net Cash (Used in) Provided by Operating Activities (233,292) (463,128)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital additions (3,232,510) (906,737)
Disposition of capital assets 237,250
---------- ----------
Net Cash Used in Investing Activities (2,995,260) (906,737)
CASH FLOWS FROM FINANCING ACTIVITIES
Loans from shareholders 2,488,382 (7,956)
Capital leases 780,656 1,633,588
National Australian bank loan 660 (160,957)
Sale leaseback deferred credit 221
---------- ----------
Net Cash Provided by (Used In) Financing Activities 3,269,919 1,464,676
EFFECT OF EXCHANGE RATES ON CASH (168,381) (181,625)
---------- ----------
(DECREASE) INCREASE IN CASH (127,014) (86,814)
CASH AT BEGINNING OF PERIOD 127,014 225,189
---------- ----------
CASH AT END OF PERIOD $ $ 138,375
========== ==========
See accompanying notes to financial statements.
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AUSTRALIAN FOREST INDUSTRIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary in order to make the financial statements not
misleading have been included. Results for the six months ended June 30,
2006 are not necessarily indicative of the results that may be expected
for the year ending December 31, 2006. For further information, refer to
the financial statements and footnotes thereto included in Australian
Forest Industries' annual report on Form 10-KSB for the year ended
December 31, 2005.
NOTE 2 - LOAN TO TIMBERMANS GROUP (RELATED PARTY)
During the six months ended June 30, 2006, the company received an
additional $2,488,382 from Timberman investors.
NOTE 3 - CAPITALIZED LEASE OBLIGATIONS
During the six months ended June 30, 2006, the Company purchased
$3,900,000 in new equipment of which $1,981,000 was financed under
capitalized leases over a five year period.
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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 six-months ended June 30, 2006 aggregated
$8,953,632. 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 $1,611,571 and a total net loss of
$1,210,697 or $(0.01) per share.
Operating costs for the three-month period ended June 30, 2006 aggregated
$4,625,704. This includes an increase in costs of goods sold of $520,475
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 $609,068 for the
three-month period ended June 30, 2006 or $(0.01) per share.
LIQUIDITY AND CAPITAL RESOURCES
On June 30, 2005 and 2006 we had current assets of $5,349,783 and
$3,722,067, respectively.
5
Net cash used in operating activities for the period from inception to
June 30, 2005 was $463,128. Net cash used in operating activities for the
period from inception to June 30, 2006 was $233,292.
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.
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.
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PART II
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibit Index
Exhibit 31.1 Certification of Chief Executive Officer
Exhibit 31.2 Certification of Chief Financial Officer
Exhibit 32.1 Certification of Chief Executive Officer
Exhibit 32.1 Certification of Chief Financial Officer
b. Reports on Form 8-K
None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant 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: CEO, President and Chairman of the Board
Date: August 15, 2006
/s/ Colin Baird
--------------------------------
Name: Colin Baird
Title: Chief Financial Officer
Date: August 15, 2006
7