FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
( X ) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 2001
OR
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _______________ to _________________
Commission file number
333-56424
The Forest Bank, LLC
(Exact name of registrant as specified in its charter)
Delaware 16-1598585
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
339 East Avenue, Suite 300
Rochester, NY 14604 716 232 3530
(Address of principal executive offices) (Registrant's telephone number,
including area code)
N/A
(Former name)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 [ ] No [ X ]
As of August 10, 2001, there were no class A units of The Forest Bank,
LLC outstanding.
The Forest Bank, LLC
Form 10-Q
For the quarterly period ended June 30, 2001
INDEX
Page
----
Part I Financial Information
Item 1. Financial Statements.............................................................................2
Balance Sheets.................................................................................2
Statement of Operations........................................................................3
Statement of Cash Flows........................................................................4
Notes to Financial Statements..................................................................5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............9
Item 3. Qualitative and Quantitative Disclosure about Market Risks......................................10
Part II Other Information
Item 1. Legal Proceedings...............................................................................10
Item 2. Changes in Securities...........................................................................10
Item 3. Defaults upon Senior Securities.................................................................10
Item 4. Submission of Matters to a Vote of Security Holders.............................................10
Item 5. Other Information...............................................................................10
Item 6. Exhibits and Reports on Form 8-K................................................................10
Signatures..............................................................................................11
1
THE FOREST BANK, LLC
(A Development Stage Company)
BALANCE SHEET
JUNE 30, 2001
ASSETS
CURRENT ASSETS
Cash $ 96,336
Cash restricted for payment to certain land owners 52,640
Certificate of deposit 346,014
----------
TOTAL CURRENT ASSETS 494,990
OTHER ASSETS
Deferred offering costs 184,172
Deposits - timber rights 400
----------
184,572
----------
$ 679,562
==========
LIABILITIES AND MEMBER'S EQUITY
CURRENT LIABILITIES
Accrued legal fees $ 53,411
Due to The Nature Conservancy 117,586
----------
TOTAL CURRENT LIABILITIES 170,997
MEMBER'S EQUITY
Class M membership units 1,250,400
Less management services receivable (750,000)
----------
500,400
Earnings accumulated in the development stage 8,165
----------
508,565
----------
$ 679,562
==========
See accompanying notes.
2
THE FOREST BANK, LLC
(A Development Stage Company)
STATEMENTS OF OPERATIONS
January 17, 2001
(Inception) Three months
to June 30, ended June 30,
2001 2001
----------------- -----------------
Other income (expense):
Interest income $ 8,229 $ 4,038
Bank charges (64) (64)
---------- -----------
NET INCOME $ 8,165 $ 3,974
========== ===========
Net income per membership unit $ 0.01 $ -
========== ===========
Weighted average - Class M member units 1,500,000 1,500,000
========= ===========
See accompanying notes.
3
THE FOREST BANK, LLC
(A Development Stage Company)
STATEMENT OF CASH FLOWS
FOR THE PERIOD JANUARY 17, 2001 (INCEPTION) TO JUNE 30, 2001
CASH FLOWS - OPERATING ACTIVITIES
Net income for the period $ 8,165
Adjustments to reconcile net income to net cash used
for operating activities:
Changes in certain assets and liabilities affecting operations:
Cash restricted for payment to certain landowners (52,640)
--------
NET CASH USED FOR
OPERATING ACTIVITIES (44,475)
CASH FLOWS - INVESTING ACTIVITIES
Purchase of certificate of deposit (346,014)
---------
NET CASH USED FOR
INVESTING ACTIVITIES (346,014)
CASH FLOWS - FINANCING ACTIVITIES
Deferred offering costs incurred and paid (130,761)
Deposits - timber rights (400)
Issuance of membership units 500,400
Amount due to the Nature Conservancy 117,586
--------
NET CASH PROVIDED FROM
FINANCING ACTIVITIES 486,825
--------
NET INCREASE IN CASH 96,336
Cash at beginning of period
-
CASH AT END OF PERIOD $ 96,336
========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Non-cash activity, deferred
offering costs incurred
and payable $ 53,411
========
See accompanying notes.
4
NOTE A: THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
The Forest Bank, LLC (the "Company") was organized as a limited
liability company (in the State of Delaware) on January 17, 2001. The
mission of the Company is to work in partnership with private
landowners to promote the economic productivity of working forests
while protecting the ecological health and natural diversity of the
landscapes in which they occur.
The Company filed a Form S-1 Registration Statement with the Securities
and Exchange Commission (which became effective on June 27, 2001), in
order to offer membership interests in the Company to private
landowners in exchange for their timber rights.
Since January 17, 2001 (date of inception), the Company's efforts have
been devoted to raising capital. Further, as of August 7, 2001, the
Company has not commenced its operating activities. Accordingly,
through the report date of these financial statements, the Company is
considered to be in the development stage and the accompanying
financial statements are those of a development stage enterprise. Upon
the successful completion of its public offering, the Company expects
to commence its operations, which will consist primarily of the
harvesting and managing of standing timber.
CASH AND CERTIFICATE OF DEPOSIT
The Company maintains its cash balances and a certificate of deposit (which
had an original maturity of six months) at a financial institution located
in Washington, DC. Accounts at this institution are insured by the Federal
Deposit Insurance Corporation up to $100,000. Uninsured balances aggregate
approximately $395,000 at June 30, 2001.
DEFERRED OFFERING COSTS
Deferred offering costs represent legal, accounting and other filing fees
incurred in connection with a public offering of membership interests in
the Company. These costs will be charged against capital contributions
received in connection with the above-cited public offering. In the event
the offering is unsuccessful, these costs will be charged against the
operations of the Company.
Income taxes
For tax purposes, the Company will be treated as a partnership.
Accordingly, net income (loss) of the Company will be allocated to the
individual members and included in the determination of their taxable
income.
5
ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
NET INCOME PER MEMBERSHIP UNIT
Basic net income per membership unit is determined by dividing net income
by the weighted average number of membership units outstanding.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The unaudited interim financial statements presented herein have been
prepared by The Forest Bank, LLC in accordance with the accounting policies
described above. In the opinion of management, all adjustments which are
necessary for a fair statement of development stage activities for the
interim period presented have been made.
Since this is the Company's initial year of operations, the only
balance sheet required to be included in this filing is the balance
sheet as of June 30, 2001. An audited balance sheet as of June 15, 2001
was included in the Form S-1 Registration Statement cited in Note A.
NOTE B: LEGAL FEES
The Company has incurred legal fees of $170,997 through June 30, 2001,
for services rendered by the Company's attorney in preparing the Form
S-1 Registration Statement cited in Note A. This registration statement
will be used to offer Class A-1, Class A-2 and Class A-3 membership
units in the Company. These legal fees have been included in the asset
"deferred offering costs" (see Notes A and C) on the accompanying
balance sheet. At June 30, 2001, $53,411 of the above-cited legal fees
remained unpaid.
NOTE C: DUE TO THE NATURE CONSERVANCY
In May 2001, The Nature Conservancy paid legal fees of $117,586 on
behalf of the Company. These costs are referred to in Note B above. The
Company repaid the above-cited amount to The Nature Conservancy on July
6, 2001.
6
NOTE D: MEMBER'S EQUITY
On January 30, 2001, The Nature Conservancy (the "Managing Member")
invested $500,000 and committed to provide management services (for a
period of five years, commencing on the effective date of the S-1
Registration Statement cited in Note A) to the Company, valued by the
parties at $750,000, in exchange for 1,500,000 Class M membership
units. The value ascribed to these management services has been
reflected in the accompanying balance sheet as member's equity with a
corresponding reduction in equity of $750,000 for management services
to be received. As the Managing Member provides the management
services, the Company will record a charge to its operations with a
corresponding reduction of the management services receivable. The
Managing Member is a non-profit conservation organization located in
the United States.
Prior to the formation of the Company, The Nature Conservancy made
payments of $400 to certain landowners in connection with the
agreements described in Note E. An asset for these payments (Deposits -
timber rights) has been recorded on the accompanying balance sheet with
a corresponding addition to the Class M membership units of the
Managing Member.
Given the occurrence of certain events, the Managing Member may also be
obligated to provide up to $250,000 of additional cash to the Company,
under the terms of the Class M membership units cited above. This
contribution, when and if received, will be recorded as additional
member's equity.
NOTE E: LETTERS OF INTENT - TIMBER RIGHTS
The Company has signed letters of intent (the agreements) with certain
landowners that prevent each landowner from taking any action that
might harm timber located on their property for the period covered by
each agreement. Each landowner received a deposit of $100 to secure the
agreements (see Note D). In addition, if a landowner eventually
contributes their timber rights to the Company, the Company will be
obligated to pay such landowner an amount equal to 4% per annum
(calculated from the date of signing the letter of intent through the
date of the actual deposit of the timber rights into The Forest Bank,
LLC) of the appraised value of their timber rights on the date of the
contribution. The current value of the timber rights covered by these
agreements is approximately $678,000.
7
The agreements each cover a period of one year and are scheduled to
expire at various dates from August 8, 2001 through July 15, 2002. The
Company and each landowner, by mutual consent, shall have the option to
renew their agreement for an additional one-year period under the same
terms and conditions contained within the original agreement. However,
the landowners are under no obligation to contribute their timber
rights to the Company and may rescind the above-cited agreement at any
time.
Should any or all of the above-cited landowners contribute their timber
rights to the Company, they will do so in exchange for Class A
membership units. However, in the event such landowners have
contributed their timber rights into The Forest Bank, LLC, each
landowner may have the right, arising under the federal securities
laws, for a period of one year from the date of the contribution, to
rescind their contribution. Should a landowner be entitled to rescind
their contribution, their timber rights will be returned and they will
surrender their membership interest to the Company. Due to the nature
of this rescission clause, no amounts will be recorded as equity at the
time these landowners contribute their timber rights to the Company.
Instead, such amounts would be recorded as "Membership Units Subject to
Rescission," and would appear on the balance sheet after debt but
before members' equity. Such amounts will only be recorded as equity
after the one-year rescission period described above has expired.
NOTE F: RESTRICTED CASH
In connection with the letters of intent described in Note E, the
Company has cash of $52,640 which is restricted for payment to the
landowners cited in Note E. This is currently the maximum amount which
will be paid to the landowners in the event that such landowners
deposit their timber rights into The Forest Bank, LLC.
8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
This information contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Although we believe that the expectations reflected in
such forward-looking statements are based upon reasonable assumptions, our
actual results could differ materially from those set forth in the
forward-looking statements. Certain factors that might cause such a difference
include the following: changes in general economic conditions, changes in local
real estate conditions, and our ability to acquire timber rights in exchange for
its membership interests.
We are not a bank and are not insured by the Federal Deposit Insurance
Corporation or any other similar entity.
The Forest Bank, LLC, was formed as a Delaware limited liability
company in January 2001. We are currently offering three different types of
class A membership units in exchange for contributions of rights to manage and
cut standing timber. This offering is being conducted pursuant to our
registration statement on Form S-1, which was declared effective by the U.S.
Securities and Exchange Commission on June 27, 2001. To date, we have not issued
any class A membership units, acquired any timber rights or entered into any
binding contracts to acquire any timber rights.
In our offering of class A membership interests in exchange for timber
rights, we will issue to each contributor a whole number of units of class A
membership interests in our company equal to the appraised dollar value of the
timber rights contributed. Each type of class A units will have differing rights
with respect to dividends and redemption. All of the proceeds from this offering
will be rights to manage and cut standing timber.
At June 30, 2001 our total assets were $679,562.
Gross revenues of $4,038 for the three months ended June 30, 2001,
represented interest income earned on a certificate of deposit held by the
Company. We incurred bank charges of $64 for the three months ended June 30,
2001. Because our company was formed on January 17, 2001, there is no
comparative financial data available for the prior fiscal year.
No cash distributions have been made to any members.
As of June 30, 2001, we had not entered into any arrangements creating
a reasonable probability that a property would be acquired by us.
Management expects that the current assets of the Company (composed of
cash, restricted cash, and a certificate of deposit) will be adequate to pay
operating expenses and to make anticipated distributions to our shareholders.
9
Results of Operations
The Company has not yet commenced its operating activities and is
therefore considered a development stage company.
Item 3. Qualitative and Quantitative Disclosure about Market Risks.
None.
Part II
Other Information
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) Exhibits - None.
(b) Current Report on Form 8-K - None.
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATE: August 10, 2001. The Forest Bank, LLC
(Registrant)
By: /s/ Kent W. Gilges
---------------------------------------
Kent W. Gilges
President and
Chief Executive Officer
By: /s/ Ganesan Balanchander
---------------------------------------
Ganesan Balachander
Chief Financial Officer