10-Q 1 forestbank10q_sept2001.txt THE FOREST BANK LLC 10Q - SEPTEMBER 30, 2001 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 September 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 incorporation or organization) Identification No.) 339 East Avenue, Suite 300 716 232 3530 Rochester, NY 14604 (Registrant's telephone (Address of principal executive offices) 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 [ X ] No [ ] As of November 7, 2001, there were no class A units of The Forest Bank, LLC outstanding.

Part I Financial Information Item 1. Financial Statements

See accompanying notes. 2

See accompanying notes. 3

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 November 7, 2001, the Company has not commenced its operating activities. Accordingly, 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 $197,000 at September 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 LOSS PER MEMBERSHIP UNIT Basic net loss per membership unit is determined by dividing net loss 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 September 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: DUE TO THE NATURE CONSERVANCY In July 2001, The Nature Conservancy paid registration fees of $100 on behalf of the Company. The Company repaid the above-cited amount to The Nature Conservancy on November 5, 2001. NOTE C: 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 was originally recorded in the 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 6 management services receivable. The company began receiving management services from the Managing Member on July 1, 2001. Accordingly, the company recorded management services expense and a corresponding reduction in management services receivable in the amount of $37,500 for the quarter ended September 30,2001. The Managing Member is a non-profit conservation organization located in the United States. 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 D: LETTERS OF INTENT - TIMBER RIGHTS The Company has one signed letter of intent (the agreement) with a landowner that prevents the landowner from taking any action that might harm timber located on his property for the period covered by the agreement. The landowner received an initial payment of $100 prior to the formation of the company and an additional payment of $100 in July 2001 when the agreement was renewed. In addition, if the landowner eventually contributes his timber rights to the Company, the Company will be obligated to pay the 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 his timber rights on the date of the contribution. The current value of the timber rights covered by these agreements is approximately $47,705. The agreement for the existing letter of intent was renewed for one year in July 2001. However, the landowner is under no obligation to contribute their timber rights to the company and may rescind the above cited agreement at any time. The additional payment of $100 for this renewal was paid by The Nature Conservancy. The Company repaid The Nature Conservancy on November 5, 2001. Should the above-cited landowner contribute his timber rights to the Company, he will do so in exchange for Class A membership units. However, in the event the landowner contributed his timber rights into The Forest Bank, LLC, the 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 his contribution. Should the landowner be entitled to rescind his contribution, his timber rights will be returned and he will surrender his membership interest to the Company. Due to the nature of this rescission clause, no amounts will be recorded as equity at the time this landowner contributes 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. 7 NOTE E: RESTRICTED CASH In connection with the letter of intent described in Note D, the Company has cash of $3,816 which is restricted for payment to the landowner cited in Note D. This is currently the maximum amount which will be paid to the landowner in the event that such landowner deposits 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 September 30, 2001 our total assets were $509,241. Gross revenues of $1,580 for the three months ended September 30, 2001, represented interest income earned on a certificate of deposit held by the Company. 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 September 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: November 13, 2001. The Forest Bank, LLC (Registrant) By: /s/ Kent W. Gilges ------------------------------------- Kent W. Gilges President and Chief Executive Officer By: /s/ Craig Neyman ------------------------------------- Craig Neyman Chief Financial Officer 11

FOREST BANK LLC 10-Q