-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QxYFyMn39sk28Jt2xS1Mncu9LdEhWHhSuSn/zxuKEST/MRJ5B4hGR7GeMRgLFvou nFv043f5xc0N/JNqgTaXng== 0000912057-00-004483.txt : 20000209 0000912057-00-004483.hdr.sgml : 20000209 ACCESSION NUMBER: 0000912057-00-004483 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000208 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FORWARD INDUSTRIES INC CENTRAL INDEX KEY: 0000038264 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 131950672 STATE OF INCORPORATION: NY FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-06669 FILM NUMBER: 527110 BUSINESS ADDRESS: STREET 1: 400 POST AVENUE CITY: WESTBURY STATE: NY ZIP: 11590 BUSINESS PHONE: 5163380700 MAIL ADDRESS: STREET 1: 400 POST AVENUE CITY: WESTBURY STATE: NY ZIP: 11590 10QSB 1 10QSB - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended DECEMBER 31, 1999. Or [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from ____ to ____ Commission file number 0-6669 FORWARD INDUSTRIES, INC. (Exact name of registrant as specified in its charter) NEW YORK 13-1950672 ---------------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 400 POST AVENUE, WESTBURY, NY 11590 ---------------------------------------- ------------------------------------ (Address of principal executive offices) (Zip Code) (516) 338-0700 ------------------------------------------------ (Issuer's Telephone Number, including Area Code) --------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer: (1) has filed all reports required to be filed by Section 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 February 1, 2000, 6,091,641 Shares of the issuer's Common Stock were outstanding. Transitional Small Business Disclosure Format: Yes [ ] No [X] - -------------------------------------------------------------------------------- FORWARD INDUSTRIES, INC. AND SUBSIDIARIES FORM 10-QSB THREE MONTHS ENDED DECEMBER 31, 1999 CONTENTS PAGE ---- PART I.FINANCIAL INFORMATION 3 Item 1. Financial Statements 3 Consolidated Balance Sheets as of December 31, 1999 (Unaudited) and September 30, 1999 3 Consolidated Statements of Income (Unaudited) for the Three Months ended December 31, 1999 and 1998 5 Consolidated Statements of Comprehensive Income for the Three Months ended December 31, 1999 and 1998 6 Consolidated Statements of Cash Flows (Unaudited) for the Three Months ended December 31, 1999 and 1998 7 Notes to Form 10-QSB (Unaudited) 9 Item 2. Management's Discussions and Analysis 14 PART II.OTHER INFORMATION 17 Item 1. Legal Proceedings 17 Item 2. Changes in Securities 17 Item 3. Defaults upon Senior Securities 17 Item 4. Submission of Matters to a Vote of Security Holders 17 Item 5. Other Information 17 Item 6. Exhibits and Reports on Form 8-K 17 2 PART I. ITEM 1. FINANCIAL STATEMENTS FORWARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, September 30, 1999 1999 ---------- ---------- ASSETS (Unaudited) CURRENT ASSETS: Cash and cash equivalents $ 313,784 $1,210,762 Accounts receivable, less allowance for doubtful accounts of $133,800 and $133,800 4,512,277 4,738,263 Inventories - net 1,926,889 992,064 Notes and loans receivable - current portion 223,879 227,858 Notes and loans receivable - officers - current portion 65,990 28,490 Prepaid expenses and other current assets 415,353 441,002 Deferred income taxes 502,632 502,632 ---------- ---------- Total current assets 7,960,804 8,141,071 ---------- ---------- PROPERTY, PLANT AND EQUIPMENT - net 617,546 492,427 ---------- ---------- OTHER ASSETS: Deferrred income taxes 689,415 911,395 Note receivable - net of current portion 85,488 126,284 Notes and loans receivable - officers - net of current portion 95,337 55,471 Other assets 64,121 73,764 Deferred debt costs 6,442 25,769 ---------- ---------- 940,803 1,192,683 ---------- ---------- $9,519,153 $9,826,181 ========== ==========
The accompanying notes are an integral part of these financial statements. 3 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, September 30, LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1999 - ------------------------------------ ----------- ----------- (Unaudited) CURRENT LIABILITIES: Borrowings and acceptances under credit line $ 802,483 $ 995,852 Accounts payable 1,749,080 2,301,557 Accrued expenses and other current liablilites 1,185,691 1,298,466 Accrued severance to officer 115,000 115,000 ----------- ----------- Total current liabilities 3,852,254 4,710,875 ----------- ----------- COMMITMENTS STOCKHOLDER'S EQUITY: Preferred stock, 4,000,000 authorized shares par value $.01; none issued -- -- Common stock, 40,000,000 authorized shares, par value $.01; issued 6,286,531 shares and 6,286,531 shares (including 194,890 and 184,890 held in treasury) 62,865 62,865 Paid-in capital 7,402.768 7,402,768 Accumulated deficit (1,465,598) (2,048,569) Foreign currency adjustment (1,342) (589) ----------- ----------- 5,998,693 5,416,475 Less: Cost of shares in treasury (331,794) 301,169 ----------- ----------- Total stockholders' equity 5,666,899 5,115,306 ----------- ----------- $ 9,519,153 $ 9,826,181 =========== ===========
The accompanying notes are an integral part of these financial statements. 4 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended December 31, -------------------------- 1999 1998 ----------- ----------- NET SALES $ 5,862,774 $ 3,963,133 COST OF GOODS SOLD 3,791,082 2,786,407 ----------- ----------- GROSS PROFIT 2,071,692 1,176,726 ----------- ----------- OPERATING EXPENSES: Selling 535,423 370,493 General and administration 712,142 651,503 ----------- ----------- 1,247,565 1,021,996 ----------- ----------- INCOME FROM OPERATIONS 824,127 154,730 ----------- ----------- OTHER INCOME (DEDUCTIONS): Interest expense (37,077) (46,339) Interest expense - related parties -- (950) Interest income 22,575 7,996 Other income - net (4,674) 16,165 ----------- ----------- (19,176) (23,128) ----------- ----------- INCOME BEFORE PROVISION FOR INCOME TAXES 804,951 131,602 PROVISION FOR INCOME TAXES 221,980 52,641 ----------- ----------- INCOME BEFORE EXTRAORDINARY ITEM 582,971 78,961 EXTRAORDINARY ITEM: Non-cash interest charge upon conversion of promissory notes (net of income tax benefit of $ -0-) -- (277,000) ----------- ----------- NET INCOME (LOSS) $ 582,971 $ (198,039) =========== =========== NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE: Basic: Income before extraordinary item $ .10 $ .02 Extraordinary item -- .(05) ----------- ----------- $ .10 $ (.03) =========== =========== Diluted: Income before Extraordinary Item $ .08 $ .02 Extraordinary item -- (.05) ----------- ----------- $ .08 $ (.03) =========== =========== WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 6,098,308 5,167,474 =========== =========== DIVIDENDS NONE NONE
The accompanying notes are an integral part of these financial statements. 5 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended December 31, -------------------------- 1999 1998 --------- --------- NET INCOME (LOSS) $ 582,971 $(198,039) COMPREHENSIVE INCOME ADJUSTMENTS: Foreign currency translation (753) (14,450) --------- --------- COMPREHENSIVE INCOME (LOSS) $ 582,218 $(212,489) ========= =========
The accompanying notes are an integral part of these financial statements 6 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended December 31, ---------------------- 1999 1998 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) $ 582,971 $(198,039) Adjustments to reconcile net income to net cash provided by (used in) continuing operations: Extraordinary interest charge -- 277,000 Depreciation and amortization 19,876 9,375 Amortization of deferred debt costs 19,327 22,387 Deferred taxes 221,980 52,641 Changes in assets and liabilities: Accounts receivable 225,986 724,166 Inventories (934,825) (135,721) Prepaid expenses and other current assets 25,649 (130,731) Other assets 9,643 (1,467) Accounts payable (552,477) 32,159 Accrued expenses and other current liabilities (112,775) (88,659) Accrued severance to officer -- (3,296) --------- --------- NET CASH (USED IN) PROVIDED BY OPERATIONS (494,645) 559,815 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from notes and loans receivable 44,775 107,254 (Loans to) proceeds from notes to officers (77,366) 3,822 Purchases of property, plant and equipment (144,995) (109,811) Purchase of treasury stock (30,625) -- --------- --------- NET CASH PROVIDED BY INVESTING ACTIVITIES (208,211) 1,265 --------- ---------
The accompanying notes are an integral part of the consolidated financial statements. 7 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (UNAUDITED)
Three Months Ended December 31, -------------------------- 1999 1998 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from (repayment of) short-term borrowings (193,369) (753,488) Payments of notes payable - related parties -- (15,146) Deferred offering costs -- (7,500) ----------- ----------- NET CASH USED IN FINANCING ACTIVITIES (193,369) (776,134) ----------- ----------- EFFECT OF EXCHANGE RATE CHANGES (753) 3,267 ----------- ----------- NET CHANGE IN CASH AND CASH EQUIVALENTS (896,978) (211,787) CASH AND CASH EQUIVALENTS - beginning 1,210,762 703,920 ----------- ----------- CASH AND CASH EQUIVALENTS - ending $ 313,784 $ 492,133 =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 11,024 $ 19,215 Income taxes $ 49,650 $ 10,000 SCHEDULE OF NON-CASH ACTIVITES: Issuance of common stock upon conversion of -- $ 554,000 long-term debt Sale of property and equipment held for sale -- $ 86,167
The accompanying notes are an integral part of the consolidated financial statements. 8 FORWARD INDUSTRIES, INC.AND SUBSIDAIRIES NOTES TO FORM 10-QSB THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998 (UNAUDITED) 1. BASIS OF PRESENTATION The information in this Form 10-QSB includes the results of operations of Forward Industries, Inc. ("the Company") and its wholly-owned subsidiary, Koszegi Industries, Inc. ("Koszegi"), for the periods ended December 31, 1999 and 1998. The data is unaudited, but includes all adjustments including the elimination of intercompany accounts and transactions which are, in the opinion of management, necessary for a fair presentation of the interim periods presented. The accounting policies utilized in the preparation of this Form 10-QSB are the same as those set forth in the Company's annual Form 10-KSB for the fiscal year ended September 30, 1999 and should be read in conjunction with the disclosures presented therein. Certain prior period balances have been reclassified to conform to the current period classification. This Quarterly Report may contain forward-looking statements which involve certain risks and uncertainties. Important factors could arise, including those indentified in "Risk Factors" in the Company's Form 10-KSB for the year ended September 30, 1999, which could cause the Company's operating results to differ materially from those contained in any forward looking statement. 2. EARNINGS PER SHARE Earnings per share are based on the weighted average number of shares outstanding during each period presented. The Company has adopted FAS 128, "Earnings Per Share" and has restated prior periods to comply with the provisions of this pronouncement. 3. BORROWINGS UNDER CREDIT LINE In April 1998, the Company established a credit facility with a bank which provides for a maximum line of credit for working capital of $4.5 million, including letters of credit. Borrowing availability is based on a formula of accounts receivable and inventory. At December 31, 1999 amounts outstanding for direct borrowings were $802,483 and acceptances were $198,150. The Company was contingently liable under letters of credit in the amount of $152,740. The credit agreement provides for certain financial covenants which Forward and Koszegi were in compliance at December 31, 1999. On February 1, 2000, the direct borrowings and acceptances were repaid from the proceeds of borrowings under a new credit agreement, as described below. In January 2000, the Company established a $5.0 million credit line with a new bank, Chase Manhattan Bank, to accommodate it's growth. There are no formula or covenants associated with the line. The Company is required to eliminate borrowings for 30 consecutive days each year. 4. ISSUANCE OF COMMON STOCK FOR PROMISSORY NOTES In December 1997, the Company consummated a private offering of securities consisting of units ("Units"), each Unit comprised of (i) 30,000 shares of Common Stock, (ii) one warrant (a "Private Placement Warrant") to purchase up to 30,000 shares of Common Stock at $4.00 per share and (iii) one unsecured convertible promissory note (a "Note") in the principal amount of $10,000, bearing interest at a rate of 10% per annum (convertible at the sole option of the Company under certain circumstances, into 20,000 shares of Common Stock and one Private Placement Warrant) maturing on December 4, 1998. A total of 55.4 Units were sold for $25,000 per unit, 9 aggregating gross proceeds of $1,385,000. Included in the Units sold was $554,000 aggregate principal amount of convertible promissory notes. On December 4, 1998, the company exercised its option to convert all of such Notes into a total of 1,108,000 shares of Common Stock and Private Placement Warants to purchase 1,662,000 shares of Common Stock. Interest, which had accrued on such Notes of approximately $72,000, was paid on that date. In connection with the conversion of its Notes into Common Stock, the Company recorded a non-cash, extraordinary charge against earnings of $277,000 during the prior year's quarter ended Deceember 31, 1998. This amount, recorded as interest expense, reflects the difference between the average bid and asked price per share of the Company's stock on December 4, 1998 (the date on which such conversion occurred) on the Nasdaq SmallCap Market, $.75, and, the price at which the Company converted such shares, $.50, aggregated by the total shares issued. No tax benefit has been recorded in connection with this interest charge as it is not deductible for federal income taxes. 5. INVENTORY Inventory consists of the following:
DECEMBER 31, 1999 SEPTEMBER 30, 1999 ----------------- ------------------ (Unaudited) Raw materials 38,405 $ 34,662 Finished goods 1,888,484 957,402 ---------- -------- $1,926,889 $992,064 ========== ========
10 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES EXHIBIT 11 - COMPUTATION OF INCOME PER COMMON SHARE
THREE MONTHS ENDED DECEMBER 31, ------------------------------- 1999 1998 --------- ---------- NUMERATOR Income from continuing operations: Income from continuing operations: $ 582,971 $ 78,961 Less: Preferred dividends -- -- ---------- ---------- Income available to common stockholders used in basic EPS 582,971 BASIC 78,961 Income available to common stockholders after assumed conversions of dilutive securities $ 582,971 DILUTED $ 78,961 ========== ========== Loss from extraordinary item $ -- $ (277.000) ========== ========== DENOMINATOR Weighted average number of common shares outstanding - See schedule 6,098,308 BASIC 5,167,474 Impact of potential common shares: Stock options and warrants 1,245,981 91,016 Convertible debt N/A N/A 7,344,289 DILUTED 5,258,490 BASIC EPS Income from continuing operations $ 0.10 $ 0.02 Extaordinary Item -- (0.05) ---------- ---------- $ 0.10 $ (0.03) ========== ========== DILUTED EPS Income from continuing operations $ 0.08 $ 0.02 Extraordinary Item -- (0.05) ---------- ---------- $ 0.08 $ (0.03) ========== ==========
11 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES EXHIBIT 11 - COMPUTATION OF INCOME PER COMMON SHARE
THREE MONTHS ENDED DECEMBER 31, 1999 1998 ---------- ---------- CALCULATIONS Stock Options Treasury Stock Method Applied to Stock Options Sale of common stock Total options and warrants outstanding 2,483,125 219,000 Average price $ 1.40 $ 0.50 ---------- ---------- Total $3,476,375 $ 109,500 ========== ========== Repurchase of common stock Proceeds $3,476,375 $ 109,500 Average stock price $ 2.81 $ 0.86 ---------- ---------- Shares repurchased 1,237,144 127,984 ========== ========== Net increase in shares Shares sold 2,483,125 219,000 Shares repurchased 1,237,144 127,984 ---------- ---------- Increase in shares 1,245,981 91,016 ========== ==========
12 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES EXHIBIT 11 - COMPUTATION OF INCOME PER COMMON SHARE Computation of Weighted Average Number of Common Shares Outstanding DECEMBER 31, 1999
Weighted Dates Shares Fraction of Average Outstanding Outstanding Period Shares ----------- ----------- ------ ------ October through November 6,101,641 2/3 4,067,761 Treasury stock repurchased in open market Transactions, in December (10,000) ---------- December 6,091,641 1/3 2,030,547 --------- Weighted Average Shares 6,098,308 ========= DECEMBER 31, 1998 Weighted Dates Shares Fraction of Average Outstanding Outstanding Period Shares ----------- ----------- ------ ------ October through November 4,798,141 2/3 3,198,761 Common stock issued in connection with conversion of private placement debt in December 1,108,000 --------- December 5,906,141 1/3 1,968,714 --------- Weighted Average Shares 5,167,474 =========
13 PART I. ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Company's Financial Statements and the notes thereto appearing elsewhere in this Report. This Report contains statements which constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The Company cautions that forward-looking statements are not guarantees of future performance and involve risks and uncertainties,(including those identified in "Risk Factors" in the Company's Form 10-KSB for the year ended September 30, 1999), and that actual results may differ materially from those in the forward-looking statements as a result of various factors. The following discussion and analysis compares the results of the Company's continuing operations for the three months ended December 31, 1999, and the three months ended December 31, 1998. THREE MONTHS ENDED DECEMBER 31, 1999 (THE "1999 QUARTER") COMPARED TO THREE MONTHS ENDED DECEMBER 31, 1998 (THE "1998 QUARTER"). The 1999 Quarter reflected net income of $583,000 compared to ($198,000) in the 1998 Quarter. Basic earnings per share increased to $.10 in the 1999 Quarter from ($.03) in the 1998 Quarter, while diluted earnings per share from continuing operations increased to $.08 in the 1999 Quarter from ($.03) in the 1998 Quarter. REVENUES. Net sales increased $1,899,700 (48%) to $5,862,800 in the 1999 Quarter, from $3,963,100 in the 1998 Quarter. The increase is attributable to growth in business from both existing and new customers. Sales increases from customers in the wireless telecommunications industry continues to be a significant contributor to this growth. OPERATING INCOME. Consolidated pretax income from continuing operations increased by $673,400 to a profit of $805,000 in the 1999 Quarter, from $131,600 in the 1998 Quarter. The increase in pretax profits relates to increases in revenues, described above, coupled with improved gross margin percentage. The gross profit increased $895,000 from $1,176,700 in the 1998 quarter to $2,071,700 in the 1999 Quarter, while the gross margin percentage increased from 30% in the 1998 Quarter to 35% in the 1999 Quarter. The higher gross profit percentage is largely the result of higher revenues without the fixed cost component of a manufacturing facility. The Company continued to reduce other elements of its cost of sales as well. Selling expenses increased $164,900 (45%) from $370,500 in the 1998 Quarter to $535,400 in the 1999 Quarter due to additional investments in manpower and related selling efforts, along with commissions and travel. However, the ratio of selling expenses to net sales remained unchanged at 9% because of an increase in revenues. General and administrative expenses decreased as a percent of net sales, to 12% in the 1999 Quarter from 16% in the 1998 Quarter due to higher revenues but the dollar amount of expenses increased $60,600 (9%) to $712,100 in the 1999 Quarter from $651,500 in the 1998 Quarter. The increase is primarily related to bonuses which are predicated on operating performance measures. OTHER INCOME (DEDUCTIONS). Total interest expenses decreased by $10,200 to $37,100 in the 1999 Quarter from $47,300 in the 1998 Quarter. The decrease was due to conversion of the Company's convertible notes into equity in the 1998 Quarter. Interest and other income - net decreased $6,300 to $17,900 in the 1999 Quarter from the $24,200 1998 Quarter. 14 EXTRAORDINARY ITEM IN 1998 QUARTER. In December 1997, the Company consummated a private offering of securities which included $554,000 in aggregate principal amount of convertible Promissory Notes. The Notes were converted into Common Stock in December 1998, at the option of the Company. In connection with the conversion of its Notes into Common Stock, the Company recorded a non-cash, extraordinary charge against earnings of $277,000. This amount, recorded as interest expense, reflects the difference between the average bid and asked price per share of the Company's stock on December 4, 1998 (the date on which such conversion occurred) on the Nasdaq SmallCap Market, $.75, and, the price at which the Company converted such shares, $.50, aggregated by the total shares issued. There was no comparable item in the 1999 Quarter. INCOME TAXES. The provision for income taxes increased by $169,300 due to a $673,300 increase in pretax profits in the 1999 Quarter from the comparable period in 1998 Quarter. The effective tax rates for the 1999 and 1998 Quarters were 28% and 40%, respectively. The tax rate in the 1999 Quarter was lower due to the reduction of the valuation allowance established for deferred taxes. No tax benefit was recorded during the 1998 Quarter relating to the extraordinary interest charge in the 1998 Quarter as it was not deductible for income tax purposes. LIQUIDITY AND CAPITAL RESOURCES. In the 1999 Quarter, $494,600 of cash was used by operating activities. This use in operating funds resulted primarily from increases in inventory of $934,800 and payments and reductions of accounts payable and accrued liabilities of $665,300 offset by net income of $583,000, reductions in accounts receivables of $226,000, and the add back of non-cash charges in the deferred tax account of $222,000 and, depreciation and amortization of $39,200. Net investing activities in the 1999 Quarter used cash of $208,200. The Company collected $44,800 of notes receivable, which arose from the sale of its discontinued operations in 1997 and provided $77,400 in additional loans to officers, net of collections of loans. In the 1999 Quarter, the Company purchased 10,000 shares of its common stock in open market transactions, for $30,600 and $145,000 of property, plant and equipment. Financing activities in the 1999 Quarter used cash of $193,400. Funds were used for payments of borrowing under the bank credit line. In December 1997, the Company consummated the 1997 Private Placement of Units. Each Unit was comprised of (i) 30,000 shares of Common Stock, (ii) one Private Placement Warrant to purchase up to 30,000 shares of Common Stock at $4.00 per share and (iii) one unsecured convertible promissory note. The "Note" in the principal amount of $10,000, bearing interest at a rate of 10% per annum (convertible at the sole option of the Company under certain circumstances, into 20,000 shares of Common Stock and one Private Placement Warrant) maturing on December 4, 1998. A total of 55.4 Units were sold for $25,000 per unit, aggregating gross proceeds of $1,385,000. Included in the Units sold was $554,000 aggregate principal amount of debt. A commission in the amount of $169,000 was paid by the Company in connection with such sales. The sales were made to accredited investors pursuant to Regulation D promulgated under the Securities Act of 1933, as amended. On December 4, 1998, the Company exercised its option to convert $554,000 of debt into 1,108,000 shares of Common Stock and warrants to purchase 1,662,000 shares of Common Stock, and paid accumulated interest on the Notes of approximately $72,000. Certain officers and directors participated in this transaction. Forward and Koszegi Industries, Inc., a wholly-owned subsidiary of Forward ("Koszegi"), established a line of credit with a bank in April 1998 and are indebted to such bank for short-term borrowings and, upon their presentation, letters of credit. The total line is for $4,500,000. The line of credit was scheduled to mature on March 31, 2001 (see below). Borrowing availability is determined based on a formula of accounts receivable and inventory. The interest rate on the line is the prime rate in effect from time to time plus three quarters of one percent. The Company secured this line of credit with all of its assets and those of Koszegi. The facility contains certain financial covenants for which the Company was in compliance. Amounts owed the bank at December 31, 1999 including contingent liability for letters of credit were $1,153,400. In January, 2000 the Company obtained a $5.0 million credit line with a new bank to accommodate its growth, and terminated its former credit arrangement. The new credit line has no borrowing formula or specific covenants. However a mandatory 30-consecutive-day period, in which there are no outstanding borrowings, is required along with continued 15 reasonable business performance. On February 1, 2000 the Company repaid its outstanding balance at the former bank with the proceeds from initial borrowings under the new credit line. In September 1998, the Company commenced a plan intended to streamline its operations and reduce its cost structure over time. The Company announced a plan of restructuring, and recorded restructuring charges for its fiscal year ended September 30, 1998, pursuant to which it closed its manufacturing operations by February 28, 1999, but continued to provide any required domestic manufacturing through contractual arrangements with sub-contractors. The vast majority of its orders are now manufactured overseas. The Company sold to a subcontractor certain key production equipment and provided technical support, and maintained quality assurance personnel at its factory. The Company also uses other third party sub-contracting sources, as appropriate. The Company incurred expenditures related to the plant shutdown, which were accrued at September 30, 1998. Funds for such expenditures were paid from existing cash or cash generated by operations. In addition, the Company renovated a building which it owns, adjacent to its former leased factory in South Bend, to house its remaining sales staff, customer support and other administrative personnel who remain in Indiana. The renovation, which was completed at the end of February 1999, cost approximately $107,000 and was paid from the Company's existing funds. The Company, like many others which own computer software, was required to address the issue of software applications which were unable to recognize `OO' in their program code. The Company evaluated alternatives to resolve this problem and concluded that acquiring a new data system, rather than upgrading its existing systems and applications, was of greater long-term value. The Company expended approximately $150,000 during fiscal 1999, encompassing the cost of installing new hardware and software. Such amounts were paid from existing cash. The Company incurred internal staff costs associated with training. Cost of staff time was expensed as incurred, while cost of the new system was capitalized and is being amortized over its useful life. The Company believes its data systems are Year 2000 compliant. In connection with its restructuring, the Company hired a new Chief Executive Officer and received the resignation of Mr. Theodore H. Schiffman, its co-founder and former Chief Executive Officer. Mr. Schiffman received a five-year consulting arrangement with annual consulting payments of $200,000 per year and a severance package totaling $350,000, of which $200,000 was paid on January 1, 1999, $35,000 on September 30, 1999, $60,000 on January 19, 2000, and $55,000 is payable on the 15th month anniversary thereof. Such amounts were and will be paid out of the Company's existing cash position or from internally generated funds. The Company determined that for managerial and cost efficiencies it would close and consolidate its New York and South Bend offices into one office in Deerfield Beech, Florida. The consolidation is expected to occur during the third and fourth fiscal quarters. The Company believes that the net cost of the consolidation will not have a material effect on its financial position in the current fiscal year, and will have a beneficial impact in subsequent years. The Company did not incur any other long-term debt in the 1999 Quarter. At December 31, 1999, there was no long-term debt and all installment note and capital lease payments were made on a timely basis. DEFERRED INCOME TAXES. The Company's balance sheet at December 31, 1999 includes $1,192,000 of deferred income taxes as an asset. The Company was profitable in the 1999 Quarter, in fiscal year 1999, and in the fiscal year 1998 before restructuring charges associated with the non-recurring costs of the shutdown of its South Bend plant, and in the 1998 Quarter, excluding the non-recurring, non-cash interest charge. However, to the extent that the Company's operations may not be profitable in future periods, the Company would not be able to realize the benefit of its deferred tax assets. Without such deferred tax assets, at December 31, 1999, the Company's stockholder's equity at such date of $5,666,900 would have been reduced by $1,192,000 to a stockholder's equity of $4,474,900 and the Company's working capital at December 31, 1999 would have been reduced by $502,600 from $4,108,500 to $3,605,900. 16 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On July 15, 1998, Hollco International Limited ("Hollco"), a former Asian contractor which manufactured custom carrying cases for the Company, commenced a claim against the Company in an amount of $140,500 which Hollco alleges that it is owed for cases which it manufactured under order from the Company. The Company believes that these charges were offset wholly by product defects and rejects as well as additional costs incurred by the Company, including air shipment of product to avoid loss of market share. The Company had charged Hollco by issuing its invoices for these expenses and may file a separate counter suit against Hollco for these and other charges to offset any claims of Hollco. ITEM 2. CHANGES IN SECURITIES During the Company's fiscal year ended September 30, 1997 and in December 1997, the Company consummated its 1997 Private Placement of units ("Units"), each unit comprised of (i) 30,000 shares of Common Stock, (ii) one warrant to purchase up to 30,000 shares of Common Stock at $4.00 per share (a "Private Placement Warrant") and (iii) one unsecured convertible promissory note in the principal amount of $10,000, bearing interest at a rate of 10% per annum (convertible at the sole option of the Company under certain circumstances, into 20,000 shares of Common Stock and one Private Placement Warrant) maturing on December 4, 1998. An aggregate of 55.4 units were sold for $25,000 per Unit, aggregating gross proceeds of $1,385,000. Included in the Units sold was $554,000 aggregate principal amount of debt. A commission in the amount of $169,500 was paid by the Company in connection with such sales. The sales were made to accredited investors pursuant to Regulation D promulgated under the Securities Act of 1933, as amended. On December 4, 1998, the Company exercised its option to convert all of such notes into a total of 1,108,000 shares of Common Stock and Private Placement Warrants to purchase 1,662,000 shares of Common Stock, and paid interest which had accrued on the Notes, of approximately $72,000. 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 27: Financial Data Schedule (b) Reports on Form 8-K None. 17 SIGNATURE In accordance with to the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: February 1, 2000 FORWARD SYSTEMS, INC. (Registrant) By: /s/ Philip B. Kart --------------------------- PHILIP B. KART Principal Financial Officer 18 EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S UNAUDITED BALANCE SHEET AS OF DECEMBER 31, 1999 AND UNAUDITED STATEMENT OF OPERATIONS FOR THE THREE MONTHS THEN ENDED 3-MOS SEP-30-2000 OCT-01-1999 DEC-31-1999 313,784 0 4,646,077 133,800 1,926,889 7,960,804 804,310 186,764 9,519,153 3,852,254 0 62,865 0 0 6,604,034 9,519,153 5,862,774 5,862,774 3,791,082 3,791,082 1,266,891 0 17,751 804,951 221,980 582,971 0 0 0 582,971 0.10 0.08
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