-----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, FXxt3wKXb4Hc83KuPiXX+Ub6uZGQPelkXdzPvLjTqaz8CLxPlOv/VXfiSg0ppaFk jtk1FTpL80WtI+T7C+tFAw== 0000912057-00-024600.txt : 20000516 0000912057-00-024600.hdr.sgml : 20000516 ACCESSION NUMBER: 0000912057-00-024600 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 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: 633474 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 FORM 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 March 31, 2000. -------------- 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 incorporation or organization) Identification No.) 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 May 8, 2000, 6,084,141 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 SIX MONTHS ENDED MARCH 31, 2000 CONTENTS PAGE ---- PART I.FINANCIAL INFORMATION 3 Item 1.Financial Statements 3 Consolidated Balance Sheets as of March 31, 2000 (Unaudited) and September 30, 1999 3 Consolidated Statements of Income (Unaudited) for the Three and Six Months ended March 31, 2000 and 1999 5 Consolidated Statements of Comprehensive Income (Unaudited) for the Six Months ended March 31, 2000 and 1999 6 Consolidated Statements of Cash Flows (Unaudited) for the Six Months ended March 31, 2000 and 1999 7 Notes to Form 10-QSB (Unaudited) 9 Item 2.Management's Discussion and Analysis 17 PART II.OTHER INFORMATION 21 Item 1.Legal Proceedings 21 Item 2.Changes in Securities 21 Item 3.Defaults upon Senior Securities 21 Item 4.Submission of Matters to a Vote of Security Holders 21 Item 5.Other Information 21 Item 6.Exhibits and Reports on Form 8-K 21 2 PART I. ITEM 1. FINANCIAL STATEMENTS FORWARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
March 31, September 30, 2000 1999 ----------- -------------- ASSETS (Unaudited) CURRENT ASSETS: Cash and cash equivalents $ 887,031 $1,210,762 Accounts receivable, less allowance for doubtful accounts of $133,800 and $133,800 4,164,258 4,738,263 Inventories - net 1,556,147 992,064 Notes and loans receivable - current portion 170,406 227,858 Notes and loans receivable - officers - current portion 64,599 28,490 Prepaid expenses and other current assets 305,741 441,002 Deferred income taxes 502,632 502,632 ---------- ---------- Total current assets 7,650,814 8,141,071 ---------- ---------- PROPERTY, PLANT AND EQUIPMENT - net 608,060 492,427 ---------- ---------- OTHER ASSETS: Deferrred income taxes 686,151 911,395 Note receivable - net of current portion 85,488 126,284 Notes and loans receivable - officers - net of current portion 112,848 55,471 Deferred debt costs 7,635 73,764 Other assets 92,523 25,769 ---------- ---------- 984,645 1,192,683 ---------- ---------- $9,243,519 $9,826,181 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 3 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
March 31, September 30, LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999 - ------------------------------------ ----------- ------------- (Unaudited) CURRENT LIABILITIES: Borrowings under credit line $ 1,779,995 $ 995,852 Accounts payable 1,011,826 2,301,557 Accrued expenses and other current liabilities 737,733 1,298,466 Accrued severance to officer 55,444 115,000 ----------- ----------- Total current liabilities 3,584,998 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 202,390 and 194,890 held in treasury) 62,865 62,865 Paid-in capital 7,402,768 7,402,768 Accumulated deficit (1,460,702) (2,048,569) Comprehensive income adjustment 9,291 (589) ----------- ----------- 6,014,222 5,416,475 Less: Cost of shares in treasury 355,701 301,169 Total stockholders' equity 5,658,521 5,115,306 ----------- ----------- $ 9,243,519 $ 9,826,181 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 4 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Six Months Ended March 31, March 31, ------------------------------ ------------------------------ 2000 1999 2000 1999 ---- ---- ---- ---- NET SALES $ 3,177,877 $ 3,635,602 $ 9,040,651 $ 7,598,735 COST OF GOODS SOLD 2,165,905 2,624,100 5,956,987 5,401,920 ----------- ----------- ----------- ----------- GROSS PROFIT 1,011,972 1,011,502 3,083,664 2,196,815 ----------- ----------- ----------- ----------- OPERATING EXPENSES: Selling 498,634 373,174 1,034,057 752,254 General and administration 500,625 654,285 1,212,767 1,305,788 ----------- ----------- ----------- ----------- 999,259 1,027,459 2,246,824 2,058,042 ----------- ----------- ----------- ----------- INCOME FROM OPERATIONS 12,713 (15,957) 836,840 138,773 ----------- ----------- ----------- ----------- OTHER INCOME (DEDUCTIONS): Interest expense (26,788) (24,184) (63,865) (70,523) Interest expense - related parties -- (563) -- (1,513) Interest income 24,575 15,995 47,149 40,633 Other income - net (2,340) 82,614 (7,014) 82,137 ----------- ----------- ----------- ----------- (4,553) 73,862 (23,730) 50,734 ----------- ----------- ----------- ----------- INCOME BEFORE PROVISION FOR INCOME TAXES 8,160 57,905 813,110 189,507 PROVISION FOR INCOME TAXES 3,264 23,162 225,244 75,803 ----------- ----------- ----------- ----------- INCOME BEFORE EXTRAORDINARY ITEM 4,896 34,743 587,866 113,704 ----------- ----------- ----------- ----------- EXTRAORDINARY ITEM: Non-cash interest charge upon conversion of promissory notes (net of income tax benefit of $ -0-) (Note 4) -- -- -- (277,000) ----------- ----------- ----------- ----------- NET INCOME $ 4,896 $ 34,743 $ 587,866 $ (163,296) =========== =========== =========== =========== NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE: Basic: Income before extraordinary item $ 0.00 $ 0.01 $ 0.10 $ 0.02 Extraordinary item -- -- -- (0.05) ----------- ----------- ----------- ----------- $ 0.00 $ 0.01 $ 0.10 $ (0.03) =========== =========== =========== =========== Diluted: Income before extraordinary item $ 0.00 $ 0.01 $ 0.08 $ 0.02 Extraordinary Item -- -- -- (0.05) ----------- ----------- ----------- ----------- $ 0.00 $ 0.01 $ 0.08 $ (0.03) =========== =========== =========== =========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES 6,087,474 5,913,474 6,092,891 5,540,474 =========== =========== =========== =========== DIVIDENDS NONE NONE NONE NONE
5 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) Six Months Ended March 31, ------------------------ 2000 1999 -------- --------- NET INCOME (LOSS) $587,866 $(163,296) COMPREHENSIVE INCOME ADJUSTMENTS: Foreign currency translation 9,880 21,430 -------- --------- COMPREHENSIVE INCOME (LOSS) $597,746 $(141,866) ======== ========= The accompanying notes are an integral part of the consolidated financial statements 6 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended March 31, ---------------------------- 2000 1999 ----------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (Loss) $ 587,866 $(163,296) Adjustments to reconcile net income (loss) to net cash provided by (used in) continuing operations: Extraordinary interest charge -- 277,000 Gain on sale of property and equipment -- (73,769) Depreciation and amortization 50,513 27,705 Amortization of deferred debt costs 27,295 29,235 Deferred taxes 225,244 75,803 Changes in assets and liabilities: Accounts receivable 574,005 577,067 Inventories (564,083) (167,620) Prepaid expenses and other current assets 135,261 (72,071) Other assets (18,760) (1,748) Accounts payable (1,289,731) 502,160 Accrued expenses and other current liabilities (560,733) (611,655) Accrued severance to officer (59,556) (200,000) ----------- --------- NET CASH (USED IN) PROVIDED BY OPERATIONS (892,679) 198,811 ----------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Net proceeds from sale of property and equipment -- 37,215 Proceeds from notes and loans receivable 98,248 180,301 (Advances to) Proceeds from officers (93,486) 7,365 Purchases of property, plant and equipment (166,144) (279,704) Purchases of treasury stock (54,532) -- ----------- --------- NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (215,914) (54,823) ----------- ---------
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)
Six Months Ended March 31, ---------------------------- 2000 1999 ----------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from (repayment of) short-term borrowings $ 784,143 ($428,232) Payments of notes payable - related parties -- (30,146) Proceeds from issuances of stock -- 11,000 Deferred offering costs -- (11,950) Deferred debt costs (9,161) (2,811) ----------- --------- NET CASH PROVIDED BY(USED IN) FINANCING ACTIVITIES 774,982 (462,139) ----------- --------- EFFECT OF EXCHANGE RATE CHANGES 9,880 21,430 ----------- --------- NET CHANGE IN CASH AND CASH EQUIVALENTS (323,731) (296,721) CASH AND CASH EQUIVALENTS - beginning 1,210,762 703,920 ----------- --------- CASH AND CASH EQUIVALENTS - ending $ 887,031 $ 407,199 =========== ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 33,041 $ 30,068 Income taxes $ 30,937 $ 16,558 SCHEDULE OF NON-CASH ACTIVITES: Issuance of common stock upon conversion of long-term debt -- $ 554,000 Sale of property and equipment held for sale -- $ 190,554
The accompanying notes are an integral part of the consolidated financial statements. 8 FORWARD INDUSTRIES, INC.AND SUBSIDAIRIES NOTES TO FORM 10-QSB SIX MONTHS ENDED MARCH 31, 2000 AND 1999 (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 three and six month periods ended March 31, 2000 and 1999. 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 identified 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 January 2000, the Company established a credit facility with a new bank which provides for a maximum line of credit of $5.0 million, including letters of credit. The line, which is renewable annually at the discretion of the bank, expires March 31, 2001. There is no formula which limits the borrowings or restrictive covenants, as in the prior credit facility. However, the Company is required to eliminate borrowings for thirty (30) consecutive days and is required to maintain normal operating performance which is acceptable to the bank. The credit facility bears interest at the prime rate in effect from time-to-time plus three quarters of one percent. At March 31, 2000, $1,780,000 was outstanding in direct borrowings; there were no outstanding obligations under letters of credit. The Company provided the assets of the consolidated Company as collateral for the line. On February 1, 2000 the direct borrowings and acceptances from the former credit facility were repaid from funds received under the new agreement. 4. ISSUANCE OF COMMON STOCK FOR PROMISSORY NOTES IN DECEMBER 1998 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, 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 Warrants to 9 purchase 1,662,000 shares of Common Stock (such warrants expired on March 15, 1999 and are no longer outstanding). 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; such amount is included in the consolidated statements of income for the six month period ended March 31, 1999. 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 was recorded in connection with this interest charge as it is not deductible for federal income taxes. 5. INVENTORY Inventory consists of the following: March 31, 1999 September 30, 1999 -------------- ------------------ (Unaudited) Raw materials $ 32,410 $ 34,662 Finished goods 1,523,737 957,402 ---------- -------- $1,556,147 $992,064 ========== ======== 6. NOTES AND LOANS RECEIVABLE FROM OFFICERS At March 31, 2000 the Company held a ninety (90) day, unsecured, promissory note from its chief executive officer, in the amount of $40,000. Originally issued on December 16,1999 and due March 16, 2000, the note was extended at the discretion of the Company. The note bears interest at the prime-rate in effect from time-to-time plus three quarters of one percent. In addition, subsequent to the balance sheet date, on April 24, 2000 the Company extended a ninety (90) day, unsecured loan to its president, in the amount of $370,000 and at the same rate as noted above. The note was provided in connection with the Company's relocation to Florida. 10 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES EXHIBIT 11 - COMPUTATION OF INCOME PER COMMON SHARE
THREE MONTHS ENDED MARCH 31, ------------------------------------------- 2000 1999 ---------- ---------- NUMERATOR Income from continuing operations: Income from continuing operations: $ 4,896 $ 34,743 Less: Preferred dividends -- -- ---------- ---------- Income available to common stockholders used in basic EPS 4,896 BASIC 34,743 Income available to common stockholders after assumed conversions of dilutive securities $ 4,896 DILUTED $ 34,743 ========== ========== DENOMINATOR Weighted average number of common shares outstanding - See schedule 6,087,474 BASIC 5,913,474 Impact of potential common shares: Stock options and warrants 1,016,323 137,935 ---------- ---------- Weighted average number of common shares and dilutive potential common stock used in dilutive EPS 7,103,797 DILUTED 6,051,409 ---------- ---------- BASIC EPS Income from continuing operations $ 0.00 $ 0.01 DILUTED EPS Income from continuing operations $ 0.00 $ 0.01
11 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES EXHIBIT 11 - COMPUTATION OF INCOME PER COMMON SHARE
THREE MONTHS ENDED MARCH 31, ------------------------- 2000 1999 ---------- -------- CALCULATIONS 1. Stock Options Treasury Stock Method Applied to Stock Options Sale of common stock Total options and warrants outstanding 2,266,875 496,800 Average price $ 1.84 $ 0.86 ---------- -------- Total $4,178,969 $428,400 ========== ======== Repurchase of common stock Proceeds $4,178,969 $428,400 Average stock price $ 3.34 $ 1.19 ---------- -------- Shares repurchased 1,250,552 358,865 ========== ======== Net increase in shares Shares sold 2,266,875 496,800 Shares repurchased 1,250,552 358,865 ---------- -------- Increase in shares 1,016,323 137,935 ========== ========
12 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES EXHIBIT 11 - COMPUTATION OF INCOME PER COMMON SHARE Computation of Weighted Average Number of Common Shares Outstanding THREE MONTHS ENDED MARCH 31, 2000 --------------------------------- Weighted Dates Shares Fraction of Average Outstanding Outstanding Period Shares ----------- ----------- ------ ------ January 6,091,641 1/3 2,030,547 Purchase of treasury stock 5,000 --------- February 6,086,641 1/3 2,028,880 Purchase of treasury stock 2,500 --------- March 6,084,141 1/3 2,028,047 ========= --------- Weighted Average Shares 6,087,474 ========= THREE MONTHS ENDED MARCH 31, 1999 --------------------------------- Dates Shares Fraction of Average Outstanding Outstanding Period Shares ----------- ----------- ------ ------ January through February 5,906,141 2/3 3,937,427 Common stock issued in connection with Conversion of Class B warrant 22,000 --------- March 5,928,141 1/3 1,976,047 ========= --------- Weighted Average Shares 5,913,474 ========= 13 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES EXHIBIT 11 - COMPUTATION OF INCOME PER COMMON SHARE
SIX MONTHS ENDED MARCH 31, ------------------------------------------ 2000 1999 ---- ---- NUMERATOR Income from continuing operations: Income from continuing operations: $ 587,866 $ 113,704 Less: Preferred dividends -- -- ----------- ---------- Income available to common stockholders used in basic EPS 587,866 BASIC 113,704 Income available to common stockholders after assumed conversions of dilutive securities $ 587,866 DILUTED $ 113,704 =========== ========== Loss from extraordinary item -- $ (277,000) ----------- ---------- DENOMINATOR Weighted average number of common shares outstanding - See schedule 6,092,891 BASIC 5,540,474 Impact of potential common shares: Stock options and warrants 1,318,694 100,263 --------- ---------- Weighted average number of common shares and dilutive potential common stock used in dilutive EPS 7,411,585 DILUTED 5,640,737 BASIC EPS Income from continuing operations $ .10 $ 0.02 Extaordinary Item .00 (0.05) ---------- $ .10 $ (0.03) ========== ========== DILUTED EPS Income from continuing operations $ .08 $ 0.02 Extraordinary Item .00 (0.05) ---------- ---------- $ .08 $ (0.03) ========== ==========
14 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES EXHIBIT 11 - COMPUTATION OF INCOME PER COMMON SHARE
SIX MONTHS ENDED MARCH 31, ------------------------- 2000 1999 ---------- -------- CALCULATIONS 1. Stock Options Treasury Stock Method Applied to Stock Options Sale of common stock Total options and warrants outstanding 2,466,875 196,800 Average price $ 1.43 $ 0.50 ---------- -------- Total $3,528,969 $ 98,400 ---------- -------- Repurchase of common stock Proceeds $3,528,969 $ 98,400 Average stock price $ 3.07 $ 1.02 ---------- -------- Shares repurchased 1,148,181 96,537 ---------- -------- Net increase in shares Shares sold 2,466,875 196,800 Shares repurchased 1,148,181 96,537 ---------- -------- Increase in shares 1,318,694 100,263 ========== ========
15 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES EXHIBIT 11 - COMPUTATION OF INCOME PER COMMON SHARE Computation of Weighted Average Number of Common Shares Outstanding SIX MONTHS ENDED MARCH 31, 2000 ------------------------------- Weighted Dates Shares Fraction of Average Outstanding Outstanding Period Shares ----------- ----------- ------ ------ October through November 6,101,641 2/6 2,033,880 Purchase of treasury stock 10,000 --------- December through January 6,091,641 2/6 2,030,547 Purchase of treasury stock 5,000 --------- February 6,086,641 1/6 1,014,440 Purchase of treasury stock 2,500 --------- March 6,084,141 1/6 1,014,024 ========= --------- Weighted Average Shares 6,092,891 ========= SIX MONTHS ENDED MARCH 31, 1999 Weighted Dates Shares Fraction of Average Outstanding Outstanding Period Shares ----------- ----------- ------ ------ October through November 4,798,141 2/6 1,599,380 Common stock issued in connection with conversion of private placement debt in December 1,108,000 --------- December through February 5,906,141 3/6 2,953,071 Common stock issued in connection with conversion of Class B warrants 22,000 --------- March 5,928,141 1/6 988,023 ========= --------- Weighted Average Shares 5,540,474 ========= 16 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 and Six Months ended March 31, 2000, and the Three and Six Months ended March 31, 1999. THREE MONTHS ENDED MARCH 31, 2000 (THE "2000 QUARTER") COMPARED TO THREE MONTHS ENDED MARCH 31, 1999 (THE "1999 QUARTER") The 2000 Quarter reflected net income of $4,900 compared to net income of $34,700 in the 1999 Quarter. Basic and diluted earnings per share from continuing operations decreased to $0.00 in the 2000 Quarter from $0.01 in the 1999 Quarter. REVENUES. Net sales decreased $457,700 (13%) to $3,177,900 in the 2000 Quarter, from $3,635,600 in the 1999 Quarter. The decrease is attributable to a single customer that requested that planned sales be deferred to the next (third) fiscal quarter. OPERATING INCOME. Consolidated pretax income from continuing operations decreased by $49,700, to a profit of $8,200 in the 2000 Quarter from $57,900 in the 1999 Quarter. As a result of a four (4) percentage point improvement in gross margin percentage, the $ 457,700 decrease in sales described above, was offset, in its entirety, and the gross profit was unchanged. The gross margin percent increased to 32% in the 2000 Quarter from 28% in the 1999 Quarter by eliminating the fixed costs associated with the South Bend manufacturing facility, which was closed in February 1999. Selling, general and administrative expenses decreased, in total, and the net change to operating income was caused by Other Income and Deductions, described below. Selling expenses increased $125,400 (34%) from $373,200 in the 1999 Quarter to $498,600 in the 2000 Quarter due primarily to increased travel expenses, warehouse rent and commissions, offset by lower bonus expenses. The ratio of selling expenses to net sales increased from 10% to 16%. General and administrative expenses decreased as a percentage of net sales to 16% in the 2000 Quarter from 18% in the 1999 Quarter and the dollar amount of expenses decreased $153,700 (23%) to $500,600 in the 2000 Quarter from $654,300 in the 1999 Quarter. The decrease is primarily related to lower professional fees. OTHER INCOME (DEDUCTIONS). Total interest expense increased $2,100 to $26,800 in the 2000 Quarter from $24,700 in the 1999 Quarter. Interest income and other income-net decreased $76,400 to $22,200 in the 2000 Quarter from the $98,600 in the 1999 Quarter. The decrease is primarily related to the sale of certain miscellaneous assets in the 1999 Quarter, which were no longer required as a result of the shutdown of the South Bend facility. 17 INCOME TAXES. The provision for income taxes decreased by $19,900 to $3,300 due to a decrease in pretax profits in the 2000 Quarter from the comparable period in the 1999 Quarter. The effective tax rates for the 2000 and 1999 Quarters were 40%. SIX MONTHS ENDED MARCH 31, 2000 (THE "2000 PERIOD") COMPARED TO SIX MONTHS ENDED MARCH 31, 1999 (THE "1999 PERIOD") The 2000 Period reflected a net income of $587,900 compared to a net loss of ($163,300) in the 1999 Period. In the 1999 Period, operations generated net income of $113,700 prior to the extraordinary non-cash charge of $277,000 (described below) from continuing operations. Accordingly, the increase in net income from continuing operations was $474,200. Basic earnings per share from continued operations increased to $.10 in the 2000 Period from $0.02 in the 1999 Period, while diluted earnings per share from continuing operations increased to $.08 in the 2000 Period from $0.02 in the 1999 Period. REVENUES. Net sales increased $1,442,000 (19%) to $9,040,700 in the 2000 Period, from $7,598,700 in the 1999 Period. The increase is attributable to growth in business from both existing and new customers and specifically attributable to the Company's expansion efforts in its European business. OPERATING INCOME. Consolidated pretax income from continuing operations increased by $623,600 from a profit of $189,500 in the 1999 Period, to $813,100 in the 2000 Period. The increase in pretax profits relates to increases in revenues, described above, coupled with improved gross margin percentage. The gross profit increased $886,900 from $2,196,800 to $3,083,700 in the 2000 Period, while the gross margin percentage increased from 29% in the 1999 Period to 34% in the 2000 Period. The higher gross margin percentage is largely a result of higher revenues without the fixed cost component of a manufacturing facility. Selling expenses increased $281,800 (37%) from $752,300 in the 1999 Period to $1,034,100 in the 2000 Period due to increases in manpower and related salaries, increased travel expenses, commissions, consulting and professional fees for recruiting new sales staff, offset by lower advertising and bonuses. The ratio of selling expenses to net sales increased to 11% from 10%. General and administrative expenses decreased as a percentage of net sales, to 13% in the 2000 Period from 17% in the 1999 Period, and the dollar amount of expenses decreased $93,000 (7%) to $1,212,800 in the 2000 Period from $1,305,800 in the 1999 Period. The decrease is primarily related to lower professional fees, telephones costs and travel expenses offset partially by higher payroll and bonus expenses. OTHER INCOME (DEDUCTIONS). Total interest expense decreased by $8,100 to $63,900 in the 2000 Period from $72,000 in the 1999 Period. The decrease resulted from the conversion of notes payable into common stock in December 1999 Period. Interest and other income-net decreased $82,700 to $ 40,100 in the 2000 period from $122,800 in the 1999 Period. The decrease is primarily related to the sale of certain miscellaneous assets in the 1999 Period, which were no longer required as a result of the shutdown of the South Bend manufacturing facility. EXTRAORDINARY ITEM IN THE 1999 PERIOD. 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 and warrants 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 18 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 2000 Period. INCOME TAXES. The provision for income taxes increased by $149,400 due to an increase in pretax profits in the 2000 Period from the comparable period in 1999 Period. The effective tax rates for the 2000 and 1999 Periods were 28% and 40%, respectively. No tax benefit was recorded during the 1999 Period relating to the extraordinary interest charge as it was not deductible for income tax purposes. The lower rate in the 2000 Period is the result of a reduction in the valuation allowance established for deferred taxes. LIQUIDITY AND CAPITAL RESOURCES. In the 2000 Period, $892,700 of cash was used by operating activities. This use in operating funds resulted primarily from increases in inventory of $564,100 and payments and reductions of accounts payable and accrued liabilities of $1,910,000, offset by net income of $587,900, reductions in accounts receivables of $574,000, and the add back of non-cash charges in the deferred tax account of $225,000 and, depreciation and amortization of $77,800. Net investing activities in the 2000 Period used cash of $215,900. The Company collected $98,200 of notes receivable, which arose from the sale of its discontinued operations in 1997 and provided $93,500 in additional loans to officers, net of collections. The Company purchased 17,500 shares of its common stock in open market transactions, for $54,500 and expended $166,100 for new assets. Financing activities in the 2000 Period provided cash of $775,000. Funds were received from borrowing under the bank credit line, $784,100 offset by deferred debt costs of $9,200. 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 expires March 31, 2001 and is renewable annually. This credit facility has no borrowing formula limitations or specific covenants as did the former credit line. However a mandatory 30-consecutive-day period, in which there are no outstanding borrowings, is required along with continued 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. The new credit line provides for cash and direct borrowings up to $3.0 million and letters of credit and acceptances of $2.0 million. The line bears interest at the prime rate in effect from time to time plus three quarters of one percent. The Company secured the line of credit with all of its assets and those of Koszegi. At March 31, 2000, the Company was indebted to the bank in the amount of $1,780,000. 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. In connection with its restructuring during fiscal 1998, 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, and the remainder paid in varying amounts and dates through April 15, 2000. Such amounts were 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. 19 The Company extended ninety (90) day, unsecured loans to two of its officers/directors which bear interest at the prime rate in effect from time to time, plus three quarters of one percent. One note, provided on December 16, 1999 in the amount of $40,000, has been extended at the discretion of the Company. The second note in the amount of $370,000 was issued on April 24, 2000. The loans were made from the Company's existing cash position and both are expected to be repaid prior to the fiscal year-end. The Company did not incur any other long-term debt in the 2000 Period. DEFERRED INCOME TAXES. The Company's balance sheet at March 31, 2000 includes $1,188,800 of deferred income taxes as an asset. The Company was profitable in the 2000 Period and, in fiscal year 1999 and in fiscal year 1998 before restructuring charges associated with the non-recurring costs of the shutdown of its South Bend plant. 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 March 31, 2000, the Company's stockholder's equity at such date of $5,658,500 would have been reduced by $1,188,800 to a stockholder's equity of $4,469,700 and the Company's working capital at March 31, 2000 would have been reduced by $502,600 from $4,065,800 to $3,563,200 20 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 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 27: Financial Data Schedule (b) Reports on Form 8-K None. 21 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: May 8, 2000 FORWARD SYSTEMS, INC. (Registrant) By: /s/ Philip B. Kart ------------------------------------- PHILIP B. KART Principal Financial Officer 22 EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S UNAUDITED BALANCE SHEET AS OF MARCH 31, 2000 AND UNAUDITED STATEMENT OF OPERATIONS FOR THE SIX MONTHS THEN ENDED. 6-MOS SEP-30-2000 OCT-01-1999 MAR-31-2000 887,031 0 4,298,058 133,800 1,556,147 7,650,814 825,460 217,400 9,243,519 3,584,998 0 0 0 62,865 9,951,357 9,243,519 9,040,651 5,956,987 5,956,987 2,246,824 0 0 63,865 813,110 225,244 587,866 0 0 0 587,866 0.10 0.08
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