10QSB 1 a2036297z10qsb.txt 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, 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 Identification No.) incorporation or organization) 1801 Green Road, Suite E Pompano Beach 33064 ---------------------------------------- ----------------------------------- (Address of principal executive offices) (Zip Code) (954) 360-6420 ------------------------------------------------ (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 January 24, 2001, 5,984,141 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 THREE MONTHS ENDED DECEMBER 31, 2000 CONTENTS
PAGE ---- PART I. FINANCIAL INFORMATION 3 Item 1. Financial Statements 3 Consolidated Balance Sheets as of December 31, 2000 (Unaudited) and September 30, 2000 3 Consolidated Statements of Income (Unaudited) for the Three Months ended December 31, 2000 and 1999 4 Consolidated Statements of Comprehensive Income for the Three Months ended December 31, 2000 and 1999 5 Consolidated Statements of Cash Flows (Unaudited) for the Three Months ended December 31, 2000 and 1999 6 Notes to Form 10-QSB (Unaudited) 7 Item 2. Management's Discussions and Analysis 9 PART II. OTHER INFORMATION 10 Item 6. Exhibits and Reports on Form 8-K 10 EXHIBIT 11 Computation of income per common share 11 SIGNATURES 13
2 PART I. ITEM 1. FINANCIAL STATEMENTS ----------------------------- FORWARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
December 31, September 30, 2000 2000 ------------- ------------- (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivelents $ 568,417 $ 840,532 Accounts receivable less allowance for doubtful accounts of $67,675 and $67,675 3,323,104 2,062,415 Inventories - net 829,313 857,082 Notes and loans receivable - current portion 143,235 143,235 Notes and loans receivable - officers - current portion 243,281 319,603 Prepaid expenses and other current assets 404,711 459,697 Deferred income taxes - current 135,000 135,000 ------------- ------------- Total current assets 5,647,061 4,817,564 PROPERTY PLANT AND EQUIPMENT - net 546,420 572,177 ------------- ------------- ASSETS HELD FOR SALE 179,475 179,475 ------------- ------------- OTHER ASSETS Notes and loans receivable - officers - net of current portion 99,040 99,040 Deferred income taxes 953,640 1,209,000 Other assets 57,888 60,071 ------------- ------------- Total other assets 1,110,568 1,368,111 ------------- ------------- TOTAL ASSETS $ 7,483,524 $ 6,937,327 ============= ============= LIABILITES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts Payable 878,526 784,950 Notes payable under credit line 503,390 350,000 Current portion of capital lease obligations 24,360 24,360 Accrued payables and other current liabilities 535,182 503,170 ------------- ------------- Total current liabilities 1,941,458 1,662,480 CAPITAL LEASE OBLIGATIONS - net of current portion 106,655 112,595 ------------- ------------- TOTAL LIABILITIES 2,048,113 1,775,075 ------------- ------------- STOCKHOLDERS' EQUITY Preferred stock, 4,000,000 authorized shares, par value $.01; none issued Common stock, 40,000,00 authorized shares, par value $.01; 6,286,531 shares issued (including 302,390 and 202,390 held in treasury) 62,865 62,865 Paid-in-capital 7,679,768 7,679,768 Accumulated deficit (1,850,441) (2,233,479) Foreign currency adjustment -- 8,799 ------------- ------------- 5,892,192 5,517,953 Less: Cost of shares in treasury (456,781) (355,701) ------------- ------------- Total stockholders' equity 5,435,411 5,162,252 ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY 7,483,524 6,937,327 ============= =============
The accompanying notes are an integral part of these financial statements. 3 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended December 31, ------------------------------- 2000 1999 ------------- ------------- NET SALES $ 4,310,350 $ 5,862,774 COST OF GOODS SOLD 2,592,909 3,791,082 ------------- ------------- GROSS PROFIT 1,717,441 2,071,692 ------------- ------------- OPERATING EXPENSES: Selling 509,376 535,423 General and administrative 545,797 712,142 ------------- ------------- Total operating expenses 1,055,173 1,247,565 ------------- ------------- INCOME FROM OPERATIONS 662,268 824,127 ------------- ------------- OTHER INCOME (EXPENSES) Interest expense (9,981) (37,077) Interest income 12,939 22,575 Other income (expense) (26,828) (4,674) ------------- ------------- Total other income (expense) (23,870) (19,176) ------------- ------------- INCOME BEFORE PROVISION FOR INCOME TAXES 638,398 804,951 PROVISION FOR INCOME TAXES 255,360 221,980 ------------- ------------- NET INCOME $ 383,038 $ 582,971 ============= ============= NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE Basic 0.06 0.10 ============= ============= Diluted 0.06 0.08 ============= ============= WEIGHTED AVERAGE NUMER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING Basic 6,050,808 6,098,308 ============= ============= Diluted 6,050,808 7,344,289 ============= ============= DIVIDENDS NONE NONE
The accompanying notes are an integral part of these financial statements. 4 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended December 31, ------------------------------ 2000 1999 -------------- -------------- NET INCOME $ 383,038 $ 582,971 COMPREHENSIVE INCOME ADJUSTMENTS: Foreign currency adjustments: --- (753) -------------- -------------- COMPREHENSIVE INCOME $ 383,038 $ 582,218 ============== ==============
The accompanying notes are an integral part of these financial statements 5 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended December 31, ------------------------------- 2000 1999 -------------- --------------- CASH FLOW FROM OPERATING ACTIVITIES: Net Income $ 383,038 $ 582,971 Adjustments to reconcile net income to net cash provided by (used in) continuing operations: Amortization of deferred debt costs 3,054 19,327 Depreciation and amortization 31,189 19,876 Deferred taxes 255,360 221,980 Changes in assets and liabilities: Accounts Receivable (1,260,689) 225,986 Inventories 27,769 (934,825) Prepaid expenses and other current assets 54,986 25,649 Other assets (870) 9,643 Accounts Payable 93,576 (552,477) Accrued expenses and other current liabilities 32,012 (112,775) -------------- --------------- NET CASH USED IN OPERATING ACTIVITIES (380,575) (494,645) -------------- --------------- CASH FLOW FROM INVESTING ACTIVITIES: Proceeds from notes and loans receivable -- 44,775 Proceeds from officer's loans - net 76,322 (77,366) Purchases of property, plant and equipment (5,432) (144,995) -------------- --------------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 70,890 (177,586) -------------- --------------- CASH FLOW FROM FINANCING ACTIVITIES: Proceeds from (payments of proceeds) short term borrowings 153,390 (193,369) Principal payments on capital lease obligations (5,940) -- Purchase of treasury shares (101,081) (30,625) -------------- --------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 46,369 (223,994) -------------- --------------- EFFECT OF EXCHANGE RATE CHANGES (8,799) (753) -------------- --------------- NET DECREASE IN CASH AND CASH EQUIVALENTS (272,115) (896,978) CASH AND CASH EQUIVILENTS - beginning 840,532 1,210,762 -------------- --------------- CASH AND CASH EQUIVILENTS - ending $ 568,417 $ 313,784 ============== =============== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 6,927 $ 11,024 Income taxes $ 8,825 $ 49,650
The accompanying notes are an integral part of the consolidated financial statements. 6 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO FORM 10-QSB THREE MONTHS ENDED DECEMBER 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 periods ended December 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, 2000 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, 2000, which could cause the Company's operating results to differ materially from those contained in any forward looking statement. 2. BORROWINGS UNDER CREDIT LINE ---------------------------- In January 2000, the Company established a $5.0 million credit line with 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. At December 31, 2000 the Company was liable for $503,400 in bankers acceptances and was contingently liable under letters of credit in the amount of $520,800. 3. INVENTORY --------- Inventory consists of the following:
December 31, 2000 September 30, 2000 ----------------- ------------------ (Unaudited) Raw materials $ 11,636 $ 12,372 Finished goods 817,677 844,710 ------- ------- $ 829,313 $ 857,082 ======= =======
4. BUSINESS SEGMENT INFORMATION ---------------------------- The Company adopted SFAS No. 131, "Disclosure About Segments of an Enterprise and Related Information" which establishes standards for reporting information about operating segments, and requires disclosures about products, geographic areas and major customers. The Company operates in a single segment that provides carrying solutions for portable electronic devices. This Carrying-Solution Segment designs and markets products to its customers that include wireless telecommunications, medical and computer companies. The carrying solution segment operates in geographic regions that include the United States and Europe. Other geographic sales include Australia and Asia. Segments are defined based primarily on the location of the customer. Segment information is as follows: 7 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO FORM 10-QSB THREE MONTHS ENDED DECEMBER 31, 2000 AND 1999 (UNAUDITED) 4. BUSINESS SEGMENT INFORMATION (CONTINUED) ----------------------------------------
THREE MONTHS ENDED DECEMBER 31, (THOUSANDS OF DOLLARS - UNAUDITED) -------------------------------------------------------------- 2000 1999 --------------- ------------- Sales: United States............ $ 1,610 $ 1,675 Europe................... 2,694 4,165 Other foreign countries.. 6 23 --------------- ------------- Total sales............. $ 4,310 $ 5,863 =============== ============= Operating income (loss): United States............ $ 217 $ 47 Europe................... 990 1,533 Other foreign countries.. (1) 1 Corporate - unallocated.. (544) (757) --------------- ------------- Total operating income.. $ 662 $ 824 =============== =============
ALLOCATION OF EXPENSES AND ASSETS: The Company operates a procurement and quality control center in Hong Kong. The cost of operating the center is allocated to segments based on their percentage of sales. The Company does not allocate taxes, other income, other expense, interest income, interest expense or general and administrative expenses to individual segments. IDENTIFIABLE ASSETS: Identifiable assets by segment are as follows:
-------------------------------------------------------------- DECEMBER 31 SEPTEMBER 30, -------------------------------------------------------------- 2000 2000 --------------- ------------- Unaudited United States............. $ 2,072 $ 1,805 Europe.................... 2,749 1,787 Other foreign countries... 109 156 Unallocated Corporate..... 2,554 3,189 --------------- ------------- Total Assets............ $ 7,484 $ 6,937 =============== =============
8 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, 2000), 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, 2000, and the three months ended December 31, 1999. THREE MONTHS ENDED DECEMBER 31, 2000 (THE "2000 QUARTER") COMPARED TO THREE MONTHS ENDED DECEMBER 31, 1999 (THE "1999 QUARTER"). The 2000 Quarter reflected net income of $383,000 as compared to $583,000 in the 1999 Quarter. Basic earnings per share decreased to $.06 in the 2000 Quarter from $.10 in the 1999 Quarter, while diluted earnings per share decreased to $.06 in the 2000 Quarter from $.08 in the 1999 Quarter. SALES. ------ Net sales decreased by $1,552,400 (26%) to $4,310,400 in the 2000 Quarter, from $5,862,800 in the 1999 Quarter. The decrease is primarily attributable to lower sales to the Company's largest customer. However, when compared to the Quarter ended September 30, 2000, sales increased by $2,337,800 or 118%. This fluctuation in sales volume is directly related to the timing of sales to that customer. GROSS PROFIT. ------------- The gross profit decreased as a result of lower sales volume by $354,300 to $1,717,400 in the 2000 Quarter from $2,071,700 in the 1999 Quarter. As a percentage of sales, however, gross profit increased to 39.8% in the 2000 Quarter from 35.3% in the 1999 Quarter. The improved gross profit percentage is a result of lower freight costs resulting from using more cost efficient methods of shipping goods and the additional savings realized as a result of the Company closing its South Bend facility and consolidating its operations in Florida. A portion of the costs of operating the South Bend facility had previously been charged to cost of sales. OPERATING EXPENSES. ------------------- Total operating expenses decreased by $192,300 (15%) to $1,055,200 in the 2000 Quarter from $1,247,600 in the 1999 Quarter. The reduction of general and administrative expenses of $166,300 was a result of lower salary and bonus costs of approximately $236,000. The salary and bonus savings were partially offset by increased legal and professional fees which increased by approximately $80,000. The remaining savings are a result of consolidating the Company's operations in Florida. PRETAX OPERATING INCOME. ------------------------ Pretax operating income declined by $166,600 (21%) to $638,400 in the 2000 Quarter as compared to $805,000 in the 1999 Quarter. As a percentage of sales, however, the pretax operating income rose to 14.8% from 13.7%. This increase is a result of the improved gross profit percentage and reduction of operating expenses discussed above. INCOME TAXES. ------------- The provision for income taxes increased by $33,400 to $255,400 in the 2000 Quarter from $222,000 in the 1999 Quarter. The effective tax rates for the 2000 and 1999 Quarters were 40% and 28%, respectively. The tax rate in the 1999 Quarter was lower due to the reduction of the valuation allowance established for deferred taxes. 9 LIQUIDITY AND CAPITAL RESOURCES. -------------------------------- Operating activities used cash of $380,600 in the 2000 Quarter. This use in operating funds resulted primarily from increases in accounts receivable of $1,260,689 which was partially offset by net income of $383,000, the add back of non-cash charges in the deferred tax account of $255,400, increases in accounts payable of $93,500, and decreases in prepaid expenses of $55,000. Net investing activities in the 2000 Quarter provided cash of $70,900 resulting primarily from payments received on Officer's notes. Financing activities in the 2000 Quarter provided cash of $46,400. The company previously paid off borrowings of $350,000 then subsequently became liable to the bank under its credit line for bankers acceptances in the amount of $503,400 resulting in net borrowings of $153,400. The Company used $101,100 of its cash to repurchase treasury stock. In January, 2000 the Company obtained a $5.0 million credit line with Chase Manhattan Bank to accommodate its growth, and terminated its former credit arrangement. The 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 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. At December 31, 2000 the Company was liable to the bank for $503,400 in bankers acceptances and was contingently liable under letters of credit in the amount of $520,800. In connection with the Company's consolidation of its offices from New York and South Bend, Indiana, to Pompano Beach, Florida, land and a building owned by the Company in South Bend, became available for sale. Current market comparisons indicate that the fair market value is equal to, or greater than, the net book value of the assets of $179,500; accordingly, the assets are presented in the accompanying balance sheet at their net book value. The Company did not incur any other long-term debt in the 2000 Quarter. At December 31, 2000, there was no long-term debt other than capital lease obligations. All installment notes and capital lease payments were made on a timely basis. DEFERRED INCOME TAXES. ---------------------- The Company's balance sheet at December 31, 2000 includes $1,088,600 of deferred income taxes as an asset, net of an allowance of $407,000. The Company was profitable in the 2000 Quarter, and in its fiscal year ended September 30, 2000, and in the fiscal year 1999 before restructuring charges associated with the non-recurring costs of the shutdown of its South Bend plant, and in the 1998 Quarter, excluding a 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, 2000, the Company's stockholder's equity at such date of $5,435,400 would have been reduced by $1,088,600 to a stockholder's equity of $4,346,800 and the Company's working capital at December 31, 2000 would have been reduced by $135,000 from $3,705,600 to $3,570,600. PART II. OTHER INFORMATION ----------------- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits required by Item 601 of Regulation SB: 10 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES EXHIBIT 11 - COMPUTATION OF INCOME PER COMMON SHARE
Three Months Ended December 31, ------------------------------------ 2000 1999 ---------- ---------- NUMERATOR Income from continuing operations $ 383,038 $ 582,971 ---------- ---------- Less: Preferred dividends -- -- ---------- ---------- Income available to common stockholders' used in basic earnings per share 383,038 BASIC 582,971 ---------- ---------- Income available to common stockholders' after assumed conversions of dilutive securities $ 383,038 DILUTED $ 582,971 ========== ========== DENOMINATOR Weighted average number of common shares outstanding - see schedule 6,050,808 BASIC 6,098,308 Impact of potential common shares: Stock options and warrants 0 1,245,981 ---------- ---------- Weighted average number of common shares including potentially dilutive securities 6,050,808 DILUTED 7,344,289 ========== ========== BASIC EARNINGS PER COMMON SHARE $ 0.06 $ 0.10 ========== ========== DILUTED EARNINGS PER COMMON SHARE $ 0.06 $ 0.08 ========== ========== CALCULATIONS Stock Options: TREASURY STOCK METHOD APPLIED TO STOCK OPTIONS Sale of common stock: Total options and warrants outstanding 0 2,483,125 Average price $ 1.52 $ 1.40 ---------- ---------- Total $ 0 $3,476,375 ========== ========== Repurchase of common stock: Proceeds 0 3,476,375 Average stock price $ 1.08 $ 2.81 ---------- ---------- Shares repurchased 0 1,237,144 ========== ========== Net increase in shares: Shares sold 0 2,483,125 Shares repurchased 0 1,237,144 ---------- ---------- Increase in shares 0 1,245,981 ========== ==========
Note: for the period ending December 31, 2000, the exercise price of all options outstanding exceeded the average stock price of $1.08, accordingly no conversion is presumed to occur. 11 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES EXHIBIT 11 - COMPUTATION OF INCOME PER COMMON SHARE Computation of Weighted Average Number of Common Shares Outstanding
DECEMBER 31, 2000 --------------------------------------- Shares Fraction Weighted Dates Outstanding Outstanding of Period Average Shares ----------- --------- -------------- October through November 6,084,141 2/3 4,056,094 Treasury stock repurchased in open market, December (100,000) ----------- December 5,984,141 1/3 1,994,714 -------------- Weighted Average Shares 6,050,808 ==============
DECEMBER 31, 1999 --------------------------------------- Shares Fraction Weighted Dates Outstanding Outstanding of Period Average Shares ----------- --------- -------------- October through November 6,101,641 2/3 4,067,761 Treasury stock repurchased in open market, December (10,000) ----------- December 6,091,641 1/3 2,030,547 -------------- Weighted Average Shares 6,098,308 ==============
12 Item 6 OTHER INFORMATION (Continued) (b) Reports on Form 8-K None. 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: January 25, 2001 FORWARD SYSTEMS, INC. (Registrant) By: /s/ Douglas W. Sabra ---------------------------------- DOUGLAS W. SABRA Principal Financial Officer 13