-----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, NBdWpC9yuEpjMHg59a6WYSgkD1G6GwfI3rO2fJzubj6Ms7Dn4uRnXFVpq1qYXnIq TDeUAnDhbp8HQ3TJ9RKGlg== 0001047469-99-030983.txt : 19990812 0001047469-99-030983.hdr.sgml : 19990812 ACCESSION NUMBER: 0001047469-99-030983 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990811 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: 99683968 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 June 30, 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 August 5, 1999, 5,938,141 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 NINE MONTHS ENDED JUNE 30, 1999 CONTENTS PAGE ---- PART I.FINANCIAL INFORMATION 3 Item 1. Financial Statements 3 Consolidated Balance Sheets as of June 30, 1999 (Unaudited) and September 30, 1998 3 Consolidated Statements of Income (Unaudited) for the Nine Months ended June 30, 1999 and 1998 5 Consolidated Statements of Comprehensive Income for the Nine Months ended June 30, 1999 and 1998 6 Consolidated Statements of Cash Flows (Unaudited) for the Nine Months ended June 30, 1999 and 1998 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 22 Item 5. Other Information 22 Item 6. Exhibits and Reports on Form 8-K 22 2 PART I. ITEM 1. FINANCIAL STATEMENTS FORWARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
June 30, September 30, 1999 1998 ---------- ---------- ASSETS (Unaudited) CURRENT ASSETS: Cash and cash equivalents $ 334,593 $ 703,920 Accounts receivable, less allowance for doubtful accounts of $104,800 and $110,800 2,348,059 2,906,843 Inventories - net 1,239,399 1,083,662 Notes and loans receivable - current portion 336,363 350,822 Notes and loans receivable - officers - current portion 30,529 32,311 Prepaid expenses and other current assets 447,069 343,536 Deferred income taxes 122,725 246,632 ---------- ---------- Total current assets 4,853,737 5,667,726 ---------- ---------- PROPERTY, PLANT AND EQUIPMENT - net 469,188 187,454 ---------- ---------- OTHER ASSETS: Deferrred income taxes 1,502,395 1,502,395 Note receivable - net of current portion 107,084 345,766 Property and equipment held for sale -- 154,200 Notes and loans receivable - officers - net of current portion 76,503 83,962 Deferred debt costs 51,538 85,161 Other assets 73,472 59,412 ---------- ---------- 2,280,180 2,230,896 ---------- ---------- $7,133,917 $8,086,076 ========== ==========
The accompanying notes are an integral part of these financial statements. 3 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
June 30, September 30, LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998 - ------------------------------------ ----------- ----------- (Unaudited) CURRENT LIABILITIES: Borrowings under credit line $ 909,188 $ 1,244,103 Accounts payable 1,259,308 1,215,572 Convertible notes payable -- 554,000 Notes payable - related party -- 42,670 Accrued expenses and other current liabilities 589,582 1,218,574 Accrued severance to officer 150,000 350,000 ----------- ----------- Total current liabilities 2,908,078 4,624,919 ----------- ----------- 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 6,103,031 shares and 4,973,031 shares (including 164,890 held in treasury) 61,030 49,630 Paid-in capital 7,375,353 6,551,703 Accumulated deficit (2,975,486) (2,884,346) Comprehensive income adjustment 3,055 (17,717) ----------- ----------- 4,463,952 3,699,270 Less: Cost of shares in treasury 238,113 238,113 ----------- ----------- Total stockholders' equity 4,225,839 3,461,157 ----------- ----------- $ 7,133,917 $ 8,086,076 =========== ===========
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 Nine Months Ended June 30, June 30, ----------------------------- ------------------------------ 1999 1998 1999 1998 ----------- ----------- ------------ ----------- NET SALES $ 3,821,585 $ 3,066,961 $ 11,420,320 $ 9,265,256 COST OF GOODS SOLD 2,700,169 2,122,064 8,102,089 6,285,992 ----------- ----------- ------------ ----------- GROSS PROFIT 1,121,416 944,897 3,318,231 2,979,264 ----------- ----------- ------------ ----------- OPERATING EXPENSES: Distribution 8,406 12,972 28,472 21,292 Selling 399,875 308,681 1,132,064 966,858 General and administration 558,549 460,070 1,864,337 1,604,345 ----------- ----------- ------------ ----------- 966,830 781,723 3,024,873 2,592,495 ----------- ----------- ------------ ----------- INCOME FROM OPERATIONS 154,586 163,174 293,358 386,769 ----------- ----------- ------------ ----------- OTHER INCOME (DEDUCTIONS): Interest expense (25,398) (75,891) (95,920) (227,447) Interest expense - related parties (196) (9,482) (1,709) (9,482) Interest income 16,638 46,547 57,271 115,053 Rental income - net -- -- -- (60,730) Other income - net (25,370) (46,985) 56,767 555,386 ----------- ----------- ------------ ----------- (34,326) (85,811) 16,409 372,780 ----------- ----------- ------------ ----------- INCOME BEFORE PROVISION FOR INCOME TAXES 120,260 77,363 309,767 759,549 PROVISION FOR INCOME TAXES 48,104 30,945 123,907 303,818 ----------- ----------- ------------ ----------- INCOME BEFORE EXTRAORDINARY ITEM 72,156 46,418 185,860 455,731 ----------- ----------- ------------ ----------- EXTRAORDINARY ITEM: Non-cash interest charge upon conversion of promissory notes (net of income tax benefit of $ -0-) (Note 4) -- -- (277,000) -- ----------- ----------- ------------ ----------- NET INCOME $ 72,156 $ 46,418 $ (91,140) $ 455,731 =========== =========== ============ =========== NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE: Basic: Income before extraordinary item $ 0.01 $ 0.01 $ 0.03 $0 .10 Extraordinary item -- -- (0.05) -- ----------- ----------- ------------ ----------- $ 0.01 $ 0.01 $ (0.02) $ 0.10 =========== =========== ============ =========== Diluted: Income before extraordinary item $ 0.01 $ 0.01 $ 0.03 $ 0.08 Extraordinary Item -- -- (0.05) -- ----------- ----------- ------------ ----------- $ 0.01 $ 0.01 $ (0.02) $ 0.08 =========== =========== ============ =========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES 5,931,474 4,748,141 5,670,808 4,601,475 =========== =========== ============ =========== DIVIDENDS NONE NONE NONE N0NE
5 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) Nine Months Ended June 30, ----------------------- 1999 1998 -------- -------- NET INCOME (LOSS) $(91,140) $455,731 COMPREHENSIVE INCOME ADJUSTMENTS: Foreign currency translation 20,772 -- -------- -------- COMPREHENSIVE INCOME (LOSS) $(70,368) $455,731 ======== ======== The accompanying notes are an integral part of these financial statements 6 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended June 30, --------------------------- 1999 1998 --------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ (91,140) $ 455,731 Adjustments to reconcile net income to net cash provided by (used in) continuing operations: Extraordinary interest charge 277,000 -- Gain on sale of property and equipment (73,769) (593,076) Depreciation and amortization 38,491 85,484 Amortization of deferred debt costs 36,434 89,406 Deferred taxes 123,907 303,818 Non-cash compensation -- 51,287 Changes in assets and liabilities: Accounts receivable 558,784 967,927 Inventories (155,737) (613,979) Prepaid expenses and other current assets 87,221 (106,002) Other assets (14,060) (37,416) Accounts payable 43,736 (733,470) Accrued expenses and other current liabilities (628,992) 4,570 Accrued severance to officer (200,000) -- --------- ----------- NET CASH (USED IN) PROVIDED BY OPERATIONS 1,875 (125,720) --------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Net proceeds from sale of property and equipment 37,215 643,830 Proceeds from notes and loans receivable 258,141 694,737 Proceeds from collections from officers 9,241 42,750 Purchases of property, plant and equipment (320,225) (104,500) --------- ----------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (15,628) 1,276,817 --------- -----------
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)
Nine Months Ended June 30, --------------------------- 1999 1998 --------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from (repayment of) short-term borrowings (334,915) (516,569) Proceeds from long-term notes -- 10,000 Payments of long-term notes -- (225,001) Payments of mortgage -- (1,057,748) Payments of notes payable - related parties (42,670) (30,000) Proceeds from issuances of stock 16,000 414,000 Deferred offering costs (11,950) (23,532) Deferred debt costs (2,811) (93,469) --------- ----------- NET CASH USED IN FINANCING ACTIVITIES (376,346) (1,522,319) --------- ----------- EFFECT OF EXCHANGE RATE CHANGES 20,772 -- --------- ----------- NET CHANGE IN CASH AND CASH EQUIVALENTS (369,327) (371,222) CASH AND CASH EQUIVALENTS - beginning 703,920 1,365,198 --------- ----------- CASH AND CASH EQUIVALENTS - ending $ 334,593 $ 993,976 ========= =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 51,657 $ 77,503 Income taxes $ 1,981 $ 10,422 SCHEDULE OF NON-CASH ACTIVITES: Discount on repayment of mortgage debt $ -- $ 55,529 Offset of deferred offering costs to paid in capital $ -- $ 90,474 Warrants issued for services rendered $ -- $ 10,417 Issuance of common stock upon conversion of long-term debt $ 554,000 $ -- Issuance of promissory notes upon closing of Private Placement Units $ -- $ 185,000 Sale of property and equipment held for sale $ 190,554 $ -- Conversion of amounts due from sale of business to notes receivable $ -- $ 97,785
The accompanying notes are an integral part of the consolidated financial statements. 8 FORWARD INDUSTRIES, INC.AND SUBSIDAIRIES NOTES TO FORM 10-QSB NINE MONTHS ENDED JUNE 30, 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 June 30, 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, 1998 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. All information in this Form 10-QSB has been adjusted to give effect for a one-for-two reverse stock split, as declared by the Board of Directors, of the Company's issued and outstanding common stock, par value $.01 per share, effected on December 23, 1997. 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, 1998, 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 June 30, 1999, amounts outstanding were $909,200. In addition, the Company was contingently liable under letters of credit and acceptances in the amount of $425,400. The credit agreement provides for certain financial covenants with which Forward and Koszegi were in compliance. 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, 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 9 and Private Placement Warrants to 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. 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: June 30, 1999 September 30, 1998 ------------- ------------------ (Unaudited) Raw materials $ 76,931 $ 101,859 Work in process -- 119,095 Finished goods 1,162,468 862,708 ------------ ---------- $ 1,239,399 $1,083,662 ============ ========== 6. SALE OF ASSETS In December 1997, the Company sold a building for $830,000 and recognized a profit of approximately $669,000. Such profit is included in other income in the consolidated statement of income for the nine months ended June 30, 1998. During the second quarter ended March 31, 1999, the Company sold certain production equipment and recognized a profit of approximately $74,000. The profit is included in other income in the consolidated statement of income for the nine months ended June 30, 1999. 10 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES EXHIBIT 11 - COMPUTATION OF INCOME PER COMMON SHARE
THREE MONTHS ENDED JUNE 30, ------------------------------------------ 1999 1998 ---------- ---------- NUMERATOR Income from continuing operations: Income from continuing operations: $ 72,156 $ 46,418 Less: Preferred dividends -- -- ---------- ---------- Income available to common stockholders used in basic EPS 72,156 BASIC 46,418 Impact of potential common shares: Convertible debt -- 8,310 Income available to common stockholders after assumed conversions of dilutive securities $ 72,156 DILUTED $ 54,728 ========== ========== DENOMINATOR Weighted average number of common shares outstanding - See schedule 5,931,474 BASIC 4,748,141 Impact of potential common shares: Stock options and warrants 165,965 385,078 Convertible debt N/A 1,108,000 ---------- ---------- Weighted average number of common shares and dilutive potential common stock used in dilutive EPS 6,097,439 DILUTED 6,241,219 ========== ========== BASIC EPS Income from continuing operations $ 0.01 $ 0.01 DILUTED EPS Income from continuing operations $ 0.01 $ 0.01
11 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES EXHIBIT 11 - COMPUTATION OF INCOME PER COMMON SHARE
THREE MONTHS ENDED JUNE 30, ------------------------ 1999 1998 -------- ---------- CALCULATIONS 1. Stock Options Treasury Stock Method Applied to Stock Options Sale of common stock Total options and warrants outstanding 486,800 1,121,250 Average price $ 0.87 $ 1.87 -------- ---------- Total $423,400 $2,091,719 ======== ========== Repurchase of common stock Proceeds $423,400 $2,091,719 Average stock price $ 1.32 $ 2.84 -------- ---------- Shares repurchased 320,835 736,172 ======== ========== Net increase in shares Shares sold 486,800 1,121,250 Shares repurchased 320,835 736,172 -------- ---------- Increase in shares 165,965 504,514 ======== ========== 2. Convertible debt Terms: Interest rate -- 10% Par -- $ 10,000 Convertible into shares -- 20,000 Conversion price -- N/A # of units -- $ 55.4 Total debt -- $ 554,000 If-converted Method Applied to Convertible Debt Numerator increase - interest savings assuming a 40% tax rate $ -- $ 8,310 ======== ========== Denominator increase - assuming conversion -- 1,108,000 ======== ========== 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 JUNE 30, 1999 -------------------------------- Weighted Dates Shares Fraction of Average Outstanding Outstanding Period Shares ----------- ----------- ------ ------ April through May 5,928,141 2/3 3,952,094 Common stock issued in connection with conversion of Class B warrants 10,000 --------- June 5,938,141 1/3 1,979,380 --------- Weighted Average Shares 5,931,474 ========= THREE MONTHS ENDED JUNE 30, 1998 -------------------------------- Weighted Dates Shares Fraction of Average Outstanding Outstanding Period Shares ----------- ----------- ------ ------ April through May 4,723,141 2/3 3,148,761 Common stock issued for exercised options 75,000 --------- June 4,798,141 1/3 1,599,380 Weighted Average Shares 4,748,141 =========
13 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES EXHIBIT 11 - COMPUTATION OF INCOME PER COMMON SHARE
NINE MONTHS ENDED JUNE 30, -------------------------- 1999 1998 -------------- ---------- NUMERATOR Income from continuing operations: Income from continuing operations: $ 185,860 $ 455,731 Less: Preferred dividends -- -- -------------- ---------- Income available to common stockholders used in basic EPS 185,860 BASIC 455,731 Impact of potential common shares: Convertible debt -- 24,930 Income available to common stockholders after assumed conversions of dilutive securities $ 185,860 DILUTED $ 480,661 ============== ========== Loss from extraordinary item $ (277,000) $ -- ============== ========== DENOMINATOR Weighted average number of common shares outstanding - See schedule 5,670,808 BASIC 4,601,475 Impact of potential common shares: Stock options and warrants 107.846 353,466 Convertible debt N/A 1,108,000 -------------- ---------- Weighted average number of common shares and dilutive potential common stock used in dilutive EPS 5,778,654 DILUTED 6,062,941 ============== ========== BASIC EPS Income from continuing operations $ 0.03 $ 0.10 Extaordinary Item (0.05) 0.00 -------------- ---------- $ (0.02) $ 0.10 ============== ========== DILUTED EPS Income from continuing operations $ 0.03 $ 0.08 Extraordinary Item (0.05) 0.00 -------------- ---------- $ (0.02) $ 0.08 ============== ==========
14 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES EXHIBIT 11 - COMPUTATION OF INCOME PER COMMON SHARE
NINE MONTHS ENDED JUNE 30, -------------------------- 1999 1998 ---------- ---------- CALCULATIONS 1. Stock Options Treasury Stock Method Applied to Stock Options Sale of common stock Total options and warrants outstanding 486,800 1,121,250 Average price $ 0.87 $ 1.87 ---------- ---------- Total $ 423,400 $2,091,719 ========== ========== Repurchase of common stock Proceeds $ 423,400 $2,091,719 Average stock price $ 1.12 $ 2.72 ---------- ---------- Shares repurchased 378,954 767,784 ========== ========== Net increase in shares Shares sold 486,800 1,121,250 Shares repurchased 378,954 767,784 ---------- ---------- Increase in shares 107,846 353,468 ========== ========== 2. Convertible debt Terms: Interest rate 10% Par $ 10,000 Convertible into shares 20,000 Conversion price N/A # of units $ 55.4 Total debt $ 554,000 If-converted Method Applied to Convertible Debt Numerator increase - interest savings assuming a 40% tax rate $ -- $ 24,930 ========== ========== Denominator increase - assuming conversion -- 1,108,000 ========== ==========
15 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES EXHIBIT 11 - COMPUTATION OF INCOME PER COMMON SHARE Computation of Weighted Average Number of Common Shares Outstanding NINE MONTHS ENDED JUNE 30, 1999 ------------------------------- Weighted Dates Shares Fraction of Average Outstanding Outstanding Period Shares ----------- ----------- ------ ------ October through November 4,798,141 2/9 1,066,254 Common stock issued in connection with conversion of private placement debt, in December 1,108,000 --------- December through February 5,906,141 3/9 1,968,714 Common stock issued in connection with conversion of Class B warrants 22,000 ------ March through May 5,928,141 3/9 1,976,047 --------- Common stock issued in connection with conversion of Class B warrants 10,000 ------ June 5,938,141 1/9 659,793 Weighted Average Shares 5,670,808 ========= NINE MONTHS ENDED JUNE 30, 1998 ------------------------------- Weighted Dates Shares Fraction of Average Outstanding Outstanding Period Shares ----------- ----------- ------ ------ October through November 4,138,141 2/9 919,587 Common stock issued in connection with private placement in December 585,000 --------- December through May 4,723,141 6/9 3,148,761 --------- Common stock issued for exercised options 75,000 --------- June 4,798,141 1/9 533,127 Weighted Average Shares 4,601,475 ========= 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, 1998) 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 Nine Months ended June 30, 1999, and the Three and Nine Months ended June 30, 1998. THREE MONTHS ENDED JUNE 30, 1999 (THE "1999 QUARTER") COMPARED TO THREE MONTHS ENDED JUNE 30, 1998 (THE "1998 QUARTER") The 1999 Quarter reflected net income of $72,200 compared to net income of $46,400 in the 1998 Quarter. Basic and diluted earnings per share from continuing operations were $0.01 in the 1998 Quarter and the 1999 Quarter. REVENUES. Net sales increased $754,600 (25%) to $3,821,600 in the 1999 Quarter, from $3,067,000 in the 1998 Quarter. The increase is attributable to growth in business from both existing and new customers, and specifically to the Company's expansion efforts in its European operations and customer accounts. The Company expects to report accelerated sales growth and substantial increases in profitability in the next quarter. OPERATING INCOME. Consolidated pretax income from continuing operations increased by $42,900 to a profit of $120,300 in the 1999 Quarter, from $77,400 in the 1998 Quarter. This improvement resulted primarily from $176,500 in increased gross margin from higher sales, $51,500 in increases from other income items, offset by $185,100 in increases in selling, general administrative expenses and distribution, more fully described below. The gross margin percentage declined from 31% in the 1998 Quarter to 29% in the 1999 Quarter. The decrease relates substantially to increased costs and expenditures associated with the Company's Hong Kong quality assurance and distribution facility. Greater expenditures were required as overseas production demand increased due to customer requirements and as a result of the shutdown of the South Bend facility. Selling expenses increased $91,200 (30%) from $308,700 in the 1998 Quarter to $399,900 in the 1999 Quarter due to increases in salaries, wages and benefits for both domestic and European sales staff, higher travel expenses and warehousing fees, offset by lower advertising and costs for samples. However, the ratio of selling expenses to net sales declined from 12% to 10%, due to increase in revenues. General and administrative expenses decreased as a percentage of net sales to 15% in the 1999 Quarter from 19% in the 1998 Quarter but the dollar amount of expenses increased $98,400 (21%) to $558,500 in the 1999 Quarter from $460,100 in the 1998 Quarter. The increase is primarily related to payroll increases associated with a new management team including the Chief Executive Officer position, higher professional fees, public relations expenses and telephone costs, partially offset by lower travel costs. OTHER INCOME (DEDUCTIONS). Total interest expenses decreased by $60,700 to $24,700 in the 1999 Quarter from $85,400 in the 1998 Quarter. The decrease was due to lower interest rates, better collections of accounts receivable resulting in lower outstanding bank borrowings, and lower interest due to the conversion of notes payable into common stock in the 1999 Period. Interest income and other income-net decreased to an expense of $8,700 in the 1999 Quarter from zero in the 1998 Quarter. 17 INCOME TAXES. The provision for income taxes increased by $17,200 to $48,100 due to an increase in pretax profits in the 1999 Quarter from the comparable period in the 1998 Quarter. The effective tax rates for the 1999 and 1998 Quarters were 40%. NINE MONTHS ENDED JUNE 30, 1999 (THE "1999 PERIOD") COMPARED TO NINE MONTHS ENDED JUNE 30, 1998 (THE "1998 PERIOD") The 1999 Period reflected a net loss of ($91,100) compared to net income of $455,700 in the 1998 Period. However, after excluding certain non-recurring items in both periods, net income improved by nearly $131,600. Excluding the gain on the sale of a building in the 1998 Period of $401,400, the operations generated a net gain of approximately $54,300. In the 1999 Period, operations generated net income of $185,900 prior to the extraordinary non-cash charge of $277,000 described below. Basic earnings per share from continued operations decreased from $0.10 in the 1998 Period to loss of $0.02 in the 1999 Period, while diluted earnings per share from continuing operations decreased from $0.08 in the 1998 Period to loss of $0.02 in the 1999 Period, also as a result of a non-recurring item. REVENUES. Net sales increased $2,155,000 (23%) to $11,420,330 in the 1999 Period, from $9,265,300 in the 1998 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 and customer accounts. The Company expects to report accelerated sales growth and substantial increases in profitability in the next quarter. OPERATING INCOME. Consolidated pretax income from continuing operations decreased by $449,700 to a profit of $309,800 in the 1999 Period, from $759,500 in the 1998 Period. The decrease is wholly related to the gain on the sale of the Company's building, representing $669,000 before tax, in the 1998 Period. Excluding this item, the comparison would show a pretax operating income of $90,500 in the 1998 Period compared with pretax operating income in the 1999 Period of $309,800, an increase of $219,300. The increase in pretax profits relates primarily to an increase in gross margin of $338,900 resulting from higher sales, decreases in interest expense of 139,300, and increases in other income items $173,500, offset by increases in selling, distribution, general and administrative expenses of $432,400, each described below. Gross margin percentage decreased from 32% in the 1998 Period to 29% in the 1999 Period. Approximately 2% of the change was for increased expenditures at the Company's Hong Kong quality control center to meet the demands and costs of increased business, as well as upgrading its operating standards for IS0 9002 Certification. The remainder of the margin percentage difference is related to changes in the sales mix. Selling expenses increased $165,200 (11%) from $966,900 in the 1998 Period to $1,132,100 in the 1999 Period due to increases in salaries both domestically and in Europe, increased travel expenses, increased rent for expanding the European operations and expenses for designs and printing, offset by a reduction in advertising. The ratio of selling expenses to net sales was 10%, in both periods. General and administrative expenses decreased as a percentage of net sales, to 16% in the 1999 Period from 17% in the 1998 Period, but the dollar amount of expenses increased $260,000 (14%) to $1,864,300 in the 1999 Period from $1,604,300 in the 1997 Period. The increase is primarily related to higher payroll expenses in association with expanding the senior management team, including a new Chief Executive Officer, higher professional fees and telephone costs offset by lower travel expenses. OTHER INCOME (DEDUCTIONS). Total interest expense decreased by $139,300 to $97,600 in the 1999 Period from $236,900 in the 1998 Period. The decrease was due to lower interest rates, better collections of accounts receivable resulting in lower outstanding bank borrowings, the conversion of notes payable into common stock in the 1999 Period, and the repayment of the mortgage on the Company's building in December 1997. 18 The Company's rental building in Brooklyn, New York was sold in December 1997. As a result, rental income - net decreased from a loss of ($60,700) in the 1998 Period to zero in the 1999 Period. Interest income and other income - net decreased $495,700 to $114,000 in the 1999 Period from $609,200 in the 1998 Period. The decrease is primarily related to the gain on the sale of the Brooklyn building of $669,000, recorded in December 1997. EXTRAORDINARY ITEM. 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 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 1998 Quarter. INCOME TAXES. The provision for income taxes decreased by $179,900 due to a $449,700 decrease in pretax profits in the 1999 Period from the comparable period in 1998 Period. The effective tax rates for the 1998 and 1997 Quarters were 40%. No tax benefit was recorded relating to the extraordinary interest charge as it is not deductible for income tax purposes. LIQUIDITY AND CAPITAL RESOURCES. In the 1999 Period, $1,875 of cash was generated by operating activities. This increase in operating funds resulted primarily from a decrease in accounts receivable of $558,800; the add back of a non-cash extraordinary charge of $277,000;a decrease in deferred taxes of $123,900 and a decrease in prepaid and other assets, net, of $73,100. Offsetting these amounts was a net loss in the 1999 Period of ($91,100); decreases in accounts payable and accrued expenses of $785,300 and an increase in inventories of $155,700. Net investing activities in the 1999 Period used cash of $15,600. The Company collected $258,100 of notes receivable, which arose from the sale of its discontinued operations in 1997, $9,200 of loans made to its officers, and received $37,200 from the sale of assets. In the 1999 Period, the Company purchased $320,200 of property, plant and equipment. Financing activities in the 1999 Period used cash of $376,300. Funds were used for payments of borrowing under the bank credit line of $334,900, note payments to a related party of $42,700 and $14,700 for expenses in connection with the note conversion described below and debt costs. Offsetting this amount were $16,000 of funds received from the exercise of warrants into common shares. As of June 30, 1999, there remained outstanding Class B warrants exercisable for 187,000 shares at $.50 per share, which were originally scheduled to expire February 1, 1999. On January 28, 1999, the Company extended such expiration date to September 30, 1999. The Company's Common Stock is traded on the Nasdaq SmallCap Market and, during the first days immediately preceding August 5, 1999 was trading in the range of approximately $1.50 per share. The Company anticipates that holders of its remaining outstanding warrants will continue to exercise such warrants only if the Common Stock trades at a substantial premium over the exercise price of the warrants, of which there can be no assurance. During Fiscal 1997 and 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 19 warrants to purchase 1,662,000 shares of Common Stock (such warrants expired on March 15, 1999 and are no longer outstanding), 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 new line of credit with a bank in April 1998 and are indebted to such bank for short-term borrowings and letters of credit. The total line is for $4,500,000. The line of credit is scheduled to mature on March 31, 2001. 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 Company used the new credit availability to pay its outstanding indebtedness on its former credit line of $937,000. The former credit line had a maximum availability of $1,100,000 of which $750,000 was reserved for letters of credit (acceptances). In addition, the Company also used the facility to repay outstanding letters of credit financed by a third party. The new facility contains certain financial covenants for which the Company was in compliance. Amounts owed the bank at June 30, 1999 including contingent liability for letters of credit were $1,334,600; there remained approximately $173,000 of additional availability. In September 1998, the Company commenced a plan which it believes will 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 South Bend, Indiana manufacturing operations on February 28, 1999, but continued to provide required domestic manufacturing through a contractual arrangement with MedCovers, Inc., of Raleigh, North Carolina. However, the vast majority of the Company's orders are now manufactured overseas. Under the agreement, the Company sold to MedCovers certain key production equipment, and is providing technical support and quality assurance personnel at MedCovers factory. The Company also uses other third party sources for such production as appropriate. The Company incurred expenditures during the current quarter related to the plant shutdown, which were accrued at September 30, 1998. Funds for such expenditures are being 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, at a cost of approximately $100,000 was paid from the Company's existing funds. The Company, like many others which own computer software, has been required to address the issue of software applications which are 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 $130,000 during fiscal 1999, encompassing the cost of new hardware and software. Such amounts were paid from existing cash. Hardware and software were installed during December 1998 and January 1999. The Company has been incurring internal staff costs associated with training. Cost of staff time is expensed as incurred, while cost of the new system is being capitalized and amortized over its useful life. 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 and $150,000 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 did not incur any other long-term debt in the 1999 Quarter. At June 30, 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 June 30, 1999 includes $1,625,100 of deferred income taxes as an asset. The Company was profitable in the 1999 Quarter, and in fiscal 1998, before restructuring charges associated with the non-recurring costs of the shutdown of its South Bend plant, and in the 1998 Quarter. 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 June 30, 1999, the Company's stockholder's equity at such date of would have been reduced by $1,625,100 to a 20 stockholder's equity of $2,600,700 and the Company's working capital at June 30, 1999 would have been reduced by $122,700 from $1,945,700 to $1,822,900. 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. 21 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 27: Financial Data Schedule (b) Reports on Form 8-K None. ************ 22 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: August 5, 1999 FORWARD SYSTEMS, INC. (Registrant) By: /s/ Philip B. Kart -------------------------------- PHILIP B. KART Principal Financial Officer EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S UNAUDITED BALANCE SHEET AS OF JUNE 30, 1999 AND UNAUDITED STATEMENT OF OPERATIONS FOR THE NINE MONTHS THEN ENDED. 9-MOS SEP-30-1999 OCT-01-1998 JUN-30-1999 334,593 0 2,452,859 104,800 1,239,399 4,853,737 604,206 135,017 7,133,917 2,908,078 0 61,030 0 0 4,402,922 7,133,917 11,420,320 11,420,320 8,102,089 8,102,089 3,024,873 0 97,629 309,767 123,907 185,860 0 (277,000) 0 (91,140) (0.02) (0.02)
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