-----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, IGa+cYKBAhoibijym3xyFAoR7P+tAV5si08ACgKl3q3gfz0GtRrnJw/IB7ohKo3l oTz7Ch8Ih3ReZ76LEs2aAw== 0000916513-00-000003.txt : 20000516 0000916513-00-000003.hdr.sgml : 20000516 ACCESSION NUMBER: 0000916513-00-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FORECROSS CORP CENTRAL INDEX KEY: 0000916513 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 942823882 STATE OF INCORPORATION: CA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-29672 FILM NUMBER: 635321 BUSINESS ADDRESS: STREET 1: 90 NEW MONGOMERY STREET CITY: SAN FRANCISCO STATE: CA ZIP: 94105 BUSINESS PHONE: 4155431515 MAIL ADDRESS: STREET 1: 90 NEW MONTGOMERY ST CITY: SAN FRANCISCO STATE: CA ZIP: 94105 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-29672 FORECROSS CORPORATION CALIFORNIA 94-2823882 (State or other jurisdiction (I.R.S. Employer incorporation or organization) Identification No.) 90 NEW MONTGOMERY STREET SAN FRANCISCO, CALIFORNIA 94105 Address of principal executive offices) TELEPHONE: (415) 543-1515 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (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 . Shares outstanding of the Registrant's common stock: Class Outstanding at March 31, 2000 Common Stock, no par value 15,043,480 FORECROSS CORPORATION FORM 10-Q TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheets at March 31, 2000 (unaudited) and September 30, 1999 Statements of Operations (unaudited) for the three and six months ended March 31, 2000 and 1999 Statements of Cash Flows (unaudited) for the six months ended March 31, 2000 and 1999 Statement of Shareholder Deficit at March 31, 2000 Notes to Unaudited Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 1. Legal Proceedings Item 2. Recent Sales of Unregistered Securities Item 3. Defaults Upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K Signature Page Exhibit Index PART I. FINANCIAL INFORMATION
FORECROSS CORPORATION BALANCE SHEETS Mar.31, Sept. 30, 2000 1999 ------------ ----------- (Unaudited) (Audited) ASSETS Current assets: Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,219,550 $ 2,740 Accounts receivable, including unbilled receivables of $26,295 and $77,384, net of allowance of $20,000 and $45,000, respectively . . 494,355 375,893 Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . 21,473 45,070 ------------ ----------- Total current assets . . . . . . . . . . . . . . . . . . . . . . . . 1,735,378 423,703 Equipment and furniture, net . . . . . . . . . . . . . . . . . . . . . 152,861 277,532 Notes receivable from others . . . . . . . . . . . . . . . . . . . . . 70,576 68,707 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,365 42,365 ------------ ----------- Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,001,180 $ 812,307 ============ =========== LIABILITIES AND SHAREHOLDERS' DEFICIT Current liabilities: Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 623,340 $ 631,479 Accrued compensation and related benefits . . . . . . . . . . . . . . 641,455 682,533 Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 157,749 158,090 Accrued commissions and distributors' fees . . . . . . . . . . . . . . 32,475 1,514,650 Payable to factor . . . . . . . . . . . . . . . . . . . . . . . . . . 398,487 861,427 Accrued warranty costs . . . . . . . . . . . . . . . . . . . . . . . . 95,691 184,828 Capital lease obligations due within one year. . . . . . . . . . . . . 27,714 23,215 Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . 736,471 684,652 ------------ ----------- Total current liabilities. . . . . . . . . . . . . . . . . . . . . . 2,713,382 4,740,874 Deferred revenue, less current portion . . . . . . . . . . . . . . . . 697,917 980,418 Notes payable to officers, net . . . . . . . . . . . . . . . . . . . - 750,176 Capital lease obligations, less current portion. . . . . . . . . . . . 4,737 19,716 ------------ ----------- Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 3,416,036 6,491,184 ------------ ----------- Shareholders' deficit: Common stock, no par value; authorized 20,000,000 shares; issued and outstanding 15,043,480 and 12,191,944, respectively . . . . . . . . . 9,720,553 5,044,582 Additional paid in capital . . . . . . . . . . . . . . . . . . . . . . 954,000 - Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . (12,089,409) (10,723,459) ------------ ----------- Total shareholders' deficit. . . . . . . . . . . . . . . . . . . . . . (1,414,856) (5,678,877) ------------ ----------- Total liabilities and shareholders' deficit. . . . . . . . . . . . . $ 2,001,180 $ 812,307 ============ ============
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FORECROSS CORPORATION STATEMENTS OF OPERATIONS For the Three Months Ended For the Six Months Ended March 31, March 31, --------------------------- -------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ----------- (Unaudited) (Unaudited) (Unaudited) (Unaudited) Net revenue: Services and maintenance . . . . . . . . $ 376,568 $ 824,367 $ 1,657,222 $ 1,448,031 Software licenses and distributorship fees-related parties . . . . . . . . . 136,248 136,251 272,499 272,502 ------------ ------------ ------------ ------------ Total net revenue . . . . . . . . . . 512,816 960,618 1,929,721 1,720,533 Cost of services and maintenance including fees to related parties of ($23,000), $31,000, $18,000 and $62,000 respectively . . . . . . . . . 216,266 697,111 768,318 1,339,717 ------------ ------------ ------------ ------------ Gross margin . . . . . . . . . . . . . . 296,550 263,507 1,161,403 380,816 ------------ ------------ ------------ ------------ Operating expenses: Sales and marketing including fees to related parties of ($68,000), $94,000, $55,000 and $201,000 respectively. . . 41,667 230,917 318,392 455,776 Research and development . . . . . . . . 235,775 186,621 434,166 404,659 General and administrative . . . . . . . 1,233,413 298,875 1,515,882 608,410 ------------ ------------ ------------ ------------ Total operating expenses . . . . . . . . 1,510,855 716,413 2,268,440 1,468,845 ------------ ------------ ------------ ------------ Loss from operations . . . . . . . . . . (1,214,305) (452,906) (1,107,037) (1,088,029) Interest expense, net. . . . . . . . . . (117,059) (112,995) (258,913) (246,983) ------------ ------------ ------------ ------------ Loss before provision for income taxes . . . . . . . . . . . . . (1,331,364) (565,901) (1,365,950) (1,335,012) Provision for income taxes . . . . . . . - 800 - 800 ------------ ------------ ------------ ------------ Net Loss . . . . . . . . . . . . . . . $(1,331,364) $ (566,701) $(1,365,950) $ (1,335,812) ============ ============ ============ ============ Net loss per share - basic and diluted . . . . . . . . . . . . . $ (0.10) $ (0.05) $ (0.11) $ (0.11) ============ ============ ============ ============ Weighted average shares used in computing per share data . . . . . . . 13,617,328 12,087,361 13,006,449 11,948,611 ============ ============ ============ ============
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FORECROSS CORPORATION STATEMENTS OF CASH FLOWS For the Six Months Ended March 31, 2000 1999 ------------ ------------ (Unaudited) (Unaudited) Increase (decrease) in cash resulting from: Cash flows from operating activities: Net loss . . . . . . . . . . . . . . . . . . $(1,365,950) $(1,335,812) Adjustments to reconcile net loss to net cash provided by (used in) operating activities- Provision for uncollectible amounts (25,000) (106,649) Non Cash compensation expense related to Private Placement . . . . . . . . . . . . . . 954,000 - Value of common stock issued and value assigned to extension of warrant term. . . . - 38,250 Depreciation and amortization. . . . . . . . . 124,671 151,305 Deferred Compensation. . . . . . . . . . . . . 258,728 - Changes in operating assets and liabilities- Accounts receivable. . . . . . . . . . . . . . (93,462) 844,761 Other assets and accrued interest on notes receivable from officers . . . . . . . . . . 21,728 12,172 Accounts payable and accrued liabilities . . . 249,092 308,786 Deferred revenue . . . . . . . . . . . . . . . (230,682) (276,477) ------------ ------------ Net cash provided by (used in)operating activities . . . . . . . . . . . . . . . . . . (106,875) (363,644) ------------ ------------ Cash flows from investing activities: Payments received on loans to key employees - 150 ------------ ------------ Cash flows from financing activities: Proceeds from factoring of accounts receivable 927,662 1,874,548 Repayment of borrowings under factoring arrangement . . . . . . . . . . . . . . . . . (1,390,602) (1,735,324) Repayment of borrowings under notes payable -officers. . . . . . . . . . . . . . . . . . (51,269) (118,566) Repayment of borrowings under capitalized leases (10,480) (10,582) Net proceeds from issuance of common shares . 1,848,374 290,817 ------------ ------------ Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . 1,323,685 300,893 ------------ ------------ Net increase (decrease) in cash. . . . . . . 1,216,810 (62,621) Cash at beginning of period. . . . . . . . . . 2,740 98,249 ------------ ------------ Cash at end of period . . . . . . . . . . . . $ 1,219,550 $ 35,628 ============ ============ Supplemental disclosures of cash flow information: Cash paid during the period for interest . . . $ 129,901 $ 96,473 ============ ============ Supplemental disclosures of non-cash investing and financing activities: Accrued interest on notes payable to officers $ 59,333 $ 60,334 ============ ============ Value of common stock issued and assigned to extension of warrant term in exchange for surrender of certain demand registration rights and certain other consideration $ - $ 38,250 ============ ============
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FORECROSS CORPORATION STATEMENTS OF SHAREHOLDERS' DEFICIT Common Stock Additional Accumulated Total Shares Amount Paid in Capital Deficit Deficit ----------- ----------- --------------- ------------- ------------ Balances at October 1, 1999. . . . . 12,191,944 $5,044,582 $ - $(10,723,459) $(5,678,877) Issuance of common stock for cash, net of stock issuance costs of $18,626 (Note 5). . . . . . 1,175,000 216,374 - - 216,374 Issuance of common stock for cash. . 613,530 1,632,000 - - 1,632,000 Issuance of common stock for debt conversion (Note 5). . . . . . . . . 1,063,006 2,827,596 - - 2,827,596 Warrants issued (Note 5) . . . . . . - - 954,000 - 954,000 Net loss . . . . . . . . . . . . . . - - - (1,365,950) (1,365,950) ----------- ----------- ------------- -------------- ------------ Balances at March 31, 2000 . . . . . 15,043,480 $9,720,552 $ 954,000 $ (12,089,409) $(1,414,857) =========== =========== ============= ============== ============
5 FORECROSS CORPORATION NOTES TO FINANCIAL STATEMENTS (Unaudited) 1. UNAUDITED INTERIM FINANCIAL STATEMENTS: The unaudited interim financial statements of Forecross Corporation have been prepared in conformity with generally accepted accounting principles, consistent in all material respects with those applied in the Annual Report on Form 10-K for the year ended September 30, 1999. The interim financial information is unaudited, but in the opinion of management, includes all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the information set forth therein. The interim financial statements should be read in connection with the financial statements and notes in the Company's Annual Report on Form 10-K for the year ended September 30, 1999. The interim period results are not necessarily indicative of the results for a full fiscal year. 2. BASIS OF PRESENTATION AND GOING CONCERN: Through March 31, 2000, the Company had sustained recurring losses from operations and, at March 31, 2000, had a net capital deficiency and a net working capital deficiency. These conditions raise substantial doubt about the ability of the Company to continue as a going concern. During the remainder of fiscal 2000, the Company expects to meet its working capital and other cash requirements with cash derived from operations, short-term receivables and other financing as required, private placement of stock and software license fees from organizations desiring access to the Company's various product offerings. The Company's continued existence is dependent upon its ability to achieve and maintain profitable operations by controlling expenses and obtaining additional business. Management believes that the combination of increased automation of its migration services, the creation and marketing of new products which utilize technology developed for year 2000 renovation, continued cost control, and the early signs of renewed customer interest in migration projects should improve the Company's profitability in fiscal 2000. However, there can be no assurance that the Company's efforts to achieve and maintain profitable operations will be successful. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. DEPENDENCE ON YEAR 2000 REVENUE: The Company's revenue in fiscal 1999 and 1998 and the first quarter of fiscal 2000 resulted in large part from demand for Assess/2000 and Complete/2000TM services and licenses. Year 2000 services and related revenue was 28% of the total revenue for the three months ended March 31, 2000, as compared to 72% for the three months ended March 31, 1999. Year 2000 services and related revenue was 69% of total revenue for the six months ended March 31, 2000 as compared to 80% for the six months ended March 31, 1999. While we will continue to amortize approximately $140K per quarter in revenue for product license fees, distributor fees, and maintenance fees previously paid by our year 2000 distributors, we do not anticipate receiving any material revenue generated from year 2000 contracts in the future. Over the past 2 years, the Company experienced a decline in its core migration services business which corresponded with the increase of year 2000 business. The Company considers this a temporary development which is expected to reverse with the resolution of the year 2000 issue. It is the Company's strategy to leverage customer relationships and knowledge of customer application systems derived from its year 2000 services solutions to continue to grow its migration and other products and services beyond the year 2000 market. The Company has observed some early indications of renewed customer interest in migration projects, however, there can be no assurance that the Company will be successful in obtaining such projects or that the Company's strategy will be successful. Should the Company be unable to market other products and services as demand in the year 2000 market ends, whether as a result of competition, technological change or other factors, the Company's business, results of operations and financial condition will be materially and adversely affected. The Company markets its products and services to customers for managing the maintenance and redevelopment of mission-critical computer software systems. The Company's agreements with its customers typically contain provisions designed to limit the Company's exposure to potential product and service liability claims. It is possible, however, that the limitation of liability provisions contained in the Company's customer agreements may not be effective as a result of existing or future federal, state, local or foreign laws or ordinances or unfavorable judicial decisions. Although the Company has not experienced any material product or service liability claims to date, for either its migration or year 2000 services, the ongoing sale and support of its products and services may entail the risk of such claims, which could be substantial in light of the use of its products and services in mission-critical applications. A successful product or service liability claim brought against the Company could have a materially adverse effect upon the Company's business, operating results and financial condition. 6 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures; contingent assets and liabilities at the date of the financial statements; and the reported amounts of revenue and expenses during the reporting period. Accordingly, actual results could differ from those estimates. The most significant estimates subject to future uncertainties are those relating to calculations of percentage of completion for projects in process and estimations of warranty liability. It is at least reasonably possible that the significant estimates used will change within a year. RECLASSIFICATIONS: Certain prior-year amounts have been reclassified to conform to current year presentation. 4. CONCENTRATIONS OF CREDIT RISK AND FOREIGN SALES: The Company performs ongoing credit evaluations of its customers and generally does not require collateral on accounts receivable as the majority of the Company's customers are large, well-established companies. Three customers accounted for approximately 41%, 25% and 16% of the accounts receivable balance at March 31, 2000, and four customers accounted for approximately 30%, 18%, 16% and 13% of the accounts receivable balance at September 30, 1999. Four customers, including revenue generated by the Company's distributors of year 2000 solutions, which are treated as resulting from one customer, accounted for approximately 28%, 26%, 23% and 15% of total revenue for the three months ended March 31, 2000. Four customers, again including revenue generated by the Company's distributors of year 2000 solutions, which are treated as resulting from one customer, accounted for approximately 17%, 15%, 12% and 12% of total revenue for the three months ended March 31, 1999. Four customers accounted for approximately 26%, 17%, 15% and 10% of total revenue for the six months ended March 31, 2000, compared to four customers accounting for 22%, 16%, 15%, and 10% of total revenue for the six months ended March 31, 1999. During the first half of fiscal year 2000, 17% of total revenue came from services to a business located in Canada. 5. COMMON STOCK: In January 2000, the Company completed a private placement of 1,175,000 shares of common stock at $0.20 per share, resulting in gross proceeds of $235,000. As part of that placement, the Company sold 500,000 shares of common stock and received $100,000 in gross proceeds in December 1999. In March 2000, the Company completed a second private placement of 613,530 shares at $2.66 per share, resulting in gross proceeds of $1,632,000. Additionally, 1,063,006 shares were issued to the Company's senior officers and employees, year 2000 distributors and a director, converting Company debt from loans, deferred payroll, travel expenses and year 2000 distributor revenue sharing, to equity at a conversion price of $2.66 per share. The total debt converted into equity was $2,827,596. With each share issued to investors in the second private placement and to those converting debt, the Company also issued a warrant to purchase one half share of stock at $2.66 per share at a future date. The warrants expire upon the earlier of three years, or 30 days after the 10-day trailing average closing price of the Company's common stock equals or exceeds $7.88 per share (if a Registration Statement covering the underlying shares has been declared effective). In connection with the second private placement, the Company also issued to a finder, in lieu of cash, warrants to purchase 200,000 shares of common stock at $2.66 per share, as a finder's fee, which warrants expire in three years. A total of $954,000 in non-cash compensation expense was recorded for the beneficial pricing effect to senior officers, employees, year 2000 distributors and a director. On February 7, 2000, the Company's Board approved the grant of options to purchase a total of 151,800 shares of its Common Stock to various employees under its 1994 Stock Option Plan. These options are fully vested upon issuance and are exercisable at a price of $0.58 per share for a period of five years. In addition, on March 17, 2000, the Company's Board approved the grant of options to purchase a total of 337,900 shares of its Common Stock to various employees under its 1994 Stock Option Plan. These options vest over various periods up to four years, and are exercisable at a price of $3.25 per share for a period of five years. 7 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ------- ------------------------------------------------- The following summary of our material activities for the three and six months ended March 31, 2000 and 1999 is qualified by, and should be read in conjunction with the financial statements and related notes and other information contained in this report. The financial results reported herein do not indicate the financial results that we may achieve in any future period. Other than the historical facts contained herein, this Quarterly Report contains statements that are forward-looking, such as statements relating to plans for future activities. Such forward-looking information involves important risks and uncertainties that could significantly affect results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by or on our behalf. These risks and uncertainties include, but are not limited to, those relating to our growth strategy, customer concentration, outstanding indebtedness, dependence on expansion, activities of competitors, changes in federal or state laws and the administration of such laws, protection of trademarks and other proprietary rights and the general condition of the economy and its effect on the securities markets. For a discussion of such risks and uncertainties see our Annual Report on Form 10K for the fiscal year ended September 30, 1999. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999 Total revenue for the three months ended March 31, 2000 was $513,000 as compared to $961,000 for the same period of 1999, a decrease of 47%. This decrease in revenue for the period reflects the end of the year 2000 contracts and the slow resumption of migration projects. Year 2000 services revenue was $5,000 for the second quarter of 2000 as compared to $555,000 for 1999. Migration services revenue was $288,000 for the current quarter as compared to $78,000 a year ago. Development and consulting revenue added $84,000 in 2000 as compared to $112,000 in 1999, and revenue from the amortization of deferred year 2000 distributor licenses and fees was $136,000 for both 2000 and 1999. Backlog was $2,001,000 at March 31, 2000, which included $1,881,000 for a single migration project signed in January, compared to $1,172,000 at September 30, 1999, which included $814,000 for year 2000 projects, all completed by December 31, 1999. Backlog at March 31, 1999 was $375,000, of which $363,000 was for year 2000 projects. Backlog amounts in upcoming quarters will likely reflect a substantial increase over the prior year quarters because migration contracts generally tend to be both larger in value and longer in duration than year 2000 contracts. The average application migration project takes from six to eighteen months to complete, whereas the average year 2000 project was completed in ten weeks or less. Therefore, revenue associated with year 2000 projects was often booked, recognized and completed without appearing in the quarterly or annual backlog amount. Gross margin was $297,000 and $264,000 for the three months ended March 31, 2000 and 1999, respectively. Gross margin percentages were 58% and 27% for these periods. The increased gross margin percentage was due to a reduction in the cost of revenue for the current quarter, which included a credit totaling $108,000 for one-half of the unused year 2000 warranty reserve as well as a reduction to salaries and wages from headcount attrition as year 2000 projects ended. Cost of revenue for 1999 included $31,000 in accrued year 2000 distributor commissions. Sales and marketing expenses were $42,000 for the three months ended March 31, 2000 as compared to $231,000 for the same period of 1999. Expenses for the current quarter were reduced by $68,000 due to the correction of an over accrual in prior periods. Included in the 1999 expenses was $94,000 for year 2000 distributor commissions. Research and development expenses were $236,000 for the current quarter as compared to $187,000 in the corresponding quarter of 1999. Development efforts in the 2000 quarter generally related to enhancements to our migration products, while work performed in the quarter ending March 31, 1999 related to upgrades to our year 2000 analysis and renovation tools. General and administrative expenses were $1,233,000 and $299,000, in the three months ended March 31, 2000 and 1999, respectively. Most of this increase was due to the non-recurring $954,000 non-cash compensation expense related to the issuance of common stock and warrants in the March 31, 2000 Private Placement. Net interest expense was $117,000 for the three months ended March 31, 2000 as 8 compared to $113,000 in the 1999 quarter, reflecting the continued use of short-term receivables financing, loans from our senior officers, and extended payment terms from our distributors to meet our working capital needs. The overall net loss for the three months ended March 31, 2000 was $1,331,000 or $0.10 per share compared with a loss of $567,000 or $0.05 per share for the three months ended March 31, 1999 (based on the weighted average number of shares outstanding during the respective periods). SIX MONTHS ENDED MARCH 31, 2000 COMPARED TO SIX MONTHS ENDED MARCH 31, 1999 Total revenue for the six months ended March 31, 2000 was $1,930,000 as compared to $1,721,000 for the same period of 1999, an increase of 12%. Year 2000 services revenue was $1,067,000 as compared to $1,111,000 for the same periods. Migration services revenue was $406,000 as compared to $145,000 a year ago. Revenue from development and consulting totaled $185,000 as compared to $112,000 in 1999, and revenue from the amortization of deferred year 2000 distributor licenses and fees remained at $273,000 for both year to date periods. Gross margin was $1,161,000 and $381,000 for the six months ended March 31, 2000 and 1999, respectively. Gross margin percentages were 60% and 22% for these periods. The increased gross margin percentage was due to reductions in cost of revenue and reflects, in part, efforts over the past year to control costs and improve efficiencies by adjust staffing levels for the reduced year 2000 business we obtained. In addition, gross profit results were improved by the higher margin renovation project, valued at over $500,000 which was signed in October 1999 and completed in December 1999. Sales and marketing expenses were $318,000 for the six months ended March 31, 2000 as compared to $456,000 for the same period of 1999. Expenses were reduced in the current period by $68,000 due to the correction of an over accrual in prior periods. Distributor commissions were $123,000 compared to $201,000 for the previous year. Year to date research and development expenses were $434,000 as compared to $405,000 in the prior year. General and administrative expenses were $1,516,000 and $608,000, for the year to date periods. Most of this increase was due to the non-recurring $954,000 non-cash compensation expense related to the issuance of common stock and warrants in the March 31, 2000 Private Placement. Net interest expense was $259,000 for the six months ended March 31, 2000 as compared to $247,000 in 1999. The overall net loss for the six months ended March 31, 2000 was $1,366,000 or $0.11 per share compared with a loss of $1,336,000 or $0.11 per share for the six months ended March 31, 1999 (based on the weighted average number of shares outstanding during the respective periods). LIQUIDITY AND CAPITAL RESOURCES Through March 31, 2000, we have sustained recurring losses from operations and, at March 31, 2000, we had a net capital deficiency and a net working capital deficiency. These conditions raise substantial doubts about our ability to continue as a going concern. See Note 2 of Notes to Financial Statements. For the three and six months ended March 31, 2000, operations were funded primarily through a portion of the cash derived from the sale of stock in two private placement transactions (see Note 5 of Notes to Financial Statements), and through deferrals of senior employee compensation. During the quarter ended March 31, 2000 the Company also converted a significant amount of its debt to equity. We believe this move strengthens our balance sheet, reduces interest expense and improves our future ability, as needed, to obtain additional financing and attract investors. The need to provide additional funds to the Company through private placement of stock was required due to the expected transition period between the end of year 2000 contract business and the resumption of our core migration business. While many companies completed their year 2000 analysis and renovation work well in advance of the December 31, 1999 deadline, we believe that most companies postponed consideration and commencement of new migration projects until the actual outcome of the year 2000 issue was known. Additionally, we believe that many companies are re-evaluating the status and direction of their information systems investments based on the analysis performed for year 2000 and the rapid paradigm shift towards Web-oriented and capable businesses. We are aggressively pursuing new opportunities for migration services, including 9 developing products and services specifically marketable to businesses currently using legacy systems but needing to migrate to more web-friendly platforms. We expect additional revenue in the third quarter of fiscal 2000 from some of the migration contracts currently under negotiation. We are closely monitoring our sales pipeline, work in progress, collections and cash requirements to determine whether the existing sources of financing are adequate to support our operations or whether additional means of financing, including debt or equity financing, may be required to satisfy our working capital and other cash requirements. If we can obtain the anticipated level of new business, and continue the use of short-term receivables financing, we believe we will have sufficient funds to meet our needs through the balance of fiscal 2000. There can be no assurance, however, that cash from operations and the other sources described above will be achieved or will be sufficient for our needs. A factoring agreement with a financial organization allows us to obtain financing by borrowing against our accounts receivable on a recourse basis. At March 31, 2000, $398,000 was outstanding under the agreement and at September 30, 1999, $861,000 was outstanding. The agreement, established in October 1995, may be terminated by either the factor or us at any time. We anticipate that our capital expenditures for fiscal 2000 will be between $50,000 and $100,000. Cash and cash equivalents on hand at March 31, 2000 were $1,220,000 as compared to $36,000 at March 31, 1999. YEAR 2000 COMPLIANCE In the months preceding December 31, 1999, we conducted a project to identify all computer hardware and software, other significant equipment, and services on which we rely that may have been be impacted by the year 2000 problem. Based on the results of this project, and the fact that the calendar has already moved past both the January 1, 2000 and March 31, 2000 end of quarter critical dates, we believe that the hardware, software, equipment and services on which we rely are year-2000 compliant. 10 PART II-OTHER INFORMATION Item 1. Legal Proceedings None. Item 2. Recent Sales of Unregistered Securities In January 2000, the Company completed a private placement of 1,175,000 shares of common stock at $0.20 per share, no par value, for gross proceeds of $235,000. In March 2000, the Company completed another private placement of 613,530 shares of common stock at $2.66 per share, no par value, for gross proceeds of $1,632,000. Also in March 2000, the Company issued 1,063,006 shares of common stock to the Company's senior officers and employees, year 2000 distributors, and other creditors, converting Company debt to equity at a conversion price of $2.66 per share. The total debt converted into equity was $2,827,596. All of the purchasers in the private placements and debt to equity conversion were accredited investors. The shares of common stock issued by Forecross were exempt from the registration requirements of the Securities Act under Section 4(2) of the Securities Act, as amended, and Regulation D promulgated thereunder, as transactions by an issuer not involving a public offering. Item 3. Defaults Upon Senior Securities Not Applicable. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits and Report on Form 8-K (a). Index and Description of Exhibits
Exhibit No. Description - ----------- -------------------------------------------------------------------------------- 3.1+ Restated Articles of Incorporation 3.2+ By-Laws 10.1+ Lease Agreement, dated January 1, 1997 between the Company and The Canada Life Assurance Company 10.2+ Form of Indemnification Agreement entered into between the Company and each of its officers and directors 10.3+ 1993 Restricted Stock Purchase Plan 10.4+ 1994 Stock Option Plan and Form of Option Agreement 10.5* Exclusive Distributor Agreement between the Company and Gardner Solution 2000, L.L.C., and Amendment 10.6* Exclusive Distributor Agreement between the Company and Y2K Solutions, L.P., 10.7* Software License Agreement between the Company and Y2K Solutions, L.P. 10.8+ Factoring Agreement, dated October 30, 1995, between the Company and Silicon Valley Financial Services 10.9+ Lease Expansion Proposal dated November 17, 1997, between the Company and The Canada Life Assurance Company 10.10+ Factoring Modification Agreement, dated January 13, 1998, between the Company and Silicon Valley Financial Services 10.11* Exclusive Distributor Agreement between the Company and CY2K Solutions, L.L.C. 10.12* Software License Agreement between the Company and CY2K Solutions, L.L.C. 10.13* Exclusive Distributor Agreement between the Company and PY2K Solutions, L.L.C. 10.14* Software License Agreement between the Company and PY2K Solutions, L.L.C. 16.1+ Notice of Change of Auditor dated September 23, 1997, issued to all holders of common shares of Forecross Corporation 16.2+ Letter dated September 23, 1997 from BDO Seidman, LLP to the British Columbia Securities Commission and to the Vancouver Stock Exchange confirming the accuracy of the information contained in the Notice of Change of Auditor of Forecross Corporation dated September 23, 1997 16.3+ Letter dated September 23, 1997 from Coopers & Lybrand, L.L.P. to the British Columbia Securities Commission and to the Vancouver Stock Exchange confirming the accuracy of the information contained in the Notice of Change of Auditor of Forecross Corporation dated September 23, 1997 11 16.4+ Letter dated September 23, 1997 from the Board of Directors of Forecross Corporation to the shareholders of Forecross Corporation, the British Columbia Securities Commission and the Vancouver Stock Exchange confirming the review of the Board of Directors of the Notice of Change of Auditor and the related letter dated September 23, 1997 from BDO Seidman, LLP and Coopers & Lybrand, L.L.P. 27.1 Financial Data Schedule, March 31, 2000 + Previously filed as part of the Company's Form 10/A, effective June 16, 1998. * The Company has requested that certain portions of the documents be given confidential treatment. The entire documents, including the redacted portions, have been filed with the SEC.
(b). Reports on Form 8-K None 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Registrant FORECROSS CORPORATION May 15, 2000 BY: /S/ Bernadette C. Castello --------------------------------- Bernadette C. Castello Senior Vice President and Chief Financial Officer 13 EX-27.1 2
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED BALANCE SHEET AS OF MARCH 31, 2000 AND THE STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 6-MOS SEP-30-2000 OCT-01-1999 MAR-31-2000 1219550 0 514355 20000 0 1735378 1240145 1087283 2001180 2713382 0 9720553 0 0 (12089409) 2001180 0 1929721 768318 768318 2268440 0 258913 (1365950) 0 (1365950) 0 0 0 (1365950) (0.11) (0.11)
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