-----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, P7eLcPjXMkHvLW7GZ5DqP6MLZxYG0AuIzU41hbTJa3sYlWJAoflZkj7Go5dzh0pG y+5wfyqXa+EYTHBjctdLEQ== 0000916513-01-000006.txt : 20010224 0000916513-01-000006.hdr.sgml : 20010224 ACCESSION NUMBER: 0000916513-01-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010220 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: 1550495 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 0001.txt 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 December 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 December 31, 2000 Common Stock, no par value 15,053,380 FORECROSS CORPORATION FORM 10-Q TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheets at December 31, 2000 (unaudited) and September 30, 2000 Statements of Operations (unaudited) for the three months ended December 31, 2000 and 1999 Statements of Cash Flows (unaudited) for the three months ended December 31, 2000 and 1999 Statements of Shareholders' Deficit (unaudited) for the three months ended December 31, 2000 and 1999 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 Dec.31, Sept. 30, 2000 2000 ------------ ----------- (Unaudited) (Audited) ASSETS Current assets: Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,166 $ 18,833 Accounts receivable, including unbilled receivables of $469,000 and $722,000, net of allowance of $20,000 and $20,000, respectively . 737,418 1,043,260 Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . 35,986 28,499 ------------ ----------- Total current assets . . . . . . . . . . . . . . . . . . . . . . . . 774,570 1,090,592 Equipment and furniture, net . . . . . . . . . . . . . . . . . . . . . 282,075 310,639 Notes receivable from others . . . . . . . . . . . . . . . . . . . . . 73,380 72,445 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,746 42,746 ------------ ----------- Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,172,771 $ 1,516,422 ============ =========== LIABILITIES AND SHAREHOLDERS' DEFICIT Current liabilities: Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 298,127 $ 356,685 Accrued compensation and related benefits . . . . . . . . . . . . . . 728,131 634,903 Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 150,825 122,149 Accrued commissions and distributors' fees . . . . . . . . . . . . . . 64,057 68,375 Payable to factor . . . . . . . . . . . . . . . . . . . . . . . . . . 545,242 501,243 Accrued warranty costs . . . . . . . . . . . . . . . . . . . . . . . . 39,026 33,922 Capital lease obligations due within one year. . . . . . . . . . . . . 13,705 18,094 Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . 864,990 602,210 ------------ ----------- Total current liabilities. . . . . . . . . . . . . . . . . . . . . . 2,704,103 2,337,581 Deferred revenue, less current portion . . . . . . . . . . . . . . . . 274,170 415,419 Notes payable to related parties, net . . . . . . . . . . . . . . . . 103,957 101,082 Capital lease obligations, less current portion. . . . . . . . . . . . - 1,610 ------------ ----------- Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 3,082,230 2,855,692 ------------ ----------- Shareholders' deficit: Common stock, no par value; authorized 20,000,000 shares; issued and outstanding 15,053,380. . . . . . . . . . . . . . . . . . . . . . . . 9,677,253 9,677,253 Additional paid in capital . . . . . . . . . . . . . . . . . . . . . . 1,013,089 983,800 Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . (12,599,802) (12,000,323) ------------ ----------- Total shareholders' deficit. . . . . . . . . . . . . . . . . . . . . . (1,909,459) (1,339,270) ------------ ----------- Total liabilities and shareholders' deficit. . . . . . . . . . . . . $ 1,172,771 $ 1,516,422 ============ ============
2
FORECROSS CORPORATION STATEMENTS OF OPERATIONS For the Three Months Ended December 31, -------------------------- 2000 1999 ------------ ------------ (Unaudited) (Unaudited) Net revenue: Services and maintenance . . . . . . . . $ 335,333 $ 1,280,654 Software licenses and distributorship fees-related parties . . . . . . . . . 136,248 136,251 ------------ ------------ Total net revenue. . . . . . . . . . . 471,581 1,416,905 Cost of services and maintenance including fees to related parties of $0 and $41,000 . . . . . . . . . . . . 404,201 552,052 ------------ ------------ Gross margin . . . . . . . . . . . . . . 67,380 864,853 ------------ ------------ Operating expenses: Sales and marketing including fees to related parties of $0 and $123,000 . . 156,631 276,725 Research and development . . . . . . . . 186,719 198,391 General and administrative . . . . . . . 275,461 282,469 ------------ ------------ Total operating expenses . . . . . . . . 618,811 757,585 ------------ ------------ Income (loss) from operations . . . . . (551,431) 107,268 Interest expense, net. . . . . . . . . . (46,447) (141,854) ------------ ------------ Loss before provision for income taxes . . . . . . . . . . . . . (597,878) (34,586) Provision for income taxes . . . . . . . (1,600) - ------------ ------------ Net loss . . . . . . . . . . . . . . . $ (599,478) $ (34,586) ============ ============ Net loss per share - basic and diluted . . . . . . . . . . . . . $ (0.04) $ (0.00) ============ ============ Weighted average shares used in computing per share data . . . . . . . 15,053,380 12,316,944 ============ ============
3
FORECROSS CORPORATION STATEMENTS OF CASH FLOWS For the Three Months Ended December 31, 2000 1999 ------------ ------------ (Unaudited) (Unaudited) Increase (decrease) in cash resulting from: Cash flows from operating activities: Net loss . . . . . . . . . . . . . . . . . . . $ (599,478) $ (34,586) Adjustments to reconcile net loss to net cash provided by (used in) operating activities- Non-Cash compensation to consultants . . . . . 14,650 - Depreciation and amortization. . . . . . . . . 43,203 65,997 Changes in operating assets and liabilities- Accounts receivable. . . . . . . . . . . . . . 305,842 (36,047) Other assets and accrued interest on notes receivable from officers . . . . . . . . . . (8,422) 16,480 Accounts payable and accrued liabilities . . . (8,921) 364,422 Deferred Compensation. . . . . . . . . . . . . 75,928 118,631 Deferred Distributor revenue . . . . . . . . . (141,249) (141,252) Other deferred revenue (net) . . . . . . . . . 262,780 7,435 ------------ ---------- Net cash provided by (used in) operating activities . . . . . . . . . . . . . . . . . . (55,667) 361,080 ------------ ---------- Cash flows from financing activities: Proceeds from factoring of accounts receivable 545,243 643,925 Repayment of borrowings under factoring arrangement . . . . . . . . . . . . . . . . . (501,244) (1,062,409) Repayment of borrowings under notes payable -officers. . . . . . . . . . . . . . . . . . - (27,171) Repayment of borrowings under capitalized leases (5,999) (5,146) Net proceeds from issuance of common shares . - 100,000 ------------ ---------- Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . 38,000 (350,801) ------------ ---------- Net increase (decrease) in cash. . . . . . . (17,667) 10,279 Cash at beginning of period. . . . . . . . . . 18,833 2,740 ------------ ---------- Cash at end of period . . . . . . . . . . . . $ 1,166 $ 13,019 ============ ========== Supplemental disclosures of cash flow information: Cash paid during the period for interest . . . $ 45,775 $ 79,427 ============ ========== Supplemental disclosures of non-cash investing and financing activities: Accrued interest on notes payable to officers and related parties . . . . . . . . . . . . . $ 2,875 $ 34,088 ============ ========== Options issued for software development. . . . $ 14,638 $ - ============ ==========
4
FORECROSS CORPORATION STATEMENTS OF SHAREHOLDERS' DEFICIT (unaudited) Common Stock Additional Accumulated Shares Amount Paid in Capital Deficit Total ----------- ----------- --------------- ------------- ------------ Balances at October 1, 2000. . . . . 15,053,380 $9,677,253 $ 983,800 $(12,000,323) $(1,339,270) Issuance of Options to Consultants . - - 29,289 - 29,289 Net loss . . . . . . . . . . . . . . - - - (599,478) (599,478) ----------- ----------- ------------- -------------- ------------ Balances at December 31, 2000. . . . 15,053,380 $9,677,253 $ 1,013,089 $ (12,599,801) $(1,909,459) =========== =========== ============= ============== ============
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, 2000. 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, 2000. 2. BASIS OF PRESENTATION AND GOING CONCERN: Through December 31, 2000, the Company had sustained recurring losses from operations and, at December 31, 2000, had a shareholders' deficit of $1,909,000 and a net working capital deficiency of $1,930,000. In addition, revenues for the quarter ended December 31, 2000 declined approximately $472,000 from $1,417,000 during the same period in 1999, and at December 31, 2000, the Company's cash had declined significantly. These conditions raise substantial doubt about the ability of the Company to continue as a going concern. During fiscal 2001, 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, 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 return of migration contracts combined with increased automation of its services for migration projects and cost reduction actions previously implemented should improve the Company's profitability in fiscal 2001. 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 this uncertainty. 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. 5 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. Two customers accounted for approximately 83% and 10% of the accounts receivable balance at December 31, 2000, and two customers accounted for approximately 75% and 22% at September 30, 2000. Additionally, four customers, including revenue from the Company's Distributors treated as resulting from one customer, accounted for approximately 30%, 26%, 21% and 15% of total revenue for the three months ended December 31, 2000. Four customers, including revenue from the Company's Distributors treated as resulting from one customer, accounted for approximately 35%, 23%, 11% and 10% of total revenue for the three months December 31, 1999. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ------- ------------------------------------------------- The following summary of our material activities for the three months ended December 31, 2000 and 1999 is qualified by, and should be read in conjunction with more detailed information along with the financial statements and related notes and other information contained in this report. Each recipient of this document is urged to read it in its entirety. 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 in this document, 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 us or on our behalf. These risks and uncertainties include concentration of credit, 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 10-K for the fiscal year ended September 30, 2000. 6 RESULTS OF OPERATIONS THREE MONTHS ENDED DECEMBER 31, 2000 COMPARED TO THREE MONTHS ENDED DECEMBER 31, 1999 Total revenue for the three months ended December 31, 2000 was $472,000 as compared to $1,417,000 for the same period of 1999, a decrease of 67%. Migration services revenue for the period contributed $247,000 as compared to $111,000 a year ago. Year 2000 services revenue accounted for $1,057,000 in 1999 with no revenue in 2000. Revenue from consulting totaled $83,000 as compared to $108,000 in 1999, and revenue from the amortization of deferred year 2000 distributor licenses and fees remained at $141,000 for both periods. Two factors contributed to our migration revenue in the 2000 period being less than forecast. First, we experienced delays in signing new business until late in the reporting period. We also had unanticipated challenges in processing non-standard and unique programming in a portion of one of our client's applications, resulting in a slowing in completion of billable and revenue generating milestones and lower gross margins. We believe this issue has been substantially resolved and represented a non-recurring anomaly in the nature of the client code. Project revenue is recognized on the cost-of-completion method, using estimates of the costs remaining. Backlog was $1,402,000 at December 31, 2000, as compared to $993,000 at September 30, 2000 and $282,000 at December 31, 1999. Gross margin was $67,000 and $865,000 for the three months ended December 31, 2000 and 1999, respectively. Gross margin percentages were 14% and 61% for the these periods. The decrease in gross margin and gross margin percentage was due to the end of the higher-margin year 2000 services, and to the previously mentioned challenges, where unanticipated costs were being incurred in the current quarter to analyze and provide a solution for the non-standard programming. Sales and marketing expenses were $157,000 in the three months ended December 31, 2000 as compared to $277,000 in the same period of 1999. Distributor fees of $123,000 were included in the 1999 quarter. Research and development expenses decreased to $187,000 at December 31, 2000 from $198,000 in the corresponding quarter of 1999. Development efforts in the 2000 quarter generally related to our XML-related offerings, while work performed in the quarter ended December 31, 1999 were for enhancements to our migration products. General and administrative expenses were $275,000 and $282,000, in the three months ended December 31, 2000 and 1999, respectively. Net interest expense was $46,000 for the three months ended December 31, 2000 as compared to $142,000 in the 1999 quarter, reflecting the elimination of debt to the company's senior officers and to year 2000 distributors as part of the debt to equity conversion completed in March 2000. The overall net loss for the three months ended December 31, 2000 was $599,000 or $0.04 per share compared with a loss of $35,000 or $0.00 per share for the three months ended December 31, 1999 (based on the weighted average number of shares outstanding during the respective periods). 7 LIQUIDITY AND CAPITAL RESOURCES Through December 31, 2000, we sustained recurring losses from operations and, at December 31, 2000, we had a shareholders' deficit of $1,909,000 and a net working capital deficiency of $1,930,000. In addition, revenues for the quarter ended December 31, 2000 declined approximately $472,000 from $1,417,000 during the same period in 1999, and at December 31, 2000, our cash had declined significantly. These conditions raise substantial doubts about our ability to continue as a going concern. See Note 2 of Notes to Financial Statements. The opinion of our independent certified public accountants on the audited financial statements for the year ended September 30, 2000 also contained an explanatory paragraph regarding this doubt about our ability to continue as a going concern. For the three months ended December 31, 2000, operations were funded by a payment received for future consulting services, by cash derived from short-term receivables financing, by deferral of salaries of senior officers, and by the collection of accounts receivable. In December 2000 we received $300,000 from a client, of which approximately 75% was an advance payment against future XML-related consulting services. We expect the advance portion will be earned and billed over the next two quarters. A factoring agreement with a financial institution allows us to obtain financing by borrowing against our accounts receivable on a recourse basis. At December 31, 2000, $545,000 was outstanding under the agreement and at September 30, 2000, $501,000 was outstanding. The agreement, established in October 1995, may be terminated by either the factor or us at any time. We are aggressively pursuing new opportunities for migration services, including 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 second quarter of fiscal 2001 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 2001. Cash from operations and the other sources described above may not be achieved or may not be sufficient for our needs. While we have not experienced difficulty in attracting or retaining qualified personnel in the past, any future problems in this area may have a material negative affect on our results of operations. We anticipate that our capital expenditures for fiscal 2001 will be under $75,000. Cash and cash equivalents on hand at December 31, 2000 were $1,166 as compared to $18,833 at September 30, 2000. 8 PART II-OTHER INFORMATION Item 1. Legal Proceedings None. Item 2. Recent Sales of Unregistered Securities None. 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 9 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 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, December 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 10 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 February 20, 2000 BY: /S/ Bernadette C. Castello --------------------------------- Bernadette C. Castello Senior Vice President and Chief Financial Officer 11 -----END PRIVACY-ENHANCED MESSAGE-----