-----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, OyqEbcfVv2stNwZIjodSmi4pauB7VwroQovn/FO6N1eeEnWz3sN+C06vGzMLudsi 6o2/bTgkcigmDlvyKGCP2w== 0001015402-00-002284.txt : 20000922 0001015402-00-002284.hdr.sgml : 20000922 ACCESSION NUMBER: 0001015402-00-002284 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 DATE AS OF CHANGE: 20000906 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FORECROSS CORP CENTRAL INDEX KEY: 0000916513 STANDARD INDUSTRIAL CLASSIFICATION: 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: 701998 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 June 30, 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 June 30, 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 June 30, 2000 (unaudited) and September 30, 1999 Statements of Operations (unaudited) for the three and nine months ended June 30, 2000 and 1999 Statements of Cash Flows (unaudited) for the nine months ended June 30, 2000 and 1999 Statements of Shareholders' Deficit (unaudited) for the nine months ended June 30, 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 Jun. 30, Sept. 30, 2000 1999 ------------ ----------- (Unaudited) (Audited) ASSETS Current assets: Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 85,274 $ 2,740 Accounts receivable, including unbilled receivables of $446,000 and $77,000, net of allowance of $20,000 and $45,000, respectively . . 522,859 375,893 Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . 29,324 45,070 ------------ ----------- Total current assets . . . . . . . . . . . . . . . . . . . . . . . . 637,457 423,703 Equipment and furniture, net . . . . . . . . . . . . . . . . . . . . . 110,816 277,532 Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . 71,511 68,707 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,365 42,365 ------------ ----------- Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 862,149 $ 812,307 ============ =========== LIABILITIES AND SHAREHOLDERS' DEFICIT Current liabilities: Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 191,517 $ 631,479 Accrued compensation and related benefits . . . . . . . . . . . . . . 524,576 682,533 Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 92,107 158,090 Accrued commissions and distributors' fees . . . . . . . . . . . . . . 41,366 1,514,650 Payable to factor . . . . . . . . . . . . . . . . . . . . . . . . . . 225,098 861,427 Accrued warranty costs . . . . . . . . . . . . . . . . . . . . . . . . 20,338 184,828 Capital lease obligations due within one year. . . . . . . . . . . . . 23,721 23,215 Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . 644,490 684,652 ------------ ----------- Total current liabilities. . . . . . . . . . . . . . . . . . . . . . 1,763,213 4,740,874 Deferred revenue, less current portion . . . . . . . . . . . . . . . . 556,668 980,418 Notes payable to officers, net . . . . . . . . . . . . . . . . . . . - 750,176 Capital lease obligations, less current portion. . . . . . . . . . . . 3,189 19,716 ------------ ----------- Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 2,323,070 6,491,184 ------------ ----------- Shareholders' deficit: Common stock, no par value; authorized 20,000,000 shares; issued and outstanding 15,053,380 and 12,191,944, respectively . . . . . . . . . 9,677,253 5,017,582 Additional paid in capital . . . . . . . . . . . . . . . . . . . . . . 981,000 27,000 Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . (12,119,174) (10,723,459) ------------ ----------- Total shareholders' deficit. . . . . . . . . . . . . . . . . . . . . . (1,460,921 (5,678,877) ------------ ----------- Total liabilities and shareholders' deficit. . . . . . . . . . . . . $ 862,149 $ 812,307 ============ ============
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FORECROSS CORPORATION STATEMENTS OF OPERATIONS For the Three Months Ended For the Nine Months Ended June 30, June 30, --------------------------- -------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ----------- (Unaudited) (Unaudited) (Unaudited) (Unaudited) Net revenue: Services and maintenance . . . . . . . . $ 857,319 $ 766,872 $ 2,514,541 $ 2,214,903 Software licenses and distributorship fees-related parties . . . . . . . . . 136,248 136,251 408,747 408,753 ------------ ------------ ------------ ------------ Total net revenue . . . . . . . . . . 993,567 903,123 2,923,288 2,623,656 Cost of services and maintenance including fees to related parties of $0,$44,000, $18,000, and $107,000. . . 202,682 559,683 971,000 1,899,400 ------------ ------------ ------------ ------------ Gross margin . . . . . . . . . . . . . . 790,885 343,440 1,952,288 724,256 ------------ ------------ ------------ ------------ Operating expenses: Sales and marketing including fees to related parties of $0,$132,000, $55,000 and $333,000 . . . . . . . . . 205,408 311,123 523,800 766,899 Research and development . . . . . . . . 294,306 170,025 728,472 574,684 General and administrative . . . . . . . 303,128 254,631 1,819,010 863,041 ------------ ------------ ------------ ------------ Total operating expenses . . . . . . . . 802,842 735,779 3,071,282 2,204,624 ------------ ------------ ------------ ------------ Loss from operations . . . . . . . . . . (11,957) (392,339) (1,118,994) (1,480,368) Interest expense, net. . . . . . . . . . (17,008) (150,405) (275,921) (397,388) ------------ ------------ ------------ ------------ Loss before provision for income taxes. . . . . . . . . . . . . . . . . (28,965) (542,744) (1,394,915) (1,877,756) Provision for income taxes . . . . . . . 800 - 800 800 ------------ ------------ ------------ ------------ Net loss . . . . . . . . . . . . . . . $ (29,765) $ (542,744) $(1,395,715) $ (1,878,556) ============ ============ ============ ============ Net loss per share - basic and diluted . . . . . . . . . . . . . . . $ (0.00) $ (0.04) $ (0.10) $ (0.16) ============ ============ ============ ============ Weighted average shares used in computing per share data . . . . . . . 15,050,905 12,191,944 13,620,528 12,021,611 ============ ============ ============ ============
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FORECROSS CORPORATION STATEMENTS OF CASH FLOWS For the Nine Months Ended June 30, 2000 1999 ------------ ------------ (Unaudited) (Unaudited) Increase (decrease) in cash resulting from: Cash flows from operating activities: Net loss . . . . . . . . . . . . . . . . . . . $(1,395,715) $(1,878,556) Adjustments to reconcile net loss to net cash used in operating activities- Provision for uncollectible amounts (25,000) (116,650) 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. . . . . . . . . 174,048 225,766 Deferred compensation. . . . . . . . . . . . . 144,387 - Changes in operating assets and liabilities- Accounts receivable. . . . . . . . . . . . . . (121,966) 803,943 Other assets and accrued interest on notes receivable from officers . . . . . . . . . . 12,942 16,999 Accounts payable and accrued liabilities . . . (317,374) 543,491 Deferred revenue . . . . . . . . . . . . . . . (463,912) (365,325) ------------ ------------ Net cash used in operating activities. . . . . (1,038,590) (732,082) ------------ ------------ Cash flows from investing activities: Fixed asset acquisition (7,332) - Payments received on loans to key employees - 250 ------------ ------------ Net cash provided by (used in) investing activities . . . . . . . . . . . . . . . . . (7,332) 250 ------------ ------------ Cash flows from financing activities: Proceeds from factoring of accounts receivable 1,152,760 3,070,250 Repayment of borrowings under factoring arrangement . . . . . . . . . . . . . . . . (1,789,089) (2,672,366) Borrowings under notes payable to officers . . - 180,000 Repayment of borrowings under notes payable to officers . . . . . . . . . . . . . . . . (51,269) (199,713) Repayment of borrowings under capitalized leases (16,021) (16,164) Net proceeds from issuance of common shares. . 1,832,075 290,817 ------------ ------------ Net cash provided by financing activities. . 1,128,456 652,824 ------------ ------------ Net increase (decrease) in cash. . . . . . . 82,534 (79,008) Cash at beginning of period. . . . . . . . . . 2,740 98,249 ------------ ------------ Cash at end of period. . . . . . . . . . . . . $ 85,274 $ 19,241 ============ ============ Supplemental disclosures of cash flow information: Cash paid during the period for interest . . . $ 173,274 $ 169,892 ============ ============ Supplemental disclosures of non-cash investing and financing activities: Accrued interest on notes payable to officers $ 59,333 $ 86,835 ============ ============ 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 $5,017,582 $ 27,000 $(10,723,459) $(5,678,877) January 2000 issuance of common stock for cash, net of stock issuance costs of $18,626 (Note 5) . 1,175,000 216,374 - - 216,374 March 2000 issuance of common stock for cash, net of stock issuance costs of $36,099 (Note 5) . 613,530 1,595,901 - - 1,595,901 March 2000 issuance of common stock for debt conversion (Note 5) . 1,063,006 2,827,596 - - 2,827,596 Warrants issued in connection with the March 2000 transactions (Note 5) . . . . . . . . . . . . . . - - 954,000 - 954,000 Exercise of employee stock options . 9,900 19,800 - - 19,800 Net loss . . . . . . . . . . . . . . - - - (1,380,715) (1,380,715) ----------- ----------- ------------- -------------- ------------ Balances at June 30, 2000 . . . . . 15,053,380 $9,677,253 $ 981,000 $ (12,104,174) $(1,445,921) =========== =========== ============= ============== ============
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 June 30, 2000, the Company had sustained recurring losses from operations and, at June 30, 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 originally 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 14% of the total revenue for the three months ended June 30, 2000, as compared to 95% for the three months ended June 30, 1999. Year 2000 services and related revenue was 51% of total revenue for the nine months ended June 30, 2000 as compared to 85% for the nine months ended June 30, 1999. While the Company will continue to amortize approximately $140,000 per quarter in revenue for product license fees, distributor fees, and maintenance fees previously paid by our year 2000 distributors, it does 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 considered this a temporary development which is reversing 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 to replace the decrease in year 2000 revenues, 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. The Company has not experienced any material product or service liability claims to date for either its migration or year 2000 Services. However 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. Two customers accounted for approximately 61% and 26% of the accounts receivable balance at June 30, 2000 and four customers accounted for approximately 30%, 18%, 16% and 13% of the accounts receivable balance at September 30, 1999. Three customers, including revenue generated by the Company's distributors of year 2000 solutions, which are treated as resulting from one customer, accounted for approximately 44%, 31% and 14% of total revenue for the three months ended June 30, 2000. Four customers, (again including the Company's distributors as one customer), accounted for approximately 35%, 20%, 16% and 13% of total revenue for the three months ended June 30, 1999. Four customers accounted for approximately 19%, 17%, 17% and 14% of total revenue for the nine months ended June 30, 2000, compared to five customers accounting for 16%, 15%, 15%, 12% and 10% of total revenue for the nine months ended June 30, 1999. During the first three quarters of fiscal year 2000, 11% 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 $7.98 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 three year warrants to purchase 200,000 shares of common stock at $2.66 per share, 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. On March 17, 2000, the Company's Board approved the grant of options to purchase a total of 258,900 shares of its Common Stock to various employees, outside of its 1994 Stock Option Plan. The Company's Board also approved a grant of options to purchase 80,000 shares to a company director under the 1994 Stock Option Plan. All of these options vest over various periods up to fur 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 nine months ended June 30, 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 may achieved 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 10-K for the fiscal year ended September 30, 1999. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999 Total revenue for the three months ended June 30, 2000 was $994,000 as compared to $903,000 for the same period of 1999, an increase of 10%. This increase in revenue for the period reflects the end of the year 2000 contracts and the growing resumption of migration projects. Year 2000 services revenue was $5,000 for the third quarter of 2000 as compared to $720,000 for 1999. Migration services revenue was $807,000 for the current quarter as compared to $16,000 a year ago. Consulting revenue added $45,000 in 2000 as compared to $31,000 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 $1,862,000 at June 30, 2000, which included no year 2000 projects 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 June 30, 1999 was $783,000, of which $776,000 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 $791,000 and $343,000 for the three months ended June 30, 2000 and 1999, respectively. Gross margin percentages were 80% and 38% for these periods. The increased gross margin percentage was due to the increase in revenue and a reduction in the cost of revenue for the current quarter, which included a reduction to salaries and wages from headcount attrition as year 2000 projects ended. Cost of revenue for 1999 included $44,000 in accrued year 2000 distributor commissions. Sales and marketing expenses were $205,000 for the three months ended June 30, 2000 as compared to $311,000 for the same period of 1999. Included in the the 1999 expenses was $132,000 for year 2000 distributor commissions. Research and development expenses were $294,000 for the current quarter as compared to $170,000 in the corresponding quarter of 1999. Development efforts in the 2000 quarter generally related to enhancements to our migration products and new XML-related offerings, while work performed in the quarter ending June 30, 1999 related to upgrades to our year 2000 analysis and renovation tools. General and administrative expenses were $303,000 and $255,000, in the three months ended June 30, 2000 and 1999, respectively. Net interest expense was $17,000 for the three months ended June 30, 2000 as compared to $150,000 in the 1999 quarter, reflecting the elimination of much of the company's debt to company officers and year 2000 distributors with the debt to equity conversion in March 2000. 8 The overall net loss for the three months ended June 30, 2000 was $30,000 or $0.00 per share compared with a loss of $543,000 or $0.04 per share for the three months ended June 30, 1999 (based on the weighted average number of shares outstanding during the respective periods). NINE MONTHS ENDED JUNE 30, 2000 COMPARED TO NINE MONTHS ENDED JUNE 30, 1999 Total revenue for the nine months ended June 30, 2000 was $2,923,000 as compared to $2,624,000 for the same period of 1999, an increase of 11%. Year 2000 services revenue was $1,072,000 as compared to $1,831,000 for the same periods. Migration services revenue was $1,213,000 as compared to $241,000 a year ago. Revenue from consulting totaled $229,000 as compared to $143,000 in 1999, and revenue from the amortization of deferred year 2000 distributor licenses and fees remained at $409,000 for both year to date periods. Gross margin was $1,952,000 and $724,000 for the nine months ended June 30, 2000 and 1999, respectively. Gross margin percentages were 67% and 28% 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 through attrition and by adjusting staff levels for the reduction and end of year 2000 business. Sales and marketing expenses were $524,000 for the nine months ended June 30, 2000 as compared to $767,000 for the same period of 1999. Distributor commissions were $55,000 compared to $333,000 for the previous year. Year to date research and development expenses were $728,000 as compared to $575,000 in the prior year, which reflect the increase in development efforts in 2000 for enhancements to our migration products and new XML-related offerings. General and administrative expenses were $1,819,000 and $863,000, 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 and other expense was $276,000 for the nine months ended June 30, 2000 as compared to $397,000 in 1999. This reduction reflects the benefit of the conversion of much of the company's non-bank debt to equity in March 2000. The overall net loss for the nine months ended June 30, 2000 was $1,396,000 or $0.10 per share compared with a loss of $1,879,000 or $0.16 per share for the nine months ended June 30, 1999 (based on the weighted average number of shares outstanding during the respective periods). LIQUIDITY AND CAPITAL RESOURCES Through June 30, 2000, we sustained recurring losses from operations and, at June 30, 2000, 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. The opinion of the independent certified public accountants on the audited financial statements for the year ended September 30, 1999 also contained an explanatory paragraph regarding such doubt about our ability to continue as a going concern. For the three months ended June 30, 2000, operations were funded primarily by cash derived from operating revenues and cash on hand . For the nine months ended June 30, 2000, operations were funded primarily by 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 we converted a significant amount of our debt to equity. We believe that 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 our 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, many companies postponed consideration and commencement of new migration projects until the actual outcome of the year 2000 issue was known. Additionally, 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. 9 We are aggressively pursuing new opportunities for migration services, including developing XML-related 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 fourth quarter of fiscal 2000 from some of the migration contracts currently under negotiation. The sales pipeline, work in progress, collections and cash requirements are being closely monitored to determine whether the existing sources of financing are adequate to support operations or whether additional means of financing, including debt or equity financing, may be required to satisfy 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 June 30, 2000, $225,000 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 June 30, 2000 were $85,000 as compared to $19,000 at June 30, 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 April 2000, to employees exercised options to purchase an aggregate of 9,900 shares of common stock for an aggregate price of $19,800. These transactions were exempt from the registration Requirements of the Securities Act of 1933, as amended, based on Rule 701 promulgated thereunder. 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 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, June 30, 2000 11 + 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 August 14, 2000 BY: /S/ Bernadette C. Castello --------------------------------- Bernadette C. Castello Senior Vice President and Chief Financial Officer 13 EX-27 2 0002.txt
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED BALANCE SHEET AS OF JUNE 30, 2000 AND THE STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED JUNE 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 9-MOS SEP-30-2000 OCT-01-1999 JUN-30-2000 85274 0 542859 20000 0 637457 1245575 1134759 862149 1763213 0 10658254 0 0 (12119174) 862149 0 2923288 971000 971000 3070958 0 276245 (1394915) 800 (1395715) 0 0 0 (1395715) (0.09) (0.09)
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