-----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, O34+/0hqrqzO6FqAzqGQhpU5ki0vA8WZ4E3GsVfdJ4WkYikPi/58pWbBC2ZmMyr4 DCc7ppOmwO2ZipiGsRnj4A== 0001015402-02-000572.txt : 20020414 0001015402-02-000572.hdr.sgml : 20020414 ACCESSION NUMBER: 0001015402-02-000572 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020219 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: 1934 Act SEC FILE NUMBER: 000-29672 FILM NUMBER: 02553571 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 doc1.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, 2001 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) (Zip Code) Registrant's telephone number, including area code: (415) 543-1515 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 FEBRUARY 15, 2002 COMMON STOCK, NO PAR VALUE 16,853,380 FORECROSS CORPORATION FORM 10-Q TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheets at December 31, 2001 (unaudited) and September 30, 2001 Statements of Operations (unaudited) for the three months ended December 31, 2001 and 2000 Statements of Cash Flows (unaudited) for the three months ended December 31, 2001 and 2000 Statements of Shareholders' Deficit (unaudited) for the three months ended December 31, 2001 and 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 DEC. 31, SEPT. 30, ---------------------------- ASSETS 2001 2001 ------------- ------------- (Unaudited) Current assets: Cash $ 39,931 $ 30,123 Accounts receivable, including unbilled receivables of $660,000 and $525,000, net of allowances of $20,000 and $20,000, respectively 1,248,660 696,842 Other current assets 35,168 22,213 ------------- ------------- Total current assets 1,323,759 749,178 Equipment and furniture, net 148,632 177,934 Notes receivable 77,118 76,183 Other assets 31,274 43,196 ------------- ------------- TOTAL ASSETS $ 1,580,783 $ 1,046,491 ============= ============= LIABILITIES AND SHAREHOLDERS' DEFICIT Current liabilities: Accounts payable $ 268,767 $ 275,482 Accrued compensation and related benefits 901,786 921,303 Accrued liabilities 27,204 26,989 Accrued commissions 161,942 104,026 Payable to factor 445,195 - Notes payable to officers and related parties, current portion 100,000 100,000 Accrued warranty costs 87,511 67,835 Deferred revenue-projects 181,533 190,575 ------------- ------------- Total Current Liabilities 2,173,938 1,686,210 Notes payable to officers and related parties, less current portion 141,817 135,448 ------------- ------------- TOTAL LIABILITIES 2,315,755 1,821,658 ------------- ------------- Commitments and contingencies Shareholders' deficit Common stock, no par value; authorized 20,000,000 shares; issued and outstanding 16,853,380 11,646,788 11,654,174 Accumulated deficit (12,381,760) (12,429,341) ------------- ------------- TOTAL SHAREHOLDERS' DEFICIT (734,972) (775,167) ------------- ------------- TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 1,580,783 $ 1,046,491 ============= =============
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FORECROSS CORPORATION STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, -------------------------- 2001 2000 -------------------------- (Unaudited) (Unaudited) Net revenue: Migration services $ 979,690 $ 254,987 Consulting 94,500 75,345 Year 2000 software licenses, maintenance agreements and distributorship fees from related parties - 141,249 -------------------------- Total net revenues 1,074,190 471,581 Cost of services and maintenance 426,306 404,201 -------------------------- Gross margin 647,884 67,380 -------------------------- Operating expenses: Sales and marketing 266,512 156,631 Research and development 106,964 186,719 General and administrative 204,207 275,461 -------------------------- Total operating expenses 577,683 618,811 -------------------------- Income (loss) from operations 70,201 (551,431) Interest and other expense, net (22,620) (46,447) -------------------------- Income (loss) before provision for income taxes 47,581 (597,878) Provision for income taxes - (1,600) -------------------------- Net Income (loss) $ 47,581 ($599,478) ========================== Earnings (loss) per share - basic and diluted $ 0.00 ($0.04) ========================== Weighted average shares used in computing per share data 16,853,380 15,053,380 ==========================
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FORECROSS CORPORATION STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED DECEMBER 31, ----------------------- 2001 2000 - ----------------------------------------------------------------------------------------------------- (Unaudited) (Unaudited) INCREASE (DECREASE) IN CASH RESULTING FROM: CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 47,581 ($599,478) ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES- Non-cash compensation adjustment to consultants (3,693) 14,650 Depreciation and amortization 25,609 43,203 CHANGES IN OPERATING ASSETS AND LIABILITIES- Accounts receivable (551,818) 305,842 Other assets and accrued interest on notes receivable from officers (1,968) (8,422) Accounts payable and accrued liabilities 53,816 (8,921) Accrued compensation 4,128 75,928 Deferred revenue from year 2000 distributors - (141,249) Deferred revenue from projects (9,042) 262,780 ----------------------- Net cash used in operating activities (435,387) (55,667) ----------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from factoring of accounts receivable 445,195 545,243 Repayment of borrowings under factoring arrangement - (501,244) Repayment of borrowings under capitalized leases - (5,999) ----------------------- Net cash provided by financing activities 445,195 38,000 ----------------------- NET INCREASE (DECREASE) IN CASH 9,808 (17,667) CASH AT BEGINNING OF PERIOD 30,123 18,833 ----------------------- CASH AT END OF PERIOD $ 39,931 $ 1,166 ======================= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest paid $ 17,176 $ 45,775 ======================= SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Accrued interest on notes payable to officers and related parties $ 6,379 $ 2,875 ======================= Options issued to purchase software ($3,693) $ 14,638 =======================
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FORECROSS CORPORATION STATEMENTS OF SHAREHOLDERS' DEFICIT (UNAUDITED) COMMON STOCK ------------------------ ACCUMULATED TOTAL SHARES AMOUNT DEFICIT DEFICIT ---------------------------------------------------- BALANCES AT OCTOBER 1, 2001 16,853,380 $11,654,174 ($12,429,341) ($775,167) Revaluation of options to consultants - (7,386) - ($7,386) Net income - - 47,581 $ 47,581 ---------------------------------------------------- BALANCES AT DECEMBER 31, 2001 16,853,380 $11,646,788 ($12,381,760) ($734,972) ====================================================
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, 2001. 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, 2001. The interim period results are not necessarily indicative of the results for the year ending September 30, 2002. 2. BASIS OF PRESENTATION AND GOING CONCERN: Through December 31, 2001, the Company had sustained recurring losses from operations, and at December 31, 2001, had a shareholders' deficit of $735,000 and a net working capital deficiency of $850,000. These conditions raise substantial doubt about the ability of the Company to continue as a going concern. The opinion of the Company's independent certified public accountants on the audited financial statements for the year ended September 30, 2001 also contained an explanatory paragraph regarding this doubt about the Company's ability to continue as a going concern. During fiscal 2002, 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, sales of shares of common stock, and software license fees from organizations desiring access to the Company's 5 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 2002. 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. 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. In the following table, revenues from the Company's Distributors are treated as resulting from one customer.
CONCENTRATIONS OF ACCOUNTS RECEIVABLE DECEMBER 31, 2001 2000 ------------------ Accounts Receivable Number of Customers Represented 2 2 Percentage of Accounts Receivable 80%, 16% 83%, 10% SEPTEMBER 30, 2001 2000 ------------------ Accounts Receivable Number of Customers Represented 2 2 Percentage of Accounts Receivable 69%, 24% 75%, 22%
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CONCENTRATIONS OF REVENUE GENERATION FOR THE THREE MONTHS ENDED DECEMBER 31, 2001 2000 --------------------------- Revenue Number of Customers Represented 2 4 30%, 26%, 21%, Percentage of Total Revenue 88%, 9% 15% Revenue by Geographic Area United States Percentage of Total Revenue 100% 100%
5. DEFERRED REVENUE: The Company has no remaining obligations or continuing obligations with respect to its prior arrangements with Y2K distributors or customers. Remaining deferred revenues relate to migration projects for which amounts have been billed or funds received in advance of revenues earned under the percentage of completion method. 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 months ended December 31, 2001 and 2000 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, 2001. RESULTS OF OPERATIONS THREE MONTHS ENDED DECEMBER 31, 2001 COMPARED TO THREE MONTH ENDED DECEMBER 31, 2000 Total revenue for the three months ended December 31, 2001 was $1,074,000 as compared to $472,000 for the same period of 2000, an increase of 128%. Migration services revenue for the period contributed $980,000 as compared to $255,000 a year ago. Revenue in the 2000 period was less than expected, in part, due to delays in the signing of new business until late in the reporting period, and unanticipated challenges in processing non-standard and unique programming in client applications, resulting in a temporary slowing in completion of billable and revenue generating milestones. Project revenue is recognized on the percentage-of-completion method, using estimates of the costs remaining. Revenue from consulting totaled $95,000 as compared to $75,000 in 2000, and revenue from the amortization of deferred year 2000 distributor licenses, fees and maintenance was $0 for the current period compared to $141,000 a year ago. Backlog was $1,689,000 at December 31, 2001, as compared to $2,668,000 at September 30, 2001 and $1,402,000 at December 31, 2000. Gross margin was $648,000 and $67,000 for the three months ended December 31, 2001 and 2000, respectively. Gross margin percentages were 60% and 14% for these periods. The lower gross 8 margin and gross margin percentage for the prior year period was due to the previously mentioned challenges, where costs were being incurred to analyze and provide a solution for the non-standard programming, without being able to recognize related revenue. Sales and marketing expenses were $267,000 in the three months ended December 31, 2001 as compared to $157,000 in the same period of 2000. The increase reflects the reassignment of certain employees from administrative to sales-related positions, the cost of two sales representatives hired in the fourth fiscal quarter of 2001, and higher sales commissions earned based on higher revenue recognized. Research and development expenses were $107,000 at December 31, 2001 compared to $187,000 in the corresponding period of 2000. During the current period, a larger portion of the department labor was project related and included in cost of revenue. Additional allocated cost savings came from consolidating and reducing office space in September 2001. General and administrative expenses were $204,000 and $275,000, in the three months ended December 31, 2001 and 2000, respectively. Expense reductions in the 2001 quarter were due to the reassigning of certain employees to sales-related positions, reducing rented office space, and changes in the value of options granted to consultants. Net interest expense was $23,000 for the three months ended December 31, 2001 as compared to $46,000 in the 2000 quarter. The change in the current quarter was due to a reduction in borrowing against the bank factoring line of credit. The overall net income for the three months ended December 31, 2001 was $48,000 or $0.00 per share compared with a net loss of $599,000 or $0.04 per share for the three months ended December 31, 2000 (based on the weighted average number of shares outstanding during the respective periods). The Company anticipates relocating its offices in San Francisco at the end of March 2002 and is close to completing the negotiations and signing the lease contract. The approximate cost of rent in the first year of the lease will be $120,000. LIQUIDITY AND CAPITAL RESOURCES Through December 31, 2001, we sustained recurring losses from operations, and at December 31, 2001, we had a shareholders' deficit of $735,000 and a net working capital deficiency of $850,000. These conditions raise substantial doubts about our ability to continue as a going concern. The opinion of our independent certified public accountants on the audited financial statements for the year ended September 30, 2001 also contained an explanatory paragraph regarding this doubt about our ability to continue as a going concern. 9 For the three months ended December 31, 2001, operations were funded primarily by borrowings against the factoring line of credit. 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, 2001, $445,000 was outstanding under the agreement and at September 30, 2001, $0 was outstanding. The agreement, established in October 1995 and modified in March 2001, 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 2002 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 2002. 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 effect on our results of operations. We anticipate that our capital expenditures for fiscal 2002 will be between $50,000 and $75,000. Cash and cash equivalents on hand at December 31, 2001 were $40,000 as compared to $30,000 at September 30, 2001. 10 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 10.8+ Factoring Agreement, dated October 30, 1995, between the Company and Silicon Valley Financial Services 10.10+ Factoring Modification Agreement, dated January 13, 1998, between the Company and Silicon Valley Financial Services + Previously filed as part of the Company's Form 10/A, effective June 16, 1998. (b). Reports on Form 8-K None 11 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 19, 2002 BY: /S/ Bernadette C. Castello ----------------------------------------- Bernadette C. Castello Senior Vice President and Chief Financial Officer 12 -----END PRIVACY-ENHANCED MESSAGE-----