UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 for the quarterly period ended December 31, 2000.
-----------------
Or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 for the transition period from ____ to ____
Commission file number 0-6669
------
FORWARD INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
New York 13-1950672
- --------------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1801 Green Road, Suite E Pompano Beach 33064
- ---------------------------------------- -----------------------------------
(Address of principal executive offices) (Zip Code)
(954) 360-6420
------------------------------------------------
(Issuer's Telephone Number, including Area Code)
---------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes [X] No [ ].
As of January 24, 2001, 5,984,141 Shares of the issuer's Common Stock were
outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
FORM 10-QSB
THREE MONTHS ENDED DECEMBER 31, 2000
CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements 3
Consolidated Balance Sheets
as of December 31, 2000 (Unaudited)
and September 30, 2000 3
Consolidated Statements of Income
(Unaudited) for the Three Months
ended December 31, 2000 and 1999 4
Consolidated Statements of Comprehensive Income
for the Three Months ended December 31, 2000 and 1999 5
Consolidated Statements of Cash Flows
(Unaudited) for the Three Months
ended December 31, 2000 and 1999 6
Notes to Form 10-QSB (Unaudited) 7
Item 2. Management's Discussions and Analysis 9
PART II. OTHER INFORMATION 10
Item 6. Exhibits and Reports on Form 8-K 10
EXHIBIT 11 Computation of income per common share 11
SIGNATURES 13
2
PART I. ITEM 1. FINANCIAL STATEMENTS
-----------------------------
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
December 31, September 30,
2000 2000
------------- -------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivelents $ 568,417 $ 840,532
Accounts receivable less allowance for doubtful accounts of $67,675
and $67,675 3,323,104 2,062,415
Inventories - net 829,313 857,082
Notes and loans receivable - current portion 143,235 143,235
Notes and loans receivable - officers - current portion 243,281 319,603
Prepaid expenses and other current assets 404,711 459,697
Deferred income taxes - current 135,000 135,000
------------- -------------
Total current assets 5,647,061 4,817,564
PROPERTY PLANT AND EQUIPMENT - net 546,420 572,177
------------- -------------
ASSETS HELD FOR SALE 179,475 179,475
------------- -------------
OTHER ASSETS
Notes and loans receivable - officers - net of current portion 99,040 99,040
Deferred income taxes 953,640 1,209,000
Other assets 57,888 60,071
------------- -------------
Total other assets 1,110,568 1,368,111
------------- -------------
TOTAL ASSETS $ 7,483,524 $ 6,937,327
============= =============
LIABILITES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable 878,526 784,950
Notes payable under credit line 503,390 350,000
Current portion of capital lease obligations 24,360 24,360
Accrued payables and other current liabilities 535,182 503,170
------------- -------------
Total current liabilities 1,941,458 1,662,480
CAPITAL LEASE OBLIGATIONS - net of current portion 106,655 112,595
------------- -------------
TOTAL LIABILITIES 2,048,113 1,775,075
------------- -------------
STOCKHOLDERS' EQUITY
Preferred stock, 4,000,000 authorized shares, par value $.01; none
issued
Common stock, 40,000,00 authorized shares, par value $.01; 6,286,531
shares issued (including 302,390 and 202,390 held in treasury) 62,865 62,865
Paid-in-capital 7,679,768 7,679,768
Accumulated deficit (1,850,441) (2,233,479)
Foreign currency adjustment -- 8,799
------------- -------------
5,892,192 5,517,953
Less: Cost of shares in treasury (456,781) (355,701)
------------- -------------
Total stockholders' equity 5,435,411 5,162,252
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY 7,483,524 6,937,327
============= =============
The accompanying notes are an integral part of these financial statements.
3
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended December 31,
-------------------------------
2000 1999
------------- -------------
NET SALES $ 4,310,350 $ 5,862,774
COST OF GOODS SOLD 2,592,909 3,791,082
------------- -------------
GROSS PROFIT 1,717,441 2,071,692
------------- -------------
OPERATING EXPENSES:
Selling 509,376 535,423
General and administrative 545,797 712,142
------------- -------------
Total operating expenses 1,055,173 1,247,565
------------- -------------
INCOME FROM OPERATIONS 662,268 824,127
------------- -------------
OTHER INCOME (EXPENSES)
Interest expense (9,981) (37,077)
Interest income 12,939 22,575
Other income (expense) (26,828) (4,674)
------------- -------------
Total other income (expense) (23,870) (19,176)
------------- -------------
INCOME BEFORE PROVISION FOR INCOME TAXES 638,398 804,951
PROVISION FOR INCOME TAXES 255,360 221,980
------------- -------------
NET INCOME $ 383,038 $ 582,971
============= =============
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE
Basic 0.06 0.10
============= =============
Diluted 0.06 0.08
============= =============
WEIGHTED AVERAGE NUMER OF COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING
Basic 6,050,808 6,098,308
============= =============
Diluted 6,050,808 7,344,289
============= =============
DIVIDENDS NONE NONE
The accompanying notes are an integral part of these financial statements.
4
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended December 31,
------------------------------
2000 1999
-------------- --------------
NET INCOME $ 383,038 $ 582,971
COMPREHENSIVE INCOME ADJUSTMENTS:
Foreign currency adjustments: --- (753)
-------------- --------------
COMPREHENSIVE INCOME $ 383,038 $ 582,218
============== ==============
The accompanying notes are an integral part of these financial statements
5
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended December 31,
-------------------------------
2000 1999
-------------- ---------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 383,038 $ 582,971
Adjustments to reconcile net income to net cash
provided by (used in) continuing operations:
Amortization of deferred debt costs 3,054 19,327
Depreciation and amortization 31,189 19,876
Deferred taxes 255,360 221,980
Changes in assets and liabilities:
Accounts Receivable (1,260,689) 225,986
Inventories 27,769 (934,825)
Prepaid expenses and other current assets 54,986 25,649
Other assets (870) 9,643
Accounts Payable 93,576 (552,477)
Accrued expenses and other current liabilities 32,012 (112,775)
-------------- ---------------
NET CASH USED IN OPERATING ACTIVITIES (380,575) (494,645)
-------------- ---------------
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds from notes and loans receivable -- 44,775
Proceeds from officer's loans - net 76,322 (77,366)
Purchases of property, plant and equipment (5,432) (144,995)
-------------- ---------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 70,890 (177,586)
-------------- ---------------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from (payments of proceeds) short term borrowings 153,390 (193,369)
Principal payments on capital lease obligations (5,940) --
Purchase of treasury shares (101,081) (30,625)
-------------- ---------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 46,369 (223,994)
-------------- ---------------
EFFECT OF EXCHANGE RATE CHANGES (8,799) (753)
-------------- ---------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (272,115) (896,978)
CASH AND CASH EQUIVILENTS - beginning 840,532 1,210,762
-------------- ---------------
CASH AND CASH EQUIVILENTS - ending $ 568,417 $ 313,784
============== ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 6,927 $ 11,024
Income taxes $ 8,825 $ 49,650
The accompanying notes are an integral part of the consolidated financial
statements.
6
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FORM 10-QSB
THREE MONTHS ENDED DECEMBER 31, 2000 AND 1999
(UNAUDITED)
1. BASIS OF PRESENTATION
---------------------
The information in this Form 10-QSB includes the results of operations of
Forward Industries, Inc. ("the Company") and its wholly-owned subsidiary,
Koszegi Industries, Inc. ("Koszegi"), for the periods ended December 31,
2000 and 1999. The data is unaudited, but includes all adjustments
including the elimination of intercompany accounts and transactions which
are, in the opinion of management, necessary for a fair presentation of
the interim periods presented.
The accounting policies utilized in the preparation of this Form 10-QSB
are the same as those set forth in the Company's annual Form 10-KSB for
the fiscal year ended September 30, 2000 and should be read in conjunction
with the disclosures presented therein.
Certain prior period balances have been reclassified to conform to the
current period classification.
This Quarterly Report may contain forward-looking statements which involve
certain risks and uncertainties. Important factors could arise, including
those identified in "Risk Factors" in the Company's Form 10-KSB for the
year ended September 30, 2000, which could cause the Company's operating
results to differ materially from those contained in any forward looking
statement.
2. BORROWINGS UNDER CREDIT LINE
----------------------------
In January 2000, the Company established a $5.0 million credit line with
Chase Manhattan Bank to accommodate it's growth. There are no formula or
covenants associated with the line. The Company is required to eliminate
borrowings for 30 consecutive days each year. At December 31, 2000 the
Company was liable for $503,400 in bankers acceptances and was
contingently liable under letters of credit in the amount of $520,800.
3. INVENTORY
---------
Inventory consists of the following:
December 31, 2000 September 30, 2000
----------------- ------------------
(Unaudited)
Raw materials $ 11,636 $ 12,372
Finished goods 817,677 844,710
------- -------
$ 829,313 $ 857,082
======= =======
4. BUSINESS SEGMENT INFORMATION
----------------------------
The Company adopted SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information" which establishes standards for
reporting information about operating segments, and requires disclosures
about products, geographic areas and major customers.
The Company operates in a single segment that provides carrying solutions
for portable electronic devices. This Carrying-Solution Segment designs
and markets products to its customers that include wireless
telecommunications, medical and computer companies. The carrying solution
segment operates in geographic regions that include the United States and
Europe. Other geographic sales include Australia and Asia. Segments are
defined based primarily on the location of the customer. Segment
information is as follows:
7
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FORM 10-QSB
THREE MONTHS ENDED DECEMBER 31, 2000 AND 1999
(UNAUDITED)
4. BUSINESS SEGMENT INFORMATION (CONTINUED)
----------------------------------------
THREE MONTHS ENDED DECEMBER 31,
(THOUSANDS OF DOLLARS - UNAUDITED)
--------------------------------------------------------------
2000 1999
--------------- -------------
Sales:
United States............ $ 1,610 $ 1,675
Europe................... 2,694 4,165
Other foreign countries.. 6 23
--------------- -------------
Total sales............. $ 4,310 $ 5,863
=============== =============
Operating income (loss):
United States............ $ 217 $ 47
Europe................... 990 1,533
Other foreign countries.. (1) 1
Corporate - unallocated.. (544) (757)
--------------- -------------
Total operating income.. $ 662 $ 824
=============== =============
ALLOCATION OF EXPENSES AND ASSETS:
The Company operates a procurement and quality control center in Hong
Kong. The cost of operating the center is allocated to segments based on their
percentage of sales. The Company does not allocate taxes, other income, other
expense, interest income, interest expense or general and administrative
expenses to individual segments.
IDENTIFIABLE ASSETS:
Identifiable assets by segment are as follows:
--------------------------------------------------------------
DECEMBER 31 SEPTEMBER 30,
--------------------------------------------------------------
2000 2000
--------------- -------------
Unaudited
United States............. $ 2,072 $ 1,805
Europe.................... 2,749 1,787
Other foreign countries... 109 156
Unallocated Corporate..... 2,554 3,189
--------------- -------------
Total Assets............ $ 7,484 $ 6,937
=============== =============
8
PART I. ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
The following discussion and analysis should be read in conjunction with
the Company's Financial Statements and the notes thereto appearing elsewhere in
this Report. This Report contains statements which constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. The Company cautions that forward-looking statements are not guarantees of
future performance and involve risks and uncertainties, (including those
identified in "Risk Factors" in the Company's Form 10-KSB for the year ended
September 30, 2000), and that actual results may differ materially from those in
the forward-looking statements as a result of various factors.
The following discussion and analysis compares the results of the
Company's continuing operations for the three months ended December 31, 2000,
and the three months ended December 31, 1999.
THREE MONTHS ENDED DECEMBER 31, 2000 (THE "2000 QUARTER") COMPARED TO THREE
MONTHS ENDED DECEMBER 31, 1999 (THE "1999 QUARTER").
The 2000 Quarter reflected net income of $383,000 as compared to $583,000
in the 1999 Quarter. Basic earnings per share decreased to $.06 in the 2000
Quarter from $.10 in the 1999 Quarter, while diluted earnings per share
decreased to $.06 in the 2000 Quarter from $.08 in the 1999 Quarter.
SALES.
- ------
Net sales decreased by $1,552,400 (26%) to $4,310,400 in the 2000 Quarter,
from $5,862,800 in the 1999 Quarter. The decrease is primarily attributable to
lower sales to the Company's largest customer. However, when compared to the
Quarter ended September 30, 2000, sales increased by $2,337,800 or 118%. This
fluctuation in sales volume is directly related to the timing of sales to that
customer.
GROSS PROFIT.
- -------------
The gross profit decreased as a result of lower sales volume by $354,300
to $1,717,400 in the 2000 Quarter from $2,071,700 in the 1999 Quarter. As a
percentage of sales, however, gross profit increased to 39.8% in the 2000
Quarter from 35.3% in the 1999 Quarter. The improved gross profit percentage is
a result of lower freight costs resulting from using more cost efficient methods
of shipping goods and the additional savings realized as a result of the Company
closing its South Bend facility and consolidating its operations in Florida. A
portion of the costs of operating the South Bend facility had previously been
charged to cost of sales.
OPERATING EXPENSES.
- -------------------
Total operating expenses decreased by $192,300 (15%) to $1,055,200 in the
2000 Quarter from $1,247,600 in the 1999 Quarter. The reduction of general and
administrative expenses of $166,300 was a result of lower salary and bonus costs
of approximately $236,000. The salary and bonus savings were partially offset by
increased legal and professional fees which increased by approximately $80,000.
The remaining savings are a result of consolidating the Company's operations in
Florida.
PRETAX OPERATING INCOME.
- ------------------------
Pretax operating income declined by $166,600 (21%) to $638,400 in the 2000
Quarter as compared to $805,000 in the 1999 Quarter. As a percentage of sales,
however, the pretax operating income rose to 14.8% from 13.7%. This increase is
a result of the improved gross profit percentage and reduction of operating
expenses discussed above.
INCOME TAXES.
- -------------
The provision for income taxes increased by $33,400 to $255,400 in the
2000 Quarter from $222,000 in the 1999 Quarter. The effective tax rates for the
2000 and 1999 Quarters were 40% and 28%, respectively. The tax rate in the 1999
Quarter was lower due to the reduction of the valuation allowance established
for deferred taxes.
9
LIQUIDITY AND CAPITAL RESOURCES.
- --------------------------------
Operating activities used cash of $380,600 in the 2000 Quarter. This use
in operating funds resulted primarily from increases in accounts receivable of
$1,260,689 which was partially offset by net income of $383,000, the add back of
non-cash charges in the deferred tax account of $255,400, increases in accounts
payable of $93,500, and decreases in prepaid expenses of $55,000.
Net investing activities in the 2000 Quarter provided cash of $70,900
resulting primarily from payments received on Officer's notes.
Financing activities in the 2000 Quarter provided cash of $46,400. The
company previously paid off borrowings of $350,000 then subsequently became
liable to the bank under its credit line for bankers acceptances in the amount
of $503,400 resulting in net borrowings of $153,400. The Company used $101,100
of its cash to repurchase treasury stock.
In January, 2000 the Company obtained a $5.0 million credit line with
Chase Manhattan Bank to accommodate its growth, and terminated its former credit
arrangement. The credit line has no borrowing formula or specific covenants.
However a mandatory 30-consecutive-day period, in which there are no outstanding
borrowings, is required along with continued reasonable business performance. On
February 1, 2000 the Company repaid its outstanding balance at the former bank
with the proceeds from initial borrowings under the new credit line. At December
31, 2000 the Company was liable to the bank for $503,400 in bankers acceptances
and was contingently liable under letters of credit in the amount of $520,800.
In connection with the Company's consolidation of its offices from New
York and South Bend, Indiana, to Pompano Beach, Florida, land and a building
owned by the Company in South Bend, became available for sale. Current market
comparisons indicate that the fair market value is equal to, or greater than,
the net book value of the assets of $179,500; accordingly, the assets are
presented in the accompanying balance sheet at their net book value.
The Company did not incur any other long-term debt in the 2000 Quarter. At
December 31, 2000, there was no long-term debt other than capital lease
obligations. All installment notes and capital lease payments were made on a
timely basis.
DEFERRED INCOME TAXES.
- ----------------------
The Company's balance sheet at December 31, 2000 includes $1,088,600 of
deferred income taxes as an asset, net of an allowance of $407,000. The Company
was profitable in the 2000 Quarter, and in its fiscal year ended September 30,
2000, and in the fiscal year 1999 before restructuring charges associated with
the non-recurring costs of the shutdown of its South Bend plant, and in the 1998
Quarter, excluding a non-recurring, non-cash interest charge. However, to the
extent that the Company's operations may not be profitable in future periods,
the Company would not be able to realize the benefit of its deferred tax assets.
Without such deferred tax assets, at December 31, 2000, the Company's
stockholder's equity at such date of $5,435,400 would have been reduced by
$1,088,600 to a stockholder's equity of $4,346,800 and the Company's working
capital at December 31, 2000 would have been reduced by $135,000 from $3,705,600
to $3,570,600.
PART II. OTHER INFORMATION
-----------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation SB:
10
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT 11 - COMPUTATION OF INCOME PER COMMON SHARE
Three Months Ended December 31,
------------------------------------
2000 1999
---------- ----------
NUMERATOR
Income from continuing operations $ 383,038 $ 582,971
---------- ----------
Less: Preferred dividends -- --
---------- ----------
Income available to common stockholders' used
in basic earnings per share 383,038 BASIC 582,971
---------- ----------
Income available to common stockholders'
after assumed conversions of dilutive securities $ 383,038 DILUTED $ 582,971
========== ==========
DENOMINATOR
Weighted average number of common shares
outstanding - see schedule 6,050,808 BASIC 6,098,308
Impact of potential common shares:
Stock options and warrants 0 1,245,981
---------- ----------
Weighted average number of common shares
including potentially dilutive securities 6,050,808 DILUTED 7,344,289
========== ==========
BASIC EARNINGS PER COMMON SHARE $ 0.06 $ 0.10
========== ==========
DILUTED EARNINGS PER COMMON SHARE $ 0.06 $ 0.08
========== ==========
CALCULATIONS
Stock Options:
TREASURY STOCK METHOD APPLIED TO STOCK OPTIONS
Sale of common stock:
Total options and warrants outstanding 0 2,483,125
Average price $ 1.52 $ 1.40
---------- ----------
Total $ 0 $3,476,375
========== ==========
Repurchase of common stock:
Proceeds 0 3,476,375
Average stock price $ 1.08 $ 2.81
---------- ----------
Shares repurchased 0 1,237,144
========== ==========
Net increase in shares:
Shares sold 0 2,483,125
Shares repurchased 0 1,237,144
---------- ----------
Increase in shares 0 1,245,981
========== ==========
Note: for the period ending December 31, 2000, the exercise price of all options
outstanding exceeded the average stock price of $1.08, accordingly no conversion
is presumed to occur.
11
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT 11 - COMPUTATION OF INCOME PER COMMON SHARE
Computation of Weighted Average Number of Common Shares Outstanding
DECEMBER 31, 2000
---------------------------------------
Shares Fraction Weighted
Dates Outstanding Outstanding of Period Average Shares
----------- --------- --------------
October through November 6,084,141 2/3 4,056,094
Treasury stock repurchased in open market, December (100,000)
-----------
December 5,984,141 1/3 1,994,714
--------------
Weighted Average Shares 6,050,808
==============
DECEMBER 31, 1999
---------------------------------------
Shares Fraction Weighted
Dates Outstanding Outstanding of Period Average Shares
----------- --------- --------------
October through November 6,101,641 2/3 4,067,761
Treasury stock repurchased in open market, December (10,000)
-----------
December 6,091,641 1/3 2,030,547
--------------
Weighted Average Shares 6,098,308
==============
12
Item 6 OTHER INFORMATION (Continued)
(b) Reports on Form 8-K
None.
SIGNATURE
In accordance with to the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
Dated: January 25, 2001
FORWARD SYSTEMS, INC.
(Registrant)
By: /s/ Douglas W. Sabra
----------------------------------
DOUGLAS W. SABRA
Principal Financial Officer
13