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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-6669
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FORWARD INDUSTRIES, INC.
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(Exact name of Registrant as specified in its Charter)
NEW YORK 13-1950672
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
275 Hempstead Turnpike
WEST HEMPSTEAD, NY 11552
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(Address of principal executive offices)
(516) 564-1100
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(Registrant's telephone number)
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(Former Name, Former Address and Former Fiscal Year, if changed since last
Report)
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 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
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As of February 5, 1997, 6,122,282 shares of the issuer's common stock were
outstanding.
Transitional Small Business Disclosure Format (check one): Yes ______ No ___X__
FORWARD INDUSTRIES, INC. AND SUBSIDIARY
FORM 10-QSB
THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
CONTENTS
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
as of December 31, 1996 (Unaudited)
and September 30, 1996 3-4
Consolidated Statements of Operations
(Unaudited) for the Three Months
Ended December 31, 1996 and 1995 5
Consolidated Statements of Cash Flows
(Unaudited) for the Three Months
Ended December 31, 1996 and 1995 6-7
Notes to Form 10-QSB (Unaudited) 8-9
Item 2. Management's Discussion and Analysis
or Plan of Operation 10-12
PART II. OTHER INFORMATION 13
2
FORWARD INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
DECEMBER 31, SEPTEMBER 30,
1996 1996*
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(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $513,637 $ 208,214
Accounts receivable, less allowance for
doubtful accounts of $50,000 and $50,000 2,517,563 2,774,660
Inventories 1,665,784 1,916,874
Prepaid expenses and other current assets 137,970 213,736
Notes and loans receivable - current portion 69,996 69,996
Notes and loans receivable - officers - current
portion 52,688 74,052
Deferred income taxes 399,000 399,000
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Total current assets 5,356,638 5,656,532
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PROPERTY, PLANT AND EQUIPMENT - net 733,182 745,639
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OTHER ASSETS:
Deferred income taxes 1,801,771 1,831,000
Building held for sale or lease 153,780 161,963
Note receivable - net of current portion 168,775 186,274
Notes and loans receivable - officers - net of
current portion 169,356 165,535
Deferred offering costs 28,260 -
Other assets 53,813 53,813
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2,375,755 2,398,585
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$ 8,465,575 $ 8,800,756
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* The balance sheet at September 30, 1996 is derived from the audited
financial statements of that date.
The accompanying notes are an integral part
of the consolidated financial statements
3
FORWARD INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31, SEPTEMBER 30,
1996 1996*
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(UNAUDITED)
CURRENT LIABILITIES
Acceptances and notes payable $1,340,261 $1,169,712
Accounts payable 1,156,702 1,568,101
Current maturities of mortgage payable 15,584 15,164
Current maturities of long-term debt 306,667 445,750
Accrued expenses and other current liabilities 559,357 636,484
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Total current liabilities 3,378,571 3,835,211
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LONG-TERM LIABILITIES:
Mortgage payable, net of current maturities 1,109,219 1,113,277
Long-term debt, net of current maturities 58,625 66,667
Notes payable - related parties 88,700 90,950
Other liabilities 11,250 22,500
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1,267,794 1,293,394
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Total liabilities 4,646,365 5,128,605
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, authorized shares, par value
$.01; issued 6,252,062 and 6,052,062 shares
(including 329,780 held in treasury) 62,520 60,520
Paid-in capital 5,773,707 5,669,457
Deficit (1,778,904) (1,819,713)
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4,057,323 3,910,264
Less: Cost of shares in treasury 238,113 238,113
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Total stockholders' equity 3,819,210 3,672,151
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$8,465,575 $8,800,756
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* The balance sheet at September 30, 1996 is derived from the audited financial
statements of that date.
The accompanying notes are an integral part
of the consolidated financial statements
4
FORWARD INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE
MONTHS ENDED
DECEMBER 31,
--------------------------
1996 1995
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NET SALES $4,502,609 $5,286,748
COST OF GOODS SOLD 3,271,636 4,367,142
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GROSS PROFIT 1,230,973 919,606
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OPERATING EXPENSES:
Distribution 17,784 35,094
Selling 456,348 585,548
General and administrative 628,456 549,007
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1,102,588 1,169,649
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INCOME (LOSS) FROM OPERATIONS 128,385 (250,043)
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OTHER INCOME (DEDUCTIONS):
Interest expense (33,548) (67,558)
Interest expense - related parties (14,634) (12,489)
Interest income 8,491 10,056
Rental income - net (27,452) (20,877)
Other income - net 9,325 49,417
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(57,818) (41,451)
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INCOME (LOSS) BEFORE PROVISION (CREDIT)
FOR INCOME TAXES 70,567 (291,494)
PROVISION (CREDIT) FOR INCOME TAXES 29,758 (70,000)
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NET INCOME (LOSS) $ 40,809 $ (221,494)
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NET EARNINGS (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE (Notes E and F) $ .01 $(.06)
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WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING
(Notes E and F) 5,872,282 3,409,682
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DIVIDENDS NONE NONE
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The accompanying notes are an integral part
of the consolidated financial statements
5
FORWARD INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE
MONTHS ENDED
DECEMBER 31,
--------------------------
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 40,809 $ (221,494)
Adjustments to reconcile net
income (loss) to net
cash provided by (used in)
operating activities:
Accrued interest receivable - (3,200)
Depreciation and amortization 47,406 58,400
Deferred taxes 29,229 (70,000)
Non-cash compensation 6,250 22,219
Changes in assets and liabilities:
Accounts receivable 257,097 (283,272)
Inventories 251,090 388,575
Prepaid expenses and other
current assets 75,766 (75,016)
Other assets - (6,144)
Accounts payable (411,399) (210,870)
Accrued expenses and other current
liabilities (77,127) (567)
Other liabilities (11,250) (10,125)
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NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 207,871 (411,494)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from notes and loans receivable 17,499 17,499
Collections from officers 17,543 34,752
Purchases of property, plant and equipment (26,766) (33,694)
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NET CASH PROVIDED BY INVESTING ACTIVITIES 8,276 18,557
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings 170,549 210,106
Payments of long-term notes (47,125) (150,161)
Payments of mortgage (3,638) (5,374)
Proceeds from notes payable - related parties - 130,000
Repayments of notes payable - related parties (2,250) (750)
Deferred offering costs (28,260) (90,000)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 89,276 93,821
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NET CHANGE IN CASH AND CASH EQUIVALENTS 305,423 (299,116)
CASH AND CASH EQUIVALENTS - beginning 208,214 478,784
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CASH AND CASH EQUIVALENTS - ending $ 513,637 $ 179,668
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The accompanying notes are an integral part
of the consolidated financial statements
6
FORWARD INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
THREE MONTHS ENDED
DECEMBER 31,
------------------------
1996 1995
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 76,670 $111,899
Income taxes 529 -
SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Warrants issued for services rendered $ 6,250 $ 22,219
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SCHEDULE OF NON-CASH FINANCING
ACTIVITIES:
Conversion of long-term debt
into common stock $100,000 $ -
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The accompanying notes are an integral part
of the consolidated financial statements
7
FORWARD INDUSTRIES, INC AND SUBSIDIARY
NOTES TO FORM 10-QSB
THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(UNAUDITED)
NOTE A
The attached summarized financial information does not include all
disclosures required to be included in a complete set of financial
statements prepared in conformity with generally accepted accounting
principles. Such disclosures were included with the consolidated financial
statements of the Company at September 30, 1996, included in its Form
10-KSB. Such statements should be read in conjunction with the data
herein.
NOTE B
The financial information reflects all normal recurring adjustments which,
in the opinion of management, are deemed necessary for a fair presentation
of the results for the interim periods. The results for the interim
periods are not necessarily indicative of the results to be expected for
the year.
NOTE C
Certain 1995 amounts have been reclassified to conform to the 1996
presentation.
NOTE D
Inventories are summarized as follows:
DECEMBER 31, SEPTEMBER 30,
1996 1996
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(UNAUDITED)
Finished goods $ 555,521 $ 910,780
Work-in-process 724,496 507,372
Raw materials and supplies 385,767 498,722
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$1,665,784 $1,916,874
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NOTE E
Earnings (loss) per share are based on the weighted average number of
shares outstanding during each period presented. Common stock equivalents
have not been included for the three months ended December 31, 1996 as
their effect would be anti-dilutive. For the three months ended
December 31, 1996, the modified treasury stock method was not utilized to
calculate the dilutive effect of the options and warrants as their exercise
prices were below the market price of the underlying securities.
8
FORWARD INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO FORM 10-QSB
THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(UNAUDITED)
NOTE F
On December 27, 1995, the Board of Directors declared a two-for-one stock
split in the form of a 100% stock dividend. All share data and per share
amounts have been adjusted to reflect the stock split on a retroactive
basis.
9
THIS QUARTERLY REPORT ON FORM 10-QSB CONTAINS FORWARD LOOKING
STATEMENTS THAT INVOLVE CERTAIN RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE
FORWARD LOOKING STATEMENTS.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
THREE MONTHS ENDED DECEMBER 31, 1996 (THE "1997 PERIOD") COMPARED WITH THREE
MONTHS ENDED DECEMBER 31, 1995 (THE "1996 PERIOD").
The profit in the 1997 Period of $40,809 is a significant improvement from the
($221,494) loss in the 1996 Period. Earnings per share increased from a loss of
($.06) in the 1996 Period to a profit of $.01 in the 1997 Period.
REVENUES. Net sales decreased $784,139 (14.8%) to $4,502,609 in the 1997
Period, from $5,286,748 in the 1996 Period. Sales of total carrying cases
decreased by $376,067 and sales of advertising specialties decreased by
$408,072. The Company's retail Terrapin-Registered Trademark- line accounted
for an increase of $224,504.
OPERATING INCOME. Consolidated income from operations increased by $378,428 to
a profit of $128,385 in the 1997 Period, up significantly from a ($250,043) loss
in the 1996 Period.
Although net sales decreased in the 1997 Period, gross profits and margin
increased significantly. Gross profit increased $311,367 (33.9%) to $1,230,973
in the 1997 Period up from $919,606 in the 1996 Period. The gross margin
improved 9.9 percentage points to 27.3% in the 1997 Period up from 17.4% in the
1996 Period. These operating improvements reflect the cumulative impact of
numerous management programs focused on increasing manufacturing efficiencies,
raising quality standards and eliminating unprofitable product offerings.
Distribution expenses decreased $17,310 (49.3%) from $35,094 in the 1996 Period
to $17,784 in the 1997 Period, primarily as a result of better control of import
shipping expenses. Selling expenses decreased $129,200 (22.1%) from $585,548 in
the 1996 Period to $456,348 in the 1997 Period. In the 1997 Period, the ratio
of selling expenses to net sales was 10.1%, compared to 11.1% in the 1996
Period. This decrease in selling expenses in the 1997 Period was primarily the
result of a 34% decrease in sales salaries and commissions reflecting a
curtailed level of sales staffing coupled with lower sales volume, offset by
increased advertising, show expenses and samples expenditures.
General and administrative expenses increased by $79,449 (14.5%) to $628,456 in
the 1997 Period from $549,997 in the 1996 Period, consisting primarily of
increases in salaries and payroll taxes, and travel and entertainment reflecting
key management additions and increased travel related to cost containment
efforts. These increases were somewhat offset by lower costs associated with
the opening of letters of credit for overseas sourcing of carrying cases.
OTHER INCOME (DEDUCTIONS) AND TAXES. Total interest expenses decreased by
$31,865 (39.6%) to $48,677 in the 1997 Period from $80,047 in the 1996 Period
due to lower borrowing levels. The Company's rental building in Brooklyn, New
York, was partially leased during both the 1997 and 1996 Periods. Rental income
- - net
10
decreased from a loss of ($20,877) in the 1996 Period to a loss of ($27,452) in
the 1997 Period as a result of higher operating expenses and real estate taxes.
Other income - net decreased $40,092 in the 1997 Period from the 1996 Period.
The reduction was primarily due to the income associated with the disposition of
unutilized fully depreciated machinery and equipment in the 1996 Period.
The effective tax rate in the 1997 Period was 42.2% compared to the 24.0%
rate in the 1996 Period. The differential in rates occurred primarily due to
the balance sheet approach used to calculate deferred income taxes for the
1996 Period.
LIQUIDITY AND CAPITAL RESOURCES.
In the 1997 Period, $207,871 of cash was provided by operating activities. Net
profits in the 1997 Period of $40,809, a reduction of accounts receivable of
$257,097, lower inventories of $251,090, decreases in deferred taxes of $29,229
and lower prepaid and various other assets of $75,766 provided operational
cash. Reductions of accounts payable ($411,399) and accrued expenses and other
liabilities ($82,127) partially offset cash provided from operations. Net
investing activities in the 1997 Period provided cash of $8,276. The Company
collected $17,543 of notes receivable which arose from the sale of its
discontinued operations in 1994 and collected $17,499 of loans made to its
officers. In the 1997 Period, the Company purchased $27,766 of property, plant
and equipment.
Financing activities in the 1997 Period provided cash of $89,276. This
consisted primarily of the following: proceeds from net additional borrowings
for letter of credit financing of $170,549, offset by payments of long term
notes payable of $47,125, current mortgage payments of $3,638, and notes payable
to related parties of $2,250. The Company also incurred $28,260 of deferred
offering costs relating to a proposed registration for a proposed equity
financing.
The Company has a line of credit with its bank and is indebted to such bank for
short-term borrowings and acceptances. The total line is for $1,100,000 of
which $750,000 is reserved for letters of credit (acceptances). The Company's
line of credit with it's bank was scheduled to mature on August 15, 1996 but was
extended to March 17, 1997. In connection with such extension, the rate of
interest on outstanding borrowings was increased from 1% to 1-1/2% over prime.
The line of credit contains certain financial covenants, including maintaining
certain financial ratios. At September 30, 1996, the Company was not
maintaining such ratios and the bank has waived compliance through March 17,
1997. At December 31,1996, the Company owed the bank $1,106,415. The Company
also is seeking financing from other institutional lenders to replace its
existing bank line of credit, but has not received any commitments in this
regard and there can be no assurance that any commitments will be forthcoming or
will be on terms which will not be unduly burdensome to the Company.
On February 14, 1996, the Company obtained a thirteen month loan of $250,000
bearing interest at 10% per annum. The loan was convertible, under certain
conditions and at the option of the lender, into shares of the Company's Common
Stock at a conversion rate of $1.00 per share. In October 1996, some of the
terms of the note were changed as follows:
11
The note is now payable on the tenth business day after written demand on
or after February 1, 1997.
The note is convertible into shares of Common Stock at $.50 per share. In
October 1996, $100,000 of such debt was converted into 200,000 shares
of Common Stock. The balance of the note shall not be convertible
until April 15, 1997.
In January 1997, the lender indicated that it will not convert the balance of
the debt into Common Stock. The Company is currently negotiating with the
lender regarding the payment of such debt. The Company did not incur any other
long-term debt in the 1997 Period. At December 31, 1996, long-term debt
amounted to approximately $365,000 and all payments were made on a timely
basis. Long-term debt is scheduled to mature as follows: $307,000 to be paid
in the next twelve months and $59,000 to be paid thereafter.
DEFERRED INCOME TAXES.
The Company's balance sheet at December 31, 1996 includes $2,200,771 of deferred
income taxes as an asset. The Company was profitable in the 1997 Period.
However, if the Company's operations are not profitable in future periods, the
Company may not be able to realize the benefit of its deferred tax assets.
Without such deferred tax assets, at December 31, 1996, the Company's
stockholder's equity at such date of $3,819,210 would have been reduced by
$2,200,771 to a stockholder's equity of $1,618,439 and the Company's working
capital at December 31, 1996 would have been reduced by $399,000 from $1,978,067
to $1,579,067.
12
PART II - OTHER INFORMATION
Item 6. EXHIBIT AND REPORTS ON FORM 8-K
(a) None.
(b) (1) The Company's Current Report on Form 8-K dated October 14,
1996.
(2) The Company's Current Report on Form 8-K dated October 25,
1996.
13
SIGNATURE
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: February 13, 1997
FORWARD INDUSTRIES, INC.
(Registrant)
By: /s/ THEODORE H. SCHIFFMAN
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THEODORE H. SCHIFFMAN
Chairman and Chief Executive Officer
and
Principal Financial Officer
14