SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 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 _________
Commission File Number 0-6669
FORWARD INDUSTRIES, INC.
- - --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
New York 13-1950672
-------------------------- -------------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
275 Hempstead Turnpike, West Hempstead, NY 11552
- - --------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(516) 564-1100
- - --------------------------------------------------------------------------------
(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) 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 May 7, 1996 , 4,891,282 shares of the issuer's common stock
--------------- -------------
were outstanding.
Transitional Small Business Disclosure Format (check one): Yes
-----------
No X
-----------
<PAGE>
FORWARD INDUSTRIES, INC. AND SUBSIDIARY
FORM 10-QSB
SIX MONTHS ENDED MARCH 31, 1996 AND 1995
CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
as of March 31, 1996 (Unaudited)
and September 30, 1995 3 - 4
Consolidated Statements of Operations
(Unaudited) for the Six and Three Months
Ended March 31, 1996 and 1995 5
Consolidated Statements of Cash Flows
(Unaudited) for the Six Months
Ended March 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 - 15
PART II. OTHER INFORMATION 16
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
FORWARD INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1996 1995*
--------------- -------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 100,126 $ 478,784
Accounts receivable, less allowance for
doubtful
accounts of $50,000 and $31,000 2,093,596 2,281,990
Inventories 1,895,911 2,189,023
Prepaid expenses and other current assets 362,338 275,574
Notes and loans receivable - current portion 69,996 225,795
Notes and loans receivable - officers - current portion 63,821 70,027
Deferred income taxes 256,000 413,000
------------ ----------
Total current assets 4,841,788 5,934,193
------------ -----------
PROPERTY, PLANT AND EQUIPMENT - net 792,341 856,229
------------ -----------
OTHER ASSETS:
Deferred income taxes 1,325,000 880,000
Building held for sale or lease 178,697 194,697
Note receivable - net of current portion 221,272 331,971
Notes and loans receivable - officers - net of
current portion 203,942 232,635
Deferred offering costs 218,855 -
Other assets 75,990 69,810
------------ -----------
2,223,756 1,709,113
------------ -----------
$ 7,857,885 $ 8,499,535
============ ============
</TABLE>
*The balance sheet at September 30, 1995 is derived from the audited financial
statements of that date.
The accompanying notes are an integral part of the consolidated financial
statements
-3-
<PAGE>
FORWARD INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1996 1995*
--------------- -------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Acceptances and notes payable $ 1,570,372 $ 1,110,316
Accounts payable 2,093,318 3,290,188
Notes payable - other 200,000 -
Current maturities of mortgage payable 14,356 13,591
Current maturities of long-term debt 531,572 440,556
Accrued expenses and other current liabilities 748,477 421,521
------------ ------------
Total current liabilities 5,158,095 5,276,172
------------ ------------
LONG-TERM LIABILITIES:
Mortgage payable, net of current maturities 1,115,668 1,125,157
Long-term debt, net of current maturities 179,945 282,369
Notes payable - related parties 106,250 500,000
Other liabilities 58,750 80,500
------------ ------------
1,460,613 1,988,026
------------ ------------
Total liabilities 6,618,708 7,264,198
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock, authorized shares, par value $.01;
issued 4,118,062 and 3,739,462 shares
(including 329,780 held in treasury) 41,180 37,394
Paid-in capital 2,796,349 2,197,497
Deficit (1,360,239) (761,441)
------------ ------------
1,477,290 1,473,450
Less: Cost of shares in treasury 238,113 238,113
------------ ------------
Total stockholders' equity 1,239,177 1,235,337
------------ ------------
$ 7,857,885 $ 8,499,535
============ ============
</TABLE>
*The balance sheet at September 30, 1995 is derived from the audited financial
statements of that date.
The accompanying notes are an integral part of the consolidated financial
statements
-4-
<PAGE>
FORWARD INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX THREE
MONTHS ENDED MONTHS ENDED
MARCH 31, MARCH 31,
------------------------ --------------------------
1996 1995 1996 1995
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $9,461,771 $7,228,384 $4,175,023 $2,911,966
COST OF GOODS SOLD 7,804,869 5,675,937 3,431,681 2,392,040
---------- ---------- ---------- ----------
GROSS PROFIT 1,656,902 1,552,447 743,342 519,956
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Distribution and selling 1,259,292 657,877 638,650 301,439
General and administrative 1,170,590 783,322 627,629 395,884
---------- ---------- ---------- ----------
2,429,882 1,441,199 1,266,279 697,323
---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS (772,980) 111,248 (522,937) (177,367)
---------- ---------- ---------- ----------
OTHER INCOME (DEDUCTIONS):
Interest expense (120,465) (57,559) (52,907) (22,509)
Interest expense - related parties (25,106) - (12,617) -
Interest income 20,861 11,551 10,805 1,085
Rental income - net (39,882) (98,975) (19,905) (39,909)
Other income - net 50,774 3,897 1,357 856
---------- ---------- ---------- ----------
(113,818) (141,086) (72,367) (60,477)
---------- ---------- ---------- ----------
LOSS BEFORE PROVISION FOR INCOME
TAX CREDITS (886,798) (29,838) (595,304) (237,844)
PROVISION FOR INCOME TAX CREDITS (288,000) (12,610) (218,000) (90,400)
---------- ---------- ---------- -----------
NET LOSS (598,798) $ (17,228) $ (377,304) $ (147,444)
========== ========== ========== ===========
NET LOSS PER COMMON SHARE (Note D) (.17) $ (.01) $ (.11) $ (.04)
=========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING (Note D) 3,503,568 3,073,286 3,573,982 3,409,682
========= ========= ========= =========
DIVIDENDS NONE NONE NONE NONE
==== ==== ==== ====
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
-5-
<PAGE>
FORWARD INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE><CAPTION>
SIX MONTHS ENDED
MARCH 31,
------------- -----------
1996 1995
------------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (598,798) $ (17,228)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Accrued interest receivable (6,500) (6,900)
Depreciation and amortization 116,800 148,791
Deferred taxes (288,000) (21,000)
Non-cash compensation 44,438 34,708
Changes in assets and liabilities:
Accounts receivable 188,394 1,009,099
Inventories 293,112 (82,951)
Prepaid expenses and other current assets (86,764) (233,165)
Other assets (6,180) -
Accounts payable (1,196,870) (308,326)
Accrued expenses and other current liabilities 326,956 (107,586)
Other liabilities (21,750) -
Discontinued operations - net - (351,080)
------------ ----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (1,235,162) 64,362
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from notes and loans receivable 266,498 -
Collections from officers 41,399 -
Purchases of property, plant and equipment (36,912) (22,163)
Loans to officers - (20,128)
Discontinued operations - net - 22,380
------------ ----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 270,985 (19,911)
------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayments of) short-term borrowings 660,056 (239,112)
Proceeds from long-term notes 250,000 -
Payments of long-term notes (261,408) (148,707)
Payments of mortgage (8,724) (5,924)
Proceeds from notes payable - related parties 164,200 -
Repayments of notes payable - related parties (750) -
Deferred offering costs (218,855) -
Capital contribution - 200,000
Proceeds from issuance of stock 1,000 788,510
Discontinued operations - net - (588,320)
------------ ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 585,519 6,447
------------ ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS (378,658) 50,898
CASH AND CASH EQUIVALENTS - beginning 478,784 45,167
------------ ----------
CASH AND CASH EQUIVALENTS - ending (includes cash of
discontinued operations of $-0- and $32,829, respectively) $ 100,126 $ 96,065
============ ==========
The accompanying notes are an integral part of the consolidated financial
statements
-6-
<PAGE>
FORWARD INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
SIX MONTHS ENDED
MARCH 31,
-----------------
1996 1995
-------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $204,311 $123,095
Income taxes - 8,104
SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Warrants issued for services rendered $44,438 $34,708
======= =======
Conversion of debt into equity $557,200 $ -
======== =======
The accompanying notes are an integral part of the consolidated financial
statements
-7-
<PAGE>
FORWARD INDUSTRIES, INC AND SUBSIDIARY
NOTES TO FORM 10-QSB
SIX MONTHS ENDED MARCH 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, 1995, included in its Form
10-KSB, as amended. 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
Inventories are summarized as follows:
MARCH 31, SEPTEMBER 30,
1996 1995
------------ -------------
(UNAUDITED)
(A)
Finished goods $ 499,129 $ 904,803
Work-in-process 549,020 403,150
Raw materials and supplies 847,762 881,070
------------ ------------
$1,895,911 $ 2,189,023
============ ============
(a) The March 31, 1996 inventories were determined based on physical count
on that date. This amount represented a decrease from the Company's
perpetual record and an increase in cost of goods sold of approximately
$33,000. At September 30, 1995, a $183,000 increase to the perpetual
record and decrease in cost of goods sold resulted from the physical
count.
NOTE D
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 six and three months ended March 31, 1996
and 1995 as their effect would be anti-dilutive.
-8-
<PAGE>
FORWARD INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO FORM 10-QSB
SIX MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
NOTE E
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.
NOTE F
The Company filed a registration statement on Form SB-2 under the Securities
Act of 1933, as amended, for the purpose of registering 2,000,000 shares of
its $.01 par value common stock to be offered to the holders of its Class A
and Class B warrants and 900,000 shares to be offered by consultants to the
Company upon exercise of other warrants held by them. The registration became
effective in March 1996. In April 1996, certain warrants were exercised to
purchase 999,000 shares of common stock for $1,441,050. Deferred offering
costs totaling $218,855 will be offset against paid-in capital.
NOTE G
On February 12, 1996, a stockholder converted debt in the amount of $557,200
into 278,600 shares of common stock.
NOTE H
On February 12, 1996, the Board of Directors adopted, subject to shareholder
approval, the 1996 Stock Option Plan which authorizes the issuance of up to
1,400,000 shares of common stock. On such date the board granted incentive
stock options to various employees to acquire an aggregate of 1,235,000
shares at an option price of $5.25 per share of which 600,000 (issued to
the Company's Chairman and Executive Vice President) are at 110% of the
option price.
NOTE I
On March 30, 1996, the Company renegotiated the terms of its line of credit
with its bank. The line was scheduled to mature on March 30, 1996 but was
extended to August 15, 1996. Other terms include provisions for certain
financial covenants, including maintaining certain financial ratios. The
Company was not in compliance with its financial covenants at March 31,
1996. The bank has waived compliance with such covenants through August 15,
1996.
-9-
<PAGE>
Item 2. Management's Discussion and Analysis
Six Months Ended March 31, 1996 (the "1996 Period") Compared with Six Months
- - ----------------------------------------------------------------------------
ended March 31, 1995 (the "1995 Period").
- - ----------------------------------------
The loss in the 1996 Period increased to ($598,798) from ($17,228) in
1995 Period. Loss per share increased from a loss of ($.01) in the 1995 Period
to a loss of ($.17) in the 1996 Period.
Revenues. Net sales increased $2,233,387 (30.9%) to $9,461,771 in the
--------
1996 Period, from $7,228,384 in the 1995 Period, of which $1,918,659 of such
increase was attributed to increases in sales of carrying cases and the balance
was attributed to increases in sales of advertising specialties. The Company's
Terrapin(TM) line, which was introduced in April 1995, accounted for $298,064
(approximately 16%) of the increase in sales of carrying cases.
Operating Income. Consolidated income (loss) from operations before
----------------
other income declined to a loss of ($772,980) in the 1996 Period from income of
$111,248 in the 1995 Period.
Although net sales increased substantially in the 1996 Period, costs
of reworking products to customer specifications, and large increases in
seasonal labor (including substantial overtime, primarily for advertising
specialties in the first three months of the fiscal year) adversely affected
gross profit. In addition, because of delivery problems from the Far East, an
item normally produced overseas for a major customer was manufactured in South
Bend at a substantially higher cost. These reasons combined to adversely affect
the gross profit percentage, which decreased from 21.5% in the 1995 Period to
17.5% in the 1996 Period.
Distribution expenses increased $25,924 (92.2%) from $28,132 in the
1995 Period to $54,056 in the 1996 Period, primarily as a result of increases in
shipping expenses.
Selling expenses increased $575,491 (91.4%) from $629,745 in the 1995
Period to $1,205,236 in the 1996 Period. In the 1996 Period, the ratio of
selling expenses to net sales was 12.7%, while such ratio was 8.7% in the 1995
Period. The increase in selling expenses in the 1996 Period was primarily the
result of an increase of $223,265 in sales salaries and commissions due to the
increased level of sales and to the employment of additional sales staff for the
Terrapin(TM) line and an additional sales person in Europe, increased
advertising expenditures of $228,725 primarily directed toward the launching
of the Terrapin(TM) line, $40,961 in additional rent for a new sales office
opened after the 1995 Period and a $75,213 increase in travel expenses
primarily relating to Terrapin(TM) and to European sales efforts.
10
<PAGE>
General and administrative expenses increased by $387,268 (49.4%) to
$1,170,590 from $783,322 in the 1995 Period, which increase consisted primarily
of increases in professional fees, costs attendant to the opening of substantial
letters of credit required for the increased overseas production of carrying
cases, and increases in managerial compensation including associated taxes and
fringe benefits.
Other Income (Deductions) and Taxes. Total interest expenses
-----------------------------------
increased by approximately $88,000 (153%) to $145,571 in the 1996 Period from
$57,559 in the 1995 Period due to significantly higher borrowing levels.
The Company's rental building in Brooklyn, New York, was unoccupied
during the 1995 Period and partially leased during the 1996 Period. Rental
income - net was reduced from a loss of ($98,975) in the 1995 Period to a loss
of ($39,882) in the 1996 Period as a result of rental income received and the
reduction in certain costs defrayed by the tenant during the 1996 Period.
The increase in other income - net of approximately $46,000 in the
1996 Period from the 1995 Period was primarily a result of proceeds from
disposition of unutilized fully depreciated machinery and equipment.
The effective tax credit rate in the 1996 Period was 32% compared to a
provision for income taxes of 42% in the 1995 Period. The differential occurred
primarily due to the balance sheet approach used to calculate deferred income
taxes.
Three Months Ended March 31, 1996 (the "1996 Quarter") as Compared with Three
- - -----------------------------------------------------------------------------
Months ended March 31, 1995 (the "1995 Quarter").
- - ------------------------------------------------
The loss in the 1996 Quarter increased to ($377,304) from a loss of
($147,444) in the 1995 Quarter. Loss per share increased from a loss of less
than ($.04) in the 1995 Quarter to a loss of ($.11) in the 1996 Quarter.
Revenues. Net sales increased $1,263,027 (43.4%) to $4,175,023 in the
--------
1996 Quarter, from $2,911,966 in the 1995 Quarter, of which $1,167,320 of such
increase was attributed to increases in sales of carrying cases and the balance
was attributed to increases in sales of advertising specialties. The Company's
Terrapin(TM) line accounted for $145,831 (approximately 12%) of the increase in
sales of carrying cases.
Operating Income. The consolidated loss from operations before other
----------------
income increased to a loss of ($522,937) in the 1996 Quarter from a loss of
($177,367) in the 1995 Quarter.
The cost of goods sold increased proportionally to the increase in net
sales in the 1996 Quarter. The gross profit percentage for the 1996 Quarter
remained approximately the same as for the 1995 Quarter (17.8%).
11
<PAGE>
Distribution expenses increased $7,286 (62.4%) from $11,676 in the
1995 Quarter to $18,962 in the 1996 Quarter, primarily as a result of increases
in shipping expenses.
Selling expenses increased $329,925 (113.9%) from $289,763 in the 1995
Quarter to $619,688 in the 1996 Quarter. In the 1996 Quarter, the ratio of
selling expenses to net sales was 14.8%, while such ratio was 10.0% in the 1995
Quarter. The increase in selling expenses in the 1996 Quarter was a result of
an increase of $96,356 in sales salaries and commissions due to the increased
level of sales and to the employment of additional sales staff for the
Terrapin(TM) line and an additional sales person in Europe, increased
advertising expenditures of $149,174 primarily directed toward the launching
of the Terrapin(TM) line, $19,915 in additional rent for a new sales office
opened after the 1995 Quarter and a $57,688 increase in travel expenses
primarily relating to Terrapin(TM) and to European sales efforts.
General and administrative expenses increased by $231,745 (58.5%) in
the 1996 Quarter to $627,629 from $395,884 in the 1995 Quarter, which consisted
primarily of increases in professional fees, employment fees and costs attendant
to the opening of substantial letters of credit required for the increased
overseas production of carrying cases.
Other Income (Deductions) and Taxes. Total interest expenses
-----------------------------------
increased by approximately $43,000 (191.1%) to $65,524 in the 1996 Quarter from
$22,509 in the 1995 Quarter due to significantly higher borrowing levels.
The Company's rental building in Brooklyn, New York, was unoccupied
during the 1995 Quarter and partially leased during the 1996 Quarter. Rental
income - net was reduced from a loss of ($39,909) in the 1995 Quarter to a loss
of ($19,005) in the 1996 Period as a result of rental income received and the
reduction in certain costs defrayed by the tenant during the 1996 Quarter.
The increase in other income - net of approximately $46,000 in the
1996 Quarter from the 1995 Quarter was primarily as a result of proceeds from
disposition of unutilized fully depreciated machinery and equipment.
The effective tax credit rate in the 1996 Quarter was 37% compared to
a provision for income taxes of 38% in the 1995 Quarter. The differential
occurred primarily due to the balance sheet approach used to calculate deferred
income taxes.
Liquidity and Capital Resources.
- - -------------------------------
In the 1996 Period, approximately $1,235,000 of cash was consumed by
operating activities. In addition to the net loss in the 1996 Period, the
reduction of accounts payable (net of decreases in accounts receivable) and
increases in other current
12
<PAGE>
liabilities resulted in significant cash utilization. The reduction in
inventory of approximately $293,000 in the 1996 Period, resulting partially from
the shipment of orders which had been completed but not delivered at the
beginning of the 1996 Period, offset a portion of the decrease in cash in the
1996 Period.
Investing activities in the 1996 Period provided cash of approximately
$271,000. The Company collected $266,000 of notes receivable which arose from
the sale of its discontinued operations in 1994. The Company also collected
approximately $41,400 of loans made to its officers. In the 1996 Period, the
Company purchased approximately $37,000 of property, plant and equipment.
Financing activities in the 1996 Period provided cash of approximately
$586,000. This consisted primarily of the following: net additional borrowings
for letter of credit financing of approximately $460,000, an additional
convertible loan from a related party of $157,200 and loans from three
individuals aggregating $450,000. The Company also incurred approximately
$219,000 of deferred offering costs relating to the registration for the public
offering of shares of the Company's Common Stock to the holders of warrants
previously issued by the Company.
The Company has experienced over $2.1 million of losses in the two
fiscal years ended September 30, 1995, stemming primarily from the
discontinuance of certain operations. Although the Company had income from
continuing operations of approximately $331,000 in the fiscal year ended
September 30, 1994, it sustained losses from continuing operations of
approximately $277,500 in the fiscal year ended September 30, 1995 and
additional losses of approximately $600,000 in the 1996 Period. The Company
believes that its operations will return to profitability during the current
fiscal year. At September 30, 1995, the Company had working capital of
approximately $658,000 which decreased to a deficit of approximately ($316,000)
at March 31, 1996.
As previously mentioned, in the 1996 Period, the Company obtained
additional loans totalling $157,200 from a related party. On February 12, 1996,
such related party converted a total of $557,200 of loans previously made to the
Company into 278,600 shares of the Company's Common Stock in accordance with the
applicable loan instruments.
On February 14, 1996, the Company obtained a thirteen month loan of
$250,000 bearing interest at 10% per annum. The loan is 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 February 1996, the
Company also obtained short-term loans of $100,000 each from two individuals.
Such loans, with interest at 10% per annum, were repaid in April and May 1996.
The Company's registration statement on Form SB-2 filed with the
Securities and Exchange Commission for the registration of 2,900,000 shares of
its
13
<PAGE>
Common Stock issuable upon exercise of certain outstanding warrants was declared
effective by the Commission on March 25, 1996. Such warrants are exercisable
for 1,000,000 shares of Common Stock at $1.75 per share, 1,000,000 shares at
$2.50 per share, 200,000 shares at $1.00 per share and 700,000 shares at $.01
per share. In April 1996, certain of such warrants were exercised and the
Company issued 999,000 shares for a total of $1,441,050. Such funds are being
used for working capital purposes. The Company's Common Stock is traded on the
Nasdaq SmallCap Market and, during the five days immediately preceding May 8,
1996, was trading in the range of approximately $5.75 per share. If the Common
Stock continues to trade in such range, the Company anticipates that holders of
its outstanding warrants will continue to exercise such warrants and the Company
will receive cash proceeds therefrom; however, such exercise would occur only if
the Common Stock continues to trade at a substantial premium over the exercise
price of the warrants, of which there can be no assurance.
In March 1996, the Company renegotiated the terms of its line of
credit with its bank. The line originally was scheduled to mature on March 30,
1996 and has been extended to August 15, 1996. 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 March 31, 1996, the Company
was not maintaining such ratios and the Bank has waived compliance through
August 15, 1996. 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.
Deferred Income Taxes.
- - ---------------------
The Company's balance sheet at March 31, 1996 has characterized
$1,581,000 of deferred income taxes as an asset. Such characterization is a
result of the Company's belief that its income from continuing operations will
be sufficient to enable it to realize $256,000 of deferred income tax assets in
the next four fiscal quarters and an additional $1,325,000 of deferred income
taxes thereafter. Although the first two quarters of the current fiscal year
were not profitable, management anticipates that its efforts to eliminate
unprofitable products and unnecessary expenses, coupled with anticipated sales
growth, should permit the Company to return to profitable operations during the
current fiscal year. There can be no assurance that the Company's operations
will be sufficient to realize the benefit of its deferred tax assets or that the
Company will, in fact, achieve profitable operations. At September 30, 1995,
the Company believed that it would obtain profitable operations during the
current fiscal year sufficient to enable it to realize $413,000 of deferred tax
assets. However, based upon results of operations in the 1996 Period and
anticipated results for the balance of the fiscal year, the Company's current
belief is that it will realize only $256,000 of deferred tax assets in the next
four fiscal quarters.
14
<PAGE>
The Company's belief that its deferred assets will be realized is
based upon a number of factors. The Company has been in business for over 35
years. Although the Company sustained a loss from continuing operations during
the fiscal year ended September 30, 1995, pre-tax income from continuing
operations was $473,000 in the fiscal year ended September 30, 1994 and $337,000
in the fiscal year ended September 30, 1993. The loss in the fiscal year ended
September 30, 1995 was primarily a result of discontinued operations, expenses
incurred in the launch of the Company's new Terrapin(TM) line of computer
carrying cases and overseas quality control problems, which quality control
problems have been largely resolved. Notwithstanding the loss incurred in the
fiscal year ended September 30, 1995 on lower gross revenues, the Company's
gross profit margin improved. The Company's continuing operations are
comprised primarily of the manufacture and sale of custom soft-sided carrying
cases and bags, which segment has had a history of successful introduction of
new products, and the Company believes that its new Terrapin(TM) line will be
successful. Although the Company will require additional financial resources
to permit it to carry out its business plans, it has no reason to believe that
such resources will not be available through the sale of its securities and
bank and other institutional lines of credit.
To the extent that the Company's operations are not profitable, the
Company would not be able to realize the benefit of its deferred tax assets.
Without such deferred tax assets, at March 31, 1996, the Company's stockholders'
equity at such date of $1,239,177 would have been reduced by $1,581,000 to a
stockholder's deficit of ($341,823) and the Company's working capital deficit at
March 31, 1996 would have been increased from ($316,307) to ($572,307).
15
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits filed with this Report are described in the Exhibit
Index on the following page.
(b) The Company did not file any Current Report on Form 8-K during
the quarter ended March 31, 1996.
16
<PAGE>
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.
FORWARD INDUSTRIES, INC.
(Registrant)
Date: May 14, 1996 By: s/ Theodore H. Schiffman
-----------------------------------------------
Theodore H. Schiffman
Chairman and Chief
Executive Officer
Date: May 14, 1996 By: s/ Ray S. Winey
-----------------------------------------------
Ray S. Winey
Vice President-Finance
(Principal Financial and
Accounting Officer)
17
<PAGE>
EXHIBIT INDEX
Page
----
1.(a) Revolving Promissory Note of the Company and
Koszegi Industries, Inc. (the Company's
wholly-owned subsidiary) dated March 30, 1996
to 1st Source Bank in principal amount of
-----
$750,000, maturing August 15, 1996
(b) Revolving Promissory Note of the Company and
Koszegi Industries, Inc. dated March 30, 1996
to 1st Source Bank in principal amount of
-----
$350,000, maturing August 15, 1996
(c) General Loan Agreement between the Company
and Koszegi Industries, Inc., as Borrowers,
-----
and 1st Source Bank dated March 30, 1996
(d) Security Agreement dated March 30, 1996
between the Company and 1st Source Bank
-----
(e) Limited Guaranty of Payment by Theodore H.
Schiffman to 1st Source Bank dated March 30,
1996
-----
27. Financial Data Schedule for six months ended
March 31, 1996
-----
18
</TABLE>
EXHIBIT 1(A)
REVOLVING PROMISSORY NOTE
South Bend, Indiana
MARCH 30, 1996
$750,000.00
For value received, the undersigned, jointly and severally if more than one
person or entity ("Borrower"), promises to pay to the order of 1st Source Bank
("1st Source") at any of its offices the principal sum of SEVEN HUNDRED FIFTY
THOUSAND AND NO/100 Dollars ($750,000.00).
With interest thereon prior to maturity at the rate of:
ONE AND ONE-HALF percent (1.50%) per year over the Prime Rate. Prime Rate Shall
mean the Prime Rate as published in the The Wall Street Journal, and which is
-------------------------
described as the base rate on corporate loans at large U. S. money center
commercial banks, as such rate may vary from time to time. If such base rate is
expressed in a range in said publication, the higher rate of the reported range
will apply. In the event the The Wall Street Journal ceases to publish a Prime
-----------------------
Rate, 1st Source shall use a similar source to determine said Prime Rate. The
interest rate will be adjusted with each published change of the Prime Rate.
After maturity, whether by acceleration or otherwise, interest will be payable
at a rate which is three percent (3%) per year in excess of the interest rate
otherwise payable hereon. Interest shall be computed on the basis of a three
hundred sixty (360) day year, and accrue for each day any principal sum remains
unpaid. 1st Source will charge, and Borrower agrees to pay, a late charge of
two percent (2%) per month on any installment of principal or interest not paid
within ten (10) days of the due date.
Interest shall be paid on the LAST day of APRIL, 1996 and on the LAST day of
each consecutive MONTH thereafter until AUGUST 15, 1996 ("Termination Date"),
when all unpaid sums of principal and interest shall be due and payable.
The unpaid balance of this Note shall be the total amounts advanced by 1st
Source less the total amount of payments of principal received by 1st Source,
plus accrued interest. Borrower and 1st Source contemplate that by reason of
prepayments received by 1st Source there may be times when no indebtedness is
outstanding on this Note. Notwithstanding such occurrences, this Note shall
remain in full force and effect as to advances made pursuant to the terms of
this Note subsequent to such occurrences.
Upon failure by Borrower to pay any amount when due under the terms of this
Note, or upon a default under any of the terms, warranties, covenants, or
conditions of any note, loan document, mortgage, security agreement or other
instrument, whether related to this transaction or otherwise, executed by the
Borrower and delivered to 1st Source, all of the indebtedness evidenced hereby
and remaining unpaid shall, at the option of 1st Source and without further
demand or notice, become immediately due and payable with attorneys' fees
incurred by 1st Source in enforcing this Note. Borrower and all guarantors,
sureties, and endorsers severally waive demand, presentment for payment, notice
of dishonor, notice of nonpayment, protest, notice of protest, and diligence by
1st Source in collection and bringing suit on this Note and all benefits of
valuation and appraisement laws and expressly agree that this Note may be
extended or otherwise modified from time to time without notice with full
reservation of 1st Source's rights, and without in any way affecting the
liability of the Borrower, guarantors, sureties and endorsers hereunder.
<PAGE>
1ST SOURCE'S ACCEPTANCE OF LATE OR PARTIAL PAYMENTS, EXCUSE OF ANY DEFAULT, OR
DELAY IN ENFORCEMENT OF ANY RIGHT, SHALL NOT ESTABLISH A CUSTOM OR COURSE OF
CONDUCT AS TO ANY WAIVER OF 1ST SOURCE'S RIGHTS AND REMEDIES.
Borrower and all guarantors, sureties and endorsers authorize 1st Source at any
time after maturity, whether by acceleration or otherwise, and without notice or
demand, to appropriate and to apply to the payment of this Note any balances,
credits, deposits, accounts, monies, securities and other property of Borrower
or any such guarantors, sureties and endorsers which now or hereafter are in the
possession of or on deposit with 1st Source.
This Note is executed under, and is subject to the terms of, a General Loan
Agreement between Borrower and 1st Source dated MARCH 30, 1996, (together with
all amendments and supplements to, and replacements for said Agreement, the
"General Loan Agreement"). Borrower hereby certifies, represents and warrants
to 1st Source that all representations and warranties contained in the General
Loan Agreement are true and correct on the date hereof, and that no event of
default, or event which with notice or lapse of time or both would become an
event of default, has occurred and is continuing under the General Loan
Agreement.
This Note shall be secured by any collateral pledged to 1st Source by grant of
security interest or otherwise, whether relating directly to this Note or in
conjunction with any other obligation owed by Borrower to 1st Source whether now
existing or hereafter arising.
DUE TO THE HIGH COST AND TIME INVOLVED IN COMMERCIAL LITIGATION BEFORE A JURY,
BORROWER AND ALL GUARANTORS, SURETIES AND ENDORSERS WAIVE ALL RIGHT TO A JURY
TRIAL ON ALL ISSUES IN ANY ACTION OR PROCEEDING RELATING TO THIS NOTE, THE
TRANSACTION EVIDENCED BY THIS NOTE, OR ANY DOCUMENTS EXECUTED IN CONNECTION WITH
THIS NOTE, AND NO ATTEMPT SHALL BE MADE TO CONSOLIDATE, BY COUNTERCLAIM OR
OTHERWISE, ANY SUCH ACTION OR PROCEEDING WITH ANY OTHER ACTION OR PROCEEDING IN
WHICH THERE IS A TRIAL BY JURY OR IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT
BEEN WAIVED.
This Note and payments due hereunder are being delivered and accepted in the
State of Indiana and shall be interpreted, construed and governed by the laws of
the State of Indiana.
ADDRESS OF BORROWER: BORROWER: KOSZEGI INDUSTRIES, INC. AND
FORWARD INDUSTRIES, INC.
702 S. CHAPIN STREET
SOUTH BEND, INDIANA 46624 KOSZEGI INDUSTRIES, INC.
By: /s/ Michael Schiffman
------------------------------------------
MICHAEL SCHIFFMAN, EXECUTIVE VICE
PRESIDENT
FORWARD INDUSTRIES, INC.
By: /s/ Michael Schiffman
------------------------------------------
MICHAEL SCHIFFMAN, EXECUTIVE VICE
PRESIDENT
OFFICER'S INITIAL:
------------
ACCOUNT NUMBER:
---------------
NOTE NUMBER:
------------------
CS52S PBO1
2
EXHIBIT 1(B)
REVOLVING PROMISSORY NOTE
South Bend, Indiana
MARCH 30, 1996
$350,000.00
For value received, the undersigned, jointly and severally if more than one
person or entity ("Borrower"), promises to pay to the order of 1st Source Bank
("1st Source") at any of its offices the principal sum of THREE HUNDRED FIFTY
Thousand and no/100 Dollars ($350,000.00).
With interest thereon prior to maturity at the rate of:
ONE AND ONE-HALF percent (1.50%) per year over the Prime Rate. Prime Rate Shall
mean the Prime Rate as published in the The Wall Street Journal, and which is
-------------------------
described as the base rate on corporate loans at large U. S. money center
commercial banks, as such rate may vary from time to time. If such base rate is
expressed in a range in said publication, the higher rate of the reported range
will apply. In the event the The Wall Street Journal ceases to publish a Prime
-----------------------
Rate, 1st Source shall use a similar source to determine said Prime Rate. The
interest rate will be adjusted with each published change of the Prime Rate.
After maturity, whether by acceleration or otherwise, interest will be payable
at a rate which is three percent (3%) per year in excess of the interest rate
otherwise payable hereon. Interest shall be computed on the basis of a three
hundred sixty (360) day year, and accrue for each day any principal sum remains
unpaid. 1st Source will charge, and Borrower agrees to pay, a late charge of
two percent (2%) per month on any installment of principal or interest not paid
within ten (10) days of the due date.
Interest shall be paid on the LAST day of APRIL, 1996 and on the LAST day of
each consecutive MONTH thereafter until AUGUST 15, 1996 ("Termination Date"),
when all unpaid sums of principal and interest shall be due and payable.
The unpaid balance of this Note shall be the total amounts advanced by 1st
Source less the total amount of payments of principal received by 1st Source,
plus accrued interest. Borrower and 1st Source contemplate that by reason of
prepayments received by 1st Source there may be times when no indebtedness is
outstanding on this Note. Notwithstanding such occurrences, this Note shall
remain in full force and effect as to advances made pursuant to the terms of
this Note subsequent to such occurrences.
Upon failure by Borrower to pay any amount when due under the terms of this
Note, or upon a default under any of the terms, warranties, covenants, or
conditions of any note, loan document, mortgage, security agreement or other
instrument, whether related to this transaction or otherwise, executed by the
Borrower and delivered to 1st Source, all of the indebtedness evidenced hereby
and remaining unpaid shall, at the option of 1st Source and without further
demand or notice, become immediately due and payable with attorneys' fees
incurred by 1st Source in enforcing this Note. Borrower and all guarantors,
sureties, and endorsers severally waive demand, presentment for payment, notice
of dishonor, notice of nonpayment, protest, notice of protest, and diligence by
1st Source in collection and bringing suit on this Note and all benefits of
valuation and appraisement laws and expressly agree that this Note may be
extended or otherwise modified from time to time without notice with full
reservation of 1st Source's rights, and without in any way affecting the
liability of the Borrower, guarantors, sureties and endorsers hereunder.
<PAGE>
1ST SOURCE'S ACCEPTANCE OF LATE OR PARTIAL PAYMENTS, EXCUSE OF ANY DEFAULT, OR
DELAY IN ENFORCEMENT OF ANY RIGHT, SHALL NOT ESTABLISH A CUSTOM OR COURSE OF
CONDUCT AS TO ANY WAIVER OF 1ST SOURCE'S RIGHTS AND REMEDIES.
Borrower and all guarantors, sureties and endorsers authorize 1st Source at any
time after maturity, whether by acceleration or otherwise, and without notice or
demand, to appropriate and to apply to the payment of this Note any balances,
credits, deposits, accounts, monies, securities and other property of Borrower
or any such guarantors, sureties and endorsers which now or hereafter are in the
possession of or on deposit with 1st Source.
This Note is executed under, and is subject to the terms of, a General Loan
Agreement between Borrower and 1st Source dated MARCH 30, 1996, (together with
all amendments and supplements to, and replacements for said Agreement, the
"General Loan Agreement"). Borrower hereby certifies, represents and warrants
to 1st Source that all representations and warranties contained in the General
Loan Agreement are true and correct on the date hereof, and that no event of
default, or event which with notice or lapse of time or both would become an
event of default, has occurred and is continuing under the General Loan
Agreement.
This Note shall be secured by any collateral pledged to 1st Source by grant of
security interest or otherwise, whether relating directly to this Note or in
conjunction with any other obligation owed by Borrower to 1st Source whether now
existing or hereafter arising.
DUE TO THE HIGH COST AND TIME INVOLVED IN COMMERCIAL LITIGATION BEFORE A JURY,
BORROWER AND ALL GUARANTORS, SURETIES AND ENDORSERS WAIVE ALL RIGHT TO A JURY
TRIAL ON ALL ISSUES IN ANY ACTION OR PROCEEDING RELATING TO THIS NOTE, THE
TRANSACTION EVIDENCED BY THIS NOTE, OR ANY DOCUMENTS EXECUTED IN CONNECTION WITH
THIS NOTE, AND NO ATTEMPT SHALL BE MADE TO CONSOLIDATE, BY COUNTERCLAIM OR
OTHERWISE, ANY SUCH ACTION OR PROCEEDING WITH ANY OTHER ACTION OR PROCEEDING IN
WHICH THERE IS A TRIAL BY JURY OR IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT
BEEN WAIVED.
This Note and payments due hereunder are being delivered and accepted in the
State of Indiana and shall be interpreted, construed and governed by the laws of
the State of Indiana.
ADDRESS OF BORROWER: BORROWER: KOSZEGI INDUSTRIES, INC. AND
FORWARD INDUSTRIES, INC.
702 S. CHAPIN STREET
SOUTH BEND, INDIANA 46624 KOSZEGI INDUSTRIES, INC.
By: s/ Michael Schiffman
------------------------------------------
MICHAEL SCHIFFMAN, EXECUTIVE VICE
PRESIDENT
FORWARD INDUSTRIES, INC.
By: s/ Michael Schiffman
------------------------------------------
MICHAEL SCHIFFMAN, EXECUTIVE VICE
PRESIDENT
OFFICER'S INITIAL:
------------
ACCOUNT NUMBER:
---------------
NOTE NUMBER:
------------------
CS52S PBO1
2
EXHIBIT 1(C)
GENERAL LOAN AGREEMENT
THIS GENERAL LOAN AGREEMENT ("Agreement") executed this MARCH 30, 1996, is
between KOSZEGI INDUSTRIES, INC. AND FORWARD INDUSTRIES, INC. at 702 S. CHAPIN
STREET, SOUTH BEND, INDIANA 46624, jointly and severally if more than one
person or entity ("Borrower"), and 1st Source Bank, an Indiana financial
institution with principal offices located at 100 North Michigan Street,
(Attention: Commercial Loan Services), South Bend, Indiana, 46601 ("1st
Source").
WHEREAS, Borrower and 1st Source desire to set forth a single agreement
governing certain extensions of credit from 1st Source to Borrower, thereby
achieving cost savings and reducing administrative burdens.
NOW, THEREFORE, in consideration of the premises, Borrower and 1st Source agree:
1. Definitions. As used herein:
------------
(a) "Collateral" means all property of Borrower which now or hereafter
secures obligations of Borrower to 1st Source, including that property of
Borrower in which 1st Source has been granted a mortgage or security
interest as described in the Loan Documents.
(b) "Loan Documents" means this Agreement, the Notes, all real estate
mortgages and security agreements previously, concurrently, or hereafter
signed and delivered by Borrower in favor of 1st Source, including but
not limited to the previously signed mortgages and security agreements
herein described:
TYPE
----
Date Security Agreement Mortgage
---- ------------------ --------
MARCH 30, 1996 X
APRIL 1, 1993 X
AUGUST 30, 1991 X
and all other documents and instruments delivered to or for the benefit
of 1st Source by any person in connection with any of the foregoing,
including without limitation all guaranty agreements, pledge agreements
and subordination agreements, and all amendments and supplements to any
of the foregoing.
(c) "Loans" means the loan facilities subject to this Agreement as described
in Section 3 hereof.
(d) "Notes" means the notes signed and delivered by Borrower to 1st Source to
evidence the Loans, and all renewals, extensions and modifications of
those notes and replacements for those notes.
2. Representations and Warranties. To induce 1st Source to enter into this
-------------------------------
Agreement, Borrower represents and warrants to 1st Source that:
(a) Borrower is duly organized and existing under the laws of the State of
INDIANA FOR KOSZEGI INDUSTRIES, INC. AND THE STATE OF NEW YORK FOR
FORWARD INDUSTRIES, INC. and is qualified to do business and in good
standing and existence in such state and in all states where
qualification is necessary; and Borrower has the power and authority to
carry on its business
<PAGE>
as presently conducted and to execute and deliver the Loan Documents to
which it is a party and to perform Borrower's obligations under those
Loan Documents.
(b) Borrower has duly authorized the execution of the Loan Documents to which
it is a party by the persons who sign them for and on Borrower's behalf,
and has duly authorized the delivery of and the performance by Borrower
under those Loan Documents, and none of the provisions of the Loan
Documents contravenes or is in conflict with its articles of
incorporation or by-laws or its partnership agreement, as the case may
be, or contravenes or conflicts with or may constitute an event of
default under (with or without notice or lapse of time) any provision of
any agreement, instrument, court order or judgment which binds or affects
Borrower or its property, or requires the approval or consent of any
third party.
(c) Upon the execution and delivery of the Loan Documents to which Borrower
is a party, each of those Loan Documents will constitute the legal, valid
and binding obligations of the Borrower enforceable against Borrower in
accordance with its terms, except as enforcement of remedies may be
limited by reorganization, bankruptcy, insolvency or other similar laws
affecting generally the enforcement of creditors' rights and by general
principles of equity.
(d) The financial statements of Borrower previously delivered to 1st Source
were prepared in accordance with generally accepted accounting principles
consistent with prior years unless specifically noted thereon, and
correctly represent the financial condition of Borrower as of the dates
shown on those financial statements. The balance sheets delivered to 1st
Source disclose all known or anticipated liabilities, direct or indirect,
fixed or contingent, as of their dates. Since the date of the most
recent financial statements delivered to 1st Source there have been no
material adverse changes in the financial condition or prospects of
Borrower.
(e) All federal and applicable state and local income tax returns and reports
for Borrower have been filed, and all taxes due from Borrower have been
paid. Borrower is in compliance with all laws regarding the withholding
of taxes.
(f) All information furnished to 1st Source concerning Borrower, the
Collateral or any guarantor of Borrower's obligations to 1st Source is
true and correct in all material respects and no omission or
misrepresentation of material fact renders that information misleading.
(g) No arbitration and no litigation or proceeding of any governmental body
is presently pending, or threatened to the knowledge of Borrower, against
Borrower.
3. Loans. Each extension of credit from 1st Source to Borrower, whether now
------
existing or hereafter created, which is not subject to another loan agreement
which expressly governs that extension of credit, shall be governed by this
Agreement unless the documents evidencing such extension of credit expressly
provide otherwise. 1st Source may receive payments on the Notes by charging
any depository account of Borrower maintained with 1st Source. Notice of the
amount and date of such charges shall be mailed to Borrower by 1st Source on
the date of such charge.
If any Loan is a revolving loan evidenced by a Note that is a revolving loan
note, Borrower may, at any time and from time to time from the date of such
Note to the termination date specified therein, borrow, pay, reborrow, and
repay such amounts as Borrower may determine, provided, that the aggregate
principal sum outstanding at any time under such Loan shall not exceed the
principal amount set forth in such Note. 1st Source will charge a
transaction fee of $25.00 for each advance under a revolving Loan after the
fifth advance in any month.
2
<PAGE>
4. Covenants of Borrower.
----------------------
4.1 Negative Covenants. Without the prior written consent of 1st Source, until
-------------------
payment in full of the Notes and for as long as 1st Source is obligated to
extend credit hereunder, Borrower shall not:
(a) Enter into any consolidation or merger with, or otherwise acquire the
assets of, any person, or create, purchase or acquire any subsidiary; or
(b) Allow to occur any material change in the nature of Borrower's business
as carried on as of the date of this Agreement or in the financial
condition or prospects of Borrower, which change would have a material
adverse effect on the position of 1st Source;
(c) Make capital expenditures in any fiscal year in excess of 100% OF PRIOR
YEARS DEPRECIATION;
(d) Create, incur, assume or suffer to exist any mortgage, pledge, lien,
security interest or other encumbrance upon any of its assets, real or
personal, tangible or intangible, whether owned at the date of this
Agreement or thereafter acquired, except that such prohibition shall not
apply to purchase money security interest, liens for taxes or
assessments which are not yet due, security interests granted and
mortgages of property in favor of 1st Source, and encumbrances expressly
permitted by the Loan Documents;
(e) Sell, transfer, or lease assets to any person other than in the ordinary
course of Borrower's business or as expressly allowed by the Loan
Documents;
(f) Make any loans or cash advances to, or any investment in, any person,
except for advances made in the ordinary course of Borrower's business;
(g) Assume, guarantee or otherwise become liable as guarantor, surety or
otherwise for the obligations of any person;
(h) Incur, assume, create or suffer to exist any indebtedness for borrowed
money, except indebtedness owed to 1st Source and existing indebtedness
shown in the financial statements of Borrower referred to in paragraph
2(d) or as disclosed previously in writing to 1st Source;
(i) Declare or pay any dividends on or make any other distributions with
respect to any shares of the capital stock of Borrower, or purchase,
redeem, retire, or otherwise acquire any outstanding shares of its
stock; provided, if no event of default exists under this Agreement and
no event of default would exist after the payment of a distribution,
Borrower may make distributions with respect to its stock in any fiscal
year which shall not exceed an aggregate amount equal to the sum of (i)
the combined federal and state income tax liabilities, if any, incurred
by Borrower's shareholders arising solely from the status of Borrower as
"S corporation" (as defined in section 1361(a) (1) of the Internal
Revenue Code of 1986, as amended ("Code")) during the fiscal year
preceding the distribution and similar status under state tax statutes
comparable to Subchapter S of the Code, if any, to which each of
Borrower's shareholders may be subject and (ii) the income tax
liabilities, if any, incurred by Borrower's shareholders arising from
Borrower's distribution under the foregoing clause.
(j) ANY MANAGEMENT FEE PAID TO FORWARD INDUSTRIES, INC. BY KOSZEGI
INDUSTRIES, INC. SHALL NOT EXCEED $300,000.00 FOR ANY FISCAL YEAR.
4.2 Affirmative Covenants. Unless 1st Source consents otherwise in writing,
----------------------
until payment in full of the Notes and for so long as 1st Source is
obligated to extend credit hereunder, Borrower shall:
3
<PAGE>
(a) Maintain accurate and proper books and records; furnish to 1st Source
within ninety (90) days after the end of each fiscal year the financial
statements of Borrower prepared in accordance with generally accepted
accounting principles consistent with prior years unless specifically
noted thereon, and furnish to 1st Source within the time periods
requested by 1st Source interim financial statements, cash flow,
statements and cash flow projections, receivables and payables aging
schedules, and such other financial information as is requested from
time to time by 1st Source, for the periods requested by 1st Source, all
prepared and signed by the chief financial officer of Borrower in
accordance with generally accepted accounting principles consistent with
prior periods unless specifically noted thereon; and permit periodic
audits or other examinations of its books, records, accounts and
properties by 1st Source and 1st Source's representatives and submit
such additional information as 1st Source may reasonably request;
(b) Comply with all laws and regulations of any authority applicable to
Borrower's business, including without limitation those relating to
taxes, the environment and to occupational safety and health;
(c) Maintain its depository accounts with 1st Source;
(d) Maintain at all times net worth, including debt subordinated in writing
to 1st Source, for FORWARD INDUSTRIES, INC. at least equal to
$1,000,000.00 until SEPTEMBER 30, 1996, then 4,000,000.00 thereafter;
Maintain at all times net worth, including debt subordinated in writing
to 1st Source, for KOSZEGI INDUSTRIES, INC. at least equal to
$1,500,000.00 until SEPTEMBER 30, 1996, then $4,000,000.00 thereafter;
(e) Maintain at all times a ratio of total debt to net worth, including debt
subordinated in writing to 1st Source, for FORWARD INDUSTRIES, Inc. of
not in excess of 5.5: 1 until SEPTEMBER 30, 1996, then 1.75: 1
thereafter; Maintain at all times a ratio of total debt net worth,
including debt subordinated in writing to 1st Source, for KOSZEGI
INDUSTRIES, INC. of not in excess of 2.25: 1 until SEPTEMBER 30, 1996,
then 1.75: 1 thereafter.
(f) MAINTAIN AT ALL TIMES FOR KOSZEGI INDUSTRIES, INC. A WORKING CAPITAL AT
LEAST EQUAL TO $1,500,000.00 UNTIL SEPTEMBER 30, 1996 THEN $2,500,000.00
THEREAFTER; MAINTAIN AT ALL TIMES FOR FORWARD INDUSTRIES, INC. A
WORKING CAPITAL AT LEAST EQUAL TO $500,000.00 UNTIL SEPTEMBER 30, 1996
THEN 3,000,000.00 THEREAFTER;
(g) MAINTAIN AT ALL TIMES FOR KOSZEGI INDUSTRIES, INC. A CURRENT RATIO OF
1.50:1;
MAINTAIN AT ALL TIMES FOR FORWARD INDUSTRIES, INC. A CURRENT RATIO OF
1.50:1;
(h) KOSZEGI INDUSTRIES, INC. SHALL NOT MAKE ANY LOANS, CASH ADVANCES OR
INVESTMENT IN FORWARD INDUSTRIES, INC.
5. Events of Default. If one or more of the following events of default occur,
------------------
(a) Borrower defaults in the payment of all or part of any installment of
interest, principal, or premium (if any) on any of the Notes when the
same becomes due (whether by acceleration or otherwise), or defaults in
the payment of any other obligation to 1st Source whether now existing
or hereafter incurred;
(b) Borrower does not pay principal or interest on any other indebtedness
for borrowed money when due;
4
<PAGE>
(c) Any representation or warranty made in any of the Loan Documents or
otherwise in writing furnished in connection therewith shall be false or
inaccurate in any material respect when made;
(d) Any one or more of the covenants or agreements contained in any of the
Loan Documents is violated, or any other default occurs under any of the
Loan Documents;
(e) Any judgments are rendered against Borrower or Borrower agrees to settle
any claim asserted in any litigation or proceeding, except as covered by
insurance;
(f) Borrower or any guarantor of the obligations of Borrower to 1st Source
dies, dissolves, becomes insolvent, makes an assignment for the benefit
of creditors, applies to any court for the appointment of a trustee or
receiver of any substantial part of its assets or commences any
proceedings relating to itself under any bankruptcy, receivership,
reorganization, arrangement, insolvency, readjustment of debt,
dissolution or other liquidation law of any jurisdiction, or any
application is filed or proceedings are commenced as described above
against Borrower or any such guarantor or Borrower or any such guarantor
indicates its approval, consent or acquiescence thereto, or an order is
entered appointing such a trustee or receiver or adjudicating Borrower
or any such guarantor as a bankrupt or an insolvent or approving the
petition in any such proceedings and such order remains in effect for
thirty (30) days;
(g) Any order is entered in any proceedings against Borrower or any such
guarantor to create a dissolution or split-up thereof and such order
remains in effect for thirty (30) days; or
(h) Any enforcement action or other proceeding is commenced or threatened or
notice is received by a Borrower in any way relating to the environment
or discharges into the environment, or any claim is instituted against
Borrower in the nature of toxic tort, fear of illness or other health
related claim or claim relating to potentially responsible party status
at any disposal, storage, recycling or reclamation site to which soils
or other materials were taken during or after operations conducted on
the property which constitutes Collateral, or any order in any way
relating to the environment or discharges into the environment is
entered against the Borrower or any of its property by any
administrative agency or court.
then the Notes, and principal of and interest and premium (if any) on the
Notes, shall be immediately due and payable without other notice of any
kind; and anything contained in the Loan Documents to the contrary
notwithstanding, the obligations of 1st Source to extend additional credit,
if any, shall cease. Upon the occurrence of an event of default, in
addition to all other rights and remedies available to 1st Source, 1st
Source may set off any of Borrower's and/or any such guarantor's deposits,
certificates of deposit and accounts against indebtedness of Borrower to 1st
Source.
6. Collateral. The obligations of Borrower under the Loan Documents shall be
-----------
secured by the grant of a mortgage upon, security interest in and lien upon
the Collateral. Borrower hereby reaffirms each previously signed security
agreement and mortgage and all representations, warranties, covenants and
agreements therein, and agrees that the liens created thereunder shall
secure Borrower's obligations under this Agreement.
7. Claims Notice. Borrower agrees to give 1st Source written notice, by
--------------
registered or certified mail, of any action or inaction by 1st Source or any
agent or attorney of 1st Source in connection with the Loan Documents or the
transactions contemplated by the Loan Documents that may be actionable
against 1st Source or any agent or attorney of 1st Source or a defense to
payment of the Loans for any reason, including, but not limited to,
commission of a tort or violation of any contractual duty or duty implied by
law. Borrower agrees that unless such notice is given as promptly as
possible (and in any event within thirty (30) days) after Borrower has
knowledge or
5
<PAGE>
with the exercise of reasonable diligence should have had knowledge of any
such action or inaction, Borrower shall not assert, and Borrower shall be
deemed to have waived, any such claim or defense.
8. General Provisions.
-------------------
(a) All accounting terms as used in this Agreement shall be construed in
accordance with generally accepted accounting principles consistent, to
the extent applicable, with those applied in the preparation of the
financial statements referred to in paragraph 2(d). All references in
the Loan Documents to "person" or "party" shall be references to
entities and associations as well as natural persons.
(b) No delay or omission by 1st Source in the exercise of any right or
remedy shall waive that right or remedy nor shall any single or partial
exercise of any right or remedy preclude other or further exercise of
that right or remedy or the exercise of any other right or remedy. All
rights and remedies existing under the Loan Documents shall be
cumulative and in addition to those other rights provided by law and may
be exercised from time to time. No waiver by 1st Source under the Loan
Documents shall be effective unless in writing.
(c) This Agreement shall be binding upon and inure to the benefit of
Borrower, 1st Source, and their respective successors, assigns, heirs
and personal representatives.
(d) Unless expressly provided to the contrary, the Loan Documents and all
other instruments provided pursuant to the Loan Documents are contracts
made under the laws of the State of Indiana and, except to the extent
the federal laws of the United States are applicable, shall be
interpreted, construed and governed by Indiana laws.
(e) Notwithstanding anything contained in the Loan Documents, 1st Source
shall not be obligated to make any loan to Borrower in an amount in
violation of any limitation provided by any applicable statute or
governmental regulation.
(f) All notices from 1st Source to Borrower, or from Borrower to 1st Source,
shall be deemed given when mailed by first class mail (except as
otherwise required in paragraph 7 or elsewhere in the Loan Documents),
postage prepaid, at the addresses set out above or at such other address
as is provided by said notice, or if and when delivered personally.
(g) If any amount owing from Borrower to 1st Source under this Agreement
becomes due and payable on a Saturday, Sunday or a day which is a legal
holiday for 1st Source, then the due date of that amount shall be
extended to the next business day of 1st Source and interest shall be
payable at the then applicable rate during such extension of due date.
(h) Borrower agrees to pay all costs and expenses of 1st Source in
connection with the Loans, including all legal fees and expenses and all
recording and filing fees.
(i) Any provisions of this Agreement prohibited or unenforceable under any
applicable law shall be ineffective only to the extent of such
prohibition or unenforceability without invalidating the remaining
provisions of this Agreement.
(j) The Loan Documents, including exhibits and the documents executed
pursuant thereto, constitute the entire agreement between the parties
with respect to the transactions contemplated by this Agreement. The
Loan Documents can be amended only in writing signed by the parties
thereto. If Borrower and 1st Source have previously entered into a Loan
Agreement, this Agreement shall replace the previous Loan Agreement.
6
<PAGE>
(k) Additional Provisions:
1. The annual financial statement referred by Section 4.2(a) shall be
audited by independent certified public accountants acceptable to 1st
Source. WITHIN 60 DAYS AFTER THE END OF EACH FISCAL QUARTER
CONSOLIDATED AND CONSOLIDATING FINANCIAL STATEMENT OF FORWARD
INDUSTRIES. WITHIN 15 DAYS OF EACH MONTH FINANCIAL STATEMENT OF
KOSZEGI INDUSTRIES, INC. AND A PROFIT AND LOSS STATEMENT OF TERRAPIN.
2. The General Loan Agreement dated MARCH 30, 1996 replaces the General
Loan Agreement dated AUGUST 30, 1991 and it's Amendments.
3. Notwithstanding anything in Section 3 hereof to the contrary, if the
Borrowing Base as defined below is less than the dollar amount
specified in any Revolving Promissory Note, and executed by Borrower
in favor of 1st Source in any principal amount the aggregate
principal sum at any time outstanding under the revolving loan,
evidenced by such note, shall not exceed the Borrowing Base. For
these purposes, Borrowing Base shall mean the sum of (a) EIGHTY
percent (80%) of Borrower's accounts receivable which are outstanding
for less than SIXTY days from the date of invoice and which are not
owed to Borrower from any director, officer or shareholder thereof.
Borrower shall execute and deliver to 1st Source on and as of the
date of such Revolving Promissory Note and (i) within ten (10) days
after the end of each month as the last day of the prior month, and
(ii) at the time of any request for an advance of funds under such
Loan as of a date not more than three (3) days prior to such request,
a borrowing base certificate in form satisfactory to 1st Source
setting forth the Borrowing Base. Each borrowing base certificate
delivered to 1st Source shall be prepared and signed by the chief
financial officer of Borrower.
9. Jury Trial Waiver.
------------------
DUE TO THE HIGH COST AND TIME INVOLVED IN COMMERCIAL LITIGATION BEFORE A
JURY, 1ST SOURCE AND BORROWER WAIVE ALL RIGHT TO A JURY TRIAL ON ALL
ISSUES IN ANY ACTION OR PROCEEDING RELATED HERETO OR TO THE TRANSACTIONS
CONTEMPLATED HEREBY OR TO ANY DOCUMENTS EXECUTED IN CONNECTION HEREWITH,
AND NO ATTEMPT SHALL BE MADE TO CONSOLIDATE, BY COUNTERCLAIM OR
OTHERWISE, ANY SUCH ACTION OR PROCEEDING WITH ANY OTHER ACTION OR
PROCEEDING IN WHICH THERE IS A TRIAL BY JURY OR IN WHICH A JURY TRIAL
CANNOT BE OR HAS NOT BEEN WAIVED.
1ST SOURCE BANK BORROWER: KOSZEGI INDUSTRIES, INC. AND
FORWARD INDUSTRIES, INC.
KOSZEGI INDUSTRIES, INC. AND
By: s/ Robert L. Jamieson By: s/ Michael Schiffman
------------------------------- ------------------------------------
ROBERT L. JAMIESON, VICE PRESIDENT MICHAEL SCHIFFMAN, EXECUTIVE
VICE PRESIDENT
FORWARD INDUSTRIES, INC.
By: s/ Michael Schiffman
------------------------------------
Its Executive Vice President
------------------------------------
Agreed to and accepted,
"GUARANTORS:"
s/ Theodore H. Schiffman
- - ------------------------------
THEODORE H. SCHIFFMAN
7
EXHIBIT 1(D)
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is dated March 30, 1996. FORWARD INDUSTRIES, INC.,
with the principal office (or residence address in the case of individuals)
located at 275 HEMPSTEAD TURNPIKE, WEST HEMPSTEAD, NEW YORK 11552, jointly and
severally ("Borrower(s)") hereby
GRANTS A CONTINUING SECURITY INTEREST TO 1ST SOURCE BANK
a financial institution with principal offices located at 100 North Michigan
Street, South Bend, Indiana 46601, its successors and assigns ("1st Source"), in
and to:
all accounts, contract rights, general intangibles, instruments, chattel paper,
invoices, contracts, claims, leases, agreements, books and records, policies or
certificates of insurance, deposits, deposit accounts, documents, documents of
title, and choses in action, whether now owned or existing or hereafter acquired
or arising, and all inventory, whether now owned or existing or hereafter
acquired or arising;
all equipment, machinery, motor vehicles, furniture and all other goods and
personal property and interests in goods and personal property, and all
fixtures, whether now owned or existing or hereafter acquired or arising; and
together with all additions, accessions and accessories to, substitutions for,
and replacements, products and proceeds of, all of the foregoing, including,
without limitation, proceeds of insurance (all called the "Collateral").
This Security Agreement is given to secure payment and performance of all
indebtedness and obligations of Borrower now or hereafter owing to 1st Source,
including, but not limited to, future advances, obligations of Borrower under
this Security Agreement and under all notes, mortgages, security agreements,
assignments, leases, guaranties and any other agreements or documents heretofore
or hereafter executed by Borrower including all interest, late charges,
prepayment penalties and other amounts set forth in any such documents, whether
such indebtedness or obligations be direct or indirect, absolute or contingent,
primary or secondary, or related or unrelated to the Collateral or Borrower's
financing thereof, and all partial or full extensions, renewals and
modifications of the indebtedness and obligations (collectively called the
"Indebtedness"). The Indebtedness includes but is not limited to the notes and
guaranties indicated herein:
NOTES GUARANTIES
Date of Note Original Principal Amount Date of Guaranty Name of Primary
Obligor
MARCH 30, 1996 $350,000.00
MARCH 20, 1996 $750,000.00
Borrower hereby authorizes 1st Source to execute and file any financing or
fixture filing statements signed only by 1st Source as deemed advisable by 1st
Source in the appropriate state or local offices on behalf of the Borrower in
connection herewith.
Borrower further represents, warrants, covenants and agrees as follows:
1. That all terms used in this Security Agreement that are defined in the
Indiana Uniform Commercial Code shall have the meanings given to those
terms in the Indiana Uniform Commercial Code; and
<PAGE>
that in this Security Agreement, "Prime Rate" shall mean the Prime Rate as
published in the The Wall Street Journal, and which is described as the
-----------------------
base rate on corporate loans at large U.S. money center commercial banks,
as such rate may vary from time to time, provided, if such base rate is
expressed in a range in said publication, the higher rate of the Reported
range will apply, and provided further, in the event The Wall Street
---------------
Journal ceases to publish a Prime Rate, 1st Source shall use a similar
-------
source to determine said Prime Rate, and provided further, the interest
rate will be adjusted with each published change of the Prime Rate.
2. To perform and pay the Indebtedness, including interest, in accordance with
the terms of the documents evidencing the Indebtedness.
3. That Borrower acquired the Collateral in the ordinary course of business
and is the sole owner of the Collateral and has good and marketable title
to the Collateral free and clear of all liens and encumbrances except liens
and encumbrances granted to 1st Source and those liens and encumbrances set
forth below:
Permitted encumbrances: NONE
That Borrower will warrant and defend the Collateral against any person
claiming an interest in the Collateral adverse to the interest of 1st Source;
that the Collateral will be used solely for business purposes and uses; that if
any portion of the Collateral is or is to be attached to real estate, a complete
and accurate legal description of the real estate is set forth on Exhibit A
attached hereto and incorporated herein, and that Borrower is the record owner
of such real estate unless the name of the record owner is set forth on Exhibit
A, and if Collateral is attached to the real estate prior to the perfection of
the security interest granted hereby, Borrower,on demand of 1st Source, shall
furnish 1st Source with a disclaimer, signed by all persons having an interest
in the real estate, of any interest in the Collateral which is superior to 1st
Source's interest; that Borrower will not remove any Collateral that is a
fixture without the prior written consent of 1st Source; that the Collateral has
not been moved into this state from another state in the past six months; that,
except as set forth herein, the Collateral will be kept at the address of
Borrower set out above, which, except as disclosed herein, is Borrower's chief
executive office, mailing address and sole place of business (or residence
address in the case of individuals); that Borrower has not changed the location
of its chief executive office or principal place of business in the last six
months; that Borrower will give immediate notice to 1st Source of any change in
its name or the location of its chief executive office or places where it
conducts business (or residence address in the case of individuals); that all
records relating to Collateral will be kept at Borrower's chief executive
office; and that Borrower will not move any Collateral from one state to another
without giving 1st Source thirty days' prior written notice.
Location of chief executive office (if different from that set forth in the
first paragraph):
Principal place of business (if other than chief executive office):
Locations (other than chief executive office) where Borrower conducts
business (indicate by check mark the locations at which Collateral will be
kept):
702 S. CHAPIN STREET, SOUTH BEND, INDIANA 46624
2626 STATE ROAD 39, LAPORTE, INDIANA 46350
4. That all information concerning Borrower, the Collateral, and any guarantor
of the Indebtedness furnished to 1st Source in connection with this
transaction is true and correct in all material respects and no omission or
misrepresentation of material fact renders said information misleading;
that the execution, delivery, and performance of this Security Agreement by
Borrower does not violate any law or requirement binding upon Borrower or
require the approval of any third party; that this Security Agreement
constitutes the valid and binding obligation of Borrower, enforceable in
accordance with its terms; and that there are no pending or threatened
proceedings or arbitrations before any court, agency, or other person or
body which may adversely affect the Borrower or the Collateral.
2
<PAGE>
5. If Borrower is a corporation or partnership, Borrower is duly organized,
validly existing and in good standing and existence in the state where it
was organized and in such states where it is required to be registered to
do business; that Borrower has full power and authority to carry on its
business as presently conducted and to enter into and perform its
obligations under this Security Agreement; that the execution, delivery,
and performance of this Security Agreement by Borrower have been duly
authorized by appropriate corporate or partnership action and will not
violate Borrower's articles of incorporation, by-laws, or partnership
agreement, or require the approval of its shareholders; that Borrower,
except as previously disclosed in writing to 1st Source by Borrower, does
not transact business and has not transacted business in any name other
than the name set forth in the first paragraph of this Security Agreement,
and has not changed its legal name in the past six months; and that
Borrower will not change its legal name or any trade name or assumed name
without giving at least thirty days' prior written notice to 1st Source.
6. To do such reasonable acts and things and deliver or cause to be delivered
such other papers as 1st Source may deem necessary to establish, protect or
maintain a valid security interest in the Collateral to secure the
Indebtedness, including without limitation, delivery of certificates of
title with appropriate assignments or notations thereon; and that 1st
Source, and any persons 1st Source permits, shall have the right to examine
and inspect Collateral at reasonable times.
7. That Borrower will from time to time, as 1st Source requests, deliver to
1st Source in a form acceptable to 1st Source such schedules, certificates
and reports relative to all or any of the Collateral and the items or
amounts received by Borrower as proceeds of any of the Collateral, each
signed by Borrower's duly authorized officer. Borrower shall at all times
allow 1st Source and any persons 1st Source permits to examine, inspect or
make abstracts from the Borrower's books and records and to verify returned
and repossessed goods, if any, and to arrange for verification of accounts,
under reasonable procedures, directly with the account debtors or by other
methods.
8. That Borrower may, in the ordinary course of business and until 1st Source
notifies Borrower of the revocation of such power and authority respecting
any inventory which constitutes Collateral, at its own expense, sell, lease
or furnish under contracts of service, any of the inventory held by the
Borrower for such purpose in the ordinary course of business (a sale in the
ordinary course of business does not include a transfer in total or partial
satisfaction of a debt), and use and consume, in the ordinary course of
business, any raw materials, work in process or materials used or consumed
in the ordinary course of business; that Borrower will, at its own expense,
endeavor to collect, as and when due, all amounts due with respect to any
Collateral including the taking of such action with respect to such
collection as 1st Source may reasonably request; that Borrower may grant,
in the ordinary course of business and until 1st Source notifies Borrower
of the revocation of such power and authority respecting any accounts which
constitute Collateral, to any account debtor, any rebate, refund or
adjustment to which such account debtor may be lawfully entitled and may
accept and in connection therewith, accept the return of goods the sale or
lease of which shall have given rise to the obligation of the account
debtor.
9. To pay, when due, all taxes, assessments, insurance premiums and other
charges (all called the "Charges") relating to the Collateral before the
same become delinquent and will deliver to 1st Source satisfactory evidence
of payment.
10. To cause the Collateral to be insured at all times against loss or damage
by fire, windstorm and such other hazards as 1st Source from time to time
may require, in such amounts and with such insurers as are acceptable to
1st Source, and Borrower will cause all premiums on such insurance to be
paid when due; that each insurance policy shall provide that loss shall be
payable to 1st Source and shall be in form acceptable to 1st Source; that
Borrower shall, promptly upon 1st Source's request, deliver to 1st Source
copies of all insurance policies or other evidence of insurance as is
acceptable to 1st Source; that each such policy shall provide that at least
twenty (20) days' prior written notice of any modification or cancellation
shall be given to 1st
3
<PAGE>
Source by the insurer; that each renewal of each such policy shall be
delivered to 1st Source at least fifteen (15) days prior to its expiration;
and that upon transfer of the Collateral in full satisfaction of the
Indebtedness, all right, title and interest of Borrower in and to any
insurance policies then in force, including the right to any premium refund
thereon, shall vest in the purchaser or grantee.
In the event of any loss of or damage to the Collateral, Borrower will give
immediate notice to 1st Source and 1st Source shall have the right to make
proof of such loss or damage, if Borrower does not promptly do so. All
proceeds payable under any insurance policy, whether or not endorsed
payable to 1st Source, shall be payable directly to 1st Source. 1st Source
is authorized to settle, adjust, or compromise any claims for loss or
damage under any such policy.
11. To maintain the Collateral which is inventory or goods in good condition
and repair; to not commit or suffer any waste; and to comply with all laws
and regulations of any authority applicable to the Collateral.
12. If Borrower defaults in any of its covenants in Sections 9, 10 or 11 above,
1st Source shall have the right to pay the Charges, procure and maintain
insurance, or cause such other covenant to be performed, and all sums
expended by 1st Source in connection therewith shall become part of the
Indebtedness and a lien upon the Collateral, payable by Borrower to 1st
Source upon demand, with interest per annum at three percent (3%) in excess
of the Prime Rate. No such action by 1st Source shall be deemed to relieve
Borrower from any default hereunder or impair any right or remedy of 1st
Source, and the right of 1st Source to take such action shall be optional
and not obligatory. Borrower's failure to pay the Charges when due, or to
procure and maintain insurance, or to cause such other covenants to be
performed, shall constitute waste and shall entitle 1st Source to the
appointment by a court of competent jurisdiction of a receiver of the
Collateral for the purpose of preventing such waste, which receiver,
subject to the order of the court, may collect the rents, income and
profits from the Collateral and exercise such control over the Collateral
as the court shall order.
13. If all or any part of the Collateral is taken, whether temporarily or
permanently, under power of eminent domain or by condemnation, the entire
proceeds of the award or other payment in relief therefor shall be paid
directly to 1st Source, which shall render any surplus, after payment in
full of the Indebtedness and all expenses, including attorneys' fees, legal
assistants' fees and all legal expenses, to Borrower.
14. Upon the occurrence of any of the following events of default by Borrower,
the Indebtedness shall, at the option of 1st Source, become immediately due
and payable without notice or demand:
(a) Borrower defaults in the payment of all or part of any installment of
interest, principal, or premium (if any) on the Indebtedness when the
same shall become due (whether by acceleration or otherwise), or
defaults in the payment of any other obligation to 1st Source whether
now existing or hereafter incurred.
(b) Borrower without the written consent of 1st Source, except as
expressly allowed by this Security Agreement, sells, conveys, or
transfers the Collateral, or any portion of the Collateral, or any
interest in the Collateral, or any rents, income or profits from the
Collateral, or creates or suffers to exist any lien or other
encumbrance or any writ of attachment, garnishment, execution, or
other legal process to be placed upon the Collateral, or any portion
of the Collateral, or any interest in the Collateral, or any rents,
income or profits from the Collateral, except in favor of 1st Source,
or if any part of the Collateral shall be transferred by operation of
law.
4
<PAGE>
(c) All or any material part of the Collateral is damaged or destroyed by
fire or other casualty, regardless of insurance coverage therefor, or
is taken by condemnation or power of eminent domain.
(d) Borrower does not pay principal or interest on any other indebtedness
for borrowed money when due.
(e) Any representation or warranty made in any document, agreement, or
instrument, or any amendment or supplement thereto, delivered to or
for the benefit of 1st Source by any person relating to the
Indebtedness, including without limitation this Security Agreement
(the "Loan Documents") or otherwise in writing furnished in connection
therewith shall be false or inaccurate in any material respect when
made.
(f) Any one or more of the covenants or agreements contained in any of the
Loan Documents is violated, or any other default occurs under any of
the Loan Documents.
(g) Any judgments are rendered against Borrower or Borrower agrees to
settle any claim asserted in any litigation or proceeding, except as
covered by insurance.
(h) Borrower or any guarantor of the obligations of Borrower to 1st Source
dies, dissolves, becomes insolvent, makes an assignment for the
benefit of creditors, applies to any court for the appointment of a
trustee or receiver of any substantial part of its assets or commences
any proceedings relating to itself under any bankruptcy, receivership,
reorganization, arrangement, insolvency, readjustment of debt,
dissolution or other liquidation law of any jurisdiction, or any
application is filed or proceedings are commenced as described above
against Borrower or any such guarantor or Borrower or any such
guarantor indicates its approval, consent or acquiescence thereto, or
an order is entered appointing such a trustee or receiver or
adjudicating Borrower or any such guarantor as a bankrupt or an
insolvent or approving the petition in any such proceedings and such
order remains in effect for thirty (30) days.
(i) Any order is entered in any proceedings against Borrower or any such
guarantor to create a dissolution or split-up thereof and such order
remains in effect for thirty (30) days.
(j) Any enforcement action or other proceeding is commenced or threatened
or notice is received by a Borrower in any way relating to the
environment or discharges into the environment, or any claim is
instituted against Borrower in the nature of toxic tort, fear of
illness or other health related claim or claim relating to potentially
responsible party status at any disposal, storage, recycling or
reclamation site to which soils or other materials were taken during
or after operations conducted on the property which constitutes
Collateral, or any order in any way relating to the environment or
discharges into the environment is entered against the Borrower or
any of its property by any administrative agency or court.
(k) There occurs any material change in the nature of Borrower's business
as carried on as of the date of this Security Agreement or in the
financial condition or prospects of Borrower, which change would have
a material adverse effect on the position of 1st Source.
15. 1st Source shall have all rights and remedies provided for in this Security
Agreement or otherwise permitted by law or in equity, including without
limitation all of the rights and remedies of a secured party under the
applicable Uniform Commercial Code statutes. In addition, without limiting
the foregoing, upon the occurrence of an event of default defined above,
1st Source shall have the right, and is hereby authorized:
(a) To the extent permitted by law, to act as a receiver or have a
receiver appointed for 1st Source's benefit with such powers as the
court shall confer, to collect and receive all rents,
5
<PAGE>
income and profits,and other amounts that are due or shall hereafter
become due under the terms of any leases, or other agreements, now or
hereafter in effect, by which Borrower is, or shall be, leasing or
selling the Collateral or any portion thereof or any interest therein,
and to exercise any other right or remedy of Borrower under any such
lease, or other agreement, provided, that 1st Source shall have no
obligation to make any demand or inquiry as to the nature or
sufficiency of any payment received, or to present or file any claim,
or take any other action to collect or enforce the payment of any
amounts to which 1st Source may become entitled hereunder, nor shall
1st Source be liable for any of the Borrower's obligations under any
such lease or other agreement.
(b) To cause the lien searches, tax histories, and federal tax lien and
bankruptcy and judgment searches with respect to the Collateral to be
certified to current date, or to procure new searches in case none was
furnished to 1st Source, and all sums expended therefor shall be part
of the Indebtedness and shall bear interest per annum at three percent
(3%) in excess of the Prime Rate.
(c) To take possession of the Collateral, and for that purpose 1st Source
may, so far as the Borrower can give authority therefor, enter upon
any premises on which the Collateral may be situated and remove the
same therefrom. 1st Source shall give to Borrower at least ten (10)
days' prior written notice of the time and place of any public sale of
Collateral or of the time after which any private sale or any other
intended disposition is to be made. Any such sale may be held or made
on such terms as 1st Source deems advisable. 1st Source may purchase
all or any part of the Collateral at any sale. 1st Source may at any
time in its discretion transfer any property constituting Collateral
into its own name or that of its nominee and receive the income
thereon and hold the same as security hereunder or apply it pursuant
to this Security Agreement. Insofar as Collateral shall consist of
accounts, contract rights, general intangibles, instruments, chattel
paper, invoices, contracts, claims, leases, agreements, insurance
policies, choses in action or the like, 1st Source may demand,
collect, receive, receipt for, sue for, settle, compromise, adjust,
foreclose or realize upon Collateral as 1st Source may determine, and
1st Source may receive, open and dispose of mail addressed to the
Borrower and endorse notes, checks, drafts, money orders, documents of
title or other evidences of payment, shipment or storage of any form
of Collateral on behalf of and in the name of the Borrower. Except as
otherwise required by law, 1st Source shall have no duty as to the
collection or protection of the Collateral, or any income therefrom,
nor as to the preservation of rights against prior parties nor as to
the preservation of any rights pertaining thereto beyond the safe
custody thereof. 1st Source may exercise its rights with respect to
Collateral without resorting to or regard to other collateral or
sources of payment or reimbursement for Indebtedness.
Upon the occurrence of an event of default defined above, Borrower: will
upon receipt of all checks, drafts, cash and other remittances in payment
of accounts of Borrower deposit same in a special collateral account
("Collateral Account") maintained with 1st Source from which Borrower shall
have no right to make withdrawals, and such proceeds shall be deposited in
the form received except for the endorsement of the Borrower where
required, which endorsement 1st Source is authorized to make on the
Borrower's behalf and 1st Source may at its discretion apply monies held in
the Collateral Account as set forth in Section 20 hereof or hold such
monies as further security for Indebtedness (without waiving its rights to
later apply the same as set forth in Section 20); will prior to the time of
any deposit keep segregated any such checks, drafts, cash or other
remittances in trust for the benefit of 1st Source until deposited in the
Collateral Account with 1st Source; agrees that 1st Source may notify any
account debtor to make payment directly to 1st Source of any amounts due or
to become due and Borrower will upon request of 1st Source provide such
notice to account debtors, and 1st Source may enforce the collection of any
account or contract right by suit or otherwise and surrender, release or
exchange all or any part thereof, or compromise or extend or renew for a
period (whether or not longer than the original period) any indebtedness
thereunder or evidenced thereby; will note the security interest of 1st
6
<PAGE>
Source on all records relative to the Collateral including, without
limitation, any invoice which evidences an account; will, whenever Borrower
obtains possession (by return, repossession or otherwise) of any goods the
sale or lease of which had given rise to any of the Collateral, segregate,
label and hold such goods subject to the security interest of 1st Source
and will at its own expense dispose of such goods in such manner as 1st
Source from time to time may direct; will assemble the Collateral and make
it available to 1st Source at a place acceptable to 1st Source which is
convenient to 1st Source; and will pay to 1st Source on demand and without
relief from valuation and appraisement laws any deficiency remaining after
disposal of the Collateral, which deficiency shall be Indebtedness secured
hereby.
16. 1st Source, at its option, may extend the time for the payment of the
Indebtedness, or reduce the payment thereon, or accept a renewal note or
notes therefor, without the consent of any endorser, guarantor or junior
lien holder and without the consent of Borrower if Borrower has conveyed
title to the Collateral; and any such extension, reduction or renewal shall
not affect the The liens created by this Security Agreement or impair the
security hereof in any manner, or release, discharge, or affect in any
manner the liability of Borrower, or any endorser or guarantor, to 1st
Source. Any part of the Collateral may be released by 1st Source without
affecting the lien and security interest hereby granted as to the
remainder, and the security of this Security Agreement shall not affect or
be affected by any other security for the Indebtedness nor shall the taking
of additional security release or impair the security hereof or the
liability of Borrower, or any endorser or guarantor, for the Indebtedness.
17. Borrower waives any and all right to have the property and estates
comprising the Collateral marshalled, and agrees that Collateral may be
sold as an entirety or in parts or parcels.
18. Time is of the essence of this Security Agreement and all rights and
remedies of 1st Source under this Security Agreement, whether or not
exercisable only on default, shall be cumulative and in addition to those
other rights provided by law and may be exercised from time to time, and no
delay or omission by 1st Source in the exercise of any right or remedy
shall waive that right or remedy, and no single or partial exercise of any
right or remedy shall preclude other or further exercise of any right or
remedy under this Security Agreement or the exercise of any other right or
remedy. No waiver by 1st Source under this Security Agreement shall be
effective unless in writing.
19. Borrower shall pay to 1st Source, on demand, any and all expenses,
including attorneys' fees, legal assistants' fees and legal expenses, paid
or incurred by 1st Source in collecting or attempting to collect the
Indebtedness, or in protecting and enforcing the rights of and obligations
to 1st Source under any provision of this Security Agreement, including,
without limitation, taking any action in any bankruptcy, insolvency, or
reorganization proceedings concerning Borrower, and all such expenses shall
be part of the Indebtedness and shall bear interest per annum, from the
date paid or incurred by 1st Source, at three percent (3%) in excess of the
Prime Rate.
20. In the event of the payment to 1st Source, of any rents, income, profits,
proceeds of insurance, condemnation or eminent domain awards, or from sale,
lease, or other disposition of the Collateral, or otherwise coming to 1st
Source under the provisions of this Security Agreement, 1st Source shall
have the right to apply such payment in such amounts and proportions as 1st
Source shall in its sole discretion determine, to the costs and expenses
paid or incurred by 1st Source, including without limitation the reasonable
expenses of retaking, holding, preparing for sale or lease, selling,
leasing and the like, and reasonable attorneys' and legal assistants' fees
and legal expenses, and to full or partial satisfaction of any or all of
the Indebtedness, including any contingent or secondary obligations,
whether or not the same shall then be due and payable by the primary
obligor. In lieu of such application to the Indebtedness, 1st Source shall
have the right, but not the obligation, to require all or part of the
proceeds of insurance or condemnation or eminent domain award to be used to
repair, restore or rebuild any part of the Collateral damaged or destroyed
by reasons of the occurrence which gave rise to such payment.
7
<PAGE>
21. All notices to Borrower and 1st Source shall be deemed given when mailed by
first class mail, postage prepaid, to the respective addresses of Borrower
and 1st Source (Attn: Commercial Loan Services) as shown above or such
other address as is provided by such notice, or if and when delivered
personally.
22. Any provisions of this Security Agreement prohibited or unenforceable under
any applicable law shall be ineffective only to the extent of such
prohibition or unenforceability without invalidating the remaining
provisions of this Security Agreement. All reference herein to this
Security Agreement shall include all amendments and modifications of the
same.
23. The person executing this Security Agreement on behalf of any Borrower
hereby personally represents and warrants to 1st Source that he or she is
authorized to do so and that this Security Agreement is fully enforceable
against the Borrower. For breach of this warranty, such persons shall be
liable to 1st Source for all losses, damages and costs of collection of the
same, including but not limited to attorneys' and legal assistants' fees
and legal expenses.
24. This Security Agreement shall inure to the benefit and bind 1st Source and
Borrower, their successors, assigns, heirs, and personal representatives.
The terms of this Security Agreement shall be interpreted, construed and
governed by the laws of the State of Indiana.
25. DUE TO THE HIGH COST AND TIME INVOLVED IN COMMERCIAL LITIGATION BEFORE A
JURY, BORROWER WAIVES ALL RIGHT TO A JURY TRIAL ON ALL ISSUES IN ANY ACTION
OR PROCEEDING RELATED HERETO OR TO THE TRANSACTIONS EVIDENCED HEREBY OR TO
ANY DOCUMENTS EXECUTED IN CONNECTION HEREWITH, AND NO ATTEMPT SHALL BE MADE
TO CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE, ANY SUCH ACTION OR PROCEEDING
WITH ANY OTHER ACTION OR PROCEEDING IN WHICH THERE IS A TRIAL BY JURY OR IN
WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED.
26. Additional Provisions: (attach separate sheets if necessary).
IN WITNESS WHEREOF, Borrower(s) has executed this Security Agreement as of
the day and year first above written.
BORROWER(S): FORWARD INDUSTRIES, INC.
BY: s/ Michael Schiffman
----------------------------------------------
Its Executive Vice President
----------------------------------------------
8
EXHIBIT 1(E)
LIMITED GUARANTY OF PAYMENT
FOR VALUE RECEIVED and in consideration of any loan or any other financial
accommodation heretofore or hereafter made or granted to FORWARD INDUSTRIES,
INC. (hereinafter referred to as the "Borrower") by 1ST SOURCE BANK (hereinafter
referred to as "1st Source"), and as an inducement to 1st Source to make such
loans and financial accommodations to Borrower, the undersigned, jointly and
severally if more than one person or entity (hereinafter designated as
"Guarantors") hereby promise and guarantee to 1st Source that Borrower shall
promptly and fully pay any and all Indebtedness, and upon failure of Borrower so
to pay, Guarantors jointly and severally promise to pay all Indebtedness to 1st
Source on demand, up to a maximum of FIVE HUNDRED THOUSAND AND NO/100 Dollars
($500,000.00) in payments by Guarantors, together with all expenses of enforcing
this Guaranty, including attorneys' and legal assistants' fees, legal expenses
and all other costs of collection, which expenses and costs shall not be subject
to the dollar amount limitation set forth above. This Guaranty constitutes and
is an absolute and continuing guarantee of payment and shall apply to each and
every default in payment by Borrower and shall remain in full force and effect
until the full amounts set forth above have been paid to 1st Source by
Guarantors, or until 1st Source has received repayment of all amounts due from
Borrower and 1st Source is no longer obligated to extend credit to Borrower. It
is understood that repeated and successive demands may be made and recoveries
had hereunder.
In this Guaranty, "Indebtedness" means all indebtedness and obligations of
Borrower now or hereafter owing to 1st Source, including, but not limited to,
future advances, and all obligations of Borrower under all notes, mortgages,
security agreements, assignments, leases, guaranties and any other agreements or
documents heretofore or hereafter executed by Borrower including all interest,
late charges, prepayment penalties and other amounts set forth in any such
documents, whether such indebtedness or obligations be direct or indirect,
absolute or contingent, or primary or secondary, and all partial or full
extensions, renewals and modifications of the indebtedness and obligations.
This Guaranty shall continue until 1st Source has received from Guarantors, by
registered or certified mail, postage-prepaid at 100 North Michigan, South Bend,
Indiana 46601 (Attention: Commercial Loan Services), written notice of
termination of this Guaranty respecting future loans, which termination shall
not affect the obligation of Guarantors to pay all Indebtedness existing at the
time of such notice and interest accruing thereon.
The liability of the Guarantors hereunder shall be discharged and this Guaranty
shall terminate 120 days after payment in full of the Indebtedness if within
such 120-day period no petition is filed by or against the Borrower pursuant to
the United States Bankruptcy Code, as amended from time to time, or under any
similar law of any jurisdiction. If such a petition is filed within said 120-
day period, this Guaranty shall continue and shall remain in full force and
effect until such time as the Indebtedness has been paid in full and is no
longer subject to repayment by, or recovery from, 1st Source under any such law.
Demand, presentment for payment, notice of dishonor, notice of non-payment,
protest, notice of protest, diligence by 1st Source in collection or bringing
suit on this Guaranty, notice of the creation and existence of any Indebtedness,
all benefits of valuation and appraisement laws, and all rights of sureties and
accommodation parties are hereby waived by Guarantors. Guarantors hereby also
assume the same obligations as a co-maker of the Indebtedness and waive all
rights to have 1st Source first attempt to secure payment of the Indebtedness
from Borrower or any collateral now or hereafter held by 1st Source. 1st Source
may take new, additional or substitute security for the
<PAGE>
Indebtedness without releasing or impairing the obligation of Guarantors to 1st
Source hereunder, which security may be taken without notice to Guarantors. The
liability of the Guarantors hereunder shall not be affected or impaired by any
existing or future irregularity in or amendment of the Indebtedness or any loan
agreement, security document or other instrument related thereto or (a) any
collateral security therefor, (b) any transfer of the collateral security
therefor, (c) any documents or instruments executed in connection therewith, (d)
any compromise, release, renewal, extension, forebearance, indulgence,
alteration, change in, modification of, grant of participation in, or other
disposition of any such loan agreement, security document, or other instrument
or any note executed in connection therewith, or of any collateral therefor, (e)
any release of any Guarantor or any other person or the failure of 1st Source to
pursue its remedies against any one or more of the Guarantors or any other
person, (f) failure to collect any of the Indebtedness when due, (g) failure to
notify any Guarantors of any payments owing hereunder, or (h) any delay or
omission by 1st Source in the exercise of any right or remedy hereunder.
Guarantors waive all defenses at law or in equity other than payment and agree
this instrument shall be binding on the heirs, personal representatives,
successors and assigns of Guarantors and shall inure to the benefit of the
successors and assigns of 1st Source.
Notwithstanding any payments made by Guarantors hereunder, the Guarantors shall
not by reason of this Guaranty have, and Guarantors hereby waive, (i) any claim
or right of subrogation in and to the Indebtedness or any loan agreement,
security document, note or other instrument related thereto or any collateral
security therefor, (ii) any claim or right of reimbursement, exoneration,
contribution or indemnification from or against any party, and (iii) any right
to participate in any claim or remedy of 1st Source against the Borrower or any
collateral security for the Indebtedness, whether or not such claim, right or
remedy arises in equity or under contract, statute, or common law.
1st Source shall have the right to apply all amounts received hereunder, in such
amounts and in such proportions as 1st Source in its sole discretion shall
determine, to the costs and expenses of enforcement and collection and to the
full or partial satisfaction of the Indebtedness. Demand for payment under this
Guaranty shall be effective upon 1st Source placing notice in the United States
mail addressed to Guarantors at the addresses stated below by first class,
registered or certified mail.
1st Source is hereby granted and shall have a lien upon and a right of setoff
against all balances, credits, deposits, accounts, moneys, securities, and other
property of Guarantors now or hereafter in the possession of or on deposit with
1st Source, and every such lien and right of setoff may be exercised without
demand upon or notice to Guarantors.
To induce 1st Source to make the loans to Borrower, each of the undersigned
covenants and agrees to provide to 1st Source, on an annual basis within ninety
(90) days after the end of each year, a complete financial statement in form
satisfactory to 1st Source.
This Guaranty has been delivered at South Bend, Indiana, and shall be
interpreted, construed and governed by the laws of the State of Indiana.
Wherever possible, each provision of this Guaranty shall be interpreted in such
manner as to be effective and valid under applicable law, and any provision of
this Guaranty prohibited or unenforceable under applicable law shall be
ineffective only to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Guaranty.
Each Guarantor agrees to give 1st Source written notice, by registered or
certified mail, postage-prepaid, of any action or inaction by 1st Source or any
agent or attorney of 1st Source in connection with the Indebtedness or this
Guaranty or the transactions contemplated thereby that may be actionable against
1st Source or any agent or attorney of 1st Source or a defense to payment of the
Indebtedness or this Guaranty, including, but not limited to, commission of a
tort or violation of any contractual duty or duty implied by law. Each
Guarantor hereby agrees that unless such notice is
2
<PAGE>
duly given as promptly as possible (and in any event within thirty (30) days)
after such Guarantor has knowledge or with the exercise of reasonable diligence
should have had knowledge of any such action or inaction, such Guarantor shall
not assert, and such Guarantor shall be deemed to have waived, any such claim or
defense.
DUE TO THE HIGH COST AND TIME INVOLVED IN COMMERCIAL LITIGATION BEFORE A JURY,
GUARANTORS WAIVE ALL RIGHT TO A JURY TRIAL ON ALL ISSUES IN ANY ACTION OR
PROCEEDING RELATING TO THIS GUARANTY, THE INDEBTEDNESS, THE TRANSACTIONS
EVIDENCED THEREBY, OR ANY DOCUMENTS EXECUTED IN CONNECTION THEREWITH, AND NO
ATTEMPT SHALL BE MADE TO CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE, ANY SUCH
ACTION OR PROCEEDING WITH ANY OTHER ACTION OR PROCEEDING IN WHICH THERE IS A
TRIAL BY JURY OR IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED.
SIGNED AND DELIVERED this MARCH 30, 1996
GUARANTORS:
X: /s/ Theodore H. Schiffman
--------------------------------------
THEODORE H. SCHIFFMAN
ADDRESS: 124 BROADWAY
LAWRENCE, NEW YORK 11559
3
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S UNAUDITED CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1996 AND
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS THEN ENDED AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 100,126
<SECURITIES> 0
<RECEIVABLES> 2,143,596
<ALLOWANCES> 50,000
<INVENTORY> 1,895,911
<CURRENT-ASSETS> 4,841,788
<PP&E> 2,280,826
<DEPRECIATION> 1,488,485
<TOTAL-ASSETS> 7,857,885
<CURRENT-LIABILITIES> 5,158,095
<BONDS> 0
0
0
<COMMON> 41,180
<OTHER-SE> 1,197,997
<TOTAL-LIABILITY-AND-EQUITY> 7,857,885
<SALES> 9,461,771
<TOTAL-REVENUES> 9,461,771
<CGS> 7,804,869
<TOTAL-COSTS> 7,804,869
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 145,571
<INCOME-PRETAX> (886,798)
<INCOME-TAX> (288,000)
<INCOME-CONTINUING> (598,798)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (598,798)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
</TABLE>
