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 June 30, 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.
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(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 August 1, 1996, 5,617,282 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
NINE MONTHS ENDED JUNE 30, 1996 AND 1995
CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
as of June 30, 1996 (Unaudited)
and September 30, 1995 3 - 4
Consolidated Statements of Operations
for the Nine and Three Months Ended
June 30, 1996 and 1995 (Unaudited) 5
Consolidated Statements of Cash Flows
for the Nine Months Ended
June 30, 1996 and 1995 (Unaudited) 6 - 7
Notes to Form 10-QSB (Unaudited) 8 - 10
Item 2. Management's Discussion and Analysis
or Plan of Operation 11 - 17
PART II. OTHER INFORMATION 18
-2-
<PAGE>
ITEM 1. Financial Statements
FORWARD INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
JUNE 30, SEPTEMBER 30,
1996 1995*
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 798,244 $ 478,784
Accounts receivable, less allowance for doubtful
accounts of $50,000 and $31,000 1,663,603 2,281,990
Inventories 2,563,499 2,189,023
Prepaid expenses and other current assets 481,767 275,574
Notes and loans receivable - current portion 69,996 225,795
Notes and loans receivable - officers - current portion 25,442 70,027
Deferred income taxes 293,000 413,000
------------ ------------
Total current assets 5,895,551 5,934,193
------------ ------------
PROPERTY, PLANT AND EQUIPMENT - net 746,513 856,229
------------ ------------
OTHER ASSETS:
Deferred income taxes 1,494,000 880,000
Building held for sale or lease 170,697 194,697
Note receivable - net of current portion 203,773 331,971
Notes and loans receivable - officers - net of
current portion 243,630 232,635
Other assets 75,990 69,810
------------ ------------
2,188,090 1,709,113
------------ ------------
$ 8,830,154 $ 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>
JUNE 30, SEPTEMBER 30,
1996 1995*
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Acceptances and notes payable $ 1,463,645 $ 1,110,316
Accounts payable 1,695,734 3,290,188
Current maturities of mortgage payable 14,754 13,591
Current maturities of long-term debt 493,713 440,556
Accrued expenses and other current liabilities 323,053 421,521
------------ ------------
Total current liabilities 3,990,899 5,276,172
------------ ------------
LONG-TERM LIABILITIES:
Mortgage payable, net of current maturities 1,111,827 1,125,157
Long-term debt, net of current maturities 131,472 282,369
Notes payable - related parties 106,250 500,000
Other liabilities 44,500 80,500
------------ ------------
1,394,049 1,988,026
------------ ------------
Total liabilities 5,384,948 7,264,198
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock, authorized shares, par value $.01;
issued 5,668,062 and 3,739,462 shares
(including 329,780 held in treasury) 56,680 37,394
Paid-in capital 5,230,628 2,197,497
Deficit (1,603,989) (761,441)
------------ ------------
3,683,319 1,473,450
Less: Cost of shares in treasury 238,113 238,113
------------ ------------
Total stockholders' equity 3,445,206 1,235,337
------------ ------------
$ 8,830,154 $ 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>
NINE THREE
MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- ---------------------------
1996 1995 1996 1995
-------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 13,342,959 $ 11,053,473 $ 3,881,188 $ 3,825,089
COST OF GOODS SOLD 10,913,605 8,661,082 3,108,736 2,985,145
-------------- ------------- ------------ ------------
GROSS PROFIT 2,429,354 2,392,391 772,452 839,944
-------------- ------------- ------------ ------------
OPERATING EXPENSES:
Distribution and selling 1,851,061 1,065,677 591,769 407,800
General and administrative 1,681,719 1,143,176 511,129 359,854
-------------- ------------- ------------ ------------
3,532,780 2,208,853 1,102,898 767,654
-------------- ------------- ------------ ------------
INCOME (LOSS) FROM OPERATIONS (1,103,426) 183,538 (330,446) 72,290
-------------- ------------- ------------ ------------
OTHER INCOME (DEDUCTIONS):
Interest expense (174,090) (84,988) (53,378) (27,429)
Interest expense - related parties (33,469) -- (8,610) --
Interest income 26,492 11,921 5,631 370
Rental income - net (94,449) (136,948) (54,567) (37,973)
Other income - net 42,394 5,343 (8,380) 1,446
-------------- ------------- ------------ ------------
(233,122) (204,672) (119,304) (63,586)
-------------- ------------- ------------ ------------
INCOME (LOSS) BEFORE PROVISION (CREDIT)
FOR INCOME TAXES (1,336,548) (21,134) (449,750) 8,704
PROVISION (CREDIT) FOR INCOME TAXES (494,000) (6,640) (206,000) 5,970
-------------- ------------- ------------ ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS (842,548) (14,494) (243,750) 2,734
DISCONTINUED OPERATIONS:
Estimated loss on disposal of divisions
(net of income tax benefit of $-0-, $53,000,
$-0- and $53,000) -- (102,000) -- (102,000)
-------------- ------------- ------------ ------------
NET LOSS $ (842,548) $ (116,494) $ (243,750) $ (99,266)
============== ============= ============ ============
EARNINGS (LOSS) PER COMMON SHARE (Note E):
Income (loss) from continuing operations $ (.21) $ (.01) $ (.05) $ --
Discontinued operations -- (.03) -- (.03)
-------------- ------------- ------------ ------------
$ (.21) $ (.04) $ (.05) $ (.03)
============== ============= ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING (Note E) 3,959,182 3,194,382 4,713,782 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>
NINE MONTHS ENDED
JUNE 30,
---------------------------
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (842,548) $ (116,494)
Net loss from discontinued operations -- 102,000
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Accrued interest receivable (15,304) (10,900)
Depreciation and amortization 175,200 227,557
Deferred taxes (494,000) (26,000)
Non-cash compensation 66,657 56,927
Changes in assets and liabilities:
Accounts receivable 618,387 306,369
Inventories (374,476) (41,733)
Prepaid expenses and other current assets (206,193) (369,961)
Other assets (6,180) --
Accounts payable (1,594,454) 109,334
Accrued expenses and other current liabilities (98,468) (149,717)
Other liabilities (36,000) --
Discontinued operations - net -- 142,105
------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (2,807,379) 229,487
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from notes and loans receivable 283,997 --
Purchases of property, plant and equipment (41,484) (27,884)
Collections from (loans to) officers 48,894 (1,446)
Discontinued operations - net -- (319,260)
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 291,407 (348,590)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayments of) short-term borrowings 353,329 (181,833)
Proceeds from long-term notes 250,000 340,000
Payments of long-term notes (347,740) (231,647)
Payments of mortgage (12,167) (12,022)
Proceeds from notes payable - related parties 164,200 --
Repayments of notes payable - related parties (750) --
Deferred offering costs (243,240) --
Capital contribution -- 200,000
Proceeds from issuance of stock 2,671,800 788,510
Discontinued operations - net -- (753,320)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,835,432 149,688
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 319,460 30,585
CASH AND CASH EQUIVALENTS - beginning 478,784 45,167
------------ ------------
CASH AND CASH EQUIVALENTS - ending (includes cash of
discontinued operations of $-0- and $65,940, respectively) $ 798,244 $ 75,752
============ ============
</TABLE>
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)
NINE MONTHS ENDED
JUNE 30,
--------------------
1996 1995
-------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $300,707 $204,393
Income taxes -- 41,434
SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Warrants issued for services rendered $ 66,657 $ 56,927
======== ========
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
NINE MONTHS ENDED JUNE 30, 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:
JUNE 30, SEPTEMBER 30,
1996 1995
------------ ------------
(Unaudited)
(a)
Finished goods $ 1,425,174 $ 904,803
Work-in-process 603,825 403,150
Raw materials and supplies 534,500 881,070
------------ ------------
$ 2,563,499 $ 2,189,023
============ ============
(a) The June 30, 1996 inventories were determined based on physical count
on that date.
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 nine and three months ended June 30, 1996
and 1995 as their effect would be anti-dilutive.
-8-
<PAGE>
FORWARD INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO FORM 10-QSB
NINE MONTHS ENDED JUNE 30, 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. As of June 30,
1996, certain warrants were exercised to purchase 1,650,000 shares of
common stock for $2,671,800. Deferred offering costs totalling $243,240
were 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
The Company's line of credit with its bank was scheduled to mature on
August 15, 1996 but was extended to December 15, 1996. Certain terms of the
line include provisions for certain financial covenants, including
maintaining certain financial ratios. The Company was not in compliance
with its financial covenants at June 30, 1996. The bank has waived
compliance with such covenants through December 15, 1996.
-9-
<PAGE>
FORWARD INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO FORM 10-QSB
NINE MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
NOTE J
Cash and cash equivalents at June 30, 1996 included $87,500 held by the
warrant agent for the exercise of certain warrants. Such funds were
received by the Company in July 1996.
NOTE K
In fiscal 1995, the Company negotiated a termination of the lease on its
Brooklyn facility. The estimated after tax cost to the Company of $102,000
was charged to disposal of discontinued operations in the statement of
operations. Such amount was excess of amounts previously provided.
-10-
<PAGE>
Item 2. Management's Discussion and Analysis
Nine Months Ended June 30, 1996 (the "1996 Period") Compared with Nine Months
ended June 30, 1995 (the "1995 Period").
The loss in the 1996 Period increased to ($842,548) from ($116,494) in the
1995 Period. Loss per share increased from a loss of ($.04) in the 1995 Period
to a loss of ($.21) in the 1996 Period.
Revenues. Net sales increased $2,289,486 (20.7%) to $13,342,959 in the 1996
Period, from $11,053,473 in the 1995 Period, of which $2,089,363 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 $194,050
(approximately 9%) of the increase in sales of carrying cases.
Operating Income. Consolidated income (loss) from operations before other
income declined to a loss of ($1,103,426) in the 1996 Period from income of
$183,538 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 21.6% in the 1995 Period to 18.2% in the
1996 Period.
Distribution expenses increased $58,192 (196.4%) from $29,629 in the 1995
Period to $87,821 in the 1996 Period, primarily as a result of increases in
import shipping expenses.
Selling expenses increased $727,192 (70.2%) from $1,036,048 in the 1995
Period to $1,763,240 in the 1996 Period. In the 1996 Period, the ratio of
selling expenses to net sales was 13.4%, which increased from 9.4% in the 1995
Period. The increase in selling expenses in the 1996 Period was primarily the
result of (i) an increase of $277,357 in sales salaries, the employment of
additional sales staff for the Terrapin(TM) line and an additional sales person
in Europe, and increased commissions due to the increased level of sales, (ii)
increased advertising expenditures of $278,081 primarily directed toward the
launching of the Terrapin(TM) line, (iii) $51,760 in additional rent for a new
Indiana sales office opened after the 1995 Period, and (iv) a $95,225 increase
in travel expenses primarily relating to Terrapin(TM) and to European sales
efforts.
-11-
<PAGE>
General and administrative expenses increased by $538,543 (47.1%) in the
1996 Period to $1,681,719 from $1,143,176 in the 1995 Period, which increase
consisted primarily of increases in professional fees, a significant portion of
which related to the Company's registration of shares of its Common Stock upon
the exercise of warrants issued during the 1995 fiscal year, 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
$122,571 (144.2%) to $207,559 in the 1996 Period from $84,988 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
(loss) - net was reduced from a loss of ($136,948) in the 1995 Period to a loss
of ($94,449) 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 $37,051 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 37% compared to a
provision for income taxes of 31% in the 1995 Period. The differential occurred
primarily due to the balance sheet approach used to calculate deferred income
taxes.
Three Months Ended June 30, 1996 (the "1996 Quarter") as Compared with Three
Months ended June 30, 1995 (the "1995 Quarter").
The loss in the 1996 Quarter increased to ($243,750) from a loss of
($99,266) in the 1995 Quarter. Loss per share increased from a loss of ($.03) in
the 1995 Quarter to a loss of ($.05) in the 1996 Quarter.
Revenues. Net sales increased $56,099 (1.5%) to $3,881,188 in the 1996
Quarter, from $3,825,089 in the 1995 Quarter. The Company's Terrapin(TM) line
accounted for $219,286 of net sales in the 1996 Quarter. There were no material
Terrapin(TM) sales in the 1995 Quarter. During the 1996 Quarter, as compared to
the 1995 Quarter, advertising specialties sales declined by approximately
$114,000 and custom carrying case sales declined by approximately $48,000.
Operating Income. Consolidated loss from operations before other income
declined to a loss of ($330,446) in the 1996 Quarter from income of $72,290 in
the 1995 Quarter.
-12-
<PAGE>
The cost of goods sold increased slightly more proportionally than the
increase in net sales in the 1996 Quarter, reflecting higher insurance, rent and
direct labor costs. The gross profit percentage for the 1996 Quarter decreased
to 19.9%, compared with 22% for the 1995 Quarter.
Distribution expenses increased from $1,497 in the 1995 Quarter to $33,765
in the 1996 Quarter, primarily reflecting increases in import shipping expenses.
Selling expenses increased $151,701 (37.3%) from $406,303 in the 1995
Quarter to $558,004 in the 1996 Quarter. In the 1996 Quarter, the ratio of
selling expenses to net sales was 14.4%, which increased from 10.6% in the 1995
Quarter. The increase in selling expenses in the 1996 Quarter was primarily the
result of (i) an increase of $54,093 in sales salaries and commissions and the
employment of additional sales staff for the Terrapin(TM) line and an additional
sales person in Europe, (ii) increased advertising expenditures of $49,356
primarily directed toward the launching of the Terrapin(TM) line, (iii) $11,799
in additional rent for a new Indiana sales office opened after the 1995 Quarter,
and (iv) a $20,012 increase in travel expenses primarily relating to
Terrapin(TM) and to European sales efforts.
General and administrative expenses increased by $151,275 (42.0%) in the
1996 Quarter to $511,129 from $359,854 in the 1995 Quarter, which increase
consisted primarily of increases in salaries, travel, insurance, computer and
telephone expenses, coupled with 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
$34,559 (126.0%) to $61,988 in the 1996 Quarter from $27,429 in the 1995 Quarter
due to significantly higher borrowing levels.
Rental income (loss) - net increased from a loss of ($37,973) in the 1995
Quarter to a loss of ($54,567) in the 1996 Period primarily reflecting accrued
real estate taxes for the current and prior quarters.
The effective tax credit rate in the 1996 Quarter was 46% compared to a
provision for income taxes of 69% 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, $2,807,379 of cash was used in operating activities. In
addition to the net loss of ($842,548) in the 1996 Period, the reduction of
accounts payable (net of decreases in accounts receivable) and increases in
prepaid expenses and other current assets resulted in significant cash
utilization. The increase in inventory of
-13-
<PAGE>
$374,476 in the 1996 Period primarily reflects the buildup of Terrapin(TM)
inventory on hand and on consignment to a major retail customer.
Investing activities in the 1996 Period provided cash of $291,407. The
Company collected $283,997 of notes receivable which arose from the sale of its
discontinued operations in 1994. The Company also collected $48,894 of loans
made to its officers. In the 1996 Period, the Company purchased $41,484 of
property, plant and equipment.
Financing activities in the 1996 Period provided cash of $2,835,432. This
consisted primarily of the following: proceeds of $2,671,800 from the exercise
of previously issued warrants, proceeds from net additional borrowings for
letter of credit financing of $353,329, an additional convertible loan from a
related party of $157,200 and a convertible loan from an unrelated party of
$250,000. The Company also incurred $243,240 of deferred offering costs relating
to the registration for public offering of shares of the Company's Common Stock
issuable upon exercise of previously issued warrants.
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 from continuing
operations of approximately $843,000 in the 1996 Period. The Company believes
that its operations during the fourth quarter of the current fiscal year will
show improvement and that it will achieve profitability during the 1997 fiscal
year. At September 30, 1995, the Company had working capital of approximately
$658,000, which increased to approximately $1,904,000 at June 30, 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 such loan and an additional $400,000 of loans
previously made to the Company into 278,600 shares of the Company's Common Stock
in accordance with the applicable loan instruments.
In February 1996, the Company obtained short-term loans of $100,000 each
from two individuals, which loans, with interest at 10% per annum, were repaid
in April and May 1996. On February 14, 1996, the Company obtained a loan of
$250,000 bearing interest at 10% per annum which is convertible until its due
date, at the option of the lender, into shares of the Company's Common Stock at
a conversion rate of $1.00 per share. The loan became due during the 1996
Quarter, but has not been repaid since the lender has indicated its willingness
to extend the loan for an additional period.
-14-
<PAGE>
The Company's registration statement on Form SB-2 (Registration No. 33-
99338), filed with the Securities and Exchange Commission for the registration
of 2,900,000 shares of its 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 the 1996 Period, warrants
were exercised for 1,650,000 shares and the Company received a total of
$2,671,800. In July 1996, additional warrants were exercised for 279,000 shares
and the Company received an additional $236,700. Such funds are being used for
working capital purposes. The Company's Common Stock is traded on the Nasdaq
SmallCap Market. The last sale of the Common Stock on August 12, 1996, as
reported by Nasdaq, was at $3.00 per share. If the Common Stock continues to
trade above such level, the Company anticipates that holders of its remaining
outstanding warrants will continue to exercise such warrants and the Company
will receive additional cash proceeds therefrom; however, such exercises would
occur only if the Common Stock is trading at a substantial premium over the
exercise price of the warrants, of which there can be no assurance.
The Company's line of credit with its bank, which was scheduled to mature
on August 15, 1996, has been further extended to December 15, 1996 based upon
the bank's expectation that the Company's current fiscal quarter will be
profitable, of which there can be no assurance. The line of credit is
conditioned upon certain financial covenants of the Company, including covenants
to maintain certain financial ratios. At June 30, 1996, the Company was not
maintaining such ratios and the Bank has orally waived compliance therewith
through December 15, 1996. The Company is continuing to seek 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.
The Company believes that, with its existing bank line of credit, it has
adequate cash to meet its presently contemplated needs during the next twelve
months without additional financing.
On June 18, 1996, the Company announced that it had entered into a
non-binding letter of intent to acquire, subject to certain conditions, the
business of Coast Manufacturing Company, a manufacturer of camera, camcorder and
laptop computer carrying cases supplied to the retail aftermarket, including
WalMart, Kmart and Target, among others. The letter of intent contemplated that
a subsidiary of the Company would acquire all of Coast's assets and assume
specified liabilities to be agreed upon, and that the subsidiary initially would
be funded by approximately $2 million to be contributed by the Company. The
proposed transaction was subject, among other things, to completion of the
Company's due diligence and the Company obtaining adequate financial resources
to fund the obligations to be assumed and working capital for the business to be
-15-
<PAGE>
acquired. The Company and Coast are in discussions with respect to a possible
transaction, but do not expect such transaction, if consummated, to be on the
terms contemplated by the letter of intent. Any transaction with Coast would
depend, among other things, on reaching agreement with Coast's secured creditors
and the Company obtaining the necessary financing for the transaction, of which
there can be no assurance.
Deferred Income Taxes.
The Company's balance sheet at June 30, 1996 has characterized $1,787,000
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 $293,000 of deferred income tax assets in the next four
fiscal quarters and an additional $1,494,000 of deferred income taxes
thereafter. Although the first three 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 operate on an improved basis during the
fourth quarter of the current fiscal year and to achieve profitability in the
1997 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.
Additionally, the Company believed, at the conclusion of the first quarter of
the current fiscal year, that it would return to profitable operations during
the third quarter of the current fiscal year; and the Company, at the conclusion
of the second quarter of the current fiscal year, believed that it would return
to profitable operations during the current fiscal quarter. Based upon
anticipated results for the next four fiscal quarters, the Company has
classified $293,000 as a current deferred tax asset.
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 and the first three quarters of the current
fiscal year, 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
during such fiscal year, although such gross profit margin has declined from
21.2% for the fiscal year ended September 30, 1995 to 18.2% for the nine months
ended June 30, 1996. 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
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<PAGE>
be successful. Although the Company will require additional financial resources
to permit it to carry out its longer-term 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 June 30, 1996, the Company's stockholders' equity
at such date of $3,445,206 would have been reduced by $1,787,000 to a
stockholders' equity of $1,658,206, and the Company's working capital at June
30, 1996 would have been reduced by $293,000 from $1,904,652 to $1,611,652.
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<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.
(b) The Company did not file any Current Report on Form 8-K during the
quarter ended June 30, 1996.
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<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: August 13, 1996 By: s/ Theodore H. Schiffman
-----------------------------
Theodore H. Schiffman
Chairman and Chief Executive Officer
and
Principal Financial Officer
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<PAGE>
EXHIBIT INDEX
Page
27. Financial Data Schedule for the nine months ended June 30, ____
1996
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<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S UNAUDITED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1996
AND UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE
MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 798,244
<SECURITIES> 0
<RECEIVABLES> 1,713,603
<ALLOWANCES> 50,000
<INVENTORY> 2,563,499
<CURRENT-ASSETS> 5,895,551
<PP&E> 2,301,886
<DEPRECIATION> 1,555,373
<TOTAL-ASSETS> 8,830,154
<CURRENT-LIABILITIES> 3,990,899
<BONDS> 0
0
0
<COMMON> 56,680
<OTHER-SE> 3,388,526
<TOTAL-LIABILITY-AND-EQUITY> 8,830,154
<SALES> 13,342,959
<TOTAL-REVENUES> 13,342,959
<CGS> 10,913,605
<TOTAL-COSTS> 10,913,605
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 207,559
<INCOME-PRETAX> (1,336,548)
<INCOME-TAX> (494,000)
<INCOME-CONTINUING> (842,548)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (842,548)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
