<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED December 31, 1997
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 Registrant as specified in its Charter)
New York 13-1950672
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
275 Hempstead Turnpike
West Hempstead, NY 11552
----------------------------------------
(Address of principal executive offices)
(516) 564-1100
-------------------------------
(Registrant's telephone number)
----------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if changed since last Report)
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
As of February 11, 1998, 4,723,141 shares of the issuer's common stock were
outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
----- -----
<PAGE>
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
FORM 10-QSB
THREE MONTHS ENDED DECEMBER 31, 1997
CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements 3
Consolidated Balance Sheets
as of December 31, 1997 (Unaudited)
and September 30, 1997 3
Consolidated Statements of Income
(Unaudited) for the Three Months
Ended December 31, 1997 and 1996 5
Consolidated Statements of Cash Flows
(Unaudited) for the Three Months
Ended December 31, 1997 and 1996 6
Notes to Form 10-QSB (Unaudited) 8
Item 2. Management's Discussions and Analysis 12
PART II. OTHER INFORMATION 16
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
2
<PAGE>
This Quarterly Report on Form 10-QSB of Forward Industries, Inc. (the
"Company") contains forward looking statements that involve certain risks and
uncertainties. The Company's actual results could differ materially from the
results discussed in the forward looking statements. All information in this
Form 10-QSB has been adjusted to give effect to a one-for-two reverse stock
split of the Company's issued and outstanding common stock, par value $0.01
per share ("Common Stock"), effected on December 23, 1997.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1997*
------------------- -------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 872,245 $ 1,365,198
Accounts receivable, less allowance for doubtful
accounts of $91,333 and $91,333 2,406,644 2,888,593
Due on sale of division (net of estimated expenses) 97,785 572,785
Inventories 1,340,131 935,012
Prepaid expenses and other current assets 124,786 161,402
Notes and loans receivable - current portion 283,213 276,686
Notes and loans receivable - officers - current portion 48,821 63,821
Deferred income taxes 690,000 690,000
------------ -------------
Total current assets 5,863,625 6,953,497
------------ -------------
PROPERTY, PLANT AND EQUIPMENT - net 634,942 606,002
------------ -------------
OTHER ASSETS:
Deferred income taxes 1,053,435 1,320,475
Note receivable - net of current portion 542,023 615,338
Notes and loans receivable - officers - net of
current portion 105,535 105,535
Deferred debt costs 88,030 98,884
Other assets 128,681 112,248
Building held for sale or lease - 129,253
Deferred offering costs - 66,942
------------ -------------
1,917,704 2,448,675
------------ -------------
$ 8,416,271 $ 10,008,174
============ =============
</TABLE>
* The balance sheet at September 30, 1997 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 SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1997*
------------------- -------------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
Acceptances and notes payable $ 1,225,438 $ 1,375,105
Accounts payable 1,162,529 1,936,899
Current maturities of mortgage payable - 16,991
Current maturities of long-term debt 554,000 234,697
Private placement deposits - 185,000
Accrued expenses and other current liabilities 544,282 486,802
------------ -------------
Total current liabilities 3,486,249 4,235,494
------------ -------------
LONG-TERM LIABILITIES:
Long-term debt, net of current maturities - 359,000
Notes payable - related parties 88,700 88,700
Mortgage payable, net of current maturities - 1,096,286
------------ -------------
88,700 1,543,986
------------ -------------
Total liabilities 3,574,949 5,779,480
------------ -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, 4,000,000 authorized shares, par
value $.01; none issued - -
Common stock, 40,000,000 authorized shares, par value
$.01; issued 4,880,031 and 4,303,031 shares
(including 164,890 held in treasury) 48,880 43,030
Paid-in capital 6,435,565 6,229,347
Deficit (1,405,010) (1,805,570)
------------ -------------
5,079,435 4,466,807
Less: Cost of shares in treasury 238,113 238,113
------------ -------------
Total stockholders' equity 4,841,322 4,228,694
------------ -------------
$ 8,416,271 $ 10,008,174
============ =============
</TABLE>
* The balance sheet at September 30, 1997 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 SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE
MONTHS ENDED
DECEMBER 31,
--------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
NET SALES $ 3,392,854 $ 3,362,862
COST OF GOODS SOLD 2,177,090 2,245,960
------------ ------------
GROSS PROFIT 1,215,764 1,116,902
------------ ------------
OPERATING EXPENSES:
Distribution 6,833 13,282
Selling 329,174 368,223
General and administrative 687,723 463,263
------------ ------------
1,023,730 844,768
------------ ------------
INCOME FROM OPERATIONS 192,034 272,134
------------ ------------
OTHER INCOME (DEDUCTIONS):
Interest expense (76,500) (25,982)
Interest expense - related parties (6,030) (18,168)
Interest income 36,017 8,491
Rental income - net (60,730) (35,635)
Other income - net 582,809 9,325
------------ ------------
475,566 (61,969)
------------ ------------
INCOME BEFORE PROVISION
FOR INCOME TAXES 667,600 210,165
PROVISION FOR INCOME TAXES 267,040 88,626
------------ ------------
INCOME FROM CONTINUING OPERATIONS 400,560 121,539
DISCONTINUED OPERATIONS:
Loss from discontinued operations, net of income tax
benefits of $-0- and $(58,868) - (80,730)
------------ ------------
NET INCOME $ 400,560 $ 40,809
============ ============
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE:
Basic:
Income from continuing operations $ .09 $ .04
Discontinued operations - (.03)
----- ------
$ .09 $ .01
===== ======
Diluted:
Income from continuing operations $ .07 $ .04
Discontinued operations - (.03)
----- ------
$ .07 $ .01
===== ======
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 4,333,141 2,936,141
=========== ===========
DIVIDENDS NONE NONE
==== ====
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
-5-
<PAGE>
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
-------------------------------
1997 1996
--------------- --------------
(RESTATED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 400,560 $ 40,809
Adjustments to reconcile net income to net
cash used in continuing operations:
Loss from discontinued operations - 80,730
Gain on sale of property and equipment (574,236) -
Depreciation and amortization 36,909 36,791
Amortization of deferred debt costs 24,014 -
Deferred taxes 267,040 29,229
Non-cash compensation 6,250 6,250
Changes in assets and liabilities:
Accounts receivable 481,949 257,097
Inventories (405,119) (156,445)
Prepaid expenses and other current assets 36,616 75,766
Other assets (16,433) -
Accounts payable (774,370) (411,399)
Accrued expenses and other current liabilities 47,782 (77,127)
Other liabilities - (11,250)
------------ -------------
Net cash used in continuing operations (469,038) (129,549)
------------ -------------
Net cash provided by discontinued operations:
Loss from discontinued operations - (80,730)
Depreciation and amortization - 9,901
Discontinued operations - net - 407,535
------------ -------------
- 336,706
------------ -------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (469,038) 207,157
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of division 643,830 -
Proceeds from notes and loans receivable 541,788 17,499
Proceeds from collections from officers 15,000 17,543
Purchases of property, plant and equipment (61,719) (26,052)
------------ -------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 1,138,899 8,990
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayments of) short-term borrowings (149,667) 170,549
Proceeds from long-term notes 10,000 -
Payments of long-term notes (225,001) (47,125)
Payments of mortgage (1,057,748) (3,638)
Payments of notes payable - related parties - (2,250)
Proceeds from issuances of stock 292,500 -
Deferred offering costs (19,739) (28,260)
Deferred debt costs (13,159) -
------------ -------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (1,162,814) 89,276
------------ -------------
NET CHANGE IN CASH (492,953) 305,423
CASH AND CASH EQUIVALENTS - beginning 1,365,198 208,214
------------ -------------
CASH AND CASH EQUIVALENTS - ending $ 872,245 $ 513,637
============ =============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
-6-
<PAGE>
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
-------------------------------
1997 1996
--------------- --------------
(RESTATED)
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 71,002 $ 76,670
Income taxes 10,422 529
SCHEDULES OF NON-CASH ACTIVITIES:
Forgiveness of mortgage debt $ 55,529 $ -
Offset of deferred offering costs to paid-in capital 86,681 -
Warrants issued for services rendered 6,250 6,250
Conversion of long-term debt into common stock - 100,000
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
-7-
<PAGE>
FORWARD INDUSTRIES, INC AND SUBSIDIARIES
NOTES TO FORM 10-QSB
THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
(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, 1997, included in
its Form 10-KSB. Such statements should be read in conjunction with the
data herein.
NOTE B
The financial information reflects all normal recurring adjustments
which, in the opinion of management, are deemed necessary for a fair
presentation of the results for the interim periods. The results for the
interim periods are not necessarily indicative of the results to be
expected for the year.
NOTE C
Certain 1996 amounts have been reclassified to conform to the 1997
presentation.
NOTE D
Inventories are summarized as follows:
DECEMBER 31, SEPTEMBER 30,
1997 1997
-------------- -------------
(UNAUDITED)
Finished goods $ 984,179 $ 682,545
Work-in-process 144,972 99,164
Raw materials and supplies 210,980 153,303
------------ ------------
$ 1,340,131 $ 935,012
============ ============
NOTE E
Earnings per share are based on the weighted average number of shares
outstanding during each period presented. The Company has adopted SFAS
No. 128, "Earnings Per Share" and has restated the 1996 earnings per
share to comply with the provisions of the new pronouncement.
NOTE F
On January 23, 1997, the Board of Directors declared a one-for-two
reverse stock split which became effective as of December 23, 1997. All
share data and per share amounts have been adjusted to reflect the
reverse stock split.
-8-
<PAGE>
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FORM 10-QSB
THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
(UNAUDITED)
NOTE G
On September 30, 1997, Koszegi Industries, Inc. ("Koszegi"), a
wholly-owned subsidiary of the Company, sold certain of its assets,
consisting primarily of inventory and equipment relating to its
Advertising Specialties division, to Amplaco Group, Inc. ("Amplaco"). In
addition, Amplaco assumed certain liabilities of Koszegi, including a
portion of Koszegi's lease obligations with respect to its manufacturing
facility in Sound Bend, Indiana.
The selling price was $1,350,000 (subject to adjustment as discussed
below) and was received as follows:
1. $500,000 in cash. (Received as follows: $25,000 in September and
$475,000 in October 1997).
2. The receipt of a non-interest bearing secured promissory note for
$850,000.
The selling price is subject to the value of the inventory. If the value
of the inventory as of the closing date is less than or greater than
$400,000, then the purchase price will be adjusted on a dollar for dollar
basis (the "Inventory Adjustment"). Upon the final determination of the
Inventory Adjustment, such amount will be paid by Amplaco immediately
with accrued interest.
Based on a physical count taken on the closing date, the inventory was
valued by Koszegi at $647,785. The amount in excess of $400,000 is to be
added to the selling price and paid for in cash (subject to negotiation).
NOTE H
In December 1997, the Company sold a building for $830,000 and recognized
a profit of approximately $574,000. Such profit is included in other
income in the consolidated statement of income.
-9-
<PAGE>
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT 11 - COMPUTATION OF INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
-------------------------------
1997 1996
--------------- --------------
<S> <C> <C>
NUMERATOR
Income from continuing operations:
Income from continuing operations $ 400,560 $ 121,539
Less: Preferred dividends - -
------------ ------------
Income available to common stockholders
used in basic EPS 400,560 121,539
Impact of potential common shares:
Convertible debt 8,310 2,250
------------ ------------
Income available to common stockholders after
assumed conversions of dilutive securities $ 408,870 $ 123,789
============ ============
Loss from discontinued operations $ - $ (80,730)
============ ============
DENOMINATOR
Weighted average number of common shares
outstanding used in basic EPS 4,333,141 2,936,141
Impact of potential common shares:
Stock options and warrants 241,006 208,111
Convertible debt 1,108,000 150,000
------------ ------------
Weighted number of common shares and dilutive
potential common stock used in diluted EPS 5,682,147 3,294,252
============ ============
BASIC EPS
Income from continuing operations $ .09 $ .04
Discontinued operations - (.03)
----- -----
$ .09 $ .01
===== =====
DILUTED EPS
Income from continuing operations $ .07 $ .04
Discontinued operations - (.03)
----- -----
$ .07 $ .01
===== =====
</TABLE>
-10-
<PAGE>
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT 11 - COMPUTATION OF INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
-------------------------------
1997 1996
--------------- --------------
<S> <C> <C>
CALCULATIONS
1. Stock Options and Warrants
Treasury Stock Method Applied to Stock Options and Warrants
Sale of common stock
Total options and warrants outstanding 1,196,250 487,500
Average price $1.85 $1.28
------------ ----------
Total $ 2,213,594 $ 626,000
============ ==========
Repurchase of common stock
Proceeds $ 2,213,594 $ 626,000
Average stock price $2.32 $2.24
------------ ----------
Shares repurchased 955,244 279,389
============ ==========
Net increase in shares
Shares sold 1,196,250 487,500
Shares repurchased 955,244 279,389
------------ ----------
Increase in shares 241,006 208,111
============ ==========
2. Convertible Debt
Terms:
Interest rate 10% 10%
Par $ 10,000 N/A
Convertible into shares 20,000 150,000
Conversion price N/A $ 1.00
# of units 55.4 N/A
Total debt $ 554,000 $ 150,000
If-converted Method Applied to Convertible Debt
Numerator increase - interest savings assuming
a 40% tax rate $ 8,310 $ 2,250
========== ==========
Denominator increase - assuming conversion 1,108,000 150,000
============ ==========
</TABLE>
-11-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis compares the results of the
Company's continuing operations for the three months ended December 31, 1997 (
the "1998 Period"), and the three months ended December 31, 1996 ( the "1997
Period") . The information and comparative data presented herein excludes the
Company's advertising specialties division which was divested effective
September 30, 1997.
On January 13, 1997, the board of directors of the Company declared a
one-for-two reverse stock split which became effective as of December 23,
1997. All share data and per share amounts have been adjusted to reflect the
reverse stock split on a retroactive basis.
THREE MONTHS ENDED DECEMBER 31, 1997 (THE "1998 PERIOD") COMPARED WITH THREE
MONTHS ENDED DECEMBER 31, 1996 (THE "1997 PERIOD").
Income in the 1998 Period of $400,600 increased significantly from
the income of $121,500 in the 1997 Period. The increase in the 1998 Period is
primarily related to a non-recurring sale of property which amounted to
$344,500, net of taxes. Basic earnings per share increased from $.04 in the
1997 Period to $.09 in the 1998 Period while diluted earnings per share
increases from $.01 in the 1997 Period to $.07 in the 1998 Period.
REVENUES.
Net sales increased $30,000 (1%) to $3,392,900 in the 1998 Period,
from $3,362,900 in the 1997 Period. The Company's retail Terrapin(R) line
accounted for a decrease of $188,000 while custom case sales increased by
$218,000. The decrease in retail Terrapin(R) sales is the result of an initial
stocking position ordered by one customer during the 1997 Period which did not
reoccur in the 1998 Period. Higher custom case sales reflect increased volume
demand from one of the Company's major customers.
OPERATING INCOME.
Income from operations increased by $457,400 to a profit of $667,600
in the 1998 Period, up significantly from $210,200 in the 1997 Period,
relating primarily to the sale of property as described above. Gross profit
increased $98,900 (9%) to $1,215,800 in the 1998 Period up from $1,118,900 in
the 1997 Period. The gross margin improved 2.6 percentage points to 35.8% in
the 1998 Period up from 33.2% in the 1997 Period reflecting the continuing
impact of numerous management programs focused on increasing manufacturing
efficiencies, raising quality standards and eliminating unprofitable product
offerings.
Selling expenses decreased $39,000 (11%) from $368,200 in the 1997
Period to $329,200 in the 1998 Period. In the 1998 Period, the ratio of
selling expenses to net sales was 9.7%, down from 11% in the 1997 Period. The
decrease in selling expenses in the 1998 Period was primarily the result of a
decrease in sales commissions and advertising expenditures, partially offset
by increased travel expenses.
General and administrative expenses, as presented, increased as a
percent of net sales, from 14% in the 1997 Period to 20% in the 1998 Period,
while the amount, as presented, increased $224,500 (48%) to $687,700 in the
1998 Period from $463,300 in the 1997 Period. The increase in general and
administrative expenses, in a number of categories which reflect significant
increases, is attributable to the accounting treatment related to the sale of
the business which represented discontinued operations. This business was sold
effective September 30, 1997. For accounting
-12-
<PAGE>
purposes, a portion of certain of the 1997 Period salaries, professional fees,
telephone and other related administrative expenses were allocated to this
business and included in the discontinued operations, not in general and
administrative expenses. Upon the divestment of this business line, the
remaining business absorbed all of such costs in general and administrative
expenses. As a result, the 1998 Period numbers appear to increase
substantially when in fact the absolute dollar amounts incurred by the Company
are relatively unchanged. However, some expense categories did incur higher
cash outlays, these included the Hong Kong operations, and bank service
charges related to opening letters of credit for custom orders.
OTHER INCOME (DEDUCTIONS).
Total interest expenses increased by $38,300 (87%) to $82,500 in
the 1998 Period from $44,200 in the 1997 Period due primarily to interest
associated with the indebtedness issued in connection with the Company's 1997
private placement of securities, as described below.
The Company's rental building in Brooklyn, New York, was
partially leased during the 1997 Period and not rented in the 1998 Period.
Rental income - net decreased to a loss of ($60,700) in the 1998 Period from a
loss of ($35,600) in the 1997 Period. This property was sold in December 1997,
as described below.
Other income - net increased $573,500 in the 1998 Period from the
1997 Period resulting primarily from the sale of property owned by the
Company in Brooklyn, New York, in December, 1997. The Company recorded a
pretax gain on this sale of approximately $574,200.
INCOME TAXES.
The provision for income taxes increased by $178,400 due to a
$457,400 increase in profit in the 1998 Period from the comparable period in
the 1997 Period. The effective tax rates for the 1998 and 1997 Periods were
40% and 42% respectively.
LIQUIDITY AND CAPITAL RESOURCES.
In the 1998 Period, $469,000 of cash was used by operating
activities. This use in operational cash resulted from funds provided from:
net income of $400,600; reduction in accounts receivable of $481,900; a
decrease in deferred taxes of $267,000; and a net decrease in prepaid accounts
and other various accounts comprising $135,100. These sources were offset by a
decrease in accounts payable of $774,400; an increase in inventory of
$405,100; and, the non-cash gain on the sale of property of $574,200.
Net investing activities in the 1998 Period provided cash of
$1,138,900. The Company collected $643,800, net of expenses, relating to the
sale of property and equipment in Brooklyn, New York (these funds were applied
to the outstanding mortgage of $1,057,700, as described below), it collected
$541,800 of notes receivable, which arose from the sale of its discontinued
operations, and collected $15,000 of loans made to its officers. Offsetting
this, the Company purchased $61,700 of property, plant and equipment.
Financing activities in the 1998 Period resulted in a utilization
of cash of $1,162,800. As a result of the Company's private placement of
securities, the Company received $269,600 for the issuance of common stock and
issuance of convertible notes payable, net of offering and debt issuance costs.
Offsetting this source of funds, the Company paid certain short-term borrowings
of $149,700, a long-term note payable of $75,000 due to its bank, as well as
$150,000 to pay the balance on a $250,000 convertible loan, as described below.
-13-
<PAGE>
In addition, upon the sale of its property and equipment in
Brooklyn, New York, the Company applied the proceeds to the outstanding
balance of the related mortgage of $1,057,700.
On February 14, 1996, the Company obtained a thirteen month loan
of $250,000 bearing interest at 10% per annum. The loan was convertible, under
certain conditions at the option of the lender, into shares of the Company's
Common Stock at a conversion price of $1.00 per share. In October 1996,
$100,000 of such debt was converted into 100,000 shares of Common Stock. The
balance of this note, $150,000, was paid in full in October 1997.
The Company's registration statement on Form SB-2 filed with the
Securities and Exchange Commission for the registration of 1,450,000 shares of
its Common Stock issuable upon exercise of certain outstanding warrants was
declared effective by the Commission on March 25, 1996. As of September 30,
1997, such warrants exercisable for 219,000 shares at $5.00 per share and
87,500 shares at $2.00 per share, remained outstanding. In the 1997 Period,
certain warrants were exercised and the Company issued 100,000 shares for a
total of $1,000. The Company's Common Stock is traded on the Nasdaq SmallCap
Market and, during the first days immediately preceding February 13, 1998, was
trading in the range of approximately $3.00 per share. The Company anticipates
that holders of its remaining outstanding warrants will continue to exercise
such warrants only if the Common Stock trades at a substantial premium over
the exercise price of the warrants, of which there can be no assurance.
During Fiscal 1997 and in December 1997, the Company consummated
the 1997 Private Placement of Units, each unit comprised of (i) 30,000 shares
of Common Stock, (ii) one warrant to purchase up to 30,000 shares of Common
Stock at $4.00 per share (a "Private Placement Warrant") and (iii) one
unsecured convertible promissory note in the principal amount of $10,000,
bearing interest at a rate of 10% per annum (convertible at the sole option of
the Company under certain circumstances, into 20,000 shares of Common Stock
and one Private Placement Warrant) maturing on December 4, 1998. 55.4 units
were sold for $25,000 per unit, aggregating $1,385,000, including $554,000
aggregate principal amount of debt. A commission in the amount of $169,000 was
paid by the Company in connection with such sales. The sales were made to
accredited investors pursuant to Regulation D promulgated under the Securities
Act of 1933, as amended.
The Company has a line of credit with its bank and is indebted to
such bank for short-term borrowings and acceptances. The total line is for
$1,100,000 of which $750,000 is reserved for letters of credit (acceptances).
The Company's line of credit with its bank was scheduled to mature on August
15, 1996 but was extended to February 28, 1998. 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 December 31,
1997 the Company was not maintaining such ratios and the bank has waived
compliance through February 28, 1998. At December 31, 1997 the Company owed
the bank ($933,300). 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.
At December 31, 1997, long-term debt amounted to $88,700 and all
installment note and capital lease payments were made on a timely basis.
Long-term debt is scheduled to be paid in fiscal 2000.
-14-
<PAGE>
DEFERRED INCOME TAXES.
The Company's balance sheet at December 31, 1997 includes
$1,743,400 of deferred income taxes as an asset. The Company was profitable in
the 1997 Period and fully anticipates being profitable during the entire 1998
fiscal year and beyond. However, to the extent that the Company's operation
may not be profitable in future periods, the Company would not be able to
realize the benefit of its deferred tax assets. Without such deferred tax
assets, at December 31, 1997, the Company's stockholder's equity at such date
of $4,841,300 would have been reduced by $1,743,400 to a stockholder's equity
of $3,097,900 and the Company's working capital at December 31, 1997 would
have been reduced by $690,000 from $2,377,400 to $1,687,400.
-15-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
During the Company's fiscal year ended September 30, 1997 and in
December 1997, the Company consummated its 1997 Private Placement of units
("Units"), each unit comprised of (i) 30,000 shares of Common Stock, (ii) one
warrant to purchase up to 30,000 shares of Common Stock at $4.00 per share (a
"Private Placement Warrant") and (iii) one unsecured convertible promissory
note in the principal amount of $10,000, bearing interest at a rate of 10% per
annum (convertible at the sole option of the Company under certain
circumstances, into 20,000 shares of Common Stock and one Private Placement
Warrant) maturing on December 4, 1998. 55.4 Units were sold for $25,000 per
unit, aggregating $1,385,000, including $554,000 aggregate principal amount of
debt. A commission in the amount of $169,500 was paid by the Company in
connection with such sales. The sales were made to accredited investors
pursuant to Regulation D promulgated under the Securities Act of 1933, as
amended.
On December 23, 1997, the Company filed a Certificate of
Amendment to its Certificate of Incorporation so as to effectuate a
one-for-two reverse stock split of its issued and outstanding Common Stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K
(a) Exhibit 27: Financial Data Schedule
(b) The Company's Current Report on Form 8-K dated
December 4, 1997
-16-
<PAGE>
SIGNATURE
In accordance with the requirements of the Securities Exchange
Act of 1934, the registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Dated: February 13, 1998
FORWARD INDUSTRIES, INC.
(Registrant)
By: /s/ Theodore H. Schiffman
-----------------------------------
THEODORE H. SCHIFFMAN
Chairman and Chief Executive Officer
and Principal Financial Officer
-17-
<PAGE>
EXHIBIT INDEX
Ex. No. Page Exhibit
- ------- ---- -------
27 Financial Data Schedule
-18-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S UNAUDITED CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997 AND
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS THEN ENDED
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-1-1997
<PERIOD-END> DEC-31-1997
<CASH> 872,245
<SECURITIES> 0
<RECEIVABLES> 2,497,977
<ALLOWANCES> 91,333
<INVENTORY> 1,340,131
<CURRENT-ASSETS> 5,863,625
<PP&E> 2,112,408
<DEPRECIATION> 1,477,466
<TOTAL-ASSETS> 8,416,271
<CURRENT-LIABILITIES> 3,486,249
<BONDS> 0
0
0
<COMMON> 48,880
<OTHER-SE> 4,792,442
<TOTAL-LIABILITY-AND-EQUITY> 8,416,271
<SALES> 3,392,854
<TOTAL-REVENUES> 3,392,854
<CGS> 2,177,090
<TOTAL-COSTS> 2,177,090
<OTHER-EXPENSES> 1,023,730
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 82,530
<INCOME-PRETAX> 667,600
<INCOME-TAX> 267,040
<INCOME-CONTINUING> 400,560
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 400,560
<EPS-PRIMARY> .09
<EPS-DILUTED> .07
</TABLE>
