SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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, 2000
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 0-29672
FORECROSS CORPORATION
CALIFORNIA 94-2823882
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
90 NEW MONTGOMERY STREET
SAN FRANCISCO, CALIFORNIA 94105
Address of principal executive offices)
TELEPHONE: (415) 543-1515
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
Shares outstanding of the Registrant's common stock:
Class Outstanding at June 30, 2000
Common Stock, no par value 15,053,380
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FORECROSS CORPORATION
FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets at June 30, 2000 (unaudited) and September 30, 1999
Statements of Operations (unaudited) for the three and nine months
ended June 30, 2000 and 1999
Statements of Cash Flows (unaudited) for the nine months ended
June 30, 2000 and 1999
Statements of Shareholders' Deficit (unaudited) for the nine months
ended June 30, 2000
Notes to Unaudited Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Recent Sales of Unregistered Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signature Page
Exhibit Index
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PART I. FINANCIAL INFORMATION
FORECROSS CORPORATION
BALANCE SHEETS
Jun. 30, Sept. 30,
2000 1999
------------ -----------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 85,274 $ 2,740
Accounts receivable, including unbilled receivables of $446,000
and $77,000, net of allowance of $20,000 and $45,000, respectively . . 522,859 375,893
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . 29,324 45,070
------------ -----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . 637,457 423,703
Equipment and furniture, net . . . . . . . . . . . . . . . . . . . . . 110,816 277,532
Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . 71,511 68,707
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,365 42,365
------------ -----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 862,149 $ 812,307
============ ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 191,517 $ 631,479
Accrued compensation and related benefits . . . . . . . . . . . . . . 524,576 682,533
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 92,107 158,090
Accrued commissions and distributors' fees . . . . . . . . . . . . . . 41,366 1,514,650
Payable to factor . . . . . . . . . . . . . . . . . . . . . . . . . . 225,098 861,427
Accrued warranty costs . . . . . . . . . . . . . . . . . . . . . . . . 20,338 184,828
Capital lease obligations due within one year. . . . . . . . . . . . . 23,721 23,215
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . 644,490 684,652
------------ -----------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . 1,763,213 4,740,874
Deferred revenue, less current portion . . . . . . . . . . . . . . . . 556,668 980,418
Notes payable to officers, net . . . . . . . . . . . . . . . . . . . - 750,176
Capital lease obligations, less current portion. . . . . . . . . . . . 3,189 19,716
------------ -----------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 2,323,070 6,491,184
------------ -----------
Shareholders' deficit:
Common stock, no par value; authorized 20,000,000 shares; issued and
outstanding 15,053,380 and 12,191,944, respectively . . . . . . . . . 9,677,253 5,017,582
Additional paid in capital . . . . . . . . . . . . . . . . . . . . . . 981,000 27,000
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . (12,119,174) (10,723,459)
------------ -----------
Total shareholders' deficit. . . . . . . . . . . . . . . . . . . . . . (1,460,921 (5,678,877)
------------ -----------
Total liabilities and shareholders' deficit. . . . . . . . . . . . . $ 862,149 $ 812,307
============ ============
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2
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FORECROSS CORPORATION
STATEMENTS OF OPERATIONS
For the Three Months Ended For the Nine Months Ended
June 30, June 30,
--------------------------- --------------------------
2000 1999 2000 1999
------------ ------------ ------------ -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net revenue:
Services and maintenance . . . . . . . . $ 857,319 $ 766,872 $ 2,514,541 $ 2,214,903
Software licenses and distributorship
fees-related parties . . . . . . . . . 136,248 136,251 408,747 408,753
------------ ------------ ------------ ------------
Total net revenue . . . . . . . . . . 993,567 903,123 2,923,288 2,623,656
Cost of services and maintenance
including fees to related parties of
$0,$44,000, $18,000, and $107,000. . . 202,682 559,683 971,000 1,899,400
------------ ------------ ------------ ------------
Gross margin . . . . . . . . . . . . . . 790,885 343,440 1,952,288 724,256
------------ ------------ ------------ ------------
Operating expenses:
Sales and marketing including fees to
related parties of $0,$132,000,
$55,000 and $333,000 . . . . . . . . . 205,408 311,123 523,800 766,899
Research and development . . . . . . . . 294,306 170,025 728,472 574,684
General and administrative . . . . . . . 303,128 254,631 1,819,010 863,041
------------ ------------ ------------ ------------
Total operating expenses . . . . . . . . 802,842 735,779 3,071,282 2,204,624
------------ ------------ ------------ ------------
Loss from operations . . . . . . . . . . (11,957) (392,339) (1,118,994) (1,480,368)
Interest expense, net. . . . . . . . . . (17,008) (150,405) (275,921) (397,388)
------------ ------------ ------------ ------------
Loss before provision for income
taxes. . . . . . . . . . . . . . . . . (28,965) (542,744) (1,394,915) (1,877,756)
Provision for income taxes . . . . . . . 800 - 800 800
------------ ------------ ------------ ------------
Net loss . . . . . . . . . . . . . . . $ (29,765) $ (542,744) $(1,395,715) $ (1,878,556)
============ ============ ============ ============
Net loss per share - basic and
diluted . . . . . . . . . . . . . . . $ (0.00) $ (0.04) $ (0.10) $ (0.16)
============ ============ ============ ============
Weighted average shares used in
computing per share data . . . . . . . 15,050,905 12,191,944 13,620,528 12,021,611
============ ============ ============ ============
</TABLE>
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FORECROSS CORPORATION
STATEMENTS OF CASH FLOWS
For the Nine Months
Ended June 30,
2000 1999
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
Increase (decrease) in cash resulting from:
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . $(1,395,715) $(1,878,556)
Adjustments to reconcile net loss to net cash
used in operating activities-
Provision for uncollectible amounts (25,000) (116,650)
Non cash compensation expense related to
Private Placement. . . . . . . . . . . . . . 954,000 -
Value of common stock issued and value
assigned to extension of warrant term. . . . - 38,250
Depreciation and amortization. . . . . . . . . 174,048 225,766
Deferred compensation. . . . . . . . . . . . . 144,387 -
Changes in operating assets and liabilities-
Accounts receivable. . . . . . . . . . . . . . (121,966) 803,943
Other assets and accrued interest on notes
receivable from officers . . . . . . . . . . 12,942 16,999
Accounts payable and accrued liabilities . . . (317,374) 543,491
Deferred revenue . . . . . . . . . . . . . . . (463,912) (365,325)
------------ ------------
Net cash used in operating activities. . . . . (1,038,590) (732,082)
------------ ------------
Cash flows from investing activities:
Fixed asset acquisition (7,332) -
Payments received on loans to key employees - 250
------------ ------------
Net cash provided by (used in) investing
activities . . . . . . . . . . . . . . . . . (7,332) 250
------------ ------------
Cash flows from financing activities:
Proceeds from factoring of accounts receivable 1,152,760 3,070,250
Repayment of borrowings under factoring
arrangement . . . . . . . . . . . . . . . . (1,789,089) (2,672,366)
Borrowings under notes payable to officers . . - 180,000
Repayment of borrowings under notes payable
to officers . . . . . . . . . . . . . . . . (51,269) (199,713)
Repayment of borrowings under capitalized leases (16,021) (16,164)
Net proceeds from issuance of common shares. . 1,832,075 290,817
------------ ------------
Net cash provided by financing activities. . 1,128,456 652,824
------------ ------------
Net increase (decrease) in cash. . . . . . . 82,534 (79,008)
Cash at beginning of period. . . . . . . . . . 2,740 98,249
------------ ------------
Cash at end of period. . . . . . . . . . . . . $ 85,274 $ 19,241
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for interest . . . $ 173,274 $ 169,892
============ ============
Supplemental disclosures of non-cash investing
and financing activities:
Accrued interest on notes payable to officers $ 59,333 $ 86,835
============ ============
Value of common stock issued and assigned to
Extension of warrant term in exchange for
surrender of certain demand registration
rights and certain other consideration. . . $ - $ 38,250
============ ============
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4
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FORECROSS CORPORATION
STATEMENTS OF SHAREHOLDERS' DEFICIT
Common Stock Additional Accumulated Total
Shares Amount Paid in Capital Deficit Deficit
----------- ----------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Balances at October 1, 1999. . . . . 12,191,944 $5,017,582 $ 27,000 $(10,723,459) $(5,678,877)
January 2000 issuance of common
stock for cash, net of stock
issuance costs of $18,626 (Note 5) . 1,175,000 216,374 - - 216,374
March 2000 issuance of common
stock for cash, net of stock
issuance costs of $36,099 (Note 5) . 613,530 1,595,901 - - 1,595,901
March 2000 issuance of common
stock for debt conversion (Note 5) . 1,063,006 2,827,596 - - 2,827,596
Warrants issued in connection
with the March 2000 transactions
(Note 5) . . . . . . . . . . . . . . - - 954,000 - 954,000
Exercise of employee stock options . 9,900 19,800 - - 19,800
Net loss . . . . . . . . . . . . . . - - - (1,380,715) (1,380,715)
----------- ----------- ------------- -------------- ------------
Balances at June 30, 2000 . . . . . 15,053,380 $9,677,253 $ 981,000 $ (12,104,174) $(1,445,921)
=========== =========== ============= ============== ============
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5
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FORECROSS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. UNAUDITED INTERIM FINANCIAL STATEMENTS:
The unaudited interim financial statements of Forecross Corporation have been
prepared in conformity with generally accepted accounting principles, consistent
in all material respects with those applied in the Annual Report on Form 10-K
for the year ended September 30, 1999. The interim financial information is
unaudited, but in the opinion of management, includes all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the information set forth therein. The interim financial statements should be
read in connection with the financial statements and notes in the Company's
Annual Report on Form 10-K for the year ended September 30, 1999. The interim
period results are not necessarily indicative of the results for a full fiscal
year.
2. BASIS OF PRESENTATION AND GOING CONCERN:
Through June 30, 2000, the Company had sustained recurring losses from
operations and, at June 30, 2000, had a net capital deficiency and a net
working capital deficiency. These conditions raise substantial doubt about the
ability of the Company to continue as a going concern. During the remainder of
fiscal 2000, the Company expects to meet its working capital and other cash
requirements with cash derived from operations, short-term receivables and other
financing as required, private placement of stock and software license fees from
organizations desiring access to the Company's various product offerings. The
Company's continued existence is dependent upon its ability to achieve and
maintain profitable operations by controlling expenses and obtaining additional
business. Management believes that the combination of increased automation of
its migration services, the creation and marketing of new products which utilize
technology originally developed for year 2000 renovation, continued cost
control, and the early signs of renewed customer interest in migration projects
should improve the Company's profitability in fiscal 2000. However, there can
be no assurance that the Company's efforts to achieve and maintain profitable
operations will be successful. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
DEPENDENCE ON YEAR 2000 REVENUE:
The Company's revenue in fiscal 1999 and 1998 and the first quarter of fiscal
2000 resulted in large part from demand for Assess/2000 and Complete/2000TM
services and licenses. Year 2000 services and related revenue was 14% of the
total revenue for the three months ended June 30, 2000, as compared to 95% for
the three months ended June 30, 1999. Year 2000 services and related revenue
was 51% of total revenue for the nine months ended June 30, 2000 as compared to
85% for the nine months ended June 30, 1999. While the Company will continue
to amortize approximately $140,000 per quarter in revenue for product license
fees, distributor fees, and maintenance fees previously paid by our year 2000
distributors, it does not anticipate receiving any material revenue generated
from year 2000 contracts in the future.
Over the past 2 years, the Company experienced a decline in its core migration
services business which corresponded with the increase of year 2000 business.
The Company considered this a temporary development which is reversing with
the resolution of the year 2000 issue. It is the Company's strategy to
leverage customer relationships and knowledge of customer application systems
derived from its year 2000 services solutions to continue to grow its migration
and other products and services beyond the year 2000 market. The Company has
observed some early indications of renewed customer interest in migration
projects, however, there can be no assurance that the Company will be successful
in obtaining such projects or that the Company's strategy will be successful.
Should the Company be unable to market other products and services to replace
the decrease in year 2000 revenues, whether as a result of competition,
technological change or other factors, the Company's business, results of
operations and financial condition will be materially and adversely affected.
The Company markets its products and services to customers for managing the
maintenance and redevelopment of mission-critical computer software systems. The
Company's agreements with its customers typically contain provisions designed to
limit the Company's exposure to potential product and service liability claims.
It is possible, however, that the limitation of liability provisions contained
in the Company's customer agreements may not be effective as a result of
existing or future federal, state, local or foreign laws or ordinances or
unfavorable judicial decisions. The Company has not experienced any material
product or service liability claims to date for either its migration or year
2000 Services. However the ongoing sale and support of its products and
services may entail the risk of such claims, which could be substantial
in light of the use of its products and services in mission-critical
applications. A successful product or service liability claim brought against
the Company could have a materially adverse effect upon the Company's business,
operating results and financial condition.
6
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3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures;
contingent assets and liabilities at the date of the financial statements; and
the reported amounts of revenue and expenses during the reporting period.
Accordingly, actual results could differ from those estimates. The most
significant estimates subject to future uncertainties are those relating to
calculations of percentage of completion for projects in process and estimations
of warranty liability. It is at least reasonably possible that the significant
estimates used will change within a year.
RECLASSIFICATIONS:
Certain prior-year amounts have been reclassified to conform to current year
presentation.
4. CONCENTRATIONS OF CREDIT RISK AND FOREIGN SALES:
The Company performs ongoing credit evaluations of its customers and generally
does not require collateral on accounts receivable as the majority of the
Company's customers are large, well-established companies. Two customers
accounted for approximately 61% and 26% of the accounts receivable balance at
June 30, 2000 and four customers accounted for approximately 30%, 18%, 16% and
13% of the accounts receivable balance at September 30, 1999. Three customers,
including revenue generated by the Company's distributors of year 2000
solutions, which are treated as resulting from one customer, accounted for
approximately 44%, 31% and 14% of total revenue for the three months ended June
30, 2000. Four customers, (again including the Company's distributors as
one customer), accounted for approximately 35%, 20%, 16% and 13% of total
revenue for the three months ended June 30, 1999. Four customers accounted for
approximately 19%, 17%, 17% and 14% of total revenue for the nine months ended
June 30, 2000, compared to five customers accounting for 16%, 15%, 15%, 12% and
10% of total revenue for the nine months ended June 30, 1999. During the first
three quarters of fiscal year 2000, 11% of total revenue came from services to
a business located in Canada.
5. COMMON STOCK:
In January 2000, the Company completed a private placement of 1,175,000 shares
of common stock at $0.20 per share, resulting in gross proceeds of $235,000.
As part of that placement, the Company sold 500,000 shares of common stock and
received $100,000 in gross proceeds in December 1999.
In March 2000, the Company completed a second private placement of 613,530
shares at $2.66 per share, resulting in gross proceeds of $1,632,000.
Additionally, 1,063,006 shares were issued to the Company's senior officers and
employees, year 2000 distributors and a director, converting Company debt from
loans, deferred payroll, travel expenses and year 2000 distributor revenue
sharing, to equity at a conversion price of $2.66 per share. The total debt
converted into equity was $2,827,596. With each share issued to investors in
the second private placement and to those converting debt, the Company also
issued a warrant to purchase one half share of stock at $2.66 per share at a
future date. The warrants expire upon the earlier of three years, or 30 days
after the 10-day trailing average closing price of the Company's common stock
equals or exceeds $7.98 per share (if a Registration Statement covering the
underlying shares has been declared effective). In connection with the second
private placement, the Company also issued to a finder three year warrants
to purchase 200,000 shares of common stock at $2.66 per share, which warrants
expire in three years. A total of $954,000 in non-cash compensation expense
was recorded for the beneficial pricing effect to senior officers, employees,
year 2000 distributors and a director.
On February 7, 2000, the Company's Board approved the grant of options to
purchase a total of 151,800 shares of its Common Stock to various employees
under its 1994 Stock Option Plan. These options are fully vested upon issuance
and are exercisable at a price of $0.58 per share for a period of five years. On
March 17, 2000, the Company's Board approved the grant of options to purchase a
total of 258,900 shares of its Common Stock to various employees, outside of its
1994 Stock Option Plan. The Company's Board also approved a grant of options to
purchase 80,000 shares to a company director under the 1994 Stock Option Plan.
All of these options vest over various periods up to fur years, and are
Exercisable at a price of $3.25 per share for a period of five years.
7
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
------- -------------------------------------------------
The following summary of our material activities for the three and nine months
ended June 30, 2000 and 1999, is qualified by, and should be read in conjunction
with the financial statements and related notes and other information contained
in this report. The financial results reported herein do not indicate the
financial results that may achieved in any future period.
Other than the historical facts contained herein, this Quarterly Report contains
statements that are forward-looking, such as statements relating to plans for
future activities. Such forward-looking information involves important risks and
uncertainties that could significantly affect results in the future and,
accordingly, such results may differ from those expressed in any forward-looking
statements made by or on our behalf. These risks and uncertainties include,
but are not limited to, those relating to our growth strategy, customer
concentration, outstanding indebtedness, dependence on expansion, activities of
competitors, changes in federal or state laws and the administration of such
laws, protection of trademarks and other proprietary rights and the general
condition of the economy and its effect on the securities markets. For a
discussion of such risks and uncertainties see our Annual Report on Form 10-K
for the fiscal year ended September 30, 1999.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
Total revenue for the three months ended June 30, 2000 was $994,000 as compared
to $903,000 for the same period of 1999, an increase of 10%. This increase in
revenue for the period reflects the end of the year 2000 contracts and the
growing resumption of migration projects. Year 2000 services revenue was $5,000
for the third quarter of 2000 as compared to $720,000 for 1999. Migration
services revenue was $807,000 for the current quarter as compared to $16,000 a
year ago. Consulting revenue added $45,000 in 2000 as compared to $31,000 in
1999, and revenue from the amortization of deferred year 2000 distributor
licenses and fees was $136,000 for both 2000 and 1999.
Backlog was $1,862,000 at June 30, 2000, which included no year 2000 projects
compared to $1,172,000 at September 30, 1999, which included $814,000 for year
2000 projects, all completed by December 31, 1999. Backlog at June 30, 1999 was
$783,000, of which $776,000 was for year 2000 projects.
Backlog amounts in upcoming quarters will likely reflect a substantial increase
over the prior year quarters because migration contracts generally tend to be
both larger in value and longer in duration than year 2000 contracts. The
average application migration project takes from six to eighteen months to
complete, whereas the average year 2000 project was completed in ten weeks
or less. Therefore, revenue associated with year 2000 projects was often
booked, recognized and completed without appearing in the quarterly or annual
backlog amount.
Gross margin was $791,000 and $343,000 for the three months ended June 30, 2000
and 1999, respectively. Gross margin percentages were 80% and 38% for these
periods. The increased gross margin percentage was due to the increase in
revenue and a reduction in the cost of revenue for the current quarter, which
included a reduction to salaries and wages from headcount attrition as year 2000
projects ended. Cost of revenue for 1999 included $44,000 in accrued year 2000
distributor commissions.
Sales and marketing expenses were $205,000 for the three months ended June 30,
2000 as compared to $311,000 for the same period of 1999. Included in the
the 1999 expenses was $132,000 for year 2000 distributor commissions.
Research and development expenses were $294,000 for the current quarter as
compared to $170,000 in the corresponding quarter of 1999. Development efforts
in the 2000 quarter generally related to enhancements to our migration products
and new XML-related offerings, while work performed in the quarter ending June
30, 1999 related to upgrades to our year 2000 analysis and renovation tools.
General and administrative expenses were $303,000 and $255,000, in the three
months ended June 30, 2000 and 1999, respectively.
Net interest expense was $17,000 for the three months ended June 30, 2000 as
compared to $150,000 in the 1999 quarter, reflecting the elimination of much
of the company's debt to company officers and year 2000 distributors with the
debt to equity conversion in March 2000.
8
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The overall net loss for the three months ended June 30, 2000 was $30,000
or $0.00 per share compared with a loss of $543,000 or $0.04 per share for the
three months ended June 30, 1999 (based on the weighted average number of
shares outstanding during the respective periods).
NINE MONTHS ENDED JUNE 30, 2000 COMPARED TO NINE MONTHS ENDED JUNE 30, 1999
Total revenue for the nine months ended June 30, 2000 was $2,923,000 as compared
to $2,624,000 for the same period of 1999, an increase of 11%. Year 2000
services revenue was $1,072,000 as compared to $1,831,000 for the same periods.
Migration services revenue was $1,213,000 as compared to $241,000 a year ago.
Revenue from consulting totaled $229,000 as compared to $143,000 in 1999, and
revenue from the amortization of deferred year 2000 distributor licenses and
fees remained at $409,000 for both year to date periods.
Gross margin was $1,952,000 and $724,000 for the nine months ended June 30, 2000
and 1999, respectively. Gross margin percentages were 67% and 28% for these
periods. The increased gross margin percentage was due to reductions in cost of
revenue and reflects, in part, efforts over the past year to control costs and
improve efficiencies through attrition and by adjusting staff levels for the
reduction and end of year 2000 business.
Sales and marketing expenses were $524,000 for the nine months ended June 30,
2000 as compared to $767,000 for the same period of 1999. Distributor
commissions were $55,000 compared to $333,000 for the previous year.
Year to date research and development expenses were $728,000 as compared to
$575,000 in the prior year, which reflect the increase in development efforts in
2000 for enhancements to our migration products and new XML-related offerings.
General and administrative expenses were $1,819,000 and $863,000, for the year
to date periods. Most of this increase was due to the non-recurring $954,000
non-cash compensation expense related to the issuance of common stock and
warrants in the March 31, 2000 Private Placement.
Net interest and other expense was $276,000 for the nine months ended June 30,
2000 as compared to $397,000 in 1999. This reduction reflects the benefit of the
conversion of much of the company's non-bank debt to equity in March 2000.
The overall net loss for the nine months ended June 30, 2000 was $1,396,000 or
$0.10 per share compared with a loss of $1,879,000 or $0.16 per share for the
nine months ended June 30, 1999 (based on the weighted average number of shares
outstanding during the respective periods).
LIQUIDITY AND CAPITAL RESOURCES
Through June 30, 2000, we sustained recurring losses from operations and, at
June 30, 2000, had a net capital deficiency and a net working capital
deficiency. These conditions raise substantial doubts about our ability to
continue as a going concern. See Note 2 of Notes to Financial Statements. The
opinion of the independent certified public accountants on the audited financial
statements for the year ended September 30, 1999 also contained an explanatory
paragraph regarding such doubt about our ability to continue as a going concern.
For the three months ended June 30, 2000, operations were funded primarily
by cash derived from operating revenues and cash on hand . For the nine months
ended June 30, 2000, operations were funded primarily by the cash derived from
the sale of stock in two private placement transactions (see Note 5 of Notes to
Financial Statements), and through deferrals of senior employee compensation.
During the quarter ended March 31, 2000 we converted a significant amount of our
debt to equity. We believe that this move strengthens our balance sheet, reduces
interest expense and improves our future ability, as needed, to obtain
additional financing and attract investors.
The need to provide additional funds to our Company through private placement of
stock was required due to the expected transition period between the end of year
2000 contract business and the resumption of our core migration business. While
many companies completed their year 2000 analysis and renovation work well
in advance of the December 31, 1999 deadline, many companies postponed
consideration and commencement of new migration projects until the actual
outcome of the year 2000 issue was known. Additionally, many companies are
re-evaluating the status and direction of their information systems investments
based on the analysis performed for year 2000 and the rapid paradigm shift
towards Web-oriented and capable businesses.
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We are aggressively pursuing new opportunities for migration services, including
developing XML-related products and services specifically marketable to
businesses currently using legacy systems but needing to migrate to more web-
friendly platforms. We expect additional revenue in the fourth quarter of fiscal
2000 from some of the migration contracts currently under negotiation. The sales
pipeline, work in progress, collections and cash requirements are being closely
monitored to determine whether the existing sources of financing are adequate
to support operations or whether additional means of financing, including debt
or equity financing, may be required to satisfy working capital and other cash
requirements.
If we can obtain the anticipated level of new business, and continue the use of
short-term receivables financing, we believe we will have sufficient funds to
meet our needs through the balance of fiscal 2000. There can be no assurance,
however, that cash from operations and the other sources described above will
be achieved or will be sufficient for our needs.
A factoring agreement with a financial organization allows us to obtain
financing by borrowing against our accounts receivable on a recourse basis. At
June 30, 2000, $225,000 was outstanding under the agreement and at September 30,
1999, $861,000 was outstanding. The agreement, established in October 1995, may
be terminated by either the factor or us at any time.
We anticipate that our capital expenditures for fiscal 2000 will be between
$50,000 and $100,000.
Cash and cash equivalents on hand at June 30, 2000 were $85,000 as compared to
$19,000 at June 30, 1999.
YEAR 2000 COMPLIANCE
In the months preceding December 31, 1999, we conducted a project to identify
all computer hardware and software, other significant equipment, and services on
which we rely that may have been be impacted by the year 2000 problem. Based on
the results of this project, and the fact that the calendar has already moved
past both the January 1, 2000 and March 31, 2000 end of quarter critical dates,
we believe that the hardware, software, equipment and services on which we rely
are year-2000 compliant.
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PART II-OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Recent Sales of Unregistered Securities
In April 2000, to employees exercised options to purchase an
aggregate of 9,900 shares of common stock for an aggregate price
of $19,800. These transactions were exempt from the registration
Requirements of the Securities Act of 1933, as amended, based on
Rule 701 promulgated thereunder.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Report on Form 8-K
(a). Index and Description of Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -------------------------------------------------------------------
<S> <C>
3.1+ Restated Articles of Incorporation
3.2+ By-Laws
10.1+ Lease Agreement, dated January 1, 1997
between the Company and The Canada Life Assurance Company
10.2+ Form of Indemnification Agreement entered into
between the Company and each of its officers and
directors
10.3+ 1993 Restricted Stock Purchase Plan
10.4+ 1994 Stock Option Plan and Form of Option Agreement
10.5* Exclusive Distributor Agreement between the
Company and Gardner Solution 2000, L.L.C., and
Amendment
10.6* Exclusive Distributor Agreement between the
Company and Y2K Solutions, L.P.,
10.7* Software License Agreement between the Company
and Y2K Solutions, L.P.
10.8+ Factoring Agreement, dated October 30, 1995, between
the Company and Silicon Valley Financial Services
10.9+ Lease Expansion Proposal dated November 17, 1997, between
the Company and The Canada Life Assurance Company
10.10+ Factoring Modification Agreement, dated January 13, 1998, between the Company
and Silicon Valley Financial Services
10.11* Exclusive Distributor Agreement between the Company and CY2K Solutions, L.L.C.
10.12* Software License Agreement between the Company and CY2K Solutions, L.L.C.
10.13* Exclusive Distributor Agreement between the Company and PY2K Solutions, L.L.C.
10.14* Software License Agreement between the Company and PY2K Solutions, L.L.C.
16.1+ Notice of Change of Auditor dated September 23, 1997, issued to all holders of
common shares of Forecross Corporation
16.2+ Letter dated September 23, 1997 from BDO Seidman, LLP to the British Columbia
Securities Commission and to the Vancouver Stock Exchange confirming the
accuracy of the information contained in the Notice of Change of Auditor of
Forecross Corporation dated September 23, 1997
16.3+ Letter dated September 23, 1997 from Coopers & Lybrand, L.L.P. to the British
Columbia Securities Commission and to the Vancouver Stock Exchange confirming
the accuracy of the information contained in the Notice of Change of Auditor of
Forecross Corporation dated September 23, 1997
16.4+ Letter dated September 23, 1997 from the Board of Directors of Forecross
Corporation to the shareholders of Forecross Corporation, the British Columbia
Securities Commission and the Vancouver Stock Exchange confirming the review of
the Board of Directors of the Notice of Change of Auditor and the related letter
dated September 23, 1997 from BDO Seidman, LLP and Coopers & Lybrand,
L.L.P.
27.1 Financial Data Schedule, June 30, 2000
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+ Previously filed as part of the Company's Form 10/A, effective June 16, 1998.
* The Company has requested that certain portions of the documents be given
confidential treatment. The entire documents, including the redacted portions,
have been filed with the SEC.
(b). Reports on Form 8-K
None
</TABLE>
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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.
Registrant
FORECROSS CORPORATION
August 14, 2000 BY: /S/ Bernadette C. Castello
---------------------------------
Bernadette C. Castello
Senior Vice President and Chief Financial Officer
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