Forward Industries(FORD) - 2019 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Forward Industries, Inc.'s Q1 2019 unaudited financial statements report a net loss of $530,527 and negative operating cash flow of $789,668 Condensed Consolidated Balance Sheets As of December 31, 2018, total assets were $19.37 million, liabilities $8.79 million, and shareholders' equity $10.58 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2018 | Sep 30, 2018 | | :--- | :--- | :--- | | Total Assets | $19,368 | $19,228 | | Total Current Assets | $15,424 | $15,212 | | Total Liabilities | $8,788 | $8,128 | | Total Current Liabilities | $8,335 | $7,624 | | Line of credit | $1,300 | $350 | | Total Shareholders' Equity | $10,581 | $11,100 | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Q1 2019 reported a net loss of $530,527, a downturn from prior year, due to surging operating expenses despite revenue growth Statement of Operations Summary (in thousands) | Metric | Q1 2019 (ended Dec 31, 2018) | Q1 2018 (ended Dec 31, 2017) | Change | | :--- | :--- | :--- | :--- | | Net Revenues | $10,183 | $6,336 | +60.7% | | Gross Profit | $1,303 | $1,003 | +29.9% | | Total Operating Expenses | $1,784 | $952 | +87.4% | | Income (Loss) from Operations | ($481) | $51 | N/A | | Net Income (Loss) | ($531) | $47 | N/A | | Basic EPS | ($0.06) | $0.01 | N/A | Condensed Consolidated Statements of Cash Flows Q1 2019 reported net cash used in operating activities of $789,668, a reversal from prior year, with a net cash increase of $47,415 Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2019 (ended Dec 31, 2018) | Q1 2018 (ended Dec 31, 2017) | | :--- | :--- | :--- | | Net cash from Operating Activities | ($790) | $1,300 | | Net cash from Investing Activities | ($20) | ($19) | | Net cash from Financing Activities | $857 | $0 | | Net increase in cash | $47 | $1,281 | Notes to Condensed Consolidated Financial Statements The notes detail business structure, accounting policies, two operating segments, customer concentration, and related party transactions - The company operates through two distinct segments following the January 2018 acquisition of IPS: Distribution (comprising Forward US, Switzerland, and UK) and Design (comprising IPS)[27] - The company adopted the new revenue recognition standard, ASC 606, effective October 1, 2018, using the modified retrospective method, which did not have a material impact on revenue recognition[45][46] - The company has significant customer concentration. In the Distribution segment, four customers accounted for 82.9% of revenue. In the Design segment, three customers accounted for 49.6% of revenue for the quarter[88][89][90] - A key related party transaction involves a Buying Agency and Supply Agreement with Forward China, which is owned by the company's CEO. The company also has a $1.6 million promissory note payable to Forward China, with its due date extended to April 18, 2019[95][96][103] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2019 financial results, noting 60.7% revenue growth but a net loss of $531,000 due to project overruns and increased expenses - The company's operations are managed across two segments: Distribution (historically the OEM business) and Design (the IPS business acquired in January 2018)[112] Consolidated Results of Operations (in thousands) | Metric | Q1 2019 | Q1 2018 | Change | | :--- | :--- | :--- | :--- | | Net revenues | $10,183 | $6,336 | $3,847 | | Gross profit | $1,303 | $1,003 | $300 | | Operating income (loss) | ($481) | $51 | ($532) | | Net income (loss) | ($531) | $47 | ($578) | - The company anticipates that its liquidity and financial resources will be adequate to manage operating requirements for the next 12 months[144] Results of Operations Q1 2019 saw Distribution revenue decline and the Design segment contribute revenue but incur a significant net loss due to project overruns - Distribution segment revenue decreased 1% to $6.28 million, primarily due to a 6% decline in Diabetic Product revenues[123][125] - The Design segment, acquired in January 2018, generated $3.9 million in revenue but had a low gross margin of 8.1% due to project overruns. Management expects margins to return to historical levels above 20%[130][132] Segment Performance (in thousands) | Segment | Net Revenues (Q1 2019) | Net Income (Loss) (Q1 2019) | Net Income (Loss) (Q1 2018) | | :--- | :--- | :--- | :--- | | Distribution | $6,281 | ($32) | $47 | | Design | $3,902 | ($499) | N/A | Liquidity and Capital Resources Working capital was $7.1 million as of Dec 31, 2018, with negative operating cash flow of $790,000 and $1.3 million utilized on the line of credit - Cash used in operating activities was approximately $790,000 for the quarter, primarily due to a net loss of $531,000 and an increase in accounts receivable[146] - As of the filing date, the company had $100,000 available under its $1.3 million line of credit. The maturity on a $1.6 million promissory note to Forward China was extended to April 18, 2019[143] Key Liquidity Ratios | Ratio | Dec 31, 2018 | Sep 30, 2018 | | :--- | :--- | :--- | | Current Ratio | 1.9 | 2.1 | | Quick Ratio | 1.7 | 1.8 | | Working Capital | $7.1M | $7.6M | Item 3. Quantitative and Qualitative Disclosures About Market Risk This section is not applicable to the company - Not applicable[155] Item 4. Controls and Procedures Management concluded disclosure controls were effective, excluding IPS, which will be incorporated in Q2 Fiscal 2019 - Management concluded that disclosure controls and procedures are effective as of the end of the period covered by the report[156] - The evaluation of controls and procedures excluded IPS, which was acquired in January 2018. IPS will be incorporated into the assessment during the second quarter of Fiscal 2019[157] PART II. OTHER INFORMATION Item 1. Legal Proceedings As of December 31, 2018, the company was not a party to any material legal actions or proceedings - As of December 31, 2018, there were no material legal actions or proceedings against the company[162] Item 1A. Risk Factors This section is not applicable as the company is a smaller reporting company - Not applicable to smaller reporting companies[163] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities during the period - None[164] Item 6. Exhibits Exhibits listed in the 'Index to Exhibits' are filed or incorporated by reference as part of this Form 10-Q - The exhibits listed in the accompanying 'Index to Exhibits' are filed or incorporated by reference as part of this Form 10-Q[168]