Forward Industries(FORD) - 2020 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements This section presents Forward Industries, Inc.'s unaudited condensed consolidated financial statements for the periods ended June 30, 2020, detailing financial position, performance, and cash flows Condensed Consolidated Balance Sheets As of June 30, 2020, total assets increased to $18.64 million and liabilities to $12.46 million primarily due to new lease accounting standards and a PPP loan, while shareholders' equity decreased to $6.18 million due to net losses Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2020 (Unaudited) | September 30, 2019 | | :--- | :--- | :--- | | Assets | | | | Total current assets | $12,580 | $11,838 | | Goodwill | $1,167 | $2,182 | | Operating lease right of use assets, net | $3,409 | $– | | Total assets | $18,640 | $16,094 | | Liabilities & Equity | | | | Total current liabilities | $8,404 | $8,296 | | Operating lease liability, less current portion | $3,279 | $– | | Total liabilities | $12,458 | $8,383 | | Total shareholders' equity | $6,182 | $7,711 | - Goodwill decreased by $1.015 million due to an impairment charge recorded during the period[10][62] Condensed Consolidated Statements of Operations For the nine months ended June 30, 2020, the company reported a net loss of $1.67 million on revenues of $25.87 million, including a $1.015 million goodwill impairment, while Q3 revenues decreased to $9.55 million with a widened net loss Statement of Operations Summary (in thousands, except per share data) | Metric | Nine Months Ended June 30, 2020 | Nine Months Ended June 30, 2019 | | :--- | :--- | :--- | | Revenues, net | $25,873 | $28,265 | | Gross profit | $4,948 | $4,508 | | Goodwill impairment | $1,015 | $– | | Loss from operations | $(1,871) | $(1,605) | | Net loss | $(1,668) | $(1,765) | | Net loss per share (Basic & Diluted) | $(0.18) | $(0.19) | Q3 Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | | :--- | :--- | :--- | | Revenues, net | $9,549 | $9,909 | | Gross profit | $1,775 | $1,894 | | Loss from operations | $(175) | $(50) | | Net loss | $(215) | $(104) | | Net loss per share (Basic & Diluted) | $(0.02) | $(0.01) | Condensed Consolidated Statements of Shareholders' Equity Shareholders' equity declined from $7.71 million to $6.18 million by June 30, 2020, primarily due to a $1.67 million cumulative net loss over the nine-month period - Total shareholders' equity decreased by approximately $1.53 million over the nine-month period ended June 30, 2020, from $7,711,299 to $6,181,943[15] - The accumulated deficit increased from $(11,320,169) to $(12,988,642) during the nine months ended June 30, 2020, reflecting the period's net losses[15] Condensed Consolidated Statements of Cash Flows For the nine months ended June 30, 2020, net cash used in operating activities improved to $760,000, while financing activities provided $808,000 primarily from a $1.36 million PPP loan, resulting in a minimal net decrease in cash Cash Flow Summary (in thousands) | Activity | Nine Months Ended June 30, 2020 | Nine Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(760) | $(2,201) | | Net cash used in investing activities | $(56) | $(30) | | Net cash provided by financing activities | $808 | $570 | | Net decrease in cash | $(8) | $(1,660) | | Cash at end of period | $3,085 | $2,710 | - The company received $1,356,570 in proceeds from a PPP loan during the nine months ended June 30, 2020[17][99] Notes to Condensed Consolidated Financial Statements These notes detail the company's business, the significant impact of COVID-19, a $1.015 million goodwill impairment, segment performance, and key financial policies including a new PPP loan and related party transactions - The COVID-19 pandemic disrupted the supply chain, delayed product rollouts, and reduced demand for design services, impacting revenues; the company received a $1.357 million PPP loan to mitigate liquidity impacts[22] - The company recorded a goodwill impairment charge of $1,015,000 for its IPS reporting unit during the three months ended March 31, 2020, due to revised revenue projections and other triggering events[62] - The company has a significant related-party relationship with Forward China, owned by CEO Terence Wise, for sourcing products and has a $1.6 million promissory note payable to them[90][91] - Subsequent to the quarter end, the company entered into a non-binding letter of intent to acquire a design-development company focused on the medical industry for approximately $1.5 million[110] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's performance for the three and nine months ended June 30, 2020, highlighting the negative impact of COVID-19, a $1.015 million goodwill impairment, and liquidity supported by a $1.36 million PPP loan Results of Operations - Three Months Ended June 30, 2020 vs 2019 Q3 2020 consolidated net revenues decreased 3.6% to $9.55 million, with Distribution segment revenue growing 6.1% due to PPE sales, while Design segment revenue fell 18.7% due to COVID-19 impacts, widening the net loss Q3 Segment Performance (in thousands) | Segment | Q3 2020 Revenue | Q3 2019 Revenue | Change | Q3 2020 Gross Profit | Q3 2019 Gross Profit | Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Distribution | $6,389 | $6,022 | +6.1% | $939 | $921 | +2.0% | | Design | $3,160 | $3,887 | -18.7% | $836 | $973 | -14.1% | | Total | $9,549 | $9,909 | -3.6% | $1,775 | $1,894 | -6.3% | - Distribution segment's 'Other Product Revenues' increased by $915,000, primarily due to the sale of $758,000 in personal protective equipment (PPE)[133] - Revenues from diabetic products, a core line for the Distribution segment, declined by 10.1% or $548,000 year-over-year due to reduced demand and pricing pressures[130] Results of Operations - Nine Months Ended June 30, 2020 vs 2019 For the nine months ended June 30, 2020, consolidated net revenues decreased 8.5% to $25.87 million, driven by declines in both Distribution (8.0%) and Design (9.2%) segments, resulting in a $1.67 million net loss including a $1.015 million goodwill impairment Nine-Month Segment Performance (in thousands) | Segment | 9M 2020 Revenue | 9M 2019 Revenue | Change | 9M 2020 Gross Profit | 9M 2019 Gross Profit | Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Distribution | $15,709 | $17,072 | -8.0% | $2,103 | $2,659 | -20.9% | | Design | $10,164 | $11,193 | -9.2% | $2,845 | $1,849 | +53.9% | | Total | $25,873 | $28,265 | -8.5% | $4,948 | $4,508 | +9.8% | - The Design segment's gross margin improved significantly from 16.5% in the 2019 period to 28.0% in the 2020 period, recovering from project overruns in the prior year[156] - The nine-month results include a $1,015,000 goodwill impairment and a $327,000 investment impairment, both impacting the Design segment's operating results[146][160] Liquidity and Capital Resources As of June 30, 2020, working capital was $4.18 million and cash $3.08 million, with liquidity bolstered by a $1.36 million PPP loan and a $1.3 million line of credit, deemed adequate for the next 12 months - The company received a $1,357,000 loan under the Paycheck Protection Program (PPP) in April 2020, which it intends to apply for forgiveness on[167] Working Capital and Liquidity Ratios | Metric | June 30, 2020 | September 30, 2019 | | :--- | :--- | :--- | | Working Capital | $4,176,000 | $3,543,000 | | Current Ratio | 1.5 | 1.4 | | Quick Ratio | 1.4 | 1.2 | - Cash used in operating activities for the nine months ended June 30, 2020 was $760,000, a significant improvement from $2,201,000 used in the same period in 2019[172][173] Quantitative and Qualitative Disclosures About Market Risk This section is not applicable for the company - Not applicable[180] Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of June 30, 2020, with no material changes to internal control over financial reporting beyond those related to ASC 842 adoption - Management concluded that the company's disclosure controls and procedures are effective as of the end of the period covered by the report[181] - No material changes were made to internal control over financial reporting during the quarter, except for controls related to the adoption of the new lease standard, ASC 842[182] PART II. OTHER INFORMATION Legal Proceedings As of June 30, 2020, the company was not a party to any legal proceedings that it believes would have a material adverse effect on its business - There were no material legal actions or proceedings against the company as of June 30, 2020[186] Risk Factors The company highlights key risks including the ongoing negative impact of the COVID-19 pandemic on operations and the uncertainty regarding forgiveness of its $1.357 million PPP loan - The COVID-19 pandemic has negatively impacted the business by disrupting the supply chain, delaying product rollouts, and increasing the risk of customer inability to pay[187][188] - There is a risk that the company may not be entitled to forgiveness for its $1.357 million PPP loan and could be subject to repayment and penalties if the application is deemed impermissible[189][190][191] Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report for the period - None[192] Defaults Upon Senior Securities There were no defaults upon senior securities to report for the period - None[193] Other Information There was no other information to report for the period - None[195] Exhibits This section lists the exhibits filed or incorporated by reference as part of the Form 10-Q, including certifications and XBRL data files - The exhibits listed in the 'Index to Exhibits' are filed or incorporated by reference as part of the Form 10-Q[196]