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Posts Tagged ‘Forward Industries Inc (NASDAQ:FORD)’

I’ve exited the position in Forward Industries Inc (NASDAQ:FORD) at yesterday’s $3.23 close. I opened the position at $1.44 on July 20 last year. The stock is up 124.3% on an absolute basis and up 98% relative to the S&P500.

Post mortem

We started following FORD (see the post archive here) because it was trading at a discount to its net cash and liquidation values, although there was no obvious catalyst. Management appeared to be considering a “strategic transaction” of some kind, which might have included an “acquisition or some other combination.” At the time I said that I thought a better use of the cash on the balance sheet was a share buy-back or a dividend. Trinad Management had previously held an activist position in the stock, but had been selling at the time I opened the position and only one stockholder owned more than 5% of the stock. In late March LaGrange Capital Management filed a 13D notice for its position in Forward Industries Inc (NASDAQ:FORD) disclosing discussions with management regarding FORD’s “business and operations, financial performance, capital structure, governance, valuation, and future plans”. LaGrange is now the third largest shareholder with “just under 5% of all common shares.” At its $3.23 close yesterday, FORD has a market capitalization of $25.8M. My rough valuation pegs the Graham fire-sale liquidation value at around $20.0M or $2.50 per share. With the stock trading at a substantial 30% premium to that value and the business continuing to lose ground, I’m taking the money and running. More enterprising investors might want to hang around to see if LaGrange can squeeze some value out of a sale of the business.

The letter from LaGrange Capital Partners

LaGrange Capital Partners’ 13D notice with appended March 9 letter:

March 9, 2010

Mr. Douglas W. Sabra
Forward Industries Inc.
1801 Green Road, Suite E
Pompano Beach, FL 33064

Dear Doug,

Thank you and Jim for seeing me at the last minute. As we discussed, I am the General Partner at LaGrange Capital Partners Onshore, Offshore and Special Situations Yield Funds. LaGrange has been in business since 2000 and manages well over $100 million in assets. Our flagship fund has outperformed the S&P by approximately 7.6% per annum since inception.

LaGrange controls just under 5% of all common shares of Forward Industries, making us the third largest holder according to Bloomberg. To put it in perspective, we own approximately four times as many shares as the board (ex- Michael Schiffman), CEO and CFO combined. It is also worth noting that our shares were acquired for cash in the open market.

As a major investor, I am very concerned about the course of action presently being taken by this board and management team. To this end, I would like to discuss with you and the board of directors the company’s plans and LaGrange Capital’s desire for board representation as soon as possible.

Thank you for your time and consideration. I look forward to hearing from you, and can be reached at 212-993-7057.

Sincerely,

Grange Johnson

CC: John Chiste, Bruce Galloway, Fred Hamilton, Louis Lipschitz, Michael Schiffman

[Full Disclosure:  I do not have a holding in FORD. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

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Forward Industries Inc (NASDAQ:FORD) has filed its 10K for the period ended September 30, 2009.

We started following FORD (see the post archive here) because it was trading at a discount to its net cash and liquidation values, although there was no obvious catalyst. Management appeared to be considering a “strategic transaction” of some kind, which might have included an “acquisition or some other combination.” I think a better use of the cash on the balance sheet is a share buy-back or a dividend. Trinad Management had an activist position in the stock, but had been selling at the time I opened the position and only one stockholder owned more than 5% of the stock. The stock is up 40.3% since I opened the position to close yesterday at $2.00, giving the company a market capitalization of $15.9M. Following my review of the most recent 10K, I’ve increased my estimate of FORD’s liquidation value to around $20.3M or $2.56 per share.

The value proposition updated

FORD continues to face difficult trading conditions, writing in the most recent 10K:

Trends and Economic Environment

We believe that the poor economy, high unemployment, tight credit markets, and heightened uncertainty in financial markets during the past two years have adversely impacted discretionary consumer spending, including spending on the types of electronic devices that are accessorized by our products. In response to the economic recession certain of our major diabetic case customers have significantly reduced their sales forecasts to us for blood glucose diagnostic kits, with which our products are packaged in box, therefore implying reduced sales revenues from these customers in future periods. We expect this challenging business environment to continue in the near term.

Our response to current conditions has been to cut operating expenses and reduce headcount; and we have attempted to limit increases in operating expenses except where we think increases are critical to potential future growth.

In response to increasing customer and sales concentration, we have focused marketing efforts on expanding our customer base. These efforts are meeting with some preliminary success, although the degree of success will not become apparent until we are deeper into Fiscal 2010. We have received small, initial orders from first time customers. The key question in Fiscal 2010 will be whether our overall net sales and net profit will primarily reflect revenue contribution from new customers or the decline in revenues from existing customers that have indicated reduced order flow in Fiscal 2010. See Part I, Item IA. of this Annual Report, “Risk Factors”, including “We have announced our intention to diversify our business by means of acquisition or other business combination.”

The company had another quarter that was better than the preceding one, generating positive cash from operating activities of around $0.35M (the “Book Value” column shows the assets as they are carried in the financial statements, and the “Liquidating Value” column shows our estimate of the value of the assets in a liquidation):

Summary balance sheet adjustments

I’ve made the following adjustments to the balance sheet estimates (included in the valuation above):

  • Cash burn: I’ve got no real idea about FORD’s prospects. It seems to have stopped burning cash over the last quarter and actually generated $0.35M. If we assume, as management has, that the company will face a tough operating environment over the next 12 months, I estimate that the company will generate no cash over that period.
  • Off-balance sheet arrangements: According to FORD’s most recent 10Q, it has no off-balance sheet arrangements.
  • Contractual obligations: FORD’s contractual obligations are minimal, totalling $0.8M.

Possible catalysts

FORD’s President and Acting Chairman, Mr. Doug Sabra, said in the letter to FORD shareholders accompanying the notice of annual shareholders’ meeting, that in 2008 “management began to implement operational and strategic initiatives in order to put [FORD]’s business on a stronger, more sustainable footing. …  This past August we retained an outside consultant to assist us in vetting possible partners for a strategic transaction.” It seems that the “strategic transaction” might include a “possible acquisition or other combination that makes sense in the context of [FORD’s] existing business, without jeopardizing the strong financial position that we have worked so hard to build.” My vast preference is for a sale of the company, buyback, special dividend or return of capital over an acquisition. Rather than spend the cash on their balance sheet, they should focus on the work on their desk and pay a big dividend.

Any sale transaction will require the consent of FORD’s board. While it has a free float of around 92%, the company’s so-called “Anti-takeover Provisions” authorize the board to issue up to 4M shares of “blank check” preferred stock. From the 10K:

Our Board of Directors is authorized to issue up to 4,000,000 shares of “blank check” preferred stock. Our Board of Directors has the authority, without shareholder approval, to issue such preferred stock in one or more series and to fix the relative rights and preferences thereof including their redemption, dividend and conversion rights. Our ability to issue the authorized but unissued shares of preferred stock could be used to impede takeovers of our company. Under certain circumstance, the issuance of the preferred stock could make it more difficult for a third party to gain control of Forward, discourage bids for the common stock at a premium, or otherwise adversely affect the market price of our common stock. In addition, our certificate of incorporation requires the affirmative vote of two-thirds of the shares outstanding to approve a business combination such as a merger or sale of all or substantially all assets. Such provision and blank check preferred stock may discourage attempts to acquire Forward. Applicable laws that impose restrictions on, or regulate the manner of, a takeover attempt may also have the effect of deterring any such transaction. We are not aware of any attempt to acquire Forward.

Conclusion

FORD is still trading at a substantial discount to its liquidation and net cash values. The risk to this position is management spraying the cash away on an acquisition. A far better use of the company’s cash is a buyback, special dividend or return of capital. Another concern is Trinad Management exiting its activist position in the stock. Those concerns aside, I’m going to maintain the position because it still looks cheap at a discount to net cash.

[Full Disclosure:  We have a holding in FORD. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

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Forward Industries Inc (NASDAQ:FORD) has fired its investment and engaged another. It looks like FORD is intent on spending the cash on its balance sheet, which is a shame. Rather than make an acquisition, they should focus on the work on their desk and pay a big dividend. There’s a half chance that the bank could suggest a sale of the company, but that seems unlikely. I can’t believe there are no activists out there willing to take on this company. It’s 40% off its 52-week high. It’s net cash. There are no big holders. Management’s not doing a bad job, but an acquisition is a ridiculous idea. This is an instance of a management trying to plow a dollar back into the business and turn it into fifty cents. I could use that dollar more profitably. Then again, I’d probably just spend it on pennywhistles and moonpies.

We started following FORD (see our post archive here) because it was trading at a discount to its net cash and liquidation values, although there was no obvious catalyst. Management appeared to be considering a “strategic transaction” of some kind, which might have included an “acquisition or some other combination.” Trinad Management had an activist position in the stock, but had been selling at the time we opened the position and only one stockholder owned more than 5% of the stock. The stock is up 36.8% since we opened the position to close yesterday at $1.97, giving the company a market capitalization of $13.4M. Following our review of the most recent 10Q, we’ve estimate the liquidation value to $19.5M or $2.47 per share.

Here’s a link to the announcement (it’s just a marketing announcement by the bank so I’m not going to repost it).

FORD is trading at a substantial discount to its liquidation and net cash values. The risk to this position is management spraying the cash away on an acquisition. A far better use of the company’s cash is a buyback, special dividend or return of capital. Another concern is Trinad Management exiting its activist position in the stock. Those concerns aside, I’m going to maintain the position because it still looks cheap at a discount to net cash.

[Full Disclosure:  We have a holding in FORD. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

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Forward Industries Inc (NASDAQ:FORD) has filed its quarterly report for the period ended June 30, 2009.

We started following FORD (see our post archive here) because it was trading at a discount to its net cash and liquidation values, although there was no obvious catalyst. Management appeared to be considering a “strategic transaction” of some kind, which might have included an “acquisition or some other combination.” Trinad Management had an activist position in the stock, but had been selling at the time we opened the position and only one stockholder owned more than 5% of the stock. The stock is up 17.4% since we opened the position to close yesterday at $1.69, giving the company a market capitalization of $13.4M. Following our review of the most recent 10Q, we’ve slightly reduced our estimate of the liquidation value to $19.5M or $2.47 per share.

The value proposition updated

FORD continues to face difficult trading conditions, writing in the most recent 10Q:

Trends and Economic Environment: We believe that the deteriorating economic conditions, rising unemployment, tight credit markets, and heightened uncertainty in financial markets during the past 18 months have adversely impacted discretionary consumer spending, including spending on the types of electronic devices that are accessorized by our products. We expect this challenging business environment to continue in the foreseeable future.

The company had a slightly better quarter than the preceding one, but still burned through nearly $0.3M of cash (the “Book Value” column shows the assets as they are carried in the financial statements, and the “Liquidating Value” column shows our estimate of the value of the assets in a liquidation):

FORD Summary 2009 06 30

Summary balance sheet adjustments

We’ve made the following adjustments to the balance sheet estimates (included in the valuation above):

  • Cash burn: We’ve got no real idea about FORD’s prospects. Its cash burn over the last quarter was around $0.3M. That was made up of $0.2M of cash used in operations and $0.1M cash used in investment activities. If we assume, as management has, that the company will face a similarly tough operating environment over the next 12 months, we estimate cash burn of around $0.7M.
  • Off-balance sheet arrangements: According to FORD’s most recent 10Q, it has no off-balance sheet arrangements.
  • Contractual obligations: FORD’s contractual obligations are minimal, totalling $0.9M.

Possible catalysts

FORD’s President and Acting Chairman, Mr. Doug Sabra, said in the letter to FORD shareholders accompanying the notice of annual shareholders’ meeting, that in 2008 “management began to implement operational and strategic initiatives in order to put [FORD]’s business on a stronger, more sustainable footing. …  This past August we retained an outside consultant to assist us in vetting possible partners for a strategic transaction.” It seems that the “strategic transaction” might include a “possible acquisition or other combination that makes sense in the context of [FORD’s] existing business, without jeopardizing the strong financial position that we have worked so hard to build.” FORD’s focus on a “strategic transaction” is a positive, in our view, although our vast preference is for a sale of the company, buyback, special dividend or return of capital over an acquisition.

Any transaction will require the consent of FORD’s board. While it has a free float of around 92%, the company’s so-called “Anti-takeover Provisions” authorize the board to issue up to 4M shares of “blank check” preferred stock. From the 10Q:

The Board of Directors has the authority and discretion, without shareholder approval, to issue preferred stock in one or more series for any consideration it deems appropriate, and to fix the relative rights and preferences thereof including their redemption, dividend and conversion rights.

Conclusion

At its $1.69 close Friday, FORD is trading at a substantial 46% discount to its $2.47 per share liquidation value and $2.07 per share net cash value. While there’s no obvious catalyst in the stock at this stage, management’s consideration of a “strategic transaction” is a positive. The risk to this position is management spending the cash on an acquisition. We think a far better use of the company’s cash is a buyback, special dividend or return of capital. Another concern is Trinad Management exiting its activist position in the stock. Those concerns aside, we’re going to maintain our position because still looks cheap at a discount to net cash.

[Full Disclosure:  We have a holding in FORD. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

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Forward Industries Inc (NASDAQ:FORD) is a new position for us. We haven’t deviated from our love of deep value (it’s trading at a discount to net cash and liquidation value), but there’s no obvious catalyst in the stock at this stage. Management appears to be considering a “strategic transaction” of some kind, although this might include an “acquisition or some other combination.” At its $1.44 close Friday, FORD has a market capitalization of $11.4M. We estimate the liquidation value to be around 60% higher at $18.7M, or $2.60 per share. Trinad Management did have an activist position in the stock, but has been selling recently and only one stockholder owns more than 5% of the stock. We’re attracted to it because it looks cheap, and we think the elements are in place for a catalyst to emerge, so we’re adding it to the Greenbackd Portfolio.

About FORD

FORD designs, markets, and distributes “custom-designed, soft-sided carrying cases and other carry solutions products made from leather, nylon, vinyl, and other synthetic fabrics.” The cases and other products protect “portable electronic devices such as medical devices and cellular phones.” It sells directly to original-equipment-manufacturers in Europe, the “APAC Region,” and the Americas and to retailers and distributors in the United States, Canada, and Europe. It has been in operation since 1961.

The value proposition

FORD has been confronted with blustery headwinds over the last four years. FORD management write in the most recent 10Q (for the year ended March 31, 2009) that “deteriorating economic conditions, rising unemployment, tight credit markets, and heightened uncertainty in financial markets” has “adversely impacted discretionary consumer spending, including spending on the types of electronic devices that are accessorized by [FORD’s] products. [FORD’s management] expect this challenging business environment to continue in the foreseeable future.” Revenues are down from $50M+ in 2005 to less than $20M this year. The drop in net income has been even more precipitous, from a profit of $12M in 2005 to a loss of $1.1M in the most recent quarter, bringing the loss for the last 12 months to around $1.9M. Despite this, FORD still had around $19M of cash and equivalents at the end of March (the “Book Value” column shows the assets as they are carried in the financial statements, and the “Liquidating Value” column shows our estimate of the value of the assets in a liquidation):

FORD SummarySummary balance sheet adjustments

We’ve made the following adjustments to the balance sheet estimates (included in the valuation above):

  • Cash burn: We’ve got no real idea about FORD’s prospects. Its cash burn over the last 6 months has been around $0.8M. That was made up of a net loss of $1.3M, reduced by $0.6M for non-cash items, and changes in working capital items of $0.1M. Accounts payable decreased $0.6M, which had the effect of contributing to the net cash used by operating activities. If we assume, as management has, that the company will face a similarly tough operating environment over the next 12 months, we estimate cash burn of around $2M.
  • Off-balance sheet arrangements: According to FORD’s most recent 10Q, it has no off-balance sheet arrangements.
  • Contractual obligations: FORD’s contractual obligations are minimal, totalling $0.6M.

After making the adjustments above, we estimate FORD’s liquidation value at around $18.7M or $2.60 per share.

Possible catalysts

FORD’s President and Acting Chairman, Mr. Doug Sabra, said in the letter to FORD shareholders accompanying the notice of annual shareholders’ meeting, that in 2008 “management began to implement operational and strategic initiatives in order to put [FORD]’s business on a stronger, more sustainable footing. …  This past August we retained an outside consultant to assist us in vetting possible partners for a strategic transaction.” It seems that the “strategic transaction” might include a “possible acquisition or other combination that makes sense in the context of [FORD’s] existing business, without jeopardizing the strong financial position that we have worked so hard to build.” FORD’s focus on a “strategic transaction” is a positive, in our view, although our vast preference is for a sale of the company, buyback, special dividend or return of capital over an acquisition.

Any transaction will require the consent of FORD’s board. While it has a free float of around 92%, the company’s so-called “Anti-takeover Provisions” authorize the board to issue up to 4M shares of “blank check” preferred stock. From the 10Q:

The Board of Directors has the authority and discretion, without shareholder approval, to issue preferred stock in one or more series for any consideration it deems appropriate, and to fix the relative rights and preferences thereof including their redemption, dividend and conversion rights.

Conclusion

At its $1.44 close Friday, FORD is trading at a substantial 60% discount to its $2.60 per share liquidation value and $2.16 per share net cash value. While there’s no obvious catalyst in the stock at this stage, management’s consideration of a “strategic transaction” is a positive. The risk to this position is management spending the cash on an acquisition. We think a far better use of the company’s cash is a buyback, special dividend or return of capital. Another concern is Trinad Management exiting its activist position in the stock. Those concerns aside, we’re attracted to FORD because it looks cheap at such a discount to net cash. We’re adding it to the Greenbackd Portfolio.

FORD closed Friday at $1.44.

The S&P500 Index closed Friday at 940.38.

Hat tip PP.

[Full Disclosure:  We do not have a holding in FORD. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

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