Why I've Exited My Position in Forward Industries

| About: Forward Industries, (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, 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.


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.