ITEM 1. FINANCIAL STATEMENTS
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2020
|
|
Assets
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
2,332,324
|
|
|
$
|
2,924,627
|
|
Accounts receivable, net
|
|
|
7,729,140
|
|
|
|
7,602,316
|
|
Inventories
|
|
|
1,257,397
|
|
|
|
1,275,694
|
|
Prepaid expenses and other current assets
|
|
|
339,292
|
|
|
|
419,472
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
11,658,153
|
|
|
|
12,222,109
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
205,057
|
|
|
|
215,323
|
|
Intangible assets, net
|
|
|
1,478,227
|
|
|
|
1,531,415
|
|
Goodwill
|
|
|
1,758,682
|
|
|
|
1,758,682
|
|
Operating lease right of use assets, net
|
|
|
3,436,130
|
|
|
|
3,512,042
|
|
Other assets
|
|
|
72,251
|
|
|
|
116,697
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
18,608,500
|
|
|
$
|
19,356,268
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Line of credit
|
|
$
|
1,000,000
|
|
|
$
|
1,000,000
|
|
Note payable to Forward China
|
|
|
1,600,000
|
|
|
|
1,600,000
|
|
Accounts payable
|
|
|
212,928
|
|
|
|
197,022
|
|
Due to Forward China
|
|
|
3,451,724
|
|
|
|
3,622,401
|
|
Deferred income
|
|
|
169,769
|
|
|
|
485,078
|
|
Current portion of notes payable
|
|
|
114,894
|
|
|
|
983,395
|
|
Current portion of finance lease liability
|
|
|
13,231
|
|
|
|
18,411
|
|
Current portion of deferred consideration
|
|
|
–
|
|
|
|
45,000
|
|
Current portion of operating lease liability
|
|
|
269,569
|
|
|
|
259,658
|
|
Accrued expenses and other current liabilities
|
|
|
594,647
|
|
|
|
615,401
|
|
Total current liabilities
|
|
|
7,426,762
|
|
|
|
8,826,366
|
|
|
|
|
|
|
|
|
|
|
Other liabilities:
|
|
|
|
|
|
|
|
|
Notes payable, less current portion
|
|
|
–
|
|
|
|
529,973
|
|
Operating lease liability, less current portion
|
|
|
3,288,938
|
|
|
|
3,359,088
|
|
Finance lease liability, less current portion
|
|
|
7,560
|
|
|
|
12,769
|
|
Deferred consideration, less current portion
|
|
|
60,000
|
|
|
|
45,000
|
|
Total other liabilities
|
|
|
3,356,498
|
|
|
|
3,946,830
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
10,783,260
|
|
|
|
12,773,196
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity:
|
|
|
|
|
|
|
|
|
Common stock, par value $0.01 per share; 40,000,000 shares authorized; 9,886,351 and 9,883,851
shares issued and outstanding at December 31, 2020 and September 30, 2020, respectively
|
|
|
98,863
|
|
|
|
98,838
|
|
Additional paid-in capital
|
|
|
19,622,791
|
|
|
|
19,579,684
|
|
Accumulated deficit
|
|
|
(11,896,414
|
)
|
|
|
(13,095,450
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders' equity
|
|
|
7,825,240
|
|
|
|
6,583,072
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity
|
|
$
|
18,608,500
|
|
|
$
|
19,356,268
|
|
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
For the Three Months Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, net
|
|
$
|
9,717,603
|
|
|
$
|
8,392,854
|
|
Cost of sales
|
|
|
7,454,717
|
|
|
|
6,672,845
|
|
Gross profit
|
|
|
2,262,886
|
|
|
|
1,720,009
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
|
|
602,961
|
|
|
|
535,172
|
|
General and administrative expenses
|
|
|
1,827,418
|
|
|
|
1,213,966
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(167,493
|
)
|
|
|
(29,129
|
)
|
|
|
|
|
|
|
|
|
|
Gain on forgiveness of note payable
|
|
|
(1,356,570
|
)
|
|
|
–
|
|
Fair value adjustment of earn-out consideration
|
|
|
(30,000
|
)
|
|
|
–
|
|
Interest income
|
|
|
(22,747
|
)
|
|
|
–
|
|
Interest expense
|
|
|
46,392
|
|
|
|
50,949
|
|
Other (income)/expense, net
|
|
|
(3,604
|
)
|
|
|
1,579
|
|
Income/(loss) before income taxes
|
|
|
1,199,036
|
|
|
|
(81,657
|
)
|
|
|
|
|
|
|
|
|
|
Provision for/(benefit from) income taxes
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$
|
1,199,036
|
|
|
$
|
(81,657
|
)
|
|
|
|
|
|
|
|
|
|
Earnings/(loss) per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.12
|
|
|
$
|
(0.01
|
)
|
Diluted
|
|
$
|
0.12
|
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
9,885,563
|
|
|
|
9,533,851
|
|
Diluted
|
|
|
10,039,799
|
|
|
|
9,533,851
|
|
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
|
|
For the Three Month Ended December 31, 2020
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2020
|
|
|
9,883,851
|
|
|
$
|
98,838
|
|
|
$
|
19,579,684
|
|
|
$
|
(13,095,450
|
)
|
|
$
|
6,583,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
–
|
|
|
|
–
|
|
|
|
41,457
|
|
|
|
–
|
|
|
|
41,457
|
|
Stock options exercised
|
|
|
2,500
|
|
|
|
25
|
|
|
|
1,650
|
|
|
|
–
|
|
|
|
1,675
|
|
Net income
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,199,036
|
|
|
|
1,199,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020
|
|
|
9,886,351
|
|
|
$
|
98,863
|
|
|
$
|
19,622,791
|
|
|
$
|
(11,896,414
|
)
|
|
$
|
7,825,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
Paid-In
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
Amount
|
|
|
|
Capital
|
|
|
|
Deficit
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2019
|
|
|
9,533,851
|
|
|
$
|
95,338
|
|
|
$
|
18,936,130
|
|
|
$
|
(11,320,169
|
)
|
|
$
|
7,711,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
–
|
|
|
|
–
|
|
|
|
33,179
|
|
|
|
–
|
|
|
|
33,179
|
|
Net loss
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(81,657
|
)
|
|
|
(81,657
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
|
|
9,533,851
|
|
|
$
|
95,338
|
|
|
$
|
18,969,309
|
|
|
$
|
(11,401,826
|
)
|
|
$
|
7,662,821
|
|
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
For the Three Months Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$
|
1,199,036
|
|
|
$
|
(81,657
|
)
|
Adjustments to reconcile net income/(loss) to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
41,457
|
|
|
|
33,179
|
|
Depreciation and amortization
|
|
|
93,937
|
|
|
|
69,132
|
|
Bad debt expense/(recovery)
|
|
|
77,400
|
|
|
|
(65,454
|
)
|
Gain on forgiveness of note payable
|
|
|
(1,356,570
|
)
|
|
|
–
|
|
Change in fair value of earn-out consideration
|
|
|
(30,000
|
)
|
|
|
–
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(204,224
|
)
|
|
|
(560,096
|
)
|
Inventories
|
|
|
18,297
|
|
|
|
508,360
|
|
Prepaid expenses and other current assets
|
|
|
80,180
|
|
|
|
(48,043
|
)
|
Other assets
|
|
|
44,446
|
|
|
|
37,522
|
|
Accounts payable and due to Forward China
|
|
|
(154,771
|
)
|
|
|
(546,061
|
)
|
Deferred income
|
|
|
(315,309
|
)
|
|
|
(160,948
|
)
|
Operating lease liabilities
|
|
|
15,673
|
|
|
|
9,681
|
|
Accrued expenses and other current liabilities
|
|
|
(20,755
|
)
|
|
|
20,357
|
|
Net cash used in operating activities
|
|
|
(511,203
|
)
|
|
|
(784,028
|
)
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(30,482
|
)
|
|
|
(6,428
|
)
|
Net cash used in investing activities
|
|
|
(30,482
|
)
|
|
|
(6,428
|
)
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
Repayment of notes payable
|
|
|
(41,904
|
)
|
|
|
(24,777
|
)
|
Proceeds from stock options exercised
|
|
|
1,675
|
|
|
|
–
|
|
Repayments of finance leases
|
|
|
(10,389
|
)
|
|
|
(8,771
|
)
|
Payment of deferred cash consideration
|
|
|
–
|
|
|
|
(200,000
|
)
|
Net cash used in financing activities
|
|
|
(50,618
|
)
|
|
|
(233,548
|
)
|
|
|
|
|
|
|
|
|
|
Net decrease in cash
|
|
|
(592,303
|
)
|
|
|
(1,024,004
|
)
|
Cash at beginning of year
|
|
|
2,924,627
|
|
|
|
3,092,813
|
|
Cash at end of year
|
|
$
|
2,332,324
|
|
|
$
|
2,068,809
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
46,281
|
|
|
$
|
50,949
|
|
Cash paid for taxes
|
|
$
|
50
|
|
|
$
|
303
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Non-Cash Information:
|
|
|
|
|
|
|
|
|
Lease assets recorded upon adoption of ASC 842
|
|
$
|
–
|
|
|
$
|
3,648,582
|
|
Lease liabilities recorded upon adoption of ASC 842
|
|
$
|
–
|
|
|
$
|
3,729,341
|
|
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
FORWARD INDUSTRIES,
INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 OVERVIEW
Business
Forward
Industries, Inc. (“Forward”, “we” or the “Company”) is a fully integrated design,
development and manufacturing solution provider for top tier medical and technology customers worldwide. As a result of the
continued expansion of our design development capabilities through our wholly-owned subsidiaries, we are now able to
introduce proprietary products to the market from concepts brought to us from a number of different sources, both inside and
outside the Company.
Impact of COVID-19
The outbreak of
the COVID-19 virus impacted our results of operations. While the most significant impact was realized in Fiscal 2020, the
virus had a less significant effect on our results of operations for the first quarter of Fiscal 2021. The business shutdowns
resulting from the pandemic disrupted our supply chain and the manufacture or shipment of our products and have delayed the
rollout of our smart-enabled retail products to big box retail stores. Additionally, demand for our design and development
services was reduced or delayed in response to the pandemic. While revenues for the three months ended December 31, 2020
increased as compared to the three months ended December 31, 2019, they were lower than anticipated due to the impact of
COVID-19 and the resulting economic conditions. The impact of lower than anticipated revenue was partially offset by a
reduction in certain selling and travel related expenses resulting from government mandated stay-at-home orders and travel
restrictions.
The economy
started to open in certain jurisdictions where the virus was considered under control. However, there continue to be areas
with increased rates of infection that could cause government officials to enact more restrictions on how businesses operate.
The future impacts of the pandemic and any resulting economic impact are largely unknown and could be significant. It is
possible that the pandemic, the measures taken by the governments of countries affected and the resulting economic impact may
negatively impact our results of operations, cash flows and financial position in future periods as well as that of our
customers, including their ability to pay for our services and choosing to allocate their budgets to new or existing projects
which may or may not require our services. The long-term financial impact on our business cannot be reasonably estimated at
this time. As a result, the effects of COVID-19 may not be fully reflected in our financial results until future periods.
Refer to “Part II, Item 1A — Risk Factors” for a description of the material risks that the Company currently faces in connection with COVID-19.
Until a vaccine and
treatment are widely available, we expect business conditions to remain challenging. In response to these challenges, we
will continue to focus on those factors that we can control: closely managing and controlling our expenses; aligning our design
and development schedules with demand in a proactive manner as there are changes in market conditions to minimize our cash operating
costs; and pursuing further improvements in the productivity and effectiveness of our development, selling and administrative activities.
NOTE 2 ACCOUNTING
POLICIES
Basis of Presentation
The accompanying
condensed consolidated financial statements include the accounts of Forward Industries, Inc. and all of its subsidiaries:
Forward Industries (IN), Inc. (“Forward US”), Forward Industries (Switzerland) GmbH (“Forward
Switzerland”), Forward Industries UK Limited (“Forward UK”), Intelligent Product Solutions, Inc.
(“IPS”) and Kablooe, Inc. (“Kablooe”). The terms “Forward”, “we” or the
“Company” as used throughout this document are used to indicate Forward Industries, Inc. and all of its
subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.
FORWARD INDUSTRIES,
INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The acquisition
of Kablooe took place in August 2020 and its results of operations have been included in our condensed consolidated financial
statements since the acquisition date. Accordingly, our results of operations for the three months ended December 31, 2020
include Kablooe’s results of operations, while our results of operations for the three months ended December 31, 2019
do not. Key terms of the acquisition are contained in our Form 10-K filed with the Securities and Exchange Commission on
December 17, 2020.
In the opinion of
management, the accompanying condensed consolidated financial statements presented in this Quarterly Report on Form 10-Q reflect
all normal recurring adjustments necessary to present fairly the financial position and results of operations and cash flows for
the interim periods presented herein, but are not necessarily indicative of the results of operations for the year ending September
30, 2021. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated
financial statements included in its Annual Report on Form 10-K for the fiscal year ended September 30, 2020, and with the disclosures
and risk factors presented therein. The September 30, 2020 condensed consolidated balance sheet has been derived from the audited
consolidated financial statements. Certain dollar amounts and percentages have been rounded to their approximate value.
For the three months
ended December 31, 2020, the Company generated net income of $1,199,000, and used $511,000 of cash flow in operating activities.
The Company has an accumulated deficit of $11,896,000 at December 31, 2020. We believe our existing cash balance and working capital
will be sufficient to meet our liquidity needs at least through February 28, 2022.
Accounting Estimates
The preparation of
the Company’s condensed consolidated financial statements in conformity with accounting principles generally accepted in
the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated
financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ
from those estimates and assumptions.
Revenue Recognition
Distribution Segment
The Company generally
recognizes revenue in its distribution segment when: (i) finished goods are shipped to our distribution customers (in general,
these conditions occur at either point of shipment or point of destination, depending on the terms of sale, i.e., transfer of control);
(ii) there are no other deliverables or performance obligations; and (iii) there are no further obligations to the customer after
title to the goods has transferred. When the Company receives consideration before achieving the criteria previously mentioned,
it records a contract liability, which is classified as a component of deferred income in the accompanying condensed consolidated
balance sheets. The distribution segment had no contract liabilities at December 31, 2020. Contract liabilities at September 30,
2020 were $75,000 for the distribution segment.
Design Segment
The Company applies
the “cost to cost” and “right to invoice” methods of revenue recognition to the contracts with customers
in the design segment. The design segment typically engages in two types of contracts: (i) time and material and (ii) fixed price
contracts. The Company recognizes revenue over time on its time and material contracts utilizing a “right to invoice”
method. Revenues from fixed price contracts that require performance of services that are not related to the production of tangible
assets are recognized by using cost inputs to measure progress toward the completion of its performance obligations, or the “cost
to cost” method. Revenues from fixed price contracts that contain specific deliverables are recognized when the performance
obligation has been satisfied or the transfer of goods to the customer has been completed and accepted.
FORWARD INDUSTRIES,
INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Recognized revenues
that will not be billed until a later date, or contract assets, are recorded as an asset and classified as a component of accounts
receivable in the accompanying condensed consolidated balance sheets. Contract assets at December 31, 2020 and September 30, 2020
were $805,000 and $649,000, respectively. Contracts where collections to date have exceeded recognized revenues, or contract liabilities,
are recorded as a liability and classified as a component of deferred income in the accompanying condensed consolidated balance
sheets. Contract liabilities at December 31, 2020 and September 30, 2020 were $170,000 and $410,000, respectively, for the design
segment.
Goodwill
Goodwill represents
the future economic benefits of assets acquired in a business combination that are not individually identified or separately recognized.
The Company’s goodwill resulted from its acquisitions of IPS in January 2018 and Kablooe in August 2020.
The Company reviews
goodwill for impairment at least annually, or more often if triggering events occur. The Company has two reporting units with goodwill
(IPS and Kablooe) and we perform our annual goodwill impairment test on September 30, the end of the fiscal year, or upon the occurrence
of a triggering event. The Company has the option to perform a qualitative assessment to determine if an impairment is more likely
than not to have occurred. If the Company can support the conclusion that it is not more likely than not that the fair value of
a reporting unit is less than its carrying amount, then the Company would not need to perform the impairment test for the reporting
unit. If the Company cannot support such a conclusion or does not elect to perform the qualitative assessment, then the Company
will compare the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting
unit exceeds its carrying value, no impairment charge is recognized. If the fair value of the reporting unit is less than its carrying
value, an impairment charge will be recognized for the amount by which the reporting unit’s carrying amount exceeds its fair
value. A significant amount of judgment is required in performing goodwill impairment tests including estimating the fair value
of a reporting unit and the implied fair value of goodwill. Based on management’s evaluation, there were no impairments to
goodwill at September 30, 2020 and there were no triggering events leading to an interim impairment analysis at December 31, 2020.
Intangible Assets
Intangible assets
include trademarks and customer relationships, which resulted from the acquisitions of IPS in Fiscal 2018 and Kablooe in Fiscal
2020 and are recorded based on their estimated fair value determined in conjunction with the purchase price allocations. These
intangible assets are amortized over their estimated useful lives, which are periodically evaluated for reasonableness.
Our intangible assets
are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. In assessing the recoverability of our intangible assets, we must make estimates and assumptions regarding future
cash flows and other factors to determine the fair value of the respective assets. These estimates and assumptions could have a
significant impact on whether an impairment charge is recognized and the magnitude of any such charge. Fair value estimates are
made at a specific point in time, based on relevant information. These estimates are subjective in nature and involve uncertainties
and matters of significant judgments and therefore cannot be determined with precision. Changes in assumptions could significantly
affect the estimates. If these estimates or material related assumptions change in the future, we may be required to record impairment
charges related to our intangible assets. Management evaluated and concluded that there were no impairments of intangible assets
at December 31, 2020.
FORWARD INDUSTRIES,
INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes
The Company recognizes
future tax benefits and liabilities measured at enacted rates attributable to temporary differences between financial statement
and income tax bases of assets and liabilities and to net tax operating loss carryforwards to the extent that realization of these
benefits is more likely than not. At December 31, 2020, there was no change to our assessment that a full valuation allowance was
required against all net deferred tax assets as it is not probable that such deferred tax assets will be realized. Accordingly,
any deferred tax provision or benefit was offset by an equal and opposite change to the valuation allowance. No current book income
tax provision was recorded against book net income due to the existence of significant net operating loss carryforwards.
During the three
months ended December 31, 2020, the Company’s application for forgiveness of debt was submitted and approved for their
loan received as part of the Payroll Protection Program (“PPP loan”) pursuant to the U.S. Coronavirus Aid,
Relief, and Economic Security Act (“CARES Act”). The aggregate loan principal amount forgiven was $1,357,000. The
total amount forgiven will not be recognized as taxable income pursuant to the CARES Act. Pursuant to the Consolidated
Appropriations Act, 2021, which was enacted by Congress and signed into law by the President on December 27, 2020, all
expenses utilizing funds from PPP loans will be deductible against taxable income.
Fair Value Measurements
We perform fair value
measurements in accordance with the guidance provided by ASC 820, “Fair Value Measurement.” ASC 820 defines fair value
as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded
at their fair values, we consider the principal or most advantageous market in which we would transact and consider assumptions
that market participants would use when pricing the assets or liabilities, such as inherent risk, transfer restrictions, and risk
of nonperformance.
ASC 820 establishes
a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs
when measuring fair value. An asset's or liability's categorization within the fair value hierarchy is based upon the lowest level
of input that is significant to the fair value measurement. ASC 820 establishes three levels of inputs that may be used to measure
fair value:
|
·
|
Level 1: quoted prices in active markets for identical assets or liabilities;
|
|
·
|
Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or
|
|
·
|
Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair values of the assets or liabilities.
|
FORWARD INDUSTRIES,
INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Leases
Lease
assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term, using
the Company’s incremental borrowing rate commensurate with the lease term, since the Company’s lessors do not provide
an implicit rate, nor is one readily available. The Company has certain leases that may include an option to renew and when it
is reasonably probable to exercise such option, the Company will include the renewal option terms in determining the lease asset
and lease liability. Lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities
represent the Company’s obligation to make lease payments arising from the lease. Lease expense for lease payments is recognized
on a straight-line basis over the lease term. Operating lease assets are shown as right of use assets and finance lease assets
are a component of property and equipment on the condensed consolidated balance sheets. The current and long-term portions of operating
and finance lease liabilities are shown separately as such on the condensed consolidated balance sheets.
Business Combinations
The Company allocates
the fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their
estimated fair values. The excess of the purchase consideration over the fair values of these identifiable assets and liabilities
is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, the Company makes significant
estimates and assumptions, especially with respect to intangible assets.
Critical estimates
in valuing certain intangible assets include, but are not limited to, future expected cash flows from customer relationships and
developed technology, discount rates and terminal values. Our estimate of fair value is based upon assumptions believed to be reasonable,
but actual results may differ from estimates. Other estimates associated with the accounting for acquisitions may change as additional
information becomes available regarding the assets acquired and liabilities assumed.
Recent Accounting
Pronouncements
In August 2018, the
Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASU”) 2018-13,
“Fair Value Measurement - Disclosure Framework (Topic 820)” to improve the disclosure requirements on fair value measurements.
The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15,
2019. Early adoption is permitted for any removed or modified disclosures. The Company adopted this guidance in the first quarter
of Fiscal 2021 with no material impact to its condensed consolidated financial statements.
In November 2019,
the FASB issued ASU 2019-08, “Compensation – Stock Compensation (Topic 718) and Revenue from Contracts with Customers
(Topic 606)” to provide guidance for share-based payment awards granted to a customer in conjunction with selling goods or
services accounted for under Topic 606. The pronouncement is effective for fiscal years beginning after December 15, 2019 and interim
periods within those fiscal years. The Company adopted this guidance in the first quarter of Fiscal 2021 with no material impact
to its condensed consolidated financial statements.
In November 2019,
the FASB issued ASU 2019-11, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses.”
ASU 2019-11 is an accounting pronouncement that provides clarity to and amends earlier guidance on this topic and would be effective
concurrently with the adoption of such earlier guidance. This pronouncement is effective for fiscal years beginning after December
15, 2022 and interim periods within those fiscal years. The Company is currently evaluating the effects of this pronouncement on
its condensed consolidated financial statements.
FORWARD INDUSTRIES,
INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In
August 2018, the FASB issued ASU 2018-15 “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic
350-40)” addressing customers’ accounting for implementation costs incurred
in a cloud computing arrangement that is a service contract, which requires customers to apply internal-use software guidance
to determine the implementation costs that are able to be capitalized. Capitalized implementation costs are required to be
amortized over the term of the arrangement, beginning when the cloud computing arrangement is ready for its intended use. The
effective date of the new guidance for public companies is for fiscal years beginning after December 15, 2019 and
interim periods within those fiscal years. Early adoption is permitted. The Company adopted this guidance in the
first quarter of Fiscal 2021 with no material impact to its condensed consolidated financial statements.
In December 2019,
the FASB issued ASU 2019-12 “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This guidance
removes certain exceptions to the general principles in Topic 740 and provides consistent application of U.S. GAAP by clarifying
and amending existing guidance. The effective date of the new guidance for public companies is for fiscal years beginning after
December 15, 2020 and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating
the timing of adoption and impact of the updated guidance on its condensed consolidated financial statements.
NOTE 3 INTANGIBLE
ASSETS
The Company’s intangible assets resulted
from the acquisitions of Kablooe in August 2020 and IPS in January 2018 and are all held under the design segment of our business.
Amortization expense related to intangible assets was $53,000 and $41,000 for the three months ended December 31, 2020 and 2019,
respectively, which is included in general and administrative expenses on the condensed consolidated statements of operations.
The Company’s intangible assets consist
of the following:
|
|
December 31, 2020
|
|
|
September 30, 2020
|
|
|
|
Trademark
|
|
|
Customer Relationships
|
|
|
Total Intangible Assets
|
|
|
Trademark
|
|
|
Customer Relationships
|
|
|
Total Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
$
|
585,000
|
|
|
$
|
1,390,000
|
|
|
$
|
1,975,000
|
|
|
$
|
585,000
|
|
|
$
|
1,390,000
|
|
|
$
|
1,975,000
|
|
Less accumulated amortization
|
|
|
(96,000
|
)
|
|
|
(401,000
|
)
|
|
|
(497,000
|
)
|
|
|
(86,000
|
)
|
|
|
(358,000
|
)
|
|
|
(444,000
|
)
|
Net carrying amount
|
|
$
|
489,000
|
|
|
$
|
989,000
|
|
|
$
|
1,478,000
|
|
|
$
|
499,000
|
|
|
$
|
1,032,000
|
|
|
$
|
1,531,000
|
|
At December 31, 2020, estimated amortization
expense for the Company’s intangible assets for each of the next five years and thereafter is as follows:
Remainder of Fiscal 2021
|
|
$
|
160,000
|
Fiscal 2022
|
|
|
213,000
|
Fiscal 2023
|
|
|
213,000
|
Fiscal 2024
|
|
|
213,000
|
Fiscal 2025
|
|
|
213,000
|
Thereafter
|
|
|
466,000
|
Total
|
|
$
|
1,478,000
|
FORWARD INDUSTRIES,
INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 FAIR VALUE
MEASUREMENTS
The
deferred consideration of $60,000 and $90,000 at December 31, 2020 and September 30, 2020, respectively, represents the fair value
of the contingent earnout consideration related to the acquisition of Kablooe. The current and non-current portions of this liability
are shown in the corresponding categories on the condensed consolidated balance sheets in each period presented. During the three
months ended December 31, 2020, the Company reduced this liability from $90,000 to $60,000 based on the low likelihood of Kablooe
reaching the first year’s earnings target.
The following table
presents the placement in the fair value hierarchy and summarizes the changes in fair value of the aforementioned liability for
the three months ended December 31, 2020:
|
|
|
|
|
|
|
Fair
value measurement at reporting date using
|
|
|
|
|
|
|
|
|
Quoted
prices in active markets for identical assets
|
|
|
|
Significant
other observable inputs
|
|
|
|
Significant
unobservable inputs
|
|
|
|
|
Balance
|
|
|
|
(Level
1)
|
|
|
|
(Level
2)
|
|
|
|
(Level
3)
|
|
September 30, 2020
|
|
$
|
90,000
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
90,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease
in fair value of Kablooe contingent earnout consideration
|
|
|
(30,000
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
(30,000
|
)
|
December 31, 2020
|
|
$
|
60,000
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
60,000
|
|
NOTE 5 SEGMENT INFORMATION
The Company has two
reportable segments: distribution and design. The distribution segment sources and distributes carrying cases and other accessories
for medical monitoring and diagnostic kits and a variety of other portable electronic and non-electronic devices as well as smart-enabled and other products. The design segment provides a full spectrum of hardware and software product design and engineering
services. We measure the performance of our operating segments based upon revenue and operating income or loss. Operating income/(loss)
and net income/(loss) before income taxes are shown in the table below:
FORWARD INDUSTRIES,
INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
|
For the Three Months Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Revenues, net
|
|
|
|
|
|
|
|
|
Distribution
|
|
$
|
5,606,000
|
|
|
$
|
4,696,000
|
|
Design
|
|
|
4,112,000
|
|
|
|
3,697,000
|
|
Total revenues, net
|
|
$
|
9,718,000
|
|
|
$
|
8,393,000
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
Distribution
|
|
$
|
4,880,000
|
|
|
$
|
4,093,000
|
|
Design
|
|
|
2,575,000
|
|
|
|
2,580,000
|
|
Total cost of sales
|
|
$
|
7,455,000
|
|
|
$
|
6,673,000
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from operations
|
|
|
|
|
|
|
|
|
Distribution
|
|
$
|
(344,000
|
)
|
|
$
|
(443,000
|
)
|
Design
|
|
|
177,000
|
|
|
|
414,000
|
|
Total income/(loss) from operations
|
|
$
|
(167,000
|
)
|
|
$
|
(29,000
|
)
|
|
|
|
|
|
|
|
|
|
Other (income)/expense, net
|
|
|
|
|
|
|
|
|
Distribution
|
|
$
|
(1,000
|
)
|
|
$
|
34,000
|
|
Design
|
|
|
(1,365,000
|
)
|
|
|
19,000
|
|
Total other (income)/expense, net
|
|
$
|
(1,366,000
|
)
|
|
$
|
53,000
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before income taxes
|
|
|
|
|
|
|
|
|
Distribution
|
|
$
|
(343,000
|
)
|
|
$
|
(477,000
|
)
|
Design
|
|
|
1,542,000
|
|
|
|
395,000
|
|
Total income/(loss) before income taxes
|
|
$
|
1,199,000
|
|
|
$
|
(82,000
|
)
|
The following table presents total assets
by operating segment:
|
|
December 31,
2020
|
|
|
September 30,
2020
|
|
Distribution
|
|
$
|
7,808,000
|
|
|
$
|
8,289,000
|
|
Design
|
|
|
10,801,000
|
|
|
|
11,067,000
|
|
Total
|
|
$
|
18,609,000
|
|
|
$
|
19,356,000
|
|
FORWARD INDUSTRIES,
INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 SHARE-BASED
COMPENSATION
Stock Options
There
were no options granted during the three months ended December 31, 2020 or 2019.
During
the three months ended December 31, 2020, the Company issued 2,500 shares of its common stock pursuant to the exercise of stock
options at an exercise price of $0.67 per share for aggregate cash proceeds of $2,000.
The
Company recognized compensation expense for stock option awards of $41,000 and $33,000 during the three months ended December 31,
2020 and 2019, respectively, in its condensed consolidated statements of operations.
At
December 31, 2020, there was $34,000 of total unrecognized compensation cost related to nonvested stock option awards that is expected
to be recognized over a weighted average period of 0.6 years.
NOTE 7 EARNINGS/(LOSS)
PER SHARE
Basic earnings/(loss)
per share data for each period presented is computed using the weighted average number of shares of common stock outstanding during
each such period. Diluted earnings/(loss) per share data is computed using the weighted average number of common and dilutive common
equivalent shares outstanding during each period. Dilutive common-equivalent shares consist of shares that would be issued upon
the exercise of stock options and warrants, computed using the treasury stock method. A reconciliation of basic and diluted earnings/(loss)
per share is as follows:
|
|
For the Three Months Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Numerator:
|
|
|
|
|
|
|
Net income/(loss)
|
|
$
|
1,199,000
|
|
|
$
|
(82,000
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
9,886,000
|
|
|
|
9,534,000
|
|
Dilutive common share equivalents
|
|
|
154,000
|
|
|
|
–
|
|
Weighted average diluted shares outstanding
|
|
|
10,040,000
|
|
|
|
9,534,000
|
|
|
|
|
|
|
|
|
|
|
Earnings/(loss) per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.12
|
|
|
$
|
(0.01
|
)
|
Diluted
|
|
$
|
0.12
|
|
|
$
|
(0.01
|
)
|
FORWARD INDUSTRIES,
INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following securities
were excluded from the calculation of diluted earnings/(loss) per share in each period because their inclusion would have been
anti-dilutive:
|
|
For the Three Months Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Options
|
|
|
136,000
|
|
|
|
811,000
|
|
Warrants
|
|
|
151,000
|
|
|
|
151,000
|
|
Total potentially dilutive shares
|
|
|
287,000
|
|
|
|
962,000
|
|
NOTE 8 CONCENTRATIONS
Concentration of
Revenues and Accounts Receivable
For the three months
ended December 31, 2020 and 2019, the Company had significant customers whose individual percentage of the Company’s total
revenues was 10% or greater. The concentrations of revenues and accounts receivable for each reportable segment are as follows:
Distribution Segment Revenues Concentration
|
|
For the Three Months Ended
December 31,
|
|
|
|
|
2020
|
|
|
|
2019
|
|
Customer A
|
|
|
28%
|
|
|
|
34%
|
|
Customer B
|
|
|
16%
|
|
|
|
13%
|
|
Customer C
|
|
|
23%
|
|
|
|
31%
|
|
Customer D
|
|
|
12%
|
|
|
|
5%
|
|
Totals
|
|
|
79%
|
|
|
|
83%
|
|
Design Segment Revenues Concentration
|
|
For the Three Months Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Customer 1
|
|
|
11%
|
|
|
|
10%
|
|
Customer 2
|
|
|
12%
|
|
|
|
10%
|
|
Customer 3
|
|
|
8%
|
|
|
|
23%
|
|
Customer 5
|
|
|
1%
|
|
|
|
12%
|
|
Customer 6
|
|
|
15%
|
|
|
|
0%
|
|
Customer 7
|
|
|
11%
|
|
|
|
0%
|
|
Total
|
|
|
58%
|
|
|
|
55%
|
|
FORWARD INDUSTRIES,
INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2020
and September 30, 2020, concentrations of accounts receivable with significant customers representing 10% or greater of segment
accounts receivable were as follows:
Distribution Segment Accounts Receivable
Concentration
|
|
December 31,
2020
|
|
|
September 30,
2020
|
|
Customer A
|
|
|
27%
|
|
|
|
23%
|
|
Customer B
|
|
|
20%
|
|
|
|
22%
|
|
Customer C
|
|
|
22%
|
|
|
|
20%
|
|
Customer D
|
|
|
20%
|
|
|
|
17%
|
|
Totals
|
|
|
89%
|
|
|
|
82%
|
|
Design Segment Accounts Receivable
Concentration
|
|
December 31,
2020
|
|
|
September 30,
2020
|
|
Customer 1
|
|
|
21%
|
|
|
|
24%
|
|
Customer 4
|
|
|
15%
|
|
|
|
14%
|
|
Customer 5
|
|
|
3%
|
|
|
|
10%
|
|
Customer 7
|
|
|
14%
|
|
|
|
8%
|
|
Totals
|
|
|
53%
|
|
|
|
56%
|
|
NOTE 9 RELATED
PARTY TRANSACTIONS
Buying Agency and
Supply Agreement
The Company has
a Buying Agency and Supply Agreement (the “Supply Agreement”) with Forward Industries Asia-Pacific Corporation
(“Forward China”). The Supply Agreement provides that, upon the terms and subject to the conditions set forth
therein, Forward China will act as the Company’s exclusive buying agent and supplier of Products (as defined in the
Supply Agreement) in the Asia-Pacific region. The Company purchases products at Forward China’s cost and
also pays to Forward China a monthly service fee equal to the sum of: (i) $100,000 and (ii) 4% of “Adjusted Gross
Profit”, which is defined as the selling price less the cost from Forward China. The Supply Agreement expires October
22, 2023. Terence Wise, Chief Executive Officer and Chairman of the Company, is the owner of Forward China. In addition,
Jenny P. Yu, a Managing Director of Forward China, beneficially owns more than 5% of the Company’s common stock. The
Company recorded service fees to Forward China of $343,000 and $338,000 during the three months ended December 31, 2020 and
2019, respectively, which are included as a component of cost of sales upon sales of the related
products.
The Company has a
separate agreement with Forward China to address the potential impact of customers sourcing directly from Forward China. In the
event a customer bypasses the services of the Company and does business directly with Forward China, Forward China will pay a commission
of 50% of the net revenue, less direct costs, generated from the products or services sold. No commissions have been received under
this agreement.
FORWARD INDUSTRIES,
INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company made prepayments
to Forward China for inventory purchases of $14,000 and $107,000 at December 31, 2020 and September 30, 2020, respectively, which
is included in prepaid expenses and other current assets on the condensed consolidated balance sheets.
Promissory Note
On January 18, 2018,
the Company issued a $1,600,000 promissory note payable to Forward China to fund the acquisition of IPS. The promissory note bears
an interest rate of 8% per annum and had an original maturity date of January 18, 2019. Monthly interest payments commenced on
February 18, 2018. The Company incurred and paid $32,000 in interest expense associated with this note in both the three months
ended December 31, 2020 and 2019. The maturity date of this note was extended to December 31,
2021.
Related Party Sales
The
Company’s design division provided services to a customer whose former Chief Operating and Financial Officer and equity
owner is an immediate family member of a director on the Company’s Board of Directors. The director is a member of the
Board’s Audit, Governance and Compensation Committees. The Company sold design services to this customer of $38,000 for
the three months ended December 31, 2019. There were no sales to this customer for the three months ended December 31,
2020.
Related Party Activity
During the three months
ended December 31, 2020, the Company began selling smart-enabled furniture, which is sourced by Forward China and sold in the U.S.
under the Koble brand name. The Koble brand is owned by The Justwise Group Ltd., a company owned by Terrence Wise, Chief Executive
Officer and Chairman of the Company. The Company recognized revenues from the sale of Koble products in the U.S. of $186,000 during
the three months ended December 31, 2020.
NOTE 10 LEGAL
PROCEEDINGS
On August 21,
2020, IPS was named a third-party defendant in a patent dispute claim currently pending in the U.S. District Court for the
Eastern District of New York. The complaint, which contains no specific amount of claimed monetary damages, asserts that
certain intellectual property was misappropriated by IPS and one of its former employees. IPS denies the allegations,
believes the action is without merit and intends to vigorously defend it. The Company received permission from the
District Court to file a motion to dismiss the complaint and filed such motion on December 14, 2020.
From time to time,
the Company may become a party to other legal actions or proceedings in the ordinary course of its business. At December 31, 2020,
there were no such actions or proceedings, either individually or in the aggregate, that, if decided adversely to the Company’s
interests, the Company believes would be material to its business.
NOTE 11 LINE
OF CREDIT
The Company,
specifically IPS, has a $1,300,000 revolving line of credit with a bank which was renewed at the discretion of the lender on
August 5, 2020. The line of credit has a maturity date of May 31, 2021, is guaranteed by the Company and is secured by all of
IPS’ assets. The interest rate on the line of credit is 0.75% above The Wall Street Journal prime rate. The
effective interest rate was 4.0% at both December 31, 2020 and September 30, 2020. At December 31, 2020, the Company had
$300,000 available under the line of credit. The Company is subject to certain debt-service ratio requirements which are
measured annually. At September 30, 2020, the Company was in violation of the required debt-service ratio covenants but was
granted a waiver of the violation from the lender.
FORWARD INDUSTRIES,
INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 DEBT
On April 18,
2020, the Company entered into a loan in an aggregate principal amount of $1,357,000 under the Paycheck Protection Program of
the CARES Act. The loan was unsecured, bore interest at a rate of 1% per annum, and was scheduled to mature on April 18,
2022. We accounted for these proceeds as a loan and the current and long-term portions of $827,000 and $530,000,
respectively, were included in the corresponding categories of notes payable on the condensed consolidated balance sheet at
September 30, 2020. In October 2020, the Company filed for forgiveness of this loan and in December 2020, the Small Business
Administration approved our forgiveness request for this loan. The forgiveness has been accounted for as an extinguishment of
debt and the resulting gain has been recorded as forgiveness of note payable on the condensed consolidated statement of
operations for the three months ended December 31, 2020.
In connection with
the acquisition of Kablooe, the Company assumed a loan payable with a principal amount of $170,000. The loan matures in August
2021, bears interest at a rate of 6.0% per annum and is secured by all of Kablooe’s assets. Interest and principal payments
of $15,000 are payable monthly until maturity. The outstanding balance at December 31, 2020 and September 30, 2020 was $115,000
and $156,000, respectively.
NOTE 13 MOONI
AGREEMENT
On January 29, 2019,
the Company entered into a three-year Distribution Agreement (the “Agreement”) with Mooni International AB (“Mooni”)
and its owner. In accordance with the Agreement, the Company (i) was appointed as the exclusive distributor of Mooni's current
and future products (including future products developed or offered by Mooni and/or the owner) in North America, (ii) subject to
certain repayment requirements, paid $400,000 to Mooni, and (iii) was granted an option to purchase a controlling interest of Mooni
at a valuation not to exceed $5 million which, if exercised, would have been effective on the 12-month anniversary of the effective
date of the Agreement. This option was not exercised and therefore expired. Additionally, Forward China, a company owned by Terence
Wise, the Company's Chairman and Chief Executive Officer, was named the designated supplier under the Agreement.
The Company generated
revenues from this agreement of $202,000 and $141,000 in the three months ended December 31, 2020 and 2019, respectively. The current
and long-term portions of the unamortized fee of $133,000 and $11,000, respectively, at December 31, 2020 and $133,000 and $45,000,
respectively, at September 30, 2020, are included in prepaid expenses and other current assets and other assets, respectively,
in the accompanying condensed consolidated financial statements. Amortization of the cost for both the three months ended December
31, 2020 and 2019 of $33,000 is included in sales and marketing expenses in the accompanying condensed consolidated statements
of operations.
NOTE 14 LEASES
The Company’s
operating leases are primarily for corporate, sales and administrative office space. Total operating lease expense was $153,000
and $132,000 for the three months ended December 31, 2020 and 2019, respectively, and is recorded in general and administrative
expenses on the condensed consolidated statements of operations.
The Company leases
certain computer equipment through various finance lease agreements expiring through July 2022. The net book value of assets under
finance leases was $21,000 and $23,000 at December 31, 2020 and September 30, 2020, respectively. Interest expense related to assets
under finance leases was $1,000 for both the three months ended December 31, 2020 and 2019.
FORWARD INDUSTRIES,
INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Additional information
related to operating and finance leases at December 31, 2020 and September 30, 2020 is as follows:
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2020
|
|
Weighted Average Remaining Lease Term (Yrs):
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
|
10.7
|
|
|
|
10.9
|
|
Finance Leases
|
|
|
0.7
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Discount Rate:
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
|
5.7%
|
|
|
|
5.7%
|
|
Finance Leases
|
|
|
5.8%
|
|
|
|
5.8%
|
|
At December 31, 2020,
future minimum payments under non-cancellable operating and finance leases were as follows:
|
|
Operating Leases
|
|
|
Finance Leases
|
|
Remainder of Fiscal 2021
|
|
$
|
347,000
|
|
|
$
|
15,000
|
|
Fiscal 2022
|
|
|
430,000
|
|
|
|
10,000
|
|
Fiscal 2023
|
|
|
426,000
|
|
|
|
–
|
|
Fiscal 2024
|
|
|
433,000
|
|
|
|
–
|
|
Fiscal 2025
|
|
|
396,000
|
|
|
|
–
|
|
Thereafter
|
|
|
2,804,000
|
|
|
|
–
|
|
Total future minimum lease payments
|
|
|
4,836,000
|
|
|
|
25,000
|
|
Less imputed interest
|
|
|
(1,277,000
|
)
|
|
|
(4,000
|
)
|
Present value of lease liabilities
|
|
$
|
3,559,000
|
|
|
$
|
21,000
|
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
The following discussion
and analysis should be read in conjunction with our unaudited condensed consolidated financial statements, and the notes thereto,
and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial
statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020. The
following discussion and analysis compares our consolidated results of operations for the three months ended December 31, 2020
(the “2021 Quarter”) with those for the three months ended December 31, 2019 (the “2020 Quarter”).
All dollar amounts and percentages presented herein have been rounded to approximate values.
Cautionary Note Regarding Forward-Looking
Statements
This report contains
“forward-looking statements”, as such term is used within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements include, among other things, statements regarding:
|
·
|
expectations regarding the impact of the pandemic on our business,
|
|
·
|
expectations regarding the length of the pandemic’s business disruption,
|
|
·
|
expectations regarding revenues,
|
|
·
|
plans regarding the repayment of debt, and
|
|
·
|
beliefs regarding our capital
|
as well as other statements regarding our
future operations, financial condition and prospects and business strategies. Forward-looking statements can be identified by words
such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,”
“expects,” “predicts,” “projects,” “will be” and “will continue” and
similar expressions. Forward-looking statements are based on our current expectations and assumptions regarding our business, the
economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties,
risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated
by the forward-looking statements. We caution you therefore against relying on any of these forward-looking statements. They are
neither statements of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual
results to differ materially from those in the forward-looking statements include the failure to receive material orders, our ability
to successfully market and sell products that we develop, the effects of the COVID-19 outbreak, including levels of consumer, business
and economic confidence generally, the duration of the COVID-19 outbreak and severity of such outbreak, the pace of recovery following
the COVID-19 outbreak, the effect on our supply chain, our ability to implement cost containment; and the adverse effects of the
COVID-19 outbreak on our business or the market price of our common stock, failure to diversify the industries in which we
sell our products, potential imposed tariffs or other restrictions placed on imports by the U.S. government, and continued pricing
pressure on our products. Further information on our risk factors is contained in our filings with the SEC, including our Form
10-K for the year ended September 30, 2020. Any forward-looking statement made by us speaks only as of the date on which it is
made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for
us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of
new information, future developments or otherwise, except as may be required by law.
Business Overview
Forward Industries,
Inc. is a fully integrated design, development and manufacturing solution provider for top tier medical and technology customers
worldwide. As a result of the continued expansion of our design development capabilities through our wholly-owned subsidiaries,
IPS and Kablooe, we are now able to introduce proprietary products to the market from concepts brought to us from a number of different
sources, both inside and outside the Company.
The acquisition
of Kablooe took place in August 2020 and its results of operations have been included in our condensed consolidated financial
statements since the acquisition date. Accordingly, our results of operations for the 2021 Quarter include Kablooe’s
results of operations, while our results of operations for the 2020 Quarter do not. Key terms of the acquisition are
contained in our Form 10-K filed with the Securities and Exchange Commission on December 17, 2020.
The future impacts
of the COVID-19 pandemic and any resulting economic impact are largely unknown and could be significant. It is possible that the
COVID-19 pandemic, the measures taken by the governments of countries affected and the resulting economic impact may continue to
negatively impact our results of operations, cash flows and financial position in future periods as well as that of our customers,
including their ability to pay for our services and choosing to allocate their budgets to new or existing projects which may or
may not require our services. The long-term financial impact on our business cannot be reasonably estimated at this time. As a
result, the effects of COVID-19 may not be fully reflected in our financial results until future periods.
Until a vaccine
and treatment are widely available, we expect business conditions to remain challenging. In response to these challenges,
we will continue to focus on those factors that we can control: closely managing and controlling our expenses; aligning our design
and development schedules with demand in a proactive manner as there are changes in market conditions to minimize our cash operating
costs; pursuing further improvements in the productivity and effectiveness of our development, selling and administrative activities
and, where appropriate, taking advantage of opportunities to enhance our business growth and strategy.
Refer to “Part
II, Item 1A — Risk Factors” for
a description of the material risks that the Company currently faces in connection with COVID-19.
Variability of Revenues
and Results of Operations
A significant portion
of our revenue is concentrated with several large customers, some of which are the same and some of which change over time. Orders
from some of these customers can be highly variable, with short lead times, which can cause our quarterly revenues, and consequently
our results of operations, to vary over a relatively short period of time.
Critical Accounting
Policies and Estimates
We discuss the material
accounting policies that are critical in making the estimates and judgments in our Annual Report on Form 10-K for the fiscal year
ended September 30, 2020, under the caption “Management’s Discussion and Analysis—Critical Accounting Policies
and Estimates”. There has been no material change in critical accounting policies or estimates during the period covered
by this report.
Recent Accounting Pronouncements
For information on
recent accounting pronouncements and impacts, see Note 2 to the unaudited condensed consolidated financial statements.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2020 COMPARED TO THE THREE MONTHS ENDED DECEMBER 31, 2019
Net Income/(Loss)
Distribution Segment
Distribution segment
net loss was $343,000 in the 2021 Quarter compared to $477,000 in the 2020 Quarter. The decrease to the net loss was primarily
due to an increase in gross profit, lower general and administrative expenses, partially offset by higher sales and marketing expenses,
as reflected in the table below.
Design Segment
Design segment net
income was $1,542,000 in the 2021 Quarter compared to $395,000 in the 2020 Quarter. The net income generated was primarily driven
by the $1,357,000 forgiveness of note payable associated with the PPP loan. Higher gross profit, partially offset by higher general
and administrative expenses, also contributed to the fluctuation, as reflected in the table below:
|
|
Main
Components of Net Income/(Loss)
|
|
|
|
(amounts in thousands)
|
|
|
|
2021
Quarter
|
|
|
2020
Quarter
|
|
|
Increase
(Decrease)
|
|
|
|
Consolidated
|
|
|
Distribution
|
|
|
Design
|
|
|
Consolidated
|
|
|
Distribution
|
|
|
Design
|
|
|
Consolidated
|
|
Net revenues
|
|
$
|
9,718
|
|
|
$
|
5,606
|
|
|
$
|
4,112
|
|
|
$
|
8,393
|
|
|
$
|
4,696
|
|
|
$
|
3,697
|
|
|
$
|
1,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
2,263
|
|
|
$
|
726
|
|
|
$
|
1,537
|
|
|
$
|
1,720
|
|
|
$
|
603
|
|
|
$
|
1,117
|
|
|
$
|
543
|
|
Sales and marketing expenses
|
|
|
603
|
|
|
|
488
|
|
|
|
115
|
|
|
|
535
|
|
|
|
391
|
|
|
|
144
|
|
|
|
68
|
|
General and administrative expenses
|
|
|
1,827
|
|
|
|
582
|
|
|
|
1,245
|
|
|
|
1,214
|
|
|
|
655
|
|
|
|
559
|
|
|
|
613
|
|
Operating income/(loss)
|
|
|
(167
|
)
|
|
|
(344
|
)
|
|
|
177
|
|
|
|
(29
|
)
|
|
|
(443
|
)
|
|
|
414
|
|
|
|
(138
|
)
|
Other (income)/expense, net
|
|
|
(1,366
|
)
|
|
|
(1
|
)
|
|
|
(1,365
|
)
|
|
|
53
|
|
|
|
34
|
|
|
|
19
|
|
|
|
(1,419
|
)
|
Net income/(loss)
|
|
$
|
1,199
|
|
|
$
|
(343
|
)
|
|
$
|
1,542
|
|
|
$
|
(82
|
)
|
|
$
|
(477
|
)
|
|
$
|
395
|
|
|
$
|
1,281
|
|
Consolidated basic
and diluted earnings/(loss) per share were $0.12 and $(0.01), respectively, for the 2021 Quarter and the 2020 Quarter.
Net Revenues
Distribution Segment
Net revenues in the
distribution segment increased $910,000, or 19.4%, to $5,606,000 in the 2021 Quarter from $4,696,000 in the 2020 Quarter, the result
of an increase in both other product revenue and diabetic product line revenue. Revenues from other products increased $625,000
and revenue from diabetic products increased $285,000. In future periods, we believe other product sales will increase while diabetic
product sales will decline.
The following tables
set forth revenues by channel, product line and geographic location of our distribution segment customers for the periods indicated:
|
|
Net Revenues for the 2021 Quarter
|
|
|
|
(amounts in thousands)
|
|
|
|
Americas
|
|
|
APAC
|
|
|
EMEA
|
|
|
Total
|
|
Diabetic products
|
|
$
|
1,666
|
|
|
$
|
1,409
|
|
|
$
|
1,391
|
|
|
$
|
4,466
|
|
Other products
|
|
|
847
|
|
|
|
253
|
|
|
|
40
|
|
|
|
1,140
|
|
Total net revenues
|
|
$
|
2,513
|
|
|
$
|
1,662
|
|
|
$
|
1,431
|
|
|
$
|
5,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues for the 2020 Quarter
|
|
|
|
|
(amounts in thousands)
|
|
|
|
|
Americas
|
|
|
|
APAC
|
|
|
|
EMEA
|
|
|
|
Total
|
|
Diabetic products
|
|
$
|
1,325
|
|
|
$
|
1,618
|
|
|
$
|
1,238
|
|
|
$
|
4,181
|
|
Other products
|
|
|
297
|
|
|
|
156
|
|
|
|
62
|
|
|
|
515
|
|
Total net revenues
|
|
$
|
1,622
|
|
|
$
|
1,774
|
|
|
$
|
1,300
|
|
|
$
|
4,696
|
|
Diabetic Product Revenues
Our distribution segment
manufactures to the order of, and sells carrying cases for, blood glucose diagnostic kits directly to OEMs (or their contract manufacturers).
The OEM customer or its contract manufacturer packages our carrying cases “in box” as a custom accessory for the OEM’s
blood glucose testing and monitoring kits, or to a lesser extent, sells them through their retail distribution channels.
Revenues from diabetic
products increased $285,000, or 6.8%, to $4,466,000 in the 2021 Quarter from $4,181,000 in the 2020 Quarter. This increase was
primarily due to higher revenues from two major diabetic customers (Diabetic Products Customers D and B). The higher revenue from
these two customers was partially offset by revenue declines from other diabetic customers, which were less significant. As mentioned
above, management believes that revenues from diabetic customers will decline in future periods.
The following table
sets forth our distribution segment net revenues by diabetic products customer for the periods indicated:
|
|
(amounts in thousands)
|
|
|
|
2021
Quarter
|
|
|
2020
Quarter
|
|
|
Increase
(Decrease)
|
|
Diabetic Products Customer A
|
|
$
|
1,574
|
|
|
$
|
1,607
|
|
|
$
|
(33
|
)
|
Diabetic Products Customer B
|
|
|
901
|
|
|
|
629
|
|
|
|
272
|
|
Diabetic Products Customer C
|
|
|
1,280
|
|
|
|
1,466
|
|
|
|
(186
|
)
|
Diabetic Products Customer D
|
|
|
648
|
|
|
|
232
|
|
|
|
416
|
|
All other Diabetic Products Customers
|
|
|
63
|
|
|
|
247
|
|
|
|
(184
|
)
|
Total Diabetic Revenue
|
|
$
|
4,466
|
|
|
$
|
4,181
|
|
|
$
|
285
|
|
Revenues from diabetic
products represented 80% of our distribution segment’s net revenues in the 2021 Quarter compared to 89% in the 2020 Quarter.
Other Product Revenues
Other product revenues
include cases and protective solutions sourced and sold to OEMs for a diverse array of portable electronic and non-electronic products
(such as sporting and recreational products, bar code scanners, GPS location devices, tablets and firearms) on a made-to-order
basis that are customized to fit the products sold by our OEM customers. Other product revenues also include sales of smart-enabled
products sold through our retail distribution network.
Revenues from other
products increased $625,000 to $1,140,000 in the 2021 Quarter from $515,000 in the 2020 Quarter, due to the increase in sales of
non-medical cases and protective solutions and smart enabled products, both driven by an increase in customers and higher sales
volume. We will continue to focus on our sales and sales support teams in our continued efforts to expand and diversify our other
products customer base as well as take advantage of opportunities to source other products.
Revenues from other
products represented 20% of our net revenues in the 2021 Quarter compared to 11% of our net revenues in the 2020 Quarter.
Design Segment
Net revenues in the
design segment increased $415,000, or 11.2%, to $4,112,000 in the 2021 Quarter from $3,697,000 in the 2020 Quarter. Revenues generated
by Kablooe, which was acquired in August 2020, accounted for an increase of $447,000. The remaining variance was driven by a decline
in revenue from certain existing customers as projects were either completed or spending was reduced in response to COVID-19, partially
offset by new business from both new and existing customers. The following table sets forth our design segment net revenues by
major customers for the 2021 Quarter:
|
|
(amounts in thousands)
|
|
|
|
2021
Quarter
|
|
|
2020
Quarter
|
|
|
Increase
(Decrease)
|
|
Design Segment Customer 1
|
|
$
|
464
|
|
|
$
|
383
|
|
|
$
|
81
|
|
Design Segment Customer 2
|
|
|
500
|
|
|
|
358
|
|
|
|
142
|
|
Design Segment Customer 3
|
|
|
323
|
|
|
|
845
|
|
|
|
(522
|
)
|
Design Segment Customer 5
|
|
|
32
|
|
|
|
459
|
|
|
|
(427
|
)
|
Design Segment Customer 6
|
|
|
598
|
|
|
|
11
|
|
|
|
587
|
|
Design Segment Customer 7
|
|
|
469
|
|
|
|
–
|
|
|
|
469
|
|
All other Design Segment Customers
|
|
|
1,726
|
|
|
|
1,641
|
|
|
|
85
|
|
Total net revenues
|
|
$
|
4,112
|
|
|
$
|
3,697
|
|
|
$
|
415
|
|
Gross Profit
Distribution Segment
Gross profit for the
distribution segment increased $123,000, or 20.4%, to $726,000 in the 2021 Quarter as compared to $603,000 in the 2020 Quarter,
and gross margin improved from 12.8% to 13.0% in the same period. The increase in both gross profit and margin are driven by higher
margins on the sale of non-medical cases and protective solutions and smart-enabled products. This increase in profit margin was
partially offset by the continued decline in gross margin on diabetic products due to a shift to lower margin cases and pricing
pressures on diabetic products from customers. We continue to work on expanding our product offering to include higher margin products
and enhancing our sales efforts to grow revenue and increase gross profit.
Design Segment
Gross profit for the
design segment increased $420,000, or 37.6%, to $1,537,000 in the 2021 Quarter from $1,117,000 in the 2020 Quarter. Gross
margin improved from 30.2% to 37.4% in the same period. The acquisition of Kablooe contributed $249,000 to gross profit in
the 2021 Quarter. The improvement in gross margin primarily results from improved billing rates, while continuing to efficiently
manage costs. The acquisition of Kablooe accounted for a smaller portion of the increase in gross margin. Depreciation expense,
which is allocated to cost of sales for the design segment, was $39,000 and $26,000 for the 2021 Quarter and 2020 Quarter, respectively.
Sales and Marketing
Expenses
Distribution Segment
Sales and marketing
expenses for the distribution segment increased $97,000, or 24.8%, to $488,000 in the 2021 Quarter from $391,000 in the 2020 Quarter.
The increase was primarily due to expenses associated with growing our retail distribution network. Sales and marketing expenses
for the distribution segment increased to 8.7% of revenues in the 2021 Quarter as compared to 8.3% of revenues in the 2020 Quarter.
Design Segment
Sales and marketing
expenses for the design segment decreased $29,000, or 20.1%, to $115,000 in the 2021 Quarter from $144,000 in the 2020 Quarter.
The decrease in sales and marketing expenses is primarily due to lower payroll costs. Sales and marketing expenses for the design
segment decreased to 2.8% of revenues in the 2021 Quarter from 3.9% of revenues in the 2020 Quarter.
General and Administrative
Expenses
Distribution Segment
General and administrative
expenses in the distribution segment decreased $73,000, or 11.1%, to $582,000 in the 2021 Quarter from $655,000 in the 2020 Quarter.
The decrease was primarily due to a $35,000 decrease in travel expenses, a $27,000 decrease in legal fees and a $20,000 reduction
in technology related expenses. General and administrative expenses for the distribution segment decreased to 10.4% of revenues
in the 2021 Quarter as compared to 13.9% of revenues in the 2020 Quarter.
Design Segment
General and administrative
expenses for the design segment increased $686,000 to $1,245,000 in the 2021 Quarter from $559,000 in the 2020 Quarter. The increase
is primarily driven by a $253,000 increase in payroll related costs, general and administrative costs of $239,000 generated by
Kablooe, which was acquired in August 2020, and a $143,000 increase in bad debt expense. General and administrative expenses for
the design segment increased to 30.3% of revenues in the 2021 Quarter as compared to 15.1% of revenues in the 2020 Quarter.
Other Income / (Expense)
Distribution Segment
The distribution segment
reported other income of $1,000 in the 2021 Quarter as compared to other expense of $34,000 in the 2020 Quarter. The variance is
primarily due to the $30,000 fair value adjustment recorded in the 2021 Quarter associated with the reduction of the Kablooe contingent
earnout liability.
Design Segment
The design segment
reported other income of $1,365,000 in the 2021 Quarter as compared to other expense of $19,000 in the 2020 Quarter. The primary
component of other income in the 2021 Quarter was the $1,357,000 forgiveness of note payable related to the PPP loan. Other less
significant factors contributing to the change were interest income on the note receivable from a customer which was fully reserved
for in Fiscal 2019 and lower interest expense due to a reduction in the average amount of debt outstanding.
Income Taxes
For the three
months ended December 31, 2020, the Company generated net income of $1,199,000, primarily resulting from the $1,357,000
forgiveness of the PPP loan, which will not be recognized as taxable income pursuant to the CARES Act. The Company maintains
significant net operating loss carryforwards and does not recognize income tax expense / (benefit) as its deferred tax
provision is typically offset by a full valuation allowance on its net deferred tax asset.
LIQUIDITY AND CAPITAL
RESOURCES
Our primary source
of liquidity is our operations. The primary demands on our working capital have historically been (i) operating losses, (ii) repayment
of debt obligations, and (iii) any increases in accounts receivable and inventories arising in the ordinary course of business.
Historically, our sources of liquidity have been adequate to satisfy working capital requirements arising in the ordinary course
of business.
At January 31, 2021,
we had $650,000 available under our $1,300,000 line of credit which matures May 31, 2021. Additionally, Forward China holds a $1,600,000
promissory note which matures December 31, 2021. Although this note has been extended on multiple occasions to assist us with our
liquidity position, we plan on funding the repayment at maturity using existing cash balances and/or obtaining an additional credit
facility as deemed necessary. We can provide no assurance that Forward China will extend the note again if we request an extension
nor that any such credit facility will be available on terms acceptable to us or at all.
We anticipate that
our liquidity and financial resources for the 12 months following the filing of this Form 10-Q will be adequate to manage our operating
and financial requirements. If we have the opportunity to make a strategic acquisition (as we have in the past with the acquisitions
of IPS and Kablooe) or an investment in a product or partnership, we may require additional capital beyond our current cash balance
to fund the opportunity. If we seek to raise additional capital, there is no assurance that we will be able to raise funds on terms
that are acceptable to us or at all.
At December 31, 2020,
our working capital was $4,231,000 compared to $3,396,000 at September 30, 2020. At January 31, 2021, we had approximately $1,200,000
of cash on hand.
Although we do not
anticipate the need to purchase additional material capital assets in order to carry out our business, it may be necessary for
us to purchase equipment and other capital assets in the future, depending on need.
Cash Flows
During the three months
ended December 31, 2020 and 2019, our sources and uses of cash were as follows:
Operating Activities
During the 2021 Quarter,
cash used in operating activities of $511,000 primarily resulted from an operating loss of $167,000, a decrease in deferred income
of $315,000, an increase in accounts receivable of $204,000, a decrease in accounts payable, accrued expenses and amounts due to
Forward China of $176,000, partially offset by non-cash expenses of $213,000 relating to depreciation, amortization, share-based
compensation and bad debt expense, an increase of $125,000 in prepaid expenses and other assets and the net change in other operating
assets and liabilities of $13,000.
During the 2020 Quarter,
cash used in operating activities of $784,000 primarily resulted from a net loss of $82,000, an increase in accounts receivable
of $560,000, a decrease in accounts payable, accrued expenses and amounts due to Forward China of $526,000, a decrease in deferred
income of $161,000 and bad debt recoveries of $65,000, partially offset by a decline in inventories of $508,000 and non-cash expenses
of $102,000 relating to depreciation, amortization, and share-based compensation.
Investing Activities
Cash used in investing
activities in the 2021 Quarter and the 2020 Quarter of $30,000 and $6,000, respectively, resulted from purchases of property and
equipment.
Financing Activities
In the 2021 Quarter,
cash used in financing activities of $51,000 consisted of repayments of notes payable and capital leases of $52,000, partially
offset by proceeds from stock options exercised.
In the 2020 Quarter,
cash used in financing activities of $234,000 consisted of $200,000 paid out on deferred cash consideration and $34,000 in repayments
of notes payable and capital leases.
Related Party Transactions
For information on
related party transactions and their financial impact, see Note 9 to the unaudited condensed consolidated financial statements
contained herein.