UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________________ to ________________
Commission file number
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including
area code:
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|
The (The Nasdaq Capital Market) |
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ¨ | Accelerated filer ¨ | |
| Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes o
There were shares of the registrant’s common stock outstanding as of July 31, 2023.
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
| 2 |
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, | September 30, | |||||||
| 2023 | 2022 | |||||||
| Assets | (Unaudited) | |||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Operating lease right-of-use assets, net | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and shareholders' equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Due to Forward China | ||||||||
| Deferred income | ||||||||
| Current portion of earnout consideration | ||||||||
| Current portion of operating lease liability | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Other liabilities: | ||||||||
| Note payable to Forward China | ||||||||
| Operating lease liability, less current portion | ||||||||
| Earnout consideration, less current portion | ||||||||
| Total other liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Shareholders' equity: | ||||||||
| Common stock, par value $ per share; shares authorized; shares issued and outstanding at June 30, 2023 and September 30, 2022 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total shareholders' equity | ||||||||
| Total liabilities and shareholders' equity | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 3 |
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended June 30, | For the Nine Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues, net | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Sales and marketing expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Fair value adjustment of earnout consideration | ( | ) | ||||||||||||||
| Interest expense | ||||||||||||||||
| Interest income | ( | ) | ( | ) | ||||||||||||
| Other (income)/expense, net | ( | ) | ( | ) | ||||||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Loss per share: | ||||||||||||||||
| Basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average common shares outstanding: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 4 |
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
| For the Three and Nine Months Ended June 30, 2023 | ||||||||||||||||||||
| Additional | ||||||||||||||||||||
| Common Stock | Paid-In | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Share-based compensation | – | |||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||
| Balance at December 31, 2022 | ( | ) | ||||||||||||||||||
| Share-based compensation | – | |||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||
| Balance at March 31, 2023 | ( | ) | ||||||||||||||||||
| Share-based compensation | – | |||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| For the Three and Nine Months Ended June 30, 2022 | ||||||||||||||||||||
| Additional | ||||||||||||||||||||
| Common Stock | Paid-In | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Share-based compensation | – | |||||||||||||||||||
| Net income | – | |||||||||||||||||||
| Balance at December 31, 2021 | ( | ) | ||||||||||||||||||
| Share-based compensation | – | |||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||
| Balance at March 31, 2022 | ( | ) | ||||||||||||||||||
| Share-based compensation | – | |||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 5 |
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the Nine Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Operating Activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Share-based compensation | ||||||||
| Depreciation and amortization | ||||||||
| Bad debt expense | ||||||||
| Change in fair value of earnout consideration | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Accounts payable and due to Forward China | ||||||||
| Deferred income | ( | ) | ||||||
| Net changes in operating lease liabilities | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Net cash provided by operating activities | ||||||||
| Investing Activities: | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Financing Activities: | ||||||||
| Repayment of note payable to Forward China | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Net increase in cash | ||||||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for taxes | $ | $ | ||||||
| Supplemental Disclosures of Non-Cash Information: | ||||||||
| Operating lease assets obtained in exchange for operating lease liabilities | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 6 |
FORWARD INDUSTRIES, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 OVERVIEW
Business
Forward Industries, Inc. (“Forward”, “we”, “our” or the “Company”) is a global design, sourcing and distribution company serving top tier medical and technology customers worldwide.
In July 2023, the Company decided to cease its retail distribution operations (“Retail Exit”). The Retail Exit will have no effect on the operations of the Company’s other segments. The Company is working on a plan that will ensure the Retail Exit is made in an orderly manner while also satisfying existing customer obligations. At the time of this filing, the Company does not know the extent, or a range, of the costs that it will incur as a result of the exit.
Liquidity
For the nine months ended
June 30, 2023, the Company generated a net loss of $1,838,000 and $562,000 of cash flows from operating activities. Based on our forecasted
cash flows, we believe our existing cash balance and working capital will be sufficient to meet our liquidity needs through at least August
31, 2024. At June 30, 2023, the Company had $
Impact of COVID-19
The effects of the COVID-19 pandemic continue to impact our business with high capitalized inventory costs for inbound ocean freight, particularly from the Asia-Pacific region, and expenses associated with outbound ground transportation. We expect to see the benefits of declining ocean freight costs in future periods. Inflation, in part associated with the pandemic, continues to increase the cost of acquiring and retaining our employees and acquiring inventory. The instability of transportation costs and future inflation are still largely unknown but are expected to continue throughout fiscal 2023.
The effects of COVID-19 may further impact our business in ways we cannot predict, and such impacts could be significant. The current economic conditions 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 to choose 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 the effects of the pandemic and associated inflationary impact have fully receded, 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 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.
| 7 |
FORWARD INDUSTRIES, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 ACCOUNTING POLICIES
Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of Forward Industries, Inc. and all of its wholly-owned 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”, “our” or the “Company” as used throughout this document are used to indicate Forward Industries, Inc. and all of its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.
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 full year of fiscal 2023. 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, 2022, and with the disclosures and risk factors presented therein. The September 30, 2022 condensed consolidated balance sheet has been derived from the audited consolidated financial statements.
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.
Throughout this document, certain dollar amounts and percentages have been rounded to their approximate values.
Segment Reporting
The Company has three reportable segments: OEM distribution, retail distribution and design. The OEM distribution segment sources and sells carrying cases and other accessories for medical monitoring and diagnostic kits and a variety of other portable electronic and non-electronic devices directly to OEMs or their contract manufacturers worldwide. The retail distribution segment sources and sells smart-enabled furniture, hot tubs and saunas, and a variety of other products through various online retailer websites to customers predominantly located in the U.S. and Canada. The design segment consists of two operating segments (IPS and Kablooe, which have been aggregated into one reportable segment) that provide a full spectrum of hardware and software product design and engineering services to customers predominantly located in the U.S. See Note 5 for more information on segments.
| 8 |
FORWARD INDUSTRIES, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Accounts Receivable
Accounts receivable consist
of unsecured trade accounts with customers in amounts that have been invoiced ($
The Company has agreements
with various retailers which contain different terms for trade discounts, promotional and other sales allowances. At June 30, 2023 and
September 30, 2022, the Company recorded accounts receivable allowances of $
Inventories
Inventories consist primarily
of finished goods and are stated at the lower of cost (determined by the first-in, first-out method) or net realizable value. Based on
management’s estimates, an allowance is made to reduce excess, obsolete, or otherwise unsellable inventories to net realizable
value. The allowance is established through charges to cost of sales in the Company’s condensed consolidated statements of operations.
In determining the adequacy of the allowance, management’s estimates are based upon several factors, including analyses of inventory
levels, historical loss trends, sales history and projections of future sales demand. The Company’s estimates of the allowance
may change from time to time based on management’s assessments, and such changes could be material. At June 30, 2023 and September
30, 2022, the allowance for slow-moving inventory, which relates entirely to our retail segment, was $
Revenue Recognition
OEM Distribution Segment
The OEM distribution segment
recognizes revenue when: (i) finished goods are shipped to its customers (in general, these conditions occur at either point of shipment
or point of destination, depending on the terms of sale and transfer of control); (ii) there are no other deliverables or performance
obligations; and (iii) there are no further obligations to the customer after the title of the goods has transferred. If 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 OEM distribution segment had
Retail Distribution Segment
The retail distribution segment
sells products primarily through online websites operated by authorized third-party retailers. Revenue is recognized when control (as
defined in Accounting Standards Codification, “ASC”, 606, “Revenue from Contracts with Customers”) of the related
goods is transferred to the retailer, which generally occurs upon shipment to the end customer. Other than product delivery, the retail
distribution segment does not typically have other deliverables or performance obligations associated with its products. Revenue is measured
as the amount of consideration expected to be received in exchange for the products provided, net of allowances taken by retailers for
product returns and any taxes collected from customers that will be remitted to governmental authorities. 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 retail distribution segment had
| 9 |
FORWARD INDUSTRIES, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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. 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.
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. The design segment had contract assets of $
Goodwill
The Company reviews goodwill for impairment at least annually, or more often if triggering events occur. The Company has two reporting units with goodwill (the IPS and Kablooe operating segments) 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 a quantitative 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 perform the quantitative assessment by comparing 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. Management evaluated and concluded that there were no indications goodwill was impaired at June 30, 2023.
Intangible Assets
Intangible assets include trademarks and customer relationships, which were acquired as part of the acquisitions of IPS in fiscal 2018 and Kablooe in fiscal 2020 and 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 indications of impairments of intangible assets at June 30, 2023.
| 10 |
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 June 30, 2023, 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. Our income tax provision or benefit is generally not significant due to the existence of significant net operating loss carryforwards.
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. |
Leases
Lease assets and liabilities are recognized at the lease 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. Certain leases 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 on the condensed consolidated balance sheets. The current and long-term portions of operating lease liabilities are shown separately as such on the condensed consolidated balance sheets.
| 11 |
FORWARD INDUSTRIES, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Recent Accounting Pronouncements
In November 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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.
NOTE 3 INTANGIBLE ASSETS AND GOODWILL
Intangible Assets
The Company’s intangible assets consist of the following:
| June 30, 2023 | September 30, 2022 | |||||||||||||||||||||||
| Trademarks | Customer Relationships | Total Intangible Assets | Trademarks | Customer Relationships | Total Intangible Assets | |||||||||||||||||||
| Gross carrying amount | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Less accumulated amortization | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Net carrying amount | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
The Company’s intangible
assets resulted from the acquisitions of Kablooe and IPS in fiscal 2020 and fiscal 2018, respectively, and relate to the design segment
of our business. Intangible assets are amortized over their expected useful lives of
At June 30, 2023, estimated amortization expense for the Company’s intangible assets is as follows:
| Remainder of Fiscal 2023 | $ | |||
| Fiscal 2024 | ||||
| Fiscal 2025 | ||||
| Fiscal 2026 | ||||
| Fiscal 2027 | ||||
| Thereafter | ||||
| Total | $ |
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 the acquisitions of Kablooe and IPS in fiscal 2020 and fiscal 2018, respectively. The goodwill associated with the IPS acquisition is not deductible for tax purposes, but the goodwill associated with the Kablooe acquisition is deductible for tax purposes. All of the Company’s goodwill is held under the design segment of our business.
| 12 |
FORWARD INDUSTRIES, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 FAIR VALUE MEASUREMENTS
The
earnout consideration of $
NOTE 5 SEGMENTS AND CONCENTRATIONS
The Company has three reportable segments: OEM distribution, retail distribution and design. See Note 2 for more information on the composition and accounting policies of our reportable segments.
Our chief operating decision maker (“CODM”) regularly reviews revenue and operating income for each segment to assess financial results and allocate resources. For our OEM and retail distribution segments, we exclude general and administrative and general corporate expenses from their measure of profitability as these expenses are not allocated to the segments and therefore not included in the measure of profitability used by the CODM. For the design segment, general and administrative expenses directly attributable to that segment are included in its measure of profitability as these expenses are included in the measure of its profitability reviewed by the CODM. We do not include intercompany activity in our segment results shown below to be consistent with the information that is presented to the CODM. Segment assets consist of accounts receivable and inventory, which are regularly reviewed by the CODM, as well as goodwill and intangible assets resulting from design segment acquisitions.
Information by segment and related reconciliations are shown in tables below:
For the Three Months Ended June 30, | For the Nine Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues: | ||||||||||||||||
| OEM distribution | $ | $ | $ | $ | ||||||||||||
| Retail distribution | ||||||||||||||||
| Design | ||||||||||||||||
| Total segment revenues | $ | $ | $ | $ | ||||||||||||
| Operating income/(loss): | ||||||||||||||||
| OEM distribution | $ | $ | $ | $ | ||||||||||||
| Retail distribution | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Design | ||||||||||||||||
| Total segment operating (loss)/income | ||||||||||||||||
| General corporate expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other expense, net | ||||||||||||||||
| Loss before income taxes | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Depreciation and amortization: | ||||||||||||||||
| OEM distribution | $ | $ | $ | $ | ||||||||||||
| Design | ||||||||||||||||
| Total depreciation and amortization | $ | $ | $ | $ | ||||||||||||
| 13 |
FORWARD INDUSTRIES, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| June 30, 2023 | September 30, 2022 | |||||||
| Segment Assets: | ||||||||
| OEM distribution | $ | $ | ||||||
| Retail distribution | ||||||||
| Design | ||||||||
| Total segment assets | ||||||||
| General corporate assets | ||||||||
| Total assets | $ | $ | ||||||
The Company had certain customers
in the OEM distribution segment whose individual percentage of the Company’s consolidated revenues was 10% or greater. Revenues
from two customers or their affiliates or contract manufacturers represented
For the three and nine months
ended June 30, 2023, the Company had one customer in the design segment whose individual percentage of the Company’s consolidated
revenues was 10% or greater. Revenues from this customer represented
At June 30, 2023 and September
30, 2022, the Company had customers in the OEM distribution segment whose accounts receivable balance accounted for 10% or more of the
Company’s consolidated accounts receivable. Accounts receivable from one customer or their affiliates or contract manufacturers
represented
At June 30, 2023, the Company
had one customer in the design segment whose accounts receivable balance accounted for 10% or more of the Company’s consolidated
accounts receivable. Accounts receivable from this customer represented
In March 2023, the Company’s
contract with one of its major diabetic customers in the OEM distribution segment expired. Due to increased pricing pressures, the Company
did not extend its contract with this customer. Revenue from this customer represented approximately
On July 21, 2023, the Company decided to cease its retail distribution operations. The exit from the retail distribution operations will have no effect on the operations of the Company’s design or OEM distribution businesses. The Company is working on a plan that will ensure the transition out of the retail business is done in an orderly manner while also satisfying existing customer obligations. At the time of this filing, the Company does not know the extent, or a range, of the costs that it will incur as a result of the exit.
| 14 |
Stock Options
In
May 2023, the Company granted options to three of its non-employee directors to purchase an aggregate of shares of its common
stock at an exercise price of $ per share. The options vest six months from the date of grant and expire five years from the date
of grant. The options have a weighted average grant-date fair value of $ per share and an aggregate grant-date fair value of $
In
October 2021, January 2022 and April 2022, the Company granted options to non-employee directors to purchase an aggregate of ,
and shares, respectively, of its common stock at an exercise price of $, $ and $ per share, respectively. The options
expire five years from the date of grant, approximately half vested immediately and approximately half vested one year from the date of
grant. The options have a weighted average grant-date fair value of $, $ and $ per share, respectively, and an aggregate grant-date
fair value of $
In
January 2022, the Company granted options to one of its employees to purchase an aggregate of shares of its common stock at an
exercise price of $ per share. The options expire five years from the date of grant, approximately one-third vested immediately, approximately
one-third vested one year from the date of grant and approximately one-third vest two years from the date of grant. The options have a
weighted average grant-date fair value of $ per share and an aggregate grant-date fair value of $
In
February 2022, the Company granted options to one of its non-employee directors to purchase an aggregate of shares of its common
stock at an exercise price of $ per share. The options vested one year from the date of grant and expire five years from the date
of grant. The options have a weighted average grant-date fair value of $ per share and an aggregate grant-date fair value of $
In
February 2022, the Company granted options to one of its former non-employee directors to purchase an aggregate of shares of its
common stock at an exercise price of $ per share. The options vested immediately and expire ten years from the date of grant. The
options have a weighted average grant-date fair value of $ per share and an aggregate grant-date fair value of $
There were options exercised during the nine months ended June 30, 2023 or 2022.
The Company recognized compensation expense for stock option awards of $ and $ during the three months ended June 30, 2023 and 2022, respectively, and $ and $ during the nine months ended June 30, 2023 and 2022, respectively, which was recorded as a component of general and administrative expenses in its condensed consolidated statements of operations. At June 30, 2023, there was $ of total unrecognized compensation cost related to nonvested stock option awards that is expected to be recognized over a weighted average period of years.
| 15 |
FORWARD INDUSTRIES, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basic earnings 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 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 per share is as follows:
For the Three Months Ended June 30, | For the Nine Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Numerator: | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Denominator: | ||||||||||||||||
| Weighted average common shares outstanding | ||||||||||||||||
| Dilutive common share equivalents | ||||||||||||||||
| Weighted average diluted shares outstanding | ||||||||||||||||
| Loss per share: | ||||||||||||||||
| Basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
The following securities were excluded from the calculation of diluted earnings per share in each period because their inclusion would have been anti-dilutive:
For the Three Months Ended June 30, | For the Nine Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Options | ||||||||||||||||
| Warrants | ||||||||||||||||
| Total potentially dilutive shares | ||||||||||||||||
| 16 |
FORWARD INDUSTRIES, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 RELATED PARTY TRANSACTIONS
Buying Agency and Supply Agreement
The Company has a Buying
Agency and Supply Agreement (the “Supply Agreement”) with 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 through March 2023, paid 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 $
The Company has prepayments to Forward China for inventory purchases of $205,000 and $20,000 at June 30, 2023 and September 30, 2022, respectively, which are included in prepaid expenses and other current assets on the condensed consolidated balance sheets.
Promissory Note
On January 18, 2018, the
Company issued a $
| 17 |
FORWARD INDUSTRIES, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Other Related Party Activity
The Company sells 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. (“Justwise”), a company owned by Terence Wise, Chief Executive Officer and Chairman of the Company. The Company
recognized revenues from the sale of Koble products of $
The Company recorded revenue
from a customer whose principal owner is an immediate family member of Jenny P. Yu, a shareholder of the Company and managing director
of Forward China. The Company recognized revenue from this customer of $
NOTE 9 LEGAL PROCEEDINGS
From time to time, the Company may become a party to legal actions or proceedings in the ordinary course of its business. At June 30, 2023, 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 10 LINE OF CREDIT
The Company, specifically
IPS, has a $
NOTE 11 LEASES
The Company’s operating
leases are primarily for engineering, corporate and administrative office space. Cash paid for amounts included in operating lease liabilities
for the nine months ended June 30, 2023 and 2022, which have been included in cash flows from operating activities, was $
For the Three Months Ended June 30, | For the Nine Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Operating lease expense included in: | ||||||||||||||||
| Sales and marketing expense | $ | $ | $ | $ | ||||||||||||
| General and administrative expense | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| 18 |
FORWARD INDUSTRIES, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2023, the Company’s
operating leases had a weighted average remaining lease term of
At June 30, 2023, future minimum payments under non-cancellable operating leases were as follows:
| Remainder of Fiscal 2023 | $ | |||
| Fiscal 2024 | ||||
| Fiscal 2025 | ||||
| Fiscal 2026 | ||||
| Fiscal 2027 | ||||
| Thereafter | ||||
| Total future minimum lease payments | ||||
| Less imputed interest | ( | ) | ||
| Present value of lease liabilities | ||||
| Less current portion of lease liabilities | ( | ) | ||
| Long-term portion of lease liabilities | $ |
NOTE 12 ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities at June 30, 2023 and September 30, 2022 are as follows:
| June 30, | September 30, | |||||||
| 2023 | 2022 | |||||||
| Accrued commissions/bonuses | $ | $ | ||||||
| Paid time off | ||||||||
| Other | ||||||||
| Total | $ | $ | ||||||
NOTE 13 SUBSEQUENT EVENT
On July 31, 2023, we were notified by Nasdaq that we are not compliant with its closing bid price requirement because the closing bid price of our common stock was below $1.00 per share for 30 consecutive trading days. We have until January 29, 2024 (the “Deadline Date”) to become compliant. We have since remained non-compliant with the closing bid price requirement as our stock price has remained below $1.00 since we received the notice. We are assessing all options to regain compliance. At our annual stockholders’ meeting, which is customarily held in February, we have the option to ask our stockholders to approve a reverse stock split in an amount that would satisfy Nasdaq listing requirements. Because the Deadline Date is prior to our expected annual stockholders’ meeting date, we can request an extension of time to obtain stockholder approval for a reverse stock split if we cannot regain compliance by other means. (See Part II. Other Information, Item 1A. Risk Factors, for further information.)
| 19 |
| 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, 2022. The following discussion and analysis compares our consolidated results of operations for the three and nine months ended June 30, 2023 (the “2023 Quarter” and “2023 Period”, respectively) with those for the three and nine months ended June 30, 2022 (the “2022 Quarter” and “2022 Period”, respectively). 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 our liquidity, plans on repaying outstanding debt obligations, expectations regarding the effect of the pandemic and inflation on our business, as well as other statements regarding our future operations, financial condition and prospects, and business strategies. Forward-looking statements generally can be identified by words such as "anticipates," "believes," "estimates," "expects," "intends," "plans," "predicts," "projects," "will be," "will continue," "will likely result," and similar expressions. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially and adversely from those reflected in the forward-looking statements. These risks include the inability to expand our customer base, loss of additional customers, pricing pressures, lack of success of our sales people, continued supply chain issues, inability of our design division’s customers to pay for our services, unanticipated issues with our affiliated sourcing agent, and issues at Chinese factories that source our product. No assurance can be given that the actual results will be consistent with the forward-looking statements. Investors should read carefully the factors described in the “Risk Factors” section of the Company’s filings with the SEC, including the Company’s Form 10-K for the year ended September 30, 2022 for information regarding risk factors that could affect the Company’s results. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
Business Overview
Forward Industries, Inc. is a global design, sourcing and distribution company serving top tier medical and technology customers worldwide.
In July 2023, the Company decided to cease its retail operations (“Retail Exit”). The Retail Exit will have no effect on the operations of our other segments. The Company is currently working on a plan that will ensure the Retail Exit is made in an orderly manner. At the time of this filing, the Company does not know the extent, or a range, of the costs that it will incur as a result of the exit.
Our design segment provides hardware and software product design and engineering services to customers predominantly located in the U.S. Our OEM distribution segment sources and sells carrying cases and other accessories for medical monitoring and diagnostic kits as well as a variety of other portable electronic and non-electronic devices to OEMs, or their contract manufacturers worldwide, that either package our products as accessories “in box” together with their branded product offerings or sell them through their retail distribution channels. Our retail distribution segment sources and sells smart-enabled furniture, hot tubs and saunas, and various other products through online retailer websites to customers predominately located in the U.S. and Canada.
The effects of the COVID-19 pandemic continue to impact our business with high capitalized inventory costs for inbound ocean freight, particularly from the Asia-Pacific region, and expenses associated with outbound ground transportation. We expect to see the benefits of declining ocean freight costs in future periods. Inflation, in part associated with the pandemic, continues to increase the cost of acquiring and retaining our employees and acquiring inventory. The instability of transportation costs and future inflation are still largely unknown but are expected to continue throughout fiscal 2023.
| 20 |
The effects of COVID-19 may further impact our business in ways we cannot predict, and such impacts could be significant. The current economic conditions 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 to choose 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 the effects of the pandemic and associated inflationary impact have fully receded, 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 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.
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 discussed 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, 2022, 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 JUNE 30, 2023 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2022
Consolidated Results
The table below summarizes our consolidated results of operations for the 2023 Quarter as compared to the 2022 Quarter:
| Consolidated Results of Operations | ||||||||||||||||
2023 Quarter | 2022 Quarter | Change ($) | Change (%) | |||||||||||||
| Revenues, net | $ | 10,127,000 | $ | 10,589,000 | $ | (462,000 | ) | (4.4% | ) | |||||||
| Cost of sales | 8,304,000 | 8,671,000 | (367,000 | ) | (4.2% | ) | ||||||||||
| Gross profit | 1,823,000 | 1,918,000 | (95,000 | ) | (5.0% | ) | ||||||||||
| Sales and marketing expenses | 711,000 | 665,000 | 46,000 | 6.9% | ||||||||||||
| General and administrative expenses | 1,634,000 | 1,639,000 | (5,000 | ) | (0.3% | ) | ||||||||||
| Loss from operations | (522,000 | ) | (386,000 | ) | (136,000 | ) | 35.2% | |||||||||
| Other expense, net | 15,000 | 33,000 | (18,000 | ) | (54.5% | ) | ||||||||||
| Provision for income taxes | – | – | – | – | ||||||||||||
| Net loss | $ | (537,000 | ) | $ | (419,000 | ) | $ | (118,000 | ) | 28.2% | ||||||
| 21 |
The discussion that follows below provides further details about our results of operations for the 2023 Quarter as compared to the 2022 Quarter.
Net revenues decreased in the OEM distribution segment, primarily related to the loss of a major diabetic customer in March 2023. Higher revenues in the design and retail distribution segments partially offset this decline. As a result of the Retail Exit, we expect consolidated revenues to decline in future periods.
Our gross profit decreased, and our gross margin decreased slightly from 18.1% in the 2022 Quarter to 18.0% in the 2023 Quarter, driven by increased inventory reserves in the retail segment, partially offset by higher revenues, better utilization and higher billing rates in the design segment. The decrease was also offset by the loss of a major diabetic customer, which yielded lower margins, coupled with the placement of certain retail products in physical stores, which yielded higher margins. Management believes there will be continued volatility in OEM and retail distribution cost of sales for the remainder of fiscal 2023.
Sales and marketing expenses increased in the 2023 Quarter primarily due to higher commission expense in the design segment due to increased sales and higher sales promotions in the retail segment, offset by decreases in the sales related salaries in the OEM distribution segment. Sales and marketing as a percentage of revenues increased to 7.0% in the 2023 Quarter from 6.3% in the 2022 Quarter. As a result of the Retail Exit, we expect that our sales and marketing expenses will decrease in fiscal 2024.
General and administrative expenses decreased slightly in the 2023 Quarter. Lower corporate expenses, primarily driven by a reduction in bad debt expense and non-employee directors share-based compensation expense, were partially offset by higher personnel related costs. Management continues to monitor the various components of general and administrative expenses and how these costs are affected by inflationary and other factors. We intend to adjust these costs as needed based on the overall needs of the business.
Higher interest income from improved treasury management, coupled with lower interest expense resulting from a reduction in the amount of debt outstanding, drove the change in net other expense.
We generated a net loss of $537,000 and $419,000 in the 2023 Quarter and 2022 Quarter, respectively. We maintain significant net operating loss carryforwards and do not recognize a significant income tax expense or benefit as our deferred tax provision is typically offset by a full valuation allowance on our net deferred tax asset.
Consolidated basic and diluted loss per share was $0.05 and $0.04 for the 2023 Quarter and the 2022 Quarter, respectively.
Segment Results
The discussion that follows below provides further details about the results of operations for each segment as compared to the prior year quarter.
| Segment Results of Operations | ||||||||||||||||||||
| OEM Distribution | Retail Distribution | Design | Corporate Expenses | Consolidated | ||||||||||||||||
| 2023 Quarter revenues | $ | 2,930,000 | $ | 1,420,000 | $ | 5,777,000 | $ | – | $ | 10,127,000 | ||||||||||
| 2022 Quarter revenues | 4,775,000 | 878,000 | 4,936,000 | – | 10,589,000 | |||||||||||||||
| Change | $ | (1,845,000 | ) | $ | 542,000 | $ | 841,000 | $ | – | $ | (462,000 | ) | ||||||||
| 2023 Quarter operating income/(loss) | $ | 163,000 | $ | (680,000 | ) | $ | 576,000 | $ | (581,000 | ) | $ | (522,000 | ) | |||||||
| 2022 Quarter operating income/(loss) | 179,000 | (397,000 | ) | 447,000 | (615,000 | ) | (386,000 | ) | ||||||||||||
| Change | $ | (16,000 | ) | $ | (283,000 | ) | $ | 129,000 | $ | 34,000 | $ | (136,000 | ) | |||||||
| 22 |
OEM Distribution Segment
The decrease in net revenues in the OEM distribution segment resulted from lower sales from both diabetic customers and other OEM customers. As consumer demand increases for diabetic testing products which require no carrying case, we expect diabetic product sales to continue to represent a smaller portion of our OEM distribution revenue. In March 2023, a contract with one of our major diabetic customers expired. Due to increased pricing pressures, we did not extend our contract with this customer. Revenue from this customer represented approximately 12% of our consolidated net revenues in the 2022 Quarter. We expect the loss of this customer to cause a significant decline in OEM distribution segment revenues in future periods.
The following tables set forth revenues by product line of our OEM distribution segment customers for the periods indicated:
| OEM Revenues by Product Line | ||||||||||||||||
2023 Quarter | 2022 Quarter | Change ($) | Change (%) | |||||||||||||
| Diabetic products | $ | 2,402,000 | $ | 4,087,000 | $ | (1,685,000 | ) | (41.2% | ) | |||||||
| Other products | 528,000 | 688,000 | (160,000 | ) | (23.3% | ) | ||||||||||
| Total net revenues | $ | 2,930,000 | $ | 4,775,000 | $ | (1,845,000 | ) | (38.6% | ) | |||||||
Diabetic Product Revenues
Our OEM 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 carry 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 decreased due to the loss of one major diabetic customer in March 2023, the loss of one product to a competitor and the net decrease in volume from other customers resulting from the timing of orders relative to the 2022 Quarter. As mentioned above, management believes that revenues from diabetic customers will decline in future periods. Revenues from diabetic products represented 82% of net revenues for the OEM distribution segment in the 2023 Quarter compared to 86% in the 2022 Quarter.
Other Product Revenues
Our OEM distribution segment also sources and sells cases and protective solutions for a diverse array of portable electronic and non-electronic products (such as sporting and recreational products, bar code scanners, GPS devices, tablets and firearms) on a made-to-order basis that are customized to fit the products sold by our OEM customers.
Revenues from other products decreased due to lower sales volume with some existing customers, which was partially offset by higher sales volume from some other customers. 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.
Operating Income
Operating income for the OEM distribution segment decreased but operating income margin increased from 3.7% in the 2022 Quarter to 5.6% in the 2023 Quarter. The loss of one major diabetic customer in March 2023, which yielded lower margins, reduced revenues and gross profit, but improved gross margin for this segment. Lower sales and marketing costs resulting from reduced OEM sales personnel also contributed to the improvement. The cost of importing all products from China has increased and both the diabetic and other OEM product lines have experienced pricing pressures from customers.
| 23 |
Considering the loss of a significant diabetic customer, management reduced its OEM distribution segment sales and marketing personnel in March 2023 and is currently assessing the terms of its sourcing agreement with Forward China, which is scheduled to expire on October 22, 2023 (see Note 8 to the condensed consolidated financial statements). Effective April 1, 2023, the Company and Forward China agreed to reduce the fixed portion of the sourcing fee from $100,000 to $83,333 per month for the remaining term of the sourcing agreement, which resulted in cash savings of $50,000 in the third quarter of fiscal 2023 and is expected to result in cash savings of $50,000 for the remainder of the 2023 fiscal year. The Company and Forward China have begun negotiations on a new sourcing agreement. In light of the Retail Exit, the Company plans to discuss a further reduction in the sourcing fee commensurate with the services provided. While we believe a new agreement will be reached, we cannot provide any assurances that we will be successful. If an agreement cannot be reached, which could have a significant impact on the Company’s operations, we will look at other alternatives for our OEM distribution business prior to the expiration of the agreement. Management is planning to further evaluate the OEM distribution segment cost structure and implement additional cost cutting initiatives as deemed necessary.
Retail Distribution Segment
The increase in net revenues in the 2023 Quarter was driven by higher sales volumes and the placement of certain products in physical stores, which was partially offset by price reductions on certain other products. As inflation continues to increase the cost of products and constrain consumer spending, profitability continues to be challenging in the retail segment.
The cost of importation, storage, and other logistics services, coupled with higher inventory reserves and price reductions on certain products, outpaced revenue leading to a negative gross profit and margin in the 2023 Quarter. However, margins on some products placed in physical retail stores slightly offset this. Higher sales and marketing expenses, driven by an increase in marketing promotions to support revenue growth, drove operating income down further. The operating loss margin increased from 45.2% in the 2022 Quarter to 47.9% in the 2023 Quarter. As mentioned above, the Company recently decided to implement the Retail Exit. Please see “Liquidity and Capital Resources”.
Design Segment
The increase in net revenues in the design segment was primarily driven by an increase in revenue from one major customer, coupled with an increase in projects from new and other existing customers, which was partially offset by declines in revenues from certain prior year customers.
Operating income for the design segment increased and operating income margin increased from 9.1% in the 2022 Quarter to 10.0% in 2023 Quarter. The impact of better utilization and increased billing rates was partially offset by higher direct labor costs, driven by inflationary pressures, and slightly higher personnel related expenses.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED JUNE 30, 2023 COMPARED TO THE NINE MONTHS ENDED JUNE 30, 2022
Consolidated Results
The table below summarizes our consolidated results of operations for the 2023 Period as compared to the 2022 Period:
| Consolidated Results of Operations | ||||||||||||||||
2023 Period | 2022 Period | Change ($) | Change (%) | |||||||||||||
| Revenues, net | $ | 31,595,000 | $ | 32,517,000 | $ | (922,000 | ) | (2.8% | ) | |||||||
| Cost of sales | 26,341,000 | 25,728,000 | 613,000 | 2.4% | ||||||||||||
| Gross profit | 5,254,000 | 6,789,000 | (1,535,000 | ) | (22.6% | ) | ||||||||||
| Sales and marketing expenses | 2,175,000 | 2,106,000 | 69,000 | 3.3% | ||||||||||||
| General and administrative expenses | 4,912,000 | 5,177,000 | (265,000 | ) | (5.1% | ) | ||||||||||
| Loss from operations | (1,833,000 | ) | (494,000 | ) | (1,339,000 | ) | 271.1% | |||||||||
| Other expense, net | 5,000 | 101,000 | (96,000 | ) | (95.0% | ) | ||||||||||
| Provision for income taxes | – | – | – | – | ||||||||||||
| Net loss | $ | (1,838,000 | ) | $ | (595,000 | ) | $ | (1,243,000 | ) | 208.9% | ||||||
| 24 |
The discussion that follows below provides further details about our results of operations for the 2023 Period as compared to the 2022 Period.
Net revenues declined in the OEM distribution segment but were partially offset by higher revenues in the retail distribution and design segments. As a result of the Retail Exit, we expect consolidated revenues to decline in future periods.
Our gross profit decreased in both our OEM and retail segments, partially offset by a slight increase in gross profit in the design segment. Gross margin declined from 20.9% in the 2022 Period to 16.6% in the 2023 Period, driven by continued pricing pressures from our customers, high product, importation and logistics costs, higher retail inventory reserves and inflation. Management believes there will be continued volatility in OEM and retail distribution cost of sales for the remainder of fiscal 2023.
Sales and marketing expenses increased slightly primarily due to higher sales related expenses in the design segment, partially offset by lower commissions, travel and marketing overhead related to our retail segment and lower marketing related overhead in our OEM distribution segment. Sales and marketing as a percentage of revenues increased slightly from 6.5% in the 2022 Period to 6.9% in the 2023 Period. As a result of the Retail Exit, we expect that our sales and marketing expenses will decrease in fiscal 2024.
General and administrative expenses decreased in the 2023 Period, primarily related to bad debt recoveries in the design segment and lower non-employee directors share-based compensation expense, partially offset by higher professional fees and personnel costs. Management continues to monitor the various components of general and administrative expenses and how these costs are affected by inflationary and other factors. We intend to adjust these costs as needed based on the overall needs of the business.
We recorded net other expense of $5,000 in the 2023 Period compared to $101,000 in the 2022 Period. The variance is due to fair value adjustments of $40,000 in the 2023 Period to reduce to the fair value of the earnout consideration related to the Kablooe acquisition, $18,000 of net duty drawback income received in the 2023 Period, interest income from improved treasury management, foreign currency fluctuations and a decrease in interest expense resulting from a reduction in the amount of debt outstanding.
We generated a net loss of $1,838,000 and $595,000 in the 2023 Period and 2022 Period, respectively. We maintain significant net operating loss carryforwards and do not recognize a significant income tax expense or benefit as our deferred tax provision is typically offset by a full valuation allowance on our net deferred tax asset.
Consolidated basic and diluted loss per share was $0.18 and $0.06 for the 2023 Period and the 2022 Period, respectively.
Segment Results
The discussion that follows below provides further details about the results of operations for each segment as compared to the prior year period.
| Segment Results of Operations | ||||||||||||||||||||
| OEM Distribution | Retail Distribution | Design | Corporate Expenses | Consolidated | ||||||||||||||||
| 2023 Period revenues | $ | 11,364,000 | $ | 3,396,000 | $ | 16,835,000 | $ | – | $ | 31,595,000 | ||||||||||
| 2022 Period revenues | 14,692,000 | 2,919,000 | 14,906,000 | – | 32,517,000 | |||||||||||||||
| Change | $ | (3,328,000 | ) | $ | 477,000 | $ | 1,929,000 | $ | – | $ | (922,000 | ) | ||||||||
| 2023 Period operating income/(loss) | $ | 303,000 | $ | (1,742,000 | ) | $ | 1,539,000 | $ | (1,933,000 | ) | $ | (1,833,000 | ) | |||||||
| 2022 Period operating income/(loss) | 1,002,000 | (981,000 | ) | 1,422,000 | (1,937,000 | ) | (494,000 | ) | ||||||||||||
| Change | $ | (699,000 | ) | $ | (761,000 | ) | $ | 117,000 | $ | 4,000 | $ | (1,339,000 | ) | |||||||
| 25 |
OEM Distribution Segment
Net revenues in the OEM distribution segment decreased from lower sales volume from both diabetic customers and other OEM customers. As consumer demand increases for diabetic testing products which require no carrying case, we expect diabetic product sales to continue to represent a smaller portion of our OEM distribution revenue. In March 2023, a contract with one of our major diabetic customers expired. Due to increased pricing pressures, we did not extend our contract with this customer. Revenue from this customer represented approximately 12% of our consolidated net revenues in the 2022 Period. We expect the loss of this customer to cause a significant decline in OEM distribution segment revenues in future periods.
The following tables set forth revenues by product line of our OEM distribution segment customers for the periods indicated:
| OEM Revenues by Product Line | ||||||||||||||||
2023 Period | 2022 Period | Change ($) | Change (%) | |||||||||||||
| Diabetic products | $ | 9,760,000 | $ | 12,480,000 | $ | (2,720,000 | ) | (21.8% | ) | |||||||
| Other products | 1,604,000 | 2,212,000 | (608,000 | ) | (27.5% | ) | ||||||||||
| Total net revenues | $ | 11,364,000 | $ | 14,692,000 | $ | (3,328,000 | ) | (22.7% | ) | |||||||
Diabetic Product Revenues
Our OEM 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 carry 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 decreased due to the loss of a major customer in March 2023, lower demand from one major customer and the loss of one product to a competitor. These decreases were partially offset by an increase in demand from another customer, which was timing related. As mentioned above, management believes that revenues from diabetic customers will decline in future periods. Revenues from diabetic products represented 86% of net revenues for the OEM distribution segment in the 2023 Period compared to 85% in the 2022 Period.
Other Product Revenues
Our OEM distribution segment also sources and sells cases and protective solutions for a diverse array of portable electronic and non-electronic products (such as sporting and recreational products, bar code scanners, GPS devices, tablets and firearms) on a made-to-order basis that are customized to fit the products sold by our OEM customers.
Revenues from other products decreased due to lower sales volume with some existing customers, partially driven by the delayed rollout of certain customer product lines and reduced demand from some customers. 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.
| 26 |
Operating Income
Operating income for the OEM distribution segment decreased and operating income margin decreased from 6.8% in the 2022 Period to 2.7% in the 2023 Period, driven by lower gross margins due to lower revenues and a shift in the mix of revenue. While revenues decreased in both diabetic and other products, the decrease in diabetic revenue was mostly from more profitable products, thus driving overall gross margins down. The cost of importing all products from China has increased and both the diabetic and other OEM product lines have experienced pricing pressures from customers.
Considering the loss of a significant diabetic customer, management reduced its OEM distribution segment sales and marketing personnel in March 2023 and is currently assessing the terms of its sourcing agreement with Forward China, which is scheduled to expire on October 22, 2023 (See Note 8 to the condensed consolidated financial statements). Effective April 1, 2023, the Company and Forward China agreed to reduce the fixed portion of the sourcing fee from $100,000 to $83,333 per month for the remaining term of the sourcing agreement, which resulted in cash savings of $50,000 in the third quarter of fiscal 2023 and is expected to result in cash savings of $50,000 for the remainder of the 2023 fiscal year. The Company and Forward China have begun negotiations on a new sourcing agreement. In light of the Retail Exit, the Company plans to discuss a further reduction in the sourcing fee commensurate with the services provided. While we believe a new agreement will be reached, we cannot provide any assurances that we will be successful. If an agreement cannot be reached, which could have a significant impact on the Company’s operations, we will look at other alternatives for our OEM distribution business prior to the expiration of the agreement. Management is planning to further evaluate the OEM distribution segment cost structure and implement additional cost cutting initiatives as deemed necessary.
Retail Distribution Segment
Net revenues increased in the 2023 Period due to an increase in sales volumes on some products with certain existing customers and the placement of certain products in physical stores, partially offset by price reductions on certain other products. As inflation continues to increase the cost of products and constrain consumer spending, profitability continues to be challenging in the retail segment.
The cost of importation, storage, and other logistics services, coupled with higher inventory reserves and price reductions on certain products, outpaced revenue leading to a decline in gross margin from the 2022 Period to the 2023 Period. This was partially offset by lower sales and marketing expenses driven by a reduction in commission expense resulting from a change in the mix of revenue. The operating loss margin increased from 33.6% in the 2022 Period to 51.3% in the 2023 Period. As mentioned above, the Company recently decided to implement the Retail Exit. Please see “Liquidity and Capital Resources”.
Design Segment
The increase in net revenues in the design segment was driven by an increase in revenue from one major customer, coupled with an increase in projects from new and existing customers, which was partially offset by declines in revenues from certain prior year customers.
Operating income for the design segment increased slightly but operating income margin decreased from 9.5% in the 2022 Period to 9.1% in 2023 Period. The impact of higher direct labor costs driven by inflationary pressures, coupled with higher sales and marketing expenses, was slightly offset by better utilization and increased billing rates and lower general and administrative expenses, driven by bad debt recoveries.
| 27 |
LIQUIDITY AND CAPITAL RESOURCES
Our primary source of liquidity is our operations. The primary demand on our working capital has 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 June 30, 2023, our working capital was $2,476,000 compared to $4,359,000 at September 30, 2022, the decrease was primarily due to lower inventory balances. At July 31, 2023, we had approximately $3,000,000 cash on hand and $1,300,000 available under our line of credit with a bank which was renewed in March 2023 and matures May 31, 2024. Considering the loss of a significant OEM distribution segment customer (see Note 5 to the condensed consolidated financial statements), which led to the April 2023 reduction in the sourcing fee to Forward China, and the continued retail distribution segment operating losses, management reduced its OEM segment sales and marketing personnel in March 2023 and is planning to further evaluate the Company’s OEM cost structure and implement additional cost cutting initiatives as deemed necessary. Additionally, in July 2023, the Company decided to implement the Retail Exit. The Company is working on a plan that will ensure the transition out of the retail business is done in an orderly manner while also satisfying existing customer obligations. At this time, the Company does not know the extent, or a range, of the costs that it will incur as a result of the exit.
Forward China, our largest vendor and an entity owned by our Chairman of the Board and Chief Executive Officer, holds a $1,600,000 promissory note (the “FC Note”) issued by us which matures on December 31, 2024 (see Note 8 to the condensed consolidated financial statements). The balance of the FC Note was reduced to $1,200,000 after we made principal payments of $400,000 through June 30, 2023. Although the FC 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. Additionally, Forward China has extended payment terms on our outstanding payables due to them when necessary. At June 30, 2023, our accounts payable due to Forward China was approximately $8,000,000. We can provide no assurance that (i) Forward China will extend the FC Note again if we request an extension, (ii) Forward China will continue to extend payment terms on outstanding payables when we need them, or (iii) any additional 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 date of this report 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. In the current environment of rising interest rates, any future borrowing is expected to result in higher interest expense.
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 2023 Period and 2022 Period, our sources and uses of cash were as follows:
Operating Activities
During the 2023 Period, cash provided by operating activities of $562,000 resulted from a decrease in inventories of $1,908,000, an increase in accounts payable and amounts due to Forward China of $651,000, non-cash expenses of $271,000 related to fair value adjustments, depreciation, amortization, share-based compensation and bad debt expense, an increase in accrued expenses and other current liabilities of $129,000 and the net change in other operating assets and liabilities of $24,000, partially offset by a net loss of $1,838,000, an increase in prepaid expenses and other current assets of $272,000, a decrease in deferred income of $174,000 and an increase in accounts receivable of $137,000.
| 28 |
During the 2022 Period, cash provided by operating activities of $1,158,000 resulted from an increase in accounts payable and amounts due to Forward China of $3,064,000, an increase in accrued expenses and other liabilities of $546,000, an increase in deferred revenue of $436,000, non-cash expenses of $442,000 related to depreciation, amortization, share-based compensation and bad debt expense and the net change in other operating assets and liabilities of $74,000, partially offset by a $2,809,000 increase in inventories and a net loss of $595,000.
Investing Activities
Cash used in investing activities in the 2023 Period and the 2022 Period of $117,000 and $140,000, respectively, resulted from purchases of property and equipment.
Financing Activities
Cash used in financing activities in the 2023 Period and the 2022 Period of $200,000 and $150,000, respectively, consisted of principal payments on the promissory note held by Forward China.
Related Party Transactions
For information on related party transactions and their financial impact, see Note 8 to the unaudited condensed consolidated financial statements contained herein.
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not applicable.
| ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures. Our management carried out an evaluation, with the participation of our Principal Executive Officer and Principal Financial Officer, required by Rule 13a-15 and Rule 15d-15 of the Securities Exchange Act of 1934 (the “Exchange Act”) of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act. Based on their evaluation, our management has concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations of the Effectiveness of Controls and Procedures. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations of any control system, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.
| 29 |
PART II. OTHER INFORMATION
| ITEM 1. | LEGAL PROCEEDINGS |
From time to time, the Company may become a party to legal actions or proceedings in the ordinary course of its business. At June 30, 2023, 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.
| ITEM 1A. | RISK FACTORS |
While we attempt to identify, manage, and mitigate risks and uncertainties associated with our business to the extent practical under the circumstances, some level of risk and uncertainty will always be present. Item 1A - “Risk Factors” in the Form 10-K for the fiscal year ended September 30, 2022 describes some of the risks and uncertainties associated with our business, which we strongly encourage you to review. These risks and uncertainties have the potential to materially affect our business, financial condition, results of operations, cash flows, projected results, and future prospects. Except for the risk factor below, there have been no material changes in our risk factors from those disclosed in the Form 10-K for the fiscal year ended September 30, 2022.
Because, we are currently non-compliant with Nasdaq’s minimum bid price requirement, it could result in delisting of our common stock, negatively affect the price of our common stock and limit investors’ ability to trade in our common stock.
Our common stock is listed on Nasdaq. Nasdaq rules impose certain continued listing requirements, including the minimum $1 bid price, corporate governance standards and number of public stockholders. On July 31, 2023, we were notified by Nasdaq that we are not compliant with its closing bid price requirement because the closing bid price of our common stock was below $1.00 per share for 30 consecutive trading days. We have until January 29, 2024 (the “Deadline Date”) to become compliant. We have since remained non-compliant with the closing bid price requirement as our stock price has remained below $1.00 since we received the notice. We are assessing all options to regain compliance. At our annual stockholders’ meeting, which is customarily held in February, we have the option to ask our stockholders to approve a reverse stock split in an amount that would satisfy Nasdaq listing requirements. Because the Deadline Date is prior to our expected annual stockholders’ meeting date, we can request an extension of time to obtain stockholder approval for a reverse stock split if we cannot regain compliance by other means. In addition to the risk described below that we not receive stockholder approval, reverse splits are often perceived negatively and announcements of or implementation of a reverse split may cause the market price of our common stock to decline.
If we continue to fail to meet these continued listing requirements through the Deadline Date (as extended), Nasdaq may delist our common stock. Reverse splits require approval by stockholders who hold a majority of our voting power. Because many of our shares are held in street name and brokers do not necessarily vote unvoted shares, we may not receive approval of a reverse split. Additionally, a reverse stock split typically has the effect of reducing the number of holders of shares in “round lots,” meaning those holding 100 or more shares. Another requirement for being listed on Nasdaq is that the Company have a minimum of 300 round lot holders, so if our stock price falls too low, a reverse split may not be sufficient to solve our Nasdaq non-compliance based on the minimum round lot requirement. If our common stock is delisted, we could face significant material adverse consequences, including:
| · | a limited availability of market quotations for our common stock; | |
| · | reduced liquidity with respect to our common stock; | |
| · |
a determination that our shares of common stock are a “penny stock” which will require broker-dealers trading in our common stock to adhere to more stringent rules, including being unable to solicit buyers for our common stock; | |
| · | a limited amount of news and analyst coverage for our company; and | |
| · | a limited ability to raise capital in the future. |
| 30 |
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
There were no unregistered sales of the Company’s equity securities during the three months ended June 30, 2023, that were not previously disclosed in a Current Report on Form 8-K.
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
| ITEM 4. | MINE SAFETY DISCLOSURES |
Not Applicable.
| ITEM 5. | OTHER INFORMATION |
None.
| ITEM 6. | EXHIBITS |
The exhibits listed in the accompanying “Index to Exhibits” are filed or incorporated by reference as part of this Form 10-Q.
| 31 |
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
Dated: August 14, 2023
| FORWARD INDUSTRIES, INC. | |
|
By: /s/ Terence Wise | |
| Terence Wise | |
| Chief Executive Officer | |
| (Principal Executive Officer) | |
| By: /s/ Kathleen Weisberg | |
| Kathleen Weisberg | |
| Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |
| 32 |
EXHIBIT INDEX
| Incorporated by Reference |
||||||
| Exhibit No. |
Exhibit Description | Form | Date | Number | Filed or Furnished Herewith | |
| 2.1 | Stock Purchase Agreement dated January 18, 2018 - Intelligent Product Solutions, Inc.+ | 8-K | 1/18/18 | 2.1 | ||
| 2.2 | Asset Purchase Agreement by and among Forward Industries, Inc., Kablooe, Inc., Kablooe Design, Inc. and Tom KraMer dated August 17, 2020+ | 8-K | 8/17/20 | 2.1 | ||
| 3.1 | Restated Certificate of Incorporation | 10-K | 12/8/10 | 3(i) | ||
| 3.2 | Certificate of Amendment of the Certificate of Incorporation, April 26, 2013 | 8-K | 4/26/13 | 3.1 | ||
| 3.3 | Certificate of Amendment of the Certificate of Incorporation, June 28, 2013 | 8-K | 7/3/13 | 3.1 | ||
| 3.4 | Third Amended and Restated Bylaws, as of May 28, 2014 | 10-K | 12/10/14 | 3(ii) | ||
| 10.1 | Employment Agreement – Kathleen Weisberg* | 8-K | 6/30/23 | 10.1 | ||
| 31.1 | CEO Certification (302) | Filed | ||||
| 31.2 | CFO Certification (302) | Filed | ||||
| 32.1 | CEO and CFO Certifications (906) | Furnished | ||||
| 101 | .INS | XBRL Instance Document | Filed | |||
| 101 | .SCH | XBRL Taxonomy Extension Schema Document | Filed | |||
| 101 | .CAL | XBRL Taxonomy Extension Calculation Linkbase Document | Filed | |||
| 101 | .DEF | XBRL Taxonomy Extension Definition Linkbase Document | Filed | |||
| 101 | .LAB | XBRL Taxonomy Extension Label Linkbase Document | Filed | |||
| 101 | .PRE | XBRL Taxonomy Extension Presentation Linkbase Document | Filed | |||
| 104 | Cover Page Interactive Data File (formatted in inline XBRL and contained in Exhibit 101) | Filed | ||||
* Management compensatory agreement or arrangement.
Copies of this filing (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our shareholders who make a written request to Forward Industries, Inc.; 700 Veterans Memorial Hwy, Suite 100, Hauppauge, NY 11788; Attention: Corporate Secretary.
| 33 |
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Terence Wise, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Forward Industries, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 14, 2023
| /s/ Terence Wise | |
|
Terence Wise Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Kathleen Weisberg, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Forward Industries, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 14, 2023
| /s/ Kathleen Weisberg | |
|
Kathleen Weisberg Chief Financial Officer (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Forward Industries, Inc. (the “Company”) on Form 10-Q for the fiscal quarter ended June 30, 2023, as filed with the Securities and Exchange Commission on the date hereof, I, Terence Wise, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
| 1. | The quarterly report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and |
| 2. | The information contained in the quarterly report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| /s/ Terence Wise | |
|
Terence Wise Chief Executive Officer (Principal Executive Officer) |
Dated: August 14, 2023
In connection with the quarterly report of Forward Industries, Inc. (the “Company”) on Form 10-Q for the fiscal quarter ended June 30, 2023, as filed with the Securities and Exchange Commission on the date hereof, I, Kathleen Weisberg, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
| 1. | The quarterly report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and |
| 2. | The information contained in the quarterly report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| /s/ Kathleen Weisberg | |
|
Kathleen Weisberg Chief Financial Officer (Principal Financial Officer) |
Dated: August 14, 2023
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - $ / shares |
Jun. 30, 2023 |
Sep. 30, 2022 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Common stock, par or stated value per share (in dollars per share) | $ 0.01 | $ 0.01 |
| Common stock, shares authorized (in shares) | 40,000,000 | 40,000,000 |
| Common stock, shares issued (in shares) | 10,061,185 | 10,061,185 |
| Common stock, shares outstanding (in shares) | 10,061,185 | 10,061,185 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Income Statement [Abstract] | ||||
| Revenues, net | $ 10,127,159 | $ 10,588,835 | $ 31,594,818 | $ 32,517,139 |
| Cost of sales | 8,303,997 | 8,671,103 | 26,340,525 | 25,727,964 |
| Gross profit | 1,823,162 | 1,917,732 | 5,254,293 | 6,789,175 |
| Sales and marketing expenses | 711,472 | 664,484 | 2,175,081 | 2,106,263 |
| General and administrative expenses | 1,633,740 | 1,639,053 | 4,912,197 | 5,177,241 |
| Loss from operations | (522,050) | (385,805) | (1,832,985) | (494,329) |
| Fair value adjustment of earnout consideration | 0 | 0 | (40,000) | 0 |
| Interest expense | 25,475 | 30,424 | 80,214 | 94,115 |
| Interest income | (10,489) | 0 | (11,345) | 0 |
| Other (income)/expense, net | (292) | 2,684 | (23,887) | 6,780 |
| Loss before income taxes | (536,744) | (418,913) | (1,837,967) | (595,224) |
| Provision for income taxes | 0 | 0 | 0 | 0 |
| Net loss | $ (536,744) | $ (418,913) | $ (1,837,967) | $ (595,224) |
| Loss per share: | ||||
| Basic | $ (0.05) | $ (0.04) | $ (0.18) | $ (0.06) |
| Diluted | $ (0.05) | $ (0.04) | $ (0.18) | $ (0.06) |
| Weighted average common shares outstanding: | ||||
| Basic | 10,061,185 | 10,061,185 | 10,061,185 | 10,061,185 |
| Diluted | 10,061,185 | 10,061,185 | 10,061,185 | 10,061,185 |
OVERVIEW |
9 Months Ended |
|---|---|
Jun. 30, 2023 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| OVERVIEW | NOTE 1 OVERVIEW
Business
Forward Industries, Inc. (“Forward”, “we”, “our” or the “Company”) is a global design, sourcing and distribution company serving top tier medical and technology customers worldwide.
In July 2023, the Company decided to cease its retail distribution operations (“Retail Exit”). The Retail Exit will have no effect on the operations of the Company’s other segments. The Company is working on a plan that will ensure the Retail Exit is made in an orderly manner while also satisfying existing customer obligations. At the time of this filing, the Company does not know the extent, or a range, of the costs that it will incur as a result of the exit.
Liquidity
For the nine months ended June 30, 2023, the Company generated a net loss of $1,838,000 and $562,000 of cash flows from operating activities. Based on our forecasted cash flows, we believe our existing cash balance and working capital will be sufficient to meet our liquidity needs through at least August 31, 2024. At June 30, 2023, the Company had $1,300,000 of borrowing available under its line of credit with a bank that was renewed in March 2023 and has a maturity date of May 31, 2024 (see Note 10). Considering the loss of a significant Original Equipment Manufacturing (“OEM”) distribution segment customer (see Note 5), management reduced its OEM distribution segment sales and marketing personnel in March 2023 and is currently assessing the terms of its sourcing agreement with Forward Industries Asia-Pacific Corporation (“Forward China”), which is scheduled to expire on October 22, 2023 (see Note 8). Effective April 1, 2023, the Company and Forward China agreed to reduce the fixed portion of the sourcing fee from $100,000 to $83,333 per month for the remaining term of the agreement, which resulted in cash savings of $50,000 in the third quarter of fiscal 2023 and is expected to result in cash savings of $50,000 for the remainder of the 2023 fiscal year. The Company and Forward China have begun negotiations on a new sourcing agreement. In light of the Retail Exit, the Company plans to discuss a further reduction in the sourcing fee commensurate with the services provided. While we believe a new agreement will be reached, we cannot provide any assurances that we will be successful. If an agreement cannot be reached, which could have a significant impact on the Company’s operations, we will look at other alternatives for our OEM distribution business prior to the expiration of the agreement. Management is planning to further evaluate the OEM distribution segment cost structure and implement additional cost cutting initiatives as deemed necessary.
Impact of COVID-19
The effects of the COVID-19 pandemic continue to impact our business with high capitalized inventory costs for inbound ocean freight, particularly from the Asia-Pacific region, and expenses associated with outbound ground transportation. We expect to see the benefits of declining ocean freight costs in future periods. Inflation, in part associated with the pandemic, continues to increase the cost of acquiring and retaining our employees and acquiring inventory. The instability of transportation costs and future inflation are still largely unknown but are expected to continue throughout fiscal 2023.
The effects of COVID-19 may further impact our business in ways we cannot predict, and such impacts could be significant. The current economic conditions 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 to choose 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 the effects of the pandemic and associated inflationary impact have fully receded, 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 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.
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ACCOUNTING POLICIES |
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| Accounting Policies [Abstract] | ||||||||||||||||
| ACCOUNTING POLICIES | NOTE 2 ACCOUNTING POLICIES
Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of Forward Industries, Inc. and all of its wholly-owned 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”, “our” or the “Company” as used throughout this document are used to indicate Forward Industries, Inc. and all of its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.
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 full year of fiscal 2023. 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, 2022, and with the disclosures and risk factors presented therein. The September 30, 2022 condensed consolidated balance sheet has been derived from the audited consolidated financial statements.
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.
Throughout this document, certain dollar amounts and percentages have been rounded to their approximate values.
Segment Reporting
The Company has three reportable segments: OEM distribution, retail distribution and design. The OEM distribution segment sources and sells carrying cases and other accessories for medical monitoring and diagnostic kits and a variety of other portable electronic and non-electronic devices directly to OEMs or their contract manufacturers worldwide. The retail distribution segment sources and sells smart-enabled furniture, hot tubs and saunas, and a variety of other products through various online retailer websites to customers predominantly located in the U.S. and Canada. The design segment consists of two operating segments (IPS and Kablooe, which have been aggregated into one reportable segment) that provide a full spectrum of hardware and software product design and engineering services to customers predominantly located in the U.S. See Note 5 for more information on segments.
Accounts Receivable
Accounts receivable consist of unsecured trade accounts with customers in amounts that have been invoiced ($8,064,000 and $7,861,000 at June 30, 2023 and September 30, 2022, respectively) and contract assets as described further below under the heading “Revenue Recognition.” The Company maintains an allowance for doubtful accounts, which is recorded as a reduction to accounts receivable on the condensed consolidated balance sheets. Collectability of accounts receivable is estimated by evaluating the number of days accounts are outstanding, customer payment history, recent payment trends and perceived creditworthiness, adjusted as necessary based on specific customer situations. At June 30, 2023 and September 30, 2022, the Company had no allowances for doubtful accounts for the OEM distribution segment, allowances for doubtful accounts of $39,000 and $20,000, respectively, for the retail distribution segment and $837,000 and $852,000, respectively, for the design segment.
The Company has agreements with various retailers which contain different terms for trade discounts, promotional and other sales allowances. At June 30, 2023 and September 30, 2022, the Company recorded accounts receivable allowances of $161,000 and $55,000, respectively, for the retail distribution segment.
Inventories
Inventories consist primarily of finished goods and are stated at the lower of cost (determined by the first-in, first-out method) or net realizable value. Based on management’s estimates, an allowance is made to reduce excess, obsolete, or otherwise unsellable inventories to net realizable value. The allowance is established through charges to cost of sales in the Company’s condensed consolidated statements of operations. In determining the adequacy of the allowance, management’s estimates are based upon several factors, including analyses of inventory levels, historical loss trends, sales history and projections of future sales demand. The Company’s estimates of the allowance may change from time to time based on management’s assessments, and such changes could be material. At June 30, 2023 and September 30, 2022, the allowance for slow-moving inventory, which relates entirely to our retail segment, was $779,000 and $535,000, respectively.
Revenue Recognition
OEM Distribution Segment
The OEM distribution segment recognizes revenue when: (i) finished goods are shipped to its customers (in general, these conditions occur at either point of shipment or point of destination, depending on the terms of sale and transfer of control); (ii) there are no other deliverables or performance obligations; and (iii) there are no further obligations to the customer after the title of the goods has transferred. If 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 OEM distribution segment had no contract liabilities at June 30, 2023, September 30, 2022 or September 30, 2021.
Retail Distribution Segment
The retail distribution segment sells products primarily through online websites operated by authorized third-party retailers. Revenue is recognized when control (as defined in Accounting Standards Codification, “ASC”, 606, “Revenue from Contracts with Customers”) of the related goods is transferred to the retailer, which generally occurs upon shipment to the end customer. Other than product delivery, the retail distribution segment does not typically have other deliverables or performance obligations associated with its products. Revenue is measured as the amount of consideration expected to be received in exchange for the products provided, net of allowances taken by retailers for product returns and any taxes collected from customers that will be remitted to governmental authorities. 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 retail distribution segment had no contract liabilities at June 30, 2023, September 30, 2022 or September 30, 2021.
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. 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.
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. The design segment had contract assets of $632,000, $609,000 and $693,000 at June 30, 2023, September 30, 2022 and September 30, 2021, 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. The design segment had contract liabilities of $265,000, $439,000 and $188,000 at June 30, 2023, September 30, 2022 and September 30, 2021, respectively.
Goodwill
The Company reviews goodwill for impairment at least annually, or more often if triggering events occur. The Company has two reporting units with goodwill (the IPS and Kablooe operating segments) 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 a quantitative 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 perform the quantitative assessment by comparing 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. Management evaluated and concluded that there were no indications goodwill was impaired at June 30, 2023.
Intangible Assets
Intangible assets include trademarks and customer relationships, which were acquired as part of the acquisitions of IPS in fiscal 2018 and Kablooe in fiscal 2020 and 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 indications of impairments of intangible assets at June 30, 2023.
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 June 30, 2023, 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. Our income tax provision or benefit is generally not significant due to the existence of significant net operating loss carryforwards.
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:
Leases
Lease assets and liabilities are recognized at the lease 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. Certain leases 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 on the condensed consolidated balance sheets. The current and long-term portions of operating lease liabilities are shown separately as such on the condensed consolidated balance sheets.
Recent Accounting Pronouncements
In November 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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.
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INTANGIBLE ASSETS AND GOODWILL |
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| Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| INTANGIBLE ASSETS AND GOODWILL | NOTE 3 INTANGIBLE ASSETS AND GOODWILL
Intangible Assets
The Company’s intangible assets consist of the following:
The Company’s intangible assets resulted from the acquisitions of Kablooe and IPS in fiscal 2020 and fiscal 2018, respectively, and relate to the design segment of our business. Intangible assets are amortized over their expected useful lives of 15 years for the trademarks and 8 years for the customer relationships. Amortization expense related to intangible assets was $53,000 for the three months ended June 30, 2023 and 2022, and $160,000 for the nine months ended June 30, 2023 and 2022, which is included in general and administrative expenses on the condensed consolidated statements of operations.
At June 30, 2023, estimated amortization expense for the Company’s intangible assets is as follows:
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 the acquisitions of Kablooe and IPS in fiscal 2020 and fiscal 2018, respectively. The goodwill associated with the IPS acquisition is not deductible for tax purposes, but the goodwill associated with the Kablooe acquisition is deductible for tax purposes. All of the Company’s goodwill is held under the design segment of our business.
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FAIR VALUE MEASUREMENTS |
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Jun. 30, 2023 | |
| Fair Value Disclosures [Abstract] | |
| FAIR VALUE MEASUREMENTS | NOTE 4 FAIR VALUE MEASUREMENTS
The earnout consideration of $30,000 and $70,000 at June 30, 2023 and September 30, 2022, respectively, represents the fair value of the contingent earnout consideration related to the acquisition of Kablooe, which provides annual contingent earnout payments based on results of operations through August 2025. The fair value of the earnout liability is measured on a recurring basis at each reporting date using a Black-Scholes valuation model with inputs categorized within level three of the fair value hierarchy. 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, 2022, the Company reduced this liability from $70,000 to $30,000 based on changes to the expected likelihood of Kablooe reaching the specified earnings targets. The resulting gain has been recorded as a component of other income on the condensed consolidated statement of operations.
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SEGMENTS AND CONCENTRATIONS |
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| Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SEGMENTS AND CONCENTRATIONS | NOTE 5 SEGMENTS AND CONCENTRATIONS
The Company has three reportable segments: OEM distribution, retail distribution and design. See Note 2 for more information on the composition and accounting policies of our reportable segments.
Our chief operating decision maker (“CODM”) regularly reviews revenue and operating income for each segment to assess financial results and allocate resources. For our OEM and retail distribution segments, we exclude general and administrative and general corporate expenses from their measure of profitability as these expenses are not allocated to the segments and therefore not included in the measure of profitability used by the CODM. For the design segment, general and administrative expenses directly attributable to that segment are included in its measure of profitability as these expenses are included in the measure of its profitability reviewed by the CODM. We do not include intercompany activity in our segment results shown below to be consistent with the information that is presented to the CODM. Segment assets consist of accounts receivable and inventory, which are regularly reviewed by the CODM, as well as goodwill and intangible assets resulting from design segment acquisitions.
Information by segment and related reconciliations are shown in tables below:
The Company had certain customers in the OEM distribution segment whose individual percentage of the Company’s consolidated revenues was 10% or greater. Revenues from two customers or their affiliates or contract manufacturers represented 24.2% and 24.1% of the Company’s consolidated net revenues for the three and nine months ended June 30, 2022, respectively. There were no customers in the OEM distribution segment whose individual percentage of the Company’s consolidated revenues was 10% or greater during the three or nine months ended June 30, 2023.
For the three and nine months ended June 30, 2023, the Company had one customer in the design segment whose individual percentage of the Company’s consolidated revenues was 10% or greater. Revenues from this customer represented 30.1% and 10.8% of the Company’s consolidated net revenues for the three months ended June 30, 2023 and 2022, respectively, and 22.7% and 10.4% of the Company’s consolidated net revenues for the nine months ended June 30, 2023 and 2022, respectively.
At June 30, 2023 and September 30, 2022, the Company had customers in the OEM distribution segment whose accounts receivable balance accounted for 10% or more of the Company’s consolidated accounts receivable. Accounts receivable from one customer or their affiliates or contract manufacturers represented 13.3% of the Company’s consolidated accounts receivable at June 30, 2023 and accounts receivable from two customers or their affiliates or contract manufacturers represented 28.1% of the Company’s consolidated accounts receivable at September 30, 2022.
At June 30, 2023, the Company had one customer in the design segment whose accounts receivable balance accounted for 10% or more of the Company’s consolidated accounts receivable. Accounts receivable from this customer represented 26.3% of the Company’s consolidated accounts receivable at June 30, 2023. There were no customers in the design segment whose individual percentage of the Company’s consolidated accounts receivable was 10% or greater at September 30, 2022.
In March 2023, the Company’s contract with one of its major diabetic customers in the OEM distribution segment expired. Due to increased pricing pressures, the Company did not extend its contract with this customer. Revenue from this customer represented approximately 12% of our consolidated net revenues for the nine months ended June 30, 2022. The Company expects the loss of this customer to cause a significant decline in OEM distribution segment revenues in future periods.
On July 21, 2023, the Company decided to cease its retail distribution operations. The exit from the retail distribution operations will have no effect on the operations of the Company’s design or OEM distribution businesses. The Company is working on a plan that will ensure the transition out of the retail business is done in an orderly manner while also satisfying existing customer obligations. At the time of this filing, the Company does not know the extent, or a range, of the costs that it will incur as a result of the exit.
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SHARE-BASED COMPENSATION |
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| Share-Based Payment Arrangement [Abstract] | |
| SHARE-BASED COMPENSATION |
Stock Options
In May 2023, the Company granted options to three of its non-employee directors to purchase an aggregate of shares of its common stock at an exercise price of $ per share. The options vest six months from the date of grant and expire five years from the date of grant. The options have a weighted average grant-date fair value of $ per share and an aggregate grant-date fair value of $60,000, which will be recognized ratably over the vesting period.
In October 2021, January 2022 and April 2022, the Company granted options to non-employee directors to purchase an aggregate of , and shares, respectively, of its common stock at an exercise price of $, $ and $ per share, respectively. The options expire five years from the date of grant, approximately half vested immediately and approximately half vested one year from the date of grant. The options have a weighted average grant-date fair value of $, $ and $ per share, respectively, and an aggregate grant-date fair value of $60,000, $60,000 and $40,000, respectively, which were recognized ratably over the vesting period.
In January 2022, the Company granted options to one of its employees to purchase an aggregate of shares of its common stock at an exercise price of $ per share. The options expire five years from the date of grant, approximately one-third vested immediately, approximately one-third vested one year from the date of grant and approximately one-third vest two years from the date of grant. The options have a weighted average grant-date fair value of $ per share and an aggregate grant-date fair value of $10,000, which is recognized ratably over the vesting period.
In February 2022, the Company granted options to one of its non-employee directors to purchase an aggregate of shares of its common stock at an exercise price of $ per share. The options vested one year from the date of grant and expire five years from the date of grant. The options have a weighted average grant-date fair value of $ per share and an aggregate grant-date fair value of $25,000, which was recognized ratably over the vesting period.
In February 2022, the Company granted options to one of its former non-employee directors to purchase an aggregate of shares of its common stock at an exercise price of $ per share. The options vested immediately and expire ten years from the date of grant. The options have a weighted average grant-date fair value of $ per share and an aggregate grant-date fair value of $60,000, which was fully recognized on the grant date.
There were options exercised during the nine months ended June 30, 2023 or 2022.
The Company recognized compensation expense for stock option awards of $ and $ during the three months ended June 30, 2023 and 2022, respectively, and $ and $ during the nine months ended June 30, 2023 and 2022, respectively, which was recorded as a component of general and administrative expenses in its condensed consolidated statements of operations. At June 30, 2023, there was $ of total unrecognized compensation cost related to nonvested stock option awards that is expected to be recognized over a weighted average period of years.
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EARNINGS PER SHARE |
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| EARNINGS PER SHARE |
Basic earnings 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 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 per share is as follows:
The following securities were excluded from the calculation of diluted earnings per share in each period because their inclusion would have been anti-dilutive:
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RELATED PARTY TRANSACTIONS |
9 Months Ended |
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Jun. 30, 2023 | |
| Related Party Transactions [Abstract] | |
| RELATED PARTY TRANSACTIONS | NOTE 8 RELATED PARTY TRANSACTIONS
Buying Agency and Supply Agreement
The Company has a Buying Agency and Supply Agreement (the “Supply Agreement”) with 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 through March 2023, paid 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 $284,000 and $344,000 during the three months ended June 30, 2023 and 2022, respectively, and $978,000 and $1,056,000 during the nine months ended June 30, 2023 and 2022, respectively, which are included as a component of cost of sales upon sales of the related products. The Company had purchases from Forward China during the three and nine months ended June 30, 2023 of approximately $2,000,000 and $10,000,000, respectively. The Company had purchases from Forward China during the three and nine months ended June 30, 2022 of approximately $5,000,000 and $15,000,000, respectively. Considering the loss of a significant OEM distribution customer (see Note 5), effective April 1, 2023, the Company and Forward China agreed to reduce the fixed portion of the sourcing fee from $100,000 to $83,333 per month for the remaining term of the Supply Agreement, which resulted in cash savings of $50,000 in the third quarter of fiscal 2023 and is expected to result in cash savings of $50,000 for the remainder of fiscal 2023. The Company and Forward China have begun negotiations on a new sourcing agreement. In light of the Retail Exit, the Company plans to discuss a further reduction in the sourcing fee commensurate with the services provided. While we believe a new agreement will be reached, we cannot provide any assurances that we will be successful. If an agreement cannot be reached, which could have a significant impact on the Company’s operations, we will look at other alternatives for our OEM distribution business prior to the expiration of the agreement.
The Company has prepayments to Forward China for inventory purchases of $205,000 and $20,000 at June 30, 2023 and September 30, 2022, respectively, which are 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 unsecured 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, with the principal due at maturity. The Company incurred and paid interest associated with this note of $25,000 and $30,000 in the three months ended June 30, 2023 and 2022, respectively, and $80,000 and $93,000 in the nine months ended June 30, 2023 and 2022, respectively. The maturity date of this note was extended to December 31, 2024. The maturity date of this note has been extended on several occasions to assist the Company with liquidity. The Company made principal payments of $200,000 on this note during the nine months ended June 30, 2023, and this note has a remaining balance of $1,200,000 at June 30, 2023.
Other Related Party Activity
The Company sells 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. (“Justwise”), a company owned by Terence Wise, Chief Executive Officer and Chairman of the Company. The Company recognized revenues from the sale of Koble products of $509,000 and $356,000 in the three months ended June 30, 2023 and 2022, respectively, and $1,550,000 and $1,337,000 in the nine months ended June 30, 2023 and 2022, respectively. The Company has an agreement with Justwise effective March 1, 2022, under which (i) Justwise will perform design and marketing services related to the Koble products sold by the Company and (ii) the Company was granted a license to sell Koble products. In exchange for such services, the Company will pay Justwise $10,000 per month plus 1% of the cost of Koble products purchased from Forward China. This agreement is effective until August 31, 2023. The Company incurred costs of $31,000 and $95,000 under this agreement for the three and nine months ended June 30, 2023, respectively, of which $30,000 and $90,000, respectively, were included in selling and marketing expenses and $1,000 and $5,000, respectively, are included as a component of cost of sales upon sales of the related products. The Company incurred costs of $33,000 and $45,000 under this agreement for the three and nine months ended June 30, 2022, respectively, of which $29,000 and $39,000, respectively, were included in selling and marketing expenses and $4,000 and $6,000 are included as a component of cost of sales upon sales of the related products. The Company had accounts payable to Justwise of $0 and $15,000 at June 30, 2023 and September 30, 2022, respectively.
The Company recorded revenue from a customer whose principal owner is an immediate family member of Jenny P. Yu, a shareholder of the Company and managing director of Forward China. The Company recognized revenue from this customer of $122,000 and $260,000 for the three months ended June 30, 2023 and 2022, respectively, and $507,000 and $661,000 for the nine months ended June 30, 2023 and 2022, respectively. The Company had no accounts receivable from this customer at June 30, 2023 or September 30, 2022.
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LEGAL PROCEEDINGS |
9 Months Ended |
|---|---|
Jun. 30, 2023 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| LEGAL PROCEEDINGS | NOTE 9 LEGAL PROCEEDINGS
From time to time, the Company may become a party to legal actions or proceedings in the ordinary course of its business. At June 30, 2023, 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.
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LINE OF CREDIT |
9 Months Ended |
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Jun. 30, 2023 | |
| Debt Disclosure [Abstract] | |
| LINE OF CREDIT | NOTE 10 LINE OF CREDIT
The Company, specifically IPS, has a $1,300,000 revolving line of credit with a bank which was renewed in March 2023. The line of credit has a maturity date of May 31, 2024, 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 9.0% and 7.0% at June 30, 2023 and September 30, 2022, respectively. At June 30, 2023, the Company had $1,300,000 available under the line of credit. The Company is subject to certain debt-service ratio requirements which are measured annually. At September 30, 2022, the Company was in compliance with such covenants.
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LEASES |
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| Leases | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| LEASES | NOTE 11 LEASES
The Company’s operating leases are primarily for engineering, corporate and administrative office space. Cash paid for amounts included in operating lease liabilities for the nine months ended June 30, 2023 and 2022, which have been included in cash flows from operating activities, was $429,000 and $446,000, respectively. Details of operating lease expense are as follows:
At June 30, 2023, the Company’s operating leases had a weighted average remaining lease term of 7.8 years and a weighted average discount rate of 5.7%.
At June 30, 2023, future minimum payments under non-cancellable operating leases were as follows:
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ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES |
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| Payables and Accruals [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES | NOTE 12 ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities at June 30, 2023 and September 30, 2022 are as follows:
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SUBSEQUENT EVENT |
9 Months Ended |
|---|---|
Jun. 30, 2023 | |
| Subsequent Events [Abstract] | |
| SUBSEQUENT EVENT | NOTE 13 SUBSEQUENT EVENT
On July 31, 2023, we were notified by Nasdaq that we are not compliant with its closing bid price requirement because the closing bid price of our common stock was below $1.00 per share for 30 consecutive trading days. We have until January 29, 2024 (the “Deadline Date”) to become compliant. We have since remained non-compliant with the closing bid price requirement as our stock price has remained below $1.00 since we received the notice. We are assessing all options to regain compliance. At our annual stockholders’ meeting, which is customarily held in February, we have the option to ask our stockholders to approve a reverse stock split in an amount that would satisfy Nasdaq listing requirements. Because the Deadline Date is prior to our expected annual stockholders’ meeting date, we can request an extension of time to obtain stockholder approval for a reverse stock split if we cannot regain compliance by other means. (See Part II. Other Information, Item 1A. Risk Factors, for further information.)
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ACCOUNTING POLICIES (Policies) |
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Jun. 30, 2023 | ||||||||||||||||
| Accounting Policies [Abstract] | ||||||||||||||||
| Basis of Presentation | Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of Forward Industries, Inc. and all of its wholly-owned 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”, “our” or the “Company” as used throughout this document are used to indicate Forward Industries, Inc. and all of its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.
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 full year of fiscal 2023. 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, 2022, and with the disclosures and risk factors presented therein. The September 30, 2022 condensed consolidated balance sheet has been derived from the audited consolidated financial statements.
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| Accounting Estimates | 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.
Throughout this document, certain dollar amounts and percentages have been rounded to their approximate values.
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| Segment Reporting | Segment Reporting
The Company has three reportable segments: OEM distribution, retail distribution and design. The OEM distribution segment sources and sells carrying cases and other accessories for medical monitoring and diagnostic kits and a variety of other portable electronic and non-electronic devices directly to OEMs or their contract manufacturers worldwide. The retail distribution segment sources and sells smart-enabled furniture, hot tubs and saunas, and a variety of other products through various online retailer websites to customers predominantly located in the U.S. and Canada. The design segment consists of two operating segments (IPS and Kablooe, which have been aggregated into one reportable segment) that provide a full spectrum of hardware and software product design and engineering services to customers predominantly located in the U.S. See Note 5 for more information on segments.
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| Accounts Receivable | Accounts Receivable
Accounts receivable consist of unsecured trade accounts with customers in amounts that have been invoiced ($8,064,000 and $7,861,000 at June 30, 2023 and September 30, 2022, respectively) and contract assets as described further below under the heading “Revenue Recognition.” The Company maintains an allowance for doubtful accounts, which is recorded as a reduction to accounts receivable on the condensed consolidated balance sheets. Collectability of accounts receivable is estimated by evaluating the number of days accounts are outstanding, customer payment history, recent payment trends and perceived creditworthiness, adjusted as necessary based on specific customer situations. At June 30, 2023 and September 30, 2022, the Company had no allowances for doubtful accounts for the OEM distribution segment, allowances for doubtful accounts of $39,000 and $20,000, respectively, for the retail distribution segment and $837,000 and $852,000, respectively, for the design segment.
The Company has agreements with various retailers which contain different terms for trade discounts, promotional and other sales allowances. At June 30, 2023 and September 30, 2022, the Company recorded accounts receivable allowances of $161,000 and $55,000, respectively, for the retail distribution segment.
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| Inventories | Inventories
Inventories consist primarily of finished goods and are stated at the lower of cost (determined by the first-in, first-out method) or net realizable value. Based on management’s estimates, an allowance is made to reduce excess, obsolete, or otherwise unsellable inventories to net realizable value. The allowance is established through charges to cost of sales in the Company’s condensed consolidated statements of operations. In determining the adequacy of the allowance, management’s estimates are based upon several factors, including analyses of inventory levels, historical loss trends, sales history and projections of future sales demand. The Company’s estimates of the allowance may change from time to time based on management’s assessments, and such changes could be material. At June 30, 2023 and September 30, 2022, the allowance for slow-moving inventory, which relates entirely to our retail segment, was $779,000 and $535,000, respectively.
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| Revenue Recognition | Revenue Recognition
OEM Distribution Segment
The OEM distribution segment recognizes revenue when: (i) finished goods are shipped to its customers (in general, these conditions occur at either point of shipment or point of destination, depending on the terms of sale and transfer of control); (ii) there are no other deliverables or performance obligations; and (iii) there are no further obligations to the customer after the title of the goods has transferred. If 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 OEM distribution segment had no contract liabilities at June 30, 2023, September 30, 2022 or September 30, 2021.
Retail Distribution Segment
The retail distribution segment sells products primarily through online websites operated by authorized third-party retailers. Revenue is recognized when control (as defined in Accounting Standards Codification, “ASC”, 606, “Revenue from Contracts with Customers”) of the related goods is transferred to the retailer, which generally occurs upon shipment to the end customer. Other than product delivery, the retail distribution segment does not typically have other deliverables or performance obligations associated with its products. Revenue is measured as the amount of consideration expected to be received in exchange for the products provided, net of allowances taken by retailers for product returns and any taxes collected from customers that will be remitted to governmental authorities. 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 retail distribution segment had no contract liabilities at June 30, 2023, September 30, 2022 or September 30, 2021.
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. 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.
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. The design segment had contract assets of $632,000, $609,000 and $693,000 at June 30, 2023, September 30, 2022 and September 30, 2021, 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. The design segment had contract liabilities of $265,000, $439,000 and $188,000 at June 30, 2023, September 30, 2022 and September 30, 2021, respectively.
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| Goodwill | Goodwill
The Company reviews goodwill for impairment at least annually, or more often if triggering events occur. The Company has two reporting units with goodwill (the IPS and Kablooe operating segments) 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 a quantitative 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 perform the quantitative assessment by comparing 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. Management evaluated and concluded that there were no indications goodwill was impaired at June 30, 2023.
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| Intangible Assets | Intangible Assets
Intangible assets include trademarks and customer relationships, which were acquired as part of the acquisitions of IPS in fiscal 2018 and Kablooe in fiscal 2020 and 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 indications of impairments of intangible assets at June 30, 2023.
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| Income Taxes | 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 June 30, 2023, 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. Our income tax provision or benefit is generally not significant due to the existence of significant net operating loss carryforwards.
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| Fair Value Measurements | 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:
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| Leases | Leases
Lease assets and liabilities are recognized at the lease 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. Certain leases 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 on the condensed consolidated balance sheets. The current and long-term portions of operating lease liabilities are shown separately as such on the condensed consolidated balance sheets.
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| Recent Accounting Pronouncements | Recent Accounting Pronouncements
In November 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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.
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INTANGIBLE ASSETS AND GOODWILL (Tables) |
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| Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of intangible assets |
|
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| Schedule of future amortization expense |
|
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SEGMENTS AND CONCENTRATIONS (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of segment operating income (loss) |
|
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| Schedule of segment assets |
|
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EARNINGS PER SHARE (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loss per share: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of earnings (loss) per share |
|
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| Schedule of antidilutive securities excluded |
|
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LEASES (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of operating lease expense |
|
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| Schedule of future minimum payments under operating & financial leases |
|
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ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Payables and Accruals [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of accrued expenses and other accrued liabilities |
|
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OVERVIEW (Details Narrative) |
Jun. 30, 2023
USD ($)
|
|---|---|
| Bank Line Of Credit [Member] | |
| Line of Credit Facility [Line Items] | |
| Line of Credit Facility, Remaining Borrowing Capacity | $ 1,300,000 |
ACCOUNTING POLICIES (Details Narrative) - USD ($) |
Jun. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|---|---|---|---|
| Accounts receivable | $ 8,064,000 | $ 7,861,000 | |
| Inventory reserve | 779,000 | 535,000 | |
| OEM Distribution [Member] | |||
| Allowances for doubtful accounts | 0 | 0 | |
| Contract liabilities | 0 | 0 | $ 0 |
| Retail Distribution [Member] | |||
| Allowances for doubtful accounts | 39,000 | 20,000 | |
| Allowances for trade discounts, promotional and other sales allowances | 161,000 | 55,000 | |
| Contract liabilities | 0 | 0 | 0 |
| Design Segment [Member] | |||
| Allowances for doubtful accounts | 837,000 | 852,000 | |
| Design [Member] | |||
| Contract liabilities | 265,000 | 439,000 | 188,000 |
| Contract assets | $ 632,000 | $ 609,000 | $ 693,000 |
INTANGIBLE ASSETS AND GOODWILL (Details - Intangible Assets) - USD ($) |
Jun. 30, 2023 |
Sep. 30, 2022 |
|---|---|---|
| Finite-Lived Intangible Assets [Line Items] | ||
| Gross Carrying Amount | $ 1,975,000 | $ 1,975,000 |
| Accumulated Amortization | (1,029,000) | (869,000) |
| Net Carrying Amount | 946,000 | 1,106,000 |
| Trademarks [Member] | ||
| Finite-Lived Intangible Assets [Line Items] | ||
| Gross Carrying Amount | 585,000 | 585,000 |
| Accumulated Amortization | (193,000) | (164,000) |
| Net Carrying Amount | 392,000 | 421,000 |
| Customer Relationships [Member] | ||
| Finite-Lived Intangible Assets [Line Items] | ||
| Gross Carrying Amount | 1,390,000 | 1,390,000 |
| Accumulated Amortization | (836,000) | (705,000) |
| Net Carrying Amount | $ 554,000 | $ 685,000 |
INTANGIBLE ASSETS AND GOODWILL (Details - Estimated amortization expense) - USD ($) |
Jun. 30, 2023 |
Sep. 30, 2022 |
|---|---|---|
| Goodwill and Intangible Assets Disclosure [Abstract] | ||
| Remainder of Fiscal 2023 | $ 53,000 | |
| Fiscal 2024 | 213,000 | |
| Fiscal 2025 | 213,000 | |
| Fiscal 2026 | 121,000 | |
| Fiscal 2027 | 82,000 | |
| Thereafter | 264,000 | |
| Total | $ 946,000 | $ 1,106,000 |
INTANGIBLE ASSETS AND GOODWILL (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Finite-Lived Intangible Assets [Line Items] | ||||
| Amortization of Intangible Assets | $ 53,000 | $ 53,000 | $ 160,000 | $ 160,000 |
| Trademarks [Member] | ||||
| Finite-Lived Intangible Assets [Line Items] | ||||
| Useful lives | 15 years | 15 years | ||
| Customer Relationships [Member] | ||||
| Finite-Lived Intangible Assets [Line Items] | ||||
| Useful lives | 8 years | 8 years | ||
FAIR VALUE MEASUREMENTS (Details Narrative) - USD ($) |
Jun. 30, 2023 |
Sep. 30, 2022 |
|---|---|---|
| Kablooe [Member] | ||
| Offsetting Assets [Line Items] | ||
| Earnout liability | $ 30,000 | $ 70,000 |
SEGMENTS AND CONCENTRATIONS (Details - Operations) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Segment Reporting Information [Line Items] | ||||
| Revenues | $ 10,127,159 | $ 10,588,835 | $ 31,594,818 | $ 32,517,139 |
| Total (loss)/income from operations | (522,050) | (385,805) | (1,832,985) | (494,329) |
| Other expense/(income), net | (292) | 2,684 | (23,887) | 6,780 |
| (Loss)/income before income taxes | (537,000) | (419,000) | (1,838,000) | (595,000) |
| Operating Segments [Member] | ||||
| Segment Reporting Information [Line Items] | ||||
| Revenues | 10,127,000 | 10,589,000 | 31,595,000 | 32,517,000 |
| Total (loss)/income from operations | (522,000) | (386,000) | (1,833,000) | (494,000) |
| Total segment operating income | 59,000 | 229,000 | 100,000 | 1,443,000 |
| General corporate expenses | (581,000) | (615,000) | (1,933,000) | (1,937,000) |
| Other expense/(income), net | 15,000 | 33,000 | 5,000 | 101,000 |
| (Loss)/income before income taxes | (537,000) | (419,000) | (1,838,000) | (595,000) |
| Depreciation and amortization | 79,000 | 77,000 | 235,000 | 234,000 |
| Operating Segments [Member] | OEM Distribution [Member] | ||||
| Segment Reporting Information [Line Items] | ||||
| Revenues | 2,930,000 | 4,775,000 | 11,364,000 | 14,692,000 |
| Total (loss)/income from operations | 163,000 | 179,000 | 303,000 | 1,002,000 |
| Depreciation and amortization | 1,000 | 2,000 | 3,000 | 6,000 |
| Operating Segments [Member] | Retail Distribution [Member] | ||||
| Segment Reporting Information [Line Items] | ||||
| Revenues | 1,420,000 | 878,000 | 3,396,000 | 2,919,000 |
| Total (loss)/income from operations | (680,000) | (397,000) | (1,742,000) | (981,000) |
| Operating Segments [Member] | Design [Member] | ||||
| Segment Reporting Information [Line Items] | ||||
| Revenues | 5,777,000 | 4,936,000 | 16,835,000 | 14,906,000 |
| Total (loss)/income from operations | 576,000 | 447,000 | 1,539,000 | 1,422,000 |
| Depreciation and amortization | $ 78,000 | $ 75,000 | $ 232,000 | $ 228,000 |
SEGMENTS AND CONCENTRATIONS (Details - Segment Assets) - USD ($) |
Jun. 30, 2023 |
Sep. 30, 2022 |
|---|---|---|
| Revenue, Major Customer [Line Items] | ||
| Assets | $ 19,243,971 | $ 20,939,015 |
| Net Assets, Segment [Member] | ||
| Revenue, Major Customer [Line Items] | ||
| Total segment assets | 12,257,000 | 14,208,000 |
| General corporate assets | 6,987,000 | 6,731,000 |
| Assets | 19,244,000 | 20,939,000 |
| Net Assets, Segment [Member] | OEM Distribution [Member] | ||
| Revenue, Major Customer [Line Items] | ||
| Other Assets | 3,117,000 | 4,276,000 |
| Net Assets, Segment [Member] | Retail Distribution [Member] | ||
| Revenue, Major Customer [Line Items] | ||
| Other Assets | 2,661,000 | 3,816,000 |
| Net Assets, Segment [Member] | Design [Member] | ||
| Revenue, Major Customer [Line Items] | ||
| Other Assets | $ 6,479,000 | $ 6,116,000 |
EARNINGS PER SHARE (Details - Diluted loss per share) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Loss per share: | ||||
| Net loss | $ (537,000) | $ (419,000) | $ (1,838,000) | $ (595,000) |
| Weighted average common shares outstanding | 10,061,000 | 10,061,000 | 10,061,000 | 10,061,000 |
| Dilutive common share equivalents | 0 | 0 | 0 | 0 |
| Weighted average diluted shares outstanding | 10,061,000 | 10,061,000 | 10,061,000 | 10,061,000 |
| Basic | $ (0.05) | $ (0.04) | $ (0.18) | $ (0.06) |
| Diluted | $ (0.05) | $ (0.04) | $ (0.18) | $ (0.06) |
EARNINGS PER SHARE (Details - Antidilutive shares) - shares |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
| Total potentially dilutive shares | 1,101,000 | 1,190,000 | 1,101,000 | 1,190,000 |
| Equity Option [Member] | ||||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
| Total potentially dilutive shares | 950,000 | 1,039,000 | 950,000 | 1,039,000 |
| Warrant [Member] | ||||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
| Total potentially dilutive shares | 151,000 | 151,000 | 151,000 | 151,000 |
LINE OF CREDIT (Details Narrative) - I P S [Member] - USD ($) |
9 Months Ended | 12 Months Ended |
|---|---|---|
Jun. 30, 2023 |
Sep. 30, 2022 |
|
| Line of Credit Facility [Line Items] | ||
| Line of Credit Facility, Maximum Borrowing Capacity | $ 1,300,000 | |
| Line of credit expiration date | May 31, 2024 | |
| Line of credit interest rate | 0.75% above The Wall Street Journal prime rate. | |
| Line of credit effective interest rate | 9.00% | 7.00% |
| Line of Credit Facility, Remaining Borrowing Capacity | $ 1,300,000 |
LEASES (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Leases | ||||
| Sales and marketing expense | $ 0 | $ 15,000 | $ 3,000 | $ 42,000 |
| General and administrative expense | 155,000 | 145,000 | 463,000 | 428,000 |
| Total | $ 155,000 | $ 160,000 | $ 466,000 | $ 470,000 |
LEASES (Details - Future minimum payments Operating lease) |
Jun. 30, 2023
USD ($)
|
|---|---|
| Leases | |
| Remainder of Fiscal 2023 | $ 147,000 |
| Fiscal 2024 | 592,000 |
| Fiscal 2025 | 556,000 |
| Fiscal 2026 | 510,000 |
| Fiscal 2027 | 419,000 |
| Thereafter | 1,979,000 |
| Total future minimum lease payments | 4,203,000 |
| Less imputed interest | (854,000) |
| Present value of lease liabilities | 3,349,000 |
| Less current portion of lease liabilities | (406,000) |
| Long-term portion of lease liabilities | $ 2,943,000 |
LEASES (Details Narrative) - USD ($) |
9 Months Ended | |
|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Leases | ||
| Cash paid for amounts included in operating lease liabilities | $ 429,000 | $ 446,000 |
| Operating leases term | 7 years 9 months 18 days | |
| Operating leases | 5.70% | |
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (Details) - USD ($) |
Jun. 30, 2023 |
Sep. 30, 2022 |
|---|---|---|
| Payables and Accruals [Abstract] | ||
| Accrued commissions/bonuses | $ 701,000 | $ 722,000 |
| Paid time off | 320,000 | 228,000 |
| Other | 262,000 | 204,000 |
| Total | $ 1,283,000 | $ 1,154,000 |