What changed in this filing

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Item 1A. Risk Factors

2020-12-17 compared with 2019-12-27 · 137 added, 107 removed, 379 unchanged (39% of the section changed)

Investing in our common

stock involves a high degree of risk.

You should carefully consider the following Risk Factors before deciding whether to purchase

or sell stock in the Company.

Additional risks and uncertainties not presently known to us, or that we currently deem immaterial,

may also impair our business operations or our financial condition.

If any of the events discussed in the Risk Factors below occur,

our business, consolidated financial condition, results of operations or prospects could be materially and adversely affected.

such case, the value and marketability of the common stock could decline.

Risks Relating to Our Business

Investing in our

common stock involves a high degree of risk.

You should carefully consider the following Risk Factors before deciding whether

to purchase or sell stock in the Company.

Additional risks and uncertainties not presently known to us, or that we currently

deem immaterial, may also impair our business operations or our financial condition.

If any of the events discussed in the

Risk Factors below occur, our business, consolidated financial condition, results of operations or prospects could be

materially and adversely affected.

In such case, the value and marketability of the common stock could decline.

Risks Relating to Our Business, Liquidity and Operations

Our results of operations have been

negatively impacted by the coronavirus pandemic.

The COVID-19 pandemic

has spread across the globe and continues to negatively impact worldwide economic activity and has impacted our

Company in a number of ways.

COVID-19 has increased the risk that the Company or its employees, suppliers, customers

and other commercial partners may be prevented from conducting business for an indefinite period of time, including due to the

spread of the disease or shutdowns requested or mandated by governmental authorities.

Specifically, COVID-19 has increased the

risk of customers’

inability to pay for our design services and has the potential to continue to impact collections on the

distribution side of the business.

The Company has transitioned some of its employees to working remotely, which subjects

the Company to increased cybersecurity risks and may reduce workplace efficiency.

Business shutdowns have disrupted our supply

chain and the manufacture or shipment of our products and have delayed the rollout of our smart enabled retail products to big

box retail stores.

The full extent of

COVID-19’s negative impact on our business remains uncertain and it is not possible at this time to estimate the full impact

that COVID-19 will have on our business.

Any of the issues discussed above could have a material adverse effect on our business

if this continues for an extended period of time.

If we incur significant declines in customer orders, increased aging of accounts

receivable or other negative consequences due to COVID-19, the extent of which remains highly uncertain, it will have a material

adverse effect on our business, financial condition and results of operations.

During Fiscal 2020, we generated an

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In Fiscal 2020, we

generated an operating loss of approximately $3.1 million and had net cash used in operating activities of approximately $2.0 million.

Although we generated net income in Fiscal 2018 and 2017, we incurred significant losses from operations in Fiscal 2019.

provide no assurance that we will not continue to experience operating losses.

In addition to our $1.3 million commercial line

of credit (the “Line of Credit”) of which approximately $1.3 million has been utilized as of the date of this report,

Forward China holds a $1.6 million note which is due January 17, 2020.

If we cannot generate sufficient revenues to operate profitably,

we may be forced to cease, limit or suspend operations, or we may be required to raise capital to maintain or grow our operations.

There is no assurance that we will be able to raise such capital.

generated an operating loss of $1,982,000 and had net cash used in operating activities of $263,000.

Although we generated net

income in Fiscal 2018 and 2017, we incurred significant losses from operations in Fiscal 2019 and Fiscal 2020.

We can provide no

assurance that we will not continue to experience operating losses.

In addition to our $1,300,000 commercial line of credit (the

“Line of Credit”) of which $1,000,000 has been utilized as of the date of this report, Forward China holds a $1,600,000

note which is due December 31, 2021.

Forward China, which is owned by our Chief Executive Officer and Chairman of the Board, has

agreed to extend this note numerous times to assist the Company with its liquidity resources.

We cannot provide you with any assurance

that he will continue to grant us extensions on this note.

If we cannot generate sufficient revenues to operate profitably, we

may be forced to cease, limit or suspend operations, or we may be required to raise capital to maintain or grow our operations.

There is no assurance that we will be able to raise such capital and if so on terms that are not onerous and dilutive to the Company

and its shareholders.

While we believe that

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Revenues from diabetic

Products to distribution customers accounted for approximately 89% of our distribution net revenues in Fiscal 2019.

our financial condition and results of operations are subject to higher risk from the loss of a major Diabetic Products customer

or changes in their business practices.

For example, in 2018 a new diabetes monitoring product has been brought to the market which

does not use a carrying case.

If our customers use new solutions in their diabetes product lines that do not use carrying cases,

our business would be materially and adversely affected.

products to distribution customers accounted for 83% of our distribution net revenues in Fiscal 2020.

As a result, our financial

condition and results of operations are subject to higher risk from the loss of a major diabetic products customer or changes in

their business practices.

For example, in 2018 a new diabetes monitoring product was brought to the market which does not use a

carrying case.

If our customers use new solutions in their diabetes product lines that do not use carrying cases, our business

would be materially and adversely affected.

The loss of any of, or a material reduction

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Our four largest distribution customers accounted for

approximately 87% and 84% of distribution net revenues in Fiscal 2019 and Fiscal 2018, respectively.

Additionally four of our largest

design and development customers accounted for approximately 53% and 47% of design and development net revenues in Fiscal 2019

and Fiscal 2018 (beginning with the acquisition of IPS), respectively.

Although we continue our efforts to diversify our business,

we cannot provide any assurance that we will be successful.

The loss of any of these customers would have a material adverse effect

on our financial condition, liquidity and results of operations.

79% and 87% of distribution net revenues in Fiscal 2020 and Fiscal 2019, respectively.

Additionally, three of our largest design

and development customers accounted for 46% of design and development net revenues in both Fiscal 2020 and Fiscal 2019.

we continue our efforts to diversify our business, we cannot provide any assurance that we will be successful.

The loss of any

of these customers would have a material adverse effect on our financial condition, liquidity and results of operations.

If any one or more of our distribution

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to restrict healthcare spending could result in decreased sales of our products.

If one or more of our distribution customers generally

begin to reduce or discontinue the practice of including carry case accessories “in box”

or if our customers experience

reduced demand for their products as a result of political changes, we may incur a significant decline in our revenues and our

results of operations and financial condition would be materially and adversely affected.

If one or more of our distribution customers reduce

or discontinue the practice of including carry case accessories “in box”

or if our customers experience reduced demand

for their products as a result of political changes, we may incur a significant decline in our revenues and our results of operations

and financial condition would be materially and adversely affected.

Rising threats of international tariffs,

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report, the Company had not been directly affected by the tariffs implemented by President Trump on the medical technology industry.

If any such tariffs or any restrictions are imposed on products that we import to our customers, we would be required to raise

our prices which may result in the loss of customers and harm our business.

Additionally, some of our non-diabetic distribution

customers and customers in the design and development business have been affected by these tariffs, specifically those who manufacture

electronic products.

This may cause these customers to reduce the amount of discretionary spending they use on outsource product

design and engineering services supplied by IPS.

Changes in political conditions in China

and changes in the state of China-U.S.

relations, including the current trade war, are difficult to predict and could adversely

affect the operations or financial condition of the Company.

In addition, because of our involvement in the Chinese market, any

deterioration in political or trade relations might cause a public perception in the U.S.

or elsewhere that might cause our business

to become less attractive.

However, we do not know what the new administration will implement when President-Elect Biden takes office.

If any such tariffs

or any restrictions are imposed on products that we import to our customers, we would be required to raise our prices which may

result in the loss of customers and harm our business.

Additionally, some of our non-diabetic distribution customers and customers

in the design and development business have been affected by these tariffs, specifically those who manufacture electronic products.

This may cause these customers to reduce the amount of discretionary spending they use on outsource product design and engineering

services supplied by our design segment.

Changes in political

conditions in China and changes in the state of China-U.S.

relations, including the current trade tensions, are difficult to predict

and could adversely affect the operations or financial condition of the Company.

In addition, because of our involvement in the

Chinese market, any deterioration in political or trade relations might cause a public perception in the U.S.

or elsewhere that

might cause our business to become less attractive.

Such an impact could adversely affect our revenues and cash flows.

We continue to encounter pressures from

We continue to encounter pressure from

our largest distribution customers to maintain or even decrease prices, or to supply lower priced carry solutions, and expect such

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As a result, our ability to effectively push back against rising material costs may diminish,

although thus far Forward China has absorbed these costs.

although historically Forward China has absorbed these costs.

In addition, any inability to obtain supplies from a single or limited

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to us as our exclusive buying agent as a result of financial or other difficulties or for any other reason, or if our relationship

with Forward China were to suffer or we are unable to extend our agreement with Forward China which expires in October 2020, we

with Forward China was to suffer or we are unable to extend our agreement with Forward China which expires in October 2023, we

could suffer irreparable harm resulting in substantial harm to the distribution business.

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Additionally, our large design and development customers may have their budgets limited from many

factors including economic declines causing discretionary budgets to decline or may from-time-to-time choose to do their development

work in-house.

All of these factors tend to lead to a high degree of variability in our quarterly revenue levels.

rapid shifts in our operating results may occur if and when one or more of these customers increases or decreases the size(s) of,

or eliminates, their orders or engagement from us by amounts that are material to our business.

factors including economic declines (resulting from a pandemic or any other reason) causing discretionary budgets to decline or

may from-time-to-time choose to do their development work in-house.

All of these factors tend to lead to a high degree of variability

in our quarterly revenue levels.

Significant, rapid shifts in our operating results may occur if and when one or more of these

customers increases or decreases the size(s) of, or eliminates, their orders or engagement from us by amounts that are material

to our business.

Our gross margins, and therefore our

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it may cause us to lose customers and may harm our business.

Our inability to

maintain and improve our information technology systems and infrastructure may result in system interruptions.

System interruptions

and slow delivery times, unreliable service levels, prolonged or frequent service outages, or insufficient capacity may prevent

us from efficiently providing services to our customers on our website, which could result in our losing customers and revenue.

Our inability to maintain

and improve our information technology systems and infrastructure may result in system interruptions.

System interruptions and

slow delivery times, unreliable service levels, prolonged or frequent service outages, or insufficient capacity may prevent us

from efficiently providing services to our customers on our website, which could result in our losing customers and revenue.

We lease space for

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may be vulnerable to unauthorized persons hacking our systems, it could disrupt our operations and result in the theft of our proprietary

party who is able to breach the security measures on our networks could misappropriate either our or our customers’

information, or cause interruptions or malfunctions in our operations.

A party who is able

to breach the security measures on our networks could misappropriate either our or our customers’

proprietary information,

or cause interruptions or malfunctions in our operations.

Hacking of companies’

infrastructure is a growing

Although we believe our systems and engineering team have the capability of protecting the Company from any such hacking,

we can provide you with no such assurance.

infrastructure is a growing problem.

we believe our systems and engineering team have the capability of protecting the Company from any such hacking, we can provide

you with no such assurance.

If we grow and obtain more visibility, we may be more vulnerable to hacking.

be required to expend significant capital and other resources to protect against such threats or to alleviate problems caused

by breaches in security, which could have a material adverse effect on our financial performance and operating results.

We may be required to

expend significant capital and other resources to protect against such threats or to alleviate problems caused by breaches in security,

which could have a material adverse effect on our financial performance and operating results.

Our design business uses software that

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Terence Wise, our

Chairman and Chief Executive Officer, is a significant shareholder who beneficially owns approximately 17% of the outstanding shares

of our common stock as of December 12, 2019.

Wise has substantial influence over the outcome of all matters submitted to our

shareholders for approval, including the election of our directors and other corporate actions.

This influence may be alleged to

conflict with our interests and the interests of our other shareholders.

Chairman and Chief Executive Officer, is a significant shareholder who beneficially owns approximately 17% of the outstanding

shares of our common stock as of September 30, 2020.

Wise has substantial influence over the outcome of all matters submitted

to our shareholders for approval, including the election of our directors and other corporate actions.

This influence may be alleged

to conflict with our interests and the interests of our other shareholders.

In addition, such influence by Mr.

Wise could have the

effect of discouraging potential business partners or create actual or perceived governance instabilities that could adversely

Wise could have

the effect of discouraging potential business partners or create actual or perceived governance instabilities that could adversely

affect the price of our common stock.

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factors could affect the market price of our common stock:

Our failure to increase revenue in each succeeding quarter;

Our failure to achieve and maintain profitability;

Our failure to increase revenue in each succeeding quarter and achieve and thereafter maintain profitability;

Our failure to meet our revenue and earnings guidance or our failure to meet financial analysts’

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The loss of Forward China as our agent;

The loss of a number of buyers or our failure to attract more buyers;

The loss of customers or our failure to attract more customers;

The sale of a large amount of common stock by our shareholders;

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Short selling activities;

Our announcement of any financing which is dilutive to our shareholders;

Our announcement of a change in the direction of our business;

Announcements by us, or our competitors,

of significant contracts, acquisitions, commercial relationships, joint ventures or

capital commitments.

Our announcement of any financing or a change in the direction of our business;

Announcements by us, or our competitors, of significant contracts, acquisitions, commercial relationships, joint ventures or capital commitments.

In the past, following

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trading volume on The Nasdaq Capital Market (“Nasdaq”) has been approximately 120,000 shares of common stock for the

six trading days prior to December 17, 2019.

six trading days prior to November 30, 2020.

An active market for our common stock may never develop, or if it does, it may not

be sustained.

Accordingly, investors may experience difficulty is selling their shares of common stock at or above the price they

Accordingly, investors may experience difficulty in selling their shares of common stock at or above the price they

paid for them, or at all.

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ability to trade in our common stock.

Our common stock

trades on Nasdaq.

Our common stock trades

Nasdaq rules impose certain continued listing requirements, including the minimum $1 bid price, corporate governance

standards and number of public stockholders.

As of December 23, 2019, our closing bid price was $1.00.

If we fail to meet these

continued listing requirements, Nasdaq may take steps to delist our common stock.

If our common stock is delisted from The Nasdaq

Capital Market, we could face significant material adverse consequences, including:

At November 30, 2020, our closing bid price was $1.83.

If we fail to meet these continued

listing requirements, Nasdaq may take steps to delist our common stock.

If our common stock is delisted from The Nasdaq Capital

Market, 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, possibly resulting in a reduced level of trading activity in the secondary trading market for 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, possibly resulting in a reduced level of trading activity in the secondary trading market for our common stock;

a limited amount of news and analyst coverage for our company;

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we may receive inquiries from regulators regarding our compliance with laws and other matters.

We have incurred significant expenses,

responding to an SEC investigation into potential insider trading by certain insiders of the Company.

Recently, we incurred significant

expenses responding to an SEC investigation into potential insider trading by certain insiders of the Company.

Although that investigation

has concluded, responding to or defending other such actions will cause us to continue to incur substantial expenses and divert

has concluded, responding to, or defending other such actions would cause us to continue to incur substantial expenses and divert

our management’s attention.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors