Forward Industries, Inc. 10-K

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market for Common Stock The principal market for our common stock is Nasdaq. Our common stock is traded under the symbol “FORD”. On November 30, 2020, the closing price for our common stock was $1.83. Holders of common stock . At November 30, 2020, there were approximately 75 holders of record of our common stock. Because many of our shares of common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders. Dividends We have not paid any cash dividends on our common stock since 1987 and do not plan to pay cash dividends in the foreseeable future. The payment of dividends in the future, if any, will depend upon our results of operations, as well as our short-term and long-term cash availability, net working capital, working capital needs, and other factors, as determined by our Board of Directors. Currently, except as may be provided by applicable laws, there are no contractual or other restrictions on our ability to pay dividends if we were to decide to declare and pay them. Recent Sales of Unregistered Securities None. ITEM 6. SELECTED FINANCIAL DATA Not applicable. ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this report on Form 10-K. All dollar amounts and percentages presented herein have been rounded to approximate values. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to those set forth under “Risk Factors.” 19 Cautionary statement regarding Forward-Looking Statement This report includes “forward-looking statements”, as such term is used within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, among other things, statements regarding: • Expectations regarding having our products in retail outlets; • Expectations regarding the timing and success of integrating Kablooe in the Company’s historical business; • Liquidity 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. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Annual Report on Form 10-K, and in particular, the risks discussed under the caption "Risk Factors" in Item 1A of this report and those discussed in other documents we file with the SEC. 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 fully integrated design, development and manufacturing solution provider for top tier medical and technology customers worldwide. As a result of the continued expansion of our design development capabilities through our wholly owned subsidiaries, IPS and Kablooe, we are now able to introduce proprietary products to the market from concepts brought to us from a number of different sources, both inside and outside the Company. The future impacts of the COVID-19 pandemic and any resulting economic impact are largely unknown and could be significant. It is possible that the COVID-19 pandemic, the measures taken by the governments of countries affected and the resulting economic impact may negatively impact our results of operations, cash flows and financial position in future periods as well as that of our customers, including their ability to pay for our services and choosing to allocate their budgets to new or existing projects which may or may not require our services. The long-term financial impact on our business cannot be reasonably estimated at this time. As a result, the effects of COVID-19 may not be fully reflected in our financial results until future periods. Until there is a vaccine and treatment that is widely distributed, we expect business conditions to remain challenging. In response to these challenges, we will continue to focus on those factors that we can control: closely managing and controlling our expenses; aligning our design and development schedules with demand in a proactive manner as there are changes in market conditions to minimize our cash operating costs; pursuing further improvements in the productivity and effectiveness of our development, selling and administrative activities and, where appropriate, taking advantage of opportunities to enhance our business growth and profitability strategy. Additionally, see Part I., Item 1A. Risk Factors - The adverse impact of COVID-19 on our businesses will continue for an unknown length of time and may continue to impact our results of operations. 20 Variability of Revenues and Results of Operation Because a high percentage of our revenues is highly concentrated in a few large customers, and because the volumes of these customers’ order flows to us are highly variable, with short lead times, our quarterly revenues, and consequently our results of operations, are susceptible to significant variability over a relatively short period of time. Critical Accounting Policies and Estimates We have identified the accounting policies and significant estimation processes below as critical to our business operations and the understanding of our results of operations. The discussion below is not intended to be comprehensive. In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. GAAP, with no need for management’s judgment. In other cases, management is required to exercise judgment in the application of accounting principles with respect to particular transactions. The impact and any associated risks related to these policies on our business operations are discussed throughout this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” where such policies affect reported and expected financial results. For a detailed discussion of the applications of these and other accounting policies, see “Item 8. Financial Statements and Supplementary Data” in this Annual Report. Our preparation of our Consolidated Financial Statements requires us to make estimates and assumptions that are believed to be reasonable under the circumstances. There can be no assurance that actual results will not differ from those estimates and such differences could be significant. Revenue Recognition Distribution Segment The Company generally recognizes revenue in its distribution segment when: (i) finished goods are shipped to our distribution customers (in general, these conditions occur at either point of shipment or point of destination, depending on the terms of sale, i.e., transfer of control); (ii) there are no other deliverables or performance obligations; and (iii) there are no further obligations to the customer after the title of the goods has transferred. When the Company receives consideration before achieving the criteria previously mentioned, it records a contract liability, which is classified as a component of deferred income in the accompanying consolidated balance sheets. Contract liabilities at September 30, 2020 and 2019 were $75,000 and $0, respectively, for the distribution segment. Design Segment The Company applies the “cost to cost” and “right to invoice” methods of revenue recognition to the contracts with customers in the design segment. The design segment typically engages in two types of contracts: (i) time and material and (ii) fixed price contracts. The Company recognizes revenue over time on its time and material contracts utilizing a “right to invoice” method. Revenues from fixed price contracts that require performance of services that are not related to the production of tangible assets are recognized by using cost inputs to measure progress toward the completion of its performance obligations or the “cost to cost” method. Revenues from 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 consolidated balance sheets. Contract assets at September 30, 2020 and 2019 were $649,000 and $611,000, respectively. Contracts where collections to date have exceeded recognized revenues, or contract liabilities, are recorded as a liability and classified as a component of deferred income in the accompanying consolidated balance sheets. Contract liabilities at September 30, 2020 and 2019 were $410,000 and $220,000, respectively. 21 Business Combinations The Company allocates the fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, the Company makes significant estimates and assumptions, especially with respect to intangible assets. Critical estimates in valuing certain intangible assets include but are not limited to future expected cash flows from customer relationships and developed technology, discount rates and terminal values. Our estimate of fair value is based upon assumptions believed to be reasonable, but actual results may differ from estimates. Other estimates associated with the accounting for acquisitions may change as additional information becomes available regarding the assets acquired and liabilities assumed. Segment Reporting The Company has two reportable segments: distribution and design. The distribution segment consists of two reporting units (Forward US and Forward Switzerland, that collectively comprise one operating segment) that source and distribute carrying cases and other accessories for medical monitoring and diagnostic kits and a variety of other portable electronic and non-electronic devices. 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. Organizing our business through these operating segments allows us to align our resources and manage our operations. Our chief operating decision maker regularly reviews operating segment revenue and profitability when assessing financial results of operating segments and allocating resources. We measure the performance of our operating segments based upon operating segment revenue and operating income or loss. Segment operating income or loss includes revenues earned and expenses incurred directly by the operating segment, including cost of sales and selling, marketing, and general and administrative expenses (see Note 16 for more discussion on operating segments). Goodwill and Intangible Assets The Company reviews goodwill for impairment at least annually, or more often if triggering events occur. The Company has two reporting units with goodwill and we perform our annual goodwill impairment test on September 30, the end of the fiscal year, or upon the occurrence of a triggering event. The Company has the option to perform a qualitative assessment to determine if an impairment is more likely than not to have occurred. If the Company can support the conclusion that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then the Company would not need to perform the impairment test for the reporting unit. If the Company cannot support such a conclusion or does not elect to perform the qualitative assessment, then the Company will compare the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying value, no impairment charge is recognized. If the fair value of the reporting unit is less than its carrying value, an impairment charge will be recognized for the amount by which the reporting unit’s carrying amount exceeds its fair value. A significant amount of judgment is required in performing goodwill impairment tests including estimating the fair value of a reporting unit and the implied fair value of goodwill. During Fiscal 2020, the Company recorded an impairment charge related to goodwill (See Note 4). 22 Recent Accounting Pronouncements In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-13 “Fair Value Measurement – Disclosure Framework (Topic 820)” to improve the disclosure requirements on fair value measurements. The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for any removed or modified disclosures. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements. In November 2019, the FASB issued ASU 2019-08, “Compensation - Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606)” to provide guidance for share-based payment awards granted to a customer in conjunction with selling goods or services accounted for under Topic 606. The pronouncement is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements. In November 2019, the FASB issued ASU 2019-11, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses.” ASU 2019-11 is an accounting pronouncement that provides clarity to and amends earlier guidance on this topic and would be effective concurrently with the adoption of such earlier guidance. This pronouncement is effective for the Company 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 consolidated financial statements. In August 2018, the FASB issued ASU 2018-15 “ Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40)” addressing customers’ accounting for implementation costs incurred in a cloud computing arrangement that is a service contract, which requires customers to apply internal-use software guidance to determine the implementation costs that are able to be capitalized. Capitalized implementation costs are required to be amortized over the term of the arrangement, beginning when the cloud computing arrangement is ready for its intended use. The effective date of the new guidance for public companies is for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements. In December 2019, the FASB issued ASU 2019-12 “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This guidance removes certain exceptions to the general principles in Topic 740 and provides consistent application of U.S. GAAP by clarifying and amending existing guidance. The effective date of the new guidance for public companies is for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the timing of adoption and impact of the updated guidance on its consolidated financial statements. RESULTS OF OPERATIONS FOR FISCAL 2020 COMPARED TO FISCAL 2019 Net Loss Distribution Segment Distribution segment net loss was $1,321,000 in Fiscal 2020 compared to $1,811,000 in Fiscal 2019. The decrease in net loss in Fiscal 2020 was due to an increase in other income related to fair value adjustments (non-cash income), a decrease in general and administrative expenses, partially offset by lower revenue and gross profit. Design Segment Net loss for the design segment was $364,000 in Fiscal 2020 as compared to $1,793,000 in Fiscal 2019. The decrease in net loss in Fiscal 2020 resulted from higher gross profit, lower general and administrative expenses, partially offset by the impairment of goodwill (non-cash expense). 23 Main components of net loss for the distribution and design segments are reflected in the table below: Main Components of Net Income (amounts in thousands) Fiscal 2020 Fiscal 2019 Increase (Decrease) Consolidated Distribution Design Consolidated Distribution Design Consolidated Net revenues $ 34,478 $ 20,752 $ 13,726 $ 37,409 $ 21,988 $ 15,421 $ (2,931 ) Gross profit $ 6,639 $ 2,775 $ 3,864 $ 6,581 $ 3,375 $ 3,206 $ 58 Sales and marketing expenses 1,951 1,495 456 1,965 1,441 524 (14 ) General and administrative expenses 5,655 2,884 2,771 7,713 3,311 4,402 (2,058 ) Goodwill impairment 1,015 – 1,015 – – – 1,015 Operating loss (1,982 ) (1,604 ) (378 ) (3,097 ) (1,377 ) (1,720 ) 1,115 Other (income)/expense, net (216 ) (202 ) (14 ) 511 438 73 (727 ) Income tax provision/(benefit) 9 9 – (4 ) (4 ) – 13 Net loss $ (1,775 ) $ (1,411 ) $ (364 ) $ (3,604 ) $ (1,811 ) $ (1,793 ) $ 1,829 Consolidated basic and diluted income loss per share was $0.19 and $0.38 for Fiscal 2020 Fiscal 2019, respectively. Net Revenues We generate revenue through two reportable segments: distribution and design. We believe that our total revenue will increase in the future as we grow our retail business and integrate the Kablooe business. We continue to work on integrating the sales forces for both the distribution and design segments of our business to explore synergistic opportunities. The chart below indicates the revenues by operating segment for Fiscal 2020 and Fiscal 2019: (amounts in thousands) Fiscal 2020 Fiscal 2019 Increase (Decrease) Distribution $ 20,752 $ 21,988 $ (1,236 ) Design 13,726 15,421 (1,695 ) Total $ 34,478 $ 37,409 $ (2,931 ) 24 Distribution Segment Net revenues in the distribution segment declined $1,236,000, or 5.6%, to $20,752,000 in Fiscal 2020 from $21,988,000 in Fiscal 2019 due to reduced revenues in the sale of diabetic products partially offset by an increase in other product revenue. Revenues from diabetic products declined $2,314,000 and revenues from other products increased $1,078,000. We believe this decrease in diabetic product sales and increase in other product sales is a trend that will continue. The following tables set forth revenues by channel, product line and geographic location of our distribution segment customers for the periods indicated: Net Revenues for Fiscal 2020 (amounts in thousands) Americas APAC EMEA Total Diabetic products $ 4,896 $ 5,572 $ 6,769 $ 17,237 Other products 2,439 760 316 3,515 Total net revenues $ 7,335 $ 6,332 $ 7,085 $ 20,752 Net Revenues for Fiscal 2019 (amounts in thousands) Americas APAC EMEA Total Diabetic products $ 5,187 $ 6,645 $ 7,719 $ 19,551 Other products 1,126 1,151 160 2,437 Total net revenues $ 6,313 $ 7,796 $ 7,879 $ 21,988 Diabetic Product Revenues Our distribution segment sources 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, sell them through their retail distribution channels. Revenues from diabetic products declined $2,314,000, or 11.8%, to $17,237,000 in Fiscal 2020 from $19,551,000 in Fiscal 2019. The decline was primarily due to lower revenues from two major diabetic customers (Diabetic Products Customers B and C). Revenue declines from other major diabetic customers were less significant and were partially offset by an increase in revenue from all of our other diabetic products customers. As mentioned above, management believes that revenues from diabetic customers will continue to decline. The following table sets forth our distribution segment net revenues by diabetic products customer for the periods indicated: (amounts in thousands) Fiscal 2020 Fiscal 2019 Increase (Decrease) Diabetic Products Customer A $ 6,145 $ 6,513 $ (368 ) Diabetic Products Customer B 3,448 4,128 (680 ) Diabetic Products Customer C 4,912 6,114 (1,202 ) Diabetic Products Customer D 1,924 2,265 (341 ) All other Diabetic Products Customers 808 531 277 Total Diabetic Revenue $ 17,237 $ 19,551 $ (2,314 ) 25 Revenues from diabetic products represented 83% of net revenues for the distribution segment in Fiscal 2020 compared to 89% in Fiscal 2019. Other Product Revenues Our distribution segment also sources and sells cases and protective solutions to OEMs 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. In Fiscal 2020, other product revenues were also derived from the sales and sourcing of personal protective equipment. Revenues from other products increased $1,078,000, or 44%, to $3,515,000 in Fiscal 2020 from $2,437,000 in Fiscal 2019. Revenues from the sale of personal protective equipment increased $758,000 and sales from other products increased $320,000. We will continue to focus on our sales and sales support teams in our attempt to expand and diversify our other products customer base. Revenues of other products represented 17% of our net revenues in Fiscal 2020 as compared to 11% in Fiscal 2019. Design Segment Net revenues in the design segment declined $1,695,000, or 11.0%, to $13,726,000 in Fiscal 2020 from $15,421,000 in Fiscal 2019. The decline in revenues was due to the reduction or delay in demand for design and development projects, partially related to COVID-19. Since its acquisition on August 17, 2020, Kablooe generated revenue of $172,000 in Fiscal 2020. The following table sets forth our design segment net revenues by major customers for the periods indicated: (amounts in thousands) Fiscal 2020 Fiscal 2019 Increase (Decrease) Design Segment Customer 1 $ 2,585 $ – $ 2,585 Design Segment Customer 2 1,781 1,476 305 Design Segment Customer 3 1,958 2,985 (1,027 ) Design Segment Customer 4 – 2,616 (2,616 ) Design Segment Customer 7 – 1,080 (1,080 ) All other Design Segment Customers 7,402 7,264 138 Total net revenues $ 13,726 $ 15,421 $ (1,695 ) Gross Profit Distribution Segment Gross profit for the distribution segment declined $600,000, or 17.8%, to $2,775,000 in Fiscal 2020 from $3,375,000 in Fiscal 2019. Gross margin declined to 13.4% in Fiscal 2020, compared to 15.3% in Fiscal 2019. These declines were driven primarily by lower sales revenue and a shift to lower-margin cases and pricing pressures on diabetic products from customers. The decline in gross margin from our diabetic products was partially offset by higher gross margins on the sale of personal protective equipment in Fiscal 2020. We are working on expanding our product offering to include higher margin products as well as enhancing our sales efforts to raise top side gross sales to raise total gross profit. 26 Design Segment Gross profit for the design segment increased $658,000, or 20.5%, to $3,864,000 in Fiscal 2020 from $3,206,000 in Fiscal 2019. Gross margin improved from 20.8% Fiscal 2019 to 28.2% in Fiscal 2020. Gross margin in Fiscal 2019 was significantly lower than historical performance due to project overruns for two significant customers in that year. Depreciation expense, which is allocated to cost of sales for the design segment, was $98,000 and $139,000 for Fiscal 2020 and Fiscal 2019, respectively. Sales and Marketing Expenses Distribution Segment Sales and marketing expenses for the distribution segment increased $54,000, or 3.7%, to $1,495,000 in Fiscal 2020 from $1,441,000 in Fiscal 2019. The increase was primarily due to additional amortization on the cost of the Mooni Agreement (see Note 19). Sales and marketing expenses for the distribution segment increased to 7.2% of revenues in Fiscal 2020 from 6.6% in Fiscal 2019. Design Segment Sales and marketing expenses for the design segment decreased $68,000, or 13.0%, to $456,000 in Fiscal 2020 from $524,000 in Fiscal 2019. The decrease was primarily due to lower sales commissions and entertainment related expenses, partially offset by higher sales salaries. Sales and marketing expenses for the design segment remained fairly consistent at 3.3% of revenues in Fiscal 2020 compared to 3.4% in Fiscal 2019. General and Administrative Expenses Distribution Segment General and administrative expenses for the distribution segment declined $427,000, or 12.9%, to $2,884,000 in Fiscal 2020 from $3,311,000 in Fiscal 2019. This decline was primarily due to a $511,000 reduction in legal fees related to responding to an SEC subpoena in Fiscal 2019 (which includes an $80,000 insurance settlement received in Fiscal 2020), a decrease in bad debt expense of $69,000, partially offset by higher professional fees of $100,000 (related to the Kablooe acquisition, valuation work and other matters), severance costs of $157,000 and $65,000 related to internal software implementation projects. General and administrative expenses as a percentage of revenue for the distribution segment decreased to 13.9% in Fiscal 2020 from 15.1% in Fiscal 2019. Design Segment General and administrative expenses for the design segment decreased $1,631,000, or 37.1%, to $2,771,000 in Fiscal 2020 from $4,402,000 for Fiscal 2019. The decrease is primarily related to a $2,075,000 reduction in bad debt expense, partially offset by the $327,000 investment impairment discussed in Note 6. Amortization of intangible assets is allocated to general and administrative expenses in the design segment. Amortization of intangible assets was $167,000 and $163,000 for Fiscal 2020 and Fiscal 2019, respectively. 27 Other (Income)/Expense Distribution Segment The distribution segment reported other income of $202,000 in Fiscal 2020 as compared to other expense of $438,000 in Fiscal 2019. The variance is due to fair value adjustments of $334,000 in Fiscal 2020 to reduce the deferred consideration liability associated with the IPS acquisition as compared to fair value adjustments of $296,000 in Fiscal 2019 to increase this deferred consideration liability. Design Segment The design segment reported other income of $14,000 in Fiscal 2020 as compared to other expense of $73,000 in Fiscal 2019. The change relates to interest payments of $61,000 received on the note receivable written off in Fiscal 2019 (See Note 6). In addition, interest expense was lower in Fiscal 2020 due to lower interest rates and a reduction in the average amount of debt outstanding. Income Taxes In Fiscal 2020, the Company recorded a tax provision of $9,000, generated a loss before income taxes of $1,766,000 and had an effective tax rate of 0.5%. In Fiscal 2019, the Company recorded a tax benefit of $4,000, generated a loss before income taxes of $3,604,000 and had an effective tax rate of 0.1%. The Company maintains significant net operating loss carryforwards and does not recognize a significant income tax provision/(benefit) as its deferred tax provision is typically offset by maintaining a full valuation allowance on its net deferred tax assets. The Fiscal 2020 tax provision is primarily comprised of income taxes assessed in states where net operating losses are not available. 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. As of the filing date of this report, we had $300,000 available under our $1,300,000 line of credit which matures May 31, 2021. Additionally, Forward China holds a $1,600,000 promissory note which was extended to December 31, 2021 (see Note 14). Although this note has been extended on multiple occasions to assist the Company with its liquidity position, we plan on funding the repayment at maturity using existing cash balances and/or obtaining an additional credit facility as deemed necessary. We can provide no assurance that Forward China will extend the note again if we request an extension nor that any such credit facility will be available on terms acceptable to us or at all. As discussed in Note 18, on April 18, 2020, the Company entered into a loan in an aggregate principal amount of $1,357,000 under the Paycheck Protection Program (the “PPP Loan”) pursuant to the recently enacted U.S. Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). In December 2020, the Small Business Administration approved our forgiveness request for this loan. We anticipate that our liquidity and financial resources for the next 12 months from the date of the filing 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. 28 At September 30, 2020, our working capital (current assets less current liabilities) was $3,396,000 compared to $3,542,000 at September 30, 2019. As of November 30, 2020, we had $2,594,000 of cash on hand. Although we do not anticipate the need to purchase any 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 Fiscal 2020 and Fiscal 2019, our sources and uses of cash were as follows: Cash Flows from Operating Activities During Fiscal 2020, cash used in operating activities of $263,000 resulted from a net loss of $1,775,000, an increase in accounts receivable of $733,000, non-cash fair value adjustments of $334,000, and bad debt recoveries of $78,000, partially offset by non-cash impairment charges of $1,342,000, depreciation and amortization of $272,000, share-based compensation of $245,000 and the net change in other operating assets and liabilities of $798,000. During Fiscal 2019, cash used in operating activities of $1,970,000 resulted from a net loss of $3,604,000, a reduction of accounts payable (including due to Forward China) of $975,000, a net loss reconciling adjustment of $327,000 for the fair value of cost method investment for services provided, an increase in prepaid expenses and other current assets of $193,000, an increase in other assets of $191,000 and an increase in inventory of $40,000, partially offset by the reduction of accounts receivable of $264,000, an increase in accrued expenses and other current liabilities of $97,000, an increase in deferred income of $95,000, and the add-back of non-cash items including bad debt expense of $2,065,000, depreciation and amortization of $312,000, share-based compensation expense of $216,000, deferred rent amortization of $16,000 and a non-cash increase of $296,000 in fair value adjustments of the earn-out consideration and deferred cash consideration. Cash Flows from Investing Activities In Fiscal 2020, cash used for investing activities of $390,000 primarily resulted from the $353,000 cash consideration paid for the Kablooe acquisition and purchases of property and equipment of $68,000. In Fiscal 2019, cash used for investing activities of $33,000 resulted from purchases of property and equipment. Cash Flows from Financing Activities In Fiscal 2020, cash provided by financing activities of $485,000 consisted of $1,357,000 proceeds from the PPP Loan, borrowings of $900,000 under our line of credit and $32,000 in proceeds from stock options exercised, partially offset by $1,200,000 in repayments on the line of credit, $500,000 paid out on the deferred cash consideration and $104,000 in repayments on notes payable and capital leases. In Fiscal 2019, cash provided by financing activities of $726,000 consisted of $1,550,000 in borrowings on the line of credit, offset by $600,000 in repayments on the line of credit and $225,000 in repayments on notes payable and capital leases. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. 29 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements and notes thereto included in this Annual Report may be found beginning on page F-1 of this Annual Report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.