Forward Industries, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS FORWARD INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS June 30, September 30, 2021 2020 Assets (Unaudited) Current assets: Cash $ 1,604,649 $ 2,924,627 Accounts receivable, net 7,683,659 7,602,316 Inventories 1,907,137 1,275,694 Prepaid expenses and other current assets 500,893 419,472 Total current assets 11,696,338 12,222,109 Property and equipment, net 183,740 215,323 Intangible assets, net 1,371,847 1,531,415 Goodwill 1,758,682 1,758,682 Operating lease right of use assets, net 3,848,462 3,512,042 Other assets 72,251 116,697 Total assets $ 18,931,320 $ 19,356,268 Liabilities and shareholders' equity Current liabilities: Line of credit $ – $ 1,000,000 Current portion of note payable to Forward China – 1,600,000 Accounts payable 234,644 197,022 Due to Forward China 4,439,838 3,622,401 Deferred income 444,445 485,078 Current portion of notes payable 29,159 983,395 Current portion of finance lease liability 4,050 18,411 Current portion of earnout consideration – 45,000 Current portion of operating lease liability 348,914 259,658 Accrued expenses and other current liabilities 624,328 615,401 Total current liabilities 6,125,378 8,826,366 Other liabilities: Note payable to Forward China, less current portion 1,600,000 – Notes payable, less current portion – 529,973 Operating lease liability, less current portion 3,644,688 3,359,088 Finance lease liability, less current portion – 12,769 Earnout consideration, less current portion 70,000 45,000 Total other liabilities 5,314,688 3,946,830 Total liabilities 11,440,066 12,773,196 Commitments and contingencies – – Shareholders' equity: Common stock, par value $ 0.01 per share; 40,000,000 shares authorized; 10,031,185 and 9,883,851 shares issued and outstanding at June 30, 2021 and September 30, 2020, respectively 100,312 98,838 Additional paid-in capital 19,878,497 19,579,684 Accumulated deficit ( 12,487,555 ) ( 13,095,450 ) Total shareholders' equity 7,491,254 6,583,072 Total liabilities and shareholders' equity $ 18,931,320 $ 19,356,268 The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 2 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, 2021 2020 2021 2020 Revenues, net $ 9,964,514 $ 9,548,732 $ 28,077,496 $ 25,872,963 Cost of sales 7,781,485 7,773,944 21,888,135 20,925,017 Gross profit 2,183,029 1,774,788 6,189,361 4,947,946 Sales and marketing expenses 620,737 464,247 1,802,134 1,478,880 General and administrative expenses 1,293,941 1,485,447 5,102,545 4,324,798 Goodwill impairment – – – 1,015,000 Income/(loss) from operations 268,351 ( 174,906 ) ( 715,318 ) ( 1,870,732 ) Gain on forgiveness of note payable – – ( 1,356,570 ) – Fair value adjustment of earnout consideration 10,000 – ( 20,000 ) ( 350,000 ) Fair value adjustment of deferred cash consideration – 3,000 – 12,000 Interest income ( 32,459 ) – ( 88,760 ) – Interest expense 45,802 37,148 138,908 132,275 Other expense, net 1,421 148 3,209 3,466 Income/(loss) before income taxes 243,587 ( 215,202 ) 607,895 ( 1,668,473 ) Provision for/(benefit from) income taxes – – – – Net income/(loss) $ 243,587 $ ( 215,202 ) $ 607,895 $ ( 1,668,473 ) Earnings/(loss) per share: Basic $ 0.02 $ ( 0.02 ) $ 0.06 $ ( 0.18 ) Diluted $ 0.02 $ ( 0.02 ) $ 0.06 $ ( 0.18 ) Weighted average common shares outstanding: Basic 9,963,969 9,534,407 9,919,579 9,534,034 Diluted 10,512,893 9,534,407 10,423,108 9,534,034 The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 3 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED) For the Three and Nine Months Ended June 30, 2021 Additional Common Stock Paid-In Accumulated Shares Amount Capital Deficit Total Balance at September 30, 2020 9,883,851 $ 98,838 $ 19,579,684 $ ( 13,095,450 ) $ 6,583,072 Share-based compensation – – 41,457 – 41,457 Stock options exercised 2,500 25 1,650 – 1,675 Net income – – – 1,199,036 1,199,036 Balance at December 31, 2020 9,886,351 98,863 19,622,791 ( 11,896,414 ) 7,825,240 Share-based compensation – – 21,287 – 21,287 Stock options exercised 66,415 665 141,858 – 142,523 Net loss – – – ( 834,728 ) ( 834,728 ) Balance at March 31, 2021 9,952,766 99,528 19,785,936 ( 12,731,142 ) 7,154,322 Share-based compensation – – 3,732 – 3,732 Stock options exercised 78,419 784 88,829 – 89,613 Net income – – – 243,587 243,587 Balance at June 30, 2021 10,031,185 $ 100,312 $ 19,878,497 $ ( 12,487,555 ) $ 7,491,254 For the Three and Nine Months Ended June 30, 2020 Additional Common Stock Paid-In Accumulated Shares Amount Capital Deficit Total Balance at September 30, 2019 9,533,851 $ 95,338 $ 18,936,130 $ ( 11,320,169 ) $ 7,711,299 Share-based compensation – – 33,179 – 33,179 Net loss – – – ( 81,657 ) ( 81,657 ) Balance at December 31, 2019 9,533,851 95,338 18,969,309 ( 11,401,826 ) 7,662,821 Share-based compensation – – 36,260 – 36,260 Net loss – – – ( 1,371,614 ) ( 1,371,614 ) Balance at March 31, 2020 9,533,851 95,338 19,005,569 ( 12,773,440 ) 6,327,467 Share-based compensation – – 37,678 – 37,678 Stock options exercised 50,000 500 31,500 – 32,000 Net loss – – – ( 215,202 ) ( 215,202 ) Balance at June 30, 2020 9,583,851 $ 95,838 $ 19,074,747 $ ( 12,988,642 ) $ 6,181,943 The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 4 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Nine Months Ended June 30, 2021 2020 Operating Activities: Net income/(loss) $ 607,895 $ ( 1,668,473 ) Adjustments to reconcile net income/(loss) to net cash used in operating activities: Share-based compensation 66,476 107,117 Depreciation and amortization 252,317 201,778 Bad debt expense/(recovery) 513,691 ( 121,431 ) Gain on forgiveness of note payable ( 1,356,570 ) – Change in fair value of earn-out consideration ( 20,000 ) ( 350,000 ) Change in fair value of deferred cash consideration – 12,000 Goodwill impairment – 1,015,000 Impairment of investment – 326,941 Changes in operating assets and liabilities: Accounts receivable ( 595,034 ) ( 1,448,384 ) Inventories ( 631,443 ) 881,408 Prepaid expenses and other current assets ( 81,421 ) ( 61,391 ) Other assets 44,446 117,006 Accounts payable and due to Forward China 855,059 ( 55,165 ) Deferred income ( 40,633 ) 305,932 Net changes in operating lease liabilities 38,437 27,303 Accrued expenses and other current liabilities 8,926 ( 49,608 ) Net cash used in operating activities ( 337,854 ) ( 759,967 ) Investing Activities: Purchases of property and equipment ( 61,166 ) ( 55,738 ) Net cash used in investing activities ( 61,166 ) ( 55,738 ) Financing Activities: Proceeds from line of credit borrowings 150,000 900,000 Repayment of line of credit borrowings ( 1,150,000 ) ( 1,200,000 ) Repayment of notes payable ( 127,639 ) ( 54,799 ) Proceeds from note payable – 1,356,570 Proceeds from stock options exercised 233,811 32,000 Repayments of finance leases ( 27,130 ) ( 26,244 ) Payment of deferred cash consideration – ( 200,000 ) Net cash (used in)/provided by financing activities  ( 920,958 ) 807,527 Net decrease in cash ( 1,319,978 ) ( 8,178 ) Cash at beginning of period 2,924,627 3,092,813 Cash at end of period $ 1,604,649 $ 3,084,635 Supplemental Disclosures of Cash Flow Information: Cash paid for interest $ 121,771 $ 126,791 Cash paid for taxes $ 7,336 $ 1,524 Supplemental Disclosures of Non-Cash Information: Lease assets exchanged for lease liabilities $ 565,590 $ – Lease assets recorded upon adoption of ASC 842 $ – $ 3,648,582 Lease liabilities recorded upon adoption of ASC 842 $ – $ 3,729,341 The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 5 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 OVERVIEW Business Forward Industries, Inc. (“Forward”, “we” or the “Company”) is a fully integrated design, development and manufacturing solution provider for top tier medical and technology customers worldwide. As a result of the continued expansion of our design and development capabilities through our wholly-owned subsidiaries, we are now able to introduce proprietary products to the market from concepts brought to us from a number of different sources, both inside and outside the Company. Impact of COVID-19 The outbreak of the COVID-19 virus continues to impact our results of operations. While the most significant impact was realized in Fiscal 2020, the virus continued to impact our results of operations in Fiscal 2021. The business shutdowns resulting from the pandemic disrupted our supply chain and the manufacture or shipment of our products and delayed the rollout of our retail products. Additionally, demand for our design and development services was reduced or delayed as a result of the pandemic as certain customers reduced discretionary spending. While revenues for the three and nine months ended June 30, 2021 increased as compared to the three and nine months ended June 30, 2020, they were lower than anticipated due in part to the impact of COVID-19 and the resulting economic conditions. The impact of lower than anticipated revenue was further complicated by a significant increase in freight costs due to the global shipping container shortage caused in part by the pandemic. These challenges were partially offset by a reduction in certain selling and travel related expenses. Many government restrictions have been relaxed and the economy has continued to open in more jurisdictions. However, the emergence of new and transmittable variants of COVID-19 could lead to a possible resurgence of the virus, particularly in populations with low vaccination rates and has resulted in new restrictions in certain geographies and among certain businesses. The long-term financial impact on our business cannot be reasonably estimated at this time. As a result, the effects of COVID-19 may not be fully reflected in our financial results until future periods. Refer to “Part II, Item 1A — Risk Factors” for a description of the material risks that the Company currently faces in connection with COVID-19. Until the pandemic is fully controlled, we expect business conditions to remain challenging. In response to these challenges, we will continue to focus on those factors that we can control: closely managing and controlling our expenses; aligning our design and development schedules with demand in a proactive manner as there are changes in market conditions to minimize our cash operating costs; pursuing further improvements in the productivity and effectiveness of our development, selling and administrative activities and, where appropriate, taking advantage of opportunities to enhance our business growth and strategy. To help mitigate the impact of these challenging business conditions, we implemented cost-cutting initiatives and reduced executive pay and Board of Directors compensation for the three months ended June 30, 2021. See “Liquidity and Capital Resources” section of Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further description of these cost-cutting measures. NOTE 2 ACCOUNTING POLICIES Basis of Presentation The accompanying condensed consolidated financial statements include the accounts of Forward Industries, Inc. and all of its subsidiaries: Forward Industries (IN), Inc. (“Forward US”), Forward Industries (Switzerland) GmbH (“Forward Switzerland”), Forward Industries UK Limited (“Forward UK”), Intelligent Product Solutions, Inc. (“IPS”) and Kablooe, Inc. (“Kablooe”). The terms “Forward”, “we” or the “Company” as used throughout this document are used to indicate Forward Industries, Inc. and all of its subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. 6 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The acquisition of Kablooe took place in August 2020 and its results of operations have been included in our condensed consolidated financial statements since the acquisition date. Accordingly, our results of operations for the three and nine months ended June 30, 2021 include Kablooe’s results of operations, while our results of operations for the three and nine months ended June 30, 2020 do not. Key terms of the acquisition are contained in our Form 10-K filed with the Securities and Exchange Commission on December 17, 2020. In the opinion of management, the accompanying condensed consolidated financial statements presented in this Quarterly Report on Form 10-Q reflect all normal recurring adjustments necessary to present fairly the financial position and results of operations and cash flows for the interim periods presented herein, but are not necessarily indicative of the results of operations for the year ending September 30, 2021. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the fiscal year ended September 30, 2020, and with the disclosures and risk factors presented therein. The September 30, 2020 condensed consolidated balance sheet has been derived from the audited consolidated financial statements. For the nine months ended June 30, 2021, the Company generated net income of $608,000, which includes $ 1,357,000 of forgiveness of note payable (see Note 12), and used $338,000 of cash flows in operating activities. The Company has an accumulated deficit of $12,488,000 at June 30, 2021. We believe our existing cash balance and working capital will be sufficient to meet our liquidity needs through at least September 30, 2022. Our largest vendor is Forward China, a related entity, which is able to extend payment terms on outstanding liabilities when necessary (see Note 9). We can provide no assurances that any such extension will be given if requested. 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. Revenue Recognition Distribution Segment The Company generally recognizes revenue in its distribution segment when: (i) finished goods are shipped to our customers (in general, these conditions occur at either point of shipment or point of destination, depending on the terms of sale, i.e., transfer of control); (ii) there are no other deliverables or performance obligations; and (iii) there are no further obligations to the customer after title to the goods has transferred. When the Company receives consideration before achieving the criteria previously mentioned, it records a contract liability, which is classified as a component of deferred income in the accompanying condensed consolidated balance sheets. The distribution segment had contract liabilities of $ 139,000 , $ 75,000 and $ 0 at June 30, 2021, September 30, 2020 and September 30, 2019, respectively. 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. 7 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Recognized revenues that will not be billed until a later date, or contract assets, are recorded as an asset and classified as a component of accounts receivable in the accompanying condensed consolidated balance sheets. The design segment had contract assets of $ 939,000 , $ 649,000 and $ 611,000 at June 30, 2021, September 30, 2020 and September 30, 2019, 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 $ 305,000 , $ 410,000 and $ 220,000 at June 30, 2021, September 30, 2020 and September 30, 2019, respectively. Accounts Receivable Accounts receivable consist of unsecured trade accounts with customers. The Company maintains an allowance for doubtful accounts, which is recorded as a reduction to accounts receivable on the condensed consolidated financial statements. 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, 2021, September 30, 2020 and September 30, 2019, the Company had allowances for doubtful accounts of $ 249,000 , $ 249,000 and $ 159,000 , respectively, for the distribution segment and $ 861,000 , $ 347,000 and $ 2,033,000 , respectively, for the design segment. At June 30, 2021, September 30, 2020 and September 30, 2019, the Company had net accounts receivable of $ 5,282,000 , $ 4,243,000 and $ 4,618,000 , respectively, for the distribution segment and $ 2,402,000 , $ 3,359,000 , and $ 2,077,000 , respectively, for the design segment. Goodwill Goodwill represents the future economic benefits of assets acquired in a business combination that are not individually identified or separately recognized. The Company’s goodwill resulted from its acquisitions of IPS in January 2018 and Kablooe in August 2020. The Company reviews goodwill for impairment at least annually, or more often if triggering events occur. The Company has two reporting units with goodwill (IPS and Kablooe) and we perform our annual goodwill impairment test on September 30, the end of the fiscal year, or upon the occurrence of a triggering event. The Company has the option to perform a qualitative assessment to determine if an impairment is more likely than not to have occurred. If the Company can support the conclusion that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then the Company would not need to perform 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 impairment test 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. See Note 3. Intangible Assets Intangible assets include trademarks and customer relationships, which resulted from the acquisitions of IPS in January 2018 and Kablooe in August 2020 and are recorded based on their estimated fair value determined in conjunction with the purchase price allocations. These intangible assets are amortized over their estimated useful lives, which are periodically evaluated for reasonableness. Our intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In assessing the recoverability of our intangible assets, we must make estimates and assumptions regarding future cash flows and other factors to determine the fair value of the respective assets. These estimates and assumptions could have a significant impact on whether an impairment charge is recognized and the magnitude of any such charge. Fair value estimates are made at a specific point in time, based on relevant information. These estimates are subjective in nature and involve uncertainties and matters of significant judgments and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. If these estimates or material related assumptions change in the future, we may be required to record impairment charges related to our intangible assets. Management evaluated and concluded that there were no impairments of intangible assets during the nine months ended June 30, 2021 or 2020. 8 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, 2021, there was no change to our assessment that a full valuation allowance was required against all net deferred tax assets as it is not probable that such deferred tax assets will be realized. Accordingly, any deferred tax provision or benefit was offset by an equal and opposite change to the valuation allowance. No current book income tax provision was recorded against book net income due to the existence of significant net operating loss carryforwards. In December 2020, the Company’s application for forgiveness of its loan received as part of the Payroll Protection Program (“PPP loan”) pursuant to the U.S. Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was approved. The aggregate loan principal amount forgiven was $1,357,000. The total amount forgiven will not be recognized as taxable income pursuant to the CARES Act. Pursuant to the Consolidated Appropriations Act, 2021, which was enacted by Congress and signed into law by the President on December 27, 2020, all expenses utilizing funds from PPP loans will be deductible against taxable income. Fair Value Measurements We perform fair value measurements in accordance with the guidance provided by Accounting Standards Codification (“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 L ease assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term, using the Company’s incremental borrowing rate commensurate with the lease term, since the Company’s lessors do not provide an implicit rate, nor is one readily available. The Company has certain leases that may include an option to renew and when it is reasonably probable to exercise such option, the Company will include the renewal option terms in determining the lease asset and lease liability. Lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Operating lease assets are shown as right of use assets and finance lease assets are a component of property and equipment on the condensed consolidated balance sheets. The current and long-term portions of operating and finance lease liabilities are shown separately as such on the condensed consolidated balance sheets. 9 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 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 estimates of fair value are based upon assumptions believed to be reasonable, but actual results may differ from estimates. Other estimates associated with the accounting for acquisitions may change as additional information becomes available regarding the assets acquired and liabilities assumed. Recent Accounting Pronouncements In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards 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 adopted this guidance in the first quarter of Fiscal 2021 with no material impact to its condensed consolidated financial statements. In November 2019, the FASB issued ASU 2019-08, “Compensation – Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606)” to provide guidance for share-based payment awards granted to a customer in conjunction with selling goods or services accounted for under Topic 606. The pronouncement is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The Company adopted this guidance in the first quarter of Fiscal 2021 with no material impact to its condensed consolidated financial statements. In November 2019, the FASB issued ASU 2019-11, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses.” ASU 2019-11 is an accounting pronouncement that provides clarity to and amends earlier guidance on this topic and would be effective concurrently with the adoption of such earlier guidance. This pronouncement is effective for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years. The Company is currently evaluating the effects of this pronouncement on its condensed consolidated financial statements. In August 2018, the FASB issued ASU 2018-15 “ Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40)” addressing customers’ accounting for implementation costs incurred in a cloud computing arrangement that is a service contract, which requires customers to apply internal-use software guidance to determine the implementation costs that are able to be capitalized. Capitalized implementation costs are required to be amortized over the term of the arrangement, beginning when the cloud computing arrangement is ready for its intended use. The effective date of the new guidance for public companies is for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. The Company adopted this guidance in the first quarter of Fiscal 2021 with no material impact to its condensed consolidated financial statements. In December 2019, the FASB issued ASU 2019-12 “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This guidance removes certain exceptions to the general principles in Topic 740 and provides consistent application of U.S. GAAP by clarifying and amending existing guidance. The effective date of the new guidance for public companies is for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the effects of the pronouncement on its condensed consolidated financial statements. 10 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 INTANGIBLE ASSETS AND GOODWILL The Company’s intangible assets are all held under the design segment of our business. Amortization expense related to intangible assets was $ 53,000 and $ 41,000 for the three months ended June 30, 2021 and 2020, respectively, and $ 160,000 and $ 122,000 for the nine months ended June 30, 2021 and 2020, respectively, which is included in general and administrative expenses on the condensed consolidated statements of operations. The Company’s intangible assets consist of the following: Intangible Assets June 30, 2021 September 30, 2020 Trademarks Customer Relationships Total Intangible Assets Trademarks Customer Relationships Total Intangible Assets Gross carrying amount $ 585,000 $ 1,390,000 $ 1,975,000 $ 585,000 $ 1,390,000 $ 1,975,000 Less accumulated amortization ( 115,000 ) ( 488,000 ) ( 603,000 ) ( 86,000 ) ( 358,000 ) ( 444,000 ) Net carrying amount $ 470,000 $ 902,000 $ 1,372,000 $ 499,000 $ 1,032,000 $ 1,531,000 At June 30, 2021, estimated amortization expense for the Company’s intangible assets for each of the next five years and thereafter is as follows: Estimated amortization expense Remainder of Fiscal 2021 $ 53,000 Fiscal 2022 213,000 Fiscal 2023 213,000 Fiscal 2024 213,000 Fiscal 2025 213,000 Thereafter 467,000 Total $ 1,372,000 In March 2020, the Company experienced triggering events that prompted the testing of its goodwill for impairment. Those triggering events included the reduction in fair value of the IPS contingent earnout consideration discussed in Note 4 and revised revenue and operational projections for IPS for the remainder of the 2020 fiscal year and future periods. Based on these factors, the Company concluded that it was more likely than not that the fair value of the IPS reporting unit had declined below its carrying amount. The Company then calculated the fair value of this reporting unit using Level 3 inputs, which is a combination of asset-based, income and market approaches. The estimates and assumptions utilized in the estimated fair value calculation included discount rate, terminal growth rate, selection of peer group companies and control premium applied as well as forecasts of revenue growth rates, gross margins, operating margins and working capital requirements. Any changes in the judgments, estimates or assumptions used could produce significantly different results. The Company concluded the IPS reporting unit’s fair value was below its carrying value by $ 1,015,000 and an impairment charge was recognized for this amount in March 2020. Based on management’s evaluation, there were no further impairments to goodwill at September 30, 2020 and there were no triggering events leading to an interim impairment analysis at June 30, 2021. 11 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 FAIR VALUE MEASUREMENTS The earnout consideration of $ 70,000 and $ 90,000 at June 30, 2021 and September 30, 2020, respectively, represents the fair value of the contingent earnout consideration related to the acquisition of Kablooe. The current and non-current portions of this liability are shown in the corresponding categories on the condensed consolidated balance sheets in each period presented. In December 2020, the Company reduced this liability from $90,000 to $60,000 based on the low likelihood of Kablooe reaching the first year’s earnings target and in June 2021, it increased this liability from $60,000 to $70,000 based on the estimated increase in fair value of earnout payments in future periods. In connection with the acquisition of IPS in January 2018, the Company agreed to pay deferred cash consideration and contingent earnout consideration to the selling shareholders of IPS and these liabilities were measured at fair value each reporting period. In March 2020, the fair value of the earnout consideration was reduced from $350,000 to $0 due to the low likelihood of IPS reaching the underlying earnings target. At September 30, 2020, the Company had no remaining obligation for consideration payments related to the acquisition of IPS. The following table presents the placement in the fair value hierarchy and summarizes the changes in fair value of the earnout liability for the three and nine months ended June 30, 2021: Table of fair value liability measured on recurring basis Fair value measurement at reporting date using Quoted prices in active markets for identical assets Significant other observable inputs Significant unobservable inputs Balance (Level 1) (Level 2) (Level 3) Earnout consideration at September 30, 2020 $ 90,000 $ – $ – $ 90,000 Decrease in fair value of Kablooe earnout consideration ( 30,000 ) – – ( 30,000 ) Earnout consideration at December 31, 2020 60,000 – – 60,000 Change in fair value of Kablooe earnout consideration – – – – Earnout consideration at March 31, 2021 60,000 – – 60,000 Increase in fair value of Kablooe earnout consideration 10,000 – – 10,000 Earnout consideration at June 30, 2021 $ 70,000 $ – $ – $ 70,000 During Fiscal 2019, the Company received common stock from a customer as compensation for services provided, which was recorded as a cost-method investment with an estimated fair value of $327,000. This initial fair value was based on a private placement round of common stock issued to third-party private investors of the customer at a time close to the valuation date. Management determined that the inputs used to value the investment were observable, either directly or indirectly, and therefore classified as a level 2 valuation measurement. In March 2020, due to the performance of the business in which the Company was invested, it concluded the investment was impaired and recorded an impairment charge of $ 327,000 , which was recorded as a component of general and administrative expenses on the condensed consolidated statement of operations. 12 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 SEGMENT INFORMATION The Company has two reportable segments: distribution and design. The distribution segment sources and distributes carrying cases and other accessories for medical monitoring and diagnostic kits and a variety of other portable electronic and non-electronic devices. It also distributes a variety of other products, including smart-enabled furniture, through its retail distribution network. The design segment provides a full spectrum of hardware and software product design and engineering services. We measure the performance of our operating segments based upon revenue and operating income or loss. Operating income/(loss) and net income/(loss) are shown in the table below: Segment operating income (loss) For the Three Months Ended June 30, For the Nine Months Ended June 30, 2021 2020 2021 2020 Revenues, net Distribution $ 5,720,000 $ 6,389,000 $ 15,808,000 $ 15,709,000 Design 4,245,000 3,160,000 12,269,000 10,164,000 Total revenues, net $ 9,965,000 $ 9,549,000 $ 28,077,000 $ 25,873,000 Cost of sales Distribution $ 4,939,000 $ 5,450,000 $ 13,730,000 $ 13,606,000 Design 2,842,000 2,324,000 8,158,000 7,319,000 Total cost of sales $ 7,781,000 $ 7,774,000 $ 21,888,000 $ 20,925,000 Income/(loss) from operations Distribution $ ( 125,000 ) $ ( 211,000 ) $ ( 996,000 ) $ ( 1,032,000 ) Design 393,000 36,000 281,000 ( 839,000 ) Total income/(loss) from operations $ 268,000 $ ( 175,000 ) $ ( 715,000 ) $ ( 1,871,000 ) Other expense/(income), net Distribution $ 56,000 $ 35,000 $ 100,000 $ ( 239,000 ) Design ( 32,000 ) 5,000 ( 1,423,000 ) 36,000 Total other expense/(income), net $ 24,000 $ 40,000 $ ( 1,323,000 ) $ ( 203,000 ) Net income/(loss) Distribution $ ( 181,000 ) $ ( 246,000 ) $ ( 1,096,000 ) $ ( 793,000 ) Design 425,000 31,000 1,704,000 ( 875,000 ) Total net income/(loss) $ 244,000 $ ( 215,000 ) $ 608,000 $ ( 1,668,000 ) The following table presents total assets by operating segment: Schedule of Operating Assets and Liabilities June 30, 2021 September 30, 2020 Distribution $ 8,631,000 $ 8,289,000 Design 10,300,000 11,067,000 Total $ 18,931,000 $ 19,356,000 13 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 SHARE-BASED COMPENSATION 2021 Equity Incentive Plan In February 2021, shareholders of the Company approved the 2021 Equity Incentive Plan (the “2021 Plan”), which is administered by the Compensation Committee of the Board of Directors and authorizes 1,291,000 shares of common stock for grants of various types of equity awards to officers, directors, employees and consultants. Upon approval of the 2021 Plan, no additional awards were granted under the 2011 Long Term Incentive Plan (the “2011 Plan”), which expired according to its terms in March 2021. Shares authorized under the 2021 Plan include 1,000,000 new shares and 291,000 shares that remained available under the 2011 Plan. Awards which are forfeited or expire are eligible for regrant under the 2021 Plan. The exercise prices of stock options granted may not be less than the fair market value of the common stock as quoted on the Nasdaq stock market on the grant date and the expiration date of option awards may not exceed 10 years. Stock Options No options were granted during the three or nine months ended June 30, 2021. In February 2020, the Company granted options to non-employee directors to purchase an aggregate of 248,000 shares of its common stock at an exercise price of $ 1.13 per shares. The options vested one year from the date of grant, expire five years from the date of grant and had an aggregate grant date fair value of $ 145,000 , which was recognized ratably over the vesting period. These options, which were the only options granted during the nine months ended June 30, 2020, had a grant-date fair value of $ 0.58 per share. During the nine months ended June 30, 2021 and 2020, the Company issued 147,000 and 50,000 shares, respectively, of its common stock pursuant to the exercise of stock options for aggregate cash proceeds of $ 234,000 and $ 32,000 , respectively, which had an aggregate intrinsic value of $ 265,000 and $ 33,000 , respectively. The Company recognized compensation expense for stock option awards of $ 4,000 and $ 38,000 during the three months ended June 30, 2021 and 2020, respectively, and $ 66,000 and $ 107,000 during the nine months ended June 30, 2021 and 2020, respectively, in its condensed consolidated statements of operations. At June 30, 2021, there was $ 7,000 of total unrecognized compensation cost related to nonvested stock option awards that is expected to be recognized over a weighted average period of 0.9 years. 14 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS   NOTE 7 EARNINGS/(LOSS) PER SHARE Basic earnings/(loss) per share data for each period presented is computed using the weighted average number of shares of common stock outstanding during each such period. Diluted earnings/(loss) per share data is computed using the weighted average number of common and dilutive common equivalent shares outstanding during each period. Dilutive common equivalent shares consist of shares that would be issued upon the exercise of stock options and warrants, computed using the treasury stock method. A reconciliation of basic and diluted earnings/(loss) per share is as follows: Schedule of Earnings Per Share, Basic and Diluted For the Three Months Ended June 30, For the Nine Months Ended June 30, 2021 2020 2021 2020 Numerator: Net income/(loss) $ 244,000 $ ( 215,000 ) $ 608,000 $ ( 1,668,000 ) Denominator: Weighted average common shares outstanding 9,964,000 9,534,000 9,920,000 9,534,000 Dilutive common share equivalents 549,000 – 503,000 – Weighted average diluted shares outstanding 10,513,000 9,534,000 10,423,000 9,534,000 Earnings/(loss) per share Basic $ 0.02 $ ( 0.02 ) $ 0.06 $ ( 0.18 ) Diluted $ 0.02 $ ( 0.02 ) $ 0.06 $ ( 0.18 ) The following securities were excluded from the calculation of diluted earnings/(loss) per share in each period because their inclusion would have been anti-dilutive: Schedule of antidilutive securities excluded For the Three Months Ended June 30, For the Nine Months Ended June 30, 2021 2020 2021 2020 Options 10,000 954,000 10,000 954,000 Warrants – 151,000 – 151,000 Total potentially dilutive shares 10,000 1,105,000 10,000 1,105,000 15 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS   NOTE 8 CONCENTRATIONS Concentration of Revenues and Accounts Receivable For the three and nine months ended June 30, 2021 and 2020, the Company had customers whose individual percentage of their respective segment’s revenues and accounts receivable was 10% or greater. The concentrations of revenues and accounts receivable for each reportable segment are as follows: Distribution Segment Revenues Concentration Schedule of concentration percentages For the Three Months Ended June 30, For the Nine Months Ended June 30, 2021 2020 2021 2020 Customer A 11 % 25 % 22 % 31 % Customer B 17 % 16 % 17 % 16 % Customer C 24 % 22 % 25 % 23 % Customer D 9 % 9 % 9 % 9 % Customer E 15 % – 6 % – Totals 76 % 72 % 79 % 79 % Design Segment Revenues Concentration For the Three Months Ended June 30, For the Nine Months Ended June 30, 2021 2020 2021 2020 Customer 1 3 % 29 % 7 % 20 % Customer 2 11 % 14 % 11 % 13 % Customer 3 16 % 11 % 12 % 16 % Customer 4 10 % – 15 % – Customer 9 14 % – 8 % – Total 54 % 54 % 53 % 49 % Distribution Segment Accounts Receivable Concentration June 30, 2021 September 30, 2020 Customer A 12 % 23 % Customer B 24 % 22 % Customer C 18 % 20 % Customer D 7 % 17 % Customer E 18 % – Totals 79 % 82 % 16 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS   Design Segment Accounts Receivable Concentration June 30, 2021 September 30, 2020 Customer 1 12 % 24 % Customer 3 18 % 5 % Customer 5 2 % 10 % Customer 6 – 14 % Customer 7 12 % – Customer 8 10 % 8 % Totals 54 % 61 % NOTE 9 RELATED PARTY TRANSACTIONS Buying Agency and Supply Agreement The Company has a Buying Agency and Supply Agreement (the “Supply Agreement”) with Forward Industries Asia-Pacific Corporation (“Forward China”). The Supply Agreement provides that, upon the terms and subject to the conditions set forth therein, Forward China will act as the Company’s exclusive buying agent and supplier of Products (as defined in the Supply Agreement) in the Asia-Pacific region. The Company purchases products at Forward China’s cost and also pays to Forward China a monthly service fee equal to the sum of: (i) $100,000 and (ii) 4% of “Adjusted Gross Profit”, which is defined as the selling price less the cost from Forward China. The Supply Agreement expires October 22, 2023. Terence Wise, Chief Executive Officer and Chairman of the Company, is the owner of Forward China. In addition, Jenny P. Yu, a Managing Director of Forward China, beneficially owns more than 5% of the Company’s common stock. The Company recorded service fees to Forward China of $ 357,000 and $ 346,000 during the three months ended June 30, 2021 and 2020, respectively, and $ 1,040,000 and $ 1,022,000 during the nine months ended June 30, 2021 and 2020, respectively, which are included as a component of cost of sales upon sales of the related products. The Company has a separate agreement with Forward China to address the potential impact of customers sourcing directly from Forward China. In the event a customer bypasses the services of the Company and does business directly with Forward China, Forward China will pay a commission of 50% of the net revenue, less direct costs, generated from the products or services sold. The Company recognized $ 12,000 of commissions related to this agreement during the nine months ended June 30, 2021. No commissions were recognized during the three months ended June 30, 2021 or the three or nine months ended June 30, 2020. The Company had prepayments to Forward China for inventory purchases of $ 137,000 and $ 107,000 at June 30, 2021 and September 30, 2020, 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 promissory note payable to Forward China to fund the acquisition of IPS. The promissory note bears an interest rate of 8 % per annum and had an original maturity date of January 18, 2019 . Monthly interest payments commenced on February 18, 2018. The Company incurred and paid $ 32,000 for the three months ended June 30, 2021 and 2020 and $ 96,000 for the nine months ended June 30, 2021 and 2020 in interest expense associated with this note. The maturity date of this note was extended to December 31, 2022 . 17 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS   Related Party Sales A member of the Company’s Audit, Governance and Compensation Committees of its Board of Directors is also a member of the Board of Directors of a company to whom the Company’s distribution division sold products. The Company recognized revenue of $ 63,000 from the sale of such products during the three and nine months ended June 30, 2021. The Company’s design division provided services to a customer whose former Chief Operating and Financial Officer and equity owner is an immediate family member of a director on the Company’s Board of Directors. The director is a member of the Board’s Audit, Governance and Compensation Committees. The Company sold design services to this customer of $ 0 and $ 44,000 for the three and nine months ended June 30, 2020, respectively. There were no sales to this customer for the three or nine months ended June 30, 2021. Related Party Activity In October 2020, the Company began selling smart-enabled furniture, which is sourced by Forward China and sold in the U.S. under the Koble brand name. The Koble brand is owned by The Justwise Group Ltd., a company owned by Terrence Wise, Chief Executive Officer and Chairman of the Company. The Company recognized revenues from the sale of Koble products of $ 413,000 and $ 752,000 during the three and nine months ended June 30, 2021, respectively. NOTE 10 LEGAL PROCEEDINGS On August 21, 2020, IPS was named a third-party defendant in a patent dispute claim currently pending in the U.S. District Court for the Eastern District of New York. The complaint, which contains no specific amount of claimed monetary damages, asserts that certain intellectual property was misappropriated by IPS and one of its former employees. IPS denies the allegations, believes the action is without merit and intends to vigorously defend it. The Company filed a motion to dismiss the complaint on December 14, 2020. The court has not yet ruled on the Company’s motion. From time to time, the Company may become a party to other legal actions or proceedings in the ordinary course of its business. At June 30, 2021, there were no such actions or proceedings, either individually or in the aggregate, that, if decided adversely to the Company’s interests, it believes would be material to its business. NOTE 11 LINE OF CREDIT The Company, specifically IPS, has a $ 1,300,000 revolving line of credit with a bank which was renewed at the discretion of the lender in May 2021. The line of credit has a maturity date of May 31, 2022 , is guaranteed by the Company and is secured by all of IPS’ assets. The interest rate on the line of credit is 0.75% above The Wall Street Journal prime rate . The effective interest rate was 4.0 % at both June 30, 2021 and September 30, 2020. In March 2021, the Company paid down the outstanding balance on the line of credit and $ 1,300,000 was available at June 30, 2021. The Company is subject to certain debt-service ratio requirements which are measured annually. At September 30, 2020, the Company was in violation of the required debt-service ratio covenants but was granted a waiver of the violation from the lender. 18 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS   NOTE 12 DEBT On April 18, 2020 , the Company entered into a loan in an aggregate principal amount of $ 1,357,000 under the Paycheck Protection Program of the CARES Act. The loan was unsecured, bore interest at a rate of 1 % per annum, and was scheduled to mature on April 18, 2022 . In October 2020, the Company filed for forgiveness of this loan and in December 2020, the Small Business Administration (“SBA”) approved our forgiveness request for this loan. The forgiveness has been accounted for as an extinguishment of debt and the resulting gain has been recorded as forgiveness of note payable on the condensed consolidated statement of operations for the nine months ended June 30, 2021. There is a six-year period during which the SBA can review the Company’s forgiveness. In connection with the acquisition of Kablooe, the Company assumed a loan payable with a principal amount of $ 170,000 . The loan matures in August 2021, bears interest at a rate of 6.0 % per annum and is secured by all of Kablooe’s assets. Interest and principal payments of $ 15,000 are payable monthly until maturity. The outstanding balance at June 30, 2021 and September 30, 2020 was $ 29,000 and $ 156,000 , respectively. NOTE 13 MOONI AGREEMENT On January 29, 2019, the Company entered into a three-year Distribution Agreement (the “Agreement”) with Mooni International AB (“Mooni”) and its owner. In accordance with the Agreement, the Company (i) was appointed as the exclusive distributor of Mooni's current and future products (including future products developed or offered by Mooni and/or the owner) in North America, (ii) subject to certain repayment requirements, paid $400,000 to Mooni, and (iii) was granted an option to purchase a controlling interest of Mooni at a valuation not to exceed $5 million which, if exercised, would have been effective on the 12-month anniversary of the effective date of the Agreement. This option was not exercised and therefore expired. Additionally, Forward China, a company owned by Terence Wise, the Company's Chairman and Chief Executive Officer, was named the designated supplier under the Agreement. The Company generated revenues from this agreement of $ 459,000 since it began selling Mooni products in Fiscal 2020. The current and long-term portions of the unamortized fee of $ 78,000 and $ 0 , respectively, at June 30, 2021 and $ 133,000 and $ 45,000 , respectively, at September 30, 2020, are included in prepaid expenses and other current assets and other assets, respectively, in the accompanying condensed consolidated financial statements. Amortization of the cost for the three and nine months ended June 30, 2021 of $ 33,000 and $ 100,000 , respectively, and for the three and nine months ended June 30, 2020 of $ 33,000 and $ 100,000 , respectively, is included in sales and marketing expenses in the accompanying condensed consolidated statements of operations. NOTE 14 LEASES The Company’s operating leases are primarily for corporate, sales and administrative office space. Total operating lease expense was $ 150,000 and $ 455,000 for the three and nine months ended June 30, 2021, respectively, and $ 127,000 and $ 382,000 for the three and nine months ended June 30, 2020, respectively, and is recorded in sales and marketing and general and administrative expenses on the condensed consolidated statements of operations. The Company leases certain computer equipment through various finance lease agreements expiring through July 2022. The net book value of assets under finance leases was $ 16,000 and $ 23,000 at June 30, 2021 and September 30, 2020, respectively. In March 2021, the Company signed a renewal to extend the term of its lease in Minnesota for an additional 60 months. Payments under this operating lease commence July 1, 2021 and escalate 2.75% per year. The monthly rent payment is $10,000 per month, which includes taxes and operating expenses as defined in the agreement. 19 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Additional information related to operating and finance leases at June 30, 2021 and September 30, 2020 is as follows: Additional information related to operating and finance leases June 30, September 30, 2021 2020 Weighted Average Remaining Lease Term (Yrs): Operating leases 9.5 10.9 Finance leases 0.8 0.9 Weighted Average Discount Rate: Operating leases 5.7 % 5.7 % Finance leases 5.8 % 5.8 % At June 30, 2021, future minimum payments under non-cancellable operating and finance leases were as follows: Schedule of future minimum payments under operating & financial leases Operating Leases Finance Leases Remainder of Fiscal 2021 $ 148,000 $ 2,000 Fiscal 2022 554,000 4,000 Fiscal 2023 554,000 – Fiscal 2024 565,000 – Fiscal 2025 531,000 – Thereafter 2,908,000 – Total future minimum lease payments 5,260,000 6,000 Less imputed interest ( 1,266,000 ) ( 2,000 ) Present value of lease liabilities $ 3,994,000 $ 4,000 20