Forward Industries, Inc. 10-K

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.” Cautionary statement regarding Forward-Looking Statements 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 growth in retail; · Plans on repaying outstanding debt obligations; · Liquidity 20 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 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 Fiscal 2021 include Kablooe’s results of operations for 12 months, while our results of operations for Fiscal 2020 include Kablooe’s results of operations for approximately six weeks. Key terms of the acquisition are described in Note 3 to the consolidated financial statements. 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 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 for further description of these cost-cutting measures. Additionally, see Part I, Item 1A “Risk Factors” for a description of the material risks we currently face in connection with COVID-19. Variability of Revenues and Results of Operations A significant portion of our revenue is concentrated with several large customers, some of which are the same and some of which change over time. Orders from some of these customers can be highly variable, with short lead times, which can cause our quarterly revenues, and consequently our results of operations, to vary over a relatively short period of time. Critical Accounting Policies and Estimates We 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. The 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. 21 Revenue Recognition OEM and Retail Distribution Segments We generally recognize revenue in our OEM and retail distribution segments 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 and transfer of control); (ii) there are no other deliverables or performance obligations; and (iii) there are no further obligations to the customer after the title of the goods has transferred. When we receive consideration before achieving the criteria previously mentioned, we record a contract liability, which is classified as a component of deferred income in the accompanying consolidated balance sheets. The OEM distribution segment had no contract liabilities at September 30, 2021, 2020 or 2019. The retail distribution segment had contract liabilities of $0, $75,000 and $0 at September 30, 2021, 2020 and 2019, respectively. Design Segment We apply 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. We recognize revenue over time on our 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. The design segment had contract assets of $693,000, $649,000 and $611,000 at September 30, 2021, 2020 and 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 consolidated balance sheets. The design segment had contract liabilities of $188,000, $410,000 and $220,000 at September 30, 2021, 2020 and 2019, respectively. Business Combinations We allocate 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, we make 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 We have three reportable segments: OEM distribution, retail distribution and design. The OEM 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 directly to OEMs or their contract manufacturers. The retail distribution segment sources and sells smart-enabled furniture and a variety of other products through agreements with various retailers, both in stores and through online retailer websites. The design reportable 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. Our chief operating decision maker (“CODM”) regularly reviews revenue and operating income for each segment to assess financial results and allocate resources. For our OEM and retail distribution segments, we exclude general and administrative and general corporate expenses from their measure of profitability as these expenses are not allocated to the segments and therefore not included in the measure of profitability used by the CODM. For the design segment, general and administrative expenses directly attributable to that segment are included in its measure of profitability as these expenses are included in the measure of its profitability reviewed by the CODM. We do not include intercompany activity in our segment results to be consistent with the information that is presented to the CODM (see Note 16 to the consolidated financial statements). 22 Goodwill and Intangible Assets We review goodwill for impairment at least annually, or more often if triggering events occur. We have 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. We have the option to perform a qualitative assessment to determine if an impairment is more likely than not to have occurred. If we 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 we would not need to perform a quantitative impairment test for the reporting unit. If we cannot support such a conclusion or do not elect to perform the qualitative assessment, then we 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. During Fiscal 2020, we recorded an impairment charge related to goodwill (See Note 4 to the consolidated financial statements). There were no impairment charges in Fiscal 2021. 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. We adopted this guidance in the first quarter of Fiscal 2021 with no material impact to our 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. We adopted this guidance in the first quarter of Fiscal 2021 with no material impact to our 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 us for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years. We are currently evaluating the effects of this pronouncement on our 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. We adopted this guidance in the first quarter of Fiscal 2021 with no material impact to our 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. We are currently evaluating the effects of this pronouncement on our consolidated financial statements. 23 RESULTS OF OPERATIONS FOR FISCAL 2021 COMPARED TO FISCAL 2020 Consolidated Results The table below summarizes our consolidated results of operations for Fiscal 2021 as compared to Fiscal 2020: Consolidated Results of Operations Fiscal 2021 Fiscal 2020 Change ($) Change (%) Net revenues $ 39,022,000 $ 34,478,000 $ 4,544,000 13.2% Cost of sales 30,888,000 27,839,000 3,049,000 11.0% Gross profit 8,134,000 6,639,000 1,495,000 22.5% Sales and marketing expenses 2,503,000 1,951,000 552,000 28.3% General and administrative expenses 6,396,000 5,655,000 741,000 13.1% Goodwill impairment – 1,015,000 (1,015,000 ) (100.0% ) Loss from operations (765,000 ) (1,982,000 ) 1,217,000 (61.4% ) Other expense, net (1,289,000 ) (216,000 ) (1,073,000 ) 496.8% Income tax provision – 9,000 (9,000 ) (100.0% ) Consolidated net income/(loss) $ 524,000 $ (1,775,000 ) $ 2,299,000 (129.5% ) Net revenues increased 13.2% from Fiscal 2020 to Fiscal 2021. The timing of the Kablooe acquisition in August 2020 accounted for $2,059,000 of the increase, with the majority of the remaining increase due to the growth of the retail business. Gross profit increased 22.5% from Fiscal 2020 to Fiscal 2021 and gross margin increased from 19.3% to 20.8% in the same period. The increase in gross profit was primarily attributable to the increase in revenues resulting from the Kablooe acquisition in August 2020 and retail sales. The improvement in gross margin was due to higher margins in the design segment, partially offset by pricing pressures in the OEM segment and higher cost of products in the retail segment. Sales and marketing expenses increased 28.3% from Fiscal 2020 to Fiscal 2021. The increase was primarily due to higher advertising costs and sales commissions as we continue to expand our retail segment. Sales and marketing as a percentage of revenues increased to 6.4% in Fiscal 2021 from 5.7% in Fiscal 2020. General and administrative expenses increased 13.1%, from Fiscal 2020 to Fiscal 2021. The increase was driven by several factors including $836,000 of additional expenses resulting from Kablooe, which was acquired in August 2020 and a $583,000 increase in bad debt expense. These increases were partially offset by a $327,000 decrease in impairment charges (see Note 6 to the consolidated financial statements), lower personnel and Board of Director expenses resulting from the cost-cutting measures taken in the third quarter of Fiscal 2021, a reduction in severance costs and lower professional fees. General and administrative expenses remained consistent at 16.4% of revenues in Fiscal 2021 and Fiscal 2020. We reported other income of $1,289,000 in Fiscal 2021 as compared to $216,000 in Fiscal 2020. The increase is due to the $1,357,000 forgiveness of note payable related to the Paycheck Protection Program loan (“PPP loan”) and an increase in interest income on a note receivable from a customer which was fully reserved for in Fiscal 2019. These increases in other income were partially offset by a decrease in fair value adjustments associated with acquisition related liabilities (see Note 6 to the consolidated financial statements). In Fiscal 2021, we recorded no tax provision or benefit, and we generated income before income taxes of $524,000, primarily resulting from the $1,357,000 forgiveness of note payable related to the PPP loan. The forgiveness of the PPP loan will not be recognized as taxable income per the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). In Fiscal 2020, we 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%. We maintain significant net operating loss carryforwards and do not recognize a significant income tax provision or benefit as our deferred tax provision is typically offset by maintaining a full valuation allowance on our net deferred tax assets. Consolidated basic and diluted earnings/(loss) per share was $0.05 and $(0.19) for Fiscal 2021 Fiscal 2020, respectively. 24 Segment Results The discussion that follows below provides further details about the results of operations for each segment as compared to the prior year. In Fiscal 2021, due to the growth of our retail division, we determined it to be a separate reportable segment. The Fiscal 2020 results of operations for each segment discussed below have been reformatted from what was previously disclosed to segregate the retail distribution segment and exclude general corporate expenses from segment operating income to show them as a reconciling item so that results are comparable to the current year presentation. Segment Results of Operations OEM Distribution Retail Distribution Design Corporate Expenses Consolidated Fiscal 2021 revenues $ 19,290,000 $ 3,183,000 $ 16,549,000 $ – $ 39,022,000 Fiscal 2020 revenues 19,726,000 1,026,000 13,726,000 – 34,478,000 Change $ (436,000 ) $ 2,157,000 $ 2,823,000 $ – $ 4,544,000 Fiscal 2021 operating income/(loss) $ 1,479,000 $ (779,000 ) $ 603,000 $ (2,068,000 ) $ (765,000 ) Fiscal 2020 operating income/(loss) 1,616,000 (337,000 ) (378,000 ) (2,883,000 ) (1,982,000 ) Change $ (137,000 ) $ (442,000 ) $ 981,000 $ 815,000 $ 1,217,000 OEM Distribution Net revenues in the OEM distribution segment declined 2.2% due to reduced revenues in the sale of diabetic products, partially offset by an increase in other product revenue. Revenues from diabetic products declined $649,000 and revenues from other products increased $213,000. As consumer demand increases for diabetic testing products which require no carrying case, we expect diabetic product sales to represent a smaller portion of our OEM distribution revenue. The following tables set forth revenues by product line of our OEM distribution segment customers for the periods indicated: OEM Revenues by Product Line Fiscal 2021 Fiscal 2020 Change ($) Change (%) Diabetic products $ 16,588,000 $ 17,237,000 $ (649,000 ) (3.8% ) Other products 2,702,000 2,489,000 213,000 8.6% Total net revenues $ 19,290,000 $ 19,726,000 $ (436,000 ) (2.2% ) Diabetic Product Revenues Our OEM 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, sells them through their retail distribution channels. Revenues from diabetic products declined 3.8%, primarily due to lower revenues from one major diabetic customer, which resulted from their switch to a lower cost product, coupled with delays caused by supply chain constraints. Revenue declines from other major diabetic customers were less significant and were partially offset by an increase in revenue from all other diabetic products customers. As mentioned above, management believes that revenues from diabetic customers will continue to decline. Revenues from diabetic products represented 86% of net revenues for the OEM distribution segment in Fiscal 2021 compared to 87% in Fiscal 2020. 25 Other Product Revenues Our OEM distribution segment also sources and sells cases and protective solutions for a diverse array of portable electronic and non-electronic products (such as sporting and recreational products, bar code scanners, GPS devices, tablets and firearms) on a made-to-order basis that are customized to fit the products sold by our OEM customers. Revenues from other products increased 8.6% due to the acquisition of new customers plus higher volume from certain existing customers. 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 14% of our OEM distribution revenues in Fiscal 2021 as compared to 13% in Fiscal 2020. Operating Income Operating income for the OEM distribution segment declined $137,000, or 8.5%, from Fiscal 2020 to Fiscal 2021 and operating income margin declined to 7.7% in Fiscal 2021, compared to 8.2% in Fiscal 2020. 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 other products in Fiscal 2021. We continue to work on expanding our product offerings to include higher margin products and enhancing our sales efforts to grow revenue and increase gross profit. Retail Distribution Segment Net revenues in the retail distribution segment increased $2,157,000 in Fiscal 2021 due to new product offerings and the continued expansion of our retail distribution network, revenue derived from new retail agreements as well as an increase in volume with certain existing retailers. In Fiscal 2020, $758,000 of retail distribution revenues were derived from the sale and sourcing of personal protective equipment, the result of demand caused by the pandemic, which did not recur in Fiscal 2021. We will continue to focus on our sales and sales support teams in our attempt to expand and diversify our retail product offerings. Operating loss for the retail distribution segment increased $442,000 in Fiscal 2021. The increase in revenues was offset by higher cost of sales caused by supply chain issues and the elimination of the sale of personal protective equipment from Fiscal 2020, which generated higher gross margins. Selling and marketing expenses increased as well driven by higher sales commissions resulting from the increase in revenue. Design Segment Net revenues in the design segment increased $2,823,000, or 20.6%. The increase in revenues was primarily due to the $2,059,000 additional revenue generated by Kablooe, which was acquired in August 2020. Additional revenue from new and existing customers drove the balance of the increase, which was partially offset by declines in revenues from certain prior year customers. Operating income/(loss) for the design segment improved $981,000, primarily due to the reduction of $1,342,000 of impairment charges from Fiscal 2020. Gross margin improvements driven by better utilization rates and the inclusion of a full year of Kablooe results were offset by additional general and administrative expenses relating to a $673,000 increase in bad debt expense and higher personnel costs. LIQUIDITY AND CAPITAL RESOURCES Our primary source of liquidity is our operations. The primary demand on our working capital has historically been (i) operating losses, (ii) repayment of debt obligations, and (iii) any increases in accounts receivable and inventories arising in the ordinary course of business. Historically, our sources of liquidity have been adequate to satisfy working capital requirements arising in the ordinary course of business. At September 30, 2021, our working capital was $5,587,000 compared to $3,396,000 at September 30, 2020. The improvement in working capital was primarily due to the extension of the $1,600,000 note payable to Forward China to December 31, 2022. Our largest vendor is Forward China, a related entity, which is able to extend payment terms on outstanding liabilities when necessary (see Note 14 to the consolidated financial statements). We can provide no assurances that any such extension will be given if requested. 26 In an abundance of caution and to proactively conserve the Company’s cash flow, we implemented certain cost-cutting measures which became effective in April 2021. These cost-cutting measures included (i) our executive officers agreeing to a temporary pay cut and our Chief Executive Officer temporarily forgoing his base salary, (ii) a reduction in our head count and amounts paid to outside consultants and (iii) non-employee Board members agreeing to reduce their board fees. These cost-cutting measures ended in June 2021 and compensation was returned to pre-existing amounts in July 2021. The Company estimates that these pay cuts and other reductions resulted in approximately $200,000 of cash savings in the third quarter of Fiscal 2021. The Company will reevaluate any future need for these or similar cost-cutting measures as business conditions warrant. In light of these circumstances, the Compensation Committee of the Board of Directors deferred a recommendation for director equity compensation. Therefore, in addition to cash savings, the resulting reduction in equity compensation lowered the Company’s non-cash expenses in the third and fourth quarters of Fiscal 2021. At November 30, 2021, we had $1,200,000 cash on hand and $1,300,000 available under our line of credit which matures May 31, 2022. Additionally, Forward China holds a $1,600,000 promissory note which matures December 31, 2022 (see Note 14). Although this note has been extended on multiple occasions to assist us with our liquidity position, we plan on funding the repayment at maturity using existing cash balances and/or obtaining an additional credit facility as deemed necessary. We can provide no assurance that Forward China will extend the note again if we request an extension nor that any such credit facility will be available on terms acceptable to us or at all. As discussed in Note 18 to the consolidated financial statements, on April 18, 2020, we entered into a PPP loan in an aggregate principal amount of $1,357,000. In December 2020, the Small Business Administration (“SBA”) approved our forgiveness request for this loan. There is a six-year period during which the SBA can review this forgiveness. We anticipate that our liquidity and financial resources will be adequate to manage our operating and financial requirements until at least December 31, 2022. 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. 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 2021 and Fiscal 2020, our sources and uses of cash were as follows: Operating Activities During Fiscal 2021, cash used in operating activities of $528,000 resulted from an operating loss of $765,000, an increase in accounts receivable of $1,665,000, an increase in inventories of $787,000, a decrease in deferred income of $297,000 and the net change in other operating assets and liabilities of $223,000, partially offset by an increase in accounts payable and amounts due to Forward China of $2,306,000 and non-cash expenses of $903,000 related to depreciation, amortization, share-based compensation and bad debt expense. 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. Investing Activities In Fiscal 2021, cash used for investing activities of $67,000 resulted from purchases of property and equipment. In Fiscal 2020, cash used for investing activities of $390,000 resulted from the $322,000 net cash consideration for the Kablooe acquisition and purchases of property and equipment of $68,000. 27 Financing Activities In Fiscal 2021, cash used in financing activities of $919,000 consisted of net repayments under our line of credit of $1,000,000, repayments of notes payable and finance lease liabilities of $187,000, partially offset by proceeds from stock options exercised of $268,000. In Fiscal 2020, cash provided by financing activities of $485,000 consisted of $1,357,000 proceeds from the PPP loan and $32,000 in proceeds from stock options exercised, partially offset by net repayments of $300,000 on the line of credit, payments of $500,000 of deferred cash consideration and $104,000 in repayments on notes payable and finance leases. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. 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.