What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-12 compared with 2022-02-10 · 296 added, 160 removed, 119 unchanged (79% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

The following discussion

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The following discussion

and analysis compares our consolidated results of operations for the three months ended December 31, 2021 (the “2022 Quarter”)

with those for the three months ended December 31, 2020 (the “2021 Quarter”).

All dollar amounts and percentages presented

herein have been rounded to approximate values.

and analysis compares our consolidated results of operations for the three and six months ended March 31, 2022 (the “2022 Quarter”

and “2022 Period”, respectively) with those for the three and six months ended March 31, 2021 (the “2021 Quarter”

and “2021 Period”, respectively).

Additionally, the twelve months ending September 30, 2022 are referred to as “Fiscal

2022.” All dollar amounts and percentages presented herein have been rounded to approximate values.

Cautionary Note Regarding Forward-Looking Statements

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statements”, as such term is used within the meaning of the Private Securities Litigation Reform Act of 1995.

These statements include,

among other things, statements regarding:

our liquidity;

plans on repaying outstanding debt obligations;

expectations regarding growth in retail

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

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.

that could cause or contribute to such differences include, but are not limited to, those discussed under the caption "Risk Factors"

in Item 1A of our Form 10-K for the year ended September 30, 2021 and those discussed in other documents we file with the SEC.

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.

These statements

include, among other things, statements regarding our liquidity and plans on repaying outstanding debt obligations 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

Factors that could cause or contribute to such differences include, but are not limited to, those discussed under the caption

"Risk Factors" in Item 1A of our Form 10-K for the year ended September 30, 2021 and those discussed in other documents we file

with the Securities and Exchange Commission.

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

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and outside the Company.

The COVID-19 pandemic continues

to impact our business.

The increase in global consumer demand, coupled with the global shipping container shortage, dramatically increased

demand for both ocean freight and ground transportation.

These factors led to a significant increase in freight costs, particularly from

the Asia-Pacific region.

Labor shortages at US ports and in ground transportation services caused container ships to spend a significant

amount of time waiting to be unloaded and to arrive at our warehouses.

These factors caused an increase in the demand and cost of ground

transportation and delayed consumer availability for many of our products in the first quarter of fiscal 2022.

The timing and extent of

these COVID-19 related transportation disruptions is still largely unknown but are expected to continue throughout fiscal 2022.

COVID-19 may further impact

our business in ways we cannot predict, and such impacts could be significant.

The current and economic impact may continue to negatively

impact our results of operations, cash flows and financial position in future periods as well as that of our customers, including their

ability to pay for our services and to choose to allocate their budgets to new or existing projects which may or may not require our services.

The effects of the COVID-19

pandemic continue to impact the retail and OEM distribution segments of our business.

The increase in global consumer demand, coupled

with the global shipping container shortage, dramatically increased demand for both ocean freight and ground transportation.

These factors

led to a significant increase in freight costs, particularly from the Asia-Pacific region and most notably in the second quarter of Fiscal

Labor shortages at U.S.

ports and in ground transportation services caused container ships to spend a significant amount of time

waiting for goods to be unloaded and to arrive at our warehouses.

These factors caused an increase in the demand for and cost of ground

transportation and delayed consumer availability for many of our products in the first half of Fiscal 2022.

The timing and extent of these

COVID-19 related transportation disruptions is still largely unknown but are expected to continue throughout Fiscal 2022.

The effects of the pandemic

had a lesser impact on the design segment of our business.

Rising inflation caused an increase in the cost of acquiring and maintaining

our employees.

The timing and extent of future inflation are difficult to predict, but we expect these rising costs to have a more significant

impact in the second half of Fiscal 2022.

The effects of COVID-19 may

further impact our business in ways we cannot predict, and such impacts could be significant.

The current economic impact may continue

to negatively impact our results of operations, cash flows and financial position in future periods as well as that of our customers,

including their ability to pay for our services and to choose to allocate their budgets to new or existing projects which may or may not

require our services.

The long-term financial impact on our business cannot be reasonably estimated at this time.

As a result, the effects of COVID-19 may not

be fully reflected in our financial results until future periods.

Until the 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:

As a result, the effects

of COVID-19 may not be fully reflected in our financial results until future periods.

Until the effects of the

pandemic have fully receded, we expect business conditions to remain challenging.

In response to these challenges, we will continue

to focus on those factors that we can control:

closely managing and controlling our expenses;

aligning our design and development schedules with demand

in a proactive manner 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.

Refer to “Part I, Item

1A — Risk Factors” included in the Company’s Annual Report for the year ended September 30, 2021 for a description of

the material risks that the Company currently faces in connection with COVID-19.

aligning our design and development schedules

with demand in a proactive manner to minimize our cash operating costs;

pursuing further improvements in the productivity and effectiveness

of our development, selling and administrative activities and, where appropriate, taking advantage of opportunities to enhance our business

growth and strategy.

Variability of Revenues

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RESULTS OF OPERATIONS FOR

THE THREE MONTHS ENDED DECEMBER 31, 2021 COMPARED TO THE THREE MONTHS ENDED DECEMBER 31, 2020

THE THREE MONTHS ENDED MARCH 31, 2022 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2021

Consolidated Results

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General and administrative expenses

Income/(loss) from operations

Other expense/(income), net

Loss from operations

Other expense, net

Provision for income taxes

$ (1,019,000 )

The discussion that follows

below provides further details about our results of operations for the 2022 Quarter as compared to the 2021 Quarter.

Net revenues increased primarily

due to higher revenues in the retail segment coupled with an increase in revenues in the design segment.

Revenues in the OEM distribution

segment remained relatively consistent with the prior year quarter.

Net revenues increased across

all segments, with the most significant growth coming from the IPS component of the design segment.

Our gross profit increased,

primarily driven by the increase in revenues, but gross margin declined from 23.3% in the 2021 Quarter to 22.6% in the 2022 Quarter.

higher cost of importing products from overseas drove retail margins down, while lower utilization in the design segment contributed to

the remainder of the margin decline.

Gross margin for the OEM distribution segment improved slightly from the prior year quarter.

believes there will be continued volatility in cost of sales for the remainder of fiscal 2022.

primarily driven by the increase in revenues, and gross margin improved from 20.8% in the 2021 Quarter to 21.8% in the 2022 Quarter.

utilization rates coupled with an increase in the average bill rate drove design segment margins higher.

However, higher importation and

logistics costs drove margins down in both the OEM and retail distribution segments.

Management believes there will be continued volatility

in OEM and retail distribution cost of sales for the remainder of Fiscal 2022.

Sales and marketing expenses

increased in the 2022 Quarter primarily due to higher advertising costs and sales commissions related to our retail distribution segment.

Sales and marketing as a percentage of revenues increased to 6.4% in the 2022 Quarter from 6.2% in the 2021 Quarter.

As we continue to

invest in the retail business and as it grows to represent a larger component of the overall business, management expects sales and marketing

costs, both in total and as a percentage of revenues, to increase in future periods.

Sales and marketing as a percentage of revenues remained relatively flat at 6.8% in the 2022 Quarter.

As we continue to invest in the

retail segment and as it grows to represent a larger component of the overall business, management expects sales and marketing costs,

both in total and as a percentage of revenues, to increase in future periods.

General and administrative

expenses declined in the 2022 Quarter, primarily related to lower personnel related costs and lower bad debt expense in the design segment.

These declines were partially offset by higher corporate expenses, primarily related to a reduction in certain foreign tax credits received

for research and development activities.

Management continues to monitor the various components of general and administrative expenses

and how these costs are affected by inflationary and other factors.

We intend to make adjustments to these costs as needed based on the

overall needs of the business.

We reported other expense

of $34,000 in the 2022 Quarter as compared to net other income of $1,367,000 in the 2021 Quarter.

The decrease is primarily due to the

forgiveness of note payable related to the PPP loan in the 2021 Quarter, which did not recur in the 2022 Quarter.

In the 2022 Quarter, we generated

net income of $180,000.

In the 2021 Quarter, we generated net income of $1,199,000, primarily resulting from the $1,357,000 forgiveness

of note payable related to the PPP loan, which was not recognized as taxable income per the CARES Act.

We maintain significant net operating

loss carryforwards and do not recognize income tax expense or benefit as our deferred tax provision is typically offset by a full valuation

allowance on our net deferred tax asset.

expenses declined in the 2022 Quarter, primarily related to lower bad debt expense in the design segment.

These declines were partially

offset by slightly higher corporate expenses, primarily related to an increase in non-employee board members’ equity compensation.

Management continues to monitor the various components of general and administrative expenses and how these costs are affected by inflationary

and other factors.

We intend to make adjustments to these costs as needed based on the overall needs of the business.

Other expense, net increased

due to a decrease in interest income on a customer note receivable, partially offset by lower interest expense due to a reduction in the

average amount of debt outstanding.

We generated a net loss of

$356,000 and $835,000 in the 2022 and 2021 Quarter, respectively.

We maintain significant net operating loss carryforwards and do not

recognize income tax expense or benefit as our deferred tax provision is typically offset by a full valuation allowance on our net deferred

Consolidated basic and diluted

earnings per share were $0.02 and $0.12 for the 2022 Quarter and the 2021 Quarter, respectively.

loss per share were $0.04 and $0.08 for the 2022 Quarter and the 2021 Quarter, respectively.

Segment Results

The discussion that follows

below provides further details about the results of operations for each segment as compared to the prior quarter.

Due to the growth of

our retail division, we determined it to be a separate reportable segment in the fourth quarter of fiscal 2021.

below provides further details about the results of operations for each segment as compared to the prior year quarter.

Due to the growth

of our retail division, we determined it to be a separate reportable segment in the fourth quarter of fiscal 2021.

The results of operations

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Net revenues in the OEM distribution

segment increased slightly from the 2021 Quarter to the 2022 Quarter as the increase in revenue from other products was mostly offset

by declines in the sale of diabetic products.

Revenues from other products increased $260,000 and revenue from diabetic products decreased

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.

segment increased due primarily to an increase in sales of diabetic products, while an increase in revenues from other products comprised

a lesser portion of the increase.

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

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blood glucose testing and monitoring kits, or to a lesser extent, sells them through their retail distribution channels.

Revenues from diabetic products

decreased primarily due to lower revenues from one major diabetic customer.

The lower revenue from this customer was due to the timing

of shipments near the end of the 2022 Quarter compared to the 2021 Quarter and was partially offset by higher revenue from other diabetic

customers, which were less significant.

As mentioned above, management believes that revenues from diabetic customers will continue to

decline in future periods.

from diabetic products increased in the 2022 Quarter primarily due to logistical delays caused by limited cargo capacity in the first

quarter of Fiscal 2022 which were resolved in the 2022 Quarter.

This increase was further enhanced by a slight increase in demand for

some products.

As mentioned above, management believes that revenues from diabetic customers will continue to decline in future periods.

Revenues from diabetic products

represented 89% of net revenues for the OEM distribution segment in the 2022 Quarter compared to 90% in the 2021 Quarter.

The remaining

revenues from our OEM distribution segment are described below.

Other Product Revenues

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Revenues from other products

increased due to an increase in customers and higher sales volume.

We will continue to focus on our sales and sales support teams in our

continued efforts to expand and diversify our other products customer base.

Revenues from other products represented 19% of our OEM distribution

revenues in the 2022 Quarter compared to 14% in the 2021 Quarter.

increased primarily due to higher sales volume with existing customers.

We will continue to focus on our sales and sales support teams

in our continued efforts to expand and diversify our other products customer base.

Operating Income

Operating income for the

OEM distribution segment increased and operating income margin improved to 9.5% in the 2022 Quarter from 8.0% in the 2021 Quarter.

higher gross margins derived from other products was mostly offset by declining margins on diabetic products due to pricing pressures

from customers, resulting in a slight increase in gross margin as compared to the prior year quarter.

Operating income was further enhanced

by a reduction in selling and marketing expenses.

OEM distribution segment increased and operating income margin remained relatively consistent at 7.0%.

The higher gross margins derived

from other product revenue was offset by declining margins on diabetic products due to higher freight and other importation costs and

pricing pressures from customers, resulting in a decrease in gross margin as compared to the prior year quarter.

The decline in gross

margin was mitigated by lower selling and marketing costs resulting from a reduction in contract sales personnel, which improved operating

income and helped maintain the operating income margin.

Retail Distribution Segment

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to new product offerings and the continued expansion of our retail distribution network;

revenue derived from new retail partnerships

as well as an increase in volume with certain existing retailers.

We will continue to focus on our sales and sales support teams in our

attempt to expand and diversify our retail product offerings.

revenue derived from new retailers as well as

an increase in volume with certain existing retailers.

We will continue to focus on our sales and sales support teams in our attempt to

expand and diversify our retail product offerings.

Although revenues increased,

the increase in operating loss was driven by higher cost of sales caused by supply chain issues and higher sales and marketing expenses

driven by higher sales commission resulting from the increase in revenue.

the increase in operating loss was driven by higher cost of sales caused by higher freight and other importation costs, supply chain issues

and higher sales and marketing expenses driven by higher sales commission resulting from the increase in revenue and higher advertising

and promotion expenses.

Design Segment

The increase in net revenues

in the design segment was driven by an increase in projects from new and existing customers, which was partially offset by declines in

revenues from certain prior year customers.

Operating income for the

design segment increased and operating income margin improved from (7.4%) in the 2021 Quarter to 7.8% in 2022 Quarter.

The increase in

gross profit, driven by higher revenues and better utilization and billing rates, was further enhanced by a decrease in general and administrative

expenses primarily due to a reduction in bad debt expense.

RESULTS OF OPERATIONS FOR

THE SIX MONTHS ENDED MARCH 31, 2022 COMPARED TO THE SIX MONTHS ENDED MARCH 31, 2021

Consolidated Results

The table below summarizes our consolidated results

of operations for the 2022 Period as compared to the 2021 Period:

Consolidated Results of Operations

Revenues, net

Cost of sales

Sales and marketing expenses

General and administrative expenses

Loss from operations

Other expense/(income), net

Provision for income taxes

Net (loss)/income

The discussion that follows

below provides further details about our results of operations for the 2022 Period as compared to the 2021 Period.

Net revenues increased across

all segments, most notably in the design and retail distribution segments and to a lesser extent, in the OEM distribution segment.

Our gross profit increased,

primarily driven by the increase in revenues, but gross margin remained relatively consistent at 22.2%.

Better utilization and higher

billing rates in the design segment were mostly offset by higher importation and logistics costs, which drove OEM and retail distribution

margins down.

Management believes there will be continued volatility in OEM and retail distribution cost of sales for the remainder of

Sales and marketing expenses

increased in the 2022 Period primarily due to higher advertising and promotional costs coupled with sales commissions related to our retail

distribution segment.

Sales and marketing as a percentage of revenues increased slightly to 6.6% in the 2022 Period.

As we continue to

invest in the retail business and as it grows to represent a larger component of the overall business, management expects sales and marketing

costs, both in total and as a percentage of revenues, to increase in future periods.

General and administrative

expenses declined in the 2022 Period, primarily related to lower bad debt expense in the design segment.

These declines were partially

offset by higher corporate expenses, primarily related to an increase in non-employee board members’ equity compensation and a reduction

in certain foreign tax credits received for research and development activities.

Management continues to monitor the various components

of general and administrative expenses and how these costs are affected by inflationary and other factors.

We intend to make adjustments

to these costs as needed based on the overall needs of the business.

We reported other expense

of $67,000 in the 2022 Period as compared to net other income of $1,348,000 in the 2021 Period.

The decrease is primarily due to the forgiveness

of note payable related to the PPP loan in the 2021 Period, which did not recur in the 2022 Period.

A decrease in interest payment on

a customer note receivable contributed to the balance of the change.

In the 2022 Period, we generated

a net loss of $176,000.

In the 2021 Period, we generated net income of $364,000, primarily resulting from the $1,357,000 forgiveness of

note payable related to the PPP loan, which was not recognized as taxable income per the CARES Act.

We maintain significant net operating

loss carryforwards and do not recognize income tax expense or benefit as our deferred tax provision is typically offset by a full valuation

allowance on our net deferred tax asset.

Consolidated basic and diluted

(loss)/earnings per share were $(0.02) and $0.04 for the 2022 Period and the 2021 Period, respectively.

Segment Results

The discussion that follows

below provides further details about the results of operations for each segment as compared to the prior year period.

Due to the growth

of our retail division, we determined it to be a separate reportable segment in the fourth quarter of fiscal 2021.

The results of operations

for the 2021 Period 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

Corporate Expenses

2022 Period revenues

2021 Period revenues

2022 Period operating income/(loss)

$ (1,322,000 )

2021 Period operating income/(loss)

OEM Distribution Segment

Net revenues in the OEM

distribution segment increased primarily due to higher sales of other OEM products coupled with a smaller increase in diabetic product

Revenues from other products increased $362,000 and revenue from diabetic products increased $88,000.

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

Diabetic products

Other products

Total net revenues

Diabetic Product Revenues

Our OEM distribution segment

manufactures to the order of, and sells carrying cases for, blood glucose diagnostic kits directly to OEMs (or their contract manufacturers).

The OEM customer or its contract manufacturer packages our carry cases “in box” as a custom accessory for the OEM’s

blood glucose testing and monitoring kits, or to a lesser extent, sells them through their retail distribution channels.

from diabetic products increased due to higher revenues from one major diabetic customer.

The higher revenue from this customer was due

to a short-term increase in demand for certain products that are being phased out, coupled with delays in placing orders near the end

of Fiscal 2021 which resulted in more revenue being recognized in the first half of Fiscal 2022.

These increases were partially offset

by lower revenue from other diabetic customers, which were less significant.

As mentioned above, management believes that revenues from

diabetic customers will continue to decline in future periods.

Revenues from diabetic products

represented 85% of net revenues for the OEM distribution segment in the 2022 Period compared to 88% in the 2021 Period.

The remaining

revenues from our OEM distribution segment are described below.

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 location 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 due to an increase in sales volume from existing customers.

We will continue to focus on our sales and sales support teams in

our continued efforts to expand and diversify our other products customer base.

Operating Income

Operating income for the

OEM distribution segment increased and operating income margin improved to 8.3% in the 2022 Period from 7.6% in the 2021 Period.

gross margins derived from other products was mostly offset by declining margins on diabetic products due to pricing pressures from customers,

resulting in a slight decrease in gross margin as compared to the prior year quarter.

The decline in gross margin was mitigated by lower

selling and marketing costs related to OEM sales commissions.

Retail Distribution Segment

Net revenues increased due

to new product offerings and the continued expansion of our retail distribution network;

revenue derived from new retailers as well as

an increase in volume with certain existing retailers.

We will continue to focus on our sales and sales support teams in our attempt to

expand and diversify our retail product offerings.

The increase in gross profit

driven by higher revenues was offset by higher sales and marketing expenses related to sales commissions, advertising and promotional

expenses to support the growth in revenue.

Design Segment

The increase in net revenues

in the design segment was driven by new customers and an increase in projects from certain existing customers, which was partially offset

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Operating income for the

design segment increased and operating income margin improved to 11.7% in 2022 Quarter from 4.3% in the 2021 Quarter.

The increase in

gross profit, driven by higher revenues, was further enhanced by a decrease in general and administrative expenses due to lower personnel

costs and a reduction in bad debt expense.

design segment increased and operating income margin improved from (1.4%) in the 2021 Period to 9.8% in 2022 Period.

The increase in gross

profit, driven by higher revenues and better utilization and billing rates, was further enhanced by a decrease in general and administrative

expenses primarily due to a reduction in bad debt expense.

LIQUIDITY AND CAPITAL RESOURCES

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liquidity have been adequate to satisfy working capital requirements arising in the ordinary course of business.

At December 31, 2021,

our working capital was $4,229,000 compared to $5,587,000 at September 30, 2021;

the decrease primarily due to the note payable to Forward

China becoming current at December 31, 2021 as compared to long-term at September 30, 2021.

At January 31, 2022, we had

At March 31, 2022, our

working capital was $3,899,000 compared to $5,587,000 at September 30, 2021;

the decrease primarily due to the remaining $1,500,000 balance

on the note payable to Forward China becoming a current liability at March 31, 2022 as opposed to a long-term liability at September 30,

At April 30, 2022, we had

$1,900,000 cash on hand and $1,300,000 available under our line of credit which matures May 31, 2023.

Although we can provide no assurance,

we plan to renew this line of credit with the bank through May 31, 2023.

Additionally, Forward China, an entity owned by our Chairman

of the Board and Chief Executive Officer, holds a $1,600,000 promissory note issued by the Company which matures on December 31, 2022

(see Note 8 to the condensed consolidated financial statements).

The balance of this promissory note was reduced to $1,550,000 after the

Company made a principal payment of $50,000 in December 2021.

Although this promissory 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.

Forward China, our largest vendor, has extended payment terms on our outstanding payables due to

them when necessary.

We can provide no assurance that (i) Forward China will extend the promissory note again if we request an extension,

(ii) Forward China will continue to provide favorable payment terms when we need them, or (ii) any additional credit facility will be

available on terms acceptable to us or at all.

Additionally, Forward China, our

largest vendor and an entity owned by our Chairman of the Board and Chief Executive Officer, holds a $1,600,000 promissory note issued

by the Company which matures on December 31, 2022 (see Note 8 to the condensed consolidated financial statements).

The balance of this

promissory note was reduced to $1,500,000 after the Company made principal payments of $100,000 in Fiscal 2022.

Although this promissory

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.

Forward China has extended payment terms on

our outstanding payables due to them when necessary.

We can provide no assurance that (i) Forward China will extend the promissory note

again if we request an extension, (ii) Forward China will continue to extend payment terms when we need them, or (iii) any additional

credit facility will be available on terms acceptable to us or at all.

We anticipate that our liquidity

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and other capital assets in the future, depending on need.

During the 2022 Quarter and

2021 Quarter, our sources and uses of cash were as follows:

During the 2022 Quarter,

cash provided by operating activities of $1,138,000 primarily resulted from operating income of $214,000, an increase in accounts payable,

accrued expenses and amounts due to Forward China of $1,276,000, an increase in deferred income of $565,000 and non-cash expenses of $112,000

for depreciation, amortization and share-based compensation, partially offset by an increase in inventories of $910,000, an increase in

prepaid expenses and other current assets of $70,000 and the net change in other operating assets and liabilities of $49,000.

During the 2021 Quarter,

cash used in operating activities of $511,000 primarily resulted from an operating loss of $167,000, a decrease in deferred income of

$315,000, an increase in accounts receivable of $204,000, a decrease in accounts payable, accrued expenses and amounts due to Forward

China of $176,000, partially offset by non-cash expenses of $213,000 relating to depreciation, amortization, share-based compensation

and bad debt expense, an increase of $125,000 in prepaid expenses and other assets and the net change in other operating assets and liabilities

During the 2022 Period and

2021 Period, our sources and uses of cash were as follows:

During the 2022 Period, cash

provided by operating activities of $360,000 primarily resulted from an increase in accounts payable, accrued expenses and amounts due

to Forward China of $1,836,000, an increase in deferred income of $433,000 and non-cash expenses of $321,000 for depreciation, amortization,

share-based compensation and bad debt expense, partially offset by an operating loss of $109,000, an increase in inventories of $1,835,000,

a decrease in prepaid expenses and other current liabilities of $255,000 and the net change in other operating assets and liabilities

During the 2021 Period, cash

used in operating activities of $398,000 primarily resulted from an operating loss of $984,000, a decrease in deferred income of $348,000,

an increase in inventories of $874,000, a decrease in accrued expenses of $161,000, partially offset by non-cash expenses of $748,000

relating to depreciation, amortization, share-based compensation and bad debt expense, a decrease of $757,000 in accounts receivable,

an increase of $395,000 in accounts payable and amounts due to Forward China and the net change in other operating assets and liabilities

Cash used in investing activities

in the 2022 Quarter and the 2021 Quarter of $66,000 and $30,000, respectively, resulted from purchases of property and equipment.

In the 2022 Quarter, cash

in the 2022 Period and the 2021 Period of $130,000 and $38,000, respectively, resulted from purchases of property and equipment.

In the 2022 Period, cash

used in financing activities of $100,000 consisted of principal payments on the promissory note held by Forward China.

In the 2021 Quarter, cash

used in financing activities of $51,000 consisted of repayments of notes payable and capital leases of $52,000, partially offset by proceeds

from stock options exercised.

In the 2021 Period, cash

used in financing activities of $960,000 consisted of net repayments of the line of credit of $1,000,000, repayments of notes payable

and finance leases of $104,000, partially offset by proceeds from stock options exercised of $144,000.

Related Party Transactions

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis