What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-10 compared with 2022-05-12 · 188 added, 179 removed, 236 unchanged (61% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

The following discussion

and analysis should be read in conjunction with our unaudited condensed consolidated financial statements, and the notes thereto, and

other financial information appearing elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements

and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021.

The following discussion

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.

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

The following

discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements, and the notes

thereto, and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated

financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended September 30,

The following discussion and analysis compares our consolidated results of operations for the three and nine months

ended June 30, 2022 (the “2022 Quarter” and “2022 Period”, respectively) with those for the three and nine

months ended June 30, 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

This report contains “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 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,"

This report contains

“forward-looking statements”, as such term is used within the meaning of the Private Securities Litigation Reform Act of

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

obligations, expectations regarding the effect of the pandemic and inflation on our business, 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.

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 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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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 related transportation disruptions is still largely unknown but are expected to continue into Fiscal 2023.

The effects of the pandemic

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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 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.

closely managing and controlling our expenses and inventory levels;

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

THE THREE MONTHS ENDED JUNE 30, 2022 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2021

Consolidated Results

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

Net revenues increased in

the OEM and design segments and were partially offset by revenue declines in the retail segment.

Our gross profit decreased,

driven by lower profit in the OEM and retail distribution divisions, partially offset by higher profit in the design segment.

declined from 21.9% in the 2021 Quarter to 18.1% in the 2022 Quarter.

Higher utilization and billing rates drove design segment margins

However, higher importation and logistics costs drove margins down in both the OEM and retail distribution segments.

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 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.

increased in the 2022 Quarter primarily due to an increase in sales related expenses in the design segment, partially offset by lower

advertising costs and sales commissions related to our retail distribution segment.

Sales and marketing as a percentage of revenues remained

relatively flat at 6.3% in the 2022 Quarter.

If revenues from the retail segment grow to comprise a larger portion 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 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.

expenses increased in the 2022 Quarter, primarily related to increases in corporate and design segment expenses.

These increases were

driven by higher payroll costs and higher cash and non-cash compensation for non-employee board members resulting from the cost cutting

measures taken in the 2021 Quarter which were not implemented in the 2022 Quarter.

Higher insurance costs accounted for a smaller portion

of the increase.

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

Net other expense increased

due to a decrease in interest income on a customer note receivable, partially offset by a decrease in interest expense resulting from

a reduction in the 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

$419,000 and net income of $244,000 in the 2022 Quarter 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 tax asset.

Consolidated basic and diluted

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

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

Segment Results

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Net revenues in the OEM distribution

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.

segment increased primarily from an increase in sales of diabetic products, partially offset by a decrease in revenues from other products.

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

9 unchanged sentences

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

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

increased in the 2022 Quarter due to shipping and other logistical delays in the 2021 Quarter which delayed recognition of revenue for

some customers in the 2021 Quarter and a temporary increase in demand from one customer based on a change in product line.

These increases

were partially offset by a decrease in demand from another customer due to a computer chip shortage toward the end of the 2022 Quarter,

which decreased demand for the related product’s carrying case, and lower overall demand from another customer.

As mentioned above,

management believes that revenues from diabetic customers will decline in future periods.

Revenues from diabetic products

represented 86% of net revenues for the OEM distribution segment in the 2022 Quarter compared to 79% in the 2021 Quarter.

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Revenues from other products

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.

decreased primarily due to lower sales volume with several 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 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.

OEM distribution segment decreased and operating income margin decreased from 8.1% in the 2021 Quarter to 3.7% in the 2022 Quarter, driven

by lower gross margins due to a shift in the mix of revenue in each period as well as rising material and importation costs.

While revenues

increased overall, more revenue was generated from sales to diabetic customers, which yield a lower gross margin, while revenue from other

OEM customers, which yield a higher gross margin, declined.

The cost of importing all products from China has increased and both the diabetic

and other OEM product lines have experienced pricing pressures from customers.

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.

Although revenues increased,

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.

Net revenues decreased in

the 2022 Quarter primarily due to a reduction in sales volume of some products with one existing retailer.

As the cost of products increases

and inflation continues to reduce consumer spending, profitability becomes more challenging in the retail segment.

We plan to focus our

sales and sales support teams on efforts to match our product offerings with consumer demand, strategically increase the volume of revenue

from more profitable products and expand these product offerings through additional retailer websites.

The decrease in revenues

was coupled with a decrease in gross margin resulting from higher freight, storage and other logistics costs, further increasing the operating

loss and operating loss margin from the prior year quarter.

This was partially offset by lower sales and marketing expenses driven by

lower sales commissions resulting from the decrease in revenue.

Design Segment

3 unchanged sentences

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.

design segment increased, but operating income margin decreased slightly from 9.3% in the 2021 Quarter to 9.1% in 2022 Quarter.

in gross profit, driven by higher revenues and better utilization and billing rates, was partially offset by an increase in selling, general

and administrative expenses due to higher payroll related costs.

RESULTS OF OPERATIONS FOR

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

THE NINE MONTHS ENDED JUNE 30, 2022 COMPARED TO THE NINE MONTHS ENDED JUNE 30, 2021

Consolidated Results

10 unchanged sentences

Net (loss)/income

$ (1,203,000 )

The discussion that follows

1 unchanged sentence

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.

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

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

primarily driven by the increase in revenues, but gross margin dropped slightly from 22.0% in the 2021 Period to 20.9% in the 2022 Period.

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 Fiscal 2022.

Sales and marketing expenses

2 unchanged sentences

Sales and marketing as a percentage of revenues increased slightly to 6.5% 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.

If revenues from

the retail segment grow to comprise a larger portion 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.

expenses increased in the 2022 Period, primarily related to an increase in corporate payroll costs and non-employee board members’

cash and equity compensation due to the cost cutting measures taken in the 2021 Quarter which were not implemented in the 2022 Period.

Higher insurance costs and a reduction in certain foreign tax credits received for research and development activities comprised the balance

of the increase.

These increases were partially offset by lower bad debt expense in the design segment.

Management continues to monitor

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

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

We reported other expense

of $101,000 in the 2022 Period as compared to net other income of $1,323,000 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.

The variance 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

income on a customer note receivable and a decrease in interest expense contributed to the balance of the change.

In the 2022 Period, we generated

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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.

Net revenues in the OEM distribution

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

from diabetic products increased $655,000 and revenue from other products increased $127,000.

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

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.

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.

increased in the 2022 Period due to shipping and other logistical delays in the 2021 Period which delayed recognition of revenue for some

customers in the 2021 Period and a temporary increase in demand from one customer based on a change in product line.

These increases were

partially offset by a decrease in demand from another customer due to a computer chip shortage toward the end of the 2022 Period, which

decreased demand for the related product’s carrying case, and lower overall demand from another customer.

As mentioned above, management

believes that revenues from diabetic customers will decline in future periods.

Revenues from diabetic products

remained consistent at 85% of net revenues for the OEM distribution segment in both the 2022 Period and the 2021 Period.

The remaining

6 unchanged sentences

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.

increased due to an increase in sales volume from existing customers, which was partially offset by declines in business from other 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

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.

OEM distribution segment decreased and operating income margin declined to 6.8% in the 2022 Period from 7.8% in the 2021 Period due to

a shift in the mix of revenue and rising material and importation costs.

The higher gross margins derived from other products was mostly

offset by declining margins on diabetic products.

The cost of importing all products from China has increased and both the diabetic and

other OEM product lines have experienced pricing pressures from customers, resulting in a decrease in gross margin as compared to the

prior year period.

The decline in gross margin was partially 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.

Net revenues increased in

the 2022 Period due to an increase in sales volume on some products with certain existing retailers.

As the cost of products increases

and inflation continues to reduce consumer spending, profitability becomes more challenging in the retail segment.

We plan to focus our

sales and sales support teams on efforts to match our product offerings with consumer demand, strategically increase the volume of revenue

from more profitable products and expand these product offerings through additional retailer websites.

The rising cost of freight,

storage and other logistics outpaced the increase in revenue, which led to a decrease in gross profit from the 2021 Period.

This was further

exacerbated by higher sales and marketing expenses related to sales commissions, advertising and promotional expenses to support the growth

in revenue, which increased the operating loss margin from 25.8% in the 2021 Period to 33.6% in the 2022 Period.

Design Segment

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Operating income for the

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

design segment increased and operating income margin improved from 2.3% in the 2021 Period to 9.5% in the 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.

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

At March 31, 2022, our

At June 30, 2022, our

working capital was $5,067,000 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.

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

At July 31, 2022, we had

approximately $2,000,000 cash on hand and $1,300,000 available under our line of credit with a bank which matures May 31, 2023.

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 (the “FC

Note”) issued by the Company which matures on December 31, 2023 (see Note 8 to the condensed consolidated financial statements).

The balance of the FC Note was reduced to $1,450,000 after the Company made principal payments of $150,000 in Fiscal 2022.

FC 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.

Additionally, 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

FC 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.

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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

provided by operating activities of $1,158,000 resulted from an increase in accounts payable and amounts due to Forward China of $3,064,000,

an increase in accrued expenses and other liabilities of $546,000, an increase in deferred revenue of $436,000, non-cash expenses of $442,000

related to depreciation, amortization, share-based compensation and bad debt expense and the net change in other operating assets and

liabilities of $74,000, partially offset by a $2,809,000 increase in inventories and a net loss of $595,000.

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

used in operating activities of $338,000 resulted from an operating loss of $715,000, an increase in inventories of $631,000, an increase

in accounts receivable of $595,000, and the net change in other operating assets and liabilities of $72,000, partially offset by an increase

of $855,000 in accounts payable and amounts due to Forward China and non-cash expenses of $820,000 relating to depreciation, amortization,

share-based compensation and bad debt expense.

Cash used in investing activities

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party transactions and their financial impact, see Note 8 to the unaudited condensed consolidated financial statements contained herein.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

QUANTITATIVE AND

QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

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