Forward Industries, Inc. 10-Q

ITEM 2. 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 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, 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 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 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 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 2022. 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 into Fiscal 2023. 16 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 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 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 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 discuss the material accounting policies that are critical in making the estimates and judgments in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021, under the caption “Management’s Discussion and Analysis—Critical Accounting Policies and Estimates”. There has been no material change in critical accounting policies or estimates during the period covered by this report. Recent Accounting Pronouncements For information on recent accounting pronouncements and impacts, see Note 2 to the unaudited condensed consolidated financial statements. 17 RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2022 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2021 Consolidated Results The table below summarizes our consolidated results of operations for the 2022 Quarter as compared to the 2021 Quarter: Consolidated Results of Operations 2022 Quarter 2021 Quarter Change ($) Change (%) Revenues, net $ 10,589,000 $ 9,965,000 $ 624,000 6.3% Cost of sales 8,671,000 7,782,000 889,000 11.4% Gross profit 1,918,000 2,183,000 (265,000 ) (12.1% ) Sales and marketing expenses 665,000 621,000 44,000 7.1% General and administrative expenses 1,639,000 1,294,000 345,000 26.7% Loss from operations (386,000 ) 268,000 (654,000 ) (244.0% ) Other expense, net 33,000 24,000 9,000 37.5% Provision for income taxes – – – – Net loss $ (419,000 ) $ 244,000 $ (663,000 ) (271.7% ) 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 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. Gross margin declined from 21.9% in the 2021 Quarter to 18.1% in the 2022 Quarter. Higher utilization and billing rates 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 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 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. 18 We generated a net loss of $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)/earnings per share were $(0.04) and $0.02 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 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 for the 2021 Quarter 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 2022 Quarter revenues $ 4,775,000 $ 878,000 $ 4,936,000 $ – $ 10,589,000 2021 Quarter revenues 4,443,000 1,277,000 4,245,000 – 9,965,000 Change $ 332,000 $ (399,000 ) $ 691,000 $ – $ 624,000 2022 Quarter operating income/(loss) $ 179,000 $ (397,000 ) $ 447,000 $ (615,000 ) $ (386,000 ) 2021 Quarter operating income/(loss) 360,000 (101,000 ) 393,000 (384,000 ) 268,000 Change $ (181,000 ) $ (296,000 ) $ 54,000 $ (231,000 ) $ (654,000 ) OEM Distribution Segment Net revenues in the OEM distribution 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 forth revenues by product line of our OEM distribution segment customers for the periods indicated: OEM Revenues by Product Line 2022 Quarter 2021 Quarter Change ($) Change (%) Diabetic products $ 4,087,000 $ 3,520,000 $ 567,000 16.1% Other products 688,000 923,000 (235,000 ) (25.5% ) Total net revenues $ 4,775,000 $ 4,443,000 $ 332,000 7.5% 19 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. 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. 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 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 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 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. 20 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, but operating income margin decreased slightly from 9.3% in the 2021 Quarter to 9.1% in 2022 Quarter. The increase 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 NINE MONTHS ENDED JUNE 30, 2022 COMPARED TO THE NINE MONTHS ENDED JUNE 30, 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 2022 Period 2021 Period Change ($) Change (%) Revenues, net $ 32,517,000 $ 28,077,000 $ 4,440,000 15.8% Cost of sales 25,728,000 21,888,000 3,840,000 17.5% Gross profit 6,789,000 6,189,000 600,000 9.7% Sales and marketing expenses 2,106,000 1,802,000 304,000 16.9% General and administrative expenses 5,177,000 5,102,000 75,000 1.5% Loss from operations (494,000 ) (715,000 ) 221,000 (30.9% ) Other expense/(income), net 101,000 (1,323,000 ) 1,424,000 (107.6% ) Provision for income taxes – – – – Net (loss)/income $ (595,000 ) $ 608,000 $ (1,203,000 ) (197.9% ) 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 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 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 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 6.5% in the 2022 Period. 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. 21 General and administrative 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. We intend 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 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 a net loss of $595,000. In the 2021 Period, we generated net income of $608,000, 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 $(0.06) and $0.06 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 Design Corporate Expenses Consolidated 2022 Period revenues $ 14,692,000 $ 2,919,000 $ 14,906,000 $ – $ 32,517,000 2021 Period revenues 13,910,000 1,898,000 12,269,000 – 28,077,000 Change $ 782,000 $ 1,021,000 $ 2,637,000 $ – $ 4,440,000 2022 Period operating income/(loss) $ 1,002,000 $ (981,000 ) $ 1,422,000 $ (1,937,000 ) $ (494,000 ) 2021 Period operating income/(loss) 1,080,000 (490,000 ) 281,000 (1,586,000 ) (715,000 ) Change $ (78,000 ) $ (491,000 ) $ 1,141,000 $ (351,000 ) $ 221,000 22 OEM Distribution Segment 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. Revenues from diabetic products increased $655,000 and revenue from other products increased $127,000. As consumer demand increases for diabetic testing products which require no carrying case, we expect diabetic product sales to represent a smaller portion of our OEM distribution revenue. The following tables set forth revenues by product line of our OEM distribution segment customers for the periods indicated: OEM Revenues by Product Line 2022 Period 2021 Period Change ($) Change (%) Diabetic products $ 12,480,000 $ 11,825,000 $ 655,000 5.5% Other products 2,212,000 2,085,000 127,000 6.1% Total net revenues $ 14,692,000 $ 13,910,000 $ 782,000 5.6% 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. Revenues from diabetic products 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 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, 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 base. 23 Operating Income Operating income for the 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 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 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 by declines in revenues from certain prior year customers. Operating income for the 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. 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 June 30, 2022, our working capital was $5,067,000 compared to $5,587,000 at September 30, 2021. 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. 24 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. Although the 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. We anticipate that our liquidity and financial resources for the 12 months following the date of this report will be adequate to manage our operating and financial requirements. If we have the opportunity to make a strategic acquisition (as we have in the past with the acquisitions of IPS and Kablooe) or an investment in a product or partnership, we may require additional capital beyond our current cash balance to fund the opportunity. If we seek to raise additional capital, there is no assurance that we will be able to raise funds on terms that are acceptable to us or at all. Although we do not anticipate the need to purchase 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 the 2022 Period and 2021 Period, our sources and uses of cash were as follows: Operating Activities During the 2022 Period, cash 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 $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. Investing Activities Cash used in investing activities in the 2022 Period and the 2021 Period of $140,000 and $61,000, respectively, resulted from purchases of property and equipment. 25 Financing Activities In the 2022 Period, cash used in financing activities of $150,000 consisted of principal payments on the promissory note held by Forward China. In the 2021 Period, cash used in financing activities of $921,000 consisted of net repayments of the line of credit of $1,000,000, repayments of notes payable and finance leases of $155,000, partially offset by proceeds from stock options exercised of $234,000. Related Party Transactions For information on related party transactions and their financial impact, see Note 8 to the unaudited condensed consolidated financial statements contained herein. 26 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable.