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Item 2. Management’s Discussion and Analysis

2024-05-10 compared with 2024-02-14 · 266 added, 152 removed, 130 unchanged (76% 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

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, 2023.

The following discussion

and analysis compares our condensed consolidated results of operations for the three months ended December 31, 2023 (the “2024 Quarter”)

with those for the three months ended December 31, 2022 (the “2023 Quarter”).

All dollar amounts and percentages presented

herein have been rounded to approximate values.

and analysis compares our condensed consolidated results of operations for the three and six months ended March 31, 2024 (the “2024

Quarter” and “2024 Period”, respectively) with those for the three and six months ended March 31, 2023 (the “2023

Quarter” and “2023 Period”, respectively).

All dollar amounts and percentages presented herein have been rounded

to approximate values.

Cautionary Note Regarding Forward-Looking Statements

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customer base, loss of additional customers, pricing pressures, lack of success of our sales people, failure to develop products at a

profit, failure to commercialize products that we develop, continued supply chain issues, a

significant decrease in our stock price upon effectuating a reverse stock split, inability of our design division’s customers

to pay for our services, unanticipated issues with our affiliated sourcing agent, issues at Chinese factories that source our products,

and failure to obtain acceptance of our products.

No assurance can be given that the actual results will be consistent with the forward-looking

Investors should read carefully the factors described in the “Risk Factors” section of the Company’s filings

with the SEC, including the Company’s Form 10-K for the year ended September 30, 2023 for information regarding risk factors that

could affect the Company’s results.

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.

profit, continued supply chain issues, a significant decrease in our stock price

upon effectuating a reverse stock split, inability to regain or maintain compliance with Nasdaq listing standards, inability of

our design division’s customers to pay for our services, unanticipated issues with our affiliated sourcing agent, issues at Chinese

factories that source our products, and failure to obtain acceptance of our products.

No assurance can be given that the actual results

will be consistent with the forward-looking statements.

Investors should read carefully the factors described in the “Risk Factors”

section of the Company’s filings with the SEC, including the Company’s Form 10-K for the year ended September 30, 2023 for

information regarding risk factors that could affect the Company’s results.

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.

global design, sourcing and distribution company serving top tier medical and technology customers worldwide.

is a global design, sourcing and distribution company serving top tier medical and technology customers worldwide.

Company’s design division provides hardware and software product design and engineering services to customers predominantly located

6 unchanged sentences

Corporation, a British Virgin Islands corporation (“Forward China”).

Forward China is owned by our Chairman of the Board and

Chief Executive Officer.

Discontinued Operations

Considering the

recurring losses incurred by the retail distribution segment, in July 2023, the Company decided to cease operations of our retail

distribution segment (“Retail Exit”) and we are presenting the results of operations for this segment within

discontinued operations in the current and prior periods presented herein.

The discontinuation of the retail segment represents a

strategic shift in the Company’s business.

Considering the recurring

losses incurred by the retail distribution segment, in July 2023, the Company decided to cease operations of our retail distribution segment

(“Retail Exit”) and we are presenting the results of operations for this segment within discontinued operations in the current

and prior periods presented herein.

The discontinuation of the retail segment represents a strategic shift in the Company’s business.

The primary assets of the retail segment are inventory and accounts receivable.

Company expects to sell, liquidate, or otherwise dispose of remaining retail inventory by June 30, 2024, and to collect remaining

retail accounts receivable by the end of fiscal 2024.

After this time, we expect to have no further significant continuing

involvement with the retail distribution segment.

The inventory of the retail segment is presented as discontinued assets held for

sale on the balance sheets at December 31, 2023 and September 30, 2023 and the results of operations for the retail segment have

been classified as discontinued operations on the condensed consolidated statements of operations for the three months ended

December 31, 2023 and 2022.

The Company expects to sell, liquidate, or otherwise dispose

of remaining retail inventory by June 30, 2024, and to collect remaining retail accounts receivable by the end of fiscal 2024.

time, we expect to have no further significant continuing involvement with the retail distribution segment.

The inventory of the retail

segment is presented as discontinued assets held for sale on the balance sheets at March 31, 2024 and September 30, 2023 and the results

of operations for the retail segment have been classified as discontinued operations on the condensed consolidated statements of operations

for the three and six months ended March 31, 2024 and 2023.

On May 11, 2023, the U.S.

of Health and Human Services declared the end of the Public Health Emergency for COVID-19;

however, the effects of COVID-19 continue to

linger throughout the global economy and our businesses.

Though the severity of COVID-19 has subsided, new variants, or the outbreak of

a new pathogen, could interrupt business, cause renewed labor and supply chain disruptions, and negatively impact the global and US economy,

which could materially and adversely impact our businesses.

Department of Health and Human Services declared the end of the Public Health Emergency for COVID-19;

however, the effects of COVID-19

continue to linger throughout the global economy and our businesses.

Though the severity of COVID-19 has subsided, new variants, or the

outbreak of a new pathogen, could interrupt business, cause renewed labor and supply chain disruptions, and negatively impact the global

and US economy, which could materially and adversely impact our businesses.

Variability of Revenues

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accounting pronouncements and impacts, see Note 2 to the unaudited condensed consolidated financial statements.

RESULTS OF OPERATIONS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2023 COMPARED TO THE THREE MONTHS ENDED DECEMBER 31, 2022

RESULTS OF OPERATIONS FOR

THE THREE MONTHS ENDED MARCH 31, 2024 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2023

Consolidated Results

The table below summarizes our consolidated

results from continuing operations for the 2024 Quarter as compared to the 2023 Quarter:

The table below summarizes our consolidated results

from continuing operations for the 2024 Quarter as compared to the 2023 Quarter:

Consolidated Results of Operations

8 unchanged sentences

Loss from continuing operations

The discussion that follows below

provides further details about our results from continuing operations for the 2024 Quarter as compared to the 2023 Quarter.

The discussion that follows

below provides further details about our results from continuing operations for the 2024 Quarter as compared to the 2023 Quarter.

Net revenues declined significantly

in the OEM distribution segment and, to a lesser extent, in the design segment.

Our gross profit decreased across

both segments, but our gross margin increased from 20.2% in the 2023 Quarter to 23.0% in the 2024 Quarter.

The gross margin increase was

driven by our OEM distribution segment due to a change in the mix of revenue and a reduction in our sourcing fee with Forward China, partially

offset by lower utilization rates in our design segment.

Our design segment gross

profit decreased while our OEM gross profit remained essentially flat.

Our gross margin increased from 19.8% in the 2023 Quarter to 20.5%

in the 2024 Quarter, primarily driven by a change in the mix of our OEM distribution segment revenue and a reduction in our sourcing fee

with Forward China, partially offset by lower utilization rates in our design segment.

Sales and marketing expenses

decreased primarily due to lower marketing related overhead in our OEM distribution segment.

Sales and marketing as a percentage of revenues

increased from 4.2% in the 2023 Quarter to 5.2% in the 2024 Quarter.

General and administrative expenses

decreased in the 2024 Quarter, primarily related to a decline in design segment and corporate expenses.

These decreases were primarily

driven by lower payroll costs.

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.

decreased primarily due to staff reduction in our OEM distribution segment and remained essentially flat as a percentage of revenues.

General and administrative

expenses increased in the 2024 Quarter, primarily due to a credit loss recovery in the 2023 Quarter that did not recur in the 2024 Quarter,

slightly offset by a decline in corporate expenses.

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 recorded net other expense

of $1,000 in the 2024 Quarter compared to net other income of $37,000 in the 2023 Quarter.

The variance is due to fair value adjustments

of $40,000 in the 2023 Quarter to reduce to the fair value of the earnout consideration related to the Kablooe acquisition, $18,000 of

net duty drawback income received in the 2023 Quarter, offset by interest income from interest bearing deposits in the 2024 Quarter and

a decrease in interest expense resulting from a reduction in the amount of debt outstanding.

of $6,000 in the 2024 Quarter compared to $27,000 in the 2023 Quarter.

The variance is due to an increase in interest income from interest

bearing deposits in the 2024 Quarter and a decrease in interest expense resulting from a reduction in the amount of debt outstanding.

We generated a loss from

6 unchanged sentences

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.

The discussion that follows

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

Segment Results of Operations

8 unchanged sentences

OEM Distribution Segment

Net revenues in the OEM

distribution segment decreased from lower sales volume from diabetic customers, partially offset by increased volumes with other OEM

As consumer demand increases for diabetic testing products which require no carrying case, we expect diabetic product

sales to continue to represent a smaller portion of our OEM distribution revenue.

Net revenues in the OEM distribution

segment decreased primarily from the loss of one major diabetic customer in March 2023.

Due to increased pricing pressures, we did not

extend our contract with this customer.

Revenue from this customer represented 13.9% of our consolidated net revenues in the 2023 Quarter.

We expect the loss of this customer to continue to cause a significant decline in OEM distribution segment revenues in future periods.

As consumer demand increases for diabetic testing products which require no carrying case, we expect diabetic product sales to continue

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

$ (1,402,000 )

Other products

Total net revenues

$ (1,298,000 )

Diabetic Product Revenues

Our OEM distribution segment

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

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

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

Revenues from diabetic products

decreased primarily due to the loss of one of our major diabetic customers whose contract expired, lower volumes in the 2024 Quarter and

the loss of one product to a competitor.

As mentioned above, management believes that revenues from diabetic customers will decline in

future periods.

Revenues from diabetic products represented 71% of net revenues for the OEM distribution segment in the 2024 Quarter compared

to 83% in the 2023 Quarter.

Other Product Revenues

Our OEM distribution segment

also sources and sells cases and protective solutions for a diverse array of portable electronic and non-electronic products (such as

sporting and recreational products, bar code scanners, GPS devices, tablets and firearms) on a made-to-order basis that are customized

to fit the products sold by our OEM customers.

Revenues from other products

increased due to new customers and higher sales volume with several existing customers, partially offset by reduced demand from other

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 increased from 0.7% in the 2023 Quarter to 4.1% in the 2024 Quarter, driven

by a change in the mix of revenue and lower sales and marketing expenses.

Considering the loss of a

significant diabetic customer, management reduced its OEM distribution segment sales and marketing personnel in March 2023 and reduced

its sourcing fee with Forward China.

Effective April 1, 2023, the Company and Forward China agreed to reduce the fixed portion of the

sourcing fee from $100,000 to $83,333 per month for the remaining term of the sourcing agreement.

The Company and Forward China signed

a new Supply Agreement effective October 2023, which further reduced the fixed portion of the sourcing fee to $65,833 per month.

9 to the condensed consolidated financial statements for more information on the sourcing agreement with Forward China.

Design Segment

The decrease in net revenues

in the design segment was driven by declines in revenues from certain prior year customers, a decrease in volume of work and projects

with continuing customers, partially offset by projects from new customers.

Operating income for the

design segment decreased and operating income margin decreased from 9.3% in the 2023 Quarter to (1.1%) in 2024 Quarter.

This decrease

was driven by lower utilization rates in the 2024 Quarter and credit loss recoveries in the 2023 Quarter that did not recur in the 2024

RESULTS OF OPERATIONS FOR

THE SIX MONTHS ENDED MARCH 31, 2024 COMPARED TO THE SIX MONTHS ENDED MARCH 31, 2023

Consolidated Results

The table below summarizes our consolidated results

from continuing operations for the 2024 Period as compared to the 2023 Period:

Consolidated Results of Operations

Revenues, net

$ (4,509,000 )

Cost of sales

Sales and marketing expenses

General and administrative expenses

Loss from operations

Other (income)/expense, net

Provision for income taxes

Loss from continuing operations

The discussion that follows

below provides further details about our results from continuing operations for the 2024 Period as compared to the 2023 Period.

Net revenues declined significantly

in the OEM distribution segment and, to a lesser extent, in the design segment.

Our gross profit decreased

across both segments, but our gross margin increased from 20.0% in the 2023 Period to 21.7% in the 2024 Period driven by a change in the

mix of our OEM distribution segment revenue and a reduction in our sourcing fee with Forward China, partially offset by lower utilization

rates in our design segment.

Sales and marketing expenses

decreased primarily due to staff reduction in our OEM distribution segment.

Sales and marketing as a percentage of revenues increased

from 4.4% in the 2023 Period to 4.9% in the 2024 Period.

General and administrative

expenses increased in the 2024 Period, primarily related to a credit loss recovery in the 2023 Period that did not recur in the 2024 Period,

offset by a slight decrease in corporate expenses.

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 recorded net other expense

of $7,000 in the 2024 Period compared to net other income of $10,000 in the 2023 Period.

The variance is due to fair value adjustments

of $40,000 in the 2023 Period to reduce to the fair value of the earnout consideration related to the Kablooe acquisition, $18,000 of

net duty drawback income received in the 2023 Period, offset by an increase in interest income from interest bearing deposits in the 2024

Period and a decrease in interest expense resulting from a reduction in the amount of debt outstanding.

We generated a loss from

continuing operations of $927,000 and $210,000 in the 2024 Period and 2023 Period, respectively.

We maintain significant net operating

loss carryforwards and do not recognize a significant 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 from continuing operations were $0.09 and $0.02 for the 2024 Period and the 2023 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.

Segment Results of Operations

2024 Period revenues

2023 Period revenues

$ (3,665,000 )

$ (4,509,000 )

2024 Period operating income/(loss)

$ (1,283,000 )

2023 Period operating income/(loss)

OEM Distribution Segment

Net revenues in the OEM distribution

segment decreased primarily from the loss of one major diabetic customer in March 2023.

In March 2023, a contract with one of our major

1 unchanged sentence

Due to increased pricing pressures, we did not extend our contract with this customer.

Revenue from this

customer represented 13% of our consolidated net revenues in the 2023 Quarter.

We expect the loss of this customer to continue to

cause a significant decline in OEM distribution segment revenues in future periods.

Revenue from this customer

represented 13.7% of our consolidated net revenues in the 2023 Period.

We expect the loss of this customer to continue to cause a significant

decline in OEM distribution segment revenues in future periods.

As consumer demand increases for diabetic testing products which require

no carrying case, we expect diabetic product sales to continue 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

OEM Revenues by

Diabetic products

8 unchanged sentences

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 the loss of one of our major diabetic customers whose contract expired, lower volumes in the 2024

Quarter related to timing of orders relative to our fiscal quarters and the loss of one product to a competitor.

As mentioned above, management

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

Revenues from diabetic products represented 71% of net

revenues for the OEM distribution segment in the 2024 Quarter compared to 91% in the 2023 Quarter.

Revenues from diabetic products

decreased primarily due to the loss of one of our major diabetic customers whose contract expired, lower volumes in the 2024 Period and

the loss of one product to a competitor.

As mentioned above, management believes that revenues from diabetic customers will decline in

future periods.

Revenues from diabetic products represented 71% of net revenues for the OEM distribution segment in the 2024 Period compared

to 87% in the 2023 Period.

Other Product Revenues

9 unchanged sentences

Operating income for the

OEM distribution segment decreased and operating income margin decreased from 2.6% in the 2023 Quarter to 2.0% in the 2024 Quarter, driven

by lower revenues and lower gross profit.

Operating expenses decreased, but at a lower rate than revenue.

This was partially offset by

higher gross margins driven by a decrease in revenues from lower margin diabetic customers.

Considering the loss of a significant

diabetic customer, management reduced its OEM distribution segment sales and marketing personnel in March 2023 and reduced its sourcing

fee with Forward China.

Effective April 1, 2023, the Company and Forward China agreed to reduce the fixed portion of the sourcing fee

from $100,000 to $83,333 per month for the remaining term of the sourcing agreement.

The Company and Forward China signed a new Supply

Agreement effective October 2023, which further reduced the fixed portion of the sourcing fee to $65,833 per month.

See Note 9 to the

condensed consolidated financial statements for more information on the sourcing agreement with Forward China.

OEM distribution segment increased and operating income margin increased from 1.7% in the 2023 Period to 3.2% in the 2024 Period, driven

by a change in the mix of revenue and lower sales and marketing expenses.

Considering the loss of a

significant diabetic customer, management reduced its OEM distribution segment sales and marketing personnel in March 2023 and reduced

its sourcing fee with Forward China.

Effective April 1, 2023, the Company and Forward China agreed to reduce the fixed portion of the

sourcing fee from $100,000 to $83,333 per month for the remaining term of the sourcing agreement.

The Company and Forward China signed

a new Supply Agreement effective October 2023, which further reduced the fixed portion of the sourcing fee to $65,833 per month.

9 to the condensed consolidated financial statements for more information on the sourcing agreement with Forward China.

Design Segment

The decrease in net revenues

in the design segment was driven by declines in revenues from certain prior year customers, a shift in timing of projects with some customers,

partially offset by projects from new customers.

in the design segment was driven by declines in revenues from certain prior year customers, a decrease in volume of work and projects

with continuing customers, partially offset by projects from new customers.

Operating income for the

design segment decreased and operating income margin decreased from 8.1% in the 2023 Quarter to 5.2% in 2024 Quarter.

design segment decreased and operating income margin decreased from 8.7% in the 2023 Period to 2.0% in 2024 Period.

This decrease was

driven by lower utilization rates and higher direct labor costs driven by inflationary pressures, partially offset by lower sales and

marketing expenses and increased billing rates on some projects.

LIQUIDITY AND CAPITAL

driven by lower utilization rates in the 2024 Period and credit loss recoveries in the 2023 Period that did not recur in the 2024 Period,

partially offset by lower payroll costs and increased billing rates on some projects.

LIQUIDITY AND CAPITAL RESOURCES

Our primary source of liquidity

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

At December 31, 2023,

our working capital deficit, which excludes discontinued assets held for sale, was $949,000 compared to working capital of $26,000 at

September 30, 2023.

The decrease was primarily due to the Forward China promissory note of $850,000, which matures on December 31, 2024

and is now included in current liabilities, an increase in payables due Forward China and lower accounts receivable balances.

31, 2024, we had approximately $3,200,000 cash on hand and $1,300,000 available under our line of credit with a bank which matures May

There are no assurances this line of credit will extend beyond May 31, 2024.

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 us which matures on December 31, 2024 (see Note 9 to the condensed consolidated financial statements).

The balance of the FC

Note was reduced to $850,000 after we made principal payments of $750,000 through December 31, 2023.

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 additional extensions as deemed necessary.

At March 31, 2024, our

working capital deficit, which excludes discontinued assets held for sale, was $1,286,000 compared to working capital of $26,000 at September

The decrease was primarily due to the Forward China promissory note of $750,000, which matures on December 31, 2024 and is now

included in current liabilities, lower cash and accounts receivable balances, and an increase in payables due Forward China.

30, 2024, we had approximately $2,600,000 cash on hand.

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 us which matures on December 31, 2024 (see Note 9 to the condensed consolidated financial statements).

of the FC Note was reduced to $750,000 after we made principal payments of $850,000 through March 31, 2024.

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 additional extensions as deemed necessary.

Additionally, Forward China has extended payment terms on our outstanding

payables due to them when necessary.

At December 31, 2023, our accounts payable due to Forward China was approximately $8,894,000.

order to preserve our current and future liquidity, Forward China agreed to limit the amount of outstanding payables it would seek to

collect from us to $500,000 in any 12-month period, which we agreed to pay within 30 days of any such request.

This agreement pertains

only to payables that were outstanding at October 30, 2023 of $7,365,000.

Purchases from Forward China made after October 30, 2023, are

not covered by this agreement and are expected to be paid according to normal payment terms.

We can provide no assurance that (i) Forward

China will extend the FC Note again if we request an extension, (ii) Forward China will extend additional payment terms on any payables

not covered by the agreement, if needed, 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.

current environment of rising interest rates, any future borrowing is expected to result in higher interest expense.

At March 31, 2024, our accounts payable due to Forward China was approximately $8,688,000.

to preserve our current and future liquidity, Forward China agreed to limit the amount of outstanding payables it would seek to collect

from us to $500,000 in any 12-month period, which we agreed to pay within 30 days of any such request.

This agreement pertains only to

payables that were outstanding at October 30, 2023 of $7,365,000.

Purchases from Forward China made after October 30, 2023, are not covered

by this agreement and are expected to be paid according to normal payment terms.

We can provide no assurance that (i) Forward China will

extend the FC Note again if we request an extension, (ii) Forward China will extend additional payment terms on any payables not covered

by the agreement, if needed, or (iii) any new 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 necessary to preserve future cash flow and liquidity, we have the ability to implement cost-cutting

measures in a timely manner as we have done in prior periods, which may include a reduction in labor force and/or salary reductions

for existing personnel as deemed necessary.

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.

In the current environment of rising interest rates, any future borrowing

is expected to result in higher interest expense.

Although we do not anticipate

1 unchanged sentence

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

During the 2024 Quarter

and 2023 Quarter, our sources and uses of cash were as follows:

During the 2024 Quarter,

cash provided by operating activities of $116,000 resulted from an increase in accounts payable and amounts due to Forward China of $522,000,

a decrease in accounts receivable of $445,000, a decrease in discontinued assets held for sale $372,000 and non-cash expenses of $121,000

related to depreciation, amortization, share-based compensation and bad debt expense, partially offset by a decrease in accrued expenses

and other current liabilities of $863,000, a net loss of $354,000 and the net change in other operating assets and liabilities of $127,000.

During the 2023 Quarter,

cash used in operating activities of $149,000 resulted from a net loss of $430,000, an increase in accounts receivable of $994,000, an

increase in inventories of $289,000, an increase in discontinued assets held for sale $49,000, a decrease in accrued expenses and other

current liabilities of $459,000 and the net change in other operating assets and liabilities of $73,000, partially offset by an increase

in accounts payable and amounts due to Forward China of $2,070,000 and non-cash expenses of $75,000 related to fair value adjustments,

depreciation, amortization, share-based compensation and bad debt expense.

Cash used in investing

activities in the 2024 Quarter and the 2023 Quarter of $20,000 and $45,000, respectively, resulted from purchases of property and equipment.

During the 2024 Period and

2023 Period, our sources and uses of cash were as follows:

During the 2024 Period,

cash used in operating activities of $528,000 resulted from a net loss of $907,000, decreases in accrued expenses and other current

liabilities of $797,000, a decrease in deferred income of $69,000, and the net change in other operating assets and liabilities of

$46,000 partially offset by a decrease in discontinued assets held for sale of $508,000, non-cash expenses of $228,000 related to

depreciation, amortization, share-based compensation and credit loss expense, a decrease in accounts receivable of $484,000, and an

increase in accounts payable and amounts due to Forward China of $71,000.

the 2023 Period, cash used in operating activities of $50,000 resulted from a net loss of $1,301,000, an increase in accounts receivable

of $686,000, a decrease in accrued expenses and other current liabilities of $196,000, a decrease in deferred income of $272,000 and the

net change in other operating assets and liabilities of $78,000, partially offset by a decrease in inventories and discontinued assets

held for sale of $880,000, an increase in accounts payable and amounts due to Forward China of $1,404,000 and non-cash expenses of $199,000

related to fair value adjustments, depreciation, amortization, share-based compensation and credit loss expense.

Investing Activities

Cash used in investing activities

in the 2024 Period and the 2023 Period of $40,000 and $70,000, respectively, resulted from purchases of property and equipment.

Cash used in financing activities

in the 2024 Quarter and the 2023 Quarter of $250,000 and $50,000, respectively, consisted of principal payments on the promissory note

in the 2024 Period and the 2023 Period of $350,000 and $100,000, respectively, consisted of principal payments on the promissory note

held by Forward China.

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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