Forward Industries, Inc. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this report on Form 10-K. The following discussion and analysis compares our results of operations for the year ended September 30, 2024 (“Fiscal 2024”) with those for the year ended September 30, 2023 (“Fiscal 2023”). All dollar amounts and percentages presented herein have been rounded to approximate values. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to those set forth under “Risk Factors.” Cautionary statement regarding Forward-Looking Statements This report includes “forward-looking statements”, as such term is used within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, among other things, statements regarding our liquidity, plans on repaying outstanding debt obligations, as well as other statements regarding our future operations, financial condition and prospects, and business strategies. Forward-looking statements generally can be identified by words such as "anticipates," "believes," "estimates," "expects," "intends," "plans," "predicts," "projects," "will be," "will continue," "will likely result," and similar expressions. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially and adversely from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Annual Report on Form 10-K, and in particular, the risks discussed under the caption "Risk Factors" in Item 1A of this report and those discussed in other documents we file with the SEC. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. 18 Business Overview Forward Industries, Inc. is a global design, sourcing and distribution Company serving top tier medical and technology customers worldwide. Our design division provides hardware and software product design and engineering services to customers predominantly located in the U.S. Our OEM distribution division sources and sells carrying cases and other accessories for medical monitoring and diagnostic kits as well as a variety of other portable electronic and non-electronic devices to OEMs, or their contract manufacturers worldwide, that either package our products as accessories “in box” together with their branded product offerings or sell them through their retail distribution channels. The Company does not manufacture any of its OEM products and sources substantially all of these products from independent suppliers in China, through Forward Industries Asia-Pacific Corporation, a British Virgin Islands corporation (“Forward China”). Forward China is owned by our Chairman of the Board and Chief Executive Officer. In June 2024, the Company’s stockholders authorized, and the Company’s Board of Directors approved, a 1-for-10 reverse stock split of our common stock, which became effective on June 18, 2024. Accordingly, all references made to share, per share, or common share amounts in the accompanying consolidated financial statements and applicable disclosures have been retroactively adjusted to reflect the reverse stock split. Considering the recurring losses incurred by the retail segment, in July 2023, the Company decided to cease operations of our retail distribution segment, 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. The Company sold, liquidated, or otherwise disposed of the remaining retail inventory and collected the remaining retail accounts receivable as of September 30, 2024. As of September 30, 2024, the retail segment was fully discontinued, and we expect to have no further significant involvement in this segment. The inventory of the retail segment is presented as discontinued assets held for sale on the balance sheet at September 30, 2023 and the results of operations for the retail segment have been classified as discontinued operations on the consolidated statements of operations for the years ended September 30, 2024 and 2023. All information and results in this annual report on Form 10-K exclude the discontinued retail segment unless otherwise noted. See Note 3 to our consolidated financial statements for additional information on the discontinued retail segment. Variability of Revenues and Results of Operations A significant portion of our revenue is concentrated with several large customers, some of which are the same and some of which change over time. Orders from some of these customers can be highly variable, with short lead times, which can cause our quarterly revenues, and consequently our results of operations, to vary over a relatively short period of time. Critical Accounting Policies and Estimates We have identified the accounting policies and significant estimation processes below as critical to our business operations and the understanding of our results of operations. The discussion below is not intended to be comprehensive. In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. GAAP, with no need for management’s judgment. In other cases, management is required to exercise judgment in the application of accounting principles with respect to particular transactions. The impact and any associated risks related to these policies on our business operations are discussed throughout this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” where such policies affect reported and expected financial results. For a detailed discussion of the applications of these and other accounting policies, see “Item 8. Financial Statements and Supplementary Data” in this report. The preparation of our consolidated financial statements requires us to make estimates and assumptions that are believed to be reasonable under the circumstances. There can be no assurance that actual results will not differ from those estimates and such differences could be significant. 19 Revenue Recognition OEM Distribution Segment The OEM distribution segment recognizes revenue when: (i) finished goods are shipped to its customers (in general, these conditions occur at either point of shipment or point of destination, depending on the terms of sale and transfer of control); (ii) there are no other deliverables or performance obligations; and (iii) there are no further obligations to the customer after the title of the goods has transferred. If the Company receives consideration before achieving the criteria previously mentioned, it records a contract liability, which is classified as a component of deferred income in the accompanying consolidated balance sheets. Design Segment The design segment applies the “cost to cost” and “right to invoice” methods of revenue recognition to its contracts with customers. The design segment typically engages in two types of contracts: (i) time and material and (ii) fixed price. The Company recognizes revenue over time on its time and material contracts utilizing a “right to invoice” method. Revenues from fixed price contracts that require performance of services that are not related to the production of tangible assets are recognized by using cost inputs to measure progress toward the completion of its performance obligations, or the “cost to cost” method. Revenues from fixed price contracts that contain specific deliverables are recognized when the performance obligation has been satisfied or the transfer of goods to the customer has been completed and accepted. Recognized revenues that will not be billed until a later date, or contract assets, are recorded as an asset and classified as a component of accounts receivable in the accompanying consolidated balance sheets. Contracts where collections to date have exceeded recognized revenues, or contract liabilities, are recorded as a liability and classified as a component of deferred income in the accompanying consolidated balance sheets. Segment Reporting As a result of discontinuing our retail reportable segment, we now have two reportable segments: OEM distribution and design. The OEM distribution segment sources and distributes carrying cases and other accessories for medical monitoring and diagnostic kits and a variety of other portable electronic and non-electronic devices directly to OEMs or their contract manufacturers worldwide. The design segment consists of two operating segments (IPS and Kablooe, which have been aggregated into one reportable segment) that provide a full spectrum of hardware and software product design and engineering services to customers predominantly located in the U.S. Our chief operating decision maker (“CODM”) regularly reviews revenue and operating income for each segment to assess financial results and allocate resources. For our OEM distribution segment, we exclude general and administrative and general corporate expenses from its measure of profitability as these expenses are not allocated to the segments and therefore not included in the measure of profitability used by the CODM. For the design segment, general and administrative expenses directly attributable to that segment are included in its measure of profitability as these expenses are included in the measure of its profitability reviewed by the CODM. We do not include intercompany activity in our segment results to be consistent with the information that is presented to the CODM. Segment assets consist of accounts receivable and inventory, which are regularly reviewed by the CODM, as well as goodwill and intangible assets resulting from design segment acquisitions (see Note 16 to the consolidated financial statements). Inventory Valuation Inventories consist primarily of finished goods and are stated at the lower of cost (determined by the first-in, first-out method) or net realizable value. Based on management’s estimates, an allowance is made to reduce excess, obsolete, or otherwise unsellable inventories to net realizable value. The allowance is established through charges to cost of sales in the Company’s consolidated statements of operations. In determining the adequacy of the allowance, management’s estimates are based upon several factors, including analyses of inventory levels, historical loss trends, sales history and projections of future sales demand. The Company’s estimates of the allowance may change from time to time based on management’s assessments, and such changes could be material. 20 Goodwill and Intangible Assets We review goodwill for impairment at least annually, or more often if triggering events occur. We have two reporting units with goodwill (the IPS and Kablooe operating segments) and we perform our annual goodwill impairment test on September 30, the end of the fiscal year, or upon the occurrence of a triggering event. We have the option to perform a qualitative assessment to determine if an impairment is more likely than not to have occurred. If we can support the conclusion that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then we would not need to perform a quantitative impairment test for the reporting unit. If we cannot support such a conclusion or do not elect to perform the qualitative assessment, then we will perform the quantitative impairment test by comparing the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, no impairment charge is recognized. If the fair value of the reporting unit is less than its carrying amount, an impairment charge will be recognized for the amount by which the reporting unit’s carrying amount exceeds its fair value. A significant amount of judgment is required in performing goodwill impairment tests including estimating the fair value of a reporting unit. During Fiscal 2024, the Company recorded an impairment charge of $200,000 related to goodwill (See Note 4 to the consolidated financial statements). Our intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In assessing the recoverability of our intangible assets, we must make estimates and assumptions regarding future cash flows and other factors to determine the fair value of the respective assets. These estimates and assumptions could have a significant impact on whether an impairment charge is recognized and the magnitude of any such charge. Fair value estimates are made at a specific point in time, based on relevant information. These estimates are subjective in nature and involve uncertainties and matters of significant judgments and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. If these estimates or material related assumptions change in the future, we may be required to record impairment charges related to our intangible assets. There were no indications of impairment of intangible assets in Fiscal 2024 or Fiscal 2023. Recent Accounting Pronouncements In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, "Income Taxes - Improvements to Income Tax Disclosures", requiring enhancements and further transparency to certain income tax disclosures, most notably the tax rate reconciliation and income taxes paid. This ASU is effective for fiscal years beginning after December 15, 2024 on a prospective basis and retrospective application is permitted. The Company is currently evaluating the effects of this pronouncement on its consolidated financial statements. In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which requires expanded segment reporting and disclosure and is effective for the Company for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company is currently evaluating the effects of this pronouncement on its consolidated financial statements. In November 2019, the FASB issued ASU 2019-11, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses.” ASU 2019-11 is an accounting pronouncement that provides clarity to and amends earlier guidance on this topic and would be effective concurrently with the adoption of such earlier guidance. This pronouncement is effective for the Company for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The Company adopted this guidance in the first quarter of Fiscal 2024 with no material impact on its consolidated financial statements. 21 RESULTS OF OPERATIONS FOR FISCAL 2024 COMPARED TO FISCAL 2023 Consolidated Results The table below summarizes our consolidated results of continuing operations for Fiscal 2024 as compared to Fiscal 2023: Consolidated Results of Continuing Operations Fiscal 2024 Fiscal 2023 Change ($) Change (%) Net revenues $ 30,195,000 $ 36,688,000 $ (6,493,000 ) (17.7% ) Cost of sales 23,986,000 28,324,000 (4,338,000 ) (15.3% ) Gross profit 6,209,000 8,364,000 (2,155,000 ) (25.8% ) Sales and marketing expenses 1,425,000 1,663,000 (238,000 ) (14.3% ) General and administrative expenses 6,516,000 6,541,000 (25,000 ) (0.4% ) Goodwill impairment 200,000 – 200,000 – Operating (loss) income (1,932,000 ) 160,000 (2,092,000 ) (1307.5% ) Other income, net (7,000 ) (19,000 ) 12,000 (63.2% ) Income tax provision 23,000 20,000 3,000 15.0% (Loss) / income from continuing operations $ (1,948,000 ) $ 159,000 $ (2,107,000 ) (1325.2% ) The decrease in net revenues in Fiscal 2024 was primarily driven by a decline in revenue in the OEM distribution segment and, to a lesser extent, the design segment. Gross profit decreased and gross margin declined from 22.8% in Fiscal 2023 to 20.6% in Fiscal 2024. This decrease was mainly driven by lower utilization rates in our design segment and a change in the mix of our OEM distribution segment revenue, partially offset by a reduction in our sourcing fee with Forward China. Sales and marketing expenses decreased primarily due to staff reduction in our OEM distribution segment and lower sales related expenses in the design segment. Sales and marketing expenses as a percentage of revenue increased from 4.5% in Fiscal 2023 to 4.7% in Fiscal 2024. General and administrative expenses decreased slightly in Fiscal 2024. Lower payroll costs were partially offset by increased corporate expenses, primarily driven by costs related to Nasdaq non-compliance issues, and a credit loss recovery of approximately $200,000 in Fiscal 2023 that did not recur in Fiscal 2024. 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. During Fiscal 2024, the Company recorded a goodwill impairment charge of $200,000 related to the Kablooe reporting unit, which is included in the design segment. This impairment charge resulted from the quantitative goodwill impairment testing performed at September 30, 2024 and was driven by historical losses and a reduction in expected future performance of the Kablooe reporting unit. We reported other income of $7,000 in Fiscal 2024 as compared to $19,000 in Fiscal 2023. The variance is due to fair value adjustments of $70,000 in Fiscal 2023 to reduce to the fair value of the earnout consideration related to the Kablooe acquisition, $18,000 of net duty drawback income received in Fiscal 2023 offset by an increase in interest income from interest bearing deposits and a decrease in interest expense resulting from a reduction in the amount of debt outstanding. In Fiscal 2024, we recorded a tax provision of $23,000, incurred a loss from continuing operations before income taxes of $1,925,000 and had an effective tax rate of (1.3%). In Fiscal 2023, we recorded a tax provision of $20,000, generated income from continuing operations before income taxes of $179,000 and had an effective tax rate of 11.2%. Consolidated basic and diluted (loss)/earnings per share from continuing operations was ($1.77) and $0.14 for Fiscal 2024 and Fiscal 2023, respectively. 22 Segment Results The discussion that follows below provides further details about the results of operations for each continuing segment as compared to the prior year. Segment Results of Operations OEM Distribution Design Corporate Expenses Consolidated Fiscal 2024 revenues $ 10,204,000 $ 19,991,000 $ – $ 30,195,000 Fiscal 2023 revenues 14,002,000 22,686,000 – 36,688,000 Change $ (3,798,000 ) $ (2,695,000 ) $ – $ (6,493,000 ) Fiscal 2024 operating income/(loss) $ 369,000 $ 26,000 $ (2,327,000 ) $ (1,932,000 ) Fiscal 2023 operating income/(loss) 440,000 2,182,000 (2,462,000 ) 160,000 Change $ (71,000 ) $ (2,156,000 ) $ 135,000 $ (2,092,000 ) OEM Distribution Net revenues in the OEM distribution segment decreased from lower sales volume from our diabetic customers, slightly offset by an increase in revenues from other OEM customers. 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. In March 2023, a contract with one of our major diabetic customers expired. Due to increased pricing pressures, we did not extend our contract with this customer. Revenue from this customer represented approximately 7.8% of our consolidated net revenues in Fiscal 2023. We expect the loss of this customer to cause a significant decline in OEM distribution segment revenues in future periods. The following tables set forth revenues by product line of our OEM distribution segment customers for the periods indicated: OEM Revenues by Product Line Fiscal 2024 Fiscal 2023 Change ($) Change (%) Diabetic products $ 7,885,000 $ 11,805,000 $ (3,920,000 ) (33.2% ) Other products 2,319,000 2,197,000 122,000 5.6% Total net revenues $ 10,204,000 $ 14,002,000 $ (3,798,000 ) (27.1% ) 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 due to the loss of a major customer in March 2023, lower demand from our major diabetic customers and the loss of one product to a competitor. As mentioned above, management believes that revenues from diabetic customers will continue to decline. Revenues from diabetic products represented 77% of net revenues for the OEM distribution segment in Fiscal 2024 compared to 84% in Fiscal 2023. 23 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 some existing customers, partially offset by reduced demand 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. Operating Income Operating income for the OEM distribution segment decreased but operating income margin increased to 3.6% in Fiscal 2024, compared to 3.1% in Fiscal 2023, driven by a decrease in the sourcing fee and lower sales and marketing expenses. While revenues decreased in diabetic products, a large portion of this decrease was from lower margin products, driving overall gross margins up. Lower selling and marketing costs further improved the operating income margin. We continue to work on expanding our product offerings to include higher margin products and enhancing our sales efforts to grow revenue and increase gross profit. 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 and expired October 2024. In November 2024, the Company and Forward China agreed to: (i) extend the sourcing agreement until April 30, 2025, but allow either party to cancel with 30 days notice, (ii) reduce the fixed portion of the sourcing fee to $35,000 per month, and (iii) change the payment terms to better align with payments from the Company’s customers. See Note 14 to the 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 primarily driven by one customer whose revenue declined approximately $2,600,000, as well as a net decrease in volume of work and projects with continuing customers, partially offset by projects from new customers. In December 2024, our largest design customer notified the Company of its plan to discontinue their insulin patch program, on which the Company was working. We expect this to cause a material decrease in our revenues beginning with the second quarter of fiscal 2025. We are currently working on cost reduction efforts to mitigate the reduction in revenue. Operating income for the design segment decreased and operating income margin decreased from 9.6% in Fiscal 2023 to 0.1% in Fiscal 2024. This decrease was driven by lower utilization rates, impairment of goodwill and credit loss recoveries in Fiscal 2023 that did not recur in Fiscal 2024, partially offset by lower payroll costs and increased billing rates on some projects. LIQUIDITY AND CAPITAL RESOURCES Our primary source of liquidity is our operations. The primary demand on our working capital has historically been (i) operating losses, (ii) repayment of debt obligations, and (iii) any increases in accounts receivable and inventories arising in the ordinary course of business. Historically, our sources of liquidity have been adequate to satisfy working capital requirements arising in the ordinary course of business. At September 30, 2024, our working capital was $273,000 compared to $26,000 at September 30, 2023, which excludes discontinued assets held for sale. The increase was primarily due to the equity conversion of amounts due to Forward China (see Note 14 to the consolidated financial statements), lower accrued expenses, partially offset by a decrease in accounts receivable and cash. At November 30, 2024, we had approximately $2,300,000 cash on hand. 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 us which matures on June 30, 2025 (see Note 14 to the consolidated financial statements). The balance of the FC Note was reduced to $600,000 after we made principal payments of $1,000,000 through Fiscal 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 September 30, 2024, our accounts payable due to Forward China was approximately $7,226,000. In connection with the new sourcing agreement entered into October 2023 (see Note 14 to the consolidated financial statements) and in order to preserve our 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. At September 30, 2024, the remaining balance covered by this agreement was approximately $4,881,000. 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. Our consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the ordinary course of business. We had an accumulated deficit and working capital of $19,637,000 and $273,000, respectively, at September 30, 2024, a net loss of $1,951,000 in Fiscal 2024 and a cash balance of approximately $2,300,000 at November 30, 2024. In December 2024, our largest design customer notified us of its plan to discontinue their insulin patch program, on which we were working. We expect this to cause a material decrease in our revenues beginning with the second quarter of Fiscal 2025. Based on our forecasted cash flows, we believe that there is substantial doubt about our ability to continue as a going concern for a period of 12 months from the date of issuance of the consolidated financial statements. 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 or obtain additional borrowings, 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 the need to purchase any additional material capital assets in order to carry out our business, it may be necessary for us to purchase equipment and other capital assets in the future, depending on need. Cash Flows During Fiscal 2024 and Fiscal 2023, our sources and uses of cash were as follows: Operating Activities During Fiscal 2024, cash provided by operating activities of $407,000 resulted from a decrease in accounts receivable of $1,244,000, a decrease in discontinued assets held for sale of $508,000, an increase in amounts due to Forward China (excluding the non-cash impact of the Conversion Agreements) of $1,180,000, and non-cash charges for depreciation, amortization, share-based compensation, credit loss expense and goodwill impairment of $654,000, partially offset by the net loss of $1,951,000, a decrease in accrued expenses and other current liabilities $745,000, a decrease in accounts payable $390,000 and the net change in other operating assets and liabilities of $93,000. During Fiscal 2023, cash provided by operating activities of $1,041,000 resulted from a decrease in discontinued assets held for sale of $2,642,000, an increase in accounts payable and amounts due to Forward China of $783,000, an increase in accounts receivable of $495,000, non-cash charges for depreciation, amortization, share-based compensation and credit loss expense of $481,000 and the net change in other operating assets and liabilities of $447,000, partially offset by the $70,000 non-cash adjustment to the fair value of the Kablooe earnout consideration and the net loss of $3,737,000. Investing Activities In Fiscal 2024 and Fiscal 2023, cash used for investing activities of $65,000 and $136,000, respectively, resulted from purchases of property and equipment. 25 Financing Activities In Fiscal 2024 and Fiscal 2023, cash used in financing activities of $500,000 and $300,000, respectively, consisted of principal payments on the promissory note held by Forward China. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements and notes thereto included in this Annual Report may be found beginning on page F-1 of this Annual Report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.