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Item 2. Management’s Discussion and Analysis

2025-02-13 compared with 2024-08-14 · 171 added, 264 removed, 128 unchanged (77% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

The following discussion

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The following discussion

and analysis compares our condensed consolidated results of operations for the three and nine months ended June 30, 2024 (the “2024

Quarter” and “2024 Period”, respectively) with those for the three and nine months ended June 30, 2023 (the “2023

Quarter” and “2023 Period”, respectively).

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 months ended December 31, 2024 (the “2025 Quarter)

with those for the three months ended December 31, 2023 (the “2024 Quarter”).

All dollar amounts and percentages presented

herein have been rounded to approximate values.

Cautionary Note Regarding Forward-Looking Statements

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These risks include the inability to expand our customer base, loss of additional customers, pricing pressures, lack of success

of our sales people, failure to develop products at a profit, continued supply chain issues, a

significant decrease in our stock price upon effectuating a reverse stock split, inability to 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.

risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

of our sales people, failure to develop products at a profit, supply chain issues, unexpected tariffs placed on products we purchase from

China , inability to 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, 2024 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

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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

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.

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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.

losses incurred by the retail distribution segment, in July 2023, we 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 prior periods presented

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 as of June 30, 2024, and will collect the 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 June 30, 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 nine months ended June 30, 2024 and 2023.

On May 11, 2023, the U.S.

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.

The primary assets of

the retail segment were inventory and accounts receivable.

The Company sold, liquidated, or otherwise disposed of the remaining retail

inventory and collected the remaining retail accounts receivable by September 30, 2024, at which time the retail segment was considered

fully discontinued.

We expect to have no further significant continuing involvement with this segment.

The inventory of the retail segment

met the criteria to be considered “held-for-sale” in accordance with ASC 205-20, “Discontinued Operations.” Accordingly,

the retail inventory is classified on our condensed consolidated balance sheet as “discontinued assets held for sale” at 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.

Variability of Revenues

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and Estimates

We discussed 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, 2023, under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical

Accounting Policies and Estimates”.

There has been no material change in critical accounting policies or estimates during the period

covered by this report.

We discussed the accounting

policies and significant estimation processes that are critical to our business operations and the understanding of our financial statements

in our Annual Report on Form 10-K for the fiscal year ended September 30, 2024, under the caption “Management’s Discussion

and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates.” There have been

no material changes in critical accounting policies or estimation processes during the period covered by this report, but the following

accounting estimates had a material impact on our results of operations for the 2025 Quarter and fiscal 2024.

We review goodwill for impairment

annually, or more often if events or changes in circumstances indicate the carrying value of a reporting unit may exceed its fair value.

Evaluating goodwill for impairment requires a significant amount of judgment, including the estimation of future cash flows, future growth

rates and profitability.

Changes in our business strategy or adverse changes in market conditions could impact impairment analyses and

require the recognition of an impairment charge.

Although we base our estimates on historical experience and various other assumptions

that we believe to be reasonable under the circumstances at the time of evaluation, actual results could differ from these estimates.

December 2024, the Company was notified by its largest design customer of its plan to discontinue their insulin patch pump program, on

which IPS was working, and was beginning to wind down all activities related to it.

Revenue from this customer (all of which related to

this program) represented approximately 25.2% of the Company’s consolidated net revenues in fiscal 2024.

Due to the historically

high concentration of revenue with this customer, the loss of its business was considered a triggering event which prompted the Company

to evaluate the goodwill of the IPS reporting unit.

Management performed quantitative testing on this reporting unit, which indicated

its carrying amount exceeded its fair value, resulting in a goodwill impairment charge of $225,000 in the 2025 Quarter, primarily driven

by a reduction in its expected future performance.

to the historical losses of the Kablooe reporting unit, the Company elected to bypass the qualitative assessment and perform quantitative

goodwill impairment testing for the Kablooe reporting unit at September 30, 2024.

This quantitative testing indicated the carrying amount

of the Kablooe reporting unit exceeded its fair value, resulting in a goodwill impairment charge of $200,000 in September 2024, primarily

driven by a reduction in its expected future performance.

will continue to monitor the IPS and Kablooe goodwill for impairment as needed in future periods.

Changes in economic, industry or market

conditions, business operations, competition, the price of our common shares or market capitalization or our actual performance compared

with estimates of our future performance may affect the fair value of goodwill and could result in additional impairment charges in the

Recent Accounting Pronouncements

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RESULTS OF OPERATIONS FOR

THE THREE MONTHS ENDED JUNE 30, 2024 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2023

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

Consolidated Results

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General and administrative expenses

Goodwill impairment

Loss from operations

Other (income) / expense, net

Provision for income taxes

Loss from continuing operations

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below provides further details about our results from continuing operations for the 2025 Quarter as compared to the 2024 Quarter.

Net revenues declined significantly

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

Most of the decline in net

revenues from the 2024 Quarter to the 2025 Quarter is attributable to the design segment, while the OEM distribution segment experienced

a small decline in revenue.

Our gross profit decreased

in both the design and OEM distribution segments.

Our gross margin decreased from 25.2% in the 2023 Quarter to 20.4% in the 2024 Quarter,

due to lower utilization rates in our design segment, partially offset by a change in the mix of our OEM distribution segment revenue

and a reduction in our sourcing fee with Forward China.

in the design segment and was partially offset by an increase in gross margin in the OEM distribution segment.

Our gross margin was mostly

flat at 22.7% in the 2025 Quarter versus 23.0% in the 2024 Quarter.

Declines in the design segment margin driven by lower utilization

rates were mostly offset by improvements in OEM segment margin due to the lower sourcing fee from Forward China and a change in the mix

Sales and marketing expenses

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

decreased primarily due to lower personnel costs and decreased slightly as a percentage of revenues.

General and administrative

expenses remained flat in the 2024 Quarter mainly due to increased costs related to the Nasdaq non-compliance matter that were offset by

lower Board of directors’ compensation.

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

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

We intend to adjust these costs as needed based on the overall needs

of the business.

We recorded net other income

of $5,000 in the 2024 Quarter compared to net other expense of $15,000 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.

expenses increased slightly in the 2025 Quarter.

Higher corporate professional fees and an increase in design segment bad debt expense

were partially offset by a reduction in other components of corporate expenses, primarily director compensation.

Management continues

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

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

The decrease in other income/expense,

net is primarily due to a decrease in interest expense resulting from a reduction in the amount of debt outstanding.

During the 2025 Quarter,

we recorded a goodwill impairment charge of $225,000 related to the IPS reporting unit, which is included in the design segment.

impairment charge resulted from the quantitative goodwill impairment testing performed at December 31, 2024 and was driven by the expected

reduction in revenues following the loss of a significant customer.

We generated a loss from

continuing operations of $377,000 in the 2024 Quarter compared to income of $134,000 in the 2023 Quarter.

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.

continuing operations of $708,000 in the 2025 Quarter compared to $381,000 in the 2024 Quarter.

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) / income per share from continuing operations were ($0.34) and $0.12 for the 2024 Quarter and the 2023 Quarter, respectively.

loss per share from continuing operations were $0.64 and $0.35 for the 2025 Quarter and the 2024 Quarter, respectively.

Segment Results

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Net revenues in the OEM distribution

segment decreased slightly as volume declines from some diabetic customers were partially offset by higher volumes with other diabetic

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

Other products

Total net revenues

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 one of our major diabetic customers whose contract expired, lower volumes from some diabetic customers, partially

offset by higher volumes from other diabetic customers.

Management believes that revenues from diabetic customers will decline in future

Revenues from diabetic products represented 81% of net revenues for the OEM distribution segment in the 2024 Quarter compared

to 82% 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 some new 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 declined

slightly for the OEM distribution segment and operating income margin declined from 5.5% in the 2023 Quarter to 4.8% in the 2024 Quarter.

Reductions to marketing personnel were offset by lower gross margins due to the mix of revenue and allocation of the sourcing fee from

Forward China.

Design Segment

The decrease in net revenues

in the design segment was primarily driven by one customer whose revenue declined approximately $1,200,000, as well as a net 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 10.0% in the 2023 Quarter to 1.1% in 2024 Quarter, primarily driven

by lower utilization rates.

RESULTS OF OPERATIONS FOR

THE NINE MONTHS ENDED JUNE 30, 2024 COMPARED TO THE NINE MONTHS ENDED JUNE 30, 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

$ (5,330,000 )

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

$ (1,304,000 )

$ (1,227,000 )

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, and our gross margin decreased slightly from 21.6% in the 2023 Period to 21.2% in the 2024 Period driven by lower

utilization rates in our design segment, partially offset by a change in the mix of our OEM distribution segment revenue and a reduction

in our sourcing fee with Forward China.

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 4.5% in the 2023 Period to 4.8% in the 2024 Period.

General and administrative

expenses increased slightly in the 2024 Period.

Increased corporate expenses, primarily driven by costs related to Nasdaq non-compliance

issues and a credit loss recovery in the 2023 Period that did not recur in the 2024 Period, were partially offset by lower payroll related

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 $3,000 in the 2024 Period compared to net other expense of $5,000 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 $1,304,000 and $77,000 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 $1.18 and $0.07 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

OEM Distribution

Corporate Expenses

2024 Period revenues

2023 Period revenues

$ (3,744,000 )

$ (1,586,000 )

$ (5,330,000 )

2024 Period operating income/(loss)

$ (1,858,000 )

$ (1,301,000 )

2023 Period operating income/(loss)

$ (1,273,000 )

$ (1,230,000 )

OEM Distribution Segment

Net revenues in the OEM distribution

segment decreased primarily from the loss of one major diabetic customer in March 2023 and, to a lesser extent, due to lower volumes from

other diabetic customers, which were partially offset by new business with non-diabetic customers.

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.

from this customer represented 10.1% 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

segment decreased slightly as lower revenue from non-diabetic customers and lower volumes from some diabetic customers was partially offset

by higher volumes from other diabetic 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.

The following tables set

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Diabetic products

$ (4,052,000 )

Other products

Total net revenues

$ (3,744,000 )

Diabetic Product Revenues

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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 75% of net revenues for the OEM distribution segment in the 2024 Period compared

to 86% in the 2023 Period.

increased due to higher volumes from some diabetic customers, partially offset by lower volumes from other diabetic customers.

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

Revenues from diabetic products represented 81% of net

revenues for the OEM distribution segment in the 2025 Quarter compared to 71% in the 2024 Quarter.

Other Product Revenues

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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.

decreased due to the net reduction in demand from non-diabetic customers.

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

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

Operating Income

Operating income for the

OEM distribution segment increased and operating income margin increased from 2.7% in the 2023 Period to 3.8% 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.

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

Operating income improved

for the OEM distribution segment and operating income margin improved from 2.0% in the 2024 Quarter to 11.2% in the 2025 Quarter.

to the sourcing fee from Forward China and a change in the mix of revenue drove the improvement in both operating income and margin.

Design Segment

The decrease in net revenues

in the design segment was primarily driven by one customer whose revenue declined approximately $1,200,000, as well as a net decrease

in volume of work and projects with continuing customers, partially offset by projects from new customers.

in the design segment was primarily driven by one customer whose revenue declined approximately $470,000, 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 us of its plan to discontinue their insulin patch pump program, on which the Company was working.

We expect this

to cause a material decrease in our revenues beginning in the second quarter of fiscal 2025.

We are working on cost reduction efforts

to mitigate the reduction in revenue.

Operating income for the

design segment decreased and operating income margin decreased from 9.1% in the 2023 Period to 1.7% in 2024 Period.

This decrease was

driven by lower utilization rates 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.

design segment decreased and operating income/(loss) margin decreased from 5.2% in the 2024 Quarter to (5.6%) in 2025 Quarter, primarily

driven by a decline in billable project hours and the goodwill impairment charge, partially offset by an increase in the average bill

LIQUIDITY AND CAPITAL RESOURCES

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

At June 30, 2024, our

working capital deficit, which excludes discontinued assets held for sale, was $1,576,000 compared to working capital of $26,000 at September

The decrease was primarily due to the Forward China promissory note of $600,000, 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.

2024, we had approximately $3,200,000 cash on hand.

At December 31, 2024,

our working capital deficit was $162,000 compared to working capital of $273,000 at September 30, 2024.

The decrease was primarily due

to lower cash and accounts receivable balances and was partially offset by the reduction in amounts due to Forward China.

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 8 to the condensed consolidated financial statements).

of the FC Note was reduced to $600,000 after we made principal payments of $1,000,000 through June 30, 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

Note”) issued by us which matures on June 30, 2005 (see Note 8 to the condensed consolidated financial statements).

of the FC Note was reduced to $600,000 after we made principal payments of $1,000,000 through December 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.

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outstanding payables due to them when necessary.

At June 30, 2024, our accounts payable due to Forward China was approximately $9,301,000.

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

At December 31, 2024, our accounts payable due to Forward China was approximately $6,771,000.

In connection with the sourcing agreement entered into in October 2023 (see Note 8 to the condensed consolidated financial statements)

and in 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.

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

Effective July 5, 2024, the

Company entered into an Accounts Payable Conversion Agreement (the “Conversion Agreement”) with Forward China.

Under the terms

of the Conversion Agreement, Forward China agreed to convert $1,700,000 of the Due to Forward China payable into shares of the Company’s

Series A-1 preferred stock (the “Preferred Stock”).

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

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

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

At December 31, 2024, the remaining balance

covered by this agreement was $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 new credit facility will be available on terms acceptable to us or at all.

Our condensed 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 deficit of $20,345,000 and $162,000, respectively, at December 31, 2024, a net loss of $708,000 for the three months ended December

31, 2024 and $1,951,000 in Fiscal 2024 and a cash balance of approximately $2,900,000 at January 31, 2025.

In December 2024, we

were notified by our largest design customer of its plan to discontinue their insulin patch pump program, on which IPS was working, and

was beginning to wind down all activities related to it.

Revenue from this customer (all of which related to this program) represented

approximately 25.2% of the Company’s consolidated net revenues in fiscal 2024.

We expect this to cause a material decrease

in our revenues beginning in 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 condensed 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, 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.

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 $72,000 resulted from a net loss of $1,307,000, decreases in accrued expenses and other current liabilities

of $715,000, a decrease in deferred income of $92,000, and the net change in other operating assets and liabilities of $50,000 partially

offset by a decrease in discontinued assets held for sale of $508,000, non-cash expenses of $333,000 related to depreciation, amortization,

share-based compensation and credit loss expense, a decrease in accounts receivable of $479,000, a decrease in inventory $91,000 and an

increase in accounts payable and amounts due to Forward China of $681,000.

During the 2023 Period, cash

provided by operating activities of $562,000 resulted from a decrease in discontinued assets held for sale $1,622,000, a decrease in inventory

$286,000, an increase in accounts payable and amounts due to Forward China of $651,000, non-cash expenses of $271,000 related to fair

value adjustments, depreciation, amortization, share-based compensation and bad debt expense, an increase in accrued expenses and other

current liabilities of $129,000 and the net change in other operating assets and liabilities of $24,000, partially offset by a net loss

of $1,838,000, an increase in prepaid expenses and other current assets of $272,000, a decrease in deferred income of $174,000 and an

increase in accounts receivable of $137,000.

the need to purchase additional material capital assets in order to carry out our business, it may be necessary for us to purchase a material

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

During the 2025 Quarter and

2024 Quarter, our sources and uses of cash were as follows:

During the 2025 Quarter,

cash used in operating activities of $410,000 resulted from a net loss of $708,000, a decrease in amounts due to Forward China of $455,000,

an increase in inventories of $263,000, an decrease in deferred income of $121,000, a decrease in accrued expenses and other current liabilities

of $126,000, partially offset by an decrease in accounts receivable of $819,000, non-cash charges for depreciation, amortization, share-based

compensation, credit losses and goodwill impairment of $353,000 and the net change in other operating assets and liabilities of $91,000.

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 of $372,000 and non-cash charges of $121,000

related to depreciation, amortization, share-based compensation and credit losses, 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.

Investing Activities

Cash used in investing activities

in the 2024 Period and the 2023 Period of $50,000 and $117,000, respectively, resulted from purchases of property and equipment.

in the 2025 Quarter and the 2024 Quarter of $5,000 and $20,000, respectively, resulted from purchases of property and equipment.

Cash used in financing activities

in the 2024 Period and the 2023 Period of $500,000 and $200,000, respectively, consisted of principal payments on the promissory note

held by Forward China.

in the 2024 Quarter of $250,000 consisted of principal payments on the promissory note held by Forward China.

Related Party Transactions

4 unchanged sentences

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What changed 10-Q

Item 2. Management’s Discussion and Analysis