Forward Industries(FORD) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides a comprehensive overview of the company's financial performance and position for the period ended March 31, 2022 Item 1. Financial Statements Total assets increased to $22.0 million, liabilities to $14.6 million, with six-month revenues of $21.9 million and a net loss of $176,311 Condensed Consolidated Balance Sheets Balance Sheet Items (in USD) | Balance Sheet Items | March 31, 2022 (Unaudited) | September 30, 2021 | | :--- | :--- | :--- | | Total Current Assets | $14,940,817 | $12,794,709 | | Inventories, net | $3,897,479 | $2,062,557 | | Total Assets | $21,973,187 | $19,855,539 | | Total Current Liabilities | $11,042,179 | $7,208,043 | | Due to Forward China | $7,239,885 | $5,733,708 | | Total Liabilities | $14,601,243 | $12,412,096 | | Total Shareholders' Equity | $7,371,944 | $7,443,443 | - Total assets increased by approximately $2.1 million, largely driven by an $1.8 million increase in inventories[9] - Total liabilities rose by $2.2 million, mainly due to a $1.5 million increase in amounts due to Forward China and a $1.5 million note payable to Forward China becoming a current liability[9] Condensed Consolidated Statements of Operations Statements of Operations (in USD) | Metric | Three Months Ended Mar 31, 2022 | Three Months Ended Mar 31, 2021 | Six Months Ended Mar 31, 2022 | Six Months Ended Mar 31, 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenues, net | $10,314,563 | $8,395,379 | $21,928,304 | $18,112,982 | | Gross Profit | $2,252,674 | $1,743,446 | $4,871,443 | $4,006,332 | | Loss from Operations | ($322,739) | ($816,176) | ($108,525) | ($983,669) | | Net (Loss)/Income | ($356,335) | ($834,728) | ($176,311) | $364,308 | | Basic (Loss)/EPS | ($0.04) | ($0.08) | ($0.02) | $0.04 | | Diluted (Loss)/EPS | ($0.04) | ($0.08) | ($0.02) | $0.04 | - For the six months ended March 31, 2021, net income was significantly impacted by a $1,356,570 gain on the forgiveness of a note payable (PPP loan), which did not recur in the 2022 period[12] Condensed Consolidated Statements of Cash Flows Statements of Cash Flows (in USD) | Cash Flow Activity (Six Months Ended March 31) | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by/(used in) operating activities | $360,327 | ($397,918) | | Net cash used in investing activities | ($129,500) | ($37,878) | | Net cash used in financing activities | ($100,000) | ($959,666) | | Net increase/(decrease) in cash | $130,827 | ($1,395,462) | | Cash at end of period | $1,541,192 | $1,529,165 | - The shift to positive cash flow from operations in the 2022 period was primarily driven by an increase in accounts payable and amounts due to Forward China, which offset a significant increase in inventories[18] Notes to Condensed Consolidated Financial Statements - The company operates in three reportable segments: OEM distribution, retail distribution, and design, with the design segment including the aggregated results of IPS and Kablooe[31] - The COVID-19 pandemic continues to impact the business through increased freight costs, transportation delays, and rising labor costs due to inflation, with these effects expected to continue through Fiscal 2022[22][23] - The company has a significant related-party relationship with Forward China, owned by the company's CEO, which acts as the exclusive buying agent and supplier and is also a lender to the company[72] - For the six months ended March 31, 2022, two customers in the OEM distribution segment accounted for 25.7% of consolidated revenues, and one customer in the design segment accounted for 10.2%[60][62] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses revenue growth across segments, improved gross margin, and liquidity, noting reliance on a related party for financial support Results of Operations for the Three Months Ended March 31, 2022 Results of Operations (in USD) | Metric | Q2 2022 | Q2 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenues, net | $10,315,000 | $8,395,000 | $1,920,000 | 22.9% | | Gross Profit | $2,252,000 | $1,743,000 | $509,000 | 29.2% | | Loss from Operations | ($323,000) | ($816,000) | $493,000 | (60.4%) | | Net Loss | ($356,000) | ($835,000) | $479,000 | (57.4%) | - Revenue growth was driven by all segments: OEM Distribution revenue increased by $422,000 (9.9%), Retail Distribution by $420,000 (183.4%), and Design by $1,078,000 (27.6%)[103] - The Design segment's operating income improved significantly to $389,000 from a loss of ($288,000) in the prior-year quarter, driven by higher revenues, better utilization, and lower bad debt expense[103][115] Results of Operations for the Six Months Ended March 31, 2022 Results of Operations (in USD) | Metric | Six Months 2022 | Six Months 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenues, net | $21,928,000 | $18,113,000 | $3,815,000 | 21.1% | | Gross Profit | $4,871,000 | $4,006,000 | $865,000 | 21.6% | | Loss from Operations | ($109,000) | ($984,000) | $875,000 | (88.9%) | | Net (Loss)/Income | ($176,000) | $364,000 | ($540,000) | (148.4%) | - The significant decrease in net income is primarily due to the non-recurrence of a $1,357,000 gain from PPP loan forgiveness that was recognized in the 2021 period[121][122] - By segment, revenue growth for the six-month period was led by Retail Distribution (up 228.6% to $2.0 million) and Design (up 24.2% to $10.0 million), with OEM Distribution growing more modestly (up 4.8% to $9.9 million)[125] Liquidity and Capital Resources - Working capital decreased to $3.9 million at March 31, 2022, from $5.6 million at September 30, 2021, mainly because a $1.5 million note payable to Forward China was reclassified as a current liability[138] - As of April 30, 2022, the company had $1.9 million in cash and $1.3 million available under its line of credit; management plans to repay a $1.5 million promissory note due December 31, 2022, using existing cash or a new credit facility[139] - The company acknowledges its reliance on Forward China, a related party, for extending the maturity of its promissory note and providing flexible payment terms on payables to support its liquidity[139] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company states this item is not applicable, indicating no material market risk exposures requiring disclosure - The company states this section is 'Not applicable'[147] Item 4. Controls and Procedures Management confirmed the effectiveness of disclosure controls and procedures, with no material changes to internal controls during the quarter - Management concluded that the company's disclosure controls and procedures are effective as of the end of the period covered by the report[148] - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[149] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, and other miscellaneous items, including equity sales and exhibit listings Item 1. Legal Proceedings A patent dispute involving a subsidiary was dismissed, and no other material legal actions are pending against the company - In January 2022, all claims in a patent dispute case involving the company's subsidiary, IPS, were dismissed without prejudice[153] - As of March 31, 2022, there were no other material legal actions or proceedings against the company[154] Item 1A. Risk Factors The company reports no material changes to the risk factors previously disclosed in its latest annual report - The company reports no material changes in its risk factors from those disclosed in its Form 10-K for the fiscal year ended September 30, 2021[155] Other Items (Items 2, 3, 4, 5, 6) No unregistered equity sales or defaults on senior securities were reported, with other items marked as not applicable - Item 2: No unregistered sales of equity securities were reported for the three months ended March 31, 2022[156] - Item 3 & 4: The company reported no defaults upon senior securities and that mine safety disclosures are not applicable[157][158]