RELATED PARTY TRANSACTIONS

12 Months Ended

Sep. 30, 2023

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

NOTE 14       RELATED PARTY TRANSACTIONS 

Buying Agency and Supply Agreement

The Company has a Buying Agency and Supply Agreement (the “Supply Agreement”) with Forward China. The Supply Agreement provides that, upon the terms and subject to the conditions set forth therein, Forward China will act as the Company’s exclusive buying agent and supplier of Products (as defined in the Supply Agreement) in the Asia-Pacific region. The Company purchases products at Forward China’s cost and through March 2023 paid Forward China a monthly service fee equal to the sum of (i) $100,000, and (ii) 4% of “Adjusted Gross Profit”, which is defined as the selling price less the cost from Forward China. Considering the loss of a significant OEM distribution customer (see Note 16), 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 Supply Agreement, which expired in October 2023, resulting in cash savings of $100,000 in Fiscal 2023. Effective October 2023, the Company and Forward China entered into a new sourcing agreement under which the fixed portion of the sourcing fee was further reduced to $65,833 per month. Other terms in the agreement are substantially the same as the prior agreement. Due to the Retail Exit and decline in the OEM distribution segment business, the new sourcing agreement expires October 31, 2024.

Terence Wise, Chief Executive Officer and Chairman of the Company, is the owner of Forward China. In addition, Jenny P. Yu, a Managing Director of Forward China, beneficially owns more than 5% of the Company’s common stock. The Company recorded service fees to Forward China of $1,266,000 and $1,398,000 during Fiscal 2023 and Fiscal 2022, respectively, which are included as a component of cost of sales upon sales of the related products. The Company had purchases from Forward China of $12,799,000 and $18,055,000 during Fiscal 2023 and Fiscal 2022, respectively.

The Company has a separate agreement with Forward China to address the potential impact of customers sourcing directly from Forward China. In the event a customer bypasses the services of the Company and does business directly with Forward China, Forward China will pay a commission of 50% of the net revenue, less direct costs, generated from the products or services sold. No commissions were recognized in Fiscal 2023 and Fiscal 2022.

In connection with the new sourcing agreement and in order to preserve the Company’s future liquidity, in November 2023, the Company and Forward China entered into an agreement whereby Forward China agreed to limit the amount of outstanding payables it would seek to collect from the Company to $500,000 in any 12-month period, which the Company agreed to pay within 30 days of any such request. This agreement pertains only to payables that were outstanding at October 30, 2023 of approximately $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.

The Company made prepayments to Forward China for inventory purchases of $20,000 at September 30, 2022, which are included in prepaid expenses and other current assets on the consolidated balance sheets. As of September 30, 2023, there were no such prepayments. During 2023, as a result of the Retail Exit, the Company recognized a loss of approximately $1,021,000 relating to the termination of unfulfilled purchase orders for retail products (see Note 3). 

Promissory Note

On January 18, 2018, the Company issued a $1,600,000 unsecured promissory note payable to Forward China to fund the acquisition of IPS. The promissory note bears interest at a rate of 8% per annum and had an original maturity date of January 18, 2019. Monthly interest payments commenced on February 18, 2018, with the principal due at maturity. The Company incurred and paid interest associated with this note of $104,000 and $122,000 in Fiscal 2023 and Fiscal 2022, respectively. The maturity date of this note was extended to December 31, 2024. The maturity date of the note has been extended on several occasions to assist the Company with liquidity. The Company made principal payments of $300,000 and $200,000 on this note during Fiscal 2023 and Fiscal 2022, respectively, and this note has a remaining balance of $1,100,000 at September 30, 2023.

Other Related Party Activity

In October 2020, the Company began selling smart-enabled furniture, which is sourced by Forward China and sold in the U.S. under the Koble brand name. The Koble brand is owned by The Justwise Group Ltd. (“Justwise”) a company owned by Terence Wise, Chief Executive Officer and Chairman of the Company. The Company recognized revenues from the sale of Koble products of $2,058,000 and $1,741,000 in Fiscal 2023 and Fiscal 2022, respectively. Due to the Retail Exit, these revenues are included in the loss from discontinued operations for Fiscal 2023 and 2022.

The Company entered into an agreement with Justwise effective March 1, 2022, under which (i) Justwise will perform design and marketing services related to the Koble products sold by the Company and (ii) the Company was granted a license to sell Koble products. In exchange for such services, the Company will pay Justwise $10,000 per month plus 1% of the cost of Koble products purchased from Forward China. This agreement was effective until August 31, 2023. Effective September 1, 2023, the Company entered into an agreement to extend this agreement on a month-to-month basis and to expand its scope to include inventory management assistance. The Company incurred costs of $127,000 under this agreement for Fiscal 2023, of which $120,000 was included in selling and marketing expenses and $7,000 is included as a component of cost of sales upon sales of the related products. The Company incurred costs of $90,000 under this agreement for Fiscal 2022, of which $84,000 was included in selling and marketing expenses and $6,000 is included as a component of cost of sales upon sales of the related products. The Company had accounts payable to Justwise of $10,000 and $15,000 at September 30, 2023 and 2022, respectively.

The Company recorded revenue from a customer whose principal owner is an immediate family member of Jenny P. Yu, a shareholder of the Company and managing director of Forward China. The Company recognized revenues from this customer of $626,000 and $780,000 in Fiscal 2023 and Fiscal 2022, respectively. The Company had no accounts receivable from this customer at September 30, 2023 or 2022.

A member of the Company’s Audit, Governance and Compensation Committees of its Board of Directors is also a member of the Board of Directors of a company to whom the Company’s OEM distribution segment sold products during Fiscal 2022. The Company recognized revenue of $0 and $13,000 from the sale of such products during Fiscal 2023 and 2022, respectively.