ITEM 7.MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND 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.
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.
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.
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.
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 (%)
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 $0.14 for Fiscal 2024 and Fiscal 2023, respectively.
Segment Results
The discussion that follows
below provides further details about the results of operations for each continuing segment as compared to the prior year.
Segment Results of Operations
OEM Distribution Design Corporate Expenses Consolidated
OEM Distribution
Net revenues in the OEM distribution
segment decreased from lower sales volume from our diabetic customers, slightly offset by an increase in revenues from other OEM customers.
As consumer demand increases for diabetic testing products which require no carrying case, we expect diabetic product sales to continue
to represent a smaller portion of our OEM distribution revenue. In March 2023, a contract with one of our major diabetic customers expired.
Due to increased pricing pressures, we did not extend our contract with this customer. Revenue from this customer represented approximately
7.8% of our consolidated net revenues in Fiscal 2023. We expect the loss of this customer to cause a significant decline in OEM distribution
segment revenues in future periods.
The following tables set
forth revenues by product line of our OEM distribution segment customers for the periods indicated:
OEM Revenues by Product Line
Fiscal 2024 Fiscal 2023 Change ($) Change (%)
Diabetic 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.
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.
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.
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.
ITEM 9A.CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management carried out
an evaluation, with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of our
disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act. Based on their evaluation, our Principal Executive Officer
and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2024.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible
for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act).
Our management, under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, evaluated
the effectiveness of our internal control over financial reporting as of the end of the period covered by this report. In making this
assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)
in Internal Control-Integrated Framework as issued in 2013. Based on that evaluation, our management concluded that our internal control
over financial reporting as of September 30, 2024, was effective based on that criteria.
Our internal control over
financial reporting is a process designed under the supervision of our Principal Executive Officer and Principal Financial Officer to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external
reporting purposes in accordance with U.S. GAAP. Internal control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with U.S. GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management
and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition
of our assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with policies or procedures may deteriorate.
Changes in Internal Control
There were no changes in
our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange
Act during the fourth quarter of Fiscal 2024 that materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
ITEM 9B. OTHER INFORMATION
During the three months ended
September 30, 2024, no director or officer of the company adopted, modified or terminated a “Rule 10b5-1 trading
arrangement” or “non-rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) or Regulation S-K.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS
THAT PREVENT INSPECTIONS
Not Applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS
AND CORPORATE GOVERNANCE
The information required
by this item is incorporated by reference to our Proxy Statement for the 2025 Annual Meeting of Stockholders to be filed with
the SEC within 120 days of the fiscal year ended September 30, 2024. Our Board has adopted a Code of Business Conduct and Ethics
applicable to all officers, directors and employees, which is available on our website (https://forwardindustries.com) under “Investors”,
"Governance." We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding amendment to, or waiver
from, a provision of our Code of Conduct and by posting such information on the website address and location specified above.
ITEM 11. EXECUTIVE COMPENSATION
The information required
by this item is incorporated by reference to our Proxy Statement for the 2025 Annual Meeting of Stockholders to be filed with
the SEC within 120 days of the fiscal year ended September 30, 2024.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
The information required
by this item is incorporated by reference to our Proxy Statement for the 2025 Annual Meeting of Stockholders to be filed with
the SEC within 120 days of the fiscal year ended September 30, 2024.
ITEM 13. CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required
by this item is incorporated by reference to our Proxy Statement for the 2025 Annual Meeting of Stockholders to be filed with
the SEC within 120 days of the fiscal year ended September 30, 2024.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required
by this item is incorporated by reference to our Proxy Statement for the 2025 Annual Meeting of Stockholders to be filed with
the SEC within 120 days of the fiscal year ended September 30, 2024.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES
(a) Documents filed as part of the report.
(3) Exhibits. See the Exhibit Index.
ITEM 16. FORM 10-K SUMMARY
Not Applicable.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: December 27, 2024
FORWARD INDUSTRIES, INC.
In accordance with the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
December 27, 2024 /s/ Sangita Shah Sangita Shah Director
December 27, 2024 /s/ Sharon Hrynkow Sharon Hrynkow Director
EXHIBIT INDEX
Incorporated by Reference
Exhibit No. Exhibit Description Form Date Number Filed or Furnished Herewith
3.1 Restated Certificate of Incorporation 10-K 12/8/10 3(i)
10.4 Summary of Employment Arrangement - Terence Wise* 10-K 12/21/23 10.4
19.1 Insider Trading Policy Filed
23.1 Consent of Independent Registered Public Accounting Firm Filed
31.1 CEO Certifications (302) Filed
31.2 CFO Certification (302) Filed
32.1 CEO and CFO Certifications (906) Furnished
97 Clawback Policy Filed
101.SCH Inline XBRL Taxonomy Extension Schema Document Filed
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document Filed
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document Filed
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document Filed
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document Filed
______________________
* Management compensatory agreement or arrangement.
+ Certain schedules, appendices and exhibits to this agreement
have been omitted in accordance with Item 601 of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished supplementally
to the Securities and Exchange Commission staff upon request.
Copies of this filing (including the financial statements) and any
of the exhibits referred to above will be furnished at no cost to our shareholders who make a written request to Forward Industries, Inc.;
700 Veterans Memorial Hwy, Suite 100, Hauppauge, NY 11788; Attention: Corporate Secretary.
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm (PCAOB #596) F-2
Consolidated Balance Sheets at September 30, 2024 and 2023 F-4
Notes to Consolidated Financial Statements F-8
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
The Board of Directors and Shareholders of
Forward Industries, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Forward
Industries, Inc. and Subsidiaries (the “Company”) as of September 30, 2024 and 2023, and the related consolidated statements
of operations, shareholders’ equity and cash flows for the years then ended, and the related notes (collectively referred to as
the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material
respects, the financial position of the Company as of September 30, 2024 and 2023, and the results of its operations and its cash flows
for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company
has suffered recurring losses from operations that raise substantial doubt about its ability to continue as a going concern. Management’s
plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and
are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal
control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal
control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for
our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from
the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee
and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the
consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate
opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Evaluation of Going Concern assessment and of impairment of Kablooe
goodwill and intangible assets (Note 1, Note 2 and Note 4 to the Consolidated Financial Statements)
As discussed in Note 1 to the consolidated financial statements, significant
judgment is exercised by the Company in determining whether there is substantial doubt the Company will continue as a going concern. As
discussed in Notes 2 and 4 to the consolidated financial statements, the Company has goodwill and intangible assets related to its Kablooe,
Inc. (“Kablooe”) operating unit. The Company reviews goodwill for impairment at least annually, or more often if triggering
events occur, and performs an annual goodwill impairment test on September 30, the end of the fiscal year, or upon the occurrence of a
triggering event. The Company reviews intangible assets for impairment whenever events or changes in circumstances indicate that the carrying
amount of the asset may not be recoverable. The Company estimates the fair value of its reporting unit using a combination of the income,
or discounted cash flows approach, and the market approach, which utilizes Kablooe’s forecasted operating results. Specifically,
the Company’s forecasted cash flows are sensitive to significant assumptions such as forecasted revenue and operating results, all
of which are affected by the expected future market or economic conditions and inflation.
Significant judgment is exercised by the Company in forecasting operating
results which factor into the Company’s going concern assessment and its goodwill and intangible assets impairment analysis related
to its Kablooe operating segment. Specifically, the forecasted operating results used by the Company in its going concern assessment and
the impairment analysis of goodwill and intangible assets included in its Kablooe operating segment are sensitive to significant assumptions
such as future revenue and expenses, all of which are affected by uncertain future events.
Given these factors, the related audit effort in evaluating management’s
judgments in forecasting operating results which factor into the Company’s going concern assessment and its goodwill and intangible
assets impairment analysis related to its Kablooe reporting segment, were challenging, subjective, and complex and required a high degree
of auditor judgment.
How our Audit Addressed the Critical Audit Matter
Our principal audit procedures related to the forecasted cash flows
and operating results used in the Company’s going concern assessment and impairment of Kablooe’s goodwill and intangible assets
analysis included the following:
/s/ CohnReznick LLP
We have served as the Company’s auditor since 2011.
Melville, New York
December 27, 2024
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30,
Assets
Current assets:
Accounts receivable (related party) 96,487 –
Discontinued assets held for sale – 508,077
Liabilities and shareholders’ equity
Current liabilities:
Note payable to Forward China (related party) $ 600,000 $ –
Other liabilities:
Note payable to Forward China (related party) – 1,100,000
Commitments and contingencies(Note 12) –
Shareholders’ equity:
The accompanying notes are an integral part of the consolidated financial statements.
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Fiscal Years Ended September 30,
Fair value adjustment of earnout consideration – (70,000 )
Loss from discontinued operations, net of tax (3,040 ) (3,895,315 )
Basic loss per share :
Basic (loss) / income per share from continuing operations (1.77 ) 0.14
Basic loss per share from discontinued operations (0.00 ) (3.53 )
Basic loss per share (1.77 ) (3.39 )
Diluted loss per share:
Diluted (loss) / income per share from continuing operations (1.77 ) 0.14
Diluted loss per share from discontinued operations (0.00 ) (3.53 )
Diluted loss per share (1.77 ) (3.39 )
Weighted average common shares outstanding:
The accompanying notes are an integral part of the consolidated financial statements.
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the Fiscal Year Ended September 30, 2024
Series A-1 Convertible Additional
Preferred Stock Common Stock Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit Total
For the Fiscal Year Ended September 30, 2023
Series A-1 Convertible Additional
Preferred Stock Common Stock Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit Total
The accompanying notes are an integral part of the consolidated financial statements.
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Fiscal Years Ended September 30,
Operating Activities:
Adjustments to reconcile net loss to net cash provided by operating activities:
Change in fair value of earn-out consideration – (70,000 )
Changes in operating assets and liabilities:
Accounts receivable (related party) (96,487 ) –
Prepaid expenses and other current assets (47,728 ) 39,093
Other assets (3,951 ) –
Net changes in operating lease liabilities 12,161 28,471
Accrued expenses and other current liabilities (744,714 ) 203,837
Investing Activities:
Purchases of property and equipment (65,154 ) (136,082 )
Net cash used in investing activities (65,154 ) (136,082 )
Financing Activities:
Repayment of note payable to Forward China (related party) (500,000 ) (300,000 )
Supplemental Disclosures of Cash Flow Information:
Supplemental Disclosures of Non-Cash Information:
Conversion of accounts payable to convertible preferred stock $ 2,200,000 $ –
The accompanying notes are an integral part of the consolidated financial statements.
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 OVERVIEW
Business
Forward Industries, Inc.
(“Forward”, “we”, “our”, or the “Company”), is a global design, sourcing and distribution
company serving top tier medical and technology customers worldwide.
The Company’s design
division provides hardware and software product design and engineering services to customers predominantly located in the U.S. The Company’s
original equipment manufacturing (“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 original equipment
manufacturers (“OEM”s), 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”). See Note 14.
Discontinued Operations
In July 2023, the Company
decided to cease operations of its retail distribution segment and is presenting the results of operations for this segment within discontinued
operations in the current and prior periods presented herein. Our retail distribution business sourced and sold smart-enabled furniture,
hot tubs and saunas and a variety of other products through various online retailer websites to customers predominantly located in the
U.S. and Canada. The inventory of the retail segment is presented as discontinued assets held for sale on the balance sheet at September
30, 2023. Where applicable, certain footnotes exclude the discontinued operations unless otherwise noted. See Note 3 for additional information
on discontinued operations.
Liquidity and Going Concern
The accompanying 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. The Company 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.
The Company’s OEM distribution
segment procures substantially all its products through independent suppliers in China through Forward China. In connection with the new