[8-K] Forward Industries, Inc. Reports Material Event
Forward Industries, Inc. reported fiscal 2024 results showing a sharp operating loss and continued restructuring of its businesses. Revenue-related cost of sales fell to $5.18M from $7.14M, producing a gross profit decline of $1.95M (27.4%). The company recorded an operating loss of $2.15M in fiscal 2024 versus $61K the prior year and a basic loss per share of $1.97 versus $0.06. Several businesses (OEM and retail) are presented as discontinued operations. The balance sheet shows goodwill of $1.56M, intangible assets net of $680K, deferred tax assets and NOLs, and a related-party promissory note with a $600K balance that has been extended. The company amended sourcing terms with Forward China, including a reduced fixed fee of $35K/month and payment-term changes.
Forward Industries, Inc. ha riportato risultati fiscali per il 2024 che mostrano una marcata perdita operativa e una ristrutturazione continua delle attività. I costi di vendita legati al fatturato sono scesi a 5,18 milioni di dollari da 7,14 milioni, determinando una diminuzione del margine di utile lordo di 1,95 milioni (27,4%). L’azienda ha registrato una perdita operativa di 2,15 milioni nel 2024 rispetto a 61 mila nel 2023 e una perdita base per azione di 1,97 dollari contro 0,06. Diversi segmenti aziendali (OEM e vendita al dettaglio) sono presentati come operazioni discontinue. Il bilancio mostra avviamento di 1,56 milioni, attività immateriali nette di 680k, attività fiscali differite e perdite fiscali portabili (NOLs), e una nota promissoria di una parte correlata con saldo di 600k che è stata estesa. L’azienda ha modificato i termini di approvvigionamento con Forward China, inclusa una commissione fissa ridotta a 35k dollari al mese e modifiche ai termini di pagamento.
Forward Industries, Inc. reportó resultados fiscales de 2024 que muestran una fuerte pérdida operativa y una continua reestructuración de sus negocios. Los costos de ventas relacionados con los ingresos cayeron a 5,18 millones de dólares desde 7,14 millones, lo que provocó una disminución en el margen bruto de 1,95 millones (27,4%). La empresa registró una pérdida operativa de 2,15 millones en 2024 frente a 61 mil en el año anterior y una pérdida básica por acción de 1,97 dólares frente a 0,06. Varias líneas de negocio (OEM y venta minorista) se presentan como operaciones discontinuadas. El balance presenta una buena voluntad de 1,56 millones, activos intangibles netos de 680 mil, activos por impuestos diferidos y NOLs, y una promesa de pago de una parte relacionada con saldo de 600 mil que ha sido extendida. La empresa enmendó los términos de abastecimiento con Forward China, incluyendo una tarifa fija reducida de 35 mil dólares al mes y cambios en los términos de pago.
Forward Industries, Inc.는 2024 회계연도 결과에서 심한 영업손실과 비즈니스 재구조정의 지속을 보고했습니다. 매출 관련 매출원가가 514만 달러로 714만 달러에서 감소하여 총이익이 195만 달러(27.4%) 감소했습니다. 회사는 2024 회계연도에 215만 달러의 영업손실을 기록했으며 전년 대비 6만 달러였던 기본 주당손실은 1.97달러로 증가했습니다. 일부 사업부(OEM 및 리테일)는 중단영업으로 제시됩니다. 대차대조표에는 영업권 156만 달러, 무형자산 순액 68만 달러, 이연법인세 자산 및 NOL, 관련당사자 약속어음 잔액 60만 달러가 있으며 이 채무는 연장되었습니다. 또한 Forward China와의 조달 조건을 수정했으며 월 고정 수수료가 3만 5천 달러로 감소하고 지불조건도 변경되었습니다.
Forward Industries, Inc. a annoncé des résultats pour l’exercice 2024 montrant une forte perte opérationnelle et une restructuration continue de ses activités. Le coût des ventes lié au chiffre d’affaires est passé à 5,18 millions de dollars contre 7,14 millions, entraînant une baisse du bénéfice brut de 1,95 million (27,4%). L’entreprise a enregistré une perte opérationnelle de 2,15 millions en 2024 contre 61k l’année précédente et une perte basique par action de 1,97 dollar contre 0,06. Plusieurs activités (OEM et retail) sont présentées comme des opérations en cours de cession. Le bilan affiche une valeur chevillée de 1,56 million de dollars, des actifs incorporels nets de 680k, des actifs d’impôt différé et des NOL, ainsi qu’une promesse de dette d’une partie associée avec un solde de 600k qui a été prolongée. L’entreprise a modifié les conditions d’approvisionnement avec Forward China, incluant des frais fixes réduits à 35k dollars par mois et des changements dans les conditions de paiement.
Forward Industries, Inc. berichtete für das Geschäftsjahr 2024 Ergebnisse, die einen deutlichen operativen Verlust und eine fortgesetzte Restrukturierung der Geschäftsbereiche zeigen. Die erzielten Kosten der Umsatzerlöse sanken auf 5,18 Mio. USD von 7,14 Mio. USD, was einen Bruttogewinnrückgang von 1,95 Mio. USD (27,4%) zur Folge hatte. Das Unternehmen verzeichnete im Geschäftsjahr 2024 einen operativen Verlust von 2,15 Mio. USD gegenüber 61T USD im Vorjahr und einen grundlegenden Verlust je Aktie von 1,97 USD gegenüber 0,06. Mehrere Geschäftsbereiche (OEM und Einzelhandel) werden als fortgeführte Abwicklungen ausgewiesen. Die Bilanz weist einen Goodwill von 1,56 Mio. USD, immaterielle Vermögenswerte netto von 680k USD, latente Steuerforderungen und NOLs sowie eine verbundenen Partei promissory Note mit einem Saldo von 600k USD auf, die verlängert wurde. Das Unternehmen hat die Beschaffungsbedingungen mit Forward China angepasst, einschließlich einer reduzierten Festgebühr von 35k USD pro Monat und Änderungen der Zahlungsbedingungen.
أفادت Forward Industries, Inc. بنتائجها للسنة المالية 2024 بوجود خسارة تشغيلية كبيرة وإعادة هيكلة مستمرة لأعمالها. انخفضت تكاليف المبيعات المرتبطة بالإيرادات إلى 5.18 مليون دولار من 7.14 مليون دولار، مما أدى إلى انخفاض في إجمالي الربح بمقدار 1.95 مليون دولار (27.4%). سجلت الشركة خسارة تشغيلية قدرها 2.15 مليون دولار في 2024 مقابل 61 ألف دولار في السنة السابقة وربحية مخفضة للسهم الأساسية بمقدار -1.97 دولار مقابل -0.06. تُعرض عدة أعمال (المُصنّعون الأصليون والمبيعات بالتجزئة) كعمليات منتهية. تظهر الميزانية القيمة العادلة للسمعة بمقدار 1.56 مليون دولار، أصولاً غير مادية صافية تبلغ 680 ألف دولار، أصول ضريبية مؤجلة وNOLs، وسند Promissory من طرف ذي صلة بالأرصدة 600 ألف دولار تم تمديدها. عدّلت الشركة شروط التوريد مع Forward China، بما في ذلك رسوم ثابتة مخفضة قدرها 35 ألف دولار/شهرياً وتغييرات في شروط الدفع.
Forward Industries, Inc. 公布的2024财年业绩显示出显著的经营亏损以及业务重组的持续进行。与收入相关的销售成本降至518万美元，低于714万美元，毛利润下降195万美元（27.4%）。公司在2024财年录得运营亏损215万美元，而上一财年为61千美元，基本每股收益为-1.97美元（前一年度为-0.06美元）。若干业务（OEM和零售）被列示为处置业务。资产负债表显示商誉156万美元、无形资产净额68万美元、递延所得税资产和净运行亏损（NOLs），以及一笔关联方本票余额60万美元并已延期。公司还修订了与 Forward China 的采购条款，包括月固定费降至3.5万美元及支付条款的变更。
- Sourcing agreement amended to reduce fixed monthly fee to $35,000 and align payment terms with customer collections
- Promissory note maturity extended (note balance $600,000) providing short-term financing relief
- Deferred tax assets and NOLs available (federal NOLs generating deferred tax asset of $2.732M and state NOLs of $516K) that may offset future taxable income
- Large operating loss of $2.15M in fiscal 2024 versus $61K prior year and basic loss per share of $1.97
- Significant decline in gross profit driven by lower sales and cost structure changes (cost of sales down but gross profit contracted by $1.95M)
- Related-party concentration and conversions: $2.2M of payables to Forward China to be converted to Series A-1 preferred stock with a $2.2M liquidation preference
- Multiple business segments classified as discontinued operations (OEM and retail), reducing the continuing operations base
- Reliance on Forward China for sourcing and sizable purchases (e.g., $7.86M purchases in fiscal 2024) creates counterparty and supply risk
Insights
TL;DR: Material operating deterioration and sizable per-share loss raise near-term investor risk.
The consolidated results show a pronounced deterioration in operating performance: gross profit contracted and operating losses widened to $2.15M, producing a $1.97 basic loss per share for fiscal 2024. Presentation of OEM and retail as discontinued operations signals a strategic shift but reduces continuing revenue base. Liquidity and related-party exposure are notable: a $600K balance remains on an 8% promissory note to Forward China that has required multiple maturity extensions, and a portion of payables was converted or will be converted into Series A-1 preferred stock with a $2.2M liquidation preference. While the company holds deferred tax assets and NOLs that may offset future taxes, current operating cash generation appears strained. Overall, the filing is materially negative for near-term financial stability.
TL;DR: Significant related-party arrangements and preferred-stock conversion warrant close governance scrutiny.
The filing discloses material related-party relationships with Forward China, including sourcing agreement amendments that reduce fixed fees and change payment timing. Material settlement mechanics include converting $2.2M of payables into newly designated Series A-1 convertible preferred stock (2,200 shares with $1,000 stated value), which concentrates economic and governance consequences. Multiple extensions of a related promissory note and extensive purchasing concentration with Forward China increase counterparty and governance risk. These actions are significant corporate governance items that materially affect shareholder rights and capital structure.
Forward Industries, Inc. ha riportato risultati fiscali per il 2024 che mostrano una marcata perdita operativa e una ristrutturazione continua delle attività. I costi di vendita legati al fatturato sono scesi a 5,18 milioni di dollari da 7,14 milioni, determinando una diminuzione del margine di utile lordo di 1,95 milioni (27,4%). L’azienda ha registrato una perdita operativa di 2,15 milioni nel 2024 rispetto a 61 mila nel 2023 e una perdita base per azione di 1,97 dollari contro 0,06. Diversi segmenti aziendali (OEM e vendita al dettaglio) sono presentati come operazioni discontinue. Il bilancio mostra avviamento di 1,56 milioni, attività immateriali nette di 680k, attività fiscali differite e perdite fiscali portabili (NOLs), e una nota promissoria di una parte correlata con saldo di 600k che è stata estesa. L’azienda ha modificato i termini di approvvigionamento con Forward China, inclusa una commissione fissa ridotta a 35k dollari al mese e modifiche ai termini di pagamento.
Forward Industries, Inc. reportó resultados fiscales de 2024 que muestran una fuerte pérdida operativa y una continua reestructuración de sus negocios. Los costos de ventas relacionados con los ingresos cayeron a 5,18 millones de dólares desde 7,14 millones, lo que provocó una disminución en el margen bruto de 1,95 millones (27,4%). La empresa registró una pérdida operativa de 2,15 millones en 2024 frente a 61 mil en el año anterior y una pérdida básica por acción de 1,97 dólares frente a 0,06. Varias líneas de negocio (OEM y venta minorista) se presentan como operaciones discontinuadas. El balance presenta una buena voluntad de 1,56 millones, activos intangibles netos de 680 mil, activos por impuestos diferidos y NOLs, y una promesa de pago de una parte relacionada con saldo de 600 mil que ha sido extendida. La empresa enmendó los términos de abastecimiento con Forward China, incluyendo una tarifa fija reducida de 35 mil dólares al mes y cambios en los términos de pago.
Forward Industries, Inc.는 2024 회계연도 결과에서 심한 영업손실과 비즈니스 재구조정의 지속을 보고했습니다. 매출 관련 매출원가가 514만 달러로 714만 달러에서 감소하여 총이익이 195만 달러(27.4%) 감소했습니다. 회사는 2024 회계연도에 215만 달러의 영업손실을 기록했으며 전년 대비 6만 달러였던 기본 주당손실은 1.97달러로 증가했습니다. 일부 사업부(OEM 및 리테일)는 중단영업으로 제시됩니다. 대차대조표에는 영업권 156만 달러, 무형자산 순액 68만 달러, 이연법인세 자산 및 NOL, 관련당사자 약속어음 잔액 60만 달러가 있으며 이 채무는 연장되었습니다. 또한 Forward China와의 조달 조건을 수정했으며 월 고정 수수료가 3만 5천 달러로 감소하고 지불조건도 변경되었습니다.
Forward Industries, Inc. a annoncé des résultats pour l’exercice 2024 montrant une forte perte opérationnelle et une restructuration continue de ses activités. Le coût des ventes lié au chiffre d’affaires est passé à 5,18 millions de dollars contre 7,14 millions, entraînant une baisse du bénéfice brut de 1,95 million (27,4%). L’entreprise a enregistré une perte opérationnelle de 2,15 millions en 2024 contre 61k l’année précédente et une perte basique par action de 1,97 dollar contre 0,06. Plusieurs activités (OEM et retail) sont présentées comme des opérations en cours de cession. Le bilan affiche une valeur chevillée de 1,56 million de dollars, des actifs incorporels nets de 680k, des actifs d’impôt différé et des NOL, ainsi qu’une promesse de dette d’une partie associée avec un solde de 600k qui a été prolongée. L’entreprise a modifié les conditions d’approvisionnement avec Forward China, incluant des frais fixes réduits à 35k dollars par mois et des changements dans les conditions de paiement.
Forward Industries, Inc. berichtete für das Geschäftsjahr 2024 Ergebnisse, die einen deutlichen operativen Verlust und eine fortgesetzte Restrukturierung der Geschäftsbereiche zeigen. Die erzielten Kosten der Umsatzerlöse sanken auf 5,18 Mio. USD von 7,14 Mio. USD, was einen Bruttogewinnrückgang von 1,95 Mio. USD (27,4%) zur Folge hatte. Das Unternehmen verzeichnete im Geschäftsjahr 2024 einen operativen Verlust von 2,15 Mio. USD gegenüber 61T USD im Vorjahr und einen grundlegenden Verlust je Aktie von 1,97 USD gegenüber 0,06. Mehrere Geschäftsbereiche (OEM und Einzelhandel) werden als fortgeführte Abwicklungen ausgewiesen. Die Bilanz weist einen Goodwill von 1,56 Mio. USD, immaterielle Vermögenswerte netto von 680k USD, latente Steuerforderungen und NOLs sowie eine verbundenen Partei promissory Note mit einem Saldo von 600k USD auf, die verlängert wurde. Das Unternehmen hat die Beschaffungsbedingungen mit Forward China angepasst, einschließlich einer reduzierten Festgebühr von 35k USD pro Monat und Änderungen der Zahlungsbedingungen.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM
______________
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event
reported):
(Exact name of registrant as specified in its charter)
| (State or Other Jurisdiction | (Commission | (I.R.S. Employer | ||
| of Incorporation) | File Number) | Identification No.) |
(Address of Principal Executive Office) (Zip Code)
(
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
| |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
| |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
| |
| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| The |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 8.01. Other Events.
As previously disclosed in a 10-Q filed May 14, 2025, in March 2025, Forward Industries, Inc. (the “Company”) determined it would not continue the Original Equipment Manufacturer (“OEM”) segment of its business and committed to a plan to sell this segment. As further disclosed in an 8-K filed May 22, 2025, on May 16, 2025, the Company and Forward Industries (IN), Inc (“Forward US”)., a wholly-owned subsidiary of the Company, entered into a transaction agreement with Forward Industries (Asia-Pacific) Corporation (“Forward China”), whereby the Company sold its wholly-owned subsidiary, Forward Industries (Switzerland) GmbH (“Forward Switzerland”) and certain other assets related to the Company’s OEM business to Forward China. Beginning in the second quarter of Fiscal 2025, as a result of the Company committing to a plan to sell this segment, the results of operations of the OEM segment have been classified as discontinued operations and the assets and liabilities of this segment have been classified as assets and liabilities held for sale in accordance with ASC 205-20, “Discontinued Operations,” as the disposal represents a strategic shift that has and will have a significant impact on the Company’s operations and financial results. Upon reclassification of the OEM segment, the Company determined it had only one reportable segment.
The Company is filing this Current Report on Form 8-K to recast its consolidated financial statements included in its Annual Report on Form 10-K for the fiscal year ended September 30, 2024 that was previously filed with the Securities and Exchange Commission (“SEC”) on December 27, 2024 (the “Prior Annual Report”) and its consolidated financial statements included in its Quarterly Report on Form 10-Q for the period ended December 31, 2024 that was previously filed with the SEC on February 13, 2025 (the “Prior Quarterly Report”) to (i) reflect the presentation of the OEM segment as a discontinued operation, (ii) update the Company’s segment disclosures for all periods presented therein and (iii) update relevant disclosures under Part II, Item 7 of the Prior Annual Report and Part I, Item 2 of the Prior Quarterly Report.
The following items of the Prior Annual Report are being recast to reflect the changes referenced above:
| · | Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
| · | Part II, Item 8. Financial Statements and Supplementary Data |
The following items of the Prior Quarterly Report are being recast to reflect the changes referenced above:
| · | Part I, Item 1. Financial Statements | |
| · | Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
This report does not reflect events occurring after the respective filing dates of the Prior Annual Report or Prior Quarterly Report and does not modify or update disclosures therein except as discussed above. This Form 8-K should be read in conjunction with the Prior Annual Report, Prior Quarterly Report and SEC filings made by the Company after the filing dates of the Prior Annual Report and Prior Quarterly Report, including the Company’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2025 and June 30, 2025, and its Current Reports on Form 8-K.
Item 9.01. Financial Statements and Exhibits.
| Exhibit No. | Exhibit Description | |
| 23.1 | Consent of CohnReznick LLP | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| 2 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| FORWARD INDUSTRIES, INC. | |||
| Date: September 16, 2025 | By: | /s/ Kathleen Weisberg | |
| Name: Kathleen Weisberg | |||
| Title: Chief Financial Officer | |||
| 3 |
Annex A
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR FISCAL 2024 AS COMPARED TO FISCAL 2023
As described below, in March 2025, the Company committed to a plan to sell the OEM segment of its business and completed the sale of this segment in May 2025. The assets and liabilities of the OEM segment have been classified as assets and liabilities held for sale and the results of operations and cash flows have been classified as discontinued operations for all periods presented. Upon reclassification, the Company determined that it had only one reportable segment. Segment disclosures have been recast to reflect this change for all periods presented. This information is presented solely to present recast financial information to reflect these organizational structure changes. Accordingly, the following information speaks as of the original filing date and should be read in conjunction with the Annual Report and our other filings with the SEC since the date of the Annual Report.
In addition to historical information, 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 the Annual Report, and in particular, the risks discussed under the caption “Risk Factors” in Item 1A of the Annual 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 company serving top tier medical and technology customers. The Company provides hardware and software product design and engineering services to customers predominantly located in the U.S.
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.
Discontinued Operations
Considering the recurring losses incurred by the retail segment, in July 2023, the Company decided to cease operations of our retail distribution segment (the “Retail Exit”), 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.
In March 2025, Forward China determined it would not renew the Buying Agency and Supply Agreement (“Sourcing Agreement”), which subsequently expired on May 9, 2025. Without this agreement, the Company determined it would not continue the OEM segment of the business and committed to a plan to sell the segment (the “OEM Plan”). On May 16, 2025, the Company and Forward US entered into a transaction agreement with Forward China, pursuant to which the Company sold all equity interest in Forward Switzerland and Forward UK and certain other net assets related to Forward US’ OEM segment to Forward China to satisfy outstanding payables due to Forward China under the Sourcing Agreement. The sale of the OEM business is considered a strategic shift that has and will have a significant impact on the Company’s operations and financial results. The assets and liabilities of the OEM segment were classified as assets and liabilities held for sale on the consolidated balance sheets at September 30, 2024 and 2023. The results of operations for the OEM segment have been classified as discontinued operations on the consolidated statements of operations for the fiscal years ended September 30, 2024 and 2023. Unless otherwise noted, results for discontinued operations are excluded from the discussion that follows.
| A-1 |
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
Discontinued OEM Distribution Segment
The OEM distribution segment recognized revenue when: (i) finished goods were shipped to its customers (in general, these conditions occurred at either point of shipment or point of destination, depending on the terms of sale and transfer of control); (ii) there were no other deliverables or performance obligations; and (iii) there were no further obligations to the customer after the title of the goods had transferred. If the Company received consideration before achieving the criteria previously mentioned, it recorded a contract liability, which would be classified as a component of liabilities held for sale 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 are recorded as contract assets 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.
| A-2 |
Segment Reporting
As a result of discontinuing our retail and OEM reportable segments, the design segment is the Company’s only reportable segment. 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.
Inventory Valuation
Inventories consisted primarily of finished goods and were 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 was made to reduce excess, obsolete, or otherwise unsellable inventories to net realizable value. The allowance was established through charges to cost of sales, which are now presented as a component of income/(loss) from discontinued operations in the Company’s consolidated statements of operations. In determining the adequacy of the allowance, management’s estimates were based upon several factors, including analyses of inventory levels, historical loss trends, sales history and projections of future sales demand. Based on the Retail Exit and the OEM Plan, all inventory on hand at September 30, 2024 and 2023 is presented as a component of assets held for sale.
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.
| A-3 |
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
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.
The table below summarizes our consolidated results of continuing operations for Fiscal 2024 as compared to Fiscal 2023:
| Consolidated Results of Continuing Operations | ||||||||||||||||
| Fiscal 2024 | Fiscal 2023 | Change ($) | Change (%) | |||||||||||||
| Net revenues | $ | 19,991,000 | $ | 22,686,000 | $ | (2,695,000 | ) | (11.9% | ) | |||||||
| Cost of sales | 14,807,000 | 15,549,000 | (742,000 | ) | (4.8% | ) | ||||||||||
| Gross profit | 5,184,000 | 7,137,000 | (1,953,000 | ) | (27.4% | ) | ||||||||||
| Sales and marketing expenses | 769,000 | 876,000 | (107,000 | ) | (12.2% | ) | ||||||||||
| General and administrative expenses | 6,365,000 | 6,322,000 | 43,000 | 0.7% | ||||||||||||
| Goodwill impairment | 200,000 | – | 200,000 | – | ||||||||||||
| Operating loss | (2,150,000 | ) | (61,000 | ) | (2,089,000 | ) | 3424.6% | |||||||||
| Other income, net | (7,000 | ) | (19,000 | ) | 12,000 | (63.2% | ) | |||||||||
| Income tax provision | 23,000 | 20,000 | 3,000 | 15.0% | ||||||||||||
| Loss from continuing operations | $ | (2,166,000 | ) | $ | (62,000 | ) | $ | (2,104,000 | ) | 3393.5% | ||||||
The decrease in net revenues 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.
Gross profit decreased and gross margin declined from 31.5% in Fiscal 2023 to 25.9% in Fiscal 2024. This decrease was mainly driven by lower utilization rates.
Sales and marketing expenses decreased primarily due to lower marketing spend, partially offset by higher personnel costs. Sales and marketing expenses remained fairly consistent at approximately 3.9% of revenue.
General and administrative expenses increased slightly in Fiscal 2024. Lower payroll costs were 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.
| A-4 |
During Fiscal 2024, the Company recorded a goodwill impairment charge of $200,000. 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, net, 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.
We generated a loss from continuing operations of $2,166,000 and $62,000 in Fiscal 2024 and 2023, 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 was $1.97 and $0.06 for Fiscal 2024 and Fiscal 2023, respectively.
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 (excluding assets and liabilities held for sale) was $4,663,000 compared to $5,449,000 at September 30, 2023. The decrease was primarily due to a decrease in accounts receivable, partially offset by lower accrued expenses. At November 30, 2024, we had approximately $2,000,000 cash on hand, which excludes cash associated with the discontinued OEM segment.
Forward China, an entity owned by our former Chairman of the Board and Chief Executive Officer, holds a $600,000 promissory note issued by the Company which matures on December 31, 2025 (see Note 14 to the consolidated financial statements). We plan on repaying the note on or prior to its maturity date. In connection with the sale of the OEM business, we are obligated to pay Forward China $150,000 on September 30, 2025 (in addition to the $200,000 paid on closing and the $300,000 aggregate payments made on July 31, 2025 and August 31, 2025).
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 of $19,637,000 at September 30, 2024, a net loss of $1,951,000 in Fiscal 2024 and a cash balance (excluding cash associated with the discontinued OEM segment) of approximately $2,000,000 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.
| A-5 |
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 $520,000 resulted from a net decrease in accounts receivable and contract assets of $1,224,000, cash provided by discontinued operations of $1,672,000, non-cash charges for depreciation, amortization, share-based compensation, credit loss expense and goodwill impairment of $653,000 and the net change in other operating assets and liabilities of $53,000, partially offset by the net loss of $1,951,000, a decrease in accrued expenses and other current liabilities $739,000, a decrease in accounts payable $392,000.
During Fiscal 2023, cash provided by operating activities of $1,150,000 resulted from a cash provided by discontinued operations of $5,073,000, non-cash charges for depreciation, amortization, share-based compensation and credit loss expense of $481,000 an increase in accounts payable of $270,000, an increase in accrued expenses and other current liabilities of $182,000, partially offset by the increase in accounts receivable and contract assets of $986,000, the $70,000 non-cash adjustment to the fair value of the Kablooe earnout consideration, the net loss of $3,737,000 and the net change in other operating assets and liabilities of $63,000.
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.
| A-6 |
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2024
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.
| 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 |
| Consolidated Statements of Operations for the Years Ended September 30, 2024 and 2023 | F-5 |
| Consolidated Statements of Shareholders’ Equity for the Years Ended September 30, 2024 and 2023 | F-6 |
| Consolidated Statements of Cash Flows for the Years Ended September 30, 2024 and 2023 | F-7 |
| Notes to Consolidated Financial Statements | F-8 |
| F-1 |
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.
| F-2 |
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:
| · | We gained an understanding of and evaluated the design and implementation of the Company’s process to develop forecasted cash flows and operating results, including significant assumptions used in developing forecasted cash flows and operating results as well as considering the appropriateness of the underlying data used by the Company in its analyses. | |
| · | Evaluating the reasonableness of the Company’s forecasted revenue, expenses, and cash flows by comparing those forecasts to underlying business strategies, including customer relationships and the Company’s ability to obtain new customers, and to historical results. In addition, we performed sensitivity analyses related to the key inputs used in the Company’s forecasted revenue, expenses and cash flows, including evaluating whether the changes in the assumptions would result in a material change in forecasted cash flows and operating results. | |
| · | Evaluating management’s ability to accurately forecast future operating results by comparing the Company’s historical forecasted revenue, expenses and cash flows to actual results. |
/s/ CohnReznick LLP
We have served as the Company’s auditor since 2011.
Melville, New York
December 27, 2024
except for the presentation of the OEM segment as discontinued operations as described in Notes 1, 2 and 3.
September 16, 2025
| F-3 |
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net of allowances for credit losses of
$ | ||||||||
| Contract assets | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Assets held for sale | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Operating lease right-of-use assets, net | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and shareholders’ equity | ||||||||
| Current liabilities: | ||||||||
| Note payable to Forward China (related party) | $ | $ | ||||||
| Accounts payable | ||||||||
| Deferred income | ||||||||
| Current portion of operating lease liability | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Liabilities held for sale | ||||||||
| Total current liabilities | ||||||||
| Other liabilities: | ||||||||
| Note payable to Forward China (related party) | ||||||||
| Operating lease liability, less current portion | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 12) | – | – | ||||||
| Shareholders’ equity: | ||||||||
| Series A-1 Convertible Preferred Stock, par value $0.01 per
share; stated value of $ | ||||||||
| Common stock, | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
| F-4 |
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
| For the Fiscal Years Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Revenues, net | $ | $ | ||||||
| Cost of sales | ||||||||
| Gross profit | ||||||||
| Sales and marketing expenses | ||||||||
| General and administrative expenses | ||||||||
| Goodwill impairment | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Fair value adjustment of earnout consideration | ( | ) | ||||||
| Interest income | ( | ) | ( | ) | ||||
| Interest expense - related party | ||||||||
| Other expense / (income), net | ( | ) | ||||||
| Loss from continuing operations before income taxes | ( | ) | ( | ) | ||||
| Provision for income taxes | ||||||||
| Loss from continuing operations | ( | ) | ( | ) | ||||
| Income/(loss) from discontinued operations, net of tax | ( | ) | ||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Basic loss per share: | ||||||||
| Basic loss per share from continuing operations | ( | ) | ( | ) | ||||
| Basic income/(loss) per share from discontinued operations | ( | ) | ||||||
| Basic loss per share | ( | ) | ( | ) | ||||
| Diluted loss per share: | ||||||||
| Diluted loss per share from continuing operations | ( | ) | ( | ) | ||||
| Diluted income/(loss) per share from discontinued operations | ( | ) | ||||||
| Diluted loss per share | ( | ) | ( | ) | ||||
| Weighted average common shares outstanding: | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
The accompanying notes are an integral part of the consolidated financial statements.
| F-5 |
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 | ||||||||||||||||||||||
| Balance at September 30, 2023, unadjusted | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Adjustment for reverse stock split 1-for-10, effective June 18, 2024 | – | – | ( | ) | ( | ) | – | – | ||||||||||||||||||||
| Balance at September 30, 2023, as adjusted | ( | ) | ||||||||||||||||||||||||||
| Share-based compensation | – | – | – | – | – | |||||||||||||||||||||||
| Net loss | – | – | – | – | – | ( | ) | ( | ) | |||||||||||||||||||
| Preferred Stock issued in connection with conversion of accounts payable to Forward China | – | – | – | – | ||||||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| 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 | ||||||||||||||||||||||
| Balance at September 30, 2022, unadjusted | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Adjustment for reverse stock split 1-for-10, effective June 18, 2024 | – | – | ( | ) | ( | ) | – | – | ||||||||||||||||||||
| Balance at September 30, 2022, as adjusted | ( | ) | ||||||||||||||||||||||||||
| Share-based compensation | – | – | – | – | – | |||||||||||||||||||||||
| Net loss | – | – | – | – | – | ( | ) | ( | ) | |||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
| F-6 |
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Fiscal Years Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Operating Activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Share-based compensation | ||||||||
| Depreciation and amortization | ||||||||
| Credit loss expense | ||||||||
| Change in fair value of earn-out consideration | ( | ) | ||||||
| Goodwill impairment | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Contract assets | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Deferred income | ( | ) | ||||||
| Net changes in operating lease liabilities | ||||||||
| Accrued expenses and other current liabilities | ( | ) | ||||||
| Net cash used in operating activities-continuing operations | ( | ) | ( | ) | ||||
| Net cash provided by operating activities-discontinued operations | ||||||||
| Net cash provided by operating activities | ||||||||
| Investing Activities: | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Financing Activities: | ||||||||
| Repayment of note payable to Forward China (related party) | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Net (decrease) / increase in cash | ( | ) | ||||||
| Cash at beginning of year | ||||||||
| Cash at end of year | $ | $ | ||||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for taxes | $ | $ | ||||||
| Supplemental Disclosures of Non-Cash Information: | ||||||||
| Conversion of accounts payable to convertible preferred stock | $ | $ | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
| F-7 |
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 company serving top tier medical and technology customers. The Company provides hardware and software product design and engineering services to customers predominantly located in the U.S.
Discontinued Operations
In July 2023, the Company decided to cease operations of its retail distribution segment (the “Retail Exit”) 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.
In March 2025, the Company committed to a plan to sell the original equipment manufacturer (“OEM”) distribution segment of the business (“OEM Plan”). In May 2025, the Company completed the sale of this line of business and is presenting its results of operations within discontinued operations in the current and prior periods presented herein. The OEM distribution segment sourced and sold 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 packaged our products as accessories “in box” together with their branded product offerings or sold them through their retail distribution channels. The Company did not manufacture any of its OEM products and sourced substantially all of these products from independent suppliers in China, through Forward Industries Asia-Pacific Corporation, a British Virgin Islands corporation (“Forward China”), a related party owned by the Company’s former CEO (see Note 14).
Unless otherwise noted, amounts related to these discontinued operations are excluded from the disclosures presented herein. See Note 3 for more information on these 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 of $19,637,000 at September 30, 2024, a net loss of $1,951,000 in Fiscal 2024 and a cash balance (excluding cash associated with the discontinued OEM segment) of approximately $2,000,000 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 our existing cash balance and working capital will not be sufficient to meet our liquidity needs through December 31, 2025, 12 months from the date of issuance of these consolidated financial statements. These factors raise substantial doubt about our ability to continue as a going concern.
Management plans to initiate cost reduction measures in Fiscal 2025 to mitigate the impact of the loss of our largest customer, including a reduction in force which was communicated in December 2024. These plans will be evaluated and adjusted as deemed necessary based on the ongoing needs of the business. Management also plans to seek flexibility on payment terms for ongoing purchases from Forward China and attempt to obtain debt or equity financing to fund its ongoing operations. However, there are no current agreements or understanding with regard to the form, time or amount of such financing and there is no assurance that any financing can be obtained, that Forward China will grant any flexibility on payment terms or that our cost reduction efforts will be sufficient to enable the Company to continue as a going concern. The consolidated financial statements do not include any adjustments that might result if the Company is unable to continue as a going concern. Such adjustments could be material.
| F-8 |
NOTE 2 ACCOUNTING POLICIES
Use of Estimates
The preparation of the Company’s consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates and assumptions. Within this report, certain dollar amounts and percentages have been rounded to their approximate values.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of Forward Industries, Inc. and its wholly-owned subsidiaries (Forward Industries (IN), Inc. (“Forward US”), Forward Industries (Switzerland) GmbH (“Forward Switzerland”), Forward Industries UK Limited (“Forward UK”), Intelligent Product Solutions, Inc. (“IPS”), and Kablooe, Inc. (“Kablooe”). All significant intercompany transactions and balances have been eliminated in consolidation.
Segment Reporting
As a result of the discontinued retail and OEM segments, as disclosed in Note 3, the Company now has only one reportable segment. 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. See Note 16 for more information on segments.
Goodwill
The Company reviews goodwill for impairment at least annually, or more often if triggering events occur. The Company has 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 such as an overall change in economic climate, changes in the industry and competitive environment, and earnings quality and sustainability. The Company has the option to perform a qualitative assessment to determine if an impairment is more likely than not to have occurred. If the Company 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 the Company would not need to perform a quantitative impairment test for the reporting unit. If the Company cannot support such a conclusion or does not elect to perform the qualitative assessment, then the Company 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. See Note 4.
| F-9 |
Intangible Assets
Intangible assets include trademarks and customer relationships, which were acquired as part of the acquisitions of IPS in Fiscal 2018 and Kablooe in Fiscal 2020 and are amortized over their estimated useful lives, which are periodically evaluated for reasonableness.
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. Management evaluated and concluded that
there were
Cash
The Company maintains cash deposits
and a money market account in banks with financial institutions in the United States (that at times may exceed federally insured limits
of $250,000 per financial institution). At September 30, 2024 and 2023, there were deposits totaling $
Accounts Receivable
Accounts receivable consist of
unsecured trade accounts with customers net of an allowance for credit losses. Collectability of accounts receivable is estimated by evaluating
the number of days accounts are outstanding, customer payment history, recent payment trends and perceived creditworthiness, adjusted
as necessary based on specific customer situations. At September 30, 2024 and 2023, the Company had allowances for credit losses of $
Inventories
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, which is now presented as a component of income/(loss) from discontinued operations 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. Due to the Retail Exit and the OEM Plan, all inventory on hand at September 30, 2024 and 2023 is presented as a component of assets held for sale.
Property and Equipment
Property and equipment consist of computer hardware and software, furniture, fixtures and equipment and are recorded at cost. Expenditures for major additions and improvements are capitalized, and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method. The estimated useful lives for all property and equipment ranges from three to five years.
| F-10 |
Leases
Lease assets and liabilities are recognized at lease commencement date based on the present value of lease payments over the lease term, using the Company’s incremental borrowing rate commensurate with the lease term, since the Company’s lessors do not provide an implicit rate, nor is one readily available. The Company has certain leases that may include an option to renew and when it is reasonably probable to exercise such option, the Company will include the renewal option terms in determining the lease asset and lease liability. Lease assets represent the Company’s right-to-use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Operating lease assets are shown as right-of-use assets and financing lease assets are a component of property and equipment on the consolidated balance sheets. The current and long-term portions of operating and financing lease liabilities are shown separately as such on the consolidated balance sheets.
Income Taxes
The Company recognizes future tax benefits and liabilities measured at enacted rates attributable to temporary differences between financial statement and income tax bases of assets and liabilities and to net tax operating loss carryforwards to the extent that realization of these benefits is more likely than not. At September 30, 2024, there was no change to our assessment that a full valuation allowance was required against all net deferred tax assets as it is not probable that such deferred tax assets will be realized. Accordingly, any deferred tax provision or benefit was offset by an equal and opposite change to the valuation allowance. Our income tax provision or benefit is generally not significant due to the existence of significant net operating loss carryforwards.
Revenue Recognition
Discontinued OEM Distribution Segment
The OEM distribution
segment recognized revenue when: (i) finished goods were shipped to its customers (in general, these conditions occurred at either
point of shipment or point of destination, depending on the terms of sale and transfer of control); (ii) there were no other
deliverables or performance obligations; and (iii) there were no further obligations to the customer after the title of the goods
had transferred. If the Company received consideration before achieving the criteria previously mentioned, it recorded a contract
liability, which would be classified as a component of liabilities held for sale in the accompanying consolidated balance sheets. The OEM
distribution segment had
Discontinued Retail Distribution Segment
The retail distribution segment
sold products primarily through online websites operated by authorized third-party retailers. Revenue was recognized when control (as
defined in Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers”) of the related
goods was transferred to the retailer, which generally occurred upon shipment to the end customer. Other than product delivery, the retail
distribution segment did not typically have other deliverables or performance obligations associated with its products. Revenue was measured
as the amount of consideration expected to be received in exchange for the products provided, net of allowances taken by retailers for
product returns and any taxes collected from customers that will be remitted to governmental authorities. When the Company received consideration
before achieving the criteria previously mentioned, it recorded a contract liability, which was classified as a component of deferred
income in the accompanying consolidated balance sheets. The retail distribution segment had
| F-11 |
Design Segment
The Company applies the “cost to cost” and “right to invoice” methods of revenue recognition to the contracts with customers in the design segment. 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 are recorded as contract assets in the accompanying consolidated balance sheets. The design segment had
contract assets of $
Shipping and Handling Fees
The Company includes shipping and handling fees billed to customers in net revenues and the related transportation costs in cost of sales.
Foreign Currency Transactions
The Company’s functional currency is the U.S. dollar. Foreign currency transactions may generate receivables or payables that are fixed in terms of the amount of foreign currency that will be received or paid. Fluctuations in exchange rates between such foreign currency and the functional currency increase or decrease the expected amount of functional currency cash flows upon settlement of the transaction. These increases or decreases in expected functional currency cash flows are foreign currency transaction gains or losses that are included in other income or expense in the accompanying consolidated statements of operations. The approximate net gains (losses) from foreign currency transactions were $8,000 and $2,000 in Fiscal 2024 and Fiscal 2023, respectively.
Fair Value Measurements
We perform fair value measurements in accordance with the guidance provided by ASC 820, “Fair Value Measurement.” ASC 820 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at their fair values, we consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would use when pricing the assets or liabilities, such as inherent risk, transfer restrictions, and risk of nonperformance.
ASC 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An asset’s or liability’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 establishes three levels of inputs that may be used to measure fair value:
| · | Level 1: quoted prices in active markets for identical assets or liabilities; | |
| · | Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or | |
| · | Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair values of the assets or liabilities. |
The carrying amounts of cash, accounts receivable, accounts payable, due to Forward China, and the Note payable to Forward China approximate fair value due their short-term maturities.
| F-12 |
Share-Based Compensation Expense
The Company estimates the fair value of employee and non-employee director share-based compensation on the date of grant using the Black-Scholes option pricing model, which includes variables such as the expected volatility of the Company’s share price, the exercise behavior of its grantees, interest rates, and dividend yields. These variables are projected based on the Company’s historical data, experience, and other factors. The fair value of employee and non-employee director share-based compensation is recognized in the consolidated statements of operations over the related service or vesting period of each grant. In the case of awards with multiple vesting periods, the Company has elected to use the graded vesting attribution method, which recognizes compensation cost on a straight-line basis over each separately vesting portion of the award as if the award was, in substance, multiple awards (see Note 9).
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.
NOTE 3 DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
Considering the recurring losses incurred by the retail segment, in July 2023, the Company decided to cease operations of its retail distribution segment (“Retail Exit”). The primary assets of the retail segment were inventory and accounts receivable. The Company sold, liquidated, or otherwise disposed of the remaining retail inventory as of September 30, 2024, and collected all remaining retail accounts receivable by the end of Fiscal 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 Retail Exit is considered a strategic shift that will have a significant impact on the Company’s operations and financial results. The inventory of the retail segment meets the criteria to be considered “held-for-sale” in accordance with ASC 205-20, “Discontinued Operations.” Accordingly, the retail inventory is classified on our consolidated balance sheet as “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 consolidated statements of operations for the years ended September 30, 2024 and 2023.
In March 2025, Forward China
determined it would not renew the Buying Agency and Supply Agreement (the “Sourcing Agreement”), which subsequently expired
on May 9, 2025 (see Note 14). Without this agreement, the Company determined it would not continue the OEM segment of the business and
committed to a plan to sell the segment. On May 16, 2025, the Company and Forward US entered into a transaction agreement with Forward
China, pursuant to which the Company sold all equity interest in Forward Switzerland and Forward UK and sold certain other net assets
related to Forward US’ OEM segment to Forward China to satisfy outstanding payables due to Forward China under the Sourcing Agreement.
Additionally, the Company and Forward China terminated the Supply Agreement and extended the term of the Note Payable (see Note 14) to
December 31, 2025. The Company paid $200,000 at closing and agreed to make additional cash payments of $
| F-13 |
The sale of the OEM business is considered a strategic shift that will have a significant impact on the Company’s operations and financial results. The assets and liabilities of the OEM segment were classified as assets and liabilities held for sale on the consolidated balance sheets at September 30, 2024 and 2023. The results of operations for the OEM segment have been classified as discontinued operations on the consolidated statements of operations for fiscal 2024 and 2023. The consolidated balance sheets and statements of operations for comparable periods have been reclassified to conform to this presentation in accordance with the accounting guidance.
The following table presents the major classes of the “Net income/(loss) from discontinued operations, net of tax” in our consolidated statements of operations.
| Schedule of discontinued operations | ||||||||
For the Fiscal Years Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Revenues, net | $ | $ | ||||||
| Cost of sales | ||||||||
| Gross profit | ||||||||
| Sales and marketing expenses | ||||||||
| General and administrative expenses | ||||||||
| Income/(loss) from operations | ( | ) | ||||||
| Loss on classification as held for sale | ( | ) | ||||||
| Income/(loss) from discontinued operations, net of tax | $ | $ | ( | ) | ||||
There were no material amounts of depreciation, amortization, investing or financing cash flows for the discontinued operations in Fiscal 2024 or Fiscal 2023. The only significant non-cash activity for the discontinued operations in Fiscal 2024 and 2023 was the conversion of accounts payable to Forward China into preferred stock in July and September of 2024 (see Note 14).
The following table presents the major components of assets and liabilities held for sale on our consolidated financial statements:
| Schedule of major components of assets and liabilities | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total assets held for sale | $ | 2,908,000 | $ | 3,403,000 | ||||
| Accounts payable | ||||||||
| Due to Forward China | ||||||||
| Other current liabilities | ||||||||
| Total liabilities held for sale | $ | 7,293,000 | $ | 8,316,000 | ||||
| F-14 |
NOTE 4 INTANGIBLE ASSETS AND GOODWILL
Intangible Assets
The Company’s intangible assets consist of the following:
| Schedule of intangible assets | ||||||||||||||||||||||||
| September 30, 2024 | September 30, 2023 | |||||||||||||||||||||||
| Trademarks | Customer Relationships | Total Intangible Assets | Trademarks | Customer Relationships | Total Intangible Assets | |||||||||||||||||||
| Gross carrying amount | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Less accumulated amortization | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Net carrying amount | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
The Company’s intangible
assets resulted from the acquisitions of Kablooe and IPS in Fiscal 2020 and Fiscal 2018, respectively, and relate to the design segment
of our business. Intangible assets are amortized over their expected useful lives of
At September 30, 2024, estimated amortization expense for the Company’s intangible assets for each of the next five years and thereafter is as follows:
| Schedule of estimated amortization expense | ||||
| Fiscal 2025 | $ | |||
| Fiscal 2026 | ||||
| Fiscal 2027 | ||||
| Fiscal 2028 | ||||
| Fiscal 2029 | ||||
| Thereafter | ||||
| Total | $ | |||
Goodwill
Goodwill represents the future economic benefits of assets acquired in a business combination that are not individually identified or separately recognized. The Company’s goodwill resulted from the acquisitions of Kablooe and IPS in Fiscal 2020 and Fiscal 2018, respectively and are held under the design segment of our business. The goodwill associated with the IPS acquisition is not deductible for tax purposes, but the goodwill associated with the Kablooe acquisition is deductible for tax purposes.
Due to 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. Using an income approach methodology, the fair value of the Kablooe reporting unit
was estimated with a discounted cash flow analysis incorporating variables categorized within level 3 of the fair value hierarchy such
as projected revenues, growth rate and discount rate. This quantitative testing indicated the carrying amount of the Kablooe reporting
unit exceeded its fair value, resulting in a goodwill impairment charge of $
| F-15 |
The Company performed the annual goodwill impairment test for Fiscal 2023 and determined there was no impairment.
Below is the rollforward of goodwill for the design segment, the only reportable segment with goodwill:
| Schedule of roll forward of goodwill | ||||
| Balance at September 30, 2023 | $ | 1,759,000 | ||
| Impairment of Kablooe reporting unit | ( | ) | ||
| Balance September 30, 2024 | $ | 1,559,000 | ||
NOTE 5 PROPERTY AND EQUIPMENT
Property and equipment and related accumulated depreciation and amortization are summarized in the table below:
| Schedule of property and equipment | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Computer hardware and software | $ | $ | ||||||
| Furniture and fixtures | ||||||||
| Equipment | ||||||||
| Property and equipment, cost | ||||||||
| Less accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation expense was $
NOTE 6 FAIR VALUE MEASUREMENTS - EARNOUT
The acquisition of Kablooe provides annual contingent earnout payments based on results of operations through August 2025. The fair value of this earnout liability is measured on a recurring basis at each reporting date using a Black-Scholes valuation model with the following inputs and assumptions, which are categorized within level 3 of the fair value hierarchy:
| Schedule of fair value assumptions | ||||
| September 30, | ||||
| 2024 | 2023 | |||
| Volatility | ||||
| Risk-free interest rate | ||||
| Expected term in years | ||||
| Dividend yield | – | – | ||
In Fiscal 2023, the Company reduced this liability from $70,000 to $0 based on changes in the expected likelihood of Kablooe reaching the specified earnings targets. In Fiscal 2024, there were no changes to the total fair value of this earnout liability.
| F-16 |
NOTE 7 ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities at September 30, 2024 and 2023 are as follows:
| Schedule of accrued expenses and other current liabilities | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Accrued commissions/bonuses | $ | $ | ||||||
| Paid time off | ||||||||
| Other | ||||||||
| Total | $ | 572,000 | $ | 1,311,000 | ||||
NOTE 8 SHAREHOLDERS’ EQUITY
Reverse Stock Split
The Company’s shareholders authorized, and the Board of Directors approved a 1-for-10 reverse stock split, which became effective on June 18, 2024. Any fractional shares that would have otherwise resulted from the reverse stock split were rounded up to the nearest whole share. Accordingly, all references made to shares, 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. The reverse stock split did not change the par value of the common stock nor the authorized number of shares of common stock or any series of preferred stock.
Nasdaq
In July 2023,
“Blank Check” Preferred Stock
The Company is authorized to
issue up to
In connection
with the Conversion Agreements with Forward China (see Note 14), the Company filed two Certificates of Amendment to the Certificate of
Incorporation (the “COD”) designating
| F-17 |
The
holders of the Series A-1 Convertible Preferred Stock have no voting rights and rank senior to all classes or series of the Company’s
common stock with respect to the distribution of assets upon liquidation, dissolution, or winding up. Subject to a 19.9% share cap (as
defined in the COD), the Series A-1 Convertible Preferred Stock shall be convertible into a number of shares of the Company’s common
stock as determined by (i) multiplying the number of shares to be converted by the Stated Value, (ii) adding the result of all accrued
and accumulated and unpaid dividends on such shares to be converted, and then (iii) dividing the result by the conversion price of $
Warrants
At September 30, 2024, the Company
had
NOTE 9 SHARE-BASED COMPENSATION
2021 Equity Incentive Plan
In February 2021, shareholders
of the Company approved the 2021 Equity Incentive Plan (the “2021 Plan”), which is administered by the Compensation Committee
of the Board of Directors and authorizes
Stock Options
The fair value of option awards is estimated on the date of grant using the Black-Scholes option pricing model that uses the assumptions in the following table. The expected term represents the period over which the stock option awards are expected to be outstanding. The Company utilizes the simplified method to develop an estimate of the expected term of “plain vanilla” option grants. The expected volatility used is based on the historical price of the Company’s stock over the most recent period commensurate with the expected term of the award. The risk-free interest rate used is based on the implied yield of U.S. Treasury zero-coupon issues with a remaining term equivalent to the award’s expected term. The Company historically has not paid any dividends on its common stock and had no intention to do so on the date the share-based awards were granted. The Company accounts for forfeitures in the period they occur.
In applying the Black-Scholes option pricing model to options granted, the Company used the following assumptions:
| Schedule of assumptions used for options | ||||
| Fiscal 2024 | Fiscal 2023 | |||
| Expected term (years) | ||||
| Expected volatility | ||||
| Risk free interest rate | ||||
| Expected dividends |
In
Fiscal 2024, the Company granted options to three of its non-employee directors to purchase an aggregate of
| F-18 |
In Fiscal 2023, the
Company granted options to three of its non-employee directors to purchase an aggregate of
The Company recognized compensation
expense for stock option awards of $
At September 30, 2024, there
were
The following table summarizes stock option activity during Fiscal 2024:
| Schedule of stock option activity | ||||||||||||||||
| Weighted | Weighted | |||||||||||||||
| Average | Average | Aggregate | ||||||||||||||
| Number of | Exercise | Remaining | Intrinsic | |||||||||||||
| Options | Price | Life (Yrs.) | Value | |||||||||||||
| Outstanding at September 30, 2023 | $ | |||||||||||||||
| Granted | $ | |||||||||||||||
| Forfeited | ( |
) | $ | |||||||||||||
| Expired | ( |
) | $ | |||||||||||||
| Outstanding at September 30, 2024 | $ | $ | ||||||||||||||
| Exercisable at September 30, 2024 | $ | $ | ||||||||||||||
Options outstanding at September
30, 2024 have an exercise price between $
NOTE 10 INCOME TAXES
The following table summarizes the Company’s consolidated provision from continuing operations for U.S. federal, state and foreign taxes on income:
| Schedule of income tax provision | ||||||||
| Fiscal 2024 | Fiscal 2023 | |||||||
| Current: | ||||||||
| Federal | $ | $ | ||||||
| State | ||||||||
| Foreign | ||||||||
| Deferred: | ||||||||
| Federal | ( | ) | ||||||
| State | ( | ) | ( | ) | ||||
| Foreign | ( | ) | ( | ) | ||||
| Deferred income tax expense (benefit) | ( | ) | ( | ) | ||||
| Change in valuation allowance | ||||||||
| Income tax provision | $ | 23,000 | $ | 20,000 | ||||
The deferred tax provision is the change in the deferred tax assets and liabilities representing the tax consequences of changes in the amounts of temporary differences, net operating loss carryforwards and changes in tax rates during the fiscal year.
| F-19 |
The Company’s deferred tax assets and liabilities are comprised of the following:
| Schedule of deferred tax assets and liabilities | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Deferred tax assets | ||||||||
| Net operating losses | $ | $ | ||||||
| Share-based compensation | ||||||||
| AMT & other tax credits | ||||||||
| Excess tax over book basis in inventory | ||||||||
| Reserves and other allowances | ||||||||
| Lease liability | ||||||||
| Accrued compensation | ||||||||
| Accrued related party interest | ||||||||
| Charitable contributions | ||||||||
| Interest expense limitation | ||||||||
| Total deferred tax assets | ||||||||
| Deferred tax liabilities | ||||||||
| Depreciation | ( | ) | ( | ) | ||||
| Prepaid expenses | ( | ) | ( | ) | ||||
| Intangible assets | ( | ) | ( | ) | ||||
| Operating lease right-of-use assets | ( | ) | ( | ) | ||||
| Total deferred tax liabilities | ( | ) | ( | ) | ||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Net deferred tax assets | $ | $ | ||||||
The Company recorded a provision for income taxes which includes net expense of $23,000 and $20,000 in Fiscal 2024 and Fiscal 2023, respectively, primarily for state income tax expenses in states where net operating loss carryforwards (“NOLs”) were not available.
At September 30, 2024, the Company had available NOLs
for U.S. federal income tax purposes of $
At September 30, 2024, as part of its periodic evaluation of the necessity to maintain a valuation allowance against its deferred tax assets, and after consideration of all factors, including, among others, projections of future taxable income, current year NOL utilization and the extent of the Company’s cumulative losses in recent years, the Company determined that, on a more likely than not basis, it would not be able to use remaining deferred tax assets, except with respect to the U.S. federal income taxes in the event the Company elects to effect repatriation of certain foreign source income of Forward Switzerland, which income is currently considered to be permanently reinvested and for which no U.S. tax liability has been accrued. Accordingly, the Company has determined to maintain a full valuation allowance against its net deferred tax assets. At September 30, 2024 and 2023, the valuation allowance was $4,307,000 and $4,102,000, respectively. The change in the valuation allowance of $205,000 is comprised of a $228,000 increase from continuing operations and a $23,000 decrease from discontinued operations. In the future, the utilization of the Company’s NOLs may be subject to certain change of control limitations. If the Company determines that it will be able to use some or all of its deferred tax assets in a future reporting period, the adjustment to reduce or eliminate the valuation allowance would reduce its income tax expense and increase after-tax income.
| F-20 |
The significant elements contributing to the difference between the U.S. federal statutory tax rate and the Company’s effective tax rate are as follows:
| Schedule of reconciliation of effective tax rate | ||||||||
| Fiscal 2024 | Fiscal 2023 | |||||||
| U.S. federal statutory rate | ||||||||
| State tax rate, net of federal benefit | ||||||||
| Foreign rate differential | ( | ) | ||||||
| Tax return to provision adjustments | ( | ) | ( | ) | ||||
| Effect of state tax rate change | ( | ) | ||||||
| Change in valuation allowance | ( | ) | ||||||
| Permanent differences | ( | ) | ||||||
| Effective tax rate | ( | ) | ||||||
At September 30, 2024 and 2023, the Company had no uncertain tax positions or related interest or penalties requiring accrual. It is the Company’s policy to recognize interest and/or penalties, if any, related to income tax matters in income tax expense in the consolidated statements of operations. For the periods presented in the accompanying consolidated statements of operations, no material income tax related interest or penalties were assessed or recorded. All fiscal years prior to the fiscal year ended September 30, 2021, are closed to federal and state examination.
NOTE 11 EARNINGS PER SHARE
Basic earnings per share data for each period presented is computed using the weighted average number of shares of common stock outstanding during each such period. Diluted earnings per share data is computed using the weighted average number of common and dilutive common equivalent shares outstanding during each period. Dilutive common equivalent shares consist of shares that would be issued upon the exercise of stock options and warrants, computed using the treasury stock method, and the conversion of preferred stock, using the if-converted method. A reconciliation of basic and diluted earnings/loss per share is as follows:
| Schedule of reconciliation of basic and diluted earnings/loss per share | ||||||||
| For the Fiscal Years Ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Numerator: | ||||||||
| Loss from continuing operations | $ | ( | ) | $ | ( | ) | ||
| Income/(loss) from discontinued operations, net of tax | ( | ) | ||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Denominator: | ||||||||
| Weighted average common shares outstanding | ||||||||
| Dilutive common share equivalents | ||||||||
| Weighted average dilutive shares outstanding | ||||||||
| Basic loss per share: | ||||||||
| Basic loss per share from continuing operations | $ | ( | ) | $ | ( | ) | ||
| Basic income/(loss) per share from discontinued operations | ( | ) | ||||||
| Basic loss per share | $ | ( | ) | $ | ( | ) | ||
| Diluted loss per share: | ||||||||
| Diluted loss per share from continuing operations | $ | ( | ) | $ | ( | ) | ||
| Diluted income/(loss) per share from discontinued operations | ( | ) | ||||||
| Diluted loss per share | $ | ( | ) | $ | ( | ) | ||
| F-21 |
The following securities were excluded from the calculation of diluted earnings per share in Fiscal 2024 and Fiscal 2023 because their inclusion would have been anti-dilutive:
| Schedule of anti-dilutive | ||||||||
| For the Fiscal Years Ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Options | ||||||||
| Warrants | ||||||||
| Total potentially dilutive shares | ||||||||
NOTE 12 COMMITMENTS AND CONTINGENCIES
Guarantee Obligation
In February 2010, Forward Switzerland and its European logistics provider (freight forwarding and customs agent) entered into an agreement (the “Representation Agreement”) whereby, among other things, the European logistics provider agreed to act as Forward Switzerland’s fiscal representative in The Netherlands for the purpose of providing services in connection with any value added tax matters. As part of this agreement, Forward Switzerland agreed to provide an undertaking (in the form of a bank letter of guarantee) to the logistics provider with respect to any value added tax liability arising in The Netherlands that the logistics provider is required to pay to Dutch tax authorities on its behalf.
In February 2010, Forward Switzerland entered into a guarantee agreement with a Swiss bank relating to the repayment of any amount up to €75,000 (equal to approximately $84,000 at September 30, 2024) paid by such bank to the logistics provider in order to satisfy such undertaking pursuant to the bank letter of guarantee. Forward Switzerland would be required to perform under the guarantee agreement only in the event that (i) a value added tax liability is imposed on the Company’s revenues in The Netherlands; (ii) the logistics provider asserts that it has been called upon in its capacity as surety by the Dutch Receiver of Taxes to pay such taxes; (iii) Forward Switzerland or the Company on its behalf fails or refuses to remit the amount of value added tax due to the logistics provider upon its demand; and (iv) the logistics provider makes a drawing under the bank letter of guarantee. Under the Representation Agreement, Forward Switzerland agreed that the letter of guarantee would remain available for drawing for three years following the date that its relationship terminates with the logistics provider to satisfy any value added tax liability arising prior to expiration of the Representation Agreement but asserted by The Netherlands after expiration.
The initial term of the bank letter of guarantee expired February 28, 2011, but it renews automatically for one-year periods on February 28 of each subsequent year unless Forward Switzerland provides the Swiss bank with written notice of termination at least 60 days prior to the renewal date. It is the intent of Forward Switzerland and the logistics provider that the bank letter of guarantee amount be adjusted annually. In consideration of the issuance of the letter of guarantee, Forward Switzerland has granted the Swiss bank a security interest in all of its assets on deposit with, held by, or credited to Forward Switzerland’s accounts with, the Swiss bank (approximately $245,000 at September 30, 2024). At September 30, 2024, the Company had not incurred a liability in connection with this guarantee.
Legal Proceedings
From time to time, the Company may become a party to legal actions or proceedings in the ordinary course of its business. At September 30, 2024, there were no such actions or proceedings, either individually or in the aggregate, that, if decided adversely to its interests, the Company believes would be material to its business.
| F-22 |
NOTE 13 LEASES
The Company’s operating
leases are primarily for corporate, engineering, and administrative office space. Total operating lease expense in Fiscal 2024 was $
At September 30, 2024, the Company’s
operating leases had a weighted average remaining lease term of
Future minimum payments under non-cancellable operating leases are as follows:
| Schedule of future minimum payments under operating leases | ||||
| Fiscal 2025 | $ | |||
| Fiscal 2026 | ||||
| Fiscal 2027 | ||||
| Fiscal 2028 | ||||
| Fiscal 2029 | ||||
| Thereafter | ||||
| Total future minimum lease payments | ||||
| Less imputed interest | ( | ) | ||
| Present value of lease liabilities | ||||
| Less current portion of lease liabilities | (404,000 | ) | ||
| Long-term portion of lease liabilities | $ | 2,430,000 | ||
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. 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 expired October 31, 2024. In November 2024,
| F-23 |
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 $
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 of the Company 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 2024 and Fiscal 2023.
In order to preserve the Company’s
current and 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. At September 30, 2024, the remaining balance covered by this agreement was approximately
$
During Fiscal 2023, as a result
of the Retail Exit, the Company recognized a loss of approximately $
Accounts Payable Conversion Agreement
In order to maintain compliance
with Nasdaq’s listing standards, the Company entered into two separate agreements with Forward China (the “Conversion Agreements”),
which were effective in July and September of 2024, to convert portions of amounts Due to Forward China into shares of preferred stock.
Under the terms of the Conversion Agreements, Forward China agreed to convert $
Promissory Note
On January 18, 2018, the Company
issued a $
Other Related Party Activity
In October 2020, the Company
began selling smart-enabled furniture, which was 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 $
| F-24 |
The Company had an
agreement with Justwise, under which (i) Justwise performed design, marketing and inventory management 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 paid 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 and was extended on a month-to-month basis until November 30, 2023. The Company incurred costs under
this agreement of $
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 $
NOTE 15 401(k) PLAN
The Company maintains a 401(k)
benefit plan allowing eligible employees to make pre-tax and/or after-tax contributions of a portion of their salary in amounts subject
to Internal Revenue Service limitations. The Company made immediately vested contributions based on a percentage of the employee’s
salary of $
NOTE 16 SEGMENTS AND CONCENTRATIONS
Segments
As a result of discontinuing the retail and OEM segments, see Note 3, the Company now has only one reportable segment. See Note 2 for more information on the composition and accounting policies of our reportable segments. The results of the retail and OEM segments were classified as discontinued operations as discussed in Note 3. The prior year segment disclosures have been reformatted from what was previously disclosed to conform to the current year presentation and omit certain disclosures that are no longer required.
Geographic Concentrations
The Company’s long-lived assets consist of property and equipment and operating lease right-of-use assets, all of which are located in the United States. The Company’s consolidated net revenues for fiscal 2024 and 2023 are from customers predominantly located in the United States.
Customer Concentrations
Revenues from two customers represented
Accounts receivable from
two customers represented
| F-25 |
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, including a reduction in force which was communicated in December 2024. See Note 1.
Supplier Concentration
The Company’s discontinued OEM distribution segment procured substantially all its products through independent suppliers in China through Forward China (see Note 14). Depending on the product, Forward China may require several different suppliers to furnish component parts or pieces.
| F-26 |
ITEM 1. FINANCIAL STATEMENTS FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2024
| Condensed Consolidated Balance Sheets at December 31, 2024 (Unaudited) and September 30, 2024 | F-28 |
| Condensed Consolidated Statements of Operations (Unaudited) for the Three Months Ended December 31, 2024 and 2023 | F-29 |
| Condensed Consolidated Statements of Shareholders' Equity (Unaudited) for the Three Months Ended December 31, 2024 and 2023 | F-30 |
| Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended December 31, 2024 and 2023 | F-31 |
| Notes to Condensed Consolidated Financial Statements | F-32 |
| F-27 |
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| December 31, | September 30, | |||||||
| 2024 | 2024 | |||||||
| (Unaudited) | (See Note 2) | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net of allowances for credit losses of $ |
||||||||
| Contract assets | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Assets held for sale | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Operating lease right-of-use assets, net | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and shareholders' equity | ||||||||
| Current liabilities: | ||||||||
| Note payable to Forward China (related party) | $ | $ | ||||||
| Accounts payable | ||||||||
| Deferred income | ||||||||
| Current portion of operating lease liability | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Liabilities held for sale | ||||||||
| Total current liabilities | ||||||||
| Other liabilities: | ||||||||
| Operating lease liability, less current portion | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | – | – | ||||||
| Shareholders' equity: | ||||||||
| Series A-1 Convertible Preferred Stock, par value $0.01 per share; stated value of $ |
||||||||
| Common stock, |
||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total shareholders' equity | ||||||||
| Total liabilities and shareholders' equity | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| F-29 |
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| For the Three Months Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Revenues, net | $ | $ | ||||||
| Cost of sales | ||||||||
| Gross profit | ||||||||
| Sales and marketing expenses | ||||||||
| General and administrative expenses | ||||||||
| Goodwill impairment | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Interest income | ( | ) | ( | ) | ||||
| Interest expense - related party | ||||||||
| Other expense/(income), net | ( | ) | ||||||
| Loss from continuing operations before income taxes | ( | ) | ( | ) | ||||
| Provision for income taxes | ||||||||
| Loss from continuing operations | ( | ) | ( | ) | ||||
| Income from discontinued operations, net of tax | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Basic (loss)/earnings per share: | ||||||||
| Basic loss per share from continuing operations | $ | ( | ) | $ | ( | ) | ||
| Basic earnings per share from discontinued operations | ||||||||
| Basic loss per share | $ | ( | ) | $ | ( | ) | ||
| Diluted (loss)/earnings per share: | ||||||||
| Diluted loss per share from continuing operations | $ | ( | ) | $ | ( | ) | ||
| Diluted earnings per share from discontinued operations | ||||||||
| Diluted loss per share | $ | ( | ) | $ | ( | ) | ||
| Weighted average common shares outstanding: | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| F-30 |
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
| For the Three Months Ended December 31, 2024 | ||||||||||||||||||||||||||||
| Series A-1 Convertible | Additional | |||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-In | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Share-based compensation | – | – | – | – | – | |||||||||||||||||||||||
| Net loss | – | – | – | – | – | ( | ) | ( | ) | |||||||||||||||||||
| Balance at December 31, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| For the Three Months Ended December 31, 2023 | ||||||||||||||||||||||||||||
| Series A-1 Convertible | Additional | |||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-In | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Share-based compensation | – | – | – | – | – | |||||||||||||||||||||||
| Net loss | – | – | – | – | – | ( | ) | ( | ) | |||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| F-31 |
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the Three Months Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Operating Activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Share-based compensation | ||||||||
| Depreciation and amortization | ||||||||
| Credit loss expense/(recoveries) | ( | ) | ||||||
| Goodwill impairment | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Contract assets | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Deferred income | ( | ) | ( | ) | ||||
| Net changes in operating lease liabilities | ||||||||
| Accrued expenses and other current liabilities | ( | ) | ( | ) | ||||
| Net cash used in operating activities-continuing operations | ( | ) | ( | ) | ||||
| Net cash (used in) / provided by operating activities-discontinued operations | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Investing Activities: | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Financing Activities: | ||||||||
| Repayment of note payable to Forward China (related party) | ( | ) | ||||||
| Net cash used in financing activities | ( | ) | ||||||
| Net decrease in cash | ( | ) | ( | ) | ||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Supplemental Disclosures of Non-Cash Information: | ||||||||
| Operating lease assets obtained in exchange for operating lease liabilities | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| F-32 |
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 OVERVIEW
Business
Forward Industries, Inc. (“Forward”, “we”, “our” or the “Company”) is a global design company serving top tier medical and technology customers. The Company provides hardware and software product design and engineering services to customers predominantly located in the U.S.
Discontinued Operations
In July 2023, the Company decided to cease operations of its retail distribution segment (“Retail Exit”) and is presenting the results of operations for this segment within discontinued operations in the 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 was presented as discontinued assets held for sale on the balance sheet at September 30, 2023.
In March 2025, the Company committed to a plan to sell the original equipment manufacturer (“OEM”) distribution segment of the business (“OEM Plan”). In May 2025, the Company completed the sale of this line of business and is presenting its results of operations within discontinued operations in the current and prior periods presented herein. The OEM distribution segment sourced and sold 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 packaged our products as accessories “in box” together with their branded product offerings or sold them through their retail distribution channels. The Company did not manufacture any of its OEM products and sourced substantially all of these products from independent suppliers in China, through Forward Industries Asia-Pacific Corporation, a British Virgin Islands corporation (“Forward China”), a related party owned by the Company’s former CEO (see Note 14).
Unless otherwise noted, amounts related to these discontinued operations are excluded from the disclosures presented herein. See Note 3 for more information on these discontinued operations.
Liquidity and Going Concern
The accompanying 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. The Company had an accumulated deficit of $20,345,000 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 (excluding cash associated with the discontinued OEM segment) of approximately $2,600,000 at January 31, 2025.
In December 2024, our largest design customer notified us of its plan to discontinue their insulin patch pump program, on which we were working. 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 our existing cash balance and working capital will not be sufficient to meet our liquidity needs through February 13, 2026, 12 months from the date of issuance of these condensed consolidated financial statements. These factors raise substantial doubt about our ability to continue as a going concern.
Management plans to initiate cost reduction measures in Fiscal 2025 to mitigate the impact of the loss of our largest customer, including a reduction in force which was communicated in December 2024. These plans will be evaluated and adjusted as deemed necessary based on the ongoing needs of the business. Management also plans to seek flexibility on payment terms for ongoing purchases from Forward China and attempt to obtain debt or equity financing to fund its ongoing operations. However, there are no current agreements or understanding with regard to the form, time or amount of such financing and there is no assurance that any financing can be obtained, that Forward China will grant any flexibility on payment terms or that our cost reduction efforts will be sufficient to enable the Company to continue as a going concern. The condensed consolidated financial statements do not include any adjustments that might result if the Company is unable to continue as a going concern. Such adjustments could be material.
| F-33 |
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 ACCOUNTING POLICIES
Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of Forward Industries, Inc. and all of its wholly-owned subsidiaries: Forward Industries (IN), Inc. (“Forward US”), Forward Industries (Switzerland) GmbH (“Forward Switzerland”), Forward Industries UK Limited (“Forward UK”), Intelligent Product Solutions, Inc. (“IPS”) and Kablooe, Inc. (“Kablooe”). The terms “Forward”, “we”, “our” or the “Company” as used throughout this document are used to indicate Forward Industries, Inc. and all of its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.
In the opinion of management, the accompanying condensed consolidated financial statements presented in this Quarterly Report on Form 10-Q reflect all normal recurring adjustments necessary to present fairly the financial position and results of operations and cash flows for the interim periods presented herein but are not necessarily indicative of the results of operations for the year ending September 30, 2025. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the fiscal year ended September 30, 2024, and with the disclosures and risk factors presented therein. The September 30, 2024 condensed consolidated balance sheet has been derived from the audited consolidated financial statements.
Accounting Estimates
The preparation of the Company’s condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates and assumptions. Within this report, certain dollar amounts and percentages have been rounded to their approximate values.
Segment Reporting
As a result of discontinuing the retail and OEM segments, as disclosed in Note 3, the Company now has only one reportable segment. 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. See Note 5 for more information on segments.
Accounts Receivable
Accounts receivable consist
of unsecured trade accounts with customers net of an allowance for credit losses. Collectability of accounts receivable is estimated by
evaluating the number of days accounts are outstanding, customer payment history, recent payment trends and perceived creditworthiness,
adjusted as necessary based on specific customer situations. At December 31, 2024, September 30, 2024 and September 30, 2023, the Company
had allowances for credit losses of $
Inventories
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, which is now presented as a component of income/(loss) from discontinued operations in the Company’s condensed 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. Due to the Retail Exit and the OEM Plan, all inventory on hand at December 31, 2024 and September 30, 2024 is presented as a component of assets held for sale.
| F-34 |
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition
Discontinued OEM Distribution Segment
The OEM distribution segment
recognized revenue when: (i) finished goods were shipped to its customers (in general, these conditions occurred at either point of shipment
or point of destination, depending on the terms of sale and transfer of control); (ii) there were no other deliverables or performance
obligations; and (iii) there were no further obligations to the customer after the title of the goods has transferred. If the Company
received consideration before achieving the criteria previously mentioned, it recorded a contract liability, which would be classified
as a component of liabilities held for sale in the accompanying condensed consolidated balance sheets. The OEM distribution segment had
Discontinued Retail Distribution Segment
The discontinued retail distribution
segment sold products primarily through online websites operated by authorized third-party retailers. Revenue was recognized when control
(as defined in Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers”) of the
related goods were transferred to the retailer, which generally occurred upon shipment to the end customer. Other than product delivery,
the retail distribution segment did not typically have other deliverables or performance obligations associated with its products. Revenue
was measured as the amount of consideration expected to be received in exchange for the products provided, net of allowances taken by
retailers for product returns and any taxes collected from customers that will be remitted to governmental authorities. When the Company
received consideration before achieving the criteria previously mentioned, it recorded a contract liability, which was classified as a
component of deferred income in the accompanying condensed consolidated balance sheets. The retail distribution segment had
Design Segment
The Company applies the “cost to cost” and “right to invoice” methods of revenue recognition to the contracts with customers in the design segment. 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 are recorded as contract assets in the accompanying condensed consolidated balance sheets. The design
segment had contract assets of $
Goodwill
The Company reviews goodwill for impairment at least annually, or more often if triggering events occur. The Company has 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. The Company has the option to perform a qualitative assessment to determine if an impairment is more likely than not to have occurred. If the Company 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 the Company would not need to perform a quantitative impairment test for the reporting unit. If the Company cannot support such a conclusion or does not elect to perform the qualitative assessment, then the Company will perform the quantitative assessment 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 value, no impairment charge is recognized. If the fair value of the reporting unit is less than its carrying value, 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. See Note 4.
| F-35 |
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Intangible Assets
Intangible assets include trademarks and customer relationships, which were acquired as part of the acquisitions of IPS in Fiscal 2018 and Kablooe in Fiscal 2020 and are amortized over their estimated useful lives, which are periodically evaluated for reasonableness.
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. Management evaluated
and concluded that there were
Income Taxes
The Company recognizes future tax benefits and liabilities measured at enacted rates attributable to temporary differences between financial statement and income tax bases of assets and liabilities and to net tax operating loss carryforwards to the extent that realization of these benefits is more likely than not. At December 31, 2024, there was no change to our assessment that a full valuation allowance was required against all net deferred tax assets as it is not probable that such deferred tax assets will be realized. Accordingly, any deferred tax provision or benefit was offset by an equal and opposite change to the valuation allowance. Our income tax provision or benefit is generally not significant due to the existence of significant net operating loss carryforwards.
Fair Value Measurements
In connection with the acquisition of Kablooe, the Company has a contingent earnout agreement based on Kablooe’s results of operations through August 2025. This earnout agreement is measured at fair value in accordance with the guidance provided by ASC 820, “Fair Value Measurement.” ASC 820 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at their fair values, we consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would use when pricing the assets or liabilities, such as inherent risk, transfer restrictions, and risk of nonperformance.
ASC 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An asset's or liability's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 establishes three levels of inputs that may be used to measure fair value:
| · | Level 1: quoted prices in active markets for identical assets or liabilities; |
| · | Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or |
| · | Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair values of the assets or liabilities. |
| F-36 |
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The fair value of the earnout liability is measured on a recurring basis at each reporting date using inputs categorized within Level 3 of the fair value hierarchy. Due to the low likelihood of Kablooe reaching the specified earnout targets, the fair value of this earnout liability is $0 at December 31, 2024 and September 30, 2024.
The carrying amounts of cash, accounts receivable, accounts payable, due to Forward China, and the Note Payable to Forward China approximate fair value due their short-term maturities.
Leases
Lease assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term, using the Company’s incremental borrowing rate commensurate with the lease term, since the Company’s lessors do not provide an implicit rate, nor is one readily available. The Company has certain leases that may include an option to renew and when it is reasonably probable to exercise such option, the Company will include the renewal option terms in determining the lease asset and lease liability. Lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Operating lease assets are shown as right-of-use assets on the condensed consolidated balance sheets. The current and long-term portions of operating lease liabilities are shown separately as such on the condensed consolidated balance sheets.
Recent Accounting Pronouncements
In November 2024, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses” and in January 2025, the FASB issued ASU No. 2025-01, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date”, which clarified the effective date of ASU 2024-03 for non-calendar year-end companies. ASU 2024-03 will require the Company to disclose the amounts of purchases of inventory, employee compensation, depreciation and intangible asset amortization, as applicable, included in certain expense captions in the consolidated statements of operations, as well as qualitatively describe remaining amounts included in those captions. ASU 2024-03 will also require the Company to disclose both the amount and the Company’s definition of selling expenses. This ASU is effective for fiscal years beginning after December 15, 2026 and interim periods within fiscal years beginning after December 31, 2027. The Company is currently evaluating the effects of the pronouncement on its condensed consolidated financial statements.
In December 2023, the FASB issued 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 condensed 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 condensed consolidated financial statements.
NOTE 3 DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
Considering the recurring losses incurred by the retail segment, in July 2023, the Company decided to cease operations of its retail distribution segment (“Retail Exit”). The primary assets of the retail segment were inventory and accounts receivable. The Company sold, liquidated, or otherwise disposed of all remaining retail inventory, and collected 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 Retail Exit was considered a strategic shift that would have a significant impact on the Company’s operations and financial results. 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 was classified on our condensed consolidated balance sheets 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.
| F-37 |
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In March 2025, Forward China
determined it would not renew the Buying Agency and Supply Agreement (the “Sourcing Agreement”), which subsequently expired
on May 9, 2025 (see Note 8). Without this agreement, the Company determined it would not continue the OEM segment of the business and
committed to a plan to sell the segment. On May 16, 2025, the Company and Forward US entered into a transaction agreement with Forward
China, pursuant to which the Company sold all equity interest in Forward Switzerland and Forward UK and sold certain other net assets
related to Forward US’ OEM segment to Forward China to satisfy outstanding payables due to Forward China under the Sourcing Agreement.
Additionally, the Company and Forward China terminated the Supply Agreement and extended the term of the Note Payable (see Note 8) to
December 31, 2025. The Company paid $200,000 at closing and agreed to make additional cash payments of $
The sale of the OEM business is considered a strategic shift that will have a significant impact on the Company’s operations and financial results. The assets and liabilities of the OEM segment were classified as assets and liabilities held for sale on the condensed consolidated balance sheets at December 31, 2024 and September 30, 2024. The results of operations for the OEM segment have been classified as discontinued operations on the condensed consolidated statements of operations for the three months ended December 31, 2024 and 2023. The condensed consolidated balance sheets and statements of operations for comparable periods have been reclassified to conform to this presentation in accordance with the accounting guidance.
The following table presents the major classes of the “Income from discontinued operations, net of tax” in our condensed consolidated statements of operations for the three months ended December 31, 2024 and 2023.
| Schedule of discontinued operations | ||||||||
| For the Three Months Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Revenues, net | $ | $ | ||||||
| Cost of sales | ||||||||
| Gross profit | ||||||||
| Sales and marketing expenses | ||||||||
| General and administrative expenses | ||||||||
| Income from discontinued operations | $ | $ | ||||||
There were no material amounts of depreciation, amortization, investing or financing cash flow activities, or other significant non-cash operating cash flow activities for the discontinued operations in the three months ended December 31, 2024 or 2023.
NOTE 4 INTANGIBLE ASSETS AND GOODWILL
Intangible Assets
The Company’s intangible assets consist of the following:
| Schedule of intangible assets | ||||||||||||||||||||||||
| December 31, 2024 | September 30, 2024 | |||||||||||||||||||||||
| Trademarks | Customer Relationships | Total Intangible Assets | Trademarks | Customer Relationships | Total Intangible Assets | |||||||||||||||||||
| Gross carrying amount | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Less accumulated amortization | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Net carrying amount | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| F-38 |
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company’s intangible
assets resulted from the acquisitions of Kablooe and IPS in Fiscal 2020 and Fiscal 2018, respectively, and relate to the design segment
of our business. Intangible assets are amortized over their expected useful lives of
At December 31, 2024, estimated amortization expense for the Company’s intangible assets is as follows:
| Schedule of estimated amortization expense | ||||
| Remainder of Fiscal 2025 | $ | |||
| Fiscal 2026 | ||||
| Fiscal 2027 | ||||
| Fiscal 2028 | ||||
| Fiscal 2029 | ||||
| Fiscal 2030 | ||||
| Thereafter | ||||
| Total | $ |
Goodwill
Goodwill represents the future economic benefits of assets acquired in a business combination that are not individually identified or separately recognized. The Company’s goodwill resulted from the acquisitions of Kablooe and IPS in Fiscal 2020 and Fiscal 2018, respectively. The goodwill associated with the IPS acquisition is not deductible for tax purposes, but the goodwill associated with the Kablooe acquisition is deductible for tax purposes. All of the Company’s goodwill is held under the design segment of our business.
In
December 2024, IPS was notified by its largest customer of its plan to discontinue its 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
more than 30% 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 concluded an impairment was more likely than not to have occurred and performed a quantitative goodwill impairment
test for the IPS reporting unit at December 31, 2024. Using primarily an income approach methodology, the fair value of the IPS reporting
unit was estimated using a discounted cash flow analysis incorporating variables categorized within Level 3 of the fair value hierarchy
such as projected revenues, growth rate and discount rate. The quantitative testing indicated the carrying amount of the IPS reporting
unit exceeded its fair value, resulting in a goodwill impairment charge of $
Below is a rollforward of goodwill for the design segment, the only reportable segment with goodwill:
| Schedule of roll forward of goodwill | ||||
| Balance at September 30, 2024 | $ | 1,559,000 | ||
| Impairment of IPS reporting unit | ( | ) | ||
| Balance at December 31, 2024 | $ | 1,334,000 |
NOTE 5 SEGMENTS AND CONCENTRATIONS
As a result of discontinuing the retail and OEM segments, see Note 3, the Company now has only one reportable segment. See Note 2 for more information on the composition and accounting policies of our reportable segments. The results of the retail and OEM segments were classified as discontinued operations as discussed in Note 3. The prior year segment disclosures have been reformatted from what was previously disclosed to conform to the current year presentation and omit certain disclosures that are no longer required.
| F-39 |
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Revenues
from two customers represented
Accounts receivable from
four customers represented
In December 2024, our largest design customer notified us of its plan to discontinue their insulin patch pump program, on which we were working. The Company expects this to cause a material decrease in design segment revenues beginning in the second quarter of Fiscal 2025.
NOTE 6 SHAREHOLDERS’ EQUITY
Reverse Stock Split
The Company’s shareholders authorized, and the Board of Directors approved, a 1-for-10 reverse stock split, which became effective on June 18, 2024. Any fractional shares that would have otherwise resulted from the reverse stock split were rounded up to the nearest whole share. Accordingly, all references made to shares, per share, or common share amounts in the accompanying condensed consolidated financial statements and applicable disclosures have been retroactively adjusted to reflect the reverse stock split. The reverse stock split did not change the par value of the common stock nor the authorized number of shares of common stock, preferred stock or any series of preferred stock.
Nasdaq
In July 2023,
Preferred Stock
In
connection with the Accounts Payable Conversion Agreements with Forward China (see Note 8), the Company filed two Certificates of Amendment
to the Certificate of Incorporation (the “COD”) designating
The
holders of the Series A-1 Convertible Preferred Stock have no voting rights and rank senior to all classes or series of the Company’s
common stock with respect to the distribution of assets upon liquidation, dissolution, or winding up. Subject to a
| F-40 |
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Stock Options
On October 1, 2024, the Company
granted options to two of its non-employee directors to purchase an aggregate of
On October 1, 2023, the Company
granted options to three of its non-employee directors to purchase an aggregate of
There
were
The
Company recognized compensation expense for stock option awards of $
NOTE 7 EARNINGS PER SHARE
Basic earnings per share data for each period presented is computed using the weighted average number of shares of common stock outstanding during each such period. Diluted earnings per share data is computed using the weighted average number of common and dilutive common equivalent shares outstanding during each period. Dilutive common-equivalent shares consist of shares that would be issued upon the exercise of stock options and warrants, computed using the treasury stock method. A reconciliation of basic and diluted earnings per share is as follows:
| Schedule of reconciliation of basic and diluted earnings per share | ||||||||
| For the Three Months Ended | ||||||||
| December 31, | ||||||||
| 2024 | 2023 | |||||||
| Numerator: | ||||||||
| Loss from continuing operations | $ | (898,000 | ) | $ | (365,000 | ) | ||
| Income from discontinued operations, net of tax | 190,000 | 11,000 | ||||||
| Net loss | $ | (708,000 | ) | $ | (354,000 | ) | ||
| Denominator: | ||||||||
| Weighted average common shares outstanding | 1,101,000 | 1,101,000 | ||||||
| Dilutive common share equivalents | ||||||||
| Weighted average dilutive shares outstanding | 1,101,000 | 1,101,000 | ||||||
| Basic (loss) / earnings per share: | ||||||||
| Basic loss per share from continuing operations | $ | ( | ) | $ | ( | ) | ||
| Basic earnings per share from discontinued operations | ||||||||
| Basic loss per share | $ | ( | ) | $ | ( | ) | ||
| Diluted (loss) / earnings per share: | ||||||||
| Diluted loss per share from continuing operations | $ | ( | ) | $ | ( | ) | ||
| Diluted earnings per share from discontinued operations | ||||||||
| Diluted loss per share | $ | ( | ) | $ | ( | ) | ||
| F-41 |
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following securities were excluded from the calculation of diluted earnings per share in each period because their inclusion would have been anti-dilutive:
| Schedule of anti-dilutive shares | ||||||||
| For the Three Months Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Options | ||||||||
| Warrants | ||||||||
| Total potentially dilutive shares | ||||||||
NOTE 8 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. 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. 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
expired October 31, 2024. In November 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 $
In order to preserve the
Company’s current and 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 $
Accounts Payable Conversion Agreements
In order to maintain compliance
with Nasdaq’s listing standards, the Company entered into two separate agreements with Forward China (the “Conversion Agreements”),
which were effective in July and September of 2024, to convert portions of amounts Due to Forward China into shares of preferred stock.
Under the terms of the Conversion Agreements, Forward China agreed to convert $
| F-42 |
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Promissory Note
On January 18, 2018, the
Company issued a $
Other Related Party Activity
In October 2020, the Company
began selling smart-enabled furniture, which was 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 $
The Company had an agreement
with Justwise, under which (i) Justwise performed design, marketing and inventory management 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 paid Justwise
$10,000 per month plus 1% of the cost of Koble products purchased from Forward China. This agreement existed on a month-to-month basis
until November 30, 2023. The Company incurred costs under this agreement of $
The Company recorded revenue
from a customer whose principal owner is an immediate family member of Jenny P. Yu, a significant shareholder of the Company and managing
director of Forward China. The Company recognized revenue from this customer of $
NOTE 9 LEGAL PROCEEDINGS
From time to time, the Company may become a party to legal actions or proceedings in the ordinary course of its business. At December 31, 2024, and through the date of this filing, there were no such actions or proceedings, either individually or in the aggregate, that, if decided adversely to the Company’s interests, the Company believes would be material to its business.
NOTE 10 LEASES
The Company’s operating
leases are primarily for corporate, engineering, and administrative office space. Total operating lease expense for the three months ended
December 31, 2024 was $
| F-43 |
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2024, the
Company’s operating leases had a weighted average remaining lease term of
At December 31, 2024, future minimum payments under non-cancellable operating leases were as follows:
| Schedule of future minimum payments under non-cancellable operating leases | ||||
| Remainder of Fiscal 2025 | $ | |||
| Fiscal 2026 | ||||
| Fiscal 2027 | ||||
| Fiscal 2028 | ||||
| Fiscal 2029 | ||||
| Thereafter | ||||
| Total future minimum lease payments | ||||
| Less imputed interest | ( | ) | ||
| Present value of lease liabilities | ||||
| Less current portion of lease liabilities | (455,000 | ) | ||
| Long-term portion of lease liabilities | $ | 2,426,000 |
NOTE 11 SUBSEQUENT EVENT
On February 11, 2025, the Company entered into a third agreement with Forward China to convert $225,000 of amounts due to Forward China into 225 shares of Series A-1 convertible preferred stock with a stated value of $1,000 per share. This conversion agreement was affected to raise the Company’s shareholders’ equity to the amount necessary to meet the Stockholders’ Equity Rule. See Notes 6 and 8.
| F-44 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2024 COMPARED TO THE THREE MONTHS ENDED DECEMBER 31, 2023
As described below, in March 2025, the Company committed to a plan to sell the OEM segment of its business and completed the sale of this segment in May 2025. The assets and liabilities of the OEM segment have been classified as assets and liabilities held for sale and the results of operations and cash flows have been classified as discontinued operations for all periods presented. Upon reclassification, the Company determined that it had only one reportable segment. Segment disclosures have been recast to reflect this change for all periods presented. This information is presented solely to present recast financial information to reflect these organizational structure changes. Accordingly, the following information speaks as of the original filing date and should be read in conjunction with the Quarterly Report and our other filings with the SEC since the date of the Quarterly Report.
In addition to historical information, 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 the Quarterly Report, and in particular, the risks discussed under the caption “Risk Factors” in Item 1A of the Annual 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, company serving top tier medical and technology customers. The Company provides hardware and software product design and engineering services to customers predominantly located in the U.S.
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 condensed consolidated financial statements and applicable disclosures have been retroactively adjusted to reflect the reverse stock split.
Discontinued Operations
Considering the recurring 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 herein. The discontinuation of the retail segment represents a strategic shift in the Company’s business. 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.
| A-7 |
In March 2025, Forward China determined it would not renew the Buying Agency and Supply Agreement (“Sourcing Agreement”), which subsequently expired on May 9, 2025. Without this agreement, the Company determined it would not continue the OEM segment of the business and committed to a plan to sell the segment (the “OEM Plan”). On May 16, 2025, the Company and Forward US entered into a transaction agreement with Forward China, pursuant to which the Company sold all equity interest in Forward Switzerland and Forward UK and certain other net assets related to Forward US’ OEM segment to Forward China to satisfy outstanding payables due to Forward China under the Sourcing Agreement. The sale of the OEM business is considered a strategic shift that has and will have a significant impact on the Company’s operations and financial results. The assets and liabilities of the OEM segment were classified as assets and liabilities held for sale on the consolidated balance sheets at December 31, 2024 and September 30, 2024. The results of operations for the OEM segment have been classified as discontinued operations on the consolidated statements of operations for the three months ended December 31, 2024 and 2023. Unless otherwise noted, results for discontinued operations are excluded from the discussion that follows.
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 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.
In 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.
Due 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 $200,000 in September 2024, primarily driven by a reduction in its expected future performance.
We will continue to monitor the IPS and Kablooe goodwill for impairment as needed in future periods. Changes in economic, industry or market conditions, business operations, competition, the price of our common shares or market capitalization or our actual performance compared with estimates of our future performance may affect the fair value of goodwill and could result in additional impairment charges in the future.
| A-8 |
Recent Accounting Pronouncements
For information on recent accounting pronouncements and impacts, see Note 2 to the unaudited condensed consolidated financial statements.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2024 COMPARED TO THE THREE MONTHS ENDED DECEMBER 31, 2023
The table below summarizes our consolidated results from continuing operations for the three months ended December 31, 2024 (the “2025 Quarter”) as compared to the three months ended December 31, 2023 (the “2024 Quarter). All dollar amounts and percentages presented herein have been rounded to approximate values.
The table below summarizes our consolidated results of continuing operations for the 2025 Quarter as compared to the 2024 Quarter:
| Consolidated Results of Operations | ||||||||||||||||
| 2025 Quarter | 2024 Quarter | Change ($) | Change (%) | |||||||||||||
| Revenues, net | $ | 4,624,000 | $ | 5,142,000 | $ | (518,000 | ) | (10.1% | ) | |||||||
| Cost of sales | 3,491,000 | 3,700,000 | (209,000 | ) | (5.6% | ) | ||||||||||
| Gross profit | 1,133,000 | 1,442,000 | (309,000 | ) | (21.4% | ) | ||||||||||
| Sales and marketing expenses | 160,000 | 209,000 | (49,000 | ) | (23.4% | ) | ||||||||||
| General and administrative expenses | 1,646,000 | 1,598,000 | 48,000 | 3.0% | ||||||||||||
| Goodwill impairment | 225,000 | – | 225,000 | – | ||||||||||||
| Loss from operations | (898,000 | ) | (365,000 | ) | (533,000 | ) | 146.0% | |||||||||
| Other (income) / expense, net | – | – | – | – | ||||||||||||
| Loss from continuing operations | $ | (898,000 | ) | $ | (365,000 | ) | $ | (533,000 | ) | 146.0% | ||||||
The discussion that follows below provides further details about our results from continuing operations for the 2025 Quarter as compared to the 2024 Quarter.
The decrease in net revenues 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.
Our gross margin decreased from 28.0% in the 2024 Quarter to 24.5% in the 2025 Quarter driven by lower utilization rates and a decline in billable project hours, partially offset by an increase in the average bill rate.
Sales and marketing expenses decreased primarily due to lower personnel costs and decreased slightly as a percentage of revenues.
General and administrative expenses increased slightly in the 2025 Quarter. Higher professional fees and an increase in bad debt expense were partially offset by a reduction in various other 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.
| A-9 |
There were no significant changes to other income/expense as the decrease in interest expense resulting from a reduction in the amount of debt outstanding was mostly offset by a decrease in interest income and other components of other income/expense.
During the 2025 Quarter, we recorded a goodwill impairment charge of $225,000 related to the IPS reporting unit. This 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 $897,000 in the 2025 Quarter compared to $365,000 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 per share from continuing operations were $0.82 and $0.33 for the 2025 Quarter and the 2024 Quarter, respectively.
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 December 31, 2024, our working capital (excluding assets and liabilities held for sale) was $4,147,000 compared to $4,663,000 at September 30, 2024. The decrease was primarily due to lower cash and contract asset balances and was partially offset by lower accrued expenses.
Forward China, an entity owned by our former Chairman of the Board and Chief Executive Officer, holds a $600,000 promissory note issued by us which matures on December 31, 2005 (see Note 8 to the condensed consolidated financial statements). We plan on repaying the note on or prior to its maturity date. In connection with the sale of the OEM business, we are obligated to pay Forward China $150,000 on September 30, 2025 (in addition to the $200,000 paid on closing and the $300,000 aggregate payments made on July 31, 2025 and August 31, 2025).
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 of $20,345,000 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 (excluding cash associated with the discontinued OEM segment) of approximately $2,600,000 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 more than 30% 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 a material amount of equipment and other capital assets in the future, depending on need.
| A-10 |
Cash Flows
During the 2025 Quarter and 2024 Quarter, our sources and uses of cash were as follows:
Operating Activities
During the 2025 Quarter, cash used in operating activities of $434,000 resulted from a net loss of $708,000, a decrease in deferred income of $121,000, a decrease in accrued expenses and other current liabilities of $131,000 and cash used in discontinued operations of $81,000, partially offset by a net increase in accounts receivable and contract assets of $172,000, 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 $82,000.
During the 2024 Quarter, cash used in operating activities of $94,000 resulted from a decrease in accrued expenses and other current liabilities of $859,000, a decrease in accounts payable of $120,000, a net loss of $354,000 and the net change in other operating assets and liabilities of $69,000, partially offset by cash provided by discontinued operations of $576,000, a net decrease in accounts receivable and contract assets of $611,000, and non-cash charges of $121,000 related to depreciation, amortization, share-based compensation and credit losses.
Investing Activities
Cash used in investing activities in the 2025 Quarter and the 2024 Quarter of $5,000 and $20,000, respectively, resulted from purchases of property and equipment.
Financing Activities
Cash used in financing activities in the 2024 Quarter of $250,000 consisted of principal payments on the promissory note held by Forward China.
| A-11 |
FAQ
What was Forward Industries (FORD) fiscal 2024 operating loss and loss per share?
Which segments were reported as discontinued operations in the filing?
What related-party arrangements with Forward China are disclosed?
What is the status of the promissory note to Forward China?
Does the company have tax attributes to offset future taxes?
