What changed in this filing

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Item 1. Business

2020-12-17 compared with 2019-12-27 · 239 added, 162 removed, 124 unchanged (76% of the section changed)

Forward Industries,

(“Forward”

or the “Company”), through its wholly-owned subsidiaries, Intelligent Product Solutions

(“IPS”), Forward US, Forward Switzerland and Forward UK, is a single source solution provider for the full spectrum

of hardware and software product design and engineering services as well as a designer and distributer of carry and protective

The Company offers a full suite of product development services required to conceptualize, create, and maintain products

throughout the entire product life-cycle, from product concept and design to production support and field support.

Forward provides

clients, both large and small, a “one-stop-shop”

for product design, development, manufacturing, and distribution.

Historically, our

principal customer market has been original equipment manufacturers, or “OEMs”

(or the contract manufacturing firms

of these OEM customers), that either package their products as accessories “in box”

together with their branded product

offerings, or sell them through their retail distribution channels.

On January 29, 2019,

the Company entered into a distribution agreement with Mooni AB International.

By virtue of our strategic collaboration and distribution

agreement with Mooni AB International, we have secured a portfolio of smart enabled products which we anticipate will be distributed

through retail outlets in the United States.

As a result of this collaboration and other product initiatives, the Company began

is investing in and building out a distribution network for retail.

The distribution network will be responsible for placing products

into big box retailers for retail consumption.

This build out is a continuation of our strategy to be a one-stop shop for product

development, manufacture and distribution and represents a significant achievement in completing our strategy of taking a product

from concept to the consumer.

We anticipate having product in retail outlets by the second fiscal quarter of 2020.

We have developed

a sales team that covers North America by leveraging the manufacturer's representative model.

We have identified and signed agreements

with long-established firms that have years of experience and relationships with big box retailers that we are targeting in both

the United States and Canada.

Through the manufacture

representative agreements we currently have in place, we hope to gain sales coverage to retailers such as Best Buy, Target, Walmart,

Costco, CVS, Walgreens, Staples, Office Depot and many others.

The manufacture representative model allows us to engage and support

a large sales team and cover a lot of territory with a variable cost model as these representatives work on commission only.

(“Forward”, “we”, “our”

or the “Company”), through 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”), is a fully integrated design, development and manufacturing solution provider for top tier medical

and technology customers worldwide.

The Company has expanded its ability to design and develop solutions for our existing multinational

client base and expand beyond the diabetic product line into a variety of industries with a full spectrum of hardware and software

product design and engineering services.

In addition to our existing design and distribution of carry and protective solutions,

primarily for handheld electronic devices, the Company is now a one-stop shop for design, development and manufacturing solutions

serving a wide range of clients in the industrial, commercial and consumer industries.

The Company’s previous principal customer

market has been original equipment manufacturers, or “OEMs”

(or the contract manufacturing firms of these OEM customers),

that either package our products as accessories “in box”

together with their branded product offerings or sell them

through their retail distribution channels.

The Company’s OEM products include carrying cases and other accessories for medical

monitoring and diagnostic kits and a variety of other portable electronic and non-electronic products (such as sporting and recreational

products, bar code scanners, smartphones, GPS location devices, tablets and firearms).

The Company’s OEM customers are located

(i) the Asia-Pacific region, which we refer to as the “APAC Region”;

(ii) Europe, the Middle East, and Africa,

which we refer to as the “EMEA Region”;

and (iii) the geographic area encompassing North America, Central America and

South America, which we refer to as the “Americas”.

The Company does not manufacture any of its OEM products and sources

substantially all of its OEM products from independent suppliers in China, through Forward Industries Asia-Pacific Corporation,

a British Virgin Islands corporation (“Forward China”).

As a result of the

expansion of the design development capabilities through its wholly-owned subsidiaries, IPS and Kablooe, the Company is now able

to introduce proprietary products to the market from concepts brought to it from a number of different sources, both inside and

outside the Company.

our strategic collaboration and distribution agreements, we have secured a portfolio of smart enabled products which we have begun

distributing to retail outlets in the United States.

The rollout of these products has been delayed by COVID-19 as discussed below.

As a result of this collaboration and other product initiatives, we invested in and began to build out a retail distribution network

responsible for getting products into big box retailers for retail consumption.

This build out is a continuation of our strategy

to be a one-stop shop for product development, manufacture and distribution and represents a significant achievement in completing

the strategic process of taking a product from concept to the consumer.

Through the manufacturer

representative agreements we currently have in place, we expect to gain sales coverage to retailers such as Best Buy, Target, Walmart,

Costco, Amazon, CVS, Walgreens, Staples, Office Depot and many others.

The manufacturer representative model allows us to engage

and support a large sales team and cover a larger territory with a variable cost model as these representatives work on commission

The outbreak of the

COVID-19 virus in China and its subsequent spread throughout the world has impacted our Fiscal 2020 results of operations.

In efforts to contain the virus, authorities have implemented travel restrictions, quarantines, business limitations and shutdowns.

Since the majority of our workforce is based in New York, these restrictions have required substantially all our employees to work

from home for much of Fiscal 2020.

During the third quarter of Fiscal 2020, productivity of our direct labor employees was

reduced, which caused a decline in revenue and gross profit.

As some of these restrictions were relaxed in the fourth quarter of

Fiscal 2020, employees started to return to the office with minimal operational challenges.

Business shutdowns resulting from the

pandemic disrupted our supply chain and the manufacture or shipment of our products and have delayed the rollout of our smart enabled

retail products to big box retail stores, causing our distribution segment revenues in Fiscal 2020 to be less than anticipated.

Additionally, our design segment reported lower revenues as demand for its design and development services were reduced or delayed.

The impact from lower revenue was partially offset by a reduction in certain selling and travel related expenses resulting from

government mandated stay-at-home orders and travel restrictions as well as revenues derived from sales and sourcing of personal

protective equipment.

The pandemic had temporarily impacted our liquidity in Fiscal 2020, as collections of accounts receivable

were somewhat delayed at certain times.

started to open in certain jurisdictions where the virus was considered under control.

However, there continue to be

areas with increased rates of infection that could cause government officials to enact more restrictions on how businesses

The future impacts of the pandemic and any resulting economic impact are largely unknown and could be

It is possible that the pandemic, the measures taken by the governments of countries affected and the resulting

economic impact may negatively impact our results of operations, cash flows and financial position in future periods as well

as that of our customers, including their ability to pay for our services and choosing to allocate their budgets to new or

existing projects which may or may not require our services.

The long-term financial impact on our business cannot be

reasonably estimated at this time.

As a result, the effects of COVID-19 may not be fully reflected in our financial results

until future periods.

Refer to “Part I, Item 1A —

Risk Factors”

in this report for a description of the

material risks that the Company currently faces in connection with COVID-19.

Until there is a

vaccine and treatment that is widely distributed, we expect business conditions to remain challenging.

In response to

these challenges, we will continue to focus on those factors that we can control:

closely managing and controlling our

aligning our design and development schedules with demand in a proactive manner as there are changes in market

conditions to minimize our cash operating costs;

pursuing further improvements in the productivity and effectiveness of our

development, selling and administrative activities and, where appropriate, taking advantage of opportunities to enhance our

business growth and profitability strategy.

Corporate History

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January 2018, Forward acquired IPS which resulted in IPS being a wholly-owned subsidiary of Forward.

The Company believes that

the design and engineering service capabilities of IPS will augment the Company’s core sourcing business.

August 2020, Forward acquired the assets of Kablooe Design, a medical and consumer design and development company.

believes that the design and engineering service capabilities of Kablooe will complement the IPS business and further diversify

the industries and customers with which the Company does business.

this report, the Company uses the term “distribution”

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or “design and development”

to describe the acquired IPS business, to be consistent

with the operating segment definitions (see Note 16 to the audited consolidated financial statements herein).

to describe the acquired IPS and Kablooe businesses,

to be consistent with the operating segment definitions (see Note 16 to the audited consolidated financial statements herein).

The Company’s

distribution customers are located in (i) the Asia-Pacific Region, which we refer to as the “APAC Region”;

the Middle East, and Africa, which we refer to as the “EMEA Region”;

distribution customers are located in:

(i) the APAC Region;

(ii) the EMEA Region;

and (iii) the Americas.

IPS is currently actively

providing product development services for Fortune 500 companies, established mid-level companies, and start-ups.

The wide range

of industries served includes industrial electronics, medical and dental equipment, food/beverage, U.S.

Department of Defense,

certain luxury brands, and oil/gas.

IPS and Kablooe provide

product development services for Fortune 500 companies, established mid-level companies, and start-ups.

The wide range of industries

served includes industrial electronics, medical and dental equipment, food/beverage, U.S.

Department of Defense, certain luxury

brands, and oil/gas.

The Company’s

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GPS location devices, tablets, and firearms).

Beginning in Fiscal 2020, the Company’s distribution products also include

smart-enabled products such as speakers and lamps.

The Company does not

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For Fiscal 2020, our Diabetic Products

customers accounted for approximately 89% of our total net revenues in the distribution business, compared to 89% in Fiscal 2018.

customers accounted for 83% of our total net revenues in the distribution business, compared to 89% in Fiscal 2019.

Other Products

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sell the carry solution.

For Fiscal 2019, our Other Products accounted for approximately 11% of our total net revenues in the distribution

business, compared to 11% in Fiscal 2018.

The acquisition of

IPS has enabled us to provide a complete range of design, engineering and development services with respect to a diverse array

of consumer and industrial electronics products.

These include but are not limited to medical products, smart displays, beverage

vending, enterprise and mobile software applications, lighting, security and detections systems, cameras, wearables and vehicle

Solutions in these and other areas are designed and developed in-house, beginning at product concept, extending through

design, engineering and prototype, and final design for manufacturing and Computer-Aided Design (“CAD”) files.

combined company, we are able to provide manufacturing sourcing and final product support and delivery services for initial short-run,

low volume products.

In Fiscal 2020, we added smart-enabled products to our distribution business.

Our smart-enabled products

include speakers and lamps that provide lighting and sound with connectivity to other devices via Bluetooth.

Our selling prices

for these products, including related accessories, ranges from $35 to $135 per unit.

For Fiscal 2020, our other products accounted

for 17% of our total net revenues in the distribution business, compared to 11% in Fiscal 2019.

Our design segment

provides a complete range of design, engineering and development services with respect to a diverse array of consumer and industrial

electronics products.

These include but are not limited to medical products, smart displays, beverage vending, enterprise and mobile

software applications, lighting, security and detections systems, cameras, wearables and vehicle controls.

Solutions in these and

other areas are designed and developed in-house, beginning at product concept, extending through design, engineering and prototype,

and final design for manufacturing and Computer-Aided Design (“CAD”) files.

As a combined company, we are able to provide

manufacturing sourcing and final product support and delivery services for initial short-run, low volume products.

Product Development

In our distribution

business, the product life cycle in distributing and selling our technology solutions to our customers is as described below.

typically receive requests to submit product designs in connection with a customer’s introduction and rollout to market of

a new product.

IPS collaborates with clients to determine functionality, size and other basic specifications and requirements for

Our design and production resources develop more detailed product specifications and design options for our customer’s

In the OEM division

of our distribution business, we typically receive requests to submit product designs in connection with a customer’s introduction

and rollout to market of a new product.

IPS collaborates with clients to determine functionality, size and other basic specifications

and requirements for products.

Our design and production resources develop more detailed product specifications and design options

for our customers’

We provide documentation of each phase to the client and gain approval of a working prototype.

Working with our suppliers

and the customer, samples are modified and refined.

Once approved for commercial introduction and order by our customer, we work

with our suppliers to ensure conformity of commercial production to the definitive product samples and specifications.

and delivery of products in production quantities are coordinated with the customer’s manufacturing and shipment schedules

so that our products are available to be packaged with the customer’s additional product components prior to shipment and

sale, or to make the product available to the customer for direct sale through its retail distribution channels.

Working with our suppliers and the customer, samples are modified and refined.

Once approved for commercial introduction and order

by our customer, we work with our suppliers to ensure conformity of commercial production to the definitive product samples and

specifications.

Manufacture and delivery of products in production quantities are coordinated with the customer’s manufacturing

and shipment schedules so that our products are available to be packaged with the customer’s additional product components

prior to shipment and sale, or to make the product available to the customer for direct sale through its retail distribution channels.

Services offered for

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and engineering support for clients with in-house development teams.

In-house capabilities (over 100 designers and engineers including

contractors) include the following:

Our in-house capabilities include the following:

Electrical Engineering

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We primarily ship

our products directly to our distribution customers (or their contract manufacturers), who package our accessory products “in

our OEM products directly to our customers (or their contract manufacturers), who package our accessory products “in box”

with their branded products.

Some of our customers also purchase certain of our products and offer them for sale as

stand-alone accessories to complement their product offerings.

Some of our customers also purchase certain of our products and offer them for sale as stand-alone

accessories to complement their product offerings.

In Fiscal 2019,

we secured a portfolio of smart-enabled products which we began distributing through retail outlets in the U.S.

We continue to invest in and build out a distribution network for retail products as we expect this part of our

business to grow in the future.

The retail distribution network is responsible for placing products with major retailers for

consumption both in store and online.

Distribution Hubs for Customers

During Fiscal 2017,

we had distribution hub arrangements with four distribution customers.

Effective May 1, 2017, one of the hub arrangements was changed

from consignment to FOB shipping point.

Accordingly, as of September 30, 2019, we had distribution hub arrangements with three

distribution customers.

These arrangements obligate us to supply our products to our customer’s distribution hubs (may be

multiple locations) where their products are manufactured, kitted, and/or warehoused pending sale, and where our products are packaged

We have arrangements

with various customer’s distribution hubs.

These arrangements obligate us to supply our products to our customers’

distribution hubs where their products are manufactured, kitted, and/or warehoused pending sale, and where our products are packaged

“in box”

with the distribution customer’s products or, to a much lesser extent, distributed for retail sale.

The product quantities we are required to supply to each distribution hub are based on the distribution customer’s purchase

orders and forecasts.

We do not recognize revenue for product shipped to a hub until we have been notified by our customer that

our product has been withdrawn or used by the distribution hub.

Hub arrangements have had the general effect of providing financing

for our customers’

inventory purchases by extending the time between our placement of orders to our suppliers in order to

ship and supply the hubs and the time that we are able to recognize revenue.

The corollary effect is an increase in our inventory

with the distribution customers’

The product quantities we are required to supply to each

distribution hub are based on the distribution customer’s purchase orders and forecasts.

We do not recognize revenue for

product shipped to a customers’

hub until we have been notified by our customer that our product has been withdrawn or used

by the distribution hub.

Hub arrangements have had the general effect of providing financing for our customers’

purchases by extending the time between our placement of orders to our suppliers in order to ship and supply the hubs and the time

that we are able to recognize revenue.

The corollary effect is an increase in our inventory levels.

We also have arrangements

with various third-party fulfillment centers for products distributed through retail outlets in the U.S.

We do not recognize revenue

for products shipped to a fulfillment center until the product has been shipped to the end-user customer.

Product Supply

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Dependence on Sourcing Agent

On September 9, 2015,

the Company renewed a Buying Agency and Supply Agreement (the “Supply Agreement”) with Forward China (the “Agent”)

on substantially the same terms as its previous buying agency and supply agreement with the Agent, which was due to expire on September

The Supply Agreement provides that the Agent acts as the Company’s exclusive buying agent of carry and protective

The Agent also arranges for sourcing, manufacture and exportation of such products.

The Company purchases products at

the Agent’s cost and pays a service fee to the Agent.

The service fee is calculated at $100,000 monthly plus 4% of “Adjusted

Gross Profit”, which is defined as the selling price less the cost from the Agent.

The Supply Agreement has been extended

to October 22, 2020.

Terence Wise, the Company’s Chairman, Chief Executive Officer and largest shareholder, is a principal

of the Agent.

The Company has a

Buying Agency and Supply Agreement (the “Supply Agreement”) with Forward China (the “Agent”).

Agreement provides that the Agent acts as the Company’s exclusive buying agent.

The Agent also arranges for sourcing, manufacture

and exportation of such products.

The Company purchases products at the Agent’s cost and pays a service fee to the Agent.

The service fee is calculated at $100,000 monthly plus 4% of “Adjusted Gross Profit”, which is defined as the selling

price less the cost from the Agent.

The Supply Agreement has been extended to October 22, 2023.

Terence Wise, the Company’s

Chairman, Chief Executive Officer and largest shareholder, is a principal of the Agent.

See “Item 1A.

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We procure substantially

all of our carrying solutions products for our distribution business from independent suppliers in China through the Agent.

on the product, we may require several different suppliers to furnish component parts or pieces.

all products for our distribution business from independent suppliers in China through the Agent.

Depending on the product, we

may require several different suppliers to furnish component parts or pieces.

We place orders with

the Agent at the time we receive firm purchase orders and/or forecasts from our distribution customers for a particular product.

Accordingly, we do not have minimum supply requirement agreements with our suppliers to guarantee a supply of finished product,

nor have we made purchase commitments to purchase minimum amounts from any of our suppliers.

However, from time to time, we may

order products from our suppliers in advance of receiving a customer purchase order, or in quantities in excess of those forecasted

to us by our customer, for which they are contractually obligated to us, in order to meet our customer’s anticipated delivery

the Agent for particular products.

We do not have minimum supply requirement agreements with our suppliers to guarantee a supply

of finished product, nor have we made purchase commitments to purchase minimum amounts from any of our suppliers.

However, from

time to time, we may order products from our suppliers in advance of receiving a customer purchase order, or in quantities in excess

of those forecasted to us by our customer, for which they are contractually obligated to us, in order to meet our customers’

anticipated delivery demands.

Beginning September 1, 2013, we began making purchases directly from Forward China.

During the years ended September 30,

2019 and 2018, all of our purchases for our distribution business were made directly through Forward China.

During Fiscal

2020 and Fiscal 2019, all of our purchases for our distribution business were made directly through Forward China.

There are very few

suppliers for the design and development part of the business as it is a services based business.

suppliers for the design and development part of the business as it is a service-based business.

We do, however, purchase supplies

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He independently verifies and supervises the inspection of products provided by independent contractors

in China that may be affiliated with one or more of our suppliers.

In July 2015, Forward China received its ISO 9001:2008 quality

certification, which was renewed in July 2018 and is valid until July 2021.

IPS follows general

industry standard practices for review and corrective actions related to its design services.

There are no independent quality

assurance standards in place for its design and engineering work.

Customer specifications and scope of services are laid out in

the project contracts and IPS works closely with the customer to identify and correct any quality issues that arise.

In July 2015, Forward China received its ISO 9001:2008 quality certification, which was renewed in July 2018 and is valid

until July 2021.

Our design business

follows general industry standard practices for review and corrective actions related to its design services.

There are no independent

quality assurance standards in place for its design and engineering work.

Customer specifications and scope of services are laid

out in the project contracts and the Company works closely with the customer to identify and correct any quality issues that arise.

Distribution Business

The distribution business,

or OEM business, is highly competitive in terms of product pricing, design, delivery terms, and customer service.

In the production

of our distribution products, we compete with numerous United States and foreign producers and distributors.

Some of our competitors

are substantially larger than we are and have greater financial and other resources.

We believe that we sustain our competitive

position through maintenance of an effective product design capability, rapid response time to customer requests for proposals

and product shipment, reliable product delivery and product quality, and competitive pricing.

We believe that our ability to compete

based on product quality assurance considerations is enhanced by Forward China’s local presence, quality control, shipment

capabilities and expertise in sourcing.

The OEM division of

our distribution business is highly competitive in terms of product pricing, design, delivery terms, and customer service.

production of our distribution products, we compete with numerous United States and foreign producers and distributors.

our competitors are substantially larger than we are and have greater financial and other resources.

We believe that we sustain

our competitive position through maintenance of an effective product design capability, rapid response time to customer requests

for proposals and product shipment, reliable product delivery and product quality, and competitive pricing.

We believe that our

ability to compete based on product quality assurance considerations is enhanced by Forward China’s local presence, quality

control, shipment capabilities and expertise in sourcing.

Design and Engineering Business

The depth and breadth

of the services offered, and industries served by IPS are unique.

The IPS management team is aware that there are very few competitive

firms that have the full set of capabilities that IPS has under one roof.

There are however, numerous design and engineering companies

that compete with IPS in specific industries and/or with specific targeted skills or competitive advantages.

As of December 12

2019, we had 73 full-time employees.

We consider our employee relations to be satisfactory.

None of our employees are covered by

a collective bargaining agreement.

of the services offered, and industries served by our design segment are unique.

Our management team is aware that there are very

few competitive firms that have the full set of capabilities that our design segment has under one roof.

There are however, numerous

design and engineering companies that compete with us in specific industries and/or with specific targeted skills or competitive

Human Capital/Employees

Company’s key human capital management objectives are to attract, retain and develop the highest quality talent.

these objectives, the Company’s human resources programs are designed to develop talent to prepare them for critical roles

and leadership positions for the future;

reward and support employees through competitive pay and benefits;

enhance the Company’s

culture through efforts aimed at making the workplace more engaging and inclusive;

acquire talent and facilitate internal talent

mobility to create a high-performing, and diverse workforce.

None of our employees are covered by a collective bargaining agreement.

Company employed approximately 85 people as of November 30, 2020.

We hire consultants on an as-needed basis in our design segment.

Regulation and Environmental Protection

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However, compliance with such laws and regulations on the part of our suppliers may result in increased costs of supply to us,

particularly if domestic environmental regulation in China becomes more prevalent.

particularly if domestic environmental regulations in China becomes more prevalent.

We have not been engaged

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There are no specific

regulatory or environmental requirements imposed upon the IPS business.

As a paid service provider, end customers are assisted

in securing regulatory certifications including UL (Underwriters Laboratories –

based safety certification organization),

FCC (Federal Communications Commission –

governmental certification department for electronic goods), CE (Conformité

regulatory or environmental requirements imposed upon the design segment of our business.

As a paid service provider, end customers

are assisted in securing regulatory certifications including UL (Underwriters Laboratories –

based safety certification

organization), FCC (Federal Communications Commission –

governmental certification department for electronic goods),

CE (Conformité

Européenne –

a European certification for health, safety and environmental protection standards) and others depending

on needs, product types and locations of end customers’

a European certification for health, safety and environmental protection standards)

and others depending on needs, product types and locations of end customers’

product markets.

As our retail business increases, we anticipate

that we will be required to obtain certain certifications for products on an as required basis.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business