What changed in this filing

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Item 1. Financial Statements

2022-02-10 compared with 2021-08-12 · 364 added, 558 removed, 264 unchanged (78% of the section changed)

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Accounts receivable, net

Inventories, net

Prepaid expenses and other current assets

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Current liabilities:

Line of credit

Current portion of note payable to Forward China

Note payable to Forward China

Accounts payable

1 unchanged sentence

Deferred income

Current portion of notes payable

Current portion of finance lease liability

Current portion of earnout consideration

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Other liabilities:

Note payable to Forward China, less current portion

Notes payable, less current portion

Note payable to Forward China

Operating lease liability, less current portion

Finance lease liability, less current portion

Earnout consideration, less current portion

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40,000,000 shares authorized;

and 9,883,851 shares issued and outstanding at June 30, 2021 and September 30, 2020, respectively

10,061,185 shares issued and outstanding at December 31, 2021 and September 30, 2021

Additional paid-in capital

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended

For the Nine Months Ended

For the Three Months Ended December 31,

Revenues, net

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General and administrative expenses

Goodwill impairment

Income/(loss) from operations

( 1,870,732 )

Gain on forgiveness of note payable

( 1,356,570 )

Fair value adjustment of earnout consideration

Fair value adjustment of deferred cash consideration

Fair value adjustment of earn-out consideration

Interest income

Interest expense

Other expense, net

Income/(loss) before income taxes

( 1,668,473 )

Provision for/(benefit from) income taxes

Net income/(loss)

$ ( 215,202 )

$ ( 1,668,473 )

Earnings/(loss) per share:

Other expense/(income), net

Income before income taxes

Provision for income taxes

Earnings per share:

Weighted average common shares outstanding:

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CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

For the Three and Nine Months Ended June 30, 2021

For the Three Month Ended December 31, 2021

Balance at September 30, 2021

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Share-based compensation

Stock options exercised

Balance at December 31, 2021

$ ( 12,391,621 )

Share-based compensation

Stock options exercised

Balance at March 31, 2021

( 12,731,142 )

Share-based compensation

Stock options exercised

Balance at June 30, 2021

$ ( 12,487,555 )

For the Three and Nine Months Ended June 30, 2020

For the Three Month Ended December 31, 2020

Balance at September 30, 2020

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Share-based compensation

Balance at December 31, 2019

( 11,401,826 )

Share-based compensation

( 1,371,614 )

Balance at March 31, 2020

( 12,773,440 )

Share-based compensation

Stock options exercised

Balance at June 30, 2020

Balance at December 31, 2020

$ ( 11,896,414 )

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended June 30,

For the Three Months Ended December 31,

Operating Activities:

Net income/(loss)

$ ( 1,668,473 )

Adjustments to reconcile net income/(loss) to net cash used in operating

Adjustments to reconcile net income to net cash provided by/(used in) operating

Share-based compensation

Depreciation and amortization

Bad debt expense/(recovery)

Bad debt expense

Gain on forgiveness of note payable

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Change in fair value of earn-out consideration

Change in fair value of deferred cash consideration

Goodwill impairment

Impairment of investment

Changes in operating assets and liabilities:

Accounts receivable

( 1,448,384 )

Prepaid expenses and other current assets

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Accrued expenses and other current liabilities

Net cash used in operating activities

Net cash provided by/(used in) operating activities

Investing Activities:

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Financing Activities:

Proceeds from line of credit borrowings

Repayment of line of credit borrowings

( 1,150,000 )

( 1,200,000 )

Repayment of notes payable

Proceeds from note payable

Repayment of note payable to Forward China

Proceeds from stock options exercised

Repayments of finance leases

Payment of deferred cash consideration

Net cash (used in)/provided by financing activities

Net decrease in cash

( 1,319,978 )

Net cash used in financing activities

Net increase/(decrease) in cash

Cash at beginning of period

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Supplemental Disclosures of Non-Cash Information:

Lease assets exchanged for lease liabilities

Lease assets recorded upon adoption of ASC 842

Lease liabilities recorded upon adoption of ASC 842

Lease assets recorded

Lease liabilities recorded

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 OVERVIEW

Forward Industries, Inc.

(“Forward”, “we” or the “Company”) is a fully integrated design, development and manufacturing solution

provider for top tier medical and technology customers worldwide.

As a result of the continued expansion of our design and development

capabilities through our wholly-owned subsidiaries, we are now able to introduce proprietary products to the market from concepts brought

to us from a number of different sources, both inside and outside the Company.

(“Forward”, “we”, “our” or the “Company”) is a fully integrated design, development and

manufacturing solution provider for top tier medical and technology customers worldwide.

As a result of the continued expansion of our

design and development capabilities through our wholly-owned subsidiaries, we are now able to introduce proprietary products to the market

from concepts brought to us from a number of different sources, both inside and outside the Company.

For the three months

ended December 31, 2021, the Company generated net income of $ 180,000 , and $ 1,138,000 of cash flows from operating activities.

We believe our existing cash balance and working capital will be sufficient to meet

our liquidity needs through at least February 28, 2023.

Impact of COVID-19

The outbreak of the COVID-19

virus continues to impact our results of operations.

While the most significant impact was realized in Fiscal 2020, the virus continued

to impact our results of operations in Fiscal 2021.

The business shutdowns resulting from the pandemic disrupted our supply chain and

the manufacture or shipment of our products and delayed the rollout of our retail products.

Additionally, demand for our design and development

services was reduced or delayed as a result of the pandemic as certain customers reduced discretionary spending.

While revenues for the

three and nine months ended June 30, 2021 increased as compared to the three and nine months ended June 30, 2020, they were lower than

anticipated due in part to the impact of COVID-19 and the resulting economic conditions.

The impact of lower than anticipated revenue

was further complicated by a significant increase in freight costs due to the global shipping container shortage caused in part by the

These challenges were partially offset by a reduction in certain selling and travel related expenses.

Many government restrictions

have been relaxed and the economy has continued to open in more jurisdictions.

However, the emergence of new and transmittable variants

of COVID-19 could lead to a possible resurgence of the virus, particularly in populations with low vaccination rates and has resulted

in new restrictions in certain geographies and among certain businesses.

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 II, Item 1A — Risk Factors” for a description of the material risks that the Company currently faces

in connection with COVID-19.

The COVID-19 pandemic continues

to impact our business.

The increase in global consumer demand, coupled with the global shipping container shortage, dramatically increased

demand for both ocean freight and ground transportation.

These factors led to a significant increase in freight costs, particularly from

the Asia-Pacific region.

Labor shortages at US ports and in ground transportation services caused container ships to spend a significant

amount of time waiting to be unloaded and to arrive at our warehouses.

These factors caused an increase in the demand and cost of ground

transportation and delayed consumer availability for many of our products in the first quarter of fiscal 2022.

The timing and extent of

these COVID-19 related transportation disruptions is still largely unknown but are expected to continue throughout fiscal 2022.

COVID-19 may further impact

our business in ways we cannot predict, and such impacts could be significant.

The current and economic impact may continue to 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 to choose 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.

Until the pandemic is fully

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of opportunities to enhance our business growth and strategy.

To help mitigate the impact of these challenging business conditions, we

implemented cost-cutting initiatives and reduced executive pay and Board of Directors compensation for the three months ended June 30,

See “Liquidity and Capital Resources” section of Item 2.

“Management’s Discussion and Analysis of Financial

Condition and Results of Operations” for further description of these cost-cutting measures.

NOTE 2 ACCOUNTING

ACCOUNTING POLICIES

Basis of Presentation

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Forward Industries (IN),

(“Forward US”), Forward Industries (Switzerland) GmbH (“Forward Switzerland”), Forward Industries UK Limited

(“Forward UK”), Intelligent Product Solutions, Inc.

(“IPS”) and Kablooe, Inc.

“Forward”, “we” or the “Company” as used throughout this document are used to indicate Forward Industries,

Inc., (“Forward US”), Forward Industries (Switzerland) GmbH, (“Forward Switzerland”), Forward Industries UK Limited,

(“Forward UK”), Intelligent Product Solutions, Inc., (“IPS”) and Kablooe, Inc., (“Kablooe”).

“Forward”, “we”, “our” or the “Company” as used throughout this document are used to indicate

Forward Industries, Inc.

and all of its subsidiaries.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The acquisition of Kablooe

took place in August 2020 and its results of operations have been included in our condensed consolidated financial statements since the

acquisition date.

Accordingly, our results of operations for the three and nine months ended June 30, 2021 include Kablooe’s results

of operations, while our results of operations for the three and nine months ended June 30, 2020 do not.

Key terms of the acquisition

are contained in our Form 10-K filed with the Securities and Exchange Commission on December 17, 2020.

In the opinion of management,

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The September 30, 2021 condensed consolidated balance sheet has been derived from the audited consolidated financial statements.

For the nine months ended

June 30, 2021, the Company generated net income of $608,000,

which includes $ 1,357,000 of forgiveness

of note payable (see Note 12), and used $338,000 of cash flows in operating activities.

The Company has an accumulated deficit

of $12,488,000 at

June 30, 2021.

We believe our existing cash balance and working capital will be sufficient to meet our liquidity needs through at least

September 30, 2022.

Our largest vendor is Forward China, a related entity, which is able to extend payment terms on outstanding liabilities

when necessary (see Note 9).

We can provide no assurances that any such extension

will be given if requested.

Accounting Estimates

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certain dollar amounts and percentages have been rounded to their approximate values.

Segment Reporting

The Company has three reportable

OEM distribution, retail distribution and design.

The OEM distribution segment sources and distributes carrying cases and other

accessories for medical monitoring and diagnostic kits and a variety of other portable electronic and non-electronic devices directly

to OEMs or their contract manufacturers worldwide.

The retail distribution segment sources and sells smart-enabled furniture and a variety

of other products to customers predominantly located in the U.S.

through agreements with various retailers, both in stores and through

online retailer websites.

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.

The Company maintains an allowance for doubtful accounts, which is recorded as a reduction

to accounts receivable on the condensed consolidated financial statements.

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, 2021, September 30, 2021 and September 30, 2020, the Company had allowances

for doubtful accounts of $ 90,000 , $ 90,000 and $ 249,000 , respectively, for the OEM distribution segment and $ 706,000 , $ 706,000 and $ 347,000 ,

respectively, for the design segment.

The Company did not have any allowances for doubtful accounts related to its retail distribution

segment at December 31, 2021, September 30, 2021 or September 30, 2020.

The Company has sales

agreements with various retailers which contain different terms for trade discounts, promotional and other allowances.

31, 2021, September 30, 2021 and September 30, 2020, the Company recorded accounts receivable allowances of

$ 0 and $ 0 ,

respectively, for the retail distribution segment.

FORWARD INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Revenue Recognition

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The Company generally recognizes

revenue in its distribution segment when:

(i) finished goods are shipped to our customers (in general, these conditions occur at either

point of shipment or point of destination, depending on the terms of sale, i.e., transfer of control);

(ii) there are no other deliverables

or performance obligations;

and (iii) there are no further obligations to the customer after title to the goods has transferred.

the Company receives consideration before achieving the criteria previously mentioned, it records a contract liability, which is classified

as a component of deferred income in the accompanying condensed consolidated balance sheets.

The distribution segment had contract liabilities

of $ 139,000 , $ 75,000 and $ 0 at June 30, 2021, September 30, 2020 and September 30, 2019, respectively.

revenue in its OEM and retail distribution segments when:

(i) finished goods are shipped to its customers (in general, these conditions

occur at either point of shipment or point of destination, depending on the terms of sale and transfer of control);

(ii) there are no

other deliverables or performance obligations;

and (iii) there are no further obligations to the customer after the title of the goods

has transferred.

When the Company receives consideration before achieving the criteria previously mentioned, it records a contract liability,

which is classified as a component of deferred income in the accompanying condensed consolidated balance sheets.

The retail distribution

segment had contract liabilities of $ 0 , $ 0 and $ 75,000 at December 31, 2021, September 30, 2021 and September 30, 2020, respectively.

The OEM distribution segment had no contract liabilities at December 31, 2021, September 30, 2021 or September 30, 2020.

Design Segment

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has been completed and accepted.

FORWARD INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Recognized revenues that

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The design segment had contract assets of $ 764,000 , $ 693,000 and $ 649,000 at

June 30, 2021, September 30, 2020 and September 30, 2019, respectively.

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 condensed consolidated

balance sheets.

The design segment had contract liabilities of $ 305,000 , $ 410,000 and $ 220,000 at June 30, 2021, September 30, 2020 and

September 30, 2019, respectively.

Accounts Receivable

Accounts receivable consist

of unsecured trade accounts with customers.

The Company maintains an allowance for doubtful accounts, which is recorded as a reduction

to accounts receivable on the condensed consolidated financial statements.

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 June 30, 2021, September 30, 2020 and September 30, 2019, the Company had allowances

for doubtful accounts of $ 249,000 , $ 249,000 and $ 159,000 , respectively, for the distribution segment and $ 861,000 , $ 347,000 and $ 2,033,000 ,

respectively, for the design segment.

At June 30, 2021, September 30, 2020 and September 30, 2019, the Company had net accounts receivable

of $ 5,282,000 , $ 4,243,000 and $ 4,618,000 , respectively, for the distribution segment and $ 2,402,000 , $ 3,359,000 , and $ 2,077,000 , respectively,

for the design segment.

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 its acquisitions of IPS in January 2018 and Kablooe in August 2020.

The Company reviews goodwill

for impairment at least annually, or more often if triggering events occur.

The Company has two reporting units with goodwill (IPS and

Kablooe) and we perform our annual goodwill impairment test on September 30, the end of the fiscal year, or upon the occurrence of a triggering

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 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

December 31, 2021, September 30, 2021 and September 30, 2020, respectively.

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 condensed

consolidated balance sheets.

The design segment had contract liabilities of $ 753,000 , $ 188,000 and $ 410,000 at December 31, 2021, September

30, 2021 and September 30, 2020, respectively.

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.

evaluated and concluded that there were no indications goodwill was impaired at December 31, 2021.

FORWARD INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Intangible Assets

Intangible assets include

trademarks and customer relationships, which resulted from the acquisitions of IPS in January 2018 and Kablooe in August 2020 and are

recorded based on their estimated fair value determined in conjunction with the purchase price allocations.

These intangible assets are

amortized over their estimated useful lives, which are periodically evaluated for reasonableness.

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

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Management evaluated

and concluded that there were no impairments of intangible assets during the nine months ended June 30, 2021 or 2020.

FORWARD INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

and concluded that there were no impairments of intangible assets at December 31, 2021.

The Company recognizes future

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bases of assets and liabilities and to net tax operating loss carryforwards to the extent that realization of these benefits is more likely

At June 30, 2021, there was no change to our assessment that a full valuation allowance was required against all net deferred

At December 31, 2021, 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.

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income due to the existence of significant net operating loss carryforwards.

In December 2020, the Company’s

application for forgiveness of its loan received as part of the Payroll Protection Program (“PPP loan”) pursuant to the U.S.

Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was approved.

The aggregate loan principal amount forgiven

was $1,357,000.

The total amount forgiven will not be recognized as taxable income pursuant to the CARES Act.

Pursuant to the Consolidated

Appropriations Act, 2021, which was enacted by Congress and signed into law by the President on December 27, 2020, all expenses utilizing

funds from PPP loans will be deductible against taxable income.

Fair Value Measurements

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ASC 820 establishes three levels of inputs that may be used to measure fair value:

quoted prices in active markets for identical assets or liabilities;

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;

unobservable inputs that are supported by little or no market activity and that are significant to the fair values of the assets or liabilities.

assets and liabilities are recognized at 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.

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 finance lease assets are a component of property and equipment

on the condensed consolidated balance sheets.

The current and long-term portions of operating and finance lease liabilities are shown

separately as such on the condensed consolidated balance sheets.

quoted prices in active markets for identical assets

or liabilities;

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;

unobservable inputs that are supported by little or

no market activity and that are significant to the fair values of the assets or liabilities.

FORWARD INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Business Combinations

The Company allocates the

fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair

The excess of the purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill.

When determining the fair values of assets acquired and liabilities assumed, the Company makes significant estimates and assumptions,

especially with respect to intangible assets.

Critical estimates in valuing

certain intangible assets include, but are not limited to, future expected cash flows from customer relationships and developed technology,

discount rates and terminal values.

Our estimates of fair value are based upon assumptions believed to be reasonable, but actual results

may differ from estimates.

Other estimates associated with the accounting for acquisitions may change as additional information becomes

available regarding the assets acquired and liabilities assumed.

Lease assets and liabilities

are recognized at the 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

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 condensed consolidated balance

The current and long-term portions of operating and financing lease liabilities are shown separately as such on the condensed

consolidated balance sheets.

Reclassifications

Certain amounts in the accompanying

financial statements at and for the three months ended December 31, 2020 have been reclassified to conform to the current year presentation.

Recent Accounting Pronouncements

In August 2018, the Financial

Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-13, “Fair Value Measurement

- Disclosure Framework (Topic 820)” to improve the disclosure requirements on fair value measurements.

The updated guidance is effective

for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

Early adoption is permitted for any

removed or modified disclosures.

The Company adopted this guidance in the first quarter of Fiscal 2021 with no material impact to its

condensed consolidated financial statements.

In November 2019, the FASB

issued ASU 2019-08, “Compensation – Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606)”

to provide guidance for share-based payment awards granted to a customer in conjunction with selling goods or services accounted for under

The pronouncement is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years.

The Company adopted this guidance in the first quarter of Fiscal 2021 with no material impact to its condensed consolidated financial

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 fiscal years beginning after December 15, 2022 and interim

periods within those fiscal years.

The Company is currently evaluating the effects of this pronouncement on its condensed consolidated

financial statements.

August 2018, the FASB issued ASU 2018-15 “ Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40)”

addressing customers’ accounting for implementation costs incurred in a cloud computing arrangement

that is a service contract, which requires customers to apply internal-use software guidance to determine the implementation costs that

are able to be capitalized.

Capitalized implementation costs are required to be amortized over the term of the arrangement, beginning

when the cloud computing arrangement is ready for its intended use.

The effective date of the new guidance for public companies is for

fiscal years beginning after December 15, 2019 and interim periods within those fiscal years.

Early adoption is permitted.

Company adopted this guidance in the first quarter of Fiscal 2021 with no material impact to its condensed consolidated financial statements.

In November 2019, the Financial

Accounting Standards Board (“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 fiscal years

beginning after December 15, 2022 and interim periods within those fiscal years.

The Company is currently evaluating the effects of this

pronouncement on its condensed consolidated financial statements.

In December 2019, the FASB

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Early adoption is permitted.

The Company is currently evaluating the effects of the pronouncement on

its condensed consolidated financial statements.

FORWARD INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 INTANGIBLE

ASSETS AND GOODWILL

The Company adopted this guidance in the first quarter of fiscal 2022

with no material impact to its condensed consolidated financial statements.

INTANGIBLE ASSETS AND GOODWILL

Intangible Assets

The Company’s intangible

assets are all held under the design segment of our business.

Amortization expense related to intangible assets was $ 53,000 and $ 41,000

for the three months ended June 30, 2021 and 2020, respectively, and $ 160,000 and $ 122,000 for the nine months ended June 30, 2021 and

2020, respectively, which is included in general and administrative expenses on the condensed consolidated statements of operations.

The Company’s intangible assets consist

of the following:

assets consist of the following:

Intangible Assets

June 30, 2021

December 31, 2021

September 30, 2021

Customer Relationships

Total Intangible Assets

Customer Relationships

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Net carrying amount

At June 30, 2021, estimated

FORWARD INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company’s intangible

assets were acquired as a result of 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 15 years for the trademarks and 8

years for the customer relationships.

During the three months ended December 31, 2021 and 2020, the Company recorded amortization expense

related to intangible assets of $ 54,000 , which is included in general and administrative expenses in the Company’s condensedconsolidated

statements of operations.

At December 31, 2021, estimated

amortization expense for the Company’s intangible assets for each of the next five years and thereafter is as follows:

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Remainder of Fiscal 2022

In March 2020, the Company

experienced triggering events that prompted the testing of its goodwill for impairment.

Those triggering events included the reduction

in fair value of the IPS contingent earnout consideration discussed in Note 4 and revised revenue and operational projections for IPS

for the remainder of the 2020 fiscal year and future periods.

Based on these factors, the Company concluded that it was more likely than

not that the fair value of the IPS reporting unit had declined below its carrying amount.

The Company then calculated the fair value of

this reporting unit using Level 3 inputs, which is a combination of asset-based, income and market approaches.

The estimates and assumptions

utilized in the estimated fair value calculation included discount rate, terminal growth rate, selection of peer group companies and control

premium applied as well as forecasts of revenue growth rates, gross margins, operating margins and working capital requirements.

in the judgments, estimates or assumptions used could produce significantly different results.

The Company concluded the IPS reporting

unit’s fair value was below its carrying value by $ 1,015,000 and an impairment charge was recognized for this amount in March 2020.

Based on management’s evaluation, there were no further impairments to goodwill at September 30, 2020 and there were no triggering

events leading to an interim impairment analysis at June 30, 2021.

FORWARD INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

VALUE MEASUREMENTS

earnout consideration of $ 70,000 and $ 90,000 at June 30, 2021 and September 30, 2020, respectively, represents the fair value of the contingent

earnout consideration related to the acquisition of Kablooe.

The current and non-current portions of this liability are shown in the corresponding

categories on the condensed consolidated balance sheets in each period presented.

In December 2020, the Company reduced this liability

from $90,000 to $60,000 based on the low likelihood of Kablooe reaching the first year’s earnings target and in June 2021, it increased

this liability from $60,000 to $70,000 based on the estimated increase in fair value of earnout payments in future periods.

In connection with the acquisition

of IPS in January 2018, the Company agreed to pay deferred cash consideration and contingent earnout consideration to the selling shareholders

of IPS and these liabilities were measured at fair value each reporting period.

In March 2020, the fair value of the earnout consideration

was reduced from $350,000 to $0 due to the low likelihood of IPS reaching the underlying earnings target.

At September 30, 2020, the Company

had no remaining obligation for consideration payments related to the acquisition of IPS.

The following table presents

the placement in the fair value hierarchy and summarizes the changes in fair value of the earnout liability for the three and nine months

ended June 30, 2021:

Table of fair value liability measured on recurring basis

Fair value measurement at reporting date using

Quoted prices in active markets for identical assets

Significant other observable inputs

Significant unobservable inputs

Earnout consideration at September 30, 2020

Decrease in fair value of Kablooe earnout consideration

Earnout consideration at December 31, 2020

Change in fair value of Kablooe earnout consideration

Earnout consideration at March 31, 2021

Increase in fair value of Kablooe earnout consideration

Earnout consideration at June 30, 2021

During Fiscal 2019, the Company

received common stock from a customer as compensation for services provided, which was recorded as a cost-method investment with an estimated

fair value of $327,000.

This initial fair value was based on a private placement round of common stock issued to third-party private investors

of the customer at a time close to the valuation date.

Management determined that the inputs used to value the investment were observable,

either directly or indirectly, and therefore classified as a level 2 valuation measurement.

In March 2020, due to the performance of the

business in which the Company was invested, it concluded the investment was impaired and recorded an impairment charge of $ 327,000 , which

was recorded as a component of general and administrative expenses on the condensed consolidated statement of operations.

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

All of the Company’s goodwill is held under the design segment of our business.

FAIR VALUE MEASUREMENTS

The earnout consideration

of $ 70,000 at December 31, 2021 and September 30, 2021 represents the fair value of the contingent earnout consideration related to the

acquisition of Kablooe.

The fair value of the earnout liability is measured on a recurring basis at each reporting date using a Black-Scholes

valuation model with inputs categorized within level three of the fair value hierarchy.

The current and non-current portions of this liability

are shown in the corresponding categories on the condensed consolidated balance sheets in each period presented.

During the three months

ended December 31, 2021, there were no changes to the fair value of this earnout liability.

SEGMENTS AND CONCENTRATIONS

The Company has three reportable

OEM distribution, retail distribution and design.

See Note 2 for more information on the composition and accounting policies

of our reportable segments.

Our chief operating decision

maker (“CODM”) regularly reviews revenue and operating income for each segment to assess financial results and allocate resources.

In Fiscal 2021, due to the growth of our retail division, we determined it to be a separate reportable segment.

For our OEM and retail

distribution segments, we exclude general and administrative and general corporate expenses from their measure of profitability as these

expenses are not allocated to the segments and therefore not included in the measure of profitability used by the CODM.

For the design

segment, general and administrative expenses directly attributable to that segment are included in its measure of profitability as these

expenses are included in the measure of its profitability reviewed by the CODM.

We do not include intercompany activity in our segment

results shown below to be consistent with the information that is presented to the CODM.

Segment assets consist of accounts receivable

and inventory, which are regularly reviewed by the CODM, as well as goodwill and intangible assets resulting from design segment acquisitions.

FORWARD INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 SEGMENT

The Company has two

reportable segments:

distribution and design.

The distribution segment sources and distributes carrying cases and other accessories

for medical monitoring and diagnostic kits and a variety of other portable electronic and non-electronic devices.

distributes a variety of other products, including smart-enabled furniture, through its retail

distribution network.

The design segment provides a full spectrum of hardware and software product design and engineering services.

We measure the performance of our operating segments based upon revenue and operating income or loss.

Operating income/(loss) and

net income/(loss) are shown in the table below:

The results of operations

for the three months ended December 31, 2020 for each segment discussed below have been reformatted from what was previously disclosed

to segregate the retail distribution segment and exclude general corporate expenses from segment operating income to show them as a reconciling

item so that results are comparable to the current period presentation.

Information by segment and

related reconciliations are shown in tables below:

Segment operating income (loss)

For the Three Months Ended

For the Nine Months Ended

Revenues, net

Total revenues, net

Cost of sales

Total cost of sales

Income/(loss) from operations

$ ( 125,000 )

$ ( 211,000 )

$ ( 996,000 )

$ ( 1,032,000 )

For the Three Months Ended December 31,

OEM distribution

Retail distribution

Total segment revenues

Operating Income/(Loss):

OEM distribution

Retail distribution

Total segment operating income

General corporate expenses

Total income/(loss) from operations

$ ( 175,000 )

$ ( 715,000 )

$ ( 1,871,000 )

Other expense/(income), net

( 1,366,000 )

( 1,423,000 )

Total other expense/(income), net

$ ( 1,323,000 )

$ ( 203,000 )

Net income/(loss)

$ ( 181,000 )

$ ( 246,000 )

$ ( 1,096,000 )

$ ( 793,000 )

Total net income/(loss)

$ ( 215,000 )

$ ( 1,668,000 )

The following table presents total assets by

operating segment:

Income before income taxes

Depreciation and Amortization:

OEM distribution

Total depreciation and amortization

Schedule of Operating Assets and Liabilities

December 31, 2021

September 30, 2021

Segment Assets:

OEM distribution

Retail distribution

Total segment assets

General corporate assets

For the three months ended

December 31, 2021 and 2020, the Company had two significant customers in the OEM distribution segment whose individual percentage of the

Company’s consolidated revenues was 10 % or greater.

Revenues from these customers or their affiliates or contract manufacturers

were $ 1,566,000 and $ 1,357,000 for the three months ended December 31, 2021 and $ 1,574,000 and $ 1,280,000 for the three months ended December

At December 31, 2021 and

September 30, 2021, the Company had customers in the OEM distribution segment whose accounts receivable balance accounted for 10% or more

of the Company’s consolidated accounts receivable.

Accounts receivable from these customers or their affiliates or contract manufacturers

were $ 1,386,000 and $ 891,000 at December 31, 2021 and $ 1,454,000 , $ 1,259,000 and $ 1,138,000 at September 30, 2021.

FORWARD INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 SHARE-BASED

Equity Incentive Plan

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 1,291,000 shares of common stock for grants of various types of

equity awards to officers, directors, employees and consultants.

Upon approval of the 2021 Plan, no additional awards were granted under

the 2011 Long Term Incentive Plan (the “2011 Plan”), which expired according to its terms in March 2021.

Shares authorized

under the 2021 Plan include 1,000,000 new shares and 291,000 shares that remained available under the 2011 Plan.

Awards which are forfeited

or expire are eligible for regrant under the 2021 Plan.

The exercise prices of stock options granted may not be less than the fair market

value of the common stock as quoted on the Nasdaq stock market on the grant date and the expiration date of option awards may not exceed

SHARE-BASED COMPENSATION

Stock Options

options were granted during the three or nine months ended June 30, 2021.

February 2020, the Company granted options to non-employee directors to purchase an aggregate of 248,000 shares of its common stock at

an exercise price of $ 1.13 per shares.

The options vested one year from the date of grant, expire five years from the date of grant and

had an aggregate grant date fair value of $ 145,000 , which was recognized ratably over the vesting period.

These options, which were the

only options granted during the nine months ended June 30, 2020, had a grant-date fair value of $ 0.58 per share.

the nine months ended June 30, 2021 and 2020, the Company issued 147,000 and 50,000 shares, respectively, of its common stock pursuant

to the exercise of stock options for aggregate cash proceeds of $ 234,000 and $ 32,000 , respectively, which had an aggregate intrinsic value

of $ 265,000 and $ 33,000 , respectively.

Company recognized compensation expense for stock option awards of $ 4,000 and $ 38,000 during the three months ended June 30, 2021 and

2020, respectively, and $ 66,000 and $ 107,000 during the nine months ended June 30, 2021 and 2020, respectively, in its condensed consolidated

statements of operations.

June 30, 2021, there was $ 7,000 of total unrecognized compensation cost related to nonvested stock option awards that is expected to be

recognized over a weighted average period of 0.9 years.

FORWARD INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 EARNINGS/(LOSS)

Basic earnings/(loss) per

share data for each period presented is computed using the weighted average number of shares of common stock outstanding during each

Diluted earnings/(loss) 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/(loss) per share

is as follows:

In October 2021, the Company

granted options to non-employee directors to purchase an aggregate of 58,000 shares of its common stock at an exercise price of $ 2.39

The options expire five years from the date of grant, approximately half vested immediately and approximately half vest one

year from the date of grant.

The options have a weighted average grant-date fair value of $ 1.03 per share and an aggregate grant-date

fair value of $ 60,000 , which will be recognized ratably over the vesting period.

There were no options granted during the three months

ended December 31, 2020.

There were no options exercised

during the three months ended December 31, 2021.

During the three months ended December 31, 2020, the Company issued 2,500 shares of its

common stock pursuant to the exercise of stock options for aggregate cash proceeds of $ 2,000 , which had an aggregate intrinsic value of

The Company recognized compensation

expense for stock option awards of $ 39,000 and $ 41,000 during the three months ended December 31, 2021 and 2020, respectively, in its

condensed consolidated statements of operations.

At December 31, 2021, there was $ 25,000 of total unrecognized compensation cost related

to nonvested stock option awards that is expected to be recognized over a weighted average period of 0.7 years.

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 Earnings Per Share, Basic and Diluted

For the Three Months Ended

For the Nine Months Ended

Net income/(loss)

$ ( 215,000 )

$ ( 1,668,000 )

Weighted average common shares outstanding

1 unchanged sentence

Weighted average diluted shares outstanding

Earnings/(loss) per share

Earnings per share:

FORWARD INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following securities

were excluded from the calculation of diluted earnings/(loss) per share in each period because their inclusion would have been anti-dilutive:

were excluded from the calculation of diluted earnings per share in each period because their inclusion would have been anti-dilutive:

Schedule of antidilutive securities excluded

For the Three Months Ended

For the Nine Months Ended

Total potentially dilutive shares

FORWARD INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 CONCENTRATIONS

Concentration of Revenues and Accounts Receivable

For the three and nine months

ended June 30, 2021 and 2020, the Company had customers whose individual percentage of their respective segment’s revenues and accounts

receivable was 10% or greater.

The concentrations of revenues and accounts receivable for each reportable segment are as follows:

Distribution Segment Revenues Concentration

Schedule of concentration percentages

For the Three Months Ended

For the Nine Months Ended

Design Segment Revenues Concentration

For the Three Months Ended

For the Nine Months Ended

Distribution Segment Accounts Receivable

Concentration

September 30,

FORWARD INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Design Segment Accounts Receivable Concentration

September 30,

NOTE 9 RELATED

PARTY TRANSACTIONS

Buying Agency and Supply Agreement

RELATED PARTY TRANSACTIONS

Buying Agency and Supply

The Company has a Buying

2 unchanged sentences

exclusive buying agent and supplier of Products (as defined in the Supply Agreement) in the Asia-Pacific region.

purchases products at Forward China’s cost and also pays to Forward China a monthly service fee equal to the sum of:

and (ii) 4% of “Adjusted Gross Profit”, which is defined as the selling price less the cost from Forward China.

Agreement expires October 22, 2023.

purchases products at Forward China’s cost and pays 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.

The Supply Agreement

expires October 22, 2023.

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.

Company recorded service fees to Forward China of $ 357,000 and $ 346,000 during the three months ended June 30, 2021 and 2020, respectively,

and $ 1,040,000 and $ 1,022,000 during the nine months ended June 30, 2021 and 2020, respectively, which are included as a component of

cost of sales upon sales of the related products.

The Company has a separate

agreement with Forward China to address the potential impact of customers sourcing directly from Forward China.

In the event a customer

bypasses the services of the Company and does business directly with Forward China, Forward China will pay a commission of 50% of the

net revenue, less direct costs, generated from the products or services sold.

The Company recognized $ 12,000 of commissions related to

this agreement during the nine months ended June 30, 2021.

No commissions were recognized during the three months ended June 30, 2021

or the three or nine months ended June 30, 2020.

The Company had prepayments

to Forward China for inventory purchases of $ 137,000 and $ 107,000 at June 30, 2021 and September 30, 2020, respectively, which are included

in prepaid expenses and other current assets on the condensed consolidated balance sheets.

The Company recorded

service fees to Forward China of $ 362,000 and $ 343,000 during the three months ended December 31, 2021 and 2020, respectively, which are

included as a component of cost of sales upon sales of the related products.

The Company made prepayments

to Forward China for inventory purchases of $ 327,000 and $ 317,000 at December 31, 2021 and September 30, 2021, respectively, which is

included in prepaid expenses and other current assets on the condensed consolidated balance sheets.

Promissory Note

3 unchanged sentences

rate of 8 % per annum and had an original maturity date of January 18, 2019 .

Monthly interest payments commenced on February 18, 2018.

The Company incurred and paid $ 32,000 for the three months ended June 30, 2021 and 2020 and $ 96,000 for the nine months ended June 30,

2021 and 2020 in interest expense associated with this note.

Monthly interest payments commenced on February 18, 2018 with

the principal due at maturity.

The Company incurred and paid $ 32,000 in interest expense associated with this note in the three months

ended December 31, 2021 and 2020.

The maturity date of this note was extended to December 31, 2022.

FORWARD INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Related Party Sales

A member of the Company’s

Audit, Governance and Compensation Committees of its Board of Directors is also a member of the Board of Directors of a company to whom

the Company’s distribution division sold products.

The Company recognized revenue of $ 63,000 from the sale of such products during

the three and nine months ended June 30, 2021.

The Company’s design

division provided services to a customer whose former Chief Operating and Financial Officer and equity owner is an immediate family member

of a director on the Company’s Board of Directors.

The director is a member of the Board’s Audit, Governance and Compensation

The Company sold design services to this customer of $ 0 and $ 44,000 for the three and nine months ended June 30, 2020, respectively.

There were no sales to this customer for the three or nine months ended June 30, 2021.

The maturity date of this note has

been extended on several occasions to assist the Company with liquidity.

The Company made principal payments of $ 50,000 on this note during

the three months ended December 31, 2021.

Related Party Activity

In October 2020, the Company

began selling smart-enabled furniture, which is sourced by Forward China and sold in the U.S.

under the Koble brand name.

began selling smart-enabled furniture, which is sourced by Forward China and sold in the U.S under the Koble brand name.

The Koble brand

is owned by The Justwise Group Ltd., a company owned by Terrence Wise, Chief Executive Officer and Chairman of the Company.

recognized revenues from the sale of Koble products of $ 413,000 and $ 752,000 during the three and nine months ended June 30, 2021, respectively.

NOTE 10 LEGAL

On August 21, 2020, IPS was

named a third-party defendant in a patent dispute claim currently pending in the U.S.

District Court for the Eastern District of New York.

The complaint, which contains no specific amount of claimed monetary damages, asserts that certain intellectual property was misappropriated

is owned by The Justwise Group Ltd., a company owned by Terence Wise, Chief Executive Officer and Chairman of the Company.

recognized revenues from the sale of Koble products of $ 540,000 and $ 186,000 in the three months ended December 31, 2021 and 2020, respectively.

FORWARD INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

LEGAL PROCEEDINGS

As previously disclosed,

on August 21, 2020, IPS was named a third-party defendant in a patent dispute claim in the U.S.

District Court for the Eastern District

The complaint, which contains no specific amount of monetary damages, asserts that certain intellectual property was misappropriated

by IPS and one of its former employees.

IPS denies the allegations, believes the action is without merit and intends to vigorously

The Company filed a motion to dismiss the complaint on December 14, 2020.

The court has not yet ruled on the Company’s

In October 2021, the Court ruled that the misappropriation claim was invalid.

The remaining

allegation was that IPS breached a non-disclosure agreement with a party to the case.

In January 2022, all claims in this matter were

dismissed without prejudice.

From time to time, the Company

may become a party to other legal actions or proceedings in the ordinary course of its business.

At June 30, 2021, there were no such

actions or proceedings, either individually or in the aggregate, that, if decided adversely to the Company’s interests, it believes

would be material to its business.

At December 31, 2021, 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 operation or cash flow.

LINE OF CREDIT

The Company, specifically

IPS, has a $ 1,300,000 revolving line of credit with a bank which was renewed at the discretion of the lender in May 2021.

credit has a maturity date of May 31, 2022 , is guaranteed by the Company and is secured by all of IPS’ assets.

The interest rate

on the line of credit is 0.75% above The Wall Street Journal prime rate .

The effective interest rate was 4.0 % at both June 30,

2021 and September 30, 2020.

In March 2021, the Company paid down the outstanding balance on the line of credit and $ 1,300,000 was available

at June 30, 2021.

The Company is subject to certain debt-service ratio requirements which are measured annually.

At September 30, 2020,

the Company was in violation of the required debt-service ratio covenants but was granted a waiver of the violation from the lender.

FORWARD INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

IPS, has a $ 1,300,000 revolving line of credit which was renewed in May 2021.

The line of credit has a maturity date of May 31, 2022 ,

is guaranteed by the Company and is secured by all of IPS’ assets.

The interest rate on the line of credit is 0.75% above The Wall Street Journal prime rate.

The effective interest rate was 4.0 % at both December 31, 2021 and September 30, 2021.

31, 2021, the Company had $ 1,300,000 available under the line of credit.

The Company is subject to certain debt-service ratio requirements

which are measured annually.

At September 30, 2021, the Company was in compliance with such covenants.

On April 18, 2020, the Company

entered into a loan in an aggregate principal amount of $ 1,357,000 under the Paycheck Protection Program of the CARES Act.

unsecured, bore interest at a rate of 1 % per annum, and was scheduled to mature on April 18, 2022 .

In October 2020, the Company filed

for forgiveness of this loan and in December 2020, the Small Business Administration (“SBA”) approved our forgiveness request

for this loan.

The forgiveness has been accounted for as an extinguishment of debt and the resulting gain has been recorded as forgiveness

of note payable on the condensed consolidated statement of operations for the nine months ended June 30, 2021.

There is a six-year period

during which the SBA can review the Company’s forgiveness.

entered into a loan in an aggregate principal amount of $ 1,357,000 under the Paycheck Protection Program (the “PPP loan”)

pursuant to the U.S.

Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

The loan was unsecured, bore interest

at a rate of 1 % per annum, and was scheduled to mature on April 18, 2022 .

In October 2020, the Company filed for forgiveness of this loan

and in December 2020, the Small Business Administration (“SBA”) approved its forgiveness request.

The forgiveness has been

accounted for as an extinguishment of debt and the resulting gain has been recorded as forgiveness of note payable on the condensed consolidated

financial statements for the three months ended December 31, 2020.

There is a six-year period during which the SBA can review the Company’s

In connection with the acquisition

of Kablooe, the Company assumed a loan payable with a principal amount of $ 170,000 .

The loan matures in August 2021, bears interest at

a rate of 6.0 % per annum and is secured by all of Kablooe’s assets.

Interest and principal payments of $ 15,000 are payable monthly

The loan matured in August 2021, bore interest at

a rate of 6.0 % per annum and was secured by all of Kablooe’s assets.

Interest and principal payments of $ 15,000 were made monthly

until maturity.

The outstanding balance at June 30, 2021 and September 30, 2020 was $ 29,000 and $ 156,000 , respectively.

NOTE 13 MOONI

On January 29, 2019, the

Company entered into a three-year Distribution Agreement (the “Agreement”) with Mooni International AB (“Mooni”)

and its owner.

In accordance with the Agreement, the Company (i) was appointed as the exclusive distributor of Mooni's current and future

products (including future products developed or offered by Mooni and/or the owner) in North America, (ii) subject to certain repayment

requirements, paid $400,000 to Mooni, and (iii) was granted an option to purchase a controlling interest of Mooni at a valuation not to

exceed $5 million which, if exercised, would have been effective on the 12-month anniversary of the effective date of the Agreement.

option was not exercised and therefore expired.

Additionally, Forward China, a company owned by Terence Wise, the Company's Chairman and

Chief Executive Officer, was named the designated supplier under the Agreement.

The Company generated revenues

from this agreement of $ 459,000 since it began selling Mooni products in Fiscal 2020.

The current and long-term portions of the unamortized

fee of $ 78,000 and $ 0 , respectively, at June 30, 2021 and $ 133,000 and $ 45,000 , respectively, at September 30, 2020, are included in prepaid

expenses and other current assets and other assets, respectively, in the accompanying condensed consolidated financial statements.

of the cost for the three and nine months ended June 30, 2021 of $ 33,000 and $ 100,000 , respectively, and for the three and nine months

ended June 30, 2020 of $ 33,000 and $ 100,000 , respectively, is included in sales and marketing expenses in the accompanying condensed consolidated

statements of operations.

NOTE 14 LEASES

The Company’s operating

leases are primarily for corporate, sales and administrative office space.

Total operating lease expense was $ 150,000 and $ 455,000 for

the three and nine months ended June 30, 2021, respectively, and $ 127,000 and $ 382,000 for the three and nine months ended June 30, 2020,

respectively, and is recorded in sales and marketing and general and administrative expenses on the condensed consolidated statements

of operations.

The Company leases certain

computer equipment through various finance lease agreements expiring through July 2022.

The net book value of assets under finance leases

was $ 16,000 and $ 23,000 at June 30, 2021 and September 30, 2020, respectively.

In March 2021, the Company

signed a renewal to extend the term of its lease in Minnesota for an additional 60 months.

Payments under this operating lease commence

July 1, 2021 and escalate 2.75% per year.

The monthly rent payment is $10,000 per month, which includes taxes and operating expenses as

defined in the agreement.

Total operating lease expense for the three months ended December

31, 2021 was $ 156,000 , of which $ 14,000 was recorded in sales and marketing expenses and $ 142,000 was recorded in general and administrative

expenses on the condensed consolidated statements of operations.

Total operating lease expense for the three months ended December 31,

2020 was $ 153,000 , of which $ 14,000 was recorded in sales and marketing expenses and $ 139,000 was recorded in general and administrative

expenses on the condensed consolidated statements of operations.

Cash paid for amounts included in operating lease liabilities for the

three months ended December 31, 2021 and 2020, which have been included in cash flows from operating activities, was $ 149,000 and $ 111,000 ,

respectively.

FORWARD INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Additional information related

to operating and finance leases at June 30, 2021 and September 30, 2020 is as follows:

information related to operating and finance leases

Average Remaining Lease Term (Yrs):

Weighted Average Discount Rate:

June 30, 2021, future minimum payments under non-cancellable operating and finance leases were as follows:

of future minimum payments under operating & financial leases

At December 31, 2021, the

Company’s operating leases had a weighted average remaining lease term of 8.8 years and a weighted average discount rate of 5.6 %.

At December 31, 2021, future

minimum payments under non-cancellable operating leases were as follows:

Schedule of future minimum payments under operating & financial leases

Remainder of Fiscal 2022

Total future minimum lease

imputed interest

Total future minimum lease payments

Less imputed interest

( 1,170,000 )

Present value of lease

Present value of lease liabilities

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-Q

Item 1. Financial Statements