What changed in this filing

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Item 1. Financial Statements

2022-08-10 compared with 2022-05-12 · 253 added, 270 removed, 456 unchanged (53% of the section changed)

14 unchanged sentences

Current liabilities:

Note payable to Forward China

Accounts payable

15 unchanged sentences

40,000,000 shares authorized;

10,061,185 shares issued and outstanding at March 31, 2022 and September 30, 2021

10,061,185 shares issued and outstanding at June 30, 2022 and September 30, 2021

Additional paid-in capital

4 unchanged sentences

Total liabilities and shareholders' equity

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

The accompanying notes are an integral part of the unaudited condensed

consolidated financial statements.

FORWARD INDUSTRIES, INC.

2 unchanged sentences

For the Three Months Ended

For the Six Months Ended

the Nine Months Ended

Revenues, net

2 unchanged sentences

General and administrative expenses

Loss from operations

(Loss)/income from operations

Gain on forgiveness of note payable

9 unchanged sentences

$ ( 595,224 )

$ ( 176,311 )

(Loss)/earnings per share:

Weighted average common shares outstanding:

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

The accompanying notes are an integral part of the unaudited condensed

consolidated financial statements.

FORWARD INDUSTRIES, INC.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

For the Three and Six Months Ended March 31, 2022

the Three and Nine Months Ended June 30, 2022

Balance at September 30, 2021

$ ( 12,571,645 )

Share-based compensation

Balance at December 31, 2021

( 12,391,621 )

Share-based compensation

Balance at March 31, 2022

( 12,747,956 )

For the Three and Six Months Ended March 31, 2021

Balance at June 30, 2022

$ ( 13,166,869 )

the Three and Nine Months Ended June 30, 2021

Balance at September 30, 2020

$ ( 13,095,450 )

Share-based compensation

Stock options exercised

Stock options

Balance at December 31, 2020

( 11,896,414 )

Share-based compensation

Stock options exercised

Stock options

Balance at March 31, 2021

( 12,731,142 )

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

Stock options

Balance at June 30, 2021

$ ( 12,487,555 )

The accompanying notes are an integral part of the unaudited condensed

consolidated financial statements.

FORWARD INDUSTRIES, INC.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended March 31,

For the Nine Months Ended June 30,

Operating Activities:

1 unchanged sentence

$ ( 595,224 )

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

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

operating activities:

Share-based compensation

35 unchanged sentences

Operating lease liabilities recorded

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

The accompanying notes are an integral part of the unaudited condensed

consolidated financial statements.

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 OVERVIEW

Forward Industries, Inc.

4 unchanged sentences

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

For the six months ended

March 31, 2022, the Company generated a net loss of $ 176,000,

For the nine months

ended June 30, 2022, the Company generated a net loss of $ 595,000 ,

and $ 1,158,000

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 May 31, 2023.

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

meet our liquidity needs through at least August 31, 2023.

Impact of COVID-19

effects of the COVID-19 pandemic continue to impact the retail and OEM distribution segments of 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 and most notably in the second

quarter of the fiscal year ending September 30, 2022 (“Fiscal 2022”).

The effects of the COVID-19

pandemic continue to impact the retail and OEM distribution segments of 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 and most notably in the second quarter of the

fiscal year ending September 30, 2022 (“Fiscal 2022”).

Labor shortages at U.S.

ports and in ground transportation

services caused container ships to spend a significant amount of time waiting for goods to be unloaded and to arrive at our warehouses.

These factors caused an increase in the demand for and cost of ground transportation and delayed consumer availability for many of our

products in the first half 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.

ports and in ground transportation services

caused container ships to spend a significant amount of time waiting for goods to be unloaded and to arrive at our warehouses.

These factors

caused an increase in the demand for and cost of ground transportation and delayed consumer availability for many of our products in Fiscal

The timing and extent of these COVID-19 related transportation disruptions are still largely unknown but are expected to continue

into Fiscal 2023.

The effects of the pandemic

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to focus on those factors that we can control:

closely managing and controlling our expenses;

aligning our design and development schedules

with demand in a proactive manner 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 strategy.

closely managing and controlling our expenses and inventory levels;

aligning our design

and development schedules with demand in a proactive manner 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 strategy.

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ACCOUNTING POLICIES

NOTE 2 ACCOUNTING POLICIES

Basis of Presentation

34 unchanged sentences

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.

of other products through various online retailer websites to customers predominantly located in the U.S.

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

Accounts Receivable

6 unchanged sentences

as necessary based on specific customer situations.

At March 31, 2022, 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 $ 824,000 , $ 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 March 31, 2022, September 30, 2021 or September 30, 2020.

At June 30, 2022, 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, $ 20,000 , $ 0 and $ 0 , respectively,

for the retail distribution segment and $ 927,000 , $ 706,000 and $ 347,000 , respectively, for the design segment.

FORWARD INDUSTRIES, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

At March 31, 2022, September 30, 2021 and September 30, 2020, the Company recorded accounts receivable allowances of $ 25,000 , $ 0 and $ 0 ,

respectively, for the retail distribution segment.

The Company has agreements

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

At June 30, 2022, September

30, 2021 and September 30, 2020, the Company recorded accounts receivable allowances of $ 84,000 , $ 0 and $ 0 , respectively, for the retail

distribution segment.

Revenue Recognition

8 unchanged sentences

has transferred.

Revenue is measured as the amount of consideration expected to be received in exchange for the products provided, net

of allowances for product returns, applicable variable consideration and any taxes collected from customers that will be remitted to governmental

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

1 unchanged sentence

The retail distribution

segment had contract liabilities of $ 0 , $ 0 and $ 75,000 at March 31, 2022, September 30, 2021 and September 30, 2020, respectively.

OEM distribution segment had no contract liabilities at March 31, 2022, September 30, 2021 or September 30, 2020.

segment had contract liabilities of $ 65,000 , $ 0 and $ 75,000 at June 30, 2022, September 30, 2021 and September 30, 2020, respectively.

The OEM distribution segment had no contract liabilities at June 30, 2022, September 30, 2021 or September 30, 2020.

Design Segment

15 unchanged sentences

The design segment had contract assets of $ 833,000 , $ 693,000 and $ 649,000 at

March 31, 2022, 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 $ 621,000 , $ 188,000 and $ 410,000 at March 31, 2022, September

30, 2021 and September 30, 2020, respectively.

June 30, 2022, 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 $ 558,000 , $ 188,000 and $ 410,000 at June 30, 2022, 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.

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.

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.

Management evaluated and concluded that there were no indications goodwill was

impaired at March 31, 2022.

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.

Management evaluated and concluded that there were no indications goodwill was impaired at June 30,

FORWARD INDUSTRIES, INC.

19 unchanged sentences

Management evaluated

and concluded that there were no impairments of intangible assets at March 31, 2022.

and concluded that there were no impairments of intangible assets at June 30, 2022.

The Company recognizes future

1 unchanged sentence

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

At March 31, 2022, there was no change to our assessment that a full valuation allowance was required against all net deferred

At June 30, 2022, 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.

4 unchanged sentences

Fair Value Measurements

We perform fair

value measurements in accordance with the guidance provided by Accounting Standards Codification (“ASC”) 820, “Fair

Value Measurement.” ASC 820 defines fair value as the price that would be received from selling an asset or paid to transfer a liability

in an orderly transaction between market participants at the measurement date.

When determining the fair value measurements for assets

and liabilities required to be recorded at their fair values, we consider the principal or most advantageous market in which we would

transact and consider assumptions that market participants would use when pricing the assets or liabilities, such as inherent risk, transfer

restrictions, and risk of nonperformance.

We perform fair value measurements

in accordance with the guidance provided by Accounting Standards Codification (“ASC”) 820, “Fair Value Measurement.”

ASC 820 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction

between market participants at the measurement date.

When determining the fair value measurements for assets and liabilities required

to be recorded at their fair values, we consider the principal or most advantageous market in which we would transact and consider assumptions

that market participants would use when pricing the assets or liabilities, such as inherent risk, transfer restrictions, and risk of

nonperformance.

ASC 820 establishes a fair

24 unchanged sentences

Certain amounts in the accompanying

financial statements at and for the three and six months ended March 31, 2021 have been reclassified to conform to the current year presentation.

financial statements at and for the three and nine months ended June 30, 2021 have been reclassified to conform to the current year presentation.

Recent Accounting Pronouncements

12 unchanged sentences

GAAP by clarifying and amending existing

The effective date of the new guidance for public companies is for fiscal years beginning after December 15, 2020 and interim

periods within those fiscal years.

The effective date of the new guidance for public companies is for fiscal years beginning after December 15, 2020 and

interim periods within those fiscal years.

Early adoption is permitted.

1 unchanged sentence

2022 with no material impact to its condensed consolidated financial statements.

INTANGIBLE ASSETS AND GOODWILL

NOTE 3 INTANGIBLE ASSETS AND GOODWILL

Intangible Assets

2 unchanged sentences

Intangible Assets

March 31, 2022

June 30, 2022

September 30, 2021

10 unchanged sentences

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.

Amortization expense related to intangible assets was $ 53,000 for the three months ended March 31,

2022 and 2021 and $ 106,000 for the six months ended March 31, 2022 and 2021, which is included in general and administrative expenses

on the condensed consolidated statements of operations.

At March 31, 2022, estimated

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

assets resulted from the acquisitions of Kablooe and IPS in Fiscal 2020 and Fiscal 2018, respectively, and relate to the design segment

of our business.

Intangible assets are amortized over their expected useful lives of 15 years for the trademarks and 8 years for the customer

relationships.

Amortization expense related to intangible assets was $ 53,000 for the three months ended June 30, 2022 and 2021 and $ 160,000

for the nine months ended June 30, 2022 and 2021, which is included in general and administrative expenses on the condensed consolidated

statements of operations.

At June 30, 2022, estimated

amortization expense for the Company’s intangible assets is as follows:

Estimated amortization expense

Remainder of Fiscal 2022

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

represents the future economic benefits of assets acquired in a business combination that are not individually identified or separately

The Company’s goodwill resulted from the acquisitions of Kablooe and IPS in Fiscal 2020 and Fiscal 2018, respectively.

The goodwill associated with the IPS acquisition is not deductible for tax purposes, but the goodwill associated with the Kablooe acquisition

is deductible for tax purposes.

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

FAIR VALUE MEASUREMENTS

The earnout consideration

of $ 70,000 at March 31, 2022 and September 30, 2021 represents the fair value of the contingent earnout consideration related to the acquisition

NOTE 4 FAIR VALUE MEASUREMENTS

earnout consideration of $ 70,000 at June 30, 2022 and September 30, 2021 represents the fair value of the contingent earnout consideration

related to the acquisition of Kablooe, which provides annual contingent earnout payments based on results of operations through August

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

2 unchanged sentences

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

During the three and six

months ended March 31, 2022, there were no changes to the fair value of this earnout liability.

SEGMENTS AND CONCENTRATIONS

During the three and nine

months ended June 30, 2022, there were no changes to the total fair value of this earnout liability.

NOTE 5 SEGMENTS AND CONCENTRATIONS

The Company has three reportable

19 unchanged sentences

The results of operations

for the three and six months ended March 31, 2021 for each segment discussed below have been reformatted from what was previously disclosed

for the three and nine months ended June 30, 2021 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

3 unchanged sentences

Segment operating income (loss)

For the Three Months Ended March 31,

For the Six Months Ended March 31,

For the Three Months Ended

For the Nine Months Ended

OEM distribution

4 unchanged sentences

Retail distribution

Total segment operating income/(loss)

Total segment operating income

General corporate expenses

1 unchanged sentence

( 1,586,000 )

Total loss from operations

Total (loss)/income from operations

Other expense/(income), net

3 unchanged sentences

$ ( 595,000 )

$ ( 176,000 )

Depreciation and amortization:

2 unchanged sentences

Schedule of segment assets

March 31, 2022

September 30, 2021

4 unchanged sentences

General corporate assets

Company had certain customers in the OEM distribution segment whose individual percentage of the Company’s consolidated revenues

was 10% or greater.

Revenues from two customers or their affiliates or contract manufacturers represented 26.2 % and 25.7 %, respectively,

of the Company’s consolidated revenues for the three and six months ended March 31, 2022.

Revenues from three customers or their

affiliates or contract manufacturers represented 40.4 % of the Company’s consolidated revenues for the three months ended March 31,

2021 and revenues from two customers or their affiliates or contract manufacturers represented 29.7 % of the Company’s consolidated

revenues for the six months ended March 31, 2021.

FORWARD INDUSTRIES, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three and six months

ended March 31, 2022, the Company had one customer in the design segment whose individual percentage of the Company’s consolidated

The Company had certain customers

in the OEM distribution segment whose individual percentage of the Company’s consolidated revenues was 10% or greater.

from two customers or their affiliates or contract manufacturers represented 24.2 % and 24.1 %, respectively, of the Company’s consolidated

net revenues for the three and nine months ended June 30, 2022.

Revenues from one customer or its affiliates or contract manufacturers

represented 13.7 % of the Company’s consolidated net revenues for the three months ended June 30, 2021 and revenues from two customers

or their affiliates or contract manufacturers represented 26.3 % of the Company’s consolidated net revenues for the nine months ended

June 30, 2021.

For the three and nine months

ended June 30, 2022, the Company had one customer in the design segment whose individual percentage of the Company’s consolidated

revenues was 10% or greater.

Revenues from this customer represented 10.8 % and 10.4 %, respectively, of the Company’s consolidated

revenues for the three and six months ended March 31, 2022.

net revenues for the three and nine months ended June 30, 2022.

There were no customers in the design segment whose individual percentage

of the Company’s consolidated revenues was 10% or greater during the three or six months ended March 31, 2021.

At March 31, 2022 and September

of the Company’s consolidated revenues was 10% or greater during the three or nine months ended June 30, 2021.

At June 30, 2022 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 two customers or their affiliates or contract manufacturers

represented 34.8 % of the Company’s consolidated accounts receivable at March 31, 2022 and revenues from three customers or their

contract manufacturers represented 44.0 % of the Company’s consolidated accounts receivable at September 30, 2021.

SHARE-BASED COMPENSATION

Accounts receivable from three customers or their affiliates or contract manufacturers

represented 40.4 % and 44.0 %, respectively, of the Company’s consolidated accounts receivable at June 30, 2022 and September 30,

NOTE 6 SHARE-BASED COMPENSATION

Stock Options

In October 2021 and January

2022, the Company granted options to non-employee directors to purchase an aggregate of 58,000 and 83,000 shares, respectively, of its

common stock at an exercise price of $ 2.39 and $ 1.56 per share, respectively.

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 and $ 0.72 per share, respectively, and each grant has an aggregate grant-date fair value of $ 60,000 , which will be recognized

ratably over the vesting period.

In January 2022, the Company

granted options to one of its employees to purchase an aggregate of 14,000 shares of its common stock at an exercise price of $ 1.56 per

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

one year from the date of grant and approximately one-third vest two years from the date of grant.

The options have a weighted average

grant-date fair value of $ 0.73 per share and an aggregate grant-date fair value of $ 10,000 , which will be recognized ratably over the

vesting period.

In February 2022, the Company

granted options to one of its non-employee directors to purchase an aggregate of 31,000 shares of its common stock at an exercise price

of $ 1.68 per share.

The options vest one year from the date of grant and expire five years from the date of grant.

The options have a

weighted average grant-date fair value of $ 0.80 per share and an aggregate grant-date fair value of $ 25,000 , which will be recognized

ratably over the vesting period.

In February 2022, the Company

granted options to one of its former non-employee directors to purchase an aggregate of 19,000 shares of its common stock at an exercise

price of $ 1.68 per share.

October 2021, January 2022 and April 2022, the Company granted options to non-employee directors to purchase an aggregate of 58,000 , 83,000

and 49,000 shares, respectively, of its common stock at an exercise price of $ 2.39 , $ 1.56 and $ 1.72 per share, respectively.

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

The options have a weighted average grant-date fair value of $ 1.03 , $ 0.72 and $ 0.81 per share, respectively, and an aggregate grant

date fair value of $ 60,000 , $ 60,000 and $ 40,000 , respectively, which will be recognized ratably over the vesting period.

January 2022, the Company granted options to one of its employees to purchase an aggregate of 14,000 shares of its common stock at an

exercise price of $ 1.56 per share.

The options expire five years from the date of grant, approximately one-third vested immediately, approximately

one-third vest one year from the date of grant and approximately one-third vest two years from the date of grant.

The options have a weighted

average grant-date fair value of $ 0.73 per share and an aggregate grant-date fair value of $ 10,000 , which will be recognized ratably over

the vesting period.

February 2022, the Company granted options to one of its non-employee directors to purchase an aggregate of 31,000 shares of its common

stock at an exercise price of $ 1.68 per share.

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

The options have a weighted average grant-date fair value of $ 0.80 per share and an aggregate grant-date fair value of $ 25,000 ,

which will be recognized ratably over the vesting period.

February 2022, the Company granted options to one of its former non-employee directors to purchase an aggregate of 19,000 shares of its

common stock at an exercise price of $ 1.68 per share.

The options vested immediately and expire ten years from the date of grant.

The options have a weighted average

grant-date fair value of $ 1.07 per share and an aggregate grant-date fair value of $ 20,000 , which was fully recognized on the grant date.

There were no options exercised

during the six months ended March 31, 2022.

During the six months ended March 31, 2021, the Company issued 69,000 shares of its common

stock pursuant to the exercise of stock options for aggregate cash proceeds of $ 144,000 , which had an aggregate intrinsic value of $ 122,000 .

The Company recognized compensation

expense for stock option awards of $ 66,000 and $ 21,000 during the three months ended March 31, 2022 and 2021, respectively, and $ 105,000

and $ 63,000 during the six months ended March 31, 2022 and 2021, respectively, which was recorded as a component of general and administrative

expenses in its condensed consolidated statements of operations.

At March 31, 2022, there was $ 54,000 of total unrecognized compensation

cost related to nonvested stock option awards that is expected to be recognized over a weighted average period of 0.8 years.

options have a grant-date fair value of $ 1.07 per share and an aggregate grant-date fair value of $ 20,000 , which was fully recognized

on the grant date.

FORWARD INDUSTRIES, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

EARNINGS PER SHARE

were no options exercised during the nine months ended June 30, 2022.

During the nine months ended June 30, 2021, the Company issued 147,000

shares of its common stock pursuant to the exercise of stock options for aggregate cash proceeds of $ 234,000 , which had an aggregate intrinsic

value of $ 265,000 .

Company recognized compensation expense for stock option awards of $ 44,000 and $ 4,000 during the three months ended June 30, 2022 and

2021, respectively, and $ 148,000 and $ 66,000 during the nine months ended June 30, 2022 and 2021, respectively, which was recorded as

a component of general and administrative expenses in its condensed consolidated statements of operations.

At June 30, 2022, there was

$ 51,000 of total unrecognized compensation cost related to nonvested stock option awards that is expected to be recognized over a weighted

average period of 0.6 years.

NOTE 7 EARNINGS

Basic earnings per share

5 unchanged sentences

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 March 31,

For the Six Months Ended March 31,

Schedule of earnings (loss) per share

For the Three Months Ended

For the Nine Months Ended

Net (loss)/income

1 unchanged sentence

$ ( 595,000 )

$ ( 176,000 )

Weighted average common shares outstanding

5 unchanged sentences

Schedule of antidilutive securities excluded

For the Three Months Ended March 31,

For the Six Months Ended March 31,

For the Three Months Ended

For the Nine Months Ended

Total potentially dilutive shares

RELATED PARTY TRANSACTIONS

Buying Agency and Supply

The Company has a

Buying Agency and Supply Agreement (the “Supply Agreement”) with Forward Industries Asia-Pacific Corporation

(“Forward China”).

The Supply Agreement provides that, upon the terms and subject to the conditions set forth therein,

Forward China will act as the Company’s exclusive buying agent and supplier of Products (as defined in the Supply Agreement)

in the Asia-Pacific region.

The Company purchases products at Forward China’s cost and 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.

The Company recorded service fees to Forward China of $ 350,000

and $ 340,000

during the three months ended March 31, 2022 and 2021, respectively, and $ 712,000

and $ 683,000

during the six months ended March 31, 2022 and 2021, respectively, which are included as a component of cost of sales upon sales of

the related products.

FORWARD INDUSTRIES, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 RELATED PARTY

Buying Agency and Supply

The Company has a Buying

Agency and Supply Agreement (the “Supply Agreement”) with Forward Industries Asia-Pacific Corporation (“Forward China”).

The Supply Agreement provides that, upon the terms and subject to the conditions set forth therein, Forward China will act as the Company’s

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

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.

Yu, a Managing Director of Forward China, beneficially owns more than 5% of the Company’s common stock.

The Company recorded

service fees to Forward China of $ 344,000 and $ 357,000 during the three months ended June 30, 2022 and 2021, respectively, and $ 1,056,000

and $ 1,040,000 during the nine months ended June 30, 2022 and 2021, 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 $ 418,000 and $ 317,000 at March 31, 2022 and September 30, 2021, respectively, which is included

to Forward China for inventory purchases of $ 20,000 and $ 317,000 at June 30, 2022 and September 30, 2021, respectively, which are included

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

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The Company incurred and paid interest associated with this note of $ 30,000 and $ 32,000 ,

respectively, in the three months ended March 31, 2022 and 2021 and $ 63,000 and $ 64,000 , respectively, in the six months ended March

respectively, in the three months ended June 30, 2022 and 2021 and $ 93,000 and $ 96,000 , respectively, in the nine months ended June 30,

2022 and 2021.

The maturity date of this note was extended to December 31, 2023.

The maturity date of this note has been extended

on several occasions to assist the Company with liquidity.

The Company made principal payments of $ 100,000 on this note during the six

months ended March 31, 2022.

The maturity date of this note has been extended on several

occasions to assist the Company with liquidity.

The Company made principal payments of $ 150,000 on this note during the nine months ended

June 30, 2022.

Other Related Party Activity

In October 2020, the

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

In October 2020, the Company

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

under the Koble brand name.

The Koble brand is owned by The Justwise Group Ltd.

(“JustWise”), a company owned by Terence Wise, Chief Executive

Officer and Chairman of the Company.

The Company recognized revenues from the sale of Koble products of $ 441,000

and $ 154,000

in the three months ended March 31, 2022 and 2021, respectively, and $ 981,000

and $ 339,000

in the six months ended March 31, 2022 and 2021, respectively.

The Company entered into an agreement with JustWise effective March

1, 2022 under which (i) JustWise will perform design and marketing services related to the Koble products sold by the Company and

(ii) the Company was granted a license to sell Koble products.

In exchange for such services, the Company will pay JustWise $10,000

per month plus 1% of the cost of Koble products purchased from Forward China.

This agreement is effective until August 31, 2022,

will be extended thereafter for a mutually agreed upon term and can be terminated thereafter by either party giving three

months’ notice.

The Company incurred costs of $ 10,000

under this agreement for the three and six months ended March 31, 2022, which were included in selling and marketing expenses on the

condensed consolidated statement of operations.

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.

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.

The Koble brand

is owned by The Justwise Group Ltd.

(“JustWise”), a company owned by Terence Wise, Chief Executive Officer and Chairman of

The Company recognized revenues from the sale of Koble products of $ 356,000 and $ 413,000 in the three months ended June 30,

2022 and 2021, respectively, and $ 1,337,000 and $ 752,000 in the nine months ended June 30, 2022 and 2021, respectively.

The Company entered

into an agreement with JustWise effective March 1, 2022, under which (i) JustWise will perform design and marketing services related to

the Koble products sold by the Company and (ii) the Company was granted a license to sell Koble products.

In exchange for such services,

the Company will pay JustWise $10,000 per month plus 1% of the cost of Koble products purchased from Forward China.

This agreement is

effective until August 31, 2022, will be extended thereafter for a mutually agreed upon term and can be terminated thereafter by either

party giving three months’ notice.

The Company incurred costs of $ 33,000 and $ 55,000 under this agreement for the three and nine

months ended June 30, 2022, respectively, of which $ 28,000 and $ 38,000 , respectively, were included in selling and marketing expenses

and $ 5,000 and $ 17,000 are included as a component of cost of sales upon sales of the related products.

A member of the Company’s

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

the Company’s OEM distribution 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.

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 LEGAL PROCEEDINGS

From time to time, the Company

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

At March 31, 2022, 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 operations or cash flows.

LINE OF CREDIT

The Company, specifically

IPS, has a $ 1,300,000 revolving line of credit which was renewed in February 2022.

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

At June 30, 2022, 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 operations or cash flows.

NOTE 10 LINE OF CREDIT

specifically IPS, has a $ 1,300,000

revolving line of credit with a bank which was renewed in February 2022.

The line of credit has a maturity date of May

31, 2023 , 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 4.25 % and 4.0 % at March 31, 2022 and September 30, 2021, respectively.

At March 31, 2022, 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.

The interest rate on the line of credit is 0.75%

above The Wall Street Journal prime rate.

The effective interest rate was 5.5 %

at June 30, 2022 and September 30, 2021, respectively.

At June 30, 2022, 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.

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On April 18, 2020, the Company

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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 six months ended March 31, 2021.

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

NOTE 12 LEASES

The Company’s operating

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Cash paid for amounts included in operating lease liabilities

for the six months ended March 31, 2022 and 2021, which have been included in cash flows from operating activities, was $ 294,000

for the nine months ended June 30, 2022 and 2021, which have been included in cash flows from operating activities, was $ 446,000

and $ 340,000 ,

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Schedule of operating lease expense

For the Three Months Ended March 31,

For the Six Months Ended March 31,

For the Three Months Ended

For the Nine Months Ended

Operating lease expense included in:

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General and administrative expense

At March 31, 2022, the Company’s

operating leases had a weighted average remaining lease term of 8.6 years and a weighted average discount rate of 5.6 %.

At March 31, 2022, future

At June 30, 2022,

the Company’s operating leases had a weighted average remaining lease term of 8.4 years and a weighted average discount rate of

At June 30, 2022, future

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

6 unchanged sentences

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