What changed in this filing

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Item 1. Financial Statements

2023-02-14 compared with 2022-08-10 · 323 added, 362 removed, 347 unchanged (66% of the section changed)

31 unchanged sentences

40,000,000 shares authorized;

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

10,061,185 shares issued and outstanding at December 31,

2022 and September 30, 2022

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

the Nine Months Ended

Revenues, net

3 unchanged sentences

(Loss)/income from operations

Gain on forgiveness of note payable

( 1,356,570 )

Fair value adjustment of earn-out consideration

Interest income

Fair value adjustment of earnout consideration

Interest expense

Other expense, net

Other (income)/expense, net

(Loss)/income before income taxes

2 unchanged sentences

$ ( 430,275 )

$ ( 595,224 )

(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

the Three and Nine Months Ended June 30, 2022

For the Three Months Ended December 31, 2022

Balance at September 30, 2022

$ ( 13,949,896 )

Share-based compensation

Balance at December 31, 2022

$ ( 14,380,171 )

Balance at March 31, 2022

( 12,747,956 )

Balance at June 30, 2022

$ ( 13,166,869 )

the Three and Nine Months Ended June 30, 2021

For the Three Months Ended December 31, 2021

Balance at September 30, 2021

$ ( 12,571,645 )

Stock options

Share-based compensation

Balance at December 31, 2021

$ ( 12,391,621 )

Stock options

Balance at March 31, 2021

( 12,731,142 )

Stock options

Balance at June 30, 2021

$ ( 12,487,555 )

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 CASH FLOWS

For the Nine Months Ended June 30,

For the Three Months Ended

Operating Activities:

1 unchanged sentence

$ ( 430,275 )

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

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

operating activities:

2 unchanged sentences

Bad debt expense

Gain on forgiveness of note payable

( 1,356,570 )

Change in fair value of earn-out consideration

Change in fair value of earnout consideration

Changes in operating assets and liabilities:

Accounts receivable

( 2,809,177 )

Prepaid expenses and other current assets

3 unchanged sentences

Accrued expenses and other current liabilities

Net cash provided by/(used in) operating activities

Net cash (used in)/provided by operating activities

Investing Activities:

2 unchanged sentences

Financing Activities:

Proceeds from line of credit borrowings

Repayment of line of credit borrowings

( 1,150,000 )

Repayment of notes payable

Repayment of note payable to Forward China

Proceeds from stock options exercised

Repayments of finance leases

Net cash used in financing activities

Net increase/(decrease) in cash

( 1,319,978 )

Net (decrease)/increase in cash

Cash at beginning of period

2 unchanged sentences

Cash paid for interest

Cash paid for taxes

Supplemental Disclosures of Non-Cash Information:

Operating lease right of use assets recorded

Operating lease liabilities recorded

The accompanying notes are an integral part of the unaudited condensed

consolidated financial statements.

Operating lease assets obtained in exchange for operating lease liabilities

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

1 unchanged sentence

Forward Industries, Inc.

(“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 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 August 31, 2023.

(“Forward”, “we”, “our” or the “Company”) is a global design, manufacturing, sourcing

and distribution company serving top tier medical and technology customers worldwide.

As a result of the continued expansion of our design

development capabilities through our wholly-owned subsidiaries, the Company is able to introduce proprietary products to the market from

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

For the three months

ended December 31, 2022, the Company generated a net loss of $ 430,000 ,

and used $ 149,000

of cash flows in operating activities.

Based on our forecasted cash flows, we believe our existing cash balance and working capital

will be sufficient to meet our liquidity needs through at least February 29, 2024.

At December 31, 2022, the Company had $ 1,300,000

of borrowing available under its line of credit with a bank that has a maturity date of May

31, 2023 (see Note 10).

As this line of credit has been renewed on multiple prior occasions, management expects it will be

renewed again.

Considering the loss of a significant OEM distribution segment customer (see Note 5) and the retail distribution

segment operating losses, management is planning to evaluate the Company’s cost structure and implement cost cutting

initiatives as deemed necessary.

In light of these events, the Company is currently assessing the terms of its sourcing agreement

with Forward Industries Asia-Pacific Corporation (“Forward China”), which is scheduled to expire on October

22, 2023 (See Note 8).

The Company and Forward China have agreed to begin negotiations on a new sourcing agreement early in

the third quarter of Fiscal 2023.

While we believe a new agreement will be reached, we cannot provide any assurances that we will be

If an agreement cannot be reached, which could have a significant impact on the Company’s operations, we

will look at other alternatives for our OEM and retail distribution businesses prior to the expiration of the agreement.

Impact of COVID-19

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 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

had a lesser impact on the design segment of our business.

Rising inflation caused an increase in the cost of acquiring and maintaining

our employees.

The timing and extent of future inflation is difficult to predict, but we expect these rising costs to have a more significant

impact in the second half of Fiscal 2022.

pandemic continue to impact our business with higher historical costs for ocean freight and ground transportation, particularly from the

Asia-Pacific region.

We expect to see the benefits of declining ocean freight costs in future periods.

Inflation, in part associated with

the pandemic, continues to increase the cost of acquiring and retaining our employees and acquiring inventory.

The instability of transportation

costs and future inflation are still largely unknown but are expected to continue throughout the fiscal year ended September 30, 2023

(“Fiscal 2023”).

The effects of COVID-19 may

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

The current economic impact may continue

The current economic conditions may continue

to negatively impact our results of operations, cash flows and financial position in future periods as well as that of our customers,

5 unchanged sentences

Until the effects of the

pandemic have fully receded, we expect business conditions to remain challenging.

In response to these challenges, we will continue

to focus on those factors that we can control:

closely managing and controlling our 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.

pandemic and associated inflationary impact have fully receded, we expect business conditions to remain challenging.

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

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

3 unchanged sentences

consolidated financial statements include the accounts of Forward Industries, Inc.

and all of its subsidiaries:

Forward Industries (IN),

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

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

and all of its wholly-owned subsidiaries:

Forward Industries

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

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

(“IPS”) and Kablooe, Inc.

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

Forward Industries, Inc.

and all of its subsidiaries.

All significant intercompany transactions and balances have been eliminated in consolidation.

The terms “Forward”, “we”, “our” or the “Company” as used throughout this document are

used to indicate Forward Industries, Inc.

and all of its wholly-owned subsidiaries.

All significant intercompany transactions and balances

have been eliminated in consolidation.

In the opinion of management,

17 unchanged sentences

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 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

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 balance sheets.

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, 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.

Original Equipment Manufacturing (“OEM”) distribution, retail distribution and design.

The OEM distribution segment

sources and sells 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, hot tubs and a variety 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

See Note 5 for more information on segments.

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Accounts Receivable

Accounts receivable consist

of unsecured trade accounts with customers in amounts that have been invoiced ($ 8,900,000 and $ 7,861,000 at December 31, 2022 and September

30, 2022, respectively) and contract assets as described further below under the heading “Revenue Recognition.” The Company

maintains an allowance for doubtful accounts, which is recorded as a reduction to accounts receivable on the condensed consolidated balance

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.

31, 2022 and September 30, 2022, the Company had no allowances for doubtful accounts for the OEM distribution segment, allowances for

doubtful accounts of $ 32,000 and $ 20,000 , respectively, for the retail distribution segment and $ 837,000 and $ 852,000 , respectively, for

the design 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.

At December 31, 2022

and September 30, 2022, the Company recorded accounts receivable allowances of $ 110,000 and $ 55,000 , respectively, for the retail distribution

Inventories consist primarily

of finished goods and are stated at the lower of cost (determined by the first-in, first-out method) or net realizable value.

management’s estimates, an allowance is made to reduce excess, obsolete, or otherwise unsellable inventories to net realizable value.

The allowance is established through charges to cost of sales in the Company’s condensed consolidated statements of operations.

In determining the adequacy of the allowance, management’s estimates are based upon several factors, including analyses of inventory

levels, historical loss trends, sales history and projections of future sales demand.

The Company’s estimates of the allowance may

change from time to time based on management’s assessments, and such changes could be material.

At December 31, 2022 and September

30, 2022, the allowance for slow-moving inventory, which relates entirely to our retail segment, was $ 460,000 and $ 535,000 , respectively.

Revenue Recognition

Distribution Segments

The Company generally recognizes

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.

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,

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

The retail distribution

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.

OEM Distribution Segment

The OEM distribution segment

recognizes revenue when:

(i) finished goods are shipped to its customers (in general, these conditions occur at either point of shipment

or point of destination, depending on the terms of sale and transfer of control);

(ii) there are no other deliverables or performance

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

If the Company receives

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

of deferred income in the accompanying condensed consolidated balance sheets.

The OEM distribution segment had no contract liabilities

at December 31, 2022, September 30, 2022 or September 30, 2021.

Retail Distribution Segment

The retail distribution segment

sells products primarily through online websites operated by authorized third-party retailers.

Revenue is recognized when control (as

defined in Accounting Standards Codification, “ASC” 606, “Revenue from Contracts with Customers”) of the related

goods is transferred to the retailer, which generally occurs upon shipment to the end customer.

Other than product delivery, the retail

distribution segment does not typically have other deliverables or performance obligations associated with its products.

Revenue is measured

as the amount of consideration expected to be received in exchange for the products provided, net of allowances taken by retailers for

product returns and any taxes collected from customers that will be remitted to governmental authorities.

When the Company 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 no contract liabilities at December 31,

2022, September 30, 2022 or September 30, 2021.

FORWARD INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Design Segment

15 unchanged sentences

The design segment had contract assets of $ 602,000 , $ 609,000 and $ 693,000 at

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.

December 31, 2022, September 30, 2022 and September 30, 2021, 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 $ 335,000 , $ 439,000 and $ 188,000 at December 31, 2022, September

30, 2022 and September 30, 2021, respectively.

The Company reviews goodwill

16 unchanged sentences

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.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Management evaluated and concluded that there were no indications goodwill was impaired at December

Intangible Assets

16 unchanged sentences

Management evaluated

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

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

FORWARD INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 June 30, 2022, there was no change to our assessment that a full valuation allowance was required against all net deferred

At December 31, 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.

1 unchanged sentence

offset by an equal and opposite change to the valuation allowance.

No current book income tax provision was recorded against book net

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

Our income tax provision or benefit is generally not significant due

to the existence of significant net operating loss carryforwards.

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.

in accordance with the guidance provided by ASC 820, “Fair Value Measurement.” ASC 820 defines fair value as the price that

would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the

measurement date.

When determining the fair value measurements for assets and liabilities required to be recorded at their fair values,

we consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would

use when pricing the assets or liabilities, such as inherent risk, transfer restrictions, and risk of nonperformance.

ASC 820 establishes a fair

value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring

An asset's or liability's categorization within the fair value hierarchy is based upon the lowest level of input that is significant

to the fair value measurement.

An asset’s or liability’s categorization within the fair value hierarchy is based upon the lowest level of input

that is significant to the fair value measurement.

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

2 unchanged sentences

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.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 and nine months ended June 30, 2021 have been reclassified to conform to the current year presentation.

are recognized at the lease commencement date based on the present value of lease payments over the lease term, using the Company’s

incremental borrowing rate commensurate with the lease term, since the Company’s lessors do not provide an implicit rate, nor is

one readily available.

The Company has certain leases that may include an option to renew and when it is reasonably probable to exercise

such option, the Company will include the renewal option terms in determining the lease asset and lease liability.

Lease assets represent

the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation

to make lease payments arising from the lease.

Lease expense for lease payments is recognized on a straight-line basis over the lease

Operating lease assets are shown as right of use assets on the condensed consolidated balance sheets.

The current and long-term

portions of operating lease liabilities are shown separately as such on the condensed consolidated balance sheets.

Recent Accounting Pronouncements

In November 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

issued ASU 2019-12 “Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.” This guidance removes certain

exceptions to the general principles in Topic 740 and provides consistent application of U.S.

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.

Early adoption is permitted.

The Company adopted this guidance in the first quarter of fiscal

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

Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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.

FORWARD INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 INTANGIBLE ASSETS AND GOODWILL

3 unchanged sentences

Intangible Assets

June 30, 2022

December 31, 2022

September 30, 2022

6 unchanged sentences

Net carrying amount

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company’s intangible

3 unchanged sentences

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 related to intangible assets was $ 53,000 for the three months ended December 31, 2022 and 2021, which

is included in general and administrative expenses on the condensed consolidated statements of operations.

At December 31, 2022, estimated

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

1 unchanged sentence

Remainder of Fiscal 2023

FORWARD INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

4 unchanged sentences

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

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 and nine

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

earnout consideration of $ 30,000 and $ 70,000 at December 31, 2022 and September 30, 2022, respectively, 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 2025.

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.

the three months ended December 31, 2022, the Company reduced this liability from $70,000 to $30,000 based on changes to the expected

likelihood of Kablooe reaching the specified earnings targets.

The resulting gain has been recorded as a component of other income on

the condensed consolidated statement of operations.

NOTE 5 SEGMENTS AND CONCENTRATIONS

5 unchanged sentences

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.

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

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.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The results of operations

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

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

Information by segment and

related reconciliations are shown in tables below:

related reconciliations are shown in the tables below:

Segment operating income (loss)

For the Three Months Ended

For the Nine Months Ended

OEM distribution

6 unchanged sentences

General corporate expenses

( 1,937,000 )

( 1,586,000 )

Total (loss)/income from operations

Other expense/(income), net

( 1,323,000 )

Other (income)/expense, net

(Loss)/income before income taxes

$ ( 430,000 )

$ ( 595,000 )

Depreciation and amortization:

9 unchanged sentences

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2 unchanged sentences

from two customers or their affiliates or contract manufacturers represented 25.0 % and 25.2 %, 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

net revenues for the three months ended December 31, 2022 and 2021, respectively.

For the three months ended

December 31, 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

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 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 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,

Revenues from this customer represented 14.4 % of the Company’s consolidated net revenues for the three

months ended December 31, 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 months ended December 31, 2021.

At December 31, 2022 and

September 30, 2022, 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 37.0 % and 28.1 %, respectively, of the Company’s consolidated accounts receivable at December 31, 2022 and September

At December 31, 2022, the

Company had one customer in the design segment whose accounts receivable balance accounted for 10% or more of the Company’s consolidated

accounts receivable.

Accounts receivable from this customer represented 11.5 % of the Company’s consolidated accounts receivable

at December 31, 2022.

There were no customers in the design segment whose individual percentage of the Company’s consolidated accounts

receivable was 10% or greater at September 30, 2022.

In March 2023, the Company’s

contract with one of its major diabetic customers in the OEM distribution segment will expire.

Due to increased pricing pressures, the

Company will not be extending its contract with this customer.

Revenue from this customer represented 12 % of our consolidated net revenues

for both the three months ended December 31, 2022 and 2021.

The Company expects the loss of this customer to cause a significant decline

in OEM distribution segment revenues in future periods.

NOTE 6 SHARE-BASED COMPENSATION

Stock Options

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.

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.

No options were granted during

the three months ended December 31, 2022.

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 per share.

The options expire five years from the date of grant, approximately

half vested immediately and approximately half vested one year from the date of grant.

The options had a weighted average grant-date fair

value of $ 1.03 per share and an aggregate grant-date fair value of $ 60,000 , which was be recognized ratably over the vesting period.

were no options exercised during the three months ended December 31, 2022 or 2021.

Company recognized compensation expense for stock option awards of $ 24,000 and $ 39,000 during the three months ended December 31, 2022

and 2021, respectively, which was recorded as a component of general and administrative expenses in its condensed consolidated statements

of operations.

At December 31, 2022, there was $ 24,000 of total unrecognized compensation cost related to nonvested stock option awards

that is expected to be recognized over a weighted average period of 0.5 years.

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

8 unchanged sentences

For the Three Months Ended

For the Nine Months Ended

Net (loss)/income

$ ( 430,000 )

$ ( 595,000 )

Weighted average common shares outstanding

6 unchanged sentences

For the Three Months Ended

For the Nine Months Ended

Total potentially dilutive shares

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2 unchanged sentences

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

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

The Supply Agreement provides that, upon the terms

and subject to the conditions set forth therein, Forward China will act as the Company’s exclusive buying agent and supplier of

Products (as defined in the Supply Agreement) in the Asia-Pacific region.

The Company purchases products at Forward China’s cost

and 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 $ 344,000

and $ 362,000

during the three months ended December 31, 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 $ 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.

The Company and Forward China have agreed to begin negotiations on a new sourcing agreement early in the

third quarter of Fiscal 2023.

While we believe a new agreement will be reached, we cannot provide any assurances that we will be successful.

If an agreement cannot be reached, which could have a significant impact on the Company’s operations, we will look at other alternatives

for our OEM and retail distribution businesses prior to the expiration of the agreement.

The Company has prepayments

to Forward China for inventory purchases of $ 20,000 at December 31, 2022 and September 30, 2022, which are included in prepaid expenses

and other current assets on the condensed consolidated balance sheets.

Promissory Note

6 unchanged sentences

The Company incurred and paid interest associated with this note of $ 28,000 and $ 32,000 ,

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.

respectively, in the three months ended December 31, 2022 and 2021, respectively.

The maturity date of this note was extended to December

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.

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, 2022, and this note has a remaining balance of $ 1,350,000

at December 31, 2022.

Other Related Party Activity

5 unchanged sentences

(“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.

The Company recognized revenues from the sale of Koble products of $ 497,000 and $ 540,000 in the three months ended December

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, 2023, may 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 under this

agreement for the three months ended December 31, 2022, of which $ 30,000 were included in selling and marketing expenses and $ 3,000 are

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

The Company had accounts payable to Justwise of $ 1,000 and

$ 15,000 at December 31, 2022 and September 30, 2022, respectively.

The Company recorded revenue

from a customer whose principal owner is an immediate family member of Jenny P.

Yu, a shareholder of the Company and managing director

of Forward China.

The Company recognized revenue from this customer of $ 134,000 and $ 266,000 for the three months ended December 31, 2022

and 2021, respectively.

The Company had no accounts receivable from this customer at December 31, 2022 or September 30, 2022.

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2 unchanged sentences

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

At December 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.

would be material to its business.

NOTE 10 LINE OF CREDIT

specifically IPS, has a $ 1,300,000

The Company, specifically

IPS, has a $ 1,300,000

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

4 unchanged sentences

The effective interest rate was 8.25 %

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

At June 30, 2022, the Company had $ 1,300,000

at December 31, 2022 and September 30, 2022, respectively.

At December 31, 2022, the Company had $ 1,300,000

available under the line of credit.

1 unchanged sentence

At September 30, 2022, 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 (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

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 11 LEASES

1 unchanged sentence

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

Cash paid for amounts included in operating lease liabilities

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 ,

Total operating lease expense for the three months ended December

31, 2022 was $ 148,000 , of which $1,000 was recorded in sales and marketing expenses and $147,000 was recorded in general and administrative

expenses on the condensed consolidated statement of operations.

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 statement of operations.

Cash paid for amounts included in operating lease liabilities for the

three months ended December 31, 2022 and 2021, which have been included in cash flows from operating activities, was $ 143,000 and $ 149,000 ,

respectively.

Details of operating lease expense are as follows:

Schedule of operating lease expense

For the Three Months Ended

For the Nine Months Ended

Operating lease expense included in:

Sales and marketing expense

General and administrative expense

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

At December 31, 2022, the

Company’s operating leases had a weighted average remaining lease term of 8.2 years and a weighted average discount rate of 5.7 %.

At December 31, 2022, future

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

Schedule of future minimum payments under operating & financial leases

Schedule of future minimum payments under operating leases

Remainder of Fiscal 2023

1 unchanged sentence

Less imputed interest

( 1,061,000 )

Present value of lease liabilities

Less current portion of lease liabilities

Long-term portion of lease liabilities

FORWARD INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other

current liabilities at December 31, 2022 and September 30, 2022 are as follows:

Schedule of accrued expenses and other accrued liabilities

September 30,

Accrued commissions/bonuses

Paid time off

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