What changed in this filing

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Item 1. Financial Statements

2023-05-12 compared with 2023-02-14 · 334 added, 268 removed, 402 unchanged (60% of the section changed)

31 unchanged sentences

40,000,000 shares authorized;

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

2022 and September 30, 2022

10,061,185 shares issued and outstanding at March 31, 2023 and September 30, 2022

Additional paid-in capital

8 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended

For the Three Months Ended March 31,

For the Six Months Ended March 31,

Revenues, net

2 unchanged sentences

General and administrative expenses

(Loss)/income from operations

Loss from operations

( 1,310,935 )

Fair value adjustment of earnout consideration

Interest expense

Other (income)/expense, net

(Loss)/income before income taxes

Interest income

Other expense/(income), net

Loss before income taxes

( 1,301,223 )

Provision for income taxes

Net (loss)/income

$ ( 870,948 )

(Loss)/earnings per share:

$ ( 356,335 )

$ ( 1,301,223 )

$ ( 176,311 )

Loss per share:

Weighted average common shares outstanding:

3 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

For the Three Months Ended December 31, 2022

For the Three and Six Months Ended March 31, 2023

Balance at September 30, 2022

3 unchanged sentences

( 14,380,171 )

For the Three Months Ended December 31, 2021

Share-based compensation

Balance at March 31, 2023

$ ( 15,251,119 )

For the Three and Six Months Ended March 31, 2022

Balance at September 30, 2021

3 unchanged sentences

( 12,391,621 )

Share-based compensation

Balance at March 31, 2022

$ ( 12,747,956 )

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

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended

For the Six Months Ended March 31,

Operating Activities:

Net (loss)/income

$ ( 1,301,223 )

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

operating activities:

$ ( 176,311 )

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

Share-based compensation

4 unchanged sentences

Accounts receivable

( 1,834,922 )

Prepaid expenses and other current assets

15 unchanged sentences

Cash paid for interest

Cash paid for taxes

Supplemental Disclosures of Non-Cash Information:

2 unchanged sentences

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 OVERVIEW

Forward Industries, Inc.

1 unchanged sentence

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.

Through the growth in our design segment, 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 six months

ended March 31 2023, the Company generated a net loss of $1,301,000,

and used $50,000 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.

will be sufficient to meet our liquidity needs through at least May 31, 2024.

At March 31, 2023, the Company had $ 1,300,000 of

borrowing available under its line of credit with a bank that was renewed in March 2023 and has a maturity date of May 31, 2024 (see

Considering the loss of a significant OEM distribution segment customer (see Note 5), management reduced its OEM

distribution segment sales and marketing personnel in March 2023 and 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

Effective April 1, 2023, the Company and Forward China agreed to reduce the fixed portion of the sourcing fee from $100,000

to $83,333 per month for the remaining term of the agreement, which is expected to result in cash savings of $100,000 for the

remainder of the 2023 fiscal year.

The Company and Forward China have begun negotiations on a new sourcing agreement.

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.

In light of these events, and the continued retail

distribution segment operating losses, management is planning to further evaluate the Company’s OEM and retail distribution

segment cost structures and implement additional cost cutting initiatives as deemed necessary.

Impact of COVID-19

The effects of the COVID-19

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 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,

including their ability to pay for our services and to choose to allocate their budgets to new or existing projects which may or may not

require our services.

The effects of the COVID-19 pandemic

continue to impact our business with high capitalized inventory costs for inbound ocean freight, particularly from the Asia-Pacific region,

and expenses associated with outbound ground transportation.

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

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 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, including

their ability to pay for our services and to choose to allocate their budgets to new or existing projects which may or may not require

our services.

The long-term financial impact on our business cannot be reasonably estimated at this time.

As a result, the effects

of COVID-19 may not be fully reflected in our financial results until future periods.

Until the effects of the

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;

As a result, the effects of

COVID-19 may not be fully reflected in our financial results until future periods.

Until the effects of the pandemic

and associated inflationary impact 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

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.

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

NOTE 2 ACCOUNTING POLICIES

NOTE 2 ACCOUNTING

Basis of Presentation

14 unchanged sentences

adjustments necessary to present fairly the financial position and results of operations and cash flows for the interim periods presented

herein but are not necessarily indicative of the results of operations for the year ending September 30, 2023.

These condensed consolidated

financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in its

Annual Report on Form 10-K for the fiscal year ended September 30, 2022, and with the disclosures and risk factors presented therein.

The September 30, 2022 condensed consolidated balance sheet has been derived from the audited consolidated financial statements.

herein but are not necessarily indicative of the results of operations for Fiscal 2023.

These condensed consolidated financial statements

should be read in conjunction with the Company’s audited consolidated financial statements included in its Annual Report on Form

10-K for the fiscal year ended September 30, 2022, and with the disclosures and risk factors presented therein.

The September 30, 2022

condensed consolidated balance sheet has been derived from the audited consolidated financial statements.

Accounting Estimates

The preparation of the Company’s

condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America

GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities

and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts

of revenues and expenses during the reporting periods.

The preparation of the

Company’s condensed consolidated financial statements in conformity with accounting principles generally accepted in the United

States of America (“U.S.

GAAP”) requires management to make estimates and assumptions that affect the reported amounts of

assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements

and the reported amounts of revenues and expenses during the reporting periods.

Actual results could differ from those estimates and assumptions.

8 unchanged sentences

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

smart-enabled furniture, hot tubs and saunas, and a variety of other products through various online retailer websites to customers predominantly

located in the U.S.

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

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.

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

Accounts receivable consist of

unsecured trade accounts with customers in amounts that have been invoiced ($ 8,430,000 and $ 7,861,000 at March 31, 2023 and September

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

2 unchanged sentences

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 December 31, 2022

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

2023 and September 30, 2022, the Company had no allowances for doubtful accounts for the OEM distribution segment, allowances for doubtful

accounts of $ 48,000 and $ 20,000 , respectively, for the retail distribution segment and $ 851,000 and $ 852,000 , respectively, for the design

The Company has agreements with

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

At March 31, 2023 and September

30, 2022, the Company recorded accounts receivable allowances of $ 153,000 and $ 55,000 , respectively, for the retail distribution segment.

Inventories consist primarily

6 unchanged sentences

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

At December 31, 2022 and September

At March 31, 2023 and September

30, 2022, the allowance for slow-moving inventory, which relates entirely to our retail segment, was $ 657,000 and $ 535,000 , respectively.

11 unchanged sentences

The OEM distribution segment had no contract liabilities

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

at March 31, 2023, September 30, 2022 or September 30, 2021.

Retail Distribution Segment

12 unchanged sentences

in the accompanying condensed consolidated balance sheets.

The retail distribution segment had no contract liabilities at December 31,

The retail distribution segment had no contract liabilities at March 31, 2023,

September 30, 2022 or September 30, 2021.

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Design Segment

The Company applies the “cost

to cost” and “right to invoice” methods of revenue recognition to the contracts with customers in the design segment.

The Company applies the

“cost to cost” and “right to invoice” methods of revenue recognition to the contracts with customers in the design

The design segment typically engages in two types of contracts:

(i) time and material and (ii) fixed price.

The Company recognizes revenue

over time on its time and material contracts utilizing a “right to invoice” method.

Revenues from fixed price contracts that

require performance of services that are not related to the production of tangible assets are recognized by using cost inputs to measure

progress toward the completion of its performance obligations, or the “cost to cost” method.

The Company recognizes

revenue over time on its time and material contracts utilizing a “right to invoice” method.

Revenues from fixed price contracts

that contain specific deliverables are recognized when the performance obligation has been satisfied or the transfer of goods to the customer

has been completed and accepted.

that require performance of services that are not related to the production of tangible assets are recognized by using cost inputs to

measure progress toward the completion of its performance obligations, or the “cost to cost” method.

Revenues from fixed price

contracts that contain specific deliverables are recognized when the performance obligation has been satisfied or the transfer of goods

to the customer has been completed and accepted.

Recognized revenues that

2 unchanged sentences

The design segment had contract assets of $ 807,000 , $ 609,000 and $ 693,000 at

December 31, 2022, September 30, 2022 and September 30, 2021, respectively.

March 31, 2023, September 30, 2022 and September 30, 2021, respectively.

Contracts where collections to date have exceeded recognized

1 unchanged sentence

consolidated balance sheets.

The design segment had contract liabilities of $ 335,000 , $ 439,000 and $ 188,000 at December 31, 2022, September

The design segment had contract liabilities of $ 166,000 , $ 439,000 and $ 188,000 at March 31, 2023, September

30, 2022 and September 30, 2021, respectively.

17 unchanged sentences

the fair value of a reporting unit.

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

Management evaluated and concluded that there were no indications goodwill was impaired at March 31,

Intangible Assets

Intangible assets include

trademarks and customer relationships, which were acquired as part of the acquisitions of IPS in Fiscal 2018 and Kablooe in Fiscal 2020

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

Our intangible assets are

reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

In assessing the recoverability of our intangible assets, we must make estimates and assumptions regarding future cash flows and other

factors to determine the fair value of the respective assets.

These estimates and assumptions could have a significant impact on whether

an impairment charge is recognized and the magnitude of any such charge.

Fair value estimates are made at a specific point in time, based

on relevant information.

These estimates are subjective in nature and involve uncertainties and matters of significant judgments and therefore

cannot be determined with precision.

Intangible assets include trademarks

and customer relationships, which were acquired as part of the acquisitions of IPS in Fiscal 2018 and Kablooe in Fiscal 2020 and are amortized

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

Our intangible assets are reviewed

for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

the recoverability of our intangible assets, we must make estimates and assumptions regarding future cash flows and other factors to determine

the fair value of the respective assets.

These estimates and assumptions could have a significant impact on whether an impairment charge

is recognized and the magnitude of any such charge.

Fair value estimates are made at a specific point in time, based on relevant information.

These estimates are subjective in nature and involve uncertainties and matters of significant judgments and therefore cannot be determined

with precision.

Changes in assumptions could significantly affect the estimates.

If these estimates or material related

assumptions change in the future, we may be required to record impairment charges related to our intangible assets.

Management evaluated

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

If these estimates or material related assumptions change

in the future, we may be required to record impairment charges related to our intangible assets.

Management evaluated and concluded that

there were no indications of impairments of intangible assets at March 31, 2023.

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2 unchanged sentences

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

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

At March 31, 2023, 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.

11 unchanged sentences

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.

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.

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.

Lease assets and liabilities

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

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

one readily available.

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

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

Lease assets represent

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

to make lease payments arising from the lease.

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

Lease assets and

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

Company’s incremental borrowing rate commensurate with the lease term, since the Company’s lessors do not provide an implicit

rate, nor is one readily available.

Certain leases may include an option to renew and when it is reasonably probable to exercise such

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

Lease assets represent the

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

make lease payments arising from the lease.

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

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

The current and long-term

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

The current and long-term portions

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

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Recent Accounting Pronouncements

7 unchanged sentences

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

December 31, 2022

March 31, 2023

September 30, 2022

11 unchanged sentences

relationships.

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 related to intangible assets was $ 53,000 for the three months ended March 31, 2023 and 2022, and $ 106,000

for the six months ended March 31, 2023 and 2022, which is included in general and administrative expenses on the condensed consolidated

statements of operations.

At March 31, 2023, estimated

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

2 unchanged sentences

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

4 unchanged sentences

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

NOTE 4 FAIR VALUE MEASUREMENTS

earnout consideration of $ 30,000 and $ 70,000 at December 31, 2022 and September 30, 2022, respectively, represents the fair value of the

NOTE 4 FAIR VALUE

earnout consideration of $ 30,000 and $ 70,000 at March 31, 2023 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

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FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Information by segment and

related reconciliations are shown in the tables below:

related reconciliations are shown in tables below:

Segment operating income (loss)

For the Three Months Ended

For the Three Months Ended March 31,

For the Six Months Ended March 31,

OEM distribution

4 unchanged sentences

Retail distribution

Total segment operating income

( 1,062,000 )

Total segment operating (loss)/income

General corporate expenses

( 1,352,000 )

( 1,322,000 )

Total (loss)/income from operations

( 1,311,000 )

Other (income)/expense, net

1 unchanged sentence

$ ( 871,000 )

$ ( 356,000 )

$ ( 1,301,000 )

$ ( 176,000 )

Depreciation and amortization:

2 unchanged sentences

Schedule of segment assets

September 30,

Segment Assets:

3 unchanged sentences

General corporate assets

The Company had certain

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

Revenues from one customer or its affiliates or contract manufacturers represented 12.7 % of the Company’s consolidated net revenues

for the three months ended March 31, 2023 and revenues from two customers represented 26.2 % of the Company’s consolidated net revenues

for the three months ended March 31, 2022.

Revenues from two customers or their affiliates or contract manufacturers represented 22.6 %

and 25.7 % of the Company’s consolidated net revenues for the six months ended March 31, 2023 and 2022, respectively.

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 25.0 % and 25.2 %, respectively, 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

For the three and six months

ended March 31, 2023, 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 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

Revenues from this customer represented 24.1 % and 11.7 % of the Company’s consolidated net revenues

for the three months ended March 31, 2023 and 2022, respectively, and 19.2 % and 10.2 % of the Company’s consolidated net revenues

for the six months ended March 31, 2023 and 2022, respectively.

At March 31, 2023 and

September 30, 2022, the Company had customers in the OEM distribution segment whose accounts receivable balance accounted for 10% or more

1 unchanged sentence

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

represented 31.3 % and 28.1 %, respectively, of the Company’s consolidated accounts receivable at March 31, 2023 and September 30,

At March 31, 2023, the

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

1 unchanged sentence

Accounts receivable from this customer represented 19.6 % of the Company’s consolidated accounts receivable

at December 31, 2022.

at March 31, 2023.

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

1 unchanged sentence

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.

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

Due to increased pricing pressures, the Company

did not extend its contract with this customer.

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

for both the six months ended March 31, 2023 and 2022.

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

1 unchanged sentence

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.

the six months ended March 31, 2023.

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 vested 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 was 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 vested 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 is 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 vested one year from the date of grant and expire five years from the date

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 was recognized ratably over the vesting period.

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 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.

were no options exercised during the six months ended March 31, 2023 or 2022.

Company recognized compensation expense for stock option awards of $ 15,000 and $ 66,000 during the three months ended March 31, 2023 and

2022, respectively, and $ 39,000 and $ 105,000 during the six months ended March 31, 2023, respectively, which was recorded as a component

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

At March 31, 2023, there was $ 9,000 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.

NOTE 7 EARNINGS

7 unchanged sentences

Schedule of earnings (loss) per share

For the Three Months Ended

Net (loss)/income

For the Three Months Ended March 31,

For the Six Months Ended March 31,

$ ( 871,000 )

$ ( 356,000 )

$ ( 1,301,000 )

$ ( 176,000 )

Weighted average common shares outstanding

1 unchanged sentence

Weighted average diluted shares outstanding

(Loss)/earnings per share:

The following securities

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

Loss per share:

The following

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

Schedule of antidilutive securities excluded

For the Three Months Ended

For the Three Months Ended March 31,

For the Six Months Ended March 31,

Total potentially dilutive shares

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 RELATED PARTY

NOTE 8 RELATED

PARTY TRANSACTIONS

Buying Agency and Supply

The Company has a Buying

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

The Supply Agreement provides that, upon the terms

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

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

The Company purchases products at Forward China’s cost

and 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 Company has a

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

The Supply Agreement provides that, upon

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

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

The Company purchases products at Forward

China’s cost and 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

Terence Wise, Chief

Executive Officer and Chairman of the Company, is the owner of Forward China.

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

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 $ 349,000

and $ 350,000

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 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.

during the three months ended March 31, 2023 and 2022, respectively, and $ 694,000

and $ 712,000

during the six months ended March 31, 2023 and 2022, respectively, which are included as a component of cost of sales upon sales of

the related products.

Considering the loss of a significant OEM distribution customer (see Note 5), effective April 1, 2023, the

Company and Forward China agreed to reduce the fixed portion of the sourcing fee from $100,000

per month for the remaining term of the Supply Agreement, which is expected to result in cash savings of $100,000

for the remainder of Fiscal 2023.

The Company and Forward China have begun negotiations on a new sourcing agreement.

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.

to Forward China for inventory purchases of $ 20,000 at March 31, 2023 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 $ 26,000 and $ 31,000

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

in the three months ended March 31, 2023 and 2022, respectively, and $ 54,000 and $ 63,000 in the six months ended March 31, 2023 and 2022,

respectively.

The maturity date of this note was extended to December 31, 2024 .

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.

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, 2023, and this note has a remaining balance of $ 1,300,000 at March 31, 2023.

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.

The Company sells 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 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 Koble brand is owned by The Justwise

(“Justwise”), a company owned by Terence Wise, Chief Executive Officer and Chairman of the Company.

recognized revenues from the sale of Koble products of $ 543,000 and $ 441,000 in the three months ended March 31, 2023 and 2022, respectively,

and $ 1,041,000 and $ 981,000 in the six months ended March 31, 2023 and 2022, respectively.

The Company has 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’

The Company incurred costs of $ 33,000 and $ 65,000 under this agreement for the three and six months ended March 31, 2023, respectively,

of which $ 30,000 and $ 60,000 , respectively, were included in selling and marketing expenses and $ 3,000 and $ 5,000 , respectively, are included

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

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.

The Company had accounts payable to

Justwise of $ 1,000 and $ 15,000 at March 31, 2023 and September 30, 2022, respectively.

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company recorded revenue

2 unchanged sentences

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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company recognized revenue from this customer of $ 251,000 and $ 135,000 for the three months ended March 31, 2023

and 2022, respectively, and $ 385,000 and $ 401,000 for the six months ended March 31, 2023 and 2022, respectively.

The Company had no accounts

receivable from this customer at March 31, 2023 or September 30, 2022.

NOTE 9 LEGAL PROCEEDINGS

1 unchanged sentence

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

At December 31, 2022, there were no such actions

At March 31, 2023, 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

2 unchanged sentences

The Company, 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.

IPS, has a $ 1,300,000 revolving line of credit with a bank which was renewed in March 2023.

The line of credit has a maturity date of

May 31, 2024 , 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 8.25 %

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.

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

The effective interest rate was 8.75 % and 7.0 % at March 31, 2023 and September 30, 2022,

respectively.

At March 31, 2023, 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, 2022, the Company was in compliance with such covenants.

1 unchanged sentence

The Company’s operating

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

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 ,

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

Cash paid for amounts included in operating lease liabilities

for the six months ended March 31, 2023 and 2022, which have been included in cash flows from operating activities, was $ 286,000 and $ 294,000 ,

respectively.

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 leases

Details of operating lease expense are as follows:

Schedule of operating lease expense

For the Three Months Ended March 31,

For the Six Months Ended March 31,

Operating lease expense included in:

Sales and marketing expense

General and administrative expense

At March 31, 2023, the Company’s

operating leases had a weighted average remaining lease term of 8.0 years and a weighted average discount rate of 5.7 %.

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

At March 31, 2023, future minimum

payments under non-cancellable operating leases were as follows:

Schedule of future minimum payments under operating & financial leases

Remainder of Fiscal 2023

4 unchanged sentences

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:

Accrued expenses and other current

liabilities at March 31, 2023 and September 30, 2022 are as follows:

Schedule of accrued expenses and other accrued liabilities

3 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