What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2023-12-21 compared with 2022-12-16 · 174 added, 234 removed, 121 unchanged (77% of the section changed)

Forward Industries, Inc.

“we”, “our” or the “Company”), through its wholly-owned subsidiaries, Forward Industries (IN), Inc.

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

UK”), Intelligent Product Solutions, Inc.

(“Forward”, “we”, “our” or the “Company”), through its wholly-owned subsidiaries, Forward

Industries (IN), Inc.

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

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

(“IPS”), and Kablooe, Inc.

(“Kablooe”), is a global design, manufacturing,

sourcing and distribution group 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, IPS and Kablooe, we are 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.

The principal customer market

in our original equipment manufacturer (“OEM”) distribution business has been OEMs or the contract manufacturing firms of

these OEM customers, that either package our products as accessories “in box” together with their branded product offerings

or sell them through their retail distribution channels.

is a global design, sourcing and distribution company serving top tier medical and technology customers worldwide.

The principal customer in

our original equipment manufacturer (“OEM”) distribution business has been OEMs or the contract manufacturing firms of these

OEM customers, that either package our products as accessories “in box” together with their branded product offerings or sell

them through their retail distribution channels.

Our OEM products include carrying cases and other accessories for medical monitoring

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Our OEM customers are located in various regions worldwide.

Our retail distribution business,

which we began in 2019, 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 rollout of many of these products was delayed by COVID-19 as discussed below.

As we expanded our retail distribution network, we have been able to sell a variety of products through retailers such as Best Buy, Wayfair,

Walmart, Costco, and Amazon.

The manufacturer representative model allows us to engage and support a large sales team and cover a larger

territory with a variable cost model as these representatives work on commission only.

We do not manufacture any of

our OEM or retail distribution products and source substantially all these products from independent suppliers in China through Forward

Industries Asia-Pacific Corporation, a British Virgin Islands corporation (“Forward China”).

Forward China is owned by our

Chairman and Chief Executive Officer.

We do not manufacture

any of our OEM or retail distribution products and source substantially all these products from independent suppliers in China through

Forward Industries Asia-Pacific Corporation, a British Virgin Islands corporation (“Forward China”).

Forward China is owned

by our Chairman and Chief Executive Officer.

Our design business provides

a full spectrum of hardware and software product design and engineering services to customers predominantly located in the U.S.

Our expertise

in various disciplines enables us to serve a wide variety of industries and provide clients with a single source solution for concepts,

industrial design, mechanical engineering, embedded software and systems architecture, mobile and enterprise application software, and

optical engineering.

The outbreak of the COVID-19

virus had a significant impact on our business.

In Fiscal 2020, the business shutdowns resulting from the pandemic disrupted our supply

chain and the manufacture and shipment of our OEM products and delayed the rollout of our retail products.

Demand for our design and development

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

In Fiscal 2021, the economy

began to open across the world, and consumer demand grew much faster than manufacturers could satisfy, leading to extensive shipping delays,

a global shipping container shortage and higher ocean freight costs.

This continued to reduce the availability of many of our products

and increased their cost of importation.

The increase in consumer demand continued in Fiscal 2022, which dramatically increased demand

for ocean freight, particularly from the Asia-Pacific region.

Labor shortages at U.S.

ports and in ground transportation services caused

container ships to spend a significant amount of time waiting to be unloaded and to arrive at our warehouses, which caused an increase

in the demand for and cost of ground transportation.

These factors resulted in further cost increases and delayed consumer availability

for many of our products.

The impact of inflation in Fiscal 2022 caused an increase in the cost of acquiring and retaining employees in

our design business.

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 products and services and to choose to allocate their budgets to new or existing projects which may or may

not require our products and services.

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

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

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.

hardware and software product design and engineering services to customers predominantly located in the U.S.

Our expertise in various

disciplines enables us to serve a wide variety of industries and provide clients with a single source solution for concepts, industrial

design, mechanical engineering, embedded software and systems architecture, mobile and enterprise application software, and optical engineering.

Discontinued Operations

Considering the recurring losses incurred by the

retail segment, in July 2023, the Company decided to cease operations of our retail distribution segment and we are presenting the results

of operations for this segment within discontinued operations in the current and prior periods presented herein.

The discontinuation of

the retail segment represents a strategic shift in the Company’s business.

The primary assets of the retail segment are inventory

and accounts receivable.

The Company expects to sell, liquidate, or otherwise dispose of remaining retail inventory by June 30, 2024,

and to collect remaining retail accounts receivable by the end of fiscal 2024.

After this time, we expect to have no further significant

continuing involvement with the retail distribution segment.

The inventory of the retail segment is presented as discontinued assets held

for sale on the balance sheets at September 30, 2023 and 2022 and the results of operations for the retail segment have been classified

as discontinued operations on the consolidated statements of operations for the years ended September 30, 2023 and 2022.

All information

and results in this annual report on Form 10-K exclude the discontinued operations unless otherwise noted.

See Note 3 to our consolidated

financial statements for additional information on discontinued operations.

On May 11, 2023, the U.S.

Department of Health and Human Services declared the end of the Public Health Emergency for COVID-19;

however, the effects of COVID-19

continue to linger throughout the global economy and our businesses.

Though the severity of COVID-19 has subsided, new variants, or the

outbreak of a new pathogen, could interrupt business, cause renewed labor and supply chain disruptions, and negatively impact the global

and US economy, which could materially and adversely impact our businesses.

Corporate History

Forward was incorporated in 1961

as a manufacturer and distributer of advertising specialty and promotional products.

In 1989, we acquired Forward US, a manufacturer of

soft-sided carrying cases.

Forward was incorporated

in 1961 as a manufacturer and distributer of advertising specialty and promotional products.

In 1989, we acquired Forward US, a manufacturer

of soft-sided carrying cases.

The carrying case business became our predominant business, and in September 1997, we sold the assets relating

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Forward Switzerland was significantly reduced and in recent years has primarily served our OEM customers in Europe.

In January 2018, Forward acquired

IPS, an engineering design company, and in August 2020, Forward acquired the assets of Kablooe Design, a medical and consumer design and

development company.

We believe that the design and engineering service capabilities of Kablooe will complement the IPS business and further

diversify the industries and customers with which we do business.

In January 2018, Forward

acquired IPS, an engineering design company, and in August 2020, Forward acquired the assets of Kablooe Design, a medical and consumer

design and development company.

We believe that the design and engineering service capabilities of Kablooe has complemented the IPS business

and further diversified the industries and customers with which we do business.

Our OEM distribution customers

are located in all geographic regions worldwide.

Our retail distribution customers are predominantly located in the U.S.

Our design business provides

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

The wide range of industries served

includes industrial electronics, medical and dental equipment, food/beverage, certain luxury brands, and oil/gas.

Our design customers

are located primarily in the U.S.

Our design business provides services to Fortune 500 companies, established mid-level

companies, and start-ups.

The wide range of industries served includes industrial electronics, medical and dental equipment, food/beverage,

certain luxury brands, and oil/gas.

Our design customers are located primarily in the U.S.

Our products include carrying

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(such as sporting and recreational products, bar code scanners, GPS location devices, tablets, and firearms).

Our products also include

smart-enabled furniture, hot tubs and a variety of other products sold through our retail distribution network.

We do not manufacture

any of our products and we source substantially all our products from independent suppliers in China through Forward China, a related

party (see Note 13 to the consolidated financial statements).

We do not manufacture any

of our products and we source substantially all our products from independent suppliers in China through Forward China, a related party

(see Note 14 to the consolidated financial statements).

Diabetic Products

We sell carrying cases for blood

glucose diagnostic kits directly to OEM customers, or their contract manufacturers.

These electronic monitoring kits are made for use

by diabetics.

We sell carrying cases for

blood glucose diagnostic kits directly to OEM customers, or their contract manufacturers.

These electronic monitoring kits are made for

use by diabetics.

The diabetic products customer (or its contract manufacturer) packages our carry cases “in box” as a custom

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Other Products

We also sell carrying and protective

solutions to customers for a diverse array of other portable electronic and other products, including sporting and recreational products,

bar code scanners, GPS location devices, tablets, and firearms, on a made-to-order basis that are customized to fit the products sold

by our customers.

Our selling prices for these products vary across a broad range, depending on the size and nature of the product for

which we design and sell the carry solution.

Retail Products

In Fiscal 2020, as a result of

the build out and growth of our retail distribution network, we began selling smart-enabled products, such as speakers and lamps that

provide lighting and sound with Bluetooth® connectivity.

In Fiscal 2021, we began expanding our retail product offerings to include

additional smart-enabled furniture, such as desks and side tables, as well as hot tubs and various other products that are sold through

retailer websites.

We also sell carrying and

protective solutions to customers for a diverse array of other portable electronic and other products, including sporting and recreational

products, bar code scanners, GPS location devices, tablets, and firearms, on a made-to-order basis that are customized to fit the products

sold by our customers.

Our selling prices for these products vary across a broad range, depending on the size and nature of the product

for which we design and sell the carry solution.

Design Products

Our design business provides

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sale through its retail distribution channels.

In the retail division, we work

with various retailers to understand their product requirements and specifications and consumer demand and utilize our sourcing resources

to obtain products that meet these needs.

Additionally, we have a portfolio of retail products that we share with retailers to gauge the

level of consumer interest.

We receive design and marketing services for some retail products from The Justwise Group Ltd., a company

owned by Terence Wise, our Chairman, Chief Executive Officer and largest shareholder.

Services offered in our design

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Channels of Distribution

We primarily ship our OEM distribution

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

branded products.

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

their product offerings.

We primarily ship our retail

distribution products directly to end customers from distribution centers located in the U.S.

We may also ship certain retail

products directly to some larger retailers.

We continue to evaluate our strategy for the retail distribution business in an effort to

increase profitability and match our product offerings with consumer demand.

We ship the majority of our

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

with their branded products.

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

to complement their product offerings.

Distribution Hubs for Customers

We have arrangements with certain

customers’ distribution hubs.

These arrangements obligate us to supply our products to our customers’ distribution hubs where

their products are manufactured, kitted, and/or warehoused pending sale, and where our products are packaged “in box” with

the distribution customers’ products.

The product quantities we are required to supply to each distribution hub are based on the

distribution customer’s purchase orders and forecasts.

We do not recognize revenue for product shipped to a customer’s hub

until we have been notified by our customer that our product has been used by the distribution hub.

Hub arrangements have had the general

effect of providing financing for our customers’ inventory purchases by extending the time between our placement of orders to our

suppliers and the time that we are able to recognize revenue.

We have arrangements with

certain customers’ distribution hubs.

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

hubs where their products are manufactured, kitted, and/or warehoused pending sale, and where our products are packaged “in box”

with the distribution customers’ products.

The product quantities we are required to supply to each distribution hub are based on

the distribution customer’s purchase orders and forecasts.

We do not recognize revenue for product shipped to a customer’s

hub until we have been notified by our customer that our product has been used by the distribution hub.

Hub arrangements have had the

general effect of providing financing for our customers’ inventory purchases by extending the time between our placement of orders

to our suppliers and the time that we are able to recognize revenue.

The corollary effect is an increase in our inventory levels.

Third-Party and Consignment Warehouses

We also have arrangements with

third-party warehouses and consignment warehouses of major retailers in the U.S.

and Canada to store, manage and ship our retail products.

We do not recognize revenue for retail products shipped to any of these warehouses until the product has been shipped to the end customer

and our performance obligation is complete.

Product Supply

Manufacturing

The manufacture of custom carrying

cases and other carry and protective solutions generally consists of die cutting fabrics and heat sealing, gluing, sewing, and affixing

logos to the cut-outs by means of silk screening, hot-stamping, embroidering or embossing.

The principal materials used in the manufacture

of our products are vinyl, nylon, leather, metal and plastic parts (for clips, buckles, loops, hinges and other hardware), foam padding

and cardboard, all of which are obtained from suppliers based on our specifications.

The manufacture of smart furniture

consists of laser cutting, punching, welding and powder coating the various parts and finished product, including lamination, board cutting

and drilling for certain products.

The main materials used include particle board, engineered wood composite, tempered glass and metal.

The manufacture of certain other retail products includes mold creation and assembly and uses various plastics and light components.

We do not believe that any of

the component materials or parts used in the manufacture of our products are supply constrained.

We believe that there are adequate available

alternative sources of supply for all of the materials used to manufacture, package, and ship our products.

The manufacture of custom

carrying cases and other carry and protective solutions generally consists of die cutting fabrics and heat sealing, gluing, sewing, and

affixing logos to the cut-outs by means of silk screening, hot-stamping, embroidering or embossing.

The principal materials used in the

manufacture of our products are vinyl, nylon, leather, metal and plastic parts (for clips, buckles, loops, hinges and other hardware),

foam padding and cardboard, all of which are obtained from suppliers based on our specifications.

We do not believe that any

of the component materials or parts used in the manufacture of our products are supply constrained.

We believe that there are adequate

available alternative sources of supply for all of the materials used to manufacture, package, and ship our products.

Dependence on Sourcing Agent

We have a Buying Agency and Supply

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

The Supply Agreement provides that Forward China acts as our exclusive

buying agent for the products we sell.

We have a Buying Agency and

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

The Supply Agreement provides that Forward China acts as our

exclusive buying agent for the products we sell.

Forward China also arranges for sourcing, manufacture and exportation of such products.

products at Forward China’s cost and pay them a monthly service fee calculated at $100,000 plus 4% of “Adjusted Gross Profit”,

which is defined as the selling price less the cost from Forward China.

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

Wise, our Chairman, Chief Executive Officer and largest shareholder, is the owner of Forward China.

See “Item 1A.

– Risk Factors”

regarding our dependence on Forward China.

We procure substantially all

our OEM and retail distribution products from independent suppliers in China through Forward China.

We purchase products at Forward China’s cost and through March 2023 paid them a monthly service fee calculated at $100,000 plus

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

Considering the loss

of a significant OEM distribution customer (see Note 16 to the consolidated financial statements), 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 Supply Agreement, which expired in October 2023, resulting in cash savings of $100,000 in Fiscal 2023.

Effective October 2023, the

Company and Forward China entered into a new sourcing agreement under which the fixed portion of the sourcing fee was further reduced

to $65,833 per month.

Other terms in the agreement are substantially the same as the prior agreement.

Due to the Company’s decision

to cease operations of its retail distribution segment and the decline in the OEM distribution segment business, the new sourcing agreement

expires October 31, 2024.

Terence Wise, our Chairman, Chief Executive Officer and largest shareholder, 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.

– Risk Factors” regarding our dependence on Forward China.

We procure substantially

all our OEM distribution products from independent suppliers in China through Forward China.

Depending on the product, we may require

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In July 2015, Forward China received its ISO 9001:2008 quality certification, which was renewed and is valid until July 2024.

Our design business follows general

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

There are no independent quality assurance

standards in place for its design and engineering work.

Customer specifications and scope of services are laid out in the project contracts

and we work closely with the customer to identify and correct any quality issues that arise.

Our design business follows

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

There are no independent quality

assurance standards in place for its design and engineering work.

Customer specifications and scope of services are laid out in project

contracts and we work closely with the customer to identify and correct any quality issues that arise.

Distribution Business

Our OEM and retail distribution

businesses are highly competitive in terms of product pricing, design, delivery terms, and customer service.

In the production of our

distribution products, we compete with numerous U.S.

Our OEM distribution business

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

In the production of our distribution

products, we compete with numerous U.S.

and foreign producers and distributors.

Some of our competitors are substantially

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

We believe that we sustain our competitive position through maintenance

of an effective product design capability, rapid response time to customer requests for proposals and product shipment, reliable product

delivery and product quality, and competitive pricing.

We believe that our ability to compete based on product quality assurance considerations

is enhanced by Forward China’s local presence, quality control, shipment capabilities and expertise in sourcing.

Some of our competitors are substantially larger than

we are and have greater financial and other resources.

We believe that we sustain our competitive position through maintenance of an effective

product design capability, rapid response time to customer requests for proposals and product shipment, reliable product delivery and

product quality, and competitive pricing.

We believe that our ability to compete based on product quality assurance considerations is

enhanced by Forward China’s local presence, quality control, shipment capabilities and expertise in sourcing.

Design Business

The depth and breadth of services

offered and industries served by our design segment are unique.

Our management team is aware that there are very few competitive firms

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

The depth and breadth of

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

Our management team is aware that there are very few competitive

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

There are, however, numerous design and engineering

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Human Capital/Employees

As of November 30, 2022, we had approximately

100 employees, substantially all of whom work full-time, none of which are covered by a collective bargaining agreement.

We hire consultants

on an as-needed basis.

Human capital management is critical

to our ongoing business success, which requires investing in our people.

Our aim is to create a highly engaged and motivated workforce

where employees are inspired by leadership, engaged in purpose-driven, meaningful work and have opportunities for growth and development.

As of November 30, 2023,

we had approximately 100 employees, substantially all of whom work full-time, none of which are covered by a collective bargaining

We hire consultants on an as-needed basis.

Human capital management

is critical to our ongoing business success, which requires investing in our people.

Our aim is to create a highly engaged and motivated

workforce where employees are inspired by leadership, engaged in purpose-driven, meaningful work and have opportunities for growth and

We are committed to creating and maintaining a work environment in which employees are treated with respect and dignity.

value our diverse employees and provide career and professional development opportunities that foster the success of our company.

An effective approach to human

capital management requires that we invest in talent, development, culture and employee engagement.

We aim to create an environment where

our employees are encouraged to make positive contributions and fulfill their potential.

We emphasize our core values of innovation, encouragement,

motivation, and curiosity with our employees to instill our culture and create an environment of growth and positivity.

Our Compensation Committee is

also actively involved in reviewing and approving executive compensation, and succession plans so that we have leadership in place with

the requisite skills and experience to deliver results the right way.

We value our diverse employees and provide career and professional development opportunities that foster the success of our company.

An effective approach to

human capital management requires that we invest in talent, development, culture and employee engagement.

We aim to create an environment

where our employees are encouraged to make positive contributions and fulfill their potential.

We emphasize our core values of innovation,

encouragement, motivation, and curiosity with our employees to instill our culture and create an environment of growth and positivity.

Our Compensation Committee

is also actively involved in reviewing and approving executive compensation, and succession plans so that we have leadership in place

with the requisite skills and experience to deliver results the right way.

We offer fair, competitive compensation and benefits that support

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tuition reimbursement (if certain requirements are met).

Impact of COVID-19

The health and well-being of

our employees is of utmost importance to us.

Starting in March 2020, the majority of our employees transitioned to a remote workforce.

Since that time, our employees have demonstrated resilience, wisdom, commitment, and compassion in working with our customers.

As conditions

improved, employees in the U.S.

were encouraged to return to their offices.

We encourage all employees to follow Centers for Disease Control

and Prevention and local guidelines and recommendations.

Regulation and Environmental Protection

Our retail and OEM distribution

businesses are subject to various regulations in various jurisdictions, including the U.S.

and member states of the European Union, that

restrict the use or importation of products manufactured with compounds deemed to be hazardous.

Our OEM distribution business

is subject to various regulations in various jurisdictions, including the U.S., Canada and member states of the European Union, that restrict

the use or importation of products manufactured with compounds deemed to be hazardous.

We work with our suppliers to ensure compliance

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become more prevalent.

We have not been engaged in any

environmental litigation or incurred any material costs related to compliance with environmental or other regulations.

From time to time,

we incur chemical and/or safety laboratory testing expenses in order to address customer requests regarding our product materials or method

of manufacture, or regarding their packaging methods and standards.

We have not been engaged

in any environmental litigation or incurred any material costs related to compliance with environmental or other regulations.

to time, we incur chemical and/or safety laboratory testing expenses in order to address customer requests regarding our product materials

or method of manufacture, or regarding their packaging methods and standards.

There are no specific regulatory

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Available Information

Our corporate website is www.forwardindustries.com.

On our website under “Investors” "SEC Filings", we make available access to our Annual Reports on Form 10-K, Quarterly

Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements on Schedule 14A and amendments to those materials filed or furnished

pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”), free of charge.

of the website are not incorporated into this report.

Our corporate website is

www.forwardindustries.com.

On our website under “Investors” "SEC Filings", we make available access to our Annual

Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements on Schedule 14A and amendments to

those materials filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”),

free of charge.

The contents of the website are not incorporated into this report.

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

What changed 10-K

Item 1. Business