What changed in this filing

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Item 9A. Controls and Procedures

2023-12-21 compared with 2022-12-16 · 703 added, 639 removed, 647 unchanged (67% of the section changed)

1 unchanged sentence

Evaluation of Disclosure Controls and Procedures

Our management carried out an

evaluation, with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of our disclosure

controls and procedures as defined in Rule 13a-15(e) under the Exchange Act.

Our management carried out

an evaluation, with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of our

disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act.

Based on their evaluation, our Principal Executive Officer

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over financial reporting as of September 30, 2023, was effective based on that criteria.

Our internal control over financial

reporting is a process designed under the supervision of our Principal Executive Officer and Principal Financial Officer to provide reasonable

assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes

Our internal control over

financial reporting is a process designed under the supervision of our Principal Executive Officer and Principal Financial Officer to

provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external

reporting purposes in accordance with U.S.

Internal control over financial reporting includes those policies and procedures that

(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions

of our assets;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements

in accordance with U.S.

Internal control over financial reporting includes those policies and procedures that (i) pertain to the

maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with

GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors;

(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets

that could have a material effect on the financial statements.

GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management

and directors;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition

of our assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations,

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Changes in Internal Control

There were no changes in our

internal control over financial reporting identified in management's evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange

There were no changes in

our internal control over financial reporting identified in management's evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange

Act during the fourth quarter of Fiscal 2023 that materially affected, or are reasonably likely to materially affect, our internal

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OTHER INFORMATION

On December 14, 2023, the Board of Directors

approved the following changes to the Fiscal 2024 non-employee director (“NED”) and Chief Executive Officer

(“CEO”) compensation:

• NED compensation was

reduced by 25% (resulting in a cost savings of $50,000)

• CEO compensation was reduced by 25%

(resulting in a cost savings of $84,250)

DISCLOSURE REGARDING FOREIGN JURISDICTIONS

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AND CORPORATE GOVERNANCE

The information required by this

item is incorporated by reference to our Proxy Statement for the 2023 Annual Meeting of Stockholders to be filed with the SEC

within 120 days of the fiscal year ended September 30, 2022.

Our Board has adopted a Code of Business Conduct and Ethics applicable

to all officers, directors and employees, which is available on our website (https://forwardindustries.com) under “Investors”,

The information required

by this item is incorporated by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders to be filed with

the SEC within 120 days of the fiscal year ended September 30, 2023.

Our Board has adopted a Code of Business Conduct and Ethics

applicable to all officers, directors and employees, which is available on our website (https://forwardindustries.com) under “Investors”,

"Governance." We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding amendment to, or waiver

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EXECUTIVE COMPENSATION

The information required by this

item is incorporated by reference to our Proxy Statement for the 2023 Annual Meeting of Stockholders to be filed with the SEC

within 120 days of the fiscal year ended September 30, 2022.

The information required

by this item is incorporated by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders to be filed with

the SEC within 120 days of the fiscal year ended September 30, 2023.

SECURITY OWNERSHIP OF CERTAIN

BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS

The information required by this

item is incorporated by reference to our Proxy Statement for the 2023 Annual Meeting of Stockholders to be filed with the SEC

within 120 days of the fiscal year ended September 30, 2022.

CERTAIN RELATIONSHIPS AND

RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

The information required by this

item is incorporated by reference to our Proxy Statement for the 2023 Annual Meeting of Stockholders to be filed with the SEC

within 120 days of the fiscal year ended September 30, 2022.

The information required

by this item is incorporated by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders to be filed with

the SEC within 120 days of the fiscal year ended September 30, 2023.

CERTAIN RELATIONSHIPS

AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

The information required

by this item is incorporated by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders to be filed with

the SEC within 120 days of the fiscal year ended September 30, 2023.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this

item is incorporated by reference to our Proxy Statement for the 2023 Annual Meeting of Stockholders to be filed with the SEC

within 120 days of the fiscal year ended September 30, 2022.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The information required

by this item is incorporated by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders to be filed with

the SEC within 120 days of the fiscal year ended September 30, 2023.

EXHIBITS AND FINANCIAL STATEMENT

Documents filed as part of the report.

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See the Exhibit Index.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange

Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

FORM 10-K SUMMARY

Not Applicable.

Pursuant to the requirements of Section 13 or 15(d) of the Securities

Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

December 21, 2023

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(Principal Executive Officer)

In accordance with the Securities Exchange Act of 1934, as amended, this

report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

In accordance with the Securities Exchange Act of 1934, as amended,

this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

December 21, 2023

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December 21, 2023

/s/ Anthony Camarda

Anthony Camarda

Principal Financial Officer and Chief Accounting Officer

/s/ Kathleen Weisberg

Kathleen Weisberg

Chief Financial

Principal Financial Officer and Principal Accounting Officer

December 21, 2023

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EXHIBIT INDEX

Purchase Agreement dated January 18, 2018 - Intelligent Product Solutions, Inc.+

Incorporated by

Exhibit Description

Stock Purchase

Agreement dated January 18, 2018 - Intelligent Product Solutions, Inc.+

Purchase Agreement dated August 17, 2020 - Kablooe, Inc.+

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of Amendment of the Certificate of Incorporation, June 28, 2013

Amended and Restated Bylaws, as of May 28, 2014

Third Amended

and Restated Bylaws, as of May 28, 2014

of securities registered under Section 12 of the Exchange Act of 1934

Promissory Note dated January 18, 2018 – Forward Industries (Asia-Pacific) Corporation (as amended and restated)

Long Term Incentive Plan, as amended

Note dated January 18, 2018 – Forward Industries (Asia-Pacific) Corporation (as amended and restated)

Term Incentive Plan, as amended

Equity Incentive Plan

Agency and Supply Agreement - Forward Industries (Asia-Pacific) Corporation

1 to Buying Agency and Supply Agreement - Forward Industries (Asia-Pacific) Corporation

2 to Buying Agency and Supply Agreement - Forward Industries (Asia-Pacific) Corporation

3 to Buying Agency and Supply Agreement – Forward Industries (Asia-Pacific) Corporation

4 to Buying Agency and Supply Agreement – Forward Industries (Asia-Pacific) Corporation

5 to Buying Agency and Supply Agreement – Forward Industries (Asia-Pacific) Corporation

of Employment Agreement dated January 18, 2018 – Paul Severino*+

of Employment Agreement dated May 26, 2021 - Paul Severino*$

Agreement dated May 16, 2018 - Terence Wise*$

Agreement dated June 26, 2020 – Anthony Camarda*$

Form of Employment Agreement dated May 26, 2021– Paul Severino *$

Summary of Employment Arrangement - Terence Wise *

Agreement dated July 1, 2023 – Kathleen Weisberg *

Protection Program Term Note payable to TD Bank, N.A.

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and Restated TD Bank Revolving Term Note dated September 28, 2018

Bank Modification Agreement dated September 28, 2018

Agreement dated March 1, 2022 - Justwise Group Ltd.

Modification Agreement dated September 28, 2018

Consultancy Agreement dated March 1, 2022 - Justwise Group Ltd.

Consultancy Agreement dated September 1, 2022 - Justwise Group Ltd .

Employment Agreement dated

January 18, 2018 - Robert Wild*

Employment Agreement dated

August 17, 2020 - Tom KraMer*

Extension to the Consultancy Agreement – Justwise Group Ltd.

Employment Agreement dated January 18, 2018 - Robert Wild *

Employment Agreement dated August 17, 2020 – Tom KraMer *

Buying Agency and Supply Agreement dated November 2, 2023 – Forward Industries (Asia-Pacific) Corporation +

Deferred Payment Agreement

of Subsidiaries

Independent Registered Public Accounting Firm

Consent of Independent Registered Public Accounting Firm

CEO Certifications (302)

CFO Certification (302)

Certifications (906)

CEO and CFO Certifications (906)

Inline XBRL Instance Document (the Instance Document

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Inline XBRL Taxonomy Extension Calculation Linkbase

Inline XBRL Taxonomy Extension Definition Linkbase Document

Inline XBRL Taxonomy Extension Definition Linkbase

Inline XBRL Taxonomy Extension Label Linkbase Document

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* Management compensatory agreement or arrangement.

+ Certain schedules, appendices and exhibits to this agreement

have been omitted in accordance with Item 601 of Regulation S-K.

+ Certain schedules, appendices and exhibits to this agreement have

been omitted in accordance with Item 601 of Regulation S-K.

A copy of any omitted schedule and/or exhibit will be furnished supplementally

to the Securities and Exchange Commission staff upon request.

$ As previously disclosed, this executive officer has received an increase

to his annual Base Salary.

Copies of this filing (including the financial statements) and any of the

exhibits referred to above will be furnished at no cost to our shareholders who make a written request to Forward Industries, Inc.;

$ As previously disclosed, this executive officer has received an

increase to his annual Base Salary.

Copies of this filing (including the financial statements) and any

of the exhibits referred to above will be furnished at no cost to our shareholders who make a written request to Forward Industries, Inc.;

700 Veterans Memorial Hwy, Suite 100, Hauppauge, NY 11788;

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CONSOLIDATED FINANCIAL STATEMENTS

of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB # 596 )

Consolidated Balance Sheets at September 30, 2023 and 2022

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

The Board of Directors and Shareholders of Forward

Industries, Inc.

The Board of Directors and Shareholders of

Forward Industries, Inc.

Opinion on the Financial Statements

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referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material

respects, the financial position of the Company as of September 30, 2022 and 2021, and the results of its operations and its cash flows

for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

In our opinion, the consolidated financial statements present fairly,

in all material respects, the financial position of the Company as of September 30, 2023 and 2022, and the results of its operations and

its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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As part of our audits we are required to obtain an understanding

of the internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s

of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s

internal control over financial reporting.

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to the audit committee and that:

(i) related to accounts or disclosures that are material to the consolidated financial statements and

(ii) involved our especially challenging, subjective, or complex judgments.

(1) related to accounts or disclosures that are material to the consolidated financial statements and

(2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter

in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit

matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate.

matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate.

Assessment of Going Concern (Note 1 to the

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Company’s assessment of going concern included the following:

· Obtaining an understanding of and evaluating

the Company’s process to develop forecasted cash flows, including significant assumptions used in developing forecasted cash flows

as well as considering the appropriateness of the underlying data used by the Company in its analyses.

· Evaluating the reasonableness of the Company’s

forecasted revenue, operating results, and cash flows by comparing those forecasts to underlying business strategies, including customer

relationships and the Company’s ability to obtain new customers, and to historical results.

In addition, we performed sensitivity

analyses related to the key inputs used in the Company’s forecasted cash flows, including evaluating whether the changes in the

assumptions would result in a material change in forecasted cash flows.

· Evaluating management’s ability to accurately

forecast future cash flows by comparing the Company’s historical forecasted sales, operating results and cash flow forecasts to

actual results.

/s/ CohnReznick LLP

We have served as the Company’s auditor since

an understanding of and evaluating the Company’s process to develop forecasted cash flows, including significant assumptions used

in developing forecasted cash flows as well as considering the appropriateness of the underlying data used by the Company in its analyses.

the reasonableness of the Company’s forecasted revenue, operating results, and cash flows by comparing those forecasts to underlying

business strategies, including customer relationships and the Company’s ability to obtain new customers, and to historical results.

In addition, we performed sensitivity analyses related to the key inputs used in the Company’s forecasted cash flows, including

evaluating whether the changes in the assumptions would result in a material change in forecasted cash flows.

management’s ability to accurately forecast future cash flows by comparing the Company’s historical forecasted sales, operating

results and cash flow forecasts to actual results.

/s/ CohnReznick

We have served as the Company’s auditor

Melville, New York

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Inventories, net

Discontinued assets held for sale

Prepaid expenses and other current assets

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Total liabilities and shareholders' equity

The accompanying notes are an integral part of the consolidated financial

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

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Fiscal Years Ended

September 30,

CONSOLIDATED STATEMENTS

OF OPERATIONS

For the Fiscal Years Ended September 30,

Revenues, net

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General and administrative expenses

Loss from operations

( 1,239,674 )

Gain on forgiveness of note payable

( 1,356,570 )

Operating income

Fair value adjustment of earnout consideration

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Interest expense

Other expense, net

(Loss)/income before income taxes

( 1,375,697 )

Other (income)/expense, net

Income from continuing operations before income taxes

Provision for income taxes

Net (loss)/income

Income from continuing operations

Loss from discontinued operations, net of tax

( 3,895,315 )

(Loss)/earnings per share:

( 1,828,144 )

$ ( 3,736,657 )

$ ( 1,378,251 )

Basic earnings/(loss) per share :

Basic earnings per share from continuing operations

Basic loss per share from discontinued operations

Basic loss per share

Diluted earnings/(loss) per share:

Diluted earnings per share from continuing operations

Diluted loss per share from discontinued operations

Diluted loss per share

Weighted average common shares outstanding:

The accompanying notes are an integral part of the consolidated financial

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

FORWARD INDUSTRIES, INC.

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Share-based compensation

Stock options exercised

( 1,378,251 )

Balance at September 30, 2022

$ ( 13,949,896 )

The accompanying notes are an integral part of the consolidated financial

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

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Fiscal Years Ended

September 30,

CONSOLIDATED STATEMENTS

OF CASH FLOWS

For the Fiscal Years Ended September 30,

Operating Activities:

Net (loss)/income

$ ( 3,736,657 )

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

operating activities:

$ ( 1,378,251 )

Adjustments to reconcile net loss to net cash provided by operating activities:

Share-based compensation

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Bad debt expense

Gain on forgiveness of note payable

( 1,356,570 )

Change in fair value of earn-out consideration

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Accounts receivable

( 1,664,868 )

Discontinued assets held for sale

( 1,846,696 )

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Accrued expenses and other current liabilities

Net cash provided by/(used in) operating activities

Net cash provided by operating activities

Investing Activities:

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Financing Activities:

Proceeds from line of credit borrowings

Repayment of line of credit borrowings

( 1,150,000 )

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

( 1,514,262 )

Net increase in cash

Cash at beginning of year

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Operating lease assets obtained in exchange for operating lease liabilities

The accompanying notes are an integral part of the consolidated financial

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

FORWARD INDUSTRIES, INC.

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Forward Industries, Inc.

“we”, “our”, or the “Company”), 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, 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.

The Company’s design division

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

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

company serving top tier medical and technology customers worldwide.

The Company’s design

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

The Company’s

OEM distribution division sources and sells carrying cases and other accessories for medical monitoring and diagnostic kits as well as

a variety of other portable electronic and non-electronic devices to original equipment manufacturers (“OEM”s), or their contract

manufacturers worldwide, that either package our products as accessories “in box” together with their branded product offerings

or sell them through their retail distribution channels.

The Company’s retail distribution division sources and sells smart-enabled

furniture, hot tubs and various other products through various online retailer websites to customers predominantly located in the U.S.

The Company does not manufacture

any of its OEM or retail products and sources substantially all of these products from independent suppliers in China, through Forward

original equipment manufacturing (“OEM”) distribution division sources and sells carrying cases and other accessories for

medical monitoring and diagnostic kits as well as a variety of other portable electronic and non-electronic devices to original equipment

manufacturers (“OEM”s), or their contract manufacturers worldwide, that either package our products as accessories “in

box” together with their branded product offerings or sell them through their retail distribution channels.

The Company does not

manufacture any of its OEM products and sources substantially all of these products from independent suppliers in China, through Forward

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

In Fiscal 2022, the Company

generated a net loss of $ 1,378,000

Discontinued Operations

In July 2023, the Company

decided to cease operations of its retail distribution segment and is presenting the results of operations for this segment within discontinued

operations in the current and prior periods presented herein.

Our retail distribution business sources and sells smart-enabled furniture,

hot tubs and saunas and a variety of other products through various online retailer websites to customers predominantly located in the

The inventory of the retail segment is presented as discontinued assets held for sale on the balance sheets at September

30, 2023 and 2022.

of cash flows from 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 December 31, 2023.

Where applicable, certain footnotes exclude the discontinued operations unless otherwise noted.

See Note 3 for additional

information on discontinued operations.

In Fiscal 2023, the Company

generated a net loss of $ 3,737,000 , income from continuing operations of $ 159,000 and cash flows from operating activities of $ 1,041,000 .

At September 30, 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 Note 17).

By discontinuing the retail segment, which incurred significant losses, the

Company expects improvement in operating profitability and cash flows in future periods.

The Company’s OEM distribution segment

procures substantially all its products through independent suppliers in China through Forward China.

In connection with the new sourcing

agreement and in order to preserve future liquidity, in November 2023, the Company and Forward China entered into an agreement whereby

Forward China agreed to limit the amount of outstanding payables it would seek to collect from the Company to $500,000 in any 12-month

period, which the Company agreed to pay within 30 days of any such request (see Note 14).

This agreement pertains only to payables that

were outstanding at October 30, 2023 of approximately $7,365,000.

Purchases from Forward China made after October 30, 2023 are not covered

by this agreement and are expected to be paid according to normal payment terms.

Based on our forecasted cash flows, discontinuing our

retail segment and the agreement with Forward China, we believe our existing cash balance and working capital will be sufficient to meet

our liquidity needs through at least December 31, 2024.

The consolidated financial statements do not include any adjustments that might

result if the Company is unable to continue as a going concern.

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 Fiscal 2022.

Labor shortages

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 2022.

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 retaining our

employees, particularly in the second half of Fiscal 2022.

The timing and extent of future inflation is difficult to predict, but we expect

these rising costs to continue into 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 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.

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 our business, cause renewed labor and supply chain disruptions, and negatively impact the

global and US economy, which could materially and adversely impact our business.

FORWARD INDUSTRIES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

NOTE 2 ACCOUNTING POLICIES

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percentages have been rounded to their approximate values.

The extent to which COVID-19

may impact our financial condition or results of operations is uncertain.

As of the date of issuance of this report, we are not aware

of any specific events or circumstances that would require us to update our estimates or judgments or adjust the carrying amount of our

assets or liabilities.

Basis of Presentation

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Segment Reporting

The Company has three reportable

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 (such as 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 OEM customers 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 in the U.S.

See Note 15 for more information

As a result of the discontinued

retail segment, as disclosed in Note 3, the Company now has two reportable segments:

OEM 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 (such as 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 OEM customers worldwide.

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 16 for more information on

The Company reviews goodwill

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Management evaluated and concluded there were no indications of impairment of goodwill in Fiscal 2023

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.

FORWARD INDUSTRIES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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.

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.

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 September 30, 2022 or 2021.

The Company maintains cash deposits

in banks with financial institutions in the United States (that at times may exceed federally insured limits of $250,000 per financial

institution) and Switzerland.

At September 30, 2022 and 2021, there were deposits totaling $ 2,037,000 (which includes $ 467,000 in a foreign

bank) and $ 805,000 (which includes $ 436,000 in a foreign bank), respectively, held in excess of federally insured limits.

Historically,

we have not experienced any losses due to such cash concentrations.

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 September 30, 2023 or 2022.

The Company maintains

cash deposits and a money market account in banks with financial institutions in the United States (that at times may exceed

federally insured limits of $250,000 per financial institution) and Switzerland.

At September 30, 2023 and 2022, there were deposits

totaling $ 2,565,000

(which includes $ 358,000

in a foreign bank) and $ 2,037,000

(which includes $ 467,000

in a foreign bank), respectively, held in excess of federally insured limits.

Historically, we have not experienced any losses due

to such cash concentrations.

Accounts Receivable

Accounts receivable consist of unsecured trade accounts with customers

in amounts that have been invoiced ($ 7,861,000 and $ 8,864,000 at September 30, 2022 and 2021, 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 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 September 30, 2022 and 2021, the Company had allowances for doubtful accounts

of $ 0 and $ 90,000 , respectively, for the OEM distribution segment, $ 20,000 and $ 0 , respectively, for the retail segment and $ 852,000 and

$ 706,000 , respectively, for the design segment.

The Company has agreements with

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

Accounts receivable consist

of unsecured trade accounts with customers in amounts that have been invoiced ($ 6,949,000 and $ 7,861,000 at September 30, 2023 and 2022,

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

an allowance for doubtful accounts and customer allowances (for trade, promotional or other discounts), which is recorded as a reduction

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

allowances for doubtful accounts and customer allowances of $ 185,000 and $ 75,000 , respectively, for the discontinued retail distribution

segment and $ 771,000 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 September 30, 2023,

and 2020, the Company recorded accounts receivable allowances of $ 55,000 , $ 0 and $ 0 , respectively, for the retail distribution segment.

In Fiscal 2019, the Company recorded

bad debt expense of $ 1,626,000 to fully reserve accounts receivable deemed uncollectible from a customer.

In Fiscal 2020, the Company

converted the amount outstanding from this customer into a non-negotiable secured promissory note with interest that accrues at a rate

of 8% per annum and reclassified the related allowance for doubtful account s to an allowance on

the note receivable.

The Company received $ 101,000 from this customer in Fiscal 2021, of which $ 89,000 was applied to past due interest

and penalties and recorded as interest income, and $ 12,000 was applied to principal and recorded as a recovery of bad debt expense as

a reduction of general and administrative expense.

No payments were received from this customer in Fiscal 2022.

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2022 and 2021, the Company recorded accounts receivable allowances of $ 139,000 , $ 55,000 and $ 0 , respectively, for the retail distribution

Inventories consist primarily

7 unchanged sentences

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

At September 30, 2022 and 2021, the allowance for

slow-moving inventory, which relates entirely to our retail segment, was $ 535,000 and $ 50,000 , respectively.

Property and Equipment

9 unchanged sentences

The estimated useful lives for all property and equipment ranges from three to five years.

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Lease assets and liabilities

34 unchanged sentences

30, 2023, 2022 or 2021.

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Retail Distribution Segment

Discontinued Retail Distribution Segment

The retail distribution segment

1 unchanged sentence

Revenue is recognized when control (as

defined in 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 consolidated balance sheets.

The retail distribution segment had contract liabilities of $ 0 , $ 0 and $ 75,000 at September 30, 2022, 2021 and 2020, respectively.

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 consolidated balance sheets.

The retail distribution segment had no contract liabilities at September 30, 2023, 2022

The results of operations of the retail segment are reported as discontinued operations for Fiscal 2023 and 2022.

Design Segment

11 unchanged sentences

has been completed and accepted.

Recognized revenues that will

not be billed until a later date, or contract assets, are recorded as an asset and classified as a component of accounts receivable in

the accompanying consolidated balance sheets.

The design segment had contract assets of $ 609,000 , $ 693,000 , $ 649,000 at September 30,

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Recognized revenues that

will not be billed until a later date, or contract assets, are recorded as an asset and classified as a component of accounts receivable

in the accompanying consolidated balance sheets.

The design segment had contract assets of $ 976,000 , $ 609,000 and $ 693,000 at September

30, 2023, 2022 and 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 consolidated balance sheets.

The design segment

had contract liabilities at of $ 439,000 , $ 188,000 , $ 410,000 at September 30, 2022, 2021 and 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 consolidated balance sheets.

segment had contract liabilities of $ 297,000 , $ 439,000 and $ 188,000 at September 30, 2023, 2022 and 2021, respectively.

Shipping and Handling Fees

11 unchanged sentences

in the accompanying consolidated statements of operations.

The approximate net losses from foreign currency transactions were $ 13,000

and $ 5,000 for Fiscal 2022 and 2021, respectively.

Such foreign currency transaction losses were primarily the result of euro denominated

revenues from certain customers.

The approximate net gains (losses) from foreign currency transactions were

$2,000 and ($13,000) in Fiscal 2023 and 2022, respectively.

Fair Value Measurements

5 unchanged sentences

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

INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

5 unchanged sentences

Share-Based Compensation Expense

The Company estimates the fair

value of employee and non-employee director share-based compensation on the date of grant using the Black-Scholes option pricing model,

which includes variables such as the expected volatility of the Company’s share price, the exercise behavior of its grantees, interest

rates, and dividend yields.

These variables are projected based on the Company’s historical data, experience, and other factors.

The fair value of employee and non-employee director share-based compensation is recognized in the consolidated statements of operations

over the related service or vesting period of each grant.

In the case of awards with multiple vesting periods, the Company has elected

to use the graded vesting attribution method, which recognizes compensation cost on a straight-line basis over each separately vesting

portion of the award as if the award was, in substance, multiple awards (see Note 8).

Business Combinations

The Company allocates the fair

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

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

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

with respect to intangible assets.

Critical estimates in valuing

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

discount rates and terminal values.

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

may differ from estimates.

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

available regarding the assets acquired and liabilities assumed.

The Company estimates the

fair value of employee and non-employee director share-based compensation on the date of grant using the Black-Scholes option pricing

model, which includes variables such as the expected volatility of the Company’s share price, the exercise behavior of its grantees,

interest rates, and dividend yields.

These variables are projected based on the Company’s historical data, experience, and other

The fair value of employee and non-employee director share-based compensation is recognized in the consolidated statements of

operations over the related service or vesting period of each grant.

In the case of awards with multiple vesting periods, the Company

has elected to use the graded vesting attribution method, which recognizes compensation cost on a straight-line basis over each separately

vesting portion of the award as if the award was, in substance, multiple awards (see Note 9).

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Recent Accounting Pronouncements

In November 2019, the FASB issued

ASU 2019-11, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses.” ASU 2019-11 is an accounting

pronouncement that provides clarity to and amends earlier guidance on this topic and would be effective concurrently with the adoption

of such earlier guidance.

This pronouncement is effective for the Company 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 consolidated financial

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 guidance.

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 consolidated financial statements.

In November 2019, the FASB

issued ASU 2019-11, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses.” ASU 2019-11 is

an accounting pronouncement that provides clarity to and amends earlier guidance on this topic and would be effective concurrently with

the adoption of such earlier guidance.

This pronouncement is effective for the Company for fiscal years beginning after December 15, 2022,

and interim periods within those fiscal years and is not expected to have a material impact on our consolidated financial statements.

NOTE 3 DISCONTINUED

OPERATIONS AND ASSETS HELD FOR SALE

Considering the recurring

losses incurred by the retail segment, in July 2023, the Company decided to cease operations of its retail distribution segment (“Retail

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

After this time, we expect to have no further significant continuing involvement with the retail distribution segment.

Retail Exit is considered a strategic shift that will have a significant impact on the Company’s operations and financial results.

The inventory of the retail segment meets the criteria to be considered “held-for-sale” in accordance with ASC 205-20, “Discontinued

Operations.” Accordingly, the retail inventory is classified on our consolidated balance sheet as “discontinued assets held

for sale” 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.

The consolidated balance

sheets and results of operations for comparable prior periods have been reclassified to conform to this presentation in accordance with

the accounting guidance.

Consistent with the Company's plan for the Retail

Exit, the Company re-evaluated its retail inventory and recorded an increase in the reserve of approximately $ 685,000 relating to discounts

deemed necessary to sell the remaining retail inventory.

Additionally, on September 30, 2023, the Company had unfulfilled purchase orders

for retail products totaling approximately $ 1,021,000 .

As of September 30, 2023, the Company made prepayments on these orders of approximately

Due to the Retail Exit, the Company and Forward China agreed to cancel the full amount of these orders.

The unpaid balance on

the purchase orders of approximately $ 723,000 , is accrued for as of September 30, 2023 and included in Due to Forward China on the consolidated

balance sheets.

Collectively, the additional inventory reserve, write off of the prepayments and accrual on the unfulfilled purchase orders

represent the loss on classification of discontinued assets held for sale shown in the table below.

The total amount related to the retail

segment included in Due to Forward China on the consolidated balance sheets was approximately $ 1,002,000 (which includes the $723,000

due on canceled purchase orders) at September 30, 2023 and $ 238,000 at September 30, 2022.

The following table presents the major classes

of the “Net loss from discontinued operations, net of tax” in our consolidated statements of operations.

Schedule of discontinued operations

For the Fiscal Years Ended September 30,

Revenues, net

Cost of sales

Sales and marketing expenses

General and administrative expenses

Loss from operations

( 2,189,930 )

( 1,828,144 )

Loss on classification as held for sale

Net loss from discontinued operations before income taxes

( 3,895,315 )

( 1,828,144 )

Provision for income taxes

Loss from discontinued operations

$ ( 3,895,315 )

$ ( 1,828,144 )

At September 30, 2023 and

2022, discontinued assets held for sale of $ 508,000 and $ 3,150,000 , respectively, consist of the net inventory of the retail segment.

These numbers include an allowance of $ 1,464,000 and $ 535,000 , respectively to reduce excess or otherwise unsellable inventory to its

estimated net realizable value.

There was no depreciation,

amortization, investing or financing cash flow activities, or other significant noncash operating cash flow activities for the retail

segment in Fiscal 2023 or 2022.

FORWARD INDUSTRIES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 INTANGIBLE ASSETS

NOTE 4 INTANGIBLE

ASSETS AND GOODWILL

Intangible Assets

10 unchanged sentences

Less accumulated amortization

( 1,082,000 )

Net carrying amount

The Company’s intangible

assets were acquired as a result of the acquisitions of Kablooe and IPS in Fiscal 2020 and Fiscal 2018, respectively, and relate to the

The Company’s

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

design segment of our business.

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

years for the customer relationships.

Intangible assets are amortized over their expected useful lives of 15 years

for the trademarks and eight years

for the customer relationships.

During Fiscal 2023 and Fiscal 2022, the Company recorded amortization expense related to intangible

assets of $ 213,000 , which is included in general and administrative expenses in the Company’s consolidated statements of operations.

assets of $ 213,000 , which

is included in general and administrative expenses in the Company’s consolidated statements of operations.

At September 30, 2023, estimated

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

Estimated amortization expense

Schedule of estimated amortization

Goodwill represents the future

1 unchanged sentence

The Company’s

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

The goodwill associated with

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

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

INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 PROPERTY AND

Property and equipment and related accumulated depreciation

and amortization are summarized in the table below:

goodwill resulted from the acquisitions of Kablooe and IPS in Fiscal 2020 and Fiscal 2018, respectively and are held under the design

segment of our business.

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

with the Kablooe acquisition is deductible for tax purposes.

NOTE 5 PROPERTY

AND EQUIPMENT

Property and equipment and related accumulated

depreciation and amortization are summarized in the table below:

Schedule of property and equipment

5 unchanged sentences

Property and equipment, net

Depreciation expense was $ 96,000 and $ 115,000 for

Fiscal 2022 and Fiscal 2021, respectively.

NOTE 5 FAIR VALUE MEASUREMENTS

The earnout consideration of

$ 70,000 at September 30, 2022 and

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 2025.

The current and non-current portions of this liability are shown

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

The fair value of the earnout liability

is measured on a recurring basis at each reporting date using a Black-Scholes valuation model with the following inputs and assumptions,

which are categorized within level three of the fair value hierarchy:

Fair value assumptions

Depreciation expense was $ 103,000 and $ 96,000

for Fiscal 2023 and Fiscal 2022, respectively.

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FAIR VALUE MEASUREMENTS

The earnout consideration

of $ 0 and $ 70,000

at September 30, 2023 and 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.

and non-current portions of this liability are shown in the corresponding categories on the consolidated balance sheets in each period

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

model with the following inputs and assumptions, which are categorized within Level 3 of the fair value hierarchy:

Schedule of fair value assumptions

September 30,

2 unchanged sentences

Dividend yield

In Fiscal 2022, there were no

changes to the total fair value of this earnout liability.

In Fiscal 2021, the Company reduced this liability from $ 90,000 to $ 70,000

based on changes in the expected likelihood of Kablooe reaching the specified earnings targets.

NOTE 6 ACCRUED EXPENSES

AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities at

September 30, 2022 and 2021 are as follows:

Schedule of accrued expenses and other accrued liabilities

In Fiscal 2023, the Company

reduced this liability from $70,000 to $0 based on changes in the expected likelihood of Kablooe reaching the specified earnings targets.

In Fiscal 2022, there were no changes to the total fair value of this earnout liability.

NOTE 7 ACCRUED

EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities

at September 30, 2023 and 2022 are as follows:

Schedule of accrued expenses and other current liabilities

September 30,

1 unchanged sentence

Paid time off

INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 SHAREHOLDERS’

SHAREHOLDERS’ EQUITY

“Blank Check” Preferred Stock

The Company is authorized to

issue up to 4,000,000 shares of “blank check” preferred stock.

The Company is authorized

to issue up to 4,000,000 shares of “blank check” preferred stock.

The Board has the authority and discretion, without shareholder

4 unchanged sentences

There were no shares of preferred stock issued or outstanding at September 30, 2023 or 2022.

At September 30, 2022, the Company

had 151,000 warrants outstanding and exercisable.

The warrants have exercise prices ranging from $ 1.75 to $ 1.84 per share and have a weighted

average exercise price of $ 1.80 per share.

At September 30, 2022, 76,000 of these warrants have a remaining life of 0.9 years and 75,000

warrants have an expiration date 90 days after a registration statement registering common stock (other than pursuant to an employee benefit

plan) is declared effective by the Securities and Exchange Commission.

Other Activity

In Fiscal 2021, the Company issued

177,000 shares of its common stock pursuant to the exercise of stock options (see Note 8).

At September 30, 2023, the

Company had 75,000 warrants outstanding and exercisable, which have an exercise price of $ 1.75 per share and an expiration date 90 days

after a registration statement registering common stock (other than pursuant to an employee benefit plan) is declared effective by the

Securities and Exchange Commission.

During Fiscal 2023, 76,000 of the warrants outstanding at September 30, 2022 expired.

On July 31, 2023, the Company

was notified by Nasdaq that it was not compliant with its closing bid price requirement because the closing bid price of our common stock

was below $1.00 per share for 30 consecutive trading days.

The Company has until January 29, 2024 (the “Deadline Date”)

to become compliant.

We have since remained non-compliant with the closing bid price requirement as our stock price has remained

below $1.00 since we received the notice.

We are currently assessing all options to regain compliance.

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SHARE-BASED COMPENSATION

4 unchanged sentences

employees and consultants.

Upon approval of the 2021 Plan, no additional awards were granted under the 2011 Long Term Incentive Plan (the

“2011 Plan”), which expired according to its terms in March 2021.

Upon approval of the 2021 Plan, no additional awards were granted under the 2011 Long Term Incentive Plan

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

Shares authorized under the 2021 Plan include 1,000,000

6 unchanged sentences

there were 889,000 shares of common stock available for grants under the 2021 Plan.

2011 Long Term Incentive Plan

In March 2011, shareholders of

the Company approved the 2011 Plan, which originally authorized 850,000 shares of common stock for grants of various types of equity awards

to officers, directors, employees, consultants, and independent contractors.

In February 2018, the shareholders of the Company approved

an amendment to the 2011 Plan to increase the aggregate number of shares of the Company's common stock authorized for issuance under the

2011 Plan by 1,000,000 shares of common stock, from 850,000 shares of common stock to 1,850,000 shares of common stock.

Upon approval

of the 2021 Plan, no additional awards were granted under the 2011 Plan, which expired according to its terms in March 2021.

INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock Options

The fair value of option awards

is estimated on the date of grant using the Black-Scholes option pricing model that uses the assumptions in the following table.

term represents the period over which the stock option awards are expected to be outstanding.

The Company utilizes the simplified method

to develop an estimate of the expected term of “plain vanilla” option grants.

The expected volatility used is based on the

historical price of the Company’s stock over the most recent period commensurate with the expected term of the award.

The risk-free

interest rate used is based on the implied yield of U.S.

Treasury zero-coupon issues with a remaining term equivalent to the award’s

expected term.

The Company historically has not paid any dividends on its common stock and had no intention to do so on the date the share-based

awards were granted.

The fair value of option

awards is estimated on the date of grant using the Black-Scholes option pricing model that uses the assumptions in the following table.

The expected term represents the period over which the stock option awards are expected to be outstanding.

The Company utilizes the simplified

method to develop an estimate of the expected term of “plain vanilla” option grants.

The expected volatility used is based

on the historical price of the Company’s stock over the most recent period commensurate with the expected term of the award.

risk-free interest rate used is based on the implied yield of U.S.

Treasury zero-coupon issues with a remaining term equivalent to the

award’s expected term.

The Company historically has not paid any dividends on its common stock and had no intention to do so on

the date the share-based awards were granted.

The Company accounts for forfeitures in the period they occur.

1 unchanged sentence

option pricing model to options granted, the Company used the following assumptions:

Assumptions used for options

Schedule of assumptions used for options

Expected term (years)

4 unchanged sentences

Expected dividends

The Company made no grants of

stock options or other equity awards in Fiscal 2021.

In Fiscal 2022, the Company made the following option grants:

· Options to current and former non-employee directors

to purchase an aggregate of 297,000 shares of its common stock.

The options were granted throughout Fiscal 2022, expire five to ten years

from the date of grant, 145,000 vested immediately, 129,000 vest one year from the date of grant and 23,000 were forfeited prior to vesting.

These options had an aggregate grant date fair value of $ 245,000 , which is being recognized ratably over the vesting period.

· Options to an employee to purchase 27,000 shares

of its common stock.

These options were granted in January and July of 2022, vest ratably over two years, expire five years from the date

of grant and had an aggregate grant date fair value of $ 20,000 , which is being recognized ratably over the vesting period.

The options granted during Fiscal

2022 had a weighted average grant date fair value of $ 0.82 per share.

The Company recognized compensation expense for stock option awards

of $ 201,000 and $ 69,000 during Fiscal 2022 and Fiscal 2021, respectively, which was recorded as a component of general and administrative

expenses in its consolidated statements of operations.

No options were exercised during

During Fiscal 2021, the Company issued 177,000 shares of its common stock pursuant to the exercise of stock options for aggregate

cash proceeds of $ 268,000 , which had an aggregate intrinsic value of $ 306,000 .

At September 30, 2022, there

was $ 48,000 of unrecognized compensation cost related to nonvested stock option awards that is expected to be recognized over a weighted

average period of 0.6 years.

In Fiscal 2023, the Company

granted options to three of its non-employee directors to purchase an aggregate of 124,740 shares of its common stock at an exercise price

of $ 1.03 per share.

The options vest six months from the date of grant and expire five years from the date of grant.

The options have

a weighted average grant-date fair value of $ 0.48 per share and an aggregate grant-date fair value of $ 60,000 , which will be recognized

ratably over the vesting period.

On October 1, 2023, the Company

granted options to three of its non-employee directors to purchase an aggregate of 332,409 shares of its common stock at an exercise price

of $ 0.76 per share.

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

The options have

a weighted average grant-date fair value of $ 0.36 per share and an aggregate grant-date fair value of $ 120,000 , which will be recognized

ratably over the vesting period.

In Fiscal 2022, the Company

made the following option grants which collectively had a weighted-average grant date fair value of $ 0.82 per share:

to current and former non-employee directors to purchase an aggregate of 297,000 shares of its common stock.

The options were granted

throughout Fiscal 2022, expire five to ten years from the date of grant, 145,000 vested immediately, 129,000 vest one year from the date

of grant and 23,000 were forfeited prior to vesting.

These options had an aggregate grant date fair value of $ 245,000 , which is being

recognized ratably over the vesting period.

to an employee to purchase 27,000 shares of its common stock.

These options were granted in January and July of 2022, vest ratably over

two years, expire five years from the date of grant and had an aggregate grant date fair value of $ 20,000 , which is being recognized

ratably over the vesting period.

FORWARD INDUSTRIES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company recognized compensation

expense for stock option awards of $ 86,000 and $ 201,000 during Fiscal 2023 and Fiscal 2022, respectively, which was recorded as a component

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

No options were exercised

during Fiscal 2023 and Fiscal 2022.

At September 30, 2023, there

was $ 22,000 of unrecognized compensation cost related to nonvested stock option awards that is expected to be recognized over a weighted

average period of 0.2 years.

The following table summarizes

8 unchanged sentences

The following table summarizes

the Company’s consolidated provision for U.S.

the Company’s consolidated provision from continuing operations for U.S.

federal, state and foreign taxes on income:

3 unchanged sentences

Income tax provision

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The deferred tax provision/(benefit)

1 unchanged sentence

net operating loss carryforwards and changes in tax rates during the fiscal year.

The Company’s deferred tax assets and liabilities

are comprised of the following:

Schedule of deferred income taxes

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company’s deferred

tax assets and liabilities are comprised of the following:

Schedule of deferred tax

assets and liabilities

September 30,

2 unchanged sentences

Share-based compensation

AMT & other tax credits

Excess tax over book basis in inventory

Reserves and other allowances

Deferred rent

Lease liability

Accrued compensation

Accrued related party interest

Charitable contributions

Interest expense limitation

9 unchanged sentences

The Company recorded a provision

for income taxes which includes net expense of $3,000 and $0 in Fiscal 2022 and 2021, respectively.

The Fiscal 2022 expense of $3,000

is for state income tax expenses in states where net operating loss carryforwards (“NOLs”) were not available.

At September 30, 2022, the Company

had available net NOLs for U.S.

for income taxes which includes net expense of $20,000 and $3,000 in Fiscal 2023 and 2022, respectively, primarily for state income tax

expenses in states where net operating loss carryforwards (“NOLs”) were not available.

At September 30, 2023, the

Company had available NOLs for U.S.

federal income tax purposes of $ 9,350,000 and NOLs for state income tax purposes of $ 5,113,000 .

NOLs generated

prior to 2018 expire beginning in 2031 while NOLs generated after 2018 have an indefinite carryforward period.

The NOLs result in a deferred

tax asset of $ 1,680,000 with respect to U.S.

federal income taxes and $ 40,000 with respect to state income taxes.

generated prior to 2018 expire beginning in 2031 while NOLs generated after 2018 have an indefinite carryforward period.

The NOLs result

in a deferred tax asset of $ 2,283,000 with respect to U.S.

federal income taxes and $ 371,000 for state income taxes.

In addition, at September

8 unchanged sentences

In Fiscal 2023, Forward Switzerland had

a net loss for tax purposes of $ 45,000 and Forward UK had net income for tax purposes of $ 150,000 .

At September 30, 2022, as part

of its periodic evaluation of the necessity to maintain a valuation allowance against its deferred tax assets, and after consideration

a net loss for tax purposes of $ 113,000 and Forward UK had a net loss for tax purposes of $ 158,000 .

At September 30, 2023, as

part of its periodic evaluation of the necessity to maintain a valuation allowance against its deferred tax assets, and after consideration

of all factors, including, among others, projections of future taxable income, current year NOL utilization and the extent of the Company's

6 unchanged sentences

At September 30, 2023 and 2022, the valuation allowance was $4,102,000 and $2,826,000, respectively.

In the future, the utilization

of the Company's NOLs may be subject to certain change of control limitations.

If the Company determines that it will be able to use some

or all of its deferred tax assets in a future reporting period, the adjustment to reduce or eliminate the valuation allowance would reduce

its income tax expense and increase after-tax income.

FORWARD INDUSTRIES,

The change in the valuation

allowance of $1,275,000 is comprised of $171,000 from continuing operations and $1,104,000 from discontinued operations.

In the future,

the utilization of the Company's NOLs may be subject to certain change of control limitations.

If the Company determines that it will

be able to use some or all of its deferred tax assets in a future reporting period, the adjustment to reduce or eliminate the valuation

allowance would reduce its income tax expense and increase after-tax income.

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The significant elements contributing

to the difference between the U.S.

The significant elements

contributing to the difference between the U.S.

federal statutory tax rate and the Company’s effective tax rate are as follows:

Reconciliation of effective tax rate

Schedule of reconciliation of effective tax

federal statutory rate

6 unchanged sentences

Effective tax rate

In December 2020, the Company

received approval of its application for forgiveness of its note payable related to the Paycheck Protection Program (the “PPP loan”)

in the aggregate principal amount of $ 1,357,000 , which was not recognized as taxable income pursuant to the CARES Act.

Pursuant to the

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

utilizing funds from PPP loans will be deductible against taxable income.

At September 30, 2023 and

2022, the Company had not accrued any interest or penalties related to uncertain tax positions.

It is the Company's policy to recognize interest

and/or penalties, if any, related to income tax matters in income tax expense in the consolidated statements of operations.

For the periods

presented in the accompanying consolidated statements of operations, no material income tax related interest or penalties were assessed

It is the Company's policy to recognize

interest and/or penalties, if any, related to income tax matters in income tax expense in the consolidated statements of operations.

For the periods presented in the accompanying consolidated statements of operations, no material income tax related interest or penalties

were assessed or recorded.

All fiscal years prior to the fiscal year ended September 30, 2020, are closed to federal and state examination.

NOTE 11 EARNINGS PER SHARE

Basic earnings per share data

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

Basic earnings per share

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

Diluted earnings per share data is computed using the weighted average number of common and dilutive common equivalent shares outstanding

3 unchanged sentences

A reconciliation of basic and diluted earnings/loss per share is as follows:

Schedule of earnings (loss) per share

Schedule of reconciliation of basic and diluted earnings/loss per share

For the Fiscal Years Ended

September 30,

Net (loss)/income

Income from continuing operations

Loss from discontinued operations, net of tax

( 3,895,000 )

( 1,828,000 )

$ ( 3,716,000 )

$ ( 1,378,000 )

Weighted average common shares outstanding

1 unchanged sentence

Weighted average dilutive shares outstanding

(Loss)/earnings per share:

FORWARD INDUSTRIES,

Basic earnings/(loss) per share :

Basic earnings per share from continuing operations

Basic loss per share from discontinued operations

Basic loss per share

Diluted earnings/(loss) per share:

Diluted earnings per share from continuing operations

Diluted loss per share from discontinued operations

Diluted loss per share

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

There were no anti-dilutive

securities excluded from the calculation of diluted earnings per share in Fiscal 2021.

The following securities were excluded from the

calculation of diluted earnings per share in Fiscal 2022 because their inclusion would have been anti-dilutive:

Schedule of anti dilutive securities excluded

The following securities

were excluded from the calculation of diluted earnings per share in Fiscal 2023 and 2022 because their inclusion would have been anti-dilutive:

Schedule of anti-dilutive

For the Fiscal Years Ended

September 30,

Total potentially dilutive shares

NOTE 11 COMMITMENTS AND CONTINGENCIES

NOTE 12 COMMITMENTS AND

CONTINGENCIES

Guarantee Obligation

In February 2010, Forward Switzerland

and its European logistics provider (freight forwarding and customs agent) entered into a Representation Agreement (the “Representation

In February 2010, Forward

Switzerland and its European logistics provider (freight forwarding and customs agent) entered into a Representation Agreement (the “Representation

Agreement”) whereby, among other things, the European logistics provider agreed to act as Forward Switzerland's fiscal representative

3 unchanged sentences

value added tax liability arising in The Netherlands that the logistics provider is required to pay to Dutch tax authorities on its behalf.

In February 2010, Forward Switzerland

entered into a guarantee agreement with a Swiss bank relating to the repayment of any amount up to €75,000 (equal to approximately

$77,000 at September 30, 2022) paid by such bank to the logistics provider in order to satisfy such undertaking pursuant to the bank letter

of guarantee.

Forward Switzerland would be required to perform under the guarantee agreement only in the event that (i) a value added

tax liability is imposed on the Company's revenues in The Netherlands;

(ii) the logistics provider asserts that it has been called upon

in its capacity as surety by the Dutch Receiver of Taxes to pay such taxes;

(iii) Forward Switzerland or the Company on its behalf fails

or refuses to remit the amount of value added tax due to the logistics provider upon its demand;

and (iv) the logistics provider makes

a drawing under the bank letter of guarantee.

Under the Representation Agreement, Forward Switzerland agreed that the letter of guarantee

would remain available for drawing for three years following the date that its relationship terminates with the logistics provider to

satisfy any value added tax liability arising prior to expiration of the Representation Agreement but asserted by The Netherlands after

In February 2010, Forward

Switzerland entered into a guarantee agreement with a Swiss bank relating to the repayment of any amount up to €75,000 (equal to

approximately $79,000 at September 30, 2023) paid by such bank to the logistics provider in order to satisfy such undertaking pursuant

to the bank letter of guarantee.

Forward Switzerland would be required to perform under the guarantee agreement only in the event that

(i) a value added tax liability is imposed on the Company's revenues in The Netherlands;

(ii) the logistics provider asserts that it has

been called upon in its capacity as surety by the Dutch Receiver of Taxes to pay such taxes;

(iii) Forward Switzerland or the Company

on its behalf fails or refuses to remit the amount of value added tax due to the logistics provider upon its demand;

and (iv) the logistics

provider makes a drawing under the bank letter of guarantee.

Under the Representation Agreement, Forward Switzerland agreed that the letter

of guarantee would remain available for drawing for three years following the date that its relationship terminates with the logistics

provider to satisfy any value added tax liability arising prior to expiration of the Representation Agreement but asserted by The Netherlands

after expiration.

The initial term of the bank

12 unchanged sentences

to its business.

FORWARD INDUSTRIES,

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

4 unchanged sentences

Total operating lease expense in Fiscal 2023 was $ 621,000 ,

of which $57,000 was recorded in sales and marketing expenses and $574,000 was recorded in general and administrative expenses on the

consolidated statements of operations.

Total operating lease expense in Fiscal 2021 was $ 611,000 , of which $55,000 was recorded

in sales and marketing expenses and $556,000 was recorded in general and administrative expenses on the consolidated statements of operations.

of which $ 3,000 was recorded in sales and marketing expenses and $ 618,000 was recorded in general and administrative expenses on the consolidated

statements of operations.

Total operating lease expense in Fiscal 2022 was $ 631,000 , of which $ 57,000 was recorded in sales and

marketing expenses and $ 574,000 was recorded in general and administrative expenses on the consolidated statements of operations.

Cash paid for amounts included in operating lease liabilities in Fiscal 2023 and Fiscal 2022, which have been included in cash flows from

operating activities, was $ 575,000 and $ 601,000 , respectively.

At September 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 5.7 %.

Future minimum payments under non-cancellable operating

leases are as follows:

Schedule of Future Minimum Rental Payments for Operating Leases

At September 30, 2023, the

Company’s operating leases had a weighted average remaining lease term of 7.6 years and a weighted average discount rate of 5.7 %.

Future minimum payments under non-cancellable

operating leases are as follows:

Schedule of future minimum payments under operating leases

Total future minimum lease payments

Less imputed interest

( 1,003,000 )

NOTE 13 RELATED PARTY TRANSACTIONS

Present value of lease liabilities

Less current portion of lease liabilities

Long-term portion of lease liabilities

NOTE 14 RELATED PARTY

Buying Agency and Supply Agreement

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 to 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.

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 through March 2023 paid 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.

Considering the loss of a significant OEM

distribution customer (see Note 16), 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 Retail Exit and decline in the OEM distribution segment business, the new sourcing agreement

expires October 31, 2024.

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 $ 1,398,000

and $ 1,404,000

during Fiscal 2022 and Fiscal 2021, respectively, which are included as a component of cost of sales upon sales of the related

The Company has a separate agreement

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

In the event a customer bypasses

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

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

The Company recognized revenue of $12,000 of commissions related to this

agreement in Fiscal 2021.

No commissions were recognized in Fiscal 2022.

The Company made prepayments

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

expenses and other current assets on the consolidated balance sheets.

FORWARD INDUSTRIES,

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 $ 1,266,000 and $ 1,398,000

during Fiscal 2023 and Fiscal 2022, respectively, which are included as a component of cost of sales upon sales of the related products.

The Company had purchases from Forward China of $ 12,799,000 and $ 18,055,000 during Fiscal 2023 and Fiscal 2022, respectively.

The Company has a separate

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

In the event a customer

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

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

No commissions were recognized in Fiscal 2023 and Fiscal

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In connection with the new

sourcing agreement and in order to preserve the Company’s future liquidity, in November 2023, the Company and Forward China entered

into an agreement whereby Forward China agreed to limit the amount of outstanding payables it would seek to collect from the Company to

$500,000 in any 12-month period, which the Company agreed to pay within 30 days of any such request.

This agreement pertains only to payables

that were outstanding at October 30, 2023 of approximately $ 7,365,000 .

Purchases from Forward China made after October 30, 2023 are not

covered by this agreement and are expected to be paid according to normal payment terms.

The Company made prepayments

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

on the consolidated balance sheets.

As of September 30, 2023, there were no such prepayments.

During 2023, as a result of the Retail Exit,

the Company recognized a loss of approximately $ 1,021,000 relating to the termination of unfulfilled purchase orders for retail products

(see Note 3).

Promissory Note

On January 18, 2018, the Company

issued a $ 1,600,000 unsecured promissory note payable to Forward China to fund the acquisition of IPS.

The promissory note bears interest

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

On January 18, 2018, the

Company issued a $ 1,600,000 unsecured promissory note payable to Forward China to fund the acquisition of IPS.

The promissory note bears

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

Monthly interest payments commenced on February

18, 2018, with the principal due at maturity.

The Company incurred and paid interest associated with this note of $ 122,000 and $ 128,000 in Fiscal

2022 and Fiscal 2021, respectively.

The Company incurred and paid interest associated with this note of $ 104,000 and $ 122,000

in Fiscal 2023 and Fiscal 2022, respectively.

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

The maturity date of the note has

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

The Company made principal payments of $ 200,000 on this note

during Fiscal 2022.

The maturity date of the

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

The Company made principal payments of $ 300,000 and

$ 200,000 on this note during Fiscal 2023 and Fiscal 2022, respectively, and this note has a remaining balance of $ 1,100,000 at September

Other Related Party Activity

7 unchanged sentences

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’

The Company incurred costs of $ 90,000 under this agreement for Fiscal 2022, of which $ 84,000 was included in selling and marketing

expenses and $ 6,000 is included as a component of cost of sales upon sales of the related products.

The Company had accounts payable to

Justwise of $ 15,000 and $ 1,000 at September 30, 2022 and 2021, respectively.

Due to the Retail Exit, these revenues are included in the loss from discontinued operations for Fiscal 2023 and 2022.

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 was effective

until August 31, 2023.

Effective September 1, 2023, the Company entered into an agreement to extend this agreement on a month-to-month

basis and to expand its scope to include inventory management assistance.

The Company incurred costs of $ 127,000 under this agreement

for Fiscal 2023, of which $ 120,000 was included in selling and marketing expenses and $ 7,000 is included as a component of cost of sales

upon sales of the related products.

The Company incurred costs of $ 90,000 under this agreement for Fiscal 2022, of which $ 84,000 was included

in selling and marketing expenses and $ 6,000 is included as a component of cost of sales upon sales of the related products.

had accounts payable to Justwise of $ 10,000 and $ 15,000 at September 30, 2023 and 2022, respectively.

The Company recorded revenue

7 unchanged sentences

the Company’s OEM distribution segment sold products during Fiscal 2022.

The Company recognized revenue of $ 13,000 and $ 63,000 from

the sale of such products during Fiscal 2022 and 2021, respectively.

The Company recognized revenue of $ 0 and $ 13,000 from the

sale of such products during Fiscal 2023 and 2022, respectively.

NOTE 15 401(k) PLAN

The Company maintains a 401(k)

benefit plan allowing eligible employees to make pre-tax and/or after-tax contributions of a portion of their salary in amounts subject

to IRS limitations.

The Company made immediately vested contributions of $ 379,000 during Fiscal 2022, of which $313,000 was recorded to

cost of sales, $16,000 was recorded to sales and marketing expense and $50,000 was recorded to general and administrative expense on the

consolidated statement of operations.

The Company made immediately vested matching contributions of $ 331,000 in Fiscal 2021, of which

$260,000 was recorded to cost of sales and $71,000 was recorded to general and administrative expenses on the consolidated statement of

FORWARD INDUSTRIES,

The Company maintains a

401(k) benefit plan allowing eligible employees to make pre-tax and/or after-tax contributions of a portion of their salary in

amounts subject to Internal Revenue Service limitations.

The Company made immediately vested contributions of $ 426,000

during Fiscal 2023, of which $ 310,000

was recorded to cost of sales, $ 25,000

was recorded to sales and marketing expense and $ 91,000

was recorded to general and administrative expense on the consolidated statement of operations.

The Company made immediately vested

contributions of $ 379,000

during Fiscal 2022, of which $ 313,000

was recorded to cost of sales, $ 16,000

was recorded to sales and marketing expense and $ 50,000

was recorded to general and administrative expense on the consolidated statement of operations.

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

1 unchanged sentence

NOTE 16 SEGMENTS AND CONCENTRATIONS

The Company has three reportable

OEM distribution, retail distribution and design.

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

of our reportable segments.

As a result of discontinuing

the retail segment, see Note 3, the Company now has two reportable segments:

OEM distribution and design.

See Note 2 for more information

on the composition and accounting policies of our reportable segments.

The results of the retail segment were classified as discontinued

operations as discussed in Note 3.

Segment information presented herein excludes the results of the retail segment for all periods presented.

Our chief operating decision

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

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.

Information by segment and related

reconciliations are shown in tables below:

Segment operating income (loss)

For our OEM 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.

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.

Information by segment and

related reconciliations are shown in tables below:

Schedule of segment and

related reconciliations

OEM distribution

Retail distribution

Total segment revenues

1 unchanged sentence

OEM distribution

Retail distribution

( 1,809,000 )

Total segment operating income

2 unchanged sentences

( 2,465,000 )

Total loss from operations

( 1,240,000 )

Operating loss from continuing operations before income taxes

Other expense/(income), net

( 1,289,000 )

(Loss)/income before income taxes

$ ( 1,376,000 )

Income from continuing operations before income taxes

Depreciation and Amortization

OEM distribution

Retail distribution

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL

Condensed Balance Sheet

Schedule of condensed balance sheet

Segment Assets

1 unchanged sentence

OEM distribution

Retail distribution

Total segment assets

General corporate assets

Discontinued assets held for sale

Other assets of discontinued retail segment

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Geographic Concentrations

2 unchanged sentences

following table sets forth our consolidated net revenues by country for Fiscal 2023 and Fiscal 2022:

Revenues from External Customers

Schedule of consolidated net revenues

United States

1 unchanged sentence

Customer Concentrations

In Fiscal 2022 and Fiscal 2021,

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 two of these customers or their affiliates or contract manufacturers represented 23.0 % of the Company’s

consolidated net revenues in Fiscal 2022 and revenues from three of these customers or their affiliates or contract manufacturers represented

36.8 % of the Company’s consolidated net revenues in Fiscal 2021.

In Fiscal 2022, the Company had

one customer in the design segment whose individual percentage of the Company’s consolidated revenues was 10% or greater.

from this customer represented 10.6 % of the Company’s consolidated net revenues in Fiscal 2022.

There were no customers in the design

segment whose individual percentage of the Company’s consolidated net revenues was 10% or greater in Fiscal 2021.

At September 30, 2022 and 2021,

the Company had customers in the OEM distribution segment whose accounts receivable balances accounted for 10% or more of the Company’s

The Company had certain customers

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

one of these customers or their affiliates or contract manufacturers represented 11.2 % of the Company’s consolidated net revenues

in Fiscal 2023 and revenues from two of these customers or their affiliates or contract manufacturers represented 25.5 % of the Company’s

consolidated net revenues in Fiscal 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 27.9 % and 11.8 % of the Company’s consolidated net revenues in Fiscal 2023 and 2022, respectively.

The Company had

customers in the OEM distribution segment whose accounts receivable balances accounted for 10% or more of the Company’s

consolidated accounts receivable.

Accounts receivable from two customers or their affiliates or contract manufacturers represented 28.1 %

of the Company’s consolidated accounts receivable at September 30, 2022 and accounts receivable from three customers or their affiliates

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

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

One customer or its affiliate or contract manufacturer represented 12.0 %

of the Company’s consolidated accounts receivable at September 30, 2023 and two customers or their affiliates or contract

manufacturers represented 28.1 %

of the Company’s consolidated accounts receivable at September 30, 2022.

At September 30, 2023, the

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

accounts receivable.

Accounts receivable from this customer represented 31.1 % of the Company’s consolidated accounts receivable

at September 30, 2023.

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 expired.

Due to increased pricing pressures, the Company

did not extend its contract with this customer.

Revenue from this customer represented approximately 13 % of our consolidated net revenues

for Fiscal 2022.

The Company expects the loss of this customer to cause a significant decline in OEM distribution segment revenues in

future periods.

Supplier Concentration

The Company’s OEM and retail

distribution segments procure substantially all their products through independent suppliers in China through Forward China.

The Company’s OEM distribution

segment procures substantially all its products through independent suppliers in China through Forward China (see Note 14).

on the product, Forward China may require several different suppliers to furnish component parts or pieces.

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.

The interest rate on the line of credit is 0.75% above

The Wall Street Journal prime rate.

The Company, specifically

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 9.25 % and 7.0 % at September 30, 2023 and 2022, respectively.

3 unchanged sentences

with such covenants at September 30, 2023.

On April 18, 2020, the Company

entered into a PPP loan in an aggregate principal amount of $ 1,357,000 .

The loan was unsecured, bore interest at a rate of 1.0 % 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 consolidated statement of operations for Fiscal

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

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 9A. Controls and Procedures