What changed in this filing

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Item 1. Financial Statements

2024-02-14 compared with 2023-08-14 · 450 added, 445 removed, 321 unchanged (74% of the section changed)

7 unchanged sentences

Inventories, net

Discontinued assets held for sale

Prepaid expenses and other current assets

5 unchanged sentences

Current liabilities:

Note payable to Forward China

Accounts payable

1 unchanged sentence

Deferred income

Current portion of earnout consideration

Current portion of operating lease liability

4 unchanged sentences

Operating lease liability, less current portion

Earnout consideration, less current portion

Total other liabilities

4 unchanged sentences

40,000,000 shares authorized;

10,061,185 shares issued and

outstanding at June 30, 2023 and September 30, 2022

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

Additional paid-in capital

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AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended

For the Nine Months Ended

Revenues, net

2 unchanged sentences

General and administrative expenses

Loss from operations

( 1,832,985 )

Operating loss

Fair value adjustment of earnout consideration

Interest expense

Interest income

Other (income)/expense, net

Loss before income taxes

( 1,837,967 )

Interest expense

Other income, net

Loss from continuing operations before income taxes

Provision for income taxes

$ ( 536,744 )

$ ( 418,913 )

Loss from continuing operations

Income / (loss) from discontinued operations, net of tax

$ ( 354,220 )

$ ( 430,275 )

Loss per share:

Basic earnings/(loss) per share:

Basic loss per share from continuing operations

Basic earnings/(loss) per share from discontinued operations

Basic loss per share

Diluted earnings/(loss) per share:

Diluted loss per share from continuing operations

Diluted earnings/(loss) per share from discontinued operations

Diluted loss per share

Weighted average common shares outstanding:

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CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

For the Three and Nine Months Ended June 30, 2023

For the Three Months Ended December 31, 2023

Balance at September 30, 2023

3 unchanged sentences

$ ( 18,040,773 )

Share-based compensation

Balance at March 31, 2023

( 15,251,119 )

Share-based compensation

Balance at June 30, 2023

$ ( 15,787,863 )

For the Three and Nine Months Ended June 30, 2022

For the Three Months Ended December 31, 2022

Balance at September 30, 2022

3 unchanged sentences

$ ( 14,380,171 )

Share-based compensation

Balance at March 31, 2022

( 12,747,956 )

Share-based compensation

Balance at June 30, 2022

$ ( 13,166,869 )

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

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended June 30,

For the Three Months Ended

Operating Activities:

1 unchanged sentence

$ ( 430,275 )

Adjustments to reconcile net loss to net cash provided by operating

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

Share-based compensation

Depreciation and amortization

Bad debt expense

Bad debt (recoveries) expense

Change in fair value of earnout consideration

1 unchanged sentence

Accounts receivable

( 2,809,177 )

Discontinued assets held for sale

Prepaid expenses and other current assets

3 unchanged sentences

Accrued expenses and other current liabilities

Net cash provided by operating activities

Net cash provided by / (used in) operating activities

Investing Activities:

4 unchanged sentences

Net cash used in financing activities

Net increase in cash

Net decrease in cash

Cash at beginning of period

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Cash paid for interest

Cash paid for taxes

Supplemental Disclosures of Non-Cash Information:

Operating lease assets obtained in exchange for operating lease liabilities

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

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 OVERVIEW

Forward Industries, Inc.

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company serving top tier medical and technology customers worldwide.

In July 2023, the Company

decided to cease its retail distribution operations (“Retail Exit”).

The Retail Exit will have no effect on the operations

of the Company’s other segments.

The Company is working on a plan that will ensure the Retail Exit is made in an orderly manner

while also satisfying existing customer obligations.

At the time of this filing, the Company does not know the extent, or a range, of

the costs that it will incur as a result of the exit.

For the nine months ended

June 30, 2023, the Company generated a net loss of $1,838,000 and $562,000 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 August

At June 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 10).

Considering the loss of a significant Original Equipment Manufacturing

(“OEM”) distribution segment customer (see Note 5), management reduced its OEM distribution segment sales and marketing personnel

in March 2023 and is currently assessing the terms of its sourcing agreement with Forward Industries Asia-Pacific Corporation (“Forward

China”), which is scheduled to expire on October 22, 2023 (see Note 8).

Effective April 1, 2023, the Company and Forward China agreed

to reduce the fixed portion of the sourcing fee from $100,000 to $83,333 per month for the remaining term of the agreement, which resulted

in cash savings of $50,000 in the third quarter of fiscal 2023 and is expected to result in cash savings of $50,000 for the remainder

of the 2023 fiscal year.

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

In light of the Retail Exit,

the Company plans to discuss a further reduction in the sourcing fee commensurate with the services provided.

While we believe a new agreement

will be reached, we cannot provide any assurances that we will be successful.

If an agreement cannot be reached, which could have

a significant impact on the Company’s operations, we will look at other alternatives for our OEM distribution business prior to

the expiration of the agreement.

Management is planning to further evaluate the OEM distribution segment cost structure and implement

additional cost cutting initiatives as deemed necessary.

Impact of COVID-19

The effects of the COVID-19

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

region, and expenses associated with outbound ground transportation.

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

future periods.

Inflation, in part associated with the pandemic, continues to increase the cost of acquiring and retaining our employees

and acquiring inventory.

The instability of transportation costs and future inflation are still largely unknown but are expected to continue

throughout fiscal 2023.

The effects of COVID-19 may

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

The current economic conditions may continue

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

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

require our services.

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

As a result, the effects

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

Until the effects of the

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

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

closely managing and controlling our expenses;

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.

Company’s design division provides hardware and software product design and engineering services to customers predominantly located

The Company’s 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”).

Discontinued Operations

In July 2023, the

Company decided to cease operations of its retail distribution segment (“Retail Exit”) and is presenting the results of

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

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 U.S.

The inventory of the retail segment is presented

as discontinued assets held for sale on the balance sheets at December 31, 2023 and September 30, 2023.

Where applicable, certain

footnotes exclude the discontinued operations unless otherwise noted.

See Note 3 for additional information on discontinued

For the three months ended December

31, 2023, the Company generated a net loss of $354,000, loss from continuing operations of $381,000 and cash flows from operating activities

At December 31, 2023, the Company had $ 1,300,000 of borrowing available under its line of credit with a bank that was renewed

in March 2023 and has a maturity date of May 31, 2024 (see Note 11).

By discontinuing the retail segment, which incurred significant losses,

the Company expects improved performance 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 9).

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 February 28, 2025.

The condensed consolidated financial statements do not include

any adjustments that might result if the Company is unable to continue as a going concern.

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 ACCOUNTING POLICIES

Impact of COVID-19

On May 11, 2023, the U.S.

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.

NOTE 2 ACCOUNTING

Basis of Presentation

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

herein but are not necessarily indicative of the results of operations for the full year of fiscal 2023.

herein but are not necessarily indicative of the results of operations for the year ending September 30, 2024.

These condensed consolidated

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

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

of revenues and expenses during the reporting periods.

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

expenses during the reporting periods.

Actual results could differ from those estimates and assumptions.

Throughout this document,

certain dollar amounts and percentages have been rounded to their approximate values.

Within this report, certain dollar

amounts and percentages have been rounded to their approximate values.

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 directly to OEMs or their

contract manufacturers worldwide.

The retail distribution segment 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 U.S.

segment consists of two operating segments (IPS and Kablooe, which have been aggregated into one reportable segment) that provide a full

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

See Note 5 for

more information on segments.

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 6 for more information on

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Accounts Receivable

Accounts receivable consist

of unsecured trade accounts with customers in amounts that have been invoiced ($ 8,064,000 and $ 7,861,000 at June 30, 2023 and September

Accounts receivable consist of

unsecured trade accounts with customers in amounts that have been invoiced ($ 6,183,000 and $ 6,949,000 at December 31, 2023 and September

30, 2023, respectively) and contract assets as described further below under the heading “Revenue Recognition.” The Company

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history, recent payment trends and perceived creditworthiness, adjusted as necessary based on specific customer situations.

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

accounts of $ 39,000 and $ 20,000 , respectively, for the retail distribution segment and $ 837,000 and $ 852,000 , respectively, for the design

The Company has agreements

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

At June 30, 2023 and

September 30, 2022, the Company recorded accounts receivable allowances of $ 161,000 and $ 55,000 , respectively, for the retail distribution

31, 2023 and September 30, 2023, the Company had no allowances for doubtful accounts for the OEM distribution segment, allowances for

doubtful accounts of $ 35,000 and $ 46,000 , respectively, for the discontinued retail distribution segment and $ 760,000 and $ 771,000 , respectively,

for the design segment.

The Company has agreements with

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

At December 31, 2023 and

September 30, 2023, the Company recorded accounts receivable allowances of $ 193,000 and $ 139,000 , respectively, for the discontinued retail

distribution segment.

Inventories consist primarily

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

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

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

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

1 unchanged sentence

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

The Company’s estimates of the allowance

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

At June 30, 2023 and September

30, 2022, the allowance for slow-moving inventory, which relates entirely to our retail segment, was $ 779,000 and $ 535,000 , respectively.

The Company’s estimates of the allowance may

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

Revenue Recognition

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The OEM distribution segment had no contract liabilities

at June 30, 2023, September 30, 2022 or September 30, 2021.

Retail Distribution Segment

The retail distribution segment

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

Revenue is recognized when control (as

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

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

Other than product delivery, the retail

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

Revenue is measured

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

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

When the Company receives consideration

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

in the accompanying condensed consolidated balance sheets.

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

September 30, 2022 or September 30, 2021.

at December 31, 2023, September 30, 2023 or September 30, 2022.

Discontinued Retail Distribution Segment

The discontinued retail distribution

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

Revenue is recognized when control

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

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

Other than product delivery, the

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

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

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

When the Company receives

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

of deferred income in the accompanying condensed consolidated balance sheets.

The retail distribution segment had no contract liabilities

at December 31, 2023, September 30, 2023 or 2022.

The results of operations of the retail segment are reported as discontinued operations

for the three months ended December 31, 2023 and 2022.

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Design Segment

The Company applies the “cost

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

The Company applies the

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

The design segment typically engages in two types of contracts:

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

The Company recognizes revenue

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

Revenues from fixed price contracts that

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

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

The Company recognizes

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

Revenues from fixed price contracts

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

has been completed and accepted.

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

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

Revenues from fixed price

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

to the customer has been completed and accepted.

Recognized revenues that

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in the accompanying condensed consolidated balance sheets.

The design segment had contract assets of $ 632,000 , $ 609,000 and $ 693,000 at

June 30, 2023, September 30, 2022 and September 30, 2021, respectively.

Contracts where collections to date have exceeded recognized revenues,

or contract liabilities, are recorded as a liability and classified as a component of deferred income in the accompanying condensed consolidated

balance sheets.

The design segment had contract liabilities of $ 265,000 , $ 439,000 and $ 188,000 at June 30, 2023, September 30, 2022 and

September 30, 2021, respectively.

The design segment had contract assets of $ 1,340,000 , $ 976,000 and $ 609,000

at December 31, 2023, September 30, 2023 and September 30, 2022, respectively.

Contracts where collections to date have exceeded recognized

revenues, or contract liabilities, are recorded as a liability and classified as a component of deferred income in the accompanying condensed

consolidated balance sheets.

The design segment had contract liabilities of $ 250,000 , $ 297,000 , and $ 439,000 at December 31, 2023, September

30, 2023 and September 30, 2022, respectively.

The Company reviews goodwill

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the fair value of a reporting unit.

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

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

Intangible Assets

Intangible assets include

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

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

Our intangible assets are

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

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

factors to determine the fair value of the respective assets.

These estimates and assumptions could have a significant impact on whether

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

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

on relevant information.

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

cannot be determined with precision.

Intangible assets include trademarks

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

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

Our intangible assets are reviewed

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

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

the fair value of the respective assets.

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

is recognized and the magnitude of any such charge.

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

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

with precision.

Changes in assumptions could significantly affect the estimates.

If these estimates or material related

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

Management evaluated

and concluded that there were no indications of impairments of intangible assets at June 30, 2023.

If these estimates or material related assumptions change

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

Management evaluated and concluded that

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

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

At June 30, 2023, there was no change to our assessment that a full valuation allowance was required against all net deferred

At December 31, 2023, there was no change to our assessment that a full valuation allowance was required against all net deferred

tax assets as it is not probable that such deferred tax assets will be realized.

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

ASC 820 establishes a fair

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

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

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unobservable inputs that are supported by little or no market activity and that are significant to the fair values of the assets or liabilities.

Lease assets and liabilities

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

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

one readily available.

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

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

Lease assets represent the Company’s right

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

from the lease.

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

Operating lease assets are

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

The current and long-term portions of operating lease liabilities

are shown separately as such on the condensed consolidated balance sheets.

Lease assets and

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

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

rate, nor is one readily available.

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

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

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

obligation to make lease payments arising from the lease.

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

the lease term.

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

The current and

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

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Recent Accounting Pronouncements

In November 2019, the Financial

Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-11, “Codification Improvements

to Topic 326, Financial Instruments – Credit Losses.” ASU 2019-11 is an accounting pronouncement that provides clarity to

and amends earlier guidance on this topic and would be effective concurrently with the adoption of such earlier guidance.

This pronouncement

is effective for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years.

The Company is currently

evaluating the effects of this pronouncement on its condensed consolidated financial statements.

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 adopted this guidance in the first quarter of fiscal 2024 with no material impact on its

condensed 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 condensed consolidated balance sheets as “discontinued

assets held for sale” at December 31, 2023 and September 30, 2023, and the results of operations for the retail segment have been

classified as “Discontinued Operations” on the condensed consolidated statements of operations for the three months ended

December 31, 2023 and 2022.

The condensed 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.

The total amount related to the

discontinued retail segment included in Due to Forward China on the condensed consolidated balance sheets was approximately $ 905,000 and

$ 1,002,000 (which includes the $723,000 due on canceled purchase orders) at December 31, 2023 and September 30, 2023, respectively.

The following table presents

the major classes of the “Income / loss from discontinued operations, net of tax” in our condensed consolidated statements

of operations.

Schedule of discontinued operations

For the Three Months Ended December 31,

Revenues, net

Cost of sales

Sales and marketing expenses

General and administrative expenses

Income / (loss) from discontinued operations before income taxes

Provision for income taxes

Income / (loss) from discontinued operations

$ ( 339,000 )

INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

At December 31, 2023 and September

30, 2023, discontinued assets held for sale of $ 136,000 and $ 508,000 , respectively, consist of the net inventory of the retail segment.

These numbers include an allowance of $ 834,000 and $ 1,464,000 , 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 the

three months ended December 31, 2023 and 2022.

NOTE 4 INTANGIBLE ASSETS AND GOODWILL

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Schedule of intangible assets

June 30, 2023

December 31, 2023

September 30, 2023

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( 1,135,000 )

( 1,082,000 )

Net carrying amount

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of our business.

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

relationships.

Amortization expense related to intangible assets was $ 53,000 for the three months ended June 30, 2023 and 2022, and $ 160,000

for the nine months ended June 30, 2023 and 2022, which is included in general and administrative expenses on the condensed consolidated

statements of operations.

At June 30, 2023, estimated

Intangible assets are amortized over their expected useful lives of 15

years for the trademarks and eight 8

years for the customer relationships.

Amortization expense related to intangible assets was $ 53,000

for the three months ended December 31, 2023 and 2022, which is included in general and administrative expenses on the condensed

consolidated statements of operations.

At December 31, 2023, estimated

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

Schedule of future amortization

Schedule of estimated amortization

Remainder of Fiscal 2024

INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

3 unchanged sentences

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

FORWARD INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 FAIR VALUE MEASUREMENTS

earnout consideration of $ 30,000 and $ 70,000 at June 30, 2023 and September 30, 2022, respectively, represents the fair value of the contingent

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

through August 2025.

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

valuation model with inputs categorized within level three of the fair value hierarchy.

The current and non-current portions of this liability

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

During the three months

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

reaching the specified earnings targets.

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

statement of operations.

NOTE 5 FAIR VALUE

acquisition of Kablooe provides annual contingent earnout payments based on their results of operations through August 2025.

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

categorized within level three of the fair value hierarchy.

During the three months ended December 31, 2022, the Company reduced this

liability from $70,000 to $30,000 based on changes to the expected likelihood of Kablooe reaching the specified earnings targets.

2023, the Company further reduced this liability from $30,000 to $0 due to the low likelihood of Kablooe reaching the specified earnings

The fair value of this earnout liability remained $ 0 at December 31, 2023.

The resulting gains have been recorded as a component

of other income on the condensed consolidated statements of operations.

NOTE 6 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.

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:

Schedule of segment operating income (loss)

For our OEM distribution segment, we exclude general and administrative and general corporate expenses from its 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.

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Information by segment and related

reconciliations are shown in tables below:

Schedule of segment and related reconciliations

For the Three Months Ended

For the Nine Months Ended

OEM distribution

Retail distribution

Total segment revenues

1 unchanged sentence

OEM distribution

Retail distribution

( 1,742,000 )

Total segment operating (loss)/income

Total segment operating income

General corporate expenses

( 1,933,000 )

( 1,937,000 )

Total loss from operations

( 1,833,000 )

Other expense, net

Loss before income taxes

$ ( 537,000 )

$ ( 419,000 )

$ ( 1,838,000 )

Operating loss from continuing operations before income taxes

Other expense (income), net

Loss from continuing operations before income taxes

$ ( 381,000 )

2 unchanged sentences

Total depreciation and amortization

FORWARD INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Schedule of segment assets

December 31, 2023

September 30, 2023

1 unchanged sentence

OEM distribution

Retail distribution

Total segment assets

General corporate assets

The Company had certain customers

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

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

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

There were no customers in the OEM distribution segment whose individual

percentage of the Company’s consolidated revenues was 10% or greater during the three or nine months ended June 30, 2023.

For the three and nine months

ended June 30, 2023, the Company had one customer in the design segment whose individual percentage of the Company’s consolidated

Discontinued assets held for sale

Other assets of discontinued retail segment

The Company had certain

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

There were no customers in the OEM distribution segment whose individual percentage of the Company’s consolidated revenues was 10%

or greater during the three months ended December 31, 2023.

Revenues from two customers or their affiliates or contract manufacturers

represented 27.7 % of the Company’s consolidated net revenues for the three months ended December 31, 2022.

INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended

December 31, 2023 and 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 30.1 % and 10.8 % of the Company’s consolidated net revenues

for the three months ended June 30, 2023 and 2022, respectively, and 22.7 % and 10.4 % of the Company’s consolidated net revenues

for the nine months ended June 30, 2023 and 2022, respectively.

At June 30, 2023 and September

Revenues from this customer represented 27.5 % and 15.9 %, respectively, of the Company’s consolidated

net revenues for the three months ended December 31, 2023 and 2022.

At December 31, 2023 and September

30, 2023, the Company had customers in the OEM distribution segment whose accounts receivable balance accounted for 10% or more of the

Company’s consolidated accounts receivable.

Accounts receivable from one customer or their affiliates or contract manufacturers

represented 13.3 % of the Company’s consolidated accounts receivable at June 30, 2023 and accounts receivable from two customers

or their affiliates or contract manufacturers represented 28.1 % of the Company’s consolidated accounts receivable at September 30,

At June 30, 2023, the Company

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

accounts receivable.

Accounts receivable from this customer represented 26.3 % of the Company’s consolidated accounts receivable

at June 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.

One customer or its affiliate or contract manufacturer represented 13.5 % and 12.0 % of

the Company’s consolidated accounts receivable at December 31, 2023 and September 30, 2023, respectively.

At December 31, 2023 and

September 30, 2023, the Company had one customer in the design segment whose accounts receivable balance accounted for 10% or more of

the Company’s consolidated accounts receivable.

Accounts receivable from this customer represented 28.4 % and 31.1 %, respectively,

of the Company’s consolidated accounts receivable at December 31, 2023 and September 30, 2023.

In March 2023, the Company’s

2 unchanged sentences

did not extend its contract with this customer.

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

for the nine months ended June 30, 2022.

Revenue from this customer represented 13.4 % of our consolidated net revenues for the

three months ended December 31, 2022.

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

segment revenues in future periods.

On July 21, 2023, the Company

decided to cease its retail distribution operations.

The exit from the retail distribution operations will have no effect on the operations

of the Company’s design or OEM distribution businesses.

The Company is working on a plan that will ensure the transition out of

the retail business is done in an orderly manner while also satisfying existing customer obligations.

At the time of this filing, the

Company does not know the extent, or a range, of the costs that it will incur as a result of the exit.

NOTE 6 SHARE-BASED COMPENSATION

NOTE 7 SHAREHOLDERS’

Stock Options

May 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

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.

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

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

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

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

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

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

exercise price of $ 1.56 per share.

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

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

The options have a

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

over the vesting period.

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

stock at an exercise price of $ 1.68 per share.

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

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

which was recognized ratably over the vesting period.

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

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

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

options have a weighted average grant-date fair value of $ 1.07 per share and an aggregate grant-date fair value of $ 60,000 , which was

fully recognized on the grant date.

were no options exercised during the nine months ended June 30, 2023 or 2022.

Company recognized compensation expense for stock option awards of $ 17,000 and $ 44,000 during the three months ended June 30, 2023 and

2022, respectively, and $ 56,000 and $ 148,000 during the nine months ended June 30, 2023 and 2022, respectively, which was recorded as

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

At June 30, 2023, there was

$ 52,000 of total unrecognized compensation cost related to nonvested stock option awards that is expected to be recognized over a weighted

average period of 0.4 years.

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.

No options were granted during the three months ended December 31, 2022.

were no options exercised during the three months ended December 31, 2023 or 2022.

Company recognized compensation expense for stock option awards of $ 51,000 and $ 24,000 during the three months ended December 31, 2023

and 2022, respectively, which was recorded as a component of general and administrative expenses in its condensed consolidated statements

of operations.

At December 31, 2023, there was $ 91,000 of total unrecognized compensation cost related to nonvested stock option awards

that is expected to be recognized over a weighted average period of 0.8 years.

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 had 180 days, or until January 29, 2024, to regain compliance with

this requirement.

On January 30, 2024, we were notified by Nasdaq that based on our continued non-compliance with this requirement, it

had determined that the Company’s common stock would be scheduled for delisting from Nasdaq.

Company requested a hearing on this matter with the Nasdaq Hearings Panel (“Panel”) and a hearing has been scheduled for April

This request stayed any trading suspension or delisting of the Company’s common stock until the completion of the

hearings process.

The Company has received shareholder approval for a reverse stock split (see below), on February 6, 2024,

and is considering its options.

We can provide no assurances that we will regain compliance with the requirements to remain listed on

Nasdaq or that the Panel will approve our plans to regain compliance.

FORWARD INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

Reverse Stock Split

6, 2024, the Company's shareholders approved an amendment to our Restated Certificate of Incorporation (the "Amendment") to

effect a reverse stock split at a ratio in the range of 1-for-2 to 1-for-3 , with such ratio to be determined at the discretion

of the Company's board of directors and with such reverse stock split to be effected at such time and date, if at all, as

determined by the Company's board of directors in its sole discretion.

The Company’s board of directors intends to determine whether

to proceed with the reverse stock split, the effective time and ratio of the reverse stock split at a future date.

We can provide no assurances

that it will be implemented or that it will result in our stock price increasing to meet the bid price requirement for a period of time

sufficient to regain compliance with Nasdaq listing requirements.

NOTE 8 EARNINGS

6 unchanged sentences

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

Schedule of earnings (loss) per share

Schedule of basic and diluted earnings per share

For the Three Months Ended

For the Nine Months Ended

$ ( 537,000 )

Loss from continuing operations

$ ( 381,000 )

Income / (loss) from discontinued operations, net of tax

$ ( 354,000 )

2 unchanged sentences

Dilutive common share equivalents

Weighted average diluted shares outstanding

Loss per share:

Weighted average dilutive shares outstanding

Basic (loss)/earnings per share:

Basic loss per share from continuing operations

Basic earnings/(loss) per share from discontinued operations

Basic loss per share

Diluted (loss)/earnings per share:

Diluted loss per share from continuing operations

Diluted earnings/(loss) per share from discontinued operations

Diluted loss per share

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

The following securities

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

Schedule of antidilutive securities excluded

Schedule of anti-dilutive securities

For the Three Months Ended

For the Nine Months Ended

Total potentially dilutive shares

FORWARD INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 RELATED PARTY

NOTE 9 RELATED

PARTY TRANSACTIONS

Buying Agency and Supply

The Company has a Buying

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

The Supply Agreement provides that, upon the terms

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

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

The Company purchases products at Forward China’s

cost and 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.

The Supply Agreement expires October 22,

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 $ 284,000 and $ 344,000 during the three months ended June 30, 2023 and 2022, respectively, and $ 978,000 and $ 1,056,000 during

the nine months ended June 30, 2023 and 2022, respectively, which are included as a component of cost of sales upon sales of the related

The Company had purchases from Forward China during the three and nine months ended June 30, 2023 of approximately $ 2,000,000

and $ 10,000,000 , respectively.

The Company had purchases from Forward China during the three and nine months ended June 30, 2022 of approximately

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 6), 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.

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

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

The new sourcing agreement expires October

The Company recorded service fees to Forward China of $ 234,000 and $ 344,000 during the

three months ended December 31, 2023 and 2022, respectively, which are included as a component of cost of sales upon sales of the related

The Company had purchases from Forward China during the three months ended December 31, 2023 and 2022 of approximately $ 1,516,000

and $ 4,412,000 , respectively.

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

1, 2023, the Company and Forward China agreed to reduce the fixed portion of the sourcing fee from $100,000 to $83,333 per month for the

remaining term of the Supply Agreement, which resulted in cash savings of $50,000 in the third quarter of fiscal 2023 and is expected

to result in cash savings of $ 50,000 for the remainder of fiscal 2023.

The Company and Forward China have begun negotiations on a new

sourcing agreement.

In light of the Retail Exit, the Company plans to discuss a further reduction in the sourcing fee commensurate

with the services provided.

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

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

for our OEM distribution business prior to the expiration of the agreement.

The Company has prepayments

to Forward China for inventory purchases of $205,000 and $20,000 at June 30, 2023 and September 30, 2022, respectively, which are included

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

In order to preserve the Company’s

current and 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.

At December 31, 2023, the remaining balance covered by this agreement was approximately

$ 7,365,000 .

Promissory Note

6 unchanged sentences

The Company incurred and paid interest associated with this note of $ 19,000 and $ 28,000

in the three months ended June 30, 2023 and 2022, respectively, and $ 80,000 and $ 93,000 in the nine months ended June 30, 2023 and 2022,

respectively.

in the three months ended December 31, 2023 and 2022, respectively.

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

The maturity date of this note has been extended on several

occasions to assist the Company with liquidity.

The Company made principal payments of $ 200,000 on this note during the nine months ended

June 30, 2023, and this note has a remaining balance of $ 1,200,000 at June 30, 2023.

The maturity date of this note has been extended on several occasions to assist the Company with liquidity.

The Company made principal

payments of $ 250,000 and $ 50,000 on this note during the three months ended December 31, 2023 and 2022, respectively, and this note has

a remaining balance of $ 850,000 at December 31, 2023.

FORWARD INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

Other Related Party Activity

The Company sells smart-enabled

furniture, which is sourced by Forward China and sold in the U.S.

In October 2020, the Company

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

under the Koble brand name.

The Koble brand is owned by The Justwise

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

recognized revenues from the sale of Koble products of $ 509,000 and $ 356,000 in the three months ended June 30, 2023 and 2022, respectively,

and $ 1,550,000 and $ 1,337,000 in the nine months ended June 30, 2023 and 2022, respectively.

The Company has an agreement with Justwise

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

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

In exchange for such services, the Company will pay Justwise

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

This agreement is effective until August 31, 2023.

The Company incurred costs of $ 31,000 and $ 95,000 under this agreement for the three and nine months ended June 30, 2023, respectively,

of which $ 30,000 and $ 90,000 , respectively, were included in selling and marketing expenses and $ 1,000 and $ 5,000 , respectively, are included

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

The Company incurred costs of

$ 33,000 and $ 45,000 under this agreement for the three and nine months ended June 30, 2022, respectively, of which $ 29,000 and $ 39,000 ,

respectively, were included in selling and marketing expenses and $ 4,000 and $ 6,000 are included as a component of cost of sales upon

sales of the related products.

The Company had accounts payable to Justwise of $ 0 and $ 15,000 at June 30, 2023 and September

30, 2022, respectively.

The Koble brand

is owned by The Justwise Group Ltd.

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

The Company recognized revenues from the sale of Koble products of $ 273,000 and $ 497,000 in the three months ended December

31, 2023 and 2022, respectively.

Due to the Retail Exit, these revenues are included in the income / (loss) from discontinued operations

for the three months ended December 31, 2023 and 2022.

The Company had an agreement with Justwise, under which (i) Justwise performed

design, marketing and inventory management 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 paid Justwise $10,000 per month plus 1% of the cost

of Koble products purchased from Forward China.

This agreement existed on a month-to-month basis until November 30, 2023.

incurred costs under this agreement of $ 20,000 and $ 33,000 for the three months ended December 31, 2023 and 2022, respectively.

the Retail Exit, these costs are included in the income / (loss) from discontinued operations for the three months ended December 31,

2023 and 2022.

The Company had accounts payable to Justwise of $ 0 and $ 10,000 at December 31, 2023 and September 30, 2023, respectively.

The Company recorded revenue

2 unchanged sentences

of Forward China.

The Company recognized revenue from this customer of $ 122,000 and $ 260,000 for the three months ended June 30, 2023

and 2022, respectively, and $ 507,000 and $ 661,000 for the nine months ended June 30, 2023 and 2022, respectively.

The Company had no accounts

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

The Company recognized revenue from this customer of $ 120,000 and $ 134,000 for the three months ended December 31, 2023

and 2022, respectively.

The Company had no accounts receivable from this customer at December 31, 2023 or September 30, 2023.

The Company recorded

revenue from a customer who employs an immediate family member of a former member of our Audit, Governance and Compensation

committees of our Board of Directors.

The Company recognized revenue from this customer of $ 16,000

for the three months ended December 31, 2023 and 2022, respectively.

The Company had no accounts receivable from this customer at

December 31, 2023 or September 30, 2023.

NOTE 10 LEGAL PROCEEDINGS

1 unchanged sentence

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

At June 30, 2023, there were no such actions

or proceedings, either individually or in the aggregate, that, if decided adversely to the Company’s interests, the Company believes

would be material to its business.

At December 31, 2023, and through the date

of this filing, there were no such actions or proceedings, either individually or in the aggregate, that, if decided adversely to the

Company’s interests, the Company believes would be material to its business.

NOTE 11 LINE OF CREDIT

4 unchanged sentences

The interest rate on the line of credit is 0.75% above The Wall Street Journal prime rate .

The effective interest rate was 9.0 % and 7.0 % at June 30, 2023 and September 30, 2022,

respectively.

At June 30, 2023, the Company had $ 1,300,000 available under the line of credit.

The Company is subject to certain debt-service

ratio requirements which are measured annually.

The effective interest rate was 9.25 % at December 31, 2023 and September 30, 2023.

December 31, 2023, the Company had $ 1,300,000 available under the line of credit.

The Company is subject to certain debt-service ratio

requirements which are measured annually.

At September 30, 2023, the Company was in compliance with such covenants.

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

NOTE 12 LEASES

The Company’s operating

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

Cash paid for amounts included in operating lease liabilities

for the nine months ended June 30, 2023 and 2022, which have been included in cash flows from operating activities, was $ 429,000

and $ 446,000 ,

respectively.

Details of operating lease expense are as follows:

Schedule of operating lease expense

For the Three Months Ended

For the Nine Months Ended

Operating lease expense included in:

Sales and marketing expense

General and administrative expense

FORWARD INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

At June 30, 2023, the Company’s

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

Total operating lease expense for the three months ended

December 31, 2023, was $ 155,000 , of which $ 4,000 was recorded in sales and marketing expenses and $ 151,000 was recorded in general and

administrative expenses on the condensed consolidated statement of operations.

Total operating lease

expense for the three months ended December 31, 2022, was $ 148,000 , of which $ 1,000 was recorded in sales and marketing expenses and $ 147,000

was recorded in general and administrative expenses on the condensed consolidated statement of operations.

Cash paid for

amounts included in operating lease liabilities for the three months ended December 31, 2023 and 2022, which have been included in cash

flows from operating activities, was $ 147,000 and $ 143,000 , respectively.

At December 31, 2023, the Company’s

operating leases had a weighted average remaining lease term of 7.4 years and a weighted average discount rate of 5.7 %.

At June 30, 2023, future

At December 31, 2023, future

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

Schedule of future minimum payments under operating & financial leases

Schedule of future minimum payments under operating leases

Remainder of Fiscal 2024

6 unchanged sentences

Accrued expenses and other

current liabilities at June 30, 2023 and September 30, 2022 are as follows:

current liabilities at December 31, 2023 and September 30, 2023 are as follows:

Schedule of accrued expenses and other accrued liabilities

2 unchanged sentences

Paid time off

NOTE 13 SUBSEQUENT EVENT

On July 31, 2023, we were

notified by Nasdaq that we are 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.

We have until January 29, 2024 (the “Deadline Date”) to become

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 assessing all options to regain compliance.

At our annual stockholders’ meeting, which

is customarily held in February, we have the option to ask our stockholders to approve a reverse stock split in an amount that would satisfy

Nasdaq listing requirements.

Because the Deadline Date is prior to our expected annual stockholders’ meeting date, we can request

an extension of time to obtain stockholder approval for a reverse stock split if we cannot regain compliance by other means.

Other Information, Item 1A.

Risk Factors, for further information.)

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

What changed 10-Q

Item 1. Financial Statements