What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2024-12-27 compared with 2023-12-21 · 571 added, 501 removed, 849 unchanged (56% of the section changed)

40 unchanged sentences

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)

During the three months ended

September 30, 2024, no director or officer of the company adopted , modified or terminated a “Rule 10b5-1 trading

arrangement” or “non-rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) or Regulation S-K.

DISCLOSURE REGARDING FOREIGN JURISDICTIONS

53 unchanged sentences

Kathleen Weisberg

Chief Financial

Chief Financial Officer

Principal Financial Officer and Principal Accounting Officer

2 unchanged sentences

December 27, 2024

/s/ James Ziglar

December 21, 2023

/s/ Sharon Hrynkow

1 unchanged sentence

EXHIBIT INDEX

Incorporated by

Exhibit Description

Stock Purchase

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

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

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

Certificate of Incorporation

of Amendment of the Certificate of Incorporation, April 26, 2013

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

Third Amended

and Restated Bylaws, as of May 28, 2014

of Amendment of the Certificate of Incorporation – Series A Participating Preferred Stock

of Amendment of the Certificate of Incorporation – 6% Senior Convertible Preferred Stock

Certificate of Amendment of the Certificate of Incorporation – Reverse Stock Split

Certificate of Amendment of the Certificate of Incorporation – Series A-1 Convertible Preferred Stock

Certificate of Amendment of the Certificate of Incorporation – Increasing the Authorized Series A-1

Amended and Restated Bylaws, as of May 28, 2014

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

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

Term Incentive Plan, as amended

Promissory Note dated

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

Long-Term Incentive Plan, as amended

Equity Incentive Plan

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

Summary of Employment Arrangement - Terence Wise *

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

of Employment Arrangement - Terence Wise*

Agreement dated July 1, 2023 – Kathleen Weisberg*

2 unchanged sentences

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

Modification Agreement dated September 28, 2018

Bank Modification Agreement dated September 28, 2018

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

1 unchanged sentence

Extension to the Consultancy Agreement – Justwise Group Ltd.

Employment Agreement dated January 18, 2018 - Robert Wild *

Employment Agreement dated August 17, 2020 – Tom KraMer *

Agreement dated January 18, 2018 - Robert Wild *

Agreement dated August 17, 2020 – Tom KraMer *

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

Deferred Payment Agreement

Amendment to the Buying Agency and Supply Agreement - November 2024

Deferred Payment Agreement - Forward Industries (Asia – Pacific) Corporation

Account Payables Conversion Agreement - Forward Industries (Asia- Pacific) Corporation – July 2024

Account Payables Conversion Agreement - Forward Industries (Asia- Pacific) Corporation – September 2024

Insider Trading Policy

of Subsidiaries

3 unchanged sentences

CEO and CFO Certifications (906)

Clawback Policy

Inline XBRL Instance Document (the Instance Document

9 unchanged sentences

* 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

15 unchanged sentences

Opinion on the Financial Statements

We have audited the accompanying consolidated

balance sheets of Forward Industries, Inc.

and Subsidiaries (the “Company”) as of September 30, 2023 and 2022, and the related

consolidated statements of operations, shareholders’ equity and cash flows for the years then ended, and the related notes (collectively

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, 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.

We have audited the accompanying consolidated balance sheets of Forward

Industries, Inc.

and Subsidiaries (the “Company”) as of September 30, 2024 and 2023, and the related consolidated statements

of operations, shareholders’ equity and cash flows for the years then ended, and the related notes (collectively 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, 2024 and 2023, 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.

Going Concern

The accompanying consolidated financial statements have been prepared

assuming that the Company will continue as a going concern.

As discussed in Note 1 to the consolidated financial statements, the Company

has suffered recurring losses from operations that raise substantial doubt about its ability to continue as a going concern.

plans in regard to these matters are also described in Note 1.

The consolidated financial statements do not include any adjustments that

might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the

responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial

statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United

States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.

federal securities

laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the

standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated

financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we

engaged to perform, an audit of its internal control over financial reporting.

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

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.

These consolidated financial statements are the responsibility of the

Company’s management.

Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and

are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules

and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements

are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform,

an audit of its internal control over financial reporting.

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

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

control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess

the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures

that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the

consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by

management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide

a reasonable basis for our opinion.

Our audits included performing procedures to assess the risks of material

misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as

evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for

Critical Audit Matters

The critical audit matter communicated below is

a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated

to the audit committee and that:

(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 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

Consolidated Financial Statements)

Significant judgment is exercised by the Company

in determining whether there is substantial doubt the Company will continue as a going concern.

Specifically, the Company’s forecasted

cash flows are sensitive to significant assumptions such as projected revenue and projected operating results, all of which are affected

by the expected future market or economic conditions, including the residual effects of the global pandemic, and inflation.

Given these factors, the related audit effort

in evaluating management’s judgments in determining the Company’s ability to continue as a going concern was challenging,

subjective, and complex and required a high degree of auditor judgment.

How our Audit Addressed the Critical Audit

Our principal audit procedures related to the

Company’s assessment of going concern included the following:

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

The critical audit matters communicated below are matters arising from

the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee

(1) relate 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 critical audit matters 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 matters below, providing separate

opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Evaluation of Going Concern assessment and of impairment of Kablooe

goodwill and intangible assets (Note 1, Note 2 and Note 4 to the Consolidated Financial Statements)

As discussed in Note 1 to the consolidated financial statements, significant

judgment is exercised by the Company in determining whether there is substantial doubt the Company will continue as a going concern.

discussed in Notes 2 and 4 to the consolidated financial statements, the Company has goodwill and intangible assets related to its Kablooe,

(“Kablooe”) operating unit.

The Company reviews goodwill for impairment at least annually, or more often if triggering

events occur, and performs an annual goodwill impairment test on September 30, the end of the fiscal year, or upon the occurrence of a

triggering event.

The Company reviews intangible assets for impairment whenever events or changes in circumstances indicate that the carrying

amount of the asset may not be recoverable.

The Company estimates the fair value of its reporting unit using a combination of the income,

or discounted cash flows approach, and the market approach, which utilizes Kablooe’s forecasted operating results.

Specifically,

the Company’s forecasted cash flows are sensitive to significant assumptions such as forecasted revenue and operating results, all

of which are affected by the expected future market or economic conditions and inflation.

Significant judgment is exercised by the Company in forecasting operating

results which factor into the Company’s going concern assessment and its goodwill and intangible assets impairment analysis related

to its Kablooe operating segment.

Specifically, the forecasted operating results used by the Company in its going concern assessment and

the impairment analysis of goodwill and intangible assets included in its Kablooe operating segment are sensitive to significant assumptions

such as future revenue and expenses, all of which are affected by uncertain future events.

Given these factors, the related audit effort in evaluating management’s

judgments in forecasting operating results which factor into the Company’s going concern assessment and its goodwill and intangible

assets impairment analysis related to its Kablooe reporting segment, were challenging, subjective, and complex and required a high degree

of auditor judgment.

How our Audit Addressed the Critical Audit Matter

Our principal audit procedures related to the forecasted cash flows

and operating results used in the Company’s going concern assessment and impairment of Kablooe’s goodwill and intangible assets

analysis included the following:

· We gained an understanding of and evaluated the design and implementation of the Company’s process to develop forecasted cash

flows and operating results, including significant assumptions used in developing forecasted cash flows and operating results 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, expenses, 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

In addition, we performed sensitivity analyses related to the key inputs used in the Company’s forecasted revenue, expenses

and cash flows, including evaluating whether the changes in the assumptions would result in a material change in forecasted cash flows

and operating results.

· Evaluating management’s ability to accurately forecast future operating results by comparing the Company’s historical

forecasted revenue, expenses and cash flows to actual results.

/s/ CohnReznick LLP

We have served as the Company’s auditor since 2011.

Melville, New York

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Current assets:

Accounts receivable, net

Accounts receivable, net of allowances for credit losses of $ 27,282 and $ 955,965 as of September 30, 2024 and 2023, respectively

Accounts receivable (related party)

Inventories, net

7 unchanged sentences

Current liabilities:

Note payable to Forward China (related party)

Accounts payable

Due to Forward China

Due to Forward China (related party)

Deferred income

Current portion of earnout consideration

Current portion of operating lease liability

2 unchanged sentences

Other liabilities:

Note payable to Forward China

Note payable to Forward China (related party)

Operating lease liability, less current portion

Earnout consideration, less current portion

Total liabilities

1 unchanged sentence

Shareholders’ equity:

Common stock, par value $ 0.01 per share;

40,000,000 shares authorized;

Series A-1 Convertible Preferred Stock, par value $0.01 per share;

stated value of $ 1,000 per share;

2,700 shares authorized, 2,200 and 0 shares issued and outstanding at September 30, 2024 and 2023, respectively (liquidation preference of $ 2,200,000 )

Common stock, 40,000,000 shares authorized;

par value $ 0.01 per share;

1,101,069 shares issued and outstanding at September 30, 2024 and 2023

8 unchanged sentences

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS

OF OPERATIONS

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Fiscal Years Ended September 30,

Revenues, net

Revenues, net - related party

Total revenues, net

Cost of sales

Cost of sales - related party

Total cost of sales

Sales and marketing expenses

General and administrative expenses

Operating income

Goodwill impairment

Operating (loss) / income

( 1,932,485 )

Fair value adjustment of earnout consideration

Interest income

Interest expense

Other (income)/expense, net

Income from continuing operations before income taxes

Interest expense - related party

Other expense / (income), net

(Loss) / income from continuing operations before income taxes

( 1,924,600 )

Provision for income taxes

Income from continuing operations

Loss from discontinued operations, net of tax

(Loss) / income from continuing operations

( 1,947,547 )

Loss from discontinued operations, net of tax

( 3,895,315 )

1 unchanged sentence

$ ( 3,736,657 )

Basic earnings/(loss) per share :

Basic earnings per share from continuing operations

Basic loss per share :

Basic (loss) / income 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:

Diluted (loss) / income per share from continuing operations

Diluted loss per share from discontinued operations

6 unchanged sentences

For the Fiscal Year Ended September 30, 2024

Balance at September 30, 2022

Series A-1 Convertible

Preferred Stock

Balance at September 30, 2023, unadjusted

$ ( 17,686,553 )

Adjustment for reverse stock split 1-for-10, effective June 18, 2024

( 8,960,116 )

Balance at September 30, 2023, as adjusted

( 17,686,553 )

Share-based compensation

1 unchanged sentence

( 1,950,587 )

Preferred Stock issued in connection with conversion of accounts payable to Forward China

Balance at September 30, 2024

1 unchanged sentence

For the Fiscal Year Ended September 30, 2023

Balance at September 30, 2021

Series A-1 Convertible

Preferred Stock

Balance at September 30, 2022, unadjusted

$ ( 13,949,896 )

Adjustment for reverse stock split 1-for-10, effective June 18, 2024

( 8,960,116 )

Balance at September 30, 2022, as adjusted

( 13,949,896 )

Share-based compensation

6 unchanged sentences

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:

4 unchanged sentences

Depreciation and amortization

Bad debt expense

Credit loss expense

Change in fair value of earn-out consideration

Goodwill impairment

Changes in operating assets and liabilities:

Accounts receivable

Accounts receivable (related party)

Discontinued assets held for sale

( 1,846,696 )

Prepaid expenses and other current assets

Accounts payable and due to Forward China

Accounts payable

Due to Forward China (related party)

Deferred income

6 unchanged sentences

Financing Activities:

Repayment of note payable to Forward China

Repayment of note payable to Forward China (related party)

Net cash used in financing activities

Net increase in cash

Net (decrease) / increase in cash

Cash at beginning of year

4 unchanged sentences

Supplemental Disclosures of Non-Cash Information:

Operating lease assets obtained in exchange for operating lease liabilities

Conversion of accounts payable to convertible preferred stock

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

20 unchanged sentences

operations in the current and prior periods presented herein.

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

Our retail distribution business sourced and sold 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.

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

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

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.

See Note 3 for additional information

on discontinued operations.

Liquidity and Going Concern

The accompanying consolidated financial statements

have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets

and satisfaction of liabilities in the ordinary course of business.

The Company had an accumulated deficit and working capital of $19,637,000

and $273,000, respectively, at September 30, 2024, a net loss of $1,951,000 in Fiscal 2024 and a cash balance of approximately $2,300,000

at November 30, 2024.

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.

In December 2024, our largest design customer

notified us of its plan to discontinue their insulin patch program, on which we were working.

We expect this to cause a material

decrease in our revenues beginning with the second quarter of Fiscal 2025.

Based on our forecasted cash flows, we believe our existing

cash balance and working capital will not be sufficient to meet our liquidity needs through December 31, 2025, 12 months from the date

of issuance of these consolidated financial statements.

These factors raise substantial doubt about our ability to continue as a going

Management plans to initiate cost reduction measures

in Fiscal 2025 to mitigate the impact of the loss of our largest customer, including a reduction in force which was communicated in December

These plans will be evaluated and adjusted as deemed necessary based on the ongoing needs of the business.

Management also plans

to seek flexibility on payment terms for ongoing purchases from Forward China and attempt to obtain debt or equity financing to fund its

ongoing operations.

However, there are no current agreements or understanding with regard to the form, time or amount of such financing

and there is no assurance that any financing can be obtained, that Forward China will grant any flexibility on payment terms or that our

cost reduction efforts will be sufficient to enable the Company to continue as a going concern.

The consolidated financial statements

do not include any adjustments that might result if the Company is unable to continue as a going concern.

Such adjustments could be material.

FORWARD INDUSTRIES, INC.

14 unchanged sentences

financial statements include the accounts of Forward Industries, Inc.

and its wholly-owned subsidiaries (Forward US, Forward Switzerland,

Forward UK, IPS and Kablooe).

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

and its wholly-owned subsidiaries (Forward Industries (IN), Inc.

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

UK”), Intelligent Product Solutions, Inc.

(“IPS”), and Kablooe, Inc.

All significant intercompany

transactions and balances have been eliminated in consolidation.

Segment Reporting

14 unchanged sentences

and Kablooe operating segments) and we perform our annual goodwill impairment test on September 30, the end of the fiscal year, or upon

the occurrence of a triggering event.

The Company has the option to perform a qualitative assessment to determine if an impairment is

more likely than not to have occurred.

If the Company can support the conclusion that it is not more likely than not that the fair value

of a reporting unit is less than its carrying amount, then the Company would not need to perform a quantitative impairment test for the

reporting unit.

If the Company cannot support such a conclusion or does not elect to perform the qualitative assessment, then the Company

will perform the quantitative impairment test by comparing the fair value of the reporting unit with its carrying amount, including goodwill.

the occurrence of a triggering event such as an overall change in economic climate, changes in the industry and competitive environment,

and earnings quality and sustainability.

The Company has the option to perform a qualitative assessment to determine if an impairment

is more likely than not to have occurred.

If the Company can support the conclusion that it is not more likely than not that the fair

value of a reporting unit is less than its carrying amount, then the Company would not need to perform a quantitative impairment test

for the reporting unit.

If the Company cannot support such a conclusion or does not elect to perform the qualitative assessment, then

the Company will perform the quantitative impairment test by comparing the fair value of the reporting unit with its carrying amount,

including goodwill.

If the fair value of the reporting unit exceeds its carrying amount, no impairment charge is recognized.

If the fair value of the reporting

unit is less than its carrying amount, an impairment charge will be recognized for the amount by which the reporting unit’s carrying

amount exceeds its fair value.

A significant amount of judgment is required in performing goodwill impairment tests including estimating

the fair value of a reporting unit.

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

value of the reporting unit is less than its carrying amount, an impairment charge will be recognized for the amount by which the reporting

unit’s carrying amount exceeds its fair value.

A significant amount of judgment is required in performing goodwill impairment tests

including estimating the fair value of a reporting unit.

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Intangible Assets

2 unchanged sentences

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

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Our intangible assets are

6 unchanged sentences

on relevant information.

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

cannot be determined with precision.

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, 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.

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, 2024 or 2023.

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, 2024 and 2023, there were deposits totaling $ 2,334,000

(which includes $ 245,000 in a foreign bank) and $ 2,565,000 (which includes $ 358,000 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

2 unchanged sentences

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,

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

an allowance for credit losses 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, 2024 and 2023, the

Company had no allowances for credit losses for the OEM distribution segment, allowances for credit losses of $ 0 and $ 185,000 , respectively,

for the discontinued retail distribution segment and $ 27,000 and $ 771,000 , respectively, for the design segment.

Inventories consist primarily

59 unchanged sentences

The retail distribution segment

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

Revenue is recognized when control (as

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

Revenue was 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.

goods was transferred to the retailer, which generally occured 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

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

Revenue was 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.

When the Company received consideration

before achieving the criteria previously mentioned, it recorded a contract liability, which was classified as a component of deferred

income in the accompanying consolidated balance sheets.

The retail distribution segment had no contract liabilities at September 30, 2024,

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

2023 or 2022.

The results of operations of the retail segment are reported as discontinued operations for Fiscal 2024 and Fiscal 2023

(see Note 3).

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Design Segment

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has been completed and accepted.

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Recognized revenues that

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

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

$8,000 and $2,000 in Fiscal 2024 and Fiscal 2023, respectively.

Fair Value Measurements

13 unchanged sentences

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

The carrying amounts of cash,

accounts receivable (including accounts receivable from related party), accounts payable, due to Forward China, and the Note payable to

Forward China approximate fair value due their short-term maturities.

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Share-Based Compensation Expense

9 unchanged sentences

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

Accounting Pronouncements

In December 2023, the Financial

Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, "Income Taxes - Improvements

to Income Tax Disclosures", requiring enhancements and further transparency to certain income tax disclosures, most notably the tax

rate reconciliation and income taxes paid.

This ASU is effective for fiscal years beginning after December 15, 2024 on a prospective basis

and retrospective application is permitted.

The Company is currently evaluating the effects of this pronouncement on its consolidated

financial statements.

In November 2023, the FASB

issued ASU 2023-07, “Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures,” which requires expanded

segment reporting and disclosure and is effective for the Company for fiscal years beginning after December 15, 2023, and interim periods

within fiscal years beginning after December 15, 2024.

The Company is currently evaluating the effects of this pronouncement on 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

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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.

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 consolidated financial statements.

NOTE 3 DISCONTINUED

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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.

The primary assets of the retail segment were inventory and accounts receivable.

The Company sold, liquidated, or otherwise

disposed of the remaining retail inventory as of September 30, 2024, and collected all remaining retail accounts receivable by the end

of Fiscal 2024.

As of September 30, 2024, the retail segment was fully discontinued, and we expect to have no further significant involvement

in this segment.

The 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 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, 2024

The total amount related

to the retail segment included in Due to Forward China on the consolidated balance sheets was approximately $ 641,000 and $ 1,002,000 at

September 30, 2024 and 2023, respectively.

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

6 unchanged sentences

( 2,190,000 )

( 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 )

Loss from discontinued operations, net of tax

$ ( 3,895,000 )

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.

At September 30, 2023, discontinued

assets held for sale of $ 508,000 consisted of the net inventory of the retail segment.

This number includes an allowance of $ 1,464,000

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.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

segment in Fiscal 2024 or Fiscal 2023.

NOTE 4 INTANGIBLE

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assets consist of the following:

Schedule of intangible assets

Schedule of intangible

September 30, 2024

7 unchanged sentences

( 1,053,000 )

( 1,295,000 )

( 1,082,000 )

Net carrying amount

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 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.

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 eight years for the

customer relationships.

During Fiscal 2024 and Fiscal 2023, 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.

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

At September 30, 2024, estimated

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

Schedule of estimated amortization

Goodwill represents the future

economic benefits of assets acquired in a business combination that are not individually identified or separately recognized.

The Company’s

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.

Schedule of estimated

amortization expense

Goodwill represents the

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

The Company’s 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.

Due to historical losses

of the Kablooe reporting unit, the Company elected to bypass the qualitative assessment and perform quantitative goodwill impairment testing

for the Kablooe reporting unit at September 30, 2024.

Using an income approach methodology, the fair value of the Kablooe reporting unit

was estimated with a discounted cash flow analysis incorporating variables categorized within level 3 of the fair value hierarchy such

as projected revenues, growth rate and discount rate.

This quantitative testing indicated the carrying amount of the Kablooe reporting

unit exceeded its fair value, resulting in a goodwill impairment charge of $ 200,000 in fiscal 2024, primarily driven by a reduction in

the expected future performance of the Kablooe reporting unit.

The Company performed the

annual goodwill impairment test for Fiscal 2023 and determined there was no impairment.

Below is the rollforward

of goodwill for the design segment, the only reportable segment with goodwill:

Schedule of roll forward

Balance at September 30, 2023

Impairment of Kablooe reporting unit

Balance September 30, 2024

NOTE 5 PROPERTY

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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:

6 FAIR VALUE MEASUREMENTS - EARNOUT

The acquisition of Kablooe

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

The fair value of this 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

15 unchanged sentences

8 SHAREHOLDERS’ EQUITY

Reverse Stock Split

The Company’s shareholders

authorized, and the Board of Directors approved a 1-for-10 reverse stock split, which became effective on June 18, 2024.

Any fractional

shares that would have otherwise resulted from the reverse stock split were rounded up to the nearest whole share.

Accordingly, all references

made to shares, per share, or common share amounts in the accompanying consolidated financial statements and applicable disclosures have

been retroactively adjusted to reflect the reverse stock split.

The reverse stock split did not change the par value of the common stock

nor the authorized number of shares of common stock or any series of preferred stock.

In July 2023, the Company

was notified by Nasdaq that it was not in compliance with Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Rule”).

in February 2024, the Company was notified that it was not in compliance with Nasdaq Listing Rule 5550(b)(1) (the “Stockholders’

Equity Rule”) (collectively, with the Minimum Bid Price Rule, the “Minimum Requirements”).

In April 2024, the Company

presented a plan of action to the Nasdaq Hearings Panel to meet compliance with the Minimum Requirements.

a result of the reverse stock split effected in June 2024 and the entrance into the Accounts Payable Conversion Agreement (described in

Note 14), the Company regained compliance with the Minimum Requirements in July 2024 and was formally notified by Nasdaq that the

Minimum Requirements were met.

Until July 24, 2025, the Company is subject to a Nasdaq “Panel Monitor” which provides for

in the event the Company fails to satisfy the Stockholders’ Equity Rule (not the Minimum Bid Price Rule) during the monitoring period,

the Company will be required to request a hearing before the Panel in order to maintain its listing rather than taking the interim step

of submitting a compliance plan for the Listing Qualifications Staff’s review or receiving any otherwise applicable grace period.

We can provide no assurance that if the Company falls below the Stockholders’ Equity Rule requirement during this period that the

Company will be able to maintain its Nasdaq listing.

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

“Blank Check” Preferred Stock

6 unchanged sentences

the Series A Participating Preferred Stock.

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

There were no shares of Series A preferred stock issued or outstanding at September 30, 2024

connection with the Conversion Agreements with Forward China (see Note 14), the Company filed two Certificates of Amendment to the Certificate

of Incorporation (the “COD”) designating 2,700

shares of Series A-1 Convertible Preferred Stock, with a stated value of $ 1,000

per share (the “Stated Value”).

holders of the Series A-1 Convertible Preferred Stock have no voting rights and rank senior to all classes or series of the Company’s

common stock with respect to the distribution of assets upon liquidation, dissolution, or winding up.

Subject to a 19.9% share cap (as

defined in the COD), the Series A-1 Convertible Preferred Stock shall be convertible into a number of shares of the Company’s common

stock as determined by (i) multiplying the number of shares to be converted by the Stated Value, (ii) adding the result of all accrued

and accumulated and unpaid dividends on such shares to be converted, and then (iii) dividing the result by the conversion price of $ 7.50 ,

subject to adjustment as defined in the COD.

The Series A-1 Convertible Preferred Stock is not redeemable.

At September 30, 2024, the

2 unchanged sentences

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

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The Company accounts for forfeitures in the period they occur.

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In applying the Black-Scholes

3 unchanged sentences

Expected volatility

68.8 % - 78.6 %

Risk free interest rate

0.4 % - 3.1 %

Expected dividends

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

Fiscal 2024, the Company granted options to three of its non-employee directors to purchase an aggregate of 33,243

shares of its common stock at an exercise price of $ 7.60

The options vest one year from the date of grant, expire five years from the date of grant and 11,081

were forfeited prior to vesting.

The options have a weighted average grant-date fair value of $ 3.60

per share and an aggregate grant-date fair value of $ 120,000 ,

which will be recognized, net of forfeitures, ratably over the vesting period.

In Fiscal 2023, the

Company granted options to three of its non-employee directors to purchase an aggregate of 12,474 shares of its common stock at an exercise

price of $ 10.30 per share.

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

have a weighted average grant-date fair value of $ 4.80 per share and an aggregate grant-date fair value of $ 60,000 , which were recognized

ratably over the vesting period.

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company recognized compensation

4 unchanged sentences

At September 30, 2024, 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.

were no material amounts of unrecognized compensation cost related to nonvested stock option awards.

The following table summarizes

6 unchanged sentences

30, 2024 have an exercise price between $ 7.60 and $ 23.90 per share.

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 INCOME TAXES

6 unchanged sentences

Income tax provision

The deferred tax provision/(benefit)

The deferred tax provision

is the change in the deferred tax assets and liabilities representing the tax consequences of changes in the amounts of temporary differences,

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

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company’s deferred

9 unchanged sentences

Reserves and other allowances

Deferred rent

Lease liability

7 unchanged sentences

Intangible assets

Operating lease right-of-use assets

Total deferred tax liabilities

4 unchanged sentences

The Company recorded a provision

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.

for income taxes which includes net expense of $23,000 and $20,000 in Fiscal 2024 and Fiscal 2023, respectively, primarily for state income

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

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

At September 30, 2024, the

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a net loss for tax purposes of $ 96,000 and Forward UK had a net loss for tax purposes of $ 41,000 .

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

cumulative losses in recent years, the Company determined that, on a more likely than not basis, it would not be able to use remaining

deferred tax assets, except with respect to the U.S.

federal income taxes in the event the Company elects to effect repatriation of certain

foreign source income of Forward Switzerland, which income is currently considered to be permanently reinvested and for which no U.S.

At September 30, 2024,

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 cumulative losses in recent years, the Company determined that, on a more likely than not basis, it

would not be able to use remaining deferred tax assets, except with respect to the U.S.

federal income taxes in the event the

Company elects to effect repatriation of certain foreign source income of Forward Switzerland, which income is currently considered

to be permanently reinvested and for which no U.S.

tax liability has been accrued.

Accordingly, the Company has determined to maintain a full valuation allowance against its net deferred

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

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

Accordingly, the Company has determined to

maintain a full valuation allowance against its net deferred tax assets.

At September 30, 2024 and 2023, the valuation allowance was

$4,307,000 and $4,102,000, respectively.

The change in the valuation allowance of $205,000 is comprised of a $228,000 increase from

continuing operations and a $23,000 decrease 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.

The significant elements

11 unchanged sentences

At September 30, 2024 and

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

2023, the Company had no uncertain tax positions or related interest or penalties requiring accrual.

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

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, 2021, are closed to federal and state examination.

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 EARNINGS PER SHARE

4 unchanged sentences

Dilutive common equivalent shares consist of shares that would be issued upon the exercise of stock options and warrants,

computed using the treasury stock method.

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

computed using the treasury stock method, and the conversion of preferred stock, using the if-converted method.

A reconciliation of basic

and diluted earnings/loss per share is as follows:

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

1 unchanged sentence

September 30,

Income from continuing operations

Loss from discontinued operations, net of tax

(Loss) / income from continuing operations

$ ( 1,948,000 )

Loss from discontinued operations, net of tax

( 3,895,000 )

4 unchanged sentences

Weighted average dilutive shares outstanding

Basic earnings/(loss) per share :

Basic earnings per share from continuing operations

Basic loss per share :

Basic (loss) / 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:

Diluted (loss) / 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

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:

were excluded from the calculation of diluted earnings per share in Fiscal 2024 and Fiscal 2023 because their inclusion would have been

anti-dilutive:

Schedule of anti-dilutive

2 unchanged sentences

Total potentially dilutive shares

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 COMMITMENTS AND

2 unchanged sentences

In February 2010, Forward

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

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

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

33 unchanged sentences

to its business.

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 LEASES

2 unchanged sentences

Total operating lease expense in Fiscal 2024 was $ 619,000 ,

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.

of which $ 15,000 was recorded in sales and marketing expenses and $ 604,000 was recorded in general and administrative expenses on the

consolidated statements of operations.

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

Cash paid for amounts included in operating lease liabilities in Fiscal 2024 and Fiscal 2023, which have been included in cash flows from

10 unchanged sentences

Long-term portion of lease liabilities

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 RELATED PARTY

10 unchanged sentences

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.

sourcing fee from $100,000 to $83,333 per month for the remaining term of the Supply Agreement, which expired in October 2023.

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 expired October 31, 2024.

In November 2024, the

Company and Forward China agreed to:

(i) extend the sourcing agreement until April 30, 2025, but allow either party to cancel with 30

days notice, (ii) reduce the fixed portion of the sourcing fee to $35,000 per month, and (iii) change the payment terms to better align

with payments from the Company’s customers.

Terence Wise, Chief Executive

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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 recorded service fees to Forward China of $ 891,000 and $ 1,266,000 during

Fiscal 2024 and Fiscal 2023, respectively, which are included as a component of cost of sales upon sales of the related products.

Company had purchases from Forward China of $ 7,862,000 and $ 12,799,000 during Fiscal 2024 and Fiscal 2023, respectively.

The Company has a separate

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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

of the Company 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 2024

and Fiscal 2023.

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 September 30, 2024, the remaining balance covered by this agreement

was approximately $ 4,881,000 .

During Fiscal 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 with Forward China for retail products (see Note 3).

Accounts Payable Conversion Agreement

In order to maintain

compliance with Nasdaq’s listing standards, the Company entered into two separate agreements with Forward China (the “Conversion

Agreements”), which were effective in July and September of 2024, to convert portions of amounts Due to Forward China into shares

of preferred stock.

Under the terms of the Conversion Agreements, Forward China agreed to convert $ 2,200,000 of the Due to Forward

China payable into 2,200 shares of the Company’s newly designated Series A-1 convertible preferred stock with a stated

value of $ 1,000 per share (see Note 8).

FORWARD INDUSTRIES, INC.

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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

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in Fiscal 2024 and Fiscal 2023, 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 $ 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

At September 30, 2024, the maturity date of this note was December 31, 2024 .

2024, the maturity date of this note was extended to June 30, 2025 .

The maturity date of the note has been extended on several occasions

to assist the Company with liquidity.

The Company made principal payments of $ 500,000 and $ 300,000 on this note during Fiscal 2024 and

Fiscal 2023, respectively, and this note has a remaining balance of $ 600,000 at September 30, 2024.

Other Related Party Activity

In October 2020, the Company

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

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

under the Koble brand name.

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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.

Due to the Retail Exit, these revenues are included in the loss from discontinued operations for Fiscal 2024 and Fiscal

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 was effective until August 31, 2023

and was extended on a month-to-month basis until November 30, 2023.

The Company incurred costs under this agreement of $ 20,000 and $ 127,000

for Fiscal 2024 and Fiscal 2023, respectively.

Due to the Retail Exit, these costs are included in the loss from discontinued operations

for Fiscal 2024 and Fiscal 2023.

The Company had accounts payable to Justwise of $ 0 and $ 10,000 at September 30, 2024 and 2023, respectively.

The Company recorded revenue

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The Company recognized revenues from this customer of $ 523,000 and $ 626,000 in Fiscal 2024 and Fiscal 2023, respectively.

The Company had no accounts receivable from this customer at September 30, 2023 or 2022.

A member of the Company’s

Audit, Governance and Compensation Committees of its Board of Directors is also a member of the Board of Directors of a company to whom

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

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

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

The Company had accounts receivable of $ 96,000 and $ 0 from this customer at September 30, 2024 and 2023, 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 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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 based on a percentage of the employee’s

salary of $ 442,000 during Fiscal 2024, of which $ 341,000 was recorded to cost of sales, $ 24,000 was recorded to sales and marketing expense

and $ 77,000 was recorded to general and administrative expense on the consolidated statement of operations.

The Company made immediately

vested contributions based on a percentage of the employee’s salary 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.

NOTE 16 SEGMENTS AND CONCENTRATIONS

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

FORWARD INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Our chief operating decision

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( 2,462,000 )

Operating loss from continuing operations before income taxes

Other expense/(income), net

Income from continuing operations before income taxes

Operating (loss)/income from continuing operations before income taxes

( 1,932,000 )

Other income, net

(Loss)/income from continuing operations before income taxes

$ ( 1,925,000 )

Depreciation and Amortization

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assets consist of property and equipment and operating lease right-of-use assets, all of which are located in the United States.

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

The following

table sets forth our consolidated net revenues by country for Fiscal 2024 and Fiscal 2023:

Schedule of consolidated net revenues

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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.

one of these customers or their affiliates or contract manufacturers represented 13.0 % and 11.2 % of the Company’s consolidated net

revenues in Fiscal 2024 and Fiscal 2023, respectively.

The Company had one customer

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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.

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.

customer represented 25.2 %

of the Company’s consolidated net revenues in Fiscal 2024 and Fiscal 2023, respectively.

In December 2024, our largest design customer

notified the Company of its plan to discontinue their insulin patch program, on which the Company was working.

We expect this to cause

a material decrease in our revenues beginning with the second quarter of fiscal 2025.

We are currently working on cost reduction efforts

to mitigate the reduction in revenue, including a reduction in force which was communicated in December 2024.

The Company had customers

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

One customer or its affiliate or contract manufacturer represented 14.5 % and 12.0 % of the Company’s consolidated accounts

receivable at September 30, 2024 and 2023, respectively.

At September 30, 2024, the

1 unchanged sentence

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.

Accounts receivable from this customer represented 19.0 % and 31.1 % of the Company’s consolidated accounts receivable

at September 30, 2024 and 2023, respectively.

Supplier Concentration

2 unchanged sentences

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 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.

In March 2021, the Company paid down the outstanding balance on the line of credit and $ 1,300,000 was available at September 30, 2023

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

The Company was in compliance

with such covenants at September 30, 2023.

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