UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
⌧ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30,
2017
◻ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to
Commission File Number: 001-34780
FORWARD INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
New York
(State or other jurisdiction of
incorporation or organization)
13-1950672
(I.R.S. Employer Identification No.)
477 Rosemary Ave. Suite 219, West Palm Beach, FL 33401
(Address of principal executive offices, including zip code)
(561) 465-0030
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.01 par value per share
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
◻ Yes ⌧ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act
◻ Yes ⌧ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
⌧ Yes ◻ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rue 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit
and post such files).
⌧ Yes ◻ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form 10-K.
[ X ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act).
1
◻ Large accelerated filer
◻ Accelerated filer
◻ Non-accelerated filer (Do not check if a smaller reporting company)
⌧ Smaller reporting company
◻ Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) ◻ Yes ⌧ No
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity
was last sold, as of the last business day of the Registrant’s most recently completed second fiscal quarter was: approximately $7,000,000.
As of December 11, 2017, 8,920,830 shares of the Registrant’s common stock were outstanding.
Documents Incorporated by Reference
Portions of the registrant's Proxy Statement for the 2018 Annual Meeting of Shareholders are incorporated herein by reference in Part III of this Annual Report on
Form 10-K to the extent stated herein. Such Proxy Statement will be filed with the Securities and Exchange Commission within 120 days of the registrant's fiscal
year ended September 30, 2017.
2
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Mine Safety Disclosures
Forward Industries, Inc .
Table of Contents
PART I
PART II
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 5.
Item 6.
Item 7.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Item 8.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 10. Directors, Executive Officers and Corporate Governance
Item 11.
Item 12.
Item 13.
Item 14.
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
PART III
Item 15.
Exhibits and Financial Statement Schedules
Signatures
PART IV
3
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No.
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Note Regarding Use of Certain Terms
In this Annual Report on Form 10-K, unless the context otherwise requires, the following terms have the meanings assigned to them as set forth below:
“Forward”, “Forward Industries”, “we”, “our”, and the “Company” refer to Forward Industries, Inc., a New York corporation, together with its consolidated
subsidiaries;
“Common stock” refers to the common stock, $.01 par value per share, of Forward Industries, Inc.;
“Forward US” refers to Forward Industries’ wholly owned subsidiary Forward Industries (IN), Inc., an Indiana corporation;
“Forward Switzerland” refers to Forward Industries’ wholly owned subsidiary Forward Industries (Switzerland) GmbH, a Swiss corporation;
“Forward China” refers to Forward Industries Asia-Pacific Corporation (f/k/a Seaton Global Corporation), a British Virgin Islands registered corporation that is
Forward’s exclusive sourcing agent in the Asia Pacific Region;
“U.S. GAAP” refers to accounting principles generally accepted in the United States of America;
“Commission” refers to the United States Securities and Exchange Commission;
“Exchange Act” refers to the United States Securities Exchange Act of 1934, as amended;
“Fiscal 2017” refers to our fiscal year ended September 30, 2017;
“Fiscal 2016” refers to our fiscal year ended September 30, 2016;
“Europe” refers to the countries included in the European Union;
“EMEA Region” refers to the geographic area encompassing Europe, the Middle East and Africa;
“APAC Region” refers to the Asia Pacific Region, consisting of Australia, New Zealand, Hong Kong, Taiwan, China, South Korea, Japan, Singapore, Malaysia,
Thailand, Indonesia, India, the Philippines and Vietnam;
“Americas” refers to the geographic area encompassing North America, Central America, and South America; and
“OEM” refers to Original Equipment Manufacturer.
4
ITEM 1. BUSINESS
General
PART I
Forward Industries, Inc. (“Forward” or the “Company”) designs and distributes carry and protective solutions, primarily for hand held electronic devices. The
Company’s principal customer market is original equipment manufacturers, or “OEMs” (or the contract manufacturing firms of these OEM customers), that either
package their products as accessories “in box” together with their branded product offerings, or sell them through their retail distribution channels. The Company’s
OEM products include carrying cases and other accessories for medical monitoring and diagnostic kits and a variety of other portable electronic and non-electronic
products (such as sporting and recreational products, bar code scanners, smartphones, GPS location devices, tablets, and firearms). The Company’s OEM customers
are located in: (i) the Asia-Pacific Region, which we refer to as the “APAC Region”; (ii) Europe, the Middle East, and Africa, which we refer to as the “EMEA
Region”; and (iii) the Americas. The Company does not manufacture any of its OEM products and sources substantially all of its OEM products from independent
suppliers in China, through Forward China.
Corporate History
Forward Industries was incorporated in 1961 as a manufacturer and distributer of advertising specialty and promotional products. In 1989, we acquired Forward
US, a manufacturer of soft-sided carrying cases. The carrying case business became our predominant business, and in September 1997, we sold the assets relating
to the production of advertising specialty and promotional products, ceasing to operate in that segment.
In May 2001, we formed Forward Switzerland to facilitate distribution of aftermarket products under our licenses for cell phone cases with a major North
American multinational and to further develop our OEM European business presence. After the expiration of the last of these licenses in March 2009, staff at
Forward Switzerland was significantly reduced and in recent years has primarily served our OEM customers in Europe.
Products
Diabetic
Products
We sell carrying cases for blood glucose diagnostic kits (“Diabetic Products”) directly to OEMs (or their contract manufacturers) of these electronic monitoring
kits made for use by diabetics. We typically sell these cases at prices ranging from approximately $0.60 to $7.00 per unit. Unit volumes are sold predominantly at
the lower end of this price range. We also sell higher end units ranging from approximately $18.50 to $39.00 per unit, but this represents less than 1% of net
revenues. The OEM customer (or its contract manufacturer) packages our carry cases “in box” as a custom accessory for the OEM’s blood glucose testing and
monitoring kits, or to a much lesser extent, sells them through their retail distribution channels. These kits typically include a small, electronic blood glucose
monitor, testing strips, lancets for drawing a drop of blood and our carrying case, customized with the manufacturer’s logo and designed to fit and secure the
glucose monitor, testing strips, and lancets in separate straps, pouches, and holders. As the kits and technology change, our carrying case designs change to
accommodate the changes in size, shape and layout of the electronic monitoring device, strips and lancet. For Fiscal 2017, our Diabetic Products customers
accounted for approximately 85% of our total net revenues.
Other
Products
We also sell carrying and protective solutions to OEMs for a diverse array of other portable electronic and other products (“Other Products”), including sporting
and recreational products, bar code scanners, smartphones, GPS and location devices, tablets, and firearms, on a made-to-order basis that are customized to fit the
products sold by our OEM customers. Our selling prices for these products also vary across a broad range, depending on the size and nature of the product for
which we design and sell the carry solution. For Fiscal 2017, our Other Products accounted for approximately 15% of our total net revenues.
Product
Development
In our OEM business, the product life cycle in distributing and selling our technology solutions to our OEM customers is as described below. We typically
receive requests to submit product designs in connection with a customer’s introduction and rollout to market of a new product that the customer has determined to
accessorize and customize with a carry solution. Our OEM customers furnish the desired functionality, size and other basic specifications for the carrying solutions
or other product, including the OEM’s identifying logo imprint on the product. Our design and production resources develop more detailed product specifications
and design options for our customer’s evaluation. We then furnish the customer with product samples. Working with our suppliers and the customer, samples are
modified and refined. Once approved for commercial introduction and order by our customer, we work with our suppliers to ensure conformity of commercial
production to the definitive product samples and specifications. Manufacture and delivery of products in production quantities are coordinated with the customer’s
manufacturing and shipment schedules so that our carry solution products are available with the customer’s product (and included “in box”, as the case may be)
prior to shipment and sale, or to a lesser extent sold by our customer through its retail distribution channels.
5
Distribution and Revenues
Geographic
Distribution
of
Revenues
Through our wholly owned subsidiaries, Forward US and Forward Switzerland, we distribute and sell our products globally. The approximate percentages of
net revenues from OEM customers by their geographic location for Fiscal 2017 and Fiscal 2016 are as follows:
EMEA Region
Americas
APAC Region
Total
Net Revenues for the Fiscal
Years Ended September 30,
2017
2016
38%
31%
31%
100%
36%
27%
37%
100%
The increase in the EMEA Region’s revenues in Fiscal 2017 compared to Fiscal 2016 was primarily due to the increase in revenue contribution from two
customers within the EMEA Region. The increase in the Americas contribution to total net revenues in Fiscal 2017 compared to Fiscal 2016 was primarily due to
increased revenue from one customer. The decrease in the APAC Region’s revenues in Fiscal 2017 compared to Fiscal 2016 was primarily due to the decrease in
revenue contribution from one customer.
Channels
of
Distribution
We primarily ship our products directly to our OEM customers (or their contract manufacturers), who package our accessory products “in box” with their
branded products. Some of our customers also purchase certain of our products and offer them for sale as stand-alone accessories to complement their product
offerings.
Revenues
by
Product
Line
Revenues from carry and protective solutions for Diabetic Products and for Other Products (all products other than diabetic carry cases for blood glucose
monitor kits) accounted for approximately the following percentages of total net revenues in Fiscal 2017 and 2016:
Net Revenues:
Diabetic Products
Other Products
Totals
Concentration
of
Revenues
For the Fiscal Years Ended
September 30,
2017
2016
85%
15%
100%
88%
12%
100%
Four customers (including their affiliates and contract manufacturers) accounted for approximately 83% and 88% of our net revenues in Fiscal 2017 and 2016,
respectively. All four of these “major” customers are OEMs of diabetic monitoring kits. These customers package our carry and protective solutions “in box” with
their branded products, or to a lesser extent, sell them through their retail distribution channels. The approximate percentages of net revenues contributed by each of
these four customers for Fiscal 2017 and Fiscal 2016 are as follows:
6
Diabetic Products Customer A
Diabetic Products Customer B
Diabetic Products Customer C
Diabetic Products Customer D
Totals
For the Fiscal Years Ended
September 30,
2017
2016
26.3%
24.2%
21.5%
11.2%
83.2%
24.5%
18.7%
31.0%
13.3%
87.5%
During Fiscal 2017 and 2016, all net revenues from products sold to OEMs were made directly by our employees, which are assigned key accounts or defined
geographic sales territories.
OEM
Distribution
Hubs
During Fiscal 2017, we had distribution hub arrangements with four OEM customers. Effective May 1, 2017, one of the hub arrangements was changed from
consignment to FOB shipping point. Accordingly, as of September 30, 2017, we had distribution hub arrangements with three OEM customers. These arrangements
obligate us to supply our products to our customer’s distribution hubs (may be multiple locations) where their products are manufactured, kitted, and/or warehoused
pending sale, and where our products are packaged “in box” with the OEM customer’s products or, to a much lesser extent, distributed for retail sale. The product
quantities we are required to supply to each distribution hub are based on the OEM customer’s purchase orders and forecasts. We do not recognize revenue for
product shipped to a hub until we have been notified by our customer that our product has been withdrawn from the distribution hub. Hub arrangements have had
the general effect of extending financing for our customers’ inventory build by extending the time between our placement of orders to our suppliers in order to ship
and supply the hubs and the time that we are able to recognize revenue. The corollary effect is an increase in our inventory levels.
Credit
Risk
We generally sell our OEM products on payment terms of net thirty (30) days to net one hundred twenty (120) days, which is customary in the industry, and
without interest. Historically, we have not had significant credit problems with our customers. Our significant OEM customers are large, multinational companies
with good credit histories. None of these customers is or has been in default to us, and payments from all customers are generally received on a timely basis.
When we ship products to our OEM customer’s designated contract manufacturer and invoice such manufacturer (and not the OEM customer), even though our
order flows originate with and depend on our relationship with the OEM, our accounts receivable credit risk lies with the contract manufacturer. Our OEM
customer does not guarantee the payment obligations of the contract manufacturer to whom the OEM requests us to ship our carrying case products, and such order
volumes may be significant from time to time. In most cases, these contract manufacturers are themselves major multinational enterprises with good credit.
Product Supply
Manufacturing
The manufacture of custom carrying cases and other carry and protective solutions generally consists of die cutting fabrics and heat sealing, gluing, sewing, and
decorating (affixing logos to) the cut-outs by means of silk screening, hot-stamping, embroidering or embossing. The principal materials used in the manufacture of
our products are vinyl, nylon, leather, metal and plastic parts (for clips, buckles, loops, hinges and other hardware), foam padding and cardboard, all of which are
obtained according to our specifications from suppliers. We do not believe that any of the component materials or parts used by our suppliers in the manufacture of
our products is supply constrained. We believe that there are adequate available alternative sources of supply for all of the materials used by our suppliers to
manufacture, package, and ship our products.
Dependence
on
Sourcing
Agent
On September 9, 2015, the Company renewed a Buying Agency and Supply Agreement (the “Supply Agreement”) with Forward Industries Asia-Pacific
Corporation, a British Virgin Islands corporation (the “Agent”) on substantially the same terms as its previous buying agency and supply agreement with the Agent,
which was due to expire on September 11, 2015. The Supply Agreement provides that the Agent acts as the Company’s exclusive buying agent of carry and
protective solutions. The Agent also arranges for sourcing, manufacture and exportation of such products. The Company purchases products at the Agent’s cost and
pays a service fee to the Agent. The service fee is calculated at $100,000 monthly plus 4% of “Adjusted Gross Profit”, which is defined as the selling price less the
cost from the Agent. The Supply Agreement terminates on March 8, 2019, subject to renewal. Mr. Terence Wise, the Company’s Chairman, Chief Executive
Officer and largest shareholder, is a principal of the Agent. See “Item 1A. – Risk Factors” regarding our dependence on the Agent.
7
Suppliers
We procure substantially all our supply of carrying solutions products from independent suppliers in China through the Agent. Depending on the product, we
may require several different suppliers to furnish component parts or pieces.
We place orders with the Agent at the time we receive firm purchase orders and/or forecasts from our OEM customers for a particular product. Accordingly, we
do not have minimum supply requirement agreements with our suppliers to guarantee us supply of finished product, nor have we made purchase commitments to
purchase minimum amounts from any of our suppliers. However, from time to time, we may order products from our suppliers in advance of receiving a customer
purchase order, or in quantities in excess of those forecasted to us by our customer, for which they are contractually obligated to us, in order to meet our customer’s
delivery demands. Beginning September 1, 2013 we began making purchases directly from Forward China. During the years ended September 30, 2017 and 2016,
all of our purchases were made directly through Forward China.
Quality
Assurance
Forward’s quality assurance manager oversees the process to ensure that our products manufactured by our Chinese suppliers meet our quality assurance
standards. He independently verifies and supervises the inspection of products conducted by independent contractors in China that may be affiliated with one or
more of our suppliers. In July 2015, Forward China received its ISO 9001:2008 quality certification, which is valid for three years.
Logistics
Once our products are approved for shipment by our quality assurance procedures, our products are typically shipped to our customer’s destination port in the
Americas and the EMEA Region on ocean-going container vessels, or by ground transport to our APAC Region customer’s locations in China or Hong Kong. In
certain cases, and primarily at our customer’s request, we will expedite the shipment of our products by using air transportation. Most ocean-going shipments
bound for the United States are off-loaded at the port of Los Angeles or Seattle, but certain customers arrange for shipments to East Coast ports, such as New York
or Boston.
Insurance
We maintain commercial loss and liability, business interruption, and general claims and other insurance customary for our business. We do not maintain credit
insurance for our trade accounts receivable.
Competition
The business in which we engage is highly competitive in terms of product pricing, design, delivery terms, and customer service. In the production of our OEM
products, we compete with numerous United States and foreign producers and distributors. Some of our competitors are substantially larger than we are and have
greater financial and other resources. We believe that we sustain our competitive position through maintenance of an effective product design capability, rapid
response time to customer requests for proposals and product shipment, reliable product delivery and product quality, and competitive pricing. We believe that our
ability to compete based on product quality assurance considerations is enhanced by Forward China’s local presence, quality control, shipment capabilities and
expertise in sourcing.
Employees
As of December 11, 2017, we had 10 full-time employees. We consider our employee relations to be satisfactory. None of our employees are covered by a
collective bargaining agreement.
Regulation and Environmental Protection
Our business is subject to various regulations in various jurisdictions, including the United States and member states of the European Community, that restrict
the use or importation of products manufactured with compounds deemed to be hazardous. We work with our suppliers to ensure compliance with such regulations.
In addition, from time to time one or more customers may require testing of our products to ensure compliance with applicable consumer safety rules and
regulations or the customer’s safety or packaging protocols. Because we do not manufacture the products that we sell and distribute, compliance with federal, state
and local laws and regulations pertaining to the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not had,
and is not anticipated to have, any direct material effect upon our capital expenditures, earnings, or competitive position. However, compliance with such laws and
regulations on the part of our suppliers may result in increased costs of supply to us, particularly if domestic environmental regulation in China becomes more
prevalent.
We have not been engaged in any environmental litigation or incurred any material costs related to compliance with environmental or other regulations. From
time to time we incur chemical and/or safety laboratory testing expenses in order to address customer requests regarding our product materials or method of
manufacture or regarding their packaging methods and standards.
8
ITEM 1A. RISK FACTORS
Although
we
have
been
profitable
the
last
two
fiscal
years,
we
cannot
assure
you
that
we
will
sustain
profitability
in
the
future.
We generated net income of approximately $0.6 million for the fiscal years ended September 30, 2017 and 2016 and had net cash used in operating activities of
approximately $0.1 million and net cash provided by operating activities of approximately $0.8 million for the fiscal years ended September 30, 2017 and 2016,
respectively. Although we have generated net income in the last two fiscal years, during the years prior to that we incurred significant losses from operations. We
can provide no assurance that we will not see a reduction in profits or that we will remain profitable. If we cannot continue to generate sufficient revenues to
operate profitably, we may be forced to cease, limit or suspend operations, or we may be required to raise capital to maintain or grow our operations. There is no
assurance that we will be able to raise such capital.
While we believe that our existing cash resources are sufficient to support our growth strategy, there can be no assurances that our growth strategy will be
successful or that we will earn a return on these investments.
Our
business
remains
highly
concentrated
in
our
Diabetic
Products
Line.
If
our
Diabetic
Products
Line
were
to
suffer
the
loss
of
a
principal
customer
or
a
material
decline
in
or
loss
of
revenues,
our
business
would
be
materially
and
adversely
affected.
Revenues of Diabetic Products to OEM customers accounted for approximately 85% of net revenues in Fiscal 2017. As a result, our financial condition and
results of operations are subject to higher risk from the loss of a major Diabetic Products customer or changes in their business practices, for example, recently a
new diabetes monitoring product has been brought to the market which does not use a carrying case. If our customers use new solutions in their diabetes product
lines that do not use carrying cases, our business would be materially and adversely affected.
The
loss
of
any
of,
or
a
material
reduction
in
orders
from,
our
largest
customers,
would
materially
and
adversely
affect
our
results
of
operations
and
financial
condition.
Our business is and has been characterized by a high degree of customer concentration. Our four largest customers accounted for approximately 83% and 88%
of net revenues in Fiscal 2017 and Fiscal 2016, respectively. Although we continue our efforts to diversify our business, we cannot provide any assurance that we
will be successful. The loss of any of these customers, whether as a result of its purchase of its carry solution requirements from another vendor, its decision to
manufacture its own carrying cases, its decision to award its orders to one of our competitors, or otherwise, would have a material adverse effect on our financial
condition, liquidity and results of operations.
If
any
one
or
more
of
our
OEM
customers
elect
to
reduce
or
discontinue
inclusion
of
cases
“in
box”,
our
results
of
operations
and
financial
condition
would
be
materially
and
adversely
affected.
The predominant percentage of our revenues is derived from sales of case accessories to our OEM customers who package our cases “in box” with their
electronics. During recent years, there have been numerous federal legislative and administrative actions that have affected government programs, including
adjustments that have reduced or increased payments to healthcare providers and patients. Also, it is uncertain what impact President Trump’s policies will have on
the ACA. If enacted and implemented, any measures to restrict health care spending could result in decreased sales of our products. If one or more of our OEM
customers generally begin to reduce or discontinue the practice of including carry case accessories “in box” or if our customers experience reduced demand for
their products as a result of political changes, we may incur a significant decline in our revenues and our results of operations and financial condition would be
materially and adversely affected.
If
President
Trump
follows
through
with
his
threats
to
put
significant
tariffs
or
other
restrictions
on
Chinese
imports,
and
if
any
such
tariffs
or
restrictions
were
implemented,
our
revenues
and
results
of
operations
be
may
materially
harmed.
Donald Trump’s victory in the U.S. presidential election, as well as the Republican Party maintaining control of both the House of Representatives and Senate
of the United States in the congressional election, has created uncertainty with how trade would be affected between China and the United States. During the
election campaign, Donald Trump made threats regarding cutting off trade with China and/or imposing a tariff on all imports from China. Although President
Trump has not followed through on such threats, if any such restrictions or tariffs are imposed on products that we import to our customers, we would be required
to raise our prices which may result in the loss of customers and harm our business.
If
the
proposed
U.S.
tax
reform
measures
are
enacted,
our
financial
condition
could
be
adversely
affected.
On November 16, 2017, the U.S. House of Representatives passed the Tax Cuts and Jobs Act (H.R. 1), and on December 2, 2017, the U.S. Senate passed a
revised version of the Tax Cuts and Jobs Act (together with any amended versions, the “Tax Reform Bills”). Either of the Tax Reform Bills, or any likely
compromised version of the Tax Reform Bills, would make significant changes to the United States income tax rules applicable to both individuals and entities,
including the Company. There is substantial uncertainty regarding both the timing and the details of any of the Tax Reform Bills being enacted and the impact of
any such Tax Reform Bills on the Company. The impact of any potential tax reform on our business is uncertain and could be adverse.
9
We
continue
to
encounter
pressures
from
our
largest
OEM
customers
to
maintain
or
even
decrease
prices
or
to
supply
lower
priced
carry
solutions,
and
expect
such
pressure
to
persist.
The
effects
of
such
price
constraints
on
our
business
may
be
exacerbated
by
inflationary
pressures
that
affect
our
costs
of
supply.
During Fiscal 2017 and Fiscal 2016, we experienced significant pricing pressure from our largest OEM customers to maintain or even reduce the prices we
charge them. When we are unable to extract comparable concessions from our suppliers on prices they charge us, our product sales margins erode. In addition,
competitors may reduce their average selling prices faster than we are able to reduce costs, which can also accelerate the rate of decline of our selling prices.
In addition to margin compression from customers in general, we are encountering increased pricing from our Chinese suppliers who are reacting to inflationary
increases in materials and labor costs incurred by them. In addition, prices that our Chinese vendors charge to us may reflect appreciation of the Chinese currency
against the U.S. dollar, which can be passed through to us in the form of higher U.S. dollar prices. This in turn will tend to reduce gross profit if we are unable to
raise our prices. Any decrease in demand for our products, coupled with pressure from the market and our customers to decrease our prices, would materially
adversely affect our business, financial condition, and results of operations.
Increasingly,
our
customers
are
requesting
that
we
enter
into
supply
agreements
with
them
that
have
restrictive
terms
and
conditions.
These
agreements
typically
include
provisions
that
increase
our
financial
exposure,
which
could
result
in
significant
costs
to
us.
Increasingly, our customers are requesting that we enter into supply agreements with them. These agreements typically do not include volume commitments,
but do include provisions that generally serve to increase our exposure for product liability and limited sales returns, which could result in higher costs to us as a
result of such claims. In addition, these agreements typically contain provisions that seek to limit our operational and pricing flexibility and extend payment terms,
which could materially adversely affect our cash flow, business, financial condition, and results of operations.
We
depend
on
a
single
exclusive
buying
agent
who,
in
turn,
depends
on
a
limited
number
of
key
suppliers
.
Our Chairman, Chief Executive Officer and largest shareholder is a principal of Forward China, our exclusive sourcing agent in the Asia Pacific region. We
have entered into a Buying Agency and Supply Agreement with Forward China whereby Forward China will act as the Company’s exclusive agent to arrange for
sourcing, manufacturing and exporting the Company’s products. Historically, Forward China has relied on a limited number of suppliers to supply the component
parts and pieces necessary for the production of our carry and protective solutions products. As a result, our ability to effectively push back against rising material
costs may diminish although thus far Forward China has absorbed these costs. In addition, any inability to obtain supplies from a single or limited number of
suppliers may result in difficulty obtaining the supplies necessary for our business and may restrict our ability to produce our carry and protective solutions
products. Where practical, we intend to establish alternative sources through Forward China to mitigate the risk that the failure of any single supplier will adversely
affect our business. Nevertheless, either a prolonged inability to obtain certain components or the failure of one of our suppliers to do so could impair our ability to
ship products and generate revenues, which could adversely affect our operating results and damage our customer relationships. During the year, we conducted a
review of Forward China in terms of its efficiency and efficacy with respective to alternate agents. The outcome confirmed that Forward China continues to be
competitive and significantly more beneficial than an in-house alternative.
In addition, we depend significantly on Forward China as our exclusive buying agent for substantially all of our component parts. As a result, we have limited
visibility as to our supplier base, making it difficult to forecast future events and to plan our operations. In addition, if Forward China fails to satisfactorily perform
its obligations, including payment obligations, to our suppliers or its duties to us as our exclusive buying agent as a result of financial or other difficulties or for any
other reason, or if our relationship with Forward China were to suffer, we could suffer irreparable harm resulting in substantial harm to the business.
Our
business
has
benefited
from
OEMs
deciding
to
outsource
their
carry
and
protective
solutions
assembly
needs
to
us.
If
OEMs
choose
to
provide
these
services
in-house
or
select
other
providers,
our
business
could
suffer.
Our future revenue growth partially depends on new outsourcing opportunities from OEMs. Current and prospective customers continuously evaluate our
performance against other providers. They also evaluate the potential benefits of manufacturing their products themselves. To the extent that outsourcing
opportunities are not available either due to OEM decisions to produce these products themselves or to use other providers, our financial results and future growth
could be materially adversely affected.
If
we
are
unable
to
provide
our
customers
with
high-quality
products,
and
responsive
service,
or
if
we
are
unable
to
deliver
our
products
to
our
customers
in
a
timely
manner,
our
business,
financial
condition,
and
results
of
operations
may
be
materially
adversely
affected.
In order to maintain our existing customer base and obtain business from new OEM customers, we must demonstrate our ability to produce our products at the
level of quality, responsiveness of service, timeliness of delivery, and cost that our customers require. If our products are of substandard quality, if they are not
delivered on time, if we are not responsive to our customers’ demands, or if we cannot meet our customers’ requirements, our reputation as a reliable supplier of
our products would likely be damaged. If we are unable to meet anticipated product and service standards, we may be unable to obtain new contracts or keep our
existing customers, and this would have a material adverse effect on our business, financial condition, and results of operations.
10
If
we
fail
to
maintain
an
effective
system
of
internal
controls
over
financial
reporting,
we
may
not
be
able
to
accurately
report
our
financial
results.
As
a
result,
current
and
potential
stockholders
could
lose
confidence
in
our
financial
reporting,
which
could
harm
our
business
and
the
trading
price
of
our
stock.
Effective internal controls over financial reporting are necessary for us to provide reliable financial reports. If we cannot maintain effective controls and reliable
financial reports, our business and operating results could be harmed. We continue to work on improvements to our internal controls over financial reporting. Any
failure to implement and maintain internal controls over our financial reporting or difficulties encountered in the implementation of improvements in our controls,
could cause us to fail to meet our reporting obligations. Any failure to improve our internal controls over financial reporting or to address identified weaknesses in
the future, if they were to occur, could also cause investors to lose confidence in our reported financial information, which could have a negative impact on the
trading price of our stock.
If
we
are
unable
to
manage
our
growth
effectively,
our
business,
financial
condition,
and
results
of
operations
could
be
materially
adversely
affected.
We may experience growth in the scope and complexity of our operations. This growth may strain our managerial, financial, manufacturing, and other
resources. In order to manage our growth, we may be required to continue to implement additional operating and financial controls and hire and train additional
personnel. There can be no assurance that we will be able to do so in the future, and failure to do so could jeopardize our expansion plans and seriously harm our
operations.
Our
results
of
operations
are
subject
to
the
risks
of
fluctuations
in
the
values
of
foreign
currencies
relative
to
the
U.S.
Dollar.
Our results of operations are expressed in U.S. dollars. When the U.S. dollar appreciates or depreciates in value against a currency in which all or a significant
portion of revenues or other accounts receivable are denominated, such as the Euro, our results of operations can be adversely affected or benefited, respectively.
The degree of impact is proportional to the amount of foreign currency expense or revenue, as the case may be, and the fluctuations in exchange rates over the
period in which the effect is measured on our financial statements. In addition, such currency fluctuations may affect the comparability of our results of operations
between financial periods.
Future
revenues
are
difficult
to
predict
and
are
likely
to
show
significant
variability
as
a
consequence
of
customer
concentration.
Because our revenues are highly concentrated in a few large customers, and because the volumes of these customers’ order flows to us can fluctuate markedly
in a short period of time, our quarterly revenues, and consequently our results of operations, may be highly variable and subject to significant changes over a
relatively short period of time. Our largest OEM customers may keep consumer products with which our carry solutions are packaged “in-box” in active promotion
for many months, or for a very short period of time, depending on various factors, including sales trends for the product, product development cycles, new product
introductions, and our customers' competitors' product offerings. As demand for the consumer product relating to the in-box program matures and decreases, we
may be forced to accept significant price and/or volume reductions in customer orders for our carry solutions, which will adversely affect revenues. These factors
tend to lead to a high degree of variability in our quarterly revenue levels. Significant, rapid shifts in our operating results may occur if and when one or more of
these customers increases or decreases the size(s) of, or eliminates, their orders from us by amounts that are material to our business.
Our
gross
margins,
and
therefore
our
profitability,
vary
considerably
by
customer
and
by
product,
and
if
the
revenue
contribution
from
one
or
more
OEM
customers
or
products
changes
materially,
relative
to
total
revenues,
our
gross
profit
percentage
may
fluctuate.
Our gross profit margins on the products we sell can vary widely depending on the product type, customer, and order size. Because of the broad variability in
price ranges and product types, we anticipate that gross margins, and accordingly their impact on operating income or loss, may fluctuate depending on the relative
revenue contribution from each customer or product. If our gross margins decrease, our results of operations will be adversely affected.
Product
manufacture
is
often
outsourced
by
our
OEM
customers
to
contract
manufacturing
firms
in
China
and
in
these
cases
it
is
the
contract
manufacturer
to
which
we
must
look
for
payment.
Contract manufacturing firms are performing manufacturing, assembly, and product packaging functions, including the bundling of our product accessories
with the OEM customer's product. As a consequence of this business practice, we often sell our carry solution products directly to the contract manufacturing firm.
This is particularly significant in the case of diabetic product sales to certain customers. In these cases, we invoice the contract manufacturing firm and not the
OEM customer. Therefore, it is the contract manufacturing firm to which we must look for payment in such cases and not that of our OEM customer. If we fail to
receive payment from the contract manufacturer, our ability to be paid for products already delivered would be limited.
Our
dependence
on
foreign
manufacturers
creates
quality
control
and
other
risks
to
our
business.
From
time
to
time
we
may
experience
certain
quality
control,
on-time
delivery,
cost,
or
other
issues
that
may
jeopardize
customer
relationships.
Our reliance on foreign suppliers, manufacturers and other contractors involves significant risks, including risk of product quality issues and reduced control
over quality assurance, manufacturing yields and costs, pricing, timely delivery schedules, the potential lack of adequate manufacturing capacity and availability of
product, the lack of capital and potential misappropriation of our designs. In any such event, our reputation and our business will be harmed.
11
Our
shipments
of
products
via
container
may
become
subject
to
delays
or
cancellation
due
to
work
stoppages
or
slowdowns,
piracy,
damage
to
port
facilities
caused
by
weather
or
terrorism,
and
congestion
due
to
inadequacy
of
port
terminal
equipment
and
other
causes.
To the extent that there are disruptions or delays in loading container cargo in ports of origin or off-loading cargo at ports of destination as a result of labor
disputes, work-rules related slowdowns, tariff or World Trade Organization-related disputes, piracy, physical damage to port terminal facilities or equipment
caused by severe weather or terrorist incidents, congestion in port terminal facilities, inadequate equipment to load, dock and offload container vessels or energy-
related tie-ups or otherwise, or for other reasons, product shipments to our customers will be delayed. In any such case, our customer may cancel or change the
terms of its purchase order, resulting in a cancellation or delay of payments to us. A closure or partial closure of port facilities or other causes of delays in the
loading, importation, offloading or movement of our products to the shipping destination agreed with our customer could result in increased expenses, as we try to
avoid such delays, delayed shipments or cancelled orders, or all of the above. Depending on the severity of such consequences, this may have an adverse effect on
our financial condition and results of operations.
The
OEM
carrying
solutions
business
is
highly
competitive
and
does
not
pose
significant
barriers
to
entry.
There are many competitors in the sale of carry solutions products to OEMs, and competition is intense. Since little or no significant proprietary technology is
involved in the design, production or distribution of the types of products we sell, others may enter the business with relative ease and compete against us. Such
competition may result in the diminution of our market share or the loss of one or more major OEM customers, thereby adversely affecting our net revenues, results
of operations, and financial condition. Many of our competitors are larger, better capitalized and more diversified than we are and may be better able to withstand a
downturn in the general economy or in the product areas in which we specialize. Potential customers may prefer the pricing terms offered by competitors. These
competitors may also have less sales concentration than we do and be better able to withstand the loss of a key customer or diminution in its orders. If we are not
effectively able to compete, our results of operations will be adversely affected.
If
we
fail
to
retain
our
key
personnel,
we
may
not
be
able
to
achieve
our
anticipated
level
of
growth
and
our
business
could
suffer.
Our future depends, in part, on our ability to attract and retain key sales personnel and the continued contribution of our executive officers including Terence
Wise, our Chief Executive Officer, who would be difficult to replace. The loss of the services of any of these officers and the process to replace any key sales
personnel would involve significant time and expense and may significantly delay or prevent the achievement of our business objectives.
We
maintain
cash
balances
in
our
bank
accounts
that
exceed
the
FDIC
insurance
limitation.
We maintain our cash assets at commercial banks in the U.S. in amounts in excess of the Federal Deposit Insurance Corporation insurance limit of $250,000
and in Europe in amounts that may exceed any applicable deposit insurance limits. In the event of a failure at a commercial bank where we maintain our deposits or
uninsured losses on money market or other cash equivalents in which we maintain cash balances, we may incur a loss to the extent such loss exceeds the insurance
limitation, which could have a material adverse effect upon our financial conditions and our results of operations.
Our
Chairman
and
Chief
Executive
Officer
is
a
significant
shareholder,
which
makes
it
possible
for
him
to
have
significant
influence
over
the
outcome
of
all
matters
submitted
to
our
shareholders
for
approval
and
which
influence
may
be
alleged
to
conflict
with
our
interests
and
the
interests
of
our
other
shareholders.
Terence Wise, our Chairman and Chief Executive Officer, is a significant shareholder who beneficially owns approximately 18.0% of the outstanding shares of
our common stock as of December 11, 2017. Mr. Wise has substantial influence over the outcome of all matters submitted to our shareholders for approval,
including the election of our directors and other corporate actions. This influence may be alleged to conflict with our interests and the interests of our other
shareholders. In addition, such influence by Mr. Wise could have the effect of discouraging potential business partners or create actual or perceived governance
instabilities that could adversely affect the price of our common stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not Applicable
ITEM 2. PROPERTIES
We lease approximately 2,815 square feet in West Palm Beach, Florida for our executive offices, which we rent under a lease agreement scheduled to expire in
September 2020. The lease has annual escalations of 3% per year; rent payments were approximately $7,100 per month during Fiscal 2017.
12
We sublease approximately 1,300 square feet of office space in Cham, Switzerland, on a month-to-month basis, at the rate of $1,700 per month, from a tenant at
the same location. We use this office as our EMEA Region headquarters from which we coordinate our sales and sales support activities throughout the EMEA
Region.
We believe that each of the foregoing leased properties is adequate for the purposes for which it is used. All leases are with unaffiliated third parties. We
believe that the loss of any lease would not have a material adverse effect on our operations, as we believe that we could identify and lease comparable facilities
upon approximately equivalent terms.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company may become a party to other legal actions or proceedings in the ordinary course of its business. As of September 30, 2017,
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.
ITEM 4. MINE SAFETY DISCLOSURES.
Not Applicable.
13
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Market
for
Common
Stock
The principal market for our common stock is The Nasdaq Capital Market (“Nasdaq”). Our common stock is traded under the symbol "FORD". The following table
sets forth the high and low intra-day sales prices per share for our common stock on Nasdaq for each quarter in the last two fiscal years:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal 2017
Fiscal 2016
High
Low
High
Low
$
$
$
$
1.54
1.30
1.65
1.35
$
$
$
$
1.07
1.02
1.03
1.02
$
$
$
$
1.80
1.56
1.60
2.11
$
$
$
$
1.08
1.07
1.11
1.02
On December 11, 2017, the closing price for our common stock was $1.37.
Holders
of
common
stock
.
As of December 11, 2017, there were approximately 100 holders of record of our common stock. Because many of our shares of common stock are held by
brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.
Dividends
We have not paid any cash dividends on our common stock since 1987 and do not plan to pay cash dividends in the foreseeable future. The payment of
dividends in the future, if any, will depend upon our results of operations, as well as our short-term and long-term cash availability, net working capital, working
capital needs, and other factors, as determined by our Board of Directors. Currently, except as may be provided by applicable laws, there are no contractual or other
restrictions on our ability to pay dividends if we were to decide to declare and pay them.
Securities
authorized
for
issuance
under
equity
compensation
plans
.
Long-term equity based compensation is accomplished under the Forward Industries, Inc. 2007 Equity Incentive Plan, as amended (the “2007 Plan”), adopted
by the Company and by its shareholders in May 2007 and amended February 2009, and the Forward Industries, Inc. 2011 Long Term Incentive Plan (the “2011
Plan”), adopted by the Company and by its shareholders in March 2011. Under the 2007 Plan, 800,000 shares of common stock were authorized for grants of
awards of stock options and restricted stock, of which 17,823 shares remain available for grant as of September 30, 2017. Under the 2011 Plan, 850,000 shares of
common stock were authorized for grants of awards of stock options and restricted stock, of which 321,479 shares remain available for grant as of September 30,
2017.
Information relating to securities authorized for issuance under equity compensation plans as of September 30, 2017, is as follows:
14
Plan Category
Equity compensation plans
approved by security holders:
2007 Plan
2011 Plan
Equity compensation plans not
approved by security holders:
Total
Number of securities
to be issued upon
exercise of
outstanding options
(a)
Weighted-average
exercise price of
outstanding options
(b)
Number of securities remaining
available for future issuance under
equity compensation plans (excluding
securities reflected in column (a))
(c)
107,500 $
138,500 $
- $
246,000 $
2.43
2.01
-
2.19
17,823
321,479
-
339,302
Recent Sales of Unregistered Securities
None.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
15
ITEM 7. MANAGEMENT ’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this
report on Form 10-K. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and
assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not
limited to those set forth under “Risk Factors.”
Cautionary statement for purposes of the “Safe Harbor” provisions of the Private Securities Litigation Reform Act of 1995
The following management’s discus s ion and analysis includes “forward-looking statements”, as such term is used within the meaning of the Private Securities
Litigation Reform Act of 1995. These “forward-looking statements” are not based on historical fact and involve assessments of certain risks, developments, and
uncertainties in our business looking to the future. Such forward looking statements can be identified by the use of forward-looking terminology such as “may”,
“will”, “should”, “expect”, “anticipate”, “estimate”, “intend”, “continue”, or “believe”, or the negatives or other variations of these terms or comparable
terminology. Forward-looking statements may include projections, forecasts, or estimates of future performance and developments. Forward-looking statements
contained in this Annual Report are based upon assumptions and assessments that we believe to be reasonable as of the date of this Annual Report. Whether those
assumptions and assessments will be realized will be determined by future factors, developments, and events, which are difficult to predict and may be beyond our
control. Actual results, factors, developments, and events may differ materially from those we assumed and assessed. Risks, uncertainties, contingencies, and
developments, including those discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and those identified in
“Risk Factors” in Item 1A of this Annual Report on Form 10-K, could cause our future operating results to differ materially from those set forth in any forward
looking statement. There can be no assurance that any such forward looking statement, projection, forecast or estimate contained can be realized or that actual
returns, results, or business prospects will not differ materially from those set forth in any forward looking statement.
Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. The Company disclaims any obligation to
update any such factors or to publicly announce the results of any revisions to any of the forward-looking statements contained herein to reflect future results,
events or developments.
Business Overview
Forward Industries, Inc. (“Forward” or the “Company”) designs and distributes carry and protective solutions, primarily for hand held electronic devices. The
Company’s principal customer market is original equipment manufacturers, or “OEMs” (or the contract manufacturing firms of these OEM customers), that either
package their products as accessories “in box” together with their branded product offerings, or sell them through their retail distribution channels. The Company’s
OEM products include carrying cases and other accessories for medical monitoring and diagnostic kits and a variety of other portable electronic and non-electronic
products (such as sporting and recreational products, bar code scanners, smartphones, GPS location devices, tablets, and firearms).
Trends
and
Economic
Environment
We remain challenged by a highly concentrated customer base and product offering, especially with respect to our Diabetic Products Line, where we operate in
a price sensitive environment in which we continue to experience volatility in demand and downward pricing pressure from our major Diabetic Products customers.
We have and continue to invest in our sales and sales support teams to increase our ability to expand and diversify our customer base, which we believe is essential
to overcoming these challenges and the impact they have on our gross margins.
In addition to our endeavors to grow and diversify our business organically, we are actively searching to identify potential acquisition targets and strategic
partnerships that would be complementary to our existing business and allow us to further leverage our operating infrastructure. We anticipate that this search
process will be ongoing with the goal of identifying prospective target companies that, if acquired, would be accretive to our organic results.
We continue to be challenged by rising costs from our China-based supplier base, which causes our gross margins to narrow when we are not able to fully pass
cost increases through to customers. Our dedicated Asia-based sourcing agent has made meaningful progress in areas such as quality assurance and overall
operational performance during Fiscal 2017, which has better positioned us to negotiate such cost increases with our customers. However, we believe and anticipate
that our supplier base may become more concentrated. As a result, our ability to effectively push back against rising material costs may diminish.
Variability of Revenues and Results of Operation
Because a high percentage of our revenues is highly concentrated in a few large customers, and because the volumes of these customers’ order flows to us are
highly variable, with short lead times, our quarterly revenues, and consequently our results of operations, are susceptible to significant variability over a relatively
short period of time.
16
Critical Accounting Policies and Estimates
We have identified the accounting policies and significant estimation processes below as critical to our business operations and the understanding of our results
of operations. The discussion below is not intended to be comprehensive. In many cases, the accounting treatment of a particular transaction is specifically dictated
by U.S. GAAP, with no need for management’s judgment of a particular transaction. In other cases, management is required to exercise judgment in the application
of accounting principles with respect to particular transactions. The impact and any associated risks related to these policies on our business operations are
discussed throughout this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” where such policies affect reported and
expected financial results. For a detailed discussion of the applications of these and other accounting policies, see “Item 8. Financial Statements and Supplementary
Data” in this Annual Report. Our preparation of our Consolidated Financial Statements requires us to make estimates and assumptions that are believed to be
reasonable under the circumstances. There can be no assurance that actual results will not differ from those estimates and such differences could be significant.
Accounts
Receivable
Accounts receivable consist of unsecured trade accounts with customers or their contract manufacturers. We perform periodic credit evaluations of our
customers including an evaluation of days outstanding, payment history, recent payment trends, and perceived creditworthiness, and believe that adequate
allowances for any uncollectible receivables are maintained. Credit terms to customers generally range from net thirty (30) days to net one hundred twenty (120)
days. We have not historically experienced significant credit or collection problems with our OEM customers or their contract manufacturers. At September 30,
2017 and 2016, no allowance for doubtful accounts relating to our accounts receivable was deemed necessary.
Inventories
Inventories consist primarily of finished goods and are stated at the lower of cost (determined by the first-in, first-out method) or market. Based on
management’s estimates, an allowance is made to reduce excess, obsolete, or otherwise un-saleable inventories to net realizable value. The allowance is established
through charges to cost of goods sold in our consolidated statements of operations and comprehensive income. As reserved inventory is disposed of, we charge off
the associated allowance. In determining the adequacy of the allowance, management’s estimates are based upon several factors, including analyses of inventory
levels, historical loss trends, sales history and projections of future sales demand. Our estimates of the allowance may change from time to time based on
management’s assessments, and such changes could be material. At September 30, 2017 and 2016, there was no allowance for obsolete inventory.
Income
Taxes
We account for income taxes in accordance with U.S. GAAP, which requires, among other things, recognition of future tax benefits and liabilities measured at
enacted rates attributable to temporary differences between financial statement and income tax bases of assets and liabilities and to net tax operating loss carry-
forwards to the extent that realization of these benefits is more likely than not. We periodically evaluate the realizability of net deferred tax assets (See Note 7 to
our Consolidated Financial Statements). Our policy is to account for interest and penalties relating to income taxes, if any, in “income tax expense” in our
consolidated statements of operations and comprehensive income and include accrued interest and penalties within “accrued expenses and other current liabilities”
in our consolidated balance sheets, if applicable. For fiscal years ended September 30, 2017 and 2016, no income tax related interest or penalties were assessed or
recorded.
Revenue
Recognition
We generally recognize revenue from product sales to our customers when: (i) title and risk of loss are transferred (in general, these conditions occur at either
point of shipment or point of destination, depending on the terms of sale); (ii) persuasive evidence of an arrangement exists; (iii) we have no continuing obligations
to the customer; and (iv) collection of the related accounts receivable is reasonably assured. The Company defers revenue when it receives consideration before
achieving the criterion previously mentioned.
Share-Based
Payment
Expense
We recognize share-based compensation in our consolidated statements of operations and comprehensive income at the grant-date fair value of stock options
and other equity-based compensation. The determination of grant-date fair value is estimated using the Black-Scholes option-pricing model, which includes
variables such as the expected volatility of our share price, the exercise behavior of its grantees, interest rates, and dividend yields. These variables are projected
based on our historical data, experience, and other factors. Changes in any of these variables could result in material changes to the valuation of options granted in
future periods and increases (decreases) in the expense recognized for share-based payments. In the case of awards with multiple vesting periods, we have elected
to use the graded vesting attribution method, which recognizes compensation cost on a straight-line basis over each separately vesting portion of the award as if the
award was, in-substance, multiple awards. In addition, we recognize share-based compensation to non-employees based upon the fair value, using the Black-
Scholes option pricing model, determined at the deemed measurement dates over the related contract service period (See Note 6, Share-Based Compensation, to our
Consolidated Financial Statements).
17
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with
Customers (Topic 606),” which supersedes the revenue recognition requirements in Accounting Standards Codification (“ASC”) 605-Revenue Recognition and
most industry-specific guidance throughout the ASC. ASU 2014-09 establishes principles for recognizing revenue upon the transfer of promised goods or services
to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. In July 2015, the FASB deferred the effective
date for annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods). Early adoption is permitted to the
original effective date for annual reporting periods beginning after December 15, 2016 (including interim reporting periods within those periods). The amendments
may be applied retrospectively to each prior period (full retrospective) or retrospectively with the cumulative effect recognized as of the date of initial application
(modified retrospective). The Company will adopt ASU 2014-09 in the first quarter of fiscal 2019 and plans to apply the full retrospective approach. Because the
Company's primary source of revenues is from the sale of finished goods, the Company does not anticipate that the adoption of ASU 2014-09 will have a material
impact on its consolidated financial statements, disclosures or processes.
In August 2014, the FASB issued ASU 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”, which requires
management to assess a company’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. Before this new
standard, there was minimal guidance in U.S. GAAP specific to going concern. Under the new standard, disclosures are required when conditions give rise to
substantial doubt about a company’s ability to continue as a going concern within one year from the financial statement issuance date. The new standard applies to
all companies and is effective for the annual period ending after December 15, 2016, and all annual and interim periods thereafter. The Company adopted ASU
2014-15 in the fourth quarter of fiscal 2017. The adoption of ASU 2014-15 did not have a material impact on the Company’s consolidated financial statements.
In July 2015, the FASB issued ASU 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory,” which applies to inventory that is measured
using first-in, first-out (“FIFO”) or average cost. Under the updated guidance, an entity should measure inventory that is within scope at the lower of cost and net
realizable value, which is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and
transportation. Subsequent measurement is unchanged for inventory that is measured using last-in, first-out (“LIFO”). This ASU was effective for annual and
interim periods beginning after December 15, 2016, and should be applied prospectively with early adoption permitted at the beginning of an interim or annual
reporting period. The adoption of ASU 2015-11 did not have a material impact on the Company’s consolidated financial statements.
In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes,” which applies to the
classification of deferred tax assets and liabilities. The update eliminates the requirement to classify deferred tax assets and liabilities as noncurrent or current
within a classified statement of financial position. This ASU was effective for annual and interim periods beginning after December 15, 2016, and should be
applied prospectively with early adoption permitted at the beginning of an interim or annual reporting period. Early adoption is permitted. The Company adopted
ASU 2015-17 in the fourth quarter of fiscal 2017. The adoption of ASU 2015-17 did not have a material impact on the Company’s consolidated financial
statements.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which will require lessees to report most leases as assets and liabilities on the balance
sheet, while lessor accounting will remain substantially unchanged. This ASU requires a modified retrospective transition approach for existing leases, whereby the
new rules will be applied to the earliest year presented. The new standard is effective for reporting periods beginning after December 15, 2018 and early adoption is
permitted. The Company is currently evaluating the potential impact of adopting this guidance on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, “Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment
Accounting,” which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of
awards as either equity or liabilities, and classification on the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2016,
and interim periods within those fiscal years. Early adoption is permitted. The Company adopted ASU 2016-09 in the fourth quarter of fiscal 2017. The adoption of
ASU 2016-09 did not have a material impact on the Company’s consolidated financial statements.
In May 2017, the FASB issued ASU No. 2017-09, “Scope of Modification Accounting”, to provide guidance on which changes to the terms or conditions of a
share-based payment award require an entity to apply modification accounting. This ASU is effective for interim and annual periods beginning after December 15,
2017. Early adoption is permitted. Adoption of this ASU is prospective. The Company does not believe the adoption of this ASU will have a significant
impact on its consolidated financial statements.
18
RESULTS OF OPERATIONS FOR FISCAL 2017 COMPARED TO FISCAL 2016
Net Income
Net income was $0.6 million in Fiscal 2017 compared to $0.6 million in Fiscal 2016. Net income in Fiscal 2017 was primarily due to a decline in revenues and
gross profit, offset, in part, by a decrease in operating expenses, especially general and administrative expenses, as reflected in the table below:
(dollars
in
thousands)
For the Fiscal Years Ended
September 30,
2017
2016
Increase
(Decrease)
Net revenues
Gross profit
Less:
Sales and marketing expenses
General and administrative expenses
Other expense, net
Income taxes
Net income
$
$
$
$
$
24,765
4,192
1,503
2,091
19
-
27,480
$
(2,715 )
5,080
$
1,891
2,572
10
-
(888 )
(388 )
(481 )
9
-
(28 )
579
$
607
$
Net income per basic and diluted share was $0.07 for Fiscal 2017 and 2016.
Net Revenues
Net revenues declined $2.7 million, or 10%, to $24.8 million in Fiscal 2017 from $27.5 million in Fiscal 2016 due to reduced revenues in Diabetics Products,
partially offset by increased revenues from Other Products. Revenues from Diabetic Products declined $3.1 million whereas revenues in Other Products increased
$0.4 million. The following tables set forth revenues by channel, product line and geographic location of our customers for the periods indicated:
Net Revenues for the Fiscal Year Ended September 30, 2017
(dollars
in
thousands)
Americas
EMEA Region
8,963 $
319
9,282 $
6,465
1,304
7,769
APAC Region
$
5,588 $
2,126
7,714 $
Net Revenues for the Fiscal Year Ended September 30, 2016
(dollars
in
thousands)
Americas
EMEA Region
9,461 $
472
9,933 $
5,874
1,459
7,333
APAC Region
$
8,807 $
1,407
10,214 $
$
$
Total
21,016
3,749
24,765
Total
24,142
3,338
27,480
Diabetic Products
Other Products
Total net revenues
Diabetic Products
Other Products
Total net revenues
Diabetic
Product
Revenues
$
$
$
$
We design to the order of, and sell carrying cases for blood glucose diagnostic kits directly to, OEMs (or their contract manufacturers). The OEM customer or
its contract manufacturer packages our carry cases “in box” as a custom accessory for the OEM’s blood glucose testing and monitoring kits, or to a lesser extent,
sell them through their retail distribution channels.
Revenues from Diabetic Products declined $3.1 million to $21.0 million in Fiscal 2017 from $24.1 million in Fiscal 2016. This decrease was primarily due to
lower revenues from three of our major Diabetic Products customers (Diabetic Products Customers A, C and D). Our Diabetics Products customers have decreased
purchases of our products due to the significant decrease in reimbursements these customers receive for the products they sell under the ACA. The decline was
offset, in part, by an increase in revenues from one major Diabetic Products customers (Diabetic Products Customer B) and a slight increase in revenues from our
Other Diabetic Products customers.
19
The following table sets forth our revenues by Diabetic Products customer for the periods indicated:
Diabetic Products Customer A
Diabetic Products Customer B
Diabetic Products Customer C
Diabetic Products Customer D
All other Diabetic Products Customers
Totals
(dollars
in
thousands)
For the Fiscal Years Ended
September 30,
2017
6,514
5,993
5,334
2,772
403
21,016
$
$
2016
6,704 $
5,127
8,507
3,662
142
24,142 $
$
$
Increase
(Decrease)
(190 )
866
(3,173 )
(890 )
261
(3,126 )
Revenues from Diabetic Products customers represented 85% of our net revenues in Fiscal 2017 compared to 88% of our net revenues in Fiscal 2016.
Other
Product
Revenues
We design and sell cases and protective solutions to OEMs for a diverse array of portable electronic devices (such as bar code scanners, GPS devices, cellular
phones, tablets and cameras), as well as a variety of other products (such as sporting and recreational products and firearms) on a made-to-order basis that are
customized to fit the products sold by our OEM customers.
Revenues from Other Products increased $0.4 million to $3.7 million in Fiscal 2017 from $3.3 million in Fiscal 2016. This is primarily due to the addition of
$0.5 million from new customers, partially offset by overall net decreases of $0.1 million from existing customers. We will continue to focus on our sales and sales
support teams in our attempt to expand and diversify our Other Products customer base.
Revenues of Other Products represented 15% of our net revenues in Fiscal 2017 compared to 12% of our total net revenues in Fiscal 2016.
Gross Profit
Gross profit decreased $0.9 million, or 17%, to $4.2 million in Fiscal 2017 from $5.1 million in Fiscal 2016. As a percentage of revenues, our gross margin
declined to 16.9% in Fiscal 2017, compared to 18.5% in Fiscal 2016.
The gross profit decline was driven primarily by a year over year decrease in volumes related to global revenues. Fiscal 2017 revenues in the APAC Region
declined 24% to $7.7 million primarily due to decreased revenues from Diabetic Products Customer C, partially offset by increased revenues from Other Products
customers. Fiscal 2017 revenues in the EMEA Region declined 7% to $9.3 million primarily due to decreased revenues from Diabetic Products Customers A and D
and Other Products customers, partially offset by increased revenues from Diabetic Products Customer B. Fiscal 2017 revenues in the Americas increased 6% to
$7.8 million primarily due to increased revenues from Diabetic Products Customer B, partially offset by decreased revenues from Diabetic Products Customers A
and D and Other Products customers.
Sales and Marketing Expenses
Sales and marketing expenses decreased approximately $388,000, or 21%, to approximately $1,503,000 in Fiscal 2017 from approximately $1,891,000 in Fiscal
2016, primarily due to decreased personnel costs of approximately $422,000, partially offset by increased advertising and promotional costs of approximately
$69,000. Fluctuations in other components of “Sales and Marketing Expenses” were not material individually or in the aggregate.
General and Administrative Expenses
General and administrative expenses decreased approximately $481,000, or 19%, to approximately $2,091,000 in Fiscal 2017 from approximately $2,572,000
in Fiscal 2016, primarily due to decreased director compensation of approximately $94,000 (of which $53,000 is share-based), refunds received for state franchise
taxes of approximately $73,000, and decreased professional fees of approximately $59,000, personnel expenses of approximately $59,000, director expense
reimbursement of approximately $57,000, and directors and officers insurance of approximately $55,000. Fluctuations in other components of “General and
Administrative Expenses” were not individually material.
20
Other Income (Expense)
Other expense, net, increased to approximately $19,000 in Fiscal 2017 from approximately $10,000 in Fiscal 2016, primarily due to increased realized losses on
foreign currency transactions of approximately $29,000. This was partially offset by income from the property subleased in Santa Monica, California that expired
in September 2016 of approximately $11,000.
LIQUIDITY AND CAPITAL RESOURCES
Our primary source of liquidity is our operations. The primary demand on our working capital will be: (i) operating losses, should they occur; and (ii) any
increases in accounts receivable and inventories arising in the ordinary course of business. Historically, our sources of liquidity have been adequate to satisfy
working capital requirements arising in the ordinary course of business. We anticipate that our liquidity and financial resources for the next twelve months from the
date of this filing will be adequate to manage our operating and financial requirements.
At September 30, 2017, our current ratio (current assets divided by current liabilities) was 3.1 compared to 3.0 at September 30, 2016; our quick ratio (current
assets less inventories divided by current liabilities) was 2.6 compared to 2.3 at September 30, 2016; and our working capital (current assets less current liabilities)
was $8.9 million compared to $8.2 million at September 30, 2016. As of September 30, 2017, we had no short or long-term debt outstanding. We do not anticipate
the need to purchase additional material capital assets in order to carry out our business. As of December 11, 2017, we had approximately $5.6 million of cash on
hand.
During the fiscal years ended September 30, 2017 and 2016, our sources and uses of cash were as follows:
Cash Flows from Operating Activities
During Fiscal 2017, cash used in operating activities of approximately $138,000 resulted primarily from an increase in accounts receivable of approximately
$1,354,000 and a decrease in accrued expenses and other current liabilities of approximately $208,000, partially offset by net income of approximately $579,000, a
decrease in inventories of approximately $452,000, an increase in accounts payable (including due to Forward China) of approximately $244,000 and non-cash
share-based compensation of approximately $155,000.
During Fiscal 2016, cash provided by operating activities of approximately $768,000 resulted primarily from net income of approximately $607,000, a decrease
in accounts receivable of approximately $590,000, a decrease in inventories of approximately $293,000, non-cash share-based compensation of approximately
$236,000 and a decrease in prepaid expenses and other current assets of approximately $155,000, partially offset by a decrease in accounts payable (including due
to Forward China) of approximately $709,000 and a decrease in accrued expenses and other current liabilities of approximately $446,000.
Cash Flows from Investing Activities
In Fiscal 2017, we had no cash used in investing activities.
In Fiscal 2016, cash used in investing activities of approximately $48,000 resulted from purchases of property and equipment.
Cash Flows from Financing Activities
In Fiscal 2017, we had no cash used in financing activities.
In Fiscal 2016, cash used in financing activities of approximately $2,000 resulted from the repurchase of restricted stock.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and notes thereto included in this Annual Report may be found beginning on page F-1 of this Annual Report on Form 10-
K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
21
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management carried out an evaluation, with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of our
disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on their evaluation, our
Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2017.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act). Our management, under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, evaluated the
effectiveness of our internal control over financial reporting as of the end of the period covered by this report. In making this assessment, our management used the
criteria set forth by the Committee of Sponsor Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework as issued in 2013.
Based on that evaluation, our management concluded that our internal control over financial reporting as of September 30, 2017 was effective based on that criteria.
Our internal control over financial reporting is a process designed under the supervision of our Principal Executive Officer and Principal Financial Officer to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in
accordance with U.S. GAAP. Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures are being made only in accordance with
authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with
policies or procedures may deteriorate.
Changes in Internal Control
There were no changes in our internal control over financial reporting identified in management's evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the
Exchange Act during the fourth quarter of Fiscal 2017 that materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 9B. OTHER INFORMATION
None.
22
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
The information required by this item is incorporated by reference to our Proxy Statement for the 2018 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission (“SEC”) within 120 days of the fiscal year ended September 30, 2017. Our Board has adopted a Code of Business Conduct
and Ethics applicable to all officers, directors and employees, which is available on our website (http://www.forwardindustries.com/#gov) under "Corporate
Governance." We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding amendment to, or waiver from, a provision of our Code of
Conduct and by posting such information on the website address and location specified above.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to our Proxy Statement for the 2018 Annual Meeting of Stockholders to be filed with the
SEC within 120 days of the fiscal year ended September 30, 2017.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to our Proxy Statement for the 2018 Annual Meeting of Stockholders to be filed with the
SEC within 120 days of the fiscal year ended September 30, 2017.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated by reference to our Proxy Statement for the 2018 Annual Meeting of Stockholders to be filed with the
SEC within 120 days of the fiscal year ended September 30, 2017.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated by reference to our Proxy Statement for the 2018 Annual Meeting of Stockholders to be filed with the
SEC within 120 days of the fiscal year ended September 30, 2017.
23
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Documents filed as part of the report.
PART IV
(1) Financial Statements. See Index to Consolidated Financial Statements, which appears on page F-1 hereof. The financial statements listed in the
accompanying Index to Consolidated Financial Statements are filed herewith in response to this Item.
(2) Financial Statements Schedules. All schedules are omitted because they are not applicable or because the required information is contained in the
consolidated financial statements or notes included in this report.
(3) Exhibits. See the Exhibit Index.
24
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Dated: December 14, 2017
Signatures
FORWARD INDUSTRIES, INC.
By: /s/ Terence Wise
Terence Wise
Chief Executive Officer
(Principal Executive Officer)
In accordance with the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
December 14, 2017
December 14, 2017
December 14, 2017
December 14, 2017
December 14, 2017
/s/ Terence Wise
Terence Wise
Principal Executive Officer and Director
/s/ Michael Matte
Michael Matte
Principal Financial Officer and Chief Accounting Officer
James Frost
Director
/s/ Howard Morgan
Howard Morgan
Director
/s/ Sangita Shah
Sangita Shah
Director
25
EXHIBIT INDEX
Exhibit Description
Restated Certificate of Incorporation
Certificate of Amendment of the Certificate of Incorporation
Third Amended and Restated Bylaws
Rights Agreement, dated as of April 26, 2013
Wise Employment Arrangement*
Matte Employment Agreement*
1996 Stock Incentive Plan
2011 Long Term Incentive Plan
2007 Equity Incentive Plan, as amended
Buying Agency and Supply Agreement - Forward Industries (Asia-Pacific) Corporation
Amendment No. 1 to Buying Agency and Supply Agreement - Forward Industries (Asia-Pacific)
Corporation
Amendment No. 2 to Buying Agency and Supply Agreement - Forward Industries (Asia-Pacific)
Corporation
List of Subsidiaries
Consent of Independent Registered Public Accounting Firm
Exhibit
No.
3.1
3.2
3.3
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
CEO Certifications (302)
21.1
23.1
31.1
31.2
32.1
101 .INS XBRL Instance Document
CFO Certification (302)
CEO and CFO Certifications (906)
101 .SCH XBRL Taxonomy Extension Schema Document
101 .CAL XBRL Taxonomy Extension Calculation Linkbase Document
101 .DEF XBRL Taxonomy Extension Definition Linkbase Document
101 .LAB XBRL Taxonomy Extension Label Linkbase Document
101 .PRE XBRL Taxonomy Extension Presentation Linkbase Document
* Management compensatory agreement or arrangement.
Incorporated by
Reference
Form Date Number
10-K 12/08/10
3
8-K 7/03/13
10-K 12/10/14
8-K 4/26/13
8-K 6/29/15
8-K 6/29/15
S-8
4/25/03
Def14A 1/26/11
3
3
4
10.1
10.2
4
A
S-8
2/25/10
4.1
10-K 12/16/15 10.7
10-Q 8/14/17
10.2
8-K 9/22/17
10.1
10-K 12/16/15 21.1
Filed or
Furnished
Herewith
Filed
Filed
Filed
Furnished
Filed
Filed
Filed
Filed
Filed
Filed
Copies of this filing (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our shareholders who make a
written request to Forward Industries, Inc.; 477 Rosemary Ave., Suite 219; West Palm Beach, Florida 33401; Attention: Corporate Secretary.
26
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of September 30, 2017 and 2016
Consolidated Statements of Operations and Comprehensive Income for the
Years Ended September 30, 2017 and 2016
Consolidated Statements of Shareholders' Equity for the Years Ended
September 30, 2017 and 2016
Consolidated Statements of Cash Flows for the Years Ended September 30, 2017 and 2016
Notes to Consolidated Financial Statements
F-1
Page
F-2
F-3
F-4
F-5
F-6
F-7
The Board of Directors and Shareholders of Forward Industries, Inc.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have audited the accompanying consolidated balance sheets of Forward Industries, Inc. and Subsidiaries as of September 30, 2017 and 2016, and the related
consolidated statements of operations and comprehensive income, shareholders’ equity and cash flows for the years then ended. Forward Industries, Inc. and
Subsidiaries’ management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is
not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control
over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Forward Industries, Inc.
and Subsidiaries as of September 30, 2017 and 2016, and the results of their operations and their cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.
/s/ CohnReznick LLP
Jericho, New York
December 14, 2017
F-2
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Assets
Current assets:
Cash
Accounts receivable
Inventories
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Other assets
Total assets
Liabilities and shareholders' equity
Current liabilities:
Accounts payable
Due to Forward China
Accrued expenses and other current liabilities
Total current liabilities
Other liabilities
Total liabilities
Commitments and contingencies - See Note 9
Shareholders' equity:
Common stock, par value $0.01 per share; 40,000,000 shares authorized;
8,920,830 and 8,780,830 shares issued and outstanding
at September 30, 2017 and 2016, respectively
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total shareholders' equity
Total liabilities and shareholders' equity
September 30,
2017
2016
$
$
$
4,622,981
6,218,563
2,120,971
157,930
13,120,445
20,658
12,843
13,153,946
67,351
3,736,451
382,759
4,186,561
36,963
4,223,524
4,760,620
4,864,423
2,572,980
141,421
12,339,444
43,030
12,843
12,395,317
62,136
3,519,676
587,741
4,169,553
51,486
4,221,039
89,208
17,936,673
(9,095,459 )
-
8,930,422
13,153,946
$
87,808
17,783,060
(9,674,805 )
(21,785 )
8,174,278
12,395,317
$
$
$
$
The accompanying notes are an integral part of the consolidated financial statements.
F-3
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Net revenues
Cost of goods sold
Gross profit
Operating expenses:
Sales and marketing
General and administrative
Total operating expenses
Operating income
Other income (expense), net
Income before income taxes
Provision for income taxes
Net income
Net income
Other comprehensive income:
Translation adjustments
Comprehensive income
Earnings per share:
Basic
Diluted
Weighted average number of common and
common equivalent shares outstanding:
Basic
Diluted
For the Fiscal Years Ended
September 30,
2017
2016
$
$
$
$
$
$
$
24,764,613
20,572,970
4,191,643
1,502,700
2,090,473
3,593,173
598,470
(19,124 )
579,346
-
579,346
579,346
21,785
601,131
0.07
0.07
$
$
$
$
$
27,479,896
22,399,734
5,080,162
1,891,409
2,571,799
4,463,208
616,954
(10,392 )
606,562
-
606,562
606,562
-
606,562
0.07
0.07
8,727,322
8,823,059
8,521,188
8,675,583
The accompanying notes are an integral part of the consolidated financial statements .
F-4
Balance - September 30, 2015
Restricted stock award issuances
Restricted stock repurchased and retired
Restricted stock award forfeitures
Share-based compensation
Net income
Balance - September 30, 2016
Restricted stock award issuances
Share-based compensation
Foreign currency translation
Net income
Balance - September 30, 2017
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS ' EQUITY
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2017 AND 2016
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Accumulated
Other
Accumulated
Comprehensive
Deficit
Loss
Total
8,641,755
141,817
(1,076 )
(1,666 )
-
-
8,780,830
140,000
-
-
-
8,920,830
$
$
86,418
1,418
(11 )
(17 )
-
-
87,808
1,400
-
-
-
89,208
$
17,550,047
$
(1,418 )
(1,656 )
17
236,070
-
17,783,060
(1,400 )
155,013
-
-
17,936,673
$
$
(10,281,367 )
-
-
-
-
606,562
(9,674,805 )
-
-
-
579,346
(9,095,459 )
$
$
The accompanying notes are an integral part of the consolidated financial statements.
(21,785 )
-
-
-
-
-
(21,785 )
-
-
21,785
-
-
$
7,333,313
-
(1,667 )
-
236,070
606,562
8,174,278
-
155,013
21,785
579,346
8,930,422
$
F-5
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash Flows From Operating Activities:
Net income
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Share-based compensation
Depreciation and amortization
Loss on disposal of property and equipment
Deferred rent
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Prepaid expenses and other current assets
Other assets
Accounts payable and due to Forward China
Accrued expenses and other current liabilities
Other liabilities
Net cash provided by (used in) operating activities
Cash Flows From Investing Activities:
Purchases of property and equipment
Net cash used in investing activities
Cash Flows From Financing Activities:
Restricted stock repurchased and retired
Net cash used in financing activities
Net increase (decrease) in cash
Cash at beginning of year
Cash at end of year
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest
Cash paid for taxes
For the Fiscal Years Ended
September 30,
2017
2016
$
579,346
$
606,562
155,013
22,372
-
(11,973 )
(1,354,140 )
452,009
(16,509 )
-
243,775
(207,532 )
-
(137,639 )
-
-
-
-
(137,639 )
4,760,620
4,622,981
-
-
$
$
$
236,070
52,754
31,070
(17,437 )
589,706
293,484
154,591
28,119
(709,012 )
(445,880 )
(51,743 )
768,284
(48,121 )
(48,121 )
(1,667 )
(1,667 )
718,496
4,042,124
4,760,620
-
-
$
$
$
The accompanying notes are an integral part of the consolidated financial statements .
F-6
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 OVERVIEW
Forward Industries, Inc. (“Forward” or the “Company”) designs and distributes carry and protective solutions, primarily for hand held electronic devices. The
Company’s principal customer market is original equipment manufacturers, or “OEMs” (or the contract manufacturing firms of these OEM customers), that either
package their products as accessories “in box” together with their branded product offerings, or sell them through their retail distribution channels. The Company’s
OEM products include carrying cases and other accessories for medical monitoring and diagnostic kits and a variety of other portable electronic and non-electronic
products (such as sporting and recreational products, bar code scanners, smartphones, GPS location devices, tablets, and firearms). The Company’s OEM customers
are located in: (i) the Asia-Pacific Region, which we refer to as the “APAC Region”; (ii) Europe, the Middle East, and Africa, which we refer to as the “EMEA
Region”; and (iii) the Americas. The Company does not manufacture any of its OEM products and sources substantially all of its OEM products from independent
suppliers in China, through Forward China (See Note 10 – Buying Agency and Supply Agreement).
NOTE 2 ACCOUNTING POLICIES
Use of Estimates
The preparation of the Company’s consolidated financial statements in conformity with accounting principles generally accepted in the United States of
America 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 financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from
those estimates and assumptions.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of Forward Industries, Inc. and its wholly owned subsidiaries (Forward US and
Forward Switzerland). All significant intercompany transactions and balances have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. There were no
cash equivalents at September 30, 2017 and 2016. The Company maintains its cash in bank and financial institution deposits in the United States (that at times may
exceed federally insured limits of $250,000 per financial institution) and Switzerland. At September 30, 2017 and 2016, there were deposits totaling approximately
$4.4 million (which includes $1.4 million in a foreign bank) and $4.5 million (which includes $2.7 million in a foreign bank), respectively, held in excess of
federally insured limits. Historically, we have not experienced any losses due to such cash concentrations.
Accounts Receivable
Accounts receivable consist of unsecured trade accounts with customers or their contract manufacturers. The Company performs periodic credit evaluations of
its customers including an evaluation of days outstanding, payment history, recent payment trends, and perceived creditworthiness, and believes that adequate
allowances for any uncollectible receivables are maintained. Credit terms to customers generally range from net thirty (30) days to net one hundred twenty (120)
days. The Company has not historically experienced significant credit or collection problems with its OEM customers or their contract manufacturers. At
September 30, 2017 and 2016, no allowance for doubtful accounts relating to the Company’s accounts receivable was deemed necessary.
Inventories
Inventories consist primarily of finished goods and are stated at the lower of cost (determined by the first-in, first-out method) or market. Based on
management’s estimates, an allowance is made to reduce excess, obsolete, or otherwise un-saleable inventories to net realizable value. The allowance is established
through charges to cost of goods sold in the Company’s consolidated statements of operations and comprehensive income. As reserved inventory is disposed of, the
Company charges off the associated allowance. In determining the adequacy of the allowance, management’s estimates are based upon several factors, including
analyses of inventory 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 September 30, 2017 and 2016, there was no allowance for obsolete
inventory.
F-7
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Property and Equipment
Property and equipment consists of furniture, fixtures, and equipment and leasehold improvements and are recorded at cost. Expenditures for major additions
and improvements are capitalized, and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment are retired
or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations
for the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method. The estimated useful lives for
furniture, fixtures and equipment ranges from three to five years. Amortization of leasehold improvements is computed using the straight-line method over the
shorter of the remaining lease term or the estimated useful lives of the improvements.
Leases
The Company enters into various lease agreements in conducting its business. At the inception of each lease, the Company evaluates the lease agreement to
determine whether the lease is an operating or capital lease. Leases may contain initial periods of free rent and/or periodic escalations. When such items are
included in a lease agreement, the Company records rent expense on a straight-line basis over the initial term of a lease. The difference between the rent payment
and the straight-line rent expense is recorded as a deferred rent liability. The Company expenses any additional payments under its operating leases for taxes,
insurance or other operating expenses as incurred.
Income Taxes
The Company accounts for its income taxes in accordance with accounting principles generally accepted in the United States of America, which requires,
among other things, recognition of future tax benefits and liabilities measured at enacted rates attributable to temporary differences between financial statement and
income tax bases of assets and liabilities and to net tax operating loss carryforwards to the extent that realization of these benefits is more likely than not. The
Company periodically evaluates the realizability of its net deferred tax assets (See Note 7 – Income Taxes). The Company’s policy is to account for interest and
penalties relating to income taxes, if any, in “income tax expense” in its consolidated statements of operations and comprehensive income and include accrued
interest and penalties within “accrued liabilities” in its consolidated balance sheets, if applicable. For fiscal years ended September 30, 2017 and 2016, no income
tax related interest or penalties were assessed or recorded.
Revenue Recognition
The Company generally recognizes revenue from product sales to its customers when: (i) title and risk of loss are transferred (in general, these conditions occur
at either point of shipment or point of destination, depending on the terms of sale); (ii) persuasive evidence of an arrangement exists; (iii) the Company has no
continuing obligations to the customer; and (iv) collection of the related accounts receivable is reasonably assured. The Company defers revenue when it receives
consideration before achieving the criterion previously mentioned.
Shipping and Handling Fees
The Company includes shipping and handling fees billed to customers in net revenues and the related transportation costs in cost of goods sold.
Foreign Currency Transactions
Foreign currency transactions may generate receivables or payables that are fixed in terms of the amount of foreign currency that will be received or paid.
Fluctuations in exchange rates between such foreign currency and the functional currency increase or decrease the expected amount of functional currency cash
flows upon settlement of the transaction. These increases or decreases in expected functional currency cash flows are foreign currency transaction gains or losses
that are included in “other income (expense)” in the accompanying consolidated statements of operations and comprehensive income. The approximate net losses
from foreign currency transactions were approximately $29,000 and $16,000 for the fiscal years ended September 30, 2017 and 2016, respectively. Such foreign
currency transaction losses were primarily the result of Euro denominated revenues from certain customers.
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss, which is included as a component of shareholders’ equity, represents translation adjustments related to the Company’s
foreign subsidiary. As a result of the dissolution of certain foreign subsidiaries, the related accumulated other comprehensive loss was reclassified out of
shareholders’ equity.
Fair Value of Financial Instruments
For certain of the Company’s financial instruments, including cash, accounts receivable, accounts payable, and accrued expenses and other current liabilities,
the carrying amount approximates fair value due to the short-term maturities of these instruments.
F-8
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Share-Based Compensation Expense
The Company recognizes employee and director share-based compensation in its consolidated statements of operations and comprehensive income at the grant-
date fair value of stock options and other equity-based compensation. The determination of stock option grant-date fair value is estimated using the Black-Scholes
option-pricing model, which includes variables such as the expected volatility of the Company’s share price, the exercise behavior of its grantees, interest rates, and
dividend yields. These variables are projected based on the Company’s historical data, experience, and other factors. In the case of awards with multiple vesting
periods, the Company has elected to use the graded vesting attribution method, which recognizes compensation cost on a straight-line basis over each separately
vesting portion of the award as if the award was, in substance, multiple awards. In addition, the Company recognizes share-based compensation to non-employees
based upon the fair value, using the Black-Scholes option pricing model, determined at the deemed measurement dates over the related contract service period (See
Note 6 - Share-Based Compensation).
R ecent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with
Customers (Topic 606),” which supersedes the revenue recognition requirements in Accounting Standards Codification (“ASC”) 605-Revenue Recognition and
most industry-specific guidance throughout the ASC. ASU 2014-09 establishes principles for recognizing revenue upon the transfer of promised goods or services
to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. In July 2015, the FASB deferred the effective
date for annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods). Early adoption is permitted to the
original effective date for annual reporting periods beginning after December 15, 2016 (including interim reporting periods within those periods). The amendments
may be applied retrospectively to each prior period (full retrospective) or retrospectively with the cumulative effect recognized as of the date of initial application
(modified retrospective). The Company will adopt ASU 2014-09 in the first quarter of fiscal 2019 and plans to apply the full retrospective approach. Because the
Company's primary source of revenues is from the sale of finished goods, the Company does not anticipate that the adoption of ASU 2014-09 will have a material
impact on its consolidated financial statements, disclosures or processes.
In August 2014, the FASB issued ASU 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”, which requires
management to assess a company’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. Before this new
standard, there was minimal guidance in U.S. GAAP specific to going concern. Under the new standard, disclosures are required when conditions give rise to
substantial doubt about a company’s ability to continue as a going concern within one year from the financial statement issuance date. The new standard applies to
all companies and is effective for the annual period ending after December 15, 2016, and all annual and interim periods thereafter. The Company adopted ASU
2014-15 in the fourth quarter of fiscal 2017. The adoption of ASU 2014-15 did not have a material impact on the Company’s consolidated financial statements.
In July 2015, the FASB issued ASU 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory,” which applies to inventory that is measured
using first-in, first-out (“FIFO”) or average cost. Under the updated guidance, an entity should measure inventory that is within scope at the lower of cost and net
realizable value, which is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and
transportation. Subsequent measurement is unchanged for inventory that is measured using last-in, first-out (“LIFO”). This ASU was effective for annual and
interim periods beginning after December 15, 2016, and should be applied prospectively with early adoption permitted at the beginning of an interim or annual
reporting period. The adoption of ASU 2015-11 did not have a material impact on the Company’s consolidated financial statements.
In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes,” which applies to the
classification of deferred tax assets and liabilities. The update eliminates the requirement to classify deferred tax assets and liabilities as noncurrent or current
within a classified statement of financial position. This ASU was effective for annual and interim periods beginning after December 15, 2016, and should be
applied prospectively with early adoption permitted at the beginning of an interim or annual reporting period. Early adoption is permitted. The Company adopted
ASU 2015-17 in the fourth quarter of fiscal 2017. The adoption of ASU 2015-17 did not have a material impact on the Company’s consolidated financial
statements.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which will require lessees to report most leases as assets and liabilities on the balance
sheet, while lessor accounting will remain substantially unchanged. This ASU requires a modified retrospective transition approach for existing leases, whereby the
new rules will be applied to the earliest year presented. The new standard is effective for reporting periods beginning after December 15, 2018 and early adoption is
permitted. The Company is currently evaluating the potential impact of adopting this guidance on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, “Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment
Accounting,” which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of
awards as either equity or liabilities, and classification on the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2016,
and interim periods within those fiscal years. Early adoption is permitted. The Company adopted ASU 2016-09 in the fourth quarter of fiscal 2017. The adoption of
ASU 2016-09 did not have a material impact on the Company’s consolidated financial statements.
F-9
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In May 2017, the FASB issued ASU No. 2017-09, “Scope of Modification Accounting”, to provide guidance on which changes to the terms or conditions of a
share-based payment award require an entity to apply modification accounting. This ASU is effective for interim and annual periods beginning after December 15,
2017. Early adoption is permitted. Adoption of this ASU is prospective. The Company does not believe the adoption of this ASU will have a significant impact on
its consolidated financial statements.
NOTE 3 PROPERTY AND EQUIPMENT
Property and equipment and related accumulated depreciation and amortization are summarized in the table below:
Furniture, fixtures and equipment
Leasehold improvements
Property and equipment, cost
Less: accumulated depreciation and amortization
Property and equipment, net
September 30,
2017
333,748
42,020
375,768
(355,110 )
20,658
$
$
2016
333,748
42,020
375,768
(332,738 )
43,030
$
$
Depreciation and amortization expense was $22,372 and $52,754 for the fiscal years ended September 30, 2017 and 2016, respectively.
NOTE 4 ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities are summarized in the table below:
September 30,
2017
169,642 $
129,582
53,240
30,295
382,759 $
2016
309,571
256,144
-
22,026
587,741
$
$
Deferred revenue
Personnel cost
Insurance payable
Other
Accrued expenses and other current liabilities
NOTE 5 SHAREHOLDERS’ EQUITY
Anti-takeover Provisions
Shareholder
Rights
Plan
On April 26, 2013, the Board of Directors (the “Board”) adopted a Shareholder Rights Plan, as set forth in the Rights Agreement between the Company and
American Stock Transfer & Trust Company, LLC, as Rights Agent. Pursuant to the Rights Agreement, the Board declared a dividend distribution of one Right (a
“Right”) for each outstanding share of Company Common Stock, par value $0.01 per share (the “Common Stock”) to shareholders of record at the close of
business on May 6, 2013, which date will be the record date, and for each share of Common Stock issued (including shares distributed from treasury) by the
Company thereafter and prior to the Distribution Date (as described below and defined in the Rights Agreement). Each Right entitles the registered holder, subject
to the terms of the Rights Agreement, to purchase from the Company one one-thousandth of a share of Series A Participating Preferred Stock, $0.01 par value per
share (the “Series A Preferred Stock”), at an exercise price of $4.00 per one one-thousandth of a share of Series A Preferred Stock, subject to adjustment.
Initially, no separate Rights certificates will be distributed and instead the Rights will attach to all certificates representing shares of outstanding Common
Stock. Subject to certain exceptions specified in the Rights Agreement, the Rights will separate from the Common Stock and become exercisable on the distribution
date (the “Distribution Date”), which will occur on the earlier of: (i) the 10th business day (or such later date as may be determined by the Board) after the public
announcement that an Acquiring Person (as defined in the Rights Agreement) has acquired beneficial ownership of 20% or more of the Common Stock then
outstanding; or (ii) the 10th business day (or such later date as may be determined by the Board) after a person or group announces a tender or exchange offer that
would result in a person or group of affiliated and associated persons beneficially owning 20% or more of the Common Stock then outstanding.
F-10
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
“Blank
Check”
Preferred
Stock
The Company is authorized to issue up to 4,000,000 shares of “blank check” preferred stock. The Board has the authority and discretion, without shareholder
approval, to issue preferred stock in one or more series for any consideration it deems appropriate, and to fix the relative rights and preferences thereof including
their redemption, dividend and conversion rights. Of these shares, 100,000 shares have been authorized as the Series A Participating Preferred Stock. There were no
shares of preferred stock outstanding at September 30, 2017 and 2016.
Warrants
Between June 28, 2013 and August 14, 2013, the Company issued ten-year warrants to purchase 648,846 shares of common stock with an exercise price of
$1.84 per share.
During the fiscal year ended September 30, 1999, the Company issued warrants to purchase an aggregate of 75,000 shares of common stock at an exercise price
of $1.75 per share. By their terms these warrants expire 90 days after a registration statement registering common stock (other than pursuant to employee benefit
plans) is declared effective by the United States Securities and Exchange Commission (the “Commission”). As of September 30, 2017, no such registration
statement has been filed with the Commission.
Stock Repurchase
In September 2002 and January 2004, the Board authorized the repurchase of up to an aggregate of 486,200 shares of outstanding common stock. On
September 24, 2017, the Company terminated the stock repurchase program. Under the repurchase authorizations, through September 24, 2017, the Company
repurchased an aggregate of 224,690 shares at a cost of approximately $487,000. During the fiscal years ended September 30, 2017 and 2016, the Company
repurchased and retired an aggregate of 0 and 1,076 shares, respectively, of its outstanding restricted common stock at a cost of approximately $0 and $2,000,
respectively, in connection with the vesting of employee restricted stock awards, wherein certain employees surrendered a portion of their award in order to fund
certain tax withholding obligations.
NOTE 6 SHARE-BASED COMPENSATION
2011 Long Term Incentive Plan
In March 2011, shareholders of the Company approved the 2011 Long Term Incentive Plan (the “2011 Plan”), which authorizes 850,000 shares of common
stock for grants of various types of equity awards to officers, directors, employees, consultants, and independent contractors. Forfeited awards are eligible for re-
grant under the 2011 Plan. The total shares of common stock available for grants of equity awards under the 2011 Plan was 321,479 as of September 30, 2017. The
exercise prices of stock options granted may not be less than the fair market value of the common stock as quoted at the close on the Nasdaq Stock Market on the
grant date. The Compensation Committee administers the plan. Options generally expire ten years after the date of grant.
2007 Equity Incentive Plan
The 2007 Equity Incentive Plan (the “2007 Plan”), which was approved by shareholders of the Company in May 2007, and, as amended, in February 2010,
authorizes an aggregate of 800,000 shares of common stock for grants of restricted common stock and stock options to officers, employees, and non-employee
directors of the Company. Forfeited awards are eligible for re-grant under the 2007 Plan. The total shares of common stock available for grants of equity awards
under the 2007 Plan was 17,823 as of September 30, 2017. The exercise price of stock options granted may not be less than the fair market value of the common
stock as quoted at the close on the Nasdaq Stock Market on the grant date. The Compensation Committee administers the 2007 Plan. Options generally expire ten
years after the date of grant.
1996 Stock Incentive Plan
The Company’s 1996 Stock Incentive Plan (the “1996 Plan”) expired in accordance with its terms in November 2006. The exercise price of incentive stock
options granted under the 1996 Plan to officers, employees, and non-employee directors of the Company was required by 1996 Plan provisions to be equal at least
to the fair market value of the common stock at the date of grant. In general, options under this plan expired ten years after the date of grant. Unexercised options
granted prior to 1996 Plan expiration remained outstanding until the earlier of exercise or option expiration. Under the 1996 Plan, the remaining 20,000 fully vested
common stock options expired unexercised during the year ended September 30, 2016.
F-11
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Option Awards
There were no options granted during the fiscal years ended September 30, 2017 and 2016.
The Company recognized compensation expense of approximately $5,000 and $10,000 during the fiscal years ended September 30, 2017 and 2016,
respectively, for stock option awards in its consolidated statements of operations and comprehensive income.
As of September 30, 2017, there was approximately $3,000 of total unrecognized compensation cost related to unvested stock option awards, which is expected
to be recognized over the remainder of the weighted average vesting period of 0.7 years.
The following table summarizes stock option activity during the fiscal years ended September 30, 2017 and 2016:
Outstanding, September 30, 2015
Granted
Exercised
Forfeited
Expired
Outstanding, September 30, 2016
Granted
Exercised
Forfeited
Expired
Outstanding, September 30, 2017
Exercisable, September 30, 2017
Weighted
Average
Exercise
Price
$
2.39
Weighted
Average
Remaining
Life
In Years
Intrinsic
Value
0.67
6.02
2.27
3.73
2.85
2.19
2.35
$
$
3.9
3.5
$
$
33,700
20,499
Number of
Options
311,000
-
-
(25,000 )
(20,000 )
266,000
-
-
(10,000 )
(10,000 )
246,000
223,498
The table below provides additional information regarding stock option awards that were outstanding and exercisable at September 30, 2017:
Options Outstanding
Weighted
Average
Exercise
Price
$
1.00
2.41
3.74
Exercise
Price
$0.64 to $1.99
$2.00 to $2.99
$3.00 to $3.79
Outstanding
Number of
Options
Weighted
Average
Exercise
Price
97,500 $
86,000
62,500
246,000
1.11
2.41
3.74
Options Exercisable
Weighted
Average
Remaining Life
In Years
5.3
2.1
3.4
3.5
Exercisable
Number of
Options
74,998
86,000
62,500
223,498
Restricted Stock Awards
On October 26, 2015, the Company granted 17,500 shares of restricted stock, pursuant to the 2007 Plan, to a former director of the Company. The shares vested
on December 31, 2015. The grant date value of $19,775 was recognized over the service period.
F-12
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On October 26, 2015, the Company accelerated the vesting date of 35,000 shares of restricted stock that were previously granted to a former director of the
Company from February 23, 2016 to December 31, 2015. The Company analyzed the modification as of the modification date and determined that the modification
did not result in any incremental compensation expense, however, the remaining unamortized compensation expense attributable to the original award was
recognized over the modified remaining service period.
On February 23, 2016, the Company granted an aggregate of 124,317 shares of restricted stock to directors of the Company, pursuant to the 2007 Plan. The
shares vest on the one-year anniversary from the date of grant. The aggregate grant date value of $182,746 will be recognized ratably over the vesting period.
On June 10, 2017, the Company granted an aggregate of 140,000 shares of restricted stock to directors of the Company, pursuant to the 2011 Plan. The shares
vest on February 23, 2018. The aggregate grant date value of $149,800 will be recognized ratably over the vesting period.
The Company recognized compensation expense of approximately $150,000 and $226,000 for restricted stock awards in its consolidated statements of
operations and comprehensive income for the fiscal years ended September 30, 2017 and 2016, respectively.
As of September 30, 2017, there was approximately $85,000 of unrecognized compensation cost related to shares of unvested restricted stock, which is
expected to be recognized over the remainder of the weighted average vesting period of 0.4 years.
The following table summarizes restricted stock activity during the fiscal years ended September 30, 2017 and 2016:
Number of
Shares
263,332
141,817
(244,166 )
(1,666 )
159,317
140,000
(139,317 )
-
160,000
$
$
Weighted
Average
Grant Date
Fair Value
0.87
1.43
0.92
1.67
1.29
1.07
1.38
-
1.02
Total
Grant Date
Fair Value
230,165
202,521
(224,758 )
(2,782 )
205,146
149,800
(192,346 )
-
162,600
$
$
Non-vested, September 30, 2015
Granted
Vested
Forfeited
Non-vested, September 30, 2016
Granted
Vested
Forfeited
Non-vested, September 30, 2017
NOTE 7 INCOME TAXES
The Company’s provision (benefit) for income taxes consists of the following United States federal and state, and foreign components:
F-13
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended
September 30,
2017
2016
$
-
-
-
-
-
-
234,521
13,795
(21,861 )
226,455
(226,455 )
-
$
74,467
10,951
127,454
212,872
(212,872 )
-
$
$
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
Change in valuation allowance
Income tax provision (benefit)
The deferred tax expense (benefit) 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. The Company’s deferred tax assets and liabilities are
comprised of the following:
Deferred tax assets:
Net operating losses
Capital loss carryforwards
Share-based compensation
Alternative minimum tax credit
Excess tax over book basis in inventory
Excess tax over book basis in fixed assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Prepaid insurance
Excess book over tax basis in fixed assets
$
September 30,
2017
2016
$
3,522,733
354,272
127,821
99,757
49,032
1,254
4,154,869
(4,114,043 )
40,826
(40,826 )
-
(40,826 )
3,689,028
383,795
155,180
99,757
85,573
-
4,413,333
(4,340,498 )
72,835
(59,599 )
(13,236 )
(72,835 )
Total
$
-
$
-
As of September 30, 2017 and 2016, the Company has no unrecognized income tax benefits. At September 30, 2017, the Company had available total net
operating loss carryforwards for U.S. federal and state income tax purposes of approximately $9,268,000 and $1,744,000, respectively, expiring through 2037,
resulting in deferred tax assets in respect of U.S. federal and state income taxes of approximately $3,151,000 and $69,000, respectively. In addition, at September
30, 2017 and 2016, the Company had total available net operating loss carryforwards for foreign income tax purposes of approximately $3,360,000 and $3,188,000,
resulting in a deferred tax asset of approximately $302,000 and $281,000, respectively, expiring through 2024. The Company has capital loss carryovers of
approximately $984,000 expiring through 2020, resulting in deferred tax assets in respect of U.S. federal and state income taxes of approximately $354,000. Total
net deferred tax assets, before valuation allowances, was $4,155,000 and $4,413,000 at September 30, 2017 and 2016, respectively. Undistributed earnings of the
Company’s foreign subsidiaries are considered to be permanently reinvested; therefore, in accordance with U.S. generally accepted accounting principles, no
provision for U.S. federal and state income taxes would result. In the fiscal year ended September 30, 2017, Forward Switzerland had net income of approximately
$627,000, however, the Company’s foreign subsidiary had an accumulated deficit as of September 30, 2017.
F-14
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 2017, 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, both positive and negative (including, among others, projections of future taxable income, current year net operating loss carryforward
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 its remaining deferred tax assets (except in respect of the United States income taxes in the event the Company elects to effect the repatriation of certain foreign
source income of its Swiss subsidiary, which income is currently considered to be permanently reinvested and for which no United States tax liability has been
accrued). Accordingly, the Company has determined to maintain a full valuation allowance against its net deferred tax assets. As of September 30, 2017 and 2016,
the valuation allowances were approximately $4,114,000 and $4,340,000, respectively. In the future, the utilization of the Company's net operating loss
carryforwards may be subject to certain change of control limitations. If the Company determines in a future reporting period that it will be able to use some or all
of its deferred tax assets, the adjustment to reduce or eliminate the valuation allowance would reduce its tax expense and increase after-tax income. Changes in
deferred tax assets and valuation allowance are reflected in the “Provision for income taxes” line item of the Company’s consolidated statements of operations and
comprehensive income.
The significant elements contributing to the difference between the United States federal statutory tax rate and the Company’s effective tax rate are as follows:
US federal statutory rate
State tax rate, net of federal benefit
Permanent differences:
Share-based compensation
Other
Foreign rate differential
Other
Change in valuation allowance
Income tax provision (benefit)
For the Fiscal Years Ended
September 30,
2017
2016
34.0%
(0.2%)
2.5%
(0.6%)
(27.1%)
34.3%
(42.9%)
0.0%
34.0%
5.0%
(8.3%)
0.4%
(13.3%)
17.3%
(35.1%)
0.0%
As of September 30, 2017 and 2016, the Company has not accrued any interest and penalties related to uncertain tax positions. It is the Company’s policy to
recognize interest and/or penalties, if any, related to income tax matters in income tax expense in the consolidated statements of operations and comprehensive
income. For the periods presented in the accompanying consolidated statements of operations and comprehensive income, no material income tax related interest or
penalties were assessed or recorded. All fiscal years prior to the fiscal year ended September 30, 2014 are closed to federal and state examination.
NOTE 8 EARNINGS PER SHARE
Basic income per share data for each period presented is computed using the weighted-average number of shares of common stock outstanding during each
such period. Diluted income per share data is computed using the weighted-average number of common and dilutive common-equivalent shares outstanding during
each period. Dilutive common-equivalent shares consist of: (i) shares that would be issued upon the exercise of stock options and warrants, computed using the
treasury stock method; and (ii) shares of non-vested restricted stock.
For the fiscal years ended September 30, 2017 and 2016, the Company calculated the potential diluted earnings per share in accordance with ASC 260, as
follows:
F-15
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended
September 30,
2017
2016
$
579,346 $
606,562
Numerator:
Net income
Denominator:
Weighted average shares outstanding - basic
8,727,322
8,521,188
Effects of dilutive securities:
Assumed exercise of stock options, treasury stock method
Assumed vesting of restricted stock, treasury stock method
Weighted average dilutive potential common shares
Weighted average shares outstanding - diluted
Basic earnings per share
Diluted earnings per share
21,179
74,558
95,737
8,823,059
0.07 $
0.07 $
$
$
28,289
126,106
154,395
8,675,583
0.07
0.07
The following securities are excluded from the calculation of weighted average dilutive common shares because their inclusion would have been anti-dilutive:
For the Fiscal Years Ended
September 30,
2017
2016
188,500
723,846
912,346
188,500
723,846
912,346
Options
Warrants
Total potentially dilutive shares
NOTE 9 COMMITMENTS AND CONTINGENCIES
Guarantee Obligation
In February 2010, Forward Switzerland and its European logistics provider (freight forwarding and customs agent) entered into a Representation Agreement
(the “Representation Agreement”) whereby, among other things, the European logistics provider agreed to act as Forward Switzerland's Fiscal representative in The
Netherlands for the purpose of providing services in connection with any value added tax matters. As part of this agreement, Forward Switzerland agreed to provide
an undertaking (in the form of a bank letter of guarantee) to the logistics provider with respect to any value added tax liability arising in The Netherlands that the
logistics provider is required to pay to Dutch tax authorities on its behalf.
As of February 1, 2010, Forward Switzerland entered into a guarantee agreement with a Swiss bank relating to the repayment of any amount up to €75,000
(equal to approximately $89,000 as of September 30, 2017) paid by such bank to the logistics provider in order to satisfy such undertaking pursuant to the bank
letter of guarantee. Forward Switzerland would be required to perform under the guarantee agreement only in the event that: (i) a value added tax liability is
imposed on the Company's revenues in The Netherlands; (ii) the logistics provider asserts that it has been called upon in its capacity as surety by the Dutch
Receiver of Taxes to pay such taxes; (iii) Forward Switzerland or the Company on its behalf fails or refuses to remit the amount of value added tax due to the
logistics provider upon its demand; and (iv) the logistics provider makes a drawing under the bank letter of guarantee. Under the Representation Agreement,
Forward Switzerland agreed that the letter of guarantee would remain available for drawing for three years following the date that its relationship terminates with
the logistics provider to satisfy any value added tax liability arising prior to expiration of the Representation Agreement but asserted by The Netherlands after
expiration.
The initial term of the bank letter of guarantee expired February 28, 2011, but renews automatically for one-year periods on February 28 of each subsequent
year unless Forward Switzerland provides the Swiss bank with written notice of termination at least 60 days prior to the renewal date. It is the intent of Forward
Switzerland and the logistics provider that the bank letter of guarantee amount be adjusted annually. In consideration of the issuance of the letter of guarantee,
Forward Switzerland has granted the Swiss bank a security interest in all of its assets on deposit with, held by, or credited to Forward Switzerland’s accounts with,
the Swiss bank (approximately $1.4 million at September 30, 2017). As of September 30, 2017, the Company had not incurred a liability in connection with this
guarantee.
F-16
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lease Commitments
The Company leases office space for its corporate headquarters in West Palm Beach, Florida under a 90-month agreement expiring in September 2020. The
operating lease granted six initial months of free rent and escalates at 3% per year. The monthly rent payment is $7,164, which includes common area maintenance
costs.
The Company leases office space for its office in Cham, Switzerland on a month-to-month basis. The monthly rent payment is $1,599 CHF, which is
approximately $1,615 US.
Rent expense for the years ended September 30, 2017 and 2016 amounted to approximately $88,000 and $107,000 (net of $11,000 and $168,000 of rental
income from an expired sublease), respectively. The following is a schedule by years of future minimum rental payments required under operating leases that have
initial or remaining noncancelable lease terms in excess of one year as of September 30, 2017:
Fiscal Years Ended September 30,
2018
2019
2020
Total lease commitments
NOTE 10 RELATED PARTY TRANSACTIONS
Buying Agency and Supply Agreement
Amount
87,000
90,000
93,000
270,000
$
$
On March 12, 2012, the Company entered into a Buying Agency and Supply Agreement (the “Supply Agreement”) with Forward Industries Asia-Pacific
Corporation, a British Virgin Islands corporation (“Forward China”). The Supply Agreement, as amended, 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 also pays to Forward China a monthly service fee equal to the sum of: (i)
$100,000; and (ii) 4% of “Adjusted Gross Profit”, which is defined as the selling price less the cost from Forward China. The amended Supply Agreement expires
on September 8, 2018, subject to renewal. Terence Bernard Wise, Chief Executive Officer and Chairman of the Company, is a principal of Forward China. In
addition, Jenny P. Yu, a Managing Director of Forward China, beneficially owns more than 5% of the Company’s shares of common stock. The Company
recognized approximately $1,435,000 (inclusive of the extension fee below) and $1,466,000 during the fiscal years ended September 30, 2017 and 2016,
respectively, in service fees paid to Forward China, which are included as a component of cost of goods sold in the accompanying consolidated statements of
operations and comprehensive income. During the fiscal year ended September 30, 2017, the Company received commissions from Forward China of $12,904,
which is included in net revenues. As a result of the continued decrease in the Company’s net revenues, Forward China agreed to forgo its rights to the 4% portion
of the service fee under the Supply Agreement beginning with the third fiscal quarter through the end of fiscal year 2017. On September 19, 2017, the Supply
Agreement was amended whereby the Company agreed to pay Forward China $70,000 in order to extend the Supply Agreement for an additional six months to
March 8, 2019. In addition, the 4% of Adjusted Gross Profit was reinstated for the fourth quarter of Fiscal 2017.
NOTE 11 LEGAL PROCEEDINGS
From time to time, the Company may become a party to other legal actions or proceedings in the ordinary course of its business. As of September 30, 2017,
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 12 401(K) PLAN
The Company maintains a 401(k) benefit plan allowing eligible United States-based employees to contribute a portion of their salary in an amount up to the
annual maximum amounts as set periodically by the Internal Revenue Service. In accordance with applicable Safe Harbor provisions, the Company made matching
contributions of approximately $25,000 and $37,000 during the fiscal years ended September 30, 2017 and 2016, respectively, which are reflected in the
accompanying consolidated statements of operations and comprehensive income. The Company’s contributions vest immediately.
F-17
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 OPERATING SEGMENT INFORMATION
The Company reports and manages its operations based on a single operating segment: the design and distribution of carry and protective solutions, primarily
for hand held electronic devices. Products designed and distributed by this segment include carrying cases and other accessories for medical monitoring and
diagnostic kits, portable consumer electronic devices (such as smartphones, tablets, personnel computers, notebooks, and GPS devices), and a variety of other
portable electronic and non-electronic products (such as firearms, sporting, and other recreational products). This segment operates in geographic regions that
include the EMEA Region, the Americas and the APAC Region. Geographic regions are defined by reference primarily to the location of the customer or its
contract manufacturer.
Revenues from External Customers
The following table presents net revenues by geographic region.
(dollars
in
thousands)
For the Fiscal Years Ended
September 30,
2017
2016
$
$
4,487
4,215
580
9,282
7,755
15
7,770
5,313
825
816
759
7,713
24,765
$
$
4,807
4,690
436
9,933
7,318
15
7,333
8,322
448
712
732
10,214
27,480
EMEA Region:
Germany
Poland
Other
Total EMEA Region
Americas:
United States
Other
Total Americas
APAC Region:
Hong Kong
Malaysia
Taiwan
Other
Total APAC Region
Total Net Revenues
Long-Lived Assets
Identifiable long-lived assets, consisting predominately of property, plant and equipment, are presented net of accumulated depreciation and amortization and
segregated by geographic region as follows:
Americas
APAC Region
EMEA Region
Total long-lived assets (net)
(dollars
in
thousands)
September 30,
2017
2016
$
$
$
$
21
-
-
21
F-18
43
-
-
43
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Supplier Concentration
The Company procures all its supply of carrying solutions products from independent suppliers in China through Forward China. Depending on the product,
Forward China may require several different suppliers to furnish component parts or pieces. The Company purchased approximately 100% of its OEM products
from Forward China in Fiscal 2017 and 2016.
Major Customers
The following customers or their affiliates or contract manufacturers accounted for more than ten percent of the Company’s net revenues, by geographic region,
and in total.
Diabetic Products Customer A
Diabetic Products Customer B
Diabetic Products Customer C
Diabetic Products Customer D
Totals
Diabetic Products Customer A
Diabetic Products Customer B
Diabetic Products Customer C
Diabetic Products Customer D
Totals
EMEA Region
Americas
APAC Region
Total Company
For the Fiscal Year Ended September 30, 2017
46%
36%
-
10%
92%
28%
34%
-
21%
83%
-
-
69%
3%
72%
EMEA Region
Americas
APAC Region
Total Company
For the Fiscal Year Ended September 30, 2016
45%
33%
2%
14%
94%
31%
24%
-
25%
80%
-
1%
81%
4%
86%
26.3%
24.2%
21.5%
11.2%
83.2%
31.0%
24.5%
18.7%
13.3%
87.5%
Four customers (including their affiliates or contract manufacturers) accounted for approximately 81% and 83% of the Company's accounts receivable at
September 30, 2017 and 2016, respectively.
F-19
We consent to the incorporation by reference in the Registration Statement on Form S-8 (Registration File No. 333-194510) of Forward Industries, Inc., of our report on our
audits of the consolidated financial statements of Forward Industries, Inc. and Subsidiaries as of and for the years ended September 30, 2017 and 2016, dated December 14, 2017,
which report appears in this Annual Report on Form 10-K of Forward Industries, Inc. for the year ended September 30, 2017.
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
/s/ CohnReznick LLP
Jericho, New York
December 14, 2017
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Terence Wise, certify that:
1. I have reviewed this annual report on Form 10-K of Forward Industries, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: December 14, 2017
/s/ Terence Wise
Terence Wise
Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Michael Matte, certify that:
1. I have reviewed this annual report on Form 10-K of Forward Industries, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: December 14, 2017
/s/ Michael Matte
Michael Matte
Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the annual report of Forward Industries, Inc. (the “Company”) on Form 10-K for the fiscal year ended September 30, 2017, as filed with the
Securities and Exchange Commission on the date hereof, I, Terence Wise, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley
Act of 2002, that to my knowledge:
1. The annual report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and
2. The information contained in the annual report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
/s/ Terence Wise
Terence Wise
Chief Executive Officer
(Principal Executive Officer)
Dated: December 14, 2017
In connection with the annual report of Forward Industries, Inc. (the “Company”) on Form 10-K for the fiscal year ended September 30, 2017, as filed
with the Securities and Exchange Commission on the date hereof, I, Michael Matte, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the
Sarbanes-Oxley Act of 2002, that to my knowledge:
1. The annual report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and
2. The information contained in the annual report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
/s/ Michael Matte
Michael Matte
Chief Financial Officer
(Principal Financial Officer)
Dated: December 14, 2017