| 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. 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. 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. 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. |
