| ACCOUNTING POLICIES | NOTE 2 ACCOUNTING POLICIES Accounting Estimates The preparation of the
Company’s condensed consolidated financial statements in conformity with accounting principles generally accepted in the
United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated
financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ
from those estimates and assumptions. The worldwide spread of
COVID-19 has resulted in a global slowdown of economic activity which is likely to decrease demand for a broad variety of goods
and services, while also disrupting sales channels, marketing activities and general business operations for an unknown period
of time until the disease is contained. At this point, the extent to which COVID-19 may impact our financial condition or results
of operations is uncertain, and as of the date of issuance of these condensed consolidated financial statements, we are not aware
of any specific event or circumstance that would require us to update our estimates, judgments or adjust the carrying value of
our assets or liabilities. These estimates may change, as new events occur and additional information is obtained, and are recognized
in the condensed consolidated financial statements as soon as they become known. Actual results could differ from those estimates
and any such differences may be material to our condensed consolidated financial statements. Basis of Presentation The accompanying condensed
consolidated financial statements include the accounts of Forward Industries, Inc. and its wholly owned subsidiaries: Forward Industries
(IN), Inc., (“Forward US”), Forward Industries (Switzerland) GmbH, (“Forward Switzerland”), Forward Industries
UK Limited, (“Forward UK”) and IPS. All significant intercompany transactions and balances have been eliminated in
consolidation. Intercompany revenues of $17,000 and $44,000, respectively, for the three and nine months ended June 30, 2020 and
$9,000 and $215,000, respectively, for the three and nine months ended June 30, 2019, related to design and marketing work performed
by IPS for Forward US have been eliminated in consolidation. For the nine months ended
June 30, 2020, the Company incurred a net loss of $1,668,000, and used $760,000 of cash flow in operating activities. The Company
has an accumulated deficit of $12,989,000 at June 30, 2020. We believe our existing cash balance and working capital will be sufficient
to meet our liquidity needs at least through September 30, 2021. Segment Reporting Operating segments are
defined as components of an enterprise about which separate financial information is available that is regularly evaluated by a
chief operating decision maker, or Forward management, in deciding how to allocate resources and in assessing performance. As a
result of the acquisition of IPS in January 2018, management conducts business through two distinct operating segments,
which are also our reportable segments: distribution and design. Forward US, Forward Switzerland and Forward UK comprise the distribution
operating segment and IPS is the design operating segment. Organizing our business
through two operating segments allows us to align our resources and manage our operations. Our management team regularly reviews
operating segment revenue and profitability when assessing financial results of operating segments and allocating resources. We measure the performance
of our operating segments based upon operating segment revenue and operating income or loss. Segment operating income or loss includes
revenue and expenses incurred directly by the operating segment, including cost of sales and selling, marketing, and general and
administrative expenses. Goodwill Goodwill is an asset representing
the future economic benefits arising from other assets acquired in a business combination that are not individually identified
and separately recognized. Goodwill was recognized as a result of the acquisition of IPS in January 2018. Goodwill is reviewed for
impairment at least annually, and when triggering events occur, in accordance with the provisions of Financial Accounting Standards
Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 350, “Intangibles –
Goodwill and Other.” The Company has two reporting units for purposes of evaluating goodwill impairment and management performs
our annual goodwill impairment test on September 30, the end of the fiscal year, or upon the occurrence of a triggering event.
The Company has the option to perform a qualitative assessment to determine if an impairment is more likely than not to have occurred.
If the Company can support the conclusion that it is not more likely than not that the fair value of a reporting unit is less than
its carrying amount, then the Company would not need to perform the impairment test for the reporting unit. If the Company cannot
support such a conclusion or does not elect to perform the qualitative assessment, then the Company will compare the fair value
of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying
value, no impairment charge is recognized. If the fair value of the reporting unit is less than its carrying value, an impairment
charge will be recognized for the amount by which the reporting unit’s carrying amount exceeds its fair value. A significant
amount of judgment is required in performing goodwill impairment tests including estimating the fair value of a reporting unit
and the implied fair value of goodwill. During the three months ended March 31, 2020, the Company recorded an impairment charge
related to goodwill (see Note 4). Intangible Assets Intangible assets include
trademark and customer relationships, which were acquired as part of the acquisition of IPS in January 2018 and are recorded based
on their estimated fair value determined in conjunction with the purchase price allocation. The intangible assets are amortized
over their estimated useful lives, which are periodically evaluated for reasonableness. Our intangible assets
are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. In assessing the recoverability of our intangible assets, we must make estimates and assumptions regarding future
cash flows and other factors to determine the fair value of the respective assets. These estimates and assumptions could have a
significant impact on whether an impairment charge is recognized and the magnitude of any such charge. Fair value estimates are
made at a specific point in time, based on relevant information. These estimates are subjective in nature and involve uncertainties
and matters of significant judgments and therefore cannot be determined with precision. Changes in assumptions could significantly
affect the estimates. If these estimates or material related assumptions change in the future, we may be required to record impairment
charges related to our intangible assets. Management evaluated and concluded that there were no impairments of intangible assets
at June 30, 2020. Income Taxes The Company recognizes
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. At June 30, 2020, there was no change to our assessment that a full valuation allowance was required
against all net deferred tax assets as it is not probable that such deferred tax assets will be realized. Accordingly, any deferred
tax provision or benefit was offset by an equal and opposite change to the valuation allowance. No current book income tax provision
was recorded against book net income due to the existence of significant net operating loss carryforwards. Revenue Recognition Distribution Segment The Company adopted ASC
606, “Revenue Recognition” effective October 1, 2018. In accordance with this guidance, the Company generally recognizes
revenue in its distribution segment when: (i) finished goods are shipped to our distribution customers (in general, these conditions
occur at either point of shipment or point of destination, depending on the terms of sale, i.e., transfer of control); (ii) there
are no other deliverables or performance obligations; and (iii) there are no further obligations to the customer after the title
of the goods has transferred. When the Company receives consideration before achieving the criteria previously mentioned, it records
a contract liability, which is classified as a component of deferred income in the accompanying condensed consolidated balance
sheets. At June 30, 2020 and September 30, 2019, there were no contract liabilities relating to the distribution segment. Design Segment Under ASC 606, the Company
applies the “cost to cost” and “right to invoice” methods of revenue recognition to the contracts with
customers in the design segment. The design segment typically engages in two types of contracts: (i) time and material and (ii)
fixed price contracts. The Company recognizes revenue over time on its time and material contracts utilizing a “right to
invoice” method. Revenues from fixed price contracts that require performance of services that are not related to the production
of tangible assets are recognized by using cost inputs to measure progress toward the completion of its performance obligations,
or the “cost to cost” method. Revenues from fixed price contracts that contain specific deliverables are recognized
when the performance obligation has been satisfied or the transfer of goods to the customer has been completed and accepted. Recognized revenues that
will not be billed until a later date, or contract assets, are recorded as an asset and classified as a component of accounts receivable
in the accompanying condensed consolidated balance sheets. Contract assets at June 30, 2020 and September 30, 2019 were $899,000
and $611,000, respectively. Contracts where collections to date have exceeded recognized revenues, or contract liabilities, are
recorded as a liability and classified as a component of deferred income in the accompanying condensed consolidated balance sheets.
Contract liabilities at June 30, 2020 and September 30, 2019 were $526,000 and $220,000, respectively. Share-Based Compensation Expense The Company estimates
the fair value of employee and non-employee director share-based compensation on the date of grant using the Black-Scholes option
pricing model, which includes variables such as the expected volatility of the Company’s share price, the exercise behavior
of its grantees, interest rates, and dividend yields. These variables are projected based on the Company’s historical data,
experience, and other factors. The fair value of employee and non-employee director share-based compensation is recognized in the
condensed consolidated statements of operations over the related vesting period of each grant. In the case of awards with multiple
vesting periods, the Company has elected to use the graded vesting attribution method, which recognizes compensation cost on a
straight-line basis over each separately vesting portion of the award as if the award was, in substance, multiple awards (see Note
6). Leases The Company adopted ASC
842, "Leases", effective October 1, 2019. In accordance with this guidance, lease assets and liabilities are recognized
at commencement date based on the present value of lease payments over the lease term, using the Company’s incremental borrowing
rate commensurate with the lease term, since the Company’s lessors do not provide an implicit rate, nor is one readily available.
The Company has certain leases that may include an option to renew and when it is reasonably probable to exercise such option,
the Company will include the renewal option terms in determining the lease asset and lease liability. Lease assets represent the
Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation
to make lease payments arising from the lease. Lease expense for lease payments is recognized on a straight-line basis over the
lease term. Operating lease assets are shown as right of use assets and financing lease assets are a component of property and
equipment on the condensed consolidated balance sheets. The current and long-term portions of operating and financing lease liabilities
are shown separately as such on the condensed consolidated balance sheets. Business Combinations The Company allocates
the fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their
estimated fair values. The excess of the purchase consideration over the fair values of these identifiable assets and liabilities
is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, the Company makes significant
estimates and assumptions, especially with respect to intangible assets. Critical estimates in
valuing certain intangible assets include but are not limited to future expected cash flows from customer relationships and developed
technology, discount rates and terminal values. Our estimate of fair value is based upon assumptions believed to be reasonable,
but actual results may differ from estimates. Other estimates associated
with the accounting for acquisitions may change as additional information becomes available regarding the assets acquired and liabilities
assumed. Recent Accounting Pronouncements In August 2018, the FASB
issued ASU 2018-13, “Fair Value Measurement - Disclosure Framework (Topic 820).” The updated guidance improves the
disclosure requirements on fair value measurements. The updated guidance is effective for fiscal years, and interim periods within
those fiscal years, beginning after December 15, 2019. Early adoption is permitted for any removed or modified disclosures. The
Company is currently assessing the timing and impact of adopting the updated provisions. In November 2019, the
FASB issued ASU 2019-08, “Compensation – Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic
606).” ASU 2019-08 is an accounting pronouncement which expands the scope of Topic 718 to provide guidance for share-based
payment awards granted to a customer in conjunction with selling goods or services accounted for under Topic 606. The pronouncement
is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The Company is currently
evaluating the effects of this pronouncement on its condensed consolidated financial statements along with the effects of ASU 2018-07
noted above. In November 2019, the
FASB issued ASU 2019-11, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses.” ASU
2019-11 is an accounting pronouncement that amends ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments.” The ASU 2019-11 amendment provides clarity and improves the codification
to ASU 2016-03. The pronouncement would be effective concurrently with the adoption of ASU 2016-03. The pronouncement is effective
for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The Company is currently evaluating
the effects of this pronouncement on its condensed consolidated financial statements. |
