| ACCOUNTING POLICIES | NOTE 2 ACCOUNTING POLICIES Basis of Presentation The accompanying condensed
consolidated financial statements include the accounts of Forward Industries, Inc. and all of its wholly-owned subsidiaries: Forward Industries
(IN), Inc. (“Forward US”), Forward Industries (Switzerland) GmbH (“Forward Switzerland”), Forward Industries UK
Limited (“Forward UK”), Intelligent Product Solutions, Inc. (“IPS”) and Kablooe, Inc. (“Kablooe”).
The terms “Forward”, “we”, “our” or the “Company” as used throughout this document are
used to indicate Forward Industries, Inc. and all of its wholly-owned subsidiaries. All significant intercompany transactions and balances
have been eliminated in consolidation. In the opinion of management,
the accompanying condensed consolidated financial statements presented in this Quarterly Report on Form 10-Q reflect all normal recurring
adjustments necessary to present fairly the financial position and results of operations and cash flows for the interim periods presented
herein but are not necessarily indicative of the results of operations for the year ending September 30, 2023. These condensed consolidated
financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in its
Annual Report on Form 10-K for the fiscal year ended September 30, 2022, and with the disclosures and risk factors presented therein.
The September 30, 2022 condensed consolidated balance sheet has been derived from the audited consolidated financial statements. 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. Throughout this document,
certain dollar amounts and percentages have been rounded to their approximate values. Segment Reporting The Company has three reportable
segments: Original Equipment Manufacturing (“OEM”) distribution, retail distribution and design. The OEM distribution segment
sources and sells carrying cases and other accessories for medical monitoring and diagnostic kits and a variety of other portable electronic
and non-electronic devices directly to OEMs or their contract manufacturers worldwide. The retail distribution segment sources and sells
smart-enabled furniture, hot tubs and a variety of other products through various online retailer websites to customers predominantly
located in the U.S. The design segment consists of two operating segments (IPS and Kablooe, which have been aggregated into one reportable
segment) that provide a full spectrum of hardware and software product design and engineering services to customers predominantly located
in the U.S. See Note 5 for more information on segments. Accounts Receivable Accounts receivable consist
of unsecured trade accounts with customers in amounts that have been invoiced ($ 8,900,000 7,861,000 no 32,000 20,000 837,000 852,000 The Company has agreements
with various retailers which contain different terms for trade discounts, promotional and other sales allowances. At December 31, 2022
and September 30, 2022, the Company recorded accounts receivable allowances of $ 110,000 55,000 Inventories Inventories consist primarily
of finished goods and are stated at the lower of cost (determined by the first-in, first-out method) or net realizable value. Based on
management’s estimates, an allowance is made to reduce excess, obsolete, or otherwise unsellable inventories to net realizable value.
The allowance is established through charges to cost of sales in the Company’s condensed consolidated statements of operations.
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 December 31, 2022 and September
30, 2022, the allowance for slow-moving inventory, which relates entirely to our retail segment, was $ 460,000 535,000 Revenue Recognition OEM Distribution Segment The OEM distribution segment
recognizes revenue when: (i) finished goods are shipped to its customers (in general, these conditions occur at either point of shipment
or point of destination, depending on the terms of sale and 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. If the Company receives
consideration before achieving the criteria previously mentioned, it records a contract liability, which is classified as a component
of deferred income in the accompanying condensed consolidated balance sheets. The OEM distribution segment had no Retail Distribution Segment The retail distribution segment
sells products primarily through online websites operated by authorized third-party retailers. Revenue is recognized when control (as
defined in Accounting Standards Codification, “ASC” 606, “Revenue from Contracts with Customers”) of the related
goods is transferred to the retailer, which generally occurs upon shipment to the end customer. Other than product delivery, the retail
distribution segment does not typically have other deliverables or performance obligations associated with its products. Revenue is measured
as the amount of consideration expected to be received in exchange for the products provided, net of allowances taken by retailers for
product returns and any taxes collected from customers that will be remitted to governmental authorities. When the Company receives consideration
before achieving the criteria previously mentioned, it records a contract liability, which is classified as a component of deferred income
in the accompanying condensed consolidated balance sheets. The retail distribution segment had no Design Segment The Company applies the “cost
to cost” and “right to invoice” methods of revenue recognition to the contracts with customers in the design segment.
The design segment typically engages in two types of contracts: (i) time and material and (ii) fixed price. The Company recognizes revenue
over time on its time and material contracts utilizing a “right to invoice” method. Revenues from fixed price contracts that
require performance of services that are not related to the production of tangible assets are recognized by using cost inputs to measure
progress toward the completion of its performance obligations, or the “cost to cost” method. 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. The design segment had contract assets of $ 602,000 609,000 693,000 335,000 439,000 188,000 Goodwill The Company reviews goodwill
for impairment at least annually, or more often if triggering events occur. The Company has two reporting units with goodwill (the IPS
and Kablooe operating segments) and we perform our annual goodwill impairment test on September 30, the end of the fiscal year, or upon
the occurrence of a triggering event. The Company has the option to perform a qualitative assessment to determine if an impairment is
more likely than not to have occurred. If the Company can support the conclusion that it is not more likely than not that the fair value
of a reporting unit is less than its carrying amount, then the Company would not need to perform a quantitative impairment test for the
reporting unit. If the Company cannot support such a conclusion or does not elect to perform the qualitative assessment, then the Company
will perform the quantitative assessment by comparing the fair value of the reporting unit with its carrying amount, including goodwill.
If the fair value of the reporting unit exceeds its carrying 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. Management evaluated and concluded that there were no indications goodwill was impaired at December
31, 2022. Intangible Assets Intangible assets include
trademarks and customer relationships, which were acquired as part of the acquisitions of IPS in Fiscal 2018 and Kablooe in Fiscal 2020
and are amortized over their estimated useful lives, which are periodically evaluated for reasonableness. Our intangible assets are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
In assessing the recoverability of our intangible assets, we must make estimates and assumptions regarding future cash flows and other
factors to determine the fair value of the respective assets. These estimates and assumptions could have a significant impact on whether
an impairment charge is recognized and the magnitude of any such charge. Fair value estimates are made at a specific point in time, based
on relevant information. These estimates are subjective in nature and involve uncertainties and matters of significant judgments and therefore
cannot be determined with precision. Changes in assumptions could significantly affect the estimates. If these estimates or material related
assumptions change in the future, we may be required to record impairment charges related to our intangible assets. Management evaluated
and concluded that there were no indications of impairments of intangible assets at December 31, 2022. 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 December 31, 2022, 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. Our income tax provision or benefit is generally not significant due
to the existence of significant net operating loss carryforwards. Fair Value Measurements We perform fair value measurements
in accordance with the guidance provided by ASC 820, “Fair Value Measurement.” ASC 820 defines fair value as the price that
would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at their fair values,
we consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would
use when pricing the assets or liabilities, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 820 establishes a fair
value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring
fair value. An asset’s or liability’s categorization within the fair value hierarchy is based upon the lowest level of input
that is significant to the fair value measurement. ASC 820 establishes three levels of inputs that may be used to measure fair value:
· Level 1: quoted prices in active markets for identical assets or liabilities;
· Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or
· Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair values of the assets or liabilities. Leases Lease assets and liabilities
are recognized at the lease commencement date based on the present value of lease payments over the lease term, using the Company’s
incremental borrowing rate commensurate with the lease term, since the Company’s lessors do not provide an implicit rate, nor is
one readily available. The Company has certain leases that may include an option to renew and when it is reasonably probable to exercise
such option, the Company will include the renewal option terms in determining the lease asset and lease liability. Lease assets represent
the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation
to make lease payments arising from the lease. Lease expense for lease payments is recognized on a straight-line basis over the lease
term. Operating lease assets are shown as right of use assets on the condensed consolidated balance sheets. The current and long-term
portions of operating lease liabilities are shown separately as such on the condensed consolidated balance sheets. Recent Accounting Pronouncements In November 2019, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-11, “Codification Improvements
to Topic 326, Financial Instruments – Credit Losses.” ASU 2019-11 is an accounting pronouncement that provides clarity to
and amends earlier guidance on this topic and would be effective concurrently with the adoption of such earlier guidance. This pronouncement
is effective for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years. The Company is currently
evaluating the effects of this pronouncement on its condensed consolidated financial statements. |
