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What changed in Forward Industries, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Forward Industries, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+164 added−146 removedSource: 10-K (2024-12-27) vs 10-K (2023-12-21)

Top changes in Forward Industries, Inc.'s 2024 10-K

164 paragraphs added · 146 removed · 123 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeThe 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. 1 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.
Biggest changeIn 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.
We believe that the design and engineering service capabilities of Kablooe has complemented the IPS business and further diversified the industries and customers with which we do business. Customers Our OEM distribution customers are located in all geographic regions worldwide. Our design business provides services to Fortune 500 companies, established mid-level companies, and start-ups.
We believe that the design and engineering service capabilities of Kablooe has complemented the IPS business and further diversified the industries and customers with which we do business. 1 Customers Our OEM distribution customers are located in all geographic regions worldwide. Our design business provides services to Fortune 500 companies, established mid-level companies, and start-ups.
We value our diverse employees and provide career and professional development opportunities that foster the success of our company. An effective approach to human capital management requires that we invest in talent, development, culture and employee engagement. We aim to create an environment where our employees are encouraged to make positive contributions and fulfill their potential.
We value our diverse employees and provide career and professional development opportunities that foster the success of our company. 4 An effective approach to human capital management requires that we invest in talent, development, culture and employee engagement. We aim to create an environment where our employees are encouraged to make positive contributions and fulfill their potential.
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. 4 Design Business The depth and breadth of services offered, and industries served by our design segment are unique.
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. Design Business The depth and breadth of services offered, and industries served by our design segment are unique.
Human Capital/Employees As of November 30, 2023, we had approximately 100 employees, substantially all of whom work full-time, none of which are covered by a collective bargaining agreement. We hire consultants on an as-needed basis. Human capital management is critical to our ongoing business success, which requires investing in our people.
Human Capital/Employees As of November 30, 2024, we had approximately 100 employees, substantially all of whom work full-time, none of which are covered by a collective bargaining agreement. We hire consultants on an as-needed basis. Human capital management is critical to our ongoing business success, which requires investing in our people.
In July 2015, Forward China received its ISO 9001:2008 quality certification, which was renewed and is valid until July 2024. Our design business follows general industry standard practices for review and corrective actions related to its design services. There are no independent quality assurance standards in place for its design and engineering work.
In July 2024, Forward China received its ISO 9001:2008 quality certification, which was renewed and is valid until July 2027. Our design business follows general industry standard practices for review and corrective actions related to its design services. There are no independent quality assurance standards in place for its design and engineering work.
Effective October 2023, the Company and Forward China entered into a new sourcing agreement under which the fixed portion of the sourcing fee was further reduced to $65,833 per month. Other terms in the agreement are substantially the same as the prior agreement.
Effective October 2023, the Company and Forward China entered into a new sourcing agreement under which the fixed portion of the sourcing fee was further reduced to $65,833 per month. Other terms in the agreement were substantially the same as the prior agreement.
The contents of the website are not incorporated into this report. 5
The contents of the website are not incorporated into this report.
The inventory of the retail segment is presented as discontinued assets held for sale on the balance sheets at September 30, 2023 and 2022 and the results of operations for the retail segment have been classified as discontinued operations on the consolidated statements of operations for the years ended September 30, 2023 and 2022.
The inventory of the retail segment is presented as discontinued assets held for sale on the balance sheet at September 30, 2023 and the results of operations for the retail segment have been classified as discontinued operations on the consolidated statements of operations for the years ended September 30, 2024 and 2023.
The Supply Agreement provides that Forward China acts as our exclusive buying agent for the products we sell. Forward China also arranges for sourcing, manufacture and exportation of such products.
Dependence on Sourcing Agent We have a Buying Agency and Supply Agreement (the “Supply Agreement”) with Forward China. The Supply Agreement provides that Forward China acts as our exclusive buying agent for the products we sell. Forward China also arranges for sourcing, manufacture and exportation of such products.
Depending on the product, we may require several different suppliers to furnish component parts or pieces. We place orders for particular products and do not have minimum supply requirement agreements to guarantee a supply of finished product, nor have we made purchase commitments to purchase minimum amounts.
We place orders for particular products and do not have minimum supply requirement agreements to guarantee a supply of finished product, nor have we made purchase commitments to purchase minimum amounts.
We do not believe that any of the component materials or parts used in the manufacture of our products are supply constrained.
We do not believe that any of the component materials or parts used in the manufacture of our products are supply constrained. We believe that there are adequate available alternative sources of supply for all of the materials used to manufacture, package, and ship our 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. Distribution Hubs for Customers We have arrangements with certain customers’ distribution hubs.
Some of our customers also purchase certain of our products and offer them for sale as stand-alone accessories to complement their product offerings. We utilize a third-party warehouse in Europe to store certain inventory items.
The discontinuation of the retail segment represents a strategic shift in the Company’s business. The primary assets of the retail segment are inventory and accounts receivable. The Company expects to sell, liquidate, or otherwise dispose of remaining retail inventory by June 30, 2024, and to collect remaining retail accounts receivable by the end of fiscal 2024.
The discontinuation of the retail segment represents a strategic shift in the Company’s business. The primary assets of the retail segment were inventory and accounts receivable. The Company sold, liquidated, or otherwise disposed of the remaining retail inventory and collected the remaining retail accounts receivable as of September 30, 2024.
Due to the Company’s decision to cease operations of its retail distribution segment and the decline in the OEM distribution segment business, the new sourcing agreement expires October 31, 2024. Terence Wise, our Chairman, Chief Executive Officer and largest shareholder, is the owner of Forward China. In addition, Jenny P.
Due to the Company’s decision to cease operations of its retail distribution segment and the decline in the OEM distribution segment business, the new sourcing agreement expired October 31, 2024.
All information and results in this annual report on Form 10-K exclude the discontinued operations unless otherwise noted. See Note 3 to our consolidated financial statements for additional information on discontinued operations. COVID-19 On May 11, 2023, the U.S.
All information and results in this annual report on Form 10-K exclude the discontinued retail segment unless otherwise noted. See Note 3 to our consolidated financial statements for additional information on the discontinued retail segment. Corporate History Forward was incorporated in 1961 as a manufacturer and distributer of advertising specialty and promotional products.
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. In January 2018, Forward acquired IPS, an engineering design company, and in August 2020, Forward acquired the assets of Kablooe Design, a medical and consumer design and development company.
In January 2018, Forward acquired IPS, an engineering design company, and in August 2020, Forward acquired the assets of Kablooe Design, a medical and consumer design and development company.
Yu, a Managing Director of Forward China, beneficially owns more than 5% of the Company’s common stock. See “Item 1A. – Risk Factors” regarding our dependence on Forward China. Suppliers We procure substantially all our OEM distribution products from independent suppliers in China through Forward China.
See “Item 1A. – Risk Factors” regarding our dependence on Forward China. 3 Suppliers We procure substantially all our OEM distribution products from independent suppliers in China through Forward China. Depending on the product, we may require several different suppliers to furnish component parts or pieces.
After this time, we expect to have no further significant continuing involvement with the retail distribution segment.
As of September 30, 2024, the retail segment was fully discontinued, and we expect to have no further significant involvement in this segment.
We do not recognize revenue for product shipped to a customer’s hub until we have been notified by our customer that our product has been used by the distribution hub.
We do not recognize revenue for products shipped to the warehouse until such products have been shipped to the customer and our performance obligation is complete.
Removed
Department of Health and Human Services declared the end of the Public Health Emergency for COVID-19; however, the effects of COVID-19 continue to linger throughout the global economy and our businesses.
Added
In May 2001, we formed Forward Switzerland to facilitate distribution of aftermarket products under our licenses for cell phone cases 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.
Removed
Though the severity of COVID-19 has subsided, new variants, or the outbreak of a new pathogen, could interrupt business, cause renewed labor and supply chain disruptions, and negatively impact the global and US economy, which could materially and adversely impact our businesses. Corporate History Forward was incorporated in 1961 as a manufacturer and distributer of advertising specialty and promotional products.
Added
In November 2024, the Company and Forward China agreed to: (i) extend the sourcing agreement until April 30, 2025, but allow either party to cancel with 30 days notice, (ii) reduce the fixed portion of the sourcing fee to $35,000 per month, and (iii) change the payment terms to better align with payments from our customers.
Removed
In 1989, we acquired Forward US, a manufacturer of soft-sided carrying cases.
Added
Terence Wise, our Chairman, Chief Executive Officer and largest shareholder, is the owner of Forward China. In addition, Jenny P. Yu, a Managing Director of Forward China, beneficially owns more than 5% of the Company’s common stock.
Removed
These arrangements obligate us to supply our products to our customers’ distribution hubs where their products are manufactured, kitted, and/or warehoused pending sale, and where our products are packaged “in box” with the distribution customers’ products. The product quantities we are required to supply to each distribution hub are based on the distribution customer’s purchase orders and forecasts.
Removed
Hub arrangements have had the general effect of providing financing for our customers’ inventory purchases by extending the time between our placement of orders to our suppliers and the time that we are able to recognize revenue. The corollary effect is an increase in our inventory levels.
Removed
We believe that there are adequate available alternative sources of supply for all of the materials used to manufacture, package, and ship our products. 3 Dependence on Sourcing Agent We have a Buying Agency and Supply Agreement (the “Supply Agreement”) with Forward China.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIn Fiscal 2023, revenues from diabetic products accounted for 84% of our OEM distribution revenues and OEM distribution revenue accounted for 38% of our consolidated net revenue. 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.
Biggest changeAs 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. Many new diabetes monitoring products brought to the market in recent years do not use a carrying case.
More specifically, throughout 2020 and 2019, the U.S. and China imposed tariffs or announced proposed tariffs to be applied in the future to certain of each other’s exports.
More specifically, throughout 2019 and 2020, the U.S. and China imposed tariffs or announced proposed tariffs to be applied in the future to certain of each other’s exports.
Additionally, some of our non-diabetic distribution customers and customers in the design and development business have been affected by these tariffs, specifically those who manufacture electronic products. This may cause these customers to reduce the amount of discretionary spending they use on outsource product design and engineering services supplied by our design segment.
Additionally, some of our non-diabetic distribution customers and customers in the design and development business have been affected by these tariffs, specifically those who manufacture non-medical electronic products. This may cause these customers to reduce the amount of discretionary spending they use on outsource product design and engineering services supplied by our design segment.
Any of the following factors could affect the market price of our common stock: · Our failure to increase revenue in each succeeding quarter and achieve and thereafter maintain profitability; · Our failure to meet our revenue and earnings guidance or our failure to meet financial analysts’ performance expectations; · The loss of Forward China as our agent; · Cybersecurity breaches; · The loss of customers or our failure to attract more customers; · Creditworthiness and solvency of clients; · Loss of key employees; · The sale of a large amount of common stock by our shareholders; · Our announcement of a pending or completed acquisition or our failure to complete a proposed acquisition; · An adverse court ruling or regulatory action; · Changes in regulatory practices, including tariffs and taxes; · Changes in market valuations of similar companies; · Short selling activities; · Our announcement of any financing or a change in the direction of our business; · Announcements by us, or our competitors, of significant contracts, acquisitions, commercial relationships, joint ventures or capital commitments; or · Other forces outside of our control such as inflation, Federal Reserve interest rate increases and the recessionary environment it could bring, geopolitical turmoil such as the recent Ukraine war, and other developments that could adversely impact the U.S. and global economies and erode investor sentiment.
Any of the following factors could affect the market price of our common stock: · Our failure to increase revenue in each succeeding quarter and achieve and thereafter maintain profitability; · Our failure to meet our revenue and earnings guidance or our failure to meet financial analysts’ performance expectations; · The loss of Forward China as our agent; · Cybersecurity breaches; · The loss of customers or our failure to attract more customers; · Creditworthiness and solvency of clients; · Loss of key employees; · The sale of a large amount of common stock by our shareholders; · Our announcement of a pending or completed acquisition or our failure to complete a proposed acquisition; · An adverse court ruling or regulatory action; · Changes in regulatory practices, including tariffs and taxes; · Changes in market valuations of similar companies; · Short selling activities; · Our announcement of any financing or a change in the direction of our business; · Announcements by us, or our competitors, of significant contracts, acquisitions, commercial relationships, joint ventures or capital commitments; or · Other forces outside of our control such as inflation, Federal Reserve interest rate increases and the recessionary environment it could bring, geopolitical turmoil such as the recent wars in Ukraine and Israel, and other developments that could adversely impact the U.S. and global economies and erode investor sentiment.
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.
In addition, prices that our Chinese vendors charge to us may reflect any 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.
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.
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 consolidated financial statements. In addition, such currency fluctuations may affect the comparability of our results of operations between financial periods.
If we under-utilize our workforce, our profit margin and profitability would suffer. Employee or agent misconduct, or our failure to comply with anti-bribery and other laws or regulations, could harm our reputation, reduce our revenue and profits, and subject us to criminal and civil enforcement actions.
If we under-utilize our workforce, our profit margin and profitability would suffer. 9 Employee or agent misconduct, or our failure to comply with anti-bribery and other laws or regulations, could harm our reputation, reduce our revenue and profits, and subject us to criminal and civil enforcement actions.
If our gross margins decrease, our results of operations will be adversely affected. Product manufacture is often outsourced by our distribution customers to contract manufacturing firms in China and in these cases, it is the contract manufacturer to which we must look for payment.
If our gross margins decrease, our results of operations will be adversely affected. Product manufacture is often outsourced by our distribution customers to contract manufacturing firms and in these cases, it is the contract manufacturer to which we must look for payment.
Any of these activities could result in increased governmental scrutiny, harm to our reputation, reduced demand by consumers for products or services, decreased willingness by retailer customers to purchase our products or procure our services, absence or increased cost of insurance, or additional safety and testing requirements.
Any of these activities could result in increased governmental scrutiny, harm to our reputation, reduced demand by consumers for products or services, decreased willingness by customers to purchase our products or procure our services, absence or increased cost of insurance, or additional safety and testing requirements.
If governments take protective actions in response to a resurgence of COVID-19 or the outbreak of a new pandemic, it may have a material adverse impact on our business, financial condition and operating results for the reasons described above. During Fiscal 2023, we generated a net loss. We cannot assure you that we will regain profitability in the future.
If governments take protective actions in response to a resurgence of COVID-19 or the outbreak of a new pandemic, it may have a material adverse impact on our business, financial condition and operating results for the reasons described above. During Fiscal 2024, we generated a net loss. We cannot assure you that we will regain profitability in the future.
The effects of such price constraints on our business may be exacerbated by inflationary pressures that affect our costs of supply and labor. During Fiscal 2023, we continued to experience significant pricing pressure from many customers, including some of our largest distribution customers, to reduce the prices we charge them.
The effects of such price constraints on our business may be exacerbated by inflationary pressures that affect our costs of supply and labor. During Fiscal 2024, we continued to experience significant pricing pressure from many customers, including some of our largest distribution customers, to reduce the prices we charge them.
Furthermore, our entrance into fixed price arrangements mean that if the costs of supplies, labor and other resources rise due to shortages, heightened demand, inflation or other factors, our margin for a given project will decline.
Furthermore, our entrance into fixed price arrangements means that if the costs of supplies, labor and other resources rise due to shortages, heightened demand, inflation or other factors, our margin for a given project will decline.
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.
As demand for the consumer products 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.
Contract manufacturing firms are performing manufacturing, assembly, and product packaging functions, including the bundling of our product accessories with the OEM distribution customer's product. As a consequence of this business practice, we often sell our carry solutions products directly to the contract manufacturing firm. This is particularly significant in the case of diabetic product sales to certain customers.
Contract manufacturing firms perform manufacturing, assembly, and product packaging functions, including the bundling of our product accessories with the OEM distribution customer’s product. As a consequence of this business practice, we often sell our carry solutions products directly to the contract manufacturing firm. This is particularly significant in the case of diabetic product sales to certain customers.
Our Chairman, Chief Executive Officer and largest shareholder is the owner of Forward China, our exclusive sourcing agent in the Asia Pacific region. We have a Buying Agency and Supply Agreement with Forward China under which Forward China will act as the Company’s exclusive agent to arrange for sourcing, manufacturing and exporting the Company’s distribution products.
Our Chairman, Chief Executive Officer and largest shareholder is the owner of Forward China, our exclusive sourcing agent in the Asia Pacific region. We have a Buying Agency and Supply Agreement with Forward China under which Forward China acts as the Company’s exclusive agent to arrange for sourcing, manufacturing and exporting the Company’s distribution products.
While our supply chain appears to generally be stable at this time, should a resurgence of COVID-19 occur, our supply chain could again be negatively impacted; for example, the factories that manufacture our products could be required by government authorities to temporarily cease operations or might be limited in their production capacity.
While our supply chain appears to generally be stable at this time, should a resurgence of COVID-19, or a similar pandemic, occurs, our supply chain could again be negatively impacted; for example, the factories that manufacture our products could be required by government authorities to temporarily cease operations or might be limited in their production capacity.
As of the date of this report, the Company has not been directly affected by any tariffs previously implemented by former President Trump on the medical technology industry which remain in place pending the Biden Administration’s continued review of the tariffs. In May 2022 the U.S. Trade Representative (the “USTR”) announced a statutory four-year review of the tariffs against China.
As of the date of this report, the Company has not been directly affected by any tariffs previously implemented by former President Trump on the medical technology industry which currently remain in place. In May 2022 the U.S. Trade Representative (the “USTR”) announced a statutory four-year review of the tariffs against China.
Because many of our shares are held in street name and brokers do not necessarily vote unvoted shares, we may not receive approval of a reverse split. Additionally, a reverse stock split typically has the effect of reducing the number of holders of shares in “round lots,” meaning those holding 100 or more shares.
Because many of our shares are held in street name and brokers do not necessarily vote unvoted shares, we may not receive approval for another reverse split. Additionally, a reverse stock split typically has the effect of reducing the number of holders of shares in “round lots” meaning those holding 100 or more shares.
The rate at which we utilize our workforce is affected by a number of factors, including: · our ability to transition employees from completed projects to new assignments and to hire and assimilate new employees; · our ability to forecast demand for our services and thereby maintain an appropriate headcount in each of our operating units; · our ability to engage employees in assignments during natural disasters or pandemics; · our ability to manage attrition; · our need to devote time and resources to training, business development, professional development, and other non-chargeable activities; and · our ability to match the skill sets of our employees to the needs of the marketplace. 9 If we over-utilize our workforce, our employees may become disengaged, which could impact employee attrition.
The rate at which we utilize our workforce is affected by a number of factors, including: · our ability to transition employees from completed projects to new assignments and to hire and assimilate new employees; · our ability to forecast demand for our services and thereby maintain an appropriate headcount in each of our operating units; · our ability to engage employees in assignments during natural disasters or pandemics; · our ability to manage attrition; · our need to devote time and resources to training, business development, professional development, and other non-chargeable activities; and · our ability to match the skill sets of our employees to the needs of the marketplace.
Another requirement for being listed on Nasdaq is that the Company have a minimum of 300 round lot holders, so if our stock price falls too low, a reverse split may not be sufficient to solve our Nasdaq non-compliance based on the minimum round lot requirement.
Another requirement for being listed on Nasdaq is that the Company have a minimum of 300 round lot holders, so if our stock price falls too low, a reverse split may not be sufficient to cure noncompliance based on the minimum round lot requirement.
Because we do not anticipate paying dividends in the future, the only opportunity for our shareholders to realize the creation of value in our common stock will likely be through a sale of those shares. 15 ITEM 1B. UNRESOLVED STAFF COMMENTS Not Applicable.
Because we do not anticipate paying dividends in the future, the only opportunity for our shareholders to realize the creation of value in our common stock will likely be through a sale of those shares.
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. 6 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.
If consumer demand continues to increase for diabetes product lines that do not use carrying cases, our business would be materially and adversely affected. 6 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.
Though the severity of COVID-19 has subsided, new variants or any other future pandemic could interrupt business, cause renewed labor and supply chain disruptions, and negatively impact the global and US economy, which could materially and adversely impact our business.
Department of Health and Human Services declared the end of the Public Health Emergency for COVID-19. Though the severity of COVID-19 has subsided, new variants or any other future pandemic could interrupt business, cause renewed labor and supply chain disruptions, and negatively impact the global and US economy, which could materially and adversely impact our business.
Each of our distribution and design businesses can at times be concentrated with certain larger customers. In Fiscal 2023, our largest design customer accounted for 27.9% of our consolidated net revenue and one OEM distribution customer accounted for 11.2% of our consolidated net revenue.
Each of our distribution and design businesses can at times be concentrated with certain larger customers. In Fiscal 2024, our largest design customer accounted for 25.2% of our consolidated net revenue and one OEM distribution customer accounted for 13.0% of our consolidated net revenue.
If our common stock is delisted, we could face significant material adverse consequences, including: ● a limited availability of market quotations for our common stock; ● reduced liquidity with respect to our common stock; ● a determination that our shares of common stock are a “penny stock” which will require broker-dealers trading in our common stock to adhere to more stringent rules, including being unable to solicit buyers for our common stock; ● a limited amount of news and analyst coverage for our company; and ● a limited ability to raise capital in the future.
If our common stock is delisted, we could face significant material adverse consequences, including: ● a limited availability of market quotations for our common stock; ● reduced liquidity with respect to our common stock; ● a determination that our shares of common stock are a “penny stock” which will require broker-dealers trading in our common stock to adhere to more stringent rules, including being unable to solicit buyers for our common stock; ● a limited amount of news and analyst coverage for our Company; and ● a limited ability to raise capital in the future. 15 If we become subject to a regulatory investigation, it could cause us to incur substantial costs or require us to change our business practices in a manner materially adverse to our business.
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 was to suffer or we are unable to extend our agreement with Forward China which expires in October 2024, we could suffer irreparable harm resulting in substantial damage to the distribution business. 8 Our business has benefited from customers deciding to outsource their carry and protective solutions assembly needs, as well as product development and design functions, to us.
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 was to suffer or we are unable to maintain our agreement with Forward China, which is currently in effect until April 30, 2025, but may be terminated prior to that with 30 days’ notice, we could suffer irreparable harm resulting in substantial damage to the distribution business. 8 Our business has benefited from customers deciding to outsource their carry and protective solutions assembly needs, as well as product development and design functions, to us.
System interruptions and slow delivery times, unreliable service levels, prolonged or frequent service outages, or insufficient capacity may prevent us from efficiently providing services to our customers on our website, which could result in our losing customers and revenue. We lease space for our data center for power, security, connectivity and other services.
System interruptions and slow delivery times, unreliable service levels, prolonged or frequent service outages, or insufficient capacity may prevent us from efficiently providing services to our customers, which could result in our losing customers and revenue. Our IT infrastructure including power, security, connectivity and other services is housed within our office space in which we lease.
If any of the events discussed below occur, our business, consolidated financial condition, results of operations or prospects could be materially and adversely affected. In such case, the value and marketability of the common stock could decline.
If any of the events discussed below occur, our business, consolidated financial condition, results of operations or prospects could be materially and adversely affected.
The loss of any of these customers would have a material adverse effect on our financial condition, liquidity and results of operations. If any one or more of our OEM distribution customers elect to reduce or discontinue inclusion of cases “in box”, our results of operations and financial condition would be materially and adversely affected.
If any one or more of our OEM distribution customers elect to reduce or discontinue inclusion of cases “in box”, our results of operations and financial condition would be materially and adversely affected.
See Note 14 to the consolidated financial statements for a discussion on these payables. Forward China, which is owned by our Chief Executive Officer and Chairman of the Board, has previously agreed to extend the note numerous times to assist the Company with its liquidity.
See Note 14 to the consolidated financial statements for a discussion on these payables and the limited amounts that we are required to pay over any 12-month period. Forward China, which is owned by our Chief Executive Officer and Chairman of the Board, has previously agreed to extend the note on numerous occasions to assist the Company with its liquidity.
Our OEM distribution 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 revenues from any such large customer, our business would be materially and adversely affected.
If our diabetic products line were to suffer the loss of a principal customer or a material decline in revenues from any such large customer, our business would be materially and adversely affected. In Fiscal 2024, revenues from diabetic products accounted for 77% of our OEM distribution revenues and OEM distribution revenue accounted for 34% of our consolidated net revenue.
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.
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. Further, as part of the Company’s ongoing efforts to reduce expenses, we recently reduced the salaries of three of our executive officers.
If any such tariffs or any restrictions are imposed on products that we import for our customers, we would be required to raise our prices, which may result in the loss of customers and harm our business.
Further, we do not know if the administration that takes office in 2025 will implement any new tariffs or alter current tariffs. If any tariffs or restrictions are imposed on products that we import for our customers, we would be required to raise our prices, which may result in the loss of customers and harm our business.
Violation of existing or future regulatory orders or consent decrees could subject us to substantial monetary fines and other penalties that could negatively affect our financial condition and results of operations.
Although that investigation has concluded, responding to, or defending other such actions would cause us to incur substantial expenses and divert our management’s attention. Violation of existing or future regulatory orders or consent decrees could subject us to substantial monetary fines and other penalties that could negatively affect our financial condition and results of operations.
These developments have a material adverse impact on our margins and our ability to achieve or maintain profitability. 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, 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.
Risks Relating to Our Business, Liquidity and Operations The COVID-19 pandemic, or any other future pandemic, has had, and may continue to have, a material and adverse effect on our business and results of operations. On May 11, 2023, the U.S.
If we are unable to continue as a going concern, our shareholders will likely lose all of their investment in the Company. The COVID-19 pandemic, or any other future pandemic, has had, and may continue to have, a material and adverse effect on our business and results of operations. On May 11, 2023, the U.S.
There is no assurance that we will be able to raise such capital and if so on terms that are not onerous and dilutive to the Company and its shareholders. While we believe that our existing cash resources are sufficient to support our business, there can be no assurances that we will be successful.
There is no assurance that we will be able to raise such capital and if so on terms that are not onerous and dilutive to the Company and its shareholders. Our OEM distribution business remains highly concentrated in our diabetic products line.
The recent inflationary environment in the U.S. and globally has caused production costs to increase in Fiscal 2023. Similarly, due to continued trends of high demand and low supply in the labor market which have persisted despite Federal Reserve interest rate increases, the cost of labor has risen in both our design and distribution businesses.
Similarly, due to continued trends of high demand and low supply in the labor market which have persisted despite Federal Reserve interest rate increases, the cost of labor has risen in both our design and distribution businesses. These developments have a material adverse impact on our margins and our ability to achieve or maintain profitability.
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.
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. Risks Related to Our Common Stock Due to factors beyond our control, our stock price may be volatile.
In Fiscal 2023, we generated a net loss of approximately $3,737,000. While we generated income from continuing operations, we can provide no assurance that we will not experience operating losses in the future.
In Fiscal 2024, we generated a net loss of approximately $1,951,000. While we generated income from continuing operations in Fiscal 2023, we can provide no assurance that we will not experience operating losses in the future. Forward China holds a $600,000 note which is due on June 30, 2025. Additionally, we owe Forward China approximately $7,226,000 in accounts payable.
If we continue to fail to meet these continued listing requirements through the Deadline Date and are unable to get an extension to regain compliance, Nasdaq may delist our common stock. Reverse splits require approval by stockholders who hold a majority of our voting power.
If we fail to meet continued listing requirements in the future and are unable to get an extension to regain compliance, Nasdaq may delist our common stock.
A securities class action suit against us could result in substantial costs and divert our management’s time and attention, which would otherwise be used to benefit our business. 14 Because we are currently non-compliant with Nasdaq’s minimum bid price requirement, it could result in delisting of our common stock, negatively affect the price of our common stock and limit investors’ ability to trade in our common stock.
A securities class action suit against us could result in substantial costs and divert our management’s time and attention, which would otherwise be used to benefit our business. 14 Failure to meet the continued listing standards of Nasdaq could result on the delisting of our common stock. Our common stock is listed on Nasdaq.
Our design and development business is highly labor intensive and, therefore, our ability to attract and retain professional and technical staff is an important factor in our future success.
While the salary reductions were agreed to by the executives, it is possible that the decrease in salary may cause either or both officers to look for employment elsewhere. Our design and development business is highly labor intensive and, therefore, our ability to attract and retain professional and technical staff is an important factor in our future success.
The USTR also announced in May 2022 that it reinstated or extended various eligible tariff exclusions on certain products from China through December 2023. However, we do not know if the Biden administration will implement any new tariffs or alter current tariffs.
The USTR also announced in May 2022 that it reinstated or extended various eligible tariff exclusions on certain products from China through December 2023. In September 2024, the USTR completed its statutory four-year review and announced tariff increases on imports from China on various products.
In 2019, we incurred significant expenses responding to an SEC investigation into potential insider trading by certain insiders of the Company. Although that investigation has concluded, responding to, or defending other such actions would cause us to continue to incur substantial expenses and divert our management’s attention.
From time to time, we may receive inquiries from regulators regarding our compliance with laws and other matters. In 2019, we incurred significant expenses responding to an SEC investigation into potential insider trading by certain insiders of the Company.
In any such case, our customers may cancel or change the terms of its purchase order, resulting in a cancellation or delay of payments to us.
Although these events did not have a material adverse effect on our business, there is no assurance that, if they happened again, that they would not. In any such case, our customers may cancel or change the terms of their purchase orders, resulting in a cancellation or delay of payments to us.
Terence Wise, our Chairman and Chief Executive Officer, is a significant shareholder who beneficially owns approximately 18% of the outstanding shares of our common stock as of December 9, 2023. 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.
Terence Wise, our Chairman and Chief Executive Officer, is a significant shareholder who beneficially owns approximately 19.9% of the outstanding shares of our common stock as of December 9, 2024. Mr. Wise would beneficially own significantly more shares without a 19.9% blocker (shareholder approval cap) under our Series A-1 Convertible Preferred Stock. Mr.
If this continues, it may result in the customer sending us less business which will adversely affect our revenues. Although our customer concentration changes from year to year, and we continue our efforts to diversify our business, we cannot provide any assurance that we will be successful.
Although our customer concentration changes from year to year, and 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 would have a material adverse effect on our financial condition, liquidity and results of operations.
For example, in March 2021, a container ship carrying some of our products ran aground in the Suez Canal and was immobilized for six days. Although this accident did not have a material adverse effect on our business, there is no assurance that, if it happened again, that it would not.
For example, in Fiscal 2024, we experienced shipping delays resulting from cargo ship piracy in the Red Sea, and in March 2021, a container ship carrying some of our products ran aground in the Suez Canal and was immobilized for six days.
In Fiscal 2022, our largest design customer accounted for 11.8% of our consolidated net revenue and two OEM distribution customers represented 25.5% of our consolidated net revenue. Recently, two of our employees left the Company to become full-time employees of our largest design customer.
In Fiscal 2023, our largest design customer accounted for 27.9% of our consolidated net revenue and one OEM distribution customer accounted for 11.2% of our consolidated net revenue. In December 2024, our largest design customer notified the Company of its plan to discontinue their insulin patch program, on which the Company was working.
On July 31, 2023, we were notified by Nasdaq that we are not compliant with its closing bid price requirement because the closing bid price of our common stock was below $1.00 per share for 30 consecutive trading days. We have until January 29, 2024 (the “Deadline Date”) to become compliant.
On July 31, 2023, the Company received a notice from Nasdaq that the Company had failed to comply with Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Rule”) by failing to maintain a minimum bid price of at least $1.00 per share of common stock for 30 consecutive business days.
Removed
Department of Health and Human Services declared the end of the Public Health Emergency for COVID-19; however, the effects of COVID-19 continue to linger throughout the global economy and our businesses.
Added
In such case, the value and marketability of the common stock could decline. 5 Risks Relating to Our Business, Liquidity and Operations We have experienced recurring losses and our ability to continue as a going concern is in doubt. We incurred net losses of approximately $1,951,000 and $3,737,000 in Fiscal 2024 and 2023, respectively.
Removed
In addition to our $1,300,000 commercial line of credit (the “Line of Credit”), none of which has been utilized as of the date of this report, Forward China holds a $1,100,000 note which is due December 31, 2024. Additionally, we owe Forward China $8,246,000 in accounts payable.
Added
We expect to generate losses for the foreseeable future. We will need to generate increased revenues to achieve profitability in the future. Despite our efforts, we may not achieve profitability in the future or sustain profitability for a prolonged period of time.
Removed
For example, in 2018 a new diabetes monitoring product was brought to the market which does not use a carrying case.
Added
In December 2024, our largest design customer notified us of its plan to discontinue their insulin patch program on which we were providing design services. In Fiscal 2024, this design customer was responsible for 25.2% of our revenues.
Removed
Risks Related to Our Common Stock Due to factors beyond our control, our stock price may be volatile.
Added
While we plan to mitigate the impact of this lost revenue with cost reduction efforts, seeking continued flexibility on payments to Forward China and exploring additional sources of financing, these efforts may not be sufficient to meet our liquidity needs through December 31, 2025.
Removed
Our common stock is listed on Nasdaq. Nasdaq rules impose certain continued listing requirements, including the minimum $1 bid price, corporate governance standards and number of public stockholders.
Added
Accordingly, our independent registered public accounting firm stated in their report on our annual financial statements for the fiscal year ended September 30, 2024, that these conditions raise substantial doubt about our ability to continue as a going concern.
Removed
We have since remained non-compliant with the closing bid price requirement as our stock price has remained below $1.00 since we received the notice. We are assessing all options to regain compliance.
Added
We expect this to cause a material decrease in our revenues beginning with the second quarter of fiscal 2025. We are currently working on cost reduction efforts to mitigate the reduction in revenue.
Removed
At our annual stockholders’ meeting, which is customarily held in February, we have the option to ask our stockholders to approve a reverse stock split in an amount that would satisfy Nasdaq listing requirements.
Added
If pricing pressures continue and we are unable to find comparable concessions from our suppliers, we may be unable to renew future contracts with our customers. The recent inflationary environment in the U.S. and globally has caused production costs to increase in Fiscal 2023 and in Fiscal 2024.
Removed
In addition to the risk described below that we do not receive stockholder approval, reverse splits are often perceived negatively and announcements of or implementation of a reverse split may cause the market price of our common stock to decline.
Added
If we over-utilize our workforce, our employees may become disengaged, which could impact employee attrition.
Removed
If we become subject to a regulatory investigation, it could cause us to incur substantial costs or require us to change our business practices in a manner materially adverse to our business. From time to time, we may receive inquiries from regulators regarding our compliance with laws and other matters.
Added
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.
Added
As part of being listed on Nasdaq, we are required to meet certain continued listing requirements.
Added
The Company was given a 180-day grace period to regain compliance, but the Company failed to regain compliance within the grace period. The Company then timely requested a hearing before an independent Nasdaq Hearings Panel. The hearing occurred on April 9, 2024.
Added
Further, on February 22, 2024, the Company received a notice from Nasdaq that the Company’s stockholders’ equity did not comply with the applicable Nasdaq Listing Rule 5550(b)(1) (the “Stockholders’ Equity Rule”), requiring listed companies to maintain a stockholders’ equity of at least $2,500,000, as reported in the Company’s Form 10-Q for the fiscal period ended December 31, 2023.
Added
The Company was instructed to present its views with respect to its failure to meet the requirements of the Stockholders’ Equity Rule at the April 9, 2024, hearing before the Nasdaq Hearings Panel.
Added
As a result of the reverse stock split effected in June 2024 and the entrance into the Accounts Payable Conversion Agreements with Forward China (described in Note 14 to the consolidated financial statements), the Company regained compliance with the Minimum Bid Price Rule and Stockholders’ Equity Rule i n July 2024 and was formally notified by Nasdaq that such requirements were met.
Added
Until July 24, 2025, the Company is subject to a Nasdaq “Panel Monitor” which provides for in the event the Company fails to satisfy the Stockholders’ Equity Rule during the monitoring period, the Company will be required to request a hearing before the Panel in order to maintain its listing rather than taking the interim step of submitting a compliance plan for the Nasdaq Listing Qualifications Staff’s review or receiving any otherwise applicable grace period.
Added
We can provide no assurance that if the Company fails to satisfy the Stockholders’ Equity Rule during this period that the Company will be able to maintain its Nasdaq listing.
Added
If our stock price declines below $1.00 for more than 30 consecutive business days, and thereby fails to satisfy the Minimum Bid Price Rule, we may ask shareholders to approve another reverse stock split. Reverse stock splits require approval by stockholders who hold a majority of our voting power.
Added
We have incurred, and may in the future incur, impairment charges related to our goodwill, which could have a material adverse effect on our business, results of operations and financial condition. As of September 30, 2024, we had goodwill of $1,559,000. The carrying value of goodwill may be reduced if we determine that goodwill is impaired.
Added
We test goodwill for impairment in the fourth quarter of each year, or more frequently if indicators of an impairment exist, to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value.
Added
We have had to impair our goodwill in the past, and in Fiscal 2024, we recorded a goodwill impairment charge of $200,000. The testing of goodwill for impairment requires us to make significant estimates about future performance and cash flows, as well as other assumptions.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe properties which are material to the Company’s business are described below: We lease 14,000 square feet in Hauppauge, New York for our executive offices and IPS, which we rent under a lease agreement scheduled to expire in 2027. The lease has annual escalations and rent payments were approximately $31,000 per month during Fiscal 2023.
Biggest changeThe properties which are material to the Company’s business are described below: We lease 14,000 square feet in Hauppauge, New York for our executive offices and IPS, which we rent under a lease agreement scheduled to expire in 2027. The lease has annual escalations and rent payments were approximately $32,000 per month during Fiscal 2024.
We lease 11,000 square feet in Coon Rapids, Minnesota for Kablooe, which we rent under a lease agreement scheduled to expire in June 2026. The lease has annual escalations and rent payments were approximately $11,000 per month during Fiscal 2023.
We lease 11,000 square feet in Coon Rapids, Minnesota for Kablooe, which we rent under a lease agreement scheduled to expire in June 2026. The lease has annual escalations and rent payments were approximately $11,000 per month during Fiscal 2024.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeAs of September 30, 2023, and through the filing date of this Form 10-K, 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. 16 PART II
Biggest changeAs of September 30, 2024, and through the filing date of this Form 10-K, 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 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeCurrently, 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. Recent Sales of Unregistered Securities None. ITEM 6. RESERVED Not applicable.
Biggest changeCurrently, 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. Recent Sales of Unregistered Securities None.
Holders of Common Stock At November 30, 2023, there were approximately 70 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.
Holders of Common Stock At November 30, 2024, there were approximately 35 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.
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 Nasdaq. Our common stock is traded under the symbol “FORD”. On December 8, 2023, the closing price for our common stock was $0.74.
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 Nasdaq. Our common stock is traded under the symbol “FORD”. On December 6, 2024, the closing price for our common stock was $4.24.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeDuring Fiscal 2022, cash provided by operating activities of $1,535,000 resulted from an increase in accounts payable and amounts due to Forward China of $1,856,000, a decrease in accounts receivable of $953,000, non-cash charges for depreciation, amortization, share-based compensation and bad debt expense of $775,000, an increase in accrued expenses of $624,000 and the net change in other operating assets and liabilities of $552,000, partially offset by the net loss of $1,378,000 and an increase in discontinued assets held for sale of $1,847,000.
Biggest changeCash Flows During Fiscal 2024 and Fiscal 2023, our sources and uses of cash were as follows: Operating Activities During Fiscal 2024, cash provided by operating activities of $407,000 resulted from a decrease in accounts receivable of $1,244,000, a decrease in discontinued assets held for sale of $508,000, an increase in amounts due to Forward China (excluding the non-cash impact of the Conversion Agreements) of $1,180,000, and non-cash charges for depreciation, amortization, share-based compensation, credit loss expense and goodwill impairment of $654,000, partially offset by the net loss of $1,951,000, a decrease in accrued expenses and other current liabilities $745,000, a decrease in accounts payable $390,000 and the net change in other operating assets and liabilities of $93,000.
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 consolidated balance sheets. 18 Design Segment The design segment applies the “cost to cost” and “right to invoice” methods of revenue recognition to its contracts with customers.
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 consolidated balance sheets. Design Segment The design segment applies the “cost to cost” and “right to invoice” methods of revenue recognition to its contracts with customers.
The Company’s estimates of the allowance may change from time to time based on management’s assessments, and such changes could be material. Goodwill and Intangible Assets We review goodwill for impairment at least annually, or more often if triggering events occur.
The Company’s estimates of the allowance may change from time to time based on management’s assessments, and such changes could be material. 20 Goodwill and Intangible Assets We review goodwill for impairment at least annually, or more often if triggering events occur.
Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. 17 Business Overview Forward Industries, Inc. is a global design, sourcing and distribution Company serving top tier medical and technology customers worldwide. Our design division provides hardware and software product design and engineering services to customers predominantly located in the U.S.
Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. 18 Business Overview Forward Industries, Inc. is a global design, sourcing and distribution Company serving top tier medical and technology customers worldwide. Our design division provides hardware and software product design and engineering services to customers predominantly located in the U.S.
If we seek to raise additional capital, there is no assurance that we will be able to raise funds on terms that are acceptable to us or at all. In the current environment of rising interest rates, any future borrowing is expected to result in higher interest expense.
If we seek to raise additional capital or obtain additional borrowings, there is no assurance that we will be able to raise funds on terms that are acceptable to us or at all. In the current environment of rising interest rates, any future borrowing is expected to result in higher interest expense.
If these estimates or material related assumptions change in the future, we may be required to record impairment charges related to our intangible assets. There were no indications of impairment of intangible assets in Fiscal 2023 or 2022.
If these estimates or material related assumptions change in the future, we may be required to record impairment charges related to our intangible assets. There were no indications of impairment of intangible assets in Fiscal 2024 or Fiscal 2023.
In connection with the new sourcing agreement (see Note 14 to the consolidated financial statements) and in order to preserve our future liquidity, Forward China agreed to limit the amount of outstanding payables it would seek to collect from us to $500,000 in any 12-month period, which we agreed to pay within 30 days of any such request.
In connection with the new sourcing agreement entered into October 2023 (see Note 14 to the consolidated financial statements) and in order to preserve our future liquidity, Forward China agreed to limit the amount of outstanding payables it would seek to collect from us to $500,000 in any 12-month period, which we agreed to pay within 30 days of any such request.
The following discussion and analysis compares our results of operations for the year ended September 30, 2023 (“Fiscal 2023”) with those for the year ended September 30, 2022 (“Fiscal 2022”). All dollar amounts and percentages presented herein have been rounded to approximate values.
The following discussion and analysis compares our results of operations for the year ended September 30, 2024 (“Fiscal 2024”) with those for the year ended September 30, 2023 (“Fiscal 2023”). All dollar amounts and percentages presented herein have been rounded to approximate values.
The inventory of the retail segment is presented as discontinued assets held for sale on the balance sheets at September 30, 2023 and 2022 and the results of operations for the retail segment have been classified as discontinued operations on the consolidated statements of operations for the years ended September 30, 2023 and 2022.
The inventory of the retail segment is presented as discontinued assets held for sale on the balance sheet at September 30, 2023 and the results of operations for the retail segment have been classified as discontinued operations on the consolidated statements of operations for the years ended September 30, 2024 and 2023.
The balance of the FC Note was reduced to $1,100,000 after we made principal payments of $500,000 in Fiscal 2023 and Fiscal 2022. Although the FC Note has been extended on multiple occasions to assist us with our liquidity position, we plan on funding the repayment at maturity using existing cash balances and/or obtaining additional extensions as deemed necessary.
The balance of the FC Note was reduced to $600,000 after we made principal payments of $1,000,000 through Fiscal 2024. Although the FC Note has been extended on multiple occasions to assist us with our liquidity position, we plan on funding the repayment at maturity using existing cash balances and/or obtaining additional extensions as deemed necessary.
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.
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 provides clarity to and amends earlier guidance on this topic and would be effective concurrently with the adoption of such earlier guidance.
Effective April 1, 2023, the Company and Forward China agreed to reduce the fixed portion of the sourcing fee from $100,000 to $83,333 per month for the remaining term of the sourcing agreement, which resulted in cash savings of $100,000 for Fiscal 2023.
Effective April 1, 2023, the Company and Forward China agreed to reduce the fixed portion of the sourcing fee from $100,000 to $83,333 per month for the remaining term of the sourcing agreement.
Cash Flows During Fiscal 2023 and Fiscal 2022, our sources and uses of cash were as follows: Operating Activities During Fiscal 2023, cash provided by operating activities of $1,041,000 resulted from a decrease in discontinued assets held for sale of $2,642,00, an increase in accounts payable and amounts due to Forward China of $783,000, an increase in accounts receivable of $495,000, non-cash charges for depreciation, amortization, share-based compensation and bad debt expense of $481,000 and the net change in other operating assets and liabilities of $427,000, partially offset by the $70,000 non-cash adjustment to the fair value of the Kablooe earnout consideration and the net loss of $3,737,000.
During Fiscal 2023, cash provided by operating activities of $1,041,000 resulted from a decrease in discontinued assets held for sale of $2,642,000, an increase in accounts payable and amounts due to Forward China of $783,000, an increase in accounts receivable of $495,000, non-cash charges for depreciation, amortization, share-based compensation and credit loss expense of $481,000 and the net change in other operating assets and liabilities of $447,000, partially offset by the $70,000 non-cash adjustment to the fair value of the Kablooe earnout consideration and the net loss of $3,737,000.
The variance is due to fair value adjustments of $70,000 in the 2023 Period to reduce to the fair value of the earnout consideration related to the Kablooe acquisition, $18,000 of net duty drawback income received in the 2023 Period, interest income from interest bearing deposits, foreign currency fluctuations and a decrease in interest expense resulting from a reduction in the amount of debt outstanding.
The variance is due to fair value adjustments of $70,000 in Fiscal 2023 to reduce to the fair value of the earnout consideration related to the Kablooe acquisition, $18,000 of net duty drawback income received in Fiscal 2023 offset by an increase in interest income from interest bearing deposits and a decrease in interest expense resulting from a reduction in the amount of debt outstanding.
Investing Activities In Fiscal 2023 and Fiscal 2022, cash used for investing activities of $136,000 and $170,000, respectively, resulted from purchases of property and equipment. Financing Activities In Fiscal 2023 and Fiscal 2022, cash used in financing activities of $300,000 and $200,000, respectively, consisted of principal payments on the promissory note held by Forward China. 23 ITEM 7A.
Investing Activities In Fiscal 2024 and Fiscal 2023, cash used for investing activities of $65,000 and $136,000, respectively, resulted from purchases of property and equipment. 25 Financing Activities In Fiscal 2024 and Fiscal 2023, cash used in financing activities of $500,000 and $300,000, respectively, consisted of principal payments on the promissory note held by Forward China. ITEM 7A.
Additionally, Forward China has extended payment terms on our outstanding payables due to them when necessary. At September 30, 2023, our accounts payable due to Forward China was approximately $8,246,000.
Additionally, Forward China has extended payment terms on our outstanding payables due to them when necessary. At September 30, 2024, our accounts payable due to Forward China was approximately $7,226,000.
Other Product Revenues Our OEM distribution segment also sources and sells cases and protective solutions for a diverse array of portable electronic and non-electronic products (such as sporting and recreational products, bar code scanners, GPS devices, tablets and firearms) on a made-to-order basis that are customized to fit the products sold by our OEM customers.
Revenues from diabetic products represented 77% of net revenues for the OEM distribution segment in Fiscal 2024 compared to 84% in Fiscal 2023. 23 Other Product Revenues Our OEM distribution segment also sources and sells cases and protective solutions for a diverse array of portable electronic and non-electronic products (such as sporting and recreational products, bar code scanners, GPS devices, tablets and firearms) on a made-to-order basis that are customized to fit the products sold by our OEM customers.
This agreement pertains only to payables that were outstanding at October 30, 2023 of $7,365,000. Purchases from Forward China made after October 30, 2023, are not covered by this agreement and are expected to be paid according to normal payment terms.
This agreement pertains only to payables that were outstanding at October 30, 2023 of $7,365,000. Purchases from Forward China made after October 30, 2023, are not covered by this agreement and are expected to be paid according to normal payment terms. At September 30, 2024, the remaining balance covered by this agreement was approximately $4,881,000.
Consolidated basic and diluted earnings per share from continuing operations was $0.02 and $0.04 for Fiscal 2023 and Fiscal 2022, respectively. Segment Results The discussion that follows below provides further details about the results of operations for each continuing segment as compared to the prior year.
Consolidated basic and diluted (loss)/earnings per share from continuing operations was ($1.77) and $0.14 for Fiscal 2024 and Fiscal 2023, respectively. 22 Segment Results The discussion that follows below provides further details about the results of operations for each continuing segment as compared to the prior year.
Revenue from this customer represented approximately 12% of our consolidated net revenues in the 2022 Period. We expect the loss of this customer to cause a significant decline in OEM distribution segment revenues in future periods.
Revenue from this customer represented approximately 7.8% of our consolidated net revenues in Fiscal 2023. We expect the loss of this customer to cause a significant decline in OEM distribution segment revenues in future periods.
All information and results in this annual report on Form 10-K exclude the discontinued operations unless otherwise noted. See Note 3 to our consolidated financial statements for additional information on discontinued operations. On May 11, 2023, the U.S.
All information and results in this annual report on Form 10-K exclude the discontinued retail segment unless otherwise noted. See Note 3 to our consolidated financial statements for additional information on the discontinued retail segment.
The primary demand on our working capital has historically been (i) operating losses, (ii) repayment of debt obligations, and (iii) 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.
LIQUIDITY AND CAPITAL RESOURCES Our primary source of liquidity is our operations. The primary demand on our working capital has historically been (i) operating losses, (ii) repayment of debt obligations, and (iii) any increases in accounts receivable and inventories arising in the ordinary course of business.
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.
There can be no assurance that actual results will not differ from those estimates and such differences could be significant. 19 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.
In Fiscal 2023, we recorded a tax provision of $20,000, generated income from continuing operations before income taxes of $179,000 and had an effective tax rate of 11.2%. In Fiscal 2022, we recorded a tax provision of $3,000, generated income from continuing operations before income taxes of $452,000 and had an effective tax rate of 0.5%.
In Fiscal 2024, we recorded a tax provision of $23,000, incurred a loss from continuing operations before income taxes of $1,925,000 and had an effective tax rate of (1.3%). In Fiscal 2023, we recorded a tax provision of $20,000, generated income from continuing operations before income taxes of $179,000 and had an effective tax rate of 11.2%.
Revenues from other products decreased due to lower sales volume with some existing customers, partially driven by the delayed rollout of certain customer product lines and reduced demand from some customers. We will continue to focus on our sales and sales support teams in our continued efforts to expand and diversify our other products customer base.
Revenues from other products increased due to new customers and higher sales volume with some existing customers, partially offset by reduced demand from other customers. We will continue to focus on our sales and sales support teams in our continued efforts to expand and diversify our other products customer base.
The following tables set forth revenues by product line of our OEM distribution segment customers for the periods indicated: OEM Revenues by Product Line Fiscal 2023 Fiscal 2022 Change ($) Change (%) Diabetic products $ 11,805,000 $ 15,403,000 $ (3,598,000 ) (23.4% ) Other products 2,197,000 2,633,000 (436,000 ) (16.6% ) Total net revenues $ 14,002,000 $ 18,036,000 $ (4,034,000 ) (22.4% ) Diabetic Product Revenues Our OEM distribution segment sources to the order of, and sells carrying cases for, blood glucose diagnostic kits directly to OEMs (or their contract manufacturers).
The following tables set forth revenues by product line of our OEM distribution segment customers for the periods indicated: OEM Revenues by Product Line Fiscal 2024 Fiscal 2023 Change ($) Change (%) Diabetic products $ 7,885,000 $ 11,805,000 $ (3,920,000 ) (33.2% ) Other products 2,319,000 2,197,000 122,000 5.6% Total net revenues $ 10,204,000 $ 14,002,000 $ (3,798,000 ) (27.1% ) Diabetic Product Revenues Our OEM distribution segment sources to the order of, and sells carrying cases for, blood glucose diagnostic kits directly to OEMs (or their contract manufacturers).
The Company and Forward China signed a new Supply Agreement effective October 2023, which further reduced the fixed portion of the sourcing fee to $65,833 per month. See Note 14 to the consolidated financial statements for more information on the sourcing agreement with Forward China.
The Company and Forward China signed a new Supply Agreement effective October 2023, which further reduced the fixed portion of the sourcing fee to $65,833 per month and expired October 2024.
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, sells them through their retail distribution channels. 21 Revenues from diabetic products decreased due to the loss of a major customer in March 2023, lower demand from one major customer and the loss of one product to a competitor.
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, sells them through their retail distribution channels.
Financial Statements and Supplementary Data” in this report. The 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.
Financial Statements and Supplementary Data” in this report. The preparation of our consolidated financial statements requires us to make estimates and assumptions that are believed to be reasonable under the circumstances.
Sales and marketing expenses increased primarily due to higher sales related expenses in the design segment, partially offset by lower marketing related overhead in our OEM distribution segment. Sales and marketing expenses as a percentage of revenue increased from 3.9% in Fiscal 2022 to 4.5% in Fiscal 2023.
Sales and marketing expenses decreased primarily due to staff reduction in our OEM distribution segment and lower sales related expenses in the design segment. Sales and marketing expenses as a percentage of revenue increased from 4.5% in Fiscal 2023 to 4.7% in Fiscal 2024. General and administrative expenses decreased slightly in Fiscal 2024.
There are no assurances this line of credit will extend beyond May 31, 2024. 22 Forward China, our largest vendor and an entity owned by our Chairman of the Board and Chief Executive Officer, holds a $1,600,000 promissory note (the “FC Note”) issued by us which matures on December 31, 2024 (see Note 14 to the consolidated financial statements).
At November 30, 2024, we had approximately $2,300,000 cash on hand. 24 Forward China, our largest vendor and an entity owned by our Chairman of the Board and Chief Executive Officer, holds a $1,600,000 promissory note (the “FC Note”) issued by us which matures on June 30, 2025 (see Note 14 to the consolidated financial statements).
Additionally, see Part I, Item 1A “Risk Factors” for a description of the material risks we currently face in connection with COVID-19. Variability of Revenues and Results of Operations A significant portion of our revenue is concentrated with several large customers, some of which are the same and some of which change over time.
Variability of Revenues and Results of Operations A significant portion of our revenue is concentrated with several large customers, some of which are the same and some of which change over time.
Forward-looking statements generally can be identified by words such as "anticipates," "believes," "estimates," "expects," "intends," "plans," "predicts," "projects," "will be," "will continue," "will likely result," and similar expressions.
These statements include, among other things, statements regarding our liquidity, plans on repaying outstanding debt obligations, as well as other statements regarding our future operations, financial condition and prospects, and business strategies. Forward-looking statements generally can be identified by words such as "anticipates," "believes," "estimates," "expects," "intends," "plans," "predicts," "projects," "will be," "will continue," "will likely result," and similar expressions.
There were no indications of goodwill impairment in Fiscal 2023 or Fiscal 2022. 19 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.
During Fiscal 2024, the Company recorded an impairment charge of $200,000 related to goodwill (See Note 4 to the consolidated financial statements). 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.
This pronouncement is effective for us for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years and is not expected to have a material impact on our consolidated financial statements.
This pronouncement is effective for the Company for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years.
The decline in gross margin was partially mitigated by lower selling and marketing costs related to OEM sales commissions. We continue to work on expanding our product offerings to include higher margin products and enhancing our sales efforts to grow revenue and increase gross profit.
While revenues decreased in diabetic products, a large portion of this decrease was from lower margin products, driving overall gross margins up. Lower selling and marketing costs further improved the operating income margin. We continue to work on expanding our product offerings to include higher margin products and enhancing our sales efforts to grow revenue and increase gross profit.
The primary assets of the retail segment are inventory and accounts receivable. The Company expects to sell, liquidate, or otherwise dispose of remaining retail inventory by June 30, 2024, and to collect remaining retail accounts receivable by the end of Fiscal 2024. After this time, we expect to have no further significant continuing involvement with the retail distribution segment.
The primary assets of the retail segment are inventory and accounts receivable. The Company sold, liquidated, or otherwise disposed of the remaining retail inventory and collected the remaining retail accounts receivable as of September 30, 2024. As of September 30, 2024, the retail segment was fully discontinued, and we expect to have no further significant involvement in this segment.
RESULTS OF OPERATIONS FOR FISCAL 2023 COMPARED TO FISCAL 2022 Consolidated Results The table below summarizes our consolidated results of continuing operations for Fiscal 2023 as compared to Fiscal 2022: Consolidated Results of Operations Fiscal 2023 Fiscal 2022 Change ($) Change (%) Net revenues $ 36,688,000 $ 38,207,000 $ (1,519,000 ) (4.0% ) Cost of sales 28,324,000 29,407,000 (1,083,000 ) (3.7% ) Gross profit 8,364,000 8,800,000 (436,000 ) (5.0% ) Sales and marketing expenses 1,663,000 1,478,000 185,000 12.5% General and administrative expenses 6,541,000 6,734,000 (193,000 ) (2.9% ) Operating income 160,000 588,000 (428,000 ) (72.8% ) Other expense/(income), net (19,000 ) 135,000 (154,000 ) (114.1% ) Income tax provision 20,000 3,000 17,000 566.7% Income from continuing operations $ 159,000 $ 450,000 $ (291,000 ) (64.7% ) The decrease in net revenues in Fiscal 2023 was primarily driven by a decline in revenue in the OEM distribution segment, which was partially offset by revenue growth in the design segment.
The Company adopted this guidance in the first quarter of Fiscal 2024 with no material impact on its consolidated financial statements. 21 RESULTS OF OPERATIONS FOR FISCAL 2024 COMPARED TO FISCAL 2023 Consolidated Results The table below summarizes our consolidated results of continuing operations for Fiscal 2024 as compared to Fiscal 2023: Consolidated Results of Continuing Operations Fiscal 2024 Fiscal 2023 Change ($) Change (%) Net revenues $ 30,195,000 $ 36,688,000 $ (6,493,000 ) (17.7% ) Cost of sales 23,986,000 28,324,000 (4,338,000 ) (15.3% ) Gross profit 6,209,000 8,364,000 (2,155,000 ) (25.8% ) Sales and marketing expenses 1,425,000 1,663,000 (238,000 ) (14.3% ) General and administrative expenses 6,516,000 6,541,000 (25,000 ) (0.4% ) Goodwill impairment 200,000 – 200,000 – Operating (loss) income (1,932,000 ) 160,000 (2,092,000 ) (1307.5% ) Other income, net (7,000 ) (19,000 ) 12,000 (63.2% ) Income tax provision 23,000 20,000 3,000 15.0% (Loss) / income from continuing operations $ (1,948,000 ) $ 159,000 $ (2,107,000 ) (1325.2% ) The decrease in net revenues in Fiscal 2024 was primarily driven by a decline in revenue in the OEM distribution segment and, to a lesser extent, the design segment.
Operating Income Operating income for the OEM distribution segment declined and operating income margin declined to 3.1% in Fiscal 2023, compared to 5.0% in Fiscal 2022, driven by lower gross margins and a shift in the mix of revenue.
Operating Income Operating income for the OEM distribution segment decreased but operating income margin increased to 3.6% in Fiscal 2024, compared to 3.1% in Fiscal 2023, driven by a decrease in the sourcing fee and lower sales and marketing expenses.
Segment Results of Operations OEM Distribution Design Corporate Expenses Consolidated Fiscal 2023 revenues $ 14,002,000 $ 22,686,000 $ – $ 36,688,000 Fiscal 2022 revenues 18,036,000 20,171,000 – 38,207,000 Change $ (4,034,000 ) $ 2,515,000 $ – $ (1,519,000 ) Fiscal 2023 operating income $ 440,000 $ 2,182,000 $ (2,462,000 ) $ 160,000 Fiscal 2022 operating income 905,000 2,148,000 (2,465,000 ) 588,000 Change $ (465,000 ) $ 34,000 $ 3,000 $ (428,000 ) OEM Distribution Net revenues in the OEM distribution segment decreased from lower sales volume from both diabetic customers and other OEM customers.
Segment Results of Operations OEM Distribution Design Corporate Expenses Consolidated Fiscal 2024 revenues $ 10,204,000 $ 19,991,000 $ – $ 30,195,000 Fiscal 2023 revenues 14,002,000 22,686,000 – 36,688,000 Change $ (3,798,000 ) $ (2,695,000 ) $ – $ (6,493,000 ) Fiscal 2024 operating income/(loss) $ 369,000 $ 26,000 $ (2,327,000 ) $ (1,932,000 ) Fiscal 2023 operating income/(loss) 440,000 2,182,000 (2,462,000 ) 160,000 Change $ (71,000 ) $ (2,156,000 ) $ 135,000 $ (2,092,000 ) OEM Distribution Net revenues in the OEM distribution segment decreased from lower sales volume from our diabetic customers, slightly offset by an increase in revenues from other OEM customers.
General and administrative expenses decreased in Fiscal 2023, primarily related to bad debt recoveries in the design segment and lower non-employee directors share-based compensation expense, partially offset by higher professional fees and personnel costs. Management continues to monitor the various components of general and administrative expenses and how these costs are affected by inflationary and other factors.
Lower payroll costs were partially offset by increased corporate expenses, primarily driven by costs related to Nasdaq non-compliance issues, and a credit loss recovery of approximately $200,000 in Fiscal 2023 that did not recur in Fiscal 2024. Management continues to monitor the various components of general and administrative expenses and how these costs are affected by inflationary and other factors.
Design Segment The increase in net revenues in the design segment was driven by an increase in revenue from one major customer, coupled with an increase in projects from new and existing customers, which was partially offset by declines in revenues from certain prior year customers.
Design Segment The decrease in net revenues in the design segment was primarily driven by one customer whose revenue declined approximately $2,600,000, as well as a net decrease in volume of work and projects with continuing customers, partially offset by projects from new customers.
Gross profit decreased and gross margin declined from 23.0% in Fiscal 2022 to 22.8% in Fiscal 2023. This decrease was mainly driven by the OEM distribution segment because of continued pricing pressures from our customers, high product, importation and logistics costs and inflation.
Gross profit decreased and gross margin declined from 22.8% in Fiscal 2023 to 20.6% in Fiscal 2024. This decrease was mainly driven by lower utilization rates in our design segment and a change in the mix of our OEM distribution segment revenue, partially offset by a reduction in our sourcing fee with Forward China.
We intend to adjust these costs as needed based on the overall needs of the business. 20 We reported other income of $19,000 in Fiscal 2023 as compared to other expense of $135,000 in Fiscal 2022.
We intend to adjust these costs as needed based on the overall needs of the business. During Fiscal 2024, the Company recorded a goodwill impairment charge of $200,000 related to the Kablooe reporting unit, which is included in the design segment.
At September 30, 2023, our working capital was $26,000 compared to $1,209,000 at September 30, 2022, which excludes discontinued assets held for sale. The decrease was primarily due to higher payables and accrued expenses and a decrease in accounts receivable, partially offset by an increase in cash.
Historically, our sources of liquidity have been adequate to satisfy working capital requirements arising in the ordinary course of business. At September 30, 2024, our working capital was $273,000 compared to $26,000 at September 30, 2023, which excludes discontinued assets held for sale.
These decreases were partially offset by an increase in demand from another customer, which was timing related. As mentioned above, management believes that revenues from diabetic customers will continue to decline. Revenues from diabetic products represented 84% of net revenues for the OEM distribution segment in Fiscal 2023 compared to 85% in Fiscal 2022.
Revenues from diabetic products decreased due to the loss of a major customer in March 2023, lower demand from our major diabetic customers and the loss of one product to a competitor. As mentioned above, management believes that revenues from diabetic customers will continue to decline.
Removed
These statements include, among other things, statements regarding our liquidity, plans on repaying outstanding debt obligations, expectations regarding the effect of the pandemic and inflation on our business, as well as other statements regarding our future operations, financial condition and prospects, and business strategies.
Added
The Company does not manufacture any of its OEM products and sources substantially all of these products from independent suppliers in China, through Forward Industries Asia-Pacific Corporation, a British Virgin Islands corporation (“Forward China”). Forward China is owned by our Chairman of the Board and Chief Executive Officer.
Removed
Department of Health and Human Services declared the end of the Public Health Emergency for COVID-19; however, the effects of COVID-19 continue to linger throughout the global economy and our businesses.
Added
In June 2024, the Company’s stockholders authorized, and the Company’s Board of Directors approved, a 1-for-10 reverse stock split of our common stock, which became effective on June 18, 2024.
Removed
Though the severity of COVID-19 has subsided, new variants, or the outbreak of a new pathogen, could interrupt business, cause renewed labor and supply chain disruptions, and negatively impact the global and US economy, which could materially and adversely impact our businesses.
Added
Accordingly, all references made to share, per share, or common share amounts in the accompanying consolidated financial statements and applicable disclosures have been retroactively adjusted to reflect the reverse stock split.
Removed
While revenues decreased in both diabetic and other products, a large portion of the decrease in diabetic revenue was from more profitable products, thus driving overall gross margins down. The cost of importing all products from China has increased and both the diabetic and other OEM product lines have experienced pricing pressures from customers.
Added
Recent Accounting Pronouncements In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, "Income Taxes - Improvements to Income Tax Disclosures", requiring enhancements and further transparency to certain income tax disclosures, most notably the tax rate reconciliation and income taxes paid.
Removed
Operating income for the design segment increased slightly but operating income margin decreased from 10.6% in Fiscal 2022 to 9.6% in Fiscal 2023.
Added
This ASU is effective for fiscal years beginning after December 15, 2024 on a prospective basis and retrospective application is permitted. The Company is currently evaluating the effects of this pronouncement on its consolidated financial statements.
Removed
The impact of higher direct labor costs driven by inflationary pressures, coupled with higher sales and marketing expenses, was slightly offset by better utilization and increased billing rates and lower general and administrative expenses, driven by bad debt recoveries. LIQUIDITY AND CAPITAL RESOURCES Our primary source of liquidity is our operations.
Added
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which requires expanded segment reporting and disclosure and is effective for the Company for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.
Removed
At November 30, 2023, we had approximately $3,800,000 cash on hand and $1,300,000 available under our line of credit with a bank which matures May 31, 2024.
Added
The Company is currently evaluating the effects of this pronouncement on its consolidated financial statements.
Removed
We anticipate that our liquidity and financial resources for the 12 months following the date of this report will be adequate to manage our operating and financial requirements.
Added
This impairment charge resulted from the quantitative goodwill impairment testing performed at September 30, 2024 and was driven by historical losses and a reduction in expected future performance of the Kablooe reporting unit. We reported other income of $7,000 in Fiscal 2024 as compared to $19,000 in Fiscal 2023.
Added
In November 2024, the Company and Forward China agreed to: (i) extend the sourcing agreement until April 30, 2025, but allow either party to cancel with 30 days notice, (ii) reduce the fixed portion of the sourcing fee to $35,000 per month, and (iii) change the payment terms to better align with payments from the Company’s customers.
Added
See Note 14 to the consolidated financial statements for more information on the sourcing agreement with Forward China.
Added
In December 2024, our largest design customer notified the Company of its plan to discontinue their insulin patch program, on which the Company was working. We expect this to cause a material decrease in our revenues beginning with the second quarter of fiscal 2025. We are currently working on cost reduction efforts to mitigate the reduction in revenue.
Added
Operating income for the design segment decreased and operating income margin decreased from 9.6% in Fiscal 2023 to 0.1% in Fiscal 2024. This decrease was driven by lower utilization rates, impairment of goodwill and credit loss recoveries in Fiscal 2023 that did not recur in Fiscal 2024, partially offset by lower payroll costs and increased billing rates on some projects.
Added
The increase was primarily due to the equity conversion of amounts due to Forward China (see Note 14 to the consolidated financial statements), lower accrued expenses, partially offset by a decrease in accounts receivable and cash.
Added
Our consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the ordinary course of business.
Added
We had an accumulated deficit and working capital of $19,637,000 and $273,000, respectively, at September 30, 2024, a net loss of $1,951,000 in Fiscal 2024 and a cash balance of approximately $2,300,000 at November 30, 2024. In December 2024, our largest design customer notified us of its plan to discontinue their insulin patch program, on which we were working.
Added
We expect this to cause a material decrease in our revenues beginning with the second quarter of Fiscal 2025. Based on our forecasted cash flows, we believe that there is substantial doubt about our ability to continue as a going concern for a period of 12 months from the date of issuance of the consolidated financial statements.

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