Forward Industries, Inc.

Business

Forward Industries, Inc. (“Forward”, “we”, “our” or the “Company”) is a global design company serving top tier medical and technology customers. The Company provides hardware and software product design and engineering services to customers predominantly located in the U.S.

Reverse Stock Split

The Company’s shareholders authorized, and the Board of Directors approved, a 1-for-10 reverse stock split, which became effective on June 18, 2024. Any fractional shares that would have otherwise resulted from the reverse stock split were rounded up to the nearest whole share. Accordingly, all references made to shares, per share, or common share amounts in the accompanying condensed consolidated financial statements and applicable disclosures have been retroactively adjusted to reflect the reverse stock split. The reverse stock split did not change the par value of the common stock nor the authorized number of shares of common stock or any series of preferred stock.

Discontinued Operations

In July 2023, the Company decided to cease operations of its retail distribution segment (“Retail Exit”) and is presenting the results of operations for this segment within discontinued operations in the periods presented herein. Our retail distribution business sourced and sold smart-enabled furniture, hot tubs and saunas and a variety of other products through various online retailer websites to customers predominantly located in the U.S. and Canada. The inventory of the retail segment was presented as discontinued assets held for sale on the balance sheet on September 30, 2023.

In March 2025, the Company committed to a plan to sell the original equipment manufacturer (“OEM”) distribution segment of the business (“OEM Plan”). In May 2025, the Company completed the sale of this line of business and is presenting its results of operations within discontinued operations in the current and prior periods presented herein. The OEM distribution segment sourced and sold carrying cases and other accessories for medical monitoring and diagnostic kits as well as a variety of other portable electronic and non-electronic devices to OEMs or their contract manufacturers worldwide, that either packaged our products as accessories “in box” together with their branded product offerings or sold them through their retail distribution channels. The Company did not manufacture any of its OEM products and sourced substantially all of these products from independent suppliers in China, through Forward Industries Asia-Pacific Corporation, a British Virgin Islands corporation (“Forward China”), a related party owned by the Company’s former CEO (see Note 8).

Unless otherwise noted, amounts related to these discontinued operations are excluded from the disclosures presented herein. See Note 3 for more information on these discontinued operations.

Liquidity and Going Concern

The accompanying condensed 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. The Company had an accumulated deficit and working capital of $22,647,000 and $1,211,000, respectively, on June 30, 2025, a net loss of $3,010,000 for the nine months ended June 30, 2025 and $1,951,000 in Fiscal 2024 and a cash balance of approximately $5,600,000 at August 12, 2025.

In December 2024, our largest customer notified us of its plan to discontinue their insulin patch pump program, on which we were working. We expect this to continue to cause a material decrease in our revenues relative to Fiscal 2024. In addition, due to the uncertainty in the global markets related to tariffs on imports, many customers have been slow to commit funds to projects with us. Based on our forecasted cash flows, we believe our existing cash balance and working capital may not be sufficient to meet our liquidity needs through August 2026, 12 months from the date of issuance of these condensed consolidated financial statements. These factors raise substantial doubt about our ability to continue as a going concern.

Management initiated cost reduction measures to mitigate the impact of declining revenues, including two reductions in workforce in January and June of 2025. Management continues to evaluate and adjust cost reduction efforts as deemed necessary based on the ongoing needs of the business. In May 2025, the Company raised $1 million via the issuance of Series B Convertible Preferred Stock (see Note 6). From July 1 to August 12, 2025, the Company raised $2,432,000 additional capital via its equity line of credit (see Note 6) and $2,230,000 in a registered direct offering (See Note 12). Assuming the Company continues to meet its obligations under the Series B Preferred Stock Purchase Agreement (see Note 6), management plans to raise additional capital through the ELOC in the near future. We cannot provide any assurance that: (i) we will be able to continue selling under the ELOC, (ii) if we are able to sell under the ELOC, that we will be able to do so at prices that we believe are beneficial to the Company and its shareholders, or (iii) that our registration statement on Form S-1 registering shares to be sold under the ELOC in the future will be declared and remain effective. As of the filing date of this Form 10-Q, the Company has sold all shares registered by it under the ELOC. The condensed consolidated financial statements do not include any adjustments that might result if the Company is unable to continue as a going concern. Such adjustments could be material.

Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of Forward Industries, Inc. and all of its wholly-owned subsidiaries: Forward Industries (IN), Inc. (“Forward US”), Forward Industries (Switzerland) GmbH (“Forward Switzerland”), Forward Industries UK Limited (“Forward UK”), Intelligent Product Solutions, Inc. (“IPS”) and Kablooe, Inc. (“Kablooe”). The terms “Forward”, “we”, “our” or the “Company” as used throughout this document are used to indicate Forward Industries, Inc. and all of its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.

In the opinion of management, the accompanying condensed consolidated financial statements presented in this Quarterly Report on Form 10-Q reflect all normal recurring adjustments necessary to present fairly the financial position and results of operations and cash flows for the interim periods presented herein but are not necessarily indicative of the results of operations for the year ending September 30, 2025. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the fiscal year ended September 30, 2024, and with the disclosures and risk factors presented therein. The September 30, 2024 condensed consolidated balance sheet has been derived from the audited consolidated financial statements.

Accounting Estimates

The preparation of the Company’s condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates and assumptions. Within this report, certain dollar amounts and percentages have been rounded to their approximate values.

Segment Reporting

As a result of the Retail Exit and the OEM Plan, the design segment is the Company’s only reportable segment at June 30, 2025. The design segment consists of two operating segments (IPS and Kablooe, which have been aggregated into one reportable segment) that provide a full spectrum of hardware and software product design and engineering services to customers predominantly located in the U.S. See Note 5 for more information on segments.

Accounts Receivable

Accounts receivable consist of unsecured trade accounts with customers net of an allowance for credit losses. Collectability of accounts receivable is estimated by evaluating the number of days accounts are outstanding, customer payment history, recent payment trends and perceived creditworthiness, adjusted as necessary based on specific customer situations. At June 30, 2025 and September 30, 2024, the Company had allowances for credit losses of $16,000 and $27,000, respectively.

Inventories

Inventories consisted primarily of finished goods and were stated at the lower of cost (determined by the first-in, first-out method) or net realizable value. Based on management’s estimates, an allowance was made to reduce excess, obsolete, or otherwise unsellable inventories to net realizable value. If needed, an allowance was established through charges to cost of sales in the Company’s condensed consolidated statements of operations. In determining the adequacy of any allowance, management’s estimates were based upon several factors, including analyses of inventory levels, historical loss trends, sales history and projections of future sales demand. Due to the Retail Exit and the OEM Plan the Company has no remaining inventory at June 30, 2025. Inventory on hand at September 30, 2024 is presented as a component of assets held for sale.

Revenue Recognition

Discontinued OEM Distribution Segment

The OEM distribution segment recognized revenue when: (i) finished goods were shipped to its customers (in general, these conditions occurred at either point of shipment or point of destination, depending on the terms of sale and transfer of control); (ii) there were no other deliverables or performance obligations; and (iii) there were no further obligations to the customer after the title of the goods had transferred. If the Company received consideration before achieving the criteria previously mentioned, it recorded a contract liability, which was classified as a component of deferred income in the accompanying condensed consolidated balance sheets. The OEM distribution segment had no contract liabilities at June 30, 2025 or September 30, 2024. The results of operations of the OEM segment are reported as discontinued operations for the three and nine months ended June 30, 2025 and 2024. See Note 3.

Discontinued Retail Distribution Segment

The discontinued retail distribution segment sold products primarily through online websites operated by authorized third-party retailers. Revenue was recognized when control (as defined in Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers”) of the related goods were transferred to the retailer, which generally occurred upon shipment to the end customer. Other than product delivery, the retail distribution segment did not typically have other deliverables or performance obligations associated with its products. Revenue was measured as the amount of consideration expected to be received in exchange for the products provided, net of allowances taken by retailers for product returns and any taxes collected from customers that would be remitted to governmental authorities. When the Company received consideration before achieving the criteria previously mentioned, it recorded a contract liability, which was classified as a component of deferred income in the accompanying condensed consolidated balance sheets. The retail distribution segment hadno contract liabilities at June 30, 2025 or September 30, 2024. The results of operations of the retail segment are reported as discontinued operations for the three and nine months ended June 30, 2025 and 2024. See Note 3.

Design Segment

The Company applies the “cost to cost” and “right to invoice” methods of revenue recognition to the contracts with customers in the design segment. The design segment typically engages in two types of contracts: (i) time and material and (ii) fixed price. The Company recognizes revenue over time on its time and material contracts utilizing a “right to invoice” method. Revenues from fixed price contracts that require performance of services that are not related to the production of tangible assets are recognized by using cost inputs to measure progress toward the completion of its performance obligations, or the “cost to cost” method. Revenues from fixed price contracts that contain specific deliverables are recognized when the performance obligation has been satisfied or the transfer of goods to the customer has been completed and accepted.

Recognized revenues that will not be billed until a later date are recorded as contract assets in the accompanying condensed consolidated balance sheets. The design segment had contract assets of $725,000, $1,273,000 and $976,000 at June 30, 2025, September 30, 2024 and September 30, 2023, respectively. Contracts where collections to date have exceeded recognized revenues, or contract liabilities, are recorded as a liability and classified as a component of deferred income in the accompanying condensed consolidated balance sheets. The design segment had contract liabilities of $310,000, $399,000, and $297,000 at June 30, 2025, September 30, 2024 and September 30, 2023, respectively.

Fair Value Measurements

We perform fair value measurements in accordance with the guidance provided by ASC 820, “Fair Value Measurement.” ASC 820 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at their fair values, we consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would use when pricing the assets or liabilities, such as inherent risk, transfer restrictions, and risk of nonperformance.

ASC 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An asset’s or liability’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 establishes three levels of inputs that may be used to measure fair value:

The carrying amounts of cash, accounts receivable, accounts payable, due to Forward China, and the Note payable to Forward China approximate fair value due to their short-term maturities.

Goodwill

The Company reviews goodwill for impairment at least annually, or more often if triggering events occur. The Company has two reporting units with goodwill (the IPS and Kablooe operating segments) and we perform our annual goodwill impairment test on September 30, the end of the fiscal year, or upon the occurrence of a triggering event. The Company has the option to perform a qualitative assessment to determine if an impairment is more likely than not to have occurred. If the Company can support the conclusion that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then the Company would not need to perform a quantitative impairment test for the reporting unit. If the Company cannot support such a conclusion or does not elect to perform the qualitative assessment, then the Company will perform the quantitative assessment by comparing the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying value, no impairment charge is recognized. If the fair value of the reporting unit is less than its carrying value, an impairment charge will be recognized for the amount by which the reporting unit’s carrying amount exceeds its fair value. A significant amount of judgment is required in performing goodwill impairment tests including estimating the fair value of a reporting unit. See Note 4.

Intangible Assets

Intangible assets include trademarks and customer relationships, which were acquired as part of the acquisitions of IPS in Fiscal 2018 and Kablooe in Fiscal 2020 and are amortized over their estimated useful lives, which are periodically evaluated for reasonableness.

Our intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In assessing the recoverability of our intangible assets, we must make estimates and assumptions regarding future cash flows and other factors to determine the fair value of the respective assets. These estimates and assumptions could have a significant impact on whether an impairment charge is recognized and the magnitude of any such charge. Fair value estimates are made at a specific point in time, based on relevant information. These estimates are subjective in nature and involve uncertainties and matters of significant judgments and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. If these estimates or material related assumptions change in the future, we may be required to record impairment charges related to our intangible assets. Management evaluated and concluded that there wereno indications of impairments of intangible assets at June 30, 2025.

Leases

Lease assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term, using the Company’s incremental borrowing rate commensurate with the lease term, since the Company’s lessors do not provide an implicit rate, nor is one readily available. The Company has certain leases that may include an option to renew and when it is reasonably probable to exercise such option, the Company will include the renewal option terms in determining the lease asset and lease liability. Lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Operating lease assets are shown as right-of-use assets on the condensed consolidated balance sheets. The current and long-term portions of operating lease liabilities are shown separately as such on the condensed consolidated balance sheets.

Recent Accounting Pronouncements

In November 2024, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses” and in January 2025, the FASB issued ASU No. 2025-01, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date”, which clarified the effective date of ASU 2024-03 for non-calendar year-end companies. ASU 2024-03 will require the Company to disclose the amounts of purchases of inventory, employee compensation, depreciation and intangible asset amortization, as applicable, included in certain expense captions in the consolidated statements of operations, as well as qualitatively describe remaining amounts included in those captions. ASU 2024-03 will also require the Company to disclose both the amount and the Company’s definition of selling expenses. This ASU is effective for fiscal years beginning after December 15, 2026 and interim periods within fiscal years beginning after December 31, 2027. The Company is currently evaluating the effects of the pronouncement on its condensed consolidated financial statements.

In December 2023, the FASB issued 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. 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 condensed consolidated financial statements.

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. The Company is currently evaluating the effects of this pronouncement on its condensed consolidated financial statements.

In July 2023, the Company decided to cease operations of its retail distribution segment (“Retail Exit”). The primary assets of the retail segment were inventory and accounts receivable. The Company sold, liquidated, or otherwise disposed of all remaining retail inventory, and collected remaining retail accounts receivable by September 30, 2024, at which time the retail segment was considered fully discontinued. We expect to have no further significant continuing involvement with this segment. The Retail Exit was considered a strategic shift that would have a significant impact on the Company’s operations and financial results. The inventory of the retail segment met the criteria to be considered “held-for-sale” in accordance with ASC 205-20, “Discontinued Operations.” Accordingly, the retail inventory was classified on our condensed consolidated balance sheets as “discontinued assets held for sale” at September 30, 2023, and the results of operations for the retail segment have been classified as “Discontinued Operations” on the condensed consolidated statements of operations for the three and nine months ended June 30, 2025 and 2024.

In March 2025, in connection with the fourth Conversion Agreement (see Note 8), Forward China determined it would not renew the Buying Agency and Supply Agreement (“Sourcing Agreement”), which subsequently expired on May 9, 2025 (see Note 8). Without this agreement, the Company determined it would not continue the OEM segment of the business and committed to a plan to sell the segment. On May 16, 2025, the Company and Forward US entered into a transaction agreement with Forward China, pursuant to which the Company sold all equity interest in Forward Switzerland and Forward UK and sold certain other net assets related to Forward US’ OEM segment to Forward China to satisfy outstanding payables due to Forward China under the Sourcing Agreement. Additionally, the Company and Forward China terminated the Supply Agreement and extended the term of the Note Payable (see Note 8) to December 31, 2025. The Company paid $200,000 at closing and agreed to make additional cash payments of $150,000 on each of July 31, 2025, August 31, 2025 and September 30, 2025, which are shown as Due to Forward China on the condensed consolidated financial statements. Results of operations for Forward Switzerland and Forward UK were included in the Company’s results of operations through and including May 16, 2025.

The sale of the OEM business is considered a strategic shift that will have a significant impact on the Company’s operations and financial results. The assets and liabilities of the OEM segment were classified as assets and liabilities held for sale on the condensed consolidated balance sheets at September 30, 2024. The results of operations for the OEM segment have been classified as discontinued operations on the condensed consolidated statements of operations for the three and nine months ended June 30, 2025 and 2024. The condensed consolidated balance sheets and statements of operations for comparable periods have been reclassified to conform to this presentation in accordance with the accounting guidance.

The following table presents the major components of the “Income from discontinued operations, net of tax” in our condensed consolidated statements of operations:

There were no depreciation, amortization, or financing cash flow activities for the discontinued operations in the three or nine months ended June 30, 2025 or 2024. Investing cash flows related to the discontinued operations included $200,000 paid for the sale of the OEM segment in May 2025. The only significant non-cash activity for the discontinued operations in the three and nine months ended June 30, 2025 and 2024 was the conversion of accounts payable to Forward China into preferred stock in February and March of 2025 (See Note 8).

The following table presents the major components of assets and liabilities held for sale on our condensed consolidated balance sheet at September 30, 2024:

Intangible Assets

The Company’s intangible assets consist of the following:

The Company’s intangible assets resulted from the acquisitions of Kablooe and IPS in Fiscal 2020 and Fiscal 2018, respectively. Intangible assets are amortized over their expected useful lives of 15 years for the trademarks and eight years for the customer relationships. Amortization expense related to intangible assets was $53,000 for the three months ended June 30, 2025 and 2024, and $160,000 for the nine months ended June 30, 2025 and 2024, which is included in general and administrative expenses on the condensed consolidated statements of operations.

At June 30, 2025, estimated amortization expense for the Company’s intangible assets is as follows:

Goodwill

Goodwill represents the future economic benefits of assets acquired in a business combination that are not individually identified or separately recognized. The Company’s goodwill resulted from the acquisitions of Kablooe and IPS in Fiscal 2020 and Fiscal 2018, respectively. The goodwill associated with the IPS acquisition is not deductible for tax purposes, but the goodwill associated with the Kablooe acquisition is deductible for tax purposes.

In December 2024, IPS was notified by its largest customer of its plan to discontinue its insulin patch pump program, on which IPS was working, and was beginning to wind down all activities related to it. Revenue from this customer (all of which related to this program) represented more than 30% of the Company’s consolidated net revenues in fiscal 2024. Due to the historically high concentration of revenue with this customer, the loss of its business was considered a triggering event which prompted the Company to evaluate the goodwill of the IPS reporting unit. Management concluded an impairment was more likely than not to have occurred and performed a quantitative goodwill impairment test for the IPS reporting unit at December 31, 2024. Using primarily an income approach methodology, the fair value of the IPS reporting unit was estimated using a discounted cash flow analysis incorporating variables categorized within Level 3 of the fair value hierarchy such as projected revenues, growth rate and discount rate. The quantitative testing indicated the carrying amount of the IPS reporting unit exceeded its fair value, resulting in a goodwill impairment charge of $225,000 in the three months ended December 31, 2024, primarily driven by a reduction in the expected future performance of the IPS reporting unit.

In the second and third quarters of fiscal 2025, the IPS reporting unit continued to experience low levels of staff utilization due in part to the loss of the aforementioned major customer, which was anticipated. In addition, due to the uncertainty in the global markets related to tariffs on imports, primarily in the second quarter of fiscal 2025, many IPS customers were slow to commit funds to projects as they were unsure how tariffs and other macroeconomic factors would impact their business. The combination of these events resulted in negative gross profit for the IPS reporting unit in the second and third quarters, which the Company considered triggering events to evaluate the goodwill of the IPS reporting unit for impairment. Management concluded an impairment was more likely than not to have occurred and performed a quantitative goodwill impairment analysis for the IPS reporting unit at June 30, 2025. Using primarily an income approach methodology, the fair value of the IPS reporting unit was estimated using a discounted cash flow analysis incorporating variables categorized with Level 3 of the fair value hierarchy, such as projected revenues, growth rate and discount rate. Considering the workforce reductions in January and June of 2025, modest expectations of revenue growth for this reporting unit, and the reduction in its carrying value, the quantitative testing indicated the fair value of the IPS reporting unit exceeded its carrying amount, resulting in no further goodwill impairment in the nine months ended June 30, 2025.

Below is rollforward of goodwill:

As a result of the Retail Exit and the OEM Plan, the Company now has only one reportable segment. The prior year segment disclosures have been reformatted from what was previously disclosed to conform to the current year presentation and omit certain disclosures that are no longer required.

Revenues from two customers represented 32.4% of the Company’s consolidated net revenues for the three months ended June 30, 2025. Revenues from three customers represented 42.5% of the Company’s consolidated net revenues for the nine months ended June 30, 2025. Revenues from two customer represented 49.7% and 50.1% of the Company’s consolidated net revenues for the three and nine months ended June 30, 2024, respectively.

Accounts receivable and contract assets from three customers represented 50.1% and 57.9% of the Company’s consolidated accounts receivable and contract asset balances at June 30, 2025 and September 30, 2024, respectively.

In December 2024, our largest design customer notified us of its plan to discontinue their insulin patch pump program, on which we were working. The Company expects this to continue to cause a material decrease in revenues relative to Fiscal 2024.

Nasdaq

In July 2023, the Company was notified by Nasdaq that it was not in compliance with Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Rule”). Thereafter, in February 2024, the Company was notified that it was not in compliance with Nasdaq Listing Rule 5550(b)(1) (the “Stockholders’ Equity Rule”) (collectively, with the Minimum Bid Price Rule, the “Minimum Requirements”). In April 2024, the Company presented a plan of action to the Nasdaq Hearings Panel to meet compliance with the Minimum Requirements. As a result of the reverse stock split effected in June 2024 and the entrance into the first Accounts Payable Conversion Agreement (described in Note 8), the Company regained compliance withthe Minimum Requirements in July 2024 and was formally notified by Nasdaq that the Minimum Requirements were met. Until July 24, 2025, the Company was subject to a Nasdaq “Panel Monitor” which provided that in the event the Company fails to satisfy the Stockholders’ Equity Rule (not the Minimum Bid Price Rule) during the monitoring period, the Company would 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 Listing Qualifications Staff’s review or receiving any otherwise applicable grace period.

On February 21, 2025, the Company was notified by Nasdaq that due to its reported Shareholders’ Equity of $2,279,297 at December 31, 2024, it was not in compliance with the Stockholders’ Equity Rule. Due to the Panel Monitor, the Company was not eligible for any grace period and Nasdaq determined the Company’s common stock would be scheduled for delisting from Nasdaq. On February 27, 2025, the Company requested a hearing on this matter with the Panel, which stayed any trading suspension or delisting of the Company’s common stock until the completion of the hearings process.

As a result of the fourth conversion agreement with Forward China (see Note 8), the Company regained compliance with the Stockholders’ Equity Rule in March 2025 and was formally notified by Nasdaq in April that it was in compliance with all applicable continued listing standards and that the scheduled hearing had been canceled.

Preferred Stock

Series A-1 Convertible Preferred Stock

In connection with the Accounts Payable Conversion Agreements with Forward China (see Note 8), the Company filed three Certificates of Amendment to the Certificate of Incorporation (the “COD”) designating 6,700 shares of Series A-1 Convertible Preferred Stock (the “Series A-1”), with a stated value of $1,000 per share (the “Stated Value”).

The holders of the Series A-1 have no voting rights and rank senior to all classes or series of the Company’s common stock with respect to the distribution of assets upon liquidation, dissolution, or winding up. Subject to a 19.9% Share Cap (as defined in the COD), the Series A-1 shall be convertible into a number of shares of the Company’s common stock as determined by (i) multiplying the number of shares to be converted by the Stated Value, (ii) adding the result of all accrued and accumulated and unpaid dividends on such shares to be converted, and then (iii) dividing the result by the conversion price of $7.50, subject to adjustment as defined in the COD. The Series A-1 is not redeemable. See Note 12.

Series B Convertible Preferred Stock

On May 21, 2025, the Company filed a Certificate of Amendment to the Certificate of Incorporation (the “COD”) designating 1,000,000 shares of Series B Convertible Preferred Stock (the “Series B”), with a par value of $0.01 per share and a stated value of $1.00 per share. The Series B shares: (i) accrue dividends at 10% per annum, payable quarterly in arrears in cash, provided that the Company may elect to pay dividends in common stock or by increasing the stated value if specified equity conditions are met (as defined in the COD), (ii) are convertible into common stock at $4.50 per share, subject to customary anti-dilution and other adjustments as set forth in the COD, (iii) are mandatorily convertible if certain conditions are met, (iv) have liquidation rights equal to the greater of 125% of the conversion amount and the amount the holder would have received if the holder converted the shares into common stock immediately prior to liquidation, (v) are not redeemable, (vi) have such voting rights as required by New York law, including class voting rights on matters affecting the Series B rights and preferences and (vii) have senior rights to all classes of common stock with respect to dividends, distributions, and liquidation preferences. The Series B shares contain certain beneficial ownership limitations and are subject to a maximum number of shares of common stock that may be issued without triggering shareholder approval requirements under the Nasdaq Stock Market rules. See Note 12. Dividends through June 30, 2025 were capitalized by increasing the stated value of each share of the Series B.

On May 23, 2025 the Company entered into a Preferred Stock Purchase Agreement (the “PS Agreement”) and related Registration Rights Agreement with two accredited investors whereby the Company granted the investors an aggregate of 1,000,000 shares of the Series B and warrants to purchase an additional 111,111 shares of common stock in exchange for $1,000,000. The PS Agreement contains restrictions on the Company’s ability to incur debt, issue additional preferred shares, enter into a change of control transaction or make restricted payments without prior written consent of the investors. The Company paid third-party fees of $66,500 associated with this agreement, of which $29,000 related to the preferred stock portion of the agreement and has been deducted from the proceeds and recorded as a reduction of additional paid-in capital, and $37,500 related to the warrants and has been recorded as a component of general and administrative expenses on the condensed consolidated financial statements at June 30, 2025.

Warrants

In connection with the PS Agreement, the Company issued warrants to purchase 111,111 shares of its common stock with an exercise price of $6.50 per share and an expiration date of May 23, 2030. The warrants have been classified as a liability because the nature of certain settlement provisions prevent them from meeting the fixed-for-fixed equity classification criteria in ASC 815, “Derivatives and Hedging.” The fair value of the warrants was measured on the grant date and is remeasured every reporting period with the resulting gain or loss from the change in fair value recorded as a component of other income/expense on the condensed consolidated financial statements. The fair value of the warrants was estimated using a Black-Scholes valuation methodology using the assumptions in the following table, which are categorized within Level 3 of the fair value hierarchy. The expected term represents the remaining contractual term of the warrants. The expected volatility is based on the historical price of the Company’s common stock over the most recent periods commensurate with the expected term of the warrants. The risk-free interest rate is based on the implied yield of U.S. Treasury zero-coupon issues with a remaining term equivalent to the warrants’ expected term. The Company historically has not paid any dividends on its common stock and has no intention to do so in the foreseeable future.

The change in fair value of the warrants is as follows:

Equity Line of Credit

On May 16, 2025, the Company entered into a Securities Purchase Agreement (the “ELOC”) and related Registration Right Agreement with an accredited investor (the “Purchaser”) pursuant to which the Company has the right, in its sole discretion, to sell, and the Purchaser agrees to purchase, shares of the Company’s common stock having an aggregate value of up to $35 million, subject to certain limitations and conditions set forth in the underlying agreement. See Note 12. The Company will control the timing and amount of any sales of common stock under this agreement. In connection with the execution of the ELOC, the Company issued 25,000 commitment shares to the Purchaser and paid third-party fees of $60,000, which have been recorded as a component of other assets on the condensed consolidated financial statements. Pursuant to the terms of the ELOC, the Company may issue and sell shares to the Purchaser at prices discounted below the then-current market price of the Company’s common stock. As of June 30, 2025, no other shares of common stock were issued in connection with this agreement.

On June 10, 2025, the Company filed a registration statement to register shares of common stock issuable under the ELOC. The registration statement was declared effective by the SEC on June 20, 2025. See Note 12.

Stock Options

On June 1, 2025, the Company granted options to three of its non-employee directors to purchase an aggregate of 36,000 shares of its common stock at an exercise price of $6.37 per share. The options vest one year from the date of grant and expire five years from the date of grant. The options have a grant-date fair value of $3.29 per share and an aggregate grant-date fair value of $120,000, which will be recognized, net of forfeitures, ratably over the vesting period.

On February 1, 2025, the Company granted options to one of its non-employee directors to purchase 14,000 shares of its common stock at an exercise price of $6.01 per share. The options vest one year from the date of grant and expire 5 years from the date of grant. The options have a grant-date fair value of $2.90 per share and an aggregate grant-date fair value of $40,000, which will be recognized, net of forfeitures, ratably over the vesting period.

On October 1, 2024, the Company granted options to two of its non-employee directors to purchase an aggregate of 48,000 shares of its common stock at an exercise price of $3.73 per share. The options vest one year from the date of grant and expire five years from the date of grant. The options have a grant-date fair value of $1.67 per share and an aggregate grant-date fair value of $80,000, which will be recognized, net of forfeitures, ratably over the vesting period.

On October 1, 2023, the Company granted options to three of its non-employee directors to purchase an aggregate of 33,000 shares of its common stock at an exercise price of $7.60 per share. The options vested one year from the date of grant, expire five years from the date of the grant and 11,000 were forfeited prior to vesting. The options have a grant-date fair value of $3.60 per share and an aggregate grant-date fair value of $120,000, which was recognized, net of forfeitures, ratably over the vesting period.

On May 31, 2023, the Company granted options to three of its non-employee directors to purchase an aggregate of 12,000 shares of its common stock at an exercise price of $10.30 per share. The options vested six months from the date of grant and expire five years from the date of the grant. The options have a grant-date fair value of $4.80 per share and an aggregate grant-date fair value of $60,000, which was recognized, net of forfeitures, ratably over the vesting period.

There wereno options exercised during the three or nine months ended June 30, 2025 or 2024.

The Company recognized compensation expense for stock option awards of $39,000 and $20,000 during the three months ended June 30, 2025 and 2024, respectively, and $86,000 and $81,000 for the nine months ended June 30, 2025 and 2024, respectively, which was recorded as a component of general and administrative expenses in its condensed consolidated statements of operations. At June 30, 2025 there was $154,000 of total unrecognized compensation cost related to nonvested stock option awards that is expected to be recognized over a weighted average period of 0.8 years. Options outstanding and exercisable at June 30, 2025 had a weighted average exercise price of $8.06 and $12.29, respectively.

Basic earnings per share data for each period presented is computed using the weighted average number of shares of common stock outstanding during each such period. Diluted earnings per share data is computed using the weighted average number of common and dilutive common equivalent shares outstanding during each period. Dilutive common-equivalent shares consist of shares that would be issued upon the exercise of stock options and warrants, computed using the treasury stock method, and convertible securities, computed using the if-converted method.

A reconciliation of basic and diluted earnings per share is as follows:

The following securities were excluded from the calculation of diluted earnings per share in each period because their inclusion would have been anti-dilutive:

Buying Agency and Supply Agreement

The Company had a Buying Agency and Supply Agreement (the “Supply Agreement”) with Forward China. The Supply Agreement provided that, upon the terms and subject to the conditions set forth therein, Forward China would act as the Company’s exclusive buying agent and supplier of Products (as defined in the Supply Agreement) in the Asia-Pacific region. The Company purchased products at Forward China’s cost and, from October 2023 through October 2024, paid Forward China a monthly service fee equal to the sum of (i) $65,833, and (ii) 4% of “Adjusted Gross Profit”, which is defined as the selling price less the cost from Forward China. Due to the Retail Exit and decline in the OEM distribution segment business, this sourcing agreement expired October 31, 2024. 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. The Sourcing Agreement was extended until May 9, 2025 and was subsequently terminated in connection with the sale of the OEM segment. See Note 3.

In connection with the sale of the OEM segment, effective May 16, 2025, the Company and Terence Wise, who served as the Chief Executive Officer of the Company, the Chairman of the Board, and a director, entered into a Separation Agreement pursuant to which, Mr. Wise resigned from all of these positions with the Company.

Terence Wise, former Chief Executive Officer and Chairman of the Company, is the owner of Forward China and beneficially owns more than 5% of the Company’s common stock. In addition, Jenny P. Yu, a Managing Director of Forward China, beneficially owns more than 5% of the Company’s common stock. The Company recorded service fees to Forward China of $39,000 and $221,000 during the three months ended June 30, 2025 and 2024, respectively, and $331,000 and $674,000 for the nine months ended June 30, 2025 and 2024, respectively, which were included as a component of cost of sales upon sales of the related products. Due to the OEM Plan, these costs are now included in income from discontinued operations for the three and nine months ended June 30, 2025 and 2024. The Company had purchases from Forward China of approximately $480,000 and $2,149,000, for the three months ended June 30, 2025 and 2024, respectively, and $4,040,000 and $5,672,000 for the nine months ended June 30, 2025 and 2024, respectively.

In order to preserve the Company’s liquidity, in November 2023, the Company and Forward China entered into an agreement whereby Forward China agreed to limit the amount of outstanding payables it would seek to collect from the Company to $500,000 in any 12-month period, which the Company agreed to pay within 30 days of any such request. This agreement pertained only to payables that were outstanding at October 30, 2023 of approximately $7,365,000. Purchases from Forward China made after October 30, 2023 were not covered by this agreement and were expected to be paid according to normal payment terms. In connection with the sale of the OEM segment in May 2025 (see Note 3), this agreement was terminated and all amounts due thereunder extinguished.

Accounts Payable Conversion Agreements

In order to maintain compliance with Nasdaq’s listing standards, the Company entered into four separate agreements with Forward China (the “Conversion Agreements”) pursuant to which Forward China agreed to convert an aggregate $4,925,000 of amounts due to Forward China into shares of preferred stock. Under the terms of the Conversion Agreements, in the fourth quarter of fiscal 2024 and the second quarter of fiscal 2025, respectively, Forward China agreed to convert $2,200,000 and $2,725,000, respectively, of amounts due to Forward China into 2,200 shares and 2,725 shares, respectively, of the Company’s Series A-1. See Note 6.

Promissory Note

On January 18, 2018, the Company issued a $1,600,000 unsecured promissory note payable to Forward China to fund the acquisition of IPS. The promissory note bears an interest rate of 8% per annum and had an original maturity date of January 18, 2019. Monthly interest payments commenced on February 18, 2018, with the principal due at maturity. The Company incurred and paid interest associated with this note of $12,000 and $14,000 in the three months ended June 30, 2025 and 2024, respectively and $36,000 and $50,000 in the nine months ended June 30, 2025 and 2024, respectively. In connection with the sale of the OEM segment, the maturity date of this note was extended to December 31, 2025. The maturity date of this note has been extended multiple times pursuant to amendments between the parties, with the current maturity date being December 31, 2025. This note has a remaining balance of $600,000 at June 30, 2025.

Other Related Party Activity

The Company’s retail division sold smart-enabled furniture, which was sourced by Forward China and sold in the U.S. under the Koble brand name. The Koble brand is owned by The Justwise Group Ltd. (“Justwise”), a company owned by Terence Wise, former Chief Executive Officer and Chairman of the Company. The Company recognized revenues from the sale of Koble products of $4,000 and $380,000 in the three and nine months ended June 30, 2024, respectively. Due to the Retail Exit, these revenues are included in the income from discontinued operations for the three and nine months ended June 30, 2024.

The Company had an agreement with Justwise, under which (i) Justwise performed design, marketing and inventory management services related to the Koble products sold by the Company and (ii) the Company was granted a license to sell Koble products. In exchange for such services, the Company paid Justwise $10,000 per month plus 1% of the cost of Koble products purchased from Forward China. This agreement expired November 30, 2023. The Company incurred costs under this agreement of $0 and $20,000 for the three months and nine months ended June 30, 2024, respectively. Due to the Retail Exit, these costs are included in the income from discontinued operations for the three and nine months ended June 30, 2024. The Company hadno accounts payable to Justwise at June 30, 2025 or September 30, 2024.

The Company recorded revenue from a customer whose principal owner is an immediate family member of Jenny P. Yu. The Company recognized revenue from this customer of $108,000 and $122,000 for the three and nine months ended June 30, 2024, respectively. The Company had accounts receivable from this customer of $96,000 at September 30, 2024. There were no revenues from this customer for the three or nine months ended June 30, 2025 or accounts receivable balances at June 30, 2025. Due to the OEM Plan, these revenues are included in income from discontinued operations for the three and nine months ended June 30, 2024 and the accounts receivable balance is included in assets held for sale at September 30, 2024.

From time to time, the Company is or may become a party to legal actions or proceedings in the ordinary course of its business. At June 30, 2025, and through the date of this filing, 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.

The Company’s operating leases are primarily for corporate, engineering, and administrative office space and the related expense is recorded in general and administrative expenses on the condensed consolidated financial statements. Total operating lease expense for the three and nine months ended June 30, 2025 was $155,000 and $465,000, respectively and total operating lease expense for the three and nine months ended June 30, 2024 was $155,000 and $464,000, respectively. Cash paid for amounts included in operating lease liabilities for the nine months ended June 30, 2025 and 2024, which have been included in cash flows from operating activities, was $452,000 and $441,000, respectively.

The Company signed a renewal to extend the lease term of one of its New York locations through April 2027. Payments under this operating lease commenced February 1, 2025 and escalate 4.0% per year. The monthly rent payment is $6,000 per month.

At June 30, 2025, the Company’s operating leases had a weighted average remaining lease term of 6.1 years and a weighted average discount rate of 5.9%.

At June 30, 2025, future minimum payments under non-cancellable operating leases were as follows:

Accrued expenses and other current liabilities at June 30, 2025 and September 30, 2024 are as follows:

On August 8, 2025, the Company’s shareholders approved, among other proposals, (i) of the issuance of shares of the Company’s common stock in excess of the Nasdaq 19.9% (exchange cap) limitations pursuant to the conversion of the Series B and exercise of the warrants issued pursuant to the PS Agreement, (ii) of the issuance of shares that may be issued under the ELOC without giving effect to the 19.9% (exchange cap) limitations in the underlying agreements and (iii) an amendment to the 2021 Equity Incentive Plan to increase the number of shares of the Company’s common stock available and reserved for issuance thereunder by 300,000 shares.

On August 8, 2025, Forward China converted 610 shares of the Series A-1 into 81,333 shares of common stock in accordance with the Company’s Certificate of Incorporation (as amended). See Note 6.

On August 11, 2025, the Company entered into subscription agreements with six investors pursuant to which it agreed to issue and sell, in a registered direct offering (the “Offering”), an aggregate of approximately 263,000 shares of its common stock at a price of $8.50 per share. The Offering closed on August 11, 2025 and the aggregate gross proceeds from the Offering were approximately $2,230,000.

From July 1 – August 12, 2025, the Company received gross proceeds of $2,432,000 from the sale of 246,000 shares of common stock under the ELOC. See Note 6.