For the transition period from ~~_____~~________________ to ~~_____.~~________________

~~477 S. Rosemary Ave., Suite 219, West Palm Beach, FL 33401~~
~~(Address of principal executive offices, including zip code)~~

~~(561) 465-0030~~
(Registrant’s telephone number, including area ~~code)~~code:(561) 465-0030

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding ~~twelve~~12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ~~[X]~~x No ~~[ ]~~o

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ~~[X]~~x No ~~[ ]~~o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, ~~or a~~ smaller reporting company, or an emerging growth company. See the definitions of “large accelerated ~~filer”,~~filer,” “accelerated ~~filer”,~~filer,” “smaller reporting company,” and ~~“smaller reporting~~“emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by checkmark if the registrant has elected not ~~elected~~ to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section ~~7(a)(2)(B)~~13(a) of the ~~Securities~~Exchange Act. ☐¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ~~[ ]~~o No ~~[X]~~x

Indicate the number of shares outstanding of each of the ~~registrant’s~~issuer’s classes of common stock, ~~par value $0.01 per share, on February 12, 2018, which is~~as of the latest ~~practical date prior to the filing~~practicable date. 9,533,851 shares as of ~~this report, was 9,516,554 shares.~~June 22, 2020.

In this Quarterly Report on Form 10-Q, unless the context otherwise requires, the following terms have the meanings assigned to them as set forth below:

“Forward”, “Forward Industries”, “we”, “our”, and the “Company” refer to Forward Industries, Inc., a New York corporation, together with its consolidated subsidiaries;

“Common stock” refers to the common stock, $.01 par value per share, of Forward Industries, Inc.;

“Forward US” refers to Forward Industries’ wholly owned subsidiary Forward Industries (IN), Inc., an Indiana corporation;

“Forward Switzerland” refers to Forward Industries’ wholly owned subsidiary Forward Industries (Switzerland) GmbH, a Swiss corporation;

“IPS” refers to Forward Industries’ wholly owned subsidiary Intelligent Product Solutions, Inc., a New York corporation;

“Forward UK” refers to Forward Industries’ wholly owned subsidiary Forward Industries UK Limited, a UK corporation;

“Forward China” refers to Forward Industries Asia-Pacific Corporation (f/k/a Seaton Global Corporation), a British Virgin Islands registered corporation that is Forward’s exclusive sourcing agent in the ~~Asia Pacific~~Asia-Pacific Region;

“U.S. GAAP” refers to accounting principles generally accepted in the United States of America;

“Commission” refers to the United States Securities and Exchange Commission;

“Exchange Act” refers to the United States Securities Exchange Act of 1934, as amended;

“Fiscal ~~2018”~~2020” refers to our fiscal year ending September 30, ~~2018;~~2020;

“Fiscal ~~2017”~~2019” refers to our fiscal year ended September 30, ~~2017;~~2019;

“EMEA Region” refers to the geographic area encompassing Europe, the Middle East and Africa;

“APAC Region” refers to the ~~Asia Pacific~~Asia-Pacific Region, consisting of Australia, New Zealand, Hong Kong, Taiwan, China, South Korea, Japan, Singapore, Malaysia, Thailand, Indonesia, India, the Philippines and Vietnam;

“Americas” refers to the geographic area encompassing North America, Central America, and South America; and

~~The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.~~PART I. FINANCIAL INFORMATION

CONDENSED CONSOLIDATED ~~STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME~~
~~(UNAUDITED)~~

~~The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.~~BALANCE SHEETS

In May 2014, the ~~Financial Accounting Standards Board (“FASB”)~~FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers, ~~(Topic 606),~~” ~~which~~(“ASU 2014-09”). ASU 2014-09 supersedes the revenue recognition requirements in ~~Accounting Standards Codification~~ASC 605, “Revenue Recognition” (“~~ASC”~~ASC 605”) ~~605-Revenue Recognition~~ and most industry-specific guidance throughout ~~the ASC.~~ASC 605. ASU 2014-09 establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. InThe guidance in ASU 2014-09 was revised in July 2015 ~~the FASB deferred the~~to be effective ~~date~~ for ~~annual reporting~~interim periods beginning on or after December 15, 2017 (including interim reporting periods within those periods). Early adoption is permitted to the original effective date for annual reporting periods beginning after December 15, 2016 (including interim reporting periods within those periods). The amendments mayand should be applied on a transitional basis either retrospectively to each prior reporting period ~~(full retrospective)~~presented or retrospectively with the cumulative effect of initially applying ASU 2014-09 recognized ~~as of~~at the date of initial ~~application (modified retrospective)~~application. In 2016, FASB issued additional ASUs that clarify the implementation guidance on principal versus agent considerations (ASU 2016-08), on identifying performance obligations and licensing (ASU 2016-10), and on narrow-scope improvements and practical expedients (ASU 2016-12) as well as on the revenue recognition criteria and other technical corrections (ASU 2016-20). ~~The Company will adopt ASU 2014-09 in~~These new standards became effective during the first quarter of fiscal 2019 and ~~plans to apply~~were adopted using the ~~full~~modified retrospective ~~approach. Because the Company's primary source of revenues is from the sale of finished goods, the~~method. The Company ~~does not anticipate that the adoption~~has performed a review of ASU 2014-09 ~~will have a~~as compared to its previous accounting policies for our products and services revenues and did not identify any material impact to revenue. Therefore, there was no adjustment to retained earnings for a cumulative effect.

Effective October 1, 2018, the Company adopted ASC 606 and elected the modified retrospective method on existing contracts at the date of adoption. The Company has implemented the necessary changes to such business processes, controls and systems to effectively review and account for the new contracts under this standard.

Revenues recognized from the distribution segment under ASC 606 are consistent with previous revenue recognition standards under ASC 605, whereby revenue is typically recognized at either the point of shipment or point of destination, depending on the terms of the sale.

Regarding the Company’s design segment, the Company has evaluated the changes from adopting this new standard on its ~~existing business, consolidated~~ financial ~~statements,~~reporting, disclosures ~~or process.~~and its various revenue streams. The Company now recognizes revenue over time on its time and material contracts utilizing a “right to invoice” method which is ~~evaluating~~similar to previous revenue recognition standards under ASC 605. Revenues from fixed-price type contracts that require performance of services that are not related to the ~~potential impact~~production of tangible assets are recognized by using cost inputs to measure progress toward the completion of its performance obligations. This method is similar to the method formerly applied to certain of the ~~acquired IPS business.~~Company’s contracts covered by the previous revenue recognition standards under ASC 605. In some cases, contracts contain an arrangement of specific deliverables or production of prototypes, or a distinct performance obligation, and the Company allocates the transaction price to the performance obligation on a relative standalone selling price basis.

In February 2016, the FASB issued ~~ASU 2016-02, “Leases (Topic 842),” which will require lessees~~a new standard related to ~~report most~~ leases asto increase transparency and comparability among organizations by requiring the recognition of operating lease right-of-use (“ROU”) assets and lease liabilities on the balance ~~sheet, while lessor accounting will remain substantially unchanged. This ASU requires~~sheet. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The Company is also required to recognize and measure new leases at the adoption date and recognize a cumulative-effect adjustment in the period of adoption using a modified retrospective ~~transition~~ approach, with certain practical expedients available.

The Company adopted Accounting Standards Codification ("ASC") 842, "Leases" ("ASC 842") effective October 1, 2019 and elected to apply the available practical expedients and implemented internal controls and key system functionality to enable the preparation of financial information on adoption. The Company elected the practical expedients that allow the Company to carry forward the historical lease classification. At adoption, the Company elected the following practical expedients: (1) the "package of practical expedients", pursuant to which the Company did not need to reassess its prior conclusions about lease identification, lease classification and initial direct costs, (2) creation of an accounting policy for short-term leases resulting in lease payments being recorded as an expense on a straight-line basisover the lease term, and (3) to account separately for lease and non-lease components for all leases. The Company has established an inventory of existing leases ~~whereby~~and implemented a new process of evaluating the ~~new rules will be applied~~classification of each lease. The financial impact of the adoption primarily relates to the ~~earliest year presented. The new standard is effective for reporting periods beginning after December 15, 2018~~capitalization of right-of-use assets and ~~early adoption is permitted. The Company is currently evaluating the potential impact~~recognition of ~~adopting this guidance on its consolidated financial statements.~~lease liability related to operating leases.

FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In the first quarter of 2019, the Company adopted FASB ASU No. 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory” (“ASU 2016-16”), which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. The adoption of ASU 2016-16 did not have an impact to the condensed consolidated financial statements due to the Company’s maintenance of a full valuation allowance on the Company’s net deferred tax asset.

In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment.” ASU 2017-04 simplifies the accounting for goodwill impairments by eliminating the requirement to compare the implied fair value of goodwill with its carrying amount as part of step two of the goodwill impairment test referenced in ASC 350, “Intangibles - Goodwill and Other (“ASC 350”).” As a result, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. However, the impairment loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 is effective for annual reporting periods beginning after December 15, 2019, including any interim impairment tests within those annual periods, with early application permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company adopted ASU 2017-04 in the first quarter of Fiscal 2019 and the adoption did not have any impact on the Company’s condensed consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09, “Scope of Modification Accounting”, to provide guidance on which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The Company adopted ASU No. 2017-09 in the first quarter of Fiscal 2019 and the adoption did not have any impact on the Company’s condensed consolidated financial statements.

In March 2018, the FASB issued ASU 2018-05, “Income Taxes (Topic 740), Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118.” The ASU adds various Securities and Exchange Commission (“SEC”) paragraphs pursuant to the issuance of the December 2017 SEC Staff Accounting Bulletin No. 118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”)”, which was effective immediately. The SEC issued SAB 118 to address concerns about reporting entities’ ability to timely comply with the accounting requirements to recognize all of the effects of the Tax Cuts and Jobs Act in the period of enactment. SAB 118 allows disclosure that determination of some or all of the income tax effects from the Tax Cuts and Jobs Act may be incomplete by the due date of the condensed consolidated financial statements and, if possible, provide a reasonable estimate. The Company has accounted for the tax effects of the Tax Cuts and Jobs Act under the guidance of SAB 118.

In June 2018, the FASB issued ASU 2018-07, “Compensation — Stock Compensation (Topic 718),” (“ASU 2018-07”). ASU 2018-07 is intended to reduce cost and complexity and to improve financial reporting for nonemployee share-based payments. The accounting requirements for nonemployee and employee share-based payment transactions had previously been significantly different. ASU 2018-07 expands the scope of Topic 718, “Compensation — Stock Compensation” (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. This ASU issupersedes Subtopic 505-50, “Equity — Equity-Based Payments to Nonemployees.” The amendments in this ASU are effective for ~~interim and annual periods~~fiscal years beginning after December 15, ~~2017.~~2018, and interim periods within that fiscal year. Early adoption is ~~permitted. Adoption~~permitted, but no earlier than a company’s adoption date of Topic 606, “Revenue from Contracts with Customers.” The Company adopted ASU 2018-07 effective October 1, 2019. The adoption of ASU 2018-07 did not have a material impact on the Company’s condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement - Disclosure Framework (Topic 820).” The updated guidance improves the disclosure requirements on fair value measurements. The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for any removed or modified disclosures. The Company is currently assessing the timing and impact of adopting the updated provisions.

FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In November 2019, the FASB issued ASU 2019-08, “Compensation – Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606).” ASU 2019-08 is an accounting pronouncement which expands the scope of ASC Topic 718 to provide guidance for share-based payment awards granted to a customer in conjunction with selling goods or services accounted for under Topic 606. The pronouncement is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The Company is currently evaluating the effects of this pronouncement on its condensed consolidated financial statements along with the effects of ASU 2018-07 noted above.

In November 2019, the FASB issued ASU 2019-11, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses.” ASU 2019-11 is ~~prospective.~~an accounting pronouncement that amends ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The ~~Company does not believe~~ASU 2019-11 amendment provides clarity and improves the codification to ASU 2016-03. The pronouncement would be effective concurrently with the adoption of ASU 2016-03. The pronouncement is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The Company is currently evaluating the effects of this ~~ASU will have a significant impact~~pronouncement on its condensed consolidated financial statements.

The Company allocates the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, ~~we make~~the Company makes significant estimates and assumptions, especially with respect to intangible assets.

The Company recognizes the purchase of assets and the assumption of liabilities as an asset acquisition, if the transaction does not constitute a business combination. The excess of the fair value of the purchase price is allocated on a relative fair value basis to the identifiable assets and liabilities. No goodwill is recorded in an asset acquisition.

Critical estimates in valuing certain intangible assets include but are not limited to future expected cash flows from customer relationships and developed technology, discount rates and terminal values. Our estimate of fair value is based upon assumptions believed to be reasonable, but actual results may differ from estimates.

Other estimates associated with the accounting for acquisitions may change as additional information becomes available regarding the assets acquired and liabilities assumed.

We perform fair value measurements in accordance with the guidance provided by ASC 820. 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.

FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

• Level 1: quoted prices in active markets for identical assets or liabilities;

• Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or

• Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair values of the assets or liabilities.

The deferred compensation of $293,000 on our condensed consolidated balance sheets as of March 31, 2020 is the present value of a $300,000 payment due on September 30, 2020 per the Stock Purchase Agreement as part of the acquisition price of IPS. The earn-out consideration portion was adjusted down in the 2020 Quarter from a fair value of $350,000 to $0 due to the low likelihood of reaching the EBITDA targets as outlined in the Stock Purchase Agreement.

The following table presents the placement in the fair value hierarchy and summarizes the changes for the three and six months ended March 31, 2020:

FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The cost method investment of $326,941 on our condensed consolidated balance sheet as of September 30, 2019 is common stock received from a customer as compensation for product design services provided by the Company. The shares represent approximately a less than 2% ownership interest in the customer. Management has determined that the inputs used to value the common stock, at the date of the initial valuation, are observable, either directly or indirectly, and therefore classified as a Level 2 valuation. Pursuant to ASC 820, the transaction price of the cash financing round establishes the fair value of the common stock received as consideration unless one of the following conditions exists:

b. The transaction takes place under duress or the seller is forced to accept the price in the transaction,

c. The unit of account represented by the transaction price is different from the unit of account for the asset or liability measured at fair value, or

d. The market in which the transaction takes place is different from the principal market (or most advantageous market).

On January 21, 2020, the Company executed a non-negotiable promissory note with the same design segment customer in which we are invested to recover approximately $1.6 million in accounts receivable which had been reserved as bad debt in fiscal 2019. The principal sum of the note is approximately $1,626,000. Beginning on April 1, 2020, monthly interest and principal payments, based on a one-year amortization schedule, were due and payable in arrears on the first day of the month until March 1, 2021. Interest shall accrue at a rate of 8% per annum. To date, we have not received any payments of principal or interest. The note receivable is also reserved and has a net zero balance on the Company’s condensed consolidated balance sheet.

As a result of default of the promissory note and the impact of COVID-19, as well as recent performance of the business in which the Company is invested, including the inability to generate revenue, management has concluded the investment is impaired and has fully reserved for the investment as of March 31, 2020. The impairment charge of approximately $327,000 is included in the general & administrative expenses of the condensed consolidated statement of operations and comprehensive loss.

The Company has recorded intangible assets, such as goodwill, trademark, and customer relationships on the IPS reporting unit’s books and accounts for these in accordance with ASC 350, “Intangibles-Goodwill and Other.” ASC 350 requires an annual test of goodwill and indefinite-lived assets for impairment, unless circumstances dictate more frequent assessments.

During the three months ended March 31, 2020, the Company experienced triggering events that resulted in the Company testing its goodwill for impairment. Those triggering events include the reduction in fair value of the deferred earn-out compensation discussed in Note 3 and revised revenue and operational projections for the remainder of the fiscal year and future periods. Based on these factors, Management concluded that it was more likely than not that the fair value has declined below the carrying amount for the IPS reporting unit. Management then engaged with a valuation firm to calculate the impairment charge by comparing the fair value of a reporting unit with its carrying amount. With the support of the external valuation firm, management determined the reporting unit’s fair value to be below the carrying value by $1,015,000 and an impairment charge was recognized for the amount for the period ended March 31, 2020. Fair value of the reporting unit was determined using Level 3 inputs, which is a combination of asset-based, income and market approaches. These estimates and assumptions include discount rate, terminal growth rate, selection of peer group companies and control premium applied as well as forecasts of revenue growth rates, gross margins, operating margins, and working capital requirements. Any changes in the judgments, estimates, or assumptions used could produce significantly different results.

FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Below is the rollforward of goodwill for IPS, the only reporting unit with goodwill.

The Company, post IPS acquisition, conducts its business through two operating segments, which are also its reportable segments:

Segment operating loss reflects results before shared corporate and unallocated administrative expenses and income taxes. Shared corporate and unallocated administrative expenses principally consist of costs for corporate and administrative support functions.

FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On February 11, 2020, the Company granted five-year options to directors to purchase an aggregate of 248,019 shares of common stock at an exercise price of $1.13 per share. The shares vest one year from the grant date. The options had an aggregate grant date fair value of $144,999, which is being amortized over the vesting period of the options.

The options granted during the period ended March 31, 2020 had a weighted average grant date value of $0.58 per share.

On February 5, 2019, the Company granted five-year options to three non-employee directors to purchase an aggregate of 150,021 shares of common stock at an exercise price of $1.54 per share. The shares vested one year from the grant date. The options had an aggregate grant date fair value of $120,000, which was amortized over the vesting period of the options.

On February 5, 2019, the Company granted five-year immediately vesting options to two non-employee directors to purchase an aggregate of 140,460 shares of common stock at an exercise price of $1.54 per share. The options had an aggregate grant date fair value of $107,800, which was recognized immediately.

The options granted during the period ended March 31, 2019 had a weighted average grant date value of $0.78 per share.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model that uses the following assumptions. The expected term represents the period over which the stock option awards are expected to be outstanding. The Company utilizes the “simplified” method to develop an estimate of the expected term of “plain vanilla” employee option grants. The expected volatility used is based on the historical price of the Company’s stock over the most recent period commensurate with the expected term of the award. The risk-free interest rate used is based on the implied yield of U.S. Treasury zero-coupon issues with a remaining term equivalent to the award’s expected term. The Company historically has not paid any dividends on its common stock and had no intention to do so on the date the share-based awards were granted. The estimated annual forfeiture rate is based on management’s expectations and will reduce expense ratably over the vesting period. The forfeiture rate will be adjusted periodically based on the extent to which actual option forfeitures differ, or are expected to differ, from the previous estimate, when it is material.

~~There were no options granted during the three months ended December 31, 2017 and 2016.~~

~~The following table summarizes stock option activity during the three months ended December 31, 2017:~~

FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In applying the Black-Scholes option pricing model to options granted, the Company used the following assumptions:

The ~~Company recognized compensation expense of approximately $1,000 and $2,000~~following table summarizes stock option activity during the ~~three~~six months ended ~~December~~March 31, ~~2017 and 2016, respectively, for stock option awards in its condensed consolidated statements of operations and comprehensive income.~~2020:

As of December 31, 2017, there was approximately $2,000 of total unrecognized compensation cost related to nonvested stock option awards. That cost is expected to be recognized over a weighted average period of 0.5 years.

The following table provides additional information regarding stock option awards that were outstanding and exercisable at ~~December~~March 31, ~~2017:~~2020:

The Company recognized compensation expense of approximately ~~$(5,000)~~$36,000 and ~~$48,000~~$135,000 during the three months ended ~~December~~March 31, ~~2017~~2020 and ~~2016,~~2019, respectively, and approximately $69,000 and $145,000 during the six months ended March 31, 2020 and 2019, respectively, for stock option awards in its condensed consolidated statements of operations and comprehensive loss.

FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of March 31, 2020, there was approximately $133,000 of total unrecognized compensation cost related to nonvested stock option awards that is expected to be recognized over a weighted average period of 0.9 years.

The Company recognized compensation expense of approximately $0 and $1,000 during the three months ended March 31, 2020 and 2019, respectively, and approximately $0 and $3,000 during the six months ended March 31, 2020 and 2019, respectively, for restricted stock awards in its condensed consolidated statements of operations and comprehensive ~~income.~~

loss. As of ~~December~~March 31, ~~2017,~~2020, there was ~~approximately $15,000 of total~~no unrecognized compensation ~~cost~~expense related to nonvested restricted stock awards. ~~That cost is expected to be recognized over a weighted average period of 0.2 years.~~

~~The following table summarizes restricted stock activity during the three months ended December 31, 2017:~~

~~FORWARD INDUSTRIES, INC. AND SUBSIDIARIES~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

Basic ~~earnings~~loss per share data for each period presented is computed using the ~~weighted-average~~weighted average number of shares of common stock outstanding during each such period. Diluted ~~earnings~~loss per share data is computed using the ~~weighted-average~~weighted average number of common and dilutive ~~common-equivalent~~common equivalent shares outstanding during each period. Dilutive common-equivalent shares consist ~~of: (i)~~of shares that would be issued upon the exercise of stock options and warrants, computed using the treasury stock ~~method; and (ii) shares of nonvested restricted stock. The Company calculated the potential diluted earnings per share in accordance with ASC 260, as follows:~~method.

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

FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three and six months ended ~~December~~March 31, ~~2017~~2020 and ~~2016,~~2019, the Company had significant customers with individual percentage of total revenues equaling 10% or ~~greater~~greater. The risk of collecting on Accounts Receivable for all customers is enhanced as a result of the economic impact of the COVID-19 pandemic. The concentrations of revenues and accounts receivable for each reporting segment are as follows:

At ~~December~~March 31, ~~2017~~2020 and September 30, ~~2017, concentration~~2019, concentrations of accounts receivable with significant customers representing 10% or greater of segment accounts receivable ~~was~~were as follows:

FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On March 12, 2012, the Company entered into a Buying Agency and Supply Agreement (the “Supply Agreement”) with Forward Industries Asia-Pacific Corporation, a British Virgin Islands corporation (“Forward China”). The Supply Agreement, as amended, provides that, upon the terms and subject to the conditions set forth therein, Forward China will act as the Company’s exclusive buying agent and supplier of Products (as defined in the Supply Agreement) in the ~~Asia Pacific~~Asia-Pacific region. The Company purchases products at Forward China’s cost and also pays to Forward China a monthly service fee equal to the sum of: (i) $100,000; and (ii) 4% of “Adjusted Gross Profit”, which is defined as the selling price less the cost from Forward China. The amended Supply Agreement ~~expires~~was scheduled to expire on March 8, 2019, subject to renewal. Terence Bernard Wise, Chief Executive Officer and Chairman of the Company, is ~~a principal~~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 shares of common stock. The Company recognized approximately ~~$360,000~~$339,000 and ~~$363,000~~$344,000 during the three months ended ~~December~~March 31, ~~2017~~2020 and ~~2016,~~2019, respectively, and approximately $676,000 and $703,000 during the six months ended March 31, 2020 and 2019, respectively, in service fees paid to Forward China, which are included as a component of cost of goods sold in the accompanying condensed consolidated statements of operations and comprehensive ~~income. During~~loss. Effective October 22, 2019, the Company extended the term of the supply agreement to October 22, 2020 under the same terms, substantially.

On January 18, 2018, the Company issued a $1.6 million promissory note payable to Forward China in order to fund the acquisition of IPS. The promissory note bears an interest rate of 8% per annum. Monthly interest payments commenced on February 18, 2018. The original maturity date was January 18, 2019 and has been extended to July 17, 2020. The maturity date of the note has been extended on several occasions to assist the Company with liquidity. For the three and six months ended March 31, 2020 and 2019, the Company made approximately $32,000 and $64,000, respectively, in interest payments associated with the note. The $1.6 million note payable is included as a component of the notes payable - short-term portion line of the accompanying condensed consolidated balance sheets.

The Company’s design division provided services to a customer whose Chief Operating and Financial Officer and equity owner is an immediate family member of a director on the Company’s board and a member on the Board’s Audit and Compensation committees. The Company sold approximately $6,000 and $58,000 in design services to the customer for the three months ended ~~December~~March 31, ~~2017~~2020 and ~~2016,~~2019, respectively, and $44,000 and $58,000 for the ~~Company received commissions from Forward China~~six months ended March 31, 2020 and 2019, respectively. At March 31, 2020 and September 30, 2019, there were outstanding receivables of approximately $0 and ~~$12,904,~~$9,000, respectively, ~~which is included in net revenues.~~from the customer.

~~See Note 8 below regarding a promissory note issued to Forward China as part of the IPS acquisition.~~

FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

From time to time, the Company may become a party to legal actions or proceedings in the ordinary course of its business. As of ~~December~~March 31, ~~2017,~~2020, 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, specifically IPS, has a $1,300,000 revolving line of credit with TD Bank which was renewed at the discretion of the lender on April 30, 2019. The maturity date has been extended by the lender to August 29, 2020. The line of credit was amended and modified on September 28, 2018 to extend the line of credit limit from $1,000,000 to $1,300,000 and repayment was guaranteed by the Company and is secured by all of IPS’ assets. The interest rate on the line of credit is 0.75% aboveThe Wall Street Journal prime rate. The effective interest rate at March 31, 2020 and September 30, 2019 was 4.0% and 5.75%, respectively. As of March 31, 2020, the Company had $900,000 available under the line of credit. The Company is subject to certain debt-service ratio requirements which are measured annually. With a net loss for the six months ended March 31, 2020 of approximately $875,000 for IPS, there is a likely risk of failing covenant testing at year end. As such, the lender may demand payment in full upon default. As of September 30, 2019, the Company was in violation of the required debt-service ratio covenants. The Company was granted a waiver of the violation from the lender.

On April 1, 2016, IPS entered into a term loan with a lender in the amount of $325,000. The loan matures on April 1, 2020 and bears interest at a rate of 4.215% per annum. Interest and principal of $7,378 is paid on a monthly basis through maturity. This loan is secured by all of the IPS’ assets and is guaranteed by the Company. Outstanding balance as of March 31, 2020 and September 30, 2019 was approximately $7,000 and $52,000, respectively. The loan was paid off in early April 2020 per the agreement. The agreement contains certain restrictive covenants measured annually. As of September 30, 2019, the Company was in violation of the required debt-service ratio covenants. The Company was granted a waiver of the violation from the lender.

On December 11, 2017, IPS entered into an installment payment financing arrangement with a lender in the amount of approximately $23,000. IPS makes monthly payments of $1,035, which includes an implied interest rate of 9.5%, for 24 months. The last payment was made in December 2019. The loan balance was $0 and approximately $3,000 at March 31, 2020 and September 30, 2019, respectively.

On January 29, 2019, the Company entered into a three-year Distribution Agreement (the “Agreement”) with Mooni International AB (“Mooni”) and its owner, Staffan Bern (the “Owner”). In accordance with the Agreement, the Company: (i) was appointed as the exclusive distributor of Mooni's current and future products (including future products developed or offered by Mooni and/or the Owner) in North America, (ii) subject to certain repayment requirements, paid $400,000 to Mooni, and (iii) was granted an option to purchase a controlling interest of Mooni at a valuation not to exceed $5 million which, if exercised, would be effective on the 12-month anniversary of the effective date of the Agreement. This option was not exercised. Additionally, Forward China, a company owned by Terence Wise, the Company's Chairman and Chief Executive Officer, was named the designated supplier under the Agreement. As of March 31, 2020, the unamortized fee of approximately $244,000 is included in prepaid expenses and other current assets and other assets for the short-term and long-term components, respectively, in the accompanying condensed consolidated balance sheets. Amortization of the cost for the three and six months ended March 31, 2020 of approximately $33,000 and $67,000, respectively, is included in the Sales and Marketing expenses in the accompanying condensed consolidated statement of operations and comprehensive loss.

FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company leases office space for its corporate headquarters in West Palm Beach, Florida under a 90-month agreement expiring in September 2020. The operating lease granted six initial months of free rent and escalates at 3% per year. The monthly rent payment is approximately $7,700, which includes common area maintenance costs.

The Company leases office space for its Distribution segment sales and administrative office in Cham, Switzerland on a month-to-month basis. The monthly rent payment is $1,599 CHF, which is approximately $1,615.

IPS leases office space in Hauppauge, New York under a non-cancelable lease agreement expiring in February 2027. The monthly rent payment is approximately $29,000, which includes power utilities.

IPS leases office space in Ronkonkoma, New York under a three-year agreement expiring in January 2022. The monthly rent payment is $4,400.

As of March 31, 2020, the Company did not have additional operating and financing leases that have not yet commenced.

Total operating lease expense for the three months ended March 31, 2020 and 2019 was approximately $122,000 and $134,000, respectively, and is recorded in general and administrative expenses on the condensed consolidated statements of operations and comprehensive loss. Total operating lease expense for the six months ended March 31, 2020 and 2019 were approximately $255,000 and $249,000, respectively, and are recorded in general and administrative expenses on the condensed consolidated statements of operations and comprehensive loss.

Future minimum payments under non-cancellable operating leases as of March 31, 2020 were as follows:

FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company, specifically IPS, leases computer equipment through various finance lease agreements expiring through January 2022. Amortization expense related to assets under finance leases were $10,982 and $22,989 during the three and six months ended March 31, 2020, respectively. Interest expense related to assets under finance leases were $828 and $1,856 during the three and six months ended March 31, 2020, respectively.

Future minimum payments under non-cancellable operating leases as of March 31, 2020 were as follows:

On ~~January~~April 18, ~~2018,~~2020, the Company entered into a ~~Stock Purchase Agreement~~loan with TD Bank, N.A. in an aggregate principal amount of approximately $1.4 million under the Paycheck Protection Program (the ~~“Agreement”~~“PPP Loan”) bypursuant to the recently enacted U.S. Coronavirus Aid, Relief, and ~~among~~Economic Security Act (the “CARES Act”). The loan matures two years from the ~~Company, Intelligent Product Solutions, Inc. (“IPS”), the holders of all~~date of the ~~common stock of IPS, Inc. (the “Sellers”)~~note on April 18, 2022 and Mitchell Maiman, President, representing the Sellers. In consideration for the acquisition of all of IPS’ outstanding securities, the Company: (i) paid approximately $1.9 million in cash; (ii) assumed approximately $1.5 million of outstanding debt; (iii) issued a total of 401,836 shares of the Company’s common stock to the two owners of IPS; (iv) agreed to pay $1,000,000 of deferred cash compensation (with the first payment of $500,000 due on May 31, 2018, the second payment of $200,000 due on September 30, 2019, and third payment of $300,000 due on September 30, 2020); and (v) agreed to pay up to $2.2 million of earnout payments based upon IPS meeting certain EBITDA milestones (as defined in the Agreement) over a three-year period. Additionally, the Company entered into three-year employment agreements with both Mitchell Maiman (President of IPS) and Paul Severino (Chief Operating Officer of IPS), and agreed to pay them each $256,000 per year. In order to fund the acquisition of IPS, the Company issued a $1.6 million promissory note payable to Forward China due January 18, 2019. The promissory note bears an interest rate of 8%1.00% per ~~annum~~annum. The Company must pay monthly principal and ~~requires monthly~~ interest payments ~~commencing February 18, 2018. Forward China~~on the outstanding principal balance of the PPP Loan amortized over the term of the loan beginning seven months from the month this Note is ~~an entity which~~dated until the Maturity Date when the entire principal balance remaining unpaid, along with all accrued and unpaid interest, shall be due and payable in full. This loan is ~~principally owned~~unsecured, and the Company may apply for forgiveness of the loan in accordance with the terms of the CARES Act. Subsequent to receiving the loan, the Company amended the loan application to address certain inconsistencies. The application is subject to review by the ~~Company’s Chairman and Chief Executive Officer. As part~~Small Business Administration.

The Company has entered into a non-binding letter of intent to acquire all of the ~~Agreement, IPS entered into at-will employment agreements with two additional key employees. Pursuant~~assets of a design-development company focused on products in the medical industry, for consideration of cash, assumption of liabilities and stock in the aggregate of up to approximately $1.5 million. The Company can provide no assurance that the ~~employment agreements, the employees were issued a total of 40,184 shares of the Company’s common stock of which 40% vested immediately with the remainder vesting in two equal increments~~transaction will close and, if so, it will close on the ~~six-month and twelve-month anniversary of the grant date, subject to continued employment on such vesting dates.~~

Effective January 22, 2018 through February 12, 2018, ten warrant holders exercised (via cashless exercises) an aggregate of 521,621 warrants with an exercise price of $1.84 per share and were issued an aggregate of 223,704 shares of the Company’s common stock.terms disclosed herein.

The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements, and the notes thereto, and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2017.~~2019. The following discussion and analysis compares our consolidated results of operations for the three and six months ended ~~December~~March 31, ~~2017~~2020 (the ~~“2018~~“2020 Quarter”) and “2020 Period”, respectively) with those for the three and six months ended ~~December~~March 31, ~~2016~~2019 (the ~~“2017~~“2019 Quarter”) and “2019 Period”, respectively). All figures in the following discussion are presented on a consolidated basis. All dollar amounts and percentages presented herein have been rounded to approximate values.

Forward Industries, Inc. ~~(“Forward” or the “Company”)~~ designs and distributes carry and protective solutions, primarily for hand held electronic devices. The Company’s principal customer market is original equipment manufacturers, or “OEMs” (or the contract manufacturing firms of these ~~OEM~~distribution customers), that either package our products as accessories “in box” together with their branded product offerings, or sell them through their retail distribution channels. The Company’s ~~OEM~~distribution products include carrying cases and other accessories for medical monitoring and diagnostic kits and a variety of other portable electronic and non-electronic products (such as sporting and recreational products, bar code scanners, smartphones, GPS location devices, tablets, firearms). The Company’s ~~OEM~~distribution customers are located ~~in:~~in (i) the Asia-Pacific Region, which we refer to as the “APAC Region”; (ii) Europe, the Middle East, and Africa, which we refer to as the “EMEA Region”; and (iii) the Americas. The Company does not manufacture any of its ~~OEM~~distribution products and sources substantially all of its ~~OEM~~distribution products from independent suppliers in China, through Forward China.

~~On January 18, 2018, we acquired Intelligent Product Solutions, Inc. (“IPS”). This was~~

As a ~~significant strategic acquisition for Forward and creates noteworthy cross selling opportunities for~~result of the ~~combined companies. Both companies have a reputation for achieving a very high level~~expansion of ~~customer satisfaction by providing excellent customer service in both design and~~ the sourcing of manufactured finished goods. The acquisition allows us to bring design and development solutions to our existing multinational client base and expand beyond the diabetic product line. Similarly, IPS can now position themselves as a fully integrated design development ~~and manufacturing solution to their existing top tier customers and~~capabilities through its wholly owned subsidiary, IPS, the ~~considerable new projects in their pipeline. Additionally, the acquisition gives Forward the opportunity to introduce~~Company has begun introducing proprietary ~~product~~products to the market from concepts brought to ~~them~~it from a number of different sources. The ~~Forward/IPS combination~~Company provides clients, both big and small, a true, authentic ~~“one-stop-shop”~~"one-stop shop" for product design, development, distribution and manufacturing solutions.

On January 29, 2019, the Company entered into a distribution agreement with Mooni AB International. By virtue of our strategic collaboration and ~~distribution.~~

distribution agreement with Mooni AB International, we have secured a portfolio of smart enabled products which we anticipate will be distributed to retail outlets in the United States. As a result of this collaboration and other product initiatives, the Company began to invest in and build out a distribution network for retail. The distribution network will be responsible for getting products into big box retailers for retail consumption. This build out is a continuation of our ~~acquisition~~strategy to be a one-stop shop for product development, manufacture and distribution and represents a significant achievement in completing the strategic process of ~~IPS~~taking a product from concept to the consumer. We have built out a sales team that covers North America by leveraging the manufacturer's representative model. We have identified and signed agreements with long standing firms that have years of experience and relationships with the big box retailers that we are targeting in both United States and Canada.

Through the manufacture representative agreements we currently have in place, we hope to gain sales coverage to retailers such as Best Buy, Target, Walmart, Costco, CVS, Walgreens, Staples, Office Depot and many others. The manufacture representative model allows us to engage and support a large sales team and cover a lot of territory with a variable cost model as these representatives work on ~~January 18, 2018,~~commission only.

In December 2019, a novel strain of coronavirus known as COVID-19 was reported to have surfaced in China, and by March 2020 the spread of the virus had resulted in a world-wide pandemic. The U.S. economy has been largely shut down by mass quarantines and government mandated stay-in-place orders (the “Orders”) to halt the spread of the virus. These Orders have required substantially all of our employees to work from home.

In certain jurisdictions, the Orders are beginning to be relaxed, but considerable uncertainty remains about the ultimate impact on our business. Even if the Orders are lifted, there is no assurance that they will not be reinstated if the spread of COVID-19 resumes. While the current business disruption is expected to be temporary, the long-term financial impact on our business ~~has been augmented. Key terms of the acquisition are contained in a Form 8-K filed with the SEC on January 18, 2018. IPS’ financial results are not included in~~cannot be reasonably estimated at this ~~report. Our results of operations in this report solely relate to our historical business.~~time.

Because a high percentage of our net revenues is highly concentrated in a few large customers, and because the volumes of these customers’ order flows to us are highly variable, with short lead times, our quarterly revenues, and consequently our results of operations, are susceptible to significant variability over a relatively short period of time. ~~We believe this~~Since the acquisition of IPS, the variability ~~will be less in the future when IPS’ financial results are consolidated with the Company’s financial results.~~has diminished to a certain extent.

We discuss the material accounting policies that are critical in making the estimates and judgments in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2017,~~2019, under the caption “Management’s Discussion and Analysis—Critical Accounting Policies and Estimates”. There has been no material change in critical accounting policies or estimates during the period covered by this report.

For information on recent accounting pronouncements and impacts, see Note 2 to the unaudited condensed consolidated financial statements.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED ~~DECEMBER~~MARCH 31, ~~2017~~2020 COMPARED TO THE THREE MONTHS ENDED ~~DECEMBER~~MARCH 31, ~~2016~~2019

The results of operations disclosed below ~~is based upon~~presents Forward’s distribution business and IPS’ design segments as distinct operating units. Management continues to expand our retail efforts for the ~~historical business of Forward (prior~~distribution segment in an attempt to improve profitability. Management believes the ~~acquisition of IPS) and does not include~~profitability for the ~~financial results of IPS and is not indicative nor representative of~~design segment will continue to improve as the ~~results of operations of Forward when it is consolidated with the results of IPS’ operations.~~Company streamlines operating expenses.

Distribution segment net loss was approximately ~~$47,000~~$(71,000) in the ~~2018~~2020 Quarter compared to net loss of approximately ~~$151,000~~$(651,000) in the ~~2017~~2019 Quarter. ~~The decline in net income~~Net loss in the ~~2018~~2020 Quarter was primarily due to a decline in ~~both net revenues~~sales and gross profit ~~and an increase in general and administrative expenses, partially~~ offset by a ~~decrease~~fair value adjustment to the earn-out and deferred cash components of the deferred compensation as discussed in ~~sales and marketing expenses,~~Note 3 of $341,000, as reflected in the table below.

Design segment net loss was approximately $(1,301,000) in the 2020 Quarter compared to a net loss of approximately $(480,000) in the 2019 Quarter. Net loss in the 2020 Quarter was primarily due to the goodwill impairment loss of $(1,015,000) discussed in Note 4 of the Notes to the Condensed Consolidated Statements of Operations, and, to a lesser extent, a reduction in revenue and an increase in operating expenses in addition to a write-down of an investment as discussed in Note 3 of approximately $327,000.

Basic and diluted ~~earnings~~loss per share was ~~$0.01~~$(0.14) per share for the ~~2018~~2020 Quarter and ~~$0.02~~$(0.12) per share for the ~~2017~~2019 Quarter.

Net revenues in the distribution segment declined ~~$0.3~~approximately $0.15 million, or 4%3%, to ~~$6.3~~$4.62 million in the ~~2018~~2020 Quarter from ~~$6.6~~$4.77 million in the ~~2017~~2019 Quarter ~~due to reduced revenues~~as a result of a reduction in Diabetic product line revenue slightly offset by a marginal increase in Other ~~Products, partially offset by increased revenues from Diabetics Products. Revenues from Other Products declined $0.4 million whereas revenues from Diabetic Products increased $0.1 million.~~Product revenue. The following tables set forth revenues by channel, product line and geographic location of our Distribution segment customers for the periods indicated:

Forward’s distribution segment manufactures to the order of, and ~~sell~~sells carrying cases for blood glucose diagnostic kits directly to OEMs (or their contract manufacturers). 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, ~~sell~~sells them through their retail distribution channels.

Revenues from Diabetic Products ~~increased $0.1~~declined approximately $0.2 million, or 4%, to ~~$5.6~~approximately $4.1 million in the ~~2018~~2020 Quarter from ~~$5.5~~approximately $4.2 million in the ~~2017~~2019 Quarter. This ~~increase~~decline was ~~primarily~~ due to ~~higher revenues derived~~combination of reduced demand and pricing pressures from ~~two~~most of our major Diabetic Products ~~customers (Diabetics Products Customers A and B) and a slight increase in revenues from our Other Diabetic Products~~ customers. ~~The increase was offset, in part, by a decrease in revenues from two of our major Diabetic Products customers (Diabetic Products Customers C and D).~~

The following table sets forth our distribution segment net revenues by Diabetic Products customer for the periods indicated:

Revenues from Diabetic Products represented 88% of our net revenues in the 2020 Quarter compared to 89% of our net revenues in the ~~2018 Quarter compared to 84% of our net revenues in the 2017~~2019 Quarter.

We design and sell cases and protective solutions to OEMs for a diverse array of portable electronic devices (such as bar code scanners, GPS devices, cellular phones, tablets and cameras), as well as a variety of other products (such as sporting and recreational products and firearms) on a made-to-order basis that are customized to fit the products sold by our OEM customers.

Revenues from Other Products ~~declined $0.4 million~~increased approximately $31,000 to ~~$0.7 million~~approximately $536,000 in the ~~2018~~2020 Quarter from ~~$1.1 million~~approximately $505,000 in the ~~2017~~2019 Quarter. ~~This is primarily due~~Notable fluctuations include an increase in sales to ~~overall net decreases of $0.6 million from existing customers,~~the following customers: An OEM handbag customer for $109,000, a medical diagnostics company for $73,000, partially offset by a decline in sales to a sales and marketing customer for $60,000 and other customers that were not material individually or in the ~~addition of $0.2 million from some new customers.~~aggregate. We will continue to focus on our sales and sales support teams in our attempt to expand and diversify our Other Products customer base.

Revenues from Other Products represented 12% of our net revenues in the 2020 Quarter compared to 11% of our net revenues in the ~~2018 Quarter compared to 16% of our net~~2019 Quarter.

~~Gross profit decreased $0.2 million,~~design segment declined approximately $96,000, or ~~13%~~3%, to ~~$1.0~~approximately $3.3 million in the ~~2018~~2020 Quarter from ~~$1.2~~approximately $3.4 million in the ~~2017~~2019 Quarter. The following table sets forth our design segment net revenues by major customers for the 2020 Quarter:

Gross profit for the distribution segment declined approximately $191,000, or 25%, to approximately $561,000 in the 2020 Quarter from approximately $752,000 in the 2019 Quarter as a result of a result of a shift to lower-margin cases and pricing pressures from customers. As a percentage of revenues, our gross margin ~~declined~~decreased to 12.8% in the 2020 Quarter from 15.8% in the ~~2018~~2019 Quarter. The decline in margin in the 2020 Quarter from the 2019 Quarter is a result of pricing pressures and product mix weighing heavier on lower margin diabetic cases.

Gross Profit for the design segment increased approximately $333,000, or 60%, to approximately $892,000 in the 2020 Quarter from approximately $559,000 in the 2019 Quarter. Gross Profit as a percentage of revenue was 27% for the design segment for the 2020 Quarter compared to ~~17.6%~~16.4% in the ~~2017~~2019 Quarter.

Gross Profit percentage in the 2020 Quarter has been enhanced by result of efficient management of projects and is closer to a normal run rate than the 2019 Quarter. The gross profit ~~decline~~as a percentage of revenue for the 2019 Quarter was ~~driven primarily by~~significantly lower than historical performance for the design segment of our business as a ~~year over year decrease in volumes related to global revenues. Quarter 2018 revenues~~result of project overruns for two significant customers in the ~~Americas declined 17%~~2019 Quarter. Depreciation expense was approximately $28,000 and $22,000 for the 2020 Quarter and 2019 Quarter, respectively. Depreciation expense is allocated to $1.9 million primarily due to decreased revenues from Diabetic Products Customers C and D, partially offset by increased revenues from Diabetic Products Customer A and Other Products customers. Quarter 2018 revenuesCost of Sales in the APAC Region declined 6% to $2.0 million primarily due to decreased revenues from Other Products customers, partially offset by increased revenues from Diabetic Products Customer B. Quarter 2018 revenues in the EMEA Region increased 12% to $2.4 million primarily due to increased revenues from Diabetic Products Customer A and other Diabetic Products customers, partially offset by decreased revenues from Diabetic Products Customers C and D and Other Products customers.design segment.

Sales and marketing expenses ~~decreased~~for the distribution segment increased approximately ~~$140,000,~~$76,000, or ~~33%~~24%, to approximately ~~$278,000~~$391,000 in the ~~2018~~2020 Quarter from approximately ~~$418,000~~$315,000 in the ~~2017 Quarter,~~2019 Quarter. The increase was primarily due to ~~decreased personnel~~the additional operating expenses related to the pursuit of retail sales channels of approximately $101,000, partially offset by the reduction of an OEM salesperson and associated expenses of approximately ~~$94,000, decreased~~$54,000 in our Switzerland office. Management anticipates these selling expenses to rise as we gain more traction in the retail outlets as commissions expense will increase, proportionally, and other related expenses ~~of approximately $23,000 and decreased travel expenses of approximately $22,000. Fluctuations in other components of “Sales and Marketing Expenses”~~will increase as sales rise. Other fluctuations were not material individually or in the aggregate.

Sales and marketing expenses for the design segment decreased approximately $16,000, or 5%, to approximately $129,000 in the 2020 Quarter from $113,000 in the 2019 Quarter. Sales and marketing expenses increased due to the addition of new sales representatives offset by a reduction in sales commissions and sales promotions. Other fluctuations were immaterial individually and in the aggregate.

General and administrative expenses ~~increased~~in the distribution segment decreased approximately ~~$81,000, or 14%,~~$465,000, to approximately ~~$674,000~~$588,000 in the ~~2018~~2020 Quarter from approximately ~~$593,000~~$1,053,000 in the ~~2017 Quarter,~~2019 Quarter. This was primarily due to ~~increased professional~~a decline in legal fees ~~(stemming from~~related to the ~~IPS Acquisition)~~SEC investigation of approximately ~~$116,000 and director reimbursement costs~~$251,000, which included an insurance settlement recovery of fees of approximately ~~$33,000, partially offset by decreased director share-based compensation~~$80,000, a reduction in bad debt expense of approximately ~~$52,000~~$159,000, and ~~directors and officers insurance of approximately $12,000.~~a $94,000 reduction in Director’s share-based compensation. Fluctuations in other components of “General and Administrative Expenses” were not material individually or in the aggregate.

General and administrative expenses for the ~~2018~~design segment increased approximately $132,000, or 15%, to $1,037,000 in the 2020 Quarter from approximately ~~$3,000~~$905,000 in the ~~2017 Quarter, primarily due~~2019 Quarter. The increase is driven by the investment impairment discussed in Note 4 of the Notes to ~~income from the property subleased in Santa Monica, California that expired in September 2016~~Condensed Consolidated Financial Statements of ~~approximately $11,000,~~$327,000 partially offset by ~~decreased realized losses on foreign currency transactions~~a reduction in bad debt expense of approximately ~~$3,000.~~$200,000. Fluctuations in other components of “General and Administrative Expenses” were not material individually or in the aggregate.

Other income (expenses) for the distribution segment increased approximately $342,000 from approximately $35,000 in expense in the 2019 Quarter to $307,000 in income in the 2020 Quarter. This is due to net fair value adjustments of $341,000 to the purchase consideration components discussed in Note 3 of the Notes to Condensed Consolidated Financial Statements.

Other income (expenses) in the design segment decreased approximately $9,000 from $21,000 in expense in the 2019 Quarter to $12,000 in expense in the 2020 Quarter. This is composed of interest incurred on the line of credit and other debt instruments held within the design segment.

For the three months ended ~~December~~March 31, ~~2017,~~2020, the Company generated a net ~~income~~loss of approximately ~~$47,000. While~~$(1,371,000). The U.S. statutory tax rate for the fiscal year ending September 30, 2020 is 21%. The Company maintains significant net operating loss carryforwards noand does not recognize income tax expense (benefit) ~~was recognized~~ as the Company’s deferred tax provision is ~~completely~~offset by maintaining a full valuation allowance on the Company’s net deferred tax asset.

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH 31, 2020 COMPARED TO THE SIX MONTHS ENDED MARCH 31, 2019

Distribution segment net loss before taxes was approximately $(547,000) in the 2020 Period compared to net loss before taxes of approximately $(683,000) in the 2019 Period. Net loss in the 2020 Period was primarily due to a reduction in sales and gross profit offset by a ~~full valuation allowance. As~~reduction in operating expenses, as reflected in the table below.

Design segment net loss before taxes was approximately $(906,000) in the 2020 Period compared to net loss before taxes of approximately $(979,000) in the 2019 Period. Net loss in the 2020 Period was primarily due to the goodwill impairment loss of ($1,015,000) discussed in Note 4 of the Notes to the Condensed Consolidated Statements of Operations, partially offset by an improvement in gross profit, as reflected in the table below.

Basic and diluted loss per share were $(0.15) per share for the 2020 Period and $(0.17) per share for the 2019 Period.

Net revenues in the distribution segment declined approximately $1.7 million, or 16%, to $9.3 million in the 2020 Period from approximately $11 million in the 2019 Period primarily as a result of decreased Diabetic product line revenue in addition to a smaller decline in Other product line revenue. The ~~2017 Tax Cuts~~following tables set forth revenues by channel, product line and ~~Jobs Act, we expect no tax impact~~geographic location of our Distribution segment customers for the periods indicated:

Forward’s distribution segment manufactures to the ~~financial statements stemming from: (i)~~order of, and sells carrying cases for blood glucose diagnostic kits directly to OEMs (or their contract manufacturers). The OEM customer or its contract manufacturer packages our carry cases “in box” as a custom accessory for the ~~mandatory deemed repatriation~~OEM’s blood glucose testing and monitoring kits, or to a lesser extent, sells them through their retail distribution channels.

Revenues from Diabetic Products declined approximately $1.3 million, or 14%, to approximately $8.3 million in the 2020 Period from approximately $9.6 million in the 2019 Period. This decline was primarily due to lower revenues from three major Diabetic Products customers, Diabetic Products customers B, C and D, partially offset by a rise in sales to all other Diabetic Products customers. Management believes that revenues from diabetic customers will continue to decline.

The following table sets forth our distribution segment net revenues by Diabetic Products customer for the periods indicated:

Revenues from Diabetic Products represented 89% of ~~cumulative earnings~~our net revenues in the 2020 Period compared to 87% of our net revenues in the 2019 Period.

We design and ~~profits~~sell cases and protective solutions to OEMs for a ~~controlled foreign corporation; or (ii)~~diverse array of portable electronic devices (such as bar code scanners, GPS devices, cellular phones, tablets and cameras), as well as a variety of other products (such as sporting and recreational products and firearms) on a made-to-order basis that are customized to fit the ~~change~~products sold by our OEM customers.

Revenues from Other Products declined approximately $385,000 to $1.05 million in the ~~corporate~~2020 Period from $1.44 million in the 2019 Period. The decline is due to a decrease in sales of approximately $159,000 to a new temperature-monitoring device customer (through a divisional cross-selling opportunity), a decrease of approximately $146,000 to an electronics manufacturing conglomerate customer, partially offset by an increase in sales of approximately $132,000 to a medical diagnostics company, increase in sales of approximately $128,000 to a retail customer, and an increase in sales of approximately $109,000 to an OEM handbags customer. Fluctuations in sales to other customers were not individually material. We will continue to focus on our sales and sales support teams in our attempt to expand and diversify our Other Products customer base.

Revenues from Other Products represented 11% of our net revenues in the 2020 Period compared to 13% of our net revenues in the 2019 Period.

Net revenues in the design segment declined approximately $300,000, or 4%, to $7.0 million in the 2020 Period from approximately $7.3 million in the 2019 Period. The following table sets forth our design segment net revenues by major customers for periods indicated:

Gross profit for the distribution segment declined approximately $574,000, or 33%, to approximately $1.2 million in the 2020 Period from approximately $1.7 million in the 2019 Period as a result of a shift to lower-margin cases and pricing pressures from customers. As a percentage of revenues, our gross margin decreased to 12.5% in the 2020 Period from 15.7% in the 2019 Period. We are working on expanding our product offering to include higher margin products as well as enhancing our sales efforts to raise top side gross sales to raise total gross profit.

Gross Profit for the design segment increased approximately $1.1 million from approximately $876,000 in the 2019 Period to approximately $2.0 million in the 2020 Period. Gross Profit improved as a percentage of revenue from 12.0% in the 2019 Period to 28.7% in the 2020 Period. The gross profit as a percentage of revenue for the 2019 Quarter is significantly lower than historical performance for the design segment of our business. The decline was the result of project overruns on two significant customers in the 2019 Period. Depreciation expense was approximately $54,000 in the 2020 Period and $70,000 for the 2019 Period. Depreciation expense is allocated to Cost of Sales in the design segment.

Sales and marketing expenses for the distribution segment increased approximately $102,000, or 16%, to approximately $742,000 in the 2020 Period from approximately $640,000 in the 2019 Period. The increase was primarily due to the additional $252,000, approximately, in operating expenses related to the pursuit of retail sales channels partially offset by a reduction of approximately $105,000 in expenses related to the reduction of a salesperson in our Switzerland sales office. Other fluctuations were not material individually or in the aggregate.

Sales and marketing expenses for the design segment increased nominally by $13,000, or 5%, from $259,000 in the 2019 Period to $272,000 in the 2020 Period. Sales and marketing expenses increased due to the addition of new sales representatives for $37,000 offset by a reduction in sales commissions and sales promotions of $29,000. Other fluctuations were immaterial individually and in the aggregate.

General and administrative expenses in the distribution segment declined approximately $466,000, or 27%, to approximately $1.24 million in the 2020 Period from approximately $1.71 million in the 2019 Period, was primarily due to a decline in legal fees related to the SEC investigation of approximately $251,000, which included an insurance settlement recovery of fees of approximately $80,000, a reduction in bad debt expense of approximately $159,000, and a $64,000 reduction in Director’s share-based compensation. Fluctuations in other components of “General and Administrative Expenses” were not material individually or in the aggregate.

General and administrative expenses for the design segment were approximately $1,597,000 for the 2020 Period. General and administrative expenses in the design segment increased nominally by approximately $35,000 from $1,562,000 for the 2019 Period. The nominal increase is a mix of fluctuations including the investment impairment discussed in Note 3 of the Notes to Condensed Consolidated Financial Statements of $327,000. The offset is driven a reduction in bad debt expense of approximately $359,000. Fluctuations in other components of “General and Administrative Expenses” were not material individually or in the aggregate.

Other income (expenses) for the distribution segment increased approximately $346,000 from approximately $72,000 in expense in the 2019 Period to $274,000 in income in the 2020 Period. This is primarily due to net fair value adjustments of $341,000 to the purchase consideration components discussed in Note 3 of the Notes to Condensed Consolidated Financial Statements.

Other expenses in the design segment were approximately $31,000 for the 2020 Period. Other expenses in the design segment for the 2019 Period were approximately $34,000. This is composed of interest incurred on the line of credit and other debt instruments held within the design segment.

For the six months ended March 31, 2020, the Company generated a net loss of approximately ($1,453,000). The U.S. statutory tax rate for the fiscal year ended September 30, 2020 is 21%. The Company maintains significant net operating loss carryforwards and does not recognize income tax ~~rate. However,~~expense (benefit) as the ~~reduction in~~Company’s deferred tax provision is typically offset by maintaining a full valuation allowance on the ~~corporate income~~Company’s net deferred tax ~~rate will reduce the amount of net operating losses available for use in the future.~~asset.

Our primary source of liquidity is our operations. The primary demand on our working capital ~~will be:~~has historically been (i) operating losses, ~~should they occur;~~ (ii) repayment of debt obligations, and (iii) any increases in accounts receivable and inventories arising in the ordinary course of ~~business; and (iii) repayments of debts as they mature.~~business. Historically, our sources of liquidity have been adequate to satisfy working capital requirements arising in the ordinary course of business.

As of the filing date of this report, we had $300,000 available under our $1.3 million line of credit which matures August 29, 2020. The Company has paid down the line of credit using available cash from operations. Recently, the maturity date on the $1.6 million Forward China promissory note was extended to July 17, 2020 (see Note 9 – Related Party Transactions). Although this note has been extended on multiple occasions to assist the Company with its liquidity position, we plan on funding the repayment at maturity using existing cash balances and/or obtaining an additional credit facility as deemed necessary.

As discussed in Note 15 – Subsequent Events, on April 18, 2020, the Company entered into a loan with TD Bank, N.A. in an aggregate principal amount of approximately $1.4 million under the Paycheck Protection Program (the “PPP Loan”) pursuant to the recently enacted U.S. Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). This loan is unsecured, and the Company will apply for forgiveness of the PPP Loan in accordance with the terms of the CARES Act. We can provide no assurance that we will be successful in obtaining forgiveness for the PPP Loan.

We anticipate that our liquidity and financial resources for Forward and the consolidated subsidiaries for the next ~~twelve~~12 months from the date of the filing of this ~~filing~~Form 10-Q will be adequate to manage our operating and financial requirements. If we have the opportunity to make a strategic acquisition or to make an investment in a product or partnership, we will require additional capital beyond our current cash balance to fund the opportunity. 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.

At ~~December~~March 31, ~~2017,~~2020, our current ratio (current assets divided by current liabilities) was ~~2.9;~~1.5 compared to 1.4 at September 30, 2019; At March 31, 2020, our quick ratio (current assets less inventories divided by current liabilities) was ~~2.5; and~~1.4 compared to 1.2 at September 30, 2019; At March 31, 2020, our working capital (current assets less current liabilities) was ~~$9.0 million.~~approximately $3.5 million compared to $3.5 million at September 30, 2019. As of ~~December 31, 2017,~~June 5, 2020, we had no short or long-term debt outstanding. As part of the IPS acquisition, (i) we borrowed $1.6 million from Forward China and issued them an 8% one-year note (due January 18, 2019) with interest due monthly; (ii) we assumed approximately ~~$1.5~~$3.5 million of ~~debt (due at various dates through 2020) some of which was in default as a result of a covenant violation; and (iii) we agreed to pay $1,000,000 of deferred~~ cash ~~compensation (with the first payment of $500,000 due~~ on ~~May 31, 2018, the second payment of $200,000 due on September 30, 2019, and third payment of $300,000 due on September 30, 2020).~~hand.

Although we do not anticipate the need to purchase additional material capital assets in order to carry out our ~~business.~~business, it may be necessary for us to purchase equipment and other capital assets in the future, depending on need.

During the ~~three~~six months ended ~~December~~March 31, ~~2017~~2020 and ~~2016,~~2019, our sources and uses of cash were as follows:

During the ~~2018 Quarter,~~2020 Period, cash ~~provided by~~used in operating activities of approximately ~~$1,300,000~~$554,000 resulted ~~primarily~~ from a net loss of $1,453,000, an increase ~~in accounts payable (including due to Forward China) of approximately $736,000, a decrease~~ in accounts receivable of approximately ~~$619,000,~~$564,000, a decrease in ~~inventories~~accounts payable of approximately ~~$60,000,~~$986,000, a decrease in lease liabilities of approximately $139,000, an increase in prepaid expenses and other current assets of approximately ~~$52,000 and net income of approximately $47,000, partially offset by~~$168,000, a ~~decrease~~decline in accrued expenses and other current liabilities of $33,000, partially offset by a decline in inventories of approximately ~~$211,000.~~$973,000, an increase of deferred income of approximately $488,000, a decline in other assets of approximately $71,000, in addition to the add-backs for depreciation and amortization of approximately $297,000 and share-based compensation of approximately $69,000, bad debt recovery of approximately $110,000 and a non-cash impairment to goodwill of $1,015,000, a non-cash impairment of investment of approximately $327,000, and a non-cash decrease of $341,000 in fair value adjustments of the earn-out consideration and deferred cash consideration.

During the ~~2017 Quarter,~~2019 Period, cash used in operating activities of approximately ~~$520,000~~$2.8 million resulted primarily from ~~an increase in accounts receivable~~a net loss of approximately ~~$902,000 and~~$1.66 million, a decrease ~~in accrued expenses and other current liabilities~~ of ~~approximately $246,000, partially offset by an increase in accounts payable~~Accounts Payable (including due to Forward China) of approximately ~~$389,000, net~~$2.06 million, an increase in prepaid expenses and other assets of approximately $643,000, a decrease in deferred income of approximately ~~$151,000, and~~$54,000, partially offset by a decline in accounts receivable of approximately $795,000, a reduction of inventory of approximately $136,000, a reduction of accrued expenses of approximately $11,000, in addition to the ~~add back~~add-backs for bad debt expense of ~~non-cash~~approximately $408,000, share-based compensation of approximately ~~$50,000.~~$148,000, depreciation and amortization of approximately $157,000, and the add-back of deferred rent of approximately $2,000.

In the ~~2018 Quarter,~~2020 Period, cash used in investing activities of approximately ~~$19,000~~$27,000 resulted from purchases of property and equipment.

In the ~~2017 Quarter, there was no~~2019 Period, cash used in investing ~~activities.~~activities of approximately $24,000 resulted from purchases of property and equipment.

In the ~~2018 Quarter, there was no~~2020 Period, cash used in financing ~~activities.~~activities of approximately $1,163,000 consisted of $1,100,000 in repayments on the line of credit, offset by $200,000 in borrowings on the line of credit, $200,000 paid out on the deferred cash consideration, approximately $47,000 in repayments on notes payable and approximately $16,000 in repayments on capital equipment leases.

In the ~~2017 Quarter, there was no~~2019 Period, cash ~~used~~provided by financing activities of approximately $804,000 consisted of $1,250,000 in ~~financing activities.~~borrowings on the line of credit, offset by $300,000 in repayments on the line of credit, approximately $121,000 in repayments on notes payable and approximately $25,000 in repayments on capital equipment leases.

For information on related party transactions and their financial impact, see ~~Notes 6 and 8~~Note 9 to the unaudited condensed consolidated financial statements contained herein.

This report contains “forward-looking statements”, as such term is used within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our liquidity, expectations regarding the impact of the pandemic on our business, expectations regarding the length of pandemic’s business disruption, expectations regarding the forgiveness of the PPP Loan, beliefs regarding the design segments future results of operations, anticipated ~~synergies~~distribution of products from the ~~acquisition~~Mooni distribution agreement, plans regarding the repayment of ~~IPS~~debt and ~~working~~beliefs regarding our capital. Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects” and similar references to future periods. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you therefore against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements include the failure to receive material orders, our ability to successfully ~~integrate IPS,~~market and sell products that we develop, the effects of the COVID-19 outbreak, including levels of consumer, business and economic confidence generally, the duration of the COVID-19 outbreak and severity of such outbreak, the pace of recovery following the COVID-19 outbreak, the effect on our supply chain, our ability to implement cost containment; and the adverse effects of the COVID-19 outbreak on our business or the market price of our common stock, failure to diversify the industries in which we sell our products, potential imposed tariffs or other restrictions placed on imports by the U.S. government, and continued pricing pressure on our products. Further information on our risk factors is contained in our filings with the SEC, including our Form 10-K for the year ended September 30, ~~2017.~~2019. Any forward-looking statement made by us speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and ~~Procedures.~~Procedures. Our management carried out an evaluation, with the participation of our Principal Executive Officer and Principal Financial Officer, required by Rule 13a-15 and Rule 15d-15 of the Securities Exchange Act of 1934 (the “Exchange Act”) of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act. Based on their evaluation, our management has concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting. ~~There~~Except for the Company’s design and implementation of certain controls related to the adoption of the new lease standard (ASC 842), there were no changes in our internal control over financial reporting as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations of the Effectiveness of Controls and Procedures. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations of any control system, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.

PART II. OTHER INFORMATION

~~ITEM 1.~~ ~~LEGAL PROCEEDINGS~~

ITEM 1.

LEGAL PROCEEDINGS

~~ITEM 1A.~~ ~~RISK FACTORS~~

ITEM 1A.

RISK FACTORS

~~Risks Relating~~Our results of operations have been negatively impacted by the coronavirus pandemic.

The COVID-19 pandemic has spread across the globe and continues to negatively impact worldwide economic activity. COVID-19 has increased the risk that the Company or its employees, suppliers, customers and other commercial partners may be prevented from conducting business for an indefinite period of time, including due to the ~~Acquisition~~spread of ~~IPS~~the disease or shutdowns requested or mandated by governmental authorities. Specifically, COVID-19 has increased the risk of customers’ inability to pay for our design services and has the potential to impact collections on the distribution side of the business.

The Company has also transitioned its New York employees to working remotely, which subjects the Company to increased cybersecurity risks and may reduce workplace efficiency. Additionally, the full extent of COVID-19’s negative impact on our business remains uncertain and it is not possible at this time to estimate the full impact that COVID-19 will have on our business. Continued business shutdowns due to COVID-19 could disrupt our supply chain and the manufacture or shipment of our products and delay the rollout of our smart enabled retail products to big box retail stores, which could have a material adverse effect on our business. If we ~~are unable~~see significant declines in customer orders, increased aging of accounts receivables or other negative consequences due to ~~successfully integrate Intelligent Product Solutions, Inc. (“IPS”) with Forward, we may not realize all~~COVID-19, the extent of ~~the anticipated benefits of the Acquisition.~~

~~The success of the IPS acquisition (the “Acquisition”)~~which remains highly uncertain, it will ~~depend, in large part,~~have a material adverse effect on the ability of Forward to realize the anticipated benefits from the Acquisition. To realize the anticipated benefits of the Acquisition, the combined company must successfully integrate the sales, marketing, accounting, executiveour business, financial condition and ~~technology teams. This integration may be complex and time-consuming.~~

~~Potential difficulties Forward may encounter include, among others:~~

~~unanticipated issues in integrating logistics, information, communications and other systems;~~
~~integrating personnel from the two companies while maintaining focus on providing a consistent, high quality level of service and product;~~
~~integrating complex systems in a seamless manner that minimizes any adverse impact on customers, employees and vendors;~~
~~potential unknown liabilities, liabilities that are significantly larger than anticipated, or unforeseen expenses or delays associated with the Acquisition and the integration process;~~
~~unanticipated changes in applicable laws and regulations; and~~
~~complexities associated with managing the larger business.~~

~~Some of these factors are outside the control of either company.~~

Forward has not completed an acquisition comparable in size or scope to the Acquisition. The failure of Forward to successfully integrate IPS or otherwise to realize any of the anticipated benefits of the Acquisition could adversely affect its results of operations.

We may not be entitled to forgiveness of our recently received PPP Loans, and our application for the PPP Loans could in the future be determined to have been impermissible.

In April 2020, we received proceeds of approximately $1.4 million from a loan under the PPP of the CARES Act, which we are using to retain current employees, maintain payroll and make lease and utility payments. The ~~integration process maybe more difficult, costly~~PPP Loan matures in April 2022 and bears annual interest at a rate of 1.0%.

Commencing December 2020, we are required to pay the lenders equal monthly payments of principal and interest as required to fully amortize by April 2022 any principal amount outstanding on the PPP Loan as of November 2020. Under the CARES Act, loan forgiveness is generally available for the sum of documented payroll costs, covered rent payments, covered mortgage interest and covered utilities during the eight-week period beginning on the date the lender makes the first disbursement of the PPP Loan. We will be required to repay any portion of the outstanding principal that is not forgiven, along with accrued interest, and we cannot provide any assurance that we will be eligible for loan forgiveness, that we will ultimately apply for forgiveness equally among all business entities, or ~~time-consuming than anticipated,~~that any amount of the PPP Loan will ultimately be forgiven by the SBA.

If it is determined that we were ineligible to receive the PPP Loan, we may be required to repay the PPP Loan in its entirety and/or be subject to additional penalties, which could ~~cause Forward’s stock price~~also result in adverse publicity and damage to ~~decline.~~our reputation. In addition, if these events were to transpire, they could have a material adverse effect on our business, results of operations and financial condition.

~~ITEM 2.~~ ~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

We have previously disclosed all sales of securities without registration under the Securities Act of 1933 (the “Act”), other than the following: Effective January 22, 2018 through February 12, 2018, ten warrant holders exercised (via cashless exercises) an aggregate of 521,621 warrants with an exercise price of $1.84 per share and were issued an aggregate of 223,704 shares of the Company’s common stock. The securities were issued and sold in reliance upon the exemption from registration contained in Section 3(a)(9) of the Act.

~~ITEM 3.~~ ~~DEFAULTS UPON SENIOR SECURITIES~~

None.

~~ITEM 4.~~ ~~MINE SAFETY DISCLOSURES~~

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

MINE SAFETY DISCLOSURES

Not Applicable.

~~ITEM 5.~~ ~~OTHER INFORMATION~~

ITEM 5.

OTHER INFORMATION

None.

~~ITEM 6.~~ ~~EXHIBITS~~

ITEM 6.

EXHIBITS

The exhibits listed in the accompanying “Index to Exhibits” are filed or incorporated by reference as part of this Form 10-Q.

			Incorporated by Reference
Exhibit No.		Exhibit Description	Form	Date	Number	Filed or Furnished Herewith
2.1		Stock Purchase Agreement with Intelligent Product Solutions, Inc.	8-K	1/18/18	2.1
3.1		Restated Certificate of Incorporation	10-K	12/08/10	3(i)
3.2		Certificate of Amendment of the Certificate of Incorporation, April 26, 2013	8-K	4/26/13	3.1
3.3		Certificate of Amendment of the Certificate of Incorporation, June 28, 2013	8-K	7/03/13	3.1
3.4		Third Amended and Restated Bylaws, as of May 28, 2014	10-K	12/10/14	3(ii)
4.1		Promissory Note dated January 18, 2018 – Forward Industries (Asia-Pacific) (as amended and restated)	10-Q	2/14/20	4.1
10.1		Buying Agency and Supply Agreement - Forward Industries (Asia-Pacific) Corporation dated September 9, 2015	10-K	12/16/15	10.7
10.1(a)		Amendment No. 1 to Buying Agency and Supply Agreement – Forward Industries (Asia-Pacific) Corporation	10-Q	8/14/17	10.2
10.1(b)		Amendment No. 2 to Buying Agency and Supply Agreement – Forward Industries (Asia-Pacific) Corporation	8-K	9/22/17	10.1
10.1(c)		Amendment No. 3 to Buying Agency and Supply Agreement – Forward Industries (Asia-Pacific) Corporation	10-Q	5/15/19	10.1(c)
10.1(d)		Amendment No. 4 to Buying Agency and Supply Agreement – Forward Industries (Asia-Pacific) Corporation	10-K	12/27/19	10.1(d)
10.2		Paycheck Protection Program Term Note payable to TD Bank, N.A. dated April 18, 2020	8-K	4/22/20	10.1
31.1		Certification of Principal Executive Officer (Section 302)				Filed
31.2		Certification of Principal Financial Officer (Section 302)				Filed
32.1		Certification of Principal Executive Officer and Principal Financial Officer (Section 906)				Furnished*
101	.INS	XBRL Instance Document				Filed
101	.SCH	XBRL Taxonomy Extension Schema Document				Filed
101	.CAL	XBRL Taxonomy Extension Calculation Linkbase Document				Filed
101	.DEF	XBRL Taxonomy Extension Definition Linkbase Document				Filed
101	.LAB	XBRL Taxonomy Extension Label Linkbase Document				Filed
101	.PRE	XBRL Taxonomy Extension Presentation Linkbase Document				Filed

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

Dated: ~~February 14, 2018~~June 25, 2020

	FORWARD INDUSTRIES, INC.


	By:/s/ Terence Wise
	Terence Wise
	Chief Executive Officer
	(Principal Executive Officer)


	By:/s/ Michael Matte
	Michael Matte
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

EXHIBIT INDEX

INDEX TO EXHIBITS

Filed or
Incorporated by Reference Furnished
No. Exhibit Description Form Date Number Herewith

2.1 Stock Purchase Agreement with Intelligent Product
8-K
1/18/18
2.1
Solutions, Inc.
3.1 Restated Certificate of Incorporation
10-K
12/8/10
3(i)
3.2 Certificate of Amendment to the Certificate of
8-K
4/26/13
3.1
Incorporation, April 26, 2013
3.3 Certificate of Amendment to the Certificate of
8-K
7/3/13
3.1
Incorporation, June 28, 2013
3.4 Third Amended and Restated Bylaws, as of May 28,
10-K
12/10/14
3(ii)
2014
4.1 Rights Agreement, dated as of April 26, 2013
8-K
4/26/13
4.1
4.2 Promissory Note dated January 18, 2018 - Forward
8-K
1/18/18
4.1
Industries (Asia-Pacific)

10.1
Buying Agency and Supply Agreement with Forward
10-K
12/16/15
10.7
Industries (Asia-Pacific), Corporation, dated as of
September 9, 2015

10.2
Amendment No. 1 to Buying Agency and Supply
10-Q
8/14/17
10.2
Agreement - Forward Industries (Asia-Pacific)
Corporation

10.3
Amendment No. 2 to Buying Agency and Supply
8-K
9/22/17
10.1
Agreement - Forward Industries (Asia-Pacific)
Corporation

10.4
Form of Employment Agreement – IPS Sellers
8-K
1/18/18
10.1

31.1
Certification of Principal Executive Officer Filed
(Section 302)

31.2
Certification of Principal Financial Officer Filed
(Section 302)

32.1
Certification of Principal Executive Officer and Furnished*
Principal Financial Officer (Section 906)

101 INS
XBRL Instance Document Filed

101 SCH
XBRL Taxonomy Extension Schema Filed

101 CAL
XBRL Taxonomy Extension Calculation Linkbase Filed

101 LAB
XBRL Taxonomy Extension Label Linkbase Filed

101 PRE
XBRL Taxonomy Extension Presentation Linkbase Filed

101 DEF
XBRL Taxonomy Extension Definition Linkbase Filed
———————

			Incorporated by Reference
Exhibit No.		Exhibit Description	Form	Date	Number	Filed or Furnished Herewith
2.1		Stock Purchase Agreement with Intelligent Product Solutions, Inc.	8-K	1/18/18	2.1
3.1		Restated Certificate of Incorporation	10-K	12/08/10	3(i)
3.2		Certificate of Amendment of the Certificate of Incorporation, April 26, 2013	8-K	4/26/13	3.1
3.3		Certificate of Amendment of the Certificate of Incorporation, June 28, 2013	8-K	7/03/13	3.1
3.4		Third Amended and Restated Bylaws, as of May 28, 2014	10-K	12/10/14	3(ii)
4.1		Promissory Note dated January 18, 2018 – Forward Industries (Asia-Pacific) (as amended and restated)	10-Q	2/14/20	4.1
10.1		Buying Agency and Supply Agreement - Forward Industries (Asia-Pacific) Corporation dated September 9, 2015	10-K	12/16/15	10.7
10.1(a)		Amendment No. 1 to Buying Agency and Supply Agreement – Forward Industries (Asia-Pacific) Corporation	10-Q	8/14/17	10.2
10.1(b)		Amendment No. 2 to Buying Agency and Supply Agreement – Forward Industries (Asia-Pacific) Corporation	8-K	9/22/17	10.1
10.1(c)		Amendment No. 3 to Buying Agency and Supply Agreement – Forward Industries (Asia-Pacific) Corporation	10-Q	5/15/19	10.1(c)
10.1(d)		Amendment No. 4 to Buying Agency and Supply Agreement – Forward Industries (Asia-Pacific) Corporation	10-K	12/27/19	10.1(d)
10.2		Paycheck Protection Program Term Note payable to TD Bank, N.A. dated April 18, 2020	8-K	4/22/20	10.1
31.1		Certification of Principal Executive Officer (Section 302)				Filed
31.2		Certification of Principal Financial Officer (Section 302)				Filed
32.1		Certification of Principal Executive Officer and Principal Financial Officer (Section 906)				Furnished*
101	.INS	XBRL Instance Document				Filed
101	.SCH	XBRL Taxonomy Extension Schema Document				Filed
101	.CAL	XBRL Taxonomy Extension Calculation Linkbase Document				Filed
101	.DEF	XBRL Taxonomy Extension Definition Linkbase Document				Filed
101	.LAB	XBRL Taxonomy Extension Label Linkbase Document				Filed
101	.PRE	XBRL Taxonomy Extension Presentation Linkbase Document				Filed

* This exhibit is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K.

Copies of this ~~report~~filing (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our shareholders who make a written request to Forward Industries, Inc.,; 477 S. Rosemary Ave. ~~Ste. 219,~~, Suite 219; West Palm Beach, Florida ~~33401,~~33401; Attention: Corporate Secretary.

New York		13-1950672
(State or other jurisdiction of		(I.R.S. Employer ~~Identification No.)~~
incorporation or organization)		Identification No.)

477 S. Rosemary Ave., Suite 219, West Palm Beach, FL		33401
(Address of principal executive offices)		(Zip Code)

Large accelerated filer¨	~~[ ]~~	Accelerated filer	~~[ ]~~¨
Non-accelerated filerx	~~[ ]~~	Smaller reporting company	~~[X]~~x
~~(Do not check if a smaller reporting company)~~		Emerging growth company	~~[ ]~~¨

~~FORWARD INDUSTRIES, INC. AND SUBSIDIARIES~~


~~PART I.~~	~~FINANCIAL INFORMATION~~	~~Page~~

PART I.	FINANCIAL INFORMATION	Page No.
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of ~~December~~March 31, ~~2017~~2020 (Unaudited) and September 30, ~~2017~~2019	34
	Condensed Consolidated Statements of Operations and Comprehensive ~~Income~~Loss (Unaudited) for the Three and Six Months Ended March 31, 2020 and 2019	5
	~~for the Three Months Ended December 31, 2017 and 2016~~	4
	Condensed Consolidated ~~Statement~~Statements of Shareholders' Equity (Unaudited) for the ~~Three~~Six Months Ended March 31, 2020 and 2019	6
	~~December 31, 2017~~	5
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the ~~Three~~Six Months Ended March 31, 2020 and 2019	7
	~~December 31, 2017 and 2016~~	6
	Notes to Condensed Consolidated Financial Statements	78
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1426
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2037
Item 4.	Controls and Procedures	2037

~~PART II.~~	~~OTHER INFORMATION~~
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	2138
Item 1A.	Risk Factors	2138
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2138
Item 3.	Defaults Upon Senior Securities	2138
Item 4.	Mine Safety Disclosures	2139
Item 5.	Other Information	2139
Item 6.	Exhibits	2139
	Signatures	2240

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

		December 31,			September 30,
		2017			2017
		(Unaudited)			(Note 1)
Assets
Current assets:
Cash	$	5,904,425		$	4,622,981
Accounts receivable		5,599,751			6,218,563
Inventories		2,061,052			2,120,971
Prepaid expenses and other current assets		106,273			157,930
Total current assets		13,671,501			13,120,445
Property and equipment, net		33,458			20,658
Other assets		12,843			12,843
Total assets	$	13,717,802		$	13,153,946

Liabilities and shareholders' equity
Current liabilities:
Accounts payable	$	120,903		$	67,351
Due to Forward China		4,418,200			3,736,451
Accrued expenses and other current liabilities		172,556			382,759
Total current liabilities		4,711,659			4,186,561
Other liabilities		33,008			36,963
Total liabilities		4,744,667			4,223,524
Commitments and contingencies
Shareholders' equity:
Common stock, par value $0.01 per share; 40,000,000 shares authorized;
8,850,830 and 8,920,830 shares, issued and outstanding, respectively		88,508			89,208
Additional paid-in capital		17,932,835			17,936,673
Accumulated deficit		(9,048,808	)		(9,095,459	)
Accumulated other comprehensive income		600			-
Total shareholders' equity		8,973,135			8,930,422
Total liabilities and shareholders' equity	$	13,717,802		$	13,153,946

		For the Three Months Ended December 31,
		2017			2016

Net revenues	$	6,336,467		$	6,591,248
Cost of goods sold		5,333,871			5,432,419
Gross profit		1,002,596			1,158,829
Operating expenses:
Sales and marketing		278,062			417,527
General and administrative		673,461			593,180
Total operating expenses		951,523			1,010,707
Operating income		51,073			148,122
Other income (expense), net		(4,422	)		3,370
Income before income taxes		46,651			151,492
Provision for income taxes		-			-
Net income	$	46,651		$	151,492

Net income	$	46,651		$	151,492
Other comprehensive income:
Translation adjustments		600			-
Comprehensive income	$	47,251		$	151,492

Earnings per share:
Basic	$	0.01		$	0.02
Diluted	$	0.01		$	0.02

Weighted average number of common and
common equivalent shares outstanding:
Basic		8,760,830			8,621,513
Diluted		8,895,456			8,757,728

													Accumulated
							Additional						Other
	Common Stock						Paid-In			Accumulated			Comprehensive
	Shares			Amount			Capital			Deficit			Loss		Total

Balance - September 30, 2017	8,920,830		$	89,208		$	17,936,673		$	(9,095,459	)	$	-	$	8,930,422
Restricted stock award forfeitures	(70,000	)		(700	)		700			-			-		-
Share-based compensation	-			-			(4,538	)		-			-		(4,538	)
Foreign currency translation	-			-			-			-			600		600
Net income	-			-			-			46,651			-		46,651
Balance - December 31, 2017	8,850,830		$	88,508		$	17,932,835		$	(9,048,808	)	$	600	$	8,973,135

	March 31,			September 30,
	2020			2019
	(Unaudited)			(Note 1)
Assets

Current assets:
Cash	$	1,348,099		$	3,092,813
Accounts receivable, net		7,368,884			6,695,120
Inventories		636,052			1,608,827
Prepaid expenses and other current assets		609,903			441,502

Total current assets		9,962,938			11,838,262

Property and equipment, net		213,181			243,002
Intangible assets, net		1,167,030			1,248,712
Goodwill		1,167,427			2,182,427
Investment		–			326,941
Operating lease right of use assets, net		3,490,049			–
Other assets		184,201			255,008

Total assets	$	16,184,826		$	16,094,352

Liabilities and shareholders' equity

Current liabilities:
Line of credit	$	400,000		$	1,300,000
Accounts payable		258,442			315,444
Due to Forward China		2,307,759			3,236,693
Deferred income		707,987			219,831
Notes payable		1,608,125			1,654,799
Capital leases payable - short-term portion		39,306			39,941
Deferred consideration		293,000			834,000
Operating lease liability - short-term portion		255,505			–
Accrued expenses and other current liabilities		642,516			694,972
Total current liabilities		6,512,640			8,295,680

Other liabilities:
Capital leases payable - long-term portion		10,585			26,438
Deferred rent		–			60,935
Operating lease liability - long-term portion		3,334,134			–
Total other liabilities		3,344,719			87,373

Total liabilities		9,857,359			8,383,053

Commitments and contingencies

Shareholders' equity:

Common stock, par value $0.01 per share; 40,000,000 shares authorized; 9,533,851 shares issued and outstanding		95,338			95,338
Additional paid-in capital		19,005,569			18,936,130
Accumulated deficit		(12,773,440	)		(11,320,169	)

Total shareholders' equity		6,327,467			7,711,299

Total liabilities and shareholders' equity	$	16,184,826		$	16,094,352

FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

	For the Three Months Ended December 31,
		2017			2016
Cash Flows From Operating Activities:
Net income	$	46,651		$	151,492
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Share-based compensation		(4,538	)		49,529
Depreciation and amortization		6,092			5,995
Deferred rent		(3,307	)		(2,680	)
Changes in operating assets and liabilities:
Accounts receivable		618,812			(902,317	)
Inventories		59,919			22,827
Prepaid expenses and other current assets		51,657			11,967
Accounts payable and due to Forward China		735,901			389,045
Accrued expenses and other current liabilities		(210,851	)		(245,668	)
Net cash provided by (used in) operating activities		1,300,336			(519,810	)

Cash Flows From Investing Activities:
Purchases of property and equipment		(18,892	)		-
Net cash used in investing activities		(18,892	)		-

Net increase (decrease) in cash		1,281,444			(519,810	)
Cash at beginning of period		4,622,981			4,760,620
Cash at end of period	$	5,904,425		$	4,240,810

Supplemental Disclosure of Cash Flow Information:
Cash paid for interest	$	-		$	-
Cash paid for taxes	$	-		$	-

	For the Three Months Ended March 31,						For the Six Months Ended March 31,
	2020			2019			2020			2019

Net Revenues	$	7,931,377		$	8,172,467		$	16,324,231		$	18,355,750
Cost of Sales		6,478,228			6,861,622			13,151,073			15,741,864
Gross Profit		1,453,149			1,310,845			3,173,158			2,613,886

Operating expenses:
Sales and marketing		479,461			428,376			1,014,633			897,975
General and administrative		1,625,385			1,957,530			2,839,351			3,271,499
Goodwill impairment		1,015,000			–			1,015,000			–
Total operating expenses		3,119,846			2,385,906			4,868,984			4,169,474

Loss from operations		(1,666,697	)		(1,075,061	)		(1,695,826	)		(1,555,588	)

Other income (expenses):
Fair value adjustment of earn-out consideration		350,000			–			350,000			–
Fair value adjustment of deferred cash consideration		(9,000	)		–			(9,000	)		–
Interest expense		(44,178	)		(53,051	)		(95,127	)		(98,088	)
Other expense		(1,739	)		(2,793	)		(3,318	)		(7,756	)
Total Other income (expense)		295,083			(55,844	)		242,555			(105,844	)

Net Loss	$	(1,371,614	)	$	(1,130,905	)	$	(1,453,271	)	$	(1,661,432	)

Net loss per basic common share	$	(0.14	)	$	(0.12	)	$	(0.15	)	$	(0.17	)
Net loss per diluted common share	$	(0.14	)	$	(0.12	)	$	(0.15	)	$	(0.17	)

Weighted average number of common and common equivalent shares outstanding:
Basic		9,533,851			9,532,645			9,533,851			9,530,207
Diluted		9,533,851			9,532,645			9,533,851			9,530,207

					Additional
	Common Stock				Paid-In		Accumulated
	Shares		Amount		Capital		Deficit			Total

Balance - September 30, 2019		9,533,851	$	95,338	$	18,936,130	$	(11,320,169	)	$	7,711,299

Share-based compensation		–		–		33,179		–			33,179
Net loss		–		–		–		(81,657	)		(81,657	)

Balance - December 31, 2019		9,533,851		95,338		18,969,309		(11,401,826	)		7,662,821

Share-based compensation		–		–		36,260		–			36,260
Net loss		–		–		–		(1,371,614	)		(1,371,614	)

Balance - March 31, 2020		9,533,851	$	95,338	$	19,005,569	$	(12,773,440	)	$	6,327,467



Balance - September 30, 2018		9,533,851	$	95,338	$	18,720,396	$	(7,716,139	)	$	11,099,595

Share-based compensation		–		–		11,794		–			11,794
Net loss		–		–		–		(530,527	)		(530,527	)

Balance - December 31, 2018		9,533,851		95,338		18,732,190		(8,246,666	)		10,580,862

Share-based compensation		–		–		136,096		–			136,096
Net loss								(1,130,905	)		(1,130,905	)

Balance - March 31, 2019		9,533,851	$	95,338	$	18,868,286	$	(9,377,571	)	$	9,586,053

	For the Six Months Ended March 31,
	2020			2019
Cash Flows From Operating Activities:
Net loss	$	(1,453,271	)	$	(1,661,432	)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation		69,439			147,890
Depreciation and amortization		297,244			156,668
Bad debt expense (recovery)		(109,914	)		407,765
Deferred rent		–			1,624
Change in fair value of earn-out consideration		(350,000	)		–
Change in fair value of deferred cash consideration		9,000			–
Goodwill impairment		1,015,000			–
Impairment of investment		326,941			–
Changes in operating assets and liabilities:
Accounts receivable		(563,850	)		794,580
Inventories		972,775			135,745
Prepaid expenses and other current assets		(168,401	)		(366,035	)
Other assets		70,806			(276,518	)
Accounts payable and due to Forward China		(985,936	)		(2,060,530	)
Deferred income		488,156			(54,092	)
Operating lease liabilities		(139,702	)		–
Accrued expenses and other current liabilities		(32,632	)		11,014
Net cash used in operating activities		(554,345	)		(2,763,321	)

Cash Flows From Investing Activities:
Purchases of property and equipment		(27,207	)		(24,178	)
Net cash used in investing activities		(27,207	)		(24,178	)

Cash Flows From Financing Activities:
Proceeds from line of credit borrowings		200,000			1,250,000
Repayment of line of credit borrowings		(1,100,000	)		(300,000	)
Repayment of notes payable		(46,674	)		(120,803	)
Repayments on capital equipment leases		(16,488	)		(25,399	)
Payment of deferred cash consideration		(200,000	)		–
Net cash provided by (used in) financing activities		(1,163,162	)		803,798

Net decrease in cash		(1,744,714	)		(1,983,701	)
Cash at beginning of period		3,092,813			4,369,866
Cash at end of period	$	1,348,099		$	2,386,165
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	$	95,127		$	66,087
Cash paid for taxes	$	1,524		$	37,859

Supplemental Disclosures of Non-Cash Information:
ROU assets from the adoption of ASC 842	$	3,648,582		$	–
Lease liabilities arising from obtaining ROU assets	$	3,729,341		$	–

				Fair value measurement at reporting date using
				Quoted prices in active markets for identical assets		Significant other observable inputs		Significant unobservable inputs
	Balance			(Level 1)		(Level 2)		(Level 3)


September 30, 2019:	$	834,000		$	–	$	–	$	834,000

Payout of deferred cash consideration		(200,000	)						(200,000	)

December 31, 2019:		634,000			–		–		634,000

Decrease in fair value of earn-out consideration		(350,000	)						(350,000	)
Increase in fair value of deferred cash consideration		9,000							9,000

March 31, 2020:	$	293,000		$	–	$	–	$	293,000

	IPS			Consolidated

September 30, 2019:	$	2,182,427		$	2,182,427

Goodwill impairment		(1,015,000	)		(1,015,000	)

March 31, 2020:	$	1,167,427		$	1,167,427

	For the Three Months Ended March 31,						For the Six Months Ended March 31,
	2020			2019			2020			2019
Revenue
Distribution	$	4,623,895		$	4,769,558		$	9,320,138		$	11,050,284
Design		3,307,482			3,402,909			7,004,093			7,305,466
Total Revenue		7,931,377			8,172,467			16,324,231			18,355,750

Cost of Sales
Distribution		4,062,864			4,017,886			8,156,182			9,312,318
Design		2,415,364			2,843,736			4,994,891			6,429,546
Total Cost of Sales		6,478,228			6,861,622			13,151,073			15,741,864

Segment Operating Income (loss) from operations
Distribution		(378,012	)		(616,784	)		(821,201	)		(610,787	)
Design		(1,288,685	)		(458,277	)		(874,625	)		(944,801	)
Total Income (loss) from operations		(1,666,697	)		(1,075,061	)		(1,695,826	)		(1,555,588	)

Other expenses
Distribution		307,262			(34,794	)		273,682			(71,758	)
Design		(12,179	)		(21,050	)		(31,127	)		(34,086	)
Total Other expenses		295,083			(55,844	)		242,555			(105,844	)

Income (loss) before income taxes
Distribution		(70,750	)		(651,578	)		(547,519	)		(682,545	)
Design		(1,300,864	)		(479,327	)		(905,752	)		(978,887	)
Total Income (loss) before income taxes	$	(1,371,614	)	$	(1,130,905	)	$	(1,453,271	)	$	(1,661,432	)

				Weighted
			Weighted	Average
			Average	Remaining
	Number of		Exercise	Life		Intrinsic
	Options		Price	In Years		Value
Outstanding, September 30, 2017	246,000	$	2.19
Granted	-
Exercised	-
Forfeited	-
Expired	-
Outstanding, December 31, 2017	246,000	$	2.19	3.7	$	33,700

Exercisable, December 31, 2017	223,498	$	2.35	3.3	$	20,499

						Weighted
				Weighted		Average
				Average		Remaining
	Number of			Exercise		Life		Intrinsic
	Options			Price		In Years		Value
Outstanding, September 30, 2019		812,879		$	1.69
Granted		248,019			1.13
Exercised		–			–
Forfeited		(56,501	)		2.41
Expired		–			–
Outstanding, March 31, 2020		1,004,397		$	1.51		3.9	$	26,800

Exercisable, March 31, 2020		736,688		$	1.64		3.6	$	26,800

Options Outstanding					Options Exercisable
		Weighted			Weighted	Weighted
		Average	Outstanding		Average	Average	Exercisable
Exercise		Exercise	Number of		Exercise	Remaining Life	Number of
Price		Price	Options		Price	In Years	Options
$0.64 to $1.80	$	1.00	97,500	$	1.11	5.1	74,998
$2.20 to $2.85		2.41	86,000		2.41	1.8	86,000
$3.73 to $3.79		3.74	62,500		3.74	3.1	62,500
			246,000			3.3	223,498

Options Outstanding					Options Exercisable
Exercise Price	Weighted Average Exercise Price		Outstanding Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Life In Years		Exercisable Number of Options
$0.64 to $1.23	$	1.05		325,519	$	0.80		4.6		77,500
$1.44 to $1.67		1.51		605,378		1.49		3.8		585,688
$2.73 to $2.73		2.73		11,000		2.48		1.4		11,000
$3.73 to $3.79		3.74		62,500		3.74		0.9		62,500
				1,004,397				3.6		736,688

		For the Three Months Ended
		December 31,
		2017		2016
Numerator:
Net income	$	46,651	$	151,492

Denominator:
Weighted average shares outstanding - basic		8,760,830		8,621,513

Effects of dilutive securities:
Assumed exercise of stock options, treasury stock method		26,404		23,859
Assumed vesting of restricted stock, treasury stock method		108,222		112,356
Weighted average dilutive potential common shares		134,626		136,215

Weighted average shares outstanding - diluted		8,895,456		8,757,728
Basic earnings per share	$	0.01	$	0.02
Diluted earnings per share	$	0.01	$	0.02

	For the Three Months Ended						For the Six Months Ended
	March 31,						March 31,
	2020			2019			2020			2019
Numerator:
Net loss	$	(1,371,614	)	$	(1,130,905	)	$	(1,453,271	)	$	(1,661,432	)

Denominator:
Weighted average shares outstanding - basic		9,533,851			9,532,645			9,533,851			9,530,207

Effects of dilutive securities:
Assumed exercise of stock options, treasury stock method		–			–			–			–
Assumed vesting of restricted stock, treasury stock method		–			–			–			–
Weighted average dilutive potential common shares		–			–			–			–

Weighted average shares outstanding - diluted		9,533,851			9,532,645			9,533,851			9,530,207

Basic loss per share	$	(0.14	)	$	(0.12	)	$	(0.15	)	$	(0.17	)

Diluted loss per share	$	(0.14	)	$	(0.12	)	$	(0.15	)	$	(0.17	)

	As of March 31,
	2020		2019
Options		1,004,397		815,547
Warrants		151,335		151,335
Total potentially dilutive shares		1,155,732		966,882

	As of December 31,
	2017	2016
Options	168,500	178,500
Warrants	723,846	723,846
Total potentially dilutive shares	892,346	902,346

	March 31, 2020		September 30, 2019
Customer 1		21.8%		21.2%
Customer 2		28.7%		29.0%
Customer 3		23.2%		23.6%
Customer 4		12.6%		15.7%
Totals		86.3%		89.5%

	December 31, 2017		September 30, 2017
Customer 2	31.3	%	18.0	%
Customer 3	23.7	%	35.5	%
Customer 4	15.9	%	14.1	%
Customer 1	11.4	%	13.3	%
Totals	82.3	%	80.9	%

	Six Months Ended March 31, 2020
Weighted Average Remaining Lease Term
Operating leases		11.51	Years
Finance leases		1.08	Years

Weighted Average Discount Rate
Operating leases		5.75%
Finance leases		5.75%

For the Years Ending September 30,	Amount
2020	$	249,400
2021		413,332
2022		380,389
2023		375,732
2024		385,640
Thereafter		3,200,193
Total future minimum lease payments	$	5,004,686

Less: amount representing imputed interest		(1,415,047	)

Total		3,589,639

	Main Components of Net Income
	(amounts in thousands)
		2018		2017			Increase
		Quarter		Quarter			(Decrease)
Net revenues	$	6,336	$	6,591		$	(255	)

Gross profit	$	1,003	$	1,159		$	(156	)
Less:
Sales and marketing expenses		278		418			(140	)
General and administrative expenses		674		593			81
Other expense (income), net		4		(3	)		7
Net Income	$	47	$	151		$	(104	)

	Main Components of Net Loss
	(amounts in thousands)
	2020 Quarter									2019 Quarter									Increase Decrease
	Consolidated			Distribution			Design			Consolidated			Distribution			Design			Consolidated
Net revenues	$	7,931		$	4,624		$	3,307		$	8,173		$	4,770		$	3,403		$	(242	)
Gross profit	$	1,453		$	561		$	892		$	1,311		$	752		$	559		$	142
Less:
Sales and marketing expenses		480			351			129			428			315			113			52
General and administrative expenses		1,625			588			1,037			1,958			1,053			905			(333	)
Goodwill impairment		1,015			–			1,015			–			–			–			1,015
Operating loss		(1,667	)		(378	)		(1,289	)		(1,075	)		(616	)		(459	)		(592	)
Other income (expenses)		295			307			(12	)		(56	)		(35	)		(21	)		351
Net loss	$	(1,372	)	$	(71	)	$	(1,301	)	$	(1,131	)	$	(651	)	$	(480	)	$	(241	)

	Net Revenues for 2018 Quarter
	(amounts in thousands)
		EMEA		APAC		Americas		Total
Diabetic products	$	2,262	$	1,820	$	1,580	$	5,662
Other products		103		230		341		674
Total net revenues	$	2,365	$	2,050	$	1,921	$	6,336

				Net Revenues for 2017 Quarter
				(amounts in thousands)
		EMEA		APAC		Americas		Total
Diabetic products	$	1,935	$	1,562	$	2,025	$	5,522
Other products		168		608		293		1,069
Total net revenues	$	2,103	$	2,170	$	2,318	$	6,591

	Net Revenues for 2020 Quarter
	(amounts in thousands)
	EMEA		APAC		Americas		Total
Diabetic products	$	1,904	$	842	$	1,342	$	4,088
Other products		33		166		337		536
Total net revenues	$	1,937	$	1,008	$	1,679	$	4,624

	Net Revenues for 2019 Quarter
	(amounts in thousands)
	EMEA		APAC		Americas		Total
Diabetic products	$	1,717	$	1,395	$	1,153	$	4,265
Other products		71		277		157		505
Total net revenues	$	1,788	$	1,672	$	1,310	$	4,770

	Main Components of Net Loss
	(amounts in thousands)
	2020 Period									2019 Period									Increase Decrease
	Consolidated			Distribution			Design			Consolidated			Distribution			Design			Consolidated
Net revenues	$	16,324		$	9,320		$	7,004		$	18,355		$	11,050		$	7,305		$	(2,031	)
Gross profit	$	3,173		$	1,164		$	2,009		$	2,614		$	1,738		$	876		$	559
Less:
Sales and marketing expenses		1,014			742			272			899			640			259			115
General and administrative expenses		2,840			1,243			1,597			3,271			1,709			1,562			(431	)
Goodwill impairment		1,015			–			1,015			–			–			–			1,015
Operating income (loss)		(1,696	)		(821	)		(875	)		(1,556	)		(611	)		(945	)		(140	)
Other income (expenses)		243			274			(31	)		(106	)		(72	)		(34	)		349
Net income (loss)	$	(1,453	)	$	(547	)	$	(906	)	$	(1,662	)	$	(683	)	$	(979	)	$	209

	Net Revenues for 2020 Period
	(amounts in thousands)
	EMEA		APAC		Americas		Total
Diabetic products	$	3,141	$	2,460	$	2,667	$	8,268
Other products		95		322		635		1,052
Total net revenues	$	3,236	$	2,782	$	3,302	$	9,320

	Net Revenues for 2019 Period
	(amounts in thousands)
	EMEA		APAC		Americas		Total
Diabetic products	$	3,638	$	3,310	$	2,665	$	9,613
Other products		80		732		625		1,437
Total net revenues	$	3,718	$	4,042	$	3,290	$	11,050

INDEX TO EXHIBITS

						Filed or
			Incorporated by Reference			Furnished
	No.	Exhibit Description	Form	Date	Number	Herewith

	2.1	Stock Purchase Agreement with Intelligent Product	8-K	1/18/18	2.1
		Solutions, Inc.
	3.1	Restated Certificate of Incorporation	10-K	12/8/10	3(i)
	3.2	Certificate of Amendment to the Certificate of	8-K	4/26/13	3.1
		Incorporation, April 26, 2013
	3.3	Certificate of Amendment to the Certificate of	8-K	7/3/13	3.1
		Incorporation, June 28, 2013
	3.4	Third Amended and Restated Bylaws, as of May 28,	10-K	12/10/14	3(ii)
		2014
	4.1	Rights Agreement, dated as of April 26, 2013	8-K	4/26/13	4.1
	4.2	Promissory Note dated January 18, 2018 - Forward	8-K	1/18/18	4.1
		Industries (Asia-Pacific)
	10.1	Buying Agency and Supply Agreement with Forward	10-K	12/16/15	10.7
		Industries (Asia-Pacific), Corporation, dated as of
		September 9, 2015
	10.2	Amendment No. 1 to Buying Agency and Supply	10-Q	8/14/17	10.2
		Agreement - Forward Industries (Asia-Pacific)
		Corporation
	10.3	Amendment No. 2 to Buying Agency and Supply	8-K	9/22/17	10.1
		Agreement - Forward Industries (Asia-Pacific)
		Corporation
	10.4	Form of Employment Agreement – IPS Sellers	8-K	1/18/18	10.1
	31.1	Certification of Principal Executive Officer				Filed
		(Section 302)
	31.2	Certification of Principal Financial Officer				Filed
		(Section 302)
	32.1	Certification of Principal Executive Officer and				Furnished*
		Principal Financial Officer (Section 906)
	101 INS	XBRL Instance Document				Filed
	101 SCH	XBRL Taxonomy Extension Schema				Filed
	101 CAL	XBRL Taxonomy Extension Calculation Linkbase				Filed
	101 LAB	XBRL Taxonomy Extension Label Linkbase				Filed
	101 PRE	XBRL Taxonomy Extension Presentation Linkbase				Filed
	101 DEF	XBRL Taxonomy Extension Definition Linkbase				Filed
———————