FORWARD INDUSTRIES, INC. 10-Q

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.Table of Contents

 UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 FORM 10-K

 ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For the fiscal year ended September 30, 2024

 TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For the transition period from ___________ to_____________.

 Commission File Number: 001-34780

 FORWARD INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)

 New York

 13-1950672

 (State or other jurisdiction of

 (I.R.S. Employer Identification No.)

 incorporation or organization)

 700 Veterans Memorial Highway, Suite 100, Hauppauge, NY 11788
 (Address of principal executive offices, including zip code)

 ( 631) 547-3055
 (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 Title of each class

 Trading Symbol(s)

 Name of each exchange on which registered

 Common Stock, par value $0.01

 FORD

 The Nasdaq Stock Market LLC

 (The Nasdaq Capital Market)

 Securities registered pursuant to Section 12(g)
of the Act: None

 Indicate by check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act. Yes No

 Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes No

(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 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 No

has submitted electronically every Interactive Data File required to be submitted pursuant to Rue 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
 No

is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.
See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company"
and "emerging growth company" in Rule 12b-2 of the Exchange Act).

 Large accelerated filer

 Non-accelerated filer

 Emerging growth company

 Accelerated filer

 Smaller reporting company

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

has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report.

 If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the fi ling reflect the correction of an error to previously issued financial statements.

 Indicate by check mark whether any of those error
corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's
executive officers during the relevant recovery period pursuant to §240.10D-1(b).

is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No

 As of March 31, 2024, the aggregate market
value of the registrant's common stock held by non-affiliates of the registrant was approximately $ 4,800,000 based on the closing
price as reported on the Nasdaq Stock Market.

 There were 1,101,069 shares of the registrant's
common stock outstanding as of December 6, 2024.

 Documents Incorporated by Reference

 Portions of the registrant's Proxy Statement for
the 2025 Annual Meeting of Shareholders are incorporated herein by reference in Part III of this Annual Report on Form 10-K to the extent
stated herein. Such Proxy Statement will be filed with the Securities and Exchange Commission within 120 days of the registrant's fiscal
year ended September 30, 2024.

 Page

No.

 Item 1.

 Business

 Item 1A.

 Risk Factors

 Item 1B.

 Unresolved Staff Comments

 Item 1C.

 Cybersecurity

 Item 2.

 Properties

 Item 3.

 Legal Proceedings

 Item 4.

 Mine Safety Disclosures

 Item 5.

 Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

 Item 6.

 Reserved

 Item 7.

 Management's Discussion and Analysis of Financial Condition and Results of Operations

 Item 7A.

 Quantitative and Qualitative Disclosures About Market Risk

 Item 8.

 Financial Statements and Supplementary Data

 Item 9.

 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 Item 9A.

 Controls and Procedures

 Item 9B.

 Other Information

 Item 9C.

 Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

 Item 10.

 Directors, Executive Officers and Corporate Governance

 Item 11.

 Executive Compensation

 Item 12.

 Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

 Item 13.

 Certain Relationships and Related Transactions and Director Independence

 Item 14.

 Principal Accountant Fees and Services

 Item 15.

 Exhibits and Financial Statement Schedules

 Item 16.

 Form 10-K Summary

 Signatures

 i

 ITEM 1. BUSINESS

 General

 Forward Industries, Inc.
("Forward", "we", "our" or the "Company"), through its wholly-owned subsidiaries, Forward
Industries (IN), Inc. ("Forward US"), Forward Industries (Switzerland) GmbH ("Forward Switzerland"), Forward Industries
UK Limited ("Forward UK"), Intelligent Product Solutions, Inc. ("IPS"), and Kablooe, Inc. ("Kablooe"),
is a global design, sourcing and distribution company serving top tier medical and technology customers worldwide.

 The principal customer in
our original equipment manufacturer ("OEM") distribution business has been OEMs or the contract manufacturing firms of these
OEM customers, that either package our products as accessories "in box" together with their branded product offerings or sell
them through their retail distribution channels. Our OEM 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, GPS location devices, tablets and firearms. Our OEM customers are located in various regions worldwide.

 We do not manufacture
any of our OEM or retail distribution products and source substantially all these products from independent suppliers in China through
Forward Industries Asia-Pacific Corporation, a British Virgin Islands corporation ("Forward China"). Forward China is owned
by our Chairman and Chief Executive Officer.

 Our design business provides
hardware and software product design and engineering services to customers predominantly located in the U.S. Our expertise in various
disciplines enables us to serve a wide variety of industries and provide clients with a single source solution for concepts, industrial
design, mechanical engineering, embedded software and systems architecture, mobile and enterprise application software, and optical engineering.

 Discontinued Operations

 Considering the recurring
losses incurred by the retail segment, in July 2023, the Company decided to cease operations of our retail distribution segment and we
are presenting the results of operations for this segment within discontinued operations in the current and prior periods presented herein.
The discontinuation of the retail segment represents a strategic shift in the Company's business. The primary assets of the retail
segment were inventory and accounts receivable. The Company sold, liquidated, or otherwise disposed of the remaining retail inventory
and collected the remaining retail accounts receivable as of September 30, 2024. As of September 30, 2024, the retail segment was fully
discontinued, and we expect to have no further significant involvement in this segment. The inventory of the retail segment is presented
as discontinued assets held for sale on the balance sheet at September 30, 2023 and the results of operations for the retail segment have
been classified as discontinued operations on the consolidated statements of operations for the years ended September 30, 2024 and 2023.
All information and results in this annual report on Form 10-K exclude the discontinued retail segment unless otherwise noted. See Note
3 to our consolidated financial statements for additional information on the discontinued retail segment.

 Corporate History

 Forward was incorporated
in 1961 as a manufacturer and distributer of advertising specialty and promotional products. In 1989, we acquired Forward US, a manufacturer
of soft-sided carrying cases. The carrying case business became our predominant business, and in September 1997, we sold the assets relating
to the production of advertising specialty and promotional products, ceasing to operate in that segment.

 In May 2001, we formed Forward
Switzerland to facilitate distribution of aftermarket products under our licenses for cell phone cases and to further develop our OEM
European business presence. After the expiration of the last of these licenses in March 2009, staff at Forward Switzerland was significantly
reduced and in recent years has primarily served our OEM customers in Europe.

 In January 2018, Forward
acquired IPS, an engineering design company, and in August 2020, Forward acquired the assets of Kablooe Design, a medical and consumer
design and development company. We believe that the design and engineering service capabilities of Kablooe has complemented the IPS business
and further diversified the industries and customers with which we do business.

 Customers

 Our OEM distribution customers
are located in all geographic regions worldwide. Our design business provides services to Fortune 500 companies, established mid-level
companies, and start-ups. The wide range of industries served includes industrial electronics, medical and dental equipment, food/beverage,
certain luxury brands, and oil/gas. Our design customers are located primarily in the U.S.

 Products

 Our 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, GPS location devices, tablets, and firearms). We do not manufacture any
of our products and we source substantially all our products from independent suppliers in China through Forward China, a related party
(see Note 14 to the consolidated financial statements).

 Diabetic Products

 We sell carrying cases for
blood glucose diagnostic kits directly to OEM customers, or their contract manufacturers. These electronic monitoring kits are made for
use by diabetics. The diabetic products customer (or its contract manufacturer) packages our carry cases "in box" as a custom
accessory for the customer's blood glucose testing and monitoring kits, or to a much lesser extent, sells them through their retail
distribution channels. These kits typically include a small, electronic blood glucose monitor, testing strips, lancets for drawing a drop
of blood and our carrying case, customized with the manufacturer's logo and designed to fit and secure the glucose monitor, testing
strips, and lancets in separate straps, pouches, and holders. As the kits and technology change, our carrying case designs change to accommodate
the changes in size, shape and layout of the electronic monitoring device, strips and lancet.

 Other Products

 We also sell carrying and
protective solutions to customers for a diverse array of other portable electronic and other products, including sporting and recreational
products, bar code scanners, GPS location devices, tablets, and firearms, on a made-to-order basis that are customized to fit the products
sold by our customers. Our selling prices for these products vary across a broad range, depending on the size and nature of the product
for which we design and sell the carry solution.

 Design Products

 Our design business provides
a complete range of design, engineering and development services with respect to a diverse array of consumer and industrial electronics
products. These include but are not limited to medical products, smart displays, beverage vending, enterprise and mobile software applications,
lighting, security and detections systems, cameras, wearables and vehicle controls. Solutions in these and other areas are designed and
developed in-house, beginning at product concept, extending through design, engineering and prototype, and final design for manufacturing
and computer-aided design files.

 Product Development

 In the OEM division, we typically
receive requests to submit product designs in connection with a customer's introduction and rollout to market of a new product.
We collaborate with clients to determine functionality, size and other basic specifications and requirements for products. Our design
and production resources develop more detailed product specifications and design options for our customers' evaluation. We provide
documentation of each phase to the client and gain approval of a working prototype. Working with our suppliers and the customer, samples
are modified and refined. Once approved for commercial introduction and order by our customer, we work with our suppliers to ensure conformity
of commercial production to the definitive product samples and specifications. Manufacture and delivery of products in production quantities
are coordinated with the customer's manufacturing and shipment schedules so that our products are available to be packaged with
the customer's additional product components prior to shipment and sale, or to make the product available to the customer for direct
sale through its retail distribution channels.

 Services

 Services offered in our design
business vary from full development utilizing a wide range of in-house design and engineering functions, to targeted design and engineering
support for clients with in-house development teams. Our in-house capabilities include the following:

 Electrical Engineering

 Mechanical Engineering

 Software Engineering

 Industrial Design

 User Experience/User Interface (UX/UI) Design and Development

 Optical Engineering

 Program Management

 IoT System Architecture

 IT Support

 Distribution

 Channels of Distribution

 We ship the majority of our
OEM distribution products directly to our customers (or their contract manufacturers), who package our accessory products "in box"
with their branded products. Some of our customers also purchase certain of our products and offer them for sale as stand-alone accessories
to complement their product offerings. We utilize a third-party warehouse in Europe to store certain inventory items. We do not recognize
revenue for products shipped to the warehouse until such products have been shipped to the customer and our performance obligation is
complete.

 Product Supply

 Manufacturing

 The manufacture of custom
carrying cases and other carry and protective solutions generally consists of die cutting fabrics and heat sealing, gluing, sewing, and
affixing logos to the cut-outs by means of silk screening, hot-stamping, embroidering or embossing. The principal materials used in the
manufacture of our products are vinyl, nylon, leather, metal and plastic parts (for clips, buckles, loops, hinges and other hardware),
foam padding and cardboard, all of which are obtained from suppliers based on our specifications.

 We do not believe that any
of the component materials or parts used in the manufacture of our products are supply constrained. We believe that there are adequate
available alternative sources of supply for all of the materials used to manufacture, package, and ship our products.

 Dependence on Sourcing Agent

 We have a Buying Agency and
Supply Agreement (the "Supply Agreement") with Forward China. The Supply Agreement provides that Forward China acts as our
exclusive buying agent for the products we sell. Forward China also arranges for sourcing, manufacture and exportation of such products.
We purchase products at Forward China's cost and through March 2023 paid them a monthly service fee calculated at $100,000 plus
4% of "Adjusted Gross Profit", which is defined as the selling price less the cost from Forward China. Considering the loss
of a significant OEM distribution customer (see Note 16 to the consolidated financial statements), effective April 1, 2023, the Company
and Forward China agreed to reduce the fixed portion of the sourcing fee from $100,000 to $83,333 per month for the remaining term of
the Supply Agreement, which expired in October 2023, resulting in cash savings of $100,000 in Fiscal 2023. Effective October 2023, the
Company and Forward China entered into a new sourcing agreement under which the fixed portion of the sourcing fee was further reduced
to $65,833 per month. Other terms in the agreement were substantially the same as the prior agreement. Due to the Company's decision
to cease operations of its retail distribution segment and the decline in the OEM distribution segment business, the new sourcing agreement
expired October 31, 2024. In November 2024, the Company and Forward China agreed to: (i) extend the sourcing agreement until April 30,
2025, but allow either party to cancel with 30 days notice, (ii) reduce the fixed portion of the sourcing fee to $35,000 per month, and
(iii) change the payment terms to better align with payments from our customers. Terence Wise, our Chairman, Chief Executive Officer and
largest shareholder, is the owner of Forward China. In addition, Jenny P. Yu, a Managing Director of Forward China, beneficially owns
more than 5% of the Company's common stock. See "Item 1A. – Risk Factors" regarding our dependence on Forward
China.

 Suppliers

 We procure substantially
all our OEM distribution products from independent suppliers in China through Forward China. Depending on the product, we may require
several different suppliers to furnish component parts or pieces. We place orders for particular products and do not have minimum supply
requirement agreements to guarantee a supply of finished product, nor have we made purchase commitments to purchase minimum amounts. However,
from time to time, we may order certain OEM products in advance of receiving a customer purchase order, or in quantities in excess of
those forecasted to us by our customer, for which they are contractually obligated to us, in order to meet our customers' anticipated
delivery demands.

 There are very few suppliers
required for the design segment of the business as it is a service-based business. We do, however, purchase supplies and equipment to
develop prototypes or "mock-ups" for design and development projects. Design business suppliers are predominantly based in
the United States.

 Quality Assurance

 Forward's quality assurance
manager oversees the process to ensure that our distribution products manufactured in China meet our quality assurance standards. The
quality assurance manager independently verifies and supervises the inspection of products provided by independent contractors in China.
In July 2024, Forward China received its ISO 9001:2008 quality certification, which was renewed and is valid until July 2027.

 Our design business follows
general industry standard practices for review and corrective actions related to its design services. There are no independent quality
assurance standards in place for its design and engineering work. Customer specifications and scope of services are laid out in project
contracts and we work closely with the customer to identify and correct any quality issues that arise.

 Competition

 Distribution Business

 Our OEM distribution business
is highly competitive in terms of product pricing, design, delivery terms, and customer service. In the production of our distribution
products, we compete with numerous U.S. and foreign producers and distributors. Some of our competitors are substantially larger than
we are and have greater financial and other resources. We believe that we sustain our competitive position through maintenance of an effective
product design capability, rapid response time to customer requests for proposals and product shipment, reliable product delivery and
product quality, and competitive pricing. We believe that our ability to compete based on product quality assurance considerations is
enhanced by Forward China's local presence, quality control, shipment capabilities and expertise in sourcing.

 Design Business

 The depth and breadth of
services offered, and industries served by our design segment are unique. Our management team is aware that there are very few competitive
firms that have the full set of capabilities that our design segment has under one roof. There are, however, numerous design and engineering
companies that compete with us in specific industries and/or with specific targeted skills or have competitive advantages.

 Human Capital/Employees

 As of November 30, 2024,
we had approximately 100 employees, substantially all of whom work full-time, none of which are covered by a collective bargaining
agreement. We hire consultants on an as-needed basis.

 Human capital management
is critical to our ongoing business success, which requires investing in our people. Our aim is to create a highly engaged and motivated
workforce where employees are inspired by leadership, engaged in purpose-driven, meaningful work and have opportunities for growth and
development. We are committed to creating and maintaining a work environment in which employees are treated with respect and dignity.
 We value our diverse employees and provide career and professional development opportunities that
foster the success of our company.

 An effective approach to
human capital management requires that we invest in talent, development, culture and employee engagement. We aim to create an environment
where our employees are encouraged to make positive contributions and fulfill their potential. We emphasize our core values of innovation,
encouragement, motivation, and curiosity with our employees to instill our culture and create an environment of growth and positivity.

 Our Compensation Committee
is also actively involved in reviewing and approving executive compensation, and succession plans so that we have leadership in place
with the requisite skills and experience to deliver results the right way. We offer fair, competitive compensation and benefits that support
our employees' overall wellbeing. In addition to health benefits, we contribute to employees' 401(k) plans and offer student
tuition reimbursement (if certain requirements are met).

 Regulation and Environmental Protection

 Our OEM distribution business
is subject to various regulations in various jurisdictions, including the U.S., Canada and member states of the European Union, that restrict
the use or importation of products manufactured with compounds deemed to be hazardous. We work with our suppliers to ensure compliance
with such regulations. In addition, from time to time, one or more customers may require testing of our products to ensure compliance
with applicable consumer safety rules and regulations or the customer's safety or packaging protocols. Because we do not manufacture
the products that we sell and distribute, compliance with federal, state and local laws and regulations pertaining to the discharge of
materials into the environment, or otherwise relating to the protection of the environment, has not had, and is not anticipated to have,
any direct material effect upon our capital expenditures, earnings, or competitive position. However, compliance with such laws and regulations
on the part of our suppliers may result in increased costs of supply to us, particularly if domestic environmental regulations in China
become more prevalent.

 We have not been engaged
in any environmental litigation or incurred any material costs related to compliance with environmental or other regulations. From time
to time, we incur chemical and/or safety laboratory testing expenses in order to address customer requests regarding our product materials
or method of manufacture, or regarding their packaging methods and standards.

 There are no specific regulatory
or environmental requirements imposed upon the design segment of our business. As a paid service provider, customers are assisted in securing
regulatory certifications including UL (Underwriters Laboratories – a U.S. based safety certification organization), FCC (Federal
Communications Commission – U.S. governmental certification department for electronic goods), CE (Conformit Europ enne
– a European certification for health, safety and environmental protection standards) and others depending on needs, product types
and locations of customers' product markets.

 Available Information

 Our corporate website is
www.forwardindustries.com. On our website under "Investors" "SEC Filings", we make available access to our Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements on Schedule 14A and amendments to
those materials filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"),
free of charge. The contents of the website are not incorporated into this report.

 ITEM 1A. RISK FACTORS

 Investing in our common stock
involves a high degree of risk. You should carefully consider the following risk factors before deciding whether to purchase or sell stock
in the Company. Additional risks and uncertainties not presently known to us, or that we currently deem immaterial, may also impair our
business operations or our financial condition. If any of the events discussed below occur, our business, consolidated financial condition,
results of operations or prospects could be materially and adversely affected. In such case, the value and marketability of the common
stock could decline.

 Risks Relating to Our Business, Liquidity and Operations

 We have experienced recurring losses and
our ability to continue as a going concern is in doubt.

 We incurred net losses
of approximately $1,951,000 and $3,737,000 in Fiscal 2024 and 2023, respectively. We expect to generate losses for the foreseeable future.
We will need to generate increased revenues to achieve profitability in the future. Despite our efforts, we may not achieve profitability
in the future or sustain profitability for a prolonged period of time. In December 2024, our largest design customer notified
us of its plan to discontinue their insulin patch program on which we were providing design services. In Fiscal 2024, this design
customer was responsible for 25.2% of our revenues. While we plan to mitigate the impact of this lost revenue with cost reduction
efforts, seeking continued flexibility on payments to Forward China and exploring additional sources of financing, these efforts may not
be sufficient to meet our liquidity needs through December 31, 2025.

 Accordingly, our independent
registered public accounting firm stated in their report on our annual financial statements for the fiscal year ended September 30, 2024,
that these conditions raise substantial doubt about our ability to continue as a going concern. If we are unable to continue as a going
concern, our shareholders will likely lose all of their investment in the Company.

 The COVID-19 pandemic, or any other future
pandemic, has had, and may continue to have, a material and adverse effect on our business and results of operations.

 On May 11, 2023, the U.S.
Department of Health and Human Services declared the end of the Public Health Emergency for COVID-19. Though the severity of COVID-19
has subsided, new variants or any other future pandemic could interrupt business, cause renewed labor and supply chain disruptions, and
negatively impact the global and US economy, which could materially and adversely impact our business. During the height of COVID-19 our
supply chain experienced significant disruptions which, together with other factors such as the increase in global consumer demand and
the global shipping container shortage, resulted in longer delivery times and higher importation costs for most of our products. While
our supply chain appears to generally be stable at this time, should a resurgence of COVID-19, or a similar pandemic, occurs, our supply
chain could again be negatively impacted; for example, the factories that manufacture our products could be required by government authorities
to temporarily cease operations or might be limited in their production capacity. If governments take protective actions in response to
a resurgence of COVID-19 or the outbreak of a new pandemic, it may have a material adverse impact on our business, financial condition
and operating results for the reasons described above.

 During Fiscal 2024, we generated a net loss.
We cannot assure you that we will regain profitability in the future.

 In Fiscal 2024, we generated a net loss of approximately $1,951,000.
While we generated income from continuing operations in Fiscal 2023, we can provide no assurance that we will not experience operating
losses in the future. Forward China holds a $600,000 note which is due on June 30, 2025. Additionally, we owe Forward China approximately
$7,226,000 in accounts payable. See Note 14 to the consolidated financial statements for a discussion on these payables and the limited
amounts that we are required to pay over any 12-month period. Forward China, which is owned by our Chief Executive Officer and Chairman
of the Board, has previously agreed to extend the note on numerous occasions to assist the Company with its liquidity. We cannot provide
any assurance that Forward China will continue to grant us extensions on this note. If we cannot generate sufficient revenues to operate
profitably, we may be forced to cease, limit or suspend operations, or we may be required to raise capital or incur additional debt to
maintain or grow our operations. There is no assurance that we will be able to raise such capital and if so on terms that are not onerous
and dilutive to the Company and its shareholders.

 Our OEM distribution business remains highly
concentrated in our diabetic products line. If our diabetic products line were to suffer the loss of a principal customer or a material
decline in revenues from any such large customer, our business would be materially and adversely affected.

 In Fiscal 2024, revenues
from diabetic products accounted for 77% of our OEM distribution revenues and OEM distribution revenue accounted for 34% of our consolidated
net revenue. As a result, our financial condition and results of operations are subject to higher risk from the loss of a major diabetic
products customer or changes in their business practices. Many new diabetes monitoring products brought to the market in recent years
do not use a carrying case. If consumer demand continues to increase for diabetes product lines that do not use carrying cases, our business
would be materially and adversely affected.

 The loss of any of, or a material reduction
in orders from, our largest customers would materially and adversely affect our results of operations and financial condition.

 Each of our distribution
and design businesses can at times be concentrated with certain larger customers. In Fiscal 2024, our largest design customer accounted
for 25.2% of our consolidated net revenue and one OEM distribution customer accounted for 13.0% of our consolidated net revenue. In Fiscal
2023, our largest design customer accounted for 27.9% of our consolidated net revenue and one OEM distribution customer accounted for
11.2% of our consolidated net revenue. In December 2024, our largest design customer notified the Company of its plan to discontinue their
insulin patch program, on which the Company was working. We expect this to cause a material decrease in our revenues beginning with the
second quarter of fiscal 2025. We are currently working on cost reduction efforts to mitigate the reduction in revenue.

 Although our customer concentration
changes from year to year, and we continue our efforts to diversify our business, we cannot provide any assurance that we will be successful.
The loss of any of these customers would have a material adverse effect on our financial condition, liquidity and results of operations.

 If any one or more of our OEM distribution
customers elect to reduce or discontinue inclusion of cases "in box", our results of operations and financial condition would
be materially and adversely affected.

 The predominant percentage
of our OEM distribution revenues is derived from sales of case accessories to our OEM customers who package our cases "in box"
with their electronics. During recent years, there have been numerous federal legislative and administrative actions that have affected
government programs, including adjustments that have reduced or increased payments to healthcare providers and patients. Any measures
to restrict healthcare spending could result in decreased sales of our products. If one or more of our distribution customers reduce or
discontinue the practice of including carry case accessories "in box" or if our customers experience reduced demand for their
products as a result of political changes, we may incur a significant decline in our revenues and our results of operations and financial
condition would be materially and adversely affected.

 Rising threats of international tariffs,
including tariffs applied to goods between the U.S. and China, may materially and adversely affect our business.

 Rising threats of international
tariffs, including tariffs applied to goods traded between the U.S. and China, could materially and adversely affect our business and
results of operations. Since the beginning of 2018, there has been increasing rhetoric, in some cases coupled with legislative or executive
action, from several U.S. and foreign leaders regarding the possibility of instituting tariffs on the foreign imports of certain materials
and products. More specifically, throughout 2019 and 2020, the U.S. and China imposed tariffs or announced proposed tariffs to be applied
in the future to certain of each other's exports. As of the date of this report, the Company has not been directly affected by any
tariffs previously implemented by former President Trump on the medical technology industry which currently remain in place. In May 2022
the U.S. Trade Representative (the "USTR") announced a statutory four-year review of the tariffs against China. The USTR also
announced in May 2022 that it reinstated or extended various eligible tariff exclusions on certain products from China through December
2023. In September 2024, the USTR completed its statutory four-year review and announced tariff increases on imports from China on various
products. Further, we do not know if the administration that takes office in 2025 will implement any new tariffs or alter current tariffs.
If any tariffs or restrictions are imposed on products that we import for our customers, we would be required to raise our prices, which
may result in the loss of customers and harm our business. Additionally, some of our non-diabetic distribution customers and customers
in the design and development business have been affected by these tariffs, specifically those who manufacture non-medical electronic
products. This may cause these customers to reduce the amount of discretionary spending they use on outsource product design and engineering
services supplied by our design segment.

 Changes in political conditions
in China and changes in the state of China-U.S. relations, including any tensions relating to potential military conflict between China
and Taiwan, are difficult to predict and could adversely affect the operations or financial condition of the Company. In addition, because
of our involvement in the Chinese market, any deterioration in political or trade relations might cause a public perception in the U.S.
or elsewhere that might cause our business to become less attractive. Such an impact could adversely affect our revenues and cash flows.

 We continue to encounter pressure from our
largest customers to maintain or even decrease prices, or to provide lower priced solutions, and expect such pressure to persist. The
effects of such price constraints on our business may be exacerbated by inflationary pressures that affect our costs of supply and labor.

 During Fiscal 2024, we continued
to experience significant pricing pressure from many customers, including some of our largest distribution customers, to reduce the prices
we charge them. When we are unable to extract comparable concessions from our suppliers on prices they charge us, our product sales margins
erode. In Fiscal 2023, due to increased pricing pressure, we did not renew our contract with one major OEM distribution customer, which
expired in March 2023. If pricing pressures continue and we are unable to find comparable concessions from our suppliers, we may be unable
to renew future contracts with our customers. The recent inflationary environment in the U.S. and globally has caused production costs
to increase in Fiscal 2023 and in Fiscal 2024. Similarly, due to continued trends of high demand and low supply in the labor market which
have persisted despite Federal Reserve interest rate increases, the cost of labor has risen in both our design and distribution businesses.
These developments have a material adverse impact on our margins and our ability to achieve or maintain profitability. In addition, competitors
may reduce their average selling prices faster than we are able to reduce costs, which can also accelerate the rate of decline of our
selling prices.

 In addition to margin compression
from customers in general, we are encountering increased costs from our Chinese suppliers who are reacting to inflationary increases in
materials and labor costs incurred by them. In addition, prices that our Chinese vendors charge to us may reflect any appreciation of
the Chinese currency against the U.S. dollar, which can be passed through to us in the form of higher U.S. dollar prices. This in turn
will tend to reduce gross profit if we are unable to raise our prices. Any decrease in demand for our products or services, coupled with
pressure from the market and our customers to decrease our prices, would have a material adverse effect on our business, financial condition,
and results of operations.

 Increasingly, our OEM distribution customers
are requesting that we enter into supply agreements with them that have restrictive terms and conditions. These agreements typically include
provisions that increase our financial exposure, which could result in significant costs to us.

 Increasingly, our OEM distribution
customers are requesting that we enter into supply agreements with them. These agreements typically do not include volume commitments
but do include provisions that generally serve to increase our exposure for product liability and limited sales returns, which could result
in higher costs to us as a result of such claims. In addition, these agreements typically contain provisions that seek to limit our operational
and pricing flexibility and extend payment terms, which could materially adversely affect our cash flow, business, financial condition,
and results of operations.

 Our distribution business depends on a single
exclusive buying agent who, in turn, depends on a limited number of key suppliers.

 Our Chairman, Chief Executive
Officer and largest shareholder is the owner of Forward China, our exclusive sourcing agent in the Asia Pacific region. We have a Buying
Agency and Supply Agreement with Forward China under which Forward China acts as the Company's exclusive agent to arrange for sourcing,
manufacturing and exporting the Company's distribution products. Historically, Forward China has relied on a limited number of suppliers
to supply the component parts and pieces necessary for the production of our carry and protective solutions products. As a result, our
ability to effectively push back against rising material costs may diminish. In addition, any inability to obtain supplies from a single
or limited number of suppliers may result in difficulty obtaining the supplies necessary for our business and may restrict our ability
to produce our carry and protective solutions products. Where practical, we intend to establish alternative sources through Forward China
to mitigate the risk that the failure of any single supplier will adversely affect our business. Nevertheless, either a prolonged inability
to obtain certain components or the failure of one of our suppliers to do so could impair our ability to ship products and generate revenues,
which could adversely affect our operating results and damage our customer relationships.

 In addition, we depend significantly
on Forward China as our exclusive buying agent for substantially all of our component parts. As a result, we have limited visibility as
to our supplier base, making it difficult to forecast future events and to plan our operations. In addition, if Forward China fails to
satisfactorily perform its obligations, including payment obligations, to our suppliers or its duties to us as our exclusive buying agent
as a result of financial or other difficulties or for any other reason, or if our relationship with Forward China was to suffer or we
are unable to maintain our agreement with Forward China, which is currently in effect until April 30, 2025, but may be terminated prior
to that with 30 days' notice, we could suffer irreparable harm resulting in substantial damage to the distribution business.

 Our business has benefited from customers
deciding to outsource their carry and protective solutions assembly needs, as well as product development and design functions, to us.
If our customers choose to provide these services in-house or select other providers, our business could suffer.

 Our future revenue growth
partially depends on new outsourcing opportunities from our current and prospective customers. Current and prospective customers continuously
evaluate our performance against other providers. They also evaluate the potential benefits of developing, designing, manufacturing and
transporting their products themselves. To the extent that outsourcing opportunities are not available either due to these customers deciding
to develop, design, produce or transport these products themselves or to use other providers, our financial results and future growth
could be materially adversely affected.

 If we are unable to provide our customers
with high-quality products and services or if we are unable to deliver our products and/or services to our customers in a timely manner,
our business, financial condition, and results of operations may be materially adversely affected.

 In order to maintain our
existing customer base and obtain business from new customers, we must demonstrate our ability to develop, design and produce products
and services at the level of quality, responsiveness, timeliness, and cost that our customers require. If our products or services are
provided at what customers believe are of a substandard quality, if they are not delivered on time, if we are not responsive to our customers'
demands or cannot meet their needs, our reputation as a reliable supplier of high-quality products and a sophisticated product designer
and developer would likely be damaged. If we are unable to meet anticipated product and service standards imposed by contractual arrangements,
customer expectations, industry practices, regulatory requirements and competitive forces, we may be unable to obtain new or keep our
existing customers, and this would have a material adverse effect on our business, financial condition, and results of operations.

 If our design teams fail to complete a project
in a timely manner, miss a required performance standard, or otherwise fail to adequately perform on a project, then we may incur a loss
on that project.

 Our design engagements often
involve large-scale, complex projects. The quality of our performance on such projects depends in large part upon our ability to manage
the relationship with our clients and our ability to effectively manage the project and deploy appropriate resources, including third-party
contractors and our own personnel, in a timely manner. We may commit to a client that we will complete a project by a scheduled date and/or
at a fixed fee. We may also commit that a project, when completed, will achieve specified performance standards. If the project is not
completed by the scheduled date or fails to meet required performance standards, we may incur significant additional costs or be held
responsible for the costs incurred by the client to rectify damages due to late completion or failure to achieve the required performance
standards. The uncertainty of the timing of a project can present difficulties in planning the amount of personnel needed for the project.
If the project is delayed or canceled, we may bear the cost of an underutilized workforce that was dedicated to fulfilling the project.
In addition, performance of projects can be affected by a number of factors beyond our control, including unavoidable delays from government
inaction, inability to obtain financing, weather conditions, unavailability of vendor materials, changes in the project scope of services
requested by our clients, industrial accidents, environmental hazards, and labor disruptions. Furthermore, our entrance into fixed price
arrangements means that if the costs of supplies, labor and other resources rise due to shortages, heightened demand, inflation or other
factors, our margin for a given project will decline. To the extent these events occur, the total costs of the project could exceed our
estimates, and we could experience reduced profits or, in some cases, incur a loss on a project, which may reduce or eliminate our overall
profitability on that project or in general. Further, any defects or errors, or failures to meet our clients' expectations, could
result in claims for damages against us. Failure to meet performance standards or complete performance on a timely basis could also adversely
affect our reputation.

 Our results of operations could suffer if
we are not able to maintain adequate utilization of our workforce.

 The cost of providing our
design services, including the extent to which we utilize our workforce, affects our profitability. The rate at which we utilize our workforce
is affected by a number of factors, including:

 our ability to transition employees from completed projects to new assignments and to hire and assimilate new employees;

 our ability to forecast demand for our services and thereby maintain an appropriate headcount in each of our operating units;

 our ability to engage employees in assignments during natural disasters or pandemics;

 our ability to manage attrition;

 our need to devote time and resources to training, business development, professional development, and other non-chargeable activities; and

 our ability to match the skill sets of our employees to the needs of the marketplace.

 If we over-utilize our workforce,
our employees may become disengaged, which could impact employee attrition. If we under-utilize our workforce, our profit margin and profitability
would suffer.

 Employee or agent misconduct, or our failure
to comply with anti-bribery and other laws or regulations, could harm our reputation, reduce our revenue and profits, and subject us to
criminal and civil enforcement actions.

 Misconduct, fraud, non-compliance
with applicable laws and regulations, or other improper activities by one of our employees or agents could have a significant negative
impact on our business and reputation. Such misconduct could include the failure to comply with various procurement regulations, regulations
regarding the protection of confidential information, regulations prohibiting bribery and other foreign corrupt practices, regulations
regarding the pricing of labor and other costs in contracts, regulations on lobbying or similar activities, regulations pertaining to
the internal controls over financial reporting, environmental laws, and any other applicable laws or regulations. For example, the Foreign
Corrupt Practices Act, or FCPA, and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries
from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. Our policies mandate compliance
with these regulations and laws, and we take precautions to prevent and detect misconduct. However, since our internal controls are subject
to inherent limitations, including human error, it is possible that these controls could be intentionally circumvented or become inadequate
because of changed conditions. As a result, we cannot assure that our controls will protect us from reckless or criminal acts committed
by our employees or agents. Our failure to comply with applicable laws or regulations or acts of misconduct could subject us to fines
and penalties and suspension or debarment from contracting, any or all of which could harm our reputation, reduce our revenue and profits,
and subject us to criminal and civil enforcement actions.

 If we fail to maintain an effective system
of internal controls over financial reporting, we may not be able to accurately report our financial results. As a result, current and
potential stockholders could lose confidence in our financial reporting, which could harm our business and the trading price of our stock.

 Effective internal controls
over financial reporting are necessary for us to provide reliable financial reports. If we cannot maintain effective controls and reliable
financial reports, our business and operating results could be harmed. We continue to work on improvements to our internal controls over
financial reporting. Any failure to implement and maintain internal controls over our financial reporting or difficulties encountered
in the implementation of improvements in our controls, could cause us to fail to meet our reporting obligations. Any failure to improve
our internal controls over financial reporting or to address identified weaknesses in the future, if they were to occur, could also cause
investors to lose confidence in our reported financial information, which could have a negative impact on the trading price of our stock.

 Our results of operations are subject to
the risks of fluctuations in the values of foreign currencies relative to the U.S. dollar.

 Our results of operations
are expressed in U.S. dollars. When the U.S. dollar appreciates or depreciates in value against a currency in which all or a significant
portion of revenues or other accounts receivable are denominated, such as the Euro, our results of operations can be adversely affected
or benefited, respectively. The degree of impact is proportional to the amount of foreign currency expense or revenue, as the case may
be, and the fluctuations in exchange rates over the period in which the effect is measured on our consolidated financial statements. In
addition, such currency fluctuations may affect the comparability of our results of operations between financial periods.

 Future revenues are difficult to predict
and are likely to show significant variability as a consequence of customer concentration and operating in more than one segment.

 Because our revenues can
at times be concentrated in a few large customers, and because the volumes of these customers' order flows to us can fluctuate markedly
in a short period of time, our quarterly revenues, and consequently our results of operations, may be highly variable and subject to significant
changes over a relatively short period of time. Our largest OEM distribution customers may keep consumer products with which our carry
solutions are packaged "in-box" in active promotion for many months, or for a very short period of time, depending on various
factors, including sales trends for the product, product development cycles, new product introductions, and our customers' competitors'
product offerings. As demand for the consumer products relating to the in-box program matures and decreases, we may be forced to accept
significant price and/or volume reductions in customer orders for our carry solutions, which will adversely affect revenues. Additionally,
our large design and development customers may have their budgets limited from many factors including economic declines (resulting from
a pandemic or any other reason) causing discretionary budgets to decline or may from-time-to-time choose to do their development work
in-house. Further, in our design and development business, customers may decline to use us for future work after a project is completed,
which may be due to lack of continued need for our services after their product has been developed, produced, and marketed or because
they are dissatisfied with our pricing or performance. All of these factors tend to lead to a high degree of variability in our quarterly
revenue levels. Significant, rapid shifts in our operating results may occur if and when one or more of these customers increases or decreases
the size(s) of, or eliminates, their orders or engagement from us by amounts that are material to our business.

 Our gross margins, and therefore our potential
profitability, vary considerably by customer and by product and service offering, and if the revenue contribution from one or more customers
or products or project changes materially, relative to total revenues, our gross profit percentage may fluctuate.

 Our gross profit margins
on the products and services we sell can vary widely depending on the product or project type, customer, and contract or order size. Because
of the broad variability in price ranges and product and project types, we anticipate that gross margins, and accordingly their impact
on operating income or loss, may fluctuate depending on the relative revenue contribution from each customer or product. Similarly, because
we offer a wide range of services which often vary with each customer and project, we face challenges in maintaining and enhancing operational
efficiencies. For example, because of the range of products and services we offer and our general lack of specializations within our fields
relative to some of our competitors, we may not enjoy the advantages offered by more focused or streamlined operations, such as economies
of scale or improved production capabilities from our labor, facilities, and procedures with the passage of time. If our gross margins
decrease, our results of operations will be adversely affected.

 Product manufacture is often outsourced
by our distribution customers to contract manufacturing firms and in these cases, it is the contract manufacturer to which we must look
for payment.

 Contract manufacturing firms
perform manufacturing, assembly, and product packaging functions, including the bundling of our product accessories with the OEM distribution
customer's product. As a consequence of this business practice, we often sell our carry solutions products directly to the contract manufacturing
firm. This is particularly significant in the case of diabetic product sales to certain customers. In these cases, we invoice the contract
manufacturing firm and not the OEM distribution customer. Therefore, it is the contract manufacturing firm to which we must look for payment
in such cases and not our OEM distribution customer. If we fail to receive payment from the contract manufacturer, our ability to be paid
for products already delivered would be limited. In such event, our results of operations and cash flows will be adversely affected.

 Our dependence on foreign manufacturers
creates quality control and other risks to our business. From time to time, we may experience certain quality control, on-time delivery,
cost, or other issues that may jeopardize customer relationships.

 Our reliance on foreign suppliers,
manufacturers and other contractors involves significant risks, including risk of product quality issues and reduced control over quality
assurance, manufacturing yields and costs, pricing, timely delivery schedules, the potential lack of adequate manufacturing capacity and
availability of product, the lack of capital and potential misappropriation of our designs. In any such event, our reputation and our
business will be harmed.

 Our shipments of products may become subject
to delays or cancellation due to work stoppages or slowdowns, piracy, damage to port facilities, and congestion due to inadequacy of port
terminal equipment and other causes.

 To the extent that there
are disruptions or delays in loading container cargo in ports of origin or off-loading cargo at ports of destination as a result of labor
disputes, work-rules related slowdowns, tariff or World Trade Organization-related disputes, piracy, physical damage to port terminal
facilities or equipment caused by severe weather or terrorist incidents, congestion in port terminal facilities, inadequate equipment
to load, dock and offload container vessels or energy-related tie-ups or otherwise, or for other reasons, product shipments to our customers
will be delayed. For example, in Fiscal 2024, we experienced shipping delays resulting from cargo ship piracy in the Red Sea, and in March
2021, a container ship carrying some of our products ran aground in the Suez Canal and was immobilized for six days. Although these events
did not have a material adverse effect on our business, there is no assurance that, if they happened again, that they would not. In any
such case, our customers may cancel or change the terms of their purchase orders, resulting in a cancellation or delay of payments to
us. A closure or partial closure of port facilities or other causes of delays in the loading, importation, offloading or movement of our
products to the shipping destination agreed to with our customer could result in increased expenses, as we try to avoid such delays, delayed
shipments or cancelled orders, or all of the above. Depending on the severity of such consequences, this may have an adverse effect on
our financial condition and results of operations.

 Issues with our products or services may
lead to product liability, personal injury or property damage claims, recalls, withdrawals, replacements of products, or regulatory actions
by governmental authorities that could divert resources, affect business operations, decrease sales, increase costs, and put us at a competitive
disadvantage, any of which could have a significant adverse effect on our financial condition.

 We may experience issues
with products that we source or develop, or with the services we render, that may lead to product liability, personal injury or property
damage claims, recalls, withdrawals, replacements of products, or regulatory actions by governmental authorities. Any of these activities
could result in increased governmental scrutiny, harm to our reputation, reduced demand by consumers for products or services, decreased
willingness by customers to purchase our products or procure our services, absence or increased cost of insurance, or additional safety
and testing requirements. Such results could divert development and management resources, adversely affect our business operations, decrease
sales, increase legal fees and other costs, and put us at a competitive disadvantage compared to other companies not affected by similar
issues with products and services, any of which could have a significant adverse effect on our financial condition and results of operations.
Although the Company carries product liability insurance and works with its customers to satisfy product quality concerns (the cost of
such efforts are typically covered by our sourcing agent, Forward China) we can provide no assurance that customers will not seek damages
beyond what we warranty or beyond our insurance coverage. Although we have not had significant claims for damages or losses from the products
we distribute in our distribution business or assist in the development, design or production of in our design business, any uninsured
claim, if successful and of significant magnitude, could have a material adverse effect on our business, prospects, results of operations
or financial condition.

 The product distribution and design businesses
are highly competitive and do not pose significant barriers to entry.

 There are many competitors
in the sale of carry solutions products to our customers including OEMs, and competition is intense. Since little or no significant proprietary
technology is involved in the design, production or distribution of the types of products we sell, others may enter the business with
relative ease and compete against us. Such competition may result in the diminution of our market share or the loss of one or more major
customers, thereby adversely affecting our net revenues, results of operations, and financial condition. Further, with respect to our
design business, while management believes there are a limited number of customers offering the broad range of design and development
services we do, there are numerous design and engineering companies that compete with us in specific industries and/or with specific targeted
skills or competitive advantages, and some prospective customers might prefer a competitor that focuses in a specialty area in which they
operate or target over an offering such as ours that is not limited to any specific industry or product type.

 Many of our competitors are
larger, better capitalized and more diversified than we are and may be better able to withstand a downturn in the general economy or in
the product areas in which we specialize. Potential customers may prefer the pricing terms offered by competitors. These competitors may
also have less sales concentration than we do and be better able to withstand the loss of a key customer or diminution in its orders.
If we are not effectively able to compete, our results of operations will be adversely affected.

 If we fail to retain our key personnel,
we may not be able to achieve our anticipated level of growth and our business could suffer.

 Our future depends, in part,
on our ability to attract and retain key sales personnel and the continued contribution of our executive officers including Terence Wise,
our Chief Executive Officer, who would be difficult to replace. Further, as part of the Company's ongoing efforts to reduce expenses,
we recently reduced the salaries of three of our executive officers. While the salary reductions were agreed to by the executives, it
is possible that the decrease in salary may cause either or both officers to look for employment elsewhere. Our design and development
business is highly labor intensive and, therefore, our ability to attract and retain professional and technical staff is an important
factor in our future success. The market for qualified engineers is competitive and, from time to time, it may be difficult to attract
and retain qualified individuals with the required expertise within the timeframe demanded by our clients. The loss of the services of
any of our key personnel and the process to replace any key personnel would involve significant time and expense and may significantly
delay or prevent the achievement of our business objectives.

 If a third party asserts that we are infringing
on its intellectual property, whether successful or not, it could subject us to costly and time-consuming litigation or require us to
obtain expensive licenses, and our business may be adversely affected.

 Third party lawsuits alleging
our infringement of patents, trade secrets or other intellectual property rights could cause us to do one or more of the following:

 stop using technology that contains the allegedly infringing intellectual property;

 incur significant legal expenses;

 cause our management to divert substantial time to our defenses;

 pay substantial damages to the party whose intellectual property rights we may be found to be infringing;

 indemnify customers; or

 attempt to obtain a license to the relevant intellectual property from third parties, which may not be available to us on reasonable terms or at all.

 Third party lawsuits alleging
our infringement of patents, trade secrets or other intellectual property rights could have a material adverse effect on our business,
results of operations and financial condition. In addition to our products, potential adverse developments involving intellectual property
described above may occur with respect to customers' products incorporating our products or services that we render.

 If we experience system interruptions, it
may cause us to lose customers and may harm our business.

 Our inability to maintain
and improve our information technology systems and infrastructure may result in system interruptions. System interruptions and slow delivery
times, unreliable service levels, prolonged or frequent service outages, or insufficient capacity may prevent us from efficiently providing
services to our customers, which could result in our losing customers and revenue.

 Our IT infrastructure including
power, security, connectivity and other services is housed within our office space in which we lease. We also rely on third-party providers
for bandwidth. We do not control these vendors, and it would take significant time and effort to replace them. We have experienced, and
may experience in the future, website disruptions, outages and other performance problems due to a variety of factors, including infrastructure
changes, human or software errors and capacity constraints.

 Our systems are vulnerable
to damage or interruption from terrorist attacks, floods, fires, power loss, telecommunications failures, hurricanes, computer viruses,
computer denial of service attacks or other attempts to harm our systems. Any such damage or interruption would adversely affect our results
of operations.

 Because our networks and IT systems may
be vulnerable to unauthorized persons hacking our systems, it could disrupt our operations and result in the theft of our proprietary
information.

 A party who is able to breach
the security measures on our networks could misappropriate either our or our customers' proprietary information, or cause interruptions
or malfunctions in our operations. Hacking of companies' infrastructure is a growing problem. Although we believe our systems and
engineering team have the capability of protecting the Company from any such hacking, we can provide you with no such assurance. If we
grow and obtain more visibility, we may be more vulnerable to hacking. We may be required to expend significant capital and other resources
to protect against such threats or to alleviate problems caused by breaches in security, which could have a material adverse effect on
our financial performance and operating results.

 Our design business uses software that is
highly technical, and undetected errors, if any, could adversely affect our business.

 Our design business may use
software that is highly technical and complex. Our software has contained, and may now or in the future contain, undetected errors, bugs,
flaws, corrupted data or vulnerabilities. Some errors in our software code may only be discovered after the code has been released. Any
errors, bugs, flaws, or corrupted data could result in damage to our reputation, loss of users, or loss of revenue, any of which could
adversely affect our business and financial results.

 We maintain cash balances in our bank accounts
that exceed the FDIC insurance limitation.

 We maintain our cash assets
at commercial banks in the U.S. in amounts in excess of the Federal Deposit Insurance Corporation insurance limit of $250,000 and in Europe
in amounts that may exceed any applicable deposit insurance limits. In the event of a failure at a commercial bank where we maintain our
deposits or money market or other cash, we may incur a loss to the extent such loss exceeds the insurance limitation, which could have
a material adverse effect upon our financial conditions and our results of operations.

 Our Chairman and Chief Executive Officer
is a significant shareholder, which makes it possible for him to have significant influence over the outcome of all matters submitted
to our shareholders for approval and which influence may be alleged to conflict with our interests and the interests of our other shareholders.

 Terence Wise, our Chairman
and Chief Executive Officer, is a significant shareholder who beneficially owns approximately 19.9% of the outstanding shares of our common
stock as of December 9, 2024. Mr. Wise would beneficially own significantly more shares without a 19.9% blocker (shareholder approval
cap) under our Series A-1 Convertible Preferred Stock. Mr. Wise has substantial influence over the outcome of all matters submitted to
our shareholders for approval, including the election of our directors and other corporate actions. This influence may be alleged to conflict
with our interests and the interests of our other shareholders. In addition, such influence by Mr. Wise could have the effect of discouraging
potential business partners or create actual or perceived governance instabilities that could adversely affect the price of our common
stock.

 Risks Related to Our Common Stock

 Due to factors beyond our control, our stock
price may be volatile.

 Any of the following factors
could affect the market price of our common stock:

 Our failure to increase revenue in each succeeding quarter and achieve and thereafter maintain profitability;

 Our failure to meet our revenue and earnings guidance or our failure to meet financial analysts' performance expectations;

 The loss of Forward China as our agent;

 Cybersecurity breaches;

 The loss of customers or our failure to attract more customers;

 Creditworthiness and solvency of clients;

 Loss of key employees;

 The sale of a large amount of common stock by our shareholders;

 Our announcement of a pending or completed acquisition or our failure to complete a proposed acquisition;

 An adverse court ruling or regulatory action;

 Changes in regulatory practices, including tariffs and taxes;

 Changes in market valuations of similar companies;

 Short selling activities;

 Our announcement of any financing or a change in the direction of our business;

 Announcements by us, or our competitors, of significant contracts, acquisitions, commercial relationships, joint ventures or capital commitments; or

 Other forces outside of our control such as inflation, Federal Reserve interest rate increases and the recessionary environment it could bring, geopolitical turmoil such as the recent wars in Ukraine and Israel, and other developments that could adversely impact the U.S. and global economies and erode investor sentiment.

 In the past, following periods
of volatility in the market price of a company's securities, securities class action litigation has often been instituted. A securities
class action suit against us could result in substantial costs and divert our management's time and attention, which would otherwise
be used to benefit our business.

 Failure to meet the continued listing standards
of Nasdaq could result on the delisting of our common stock.

 Our common stock is listed
on Nasdaq. As part of being listed on Nasdaq, we are required to meet certain continued listing requirements.

 On July 31, 2023, the Company
received a notice from Nasdaq that the Company had failed to comply with Nasdaq Listing Rule 5550(a)(2) (the "Minimum Bid Price
Rule") by failing to maintain a minimum bid price of at least $1.00 per share of common stock for 30 consecutive business days.
The Company was given a 180-day grace period to regain compliance, but the Company failed to regain compliance within the grace period.
The Company then timely requested a hearing before an independent Nasdaq Hearings Panel. The hearing occurred on April 9, 2024.

 Further, on February 22, 2024,
the Company received a notice from Nasdaq that the Company's stockholders' equity did not comply with the applicable Nasdaq
Listing Rule 5550(b)(1) (the "Stockholders' Equity Rule"), requiring listed companies to maintain a stockholders'
equity of at least $2,500,000, as reported in the Company's Form 10-Q for the fiscal period ended December 31, 2023. The Company
was instructed to present its views with respect to its failure to meet the requirements of the Stockholders' Equity Rule at the
April 9, 2024, hearing before the Nasdaq Hearings Panel.

 As
a result of the reverse stock split effected in June 2024 and the entrance into the Accounts Payable Conversion Agreements with Forward
China (described in Note 14 to the consolidated financial statements), the Company regained compliance with the Minimum Bid Price Rule
and Stockholders' Equity Rule i n July 2024 and was formally notified by Nasdaq that such requirements were met. Until July
24, 2025, the Company is subject to a Nasdaq "Panel Monitor" which provides for in the event the Company fails to satisfy
the Stockholders' Equity Rule during the monitoring period, the Company will be required to request a hearing before the Panel in
order to maintain its listing rather than taking the interim step of submitting a compliance plan for the Nasdaq Listing Qualifications
Staff's review or receiving any otherwise applicable grace period. We can provide no assurance that if the Company fails to satisfy
the Stockholders' Equity Rule during this period that the Company will be able to maintain its Nasdaq listing.

 If our stock price declines
below $1.00 for more than 30 consecutive business days, and thereby fails to satisfy the Minimum Bid Price Rule, we may ask shareholders
to approve another reverse stock split. Reverse stock splits require approval by stockholders who hold a majority of our voting power.
Because many of our shares are held in street name and brokers do not necessarily vote unvoted shares, we may not receive approval for
another reverse split. Additionally, a reverse stock split typically has the effect of reducing the number of holders of shares in "round
lots" meaning those holding 100 or more shares. Another requirement for being listed on Nasdaq is that the Company have a minimum
of 300 round lot holders, so if our stock price falls too low, a reverse split may not be sufficient to cure noncompliance based on the
minimum round lot requirement.

 If
we fail to meet continued listing requirements in the future and are unable to get an extension to regain compliance, Nasdaq may delist
our common stock. If our common stock is delisted, we could face significant material adverse consequences, including:

 a limited availability of market quotations for our common stock;

 reduced liquidity with respect to our common stock;

 a determination that our shares of common stock are a "penny
 stock" which will require broker-dealers trading in our

 common stock to adhere to more stringent rules, including being unable
 to solicit buyers for our common stock;

 a limited amount of news and analyst coverage for our Company; and

 a limited ability to raise capital in the future.

 If we become subject to a regulatory investigation,
it could cause us to incur substantial costs or require us to change our business practices in a manner materially adverse to our business.

 From time to time, we may
receive inquiries from regulators regarding our compliance with laws and other matters. In 2019, we incurred significant expenses responding
to an SEC investigation into potential insider trading by certain insiders of the Company. Although that investigation has concluded,
responding to, or defending other such actions would cause us to incur substantial expenses and divert our management's attention.

 Violation of existing or
future regulatory orders or consent decrees could subject us to substantial monetary fines and other penalties that could negatively affect
our financial condition and results of operations. In addition, it is possible that future orders issued by, or enforcement actions initiated
by, regulatory authorities could cause us to incur substantial costs or require us to change our business practices in a manner materially
adverse to our business.

 We do not expect to pay dividends in the
future, which means that investors may not be able to realize the value of their shares except through a sale.

 We do not anticipate that
we will declare or pay a cash dividend. We expect to retain future earnings, if any, for our business and do not anticipate paying dividends
on common stock at any time in the foreseeable future. Because we do not anticipate paying dividends in the future, the only opportunity
for our shareholders to realize the creation of value in our common stock will likely be through a sale of those shares.

 We have incurred, and may in the future incur, impairment charges
related to our goodwill, which could have a material adverse effect on our business, results of operations and financial condition.

 As of September 30, 2024,
we had goodwill of $1,559,000. The carrying value of goodwill may be reduced if we determine that goodwill is impaired. We test goodwill
for impairment in the fourth quarter of each year, or more frequently if indicators of an impairment exist, to determine whether it is
more likely than not that the fair value of a reporting unit is less than its carrying value. We have had to impair our goodwill in the
past, and in Fiscal 2024, we recorded a goodwill impairment charge of $200,000. The testing of goodwill for impairment requires us to
make significant estimates about future performance and cash flows, as well as other assumptions. These estimates can be affected by numerous
factors, including potential changes in economic, industry or market conditions; changes in business operations; changes in competition
or changes in the price of our ordinary shares and market capitalization and other relevant events and factors affecting the fair value
of the reporting unit. Changes in these factors, or changes in actual performance compared with estimates of our future performance, may
affect the fair value of goodwill and could result in an impairment charge.

 ITEM 1B. UNRESOLVED STAFF COMMENTS

 Not Applicable.

 ITEM 1C. CYBERSECURITY

 Risk Management and Strategy

 We recognize the importance
of developing, implementing and maintaining cybersecurity measures to safeguard our information and operational technologies and protect
the confidentiality, integrity and availability of our data. Our business is dependent upon our computer systems, devices, software and
networks to collect, process and store the data necessary to conduct almost all aspects of our business.

 We have designed our cybersecurity
procedures based on the National Institute of Standards and Technology Cybersecurity Framework ("NIST CSF"). We have used
NIST CSF as a guide to help identify, assess and manage cybersecurity risks relative to our business, but this does not imply that our
cybersecurity program meets any particular technical standard, specification or requirement.

 We have processes in place to assess, identify,
manage and address material cybersecurity threats and incidents. These include, among other things, annual and ongoing security awareness
training for employees, mechanisms to detect and monitor unusual network activity, use of encryption and authentication technologies,
penetration testing and containment and incident response tools. We regularly assess risks from cybersecurity and technology threats and
monitor our information systems for potential vulnerabilities.

 We maintain an incident response
plan with a cross-functional team comprised of members of the information technology department, senior management and other appropriate
individuals. The team is responsible for assessing and managing the cybersecurity incident response process and taking necessary corrective
actions to mitigate and/or eliminate any issues.

 Our control over the security
posture of and ability to monitor the cybersecurity practices of third-party vendors and service providers is limited and there can be
no assurance that we can prevent, mitigate or remediate the risk of any compromise or failure in the cybersecurity infrastructure owned
or controlled by third parties.

 As of the filing date of this
Annual Report on Form 10-K, we are not aware of any cybersecurity incidents that have materially affected or are reasonably likely to
materially affect our business strategy, results of operations or financial condition. However, despite our efforts, we cannot eliminate
all risks from cybersecurity threats or incidents or provide assurances that we have not experienced an undetected cybersecurity incident.
For more information about these risks, see "Item 1A – Risk Factors."

 Governance

 Our Board of Directors has
overall responsibility for the oversight of risk management, including cybersecurity risks. The Board receives periodic briefings on cybersecurity
matters, including key risks to the Company, recent developments and risk mitigation activities from management.

 Our information technology
team is responsible for assessing and maintaining our cybersecurity risk management program and may engage third-party experts on an as-needed
basis for risk assessment and system enhancements. Our information technology team are experienced information systems security professionals
with many years of experience in the information technology field and various degrees and cybersecurity-related certifications.

 ITEM 2. PROPERTIES

 We lease all properties where
our business is operated. We believe that these properties are adequate for the purposes for which they are used. All leases are with
unaffiliated third parties. We believe that the loss of any lease would not have a material adverse effect on our operations, as we believe
that we could identify and lease comparable facilities upon approximately equivalent terms. The properties which are material to the Company's
business are described below:

 We lease 14,000 square feet
in Hauppauge, New York for our executive offices and IPS, which we rent under a lease agreement scheduled to expire in 2027. The lease
has annual escalations and rent payments were approximately $32,000 per month during Fiscal 2024.

 We lease 11,000 square feet
in Coon Rapids, Minnesota for Kablooe, which we rent under a lease agreement scheduled to expire in June 2026. The lease has annual escalations
and rent payments were approximately $11,000 per month during Fiscal 2024.

 ITEM 3. LEGAL PROCEEDINGS

 From time to time, the Company
may become a party to legal actions or proceedings in the ordinary course of its business. As of September 30, 2024, and through the filing
date of this Form 10-K, there were no such actions or proceedings, either individually or in the aggregate, that, if decided adversely
to the Company's interests, the Company believes would be material to its business.

 ITEM 4.
MINE SAFETY DISCLOSURES.

 Not Applicable.

 ITEM 5.

 MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 Market for Common Stock

 The principal market for
our common stock is Nasdaq. Our common stock is traded under the symbol "FORD".

 On December 6, 2024, the
closing price for our common stock was $4.24.

 Holders of Common Stock

 At November 30, 2024, there
were approximately 35 holders of record of our common stock. Because many of our shares of common stock are held by brokers and other
institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.

 Dividends

 We have not paid any cash
dividends on our common stock since 1987 and do not plan to pay cash dividends in the foreseeable future. The payment of dividends in
the future, if any, will depend upon our results of operations, as well as our short-term and long-term cash availability, net working
capital, working capital needs, and other factors, as determined by our Board of Directors. Currently, except as may be provided by applicable
laws, there are no contractual or other restrictions on our ability to pay dividends if we were to decide to declare and pay them.

 Recent Sales of Unregistered Securities

 None.

 ITEM 6. RESERVED

 Not
applicable.

 ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 The following discussion
and analysis should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this report
on Form 10-K. The following discussion and analysis compares our results of operations for the year ended September 30, 2024 ("Fiscal
2024") with those for the year ended September 30, 2023 ("Fiscal 2023"). All dollar amounts and percentages presented
herein have been rounded to approximate values. In addition to historical information, this discussion and analysis contains forward-looking
statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including but not limited to those set forth under "Risk Factors."

 Cautionary statement regarding Forward-Looking Statements

 This report includes "forward-looking
statements", as such term is used within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include,
among other things, statements regarding our liquidity, plans on repaying outstanding debt obligations, as well as other statements regarding
our future operations, financial condition and prospects, and business strategies. Forward-looking statements generally can be identified
by words such as "anticipates," "believes," "estimates," "expects," "intends," "plans,"
"predicts," "projects," "will be," "will continue," "will likely result," and similar
expressions. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties,
which could cause our actual results to differ materially and adversely from those reflected in the forward-looking statements. Factors
that could cause or contribute to such differences include, but are not limited to, those discussed in this Annual Report on Form 10-K,
and in particular, the risks discussed under the caption "Risk Factors" in Item 1A of this report and those discussed in other
documents we file with the SEC. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking
statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such
forward-looking statements.

 Business Overview

 Forward Industries, Inc.
is a global design, sourcing and distribution Company serving top tier medical and technology customers worldwide.

 Our design division provides
hardware and software product design and engineering services to customers predominantly located in the U.S. Our OEM distribution division
sources and sells carrying cases and other accessories for medical monitoring and diagnostic kits as well as a variety of other portable
electronic and non-electronic devices to OEMs, or their contract manufacturers worldwide, that either package our products as accessories
"in box" together with their branded product offerings or sell them through their retail distribution channels. The
Company does not manufacture any of its OEM products and sources substantially all of these products from independent suppliers in China,
through Forward Industries Asia-Pacific Corporation, a British Virgin Islands corporation ("Forward China"). Forward China
is owned by our Chairman of the Board and Chief Executive Officer.

 In June 2024, the Company's
stockholders authorized, and the Company's Board of Directors approved, a 1-for-10 reverse stock split of our common stock, which became
effective on June 18, 2024. Accordingly, all references made to share, per share, or common share amounts in the accompanying consolidated
financial statements and applicable disclosures have been retroactively adjusted to reflect the reverse stock split.

 Considering the recurring
losses incurred by the retail segment, in July 2023, the Company decided to cease operations of our retail distribution segment, and we
are presenting the results of operations for this segment within discontinued operations in the current and prior periods presented herein.
The discontinuation of the retail segment represents a strategic shift in the Company's business. The primary assets of the retail
segment are inventory and accounts receivable. The Company sold, liquidated, or otherwise disposed of the remaining retail inventory and
collected the remaining retail accounts receivable as of September 30, 2024. As of September 30, 2024, the retail segment was fully discontinued,
and we expect to have no further significant involvement in this segment. The inventory of the retail segment is presented as discontinued
assets held for sale on the balance sheet at September 30, 2023 and the results of operations for the retail segment have been classified
as discontinued operations on the consolidated statements of operations for the years ended September 30, 2024 and 2023. All information
and results in this annual report on Form 10-K exclude the discontinued retail segment unless otherwise noted. See Note 3 to our consolidated
financial statements for additional information on the discontinued retail segment.

 Variability of Revenues and Results of Operations

 A significant portion of
our revenue is concentrated with several large customers, some of which are the same and some of which change over time. Orders from some
of these customers can be highly variable, with short lead times, which can cause our quarterly revenues, and consequently our results
of operations, to vary over a relatively short period of time.

 Critical Accounting Policies and Estimates

 We have identified the accounting
policies and significant estimation processes below as critical to our business operations and the understanding of our results of operations.
The discussion below is not intended to be comprehensive. In many cases, the accounting treatment of a particular transaction is specifically
dictated by U.S. GAAP, with no need for management's judgment. In other cases, management is required to exercise judgment in the
application of accounting principles with respect to particular transactions. The impact and any associated risks related to these policies
on our business operations are discussed throughout this "Management's Discussion and Analysis of Financial Condition and
Results of Operations" where such policies affect reported and expected financial results. For a detailed discussion of the applications
of these and other accounting policies, see "Item 8. Financial Statements and Supplementary Data" in this report. The preparation
of our consolidated financial statements requires us to make estimates and assumptions that are believed to be reasonable under the circumstances.
There can be no assurance that actual results will not differ from those estimates and such differences could be significant.

 Revenue Recognition

 OEM Distribution Segment

 The OEM distribution segment
recognizes revenue when: (i) finished goods are shipped to its customers (in general, these conditions occur at either point of shipment
or point of destination, depending on the terms of sale and transfer of control); (ii) there are no other deliverables or performance
obligations; and (iii) there are no further obligations to the customer after the title of the goods has transferred. If the Company receives
consideration before achieving the criteria previously mentioned, it records a contract liability, which is classified as a component
of deferred income in the accompanying consolidated balance sheets.

 Design Segment

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

 Recognized revenues that
will not be billed until a later date, or contract assets, are recorded as an asset and classified as a component of accounts receivable
in the accompanying consolidated balance sheets. Contracts where collections to date have exceeded recognized revenues, or contract liabilities,
are recorded as a liability and classified as a component of deferred income in the accompanying consolidated balance sheets.

 Segment Reporting

 As a result of discontinuing
our retail reportable segment, we now have two reportable segments: OEM distribution and design. The OEM distribution segment sources
and distributes carrying cases and other accessories for medical monitoring and diagnostic kits and a variety of other portable electronic
and non-electronic devices directly to OEMs or their contract manufacturers worldwide. The design segment consists of two operating segments
(IPS and Kablooe, which have been aggregated into one reportable segment) that provide a full spectrum of hardware and software product
design and engineering services to customers predominantly located in the U.S.

 Our chief operating decision
maker ("CODM") regularly reviews revenue and operating income for each segment to assess financial results and allocate resources.
For our OEM distribution segment, we exclude general and administrative and general corporate expenses from its measure of profitability
as these expenses are not allocated to the segments and therefore not included in the measure of profitability used by the CODM. For the
design segment, general and administrative expenses directly attributable to that segment are included in its measure of profitability
as these expenses are included in the measure of its profitability reviewed by the CODM. We do not include intercompany activity in our
segment results to be consistent with the information that is presented to the CODM. Segment assets consist of accounts receivable and
inventory, which are regularly reviewed by the CODM, as well as goodwill and intangible assets resulting from design segment acquisitions (see
Note 16 to the consolidated financial statements).

 Inventory Valuation

 Inventories consist primarily
of finished goods and are stated at the lower of cost (determined by the first-in, first-out method) or net realizable value. Based on
management's estimates, an allowance is made to reduce excess, obsolete, or otherwise unsellable inventories to net realizable value.
The allowance is established through charges to cost of sales in the Company's consolidated statements of operations. In determining
the adequacy of the allowance, management's estimates are based upon several factors, including analyses of inventory levels, historical
loss trends, sales history and projections of future sales demand. The Company's estimates of the allowance may change from time
to time based on management's assessments, and such changes could be material.

 Goodwill and Intangible Assets

 We review goodwill for impairment
at least annually, or more often if triggering events occur. We have two reporting units with goodwill (the IPS and Kablooe operating
segments) and we perform our annual goodwill impairment test on September 30, the end of the fiscal year, or upon the occurrence of a
triggering event. We have the option to perform a qualitative assessment to determine if an impairment is more likely than not to have
occurred. If we can support the conclusion that it is not more likely than not that the fair value of a reporting unit is less than its
carrying amount, then we would not need to perform a quantitative impairment test for the reporting unit. If we cannot support such a
conclusion or do not elect to perform the qualitative assessment, then we will perform the quantitative impairment test by comparing the
fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying
amount, no impairment charge is recognized. If the fair value of the reporting unit is less than its carrying amount, an impairment charge
will be recognized for the amount by which the reporting unit's carrying amount exceeds its fair value. A significant amount of
judgment is required in performing goodwill impairment tests including estimating the fair value of a reporting unit. During Fiscal 2024,
the Company recorded an impairment charge of $200,000 related to goodwill (See Note 4 to the consolidated financial statements).

 Our intangible assets are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
In assessing the recoverability of our intangible assets, we must make estimates and assumptions regarding future cash flows and other
factors to determine the fair value of the respective assets. These estimates and assumptions could have a significant impact on whether
an impairment charge is recognized and the magnitude of any such charge. Fair value estimates are made at a specific point in time, based
on relevant information. These estimates are subjective in nature and involve uncertainties and matters of significant judgments and therefore
cannot be determined with precision. Changes in assumptions could significantly affect the estimates. If these estimates or material related
assumptions change in the future, we may be required to record impairment charges related to our intangible assets. There were no indications
of impairment of intangible assets in Fiscal 2024 or Fiscal 2023.

 Recent Accounting Pronouncements

 In December 2023, the Financial
Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-09, "Income Taxes - Improvements
to Income Tax Disclosures", requiring enhancements and further transparency to certain income tax disclosures, most notably the tax
rate reconciliation and income taxes paid. This ASU is effective for fiscal years beginning after December 15, 2024 on a prospective basis
and retrospective application is permitted. The Company is currently evaluating the effects of this pronouncement on its consolidated

 In November 2023, the FASB
issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures," which requires expanded
segment reporting and disclosure and is effective for the Company for fiscal years beginning after December 15, 2023, and interim periods
within fiscal years beginning after December 15, 2024. The Company is currently evaluating the effects of this pronouncement on its consolidated

 In November 2019, the FASB
issued ASU 2019-11, "Codification Improvements to Topic 326, Financial Instruments – Credit Losses." ASU 2019-11 is
an accounting pronouncement that provides clarity to and amends earlier guidance on this topic and would be effective concurrently with
the adoption of such earlier guidance. This pronouncement is effective for the Company for fiscal years beginning after December 15, 2022,
and interim periods within those fiscal years. The Company adopted this guidance in the first quarter of Fiscal 2024 with no material
impact on its consolidated financial statements.

 RESULTS OF OPERATIONS FOR FISCAL 2024 COMPARED
TO FISCAL 2023

 Consolidated Results

 The table below summarizes our consolidated results
of continuing operations for Fiscal 2024 as compared to Fiscal 2023:

 Consolidated Results of Continuing Operations

 Change ($)

 Change (%)

 Net revenues

 $
 30,195,000

 $
 36,688,000

 $
 (6,493,000
)

 (17.7%
)

 Cost of sales

 23,986,000

 28,324,000

 (4,338,000
)

 (15.3%
)

 Gross profit

 6,209,000

 8,364,000

 (2,155,000
)

 (25.8%
)

 Sales and marketing expenses

 1,425,000

 1,663,000

 (238,000
)

 (14.3%
)

 General and administrative expenses

 6,516,000

 6,541,000

 (25,000
)

 (0.4%
)

 Goodwill impairment

 200,000

 –

 200,000

 –

 Operating (loss) income

 (1,932,000
)

 160,000

 (2,092,000
)

 (1307.5%
)

 Other income, net

 (7,000
)

 (19,000
)

 12,000

 (63.2%
)

 Income tax provision

 23,000

 20,000

 3,000

 15.0%

 (Loss) / income from continuing operations

 $
 (1,948,000
)

 $
 159,000

 $
 (2,107,000
)

 (1325.2%
)

 The decrease in net revenues
in Fiscal 2024 was primarily driven by a decline in revenue in the OEM distribution segment and, to a lesser extent, the design segment.

 Gross profit decreased and
gross margin declined from 22.8% in Fiscal 2023 to 20.6% in Fiscal 2024. This decrease was mainly driven by lower utilization rates in
our design segment and a change in the mix of our OEM distribution segment revenue, partially offset by a reduction in our sourcing fee
with Forward China.

 Sales and marketing expenses
decreased primarily due to staff reduction in our OEM distribution segment and lower sales related expenses in the design segment. Sales
and marketing expenses as a percentage of revenue increased from 4.5% in Fiscal 2023 to 4.7% in Fiscal 2024.

 General and administrative
expenses decreased slightly in Fiscal 2024. Lower payroll costs were partially offset by increased corporate expenses, primarily driven
by costs related to Nasdaq non-compliance issues, and a credit loss recovery of approximately $200,000 in Fiscal 2023 that did not recur
in Fiscal 2024. Management continues to monitor the various components of general and administrative expenses and how these costs are
affected by inflationary and other factors. We intend to adjust these costs as needed based on the overall needs of the business.

 During Fiscal 2024, the Company
recorded a goodwill impairment charge of $200,000 related to the Kablooe reporting unit, which is included in the design segment. This
impairment charge resulted from the quantitative goodwill impairment testing performed at September 30, 2024 and was driven by historical
losses and a reduction in expected future performance of the Kablooe reporting unit.

 We reported other income
of $7,000 in Fiscal 2024 as compared to $19,000 in Fiscal 2023. The variance is due to fair value adjustments of $70,000 in Fiscal 2023
to reduce to the fair value of the earnout consideration related to the Kablooe acquisition, $18,000 of net duty drawback income received
in Fiscal 2023 offset by an increase in interest income from interest bearing deposits and a decrease in interest expense resulting from
a reduction in the amount of debt outstanding.

 In Fiscal 2024, we recorded
a tax provision of $23,000, incurred a loss from continuing operations before income taxes of $1,925,000 and had an effective tax rate
of (1.3%). In Fiscal 2023, we recorded a tax provision of $20,000, generated income from continuing operations before income taxes of
$179,000 and had an effective tax rate of 11.2%.

 Consolidated basic and diluted
(loss)/earnings per share from continuing operations was ($1.77) and $0.14 for Fiscal 2024 and Fiscal 2023, respectively.

 Segment Results

 The discussion that follows
below provides further details about the results of operations for each continuing segment as compared to the prior year.

 Segment Results of Operations

 OEM Distribution

 Corporate Expenses

 Consolidated

 Fiscal 2024 revenues

 $
 10,204,000

 $
 19,991,000

 $
 –

 $
 30,195,000

 Fiscal 2023 revenues

 14,002,000

 22,686,000

 –

 36,688,000

 Change

 $
 (3,798,000
)

 $
 (2,695,000
)

 $
 –

 $
 (6,493,000
)

 Fiscal 2024 operating income/(loss)

 $
 369,000

 $
 26,000

 $
 (2,327,000
)

 $
 (1,932,000
)

 Fiscal 2023 operating income/(loss)

 440,000

 2,182,000

 (2,462,000
)

 160,000

 Change

 $
 (71,000
)

 $
 (2,156,000
)

 $
 135,000

 $
 (2,092,000
)

 OEM Distribution

 Net revenues in the OEM distribution
segment decreased from lower sales volume from our diabetic customers, slightly offset by an increase in revenues from other OEM customers.
As consumer demand increases for diabetic testing products which require no carrying case, we expect diabetic product sales to continue
to represent a smaller portion of our OEM distribution revenue. In March 2023, a contract with one of our major diabetic customers expired.
Due to increased pricing pressures, we did not extend our contract with this customer. Revenue from this customer represented approximately
7.8% of our consolidated net revenues in Fiscal 2023. We expect the loss of this customer to cause a significant decline in OEM distribution
segment revenues in future periods.

 The following tables set
forth revenues by product line of our OEM distribution segment customers for the periods indicated:

 OEM Revenues by Product Line

 Change ($)

 Change (%)

 Diabetic products

 $
 7,885,000

 $
 11,805,000

 $
 (3,920,000
)

 (33.2%
)

 Other products

 2,319,000

 2,197,000

 122,000

 5.6%

 Total net revenues

 $
 10,204,000

 $
 14,002,000

 $
 (3,798,000
)

 (27.1%
)

 Diabetic Product Revenues

 Our OEM distribution segment
sources to the order of, and sells carrying cases for, blood glucose diagnostic kits directly to OEMs (or their contract manufacturers).
The OEM customer or its contract manufacturer packages our carry cases "in box" as a custom accessory for the OEM's
blood glucose testing and monitoring kits or, to a lesser extent, sells them through their retail distribution channels.

 Revenues from diabetic products
decreased due to the loss of a major customer in March 2023, lower demand from our major diabetic customers and the loss of one product
to a competitor. As mentioned above, management believes that revenues from diabetic customers will continue to decline.

 Revenues from diabetic products
represented 77% of net revenues for the OEM distribution segment in Fiscal 2024 compared to 84% in Fiscal 2023.

 Other Product Revenues

 Our OEM distribution segment
also sources and sells cases and protective solutions for a diverse array of portable electronic and non-electronic products (such as
sporting and recreational products, bar code scanners, GPS devices, tablets and firearms) on a made-to-order basis that are customized
to fit the products sold by our OEM customers.

 Revenues from other products
increased due to new customers and higher sales volume with some existing customers, partially offset by reduced demand from other customers.
We will continue to focus on our sales and sales support teams in our continued efforts to expand and diversify our other products customer
base.

 Operating Income

 Operating income for the
OEM distribution segment decreased but operating income margin increased to 3.6% in Fiscal 2024, compared to 3.1% in Fiscal 2023, driven
by a decrease in the sourcing fee and lower sales and marketing expenses. While revenues decreased in diabetic products, a large portion
of this decrease was from lower margin products, driving overall gross margins up. Lower selling and marketing costs further improved
the operating income margin. We continue to work on expanding our product offerings to include higher margin products and enhancing our
sales efforts to grow revenue and increase gross profit.

 Considering the loss of a
significant diabetic customer, management reduced its OEM distribution segment sales and marketing personnel in March 2023 and reduced
its sourcing fee with Forward China. Effective April 1, 2023, the Company and Forward China agreed to reduce the fixed portion of the
sourcing fee from $100,000 to $83,333 per month for the remaining term of the sourcing agreement. The Company and Forward China signed
a new Supply Agreement effective October 2023, which further reduced the fixed portion of the sourcing fee to $65,833 per month and expired
October 2024. In November 2024, the Company and Forward China agreed to: (i) extend the sourcing agreement until April 30, 2025, but allow
either party to cancel with 30 days notice, (ii) reduce the fixed portion of the sourcing fee to $35,000 per month, and (iii) change the
payment terms to better align with payments from the Company's customers. See Note 14 to the consolidated financial statements for
more information on the sourcing agreement with Forward China.

 Design Segment

 The decrease in net revenues
in the design segment was primarily driven by one customer whose revenue declined approximately $2,600,000, as well as a net decrease
in volume of work and projects with continuing customers, partially offset by projects from new customers. In December 2024, our largest
design customer notified the Company of its plan to discontinue their insulin patch program, on which the Company was working. We expect
this to cause a material decrease in our revenues beginning with the second quarter of fiscal 2025. We are currently working on cost reduction
efforts to mitigate the reduction in revenue.

 Operating income for the
design segment decreased and operating income margin decreased from 9.6% in Fiscal 2023 to 0.1% in Fiscal 2024. This decrease was driven
by lower utilization rates, impairment of goodwill and credit loss recoveries in Fiscal 2023 that did not recur in Fiscal 2024, partially
offset by lower payroll costs and increased billing rates on some projects.

 LIQUIDITY AND CAPITAL RESOURCES

 Our primary source of liquidity
is our operations. The primary demand on our working capital has historically been (i) operating losses, (ii) repayment of debt obligations,
and (iii) any increases in accounts receivable and inventories arising in the ordinary course of business. Historically, our sources of
liquidity have been adequate to satisfy working capital requirements arising in the ordinary course of business. At September 30, 2024,
our working capital was $273,000 compared to $26,000 at September 30, 2023, which excludes discontinued assets held for sale. The increase
was primarily due to the equity conversion of amounts due to Forward China (see Note 14 to the consolidated financial statements), lower
accrued expenses, partially offset by a decrease in accounts receivable and cash. At November 30, 2024, we had approximately $2,300,000
cash on hand.

 Forward China, our largest
vendor and an entity owned by our Chairman of the Board and Chief Executive Officer, holds a $1,600,000 promissory note (the "FC
Note") issued by us which matures on June 30, 2025 (see Note 14 to the consolidated financial statements). The balance of the FC
Note was reduced to $600,000 after we made principal payments of $1,000,000 through Fiscal 2024. Although the FC Note has been extended
on multiple occasions to assist us with our liquidity position, we plan on funding the repayment at maturity using existing cash balances
and/or obtaining additional extensions as deemed necessary. Additionally, Forward China has extended payment terms on our outstanding
payables due to them when necessary. At September 30, 2024, our accounts payable due to Forward China was approximately $7,226,000. In
connection with the new sourcing agreement entered into October 2023 (see Note 14 to the consolidated financial statements) and in order
to preserve our future liquidity, Forward China agreed to limit the amount of outstanding payables it would seek to collect from us to
$500,000 in any 12-month period, which we agreed to pay within 30 days of any such request. This agreement pertains only to payables that
were outstanding at October 30, 2023 of $7,365,000. Purchases from Forward China made after October 30, 2023, are not covered by this
agreement and are expected to be paid according to normal payment terms. At September 30, 2024, the remaining balance covered by this
agreement was approximately $4,881,000. We can provide no assurance that (i) Forward China will extend the FC Note again if we request
an extension, (ii) Forward China will extend additional payment terms on any payables not covered by the agreement if needed, or (iii)
any additional credit facility will be available on terms acceptable to us or at all.

 Our consolidated financial statements have been
prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and
satisfaction of liabilities in the ordinary course of business. We had an accumulated deficit and working capital of $19,637,000 and $273,000,
respectively, at September 30, 2024, a net loss of $1,951,000 in Fiscal 2024 and a cash balance of approximately $2,300,000 at November
30, 2024.

 In December 2024, our largest design customer
notified us of its plan to discontinue their insulin patch program, on which we were working. We expect this to cause a material
decrease in our revenues beginning with the second quarter of Fiscal 2025. Based on our forecasted cash flows, we believe that there is
substantial doubt about our ability to continue as a going concern for a period of 12 months from the date of issuance of the consolidated

 If we have the opportunity
to make a strategic acquisition (as we have in the past with the acquisitions of IPS and Kablooe) or an investment in a product or partnership,
we may require additional capital beyond our current cash balance to fund the opportunity. If we seek to raise additional capital or obtain
additional borrowings, there is no assurance that we will be able to raise funds on terms that are acceptable to us or at all. In the
current environment of rising interest rates, any future borrowing is expected to result in higher interest expense.

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

 Cash Flows

 During Fiscal 2024 and Fiscal
2023, our sources and uses of cash were as follows:

 Operating Activities

 During Fiscal 2024, cash
provided by operating activities of $407,000 resulted from a decrease in accounts receivable of $1,244,000, a decrease in discontinued
assets held for sale of $508,000, an increase in amounts due to Forward China (excluding the non-cash impact of the Conversion Agreements)
of $1,180,000, and non-cash charges for depreciation, amortization, share-based compensation, credit loss expense and goodwill impairment
of $654,000, partially offset by the net loss of $1,951,000, a decrease in accrued expenses and other current liabilities $745,000, a
decrease in accounts payable $390,000 and the net change in other operating assets and liabilities of $93,000.

 During Fiscal 2023, cash
provided by operating activities of $1,041,000 resulted from a decrease in discontinued assets held for sale of $2,642,000, an increase
in accounts payable and amounts due to Forward China of $783,000, an increase in accounts receivable of $495,000, non-cash charges for
depreciation, amortization, share-based compensation and credit loss expense of $481,000 and the net change in other operating assets
and liabilities of $447,000, partially offset by the $70,000 non-cash adjustment to the fair value of the Kablooe earnout consideration
and the net loss of $3,737,000.

 Investing Activities

 In Fiscal 2024 and Fiscal
2023, cash used for investing activities of $65,000 and $136,000, respectively, resulted from purchases of property and equipment.

 Financing Activities

 In Fiscal 2024 and Fiscal
2023, cash used in financing activities of $500,000 and $300,000, respectively, consisted of principal payments on the promissory note
held by Forward China.

 ITEM 7A. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 Not applicable.

 ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA

 The consolidated financial
statements and notes thereto included in this Annual Report may be found beginning on page F-1 of this Annual Report on Form 10-K.

 ITEM 9. CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 None.

 ITEM 9A. CONTROLS AND PROCEDURES

 Evaluation of Disclosure Controls and Procedures

 Our management carried out
an evaluation, with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of our
disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act. Based on their evaluation, our Principal Executive Officer
and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2024.

 Management's Report on Internal Control Over Financial Reporting

 Our management is responsible
for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act).
Our management, under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, evaluated
the effectiveness of our internal control over financial reporting as of the end of the period covered by this report. In making this
assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)
in Internal Control-Integrated Framework as issued in 2013. Based on that evaluation, our management concluded that our internal control
over financial reporting as of September 30, 2024, was effective based on that criteria.

 Our internal control over
financial reporting is a process designed under the supervision of our Principal Executive Officer and Principal Financial Officer to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external
reporting purposes in accordance with U.S. GAAP. Internal control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with U.S. GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management
and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition
of our assets that could have a material effect on the consolidated financial statements.

 Because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with policies or procedures may deteriorate.

 Changes in Internal Control

 There were no changes in
our internal control over financial reporting identified in management's evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange
Act during the fourth quarter of Fiscal 2024 that materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.

 ITEM 9B. OTHER INFORMATION

 During the three months ended
September 30, 2024, no director or officer of the company adopted, modified or terminated a "Rule 10b5-1 trading
arrangement" or "non-rule 10b5-1 trading arrangement," as each term is defined in Item 408(a) or Regulation S-K.

 ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS
THAT PREVENT INSPECTIONS

 Not Applicable.

 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS
AND CORPORATE GOVERNANCE

by this item is incorporated by reference to our Proxy Statement for the 2025 Annual Meeting of Stockholders to be filed with
the SEC within 120 days of the fiscal year ended September 30, 2024. Our Board has adopted a Code of Business Conduct and Ethics
applicable to all officers, directors and employees, which is available on our website ( under "Investors",
"Governance." We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding amendment to, or waiver
from, a provision of our Code of Conduct and by posting such information on the website address and location specified above.

 ITEM 11. EXECUTIVE COMPENSATION

by this item is incorporated by reference to our Proxy Statement for the 2025 Annual Meeting of Stockholders to be filed with
the SEC within 120 days of the fiscal year ended September 30, 2024.

 ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS

by this item is incorporated by reference to our Proxy Statement for the 2025 Annual Meeting of Stockholders to be filed with
the SEC within 120 days of the fiscal year ended September 30, 2024.

 ITEM 13. CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

by this item is incorporated by reference to our Proxy Statement for the 2025 Annual Meeting of Stockholders to be filed with
the SEC within 120 days of the fiscal year ended September 30, 2024.

 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

by this item is incorporated by reference to our Proxy Statement for the 2025 Annual Meeting of Stockholders to be filed with
the SEC within 120 days of the fiscal year ended September 30, 2024.

 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES

 (a)

 Documents filed as part of the report.

 (1)

 Financial Statements. See Index to Consolidated Financial Statements, which appears on page F-1 hereof. The financial statements listed in the accompanying Index to Consolidated Financial Statements are filed herewith in response to this Item.

 (2)

 Financial Statements Schedules. All schedules are omitted because they are not applicable or because the required information is contained in the consolidated financial statements or notes included in this report.

 (3)

 Exhibits. See the Exhibit Index.

 ITEM 16. FORM 10-K SUMMARY

 Not Applicable.

 Signatures

 Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 Dated: December 27, 2024

 FORWARD INDUSTRIES, INC.

 By: /s/ Terence Wise
Terence Wise

Chief Executive Officer

(Principal Executive Officer)

 In accordance with the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

 /s/ Terence Wise
Terence Wise

Principal Executive Officer and Director

 /s/ Kathleen Weisberg
 Kathleen Weisberg

 Chief Financial Officer

 Principal Financial Officer and Principal Accounting Officer

 /s/ Sangita Shah
Sangita Shah

Director

 /s/ Sharon Hrynkow
Sharon Hrynkow

Director

 EXHIBIT INDEX

 Incorporated
 by

 Reference

 Exhibit

 No.

 Exhibit Description

 Form

 Date

 Number

 Filed or

 Furnished

 Herewith

 2.1

 Stock
 Purchase Agreement dated January 18, 2018 - Intelligent Product Solutions, Inc.+

 1/18/18

 2.1

 2.2

 Asset
 Purchase Agreement dated August 17, 2020 - Kablooe, Inc.+

 8/17/20

 2.1

 3.1

 Restated
 Certificate of Incorporation

 12/8/10

 3(i)

 3.2

 Certificate
 of Amendment of the Certificate of Incorporation – Series A Participating Preferred Stock

 4/26/13

 3.1

 3.3

 Certificate
of Amendment of the Certificate of Incorporation – 6% Senior Convertible Preferred Stock

 7/3/13

 3.1

 3.4

 Certificate of Amendment of the Certificate of Incorporation – Reverse Stock Split

 6/20/24

 3.1

 3.5

 Certificate of Amendment of the Certificate of Incorporation – Series A-1 Convertible Preferred Stock

 7/8/24

 4.1

 3.6

 Certificate of Amendment of the Certificate of Incorporation – Increasing the Authorized Series A-1

 10/4/24

 4.1

 3.7

 Third
 Amended and Restated Bylaws, as of May 28, 2014

 12/10/14

 3(ii)

 4.1

 Description
 of securities registered under Section 12 of the Exchange Act of 1934

 12/27/19

 4.1

 4.2

 Promissory Note dated
 January 18, 2018 – Forward Industries (Asia-Pacific) Corporation (as amended and restated)

 Filed

 10.1

 2011
 Long-Term Incentive Plan, as amended

 2/14/19

 4.3

 10.2

 2021
 Equity Incentive Plan

 12/23/20

 4.1

 10.3

 Form of Employment Agreement dated May 26, 2021 – Paul Severrino *

 12/16/21

 10.4(a)

 10.4

 Summary
 of Employment Arrangement - Terence Wise*

 12/21/23

 10.4

 10.5

 Employment
 Agreement dated July 1, 2023 – Kathleen Weisberg*

 6/30/23

 10.1

 10.6

 Paycheck
 Protection Program Term Note payable to TD Bank, N.A. dated April 18, 2020

 4/22/20

 10.1

 10.7

 Amended
 and Restated TD Bank Revolving Term Note dated September 28, 2018

 10/2/18

 10.1

 10.8

 TD
 Bank Modification Agreement dated September 28, 2018

 10/2/18

 10.2

 10.9

 Consultancy Agreement dated March 1, 2022 - Justwise Group Ltd.

 5/12/22

 10.1

 10.10

 Consultancy Agreement dated September 1, 2022 - Justwise Group Ltd.

 12/16/22

 10.11

 10.10(a)

 Extension to the Consultancy Agreement – Justwise Group Ltd.

 11/8/23

 10.4

 10.11

 Employment
 Agreement dated January 18, 2018 - Robert Wild *

 12/16/22

 10.12

 10.12

 Employment
 Agreement dated August 17, 2020 – Tom KraMer *

 12/16/22

 10.13

 10.13

 Buying Agency and Supply Agreement dated November 2, 2023 – Forward Industries (Asia-Pacific) Corporation +

 11/8/23

 10.1

 10.13(a)

 Amendment to the Buying Agency and Supply Agreement - November 2024

 11/18/24

 10.1

 10.14

 Deferred Payment Agreement - Forward Industries (Asia – Pacific) Corporation

 11/8/23

 10.2

 10.15

 Account Payables Conversion Agreement - Forward Industries (Asia- Pacific) Corporation – July 2024

 7/8/24

 10.1

 10.16

 Account Payables Conversion Agreement - Forward Industries (Asia- Pacific) Corporation – September 2024

 10/4/24

 10.1

 19.1

 Insider Trading Policy

 Filed

 21.1

 List
 of Subsidiaries

 12/17/20

 21.1

 23.1

 Consent of Independent Registered Public Accounting Firm

 Filed

 31.1

 CEO Certifications (302)

 Filed

 31.2

 CFO Certification (302)

 Filed

 32.1

 CEO and CFO Certifications (906)

 Furnished

 Clawback Policy

 Filed

 101.INS

 Filed

 101.SCH

 Filed

 101.CAL

 Document

 Filed

 101.DEF

 Document

 Filed

 101.LAB

 Filed

 101.PRE

 Document

 Filed

 Cover Page Interactive Data File (formatted as Inline

 ______________________

 * Management compensatory agreement or arrangement.

 + Certain schedules, appendices and exhibits to this agreement
have been omitted in accordance with Item 601 of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished supplementally
to the Securities and Exchange Commission staff upon request.

 Copies of this 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.;
700 Veterans Memorial Hwy, Suite 100, Hauppauge, NY 11788; Attention: Corporate Secretary.

 CONSOLIDATED FINANCIAL STATEMENTS

 Page

 Report of Independent Registered Public Accounting Firm (PCAOB # 596)

 Consolidated Balance Sheets at September 30, 2024 and 2023

 Consolidated Statements of Operations for the Years Ended September 30, 2024 and 2023

 Consolidated Statements of Shareholders' Equity for the Years Ended September 30, 2024 and 2023

 Consolidated Statements of Cash Flows for the Years Ended September 30, 2024 and 2023

 Notes to Consolidated Financial Statements

 F- 1

 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM

 The Board of Directors and Shareholders of

 Forward Industries, Inc.

 Opinion on the Financial Statements

 We have audited the accompanying consolidated balance sheets of Forward
Industries, Inc. and Subsidiaries (the "Company") as of September 30, 2024 and 2023, and the related consolidated statements
of operations, shareholders' equity and cash flows for the years then ended, and the related notes (collectively referred to as
the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material
respects, the financial position of the Company as of September 30, 2024 and 2023, and the results of its operations and its cash flows
for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 Going Concern

 The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company
has suffered recurring losses from operations that raise substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.

 Basis for Opinion

 These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and
are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.

 We conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal
control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity's internal
control over financial reporting. Accordingly, we express no such opinion.

 Our audits included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for
our opinion.

 Critical Audit Matters

 The critical audit matters communicated below are matters arising from
the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee
and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the
consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate
opinions on the critical audit matters or on the accounts or disclosures to which they relate.

 F- 2

 Evaluation of Going Concern assessment and of impairment of Kablooe
goodwill and intangible assets (Note 1, Note 2 and Note 4 to the Consolidated Financial Statements)

 As discussed in Note 1 to the consolidated financial statements, significant
judgment is exercised by the Company in determining whether there is substantial doubt the Company will continue as a going concern. As
discussed in Notes 2 and 4 to the consolidated financial statements, the Company has goodwill and intangible assets related to its Kablooe,
Inc. ("Kablooe") operating unit. The Company reviews goodwill for impairment at least annually, or more often if triggering
events occur, and performs an annual goodwill impairment test on September 30, the end of the fiscal year, or upon the occurrence of a
triggering event. The Company reviews intangible assets for impairment whenever events or changes in circumstances indicate that the carrying
amount of the asset may not be recoverable. The Company estimates the fair value of its reporting unit using a combination of the income,
or discounted cash flows approach, and the market approach, which utilizes Kablooe's forecasted operating results. Specifically,
the Company's forecasted cash flows are sensitive to significant assumptions such as forecasted revenue and operating results, all
of which are affected by the expected future market or economic conditions and inflation.

 Significant judgment is exercised by the Company in forecasting operating
results which factor into the Company's going concern assessment and its goodwill and intangible assets impairment analysis related
to its Kablooe operating segment. Specifically, the forecasted operating results used by the Company in its going concern assessment and
the impairment analysis of goodwill and intangible assets included in its Kablooe operating segment are sensitive to significant assumptions
such as future revenue and expenses, all of which are affected by uncertain future events.

 Given these factors, the related audit effort in evaluating management's
judgments in forecasting operating results which factor into the Company's going concern assessment and its goodwill and intangible
assets impairment analysis related to its Kablooe reporting segment, were challenging, subjective, and complex and required a high degree
of auditor judgment.

 How our Audit Addressed the Critical Audit Matter

 Our principal audit procedures related to the forecasted cash flows
and operating results used in the Company's going concern assessment and impairment of Kablooe's goodwill and intangible assets
analysis included the following:

 We gained an understanding of and evaluated the design and implementation of the Company's process to develop forecasted cash
flows and operating results, including significant assumptions used in developing forecasted cash flows and operating results as well
as considering the appropriateness of the underlying data used by the Company in its analyses.

 Evaluating the reasonableness of the Company's forecasted revenue, expenses, and cash flows by comparing those forecasts to
underlying business strategies, including customer relationships and the Company's ability to obtain new customers, and to historical
results. In addition, we performed sensitivity analyses related to the key inputs used in the Company's forecasted revenue, expenses
and cash flows, including evaluating whether the changes in the assumptions would result in a material change in forecasted cash flows
and operating results.

 Evaluating management's ability to accurately forecast future operating results by comparing the Company's historical
forecasted revenue, expenses and cash flows to actual results.

 /s/ CohnReznick LLP

 We have served as the Company's auditor since 2011.

 Melville, New York

 F- 3

 CONSOLIDATED BALANCE SHEETS

 2024

 2023

 Assets

 Current assets:

 Cash

 $
 3,022,436

 $
 3,180,468

 Accounts receivable, net of allowances for credit losses of $ 27,282 and $ 955,965 as of September 30, 2024 and 2023, respectively

 5,609,032

 6,968,778

 Accounts receivable (related party)

 96,487

 –

 Inventories, net

 489,996

 334,384

 Discontinued assets held for sale

 –

 508,077

 Prepaid expenses and other current assets

 426,240

 378,512

 Total current assets

 9,644,191

 11,370,219

 Property and equipment, net

 219,297

 274,046

 Intangible assets, net

 680,386

 893,143

 Goodwill

 1,558,682

 1,758,682

 Operating lease right-of-use assets, net

 2,593,112

 3,021,315

 Other assets

 72,688

 68,737

 Total assets

 $
 14,768,356

 $
 17,386,142

 Liabilities and shareholders' equity

 Current liabilities:

 Note payable to Forward China (related party)

 $
 600,000

 $
 –

 Accounts payable

 129,060

 518,892

 Due to Forward China (related party)

 7,226,012

 8,246,015

 Deferred income

 399,439

 297,407

 Current portion of operating lease liability

 404,056

 416,042

 Accrued expenses and other current liabilities

 613,029

 1,357,743

 Total current liabilities

 9,371,596

 10,836,099

 Other liabilities:

 Note payable to Forward China (related party)

 –

 1,100,000

 Operating lease liability, less current portion

 2,429,726

 2,833,782

 Total liabilities

 11,801,322

 14,769,881

 Commitments and contingencies(Note 12)

 –

 Shareholders' equity:

 Series A-1 Convertible Preferred Stock, par value $0.01 per share; stated value of $ 1,000 per share; 2,700 shares authorized, 2,200 and 0 shares issued and outstanding at September 30, 2024 and 2023, respectively (liquidation preference of $ 2,200,000)

 –

 Common stock, 40,000,000 shares authorized; par value $ 0.01 per share; 1,101,069 shares issued and outstanding at September 30, 2024 and 2023

 Additional paid-in capital

 20,393,163

 20,291,803

 Accumulated deficit

 ( 19,637,140
)

 ( 17,686,553
)

 Total shareholders' equity

 2,967,034

 2,616,261

 Total liabilities and shareholders' equity

 $
 14,768,356

 $
 17,386,142

 The accompanying notes are an integral part of the consolidated financial statements.

 F- 4

 CONSOLIDATED STATEMENTS OF OPERATIONS

 For the Fiscal Years Ended September 30,

 2024

 2023

 Revenues, net

 $
 29,613,438

 $
 36,062,794

 Revenues, net - related party

 581,845

 625,513

 Total revenues, net

 30,195,283

 36,688,307

 Cost of sales

 14,807,116

 15,549,013

 Cost of sales - related party

 9,179,577

 12,774,809

 Total cost of sales

 23,986,693

 28,323,822

 Gross profit

 6,208,590

 8,364,485

 Sales and marketing expenses

 1,424,829

 1,663,791

 General and administrative expenses

 6,516,246

 6,541,036

 Goodwill impairment

 200,000

 –

 Operating (loss) / income

 ( 1,932,485
)

 159,658

 Fair value adjustment of earnout consideration

 –

 ( 70,000
)

 Interest income

 ( 78,863
)

 ( 23,188
)

 Interest expense - related party

 62,662

 104,201

 Other expense / (income), net

 8,316

 ( 30,019
)

 (Loss) / income from continuing operations before income taxes

 ( 1,924,600
)

 178,664

 Provision for income taxes

 22,947

 20,006

 (Loss) / income from continuing operations

 ( 1,947,547
)

 158,658

 Loss from discontinued operations, net of tax

 ( 3,040
)

 ( 3,895,315
)

 $
 ( 1,950,587
)

 $
 ( 3,736,657
)

 Basic loss per share:

 Basic (loss) / income per share from continuing operations

)

 0.14

 Basic loss per share from discontinued operations

 ( 0.00
)

 ( 3.53
)

 Basic loss per share

)

 ( 3.39
)

 Diluted loss per share:

 Diluted (loss) / income per share from continuing operations

)

 0.14

 Diluted loss per share from discontinued operations

 ( 0.00
)

 ( 3.53
)

 Diluted loss per share

)

 ( 3.39
)

 Weighted average common shares outstanding:

 Basic

 Diluted

 The accompanying notes are an integral part of the consolidated financial statements.

 F- 5

 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

 For the Fiscal Year Ended September 30, 2024

 Series A-1 Convertible

 Additional

 Preferred Stock

 Common Stock

 Paid-In

 Accumulated

 Shares

 Amount

 Shares

 Amount

 Capital

 Deficit

 Total

 Balance at September 30, 2023, unadjusted

 –

 $
 –

 10,061,185

 $
 100,612

 $
 20,202,202

 $
 ( 17,686,553
)

 $
 2,616,261

 Adjustment for reverse stock split 1-for-10, effective June 18, 2024

 ( 8,960,116
)

 ( 89,601
)

 89,601

 –

 –

 Balance at September 30, 2023, as adjusted

 –

 –

 20,291,803

 ( 17,686,553
)

 2,616,261

 Share-based compensation

 –

 –

 –

 –

 101,360

 –

 101,360

 –

 –

 –

 –

 –

 ( 1,950,587
)

 ( 1,950,587
)

 Preferred Stock issued in connection with conversion of accounts payable to Forward China

 2,200

 –

 –

 –

 –

 Balance at September 30, 2024

 2,200

 $

 $

 $
 20,393,163

 $
 ( 19,637,140
)

 $
 2,967,034

 For the Fiscal Year Ended September 30, 2023

 Series A-1 Convertible

 Additional

 Preferred Stock

 Common Stock

 Paid-In

 Accumulated

 Shares

 Amount

 Shares

 Amount

 Capital

 Deficit

 Total

 Balance at September 30, 2022, unadjusted

 –

 $
 –

 10,061,185

 $
 100,612

 $
 20,115,711

 $
 ( 13,949,896
)

 $
 6,266,427

 Adjustment for reverse stock split 1-for-10, effective June 18, 2024

 ( 8,960,116
)

 ( 89,601
)

 89,601

 –

 –

 Balance at September 30, 2022, as adjusted

 –

 –

 20,205,312

 ( 13,949,896
)

 6,266,427

 Share-based compensation

 –

 –

 –

 –

 86,491

 –

 86,491

 –

 –

 –

 –

 –

 ( 3,736,657
)

 ( 3,736,657
)

 Balance at September 30, 2023

 –

 $
 –

 $

 $
 20,291,803

 $
 ( 17,686,553
)

 $
 2,616,261

 The accompanying notes are an integral part of the consolidated financial statements.

 F- 6

 CONSOLIDATED STATEMENTS OF CASH FLOWS

 For the Fiscal Years

Ended September 30,

 2024

 2023

 Operating Activities:

 $
 ( 1,950,587
)

 $
 ( 3,736,657
)

 Adjustments to reconcile net loss to net cash provided by operating activities:

 Share-based compensation

 101,360

 86,491

 Depreciation and amortization

 332,660

 315,940

 Credit loss expense

 19,505

 78,786

 Change in fair value of earn-out consideration

 –

 ( 70,000
)

 Goodwill impairment

 200,000

 –

 Changes in operating assets and liabilities:

 Accounts receivable

 1,340,241

 495,102

 Accounts receivable (related party)

 ( 96,487
)

 –

 Inventories

 ( 155,612
)

 316,469

 Discontinued assets held for sale

 508,077

 2,642,100

 Prepaid expenses and other current assets

 ( 47,728
)

 39,093

 Other assets

 ( 3,951
)

 –

 Accounts payable

 ( 389,832
)

 250,732

 Due to Forward China (related party)

 1,179,997

 532,135

 Deferred income

 102,032

 ( 141,471
)

 Net changes in operating lease liabilities

 12,161

 28,471

 Accrued expenses and other current liabilities

 ( 744,714
)

 203,837

 Net cash provided by operating activities

 407,122

 1,041,028

 Investing Activities:

 Purchases of property and equipment

 ( 65,154
)

 ( 136,082
)

 Net cash used in investing activities

 ( 65,154
)

 ( 136,082
)

 Financing Activities:

 Repayment of note payable to Forward China (related party)

 ( 500,000
)

 ( 300,000
)

 Net cash used in financing activities

 ( 500,000
)

 ( 300,000
)

 Net (decrease) / increase in cash

 ( 158,032
)

 604,946

 Cash at beginning of year

 3,180,468

 2,575,522

 Cash at end of year

 $
 3,022,436

 $
 3,180,468

 Supplemental Disclosures of Cash Flow Information:

 Cash paid for interest

 $
 62,662

 $
 104,201

 Cash paid for taxes

 $
 7,069

 $
 10,271

 Supplemental Disclosures of Non-Cash Information:

 Conversion of accounts payable to convertible preferred stock

 $

 $
 –

 The accompanying notes are an integral part of the consolidated financial statements.

 F- 7

 NOTE 1 OVERVIEW

 Business

 Forward Industries, Inc.
("Forward", "we", "our", or the "Company"), is a global design, sourcing and distribution
company serving top tier medical and technology customers worldwide.

 The Company's design
division provides hardware and software product design and engineering services to customers predominantly located in the U.S. The Company's
original equipment manufacturing ("OEM") distribution division sources and sells carrying cases and other accessories for
medical monitoring and diagnostic kits as well as a variety of other portable electronic and non-electronic devices to original equipment
manufacturers ("OEM"s), or their contract manufacturers worldwide, 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 does not
manufacture any of its OEM products and sources substantially all of these products from independent suppliers in China, through Forward
Industries Asia-Pacific Corporation, a British Virgin Islands corporation ("Forward China"). See Note 14.

 Discontinued Operations

 In July 2023, the Company
decided to cease operations of its retail distribution segment and is presenting the results of operations for this segment within discontinued
operations in the current and prior periods presented herein. Our retail distribution business sourced and sold smart-enabled furniture,
hot tubs and saunas and a variety of other products through various online retailer websites to customers predominantly located in the
U.S. and Canada. The inventory of the retail segment is presented as discontinued assets held for sale on the balance sheet at September
30, 2023. Where applicable, certain footnotes exclude the discontinued operations unless otherwise noted. See Note 3 for additional information
on discontinued operations.

 Liquidity and Going Concern

 The accompanying consolidated financial statements
have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets
and satisfaction of liabilities in the ordinary course of business. The Company had an accumulated deficit and working capital of $19,637,000
and $273,000, respectively, at September 30, 2024, a net loss of $1,951,000 in Fiscal 2024 and a cash balance of approximately $2,300,000
at November 30, 2024.

 The Company's OEM distribution
segment procures substantially all its products through independent suppliers in China through Forward China. In connection with the new
sourcing agreement and in order to preserve future liquidity, in November 2023, the Company and Forward China entered into an agreement
whereby Forward China agreed to limit the amount of outstanding payables it would seek to collect from the Company to $500,000 in any
12-month period, which the Company agreed to pay within 30 days of any such request (see Note 14). This agreement pertains only to payables
that were outstanding at October 30, 2023 of approximately $7,365,000. Purchases from Forward China made after October 30, 2023
are not covered by this agreement and are expected to be paid according to normal payment terms.

 In December 2024, our largest design customer
notified us of its plan to discontinue their insulin patch program, on which we were working. We expect this to cause a material
decrease in our revenues beginning with the second quarter of Fiscal 2025. Based on our forecasted cash flows, we believe our existing
cash balance and working capital will not be sufficient to meet our liquidity needs through December 31, 2025, 12 months from the date
of issuance of these consolidated financial statements. These factors raise substantial doubt about our ability to continue as a going
concern.

 Management plans to initiate cost reduction measures
in Fiscal 2025 to mitigate the impact of the loss of our largest customer, including a reduction in force which was communicated in December
2024. These plans will be evaluated and adjusted as deemed necessary based on the ongoing needs of the business. Management also plans
to seek flexibility on payment terms for ongoing purchases from Forward China and attempt to obtain debt or equity financing to fund its
ongoing operations. However, there are no current agreements or understanding with regard to the form, time or amount of such financing
and there is no assurance that any financing can be obtained, that Forward China will grant any flexibility on payment terms or that our
cost reduction efforts will be sufficient to enable the Company to continue as a going concern. The consolidated financial statements
do not include any adjustments that might result if the Company is unable to continue as a going concern. Such adjustments could be material.

 F- 8

 NOTE 2 ACCOUNTING POLICIES

 Use of Estimates

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

 Basis of Presentation

 The accompanying consolidated
financial statements include the accounts of Forward Industries, Inc. and its wholly-owned subsidiaries (Forward Industries (IN), Inc.
("Forward US"), Forward Industries (Switzerland) GmbH ("Forward Switzerland"), Forward Industries UK Limited ("Forward
UK"), Intelligent Product Solutions, Inc. ("IPS"), and Kablooe, Inc. ("Kablooe"). All significant intercompany
transactions and balances have been eliminated in consolidation.

 Segment Reporting

 As a result of the discontinued
retail segment, as disclosed in Note 3, the Company now has two reportable segments: OEM distribution and design. The OEM distribution
segment sources and sells carrying cases and other accessories for medical monitoring and diagnostic kits and a variety of other portable
electronic and non-electronic devices (such as sporting and recreational products, bar code scanners, GPS location devices, tablets and
firearms) on a made-to-order basis that are customized to fit the products sold by our OEM customers worldwide. The design segment consists
of two operating segments (IPS and Kablooe, which have been aggregated into one reportable segment) that provide a full spectrum of hardware
and software product design and engineering services to customers predominantly located in the U.S. See Note 16 for more information on
segments.

 Goodwill

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

 F- 9

 Intangible Assets

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

 Our intangible assets are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
In assessing the recoverability of our intangible assets, we must make estimates and assumptions regarding future cash flows and other
factors to determine the fair value of the respective assets. These estimates and assumptions could have a significant impact on whether
an impairment charge is recognized and the magnitude of any such charge. Fair value estimates are made at a specific point in time, based
on relevant information. These estimates are subjective in nature and involve uncertainties and matters of significant judgments and
therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. If these estimates or
material related assumptions change in the future, we may be required to record impairment charges related to our intangible assets.
Management evaluated and concluded that there were no indications of impairments of intangible assets at September 30, 2024 or 2023.

 Cash

 The Company maintains cash
deposits and a money market account in banks with financial institutions in the United States (that at times may exceed federally insured
limits of $250,000 per financial institution) and Switzerland. At September 30, 2024 and 2023, there were deposits totaling $ 2,334,000
(which includes $ 245,000 in a foreign bank) and $ 2,565,000 (which includes $ 358,000 in a foreign bank), respectively, held in excess of
federally insured limits. Historically, we have not experienced any losses due to such cash concentrations.

 Accounts Receivable

 Accounts receivable consist
of unsecured trade accounts with customers in amounts that have been invoiced ($ 4,460,000 and $ 6,949,000 at September 30, 2024 and 2023,
respectively) and contract assets as described further below under the heading "Revenue Recognition." The Company maintains
an allowance for credit losses which is recorded as a reduction to accounts receivable on the consolidated balance sheets. Collectability
of accounts receivable is estimated by evaluating the number of days accounts are outstanding, customer payment history, recent payment
trends and perceived creditworthiness, adjusted as necessary based on specific customer situations. At September 30, 2024 and 2023, the
Company had no allowances for credit losses for the OEM distribution segment, allowances for credit losses of $ 0 and $ 185,000, respectively,
for the discontinued retail distribution segment and $ 27,000 and $ 771,000, respectively, for the design segment.

 Inventories

 Inventories consist primarily
of finished goods and are stated at the lower of cost (determined by the first-in, first-out method) or net realizable value. Based on
management's estimates, an allowance is made to reduce excess, obsolete, or otherwise unsellable inventories to net realizable value.
The allowance is established through charges to cost of sales in the Company's consolidated statements of operations. In determining
the adequacy of the allowance, management's estimates are based upon several factors, including analyses of inventory levels, historical
loss trends, sales history and projections of future sales demand. The Company's estimates of the allowance may change from time
to time based on management's assessments, and such changes could be material.

 Property and Equipment

 Property and equipment consist
of computer hardware and software, furniture, fixtures and equipment and are recorded at cost. Expenditures for major additions and improvements
are capitalized, and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment are
retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is
included in the results of operations for the respective period. Depreciation is provided over the estimated useful lives of the related
assets using the straight-line method. The estimated useful lives for all property and equipment ranges from three to five years.

 F- 10

 Leases

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

 Income Taxes

 The Company recognizes future
tax benefits and liabilities measured at enacted rates attributable to temporary differences between financial statement and income tax
bases of assets and liabilities and to net tax operating loss carryforwards to the extent that realization of these benefits is more likely
than not. At September 30, 2024, there was no change to our assessment that a full valuation allowance was required against all net deferred
tax assets as it is not probable that such deferred tax assets will be realized. Accordingly, any deferred tax provision or benefit was
offset by an equal and opposite change to the valuation allowance. Our income tax provision or benefit is generally not significant due
to the existence of significant net operating loss carryforwards.

 Revenue Recognition

 OEM Distribution Segment

 The OEM distribution segment
recognizes revenue when: (i) finished goods are shipped to its customers (in general, these conditions occur at either point of shipment
or point of destination, depending on the terms of sale and transfer of control); (ii) there are no other deliverables or performance
obligations; and (iii) there are no further obligations to the customer after the title of the goods has transferred. If the Company receives
consideration before achieving the criteria previously mentioned, it records a contract liability, which is classified as a component
of deferred income in the accompanying consolidated balance sheets. The OEM distribution segment had no contract liabilities at September
30, 2024, 2023 or 2022.

 Discontinued Retail Distribution Segment

 The retail distribution segment
sold products primarily through online websites operated by authorized third-party retailers. Revenue was recognized when control (as
defined in Accounting Standards Codification ("ASC") 606, "Revenue from Contracts with Customers") of the related
goods was transferred to the retailer, which generally occured upon shipment to the end customer. Other than product delivery, the retail
distribution segment did not typically have other deliverables or performance obligations associated with its products. Revenue was measured
as the amount of consideration expected to be received in exchange for the products provided, net of allowances taken by retailers for
product returns and any taxes collected from customers that will be remitted to governmental authorities. When the Company received consideration
before achieving the criteria previously mentioned, it recorded a contract liability, which was classified as a component of deferred
income in the accompanying consolidated balance sheets. The retail distribution segment had no contract liabilities at September 30, 2024,
2023 or 2022. The results of operations of the retail segment are reported as discontinued operations for Fiscal 2024 and Fiscal 2023
(see Note 3).

 F- 11

 Design Segment

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

 Recognized revenues that
will not be billed until a later date, or contract assets, are recorded as an asset and classified as a component of accounts receivable
in the accompanying consolidated balance sheets. The design segment had contract assets of $ 1,273,000, $ 976,000 and $ 609,000 at September
30, 2024, 2023 and 2022, respectively. Contracts where collections to date have exceeded recognized revenues, or contract liabilities,
are recorded as a liability and classified as a component of deferred income in the accompanying consolidated balance sheets. The design
segment had contract liabilities of $ 399,000, $ 297,000 and $ 439,000 at September 30, 2024, 2023 and 2022, respectively.

 Shipping and Handling Fees

 The Company includes shipping
and handling fees billed to customers in net revenues and the related transportation costs in cost of sales.

 Foreign Currency Transactions

 The Company's functional
currency is the U.S. dollar. Foreign currency transactions may generate receivables or payables that are fixed in terms of the amount
of foreign currency that will be received or paid. Fluctuations in exchange rates between such foreign currency and the functional currency
increase or decrease the expected amount of functional currency cash flows upon settlement of the transaction. These increases or decreases
in expected functional currency cash flows are foreign currency transaction gains or losses that are included in other income or expense
in the accompanying consolidated statements of operations. The approximate net gains (losses) from foreign currency transactions were
$8,000 and $2,000 in Fiscal 2024 and Fiscal 2023, respectively.

 Fair Value Measurements

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

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

 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 carrying amounts of cash,
accounts receivable (including accounts receivable from related party), accounts payable, due to Forward China, and the Note payable to
Forward China approximate fair value due their short-term maturities.

 F- 12

 Share-Based Compensation Expense

 The Company estimates the
fair value of employee and non-employee director share-based compensation on the date of grant using the Black-Scholes option pricing
model, which includes variables such as the expected volatility of the Company's share price, the exercise behavior of its grantees,
interest rates, and dividend yields. These variables are projected based on the Company's historical data, experience, and other
factors. The fair value of employee and non-employee director share-based compensation is recognized in the consolidated statements of
operations over the related service or vesting period of each grant. In the case of awards with multiple vesting periods, the Company
has elected to use the graded vesting attribution method, which recognizes compensation cost on a straight-line basis over each separately
vesting portion of the award as if the award was, in substance, multiple awards (see Note 9).

 Recent
Accounting Pronouncements

 In December 2023, the Financial
Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-09, "Income Taxes - Improvements
to Income Tax Disclosures", requiring enhancements and further transparency to certain income tax disclosures, most notably the tax
rate reconciliation and income taxes paid. This ASU is effective for fiscal years beginning after December 15, 2024 on a prospective basis
and retrospective application is permitted. The Company is currently evaluating the effects of this pronouncement on its consolidated

 In November 2023, the FASB
issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures," which requires expanded
segment reporting and disclosure and is effective for the Company for fiscal years beginning after December 15, 2023, and interim periods
within fiscal years beginning after December 15, 2024. The Company is currently evaluating the effects of this pronouncement on its consolidated

 In November 2019, the FASB
issued ASU 2019-11, "Codification Improvements to Topic 326, Financial Instruments – Credit Losses." ASU 2019-11 is
an accounting pronouncement that provides clarity to and amends earlier guidance on this topic and would be effective concurrently with
the adoption of such earlier guidance. This pronouncement is effective for the Company for fiscal years beginning after December 15, 2022,
and interim periods within those fiscal years. The Company adopted this guidance in the first quarter of Fiscal 2024 with no material
impact on its consolidated financial statements.

 NOTE 3 DISCONTINUED
OPERATIONS AND ASSETS HELD FOR SALE

 Considering the recurring
losses incurred by the retail segment, in July 2023, the Company decided to cease operations of its retail distribution segment ("Retail
Exit"). The primary assets of the retail segment were inventory and accounts receivable. The Company sold, liquidated, or otherwise
disposed of the remaining retail inventory as of September 30, 2024, and collected all remaining retail accounts receivable by the end
of Fiscal 2024. As of September 30, 2024, the retail segment was fully discontinued, and we expect to have no further significant involvement
in this segment. The Retail Exit is considered a strategic shift that will have a significant impact on the Company's operations
and financial results. The inventory of the retail segment meets the criteria to be considered "held-for-sale" in accordance
with ASC 205-20, "Discontinued Operations." Accordingly, the retail inventory is classified on our consolidated balance sheet
as "discontinued assets held for sale" at September 30, 2023, and the results of operations for the retail segment have been
classified as "Discontinued Operations" on the consolidated statements of operations for the years ended September 30, 2024
and 2023.

 The total amount related
to the retail segment included in Due to Forward China on the consolidated balance sheets was approximately $ 641,000 and $ 1,002,000 at
September 30, 2024 and 2023, respectively.

 F- 13

 The following table presents
the major classes of the "Net loss from discontinued operations, net of tax" in our consolidated statements of operations.

 Schedule of discontinued operations

 For the Fiscal Years Ended September 30,

 2024

 2023

 Revenues, net

 $
 757,000

 $
 4,333,000

 Cost of sales

 468,000

 5,285,000

 Gross profit

 289,000

 ( 952,000
)

 Sales and marketing expenses

 225,000

 1,211,000

 General and administrative expenses

 67,000

 27,000

 Loss from operations

 ( 3,000
)

 ( 2,190,000
)

 Loss on classification as held for sale

 –

 1,705,000

 Loss from discontinued operations, net of tax

 $
 ( 3,000
)

 $
 ( 3,895,000
)

 At September 30, 2023, discontinued
assets held for sale of $ 508,000 consisted of the net inventory of the retail segment. This number includes an allowance of $ 1,464,000
to reduce excess or otherwise unsellable inventory to its estimated net realizable value.

 There was no depreciation,
amortization, investing or financing cash flow activities, or other significant noncash operating cash flow activities for the retail
segment in Fiscal 2024 or Fiscal 2023.

 NOTE 4 INTANGIBLE
ASSETS AND GOODWILL

 Intangible Assets

 The Company's intangible
assets consist of the following:

 Schedule of intangible
assets

 September 30, 2024

 September 30, 2023

 Trademarks

 Customer Relationships

 Total Intangible Assets

 Trademarks

 Customer Relationships

 Total Intangible Assets

 Gross carrying amount

 $
 585,000

 $
 1,390,000

 $
 1,975,000

 $
 585,000

 $
 1,390,000

 $
 1,975,000

 Less accumulated amortization

 ( 242,000
)

 ( 1,053,000
)

 ( 1,295,000
)

 ( 203,000
)

 ( 879,000
)

 ( 1,082,000
)

 Net carrying amount

 $
 343,000

 $
 337,000

 $
 680,000

 $
 382,000

 $
 511,000

 $
 893,000

 The Company's intangible
assets resulted from the acquisitions of Kablooe and IPS in Fiscal 2020 and Fiscal 2018, respectively, and relate to the design segment
of our business. Intangible assets are amortized over their expected useful lives of 15 years for the trademarks and eight years for the
customer relationships. During Fiscal 2024 and Fiscal 2023, the Company recorded amortization expense related to intangible assets of
$ 213,000, which is included in general and administrative expenses in the Company's consolidated statements of operations.

 F- 14

 At September 30, 2024, estimated
amortization expense for the Company's intangible assets for each of the next five years and thereafter is as follows:

 Schedule of estimated
amortization expense

 Fiscal 2025

 $
 213,000

 Fiscal 2026

 121,000

 Fiscal 2027

 81,000

 Fiscal 2028

 78,000

 Fiscal 2029

 39,000

 Thereafter

 148,000

 Total

 $
 680,000

 Goodwill

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

 Due to historical losses
of the Kablooe reporting unit, the Company elected to bypass the qualitative assessment and perform quantitative goodwill impairment testing
for the Kablooe reporting unit at September 30, 2024. Using an income approach methodology, the fair value of the Kablooe reporting unit
was estimated with a discounted cash flow analysis incorporating variables categorized within level 3 of the fair value hierarchy such
as projected revenues, growth rate and discount rate. This quantitative testing indicated the carrying amount of the Kablooe reporting
unit exceeded its fair value, resulting in a goodwill impairment charge of $ 200,000 in fiscal 2024, primarily driven by a reduction in
the expected future performance of the Kablooe reporting unit.

 The Company performed the
annual goodwill impairment test for Fiscal 2023 and determined there was no impairment.

 Below is the rollforward
of goodwill for the design segment, the only reportable segment with goodwill:

 Schedule of roll forward
of goodwill

 Balance at September 30, 2023

 $
 1,759,000

 Impairment of Kablooe reporting unit

 ( 200,000
)

 Balance September 30, 2024

 $
 1,559,000

 NOTE 5 PROPERTY
AND EQUIPMENT

 Property and equipment and related accumulated
depreciation and amortization are summarized in the table below:

 Schedule of property and equipment

 2024

 2023

 Computer hardware and software

 $
 505,000

 $
 502,000

 Furniture and fixtures

 48,000

 67,000

 Equipment

 83,000

 171,000

 Property and equipment, cost

 636,000

 740,000

 Less accumulated depreciation and amortization

 ( 417,000
)

 ( 466,000
)

 Property and equipment, net

 $
 219,000

 $
 274,000

 Depreciation expense was $ 120,000 and $ 103,000
for Fiscal 2024 and Fiscal 2023, respectively.

 F- 15

 NOTE
6 FAIR VALUE MEASUREMENTS - EARNOUT

 The acquisition of Kablooe
provides annual contingent earnout payments based on results of operations through August 2025. The fair value of this earnout liability
is measured on a recurring basis at each reporting date using a Black-Scholes valuation model with the following inputs and assumptions,
which are categorized within level 3 of the fair value hierarchy:

 Schedule of fair value assumptions

 2024

 2023

 Volatility

 40%

 40%

 Risk-free interest rate

 3.6%

 4.9%-5.3%

 Expected term in years

 0.5

 0.4 - 1.4

 Dividend yield

 –

 –

 In Fiscal 2023, the Company
reduced this liability from $70,000 to $0 based on changes in the expected likelihood of Kablooe reaching the specified earnings targets.
In Fiscal 2024, there were no changes to the total fair value of this earnout liability.

 NOTE 7 ACCRUED
EXPENSES AND OTHER CURRENT LIABILITIES

 Accrued expenses and other current liabilities
at September 30, 2024 and 2023 are as follows:

 Schedule of accrued expenses and other current liabilities

 2024

 2023

 Accrued commissions/bonuses

 $
 132,000

 $
 872,000

 Paid time off

 284,000

 285,000

 Other

 197,000

 201,000

 Total

 $
 613,000

 $
 1,358,000

 NOTE
8 SHAREHOLDERS' EQUITY

 Reverse Stock Split

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

 Nasdaq

 In July 2023, the Company
was notified by Nasdaq that it was not in compliance with Nasdaq Listing Rule 5550(a)(2) (the "Minimum Bid Price Rule"). Thereafter,
in February 2024, the Company was notified that it was not in compliance with Nasdaq Listing Rule 5550(b)(1) (the "Stockholders'
Equity Rule") (collectively, with the Minimum Bid Price Rule, the "Minimum Requirements"). In April 2024, the Company
presented a plan of action to the Nasdaq Hearings Panel to meet compliance with the Minimum Requirements. As
a result of the reverse stock split effected in June 2024 and the entrance into the Accounts Payable Conversion Agreement (described in
Note 14), the Company regained compliance with the Minimum Requirements in July 2024 and was formally notified by Nasdaq that the
Minimum Requirements were met. Until July 24, 2025, the Company is subject to a Nasdaq "Panel Monitor" which provides for
in the event the Company fails to satisfy the Stockholders' Equity Rule (not the Minimum Bid Price Rule) during the monitoring period,
the Company will be required to request a hearing before the Panel in order to maintain its listing rather than taking the interim step
of submitting a compliance plan for the Listing Qualifications Staff's review or receiving any otherwise applicable grace period.
We can provide no assurance that if the Company falls below the Stockholders' Equity Rule requirement during this period that the
Company will be able to maintain its Nasdaq listing.

 F- 16

 "Blank Check" Preferred Stock

 The Company is authorized
to issue up to 4,000,000 shares of "blank check" preferred stock. The Board has the authority and discretion, without shareholder
approval, to issue preferred stock in one or more series for any consideration it deems appropriate, and to fix the relative rights and
preferences thereof including their redemption, dividend and conversion rights. Of these shares, 100,000 shares have been authorized as
the Series A Participating Preferred Stock. There were no shares of Series A preferred stock issued or outstanding at September 30, 2024
or 2023.

 In
connection with the Conversion Agreements with Forward China (see Note 14), the Company filed two Certificates of Amendment to the Certificate
of Incorporation (the "COD") designating 2,700
 shares of Series A-1 Convertible Preferred Stock, with a stated value of $ 1,000
 per share (the "Stated Value").

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

 Warrants

 At September 30, 2024, the
Company had 7,500 warrants outstanding and exercisable, which have an exercise price of $ 17.50 per share and an expiration date 90 days
after a registration statement registering common stock (other than pursuant to an employee benefit plan) is declared effective by the
Securities and Exchange Commission.

 NOTE 9
 SHARE-BASED COMPENSATION

 2021 Equity Incentive Plan

 In February 2021, shareholders
of the Company approved the 2021 Equity Incentive Plan (the "2021 Plan"), which is administered by the Compensation Committee
of the Board of Directors and authorizes 1,291,000 shares of common stock for grants of various types of equity awards to officers, directors,
employees and consultants. Upon approval of the 2021 Plan, no additional awards were granted under the 2011 Long Term Incentive Plan (the
"2011 Plan"), which expired according to its terms in March 2021. Shares authorized under the 2021 Plan include 1,000,000
new shares and 291,000 shares that remained available under the 2011 Plan. Awards which are forfeited or expire are eligible for regrant
under the 2021 Plan. The exercise prices of stock options granted may not be less than the fair market value of the common stock as quoted
on the Nasdaq stock market on the grant date and the expiration date of option awards may not exceed 10 years. At September 30, 2024,
there were 1,243,000 shares of common stock available for grants under the 2021 Plan.

 Stock Options

 The fair value of option
awards is estimated on the date of grant using the Black-Scholes option pricing model that uses the assumptions in the following table.
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" 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 Company accounts for forfeitures in the period they occur.

 F- 17

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

 Schedule of assumptions used for options

 Expected term (years)

 3.00

 2.75

 Expected volatility

 66.4 %

 69.0 %

 Risk free interest rate

 4.83 %

 4.31 %

 Expected dividends

 –

 –

 In
Fiscal 2024, the Company granted options to three of its non-employee directors to purchase an aggregate of 33,243
 shares of its common stock at an exercise price of $ 7.60
 per share. The options vest one year from the date of grant, expire five years from the date of grant and 11,081
 were forfeited prior to vesting. The options have a weighted average grant-date fair value of $ 3.60
 per share and an aggregate grant-date fair value of $ 120,000,
which will be recognized, net of forfeitures, ratably over the vesting period.

 In Fiscal 2023, the
Company granted options to three of its non-employee directors to purchase an aggregate of 12,474 shares of its common stock at an exercise
price of $ 10.30 per share. The options vested six months from the date of grant and expire five years from the date of grant. The options
have a weighted average grant-date fair value of $ 4.80 per share and an aggregate grant-date fair value of $ 60,000, which were recognized
ratably over the vesting period.

 The Company recognized compensation
expense for stock option awards of $ 101,000 and $ 86,000 during Fiscal 2024 and Fiscal 2023, respectively, which was recorded as a component
of general and administrative expenses in its consolidated statements of operations.

 No options were exercised
during Fiscal 2024 and Fiscal 2023.

 At September 30, 2024, there
were no material amounts of unrecognized compensation cost related to nonvested stock option awards.

 The following table summarizes
stock option activity during Fiscal 2024:

 Schedule of stock option activity

 Weighted

 Weighted

 Average

 Average

 Aggregate

 Number of

 Exercise

 Remaining

 Intrinsic

 Options

 Price

 Life (Yrs.)

 Value

 Outstanding at September 30, 2023

 92,000

 $
 14.31

 Granted

 33,000

 $
 7.60

 Forfeited

 ( 11,000
)

 $
 7.60

 Expired

 ( 33,000
)

 $
 15.12

 Outstanding at September 30, 2024

 81,000

 $
 12.15

 2.5

 $
 –

 Exercisable at September 30, 2024

 59,000

 $
 13.86

 2.0

 $
 –

 Options outstanding at September
30, 2024 have an exercise price between $ 7.60 and $ 23.90 per share.

 F- 18

 NOTE 10 INCOME TAXES

 The following table summarizes
the Company's consolidated provision from continuing operations for U.S. federal, state and foreign taxes on income:

 Schedule of income tax provision

 Current:

 Federal

 $
 –

 $
 –

 State

 23,000

 20,000

 Foreign

 –

 –

 Deferred:

 Federal

 ( 141,000
)

 112,000

 State

 ( 71,000
)

 ( 244,000
)

 Foreign

 ( 16,000
)

 ( 39,000
)

 Deferred income tax expense (benefit)

 ( 205,000
)

 ( 151,000
)

 Change in valuation allowance

 228,000

 171,000

 Income tax provision

 $
 23,000

 $
 20,000

 The deferred tax provision
is the change in the deferred tax assets and liabilities representing the tax consequences of changes in the amounts of temporary differences,
net operating loss carryforwards and changes in tax rates during the fiscal year.

 The Company's deferred
tax assets and liabilities are comprised of the following:

 Schedule of deferred tax
 assets and liabilities

 2024

 2023

 Deferred tax assets

 Net operating losses

 $
 3,586,000

 $
 2,976,000

 Share-based compensation

 269,000

 242,000

 AMT & other tax credits

 –

 5,000

 Excess tax over book basis in inventory

 –

 18,000

 Reserves and other allowances

 388,000

 893,000

 Lease liability

 702,000

 794,000

 Accrued compensation

 32,000

 101,000

 Accrued related party interest

 5,000

 5,000

 Charitable contributions

 1,000

 1,000

 Interest expense limitation

 82,000

 46,000

 Total deferred tax assets

 5,065,000

 5,081,000

 Deferred tax liabilities

 Depreciation

 ( 11,000
)

 ( 9,000
)

 Prepaid expenses

 ( 41,000
)

 ( 88,000
)

 Intangible assets

 ( 64,000
)

 ( 145,000
)

 Operating lease right-of-use assets

 ( 642,000
)

 ( 737,000
)

 Total deferred tax liabilities

 ( 758,000
)

 ( 979,000
)

 Valuation allowance

 ( 4,307,000
)

 ( 4,102,000
)

 Net deferred tax assets

 $
 –

 $
 –

 The Company recorded a provision
for income taxes which includes net expense of $23,000 and $20,000 in Fiscal 2024 and Fiscal 2023, respectively, primarily for state income
tax expenses in states where net operating loss carryforwards ("NOLs") were not available.

 F- 19

 At September 30, 2024, the
Company had available NOLs for U.S. federal income tax purposes of $ 13,012,000 and NOLs for state income tax purposes of $ 7,425,000. NOLs
generated prior to 2018 expire beginning in 2031 while NOLs generated after 2018 have an indefinite carryforward period. The NOLs result
in a deferred tax asset of $ 2,732,000 with respect to U.S. federal income taxes and $ 516,000 for state income taxes. In addition, at September
30, 2024, the Company had available NOLs for foreign income tax purposes of $ 1,975,000, resulting in a deferred tax asset of $ 338,000,
expiring through 2028. Total net deferred tax assets, before valuation allowance, were $ 4,307,000 and $ 4,102,000 at September 30, 2024
and 2023, respectively. Undistributed earnings of the Company's foreign subsidiaries are considered permanently reinvested; therefore,
in accordance with U.S. GAAP, no provision for U.S. federal or state income taxes would result. In Fiscal 2024, Forward Switzerland had
a net loss for tax purposes of $ 96,000 and Forward UK had a net loss for tax purposes of $ 41,000.

 At September 30, 2024,
as part of its periodic evaluation of the necessity to maintain a valuation allowance against its deferred tax assets, and after
consideration of all factors, including, among others, projections of future taxable income, current year NOL utilization and the
extent of the Company's cumulative losses in recent years, the Company determined that, on a more likely than not basis, it
would not be able to use remaining deferred tax assets, except with respect to the U.S. federal income taxes in the event the
Company elects to effect repatriation of certain foreign source income of Forward Switzerland, which income is currently considered
to be permanently reinvested and for which no U.S. tax liability has been accrued. Accordingly, the Company has determined to
maintain a full valuation allowance against its net deferred tax assets. At September 30, 2024 and 2023, the valuation allowance was
$4,307,000 and $4,102,000, respectively. The change in the valuation allowance of $205,000 is comprised of a $228,000 increase from
continuing operations and a $23,000 decrease from discontinued operations. In the future, the utilization of the Company's
NOLs may be subject to certain change of control limitations. If the Company determines that it will be able to use some or all of
its deferred tax assets in a future reporting period, the adjustment to reduce or eliminate the valuation allowance would reduce its
income tax expense and increase after-tax income.

 The significant elements
contributing to the difference between the U.S. federal statutory tax rate and the Company's effective tax rate are as follows:

 Schedule of reconciliation of effective tax
 rate

 U.S. federal statutory rate

 21.0 %

 21.0 %

 State tax rate, net of federal benefit

 2.1 %

 3.9 %

 Foreign rate differential

 0.7 %

 ( 9.2 %
)

 Tax return to provision adjustments

 ( 14.3 %
)

 ( 94.6 %
)

 Effect of state tax rate change

 1.9 %

 ( 8.5 %
)

 Change in valuation allowance

 ( 12.6 %
)

 95.7 %

 Permanent differences

 ( 0.1 %
)

 2.9 %

 Effective tax rate

 ( 1.3 %
)

 11.2 %

 At September 30, 2024 and
2023, the Company had no uncertain tax positions or related interest or penalties requiring accrual. It is the Company's policy to recognize
interest and/or penalties, if any, related to income tax matters in income tax expense in the consolidated statements of operations. For
the periods presented in the accompanying consolidated statements of operations, no material income tax related interest or penalties
were assessed or recorded. All fiscal years prior to the fiscal year ended September 30, 2021, are closed to federal and state examination.

 F- 20

 NOTE 11 EARNINGS PER SHARE

 Basic earnings per share
data for each period presented is computed using the weighted average number of shares of common stock outstanding during each such period.
Diluted earnings per share data is computed using the weighted average number of common and dilutive common equivalent shares outstanding
during each period. Dilutive common equivalent shares consist of shares that would be issued upon the exercise of stock options and warrants,
computed using the treasury stock method, and the conversion of preferred stock, using the if-converted method. A reconciliation of basic
and diluted earnings/loss per share is as follows:

 Schedule of reconciliation of basic and diluted earnings/loss per share

 For the Fiscal Years Ended

 2024

 2023

 Numerator:

 (Loss) / income from continuing operations

 $
 ( 1,948,000
)

 $
 159,000

 Loss from discontinued operations, net of tax

 ( 3,000
)

 ( 3,895,000
)

 $
 ( 1,951,000
)

 $
 ( 3,736,000
)

 Denominator:

 Weighted average common shares outstanding

 1,101,000

 1,101,000

 Dilutive common share equivalents

 –

 –

 Weighted average dilutive shares outstanding

 1,101,000

 1,101,000

 Basic loss per share:

 Basic (loss) / earnings per share from continuing operations

 $
)

 $
 0.14

 Basic loss per share from discontinued operations

 ( 0.00
)

 ( 3.53
)

 Basic loss per share

 $
)

 $
 ( 3.39
)

 Diluted loss per share:

 Diluted (loss) / earnings per share from continuing operations

 $
)

 $
 0.14

 Diluted loss per share from discontinued operations

 ( 0.00
)

 ( 3.53
)

 Diluted loss per share

 $
)

 $
 ( 3.39
)

 The following securities
were excluded from the calculation of diluted earnings per share in Fiscal 2024 and Fiscal 2023 because their inclusion would have been
anti-dilutive:

 Schedule of anti-dilutive

 For the Fiscal Years Ended

 2024

 2023

 Options

 81,400

 92,300

 Warrants

 7,500

 7,500

 Total potentially dilutive shares

 88,900

 99,800

 F- 21

 NOTE 12 COMMITMENTS AND
CONTINGENCIES

 Guarantee Obligation

 In February 2010, Forward
Switzerland and its European logistics provider (freight forwarding and customs agent) entered into an agreement (the "Representation
Agreement") whereby, among other things, the European logistics provider agreed to act as Forward Switzerland's fiscal representative
in The Netherlands for the purpose of providing services in connection with any value added tax matters. As part of this agreement, Forward
Switzerland agreed to provide an undertaking (in the form of a bank letter of guarantee) to the logistics provider with respect to any
value added tax liability arising in The Netherlands that the logistics provider is required to pay to Dutch tax authorities on its behalf.

 In February 2010, Forward
Switzerland entered into a guarantee agreement with a Swiss bank relating to the repayment of any amount up to 75,000 (equal to
approximately $84,000 at September 30, 2024) paid by such bank to the logistics provider in order to satisfy such undertaking pursuant
to the bank letter of guarantee. Forward Switzerland would be required to perform under the guarantee agreement only in the event that
(i) a value added tax liability is imposed on the Company's revenues in The Netherlands; (ii) the logistics provider asserts that it has
been called upon in its capacity as surety by the Dutch Receiver of Taxes to pay such taxes; (iii) Forward Switzerland or the Company
on its behalf fails or refuses to remit the amount of value added tax due to the logistics provider upon its demand; and (iv) the logistics
provider makes a drawing under the bank letter of guarantee. Under the Representation Agreement, Forward Switzerland agreed that the letter
of guarantee would remain available for drawing for three years following the date that its relationship terminates with the logistics
provider to satisfy any value added tax liability arising prior to expiration of the Representation Agreement but asserted by The Netherlands
after expiration.

 The initial term of the bank
letter of guarantee expired February 28, 2011, but it renews automatically for one-year periods on February 28 of each subsequent year
unless Forward Switzerland provides the Swiss bank with written notice of termination at least 60 days prior to the renewal date. It is
the intent of Forward Switzerland and the logistics provider that the bank letter of guarantee amount be adjusted annually. In consideration
of the issuance of the letter of guarantee, Forward Switzerland has granted the Swiss bank a security interest in all of its assets on
deposit with, held by, or credited to Forward Switzerland's accounts with, the Swiss bank (approximately $245,000 at September 30,
2024). At September 30, 2024, the Company had not incurred a liability in connection with this guarantee.

 Legal Proceedings

 From time to time, the Company
may become a party to legal actions or proceedings in the ordinary course of its business. At September 30, 2024, there were no such actions
or proceedings, either individually or in the aggregate, that, if decided adversely to its interests, the Company believes would be material
to its business.

 NOTE 13 LEASES

 The Company's operating
leases are primarily for corporate, engineering, and administrative office space. Total operating lease expense in Fiscal 2024 was $ 619,000,
of which $ 15,000 was recorded in sales and marketing expenses and $ 604,000 was recorded in general and administrative expenses on the
consolidated statements of operations. Total operating lease expense in Fiscal 2023 was $ 621,000, of which $ 3,000 was recorded in
sales and marketing expenses and $ 618,000 was recorded in general and administrative expenses on the consolidated statements of operations.
Cash paid for amounts included in operating lease liabilities in Fiscal 2024 and Fiscal 2023, which have been included in cash flows from
operating activities, was $ 592,000 and $ 575,000, respectively.

 At September 30, 2024, the
Company's operating leases had a weighted average remaining lease term of 6.9 years and a weighted average discount rate of 5.8 %.

 Future minimum payments under non-cancellable
operating leases are as follows:

 Schedule of future minimum payments under operating leases

 Fiscal 2025

 $
 556,000

 Fiscal 2026

 510,000

 Fiscal 2027

 419,000

 Fiscal 2028

 428,000

 Fiscal 2029

 440,000

 Thereafter

 1,111,000

 Total future minimum lease payments

 3,464,000

 Less imputed interest

 ( 630,000
)

 Present value of lease liabilities

 2,834,000

 Less current portion of lease liabilities

 ( 404,000
)

 Long-term portion of lease liabilities

 $
 2,430,000

 F- 22

 NOTE 14 RELATED PARTY
TRANSACTIONS

 Buying Agency and Supply Agreement

 The Company has a Buying
Agency and Supply Agreement (the "Supply Agreement") with Forward China. The Supply Agreement 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 region. The Company purchases products at Forward China's
cost and through March 2023 paid 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. Considering the loss of a significant OEM
distribution customer (see Note 16), effective April 1, 2023, the Company and Forward China agreed to reduce the fixed portion of the
sourcing fee from $100,000 to $83,333 per month for the remaining term of the Supply Agreement, which expired in October 2023. Effective
October 2023, the Company and Forward China entered into a new sourcing agreement under which the fixed portion of the sourcing fee was
further reduced to $65,833 per month. Other terms in the agreement are substantially the same as the prior agreement. Due to the Retail
Exit and decline in the OEM distribution segment business, the new sourcing agreement expired October 31, 2024. In November 2024, the
 Company and Forward China agreed to: (i) extend the sourcing agreement until April 30, 2025, but allow either party to cancel with 30
days notice, (ii) reduce the fixed portion of the sourcing fee to $35,000 per month, and (iii) change the payment terms to better align
with payments from the Company's customers.

 Terence Wise, Chief Executive
Officer and Chairman of the Company, is the owner of Forward China. In addition, Jenny P. Yu, a Managing Director of Forward China, beneficially
owns more than 5% of the Company's common stock. The Company recorded service fees to Forward China of $ 891,000 and $ 1,266,000 during
Fiscal 2024 and Fiscal 2023, respectively, which are included as a component of cost of sales upon sales of the related products. The
Company had purchases from Forward China of $ 7,862,000 and $ 12,799,000 during Fiscal 2024 and Fiscal 2023, respectively.

 The Company has a separate
agreement with Forward China to address the potential impact of customers sourcing directly from Forward China. In the event a customer
of the Company bypasses the services of the Company and does business directly with Forward China, Forward China will pay a commission
of 50% of the net revenue, less direct costs, generated from the products or services sold. No commissions were recognized in Fiscal 2024
and Fiscal 2023.

 In order to preserve the
Company's current and future liquidity, in November 2023, the Company and Forward China entered into an agreement whereby Forward
China agreed to limit the amount of outstanding payables it would seek to collect from the Company to $500,000 in any 12-month period,
which the Company agreed to pay within 30 days of any such request. This agreement pertains only to payables that were outstanding at
October 30, 2023 of approximately $ 7,365,000. Purchases from Forward China made after October 30, 2023 are not covered by this agreement
and are expected to be paid according to normal payment terms. At September 30, 2024, the remaining balance covered by this agreement
was approximately $ 4,881,000.

 During Fiscal 2023, as a
result of the Retail Exit, the Company recognized a loss of approximately $ 1,021,000 relating to the termination of unfulfilled purchase
orders with Forward China for retail products (see Note 3).

 Accounts Payable Conversion Agreement

 In order to maintain
compliance with Nasdaq's listing standards, the Company entered into two separate agreements with Forward China (the "Conversion
Agreements"), which were effective in July and September of 2024, to convert portions of amounts Due to Forward China into shares
of preferred stock. Under the terms of the Conversion Agreements, Forward China agreed to convert $ 2,200,000 of the Due to Forward
China payable into 2,200 shares of the Company's newly designated Series A-1 convertible preferred stock with a stated
value of $ 1,000 per share (see Note 8).

 F- 23

 Promissory Note

 On January 18, 2018, the
Company issued a $ 1,600,000 unsecured promissory note payable to Forward China to fund the acquisition of IPS. The promissory note bears
interest at a rate of 8 % per annum and had an original maturity date of January 18, 2019. Monthly interest payments commenced on February
18, 2018, with the principal due at maturity. The Company incurred and paid interest associated with this note of $ 63,000 and $ 104,000
in Fiscal 2024 and Fiscal 2023, respectively. At September 30, 2024, the maturity date of this note was December 31, 2024. In October
2024, the maturity date of this note was extended to June 30, 2025. The maturity date of the note has been extended on several occasions
to assist the Company with liquidity. The Company made principal payments of $ 500,000 and $ 300,000 on this note during Fiscal 2024 and
Fiscal 2023, respectively, and this note has a remaining balance of $ 600,000 at September 30, 2024.

 Other Related Party Activity

 In October 2020, the Company
began selling smart-enabled furniture, which was sourced by Forward China and sold in the U.S. under the Koble brand name. The Koble brand
is owned by The Justwise Group Ltd. ("Justwise") a company owned by Terence Wise, Chief Executive Officer and Chairman of
the Company. The Company recognized revenues from the sale of Koble products of $ 380,000 and $ 2,058,000 in Fiscal 2024 and Fiscal 2023,
respectively. Due to the Retail Exit, these revenues are included in the loss from discontinued operations for Fiscal 2024 and Fiscal
2023.

 The Company had an agreement
with Justwise, under which (i) Justwise performed design, marketing and inventory management services related to the Koble products sold
by the Company and (ii) the Company was granted a license to sell Koble products. In exchange for such services, the Company paid Justwise
$10,000 per month plus 1% of the cost of Koble products purchased from Forward China. This agreement was effective until August 31, 2023
and was extended on a month-to-month basis until November 30, 2023. The Company incurred costs under this agreement of $ 20,000 and $ 127,000
for Fiscal 2024 and Fiscal 2023, respectively. Due to the Retail Exit, these costs are included in the loss from discontinued operations
for Fiscal 2024 and Fiscal 2023. The Company had accounts payable to Justwise of $ 0 and $ 10,000 at September 30, 2024 and 2023, respectively.

 The Company recorded revenue
from a customer whose principal owner is an immediate family member of Jenny P. Yu, a shareholder of the Company and managing director
of Forward China. The Company recognized revenues from this customer of $ 523,000 and $ 626,000 in Fiscal 2024 and Fiscal 2023, respectively.
The Company had accounts receivable of $ 96,000 and $ 0 from this customer at September 30, 2024 and 2023, respectively.

 NOTE 15 401(k) PLAN

 The Company maintains a 401(k)
benefit plan allowing eligible employees to make pre-tax and/or after-tax contributions of a portion of their salary in amounts subject
to Internal Revenue Service limitations. The Company made immediately vested contributions based on a percentage of the employee's
salary of $ 442,000 during Fiscal 2024, of which $ 341,000 was recorded to cost of sales, $ 24,000 was recorded to sales and marketing expense
and $ 77,000 was recorded to general and administrative expense on the consolidated statement of operations. The Company made immediately
vested contributions based on a percentage of the employee's salary of $ 426,000 during Fiscal 2023, of which $ 310,000 was recorded
to cost of sales, $ 25,000 was recorded to sales and marketing expense and $ 91,000 was recorded to general and administrative expense on
the consolidated statement of operations.

 NOTE 16 SEGMENTS AND CONCENTRATIONS

 Segments

 As a result of discontinuing
the retail segment, see Note 3, the Company now has two reportable segments: OEM distribution and design. See Note 2 for more information
on the composition and accounting policies of our reportable segments. The results of the retail segment were classified as discontinued
operations as discussed in Note 3. Segment information presented herein excludes the results of the retail segment for all periods presented.

 F- 24

 Our chief operating decision
maker ("CODM") regularly reviews revenue and operating income for each segment to assess financial results and allocate resources.
For our OEM distribution segments, we exclude general and administrative and general corporate expenses from their measure of profitability
as these expenses are not allocated to the segments and therefore not included in the measure of profitability used by the CODM. For the
design segment, general and administrative expenses directly attributable to that segment are included in its measure of profitability
as these expenses are included in the measure of its profitability reviewed by the CODM. We do not include intercompany activity in our
segment results shown below to be consistent with the information that is presented to the CODM. Segment assets consist of accounts receivable
and inventory, which are regularly reviewed by the CODM, as well as goodwill and intangible assets resulting from design segment acquisitions.

 Information by segment and
related reconciliations are shown in tables below:

 Schedule of segment and
related reconciliations

 Revenues

 OEM distribution

 $
 10,204,000

 $
 14,002,000

 19,991,000

 22,686,000

 Total segment revenues

 $
 30,195,000

 $
 36,688,000

 Operating Income/(Loss)

 OEM distribution

 $
 369,000

 $
 440,000

 26,000

 2,182,000

 Total segment operating income

 395,000

 2,622,000

 General corporate expenses

 ( 2,327,000
)

 ( 2,462,000
)

 Operating (loss)/income from continuing operations before income taxes

 ( 1,932,000
)

 160,000

 Other income, net

 ( 7,000
)

 ( 19,000
)

 (Loss)/income from continuing operations before income taxes

 $
 ( 1,925,000
)

 $
 179,000

 Depreciation and Amortization

 OEM distribution

 $
 4,000

 $
 4,000

 329,000

 312,000

 Total

 $
 333,000

 $
 316,000

 Schedule of condensed balance sheet

 Segment Assets

 2024

 2023

 OEM distribution

 $
 2,614,000

 $
 2,478,000

 5,820,000

 6,721,000

 Total segment assets

 8,434,000

 9,199,000

 General corporate assets

 6,334,000

 6,924,000

 Discontinued assets held for sale

 –

 508,000

 Other assets of discontinued retail segment

 –

 755,000

 Total assets

 $
 14,768,000

 $
 17,386,000

 F- 25

 Geographic Concentrations

 The Company's long-lived
assets consist of property and equipment and operating lease right-of-use assets, all of which are located in the United States. The following
table sets forth our consolidated net revenues by country for Fiscal 2024 and Fiscal 2023:

 Schedule of consolidated net revenues

 Revenues

 United States

 $
 23,593,000

 $
 27,116,000

 Poland

 2,797,000

 1,275,000

 Germany

 1,276,000

 3,000,000

 China

 435,000

 3,443,000

 Other foreign countries

 2,094,000

 1,854,000

 Total

 $
 30,195,000

 $
 36,688,000

 Customer Concentrations

 The Company had certain customers
in the OEM distribution segment whose individual percentage of the Company's consolidated revenues was 10% or greater. Revenue from
one of these customers or their affiliates or contract manufacturers represented 13.0 % and 11.2 % of the Company's consolidated net
revenues in Fiscal 2024 and Fiscal 2023, respectively.

 The Company had one customer
in the design segment whose individual percentage of the Company's consolidated revenues was 10% or greater. Revenues from this
customer represented 25.2 %
and 27.9 %
of the Company's consolidated net revenues in Fiscal 2024 and Fiscal 2023, respectively. In December 2024, our largest design customer
notified the Company of its plan to discontinue their insulin patch program, on which the Company was working. We expect this to cause
a material decrease in our revenues beginning with the second quarter of fiscal 2025. We are currently working on cost reduction efforts
to mitigate the reduction in revenue, including a reduction in force which was communicated in December 2024. See Note 1.

 The Company had customers
in the OEM distribution segment whose accounts receivable balances accounted for 10% or more of the Company's consolidated accounts
receivable. One customer or its affiliate or contract manufacturer represented 14.5 % and 12.0 % of the Company's consolidated accounts
receivable at September 30, 2024 and 2023, respectively.

 At September 30, 2024, the
Company had one customer in the design segment whose accounts receivable balances accounted for 10% or more of the Company's consolidated
accounts receivable. Accounts receivable from this customer represented 19.0 % and 31.1 % of the Company's consolidated accounts receivable
at September 30, 2024 and 2023, respectively.

 Supplier Concentration

 The Company's OEM distribution
segment procures substantially all its products through independent suppliers in China through Forward China (see Note 14). Depending
on the product, Forward China may require several different suppliers to furnish component parts or pieces.

 F- 26