Forward Industries, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended September 30, 2023; filed December 21, 2023. This is an annual report, not a standalone fourth-quarter report. Unless noted, results below are continuing operations and exclude the retail segment, which was classified as discontinued operations.
Business context
Forward Industries provides product design and engineering services and sources and distributes carrying cases and accessories for medical and other products. It does not manufacture its distribution products; substantially all are sourced through Forward China, an exclusive buying agent owned by CEO and Chairman Terence Wise. In July 2023, the company decided to exit its loss-making retail distribution business.
Financial performance
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Net revenue | $36.69 million | $38.21 million | Down 4.0% |
| Gross profit / margin | $8.36 million / 22.8% | $8.80 million / 23.0% | Margin down 0.2 percentage points |
| Operating income | $160,000 | $588,000 | Down 72.8% |
| Income from continuing operations | $159,000 | $450,000 | Down 64.7% |
| Net loss, including discontinued operations | $3.74 million | $1.38 million | Loss widened |
| Operating cash flow | $1.04 million | $1.53 million | Down $494,000 |
Design revenue rose 12.5% to $22.69 million, while OEM distribution revenue fell 22.4% to $14.00 million. Design operating income was $2.18 million; OEM distribution operating income declined to $440,000 from $905,000. Gross margin pressure reflected customer pricing demands, higher product and import/logistics costs, inflation, and an unfavorable mix of lost diabetic-product sales.
The retail exit generated a $3.90 million discontinued-operations loss, including a $1.71 million loss on classification as held for sale. The company increased the retail inventory reserve by approximately $685,000 and accrued approximately $723,000 for canceled retail purchase orders.
Liquidity, debt and cash flow
- At September 30, 2023, cash was $3.18 million, working capital was approximately $26,000 (excluding discontinued assets held for sale), and total assets were $17.39 million.
- Current liabilities were $10.84 million. The company owed Forward China $8.25 million in accounts payable and had a $1.10 million promissory note payable to Forward China, bearing 8% interest and due December 31, 2024.
- The $1.30 million bank line of credit was unused at year-end and matures May 31, 2024; it is secured by IPS assets. The company reported compliance with its debt covenants at September 30, 2023.
- Forward China agreed to limit collections of specified pre-existing payables—approximately $7.37 million outstanding at October 30, 2023—to $500,000 in any 12-month period, payable within 30 days of a request. This arrangement does not cover later purchases.
- Operating cash flow benefited from a reduction in discontinued assets held for sale and increased payables, including amounts due to Forward China. Investing cash outflow was $136,000 and financing cash outflow was $300,000, mainly note principal payments.
- Operating lease liabilities totaled $3.25 million, including $416,000 current. Cash was approximately $3.8 million at November 30, 2023, with the full $1.30 million bank line available at that date.
Material changes, outlook and risks
- A major diabetic-products customer contract expired in March 2023 and was not renewed because of pricing pressure. The customer represented approximately 13% of FY2022 consolidated revenue. Management expects a significant decline in future OEM distribution revenue.
- Diabetic products accounted for 84% of OEM distribution revenue in FY2023. Management expects this business to continue declining as some glucose-monitoring products do not use carrying cases.
- The largest design customer represented 27.9% of consolidated FY2023 revenue, up from 11.8% in FY2022. The filing also notes that two employees joined that customer, which could affect future business.
- The retail inventory is expected to be sold, liquidated, or otherwise disposed of by June 30, 2024, and remaining retail receivables collected by fiscal year-end 2024. No specific revenue or earnings guidance is provided.
- Management said resources were expected to meet operating and financial requirements for the 12 months following the report. The financial-statement note says forecasted cash flows, the retail exit, and the payable-collection agreement support liquidity through at least December 31, 2024. The auditor identified going-concern assessment as a critical audit matter; its opinion on the financial statements was unqualified.
- Key risks include customer concentration, continued revenue and margin pressure, reliance on Forward China and related-party financing, China sourcing and trade risks, and the need to refinance or repay obligations. The company was below Nasdaq’s $1 minimum bid-price requirement, with a stated compliance deadline of January 29, 2024.
- After year-end, the board approved 25% reductions in non-employee director and CEO compensation for FY2024, expected to save $50,000 and $84,250, respectively.
Most important facts for investors to verify
- Whether the company sustained liquidity and met obligations as the bank line approached its May 31, 2024 maturity and the Forward China note approached its December 31, 2024 maturity.
- How much of the $8.25 million year-end payable to Forward China remained outstanding, and whether the collection cap was honored and applied as described.
- Post-expiration revenue and margin trends in OEM distribution, especially diabetic products, and whether design revenue concentration with its largest customer persisted.
- Completion, proceeds, and remaining liabilities from the retail exit and disposal of inventory and receivables.
- Nasdaq listing status and any reverse-split or other compliance actions following the January 29, 2024 deadline.
- Related-party terms and governance oversight of Forward China, including sourcing fees, purchasing, payables, and the CEO’s ownership interest.