Forward Industries, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended September 30, 2021. This is an annual report; the supplied filing does not provide standalone fourth-quarter results.
Business context
Forward provides product design, engineering, sourcing and distribution services. Its three reportable segments are OEM distribution, retail distribution and design. It does not manufacture its distributed products; substantially all are sourced in China through Forward China, an exclusive buying agent owned by the Company’s Chairman and CEO. Fiscal 2021 includes 12 months of Kablooe, acquired in August 2020, compared with approximately six weeks in FY2020.
Financial performance and liquidity
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Net revenue | $39.022 million | $34.478 million | +13.2% |
| Gross profit / margin | $8.134 million / 20.8% | $6.639 million / 19.3% | Margin +1.5 percentage points |
| Operating loss | $0.765 million | $1.982 million | Loss narrowed $1.217 million |
| Net income (loss) | $0.524 million | ($1.775 million) | Improved $2.299 million |
| Basic and diluted EPS | $0.05 | ($0.19) | — |
| Cash from (used in) operations | ($0.528 million) | ($0.263 million) | Cash use increased |
FY2021 net income included a $1.357 million gain from forgiveness of the Paycheck Protection Program (PPP) loan; the Company remained loss-making from operations. Gross-margin improvement reflected stronger design margins, partly offset by OEM pricing pressure and higher retail product costs. Selling and marketing expense rose 28.3% to $2.504 million; general and administrative expense rose 13.1% to $6.396 million, including higher bad-debt expense and Kablooe costs.
Revenue by segment: OEM distribution was $19.290 million, down 2.2%; retail distribution was $3.183 million, up from $1.026 million; and design was $16.549 million, up 20.6%. Retail’s operating loss widened to $0.779 million from $0.337 million. OEM operating income declined to $1.479 million from $1.616 million; design returned to $0.603 million of operating income from a $0.378 million loss, helped by lower impairment charges and Kablooe’s full-year contribution.
At September 30, 2021, cash was $1.410 million, working capital was $5.587 million, and total liabilities were $12.412 million. The Company reported no line-of-credit borrowings and $1.3 million available under its facility, which matures May 31, 2022. A $1.6 million note payable to Forward China, bearing 8% interest, was classified as long-term and is due December 31, 2022. Cash declined $1.514 million during the year; operating cash use reflected higher receivables and inventory, partly offset by increased payables and amounts due to Forward China. Capital expenditures were $0.067 million.
Management said available liquidity was expected to cover operating and financial requirements through at least December 31, 2022, while noting that additional capital could be needed for strategic opportunities. At November 30, 2021, cash was approximately $1.2 million and the $1.3 million credit line remained available. Repayment of the related-party note was expected to be funded from cash and/or an additional credit facility; neither further note extensions nor acceptable new financing were assured.
Material changes, outlook and risks
- Drivers and comparability: Revenue growth included $2.059 million attributable to Kablooe and growth in retail. Retail expansion was partly offset by the nonrecurrence of $0.758 million of pandemic-related personal protective equipment revenue recorded in FY2020.
- COVID-19 and supply chain: The Company reported delayed product rollouts, disrupted supply and shipment, delayed or reduced design demand, and higher freight costs amid container shortages. Management expected challenging conditions to continue; the longer-term financial impact was not estimable.
- Concentration: Diabetic products made up 86% of OEM distribution revenue, and four largest OEM customers represented 85% of OEM revenue. Management expects diabetic product revenue to decline as some monitoring products do not require carrying cases.
- Related-party dependence: Forward China is the exclusive buying agent and a major vendor and lender. It received $1.404 million in service fees in FY2021. The Company also recorded $1.493 million in revenue from Koble-branded products; the Koble brand is owned by a company of the CEO.
- Other risks: Customer pricing pressure, supplier and China sourcing dependence, shipping costs and delays, foreign exchange, customer credit and bad-debt risk, and potential customer shifts to in-house production could affect margins, cash flow and results.
- Unusual items and contingencies: The SBA approved forgiveness of the $1.357 million PPP loan in December 2020, but retained a six-year review period. An IPS-related lawsuit’s misappropriation claim was ruled invalid in October 2021; a non-disclosure-agreement claim remained, which IPS disputed and sought to dismiss. No material adverse outcome was identified by the Company for other proceedings.
- Controls and audit: Management concluded disclosure controls and internal control over financial reporting were effective at year-end. The auditor issued an unqualified opinion on the financial statements and identified going-concern assessment as a critical audit matter because of forecast sensitivity and reliance on the related-party lender/vendor; the auditor did not express an opinion on internal controls.
The filing provides no quantitative revenue or earnings guidance. Management’s stated near-term outlook emphasizes expense control, matching design staffing to demand, improving productivity and pursuing growth opportunities selectively.
Investor verification priorities
- Assess whether operating cash flow can improve as receivables and inventory grow, and monitor collection quality and bad-debt reserves.
- Confirm the funding plan and repayment terms for the $1.6 million Forward China note due December 31, 2022, and the status of the credit line maturing May 31, 2022.
- Evaluate the extent and terms of related-party sourcing, service fees and Koble product sales, including governance and potential conflicts.
- Track diabetic-product demand, major-customer orders and progress diversifying OEM revenue; verify the reported concentration measures.
- Monitor retail segment profitability, freight and sourcing costs, and whether retail growth can generate positive operating cash flow.
- Follow the remaining NDA litigation claim and any SBA review of PPP loan forgiveness.