Company Overview
Forward Industries, Inc. is a global design, sourcing, and distribution company serving top-tier medical and technology customers worldwide. The company operates through two primary business segments: OEM Distribution and Design.
Forward's OEM Distribution segment sources and sells carrying cases and other accessories for medical monitoring and diagnostic kits, as well as a variety of portable electronic and non-electronic devices, to original equipment manufacturers (OEMs) or their contract manufacturers. The Design segment provides hardware and software product design and engineering services to customers predominantly located in the U.S.
Company History and Evolution
Forward Industries was founded in 1989 and has evolved significantly over the years. The company is headquartered in Hauppauge, New York, and has been serving top-tier medical and technology customers worldwide for over two decades. In 2018, Forward Industries expanded its capabilities by acquiring Intelligent Product Solutions (IPS), a product design and engineering services firm. This strategic acquisition allowed Forward to offer a full spectrum of hardware and software product design and engineering services to its customers.
Two years later, in 2020, Forward further bolstered its design capabilities through the acquisition of Kablooe, another product design and engineering services firm. These acquisitions positioned Forward as a global design, sourcing, and distribution company serving top-tier medical and technology customers.
In July 2023, the company decided to cease operations of its retail distribution segment due to recurring losses, marking a strategic shift in its business model. This move allowed Forward to focus primarily on its OEM Distribution and Design segments, which collectively accounted for 100% of the company's revenues in fiscal year 2024.
Today, Forward Industries continues to leverage its expertise and capabilities to serve its diverse customer base across the medical and technology sectors, despite facing various challenges in recent years.
Financial Performance and Key Metrics
In fiscal year 2024, Forward Industries reported total revenues of $30.20 million, a decrease of 17.7% compared to the prior year. This decline was largely driven by a 19.6% decrease in OEM Distribution segment revenues, partially offset by a 16.5% increase in Design segment revenues.
The company's gross profit margin improved to 20.6% in fiscal 2024, up from 19.8% in the prior year, due to a higher-margin product mix and lower sourcing costs. However, this was offset by a 3.1% increase in operating expenses, resulting in a net loss of $1.95 million for the year, compared to a net loss of $3.74 million in fiscal 2023.
Forward Industries' balance sheet remains under pressure, with a working capital deficit of $162,000 as of September 30, 2024, compared to a working capital surplus of $534,000 in the prior year. The company's cash balance stood at $3.02 million at the end of fiscal 2024, down from $3.18 million a year earlier.
For the first quarter of fiscal 2025, the company reported revenues of $6.62 million, a 7.5% decrease year-over-year. The net loss for the quarter was $708,070, compared to a net loss of $381,000 in the prior year quarter. Gross margin remained relatively stable at 22.7%, compared to 23.0% in the same period last year.
Segmental Performance and Outlook
OEM Distribution Segment The OEM Distribution segment's revenues declined by 19.6% in fiscal 2024, primarily due to lower demand for the company's diabetic product offerings and a net reduction in demand from non-diabetic customers. In the first quarter of fiscal 2025, segment revenues decreased slightly from $2.01 million to $1.99 million compared to the prior year quarter. This decline was due to lower revenue from non-diabetic customers and reduced volumes from some diabetic customers, partially offset by higher volumes from other diabetic customers.
Despite the revenue decline, the OEM Distribution segment's operating margin improved significantly, from 2.0% in fiscal 2023 to 11.2% in fiscal 2024, driven by reductions in the sourcing fee paid to the company's related party supplier, Forward China, as well as a more favorable product mix. This improvement continued into the first quarter of fiscal 2025, with operating income increasing from $41,000 to $223,000 and operating margin rising from 2.0% to 11.2%.
Management believes that revenues from diabetic customers will continue to decline in future periods as consumer demand increases for testing products that require no carrying case.
Design Segment The Design segment's revenues increased by 16.5% in fiscal 2024, but operating income declined due to a goodwill impairment charge of $225,000 related to the IPS reporting unit. This impairment was driven by the expected reduction in revenues following the loss of a significant customer, which represented approximately 25.2% of the company's consolidated revenues in fiscal 2024.
In the first quarter of fiscal 2025, Design segment revenues decreased from $5.14 million to $4.62 million compared to the prior year quarter. This decline was primarily driven by a $470,000 decrease from the company's largest design customer, as well as a net decrease in volume of work and projects with continuing customers, partially offset by projects from new customers. Operating income for the segment decreased from $266,000 to $260,000, with operating margin declining from 5.2% to 5.6%.
In December 2024, the company's largest design customer notified Forward Industries of plans to discontinue the insulin patch pump program on which the company was working. This development is expected to cause a material decrease in Design segment revenues beginning in the second quarter of fiscal 2025. Management is working on cost reduction efforts, including a reduction in force, to mitigate the impact of this revenue decline.
Liquidity
Forward Industries' financial position remains challenging, with a working capital deficit and an accumulated deficit of $20.34 million as of September 30, 2024. The company's primary source of liquidity has historically been its operations, but the net losses and working capital challenges have put a strain on its cash resources.
As of September 30, 2024, the company had a debt-to-equity ratio of 1.26, a current ratio of 1.03, and a quick ratio of 0.95. The company has a $600,000 promissory note payable to its related party supplier, Forward China, which matures in June 2025. While Forward China has extended the maturity of this note in the past to assist with the company's liquidity, there is no assurance that they will do so again.
Additionally, the company has outstanding payables to Forward China of approximately $6.77 million as of December 31, 2024. To preserve liquidity, Forward China has agreed to limit the amount of outstanding payables it would seek to collect from the company to $500,000 per 12-month period. However, there is no guarantee that Forward China will continue to extend favorable payment terms.
Based on the company's forecasted cash flows, management believes there is substantial doubt about Forward Industries' ability to continue as a going concern for a period of 12 months from the date of issuance of the fiscal 2024 financial statements. The company is exploring various options, including cost reduction measures, flexibility on payment terms with Forward China, and potential debt or equity financing, to address its liquidity concerns.
Risks and Challenges
Forward Industries faces several key risks and challenges that could impact its future performance:
1. Dependence on a limited number of large customers: A significant portion of the company's revenues is derived from a limited number of large customers, particularly in the Design segment. The loss of any of these major customers could have a material adverse effect on the company's financial results, as evidenced by the recent loss of its largest design customer.
2. Reliance on related party supplier: The company's OEM Distribution segment is heavily dependent on its related party supplier, Forward China, which provides substantially all of the products sold in this segment. Any disruption in this supplier relationship or unfavorable changes in the terms of the supply agreement could significantly impact the segment's performance.
3. Ongoing liquidity concerns: Forward Industries' recurring losses and working capital challenges have raised substantial doubt about the company's ability to continue as a going concern. Its ability to address these liquidity issues and maintain sufficient cash resources is crucial for its long-term survival.
4. Competitive pressures: The markets in which Forward Industries operates are highly competitive, with the company facing competition from larger, more established players as well as emerging startups. The company's ability to maintain its competitive edge and market share is crucial for its success.
5. Regulatory and compliance risks: As a company operating in the medical device and technology industries, Forward Industries is subject to various regulatory requirements and standards. Failure to comply with these regulations could result in fines, penalties, or even the suspension of the company's operations.
6. Nasdaq listing compliance: The company faces risks related to maintaining compliance with Nasdaq listing standards, which could impact its ability to access capital markets and maintain investor confidence.
Conclusion
Forward Industries is navigating a challenging period as it transitions its business model and addresses ongoing liquidity concerns. While the company has made progress in improving the profitability of its OEM Distribution segment, the loss of a major customer in its Design segment poses a significant threat to its financial performance.
To overcome these challenges, Forward Industries will need to execute on its cost reduction initiatives, secure more favorable payment terms with its related party supplier, and potentially seek additional financing or strategic partnerships. The company's ability to diversify its customer base, strengthen its financial position, and adapt to the evolving medical and technology landscape will be crucial in determining its long-term viability and success.