Forward Industries, Inc. (NASDAQ:FORD) is a global design, sourcing, and distribution company serving top-tier medical and technology customers worldwide. The company’s history spans over four decades, marked by strategic acquisitions and a relentless pursuit of innovation.
Company History and Evolution
Founded in 1978 and headquartered in Hauppauge, New York, Forward Industries started as a small manufacturer of carrying cases for portable electronic devices. In its early days, the company primarily focused on sourcing and distributing carrying cases and accessories for medical devices such as blood glucose monitors. As the medical device industry grew, Forward Industries expanded its customer base and product offerings.
Over the years, the company has evolved, expanding its capabilities and diversifying its product portfolio. In 2018, Forward Industries made a significant strategic move by acquiring Intelligent Product Solutions (IPS), a renowned design and engineering firm. This acquisition strengthened the company’s design expertise and enabled it to offer a full spectrum of hardware and software product design services to its customers.
In 2020, Forward Industries further bolstered its design capabilities with the acquisition of Kablooe, a leading industrial design and user experience (UX) firm. These strategic acquisitions have positioned the company as a one-stop-shop for its customers, providing both design services and original equipment manufacturing (OEM) distribution solutions.
Business Segments
Today, Forward Industries operates through two main business segments: OEM Distribution and Design. The OEM Distribution segment 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. The company sources these products from independent suppliers in China through its related party, Forward Industries Asia-Pacific Corporation (Forward China), which is owned by the company’s Chairman and Chief Executive Officer.
The Design segment, comprising the IPS and Kablooe operations, provides a full spectrum of hardware and software product design and engineering services to customers predominantly located in the United States. This segment has been a significant contributor to the company’s overall performance, with its design expertise helping clients bring their innovative products to market.
Financials
Forward Industries’ financial performance has been characterized by a mix of challenges and opportunities. In the company’s fiscal year 2023, which ended on September 30, 2023, the company reported total revenues of $36.69 million, a decrease of 3.93% from the previous year. Net income from continuing operations was $158,660, a significant decline from the prior year’s $449,890. This decline was primarily attributed to the loss of a major diabetic customer in the OEM Distribution segment, as well as lower utilization rates in the Design segment.
For the fiscal year 2023, the company reported a net loss of $3.74 million. Operating cash flow (OCF) was $1.04 million, and free cash flow (FCF) was $904,950.
In the most recent quarter, which ended on June 30, 2024, Forward Industries reported revenue of $7.89 million, a decrease of 9.4% year-over-year. This decline was primarily driven by lower revenues in the design segment, which decreased by $741,000, as well as a slight decrease of $79,000 in the OEM distribution segment. The company reported a net loss of $399,580 for the quarter.
The revenue decline in the design segment was due to one customer whose revenue declined by approximately $1.2 million, as well as a net decrease in volume of work and projects with continuing customers, partially offset by new customer projects. In the OEM distribution segment, the revenue decline was attributed to the loss of one major diabetic customer in March 2023 and lower volumes from other diabetic customers, partially offset by new business with non-diabetic customers.
Gross profit for the quarter decreased to $1.61 million (20.4% gross margin) compared to $2.19 million (25.2% gross margin) in the prior year quarter. This decrease was primarily due to lower utilization rates in the design segment, partially offset by a change in the mix of revenue and a reduction in the sourcing fee paid to Forward China.
For the nine months ended June 30, 2024, revenues in the OEM distribution segment decreased 32.9% compared to the prior year period. This was primarily due to the loss of one major diabetic customer whose contract expired in March 2023, as well as lower volumes from some other diabetic customers. Revenues from diabetic products, which represented 75% of the OEM distribution segment’s net revenues in the 2024 period, decreased 41.5% year-over-year.
Operating income for the OEM distribution segment increased slightly to $291,000 in the 2024 period, up from $303,000 in the prior year period. Operating margin improved to 3.8% from 2.7%, driven by a change in the mix of revenue and lower sales and marketing expenses.
In the design segment, net revenues decreased 9.4% for the nine months ended June 30, 2024, compared to the prior year period. Operating income for the design segment decreased to $266,000 from $1.54 million, with operating margin declining from 9.1% to 1.7%.
Overall, Forward Industries’ consolidated net revenues declined 18.9% year-over-year for the nine months ended June 30, 2024. Gross profit margin remained relatively stable at 21.2% compared to 21.6% in the prior year period. The company generated a consolidated operating loss of $1.30 million in the current period versus operating income of $72,000 in the comparable 2023 period.
Liquidity
As of September 30, 2023, Forward Industries had a current ratio of 1.05. However, by June 30, 2024, the company’s liquidity position had tightened, with a current ratio of 0.86 and a quick ratio of 0.84. The company’s cash balance stood at $2.56 million.
Forward Industries has a $600,000 promissory note payable to Forward China, which matures on December 31, 2024. Forward China has extended the maturity of this note multiple times in the past to assist the company’s liquidity. To further preserve liquidity, in November 2023, the company and Forward China entered an agreement where 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.
The company’s debt-to-equity ratio is 0.43, indicating a moderate level of leverage. No available credit line was disclosed in the company’s filings.
Recent Performance
In the third quarter of fiscal year 2024, which ended on June 30, 2024, Forward Industries reported a net loss from continuing operations of $377,000, compared to a net income of $133,680 in the same period of the prior year. This decline was primarily driven by lower revenues in both the OEM Distribution and Design segments, as well as lower gross margins.
Despite these challenges, the company remains focused on diversifying its customer base, expanding its design capabilities, and optimizing its operations. Forward Industries has continued to invest in its design division, leveraging its expertise to serve a growing number of clients in the medical and technology sectors.
Future Outlook
Looking ahead, the company’s management has provided guidance for the full fiscal year 2024, anticipating net revenues in the range of $28 million to $32 million and a return to profitability from continuing operations. This guidance reflects the company’s efforts to adapt to the changing market conditions and capitalize on new opportunities.
Management believes that revenues from diabetic customers will continue to decline going forward, as consumer demand increases for diabetic testing products that do not require a carrying case. This trend is expected to impact the OEM Distribution segment significantly.
Strategic Decisions and Restructuring
In July 2023, Forward made the strategic decision to discontinue its retail distribution segment, which had been incurring significant losses. This represented a shift in the company’s focus back to its core OEM distribution and design businesses. To regain compliance with Nasdaq listing standards, Forward undertook a 1-for-10 reverse stock split in June 2024.
The company also worked with its largest vendor, Forward China, to restructure the outstanding payables owed to them. In March 2023, Forward reduced its OEM distribution sales and marketing personnel and negotiated a reduction in the fixed portion of its sourcing fee with Forward China. These actions helped to stabilize Forward’s financial position and allowed the company to move forward with a renewed focus on its key business segments.
Forward Industries’ story is one of resilience and innovation. As it navigates the evolving landscape of design and OEM distribution, the company remains committed to delivering value to its customers and shareholders. With a focus on diversifying its revenue streams, enhancing its design capabilities, and optimizing its operations, Forward Industries is poised to continue its journey as a pioneer in its industry.
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