Forward Industries, Inc.: Form 10-Q for the period ended Dec 31, 2025

The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements, and the notes thereto, and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2025. The following discussion and analysis compares our condensed consolidated results of operations for the three months ended December 31, 2025 (the “2026 Quarter”) with those for the three months ended December 31, 2024 (the “2025 Quarter”). All dollar amounts and percentages presented herein have been rounded to approximate values.

Cautionary Note Regarding Forward-Looking Statements

This report contains forward-looking statements, including statements regarding our liquidity, our growth strategy, and our future business plans. Forward-looking statements can be identified by words such as “anticipates,” “intends,” “may,” “potential,” “continues,” “plans,” “seeks,” “believes,” “estimates,” “expects” and similar references to future periods.

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you therefore against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. The results anticipated by any or all of these forward-looking statements might not occur. Important factors that could cause actual results to differ materially from those in the forward-looking statements include: (i) the rewards and costs associated with staking or validating transactions; (ii) regulatory issues related to our business model, including potential classification of crypto assets as securities and changing regulatory frameworks; (iii) fluctuations in the price of our crypto assets; (iv) potential decreases in the value of our crypto assets and rewards; (v) competition, (vi) risks related to the loss or theft of private withdrawal keys resulting in the complete loss of crypto assets and rewards; (vii) failure to keep our Registration Statement on Form S-3 effective and (viii) other risks and uncertainties described in our filings with the SEC, including our Form 10-K for the fiscal year ended September 30, 2025. Any forward-looking statement made by us speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

Background and Business Overview

We are a Solana focused digital asset treasury company, with the strategy to buy, hold, stake, trade, invest in, and grow SOL and SOL related digital assets, protocols and businesses. Our mission is to expand and strengthen the Solana ecosystem by acquiring and staking SOL and engaging with, providing tools to and investing in the Solana protocol, Solana developers and Solana related projects in order to increase shareholder value. In connection with a private placement transaction in September 2025, we launched our digital asset treasury strategy, which we have been executing to date by holding SOL, staking SOL, operating a SOL validator, engaging in the SOL decentralized finance (“DeFi”) ecosystem and actively repurchasing shares of our common stock.

Under our new treasury policy and strategy, the principal holding in our treasury reserve on the balance sheet will be allocated to digital assets, primarily SOL, fwdSOL (a Liquid Staking Token, or “LST”, developed by the Company in collaboration with Socean Labs Inc., doing business as Sanctum, on the Solana blockchain) and similar assets. We have selected SOL as our primary treasury asset because we believe it is earlier in its lifecycle, operationally superior, higher yield generating and underexposed as compared to Bitcoin and other digital assets, presenting a unique opportunity for Forward to become the largest Solana asset treasury operator in the industry. Our planned approach involves acquiring SOL, staking our holdings via our own validator, deploying SOL into various DeFi protocols to earn yield, fees or rewards, lending SOL to earn interest, pledging SOL as collateral to borrow other assets and generating revenue through strategic acquisitions, partnerships and deployments within the Solana ecosystem.

Forward also operates an engineering services business, which provides hardware and software product design and engineering services to customers predominantly located in the U.S.

Discontinued Operations

In March 2025, the Company committed to a plan to sell the original equipment manufacturer (“OEM”) distribution segment of the business (“OEM Plan”). In May 2025, the Company completed the sale of this line of business and is presenting its results of operations within discontinued operations in the prior period presented herein. The OEM distribution segment sourced and sold 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 packaged our products as accessories “in box” together with their branded product offerings or sold them through their retail distribution channels. The Company did not manufacture any of its OEM products and sourced substantially all of these products from independent suppliers in China, through Forward Industries Asia-Pacific Corporation, a British Virgin Islands corporation (“Forward China”), a related party owned by the Company’s former CEO (see Note 8 to the condensed consolidated financial statements).

Unless otherwise noted, amounts related to discontinued operations are excluded from the disclosures presented herein. See Note 3 for more information on discontinued operations.

Critical Accounting Estimates

Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States, which requires the use of certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Although we base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances at the time of evaluation, changes in our business strategy, adverse changes in market conditions or various other factors could cause actual results to differ from these estimates and such differences could be significant.

We have identified the below critical accounting estimates. An accounting estimate is considered critical if both: (a) the nature of the estimate or assumption is material due to the levels of subjectivity and judgment involved, and (b) the impact of changes in the estimate and assumption has had or is reasonably likely to have a material effect on the condensed consolidated financial statements. This listing is not a comprehensive list of all our accounting policies. For further information regarding the application of these and other accounting policies, see Note 2 of the consolidated financial statements in our Annual Report on Form 10-K.

Share-Based Compensation

We measure share-based compensation expense related to employee and non-employee director share-based awards based on the estimated fair value of the awards as determined on the date of grant, which is recognized as expense over the requisite service period. We utilize the Black-Scholes option pricing model to estimate the fair value of stock options issued as compensation. The Black-Scholes model requires the input of highly subjective and complex assumptions, including the expected term of the stock option, and the expected volatility of our common stock over the period commensurate with the expected term of the option. Uncontrollable uncertainties, such as fluctuation in interest rates, can have an effect on our Black-Scholes estimate calculations. Such fluctuations and other unforeseen changes in inputs could have a material impact on the general and administrative expenses within our financial statements.

Impairment of Digital Assets

We account for some of our digital assets, specifically fwdSOL, as indefinite-lived intangible assets in accordance with ASC Subtopic 350-30. These digital assets are initially recorded at cost and subsequently measured at cost less any impairment losses. We perform an impairment analysis each reporting period or more frequently if events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized when the fair value of these digital asset is less than their carrying value at any time during the period. The impaired digital asset is written down to its fair value at the time of impairment, and the impairment loss cannot be reversed in future periods even if fair values subsequently increase.

The determination of fair value requires significant judgment and involves the use of market prices from digital asset exchanges. We consider factors including trading volume, market liquidity, and the reliability of pricing sources when determining fair value. For fwdSOL, which may have limited trading activity, we may use alternative valuation methods including discounted cash flow analysis or other market-based approaches. Changes in market conditions, trading volumes, or the availability of reliable pricing information could materially affect our impairment assessments and results of operations.

Recent Accounting Pronouncements

For information on recent accounting pronouncements and impacts, see Note 2 to the unaudited condensed consolidated financial statements.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2025 COMPARED TO THE THREE MONTHS ENDED DECEMBER 31, 2024

2026 Quarter Highlights

• We generated revenues of $21.4 million in the 2026 Quarter compared to revenues of $4.6 million in the 2025 Quarter, largely driven by our new digital asset treasury strategy.
• Gross margin increased from 24.5% in the 2025 Quarter to 78.6% in the 2026 Quarter, driven by the high margin staking revenue generated by our digital asset treasury strategy.
• In the 2026 Quarter, we launched fwdSOL, an LST developed in collaboration with Socean Labs Inc., doing business as Sanctum, on the Solana blockchain, which enables us to generate staking yield on SOL while unlocking additional sources of return through DeFi and institutional borrowing strategies.
• At December 31, 2025, 1,489,896 shares of the Company’s common stock had been tokenized on the Solana blockchain through Superstate Services LLC, our co-transfer agent. Tokenization allows for shares of common stock to be self-custodied, transferred on a peer-to-peer basis, used in the DeFi ecosystem as collateral and to be programmed into the execution of smart contracts. All issued shares, regardless of form, represent identical rights and investors may switch their ownership form at their discretion upon instructions subject to applicable procedures and requirements and processing times.

25

Consolidated Results

The table below summarizes our consolidated results from continuing operations for the 2026 Quarter as compared to the 2025 Quarter. Dollar amounts and percentages have been rounded to approximate values.

The discussion that follows below provides further details about our results from continuing operations for the 2026 Quarter as compared to the 2025 Quarter.

The increase in net revenues from the 2025 Quarter to the 2026 Quarter resulted from $17,381,000 in staking and other related revenue generated by our digital assets segment and was partially offset by a $570,000 decline in design segment revenue, primarily attributable to the loss of a major design customer in December 2024 and partially offset by the net increase in volume of work and projects with other customers.

Our gross profit increased and gross margin increased from 24.5% in the 2025 Quarter to 78.6% in the 2026 Quarter. The increase in both gross profit and gross margin resulted from the high margin staking revenue generated by our digital assets segment, which generated gross profit of $15,983,000 and gross margin of 92.0%. In the design segment, gross profit decreased $267,000 and gross margin decreased from 24.5% in the 2025 Quarter to 21.4% in the 2026 Quarter driven by a change in the mix of revenue coupled with higher labor costs.

Sales and marketing expenses increased primarily due to increased corporate marketing spend of $446,000 related to corporate market research related activities and was partially offset by a $71,000 reduction in the design segment, driven by cost reduction efforts, including lower personnel costs and lower marketing spend.

Digital assets general and administrative expenses include $1,739,000 of asset management and related fees. Corporate general and administrative expenses increased $3,727,000 due to higher professional fees related to our services agreement with Galaxy, higher investor relations spending and higher personnel costs associated with hiring personnel necessary to execute our new digital assets treasury strategy. Design segment general and administrative expenses decreased $415,000 due to lower personnel costs related to staff reductions and other cost-cutting measures in response to the decline in revenues. 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 the 2025 Quarter, the Company recorded a design segment goodwill impairment charge of $225,000 related to the IPS reporting unit. This impairment charge resulted from recurring impairment testing and was driven by a reduction in expected future performance of the reporting unit.

The loss on digital assets in the 2026 Quarter of $560,212,000 was driven by the reduction in the fair value of our digital assets resulting from the decline in the market value of SOL. The non-cash impairment charge of $33,044,000 relates to our holdings of fwdSOL and is also driven by the decline in market value of SOL. These amounts reflect the volatility inherent in digital asset holdings and the Company’s accounting policy that does not permit the reversal of impairment losses even if fair values subsequently increase. The change in interest income, net is due to non-cash interest income of $479,000 related to loaned SOL plus an increase in cash interest income of $193,000 related to higher cash balances during the 2026 Quarter compared to the 2025 Quarter.

The income tax provision in the 2026 Quarter resulted from taxable income generated for which NOLs may not be available to offset due to certain IRS limitations. For the three months ended December 31, 2024, we reported no income tax provision or benefit due to the existence of significant net operating loss carryforwards.

Consolidated basic and diluted loss per share from continuing operations were $5.91 and $0.82 for the 2026 Quarter and the 2025 Quarter, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Prior to our recent financings, our primary source of liquidity has been 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. Following our strategic pivot to a digital asset treasury strategy in September 2025, our liquidity profile has fundamentally changed. While we anticipate that our current liquidity and financial resources will remain adequate to manage our operating and financial requirements for at least the next twelve months from the date of this filing, this assessment assumes that we will be able to liquidate digital assets in amounts and at times necessary to meet our obligations, which may not be possible during periods of market stress or reduced liquidity. Additionally, our liquidity assessment does not account for potential margin calls or collateral requirements that may arise from our DeFi activities, lending arrangements, or borrowing against pledged SOL. Our ability to maintain adequate liquidity depends on various factors including the market value of our digital assets, our ability to liquidate digital assets when needed, the parameters of our share repurchase program and our ongoing operating expenses. At December 31, 2025, our working capital was approximately $52.9 million. At January 31, 2026, our cash balance was approximately $12 million.

In December 2025 and January 2026, we executed open market purchases totaling 3,330,000 shares at an average cost of $7.32 per share for an aggregate cost of $24,387,000, inclusive of fees.

If we have the opportunity to make a strategic acquisition or an investment in a product or partnership, we may require additional capital beyond our current cash balance to fund the opportunity.

Cash Flows

During the 2026 Quarter and 2025 Quarter, our sources and uses of cash were as follows:

Operating Activities

During the 2026 Quarter, cash used in operating activities of $7,929,000 resulted from a net loss of $585,651,000, non-cash net digital asset revenue of $16,462,000, an increase in accounts receivable and contract assets of $1,202,000, an increase in prepaid expenses and other current assets of $1,796,000, partially offset by the loss on digital assets of $560,212,000, the digital asset impairment charge of $33,044,000, an increase in accrued expenses and other liabilities $2,813,000, a net increase in accounts payable and related party payables of $642,000, an increase in deferred income of $428,000 and non-cash charges for depreciation, amortization and share-based compensation of $43,000.

During the 2025 Quarter, cash used in operating activities of $434,000 resulted from a net loss of $708,000, a decrease in deferred income of $121,000, a decrease in accrued expenses and other current liabilities of $131,000 and cash used in discontinued operations of $81,000, partially offset by a net decrease in accounts receivable and contract assets of $172,000, non-cash charges for depreciation, amortization, share-based compensation, credit losses and goodwill impairment of $353,000 and the net change in other operating assets and liabilities of $82,000.

Investing Activities

Cash used in investing activities in the 2026 Quarter consisted of purchases of digital assets of $335,050,000 and sales of digital assets of $333,973,000. Cash used in investing activities in the 2025 Quarter of $5,000 resulted from purchases of property and equipment.

Financing Activities

Cash used in financing activities in the 2026 Quarter consisted of share repurchases of $10,883,000, fees associated with financing activities of $229,000, and deferred financing costs associated with our ATM of $144,000, partially offset by net proceeds from ATM of $7,457,000 and proceeds from stock options exercised of $26,000. There was no cash used in or provided by financing activities in the 2025 Quarter.

Related Party Transactions

For information on related party transactions and their financial impact, see Note 8 to the unaudited condensed consolidated financial statements contained herein.

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 December 31, 2025.

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 December 31, 2025, was effective based on that criteria.

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 period covered by this report that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

While we attempt to identify, manage, and mitigate risks and uncertainties associated with our business to the extent practical under the circumstances, some level of risk and uncertainty will always be present. Item 1A - “Risk Factors” in the Form 10-K for the fiscal year ended September 30, 2025 describes some of the risks and uncertainties associated with our business, which we strongly encourage you to review. These risks and uncertainties have the potential to materially affect our business, financial condition, results of operations, cash flows, projected results, and future prospects. There have been no material changes in our risk factors from those disclosed in the Form 10-K for the fiscal year ended September 30, 2025.