DEF: Forward Industries Seeks Shareholder Approval for Nevada Reincorporation and Significant Equity Raises Amidst 'Going Concern' Warning

Forward Industries, Inc. is calling for its 2025 Annual Meeting to approve critical proposals including reincorporating to Nevada, authorizing substantial new equity issuances via an Equity Line of Credit and Series B Preferred Stock, and expanding its equity incentive plan, following a 'going concern' qualification in its latest audit report.

Summary

• Shareholders are invited to the 2025 Annual Meeting on August 8, 2025, to vote on eight key proposals, including the election of three directors and the ratification of the independent auditor.
• The Company proposes to change its state of incorporation from New York to Nevada, citing benefits such as more modern and flexible corporate laws, increased protection for officers and directors, and no state corporate income tax.
• Shareholder approval is sought for the issuance of common stock under an Equity Line of Credit (ELOC) with C/M Capital Master Fund, LP, allowing the Company to sell up to $35 million in common stock, potentially exceeding Nasdaq's 20% issuance threshold.
• Approval is also requested for the issuance of common stock upon conversion of 1,000,000 shares of Series B Preferred Stock (issued for $1,000,000) and 111,111 warrants (exercisable at $6.50/share) to C/M Capital Master Fund, LP and WVP-Emerging Manager Onshore Fund, LLC-Structured Small Cap Lending Series, which also exceeds Nasdaq's 20% threshold.
• An amendment to the 2021 Equity Incentive Plan is proposed to increase the number of shares available for issuance by 300,000, bringing the total to 429,100 shares, to attract and retain employees, consultants, and directors.
• The Company's independent registered public accounting firm, CohnReznick LLP, was dismissed on March 28, 2025, and their report for the fiscal year ended September 30, 2024, contained an explanatory paragraph regarding the Company's ability to continue as a 'going concern'.
• Net losses were reported as $(1,950,587) in fiscal 2024, $(3,716,651) in fiscal 2023, and $(1,378,251) in fiscal 2022.
• The Company completed a Transaction Agreement on May 16, 2025, with Forward China (a related party), selling its wholly-owned subsidiary Forward Industries (Switzerland) GmbH and certain OEM business assets to satisfy approximately $4,100,000 in outstanding payables.
• As of the record date (June 18, 2025), there were 1,125,998 shares of common stock outstanding, 4,925 shares of Series A-1 Convertible Preferred Stock outstanding, and 1,000,000 shares of Series B Preferred Stock outstanding.

Sentiment

Score: 3

Explanation: The sentiment is negative due to the 'going concern' warning from the auditor, consistent net losses, and the need for highly dilutive capital raises to support working capital. While the Company is taking steps to address its financial situation and governance, the underlying financial health appears precarious.

Positives

• The proposed reincorporation to Nevada aims to provide more modern and flexible corporate laws, potentially improving corporate governance and attracting qualified officers and directors.
• The Company is actively seeking to raise capital through an Equity Line of Credit (up to $35 million) and the issuance of Series B Preferred Stock and warrants ($1,000,000 raised from Series B), which are crucial for working capital and general corporate purposes.
• The amendment to the 2021 Equity Incentive Plan, increasing available shares by 300,000, is intended to enhance the Company's ability to attract, motivate, and retain key personnel by offering stock-based incentives.
• The settlement of approximately $4,100,000 in outstanding payables to Forward China through the sale of assets and a subsidiary helps to address a significant liability.

Negatives

• The Company's independent auditor, CohnReznick LLP, included an explanatory paragraph in their fiscal year 2024 report regarding the Company's ability to continue as a 'going concern', indicating significant financial uncertainty.
• The Company reported net losses of $(1,950,587) in fiscal 2024, $(3,716,651) in fiscal 2023, and $(1,378,251) in fiscal 2022, demonstrating a consistent lack of profitability.
• The proposed equity issuances (ELOC and Series B/Warrants) are highly dilutive to existing shareholders, with the ELOC potentially leading to the Purchaser owning approximately 83% of outstanding common stock (assuming full issuance at $6.49/share) and Series B/Warrants leading to approximately 23% dilution (assuming conversion/exercise at stated prices).
• The need for these significant capital raises is explicitly stated for 'working capital and other general corporate purposes,' suggesting ongoing operational funding challenges.
• Revenue from Koble products decreased significantly from $2,058,000 in fiscal 2023 to $380,000 in fiscal 2024, and revenue from Happ LLC also declined.
• The reincorporation to Nevada, while offering director protection, also includes opting out of certain anti-takeover provisions (NRS 78.411 to 78.444), which could make the Company more vulnerable to unsolicited takeovers without Board approval.

Risks

• The Company's ability to continue as a 'going concern' is uncertain, as highlighted by the auditor's explanatory paragraph.
• Significant dilution of existing shareholder ownership and voting rights due to the potential issuance of a large number of shares under the ELOC and from the conversion of Series B Preferred Stock and exercise of warrants.
• Inability to secure necessary financing if shareholder approval for the ELOC and Series B/Warrant issuances is not obtained, which could lead to the Company being unable to satisfy ongoing business needs and potentially result in liquidation or bankruptcy proceedings.
• The primary risks identified by the Board are the Company's ability to grow its business and increase its customer base.
• The reincorporation to Nevada, by opting out of certain anti-takeover provisions, could make the Company more susceptible to unsolicited acquisition proposals that the Board might not deem to be in the best interests of all shareholders.
• Nevada law's increased protection for officers and directors from liability may limit shareholders' ability to bring claims against them compared to New York law.

Future Outlook

The Company's future outlook is focused on securing necessary capital through the proposed ELOC and Series B issuances to fund working capital and general corporate purposes. It also aims to enhance corporate governance and attract talent through reincorporation to Nevada and expansion of its equity incentive plan. The ability to successfully implement business plans and generate shareholder value is stated to be dependent on raising capital and satisfying ongoing business needs.

Management Comments

• "We appreciate your continued confidence in our Company and look forward to your joining us virtually on August 8, 2025." Michael Pruitt, Interim Chief Executive Officer
• The Board believes that having an independent Chair provides effective oversight and independence of our Board.
• The Board believes that the appointment of a strong independent Chair and the use of regular executive sessions of the independent directors, along with the Board's strong committee system, allow it to maintain effective oversight of management.
• Management and our Board does not believe that our GAAP income (loss) is the only meaningful measure in allowing investors to evaluate management's performance, primarily due to: (i) losses incurred by our now discontinued retail segment which the Board believes was as a result of supply chain issues and the pandemic which were outside of the control of our NEOs and (ii) the need to retain key executives with the skills to provide the leadership the Company needs to succeed.

Industry Context

The document primarily focuses on corporate governance, capital structure, and executive compensation, rather than specific industry trends. However, the mention of 'supply chain issues and the pandemic' impacting the discontinued retail segment suggests the Company has faced broader economic and logistical challenges common to many retail-dependent businesses in recent years. The need for significant capital raises and the 'going concern' warning indicate a challenging financial position, which could be exacerbated by competitive pressures or shifts in the Company's operating markets.

Comparison to Industry Standards

• NA The document is a proxy statement focused on corporate actions and proposals, not a financial performance report that would typically include comparisons to industry peers or benchmarks. While it discusses the need to attract and retain talent with competitive compensation, it does not provide specific comparisons to compensation standards in its industry.

Management Changes

Corporate Governance

Legal Proceedings

• In July 2024, Amergent Hospitality Group Inc. (where Michael Pruitt serves as Chairman and CEO) filed a voluntary petition for reorganization under Chapter 11 in the U.S. Bankruptcy Court for the Northern District of Texas. This is a related entity, not a direct legal proceeding against Forward Industries, Inc.

Related Party Transactions

• The Company had a Buying Agency and Supply Agreement with Forward Industries Asia-Pacific Corporation (Forward China), owned by former Chairman/CEO Terence Wise. Service fees were approximately $891,000 in fiscal 2024 and $1,266,000 in fiscal 2023. This agreement expired October 22, 2023.
• A New Agreement with Forward China was entered into on November 2, 2023, and expired in May 2025. The monthly service fee was initially $65,833 plus 4% of Adjusted Gross Profit, later reduced to a fixed portion of $35,000 per month from November 2024.
• A Deferred Payment Agreement with Forward China was entered into on November 2, 2023, where Forward owed Forward China $7,365,238. Forward China agreed to limit collection to $500,000 in any 12-month period. This amount has been settled via the Transaction Agreement.
• The Company converted $4,925,000 of accounts payable due to Forward China into 4,925 shares of Series A-1 convertible preferred stock.
• The Company sold smart-enabled furniture under the Koble brand, owned by The Justwise Group, Ltd. (owned by Mr. Wise). Revenues were $380,000 in fiscal 2024 and $2,058,000 in fiscal 2023. The Company paid Justwise $10,000 per month plus 1% of the cost of Koble products. This agreement expired in August 2023 and was extended month-to-month until November 30, 2023.
• An arrangement with Happ LLC (principal owner is daughter of Jenny P. Yu, a >5% shareholder) involved the Company earning a 3.0% fee on the total cost of products. Revenue recognized was approximately $523,000 in fiscal 2024 and $626,000 in fiscal 2023.
• The sister of Paul Severino (former President of IPS) was employed by IPS as its Chief Marketing Officer, receiving approximately $30,000 in fiscal 2024 and $120,000 in fiscal 2023.
• The Company has a $1.6 million promissory note to Forward China (due December 31, 2025, 8% interest) related to the acquisition of IPS. Principal payments of $500,000 were made in fiscal 2024, with $600,000 principal outstanding as of the record date.
• On May 16, 2025, the Company entered into a Transaction Agreement with Forward China, selling its wholly-owned subsidiary Forward Industries (Switzerland) GmbH and certain OEM business assets to satisfy approximately $4,100,000 in outstanding payables. The Company also agreed to make additional cash payments of $150,000 on July 31, August 29, and September 30, 2025.

Stakeholder Impact

• **Shareholders:** Face significant potential dilution from the proposed ELOC and Series B/Warrant issuances. The 'going concern' warning indicates a high risk to their investment. The Nevada reincorporation could alter their rights, potentially limiting their ability to bring claims against directors/officers and making director removal more difficult, while also making unsolicited takeovers easier.
• **Employees:** The expansion of the 2021 Equity Incentive Plan aims to provide incentives and retain talent, which could positively impact employee morale and retention. However, the Company's financial challenges and past salary reductions for executives could create uncertainty.
• **Customers:** The capital raises are intended for 'working capital and general corporate purposes,' which could help ensure continued operations and product availability. The discontinuation of the retail segment and past supply chain issues might have impacted customer experience.
• **Creditors:** The settlement of significant payables to Forward China and the capital raises (ELOC, Series B) could improve the Company's liquidity and ability to meet its obligations, which is positive for creditors. The 'going concern' warning, however, signals elevated risk.
• **Management & Directors:** The Nevada reincorporation offers greater protection from personal liability and broader indemnification, which is beneficial for attracting and retaining qualified individuals in these roles. Executive compensation includes base salaries, bonuses, and equity awards, with a clawback policy in place.

Next Steps

• Shareholders to vote on proposals at the 2025 Annual Meeting on August 8, 2025.
• If shareholder approval for ELOC and Series B issuances is not obtained, the Company will need to seek alternative financing and hold additional shareholder meetings every six months until approval is secured.
• The Company will file appropriate Merger documents with New York and Nevada to effectuate the reincorporation upon shareholder approval.
• The Company is required to file a registration statement on Form S-1 covering the resale of securities under the ELOC Agreement.
• The Company is required to file a registration statement for shares underlying the Series B and Warrants by August 21, 2025, unless waived.
• The Company is scheduled to make three additional cash payments of $150,000 to Forward China on July 31, 2025, August 29, 2025, and September 30, 2025, as part of the Transaction Agreement.

Key Dates

Recommendation

Keywords

Proxy Statement, SEC Filing, Corporate Governance, Equity Line of Credit, Preferred Stock, Warrants, Shareholder Meeting, Reincorporation, Nasdaq Listing Rules, Dilution, Going Concern, Capital Raise, Executive Compensation, Board of Directors, Risk Management, Related Party Transactions, Financial Reporting, Equity Incentive Plan