NOTE 2             ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of Forward Industries, Inc. and all of its wholly-owned subsidiaries: Forward Industries (IN), Inc. (“Forward US”), DE Sub 1 LLC (“Forward Delaware”), Forward Investments 1, LLC (“Forward Investments”), Forward Industries (Switzerland) GmbH (“Forward Switzerland”), Forward Industries UK Limited (“Forward UK”), Intelligent Product Solutions, Inc. (“IPS”) and Kablooe, Inc. (“Kablooe”). In May 2025, the Company sold all of its equity interests in Forward Switzerland and Forward UK.  As a result, our operating results for the three and nine months ended June 30, 2026 do not include operating results of either of these entities. The terms “Forward”, “we”, “our” or the “Company” as used throughout this document are used to indicate Forward Industries, Inc. and all of its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.

In March 2026, the Company’s shareholders approved a proposal to change the Company’s state of incorporation from New York to Texas. This reincorporation was carried out by means of merger of Forward with and into a wholly-owned Texas subsidiary.

In April 2026, the Company invested approximately $1.9 million, through a combination of primary and secondary share purchases, in On Re Ltd (“On Re”), a private tokenized reinsurance company on the Solana blockchain. An additional $266,000 primary subscription remains subject to regulatory approval from the Bermuda Monetary Authority. The Company’s investment in On Re is accounted for under the cost method (see Note 4).

In the opinion of management, the accompanying condensed consolidated financial statements presented in this Quarterly Report on Form 10-Q reflect all normal recurring adjustments necessary to present fairly the financial position and results of operations and cash flows for the interim periods presented herein but are not necessarily indicative of the results of operations for the year ending September 30, 2026. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the fiscal year ended September 30, 2025, and with the disclosures and risk factors presented therein. The September 30, 2025 condensed consolidated balance sheet has been derived from the audited consolidated financial statements.

Accounting Estimates

The preparation of the Company’s condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates and assumptions. Within this report, certain dollar amounts and percentages have been rounded to their approximate values.

Segment Reporting

As a result of the Company’s digital asset treasury strategy and the OEM Plan, the Company now has two reportable segments: digital assets and design. The digital assets segment captures SOL-based yield generated by participating in the Solana network’s staking protocol, which currently comprises rewards received from native staking. The design segment consists of two operating segments (IPS and Kablooe, which have been aggregated into one reportable segment) that provide a full spectrum of hardware and software product design and engineering services to customers predominantly located in the U.S. See Note 6 for additional information on our segments.

Digital Assets

The Company accounts for its holdings of digital assets, including cryptocurrencies such as Solana, as indefinite-lived intangible assets in accordance with Accounting Standards Codification (“ASC”) 350-60, “Intangibles – Goodwill and Other – Crypto Assets (“ASC 350-60”). Digital assets under ASC 350-60 are initially measured at cost and subsequently measured at fair value, with changes in fair value recognized in net income/(loss) each reporting period. Digital assets are classified as current assets if the Company intends to sell them or otherwise realize their value within twelve months after the reporting date, or as noncurrent assets if the Company intends to hold them for longer than twelve months. The Company evaluates its intent and ability to hold digital assets at each reporting date. Upon disposal of a digital asset (e.g., by sale, exchange or transfer) the Company derecognizes the asset and recognizes a realized gain or loss in net income/(loss), calculated as the difference between the sale proceeds and the asset’s carrying amount, which is determined using a first in-first out method.

Digital assets that are not in scope of ASC 350-60, primarily wrapped tokens that provide the holder with an enforceable right to redeem the underlying digital assets, such as fwdSOL, are accounted for as indefinite-lived intangible assets subject to impairment testing, or as financial assets if they are redeemable for cash. These digital assets are accounted for as intangible assets and measured at the lower of cost or market value. The Company determines market value using the lowest observed transaction price of the asset during the holding period. The Company elected to apply the fair value option to digital assets that meet the definition of financial assets.

The Company has developed fwdSOL, a Liquid Staking Token (“LST”) in collaboration with Socean Labs Inc. on the Solana blockchain.  fwdSOL allows Forward and other SOL holders to stake native SOL and continue earning staking rewards while receiving and using fwdSOL elsewhere in the Solana ecosystem. fwdSOL is backed by SOL staked on Forward Industries’ institutional grade validator infrastructure which automatically accrues staking rewards.

Digital Asset Loan Receivable and Payable

The Company engages in digital asset lending and borrowing activities. Digital asset loans receivable are typically fixed short-term loans or loans with no specified maturity dates that are callable or prepayable with a short notice period and no penalties. The borrower has the ability to use the loaned digital assets at its discretion for the duration of the loan. The Company derecognizes the underlying digital assets upon loan origination and recognizes a digital asset loan receivable that represents the Company’s right to receive the loaned digital asset upon settlement of the loan. The digital asset loan receivable is measured at the fair value of the underlying digital assets that the Company expects to receive under the arrangement. The Company evaluates its digital asset loan receivables for possible credit losses using the current expected credit loss framework outlined in ASC Topic 326, “Financial Instruments—Credit Losses”, (“ASC 326”). Digital asset loan interest is denominated in the same underlying digital asset that is loaned out. The Company recognizes interest income over the life of the loan using the effective rate method.

The Company also borrows digital assets from counterparties. As borrower, the Company has the ability to use the borrowed digital assets at its discretion. The Company pays interest on borrowed digital assets that is denominated in the borrowed digital assets and recognizes interest expense over the term of the loan. The borrowed digital assets are recognized as digital assets in accordance with the Company’s accounting policies for digital assets. The obligation to repay digital assets in the future is recorded as a Loan Payable - Digital Assets and is remeasured at fair value.

The Company may pledge or receive digital assets as collateral associated with its digital asset lending and borrowing activities. The Company evaluates the nature of the arrangement with counterparties to determine whether it obtains or loses control of the collateral assets. Where control of the collateral assets transfers to or from the Company, it is accounted for in the same manner as digital asset loans receivable or payable.

Accounts Receivable

Accounts receivable consists of unsecured trade accounts with customers net of an allowance for credit losses. Collectability of accounts receivable is estimated by evaluating the number of days accounts are outstanding, customer payment history, recent payment trends and perceived creditworthiness, adjusted as necessary based on specific customer situations. At June 30, 2026, September 30, 2025 and September 30, 2024, the Company had allowances for credit losses of $98,000, $92,000 and $27,000 respectively.

Derivatives

The Company enters into over-the-counter (“OTC”) derivative contracts, including options referencing the price of digital assets such as SOL primarily for the purpose of trading, risk management and treasury management of its digital assets. These contracts are accounted for in accordance with ASC 815, “Derivatives and Hedging.” Derivative instruments are recognized on the balance sheet at fair value on the trade date and are subsequently remeasured at fair value at each reporting date, with changes in fair value recognized in earnings within “Derivative gain/(loss).” The Company does not designate any derivative instruments as hedging instruments under ASC 815. The Company does not offset cash collateral paid or received against derivative assets or liabilities.

Written options represent obligations of the Company and are recorded as derivative liabilities and purchased options represent rights of the Company and are recorded as derivative assets. The Company receives or pays an upfront premium at inception, which generally represents the initial fair value of the option unless model-derived fair value indicates otherwise. Derivative instruments are derecognized upon expiration or settlement.

Investments

Cost / Equity Method Investments

The Company accounts for investments in entities over which it has the ability to exercise significant influence, but not control, using the equity method of accounting in accordance with ASC Topic 323, “Investments—Equity Method and Joint Ventures.” Significant influence is generally presumed to exist when the Company holds 20% or more of the voting interest of an investee, although the determination requires judgment and consideration of all relevant facts and circumstances, including representation on the investee’s board of directors, participation in policy-making processes, material intra-entity transactions, interchange of managerial personnel, and technological dependency. If the Company does not exercise significant influence, it will generally account for investments using the cost method.

Under the equity method, the investment is initially recorded at cost and subsequently adjusted to recognize the Company’s proportionate share of the investee’s net income or loss. The Company’s proportionate share of the investee’s earnings or losses is recognized in the condensed consolidated statements of operations on a three-month lag.

The Company evaluates its equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment may not be recoverable. An impairment loss is recognized when the decline in fair value below the carrying amount is determined to be other than temporary.

Investments in Marketable Equity Securities

In June 2026, the Company purchased certain marketable equity securities. The Company carries its investments in marketable equity securities at fair value, which is based on quoted prices for the securities, which is categorized within Level 1 of the fair value hierarchy. Marketable securities are categorized as current assets if the Company intends to sell them or otherwise realize their value within twelve months after the reporting date, or as noncurrent assets if the Company intends to hold them for longer than twelve months. The Company evaluates its intent and ability to hold marketable equity securities at each reporting date. Changes in market value are recorded through earnings each reporting period. At June 30, 2026, the Company held the following marketable equity securities: 

The following table summarizes the Company’s marketable equity securities and adjustments to fair value at June 30, 2026: 

There were no sales of marketable equity securities during the three or nine months ended June 30, 2026.

Treasury Stock

The Company accounts for treasury stock using the cost method. As of June 30, 2026 and September 30, 2025, the Company held 13,316,000 and 0 shares of its common stock in treasury, purchased at a total cost of $69,863,000 and $0, respectively.

Revenue Recognition

Digital Asset Staking

The Company participates in proof-of-stake validation. Proof-of-stake validation, also referred to as staking, requires the Company to delegate its digital assets to a validator. Staking can be performed on proprietary validation infrastructure or through the use of third-party infrastructure or service providers. The Company concluded that where it controls the validation infrastructure, it is a principal in the provision of staking services to the blockchain and recognizes staking revenue on a gross basis. Blockchain rewards distributed to third parties staking on the Company’s validation infrastructure are included in cost of sales.

The Company recognizes noncash consideration from staking activities related to its digital asset holdings in accordance with ASC 606, “Revenue from Contracts with Customers”. Staking income is generated when the Company participates in digital asset networks to validate transactions and, in return, earns rewards in the form of additional digital assets. The Company considers its performance obligation to be satisfied at the point in time when it has successfully provided validation services to the network and the reward is determinable and collectible. Revenue is measured as the fair value of digital assets received as staking rewards at contract inception, which occurs at the beginning of each epoch of the respective blockchain.

Design Segment

The Company applies the “cost to cost” and “right to invoice” methods of revenue recognition to the contracts with customers in the design segment. The design segment typically engages in two types of contracts: (i) time and material and (ii) fixed price. The Company recognizes revenue over time on its time and material contracts utilizing a “right to invoice” method. Revenues from fixed price contracts that require performance of services that are not related to the production of tangible assets are recognized by using cost inputs to measure progress toward the completion of its performance obligations, or the “cost to cost” method. Revenues from fixed price contracts that contain specific deliverables are recognized when the performance obligation has been satisfied or the transfer of goods to the customer has been completed and accepted.

Recognized revenues that will not be billed until a later date are recorded as contract assets in the accompanying condensed consolidated balance sheets. The design segment had contract assets of $476,000, $1,064,000 and $1,273,000 at June 30, 2026, September 30, 2025 and September 30, 2024, respectively. Contracts where collections to date have exceeded recognized revenues, or contract liabilities, are recorded as a liability and classified as a component of deferred income in the accompanying condensed consolidated balance sheets. The design segment had contract liabilities of $505,000, $293,000 and $399,000 at June 30, 2026, September 30, 2025 and September 30, 2024, respectively.

Disaggregation of Revenue

Digital assets staking revenue is recognized at a point in time. Design segment revenue is predominantly recognized over time and has similar other economic factors, including, but not limited to, the geographic location and type of customer, payment terms and length of contracts. See Note 6 for disaggregated revenue amounts.

Income Taxes

The Company recognizes future tax benefits and liabilities measured at enacted rates attributable to temporary differences between the financial statement and income tax bases of assets and liabilities and to net tax operating loss carryforwards (“NOLs”) to the extent that realization of these benefits is more likely than not. At June 30, 2026, there was no change to our assessment that a full valuation allowance was required against all net deferred tax assets as it is not more likely than not that such deferred tax assets will be realized.

Utilization of NOLs may be subject to substantial limitation under Section 382 of the Internal Revenue Code of 1986, as amended, due to ownership changes that have occurred previously or that could occur in the future, which may limit the amount of NOLs that can be used to offset future taxable income. In addition, NOLs generated in tax years beginning after December 31, 2017 are subject to an annual limitation that restricts their use to 80% of taxable income in any given year. Similar rules may apply under state tax laws. The Company engaged external tax advisors to perform a comprehensive Section 382 study, which was completed in April 2026. The study concluded that an ownership change occurred in connection with the Company’s private placement transaction in September 2025, which limits the amount of NOLs the Company can utilize each year. Our tax provision for the three months ended December 31, 2025 was estimated without the benefit of NOLs, as the Section 382 study had not been completed at the time we filed our financial statements for that period. Following completion of the study, our tax provision for the three months ended March 31, 2026 was estimated with the benefit of those NOLs that could be utilized under the annual Section 382 limitation and the 80% taxable income limitation and included a cumulative adjustment to reflect the NOLs benefit that was not recognized in the first quarter. Our tax provision for the three months ended June 30, 2026 was likewise estimated with the benefit of those NOLs, subject to the annual Section 382 limitation and the 80% taxable income limitation.

Our income tax (benefit)/provision for the three and nine months ended June 30, 2026 was primarily attributable to taxable income for which NOLs were not available to fully offset due to the Section 382 and 80% taxable income limitations described above, as well as changes to our forecasted full year taxable income each quarter. For the three and nine months ended June 30, 2025, we reported no income tax provision or benefit due to the existence of significant net operating loss carryforwards. Our effective tax rate was 2.5% and 0.0% for the three months ended June 30, 2026 and 2025, respectively. Our effective tax rate was -0.01% and 0.0% for the nine months ended June 30, 2026 and 2025, respectively.

Fair Value Measurements

ASC 820, “Fair Value Measurements,” establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An asset’s or liability’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 establishes three levels of inputs that may be used to measure fair value:

The Company applies ASC 820 in the valuation of SOL held by the Company and digital assets pledged as collateral for financial statement purposes. The fair value of SOL uses Level 1 inputs to reflect the price that would be received for SOL in a current sale, which assumes an orderly transaction between market participants on the measurement date in SOL’s “principal market,” or in the absence of a principal market, the most advantageous market. Market participants are defined as buyers and sellers in the principal or most advantageous market that are independent, knowledgeable, and willing and able to transact. The Company determines its principal market (or in the absence of a principal market, the most advantageous market) on a periodic basis to determine which market is its principal market for the purpose of calculating fair value for the creation of quarterly and annual financial statements. Issuer-specific events, market trends, bid/ask quotes of brokers and information providers and other data may be reviewed in the course of making a good faith determination of the digital asset’s fair value. The fair value of digital assets pledged as collateral uses Level 2 inputs as they are based on observable inputs other than quoted prices for identical assets in active markets.

For purposes of impairment testing, digital assets outside the scope of ASC 350-60 – wrapped tokens such as fwdSOL, which provide the holder an enforceable right to redeem the underlying digital assets, and ONyc, which provides the holder rights to economic returns on On Re’s reinsurance program with a value of $62,133,000 and $17,426,000, respectively at June 30, 2026, are not measured at fair value, but rather, tested for impairment each reporting period. The value of these digital assets is estimated using inputs that are classified within Level 2 of the fair value hierarchy, as they are based on observable inputs other than quoted prices for identical assets in active markets. During the three and nine months ended June 30, 2026, the Company evaluated its fwdSOL digital assets for impairment and determined that the lowest observable fair value during each of the respective holding periods was approximately $60.35 per token, resulting in impairment charges of $14,600,000 and $132,737,000 for the three and nine months ended June 30, 2026, respectively. During the three and nine months ended June 30, 2026, the Company evaluated its ONyc digital assets for impairment and determined that the lowest observable fair value during each of the respective holding periods was approximately $1.06 per token, resulting in an impairment charge of $622,000 for the three and nine months ended June 30, 2026.

The Company applies ASC 820 in the valuation of its SOL option contracts. The fair value of these derivative instruments reflects the amount that a market participant would require to assume the Company’s obligation as the writer of the option or the amount they would pay to acquire the Company’s rights as the seller of options in an orderly transaction on the measurement date. As the options are European-style and reference the price of SOL, the Company measures fair value using a market-participant option-pricing model that incorporates assumptions consistent with those used in the principal market for SOL-based derivatives.

The valuation incorporates inputs such as the current spot price of SOL, the contractual strike price, the remaining term of the option, risk-free interest rates, and implied volatility. While certain inputs are derived from active markets, the Company’s implied volatility assumptions require the use of market-participant estimates due to limited depth and liquidity in the SOL options market. As a result, the fair value measurement includes significant unobservable inputs and is classified within Level 3 of the fair value hierarchy.

During the three and nine months ended June 30, 2026, the Company entered into option contracts referencing the price of SOL. Implied volatility for these contracts was derived primarily from observable market data for actively traded SOL options and supplemented with market-participant assumptions when quoted maturities or strikes did not align with the Company’s contracts. The Company also evaluated the effect of nonperformance risk, including the impact of collateral pledged, and concluded that nonperformance risk, including the Company’s own credit risk with respect to written options and counterparty credit risk with respect to purchased options, did not materially affect the fair value of its derivative instruments. See Note 12 for more information on derivative contracts.

The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis and the Company’s estimated level within the fair value hierarchy for each of those assets and liabilities:

There were no transfers between Level 1, Level 2, or Level 3 during the period.

The following tables summarize changes in assets and liabilities measured and reported at fair value for which Level 3 inputs have been used to determine fair value for the three months ended June 30, 2026:

The following table presents additional information about valuation methodologies and significant unobservable inputs used for assets and liabilities that are measured and reported at fair value and categorized within Level 3 as of June 30, 2026:

Share-Based Compensation Expense

The Company estimates the fair value of employee and non-employee director share-based compensation on the date of grant using the Black-Scholes option pricing model, which includes variables such as the expected volatility of the Company’s share price, the exercise behavior of its grantees, interest rates, and dividend yields. These variables are projected based on the Company’s historical data, experience, and other factors. The fair value of employee and non-employee director share-based compensation is recognized in the condensed consolidated statements of operations over the related service or vesting period of each grant. If awards contain performance conditions, compensation expense is recognized over the estimated service period if it is determined that achievement of the performance condition is probable. In the case of awards with multiple vesting periods, the Company has elected to use the graded vesting attribution method, which recognizes compensation cost on a straight-line basis over each separately vesting portion of the award as if the award was, in substance, multiple awards.

Leases

Lease assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term, using the Company’s incremental borrowing rate commensurate with the lease term, since the Company’s lessors do not provide an implicit rate, nor is one readily available. The Company has certain leases that may include an option to renew and when it is reasonably probable that the Company will exercise such option, the Company will include the renewal option terms in determining the lease asset and lease liability. Lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Operating lease assets are shown as right-of-use assets on the condensed consolidated balance sheets. The current and long-term portions of operating lease liabilities are shown separately as such on the condensed consolidated balance sheets.

Recent Accounting Pronouncements

In November 2024, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses” and in January 2025, the FASB issued ASU No. 2025-01, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date”, which clarified the effective date of ASU 2024-03 for non-calendar year-end companies. ASU 2024-03 will require the Company to disclose the amounts of purchases of inventory, employee compensation, depreciation and intangible asset amortization, as applicable, included in certain expense captions in the condensed consolidated statements of operations, as well as qualitatively describe remaining amounts included in those captions. ASU 2024-03 will also require the Company to disclose both the amount and the Company’s definition of selling expenses. This ASU is effective for fiscal years beginning after December 15, 2026 and interim periods within fiscal years beginning after December 31, 2027. The Company is currently evaluating the effects of the pronouncement on its condensed consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes - Improvements to Income Tax Disclosures”, requiring enhancements and further transparency to certain income tax disclosures, most notably the tax rate reconciliation and income taxes paid. This ASU is effective for fiscal years beginning after December 15, 2024 on a prospective basis and retrospective application is permitted. The Company adopted this pronouncement in the first quarter of Fiscal 2026 with no material impact on its condensed consolidated financial statements.