0001003297-11-000174.txt : 20110511 0001003297-11-000174.hdr.sgml : 20110511 20110511170918 ACCESSION NUMBER: 0001003297-11-000174 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20110331 FILED AS OF DATE: 20110511 DATE AS OF CHANGE: 20110511 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FORWARD INDUSTRIES INC CENTRAL INDEX KEY: 0000038264 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 131950672 STATE OF INCORPORATION: NY FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-34780 FILM NUMBER: 11832734 BUSINESS ADDRESS: STREET 1: 1801 GREEN ROAD STREET 2: SUITE E CITY: POMPANO BEACH STATE: FL ZIP: 33064 BUSINESS PHONE: 9544199544 MAIL ADDRESS: STREET 1: 1801 GREEN RD STREET 2: SUITE E CITY: POMPANO BEACH STATE: FL ZIP: 33064 FORMER COMPANY: FORMER CONFORMED NAME: PROGRESS HEAT SEALING CO INC DATE OF NAME CHANGE: 19721111 10-Q 1 esforwrdmay10q.htm Forward Industries Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________

FORM 10-Q

________________

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011.

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____.

Commission File Number: 0-6669

________________

FORWARD INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

________________

New York	13-1950672
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)

3110 Main St., Suite 400, Santa Monica, CA 90405

(Address of principal executive offices, including zip code)

(310) 526-3005

(Registrant’s telephone number, including area code)

________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [ X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

[ ] Large accelerated filer
[ ] Non-accelerated filer (Do not check if a smaller reporting company)

[ ] Accelerated filer
[X] Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No

The number of shares outstanding of the registrant’s common stock, par value $0.01 per share, at the latest practical date May 6, 2011, was 8,085,886 shares.

Forward Industries, Inc.

INDEX

PART I.		FINANCIAL INFORMATION	Page No.

	Item 1.	Financial Statements
		- Consolidated Balance Sheets as of March 31, 2011 (unaudited)
		and September 30, 2010............................................................................................................	4

		- Consolidated Statements of Operations (unaudited) for the Three and Six Months
		Ended March 31, 2011 and 2010.............................................................................................	5

		- Consolidated Statements of Cash Flows (unaudited) for the Six Months
		Ended March 31, 2011 and 2010.............................................................................................	6

		- Notes to Consolidated Financial Statements (unaudited)...............................................	7

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.....................................................................................................................................	19

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk...........................................	29

	Item 4.	Controls and Procedures............................................................................................................	29

PART II.		OTHER INFORMATION

	Item 1.	Legal Proceedings.......................................................................................................................	29

	Item 1A.	Risk Factors.................................................................................................................................	29

	Item 2	Unregistered Sales of Equity Securities and Use of Proceeds............................................	31

	Item 3	Defaults Upon Senior Securities..............................................................................................	31

	Item 4.	Removed and Reserved................................................................................................................	31

	Item 5.	Other Information........................................................................................................................	31

	Item 6.	Exhibits..........................................................................................................................................	31

		Signatures.....................................................................................................................................	32

		Certifications................................................................................................................................

Note Regarding Use of Certain Terms

In this Quarterly Report on Form 10-Q, unless the context otherwise requires, the following terms have the meanings assigned to them as set forth below:

"we", "our", and the "Company" refer to Forward Industries, Inc., a New York corporation, together with its consolidated subsidiaries;
“Forward” or “Forward Industries” refers to Forward Industries, Inc.;
“common stock” refers to the common stock, $.01 par value per share, of Forward Industries, Inc.;
"Koszegi" refers to Forward Industries’ wholly owned subsidiary Koszegi Industries, Inc., an Indiana corporation;
“Forward HK” refers to Forward Industries’ wholly owned subsidiary Forward Industries HK, Ltd., a Hong Kong corporation (formerly Koszegi Asia Ltd.);
“Forward Switzerland” refers to Forward Industries’ wholly owned subsidiary Forward Industries (Switzerland) GmbH (formerly Forward Innovations GmbH), a Swiss corporation;

“Forward APAC” refers to Forward Industries’ wholly owned subsidiary Forward Asia Pacific Limited, a Hong Kong corporation; “GAAP” refers to accounting principles generally accepted in the United States;
“Commission” refers to the United States Securities and Exchange Commission;
“Exchange Act” refers to the United States Securities Exchange Act of 1934, as amended;

“2011 Quarter” refers to the three months ended March 31, 2011;

“2010 Quarter” refers to the three months ended March 31, 2010;

“2011 Period” refers to the six months ended March 31, 2011;

“2010 Period” refers to the six months ended March 31, 2010;

“Fiscal 2011” refers to our fiscal year ending September 30, 2011;

“Fiscal 2010” refers to our fiscal year ended September 30, 2010;
“Europe” refers to the countries included in the European Union;
“APAC Region” refers to the Asia Pacific Region, consisting of Australia, New Zealand, Hong Kong, Taiwan, China, South Korea, Japan, Singapore, Malaysia, Thailand, Indonesia, India, the Philippines and Vietnam;

“Americas” refers to the geographic area encompassing North, Central, and South America;

“OEM” refers to Original Equipment Manufacturer of certain consumer electronic products.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Forward Industries, Inc.

CONSOLIDATED BALANCE SHEETS



	March 31,	September 30,
	2011	2010
Assets	(Unaudited)	(Note 1)
Current assets:
Cash and cash equivalents...........................................................................................	$16,292,122	$18,471,520
Accounts receivable, net ..............................................................................................	4,240,424	4,621,181
Inventories, net...............................................................................................................	1,167,066	1,036,386
Note receivable...............................................................................................................	1,024,260	--
Prepaid expenses and other current assets................................................................	307,620	240,651
Total current assets..........................................................................................	23,031,492	24,369,738

Property and equipment, net.........................................................................................	161,748	115,205
Other assets.....................................................................................................................	52,276	46,032
Total Assets........................................................................................................................	$23,245,516	$24,530,975

Liabilities and shareholders’ equity
Current liabilities:
Accounts payable...........................................................................................................	$1,827,080	$2,439,273
Accrued expenses and other current liabilities...........................................................	601,187	885,332
Total liabilities...................................................................................................	2,428,267	3,324,605

Commitments and contingencies....................................................................................

Shareholders’ equity:
Preferred stock, par value $0.01 per share; 4,000,000 shares authorized; no shares issued and outstanding.......................................................................	--	--
Common stock, par value $0.01 per share; 40,000,000 shares authorized, 8,792,296 and 8,761,629 shares issued; and 8,085,886 and 8,055,219 shares outstanding, respectively........................	87,923	87,616
Capital in excess of par value........................................................................................	16,617,027	16,469,142
Retained earnings............................................................................................................	5,372,356	5,909,669
Treasury stock, 706,410 shares at cost........................................................................	(1,260,057)	(1,260,057)
Total shareholders’ equity..............................................................................................	20,817,249	21,206,370
Total liabilities and shareholders’ equity....................................................................	$23,245,516	$24,530,975

The accompanying notes are an integral part of the consolidated financial statements.

Forward Industries, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	Three Months Ended March 31,		Six Months Ended March 31,
	2011	2010	2011	2010
Net sales.........................................................	$4,996,267	$4,419,681	$10,964,474	$8,546,453
Cost of goods sold..............................................................	3,841,999	3,425,938	8,433,676	6,628,515
Gross profit........................................................................	1,154,268	993,743	2,530,798	1,917,938

Operating expenses:
Selling...........................................................................	662,447	533,286	1,103,437	991,558
General and administrative........................................	1,099,591	551,414	2,011,911	1,211,535
Total operating expenses..................................	1,762,038	1,084,700	3,115,348	2,203,093

Loss from operations........................................................	(607,770)	(90,957)	(584,550)	(285,155)

Other income (expense):
Interest income...........................................................	29,748	8,700	35,403	29,032
Other income (expense), net.....................................	23,234	(29,937)	11,834	(43,057)
Total other income (expense)..........................	52,982	(21,237)	47,237	(14,025)

Net loss ..............................................................................	$(554,788)	$(112,194)	$(537,313)	$(299,180)

Net loss per common and common equivalent share
Basic and diluted........................................................	$(0.07)	$(0.01)	$(0.07)	$(0.04)

Weighted average number of common and common equivalent shares outstanding
Basic and diluted........................................................	8,085,875	7,964,938	8,125,304	7,952,462

The accompanying notes are an integral part of the consolidated financial statements.

Forward Industries, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Six Months Ended March 31,
	2011	2010
Operating activities:
Net loss.................................................................................................	$(537,313)	$(299,180)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation...........................................................	148,192	108,232
Depreciation and amortization......................................................	28,280	28,458
Provision for obsolete inventory.................................................	19,124	6,883
Provision for bad debts.................................................................	(4,120)	8,875
Changes in operating assets and liabilities:
Accounts receivable......................................................................	384,877	(380,150)
Inventories.......................................................................................	(149,804)	(161,930)
Prepaid expenses and other current assets.................................	(91,229)	(11,167)
Other assets....................................................................................	(6,244)	13,500
Accounts payable..........................................................................	(612,193)	178,399
Accrued expenses and other current liabilities.........................	(284,145)	77,901
Net cash used in operating activities	(1,104,575)	(430,179)

Investing activities:
Issuance of note receivable..............................................................	(1,000,000)	--
Purchases of property and equipment............................................	(74,823)	--
Net cash used in investing activities	(1,074,823)	--

Net decrease in cash and cash equivalents...................................	(2,179,398)	(430,179)

Cash and cash equivalents at beginning of period.......................	18,471,520	20,103,502

Cash and cash equivalents at end of period...................................	$16,292,122	$19,673,323

Supplemental Disclosures of Cash Flow Information:
Cash paid for:
Income Taxes.............................................................................	$84,757	$--

The accompanying notes are an integral part of the consolidated financial statements.

Forward Industries, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 OVERVIEW

Forward Industries, Inc. was incorporated under the laws of the State of New York and began operations in 1961 as a manufacturer of specialty promotional items. The Company designs, markets, and distributes carry and protective solutions primarily for hand held electronic devices, including soft-sided carrying cases, bags, clips, hand straps, protective plates and skins, and other accessories for medical monitoring and diagnostic kits, bar code scanners, GPS and location devices, and cellular telephones. It also designs, markets, and distributes carry and protective solutions for other consumer products such as laptop computers, MP3 players, firearms, sporting, recreational, and aeronautical products. The Company’s principal customer market is original equipment manufacturers, or “OEMs” (or the contract manufacturing firms of these OEM customers), of these products that either package our products as accessories “in box” together with their product offerings or sell them through their retail distribution channels. OEM customers are located in Europe, the APAC Region, and the Americas.

In the opinion of management, the accompanying 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 period presented herein, but are not necessarily indicative of the results of operations for the fiscal year ending September 30, 2011. These 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, 2010, and with the disclosures and risk factors presented herein and therein, respectively. The September 30, 2010 balance sheet has been derived from the audited consolidated financial statements.

NOTE 2 ACCOUNTING POLICIES

Accounting Estimates

The preparation of the Company's consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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.

Basis of Presentation

The accompanying consolidated financial statements include the accounts of Forward Industries, Inc. ("Forward") and its wholly owned subsidiaries (together with Forward, the "Company"). All significant intercompany transactions and balances have been eliminated in consolidation.

Cash and Cash Equivalents

Cash and cash equivalents consist primarily of cash on deposit and highly liquid money market accounts. The Company minimizes its credit risk associated with cash and cash equivalents by investing in high quality instruments and by periodically evaluating the credit quality of the primary financial institution issuers of such instruments. The Company holds cash and cash equivalents at major financial institutions in the United States, the amounts of which may significantly exceed FDIC insured limits, and in Europe. At March 31, 2011, this amount was approximately $16.0 million. Historically, the Company has not experienced any losses due to such cash concentrations.

Forward Industries, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 ACCOUNTING POLICIES (CONTINUED)

Accounts Receivable

Accounts receivable consist of unsecured trade accounts with customers or their contract manufacturers. The Company performs periodic credit evaluations of its customers including an evaluation of days outstanding, payment history, recent payment trends, and perceived credit worthiness; and believes that adequate allowances for any uncollectible receivables are maintained. Credit terms to the majority of customers are generally net thirty (30) days to net sixty (60) days; however, the Company typically extends to its largest customers payment terms up to 90 days. The Company has not historically experienced significant credit or collection problems with its OEM customers or their contract manufacturers. None of these customers or their contract manufacturers is or has been in default to the Company, and payments are generally received from them on a timely basis. Two customers, including their affiliates and contract manufacturers, accounted for approximately 72% and 75% of the Company’s accounts receivable at March 31, 2011, and September 30, 2010, respectively. At March 31, 2011 and September 30, 2010, the allowance for doubtful accounts was approximately $15,000 and $19,000, respectively.

Inventories

Inventories consist primarily of finished goods and are stated at the lower of cost (determined by the first-in, first-out method) or market. Based on management’s estimates, an allowance is made to reduce excess, obsolete, or otherwise un-saleable inventories to net realizable value. The allowance is established through charges to cost of goods sold on the Company’s consolidated statements of operations. As reserved inventory is disposed of, the Company charges off the associated allowance. In determining the adequacy of the allowance, management’s estimates are based upon several factors, including analyses of inventory levels, historical loss trends, sales history, and projections of future sales demand. The Company’s estimates of the allowance may change from time to time based on management’s assessments, and such changes could be material. At March 31, 2011, and September 30, 2010, the allowances for obsolete inventory were approximately $47,000 and $28,000, respectively.

Property and Equipment

Property and equipment consist of furniture, fixtures, and equipment and leasehold improvements and are recorded at cost. Expenditures for major additions and improvements are capitalized, and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. The estimated useful life for furniture, fixtures and equipment ranges from three to ten years. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the remaining lease term or the estimated useful lives of the improvements. For the three-month periods ended March 31, 2011 and 2010, the Company recorded approximately $15,000 and $14,000 of depreciation and amortization expense, respectively. For each of the six-month periods ended March 31, 2011 and 2010, the Company recorded approximately $28,000 of depreciation and amortization expense. Depreciation and amortization for production related property and equipment is included as a component of costs of goods sold in the accompanying consolidated statements of operations. Depreciation and amortization for selling and general and administrative related property and equipment, is included as a component of operating expenses in the accompanying consolidated statements of operations.

Forward Industries, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 ACCOUNTING POLICIES (CONTINUED)

Income Taxes

The Company accounts for its income taxes in accordance with accounting principles generally accepted in the United States of America, which requires, among other things, recognition of future tax benefits and liabilities measured at enacted rates attributable to temporary differences between financial statement and income tax bases of assets and liabilities and to tax net operating loss carryforwards to the extent that realization of these benefits is more likely than not. The Company periodically evaluates the realizability of its net deferred tax assets. See Note 6 to these Notes to Consolidated Financial Statements. The Company’s policy is to account for interest and penalties relating to income taxes, if any, in “income tax expense” in its consolidated statement of operations. For the three and six-month and periods ended March 31, 2011 and 2010 presented in the accompanying consolidated statements of operations no income tax related interest or penalties were assessed or recorded.

Revenue Recognition

We generally recognize revenue from product sales to customers when: (1) title and risk of loss are transferred (in general, these conditions occur at either point of shipment or point of destination, depending on the terms of sale); (2) persuasive evidence of an arrangement exists; (3) we have no continuing obligations to the customer; and (4) the collection of related accounts receivable is reasonably assured.

Shipping and Handling Costs

The Company expenses shipping and handling costs (including inbound freight charges, purchasing and receiving costs, inspection costs, warehousing costs, internal transfer costs, and other costs associated with the Company’s Hong Kong distribution facility and network) as a component of cost of goods sold in the accompanying consolidated statements of operations.

Advertising Expenses

Advertising costs, consisting primarily of samples and product brochures, are expensed as incurred. Advertising costs are included in selling expenses in the accompanying consolidated statements of operations and amounted to approximately $53,000 and $24,000 for the three-month periods ended March 31, 2011 and 2010, respectively, and $74,000 and $49,000 for the six-month periods ended March 31, 2011 and 2010, respectively.

Foreign Currency Transactions

The functional currency of the Company and each of its wholly owned foreign subsidiaries is the U.S. dollar. Foreign currency transactions may generate receivables or payables that are fixed in terms of the amount of foreign currency that will be received or paid. Fluctuations in exchange rates between such foreign currency and the functional currency increase or decrease the expected amount of functional currency cash flows upon settlement of the transaction. These increases or decreases in expected functional currency cash flows are foreign currency transaction gains or losses that are included in “other income (expense), net” in the accompanying consolidated statements of operations. Foreign currency transaction results were approximately $23,000 in gains and $30,000 in losses for the three-month periods ended March 31, 2011 and 2010, respectively, and approximately $12,000 in gains and $43,000 in losses for the six-month periods ended March 31, 2011 and 2010, respectively.

Comprehensive Loss

For the three and six-month periods ended March 31, 2011 and 2010, the Company did not have any material components of comprehensive loss other than net loss.

Forward Industries, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 ACCOUNTING POLICIES (CONTINUED)

Fair value of financial instruments

For certain of the Company’s financial instruments, including cash and cash equivalents, receivables, accounts payable, and other accrued liabilities, the carrying amount approximates fair value due to the short-term maturities of these instruments.

Share-Based Payment Expense

The Company recognizes share-based equity compensation in its consolidated statements of operations at the grant-date fair value of our stock options and other equity-based compensation. The determination of grant-date fair value is estimated using an 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. Changes in any of these variables could result in material increases to the valuation of options granted in future periods and increases in the expense recognized for share-based payments. 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. Refer to Note 5 Share-Based Compensation.

Recent accounting pronouncements

In February 2010, the FASB issued ASU No. 2010-09 “Subsequent Events (ASC Topic 855) “Amendments to Certain Recognition and Disclosure Requirements” (“ASU No. 2010-09”). ASU No. 2010-09 requires an entity that is an SEC filer to evaluate subsequent events through the date that the financial statements are issued and removes the requirement for an SEC filer to disclose a date, in both issued and revised financial statements, through which the filer had evaluated subsequent events. The adoption did not have an impact on the Company’s financial position and results of operations.

In January 2010, the FASB issued an amendment to ASC 820, Fair Value Measurements and Disclosure, to require reporting entities to separately disclose the amounts and business rationale for significant transfers in and out of Level 1 and Level 2 fair value measurements and separately present information regarding purchase, sale, issuance, and settlement of Level 3 fair value measures on a gross basis. This standard, is effective for interim and annual reporting periods beginning after December 15, 2009 with the exception of disclosures regarding the purchase, sale, issuance, and settlement of Level 3 fair value measures which are effective for fiscal years beginning after December 15, 2010. The adoption did not have an impact on the Company’s financial position and results of operations.

In October 2009, FASB issued an amendment to the accounting standards related to the accounting for revenue in arrangements with multiple deliverables including how the arrangement consideration is allocated among delivered and undelivered items of the arrangement. Among the amendments, this standard eliminated the use of the residual method for allocating arrangement considerations and requires an entity to allocate the overall consideration to each deliverable based on an estimated selling price of each individual deliverable in the arrangement in the absence of having vendor-specific objective evidence or other third party evidence of fair value of the undelivered items. This standard also provides further guidance on how to determine a separate unit of accounting in a multiple-deliverable revenue arrangement and expands the disclosure requirements about the judgments made in applying the estimated selling price method and how those judgments affect the timing or amount of revenue recognition. This standard, which became effective on October 1, 2010 has not had a material impact on the Company’s financial position and results of operations.

Forward Industries, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 ACCOUNTING POLICIES (CONCLUDED)

Recent accounting pronouncements (Concluded)

In December 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2010-29, “Business Combinations (ASC Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations.” The amendments in this ASU affect any public entity as defined by ASC Topic 805 that enters into business combinations that are material on an individual or aggregate basis. The amendments in this ASU specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. This guidance will be effective for the Company in the first quarter of fiscal 2012. Accordingly, the effects of the Company’s adoption of this guidance will depend upon the extent and magnitude of business combinations the Company enters into after September 30, 2011.

NOTE 3 NOTE RECEIVABLE

Pursuant to the Company’s letter of intent to acquire Flash Ventures, Inc. (Flash), on January 5, 2011, the Company entered into a loan agreement with Flash Ventures to provide a credit facility of up to $1,000,000. Pursuant to the agreement Flash executed an unsecured, unsubordinated term note in favor of the Company, bearing interest at 11% per annum on any unpaid principal, payable quarterly commencing March 31, 2011. Principal of the note is payable upon maturity on December 1, 2011 (subject to acceleration in case of an event of default, as specified in the agreement), together with unpaid interest and any fees, expenses, and other amounts owing to the Company. On January 6, 2011 and January 19, 2011, Flash drew $600,000 and $400,000, respectively, in funds under the note, leaving no further funding available. Repayment of the amounts borrowed under the agreement and note are not contingent on reaching a definitive acquisition agreement pursuant to the letter of intent (which was terminated on April 14, 2011 - refer to Note 12 Subsequent Events).

NOTE 4 SHAREHOLDERS’ EQUITY

Anti-takeover Provisions

The Company is authorized to issue up to 4,000,000 shares of "blank check" preferred stock. The Board of Directors has the authority and discretion, without shareholder approval, to issue preferred stock in one or more series for any consideration it deems appropriate, and to fix the relative rights and preferences thereof including their redemption, dividend and conversion rights.

Stock Repurchase

In September 2002 and January 2004, the Company’s Board of Directors authorized the repurchase of up to an aggregate of 486,200 shares of outstanding common stock. Under those authorizations, as of March 31, 2011, the Company had repurchased an aggregate of 172,603 shares at a cost of approximately $403,000, but none during the three and six-month periods ended March 31, 2011 and 2010.

Forward Industries, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 4 SHAREHOLDERS’ EQUITY (CONCLUDED)

Changes in Shareholders’ Equity

Changes in shareholders’ equity for the six-month period ended March 31, 2011 is summarized below:

	Common Stock	Capital In Excess of Par Value	Retained Earnings	Treasury Stock
Balance at September 30, 2010	$87,616	$16,469,142	$5,909,669	($1,260,057)
Share based compensation.............	307	147,885	--	--
Net loss..............................................	--	--	(537,313)	--
Balance at March 31, 2011	$87,923	$16,617,027	$5,372,356	($1,260,057)

NOTE 5 SHARE BASED COMPENSATION

2011 Long Term Incentive Plan

In March 2011 shareholders of the Company approved the 2011 Long Term Incentive Plan (the “2011 Plan”), which authorized 850,000 shares of common stock for grants of various types of equity awards to officers, directors, and employees. In March 2011, the Compensation Committee of the Company’s Board of Directors approved awards of stock options to purchase an aggregate of 305,000 shares of common stock to the Company’s current non-employee directors, and to the Company’s current executive officers and certain employees. As of March 31, 2011, the total shares of common stock available for grants of equity awards under the 2011 Plan was 545,000. The prices at which equity awards may be granted and the exercise prices of stock options granted may not be less than the fair market value of the common stock as quoted at the close on the Nasdaq Stock Market on the grant date. The Compensation Committee of the Company’s Board of Directors administers the plan. Options generally expire ten years after the date of grant and vest one year from the date of grant for non-employee directors, and, in the case of initial grants to officers and employees, vest over five years with 50%, 25% and 25% vesting on the third, fourth, and fifth anniversary of the grant date, respectively.

2007 Equity Incentive Plan

The 2007 Equity Incentive Plan (the “2007 Plan”), which was approved by the shareholders in May 2007, and amended in February 2010, authorizes 800,000 shares of common stock for grants of restricted common stock and stock options to officers, employees, and non-employee directors of the Company. As of March 31, 2011, the total shares of common stock available for grants of equity awards under the 2007 Plan was 2,000. The prices at which restricted common stock may be granted and the exercise price of stock options granted may not be less than the fair market value of the common stock as quoted at the close on the Nasdaq Stock Market on the grant date. The Compensation Committee of the Company’s Board of Directors administers the 2007 Plan. Options generally expire ten years after the date of grant, and in the case of non-employee directors, vest on the first anniversary of the date of grant. In the case of officers and employees, options either vest in equal amounts over three to five years or vest over five years with 50%, 25% and 25% vesting on the third, fourth, and fifth anniversary of the grant date, respectively. Restricted stock grants generally vest in equal proportions over three years.

During the quarter ended March 31, 2011, the Company modified certain of its previously granted options to an executive by adjusting the vesting schedule to make these options consistent with those granted to other executives and employees of the Company. Options to purchase 200,000 shares, which previously contained a vesting provision of 20% per year, has been modified to 50% in year 3, 25% in year 4 and 25% in year 5. This modification has no impact on total compensation recorded on these grants.

Forward Industries, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 5 SHARE BASED COMPENSATION (CONTINUED)

1996 Stock Incentive Plan

The Company’s 1996 Stock Incentive Plan (the “1996 Plan”) expired in accordance with its terms in November 2006. The exercise price of incentive options granted under the 1996 Plan to officers, employees, and non-employee directors of the Company was required by 1996 Plan provisions to be equal at least to the fair market value of the common stock at the date of grant. Options expire ten years after the date of grant and generally vest in equal proportions over three years. Unexercised options granted pursuant to the 1996 Plan prior to expiration remain outstanding until the earlier of exercise or option expiration. Under the 1996 Plan 30,000 fully vested common stock options are the only awards that remain outstanding and unexercised, all at exercise prices higher than the fair market value of the common stock at March 31, 2011.

Stock Option Awards

Under the 2011 and 2007 Plans, the Compensation Committee of the Company’s Board of Directors has approved awards of stock options to purchase an aggregate of 957,500 shares of common stock to the Company’s current and certain former non-employee directors, and to current and certain former Company officers, of which awards covering 30,000 shares of common stock expired unexercised, with such shares reverting to the 2007 Plan and eligible for grant. Of these awards grants covering 685,000 shares were made during the six-month period ended March 31, 2011. The exercise prices of the awards granted was, in each case equal, to the closing market value of the Company’s common stock on the Nasdaq Stock Market on the various grant dates.

The Company recognized approximately $43,000 and $30,000 of compensation expense for stock option awards in its consolidated statements of operations for the three-month periods ended March 31, 2011 and 2010, respectively, and $135,000 and $49,000 for the six-month periods ended March 31, 2011 and 2010, respectively.

The following table summarizes stock option activity under the 2011 Plan, 2007 Plan, and the 1996 Plan from September 30, 2010 through March 31, 2011:

	Shares	Weighted Average Exercise Price	Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding at September 30, 2010	187,500	$3.66	8.3
Granted..............................................	685,000	3.67	9.8
Exercised............................................	--	--	--
Forfeited............................................	--	--	--
Expired...............................................	--	--	--
Outstanding at March 31, 2011	872,500	$3.67	9.4	$370,000

Options expected to vest.......................	872,500	$3.67	9.4	$370,000

Options vested and exercisable at March 31, 2011...............................	152,500	$3.69	7.5	$195,000

Forward Industries, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 5 SHARE BASED COMPENSATION (CONTINUED)

Stock Option Awards (Continued)

During the six-month periods ended March 31, 2011 and 2010, the Company granted 685,000 and 87,500 stock options at a weighted average grant date fair value of $2.09 and $2.35, respectively.

The fair value of each stock option on the date of grant was estimated using a Black-Scholes option-pricing formula applying the following assumptions for each respective period:

	For the Six-Month Periods Ended March 31,
	2011	2010
Expected term (in years)....................................................	5.0	5.0
Risk-free interest rate........................................................	0.3% to 2.2%	2.26% to 2.33%
Expected volatility.............................................................	66% to 69%	74% to 78%
Expected dividend yield....................................................	0%	0%

The expected term represents the period over which the stock option awards are expected to be outstanding. The Company based the risk-free interest rate used in its assumptions on the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equivalent to the award’s expected term. The volatility factor used in the Company’s assumptions is based on the historical price of its stock over the most recent period commensurate with the expected term of the award. The Company historically has not paid any dividends on its common stock and had no intention to do so on the date the share-based awards were granted. Accordingly, the Company used a dividend yield of zero in its assumptions. The Company estimates the expected term, volatility and forfeitures of share-based awards based upon historical data.

Restricted Stock Awards

Under the 2007 Plan as of March 31, 2011, the Compensation Committee of the Company’s Board of Directors has approved and granted awards of 183,500 shares of restricted stock, in the aggregate, to certain key employees. Of these awards, 133,335 have vested and 8,000 shares of restricted stock were forfeited and reverted to, and are eligible for re-grant under, the 2007 Plan. No awards of restricted stock were made during the six months ended March 31, 2011. Vesting of restricted stock awards is generally subject to a continued service condition with one-third of the awards vesting each year on the three successive anniversary dates the awards were granted typically commencing on the first such anniversary date. The fair value of the awards granted was equal to the closing market value of the Company’s common stock as quoted on the Nasdaq Stock Market on the grant date. During the three-month periods ended March 31, 2011 and 2010, the Company recognized approximately $3,000 and $29,000, respectively, of compensation cost in its consolidated statements of operations related to restricted stock awards. During the six-month periods ended March 31, 2011 and 2010, the Company recognized approximately $13,000 and $59,000, respectively, of compensation cost in its consolidated statements of operations related to restricted stock awards.

Forward Industries, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 5 SHARE BASED COMPENSATION (CONCLUDED)

Restricted Stock Awards (Concluded)

The following table summarizes restricted stock activity under the 2007 Plan from September 30, 2010, through March 31, 2011.

	Shares	Weighted Average Grant Date Fair Value
Non-vested balance at September 30, 2010........................................	79,332	$2.07
Changes during the period:
Shares granted................................................................................	--	--
Shares vested..................................................................................	(30,667)	$2.06
Shares forfeited...............................................................................	(6,500)	$2.22
Non-vested balance at March 31, 2011...............................................	42,165	$2.05

As of March 31, 2011, there was approximately $25,000 of total unrecognized compensation cost related to 42,165 shares of unvested restricted stock awards (reflected in the table above) granted under the 2007 Plan. That cost is expected to be recognized over the remainder of the requisite service (vesting) periods.

Warrants

As of March 31, 2011, warrants to purchase 75,000 shares of the Company’s common stock at an exercise price of $1.75 issued in fiscal 1999 were outstanding. By their terms these warrants expire 90 days after a registration statement registering common stock (other than pursuant to employee benefit plans) is declared effective by the Securities and Exchange Commission. As of March 31, 2011, no such registration statement has been filed with the Securities and Exchange Commission.

NOTE 6 INCOME TAXES

The Company’s provision (benefit) for income taxes consists of the following United States Federal and State, and foreign components:

	For the Three-Month Periods Ended March 31,		For the Six-Month Periods Ended March 31,
	2011	2010	2011	2010
U.S. Federal and State
Current...................................	$--	$--	$--	$--
Deferred.................................	(209,987)	(20,952)	(240,323)	(70,412)

Foreign:
Current...................................	--	--	--	--
Deferred.................................	9,953	(4,097)	19,971	(8,241)

Change in valuation allowance	200,034	25,049	220,352	78,653
Provision for income taxes	$--	$--	$--	$--

As of March 31, 2011, and September 30, 2010, the Company has no unrecognized tax benefits related to U.S. Federal and state income tax matters.

Forward Industries, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 6 INCOME TAXES (CONCLUDED)

At March 31, 2011, the Company had available net operating loss carryforwards for U.S. federal and state income tax purposes of approximately $979,000 and $1,306,000, respectively, expiring through 2030 and resulting in a deferred tax asset of approximately $425,000. In addition, at March 31, 2011, the Company had available net operating loss carryforwards for foreign income tax purposes of approximately $1,126,000 resulting in a deferred tax asset of approximately $99,000, expiring through 2017. Total deferred tax assets, before the valuation allowances, was $621,000 and $401,000 at March 31, 2011 and September 30, 2010, respectively. As of September 30, 2010, the undistributed earnings of the Company’s Swiss subsidiary of $856,000 are considered to be permanently invested; therefore, in accordance with generally accepted accounting principles in the U.S., no provision for U.S. Federal and state income taxes on those earnings has been provided.

As of March 31, 2011, as part of its periodic evaluation of the need to maintain a valuation allowance against its deferred tax assets, and after consideration of all factors, both positive and negative (including, among others, projections of future taxable income, current year net operating loss carryforward utilization and the extent of the Company’s cumulative losses in recent years), the Company determined that, on a more likely than not basis, it would not be able to use its remaining deferred tax assets (except in respect of United States income taxes in the event the Company elects to effect the repatriation of certain foreign source income of its Swiss subsidiary, which income is currently considered to be permanently invested and for which no United States tax liability has been accrued). Accordingly, the Company has determined to maintain a full valuation allowance against its deferred tax assets; accordingly, as of March 31, 2011 and September 30, 2010, the valuation allowances were approximately $621,000 and $401,000, respectively. If the Company determines in a future reporting period that it will be able to use some or all of its deferred tax assets, the adjustment to reduce or eliminate the valuation allowance would reduce its tax expense and increase after-tax income. Changes in deferred tax assets and valuation allowance are reflected in the “Provision (benefit) for Income Taxes” line item of the Company’s consolidated statements of operations.

As of March 31, 2011 and September 30, 2010, the Company has not accrued any interest and penalties related to uncertain tax positions. It is the Company’s policy to recognize interest and/or penalties, if any, related to income tax matters in income tax expense in the statement of operations. For the periods presented in the accompanying statements of operations no income tax related interest or penalties were assessed or recorded. All fiscal years prior to the fiscal year ended September 30, 2007 are closed to Federal and State examination, except with respect to net operating losses generated in prior fiscal years.

NOTE 7 EARNINGS PER SHARE

Basic per share data for each period presented is computed using the weighted-average number of shares of common stock outstanding during each such period. Diluted per share data is computed using the weighted-average number of common and dilutive common-equivalent shares outstanding during each period. Dilutive common-equivalent shares consist of shares that would be issued upon the exercise of stock options and warrants, computed using the treasury stock method. Loss per share data for the three and six-month periods ended March 31, 2011, excludes 32,599 and 39,429, respectively, of outstanding common equivalent shares as inclusion of such shares would be anti-dilutive. Loss per share data for the three and six-month periods ended March 31, 2010, excludes 11,573 and 10,264, respectively, of outstanding common equivalent shares as inclusion of such shares would be anti-dilutive.

Forward Industries, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 8 OPERATING SEGMENT INFORMATION

The Company operates in a single segment: the supply of carrying solutions for portable electronic devices and other consumer products. This carrying-solution segment includes the design, marketing, and distribution of products to its customers that include manufacturers of consumer hand held medical monitoring and diagnostic kits, bar code scanners, GPS and location devices, and cellular telephones as well as laptop computers, MP3 players, firearms, sporting, recreational, and aeronautical products. The Company’s carrying solution segment operates in geographic regions that include primarily APAC, the Americas, and Europe. Geographic regions are defined by reference primarily to the location of the customer or its contract manufacturer. The following table presents net sales related to these geographic segments:

			(all amounts in thousands of dollars)
	Three Months Ended March 31,			Six Months Ended March 31,
	2011	2010		2011	2010
APAC.....................................................	$2,466	$2,081		$5,200	$3,951
Americas................................................	1,350	1,354		3,286	2,955
Europe ...................................................	1,180	985		2,478	1,640
Total net sales......................................	$4,996	$4,420		$10,964	$8,546

NOTE 9 COMMITMENTS AND CONTINGENCIES

Employment and Retention Agreements

Mr. Brett M. Johnson, the Company’s Chief Executive Officer, is receiving salary at the rate of $250,000 per annum and is currently serving in such capacity without a written employment agreement. Until such time as the Company and Mr. Johnson enter into a definitive written agreement, it is the parties’ understanding that the terms of Mr. Johnson’s compensation upon termination will be the equivalent of those of his predecessor, which provided for severance payment equal to one year’s salary in the event of termination without cause.

Pursuant to an Employment Agreement, dated as of August 10, 2010, between the Company and James O. McKenna, Mr. McKenna serves as the Company’s Chief Financial Officer and Treasurer.

Pursuant to a Retention Agreement, dated as of August 10, 2010, between the Company and Mr. McKenna, the Company paid $175,000 to Mr. McKenna on March 1, 2011 upon the satisfactory completion of the performance period. $125,000 of this amount is reflected in the “General and administrative expenses” in the statement of operations for the six month period ended March 31, 2011.

On March 7, 2011, the Compensation Committee of the Company’s Board of Directors approved changes in the terms of compensatory arrangements with Mr. McKenna under his employment agreement with the Company, subject to and effective upon his relocation to California in connection with moving the Company’s executive offices to Los Angeles, which condition was subsequently satisfied (refer to Part II, Item 5. Other Information of this Form 10-Q). The changes relate to salary, housing allowance/relocation, and termination, as described below, as well as an extension of the initial term of employment to December 31, 2012. Other terms of the executive’s employment agreement remain unchanged.

Salary: increase of base salary to $225,000 per annum from $175,000 per annum.

Housing Allowance/Relocation: (i) Payment of a housing allowance of $7,500 per month, or $90,000 per annum. The allowance will be phased out over time according to a schedule approved by the Compensation Committee. (ii) Reimbursement of the executive’s reasonable out-of-pocket costs incurred in the relocation, including current monthly expense in respect of his existing lease of his house in Florida until the earlier of lease termination or expiration in August 2011.

Forward Industries, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Termination of Employment. In case of termination for good reason or without cause, in either case within the first 36 months after relocation, reimbursement for out-of-pocket costs incurred in connection with a return to Florida, including reimbursement of rent paid on executive's California residence, not exceed 12 months of such expense.

The foregoing summary is qualified in its entirety by the terms of executive’s new employment agreement, which is attached as an exhibit to this Quarterly Report on Form 10-Q; see Part II, Item 5. Other Information.

Guarantee Obligation

In February 2010, Forward Switzerland, a wholly owned subsidiary, and its European logistics provider (freight forwarding and customs agent) entered into a Representation Agreement whereby, among other things, the European logistics provider agreed to act as such subsidiary's fiscal representative in The Netherlands for the purpose of providing services in connection with any value added tax matters. As part of this agreement, which succeeds a substantially similar agreement (except as to the amount and term of the undertaking) between the parties that expired on December 31, 2009, the subsidiary agreed to provide an undertaking in the form of a bank letter of guarantee to the logistics provider with respect to any value added tax liability arising in The Netherlands that the logistics provider is required to pay to Dutch tax authorities on the subsidiary's behalf. As of February 1, 2010, such subsidiary entered into a guarantee agreement with a Swiss bank relating to the repayment of any amount up to Û75,000 (equal to approximately $107,000 as of March 31, 2011) paid by such bank to the logistics provider in order to satisfy such undertaking pursuant to the bank letter of guarantee. The subsidiary would be required to perform under the guarantee agreement only in the event that: (i) a value added tax liability is imposed on the Company's sales in The Netherlands, (ii) the logistics provider asserts that it has been called upon in its capacity as surety by the Dutch Receiver of Taxes to pay such taxes, (iii) the subsidiary or the Company on its behalf fails or refuses to remit the amount of value added tax due to the logistics provider upon its demand, and (iv) the logistics provider makes a drawing under the bank letter of guarantee. Under the Representation Agreement the subsidiary agreed that the letter of guarantee would remain available for drawing for three years following the date that its relationship terminates with the logistics provider to satisfy any value added tax liability arising prior to expiration of the Representation Agreement but asserted by The Netherlands after expiration. The term of the bank letter of guarantee will be renewed automatically for one-year periods until February 28, 2014, unless the subsidiary provides the Swiss bank with written notice of termination at least 60 days prior to the renewal date. It is the intent of the subsidiary and the logistics provider that the bank letter of guarantee amount be adjusted annually. In consideration of the issuance of the letter of guarantee, the subsidiary has granted the Swiss bank a security interest on all of the subsidiary’s assets on deposit with, held by, or credited to the subsidiary’s accounts with, the Swiss bank (approximately $731,000 at March 31, 2011). As of March 31, 2011, the Company had not incurred a liability in connection with this guarantee.

NOTE 10 LEGAL PROCEEDINGS

From time to time, the Company may become a party to legal actions or proceedings in the ordinary course of its business. As of March 31, 2011, there were no such actions or proceedings, either individually or in the aggregate, that, if decided adversely to the Company’s interests, the Company believes would be material to its business.

NOTE 11 LETTER OF INTENT

On November 16, 2010 the Company entered into a Letter of Intent to acquire Flash Ventures, Inc. (“Flash”) a Delaware corporation and a distributor of consumer electronics peripherals and accessories (refer to Note 12 – Subsequent Events). Prior to entering into the letter of intent, in November 2010, the Company had recorded approximately $377,000 in sales to Flash under its customary terms of sale.

NOTE 12 SUBSEQUENT EVENTS

On April 14, 2011, the Company terminated its Letter of Intent to acquire Flash.

In April 2011, the Company relocated its executive offices from Pompano Beach, Florida to offices in Santa Monica, California, which consists of approximately 3,400 square feet for which the Company rents at $13,500 per month under lease agreements, which expire in October 2016.

On May 10, 2011, the Company has been granted a license to establish a branch office in the Jebel Ali Free Zone of the United Arab Emirates to facilitate product sales in the EMEA Region. Under the license, the Company rents approximately 638 square feet of office space at annual rate of AED118,580 (approximately $32,000 at March 31, 2011) through May 2012.

Forward Industries, Inc.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our unaudited 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, 2010. The following discussion and analysis compares our consolidated results of operations for the three months ended March 31, 2011 (the “2011 Quarter”), with those for the three months ended March 31, 2010 (the “2010 Quarter”) and our consolidated results of operations for the six months ended March 31, 2011 (the “2011 Period”) with those for the six months ended March 31, 2010 (the “(2010 Period”). All figures in the following discussion are presented on a consolidated basis. All dollar amounts and percentages presented herein have been rounded to approximate values.

CAUTIONARY STATEMENT FOR PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

The following management’s discussion and analysis includes “forward-looking statements” (as such term is used within the meaning of the Private Securities Litigation Reform Act of 1995). These “forward-looking statements” are not based on historical fact and involve assessments of certain risks, developments, and uncertainties in our business looking to the future. Such forward looking statements can be identified by the use of forward-looking terminology such as “may”, “will”, “should”, “expect”, “anticipate”, estimate”, “intend”, “continue”, or “believe”, or the negatives or other variations of these terms or comparable terminology. Forward-looking statements may include projections, forecasts, or estimates of future performance and developments. Forward-looking statements contained in this Quarterly Report are based upon assumptions and assessments that we believe to be reasonable as of the date of this Quarterly Report. Whether those assumptions and assessments will be realized will be determined by future factors, developments, and events, which are difficult to predict and may be beyond our control. Actual results, factors, developments, and events may differ materially from those we assumed and assessed. Such risk factors, uncertainties, contingencies, and developments, including those discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Quarterly Report on Form 10-Q and those identified in “Risk Factors” in Item 1A of Forward’s Annual Report on Form 10-K for the fiscal year ended September 30, 2010, could cause our future operating results to differ materially from those set forth in any forward looking statement. Such factors include, among others, the following: our ability to maintain constructive commercial relationships with our key customers, including during periods of economic downturns generally or downturns/volatility in their specific businesses; the impacts on our financial condition, results of operations, and business prospects arising from making an acquisition or failing to make an acquisition; management’s ability to successfully execute its business plan and strategy and whether gains in net sales arising from this strategy, if any, will be adequate to offset increased operating expense incurred in executing the strategy; our success in winning new business from our customers and against competing vendors; whether replacement programs that we win will be more or less successful or profitable than those that are replaced; levels of demand and pricing generally for blood glucose monitoring devices sold by our customers for which we supply carry solutions; variability in order flow from our OEM customers; OEM customers’ decisions to reduce or eliminate their practice of including our carry case accessories in-box; the loss of key sales employees upon whom relationships with key OEM customers depend; general economic and business conditions, nationally and internationally in the countries in which we do business; the continuation or resumption of global economic recession; the failure of one or more of our suppliers; failures in our ability to maintain adequate quality control in our products; demographic changes; changes in technology, including developments in the treatment or control of diabetes that adversely affect the incidence of use and replacement rates of handheld blood glucose monitors by diabetics; increased competition in the business of distribution of carry solutions for handheld electronic devices generally or increased competition to include carry solutions with products manufactured by our OEM customers in particular; the failure of borrower Flash Ventures to repay amounts borrowed under the note receivable owed us as and when due; changes affecting the business or business prospects of one or more of our principal OEM customers; governmental regulations and changes in, or the failure to comply with, governmental regulations; and other factors included elsewhere in this Annual Report and our other reports filed with the Commission. Accordingly, there can be no assurance that any such forward looking statement, projection, forecast or estimate contained herein or in our Annual Report on Form 10-K for the fiscal year ended September 30, 2010, can be realized or that actual returns, results, or business prospects will not differ materially from those set forth in any forward looking statement.

Forward Industries, Inc.

Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. The Company disclaims any obligation to update any such factors or to publicly announce the results of any revisions to any of the forward-looking statements contained herein to reflect future results, events or developments.

BUSINESS OVERVIEW

We design, market, and distribute carry and protective solutions primarily for hand held electronic devices, including medical monitoring and diagnostic kits, bar code scanners, GPS and location devices, cellular telephones, laptop computers, and MP3 players. Our technology solutions include soft-sided carrying cases, bags, clips, hand straps, protective plates and skins, and other accessories. We also design, market and distribute carry and protective solutions for other consumer products such as firearms, sporting and recreational products, and aeronautical products. Our customers are original equipment manufacturers, or “OEMs”, of these electronic and other consumer products (or the contract manufacturing firms of these OEM customers) that either package our carry solution products as accessories “in box” together with their product offerings, or to a much lesser extent, sell them through their retail distribution channels. We do not manufacture any of the products that we design, market, and distribute. We source substantially all products we market and distribute from independent suppliers in China. Our suppliers custom manufacture our carrying solutions and related products to our order, based on our designs and know-how, and to our customers’ specifications.

In August 2010, we appointed a new chairman of the board and a new chief executive officer who, respectively, succeeded the outgoing acting chairman of the board and chief executive officer under the terms of a Settlement Agreement, as more fully described in our most recent proxy statement under the caption “Security Ownership of Certain Beneficial Owners and Management and Related Shareholder MattersÑSettlement Agreement” and in our Current Report on Form 8-K filed with the Commission on August 16, 2010.

Trends and Economic Environment

Our new management team has made a commitment to (i) growing our OEM business and (ii) pursuing a marketing- and product development-driven business model. The second part of this strategy involves initiatives to expand our product offerings and to develop a retail distribution channel, in addition to our OEM channel. In executing the second part of this strategy, we have begun to incur, and we are likely to continue to incur, significantly increased selling, general, and administrative expenses as we devote resources to recruit and compensate experienced sales and operations professionals and to develop and/or acquire new product offerings and a retail sales capability. We believe that the realization of the benefits of these initiatives will depend on our ability to execute our strategy, succeed in product development, and develop retail distribution. We anticipate that a successful impact on our results of operations will be determined by the speed in which we can bring new products to market and by the success and acceptance of these products in the marketplace. Insofar as most of our new sales and marketing professionals were not hired until well into the 2011 Quarter, succeeding reporting periods will begin to reflect more fully the expense side of investments in our strategy, while the anticipated benefits of increased sales from those hires will take longer to be realized.

We believe that this may be particularly the case in view of our decision to terminate the letter of intent with respect to the acquisition of Flash Ventures, a distributor and developer of consumer electronics accessories, announced in December 2010. We had anticipated that such acquisition would provide us with a retail distribution channel and an initial product line to sell through that channel. The termination of the letter of intent has, in the near term, led our management to pursue such channel and product diversification goals by internal growth and development and selective technology joint ventures, while maintaining an openness to pursue an acquisition in the best interests of shareholders.

Forward Industries, Inc.

With regard to our OEM business, we believe that the recent level of net sales appears to be sustainable, subject always to material changes in order flow from our major OEM diabetic product customers, where our business remains highly concentrated. We continue to operate in a very challenging pricing and gross margin environment with these customers. We continue to make progress in building sales and diversifying our OEM customer base in our other products sales line. We believe that we can build on the 10% growth in revenue that was contributed by “other products” in Fiscal 2010.

Variability of Revenues and Results of Operations

Because a high percentage of our sales revenues is highly concentrated in a few large customers, and because the volumes of these customers’ order flows to us are highly variable, with short lead times, our quarterly revenues, and consequently our results of operations, are susceptible to significant variability over a relatively short period of time.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

This management’s discussion and analysis of financial condition and results of operations is based upon or derived from the unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of contingent liabilities. We base these judgments and estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances, and these judgments form the basis for our estimates concerning the carrying values of assets and liabilities that are not readily apparent from other sources. We periodically re-evaluate these estimates and judgments based on available information and experience. Actual results could differ from our estimates under different assumptions and conditions. If actual results significantly differ from our estimates, our financial condition and results of operations could be materially impacted.

We discuss the material accounting policies that are critical in making these estimates and judgments in our Annual Report on Form 10-K for the fiscal year ended September 30, 2010, under the caption “Management’s Discussion and AnalysisÑCritical Accounting Policies and Estimates”. There has been no material change in critical accounting policies or estimates since September 30, 2010, except those described below

The notes to our audited consolidated financial statements contained in our Annual Report on Form 10-K for the year ended September 30, 2010, and the notes to our unaudited consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q contain additional information related to our accounting policies and should be read in conjunction with the following discussion and analysis relating to our overall financial performance, operations and financial position.

Share-Based Payment Expense

We recognize share-based equity compensation in our consolidated statements of operations at the grant-date fair value of our stock options and other equity-based compensation. The determination of grant-date fair value is estimated using an option-pricing model, which includes variables such as the expected volatility of our share price, the exercise behavior of our employees, interest rates, and dividend yields. These variables are projected based on our historical data, experience, and other factors. Changes in any of these variables could result in material increases to the valuation of options granted in future periods and increases in the expense recognized for share-based payments. Refer to Note 4 Share-Based Compensation to our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Forward Industries, Inc.

RESULTS OF OPERATIONS FOR THE 2011 QUARTER COMPARED TO THE 2010 QUARTER

Net income

We recorded a net loss of $0.6 million in the 2011 Quarter, compared to a net loss of $0.1 million in the 2010 Quarter. The widening of net loss in the 2011 Quarter resulted from higher operating expenses, offset, in part, by higher gross profit on higher sales and higher other income, as shown in the table below:

Main Components of Net Loss For Three Months Ended March 31
	(thousands of dollars)
	2011 Quarter	2010 Quarter	Increase (Decrease)
Net Sales.....................................................................................................	$4,996	$4,420	$576

Gross Profit.................................................................................................	1,154	994	161
Selling Expenses........................................................................................	(662)	(533)	129
General and Administrative Expenses	(1,100)	(552)	548
Other Income (Expense)............................................................................	53	(21)	74
Provision (benefit) from Income Taxes...................................................	--	--	--
*Net Loss....................................................................................................**	($555)	($112)	$443

* Table may not total due to rounding.

Basic and diluted per share data was a loss of ($0.07) for the 2011 Quarter, compared to a loss of ($0.01) for the 2010 Quarter. The greater loss in the 2011 Quarter compared to the 2010 Quarter was due to the increase in net loss.

Net Sales

Net sales increased $0.6 million, or 13%, to $5.0 million in the 2011 Quarter from $4.4 million in the 2010 Quarter, due to higher sales of Diabetic Products and Other Products, which increased $0.4 million and $0.2 million, respectively, in the 2011 Quarter. The tables below set forth sales by product line and geographic location of our customers for the periods indicated.

Forward Industries, Inc.

Net Sales for 2011 Quarter 3 Months ended March 31, 2011 (millions of dollars)
	APAC	Americas	Europe	Total*
Diabetic Products..................................	$2.3	$0.6	$1.0	$3.9
Other Products.......................................	0.2	0.7	0.1	1.1
Total*	$2.5	$1.3	$1.2	$5.0

Net Sales for 2010 Quarter 3 Months ended March 31, 2010 (millions of dollars)
	APAC	Americas	Europe	Total*
Diabetic Products..................................	$1.9	$0.8	$0.8	$3.6
Other Products.......................................	0.2	0.5	0.2	0.9
Total*	$2.1	$1.4	$1.0	$4.4

* Tables may not total due to rounding.

Diabetic Product Sales

We design to the order of and sell carrying cases for blood glucose diagnostic kits directly to OEMs (or their contract manufacturers) of these electronic, diagnostic kits made for use by diabetics. The OEM customer or its contract manufacturer packages our carry cases “in box” as a custom accessory for the OEM’s blood glucose testing and monitoring kits or in certain programs furnishes them as promotional items.

Sales of cases and related accessories for blood glucose monitoring kits increased $0.4 million, or 11%, to $3.9 million in the 2011 Quarter, from $3.6 million in the 2010 Quarter. This increase was due primarily to higher sales to one major diabetic product customer. Fluctuations in sales to our two other principal OEM diabetic customers offset each other, as reflected in the table below, which sets forth our sales by diabetic product customer for the periods indicated.

	(millions of dollars)
		2011 Quarter	2010 Quarter	Increase (Decrease)
Diabetic Customer A......................................................		$2.2	$1.9	$0.3
Diabetic Customer B......................................................		0.8	0.9	(0.1)
Diabetic Customer C......................................................		0.7	0.7	0.1
All other Diabetic Customers.......................................		0.1	0.1	--
*Totals.....................................................................**		$3.9	$3.6	$0.3

* Table may not total due to rounding.

Sales of carrying cases for blood glucose monitoring kits represented 79% of our total net sales in the 2011 Quarter compared to 80% of our total net sales in the 2010 Quarter.

Other Product Sales

We design and sell carrying and protective solutions to OEMs for a diverse array of other portable electronic and other products, including bar code scanners, GPS and location devices, cellular telephones, laptop computers, MP3 players, firearms, sporting and recreational products, and aeronautical products on a made-to-order basis that are customized to fit the products sold by our OEM customers.

Forward Industries, Inc.

Sales of other products increased $0.2 million, or 23%, to $1.1 million in the 2011 Quarter from $0.9 million in the 2010 Quarter. This increase was due primarily to first time sales to several new customers in Fiscal 2011 of $ 0.2 million in the 2011 Quarter, in the aggregate. Smaller increases and decreases in a number of existing customers offset each other, none of which changes individually is material.

Sales of other products represented 21% of our net sales in the 2011 Quarter compared to 20% of net sales in the 2010 Quarter.

Gross Profit

Gross profit of $1.2 million in the 2011 Quarter increased $0.2 million, or 16%, from $1.0 million in the 2010 Quarter. This improvement resulted primarily from the $0.6 million, or 13%, increase in sales revenues (refer to “Net Sales” section above), and to a lesser extent, from declines in Hong Kong costs, as well as freight, duties, and customs, which components are included as components of our costs of goods sold. These improvements were offset, in part, by a 3% increase in our materials costs as a percentage of sales due to the introduction of certain new products for first time customers into our product mix as described above under “Other Product Sales”.

Gross profit as a percentage of net sales was 23% in the 2011 Quarter and 22% in the 2010 Quarter.

Selling Expenses

Selling expenses of $0.7 million in the 2011 Quarter increased $0.1 million, or 24%, from the 2010 Quarter primarily due to an increase in personnel costs and related travel and entertainment expenses of $82 thousand, and to a lesser extent, an increase in promotion and sampling costs of $38 thousand.

General and Administrative Expenses

General and Administrative expenses increased $0.5 million, or 99%, to $ 1.1 million in the 2011 Quarter from $0.5 million in the 2010 Quarter due primarily to the following:

a $0.4 million increase in personnel costs including: recruitment and signing fees; travel and entertainment expense; accrued retention bonus payable to an executive; increased payroll taxes and benefits attributable to personnel hires, bonus, and salary increases; hire of additional information technology, operations, and accounting personnel; relocation reimbursement payable to an executive; and accrual of share based compensation;
a $0.1 million increase in professional fees (primarily legal, and to a lesser extent, financial and accounting) primarily in connection with acquisition efforts.
and a $33 thousand increase in office and telecommunications costs.

Other Income (Expense)

Other income (expense), consisting of interest income on cash and cash equivalent balances and on the Flash note receivable (refer to Note 3 — Note Receivable), as well as foreign currency transaction gains and losses, improved $74 thousand from $21 thousand of expense in the 2010 Quarter to $53 thousand of income in the 2011 Quarter. This was primarily due to a $53 thousand change from a foreign currency transaction loss to a gain in the 2011 Quarter, and to a lesser extent, to an increase in interest income of $21 thousand during the 2011 Quarter (resulting from interest income accrued in respect of the Flash note receivable). Exchange rate changes on foreign currency cash balances were not material in either the 2011 Quarter or the 2010 Quarter.

Net Loss

Net loss of $0.6 million in the 2011 Quarter increased $0.4 million from a net loss of $0.1 million in the 2010 Quarter as a result of the changes as described above.

Forward Industries, Inc.

RESULTS OF OPERATIONS FOR THE 2011 PERIOD COMPARED TO THE 2010 PERIOD

Net loss

We recorded a net loss of $0.5 million in the 2011 Period, compared to a net loss of $0.3 million in the 2010 Period. The widening of net loss in the 2011 Period resulted from higher operating expenses, offset, in part, by higher gross profit on higher sales and to a lesser extent higher other income, as shown in the table below:

Main Components of Net Loss for the Six Months Ended March 31
	(thousands of dollars)
	2011 Period	2010 Period	Increase (Decrease)
Net Sales.....................................................................................................	$10,964	$8,546	$2,418

Gross Profit.................................................................................................	2,531	1,918	613
Selling Expenses........................................................................................	(1,103)	(992)	112
General and Administrative Expenses....................................................	(2,012)	(1,211)	801
Other Income (Expense)............................................................................	47	(14)	61
Provision (benefit) from Income Taxes...................................................	--	--	--
*Net Loss....................................................................................................**	($537)	($299)	$238

* Table may not total due to rounding.

Basic and diluted per share data was a loss of ($0.07) for the 2011 Period, compared to a loss of ($0.04) for the 2010 Period. The decline in the 2011 Period compared to the 2010 Period was due to the increase in net loss.

Net Sales

Net sales increased $2.4 million, or 28%, to $11.0 million in the 2011 Period from $8.5 million in the 2010 Period, due to higher sales of Diabetic Products and Other Products, which increased $1.5 million and $0.9 million, respectively, in the 2011 Period. The tables below set forth sales by product line and geographic location of our customers for the periods indicated.

Forward Industries, Inc.

Net Sales for 2011 Period 6 Months ended March 31, 2011 (millions of dollars)
	APAC	Americas	Europe	Total*
Diabetic Products..................................	$4.8	$1.3	$2.0	$8.2
Other Products.......................................	0.4	1.9	0.5	2.8
Total*	$5.2	$3.3	$2.5	$11.0

Net Sales for 2010 Period 6 Months ended March 31, 2010 (millions of dollars)
	APAC	Americas	Europe	Total*
Diabetic Products..................................	$3.5	$1.7	$1.5	$6.6
Other Products.......................................	0.4	1.3	0.2	1.9
Total*	$4.0	$3.0	$1.6	$8.6

* Tables may not total due to rounding.

Diabetic Product Sales

Sales of cases and related accessories for blood glucose monitoring kits increased $1.5 million, or 23%, to $8.2 million in the 2011 Period, from $6.6 million in the 2010 Period. This increase was due primarily to higher sales to one major diabetic product customer as well as smaller increases to our two other principal OEM diabetic customers, as reflected in the table below, which sets forth our sales by diabetic product customer for the periods indicated.

	(millions of dollars)
		2011 Period	2010 Period	Increase (Decrease)
Diabetic Customer A......................................................		$4.7	$3.5	$1.2
Diabetic Customer B......................................................		1.8	1.8	0.1
Diabetic Customer C......................................................		1.5	1.2	0.3
All other Diabetic Customers.......................................		0.2	0.1	--
*Totals.....................................................................**		$8.2	$6.6	$1.5

* Table may not total due to rounding.

Sales of carrying cases for blood glucose monitoring kits represented 75% of our total net sales in the 2011 Period compared to 78% of our total net sales in the 2010 Period.

Other Product Sales

Sales of other products increased $0.9 million, or 45%, to $2.8 million in the 2011 Period from $1.9 million in the 2010 Period. Included in this amount, and the largest single sale of Other Products for the 2011 Period, is $0.4 million of sales to Flash Ventures, Inc. (refer to Note 11 — Letter of Intent). The balance of this increase was due primarily to first time sales to several new customers in the 2011 Period of $0.5 million, in the aggregate. In addition to new customer sales, fluctuations in existing customer sales between the 2011 Period and 2010 Period offset each other. Existing customer sales included increases of $0.3 million and $0.1 million to two major customers, respectively. All other customer sales fluctuations between the 2011 Period and 2010 Period were immaterial.

Sales of other products represented 25% of our net sales in the 2011 Period compared to 22% of net sales in the 2010 Period.

Forward Industries, Inc.

Gross Profit

Gross profit of $2.5 million in the 2011 Period increased $0.6 million, or 32%, from $1.9 million in the 2010 Period. This improvement resulted primarily from the $2.4 million, or 28%, increase in sales revenues (refer to “Net Sales” section above), and to a much lesser extent, from a decrease in Hong Kong costs and warehousing and handling costs (both of which are included as components of our costs of goods sold). These improvements were offset, in part, by a 3% increase in our materials costs as a percentage of sales due to the introduction of certain new products for first time customers into our product mix as described above under “Other Product Sales”.

Gross profit as a percentage of net sales was 23% in the 2011 Period compared to 22% in the 2010 Period.

Selling Expenses

Selling expenses of $1.1 million in the 2011 Period increased $0.1 million, or 11%, from the 2010 Period due primarily to additional costs incurred in restructuring our sales force, increased sampling activity, and lesser increases in other components of selling expenses.

General and Administrative Expenses

General and Administrative expenses increased $0.8 million, or 66%, to $2.0 million in the 2011 Period from $1.2 million in the 2010 Period due primarily to the following:

a $0.6 million increase in personnel costs, including the following: hire of additional information technology, operations, and accounting personnel; accrued retention bonus payable to an executive; recruitment and signing fees; travel and entertainment expense; increased payroll taxes and benefits attributable to personnel hires, bonus, and salary increases; accrual of share based compensation; and relocation expense payable to an executive.;
a $0.1 million increase in professional fees (primarily legal, and to a lesser extent, financial and accounting) primarily in connection with the Flash acquisition effort;
a $67 thousand increase in public costs (including $27 thousand of consulting services for executive compensation analysis, $29 thousand of director fees, share-based compensation, and expense reimbursements, and $6 thousand of director and officer insurance expense);
and $45 thousand increase in computer expense and telecommunications costs incurred in connection with upgrading our IT equipment and restructuring our information technology platform.

Other Income (Expense)

Other income (expense), consisting of interest income on cash and cash equivalent balances and on the Flash note receivable (refer to Note 3 — Note Receivable), as well as foreign currency transaction gains and losses, improved $61 thousand from $14 thousand of expense in the 2010 Period to $47 thousand of income in the 2011 Period. This was primarily due to a $55 thousand change from a foreign currency transaction loss to a gain in the 2011 Period, and to a lesser extent, to an increase in interest income of $6 thousand during the 2011 Period (resulting from interest income accrued in respect of the Flash note receivable). Exchange rate changes on foreign currency cash balances were not material in either the 2011 Period or the 2010 Period.

Net Loss

Net loss increased to $0.5 million in the 2011 Period compared to $0.3 million in the 2010 Period as a result of the changes as described above.

Forward Industries, Inc.

LIQUIDITY AND CAPITAL RESOURCES

During the 2011 Period, we used $1.1 million of cash in operations compared to a use of $0.4 million in the 2010 Period. Net cash used in operating activities in the 2011 Period consisted of net loss of $0.5 million, adjusted by $0.2 million for non-cash items, and reduced by changes in working capital items of $0.8 million. As to working capital items, uses of cash in operating activities in respect of decreases in accounts payable, and accrued expenses and other current liabilities were $0.6 million and $0.3 million, respectively. Increases in inventories and prepaid and other assets (current and long-term) of $0.2 million and $0.1 million, respectively, also contributed to uses of cash. These changes were offset, in part, by a decrease in accounts receivable of $0.4 million, which generated cash in operating activities. The decreases in accounts payable is due to lower materials purchases made in the 2011 Quarter compared to the three months ended September 30, 2011, which are driven by sales orders activity. The decrease in accounts receivable is due to lower sales recorded in the 2011 Quarter compared to the three months ended September 30, 2011. The decrease in accrued expenses and other current liabilities is primarily due to payments made during the 2011 Period in respect of items accrued as of September 30, 2010: (i) $125 thousand in severance payments to a former officer of the Company under the August 2010 Settlement Agreement; (ii) $142 thousand in shareholder settlement costs under the August 2010 Settlement Agreement; (iii) $123 thousand in sales commissions; and (iv) $150 thousand in wages. The increase in inventories is a result of purchases made in support of sales orders received. The increase in prepaid and other assets (current and long term) is due to prepaid tooling and mold costs in support of firm purchase orders.

In the 2010 Period, operating activities used $0.4 million of cash, consisting of a net loss of $0.3 million (reduced by $0.2 million for non-cash items), and $0.3 million for net changes in working capital items. Changes in inventories and accounts receivable of $0.2 million and $0.4 million, respectively, primarily contributed to the net cash used by operating activities. These uses of working capital were partially offset primarily by changes in accounts payable and accrued expenses and other current liabilities.

In the 2011 Period, net investing activities used $1.1 million, consisting of $1.0 million loaned to Flash Ventures, Inc. evidenced by a note receivable (refer to Note 3 — Note Receivable) and $75 thousand in purchases of property and equipment, primarily computer and telecommunications hardware and software. There were no investing activities in the 2010 Period.

There were no financing activities in the 2011 Period or the 2010 Period.

At March 31, 2011, our current ratio (current assets divided by current liabilities) was 9.48; our quick ratio (current assets less inventories divided by current liabilities) was 9.0; and our working capital (current assets less current liabilities) was $20.7 million. As of such date, we had no short or long-term debt outstanding.

Our primary source of liquidity is our cash and cash equivalents on hand. The primary demands on our working capital are: operating losses to the extent they occur and accounts payable arising in the ordinary course of business, the most significant of which arise when our customers place orders with us and we order from our suppliers. Historically, our sources of liquidity have been adequate to satisfy working capital requirements arising in the ordinary course of business. Management’s recently announced business strategy includes (i) increasing the Company’s existing OEM business and (ii) expanding its product offerings and diversifying its distribution by moving into the retail channel. We anticipate that the termination of the proposed acquisition of Flash Ventures should signify a reduction if not elimination in what we anticipated would be substantial capital outlays (acquisition consideration) in investment activities in the near term. However, the building out of our product offerings and establishing a retail distribution channel through internal growth and development may lengthen the period required to increase net sales revenues. Accordingly, we anticipate significant uses of cash and capital resources as a result of one or more of the following developments in future periods: (i) increases in operating expenses in our implementation of management’s strategy (see “Trends and Economic Environment” above), in particular in increased selling and other personnel expenses, and, accordingly, the funding of likely operating losses; and (ii) use of capital in financing technology joint ventures in investing activities. We anticipate that our liquidity and financial resources for the next twelve months will be adequate to manage our operating and financial requirements.

Forward Industries, Inc.

In September 2002 and January 2004, our Board of Directors authorized the repurchase of up to an aggregate of 486,200 shares of our outstanding common stock. Under those authorizations, as of March 31, 2011, we had repurchased an aggregate of 172,603 shares at a cost of approximately $0.4 million but none during Fiscal 2010 or the 2011 Period.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e)) under the Exchange Act) that is designed to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

In accordance with Exchange Act Rule 13a-15(b), our management, under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, performed an evaluation of the effectiveness of the Company's disclosure controls and procedures as of the end of the fiscal quarter covered by this Quarterly Report. Based on that evaluation, the Company's Principal Executive Officer and Principal Financial Officer concluded that the Company's disclosure controls and procedures were effective, as of the end of the 2011 Quarter, to provide reasonable assurance that information required to be disclosed in the Company's reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms.

Changes in internal control

Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, performed an evaluation required by Rule 13a-15(d) of the Exchange Act as to whether any change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during the 2011 Quarter. Based on that evaluation, our Principal Executive Officer and our Principal Financial Officer concluded that no change occurred in the Company's internal control over financial reporting during the 2011 Quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 1A. RISK FACTORS

Please review our Annual Report on Form 10-K for the fiscal year ended September 30, 2010, for a complete statement of “Risk Factors” that pertain to our business. Please refer to ITEM 2. CAUTIONARY STATEMENT FOR PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 on page 20 of this Quarterly Report on Form 10-Q as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations for further discussion of certain of such risk factors.

Forward Industries, Inc.

The following paragraphs set forth two risk factors from our Annual Report on Form 10-K for the year ended September 30, 2010, that are updated for purposes of this Quarterly Report and a third risk factor that was not included in said Annual Report.

We have previously announced our intention to diversify our business by means of acquisition or other business combination.

Our new management team’s business strategy is to grow our OEM business, expand product offerings and technology solutions, and develop or acquire retail distribution capability. Consistent with this approach, in December 2010, we announced entry into a letter of intent to acquire Flash Ventures Inc., a distributor of consumer electronics peripherals and accessories (“Flash”). In April 2011 we elected to terminate such letter of intent and not make such acquisition. The immediate consequence of this decision is that the anticipated payments of some combination of cash and issuance of our equity and/or debt securities will not be made, and the risks of the potential dilution to existing shareholders and the business risks that accompany any acquisition should not arise.

However, the risks of not making such an acquisition to acquire a retail channel and product development capability may be the increased time required to accomplish such goals through internal growth and development. There can be no assurance that we will be successful in our efforts to achieve such goals through internal growth and development.

In any event, management continues to believe that, given the right acquisition target under satisfactory terms and conditions, it will continue to evaluate potential acquisitions. There can be no assurance that we will be successful in our efforts to make any acquisition, or that any business that we do acquire or invest in will be profitable. There can be no assurance as to the timing of a transaction, or that the market price of our common stock will not decline in response to any such transaction as may be effected or not effected.

Our business strategy is to develop and grow our existing business and to expand into retail; to the extent that operating expenses trend significantly higher before we realize higher revenues, our operating results may be adversely and materially affected.

Our management team is pursuing a more marketing- and product development-driven business model to grow our existing business and expand product offerings, compared to the prior management team that was focused on maintaining the liquidity of the balance sheet as it assessed potential acquisitions. In executing this strategy, we are likely to incur increased selling, general, and administrative expense as we devote increased resources to product sales and development and a retail presence, including resources to recruit and compensate experienced sales and marketing professionals. Such increased expenses are likely to impact our income statement and reduce cash and equivalents before such efforts result in higher revenues, if at all, which may materially and adversely affect our results of operations. It is possible that the achievement of higher revenues may well have been realized more quickly if the acquisition contemplated by the letter of intent were to have been consummated. With the termination of the Flash letter of intent, the period of time of during which we incur higher operating expenses before we realize a higher level of sales commensurate with such expenses may be longer than we had forecast. Realization of higher revenues that will result in improvement in our results of operations will depend on management’s ability to execute successfully on its strategy and business plan, as to which there can be no assurance.

There is a risk that the funds we loaned to a third party will not be repaid.

Forward Industries, Inc.

In January 2011, pursuant to the terms of the letter of intent to acquire Flash referred to above, we agreed to make available a loan facility to Flash for working capital purposes in a maximum amount of $1,000,000. The loan bears interest at 11% per annum on any unpaid principal, payable quarterly commencing March 31, 2011. Principal of the note is payable upon maturity on December 1, 2011 (subject to acceleration in case of an event of default, as specified in the agreement), together with unpaid interest and any fees, expenses, and other amounts owing to the Company. Flash was late in making the interest payment due March 31, 2011, but did make payment in full. As with any debt obligation, there is a risk that the borrower will default and we as lender may not receive repayment in full of the funds loaned. If this were to occur, it could have a material, adverse effect on our financial condition and reduce the amount of funds available to support our growth initiatives and other capital requirements.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the 2011 Quarter we did not issue or sell any securities that were not registered under the Securities Act of 1933. During the 2011 Quarter we did not purchase any common stock or other equity securities pursuant to publicly announced plans or programs or otherwise.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. REMOVED AND RESERVED

ITEM 5. OTHER INFORMATION

Effective April 1, 2011, the Company relocated its executive offices from 1801 Green Road, Pompano Beach, Florida to 3110 Main St., Suite 400, Santa Monica, California 90406. For the near term, the Company is maintaining its Pompano Beach, FL facility as a product design location under the same lease terms as before. The Santa Monica Facility is leased at an annual rent of $162 thousand per annum pursuant to customary lease terms.

As disclosed in our Current Report on Form 8-K, filed with the Commission on March 11, 2011, the Compensation Committee of the Board of Directors approved changes to the terms of the employment agreement between James O. McKenna, our Chief Financial Officer, and the Company. See Note 9 of the Notes to Consolidated Financial Statements. Such changes have subsequently been memorialized in a new employment agreement, dated as of April 1, 2011, which agreement is attached hereto as Exhibit 10.7.

On May 10, 2011, the Company has been granted a license to establish a branch office in the Jebel Ali Free Zone of the United Arab Emirates to facilitate product sales in the EMEA Region.

ITEM 6. EXHIBITS

10.7 Employment Agreement between the Company and James O. McKenna, dated as of April 1, 2011.

31.1 Certification of the Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002

31.2 Certification of the Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002

32.1 Certification of the Chief Executive Officer and Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002

Forward Industries, Inc.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

Dated: May 11, 2011
	FORWARD INDUSTRIES, INC.
	(Registrant)


	By: /s/ Brett M. Johnson
	Brett M. Johnson
	President/Chief Executive Officer
	(Principal Executive Officer)


	By: /s/James O. McKenna
	James O. McKenna
	Treasurer/Chief Financial Officer
	(Principal Financial and Accounting Officer)

EX-10.7 2 ex10-7.htm

Exhibit 10.7

AMENDED EMPLOYMENT AGREEMENT

AMENDED EMPLOYMENT AGREEMENT (this “Agreement”), dated as of the 1st day of April, 2011, between Forward Industries, Inc., a New York corporation having its principal offices at 3110 Main St., Suite 400, Santa Monica, CA 90405 (the “Company”), and James O. McKenna, residing at 6771 Wandermere Rd., Malibu, CA 90265 (“Executive”).

RECITALS:

Executive is employed as the Company’s Chief Financial Officer/Treasurer pursuant to an employment agreement with the Company dated as of August 10, 2010 (the “Prior Agreement”), and the Company has elected to move its executive offices from Pompano Beach, Florida to Los Angeles, California.

The Company and Executive wish to amend the Prior Agreement and secure Executive’s services upon the terms and conditions set forth in this Agreement, with effect from the date hereof.

In consideration of the mutual covenants herein contained and other good and valuable consideration, the receipt of which the parties hereby acknowledge, the parties agree as follows:

1. EMPLOYMENT TERM; PRIOR AGREEMENT

Upon execution hereof, this Agreement shall become effective and the Prior Agreement shall be null and void and of no further force or effect whatsoever. The term of employment hereunder (the “Term”) shall commence on the date hereof and, unless earlier terminated in accordance with the terms of this Agreement, expire December 31, 2012. Upon expiration of the Term, this Agreement shall be automatically renewed for successive terms of one year each; provided, however, that if either party provides written notice to the other party of its or his determination not to so renew not later than 90 (ninety) days prior to the expiration of the Term, or any renewal thereof, as the case may be, this Agreement and Executive’s employment shall terminate at the end of the Term or such renewal term, as the case may be. In the event that the Company is the party giving notice of non-renewal, such termination shall be characterized as without Cause and governed by the terms of Section 5.

2 EMPLOYMENT DUTIES AND SERVICES

(a) On the terms and conditions herein set forth, the Company hereby employs Executive as its chief financial officer, treasurer, and assistant secretary for the term of this Agreement and any renewal(s) thereof, and Executive hereby accepts such employment. Executive shall perform such duties and responsibilities of a chief financial officer and treasurer nature for the Company as shall be consistent with the provisions of the Company’s By-laws in effect from time to time and as are customary for a chief financial officer and treasurer of corporations of similar size and business as the Company, subject to the direction of the Company’s President (chief executive officer), or in his absence, the Board of Directors of the Company (the “Board”). Executive shall serve the Company faithfully and to the best of his ability and shall devote his full business time and attention to the business and affairs of the Company, subject to reasonable absences for vacation and illness in accordance with Company policies. Executive shall not engage, directly or indirectly, in any other business or occupation during the Term and any renewal.

(b) Nothing in this Agreement shall preclude the Executive from (i) engaging in personal investment activities for himself and his family, (ii) accepting directorships unrelated to the Company, subject to the prior, written approval of the Nominating and Governance Committee of the Board (“Nominating and Governance Committee”), (iii) engaging in charitable and civic activities, and (iv) engaging in such other limited activities on behalf of family interests as may be approved by the Nominating and Governance Committee, so long as any one or more such outside interests set forth in clauses (i), (ii), (iii), and (iv) hereof do not interfere with or affect the performance of his duties or responsibilities hereunder.

(c) Unless otherwise agreed in writing by the Company and Executive, the performance of Executive’s services during the term of this Agreement shall be rendered at the principal executive offices of the Company, subject to such travel in furtherance of Executive’s performance of his duties hereunder as the business of the Company may require.

3. COMPENSATION AND EXPENSE REIMBURSEMENT

(a) Salary. Executive shall be entitled to receive for all services rendered by Executive in any and all capacities in connection with his employment hereunder a salary (as it may be adjusted, “Salary”) at the rate of $225,000 per annum, payable in equal installments in accordance with the prevailing practices of the Company (but not less frequently than monthly).

(b) Bonus; Calculation and Payment. The Executive shall be eligible to receive a (“Bonus”) with respect to each full fiscal year or part thereof (except to the extent expressly provided in Section 3(b), 4, 5, or 6(b) hereof) in respect of his employment hereunder, as set forth in this Section 3. The amount of Bonus, if any, that Executive is eligible to earn in any fiscal year during the Term hereof pursuant to this Section 3(b) shall be based on the terms of the bonus plan that the Compensation Committee (the “Compensation Committee”) of the Board adopts, from year to year. The Executive’s participation in such bonus plan shall be at a level commensurate with the Executive’s current position or any more senior position(s) to which Executive may be appointed.

Bonus compensation, if any, payable in respect of any fiscal year or part thereof shall be payable to Executive no later than the tenth (10^th) business day after the date on which the Company’s audited financial statements relating to such fiscal year are first filed with the Securities and Exchange Commission (the “Commission’) pursuant to Section 13 or 15(d) under the Securities Exchange Act of 1934 (“Exchange Act”). If Executive is otherwise entitled to payment of a Bonus pursuant to this Section 3(b) and the terms of this Agreement but has not served as an employee for the full fiscal year in respect of which such Bonus is payable, Executive, or his estate, shall be entitled to payment, at the time specified in the next preceding sentence, of a ratable portion of such Bonus to which he or his estate is entitled, based on the ratio that the actual number of days in such fiscal year during which he served as an employee pursuant to this Agreement and is so entitled bears to 365; provided, however, that no Bonus (pro-rated or otherwise) shall be payable in respect of a fiscal year during which Executive is employed hereunder solely for the first fiscal quarter thereof because of expiration of the Term, or any renewal thereof as a result of notice of non-renewal furnished pursuant to Section 1; and provided, further, that if Executive’s employment was terminated as a result of notice (not withdrawn) pursuant to Section 4, Termination for Cause, he shall not be entitled to any Bonus compensation in respect of the fiscal year during which the actions giving rise to Cause took place, or such notice of termination was given or during which such termination becomes effective.

(c) Expenses. Executive will be reimbursed for all reasonable and necessary expenses incurred by Executive in carrying out the duties contemplated under this Agreement, in accordance with Company practices and procedures in effect from time to time, as such practices may be changed from time to time by the Board. Executive shall be reimbursed for the expense of operating an automobile (maintenance, gas, tolls and insurance only) for Executive’s use in connection with the discharge of his duties under this Agreement, the maximum amount of which reimbursement shall be determined by the Compensation Committee and shall be includible in Executive’s W-2 statements and be subject to applicable income tax withholding regulations.

(d) Relocation Reimbursement. The Company shall reimburse Executive’s reasonable, documented out-of-pocket costs incurred in his relocation to the Los Angeles, CA area from his Florida residence, including the following: (i) shipping of furniture and other personal possessions from Florida to Los Angeles; (ii) economy fare transportation from Florida to California for Executive and his family; and (iii) current, monthly net rental expense in respect of Executive’s lease of his Mill Creek Drive, Palm Beach Gardens, FL residence, commencing with April rent until the earlier of lease expiration in August 2011 or the date of early lease termination.

(e) Housing Allowance. Executive shall be entitled to a housing allowance of $7,500 per month, or $90,000 per annum, based on documented lease expense provided by Executive in respect of his California residence, to assist in defraying the increase in housing costs to be incurred by Executive with his relocation to the Los Angeles, CA area. The allowance shall be phased out over time if, as, and to the extent that Executive’s base salary increases, in accordance with Schedule 1 [annexed hereto][for purposes of Board review: it will be removed as part of the filing] approved by the Compensation Committee. Such allowance may include advance rent required to be paid by Executive under the terms of lease of his Malibu, CA residence.

(f) Benefits. Executive shall be entitled to participate in all group health and other insurance programs and all other fringe benefit (including vacation) and retirement plans (including any 401(k) plan) or other compensatory plans that the Company may hereafter elect to make available to its executives generally on terms no less favorable than those provided to other executives generally, provided Executive meets the qualifications therefor. The Company shall not be required to establish any such program or plan, except to the extent expressly set forth in this Section 4.

(g) Withholding. All payments required to be made by the Company hereunder to the Executive shall be subject to the withholding of such amounts relating to taxes and other governmental assessments as the Company may reasonably determine it should withhold pursuant to any applicable law, rule or regulation.

(h) IRC§409A. Executive and the Company agree that the provisions of this Agreement shall be construed and implemented, and any deferrals and elections shall be made, in order to comply with Internal Revenue Code Section 409A, as it may be amended, and the rules and regulations issued thereunder from time to time.

4. TERMINATION BY THE COMPANY FOR CAUSE

(a) The Board of Directors may, by written notice given at any time during the Term, or any renewal thereof, terminate the employment of Executive for cause, the cause to be specified in reasonable detail in such notice. For purposes of this Agreement, “cause” shall mean Executive’s:

(i) willful misconduct in connection with the performance of any of his duties or services hereunder, including without limitation (1) misappropriation or improper diversion of funds, rights or property of the Company or any subsidiary of the Company ("Subsidiary"), or (2) securing or attempting to secure personally (including for the benefit of any family member, or person sharing the same household, or any entity (corporate, partnership, unincorporated association, proprietorship, limited liability company, trust, or otherwise) in which Executive has any economic or beneficial interest) any profit or benefit in connection with any transaction entered into on behalf of the Company or any Subsidiary unless the transaction benefiting the entity has been approved by the Board upon the basis of full disclosure of such benefit, or (3) material breach of (x) any covenant contained in this Agreement or (y) the Company’s Insider Trading Policy or Code of Business Conduct and Ethics, as in effect from time to time, or (4) any other action in violation of Executive's fiduciary duty owed to the Company or Executive's acting in a manner adverse to the interests of the Company and for his own pecuniary benefit or that of a family member (or member of his household) or any entity (as described in clause (i)(2) of Section 4(a) above) in which he or any such person has an economic or beneficial interest; or (5) Executive's failure to cooperate, if requested by the Board, with any investigation or inquiry into his or the Company's business practices, whether internal or external;

(ii) willful failure, neglect or refusal to perform his duties or services under this Agreement, which failure, neglect or refusal shall continue for a period of 30 days after written notice thereof shall have been given to the Executive by or on behalf of the Board ; and/or

(iii) conviction of, or nolo contendere or guilty plea in connection with, a felony.

(b) Termination for cause under clause (i) or (iii) of paragraph (a) of this Section 4 shall be effective immediately upon the giving of such notice; if notice of termination for cause relates to clause (ii) of paragraph (a) of this Section 4, termination shall be effective on the thirtieth (30^th) day after the notice referred to in the first sentence of this Section 4 is given to Executive, unless the Executive shall have, prior to such thirtieth (30^th) day, cured the alleged cause to the satisfaction of the Board, in which case the Board shall so notify Executive and such cause shall be deemed to no longer exist; provided, however, that if the Board concludes that Executive’s willful failure, neglect, or refusal to perform has resulted in material damage to the Company or its reputation that is not capable of being remedied, termination shall be effective immediately upon giving of notice.

For purposes of this Agreement, an act or failure to act on the Executive’s part shall be considered “willful” if it was done or omitted to be done by him not in good faith, and shall not include any act or failure to act resulting from any incapacity of the Executive.

(c) Upon termination of employment by the Company for Cause, the Executive shall be entitled to receive, and his sole remedies under this Agreement shall be:

(i) any earned and unpaid Salary accrued through the date of termination for Cause, payable in a lump sum not later than 15 days following Executive’s termination of employment;

(ii) compensation for any unused personal holidays and unused vacation days accrued in the fiscal year in which termination occurs through the date of termination, payable as in clause (i) of this Section 4;

(iii) except for any Bonus compensation (for which Executive shall not be eligible), any unpaid benefits accrued through the day immediately prior to the date of termination that may be due the Executive under any employee benefit plans or programs of the Company, payable in accordance with the terms of such plans or programs, together with any documented, unreimbursed business expenses, payable in accordance with Company policies; and

(iv) any stock options, grants of Common Stock, restricted share grants or other benefits under any of the Company’s compensation plans that were vested as of 5:00 PM on the date immediately prior to the date of termination in accordance with the terms of such plans and any applicable plan agreements with Executive, provided, however, that any vested but unexercised stock options may not be exercised on or after the effective date of termination.

(d) Termination of Executive’s employment under this Section 4 shall be in addition to and not exclusive of any other rights and remedies that the Company has or may have relating to Executive with respect to the facts and circumstances pertaining to such termination.

5. TERMINATION BY EXECUTIVE FOR GOOD REASON OR TERMINATION WITHOUT CAUSE

(a) In the event Executive terminates his employment under this Agreement for Good Reason (as hereinafter defined), or in the event Executive’s employment is terminated without Cause (for the avoidance of doubt, termination without cause shall include Company notice of non-renewal to be effective at the end of the employment term, or any renewal thereof), which termination shall be effective as of the date specified by the Company in written notice delivered to Executive not fewer than 15 days prior to the date of termination) other than due to death or Disability (as hereinafter defined), the Executive shall be entitled to receive, and his sole remedies under this Agreement shall be:

(i) any earned and unpaid Salary accrued through the date of termination, payable in a lump sum not later than 15 days following Executive’s termination of employment;

(ii) Salary, at the annualized rate in effect on the date of termination of Executive’s employment (or, in the event a reduction in Salary is a basis for termination for Good Reason, then the Salary in effect immediately prior to such reduction), equal to the amount of salary payable for a period of one year following such termination, payable in a lump sum not later than 15 days following termination of employment;

(iii) compensation for any unused personal holidays and unused vacation days accrued in the fiscal year in which termination occurs through the date of termination, payable as in clause (i) of this Section 6;

(iv) except in the case of the Company giving notice of non-renewal at the end of the Term (or any renewal thereof), the ratable amount of Bonus, if any, to which Executive would otherwise have been entitled in the current fiscal year but for termination under this Section, payable at the time specified in Section 3(b);

(v) any unpaid benefits accrued through the day immediately prior to the date of termination that may be due the Executive under any employee benefit plans or programs of the Company, payable in accordance with the terms of such plans or programs, together with any documented, unreimbursed business expenses, payable in accordance with Company policies;

(vi) any stock options, grants of Common Stock, restricted share grants or other benefits under any of the Company’s compensation plans that were vested as of 5:00 PM on the date immediately prior to the date of termination, which may be exercised (in the case of options) or delivered (in the case of restricted stock) in accordance with the terms of such plans and any applicable plan agreements with Executive; and

(vii) Executive’s reasonable, documented out-of-pocket costs incurred in connection with a relocation of his primary residence back to Florida (of the type set forth in clauses (d)(i) and (ii) of Section 3 of this Agreement, plus leasehold rent in respect of his California residence not to exceed 12 months of such rent actually incurred (and not refunded or netted, directly or indirectly) subsequent to the notice referred to in the following proviso; provided, however, that the expenses enumerated in this clause (vii) shall be payable to Executive only if notice of termination for Good Reason or without Cause is given (and not subsequently withdrawn in accordance with the terms of this Agreement) within the first 36 months after the date hereof.

(b) Termination by the Executive for Good Reason shall be effected by his giving prior written notice to the Company, in which case this Agreement shall terminate on the date specified in such notice; provided, however, that such notice shall specify (i) in reasonable detail the circumstances or event asserted as the basis for termination for Good Reason and (ii) a date of termination that shall be at least thirty (30) days after the date of delivery of such notice; and provided, further, that the Company shall have the right during such thirty (30) day period to remedy the circumstances or event giving rise to the notice of termination for Good Reason prior to the date specified in such notice, in which case no right of termination or other right shall exist under this Section. .

(i) the assignment to Executive without his written consent of any duties or title inconsistent in any material respect with Executive’s position (including employment status, titles (including without limitation that of Chief Financial Officer) and reporting requirements), authority, duties or responsibilities as contemplated by Section 2 of this Agreement or any other action by the Company that results in a material diminishment in such positions, status, titles, authority, duties, or responsibilities, other than such assignment or other action that is remedied by the Company prior to the date of termination specified in the written notice from Executive:

(ii) a decrease in annual Salary rate or reduction in level of employee benefits that Executive currently receives or entitlement to Bonus (subject always to the discretion of the Compensation Committee to fix Target and define the formula under which Executive may be eligible to receive Bonus);

(iii) failure to accord Executive equal treatment in respect of responsibilities, reporting obligations and other matters reflected in clause (i) above, in respect of benefits generally, with any other executive officer having the same or similar positions;

(iv) direction that performance of Executive’s responsibilities under this Agreement shall be performed at a location (at the Company’s principal executive offices or otherwise) more than 30 miles distance from the location of the Company’s current executive offices in Santa Monica, California.

(v) any failure by the Company to perform any material obligation under, or its breach of a material provision of, this Agreement that is not cured within the 30-day notice period referred to above; or

(vi) failure of a Successor to expressly assume and agree to perform this Agreement in the same manner and to the same extent as the Company would have had there been no Successor.

6. TERMINATION FOR DEATH OR DISABILITY

(a) Executive’s employment shall terminate immediately upon his death or Disability (as hereinafter defined). Upon such termination, the Executive, his estate, or his beneficiaries, as the case may be, shall be entitled to receive, and their sole remedies under this Agreement shall be:

(i) subject to Section 6(b), any earned and unpaid Salary accrued through the date of termination, payable in a lump sum not later than 15 days following Executive’s termination of employment;

(ii) subject to Section 6(b), compensation for any unused personal holidays and unused vacation days accrued in the fiscal year in which termination occurs through the date of termination, payable as in clause (i) of this Section 6;

(iii) subject to Section 6(b), the ratable amount of Bonus, if any, to which Executive would otherwise have been entitled in the current fiscal year to the date of termination under this Section, payable at the time specified in Section 3(b);

(iv) any unpaid benefits accrued through the date of termination that may be due the Executive under any employee benefit plans or programs of the Company, payable in accordance with the terms of such plans or programs, together with any documented, unreimbursed business expenses, payable in accordance with Company policies; and

(v) any stock options, grants of Common Stock, restricted share grants or other benefits under any of the Company’s compensation plans that were vested as of 5:00 PM on the date immediately prior to the date of termination, which may be exercised (in the case of options) or delivered (in the case of restricted stock) in accordance with the terms of such plans and any applicable plan agreements with Executive.

(b) For purposes of this Agreement, the term “Disability” shall mean any disability, illness, or other incapacity that prevents Executive from performing services as contemplated by Section 2, for 120 or more consecutive days or for 180 days in any consecutive 12-month period. In such event, the Company shall have the right to terminate this Agreement upon 10 days’ prior written notice to Executive. During the period of any such disability, illness, or incapacity, (i) the obligation of the Company to pay Salary to Executive pursuant to Section 3 shall be reduced to the extent of any amount received by Executive pursuant to any disability insurance policy maintained and paid for by the Company, and (ii) no bonus compensation or other employee benefits shall accrue or be earned, or count toward proration. Termination under this Section shall not prejudice any rights of Executive under disability policies being maintained by the Company for Executive under the terms of this Agreement, if any.

7. OBLIGATIONS UPON TERMINATION, ETC.

(a) Upon the termination of employment for any reason hereunder, all provisions of this Agreement shall terminate except for Sections 7, 8, 9 and 10 of this Agreement and the provisions contained in Exhibit I hereto, the terms of which shall survive such termination, and the Company shall have no further obligation to Executive hereunder, except as herein and therein expressly provided. The Company shall comply with the terms of settlement of all deferred compensation arrangements to which Executive is a party in accordance with his duly executed deferral election forms.

(b) In the event of a termination of employment by Executive on his own initiative during the Term or any renewal thereof by delivery of written notice of such resignation ten business days in advance, other than due to Disability or termination for Good Reason, Executive shall have the same entitlements as provided in Section 4, Termination by the Company for Cause. Notwithstanding the foregoing, Executive shall have no right to terminate during the Term except in the event of termination for Good Reason, and any voluntary termination or resignation of employment shall be considered a material breach.

(c) In the event of a termination of employment, payment made and performance by the Company in accordance with the provisions of Section 4, 5, or 6, as the case may be, and this Section 7 shall operate to fully discharge and release the Company and its directors, officers, employees, subsidiaries, affiliates, shareholders, successors, assigns, agents, and representatives (all of the foregoing collectively, the “releasees”) from any further obligation or liability with respect to Executive’s rights under this Agreement. Other than payment and performance as aforesaid, none of the releasees shall have any further obligation or liability to Executive or any other person under this Agreement arising out of termination of Executive’s employment under this Agreement except as expressly set forth in Exhibit I hereto. The Company’s payment of any severance or other amounts pursuant to Section 4, 5, 6, or 7 shall be subject to delivery by Executive to the Company of a release in form and substance satisfactory to the Company releasing any and all claims the Executive, his estate, representatives, and assigns may have against the Company and any other releasee arising out of this Agreement, as set forth in Exhibit I hereto.

8. COVENANTS

Executive agrees that during the Term, any renewal thereof, and for one full year after expiration or termination of the Term or any renewal thereof (except in the case of clause (a), as to which Executive’s covenant shall not be limited in time), he shall not, without the express prior written consent of the Company, directly or indirectly, either individually or as an employee, officer, director, agent, partner, shareholder, consultant, option holder, joint venturer, contractor, nominee, lender of money, guarantor, investor, owner, or in any other capacity:

(a) except as required in the course of performing his duties as an Executive hereunder, disclose, copy, divulge, furnish, distribute or make available in any medium whatsoever to any firm, company, corporation, organization, or other entity or person (including but not limited to actual or potential customers or competitors or government officials), or otherwise misappropriate trade secrets, intellectual property, or other confidential or non-public information of or concerning the Company, its Subsidiaries or affiliates or the business of any of the foregoing, including without limitation, customer lists, product designs and product know-how, launch information or plans pertaining to Company or customer products, arrangements for supplying customers, methods of operation and organization, sources of supply and arrangements with vendors, product development, business plans and strategies; provided, however, Executive may make disclosures as and to the extent required by applicable law or compelled upon court or administrative order, provided, further, however, that in the event that Executive is so required or compelled, he shall notify the Company not fewer than ten (10) business days in advance of such disclosure in order to afford it the reasonable opportunity to obtain a protective order or other remedy to limit the scope of such disclosure (it being understood and agreed that, if such disclosure is required by applicable law, Executive shall upon the Company’s request furnish the source and precedents with respect to such requirement). For purposes of this Section 8, information shall not be deemed confidential if it is within the public domain or becomes publicly known other than through disclosure by Executive in violation of this provision; (ii)

(b) own (or have any financial interest in, actual, contingent or otherwise), control, manage, operate, participate, engage in, invest in or otherwise have any interest in, or otherwise be connected with, in any manner, any firm, company, corporation, organization, business, enterprise, venture or other entity, association or person that is engaged in the business actually engaged in by the Company during the Term or any renewal thereof, including without limitation the Company Business (as hereinafter defined) ; or

(c) solicit, employ or retain or arrange, encourage, facilitate or assist to have any other firm, company, corporation, organization, business, enterprise, venture or other entity, association or person solicit, employ, retain, or otherwise participate in the employment or retention of, any person who is then, or who has been, within the preceding six (6) months, an employee, consultant, sales representative, technician or engineer of the Company, its subsidiaries, affiliates, or joint venture counterparties.

(d) own (or have any financial interest in, actual, contingent, future, or otherwise), control, manage, operate, participate, engage in, invest in or otherwise have any interest in or through, or otherwise be connected with, in any manner, any firm, company, corporation, organization, associate, business, enterprise, venture or other entity, association or person that does or proposes to do any one or more of the following as it relates to of the Company Business (as hereinafter defined): (a)(i) engage in, do, or solicit business with, or (ii) interfere with or affect the Company’s business opportunities with, any of the customers with whom the Company has done business with during the most recent two calendar years or (b)(i) engage in, do, or solicit business with, or (ii) interfere with or affect the Company’s business opportunities with, any of the vendors with whom the Company has done business with during the most recent two calendar years. The term “Company Business” shall mean the business of designing, manufacturing, procuring the supply or manufacture of, sourcing, selling, re-selling, and/or distributing (at wholesale, retail, or otherwise) of carrying, protective, or portable cases or cover plates and related carry case or other accessories supplied to the cellular telephone, portable medical equipment, laptop computer, tablet, photography, firearms, aeronautic, code reader, video or audio industries. Nothing in this Section 8 shall be deemed to prohibit Executive from the acquisition or holding of, solely as a passive stockholder, not more than one percent (1%) of the shares or other securities of a publicly-owned corporation if such securities are traded on a national securities exchange or the NASDAQ Stock Market.

(e) Upon the expiration or termination of this Agreement for any reason, Executive shall promptly deliver to the Company all documents, papers and records in his possession relating to the business or affairs of the Company and that he obtained or received in his capacity as an officer of the Company and any other Company property or equipment in his possession or control.

(f) In the event Executive shall violate or be in violation of any provision of this Section 8 (which provisions Executive hereby acknowledges are reasonable and equitable), in addition to the Company’s right to exercise any and all remedies, legal and equitable, which it may have under applicable laws, Executive shall not be entitled to any, and hereby waives any and all rights to, each and every, termination payment under this Agreement.

9. SEPARABILITY

Executive agrees that the provisions of Section 8 hereof constitute independent and separable covenants, for which Executive is receiving consideration, which shall survive the termination of employment, and which shall be enforceable by the Company notwithstanding any rights or remedies the Company may have under any other provision hereof.

10. SPECIFIC PERFORMANCE

Executive acknowledges that:

(a) the services to be rendered and covenants to be performed under this Agreement are of a special and unique character and that the Company would be irreparably harmed if such services were lost to it or if Executive breached its obligations and covenants hereunder;

(b) the Company is relying on the Executive’s performance of the covenants contained herein, including, without limitation, those contained in Section 9 above, as a material inducement for its entering into this Agreement;

(d) the award of monetary damages may not adequately protect the Company in the event of a breach hereof by Executive.

By virtue thereof, Executive agrees and consents that if Executive breaches any of the provisions of this Agreement, the Company, in addition to any other rights and remedies available under this Agreement or under applicable laws, shall (without any bond or other security being required and without the necessity of proving monetary damages) be entitled to a temporary and/or permanent injunction to be issued by a court of competent jurisdiction restraining Executive from committing or continuing any violation of this Agreement, or any other appropriate decree of specific performance. Such remedies shall not be exclusive and shall be in addition to any other remedy that the Company may have.

11. MISCELLANEOUS

(a) Entire Agreement; Amendment. This Agreement constitutes the entire employment agreement between the parties and may not be modified, amended or terminated (other than pursuant to the terms hereof) except by a written instrument executed by the parties hereto. All other agreements, written or oral, between the parties pertaining to the employment or remuneration of Executive not specifically contemplated hereby or incorporated or merged herein are hereby terminated and shall be of no further force or effect.

(b) Relocation. The term “relocation” as used in this Agreement shall mean the date on which the person enters into a definitive and irrevocable agreement pertaining to occupancy or vacation of premises, as the case may be.

(c) Assignment; Successors. This Agreement is not assignable by Executive without the prior written consent of the Company and any purported assignment by Executive of Executive’s rights and/or obligations under this Agreement shall be null and void. Except as provided below, this Agreement may be assigned by the Company at any time, upon delivery of written notice to Executive, to any successor to the business of the Company, or to any Subsidiary or affiliate of the Company. In the event that another corporation or other business entity becomes a Successor of the Company, then this Agreement may not be assigned to such Successor unless the Successor shall, by an agreement in form and substance reasonably satisfactory to the Executive, expressly assume and agree to perform this Agreement in the same manner and to the same extent as the Company would be required to perform if there had been no Successor. The term “Successor” as used herein shall mean any corporation or other business entity that succeeds to substantially all of the assets or conducts the business of the Company, whether directly or indirectly, by purchase, merger, consolidation or otherwise. This Agreement shall be binding upon and inure to the benefit of the parties and their respective heirs, executors, administrators, personal representatives, successors and permitted assigns.

(d) Waivers, etc. No waiver of any breach or default hereunder shall be considered valid unless in writing, and no such waiver shall be deemed a waiver of any subsequent breach or default of the same or similar nature. The failure of any party to insist upon strict adherence to any term of this Agreement on any occasion shall not operate or be construed as a waiver of the right to insist upon strict adherence to that term or any other term of this Agreement on that or any other occasion.

(e) Provisions Overly Broad. In the event that any term or provision of this Agreement shall be deemed by a court of competent jurisdiction to be overly broad in scope, duration or area of applicability, the court considering the same shall have the power and hereby is authorized and directed to modify such term or provision to limit such scope, duration or area, or all of them, so that such term or provision is no longer overly broad and to enforce the same as so limited. Subject to the foregoing sentence, in the event that any provision of this Agreement shall be held to be invalid or unenforceable for any reason, such invalidity or unenforceability shall attach only to such provision and shall not affect or render invalid or unenforceable any other provision of this Agreement.

(f) Notices. Any notice permitted or required hereunder shall be in writing and shall be deemed to have been given on the date of delivery or, if mailed by certified mail, postage prepaid, return receipt requested, documented overnight courier, or by facsimile transmission, on the date mailed or transmitted.

(i) If to Executive to:

James O. McKenna at his address

set forth in the preamble to this Agreement or such more recent address as advised to the Company in writing.

(ii) If to the Company to:

the address set forth in the

preamble to this Agreement

Attention: Chairman of the Compensation Committee

with a copy to:

Steven Malsin, Esq.

237 Upper Shad Road

Pound Ridge, NY 10576

Telecopy: (914) 764-1940

(g) Law Governing. This Agreement shall be governed by and construed in accordance with the laws of the State of New York governing contracts made and to be performed in New York without regard to conflict of law principles thereof.

(h) Survival. All obligations of the Company to Executive and Executive to the Company shall terminate upon the termination of this Agreement, except as expressly provided herein. The provisions of Sections 7, 8, 9, and 10 shall survive termination of this Agreement.

(i) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, and each party may become a party hereto by executing a counterpart hereof. This Agreement and any counterpart so executed shall be deemed to be one and the same instrument. It shall not be necessary in making proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts.

(j) Approval. This Agreement is subject to prior review and approval of the Compensation Committee of the Company’s Board of Directors.

(k) Headings. The headings in this Agreement are for convenience of reference only

IN WITNESS WHEREOF, the parties have executed this Agreement as of the ^1st day of April, 2011, intending it to be effective on and as of the date hereof.

JAMES O. McKENNA	FORWARD INDUSTRIES, INC.
/s/___________________________________	By: /s/________________________
James O. McKenna III Vice President (Chief Financial Officer)	Brett M. Johnson President (Chief Executive Officer)

EXHIBIT I

1. Release. This Release of Claims (the “Release”) is entered into by you as a condition precedent to receiving the severance and severance related benefits provided in the Amended Employment Agreement to which this Exhibit I relates (this “Agreement” or the “Employment Agreement”). In exchange for the receipt of the severance and severance related benefits, you for yourself, your heirs and assigns and anyone else acting on your behalf, hereby voluntarily, knowingly and irrevocably and forever discharge the Company, each of its subsidiaries, and their respective successors, as well as their respective present, former, and future officers, directors, shareholders, employees, and agents, in both their individual and representative capacities, and each of their heirs and assigns (the “Releasees”) from all actions, claims, demands, causes of actions, obligations, damages, liabilities, expenses and controversies of any nature whatsoever, whether known or not now known or suspected, which you had, have or may have against the Releasees from the beginning of time up to and including the date you sign this Release (the “Waived Claims”). The Waived Claims that you forever and irrevocably give up and release when the Release becomes Effective include, but are not limited to, all claims related to (i) your employment at each of the Company and its subsidiaries or the termination of your employment, (ii) statements, acts or omissions by the Releasees, (iii) any express or implied agreement between you and the Releasees, (iv) wrongful discharge, defamation, slander, breach of express or implied contract, negligent and/or intentional misrepresentation or infliction of emotional distress, breach of an implied covenant of good faith and fair dealing, claims of intentional or negligent interference with economic, employment, or contractual rights or promissory estoppel, (v) any federal, state, or local law or regulation prohibiting discrimination in employment or otherwise regulating employment, including but not limited to, the Age Discrimination in Employment Act of 1967, as amended (ADEA), the Older Worker Benefit Protections Act, the Equal Pay Act of 1963, Title VII of the Civil Rights Acts of 1964, as amended, the Civil Rights Act of 1991, the Family Medical Leave Act of 1993 (FMLA), the Americans with Disabilities Act of 1990 (ADA), the Worker Adjustment and Retraining Notification Act, the Fair Labor Standards Act of 1938, as amended, the Employee Retirement Income Security Act of 1974 (ERISA), as amended, 42 U.S.C. Sections 1981 through 1988, the Consolidated Omnibus Reconciliation Act of 1986 (COBRA) the New York State Human Rights Law and the New York City Human Rights Act, (vi) any claim for wages, commissions, bonuses, incentive compensation, vacation pay, employee benefits (except as set forth in paragraph 2 of this Exhibit1 and paragraphs 5 or 6, as the case may be, and paragraph 7 of the Employment Agreement), expenses or allowances of any kind, or any other payment or compensation, according to the terms of each of those plans. You are not waiving any claims with respect to your rights to enforce this Agreement. You are not waiving or releasing any rights or claims that may arise after the date that you sign this Release. The date that you sign this Release shall be the date on or about you are entitled to receive the severance and other payments and other consideration as provided in the Employment Agreement and is referred to herein as the “Effective Date”.

2. Termination and Severance Benefits. The Release does not affect your vested rights and eligibility for benefits under the Company 401(k) Plan, or any other employee benefit plan covered by ERISA (other than a severance plan). Eligibility for benefits under these plans is determined by the applicable plan documents. The Release does not affect your right to reimbursement of expenses incurred but not reimbursed prior to the date you sign the Release, subject to the Company’s expense reimbursement policies. In addition, this Release does not affect your right to post-retirement medical coverage as applicable. In particular, this Agreement and the Release shall not affect your right to the payment provided in Section 4, 5 or 6 of the Agreement, as the case may be, and Section 7 thereof, or the Executive Release as set forth below.

3. Release. This Executive Release of Claims (the “Executive Release”) is entered into by the Company in consideration of Executive entering into and performing the Agreement including the terms of this Exhibit I. In exchange for Executive’s performance of the terms of the Agreement, including without limitation the terms of this Exhibit I to be performed by him, and grant of the Release, Forward, for itself, its subsidiaries, and their respective successors and assigns, the accuracy of the representations set forth in paragraph 5 of this Exhibit I, hereby voluntarily, knowingly and irrevocably and forever discharges Executive from all actions, claims, demands, causes of actions, obligations, damages, liabilities, expenses and controversies of any nature whatsoever, whether known or not now known or suspected, which it had, have or may have against the Executive in his capacity as executive officer from the beginning of time up to and including the Effective Date of this Agreement (the “Executive Waived Claims”). The Executive Waived Claims that the Company and its subsidiaries forever and irrevocably give up and release when the Executive Release becomes Effective include, but are not limited to, all claims related to (i) Executive’s employment at each of the Company and its subsidiaries or the termination of said employment, (ii) statements, acts or omissions by Executive, (iii) any express or implied agreement between the Company and its subsidiaries and you, other than agreements that by their terms survive the Employment Agreement, and (iv) defamation, slander, breach of express or implied contract, negligent and/or intentional misrepresentation or infliction of emotional distress, breach of an implied covenant of good faith and fair dealing. By entering into this Agreement or granting this Executive Release neither Forward nor any subsidiary hereby waives any claim with respect to its rights to enforce this Agreement. Neither the Company nor any subsidiary waives or releases any rights or claims that may arise after the date that it executes this Release.

4. No suit. You represent and warrant that as of the Effective Date, you nor anyone acting on your behalf has made or filed, commenced, maintained, prosecuted or participated in any action, suit, charge, grievance, complaint or proceeding of any kind against the Company, any subsidiary thereof, and/or Releasees in any federal, state or local court, agency or investigative body. You acknowledge that based on the foregoing, you hereby waive all relief available to you, including, without limitation, monetary damages, attorney’s fees and costs, equitable relief and reinstatement, under any claims released pursuant to paragraph 1 above.

5. Representations. You acknowledge and agree that:

(a) You have read and fully understand the legal effect and binding nature of the promises and obligations contained in this Exhibit to the Agreement;

(b) You are executing this Exhibit to Agreement freely and voluntarily;

(c) You have been advised to consult with legal counsel, at your own expense, before signing this Exhibit to the Agreement;

(d) You are receiving benefits as a condition to signing this Exhibit to Agreement and it becoming Effective that you would not otherwise be entitled to receive but for this Exhibit to Agreement becoming Effective;

(e) You have not, during the term of your employment under the Employment Agreement or thereafter performed any act, or directed any other person or entity to perform any act on your or their behalf, the intended or proximate result of which would constitute a violation of the covenants to be performed by you referred to or set forth in Section 8 of this Agreement, nor are there any agreements, arrangements, or understandings, written or oral, that would, if performed or acted upon, constitute such a violation.

(f) There are no promises or representations that have been made to you to sign this Agreement except those that are included in this Agreement;

(g) You will have had a period of five (5) days from the date of receipt of the terms of this Exhibit I to consider them. After you sign this Exhibit by sending a written notice of revocation via overnight mail or hand delivery to:

President

c/o Forward Industries, Inc.

3110 Main St.

Santa Monica, CA 90405

6. Covenants Under Employment Agreement. You further acknowledge and agree that the Confidentiality, Non-Compete, Non-Solicitation, Separability, and Specific Performance provisions in Section 8, 9, and 10, of the Employment Agreement are hereby reaffirmed and shall survive the termination of your employment for whatever reason, and continue as set forth in the Employment Agreement.

7. Non-Disparagement. You agree that you will not make disparaging remarks about Forward, any of its subsidiaries, or their officers, or directors in their individual and representative capacities, or the Company Business. Forward and its subsidiaries will not, and they shall cause their respective officers and directors not to, make disparaging remarks about you. None of the parties to this Agreement will issue or cooperate with issuance of any article, memorandum, release, interview, publicity, or statement, whether oral or written of any kind, to the public, the press or the media, which in any way concerns in a disaparaging, offensive, or prejudicial manner the other party, including any accusation of impropriety or unlawful conduct made directly or by authorizing others to make such accusations. “Disparaging remarks” when used in this Agreement shall mean the publication of matter that is untrue or adversely affects the subject’s reputation, image or good will, or is designed to induce others not to do business with you, Forward, or any of its subsidiaries, as the case may be. This subparagraph will not be construed to prevent you from complying with any lawfully served and binding subpoena, provided however, that you forward a copy of said subpoena(s) to the Company within seventy-two (72) hours of receipt of the same, unless expressly prohibited by law from doing so.

8. Equitable Relief. You agree that the violation of the obligations in paragraphs 6 and 7 of this Exhibit I would be a material breach of this Agreement, and the Company shall have no adequate remedy at law and will be able to enforce these obligations by seeking an injunction, including without limitation an ex parte preliminary and/or temporary restraining order, and such other relief as may be deemed just and proper, including monetary damages.

9. Cooperation. You agree that you will cooperate with Forward, its subsidiaries, and each of their respective attorneys or other legal representatives (“Company attorneys”) in connection with any claim, litigation, or judicial or arbitral proceeding which is now pending or may hereinafter be brought against Forward or any of its subsidiaries by any third party. Your duty of cooperation shall include, but not be limited to (i) meeting with Company attorneys by telephone or in person, at mutually convenient times and places, in order to state truthfully your knowledge of matters at issue and recollection of events; (ii) appearance by you (that does not conflict with the needs or requirements of your then current employer or occupation) as a witness at depositions or trials, without necessity of a subpoena, in order to state truthfully your knowledge of matters at issues; and (iii) signing, upon the request of Company attorneys, declaration or affidavits that truthfully state matters of which you have knowledge. The Company shall promptly reimburse you for your actual and reasonable travel or other expenses that you may incur in complying with your obligations pursuant to this paragraph.

10. Law Governing. The terms of this Exhibit I shall be deemed to have been made within the State of New York, and shall be interpreted and construed and enforced in accordance with the law of the State of New York and before the courts of the State of New York. This Agreement is not an admission of any liability or wrongdoing by you, the Company and/or any Releasee.

11. Return of Property. You acknowledge that by executing this Agreement that you have returned to the Company all property and all copies of Confidential Information belonging or pertaining to, or arising out of your employment by, the Company or any of its subsidiaries in your custody or possession.

12. No Reinstatement. By entering into this Agreement, you acknowledge that you (i) waive any claim to reinstatement and/or future employment with the Company and (ii) are not and shall not be entitled to any payments, benefits or other obligations from the Company or any subsidiary thereof whatsoever (except as expressly set forth herein).

Your signature below acknowledges that you knowingly and voluntarily agree to all of the terms and conditions contained in this Exhibit I and the Agreement.

EXECUTIVE	FORWARD INDUSTRIES, INC.


By:	By:
James O. McKenna	Brett M. Johnson
Vice President (Chief Financial Officer)	President (Chief Executive Officer)

SCHEDULE 1

Phase out of Housing Allowance.
Jim McKenna
As approved by the Board of Directors March 7, 2011

Current base - post relocation			$ 225,000

Phase out Base			$ 400,000

Difference			$ 175,000

Housing Allowance (annual) - Note (1)						$ 90,000

Phase out the allowance based on %
increases in base pay-over the first $175,000
of raises Note (2)

For Example Only:
	%	$	New	% reduction	$ Reduction	Next Year's	Net $	Net %
Year	Raise	Raise	Base	in Allowance	in Allowance	Allowance	Increase	Increase
2012	11%	$ 24,975	$ 249,975	14%	$ 12,844	$ 77,156	$ 12,131	4.9%
2013	5%	$ 12,499	$ 262,474	7%	$ 6,428	$ 70,728	$ 6,071	2.4%
2014	6%	$ 15,748	$ 278,222	9%	$ 8,099	$ 62,629	$ 7,649	2.9%
2015	5%	$ 13,911	$ 292,133	8%	$ 7,154	$ 55,474	$ 6,757	2.4%
2016	8%	$ 23,371	$ 315,504	13%	$ 12,019	$ 43,455	$ 11,351	3.9%
2017	5%	$ 15,775	$ 331,279	9%	$ 8,113	$ 35,342	$ 7,662	2.4%
2018	5%	$ 16,564	$ 347,843	9%	$ 8,519	$ 26,824	$ 8,045	2.4%
2019	5%	$ 17,392	$ 365,235	10%	$ 8,945	$ 17,879	$ 8,448	2.4%
2020	5%	$ 18,262	$ 383,497	10%	$ 9,392	$ 8,487	$ 8,870	2.4%
2021	5%	$ 19,175	$ 402,672	11%	$ 8,487	$ -	$ 10,688	2.8%
2022	5%	$ 20,134	$ 422,805	0%	$ -	$ -	$ 20,134	5.0%

Note (1)		This amount reflects the agreed upon cost differential, including the tax impact
Note (2)		Based upon the view that the housing allowance should not be paid once Executive's compensation equals or exceeds $400/000 and should be phased out over the differential between the starting base pay and the $400,000 ($400,000 - $225,000=$175,000). The above example reflects how the $90,000 annual allowance would be reduced each time the Executive receives an adjustment to base compensation. While such amounts are reflected above on an annual basis for illustrative purposes the actual adjustments will be made on a per pay period basis.

EX-31.1 3 ex31-1.htm Exhibit 31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER THE EXCHANGE ACT

I, Brett M. Johnson, certify that:

1.	I have reviewed this Quarterly Report on Form 10‑Q for the three months ended March 31, 2011, of Forward Industries, Inc. (“registrant”);

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for registrant and we have:

		a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

		b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America;

		c)	Evaluated the effectiveness of registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

		d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

		a)	All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

		b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: May 11, 2011
	/s/ Brett M. Johnson Brett M. Johnson President/Chief Executive Officer (Principal Executive Officer)

EX-31.2 4 ex31-2.htm Exhibit 31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER THE EXCHANGE ACT

I, James O. McKenna, certify that:

1.	I have reviewed this Quarterly Report on Form 10‑Q for the three months ended March 31, 2011, of Forward Industries, Inc. (“registrant”);

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for registrant and we have:

		a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

		b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America;

		c)	Evaluated the effectiveness of registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

		d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

		a)	All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

		b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: May 11, 2011

	/s/ James O. McKenna James O. McKenna
	Treasurer/Chief Financial Officer (Principal Financial and Accounting Officer)

EX-32 5 ex32.htm Exhibit 32

Exhibit 32.1

CERTIFICATIONS OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Brett M. Johnson, Chief Executive Officer of Forward Industries, Inc. (”Forward”), and James O. McKenna, Chief Financial Officer of Forward, do each certify pursuant to 18 U.S.C. §1350 that, to the best of their knowledge:

Forward’s Quarterly Report on Form 10-Q for the three months ended March 31, 2011 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Forward.

IN WITNESS WHEREOF, the undersigned have set their hands hereto as of the 11th day of May 2011.

s/ Brett M. Johnson

President/Chief Executive Officer

(Principal Executive Officer)

/s/ James O. McKenna

James O. McKenna

Treasurer/Chief Financial Officer

(Principal Financial and Accounting Officer)