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, 2012.

OR

[   ]    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  incorporation or organization)	(I.R.S. Employer Identification No.)

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 April 30, 2012, was 8,105,185 shares.

1

Forward Industries, Inc.

INDEX

PART I.		FINANCIAL INFORMATION	Page No.
	Item 1.	Financial Statements
		- Consolidated Balance Sheets as of March 31, 2012 (unaudited)
		and September 30, 2011.........................................................................................	4
		- Consolidated Statements of Operations (unaudited) for the Three and Six Months
		Ended March 31, 2012 and 2011...........................................................................	5
		- Consolidated Statements of Cash Flows (unaudited) for the Six Months
		Ended March 31, 2012 and 2011............................................................................	6
		- Notes to Consolidated Financial Statements (unaudited)..............................	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations....................................................................................................................	24
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk..........................	35
	Item 4.	Controls and Procedures..........................................................................................	35
PART II.		OTHER INFORMATION
	Item 1.	Legal Proceedings......................................................................................................	36
	Item 1A.	Risk Factors................................................................................................................	37
	Item 2	Unregistered Sales of Equity Securities and Use of Proceeds............................	37
	Item 3	Defaults Upon Senior Securities...............................................................................	37
	Item 4.	Mine Safety Disclosures............................................................................................	37
	Item 5.	Other Information........................................................................................................	37
	Item 6.	Exhibits...........................................................................................................................	38
		Signatures.....................................................................................................................	39
		Certifications................................................................................................................	40

2

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.;
"Forward US" refers to Forward Industries’ wholly owned subsidiary Forward Industries (IN), Inc. (formerly 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 JAFZA” refers to Forward Industries’ registered branch office in the Jebel Ali Free Zone of the United Arab Emirates;

“Forward APAC” refers to Forward Industries’ wholly owned subsidiary Forward Asia Pacific Limited, a Hong Kong corporation;

“Forward UK” refers to Forward Industries’ wholly owned subsidiary Forward Ind. (UK) Limited, a limited company of England and Wales;

“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;

“2012 Quarter” refers to the three months ended March 31, 2012;

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

“2012 Period” refers to the six months ended March 31, 2012;

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

“Fiscal 2012” refers to our fiscal year ending September 30, 2012;

“Fiscal 2011” refers to our fiscal year ended September 30, 2011;
“Europe” refers to the countries included in the European Union;
“EMEA Region” means the geographic area encompassing Europe, the Middle East and Africa;

“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;

“Retail” refers to the retail distribution channel; and

“Corporate” refers to the corporate distribution channel.

3

 PART I.   FINANCIAL INFORMATION

Item 1.  Financial Statements

Forward Industries, Inc.

CONSOLIDATED BALANCE SHEETS

	March 31,	September 30,
	2012	2011
Assets	(Unaudited)	(Note 1)
Current assets:
Cash and cash equivalents...........................................................................................	$9,719,455	$14,911,844
Accounts receivable, net ..............................................................................................	5,766,202	3,894,118
Inventories.......................................................................................................................	1,779,343	1,045,219
Note receivable...............................................................................................................	600,000	1,000,000
Prepaid expenses and other current assets................................................................	1,924,236	1,018,227
Total current assets..........................................................................................	19,789,236	21,869,408
Property and equipment, net.........................................................................................	300,146	302,158
Other assets.....................................................................................................................	88,716	88,716
Total Assets........................................................................................................................	$20,178,098	$22,260,282
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable...........................................................................................................	$3,189,347	$2,947,562
Accrued expenses and other current liabilities...........................................................	1,044,059	630,031
Total liabilities...................................................................................................	4,233,406	3,577,593
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, 8,811,595 and 8,794,296 shares issued; and 8,105,185 and 8,087,886 shares outstanding, respectively........................	88,116	87,943
Capital in excess of par value........................................................................................	17,169,221	16,845,673
Treasury stock, 706,410 shares at cost........................................................................	(1,260,057)	(1,260,057)
Retained (deficit) earnings.............................................................................................	(48,476)	3,009,130
Accumulated other comprehensive loss – foreign currency translation................	(4,112)	--
Total shareholders’ equity...............................................................................................	15,944,692	18,682,689
Total liabilities and shareholders’ equity......................................................................	$20,178,098	$22,260,282

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

4

Forward Industries, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended March 31,		Six Months Ended March 31,
	2012	2011	2012	2011
Net sales..............................................................................	$7,164,761	$4,996,267	$14,048,290	$10,964,474
Cost of goods sold..............................................................	5,820,267	3,839,161	11,306,798	8,426,424
Gross profit........................................................................	1,344,494	1,157,106	2,741,492	2,538,050
Operating expenses:
Selling...........................................................................	1,363,075	643,484	2,635,346	1,070,590
General and administrative........................................	1,554,332	1,121,392	3,197,329	2,052,010
Total operating expenses..................................	2,917,407	1,764,876	5,832,675	3,122,600
Loss from operations.......................................................	(1,572,913)	(607,770)	(3,091,183)	(584,550)
Other income (expense):
Interest income..........................................................	6,928	29,748	49,055	35,403
Other income (expense), net....................................	26,213	23,234	(9,184)	11,834
Total other income...........................................	33,141	52,982	39,871	47,237
Loss before income taxes................................................	(1,539,772)	(554,788)	(3,051,312)	(537,313)
Provision for income taxes.............................................	4,654	--	6,294	--
Net loss .............................................................................	$(1,544,426)	$(554,788)	$(3,057,606)	$(537,313)
Net loss per common and common equivalent share
Basic and diluted......................................................	$(0.19)	$(0.07)	$(0.38)	$(0.07)
Weighted average number of common and common equivalent shares outstanding
Basic and diluted......................................................	8,105,185	8,085,875	8,098,137	8,125,304

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

5

Forward Industries, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended March 31,
	2012	2011
Operating activities:
Net loss....................................................................................................................................	$(3,057,606)	$(537,313)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation...............................................................................................	323,720	148,192
Depreciation and amortization..........................................................................................	60,536	28,280
Provision for obsolete inventory.....................................................................................	11,520	19,124
Recovery of bad debts.......................................................................................................	--	(4,120)
Loss on disposal of property and equipment................................................................	739	--
Changes in operating assets and liabilities:
Accounts receivable..........................................................................................................	(1,872,084)	384,877
Inventories...........................................................................................................................	(745,644)	(149,804)
Prepaid expenses and other current assets....................................................................	(910,120)	(97,473)
Accounts payable..............................................................................................................	241,785	(612,193)
Accrued expenses and other current liabilities..............................................................	414,028	(284,145)
Net cash used in operating activities	(5,533,126)	(1,104,575)
Investing activities:
Issuance of note receivable..................................................................................................	--	(1,000,000)
Proceeds from note receivable..............................................................................................	400,000	--
Purchases of property and equipment................................................................................	(59,263)	(74,823)
Net cash provided by (used in) investing activities	340,737	(1,074,823)
Net decrease in cash and cash equivalents.......................................................................	(5,192,389)	(2,179,398)
Cash and cash equivalents at beginning of period...........................................................	14,911,844	18,471,520
Cash and cash equivalents at end of period.......................................................................	$9,719,455	$16,292,122
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.

6

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 and distributor of specialty and promotional products. The Company designs, markets, and distributes carry and protective solutions, primarily for hand held electronic devices. Its principal customer market is original equipment manufacturers, or “OEMs” (or the contract manufacturing firms of these OEM customers), that either package the Company’s products as accessories “in box” together with their product offerings, or sell them through their retail distribution channels, which the Company services in its OEM division. The Company’s OEM products include carrying cases and other accessories for medical monitoring and diagnostic kits, portable consumer electronic devices (such as smartphones, tablets, personnel computers, notebooks, and GPS devices), and a variety of other portable electronic and non-electronic products (such as firearms, sporting, and other recreational products). The Company’s OEM customers are located in the Americas, EMEA Region, and the APAC Region. 

The Company is currently expanding its product range to include cases and accessories for a wide array of consumer electronic devices, including smartphones, tablets, portable computers and other electronic devices; as well as developing its capability to market and distribute such products to customers in the Americas and EMEA Region through the OEM, retail and corporate channels. The Company’s product range destined for retail distribution includes both “Forward”-branded and non-“Forward” branded cases and accessories. During the three and six month periods ended March 31, 2012, net sales of Retail products accounted for approximately 13% and 12% of the Company’s total net sales.

The Company does not manufacture any of the products that it designs, markets, and distributes.  The Company sources substantially all its products from independent suppliers in China and the United States. 

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 periods presented herein, but are not necessarily indicative of the results of operations for the fiscal year ending September 30, 2012. 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, 2011, and with the disclosures and risk factors presented herein and therein, respectively. The September 30, 2011 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 (Forward US, Forward Switzerland, Forward HK, Forward APAC, and Forward UK). All significant intercompany transactions and balances have been eliminated in consolidation.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation.

7

Forward Industries, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 (UNAUDITED)

NOTE 2     ACCOUNTING POLICIES (CONTINUED)

Cash and Cash Equivalents

Cash and cash equivalents consist primarily of cash on deposit and highly liquid money market accounts, short-term bonds, and certificates of deposit with original contractual maturities of three months or less, predominately in U.S. dollar denominated instruments. The Company may purchase these short-term bonds with anticipated maturity of 90 days or less at a premium or discount. The Company records these investments as cash and cash equivalents net of amortization of premium or discount. 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, at which cash amounts may significantly exceed FDIC insured limits. At March 31, 2012, this amount was approximately $7.3 million. Historically, the Company has not experienced any losses due to such cash concentrations.

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 customers generally range from net thirty (30) days to net ninety (90) days. The Company has not historically experienced significant credit or collection problems with its OEM customers or their contract manufacturers. In addition, the Company maintains credit insurance that provides up to 90% coverage on trade accounts with customers in the EMEA region. The Company did not require an allowance for doubtful accounts at March 31, 2012. At September 30, 2011, the allowance for doubtful accounts was approximately $14,000.

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, 2012, the allowance for obsolete inventory was approximately $12,000. At September 30, 2011, no allowance for obsolete inventory was deemed necessary.

8

Forward Industries, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 (UNAUDITED)

NOTE 2     ACCOUNTING POLICIES (CONTINUED)

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, 2012 and 2011, the Company recorded approximately $31,000 and $15,000 of depreciation and amortization expense, respectively. For the six-month periods ended March 31, 2012 and 2011, the Company recorded approximately $61,000 and $28,000 of depreciation and amortization expense, respectively. 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.

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 net tax 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 7 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 and include accrued interest and penalties within “accrued liabilities” on its balance sheets. For the three-month periods ended March 31, 2012 and 2011 presented in the accompanying consolidated statements of operations, no income tax related interest or penalties were assessed or recorded.

Revenue Recognition

The Company generally recognizes revenue from product sales to its 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) the Company has no continuing obligations to the customer; and (4) collection of the related accounts receivable is reasonably assured. The Company offers certain of its customers a variety of sales and incentive programs, including discounts, allowances, and co-op advertising and marketing funds; such amounts are estimated and recorded as a reduction in revenue.

Shipping and Handling Costs

The Company classifies certain shipping and handling costs (including inbound and outbound 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.

9

Forward Industries, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 (UNAUDITED)

NOTE 2     ACCOUNTING POLICIES (CONTINUED)

Advertising and Promotion Costs

Advertising and promotion costs, consisting primarily of samples and tradeshow costs, are expensed as incurred. Advertising and promotion costs are included in sales and marketing expenses in the accompanying consolidated statements of operations and amounted to approximately $53,000 and $62,000 for the three-month periods ended March 31, 2012 and 2011, respectively; and $104,000 and $83,000 for the six-month periods ended March 31, 2012 and 2011, respectively. 

Foreign Currency Transactions

The functional currency of the Company and each of its wholly owned foreign subsidiaries is the U.S. dollar (except for Forward UK, which is the British Pound). Transactions denominated in foreign currencies may generate accounts receivable or payable balances 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. For the three-month periods ended March 31, 2012 and 2011, the Company recorded approximately $15,000 and $23,000 in foreign currency transaction gains, respectively. For the six-month periods ended March 31, 2012 and 2011, the Company recorded approximately $20,000 in foreign currency transaction losses and $12,000 in foreign currency transaction gains, respectively.  Such foreign currency transaction losses were primarily the result of Euro denominated sales to certain customers.

Comprehensive (Loss) Income

We calculate comprehensive income (loss) as the total of our net income (loss) and all other changes in equity (other than transactions with owners), including foreign currency translation adjustments. Comprehensive loss was $1,549,454 and $554,788 for the three-month periods ended March 31, 2012, and 2011, respectively; and $3,061,718 and $537,313 for the six-month periods ended March 31, 2012 and 2011, respectively.

Fair value of financial instruments

For certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, note receivable, 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 stock options and other equity-based compensation. The determination of grant-date fair value is estimated using a Black-Scholes option-pricing model, which includes variables such as the expected volatility of the Company’s share price, the exercise behavior of its grantees, interest rates, and dividend yields. These variables are projected based on the Company’s historical data, experience, and other factors. 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 6 Share-Based Compensation. In addition, the Company recognizes share-based compensation to non-employees (refer to Note 6) based upon the fair value, using the Black-Scholes pricing model, determined at the deemed measurement dates over the related contract service period.

10

Forward Industries, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 (UNAUDITED)

NOTE 2     ACCOUNTING POLICIES (CONTINUED)

Recent accounting pronouncements

In December 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-12, Comprehensive Income (Topic 220):  Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. ASU No. 2011-12, defers the specific requirement to present items that are reclassified from accumulated other comprehensive income to net income separately within their respective components of net income and other comprehensive income as described by Comprehensive Income (Topic 220) - Presentation of Comprehensive Income (ASU N0. 2011-05).  The Company will continue to report any applicable reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before ASU No. 2011-05.

NOTE 3     NOTE RECEIVABLE

            On January 5, 2011, the Company entered into a loan agreement with Flash Ventures, Inc. (“Flash”), an unrelated party, to provide a credit facility of up to $1,000,000 that was originally due December 1, 2011.  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.   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.  Effective December 1, 2011, the terms of the loan were amended to, among other things, extend the maturity date to April 1, 2012 and provide the Company with a security interest and lien on all of Flash’s assets.  In connection with such amendment Flash made a principal payment of $250,000 on December 1, 2011. Effective March 30, 2012, the terms of the loan were further amended to, among other things, extend the maturity date to June 1, 2012. In connection with such second amendment, Flash made a principal payment of $150,000 on March 30, 2012. The Company recorded approximately $449,000 in sales to Flash under its customary terms of sale during the six-month period ended March 31, 2011.

NOTE 4     PREPAID EXPENSES AND OTHER CURRENT ASSETS

            Prepaid expenses and other current assets consist of the following at:

	March 31, 2012	September 30, 2011
Supplier advances........................................................................................	$   897,380	$              --
Advanced royalties......................................................................................	550,000	490,000
Other...............................................................................................................	476,856	528,227
Total prepaid expenses and other current assets.............................	$1,924,236	$1,018,227

NOTE 5     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, 2012, 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, 2012 and 2011.

11

Forward Industries, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 (UNAUDITED)

NOTE 5     SHAREHOLDERS’ EQUITY (CONTINUED)

Changes in Shareholders’ Equity

Changes in shareholders’ equity for the six-month period ended March 31, 2012 are summarized below:

	Common Stock	Capital In Excess of Par Value	Retained Earnings	Treasury Stock	Accumulated Other Comprehensive Loss
Balance at September 30, 2011............	$87,943	$16,845,673	$3,009,130	$(1,260,057)	$  --
Share based compensation.............	173	323,548	--	--	--
Foreign currency translation...........	--	--	--	--	(4,112)
Net loss......................	--	--	(3,057,606)	--	--
Balance at March 31, 2012..................	$88,116	$17,169,221	$(48,476)	$(1,260,057)	$(4,112)

NOTE 6     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 authorizes 850,000 shares of common stock for grants of various types of equity awards to officers, directors, employees, consultants, and independent contractors. Under the 2011 Plan, as of March 31, 2012, the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”) has approved awards of stock options to purchase an aggregate of 825,000 shares of common stock to certain of the Company’s executive officers and employees (590,000 shares), a consultant (160,000 shares), non-employee directors (70,000 shares), and to a non-employee executive officer (5,000).  Of these awards, 132,000 shares were forfeited and reverted to, and are eligible for re-grant under, the 2011 Plan.  As of March 31, 2012, the total shares of common stock available for grants of equity awards under the 2011 Plan was 157,000. 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 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. Options granted under consulting agreement in November 2011 expire three years after the grant date and vest equally over the term of the Consulting Agreement, which concluded February 29, 2012. Refer to Note 10 – Commitments and Contingencies – Consulting Agreement.

12

Forward Industries, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 (UNAUDITED)

NOTE 6     SHARE BASED COMPENSATION (CONTINUED)

2007 Equity Incentive Plan

The 2007 Equity Incentive Plan (the “2007 Plan”), which was approved by shareholders of the Company in May 2007, and, as amended, in February 2010, authorizes an aggregate of 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. Under the 2007 Plan, the Compensation Committee of the Company’s Board of Directors approved awards of restricted common stock and stock options of 836,000, in the aggregate, to certain officers, employees and non-employee directors. Of these awards, 68,366 shares were forfeited and reverted to, and are eligible for re-grant under, the 2007 Plan.  As of March 31, 2012, the total shares of common stock available for grants of equity awards under the 2007 Plan was 32,366. 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 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.

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. In general, options under this plan expire ten years after the date of grant and generally vest in equal proportions over three years.  Unexercised options granted  prior to 1996 Plan 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, 2012.

Stock Option Awards

Under the 2011 and 2007 Plans, the Compensation Committee has approved awards of stock options to purchase an aggregate of 1,477,500 shares of common stock to the Company’s current and certain former non-employee directors, to certain key employees, to current and certain former Company officers, and to a consultant, of which awards covering 45,000 shares from the 2007 Plan and 132,000 shares from the 2011 Plan of common stock were forfeited, with such shares reverting to the respective plans and eligible for grant. 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 $187,000 and $43,000 of compensation expense for stock option awards in its consolidated statements of operations for the three-month periods ended March 31, 2012 and 2011, respectively; and $320,000 and $135,000 for the six-month periods ended March 31, 2012 and 2011, respectively. As of March 31, 2012, there was approximately $1,045,000 of total unrecognized compensation cost related to 874,000 shares of unvested stock option awards granted under the 2007 and 2011 Plans, which is expected to be recognized over the remainder of the weighted average vesting period (extending to February 2017).

13

Forward Industries, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 (UNAUDITED)

NOTE 6     SHARE BASED COMPENSATION (CONTINUED)

Stock Option Awards (continued)

The following table summarizes stock option activity under the 2011 Plan and 2007 Plan from September 30, 2011 through March 31, 2012 (there was no activity during such period in respect of 1996 Plan grants):

	Shares	Weighted Average Exercise Price	Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding at September 30, 2011	1,007,500	$3.45	9.1
Granted..............................................	280,000	2.77	5.5
Exercised............................................	--	--	--
Forfeited............................................	(42,000)	3.17	--
Expired...............................................	--	--	--
Outstanding at March 31, 2012	1,245,500	$3.31	7.8	$69,000
Options expected to vest at March 31, 2012.................................	739,450	$3.45	8.2	$1
Options vested and exercisable at March 31, 2012.............................	371,500	$3.00	5.2	$68,000

During the six-month periods ended March 31, 2012 and 2011, the Company granted 280,000 and 685,000 stock options at weighted average grant date fair values of $0.91 and $2.09, 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,
	2012	2011
Expected term (in years).......................................	3.0 to 5.0	5.0
Risk-free interest rate............................................	0.04% to 0.83%	0.3% to 2.2%
Expected volatility.................................................	63% to 69%	66% to 69%
Expected dividend yield.......................................	0%	0%
Estimated Annual Forfeiture rate	9.1%	--

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. The Company adjusted its estimated forfeiture rate effective October 1, 2011 and recognized a recovery of approximately $46,000 during the three-month period ended December 31, 2011. No such recovery was recognized during the three-month period ended March 31, 2012.

14

Forward Industries, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 (UNAUDITED)

NOTE 6     SHARE BASED COMPENSATION (CONTINUED)

Restricted Stock Awards

Under the 2007 Plan, the Compensation Committee has approved and granted awards of 183,500 shares of restricted stock, in the aggregate, to certain key employees. Of these awards, 152,634 have vested and 23,366 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 three and six month periods ended March 31, 2012.  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 of the grant date, 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, 2012 and 2011, the Company recognized approximately ($1,000) and $3,000, respectively, of compensation in its consolidated statements of operations related to restricted stock awards; and $3,000 and $13,000 for the six-month periods ended March 31, 2012 and 2011, respectively.

The following table summarizes restricted stock activity under the 2007 Plan from September 30, 2011, through March 31, 2012.

	Shares	Weighted Average Grant Date Fair Value
Non-vested balance at September 30, 2011...............................	25,799	$2.04
Changes during the period:
Shares granted.......................................................................	--	--
Shares vested........................................................................	17,299	2.05
Shares forfeited.....................................................................	1,000	2.02
Non-vested balance at March 31, 2012.....................................	7,500	$2.02

                As of March 31, 2012, there was approximately $3,000 of total unrecognized compensation cost related to 7,500 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 (approximately 9 months). The total grant date fair value of restricted stock that vested during the six-month period ended March 31, 2012 was approximately $35,000.

Warrants

    As of March 31, 2012, 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, 2012, no such registration statement has been filed with the Securities and Exchange Commission.

15

Forward Industries, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 (UNAUDITED)

NOTE 7  INCOME TAXES

The Company’s provision 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,
	2012	2011	2012	2011
U.S. Federal and State
Current...................................	$--	$--	$--	$--
Deferred.................................	(414,027)	(209,987)	(857,970)	(240,323)
Foreign:
Current...................................	3,339	--	4,979	--
Deferred.................................	(36,390)	9,953	(44,152)	19,971
Change in valuation allowance	451,732	200,034	903,437	220,352
Provision for income taxes	$4,654	$--	$6,294	$--

The provision for income taxes of approximately $5,000 and $6,000 recorded in the three and six-month periods ended March 31, 2012 is primarily attributable to Forward UK. As of March 31, 2012, and September 30, 2011, the Company has no unrecognized income tax benefits.

At March 31, 2012, the Company had available net operating loss carryforwards for U.S. Federal and state income tax purposes of approximately $4,837,000 and $5,782,000, respectively, expiring through 2031, resulting in deferred tax assets in respect of U.S. Federal and state income taxes of approximately $1,645,000 and $167,000, respectively. In addition, at March 31, 2012, the Company had available net operating loss carryforwards for foreign income tax purposes of approximately $1,663,000 resulting in a deferred tax asset of approximately $146,000, expiring through 2017.  Total net deferred tax assets, before valuation allowances, was $2,284,000 and $1,381,000 at March 31, 2012 and September 30, 2011, respectively. As of March 31, 2012, the undistributed earnings of the Company’s Swiss subsidiary of $317,000 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, 2012, as part of its periodic evaluation of the necessity 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; as of March 31, 2012 and September 30, 2011, the valuation allowances were approximately $2,284,000 and $1,381,000, 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 for Income Taxes” line item of the Company’s consolidated statements of operations.

16

Forward Industries, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 (UNAUDITED)

NOTE 7  INCOME TAXES (CONTINUED)

As of March 31, 2012 and September 30, 2011, 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, 2008 are closed to Federal and State examination, except with respect to net operating losses generated in prior fiscal years.

NOTE 8     (LOSS) / INCOME 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. Diluted loss per share data for the three-month and six-month periods ended March 31, 2012 and 2011 excludes 1,328,000 and 39,429 of outstanding common equivalent shares as inclusion of such shares would be anti-dilutive.

NOTE 9     OPERATING SEGMENT INFORMATION

In the first quarter of its 2012 fiscal year, the Company changed its internal reporting used by its senior management for evaluating segment performance and allocating resources. The new reporting disaggregates the Company’s operations into two divisions; OEM and Retail (including “Forward”-branded products), and represented a change in the Company’s operating segments under ASC 280, “Segment Reporting.” During its 2011 fiscal year, the Company reported and managed its business based on a single operating segment under ASC 280.

The OEM segment consists of the design and distribution of custom carry and protective solutions to OEM’s that either package the Company’s products as accessories “in box” together with their product offerings, or sell them through their retail distribution channels. The Company’s OEM products include soft-sided carrying cases and other accessories for medical monitoring and diagnostic kits, bar code scanners, consumer electronics (including personnel tablets and computers,, smartphones, and GPS devices), firearms, sporting, and other recreational products. The OEM segment operates in geographic regions that include primarily APAC, the Americas, and EMEA. Geographic regions are defined by reference primarily to the location of the customer or its contract manufacturer.

The Retail segment, which commenced during the three-month period ended December 31, 2011, consists of the design, marketing, and distribution of cases and accessories for consumer electronics devices such as smartphones, tablets, portable computers and other consumer electronics products. The Company is currently developing its own line of “Forward”-branded products and its capability to market and distribute such products to retail customers in the Americas an EMEA Region.

17

Forward Industries, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 (UNAUDITED)

NOTE 9     OPERATING SEGMENT INFORMATION (CONTINUED)

The following table presents net sales of each segment by geographical region:

(all amounts in thousands of dollars)			(all amounts in thousands of dollars)
Three Months Ended March 31,			Six Months Ended March 31,
	2012	2011	2012	2011
OEM Segment:
APAC...............................................	$2,773	$2,466	$5,608	$5,200
Americas..........................................	1,848	1,350	3,844	3,286
EMEA..............................................	1,607	1,180	2,933	2,478
Total OEM sales......................	6,228	$4,996	12,385	$10,964
Retail Segment:
EMEA..............................................	825	--	1,477	--
Americas..........................................	112	--	186	--
Total Retail Sales....................	937	--	1,663	--
Total net sales*.....................................	$7,165	$4,996	$14,048	$10,964
Gross Profit:
OEM Segment.................................	$1,155		$2,364
Retail Segment................................	189		377
Unallocable to segments...............	--		--
Total gross profit:...................	$1,344		$2,741
Operating Expenses:
OEM Segment.................................	$438		$864
Retail Segment................................	1,298		2,511
Unallocable to segments...............	1,182		2,458
Total operating expenses:......	$2,917		$5,833
Income (loss) from operations:
OEM Segment.................................	$718		$1,500
Retail Segment................................	(1,108)		(2,133)
Unallocable to segments...............	(1,182)		(2,458)
Total loss from operations:....	$(1,573)		$(3,091)

*Totals may not total due to rounding

Total assets:	As of March 31, 2012
OEM Segment.................................	$5,228
Retail Segment................................	3,217
Unallocable to segments...............	11,733
Total assets:.............................	$20,178

18

Forward Industries, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 (UNAUDITED)

NOTE 10   COMMITMENTS AND CONTINGENCIES

Employment Agreements

On April 2, 2012, the Company appointed Robert Garrett Jr. and Brett Johnson as Co-Chief Executive Officers of the Company.  Mr. Johnson has served as the Company’s President and Chief Executive Officer since August 2010.  Mr. Garrett has served as a consultant to the Company pursuant to a consulting agreement (refer to “Consultancy Agreement” section below) since October 1, 2011. In connection with Mr. Garrett’s appointment as the Company’s Co-Chief Executive Officer, the Consulting Agreement was terminated effective as of February 29, 2012.

Robert Garrett Employment Agreement

Under his employment agreement, Mr. Garrett is employed as the Company’s Co-Chief Executive Officer, effective as of March 1, 2012, at an annual salary of $250,000. In executing his employment agreement, Mr. Garrett received a signing bonus of $9,167. During Mr. Garrett’s first year of employment he shall receive a bonus not less than $50,000.  In addition, during each year of his employment, Mr. Garrett is eligible to receive an annual bonus at the discretion of the Compensation Committee in a combination of cash or equity based compensation. Mr. Garrett’s employment agreement also entitles him to awards of stock options to purchase an aggregate of 200,000 shares of the Company’s common stock pursuant to the 2011 Long Term Incentive Plan.

Mr. Garrett’s employment agreement provides for successive one-year renewal terms, unless either party provides written notice of its intention not to renew the agreement not later than 90 days prior to the end of the term (or renewal period). In the event of the termination of Mr. Garrett’s employment, depending on the circumstances, Mr. Garrett could be entitled to receive a severance payment which could be up to (12) twelve months of his salary, and under certain circumstances, the immediate vesting of any unvested options pursuant to applicable equity compensation plans, as well as any accrued discretionary bonus.

Mr. Garrett’s employment agreement binds him to customary non-competition and non-solicitation covenants of up to one year following the expiration of the employment term.

Brett Johnson Employment Agreement

Under his employment agreement, Mr. Johnson is employed as the Company’s Co-Chief Executive Officer, effective March 1, 2012, at an annual salary of $250,000.  During Mr. Johnson’s first year of employment, he is eligible to earn a bonus of up to $50,000, based on achievement of certain performance goals defined in his employment agreement. In addition, during each year of his employment, Mr. Johnson is eligible to receive an annual bonus at the discretion of the Compensation Committee in a combination of cash or equity based compensation.

Mr. Johnson’s employment agreement provides for successive one-year renewal terms, unless either party provides written notice of its intention not to renew the agreement not later than 90 days prior to the end of the term (or renewal period). In the event of termination of Mr. Johnson’s employment, depending on the circumstances, Mr. Johnson could be entitled to receive a severance payment which could be up to (12) twelve months of his salary, and under certain circumstances the immediate vesting of any unvested options pursuant to applicable equity compensation plans, as well as any accrued discretionary bonus.

Mr. Johnson’s employment agreement binds him to customary non-competition and non-solicitation covenants of up to one year following the expiration of the employment term.

19

Forward Industries, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 (UNAUDITED)

NOTE 10   COMMITMENTS AND CONTINGENCIES (CONTINUED)

Employment Agreements (Continued)

James McKenna Employment Agreement

James O. McKenna serves as the Company’s Chief Financial Officer, Treasurer and Assistant Secretary pursuant to an Amended Employment Agreement, dated as of April 1, 2011 (the “Employment Agreement”), between the Company and Mr. McKenna.  The Employment Agreement provides for an annual salary of $225,000 and Mr. McKenna will be eligible to earn bonus compensation based on achievement of targets set by the Board’s Compensation Committee in respect of each fiscal year during the term.  Under the Employment Agreement, Mr. McKenna is entitled to reimbursement of reasonable out-of-pocket costs incurred in relocation to the Los Angeles area, and payment of a housing allowance of $7,500 per month, to be phased out over time.  The term of the Employment Agreement expires on December 31, 2012, with automatic renewal for successive terms of one year each.  Pursuant to the Employment Agreement, Mr. McKenna is entitled to a payment equal to one year of his salary as severance in the event of his termination “without cause” and termination for “good reason” (as such terms are defined in the Employment Agreement).  In addition, in case of termination for good reason or without cause, in either case within the first 36 months after relocation to the Los Angeles area, Mr. McKenna is entitled to reimbursement of reasonable out-of-pocket costs incurred in connection with relocation of his primary residence back to Florida.

Consultancy Agreement

On November 1, 2011, the Company entered into an agreement with RGJR Capital Partners LLC (“RGJR”) to provide Robert Garrett, Jr. as a consultant for a term of up to six months to assist management in implementation of its growth strategy pursuant to a letter agreement, effective as of October 1, 2011. Under the RGJR agreement, Mr. Garrett received a consulting fee of $30,000 per month and was awarded options to purchase up to 160,000 shares of common stock of the Company pursuant to the 2011 Long Term Incentive Plan. In connection with Mr. Garrett’s appointment as the Company’s Co-Chief Executive Officer (refer to “Employment Agreements” section above), the Consulting Agreement was terminated effective as of February 29, 2012.

Letters of Intent

Waterproof Case License

In September 2011, the Company entered into a Letter of Intent with a Florida corporation (“FloridaCo”) that has invented a patent pending waterproof electronics case. Under the Letter of Intent, the Company will be granted the exclusive worldwide license to manufacture, develop, distribute, and otherwise use the waterproof case, subject to maintaining certain minimum monthly sales levels, in exchange for making certain royalty payments to FloridaCo. In addition, the Company agreed to make four quarterly payments of advance royalties to FloridaCo, in the amount of $25,000 each, commencing December 1, 2011. Such advance royalty payments are non-refundable and interest free.  However, a portion of these payments may be used by the Company to offset its performance-based royalty obligations to FloridaCo until all such advance royalties have been fully recouped by the Company. As of the date of this report, the Company had paid $50,000 of such advance royalties to FloridaCo, which are included in “Prepaid expenses and other current assets” on the Company’s consolidated balance sheet at March 31, 2012.

20

Forward Industries, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 (UNAUDITED)

NOTE 10   COMMITMENTS AND CONTINGENCIES (CONTINUED)

Letters of Intent (continued)

Folding Keyboard License

In January 2012, the Company entered into a Letter of Intent with a Delaware corporation (“DelawareCo”) that has invented a patent pending, folding, Bluetooth keyboard (the “Folding Keyboard”). Under the Letter of Intent, the Company would have been granted the exclusive worldwide license to manufacture, develop, distribute, and otherwise use the Folding Keyboard in exchange for making certain royalty payments to DelawareCo based on the Company’s sales of the Folding Keyboard over the term of the license agreement. In addition, the Company agreed to pay DelawareCo $100,000 of advance royalties in the event DelawareCo raises $100,000 of capital for the launch of the Folding Keyboard. On March 24, 2012, upon mutual agreement, the Company withdrew its Letter of Intent with DelawareCo., and as of such date, no advance royalties have been paid to DelawareCo.

Guarantee Obligation

In February 2010, Forward Switzerland 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 March 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 €75,000 (equal to approximately $100,000 as of March 31, 2012) 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 initial term of the bank letter of guarantee expired February 28, 2011, but was renewed for one year and may 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 $300,000 at March 31, 2012). As of March 31, 2012, the Company had not incurred a liability in connection with this guarantee.

21

Forward Industries, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 (UNAUDITED)

NOTE 10   COMMITMENTS AND CONTINGENCIES (CONTINUED)

Buying Agency and Supply Agreement

On March 12, 2012, the Company, entered into a Buying Agency and Supply Agreement (the “Agreement”) with Seaton Global Corporation, a British Virgin Islands corporation (“SGC”), dated as of March 7, 2012.  The Agreement provides that, upon the terms and subject to the conditions set forth therein, SGC shall act as the Company’s exclusive buying agent and supplier of Products (as defined in the Agreement) in the Asia Pacific region.  The Company shall purchase products at SGC’s cost, and shall pay a service fee on the net purchase price.  The Agreement shall terminate on March 11, 2014, subject to renewal.  Terence Wise, a director of the Company, is a principal of SGC. During the three and six-month periods ended March 31, 2012, the Company recorded $70,000 of SGC service fees, which are included as a component of costs of goods sold in the accompanying consolidated statements of operations.

NOTE 11   BINDING MEMORANDUM OF UNDERSTANDING

In August 2011, the Company entered into a binding Memorandum of Understanding (“MOU”) with G-Form LLC (“G-Form”), a manufacturer of consumer and athletic products incorporating proprietary extreme protective technology.  Under the MOU, the Company is granted the exclusive right to use G-Form’s protective technology in the Company’s designated territory, subject to meeting certain minimum annual sales levels (or at the Company’s option, the making of royalty payments at corresponding levels) commencing with the twelve-month period after shipment of the first Forward-branded licensed product that uses this technology, with the minimum levels increasing in the subsequent second and third twelve-month periods. After the first twelve-month period, the Company may terminate the MOU by providing six months notice, provided that the Company has paid all royalties and other charges incurred.  The Agreement may be terminated by G-Form if there is an uncorrected, material breach by the Company of the terms of the Agreement.

As of September 30, 2011, the Company had paid G-Form a $490,000 non-refundable advance against the first year’s royalties to be offset by cancellation of the $500,000 of loans made by the Company to G-Form in its capacity as a prospective joint venture partner. This amount increased to $500,000 as of March 31, 2012. The $500,000 of advanced royalties is included in “Prepaid expenses and other current assets” on the Company’s balance sheet at March 31, 2012. As of March 31, 2012, there have been no sales of Forward-branded licensed product. The MOU is a binding agreement but the parties have agreed to use commercially reasonable efforts to replace the MOU with a mutually agreeable long-form license agreement reflecting the terms of the MOU and other customary terms and conditions.

22

Forward Industries, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 (UNAUDITED)

NOTE 12 LEGAL PROCEEDINGS

Targus Group International, Inc., et al. v., Forward Industries, Johnson, et al.

On September 19, 2011, the Company, Brett Johnson (our President and Chief Executive Officer), and one of our employees were named in a Complaint filed in Orange County Superior Court by Targus Group International, Inc. and two of its affiliates.  The Complaint alleged a claim for breach of contract against Mr. Johnson.  The Complaint further alleged a "breach of fiduciary duty/duty of loyalty" against the employee, and it asserted claims against Mr. Johnson and the Company for allegedly aiding and abetting that alleged breach.  The Complaint also asserted a cause of action against all Defendants for unfair competition.  An Amended Complaint was filed on October 11, 2011.  In addition to the claims asserted in the original Complaint, the Amended Complaint added an additional Targus affiliate as a plaintiff and named an additional employee of the Company as a defendant.  The Amended Complaint asserted a claim against that employee for breach of contract and for "breach of fiduciary duty/duty of loyalty," and it added new claims against the Company and Mr. Johnson for allegedly interfering with that employee's contract and for allegedly aiding and abetting his breach of duty.  The claim for unfair competition in the Amended Complaint relies on these new allegations as well.  All of the claims asserted in this action arise out of the decisions of former employees of one or more of the plaintiffs to accept offers of employment with the Company.  The amount of damages sought is not specified.  On November 11, 2011, the Company, Brett Johnson, and James Berberian filed a demurrer with respect to certain of the claims asserted in the Amended Complaint.  On January 30, 2012, the district court sustained the demurrer in part and ruled that Plaintiffs had not pled a valid cause of action against Mr. Johnson with respect to its claim against him for breach of contract.  The court permitted Plaintiffs to amend this defective claim and on February 10, 2012, Plaintiffs filed a Second Amended Complaint. On March 12, 2012, Mr. Johnson filed a demurrer to the breach of contract claim that was re-pled against him in the Second Amended Complaint.  A hearing on Mr. Johnson’s demurrer is scheduled for May 22, 2012. The Company believes it has substantial defenses to these claims and intends to vigorously defend the action. The Company has not recorded a loss provision for these complaints as of March 31, 2012.

Other Litigation

            From time to time, the Company may become a party to other legal actions or proceedings in the ordinary course of its business.  As of March 31, 2012, 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.

23

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, 2011.  The following discussion and analysis compares our consolidated results of operations for the three months ended March 31, 2012 (the “2012 Quarter”), with those for the three months ended March 31, 2011 (the “2011 Quarter”) and our consolidated results of operations for the six months ended March 31, 2012 (the “2012 Period”) with the six months ended March 31, 2011 (the “2011 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 on Form 10-Q are based upon assumptions and assessments that we believe to be reasonable as of the date of this Quarterly Report on Form 10-Q.  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.  Risks, uncertainties, contingencies, and developments, including those discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations 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, 2011, could cause our future operating results to differ materially from those set forth in any forward looking statement.  There can be no assurance that any such forward looking statement, projection, forecast or estimate contained can be realized or that actual returns, results, or business prospects will not differ materially from those set forth in any forward looking statement.

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.

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Forward Industries, Inc.

BUSINESS OVERVIEW

OEM Division

We design, market, and distribute carry and protective solutions, primarily for hand held electronic devices. Our principal customer market is original equipment manufacturers, or “OEMs” (or the contract manufacturing firms of these OEM customers), that either package our products as accessories “in box” together with their product offerings, or sell them through their retail distribution channels. Our OEM products include carrying cases and accessories for medical monitoring and diagnostic kits, portable electronic devices (such as smartphones, tablets, personnel computers, notebooks, and GPS devices), and a variety of other portable electronic and non-electronic products (such as firearms, sporting, and other recreational products). Our OEM customers are located in the Americas, EMEA Region, and the APAC Region.  We source substantially all our products from independent suppliers in China. Historically, our suppliers custom manufacture our OEM carry and protective solutions to our order, based on our designs and know-how, and to our OEM customer’s specifications. However, beginning in the first quarter of Fiscal 2012, we also market and distribute standard consumer electronics accessories and peripherals (such as wireless mice) to OEMs.

Retail Division

We continue to expand our product range to include cases and accessories for a wide array of consumer electronic devices, including smartphones, tablets, portable computers and other electronic devices; as well as developing our capability to market and distribute such products to customers in the Americas and EMEA Region through the retail channel. Our Retail products range includes both “Forward”-branded and non-“Forward” branded cases and accessories that, in most cases, are co-developed and designed with our strategic partners.

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 and the United States.

During the three and six-month periods ended March 31, 2012, Retail sales accounted for approximately, 13% and 12% of the Company’s total net sales, respectively. There were no Retail sales for the three and six-month periods ended March 31, 2011.

TRENDS AND ECONOMIC ENVIRONMENT

In executing the channel-building and product development elements of our Retail division strategy during Fiscal 2012 and 2011 we have incurred significantly higher selling, general, and administrative expenses in the recruitment and employment of experienced sales, design, operations, and administrative professionals. Insofar as most of our new personnel were hired in the second half of Fiscal 2011 and in the beginning of Fiscal 2012, the 2012 Period more fully reflects our investment in personnel; whereas, the anticipated benefits of such hires in the form of increased sales and profit will take significantly longer to be fully realized, if at all.

In addition, we have devoted resources to develop and expand our product portfolio to market and distribute into the retail and corporate markets, particularly in terms of funding product development activities with prospective partners.  We believe that the measure of success of our retail and corporate strategy, as reflected in our results of operations, will be determined by the strength of these new distribution channels, by the speed in which we can bring new products to market, and by the success and acceptance of our new products in the marketplace.

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Forward Industries, Inc.

In order to accelerate the Company’s return to profitability, beginning in March 2012, we have taken steps to streamline our operations through implementation of a global restructuring plan that focuses on cost reduction and rationalization, while preserving our ability to execute our Retail division strategy.  This plan includes the restructuring of our Asia-based sourcing and quality assurance operations (refer to “Buying and Sourcing Agreement” under Note 10 – Commitments and Contingencies to our consolidated financial statements), as well as global headcount reductions.  The full effects of this restructuring plan are generally not reflected in the 2012 Quarter, but we anticipate the effects to be more fully reflected in the second half of Fiscal 2012.

With regard to our OEM business, in late Fiscal 2011, we were awarded several large programs by two major diabetic customers. We anticipate that these programs will begin to contribute meaningfully to revenues in the second half of Fiscal 2012. While we expect these new programs to increase our sales volume, we anticipate that gross margins on certain of these new or prospective programs will be lower than the gross margins seen in the first half of Fiscal 2012.   However, our business remains highly concentrated by customer and product type, especially in the diabetic case product line. Moreover, we continue to operate in a very challenging pricing and gross margin environment with our OEM customers.  The global economy continues to face headwinds, and our OEM customers remain very price and delivery sensitive.  As reflected in the “gross profit” discussions below, we are encountering higher costs from our China-based suppliers due to materials and labor price increases, placing continuing pressure on profit margins and anticipate that the impact of such increases will become more evident in this division.  Product mix factors may exacerbate this trend.  In many cases, we are not able to pass higher costs through to customers, particularly when replacement program products resemble their predecessor or historically similar products for which customers have become accustomed to a narrow price range. See “Risk Factors” in Item 1.A of Forward’s Annual Report on Form 10-K for the fiscal year ended September 30, 2011. We are actively looking at alternative sources of supply to expand and diversify our manufacturing capabilities in order to mitigate this trend.

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.   We expect that this variability will be mitigated, to some degree, through our execution of our Retail business strategy.

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 assumptions that are believed to be reasonable under the circumstances. There can be no assurance that actual results will not differ from those estimates and such differences could be significant.

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, 2011, under the caption “Management’s Discussion and Analysis—Critical Accounting Policies and Estimates”.  There has been no material change in critical accounting policies or estimates since September 30, 2011.   

The notes to our audited consolidated financial statements contained in our Annual Report on Form 10-K for the year ended September 30, 2011, 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.

RESULTS OF OPERATIONS FOR THE 2012 QUARTER COMPARED TO THE 2011 QUARTER

Net loss

Net loss increased $1.0 million to $1.5 million in the 2012 Quarter from $0.6 million in the 2011 Quarter. The increase resulted primarily from higher sales and marketing expenses, as well as higher general and administrative expenses, which were offset, in small part, by an increase in gross profit on higher net sales, as reflected in the table below:   

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Forward Industries, Inc.

Main Components of Net Loss
(thousands of dollars)
	2012 Quarter	2011 Quarter	Increase (Decrease)
Net Sales.........................................................................................	$7,165	$4,996	$2,169
Gross Profit....................................................................................	1,344	1,157	187
Sales and Marketing Expenses...................................................	(1,363)	(643)	720
General and Administrative Expenses	(1,554)	(1,121)	433
Other Income (Expense)...............................................................	33	53	(20)
Provision for Income Taxes.........................................................	(5)	--	5
Net loss*........................................................................................	$(1,544)	$(555)	$990

* Table may not total due to rounding.

Basic and diluted per share data was a loss of $(0.19) per share for the 2012 Quarter, compared to a loss of $(0.07) per share for the 2011 Quarter.

Net Sales

Net sales increased $2.2 million, or 43%, to $7.2 million in the 2012 Quarter from $5.0 million in the 2011 Quarter due to higher sales of OEM Products, which increased $1.2 million, and first time sales of Retail Products of $0.9 million, in the 2012 Quarter. The tables below set forth sales by channel, product line, and geographic location of our customers for the periods indicated.

Net Sales for 2012 Quarter 3 Months ended March 31, 2012 (millions of dollars)
	APAC	Americas	Europe	Total*
OEM Products:
Diabetic products.............................	$2.6	$0.8	$1.3	$4.7
Other products.................................	0.2	1.1	0.3	1.5
Total OEM product sales*.........	2.8	1.8	1.6	6.2
Retail Product sales...............................	--	0.1	0.8	0.9
Total net sales*	$2.8	$1.9	$2.4	$7.2

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Forward Industries, Inc.

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

* Tables may not total due to rounding.

OEM - 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).  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 to a lesser extent, sell them through their retail distribution channels.

Sales of OEM-Diabetic products increased $0.7 million, or 17%, to $4.7 million in the 2012 Quarter, from $3.9 million in the 2011 Quarter. This increase was due to higher sales to all our major OEM-Diabetic product customers, but in particular, our two largest. The following table sets forth our sales by OEM-Diabetic product customer for the periods indicated.

(millions of dollars)
	2012 Quarter	2011 Quarter	Increase
OEM-Diabetic Customer A...........................................	$2.6	$2.2	$0.4
OEM-Diabetic Customer B............................................	0.9	0.8	0.1
OEM-Diabetic Customer C............................................	0.8	0.7	0.1
All other OEM-Diabetic Product Customers..............	0.4	0.1	0.3
Totals*.....................................................................	$4.7	$3.9	$0.8

* Table may not total due to rounding.

Sales of OEM-Diabetic products represented 66% of our total net sales in the 2012 Quarter compared to 79% of our total net sales in the 2011 Quarter. This decrease is due to the higher contribution of OEM-Other product sales and Retail product sales to our total net sales in the 2012 Quarter.

OEM - Other Product Sales

We design and sell cases and protective solutions to OEMs for a diverse array of portable electronic devices (such as smartphones, GPS devices, and bar code scanners), as well as a variety of other products (such as firearms, sporting, and other recreational products) on a made-to-order basis that are customized to fit the products sold by our OEM customers. In addition, beginning in the first quarter of Fiscal 2012, we market and distribute standard consumer electronics accessories and peripherals (such as wireless mice) to OEMs.

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Forward Industries, Inc.

Sales of OEM-Other products increased $0.5 million, or 43%, to $1.5 million in the 2012 Quarter from $1.0 million in the 2011 Quarter. This increase was primarily due to $0.3 million in sales of Consumer Electronic products to one OEM customer in the 2012 Quarter.  In addition, higher sales to several major OEM-Other customers, the largest of which was to a long-standing cellular customer, to which our sales increased $0.2 million in the 2012 Quarter, also contributed to the increase. In the 2011 Quarter, we sold $0.4 million of products to Flash Ventures, Inc. (refer to Note 3 – Note Receivable in the Notes to Financial Statements), under their brand, which we considered as non-recurring business.  Smaller changes in a number of OEM-Other customers largely offset each other, none of which changes individually was material.

Sales of OEM-Other products (inclusive of OEM-Consumer Electronic products) represented 21% of our net sales in the 2012 and 2011 Quarters.

Retail Product Sales

We are currently expanding our product range to include cases and accessories for a wide array of consumer electronic devices, including smartphones, tablets, portable computers and other electronic devices; as well as developing our capability to market and distribute such products to customers in the Americas and EMEA Region through the retail channel. Our Retail products range includes both “Forward”-branded and non-“Forward” branded cases and accessories that, in most cases, are co-developed and designed with our strategic partners

Net sales of Retail Products were $.9 million, or 13% of total net sales, in the 2012 Quarter due to several new customers in the Americas and EMEA regions, of which none were individually material.

Gross Profit

Gross profit increased $0.2 million, or 16%, to $1.3 million in the 2012 Quarter from $1.2 million in the 2011 Quarter. The increase was primarily driven by the $2.2 million increase in net sales (refer to “Net Sales” section above), which included $0.9 million of first time Retail product sales with gross profit margins that generally higher than those produced by our OEM product sales. As a percentage of sales, our gross profit declined to 19% in the 2012 Quarter, compared to 23% in the 2011 Quarter.

OEM – Gross Profit

In the 2012 Quarter, our materials costs, as a percentage of net sales, was 4% higher than the 2011 Quarter. This increase was primarily driven by our OEM-Diabetic products business, where we are experiencing higher average material costs in respect of product sales to our three major OEM-Diabetic products customers in the 2012 Quarter. In general, we are experiencing increased materials, labor, and other production costs from our APAC-based suppliers in respect of new and replacement Diabetic product programs, which we have been unable to fully pass on to our OEM-Diabetic products customers. In some cases, we are also experiencing lower average sales prices to our OEM-Diabetic customers either through price concessions granted on longer-lived programs or through lower quoted prices on new and replacement programs, which further lowered our gross profit as a percentage of sales in the 2012 Quarter.

To a lesser extent, lower gross profit as a percentage of sales with respect to our OEM-Other products business, also contributed to our overall decline in gross profit margin in the 2012 Quarter. This decline in OEM-Other gross margin was primarily driven by lower-margin sales of one carry solution product to a long-standing cellular customer, which represented 20% of our total OEM–Other products sales in the 2012 Quarter. In addition, gross profit margin on first time sales of OEM consumer electronic products in the 2012 Quarter was lower than that produced by our legacy OEM-Other products. Net sales of consumer electronics products represented 17% of our total OEM-Other products business.

Beyond product mix factors specific to certain of our OEM – Other Product customers, we are, in general, experiencing increased materials, labor, and other production costs from our suppliers on new and replacement programs of these products. In addition, during the 2012 Quarter, we began implementation of a restructuring plan with respect to our Asia-based sourcing and quality assurance operations (refer to “Buying and Sourcing Agreement” under Note 10 – Commitments and Contingencies to our consolidated financial statements). As a result of such implementation, during the 2012 Quarter, we incurred severance costs, as well as service fees to our agent, which raised our costs of such operations above levels incurred in recent reporting periods. As such, our gross profit margin negatively was impacted by 2% in the 2012 Quarter.  

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Forward Industries, Inc.

Sales and Marketing Expenses

Sales and marketing expenses increased $0.7 million to $1.4 million in the 2012 Quarter compared to $0.6 million in the 2011 Quarter.  The significantly higher level of expense reflects our focus on growing sales generally, developing our capability to sell into the retail and corporate channels, expanding our product range, and the ramp-up of necessary resources applied to achieve these goals, and is primarily due to the following:

• $0.5 million increase in personnel expense due to the restructuring and growth of our sales, design, and product development teams; and

• $0.1 million increase in travel and entertainment expenses incurred by new sales and sales support personnel added globally during Fiscal 2011 and in the first quarter of Fiscal 2012, primarily in connection with the development of our Retail business.

Lesser fluctuations in other components of sales and marketing expenses were immaterial.

General and Administrative Expenses

General and administrative expenses increased $0.4 million to $1.6 million in the 2012 Quarter from $1.1 million in the 2011 Quarter due primarily to the following:

• $0.2 million increase in personnel costs due to the restructuring and expansion of our information technology and accounting departments, as well as the addition of operations personnel during Fiscal 2011 and the first quarter of Fiscal 2012;

• $0.1 million increase in professional fees including: i) $130 thousand of fees, share-based compensation and expense reimbursements to an executive consultant (refer to “Consultancy Agreement” under Note 10 – Commitments and Contingencies in Notes to Financial Statements; ii) $65 thousand in higher legal fees, board of directors matters, and preparation of filings with the Commission; and iii) a $90 thousand reduction in accounting fees and investment banking fees;

• $70 thousand increase in occupancy costs resulting from: i) higher rent and related expense in respect of the Company’s new executive offices in Santa Monica, California; ii) rent and related expense in respect of Forward UK’s new EMEA headquarters in London, UK;  iii) rent and related expense in respect of Forward JAFZA’s new sales support office in Dubai, UAE; and iv) rent and related expense in respect of Forward Switzerland’s new sales branch office in Saarbrucken, Germany; and

• $51 thousand increase in telecommunication costs resulting from the Company’s expansion of its global IT infrastructure and cellular service plans.

Lesser fluctuations in other components of general and administrative expenses were immaterial.

Other Income (Expense)

Other income (expense), consisting of interest income on cash and cash equivalent balances and on short term notes receivable (refer to Note 3 – Note Receivable in Notes to Financial Statements), as well as foreign currency transaction gains and losses, declined $20 thousand, to $33 thousand of income in the 2012 Quarter from $53 thousand of income in the 2011. This decline resulted from a $23 thousand decrease in interest income due to lower cash equivalents on hand during the 2012 Quarter, and a $7 thousand net decrease in income provided by foreign currency transaction gains in the 2012 Quarter compared to the 2011 Quarter. These decreases were offset, in part, by $13 thousand of other income recovered on an insurance claim.

Results of Operations for the 2012 PERIOD compared to the 2011 PERIOD

Net loss

Net loss increased $2.5 million to $3.1 million in the 2012 Period from $0.5 million in the 2011 Period. The increase resulted primarily from higher sales and marketing expenses, as well as higher general and administrative expenses, which were offset, in small part, by an increase in gross profit on higher net sales, as reflected in the table below:   

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Forward Industries, Inc.

Main Components of Net Loss
(thousands of dollars)
	2012 Period	2011 Period	Increase (Decrease)
Net Sales...............................................................................................	$14,048	$10,964	$3,084
Gross Profit..........................................................................................	2,742	2,538	204
Sales and Marketing Expenses.........................................................	(2,635)	(1,071)	1,565
General and Administrative Expenses	(3,197)	(2,052)	1,145
Other Income (Expense)....................................................................	39	47	(7)
Provision for Income Taxes..............................................................	(6)	--	6
Net loss income*...............................................................................	$(3,058)	$(537)	$2,520

* Table may not total due to rounding.

Basic and diluted per share data was a loss of $(0.38) per share for the 2012 Period, compared to a loss of $(0.07) per share for the 2011 Period.

Net Sales

Net sales increased $3.1 million, or 28%, to $14.0 million in the 2012 Period from $11.0 million in the 2011 Period due to higher sales of OEM Products, which increased $1.4 million, and first time sales of Retail Products of $1.7 million, in the 2012 Period. The tables below set forth sales by channel, product line, and geographic location of our customers for the periods indicated.

Net Sales for 2012 Period 6 Months ended March 31, 2012 (millions of dollars)
	APAC	Americas	Europe	Total*
OEM Products:
Diabetic products.............................	$5.2	$1.3	$2.2	$8.7
Other products.................................	0.4	2.5	0.7	3.6
Total OEM product sales*.........	5.6	3.8	2.9	12.4
Retail Product sales...............................	--	0.2	1.5	1.7
Total net sales*	$5.6	$4.0	$4.5	$14.0

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Forward Industries, Inc.

Net Sales for 2011 Period 6 Months ended March 31, 2011 (millions of dollars)
	APAC	Americas	Europe	Total*
OEM Products:
Diabetic products.............................	$4.8	$1.3	$2.0	$8.2
Other products.................................	0.4	1.9	0.5	2.7
Total OEM product sales............	5.2	3.3	2.5	11.0
Retail Product sales...............................	--	--	--	--
Total net sales*	$5.2	$3.3	$2.5	$11.0

* Tables may not total due to rounding.

OEM - 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).  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 to a lesser extent, sell them through their retail distribution channels.

Sales of OEM-Diabetic products increased $0.5 million, or 6%, to $8.7 million in the 2012 Period, from $8.2 million in the 2011 Period. This increase was primarily due to higher sales to two of our major OEM-Diabetic product customers, as well as small increases to a number of other OEM-Diabetic product customers, none of which increases were individually material. These increases were offset, in part, by lower sales to a third major OEM-Diabetic product customer. The following table sets forth our sales by OEM-Diabetic product customer for the periods indicated.

(millions of dollars)
	2012 Period	2011 Period	Increase  (Decrease)
OEM-Diabetic Customer A...........................................	$5.0	$4.7	$0.3
OEM-Diabetic Customer B............................................	1.4	1.8	(0.4)
OEM-Diabetic Customer C............................................	1.6	1.5	0.1
All other OEM-Diabetic Product Customers..............	0.7	0.2	0.5
Totals*.....................................................................	$8.7	$8.2	$0.5

* Table may not total due to rounding.

Sales of OEM-Diabetic products represented 62% of our total net sales in the 2012 Period compared to 75% of our total net sales in the 2011 Period. This decrease is due to the higher contribution of OEM-Other product sales and Retail product sales to our total net sales in the 2012 Period.

OEM - Other Product Sales

Sales of OEM-Other products increased $0.8 million, or 30%, to $3.6 million in the 2012 Period from $2.8 million in the 2011 Period. This increase was primarily due to higher sales to several major OEM-Other customers, the largest of which was to a long-standing cellular customer, to which our sales increased $0.8 million to $1.0 million in the 2012 Period. In addition, $0.5 million in first time sales of Consumer Electronic products to one OEM customer in the 2012 Period also contributed to the increase. In the 2011 Period, we sold $0.4 million of products to Flash Ventures, Inc. (refer to Note 3 – Note Receivable in the Notes to Financial Statements), under their brand, which we considered as non-recurring business.  Smaller changes in a number of OEM-Other customers largely offset each other, none of which changes individually was material.

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Forward Industries, Inc.

Sales of OEM-Other products (inclusive of OEM-Consumer Electronic products) represented 26% and 25% of our net sales in the 2012 and 2011 Periods, respectively.

Retail Product Sales

Net sales of Retail Products were $1.7 million, or 12% of total net sales, in the 2012 Period due to several new customers in the Americas and EMEA regions, of which none were individually material.

Gross Profit

Gross profit increased $0.2 million, or 8%, to $2.7 million in the 2012 Period from $2.5 million in the 2011 Period. The increase was primarily driven by the $3.1 million increase in net sales (refer to “Net Sales” section above), which included $1.7 million of first time Retail product sales with gross profit margins that generally higher than those produced by our OEM product sales. As a percentage of sales, our gross profit declined to 20% in the 2012 Period, compared to 23% in the 2011 Period.

OEM – Gross Profit

In the 2012 Period, our materials costs, as a percentage of net sales, was nearly 4% higher than the 2011 Period. This increase was primarily driven by our OEM-Diabetic products business, where we are experiencing higher average material costs in respect of product sales to our three major OEM-Diabetic products customers in the 2012 Period. In general, we are experiencing increased materials, labor, and other production costs from our APAC-based suppliers in respect of new and replacement Diabetic product programs, which we have been unable to fully pass on to our OEM-Diabetic products customers. In some cases, we are also experiencing lower average sales prices to our OEM-Diabetic customers either through price concessions granted on longer-lived programs or through lower quoted prices on new and replacement programs, which further lowered our gross profit as a percentage of sales in the 2012 Period.

To a lesser extent, lower gross profit as a percentage of sales with respect to our OEM-Other products business, also contributed to our overall decline in gross profit margin in the 2012 Period. This decline in OEM-Other gross margin was primarily driven by lower-margin sales of one carry solution product to a long-standing cellular customer, which represented 27% of our total OEM–Other products sales in the 2012 Period. In addition, gross profit margin on first time sales of OEM consumer electronic products in the 2012 Period was lower than that produced by our legacy OEM-Other products. Net sales of consumer electronics products represented 13% of our total OEM-Other products business.

Beyond product mix factors specific to certain of our OEM – Other Product customers, we are, in general, experiencing increased materials, labor, and other production costs from our suppliers on new and replacement programs of these products. In addition, during the 2012 Quarter, we began implementation of a restructuring plan with respect to our Asia-based sourcing and quality assurance operations (refer to “Buying and Sourcing Agreement” under Note 10 – Commitments and Contingencies to our consolidated financial statements). As a result of such implementation, during the 2012 Quarter, we incurred severance costs, as well as service fees to our agent, which raised our costs of such operations above levels incurred in recent reporting periods. As such, our gross profit margin was negatively impacted by 1% in the 2012 Period.  

Sales and Marketing Expenses

Sales and marketing expenses increased $1.6 million to $2.6 million in the 2012 Period compared to $1.1 million in the 2011 Period.  The significantly higher level of expense reflects our focus on growing sales generally, developing our capability to sell into the retail and corporate channels, expanding our product range, and the ramp-up of necessary resources applied to achieve these goals, and is primarily due to the following:

• $1.0 million increase in personnel expense due to the restructuring and growth of our sales, design, and product development teams;

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Forward Industries, Inc.

• $0.2 million increase in travel and entertainment expenses incurred by new sales and sales support personnel added globally during Fiscal 2011 and in the first quarter of Fiscal 2012, primarily in connection with the development of our Retail business; and

• $0.2 million increase in product development and design costs due to the expansion of our Retail business.

Lesser fluctuations in other components of sales and marketing expenses were immaterial.

General and Administrative Expenses

General and administrative expenses increased $1.1 million to $3.2 million in the 2012 Period from $2.1 million in the 2011 Period due primarily to the following:

• $0.5 million increase in personnel costs due to the restructuring and expansion of our information technology and accounting departments, as well as the addition of operations personnel during Fiscal 2011 and the first quarter of Fiscal 2012;

• $0.4 million increase in professional fees including: i) $0.3 million in fees, share-based compensation and expense reimbursements to an executive consultant (refer to “Consultancy Agreement” under Note 10 – Commitments and Contingencies in Notes to Financial Statements; ii) 0.2 million in higher legal fees, board of directors matters, and preparation of filings with the Commission; and iii) a $90 thousand reduction in accounting fees and investment banking fees;

• $154 thousand increase in occupancy costs resulting from: i) higher rent and related expense in respect of the Company’s new executive offices in Santa Monica, California; ii) rent and related expense in respect of Forward UK’s new EMEA headquarters in London, UK;  iii) rent and related expense in respect of Forward JAFZA’s new sales support office in Dubai, UAE; and iv) rent and related expense in respect of Forward Switzerland’s new sales branch office in Saarbrucken, Germany; and

• $98 thousand increase in telecommunication costs resulting from the Company’s expansion of its global IT infrastructure and cellular service plans.

Lesser fluctuations in other components of general and administrative expenses were immaterial.

Other Income (Expense)

Other income (expense), consisting of interest income on cash and cash equivalent balances and on short term notes receivable (refer to Note 3 – Note Receivable in Notes to Financial Statements), as well as foreign currency transaction gains and losses, declined $7 thousand, to $40 thousand of income in the 2012 Period from $47 thousand of income in the 2011. This decline resulted from a $31 thousand swing in foreign currency gains to losses in the 2012 Period compared to the 2011 Period. The impact of these foreign currency transaction losses in the 2012 Period was partially offset by a $14 thousand increase in interest income and $13 thousand of other income recovered from an insurance claim.

LIQUIDITY AND CAPITAL RESOURCES

During the 2012 Period, we used $5.5 million of cash in operations, which consisted of a net loss of $3.1 million, adjusted by $0.4 million for non-cash items (primarily share based compensation), and a net use in working capital items of $2.9 million. As to working capital items, cash used in operating activities consisted of increases in accounts receivable, inventory, and prepaid and other current assets of $1.9 million, $0.7 million, and $0.9 million, respectively. These changes were offset, in part, by increases in accounts payable and accrued expenses and other current liabilities of $0.2 million and $0.4 million, respectively, which had the effect of generating cash from operating activities. The increase in accounts receivable is primarily due to the timing and higher volume of sales recorded in the 2012 Quarter compared to the three months ended September 30, 2011. The increases in inventories and accounts payable are due to higher materials purchases made in the 2012 Quarter in support of our Retail division, compared to the three months ended September 30, 2011. The increase in prepaid and other current assets is due primarily to advances made to suppliers of our Retail products for inventory purchases, as well as, tooling and molding costs in support of firm purchase orders. The increase in accrued expenses and other current liabilities is primarily due to receipts of inventory for which we had not yet received an invoice from our suppliers as of March 31, 2012.  

34

Forward Industries, Inc.

In the 2011 Period operating activities used $1.1 million of cash consisting 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. 

In the 2012 Period, net investing activities generated $0.3 million of cash, which consisted of $0.4 million in payments received on a loan made to Flash Ventures, Inc. (refer to Note 3 – Note Receivable – in Notes to Financial Statements), and $59 thousand used for purchases of property and equipment, primarily computer and telecommunications hardware and software. 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 financing activities in the 2012 or 2011 Period.

At March 31, 2012, our current ratio (current assets divided by current liabilities) was 4.7; our quick ratio (current assets less inventories divided by current liabilities) was 4.3; and our working capital (current assets less current liabilities) was $15.6 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 currently are: i) operating losses and ii) accounts payable arising in the ordinary course of business, the most significant of which arise when we order products 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) growing the Company’s existing OEM business, and (ii) expanding its product offerings and diversifying its distribution by developing its retail and corporate sales channel capabilities. We anticipate that the building out of our product offerings and establishing retail and corporate distribution channels through internal growth and the development of strategic partnerships will be time consuming, and there is no assurance when the net sales revenues expected to be generated by such channels and products will be sufficient to cover the increased costs associated therewith.  Results of operations for the 2012 Period reflect the increase in operating costs brought to bear to achieve these goals.  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) continuation of reporting periods in which we incur a level of operating expenses in support of our Retail business strategy that is significantly higher that historically incurred in support of our stand alone OEM (see “Trends and Economic Environment” above), in particular, in personnel expenses; and (ii) use of capital in fundung strategic partnerships.   We anticipate that our liquidity and financial resources for the next twelve months will be adequate to manage our operating and financial requirements.  

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.

35

Forward Industries, Inc.

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 on Form 10-Q. 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 2012 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 2012 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 2012 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

Targus Group International, Inc., et al. v., Forward Industries, Johnson, et al.

On September 19, 2011, the Company, Brett Johnson (our President and Chief Executive Officer), and one of our employees were named in a Complaint filed in Orange County Superior Court by Targus Group International, Inc. and two of its affiliates.  The Complaint alleged a claim for breach of contract against Mr. Johnson.  The Complaint further alleged a "breach of fiduciary duty/duty of loyalty" against the employee, and it asserted claims against Mr. Johnson and the Company for allegedly aiding and abetting that alleged breach.  The Complaint also asserted a cause of action against all Defendants for unfair competition.  An Amended Complaint was filed on October 11, 2011.  In addition to the claims asserted in the original Complaint, the Amended Complaint added an additional Targus affiliate as a plaintiff and named an additional employee of the Company as a defendant.  The Amended Complaint asserted a claim against that employee for breach of contract and for "breach of fiduciary duty/duty of loyalty," and it added new claims against the Company and Mr. Johnson for allegedly interfering with that employee's contract and for allegedly aiding and abetting his breach of duty.  The claim for unfair competition in the Amended Complaint relies on these new allegations as well.  All of the claims asserted in this action arise out of the decisions of former employees of one or more of the plaintiffs to accept offers of employment with the Company.  The amount of damages sought is not specified.  On November 11, 2011, the Company, Brett Johnson, and James Berberian filed a demurrer with respect to certain of the claims asserted in the Amended Complaint.  On January 30, 2012, the district court sustained the demurrer in part and ruled that Plaintiffs had not pled a valid cause of action against Mr. Johnson with respect to its claim against him for breach of contract.  The court permitted Plaintiffs to amend this defective claim and on February 10, 2012, Plaintiffs filed a Second Amended Complaint. On March 12, 2012, Mr. Johnson filed a demurrer to the breach of contract claim that was re-pled against him in the Second Amended Complaint.  A hearing on Mr. Johnson’s demurrer is scheduled for May 22, 2012. The Company believes it has substantial defenses to these claims and intends to vigorously defend the action. The Company has not recorded a loss provision for these complaints as of March 31, 2012.

36

Forward Industries, Inc.

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, 2012, there were no other 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.

ITEM 1A. RISK FACTORS

Please review our Annual Report on Form 10-K for the fiscal year ended September 30, 2011, 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 24 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. The following paragraphs] set forth a risk factor from our Annual Report on Form 10-K for the year ended September 30, 2011, that is updated for purposes of this Quarterly Report.

Our business is and has been characterized by a high degree of customer concentration.  Our three largest customers accounted for approximately 57% and 70% of net sales in the 2012 Period and Fiscal 2011, respectively; the loss of, or material reduction in orders from, any of these customers would materially and adversely affect our results of operations and financial condition.

At present the predominant percentage of our sales revenues is concentrated in three large OEM-Diabetic customers (including their affiliates and/or their contract manufacturers).  The loss of any of these customers, whether as a result of its purchase of its carry solution requirements from another vendor, its decision to manufacture its own carrying cases, its decision to award its orders to one of our competitors, or otherwise, would have a material adverse effect on our financial condition, liquidity and results of operations. One such customer has recently advised us that it may obtain alternate sourcing for some portion of its product requirements. The high degree of reliance on this customer, a material reduction in its orders to us would have a material adverse effect on our financial condition.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFTEY DISCLOSURES

Not applicable

ITEM 5. OTHER INFORMATION

None

37

Forward Industries, Inc.

ITEM 6. EXHIBITS

10.1	Buying Agency and Supply Agreement, dates as of March 7, 2012, by and between Forward Industries, Inc. and Seaton Global Corporation *
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

*  A portion has been omitted pursuant to request for confidential treatment and the omitted portion has been separately filed with the Securities and Exchange Commission. 38

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 10, 2012
	FORWARD INDUSTRIES, INC.
	(Registrant)
	By: /s/ Robert Garrett Jr.
	Robert Garrett Jr.
	Co-Chief Executive Officer
	(Principal Executive Officer)
	By: /s/James O. McKenna
	James O. McKenna
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

39

EX-10

BUYING AGENCY AND SUPPLY AGREEMENT

This Agreement, made as of the 7th day of March, 2012, by and between FORWARD INDUSTRIES, INC. a New York corporation (hereafter referred to as “Principal”), having an address at 3110 Main Street, Suite 400, Santa Monica, CA 90405 and SEATON GLOBAL CORPORATION, a BVI registered and corporation wholly owned by Terry Wise (hereinafter referred to as “Agent”) having an address at 10F-5 No.16, Lane 609, Chung Shin Road, Section 5, San Chung District, New Taipei City, Taiwan, Republic of China.

WHEREAS, Principal designs, markets, and distributes carry and protective solutions primarily for hand held electronic devices (“Products”) sometimes bearing its trademarks; and

WHEREAS, Agent is established as a buying and supplier agent in 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 (the “Territory”) for merchandise and is engaged in the exportation of products for sale to the United States and elsewhere, including, but not limited to the Products; and

WHEREAS, the parties desire to enter into this Agreement for Agent to source for Principal’s Products and to arrange for sourcing, manufacture and exportation of such Products under and subject to all of the terms and conditions set forth herein.

NOW, THEREFORE, the parties hereto, in consideration of the foregoing and of the mutual covenants contained herein, and intending to be legally bound hereby, agree as follows:

1.        Engagement.  Principal hereby engages Agent and grants to Agent the right to act as the exclusive buying agent for Principal for, and in connection with, Principal’s purchases, transactions and related dealings, directly or indirectly with regard to the sourcing of Products in the Territory, including compliance and logistical services.  Agent shall be required to maintain an acceptable level of performance to maintain its exclusivity hereunder.  Agent shall, only with the approval of Principal, be permitted to appoint sub-agents to provide some, or all, of the services, which are required by this engagement.

A.  Agent shall:

(1)       Visit manufacturers to determine their ability to manufacture and export Products of a type and quality appropriate for Principal, use all reasonable effort to negotiate most favorable pricing for such Product, and provide Principal with samples and other material, as may be reasonably necessary or appropriate with respect to such review.  Agent shall visit such manufacturers and complete factory evaluations in a form, manner and frequency that is acceptable to Principal;

(2)       Effectuate the execution by manufacturers of Principal’s Manufacturing Acknowledgment, annexed hereto as Exhibit B, or such other form or amendments thereto as may from time to time be provided by Principal prior to placing any purchase orders for Products with such manufacturers;
 

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(3)       Familiarize itself with Principal’s needs and survey the potential markets to obtain the best available products.  Agent shall use all reasonable effort to negotiate the most favorable pricing for Products.  Agent shall provide Principal with up-to-date information on a timely basis concerning relevant aspects of business.  This information includes, without limitation, that which relates to labor rates and political situations, which may affect Principal’s business or investment prospects.

(4)       Arrange, as necessary, for the production and delivery of raw material, components, or sub-assemblies to manufacturers; the manufacture and delivery to Principal of all necessary or appropriate production samples; and the manufacture and delivery to Principal of finished Products in accordance with all applicable specifications and requirements set forth in Principal’s purchase orders to Agent.

(5)       Place purchase orders with manufacturers in Agent’s name.

(6)       Quote to Principal F.O.B. factory prices in U.S. dollars (not including the buying Agent’s commission) pursuant to the explicit request of Principal, and in a manner consistent with the best interests of Principal.

(7)       Establish and maintain a quality assurance plan that is acceptable to Principal and be in charge of the quality control of Products, including the substantial conformity of Products to any approved samples and as to style, quantity, and other specifications in the applicable purchase orders of Principal. Agent shall prepare and maintain written documentation of the results and timing of its quality control procedures for Principal’s review (e.g. inspection reports/certificates) and shall update the Principal’s Logistics Collaboration Portal (“LCP”) with such information, as required by Principal, in a timely manner. In the event of the shipment of defective or uncorrectable improperly labeled goods, or the shipment of goods in nonconformity with the purchase order, Agent shall coordinate the return of such goods to manufacturer or assist in other corrective action, as deemed necessary by Principal.

(8)       Submit delivery and other logistical data, as may be required by Principal, to Principal via Principal’s LCP, in a timely manner.

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(9)       Arrange for all inland freight, hauling, lighterage, storage and consolidation, etc. at the lowest cost possible within the realm of prudent delivery/shipping practices.

(10)     Arrange for the exportation and delivery to Principal of the Products in accordance with all time limitations and deadlines set forth in the applicable purchase orders.

(11)     Facilitate the acquisition of the documentation necessary for importation of Product into the country in which Product is to be sold. 

(12)     Be responsible for arranging all necessary globally recognized testing with manufacturers to ensure Product compliance. Any special testing or certifications that are not industry standard or that is performed by Agent or third parties shall be Principal’s payment responsibility.

(13)     Facilitate the acquisition of any raw materials, trimmings, labels, packaging materials or other components in a manner dictated by, and in the best interests of, Principal.

(14)     Be responsible for the quality and timely delivery of raw materials in a manner dictated by, and in the best interests of, Principal.

(15)     In addition to the quality assurance responsibility described in Subparagraph 7, above, verify that Products are being manufactured in the country and factory designated by Agent or Principal, in conformance with applicable laws and regulations of the country in which it is to be sold and the country of manufacture, as well as the Foreign Corrupt Practices Act, and that the appropriate visa, export licenses, etc. are used in connection with the exportation of the goods to the country designated by Principal for delivery.

(16)     Agent shall itself comply with and shall require that factories are in compliance with Principal’s Code of Conduct (the “Code”), which is attached hereto as Exhibit A, including any modification of such as may be provided by Principal from time to time.  Such steps shall include, but are not limited to:

(a)                Ensuring that all manufacturers, subcontractors and suppliers working on, producing goods for or supplying goods to Principal execute and return to Principal or to its representative all documents required to ensure compliance with the Code.  Such documents include, but are not limited to, Manufacturing Acknowledgements and Subcontractor Manufacturing Acknowledgements, in such form as Principal or its representative shall provide to Agent from time to time and as often as Principal deems necessary to ensure compliance with the Code.

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(b)               Periodically inspecting the facilities of all manufacturers and subcontractors every three months and providing a written evaluation of these inspections to Principal or to its representative in such form as may be required by Principal or its representative from time to time.

(c)                For all manufacturers and subcontractors to be used by Agent to produce Products at the time of the execution of this Agreement, conducting a detailed evaluation of the production and residential facilities and providing a written evaluation of these inspections in such form and as often as is required by Principal or its representative from time to time. 

(d)               In the event that Agent has knowledge that any manufacturer is not producing the Products in compliance with applicable local laws and/or the Code of Conduct, Agent shall immediately notify Principal.  Further, Agent shall provide to Principal a certificate as to the country-of-origin of the Products.

(e)                Agent is responsible for costs associated with a third party auditing firm providing Social Accountability and Security, including without limitation CTPAT audits. However, Agent acknowledges that audits as requested by Principal will be no more frequent than every six (6) months, however additional audits of Agent requested by Principal may be more frequent, in which case the costs shall be borne by Principal. Costs for the initial audit, except associated travel expenses, and all costs associated with remediation of deficiencies as identified as a result of the audit shall be incurred exclusively by Agent. Pricing of Products hereunder shall not increase as a result of any audit activities or remediation costs. Principal will provide Agent with an invoice from a third-party audit firm, audit results, and remediation requirements following any such audit. Principal shall assume financial responsibility to make payment of said invoice within terms. If Principal pays any invoice, Principal will be entitled to offset that amount from any amounts owing to Agent. If any such six-month audit reveals any material non-compliance on the part of Agent or its manufacturers in respect of Social Accountability and Security and CTPAT standards, Principal may, within three months of completion of such audit, request a follow-up audit to monitor Agent’s or its manufacturers progress in correcting such violations, and all costs and expenses incurred in connection with such audit, including associated travel expense, shall be borne by Agent.

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(17)     Attend to the return and/or of any Products deemed to be noncompliant or defective by Principal. Further, Agent shall use best effort to effectuate from manufacturer a credit note or refund for defecting or noncompliant Product, Product shortages, etc. and ensure manufacturers proper destruction and disposal thereof, when applicable.

(18)     Inform Principal of any overproduction or production of counterfeit or infringing goods by the manufacturers.

(19)     Agent shall perform all other services that may be reasonably necessary or appropriate to arrange for the manufacture, exportation, quality control; and delivery of the Products consistent with regular practices in the trade.

B.  Agent shall arrange to have produced for Principal samples and prototypes on a timely basis at a price agreed upon in writing by Principal.

C.  Agent shall act only upon the specific instructions of Principal and in no case shall the Agent act without such explicit instructions.  Agent acknowledges that it has no right, power or authority to make any contract or incur any obligation or liability, which shall be binding upon Principal unless it has been specifically authorized in writing, and in advance by Principal.

D.  The parties shall use good faith efforts to develop a performance appraisal methodology that is based on key operating metrics (such as quality, delivery, conduct, etc.) in order to evaluate Agent’s performance.  Continued non-performance by Agent under such methodology shall constitute a material breach hereunder.

2.         Compensation.

A.   “Invoice Price” shall mean the F.O.B. purchase price of the Products purchased by Agent for Principal, which price shall be the same as the price paid by Agent for such products, excluding any Agent commissions.

B.  In consideration of the services rendered by Agent under this Agreement, Principal shall pay to Agent an amount equal to ____% percent of the Invoice Price of all Products ordered and shipped pursuant to this Agreement (the “Service Fee”).  Where Principal determines the Products to be defective, no Service Fee shall be paid by the Principal and Agent shall provide a credit or refund to Principal for any commission paid for Products by Principal.

C.  The Service Fee above shall include all costs of travel and entertainment, telephone, telex, telecopies, postage, office space, personnel (including salaries, benefits, overtime, and any related taxes), legal and professional services and all other costs deemed necessary and incurred by Agent in the performance of its obligations hereunder. 

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D.  Agent shall pay all costs of conducting its agency and all taxes, including assessments, which may be made against the salary or wages of those directly or indirectly employed by Agent.

E.  Agent’s Service Fee shall be listed on separate invoices prepared by Agent.

F.  Principal may, not more frequently than on a quarterly basis, conduct third party audits of Agent’s books and records.  Agent agrees to cooperate fully with such audits provided reasonable notice of such audits is given.  Agent shall pay to Principal any discrepancy revealed by such audit within fifteen (15) days.  If such discrepancy is more than five percent (5%), Agent shall reimburse Principal for the cost of such audit.

3.         Payment.  Principal shall pay Agent for amounts due under the terms of this Agreement as follows:

A.  For the purchase of Products, including samples and prototypes, Agent shall, at the end of each month, provide Principal with an itemized invoice for all Products delivered to Principal in such month, which invoice shall not include any Service Fee.  Attached to such invoice shall be copies of the invoices for such Products received by Agent from its manufacturers in order to confirm that the Invoice Price is the same as the price paid by Agent to its manufacturers.  Principal shall pay Agent within fifteen (15) days of receipt of Agent’s monthly invoice, unless, at Principal’s sole discretion, the cost savings of such terms are not adequate, then, the payment terms shall revert to Principal’s prior terms with the manufacturers. 

B.  Agent shall provide to Principal on a monthly basis, a separate invoice for the Service Fees earned during the previous month.  Principal agrees to pay all Service Fees within fifteen (15) days of receipt of the Agent’s invoice; provided however that if Principal notifies Agent in writing that it objects to any invoice within ten (10) days of receipt of such invoice, payment on the disputed invoice shall be made when the dispute is resolved.

Principal shall pay to Agent a penalty of one percent (1%) per month on all unpaid and outstanding amounts past the due date of such payments.

4.         Purchases and Delivery. 

A.  Principal’s order of Products shall be effectuated by Principal’s submission to Agent of a firm written purchase order in advance of delivery.  Principal may submit to Agent forecasts of Principal’s Product needs, however, any such forecasts shall be an estimate only and not a commitment to purchase.  Agent shall either confirm or reject Principal’s purchase orders within three (3) business days via the Principals LCP.  Agent shall promptly update Principal with purchase, production, inspection and logistic data and documentation (e.g. Advanced Shipping Notification or Certificates of Origin), including via Principal’s LCP, as requested and deemed necessary by Principal. No such purchase order may be changed or terminated without the prior written consent of Principal.

B.   Amended Purchase Orders. Principal shall have the right prior to delivery of the Products to make changes to the purchase order. If any such changes cause an increase or decrease in cost or delivery time, Agent shall notify Principal in writing immediately and explain the amount and basis for any such adjustment in cost or delivery time. If Principal accepts such adjustments, Principal and Agent shall execute an amendment to the purchase order to evidence such adjustments or Principal shall issue a revised purchase order.

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C.  Late Delivery. If Agent determines that it is unable to deliver Product timely as provided in an accepted purchase order, Agent shall immediately notify Principal and Principal shall have the right to: (i) accept late delivery; (ii) specify a more rapid method of shipment with Agent paying the additional transportation cost (subject to Agent’s use of best effort to effectuate manufacturers agreement to such); (iii) terminate the purchase order without liability or penalty (subject to Agent’s use of best effort to effectuate manufacturers agreement to such).

D.  Early Delivery. If Product is available for delivery to Principal prior to the specified or requested delivery date, Principal shall make reasonable effort to accept the Product. Otherwise, Agent shall be responsible for arranging the Product to be properly stored and redelivered on the specified or requested delivery date.

5.         Returns. Returns of defective and/or noncompliant Products that are under warranty by Agent (refer to Section 7 below) shall be shipped pre-paid by Principal and Agent shall be charged back for shipping costs unless otherwise specifically agreed to by Principal (subject to Agent’s use of best effort to effectuate manufacturers agreement to such). Prior to return of any Product, Principal shall notify Agent in writing, and Agent shall provide Principal with a Return Authorization within five (5) business days of such written notice.  Under no circumstances is Agent or its manufacturers permitted to sell to any party other than Principal any Products or sample Products manufactured under this Agreement, including Products, samples and prototypes that are returned by Principal and that Agent is unable to rework to meet specifications and quality requirements.  In addition, Agent agrees to submit to Principal a Certificate of Destruction in which Agent identifies the defective Products and sample Products and verifies under oath that such Products and sample Products have been destroyed.

6.         Representations by Agent.  Agent represents and warrants the following, each of which shall be deemed to be independently material and have been relied upon by Principal:

A.  Agent is a corporation duly organized and validly existing under the laws of the country in which it maintains the office from which it shall perform its obligations under this Agreement.

B.  Agent has the full right, power and authority to execute and deliver, and perform fully and in accordance with all of the terms of, this Agreement, and the performance by the Agent of all of its obligations and covenants hereunder does not and will not violate any law or regulation, agreement or other instrument to which Agent is a party or by which Agent may be bound.

C.  Agent is engaged in the business of sourcing products in the Territory.  Agent has the requisite experience to properly supervise the manufacture of the Products.

D.  Agent warrants and represents that it will not knowingly or intentionally make any statement or representation inconsistent with the terms and provisions of this Agreement in any affidavit, special invoice, special Customs invoice, pro forma invoice, consular invoice or any other document or communication, oral, written or otherwise.  In addition, no part of the compensation paid, or to be paid, to Agent pursuant to this Agreement shall in any manner be paid or payable directly or indirectly to any manufacturer of Products or to any government agent.

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E.  Agent, in executing this agreement, certifies that it has no ownership or direct financial interest in, nor any control of, the factories making the commodities purchased with the assistance of the Agent; that it does not, for its own account, sell raw materials to the factories making such merchandise; and that the factories have no ownership or financial interest in, or any control over, the Agent.  In the event that any such interest is consummated, then the Agent will immediately inform Principal.  Failure to do so will result in the forfeiture of the Agent’s commission on the goods purchased from the related or controlled factories.

F.  Agent shall accept no remuneration for its services other than the commissions paid hereunder by Principal and will not share commissions in any manner with the manufacturer or others.

7.         Claims, Inspections and Warranties.  

A.  Principal may inform Agent of any claims against a manufacturer regarding the Products.  Agent will, pursuant to the instructions of the Principal, act on behalf of the Principal in use its best efforts to assist in the resolution of any claim.

B.  Agent shall allow, and shall require its manufacturers to allow, Principal or its designees the right to enter their manufacturing and storage facilities during regular business hours, with or without notice, to inspect Products, tools, packaging and working conditions in order to confirm Agent’s and Manufacturer’s compliance with this Agreement.

C.  Agent shall make all reasonable efforts to provide Principal with a one (1) year product warranty from the date of delivery to Principal.  Such warranty shall be predicated on Agent’s ability to secure equivalent or better terms from its manufacturers in its manufacturing agreements.  Agent shall make all reasonable efforts to ensure that the Products will be free from defects in materials and workmanship, be merchantable, safe and fit for the particular uses and purposes for which the Products were manufactured, and will strictly conform to all approved samples and specifications.  For Products under warranty, Principal may return defective products for refund or credit, including shipping charges to return such defective product, if required. 

8.         Term and Termination.  The term of this Agreement shall begin on March 12, 2012, the date hereof, and continue for two (2) years until March 11, 2014 (the “Term”) subject to earlier “Termination for Cause” (as hereinafter defined).  Thereafter, provided the parties have reached an agreement in writing as to the Service Fee at least one hundred twenty (120) days prior to the end of the then expiring Term, the Term shall be eligible for renewal for one (1) two (2) year term (the “First Renewal Term”), unless terminated.  Following the First Renewal Term, in each instance, provided the parties have reached an agreement in writing as to the Service Fee at least one hundred twenty (120) days prior to the end of then expiring Term, the Term shall be eligible for renewal for successive one (1) year terms (together with the First Renewal Terms, the “Renewal Terms”).  Renewal Terms, which commence, shall be included in the Term.  On expiration or termination, this Agreement shall continue to apply to orders for Products placed during the Term, which may be shipped after expiration or termination of the Term.

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9.         Termination. 

A.  Termination for Cause.  In the event of “cause,” which shall be defined as (i) a material breach by either party of the terms of this Agreement, (ii) a default by either party in the performance of any duties or obligations hereunder that is not remedied within thirty (30) days of written notice, (iii) a failure by Agent to maintain an acceptable level of performance in terms of price, quality, quantity or delivery; (iv) if Agent shall be insolvent or shall make an assignment for the benefit of creditors or is adjudged bankrupt in any legal proceeding under any applicable law or a trustee or receiver of its business or affairs or of a material part of its properties is appointed in any legal proceeding under any applicable law and any such proceeding is not dismissed within thirty (30) days after its commencement; or (v) upon any change of control of Agent.  For purposes hereof, the term “change of control” shall mean the sale, transfer or conveyance of a majority of the presently existing voting stock of Agent, this Agreement may be terminated by the non-breaching/defaulting party on written notice to the other party.

B.  Termination without Cause.

(1)       As set forth in Section 8 above, in the event the parties do not reach an agreement on the Service Fee for the subsequent Renewal Term, Principal may terminate this Agreement on ninety (90) days written notice to Agent.

(2)       No less than one hundred twenty (120) days prior to the expiration of the First Renewal Term or any Renewal Term thereafter, either party may give the other written notice of its decision not to renew and thereupon the Agreement shall terminate at the end of the then expiring Renewal Term

10.       Seconds, Thirds or Excess Goods.  Agent agrees to use its best efforts to recover the cost of all seconds, thirds or excess goods from the manufacturer on Principal’s behalf.  Agent is not entitled to recover either the costs of reinspection or costs associated with obtaining refunds from Principal.  Agent covenants that it will insure that no seconds will be released by the manufacturer. 

11.       Proprietary Rights. 

A.  Agent acknowledges that all patents, trademarks, tradenames, copyrights and designs relating to the merchandise shall be and remain the property of Principal, or its customers.  Agent agrees that any use or copy of these patents, trademarks, tradenames, copyrights or designs must be accompanied by a statement of Principal’s rights thereto.  Agent will not, during the term of this agreement or at any time thereafter, claim any right or property interest in such patents, trademarks, tradenames, copyrights and designs, or take or permit any action which will have an adverse effect on Principal’s rights to such owned or licensed patents, trademarks, tradenames, copyrights and designs.  In case such rights of Principal or its customers are abused, Agent will do its best to give notice to Principal and to help Principal avoid the same, but all costs involved will be paid by Principal.

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B.  Principal shall own the exclusive rights to the trade dress and visual design of the Products, Product materials, and related packaging for the Products.  Principal shall also own all right, title and interest in all tooling, molds or special equipment which have been furnished or paid for by, or charted against, Principal in connection with the manufacture of the Products.

12.       Non-Compete.  Agent agrees that during the Term of this Agreement and for thirty‑six (36) months thereafter, neither it nor its affiliates or subsidiaries shall source or supply to any party other than Principal, products that, in Principal’s sole determination, incorporate or are similar in nature, use, appearance, construction, design or performance to the characteristics of any of Principal’s products.

13.       Confidentiality.

A.  For the purposes hereof, “Confidential Information” shall mean all proprietary and confidential information and trade secrets of a party about its business, including without limitation designs, drawings and graphics and information about colors, fabrics and other materials, new and modified products financial and business data and plans and related reports.

B.  Each party acknowledges that the other party’s Confidential Information constitutes valuable and proprietary trade secrets of such other party and, except as provided herein or in any other agreements between the parties or their affiliates, such party shall not use or cause to be used or disclose or cause to be disclosed any Confidential Information unless otherwise authorized in writing.  Each party shall limit access to Confidential Information to the other party to those employees or agents whose duties require the possession thereof, and such party shall inform them of the confidential nature thereof.  Each party shall use commercially reasonable efforts to safeguard the other party’s Confidential Information and to prevent the unauthorized, negligent or inadvertent use of disclosure thereof.  At the end of the Term hereof, each party will return or destroy the other parties Confidential Information.

C.  The parties recognize that remedy at law for any breach of the provisions of this paragraph will be inadequate and, accordingly, agree that in addition to such other remedies that may be available, at law or in equity, any court of competent jurisdiction may enjoin, without the necessity of requiring proof of actual damages or the posting of any bond or other security, any actual or threatened breach of the provisions of any of this paragraph.

14.       Rights Upon Cancellation or Termination.  Upon the cancellation or termination of this Agreement: (a) all rights and obligations of the parties hereunder shall cease and terminate except as to rights and obligations accrued by either of the parties prior to the date of such cancellation or termination, including rights and obligations under outstanding import contracts not yet performed; (b) Principal shall have the right to deal with all manufacturers dealt with by Agent in connection with Principal’s business either directly or through one or more other buying agents without further obligation to Agent; and (c) Agent shall turn over to Principal any and all copies of contracts and other information in the Agent’s files relating to arrangements made by Agent with sellers of merchandise on Principal’s behalf (it being understood that all such contracts and other information shall be treated by Agent as confidential and shall not be disclosed by Agent to any third party either during or after the term hereof).  Without limiting the generality of any of the other terms of this Agreement, upon the expiration or termination of this Agreement, Agent shall not be entitled to, and hereby waives its right, if any, to make any claim for damages, losses or compensation arising from any expectancy of continuation of this Agreement, or for any other reason whatsoever (except with respect to Service Fees payable to Agent as a result of orders for Products placed prior to the termination of this Agreement but not shipped until after the termination of this Agreement disregarding the shipment date of the merchandise).

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15.       No Joint Venture.  Nothing contained herein shall be construed to place the parties in the relationship of partners or joint ventures, it being agreed and understood that Agent is an independent contractor and not an employee of Principal.  Agent shall have no power to obligate or bind Principal in any manner whatsoever except as otherwise provided herein.  Agent shall not hold itself out as employed by or otherwise affiliated with Principal.  Agent shall obtain all approvals and permits (if any) from any and all governmental authorities that are necessary or appropriate in order that Agent shall be permitted under the local laws of the Territory to engage in all activities provided for under this Agreement.

16.       Notices.  All notices required or permitted under this Agreement shall be in writing and shall be mailed by overnight delivery to the party to receive notice at the addresses first set forth above or at such other address as any party may, by written notice, direct.  All notices given under this paragraph shall be deemed as given on the two business days following the day on which the notice is mailed or faxed.

17.       Further Assurance.  Each party agrees, upon the reasonable request of the other party, to take such action and to execute and deliver such documents as may reasonably be necessary or appropriate to effectuate the terms of this Agreement and the transactions contemplated hereby.

18.       Assignments.

A.  Principal may assign this Agreement to a successor to all or substantially all of that portion of its business which deals with the Products.  Agent may not assign this Agreement without the prior written consent of Principal.

B.  Except as provided for in Subparagraph (A), neither party shall assign or transfer all or any portion of this Agreement, whether voluntarily, by operation of law, or otherwise, without the prior written consent of the other party.

19.       Headings.  The paragraph headings of this Agreement are for convenience of reference only and do not form a part of the terms and conditions of this Agreement or give full notice thereof.

20.       Construction.  This Agreement shall be interpreted and construed in accordance with the laws of California with the same force and effect as if fully executed and to be performed therein.

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21.       Jurisdiction.  The parties hereby consent and agree to the exclusive jurisdiction of any of the courts of California in any dispute arising under this Agreement.

22.       Entire Agreement.  This Agreement contains the entire understanding between the parties with respect to the subject matter hereof.  It may not be amended or modified in any manner, except by a written agreement duly executed by the party to be charged.  No custom or course of dealing shall be referred to as amending or altering the terms of this Agreement and no waiver shall be deemed to apply to any matter other than or subsequent to the matter to which it relates.

23.       Indemnification.

A.  Agent shall indemnify Principal, its officers, agents, employees, directors, shareholders and representatives (collectively, the “Principal Indemnified Parties”), and hold them harmless, from and against any and all losses, damages, liabilities, claims, payments, liens, judgments, orders and decrees of every description, recoveries, costs and expenses (including attorneys’ fees incurred by Principal Indemnified Parties both in connection with claims against Agent and as well as third party claims) arising out of or relating to, in whole or in part, any act or omission, negligence, misconduct or fraud of any of its officers, agents, employees, directors, shareholders, and representatives in performing its obligations under this Agreement.

B.  Principal shall indemnify Agent, its officers, agents, employees, directors, shareholders and representatives (collectively, the “Agent Indemnified Parties”), and hold them harmless, from and against any and all losses, damages, liabilities, claims, payments, liens, judgments, orders and decrees of every description, recoveries, costs and expenses (including attorneys’ fees incurred by Agent Indemnified Parties both in connection with claims against Agent and as well as third party claims) arising out of or relating to, in whole in part, any act or omission of any of Principal, its officers, agents, employees, directors, shareholders, and representatives in performing its obligations under this Agreement.

24.       No Waiver.  The failure by any party to complain of any act or omission on the part of the other, no matter how long the same may continue, shall not be deemed to be a waiver by such party of any of its rights under this Agreement.  The waiver by any party at any time, expressed or implied, of any breach, attempted breach, or default of any provision of this agreement shall not be deemed a waiver of any other provision of this agreement or a consent to any subsequent breach, attempted breach or default of the same or any other type.  If any action by Agent shall require the consent or approval of Principal, such consent or approval of Principal to such action on any one occasion shall not be deemed a consent or approval of any other action on the same or any subsequent occasion.

25.       Invalidity.  Should any term or provision of this agreement for any reason be held to be illegal, invalid, void or unenforceable either in its entirety or in a particular application, the remainder of this agreement shall nonetheless remain in full force.

26.       Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.

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FORWARD INDUSTRIES, INC.

By:

Name:

Title:

SEATON GLOBAL CORPORATION

By:

Name:

Title:

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EX-31

 

Forward Industries, Inc.

Exhibit 31.1

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

I, Robert Garrett Jr., certify that:

1.	I have reviewed this Quarterly Report on Form 10‑Q for the three months ended March 31, 2012, 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 10, 2012
	/s/ Robert Garrett Jr. Robert Garrett Jr. Co-Chief Executive Officer (Principal Executive Officer)

EX-31

 

Forward Industries, Inc.

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, 2012, 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 10, 2012
	/s/ James O. McKenna James O. McKenna
	Chief Financial Officer (Principal Financial and Accounting Officer)

EX-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:

1. Forward’s Quarterly Report on Form 10-Q for the three months ended March 31, 2012 (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

2. 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 10th day of May 2012.

/s/ Robert Garrett Jr.

Chief Executive Officer

(Principal Executive Officer)

/s/ James O. McKenna

James O. McKenna

Chief Financial Officer

(Principal Financial and Accounting Officer)

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PREPAID EXPENSES AND OTHER CURRENT ASSETS

6 Months Ended

Mar. 31, 2012

Prepaid Expense and Other Asset Currents [Abstract]

PREPAID EXPENSES AND OTHER CURRENT ASSETS

NOTE 4     PREPAID EXPENSES AND OTHER CURRENT ASSETS

            Prepaid expenses and other current assets consist of the following at:

	March 31, 2012	September 30, 2011
Supplier advances........................................................................................	$   897,380	$              --
Advanced royalties......................................................................................	550,000	490,000
Other...............................................................................................................	476,856	528,227
Total prepaid expenses and other current assets.............................	$1,924,236	$1,018,227

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NOTE RECEIVABLE

6 Months Ended

Mar. 31, 2012

Receivables [Abstract]

NOTE RECEIVABLE

NOTE 3     NOTE RECEIVABLE

            On January 5, 2011, the Company entered into a loan agreement with Flash Ventures, Inc. (“Flash”), an unrelated party, to provide a credit facility of up to $1,000,000 that was originally due December 1, 2011.  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.   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.  Effective December 1, 2011, the terms of the loan were amended to, among other things, extend the maturity date to April 1, 2012 and provide the Company with a security interest and lien on all of Flash’s assets.  In connection with such amendment Flash made a principal payment of $250,000 on December 1, 2011. Effective March 30, 2012, the terms of the loan were further amended to, among other things, extend the maturity date to June 1, 2012. In connection with such second amendment, Flash made a principal payment of $150,000 on March 30, 2012. The Company recorded approximately $449,000 in sales to Flash under its customary terms of sale during the six-month period ended March 31, 2011.

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CONSOLIDATED BALANCE SHEETS (USD $)	Mar. 31, 2012	Sep. 30, 2011
Current assets:
Cash and cash equivalents	$ 9,719,455	$ 14,911,844
Accounts receivable, net	5,766,202	3,894,118
Inventories	1,779,343	1,045,219
Note receivable	600,000	1,000,000
Prepaid expenses and other current assets	1,924,236	1,018,227
Total current assets	19,789,236	21,869,408
Property and equipment, net	300,146	302,158
Other assets	88,716	88,716
Total Assets	20,178,098	22,260,282
Current liabilities:
Accounts payable	3,189,347	2,947,562
Accrued expenses and other current liabilities	1,044,059	630,031
Total liabilities	4,233,406	3,577,593
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, 8,811,595 and 8,794,296 shares issued; and 8,105,185 and 8,087,886 shares outstanding, respectively	88,116	87,943
Capital in excess of par value	17,169,221	16,845,673
Treasury stock, 706,410 shares at cost	(1,260,057)	(1,260,057)
Retained (deficit) earnings	(48,476)	3,009,130
Accumulated other comprehensive loss - foreign currency translation	(4,112)
Total shareholders' equity	15,944,692	18,682,689
Total liabilities and shareholders' equity	$ 20,178,098	$ 22,260,282

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OVERVIEW

6 Months Ended

Mar. 31, 2012

Overview [Abstract]

OVERVIEW

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 and distributor of specialty and promotional products. The Company designs, markets, and distributes carry and protective solutions, primarily for hand held electronic devices. Its principal customer market is original equipment manufacturers, or “OEMs” (or the contract manufacturing firms of these OEM customers), that either package the Company’s products as accessories “in box” together with their product offerings, or sell them through their retail distribution channels, which the Company services in its OEM division. The Company’s OEM products include carrying cases and other accessories for medical monitoring and diagnostic kits, portable consumer electronic devices (such as smartphones, tablets, personnel computers, notebooks, and GPS devices), and a variety of other portable electronic and non-electronic products (such as firearms, sporting, and other recreational products). The Company’s OEM customers are located in the Americas, EMEA Region, and the APAC Region. 

The Company is currently expanding its product range to include cases and accessories for a wide array of consumer electronic devices, including smartphones, tablets, portable computers and other electronic devices; as well as developing its capability to market and distribute such products to customers in the Americas and EMEA Region through the OEM, retail and corporate channels. The Company’s product range destined for retail distribution includes both “Forward”-branded and non-“Forward” branded cases and accessories. During the three and six month periods ended March 31, 2012, net sales of Retail products accounted for approximately 13% and 12% of the Company’s total net sales.

The Company does not manufacture any of the products that it designs, markets, and distributes.  The Company sources substantially all its products from independent suppliers in China and the United States. 

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 periods presented herein, but are not necessarily indicative of the results of operations for the fiscal year ending September 30, 2012. 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, 2011, and with the disclosures and risk factors presented herein and therein, respectively. The September 30, 2011 balance sheet has been derived from the audited consolidated financial statements.

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ACCOUNTING POLICIES

6 Months Ended

Mar. 31, 2012

Accounting Policies [Abstract]

ACCOUNTING POLICIES

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 (Forward US, Forward Switzerland, Forward HK, Forward APAC, and Forward UK). All significant intercompany transactions and balances have been eliminated in consolidation.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation.

Cash and Cash Equivalents

Cash and cash equivalents consist primarily of cash on deposit and highly liquid money market accounts, short-term bonds, and certificates of deposit with original contractual maturities of three months or less, predominately in U.S. dollar denominated instruments. The Company may purchase these short-term bonds with anticipated maturity of 90 days or less at a premium or discount. The Company records these investments as cash and cash equivalents net of amortization of premium or discount. 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, at which cash amounts may significantly exceed FDIC insured limits. At March 31, 2012, this amount was approximately $7.3 million. Historically, the Company has not experienced any losses due to such cash concentrations.

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 customers generally range from net thirty (30) days to net ninety (90) days. The Company has not historically experienced significant credit or collection problems with its OEM customers or their contract manufacturers. In addition, the Company maintains credit insurance that provides up to 90% coverage on trade accounts with customers in the EMEA region. The Company did not require an allowance for doubtful accounts at March 31, 2012. At September 30, 2011, the allowance for doubtful accounts was approximately $14,000.

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, 2012, the allowance for obsolete inventory was approximately $12,000. At September 30, 2011, no allowance for obsolete inventory was deemed necessary.

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, 2012 and 2011, the Company recorded approximately $31,000 and $15,000 of depreciation and amortization expense, respectively. For the six-month periods ended March 31, 2012 and 2011, the Company recorded approximately $61,000 and $28,000 of depreciation and amortization expense, respectively. 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.

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 net tax 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 7 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 and include accrued interest and penalties within “accrued liabilities” on its balance sheets. For the three-month periods ended March 31, 2012 and 2011 presented in the accompanying consolidated statements of operations, no income tax related interest or penalties were assessed or recorded.

Revenue Recognition

The Company generally recognizes revenue from product sales to its 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) the Company has no continuing obligations to the customer; and (4) collection of the related accounts receivable is reasonably assured. The Company offers certain of its customers a variety of sales and incentive programs, including discounts, allowances, and co-op advertising and marketing funds; such amounts are estimated and recorded as a reduction in revenue.

Shipping and Handling Costs

The Company classifies certain shipping and handling costs (including inbound and outbound 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 and Promotion Costs

Advertising and promotion costs, consisting primarily of samples and tradeshow costs, are expensed as incurred. Advertising and promotion costs are included in sales and marketing expenses in the accompanying consolidated statements of operations and amounted to approximately $53,000 and $62,000 for the three-month periods ended March 31, 2012 and 2011, respectively; and $104,000 and $83,000 for the six-month periods ended March 31, 2012 and 2011, respectively. 

Foreign Currency Transactions

The functional currency of the Company and each of its wholly owned foreign subsidiaries is the U.S. dollar (except for Forward UK, which is the British Pound). Transactions denominated in foreign currencies may generate accounts receivable or payable balances 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. For the three-month periods ended March 31, 2012 and 2011, the Company recorded approximately $15,000 and $23,000 in foreign currency transaction gains, respectively. For the six-month periods ended March 31, 2012 and 2011, the Company recorded approximately $20,000 in foreign currency transaction losses and $12,000 in foreign currency transaction gains, respectively.  Such foreign currency transaction losses were primarily the result of Euro denominated sales to certain customers.

Comprehensive (Loss) Income

We calculate comprehensive income (loss) as the total of our net income (loss) and all other changes in equity (other than transactions with owners), including foreign currency translation adjustments. Comprehensive loss was $1,549,454 and $554,788 for the three-month periods ended March 31, 2012, and 2011, respectively; and $3,061,718 and $537,313 for the six-month periods ended March 31, 2012 and 2011, respectively.

Fair value of financial instruments

For certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, note receivable, 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 stock options and other equity-based compensation. The determination of grant-date fair value is estimated using a Black-Scholes option-pricing model, which includes variables such as the expected volatility of the Company’s share price, the exercise behavior of its grantees, interest rates, and dividend yields. These variables are projected based on the Company’s historical data, experience, and other factors. 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 6 Share-Based Compensation. In addition, the Company recognizes share-based compensation to non-employees (refer to Note 6) based upon the fair value, using the Black-Scholes pricing model, determined at the deemed measurement dates over the related contract service period.

Recent accounting pronouncements

In December 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-12, Comprehensive Income (Topic 220):  Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. ASU No. 2011-12, defers the specific requirement to present items that are reclassified from accumulated other comprehensive income to net income separately within their respective components of net income and other comprehensive income as described by Comprehensive Income (Topic 220) - Presentation of Comprehensive Income (ASU N0. 2011-05).  The Company will continue to report any applicable reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before ASU No. 2011-05.

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CONSOLIDATED BALANCE SHEETS (Parentheticals) (USD $)	Mar. 31, 2012	Sep. 30, 2011
Statement Of Financial Position [Abstract]
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized	4,000,000	4,000,000
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	40,000,000	40,000,000
Common stock, shares issued	8,811,595	8,794,296
Common stock, shares outstanding	8,105,185	8,087,886
Treasury Stock shares, at cost	706,410	706,410

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LEGAL PROCEEDINGS

6 Months Ended

Mar. 31, 2012

Legal Matters and Contingencies [Abstract]

LEGAL PROCEEDINGS

NOTE 12 LEGAL PROCEEDINGS

Targus Group International, Inc., et al. v., Forward Industries, Johnson, et al.

On September 19, 2011, the Company, Brett Johnson (our President and Chief Executive Officer), and one of our employees were named in a Complaint filed in Orange County Superior Court by Targus Group International, Inc. and two of its affiliates.  The Complaint alleged a claim for breach of contract against Mr. Johnson.  The Complaint further alleged a "breach of fiduciary duty/duty of loyalty" against the employee, and it asserted claims against Mr. Johnson and the Company for allegedly aiding and abetting that alleged breach.  The Complaint also asserted a cause of action against all Defendants for unfair competition.  An Amended Complaint was filed on October 11, 2011.  In addition to the claims asserted in the original Complaint, the Amended Complaint added an additional Targus affiliate as a plaintiff and named an additional employee of the Company as a defendant.  The Amended Complaint asserted a claim against that employee for breach of contract and for "breach of fiduciary duty/duty of loyalty," and it added new claims against the Company and Mr. Johnson for allegedly interfering with that employee's contract and for allegedly aiding and abetting his breach of duty.  The claim for unfair competition in the Amended Complaint relies on these new allegations as well.  All of the claims asserted in this action arise out of the decisions of former employees of one or more of the plaintiffs to accept offers of employment with the Company.  The amount of damages sought is not specified.  On November 11, 2011, the Company, Brett Johnson, and James Berberian filed a demurrer with respect to certain of the claims asserted in the Amended Complaint.  On January 30, 2012, the district court sustained the demurrer in part and ruled that Plaintiffs had not pled a valid cause of action against Mr. Johnson with respect to its claim against him for breach of contract.  The court permitted Plaintiffs to amend this defective claim and on February 10, 2012, Plaintiffs filed a Second Amended Complaint. On March 12, 2012, Mr. Johnson filed a demurrer to the breach of contract claim that was re-pled against him in the Second Amended Complaint.  A hearing on Mr. Johnson’s demurrer is scheduled for May 22, 2012. The Company believes it has substantial defenses to these claims and intends to vigorously defend the action. The Company has not recorded a loss provision for these complaints as of March 31, 2012.

Other Litigation

            From time to time, the Company may become a party to other legal actions or proceedings in the ordinary course of its business.  As of March 31, 2012, 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.

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Document And Entity Information	6 Months Ended
	Mar. 31, 2012	Apr. 30, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	FORWARD INDUSTRIES INC
Entity Central Index Key	0000038264
Trading Symbol	ford
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Current Fiscal Year End Date	--09-30
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		8,105,185
Document Type	10-Q
Document Period End Date	Mar. 31, 2012
Amendment Flag	false
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q2

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CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (USD $)	3 Months Ended		6 Months Ended
	Mar. 31, 2012	Mar. 31, 2011	Mar. 31, 2012	Mar. 31, 2011
Income Statement [Abstract]
Net sales	$ 7,164,761	$ 4,996,267	$ 14,048,290	$ 10,964,474
Cost of goods sold	5,820,267	3,839,161	11,306,798	8,426,424
Gross profit	1,344,494	1,157,106	2,741,492	2,538,050
Operating expenses:
Selling	1,363,075	643,484	2,635,346	1,070,590
General and administrative	1,554,332	1,121,392	3,197,329	2,052,010
Total operating expenses	2,917,407	1,764,876	5,832,675	3,122,600
Loss from operations	(1,572,913)	(607,770)	(3,091,183)	(584,550)
Other income (expense):
Interest income	6,928	29,748	49,055	35,403
Other income (expense), net	26,213	23,234	(9,184)	11,834
Total other income	33,141	52,982	39,871	47,237
Loss before income taxes	(1,539,772)	(554,788)	(3,051,312)	(537,313)
Provision for income taxes	4,654		6,294
Net loss	$ (1,544,426)	$ (554,788)	$ (3,057,606)	$ (537,313)
Net loss per common and common equivalent share
Basic and diluted (in dollars per share)	$ (0.19)	$ (0.07)	$ (0.38)	$ (0.07)
Weighted average number of common and common equivalent shares outstanding
Basic and diluted (in dollars per share)	8,105,185	8,085,875	8,098,137	8,125,304

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INCOME TAXES

6 Months Ended

Mar. 31, 2012

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 7  INCOME TAXES

The Company’s provision 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,
	2012	2011	2012	2011
U.S. Federal and State
Current...................................	$--	$--	$--	$--
Deferred.................................	(414,027)	(209,987)	(857,970)	(240,323)
Foreign:
Current...................................	3,339	--	4,979	--
Deferred.................................	(36,390)	9,953	(44,152)	19,971
Change in valuation allowance	451,732	200,034	903,437	220,352
Provision for income taxes	$4,654	$--	$6,294	$--

The provision for income taxes of approximately $5,000 and $6,000 recorded in the three and six-month periods ended March 31, 2012 is primarily attributable to Forward UK. As of March 31, 2012, and September 30, 2011, the Company has no unrecognized income tax benefits.

At March 31, 2012, the Company had available net operating loss carryforwards for U.S. Federal and state income tax purposes of approximately $4,837,000 and $5,782,000, respectively, expiring through 2031, resulting in deferred tax assets in respect of U.S. Federal and state income taxes of approximately $1,645,000 and $167,000, respectively. In addition, at March 31, 2012, the Company had available net operating loss carryforwards for foreign income tax purposes of approximately $1,663,000 resulting in a deferred tax asset of approximately $146,000, expiring through 2017.  Total net deferred tax assets, before valuation allowances, was $2,284,000 and $1,381,000 at March 31, 2012 and September 30, 2011, respectively. As of March 31, 2012, the undistributed earnings of the Company’s Swiss subsidiary of $317,000 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, 2012, as part of its periodic evaluation of the necessity 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; as of March 31, 2012 and September 30, 2011, the valuation allowances were approximately $2,284,000 and $1,381,000, 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 for Income Taxes” line item of the Company’s consolidated statements of operations.

As of March 31, 2012 and September 30, 2011, 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, 2008 are closed to Federal and State examination, except with respect to net operating losses generated in prior fiscal years.

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SHARE BASED COMPENSATION

6 Months Ended

Mar. 31, 2012

Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract]

SHARE BASED COMPENSATION

NOTE 6     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 authorizes 850,000 shares of common stock for grants of various types of equity awards to officers, directors, employees, consultants, and independent contractors. Under the 2011 Plan, as of March 31, 2012, the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”) has approved awards of stock options to purchase an aggregate of 825,000 shares of common stock to certain of the Company’s executive officers and employees (590,000 shares), a consultant (160,000 shares), non-employee directors (70,000 shares), and to a non-employee executive officer (5,000).  Of these awards, 132,000 shares were forfeited and reverted to, and are eligible for re-grant under, the 2011 Plan.  As of March 31, 2012, the total shares of common stock available for grants of equity awards under the 2011 Plan was 157,000. 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 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. Options granted under consulting agreement in November 2011 expire three years after the grant date and vest equally over the term of the Consulting Agreement, which concluded February 29, 2012. Refer to Note 10 – Commitments and Contingencies– Consulting Agreement.

2007 Equity Incentive Plan

The 2007 Equity Incentive Plan (the “2007 Plan”), which was approved by shareholders of the Company in May 2007, and, as amended, in February 2010, authorizes an aggregate of 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. Under the 2007 Plan, the Compensation Committee of the Company’s Board of Directors approved awards of restricted common stock and stock options of 836,000, in the aggregate, to certain officers, employees and non-employee directors. Of these awards, 68,366 shares were forfeited and reverted to, and are eligible for re-grant under, the 2007 Plan.  As of March 31, 2012, the total shares of common stock available for grants of equity awards under the 2007 Plan was 32,366. 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 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.

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. In general, options under this plan expire ten years after the date of grant and generally vest in equal proportions over three years.  Unexercised options granted  prior to 1996 Plan 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, 2012.

Stock Option Awards

Under the 2011 and 2007 Plans, the Compensation Committee has approved awards of stock options to purchase an aggregate of 1,477,500 shares of common stock to the Company’s current and certain former non-employee directors, to certain key employees, to current and certain former Company officers, and to a consultant, of which awards covering 45,000 shares from the 2007 Plan and 132,000 shares from the 2011 Plan of common stock were forfeited, with such shares reverting to the respective plans and eligible for grant. 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 $187,000 and $43,000 of compensation expense for stock option awards in its consolidated statements of operations for the three-month periods ended March 31, 2012 and 2011, respectively; and $320,000 and $135,000 for the six-month periods ended March 31, 2012 and 2011, respectively. As of March 31, 2012, there was approximately $1,045,000 of total unrecognized compensation cost related to 874,000 shares of unvested stock option awards granted under the 2007 and 2011 Plans, which is expected to be recognized over the remainder of the weighted average vesting period (extending to February 2017).

The following table summarizes stock option activity under the 2011 Plan and 2007 Plan from September 30, 2011 through March 31, 2012 (there was no activity during such period in respect of 1996 Plan grants):

	Shares	Weighted Average Exercise Price	Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding at September 30, 2011	1,007,500	$3.45	9.1
Granted..............................................	280,000	2.77	5.5
Exercised............................................	--	--	--
Forfeited............................................	(42,000)	3.17	--
Expired...............................................	--	--	--
Outstanding at March 31, 2012	1,245,500	$3.31	7.8	$69,000
Options expected to vest at March 31, 2012.................................	739,450	$3.45	8.2	$1
Options vested and exercisable at March 31, 2012.............................	371,500	$3.00	5.2	$68,000

 During the six-month periods ended March 31, 2012 and 2011, the Company granted 280,000 and 685,000 stock options at weighted average grant date fair values of $0.91 and $2.09, 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,
	2012	2011
Expected term (in years).......................................	3.0 to 5.0	5.0
Risk-free interest rate............................................	0.04% to 0.83%	0.3% to 2.2%
Expected volatility.................................................	63% to 69%	66% to 69%
Expected dividend yield.......................................	0%	0%
Estimated Annual Forfeiture rate	9.1%	--

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. The Company adjusted its estimated forfeiture rate effective October 1, 2011 and recognized a recovery of approximately $46,000 during the three-month period ended December 31, 2011. No such recovery was recognized during the three-month period ended March 31, 2012.

Restricted Stock Awards

Under the 2007 Plan, the Compensation Committee has approved and granted awards of 183,500 shares of restricted stock, in the aggregate, to certain key employees. Of these awards, 152,634 have vested and 23,366 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 three and six month periods ended March 31, 2012.  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 of the grant date, 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, 2012 and 2011, the Company recognized approximately ($1,000) and $3,000, respectively, of compensation in its consolidated statements of operations related to restricted stock awards; and $3,000 and $13,000 for the six-month periods ended March 31, 2012 and 2011, respectively.

The following table summarizes restricted stock activity under the 2007 Plan from September 30, 2011, through March 31, 2012.

	Shares	Weighted Average Grant Date Fair Value
Non-vested balance at September 30, 2011...............................	25,799	$2.04
Changes during the period:
Shares granted.......................................................................	--	--
Shares vested........................................................................	17,299	2.05
Shares forfeited.....................................................................	1,000	2.02
Non-vested balance at March 31, 2012.....................................	7,500	$2.02

                As of March 31, 2012, there was approximately $3,000 of total unrecognized compensation cost related to 7,500 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 (approximately 9 months). The total grant date fair value of restricted stock that vested during the six-month period ended March 31, 2012 was approximately $35,000.

Warrants

    As of March 31, 2012, 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, 2012, no such registration statement has been filed with the Securities and Exchange Commission.

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COMMITMENTS AND CONTINGENCIES

6 Months Ended

Mar. 31, 2012

Commitments Contingencies and Guarantees [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 10   COMMITMENTS AND CONTINGENCIES

Employment Agreements

On April 2, 2012, the Company appointed Robert Garrett Jr. and Brett Johnson as Co-Chief Executive Officers of the Company.  Mr. Johnson has served as the Company’s President and Chief Executive Officer since August 2010.  Mr. Garrett has served as a consultant to the Company pursuant to a consulting agreement (refer to “Consultancy Agreement” section below) since October 1, 2011. In connection with Mr. Garrett’s appointment as the Company’s Co-Chief Executive Officer, the Consulting Agreement was terminated effective as of February 29, 2012.

Robert Garrett Employment Agreement

Under his employment agreement, Mr. Garrett is employed as the Company’s Co-Chief Executive Officer, effective as of March 1, 2012, at an annual salary of $250,000. In executing his employment agreement, Mr. Garrett received a signing bonus of $9,167. During Mr. Garrett’s first year of employment he shall receive a bonus not less than $50,000.  In addition, during each year of his employment, Mr. Garrett is eligible to receive an annual bonus at the discretion of the Compensation Committee in a combination of cash or equity based compensation. Mr. Garrett’s employment agreement also entitles him to awards of stock options to purchase an aggregate of 200,000 shares of the Company’s common stock pursuant to the 2011 Long Term Incentive Plan.

Mr. Garrett’s employment agreement provides for successive one-year renewal terms, unless either party provides written notice of its intention not to renew the agreement not later than 90 days prior to the end of the term (or renewal period). In the event of the termination of Mr. Garrett’s employment, depending on the circumstances, Mr. Garrett could be entitled to receive a severance payment which could be up to (12) twelve months of his salary, and under certain circumstances, the immediate vesting of any unvested options pursuant to applicable equity compensation plans, as well as any accrued discretionary bonus.

Mr. Garrett’s employment agreement binds him to customary non-competition and non-solicitation covenants of up to one year following the expiration of the employment term.

Brett Johnson Employment Agreement

Under his employment agreement, Mr. Johnson is employed as the Company’s Co-Chief Executive Officer, effective March 1, 2012, at an annual salary of $250,000.  During Mr. Johnson’s first year of employment, he is eligible to earn a bonus of up to $50,000, based on achievement of certain performance goals defined in his employment agreement. In addition, during each year of his employment, Mr. Johnson is eligible to receive an annual bonus at the discretion of the Compensation Committee in a combination of cash or equity based compensation.

Mr. Johnson’s employment agreement provides for successive one-year renewal terms, unless either party provides written notice of its intention not to renew the agreement not later than 90 days prior to the end of the term (or renewal period). In the event of termination of Mr. Johnson’s employment, depending on the circumstances, Mr. Johnson could be entitled to receive a severance payment which could be up to (12) twelve months of his salary, and under certain circumstances the immediate vesting of any unvested options pursuant to applicable equity compensation plans, as well as any accrued discretionary bonus.

Mr. Johnson’s employment agreement binds him to customary non-competition and non-solicitation covenants of up to one year following the expiration of the employment term.

James McKenna Employment Agreement

James O. McKenna serves as the Company’s Chief Financial Officer, Treasurer and Assistant Secretary pursuant to an Amended Employment Agreement, dated as of April 1, 2011 (the “Employment Agreement”), between the Company and Mr. McKenna.  The Employment Agreement provides for an annual salary of $225,000 and Mr. McKenna will be eligible to earn bonus compensation based on achievement of targets set by the Board’s Compensation Committee in respect of each fiscal year during the term.  Under the Employment Agreement, Mr. McKenna is entitled to reimbursement of reasonable out-of-pocket costs incurred in relocation to the Los Angeles area, and payment of a housing allowance of $7,500 per month, to be phased out over time.  The term of the Employment Agreement expires on December 31, 2012, with automatic renewal for successive terms of one year each.  Pursuant to the Employment Agreement, Mr. McKenna is entitled to a payment equal to one year of his salary as severance in the event of his termination “without cause” and termination for “good reason” (as such terms are defined in the Employment Agreement).  In addition, in case of termination for good reason or without cause, in either case within the first 36 months after relocation to the Los Angeles area, Mr. McKenna is entitled to reimbursement of reasonable out-of-pocket costs incurred in connection with relocation of his primary residence back to Florida.

Consultancy Agreement

On November 1, 2011, the Company entered into an agreement with RGJR Capital Partners LLC (“RGJR”) to provide Robert Garrett, Jr. as a consultant for a term of up to six months to assist management in implementation of its growth strategy pursuant to a letter agreement, effective as of October 1, 2011. Under the RGJR agreement, Mr. Garrett received a consulting fee of $30,000 per month and was awarded options to purchase up to 160,000 shares of common stock of the Company pursuant to the 2011 Long Term Incentive Plan. In connection with Mr. Garrett’s appointment as the Company’s Co-Chief Executive Officer (refer to “Employment Agreements” section above), the Consulting Agreement was terminated effective as of February 29, 2012.

Letters of Intent

Waterproof Case License

In September 2011, the Company entered into a Letter of Intent with a Florida corporation (“FloridaCo”) that has invented a patent pending waterproof electronics case. Under the Letter of Intent, the Company will be granted the exclusive worldwide license to manufacture, develop, distribute, and otherwise use the waterproof case, subject to maintaining certain minimum monthly sales levels, in exchange for making certain royalty payments to FloridaCo. In addition, the Company agreed to make four quarterly payments of advance royalties to FloridaCo, in the amount of $25,000 each, commencing December 1, 2011. Such advance royalty payments are non-refundable and interest free.  However, a portion of these payments may be used by the Company to offset its performance-based royalty obligations to FloridaCo until all such advance royalties have been fully recouped by the Company. As of the date of this report, the Company had paid $50,000 of such advance royalties to FloridaCo, which are included in “Prepaid expenses and other current assets” on the Company’s consolidated balance sheet at March 31, 2012.

Folding Keyboard License

In January 2012, the Company entered into a Letter of Intent with a Delaware corporation (“DelawareCo”) that has invented a patent pending, folding, Bluetooth keyboard (the “Folding Keyboard”). Under the Letter of Intent, the Company would have been granted the exclusive worldwide license to manufacture, develop, distribute, and otherwise use the Folding Keyboard in exchange for making certain royalty payments to DelawareCo based on the Company’s sales of the Folding Keyboard over the term of the license agreement. In addition, the Company agreed to pay DelawareCo $100,000 of advance royalties in the event DelawareCo raises $100,000 of capital for the launch of the Folding Keyboard. On March 24, 2012, upon mutual agreement, the Company withdrew its Letter of Intent with DelawareCo., and as of such date, no advance royalties have been paid to DelawareCo.

Guarantee Obligation

In February 2010, Forward Switzerland 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 March 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 €75,000 (equal to approximately $100,000 as of March 31, 2012) 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 initial term of the bank letter of guarantee expired February 28, 2011, but was renewed for one year and may 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 $300,000 at March 31, 2012). As of March 31, 2012, the Company had not incurred a liability in connection with this guarantee.

Buying Agency and Supply Agreement

On March 12, 2012, the Company, entered into a Buying Agency and Supply Agreement (the “Agreement”) with Seaton Global Corporation, a British Virgin Islands corporation (“SGC”), dated as of March 7, 2012.  The Agreement provides that, upon the terms and subject to the conditions set forth therein, SGC shall act as the Company’s exclusive buying agent and supplier of Products (as defined in the Agreement) in the Asia Pacific region.  The Company shall purchase products at SGC’s cost, and shall pay a service fee on the net purchase price.  The Agreement shall terminate on March 11, 2014, subject to renewal.  Terence Wise, a director of the Company, is a principal of SGC. During the three and six-month periods ended March 31, 2012, the Company recorded $70,000 of SGC service fees, which are included as a component of costs of goods sold in the accompanying consolidated statements of operations.

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(LOSS) / INCOME PER SHARE

6 Months Ended

Mar. 31, 2012

Earnings Per Share [Abstract]

(LOSS) / INCOME PER SHARE

NOTE 8     (LOSS) / INCOME 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. Diluted loss per share data for the three-month and six-month periods ended March 31, 2012 and 2011 excludes 1,328,000 and 39,429 of outstanding common equivalent shares as inclusion of such shares would be anti-dilutive.

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OPERATING SEGMENT INFORMATION

6 Months Ended

Mar. 31, 2012

Segment Reporting [Abstract]

OPERATING SEGMENT INFORMATION

NOTE 9     OPERATING SEGMENT INFORMATION

In the first quarter of its 2012 fiscal year, the Company changed its internal reporting used by its senior management for evaluating segment performance and allocating resources. The new reporting disaggregates the Company’s operations into two divisions; OEM and Retail (including “Forward”-branded products), and represented a change in the Company’s operating segments under ASC 280, “Segment Reporting.” During its 2011 fiscal year, the Company reported and managed its business based on a single operating segment under ASC 280.

The OEM segment consists of the design and distribution of custom carry and protective solutions to OEM’s that either package the Company’s products as accessories “in box” together with their product offerings, or sell them through their retail distribution channels. The Company’s OEM products include soft-sided carrying cases and other accessories for medical monitoring and diagnostic kits, bar code scanners, consumer electronics (including personnel tablets and computers,, smartphones, and GPS devices), firearms, sporting, and other recreational products. The OEM segment operates in geographic regions that include primarily APAC, the Americas, and EMEA. Geographic regions are defined by reference primarily to the location of the customer or its contract manufacturer.

The Retail segment, which commenced during the three-month period ended December 31, 2011, consists of the design, marketing, and distribution of cases and accessories for consumer electronics devices such as smartphones, tablets, portable computers and other consumer electronics products. The Company is currently developing its own line of “Forward”-branded products and its capability to market and distribute such products to retail customers in the Americas an EMEA Region.

The following table presents net sales of each segment by geographical region:                                                                          

(all amounts in thousands of dollars)			(all amounts in thousands of dollars)
Three Months Ended March 31,			Six Months Ended March 31,
	2012	2011	2012	2011
OEM Segment:
APAC...............................................	$2,773	$2,466	$5,608	$5,200
Americas..........................................	1,848	1,350	3,844	3,286
EMEA..............................................	1,607	1,180	2,933	2,478
Total OEM sales......................	6,228	$4,996	12,385	$10,964
Retail Segment:
EMEA..............................................	825	--	1,477	--
Americas..........................................	112	--	186	--
Total Retail Sales....................	937	--	1,663	--
Total net sales*.....................................	$7,165	$4,996	$14,048	$10,964
Gross Profit:
OEM Segment.................................	$1,155		$2,364
Retail Segment................................	189		377
Unallocable to segments...............	--		--
Total gross profit:...................	$1,344		$2,741
Operating Expenses:
OEM Segment.................................	$438		$864
Retail Segment................................	1,298		2,511
Unallocable to segments...............	1,182		2,458
Total operating expenses:......	$2,917		$5,833
Income (loss) from operations:
OEM Segment.................................	$718		$1,500
Retail Segment................................	(1,108)		(2,133)
Unallocable to segments...............	(1,182)		(2,458)
Total loss from operations:....	$(1,573)		$(3,091)
Total assets:	As of March 31, 2012
OEM Segment.................................	$5,228
Retail Segment................................	3,217
Unallocable to segments...............	11,733
Total assets:.............................	$20,178

*Totals may not total due to rounding

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BINDING MEMORANDUM OF UNDERSTANDING

6 Months Ended

Mar. 31, 2012

License Agreement [Abstract]

BINDING MEMORANDUM OF UNDERSTANDING

NOTE 11   BINDING MEMORANDUM OF UNDERSTANDING

In August 2011, the Company entered into a binding Memorandum of Understanding (“MOU”) with G-Form LLC (“G-Form”), a manufacturer of consumer and athletic products incorporating proprietary extreme protective technology.  Under the MOU, the Company is granted the exclusive right to use G-Form’s protective technology in the Company’s designated territory, subject to meeting certain minimum annual sales levels (or at the Company’s option, the making of royalty payments at corresponding levels) commencing with the twelve-month period after shipment of the first Forward-branded licensed product that uses this technology, with the minimum levels increasing in the subsequent second and third twelve-month periods. After the first twelve-month period, the Company may terminate the MOU by providing six months notice, provided that the Company has paid all royalties and other charges incurred.  The Agreement may be terminated by G-Form if there is an uncorrected, material breach by the Company of the terms of the Agreement.

As of September 30, 2011, the Company had paid G-Form a $490,000 non-refundable advance against the first year’s royalties to be offset by cancellation of the $500,000 of loans made by the Company to G-Form in its capacity as a prospective joint venture partner. This amount increased to $500,000 as of March 31, 2012. The $500,000 of advanced royalties is included in “Prepaid expenses and other current assets” on the Company’s balance sheet at March 31, 2012. As of March 31, 2012, there have been no sales of Forward-branded licensed product. The MOU is a binding agreement but the parties have agreed to use commercially reasonable efforts to replace the MOU with a mutually agreeable long-form license agreement reflecting the terms of the MOU and other customary terms and conditions.

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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (USD $)	6 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Operating activities:
Net loss	$ (3,057,606)	$ (537,313)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation	323,720	148,192
Depreciation and amortization	60,536	28,280
Provision for obsolete inventory	11,520	19,124
Recovery of bad debts		(4,120)
Loss on disposal of property and equipment	739
Changes in operating assets and liabilities:
Accounts receivable	(1,872,084)	384,877
Inventories	(745,644)	(149,804)
Prepaid expenses and other current assets	(910,120)	(97,473)
Accounts payable	241,785	(612,193)
Accrued expenses and other current liabilities	414,028	(284,145)
Net cash used in operating activities	(5,533,126)	(1,104,575)
Investing activities:
Issuance of note receivable		(1,000,000)
Proceeds from note receivable	400,000
Purchases of property and equipment	(59,263)	(74,823)
Net cash provided by (used in) investing activities	340,737	(1,074,823)
Net decrease in cash and cash equivalents	(5,192,389)	(2,179,398)
Cash and cash equivalents at beginning of period	14,911,844	18,471,520
Cash and cash equivalents at end of period	9,719,455	16,292,122
Cash paid for:
Income taxes		$ 84,757

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SHAREHOLDERS' EQUITY

6 Months Ended

Mar. 31, 2012

Stockholders Equity Note [Abstract]

SHAREHOLDERS' EQUITY

NOTE 5     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, 2012, 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, 2012 and 2011.

Changes in Shareholders’ Equity

Changes in shareholders’ equity for the six-month period ended March 31, 2012 are summarized below:

	Common Stock	Capital In Excess of Par Value	Retained Earnings	Treasury Stock	Accumulated Other Comprehensive Loss
Balance at September 30, 2011............	$87,943	$16,845,673	$3,009,130	$(1,260,057)	$  --
Share based compensation.............	173	323,548	--	--	--
Foreign currency translation...........	--	--	--	--	(4,112)
Net loss......................	--	--	(3,057,606)	--	--
Balance at March 31, 2012..................	$88,116	$17,169,221	$(48,476)	$(1,260,057)	$(4,112)