Forward Industries Inc.
Annual Report 2008

Plain-text annual report

Morningstar® Document Research℠ FORM 10-KFORWARD INDUSTRIES INC - FORDFiled: December 16, 2008 (period: September 30, 2008)Annual report with a comprehensive overview of the companyThe information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The userassumes all risks for any damages or losses arising from any use of this information, except to the extent such damages or losses cannot belimited or excluded by applicable law. Past financial performance is no guarantee of future results.UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-K(Mark One)[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended September 30, 2008[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission File Number: 0-6669FORWARD INDUSTRIES, INC.(Exact name of registrant as specified in its charter)New York13-1950672(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.) 1801 Green Rd., Suite E, Pompano Beach, FL 33064(Address of principal executive offices, including zip code)(954) 419-9544(Registrant’s telephone number, including area code)Securities registered pursuant to Section 12(b) of the Act:NoneSecurities registered pursuant to Section 12(g) of the Act:Common Stock, $0.01 par value per shareIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.[ ] Yes [ X ] NoIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.[ ] Yes [ X ] NoIndicate 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 duringthe preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. [ X ] Yes [ ] NoIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the bestof Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form10-K. [X]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 thedefinitions 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 1 The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equitywas last sold, as of the last business day of the Registrant’s most recently completed second fiscal quarter was: $17,417,797.As of November 19, 2008, 7,915,522 shares of the Registrant’s common stock were outstanding.Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Documents Incorporated by ReferenceCertain specified portions of the registrant’s proxy statement in respect of its annual meeting of shareholders expected to be held on or about February 11,2009, are incorporated by reference into Part III (Items 10-14) of this Annual Report on Form 10-K to the extent described herein. 2 Forward Industries, Inc.Table of Contents PART IPage No.Item 1.Business4 Item 1A.Risk Factors13 Item 1B.Unresolved Staff Comments19 Item 2.Properties19 Item 3.Legal Proceedings19 Item 4.Submission of Matters to a vote of Security Holders19 PART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities20 Item 6.Selected Financial Data21 Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations21 Item 7A.Quantitative and Qualitative Disclosures About Market Risk30 Item 8.Financial Statements and Supplementary Data31 Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure31 Item 9A.Controls and Procedures31 Item 9A(T)Controls and Procedures31 Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Item 9B.Other Information32 PART III Item 10.Directors, Executive Officers and Corporate Governance32 Item 11.Executive Compensation32 Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters32 Item 13.Certain Relationships and Related Transactions, and Director Independence33 Item 14.Principal Accountant Fees and Services33 PART IV Item 15.Exhibits and Financial Statement Schedules33 Signatures56 3 Note Regarding Use of Certain TermsIn this Annual Report on Form 10-K, unless the context otherwise requires, the following terms have the meanings assigned to them as set forth below: "we", "our", and the "Company" refer to Forward Industries, Inc., a New York corporation, together with its consolidated subsidiaries; “Forward” or “Forward Industries” refers to Forward Industries, Inc.; “common stock” refers to the common stock, $.01 par value per share, of Forward Industries, Inc.; "Koszegi" refers to Forward Industries’ wholly owned subsidiary Koszegi Industries, Inc., an Indiana corporation; “Koszegi Asia” refers to Forward Industries’ wholly owned subsidiary Koszegi Asia Ltd., a Hong Kong corporation (the name of this subsidiary was changed to “Forward Industries HK Limited” in October 2008); “Forward Innovations” refers to Forward Industries’ wholly owned subsidiary Forward Innovations GmbH, a Swiss corporation; “Forward APAC” refers toForward Industries’ wholly owned subsidiary Forward Asia Pacific Limited, a Hong Kong corporation; “GAAP” refers to accounting principles generallyaccepted 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; “Fiscal 2008” refers to our fiscal year ended September 30, 2008; “Fiscal 2007” refers to our fiscal year ended September 30, 2007;“Fiscal 2006” refers to our fiscal year ended September 30, 2006; “EMEA Region” means the geographic area encompassing Europe, the Middle East and Africa; “Europe” means the countries included in the European Union and also, in the context of the Motorola License territory, the following countries: Norway,Switzerland, Croatia, Russia, Ukraine, Albania, Belarus, Bosnia-Herzegovina,, Macedonia, and Uzbekistan; “APAC Region” means 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 4 Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Forward Industries, Inc. PART IITEM 1. BUSINESSGeneralWe design, market, and distribute carry solutions for hand held consumer electronics products, including soft-sided carrying cases, bags, clips, handstraps, decorative face plates, and other accessories for medical monitoring and diagnostic kits, cellular telephones, cameras, and other consumer electronicproducts. We sell these products in two primary customer markets. Our principal customer market is original equipment manufacturers, or “OEMs”, ofthese consumer electronic products, who package our carry solution products as accessories “in box” together with their own product offerings and to anincreasing extent the contract manufacturing firms of these OEM customers. In Fiscal 2008 and 2007 sales to OEM customers (or their contractmanufacturers) accounted for approximately 98% and 91% of our net sales, respectively.Our second, and much smaller, customer market consists of retailers and distributors in the cell phone products aftermarket to whom we sellCompany branded products and carry solutions bearing the Motorola trademarks under a non-exclusive license from Motorola, Inc. Under the Motorolalicense, we have been granted the rights to market such carry solutions in the United States, Canada, and Europe. In Fiscal 2008 and Fiscal 2007 sales ofproducts in aftermarket channels accounted for approximately 2% and 9% of our revenues, respectively. In prior fiscal years, sales of licensed productsaccounted for substantially higher percentages of revenue.We do not manufacture any of the products that we sell and distribute. We source all products we market and distribute from independent Chinesesuppliers. Our suppliers custom manufacture our carrying cases and related products to our order based on our designs and know-how and to our customers’specifications. Typically, we ship these products to our OEM customers, or to their contract manufacturers, to be packaged with their consumer productsprior to distribution and sale. In the case of sale of carry solutions to our aftermarket customers, we ship these as stand alone, separately packaged stockunits to distributors and retailers. Corporate History Forward Industries, Inc. was incorporated in 1961 under the laws of the State of New York. Until 1989, our primary business was the manufactureand distribution of advertising specialty and promotional products. In 1989, we acquired Koszegi Industries, Inc., or "Koszegi", an Indiana corporation thatmanufactured soft-sided carrying cases at its South Bend, Indiana, facility. The carrying case business progressively increased to the point where it becamethe predominant part of our business. In September 1997, we sold the assets relating to the production of advertising specialty and promotional products,and ceased operating in that business segment.In May 1994, we formed Koszegi Asia Ltd., or “Koszegi Asia”, as a wholly owned, Hong Kong-based, subsidiary of Forward Industries to facilitate amore nimble and robust carrying case procurement and quality control infrastructure, and to further enhance our foreign sourcing capabilities. With KoszegiAsia’s ability to source quality cases in China on short lead times, we determined that our domestic production capability was unnecessary, and we nowsource all our product supply from Chinese suppliers. See "Product Supply". In October 2008 we changed the name of this subsidiary to “Forward IndustriesHK Limited”.In recent years in our OEM distribution channel we have focused on strengthening our sales and distribution network, and commercial relationshipswith our key OEM customers. We have been responsive to our OEM customers’ distribution requirements by entering into seven distribution hub agreementswith two of our OEM customers at their request to improve their tracking and control of accessory products packaged “in box” with their consumerelectronics. During Fiscal 2006, we began to modify our quality control infrastructure by contracting part of this function away from our Hong Kongdistribution and quality control facility directly to a third party provider. The predominant portion of our quality control function is now conducted in thismanner. In addition, we have sought to strengthen our presence in secondary markets. 5 Forward Industries, Inc. We have also sought to strengthen our aftermarket channel. In May 2001, we formed Forward Innovations GmbH, a wholly owned Swiss subsidiaryof Forward Industries, or “Forward Innovations”, to facilitate distribution of licensed products as well as to further develop our OEM European businesspresence, and this served us well under the 2001 and 2004 licenses. With the lengthy gap between expiration of the Motorola license in December 2007 andentry into the new license in May 2008, staff at Forward Innovations was temporarily reduced. Forward Innovations has also allowed us to better serve ourSource: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.OEM European customers. See “Marketing, Distribution and Sales”.ProductsThrough our wholly owned subsidiaries, Koszegi and Forward Innovations, we design and market to our customers’ orders, carry solutions for handheld consumer electronics, including soft-sided carrying cases, bags, clips, hand straps, decorative faceplates, and other accessories made of leather, nylon,vinyl, plastic, PVC and other synthetic fabrics. Our products are used by consumers for carrying or transporting portable electronic products such as cellulartelephones, blood glucose monitoring kits, cameras, and other consumer hand held electronic devices. Our carrying cases are designed to enable these devicesto be stowed in a handbag, briefcase, or backpack, clipped to a belt, or carried in a pocket while protecting the electronic device from scratches, dust, andmishandling.Cases for Medical KitsWe sell our medical monitoring and diagnostic kit carrying cases directly to OEMs (or their contract manufacturers) of electronic blood glucosemonitoring kits for personal use by diabetics. We typically sell these cases at prices ranging from $0.40 to $10.00 per unit. The predominant percentage ofproduct sales by unit volumes are at the low to middle area of this price range. The OEM customer or its contract supplier packages the cases “in box” as acustom accessory for its blood glucose testing and monitoring kits. The kits typically include a small, electronic blood glucose monitor, testing strips, lancetsfor drawing a drop of blood and our carrying case, customized with the manufacturer’s logo and designed to fit and secure the glucose monitor, testing stripsand lancets in separate straps, pouches, and holders. We believe that users of these monitoring kits may purchase new kits as frequently as every two years,depending on advances made in the blood glucose measurement technology and functionality. As the kits and technology change, our carrying case designschange to accommodate the changes in size, shape and layout of the electronic monitoring device, strips and lancet.Cases for Cellular HandsetsWe engage in the sale and distribution of carrying cases and related accessory products for cellular telephone handsets to OEM handset suppliers and toretailers and wholesalers of cellular phone products and related accessories (typically bearing our licensor’s trademarks under our license agreements withthem). These products include carry cases for cell phone handsets, cases for handset camera attachments, handset plastic belt clips, carrying case straps andbags, decorative faceplates, wrist straps, digital display cleaning cloths, and other accessory products. Our selling prices for these products vary widely,depending on the specific product, terms of the order, quantity ordered, and distribution channel, and generally range from $0.20 or less to $13.00 per unit,with the higher prices in the range generally occurring in the case of licensed product sales. By unit volumes the predominant percentage of products sold sellsat the low or lower-middle end of this price range, and this typically is the case for low cost/low price straps, cleaning cloths, or other accessories thatcomplement a handset case. In the case of sales to OEM customers and their contract manufacturers, the manufacturer or its contract supplier packages ourcases or other accessories “in box” as a custom accessory for the cellular handset. In the case of sales of aftermarket products, we sell and ship these productsas separately packaged, aftermarket accessories to third party retailers and distributors.Other Carrying Case ProductsWe also sell carrying cases, straps, belt clips, and other carry and storage solutions for a diverse array of other portable electronic and other products,including cases for cameras, MP3 players, retail bar code scanners, and a variety of other products. Our selling prices for these products also vary across abroad range, depending on the size and nature of the product for which we design the carry solution.6 Forward Industries, Inc. Product DevelopmentIn our OEM business we typically receive invitations to submit product designs and receive product orders in connection with a customer’sintroduction and rollout to market of a new product that the customer has determined to accessorize and customize with our products. Our OEM customersprovide us with the desired functionality, size and other basic specifications for the carrying case or other product, including the OEM’s identifying logoimprint on the product. Our in-house design and production staff develops detailed design options and more detailed product specifications for our customer’sevaluation, and in conjunction with our customer, we then engage in the process of refinement of design and specifications. Working with our suppliers, wefurnish our customer with product samples. Once our customer approves a product sample for commercial introduction and order, we work with oursuppliers to ensure conformity to the definitive product samples and specifications. Manufacture and delivery of products in production quantities is thencoordinated with our OEM customer’s manufacturing and shipment schedules so our carry solutions can be placed “in box” with the consumer electronicproduct.In the case of sales of branded products pursuant to our license agreements, we market carrying cases and related accessory products for cell phonehandsets based on our own designs or designs furnished by our licensor. Our in-house design staff develops detailed design options and productspecifications for the licensor’s evaluation. We work with our licensors to refine design specifications and subsequently submit production samples forapproval. Upon approval, we offer such products to retailers and other distributors in the licensed territory. Licensed products have, to date, beenmanufactured for both inventory and customer order. Research and development costs are not material to our business. From time to time we file applications for and secure copyrights and other statutoryintellectual property protection for carry case and other accessory designs we develop for sale to our customers (or to a much lesser extent for our ownportfolio), but generally intellectual property protection is not significant to our business.Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Marketing, Distribution, and SalesGeographic Sales DistributionWe sell our products globally. The approximate percentages of net sales to customers by their geographic location for Fiscal 2008 and Fiscal 2007 are asfollows: Fiscal Years Ended September 30,Geographic Location:2008 2007APAC50% 50%Americas30% 30%Europe20% 20%Totals100% 100% The importance of the Asia Pacific region, is attributable to the fact that increasingly our OEM customers have outsourced product manufacture tocontract manufacturers located in China or elsewhere in Asia. In the case of outsourcing to Asian contract manufacturers, we ship product to, and it ispackaged “in box” at, such contract manufacturer’s facility. If payment to us is due from the contract manufacturer, we identify the sale to its geographiclocation rather than that of the OEM customer for whom the contract manufacturer is supplying product together with our cases “in box”. See Note 13 to theaudited consolidated financial statements included in Item 8 of this Annual Report.Channels of DistributionWe have two channels of distribution for our products: first, direct to our OEM customers, which package our carry solutions products “in box” withtheir products, although increasingly, we may ship directly to the OEM customer’s contract manufacturer, which similarly packages our products “in box”on behalf of the OEM customer. The second distribution channel is to distributors and retailers to whom we ship our carry solution product accessories,either bearing our licensor’s trademarks under our license agreement with it, or bearing our products marketed under our name and logo. In both cases, thesecarry solution products are separately packaged as stand alone stock units, for sale in the aftermarket. These two distribution channels accounted forapproximately the following percentages of our net sales in Fiscal 2008 and Fiscal 2007:7 Forward Industries, Inc. Fiscal Year EndedDistribution Channels:2008 2007OEM98% 91%Aftermarket2% 9%Totals100% 100%We believe the significant decline in the aftermarket’s relative revenue contribution as seen in the above table is the result of several factors: the strengthof OEM diabetic sales on an absolute as well as relative basis; second, the expiration of the Motorola license on December 31, 2007 and the five month lapseof time before the new license agreement was concluded in May 2008; and the lack of execution as anticipated of approvals of new product samples for saleunder the new license as well as sales initiatives with potential customers to advance our objectives under the new license by the end of Fiscal 2008, orthereafter.OEM Product SalesOEM products sales for blood glucose monitors, cellular phone handsets, and other products (i.e., other than cases and accessories for blood glucosemonitoring kits and cellular phone handsets) accounted for approximately the following percentages of total net sales in Fiscal 2008 and Fiscal 2007: Fiscal Year EndedOEM Product Sales:2008 2007Diabetic Products76% 49%Other Products16% 15%Cell Phone Products6% 27%Totals98% 91%We believe that the significant decline in relative revenue contribution from cell phone product sales is the result of several factors. The most significantis the approximate 80% decline in net sales from cell phone product cases due to a steep drop off in OEM sales to Motorola, Inc. (approximately 74% of thedecline) and to the absence of licensed sales under the Motorola license as the prior license expired after the first quarter of Fiscal 2008 (approximately 26% ofthe decline). Second, OEM revenues from sales of blood glucose monitor cases increased 40% in Fiscal 2008 compared to Fiscal 2007, and thus the relativecontribution of cell phone product revenues declined, even as those revenues declined on an absolute basis.Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Of our approximately 100 active customers, three customers, including their subsidiaries, affiliates, and contract manufacturers, accounted forapproximately 75% of our net sales in Fiscal 2008. Our principal OEM customers include Lifescan, Inc. (“Lifescan”), a subsidiary of Johnson and Johnson,Abbott Laboratories (“Abbott”), and Roche Diagnostics (“Roche”), for carrying cases for diabetic monitoring kits. A fourth customer, Motorola Inc.,contributed significantly to our net sales in Fiscal 2007 and prior fiscal years, but such sales have declined to insignificant levels. These customers packageour cases or other accessories “in box” with their branded products or use them as promotional items. The approximate percentages of net sales contributed byeach of these four customers for Fiscal 2008 and Fiscal 2007 are as follows:8 Forward Industries, Inc. Fiscal Year EndedCustomer:2008 2007Lifescan46% 32%Abbott20% 13%Roche9% --Motorola *-- 27%Totals75% 72%* Excludes sales of Motorola-branded products to third parties under our license agreement.The loss of any of the above named customers could have a material adverse effect on our business, results of operations and financial condition. SeeItem 1A. “Risk Factors— Our business is characterized by a high degree of customer concentration. Our three largest customers accounted forapproximately 75% and 72% of net sales in Fiscal 2008 and 2007, respectively; the loss of, or material reduction in orders from, any of thesecustomers could materially and adversely affect our results of operations and financial condition” and “Our business could suffer if the services of anyof the key personnel we rely on were lost to us.”Aftermarket Product SalesWe have entered into non-exclusive licenses with Motorola and SAGEM, each of which grants us the right to sell cell phone carry cases and otheraccessories branded with their respective trademarks in designated territories. Currently, sales under the licenses are minimal. See Item 1A, Risk Factors: “We may not realize the benefits that we anticipated under the new license agreement .”In Fiscal 2007 and prior years, aftermarket product sales predominantly consisted of sales to third parties of licensed products under the Motorolaagreement. These sales accounted for approximately 1% and 9% of our net sales in Fiscal 2008 (in the first quarter thereof under the expired license) andFiscal 2007, respectively. We look to diversify aftermarket channels in the near future by development of our own line of products for sale to distributors andretailers or other initiatives. Sales ForceDuring Fiscal 2008 and Fiscal 2007 approximately 100% of net sales were made directly by our employees, which are assigned key accounts and todefined geographic sales territories. . See “Risk Factors” in Item 1A. of this Annual Report - “Our business could suffer if the services of any of the keypersonnel we rely on were lost to us.”Motorola LicenseFollowing the expiration of the prior license agreement on December 31, 2007, in May 2008, we entered into a new, non-exclusive license agreement withMotorola, Inc. (“Motorola”) that grants us the right to distribute certain Motorola trademarked carry solution accessory products to wholesale and retailcustomers in the United States, Canada, and Europe through March 31, 2009, subject to renewal by mutual agreement. The license agreement is effectiveretroactive to January 1, 2008. The grant under the expired license was limited to the EMEA Region and pertained to traditional Motorola branded handsets;the grant under the new license expands the licensed territory and covers a broader range of cell phone handsets, including Motorola’s “IDEN®” brand .In consideration of the grant, we agreed to pay to Motorola a royalty based upon a percentage of actual net sales of branded accessory products, subjectto payment of minimum royalties (irrespective of actual net sales) in the amount of $650,000 over the 15-month term. In December 2008 Motorola and wereached an agreement under which Motorola waives payment of all minimum royalties due under the license and reduces the royalty rate in respect of the termwhich expires March 31, 2009. Both parties expect to memorialize this agreement by amending the license agreement in the very near term. To date, nomaterial sales of licensed products have been recognized, and there can be no assurance that any will be. See Note 14 to the audited, consolidated FinancialStatements included in Item 8 in Part II of this Annual Report.In addition to other customary terms and conditions typical of agreements of this kind, we may be required to indemnify Motorola in respect of damageto its intellectual property, to cause our designated manufacturers to comply with certain terms of the manufacturing agreement to which they are a partypursuant to the license, or to incur costs and expenses in other respects. See Item 1A. “Risk Factors - Under our license agreement with Motorola we maybecome liable for certain indemnification or other liabilities and become exposed to certain risks” of this Annual Report for a discussion ofindemnification obligations, manufacturing compliance and certain other risks under the license agreement. 9Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Forward Industries, Inc. OEM Distribution HubsDuring Fiscal 2008 and 2007 we operated under distribution hub agreements with three of our OEM customers. These agreements obligate us to supplycarrying case accessory products to the customer’s distribution hubs (often at multiple locations) where its products are manufactured, and/or warehousedpending sale and where our products are packaged with the OEM customer’s electronics products. The product volumes we are required to supply to eachdistribution hub is based on our OEM customer’s forecasts. Because product supply lead times with our suppliers may exceed those agreed upon with ourOEM customers, we sometimes have to purchase product and stock inventory that ultimately exceeds our OEM customers’ forecasted demand for which theyare obligated to us. In particular, this may occur if the customer’s forecast is revised downward during the period we are purchasing and stocking product forthe hub. As a result, our inventory levels, liquidity, and results of operations may be adversely affected. We ship product to the hub but do not recognizerevenue until we have been advised by our customer that product has been withdrawn from the distribution hub to be placed “in box”. By historical standardsin our business, these arrangements have had the general effect of financing our customers’ inventory by extending the time between placement of our orders toour suppliers in order to supply the hubs and the time that revenue is recognized. The corollary effect is an increase in our inventory levels. Credit RiskWe generally sell our products on 30- to 60-day credit terms customary in the industry. We have extended customary credit terms for certain majorOEM customers, upon their request, up to 90-days. Historically, we have not had significant credit problems with our customers. Our significant OEMcustomers are large, multi-national companies with good credit histories. None of these customers is or has been in default to us, and payments are generallyreceived from them on a timely basis. Two customers, including their international affiliates or their contract manufacturers, accounted for approximately 74%and 75% of the Company's accounts receivable at September 30, 2008 and 2007, respectively. As part of what has become established industry practice,certain of our OEM customers request that we ship product to their designated contract manufacturer and invoice such manufacturers (and not the OEMcustomer) for the products to be included “in box” with the cellular handsets or blood glucose monitors that are manufactured, assembled and packaged bysuch contract manufacturers. In these cases, even though our order flows originate with and depend on our relationship with the OEM, our accountsreceivable credit risk lies with the contract manufacturer. Our OEM customer does not guarantee the credit of the contract manufacturer to whom the OEMrequests us to ship our carrying case products, and such orders may be significant in volume from time to time. In most cases, these contract manufacturersare themselves major multinational enterprises with good credit histories. Any failure of any such customer or its contract manufacturer to pay part or all thesums owed to us when due could have a material adverse effect on our liquidity, business prospects, and results of operations. See Item 1A. “Risk Factors —Product manufacture is increasingly being outsourced by our OEM customers to contract manufacturing firms in China and in Southeast Asia” of thisAnnual Report.Foreign Exchange RiskCertain of our OEM customers have established sales and manufacturing operations in China. In addition, as noted above, certain of these or otherOEM customers may outsource manufacturing and packaging of the products with which our carrying case solutions are packaged “in box” to contractmanufacturers that are located in China or in Southeast Asia. Accordingly, our payment and remittance arrangements with such customers may subject thesearrangements to Chinese or other local currency regulations. In the event that any foreign government were to impose regulatory restrictions on the ability toeffect conversion of local currency into U.S. dollars, repatriation of U.S. dollars or other currencies to the United States, or payment in any form to foreignbusiness entities, or were to impose or enforce tighter restrictions on foreign exchange license holders, our receipt or recognition of U.S. dollars in payment,directly or indirectly, of invoices for sales of our products could be delayed or otherwise affected. If this were to affect receipt or recognition of materialamounts of revenues, our liquidity or results of operations could be materially and adversely affected. See Item 1A. “Risk Factors—Payments to us by oron behalf of our customers of accounts receivable originated in China or other Asian nations may be subject to local regulations or moratorium thatrestrict the right to convert foreign currencies into U.S. dollars or U.S. dollars into foreign currencies,, or that prevent, delay, or restrict the ability toremit U.S. dollars to the United States” of this Annual Report. 10 Forward Industries, Inc. Product SupplyManufacturingThe manufacture of custom carrying cases and other carry solution products generally consists of die cutting fabrics, principally vinyl, nylon, andleather; and heat sealing, gluing, sewing and decorating (affixing logos) by means of silk screening, hot-stamping, embroidering or embossing. The principalmaterials used in the manufacture of our products are vinyl, nylon, leather, metal and plastic parts (such as clips, buckles, loops, and hinges and otherhardware), foam padding and cardboard, all of which are obtained according to our specifications from Chinese suppliers. We do not believe that any of theSource: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.hardware), foam padding and cardboard, all of which are obtained according to our specifications from Chinese suppliers. We do not believe that any of thecomponent materials or parts used by our suppliers in the manufacture of our products is supply constrained. We believe that there are adequate availablealternative sources of supply for all of the materials used to manufacture, package, and ship our products.SuppliersWe procure all our supply of carrying solutions products from independent suppliers, each of which is a Chinese business entity located in China. Depending on the product, we may require several different suppliers to furnish component parts or pieces. We purchased approximately 95% and 69% ofour products from seven such suppliers in Fiscal 2008 and Fiscal 2007, respectively. One supplier accounted for approximately 43% and 20% of our productpurchases in Fiscal 2008 and 2007. See Note 1 (under the caption “Supplier Rebates”) to the Consolidated Financial Statements set forth in Item 8 of thisAnnual Report.We place orders with one or more suppliers at the time we receive firm orders from our OEM customers for a particular product. Accordingly, we donot have minimum supply requirement agreements with these or other suppliers to guarantee us supply of finished product, nor have we made purchasecommitments to purchase minimum amounts from any of these suppliers. However, from time to time, we may order products from our suppliers inanticipation of receiving a customer order to meet required delivery times. If our customer cancels the order or we fail to receive the customer order, we maystill be required to pay for the supply order, which could result in a loss to us as these are generally custom manufactured products unfit for sale to othercustomers.With respect to aftermarket products, we estimate the product sell through rates of our distributor and retail customers in order to gauge the timing andsize of inventory stocking orders to our suppliers.We believe that other suppliers could provide us similar products on comparable terms. However, a switch to a different supplier could delay shipmentof product resulting in a loss of sales that could affect our operating results and adversely influence our relationship with the affected customer. In addition,under our license agreement with Motorola our selection of a new supplier to manufacture licensed products is subject to Motorola’s approval. Product Sampling and Quality ControlUpon award of an OEM order, our design and production staff works closely with our customer to finalize product designs and specifications andwith our suppliers to coordinate production schedules, conformity to design specifications, and quality control. Depending on the customer’s requirements,the product involved, and time from sampling to commercial order, our production staff, working in conjunction with our marketing department, may submitsamples and refinements thereof to the customer several times per product before approval for production is granted. Once the sampling process is completedfor a specific product, which may range from weeks to many months, commercial orders may be received and accepted. To ensure that product manufacturing by our foreign suppliers meets our quality assurance standards, products we sell and distribute are eitherinspected by our employees in our Hong Kong shipping and quality assurance center or by contracted third-parties in China that are overseen by Koszegi Asiaemployees. 11 Forward Industries, Inc. Quality assurance and sourcing related expenses are reflected in cost of goods sold in our results of operations. In March 2007, our Hong Konginspection facility renewed its ISO 9001:2000 quality certification. Once our products are approved for shipment by Koszegi Asia’s inspection and quality control procedures, the products are typically shipped oncontainer carrier vessels. In certain cases, at the customer’s request, we will ship by air freight or transfer products to a customer’s location in China or HongKong. Most ocean-going shipments bound for the Untied States are off-loaded at the port of Los Angeles or San Francisco, but certain customers arrange forshipments to East coast ports, such as Miami or Philadelphia. European shipments generally are routed via Rotterdam, Frankfurt, or London. Disruptions ordelays in off-loading cargo at any of these domestic or foreign ports as a result of labor disputes, physical damage to port facilities or otherwise, or other delaysmay delay shipments to our customers and cause re-routing of containers to ports with open facilities or shipment via air freight. Depending on the cause ofdelay and trade terms with our customer, we may be required in certain cases to bear the additional expense of such alternate routing or reliance on air freight. See “Item 1A.”Risk Factors—Our shipments of products via container freight to customers in the United States and Europe are subject to delays orcancellation at port facilities due to work stoppages or slowdowns, damage caused by weather or terrorism and congestion due to inadequacy ofequipment and other causes” of this Annual Report.We ship our products to our customers by common carrier.Insurance We maintain commercial loss and liability, business interruption, and general claims and other insurance customary for our business. We do notmaintain credit insurance for our trade accounts receivable.CompetitionThe business in which we engage is highly competitive in terms of product pricing, design, delivery terms, and customer service. In the production ofSource: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.carrying cases and related carry solutions for OEM products, we compete with numerous United States and foreign producers and distributors. Some of ourcompetitors are substantially larger than we are and have greater financial and other resources. We believe that we sustain our competitive position throughmaintenance of an effective product design capability, rapid response time to customer requests for proposals and product shipment, competitive pricing,reliable product delivery, and product quality. We believe that our ability to compete based on product quality assurance considerations is enhanced by thelocal presence of our Hong Kong and outsourced Chinese quality control and shipment facilities. See Item 1A. in this Annual Report: “Risk Factors - Thecarrying solutions business is highly competitive and does not pose significant barriers to entry.”EmployeesAt September 30, 2008, we had 53 full-time employees, of whom two are employed in executive capacities, 5 are employed in administrative andclerical capacities, 19 are employed in sales and sales support and design capacities, and 27 are employed in sourcing, quality control, and warehousecapacities. We consider our employee relations to be satisfactory. None of our employees is covered by a collective bargaining agreement.Since June 2003, we have employed our U.S. employees through a co-employment agreement with ADP Total Source, a Professional EmployerOrganization. The objective of this arrangement is for ADP Total Source to assume many of the legal and administrative responsibilities of human resourcesmanagement, health benefits, workers' compensation, payroll, payroll tax compliance, 401(K) plan administration and unemployment insurance.Regulation and Environmental Protection Our business is subject to various regulations in various jurisdictions, including the United States and member states of the European Community,that restrict the use or importation of products manufactured with compounds deemed to be hazardous. We work with our suppliers to ensure compliancewith such regulations. In addition, from time to time one or more customers may require testing of our products to ensure compliance with applicableconsumer safety rules and regulations or the customer’s safety or packaging protocols. Because we do not engage in the manufacture of products that we selland distribute, compliance with federal, state and local laws and regulations pertaining to the discharge of materials into the environment, or otherwise relatingto the protection of the environment, has not had, and is not anticipated to have, any direct material effect upon our capital expenditures, earnings, orcompetitive position. However, compliance with such laws and regulations on the part of our suppliers may result in increased costs of supply to us,particularly if domestic environmental regulation in China becomes more prevalent. In addition, under our license agreement with Motorola, we may beresponsible for ensuring our Chinese suppliers’ compliance with applicable regulations, including, among others, those relating to worker safety, child laborlaws, and environmental protection. This may require us to incur administrative and/or legal expense in working with our suppliers to achieve suchcompliance.We have not been engaged in any environmental litigation or incurred any material costs related to compliance with environmental or other regulations. From time to time we incur chemical and/or safety laboratory testing expense in order to address customer requests regarding our product materials or methodof manufacture or regarding their packaging methods and standards. 12 Forward Industries, Inc. ITEM 1A. RISK FACTORSPlease read the note regarding "Cautionary statement for purposes of the “Safe Harbor” provisions of the Private Securities Litigation Reform Act of1995" that appears on pages 21-22 of this Annual Report on Form 10-K.In our efforts to address and reverse the steep falloff in OEM and licensed cell phone case sales, we have adopted a strategy involving thededication of significant resources to re-build and develop our sales and marketing capability in our cell phone product line and product salesgenerally. If this strategy does not succeed in generating a significant increase in sales revenues in the near to mid-term, our operating results maydeteriorate from current levels..In order to maximize our potential return of investment under the license and to expand our selling capability to the aftermarket generally, we have hiredproduct development, marketing, selling, and administrative personnel to exploit the license opportunity and to develop our sales capability generally outsidethe license. With these resources our objective is to rebuild and strengthen our marketing and product development capabilities and to establish new saleschannels in North America and the parts of Europe we did not access under the old license. Accordingly, we anticipate that selling, general, and administrative expenses will increase significantly as our efforts in this regard continue. However,there can be no assurance that this strategy will result in a sufficient increase in revenues to achieve a return on our investments in personnel and royaltycommitments. If we do not begin to recognize significant revenues from these efforts during the next two quarters to offset the increase in selling, general, andadministrative expenses, our operating results may further weaken from present levels.With the steep decline in cell phone revenue in Fiscal 2008, our business has become more highly concentrated in our blood glucose kit carryproduct line, thus increasing the risks to our financial condition and results of operations compared to periods when revenue from customers fromour two principal product lines were more balanced. If our blood glucose kit carry product line were to suffer a decline in or loss of sales, ourbusiness would be materially and adversely affected.In recent years, revenue from OEM customers in each of the two product lines fluctuated without one being consistently predominant. As aSource: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.consequence of the steep decline in revenues from sales of accessories for cellular handsets over the past two fiscal years, revenues from sales of carrysolutions for diabetic monitoring cases from OEM customers accounted for approximately 76% of net revenues in Fiscal 2008. Our business is nowcharacterized by increased product line as well as customer concentration. In such circumstances, our financial condition and results of operations are subjectto higher risk from changes in the business practices of OEMs of blood glucose monitors, for example, a decision to reduce or eliminate inclusion of cases inbox with the electronic device.Our business could suffer if the services of any of the key personnel we rely on were lost to us.We are highly dependent on the efforts and services of certain key sales representatives. Our business could be materially and adversely affected if welost the services of such individuals. If we lost the services of these key sales representatives, we might experience a reduction in or significant loss of ordersfrom their respective customers, resulting in a loss of revenues, which could materially and adversely affect our results of operations and financial condition. 13 Forward Industries, Inc. We believe that Motorola’s announcement in March 2008 that it intends to spin off its Mobile Devices business and the market developmentsleading up to that announcement may have contributed to the steep decline in cell phone product sales and increases the risk to our ongoingrelationship with Motorola.In March 2008 Motorola announced its intention to spin off its Mobile Devices business, which has been our OEM customer for over 10 years. Duringmuch of that 10-year period, Motorola was our largest customer by revenue, and the successes of its cell phone handset business anchored our revenue andearnings base. (More recently, Motorola has announced in its press releases that the disposal strategy might be reassessed.). The steady and deep decline inour OEM and licensed sales revenues from Motorola, and thus in our cell phone product business, since September 2006 is, we believe, reflective of the risksand challenges inherent in the highly competitive cell phone handset business generally. We cannot predict when, if at all, our cell phone carry case businesswith this customer will begin to improve. We cannot predict the further effects that a spin-off or other re-structuring of the Mobile Devices business mighthave upon our business. However, we do believe that any proposed restructuring of the Mobile Devices business increases the risks and uncertaintiesattendant to continuation of our long-standing relationship as a reliable, valuable supplier of carry solution accessories. At the very least, the proposed spin-offor other re-structuring of the Mobile Devices business increases the likelihood that a significant recovery in levels of revenue from Motorola may require moretime and be subject to greater uncertainty than a recovery of such revenues would be in the absence of strategic changes affecting the Mobile Devices unit. Onthe other hand, if new management of the Mobile Devices business undertakes a sweeping reassessment of all business relationships and methods, whichcircumstances are beyond our control, the future scope and economics of “in-box” accessories and suppliers thereof, including the Company, may be at longerterm and more significant risk. If our relationship with the Mobile Devices unit were weakened as a result of a spin-off, sale or other re-structuring, ourbusiness prospects, financial condition, and results of operations may continue to be materially and adversely affected, including the possible continuation ofoperating and net losses.We may not realize the benefits that we anticipated under the new license agreement .Sales of cell phone products under the Motorola license have tended, generally, to have higher margins than OEM sales of cell phone products. Theabsence of any contribution from sales of products under the license since the expiration of the prior license in December 2007 has contributed to the decline ingross profit percentage. For that reason, we determined that entry into the new license in May 2008 would positively affect our revenues and profitability. Entry into the license presented us with clear mutual objectives and challenges: to establish new distribution channels in the North American market and to re-establish distribution channels in Europe after expiration of the prior license, intending to in both cases to leverage the network of distributors and retailers ofMotorola branded products; to submit new carry case accessories for an updated Motorola cell phone handset product line; and to establish ties with a newlicense team. On our part we determined to expend resources to fortify our selling and administrative resources to exploit the aftermarket opportunity.To date these objectives have not been achieved to our satisfaction in the anticipated time frame, and we have realized a nominal amount of sales oflicensed products under the new license. We believe that this result is due to the lack of execution as anticipated of approvals of new product samples for saleas well as the inability to implement sales initiatives with potential customers in the licensed territories. At this time, there can be no assurance that we will beable to achieve our objectives under the new license by the end of the first quarter of Fiscal 2009, or thereafter, or that the benefits to the parties under thelicense will be realized as we had envisioned. Failure to achieve our objectives under the license could have a material and adverse effect on our financialcondition and results of operations.Our business is and has been characterized by a high degree of customer concentration. Our three largest customers accounted forapproximately 75% and 72% of net sales in Fiscal 2008 and Fiscal 2007, respectively; the loss of, or material reduction in orders from, any of thesecustomers could materially and adversely affect our results of operations and financial condition. 14Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Forward Industries, Inc. The predominant percentage of our sales revenues is concentrated in three large OEM customers (including their international affiliates and/or theircontract manufacturers). The loss of any of these key customers (whether as a result of such customers purchasing their carry solution requirements fromanother vendor, deciding to manufacture their own carrying cases, or eliminating the inclusion of our carrying cases with their products or otherwise) couldhave a material adverse effect on our financial condition, liquidity and results of operations.At any time, a significant percentage of our accounts receivable risk may be concentrated in a small number of customers.Two customers accounted for approximately 74% and 75% of our accounts receivable at September 30, 2008 and September 30, 2007, respectively.The failure to receive or collect such amounts when, and as, due could have a material adverse effect on our financial condition, liquidity, and results ofoperations.If any one or more of our OEM customers elect to reduce or discontinue inclusion of cases “in-box”, our results of operations and financialcondition would be materially and adversely affected.The predominant percentage of our revenues is derived from sales of case accessories to our OEM customers who package our cases “in-box” with theirelectronics. If OEMs generally begin to reduce or discontinue this practice, we would incur a significant decline in revenues and our results of operations andfinancial condition would be materially and adversely affected.Our inventory levels have settled at elevated levels since September 2006 and may remain at historically high levels in future periods, primarilyas a result of the support of hub agreements recently entered into with two large OEM customers.During Fiscal 2006 we entered into hub agreements with two of our principal OEM customers, and during Fiscal 2007 and Fiscal 2008 entered intoadditional hub agreements covering additional distribution hubs with these customers. These arrangements require us to supply product to their distributionhubs based on our OEM customer's forecasts. Because product supply and stocking lead times may exceed those agreed upon with our OEM customers,during which time the customer’s forecasted demand for the period may be reduced, we may purchase and stock inventory that exceeds our OEM customers’forecasted demand. It is only their forecast demand for which they are obligated to us. As a result, our inventory levels, liquidity, and results of operationsmay be adversely affected by such excess purchases. In addition, certain of these hub arrangements include terms of payment by the customer to compensateus in the event inventory stocks are not drawn down from a hub by the customer. The terms of payment vary and there can be no assurance that thesearrangements will not result in a material increase in our inventory allowance, which could have a material adverse effect on our results of operations andfinancial condition.We experienced severe erosion in our OEM product sales margins during Fiscal 2007 and Fiscal 2008, and it is not clear when these marginswill begin to improve. We continue to encounter pressures from certain OEM customers to constrain or even roll back prices. This price constraintfactor has been exacerbated by inflationary pressures that affect our costs of supply.During Fiscal 2007 and Fiscal 2008, we have experienced significant pricing pressure from our OEM customers. We have been unable to extractcomparable pricing concessions from our product suppliers across all product lines, and this has resulted in the erosion of product sales margins. Weanticipate that pressures on our ability to maintain or increase prices as well as shifts in our product mix will continue to exert downward pressure on ourgross profit percentage in the fiscal year ending September 30, 2009. During Fiscal 2008 and well into the first quarter of Fiscal 2009, we have faced morepersistent increases in costs of goods sold, due to inflationary pressures affecting materials and labor costs incurred by our Chinese vendors and inflationarypressures generally on costs of energy and commodities. In addition, prices these vendors charge to us are reflecting the appreciation of Chinese currencyagainst the US dollar, which are passed through to us in the form of higher US dollar prices. Other components of cost of goods sold, such as our HongKong/China inspection costs, which traditionally have been relatively fixed, are showing signs of wage-price inflation. During this period we also faced higherenergy costs passed through to us in freight charges. When calculated on the basis of reduced sales volumes, these pressures are also contributing to reducedgross profit percentage. We cannot predict when, if at all, our overall product sales margins will begin to improve. 15 Forward Industries, Inc. Our results of operations are subject to the risks of fluctuations in the values of foreign currencies relative to the U.S. Dollar; for example, if therecent trend of appreciation of the Chinese renminbi, in which a significant portion of our suppliers’ costs are denominated, and depreciation of theUS Dollar, in which most of our revenues are denominated, continues, our gross margins will be subject to further pressure.Our results of operations are expressed in U.S. Dollars. When the U.S. Dollar appreciates or depreciates in value against a currency, such as theChinese renminbi, our results will be benefited or adversely affected, respectively. If, for example, China were to permit the renminbi to float to a free marketrate of exchange, it is widely anticipated that the U.S. Dollar would depreciate in value relative to the renminbi, which could materially increase our costs ofSource: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.goods sold (in U.S. dollar terms) and adversely affect our results of operations if we cannot pass those costs along to our customers or if we cannot enter intofinancial arrangements that hedge or otherwise mitigate this risk. During Fiscal 2008 currency markets pushed the renminbi up and the U.S. Dollar down,having the effect described above. The opposite relationship would apply to sales revenues or other accounts receivable denominated in a foreign currency. When the U.S. Dollar appreciates or depreciates in value against a currency, such as the Euro, in which a significant part of our revenues is denominated, ourresults of operations can be adversely affected or benefited, respectively. The significant appreciation of the Euro against the U.S. Dollar since the beginningof 2003 has had the effect of increasing, in U.S. dollar terms, U.S. Dollar denominated sales on our statement of income in proportion to Euro-denominatedsales revenues. A reversal of this trend could adversely affect our results of operations.Future revenues are difficult to predict and are likely to show significant variability as a consequence of customer concentration.Because our sales revenues are highly concentrated in a few large customers, and because the volumes of these customers' order flows to us are highlyvariable, and can fluctuate markedly in a short period of time, our quarterly revenues, and consequently our results of operations, are highly variable andsubject to significant changes over a relatively short period of time. Each of these customers launches many different products and may purchase products accessories, such as carrying cases, from many differentcompeting vendors. When we are selected to supply a carry solution for a specific product and launch, we may not be in a position to know the frequency orvolumes of our customers' orders, the duration of such orders (which will depend on the product's life cycle), or the pricing of such orders, all of whichdepend on our customers' ongoing assessments of the product's relative contribution to their businesses, as well as other factors. Our OEM customers maykeep consumer electronic products for which our carry solutions have been selected to be packaged "in-box" in active promotion for many months, or for avery short period of time, depending on the popularity of the product, product development cycles, new product introductions, and our customers'competitors' product offerings. As any consumer electronic product life (i.e., its continuing or waning popularity) and the related "in box" program mature, wemay be forced to accept significant price reductions for our carry solutions, which will affect the level of our revenue. Short product life cycles areparticularly characteristic of the cellular handset market, where new functionality is constantly introduced, competition between vendors is high, and industrytechnical standards are subject to continuing change.All of this makes our quarterly revenue levels susceptible to a high degree of variability and difficult to predict more than a quarter into the future. Significant, rapid shifts in our operating results may occur if and when one or more of these customers increase or decrease the size(s) of, or eliminate, theirorders from us by amounts that are material to our business. Our gross margins, and therefore our profitability, vary considerably by customer and therefore across our product lines, and if the relativerevenue contribution from one or more OEM customers changes materially, relative to total revenues, our gross profit percentage may decline.Our gross profit margins vary widely depending on the customer, order size, market in which the customer's products are sold and the types ofcarrying cases and related accessories sold. In addition, there is a broad range of selling prices within our soft-sided carrying cases product line, and there isalso a broad range of selling prices between, for example, soft-sided carrying cases and other carry solutions such as straps, clips, and camera attachmentcases. Because of the broad variability in price ranges and product types, we anticipate that gross margins, and accordingly net income, will continue tofluctuate depending on the relative revenue contribution by customer of carrying cases for cellular handsets and those for blood glucose monitors, as well asour OEM customers' order patterns and preferences for more or less expensive cases and or other accessories to be included as accessories "in box". Suchfluctuations may have the effect of masking the impact of fluctuations in unit volume sale trends. 16 Forward Industries, Inc. Product manufacture is often outsourced by our OEM customers to contract manufacturing firms in China and in Southeast AsiaSuch firms are performing manufacturing, assembly and product packaging functions, including the bundling of product accessories such as ourswith the OEM customer's product. As a consequence of this business practice, we often sell our carry solution products to the contract manufacturing firm. In these cases, we invoice the contract manufacturing firm and not the OEM customer. Therefore, it is the contract manufacturing firm's credit to which wemust look for payment in such cases and not that of our OEM customer. This may alter the credit profile of our customer base and may involve significantpurchase order volumes. In some, but not all cases, the manufacturing firm is itself a large, multinational entity with significant financial resources.Under our license agreement with Motorola we may become liable for certain indemnification or other liabilities and become exposed to certainrisks.Each manufacturer selected by us to manufacture products for sale pursuant to our license agreement with Motorola is subject to Motorola's approval,and we are responsible for ensuring such manufacturer's compliance with the terms of the Manufacturer's Agreement (as defined in the License Agreement), inparticular the proper use of the Motorola trademarks and compliance with applicable laws in the jurisdiction where the manufacturer is located. Failure of themanufacturer to comply with its obligations under such manufacturing agreement could result in termination of the license agreement, Motorola's demand thatwe enforce the terms of the Manufacturing Agreement against the manufacturer, at our cost and expense, or a claim for damages by Motorola against us, or acombination of the foregoing. Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The License Agreement expires on March 31, 2009, but both parties have certain rights of termination customary for such agreements prior to suchdate, including, for example, in the case of violation of the agreement, insolvency or bankruptcy of one party, or breach of representations or covenants. If weelect to give notice to terminate the license agreement under certain conditions, as specified in the agreement, before its expiration on March 31, 2009, we will berequired to pay minimum royalties for the two calendar quarters commencing after the date of notice plus the remainder of the minimum royalty, if any, for thequarter in which the notice was given. In addition, Motorola and we have agreed to certain cross-indemnification provisions, which, as applicable to us,obligate us to indemnify Motorola in respect of all third party suits, actions, claims, damages and liabilities and expense against, or incurred by, Motorolaarising out of or connected with the licensed products, their method of manufacture, sale or distribution, the promotional or packaging of the products, or anybreach by us of the License Agreement. The occurrence of any of the foregoing events, claims, obligations, or demands could subject us to make payments orincur expense, which could be material and adversely affect our results of operations and financial condition.Payments to us by or on behalf of our customers of accounts receivable originated in China or other Asian nations may be subject to localregulations or moratorium that restrict the right to convert foreign currencies into U.S. dollars, or that prevent, delay, or restrict the ability to remitU.S. dollars to the United States. 17 Forward Industries, Inc. Our payment and remittance arrangements with certain customers may subject these arrangements to Chinese or other local currency regulations. In theevent that any foreign government were to impose regulatory restrictions on the ability to effect conversion of local currency into U.S. dollars or remittance ofU.S. dollars to the United States, our receipt or recognition of U.S. dollars in payment, directly or indirectly, of invoices for sales of our products could bedelayed or otherwise affected, including, for example, by a reduction in the effective exchange rate to our detriment, imposition of fees or expenses, adiscounting of the amount of the account receivable, or a deferral of such accounts receivable into a future reporting period, or an outright cancellation of thepayment. If this were to affect receipt or recognition of material amounts of revenues, our liquidity or results of operations could be materially and adverselyaffected.Our dependence on foreign manufacturers creates quality control, product cost, pricing, availability, and delivery risks. As a result, from time totime we experience certain quality control, on-time delivery, cost, or other issues that may threaten customer relationships.All of our products are manufactured by Chinese manufacturers in China. Our reliance on foreign suppliers, manufacturers, and other contractorsinvolves significant risks, including reduced control over quality assurance, manufacturing yields and costs, delivery schedules, the potential lack ofadequate capacity, the lack of capital, and potential misappropriation of our designs.In Fiscal 2006, we transitioned the responsibility for quality assurance inspection of products from our Koszegi Asia facility to a third-party qualityassurance provider. In the course of this transition we experienced a high level of turnover of Koszegi Asia quality control employees who oversee the activitiesof our quality assurance provider. In connection with these developments, certain quality control and delivery problems surfaced in Fiscal 2007 and otherquality control issues have continued in Fiscal 2008. While we have dedicated additional management oversight to the quality control function and made it ahigher priority, there can be no assurance that we will be successful in these efforts, and our failure to do so could result in the loss of a key customer, whichcould have an adverse effect on our results of operations and our business reputation.Our shipments of products via container freight to customers in the United States and Europe are subject to delays or cancellation due to workstoppages or slowdowns, piracy, damage to port facilities caused by weather or terrorism, and congestion due to inadequacy of port terminal equipment and other causes.Since all of our carrying solutions products are sourced from China, the carrying cases and other products we distribute and sell must be brought toour customers' markets. To the extent that there are disruptions or delays in loading cargo in Hong Kong or Chinese ports or off-loading cargo at ports ofdestination as a result of labor disputes, work-rules related slowdowns, tariff or World Trade Organization-related disputes, piracy, physical damage to portterminal facilities or equipment caused by severe weather or terrorist incidents, congestion in port terminal facilities, inadequate equipment to load, dock andoffload container vessels or energy-related tie-ups or otherwise, or for other reasons, product shipments to our customers will be delayed. In any such case,our customer may cancel or change the terms of its purchase order, resulting in a cancellation or delay of payments to us. A closure or partial closure of HongKong, Chinese, United States or European port facilities or other causes of delays in the loading, importation, offloading or movement of our products couldresult in increased expenses, as we try to avoid such delays, delayed shipments or cancelled orders, or all of the above. Depending on the severity of suchconsequences, this may have an adverse effect on our financial condition and results of operations.The carrying solutions business is highly competitive and does not pose significant barriers to entry.There is intense competition in the sale of carry solutions products to original equipment manufacturers. Since little or no significant proprietarytechnology is involved in the design, production, or distribution of products similar to our products, others may enter the business with relative ease andcompete against us. Such competition may result in the diminution of our market share, the loss of one or more major OEM customers, and adversely affectour net sales, results of operations, and financial condition. Many of our competitors are larger, better capitalized, and more diversified than we are and maybe better able to withstand a downturn in the general economy or in the product areas in which we specialize. These competitors may also have less salesconcentration than we do and be better able to withstand the loss of a key customer or diminution of a large customer's orders.Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.We do not pay dividends on our common stock.We have not paid any cash dividends on our common stock since 1987. The payment in the future of cash dividends by us, if any, will depend uponour results of operations, short-term and long-term cash availability, working capital, working capital needs, and other factors, as determined by our Board ofDirectors. Applicable laws may also restrict the ability of a corporation to pay dividends, for example when such payment would render the corporationinsolvent. We do not anticipate that cash dividends will be paid in the foreseeable future. The absence of dividend payments on a common stock might makesuch stock susceptible to greater market price swings. 18 Forward Industries, Inc. We have in place anti-takeover measures and charter provisions that may prevent a hostile or unwanted effort to acquire Forward.Our Board of Directors is authorized to issue up to 4,000,000 shares of "blank check" preferred stock. Our Board of Directors has the authority,without shareholder approval, to issue such preferred stock in one or more series and to fix the relative rights and preferences thereof including theirredemption, dividend and conversion rights. Our ability to issue the authorized but unissued shares of preferred stock could be used to impede takeovers ofour company. Under certain circumstance, the issuance of the preferred stock could make it more difficult for a third party to gain control of Forward,discourage bids for the common stock at a premium, or otherwise adversely affect the market price of our common stock. In addition, our certificate ofincorporation requires the affirmative vote of two-thirds of the shares outstanding to approve a business combination such as a merger or sale of all orsubstantially all assets. Such provision and blank check preferred stock may discourage attempts to acquire Forward. Applicable laws that imposerestrictions on, or regulate the manner of, a takeover attempt may also have the effect of deterring any such transaction. We are not aware of any attempt toacquire Forward.ITEM 1B. UNRESOLVED STAFF COMMENTS Not Applicable ITEM 2. PROPERTIESWe lease approximately 10,000 square feet of office and warehouse space at 1801 Green Road, Pompano Beach, Florida, through Koszegi IndustriesInc., our wholly owned subsidiary. Under the terms of the lease, which expires in May 2012, the monthly rent is approximately $12,000. We use this officespace as our executive office and our United States sales office.During Fiscal 2008, we leased approximately 9,000 square feet of warehouse and office space in Hong Kong, at a monthly rental of approximately$12,000 through Koszegi Asia Ltd., our wholly owned subsidiary, under a lease that expired in November 2008. We used this space as a sourcing, qualityassurance, and logistics facility for products purchased from our China suppliers. In October, 2008, we outsourced our warehousing operation to a thirdparty logistics provider, terminated our existing lease and leased approximately 4,400 square feet of office space in Kowloon, Hong Kong, at a monthly rentalof approximately $13,000 also through Koszegi Asia Ltd, under an agreement that expires in October, 2011. As of November 2008, we have relocated all ofour Asia-based sourcing, quality assurance, and logistics personnel to this new office space.Forward Innovations, our Swiss subsidiary, leases approximately 2,000 square feet of office space in Cham, Switzerland, at a monthly rental ofapproximately $2,000. This lease is on a month-to-month basis and can be cancelled by us with a six-months’ notice. We use this facility as our EMEAsales and administrative office.We believe that each of the foregoing leased properties is adequate for the purposes for which it is used. All leases are with independent third parties. Webelieve that the loss of any lease would not have a material adverse effect on our operations as we believe that we could identify and lease comparable facilitiesupon approximately equivalent terms.ITEM 3. LEGAL PROCEEDINGSFrom time to time, the Company may become a party to legal actions or proceedings in the ordinary course of its business. As of September 30, 2008,there were no such actions or proceedings, either individually or in the aggregate, that, if decided adversely to the Company’s interests, the Company believeswould be material to its business.ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSNo matter was submitted to a vote of our security holders in the fiscal fourth quarter of 2008. We anticipate that the annual meeting of shareholders inrespect of the fiscal year ended September 30, 2008, will be held in February 2009. 19Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Forward Industries, Inc. PART IIITEM 5. MARKET FOR COMMON STOCK, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESMarket for Common StockThe principal market for our common stock is the NASDAQ SmallCap Market. Our common stock is traded under the symbol "FORD". Thefollowing table sets forth the high and low closing bid quotations for our common stock on the NASDAQ SmallCap Market for each quarter in the last twofiscal years. Bid Price Information for Common Stock* Fiscal 2008 Fiscal 2007 High BidLow Bid High BidLow Bid First Quarter$3.58 $2.22 $ 6.09$ 4.10 Second Quarter$2.54$2.01 $ 5.30$ 4.06 Third Quarter$2.80 $2.17 $ 4.25$ 3.21 Fourth Quarter$2.73 $1.84 $ 3.61$ 2.61 _______________________________*High and low bid price information as furnished by The NASDAQ Stock Market Inc. On November 19, 2008, the closing bid quotation for our common stock was $2.11.See Item 1A. of this Annual Report “Risk Factors—If our common stock were to be de-listed from the NASDAQ SmallCap Market, the existingmarket prices for and liquidity of our common stock may decline”.Holders of common stock. As of November 19, 2008, there were approximately 116 holders of record of our common stock, excluding approximately 7,000 beneficial holderswhose shares are held in street name.DividendsWe have not paid any cash dividends on our common stock since 1987 and do not plan to pay cash dividends in the foreseeable future. The paymentof dividends in the future, if any, will depend upon our results of operations, as well as our short-term and long-term cash availability, working capital,working capital needs, and other factors, as determined by our Board of Directors. Currently, except as may be provided by applicable laws, there are nocontractual or other restrictions on our ability to pay dividends if we were to decide to declare and pay them.Recent sales of unregistered securitiesDuring Fiscal 2008, we did not issue and sell any shares of common stock, or securities exercisable for or exchangeable into common stock, or anyother securities that were not registered under the Securities Act of 1933.Securities authorized for issuance under equity compensation plans.For information relating to this topic, see Part III, Item 11 of this Annual Report. “Executive Compensation” which is incorporated in this Annual Reporton Form 10-K by reference to our 2009 Proxy Statement. 20 Forward Industries, Inc. Purchase of Equity SecuritiesNo repurchase of any common stock or other equity security was made during the fourth quarter of Fiscal 2008.Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.On September 27, 2002, our Board of Directors authorized the repurchase of up to 400,000 shares of our outstanding common stock (approximately7% of the number of shares then outstanding). On January 21, 2004, our Board increased the amount of shares authorized for repurchase to 486,200. Underthese authorizations, as of September 30, 2008, we had repurchased an aggregate of 172,603 shares at a cost of approximately $0.4 million, including 70,000shares in Fiscal 2007, but none during Fiscal 2008, leaving a balance of 313,597 shares (approximately 4% of the shares outstanding at September 30, 2008)under those authorizations. Separately, on March 5, 2008, we in effect purchased 72,917 outstanding shares of common stock held by our former Chairmanof the Board and principal executive officer, by accepting such shares at their fair market value on such date as consideration for his exercise of options topurchase 100,000 shares of common stock as part of a cashless exercise. ITEM 6. SELECTED FINANCIAL DATANot applicable.ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion and analysis should be read in conjunction with our audited Consolidated Financial Statements and the notes theretoand other financial information appearing in Item 8 of this Annual Report on Form 10-K. This discussion and analysis compares our consolidatedresults of operations for the fiscal year ended September 30, 2008 ("Fiscal 2008"), with those of the fiscal year ended September 30, 2007 ("Fiscal2007"), and compares our consolidated results of operations for Fiscal 2007 with those of the fiscal year ended September 30, 2006 (“Fiscal 2006”)and is based on or derived from the audited Consolidated Financial Statements included in Item 8 in this Annual Report. All figures in the followingdiscussion 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 1995The following “management’s discussion and analysis” includes forward-looking statements that are not based on historical fact and that involveassessments of certain risks, developments, and uncertainties in our business. Such forward looking statements, within the meaning of the Private SecuritiesLitigation Reform Act of 1995, 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 mayinclude projections, forecasts, or estimates of future performance and developments. Forward looking statements contained in this Report are based uponassumptions and assessments that we believe to be reasonable at the time such forward looking statements are made. Whether those assumptions andassessments 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 assumed and assessed. Such risk factors, uncertainties, contingencies,and developments, including those discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and thoseidentified in “Risk Factors” in Item 1A of this Annual Report, could cause our future operating results to differ materially from those set forth in any forwardlooking statement. Such factors include, among others, the following: our ability to maintain constructive commercial relationships with our key OriginalEquipment Manufacturer (“OEM”) customers, including during periods of economic downturns generally or in their business environments; our success inwinning new business from our customers and against competing vendors; whether replacement programs that we win will be more or less successful orprofitable than those that are replaced; the success or failure of our efforts under our license agreements; levels of demand and pricing generally for cellularhandsets and blood glucose monitoring devices sold by our customers for which we supply carry solutions; variability in order flow from our OEMcustomers; the loss of one or more key sales employees upon whom relationships with key OEM customers depend; OEM customers decision to reduce oreliminate their practice of including carry case accessories in-box; general economic and business conditions, nationally and internationally in the countries inwhich we do business or the onset of a global economic recession; the failure of one or more of our suppliers; the need to add materially to our inventoryallowance, including the impact on inventory levels or saleability of inventory arising out of hub agreements we have entered into with two of our OEMcustomers; demographic changes; changes in technology, including developments affecting cellular handsets; developments in the treatment or control ofdiabetes that affect the incidence of use and replacement rates of handheld blood glucose monitors by diabetics; increased competition in the business ofdistribution of carry solutions for handheld electronic devices generally or increased competition to include carry solutions with products manufactured by ourOEM customers in particular; changes affecting the business or business prospects of one or more of our principal OEM customers; governmental regulationsand changes in, or the failure to comply with, governmental regulations; and other factors included elsewhere in this Annual Report and our other reports filedwith the Commission. Accordingly, there can be no assurance that any such forward looking statement, projection, forecast or estimate can be realized or thatactual returns, results, or business prospects will not differ materially from those set forth in any forward looking statement. 21 Forward Industries, Inc. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. The Company disclaims anyobligation to update any such factors or to publicly announce the results of any revisions to any of the forward-looking statements contained herein to reflectfuture results, events or developments.Critical Accounting Policies and EstimatesWe have identified the accounting policies and significant estimation processes below as critical to our business operations and the understanding of ourresults of operations. The listing is not intended to be a comprehensive list. In many cases, the accounting treatment of a particular transaction is specificallydictated by accounting principles generally accepted in the United States, with no need for management’s judgment of a particular transaction. In other cases,management is required to exercise judgment in the application of accounting principles with respect to particular transactions. The impact and any associatedSource: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.risks related to these policies on our business operations is discussed throughout this “Management’s Discussion and Analysis of Financial Condition andResults of Operations” where such policies affect reported and expected financial results. For a detailed discussion of the applications of these and otheraccounting policies, refer to Item 8. “Financial Statements and Supplementary Data” in this Annual Report. Our preparation of our consolidated financialstatements requires us to make estimates and assumptions that are believed to be reasonable under the circumstances. There can be no assurance that actualresults will not differ from those estimates and such differences could be significant.Revenue RecognitionIn accordance with the requirements of Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition in Financial Statements, the Company generallyrecognizes revenue from product sales to customers when: products that do not require further services by the Company are shipped; there are no uncertaintiessurrounding customer acceptance; and collectibility is reasonably assured.Accounts ReceivableWe record an allowance for doubtful accounts for all receivables judged by us to be unlikely to be collected. The effect of the allowance is to reduce theaccounts receivable reported on our balance sheet to an amount that we believe will actually be collected. Significant management judgments, analyses, andestimates must be made and used in connection with establishing this valuation account, based on a combination of factors: the age of receivable balances,our historical bad debts write-off experience, and our respective customer’s creditworthiness, among other factors. At September 30, 2008 and September 30,2007, our allowance for doubtful accounts was approximately $10,000 and $47,000, respectively. Changes to this account are reflected in the general andadministrative expense line of our consolidated statements of operations. Although we consider our allowance for doubtful accounts to be adequate and proper,changes in economic conditions, the assessments of new customers’ creditworthiness, changes in customer circumstances, or other factors could have amaterial effect on the recorded allowance.Inventory ValuationWe make estimates and judgments to value our inventory. Our inventory is recorded at the lower of cost or market. The majority of our inventoryconsists of finished goods that are custom made by our suppliers based on firm orders from our OEM customers and held for our account or supplied to ourOEM customers’ distribution hubs in anticipation of their draw-downs to fulfill orders. We also periodically stock inventory in anticipation of orders fromour OEM customers when it appears to us commercially advantageous to do so. In addition, we hold inventory in support of sales to wholesalers anddistributors in the aftermarket, including our license agreement with Motorola. 22 Forward Industries, Inc. At the end of each fiscal quarter, we evaluate our ending inventories, and we establish an allowance for inventory that is considered obsolete, slowmoving, or otherwise un-saleable. This evaluation includes, among other factors, analyses of inventory levels, historical loss trends, sales history, andprojections of future sales demand. We physically dispose of inventory once its marketability has been determined to be zero. Inventory allowances wereapproximately $0.2 million and $0.6 million at September 30, 2008 and 2007, respectively. The decrease in the allowance from September 30, 2007 toSeptember 30, 2008, was due to the disposal of cell phone inventory determined to be obsolete or unsalable. Increases to this account are reflected in the cost ofgoods sold line of our consolidated statements of operations. See Note 14, Subsequent Events, to our audited, consolidated financial statements in Item 8 ofPart II of this Annual Report on Form 10-K.The vast majority of our production is made to customer specifications. If a customer elects not to accept delivery, or defaults on a purchase order orcommitment, or returns inventory from its hub without payment in violation of the hub arrangements, additional inventory write-downs or reserves may berequired and would be reflected in cost of goods sold in the period the revision is made. Historically, actual inventory valuation results have not deviatedsignificantly from those previously estimated by us.Deferred Income TaxesIn our consolidated financial statements, we are required to estimate income taxes in each of the jurisdictions in which we are subject to taxation. Thisprocess involves estimating actual current income tax expense as well as assessing temporary differences resulting from differing treatment of revenue andexpense items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in our consolidated balancesheet. We had approximately $0.4 million and $0.3 million of net deferred tax assets at September 30, 2008 and 2007, respectively. No valuation allowanceswere recorded in respect of these deferred tax assets as of such dates.Management evaluates our deferred tax assets on a quarterly basis and assesses the need for valuation allowances. Our deferred tax assets are evaluatedby considering historical levels of income, estimates of future taxable income, and the impact of our tax planning strategies. We record a valuation allowance toreduce deferred tax assets when it is determined, on a more likely than not basis, that we will not be able to use all or part of our deferred tax assets.In the event that it should be subsequently determined that we can not, on a more likely than not basis, realize all or part of our deferred tax assets, ifany, in the future, an adjustment to establish (or record an increase in) the deferred tax asset valuation allowance would be charged to income in the period inwhich such determination is made. Changes in our deferred tax assets are reflected in the tax (benefit) expense line of our consolidated statements of operations.Variability of Revenues and Results of OperationSource: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Because our sales revenues are highly concentrated in a few large customers, and because the volumes of these customers’ order flows to us are highlyvariable, with short lead times, our quarterly revenues, and consequently our results of operations, are susceptible to significant variability over a relativelyshort period of time.23 Forward Industries, Inc. We depend for the predominant proportion of our sales revenues on OEM orders from our three largest customers, each of which is a large,multinational corporation. Each of these customers launches different products and can purchase products accessories, such as carrying cases, from manydifferent vendors. When we are selected to supply a carry solution “in-box” for a specific product and launch, we may not be in a position to know thefrequency or volumes of our customers’ orders, or the duration of such orders (which will depend on the OEM customer product’s life cycle), all of whichdepend on our customers’ ongoing assessments of the product’s relative contribution to their businesses, as well as other factors. Our OEM customers maykeep products for which our carry solutions have been selected to be packaged “in-box” in active promotion for many months, or for a very short period oftime, depending on the popularity of the product, product development cycles and new product introductions, and our customers’ competitors’ productofferings. Product life cycles for blood glucose monitoring instruments and kits and related carry case accessories are subject to advances in the technologyfor measurement of blood sugars and insulin administration. Short product life cycles and/or significant variability in product pricing are particularlycharacteristic of the cellular handset market, where new functionality is constantly introduced, competition among vendors is high, and industry technicalstandards are subject to continuing change. When “in-box” programs end, and to the extent that the introduction of new programs does not include ourproducts as an accessory “in-box”, or such new programs do include our products as an accessory “in-box” but do not result in a comparable level of demandfor our products, the level of our OEM product sales is susceptible to significant and rapid change. All of this makes our quarterly revenue levels susceptible to a high degree of variability and difficult to predict. Significant, rapid shifts in ouroperating results may occur if and when one or more of these customers increases or decreases the size(s) of, or eliminates, its orders from us by amounts thatare material to our business. Trends in Results of OperationsWe anticipate that OEM diabetic sales will continue to account for the predominant percentage of revenue and that net sales contributions fromOEM cell phone sales and aftermarket distribution for the first half of Fiscal 2009 will be negligible. We believe OEM diabetic sales will continue tolead revenue generation. We will see negligible revenue from licensed sales or sales of our proprietary products in the aftermarket. See “Risk Factors” inPart II, Item 1A, of this Annual Report on Form 10-K for a discussion of recent developments relating to our relationship with Motorola.We anticipate that gross profit and gross profit percentage may continue to be adversely impacted by product mix factors. The average gross marginfor all diabetic product sales tends to be narrow compared to other OEM sales and aftermarket sales. With OEM diabetic product sales continuing toaccount for the predominant percentage of our total revenue mix, our overall gross profit margin will thus tend to be lower. Absent a material increase inrevenues from our other product lines, we anticipate that our overall gross margin will remain compressed. Second, as relatively higher margin diabeticcase programs mature, we expect to face increased pricing pressure from our largest OEM customers, and this will further impact gross profit. Building inflationary pressures in or affecting China’s economy contributed to rising costs of goods sold, which pressured gross profit. We cannotyet predict whether or when falling commodity prices observed in the first quarter of Fiscal 2009 will benefit cost of goods sold. We source 100% of theproducts we sell and distribute from vendors located in China. Rising labor, energy, and materials costs (particularly in South China, where we sourcethe majority of our products), and the rising value of the Renminbi in comparison to the U.S. dollar in Fiscal 2008 adversely affected gross profit duringFiscal 2008. We had very little if any ability to pass higher costs on to our larger customers. The recent reversal of commodity prices and possibly laborinputs may benefit our cost of goods sold. But final prices to us are the subject of negotiation with our suppliers, and it is too early to predict whetherlower inputs will be passed through to us. Pre-tax net loss in recent and the current reporting periods would have been significantly larger but for the substantial level of “other income”,which consists primarily of interest income on cash balances. Federal Reserve and European Central Bank reductions in the level of interest ratescombined with slightly lower cash balances have and may continue to result in lower levels of other income and thus result in a smaller offset to operatinglosses. 24 Forward Industries, Inc. Results of Operations for Fiscal 2008 compared to Fiscal 2007Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Net lossNet loss in Fiscal 2008 increased $0.3 million to $0.9 million compared to $0.6 million in Fiscal 2007 The deterioration in results was primarily dueto a $0.8 million, or 16%, reduction in gross profit, due primarily to a $6.5 million decline in sales of cell phone carry solution products, and to a $0.4million, or 39%, decrease in other income, which consists primarily of interest income. These declines were partially offset by a decrease in selling, generaland administrative expenses of $0.9 million, or 14%, primarily due to lower personnel costs, royalty expense, and travel & entertainment costs. Basic anddiluted per share data was ($0.11) for Fiscal 2008, compared to ($0.07) for Fiscal 2007. The decrease in earnings per share in Fiscal 2008 was due to theincrease in the net loss.Net SalesNet sales decreased $2.2 million, or 10%, to $20.0 million in Fiscal 2008 compared to $22.2 million in Fiscal 2007 due to lower sales of cell phoneproducts, which declined $6.5 million, or 80%. This decrease was offset, in part, by higher sales of carry cases for diabetic products, which increased $4.4million, or 40%. The tables below set forth approximate net sales by product line and geographic location of our customers for the periods indicated. Net Sales for Fiscal 2008 (millions of dollars) APACAmericasEMEATotalDiabetic Products$9.0$3.1$3.2$15.3Cell Phone Products0.5 0.60.51.6Other Products0.52.40.13.1Totals*$10.0$6.1$3.9$20.0 Net Sales for Fiscal 2007 (millions of dollars) APACAmericasEMEATotalDiabetic Products$7.2$2.1$1.6$10.9Cell Phone Products 3.32.02.8 8.1Other Products0.42.60.13.1Totals*$10.9$6.7$4.5$22.2* Tables may not total due to rounding.Diabetic Product SalesWe design to the order of and sell directly to our OEM customers carrying cases used by diabetics to carry their personal electronic, blood glucosemonitoring kits. In Fiscal 2008, OEM customers for these carrying cases included Lifescan, Abbott Labs, and Roche Diagnostics (including theirsubsidiaries, affiliates and contract manufacturers) as well as other customers. Our carrying cases are packaged as an accessory "in-box" with the monitoringkits that are sold by our OEM customers.Sales of cases and related accessories for blood glucose monitoring kits increased $4.4 million to $15.3 million in Fiscal 2008, or 40% higher thanFiscal 2007. These results were driven by higher sales to our three largest customers for Fiscal 2008, which increased by $2.0 million, $1.1 million, and$1.2 million, respectively, in Fiscal 2008. The increase in sales was attributable to higher volumes of in-box sales from existing programs and increasedcontributions from new programs.Sales of carrying cases for blood glucose monitoring kits represented 76% of our total net sales in Fiscal 2008 compared to 49% of our total net sales inFiscal 2007 due primarily to the continuing significant decline in cell phone product sales as well as the increase in OEM sales of cases and accessories for theblood glucose monitors.25 Forward Industries, Inc. Other Product SalesWe design and sell a number of carrying solutions for items such as cameras, portable oxygen tanks, bar code scanners, MP3 players, and othercarrying solutions for an assortment of products on a made-to-order basis that are customized to meet the individual needs of our smaller OEM customers. Bythe nature of our distribution in this market, sales of these customized products to order in their product category vary from period to period withoutnecessarily reflecting a significant trend in overall demand for these items.Sales of other products were $3.1 million for both Fiscal 2008 and Fiscal 2007, which represented 16% and 14% of our total sales, respectively.Cell Phone Product SalesOur cell phone carry solutions products include carrying cases for handsets and camera attachments, plastic belt clips, carrying case straps and bags,screen cleaners, decorative faceplates, and other attachments used to carry or enhance the appearance of cellular telephone handsets. We design to the order ofand sell these products directly to cell phone handset original equipment manufacturers. Our cases are packaged as an accessory "in-box" with the handsetsSource: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.that are sold by our OEM customers. Motorola was our only OEM cell phone customer in Fiscal 2008 and Fiscal 2007. In addition to our “in-box” business with OEM customers, we engage in the sale of carry solution products as separately packaged accessories directlyto wholesalers (for re-sale to retail outlets) and retailers (for re-sale to retail consumers), a distribution channel we sometimes refer to as the “aftermarket”. Products in this channel include products bearing the Motorola logo, for which we have licensed the non-exclusive rights in the United States, Canada, andEurope. Product and channel development for these products are underway as we are committing resources to strengthen (and establish, in the case of NorthAmerican markets) our sales and marketing capability. We don’t expect to see revenue contribution, if any, from these markets until the second fiscal quarterof Fiscal 2009.See “Risk Factors” in Item 1A of Part I of this Annual Report on Form 10-K for a discussion of the risks relating to OEM customer Motorola.Total sales of cell phone products in Fiscal 2008 declined $6.5 million to $1.6 million, to a level one-fourth of that compared to Fiscal 2007. Sales ofsuch products in Fiscal 2008 were predominantly OEM sales to Motorola, which decreased $4.8 million, to $1.2 million, or to a level approximately one-fifththe level attained in Fiscal 2007.Aftermarket sales of cell phone products, consisting primarily of licensed sales of Motorola branded products, declined to $0.4 in Fiscal 2008, $1.5million lower than “aftermarket” sales in Fiscal 2007, which consisted entirely of Motorola branded products sold under the expired license.Sales of carry solutions for cell phone products represented 8% of our total net sales in Fiscal 2008 compared to 36% in Fiscal 2007, due primarily tothe decline in cell phone sales and to a lesser extent the significant increase in diabetic product sales.Gross ProfitGross profit decreased $0.8 million, or 16%, to $4.0 million in Fiscal 2008 from $4.8 million in Fiscal 2007. As a percentage of net sales, gross profitdecreased to 20% in Fiscal 2008 from to 22% in Fiscal 2007. These decreases were due to several factors. First, net sales decreased $2.2 million due to thesteep decline in our cell phone products line. Second, average gross margin on diabetic product sales, which accounted for 76% total net sales in Fiscal 2008compared to 49% in Fiscal 2007, tend to be lower than other product lines, and thus, adversely affected our gross profit percentage. Third, higher labor andmaterials costs due to inflation and currency factors, all contributed to restrain gross profit and gross profit percentage. Lastly, the cost of operating our HongKong facility, which constitutes part of our cost of goods sold on our statements of operations, increased due to higher quality and compliance measures implemented in Fiscal 2008, which on a lower revenue base, acted as a drag on our gross profit percentage. Compared to the above figures, Fiscal 2008 grossprofit and gross profit percentage would have been $3.8 million and 19%, respectively, but for the agreement of a customer to pay $250,000 to us that has theeffect of reducing Fiscal 2008 cost of goods sold by that amount. The payment, which is in settlement of a larger amount of unpaid invoices to the customerin respect of product included as part of our inventory allowance in Fiscal 2008 and Fiscal 2007, had the effect of significantly improving fiscal fourth quartergross profit and gross profit percentage, thereby improving the full-year figures to the extent described above. See Note 14, Subsequent Events, to the auditedconsolidated financial statements in Item 8 of Part II of this Annual Report. 26 Forward Industries, Inc. Selling, General, and Administrative ExpensesSelling, general, and administrative expenses decreased $0.9 million, or 14%, to $5.7 million in Fiscal 2008 from $6.6 million in Fiscal 2007. Thisdecrease was due to reductions in selling personnel costs and general administrative personnel costs of $0.3 million and $0.1million, respectively, primarilydue to the expiration at December 31, 2007, of employment agreements of two executives, one in each area. In addition, Royalty expenses were lower by $0.3million as a result of the elimination of the minimum royalty obligations under the new License Agreement. Travel and entertainment costs incurred by sellingpersonnel also decreased $0.1 million in Fiscal 2008. Other components of our operating expenses also declined in Fiscal 2008, the most significant of whichwas “other general and administrative costs”, which decreased $0.1 million primarily due to lower depreciation expense, share-based compensation for ourdirectors, and investor relations fees. Royalty and commission expense declined $30,000 in Fiscal 2008 compared to Fiscal 2007 due to lower sales of licensedproducts.Other Income (Expense)Other income, primarily interest income on cash balances, declined 39% to $0.6 million, due to sharply lower average interest rates in Fiscal 2008 onslightly lower cash balances compared to Fiscal 2007. The second component of “other income” consists of gain or loss from foreign currency transactions, asto which we recorded a $6,000 loss in Fiscal 2008 compared to an $11,000 gain in Fiscal 2007.Pre-tax IncomePre-tax income decreased $0.2 million to a pre-tax loss of $1.0 in Fiscal 2008 from a pre-tax loss of $0.8 million in Fiscal 2007 as a result of thechanges as described above.Income TaxesOur effective income tax benefit rate was 15% in Fiscal 2008 compared to 31% in Fiscal 2007 as a result of the higher relative contribution of taxableSource: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Our effective income tax benefit rate was 15% in Fiscal 2008 compared to 31% in Fiscal 2007 as a result of the higher relative contribution of taxableloss from the EMEA Region, which bears a lower benefit rate than United States taxable loss. This had a disproportionate impact on an overall smallertaxable loss base. Our effective tax benefit rate does not approximate the United States statutory federal income tax rate primarily due to tax rate differentials inrespect of state and foreign taxes, to which income recorded by Forward Innovations is subject. Benefit from income taxes decreased $94,000to $156,000 inFiscal 2008 from $250,000 in Fiscal 2007. The income tax benefit consists primarily of estimated U.S. federal income taxes, and to a lesser extent, currentstate and foreign income taxes. See Note 9 to the Financial Statements in Item 8 of this Annual Report.We consider the earnings of our foreign subsidiaries indefinitely invested and, accordingly, have not recorded a provision for U.S. income taxes on theirun-repatriated earnings. At September 30, 2008, those cumulative earnings were $4.3 million.Liquidity and Capital ResourcesDuring Fiscal 2008, we used $0.4 million of cash in operations compared to generating $1.9 million from operations in Fiscal 2007. Our operating cashflows in Fiscal 2008 consisted of a net loss of $0.9 million, offset in part by $0.5 million for non-cash items, and $0.1 million for net changes in workingcapital items Non-cash items consisting of provision for obsolete inventory, share-based compensation expense, and depreciation expense reduced our net lossby $0.3 million, $135,000, and $65,000, respectively. In addition, non-cash items consisting of deferred tax expense and bad debt expense of $99,000 and$20,000, respectively, contributed to our net loss. Working capital items consisted primarily of cash generated by changes in accounts receivable, accountspayable, and prepaid and other current assets of $0.5 million, $0.3 million, and $0.3 million, respectively, offset, in part, by $0.8 million in cash used toincrease inventory. Accounts receivable decreased as a result of the lower levels of sales in Fiscal 2008 compared to Fiscal 2007. Accounts payable increased asa result of the increase in our inventory balances between September 30, 2008 and 2007. Prepaid and other current assets is primarily attributable to federaland state income taxes that were prepaid at September 30, 2007, and were subsequently refunded in Fiscal 2008 with no corresponding income taxprepayments made as of September 30, 2008. 27 Forward Industries, Inc. Investing activities used $29,000 in Fiscal 2008 for purchases of property, plant and equipment, primarily computer and telecommunicationshardware and software. In Fiscal 2007, investing activities used $61,000 for purchases of property, plant and equipment, primarily computer andtelecommunications hardware and software.Financing activities provided $39,000 in Fiscal 2008 from the issuance of common stock upon the exercise of stock options to purchase 22,000 sharesunder our 1996 Stock Incentive Plan. In Fiscal 2007, financing activities used $140,000, consisting of $232,000 used to purchase 70,000 shares of theCompany’s common stock in open market purchases offset in part by $93,000 generated from the issuance of common stock upon the exercise of stockoptions to purchase 53,000 shares under our 1996 Stock Incentive Plan.At September 30, 2008, our current ratio (current assets divided by current liabilities) was 10.6; our quick ratio (current assets less inventories dividedby current liabilities) was 10.1; and our working capital (current assets less current liabilities) was $23.1 million. As of such date, we had no short or long-term debt outstanding.Our primary source of liquidity is our cash on hand. The primary demands on our working capital are: operating losses and accounts payable arisingin the ordinary course of business, the most significant of which arise when our customers place orders and we order from our suppliers. Historically, oursources of liquidity have been adequate to satisfy working capital requirements arising in the ordinary course of business. We anticipate that our liquidity andfinancial resources for the ensuing fiscal year will be adequate to manage our financial requirements. See “Trends in Results of Operations” for a discussion ofanticipated increases in selling, general, and administrative expense.In March 2008, Forward and its wholly-owned U.S. subsidiary, Koszegi Industries, Inc. elected not to renew their credit facility with a U.S. bank thatprovided for a committed line of credit in the maximum amount of $3.0 million, including a $1.5 million sub-limit for letters of credit. Accordingly, thiscredit facility expired March 30, 2008. There were no borrowings or letter of credit obligations outstanding under this facility during the fiscal year endedSeptember 30, 2008. See Notes 5 and 6 to the audited consolidated Financial Statements.In February 2003, Forward Innovations established a credit facility with a Swiss bank that provides for an uncommitted line of credit in the maximumamount of $400,000. Amounts borrowed under the facility may be structured as a term loan or loans, with a maximum repayment Period of 12 months, or asa guarantee facility, or any combination of the foregoing. Either party may terminate the facility at any time; however, such termination would not affect thestated maturity of any term loan outstanding under the facility. Amounts borrowed other than as a term loan must be settled Periodly or converted into termloans. In connection with this facility, Forward Innovations has agreed to certain financial covenants. Amounts drawn under this credit facility bear interest atvariable rates established by the bank (5.35% at exchange rates as of September 30, 2008). At September 30, 2008, Forward Innovations is contingently liableto the bank under a letter of credit issued on its behalf in the amount of €224,000 (equal to approximately $327,000 at exchange rates as of September 30,2008) in favor of Forward Innovations' freight forwarder and customs agent in connection with its logistics operations in The Netherlands. The effect of theissuance of the letter of credit is to reduce the availability of the credit line in an amount equal to the face amount of the letter of credit. See Notes 5 and 6 to theaudited consolidated Financial Statements. Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.28 Forward Industries, Inc. On September 27, 2002, our Board of Directors authorized the repurchase of up to 400,000 shares of our outstanding common stock, or approximately7% of the number of shares then outstanding. On January 21, 2004, our Board increased the amount of shares authorized for repurchase to 486,200. Underthat authorization, as of September 30, 2008, we had repurchased an aggregate of 172,603 shares at a cost of approximately $0.4 million but none duringFiscal 2008, compared to 70,000 shares purchased in Fiscal 2007 at a cost of $232,000. In addition, in connection with an exercise of outstanding stockoptions, 72,917 shares were purchased during the 2008 Period in a non-cash transaction by the tender of such shares valued at market in consideration forthe exercise price, which was outside the foregoing authorizations.Contractual Obligations and Commercial CommitmentsThe Company has entered into various contractual obligations and commercial commitments that, under accounting principles generally accepted in theUnited States are not recorded as a liability. The following is a summary of such contractual cash obligations as of September 30, 2008:Contractual Obligation or CommitmentOct 08 – Sep 09Oct 09- Sep 11Oct 11 – Sep 13ThereafterEmployment Agreements$340,000$85,000$ --$ --Operating Leases319,000544,000105,000--Totals$659,000$629,000$105,000 $ -- The Company has not guaranteed the debt of any unconsolidated entity and does not engage in derivative transactions or maintain any off-balance sheetspecial purpose entities. See Note 5 to the audited consolidated Financial Statements set forth at Item 8 of Part II of this Annual Report. 29 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKNot applicable 30 Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAThe consolidated financial statements and notes thereto and supplementary data included in this Annual Report may be found at pages 38 to 58 ofthis Annual Report.ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENoneITEM 9A. CONTROLS AND PROCEDURESNot applicableITEM 9A(T). CONTROLS AND PROCEDURESOur management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e)) underthe 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 ExchangeAct is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms. Disclosure controls andprocedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that itfiles or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive officer or officers andprincipal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.In accordance with Exchange Act Rule 13a-15(b), our management, under the supervision and with the participation of our Principal Executive Officerand Principal Financial Officer, performed an evaluation of the effectiveness of the Company's disclosure controls and procedures as of the end of the periodcovered by this Report (the fourth fiscal quarter of Fiscal 2008 in the case of this Annual Report on Form 10-K). Based on that evaluation, the Company'sPrincipal Executive Officer and Principal Financial Officer concluded that the Company's disclosure controls and procedures were effective, as of the end ofthe period covered by this Report (the fourth fiscal quarter of Fiscal 2008 in the case of this Annual Report on Form 10-K), to provide reasonable assurancethat information required to be disclosed in the Company's reports filed or submitted under the Exchange Act is recorded, processed, summarized and reportedwithin the time periods specified in the Commission's rules and forms.Management’s Report on Internal Controls Over Financial ReportingOur Principal Executive Officer and our Principal Financial Officer are responsible for establishing and maintaining adequate internal control overfinancial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of1934 as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our board of directors,management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal reporting purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generallyaccepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of management and ourdirectors; andprovide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have amaterial effect on the financial statements.31 Because of its inherent limitations, our internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systemsdetermined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluationof effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate.Our Principal Executive Officer and our Principal Financial Officer assessed the effectiveness of our internal control over financial reporting as ofSeptember 30, 2008. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the TreadwayCommission (“COSO”) in Internal Control — Integrated Framework.Based on our assessment, our Principal Executive Officer and our Principal Financial Officer believe that, as of September 30, 2008, our internalcontrol over financial reporting is effective based on those criteria.This report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the Securities andExchange Commission that permit us to provide only management’s report on internal control in this annual report.This report shall not be deemed to be filed for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section, unless theSource: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.registrant specifically states that the report is to be considered “filed” under the Exchange Act or incorporates it by reference into a filing under the SecuritiesAct or the Exchange Act.Changes in internal controlsOur management, with the participation 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 controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act)occurred during the last fiscal quarter of Fiscal 2008. Based on that evaluation, our Principal Executive Officer and our Principal Financial Officer concludedthat no change occurred in the Company's internal controls over financial reporting during the last fiscal quarter of Fiscal 2008 that has materially affected, oris reasonably likely to materially affect, the Company's internal controls over financial reporting.ITEM 9B. OTHER INFORMATIONNonePART IIIITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEThe information required by this item regarding directors and executive officers is incorporated to this Annual Report on Form 10-K by reference toour Definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with the Annual Meeting of Stockholders to be held in2009 (the “2009 Proxy Statement”) under the heading “Election of Directors”, “Structure and Practices of the Board of Directors”, and “Security Ownershipof Certain Beneficial Owners and Management and Related Stockholder Matters;—Section 16(a) Beneficial Ownership Reporting Compliance”. Informationregarding executive officers also incorporated to this Annual Report on Form 10-K by reference to the 2009 Proxy Statement under the caption “ExecutiveOfficers.” The information required by this item relating to Corporate Governance, including Code of Ethics, is incorporated to this Annual Report on Form10-K by reference to the 2009 Proxy Statement under the heading “Structure and Practices of the Board of Directors.”ITEM 11. EXECUTIVE COMPENSATIONThe information required by this item is incorporated to this Annual Report on Form 10-K by reference to the 2009 Proxy Statement under theheading “Executive Compensation and Related Information.”ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATEDSTOCKHOLDER MATTERSThe information required by this item is incorporated to this Annual Report on Form 10-K by reference to the 2009 Proxy Statement under the headings“Executive Compensation and Related Information—Securities Authorized for Issuance Under Equity Compensation Plans” and “Security Ownership ofCertain Beneficial Owners and Management and Related Stockholder Matters.” 32 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEThe information required by this item is incorporated to this Annual Report on Form 10-K by reference to the 2009 Proxy Statement under theheadings ““Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters— “Certain Relationships, DirectorIndependence, and Related Transactions” and “Structure and Practices of the Board of Directors;—Board of Directors and Director Independence”.ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESThe information required by this item is incorporated to this Annual Report on Form 10-K by reference to the 2009 Proxy Statement under theheading “Matters Relating to Independent Registered Public Accountants;—Principal Accountant Fees and Services.” PART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES a. Financial Statements and Schedules Report of Independent Registered Public Accounting FirmConsolidated Balance Sheets Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Consolidated Statements of OperationsConsolidated Statements of Shareholders’ EquityConsolidated Statements of Cash FlowsNotes to Consolidated Financial Statements Financial statement schedules other than those listed above have been omitted because they are either not required, not applicable orthe information is otherwise included in the notes to the consolidated financial statements. b. Exhibits 3.ARTICLES OF INCORPORATION AND BY-LAWS 3(i).1Certificate of Incorporation of the Company as amended (incorporated by reference to Exhibit 2(a) to the Form 10-SB) 3(i).2Certificate of Amendment of Certificate of Incorporation filed by the New York Department of State on August 22, 1997 (incorporated byreference to the Company's Annual Report on Form 10-KSB for the period ended September 30, 1997) 3(ii).1By-Laws (incorporated by reference to Exhibit 2(b) to the Form 10-SB) (now superseded by the Amended and Restated By-Laws) 3(ii).2Amendment to By-Laws (Article I, Section 2) (incorporated by reference to Exhibit 3(c) to the Company's Registration Statement on FormSB-2 filed November 13, 1995 (Reg. No. 33-99338) (the "1995 SB-2 Registration Statement") (now superseded by the Amended andRestated By-Laws) 3(ii).3Amended and Restated By-Laws of Forward Industries, Inc., as of February 13, 2008 10.MATERIAL CONTRACTS 10.1License Agreement, effective as of October 1, 2004, between Motorola, Inc. and the Company (incorporated by reference to Exhibit 10.1 to theCompany’s Current Report on Form 8-K, filed October 18, 2004. 10.21996 Stock Incentive Plan of Forward Industries, Inc. (incorporated by reference to Exhibit 4 to the Registration Statement on Form S-8 ofthe Company, as filed on April 25, 2003). 33 10.3Amendment One to Employment Agreement effective as of July 12, 2005 between the Company and Douglas W. Sabra (incorporated byreference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 12, 2005). 10.4 Employment Agreement effective as of October 1, 2005 between the Company and Jerome E. Ball (incorporated by reference to Exhibit 10.1to the Company’s Current Report on Form 8-K filed on December 28, 2005). 10.5Employment Agreement effective as of October 1, 2005 between the Company and Michael M. Schiffman (incorporated by reference toExhibit 10.2 to the Company’s Current Report on Form 8-K filed on December 28, 2005). 10.6Employment Agreement effective as of October 1, 2005 between the Company and Douglas W. Sabra (incorporated by reference to Exhibit10.3 to the Company’s Current Report on Form 8-K filed on December 28, 2005). 10.7Forward Industries, Inc. 2007 Equity Incentive Plan (incorporated by reference to Exhibit 4.2 to the Registration Statement on Form S-8 ofthe Company, as filed on July 10, 2007). 10.8Consulting Agreement, dated August 15, 2007, between Jerome E. Ball and Forward Industries, Inc. (incorporated by reference to Exhibit99.2 to the Current Report on Form 8-K of the Company as filed on August 16, 2007). 10.9Amendment to Employment Agreement, dated as of January 1, 2008, between the Company and Douglas W. Sabra (incorporated byreference to Exhibit 10.9 to the Current Report on Form 8-K of the Company as filed on February 13, 2008) 10.10Severance and Release Agreement, dated as of December 31, 2007, between the Company and Michael M. Schiffman (incorporated byreference to Exhibit 10.10 to the Current Report on Form 8-K of the Company as filed on February 13, 2008). 10.11License Agreement, dated as of May 22, 2008, between Motorola, Inc. and Forward Industries, Inc. 10.12Amended and Restated Employment Agreement, dated as of August 12, 2008, between the Company and Douglas W. Sabra (incorporatedby reference to Exhibit 10.1 to the Current Report on Form 8-K as filed on August 12, 2008).Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 10.13Employment Agreement, dated as of August 12, 2008, between the Company and James O. McKenna (incorporated by reference to Exhibit10.2 to the Current Report on Form 8-K as filed on August 12, 2008).21. SUBSIDIARIES OF THE REGISTRANT 21.1 List of Subsidiaries of Forward Industries, Inc.23. CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 23.1 Consent of Kaufman, Rossin & Co., P.A. relating to 1996 Stock Incentive Plan31. CERTIFICATIONS PURSUANT TO RULE 13a-14(a) (Section 302 of Sarbanes-Oxley) 31.1 Certification of Douglas W. Sabra 31.2 Certification of James O. McKenna34 32. CERTIFICATIONS PURSUANT TO RULE 13a-14(b) (Section 906 of Sarbanes-Oxley)32.1 Certifications of Douglas W. Sabra and James O. McKenna 35 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe Board of Directors and Shareholders of Forward Industries, Inc.We have audited the accompanying consolidated balance sheets of Forward Industries, Inc. (the Company) as of September 30, 2008 and 2007, and therelated consolidated statements of operations, shareholders' equity and cash flows for the years then ended. These financial statements are the responsibility ofthe Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe thatour audits provide a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ForwardIndustries, Inc. at September 30, 2008 and 2007, and the results of its operations and its cash flows for the years then ended, in conformity with accountingprinciples generally accepted in the United States of America. KAUFMAN, ROSSIN & CO., P.A.Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Miami, FloridaDecember 15, 2008 36 FORWARD INDUSTRIES, INC.CONSOLIDATED BALANCE SHEETSSEPTEMBER 30, 2008 AND 2007 September30, September30, 2008 2007Assets Current assets: Cash and cash equivalents$19,862,426 $20,267,791Accounts receivable, net3,659,553 4,135,117Inventories, net1,363,862 1,072,360Prepaid expenses and other current assets586,632 628,786Deferred tax asset49,449 279,741Total current assets25,521,922 26,383,795 Property, plant, and equipment, net124,854 160,644Deferred tax asset359,681 29,898Other assets98,259 57,538Total assets$26,104,716 $26,631,875 Liabilities and shareholders’ equity Current liabilities: Accounts payable$2,206,630 $1,904,946Accrued expenses and other current liabilities189,827 303,185Total current liabilities2,396,457 2,208,131 Commitments and contingencies Shareholders’ equity: Preferred stock, par value $0.01 per share; 4,000,000 shares authorized; no shares issued-- --Common stock, par value $0.01 per share; 40,000,000 shares authorized,8,621,932 and 8,488,932 shares issued, respectively (including 706,410 and 633,493 held in treasury,respectively ) 86,219 84,889Capital in excess of par value15,893,480 15,546,046Treasury stock, 706,410 and 633,493 shares at cost, respectively(1,260,057) (1,085,057)Retained earnings8,988,617 9,877,866Total shareholders' equity23,708,259 24,423,744Total liabilities and shareholders’ equity$26,104,716 $26,631,875 The accompanying notes are an integral part of the consolidated financial statements.Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 37 FORWARD INDUSTRIES, INC.CONSOLIDATED STATEMENTS OF OPERATIONS For the Fiscal Years Ended September 30, 2008 2007Net sales$19,973,869 $22,150,513Cost of goods sold15,946,020 17,346,913Gross profit4,027,849 4,803,600 Operating expenses: Selling2,868,092 3,641,000General and administrative2,824,962 2,977,660Total operating expenses5,693,054 6,618,660 Loss from operations(1,665,205) (1,815,060) Other income: Interest income625,959 1,001,091Other (expense) income, net(5,623) 11,130Total other income620,336 1,012,221 Loss before income tax benefit (1,044,869) (802,839)Income tax benefit(155,620) (249,380)Net loss$ (889,249) $ (553,459) Net loss per common and common equivalent share Basic$ (0.11) $ (0.07)Diluted$ (0.11) $ (0.07) Weighted average number of common and common equivalent shares outstanding Basic7,888,727 7,844,376Diluted7,888,727 7,844,376 The accompanying notes are an integral part of the consolidated financial statements. 38 FORWARD INDUSTRIES, INC.CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITYFOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2008 AND 2007 Common Stock Treasury Stock Total Number of SharesPar ValueAdditional Paid-in Capital Retained EarningsNumber of SharesAmountBalance at September 30, 2006$24,950,3678,424,931$84,249$15,287,952$10,431,325563,493($853,159)Common stock issued upon exercise of stock options92,75053,00053092,220------Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Share-based compensation165,98411,001110165,874------Repurchases of common stock(231,898)--------70,000(231,898)Net loss(553,459)------(553,459)----Balance at September 30, 200724,423,7448,488,93284,88915,546,0469,877,866633,493(1,085,057)Common stock issued upon exercise of stock options213,500122,0001,220212,280------Share-based compensation135,26411,000110135,154------Repurchases of common stock(175,000)--------72,917(175,000)Net loss(889,249)------(889,249)----Balance at September 30, 2008$23,708,2598,621,932$86,219$15,893,480$8,988,617706,410($1,260,057) The accompanying notes are an integral part of the consolidated financial statements. 39 FORWARD INDUSTRIES, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS For the Fiscal Years EndedSeptember 30, 2008 2007Operating activities: Net loss($889,249) ($553,459)Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Provision for obsolete inventory281,801 613,109Share-based compensation135,264 165,984Deferred income taxes(99,491) (226,639)Depreciation and amortization64,782 89,955Recovery of bad debt expense(20,033) --Changes in operating assets and liabilities: Accounts receivable495,597 1,933,941Inventories(823,303) 763,596Prepaid expenses and other current assets292,154 (299,325)Other assets(40,721) (5,606)Accounts payable301,684 (236,245)Accrued expenses and other current liabilities(113,358) (387,228)Net cash (used in) provided by operating activities(414,873) 1,858,083 Investing activities: Purchases of property, plant, and equipment(28,992) (60,515)Net cash used in investing activities(28,992) (60,515) Financing activities: Proceeds from exercise of stock options38,500 92,750Purchases of treasury stock-- (231,898)Net cash provided by (used in) financing activities38,500 (139,148) Net (decrease) increase in cash and cash equivalents(405,365) 1,658,420 Cash and cash equivalents at beginning of period20,267,791 18,609,371Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Cash and cash equivalents at end of period$19,862,426 $20,267,791 Supplemental Disclosures of Cash Flow Information: Cash paid during the fiscal year for: Interest-- --Income Taxes$11,476 $ 239,079During the fiscal year ended September 30, 2008, the Company accepted 72,917 shares of common stockvalued at fair market value on the date of the transaction from a director as consideration to exercise optionsto purchase 100,000 shares of common stock as part of a cashless exercise. The accompanying notes are an integral part of the consolidated financial statements. 40 FORWARD INDUSTRIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 OVERVIEWForward Industries, Inc. was incorporated under the laws of the State of New York and began operations in 1961. The Company is engaged in thedesign, marketing, and distribution of custom-designed, soft-sided carrying cases and other carry solutions products made from leather, nylon, vinyl, andother synthetic fabrics. The cases and other products are used primarily by consumers for the protection and transport of portable electronic devices such asmedical devices and cellular phones. The Company markets its products as a direct seller to original-equipment-manufacturers (“OEMs”) and as a distributorto retailers and wholesalers. Sales to OEM customers are made in Europe, the APAC Region (meaning the Asia Pacific Region, encompassing Australia, NewZealand, Hong Kong, Taiwan, China, South Korea, Japan, Singapore, Malaysia, Thailand, Indonesia, India, the Philippines and Vietnam), and theAmericas (meaning the geographic area, encompassing North, Central, and South America). Sales to retailers and distributors are made, in the case ofCompany branded products, in Europe and, under a non-exclusive license bearing the Motorola trademarks, in the United States, Canada, and Europe.NOTE 2 ACCOUNTING POLICIESAccounting EstimatesThe preparation of the Company's consolidated financial statements in conformity with accounting principles generally accepted in the United Statesrequires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets andliabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differfrom those estimates.Basis of PresentationThe accompanying consolidated financial statements include the accounts of Forward Industries, Inc. ("Forward") and its wholly owned subsidiaries(together, the "Company"). All significant intercompany transactions and balances have been eliminated in consolidation.Cash EquivalentsCash and cash equivalents consist primarily of cash on deposit, highly liquid money market accounts, and certificates of deposit with originalcontractual maturities of three months or less. The Company minimizes its credit risk associated with cash and cash equivalents by investing in high qualityinstruments and by periodically evaluating the credit quality of the primary financial institution issuers of such instruments. The Company holds cash andcash equivalents at major financial institutions in the United States, which cash amounts often exceed FDIC insured limits, and in Europe. Historically, theCompany has not experienced any losses due to such cash concentrations.Accounts ReceivableAccounts receivable consist of unsecured trade accounts with various customers. The Company performs ongoing credit evaluations of its customersand believes that adequate allowances for any uncollectible receivables are maintained. Credit terms to the majority of our customers are generally net thirty (30)days to net sixty (60) days, however, certain customers, particularly the Company’s largest, have extended payment terms up to 90 days. The Company hasnot historically experienced significant losses in extending credit to customers. At September 30, 2008 and 2007, the allowance for doubtful accounts wasapproximately $10,000 and $47,000, respectively. Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.41 NOTE 2 ACCOUNTING POLICIES (CONTINUED)InventoriesInventories consist primarily of finished goods and are stated at the lower of cost (determined by the first-in, first-out method) or market. Based onmanagement’s estimates, an allowance is made to reduce excess, obsolete, or otherwise un-saleable inventories to net realizable value. The allowance isestablished through charges to cost of goods sold on the Company’s consolidated statements of operations. Reserved inventory that is disposed of is chargedagainst the allowance. Management’s estimates in determining the adequacy of the allowance are based upon several factors, including analyses of inventorylevels, historical loss trends, sales history, and projections of future sales demand. The Company’s estimates of the allowance, as well as recoveries ofreserved inventory, may change from time to time based on management’s assessments, and such changes could be material. At September 30, 2008 and 2007,the allowance for obsolete inventory was approximately $168,000 and $558,000, respectively.Property, Plant and EquipmentProperty, plant and equipment consist of furniture, fixtures and equipment, and leasehold improvements and are recorded at cost. Expenditures formajor additions and improvements are capitalized, and minor replacements, maintenance, and repairs are charged to expense as incurred. When property,plant and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or lossis 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 ofleasehold improvements is computed using the straight-line method over the shorter of the remaining lease term or the estimated useful lives of theimprovements. For the fiscal years ended September 30, 2008 and 2007, the Company recorded approximately $65,000 and $90,000 of depreciation expense,respectively.Income TaxesThe Company accounts for its income taxes in accordance with the provisions of Statement of Financial Accounting Standard (SFAS) No. 109,Accounting for Income Taxes (SFAS 109), which requires, among other things, recognition of future tax benefits and liabilities measured at enacted ratesattributable to temporary differences between financial statement and income tax bases of assets and liabilities and to tax net operating loss carryforwards to theextent that realization of these benefits is more likely than not. The Company periodically evaluates the realizability of its net deferred tax assets.Revenue RecognitionIn accordance with the requirements of Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition in Financial Statements, the Companygenerally recognizes revenue from product sales to customers when: products that do not require further services by the Company are shipped, there are nouncertainties surrounding customer acceptance, and collectibility is reasonably assured.Supplier RebatesEmerging Issues Task Force (EITF) Issue No. 02-16, Accounting by a Customer (Including a Reseller) for Certain Consideration Received from aVendor, permits recognition of a rebate or refund of a specified amount of cash consideration that is payable if the customer completes a specified cumulativelevel of purchases. The Company has entered into agreements with several of its suppliers that grant the Company a rebate based on its level of purchasesmade during each fiscal quarter. In lieu of a cash payment from these suppliers the Company generally receives a credit memo. The Company reducesaccounts payable to the supplier, inventory, and cost of goods sold each quarter as the Company earns the rebates. For the fiscal years ended September 30,2008 and 2007, the cumulative amounts of such quarterly rebates were approximately $451,000 and $504,000, respectively. The quarterly rebates are net ofamounts allocated to unsold inventories and are reflected in the accompanying consolidated statements of operations as a reduction of cost of goods sold. 42 NOTE 2 ACCOUNTING POLICIES (CONTINUED)Shipping and Handling CostsThe Company expenses shipping and handling costs as a component of cost of goods sold.Advertising ExpensesAdvertising costs, consisting primarily of samples and product brochures, are expensed as incurred. Advertising costs are included in selling expensesin the accompanying consolidated statements of operations and amounted to approximately $60,000 and $80,000 for the years ended September 30, 2008 and2007, respectively. Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Foreign Currency TransactionsThe functional currency of the Company and its wholly owned foreign subsidiaries is the U.S. dollar. Foreign currency transactions may generatereceivables or payables that are fixed in terms of the amount of foreign currency that will be received or paid. Fluctuations in exchange rates between thefunctional currency and the currency in which a transaction is denominated increases or decreases the expected amount of functional currency cash flowsupon settlement of the transaction. These increases or decreases in expected functional currency cash flows are foreign currency transaction gains or losses thatare included in “other income (expense), net” in the accompanying consolidated statements of operations. The net (loss) gain from foreign currencytransactions and translations was approximately ($9,000) and $11,000 for the fiscal years ended September 30, 2008 and 2007, respectively.Comprehensive LossFor the fiscal years ended September 30, 2008 and 2007, the Company did not have any components of comprehensive loss other than net loss.Recent Accounting PronouncementsIn September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS No. 157"). SFASNo. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosure about fairvalue measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements, the FASB havingpreviously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, SFAS No. 157 does not requireany new fair value measurements. SFAS No. 157 is effective for fiscal years beginning after December 15, 2007. The Company is in the process ofevaluating the impact, if any, of adoption of SFAS No. 157 will have on its consolidated financial statements.In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, Fair Value Option for Financial Assets and FinancialLiabilities (SFAS No. 159), which gives companies the option to measure eligible financial assets, financial liabilities and firm commitments at fair value(i.e., the fair value option), on an instrument-by-instrument basis, that are otherwise not permitted to be accounted for at fair value under other accountingstandards. The election to use the fair value option is available when an entity first recognizes a financial asset or financial liability or upon entering into a firmcommitment. Subsequent changes in fair value must be recorded in earnings. SFAS No. 159 is effective for financial statements issued for fiscal yearsbeginning after November 15, 2007. The Company is in the process of evaluating the impact, if any, of adoption of SFAS No. 159 will have on itsconsolidated financial statements. 43 NOTE 2 ACCOUNTING POLICIES (CONTINUED)Recent Accounting PronouncementsIn December 2007, the FASB issued FASB Statement No. 141 (revised 2007), Business Combinations ("SFAS 141(R)"). SFAS 141(R) requires thatthe fair value of the purchase price of an acquisition including the issuance of equity securities be determined on the acquisition date; requires that all assets,liabilities, noncontrolling interests, contingent consideration, contingencies, and in-process research and development costs of an acquired business berecorded at fair value at the acquisition date; requires that acquisition costs generally be expensed as incurred; requires that restructuring costs generally beexpensed in periods subsequent to the acquisition date; and requires that changes in deferred tax asset valuation allowances and acquired income taxuncertainties after the measurement period impact income tax expense. SFAS 141(R) also expands disclosures related to business combinations. SFAS 141(R)will be applied prospectively to business combinations occurring after the beginning of the Company's fiscal year 2010, except that business combinationsconsummated prior to the effective date must apply SFAS 141(R) income tax requirements immediately upon adoption. The Company is currently evaluatingthe impact of SFAS 141(R) related to future acquisitions, if any, on its financial position, results of operations and cash flows.NOTE 3 PROPERTY, PLANT AND EQUIPMENTProperty, plant and equipment and related accumulated depreciation and amortization are summarized in the table below: For the Fiscal Years Ended September 30, 2008 2007Furniture, fixtures and equipment $980,469 $951,478Leasehold improvements 170,280 170,280Property, plant and equipment, cost 1,150,749 1,121,758Less accumulated depreciation and amortization (1,025,895) (961,114)Property, plant and equipment, net $124,854 $160,644NOTE 4 ACCRUED EXPENSES AND OTHER CURRENT LIABILITIESAccrued expenses and other current liabilities consist of the following: For the Fiscal Years Ended September 30, 2008 2007Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Accrued compensation $153,757 $137,457Accrued expenses 21,053 76,479Accrued taxes 12,872 --Accrued royalties and commissions 2,145 89,249Accrued expenses and other current liabilities $189,827 $303,185NOTE 5 DEBTIn March 2008, Forward and its wholly-owned U.S. subsidiary, Koszegi Industries, Inc., elected not to renew their credit facility with a U.S. bank thatprovided for a committed line of credit in the maximum amount of $3.0 million, including a $1.5 million sub-limit for letters of credit. Accordingly, thiscredit facility expired March 30, 2008. There were no borrowings or letter of credit obligations outstanding at any time under this facility during the fiscalyears ended September 30, 2008 and 2007. 44 NOTE 5 DEBT (CONTINUED)In 2003, Forward’s wholly-owned Swiss subsidiary, Forward Innovations GmbH (Forward Innovations), established a credit facility with a Swissbank that provides for an uncommitted line of credit in the maximum amount of $400,000. Amounts borrowed under the facility may be structured as a termloan or loans, with a maximum repayment period of 12 months, as a letter of credit facility, or as a guarantee facility, or any combination of the foregoing. Either party may terminate the facility at any time; however, such termination would not affect the stated maturity of any term loans outstanding. Amountsborrowed other than as a term loan must be settled quarterly or converted into term loans. In connection with this facility, Forward Innovations agreed tocertain covenants. Amounts drawn under this credit facility bear interest at variable rates established by the bank (5.35% and 5.5% as September 30, 2008and 2007, respectively). At September 30, 2008, Forward Innovations is contingently liable to the bank in respect of a letter of credit issued on its behalf in theamount of €224,000 (equal to approximately $327,000 and $315,000 at currency exchange rates on September 30, 2008 and 2007, respectively) in favor ofForward Innovations’ freight forwarder and customs agent in connection with its logistics operations in The Netherlands. The effect of the issuance of theletter of credit is to reduce the availability of the credit line in an amount equal to the face amount of the letter of credit. See Note 6, “Commitments andContingencies—Guarantee Obligation”NOTE 6 COMMITMENTS AND CONTINGENCIESRoyalty CommitmentsIn May 2008, the Company entered into a non-exclusive license agreement with Motorola, Inc. (“Motorola”) that grants the Company the right todistribute certain Motorola trademarked carry solution accessory products to wholesale and retail customers in the United States, Canada, and Europe throughMarch 31, 2009, subject to renewal by mutual agreement. The license agreement is effective retroactive to January 1, 2008, following the expiration of a priorlicense agreement on December 31, 2007. The grant under the expired license was limited to the EMEA Region and pertained to traditional Motorola brandedhandsets; the grant under the new license expands the licensed territory (although limited to Europe and not the Middle East or Africa) and covers a broaderrange of cell phone handsets, including Motorola’s “IDEN®” brand.In consideration of the grant, the Company agreed to pay to Motorola a royalty based upon a percentage of actual net sales of branded accessoryproducts, subject to payment of minimum royalties (irrespective of actual net sales) in the amount of $650,000 over the initial 15-month term of theagreement. See Note 14 Subsequent Events.The Company recorded royalty expense of approximately $103,000 (which is attributable to the expired license) for the fiscal year ended September 30,2008, which represents the minimum royalties accrued in respect of such period. For the fiscal year ended September 30, 2007, the Company recorded royaltyexpense of $404,000, which represent royalties paid in respect of actual sales and in excess (and in lieu) of the minimum royalties otherwise payable toMotorola in respect of such period. The minimum royalty for the fiscal year ended September 30, 2007, was $336,000. Royalty expense amounts are includedin selling expenses in the accompanying consolidated statements of operations. 45Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. NOTE 6 COMMITMENTS AND CONTINGENCIES (CONTINUED)Guarantee ObligationIn July 2002, Forward Innovations and its European logistics provider (freight forwarding and customs agent) entered into a Representation Agreementwhereby, among other things, the European logistics provider agreed to act as such subsidiary's fiscal representative in The Netherlands for the purpose ofproviding services in connection with any value added tax matters. As part of this agreement, the subsidiary agreed to provide an undertaking to the logisticsprovider with respect to any value added tax liability arising in The Netherlands that the logistics provider paid on the subsidiary's behalf. Accordingly, inFebruary 2004 such subsidiary entered into a guarantee agreement with a Swiss bank relating to the repayment of any amount up to €224,000 (equal toapproximately $327,000 and $315,000 at currency exchange rates on September 30, 2008 and 2007, respectively) paid by such bank to the logistics providerpursuant to a letter of credit that was issued by the bank in favor of the logistics provider in order to satisfy such undertaking. The subsidiary would berequired to perform under the guarantee only in the event that: (i) a value added tax liability is imposed on the Company's sales in The Netherlands, (ii) thelogistics 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 theCompany on its behalf fails or refuses to remit the amount of value added tax due to the logistics provider, and (iv) the logistics provider makes a drawingunder the letter of credit. Commencing December 31, 2004, and on each anniversary thereafter until December 31, 2009, it is intended that the bank letter ofcredit will be renewed automatically for one-year periods. The subsidiary has agreed to keep a letter of credit guarantee in place for five years following the dateits relationship terminates with the logistics provider to satisfy any value added tax liability arising prior to expiration of the Representation Agreement butasserted by The Netherlands after expiration. As of September 30, 2008, the Company has not incurred a liability in connection with this guarantee.Employment AgreementsThe Company has entered into employment agreements with Douglas W. Sabra, its President (chief executive officer), and James O. McKenna, itschief financial officer.Under his amended and restated employment agreement, Mr. Sabra is employed as the Company’s President (Chief Executive Officer) at an annualsalary of $250,000 until December 31, 2009. The agreement provides for successive one-year renewal terms, unless either party provides written notice of itsintention not to renew the agreement not later than 90 days prior to the end of the term (or renewal period). If Forward gives such notice and no cause fortermination exists and no change of control (as defined in the agreement) has occurred, subject to certain conditions, Mr. Sabra would be entitled to receivesalary at the then prevailing rate for the greater of six months or the balance of the term as severance. In connection with his succession to the office ofPresident in January 2008, the Compensation Committee of the Company’s Board of Directors determined to grant Mr. Sabra 20,000 shares of restricted stockunder the 2007 Plan, with a grant date of January 2, 2008, vesting in equal proportions over three years from the grant date.Under his amended and restated agreement, if in circumstances that do not constitute a change of control (as this term is defined in his agreement) Mr.Sabra terminates the agreement for good reason, he is entitled to severance of six months at the prevailing salary rate (or that before reduction thereof if that isthe basis of good reason), or if his employment is terminated without cause, he is entitled to salary at his prevailing rate for the greater of six months or thebalance of the term as severance. Under his amended and restated agreement, if Mr. Sabra’s employment is terminated without cause, or if he terminates hisemployment for good reason (as defined in the Amended Agreement), in either case within one year of a change of control (as defined), he is entitled to receiveseverance equal to 12 months of salary and immediate vesting of any unvested options and restricted stock pursuant to applicable equity compensation plans. He would not be able to terminate for good reason after a change of control as long as he was one of the three most senior and highly compensated executives inthe entity that survives after a change of control.Under his agreement Mr. McKenna is employed as the Company’s Chief Financial Officer at an annual salary of $175,000 per annum until December31, 2009. The agreement provides for successive one-year renewal terms, unless either party provides written notice of its intention not to renew the agreementnot later than 90 days prior to the end of the term (or renewal period). If Forward gives such notice and no cause for termination exists and no change of control(as defined in the agreement) has occurred, subject to certain conditions, Mr. McKenna would be entitled to receive salary at the then prevailing rate for sixmonths as severance. 46 NOTE 6 COMMITMENTS AND CONTINGENCIES (CONTINUED)Employment Agreements (continued)Mr. McKenna is also entitled to six months of severance for termination without cause in circumstances other than non-renewal and termination for goodreason (as defined in the Agreement) in either case in circumstances not involving a change in control (as this term is defined in the agreement). If Mr.McKenna’s employment is terminated without cause, or if he terminates his employment for good reason, in either case within one year of a change of control,he is entitled to receive severance equal to 12 months of salary and immediate vesting of any unvested options and restricted stock (or other unvested grants)pursuant to Company equity compensation plans. He would not be entitled to terminate for good reason after a change of control if he is serving as anexecutive in the financial department of the surviving entity after a change of control. Under their agreements Mr. Sabra and Mr. McKenna are eligible to earn bonus compensation in each year of the term of their agreements based onSource: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.achieving applicable financial targets established in the first fiscal quarter during the term by the Compensation Committee. Both Mr. Sabra and Mr.McKenna are entitled to receive customary benefits including health, life and disability insurance, auto allowances and participation in the Company's 401Kretirement plan. Under their agreements, Mr. Sabra and Mr. McKenna are subject to the terms of restrictive covenants that prohibit them individually fromcompeting against the Company, soliciting its employees, or soliciting its customers, in each case for a period one year after expiration of the term or anyrenewal thereof. They are also bound not to disclose material, non-public information pertaining to the Company after expiration of the term.Other Agreements Effective October 1, 2005, the Company entered into an employment agreement with each of Jerome E. Ball and Michael M. Schiffman to securetheir services to Forward as its Chief Executive Officer/Chairman of the Board and President/Chief Operating Officer, respectively, during the terms of theirrespective agreements. These agreements expired in accordance with their terms on December 31, 2007. In connection with expiration of his agreement and retirement as Chief Executive Officer, Mr. Ball entered into an agreement under which the Companywas paying him a consulting fee of $10,000 per month and a separate fee for serving as Chairman of the Board of approximately $2,100 per month at the timeof his death in April 2008. In addition, under the terms of this agreement, his estate was entitled to payment of a death benefit of one-half the monthlyconsulting payments remaining if he died during the term. Accordingly, the Company made a payment of $100,000 to his estate on May 9, 2008. Duringthe fiscal year ended September 30, 2008 under this agreement, Mr. Ball received an aggregate of $40,000 in consulting fees (separate and apart from the deathbenefit of $100,000) and approximately $6,250 for services as Chairman of the Board. These amounts are in addition to salary and other benefits paid tohim during such fiscal year under his employment agreement and in addition to director’s fees Mr. Ball received in respect of Board meetings held in February2008. Unexercised stock options to purchase 10,000 shares of common stock granted to Mr. Ball pursuant to the 2007 Equity Incentive Plan in February2008 were subject to a vesting period of one year. On May 1, 2008, the Compensation Committee caused such shares to immediately vest in order to permithis estate to exercise the options within one year of the date of his death if the estate elects to do so.In connection with expiration of his agreement, Mr. Schiffman entered into a severance agreement with the Company under which Mr. Schiffman wasgranted a severance package consisting of $162,500 (paid in full upon execution of the agreement) and a release by the Company of potential claims. Inreturn, Mr. Schiffman released the Company from potential claims and agreed to certain modifications of the non-competition and non-solicitation covenantscontained in the employment agreement. 47 NOTE 6 COMMITMENTS AND CONTINGENCIES (CONTINUED)Lease CommitmentsThe Company rents certain of its facilities under leases expiring at various dates through May 2012. Total rent expense for the years ended September30, 2008 and 2007, amounted to approximately $313,000 and $280,000, respectively. Minimum future rental commitments under such leases are summarizedbelow:Fiscal Year Ended September 30, Amount 2009 $ 319,0002010 269,0002011 276,0002012 105,0002013 --Thereafter --Total lease commitments $969,000NOTE 7 SHAREHOLDERS’ EQUITYAnti-takeover ProvisionsThe 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 andpreferences thereof including their redemption, dividend and conversion rights.Stock RepurchaseOn September 27, 2002, the Company’s Board of Directors authorized the repurchase of up to 400,000 shares of the Company’s outstanding commonstock (approximately 7% of the number of shares then outstanding). On January 21, 2004, the Company’s Board increased the amount of shares authorizedfor repurchase to 486,200. Under these authorizations, as of September 30, 2008, the Company had repurchased an aggregate of 172,603 shares at a cost ofapproximately $0.4 million, including 70,000 shares in fiscal 2007, but none during fiscal 2008, leaving a balance of 313,597 shares (approximately 4% ofthe shares outstanding at September 30, 2008) under those authorizations. Separate and apart from these announced repurchase programs, in March 2008, theCompany in effect purchased 72,917 outstanding shares of common stock held by the Company’s former Chairman of the Board and principal executiveSource: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.officer, by accepting such shares at their fair market value on such date as consideration for his exercise of options to purchase 100,000 shares of commonstock as part of a cashless exercise. See Note 8. NOTE 8 STOCK BASED COMPENSATIONIn May 2007, shareholders of the Company approved the Forward Industries, Inc. 2007 Equity Incentive Plan (the 2007 Plan), pursuant to which up to400,000 shares of common stock can be issued to officers, employees, and non-employee directors of the Company in the form of grants of restricted commonstock and stock options to such persons. This plan was adopted by the Board of Directors in February 2007. The price at which restricted common stockmay be granted and the exercise price of stock options granted may not be less than the fair market value of the common stock at the date of grant. TheCompany’s Compensation Committee administers the plan. Options generally expire ten years after the date of grant and restricted stock grants generally vestin equal proportions over three years. As of September 30, 2008, 250,000 shares of common stock remain available for grants under the 2007 Plan. 48 NOTE 8 STOCK BASED COMPENSATION (CONTINUED)The Company’s 1996 Stock Incentive Plan (the 1996 Plan) expired in accordance with its terms in November 2006. The exercise price of incentiveoptions granted under the 1996 Plan to officers, employees, and non-employee directors of the Company were required by its provisions to be equal at least tothe fair market value of the common stock at the date of grant. Options expire ten years after the date of grant and generally vest in equal proportions over threeyears. Unexercised options granted pursuant to the 1996 Plan prior to expiration remain outstanding until the earlier of exercise or option expiration. Underthe 1996 Plan 30,000 fully vested stock options remain outstanding and unexercised, all at exercise prices higher than the fair market value of the stock atSeptember 30, 2008.Stock Option AwardsIn February 2008 and August 2007, the Compensation Committee granted stock option awards to purchase 60,000 shares of common stock and 40,000shares of common stock, respectively, in the aggregate, to the Company’s non-employee directors under the 2007 Plan. These awards are subject to a continuedservice condition and vest on the anniversary date the awards were granted. Accordingly, the Company recognized approximately $66,000 and $99,000 ofcompensation cost related to these stock option awards in its consolidated statements of operations for the fiscal years ended September 30, 3008 and 2007,respectively. The following table summarizes stock option activity under the 2007 Plan and the 1996 Plan during the fiscal years ended September 30, 2008 and2007: Shares Weighted AverageExercise Price Weighted AverageRemaining Contractual Term (Years) Aggregate Intrinsic ValueOutstanding at September 30, 2006248,750 $4.15 Granted40,000 2.85 Exercised(53,000) 1.75 Forfeited-- -- Expired(3,750) 2.00 Outstanding at September 30, 2007232,000* $4.51 Granted60,000* 2.20 Exercised(122,000)* 1.75 Forfeited**-- -- Expired(60,000)* 8.26 Outstanding at September 30, 2008110,000 $4.26 8.35 $0 Options vested and exercisable at September 30,2008 60,000 $5.98 6.66 --*Of these amounts, 30,000 stock options were outstanding, no options were granted, 122,000 options were exercised, 40,000 options expired pursuant to the1996 Plan.**Options to purchase 10,000 shares of common stock granted to a non-employee director who died in April 2008 would under normal terms of the granthave lapsed upon death. The Compensation Committee determined to waive that forfeiture provision for a period of one year from the date of death. 49Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.49 NOTE 8 STOCK BASED COMPENSATION (CONTINUED)Stock Option Awards (continued)The table below provides additional information regarding stock option awards that were outstanding and exercisable at September 30, 2008. Stock Options Outstanding and ExercisableRange of Exercise PricesOutstanding at September 30, 2008 Weighted AverageRemaining Contractual Term (Years) Weighted Average Exercise Price$2.20 to $2.8530,000 6.08 $2.63$6.0220,000 7.59 $6.02$15.9110,000 6.56 $15.91 60,000 The fair value of each stock option on the date of grant was estimated using a Black-Scholes option-pricing formula applying the followingassumptions for each respective period: For the Fiscal Years Ended September 30, 2008 2007Expected term (in years) 5.0 5.0Risk-free interest rate 3.78% 5.24%Expected volatility 80.2% 86.1%Expected dividend yield 0% 0%The expected term represents the period over which the stock option awards are expected to be outstanding. The Company based the risk-free interestrate 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’sexpected term. The volatility factor used in the Company’s assumptions is based on the historical price of its stock over the most recent period commensuratewith 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 theshare-based awards were granted. Accordingly, the Company used a dividend yield of zero in its assumptions. The Company estimates the expected term,volatility and forfeitures of share-based awards based upon historical data.Restricted Stock AwardsUnder the 2007 Plan during the fiscal years ended September 30, 2008 and 2007, the Compensation Committee approved and granted 36,500 and33,000 restricted stock awards, respectively, or 69,500 shares of restricted stock, in the aggregate, to certain key employees, one of whom also serves as adirector. Vesting of the restricted stock is generally subject to a continued service condition with one-third of the awards vesting each year on the anniversarydate the awards were granted typically commencing on the first such anniversary date. The fair value of the awards granted was equal to the market value ofthe Company’s common stock on the grant date. During the fiscal years ended September 30, 2008 and 2007, the Company recognized approximately $70,000and $67,000, respectively, of compensation cost in its consolidated statements of operations related to restricted stock awards. 50 NOTE 8 STOCK BASED COMPENSATION (CONTINUED)Restricted Stock Awards (continued)The following table summarizes restricted stock activity under the 2007 Plan during the fiscal years ended September 30, 2008 and 2007. Shares Weighted Average Grant Date Fair ValueNon-vested balance at September 30, 2006 -- --Changes during the period: Shares granted 33,000 $3.49Shares vested (11,001) $3.49Shares forfeited -- --Non-vested balance at September 30, 2007 21,999 $3.49Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Changes during the period: Shares granted 36,500 $2.37Shares vested (11,001) $3.49Shares forfeited -- --Non-vested balance at September 30, 2008 47,498 $2.65As of September 30, 2008, there was approximately $66,000 of total unrecognized compensation cost related to 47,498 shares of unvested restrictedstock awards (reflected in the table above) granted under the 2007 Equity Incentive Plan. That cost is expected to be recognized over the remainder of therequisite service (vesting) period.WarrantsAs of September 30, 2008, warrants to purchase 75,000 shares of the Company’s common stock at an exercise price of $1.75 were outstanding. Bytheir terms these warrants expire 90 days after a registration statement registering common stock (other than pursuant to employee benefit plans) is declaredeffective by the Securities and Exchange Commission. As of September 30, 2008, no such registration statement has been filed with the Securities andExchange Commission.NOTE 9 INCOME TAXESFor the fiscal years ended September 30, 2008 and 2007, the Company recorded a benefit from income taxes of approximately $156,000 and$249,000, respectively. The Company’s income tax benefit consists of the following United States and foreign components: For the Fiscal Years Ended September 30, 2008 2007U.S. Federal and State Current$ -- $ -- Deferred(110,167) (229,843) Foreign: Current-- -- Deferred(45,453) (19,537)Income tax benefit($155,620) ($249,380) 51 NOTE 9 INCOME TAXES (CONTINUED)The deferred tax benefit is the change in the deferred tax assets and liabilities representing the tax consequences of changes in the amounts of temporarydifferences, net operating loss carryforwards and changes in tax rates during the fiscal year. The Company’s deferred tax assets and liabilities are comprisedof the following: As of September 30, 2008 2007Deferred tax assets: Net operating losses$351,565 $146,737Excess tax over book basis in inventory101,759 202,950Share-based compensation20,618 45,577Allowance for doubtful accounts-- 7,156 473,942 402,420Deferred tax liabilities: Prepaid insurance(52,310) (77,102)Depreciation(12,502) (15,679) (64,812) (92,781)Net deferred tax assets$409,130 $309,639 The Company believes that it is more likely than not that the deferred tax assets will be realized through future taxable income. Accordingly, theCompany has not recorded a valuation allowance against its deferred tax assets as of September 30, 2008. The Company had cumulative net operating lossesof approximately $795,000 and $882,000 for United States and foreign income tax purposes, respectively, as of September 30, 2008.The significant elements contributing to the difference between the federal statutory tax rate and the Company’s effective tax rate are as follows: For the Fiscal Years Ended September 30, 2008 2007Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Statutory federal income tax rate34.0% 34.0% State taxes, net of federal benefit1.8% 1.8%Non-deductible items(1.1%) (1.1%)Foreign tax rate differential(21.5%) (7.9%)Other1.8% 4.3%Effective tax rate15.0% 31.1% Effective June 2001, undistributed earnings of the Company’s Swiss subsidiary are considered to be permanently invested; therefore, in accordancewith SFAS No. 109, no provision for U.S. Federal and state income taxes on those earnings has been provided. At September 30, 2008 and 2007, theCompany’s Swiss subsidiary had approximately $4,303,000 and $4,774,000 of accumulated undistributed earnings, respectively. NOTE 10 LOSS PER SHAREBasic per share data for each period presented is computed using the weighted-average number of shares of common stock outstanding during eachperiod. Diluted per share data is computed using the weighted-average number of common and dilutive common-equivalent shares outstanding during eachperiod. Dilutive common-equivalent shares consist of shares that would be issued upon the exercise of stock options and warrants, computed using thetreasury stock method. Loss per share data for the fiscal years ended September 30, 2008 and 2007, excludes all outstanding common equivalent shares asinclusion of such shares would be anti-dilutive. 52 NOTE 10 LOSS PER SHARE (CONTINUED)In accordance with the contingently issuable shares provision of SFAS 128, 47,498 and 21,999 shares of service-based common stock awards(“restricted stock”) were excluded from the calculation of diluted loss per share for the fiscal year ended September 30, 2008 and 2007, respectively.NOTE 11 401(K) PLANThe Company maintains a 401(k) benefit plan allowing eligible U.S.-based employees to contribute a portion of their salary in an amount up to theannual maximum amounts as set periodically by the Internal Revenue Service. In accordance with the Safe Harbor provisions, the Company has elected tomatch 100% on the first 4% of eligible contributions by its employees. The Company's matching contributions were approximately $48,000 and $75,000 forthe years ended September 30, 2008 and 2007, respectively, and are reflected in the accompanying consolidated statements of operations. The Company'scontributions vest immediately.NOTE 12 LEGAL PROCEDINGSFrom time to time, the Company may become a party to legal actions or proceedings in the ordinary course of its business. As of September 30, 2008,there were no such actions or proceedings, either individually or in the aggregate, that, if decided adversely to the Company’s interests, the Company believeswould be material to its business.NOTE 13 OPERATING SEGMENT INFORMATIONThe Company operates in a single segment: the supply of carrying solutions for portable electronic devices. This carrying-solution segment includes thedesign, marketing, and distribution of products to its customers that include manufacturers of consumer hand held wireless telecommunications and medicalmonitoring devices. The Company’s carrying solution segment operates in geographic regions that include primarily the APAC, the Americas, and Europe.Geographic regions are defined based primarily on the location of the customer.Revenues from External CustomersThe following table presents net sales related to these geographic segments. (dollars in thousands) Year Ended September 30, 2008 2007APAC $10,026 $10,945Americas6,080 6,690Europe*3,868 4,516Total net sales$19,974 $22,151*In the fiscal year ended September 30, 2007, net sales in Europe also included EMEA sales, Europe, Middle East, and Africa.Long-Lived Assets (Net of Accumulated Depreciation and Amortization)Identifiable long-lived assets, consisting entirely of property, plant and equipment, by geographic region are as follows:Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (dollars in thousands) Year Ended September 30, 2008 2007APAC $25 $39Americas94 110Europe6 12Total long-lived assets (net)$125 $161 53 NOTE 13 OPERATING SEGMENT INFORMATION (CONTINUED)Supplier ConcentrationThe Company procures all of its supply of carrying solutions products from independent suppliers, each of which is a Chinese business entity locatedin China. Depending on the product, the Company may require several different suppliers to furnish component parts or pieces. The Company purchasedapproximately 95% and 69% of its products from seven such suppliers in the fiscal years ended September 30, 2008 and 2007, respectively. One supplieraccounted for approximately 43% and 20% of the Company’s product purchases in the fiscal years ended September 30, 2008 and 2007, respectively. Major CustomersThe following customers or their affiliates accounted for more than ten percent of the Company’s net sales, by geographic region: Fiscal Year Ended September 30, 2008 Americas EMEA APAC TotalCompanyLifescan, Inc5% 2% 88% 46%Abbott Laboratories40% 35% 2% 20%Roche Diagnostics-- 47% -- 9%Intermec Corporation12% -- 5% 6% Fiscal Year Ended September 30, 2007 Americas EMEA APAC TotalCompanyLifescan, Inc--% --% 64% 32%Motorola Inc. *29% 19% 30% 27%Abbott Laboratories27% 22% 1% 13% * Motorola percentages do not include the sale of licensed Motorola products made by the Company to third parties under its license agreement withMotorola. Other than the customers presented in the table above, no other single customer comprised more than 10% of the Company’s net sales.Two customers accounted for approximately 74% and 75% of the Company’s accounts receivable at September 30, 2008 and September 30, 2007,respectively.NOTE 14 SUBSEQUENT EVENTSAs of September 30, 3008, the Company and Motorola were in negotiations to amend the license agreement with respect to royalty provisions. InDecember 2008 the Company and Motorola reached an agreement under which Motorola waives payment of all minimum royalties due under the license andreduces the royalty rate in respect of the term that expires March 31, 2009. Both parties expect to memorialize this agreement by amending the licenseagreement in the very near term. Minimum royalties under the license amounted to $650,000, of which the Company had accrued approximately $271,000 asof September 30, 2008. However, as a result of the agreement reached in December 2008, the Company reduced this payable to zero with a correspondingadjustment to its selling expenses on its statement of operations for fiscal year ended September 30, 2008. 54 NOTE 14 SUBSEQUENT EVENTS (CONTINUED)As of September 30, 2008, the Company and Motorola were also in negotiations regarding the Company’s claim that Motorola was obligated to theCompany for certain inventory that the Company manufactured to order and in some cases stored at Motorola’s hubs. As of September 30, 2008, theCompany had fully reserved for this inventory and disposed of it with Motorola’s consent. In December 2008 the Company and Motorola reached a settlementSource: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.of these issues under which Motorola has agreed to pay us $250,000 in respect of the inventory. Both parties expect to memorialize and perform this agreementin the very near term. Accordingly, the Company has recorded a receivable for the settlement amount on its balance sheet as of September 30, 2008, areduction to its obsolete inventory expense in its consolidated statements of operations as of September 30, 2008, and corresponding adjustments in itsStatement of Cash Flows for the fiscal year ended September 30, 2008. 55 SIGNATURESPursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by theundersigned, hereunto duly authorized.Dated: December 15, 2008 FORWARD INDUSTRIES, INC. (Registrant) By: /s/ Douglas W. Sabra Douglas W. Sabra President and Acting Chairman (Principal Executive Officer) By: /s/James O. McKenna James O. McKenna Vice President, Chief Financial Officer and (Principal Financial and Accounting Officer) In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and inthe capacities and on the dates indicated: December 15, 2008/s/Douglas W. Sabra Douglas W. Sabra Chief Executive Officer and Acting Chairman of the Board (Principal Executive Officer)December 15, 2008/s/James O. McKenna James O. McKenna Chief Financial Officer and Vice President (Principal Financial Officer andSource: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Principal Accounting Officer)December 15, 2008/s/John Chiste John Chiste DirectorDecember 15, 2008/s/Bruce Galloway Bruce Galloway DirectorDecember 15, 2008/s/Fred Hamilton Fred Hamilton DirectorDecember 15, 2008/s/Louis Lipschitz Louis Lipschitz DirectorDecember 15, 2008/s/Michael Schiffman Michael Schiffman Director 56 Exhibit Index3.ARTICLES OF INCORPORATION AND BY-LAWS 3(i).1Certificate of Incorporation of the Company as amended (incorporated by reference to Exhibit 2(a) to the Form 10-SB) 3(i).2Certificate of Amendment of Certificate of Incorporation filed by the New York Department of State on August 22, 1997 (incorporated byreference to the Company's Annual Report on Form 10-KSB for the period ended September 30, 1997) 3(ii).1By-Laws (incorporated by reference to Exhibit 2(b) to the Form 10-SB) (now superseded by the Amended and Restated By-Laws) 3(ii).2Amendment to By-Laws (Article I, Section 2) (incorporated by reference to Exhibit 3(c) to the Company's Registration Statement on FormSB-2 filed November 13, 1995 (Reg. No. 33-99338) (the "1995 SB-2 Registration Statement") (now superseded by the Amended andRestated By-Laws) 3(ii).3Amended and Restated By-Laws of Forward Industries, Inc., as of February 13, 2008 10.MATERIAL CONTRACTS 10.1License Agreement, effective as of October 1, 2004, between Motorola, Inc. and the Company (incorporated by reference to Exhibit 10.1 to theCompany’s Current Report on Form 8-K, filed October 18, 2004. 10.21996 Stock Incentive Plan of Forward Industries, Inc. (incorporated by reference to Exhibit 4 to the Registration Statement on Form S-8 ofthe Company, as filed on April 25, 2003). 10.3Amendment One to Employment Agreement effective as of July 12, 2005 between the Company and Douglas W. Sabra (incorporated byreference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 12, 2005). 10.4 Employment Agreement effective as of October 1, 2005 between the Company and Jerome E. Ball (incorporated by reference to Exhibit 10.1 tothe Company’s Current Report on Form 8-K filed on December 28, 2005). 10.5Employment Agreement effective as of October 1, 2005 between the Company and Michael M. Schiffman (incorporated by reference toExhibit 10.2 to the Company’s Current Report on Form 8-K filed on December 28, 2005). 10.6Employment Agreement effective as of October 1, 2005 between the Company and Douglas W. Sabra (incorporated by reference to Exhibit10.3 to the Company’s Current Report on Form 8-K filed on December 28, 2005). 10.7Forward Industries, Inc. 2007 Equity Incentive Plan (incorporated by reference to Exhibit 4.2 to the Registration Statement on Form S-8 of theCompany, as filed on July 10, 2007).Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 10.8Consulting Agreement, dated August 15, 2007, between Jerome E. Ball and Forward Industries, Inc. (incorporated by reference to Exhibit99.2 to the Current Report on Form 8-K of the Company as filed on August 16, 2007). 10.9Amendment to Employment Agreement, dated as of January 1, 2008, between the Company and Douglas W. Sabra (incorporated by referenceto Exhibit 10.9 to the Current Report on Form 8-K of the Company as filed on February 13, 2008) 57 10.10Severance and Release Agreement, dated as of December 31, 2007, between the Company and Michael M. Schiffman (incorporated byreference to Exhibit 10.10 to the Current Report on Form 8-K of the Company as filed on February 13, 2008). 10.11License Agreement, dated as of May 22, 2008, between Motorola, Inc. and Forward Industries, Inc. 10.12Amended and Restated Employment Agreement, dated as of August 12, 2008, between the Company and Douglas W. Sabra 10.13Employment Agreement, dated as of August 12, 2008, between the Company and James O. McKenna21.SUBSIDIARIES OF THE REGISTRANT 21.1List of Subsidiaries of Forward Industries, Inc.23.CONSENT OF INDEPENDENT REGISTERED ACCOUNTING FIRM 23.1Consent of Kaufman, Rossin & Co., P.A. relating to 1996 Stock Incentive Plan31.CERTIFICATIONS PURSUANT TO RULE 13a-14(a) (Section 302 of Sarbanes-Oxley) 31.1Certification of Douglas W. Sabra 31.2Certification of James O. McKenna32.CERTIFICATIONS PURSUANT TO RULE 13a-14(b) (Section 906 of Sarbanes-Oxley) 32.1Certifications of Douglas W. Sabra and James O. McKenna 58 Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. LICENSE AGREEMENT BETWEENMOTOROLA, INC.ANDFORWARD INDUSTRIES, INC. Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. TABLE OF CONTENTS 1. DEFINITIONS2. GRANT OF LICENSE3. SAMPLES; QUALITY CONTROL4774. APPROVED MANUFACTURERS95. APPEARANCE OF TRADEMARKS TRADEMARK NOTICES106. PROTECTION OF TRADEMARKS7. PRODUCT WARRANTY AND SUPPORT8. ROYALTIES AND REPORTS9. SALES AND MARKETING10. TERM AND TERMINATION111213151611. POST TERMINATION RIGHTS AND OBLIGATIONS12. CONFIDENTIALITY AND INTELLECTUAL PROPERTY13. EXPORT14. REPRESENTATIONS AND WARRANTIES15. INDEMNITY AND INSURANCE182022222316. DISPUTE RESOLUTION2417. FORCE MAJEURE18. LIMITATION OF LIABILITY252619. COMPLIANCE WITH LAWS 2620. INTELLECTUAL PROPERTY2621. PRESS RELEASES2722. ETHICS AND CONFLICTS OF INTEREST23. NOTICES272724. ASSIGNMENT OF RIGHTS AND SUBLICENSE 2825. FREEDOM OF ACTION29 Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 26. APPROVALS2927. WAIVER OF DEFAULT OR OTHER RIGHTS2928. SEVERABILITY2929. SECTION HEADINGS2930. EXHIBITS2931. SURVIVAL3032. TIME IS OF THE ESSENCE3033. RIGHTS CUMULATIVE3034. ENTIRE AGREEMENT3035. GOVERNING LAW 30EXHIBITSA, Products, Territory, Rates and TermB. TrademarksC. Trademark Use GuidelinesD. SpecificationsE. Sample Manufacturer’s AgreementF. Product WarrantyG. Licensor Exclusive AccountsH. Compliance with Laws and Ethical Standards Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. LICENSE AGREEMENT THIS AGREEMENT is made between: (1) MOTOROLA, INC., a Delaware corporation, having its principal office at 1303 East Algonquin Road, Schaumburg, Illinois60196, USA (including its subsidiaries and affiliates, “Motorola” or “Licensor”); and (2) FORWARD INDUSTRIES, INC., a New York corporation, having its principal office at 1801 Green Road, Pompano Beach,Florida 33064, (“Licensee”). with reference to the following recitals: ,A. Motorola is the owner of certain Trademarks, including MOTOROLA and the Stylized M logo. The Trademarks constitutevaluable rights owned and used by Motorola in conducting its business and designating the origin or sponsorship of distinctive brandedproducts by Motorola; B. Motorola wishes to license certain Trademarks for use in connection with accessories for cellular telephones; C. Licensee wishes to use the Trademarks upon and in connection with the manufacture, sale, marketing, and distribution of certainaccessories for cellular telephones; D. Motorola desires to protect the integrity of its Trademarks and to preserve its right to label its products with its Trademarks so asto avoid consumer confusion and to distinguish its products from those of its competitors; E. Motorola and Licensee are parties to a license agreement entered into as of October 1, 2004, that expired by its terms December31, 2007 (the “Prior Agreement”); and F. Licensee and Motorola agree that certain restrictions on Licensee’s use of the Trademarks are necessary to ensure that theTrademarks are not diluted or subjected to disrepute in the course of Licensee’s use of the Trademarks, that Motorola’s reputation is notsubjected to disrepute, and that Motorola’s rights in the Trademarks and ownership of the Trademarks are preserved. NOW, THEREFORE, in consideration of the mutual promises of this Agreement, the parties agree as follows: 1. DEFINITIONS 1.1 In this Agreement: Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. “Affiliates” means affiliated, associated or subsidiary companies of Motorola or Licensee (as applicable) or persons or other entities witha common ownership, common management, or interest in or interlocking directorate with, Licensee or Motorola. “Approved Sample” means Product or Product Materials which have been delivered to and approved in writing by Motorola’sRepresentative as provided in Section 3 of this Agreement. “Approved Manufacturer” means a contract manufacturer or supplier to Licensee of the Product or Product Materials that has beenapproved by Motorola and that has executed a Manufacturer’s Agreement incorporating all of the terms of the Manufacturer’sAgreement set forth in Exhibit E. “Business Day” means a day that is not a Saturday or Sunday or a legal holiday and on which banks are not required or permitted by lawor other governmental action to close in Illinois or Florida. “Days” means calendar days. “Derivative Works” means any computer program, work, industrial design, ornamental design, product, service, improvement,supplement, modification, alteration, addition, revision, enhancement, new version, new edition, remake, sequel, translation, adaptation,design, plot, theme, character, story line, concept, scene, audio-visual display, interface element or aspect, in any medium, format, useor form whatsoever, whether interactive or linear and whether now known or unknown (including but not limited to sound recordings,phonorecords, computer-assisted media, games, books, magazines, periodicals, merchandise, animation, home videos, radio, motionpictures, cable and television), that is derived directly or indirectly, from any Motorola Intellectual Property, or any part or aspect of anythereof, or that uses or incorporates any of the Motorola Intellectual Property, or any part or aspect of any thereof. “Effective Date” means January 1, 2008. “Gross Sales” means the total amount billed by Licensee for Products sold to its customers, other than Motorola, its subsidiaries and itsaffiliates. “Intellectual Property Rights” means any and all (by whatever name or term known or designated) tangible and intangible and nowknown or hereafter existing: (i) rights associated with works of authorship throughout the universe, including but not limited tocopyrights (including without limitation the sole and exclusive right to prepare Derivative Works of copyrighted works and to copy,manufacture, reproduce, lend, distribute copies of, modify, publicly perform and publicly display the copyrighted work and allderivative works thereof), moral rights (including without limitation any right to identification of authorship and any limitation onsubsequent modification) and mask-works; (ii) rights in and relating to the protection of trademarks, service marks, trade names,goodwill, rights in packaging, rights of publicity, merchandising rights, advertising rights and similar rights; (iii) rights in and relating tothe protection of trade secrets and confidential information; (iv) patents, designs, algorithms and other industrial property rights andrights associated therewith; (v) other intellectual and industrial property and proprietary rights (of every kind and nature throughout theuniverse and however designated) relating to intangible property that are analogous to any of the foregoing rights (including withoutlimitation logos, character rights, “rental” rights and rights to remuneration), whether arising by operation of law, contract, license orotherwise; (vi) registrations, applications, renewals, extensions, continuations, divisions or reissues thereof now or hereafter in forcethroughout the universe (including without limitation rights in any of the foregoing); and (vii) rights in and relating to the sole andexclusive possession, ownership and use of any of the foregoing throughout the universe, including without limitation the right tolicense and sublicense, franchise, assign, pledge, mortgage, sell, transfer, convey, grant, gift over, divide, partition and use (or not use)in any way any of the foregoing now or hereafter (including without limitation any claims and causes of action of any kind with respectto, and any other rights relating to the enforcement of, any of the foregoing). Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. “Laws” mean any and all applicable published laws, rules, regulations, including, but not limited to, local and national laws, rules andregulations, treaties, ministerial guidance or guidelines, generally accepted voluntary industry standards, association laws, codes, etc.pertaining to any activities of Motorola or any third party engaged by Motorola in connection with the performance of the obligationsarising under this Agreement. “Manufacturer’s Agreement” means an agreement among Motorola, Licensee and a manufacturer or supplier of the Product orProduct Materials incorporating all of the terms of the Manufacturer’s Agreement set forth in Exhibit E. “Net Sales” means Gross Sales, less refunds, credits and allowances actually allowed to customers for returned Products. “Product” or “Products” means specific products or product categories as established in Exhibit A for which the Licensee is authorizedunder this Agreement and which have been approved by Motorola as provided in this Agreement and which bear the Trademarks. “Product Materials” means to the extent required by this Agreement, warranty statement, user guide, packaging and marketingmaterials, including but not limited to point-of-sale materials, publicity, advertising, signs, catalogs, product brochures and other in-boxmaterials relating to the Products. “Promptly” means a reasonable effort to perform within 10-15 business days. “Sales Year” or “Sales Years” means a period of time that is twelve months or less in time, as defined in Exhibit A, during whichsales of Products are measured. “Specifications” means the Cosmetic Specifications and Materials and Methods Specifications attached hereto as Exhibit D. “Territory” means the authorized counties referred to in Exhibit A subject to the restrictions in Section 13. “Trademarks” means one or more of the trademarks, trade names, logos, trade dress, and service marks referred to in Exhibit B. Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. “Trademark Use Guidelines” shall be those Motorola guidelines for use of the Trademarks, as provided in Exhibit C. 2. GRANT OF LICENSE 2.1 Motorola grants to Licensee, subject to the terms and conditions of this Agreement, the non-exclusive right to use the Trademarks upon the Productsand in connection with the manufacture, sale, marketing and distribution of the Products in the Territory. 2.2 Licensee may manufacture Products or have Products manufactured for it anywhere in the world subject to the terms of this Agreement includingthe restrictions and obligations of Sections 3, 13 and 19 of this Agreement. 2.3 Licensee is further authorized to use in the Territory the Trademarks in Product Materials directly related to Productsincluding in publicity, advertising, signs, catalogs, product brochures, packaging, point-of-sale materials and other forms of advertising,subject to the terms and conditions of this Agreement. 3. SAMPLES; QUALITY CONTROL 3.1 Motorola shall provide Licensee with artistic renderings of the Trademarks and with Trademark Use Guidelines identified inExhibit C. Licensee shall use the Trademarks only as provided in the artistic renderings provided by Motorola and shall comply with theTrademark Use Guidelines provided by Motorola. 3.2 Motorola will attend a quarterly meeting with Licensee to provide information and strategize regarding the future planned launchof Motorola mobile phones and accessories for which Licensee might plan to make compatible Products. 3.3 Samples. Licensee shall produce and submit to Motorola samples of any Product(s) it proposes to market or sell under thisAgreement. Motorola agrees to Promptly review the sample(s) and notify Licensee of its decision in writing to designate the sample(s)as approved or not approved. Motorola may approve or disapprove any sample in its sole discretion. 3.4 Technical Specifications. All products must comply with the Materials and Methods and Cosmetic Specifications(“Specifications”) attached hereto as Exhibit D. 3.5 Final Production Samples. Licensee must also obtain Motorola’s written approval of final production samples of each Product andall Product Materials, prior to the sale, publication, distribution or use of such Product and/or Product Materials. Licensee shall furnish,at no cost to Motorola, three final production samples of each Product and corresponding Product Materials to Motorola’s Representativewho may retain such final samples at Motorola’s discretion. Licensee acknowledges that Motorola may perform SAR tests on theproduction samples and that no production sample will be approved unless it passes SAR testing. Motorola agrees to Promptly aftersubmission of Product samples notify Licensee in writing if it approves of such final production samples of each Product and finalproduction samples of Product Materials. If such Product and/or Product Materials are not approved, Motorola will in such notice adviseLicensee of the reasons, including corrections required by Motorola. Licensee shall make all such corrections at its expense, orwithdraw the proposed Product and/or Product Materials from consideration. Any review and/or approval by Motorola shall not relieveLicensee from its obligations provided in this Agreement. Sections 3.2 and 3.4 shall not apply to Products sold in the Territory pursuantto the Prior Agreement and which have not been modified by Licensee or at Motorola’s direction subsequent to their final approval forproduction and sale under that license. Licensee shall not manufacture any Product until it has received written approval from Motorola. Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 3.6 Licensee agrees that, once approved, it will not make any changes to an approved Product or Product Materials without seekingnew approval from Motorola. Individual Approved Products may not be bundled together without separate approval of the bundle and itsProduct Materials. . Each Product and the Product Materials shall at all times: (i) conform to the terms of this Agreement; (ii) conformto the Trademark Use Guidelines and the Specifications and (iii) be the same in appearance, form, fit, function, quality and regulatorycompliance to the Approved Sample of the Product or Product Materials. If at any time the Product and/or Product Materials fail tomeet these requirements, Licensee shall Promptly, but in no event later than thirty (30) days of becoming aware of such failure, makeall changes necessary to bring such Product and/or Product Materials into conformance, or cease using the Trademarks on anonconforming Product and/or Product Materials, or cease selling the Product. In addition, Licensee may be required by Motorola withinten (10) business days after becoming aware of such nonconformance, take steps to withdraw any nonconforming Products and/orProduct Materials from the market if reasonably determined by Motorola to be a nonconformance creating significant safety, quality,customer satisfaction or negative brand impact issues. 3.7 If requested by Motorola due to reasonable concerns over nonconformance with the Approved Samples, Licensee shall, at itsown expense, submit to Motorola’s Representative the results of inspections and tests that have been performed by an independenttesting laboratory approved by Motorola on randomly selected samples of each Product to show conformance. In addition, Motorola mayrequire Licensee, at Licensee’s own expense, to perform tests at an independent laboratory approved by Motorola to show conformanceof the Product with the Approved Samples. At its sole discretion, Motorola may purchase the Product, at its own expense, from retailoutlets or from distributors and review the Product and Product Materials to ensure that they conform in appearance, form, fit, function,quality and regulatory compliance to the Approved Samples, the Specifications and the Trademark Use Guidelines. 3.8 Upon five (5) business days’ notice to Licensee, Motorola shall have the right to conduct or have conducted, during regularbusiness hours, an examination of Products manufactured by or for Licensee (including those assembled or tested) at Licensee’s facilitiesto determine compliance of such Products with the Approved Sample(s) and the Trademark Use Guidelines and the Specifications. Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 3.9 Costs. Motorola and Licensee shall each bear their own costs, including, but not limited to, reasonable and necessary travel and inspection servicesassociated with the inspection and testing of Products for conformance with the requirements of this Section 3 , except that Licensee alone shall bear any costsassociated with the inspection and testing of Products that are conducted by an independent testing laboratory as referenced in Section 3.7 and shall bear thecost of the samples referenced in this Agreement. 4. APPROVED MANUFACTURERS 4.1 Licensee must obtain Motorola’s written consent prior to using any third party to manufacture or to supply Licensee with anyProduct. Licensee shall forward to Motorola a written list of proposed manufacturers or suppliers and the Products that each is tomanufacture or supply and the location(s) where such Products shall be manufactured. Motorola may request any additional business orcredit information regarding the proposed manufacturer or supplier it deems necessary to make a determination. Motorola agrees toPromptly review the list and to notify Licensee of its decision, and, if not approved, to advise Licensee, in writing stating the reasonswhy such manufacturer or supplier is not acceptable. A manufacturer or supplier who is so approved is an Approved Manufacturer foronly that Product for which it is approved and only after executing a Manufacturer’s Agreement. 4.2 Prior to manufacturing any Product or using any manufacturer to manufacture any Product, Licensee shall have the proposedmanufacturer execute a Manufacturer’s Agreement that has terms that are legally enforceable in the jurisdiction in which the Products are manufactured or supplied and includes at least the same terms and conditions as those set out in the Manufacturer’s Agreement inExhibit E. Licensee may include additional terms in the Manufacturer’s Agreement provided they do not result, in the opinion ofMotorola, in a reduction in the protections and remedies available to Motorola under the terms in Exhibit E. A copy of the executedManufacturer’s Agreement shall be delivered to Motorola before the Licensee or any Approved Manufacturer may commence themanufacture or supply of any Product. 4.3 Should either party become aware of any applicable published laws or regulations in any jurisdiction in the Territory that areinconsistent with the provisions and intent of the Manufacturer’s Agreement, it shall notify the other party within five (5) days ofbecoming aware of such inconsistency. 4.4 If Motorola determines that an Approved Manufacturer has breached any Manufacturer’s Agreement in any material respect, Motorola shall advise theLicensee of the breach in reasonable detail and, instruct Licensee to enforce the Manufacturer’s Agreement against the breaching Approved Manufacturer. IfLicensee determines that an Approved Manufacturer has breached any Manufacturer’s Agreement in any material respect, Licensee shall immediately givenotice to Motorola of such breach. In either case Licensee will use commercially reasonable efforts to enforce the Manufacturer’s Agreement against thebreaching Approved Manufacturer by obtaining a cure of the breach or terminating the Manufacturer’s Agreement within thirty (30) days. If the Licensee or theApproved Manufacturer fails within this thirty (30) day period to (i) cure such breach to the satisfaction of Motorola or (ii) to suspend the manufacture ofProducts under the Manufacturer’s Agreement pending cure of such breach to the satisfaction of Motorola, all rights to manufacture Product under thisAgreement are immediately terminated and that Approved Manufacturer shall immediately be terminated as an Approved Manufacturer. Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 4.5 Licensee acknowledges that any failure by Licensee to enforce or terminate any Manufacturer’s Agreement against a breaching Approved Manufacturerin accordance with this Article 4 is a material breach of this Agreement, and that such failure will cause irreparable harm and damages to Motorola. 4.6 If Licensee fails or refuses to immediately comply with or enforce the Manufacturer’s Agreement against the breaching Approved Manufacturer inaccordance with Section 4.4, Motorola shall have the right commencing three business days after written notice to Licensee to enforce the provisions of theManufacturer’s Agreement against the Licensee or the breaching Approved Manufacturer. In such cases, the cost of enforcing the Manufacturer’s Agreement,including but not limited to attorneys fees, shall be paid by Licensee, whether the Manufacturer’s Agreement is enforced by Motorola or Licensee. Licenseeagrees to cooperate fully with Motorola, at Licensee’s own expense, in all actions to enforce a Manufacturing Agreement. 4.7 Upon seven (7) business days’ notice to the Approved Manufacturer, Motorola shall have the right to inspect or have inspected, at Motorola’s expense,the manufacturing facilities of the Approved Manufacturer during regular business hours to determine compliance with the terms of the Manufacturer’sAgreement and compliance of the Products and the Product Materials with the Approved Samples, the Specifications and the Trademark Use Guidelines. If atany time the Products and/or Product Materials fail to conform to the Trademark Use Guidelines, or the Specifications or are not the same in appearance,form, fit, function, quality and regulatory compliance to the Approved Sample(s), Motorola or its authorized representative shall so notify Licensee. Uponsuch notification, Licensee shall Promptly, but in no event later than thirty (30) business days, work with the Approved Manufacturer to make all changesnecessary to bring such Products and/or Product Materials into conformance, or cease using the Trademarks on such nonconforming Products and/or ProductMaterials, or cease selling such Products. In addition, Licensee may be required by Motorola within ten (10) business days after becoming aware of suchnonconformance, take steps to withdraw any nonconforming Products and/or Product Materials from the market if reasonably determined by Motorola to be anonconformance creating significant safety, quality, customer satisfaction or negative brand impact issues. 5. APPEARANCE OF TRADEMARKS; TRADEMARK NOTICES 5.1 All products and Product materials shall comply with the Trademark use Guidelines. Motorola may change the Trademarks Use Guidelinesregarding the style, appearance and manner of use of the Trademarks as necessary, in its sole discretion. If Motorola requires Licensee to implement suchchanges, it shall give written notice to Licensee of any such change(s). Licensee shall Promptly implement the revised Trademarks Use Guidelines on arunning change basis, but in no event later than one hundred twenty (120) business days of Licensee’s receipt of Motorola’s notification of any change in theTrademarks Use Guidelines. Licensee shall be permitted in accordance with the terms of this Agreement, to sell, in the ordinary course of business, Productinventory that exists at the time of receipt of such notice. Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 5.2 Motorola may require, where practicable, that the following notices, all or in part, be used on the Products and/or ProductMaterials to identify the licensed use under the Agreement and the proprietary rights of Motorola: Motorola TM attribution statement for Licensee packaging: Manufactured, distributed or sold by "FORWARD INDUSTRIES, INC.", official licensee for this product. Motorola, the Stylized MLogo, and other Motorola trademarks and trade dress are owned by Motorola, Inc. and are used under license from Motorola, Inc. MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office. All other product or service names are theproperty of their respective owners. © Motorola, Inc. 200X. (with X being the date of publication). All rights reserved. Please contact customer service at 800-872-3935 for questions/comments, warranty, support or service related to this product. Motorola TM attribution statement for Licensee Collateral: Motorola, the Stylized M Logo, and other Motorola trademarks and trade dress are owned by Motorola, Inc. and are used under licensefrom Motorola, Inc. MOTOROLA and the Stylized M Logo are registered in the U.S. Patent & Trademark Office. All otherproducts or service names are the property of their respective owners. © Motorola, Inc. 200X. (with X being the date of publication) Allrights reserved. 5.3 Motorola may require through written notice and a reasonable time for implementation that Licensee adopt and use different Trademarks and/orProduct Materials specifications for different countries in the Territory, and Licensee agrees to be bound by such requirements of Motorola. 6. PROTECTION OF TRADEMARKS 6.1 Licensee acknowledges that Motorola is the exclusive owner of the Trademarks and any trademark incorporating all or any part of the Trademarks.Without limiting the foregoing, Licensee hereby assigns to Motorola all right, title and interest in the Trademarks, together with the goodwill attaching theretothat may inure to Licensee in connection with this Agreement or from its use of the Trademarks hereunder. Licensee agrees to execute and deliver suchdocuments as necessary for Motorola to register Licensee as registered user or permitted user in any country, or to withdraw Licensee as a registered user orpermitted user, of the Trademarks. All use of the Trademarks by Licensee shall inure to the sole benefit of Motorola. Licensee shall cooperate and shallexecute all papers reasonably requested by Motorola to affect further registration, maintenance and renewal of the Trademarks at the sole expense of Motorola. 6.2 Licensee will not encourage or assist a third party to register, or attempt in any country to register the copyright, or to register as atrademark, service mark, design patent or industrial design, any portion of the Motorola Intellectual Property Rights or derivations oradaptations thereof, or any work, symbol or design that is so similar thereto as to suggest association with or sponsorship by Motorola. Inthe event of any breach of the foregoing, Licensee agrees to terminate the unauthorized registration activity and to execute and deliver,or cause to be delivered, to Motorola such assignments and other documents as Motorola may require to transfer to Motorola all rights tothe registrations, patents or applications involved. Licensee will not, nor will it encourage or assist a third party to, challenge the validityor ownership of any patent, copyright, trademark, or other Intellectual Property Rights or registrations of Motorola. Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 6.3 If Licensee learns of any infringement of the Trademarks or of the existence, use or promotion of any mark or design similar to the Trademarks,Licensee shall Promptly notify Motorola. Motorola shall have the sole right and discretion to decide what legal proceedings or other action, if any, shall betaken, by whom, how such proceedings or other action shall be conducted. Any legal proceedings instituted pursuant to this Section 6.3 shall be for the solebenefit of Motorola. Licensee shall, at the request of Motorola, cooperate and assist Motorola in any such suit or action, provided that Motorola will reimburseLicensee for all documented reasonable costs, including attorneys’ fees. 6.4 In the performance of this Agreement, Licensee shall comply with applicable laws and regulations, and those laws and regulations particularlypertaining to the proper use and designation of trademarks in the countries of the Territory. Should Licensee be or become aware of any applicable laws orregulations that are inconsistent with the provisions of this Agreement, Licensee shall Promptly notify Motorola of such inconsistency. The parties then, shallin good faith, negotiate a modification to this Agreement such that it complies with applicable law and regulations or Motorola may terminate the license andrights granted hereunder in that jurisdiction, and the Territory set forth in Exhibit B shall be appropriately amended. 7. PRODUCT WARRANTY AND SUPPORT 7.1 Licensee shall provide a warranty and support service plan for the Products. Licensee must obtain Motorola’s written approval of the warranty andsupport service plan prior to the manufacture of any Product for each country in the Territory. Such warranty shall, at a minimum, provide a one-yearwarranty period and comply with the requirements set forth in Exhibit F, unless otherwise approved in writing by Motorola. Motorola agrees to Promptlynotify Licensee if it approves the warranty and support plan or, if not approved, Motorola will advise the Licensee of corrections required by Motorola for thewarranty and support service to be approved. Once the warranty and support service plan is approved, Licensee may use it with all Products. However, ifLicensee makes any modifications to the warranty and support service plan, it must re-submit the plan to Motorola for a new approval. Any approval byMotorola shall not relieve Licensee from its obligations set forth in this Agreement, including but not limited to complying with local laws on warranties in theTerritories where the Products are sold. 7.2 Licensee will be fully responsible for all end user support service and warranty costs, including but not limited to the following (if applicable):transportation costs, Product replacements, service labor, field repair, refunds, returns, and other customer concessions to ensure each customer’s satisfactionfor the duration of the applicable warranty period. Motorola may require Licensee to halt sales or to recall Product in whole or in part or to take other correctiveactions where Motorola reasonably determines customer satisfaction, quality, safety, returns or compliance problem(s) exist. Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 7.3 All Product packaging shall include a conspicuous use of the telephone number and address for Licensee’s customer service department or customerservice representative so that any questions regarding support service for the Products including warranty can be directed by the consumer or by Motorola toLicensee. At its sole discretion and when feasible, Motorola may also require the Licensee to affix a sticker on each Product indicating the telephone number ofLicensee’s customer service department. Licensee shall provide the telephone number and address for customer service to Motorola for each Product before theinitial sale of such Product. If Motorola determines that the number of questions regarding any Product that are directed by the consumer to Motorola exceed1% of the number of such Products sold, Motorola and the Licensee shall mutually agree on a corrective action. If a reasonable corrective action cannot beagreed to, Motorola may require Licensee to withdraw such Product from the market or require Licensee to pay Motorola for future costs incurred related tosuch questions. 7.4 Throughout the period during which the warranty for any Product is in effect, Licensee shall provide a well-manned toll-free (where available)telephone service number for receipt of service calls for the Products. At a minimum, such telephone service number shall operate manned with live personnelduring regular business hours for all time zones in which the Products are sold. At all other times, such telephone service number shall have, at a minimum,an automated message specifying the times during which the service number shall be manned with live personnel. 7.5 Licensee will collect, prepare reports or, maintain and, upon request, deliver to Motorola, all applicable data and records relating to Product warrantyand warranty service rendered. In addition, within thirty (30) days after the end of each quarterly period, Licensee shall furnish to Motorola‘s Representative astatement summarizing all significant problems and quality issues reported to Licensee’s customer service department for each Product in the precedingquarter. 8. ROYALTIES AND REPORTS 8.1 Licensee agrees to pay Motorola a Royalty equal to the percentage shown in Exhibit A for each Product, of all Net Sales for the Products (”Royalty”). Licensee shall pay the Royalties in quarterly periods ending on the last day of March, June, September and December during the Sales Year. The Royaltyobligation shall accrue upon the sale of the Products regardless of the time of collection by Licensee. For purposes of this agreement, Products shall beconsidered “sold” on the date when such Products are billed, invoiced, shipped or paid for, whichever event occurs first. No deductions shall be made foruncollectible accounts. Royalties will be paid in US dollars. If the gross sale price is expressed in any currency other than United States Dollars, the royaltyrate shall be applied to that currency converted to United States Dollars based upon the exchange rate that appears in the “Currency Trading” section of theUnited States Eastern Edition of The Wall Street Journal on the last day of the quarterly period in which the royalties become due.8.3 On or before the fifteenth (15th) day following each calendar quarter during the Sales Year, as set forth in Exhibit A, Licensee shall make a quarterlypayment to Motorola which shall be calculated as follows: The greater of the year-to-date Minimum Royalty due or the year-to-date Royalties due, minus theactual Royalty payments made for the Sales Year. The Minimum Royalty due in each quarter shall be the Minimum set forth in Exhibit A. Neither theexpiration nor the termination of this Agreement shall relieve Licensee from its Royalty and Minimum Royalty payment obligations. 8.2 Fifteen (15) days after the close of each month, Licensee will also furnish to Motorola, on forms provided or approved by Motorola, a statement of NetSales and number of units of all Products sold (whether or not subject to a royalty) during the immediately preceding month and statements of otherinformation as the forms may require. Such statements will be certified true and correct by a duly authorized officer of Licensee if Licensee is a corporation orby a principal of Licensee if Licensee is a partnership or sole proprietor. Licensee shall send all payments required by this Section to Motorola at the addressin Section 8.4 and statements required by this Section to the Category Manager at the address in Section 23. Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 8.3 Credits for Products for which royalties were previously paid shall be made against royalties in the quarter the Product returns are received andcredited to Licensee’s customers. 8.4 All payments shall be electronically transferred to Motorola with all electronic transfer fees to be paid by Licensee at:WIRE TRANSFERS:Bank of America100 West 33rd StreetNew York, NY 10001ABA#026009593SWIFT Code: BOFAUS3NAccount Name: MOTOROLA INCAccount Number: 4426499628 8.5 During the term of this Agreement and for at least three (3) years following the termination or expiration of this Agreement,Licensee and its Affiliates shall maintain at Licensee’s or its Affiliate’s principal office such books and records including but not limitedto production, inventory and sales records (collectively “Books and Records”) as are necessary to substantiate that (i) all statementssubmitted to Motorola hereunder were true, complete and accurate, (ii) all royalties and other payments due Motorola hereunder shallhave been paid to Motorola in accordance with the provisions of this Agreement, and (iii) no payments have been made, directly orindirectly, by or on behalf of Licensee to or for the benefit of any Motorola employee or agent who may reasonably be expected toinfluence Motorola’s decision to enter this Agreement or the amount to be paid by Licensee under this Agreement. (As used in thisSection, “payment” shall include money, property, services, and all other forms of consideration.) All Books and Records shall bemaintained in accordance with generally accepted accounting principles consistently applied. During the term of, and for three (3) yearsafter the termination or expiration of this Agreement, the Books and Records shall be open to inspection, audit, and copy by or on behalfof Motorola during business hours. 8.6 If any examination reveals that Licensee has underpaid the royalty, Licensee shall pay the shortfall to Motorola within ten (10) days of being notified ofthe shortfall. Motorola shall bear the costs and expenses of conducting each examination. However, if the examination reveals that Licensee has underpaid theroyalty by more than five percent (5%) of the actual amount due, Licensee shall reimburse Motorola for all costs and expenses incurred in conducting theexamination. Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 8.7 Licensee shall pay any tax (and any related interest and penalties), however designated, imposed solely as a result of the existence or operation of thisAgreement including any tax that Licensee is required to withhold or deduct from payments to Motorola, except (i) any such tax constituting an income taximposed upon Motorola (including its subsidiaries and Affiliates) by any governmental entity within the United States proper (the fifty (50) states and theDistrict of Columbia); and (ii), if the aforesaid office of Licensee is located in or relocated to a jurisdiction outside of the United States proper, any foreign taximposed on Motorola or any of its subsidiaries if such tax is allowable as a credit against U.S. income taxes of any of such companies. In the case of taxesimposed pursuant to sub-section ii of this Section, Licensee shall furnish Motorola with any evidence required by United States taxing authorities to establishthat such tax has been paid. 8.8 Interest. Any payment or underpayment under this Agreement that is delayed beyond the due date shall be subject to an interest charge, calculated onthe due date and monthly thereafter, of four percent (4%) over the United States prime rate (as reported by the Wall Street Journal on the due date and monthlythereafter) per annum, compounded monthly until paid, on the unpaid balance, payable in United States dollars. If the amount of such interest exceeds themaximum interest rate permitted by law, such fee shall be reduced to such maximum. 9. SALES AND MARKETING 9.1 Licensee shall provide Motorola with written descriptions in such detail as may be requested from time to time by Motorola ofLicensee’s marketing and distribution program before the program’s implementation or modification. Licensee shall not proceed withthe implementation of the initial program or any modification of its marketing and distribution program without obtaining Motorola’sprior approval. 9.2 Licensee agrees to attend an Annual Review and Planning Meeting with Motorola to review the current year’s performance incomparison with previously projected goals and objectives and to adopt goals and objectives for the coming year. Licensee agrees todevelop and present a detailed sales marketing plan with projected goals and objectives for the coming year. The sales marketing plansshall be structured with Motorola. At least sixty (60) days prior to the annual meeting, each party agrees to provide the other party witha list of relevant issues and questions to be addressed, and the other party agrees to address the issues and questions at the Annual Reviewand Planning Meeting. At the discretion of Motorola, Licensee agrees to attend semi-annual or other required performance reviewmeetings with Motorola at a mutually agreed upon location. Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 9.3 Throughout the term of this Agreement, Licensee agrees to promote the sales of Products in retail outlets and distributors in theTerritory. In order to preserve the value and integrity of the Trademarks, the parties agree that the Products will be sold only inchannels where the suitability of the trading premises, the customer service and the competence of the resellers are of sufficient qualityand reliability and are appropriate for the resale of the Products consistent with Motorola’s brand image. For the avoidance of doubt, thefollowing channels would satisfy such requirements: department stores, chain consumer electronics stores, boutique consumerelectronics stores, and mass merchants. Motorola reserves the right to disapprove or withdraw approval of any specific retailer if, inMotorola’s reasonable belief, that retailer does not provide suitable service or competence or maintain a suitable trading premises, or mayotherwise subject the Trademarks to devaluation or disrepute in any way. 9.4 Licensee agrees not to offer, without prior written approval from Motorola, branded products that are identical in function and in appearance toProducts, except for the Trademarks, in the same retail outlets or distributors with the Products. Motorola acknowledges that the foregoing restriction isintended only to prohibit Licensee from offering items that are identical to the Products under a different brand name, and is not intended to prohibit Licenseefrom offering non-Trademarks branded products generally. In the event the parties mutually agree to customizations that differentiate the Products byincluding in appearance elements that create an identity associated with the Products, Licensee agrees to use and limit such customizations to the Productsunless Motorola agrees in writing to their use for other products. Neither party assigns to the other party any rights in its industrial designs, Product designs,technology, and/or intellectual property in and associated with the Products unless specifically agreed to in writing by the owner. 9.5 Advertising Reserve. Licensee agrees to reserve a minimum of 2% of wholesale price and use it for advertising, merchandising and promotion of theProduct. Licensee will provide a report at the Annual Review and Planning meeting detailing how the advertising reserve was used. If Licensee fails to providea detailed report demonstrating that the advertising reserve was used for advertising, merchandising and promotion activities related directly to the Product(s),Licensee shall pay the amount of the reserve to Licensor as a penalty. 10. TERM AND TERMINATION 10.1 Unless sooner terminated in accordance with this Agreement, the license and rights granted under this Agreement shallcommence on the Effective Date of the Agreement, and shall continue in effect until March 31st, 2009. The parties may renew orextend the Term of this Agreement by mutual consent. Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 10.2 Without prejudice to any other rights that Motorola may have, Motorola may at any time give notice of termination of thisAgreement effective immediately: 10.2.1 If Licensee shall be unable to pay its obligations when due, shall make any assignment for the benefit ofcreditors, shall file a voluntary petition in bankruptcy, shall be adjudicated bankrupt or insolvent, shall have any receiver or trustee inbankruptcy or insolvency appointed for its business or property, or shall make an assignment for the benefit of creditors; 10.2.2 If Licensee manufactures, sells, markets, or distributes any Products without obtaining Motorola’sapproval as provided for by this Agreement or continues to manufacture, sell, market, or distribute any Products after receipt of noticefrom Motorola disapproving such items in accordance with the terms of this Agreement; 10.2.3 If Licensee breaches any provision of this Agreement relating to the unauthorized assertion of rights in theTrademarks; 10.2.4 If Licensee breaches any provision of this Agreement prohibiting Licensee from directly or indirectlyarranging for manufacture by third parties, assigning, transferring, sublicensing, delegating or otherwise encumbering this Agreement orany of its rights or obligations; or 10.2.5 If reasonable grounds for insecurity arise with respect to Licensee’s performance of this Agreement andMotorola demands adequate assurance of due performance in writing, and Licensee fails to provide such adequate assurance within five(5) days after the date of Motorola’s request therefore or within such other shorter period of time as Motorola may reasonably designateunder the then existing circumstances. The parties further agree that if Motorola has requested adequate assurances, Motorola maysuspend its performance of this Agreement until Motorola receives such assurances in writing. 10.2.6 If Licensee shall fail for one hundred and twenty (120) consecutive days to continue the bona fidedistribution and sale of the Products in commercially reasonable quantities throughout the Territory; 10.2.7 If the quality in any Products has reached unacceptable levels pursuant to Section 3 referenced herein anda mutually agreeable action plan to remedy the defects has not been established within seven (7) days from notice by Motorola, or ifsubsequent quality reports reveal that the defect rates have not been reduced to the acceptable standard. Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 10.2.8 If by May 31st, 2008 Licensee has not begun the bona fide distribution and sale of the Products incommercially reasonable quantities in the locations in the Territory agreed in the current marketing and distribution program adoptedpursuant to Section 9 of this Agreement; 10.2.9 If Licensee fails to comply with applicable laws or ethical standards as provided in section 19.2, 22 and ExhibitG or refuses to allow an inspection to determine compliance with laws and ethical standards, as provided in section 19.3. 10.3 Without prejudice to any other rights that Motorola may have, Motorola shall have the right to terminate this agreement for any material breach thirty(30) days after mailing a written notice to Licensee describing the alleged breach in reasonable detail unless the breaches are cured in the reasonable discretion ofMotorola within the thirty (30) day period. Material breaches include but are not limited to the following: 10.3.1 If Licensee distributes or uses any Product Materials without obtaining Motorola’s approval as provided in thisagreement; 10.3.2 If Licensee shall fail to make any payment due hereunder or provide any statement required hereunder; 10.3.3 If Licensee fails to obtain or maintain insurance as required by the Section 15 of this Agreement; 10.3.4 If Licensee breaches any material provision of this Agreement relating to the Territory including, but notlimited to section 13; 10.3.5 If in Motorola’s reasonable determination significant customer satisfaction issues have arisen with anyProduct; or 10.3.6 Licensee fails to enforce or terminate a Manufacturer’s Agreement against a breaching ApprovedManufacturer as required in Section 4. 10.4 Licensee may terminate this Agreement for convenience at any time, with or without cause, by giving Motorola one-hundredeighty (180) days prior written notice and upon payment of the Minimum Royalty for the 180-day period plus the remainder of theMinimum Royalty for the quarter in which the end of the 180-day period falls. License shall also provide royalty reports for the 180day period as provided in Section 8. 10.5 Without prejudice to any other rights that Licensee may have, including, without limitation, those under Section 22, Licensee shallhave the right to terminate this Agreement: 10.5.1 for any material breach of this Agreement by Motorola ninety (90) days after mailing written notice to Motorolathat specifies the alleged breach in reasonable detail, unless the breach or breaches are cured in the reasonabledetermination of Licensee within such ninety-day period; 10.5.2 immediately upon written notice to Motorola if any of the Trademarks is determined by a court of competentjurisdiction to infringe the rights of a third party; or Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 10.5.3 immediately upon written notice to Motorola if Motorola shall be unable to pay its obligations when due, shall make anyassignment for the benefit of creditors, shall file a voluntary petition in bankruptcy, shall be adjudicated bankrupt or insolvent,shall have any receiver or trustee in bankruptcy or insolvency appointed for its business or property, or shall make anassignment for the benefit of creditors. 11. POST-TERMINATION AND EXPIRATION RIGHTS AND OBLIGATIONS 11.1 If this Agreement is terminated for any cause under Section 10.2, Licensee and Licensee’s receivers, representatives, trustees,agents, administrators, successors or permitted assigns shall have no right after the effective date of termination to manufacture, sell,ship, market or distribute Products or to use any promotional and packaging material relating to the Products. Any Products not sold,shipped, and distributed by Licensee prior to termination must be destroyed or reprocessed so that the Trademarks are no longer presentin whole or in part on the Products or on their Product Materials. Upon Motorola’s request, Licensee shall provide evidence satisfactoryto Motorola of such destruction or reprocessing of remaining Products or Product Materials. Licensee’s final statement and payment ofroyalties, which shall include the difference, if any, between all royalties based upon Net Sales for the termination Sales Year and theremaining Minimum Royalty for the termination Sales Year shall be received by Motorola within thirty (30) days after the effectivedate of termination. Licensee shall send all payments and statements required by this Section 11.1 in accordance with Section 8.5. 11.2 After expiration of the initial term and any renewal term(s) of this Agreement or the termination of this Agreement under any provision other thanSection 10.2, Licenseemay sell, ship, market and distribute Products in the Territory that are on hand or in the process of manufacture at the date of expiration or at the time noticeof termination is received for a period of ninety (90) days after the date of expiration or the date of notice of termination, as the case may be, provided that theroyalties with respect to that period are paid and the appropriate statements for that period are furnished. Motorola shall have the right, but not the obligation,to purchase all or part of Licensee’s inventory of Products at cost upon expiration of the ninety (90) day sell-off period permitted by this Section 11.2. Unlesspurchased by Motorola, any Products not sold, shipped, and distributed by Licensee within this ninety (90) day period must be destroyed or reprocessed sothat the Trademarks are no longer present in whole or in part on the Products or on their Product Materials. Upon Motorola’s request, Licensee shall provideevidence satisfactory to Motorola of such destruction or reprocessing of remaining Products or Product Materials. After termination of this Agreement underSection 10.3, Licensee shall make the next quarterly statement and payment as required by Section 8 and Licensee shall make a final statement and paymentof royalties including the difference, if any, between all royalties based upon Net Sales and the remaining Minimum Royalty for the termination Sales Year toMotorola no later than one hundred (100) days after the effective date of termination. After termination of this Agreement under section 10.4 and 10.5 Licenseeshall make the next quarterly statement and payment as required by Section 8 and Section 10.4 and Licensee shall make a final statement and payment ofroyalties for all Products sold during the sell-off period to Motorola no later than one-hundred (100) days after the effective date of termination. Licensee shallsend all payments and statements required by this Section 11.2 in accordance with Section 8.5. Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 11.3 After the expiration or termination of this Agreement and except as provided in Section 11.2, all rights granted to Licensee under this Agreement shallforthwith revert to Motorola, and Licensee shall refrain from further use of the Trademarks or any further reference to the Trademarks, either directly orindirectly, or from use of any marks or designs similar to the Trademarks in connection with the manufacture, sale, marketing or distribution of Licensee’sproducts. Licensee also shall turn over to Motorola all molds, silk-screens, and other materials that reproduce the Trademarks or shall give evidencesatisfactory to Motorola of their destruction. Licensee shall be responsible to Motorola for any damages caused by the unauthorized use by Licensee or byothers of such molds, silk-screens or reproduction materials that are not turned over to Motorola. 11.4 Licensee acknowledges that its failure to cease the manufacture, sale, marketing or distribution of the Products and the Product Materials at thetermination or expiration of this Agreement, except as provided in Section 11.2, will result in immediate and irreparable damage to Motorola and to the rights ofany subsequent licensee of Motorola. Licensee acknowledges and admits that there is no adequate remedy at law for failure to cease such activities, andLicensee agrees that in the event of such failure, Motorola shall be entitled to injunctive relief and such other relief as any court with jurisdiction may deem justand proper. 11.5 Within twenty (20) days after expiration or within ten (10) days after notice of termination of this Agreement, as the case may be, Licensee shalldeliver to Motorola a written report indicating the number and description of the Products and Product Materials that it had on hand or in the process ofmanufacture as of the date of expiration or at the time termination notice is received. Motorola may conduct a physical inventory in order to verify suchreport. If Licensee fails to submit the required written report or refuses to permit Motorola to conduct such physical inventory, Licensee shall forfeit its rightsunder this Agreement to dispose of such inventory. In addition to such forfeiture, Motorola shall have recourse to all other available remedies. 12. CONFIDENTIALITY AND INTELLECTUAL PROPERTY 12.1 Motorola’s “Confidential Information” shall mean specifications, property, data, drawings, schematics, diagrams, dimensions, prints, reprints,information, business and financial information, customer and vendor lists, pricing and sales information. Products created by Motorola for Licensee underthis Agreement, submitted or presented by Motorola to Licensee under this Agreement, or jointly developed by the parties are deemed Motorola’s ConfidentialInformation. 12.2 Licensee’s “Confidential Information” shall mean Licensee’s business and financial information, information concerning Licensee’s products andrelated specifications, property, data, drawings, schematics, diagrams, dimensions, prints and reprints, Licensee’s decoration process, including, withoutlimitation, specifications, data, drawings, technical information, diagrams, schematics, Licensee’s customer and vendor lists, pricing and sales information,and Licensee’s customer information provided to Motorola by Licensee or to which Motorola otherwise gains access. Products created by Licensee under thisAgreement and submitted and presented to Motorola under this Agreement for approval, are deemed Licensee’s Confidential Information. Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 12.3 Each of the parties and its contractors agrees to maintain the confidentiality of the other party’s Confidential Information furnished in oral, visual,written and/or other tangible form including electronic form, and not disclose such Confidential Information to any third party, except as authorized by theother party in writing. Each party further agrees to keep confidential the terms of this Agreement; except as required by applicable reporting requirementspursuant to the Federal securities laws; provided, however, that the parties shall issue a joint press release regarding this Agreement in a form, and at suchtime, as is mutually agreed upon by the parties in writing. 12.4 Each of the parties agrees to restrict disclosure of the other party’s Confidential Information to its employees and contractors who have a “need toknow.” Each of the parties agrees that the other party’s Confidential Information shall be handled with the same degree of care that it applies to its ownconfidential information (but in no event less than reasonable care) and shall not be exported directly or indirectly to any restricted or prohibited country setforth in Section 13 or such other restricted or prohibited countries as may be designated by the United States Department of Commerce except in compliancewith the regulations of the Office of Export Control for the United States Department of Commerce. 12.5 Licensee is the “Receiving Party” with respect to Motorola’s Confidential Information and Motorola is the “Receiving Party” with respect to Licensee’sConfidential Information. The parties agree to exclude from these obligations of confidentiality any Confidential Information that the Receiving Party candemonstrate: (i) is wholly independently developed by the Receiving Party without the use of the other party’s Confidential Information; or (ii) is known orbecomes known to the general public without breach of this Agreement; or (iii) was known to the Receiving Party without confidential limitation at the time ofdisclosure by the other party as evidenced by documentation in the Receiving Party’s possession; or (iv) is approved for release by written authorization of theother party, but only to the extent of and subject to such conditions as may be imposed in such written authorization; or (v) is disclosed in response to a validorder to a court, regulatory agency, or other governmental body in the United States or any political subdivision thereof, but only to the extent and for thepurposes stated in such order; provided, however, that the Receiving Party shall first notify the other party in writing of the order and cooperate with the otherparty if the other party desires to seek an appropriate protective order; or (vi) is received rightfully and without confidential limitation by the Receiving Partyfrom a third party. 12.6 In the course of its relationship with Motorola, Motorola may give Licensee access to Motorola’s facility including its manufacturing, distribution oraccelerated life testing area. Licensee agrees that the manufacturing, handling or testing techniques, processes, methodologies and know how embodied inequipment and equipment arrangements; equipment supplier names; and products under manufacture, handling or testing in Motorola’s facility are deemed tobe Motorola Confidential Information, even if not identified as confidential at the time of disclosure and confirmed in correspondence. In the course of itsrelationship with Licensee, Licensee may give Motorola access to Licensee’s facility including its manufacturing, distribution or accelerated life testing area. Motorola agrees that the manufacturing, handling or testing techniques, processes, methodologies and know how embodied in equipment and equipmentarrangements; equipment supplier names; and products under manufacture, handling or testing in Licensee’s facility are deemed to be Licensee ConfidentialInformation, even if not identified as confidential at the time of disclosure and confirmed in correspondence. Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 12.7 Upon termination of this Agreement, all Confidential Information transmitted to the Receiving Party by the other party in record bearing media or othertangible form including electronic form, and any copies thereof made by the Receiving Party shall be either destroyed and its destruction certified in writing or,at the other party’s written request, returned to the other party, except that the Receiving Party shall be entitled to retain a secure copy of the other party’sConfidential Information for archival purposes only. Additionally, Motorola agrees to return Licensee’s Confidential Information upon Licensee’s writtenrequest, and Licensee agrees to return Motorola’s Confidential Information upon Motorola’s written request. 12.8 Licensee agrees that it will not in any manner use its knowledge of Motorola business for the benefit of itself (except in accordance with the terms ofthis Agreement) or any other party or divulge to others information or data concerning Motorola’s business affairs, including the names of customers, namesof employees, number or character of contracts, marketing strategies and prices, terms or particulars of Motorola’s business. Licensee will, in all things andin good faith, protect the good will of Motorola’s business and keep confidential its knowledge of such business affairs acquired prior to and during the termsof this Agreement. Motorola agrees that it will not in any manner use its knowledge of Licensee business for the benefit of itself (except in accordance with theterms of this Agreement) or any other party or divulge to others information or data concerning Licensee’s business affairs, including the names of customers,names of employees, number or character of contracts, marketing strategies and prices, terms or particulars of Licensee’s business. Motorola will, in allthings and in good faith, protect the good will of Licensee’s business and the Licensee Designs and keep confidential its knowledge of such business affairsacquired prior to and during the terms of this Agreement. 13. EXPORT 13.1 Licensee agrees and represents that it is aware of all pertinent export laws and regulations and will not violate them in anymaterial respect. To the extent that Licensee exports, transports or manufactures or has manufactured any products or technologies inany way connected to the Trademarks, Licensee hereby assures Motorola that it does not intend to and will not, without the priorwritten consent of the Office of Export Licensing of the U.S. Department of Commerce, P.O. Box 273, Washington, D.C. 20230,exports, transports, manufactures or have manufactured directly or indirectly (i) Products or other items in any way associatedtherewith or (ii) any technical information provided hereunder in, to or by (a) any individuals or entities listed in the Table of DenialOrders as published from time to time in Supplement No.2 to Part 764 of the above referenced regulations, (b) embargoed countries orforeign nationals of such countries, as may be changed from time to time, under U.S. export laws and regulations or (c) controlledcountries and foreign nationals of such countries to the extent such products and technologies are defined as controlled technologies inthe U.S. Export Administration Regulations Part 774. Embargoed and controlled countries are defined in the U.S. Export AdministrationRegulations Parts 740 Supplement No.1, 746 and 772 and currently include Cuba, Iran, Libya, North Korea, Sudan, and Syria. Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 14. REPRESENTATIONS AND WARRANTIES 14.1 Motorola represents and warrants that it has the power to grant a license of the Trademarks in the Territory and that such grant is in compliance withapplicable law and does not infringe the rights of any third party. Motorola, at its expense, shall be responsible for obtaining and maintaining all licenses,permits and approvals necessary for Motorola to maintain its rights in the Trademarks No other warranties, express or implied, are given by Motorola, and allother warranties, express or implied, are expressly disclaimed by Motorola. 14.2 Licensee represents and warrants that at all times: 14.2.1 Except as provided in Section 14.1, Licensee has and shall maintain all rights and licenses needed to sell theProducts and the Products do not infringe any patent, copyright, mask work right, moral right, trademark, service mark, trade secretand/or all other intellectual property rights and/or similar rights of any third party. Licensee is solely responsible for all royalties, fees orother payments to secure such rights and licenses for end user customers. 14.2.2 Licensee shall secure and maintain all certifications and requirements to sell the Products and Licensee shall affix alllabels on the appropriate area of each Product regarding such certifications and requirements. Licensee shall provide written evidence ofsuch certifications and approvals to Motorola upon Motorola’s request. 14.2.3 All Products are new, and do not contain anything used, except for warranty replacement Products and/or partsprovided by Licensee all of which shall be conspicuously labeled as “Used” on the warranty replacement Product and/or part, on thecarton, and on the shipping paperwork and Licensee shall have processes, procedures and documentation in place to comply with andsubstantiate this representation and warranty. 14.2.4 Product Materials shall not claim or suggest that any Products improve the health of users, have therapeuticcapabilities, or can help the users to avoid injuries that otherwise might occur through the use of alternative products. 14.2.5 All claims made in connection with the Products and Product Materials are in all material respects accurate, completeand have been substantiated prior to use in advertising, promotion or on the Products or Product Materials. 14.2.6 Licensee, at its expense, shall be responsible for obtaining and maintaining all licenses, permits and approvals that arerequired by all appropriate governmental authorities, with respect to Licensee’s compliance with it obligations under this Agreement,excluding any licenses, permits or approvals necessary for Motorola to maintain its rights in the Trademarks, and to comply with anyrequirements of such governmental authorities for the registration or recording of this Agreement and for making payments hereunder.Licensee shall furnish to Motorola within thirty (30) days of receipt of same, written evidence from such governmental authorities ofany such licenses, permits, clearances, authorizations, approvals, registration or recording. Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 14.2.7 All Products are safe for any use consistent with the warranties, specifications and requirements of this Agreement. 14.2.8 All Products are of merchantable quality, and conform to the specifications and requirements of quality in materials,design, and workmanship in this Agreement. 14.2.9 Licensee warrants that its performance hereunder will be in compliance with all applicable federal, state and locallaws, orders, rules and regulations. 14.3 Compliance with Laws and Procedures; Authority. Each party hereto warrants that such party's performance hereunder will be in compliance with allapplicable federal, state and local laws, orders, rules and regulations, whether domestic or foreign. Each party hereto warrants that its execution, delivery andperformance of this Agreement has been authorized by all necessary corporation action and that this Agreement has been duly authorized, executed anddelivered. 15. INDEMNITIES AND INSURANCE 15.1 Licensee acknowledges that, except as set forth in Section 15.2 of this Agreement, it will have no claims against Motorola forany damage to property or injury to persons arising out of the operation of Licensee’s business. Licensee agrees to indemnify, holdharmless and defend Motorola , its subsidiaries and customers, with legal counsel acceptable to Motorola, from and against all third-partysuits, actions, claims, damages, liabilities, costs and expenses, including attorneys fees, court costs and other legal expenses, arising outof or connected with the Products, Licensee’s methods of manufacturing, marketing, selling, distributing or use of the Products, thepromotional or packaging material relating to the Products, or any breach by Licensee of any provision of this Agreement or of anywarranty made by Licensee in this Agreement. Motorola agrees to give Licensee written notice of any claim within ten (ten) days ofreceipt by Motorola. Motorola’s failure to provide written notice of the claim within ten days shall not affect its right to indemnificationunless and to the extent the delay materially prejudices Licensee’s ability to respond to the claim. Licensee shall bear full responsibilityfor the defense (including any settlements) of any such claim; provided, however, that: (i) Licensee shall keep Motorola informed of,and consult with Motorola in connection with the progress of such litigation or settlement; and (ii) Licensee shall not have any right,without Motorola’s prior written consent, to settle any such claim if such settlement arises from or is part of any criminal action, suit orproceeding or contains a stipulation to or admission or acknowledgement of any liability or wrongdoing (whether in contract, tort, orotherwise) on the part of Motorola or any Motorola Affiliate. 15.2 Motorola agrees to indemnify, hold harmless and defend Licensee from and against all third-party suits, actions, claims, damages, liabilities, costsand expenses, including attorney’s fees, court costs and other legal expenses, arising out of or relating to infringement of the trademarks or copyrights of anythird party by the Trademarks so long as such claims arise from Licensee’s promotion or sale of the Products in the Territory and Licensee’s use of theTrademarks in accordance with the terms of this Agreement. Licensee agrees to give Motorola written notice of any claim within ten (10) days business daysof receipt by Licensee. Licensee’s failure to provide written notice of the claim within ten days shall not affect its right to indemnification unless and to theextent the delay materially prejudices Motorola’s ability to respond to the claim. Licensee agrees to give Motorola control of the defense of the claim andcooperates with Motorola in the defense and any related settlement negotiations. Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 15.3 During the term of the Agreement, Licensee will maintain at its own expense, commercial general liability (“CGL”) insurance including contractualliability coverage, products and completed operations in an amount not less than one Million Dollars ($1,000,000.) per occurrence for bodily injury, personalinjury and property damage liability. The insurance will be placed with an insurer acceptable to Motorola, licensed for the jurisdiction in which thisAgreement is performed and having a Best’s Rating not less than A-VII. The CGL policy will name Motorola, Inc. as an additional insured and provide aminimum thirty (30) days prior written notice of cancellation or material change. Licensee shall furnish Motorola within thirty (30) days after execution of thisAgreement or, if earlier, prior to the sale of the Products, with a certificate of insurance stating thereon the limits of liability, the period of coverage, the partiesinsured (including Licensee and Motorola), and the insurer’s agreement not to terminate or materially modify such insurance without endeavoring to notifyMotorola in writing at least ten (10) days before such termination or modification. Coverage provided for Motorola shall be primary, and any insurancemaintained by Motorola shall be in excess and not contributing with any insurance provided by Licensee. Coverage shall be on a claims made basis. Motorola shall not be responsible for the payment of the premiums, charge taxes, assessments, or other costs for the product liability insurance. 15.4 The existence of the product liability insurance shall not mitigate, alter, or waive the indemnity provisions of Section 15. 16. DISPUTE RESOLUTION 16.1 The Parties will attempt to settle any claim or controversy relating to this Agreement through negotiation in good faith and a spirit of mutualcooperation. If those attempts fail to achieve a settlement, then the dispute will be mediated by a mutually acceptable mediator to be chosen by the Parties withinforty-five (45) days after written notice by either Party demanding mediation. Neither Party may unreasonably withhold consent to the selection of a mediator,and the Parties will share the costs of mediation equally. The non-binding mediation hearing shall be conducted within forty-five (45) calendar days after theselection of the mediator. Each Party shall bear its own attorney’s fees and other costs. Any mediation shall be conducted in the English language. Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 16.2 Any dispute that cannot be resolved between the Parties through negotiation or mediation within six (6) months of the date of the initial demand formediation by one ofthe Parties may then be submitted to the courts for resolution. The use of any mediation procedures will not be construed under the doctrines of laches, waiveror estoppel to affect adversely the rights of either Party. Nothing in this Section will prevent either Party from resorting to judicial proceedings if interim relieffrom a court is necessary to prevent serious and irreparable injury to that Party or to others. In addition, nothing in this Section 16 shall be construed asapplying to disputes regarding the Intellectual Property Rights (including Confidential Information) or Trademarks. 17. FORCE MAJEURE 17.1 The terms of this Agreement are binding upon the parties hereto except where prevented, delayed or interfered with by causes beyond the reasonablecontrol and without the fault or negligence of the non-performing party, including, without limitation, riot, war, strike, significant acts of terrorism and theeffects thereof, insurrection, civil war or severe domestic instability or suspension of the banking or foreign exchange system in any nation in the Territory orplace of manufacture of the Products, banking moratorium, or hostilities between nations, governmental regulation (other than action taken in response toMotorola’s or Licensee’s violation or failure to act with respect to any law or governmental regulation, in which case the party at fault shall not be permitted toclaim the benefit of this Section 17), acts of God, fire, accidents, strikes or earthquakes. 17.2 The party affected by force majeure shall give notice to the other party of said force majeure event Promptly after the occurrence thereafter, statingtherein the nature of suspension of performance and reasons thereof. Such party shall use its best efforts to resume performance as soon as reasonablypossible. Upon restoration of the affected party’s ability to perform its obligations hereunder, the affected party will give immediate notice to the other party. 17.3 If the force majeure condition that prevents a party’s performance hereunder shall continue for a period of six (6) consecutive months, and there shallbe no reasonable prospect for the immediate cure thereof despite the best efforts of the affected party to cure the same, then either party shall have the right toterminate this Agreement in its entirety and without liability upon ninety (90) days prior notice to the other party. 18. LIMITATION OF LIABILITY 18.1 Except for third party damages included in settlements and judgments subject to Section15.2 Motorola shall not be liable to Licensee for lost profits, orconsequential, indirect, incidental, special or punitive damages, even if advised in advance of the possibility of such damages. Except for judgments orsettlements subject to Section 15.2, Motorola shall not be liable to Licensee for direct damages in excess of the total Royalties paid by Licensee to Motorolaunder this agreement. Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 19. COMPLIANCE WITH LAWS 19.1 In the performance of this Agreement, Licensee shall comply in all material respects with published applicable laws and regulations in the countries ofsaid Territory. Should Licensee be or become aware of any applicable laws or regulations which are inconsistent with the provisions of this Agreement,Licensee shall Promptly notify Motorola of such inconsistency. The parties then, shall in good faith, negotiate a modification to this Agreement such that itcomplies with applicable law and regulations and if the parties are unable to successfully negotiate such a modification Motorola may terminate the license andrights granted hereunder in that jurisdiction, and the Territory set forth in Exhibit B shall be appropriately amended. 19.2 Compliance with Laws and Ethical Standards. Licensee, on behalf of itself, its Affiliates and its suppliers and subcontractors (“Supply Chain”),represents and warrants that all Products are produced, manufactured and supplied, and Services are rendered, in compliance in all material respects withapplicable laws, rules, regulations and standards, including those concerning environmental protection, freedom of association, wages and humane treatmentof workers, as set forth in Exhibit G 19.3 Inspection of Facilities. Upon five (5) business days’ notice to Licensee, Motorola shall have the right to conduct or have conducted, during regularbusiness hours, an examination of Licensee’s or Licensee’s Affiliate’s or an Approved Manufacturer’s manufacturing, assembly, testing and businessfacilities to determine compliance with laws and ethical standards as set forth on Exhibit G. 20 INTELLECTUAL PROPERTY 20.1 No grant or transfer of any Motorola’s Intellectual Property Rights to Licensee is given or intended under this agreement, including any license impliedor otherwise, except as expressly provided in Section 2 of this Agreement. 20.2 As between Motorola and Licensee, Motorola owns and, upon creation shall own, all rights in the Trademarks, the trade dress, copyrights, ornamentaldesigns, industrial designs and design patents associated with the Product and Product Materials and any Derivative Works created from them.Notwithstanding the foregoing, if Licensee presents to Motorola a sample of a product that is designed to fit mobile telephones generally and is not designed tofit a Motorola product specifically (hereinafter a “Universal” case), and Licensee give Motorola a right of first refusal to exclusively use the design of theUniversal case as a Product under the terms of this Agreement, then the ornamental and industrial design rights and design patents associated with suchUniversal case shall be owned by Licensee. Licensee shall cooperate and shall execute all papers reasonably requested by Motorola to effect registration,maintenance and renewal of these rights, at the sole expense of Motorola. Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 21. PRESS RELEASES 21.1 Licensee shall make no press releases concerning the business relationship or license granted in this Agreement or the introduction or sales of Productswithout Motorola’s written agreement as to the form and content of the proposed press release. 22. ETHICS AND CONFLICTS OF INTEREST. 22.1 Both parties will refrain from activities that: (i) are illegal, unethical; (ii) might bring either party into disrepute; or (iii) might constitute or represent aserious conflict of interest or that might give the appearance of impropriety. Both parties will cooperate fully in any investigation or evaluation of such matters.Breach of this obligation by either party will entitle the non-breaching party to terminate this Agreement without notice. 23. NOTICES 23.1 Any notice required or permitted to be given under this Agreement shall be in writing and shall be directed by one party to the other at its respectiveaddress as follows unless otherwise provided for in this Agreement: Licensor: Robert Vacheron Category Manager Motorola, Inc. 1700 Bellemeade Ct. Lawrenceville, GA 30043 EMAIL: CRV009@motorola.com and to: Scott Offer Corporate Vice President Law Department, Personal Communications Sector Motorola, Inc. 600 North U.S. Highway 45 Libertyville , IL 60048-1286 Licensee: Douglas Sabra Chief Executive Officer Forward Industries 1801 Green Road, Suite E. Pompano Beach, FL 33064 Phone: 954-360-6420 FAX: 954-419-9735 EMAIL: dsabra@forwardindustries.com Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. And to: Steven A. Malsin Attorney at Law 237 Upper Shad Road Pound Ridge, NY 10576 23.2 Any notice required or permitted to be given under this Agreement shall be in writing, shall be deemed to have been received (i) when deliveredpersonally; (ii) when sent by confirmed facsimile or by e-mail except for notices that relate to default provisions; (iii) five (5) days after having been sent byregistered or certified mall, return receipt requested, postage prepaid; or (iv) one business (1) day after deposit with a commercial overnight carrier with writtenverification of receipt. 23.3 Either party may change the address to which notices or requests shall be directed by written notice to the other party, but such written notice to beeffective must be received by the other party at least thirty (30) days before the effective date of the change of address. 24. ASSIGNMENT OF RIGHTS AND SUBLICENSE 24.1 The benefit of this Agreement shall be personal to Licensee who shall not, without the prior consent in writing of Motorola, assign its rights, or delegateits duties hereunder, nor grant or purport to grant any sublicense in respect to the Trademarks, to third parties. 24.2 Notwithstanding the above, Licensee shall have the right to assign its rights and to delegate its duties under this Agreement, with Motorola’s priorwritten consent, which shall not be unreasonably withheld, to wholly-owned subsidiaries of Licensee. In the event that Licensee undergoes a substantial changeof ownership, whether or not such a change results from a merger, acquisition, consolidation or otherwise, Licensee shall have the right to assign its rights andto delegate its duties to such new owner under this Agreement, with Motorola’s prior written consent, provided that the substantial change of ownership doesnot result in a substantial change in the nature of the Licensee’s business, a substantial change in nature including, but not limited to, a change in productmix, pricing structure, financial condition or method of doing business. However, in any instance, Licensee and its assignee shall remain ultimately liable toMotorola for all of the obligations assumed by it under the terms of the Agreement. 25. FREEDOM OF ACTION 25.1 Nothing in this Agreement shall be construed as prohibiting or restricting Motorola or its subsidiaries from independently developing, havingdeveloped independently, acquiring, licensing, distributing or marketing products, services and other materials which are competitive in any form with theProducts. Licensee agrees and acknowledges that it shall not hold Motorola liable for any lost sales or revenues in respect to the sales performance of theProducts, regardless of the reason for such lost sales or revenues including, but not limited to, Motorola’s direction in the appearance, function or marketing ofthe Products. Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 26. APPROVALS 26.1 Any approval required by this Agreement to be obtained from Motorola must be in writing from the Category Manager and maybe withheld by Motorola for any reason deemed reasonable and justifiable in the sole determination of Motorola. If approval is notdelivered in writing to the Licensee within fifteen (15) business days of submission of a request for approval, the request for approvalshall be deemed to be denied. 27. WAIVER OF DEFAULT OR OTHER RIGHTS 27.1 The failure of Motorola to insist in any one or more instances of the performance of any term, obligation or condition of this Agreement by Licensee orto exercise any right or privilege herein conferred upon Motorola shall not be construed as thereafter waiving such term, obligation, or condition, orrelinquishing such right or privilege, and the acknowledged waiver or relinquishment by Motorola of any default or right and shall not constitute waiver ofany other default or right. 28. SEVERABILITY 28.1 If any provision of this Agreement shall be determined to be illegal and unenforceable by any court of law or any competent governmental or otherauthority, the remaining provisions shall be severable and enforceable in accordance with their terms so long as this Agreement without such terms orprovisions does not fail of its essential purpose or purposes. The parties will negotiate in good faith to replace any such illegal or unenforceable provision orprovisions with suitable provisions that will maintain the economic purposes and intentions of this Agreement. 29. SECTION HEADINGS 29.1 The captions for each Section have been inserted for the sake of convenience and shall not be deemed to be binding upon the parties for the purpose ofinterpretation of this Agreement. 30. EXHIBITS 30.1 All references to “Exhibit” or “Exhibits” herein shall mean those Exhibits A through G attached to this Agreement, which are hereby incorporated intothis Agreement as though fully set forth herein. 31. SURVIVAL 31.1 Licensee’s obligations and agreements under Sections 6, 7, 8, 11, 12, 13,15, 16, 18, 19, 20, 21, 22, 23, 25, 27, 28, 29, 30, 31,33, 34, 35 shall survive the termination or expiration of this Agreement. Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 32. TIME IS OF THE ESSENCE 32.1 Time is of the essence with respect to the obligations to be performed under this Agreement. 33. RIGHTS CUMULATIVE 33.1 Except as expressly provided in this Agreement, and to the extent permitted by law, any remedies described in this Agreementare cumulative and not alternative to any other remedies available at law or in equity. 34. ENTIRE AGREEMENT 34.1 The provisions of this Agreement contain the entire agreement between the parties relating to use by Licensee of Trademarks on Products, and onProduct Materials, and supersede and cancel all prior provisions, negotiations, agreements and commitments (whether oral or in writing) with respect to thesubject matter hereof. This Agreement shall be interpreted to achieve the objectives and intent of the parties as set forth in the text and factual recitals of theAgreement. It is specifically agreed that no evidence of discussions during the negotiation of the Agreement or drafts written or exchanged may be used inconnection with the interpretation or construction of this Agreement. This Agreement may not be released, discharged, abandoned, changed or modified in anymanner except by an instrument in writing signed by the parties. In the event of any conflict between the provisions of this Agreement and provisions in anyother agreement with Licensee, the provisions of this Agreement shall prevail. 35. GOVERNING LAW 35.1 This Agreement is deemed to be executed in the State of Illinois and the construction and performance of this Agreement will be construed andinterpreted according to the substantive laws of that State without regard to its conflicts of law principles or rules. The parties agree that any legal action orproceeding between Motorola and Licensee with respect to this Agreement, including the Manufacturer’s Agreement, shall be brought in the United StatesDistrict Court for the Northern District of Illinois or, if such court does not have jurisdiction, in any court of general jurisdiction in Cook County, Illinois. Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. IN WITNESS WHEREOF, the parties haves caused this Agreement to be executed induplicate originals by their duly authorized representatives on the dates indicated below. MOTOROLA, INC. /s/ Philip Gilchrist By: Philip Gilchrist Title: Vice President, Global Product Management, Mobile Devices Business Date: May 22, 2008 FORWARD INDUSTRIES, INC. /s/ Doug Sabra BY: Doug Sabra Title: Chief Executive Officer Date: May 14, 2008 EXHIBIT A License between Motorola and Forward Industries Products: Carry solutions, face plates, cleaners and decorative accessories for mobile telephones and related accessories. Territory: USA, Canada, Austria, Belgium, , Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Monaco,Norway, Portugal, Spain, Sweden, Switzerland, UK, Czech Republic, Hungary, Latvia, Lithuania, Poland, Slovakia, Croatia, Estonia,Russia, Ukraine, Liechtenstein, Albania, Belarus, Bosnia-Herzegovina, Bulgaria, Macedonia, Romania, Slovenia, Uzbekistan Royalty (for each product): 15 % of Net Sales. Term: April 1, 2008 through March 31, 2009 Sales Year: April 1 to March 31 Minimum Royalty: 2008:Q1 - N/ASource: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Q1 - N/AQ2 – N/AQ3 - $150,000Q4 - $250,000 2009:Q1 - $250,000 EXHIBIT B The Licensed Motorola Trademarks are: the MOTOROLA signature and the stylized M logo (“Emsignia”) and associated MotorolaTrade Dress EXHIBIT C TRADEMARK USE GUIDELINES Artistic renderings of the Licensed Motorola Trademarks and Trade Dress shall be provided to Licensee under thefollowing items, which become a part of this agreement by reference:- Motorola Basic Corporate Identity Standards- Motorola Consumer Packaging Guidelines- Motorola logo and artwork files- Motorola Global POS guidelines Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.FILES ARE SUBJECT TO CHANGEMotorola shall keep Licensee appraised of any changes and, in the event such change affects inventory or packaging in stock or inproduction by Licensee, then Licensee shall be permitted to sell such inventory and implement the change as a “running change” assoon as practicable.EXHIBIT D SPECIFICATIONS Material and Methods Specification-Template for Personalization Products supplied as a .pdf file Test Validation Matrix supplied as an Excel document Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT EMANUFACTURER’S AGREEMENT AGREEMENT dated this ___________day of____________________, 200_, by andamong_________________________ (Address)____________ (“Licensee”) and ________________________,(Address)____________, (“Manufacturer”), and Motorola, Inc., a Delaware Corporation (“Motorola”). WHEREAS, Licensee has obtained a license from Motorola to use the Trademarks, Motorola Trade Dress and Copyrightsreferred to in Exhibit 1 (collectively “Trademarks”) to this Manufacturer’s Agreement, on or in conjunction with the product(s)referred to in Exhibit 2 (“Product(s)”) to this Manufacturer’s Agreement; and WHEREAS, Motorola owns throughout the world certain trademark registrations for the Trademarks for use on a variety ofgoods; and WHEREAS, Manufacturer wishes to manufacture, exclusively for Licensee, Product(s) using the Trademarks . NOW, in consideration of the foregoing, the covenants hereinafter set forth, and other good and valuable consideration, thereceipt and adequacy of which are hereby acknowledged, the parties agree as follows: 1. TRADEMARKS, TRADE DRESS, ORNAMENTAL DESIGNS 1.1 Manufacturer agrees that any and all rights that may be acquired by the use of the Trademarks and Copyrights by theManufacturer shall inure to the sole benefit of Motorola. The Manufacturer shall execute all papers and to make such filings asrequired to confirm such use inures to the benefit of Motorola. Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 1.2 As between Motorola and Manufacturer, Motorola owns and, upon creation shall own, all rights in the trade dress,copyrights, ornamental designs, industrial designs and design patents associated with the Product and any packaging, marketingmaterials, point-of-sale materials, publicity, advertising, signs, catalogs product brochures, warranty statement, user guide, and otherin-box materials relating to the Products and any derivative works created from them. Manufacturer shall cooperate and shallexecute all papers reasonably requested by Motorola to effect registration, maintenance and renewal of these rights, at the soleexpense of Motorola. 2. PROTECTION AND MAINTENANCE OF TRADEMARK 2.1 Manufacturer also agrees to cooperate and execute all papers reasonably requested by Licensee or Motorola to effectfurther registration, maintenance, and renewal of the Trademarks and Copyrights at the sole expense of Motorola and, whereapplicable, to record Manufacturer as a registered user of the Trademarks. Manufacturer agrees not to use the Trademarks andCopyrights or any part thereof as part of its corporate or trade name nor use any name or mark confusingly similar to, or derivativeof, the Trademarks and Copyrights. 2.2 Manufacturer further agrees not to register in any country any name or mark resembling or confusingly similar to orderivative of the Trademarks and Copyrights. 2.3 Manufacturer agrees that if any application for registration is, or has been filed in any country by Manufacturer whichrelates to any name or trademark which, in the opinion of Motorola, is confusingly similar, deceptive or misleading with respect tothe Trademarks and Copyrights, Manufacturer shall abandon immediately any such application or registration or, at Motorola’s solediscretion, assign it to Motorola. Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 2.4 Manufacturer agrees that if it is notified by Licensee or Motorola of any change in any of the Trademarks andCopyrights, Manufacturer shall immediately change the Trademarks and Copyrights to conform with such change. 3. CONTRACT MANUFACTURE LIMITATION 3.1 Manufacturer agrees that it will not manufacture any goods using the Trademark and Copyrights other than theProduct(s) specified by this Manufacturer’s Agreement for which Manufacturer was approved and shall exclusively manufacturefor and/or sell to Licensee any such Product(s) during the term of Licensee’s license from Motorola to use the Trademark andCopyrights on such Product(s). 4. COMPLIANCE WITH LAW AND LABOR PRACTICES 4.1 Manufacturer agrees to comply with all applicable laws, orders, rules and regulations in performing its obligations. 4.2 Manufacturer warrants that all Products manufactured by Manufacturer will be produced in compliancewith all applicable laws, orders, rules and regulations in the jurisdiction Manufacturer manufactures the Products and will complywith the provisions of the Compliance with Laws and Standards document attached hereto as Exhibit 3.. 4.3 Manufacturer warrants that all Products will be manufactured by it, whether assembled or packaged inwhole or in part, without the use of any forced labor, prison labor or child labor, and that such Products will not be trans-shipped forthe purpose of mislabeling, evading quota or country of origin restrictions, or avoiding compliance with provisions against forcedlabor, prison labor or child labor. Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 5. REPRESENTATION AND WARRANTIES 5.1 Manufacturer further agrees and warrants that at all times: (i) it has and shall maintain all rights and licenses needed to manufacture and sell the Products and the Products do notinfringe any patent, copyright, mask work right, moral right, trademark, service mark, trade secret and/or all other intellectualproperty rights and/or similar rights of any third party. Manufacturer is solely responsible for all royalties, fees or other payments tosecure such rights and licenses. (ii) Manufacturer shall secure and maintain all certifications and requirements to manufacture and sell the Products andManufacturer shall affix all labels on the appropriate area of each Product regarding such certifications and requirements.Manufacturer shall provide written evidence of such certifications and approvals upon request. (iii) All Products are new, and do not contain anything used, and Manufacturer shall have processes, procedures anddocumentation in place to comply with and substantiate this representation and warranty. 6. INDEMNIFICATION 6.1 Manufacturer agrees to indemnify, hold harmless and defend Motorola its subsidiaries and customers with legalcounsel acceptable to Motorola from and against all suits, actions, claims, damages, liabilities, costs and expenses, including attorneysfees, court costs and other legal expenses (collectively “Claims”), arising out of or connected with the Products, Manufacturer'smethods of manufacturing the Products, and the promotional or packaging material relating to the Products, except where suchClaims arise solely out of Licensee’s actions or omissions. Motorola agrees to give Manufacturer written notice of any claim withinthirty (thirty) days of receipt by Motorola. Motorola’s failure to provide written notice of the claim within thirty days shall not affectits right to indemnification unless the delay materially prejudices Manufacturer’s ability to respond to the claim. Manufacturer shallbear full responsibility for the defense (including any settlements) of any such claim; provided, however, that: (i) Manufacturer shallkeep Motorola informed of, and consult with Motorola in connection with the progress of such litigation or settlement; and (ii)Manufacturer shall not have any right, without Motorola’s prior written consent, to settle any such claim if such settlement arisesfrom or is part of any criminal action, suit or proceeding or contains a stipulation to or admission or acknowledgement of, any liabilityor wrongdoing (whether in contract, tort, or otherwise) on the part of Motorola or Motorola subsidiary. Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. INSPECTION AND AUDIT 7.1 Manufacturer further agrees that upon seven (7) days notice to Licensee, who shall in turn notify Manufacturer,Motorola shall have the right to inspect, at Motorola’s expense, the manufacturing facilities of Manufacturer during regular businesshours to determine compliance of the Product(s) manufactured by Manufacturer with the applicable Control Specifications approvedby Motorola and supplied to Manufacturer by Licensee, and for compliance with laws, standards and labor practices.7.2 Manufacturer further agrees that, during the term of this Agreement and for at least five (5) years following thetermination or expiration of this Agreement, Manufacturer and its Affiliates shall maintain at Manufacturer’s or its Affiliate’sprincipal office, such books and records, including, but not limited to, production, inventory and sales records (collectively “Booksand Records”) as are necessary to substantiate that: (i) all statements submitted to Motorola by Licensee were true, complete andaccurate with regard to the quantities of Products sold to Licensee by Manufacturer and the countries to which they were shipped; (ii)Manufacturer has manufactured and sold Products exclusively to Licensee in accordance with the provisions of this Agreement; and(iii) no payments have been made, directly or indirectly, by or on behalf of Manufacturer or Licensee to or for the benefit of anyMotorola employee or agent who may reasonably be expected to influence Motorola’s decision to enter this Agreement or theamounts to be paid by Licensee or Manufacturer under this Agreement. (As used in this Section, “payment” shall include money,property, services, and all other forms of consideration.) All Books and Records shall be maintained in accordance with generallyaccepted accounting principles consistently applied. During the Term of, and for five (5) years after the termination or expiration ofthis Agreement, the Books and Records shall be open to inspection, audit, and copy by or on behalf of Motorola during businesshours. Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 8. CONFLICTING LAWS 8.1 Manufacturer agrees that should it be or become aware of any applicable laws or regulations which are materiallyinconsistent with the provisions of the Manufacturer’s Agreement, it shall notify Licensee within fifteen (15) days of becomingaware of such material inconsistency. 9. TERMINATION AND EXPIRATION 9.1 Manufacturer agrees that upon the termination or expiration of this Manufacturer’s Agreement, Manufacturer shallexecute all papers and make such filings as necessary to terminate any registered user agreements or similar agreements that mayhave been executed, filed and/or recorded while this Manufacturer’s Agreement was in effect. 9.2 Manufacturer acknowledges that any material breach by Manufacturer of this Manufacturer’s Agreement will causeirreparable harm and damages to Licensee and/or Motorola. If Licensee or Motorola determine Manufacturer has materiallybreached this Manufacturer’s Agreement, Manufacturer shall have thirty (30) days to cure such breach to the satisfaction ofMotorola and Licensee. If Manufacturer fails to cure such material breach in thirty (30) days, this Manufacturer’s Agreement shallterminate. The parties of this Manufacturer’s Agreement expressly agree that Motorola, is an intended beneficiary of thisManufacturer’s Agreement with rights to enforce such agreement. Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 10. GOVERNING LAW 10.1 The construction and performance of this Manufacturer’s Agreement will be governed by the internal, substantivelaws of the state of Illinois without regard to its choice of law rules. IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed in duplicate originals by its dulyauthorized representative on the respective dates entered below. MANUFACTURER LICENSEE By: __________________________ By: _____________________ Title: __________________________ Title: ____________________ Date: __________________________ Date: ____________________ MOTOROLA, INC. By: __________________________ Title: __________________________ Date: __________________________ EXHIBIT 1 to Manufacturer’s AgreementTRADEMARKS, TRADE DRESS, AND COPYRIGHTSThe Licensed Motorola Trademarks are: the MOTOROLA signature and the stylized M logo (“Emsignia”) and associated MotorolaTrade Dress Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 2 to Manufacturer’s Agreement PRODUCTS Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 3 to Manufacturer’s Agreement Compliance with Laws and Ethical Standards 1. Ethical Conduct, Anticorruption and Unfair Business Practices Motorola has historically depended on product quality and superiority, combined with outstanding support capability, to sell its products. Accordingly, Manufacturer agrees to perform the services hereunder with the highest ethical standards. Motorola will not do businesswith any entity or person where Motorola believes that payoffs or similar improper or unethical practices are involved. Motorolaexpects its Manufacturers to abide by this policy and not to have a relationship with another entity or person, or engage in any activitythat results or may result in a conflict of interest, or embarrassment to Motorola, or harm to Motorola's reputation. Manufacturer will: (i) maintain transparency and accuracy in corporate record keeping; (ii) act lawfully and with integrity in handling competitive data,proprietary information and other intellectual property; and (iii) comply with legal requirements regarding fair competition and antitrust,and accurate and truthful marketing. Manufacturer will not engage in corrupt practices, including public or private bribery orkickbacks. If Manufacturer fails to comply in any respect with all of these requirements, then Motorola may immediately and withoutliability terminate this Agreement. 2. Antidiscrimination and Humane Treatment of Workers a. Manufacturer will employ workers on the basis of their ability to do the job and not on the basis of their personalcharacteristics or beliefs. b. Manufacturer will assure that Products (including parts) will not be produced, manufactured, mined, or assembled withthe use of forced, prison, or indentured labor, including debt bondage, or with the use of illegal child labor in violation of InternationalLabor Conventions for minimum age (ILO-C138) and child labor (ILO-C182). If Manufacturer recruits contract workers,Manufacturer will pay agency recruitment commissions, will not require workers to remain in employment for any period of timeagainst their will, and will not impose any early termination penalties on workers. If Manufacturer provides housing or eating facilities,Manufacturer will assure the facilities are operated and maintained in a safe, sanitary and dignified manner. c. Manufacturer will operate safe, healthy and fair working environments, including managing operations so levels ofovertime do not create inhumane working conditions. Manufacturer will pay workers at least the minimum legal wage, or where nowage laws exist, the local industry standard. Manufacturer will assure that workers are free to join, or refrain from joining, associationsof their own choosing, unless otherwise prohibited by law. Manufacturer will not routinely require workers to work in excess of sixconsecutive days without a rest day. 3. Environmental Protection a. Manufacturer will implement a functioning environmental management system in accordance with ISO 14001 orequivalent. Third-party registration is recommended but not required. b. Manufacturer certifies that Products and their parts do not contain and are not manufactured with a process that uses anyClass I ozone-depleting substances (as identified in 40 CRF Part 82 Appendix A to Subpart A, or as subsequently identified by the U.S.Environmental Protection Agency as Class I ozone-depleting substances). For Products imported into the United States, Manufacturerwill provide Motorola with a completed and signed ODS Certification Questionnaire, accessible at the following URL:http://www.motorola.com/suppliers/materialsdisclosure Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. c. For Products used as parts for Motorola products, including the packaging used with such products and any manuals thataccompany such products in the ordinary course, Manufacturer will provide material disclosure or certification, as defined in Motorola’sControlled and Reportable Materials Disclosure Process, accessible at the following URL: http://www.motorola.com/suppliers/materialsdisclosure 4. Material Safety Data Sheets Manufacturer will electronically provide material safety data sheets, chemical safety data sheets, or equivalent documentation for allchemicals sold to Motorola. For all chemicals supplied or imported into the United States, Manufacturer will certify that the chemicalsare listed on the Toxic Substances Control Act, 15 USCS §2601, et. seq., chemical inventory, or are subject to an exemption specifiedin the material safety data sheets. 5. Imports and Customs Manufacturer will comply with all import and customs laws, regulations and administrative determinations of the importing country. Manufacturer will comply with the security criteria of the importing country’s government security program. If Manufacturer isproviding Products to be delivered to, or Services to support delivery to, the U.S., Manufacturer will comply with the security criteriaof the U.S. Customs and Border Protection’s Customs-Trade Partnership against Terrorism (C-TPAT) Program (available onhttp://www.cbp.gov ). 6. Export Restriction If Manufacturer is the exporter of record for any shipments, Manufacturer will obtain all export authorizations from the U.S.government or other governments that may be required to lawfully make such shipments. 7. Utilization of Small Business Concerns If applicable, Manufacturer will comply with the provisions of U.S. Federal Acquisition Regulation (FAR) 52.219-8 pertaining toUtilization of Small Business Concerns, as well as any other state and local, small and other business utilization laws. 8. Equal Opportunity If applicable, Manufacturer will comply with the provisions of FAR 52.222-21, 52.222-26, 52.222-35, and 52.222-36 pertaining toSegregated Facilities, Equal Opportunity, Equal Opportunity for Veterans, and Affirmative Action for Workers with Disabilities. Ifapplicable, Manufacturer will maintain, at each establishment, affirmative action programs required by the rules of the U.S. Secretaryof Labor (41 CFR 60-1 and 60-2). 9. Government Subcontract If an Order is issued under a government contract, Manufacturer will comply with the terms of the government contract that appear onthe Order, and with any other applicable laws, regulations and executive orders. Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 10. Manufacturer Diversity If Manufacturer is located in the United States or is supplying Products to Motorola locations based in the United States, Manufacturerwill track and report its Supply Chain’s spend with minority-owned, women-owned and disabled veteran-owned business enterpriseslocated in the United States. Manufacturer and Motorola will agree on a goal for Manufacturer’s Supply Chain spend, based upon apercentage of Manufacturer’s total gross revenues under this Agreement. Manufacturer will submit quarterly progress reports, in aformat designated by Motorola, by the twenty-fifth day of the month following the end of each calendar quarter. All reports will beforwarded to the Motorola Manufacturer Diversity Group, 2501 S. Price Road, M/D G1232, Chandler, AZ 85248, or sent via email tosupplierdiversity@motorola.com . 11. Product Safety and Regulatory Compliance Manufacturer will ensure that all Products and services provided comply with all applicable regulations and laws, including all applicableproduct safety, environmental, and recycling regulations and laws. 12. ICT Manufacturer Self Assessment Questionnaire Upon Motorola’s request, Manufacturer will obtain a subscription to the Global e-sustainability Initiative (GeSI) and Electronic IndustryCode of Conduct’s (EICC) online system E-TASC at www.E-TASC.com and complete the ICT Supplier Self-Assessment within thatsystem. Details regarding this ICT Supplier Self Assessment Questionnaire and Motorola Corporate Responsibility initiatives areavailable for review at: http://compass.mot.com/web/wikinethome . EXHIBIT F PRODUCT WARRANTY Licensee shall include a written warranty statement on or in all Product packaging. Such warranty shall, at a minimum: a. comply with all applicable laws of the country or countries in which the Product is sold;b. specify what components the warranty covers;c. specify the time period of the warranty, which shall be no less than one (1) and no more than five (5) years from date ofpurchase;d. specify the remedy (e.g. repair, replacement, or refund) if the Product does not conform to the warranty;e. specify the Licensee’s toll-free telephone number available to Product purchasers for warranty and other support;f. to the extent allowed by law, exclude consequential, incidental and punitive damages and limit any remedies to repair, replace orrefund; andg. clearly indicate that Motorola is not responsible for warranty support of the Producth. be substantively equivalent to the sample warranty statement below: The following statement shall be used for all goods sold in the United States:Statement of Limited Warranty: (Licensee) warrants that for a period of — years from the date of purchase that this product 1) is freefrom defects in materials and workmanship and 2) conforms to its specifications. If this product does not function as warranted during thewarranty period, (Licensee), at its option, will either replace this product with one that is functionally equivalent or will refund yourpurchase price. These are your exclusive remedies under this warranty. Please call 1-800 (XXXXXXXX) for warranty service. This product is manufactured, distributed or sold by XXXXXX, official licensee for this product. Motorola, the Motorola logotrademarks and the Motorola trade dress are owned by Motorola, Inc. and are used under license from Motorola. Please contactXXXXXX at YYYYYYYY for questions/comments, warranty, support, or service related to this product Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.This warranty will be voided by misuse, improper physical environment, accident, or improper maintenance by you. THISWARRANTY REPLACES ALL OTHER WARRANTIES OR CONDITIONS, EXPRESS OR IMPLIED, INCLUDING, BUTNOT LIMITED TO, THE IMPLIED WARRANTIES OR CONDITIONS OF MERCHANTABILITY AN]) FITNESS FOR APARTICULAR PURPOSE. THESE WARRANTIES GIVE YOU SPECIFIC LEGAL RIGHTS AND YOU MAY ALSO HAVEOTHER RIGHTS WHICH VARY FROM JURISDICTION TO JURISDICTION. SOME JURISDICTIONS DO NOT ALLOWTHE EXCLUSION OR LIMITATION OF EXPRESS OR IMPLIED WARRANTIES, SO THE ABOVE EXCLUSION ORLIMITATION MAY NOT APPLY TO YOU. IN THAT EVENT, SUCH WARRANTIES ARE LIMITED IN DURATION TO THEWARRANTY PERIOD. NO WARRANTIES APPLY AFTER THAT PERIOD. Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Circumstances may arise where, because of a default on (Licensee’s) part or other liability, you are entitled to recover damages from(Licensee). In each such instance, regardless of the basis on which you are entitled to claim damages from (Licensee) (includingfundamental breach, negligence, misrepresentation, or other contract or tort claim), (Licensee) is only liable for: 1. damages for bodily injury (including death) and damage to real property andtangible personal property; and2. the amount of any other actual direct damages or loss, up to the greater of $500 orthe price paid for this product. UNDER NO CIRCUMSTANCES IS (Licensee) OR XXX LIABLE FOR ANY OF THE FOLLOWING: (1) THIRD-PARTYCLAIMS AGAINST YOU FOR LOSSES OR DAMAGES (OTHER THAN THOSE UNDER THE FIRST ITEM LISTEDABOVE); (2) LOSS OF, OR DAMAGE TO, YOUR RECORDS OR DATA: OR (3) SPECIAL, INCIDENTAL OR INDIRECTDAMAGES OR FOR ANY ECONOMIC CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS OR SAVINGS),EVEN IF (Licensee) OR XXX ARE INFORMED OF THEIR POSSIBILITY. SOME JURISDICTIONS DO NOT ALLOW THEEXCLUSION OR LIMITATION OF INCIDENTAL OR CONSEQUENTIAL DAMAGES, SO THE ABOVE EXCLUSION ORLIMITATION MAY NOT APPLY TO YOU. EXHIBIT G Compliance with Laws and Ethical Standards 1. Ethical Conduct, Anticorruption and Unfair Business Practices Motorola has historically depended on product quality and superiority, combined with outstanding support capability, to sell its products. Accordingly, Licensee agrees to perform the services hereunder with the highest ethical standards. Motorola will not do business withany entity or person where Motorola believes that payoffs or similar improper or unethical practices are involved. Motorola expects itsLicensees to abide by this policy and not to have a relationship with another entity or person, or engage in any activity that results or mayresult in a conflict of interest, or embarrassment to Motorola, or harm to Motorola's reputation. Licensee will: (i) maintain transparencyand accuracy in corporate record keeping; (ii) act lawfully and with integrity in handling competitive data, proprietary information andother intellectual property; and (iii) comply with legal requirements regarding fair competition and antitrust, and accurate and truthfulmarketing. Licensee will not engage in corrupt practices, including public or private bribery or kickbacks. If Licensee fails to comply inany respect with all of these requirements, then Motorola may immediately and without liability terminate this Agreement. 2. Antidiscrimination and Humane Treatment of Workers a. Licensee will employ workers on the basis of their ability to do the job and not on the basis of their personal characteristicsor beliefs. b. Licensee will assure that Products (including parts) will not be produced, manufactured, mined, or assembled with the useof forced, prison, or indentured labor, including debt bondage, or with the use of illegal child labor in violation of International LaborConventions for minimum age (ILO-C138) and child labor (ILO-C182). If Licensee recruits contract workers, Licensee will payagency recruitment commissions, will not require workers to remain in employment for any period of time against their will, and willnot impose any early termination penalties on workers. If Licensee provides housing or eating facilities, Licensee will assure thefacilities are operated and maintained in a safe, sanitary and dignified manner. c. Licensee will operate safe, healthy and fair working environments, including managing operations so levels of overtime donot create inhumane working conditions. Licensee will pay workers at least the minimum legal wage, or where no wage laws exist, thelocal industry standard. Licensee will assure that workers are free to join, or refrain from joining, associations of their own choosing,unless otherwise prohibited by law. Licensee will not routinely require workers to work in excess of six consecutive days without a restday. 3. Environmental Protection a. Licensee will implement a functioning environmental management system in accordance with ISO 14001 or equivalent. Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Third-party registration is recommended but not required. b. Licensee certifies that Products and their parts do not contain and are not manufactured with a process that uses any Class Iozone-depleting substances (as identified in 40 CRF Part 82 Appendix A to Subpart A, or as subsequently identified by the U.S.Environmental Protection Agency as Class I ozone-depleting substances). For Products imported into the United States, Licensee willprovide Motorola with a completed and signed ODS Certification Questionnaire, accessible at the following URL:http://www.motorola.com/content.jsp?globalObjectId=8343 Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. c. For Products used as parts for Motorola products, including the packaging used with such products and any manuals thataccompany such products in the ordinary course, Licensee will provide material disclosure or certification, as defined in Motorola’sControlled and Reportable Materials Disclosure Process, accessible at the following URL: http://www.motorola.com/mot/doc/1/1501_MotDoc.pdf 4. Material Safety Data Sheets Licensee will electronically provide material safety data sheets, chemical safety data sheets, or equivalent documentation for allchemicals sold to Motorola. For all chemicals supplied or imported into the United States, Licensee will certify that the chemicals arelisted on the Toxic Substances Control Act, 15 USCS §2601, et. seq., chemical inventory, or are subject to an exemption specified inthe material safety data sheets. 5. Imports and Customs Licensee will comply with all import and customs laws, regulations and administrative determinations of the importing country. Licensee will comply with the security criteria of the importing country’s government security program. If Licensee is providingProducts to be delivered to, or Services to support delivery to, the U.S., Licensee will comply with the security criteria of the U.S.Customs and Border Protection’s Customs-Trade Partnership against Terrorism (C-TPAT) Program (available onhttp://www.cbp.gov). 6. Export Restriction If Licensee is the exporter of record for any shipments, Licensee will obtain all export authorizations from the U.S. government or othergovernments that may be required to lawfully make such shipments. 7. Utilization of Small Business Concerns If applicable, Licensee will comply with the provisions of U.S. Federal Acquisition Regulation (FAR) 52.219-8 pertaining to Utilizationof Small Business Concerns, as well as any other state and local, small and other business utilization laws. 8. Equal Opportunity If applicable, Licensee will comply with the provisions of FAR 52.222-21, 52.222-26, 52.222-35, and 52.222-36 pertaining to SegregatedFacilities, Equal Opportunity, Equal Opportunity for Veterans, and Affirmative Action for Workers with Disabilities. If applicable,Licensee will maintain, at each establishment, affirmative action programs required by the rules of the U.S. Secretary of Labor (41 CFR60-1 and 60-2). 9. Government Subcontract If an Order is issued under a government contract, Licensee will comply with the terms of the government contract that appear on theOrder, and with any other applicable laws, regulations and executive orders. 10. Licensee Diversity If Licensee is located in the United States or is supplying Products to Motorola locations based in the United States, Licensee will trackand report its Supply Chain’s spend with minority-owned, women-owned and disabled veteran-owned business enterprises located in theUnited States. Licensee and Motorola will agree on a goal for Licensee’s Supply Chain spend, based upon a percentage of Licensee’stotal gross revenues under this Agreement. Licensee will submit quarterly progress reports, in a format designated by Motorola, by thetwenty-fifth day of the month following the end of each calendar quarter. All reports will be forwarded to the Motorola LicenseeDiversity Group, 2501 S. Price Road, M/D G1232, Chandler, AZ 85248, or sent via email to supplierdiversity@motorola.com . Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 11. Product Safety and Regulatory Compliance Licensee will ensure that all Products and services provided comply with all applicable regulations and laws, including all applicableproduct safety, environmental, and recycling regulations and laws. 12. ICT Licensee Self Assessment Questionnaire Upon Motorola’s request, Licensee will obtain a subscription to the Global e-sustainability Initiative (GeSI) and Electronic Industry Codeof Conduct’s (EICC) online system E-TASC at www.E-TASC.com and complete the ICT Supplier Self-Assessment within thatsystem. Details regarding this ICT Supplier Self Assessment Questionnaire and Motorola Corporate Responsibility initiatives areavailable for review at: http://compass.mot.com/web/wikinethome . Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. AMENDED AND RESTATED EMPLOYMENT AGREEMENT AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”), dated as of the 12th day ofAugust, 2008, between Forward Industries, Inc., a New York corporation having its principal offices at 1801 Green Road, Suite E,Pompano Beach, Florida 33064 (the “Company”), and Douglas W. Sabra, residing at 7441 Brunswick Circle, Boynton Beach FL 33437(“Executive”).W I T N E S S E T H:WHEREAS, Executive has been rendering services to the Company pursuant to an employment agreement between him andthe Company dated as of December 27, 2005, effective as of October 1, 2005, and amended as of January 2, 2008 (the “PriorAgreement”);WHEREAS, the Company and Executive desire to amend and restate the Prior Agreement in order to reflect their currentagreements as to the terms of employment, with effect from the date of execution of this Agreement (“Effective Date”);NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration,the receipt of which the parties hereby acknowledge, the parties agree as follows:1. PRIOR AGREEMENTThe parties hereto hereby agree that (a) the terms of this Amended and Restated Agreement shall govern the terms ofemployment of Executive by the Company, and (b) the Company has no obligations to Executive under the Prior Agreement that havenot been discharged except in respect of accrued and unpaid salary to the date of execution hereof, unused personal days and vacationtime accrued in respect of the fiscal year ended September 30, 2008, and pension, medical benefits, and other benefits granted to allemployees generally as such benefits have accrued on behalf of Executive consistent with the terms of the Prior Agreement and ascontinued pursuant to this Agreement. 2. EMPLOYMENT TERMUnless earlier terminated in accordance with the terms of this Agreement, the term of employment hereunder (the “Term”)shall commence on the Effective Date and expire on December 31 , 2009. Upon expiration of the Term, this Agreement shall beautomatically renewed for successive terms of one year each; provided, however, that if either party provides written notice to the otherparty of its or his determination not to so renew not later than 90 (ninety) days prior to the expiration of the Term, or any renewalthereof, as the case may be, this Agreement and Executive’s employment shall terminate at the end of the Term or such renewal term,as the case may be. In the event that the Company is the party giving notice of non-renewal, this shall be treated as a terminationwithout Cause and governed by the terms of Section 6 or Section 8, as the case may be.3 EMPLOYMENT DUTIES AND SERVICESSource: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(a) On the terms and conditions herein set forth, the Company hereby employs Executive as its President (chief executiveofficer) for the term of this Agreement and any renewal(s) thereof, and Executive hereby accepts such employment. Executive shallperform such duties and responsibilities of a chief executive nature for the Company as shall be consistent with the provisions of theCompany’s By-laws in effect from time to time and as are customary for a chief executive officer of corporations of similar size andbusiness as the Company, subject to the direction of the Company’s Board of Directors (the “Board”). Subject to election thereto by theshareholders of the Company at the annual or other meeting from time to time, for so long as he serves as President Executive shallserve as a member of the Board, for which he shall not be entitled to additional compensation. Executive shall serve the Companyfaithfully and to the best of his ability and shall devote his full business time and attention to the business and affairs of the Company,subject to reasonable absences for vacation and illness as determined by the Compensation Committee of the Board (the “CompensationCommittee”). Executive will not engage, directly or indirectly, in any other business or occupation during the Term. -2- (b) Nothing in this Agreement shall preclude the Executive from (i) engaging in personal investment activities for himselfand his family, (ii) accepting directorships unrelated to the Company, subject to the prior, written approval of the CompensationCommittee, (iii) engaging in charitable and civic activities, and (iv) engaging in such other limited activities on behalf of family interestsas have been or may be approved by the Nominating and Governance Committee of the Board, so long as any one or more such outsideinterests set forth in clauses (i), (ii), (iii), and (iv) hereof do not interfere with or affect the performance of his duties or responsibilitieshereunder.(c) Unless otherwise agreed in writing by the Company and Executive, the performance of Executive’s services during theterm of this Agreement shall be rendered at the principal executive offices of the Company, subject to such travel in furtherance ofExecutive’s performance of his duties hereunder as the business of the Company may require.4. COMPENSATION AND EXPENSE REIMBURSEMENT(a) Salary. Executive shall be entitled to receive for all services rendered by Executive in any and all capacities inconnection with his employment hereunder a salary (as it may be adjusted, “Salary”) of $250,000 per annum, payable in equalinstallments in accordance with the prevailing practices of the Company (but not less frequently than monthly).(b) Bonus; Calculation and Payment. The Executive shall be eligible to receive a bonus (“Bonus”) with respect to each fullfiscal year or part thereof (except to the extent expressly provided in Section 4(b), 5, 6, or 7(b) hereof) in respect of his employmenthereunder, as set forth in this Section 4. The amount of Bonus, if any, that Executive may earn in any fiscal year during the Termhereof pursuant to this Section 4(b) shall be based on the extent to which, if any, the Company achieves all or a percentage of, orexceeds, Target (as defined below) in each such fiscal year, in accordance with guidelines, or a formula, for earning such bonus as fixedby the Compensation Committee in its sole discretion not later than the date referred to in the next paragraph.-3-Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. “Target” means, with respect to any fiscal year, the amount of pre-tax income or other measure of operating results ofthe Company as determined by the Compensation Committee of the Board in its sole discretion, projected for achievement, in whole orin part, in such fiscal year by the Compensation Committee for the purpose of establishing Executive’s right to receive Bonuscompensation in respect of such fiscal year. The Compensation Committee shall determine the Target, together with the formulas forearning Bonus hereunder, after the Board has adopted the Annual Budget in respect of each fiscal year during the Term hereof but notlater than the 75th day of each such fiscal year. The Compensation Committee may determine that the amount of Bonus for suchpurposes may be pro rated based on Target being achieved, exceeded, or missed.Bonus compensation, if any, payable pursuant to Section 4(b) shall be payable to Executive not earlier than the date onwhich the Company’s audited financial statements relating to the fiscal year in respect of which such Bonus compensation is payable arefirst filed with the Securities and Exchange Commission (the “Commission”) pursuant to Section 13 or 15(d) under the SecuritiesExchange Act of 1934 (“Exchange Act”) nor later than the tenth (10th) business day after such date. If Executive is otherwise entitledto payment of a Bonus pursuant to this Section 4(b) and the terms of this Agreement but has not served as an employee for the full fiscalyear in respect of which such Bonus is payable, Executive, or his estate, shall be entitled to payment, at the time specified in the nextpreceding sentence, of a ratable portion of such Bonus to which he or his estate is entitled, based on the ratio that the actual number ofdays in such fiscal year during which he served as an Employee pursuant to this Agreement and is so entitled bears to 365; provided,however, that no Bonus (pro-rated or otherwise) shall be payable in respect of a fiscal year during which Executive is employedhereunder solely for the first fiscal quarter thereof because of expiration of the Term, or any renewal thereof as a result of notice ofnon-renewal furnished pursuant to Section 2; and provided, further, that if Executive’s employment was terminated as a result of noticepursuant to Section 5, Termination for Cause, he shall not be entitled to any Bonus compensation in respect of the fiscal year duringwhich such notice of termination was given or during which such termination becomes effective.-4- (c) Expenses. Executive will be reimbursed for all reasonable and necessary expenses incurred by Executive in carryingout the duties contemplated under this Agreement, in accordance with Company practices and procedures in effect from time to time, assuch practices may be changed from time to time by the Board. Executive shall be entitled to a monthly allowance, subject to theapproval and discretion of the Compensation Committee, to defray the expense of the lease of an automobile (including monthly leasecost, maintenance, insurance, and operating expense) for Executive’s use in connection with the discharge of his duties under thisAgreement, the amount of which allowance shall be includible in Executive’s W-2 statements and be subject to applicable income taxwithholding regulations.. (d) Benefits. Executive shall be entitled to participate in all group health and other insurance programs and all other fringebenefit (including vacation) and retirement plans (including any 401(k) plan) or other compensatory plans that the Company maySource: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.hereafter elect to make available to its executives generally on terms no less favorable than those provided to other executivesgenerally, provided Executive meets the qualifications therefor. The Company shall not be required to establish any such program orplan, except to the extent expressly set forth in this Section 4.(e) Withholding. All payments required to be made by the Company hereunder to the Executive shall be subject to thewithholding of such amounts relating to taxes and other governmental assessments as the Company may reasonably determine it shouldwithhold pursuant to any applicable law, rule or regulation.-5- (f) IRC§409A. Executive and the Company agree that the provisions of this Agreement shall be construed andimplemented, and any deferrals and elections shall be made, in order to comply with Internal Revenue Code Section 409A, as it may beamended, and the rules and regulations issued thereunder from time to time.5. TERMINATION BY THE COMPANY FOR CAUSE(a) The Board of Directors may, by written notice given at any time during the Term, or any renewal thereof, terminate theemployment of Executive for cause, the cause to be specified in reasonable detail in such notice. For purposes of this Agreement,“cause” shall mean Executive’s: (i) willful misconduct in connection with the performance of any of his duties or services hereunder, including withoutlimitation (1) misappropriation or improper diversion of funds, rights or property of the Company or any subsidiary of the Company(“Subsidiary” ), or (2) securing or attempting to secure personally (including for the benefit of any family member, or person sharingthe same household, or any entity (corporate, partnership, unincorporated association, proprietorship, limited liability company, trust, orotherwise) in which Executive has any economic or beneficial interest) any profit or benefit in connection with any transaction enteredinto on behalf of the Company or any Subsidiary unless the transaction benefiting the entity has been approved by the Board upon thebasis of full disclosure of such benefit, or (3) material breach of any covenant contained in this Agreement or (4) any other action inviolation of Executive’ s fiduciary duty owed to the Company or Executive’ s acting in a manner adverse to the interests of theCompany and for his own pecuniary benefit or that of a family member (or member of his household) or any entity (as described inclause (i)(2) of Section 5(a) above) in which he or any such person has an economic or beneficial interest; or (5) Executive’ s failure tocooperate, if requested by the Board, with any investigation or inquiry into his or the Company’ s business practices, whether internal orexternal;-6- (ii) willful failure, neglect or refusal to perform his duties or services under this Agreement, which failure, neglect orrefusal shall continue for a period of 30 days after written notice thereof shall have been given to the Executive by or on behalf of theBoard ; and/orSource: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (iii) conviction of, or nolo contendere or guilty plea in connection with, a felony. (b) Termination for cause under clause (i) or (iii) of paragraph (a) of this Section 5 shall be effective immediately upon thegiving of such notice; if notice of termination for cause relates to clause (ii) of paragraph (a) of this Section 5, termination shall beeffective on the thirtieth (30th) day after the notice referred to in the first sentence of this Section 5 is given to Executive, unless theExecutive shall have, prior to such thirtieth (30th) day, cured the alleged cause to the satisfaction of the Board, in which case the Boardshall so notify Executive and such cause shall be deemed to no longer exist; provided, however, that if the Board concludes thatExecutive’s willful failure, neglect, or refusal to perform has resulted in material damage to the Company or its reputation that is notcapable of being remedied, termination shall be effective immediately upon giving of notice. For purposes of this Agreement, an act or failure to act on the Executive’s part shall be considered “willful” if it was done oromitted to be done by him not in good faith, and shall not include any act or failure to act resulting from any incapacity of the Executive.(c) Upon termination of employment by the Company for Cause, the Executive shall be entitled to receive, and his soleremedies under this Agreement shall be:(i) any earned and unpaid Salary accrued through the date of termination for Cause, payable in a lump sum not later than 15 daysfollowing Executive’s termination of employment; -7-(ii) compensation for any unused personal holidays and unused vacation days accrued in the fiscal year in which terminationoccurs through the date of termination, payable as in clause (i) of this Section 5;(iii) except for any Bonus compensation (for which Executive shall not be eligible), any unpaid benefits accrued through the dayimmediately prior to the date of termination that may be due the Executive under any employee benefit plans or programs of theCompany, payable in accordance with the terms of such plans or programs, together with any documented, unreimbursed businessexpenses, payable in accordance with Company policies; and(iv) any stock options, grants of Common Stock, restricted share grants or other benefits under any of the Company’scompensation plans that were vested as of 5:00 PM on the date immediately prior to the date of termination in accordance with the termsof such plans and any applicable plan agreements with Executive, provided, however, that any vested but unexercised stock options maynot be exercised on or after the effective date of termination. (d) Termination of Executive’s employment under this Section 5 shall be in addition to and not exclusive of any other rightsand remedies that the Company has or may have relating to Executive with respect to the facts and circumstances pertaining to suchtermination.6. TERMINATION BY EXECUTIVE FOR GOOD REASON OR TERMINATION WITHOUT CAUSE PRIOR TOCHANGE IN CONTROL(a) In the event Executive terminates his employment under this Agreement for Good Reason (as hereinafter defined), or inthe event Executive’s employment is terminated without Cause (which termination shall be effective as of the date specified by theSource: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Company in written notice delivered to Executive not fewer than 15 days prior to the date of termination) other than due to death orDisability (as hereinafter defined), in either case prior to a Change in Control (as hereinafter defined), the Executive shall be entitled toreceive, and his sole remedies under this Agreement shall be: -8- (i) any earned and unpaid Salary accrued through the date of termination, payable in a lump sum not later than 15 days followingExecutive’s termination of employment;(ii) Salary, at the annualized rate in effect on the date of termination of Executive’s employment (or, in the event a reduction inSalary is a basis for termination for Good Reason, then the Salary in effect immediately prior to such reduction), for a period of (A) incase of executive’s termination for Good Reason, six months following such termination, or (B) in case of termination by the Companywithout cause, the greater of (x) six months or (y) the balance of the Term (or renewal thereof, as the case may be) remaining after thedate of termination set forth in such notice, in either case payable in a lump sum not later than 15 days following termination ofemployment;(iii) compensation for any unused personal holidays and unused vacation days accrued in the fiscal year in which terminationoccurs through the date of termination, payable as in clause (i) of this Section 6;(iv) except in the case of the Company giving notice of non-renewal at the end of the Term (or any renewal thereof), the ratableamount of Bonus, if any, to which Executive would otherwise have been entitled in the current fiscal year but for termination underthis Section, payable at the time specified in Section 4(b);(v) any unpaid benefits accrued through the day immediately prior to the date of termination that may be due the Executiveunder any employee benefit plans or programs of the Company, payable in accordance with the terms of such plans or programs,together with any documented, unreimbursed business expenses, payable in accordance with Company policies; and-9-(vi) any stock options, grants of Common Stock, restricted share grants or other benefits under any of the Company’scompensation plans that were vested as of 5:00 PM on the date immediately prior to the date of termination, which may be exercised (inthe case of options) or delivered (in the case of restricted stock) in accordance with the terms of such plans and any applicable planagreements with Executive.(b) Termination by the Executive for Good Reason shall be effected by his giving prior written notice to the Company, inwhich case this Agreement shall terminate on the date specified in such notice; provided, however, that such notice shall specify (i) inreasonable detail the circumstances or event asserted as the basis for termination for Good Reason and (ii) a date of termination that shallbe at least thirty (30) days after the date of delivery of such notice; and provided, further, that the Company shall have the right duringsuch thirty (30) day period to remedy the circumstances or event giving rise to the notice of termination for Good Reason prior to theSource: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.date specified in such notice, in which case no right of termination or other right shall exist under this Section. . For purposes of this Agreement, subject to Section 8(D), the term “Good Reason” shall mean:(i) the assignment to Executive without his written consent of any duties inconsistent in any material respect with Executive’schief executive position (including employment status, titles and reporting requirements), authority, duties or responsibilities ascontemplated by Section 3 of this Agreement or any other action by the Company that results in a material diminishment in suchpositions, authority, duties, or responsibilities, other than such assignment or other action that is remedied by the Company prior to thedate of termination specified in the written notice from Executive: (ii) a decrease in annual Salary rate;(iii) any failure by the Company to perform any material obligation under, or its breach of a material provision of, thisAgreement that is not cured within the 30-day notice period referred to above; or-10-(iv) failure of a Successor to expressly assume and agree to perform this Agreement in the same manner and to the same extentas the Company would have had there been no Successor. 7. TERMINATION FOR DEATH OR DISABILITY(a) Executive’s employment shall terminate immediately upon his death or Disability (as hereinafter defined). Upon suchtermination, the Executive, his estate, or his beneficiaries, as the case may be, shall be entitled to receive, and their sole remedies underthis Agreement shall be:(i) subject to Section 8(b), any earned and unpaid Salary accrued through the date of termination, payable in a lump sum not laterthan 15 days following Executive’s termination of employment;(ii) subject to Section 8(b), compensation for any unused personal holidays and unused vacation days accrued in the fiscal year inwhich termination occurs through the date of termination, payable as in clause (i) of this Section 7;(iii) subject to Section 8(b), the ratable amount of Bonus, if any, to which Executive would otherwise have been entitled in thecurrent fiscal year to the date of termination under this Section, payable at the time specified in Section 4(b);(iv) any unpaid benefits accrued through the date of termination that may be due the Executive under any employee benefitplans or programs of the Company, payable in accordance with the terms of such plans or programs, together with any documented,unreimbursed business expenses, payable in accordance with Company policies; and(v) any stock options, grants of Common Stock, restricted share grants or other benefits under any of the Company’scompensation plans that were vested as of 5:00 PM on the date immediately prior to the date of termination, which may be exercised (inthe case of options) or delivered (in the case of restricted stock) in accordance with the terms of such plans and any applicable planagreements with Executive.-11-(b) For purposes of this Agreement, the term “Disability” shall mean any disability, illness, or other incapacity that preventsSource: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Executive from performing services as contemplated by Section 3, for 120 or more consecutive days or for 180 days in any consecutive12-month period. In such event, the Company shall have the right to terminate this Agreement upon 10 days’ prior written notice toExecutive. During the period of any such disability, illness, or incapacity, (i) the obligation of the Company to pay Salary to Executivepursuant to Section 4 shall be reduced to the extent of any amount received by Executive pursuant to any disability insurance policymaintained and paid for by the Company, and (ii) no bonus compensation shall accrue or be earned, or count toward proration. Termination under this Section shall not prejudice any rights of Executive under disability policies being maintained by the Company forExecutive under the terms of this Agreement, if any.8. TERMINATION UPON CHANGE OF CONTROL(a) In the event Executive terminates his employment under this Agreement for Good Reason, or in the event Executive’semployment is terminated without Cause (which termination shall be effective as of the date specified by the Company in written noticeto Executive) other than due to death or disability, in either case within 12 months after a Change in Control (as hereinafter defined), theExecutive shall be entitled to receive, and his sole remedies under this Agreement shall be:(i) any earned and unpaid Salary accrued through the date of termination, payable in a lump sum not later than 15 days followingExecutive’s termination of employment;(ii) Salary, at the annualized rate in effect on the date of termination of Executive’s employment (or, in the event a reduction inSalary after a Change in Control is a basis for termination for Good Reason, then the Salary in effect immediately prior to suchreduction), for a period of 12 months following such termination, payable in a lump sum not later than 15 days following termination ofemployment;-12-(iii) compensation for any unused personal holidays and unused vacation days accrued in the fiscal year in which terminationoccurs through the date of termination, payable as in clause (i) of this Section 8;(iv) except in the case of the Company giving notice of non-renewal at the end of the Term (or any renewal thereof), the ratableamount of Bonus, if any, to which Executive would otherwise have been entitled in the current fiscal year but for termination underthis Section, payable at the time specified in Section 4(b);(v) any unpaid benefits accrued through the day immediately prior to the date of termination that may be due the Executiveunder any employee benefit plans or programs of the Company, payable in accordance with the terms of such plans or programs,together with any documented, unreimbursed business expenses, payable in accordance with Company policies; and(vi) immediate vesting and elimination of all restrictions on any restricted share grants or deferred stock awards outstanding onthe date of termination of employment; and(vii) immediate vesting of all outstanding stock options on the date of termination of employment and the right to exercise suchstock options as provided in any stock option award agreement to which Executive is a party.(b) A “Change of Control” shall be deemed to have occurred if:(i) Any Person (as hereinafter defined, other than the Company, any employee benefit plan of the Company, or anySource: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.company owned directly or indirectly by the shareholders of the Company immediately prior to such occurrence) becomes theBeneficial Owner (as hereinafter defined), directly or indirectly, of securities of the Company or any Subsidiary (as hereinafter defined)representing 50% or more of the combined voting power of the Company’s or such subsidiary’s then outstanding securities;-13-(ii) during any period of two consecutive years or shorter period, individuals who at the beginning of such periodconstitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with theCompany to effect a transaction described in clause (i), (iii) or (iv) of this paragraph (b)) whose election by the Board or nomination forelection by the Company’s shareholders was approved by a vote of at least two-thirds of the directors then still in office who either weredirectors at the beginning of the two-year period or whose election or nomination for election was previously so approved but excludingfor this purpose any such new director whose initial assumption of office occurs as a result of either an actual or threatened electioncontest (as such terms are used in Rule 14a-11 of Regulation 14A under the Exchange Act) or other actual or threatened solicitation ofproxies or consents by or on behalf of an individual, corporation, partnership, group, associate, or other entity or Person other than theBoard, cease for any reason to constitute at least a majority of the Board;(iii) the Company enters into any consolidation, merger, or other business combination with or into any othercorporation or other entity or person, or any other corporate reorganization, whereby the shareholders of the Company immediatelyprior to such consolidation, merger, business combination, or reorganization own less than 50% of the voting power of the survivingentity immediately after such consolidation, merger, business combination, or reorganization;(iv) the consummation of a plan or agreement for the sale or disposition of all or substantially all of the consolidatedassets of the Company (other than such sale or disposition immediately after which such assets will be owned directly or indirectly bythe shareholders of the Company in substantially the same proportions as their ownership of common stock of the Companyimmediately prior to such sale or disposition), in which case the Board shall determine the effective date of the Change in Controlresulting from such transaction; or-14- (v) the occurrence of any other event that the Board determines, in its discretion, would materially alter thestructure of the Company or its ownership.For purposes of this definition, the term:(A) “Beneficial Owner” shall have the meaning ascribed thereto in Rule 13d-3 under the Exchange Act (as such termSource: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.or rule may be amended from time to time), except that a Person shall be deemed to be the Beneficial Owner of all shares that suchPerson has the right to acquire pursuant to any agreement or arrangement or upon exercise or conversion of rights, warrants, or options,or otherwise, without regard to the sixty day period referred to in Rule 13d-3);(B) “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, or any successoract thereto;(C) “Person” has the meaning ascribed thereto in Section 3(a)(9) of the Exchange Act and used in Sections 13(d)and 14(d) thereof, including “group” as defined in Section 14(d) thereof; and(D) “Good Reason” as used in Section 8 (1) shall include, in addition to the circumstances specified in Section 6 ofthis Agreement, a removal of the Executive from, or any failure to elect or re-elect or, as the case may be, nominate the Executive as amember of the Board and (2) shall not exist as a reason for Executive to terminate his employment after a Change of Controlnotwithstanding anything to the contrary in Section 6 where the Change of Control arises in connection with the circumstancesdescribed in clause (b)(iii) of this Section 8 and Executive’s employment by the entity surviving such consolidation, merger,combination, or reorganization qualifies him as not lower than the third ranking executive of such entity in terms of executive authorityand salary and other measures of compensation..-15- 9. OBLIGATIONS UPON TERMINATION, ETC.(a) Upon the termination of employment, all provisions of this Agreement shall terminate except for this Section 9,Sections 10, 11 and 12, the terms of which shall survive such termination, and the Company shall have no further obligation toExecutive hereunder, except as herein expressly provided. The Company shall comply with the terms of settlement of all deferredcompensation arrangements to which Executive is a party in accordance with his duly executed deferral election forms. (b) In the event of a termination of employment by Executive on his own initiative during the Term or any renewal thereofby delivery of written notice of such resignation ten business days in advance, other than due to Disability or termination for GoodReason, Executive shall have the same entitlements as provided in Section 5, Termination by the Company for Cause. Notwithstandingthe foregoing, Executive shall have no right to terminate during the Term except in the event of termination for Good Reason, and anyvoluntary termination of employment shall be considered a material breach.(c) In the event of a termination of employment, payment made and performance by the Company in accordance with theprovisions of Section 5, 6, 7, 8, or 9, as the case may be, shall operate to fully discharge and release the Company and its directors,officers, employees, subsidiaries, affiliates, shareholders, successors, assigns, agents, and representatives (all of the foregoingcollectively, the “releasees”) from any further obligation or liability with respect to Executive’s rights under this Agreement. OtherSource: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.than payment and performance as aforesaid, none of the releasees shall have any further obligation or liability to Executive or any otherperson under this Agreement arising out of termination of Executive’s employment under this Agreement. The Company shall havethe right to condition the payment of any severance or other amounts pursuant to Section 5, 6, 7, 8, or 9 upon delivery by Executive tothe Company of a release in form and substance satisfactory to the Company releasing any and all claims the Executive, his estate,representatives, and assigns may have against the Company and any other releasee arising out of this Agreement. -16- 10. COVENANTSExecutive agrees that during the Term, any renewal thereof, and for one full year after expiration or termination of the Termor any renewal thereof (except in the case of clause (a), as to which Executive’s covenant shall not be limited in time), he shall not,without the express prior written consent of the Company, directly or indirectly, either individually or as an employee, officer, director,agent, partner, shareholder, consultant, option holder, joint venturer, contractor, nominee, lender of money, guarantor, investor, owner, or in any other capacity:(a) except as required in the course of performing his duties as an Executive hereunder, disclose, copy, divulge, furnish,distribute or make available in any medium whatsoever to any firm, company, corporation, organization, or other entity or person(including but not limited to actual or potential customers or competitors or government officials), or otherwise misappropriate tradesecrets, intellectual property, or other confidential or non-public information of or concerning the Company, its Subsidiaries or affiliatesor the business of any of the foregoing, including without limitation, customer lists, product designs and product know-how, launchinformation or plans pertaining to Company or customer products, arrangements for supplying customers, methods of operation andorganization, sources of supply and arrangements with vendors, product development, business plans and strategies; provided, however,Executive may make disclosures as and to the extent required by applicable law or compelled upon court or administrative order,provided, further, however, that in the event that Executive is so required or compelled, he shall notify the Company not fewer thanten (10) business days in advance of such disclosure in order to afford it the reasonable opportunity to obtain a protective order or otherremedy to limit the scope of such disclosure (it being understood and agreed that, if such disclosure is required by applicable law,Executive shall upon the Company’s request furnish the source and precedents with respect to such requirement). For purposes of thisSection 10, information shall not be deemed confidential if it is within the public domain or becomes publicly known other than throughdisclosure by Executive in violation of this provision; (ii)-17- (b) own (or have any financial interest in, actual, contingent or otherwise), control, manage, operate, participate, engage in,invest in or otherwise have any interest in, or otherwise be connected with, in any manner, any firm, company, corporation,Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.organization, business, enterprise, venture or other entity, association or person that is engaged in the business actually engaged in by theCompany during the Term or any renewal thereof, including without limitation the Company Business (as hereinafter defined) ; or(c) solicit, employ or retain or arrange, encourage, facilitate or assist to have any other firm, company, corporation, organization,business, enterprise, venture or other entity, association or person solicit, employ, retain, or otherwise participate in the employment orretention of, any person who is then, or who has been, within the preceding six (6) months, an employee, consultant, salesrepresentative, technician or engineer of the Company, its subsidiaries or affiliates.(d) own (or have any financial interest in, actual, contingent, future, or otherwise), control, manage, operate, participate,engage in, invest in or otherwise have any interest in or through, or otherwise be connected with, in any manner, any firm, company,corporation, organization, associate, business, enterprise, venture or other entity, association or person that does or proposes to do any oneor more of the following as it relates to of the Company Business (as hereinafter defined): (a)(i) engage in, do, or solicit business with, or(ii) interfere with or affect the Company’s business opportunities with, any of the customers with whom the Company has donebusiness with during the most recent two calendar years or (b)(i) engage in, do, or solicit business with, or (ii) interfere with or affectthe Company’s business opportunities with, any of the vendors with whom the Company has done business with during the most recenttwo calendar years. The term “Company Business” shall mean the business of designing, manufacturing, procuring the supply ormanufacture of, sourcing, selling, re-selling, and/or distributing of carrying or portable cases or cover plates and related carry caseaccessories supplied to the cellular telephone, portable medical equipment, laptop computer, photography, video or audio industries.Nothing in this Section 10 shall be deemed to prohibit Executive from the acquisition or holding of, solely as a passive stockholder, notmore than one percent (1%) of the shares or other securities of a publicly-owned corporation if such securities are traded on a nationalsecurities exchange or the NASDAQ Stock Market.-18- (e) Upon the expiration or termination of this Agreement for any reason, Executive shall promptly deliver to the Company alldocuments, papers and records in his possession relating to the business or affairs of the Company and that he obtained or received in hiscapacity as an officer of the Company and any other Company property or equipment in his possession or control.(f) In the event Executive shall violate or be in violation of any provision of this Section 10 (which provisions Executivehereby acknowledges are reasonable and equitable), in addition to the Company’s right to exercise any and all remedies, legal andequitable, which it may have under applicable laws, Executive shall not be entitled to any, and hereby waives any and all rights to, eachand every, termination payment under this Agreement.11. SEPARABILITYExecutive agrees that the provisions of Section 10 hereof constitute independent and separable covenants, for which Executiveis receiving consideration, which shall survive the termination of employment, and which shall be enforceable by the Companynotwithstanding any rights or remedies the Company may have under any other provision hereof.Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.-19-12. SPECIFIC PERFORMANCEExecutive acknowledges that:(a) the services to be rendered and covenants to be performed under this Agreement are of a special and unique character andthat the Company would be irreparably harmed if such services were lost to it or if Executive breached its obligations and covenantshereunder;(b) the Company is relying on the Executive’s performance of the covenants contained herein, including, withoutlimitation, those contained in Section 10 above, as a material inducement for its entering into this Agreement;(c) the Company may be damaged if the provisions hereof are not specifically enforced; and(d) the award of monetary damages may not adequately protect the Company in the event of a breach hereof by Executive.By virtue thereof, Executive agrees and consents that if Executive breaches any of the provisions of this Agreement, theCompany, in addition to any other rights and remedies available under this Agreement or under applicable laws, shall (without any bondor other security being required and without the necessity of proving monetary damages) be entitled to a temporary and/or permanentinjunction to be issued by a court of competent jurisdiction restraining Executive from committing or continuing any violation of thisAgreement, or any other appropriate decree of specific performance. Such remedies shall not be exclusive and shall be in addition toany other remedy that the Company may have.-20-13. MISCELLANEOUS(a) Entire Agreement; Amendment. This Agreement constitutes the entire employment agreement between the partiesand may not be modified, amended or terminated (other than pursuant to the terms hereof) except by a written instrument executed bythe parties hereto. All other agreements, written or oral, between the parties pertaining to the employment or remuneration ofExecutive not specifically contemplated hereby or incorporated or merged herein are hereby terminated and shall be of no further forceor effect.(b) Assignment; Successors. This Agreement is not assignable by Executive without the prior written consent of theCompany and any purported assignment by Executive of Executive’s rights and/or obligations under this Agreement shall be null andvoid. Except as provided below, this Agreement may be assigned by the Company at any time, upon delivery of written notice toExecutive, to any successor to the business of the Company, or to any Subsidiary or affiliate of the Company. In the event that anothercorporation or other business entity becomes a Successor of the Company, then this Agreement may not be assigned to such Successorunless the Successor shall, by an agreement in form and substance reasonably satisfactory to the Executive, expressly assume and agreeto perform this Agreement in the same manner and to the same extent as the Company would be required to perform if there had beenno Successor. The term “Successor” as used herein shall mean any corporation or other business entity that succeeds to substantially allof the assets or conducts the business of the Company, whether directly or indirectly, by purchase, merger, consolidation or otherwise.Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.This Agreement shall be binding upon and inure to the benefit of the parties and their respective heirs, executors, administrators,personal representatives, successors and permitted assigns.(c) Waivers, etc. No waiver of any breach or default hereunder shall be considered valid unless in writing, and no suchwaiver shall be deemed a waiver of any subsequent breach or default of the same or similar nature. The failure of any party to insistupon strict adherence to any term of this Agreement on any occasion shall not operate or be construed as a waiver of the right to insistupon strict adherence to that term or any other term of this Agreement on that or any other occasion.-21- (d) Provisions Overly Broad. In the event that any term or provision of this Agreement shall be deemed by a court ofcompetent jurisdiction to be overly broad in scope, duration or area of applicability, the court considering the same shall have the powerand hereby is authorized and directed to modify such term or provision to limit such scope, duration or area, or all of them, so that suchterm or provision is no longer overly broad and to enforce the same as so limited. Subject to the foregoing sentence, in the event thatany provision of this Agreement shall be held to be invalid or unenforceable for any reason, such invalidity or unenforceability shallattach only to such provision and shall not affect or render invalid or unenforceable any other provision of this Agreement.(e) Notices. Any notice permitted or required hereunder shall be in writing and shall be deemed to have been given on thedate of delivery or, if mailed by certified mail, postage prepaid, return receipt requested, documented overnight courier, or by facsimiletransmission, on the date mailed or transmitted.(i) If to Executive to:Douglas W. Sabra at his addressset forth in the preamble to this Agreement(ii) If to the Company to:the address set forth in thepreamble to this AgreementAttention: Chairman of the Compensation Committeewith a copy to:Steven Malsin, Esq.237 Upper Shad RoadPound Ridge, NY 10576 Telecopy: (914) 764-1940-22- (f) Law Governing. This Agreement shall be governed by and construed in accordance with the laws of the State of NewSource: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.York governing contracts made and to be performed in New York without regard to conflict of law principles thereof.(g) Survival. All obligations of the Company to Executive and Executive to the Company shall terminate upon thetermination of this Agreement, except as expressly provided herein. The provisions of Sections 10, 11 and 12 shall survive terminationof this Agreement.(h) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, and eachparty may become a party hereto by executing a counterpart hereof. This Agreement and any counterpart so executed shall be deemedto be one and the same instrument. It shall not be necessary in making proof of this Agreement or any counterpart hereof to produce oraccount for any of the other counterparts.(i) Approval. This Agreement is subject to prior review and approval of the Compensation Committee of the Company’sBoard of Directors.(j) Headings. The headings in this Agreement are for convenience of reference only and shall not control or affect themeaning or construction of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the 12th day of August 2008, intending it to beeffective on and as of the Effective Date. DOUGLAS W. SABRAFORWARD INDUSTRIES, INC. /s/ Douglas W. SabraBy: /s/ James O. McKenna Title: Chief Financial Officer -23-Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (this “Agreement”), dated as of the 12th day of August, 2008, between ForwardIndustries, Inc., a New York corporation having its principal offices at 1801 Green Road, Suite E, Pompano Beach, Florida 33064 (the“Company”), and James O. McKenna, residing at 951 Mill Creek Drive, Palm Beach Gardens, FL 33410 (“Executive”).W I T N E S S E T H:WHEREAS, the Company wished to secure the services of Executive upon the terms and conditions of employment as setforth herein, with effect from the date of execution of this Agreement (“Effective Date”);NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration,the receipt of which the parties hereby acknowledge, the parties agree as follows:1. EMPLOYMENT TERMUnless earlier terminated in accordance with the terms of this Agreement, the term of employment hereunder (the “Term”)shall commence on the Effective Date and expire on December 31 , 2009. Upon expiration of the Term, this Agreement shall beautomatically renewed for successive terms of one year each; provided, however, that if either party provides written notice to the otherparty of its or his determination not to so renew not later than 90 (ninety) days prior to the expiration of the Term, or any renewalthereof, as the case may be, this Agreement and Executive’s employment shall terminate at the end of the Term or such renewal term,as the case may be. In the event that the Company is the party giving notice of non-renewal, this shall be treated as a terminationwithout Cause and governed by the terms of Section 5 or Section 7, as the case may be. 2 EMPLOYMENT DUTIES AND SERVICES(a) On the terms and conditions herein set forth, the Company hereby employs Executive as its chief financial officer andtreasurer for the term of this Agreement and any renewal(s) thereof, and Executive hereby accepts such employment. Executive shallperform such duties and responsibilities of a chief financial officer nature for the Company as shall be consistent with the provisions ofthe Company’s By-laws in effect from time to time and as are customary for a chief financial officer of corporations of similar size andbusiness as the Company, subject to the direction of the Company’s President (chief executive officer), or in his absence, the Board ofDirectors (the “Board”). Executive shall serve the Company faithfully and to the best of his ability and shall devote his full businesstime and attention to the business and affairs of the Company, subject to reasonable absences for vacation and illness in accordance withCompany policies. Executive will not engage, directly or indirectly, in any other business or occupation during the Term.Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(b) Nothing in this Agreement shall preclude the Executive from (i) engaging in personal investment activities for himselfand his family, (ii) accepting directorships unrelated to the Company, subject to the prior, written approval of the CompensationCommittee of the Board (“Compensation Committee”), (iii) engaging in charitable and civic activities, and (iv) engaging in such otherlimited activities on behalf of family interests as may be approved by the Nominating and Governance Committee of the Board, so longas any one or more such outside interests set forth in clauses (i), (ii), (iii), and (iv) hereof do not interfere with or affect the performanceof his duties or responsibilities hereunder.(c) Unless otherwise agreed in writing by the Company and Executive, the performance of Executive’s services during theterm of this Agreement shall be rendered at the principal executive offices of the Company, subject to such travel in furtherance ofExecutive’s performance of his duties hereunder as the business of the Company may require. -2-3. COMPENSATION AND EXPENSE REIMBURSEMENT(a) Salary. Executive shall be entitled to receive for all services rendered by Executive in any and all capacities inconnection with his employment hereunder a salary (as it may be adjusted, “Salary”) of $175,000 per annum, payable in equalinstallments in accordance with the prevailing practices of the Company (but not less frequently than monthly).(b) Bonus; Calculation and Payment. The Executive shall be eligible to receive a bonus (“Bonus”) with respect to each fullfiscal year or part thereof (except to the extent expressly provided in Section 3(b), 4, 5, or 6(b) hereof) in respect of his employmenthereunder, as set forth in this Section 3. The amount of Bonus, if any, that Executive may earn in any fiscal year during the Termhereof pursuant to this Section 3(b) shall be based on the extent to which, if any, the Company achieves all or a percentage of, orexceeds, Target (as defined below) in each such fiscal year, in accordance with guidelines, or a formula, for earning such bonus as fixedby the Compensation Committee in its sole discretion not later than the date referred to in the next paragraph.“Target” means, with respect to any fiscal year, the amount of pre-tax income or other measure of operating results ofthe Company as determined by the Compensation Committee of the Board in its sole discretion, projected for achievement, in whole orin part, in such fiscal year by the Compensation Committee for the purpose of establishing Executive’s right to receive Bonuscompensation in respect of such fiscal year. The Compensation Committee shall determine the Target, together with the formulas forearning Bonus hereunder, after the Board has adopted the Annual Budget in respect of each fiscal year during the Term hereof but notlater than the 75th day of each such fiscal year. The Compensation Committee may determine that the amount of Bonus for suchpurposes may be pro rated based on Target being achieved, exceeded, or missed.-3-Bonus compensation, if any, payable pursuant to Section 3(b) shall be payable to Executive not earlier than the date on whichthe Company’s audited financial statements relating to the fiscal year in respect of which such Bonus compensation is payable are firstfiled with the Securities and Exchange Commission (the “Commission’) pursuant to Section 13 or 15(d) under the Securities ExchangeSource: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Act of 1934 (“Exchange Act”) nor later than the tenth (10th) business day after such date. If Executive is otherwise entitled topayment of a Bonus pursuant to this Section 4(b) and the terms of this Agreement but has not served as an employee for the full fiscalyear in respect of which such Bonus is payable, Executive, or his estate, shall be entitled to payment, at the time specified in the nextpreceding sentence, of a ratable portion of such Bonus to which he or his estate is entitled, based on the ratio that the actual number ofdays in such fiscal year during which he served as an Employee pursuant to this Agreement and is so entitled bears to 365; provided,however, that no Bonus (pro-rated or otherwise) shall be payable in respect of a fiscal year during which Executive is employedhereunder solely for the first fiscal quarter thereof because of expiration of the Term, or any renewal thereof as a result of notice ofnon-renewal furnished pursuant to Section 1; and provided, further, that if Executive’s employment was terminated as a result ofnotice pursuant to Section 4, Termination for Cause, he shall not be entitled to any Bonus compensation in respect of the fiscal yearduring which such notice of termination was given or during which such termination becomes effective.(c) Expenses. Executive will be reimbursed for all reasonable and necessary expenses incurred by Executive in carryingout the duties contemplated under this Agreement, in accordance with Company practices and procedures in effect from time to time, assuch practices may be changed from time to time by the Board. Executive shall be reimbursed for the expense of operating anautomobile (maintenance, gas, tolls and insurance only) for Executive’s use in connection with the discharge of his duties under thisAgreement, the maximum amount of which reimbursement shall be determined by the Compensation Committee and shall beincludible in Executive’s W-2 statements and be subject to applicable income tax withholding regulations.-4- (d) Benefits. Executive shall be entitled to participate in all group health and other insurance programs and all other fringebenefit (including vacation) and retirement plans (including any 401(k) plan) or other compensatory plans that the Company mayhereafter elect to make available to its executives generally on terms no less favorable than those provided to other executivesgenerally, provided Executive meets the qualifications therefor. The Company shall not be required to establish any such program orplan, except to the extent expressly set forth in this Section 4.(e) Withholding. All payments required to be made by the Company hereunder to the Executive shall be subject to thewithholding of such amounts relating to taxes and other governmental assessments as the Company may reasonably determine it shouldwithhold pursuant to any applicable law, rule or regulation.(f) IRC§409A. Executive and the Company agree that the provisions of this Agreement shall be construed andimplemented, and any deferrals and elections shall be made, in order to comply with Internal Revenue Code Section 409A, as it may beamended, and the rules and regulations issued thereunder from time to time.4. TERMINATION BY THE COMPANY FOR CAUSE(a) The Board of Directors may, by written notice given at any time during the Term, or any renewal thereof, terminate theemployment of Executive for cause, the cause to be specified in reasonable detail in such notice. For purposes of this Agreement,“cause” shall mean Executive’s: Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.-5- (i) willful misconduct in connection with the performance of any of his duties or services hereunder, including withoutlimitation (1) misappropriation or improper diversion of funds, rights or property of the Company or any subsidiary of the Company(“Subsidiary”), or (2) securing or attempting to secure personally (including for the benefit of any family member, or person sharing thesame household, or any entity (corporate, partnership, unincorporated association, proprietorship, limited liability company, trust, orotherwise) in which Executive has any economic or beneficial interest) any profit or benefit in connection with any transaction enteredinto on behalf of the Company or any Subsidiary unless the transaction benefiting the entity has been approved by the Board upon thebasis of full disclosure of such benefit, or (3) material breach of any covenant contained in this Agreement or (4) any other action inviolation of Executive’s fiduciary duty owed to the Company or Executive’s acting in a manner adverse to the interests of the Companyand for his own pecuniary benefit or that of a family member (or member of his household) or any entity (as described in clause (i)(2) ofSection 4(a) above) in which he or any such person has an economic or beneficial interest; or (5) Executive’s failure to cooperate, ifrequested by the Board, with any investigation or inquiry into his or the Company’s business practices, whether internal or external; (ii) willful failure, neglect or refusal to perform his duties or services under this Agreement, which failure, neglect orrefusal shall continue for a period of 30 days after written notice thereof shall have been given to the Executive by or on behalf of theBoard ; and/or (iii) conviction of, or nolo contendere or guilty plea in connection with, a felony. (b) Termination for cause under clause (i) or (iii) of paragraph (a) of this Section 4 shall be effective immediately upon thegiving of such notice; if notice of termination for cause relates to clause (ii) of paragraph (a) of this Section 4, termination shall beeffective on the thirtieth (30th) day after the notice referred to in the first sentence of this Section 4 is given to Executive, unless theExecutive shall have, prior to such thirtieth (30th) day, cured the alleged cause to the satisfaction of the Board, in which case the Boardshall so notify Executive and such cause shall be deemed to no longer exist; provided, however, that if the Board concludes thatExecutive’s willful failure, neglect, or refusal to perform has resulted in material damage to the Company or its reputation that is notcapable of being remedied, termination shall be effective immediately upon giving of notice. -6-For purposes of this Agreement, an act or failure to act on the Executive’s part shall be considered “willful” if it was done oromitted to be done by him not in good faith, and shall not include any act or failure to act resulting from any incapacity of the Executive.(c) Upon termination of employment by the Company for Cause, the Executive shall be entitled to receive, and his soleremedies under this Agreement shall be:(i) any earned and unpaid Salary accrued through the date of termination for Cause, payable in a lump sum not later than 15 daysfollowing Executive’s termination of employment;(ii) compensation for any unused personal holidays and unused vacation days accrued in the fiscal year in which terminationoccurs through the date of termination, payable as in clause (i) of this Section 4;Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(iii) except for any Bonus compensation (for which Executive shall not be eligible), any unpaid benefits accrued through the dayimmediately prior to the date of termination that may be due the Executive under any employee benefit plans or programs of theCompany, payable in accordance with the terms of such plans or programs, together with any documented, unreimbursed businessexpenses, payable in accordance with Company policies; and(iv) any stock options, grants of Common Stock, restricted share grants or other benefits under any of the Company’scompensation plans that were vested as of 5:00 PM on the date immediately prior to the date of termination in accordance with the termsof such plans and any applicable plan agreements with Executive, provided, however, that any vested but unexercised stock options maynot be exercised on or after the effective date of termination. (d) Termination of Executive’s employment under this Section 4 shall be in addition to and not exclusive of any other rightsand remedies that the Company has or may have relating to Executive with respect to the facts and circumstances pertaining to suchtermination.-7-5. TERMINATION BY EXECUTIVE FOR GOOD REASON OR TERMINATION WITHOUT CAUSE PRIOR TOCHANGE IN CONTROL(a) In the event Executive terminates his employment under this Agreement for Good Reason (as hereinafter defined), or inthe event Executive’s employment is terminated without Cause (which termination shall be effective as of the date specified by theCompany in written notice delivered to Executive not fewer than 15 days prior to the date of termination) other than due to death orDisability (as hereinafter defined), in either case prior to a Change in Control (as hereinafter defined), the Executive shall be entitled toreceive, and his sole remedies under this Agreement shall be:(i) any earned and unpaid Salary accrued through the date of termination, payable in a lump sum not later than 15 days followingExecutive’s termination of employment;(ii) Salary, at the annualized rate in effect on the date of termination of Executive’s employment (or, in the event a reduction inSalary is a basis for termination for Good Reason, then the Salary in effect immediately prior to such reduction), for a period of sixmonths following such termination, payable in a lump sum not later than 15 days following termination of employment;(iii) compensation for any unused personal holidays and unused vacation days accrued in the fiscal year in which terminationoccurs through the date of termination, payable as in clause (i) of this Section 6;(iv) except in the case of the Company giving notice of non-renewal at the end of the Term (or any renewal thereof), the ratableamount of Bonus, if any, to which Executive would otherwise have been entitled in the current fiscal year but for termination underthis Section, payable at the time specified in Section 3(b);-8-(v) any unpaid benefits accrued through the day immediately prior to the date of termination that may be due the Executiveunder any employee benefit plans or programs of the Company, payable in accordance with the terms of such plans or programs,Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.together with any documented, unreimbursed business expenses, payable in accordance with Company policies; and(vi) any stock options, grants of Common Stock, restricted share grants or other benefits under any of the Company’scompensation plans that were vested as of 5:00 PM on the date immediately prior to the date of termination, which may be exercised (inthe case of options) or delivered (in the case of restricted stock) in accordance with the terms of such plans and any applicable planagreements with Executive.(b) Termination by the Executive for Good Reason shall be effected by his giving prior written notice to the Company, inwhich case this Agreement shall terminate on the date specified in such notice; provided, however, that such notice shall specify (i) inreasonable detail the circumstances or event asserted as the basis for termination for Good Reason and (ii) a date of termination that shallbe at least thirty (30) days after the date of delivery of such notice; and provided, further, that the Company shall have the right duringsuch thirty (30) day period to remedy the circumstances or event giving rise to the notice of termination for Good Reason prior to thedate specified in such notice, in which case no right of termination or other right shall exist under this Section. . For purposes of this Agreement, subject to Section 7(D), the term “Good Reason” shall mean:(i) the assignment to Executive without his written consent of any duties inconsistent in any material respect with Executive’sposition (including employment status, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section2 of this Agreement or any other action by the Company that results in a material diminishment in such positions, authority, duties, orresponsibilities, other than such assignment or other action that is remedied by the Company prior to the date of termination specified inthe written notice from Executive: (ii) a decrease in annual Salary rate;-9-(iii) any failure by the Company to perform any material obligation under, or its breach of a material provision of, thisAgreement that is not cured within the 30-day notice period referred to above; or(iv) failure of a Successor to expressly assume and agree to perform this Agreement in the same manner and to the same extentas the Company would have had there been no Successor. 6. TERMINATION FOR DEATH OR DISABILITY(a) Executive’s employment shall terminate immediately upon his death or Disability (as hereinafter defined). Upon suchtermination, the Executive, his estate, or his beneficiaries, as the case may be, shall be entitled to receive, and their sole remedies underthis Agreement shall be:(i) subject to Section 7(b), any earned and unpaid Salary accrued through the date of termination, payable in a lump sum not laterthan 15 days following Executive’s termination of employment;(ii) subject to Section 7(b), compensation for any unused personal holidays and unused vacation days accrued in the fiscal year inwhich termination occurs through the date of termination, payable as in clause (i) of this Section 6;(iii) subject to Section 7(b), the ratable amount of Bonus, if any, to which Executive would otherwise have been entitled in thecurrent fiscal year to the date of termination under this Section, payable at the time specified in Section 3(b);Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(iv) any unpaid benefits accrued through the date of termination that may be due the Executive under any employee benefitplans or programs of the Company, payable in accordance with the terms of such plans or programs, together with any documented,unreimbursed business expenses, payable in accordance with Company policies; and -10-(v) any stock options, grants of Common Stock, restricted share grants or other benefits under any of the Company’scompensation plans that were vested as of 5:00 PM on the date immediately prior to the date of termination, which may be exercised (inthe case of options) or delivered (in the case of restricted stock) in accordance with the terms of such plans and any applicable planagreements with Executive.(b) For purposes of this Agreement, the term “Disability” shall mean any disability, illness, or other incapacity that preventsExecutive from performing services as contemplated by Section 2, for 120 or more consecutive days or for 180 days in any consecutive12-month period. In such event, the Company shall have the right to terminate this Agreement upon 10 days’ prior written notice toExecutive. During the period of any such disability, illness, or incapacity, (i) the obligation of the Company to pay Salary to Executivepursuant to Section 3 shall be reduced to the extent of any amount received by Executive pursuant to any disability insurance policymaintained and paid for by the Company, and (ii) no bonus compensation shall accrue or be earned, or count toward proration. Termination under this Section shall not prejudice any rights of Executive under disability policies being maintained by the Company forExecutive under the terms of this Agreement, if any.7. TERMINATION UPON CHANGE OF CONTROL(a) In the event Executive terminates his employment under this Agreement for Good Reason, or in the event Executive’semployment is terminated without Cause (which termination shall be effective as of the date specified by the Company in written noticeto Executive) other than due to death or disability, in either case within 12 months after a Change in Control (as hereinafter defined), theExecutive shall be entitled to receive, and his sole remedies under this Agreement shall be:(i) any earned and unpaid Salary accrued through the date of termination, payable in a lump sum not later than 15 days followingExecutive’s termination of employment;-11-(ii) Salary, at the annualized rate in effect on the date of termination of Executive’s employment (or, in the event a reduction inSalary after a Change in Control is a basis for termination for Good Reason, then the Salary in effect immediately prior to suchreduction), for a period of 12 months following such termination, payable in a lump sum not later than 15 days following termination ofemployment;(iii) compensation for any unused personal holidays and unused vacation days accrued in the fiscal year in which terminationoccurs through the date of termination, payable as in clause (i) of this Section 7;(iv) except in the case of the Company giving notice of non-renewal at the end of the Term (or any renewal thereof), the ratableSource: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.amount of Bonus, if any, to which Executive would otherwise have been entitled in the current fiscal year but for termination underthis Section, payable at the time specified in Section 3(b);(v) any unpaid benefits accrued through the day immediately prior to the date of termination that may be due the Executiveunder any employee benefit plans or programs of the Company, payable in accordance with the terms of such plans or programs,together with any documented, unreimbursed business expenses, payable in accordance with Company policies; and(vi) immediate vesting and elimination of all restrictions on any restricted share grants or deferred stock awards outstanding onthe date of termination of employment; and(vii) immediate vesting of all outstanding stock options on the date of termination of employment and the right to exercise suchstock options as provided in any stock option award agreement to which Executive is a party.(b) A “Change of Control” shall be deemed to have occurred if: -12-(i) Any Person (as hereinafter defined, other than the Company, any employee benefit plan of the Company, or any companyowned directly or indirectly by the shareholders of the Company immediately prior to such occurrence) becomes the Beneficial Owner(as hereinafter defined), directly or indirectly, of securities of the Company or any Subsidiary (as hereinafter defined) representing 50%or more of the combined voting power of the Company’s or such subsidiary’s then outstanding securities;(ii) during any period of two consecutive years or shorter period, individuals who at the beginning of such period constitutethe Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company toeffect a transaction described in clause (i), (iii) or (iv) of this paragraph (b)) whose election by the Board or nomination for election by theCompany’s shareholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at thebeginning of the two-year period or whose election or nomination for election was previously so approved but excluding for this purposeany such new director whose initial assumption of office occurs as a result of either an actual or threatened election contest (as suchterms are used in Rule 14a-11 of Regulation 14A under the Exchange Act) or other actual or threatened solicitation of proxies orconsents by or on behalf of an individual, corporation, partnership, group, associate, or other entity or Person other than the Board, ceasefor any reason to constitute at least a majority of the Board;(iii) the Company enters into any consolidation, merger, or other business combination with or into any other corporation orother entity or person, or any other corporate reorganization, whereby the shareholders of the Company immediately prior to suchconsolidation, merger, business combination, or reorganization own less than 50% of the voting power of the surviving entityimmediately after such consolidation, merger, business combination, or reorganization;-13-(iv) the consummation of a plan or agreement for the sale or disposition of all or substantially all of the consolidated assets ofSource: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.the Company (other than such sale or disposition immediately after which such assets will be owned directly or indirectly by theshareholders of the Company in substantially the same proportions as their ownership of common stock of the Company immediatelyprior to such sale or disposition), in which case the Board shall determine the effective date of the Change in Control resulting fromsuch transaction; or(v) the occurrence of any other event that the Board determines, in its discretion, would materially alter the structure ofthe Company or its ownership.For purposes of this definition, the term:(A) “Beneficial Owner” shall have the meaning ascribed thereto in Rule 13d-3 under the Exchange Act (as such term or rulemay be amended from time to time), except that a Person shall be deemed to be the Beneficial Owner of all shares that such Person hasthe right to acquire pursuant to any agreement or arrangement or upon exercise or conversion of rights, warrants, or options, orotherwise, without regard to the sixty day period referred to in Rule 13d-3);(B) “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, or any successor actthereto;(C) “Person” has the meaning ascribed thereto in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d)thereof, including “group” as defined in Section 14(d) thereof; and(D) “Good Reason” as used in this Section 7 shall not exist as a reason for Executive to terminate his employment after aChange of Control notwithstanding anything to the contrary in Section 5 where the Change of Control arises in connection with thecircumstances described in clause (b)(iii) of this Section 7 and Executive’s employment by the entity surviving such consolidation,merger, combination, or reorganization qualifies him as an executive in such entity’s financial function or department.-14-8. OBLIGATIONS UPON TERMINATION, ETC.(a) Upon the termination of employment, all provisions of this Agreement shall terminate except for this Section 8,Sections 9, 10 and 11, the terms of which shall survive such termination, and the Company shall have no further obligation toExecutive hereunder, except as herein expressly provided. The Company shall comply with the terms of settlement of all deferredcompensation arrangements to which Executive is a party in accordance with his duly executed deferral election forms. (b) In the event of a termination of employment by Executive on his own initiative during the Term or any renewal thereofby delivery of written notice of such resignation ten business days in advance, other than due to Disability or termination for GoodReason, Executive shall have the same entitlements as provided in Section 4, Termination by the Company for Cause. Notwithstandingthe foregoing, Executive shall have no right to terminate during the Term except in the event of termination for Good Reason, and anyvoluntary termination of employment shall be considered a material breach.(c) In the event of a termination of employment, payment made and performance by the Company in accordance with theprovisions of Section 4, 5, 6, 7, or 8, as the case may be, shall operate to fully discharge and release the Company and its directors,officers, employees, subsidiaries, affiliates, shareholders, successors, assigns, agents, and representatives (all of the foregoingSource: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.collectively, the “releasees”) from any further obligation or liability with respect to Executive’s rights under this Agreement. Otherthan payment and performance as aforesaid, none of the releasees shall have any further obligation or liability to Executive or any otherperson under this Agreement arising out of termination of Executive’s employment under this Agreement. The Company shall havethe right to condition the payment of any severance or other amounts pursuant to Section 4, 5, 6, 7, or 8 upon delivery by Executive tothe Company of a release in form and substance satisfactory to the Company releasing any and all claims the Executive, his estate,representatives, and assigns may have against the Company and any other releasee arising out of this Agreement.-15-9. COVENANTSExecutive agrees that during the Term, any renewal thereof, and for one full year after expiration or termination of the Termor any renewal thereof (except in the case of clause (a), as to which Executive’s covenant shall not be limited in time), he shall not,without the express prior written consent of the Company, directly or indirectly, either individually or as an employee, officer, director,agent, partner, shareholder, consultant, option holder, joint venturer, contractor, nominee, lender of money, guarantor, investor, owner, or in any other capacity:(a) except as required in the course of performing his duties as an Executive hereunder, disclose, copy, divulge, furnish,distribute or make available in any medium whatsoever to any firm, company, corporation, organization, or other entity or person(including but not limited to actual or potential customers or competitors or government officials), or otherwise misappropriate tradesecrets, intellectual property, or other confidential or non-public information of or concerning the Company, its Subsidiaries or affiliatesor the business of any of the foregoing, including without limitation, customer lists, product designs and product know-how, launchinformation or plans pertaining to Company or customer products, arrangements for supplying customers, methods of operation andorganization, sources of supply and arrangements with vendors, product development, business plans and strategies; provided, however,Executive may make disclosures as and to the extent required by applicable law or compelled upon court or administrative order,provided, further, however, that in the event that Executive is so required or compelled, he shall notify the Company not fewer thanten (10) business days in advance of such disclosure in order to afford it the reasonable opportunity to obtain a protective order or otherremedy to limit the scope of such disclosure (it being understood and agreed that, if such disclosure is required by applicable law,Executive shall upon the Company’s request furnish the source and precedents with respect to such requirement). For purposes of thisSection 10, information shall not be deemed confidential if it is within the public domain or becomes publicly known other than throughdisclosure by Executive in violation of this provision; (ii)-16-(b) own (or have any financial interest in, actual, contingent or otherwise), control, manage, operate, participate, engage in,invest in or otherwise have any interest in, or otherwise be connected with, in any manner, any firm, company, corporation,organization, business, enterprise, venture or other entity, association or person that is engaged in the business actually engaged in by theSource: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Company during the Term or any renewal thereof, including without limitation the Company Business (as hereinafter defined) ; or(c) solicit, employ or retain or arrange, encourage, facilitate or assist to have any other firm, company, corporation, organization,business, enterprise, venture or other entity, association or person solicit, employ, retain, or otherwise participate in the employment orretention of, any person who is then, or who has been, within the preceding six (6) months, an employee, consultant, salesrepresentative, technician or engineer of the Company, its subsidiaries or affiliates.(d) own (or have any financial interest in, actual, contingent, future, or otherwise), control, manage, operate, participate,engage in, invest in or otherwise have any interest in or through, or otherwise be connected with, in any manner, any firm, company,corporation, organization, associate, business, enterprise, venture or other entity, association or person that does or proposes to do any oneor more of the following as it relates to of the Company Business (as hereinafter defined): (a)(i) engage in, do, or solicit business with, or(ii) interfere with or affect the Company’s business opportunities with, any of the customers with whom the Company has donebusiness with during the most recent two calendar years or (b)(i) engage in, do, or solicit business with, or (ii) interfere with or affectthe Company’s business opportunities with, any of the vendors with whom the Company has done business with during the most recenttwo calendar years. The term “Company Business” shall mean the business of designing, manufacturing, procuring the supply ormanufacture of, sourcing, selling, re-selling, and/or distributing of carrying or portable cases or cover plates and related carry caseaccessories supplied to the cellular telephone, portable medical equipment, laptop computer, photography, video or audio industries.Nothing in this Section 9 shall be deemed to prohibit Executive from the acquisition or holding of, solely as a passive stockholder, notmore than one percent (1%) of the shares or other securities of a publicly-owned corporation if such securities are traded on a nationalsecurities exchange or the NASDAQ Stock Market.-17-(e) Upon the expiration or termination of this Agreement for any reason, Executive shall promptly deliver to the Company alldocuments, papers and records in his possession relating to the business or affairs of the Company and that he obtained or received in hiscapacity as an officer of the Company and any other Company property or equipment in his possession or control.(f) In the event Executive shall violate or be in violation of any provision of this Section 9 (which provisions Executivehereby acknowledges are reasonable and equitable), in addition to the Company’s right to exercise any and all remedies, legal andequitable, which it may have under applicable laws, Executive shall not be entitled to any, and hereby waives any and all rights to, eachand every, termination payment under this Agreement.10. SEPARABILITYExecutive agrees that the provisions of Section 9 hereof constitute independent and separable covenants, for which Executive isreceiving consideration, which shall survive the termination of employment, and which shall be enforceable by the Companynotwithstanding any rights or remedies the Company may have under any other provision hereof.11. SPECIFIC PERFORMANCEExecutive acknowledges that:-18-Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(a) the services to be rendered and covenants to be performed under this Agreement are of a special and unique character andthat the Company would be irreparably harmed if such services were lost to it or if Executive breached its obligations and covenantshereunder;(b) the Company is relying on the Executive’s performance of the covenants contained herein, including, withoutlimitation, those contained in Section 9 above, as a material inducement for its entering into this Agreement;(c) the Company may be damaged if the provisions hereof are not specifically enforced; and(d) the award of monetary damages may not adequately protect the Company in the event of a breach hereof by Executive.By virtue thereof, Executive agrees and consents that if Executive breaches any of the provisions of this Agreement, theCompany, in addition to any other rights and remedies available under this Agreement or under applicable laws, shall (without any bondor other security being required and without the necessity of proving monetary damages) be entitled to a temporary and/or permanentinjunction to be issued by a court of competent jurisdiction restraining Executive from committing or continuing any violation of thisAgreement, or any other appropriate decree of specific performance. Such remedies shall not be exclusive and shall be in addition toany other remedy that the Company may have.12. MISCELLANEOUS(a) Entire Agreement; Amendment. This Agreement constitutes the entire employment agreement between the partiesand may not be modified, amended or terminated (other than pursuant to the terms hereof) except by a written instrument executed bythe parties hereto. All other agreements, written or oral, between the parties pertaining to the employment or remuneration ofExecutive not specifically contemplated hereby or incorporated or merged herein are hereby terminated and shall be of no further forceor effect.-19- (b) Assignment; Successors. This Agreement is not assignable by Executive without the prior written consent of theCompany and any purported assignment by Executive of Executive’s rights and/or obligations under this Agreement shall be null andvoid. Except as provided below, this Agreement may be assigned by the Company at any time, upon delivery of written notice toExecutive, to any successor to the business of the Company, or to any Subsidiary or affiliate of the Company. In the event that anothercorporation or other business entity becomes a Successor of the Company, then this Agreement may not be assigned to such Successorunless the Successor shall, by an agreement in form and substance reasonably satisfactory to the Executive, expressly assume and agreeto perform this Agreement in the same manner and to the same extent as the Company would be required to perform if there had beenno Successor. The term “Successor” as used herein shall mean any corporation or other business entity that succeeds to substantially allof the assets or conducts the business of the Company, whether directly or indirectly, by purchase, merger, consolidation or otherwise.This Agreement shall be binding upon and inure to the benefit of the parties and their respective heirs, executors, administrators,personal representatives, successors and permitted assigns.Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(c) Waivers, etc. No waiver of any breach or default hereunder shall be considered valid unless in writing, and no suchwaiver shall be deemed a waiver of any subsequent breach or default of the same or similar nature. The failure of any party to insistupon strict adherence to any term of this Agreement on any occasion shall not operate or be construed as a waiver of the right to insistupon strict adherence to that term or any other term of this Agreement on that or any other occasion.-20- (d) Provisions Overly Broad. In the event that any term or provision of this Agreement shall be deemed by a court ofcompetent jurisdiction to be overly broad in scope, duration or area of applicability, the court considering the same shall have the powerand hereby is authorized and directed to modify such term or provision to limit such scope, duration or area, or all of them, so that suchterm or provision is no longer overly broad and to enforce the same as so limited. Subject to the foregoing sentence, in the event thatany provision of this Agreement shall be held to be invalid or unenforceable for any reason, such invalidity or unenforceability shallattach only to such provision and shall not affect or render invalid or unenforceable any other provision of this Agreement.(e) Notices. Any notice permitted or required hereunder shall be in writing and shall be deemed to have been given on thedate of delivery or, if mailed by certified mail, postage prepaid, return receipt requested, documented overnight courier, or by facsimiletransmission, on the date mailed or transmitted.(i) If to Executive to:James O. McKenna at his addressset forth in the preamble to this Agreement(ii) If to the Company to:the address set forth in thepreamble to this AgreementAttention: Chairman of the Compensation Committeewith a copy to:Steven Malsin, Esq.237 Upper Shad RoadPound Ridge, NY 10576 Telecopy: (914) 764-1940(f) Law Governing. This Agreement shall be governed by and construed in accordance with the laws of the State of NewYork governing contracts made and to be performed in New York without regard to conflict of law principles thereof. -21-(g) Survival. All obligations of the Company to Executive and Executive to the Company shall terminate upon thetermination of this Agreement, except as expressly provided herein. The provisions of Sections 9, 10 and 11 shall survive terminationSource: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.of this Agreement.(h) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, and eachparty may become a party hereto by executing a counterpart hereof. This Agreement and any counterpart so executed shall be deemedto be one and the same instrument. It shall not be necessary in making proof of this Agreement or any counterpart hereof to produce oraccount for any of the other counterparts.(i) Approval. This Agreement is subject to prior review and approval of the Compensation Committee of the Company’sBoard of Directors.(j) Headings. The headings in this Agreement are for convenience of reference only and shall not control or affect themeaning or construction of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the 12th day of August 2008, intending it to beeffective on and as of the Effective Date.JAMES O. McKENNAFORWARD INDUSTRIES, INC./s/ James O. McKennaBy: /s/ Douglas W. Sabra Title: Chief Executive Officer -22-Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Exhibit 21.1 List of Subsidiaries of Forward Industries, Inc. 1. Koszegi Industries Inc., an Indiana Corporation2. Koszegi Asia Ltd., a Hong Kong Limited Company (the name of this subsidiary was changed to “Forward Industries HK Limited” inOctober 2008);3. Forward Innovations GmbH, a Switzerland GmbH4. Forward Asia Pacific Limited, a Hong Kong Limited CompanyAll four subsidiaries are wholly-owned by Forward Industries, Inc. Each does business under its name as set forth above.Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Exhibit 23.1 Consent of Independent Registered Public Accounting FirmWe hereby consent to the incorporation by reference in the Registration Statement on Forms S-8 (Registration Nos. 333-104743 and 333-144442) ofForward Industries, Inc., of our report dated December 15, 2008, which appears in the annual report on Form 10-K of Forward Industries, Inc. forthe year ended September 30, 2008. /s/ Kaufman, Rossin & Co., P.A.Certified Public Accountants December 15, 2008Miami, FloridaSource: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 31.1CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER THE EXCHANGE ACT I, Douglas W. Sabra, of the Board and Chief Executive Officer of Forward Industries, Inc. (“Forward”) certify that:1.I have reviewed this annual report on Form 10‑K for the fiscal year ended September 30, 2008, of Forward;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 thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of Forward as of, and for, the periods presented in this report;4.Forward’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct 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)) forForward and we have: a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to Forward, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; b)designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; c)evaluated the effectiveness of Forward’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report (the fourth quarter in the case of this annual reporton Form 10-K) based on such evaluation; and d)disclosed in this report any change in Forward’s internal control over financial reporting that occurred during Forward’s most recent fiscalquarter (Forward’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,Forward’s internal control over financial reporting; and5.Forward’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to Forward’sauditors and the audit committee of Forward’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 reasonablylikely to adversely affect Forward’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 Forward’s internal controlsover financial reporting. Date: December 15, 2008 /s/Douglas W. SabraDouglas W. SabraPresident and Acting Chairman of the Boardand Chief Executive Officer(Principal Executive Officer)Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Exhibit 31.2CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER THE EXCHANGE ACTI, James O. McKenna, Chief Financial Officer of Forward Industries, Inc. (“Forward”) certify that:1.I have reviewed this annual report on Form 10‑K for the fiscal year ended September 30, 2008, of Forward;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 thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of Forward as of, and for, the periods presented in this report;4.Forward’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct 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)) forForward and we have: a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to Forward, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; b)designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; c)evaluated the effectiveness of Forward’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report (the fourth quarter in the case of this annual reporton Form 10-K) based on such evaluation; and d)disclosed in this report any change in Forward’s internal control over financial reporting that occurred during Forward’s most recent fiscalquarter (Forward’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,Forward’s internal control over financial reporting; and5.Forward’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to Forward’sauditors and the audit committee of Forward’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 reasonablylikely to adversely affect Forward’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 Forward’s internal controlsover financial reporting.Date: December 15, 2008 /s/James O. McKennaJames O. McKennaChief Financial Officer(Principal Financial and Accounting Officer)Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Exhibit 32.1CERTIFICATIONS OF THE CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICERPURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Douglas W. Sabra, Chief Executive Officer of Forward Industries, Inc. (”Forward”), and James O. McKenna, Chief Financial Officer of Forward, do eachcertify pursuant to 18 U.S.C. §1350 that, to the best of their knowledge:1. Forward’s annual report on Form 10-K for the fiscal year ended September 30, 2008 (the “Report”) fully complies with the requirements of Section 13(a) or Section15(d), as applicable, of the Securities Exchange Act of 1934; and2. 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 15th day of December 2008. /s/ DOUGLAS W. SABRADouglas W. SabraPresident and Acting Chairman(Principal Executive Officer) /s/ JAMES O. MCKENNAJames O. McKennaChief Financial Officer(Principal Financial and Accounting Officer) Source: FORWARD INDUSTRIES INC, 10-K, December 16, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.

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