Forward Industries Inc.
Annual Report 2014

Plain-text annual report

Morningstar® Document Research℠ FORM 10-KFORWARD INDUSTRIES INC - FORDFiled: December 10, 2014 (period: September 30, 2014)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, 2014¨¨ 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(I.R.S. Employer Identification No.)incorporation or organization) 477 Rosemary Ave., West Palm Beach, FL 33401 (Address of principal executive offices, including zip code)(561) 465-0030(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 1934during the preceding 12 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. xYes ¨¨NoIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required tobe submitted and posted pursuant to Rue 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required tosubmit and post such files). ¨ Yes xx 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 thisform 10-K. xx Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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.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 xNoThe aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which thecommon equity was last sold, as of the last business day of the Registrant’s most recently completed second fiscal quarter was: $11,422,633.As of December 5, 2014, 8,443,046 shares of the Registrant’s common stock were outstanding.Documents Incorporated by ReferenceThe Proxy Statement for the 2014 Annual Meeting of Shareholders is incorporated by reference into Part III of this Annual Report on Form 10-K. Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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.Table of Contents PART IPageNo.Item 1.Business 2 Item 1A.Risk Factors7 Item 1B.Unresolved Staff Comments12 Item 2.Properties12 Item 3.Legal Proceedings12 Item 4.Mine Safety Disclosures13 PART II Item 5.Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities 13 Item 6.Selected Financial Data14 Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations14 Item 7A.Quantitative and Qualitative Disclosures About Market Risk21 Item 8.Financial Statements and Supplementary Data22 Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure22 Item 9A.Controls and Procedures22 Item 9B.Other Information23 PART III Item 10.Directors, Executive Officers and Corporate Governance24 Item 11.Executive Compensation24 Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters24 Item 13.Certain Relationships and Related Transactions, and Director Independence24 Item 14.Principal Accountant Fees and Services24 PART IV Item 15.Exhibits and Financial Statement Schedules25 Signatures28 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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 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:“Forward”, “Forward Industries”, “we”, “our”, and the “Company” refer to Forward Industries, Inc., a New York corporation, together with its consolidatedsubsidiaries; “Common Stock” refers to the common stock, $.01 par value per share, of Forward Industries, Inc.;“Forward US” refers to Forward Industries’ wholly owned subsidiary Forward Industries (IN), Inc., an Indiana corporation;“Forward HK” refers to Forward Industries’ inactive wholly owned subsidiary Forward Industries HK, Ltd., a Hong Kong corporation;“Forward Switzerland” refers to Forward Industries’ wholly owned subsidiary Forward Industries (Switzerland) GmbH, a Swiss corporation;“Forward UK” refers to Forward Industries’ inactive wholly owned subsidiary Forward Ind. (UK) Limited, a limited company of England and Wales;“Forward China” refers to Forward Industries Asia-Pacific Corporation (f/k/a Seaton Global Corporation), a British Virgin Islands registered corporation thatis Forward’s exclusive sourcing agent in the Asia-Pacific region; “GAAP” refers to accounting principles generally accepted in the United States; “Commission” refers to the United States Securities and Exchange Commission; “Exchange Act” refers to the United States Securities Exchange Act of 1934, as amended;“Fiscal 2014” refers to our fiscal year ended September 30, 2014;“Fiscal 2013” refers to our fiscal year ended September 30, 2013; “Europe” refers to the countries included in the European Union; “EMEA Region” means the geographic area encompassing Europe, the Middle East and Africa;“APAC Region” refers to the Asia Pacific Region, consisting of Australia, New Zealand, Hong Kong, Taiwan, China, South Korea, Japan, Singapore,Malaysia, Thailand, Indonesia, India, the Philippines and Vietnam;“Americas” refers to the geographic area encompassing North, Central, and South America;“OEM” refers to Original Equipment Manufacturer;“Retail” refers to the retail distribution channel; and“Corporate” refers to the corporate distribution channel. Note Regarding Presentation of Financial InformationCertain figures included in this Annual Report on Form 10-K have been subject to rounding adjustments; accordingly, figures shown as totals in certaintables may not be an arithmetic aggregation of the figures that precede them. 1 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. PART IITEM 1. BUSINESSGeneralForward Industries, Inc. was incorporated under the laws of the State of New York and began operations in 1961 as a manufacturer and distributor ofspecialty and promotional products. We design, market, and distribute carry and protective solutions, primarily for hand held electronic devices, includingsoft-sided carrying cases, bags, clips, hand straps, protective plates and other accessories made of leather, nylon, vinyl, plastic, PVC and other syntheticmaterials. Our principal customer market is original equipment manufacturers, or “OEMs” (or the contract manufacturing firms of these OEM customers), thateither package our products as accessories “in box” together with their branded product offerings, or sell them through their retail distribution channels. OurOEM products include carrying cases and other accessories for blood glucose monitoring kits and a variety of other portable electronic and non-electronicproducts (such as sporting and recreational products, bar code scanners, smartphones, GPS and location devices, tablets, firearms and other products). Ourcarrying cases are designed to enable these devices to be stowed in a pocket, handbag, briefcase, or backpack, clipped to a belt or shoulder strap, or strappedto an arm, while protecting the consumer electronic or other product from scratches, dust, and mishandling. Our OEM customers are located in the Americas,the EMEA Region, and the APAC Region. We do not manufacture any of our OEM products and source substantially all of our OEM products fromindependent suppliers in China.On June 21, 2012, we determined to exit our global retail business (“discontinued operations”) and focus solely on growing our OEM business. Ourdecision to eliminate the Retail division was primarily driven by the longer than estimated path to bring it to profitability and the strong net sales growth andcost rationalizations in the OEM business. We have substantially completed the exit of our Retail business and have not had, and do not expect to have, anycontinuing involvement in the Retail business after this date.Corporate History Forward Industries was incorporated in 1961 under the laws of the State of New York as a manufacturer and distributer of advertising specialty andpromotional products. In 1989, we acquired Forward US (then known as Koszegi Industries, Inc.), a manufacturer of soft-sided carrying cases. The carryingcase business became our predominant business, and in September 1997, we sold the assets relating to the production of advertising specialty andpromotional products, ceasing to operate in that segment.In May 2001, we formed Forward Switzerland to facilitate distribution of aftermarket products under our licenses for cell phone cases with a majorNorth American multinational and to further develop our OEM European business presence. After the expiration of the last of these licenses in March 2009,staff at Forward Switzerland was significantly reduced and in recent years has primarily served our OEM customers in Europe. ProductsDiabetic ProductsWe sell carrying cases for blood glucose diagnostic kits (“Diabetic Products”) directly to OEMs (or their contract manufacturers) of these electronicmonitoring kits made for use by diabetics. We typically sell these cases at prices ranging from approximately $0.50 to $6.00 per unit. Unit volumes are soldpredominantly at the lower end of this price range. The OEM customer (or its contract manufacturer) packages our carry cases “in box” as a custom accessoryfor the OEM’s blood glucose testing and monitoring kits, or to a much lesser extent, sells them through their retail distribution channels. These kits typicallyinclude a small, electronic blood glucose monitor, testing strips, lancets for drawing a drop of blood and our carrying case, customized with themanufacturer’s logo and designed to fit and secure the glucose monitor, testing strips, and lancets in separate straps, pouches, and holders. As the kits andtechnology change, our carrying case designs change to accommodate the changes in size, shape and layout of the electronic monitoring device, strips andlancet. For Fiscal 2014, our Diabetic Products accounted for approximately 79% of our total net sales.Other Products We also sell carrying and protective solutions to OEMs for a diverse array of other portable electronic and other products (“Other Products”),including sporting and recreational products, bar code scanners, smartphones, GPS and location devices, tablets, and firearms, on a made-to-order basis thatare customized to fit the products sold by our OEM customers. Our selling prices for these products also vary across a broad range, depending on the size andnature of the product for which we design and sell the carry solution. For Fiscal 2014, our Other Products accounted for approximately 21% of our total netsales. 2 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. Product DevelopmentIn our OEM business, the product life cycle in distributing and selling our technology solutions to our OEM customers is as described below. Wetypically receive requests to submit product designs in connection with a customer’s introduction and rollout to market of a new product that the customerhas determined to accessorize and customize with a carry solution. Our OEM customers furnish the desired functionality, size and other basic specificationsfor the carrying solutions or other product, including the OEM’s identifying logo imprint on the product. Our design and production resources develop moredetailed product specifications and design options for our customer’s evaluation. We then furnish the customer with product samples. Working with oursuppliers and the customer, samples are modified and refined. Once approved for commercial introduction and order by our customer, we work with oursuppliers to ensure conformity of commercial production to the definitive product samples and specifications. Manufacture and delivery of products inproduction quantities are coordinated with the customer’s manufacturing and shipment schedules so that our carry solution products are available with thecustomer’s product (and included “in box”, as the case may be) prior to shipment and sale, or to a lesser extent sold by our customer through its retaildistribution channels.Marketing, Distribution, and SalesGeographic Sales DistributionThrough our wholly owned subsidiaries, Forward US and Forward Switzerland, we distribute and sell our products globally. The approximatepercentages of net sales to OEM customers by their geographic location for Fiscal 2014 and Fiscal 2013 are as follows: Net Sales for theFiscal Years Ended September 30, 2014 2013Americas30% 35%APAC Region35% 35%EMEA Region35% 30%Total100% 100% The importance of the APAC Region is attributable to the fact that certain of our key customers outsource product manufacture to contractmanufacturers located in China or elsewhere in Asia. In these instances, we ship product to, and product is packaged “in box” at, such contractmanufacturer’s facility. If payment to us is due from the contract manufacturer, we identify the sale to its geographic location rather than that of the customerfor whom the contract manufacturer is supplying product. The decrease in the Americas Region’s contribution to total net sales in Fiscal 2014 compared toFiscal 2013 was primarily due to the decrease in revenue contribution from Diabetic Customer D and a major customer in the Other Product line within theAmericas Region. The increase in the EMEA Region’s contribution to total net sales in Fiscal 2014 compared to Fiscal 2013 was primarily due to increasedrevenue contribution from Diabetic Customers C and D. See “Item 7. – Management’s Discussion and Analysis of Financial Condition and Results ofOperations.” See Note 15 to the audited consolidated financial statements included in Item 8 of this Annual Report. Channels of DistributionWe primarily ship our products directly to our OEM customers (or their contract manufacturers), who package our accessory products “in box” withtheir branded products. Some of our customers also purchase certain of our products and offer them for sale as stand-alone accessories to complement theirproduct offerings.Sales by Product LineSales of carry and protective solutions for Diabetic Products and for Other Products (all products other than diabetic carry cases for blood glucosemonitor kits) accounted for approximately the following percentages of total net sales in Fiscal 2014 and 2013: 3 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. For the Fiscal Years Ended September 30,Sales:2014 2013Diabetic Products79% 78%Other Products21% 22%Totals100% 100% Sales ConcentrationWe have approximately 73 active OEM customers. Of these, four customers (including their affiliates and contract manufacturers) accounted forapproximately 76% and 75% of our net sales from continuing operations in Fiscal 2014 and 2013, respectively. All four of these “major” customers areOEMs of diabetic monitoring kits. These customers package our carry and protective solutions “in box” with their branded products, or to a lesser extent, sellthem through their retail distribution channels. The approximate percentages of net sales contributed by each of these four customers to continuingoperations for Fiscal 2014 and Fiscal 2013 are as follows: For the Fiscal Years Ended September 30,Customer:2014 2013Diabetic Customer A27% 24%Diabetic Customer B14% 13%Diabetic Customer C24% 24%Diabetic Customer D11% 14%Totals76% 75% During Fiscal 2014 and 2013, all net sales of OEM products were made directly by our employees, which are assigned key accounts or definedgeographic sales territories. See “Risk Factors” in Item 1A. of this Annual Report - “Our business could suffer if the services of key sales personnel we rely onwere lost to us.”OEM Distribution HubsWe have distribution arrangements with all of our major customers and several of our other OEM customers. These arrangements obligate us to supplyour products to our customer’s distribution hubs (may be multiple locations) where their products are manufactured, kitted, and/or warehoused pending sale,and where our products are packaged “in box” with the OEM customer’s products or, to a much lesser extent, distributed for retail sale. The product quantitieswe are required to supply to each distribution hub are based on the OEM customer’s purchase orders and forecasts. We do not recognize revenue for productshipped to a hub until we have been notified by our customer that our product has been withdrawn from the distribution hub and “consumed”. Hubarrangements have had the general effect of extending financing for our customers’ inventory build by extending the time between our placement of orders toour suppliers in order to ship and supply the hubs and the time that we are able to recognize revenue. The corollary effect is an increase in our inventorylevels. Credit RiskWe generally sell our OEM products on 30- to 120-day credit terms customary in the industry and without interest. Historically, we have not hadsignificant credit problems with our customers. Our significant OEM customers are large, multinational companies with good credit histories. None of thesecustomers is or has been in default to us, and payments from all customers are generally received from them on a timely basis. Four OEM customers(including their affiliates or contract manufacturers) accounted for approximately 77% of our accounts receivable at September 30, 2014, whereas, four OEMcustomers accounted for approximately 73% of our accounts receivable at September 30, 2013. 4 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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.When we ship products to our OEM customer’s designated contract manufacturer and invoice such manufacturer (and not the OEM customer), eventhough our order flows originate with and depend on our relationship with the OEM, our accounts receivable credit risk lies with the contract manufacturer. Our OEM customer does not guarantee the payment obligations of the contract manufacturer to whom the OEM requests us to ship our carrying caseproducts, and such order volumes may be significant from time to time. In most cases, these contract manufacturers are themselves major multinationalenterprises with good credit. See “Risk Factors” in Item 1A of this Annual Report on Form 10-K- “Product manufacture is often outsourced by our OEMcustomers to contract manufacturing firms in China and in these cases it is the contract manufacturer to which we must look for payment.”Product SupplyManufacturingThe manufacture of custom carrying cases and other carry and protective solutions generally consists of die cutting fabrics and heat sealing, gluing,sewing, and decorating (affixing logos to) the cut-outs by means of silk screening, hot-stamping, embroidering or embossing. The principal materials used inthe manufacture of our products are vinyl, nylon, leather, metal and plastic parts (for clips, buckles, loops, hinges and other hardware), foam padding andcardboard, all of which are obtained according to our specifications from suppliers. We do not believe that any of the component materials or parts used byour suppliers in the manufacture of our products is supply constrained. We believe that there are adequate available alternative sources of supply for all ofthe materials used to manufacture, package, and ship our products.Sourcing AgentOn March 12, 2012, we entered into a Buying Agency and Supply Agreement (the “Agreement”) with Forward China. On March 13, 2014, we enteredinto Amendment No. 1 to the Agreement with Forward China, dated as of March 11, 2014. The Agreement, as amended, provides that upon the terms andsubject to the conditions set forth therein, Forward China will act as our exclusive buying agent and supplier of Products (as defined in the Agreement) in theAPAC Region. We purchase products at Forward China’s cost and pay a service fee to Forward China. The Agreement, as amended, terminates on March 11,2015, subject to renewal. Terence Wise, a director of the Company, is a principal of Forward China.SuppliersWe procure substantially all our supply of carrying solutions products from independent suppliers in China through Forward China. Depending on theproduct, we may require several different suppliers to furnish component parts or pieces. We purchased approximately 95% and 92% of our OEM productsfrom five and four such suppliers in Fiscal 2014 and Fiscal 2013, respectively. The approximate percentages of purchases of OEM products from each of thesefour suppliers with respect to continuing operations for Fiscal 2014 and Fiscal 2013 are as follows: Fiscal Year Ended September 30, 2014 2013Supplier: OEM Supplier A66% 0%OEM Supplier B20% 50%OEM Supplier C5% 19%OEM Supplier D3% 14%OEM Supplier E1% 9% Totals95% 92% We place orders with one or more suppliers at the time we receive firm purchase orders and/or forecasts from our OEM customers for a particularproduct. Accordingly, we do not have minimum supply requirement agreements with our suppliers to guarantee us supply of finished product, nor have wemade purchase commitments to purchase minimum amounts from any of our suppliers. However, from time to time, we may order products from our suppliersin advance of receiving a customer purchase order, or in quantities in excess of those forecasted to us by our customer, for which they are contractuallyobligated to us, in order to meet our customer’s delivery demands. Starting September 1, 2013 we began making purchases directly from Forward China. Asof September 30, 2014, the majority of our purchases are made directly through Forward China.Quality AssuranceTo ensure that our products manufactured by our Chinese suppliers meet our quality assurance standards our products are inspected by independentcontractors in China, which may be affiliated with one or more of our suppliers. These contractors are subject to the control and supervision of ForwardChina’s quality assurance employees based in Hong Kong (see “Item 1. Business – Product Supply – Sourcing Agent”). In July 2012, Forward China receivedits ISO 9001:2008 quality certification, which covers all ISO activities previously covered under Forward’s ISO quality certification. 5 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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.LogisticsOnce our products are approved for shipment by our quality assurance procedures, our products are typically shipped to our customer’s destinationport in the Americas and EMEA Region on ocean-going container vessels, or by ground transport to our APAC Region customer’s locations in China orHong Kong. In certain cases, and primarily at our customer’s request, we will expedite the shipment of our products by using air transportation. Most ocean-going shipments bound for the United States are off-loaded at the port of Los Angeles or San Francisco, but certain customers arrange for shipments to Eastcoast ports, such as Miami or Philadelphia. EMEA Region destined shipments generally are routed via Rotterdam. See “Item 1A. – Risk Factors—Ourshipments of products via container freight to customers in the United States and Europe may become subject to delays or cancellation at port facilities dueto work stoppages or slowdowns, damage caused by weather or terrorism and congestion due to inadequacy of equipment and other causes.”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 ofour OEM products, we compete with numerous United States and foreign producers and distributors. Some of our competitors are substantially larger than weare and have greater financial and other resources. We believe that we sustain our competitive position through maintenance of an effective product designcapability, rapid response time to customer requests for proposals and product shipment, reliable product delivery and product quality, and competitivepricing. We believe that our ability to compete based on product quality assurance considerations is enhanced by Forward China’s local presence and theirquality control and shipment capabilities. See Item 1A. in this Annual Report on Form 10-K: “Risk Factors - The carrying solutions business is highlycompetitive and does not pose significant barriers to entry.”EmployeesAt September 30, 2014, we had 20 full-time employees, of whom one is employed in an executive capacity, eleven are employed in sales and salessupport capacities, three are employed in a design capacity, and five are employed in finance and administrative capacities. We consider our employeerelations to be satisfactory. None of our employees are covered by a collective bargaining agreement.Since June 2003, we have employed our U.S. employees through a co-employment agreement with a Professional Employer Organization (“PEO”). Theobjective of this arrangement is for the PEO to assume many of the legal and administrative responsibilities of human resources management, health benefits,workers' compensation, payroll, payroll tax compliance, 401(K) plan administration and unemployment insurance and to perform these functions at lesserexpense than if we were to perform them directly.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, thatrestrict the use or importation of products manufactured with compounds deemed to be hazardous. We work with our suppliers to ensure compliance withsuch regulations. In addition, from time to time one or more customers may require testing of our products to ensure compliance with applicable consumersafety rules and regulations or the customer’s safety or packaging protocols. Because we do not manufacture the products that we sell and distribute,compliance with federal, state and local laws and regulations pertaining to the discharge of materials into the environment, or otherwise relating to theprotection of the environment, has not had, and is not anticipated to have, any direct material effect upon our capital expenditures, earnings, or competitiveposition. However, compliance with such laws and regulations on the part of our suppliers may result in increased costs of supply to us, particularly ifdomestic environmental regulation in China becomes more prevalent.We have not been engaged in any environmental litigation or incurred any material costs related to compliance with environmental or otherregulations. From time to time we incur chemical and/or safety laboratory testing expenses in order to address customer requests regarding our productmaterials or method of manufacture or regarding their packaging methods and standards. 6 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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 1A. RISK FACTORS Please read Item 7. “Cautionary statement for purposes of the “Safe Harbor” provisions of the Private Securities Litigation Reform Act of 1995” thatappears on page 14 of this Annual Report on Form 10-K.We have a history of losses and negative cash flow from operations. We cannot assure you that we will achieve or sustain profitability in the future.We have incurred losses and negative cash flows from operations in recent years. We incurred net losses of approximately $0.8 million and $0.2million for the fiscal years ended September 30, 2014 and 2013, respectively, and had net cash provided by operating activities of approximately $0.2million and $2.3 million for the fiscal years ended September 30, 2014 and 2013, respectively. Further, we may incur net losses in future reporting periods aswe incur expenses associated with the continuation of our business as well as its subsequent development, which development cannot be guaranteed. There isno assurance our future operations will be profitable. If we cannot generate sufficient revenues to operate profitably, we may be forced to cease or suspendoperations, or we may be required to raise additional capital to maintain or grow our operations. There is no assurance that we will be able to raise suchadditional capital.In June 2012 we announced our plans to exit the global retail business and focus solely on growing our OEM business. In connection with exiting theglobal retail business we also commenced a restructuring of our business and implemented a variable, lower cost sourcing and quality assurance solutionthrough a third party Asia-based sourcing agent. These restructuring plans have been substantially completed. While we believe these measures, along withother steps to be taken, will be sufficient to return the Company to sustainable profitability, there can be no assurance that this will be the case, or thatadditional steps will not be required. If additional steps are required, there can be no assurance that they will be properly implemented or will be successful,or that we will realize the cost savings and other anticipated benefits from any such additional restructuring steps.Our OEM growth strategy will continue to require additional capital investment.We have recently invested and expect to continue to invest incremental cash resources to execute our OEM growth strategy. While we believe that ourexisting cash resources are sufficient to support our growth strategy, there can be no assurances that our growth strategy will be successful or that we will earna return on these investments.Our business remains highly concentrated in our Diabetic Products line, posing risks to our financial condition and results of operations comparedto periods when revenue from customers from our two principal product lines were more balanced. If our Diabetic Products line were to suffer the loss of aprincipal customer or a material decline in or loss of sales, our business would be materially and adversely affected.Sales of Diabetic Products to OEM customers accounted for approximately 79% of net revenues from continuing operations in Fiscal 2014. As aresult, our financial condition and results of operations are subject to higher risk from the loss of a major diabetic customer or changes in their businesspractices, for example, a decision to reduce or eliminate inclusion of cases in box with the electronic device or a decision to focus on insulin pumps insteadof insulin by injection.Our business is and has been characterized by a high degree of customer concentration. Our four largest customers accounted for approximately76% and 75% of net sales from continuing operations in Fiscal 2014 and Fiscal 2013, respectively; the loss of, or material reduction in orders from, any ofthese customers would materially and adversely affect our results of operations and financial condition.At present the predominant percentage of our sales revenues is concentrated in four large diabetic customers, including their affiliates and/or theircontract manufacturers. The loss of any of these customers, whether as a result of its purchase of its carry solution requirements from another vendor, itsdecision to manufacture its own carrying cases, its decision to award its orders to one of our competitors, or otherwise, would have a material adverse effect onour financial condition, liquidity and results of operations. 7 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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.If any one or more of our OEM customers elect to reduce or discontinue inclusion of cases “in box”, our results of operations and financial conditionwould 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. During recent years, there have been numerous federal legislative and administrative actions that have affected government programs, includingadjustments that have reduced or increased payments to healthcare providers and patients. For example, the federal healthcare reform legislation that wasenacted in March 2010 (known as the Patient Protection and Affordable Care Act of 2010 (“ACA”)) may reduce reimbursement for some healthcare providersand patients while increasing reimbursement for others. In addition, ACA mandates the implementation of various programs and value and quality-basedreimbursement incentives that may impact the amount of reimbursement for healthcare providers and patients. In addition and more significantly, third-partypayers, including governmental health administration authorities, managed care providers and private health insurers, have increasingly challenged the priceand examined the cost effectiveness of medical products and services, which has affected the reimbursement of such products to patients. Due to thisuncertainty in medical reimbursements, OEMs have experienced reductions in demand and, as a result, have sought continuously to reduce expenses. If oneor more of our OEM customers generally begin to reduce or discontinue the practice of including carry case accessories “in box”, we would incur asignificant decline in revenues and our results of operations and financial condition would be materially and adversely affected.At any time, a significant percentage of our accounts receivable risk may be concentrated in a small number of customers.Four customers accounted for approximately 77% of our accounts receivable at September 30, 2014, and four customers accounted for approximately73% of our accounts receivable at September 30, 2013, respectively. The failure to receive or collect such amounts when and as due could have a materialadverse effect on our financial condition, liquidity, and results of operations.We continue to encounter pressures from our largest OEM customers to maintain or even roll back prices or to supply lower priced carry solutions,and expect such pressure to persist. The effects of such price constraints on our business may be exacerbated by inflationary pressures that affect our costsof supply.During Fiscal 2014 and Fiscal 2013, we experienced significant pricing pressure from our largest OEM customers to maintain or even reduce the priceswe charge them. When we are unable to extract comparable concessions from our suppliers on prices they charge us, product sales margins erode. In additionto margin compression from customers in general, we are encountering increased pricing from our Chinese suppliers who are reacting to inflationary increasesin materials and labor costs incurred by them. In addition, prices that our Chinese vendors charge to us may reflect appreciation of the Chinese currencyagainst the U.S. dollar, which can be passed through to us in the form of higher U.S. dollar prices. This in turn will tend to reduce gross profit if we are unableto raise prices. See “Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Business Overview – Trends andEconomic Environment.” We depend on a single exclusive buying agent who, in turn, depends on a limited number of key suppliers.Forward China, our exclusive sourcing agent in the Asia Pacific region, has not made progress in efforts to expand the supplier base during Fiscal2014. However, there was no contraction of supplier base during Fiscal 2014. Forward China has relied on a limited number of suppliers to supply thecomponent parts and pieces necessary for the production of our carry and protective solutions products. As a result, our ability to effectively push backagainst rising material costs may diminish. In addition, any inability to obtain supplies from a single or limited number of suppliers may result in difficultyobtaining the supplies necessary for our business and may restrict our ability to produce our carry and protective solutions products. Where practical, weintend to establish alternative sources to mitigate the risk that the failure of any single supplier will adversely affect our business. Nevertheless, a prolongedinability to obtain certain components or the failure of one of our suppliers could impair our ability to ship products and generate revenues, which couldadversely affect our operating results and damage our customer relationships. See also “Note 15, Operating Segment Information—Supplier Concentration”to our audited consolidated financial statements included in Item 8 of this Annual Report.In addition, we depend significantly on Forward China as our exclusive buying agent for substantially all of our component parts in the APAC region.As a result, we have limited visibility as to our supplier base, making it difficult to forecast future events and to plan our operations. In addition, if ForwardChina fails to satisfactorily perform its obligations, including payment obligations, to our suppliers or its duties to us as our exclusive buying agent as aresult of financial or other difficulties or for any other reason, we could suffer irreparable harm resulting in reduced profits or, in some cases, significant lossesfor us. 8 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. If we fail to maintain an effective system of internal controls over financial reporting, we may not be able to accurately report our financial results.As a result, current and potential stockholders could lose confidence in our financial reporting, which could harm our business and the trading price of ourstock.Effective internal controls over financial reporting are necessary for us to provide reliable financial reports. If we cannot maintain effective controlsand reliable financial reports, our business and operating results could be harmed. We continue to work on improvements to our internal controls overfinancial reporting and there can be no assurance that material weaknesses will not occur in the future. Any failure to implement and maintain internalcontrols over our financial reporting or difficulties encountered in the implementation of improvements in our controls, could cause us to fail to meet ourreporting obligations. Any failure to improve our internal controls over financial reporting or to address identified weaknesses in the future, if they were tooccur, could also cause investors to lose confidence in our reported financial information, which could have a negative impact on the trading price of ourstock.Our results of operations are subject to the risks of fluctuations in the values of foreign currencies relative to the U.S. dollar.Our results of operations are expressed in U.S. dollars. When the U.S. dollar appreciates or depreciates in value against a currency in which all or asignificant portion of revenues or other accounts receivable are denominated, such as the Euro, our results of operations can be adversely affected orbenefited, respectively. The degree of impact is proportional to the amount of foreign currency expense or revenue, as the case may be, and the fluctuations inexchange rates over the period in which the effect is measured on our financial statements. In addition, such currency fluctuations may affect thecomparability of our results of operations between financial periods.Future revenues are difficult to predict and are likely to show significant variability as a consequence of customer concentration.Because our revenues are highly concentrated in a few large customers, and because the volumes of these customers’ order flows to us can fluctuatemarkedly in a short period of time, our quarterly revenues, and consequently our results of operations, may be highly variable and subject to significantchanges over a relatively short period of time. Our largest OEM customers may keep consumer products with which our carry solutions are packaged “in-box”in active promotion for many months, or for a very short period of time, depending on various factors, including sales trends for the product, productdevelopment cycles, new product introductions, and our customers' competitors' product offerings. As demand for the consumer product relating to the in-box program matures and decreases, we may be forced to accept significant price and/or volume reductions in customer orders for our carry solutions, whichwill adversely affect revenue. These factors tend to lead to a high degree of variability in our quarterly revenue levels. Significant, rapid shifts in ouroperating results may occur if and when one or more of these customers increase or decrease the size(s) of, or eliminate, their orders from us by amounts thatare material to our business. Our gross margins, and therefore our profitability, vary considerably by customer and by product, and if the revenue contribution from one or moreOEM customers or products changes materially, relative to total revenues, our gross profit percentage may fluctuate.Our gross profit margins on the products we sell can vary widely depending on the product type, customer, and order size. Because of the broadvariability in price ranges and product types, we anticipate that gross margins, and accordingly their impact on operating income or loss, may fluctuatedepending on the relative revenue contribution from each customer or product.Product manufacture is often outsourced by our OEM customers to contract manufacturing firms in China and in these cases it is the contractmanufacturer to which we must look for payment.Such firms are performing manufacturing, assembly, and product packaging functions, including the bundling of our product accessories with theOEM customer's product. As a consequence of this business practice, we often sell our carry solution products to the contract manufacturing firm. This isparticularly significant in the case of diabetic product sales to certain customers. In these cases, we invoice the contract manufacturing firm and not the OEMcustomer. Therefore, it is the contract manufacturing firm to which we must look for payment in such cases and not that of our OEM customer. This may alterthe credit profile of our customer base and may involve significant purchase order volumes. Our dependence on foreign manufacturers creates quality control and other risks to our business. From time to time we may experience certainquality control, on-time delivery, cost, or other issues that may jeopardize customer relationships.Our reliance on foreign suppliers, manufacturers and other contractors involves significant risks, including risk of product quality issues and reducedcontrol over quality assurance, manufacturing yields and costs, pricing, timely delivery schedules, the potential lack of adequate manufacturing capacity andavailability of product, the lack of capital and potential misappropriation of our designs. 9 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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 shipments of products via container may become subject to delays or cancellation due to work stoppages or slowdowns, piracy, damage to portfacilities caused by weather or terrorism, and congestion due to inadequacy of port terminal equipment and other causes.To the extent that there are disruptions or delays in loading container cargo in ports of origin or off-loading cargo at ports of destination as a result oflabor disputes, work-rules related slowdowns, tariff or World Trade Organization-related disputes, piracy, physical damage to port terminal facilities orequipment caused by severe weather or terrorist incidents, congestion in port terminal facilities, inadequate equipment to load, dock and offload containervessels 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 maycancel or change the terms of its purchase order, resulting in a cancellation or delay of payments to us. A closure or partial closure of port facilities or othercauses of delays in the loading, importation, offloading or movement of our products to the shipping destination agreed with our customer could result inincreased 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 OEM carrying solutions business is highly competitive and does not pose significant barriers to entry.There are many competitors in the sale of carry solutions products to OEMs, and competition is intense. Since little or no significant proprietarytechnology is involved in the design, production or distribution of the types of products we sell, others may enter the business with relative ease and competeagainst us. Such competition may result in the diminution of our market share or the loss of one or more major OEM customers, thereby adversely affectingour 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 in its orders. Our business could suffer if the services of key sales personnel we rely on were lost to us.We are highly dependent on the efforts and services of certain key sales representatives who have account responsibility for, and have longstandingrelationships with one or more of our largest customers. Our business could be materially and adversely affected if we lost the services of any suchindividual. If we lost the services of a key sales representative, we might experience a material reduction in orders from his customers, resulting in a loss ofrevenues, which would materially and adversely affect our results of operations and financial condition.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, net working capital, working capital needs and other factors, as determined by our Boardof Directors. We do not anticipate that cash dividends will be paid in the foreseeable future. The absence of dividend payments on a common stock mightmake such stock susceptible to greater market price swings.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, of which 648,846 shares have been issued as6% convertible preferred stock. Our Board of Directors has the authority, without shareholder approval, to issue such preferred stock in one or more series andto fix the relative rights and preferences thereof including their redemption, dividend and conversion rights. Our ability to issue the authorized but unissuedshares of preferred stock could be used to impede takeovers of the Company. Under certain circumstances, the issuance of the preferred stock could make itmore 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 priceof our common stock. In addition, our certificate of incorporation requires the affirmative vote of two-thirds of the shares outstanding to approve a businesscombination such as a merger or sale of all or substantially all assets. Such provision and blank check preferred stock may discourage attempts to acquireForward. Applicable laws that impose restrictions on, or regulate the manner of, a takeover attempt may also have the effect of deterring any such transaction. 10 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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 addition, on April 26, 2013, our Board of Directors adopted a Shareholder Rights Plan, as set forth in the Rights Agreement dated as of April 26,2013 (the “Rights Agreement”), between the Company and American Stock Transfer & Trust Company, LLC, as Rights Agent, in order to encourage anyoneseeking to acquire us to negotiate with our Board of Directors prior to attempting a takeover. While the plan is designed to guard against coercive or unfairtactics to gain control of us, the plan may have the effect of making more difficult or delaying any attempts by others to obtain control of us. See Note 7 toour audited consolidated financial statements included in Item 8 of this Annual Report. We are not aware of any attempt to acquire Forward.We maintain cash balances in our bank accounts that exceed the FDIC insurance limitation.We maintain our cash assets at commercial banks in the U.S. in amounts in excess of the Federal Deposit Insurance Corporation insurance limit of$250,000 and in Europe in amounts that may exceed any applicable deposit insurance limits. In the event of a failure at a commercial bank where wemaintain our deposits or uninsured losses on money market or other cash equivalents in which we maintain cash balances, we may incur a loss to the extentsuch loss exceeds the insurance limitation, which could have a material adverse effect upon our financial conditions and our results of operations.Our business could be negatively affected as a result of a potential proxy contest for the election of directors at our annual meeting, and such proxycontest could distract our management, divert our resources and impact the trading value of the Company’s securities.On December 8, 2014, Terence Bernard Wise, a director of the Company, filed a definitive proxy statement nominating five director candidates forelection to the Board of Directors at our 2014 annual meeting of shareholders (the “2014 Annual Meeting”). The Company believes Terence Bernard Wise,together with other participants (collectively, the “Wise Group”), failed to properly nominate its alternative slate of director candidates in compliance withthe nomination procedures established in the Company’s Amended and Restated By-Laws. As a result, the Company believes that any purported nominationby the Wise Group at the 2014 Annual Meeting is invalid. The Company sought declaratory and injunctive relief from a New York State court to prevent theWise Group’s invalid and improper solicitation. At a hearing on December 1, 2014, the court denied the Company’s request for preliminary injunctive relief. The Company has filed a Notice of Appeal with respect to the court’s ruling. Since the court determined the Wise Group nomination is valid, it is possiblethat the Wise-nominated directors could constitute a majority of the Board of Directors following the 2014 Annual Meeting.A proxy contest would require us to incur significant legal fees and proxy solicitation expenses and require significant time and attention bymanagement and the Board of Directors. Such activities could interfere with our ability to execute our strategic plan. The perceived uncertainties as to ourfuture direction also could affect the market price and volatility of our securities, result in the loss of potential business opportunities and may make it moredifficult to attract and retain qualified personnel and business partners, any of which could adversely affect our business and operating results.We face risks related to litigation advanced by a current director and shareholder of ours and our former Chief Financial Officer.On July 15, 2014, Terence Bernard Wise, a director of the Company, filed a derivative complaint in the Supreme Court of the State of NewYork, New York County, against directors Frank LaGrange Johnson, Robert Garrett, and John F. Chiste and then-directors (now former directors)Timothy Gordon and Owen P.J. King, also naming the Company as a nominal defendant, alleging breaches of fiduciary duty and seekingdeclaratory and injunctive relief (both preliminary and final), including a temporary restraining order (“TRO”), that would have prevented the Board ofthe Company from voting on proposals to raise capital or engage in any extraordinary transactions. The court rejected Mr. Wise’s request for aTRO and Mr. Wise then withdrew his request for preliminary injunctive relief. Mr. Wise then amended his complaint to add allegations of breach offiduciary duties under various provisions of New York’s Business Corporation Law. On December 4, 2014, Mr. Wise brought a new application tothe court, once again seeking a TRO and a preliminary injunction that would enjoin his fellow Company directors from causing the Company toissue any Series B Senior Convertible Preferred Stock (the “Preferred Stock”), or take any antecedent or preparatory steps to effectuate suchissuance, prior to the Company’s 2014 annual meeting of shareholders (the “2014 Annual Meeting”). The court granted the TRO, in part, byprohibiting the Company from issuing—but not from taking antecedent or preparatory steps to issue—such Preferred Stock prior to December 8,2014. At a hearing on December 8, 2014, the court then granted Mr. Wise’s motion for a preliminary injunction, enjoining the Company’s issuanceof the Preferred Stock prior to the Company’s 2014 Annual Meeting. On December 8, 2014, the Company filed a notice of appeal of the court’sorder to the Supreme Court of the State of New York, Appellate Division, First Department. On December 9, 2014, the Company moved, beforesuch appellate court, to vacate the lower court’s injunction, which motion has not yet been decided. The case otherwise remains pending beforethe lower court. 11 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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 August 26, 2014, James McKenna, the Company’s former Chief Financial Officer, filed a lawsuit in the U.S. District Court for the Southern Districtof New York against the Company and directors Frank LaGrange Johnson, Robert Garrett and John F. Chiste and then-directors (now former directors)Timothy Gordon and Owen P.J. King, alleging purported claims of retaliation for whistleblowing under the Dodd-Frank Act, breach of contract and breach ofthe covenant of good faith and fair dealing all as against the Company, and a single claim for tortious interference with contract as against the individualdefendants. The complaint seeks an unspecified amount of monetary consequential damages and punitive damages. The case currently is pending before thecourt.Although we believe the claims to be without merit, our operating results and share price may be negatively impacted due to the negative publicity,expenses incurred in connection with our defense, management distraction, and/or other factors related to this litigation. In addition, litigation of this naturemay negatively impact our ability to attract and retain customers and strategic partners, as well as qualified board members and management personnel.One of our current directors is a significant shareholder, which makes it possible for him to have significant influence over the outcome of all matterssubmitted to our shareholders for approval and which influence may be alleged to conflict with our interests and the interests of our other shareholders.One of our directors, Terence Bernard Wise, is a significant shareholder who beneficially owns approximately 19.1% of the outstanding shares of ourcommon stock as of December 1, 2014. Mr. Wise will have substantial influence over the outcome of all matters submitted to our shareholders for approval,including the election of our directors and other corporate actions. This influence may be alleged to conflict with our interests and the interests of our othershareholders. Mr. Wise has also launched a proxy contest to elect a different slate of directors than what our Company proposed to shareholders. In addition,such influence by Mr. Wise could have the effect of discouraging potential business partners or create actual or perceived governance instabilities that couldadversely affect the price of our common stock.ITEM 1B.UNRESOLVED STAFF COMMENTS Not applicable. ITEM 2. PROPERTIESIn September 2012, we relocated our executive offices from Santa Monica, California to West Palm Beach, Florida, which consists of approximately2,815 square feet, which we rent for approximately $6,200 per month under a lease agreement scheduled to expire in September 2020.In April 2011, we relocated our executive offices from Pompano Beach, Florida to offices in Santa Monica, California, which consists of approximately3,400 square feet, which we rent for approximately $14,000 per month under lease agreements, which expire in October 2016. Beginning in July 2013, wesub-leased this space for the remainder of our lease term at rates above those that we are contractually obligated to pay.We sub-lease approximately 1,300 square feet of office space in Cham, Switzerland on a month-to-month basis from a tenant at the same location. Weuse this office as our EMEA Region headquarters from which we coordinate our sales and sales support activities throughout the EMEA Region.On February 1, 2014, we began leasing office space in New York, New York for our Chief Executive Officer at a rate of $2,500 per month fromLaGrange Capital Administration, L.L.C. (“LCA”). This lease is month-to-month and is cancellable by either us or LCA at any time. Effective April 1, 2014,LCA increased the monthly rental charge (inclusive of rent, allocable share of office assistant, and equipment leases) from $2,500 to approximately $12,700per month.We believe that each of the foregoing leased properties is adequate for the purposes for which it is used. All leases are with unaffiliated third parties. We believe 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 comparablefacilities upon approximately equivalent terms.ITEM 3.LEGAL PROCEEDINGSFrom time to time, the Company may become a party to other legal actions or proceedings in the ordinary course of its business. As of September 30,2014, there were no such actions or proceedings, either individually or in the aggregate, that, if decided adversely to the Company’s interests, the Companybelieves would be material to its business. 12 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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 July 15, 2014, Terence Bernard Wise, a director of the Company, filed a derivative complaint in the Supreme Court of the State of NewYork, New York County, against directors Frank LaGrange Johnson, Robert Garrett, and John F. Chiste and then-directors (now former directors)Timothy Gordon and Owen P.J. King, also naming the Company as a nominal defendant, alleging breaches of fiduciary duty and seekingdeclaratory and injunctive relief (both preliminary and final), including a temporary restraining order (“TRO”), that would have prevented the Board ofthe Company from voting on proposals to raise capital or engage in any extraordinary transactions. The court rejected Mr. Wise’s request for aTRO and Mr. Wise then withdrew his request for preliminary injunctive relief. Mr. Wise then amended his complaint to add allegations of breach offiduciary duties under various provisions of New York’s Business Corporation Law. On December 4, 2014, Mr. Wise brought a new application tothe court, once again seeking a TRO and a preliminary injunction that would enjoin his fellow Company directors from causing the Company toissue any Series B Senior Convertible Preferred Stock (the “Preferred Stock”), or take any antecedent or preparatory steps to effectuate suchissuance, prior to the Company’s 2014 annual meeting of shareholders (the “2014 Annual Meeting”). The court granted the TRO, in part, byprohibiting the Company from issuing—but not from taking antecedent or preparatory steps to issue—such Preferred Stock prior to December 8,2014. At a hearing on December 8, 2014, the court then granted Mr. Wise’s motion for a preliminary injunction, enjoining the Company’s issuanceof the Preferred Stock prior to the Company’s 2014 Annual Meeting. On December 8, 2014, the Company filed a notice of appeal of the court’sorder to the Supreme Court of the State of New York, Appellate Division, First Department. On December 9, 2014, the Company moved, beforesuch appellate court, to vacate the lower court’s injunction, which motion has not yet been decided. The case otherwise remains pending beforethe lower court.On July 16, 2014, the Company filed a lawsuit in the U.S. District Court for the Southern District of New York against Mr. Wise and his long-timebusiness partner, Jenny P. Yu, alleging multiple violations of federal securities laws, including the filing with the Commission of deceptive and misleadingSchedules 13D and proxy solicitation materials. Specifically, the Company alleged that Mr. Wise and Ms. Yu have been acting as an improperly undisclosed“group” engaged in an effort to replace the entire Board with Mr. Wise’s hand-picked candidates. The Company’s lawsuit seeks expedited injunctive anddeclaratory relief that would require Mr. Wise and Ms. Yu to comply with the federal securities laws and submit corrected, accurate disclosures in advance ofany vote by the Company’s shareholders. On September 20, 2014, the Court granted Wise’s and Yu’s respective motions to dismiss the case, after which theCompany filed an appeal to the United States Court of Appeals for the Second Circuit. The Company’s appeal currently is pending before the Court ofAppeals.On August 26, 2014, James McKenna, the Company’s former Chief Financial Officer, filed a lawsuit in the U.S. District Court for the Southern Districtof New York against the Company and directors Frank LaGrange Johnson, Robert Garrett and John F. Chiste and then-directors (now former directors)Timothy Gordon and Owen P.J. King, alleging purported claims of retaliation for whistleblowing under the Dodd-Frank Act, breach of contract and breach ofthe covenant of good faith and fair dealing all as against the Company, and a single claim for tortious interference with contract as against the individualdefendants. The complaint seeks an unspecified amount of monetary consequential damages and punitive damages. The case currently is pending before thecourt.On November 13, 2014, the Company filed a lawsuit in the Supreme Court of the State of New York, Kings County, against Terence BernardWise, a director of the Company, and the following six individuals whom Mr. Wise claims that he has purportedly nominated to stand for electionas directors at the Company’s Annual Meeting: Howard Morgan, Michael Luetkemeyer, Eric Freitag, Sangita Shah, N. Scott Fine, and DarrylKeyes. The Company’s complaint seeks a judicial declaration that Mr. Wise’s purported nominations are invalid, as they were not received withinthe timeframe expressly provided by the Company’s Bylaws for such nominations. The complaint also seeks injunctive relief from the court,enjoining Mr. Wise from soliciting proxies for his purported nominees to stand for election as directors at the 2014 annual meeting of shareholders. At a hearing on December 1, 2014, the court denied the Company’s request for preliminary injunctive relief. On December 2, 2014, the Companyfiled a notice of appeal of the court’s order to the Supreme Court of the State of New York, Appellate Division, Second Department and onDecember 3, 2014, the Company moved before such appellate court for the preliminary injunctive relief denied below. That motion remainspending, as does the case before the lower court.ITEM 4.MINE SAFETY DISCLOSURES.Not applicable.PART IIITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIESMarket for Common StockThe principal market for our common stock is the NASDAQ SmallCap Market. Our common stock is traded under the symbol "FORD". The followingtable sets forth the high and low closing bid quotations for our common stock on the NASDAQ SmallCap Market for each quarter in the last two fiscal years: Bid Price Information for Common Stock* Fiscal 2014 Fiscal 2013 High Bid Low Bid High Bid Low BidFirst Quarter$1.89$1.41$1.50$1.08Second Quarter$2.10$1.51$2.17$1.43Third Quarter$1.93$1.15$2.14$1.70Fourth Quarter$1.73$1.18$1.99$1.66 _______________________________*High and low bid price information as furnished by The NASDAQ Stock Market Inc.On December 1, 2014, the closing bid quotation for our common stock was $1.15.Holders of common stock.As of November 24, 2014, there were approximately 114 holders of record of our common stock, excluding approximately 6,456 beneficial holders ofSource: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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.common stock whose 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, net 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. See “—Recent sales of unregistered securities”below. 13 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. Recent sales of unregistered securitiesOn each of June 28, 2013, August 7, 2013 and August 14, 2013, the Company completed private placements to accredited investors of convertiblepreferred stock totaling 648,846 shares. See Note 7 to our audited consolidated financial statements.Securities authorized for issuance under equity compensation plans.Long-term equity based compensation is accomplished under the Forward Industries, Inc. 2007 Equity Incentive Plan, as amended (the “2007 Plan”),adopted by the Company and by its shareholders in May 2007 and amended February 2009, and the Forward Industries, Inc. 2011 Long Term Incentive Plan(the “2011 Plan”), adopted by the Company and by its shareholders in March 2011. Under the 2007 Plan, 800,000 shares of Common Stock were authorizedfor grants of awards of stock options and restricted stock, of which 130,015 shares remain available for grant as of September 30, 2014. Under the 2011 Plan,850,000 shares of Common Stock were authorized for grants of awards of stock options and restricted stock, of which 185,647 shares remain available forgrant as of September 30, 2014. There are options to purchase 30,000 shares of Common Stock outstanding under the 1996 Stock Incentive Plan.Information relating to securities authorized for issuance under equity compensation plans as of September 30, 2014, is as follows: Plan Category Number ofsecuritiesto be issued uponexercise ofoutstandingoptions Weighted-averageexercise price ofoutstandingoptions Number of securitiesremaining available forfuture issuance underequity compensation plans(excluding securitiesreflected in column (a) (a) (b) (c) Equity compensation plans approved by security holders778,500 $3.12 315,662Equity compensation plans not approved by security holders- $- -Total 778,500 $3.12 315,662 Purchase of equity securitiesNone.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 thereto andother financial information appearing in Item 8 of this Annual Report on Form 10-K. This discussion and analysis compares our consolidated results ofoperations for Fiscal 2014 with those for Fiscal 2013, and is based on or derived from the audited Consolidated Financial Statements included in Item 8 inthis Annual Report. All figures in the following discussion are presented on a consolidated basis. All dollar amounts and percentages presented herein havebeen rounded to approximate values. 14 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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.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”, as such term is used within the meaning of the PrivateSecurities Litigation Reform Act of 1995. These “forward-looking statements” are not based on historical fact and involve assessments of certain risks,developments, and uncertainties in our business looking to the future. Such forward looking statements can be identified by the use of forward-lookingterminology such as “may”, “will”, “should”, “expect”, “anticipate”, “estimate”, “intend”, “continue”, or “believe”, or the negatives or other variations ofthese terms or comparable terminology. Forward-looking statements may include projections, forecasts, or estimates of future performance anddevelopments. Forward-looking statements contained in this Annual Report are based upon assumptions and assessments that we believe to be reasonable asof the date of this Annual Report. Whether those assumptions and assessments will be realized will be determined by future factors, developments, andevents, which are difficult to predict and may be beyond our control. Actual results, factors, developments, and events may differ materially from those weassumed and assessed. Risks, uncertainties, contingencies, and developments, including those discussed in this Management’s Discussion and Analysis ofFinancial Condition and Results of Operations and those identified in “Risk Factors” in Item 1A of this Annual Report on Form 10-K, could cause our futureoperating results to differ materially from those set forth in any forward looking statement. There can be no assurance that any such forward lookingstatement, projection, forecast or estimate contained can be realized or that actual returns, results, or business prospects will not differ materially from thoseset forth in any forward looking statement.Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. The Company disclaims 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.Business OverviewTrends and Economic EnvironmentIn June 2012, the Company made the strategic decision to focus solely on its core OEM business. Initially, we implemented several key restructuringmeasures in order to improve our operating performance and return the Company to profitability. These actions included replacing our legacy sourcing andquality assurance infrastructure with a variable lower cost solution through our use of an exclusive Asia-based sourcing agent (see Note 12 in our Notes to ourConsolidated Financial Statements) and rationalizing our fixed operating expenses, including office closures and headcount reductions. Our financial resultsfor Fiscal 2014 and Fiscal 2013, reflect the impact of these restructuring measures.With the restructuring behind us, we have turned our focus to protecting the strong competitive position we have built across several key productcategories, especially our Diabetic Products line. We have reinvested a portion of the savings generated by the restructuring towards expanding and betterincentivizing our sales, design and sales support teams, which we believe has improved our ability to provide proactive and responsive support to ourexisting customer base. We also believe that these investments are expanding our ability to provide innovative and differentiated solutions to our existingand prospective customers. As an example, the diabetic products sector seems to be undergoing significant changes that, we believe, present us withmeaningful opportunities if managed proactively.We remain challenged by a highly concentrated customer base and product offering, especially with respect to our Diabetic Products line, where weoperate in a price sensitive environment in which we continue to experience volatility in demand and downward pricing pressure from our major DiabeticProducts customers. We believe that the investments we are making in our sales, design and sales support teams increase our ability to expand and diversifyour customer base, which we believe is essential to overcoming these challenges and the impact they have on our gross margins.In addition to our investments to grow and diversify our business organically, we are conducting an active search process to identify attractiveacquisition targets. We anticipate that this search process will be ongoing with the goal of identifying prospective target companies that, if acquired, wouldbe accretive to our earnings.We continue to be challenged by rising costs from our China-based supplier base, which causes our gross margins to narrow when we are not able tofully pass cost increases through to customers. Our dedicated Asia-based sourcing agent has made meaningful progress in areas such as quality assurance andoverall operational performance, which has better positioned us with our customers. Our sourcing agent also made progress in expanding our supplier baseduring Fiscal 2013. However, there was no continued expansion during Fiscal 2014. As a result, our ability to effectively push back against such risingmaterial costs may diminish. 15 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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.Variability of Revenues and Results of OperationBecause a high percentage of our sales revenues is highly concentrated in a few large customers, and because the volumes of these customers’ orderflows to us are highly variable, with short lead times, our quarterly revenues, and consequently our results of operations, are susceptible to significantvariability over a relatively short period of time. Critical Accounting Policies and EstimatesWe have identified the accounting policies and significant estimation processes below as critical to our business operations and the understanding ofour results of operations. The discussion below is not intended to be comprehensive. In many cases, the accounting treatment of a particular transaction isspecifically dictated by GAAP, with no need for management’s judgment of a particular transaction. In other cases, management is required to exercisejudgment in the application of accounting principles with respect to particular transactions. The impact and any associated risks related to these policies onour business operations are discussed throughout this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” where suchpolicies affect reported and expected financial results. For a detailed discussion of the applications of these and other accounting policies, see “Item 8.Financial Statements and Supplementary Data” in this Annual Report. Our preparation of our Consolidated Financial Statements requires us to makeestimates and assumptions that are believed to be reasonable under the circumstances. There can be no assurance that actual results will not differ from thoseestimates and such differences could be significant.Accounts ReceivableAccounts receivable consist of unsecured trade accounts with customers or their contract manufacturers. We perform periodic credit evaluations of ourcustomers including an evaluation of days outstanding, payment history, recent payment trends, and perceived creditworthiness, and believe that adequateallowances for any uncollectible receivables are maintained. Credit terms to customers generally range from net thirty (30) days to net one hundred andtwenty (120) days. We have not historically experienced significant credit or collection problems with our OEM customers or their contract manufacturers. AtSeptember 30, 2014 and 2013, no allowance for doubtful accounts relating to our continuing operations was deemed necessary.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 in our consolidated statements of operations and comprehensive loss. As reserved inventory is disposed of,we charge off the associated allowance. In determining the adequacy of the allowance, management’s estimates are based upon several factors, includinganalyses of inventory levels, historical loss trends, sales history and projections of future sales demand. Our estimates of the allowance may change from timeto time based on management’s assessments, and such changes could be material.6% Senior Convertible Preferred StockTemporary EquityIn accordance with Accounting Standards Codification (“ASC”) 480-10-s99 – Distinguishing Liabilities from Equity – Overall – SEC Materialsand Accounting Series Release (“ASR”) 268 – Presentation in Financial Statements of “Redeemable Preferred Stock”, equity securities are required tobe classified out of permanent equity and classified as temporary equity, as the redemption of the convertible preferred stock is not solely within ourcontrol since it is at the option of the holder.WarrantsIn accordance with ASC 815-40 – Derivatives and Hedging – Contracts in Entity’s Own Equity, our warrants were initially classified as aliability, at fair value, as a result of a related registration rights agreement that contained certain requirements for registering the underlying commonshares, but has no provision for penalties upon the failure to register. At each consolidated balance sheet date, this liability’s fair value was re-measured and adjusted with the corresponding change in fair value recorded in the consolidated statements of operations and comprehensive loss.After we met the requirements for registering the underlying common shares in the fiscal year ended September 30, 2014, the warrants were reclassifiedto equity (additional paid-in capital). The liability associated with the warrants was initially included in “Accrued expenses and other currentliabilities” in the consolidated balance sheet at September 30, 2013.16 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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.Preferred Stock AccretionThe carrying amount of the convertible preferred stock is less than the redemption value. As a result of our determination that redemption isprobable, the carrying value will be increased by periodic accretions so that the carrying value will equal the redemption amount at the earliestredemption date. Such accretion is recorded as a preferred stock dividend.Preferred Stock Beneficial Conversion FeatureOn the date of issuance, the fair value, or carrying amount, of the securities could be converted into common stock at a discount to the marketprice of the underlying common stock at the conversion date. Such embedded “beneficial conversion feature”, which is equal to the differencebetween the accounting conversion price and the fair value of the common stock, is analogous to a dividend and has been recorded as a return topreferred stockholders as of the date of issuance, which is the earliest possible conversion date. As a result of the dividend being recorded uponissuance, there will be no future impact on our consolidated financial statements.Revenue RecognitionWe generally recognize revenue from product sales to our customers when: (1) title and risk of loss are transferred (in general, these conditions occur ateither point of shipment or point of destination, depending on the terms of sale); (2) persuasive evidence of an arrangement exists; (3) we have no continuingobligations to the customer; and (4) collection of the related accounts receivable is reasonably assured.Share-Based Payment ExpenseWe recognize employee and director share-based compensation in our consolidated statements of operations and comprehensive loss at the grant-datefair value of stock options and other equity-based compensation. The determination of grant-date fair value for stock option awards is estimated using theBlack-Scholes option-pricing model, which includes variables such as the expected volatility of our share price, the exercise behavior of its grantees, interestrates, and dividend yields. These variables are projected based on our historical data, experience, and other factors. Changes in any of these variables couldresult in material changes to the valuation of options granted in future periods and increases in the expense recognized for share-based payments. In the caseof awards with multiple vesting periods, we have elected to use the graded vesting attribution method, which recognizes compensation cost on a straight-linebasis over each separately vesting portion of the award as if the award was, in-substance, multiple awards. See Note 8, Share-Based Compensation, in ourNotes to our Consolidated Financial Statements. In addition, we recognize share-based compensation to non-employees based upon the fair value, using theBlack-Scholes option pricing model, determined at the deemed measurement dates over the related contract service period.Recent Accounting PronouncementsIn July 2013, the FASB issued ASU 2013-11, “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating LossCarryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists." This ASU addresses the requirements regarding the financial statement presentation ofan unrecognized tax benefit within ASC Topic 740 for the purpose of providing consistency between the financial reporting of U.S. GAAP entities.Generally, this ASU provides guidance for the preparation of financial statements and disclosures when a net operating loss carryforward, a similar tax loss, ora tax credit carryforward exists. This ASU is effective for annual periods and interim periods within those annual periods beginning after December 15, 2013and is not expected to have a material impact on our consolidated financial statements or disclosures. 17 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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 May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers,” (“ASU 2014-09”). ASU 2014-09 supersedes the revenuerecognition requirements in Accounting Standards Codification (“ASC”) 605 - Revenue Recognition and most industry-specific guidance throughout theASC. The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects theconsideration to which the company expects to be entitled in exchange for those goods or services. ASU 2014-09 is effective for annual periods and interimperiods within those annual periods beginning after December 15, 2016 and should be applied retrospectively to each prior reporting period presented orretrospectively with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application. We are currently evaluating theimpact of the adoption of ASU 2014-09 on our consolidated financial statements.In June 2014, the FASB issued ASU 2014-12, "Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When theTerms of an Award Provide that a Performance Target Could be Achieved after the Requisite Service Period," ("ASU 2014-12"). The amendments in ASU2014-12 require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performancecondition. A reporting entity should apply existing guidance in ASC Topic No. 718, "Compensation - Stock Compensation" as it relates to awards withperformance conditions that affect vesting to account for such awards. The amendments in ASU 2014-12 are effective for annual periods and interim periodswithin those annual periods beginning after December 15, 2015. Early adoption is permitted. Entities may apply the amendments in ASU 2014-12 either: (a)prospectively to all awards granted or modified after the effective date; or (b) retrospectively to all awards with performance targets that are outstanding as ofthe beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. We do not anticipate that theadoption of ASU 2014-12 will have a material impact on our consolidated financial statements.RESULTS OF OPERATIONS FOR FISCAL 2014 COMPARED TO FISCAL 2013(Loss) Income from Continuing OperationsLoss from continuing operations was $0.5 million in Fiscal 2014 compared to income of $5 thousand in Fiscal 2013. The loss in Fiscal 2014 wasprimarily due to an increase in sales and marketing and general and administrative expenses, which were offset, in part, by an improvement in gross profit anda reduction in other expense, as reflected in the table below: (dollars in thousands) For the Fiscal Years Ended September 30, Favorable 2014 2013 (Unfavorable)Net Sales$33,360 $30,911 $2,449 Gross profit 6,555 6,377 178 Sales and marketing expenses (2,806) (2,187) (619)General and administrative expenses (3,848) (3,484) (364)Other expense (375) (700) 325 Income tax expense - (1) 1 (Loss) income from continuing operations$(474) $5 $(479) Loss from continuing operations per basic and diluted share was $(0.08) and $(0.07) for Fiscal 2014 and 2013, respectively.Net SalesNet sales increased $2.5 million, or 8%, to $33.4 million in Fiscal 2014 from $30.9 million in Fiscal 2013 due to higher sales in both product lines.Sales in Diabetic Products increased $2.0 million and sales in Other Products increased $0.5 million. The tables below set forth sales by channel, product lineand geographic location of our customers for the periods indicated:18 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. Fiscal Year Ended September 30, 2014 (millions of dollars) APAC Americas Europe TotalDiabetic Products$9.9 $6.3 $10.1 $26.3Other Products 1.8 3.5 1.8 7.1Total net sales$11.7 $9.8 $11.9 $33.4 Net Sales for the Fiscal Year Ended September 30, 2013 (millions of dollars) APAC Americas Europe TotalDiabetic Products$8.7 $7.2 $8.4 $24.3Other Products 2.1 3.8 0.7 6.6Total net sales$10.8 $11.0 $9.1 $30.9 Diabetic Product SalesWe design to the order of, and sell carrying cases for blood glucose diagnostic kits directly to, OEMs (or their contract manufacturers). The OEMcustomer or its contract manufacturer packages our carry cases “in box” as a custom accessory for the OEM’s blood glucose testing and monitoring kits, or toa lesser extent, sell them through their retail distribution channels.Sales of Diabetic Products increased $2.0 million to $26.3 million in Fiscal 2014 from $24.3 million in Fiscal 2013. This increase was primarily due tohigher sales of legacy programs with our 3 largest Diabetic Products’ customers (Diabetic customers A, B, and C). The increase was offset, in part, by a declinein sales of legacy programs to a major Diabetic Products' customer (Diabetic customer D).The following table sets forth our sales by Diabetic Products’ customers for the periods indicated: (millions of dollars) For the Fiscal Years Ended September 30, Increase 2014 2013 (Decrease)Diabetic Customer A$8.9 $7.6 $1.3 Diabetic Customer B 4.5 4.0 0.5 Diabetic Customer C 8.1 7.3 0.8 Diabetic Customer D 3.7 4.4 (0.7)All other Diabetic Product Customers 1.1 1.0 0.1 Totals$26.3 $24.3 $2.0 Sales of Diabetic Products represented 79% of our total net sales in Fiscal 2014 compared to 78% of our total net sales in Fiscal 2013.Other Product SalesWe design and sell cases and protective solutions to OEMs for a diverse array of portable electronic devices (such as bar code scanners, GPS devices,cellular phones, tablets and cameras), as well as a variety of other products (such as sporting and recreational products and firearms) on a made-to-order basisthat are customized to fit the products sold by our OEM customers.19 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. Sales of Other Products increased $0.5 million to $7.1 million in Fiscal 2014 from $6.6 million in Fiscal 2013. The increase was primarily driven bysales to a new camera customer which provided an addition of $1.5 million of sales in Fiscal 2014. The increase was offset, in part, by a decline in sales of$0.4 million to a long-standing GPS customer and a decline in sales of $0.3 million to a barcode scanner customer in Fiscal 2014. Lesser fluctuations inseveral other customer accounts between Fiscal 2014 and Fiscal 2013 were not individually material.Sales of Other Products represented 21% of our net sales in Fiscal 2014 compared to 22% of our total net sales in Fiscal 2013.Gross ProfitGross profit increased $0.2 million, or 3%, to $6.6 million in Fiscal 2014 from $6.4 million in Fiscal 2013. As a percentage of sales, our gross profitdeclined to 20% in Fiscal 2014, compared to 21% in Fiscal 2013.The gross profit increase was driven primarily by a year over year increase in sales volume. Fiscal 2014 sales in Europe grew 29% to $11.9 millionfrom a combination of new camera customer sales and volume growth in Diabetic Customer C. The sales growth in Europe contributed $0.4 million inincremental gross profit. This incremental gross profit was partially offset by a decrease of $0.2 million from a 10% decline in Americas sales, to $9.8 million,mostly due to competitive pricing that lead to lower average sales prices with a long-standing GPS customer. The aforementioned 1% gross profit decline as a percentage of sales was mostly due to lower average margins from the new camera and long-standing GPS customers, partially offset by the margins on Diabetic Product sales.Sales and Marketing ExpensesSales and marketing expenses increased $0.6 million, or 28%, to $2.8 million in Fiscal 2014 compared to $2.2 million in Fiscal 2013, primarily tohigher personnel costs. Personnel costs increased $0.5 million in Fiscal 2014 primarily as a result of expanding and restructuring our sales and sales supportdepartments, including their respective compensation schemes. Fluctuations in other components of “Sales and Marketing Expenses” were not materialindividually or in the aggregate.General and Administrative ExpensesGeneral and administrative expenses increased $0.3 million, or 10%, to $3.8 million in Fiscal 2014 from $3.5 million in Fiscal 2013, due primarily tothe following:$0.7 million increase in professional fees (primarily attorney’s fees) related to the legal support and representation surrounding theproxy defense and other legal matters;$0.2 million increase in professional fees (primarily consultants and attorneys) related to identifying and vetting targets for acquisitionas part of management’s strategic vision; andOffset, in part, by a $0.5 million decrease in personnel costs due to a reduction of accrued executive bonuses and the forfeiture of share-based awards granted to the former Chief Financial Officer as a result of his termination in the 4th quarter of Fiscal 2014.Fluctuations in other components of “General and Administrative Expenses” that aggregated a net decrease of $0.2 million were not individuallymaterial.Other (Income) ExpenseOther (income) expense, net, consisting primarily of realized and unrealized gains and losses on investments in marketable securities and the change inthe fair market value of warrant liabilities, was $0.4 million of expense in Fiscal 2014 compared to $0.7 million of expense in Fiscal 2013.RESULTS OF DISCONTINUED OPERATIONS FOR FISCAL 2014 COMPARED TO FISCAL 2013On June 21, 2012, we determined to exit our global retail business and focus solely on growing our OEM business. The decision to eliminate theRetail division was primarily driven by the longer than estimated path to bring it to profitability and the strong net sales growth and cost rationalizations inthe OEM business. We have substantially completed the exit of our Retail business and have not had, and do not expect to have, any continuinginvolvement in the Retail business after this date. Accordingly, the results of operations for the Retail division have been recorded as discontinuedoperations in the accompanying consolidated financial statements for the fiscal years presented. 20 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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.Loss from discontinued operations was $0.3 million in Fiscal 2014 compared to $0.2 million in Fiscal 2013. The only remaining open item pertainingto discontinued operations is the collection of a receivable of $280 thousand which is presented as current assets from discontinued operations, against whichwe have recorded a full valuation allowance, on our accompanying audited consolidated financial statements. See Note 3 to our audited consolidatedfinancial statements for an update on our collection effortsLIQUIDITY AND CAPITAL RESOURCESDuring Fiscal 2014, we generated $0.2 million of cash from operations, which is derived from a net loss of $0.8 million, adjusted by $0.9million for non-cash items (primarily bad debt expense, realized and unrealized losses on marketable securities, share based compensation andthe change in fair value of a warrant liability), and net cash provided by working capital items of $0.1 million. As to working capital items, cashprovided by operating activities consisted primarily of an increase in accounts payable (including due to Forward China) of $2.3 million offset, inpart, by cash used in operating activities, which consisted of increases in accounts receivable and inventories of $1.7 million and $0.3 million,respectively, and a decrease in accrued expenses and other current liabilities of $0.2 million.The increase in accounts payable (including due to Forward China) is primarily due to the contraction of suppliers and more favorable payment terms. The increase in accounts receivable is primarily due to the timing and higher volume of sales recorded in the three-month period ended September 30, 2014and the extension of payment terms to one of our major diabetic customers. The increase in inventories is primarily due to timing differences in inventoryshipments enroute to and staged from our OEM customers’ distribution hubs. The decrease in accrued expenses and other current liabilities is primarily dueto the reduction of accrued bonuses for executives and the reduction of accrued professional fees.During Fiscal 2013, we generated $2.3 million of cash from operations, which is derived from a net loss of $0.2 million, adjusted by $1.3 million fornon-cash items (primarily realized and unrealized losses on marketable securities and share based compensation), and net cash provided by working capitalitems of $1.2 million. As to working capital items, cash provided by operating activities consisted of decreases in accounts receivable, inventories, andprepaid expenses and other current assets of $2.9 million, $1.7 million, and $0.2 million, respectively. These changes were offset, in part, by cash used inoperating activities, which consisted of decreases in accounts payable and accrued expenses and other current liabilities of $2.4 million and $1.1 million,respectively.In Fiscal 2014, net cash used in investing activities was $0.3 million, which consisted of $5.8 million used for purchases of marketableequity securities, $5.6 million generated from sales of marketable equity securities, and $33 thousand used for purchases of property andequipment. In Fiscal 2013, net cash used in investing activities was $1.4 million, which consisted of $88.6 million used for purchases ofmarketable equity securities, $87.3 million generated from sales of marketable equity securities, and $74 thousand used for purchases of propertyand equipment. In Fiscal 2014, net cash used in financing activities was $0.1 million, which consisted of $76 thousand used to pay dividends on 6% seniorconvertible preferred stock (see Note 7 to our Notes to Consolidated Financial Statements – “Shareholders Equity”) and $47 thousand related to restrictedstock that was repurchased and retired. In Fiscal 2013, net financing activities generated $1.2 million from the issuance of 6% senior convertible preferredstock and warrants, net of $15 thousand used to pay dividends on such senior convertible preferred stock. We raised these funds for general corporatepurposes, including working capital, and in connection with potential acquisition targets if any were identified and acquired.At September 30, 2014, our current ratio (current assets divided by current liabilities) was 2.6; our quick ratio (current assets less inventories dividedby current liabilities) was 2.2; and our working capital (current assets less current liabilities) was $10.0 million (excluding current assets of discontinuedoperations). As of such date, we had no short or long-term debt outstanding.Our primary sources of liquidity are our cash and cash equivalents and marketable securities on hand. The primary demands on our working capitalcurrently are: i) operating losses, should they occur, and ii) accounts payable arising in the ordinary course of business, the most significant of which arisewhen we order products from our suppliers. Historically, our sources of liquidity have been adequate to satisfy working capital requirements arising in theordinary course of business. We anticipate that our liquidity and financial resources for the next twelve months will be adequate to manage our operatingand financial requirements.ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKNot applicable.21 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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 included in this Annual Report may be found beginning at page F-1 of this Annual Report onForm 10-K.ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENone.ITEM 9A.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 theExchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controlsand procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reportsthat it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer orofficers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding requireddisclosure.In accordance with Exchange Act Rule 13a-15(b), our management, under the supervision and with the participation of our Principal Executive andFinancial Officer, performed an evaluation of the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered bythis Report (the fourth quarter of Fiscal 2014). Based on that evaluation, the Company’s Principal Executive and Financial Officer concluded that theCompany’s disclosure controls and procedures were effective as of the end of the period covered by this Report (the fourth quarter of 2014), to providereasonable assurance that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act is recorded, processed,summarized and reported within the time periods specified in the Commission’s rules and forms.Management’s Report on Internal Control Over Financial Reporting Our Principal Executive and Financial Officer is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under thesupervision of, our principal executive and principal financial officer and effected by our Board of Directors, management and other personnel, to providereasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordancewith 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 ourassets;provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordancewith U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance withauthorizations of management and our directors; andprovide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets thatcould have a material effect on the financial statements.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 anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degreeof compliance with the policies or procedures may deteriorate.Our Principal Executive and Financial Officer assessed the effectiveness of our internal control over financial reporting as of September 30, 2014. Inmaking this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) basedon the 1992 framework in Internal Control — Integrated Framework. Based on this evaluation, management concluded that our internal control overfinancial reporting was effective as of September 30, 2014. 22 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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 annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal controlover financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant torules of the Commission that permit the Company to provide only management’s report 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, unlessthe registrant specifically states that the report is to be considered “filed” under the Exchange Act or incorporates it by reference into a filing under theSecurities Act of 1933, as amended, or the Exchange Act.Changes in Internal ControlOur management, with the participation of our Principal Executive and Financial Officer, performed an evaluation required by Rule 13a-15(d) of theExchange Act as to whether any change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurredduring the last fiscal quarter of Fiscal 2014. Based on that evaluation, our Principal Executive and Financial Officer concluded that there were no changes inour internal control over financial reporting during the last fiscal quarter of Fiscal 2014.ITEM 9B.OTHER INFORMATIONNone.23 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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.PART III ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEThe response to this item is incorporated by reference from the discussion responsive in the Company’s Proxy Statement for the 2014 Annual Meeting ofShareholders.ITEM 11.EXECUTIVE COMPENSATIONThe response to this item is incorporated by reference from the discussion responsive in the Company’s Proxy Statement for the 2014 Annual Meeting ofShareholders.ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENTAND RELATED STOCKHOLDER MATTERSThe response to this item is incorporated by reference from the discussion responsive in the Company’s Proxy Statement for the 2014 Annual Meeting ofShareholders.ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEThe response to this item is incorporated by reference from the discussion responsive in the Company’s Proxy Statement for the 2014 Annual Meeting ofShareholders.ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICESThe response to this item is incorporated by reference from the discussion responsive in the Company’s Proxy Statement for the 2014 Annual Meeting ofShareholders. 24 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. PART IVITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES3. Articles of Incorporation and By-Laws 3(i) Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3 to the Company's Annual Report on Form 10-K, as filed with the Commission on December 8, 2010). 3(ii)**Third Amended and Restated By-Laws of Forward Industries, Inc., as of August 10, 2010, as amended on February 8, 2012 and May 28,2014. 3(iii)Certificate of Amendment of the Certificate of Incorporation of Forward Industries, Inc., as filed with the Department of State of the Stateof New York on April 26, 2013 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, as filed with theCommission on April 26, 2013). 3(iv)Certificate of Amendment of the Certificate of Incorporation of Forward Industries, Inc. filed with the Department of State of the State ofNew York on June 28, 2013 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, as filed with theCommission on July 3, 2013). 4.Instruments Defining the Rights of Security Holders 4.1Rights Agreement, dated as of April 26, 2013, by and between Forward Industries, Inc. and American Stock Transfer & Trust CompanyLLC, as Rights Agent (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, as filed with theCommission on April 26, 2013). 4.2Form of 6% Senior Convertible Preferred Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Current Report onForm 8-K, as filed with the Commission on July 3, 2013). 4.3Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, asfiled with the Commission on July 3, 2013). 10. Material Contracts 10.11996 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). 10.2Forward Industries, Inc. 2007 Equity Incentive Plan, as amended (incorporated by reference to Exhibit 4.1 to the Registration Statementon Form S-8 of the Company, Reg. File No. 333-165075, as filed with the Commission on February 25, 2010). 10.3Retention Agreement, dated as of August 10, 2010, between Forward Industries, Inc. and James O. McKenna, (incorporated by reference toExhibit 10.4 to the Company’s Current Report on Form 8-K, as filed with the Commission on August 16, 2010). 10.4Amended Employment Agreement, dated as of April 1, 2011, between Forward Industries, Inc. and James O. McKenna, (incorporated byreference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q, as filed with the Commission on May 11, 2011). 10.5†Buying Agency and Supply Agreement between Forward Industries, Inc. and Seaton Global Corporation, a British Virgin Islandscorporation, dated as of March 7, 2012 (incorporated by reference to the Form 10-Q, as filed with the Commission on May 10,2012). 25 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. 10.6†Amendment No. 1 to Amended and Restated Buying Agency and Supply Agreement, between Forward Industries, Inc. and ForwardIndustries (Asia-Pacific) Corporation (f/k/a Seaton Global Corporation), dated as of March 11, 2014 (incorporated by reference toForm 10-Q, as filed with the Commission on May 15, 2014). 10.7Employment Agreement by and between Forward Industries, Inc. and Robert Garrett, Jr., effective as of March 1, 2012(incorporated by reference to Form 8-K, as filed with the Commission on April 6, 2012). 10.8Memorandum of Understanding, dated June 21, 2012, between Forward Industries, Inc. and G-Form LLC (incorporated by referenceto Form 10-Q, as filed with the Commission on August 20, 2012). 10.9Amended Employment Agreement, dated as of November 8, 2012, between Forward Industries, Inc. and James O. McKenna(incorporated by reference to the Annual Report on Form 10-K, as filed with the Commission on December 20, 2012). 10.10Forward Industries, Inc. 2011 Long Term Incentive Plan (incorporated by reference to Exhibit A to the Company’s Proxy Statement,Definitive 14A as filed with the Commission on January 26, 2011). 10.11Form of Securities Purchase Agreement, dated as of June 28, 2013, between Forward Industries, Inc. and the investors signatorythereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed with the Commission onJuly 3, 2013). 10.12Form of Registration Rights Agreement, dated as of June 28, 2013, among Forward Industries, Inc. and the investors signatorythereto (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, as filed with the Commission onJuly 3, 2013). 21.Subsidiaries of the Registrant 21.1 **List of Subsidiaries of Forward Industries, Inc. 26 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. 23.Consent of Independent Registered Public Accounting Firm 23.1 **Consent of CohnReznick LLP 31. Certifications Pursuant to Rule 13a-14(a) (Section 302 of Sarbanes-Oxley) 31.1**Certification of Robert Garrett Jr. 32. Certifications Pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350 (Section 906 of Sarbanes-Oxley) 32.1*Certification of Robert Garrett Jr. (furnished herewith) 101.INS**XBRL Instance Document. 101.SCH**XBRL Taxonomy Extension Schema Document. 101.CAL**XBRL Taxonomy Calculation Linkbase Document. 101.DEF**XBRL Taxonomy Definition Linkbase Document. 101.LAB**XBRL Taxonomy Label Linkbase Document. 101.PRE**XBRL Taxonomy Presentation Linkbase Document. * Furnished and not filed herewith** Filed herewith† Portions have been omitted pursuant to request for confidential treatment and the omitted portions have been separately filed with the Commission. 27 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. SignaturesPursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalfby the undersigned, hereunto duly authorized.Dated: December 9, 2014 FORWARD INDUSTRIES, INC. (Registrant) By: /s/ Robert Garrett Jr.___________ Robert Garrett Jr. President and Chief Executive Officer(Principal Executive, Financial and Accounting Officer) 28 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. POWER OF ATTORNEYKNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints jointly and severally, FrankLaGrange Johnson and Robert Garrett Jr., or either of them as his or her true and lawful attorneys-in-fact and agents, with full power of substitution andresubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effectiveamendments) to this Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securitiesand Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every actand thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifyingand confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtuehereof.IN WITNESS WHEREOF, each of the undersigned has executed this Power of Attorney as of the date indicated.In accordance with the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated: December 9, 2014/s/ Robert Garrett Jr. Robert Garrett Jr. President, Chief Executive Officer and Director (Principal Executive, Financial and Accounting Officer)December 9, 2014/s/ John F. Chiste John F. Chiste Director December 9, 2014/s/ Joseph E. Mullin III Joseph E. Mullin III Director December 9, 2014/s/ Frank LaGrange Johnson Frank LaGrange Johnson Chairman of the Board December 9, 2014/s/ Robert M. Neal Robert M. Neal Director December 9, 2014 Howard Morgan Director December 9, 2014 Terence Wise Director 29 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS PageReport of Independent Registered Public Accounting FirmF-1Consolidated Balance Sheets as of September 30, 2014 and 2013F-2Consolidated Statements of Operations and Comprehensive Loss for the Years Ended September 30, 2014 and 2013F-3Consolidated Statements of Shareholders' Equity for the Years Ended September 30, 2014 and 2013F-4Consolidated Statements of Cash Flows for the Years Ended September 30, 2014 and 2013F-5Notes to Consolidated Financial StatementsF-6 30 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. 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. and Subsidiaries as of September 30, 2014 and 2013, andthe related consolidated statements of operations and comprehensive loss, shareholders’ equity and cash flows for the years then ended. Forward Industries,Inc. and Subsidiaries’ management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on theseconsolidated 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 audits to obtain reasonable assurance about whether the consolidated financial statements are free of materialmisstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our auditincluded consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but notfor the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no suchopinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements,assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.We believe that our 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. and Subsidiaries as of September 30, 2014 and 2013, and the results of their operations and their cash flows for the years then ended inconformity with accounting principles generally accepted in the United States of America. /s/ CohnReznick LLP Jericho, New YorkDecember 9, 2014 F-1 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS September 30, 2014 2013Assets Current assets: Cash and cash equivalents$6,477,132 $6,616,995 Marketable securities 1,051,230 1,080,747 Accounts receivable 6,124,871 4,382,406 Inventories 2,374,837 2,050,710 Prepaid expenses and other current assets 401,510 390,153 Current assets of discontinued operations 39 339,382 Total current assets 16,429,619 14,860,393 Property and equipment, net 98,990 129,987 Other assets 40,962 40,493 Total Assets$16,569,571 $15,030,873 Liabilities and shareholders' equity Current liabilities: Accounts payable$666,630 $3,433,408 Due to Forward China 5,215,768 107,785 Accrued expenses and other current liabilities 548,515 1,195,560 Current liabilities of discontinued operations 3,396 25,438 Total current liabilities 6,434,309 4,762,191 Other liabilities 115,202 157,708 Total Liabilities 6,549,511 4,919,899 6% Senior convertible preferred stock, par value $0.01 per share; 1,500,000 shares authorized; 648,846 shares issued and outstanding (aggregate liquidation value of $1,275,000 as of September 30, 2014 and 2013) 833,365 716,664 Commitments and contingencies Shareholders' equity: Preferred stock, par value $0.01 per share; 4,000,000 shares authorized; 2,400,000 undesignated: Series A participating preferred stock, par value $0.01; 100,000 shares authorized; no shares issued and outstanding - -Common stock, par value $0.01 per share; 40,000,000 shares authorized; 9,159,796 and 9,190,467 shares issued, plus 8,453,386 and 8,484,057 shares outstanding, at September 30, 2014 and 2013, respectively 91,598 91,905 Additional paid-in capital 18,747,371 17,961,613 Treasury stock, 706,410 shares at cost (1,260,057) (1,260,057)Accumulated deficit (8,371,806) (7,378,700)Accumulated other comprehensive loss (20,411) (20,451)Total shareholders' equity 9,186,695 9,394,310 Total liabilities and shareholders' equity$16,569,571 $15,030,873 The accompanying notes are an integral part of the consolidated financial statements. F-2 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS For the Fiscal Years Ended September 30, 2014 2013Net sales$33,359,918 $30,910,506 Cost of goods sold 26,805,193 24,533,154 Gross profit 6,554,725 6,377,352 Operating expenses Sales and marketing 2,805,643 2,187,315 General and administrative 3,847,759 3,484,222 Total operating expenses 6,653,402 5,671,537 (Loss) income from operations (98,677) 705,815 Other (income) expense: Interest income (33,916) (4,626)Loss on marketable securities, net 246,687 722,347 Loss (gain) on change in fair market value of warrant liabilities 136,258 (49,618)Other expense, net 26,166 31,770 Total other expense, net 375,195 699,873 (Loss) income from continuing operations before income tax expense (473,872) 5,942 Income tax expense - 507 (Loss) income from continuing operations (473,872) 5,435 Loss from discontinued operations, net of tax benefit of $0 and $(6,002), respectively (326,034) (212,321)Net loss (799,906) (206,886)Preferred stock dividends, accretion and beneficial conversion feature (193,200) (546,888)Net loss applicable to common equity$(993,106) $ (753,774)Net loss$(799,906) $(206,886)Other comprehensive income (loss): Change in unrealized gains on marketable securities, net of tax - 23,744 Translation adjustments 40 (8,254)Total other comprehensive income 40 15,490 Comprehensive loss$(799,866) $(191,396)Net loss per basic and diluted common shares: Loss from continuing operations$(0.08) $(0.07)Loss from discontinued operations (0.04) (0.02)Net loss per share$(0.12) $(0.09)Weighted average number of common and common equivalent shares outstanding Basic and diluted 8,186,926 8,111,226 The accompanying notes are an integral part of the consolidated financial statements. F-3 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITYFOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2014 AND 2013 Accumulated Additional Other Common Stock Paid-In Treasury Stock Accumulated Comprehensive Shares Amount Capital Shares Amount Deficit Loss TotalBalance - October 1, 20128,819,092 $88,191 $ 17,020,696 706,410$(1,260,057)$(6,624,926)$(35,941)$9,187,963 Restricted stock award issuances371,375 3,714 (3,714) - - - - - Share-based compensation- - 436,422 - - - - 436,422 Preferred stock dividends- - - - - (14,527) - (14,527)Preferred stock accretion- - - - - (24,152) - (24,152)Beneficial conversion on preferred stock- - 508,209 - - (508,209) - - Foreign currency translation- - - - - - (8,254) (8,254)Net reclassification of adjustments on marketable securities- - - - - - 23,744 23,744 Net loss- - - - - (206,886) - (206,886)Balance - September 30, 20139,190,467 91,905 17,961,613 706,410 (1,260,057) (7,378,700) (20,451) 9,394,310 Restricted stock award issuances95,000 950 (950) - - - - - Restricted stock award forfeitures(85,000) (850)850 - - - - - Restricted stock repurchased and retired(40,671) (407)(46,771) - - - - (47,178)Share-based compensation- - 232,700 - - - - 232,700 Preferred stock dividends- - - - - (76,499) - (76,499)Preferred stock accretion- - - - - (116,701) - (116,701)Reclassification of warrant liability- - 599,929 - - - - 599,929 Foreign currency translation- - - - - - 40 40 Net loss- - - - - (799,906) - (799,906) Balance - September 30, 20149,159,796 $91,598 $ 18,747,371 706,410 $(1,260,057) $(8,371,806) $(20,411) $9,186,695 The accompanying notes are an integral part of the consolidated financial statements. F-4 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.FORWARD INDUSTRIES, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS For the Fiscal Years Ended September 30, 2014 2013Cash Flows From Operating Activities: Net loss$(799,906) $(206,886)Adjustments to reconcile net loss to net cash provided by operating activities: Realized and unrealized loss on marketable securities 246,687 722,347 Share-based compensation 232,700 436,422 Depreciation and amortization 64,482 75,188 Bad debt expense 280,034 35,028 Change in fair value of warrant liability 136,258 (49,618)Loss on disposal of property and equipment - 9,486 Deferred rent (42,506) 74,492 Changes in operating assets and liabilities: Accounts receivable (1,742,465) 2,862,208 Inventories (324,127) 1,681,045 Prepaid expenses and other current assets 47,952 161,103 Other assets (469) (51)Accounts payable and due to Forward China 2,319,203 (2,416,091)Accrued expenses and other current liabilities (183,374) (1,173,710)Other liabilities - 39,449 Net cash provided by operating activities 234,469 2,250,412 Cash Flows From Investing Activities: Sales of marketable securities 5,566,758 87,275,809 Purchases of marketable securities (5,783,928) (88,634,554)Purchases of property and equipment (33,485) (74,187)Net cash used in investing activities (250,655) (1,432,932)Cash Flows From Financing Activities: Proceeds from issuance of convertible preferred stock and warrants, net - 1,205,796 Dividends paid (76,499) (14,527)Restricted stock repurchased and retired (47,178) - Net cash (used in) provided by financing activities (123,677) 1,191,269 Net (decrease) increase in cash and cash equivalents (139,863) 2,008,749 Cash and cash equivalents at beginning of year 6,616,995 4,608,246 Cash and cash equivalents at end of year$6,477,132 $6,616,995 Supplemental Disclosure of Cash Flow Information: Cash paid during the fiscal year for: Income taxes$6,449 $5,962 Supplemental disclosure of non-cash financing activities: Preferred stock accretion$116,701 $24,152 Reclassification of warrant liabilities to equity$599,929 $- The accompanying notes are an integral part of the consolidated financial statements. F-5 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 OVERVIEW Forward Industries, Inc. (“Forward” or the “Company”) was incorporated under the laws of the State of New York and began operations in1961 as a manufacturer and distributor of specialty and promotional products. The Company designs, markets, and distributes carry and protectivesolutions, primarily for hand held electronic devices. The Company’s principal customer market is original equipment manufacturers, or “OEMs” (orthe contract manufacturing firms of these OEM customers), that either package its products as accessories “in box” together with their brandedproduct offerings, or sell them through their retail distribution channels. The Company’s OEM products include carrying cases and otheraccessories for medical monitoring and diagnostic kits and a variety of other portable electronic and non-electronic products (such as sporting &recreational products, bar code scanners, smartphones, GPS location devices, tablets, and firearms). The Company’s OEM customers are locatedin the Americas, the EMEA Region, and the APAC Region. The Company does not manufacture any of its OEM products and sourcessubstantially all of its OEM products from independent suppliers in China (refer to Note 12 – Buying Agency and Supply Agreement).On June 21, 2012, the Company determined to exit its global retail business and focus solely on growing its OEM business. The decision toeliminate the Retail division was primarily driven by the longer than estimated path to bring it to profitability and the strong top line growth and costrationalizations in the OEM business. The Retail business is presented as discontinued operations.NOTE 2 ACCOUNTING POLICIESAccounting EstimatesThe preparation of the Company’s consolidated financial statements in conformity with accounting principles generally accepted in theUnited States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities anddisclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses duringthe reporting periods. Actual results could differ from those estimates and assumptions.Basis of PresentationThe accompanying consolidated financial statements include the accounts of Forward Industries, Inc. and its wholly owned subsidiaries(Forward US and Forward Switzerland; Forward HK and Forward UK are inactive). All significant intercompany transactions and balances havebeen eliminated in consolidation.ReclassificationsCertain prior period amounts have been reclassified to conform to the current period presentation.Cash and Cash EquivalentsCash and cash equivalents consist primarily of cash on deposit and highly liquid money market accounts, short-term bonds, and certificatesof deposit with original contractual maturities of three months or less, predominately in U.S. dollar denominated instruments. The Company maypurchase these short-term bonds with anticipated maturity of 90 days or less at a premium or discount. The Company records theseinvestments as cash and cash equivalents net of amortization of premium or discount. The Company minimizes its credit risk associated withcash and cash equivalents by investing in high quality instruments and by periodically evaluating the credit quality of the primary financialinstitution issuers of such instruments. The Company holds cash and cash equivalents at major financial institutions in the United States, at whichcash amounts may significantly exceed the Federal Deposit Insurance Corporation’s insured limits. At September 30, 2014 and 2013, this amountwas approximately $6.3 million (which includes $1.7 million in a foreign bank) and $6.5 million (which includes $1.4 million in a foreign bank),respectively. Historically, the Company has not experienced any losses due to such cash concentrations. F-6 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 ACCOUNTING POLICIES (CONTINUED)Marketable SecuritiesAt September 30, 2014 and 2013, the Company has investments in marketable securities that are classified as trading and are recorded atfair value with the corresponding unrealized holding gains or losses recognized in earnings. The fair value of marketable securities is determinedbased on quoted market prices. The cost of marketable securities sold is determined by the specific identification method. The Companyclassifies its realized and unrealized gains and losses as non-operating income (expense) in its consolidated statements of operations andcomprehensive loss. In addition, the Company classifies the cash flows from the trading of these marketable securities as investing activities inits consolidated statements of cash flows.Accounts ReceivableAccounts receivable consist of unsecured trade accounts with customers or their contract manufacturers. The Company performs periodiccredit evaluations of its customers including an evaluation of days outstanding, payment history, recent payment trends, and perceivedcreditworthiness, and believes that adequate allowances for any uncollectible receivables are maintained. Credit terms to customers generallyrange from net thirty (30) days to net one hundred and twenty (120) days. The Company has not historically experienced significant credit orcollection problems with its OEM customers or their contract manufacturers. At September 30, 2014 and 2013, no allowance for doubtful accountsrelating to the Company’s continuing operations was deemed necessary.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 on management’s estimates, an allowance is made to reduce excess, obsolete, or otherwise un-saleable inventories to net realizable value.The allowance is established through charges to cost of goods sold in the Company’s consolidated statements of operations and comprehensiveloss. As reserved inventory is disposed of, the Company charges off the associated allowance. In determining the adequacy of the allowance,management’s estimates are based upon several factors, including analyses of inventory levels, historical loss trends, sales history andprojections of future sales demand. The Company’s estimates of the allowance may change from time to time based on management’sassessments, and such changes could be material.Property and EquipmentProperty 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. Whenproperty and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and anyresulting gain or loss is included in the results of operations for the respective period. Depreciation is provided over the estimated useful lives ofthe related assets using the straight-line method. The estimated useful life for furniture, fixtures and equipment ranges from three to ten years.Amortization of leasehold improvements is computed using the straight-line method over the shorter of the remaining lease term or the estimateduseful lives of the improvements. For the fiscal years ended September 30, 2014 and 2013, the Company recorded approximately $64,000 and$75,000 of depreciation and amortization expense from continuing operations, respectively.Income TaxesThe Company accounts for its income taxes in accordance with accounting principles generally accepted in the United States of America,which requires, among other things, recognition of future tax benefits and liabilities measured at enacted rates attributable to temporary differencesbetween financial statement and income tax bases of assets and liabilities and to net tax operating loss carry-forwards to the extent thatrealization of these benefits is more likely than not. The Company periodically evaluates the realizability of its net deferred tax assets. See Note 9to these Notes to Consolidated Financial Statements. The Company’s policy is to account for interest and penalties relating to income taxes, ifany, in “income tax expense” in its consolidated statements of operations and comprehensive loss and include accrued interest and penaltieswithin “accrued liabilities” in its consolidated balance sheets, if applicable. For fiscal years ended September 30, 2014 and 2013, no income taxrelated interest or penalties were assessed or recorded. F-7 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 ACCOUNTING POLICIES (CONTINUED)6% Senior Convertible Preferred StockTemporary EquityThe 6% Senior Convertible Preferred Stock has been classified as temporary equity in accordance with Accounting Standards Codification(“ASC”) 480-10-s99 - Distinguishing Liabilities from Equity – Overall – SEC Materials and Accounting Series Release (“ASR”) 268 – Presentation inFinancial Statements of “Redeemable Preferred Stock”, as the redemption feature is not solely within the control of the Company.WarrantsIn accordance with ASC 815-40 – Derivatives and Hedging – Contracts in Entity’s Own Equity, the Company’s warrants were initiallyclassified as a liability, at fair value, as a result of a related registration rights agreement that contained certain requirements for registering theunderlying common shares, but has no provision for penalties upon the failure to register. At each consolidated balance sheet date, this liability’sfair value was re-measured and adjusted with the corresponding change in fair value recorded in the consolidated statements of operations andcomprehensive loss. After the Company met the requirements for registering the underlying common shares in the fiscal year ended September30, 2014, the warrants were reclassified to equity (additional paid-in capital). The liability associated with the warrants was included in “Accruedexpenses and other current liabilities” in the accompanying consolidated balance sheet at September 30, 2013.Preferred Stock Accretion The carrying amount of the convertible preferred stock is less than the redemption value. As a result of the Company’s determination thatredemption is probable, the carrying value will be increased by periodic accretions so that the carrying value will equal the redemption amount atthe earliest redemption date. Such accretion is recorded as a preferred stock dividend.Preferred Stock Beneficial Conversion Feature On the date of issuance, the fair value, or carrying amount, of preferred stock was convertible into common stock at a discount to themarket price of the underlying common stock at the conversion date. Such embedded “beneficial conversion feature”, which was equal to thedifference between the accounting conversion price and the fair value of the common stock, is analogous to a dividend and was recorded as areturn to preferred shareholders as of the date of issuance, which was the earliest possible conversion date.Revenue RecognitionThe Company generally recognizes revenue from product sales to its customers when: (1) title and risk of loss are transferred (in general,these conditions occur at either point of shipment or point of destination, depending on the terms of sale); (2) persuasive evidence of anarrangement exists; (3) the Company has no continuing obligations to the customer; and (4) collection of the related accounts receivable isreasonably assured.Shipping and Handling CostsThe Company classifies shipping and handling costs, including inbound and outbound freight charges, purchasing and receiving costs,inspection costs, warehousing costs, internal transfer costs and other costs, as a component of cost of goods sold in the accompanyingconsolidated statements of operations and comprehensive loss. F-8 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 ACCOUNTING POLICIES (CONTINUED)Foreign Currency TransactionsForeign currency transactions may generate receivables or payables that are fixed in terms of the amount of foreign currency that will bereceived or paid. Fluctuations in exchange rates between such foreign currency and the functional currency increase or decrease the expectedamount of functional currency cash flows upon settlement of the transaction. These increases or decreases in expected functional currency cashflows are foreign currency transaction gains or losses that are included in “other income (expense), net” in the accompanying consolidatedstatements of operations and comprehensive loss. The approximate net losses from foreign currency transactions for continuing operations wasapproximately $28,000 and $16,000 for the fiscal years ended September 30, 2014 and 2013, respectively. Such foreign currency transactionlosses were primarily the result of Euro denominated sales to certain customers.Accumulated Other Comprehensive LossAccumulated other comprehensive loss as of September 30, 2014 and 2013, which is included as a component of shareholders’ equity,represents translation adjustments related to the Company’s foreign subsidiaries.Fair Value of Financial InstrumentsFor certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and otheraccrued liabilities, the carrying amount approximates fair value due to the short-term maturities of these instruments. The Company records itsfinancial instruments that are accounted for under ASC 320, “Investments-Debt and Equity Securities” (“ASC 320”) at fair value. In addition, theCompany recorded its warrant liability at fair value, prior to its reclassification to equity. The determination of fair value is based upon the fair valueframework established by ASC 820 “Fair Value Measurement”. ASC 820 provides that a fair value measurement assumes that the transaction tosell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the mostadvantageous market for the asset or liability. The fair value hierarchy is broken down into three levels based on the source of inputs as follows:(a) Level 1 – valuations based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical,unrestricted assets or liabilities; (b) Level 2 – valuations based on quoted prices in markets that are not active, or financial instruments for whichall significant inputs are observable; either directly or indirectly; and (c) Level 3 – valuations based on prices or valuation techniques that requireinputs that are both significant to the fair value measurement and unobservable, thus, reflecting assumptions about the market participants.Share-Based Payment ExpenseThe Company recognizes employee and director share-based compensation in its consolidated statements of operations and comprehensiveloss at the grant-date fair value of stock options and other equity-based compensation. The determination of stock option grant-date fair value isestimated using the Black-Scholes option-pricing model, which includes variables such as the expected volatility of the Company’s share price,the exercise behavior of its grantees, interest rates, and dividend yields. These variables are projected based on the Company’s historical data,experience, and other factors. In the case of awards with multiple vesting periods, the Company has elected to use the graded vesting attributionmethod, which recognizes compensation cost on a straight-line basis over each separately vesting portion of the award as if the award was, in-substance, multiple awards. Refer to Note 8 – Share Based Compensation. In addition, the Company recognizes share-based compensation tonon-employees based upon the fair value, using the Black-Scholes option pricing model, determined at the deemed measurement dates over therelated contract service period. F-9 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 ACCOUNTING POLICIES (CONTINUED)Recent Accounting PronouncementsIn July 2013, the FASB issued ASU 2013-11, “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a NetOperating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists." This ASU addresses the requirements regarding thefinancial statement presentation of an unrecognized tax benefit within ASC Topic 740 for the purpose of providing consistency between thefinancial reporting of U.S. GAAP entities. Generally, this ASU provides guidance for the preparation of financial statements and disclosures whena net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. This ASU is effective for annual periods and interimperiods within those annual periods beginning after December 15, 2013 and is not expected to have a material impact on the Company’sconsolidated financial statements or disclosures. In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers,” (“ASU 2014-09”). ASU 2014-09 supersedes therevenue recognition requirements in Accounting Standards Codification (“ASC”) 605 - Revenue Recognition and most industry-specific guidancethroughout the ASC. The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers inan amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2014-09 iseffective for annual periods and interim periods within those annual periods beginning after December 15, 2016 and should be appliedretrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying ASU 2014-09 recognized atthe date of initial application. The Company is currently evaluating the impact of the adoption of ASU 2014-09 on its consolidated financialstatements.In June 2014, the FASB issued ASU 2014-12, "Compensation - Stock Compensation (Topic 718): Accounting for Share-Based PaymentsWhen the Terms of an Award Provide that a Performance Target Could be Achieved after the Requisite Service Period," ("ASU 2014-12"). Theamendments in ASU 2014-12 require that a performance target that affects vesting and that could be achieved after the requisite service period betreated as a performance condition. A reporting entity should apply existing guidance in ASC Topic No. 718, "Compensation - StockCompensation" as it relates to awards with performance conditions that affect vesting to account for such awards. The amendments in ASU 2014-12 are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Early adoption is permitted.Entities may apply the amendments in ASU 2014-12 either: (a) prospectively to all awards granted or modified after the effective date; or (b)retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in thefinancial statements and to all new or modified awards thereafter. The Company does not anticipate that the adoption of ASU 2014-12 will have amaterial impact on its consolidated financial statements. F-10 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 DISCONTINUED OPERATIONSOn June 21, 2012, the Company determined to exit its global retail business and focus solely on growing its OEM business. The decision toeliminate the Retail division was primarily driven by the longer than estimated path to bring it to profitability and the strong net sales growth andcost rationalizations in the OEM business. Accordingly, the results of operations for the Retail division have been recorded as discontinuedoperations in the accompanying consolidated financial statements for the fiscal years presented. The Company has substantially completed itsexit of its Retail business. Summarized operating results of discontinued operations are presented in the following table: For the Fiscal Years Ended September 30, 2014 2013Net sales$- $655,658 Gross (loss) profit (9,700) 181,039 Operating expenses (316,404) (406,297)Other income 70 6,935 Loss from discontinued operations, net of tax benefit of $0 and $(6,002), respectively$(326,034) $(212,321) Summarized assets and liabilities of discontinued operations are presented in the following table: As of September 30, 2014 2013Accounts receivable$- $280,034Prepaid assets and other current assets 39 59,348Total assets of discontinued operations$39 $339,382Accounts payable$3,396 $25,438Total liabilities of discontinued operations$3,396 $25,438 The above accounts receivable relate to overdue payments pursuant to a Settlement Agreement and General Release (“SettlementAgreement”) executed on July 3, 2013 between the Company and G-Form LLC (“G-Form”) in exchange for certain retail inventories, the Company’scooperation with certain administrative matters, and a mutual general release. On November 12, 2014, a U.S. District Court entered a Judgmentcompelling G-Form to remit $331,282 (includes legal fees and interest) to Forward. The Company is currently working to enforce the Court’s Order.However, due to the age of the account receivable and G-Form’s non-responsiveness to the Company’s communications on the subject, theCompany has fully reserved for the $280,034 receivable as of September 30, 2014.NOTE 4 MARKETABLE SECURITIESEffective October 1, 2012, the Company changed its classification of marketable equity securities from available-for-sale to trading. As aresult of this reclassification, an unrealized net loss of $23,744 was reclassified out of accumulated other comprehensive loss and charged toearnings. Marketable equity securities are carried at fair value, as determined by quoted market prices, which is a Level 1 input, as established bythe fair value hierarchy under ASC 820. The corresponding unrealized holding gains or losses of securities classified as trading are recognized inearnings. The Company’s marketable securities are summarized in the table below: For the Fiscal Years Ended September 30, 2014 2013Trading: Cost$1,320,816 $954,053 Unrealized gains 48,560 174,940 Unrealized losses (318,146) (48,246)Total fair value$1,051,230 $1,080,747 F-11 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 MARKETABLE SECURITIES (CONTINUED)Realized gains and losses on marketable securities for the fiscal year ended September 30, 2014 were $606,000 and ($583,000),respectively and are included in the accompanying consolidated statements of operations and comprehensive loss. Realized gains and losses onmarketable securities for the fiscal year ended September 30, 2013 were approximately $3,146,000 and $(3,868,000), respectively and areincluded in the accompanying consolidated statements of operations and comprehensive loss.The following table presents the Company’s fair value hierarchy for assets, consisting of marketable securities, measured at fair value on arecurring basis at September 30, 2014 and 2013: Level 1 Level 2 Level 3 TotalEquity securities$1,051,230 $- $- $1,051,230Total assets at fair value at September 30, 2014$1,051,230 $- $- $1,051,230Equity securities$1,080,747 $- $- $1,080,747Total assets at fair value at September 30, 2013$1,080,747 $- $- $1,080,747 NOTE 5 PROPERTY AND EQUIPMENTProperty and equipment and related accumulated depreciation and amortization of continuing operations are summarized in the table below: As of September 30, 2014 2013Furniture, fixtures and equipment$436,120 $404,871 Leasehold improvements 99,854 97,618 Property and equipment, cost 535,974 502,489 Less: accumulated depreciation and amortization (436,984) (372,502)Property and equipment, net$98,990 $129,987 NOTE 6 ACCRUED EXPENSES AND OTHER CURRENT LIABILITIESAccrued expenses and other current liabilities of continuing operations are summarized in the table below: As of September 30, 2014 2013Warrants, net of unamortized transaction cost of $29,452$- $463,671Personnel cost 277,430 372,766Taxes - 44,128Professional fees 32,762 11,000Accrued legal settlement 150,000 139,500Other 88,323 164,495Accrued expenses and other current liabilities$548,515 $1,195,560 NOTE 7 SHAREHOLDERS’ EQUITY“Blank Check” Preferred StockThe Company is authorized to issue up to 4,000,000 shares of “blank check” preferred stock. The Board of Directors (the “Board”) has theauthority and discretion, without shareholder approval, to issue preferred stock in one or more series for any consideration it deems appropriate,and to fix the relative rights and preferences thereof including their redemption, dividend and conversion rights. Of these shares, 1,500,000 shareshave been authorized as the 6% Senior Convertible Preferred Stock and 100,000 shares have been authorized as the Series A ParticipatingPreferred Stock. F-12 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 SHAREHOLDERS’ EQUITY (CONTINUED)6% Senior Convertible Preferred Stock and WarrantsOn June 28, 2013, the Company completed the sale of(i)381,674 shares of its newly authorized 6% Senior Convertible Preferred Stock, par value $0.01 per share (the “Convertible Preferred Stock”)and (ii) warrants to purchase a total of381,674 shares of the Company’s common stock (“Common Stock”) (the “Warrants” and together with the Convertible Preferred Stock, the“Securities”) to accredited investors in a private placement pursuant to the terms of securities purchase agreements, dated June 28, 2013, by andbetween the Company and each investor. The June 28, 2013 private placement included purchases of Securities by two directors of the Companythat, in the aggregate, purchased 114,502 shares of Convertible Preferred Stock and Warrants.On August 7, 2013, the Company completed the sale of (i) an additional 216,282 shares of its Convertible Preferred Stock and (ii) Warrantsto purchase a total of 216,282 shares of the Company’s Common Stock to accredited investors in a private placement pursuant to the terms of asecurities purchase agreement, dated August 7, 2013, by and between the Company and such accredited investors.On August 14, 2013, the Company completed the sale of (i) an additional 50,890 shares of its Convertible Preferred Stock and (ii) Warrantsto purchase a total of 50,890 shares of the Company’s Common Stock to accredited investors in a private placement pursuant to the terms of asecurities purchase agreement, dated August 14, 2013, by and between the Company and such accredited investors.The total aggregate purchase price paid by accredited investors via the June 28, 2013, August 7, 2013 and August 14, 2013 privateplacements (together, the “Investors”) for each share of Convertible Preferred Stock and Warrant was $1.965. The June 28, 2013, August 7, 2013and August 14, 2013 private placements (together, the “Private Placements”) resulted in gross proceeds of approximately $1,275,000to the Company. The Company has sold a total of 648,846 shares of Convertible Preferred Stock and Warrants to purchase 648,846 sharesof Common Stock through these Private Placements.The total purchase price paid by the Investors for each share of Convertible Preferred Stock and Warrant purchased in the Closing was$1.965, consisting of (i) fair values ranging from $1.105 to $1.145 in respect of the Convertible Preferred Stock, plus (ii) fair values ranging from$0.82 to $0.86 in respect of the Warrant. The Warrants have an initial exercise price of $1.84 per share, subject to adjustment upon theoccurrence of certain customary events. The Warrants are exercisable at any time on or after January 1, 2014 (the “Initial Exercise Date”) andterminate on the 10-year anniversary of the Initial Exercise Date. Each share of Convertible Preferred Stock is convertible into one share ofCommon Stock at an initial conversion price of $1.84 per share, subject to adjustment upon the occurrence of certain customary events (the“Conversion Price”). At the initial Conversion Price, the total of 648,846 shares of Convertible Preferred Stock issued in the Private Placement asof the date of the Closing are convertible into an aggregate of 692,919 shares of Common Stock. The proceeds from these Private Placements of$1,275,000 have been allocated to the Convertible Preferred Stock and the Warrants based upon their fair values assigned (net of issuance costsof approximately $69,000) of approximately $693,000 and $513,000, respectively, as of the dates of issuance.As of September 30, 2014 and September 30, 2013, the carrying value of the Convertible Preferred Stock was approximately $833,000 and$717,000, respectively, and is included on the Company’s consolidated balance sheets as temporary equity. The change in the carrying value, oraccretion, of the Convertible Preferred Stock from the issuance dates to September 30, 2014 is classified as a preferred stock dividend and isincluded as a component of “net loss applicable to common equity” in calculating loss per share, which was approximately $117,000 and $24,000for the fiscal years ended September 30, 2014 and 2013, respectively. As a result of the Convertible Preferred Stock containing a beneficialconversion feature, whereby the accounting conversion price is lower than the fair value of the common stock, the Company recorded a preferredstock dividend in the amount of approximately $508,000 for the fiscal year ended September 30, 2013. This amount has been recorded as anincrease to additional paid-in capital. F-13 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 SHAREHOLDERS’ EQUITY (CONTINUED)6% Senior Convertible Preferred Stock and Warrants (continued)Dividends on the Convertible Preferred Stock are payable, on a cumulative basis, in cash, at the rate per annum of 6% of the LiquidationPreference (as defined below) and are payable quarterly, in arrears, on each March 31, June 30, September 30 and December 31, commencing onSeptember 30, 2013. The Company is prohibited from paying any dividend with respect to shares of Common Stock or other junior securities inany quarter unless full dividends are paid on the Convertible Preferred Stock in such quarter. Dividends on the Convertible Preferred Stock totaledapproximately $76,000 and $15,000 for the fiscal years ended September 30, 2014 and 2013. These dividends, in addition to the accretion andbeneficial conversion feature, totaled approximately $193,000 and $547,000 for the fiscal years ended September 30, 2014 and 2013, respectively.In the event of a liquidation (or deemed liquidation, as described below) of the Company, the holders of the Convertible Preferred Stockshall receive in preference to the holders of Common Stock and any junior securities of the Company an amount (the “Liquidation Preference”)equal to (i) $1.965 (the “Original Issue Price”) per each outstanding share of Convertible Preferred Stock (subject to adjustment upon theoccurrence of certain customary events), plus (ii) any accrued but unpaid dividends. A Change of Control of the Company (as defined in theCertificate of Amendment) will be treated as a liquidation at the option of the holders of a majority of the Convertible Preferred Stock; provided thatthe amount paid to holders of Convertible Preferred Stock in such event will be equal to 101% of the Original Issue Price, plus accrued but unpaiddividends.Each share of Convertible Preferred Stock is convertible at any time, at the option of the holder, into shares of Common Stock at the thenapplicable Conversion Price. In addition, upon the consent of 80% of the holders of the Convertible Preferred Stock, the Convertible PreferredStock automatically will be converted to shares of Common Stock at the then-applicable Conversion Price. On or after June 28, 2018, the Company may, at its option and upon at least 30 days prior written notice to the holders of theConvertible Preferred Stock, redeem all or any portion of the outstanding Convertible Preferred Stock in cash at a redemption price equal to the fullLiquidation Preference as of the redemption date. In addition, at any time on or after June 28, 2023, each holder of the Convertible Preferred Stockwill have the right to require the Company to redeem (provided that funds are legally available to do so) all or any portion of such holder’soutstanding Convertible Preferred Stock at a redemption price equal to the full Liquidation Preference of such shares of Convertible PreferredStock as of the redemption date.The Convertible Preferred Stock will vote together with the Common Stock on an as-converted basis on all matters except as required bylaw. In addition, for so long as 50% of the shares of Convertible Preferred Stock remains outstanding, without the approval of the holders of amajority of the Convertible Preferred Stock, voting as a separate class, the Company may not: (i) authorize or issue any equity security senior tothe Convertible Preferred Stock; (ii) declare or pay any dividends on the Common Stock or any series of preferred stock that ranks junior to theConvertible Preferred Stock; (iii) increase or decrease the total number of authorized shares of Convertible Preferred Stock; (iv) alter or change therights, preferences or privileges of the Convertible Preferred Stock so as to affect materially and adversely the Convertible Preferred Stock; or (v)increase the authorized capitalization of the Company, or otherwise amend its certificate of incorporation or bylaws in a manner which adverselyaffects the rights or preferences of the Convertible Preferred Stock.During the quarter ended March 31, 2014, the Company met the requirements of the registration rights agreement for registering theunderlying common shares and the convertible preferred stock warrant liabilities with fair value of $599,000 (net of issuance costs) werereclassified to equity (additional paid-in capital). As of September 30, 2013, the liability associated with the Warrants was approximately $464,000(net of issuance costs) and was included in “Accrued expenses and other current liabilities” in the Company’s consolidated balance sheet. F-14 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. FORWARD INDUSTRIES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 SHAREHOLDERS’ EQUITY (CONTINUED)6% Senior Convertible Preferred Stock and Warrants (continued)The fair value of the Warrants was determined using a Black-Scholes closed-form call option pricing model, which is considered a level 3instrument under the fair value hierarchy. The fair value of the Warrants were estimated using the following weighted average assumptions duringthe fiscal years ended September 30, 2014 and 2013: Fiscal Years Ended September 30, 2014 2013Risk free interest rate2.7% 2.6%Expected term (years)9.8 10.3Expected volatility32.9% 30.0%Expected dividends0.0% 0.0% The change in the fair value of the convertible preferred stock warrant liability (net of issuance costs) for the years ended September30, 2014 and 2013 is summarized below: Warrant LiabilitiesBalance - September 30, 2012$-Issuance of convertible preferred stock warrant 542,741 Change in fair value (49,618)Balance - September 30, 2013 493,123 Change in fair value 136,258 Reclassification of warrants to equity (629,381)Balance - September 30, 2014$- The following table presents the Company’s fair value hierarchy for warrant liabilities measured at fair value and prior to issuance costs, ona recurring basis at September 30, 2013: As of September 30, 2013 Level 1 Level 2 Level 3 TotalLiabilities: Warrant liabilities$- $- $493,123 $493,123Total liabilities$- $- $493,123 $493,123 Anti-takeover ProvisionsShareholder Rights PlanOn April 26, 2013, the Board adopted a Shareholder Rights Plan, as set forth in the Rights Agreement between the Company and AmericanStock Transfer & Trust Company, LLC, as Rights Agent. Pursuant to the Rights Agreement, the Board declared a dividend distribution of one Right(a “Right”) for each outstanding share of Company Common Stock, par value $0.01 per share (the “Common Stock”) to shareholders of record atthe close of business on May 6, 2013, which date will be the record date, and for each share of Common Stock issued (including sharesdistributed from treasury) by the Company thereafter and prior to the Distribution Date (as described below and defined in the Rights Agreement).Each Right entitles the registered holder, subject to the terms of the Rights Agreement, to purchase from the Company one one-thousandth of ashare of Series A Participating Preferred Stock, $0.01 par value per share (the “Series A Preferred Stock”), at an exercise price of $4.00 per oneone-thousandth of a share of Series A Preferred Stock, subject to adjustment. F-15 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 SHAREHOLDERS’ EQUITY (CONTINUED)Anti-takeover Provisions (continued)Shareholder Rights Plan (continued)Initially, no separate Rights certificates will be distributed and instead the Rights will attach to all certificates representing shares ofoutstanding Common Stock. Subject to certain exceptions specified in the Rights Agreement, the Rights will separate from the Common Stockand become exercisable on the distribution date (the “Distribution Date”), which will occur on the earlier of (i) the 10th business day (or such laterdate as may be determined by the Board) after the public announcement that an Acquiring Person (as defined in the Rights Agreement) hasacquired beneficial ownership of 20% or more of the Common Stock then outstanding or (ii) the 10th business day (or such later date as may bedetermined by the Board) after a person or group announces a tender or exchange offer that would result in a person or group of affiliated andassociated persons beneficially owning 20% or more of the Common Stock then outstanding. “Blank Check” Preferred StockAs discussed above, the Company is authorized to issue up to 4,000,000 shares of “blank check” preferred stock. The Board has theauthority and discretion, without shareholder approval, to issue preferred stock in one or more series for any consideration it deems appropriate,and to fix the relative rights and preferences thereof including their redemption, dividend and conversion rights. Of these shares, 1,500,000 shareshave been authorized as the 6% Senior Convertible Preferred Stock and 100,000 shares have been authorized as the Series A ParticipatingPreferred Stock.Stock RepurchaseIn September 2002 and January 2004, the Board authorized the repurchase of up to an aggregate of 486,200 shares of outstandingcommon stock. Under those authorizations, through September 30, 2014, the Company repurchased an aggregate of 213,274 shares at a cost ofapproximately $473,000. The Company repurchased and retired an aggregate of 40,671 shares at a cost of approximately $47,000 during the fiscalyear ended September 30, 2014, in connection with the vesting of employee restricted stock awards, wherein certain employees surrendered aportion of their award in order to fund certain tax withholding obligations. No shares were repurchased during the fiscal year ended September 30,2013. See Note 16 – Subsequent Events.NOTE 8 SHARE BASED COMPENSATION2011 Long Term Incentive PlanIn March 2011, shareholders of the Company approved the 2011 Long Term Incentive Plan (the “2011 Plan”), which authorizes 850,000shares of common stock for grants of various types of equity awards to officers, directors, employees, consultants, and independent contractors.Forfeited awards are eligible for re-grant under the 2011 Plan. The total shares of common stock available for grants of equity awards under the2011 Plan was 185,647 as of September 30, 2014. The exercise prices of stock options granted may not be less than the fair market value of thecommon stock as quoted at the close on the Nasdaq Stock Market on the grant date. The Compensation Committee administers the plan. Options generally expire ten years after the date of grant.2007 Equity Incentive PlanThe 2007 Equity Incentive Plan (the “2007 Plan”), which was approved by shareholders of the Company in May 2007, and, as amended, inFebruary 2010, authorizes an aggregate of 800,000 shares of common stock for grants of restricted common stock and stock options to officers,employees, and non-employee directors of the Company. Forfeited awards are eligible for re-grant under the 2007 Plan. The total shares ofcommon stock available for grants of equity awards under the 2007 Plan was 130,015 as of September 30, 2014. The exercise price of stockoptions granted may not be less than the fair market value of the common stock as quoted at the close on the Nasdaq Stock Market on the grantdate. The Compensation Committee administers the 2007 Plan. Options generally expire ten years after the date of grant. F-16 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8 SHARE BASED COMPENSATION (CONTINUED)1996 Stock Incentive PlanThe Company’s 1996 Stock Incentive Plan (the “1996 Plan”) expired in accordance with its terms in November 2006. The exercise price ofincentive stock options granted under the 1996 Plan to officers, employees, and non-employee directors of the Company was required by 1996Plan provisions to be equal at least to the fair market value of the common stock at the date of grant. In general, options under this plan expire tenyears after the date of grant. Unexercised options granted prior to 1996 Plan expiration remain outstanding until the earlier of exercise or optionexpiration. Under the 1996 Plan, 30,000 fully vested common stock options are the only awards that remain outstanding and unexercised, all atexercise prices higher than the fair market value of the common stock at September 30, 2014.Stock Option AwardsOn October 1, 2012, the Company granted a ten-year incentive stock option to purchase 60,000 shares of common stock at exerciseprices ranging from $3.77 to $5.31 per share to an executive of the Company, pursuant to the 2011 Plan. The option vests on April 3, 2015. Theoption had a grant date value of $30,000.On October 16, 2012, the Company granted ten-year non-qualified stock options to purchase an aggregate of 60,000 shares of commonstock at an exercise price of $1.23 per share to directors of the Company, pursuant to the 2011 Plan. The options vested on the first anniversaryof the date of grant. The options had an aggregate grant date value of $42,600.On December 11, 2013, the Company granted ten-year incentive stock options to purchase an aggregate of 32,500 shares of commonstock (25,000 shares were granted pursuant to the 2007 Plan and 7,500 shares were granted pursuant to the 2011 Plan) at an exercise price of$1.59 per share to executives of the Company. The options vest ratably over three years on the anniversaries of the date of grant. The options hadan aggregate grant date value of $29,250.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: Fiscal Years Ended September 30, 2014 2013Risk free interest rate1.86% 0.06% to 0.70%Expected term (years)6.00 5.00Expected volatility63.2% 70% to 70.4%Expected dividends0% 0%Estimated annual forfeiture rate10% 0% to 10% During the fiscal years ended September 30, 2014 and 2013, the Company granted 32,500 and 120,000 stock options at weighted averagegrant date fair values per share of $0.90 and $0.61, respectively.The expected term represents the period over which the stock option awards are expected to be outstanding. The Company utilizes the“simplified” method to develop an estimate of the expected term of “plain vanilla” employee option grants. The Company based the risk-freeinterest rate used in its assumptions on the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equivalentto the award’s expected term. The volatility factor used in the Company’s assumptions is based on the historical price of its stock over the mostrecent period commensurate with the expected term of the award. The Company historically has not paid any dividends on its common stock andhad no intention to do so on the date the share-based awards were granted.The Company recognized approximately $43,000 and $220,000 of compensation expense in continuing operations for stock option awardsin its consolidated statements of operations and comprehensive loss for the fiscal years ended September 30, 2014 and 2013, respectively.As of September 30, 2014, there was approximately $50,574 of total unrecognized compensation cost related to unvested stock optionawards, which is expected to be recognized over the remainder of the weighted average vesting period of 1.08 years. F-17 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8 SHARE BASED COMPENSATION (CONTINUED)Stock Option Awards (continued)The following table summarizes stock option activity during the fiscal years ended September 30, 2014 and 2013: Weighted Weighted Average Average Remaining Number of Exercise Life Intrinsic Options Price In Years ValueOutstanding, September 30, 20121,142,000 $3.31 Granted120,000 3.14 Exercised- - Forfeited(365,000) 3.43 Outstanding, September 30, 2013897,000 $3.24 Granted32,500 1.59 Exercised- - Forfeited(151,000) 3.50 Outstanding, September 30, 2014778,500 $2.70 5.4 $12,000Exercisable, September 30, 2014642,582 $2.96 4.5 $6,000 The table below provides additional information regarding stock option awards that were outstanding and exercisable at September 30,2014: Options Outstanding Options Exercisable Weighted Outstanding Average ExercisableExercise Number of Remaining Life Number ofPrice Options In Years Options$1.23 to $1.80105,0007.180,000$2.02 to $2.85271,0002.0268,000$3.00 to $3.79322,5006.5264,582$5.3150,000--$6.0220,0001.620,000$15.9110,0000.610,000 778,500 642,582 Restricted Stock AwardsOn November 8, 2012, the Company granted an aggregate of 371,375 shares of restricted stock (141,375 shares were granted pursuant tothe 2007 Plan and 230,000 shares were granted pursuant to the 2011 Plan) to executives and employees of the Company. The shares vest ratablyover three years on the anniversaries of the date of grant. The aggregate grant date value of $430,795 will be recognized proportionate to thevesting period. F-18 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8 SHARE BASED COMPENSATION (CONTINUED)Restricted Stock Awards (continued)On December 11, 2013, the Company granted an aggregate of 90,000 shares of restricted stock to directors of the Company, pursuant tothe 2007 Plan. The shares vest on the first anniversary of the date of grant. The aggregate grant date value of $143,100 will be recognizedproportionate to the vesting period.On January 9, 2014, the Company granted 5,000 shares of restricted stock to an employee of the Company, pursuant to the 2011 Plan. Theshares vest ratably on each of November 11, 2014, November 11, 2015 and November 11, 2016. The grant date value of $8,350 will be recognizedproportionate to the vesting period.For the fiscal years ended September 30, 2014 and 2013, the Company recognized approximately $189,000 and $217,000 of compensation,net of forfeitures, from continuing operations in its consolidated statements of operations and comprehensive loss related to restricted stockawards.As of September 30, 2014, there was approximately $112,000 of unrecognized compensation cost related to shares of unvested restrictedstock that will be recognized over the weighted average remaining vesting period 0.51 years.The following table summarizes restricted stock activity during the fiscal years ended September 30, 2014 and 2013: Weighted Average Total Number of Grant Date Grant Date Shares Fair Value Fair ValueNon-vested, September 30, 20127,500 $2.02 $15,150 Granted371,375 1.16 430,795 Vested(7,500) 2.02 (15,150)Forfeited- - - Non-vested, September 30, 2013371,375 $1.16 $430,795 Granted95,000 1.59 151,450 Vested(123,794) 1.16 (143,601)Forfeited(85,000) 1.16 (98,600)Non-vested, September 30, 2014257,581 $1.32 $340,044 WarrantsAs of September 30, 2014, warrants to purchase 75,000 shares of the Company’s common stock at an exercise price of $1.75 issued inthe fiscal year ended September 30, 1999 were outstanding. By their terms these warrants expire 90 days after a registration statement registeringcommon stock (other than pursuant to employee benefit plans) is declared effective by the United States Securities and Exchange Commission(the “Commission”). As of September 30, 2014, no such registration statement has been filed with the Commission. F-19 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. FORWARD INDUSTRIES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 INCOME TAXESThe Company’s provision (benefit) for income taxes consists of the following United States federal and state, and foreign components: For The Fiscal Years Ended September 30, 2014 2013Current: Federal$- $-State - 75 Foreign - (5,570)Deferred: Federal (364,106) 89,832 State (21,418) (107,296)Foreign 11,669 (5,598) (373,855) (28,557)Change in valuation allowance 373,855 23,062 Income tax provision (benefit)$- $(5,495)Income tax benefit from discontinued operations of approximately $0 and $(6,000) in the fiscal years ended September 30, 2014 and 2013,respectively, is attributable to Forward UK.The deferred tax expense (benefit) is the change in the deferred tax assets and liabilities representing the tax consequences of changes inthe amounts of temporary differences, net operating loss carry forwards and changes in tax rates during the fiscal year. The Company’s deferredtax assets and liabilities are comprised of the following: As of September 30, 2014 2013Deferred tax assets: Net operating losses$3,338,494 $3,213,001Realized losses on securities 321,557 304,586Unrealized losses on securities 105,139 -Share-based compensation 361,337 303,164Alternative minimum tax credit 99,757 99,757Excess tax over book basis in inventory 64,682 87,381Other 34,437 2,369 4,325,403 4,010,258Valuation allowance (4,214,813) (3,840,958)Net deferred tax assets 110,590 169,300Deferred tax liabilities: Prepaid insurance (89,721) (92,602)Unrealized gains on securities - (44,950)Excess book over tax basis in fixed assets (20,869) (31,748) (110,590) (169,300)Total$- $- F-20 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 INCOME TAXES (CONTINUED)As of September 30, 2014 and 2013, the Company has no unrecognized income tax benefits. At September 30, 2014, the Company hadavailable total net operating loss carryforwards for U.S. federal and state income tax purposes of approximately $7,809,000 and $5,009,000,respectively, expiring through 2034, resulting in deferred tax assets in respect of U.S. Federal and state income taxes of approximately $2,655,000and $262,000, respectively. In addition, at September 30, 2014, the Company had total available net operating loss carryforwards for foreignincome tax purposes of approximately $4,796,000 resulting in a deferred tax asset of approximately $422,000, expiring through 2021. Total netdeferred tax assets, before valuation allowances, was $4,215,000 and $3,841,000 at September 30, 2014 and 2013, respectively. Undistributedearnings of the Company’s foreign subsidiaries are considered to be permanently invested; therefore, in accordance with U.S. generally acceptedaccounting principles, no provision for U.S. Federal and state income taxes would result. As of September 30, 2014, there were no accumulatedearnings of any of the Company’s foreign subsidiaries.As of September 30, 2014, as part of its periodic evaluation of the necessity to maintain a valuation allowance against its deferred taxassets, and after consideration of all factors, both positive and negative (including, among others, projections of future taxable income, currentyear net operating loss carryforward utilization and the extent of the Company’s cumulative losses in recent years), the Company determined that,on a more likely than not basis, it would not be able to use its remaining deferred tax assets (except in respect of United States income taxes inthe event the Company elects to effect the repatriation of certain foreign source income of its Swiss subsidiary, which income is currentlyconsidered to be permanently invested and for which no United States tax liability has been accrued). Accordingly, the Company has determinedto maintain a full valuation allowance against its total deferred tax assets. As of September 30, 2014 and 2013, the valuation allowances wereapproximately $4,215,000 and $3,841,000, respectively. In the future, the utilization of the Company's net operating loss carryfowards could besubject to certain change of control limitations. If the Company determines in a future reporting period that it will be able to use some or all of itsdeferred tax assets, the adjustment to reduce or eliminate the valuation allowance would reduce its tax expense and increase after-tax income.Changes in deferred tax assets and valuation allowance are reflected in the “Income tax expense” line item of the Company’s consolidatedstatements of operations and comprehensive loss.The significant elements contributing to the difference between the United States Federal statutory tax rate and the Company’s effective taxrate are as follows: For The Fiscal Years Ended September 30, 2014 2013US federal statutory rate34.0% 34.0%State tax rate, net of federal benefit5.0% 1.9%Permanent differences: - Share-based compensation(0.4%) (20.0%)- Other(7.4%) (2.8%)Foreign rate differential5.0% (5.6%)Other10.5% (2.0%)Change in valuation allowance(46.7%) (8.1%)Income tax provision (benefit)0.0% (2.6%) As of September 30, 2014 and 2013, the Company has not accrued any interest and penalties related to uncertain tax positions. It is theCompany’s policy to recognize interest and/or penalties, if any, related to income tax matters in income tax expense in the consolidatedstatements of operations and comprehensive loss. For the periods presented in the accompanying consolidated statements of operations andcomprehensive loss, no income tax related interest or penalties were assessed or recorded. All fiscal years prior to the fiscal year endedSeptember 30, 2011 are closed to federal and state examination, except with respect to net operating losses generated in prior fiscal years. F-21 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10 LOSS PER SHAREBasic loss per share data for each period presented is computed using the weighted-average number of shares of common stockoutstanding during each such period. Diluted loss per share data is computed using the weighted-average number of common and dilutivecommon-equivalent shares outstanding during each period. Dilutive common-equivalent shares consist of (a) shares that would be issued upon theexercise of stock options and warrants, computed using the treasury stock method, (b) shares that would be issued upon the conversion ofconvertible preferred stock and (c) shares of non-vested restricted stock. Net loss from continuing operations per basic and diluted share for thefiscal years ended September 30, 2014 and 2013 includes preferred stock cash dividends and accretion, plus a beneficial conversion feature in thefiscal year ended September 30, 2013.The following securities are excluded from the calculation of weighted average dilutive common shares because their inclusion would havebeen anti-dilutive: As of September 30, 2014 2013Options778,500 897,000Warrants723,846 723,846Convertible preferred stock692,919 692,919Non-vested restricted stock257,581 371,375Total potentially dilutive shares2,452,846 2,685,140 The calculation of basic and diluted loss per share for the fiscal years ended September 30, 2014 and 2013 was as follows: For the Fiscal Years Ended September 30, 2014 2013Numerator: Net loss $(799,906) $(206,886)Preferred stock dividends, accretion and beneficial conversion feature (193,200) (546,888)Net loss to common shareholders$(993,106) $(753,774)Denominator: Weighted average basic common shares 8,186,926 8,111,226Effect of dilutive securities (1) - -Weighted average diluted common shares 8,186,926 8,111,226Basic loss per share $(0.12) $(0.09)Diluted loss per share (1) $(0.12) $(0.09) (1) Due to the net loss to common shareholders in each of the years presented above, diluted earnings per share was computed withoutconsideration to potentially dilutive instruments as their inclusion would have been antidilutive. Potentially dilutive instruments include stockoptions, warrants, convertible preferred stock and non-vested restricted stock. F-22 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11 COMMITMENTS AND CONTINGENCIESEmployment AgreementAn executive’s employment 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). In the event of the termination of theexecutive’s employment, depending on the circumstances, the executive could be entitled to receive a severance payment which could be up to(12) twelve months of his salary, and under certain circumstances, the immediate vesting of any unvested options pursuant to applicable equitycompensation plans, as well as any accrued discretionary bonus.Guarantee ObligationIn February 2010, Forward Switzerland and its European logistics provider (freight forwarding and customs agent) entered into aRepresentation Agreement (the “Representation Agreement”) whereby, among other things, the European logistics provider agreed to act asForward Switzerland's fiscal representative in The Netherlands for the purpose of providing services in connection with any value added taxmatters. As part of this agreement, which succeeds a substantially similar agreement (except as to the amount and term of the undertaking)between the parties that expired June 30, 2009, Forward Switzerland agreed to provide an undertaking (in the form of a bank letter of guarantee) tothe logistics provider with respect to any value added tax liability arising in The Netherlands that the logistics provider is required to pay to Dutchtax authorities on its behalf.As of February 1, 2010, Forward Switzerland entered into a guarantee agreement with a Swiss bank relating to the repayment of any amountup to €75,000 (equal to approximately $95,000 as of September 30, 2014) paid by such bank to the logistics provider in order to satisfy suchundertaking pursuant to the bank letter of guarantee. Forward Switzerland would be required to perform under the guarantee agreement only in theevent that: (i) a value added tax liability is imposed on the Company's sales in The Netherlands, (ii) the logistics provider asserts that it has beencalled upon in its capacity as surety by the Dutch Receiver of Taxes to pay such taxes, (iii) Forward Switzerland or the Company on its behalf failsor refuses to remit the amount of value added tax due to the logistics provider upon its demand, and (iv) the logistics provider makes a drawingunder the bank letter of guarantee. Under the Representation Agreement, Forward Switzerland agreed that the letter of guarantee would remainavailable for drawing for three years following the date that its relationship terminates with the logistics provider to satisfy any value added taxliability arising prior to expiration of the Representation Agreement but asserted by The Netherlands after expiration.The initial term of the bank letter of guarantee expired February 28, 2011, but renews automatically for one-year periods until February 28,2015 (as amended), unless Forward Switzerland provides the Swiss bank with written notice of termination at least 60 days prior to the renewaldate. It is the intent of Forward Switzerland and the logistics provider that the bank letter of guarantee amount be adjusted annually. Inconsideration of the issuance of the letter of guarantee, Forward Switzerland has granted the Swiss bank a security interest in all of its assets ondeposit with, held by, or credited to Forward Switzerland’s accounts with, the Swiss bank (approximately $1,741,000 at September 30, 2014). Asof September 30, 2014, the Company had not incurred a liability in connection with this guarantee. F-23 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11 COMMITMENTS AND CONTINGENCIES (CONTINUED)Lease CommitmentsThe Company rents certain of its facilities under leases expiring at various dates through September 2020. Total rent expense included incontinuing operations for the years ended September 30, 2014 and 2013, amounted to approximately $179,000 and $252,000 (net of $185,000 and$46,000 of rental income from a sub-lease), respectively. The following table summarizes the future minimum lease payments required underthese leases (exclusive of future minimum sublease rental receipts in the aggregate of approximately $397,000 due under non-cancelablesubleases). Fiscal Years Ended September 30, Amount2015 $268,0002016 267,0002017 85,0002018 87,0002019 90,000Thereafter 93,000Total lease commitments $890,000 NOTE 12 RELATED PARTY TRANSACTIONSNew York Office Rent On February 1, 2014, the Company began leasing office space in New York, New York for its Chief Executive Officer at a rate of $2,500 permonth from LaGrange Capital Administration, L.L.C. (“LCA”). Frank LaGrange Johnson, the Company’s Chairman of the Board, serves as theManaging Member of LCA. This lease is month-to-month and is cancellable by either the Company or LCA at any time. Effective April 1, 2014,LCA increased the monthly rental charge (inclusive of rent, allocable share of office assistant, and equipment leases) from $2,500 toapproximately $12,700 per month. During the fiscal year ended September 30, 2014, the Company recognized approximately $81,000 of rentexpense related to the New York office.Buying Agency and Supply AgreementOn March 12, 2012, the Company, entered into a Buying Agency and Supply Agreement (the “Agreement”) with Forward Industries Asia-Pacific Corporation (f/k/a Seaton Global Corporation), a British Virgin Islands corporation (“Forward China”). On March 13, 2014, the Companyentered into Amendment No. 1 to the Sourcing Agreement with Forward China, dated as of March 11, 2014. The Agreement, as amended, providesthat, upon the terms and subject to the conditions set forth therein, Forward China will act as the Company’s exclusive buying agent and supplierof Products (as defined in the Agreement) in the Asia Pacific region. The Company purchases products at Forward China’s cost and pays aservice fee to Forward China. The service fee is calculated at $100K monthly plus 4% of “Adjusted Gross Profit.” “Adjusted Gross Profit” grossprofit is defined as the selling price less the cost from Forward China. The Agreement, as amended, terminates on March 11, 2015, subject torenewal. Terence Bernard Wise, a director of the Company, is a principal of Forward China. In addition, Jenny P. Yu, a Managing Director ofForward China, owns shares of the Company’s common stock. The Company incurred approximately $1,406,000 and $1,292,000, respectively,during the fiscal years ended September 30, 2014 and 2013, in service fees paid to Forward China, which are included as a component of costs ofgoods sold in continuing operations in the accompanying consolidated statements of operations and comprehensive loss.Investment Management Agreement On April 16, 2013, the Company entered into an Investment Management Agreement (the “Investment Management Agreement”) withLCA, pursuant to which the Company retained LCA to manage certain investment accounts funded by the Company (collectively, the “Account”). Frank LaGrange Johnson, the Company’s Chairman of the Board, serves as the Managing Member of LCA. F-24 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 12 RELATED PARTY TRANSACTIONS (CONTINUED)Investment Management Agreement (continued)Pursuant to the Investment Management Agreement, LCA is authorized, subject to supervision of the Investment Committee of the Boardand the terms and conditions of the Investment Management Agreement, to take all actions and make all decisions regarding the investment andreinvestment of the assets of the Account utilizing the Investment Strategy (as defined in the Investment Management Agreement). Ascompensation for its services to the Company, LCA shall be entitled to advisory fees, comprised of an asset-based fee and a performance fee, asprovided in the Investment Management Agreement. The asset-based fee will equal 1% per annum of the average Account Net Asset Value(“Account NAV”). The performance fee will equal 20% of the increase (if any) in the Account NAV over an annual period. No performance fee willbe payable for any annual period in which the Account NAV at the end of such annual period is below the highest Account NAV at the end of anyprevious annual period. In addition to such advisory fees, the Company will reimburse LCA for certain investment and operational expenses. Under the Investment Management Agreement, the Company or its designees may make cash withdrawals from the Account on March 31, June30, September 30 or December 31 of each year upon 45 days’ prior written notice to LCA; provided, that, in the event of a breach of certain termsof the Investment Management Agreement, the Company may make a complete cash withdrawal from the Account immediately without LCA’sconsent. During the fiscal years ended September 30, 2014 and 2013, the Company recognized approximately $12,000 and $13,000, respectively,of expense in continuing operations in its consolidated statements of operations and comprehensive loss related to asset based advisory fees.The Company has not recorded any expense related to performance based advisory fees during the fiscal years ended September 30, 2014 and2013.The Investment Management Agreement is effective as of February 1, 2013 and shall continue until the second anniversary of the effectivedate. Thereafter, the term of the Investment Management Agreement shall automatically renew for additional one year terms unless terminated inaccordance with the terms of the Investment Management Agreement or if a party provides notice to the other party no less than 60 days prior tothe end of a term of its decision to terminate the Investment Management Agreement at the end of the then current term.The amount of new funds invested with LCA during the fiscal years ended September 30, 2014 and 2013 were $0 and $1,200,000,respectively.During the fiscal years ended September 30, 2014 and 2013, the Company purchased approximately $5,800,000 and $88,600,000 ofmarketable securities, respectively. During the fiscal years ended September 30, 2014 and 2013, the Company sold approximately $5,600,000 and$87,300,000 of marketable securities, respectively. As a result of these activities, the Company recognized approximately $247,000 and $722,000of net investment losses during the fiscal years ended September 30, 2014 and 2013, respectively.NOTE 13 LEGAL PROCEEDINGSFrom time to time, the Company may become a party to other legal actions or proceedings in the ordinary course of its business. As ofSeptember 30, 2014, there were no such actions or proceedings, either individually or in the aggregate, that, if decided adversely to the Company’sinterests, the Company believes would be material to its business.On July 15, 2014, Terence Bernard Wise, a director of the Company, filed a derivative complaint in the Supreme Court of the State of NewYork, New York County, against directors Frank LaGrange Johnson, Robert Garrett, and John F. Chiste and then-directors (now former directors)Timothy Gordon and Owen P.J. King, also naming the Company as a nominal defendant, alleging breaches of fiduciary duty and seekingdeclaratory and injunctive relief (both preliminary and final), including a temporary restraining order (“TRO”), that would have prevented the Board ofthe Company from voting on proposals to raise capital or engage in any extraordinary transactions. The court rejected Mr. Wise’s request for aTRO and Mr. Wise then withdrew his request for preliminary injunctive relief. Mr. Wise then amended his complaint to add allegations of breach offiduciary duties under various provisions of New York’s Business Corporation Law. On December 4, 2014, Mr. Wise brought a new application tothe court, once again seeking a TRO and a preliminary injunction that would enjoin his fellow Company directors from causing the Company toissue any Series B Senior Convertible Preferred Stock (the “Preferred Stock”), or take any antecedent or preparatory steps to effectuate suchissuance, prior to the Company’s 2014 annual meeting of shareholders (the “2014 Annual Meeting”). The court granted the TRO, in part, byprohibiting the Company from issuing—but not from taking antecedent or preparatory steps to issue—such Preferred Stock prior to December 8,2014. At a hearing on December 8, 2014, the court then granted Mr. Wise’s motion for a preliminary injunction, enjoining the Company’s issuanceof the Preferred Stock prior to the Company’s 2014 Annual Meeting. On December 8, 2014, the Company filed a notice of appeal of the court’sorder to the Supreme Court of the State of New York, Appellate Division, First Department. On December 9, 2014, the Company moved, beforesuch appellate court, to vacate the lower court’s injunction, which motion has not yet been decided. The case otherwise remains pending beforethe lower court. F-25 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 13 LEGAL PROCEEDINGS (CONTINUED)On July 16, 2014, the Company filed a lawsuit in the U.S. District Court for the Southern District of New York against Mr. Wise and his long-time business partner, Jenny P. Yu, alleging multiple violations of federal securities laws, including the filing with the Commission of deceptive andmisleading Schedules 13D and proxy solicitation materials. Specifically, the Company alleged that Mr. Wise and Ms. Yu have been acting as animproperly undisclosed “group” engaged in an effort to replace the entire Board with Mr. Wise’s hand-picked candidates. The Company’s lawsuitseeks expedited injunctive and declaratory relief that would require Mr. Wise and Ms. Yu to comply with the federal securities laws and submitcorrected, accurate disclosures in advance of any vote by the Company’s shareholders. On September 20, 2014, the Court granted Wise’s andYu’s respective motions to dismiss the case, after which the Company filed an appeal to the United States Court of Appeals for the SecondCircuit. The Company’s appeal currently is pending before the Court of Appeals.On August 26, 2014, James McKenna, the Company’s former Chief Financial Officer, filed a lawsuit in the U.S. District Court for theSouthern District of New York against the Company and directors Frank LaGrange Johnson, Robert Garrett and John F. Chiste and then-directors(now former directors) Timothy Gordon and Owen P.J. King, alleging purported claims of retaliation for whistleblowing under the Dodd-Frank Act,breach of contract and breach of the covenant of good faith and fair dealing all as against the Company, and a single claim for tortious interferencewith contract as against the individual defendants. The complaint seeks an unspecified amount of monetary consequential damages and punitivedamages. The case currently is pending before the court.NOTE 14 401(K) PLANThe Company maintains a 401(k) benefit plan allowing eligible United States-based employees to contribute a portion of their salary in anamount up to the annual maximum amounts as set periodically by the Internal Revenue Service. There were no matching contributions during thefiscal year ended September 30, 2013. In accordance with applicable Safe Harbor provisions, the Company made matching contributions related toits continuing operations for the fiscal year ended September 30, 2014 of approximately $69,000, which are reflected in the accompanyingconsolidated statements of operations and comprehensive loss. The Company’s contributions vest immediately.NOTE 15 OPERATING SEGMENT INFORMATIONThe Company reports and manages its continuing operations based on a single operating segment: the design and distribution of carry andprotective solutions, primarily for hand held electronic devices. Products designed and distributed by this segment include carrying cases andother accessories for medical monitoring and diagnostic kits, portable consumer electronic devices (such as smartphones, tablets, personnelcomputers, notebooks, and GPS devices), and a variety of other portable electronic and non-electronic products (such as firearms, sporting, andother recreational products). This segment operates in geographic regions that include primarily APAC, the Americas, and EMEA. Geographicregions are defined by reference primarily to the location of the customer or its contract manufacturer.On June 21, 2012, the Company determined to wind down its Retail segment and focus solely on growing its OEM business. The decisionto eliminate the Retail division was primarily driven by the longer than estimated path to bring it to profitability and the strong net sales growth andcost rationalizations in the OEM business. The Company has substantially completed its exit of its Retail business. F-26 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15 OPERATING SEGMENT INFORMATION – (CONTINUED)Revenues from External CustomersThe following table presents net sales by geographic region. (dollars in thousands) Fiscal Years Ended September 30, 2014 2013Americas: United States$9,382 $9,424Other 467 1,538Total Americas 9,849 10,962APAC Region: Hong Kong 8,608 7,491Other 3,043 3,273Total APAC 11,651 10,764EMEA Region: Germany 7,238 5,097Poland 3,955 3,525Other 667 563Total Europe 11,860 9,185Total net sales$33,360 $30,911 Long-Lived Assets (Net of Accumulated Depreciation and Amortization)Identifiable long-lived assets, consisting predominately of property, plant and equipment, were located in the Americas at September 30,2014 and 2013.Supplier ConcentrationThe Company procures substantially all its supply of carrying solutions products from independent suppliers in China through ForwardChina. Depending on the product, the Company may require several different suppliers to furnish component parts or pieces. The Companypurchased approximately 94% and 90% of its OEM products from four such suppliers in Fiscal 2014 and 2013, respectively. The approximatepercentages of purchases of OEM products from each of these four suppliers with respect to continuing operations for Fiscal 2014 and Fiscal 2013are as follows: F-27 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 15 OPERATING SEGMENT INFORMATION – (CONTINUED)Supplier Concentration (continued) Fiscal Year Ended September 30, 2014 2013Supplier: OEM Supplier A66% 0%OEM Supplier B20% 50%OEM Supplier C5% 19%OEM Supplier D3% 14%OEM Supplier E1% 9% Totals95% 92% Major CustomersThe following customers or their affiliates or contract manufacturers accounted for more than ten percent of the Company’s net sales, bygeographic region. Fiscal Year Ended September 30, 2014 Americas APAC Region EMEA Region Total CompanyDiabetic Customer A-% 87% 4% 27%Diabetic Customer B24% 3% 19% 14%Diabetic Customer C24% -% 58% 24%Diabetic Customer D14% 2% 22% 11% Fiscal Year Ended September 30, 2013 Americas APAC Region EMEA Region Total CompanyDiabetic Customer A-% 70% 1% 24%Diabetic Customer B21% 3% 15% 13%Diabetic Customer C24% -% 51% 24%Diabetic Customer D18% 2% 24% 14% Four customers (including their affiliates or contract manufacturers) accounted for approximately 77% and 73% of the Company's accountsreceivable at September 30, 2014 and 2013, respectively.NOTE 16 SUBSEQUENT EVENTSStock RepurchaseIn November 2014, the Company repurchased and retired an aggregate of 10,340 shares of its outstanding Common Stock at a cost ofapproximately $12,000, in connection with the vesting of employee restricted stock awards, wherein certain employees surrendered a portion oftheir award in order to fund certain tax withholding obligations.Legal ProceedingsOn November 13, 2014, the Company filed a lawsuit in the Supreme Court of the State of New York, Kings County, against Terence BernardWise, a director of the Company, and the following six individuals whom Mr. Wise claims that he has purportedly nominated to stand for electionas directors at the Company’s Annual Meeting: Howard Morgan, Michael Luetkemeyer, Eric Freitag, Sangita Shah, N. Scott Fine, and DarrylKeyes. The Company’s complaint seeks a judicial declaration that Mr. Wise’s purported nominations are invalid, as they were not received withinthe timeframe expressly provided by the Company’s Bylaws for such nominations. The complaint also seeks injunctive relief from the court,enjoining Mr. Wise from soliciting proxies for his purported nominees to stand for election as directors at the 2014 annual meeting of shareholders. At a hearing on December 1, 2014, the court denied the Company’s request for preliminary injunctive relief. On December 2, 2014, the Companyfiled a notice of appeal of the court’s order to the Supreme Court of the State of New York, Appellate Division, Second Department and onDecember 3, 2014, the Company moved before such appellate court for the preliminary injunctive relief denied below. That motion remainspending, as does the case before the lower court. F-28 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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 16 SUBSEQUENT EVENTS – (CONTINUED)Restricted StockSubsequent to September 30, 2014, as a result of the resignation of two directors of the Company, an aggregate of 30,000 shares ofrestricted stock were forfeited. On December 5, 2014, the Board granted an aggregate of 30,000 shares of restricted stock to two new directors ofthe Company. Treasury Stock RetirementOn December 5, 2014, the Board of Directors approved the retirement of 706,410 shares of treasury stock. F-29 Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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 AMENDED AND RESTATED BYLAWSOFFORWARD INDUSTRIES, INC.(Incorporated Under the Laws of the State of New York) AMENDED AND RESTATED AS OF AUGUST 10, 2010,AS AMENDED ON FEBRUARY 8, 2012 AND MAY 28, 2014 ARTICLE I: OFFICES The registered office of Forward Industries, Inc. (the "Corporation") shall be as stated in the Certificate of Incorporation. The Corporation may have officesand places of business at such other places, both within and without the State of New York, as may be determined from time to time by the Board of Directorsof the Corporation (the "Board of Directors"). ARTICLE II: MEETINGS OF SHAREHOLDERS. Section 201. Place of Meetings. All meetings of the shareholders shall be held at such place or places, within or without the State of New York, as shall bedetermined by the Board of Directors from time to time. Section 202. Annual Meetings. The annual meeting of the shareholders for the election of directors and the transaction of such other business as mayproperly come before the meeting shall be held each year on a date designated by the Board of Directors, and at such time and place as may be fixed byresolution of the Board of Directors and stated in the notice of meeting. Section 203. Special Meetings. Special meetings of the shareholders may be called at any time by (i) the President, (ii) the Chairman of the Board, (iii) theBoard of Directors pursuant to a resolution adopted by a majority of the “entire board” (as defined in Section 303), or (iv) Qualified Shareholders holding atleast thirty percent (30%) of all the votes entitled to be cast on any issue proposed to be considered at the special meeting. For purposes of this Section, aQualified Shareholder shall mean a person who shall have been a shareholder of the Corporation for at least six (6) months immediately preceding the requestfor a special meeting. A call for a special meeting shall state the date (in accordance with Section 204 below), time, place, and purpose or purposes of themeeting, and must be delivered or mailed to the President of the Corporation not later than 60 days prior to the date scheduled. Section 204. Notice of the Meetings. (a) Written or printed notice, stating the place, day and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given bythe Corporation not less than ten (10) days nor more than sixty (60) days before the date of the meeting, either personally or by first class mail to eachshareholder of record entitled to vote at such meeting. Notice may be given by third class mail, in which event, the notice shall be given not fewer thantwenty-four (24) nor more than sixty (60) days before the date of the meeting. If mailed, such notice shall be deemed to be given when deposited in theUnited States mail with postage thereon prepaid, addressed to the shareholder at his address as it appears on the stock transfer books of the Corporation or atsuch other address given by the shareholder in accordance with law. Notice shall be signed by the President, Secretary, or an Assistant Secretary of theCorporation. Except as required by statute, notice of any adjourned meeting shall not be required. (b) Any previously scheduled meeting of the shareholders may be postponed, and any special meeting of the shareholders (in the case of a meeting calledby one or more Qualified Shareholders, only at their written request) may be cancelled, by resolution of the Board of Directors upon public notice given priorto the date previously scheduled for such meeting of shareholders. Section 205. Quorum; Vote Required. At any meeting of shareholders, the holders of a majority of the shares entitled to vote then issued and outstanding,present in person or represented by proxy, shall constitute a quorum except as otherwise provided by law or by the certificate of incorporation. Except in thecase of election of directors, when a quorum is present or represented at any meeting, the affirmative vote of a majority of the shares present in person orrepresented by proxy at the meeting and entitled to vote on the matter shall be the act of the shareholders, except where a larger vote is required by law, bythe certificate of incorporation or by these by-laws. 1Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. Section 2.06 Proxies and Voting. Each shareholder of record shall be entitled to one vote for each share of stock registered in the name of suchshareholder on the books of the Corporation, and such votes may be cast either in person or by proxy. Except as otherwise expressly provided herein, proxiesand voting shall be governed by the provisions of the New York Business Corporation Law to the extent not inconsistent with any provisions of federal lawthat preempt state law or the requirements of any national securities exchange (or Nasdaq NMS or SmallCap market) on which the Corporation’s commonstock is listed. Section 207. Conduct of Shareholders' Meetings; Adjournment. (a) The Chairman of the Board shall preside at all shareholders' meetings. In the absence of the Chairman of the Board, the President shall preside. TheChairman or the officer presiding over the shareholders' meeting may establish such rules and regulations for the conduct of the meeting as he/she may deemto be reasonably necessary or desirable for the orderly and expeditious conduct of the meeting, and shall fix and announce at the meeting the date and time ofthe opening and the closing of the polls for each matter upon which the shareholders will vote at the shareholders' meeting. Subject to Section 302 of theseBy-Laws, unless the Chairman or the officer presiding over the shareholders' meeting otherwise requires, shareholders need not vote by ballot on anyquestion. (b) The Chairman or the presiding officer at a shareholders' meeting or a majority of the shares of the Corporation present thereat, represented in person orby proxy, may adjourn the meeting from time to time, whether or not there is a quorum. Any meeting so adjourned may be held as adjourned without furthernotice. The shareholders present at a duly called meeting at which a quorum is present may continue to transact business until adjournment, notwithstandingthe withdrawal of enough shareholders to leave less than a quorum. Section 207. Inspectors of Election. Elections of directors shall be conducted by two inspectors of election, neither of whom shall be a candidate for theoffice of director, appointed either by the chief executive officer, or another officer designated by him, or, if he fails to appoint, by a per capita vote of theshareholders personally present at the election. The inspectors, before entering on the discharge of their duties, shall be sworn faithfully to execute the dutiesof inspectors with strict impartiality and according to the best of their ability, and shall execute a written certificate of the results of the election. Such reportshall include a report in writing of any challenge, question or matter determined by them. Any report made by them shall be prima facie evidence of the factstherein stated, and such report shall be filed with the minutes of the meeting. The inspectors shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of aquorum, the validity and effect of proxies, and shall receive votes or consents, hear and determine all challenges and questions arising in connection with theright to vote, count and tabulate all votes or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to allshareholders. Section 208. Notice of Shareholder Business and Nominations. (a) Annual Meetings of Shareholders. (1) Nominations of persons for election to the Board of Directors of the Corporation or the proposal of other business to be considered by theshareholders may be made at an annual meeting of shareholders (A) pursuant to the Corporation's notice of meeting, (B) by or at the direction of the Board ofDirectors or (C) by any shareholder of the Corporation who was a shareholder of record at the time of giving of notice provided for in this By-Law, who isentitled to vote at the meeting, who complies with the notice procedures set forth in this By-Law and who (in the case of nominations of persons for electionto the Board of Directors of the Corporation) (i) has continuously held at least the lesser in value of (x) $2,000 in market value, or (y) 1%, of theCorporation's outstanding capital stock entitled to vote for at least one year prior to the meeting date or (ii) is entitled to cast votes with respect to at least 5%percent of the outstanding capital stock of the Corporation, and who complies with the notice procedures set forth in this By-Law. 2Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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) For nominations or other business to be properly brought before an annual meeting by a shareholder pursuant to clause (C) of paragraph (a)(1) of thisBy-Law, the shareholder must have given timely notice thereof in writing to the Secretary of the Corporation and such other business must otherwise be aproper matter for shareholder action. To be timely, a shareholder's notice shall be delivered to the Secretary at the principal executive offices of theCorporation not later than the close of business on the 120th day nor earlier than the close of business on the 150th day prior to the first anniversary of thepreceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is changed more than 30 days before or more than30 days after such anniversary date, notice by the shareholder to be timely must be so delivered not earlier than the close of business on the 120th day priorto such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following the day onwhich public announcement of the date of such meeting is first made by the Corporation. Notwithstanding the foregoing, in connection with the 2014 annualmeeting, in the event that the date of the annual meeting is not changed more than 30 days before or more than 30 days after the anniversary of the precedingyear’s annual meeting, to be timely a shareholder notice shall be received not later than the close of business on June 27, 2014. In no event shall the publicannouncement of an adjournment of an annual meeting commence a new time period for the giving of a shareholder's notice as described above. Suchshareholder's notice shall set forth (a) as to each person whom the shareholder proposes to nominate for election or re-election as a director, all informationrelating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, ineach case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder (includingsuch person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected), as each such regulation or rule maybe amended from time to time; (b) as to any other business that the shareholder proposes to bring before the meeting, a brief description of the businessdesired to be brought before the meeting, the reason for conducting such business at the meeting and any material interest in such business of suchshareholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the shareholder giving the notice and the beneficial owner, ifany, on whose behalf the nomination or proposal is made, (i) the name and address of such shareholder, as they appear on the books of the Corporation, andof such beneficial owner, and (ii) the class and number of shares of the Corporation which are owned beneficially and of record by such shareholder and suchbeneficial owner and the length of time such shares were held. (3) Notwithstanding anything in the second sentence of paragraph (a)(2) of this By-Law to the contrary, in the event that the number of directors to beelected to the Board of Directors of the Corporation is increased and there is no public announcement by the Corporation naming all of the nominees fordirector or specifying the size of the increased Board of Directors at least 70 days prior to the first anniversary of the preceding year's annual meeting, ashareholder's notice required by this By-Law shall also be considered timely, but only with respect to nominees for any new positions created by suchincrease, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 10th dayfollowing the day on which such public announcement is first made by the Corporation. (b) Special Meetings of Shareholders. Only such business shall be conducted at a special meeting of shareholders as shall have been brought before themeeting pursuant to the Corporation's notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting ofshareholders at which directors are to be elected pursuant to the Corporation's notice of meeting (a) by or at the direction of the Board of Directors or (b)provided that the Board of Directors has determined that directors shall be elected at such meeting, by any shareholder of the Corporation who is ashareholder of record at the time of giving of notice provided for in this By-Law, who shall be entitled to vote at the meeting, and who complies with thenotice procedures set forth in this By-Law. In the event the Corporation calls a special meeting of shareholders for the purpose of electing one or moredirectors to the Board of Directors, any such shareholder may nominate a person or persons (as the case may be), for election to such position(s) as specified inthe Corporation's notice of meeting, if the shareholder's notice required by paragraph (a)(2) of this By-Law shall be delivered to the Secretary at the principalexecutive offices of the Corporation not earlier than the close of business on the 120th day prior to such special meeting and not later than the close ofbusiness on the later of (i) the 90th day prior to such special meeting or (ii) the 10th day following the day on which public announcement is first made of thedate of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcementof an adjournment of a special meeting commence a new time period for the giving of a shareholder's notice as described above. 3Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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) General. (1) Only such persons who are nominated in accordance with the procedures set forth in this By-Law shall be eligible to serve as directors and only suchbusiness shall be conducted at a meeting of the shareholders as shall have been brought before the meeting in accordance with the procedures set forth in thisBy-Law. Except as otherwise required by law, the officer presiding over such shareholders' meeting shall have the power and duty to determine whether anomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forthin this By-Law and, if any proposed nomination or business is not in compliance with this By-Law, to declare that such defective proposal or nominationshall be disregarded. (2) For purposes of this By-Law, "public announcement" shall mean disclosure in a press release reported by the Dow Jones New Service, AssociatedPress or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant toSection 13, 14 or 15(d) of the Exchange Act. (3) Notwithstanding the foregoing provisions of this By-Law, a shareholder shall also comply with all applicable requirements of the Exchange Act andthe rules and regulations thereunder with respect to the matters set forth in this By-Law. Nothing in this By-Law shall be deemed to affect any rights (i) ofshareholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders ofany class or series of Preferred Stock to elect directors under rules and procedures specified in the instruments governing such class of securities. ARTICLE III. DIRECTORS AND BOARD MEETINGS. Section 301. Management by Board of Directors. The business and affairs of the Corporation shall be managed by its Board of Directors. The Board ofDirectors may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute, regulation, the Certificate ofIncorporation or these Bylaws directed or required to be exercised or done by the shareholders. Each director shall be at least 21 years of age. Section 302. Procedure for Election of Directors; Required Vote. Election of directors at all meetings of the shareholders at which directors are to beelected shall be by ballot, and, subject to the rights of the holders of any series of preferred stock to elect directors under specified circumstances, a pluralityof the votes properly cast thereat shall elect each director nominated for office. Section 303. Number of Directors. The Board of Directors shall consist of not fewer than three (3) nor more than seven (7) directors, who need not beshareholders. Within these limits, the number of directors of the Corporation shall be fixed from time to time by resolution of the Board of Directors. Aresolution to change the number of directors requires the vote of a majority of the entire board. As used in these By-Laws, “entire board” means the totalnumber of directors the Corporation would have if there were no vacancies. No decrease in the number of directors shall shorten the term of any incumbentdirector. If the number of directors is increased, the additional directors may be elected by a majority of the directors in office at the time of the increase, or ifnot so elected prior to the next annual meeting of the shareholders, they shall be elected thereat by the shareholders. Section 304. Term of Office of Directors. Subject to Sections 303 and 305, the directors shall be elected annually by the shareholders entitled to vote ateach annual meeting of shareholders by a plurality of the votes cast at each such election. Each director (whether elected at an annual meeting or to fill avacancy or by the directors pursuant to Section 303) shall continue in office until the annual meeting of shareholders held next after his election and until hissuccessor shall have qualified and elected, or until his death, resignation, or removal from office. Section 305. Removal and Vacancies. Any director or directors may be removed at any time, (a) with or without “cause’ by vote of the shareholders at aspecial meeting called for that purpose or (b) only for "cause" by the affirmative vote of two-thirds (2/3) of the directors then in office without counting thevote of the interested director. "Cause" for purposes hereof shall be defined as criminal acts, misfeasance of office or other similar acts. If the office of anydirector or directors becomes vacant by reason of death, resignation, retirement, disqualification, removal from office, a majority of the remaining directors atany regular or special meeting, though less than a quorum or by the sole remaining director, shall choose a successor or successors who shall hold office forthe remainder of the term of the vacant office or until his successor shall qualify and be elected. In the event of a vacancy, the Board of Directors, may, in itsdiscretion, reduce the number of directors by allowing the vacated office to remain vacant. In the event that the Board of Directors increases the number ofdirectors, such new directors will be elected by the Board of Directors as provided in Section 303. 4Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. Section 306. Quorum; Action.. A majority of the entire board (as defined in Section 303) shall constitute a quorum of the board of directors for thetransaction of any business but a lesser number may adjourn any meeting. A quorum of any committee shall be a majority of the members thereof except thatany committee may, by unanimous action, determine that a lesser number of members (not less than half) shall constitute a quorum. A majority of themembers in attendance at any meeting shall, except where a larger number is required by law, by the certificate of incorporation or by these by-laws, decideany question brought before such meeting. Except as provided in Section 309, all action taken by the Board (or any committee thereof) shall be taken at ameeting of the Board (or committee of the Board), including for this purpose a meeting in accordance with Section 310. Provided a quorum shall be present,the vote of a majority of the directors present at a meeting of the Board (or any committee thereof) shall be the action of the Board or such committee, exceptas otherwise provided by Section 309, by the Certificate of Incorporation, or by law. Section 307. Regular Meetings. Regular meetings of the board of directors may be held without call or formal notice at such places either within orwithout the State of New York and at such times as the board may from time to time by vote determine. A regular meeting of the board of directors for theelection of officers and for such other business as may come before the meeting may be held without call or formal notice immediately after, and at the sameplace as, the annual meeting of shareholders or any special meeting of shareholders at which a board of directors is elected. If a regular meeting is not to beheld at the time and place designated by the Board of Directors, notice of the change in time and venue of the new meeting shall be given in accordance withthe notice procedure set forth in Section 308. A director cannot vote by proxy, or otherwise act by proxy, at a meeting of the Board of Directors. Section 308. Special Meetings. Special meetings of the board of directors or any committee thereof may be held at any place either within or without theState of New York at any time when called by the President, the Chairman of the Board, or secretary or a majority of the directors, written notice of the timeand place thereof having been given to each director as follows: (a) by delivering a copy of such notice to the director personally no later than the third daypreceding the date of the meeting, or (b) by sending a copy of such notice addressed to the director at his or her mailing address as it appears on the books ofthe corporation, such notice to be sent no less than ten days before the date of the meeting if sent by ordinary mail or no later than the third business daybefore the date of the meeting if sent by overnight mail or by a courier service (such as Federal Express) which guarantees next day delivery, or (c) bytransmitting such notice to the director by telecopier or e-mail (to a telecopier number or e-mail address which has been furnished by him or her to thesecretary of the corporation) no later than the second business day preceding the date of the meeting, receipt confirmed by or on behalf of the recipient. Waiver of Notice in writing by any director of any special meeting of the Board or of any committee thereof, whether prior or subsequent to such meeting,or attendance at such meeting by any director, shall be equivalent to notice to such directors of such meeting. Section 309. Action by the Board Without a Meeting. Any action required or permitted to be taken by the board or any committee thereof may be takenwithout a meeting if all members of the board or the committee consent in writing to the adoption of a resolution authorizing the action. The resolution andthe written consents thereto by the members of the board or committee shall be filed with the minutes of the proceedings of the board or committee. Section 310. Participation in Meetings by Telephone. Any one or more members of the board or any committee thereof may participate in a meeting ofsuch board or committee by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to heareach other at the same time. Participation by such means shall constitute presence in person at a meeting but the board may, by resolution, provided thatdirectors participating in a meeting other than by being present in person shall receive lesser compensation than directors present at the meeting in person. 5Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. Section 311. Board Committees. Subject to the last sentence of this paragraph, there shall be an Audit Committee, a Compensation Committee, aNominating/Governance Committee and such other committee as the Board deems appropriate from time to time, each consisting of not less than threedirectors appointed by the board, each of which Committees may meet from time to time on notice to all members thereof by any member thereof. SuchCommittees shall keep regular minutes of their proceedings and report the same to the board. The membership and responsibilities of each Committee of theBoard of Directors shall comply with applicable rules and regulations under the Securities Exchange Act of 1934 and the rules of any national securitiesexchange or Nasdaq NMS or SmallCap market on which the securities of the Corporation may be listed for trading as in effect from time to time. The Audit Committee, the Compensation Committee, and the Nominating and Governance Committees of the Board shall have the functions andresponsibilities set forth in their respective charters as in effect on the date of adoption of these Amended and Restated By-Laws, as such charters maythemselves be amended from time to time in accordance with the provisions of each such charter. In every case, the affirmative vote of a majority of all members of the Committee present at the meeting shall be necessary to its adoption of anyresolution. Section 312. Report and Records. The reports of officers and Committees and the records of the proceedings of all Committees shall be filed with theSecretary of the Corporation and presented to the Board of Directors, if practicable, at its next regular meeting. The Board of Directors shall keep completerecords of its proceedings in a minute book kept for that purpose. When a director shall request it, the vote of each director upon a particular question shall berecorded in the minutes. Section 313. Chairman of the Board. The Board of Directors shall elect a Chairman of the Board at the first regular meeting of the Board following eachannual meeting of shareholders at which directors are elected. The Chairman of the Board shall be a member of the Board of Directors and shall preside at themeetings of the Board and perform such other duties as may be prescribed by the Board of Directors.ARTICLE IV. OFFICERS. Section 401. Officers. The officers of the Corporation shall be a President, a Secretary, a Controller/Treasurer, and such other officers and assistant officers,as the Board of Directors may from time to time deem advisable. Except for President and Secretary, the Board may refrain from filling any of the said officesat any time and from time to time. Except as otherwise required by applicable law, the same individual may hold any two (2) or more offices. The officersshall be elected by the Board of Directors immediately following the annual meeting of shareholders, or at such other time, in the manner and for such termsas the Board of Directors from time to time shall determine. Any officer may be removed at any time, with or without cause (by the Board or the President, andthe President by the Board), and regardless of the term for which such officer was elected, but without prejudice to any contract right of such officer. Theelection or appointment of an officer shall not of itself create contract rights. Each officer shall hold his office for the current year for which he was elected orappointed by the Board unless he shall resign, becomes disqualified, or be removed at the pleasure of the Board of Directors. A vacancy in office arising forany reason may be filled for the unexpired portion of the term by the Board of Directors. Section 402. President. The President shall have general supervision of all of the departments and business of the Corporation and shall prescribe theduties of the other officers and employees and see to the proper performance thereof. The President shall be responsible for having all orders and resolutionsof the Board of Directors carried into effect. The President shall execute on behalf of the Corporation and may affix or cause to be affixed a seal to authorizeddocuments and instruments requiring such execution, except to the extent that signing and execution thereof shall have been delegated to some other officeror agent of the Corporation by the Board of Directors or by the President. The President shall be a member of the Board of Directors. In the absence ordisability of the Chairman of the Board or his/her refusal to act, the President shall preside at meetings of the Board. In general, the President shall perform allthe duties and exercise all of the powers and authorities incident to such office or as prescribed by the Board of Directors. He shall, unless otherwise directedby the Board of Directors, attend in person or by substitute appointed by him, or shall execute on behalf of the Corporation written instructions appointing aproxy or proxies to represent the Corporation at, all meetings of the shareholders of any corporation in which the Corporation shall hold any stock and may,on behalf of the Corporation, in person or by substitute or by proxy, execute written waivers of notice and consents with respect to any such meetings. At allsuch meetings and otherwise, the President in person or by substitute or proxy as aforesaid, may vote the stock so held by the Corporation and may executewritten consents and other instruments with respect to such stock and may exercise any and all rights and powers incident to the ownership of said stock,subject however to the instructions, if any, of the Board of Directors. 6Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. Section 403. Controller/Treasurer. The Treasurer shall act under the supervision of the President or such other officer as the President may designate. TheTreasurer shall be the chief financial officer of the Corporation. The Treasurer shall have the care and custody of all funds, securities, evidences ofindebtedness and other personal property of the Corporation and shall deposit the same in accordance with the instructions of the Board of Directors. He shallreceive and give receipts and acquitances for moneys paid in on account of the Corporation, and shall pay out of the funds on hand all bills, payrolls andother just debts of the Corporation of whatever nature upon maturity of the same. He shall enter regularly in books belonging to the Corporation, to be keptby him for that purpose, full and accurate accounts of all moneys received and paid out by him on account of the corporation, and he shall perform all otherduties incident to the office of the Treasurer and, upon request of the Board, he shall make such reports to it as may be required at any time. He shall, ifrequired by the Board, give the Corporation a bond in such sums and with such sureties as shall be satisfactory to the Board, conditioned upon the faithfulperformance of his duties and for the restoration to the Corporation in case of his death, resignation, retirement or removal from office of all books, papers,vouchers, money and other property of whatever kind in his possession, or under his control belonging to the Corporation. Unless the Board of Directorsotherwise prescribes, the Controller shall be the principal financial and accounting officer for the Corporation for SEC reporting purposes. Section 404. Secretary. The Secretary shall act under the supervision of the President or such other officers as the President may designate. Unless the Boardhas elected a Secretary to the Board of Directors, or unless a designation to the contrary is made at a meeting, the Secretary shall attend all meetings of theBoard of Directors and all meetings of the shareholders and record all of the proceedings of such meetings in a book to be kept for that purpose, and shallperform like duties for the standing Committees when required by these By-laws or otherwise. The Secretary shall give, or cause to be given, notice of allmeetings of the shareholders and of the Board of Directors. The Secretary shall keep a seal of the Corporation, and, when authorized by the Board ofDirectors or the President, cause it to be affixed to any documents and instruments requiring it. The Secretary shall perform such other duties as may beprescribed by the Board of Directors, the President, or such other supervising officer as the President may designate. One or more assistant secretaries may beappointed to fulfill functions in the absence or at the direction of the Secretary. Section 405. General Powers. The officers are authorized to do and perform such corporate acts as are necessary in the carrying on of the business of theCorporation, subject always to the direction of the Board of Directors. ARTICLE V. INDEMNIFICATION. Section 501. Indemnification by the Corporation. The Corporation shall, to the fullest extent permitted by applicable law, indemnify any person made orthreatened to be made a party to any action or proceeding, whether civil, criminal, administrative or investigative (and whether or not (i) by or in the right ofthe Corporation to procure a judgment in its favor or (ii) by or in the right of any Other Entity (as defined below) which such person served in any capacity atthe request of the Corporation, to procure a judgment in its favor), by reason of the fact that such person, or his or her testator or intestate, is or was a directoror officer of the Corporation or served such Other Entity in any capacity at the request of the Corporation, against all judgments, fines, amounts paid insettlement and all expenses, including attorneys’ and other experts’ fees, costs and disbursements, actually and reasonably incurred by such person as a resultof such action or proceeding, or any appeal therein, or actually and reasonably incurred by such person (a) in making an application for payment of suchexpenses before any court or other governmental body, or (b) in otherwise seeking to enforce the provisions of this Section 501, or (c) in securing orenforcing such person’s rights under any policy of director or officer liability insurance provided by the Corporation, if such person acted in good faith, for apurpose which he or she reasonably believed to be in, or, in the case of services for any Other Entity, not opposed to, the best interests of the Corporation and,in criminal actions or proceedings, in addition, had no reasonable cause to believe that his or her conduct was unlawful. The termination of any action orproceeding by judgment, settlement, conviction or upon a plea of nolo contendere, or its equivalent, shall not in itself create a presumption that such persondid not act in good faith, for a purpose which he or she reasonably believed to be in, or, in the case of service for any Other Entity, not opposed to, the bestinterests of the Corporation or that he or she had reasonable cause to believe that his or her conduct was unlawful. 7Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. However, (i) no indemnification may be made to or on behalf of any such person if a judgment or other final adjudication adverse to such personestablishes that his or her acts were committed in bad faith or were the result of active and deliberate dishonesty and were material to the cause of action soadjudicated, or that he or she personally gained in fact a financial profit or other advantage to which he or she was not legally entitled; (ii) noindemnification may be made if there has been a settlement approved by the court and the indemnification would be inconsistent with any condition withrespect to indemnification expressly imposed by the court in approving the settlement; and (iii) in the event of a proceeding by or in the right of theCorporation to procure a judgment in its favor, no indemnification may be made if it is settled or otherwise disposed of or such person shall have been finallyadjudged liable to the Corporation, unless (and only to the extent that) the court in which the action was brought, or if no action was brought, any court ofcompetent jurisdiction, determines upon application that, in view of all circumstances of the case, such person is fairly and reasonably entitled to indemnityfor such portion of the settlement amount and expenses as the court deems proper. Any expense described in the first paragraph of this Section 501 that is incurred by any person entitled to indemnification under this Section 501 shall bepaid or reimbursed to such person by the Corporation in advance of the final disposition of any related action or proceeding upon receipt of an undertakingby or on behalf of such person to repay such amount to the Corporation to the extent, if any, that such person (i) is ultimately found not to be entitled toindemnification or (ii) receives reimbursement for such expenses under a policy of insurance paid for by the Corporation. Such advances shall be paid by theCorporation to such person within twenty days following delivery of a written request therefor by such person to the Corporation. No payment made by theCorporation pursuant to this paragraph shall be deemed or construed to relieve the issuer of any insurance policy of any obligation or liability which, but forsuch payment, such insurer would have to the Corporation or to any director or officer of the Corporation or other individual to whom or on whose behalfsuch payment is made by the Corporation. The indemnification and advancement of expenses provided by this Section 501: (i) shall continue as to the person entitled to indemnification hereundereven though he or she may have ceased to serve in the capacity that entitles him or her to indemnification at the time of the action or proceeding and (ii) shallinure to the benefit of the heirs, executors and administrators of such person. A person who has been successful, on the merits or otherwise, in the defense of a civil or criminal action or proceeding of the character described in thisSection 501 shall be entitled to (i.e., has a legally binding right against the Corporation to) the indemnification authorized by this Section 501. Except asprovided in the immediately preceding sentence, any indemnification provided for in this Section 501 (unless ordered by a court under Section 724 of theBusiness Corporation Law), shall be made by the Corporation only if authorized in the specific case: (1) By the board of directors acting by a quorum consisting of directors who are not parties to such action or proceeding for which indemnification issought, upon a finding that the person seeking indemnification has met the standard of conduct set forth in the first two paragraphs of this Section 501, or, (2) If a quorum under the immediately preceding subparagraph is not obtainable or, even if obtainable, a quorum of disinterested directors so directs: (A) by the board upon the opinion in writing of independent legal counsel that indemnification is proper in the circumstances because the applicablestandard of conduct set forth in said first two paragraphs has been met by such person, or (B) by the shareholders upon a finding that the person has met the applicable standard of conduct set forth in said first two paragraphs. 8Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. Notwithstanding any other provision hereof, no amendment or repeal of this Section 501, or any other corporate action or agreement which prohibits orotherwise limits the right of any person to indemnification or advancement or reimbursement of reasonable expenses hereunder, shall be effective as to anyperson until the 60th day following notice to such person of such action, and no such amendment or repeal or other corporate action or agreement shalldeprive any person of any right hereunder arising out of any alleged or actual act or omission occurring prior to such 60th day. The Corporation is hereby authorized, but shall not be required, to enter into agreements with any of its directors, officers or employees providing forrights to indemnification and advancement and reimbursement of reasonable expenses, including attorneys’ fees, to the extent permitted by law, but theCorporation’s failure to do so shall not in any manner affect or limit the rights provided for by this Section 501 or otherwise. For purposes of this Section 501, the term “the Corporation” shall include any legal successor to the Corporation, including any corporation whichacquires all or substantially all of the assets of the Corporation in one or more transactions, and the term “Other Entity” shall mean a corporation (other thanthe Corporation) of any type or kind, domestic or foreign, or any partnership, joint venture, trust, employee benefit plan or other enterprise. For purposes ofthis Section 501, the Corporation shall be deemed to have requested a person to serve an employee benefit plan where the performance by such person of hisor her duties to the Corporation or any subsidiary thereof also imposes duties on, or otherwise involves services by, such person to the plan or participants orbeneficiaries of the plan; excise taxes assessed on a person with respect to an employee benefit plan pursuant to applicable law shall be considered fines; andaction taken or omitted by a person with respect to any employee benefit plan in the performance of such person’s duties for a purpose reasonably believedby such person to be in the interest of the participants and beneficiaries of the plan shall be deemed to be for a purpose which is not opposed to the bestinterests of the Corporation. Section 502 Non-Exclusivity. The rights granted pursuant to or provided by the provisions of Section 501 to any person shall be in addition to and shallnot be exclusive of any other rights to indemnification and expenses to which any such person may otherwise be entitled by law, contract or otherwise. ARTICLE VI. SHARES OF CAPITAL STOCK Section 601. Share Certificates. Every share certificate of the Corporation shall be signed by the President or a Vice President and by the Secretary or oneof the Assistant Secretaries. Certificates may be signed by a facsimile signature of the President and the Secretary or one of the Assistant Secretaries of theCorporation. Certificates for each class of authorized stock shall be consecutively numbered, and the names and residences of the owners, the date of issue,the number of shares and the amount paid therefor shall be entered in the stock books. Certificates of stock shall be in such form consistent with law as shallbe prescribed by the Board of Directors. The seal of the Corporation attached to any stock certificate may be a facsimile, engraved or printed. Where anystock certificate is signed by a transfer agent or transfer clerk and by a registrar, the signatures of any officer of the Corporation appearing upon suchcertificate may be facsimiles, engraved or printed. Section 602. Lost of Destroyed Certificates. Any person claiming a share certificate to be lost, destroyed, mutilated, or wrongfully taken shall receive areplacement certificate if such person shall have: (a) requested such replacement certificate before the Corporation has notice that the shares have beenacquired by a bona fide purchaser; (b) provided the Corporation with an indemnity agreement satisfactory in form and substance to the Board of Directors, orthe President or the Secretary; and (c) satisfied any other reasonable requirements (including providing an affidavit and a surety bond) fixed by the Board ofDirectors, or the President or the Secretary. Section 603 Transfer of Shares. Shares of stock shall be transferable on the books of the Corporation upon receipt by it or its transfer agent ofappropriate documentation evidencing such transfer and,, in the case of stock represented by a certificate, upon surrender of such certificate. Upon surrenderto the Corporation or to a transfer agent of the Corporation of a certificate of stock duly endorsed or accompanied by proper evidence of succession,assignment or authority to transfer, it shall be the duty of the Corporation to issue or cause the issuance of a new certificate to the person entitled thereto, andcancel the old certificate. The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and,accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or notit shall have express or other notice thereof, except as may be required by the laws of New York. Subject to the foregoing the Board of Directors shall havepower and authority to make such rules and regulations as it shall deem necessary or appropriate concerning the issue, transfer, and registration of shares andto appoint and remove transfer agents and registrars of transfer. 9Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. ARTICLE VII. GENERAL Section 701. Corporate Seal. The seal of the corporation shall be circular in form and shall contain the name of the Corporation, the year "1961" and thewords "Corporate Seal, New York." Section 702. Fiscal Year. The fiscal year of the Corporation shall begin on the first (1st) day of October in each year and end on the thirtieth (30th) day ofSeptember in each year. Section 703. Record Date. The Board of Directors may fix any time whatsoever not less than ten (10) nor more than sixty (60) days prior to the date of anymeeting of shareholders, or the date for the payment of any dividend or distribution, or the date for the allotment of rights, or the date when any change orconversion or exchange of shares will be made or will go into effect, as a record date for the determination of the shareholders entitled to notice of, or to voteat, any such meetings, or entitled to receive payment of any such dividend or distribution, or to receive any such allotment of rights, or to exercise the rightsin respect to any such change, conversion or exchange of shares. Section 704. Emergency By-Laws. In the event of any emergency resulting from a nuclear attack, widespread pandemic, or similar disaster resulting in thedeclaration of a state of emergency (or similar declaration) by Federal, New York or Florida (or other state where the Corporation’s principal offices shall belocated at such time) authorities, and during the continuance of such emergency, the following By-Laws provisions shall be in effect, notwithstanding anyother provisions of the By-Laws: (a) A meeting of the Board of Directors or of any Committee thereof may be called by any officer or director upon one (1) hour's notice to all personsentitled to notice whom, in the sole judgment of the notifier, it is feasible to notify; (b) The director or directors in attendance at the meeting of the Board of Directors or of any Committee thereof shall constitute a quorum; and (c) These By-Laws may be amended or repealed, in whole or in part, by a majority vote of the directors attending any meeting of the Board of Directors,provided such amendment or repeal shall only be effective for the duration of such emergency. Section 705. Severability. If any provision of these By-Laws is illegal or unenforceable as such, such illegality or unenforceability shall not affect anyother provision of these By-Laws and such other provisions shall continue in full force and effect. ARTICLE VIII. AMENDMENT OR REPEAL. Section 801. Amendments. These By-Laws may be altered or amended or repealed by (a) the affirmative vote of a majority of the stock issued andoutstanding and entitled to vote thereat, at any annual meeting of the shareholders or at any special meeting of the shareholders if notice of the proposedalteration or amendment or repeal be contained in the notice of such special meeting, or (b) the affirmative vote of a majority of the Board of Directors at anyregular meeting of the Board of Directors, or at any special meeting of the Board of Directors if notice of the proposed alteration or amendment or repeal becontained in the notice of such special meeting; provided, however, that the shareholders pursuant to clause (a) of this Section 801 may at any time limit thepower of the board of Directors to amend, alter, or repeal any by-law adopted by the shareholders. 10Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. ARTICLE IX. APPROVAL OF AMENDED AND RESTATED BY-LAWS Section 901. Approval and Effective Date. These Third Amended and Restated By-laws have been approved as the By-laws of the Corporation as ofAugust 10, 2010, and shall be effective as of said date. /s/ Steven A. Malsin_______Steven A. Malsin, Secretary 11Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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. Forward Industries (IN), Inc., an Indiana Corporation;2. Forward Industries HK Limited, an inactive Hong Kong Limited Company;3. Forward Industries (Switzerland) GmbH, a Switzerland GmbH;4. Forward Asia Pacific Limited, a Hong Kong Limited Company; and5. Forward Ind. (UK) Limited, an inactive Limited Company of England and Wales.All 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 10, 2014Powered 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 consent to the incorporation by reference in the Registration Statements on Forms S-8 (Registration File Nos. 333-104743, 333-144442, 333-165075 and 333-194510) of Forward Industries, Inc., of our report on our audits of the consolidated financial statements of Forward Industries, Inc.and Subsidiaries as of and for the years ended September 30, 2014 and 2013, dated December 9, 2014, which report appears in this Annual Report onForm 10-K of Forward Industries, Inc. for the year ended September 30, 2014. /s/ CohnReznick LLP December 9, 2014Jericho, New YorkSource: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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, Robert Garrett Jr., certify that:1.I have reviewed this annual report on Form 10‑K for the fiscal year ended September 30, 2014, of Forward Industries, Inc. (“registrant”);2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) andinternal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and I have: a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities,particularly during the period in which this report is being prepared; b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision,to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles; c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and5.I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee ofthe registrant’s board of directors (or persons performing the equivalent functions): a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likelyto adversely affect the registrant’s ability to record, process, summarize and report financial information; and b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting.Date: December 9, 2014/s/ Robert Garrett Jr. Robert Garrett Jr. President and Chief Executive Officer (Principal Executive, Financial and Accounting Officer)Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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 PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002Robert Garrett Jr., Chief Executive Officer of Forward Industries, Inc. (“Forward”) does certify pursuant to 18 U.S.C. §1350 that, to the best of his knowledge:1. Forward’s annual report on Form 10-K for the fiscal year ended September 30, 2014 (the “Report”) fully complies with the requirements of Section13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; 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 has set his hand hereto as of the 9th day of December 2014. /s/ Robert Garrett Jr. Robert Garrett Jr. President and Chief Executive Officer (Principal Executive, Financial and Accounting Officer)Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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.Source: FORWARD INDUSTRIES INC, 10-K, December 10, 2014Powered 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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