<PAGE>

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                  FORM 10-QSB


(X) Quarterly report under section 13 or 15(d) of the Securities Exchange Act
    of 1934 for the quarterly period ended June 30,1998.

                                       or

( ) Transition report under section 13 or 15(d) of the Securities Exchange Act 
    of 1934 for the transition period from ___________to_____________.

Commission File Number:  0-6669.
                       ---------


                            Forward Industries, INC.
        ---------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


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




   400 Post Avenue Westbury, NY                       11590
--------------------------------------              -----------
(Address of principal executive office)             (Zip Code)

Registrant's telephone number, including area code:  (516) 338-0700
                                                   ----------------

                 275 West Hempstead Avenue Hempstead, NY 11552
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last 
 report)

Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.

                       Yes X         No 
                          ---          ---

As of August 11, 1998, 4,798,141 shares of the issuer's common stock were
outstanding.

Transitional Small Business Disclosure Format:

                       Yes           No X 
                          ---          ---



<PAGE>







                   FORWARD INDUSTRIES, INC. AND SUBSIDIARIES

                                  FORM 10-QSB

                        NINE MONTHS ENDED JUNE 30, 1998

                                    CONTENTS
                                                                           PAGE
                                                                           ----
PART I. FINANCIAL INFORMATION   3

Item 1. Financial Statements   3

        Consolidated Balance Sheets
          as of June 30, 1998 (Unaudited)
          and September 30, 1997                                              3

        Consolidated Statements of Income
          (Unaudited) for the Nine Months
          Ended June 30, 1998 and 1997                                        5

        Consolidated Statements of Cash Flows
          (Unaudited) for the Three Months
          Ended June 30, 1998 and 1997                                        6

        Notes to Form 10-QSB (Unaudited)                                      8

Item 2. Management's Discussions and Analysis                                14

PART II.  OTHER INFORMATION                                                  18

Item 1. Legal Proceedings                                                    18

Item 2. Changes in Securities                                                18

Item 3. Defaults upon Senior Securities                                      18

Item 4. Submission of Matters to a Vote of Security Holders                  18

Item 5. Other Information                                                    18

Item 6. Exhibits and Reports on Form 8-K                                     18






                                       2
<PAGE>






PART I.   ITEM 1.  FINANCIAL STATEMENTS
          -----------------------------




                   FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                   June 30,                September  30,
                                                                    1998                         1997  *
                                                                 ------------              ---------------
ASSETS                                                            (Unaudited)                (Restated)
<S>                                                               <C>                       <C>         
CURRENT ASSETS:
     Cash and cash equivalents                                    $   993,976               $  1,365,198
     Accounts receivable, less allowance for doubtful
         accounts of  $91,333 and $91,333                           1,920,666                  2,888,593
     Due on sale of division (net of estimated expenses)                  ---                    572,785
     Inventories, net                                               1,548,991                    935,012
     Prepaid expenses and other current assets                        267,404                    161,402
     Notes and loans receivable - current portion                     324,554                    276,686
     Notes and loans receivable - officers - current portion           57,500                     63,821
     Deferred income taxes                                            690,000                    690,000
                                                                      -------                    -------

         Total current assets                                       5,803,091                  6,953,497
                                                                    ---------                  ---------

PROPERTY, PLANT AND EQUIPMENT, net                                    625,019                    606,002
                                                                      -------                    -------

OTHER ASSETS:
     Deferrred income taxes                                         1,016,657                  1,320,475
     Note receivable - net of current portion                         427,733                    615,338
     Notes and loans receivable - officers - net of
         current portion                                               69,106                    105,535
     Deferred debt costs                                              102,947                     98,884
     Other assets                                                     149,664                    112,248
     Building held for sale or lease                                      ---                    129,253
     Deferred offering costs                                              ---                     66,942
                                                                   ----------                -----------


                                                                    1,766,107                  2,448,675
                                                                    ---------                  ---------

                                                                 $  8,194,217               $ 10,008,174
                                                                 ============               ============

</TABLE>

* The balance sheet at September 30, 1997 is derived from the audited 
  financial statements of that date.

      The accompanying notes are an integral part of these financial statements.



                                       3
<PAGE>

                   FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>


                                                                          June 30,            September 30,
LIABILITIES AND STOCKHOLDERS' EQUITY                                       1998                    1997  *
------------------------------------                                   ------------           --------------
                                                                       (Unaudited)              (Restated)
<S>                                                                    <C>              <C>             
 CURRENT LIABILITIES:
     Acceptances and notes payable                                     $   858,536      $      1,375,105
     Accounts payable                                                    1,203,429             1,936,899
     Current maturities of mortgage payable                                    ---                16,991
     Current maturities of long-term debt                                  563,812               234,697
     Private placement deposits                                                ---               185,000
     Accrued expenses and other current liablilites                        491,372               486,802
                                                                           -------               -------

              Total current  liabilities                                 3,117,149             4,235,494
                                                                         ---------             ---------

LONG-TERM LIABLITIES:
     Long-term debt, net of current maturities                                 ---               359,000
     Notes payable - related parties                                       58,700                 88,700
     Mortgage payable, net of current maturities                               ---             1,096,286
                                                                         ---------             ---------

                                                                            58,700             1,543,986
                                                                         ---------             ---------

              Total liabilities                                          3,175,849             5,779,480
                                                                         ---------             ---------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDER'S EQUITY:
     Preferred stock, 4,000,000 authorized shares par
              value $.01; none issued                                          ---                   ---
     Common stock, 40,000,000 authorized shares, par value
              $.01; issued 4,963,031 shares at June 30, 1998
              and 4,303,031 shares at September 30, 1997
              (including 164,890 held in treasury)                          49,630                43,030
              Paid-in capital                                            6,556,690             6,229,347 
     Deficit                                                            (1,349,839)           (1,805,570)
                                                                        -----------          -----------
                                                                         5,256,481             4,466,807
     Less: Cost of  shares in treasury                                     238,113               238,113
                                                                        -----------          -----------

              Total stockholders' equity                                 5,018,368             4,228,694
                                                                       -----------           -----------

                                                                      $  8,194,217          $ 10,008,174
                                                                      ============          ============
</TABLE>

*    The balance sheet at September 30, 1997 is derived from the audited 
     financial statements of that date.

      The accompanying notes are an integral part of these financial statements.


                                       4
<PAGE>





                   FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF INCOME
                                  (UNAUDITED)

<TABLE>
<CAPTION>

                                                    Three Months Ended                  Nine Months Ended
                                                         June 30,                             June   30,
                                               --------------------------           ----------------------------
                                                    1998             1997                   1998            1997
                                               ---------     ------------           -------------   ------------
<S>                                         <C>              <C>                    <C>             <C>         
NET SALES                                   $  3,066,961     $  3,406,688           $  9,265,256    $  9,008,454
COST OF GOODS SOLD                             2,122,064        2,183,838              6,285,992       5,851,646
                                               ---------        ---------              ---------       ---------
GROSS PROFIT                                     944,897        1,222,850              2,979,264       3,156,808
                                                 -------        ---------              ---------     -----------

OPERATING EXPENSES:
     Distribution                                 12,972            8,658                 21,292          30.282
     Selling                                     308,681          337,209                966,858       1.052,095
     General and administration                  460,070          571,453              1,604,345       1,304,672
                                                 -------          -------              ---------       ---------
                                                 781,723          917,320              2,592,495       2,387,049
                                                 -------          -------              ---------       ---------

INCOME FROM OPERATIONS                           163,174          305,530                386,769         769,759
                                                 -------          -------                -------         -------

OTHER INCOME (DEDUCTIONS):
     Interest expense                            (75,891)         (26,354)              (227,447)        (93,398)
     Interest expense - related parties           (9,482)          (8,876)                (9,482)        (36,317)
     Interest income                              46,547            9,177                115,053          27,972
     Rental income - net                             ---          (29,947)               (60,730)       (106,158)
     Other income(loss) - net                   (46,985)           69,490                555,386         130,834
                                                --------           ------                -------         -------
                                                (85,811)           13,490                372,780         (77,067)
                                                --------           ------                -------        --------

INCOME BEFORE PROVISION
     FOR INCOME TAXES                             77,363          319,020                759,549         692,692
PROVISION FOR INCOME TAXES                        30,945          133,341                303,818         292,553
                                                  ------       ----------                -------         -------
INCOME FROM CONTINUING OPERATIONS                 46,418          185,679                455,731         400,139
                                                               ----------                -------         -------

DISCONTINUED OPERATIONS:
     Loss from discontinued operations,
         net of income tax benefits of
         $-0-, ($90,744), $-0- and ($209,317)        ---         (125,314)                   ---        (289,056)
                                            ------------     ------------           ------------   -------------

NET INCOME                                  $     46,418     $     60,365           $    455,731   $     111,083
                                            ============     ============           ============   =============
NET INCOME PER COMMON AND COMMON
     EQUIVALENT SHARE:
       Basic:
         Income from continuing operations       $ 0.010         $ 0.058                 $ 0.101        $ 0.134
         Discontinued operations                     ---          (0.039)                    ---         (0.097)
                                              ----------          -------             ----------         -------
                                                 $ 0.010         $ 0.019                 $ 0.101         $ 0.037
                                                 =======         ========                =======         =======

       Diluted:
         Income from continuing operations       $ 0.009         $ 0.045                 $ 0.080        $ 0.124
         Discontinued operations                     ---          (0.030)                    ---         (0.088)
                                              ----------          -------             ----------         -------
                                                 $ 0.009          $ 0.015                $ 0.080         $ 0.036
                                                 =======          =======                =======         =======

WEIGHTED AVERAGE NUMBER OF
     COMMON AND COMMON EQUIVALENT
     SHARES OUTSTANDING                        4,723,141        3,226,141              4,528,141       2,975,427
                                               =========        =========              =========       =========

DIVIDENDS                                           NONE             NONE                   NONE            NONE

</TABLE>


   The accompanying notes are an integral part of these financial statements.



                                       5
<PAGE>




                   FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                   Nine Months Ended
                                                                                         June 30,
                                                                           ----------------------------------
                                                                                1998                   1997
                                                                           -----------           ------------
                                                                                                   (Restated)
<S>                                                                        <C>                     <C>    
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income                                                             $455,731               $  111,083
     Adjustments to reconcile net income to net cash
         provided by (used in) continuing operations:
              Loss from discontinued operations                                  ---                  289,059
              Gain on sales of property and equipment                       (593,076)                     ---
              Depreciation and amortization                                   85,484                  103,885
              Amortization of deferred debt costs                             89,406                      ---
              Deferred taxes                                                 303,818                   77,728
              Non-cash compensation                                           51,287                   18,750
         Changes in assets and liabilities:
                  Accounts receivable                                        967,927                  359,549
                  Inventories                                               (613,979)                (289,006)
                  Prepaid expenses and other current assets                 (106,002)                 (36,787)
                  Other assets                                               (37,416)                 (37,427)
                  Accounts payable                                          (733,470)                (340,769)
                  Accrued expenses and other current liabilities               4,570                 (178,762)
                  Other liabilities                                              ---                  (22,500)
                                                                            --------                ----------

Net cash (used in) provided by continuing operations                        (125,720)                 (54,743)
                                                                            ---------                 --------

Net cash provided by discontinued operations:
     Loss from discontinued operations                                           ---                 (289,059)
     Depreciation and amortization                                               ---                   13,783
     Discontinued operations - net                                               ---                  312,335

NET CASH (USED IN) PROVIDED BY                                                                                      
     OPERATING ACTIVITIES                                                   (125,720)                  91,802
                                                                            --------                   ------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Net proceeds from sale of property                                      643,830                      ---
     Proceeds from notes and loans receivable                                694,737                  283,997
     Proceeds from collections from officers                                  42,750                   48,894
     Purchases of property, plant and equipment                             (104,500)                 (41,484)
                                                                           ---------                 --------

NET CASH PROVIDED BY (USED IN)
     INVESTING ACTIVITIES                                                  1,276,817                  291,407
                                                                           ---------                  -------

</TABLE>



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


                                       6
<PAGE>


                   FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                                  (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                  Nine Months Ended
                                                                                       June 30,
                                                                        -------------------------------------
                                                                               1998                     1997
                                                                        -------------            ------------
                                                                                                   (Restated)
<S>                                                                        <C>                       <C>    
CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from (repayment of) short-term borrowings                 $  (516,569)               $ 311,962
     Proceeds from long-term notes                                           10,000                  110,000
     Payments of long-term notes                                           (225,001)                (152,720)
     Payments of mortgage                                                (1,057,748)                 (11,217)
     Payments of notes payable - related parties                            (30,000)                  (2,250)
     Proceeds from private placement deposits                                   ---                  522,500
     Proceeds from issuances of stock                                       414,000                  167,000
     Deferred offering costs                                                (23,532)                (176,102)
     Deferred debt costs                                                    (93,469)                (117,401)
                                                                            --------                --------

NET CASH (USED IN)PROVIDED BY FINANCING ACTIVITIES                        (1,522,319)                651,772
                                                                          -----------                -------

NET CHANGE IN CASH AND CASH EQUIVALENTS                                    (371,222)                  786,021

CASH AND CASH EQUIVALENTS - beginning                                      1,365,198                  208,214
                                                                           ---------                  -------

CASH AND CASH EQUIVALENTS - ending                                         $ 993,976               $  994,235
                                                                             =======               ==========

SUPPLEMENTAL DISCLOSURES OF
     CASH FLOW INFORMATION:
     Cash paid during the period for:
         Interest                                                           $ 77,503                $ 230,380
         Income taxes                                                         10,422                      529

SCHEDULE OF NON-CASH ACTIVITES:
     Forgiveness of mortgage debt                                             55,529                      ---
     Offset of deferred offering costs to paid in capital                     90,474                      ---
     Warrants issued for services rendered                                    10,417                   18,750
     Conversion of long-term debt into common stock                              ---                  100,000
     Conversion of private placement deposits
         into long-term debt                                                 185,000                      ---
     Conversion of amounts due from sale of business
         to notes receivable                                                  97,785                      ---

</TABLE>



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



                                       7
<PAGE>



                    FORWARD INDUSTRIES, INC.AND SUBSIDAIRIES

                              NOTES TO FORM 10-QSB

                    NINE MONTHS ENDED JUNE 30, 1998 AND 1997
                                  (UNAUDITED)

1.  BASIS OF PRESENTATION
    ---------------------

    The information in this Form 10-QSB includes the results of operations of
    Forward Industries, Inc. ("the Company") and its wholly-owned subsidiary,
    Koszegi Industries, Inc. ("Koszegi"), for the periods ended June 30, 1998
    and 1997. The data is unaudited, but includes all adjustments including the
    elimination of intercompany accounts and transactions which are, in the
    opinion of management, necessary for a fair presentation of the interim
    periods presented.

    The accounting policies utilized in the preparation of this Form 10-QSB are
    the same as those set forth in the Company's Annual Report on Form 10-KSB 
    at September 30, 1997 and should be read in conjunction with the 
    disclosures presented therein.

    Certain prior period balances have been reclassified to conform to the
    current period classification.

    All information in this Form 10-QSB has been adjusted to give effect to a
    one-for-two reverse stock split, as declared by the Board of Directors, of
    the Company's issued and outstanding common stock, par value $.01 per
    share, effected on December 23, 1997.

    This Report may contain forward-looking statements which involve certain 
    risks and uncertainties. Important factors could arise which could cause 
    the Company's operating results to differ materially from those contained 
    in any forward looking statement.

2.  EARNINGS PER SHARE
    ------------------

    Earnings per share are based on the weighted average number of shares
    outstanding during each period presented. The Company has adopted FAS 128,
    "Earnings Per Share" and has restated prior periods to comply with the
    provisions of this pronouncement.


3.  NEW REVOLVING CREDIT AGREEMENT ESTABLISHED
    ------------------------------------------

    In April 1998, the Company completed a credit facility with a new bank
    which provides for a maximum line of credit for working capital of $4.5
    million, including letters of credit. Borrowing availability is determined
    by a formula of accounts receivable and inventory. The interest rate on the
    borrowings is the prime rate in effect from time to time plus three
    quarters of one percent. The Company secured this line of credit with all
    of its assets and those of Koszegi. An additional $500,000 credit line is
    available for financing equipment. In April 1998, the Company paid to its
    prior bank approximately $937,000, which represented all amounts owed under
    its former credit facility. The former credit facility had a maximum
    availability of $1.1 million and an interest rate in effect from time to
    time of the prime rate plus 1 1/2%. At June 30, 1998 amounts outstanding
    under the new credit facility were $858,500 (the interest rate in effect
    was 9.25%). Amounts incurred in connection with establishing the credit
    line are being amortized over twelve months and included in interest
    expense. In addition, at June 30, 1998 the Company was contingently liable
    under unused letters of credit in the amount of $591,200.



                                       8
<PAGE>

4.  INVENTORY      
    ---------
    Inventory consists of the following:

                                       June 30, 1998       September 30, 1997
                                      ---------------      ------------------
                                         (Unaudited)

         Raw materials                 $    224,080             $ 682,545
         Work in process                     58,605                99,164
         Finished goods                   1,266,306               153,303
                                       ------------               -------
                                       $  1,548,991             $ 935,012
                                         =========                =======
5. SALE OF CERTAIN ASSETS
   ----------------------

    On September 30, 1997, Koszegi, a wholly-owned subsidiary of the Company,
    sold certain of its assets, consisting primarily of inventory and equipment
    relating to its Advertising Specialties division, to Amplaco Group, Inc.
    ("Amplaco"). In addition, Amplaco assumed certain liabilities of Koszegi,
    including a portion of Koszegi's lease obligations with respect to its
    manufacturing obligations in South Bend, Indiana.

    The selling price was $1,350,000 (subject to certain adjustments discussed
    below) and was received as follows:

    o $500,000 in cash. (Received as follows: $25,000 received in September
      1997 and $475,000 received in October 1997.)

    o The receipt of a non-interest bearing secured promissory note for
      $850,000.

    In addition, the selling price was subject to the value of inventory. If
    the value of the inventory as of the closing date was less than or greater
    than $400,000, then the purchase price was to be adjusted on a dollar for
    dollar basis (the "Inventory Adjustment"), subject to negotiation. Based on
    the physical count taken on the closing date, and the reconciliation
    between the parties of those items which Amplaco acquired, the Company
    received a second, secured non-interest bearing promissory note in the
    amount of $125,000, which was subsequently renegotiated to $95,000. Both
    the original and second note are payable monthly over 36 months and 33
    months, respectively, and have been recorded at their imputed values in the
    accompanying statements.

6.  SALE OF BUILDING
    ----------------

    In December 1997, the Company sold a building for $830,000 and recognized a
    profit of approximately $574,000. Such profit is included in other income
    in the consolidated statement of income.


7. SALE OF CERTAIN PRODUCTION ASSETS AND RESTRUCTURING CHARGE
   ----------------------------------------------------------

    In August 1998, the Company entered into an agreement to sell certain of
    Koszegi's production equipment to Medcovers, Inc. of Raleigh, North
    Carolina ("Medcovers"), and to provide production personnel for quality
    assurance, in order to establish an alternate location of production for
    Koszegi's customer orders which are still manufactured in the United
    States. The majority of Koszegi's orders are now produced overseas under
    the supervision of Koszegi Asia Ltd., a wholly-owned subsidiary of the
    Company. As a result, the Company's South Bend, Indiana plant has been
    operating at significantly less than capacity. In connection with that
    agreement, the Company announced that it would not renew the lease for its
    production facility in South Bend, Indiana, upon its expiration in
    February 1999. Thereafter, those customer orders which require domestic
    manufacture, will be produced under the cooperative production arrangement
    with Medcovers. The Company is currently analyzing all of the associated
    costs of this restructuring, which will include severance payments and
    other employee related benefit expenses, travel costs, equipment and
    inventory relocation, the write-off of certain leasehold improvements and
    others. A restructuring charge will be included in the Company's fourth
    quarter results; however the Company believes that this plan should reduce
    its operating expenses thereafter.




                                       9
<PAGE>








PART I. ITEM 2:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                 AND RESULTS OF OPERATIONS

        The following discussion and analysis should be read in conjunction with
the Company's Financial Statements and the notes thereto appearing elsewhere in
this Report. This Report contains statements which constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. The Company cautions that forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those in the forward-looking
statements as a result of various factors.

        The  following  discussion  and  analysis  compares  the  results of the
Company's  continuing  operations  for the three and nine months  ended June 30,
1998,  and the three and nine months ended June 30, 1997.  The  information  and
comparative data presented herein excludes the Company's advertising specialties
division, which was divested effective September 30, 1997.

        On January 13, 1997,  the board of  directors of the Company  declared a
one-for-two  reverse stock split which became effective as of December 23, 1997.
All share data and per share  amounts have been  adjusted to reflect the reverse
stock split on a retroactive basis.

THREE MONTHS ENDED JUNE 30, 1998 (THE "1998 QUARTER") COMPARED TO THREE MONTHS
ENDED JUNE 30, 1997 (THE "1997 QUARTER").

        Income in the 1998  Quarter  of $46,400  was  relatively  comparable  to
$60,400  in  the  1997  Quarter.  However,  income  from  continuing  operations
decreased  by  $139,300  as  described  below.  Basic  earnings  per share  from
continued  operations  decreased from $.058 in the 1997 Quarter to $0.010 in the
1998  Quarter,  while  diluted  earnings  per share from  continuing  operations
decreased from $0.045 in the 1997 Quarter to $0.009 in the 1998 Quarter.

REVENUES.
---------

        Net sales  decreased  $339,700  (10%) to $3,067,000 in the 1998 Quarter,
from $3,406,700 in the 1997 Quarter.  The decrease is primarily  attributable to
the Company's  Terrapin computer case business,  while the Company's Custom case
product line sales have remained relatively comparable to the 1997 Quarter.

OPERATING INCOME.
-----------------

        Consolidated income from continuing  operations decreased by $139,300 to
a profit of $46,400 in the 1998 Quarter,  from $185,700 in the 1997 Quarter. The
decrease  relates  primarily  to sales and gross  profit  decreases,  which were
offset in part by decreased general and  administrative  expenses,  as described
below.  Gross  profit  decreased  $278,000 to $944,900 in the 1998  Quarter from
$1,222,900 in the 1997 Quarter,  and the gross margin percentage  decreased from
36% to 31%.  Higher  Terrapin case sales during the 1997 Quarter,  which carried
higher margins at that time,  resulted in an overall higher gross margin in that
quarter.  Terrapin  computer  case sales have not met  expectations  in 1998, as
competitive  pricing and the cost of retail distribution have effected operating
results.

        Selling  expenses  decreased  $28,300  (8%)  from  $337,200  in the 1997
Quarter to $308,900 in the 1998  Quarter,  but the ratio of selling  expenses to
net sales was unchanged at 10% in both of the Quarterly periods.

        General and administrative expenses decreased as a percent of net sales,
to 15% in the 1998 Quarter from 17% in the 1997 Quarter despite a slightly lower
sales volume. The dollar amount of expenses decreased $111,400 (20%) to $460,100
in the 1998 Quarter from $571,900 in the 1997 Quarter. The decrease reflects the
Company's  efforts to reduce its general and  administrative  expenses,  and the
current  quarter  decreases are primarily  related to reductions in professional
fees,  bank fees,  and  computer  expenses,  which were offset in part by higher
travel expenses to suppliers overseas,  and to the Company's South Bend, Indiana
production facility.

In  August,  1998 the  Company  entered  into an  agreement  to sell  certain of
Koszegi's  production  equipment to Medcovers,  Inc. of Raleigh,  North Carolina
("Medcovers"),  and to provide production  personnel for quality  assurance,  in
order to establish an alternate  location of production  for Koszegi's  customer
orders  which are still  manufactured  in the United  States.  The  majority  of
Koszegi's orders are now produced overseas under the supervision of Koszegi Asia
Ltd and as a result,  the  Company's  South  Bend  plant has been  operating  at
significantly less than capacity. In connection with that agreement, the Company
announced that it would not renew the lease for its production facility in South
Bend, Indiana, upon its expiration in February, 1999. Thereafter, those customer
orders  which  require  domestic   manufacture,   will  be  produced  under  the
cooperative  production  arrangement  with  Medcovers.  The Company is currently
analyzing all of the associated costs of this restructuring,  which will include
severance  payments and other employee related benefit  expenses,  travel costs,
equipment  and  inventory   relocation,   the  write-off  of  certain  leasehold
improvements  and  others.  A  restructuring  charge  will  be  included  

                                       10
<PAGE>

in the Company's fourth quarter results;  however the Company believes that this
plan should reduce its operating expenses thereafter.

OTHER INCOME (DEDUCTIONS).
--------------------------

        Total  interest  expenses  increased  by  $50,200 to $85,400 in the 1998
Period  from  $35,200 in the 1997  Period due to  interest  associated  with the
indebtedness issued in connection with the Company's 1997 Private Placement, and
due to the amortization of deferred debt costs,  incurred in connection with the
Company's new bank credit facility,  which are being amortized over the one year
term and are included in interest income.

        The Company's rental building in Brooklyn, New York was partially leased
during the 1997 Period and was sold in December 1997. [See discussion below.] As
a result,  rental  income - net  decreased  from a loss of ($29,900) in the 1997
Period to zero in the 1998 Period.

        Interest  and other income - net  decreased  $78,700 to zero in the 1998
Period from the 1997 Period.  The decrease is  primarily  related to  additional
negotiations and accounting  adjustments relating to the sale of the Advertising
Specialties  business  which  reduced  the  gain on the sale by  $30,600  in the
current quarter.

INCOME TAXES.
-------------

        The provision  for income taxes  decreased by $102,400 due to a $241,600
decrease  in  profit  in the 1998  Quarter  from the  comparable  period in 1997
Quarter.  The  effective tax rates for the 1998 and 1997 Period were 40% and 42%
respectively.

NINE MONTHS ENDED JUNE 30, 1998 (THE "1998 PERIOD") COMPARED WITH NINE MONTHS
ENDED JUNE 30, 1997 (THE "1997 PERIOD").

        Income in the 1998 Period of $455,700  increased  significantly from the
net profit of $111,100 in the 1997  Period.  The  increase in the 1998 Period is
primarily related to a non-recurring sale of the Company's building in Brooklyn,
New York,  which  amounted to $344,500,  net of taxes.  Basic earnings per share
increased  from  $0.037 in the 1997 Period to $0.101 in the 1998  Period,  while
diluted earnings per share increased from $0.03 in the 1997 period to $0.08 in
the 1998 period.

REVENUES.
---------

        Net sales increased $256,800 (3%) to $9,265,300 in the 1998 Period, from
$9,008,500 in the 1997 Period.  The Company's retail  Terrapin(R) line accounted
for a decrease of  approximately  $448,000 while Custom case sales  increased by
$705,000 (9%). The decrease in retail  Terrapin(R) sales is partially the result
of an initial  stocking  position ordered by one customer during the 1997 Period
which  did not  reoccur  in the 1998  Period,  however  generally  the  sales of
Terrapin have been weaker than the prior year. The Company is working to improve
sales of its computer  case product  line but market  competition  and the costs
associated  with  retail  sales has  negatively  impacted  both  sales and gross
margins. Higher custom case sales reflect increased demand primarily from one of
the Company's major customers,  as well as selected  others,  including some new
accounts.

OPERATING INCOME.
-----------------

        Consolidated  income from continuing  operations before tax increased by
$66,800 to a profit of $759,500 in the 1998 Period, up from $692,700 in the 1997
Period,  relating  primarily to the sale of property  described above, which was
partially  offset  by  decreased  gross  margins.   Gross  profit  decreased  to
$2,979,300 in the 1998 Period from $3,158,800 in the 1997 Period,  a decrease of
$179,500.  The gross margin percent  decreased by 3 percentage  points to 32% in
the  1998  Period  from  35%  in  the  1997  Period.  The  decrease  is  largely
attributable to the Terrapin business, described above.

        Selling  expenses  decreased  $85,200 (6%) from  $1,052,100  in the 1997
Period to $966,900 in the 1998 Period. In the 1998 Period,  the ratio of selling
expenses to net sales was 11%, down from 12% in the 1997 Period. The decrease in
selling  expenses in the 1998 Period was  primarily  the result of a decrease in
advertising expenditures, partially offset by increased travel expense.



                                       11
<PAGE>


        General  and  administrative  expenses,  as  presented,  increased  as a
percent of net  sales,  from 14% in the 1997  Period to 17% in the 1998  Period,
while the amount,  as presented,  increased  $299,600 (23%) to $1,604,300 in the
1998 Period from  $1,304,700  in the 1997  Period.  The  increase in general and
administrative  expenses is attributable to the accounting  treatment related to
the  sale  of the  business  which  represented  discontinued  operations.  This
business was sold  effective  September 30, 1997.  For  accounting  purposes,  a
portion of certain of the 1997 Period salaries, professional fees, telephone and
other  related  administrative  expenses  were  allocated  to this  business and
included  in the  discontinued  operations,  not in general  and  administrative
expenses.  Upon the  divestment of this business  line,  the remaining  business
absorbed all of such costs in general and administrative  expenses. As a result,
the 1998  Period  numbers  appear  to  increase  substantially  when in fact the
absolute dollar amounts incurred by the Company are relatively unchanged. In the
current   fiscal   quarter  the  Company   has  reduced   certain   general  and
administrative expenses, as discussed above.

OTHER INCOME (DEDUCTIONS).
--------------------------

        Total interest  expenses  increased by $107,200 (83%) to $236,900 in the
1998 Period from $129,700 in the 1997 Period due to interest associated with the
indebtedness issued in connection with the Company's 1997 Private Placement, and
due to the  amortization  of deferred debt costs incurred in connection with the
Company's  new bank  credit  line  which are  included  in  interest  income and
amortized over one year.

        The  Company's  rental  building  in  Brooklyn,  New York was not leased
during  the 1997  Period  or  rented  in the 1998  Period.  Rental  income - net
decreased to a loss of $60,700 in the 1998 Period from a loss of $106,200 in the
1997 Period. This property was sold in December 1997. [See discussion below.]

        Interest  and other income - net  increased  $511,600 in the 1998 Period
from the 1997 Period resulting  primarily from the sale of property owned by the
Company,  in Brooklyn,  New York, which was sold in December,  1997. The Company
recorded a pretax gain on this sale of approximately $574,200.

INCOME TAXES.
-------------

        The  provision  for income  taxes  increased by $11,200 due to a $66,800
increase in profit in the 1998 Period from the comparable period in 1997 Period.
The  effective  tax  rates  for  the  1998  and  1997  Period  were  40% and 42%
respectively.

LIQUIDITY AND CAPITAL RESOURSES
-------------------------------

        In the 1998 Period,  $125,700 of cash was used by operating  activities.
This use of  operational  cash resulted  primarily  from funds  provided by: net
income of $455,900;  reduction in accounts  receivable of $967,900 from improved
collection efforts; and a decrease in deferred taxes of $303,900.  These sources
were  offset by a decrease  in  accounts  payable  and  accrued  liabilities  of
$728,900;  an increase in inventory of $614,000;  and, the non-cash  gain on the
sales of assets of $570,500.

        Net investing activities in the 1998 Period provided cash of $1,276,800.
The  Company  collected  $643,800,  net of  expenses,  relating  to the  sale of
property and  equipment  in Brooklyn,  New York (these funds were applied to the
outstanding  mortgage of $1,057,700,  as described below), it collected $694,700
of notes receivable,  which arose from the sale of its discontinued  operations,
and  collected  $42,800  of loans made to its  officers.  Offsetting  this,  the
Company purchased $104,500 of property, plant and equipment.

        Financing  activities in the 1998 Period  resulted in a  utilization  of
cash  of  $1,522,300.  As  a  result  of  the  Company's  private  placement  of
securities,  the Company received  $257,700 for the issuance of common stock and
issuance of convertible notes payable,  net of offering and debt issuance costs.
Offsetting this source of funds, the Company paid certain short-term  borrowings
of $149,700,  a long-term  note  payable of $75,000 due to its bank,  as well as
$150,000 to pay the balance on a $250,000  convertible loan, as described below.
In addition,  upon the sale of its property and equipment in Brooklyn, New York,
the Company  applied  the  proceeds  to the  outstanding  balance of the related
mortgage of $1,057,700.


                                       12
<PAGE>


        Further, on April 13, 1998 the Company obtained a credit facility with a
new bank which provides for a maximum line of credit of $4.5 million.  Borrowing
availability  is  determined  based on a  formula  of  accounts  receivable  and
inventory.  The interest  rate on the line is the prime rate in effect from time
to time plus three  quarters of one  percent.  The Company  secured this line of
credit with all of its assets and those of Koszegi.  An  additional  $500,000 is
available to finance equipment.  The Company used the new credit availability to
pay its  outstanding  indebtedness  on its former  credit line of $937,000.  The
former credit line had a maximum  availability  of $1,100,000 of which  $750,000
was reserved for letters of credit (acceptances).  In addition, the Company also
used the  facility to repay  outstanding  letters of credit  financed by a third
party. The Company also incurred deferred debt costs,  primarily associated with
establishing  the new bank line.  The new facility  contains  certain  financial
covenants with which the Company is in compliance.

        On June 30, 1998, the Company  received $121,500 for the exercise of all
of the 75,000 vested options owned by its former president.

        On February  14,  1996,  the Company  obtained a thirteen  month loan of
$250,000  bearing  interest at 10% per annum.  The loan was  convertible,  under
certain  conditions  at the option of the lender,  into shares of the  Company's
Common Stock at a conversion price of $1.00 per share. In October 1996, $100,000
of such debt was converted into 100,000  shares of Common Stock.  The balance of
this note, $150,000, was paid in full in October 1997.

        The  Company's  registration  statement  on Form  SB-2  filed  with  the
Securities and Exchange  Commision for the  registration of 1,450,000  shares of
its Common Stock  issuable  upon  exercise of certain  outstanding  warrants was
declared  effective by the Commision on March 25, 1996. As of September 30,1997,
such  warrants  exercisable  for  219,000  shares at $5.00 per share and  87,500
shares at $2.00 per share,  remained  outstanding.  In the 1997 Period,  certain
warrants were  exercised and the Company  issued  100,000  shares for a total of
$1,000.  The Company's Common Stock is traded on the Nasdaq SmallCap Market and,
during the days immediately  preceding May 13, 1998, was trading in the range of
approximately  $3.00 per share.  The  Company  anticipates  that  holders of its
remaining  outstanding  warrants will continue to exercise such warrants only if
the Common Stock trades at a substantial  premium over the exercise price of the
warrants, of which there can be no assurance.

        During Fiscal 1997 and in December  1997,  the Company  consummated  the
1997 Private  Placement of Units,  each unit  comprised of (i) 30,000  shares of
Common  Stock,  (ii) one warrant to purchase up to 30,000 shares of Common Stock
at $4.00 per  share (a  "Private  Placement  Warrant")  and (iii) one  unsecured
convertible promissory note in the principal amount of $10,000, bearing interest
at a rate of 10% per annum  (convertible at the sole option of the Company under
certain  circumstances,  into  20,000  shares  of Common  Stock and one  Private
Placement  Warrant)  maturing  on  December  4,  1998.  55.4 units were sold for
$25,000 per unit, aggregating $1,385,000, including $554,000 aggregate principal
amount of debt. A  commission  in the amount of $169,000 was paid by the Company
in  connection  with such  sales.  The sales were made to  accredited  investors
pursuant to  Regulation  D  promulgated  under the  Securities  Act of 1933,  as
amended.

At June 30, 1998,  long-term debt amounted to  $58,700 and all installment  note
and  capital  lease  payments  were made on a timely  basis.  Long-term  debt is
scheduled to be paid in fiscal 2000.

DEFERRED INCOME TAXES
---------------------

        The  Company's  balance  sheet at June 30, 1998  includes  $1,706,700 of
deferred income taxes as an asset. The Company was profitable in the 1997 Period
and anticipates being profitable  during the entire 1998 fiscal year and beyond.
However,  to the  extent  that  the  Company's  operation  is  not profitable in
future  periods,  the  Company  would not be able to realize  the benefit of its
deferred tax assets.  Without such  deferred tax assets,  at June 30, 1998,  the
Company's  stockholder's  equity at  such  date of  $5,018,400  would  have been
reduced by $1,706,700 to a stockholder's equity of $3,311,700 and the  Company's
working  capital at  June 30, 1998  would  have  been  reduced by  $690,000 from
$2,686,000 to $1,996,000.



                                       13
<PAGE>


PART II. OTHER INFORMATION
         -----------------

         ITEM 1. LEGAL PROCEEDINGS

                     None.

         ITEM 2. CHANGES IN SECURITIES

                 During the Company's  fiscal year ended  September 30, 1997 and
       in December 1997, the Company  consummated its 1997 Private  Placement of
       units  ("Units"),  each unit  comprised  of (i)  30,000  shares of Common
       Stock,  (ii) one warrant to purchase up to 30,000  shares of Common Stock
       at  $4.00  per  share (a  "Private  Placement  Warrant")  and  (iii)  one
       unsecured convertible promissory note in the principal amount of $10,000,
       bearing  interest  at a rate of 10% per  annum  (convertible  at the sole
       option of the Company under certain circumstances,  into 20,000 shares of
       Common Stock and one Private  Placement  Warrant) maturing on December 4,
       1998. 55.4 units were sold for $25,000 per unit, aggregating  $1,385,000,
       including  $554,000  aggregate  principal amount of debt. A commission in
       the amount of $169,500  was paid by the Company in  connection  with such
       sales. The sales were made to accredited investors pursuant to Regulation
       D promulgated under the Securities Act of 1933, as amended.

                 On December  23,  1997,  the  Company  filed a  Certificate  of
       Amendment  to its  Certificate  of  Incorporation  so as to  effectuate a
       one-for-two  reverse  stock  split of its issued and  outstanding  Common
       Stock.

       ITEM 3. DEFAULTS UPON SENIOR SECURITIES

                     None.

       ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS

                     None.

       ITEM 5. OTHER INFORMATION

                     None.

       ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

                  (a)  Exhibit 11: Computation of Income per Common Share
 
                  (b)  Exhibit 27:  Financial Data Schedule

                  (c)  The Company's Current Report on Form 8-K dated 
                       December 4, 1997



                                       14
<PAGE>

                                    SIGNATURE

         In accordance with to the requirements of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.

Dated:  August 13, 1998
                                            FORWARD SYSTEMS, INC.
                                                  (Registrant)




                                            By: /s/    Philip B. Kart
                                            -----------------------------------
                                            PHILIP B. KART
                                            Principal Financial Officer










                                       15

<PAGE>




                   FORWARD INDUSTRIES, INC. AND SUBSIDIARIES

              EXHIBIT 11 - COMPUTATION OF INCOME PER COMMON SHARE

<TABLE>
<CAPTION>


                                                                                   THREE MONTHS ENDED
                                                                                        JUNE 30,
                                                                                ---------------------------
                                                                                      1998            1997
                                                                                      ----            ----
<S>                                                                             <C>             <C>       
NUMERATOR

   Income from continuing operations:
     Income from continuing operations:                                         $   46,418      $  185,679
     Less:  Preferred dividends                                                        ---             ---
                                                                                ----------      ----------

     Income available to common stockholders 
       used in basic EPS                                                            46,418         185,679

     Impact of potential common shares:
       Convertible debt                                                              8,310           2,250

     Income available to common stockholders after
       assumed conversions of dilutive securities                               $   54,728      $  187,929
                                                                                ==========      ==========

   Loss from discontinued operations                                            $      ---      $ (125,314)
                                                                                ==========      ==========

DENOMINATOR

   Weighted average number of common shares
     outstanding  used in basic EPS                                              4,723,141       3,226,141

   Impact of potential common shares:
     Stock options and warrants                                                    385,078         136,950
     Convertible debt                                                            1,108,000         150,000
                                                                                ----------       ---------

   Weighted number of  common shares and dilutive
     Potential common stock used in  dilutive EPS                                6,216,219       3,513,091
                                                                                ==========       =========

BASIC EPS

   Income from continuing operations                                              $  0.010        $  0.058
   Discontinued operations                                                             ---          (0.039)
                                                                                   -------         -------
                                                                                  $  0.010        $  0.019
                                                                                   =======         =======

DILUTED EPS

   Income from continuing operations                                              $  0.009        $  0.053
   Discontinued operations                                                             ---          (0.035)
                                                                                   -------         -------
                                                                                  $  0.009        $  0.018
                                                                                   =======         =======


</TABLE>



                                      16
<PAGE>





                   FORWARD INDUSTRIES, INC. AND SUBSIDIARIES

              EXHIBIT 11 - COMPUTATION OF INCOME PER COMMON SHARE

<TABLE>
<CAPTION>

                                                                                         THREE MONTHS ENDED
                                                                                              JUNE  30,
                                                                                      ------------------------
                                                                                        1998            1997
                                                                                        ----            ----
<S>                                                                                 <C>               <C>    
CALCULATIONS

   1.  Stock Options and Warrants
        Treasury Stock Method Applied to Stock Options and  Warrants
        Sale of common stock
           Total options and warrants outstanding                                     1,121,250         550,000
            Average price                                                                 $1.87           $1.26
                                                                                   -------------    --------------
                           Total                                                   $  2,091,719     $     694,750
                                                                                   ============     =============

        Repurchase of common stock
           Proceeds                                                                $  2,091,719     $     694,750
            Average stock price                                                           $2.84             $1.68
                                                                                   ------------     -------------
            Shares repurchased                                                          736,172           413,050
                                                                                   ============     =============

        Net increase in shares
            Shares sold                                                               1,121,250           550,000
            Shares purchased                                                            736,172           413,050
                                                                                   ------------     -------------
            Increase in shares                                                          385,078           136,950
                                                                                   ============     =============

     Convertible debt
            Terms:
               Interest rate                                                                 10%               10%
               Par                                                                 $     10,000               N/A
               Convertible into shares                                                   20,000           150,000
               Conversion price                                                             N/A     $        1.00
               # of units                                                                  55.4               N/A
            Total debt                                                             $    554,000     $     150,000

            If-converted Method Applied to Convertible Debt
            Numerator increase - interest savings assuming
               a 40% tax rate                                                      $      8,310     $       2,250
                                                                                   ============     =============

            Denominator increase - assuming conversion                                1,108,000           150,000
                                                                                   ============     =============

</TABLE>



                                      17
<PAGE>

                   FORWARD INDUSTRIES, INC. AND SUBSIDIARIES

              EXHIBIT 11 - COMPUTATION OF INCOME PER COMMON SHARE

<TABLE>
<CAPTION>

                                                                                               NINE MONTHS ENDED
                                                                                                   JUNE 30,
                                                                                         --------------------------------
                                                                                                1998              1997
                                                                                                ----              ----
<S>                                                                                     <C>               <C>          
NUMERATOR

   Income from continuing operations:
     Income from continuing operations:                                                 $     455,731     $     400,139
     Less:  Preferred dividends                                                                   ---               ---
                                                                                        -------------     -------------

     Income available to common stockholders
       used in basic EPS                                                                      455,731           400,139

     Impact of potential common shares:
       Convertible debt                                                                        24,930             6,750

     Income available to common stockholders after
       assumed conversions of dilutive securities                                       $     480,661     $     406,889
                                                                                        =============     =============
 
   Loss from discontinued operations                                                    $         ---     $    (289,056)
                                                                                        =============     =============

DENOMINATOR

   Weighted average number of common shares
     outstanding  used in basic EPS                                                         4,528,141         2,975,427

   Impact of potential common shares:
     Stock options and warrants                                                               353,466           145,605
     Convertible debt                                                                       1,108,000           150,000
                                                                                            ---------           -------

   Weighted number of  common shares and dilutive
     potential common stock used in  dilutive EPS                                           5,989,607         3,271,032
                                                                                        ==============    =============

BASIC EPS

   Income from continuing operations                                                         $  0.101          $  0.134
   Discontinued operations                                                                        ---            (0.097)
                                                                                             --------          --------
                                                                                             $  0.101          $  0.037
                                                                                             ========          ========

DILUTED EPS

   Income from continuing operations                                                         $  0.080          $  0.124
   Discontinued operations                                                                        ---            (0.088)
                                                                                             --------          --------
                                                                                             $  0.080          $  0.036
                                                                                             ========          ========
</TABLE>



                                       18
<PAGE>




                    FORWARD INDUSTRIES, INC. AND SUBSIDIARIES

               EXHIBIT 11 - COMPUTATION OF INCOME PER COMMON SHARE

<TABLE>
<CAPTION>

                                                                                             NINE MONTHS ENDED
                                                                                                 JUNE 30,
                                                                                       ----------------------------
                                                                                            1998             1997
                                                                                            ----             ----
<S>                                                                                    <C>                <C>    
CALCULATIONS

   1.  Stock Options and Warrants
        Treasury Stock Method Applied to Stock Options and  Warrants
        Sale of common stock
           Total options and warrants outstanding                                      1,121,250          769,000
           Average price                                                                   $1.87            $1.26
                                                                                    ------------     ------------
                           Total                                                    $  2,091,719     $    694,750
                                                                                    ============     =============

        Repurchase of common stock
           Proceeds                                                                 $  2,091,719     $     694,750
            Average stock price                                                            $2.72             $1.72
                                                                                    ------------     -------------
            Shares repurchased                                                           767,784           404,395
                                                                                    ============     =============

        Net increase in shares
            Shares sold                                                                1,121,250           550,000
            Shares purchased                                                             767,784           404,395
                                                                                    ------------     -------------
            Increase in shares                                                           353,468           145,605
                                                                                    ============     =============

     Convertible debt
            Terms:
               Interest rate                                                                  10%               10%
               Par                                                                  $     10,000               N/A
               Convertible into shares                                                    20,000           150,000
               Conversion price                                                              N/A     $        1.00
               # of units                                                                   55.4               N/A
            Total debt                                                              $    554,000     $     150,000

            If-converted Method Applied to Convertible Debt
            Numerator increase - interest savings assuming
               a 40% tax rate                                                       $     24,930     $       6,760
                                                                                    ============     =============

            Denominator increase - assuming conversion                                 1,108,000           150,000
                                                                                    ============     =============


</TABLE>



                                       19