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

FORM 10-QSB





(Mark One)

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

Or

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



Commission file number 0-6669

FORWARD INDUSTRIES, INC.





|New York                                                                           | 13-1950672                          
|---------------------------------------------------------------------------------- | ------------------------------------
|(State or other jurisdiction of  
               incorporation or organization)    | (I.R.S. Employer Identification No.)
|                                                                                   |                                     
|1801 Green Rd., Suite E, Pompano Beach, FL                                         | 33064                               
|(Address of principal executive offices)                                           | (Zip Code)                          
|                                                                                   |                                     
|(954) 360-6420                                                                    
|(Issuer's Telephone Number, including Area Code)                                  
|                                                                                   |                                     
|                                                                                  
|(Former name, former address and former fiscal year, if changed since last report)

Check whether the issuer: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 June 30, 2001, 5,825,641 Shares of the issuer's Common Stock were outstanding.

Transitional Small Business Disclosure Format:   Yes [ 
]     No [X]



---



FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
FORM 10-QSB
NINE MONTHS ENDED JUNE 30, 2001
CONTENTS



|        |         |                                                                           | PAGE
|------- | ------- | ------------------------------------------------------------------------- | ----
|PART I  |         | FINANCIAL INFORMATION                                                     |     
|        |         |                                                                           |     
|        | Item 1. | Financial Statements (Unaudited)                                          |     
|        |         | Condensed Consolidated Balance Sheets as of June 30, 2001                 |     
|        |         | and September 30, 2000                                                    | 3   
|        |         |                                                                           |     
|        |         | Condensed Consolidated Statements of Operations for the Three             |     
|        |         | and Nine months ended June 30, 2001 and 2000                              | 4   
|        |         |                                                                           |     
|        |         | Condensed Consolidated Statements of Cash Flows for the Nine              |     
|        |         | months ended June 30, 2001 and 2000                                       | 5   
|        |         |                                                                           |     
|        |         | Notes to the Condensed Consolidated Financial Statements - June 30, 2001. | 6   
|        |         |                                                                           |     
|        | Item 2. | Management's Discussion and Analysis                                      | 10  
|        |         |                                                                           |     
|PART II |         | OTHER INFORMATION                                                         |     
|        |         |                                                                           |     
|        | Item 1. | Legal Proceedings                                                         | 14  
|        |         |                                                                           |     
|        | Item 2. | Changes in Securities and Use of Proceeds                                 | 14  
|        |         |                                                                           |     
|        | Item 3. | Defaults upon Senior Securities                                           | 14  
|        |         |                                                                           |     
|        | Item 4. | Submission of Matters to a Vote of Security Holders                       | 14  
|        |         |                                                                           |     
|        | Item 5. | Other Information                                                         | 14  
|        |         |                                                                           |     
|        | Item 6. | Exhibits and Reports on Form 8-K                                          | 14  
|        |         |                                                                           |     
|        |         | SIGNATURE                                                                 | 14  





---





PART I.     ITEM 1.     FINANCIAL 
STATEMENTS

FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

|                                                                                                                              | June 30,
2001            |  | September 30,
2000      
|----------------------------------------------------------------------------------------------------------------------------- | ------------------------ |  | ------------------------
|                                                                                                                              |                          |  |                         
|                                                                                                                              | (Unaudited)              |  | (Note 1)                
|                                                                                                                              |                          |  |                         
|ASSETS                                                                                                                        |                          |  |                         
|CURRENT ASSETS                                                                                                                |                          |  |                         
|Cash and cash equivalents                                                                                                     | $             1,047,500  |  | $          
     840,532
|Accounts receivable, net of allowances of $54,074 and $67,675, at June 30, 2001 and 
        September 30, 2000, respectively | 1,979,575                |  | 2,062,415               
|Inventories                                                                                                                   | 778,592                  |  | 857,082                 
|Current portion of notes and loans receivable                                                                                 | ---                      |  | 143,235                 
|Current portion of notes and loans receivable - officers                                                                      | 18,490                   |  | 319,603                 
|Prepaid expenses and other current assets                                                                                     | 420,438                  |  | 459,697                 
|Current portion of deferred income taxes                                                                                      | 135,000                  |  | 135,000                 
|Total current assets                                                                                                          | 4,379,595                |  | 4,817,564               
|                                                                                                                              |                          |  |                         
|Property, plant and equipment- net                                                                                            | 499,343                  |  | 572,177                 
|Assets held for sale                                                                                                          | 179,475                  |  | 179,475                 
|Long-term portion of notes and loans receivable - officers                                                                    | 90,316                   |  | 99,040                  
|Long-term portion of deferred income taxes                                                                                    | 1,128,940                |  | 1,209,000               
|Other assets                                                                                                                  | 43,793                   |  | 60,071                  
|                                                                                                                              |                          |  |                         
|                                                                                                                              | $          
 6,321,462   |  | $         
  6,937,327  
|                                                                                                                              |                          |  |                         
|                                                                                                                              |                          |  |                         
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                          |                          |  |                         
|CURRENT LIABILITIES                                                                                                           |                          |  |                         
|Accounts payable                                                                                                              | $           
    416,886 |  | $        
     784,950  
|Accrued payables and other current liabilities                                                                                | 288,376                  |  | 503,170                 
|Notes and acceptances payable under credit line                                                                               | 550,000                  |  | 350,000                 
|Current portion of capital lease obligations                                                                                  | 24,360                   |  | 24,360                  
|Total current liabilities                                                                                                     | 1,279,622                |  | 1,662,480               
|                                                                                                                              |                          |  |                         
|Long-term portion of capital lease obligations                                                                                | 94,477                   |  | 112,595                 
|                                                                                                                              |                          |  |                         
|Commitments                                                                                                                   |                          |  |                         
|                                                                                                                              |                          |  |                         
|STOCKHOLDERS' EQUITY                                                                                                          |                          |  |                         
|Preferred stock, 4,000,000 authorized shares, par value $.01; none issued                                                     | ---                      |  | ---                     
|Common stock, 40,000,00 authorized shares, par value $.01; 6,286,531                                                          |                          |  |                         
|shares issued (including 460,890 and 202,390 held in treasury)                                                                | 62,865                   |  | 62,865                  
|Paid-in-capital                                                                                                               | 7,679,768                |  | 7,679,768               
|Accumulated deficit                                                                                                           | (2,113,383)              |  | (2,233,479)             
|Foreign currency adjustment                                                                                                   | ---                      |  | 8,799                   
|                                                                                                                              | 5,629,250                |  | 5,517,953               
|Less: Cost of shares in treasury                                                                                              | (681,887)                |  | (355,701)               
|Total stockholders' equity                                                                                                    | 4,947,363                |  | 5,162,252               
|                                                                                                                              |                          |  |                         
|                                                                                                                              | $        
    6,321,462  |  | $          
 6,937,327  
|                                                                                                                              |                          |  |                         

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

3

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FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                                                  | Three Months Ended June 30, |  | Nine Months Ended June 30,
|--------------------------------------------------------------------------------- | --------------------------- |  | --------------------------
|                                                                                  | 2001                        |  | 2000                      
|                                                                                  |                             |  |                           
|Net sales                                                                         | $        
     2,348,083    |  | $            3,473,020    
|Cost of goods sold                                                                | 1,695,480                   |  | 2,425,829                 
|Gross profit                                                                      | 652,603                     |  | 1,047,191                 
|                                                                                  |                             |  |                           
|Operating expenses:                                                               |                             |  |                           
|Selling                                                                           | 602,935                     |  | 515,894                   
|General and administrative                                                        | 559,885                     |  | 422,327                   
|Relocation costs                                                                  | ---                         |  | 187,022                   
|Total operating expenses                                                          | 1,162,820                   |  | 1,125,243                 
|                                                                                  |                             |  |                           
|Income (loss) from operations                                                     | (510,217)                   |  | (78,052)                  
|                                                                                  |                             |  |                           
|Other income (expenses):                                                          |                             |  |                           
|Interest expense                                                                  | (5,648)                     |  | (31,606)                  
|Interest income                                                                   | 15,010                      |  | 26,203                    
|Other income (expense), net                                                       | (8,370)                     |  | 24,456                    
|Total other income (expense)                                                      | 992                         |  | 19,053                    
|                                                                                  |                             |  |                           
|Income (loss) before provision (benefit) for
    income taxes                     | (509,225)                   |  | (58,999)                  
|Provision (benefit) for income taxes                                              | (203,690)                   |  | (23,600)                  
|                                                                                  |                             |  |                           
|Net income (loss)                                                                 | $               (305,535)   |  | $              (35,399)   
|                                                                                  |                             |  |                           
|                                                                                  |                             |  |                           
|Net income (loss) per common and common                                           |                             |  |                           
|equivalent share:                                                                 |                             |  |                           
|Basic                                                                             | $                    (0.05) |  | $                   (0.01)
|                                                                                  |                             |  |                           
|Diluted                                                                           | $                    (0.05) |  | $                   (0.01)
|                                                                                  |                             |  |                           
|                                                                                  |                             |  |                           
|Weighted average number of common and
      common equivalent shares outstanding: |                             |  |                           
|Basic                                                                             | 5,825,641                   |  | 6,084,141                 
|                                                                                  |                             |  |                           
|Diluted                                                                           | 5,825,641                   |  | 6,084,141                 
|                                                                                  |                             |  |                           



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

4

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

|                                                     |  | Nine months Ended June 30,
|---------------------------------------------------- |  | --------------------------
|                                                     |  | 2001                      
|                                                     |  |                           
|OPERATING ACTIVITIES:                                |  |                           
|Net Income                                           |  | $        
   120,096      
|Adjustments to reconcile net income to net cash      |  |                           
|provided by (used in) continuing operations:         |  |                           
|Loss on sale of property and equipment               |  | 9,745                     
|Amortization of deferred debt costs                  |  | 3,054                     
|Depreciation and amortization                        |  | 99,385                    
|Deferred taxes                                       |  | 80,060                    
|Changes in assets and liabilities;                   |  |                           
|Accounts receivable                                  |  | 82,840                    
|Inventories                                          |  | 78,490                    
|Prepaid expenses and other current assets            |  | 57,494                    
|Other assets                                         |  | 13,224                    
|Accounts payable                                     |  | (368,064)                 
|Accrued expenses and other current liabilities       |  | (214,794)                 
|Accrued severance to officer                         |  | ---                       
|NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES  |  | (38,470)                  
|                                                     |  |                           
|INVESTING ACTIVITIES:                                |  |                           
|Proceeds from sale of property and equipment         |  | 15,243                    
|Proceeds from notes and loans receivable             |  | 125,000                   
|(Advances to) proceeds from officer's loans - net    |  | 309,837                   
|Purchases of property, plant and equipment           |  | (51,539)                  
|NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES  |  | 398,541                   
|                                                     |  |                           
|FINANCING ACTIVITIES:                                |  |                           
|Proceeds from (payments of) short term borrowings    |  | 200,000                   
|Principal payments on capital lease obligations      |  | (18,118)                  
|Purchase of treasury shares                          |  | (326,187)                 
|Deferred debt costs                                  |  | ---                       
|NET CASH USED IN FINANCING ACTIVITIES                |  | (144,305)                 
|                                                     |  |                           
|EFFECT OF EXCHANGE RATE CHANGES                      |  | (8,798)                   
|                                                     |  |                           
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |  | 206,968                   
|                                                     |  |                           
|CASH AND CASH EQUIVALENTS - beginning                |  | 840,532                   
|                                                     |  |                           
|CASH AND CASH EQUIVALENTS - ending                   |  | $        1,047,500        
|                                                     |  |                           

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

5

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FORWARD INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO FORM 10-QSB

NINE MONTHS ENDED JUNE 30, 2001 AND 2000
(UNAUDITED)





1.         BASIS OF PRESENTATION

> The accompanying unaudited condensed consolidated financial statements included 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 three and nine month periods ended June 30, 2001 and 2000 prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. All adjustments, including the elimination of intercompany accounts and transactions, which in the opinion of management are necessary for a fair presentation of the interim periods are of a recurring nature and have been reflected in the consolidated financial statements.
> 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 for the fiscal year ended September 30, 2000 and should be read in conjunction with the disclosures presented therein.
> 
> The balance sheet as of September 30, 2000 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements
> 
> The Company has no material components of other comprehensive income (loss) other than net income (loss).
> 
> This Quarterly Report contains forward-looking statements which involve certain risks and uncertainties. Important factors could arise, including those discussed in Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in this quarterly report on Form 10-QSB and those idenditified in
> "Risk Factors" in the Company's annual report on Form 10-KSB for the year ended September 30, 2000, which could cause the Company's future operating results to differ materially from those contained in any forward looking statement.

2.         BORROWINGS UNDER CREDIT LINE

> The Company renewed its credit facility with a bank on April 1, 2001.  The credit facility, which provides for an aggregate credit of $5.0 million including a sublimit of $3.0 million for direct borrowings and bankers acceptances, is renewable annually at the discretion of the bank and is securred by substantially all of the Company's assets. There are no formulas or restrictive covenants associated with the credit facility.  The Company is, however, required to maintain operating performance which is acceptable to the bank and eliminate borrowings for 30 consecutive days during each annual period.  The Company completed its 30 day period with no borrowings on May 15th 2001.  The credit facility bears interest at the prime rate in effect from time-to-time plus one quarter of one percent per annum.  At June 30, 2001, the Company was liable under the credit faciltiy in the amount of $550,000 for direct borrowings.

3.         INVENTORIES

Inventories consist of the following:

|                           | June 30, 2001                   | September 30, 2000           
|-------------------------- | ------------------------------- | -----------------------------
|                           |                                 |                              
|Finished goods             | $        761,526                | $        
844,710            
|Raw materials and supplies | 17,066                          | 12,372                       
|                           | $       
               778,592 | $     
               857,082
|                           |                                 |                              



6

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FORWARD INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO FORM 10-QSB

NINE MONTHS ENDED JUNE 30, 2001 AND 2000
(UNAUDITED)

4.         COMMITMENTS

> EMPLOYMENT CONTRACTS:
>      Effective January 1, 2001 the Company entered into employment agreements with three executive officers expiring at different times through December 31, 2004.  Such agreements provide for minimum salary levels, incentive bonuses and other benefits. The aggregate commitment under these agreements for future salaries at June 30, 2001, excluding bonuses and other benefits, was approximately $1,290,000.  Under certain conditions, such as a change in control of the Company, assignment to duties inconsistent with their current postions and other similar circumstances as specified in their individual agreements, the executives may be permitted to terminate their respective agreements and receive a lump sum payment equivalent to their remaining base salary plus their prior year's bonus.
> 
> ROYALTY PAYMENTS:
> The Company has licensed the use of certain trademarks of Motorola, Inc. ("Motorola") for products to be sold throughout Europe, the Middle East and Africa (the
> "EMEA Region") effective January 1, 2001.  Under the terms of the license agreement, the Company is required to pay Motorola a royalty based upon a percentage of the Company's net sales to third parties of licensed products within the EMEA Region. The license requires the Company to make minimum royalty payments to Motorola over three contract periods as follows:
>      $2.4 million for the contract period of April 1, 2001 to June 30, 2002
> $3.0 million for the contract period of July 1, 2002 to June 30, 2003
> $4.5 million for the contract period of July 1, 2003 to June 30, 2004
> 
> In June 2001 both Motorola and the Company agreed to extend the contract and the minimum royalty payments to:
>      $2.4 million for the contract period of July 1, 2001 to September 30, 2002
> $3.0 million for the contract period of October 1, 2002 to September 30, 2003
> $4.5 million for the contract period of October 1, 2003 to September 30, 2004
> 
> The Company has the ability to terminate the license at anytime during the license period, with 90 days written notice.  If terminated, the Company would be required to pay only those royalties due for the contract period in effect at the date of termination.
> 
> 7

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FORWARD INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO FORM 10-QSB

NINE MONTHS ENDED JUNE 30, 2001 AND 2000
(UNAUDITED)



5.         BUSINESS SEGMENT INFORMATION

> 

The Company operates in a single segment providing carrying solutions for portable electronic devices. The Company designs and markets its products primarily to manufacturers of electronic devices such as wireless telecommunications, medical equipment and computer manufacturers. The Company's principal decision maker monitors Company performance by geographic locations.  Geographic locations are determined based primarily on the location of the customer.   Information by geographic location is as follows:



|                              | (All amounts in thousands of dollars)
|----------------------------- | -------------------------------------
|                              | Three Months Ended June 30,          
|Sales                         | 2001                                 
|United States                 | $                1,553               
|Europe                        | 786                                  
|Other                         | 9                                    
|Total sales                   | $               2,348                
|                              |                                      
|                              |                                      
|Operating income (loss)       |                                      
|United States                 | $                  (14)              
|Europe                        | (14)                                 
|Other                         | (5)                                  
|Corporate overhead            | (477)                                
|Total operating income (loss) | $                (510)               
|                              |                                      



Identifiable Assets:

Identifiable assets by geographic segment are as follows:



(All amounts in thousands of dollars)June 30

September 30,2001

2000United States
$                   
  2,084

$                     
 1,805Europe
1,279

1,787Other
83

156Unallocated corporate
2,875

3,189Total assets
$              
       6,321

$                    
   6,937




8

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FORWARD INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO FORM 10-QSB

NINE MONTHS ENDED JUNE 30, 2001 AND 2000
(UNAUDITED)



6.          EARNINGS PER SHARE

> Basic earnings per share is computed using the weighted-average number of common shares outstanding during each period. Diluted earnings per share is computed using the weighted-average number of common and dilutive common-equivalent shares outstanding during the period. Dilutive common-equivalent shares consist of shares that would be issued upon the exercise of stock options and warrants (computed using the treasury stock method). The Company reported net losses for the three months ended June 30, 2001 and June 30, 2000 and the effects of outstanding options and warrants were not included in the calculation of diluted net loss per share for those periods, as their inclusion would be
>      anti-dilutive.



Calculation of Earnings (Loss)  Per Share is as follows:

|                                                                                    |                             |  |                            |  |                    |  |                    
|----------------------------------------------------------------------------------- | --------------------------- |  | -------------------------- |  | ------------------ |  | -------------------
|                                                                                    | Three Months Ended June 30, |  | Nine months Ended June 30,
|                                                                                    | 2001                        |  | 2000                       |  | 2001               |  | 2000               
|Numerator:                                                                          |                             |  |                            |  |                    |  |                    
|Net income (loss)                                                                   | $        (305,535)          |  | $        (35,399)          |  | $       120,096    |  | $        552,467   
|                                                                                    |                             |  |                            |  |                    |  |                    
|Denominator:                                                                        |                             |  |                            |  |                    |  |                    
|Denominator for basic income (loss) per 
         share - weighted average shares   | 5,825,641                   |  | 6,084,141                  |  | 5,935,919          |  | 6,089,974          
|Dilutive stock options and warrants - 
         treasury stock method               | **                          |  | **                         |  | 5,172              |  | 1,307,255          
|Denominator for diluted income (loss) per 
         share - weighted average shares | 5,825,641                   |  | 6,084,141                  |  | 5,941,091          |  | 7,397,229          
|                                                                                    |                             |  |                            |  |                    |  |                    
|                                                                                    |                             |  |                            |  |                    |  |                    
|Net income (loss) per common share                                                  |                             |  |                            |  |                    |  |                    
|Basic                                                                               | $           (0.05)          |  | $           (0.01)         |  | $            
0.02 |  | $             
0.09
|                                                                                    |                             |  |                            |  |                    |  |                    
|Diluted                                                                             | $           (0.05)          |  | $           (0.01)         |  | $            
0.02 |  | $             
0.07
|                                                                                    |                             |  |                            |  |                    |  |                    

** Not included because the inclusion of such shares would be antidilutive.

9

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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 Condensed Consolidated Financial Statements and the notes thereto appearing elsewhere in this Report.  This Report contains statements that 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, (including those identified in
"Risk Factors" in the Company's Form 10-KSB for the year ended September 30, 2000) and that actual results may differ materially from the statements that constitute 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, 2001, and the Three and Nine months ended June 30, 2000.

Overview.





Three Months ended June 30, 2001 (the "2001 Quarter") Compared to Three Months ended June 30, 2000 (the
"2000 Quarter")

The Company's net loss increased by $271,000 to  $306,000 in the 2001 Quarter as compared to a net loss of $35,000 in the 2000 Quarter.  The resulting loss per share was $0.05 in the 2001 Quarter as compared to a loss per share of $0.01 in the 2000 Quarter.

Revenues.

Sales decreased by $1,125,000 or 32% to $2,348,000 in the 2001 Quarter, from $3,473,000 in the 2000 Quarter.  Sales to the Company's two largest customers, Motorola and Abbot Laboratories (including their affiliates and subsidiaries), were approximately $1.2 million less in the 2001 Quarter than in the 2000 Quarter and accounted for virtually all of the sales decrease.  These two customers have historically comprised approximately 65% of the Company's revenues. The Company believes that such wide fluctuations  in demand for the Company's products by these customers are caused by the timing of product launches, management of inventory levels and general economic conditions affecting their markets.

Operating Expenses

The Company's gross profit declined by $394,000 or 38% to $653,000 in the 2001 Quarter from $1,047,000 in the 2000 Quarter.  The decline in gross profit relates directly to the lower sales volume.  As a percentage of sales, gross profit decreased to 28% in the 2001 Quarter from 30% in the 2000 Quarter primarily due to  fixed costs of the Company's Hong Kong operations .

Selling expenses increased $87,000 or 17% to $603,000 in the 2001 Quarter from $516,000 in the 2000 Quarter. The increase was due to higher personnel, travel and recruiting expenses, which were partially offset by lower sales commissions.   The ratio of selling expenses to net sales increased to 26% from 15% due to the lower sales volume and higher selling expenses.  Management expects selling expenses to increase significantly in future quarters due to royalty fees associated with the Motorola licensing agreement and other expenses related to the Company's plan to expand its European sales capabilities.  Beginning with the Company's fourth fiscal quarter (July-September 2001), the Company expects to incur royalty fees of at least $480,000 per quarter plus additional operating costs associated with its expanding European operations.

10

---



General and administrative expenses increased by $138,000 or 33% to $560,000 from $422,000 in the 2000 Quarter.  The increase is due primarily to higher professional fees, including approximately $80,000 of one-time fees paid to establish a European operating subsidiary.  Management expects that recurring general and administrative expenses will increase in future quarters as necessary to operate and maintain the European subsidiary.

The Company expensed approximately $187,000 in the 2000 Quarter associated with consolidating its offices from New York and Indiana to Florida.  There were no such expenses incurred in the 2001 Quarter.

Consolidated pretax losses from operations increased by $432,000, to a loss of $510,000 in the 2001 Quarter from a loss of $78,000 in the 2000 Quarter  as a result of the factors discussed above.

Other Income (Expense).

Interest expense decreased $26,000 to $6,000 in the 2001 Quarter from $32,000 in the 2000 Quarter because of lower interest rates and lower average borrowings by the Company under its credit line.  Interest income decreased $11,000 to $15,000 from $26,000 due to lower balances on notes receivable and officer's loans.  Other income, net of other expense, decreased $33,000 to a net loss of $8,000 from a net gain of $25,000 in the 2000 Quarter.  The $8,000 expense in the 2001 Quarter relates primarily to a loss on the disposal of assets.

Income Taxes.

Larger operating losses in the 2001 Quarter increased the income tax benefit by $180,000 to $204,000 from $24,000 in the 2000 Quarter.  The effective tax rates for the 2001 and 2000 Quarters were 40%.

Nine months ended June 30, 2001 (the "2001 Period") Compared to Nine months ended June 30, 2000 (the
"2000 Period")

Net income declined by $432,000 to $120,000 in the 2001 Period as compared to net income of $552,000 in the 2000 Period.  Basic and diluted earnings per share from continued operations decreased to $0.02 in the 2001 Period from $0.09 and $0.07 in the 2000 Period, respectively.

Revenues.

Sales fell $2,608,000 or 21% to $9,906,000 in the 2001 Period, from $12,514,000 in the 2000 Period.  U.S. sales decreased 14% or approximately $694,000 to $4,368,000 in the 2001 Period from $5,062,000 in the 2000 Period and reflect lower overall sales to Abbott Laboratories as they adjusted their inventory levels.  European sales declined 25% or approximately $1,849,000 to $5,508,000 in the 2001 Period from $7,357,000 in the 2000 period.  The difference is due primarily to a large order placed by Motorola in connection with a single product in the first quarter of the 2000 Period. Sales to the Company's two largest customers, Motorola and Abbott Laboratories, totaled approximately $6,658,000 in the 2001 period as compared to $8,733,000 in the 2000 Period and continue to represent the majority of the Company's revenue.

Operating Income.

The Company's gross profit decreased by $742,000 or 18% to $3,389,000 in the 2001 Period from $4,131,000 in the 2000 Period, while the gross margin percentage increased to 34% in the 2001 Period from 33% in the 2000 Period. The higher gross margin percentage is largely a result of reduced expenses due to the Company's closure of its South Bend facilities and lower freight costs in the first quarter of 2001.

Selling expenses increased $95,000 or 6% to $1,645,000 in the 2001 from  $1,550,000 in the 2000 Period.  The increase was attributable to higher personnel, recruitment and travel expenses, which were partially offset by lower sales commissions.  The ratio of selling expenses to net sales increased to 17% in the 2001 Period from 12% in the 2000 Period due to the lower sales volume and slightly higher operating expenses.

General and administrative expenses decreased $52,000 or 3% to $1,583,000 in the 2001 period from $1,635,000 in the 2000 Period.  The decrease is primarily related to lower personnel and travel expenses which were partially offset by higher professional fees.  As a percentage of net sales, general and administrative expenses increased to approximately 16% of sales in the 2001 Period up from 13% in the 2000 Period  due primarily to the lower sales volume in the 2001 Period.

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The Company expensed approximately $187,000 in the 2000 Period associated with consolidating its offices from New York and Indiana to Florida.  There were no such expenses incurred in the 2001 Period.

Consolidated pretax income from operations decreased by $598,000 to a profit of $161,000 in the 2001 Period from $759,000 in the 2000 Period as a result of the factors discussed above.



Other Income (Expense).

I

Income Taxes.

The provision for income taxes decreased by $122,000 to $80,000 in the 2001 Period from $202,000 in the 2000 Period due to lower pre-tax profits in 2001 Period.  The effective tax rates for the 2000 and 2001 Periods were 27% and 40%, respectively.



Liquidity and Capital Resources.

In the 2001 Period, $38,000 of cash was used in operating activities.  This primary components of the change were the decreases in accounts payable of $368,000 and accrued expenses of $215,000.  Those amounts were offset by net income of $120,000, the decreases in accounts receivable of $83,000, and inventories of $78,000, combined with the add the add back of non-cash charges for depreciation of $99,000 and the increase in the deferred tax asset of $80,000.











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Effective January 1, 2001, the Company entered into employment
agreements with three executive officers expiring at different times through December 31, 2004.  Such agreements provide for minimum salary levels, incentive bonuses and other benefits. The aggregate commitment under these agreements for future salaries at June 30, 2001, excluding bonuses and other benefits, was approximately $1,290,000.  Under certain conditions such as a change in control of the Company, assignment to duties inconsistent with their current
positions and other similar circumstances as specified in their individual agreements, the executives may be permitted to terminate their respective agreements and receive a lump sum payment equivalent to their remaining base salary plus their prior year's bonus.

The Company has licensed the use of certain trademarks of Motorola, Inc. ("Motorola") for products to be sold throughout Europe, the Middle East and Africa (the
"EMEA Region") effective January 1, 2001.  Under the terms of the license agreement, the Company is required to pay Motorola a royalty based upon a percentage of the Company's net sales to third parties of licensed products within the EMEA Region. The license requires the Company to make minimum royalty payments to Motorola over three contract periods as follows:

> $2.4 million for the contract period of April 1, 2001 to June 30, 2002
>           $3.0 million for the contract period of July 1, 2002 to June 30, 2003
>           $4.5 million for the contract period of July 1, 2003 to June 30, 2004In June 2001 both Motorola and the Company agreed to extend the contract and the minimum royalty payments to:
>      $2.4 million for the contract period of July 1, 2001 to September 30, 2002
>           $3.0 million for the contract period of October 1, 2002 to September 30, 2003
>           $4.5 million for the contract period of October 1, 2003 to September 30, 2004

If the Company elects to terminate the license before Sep 30, 2004, the Company would be required to pay the royalty due for the contract period in effect at the date of cancellation.  Motorola has not guaranteed a minimum amount of revenues the Company will receive from the sale of the licensed products, and the Company can not guarantee that it will generate sufficient revenues to recoup the minimum royalty payments that the Company is obligated to pay to Motorola.  The failure to do so could have a material adverse affect on the Company's results of operations.  As of June 30, 2001, the Company has not completed any sales of the licensed products within the EMEA region to third parties and therefore has not recognized any expense associated with the royalty.

Deferred Income Taxes.

The Company's balance sheet at June 30, 2001 includes a $1,264,000 deferred tax asset. The Company was profitable in the 2000 Period and, in fiscal year 1999 and in fiscal year 1998 before restructuring charges associated with the non-recurring costs of the shutdown of its South Bend plant.  However, to the extent that the Company's operations may not be 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, 2001, the Company's stockholder's equity at such date of $5,629,000 would have been reduced to a stockholder's equity of $4,365,000 and the Company's working capital at June 30, 2001 would have been reduced by $135,000 from $3,100,000 to $2,965,000. The Company believes that it is more likely than not that the deferred tax asset will be realized.

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PART II.        OTHER INFORMATION

ITEM 1.         LEGAL PROCEEDINGS

> None.

ITEM 2.         CHANGES IN SECURITIES

> None.

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

> (a)     Exhibits filed herewith:
> 
> None
> 
> (b)     Reports on Form 8-K
> 
> The Company filed a Current Report on Form 8-K on May 1, 2001 reporting a change in its Certifying Accountants.

SIGNATURE





In accordance with 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 10, 2001

FORWARD INDUSTRIES, INC.(Registrant)By: /s/      
               Douglas W. SabraDouglas W. SabraChief Financial Officer






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