38264--11/29/2007--FORWARD_INDUSTRIES

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e have to date been unable to conclude a new license agreement with Motorola; we are unable to predict if or when a new or extended agreement will be offered on terms acceptable to us; the absence of a renewal or extended license could have a material and adverse effect on our results of operations and financial condition. Our business is and has been characterized by a high degree of customer concentration. Our three largest customers accounted for approximately 72% , 65% and 79% of net sales in Fiscal 2007, Fiscal 2006 and Fiscal 2005, respectively; the loss of, or material reduction in orders from, any of these customers could materially and adversely affect our results of operations and financial condition. At any time, a significant percentage of our accounts receivable risk may be concentrated in a small number of customers. Our inventory levels increased during Fiscal 2006 and may remain at historically high levels in future periods, primarily as a result of the support of hub agreements recently entered into with two large OEM customers. We experienced severe erosion in our OEM product sales margins during Fiscal 2006 and this has continued in Fiscal 2007, and it is not clear when these margins will begin to improve. We continue to encounter pressures from certain OEM customers to constrain or even roll back prices. Our business could suffer if the services of any of the key personnel we rely on were lost to us. Our results of operations are subject to the risks of fluctuations in the values of foreign currencies relative to the U.S. Dollar; for example, if the recent trend of appreciation of the Chinese renminbi, in which a significant portion of our suppliers costs are denominated, and depreciation of the US Dollar, in which most of our revenues are denominated, continues, our gross margins will be subject to further pressure. Future revenues are difficult to predict and are likely to show significant variability as a consequence of customer concentration. Our gross margins, and therefore our profitability, vary considerably by customer and therefore across our product lines, and if the relative revenue contribution from one or more OEM customers changes materially, relative to total revenues, our gross profit percentage may decline. Product manufacture is increasingly being outsourced by our OEM customers to contract manufacturing firms in China and in Southeast Asia Under our license agreement with Motorola we may become liable for certain indemnification or other liabilities and become exposed to certain risks. Payment by or on behalf of our customers of accounts receivable originated in China or other Asian nations may be subject to local regulations or moratorium that restrict the right to convert foreign currencies into U.S. dollars, that prevent, delay, or restrict the ability to repatriate U.S. dollars to the United States. Our dependence on foreign manufacturers creates product cost, pricing, availability, quality control, and delivery risks. Our shipments of products via container freight to customers in the United States and Europe are subject to delays or cancellation due to work stoppages or slowdowns, damage to port facilities caused by weather or terrorism, and congestion due to inadequacy of port terminal equipment and other causes. The carrying solutions business is highly competitive and does not pose significant barriers to entry. We do not pay dividends on our common stock. Because of the control by insiders of 11% of our common stock, your ability to influence actions taken by us may be limited. We have in place anti If the license agreement with Motorola is renewed, we may be obligated to pay substantial minimum royalties without a guarantee of minimum sales. If our common stock were to be de-listed from the NASDAQ SmallCap Market, the existing market prices for and liquidity of our common stock may decline.

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38264--11/29/2007--FORWARD_INDUSTRIES_INC