INCOME TAXES

12 Months Ended

Sep. 30, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 10      INCOME TAXES

The following table summarizes the Company’s consolidated provision/(benefit) for U.S. federal, state and foreign taxes on income:  

	Fiscal 2021			Fiscal 2020
Current:
Federal	$	–		$	(4,000	)
State		–			13,000
Foreign		–			–
Deferred:
Federal		(506,000	)		414,000
State		(47,000	)		82,000
Foreign		(146,000	)		283,000
		(699,000	)		788,000
Change in valuation allowance		699,000			(779,000	)
Income tax provision/(benefit)	$	–		$	9,000

The deferred tax provision/(benefit) is the change in the deferred tax assets and liabilities representing the tax consequences of changes in the amounts of temporary differences, net operating loss carryforwards and changes in tax rates during the fiscal year. The Company’s deferred tax assets and liabilities are comprised of the following: 

	September 30,
	2021			2020
Deferred tax assets
Net operating losses	$	2,093,000		$	1,812,000
Share-based compensation		175,000			180,000
Excess tax over book basis in inventory		43,000			20,000
Reserves and other allowances		569,000			155,000
Accrued compensation		15,000			70,000
Depreciation		–			31,000
Interest expense limitation		40,000			–
Other items		16,000			21,000
Total deferred tax assets		2,951,000			2,289,000
Deferred tax liabilities
Depreciation		(18,000	)		–
Prepaid expenses		(131,000	)		(58,000	)
Intangible assets		(216,000	)		(245,000	)
481 Election (IPS)		–			(99,000	)
Total deferred tax liabilities		(365,000	)		(402,000	)
Valuation allowance		(2,586,000	)		(1,887,000	)
Net deferred tax assets	$	–		$	–

The Company recorded a provision for income taxes which includes net expense of $0 and $9,000 in Fiscal 2021 and 2020, respectively. The Fiscal 2020 net expense of $9,000 includes state income tax expenses of $13,000, partially offset by a $4,000 refund of the remaining unused balance of alternative minimum tax (“AMT”) credits. Under the Tax Cuts and Jobs Act of 2017, AMT was repealed. The tax code in turn provided for a refund of the tax credits that existed on December 31, 2017 at a 50% rate in tax years 2018, 2019 and 2020, with any remaining credits being fully refundable in 2021. The CARES Act allowed corporations to immediately claim unused AMT credits on their 2019 tax return. State income tax expense was the result of taxable income in states where net operating loss carryforwards (“NOLs”) were not available.

At September 30, 2021, the Company had available net NOLs for U.S. federal income tax purposes of $7,220,000 and NOLs for state income tax purposes of $1,000,000. NOLs generated prior to 2018 expire beginning in 2031 while NOLs generated after 2018 have an indefinite carryforward period. The NOLs result in a deferred tax asset with respect to U.S. federal income taxes of $1,790,000. In addition, at September 30, 2021, the Company had available NOLs for foreign income tax purposes of $1,427,000, resulting in a deferred tax asset of $260,000, expiring through 2024. Total net deferred tax assets, before valuation allowance, were $2,586,000 and $1,887,000 at September 30, 2021 and 2020, respectively. Undistributed earnings of the Company's foreign subsidiaries are considered permanently reinvested; therefore, in accordance with U.S. GAAP, no provision for U.S. federal and state income taxes would result. In Fiscal 2021, Forward Switzerland had a net loss for tax purposes of $25,000 and Forward UK had net income for tax purposes of $10,000.

At September 30, 2021, as part of its periodic evaluation of the necessity to maintain a valuation allowance against its deferred tax assets, and after consideration of all factors, including, among others, projections of future taxable income, current year NOL utilization and the extent of the Company's cumulative losses in recent years, the Company determined that, on a more likely than not basis, it would not be able to use remaining deferred tax assets, except with respect to the U.S. federal income taxes in the event the Company elects to effect repatriation of certain foreign source income of Forward Switzerland, which income is currently considered to be permanently reinvested and for which no U.S. tax liability has been accrued. Accordingly, the Company has determined to maintain a full valuation allowance against its net deferred tax assets. At September 30, 2021 and 2020, the valuation allowance was $2,586,000 and $1,887,000, respectively. In the future, the utilization of the Company's NOLs may be subject to certain change of control limitations. If the Company determines that it will be able to use some or all of its deferred tax assets in a future reporting period, the adjustment to reduce or eliminate the valuation allowance would reduce its income tax expense and increase after-tax income.

The significant elements contributing to the difference between the U.S. federal statutory tax rate and the Company’s effective tax rate are as follows: 

	Fiscal 2021			Fiscal 2020
U.S. federal statutory rate		21.0%			21.0%
State tax rate, net of federal benefit		(8.3%	)		(1.9%	)
Foreign rate differential		(2.6%	)		(14.9%	)
Tax return to provision adjustments		(78.8%	)		(12.7%	)
Effect of state tax rate change		(7.8%	)		1.5%
Change in valuation allowance		129.9%			41.1%
State income taxes		0.0%			(0.7%	)
Permanent differences		(53.4%	)		(33.9%	)
Effective tax rate		0.0%			(0.5%	)

In December 2020, the Company received approval of its application for forgiveness of its note payable related to the Paycheck Protection Program (the “PPP loan”) in the aggregate principal amount of $1,357,000, which will not be recognized as taxable income pursuant to the CARES Act. Pursuant to the Consolidated Appropriations Act, 2021, which was enacted by Congress and signed into law by the President on December 27, 2020, all expenses utilizing funds from PPP loans will be deductible against taxable income.

At September 30, 2021 and 2020, the Company had not accrued any interest or penalties related to uncertain tax positions. It is the Company's policy to recognize interest and/or penalties, if any, related to income tax matters in income tax expense in the consolidated statements of operations. For the periods presented in the accompanying consolidated statements of operations, no material income tax related interest or penalties were assessed or recorded. All fiscal years prior to the fiscal year ended September 30, 2018 are closed to federal and state examination.