Forward Industries, Inc. Income Taxes Disclosure

NOTE 10      INCOME TAXES

 

The following table summarizes the Company’s consolidated provision from continuing operations for U.S. federal, state and foreign taxes on income: 

Schedule of tax provision
		Fiscal 2025				Fiscal 2024
Current:
Federal		$	–			$	–
State			20,000				23,000
Foreign			–				–
Deferred:
Federal			(34,854,000	)			(141,000	)
State			(6,819,000	)			(71,000	)
Foreign			337,000				(16,000	)
Deferred income tax expense (benefit)			(41,316,000	)			(205,000	)
Change in valuation allowance			41,336,000				228,000
Income tax provision		$	20,000			$	23,000

 

The deferred tax provision 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: 

Schedule of deferred tax assets and liabilities
		September 30,
		2025				2024
Deferred tax assets
Net operating losses		$	4,026,000			$	3,586,000
Share-based compensation			976,000				269,000
Reserves and other allowances			386,000				388,000
Lease liability			638,000				702,000
Accrued compensation			61,000				32,000
Intangible assets			117,000				–
Accrued related party interest			–				5,000
Unrealized gains/losses			40,092,000				–
Charitable contributions			1,000				1,000
Interest expense limitation			66,000				82,000
Total deferred tax assets			46,363,000				5,065,000
Deferred tax liabilities
Depreciation			(5,000	)			(11,000	)
Prepaid expenses			(137,000	)			(41,000	)
Intangible assets			–				(64,000	)
Operating lease right-of-use assets			(578,000	)			(642,000	)
Total deferred tax liabilities			(720,000	)			(758,000	)
Valuation allowance			(45,643,000	)			(4,307,000	)
Net deferred tax assets		$	–			$	–

 

The Company recorded a provision for income taxes which includes net expense of $20,000 and $23,000 in Fiscal 2025 and Fiscal 2024, respectively, primarily for state income tax expenses in states where net operating loss carryforwards (“NOLs”) were not available.

 

At September 30, 2025, the Company had available NOLs for U.S. federal income tax purposes of $15,776,000 and NOLs for state income tax purposes of $9,711,000. 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 of $3,313,000 with respect to U.S. federal income taxes and $713,000 for state income taxes. Total net deferred tax assets, before valuation allowance, were $45,643,000 and $4,307,000 at September 30, 2025 and 2024, respectively.

 

At September 30, 2025, 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. Accordingly, the Company has determined to maintain a full valuation allowance against its net deferred tax assets. At September 30, 2025 and 2024, the valuation allowance was $45,643,000 and $4,307,000, respectively. In the future, the utilization of the Company’s NOLs may be subject to certain change of control limitations as described below. 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.

 

Utilization of NOLs may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 (the “Code”) due to ownership change limitations that have occurred previously or that could occur in the future. These ownership changes may limit the amount of NOLs that can be utilized annually to offset future taxable income. An ownership change pursuant to the Code generally occurs if one or more shareholders or groups of shareholders who own at least 5% of a company’s stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. The Company’s ability to utilize its NOLs and other tax attributes to offset future taxable income or tax liabilities may be limited as a result of ownership changes, including potential changes in connection with the Securities Purchase Agreement (Note 8) or other transactions. Similar rules may apply under state tax laws.

 

Additionally, Section 382 requires companies to satisfy the “continuity of business enterprise” in order to utilize pre-change tax attributes, which requires the continuance of at least one significant historic line of business or the usage of a significant portion of historic assets in a business. Failure to meet these requirements not only affects the ability to utilize NOLs, but may also result in limitations or forfeiture of other deferred tax assets.

 

The Company has engaged external tax experts to perform a comprehensive Section 382 study, but as of the date of this filing, this study has not been completed and therefore, the effects of any Section 382 limitations on the utilization of NOLs cannot be determined as of the date of this filing. If the Company earns taxable income, such limitations could result in an increased future income tax liability, and its future cash flows could be adversely affected.

 

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: 

Schedule of reconciliation of effective tax rate
		Fiscal 2025				Fiscal 2024
U.S. federal statutory rate			21.0%				21.0%
State tax rate, net of federal benefit			4.0%				2.1%
Foreign rate differential			0.0%				0.7%
Tax return to provision adjustments			(0.1%	)			(14.3%	)
Effect of state tax rate change			0.1%				1.9%
Change in valuation allowance			(24.8%	)			(12.6%	)
Permanent differences			(0.2%	)			(0.1%	)
Effective tax rate			0.0%				(1.3%	)

 

 

At September 30, 2025 and 2024, the Company had no significant uncertain tax positions or related interest or penalties requiring accrual. 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, 2022, are closed to federal and state examination.

 

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted. The OBBBA introduced multiple tax law and other legislative changes, including modifications to income tax provisions such as domestic research and development expenses, capital expenditures, and U.S. taxation of international earnings. The OBBBA is not expected to materially impact the Company’s effective tax rate or cash flows for Fiscal 2025 or future periods.