Pretty sure that this a possible scenario in this case, especially if the LCYB-Visolis private JV decides to RM into the BIOA(Q). This would be a smart play and very possible outcome once we see plan of arrangement. The asset sale was a preliminary part of the sales process according to the monitors reports.
What are NOL shells?: So, first things first, what are NOL shells? A NOL shell is essentially a company that previously incurred substantial losses over an extended period of time and currently has no business activity. In the U.S., if a company generates a net loss in a period, it is allowed to "carryback" the loss two years (assuming it was profitable in the prior two years) and get a tax break or it can carry the losses forward for 20 years to offset future taxable income-hence the term "net operating loss carryforwards".
Net operating losses that are carried forward are recorded on the balance sheet as deferred tax assets (DTA). The DTA will allow profitable companies to offset future income against the DTA. So assuming the 35% corporate tax in the U.S., a $100 NOL will have a deferred tax asset value of $35, which will be able to offset future tax expense. Under U.S. GAAP, if it is unlikely that a DTA will be utilized (because there will be no future taxable income), then a portion or all of the DTA balance must be written down with a valuation allowance.
The most common type of companies that become NOL shells are biotech companies. These companies spend millions on R&D and rarely, if ever, profits. Many eventually give up on their R&D efforts and decide to liquidate. However, for savvy investors, these types of companies are exactly what you're looking for. These companies have often incurred millions of NOLs and trade for a fraction of the related DTA value. Just think about the implications of using a NOL shell as an acquisition vehicle and not having to pay taxes on your returns!-that's the basic gist of how NOL shells can be very attractive investments.
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