Here is the breakdown in layman’s words: The **Note 9 – Income Taxes** section from the company's financial statements is basically explaining a big pile of past tax losses and why the company isn't counting on them to save money on taxes in the future (at least not on the books right now). Here's a simple breakdown in everyday language:
1. **The company has a lot of past losses**
As of September 30, 2025, the company has built up about **$115 million in net operating losses (NOLs)**.
Think of NOLs like a coupon or credit from the IRS: If the company loses money in one year (spends/deducts more than it earns), that loss can be "carried forward" to lower taxes in future profitable years. Instead of paying taxes on $10 million of profit, you might only pay on $2 million if you apply $8 million of old losses.
2. **These losses create a "deferred tax asset" on paper**
In accounting, those $115 million in NOLs are treated as an asset because — in theory — they could reduce future tax bills (a future cash savings).
The value of that asset would be roughly the NOL amount × the corporate tax rate (e.g., at 21% federal rate, maybe ~$24 million in potential tax savings).
3. **But the company thinks it's unlikely they'll actually get to use them**
Accounting rules (under something called ASC 740) say you can only keep that tax-savings "asset" on the balance sheet if it's **more likely than not** (better than 50/50 chance) that the company will actually generate enough **future taxable profits** to use up those old losses before they expire or become useless.
The company looked at:
- Expected future profits (projections)
- Any scheduled reversals of other tax items
- Possible tax-planning moves
Their conclusion: **It's not more likely than not** that they'll make enough profit to use all (or maybe even most) of those NOLs.
? So they put a **full valuation allowance** against the entire deferred tax asset related to these NOLs.
In plain terms: They wrote it down to **$0** on the balance sheet. It's like saying, "We have this big coupon stack, but we're pretty sure we'll never get to spend it, so we're not counting it as real savings."
This is very common for companies that have been losing money for a while — investors often see a full valuation allowance as a red flag that profitability is still uncertain or far off.
4. **There's an extra risk if the company gets bought or has a big ownership change**
Under U.S. tax law (Internal Revenue Code sections like 382, and mentions §381 here), if there's a major shift in who owns the company (e.g., someone buys more than ~50% control through stock purchases, merger, etc.), the old NOLs can get **capped** or severely limited.
- The government doesn't want people buying shell companies just to "buy" their tax-loss carryforwards cheaply.
- After such a change, the amount of NOL you can use each year is often limited to something like (value of the company right before the change) × (a government-set interest rate).
- In many cases, especially for smaller or loss-making companies, this cap makes the NOLs much less valuable (or almost worthless) going forward.
**Bottom line in super simple terms:**
The company has piled up $115 million in tax-loss credits from past unprofitable years. But because they don't expect to make big profits anytime soon (or ever, in amounts big enough to use it all), accounting rules force them to say "this asset is worth $0" on their books right now — they've reserved 100% against it. Plus, if the company gets sold or taken over in a big way, the government might slap even stricter limits on using those losses anyway.
This note is basically the company being conservative and transparent: "We have these potential tax breaks, but don't count on them helping our cash flow much — at least not yet."
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