Annual report [Section 13 and 15(d), not S-K Item 405]

Income Taxes

v3.26.1
Income Taxes
 12 Months Ended
May 31, 2026
Income Taxes  
Income Taxes

Note 8. Income Taxes

Income (loss) before provision for income taxes was $(42.7) million and $3.7 million for the years ended May 31, 2026 and 2025, respectively, all of which was generated in the United States.

The Company’s provision for income taxes consists of the following:

 

 

 

Years Ended May 31,

 

 

 

2026

 

 

2025

 

Current:

 

 

 

 

 

 

 

 

Federal

 

$

 

—

 

 

$

 

—

 

State

 

 

 

—

 

 

 

 

—

 

Total Current

 

 

 

—

 

 

 

 

—

 

Deferred:

 

 

 

 

 

 

 

 

Federal

 

 

 

7,237

 

 

 

 

(2,433

)

State

 

 

 

—

 

 

 

 

—

 

Change in valuation allowance

 

 

 

(7,237

)

 

 

 

2,433

 

Total deferred

 

 

 

—

 

 

 

 

—

 

Total income tax benefit (expense)

 

$

 

—

 

 

$

 

—

 

 

The Company’s provision for income tax differs from the amount computed by applying the statutory federal income tax rate to income before taxes after the adoption of ASU 2023-09 as follows:

 

 

Years Ended May 31,

 

 

 

 

2026

 

 

 

 

(in thousands)

 

 

Percent

 

 

U.S. federal statutory tax rate

 

 

(8,967

)

 

 

21.0

 

%

Changes in valuation allowance

 

 

7,237

 

 

 

(16.9

)

 

Non-taxable or non-deductible items

 

 

 

 

 

 

 

Non-deductible debt issuance costs

 

 

410

 

 

 

(1.0

)

 

Non-deductible interest on convertible notes

 

 

523

 

 

 

(1.2

)

 

Stock compensation

 

 

2

 

 

 

(0.0

)

 

Other

 

 

3

 

 

 

(0.0

)

 

Other

 

 

 

 

 

 

 

Stock compensation

 

 

792

 

 

 

(1.9

)

 

Total provision for income taxes

 

 

-

 

 

 

(0.0

)

%

 

The Company's provision for income tax differs from the amount computed by applying the statutory federal income tax rate to income before taxes prior to the adoption of ASU 2023-09 as follows:

 

 

 

Years ended May 31,

 

 

 

 

2025

 

 

Statutory federal income tax rate

 

 

21.0

 

%

Derivative loss

 

 

4.8

 

 

Non-deductible debt issuance costs

 

 

(2.3

)

 

Non-deductible interest on convertible notes

 

 

24.8

 

 

Non-deductible loss on induced conversion

 

 

6.6

 

 

Non-deductible debt discount amortization

 

 

2.3

 

 

Stock Compensation

 

 

6.2

 

 

NOL expiration

 

 

1.5

 

 

Other

 

 

0.0

 

 

Valuation allowance

 

 

(64.9

)

 

Total provision for income taxes

 

 

0.0

 

%

 

 

As of May 31, 2026 and 2025, the net deferred tax assets consisted of the following:

 

 

 

As of May 31,

 

 

 

2026

 

 

2025

 

Deferred tax assets:

 

 

 

 

 

 

 

 

Net operating loss

 

$

 

102,730

 

 

$

 

97,626

 

Credits

 

 

 

2,063

 

 

 

 

2,063

 

ASC 718 expense on non-qualified stock options

 

 

 

2,146

 

 

 

 

2,724

 

Accrued expenses

 

 

 

3,438

 

 

 

 

272

 

Lease liability

 

 

 

16

 

 

 

 

30

 

Inventory charges

 

 

 

6,173

 

 

 

 

6,173

 

Inventory write-off

 

 

 

1,767

 

 

 

 

1,953

 

Contingent liability

 

 

 

9,150

 

 

 

 

9,150

 

Issued warrants

 

 

 

3,169

 

 

 

 

2,901

 

Section 174 R&D costs

 

 

 

2,695

 

 

 

 

3,179

 

Amortization

 

 

 

103

 

 

 

 

155

 

Fixed assets

 

 

 

5

 

 

 

 

4

 

Other

 

 

 

—

 

 

 

 

—

 

Total gross deferred tax asset

 

 

 

133,455

 

 

 

 

126,230

 

Less valuation allowance

 

 

 

(133,440

)

 

 

 

(126,203

)

Total deferred tax assets

 

 

 

15

 

 

 

 

27

 

Deferred tax liabilities:

 

 

 

 

 

 

 

 

Right-of-use asset

 

 

 

(15

)

 

 

 

(27

)

Total deferred tax liabilities

 

 

 

(15

)

 

 

 

(27

)

Net deferred tax asset (liability)

 

$

 

—

 

 

$

 

—

 

 

Valuation allowances are established when necessary to reduce deferred tax assets, including temporary differences and net operating loss carryforwards, to the amount expected to be realized in the future. FASB guidance indicates that forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses in recent years. The Company had cumulative losses from continuing operations in the United States for the three-year period ended May 31, 2026. The Company considered this negative evidence along with all other available positive and negative evidence and concluded that, at May 31, 2026, it is more likely than not that the Company’s U.S. deferred tax assets will not be realized. As of May 31, 2026, a valuation allowance has been recorded on the Company’s deferred tax assets to recognize only the proportion of the deferred tax asset that is more likely than not to be recognized. The Company’s total valuation allowance was $133.4 million at May 31, 2026 and $126.2 million at May 31, 2025. The Company’s valuation allowance increased $7.2 million and decreased $2.4 million during the fiscal years ended May 31, 2026 and 2025, respectively. A reconciliation of the beginning and ending amount of the valuation allowance is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

May 31, 2026

 

 

May 31, 2025

 

Valuation allowance at beginning of year

 

$

 

126,203

 

 

$

 

128,636

 

Change in valuation allowance

 

 

 

7,237

 

 

 

 

(2,433

)

Valuation allowance at end of year

 

$

 

133,440

 

 

$

 

126,203

 

 

As of May 31, 2026, the Company had cumulative federal net operating losses of approximately $489.2 million. Of these losses, $78.6 million were generated in 2012 through 2017, prior to the Tax Cuts and Jobs Act enactment, and will expire between fiscal 2032 to fiscal 2037 if not utilized. The remaining net operating losses have an indefinite carryforward period. As of May 31, 2025, the Company had cumulative federal net operating losses of approximately $464.9 million.

As of May 31, 2026, the Company had a $2.1 million deferred tax asset related to a federal research and development credit carryforward. If not utilized, the credits will expire between fiscal 2034 through fiscal 2037. As of May 31, 2025, the Company had a $2.1 million deferred tax asset related to a federal research and development credit carryforward.

As of May 31, 2026, the U.S. tax returns for fiscal year 2005 through fiscal year 2025 remain subject to examination. Annual tax provisions include amounts considered necessary to pay assessments that may result from examination of prior year tax returns; however, the amount ultimately paid upon resolution of issues may differ materially from the amount accrued. As of May 31, 2026, there are no income tax returns currently under audit.

On July 4, 2025, the One Big Beautiful Bill Act was signed into law. The OBBBA includes a broad range of tax reform provisions affecting businesses, including extending and modifying certain key Tax Cuts & Jobs Act provisions (both domestic and international), expanding certain Inflation Reduction Act incentives while accelerating the phase-out of others. The Company has accounted for the impact of the applicable OBBBA provisions in its consolidated financial statements for 2025.