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12. Income taxes
 3 Months Ended
May 31, 2026
Income Tax Disclosure [Abstract]  
12. Income taxes

12.      Income taxes

 

For the three months ended May 31, 2026 and 2025, our income tax provision was a benefit of $13,515 and an expense of $148,988, respectively. The effective tax rate for the three months ended May 31, 2026 and 2025 was approximately (6)% and 57%, respectively.

 

Income tax expense or benefit for interim periods is determined using management’s estimate of the annual effective tax rate expected to apply for the full fiscal year, adjusted for discrete items recognized in the period, where applicable. The effective tax rate may differ from the U.S. statutory federal income tax rate of 21% due to several factors, including the geographic mix of income and losses, foreign tax rate differentials, permanent differences, including GILTI, temporary differences, changes in valuation allowances, and changes in applicable tax laws.

 

The effective tax rate for the three months ended May 31, 2026 differed from the U.S. statutory federal income tax rate primarily due to the geographic mix of taxable income and losses, foreign tax rate differentials, permanent differences, including GILTI, the impact of valuation allowances on deferred tax assets, and the recognition of a deferred income tax benefit during the period.

 

Although the Company reported consolidated income before income taxes for the three months ended May 31, 2026, no current income tax expense was recorded for the period. Current income tax is determined based on the taxable income or loss of each taxable entity in the relevant jurisdictions, rather than solely on consolidated income before income taxes. DISA Medinotec reported a standalone loss for the period and therefore no current South African income tax expense was recorded.

 

Medinotec Incorporated, the U.S. parent company, generated standalone book income during the period. However, no current U.S. income tax expense has been recorded for the quarter, as management currently expects Medinotec Incorporated to generate a taxable loss, or no taxable income, for the full fiscal year after considering expected results for the remaining interim periods. In addition, Medinotec Incorporated has net operating loss carryforwards from prior periods which may be available to offset taxable income. The related deferred tax asset continues to be fully offset by a valuation allowance due to management’s assessment that realization is not more likely than not in the near term.

 

A portion of Medinotec Incorporated’s standalone income related to the recharge of expenses from Medinotec Incorporated to DISA Medinotec. In determining the South African current tax position, DISA Medinotec has treated the recharge as deductible in taxable income in accordance with applicable South African tax law.

 

The income tax benefit recorded for the three months ended May 31, 2026 related to deferred income taxes. No current income tax expense was recorded for the period.

 

The effective tax rate for the three months ended May 31, 2025 differed from the U.S. statutory federal income tax rate primarily due to the timing of the realization of temporary differences in South Africa, foreign tax rate differentials, permanent differences, including GILTI, and the impact of valuation allowances on deferred tax assets. The higher effective tax rate for the prior year period was primarily attributable to the timing of taxable and deductible temporary differences in South Africa relative to the level of consolidated pre-tax income for that period.

 

The effective tax rate is impacted by several factors, including:

 

  1. National, federal and foreign tax rates: The statutory federal income tax rate is 21% for the United States and the corporate income tax rate is 27% for South Africa. Differences between statutory rates in the jurisdictions in which the Company operates impact the consolidated effective tax rate.
  2. Permanent differences: Certain items recognized for financial reporting purposes may not be taxable or deductible for income tax purposes, or may be treated differently under the tax laws of the relevant jurisdiction. These items may include GILTI and other permanent differences specific to the tax laws applicable to the Company’s operations.
  3. Temporary differences: Timing differences between the recognition of income and expenses for financial reporting purposes and income tax purposes also affect the effective tax rate. Examples include differences relating to depreciation, accruals, provisions and deferred tax assets or liabilities.
  4. Tax credits: Tax credits, where available and applicable, may reduce the Company’s overall tax liability.
  5. Changes in tax legislation: Changes in tax laws, tax rates or interpretations in the jurisdictions in which the Company operates may affect the Company’s income tax provision.
  6. Valuation allowances: The Company evaluates the realizability of deferred tax assets, including tax loss carryforwards, based on all available positive and negative evidence, including historical results and expectations regarding future taxable income. Where management determines that realization of deferred tax assets is not more likely than not, a valuation allowance is recorded.

 

 

As a U.S.-registered company with operations in South Africa, the Company monitors developments relating to the OECD/G20 Pillar Two global minimum tax framework, including South Africa’s implementation of global minimum tax rules. Pillar Two is generally designed to ensure that large multinational enterprise groups are subject to a minimum effective tax rate of 15% in each jurisdiction in which they operate, subject to applicable revenue thresholds, exclusions and local implementation rules. Based on management’s current assessment of the Company’s size, operations and tax profile, the Company does not currently expect Pillar Two to have a material impact on its income tax provision. Management will continue to monitor developments in the jurisdictions in which the Company operates and assess the potential impact of any enacted or substantively enacted rules on future reporting periods.

 

The Company will continue to monitor its effective tax rate and make adjustments as required based on changes in operations, jurisdictional profitability, valuation allowance assessments and applicable tax legislation.