Note 7. Income Taxes

The Company’s net (loss) income before income taxes for the fiscal years ended June 30, 2026 and 2025 was $(2,563) and $2,062, respectively.

The annual provision (benefit) for income taxes differs from amounts computed by applying the maximum U.S. Federal income tax rate of 21% to pre-tax income as follows:

New Jersey represents substantially all of the state (benefit) income tax above.

The components of the provision for income taxes consists of the following:

The Company files consolidated U.S. federal and combined state of New Jersey income tax returns.

Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial accounting purposes and the amounts used for income tax reporting. Significant components of the Company’s net deferred tax assets are as follows:

The Company has net operating losses (“NOL”) of approximately $21,626 and $19,249 for federal tax purposes for the fiscal years ended June 30, 2026 and 2025, respectively. As of June 30, 2026, $19,176 of the federal NOL’s expire beginning in 2028, which were federal NOLs generated prior to 2018 and $2,450 of NOLs generated post 2018 which have an indefinite life, subject to 80% of taxable income in each taxable year used. Additionally, as of June 30, 2026 and 2025, the Company has New Jersey state NOL’s of approximately $3,877 and $4,005, respectively, which expire beginning in 2031 through 2039. The Company also has capital loss carryforwards of $1,191 of which $270 and $920 will expire in 2027 and 2028, respectively.

Realization of the NOL carryforwards and other deferred tax temporary differences is contingent on future taxable earnings. The Company’s deferred tax asset was reviewed for expected utilization using a “more likely than not” approach by assessing the available positive and negative evidence surrounding its recoverability. One of the criteria considered in this assessment is the Company’s history of cumulative losses in recent years. Such cumulative losses are considered objective negative evidence under ASC 740 and are considered in the realizability analysis. While the current fiscal year ended June 30, 2026 is the Company’s first net operating loss in several years, it did offset the previous two years of operating income, resulting in a cumulative loss. Although the Company has cumulative losses for this three-year lookback period, the Company is not anticipating operating losses in subsequent years. This, along with the aging of the NOL’s supports management’s opinion that it is more likely than not that some of the Company’s NOL’s will not be utilized in the foreseeable future.  Accordingly, in the fiscal years ended June 30, 2026 and 2025, valuation allowances in the amounts of $1,000 and $830 were recorded against the Company’s deferred tax asset relating to its federal NOL, respectively. In the fiscal year ended June 30, 2025, the Company released its valuation reserve on its state NOL’s in the amount of $347, as there was a change in the tax regulations that permitted the Company to use NOL’s generated by the combined group to offset current year taxable income for the combined group.  Prior years only permitted the entity that generated the NOL to offset against its current taxable income.

The Company will continue to assess and evaluate strategies that will enable the deferred tax asset, or portion thereof, to be utilized, and will reduce the valuation allowance appropriately at such time when it is determined that the “more likely than not” criteria is satisfied.

The utilization of the Company’s federal NOLs could be subject to Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), due to ownership change limitations that may have occurred previously or that could occur in the future. These ownership changes limit the amount of NOLs and other deferred tax assets that can be utilized to offset future taxable income and tax, respectively.  In general, an ownership change, as defined by Section 382 results from transactions increasing ownership of certain stockholders or public groups in the stock of the corporation by more than 50 percent points over a three-year period.  The Company has not completed an analysis of an ownership change under Section 382 of the Code.  To the extent that a study is completed and an ownership change is deemed to occur, the Company’s NOLs could be limited.

There were no significant uncertain tax positions taken, or expected to be taken, in a tax return that would be determined to be an unrecognized tax benefit taken or expected to be taken in a tax return that should have been recorded on the Company’s consolidated financial statements for the year ended June 30, 2026. Additionally, there were no interest or penalties outstanding as of or for each of the fiscal years ended June 30, 2026 and 2025.

The latest three years of Federal and four years of state tax returns filed for the fiscal years ended through June 30, 2025 are currently open. The tax returns for the year ended June 30, 2026 will be filed by March 15, 2027.