AN2 Therapeutics, Inc. Income Taxes Disclosure

Note 10. Income Taxes

The Company is liable for income taxes in the U.S. For the years ended December 31, 2025 and 2024, the Company did not have any income for income tax purposes and therefore, no tax liability or expense has been recorded in these financial statements.

Recognition of deferred tax assets is appropriate when realization of such assets is more likely than not. Based upon the weight of available positive and negative evidence, which includes the Company’s historical operating performance and the U.S. cumulative net losses in all prior periods, the Company has provided a valuation allowance against its U.S. deferred tax assets. The valuation allowance decreased by $2.4 million from December 31, 2024 to December 31, 2025 due to reduction in historical state net operating losses.

Deferred income taxes reflect the net tax effects of losses, credit carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Components of the Company’s deferred tax assets are as follows (in thousands):

As of December 31, 2025, the Company had $127.4 million of federal and $126.5 million of state net operating loss available to offset future taxable income. The federal net operating loss carryforwards do not expire. The state net operating loss carryforwards begin to expire in 2037. The Company also has federal and California state research and development credits of $7.6 million and $2.6 million, respectively. The federal tax credit carryforwards will expire in 2041 if not utilized. The state tax credit carryforwards do not expire.

Utilization of the net operating loss carryforwards is subject to an annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions.

A Section 382 ownership change generally occurs if one or more stockholders or groups of stockholders who own at least 5% of our stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Similar rules may apply under state tax laws. The Company is not currently in a taxable position and no net operating loss carryforwards or credits have been used to date.

As of December 31, 2025 and 2024, the Company has unrecognized tax benefits of $10.5 million and $2.1 million, respectively. As of December 31, 2025, the total amount of unrecognized tax benefits would not affect the effective tax rate, if recognized, due to the valuation allowance that currently offsets deferred tax assets. The Company does not expect the unrecognized tax benefits to change significantly over the next 12 months. A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2025 and 2024 was as follows (in thousands):

The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the statements of operations. Accrued interest and penalties are included within the related tax liability line in the balance sheet. No accrued interest and penalties have been recorded through December 31, 2025.

The Company files income tax returns in the U.S. federal jurisdiction and California, Illinois, New York, South Carolina and Virginia state jurisdictions. The Company is not currently under audit by the Internal Revenue Service or other similar state or local authorities. Carryover attributes beginning December 31, 2022 and December 31, 2021, respectively, remain open to adjustment by the U.S. and state taxing authorities to which the Company is subject.

The Company did not have any significant income taxes paid or refunds received from any jurisdiction for the years ended December 31, 2025 or 2024.