Eledon Pharmaceuticals, Inc. Income Taxes Disclosure

Note 8. Income Taxes

Significant judgment is required in determining the Company’s provision for income taxes, deferred tax assets and liabilities and the valuation allowance recorded against net deferred tax assets. Deferred tax assets and liabilities are determined using the enacted tax rates in effect for the years in which those tax assets are expected to be realized. A valuation allowance is established when it is more likely than not the future realization of all or some of the deferred tax assets will not be achieved. The evaluation of the need for a valuation allowance is performed on a jurisdiction-by-jurisdiction basis, and includes a review of all available positive and negative evidence. Factors reviewed include projections of pre-tax book income for the foreseeable future, determination of cumulative pre-tax book income after permanent differences, earnings history, and reliability of forecasting.

Based on its review, the Company concluded that it was more likely than not that they would not realize the benefit of a portion of its deferred tax assets in the future. This conclusion was based on historical and projected operating performance, as well as the Company’s expectation that its operations will not generate sufficient taxable income in future periods to realize the tax benefits associated with the deferred tax assets within the statutory carryover periods. Therefore, the Company has a valuation allowance on its deferred tax assets as of December 31, 2025.

The Company will continue to assess the need for a valuation allowance on its deferred tax assets by evaluating both positive and negative evidence that may exist. Any adjustment to the net deferred tax asset valuation allowance would be recorded in the statement of operations for the period that the adjustment is determined to be required.

*State taxes in Massachusetts made up the majority (greater than 50%) of the tax effect in this category. The Company paid a majority of cash taxes in Massachusetts.

The deferred income tax assets have been offset by a valuation allowance, as realization is dependent on future earnings, if any, the timing and amount of which are uncertain. The net valuation allowance increased by $16.6 million from December 31, 2024 to December 31, 2025. The net valuation allowance increased by $15.6 million from December 31, 2023 to December 31, 2024.

The Company’s accounting for deferred taxes involves the evaluation of a number of factors concerning the realizability of its net deferred tax assets. The Company primarily considered such factors as its history of operating losses, the nature of the Company’s deferred tax assets, and the timing, likelihood, and amount, if any, of future taxable income during the periods in which those temporary differences and carryforwards become deductible. At present, the Company does not believe that it is more likely than not that the deferred tax assets will be realized; accordingly, a valuation allowance has been established.

As of December 31, 2025 and 2024, the Company had federal net operating loss carryforwards of approximately $117.5 million and $88.7 million, respectively, available to reduce future taxable income. As of December 31, 2025 and 2024, the Company also had state net operating loss carryforwards of $49.1 million and $37.7 million, respectively. Both the federal and state net operating loss carryforwards incurred before 2018 begin expiring in 2035, if not utilized. The federal net operating losses incurred since 2018 of $116.7 million do not expire. The state net operating losses begin to expire in 2035. As of December 31, 2025 and 2024, the Company had Israel net operating losses of $7.9 million, respectively, which carryforward indefinitely.

As of December 31, 2025 and 2024, the Company had federal research and development tax credit carryforwards of approximately $11.5 million and $8.0 million, respectively. If not utilized, the carryforwards will begin expiring in 2035. As of December 31, 2025 and 2024, the Company had state research and development credit carryforwards of approximately $3.4 million and $2.6 million, respectively, which will begin expiring in 2030 if not utilized.

Pursuant to the Internal Revenue Code of 1986, as amended (“IRC”) Sections 382 and 383, annual use of the Company’s net operating loss and research and development credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period. The Company has not completed an IRC Section 382/383 analysis regarding the limitation of net operating loss and research and development credit carryforwards. Due to the existence of the valuation allowance, future changes in the Company’s unrecognized tax benefits will not impact the Company’s effective tax rate.

The Company’s ability to use its remaining net operating loss and tax credit carryforwards may be further limited if the Company experiences an IRC Section 382 ownership change in connection with future changes in our stock ownership.

In the United States, the Company files income tax returns in the U.S. Federal jurisdiction, California and Massachusetts. The Company’s tax years for 2019 and forward are subject to examination by the Federal and California tax authorities due to the carryforward of unutilized net operating losses and research and development credits.

The Company’s policy is to recognize interest expense and penalties related to income tax matters as a component of income tax expense. There was no accrued interest and penalties associated with uncertain tax positions as of December 31, 2025 and 2024. The Company has not recorded any interest or penalties as of December 31, 2025 or 2024.

On July 4, 2025, the OBBBA was signed into law. The legislation includes several changes to federal tax law that generally allow for more favorable deductibility of certain business expenses beginning in 2025, including the restoration of immediate expensing of domestic research and development expenditures, reinstatement of 100% bonus depreciation, and

more favorable rules for determining the limitation on business interest expense. OBBBA changes effective for 2025 were determined to have no impact to the income tax provision for year ended December 31, 2025.