Ernexa Therapeutics Inc. Income Taxes Disclosure

 

16.	Income Taxes

 

Loss before income taxes consist of the following (in thousands):

 Schedule of Loss Before Income Taxes

		2025				2024
		Years ended December 31,
		2025				2024
(in thousands)
Domestic		$	(14,129	)		$	(44,529	)
Foreign			-				20
Total loss before income taxes		$	(14,129	)		$	(44,509	)

 

For each of the years ended December 31, 2025 and 2024, current tax provisions and current deferred tax provisions were recorded as follows (in thousands):

 Schedule of Income Tax Provision

		2025				2024
		Years ended December 31,
		2025				2024
Current Tax Provision
Federal		$	-			$	-
State			3				3
Foreign			-				-
Current tax provision			3				3
Deferred Tax Provision
Federal			19				-
State			(67	)			27
Foreign			-				-
Deferred tax provision			(48	)			27
Total tax provision (benefit) for income taxes		$	(45	)		$	30

 

Deferred income taxes reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Realization of net deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. The table below consists of the Company’s net deferred tax assets and liabilities as of December 31, 2025 and December 31, 2024 (in thousands). Deferred tax assets have been substantially reserved for by a valuation allowance since it is more likely than not that such tax benefits will not be realized.

 Schedule of Deferred Tax Assets and Liabilities

		2025				2024
		As of December 31,
		2025				2024
Deferred Tax Assets:
Net operating losses		$	19,420			$	16,496
Foreign net operating losses			-				782
Stock compensation			2,325				2,646
In-process research and development			704				1,030
Capitalized research and development expenses			3,336				4,548
Accrued expenses			52				192
R&D credit carryforwards			437				437
ROU Liabilities			103				187
Other			27				29
Total gross deferred tax assets			26,404				26,347
Valuation allowance			(26,145	)			(26,023	)
Net deferred tax assets			259				324
Deferred Tax Liabilities:
ROU Assets			(95	)			(183	)
Intangibles - goodwill			(205	)			(229	)
Total deferred tax liabilities			(300	)			(412	)
Net deferred taxes		$	(41	)		$	(88	)

 

 

The reconciliation between the Company’s effective tax rate on income from continuing operations and the federal statutory tax rate of 21% for the years ended December 31, 2025 and 2024 is as follows (in thousands, except for percentages):

 Schedule of Reconciliation of Computed Expected Income Taxes to Effective Income Taxes

		As of December 31,
		2025								2024
			$				%				$				%
Current tax at federal statutory rate		$	(2,967	)			21.00	%		$	(9,347	)			21.00	%
State income tax, net of federal tax (a)			(51	)			0.36	%			(1,315	)			2.95	%
Foreign tax differential			-				0.00	%			-				0.00	%
Non-deductible expenses/excludable items			21				(0.15	)%			24				(0.05	)%
Financing costs			1,022				(7.23	)%			-				0.00	%
Convertible debt			-				0.00	%			4,079				(9.16	)%
Credits			-				0.00	%			79				(0.18	)%
Other			12				(0.09	)%			(1,210	)			2.72	%
Change in valuation allowance			1,918				(13.58	)%			7,720				(17.35	)%
(Provision) benefit for income taxes		$	(45	)			0.31	%		$	30				(0.07	)%

 

(a)

For the years ended December 31, 2025, state taxes in Massachusetts made up the majority (greater than 50%) of the tax effect in this category.

 

The net change in the total valuation allowance for the year ended December 31, 2025 was an increase of approximately $0.1 million. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. Management considered the scheduled reversal of deferred tax liabilities, projected future taxable income and planning strategies in making this assessment. Based on the level of historical operating results and projections for the taxable income for the future, management has determined that it is more likely than not that the deferred taxes assets will not be utilized. Accordingly, the Company has recorded a full valuation allowance. The net deferred tax liability represents an indefinite life intangible liability related to tax deductible goodwill, partially offset by an indefinite life deferred tax asset.

 

At December 31, 2025 and 2024, the Company has available net operating loss (“NOL”) carryforwards of approximately $71.5 million and $62.1 million for federal income tax purposes, respectively, of which approximately $70.8 million can be carried forward indefinitely. Federal NOL carryforwards generated after tax year 2021 are subject to an 80% limitation on taxable income, do not expire and will carryforward indefinitely. The Company has available $55.2 million and $52.6 million state NOLs for the years ended December 31, 2025 and 2024, respectively, which begin to expire in 2041. The Company also has foreign NOL carryforwards of approximately $6.3 million for each of the years ended December 31, 2025 and 2024, which carry forward indefinitely.

 

Section 382 of the Internal Revenue Code (“IRC”) imposes limits on the ability to use NOL carryforwards that existed prior to a change in control to offset future taxable income. Such limitations would reduce, potentially significantly, the gross deferred tax assets disclosed in the table above related to the NOL carryforwards. The Company continues to disclose the NOL carryforwards at their original amount in the table above as no potential limitation has been quantified. The Company has also established a full valuation allowance for all deferred tax assets, including the NOL carryforwards, since the Company could not conclude that it was more likely than not able to generate future taxable income to realize these assets.

 

The Company has federal and state income tax credit carryforwards of approximately $0.4 million at both December 31, 2025 and 2024. The credits begin to expire in 2041.

 

In accordance with authoritative guidance, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. The following table summarizes amounts the Company recorded for uncertain tax positions as of December 31, 2025 and 2024 (in thousands):

 Schedule of Uncertain Tax Positions

		2025				2024
		As of December 31,
		2025				2024
Beginning balance of uncertain tax positions		$	393			$	393
Additions based on current year’s tax positions			-				-
Net changes based on prior year’s tax positions			-				-
Ending balance of uncertain tax positions		$	393			$	393

 

 

It is reasonably possible that unrecognized tax benefits may increase or decrease within the next twelve months due to tax examination changes, expiration of statute of limitations, or changes in tax law. The Company does not anticipate any significant changes to unrecognized tax benefits over the next 12 months.

 

The Company recognizes interest and penalties related to unrecognized tax positions within the income tax expense line in the accompanying consolidated statements of operations. There were no accrued interest and penalties associated with uncertain tax positions as of December 31, 2025 or December 31, 2024.

 

The Company is also subject to certain non-income taxes such as value added taxes, sales taxes and property taxes. The Company has taken certain positions that management feels, although not free from doubt, should not result in a successful challenge by certain tax authorities.

 

The Company is subject to U.S. federal, state, and foreign income tax. The Company’s income tax returns are subject to examination by the relevant taxing authorities. As of December 31, 2025, the 2022 – 2025 tax years remain subject to examination in the U.S. federal tax, various state, and foreign tax jurisdictions. The Company is not currently under examination by federal state, or foreign jurisdictions.

 

For the years ended December 31, 2025, the components of total income taxes paid, net of refunds, by jurisdiction were as follows (in thousands):

 Summary of Income Tax Examinations

		Year ended December 31, 2025
Federal		$	-
State:
California			2
Massachusetts			1
Total state			3
Total cash paid for income taxes (net of refunds)		$	3

 

The table above excludes jurisdictions that do not meet the 5% of total taxes paid reporting threshold for the respective periods.

 

On July 4, 2025, the One Big Beautiful Bill (“OBBBA”) was enacted, introducing significant and wide-ranging changes to the U.S. federal tax system. Significant components include restoration of 100% accelerated tax depreciation on qualifying property including expansion to cover qualified production property. Another major aspect includes the return to immediate expensing of domestic research and experimental expenditures (“R&E”), which in some cases may include retroactive application back to 2021 for businesses with gross receipts of less than $31 million or accelerated tax deductions of R&E that was previously capitalized for larger businesses. The legislation also reinstates EBITDA-based interest deductions for tax purposes and makes several business tax incentives permanent. Less favorable business provisions include limitations on tax deductions for charitable contributions.

 

The OBBBA modified the U.S. International Tax provisions for Global Intangible Low-Taxed Income (“GILTI”), Foreign-Derived Intangible Income (“FDII”), and the Base-erosion Anti-abuse Tax (“BEAT”) effective for tax years starting after December 31, 2025. The tax rate on GILTI, now renamed to Net CFC Tested Income (“NCTI”), is now 12.6%. The FDII rules, now renamed to Foreign Derived Deduction Eligible Income (“FDDEI”), now carry a 14% tax rate on FDDEI eligible income. The OBBB Act increases the BEAT rate from 10% to 10.5%.