Estrella Immunopharma, Inc. Income Taxes Disclosure

Note 9 — Income Taxes

 

The Company has no income tax expense except state minimum taxes, due to operating losses incurred for the year ended December 31, 2025 and for the six-month transition period ended December 31, 2024. Loss before income taxes were $13,062,674, and $4,426,964 for the year ended December 31, 2025 and for the six-month transition period ended December 31, 2024, respectively.

 

The provision for income taxes for the year ended December 31, 2025 and for the six-month transition period ended December 31, 2024 consisted of the following:

 

		For the year ended December 31,				For the six months ended December 31,
		2025				2024
Income tax expense
Current income tax expense
Federal		$	—			$	—
State			838				63
Total		$	838			$	63

 

Beginning in 2025, the Company adopted ASU 2023-09 on a prospective basis. Accordingly, the reconciliation of the U.S. federal statutory income tax rate to the effective tax rate for the year ended December 31, 2025, is presented using the updated disaggregated categories and reporting currency amounts. Comparative information for the six-month transition period ended December 31, 2024 is presented under the legacy disclosure requirements.

 

		For the year ended								For the six months ended
		December 31, 2025								December 31, 2024
		Amount ($)				Rate(%)				Rate(%)
U.S federal statutory tax rate			(2,743,161	)			21.0	%			21.0	%
State and local income taxes, net of federal income tax effect			652				0.0	%			0.0	%
Change in valuation allowance			2,670,305				(20.4	)%			(20.9	)%
Nondeductible items			83,734				(0.7	)%			(0.9	)%
Other			(10,692	)			0.1	%			0.8	%
Total			838				0.0	%			0.0	%

The Company’s net deferred tax assets were as follows as of December 31, 2025 and 2024:

 

		As of December 31, 2025				As of December 31, 2024
Deferred tax assets:
Net operating loss carryover		$	6,393,470			$	2,425,707
Accruals and reserves			168				168
Stock-based compensation			104,730				49,398
Capitalized Research and development and intangibles			1,575,352				2,928,142
Total deferred tax assets			8,073,720				5,403,415
Valuation allowance			(8,073,720	)			(5,403,415	)
Deferred tax asset, net of allowance		$	—			$	—

 

The cash paid for income taxes, net of refunds received, by jurisdiction pursuant to the disclosure requirements of ASU 2023-09 for the year ended December 31, 2025 is as follows:

 

		For the year ended December 31,
		2025
Federal		$	—
State and local
California			800
New York			113
Foreign			—
Total		$	913

 

As of December 31, 2025 and 2024, the Company had gross federal income tax net operating loss (“NOL”) carry forwards of approximately $28.3 million and $9.4 million, respectively. As of December 31, 2025 and 2024, the Company had gross state income tax net operating loss (“NOL”) carry forwards of approximately $6.5 million and $6.5 million, respectively. The federal net operating losses are carried forward indefinitely. The state net operating losses will begin to expire in 2042.

 

Under the Code, the NOL can be carried forward indefinitely and can be used to offset up to 80% of taxable income for losses arising in tax years beginning after June 30, 2022. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax asset will be realized. The ultimate realization of deferred tax assets is dependent upon the Company attaining future taxable income during periods in which those temporary differences become deductible.

 

Due to the uncertainty surrounding the realization of the benefits of its deferred assets, including NOL carry forwards, stock-based compensation, research and development expense capitalization and federal research tax credit, the Company has provided a 100% valuation allowance on its deferred tax assets as of December 31, 2025 and 2024. The valuation allowance increased from $5.4 million to approximately $8.1 million in 2025. In terms of research and development expense capitalization attributed to deferred tax assets, the Company capitalized no research and development expense for the year ended December 31, 2025, following the enactment of the One Big Beautiful Bill Act (“OBBBA”) in 2025, as no U.S. or foreign research and development costs were required to be capitalized. For the six-month transition period ended December 31, 2024, the Company capitalized approximately $2.9 million of research and development costs. The research and development expense capitalization were mainly derived from Eureka’s license, service agreement and SOW would be amortized over 5 years for income tax purposes. As a result of the enactment of the OBBBA, which repealed the mandatory capitalization and amortization of research and experimental expenditures under IRC§174 for tax years beginning after December 31, 2024, the Company elected to accelerate the amortization of previously capitalized §174 costs and deduct the remaining unamortized balance over a two-year period (2025 and 2026). This change in law increased the Company’s §174 amortization deduction by approximately $2.7 million for the year ended December 31, 2025, and no foreign research expenditures incurred during the year were capitalized under IRC §174.

The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740, Income Taxes. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. As of December 31, 2025 and 2024, the Company had no uncertain tax positions, and total unrecognized income tax benefits were $0.0 million. For the years ended December 31, 2025 and 2024, the Company recognized no interest and penalties associated with unrecognized tax benefits. If incurred, the Company will classify any interest and penalties as a component of interest expense and operating expense, respectively.

 

The Company’s ability to utilize the net operating loss and tax credit carryforwards in the future may be subject to substantial restrictions in the event of past or future ownership changes as defined in Section 382 of the Internal Revenue Code and similar state tax laws. In the event the Company should experience an ownership change, as defined under Section 382, utilization of the Company’s net operating loss carryforward and tax credit could be limited.

 

The Company files corporation tax returns in the United States, California and other States. The Company has been in an overall net operating loss position since inception. Due to the significant federal and state tax attribute carryovers, the Company is subject to examination by taxing authorities for all tax years since inception.