FILANA THERAPEUTICS, INC. Income Taxes Disclosure

9. Income Taxes

 

The Company did not provide for income taxes during the periods presented because it had book and federal taxable losses in those years and the tax benefit that would have resulted from the pre-tax losses was fully offset by a change in the valuation allowance.

 

The reconciliation of the statutory federal income tax rate to the Company’s effective tax rate for periods presented was as follows:

 

		Year ended December 31,
		2025								2024				2023
U.S. federal statutory tax rate		$	(19,104	)			21	%			21	%			21	%
Nontaxable or nondeductible items
Stock compensation			3,580				(4.0	)			(5.7	)			0.2
Section 162(m) limitation			—				—				(0.2	)			—
Change in fair value of warrant liabilities			—				—				93.3				—
SEC settlement payment			—				—				(34.5	)			—
Change in valuation allowance			15,207				(16.7	)			(79.4	)			(24.0	)
Tax Credits
Research and development credits			(1,021	)			1.1				15.4				5.1
Tax attribute expiration			922				(1.0	)			(4.1	)			—
Uncertain tax positions			409				(0.4	)			(6.1	)			(2.0	)
State tax, net of federal benefit			—				—				—				—
Other			7				—				0.3				(0.3	)
Effective income tax rate		$	—				—	%			—	%			—	%

 

Deferred tax assets and valuation allowance

 

Deferred tax assets reflect the tax effects of net operating loss and tax 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. The Company’s deferred taxes assets at  December 31, 2025 and 2024 were valued at the corporate tax rate of 21%. The Company offsets its deferred tax assets by a valuation allowance because it is uncertain about the timing and amount of any future profits. Significant components of its deferred tax assets are as follows (in thousands):

 

		December 31,
		2025				2024
Deferred tax assets:
Net operating loss carryforwards		$	78,632			$	43,148
Legal reserves			6,563			$	—
Share-based compensation			5,319				4,814
Research and development credit carryforwards			13,480				13,789
Capitalized research and development expenses			6,919				33,598
Other			985				1,340
Total deferred tax assets			111,898				96,689
Valuation allowance			(111,896	)			(96,689	)
Net deferred tax assets			2				—
Deferred tax liabilities:
Intangibles			(2	)			—
Total deferred tax liabilities			(2	)			—
Net deferred tax asset (liability)		$	—			$	—

 

The valuation allowance increased by $15.1 million and $19.4 million in 2025 and 2024, respectively, due primarily to continuing operations.

 

The Company’s net operating loss carryforwards of $374.4 million are federal, of which $74.1 million expires between 2029 and 2037 and $300.3 million carries forward indefinitely. As of December 31, 2025, the Company had federal research and development tax credits of approximately $22.4 million, which expire in the years 2026 through 2045.

 

Unrecognized tax benefits

 

As of December 31, 2025, 2024 and 2023, the Company has unrecognized tax benefits related to tax credits of $9.0 million, $9.2 million and $8.4 million, respectively. None of the unrecognized tax benefits as of December 31, 2025, if recognized, would impact the effective tax rate due to the valuation allowance and no interest or penalties have been recognized. A reconciliation of the beginning and ending balance of unrecognized tax benefits is as follows (in thousands):

 

		Year ended December 31,
		2025				2024				2023
Beginning balance		$	9,242			$	8,413			$	6,496
Expired research and development tax credits			(614	)			(665	)			(50	)
Additions based on tax positions related to the current year			392				1,494				1,967
Ending balance		$	9,020			$	9,242			$	8,413

 

As of December 31, 2025, there were no unrecognized tax benefits that we expect would change significantly over the next 12 months.

 

The Company files U.S. and Texas income tax returns. In the United States, the statute of limitations with respect to the federal income tax returns for tax years after 2021 are open to audit; however, since the Company has net operating losses, the taxing authority has the ability to review tax returns prior to the 2022 tax year and make adjustments to these net operating loss carryforwards. We are not under audit in any taxing jurisdiction at this time.