12.	Income Taxes

The effective tax rate for the years ended December 31, 2025 and 2024 was zero percent.

The tables below represent a reconciliation of the U.S. federal statutory income tax rate to effective tax rate. The Company has adopted the guidance in ASU 2023-09 on a prospective basis. The following table reflects the reconciliation rate for 2025 under the new guidance:

	2025
	Tax Expense			Effective Rate
Income tax (benefit) provision at federal statutory rate	$	(10,414	)		(21.0	)%
Change in valuation allowance		4,594			9.3
State income tax, net of federal income tax effect (1)		3,357			6.8
Tax credits		(848	)		(1.7	)
Nontaxable or nondeductible items:
Nondeductible change in warrant liability fair value		2,626			5.3
Stock compensation		264			0.5
Other		421			0.8
Effective tax rate	$	—			—	%

(1)

North Carolina makes up the majority (greater than 50%) of the state income tax expense, net of federal income tax effect category.

The table below represents a reconciliation of the U.S. federal statutory income tax rate to effective tax rate for the year ended December 31, 2024 under the prior guidance.

	2024
	Effective Rate
Income tax (benefit) provision at federal statutory rate		(21.0	)%
Valuation allowance		26.5
State income tax, net of federal benefit		(4.9	)
Private Opus acquisition		(11.2	)
Stock options		0.8
Acquired IPR&D		12.6
Research and development		(1.6	)
Other		(1.2	)
Effective tax rate		—	%

The components of income tax provision (benefit) consisted of the following for the years ended December 31, 2025 and 2024 (in thousands):

	2025			2024
Loss before income taxes:	$	(49,591	)	$	(57,532	)

Current:
Federal	$	—		$	—
State		—			—
Total current tax provision (benefit)		—		$	—
Deferred:
Federal		—			—
State		—			—
Total tax provision (benefit)	$	—		$	—

Significant components of the Company’s deferred tax assets and liabilities are summarized in the tables below as of December 31, 2025 and 2024 (in thousands):

	2025			2024
Deferred tax assets:
Federal and state operating loss carryforwards	$	32,248		$	20,342
Acquired intangibles		484			547
Deferral of research and development costs		1,451			9,582
Organizational costs		4			5
Accruals and other		329			77
Stock-based compensation		1,937			2,035
Research and development credit carryforward		2,911			2,089
Transaction costs in connection with Opus Acquisition		663			753
Subtotal		40,027			35,430
Valuation allowance		(39,997	)		(35,403	)
Total deferred tax assets, net of valuation allowance		30			27
Deferred tax liabilities:
Fixed assets		(30	)		(27	)
Total deferred tax liabilities		(30	)		(27	)
Net deferred tax assets	$	—		$	—

As of December 31, 2025 and 2024, the Company had gross deferred tax assets of approximately $40.0 million and $35.4 million, respectively. Realization of the deferred tax assets is primarily dependent upon future taxable income, if any, the amount and timing of which are uncertain. The Company has cumulative pre‑tax losses and faces significant challenges to becoming profitable in the future. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance of $40.0 million and $35.4 million as of December 31, 2025 and 2024, respectively. U.S. net deferred tax assets will continue to require a valuation allowance until the Company can demonstrate their realizability through sustained profitability or another source of income.

As of December 31, 2025 and 2024, the tax effect of the Company’s federal net operating loss carryforwards was approximately $31.5 million and $17.1 million, respectively. The Company had federal research credit carryforwards as of December 31, 2025 and 2024 of approximately $2.9 million and $2.1 million, respectively. The federal net operating loss carryforwards will not expire and the tax credit carryforwards will begin to expire in 2041 if not utilized. As of December 31, 2025 and 2024, the Company had state net operating loss carryforwards with a tax effect of approximately $0.7 million and $3.3 million, respectively. The Company did not have any state research credit carryforwards as of December 31, 2025 and 2024. The state net operating loss carryforwards will begin to expire in 2028.

The Company did not utilize any tax carryforwards or credits during the years ended December 31, 2025 and 2024.

Utilization of the net operating loss carryforwards and credits may be subject to a substantial annual limitation due to the ownership change limitations provided by Section 382 and Section 383 of the Internal Revenue Code of 1986, as amended, and similar state provisions. Generally, in addition to certain entity reorganizations, the limitation applies when one or more “5-percent shareholders” increase their ownership, in the aggregate, by more than 50 percentage points over a 3 year testing period, or beginning the day after the most recent ownership change, if shorter. The annual limitation may result in the expiration of net operating losses and credits before utilization.

As a result of the Opus Acquisition, the Company recorded $5.8 million in federal and state deferred tax assets, respectively, related largely to any net operating loss carryforwards and research development cost deferrals. The deferred tax assets acquired were fully offset by a valuation allowance. The Company has not yet evaluated the impact of Section 382 and Section 383 related to the Opus Acquisition.

As a result of the Merger with Rexhan, the Company recorded deferred tax assets of $10.3 million relating to net operating loss carryforwards which were fully offset by a valuation allowance. The $10.3 million net deferred tax assets recorded in relation to the Merger did not include federal and state net operating loss carryforwards that were estimated to expire under Internal Revenue Code Sections 382 as a result of the Merger. The Company has not yet evaluated the impact of Section 382 and Section 383 on its remaining tax attributes that were generated by Opus since the formation of the Company in 2018.

The Company recognizes interest and/or penalties related to uncertain tax positions in income tax expense. There were no uncertain tax positions as of December 31, 2025 and 2024, and as such, no interest or penalties were recorded to income tax expense.

The Company’s corporate returns are subject to examination beginning with the 2021 tax year for federal income tax purposes and 2020 for state income tax purposes.

Historical Timeline

Fiscal Year	Filed
2025	Mar 12, 2026	Showing above
2024	Mar 31, 2025

2023	Mar 8, 2024

2022	Mar 30, 2023

2021	Mar 24, 2022

2020	Mar 11, 2021

2019	Feb 21, 2020

2018	Mar 7, 2019

2017	Mar 9, 2018

2016	Feb 24, 2017

2015	Mar 14, 2016

About Income Taxes Disclosures

The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.

Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.

Opus Genetics, Inc. Income Taxes Disclosure

Historical Timeline

About Income Taxes Disclosures

Other Available Disclosures