KALA BIO, Inc. Income Taxes Disclosure

Note 13: Income Taxes

The Company has had no income tax expense due to operating losses incurred for the years ended December 31, 2025 and 2024. The Company has also not recorded any income tax benefits for the net operating losses incurred in each period due to its uncertainty of realizing a benefit from those items. All of the Company’s losses before income taxes were generated in the United States.

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Beginning in 2025 annual reporting, the Company has adopted ASU 2023-09 prospectively. The difference between the Company's effective income tax rate and the U.S. federal statutory rate of 21% was primarily driven by the change in the valuation allowance. A reconciliation of the federal statutory income tax rate to the Company's effective tax rate pursuant to the disclosure requirements of ASU 2023-09 for the year ended December 31, 2025 is as follows:

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Net deferred tax assets as of December 31, 2025 and 2024 consisted of the following:

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The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets. Management has considered the Company’s history of cumulative net losses incurred since inception and has concluded that it is more likely than not that the Company will not realize the benefits of the deferred tax assets. Accordingly, a full valuation allowance has been established against the deferred tax assets as of December 31, 2025 and 2024. The valuation allowance increased by $7,356 and $10,776 during the years ended December 31, 2025 and 2024, respectively. The current year and prior year increase is largely the result of an increase to federal net operating losses and generation of federal and state research and development tax credits. Management reevaluates the positive and negative evidence at each reporting period.

As required under ASU 2023-09, the Company has included only the portion of the valuation allowance related to federal deferred tax assets in the "change in valuation allowance" line of the rate reconciliation. The following table presents a reconciliation of the total change in the valuation allowance:

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As of December 31, 2025 and 2024, the Company had federal net operating loss carryforwards of $561,353 and $405,544, respectively, which may be available to offset future federal tax liabilities and expire at various dates beginning in 2030. As of December 31, 2025 and 2024, the Company had state net operating loss carryforwards of $491,801 and $469,053, respectively, which may be available to offset future state income tax liabilities and expire at various dates beginning in 2025. As of December 31, 2025 and 2024, the Company had federal and state research and development credit carryforwards of $5,492 and $2,476, respectively.

Realization of the future tax benefits is dependent on many factors, including the Company’s ability to generate taxable income within the net operating loss carryforward period. Under the provisions of Section 382 of the Internal Revenue Code of 1986, certain substantial changes in the Company’s ownership, including a sale of the Company, or significant changes in ownership due to sales of equity, may have limited, or may limit in the future, the amount of net operating loss carryforwards, which could be used annually to offset future taxable income. The Company has completed an analysis as of December 31, 2022 and determined that an additional ownership change occurred during December 2022 as a result of the issuance of Series E Preferred Stock, further limiting the net operating loss carryforwards and research and development tax credits due to the expiration of those attributes. As a result, the utilization of the Company’s net operating loss carryforwards is subject to an annual limitation of $222, which is reflected in the numbers presented above.

The Tax Cuts and Jobs Act resulted in significant changes to the treatment of research and developmental expenditures under Section 174 of the Internal Revenue Code. For tax years beginning after December 31, 2021, taxpayers are required to capitalize and amortize all research and development expenditures that are paid or incurred in connection with their trade or business. Per the One Big Beautiful Bill Act, effective July 4, 2025, taxpayers are still required to capitalize foreign research and development expenditures over 15 years, but now have the opportunity to deduct domestic research and development expenditures under IRC 174A. The Company has elected to continue to amortize prior year domestic capitalized costs until the amortization of such costs is complete.

The Company files its corporate income tax returns in the United States and various states. All tax years since the date of incorporation remain open to examination by the major taxing jurisdictions (state and federal) to which the Company is subject, as carryforward attributes generated in years past may still be adjusted upon examination by the Internal Revenue Service (‘‘IRS’’) or other authorities if they have or will be used in a future period. The Company is not currently under examination by the IRS or any other jurisdictions for any tax year.

As of December 31, 2025 and 2024 the Company had no uncertain tax positions. The Company’s policy is to recognize interest and penalties related to income tax matters as a component of income tax expense, of which no interest or penalties were recorded for the years ended December 31, 2025 and 2024.