Moleculin Biotech, Inc. Income Taxes Disclosure

7. Income Taxes 

 

The provision for income taxes consists of the following components (in thousands):

 

		Year Ended December 31,
		2025				2024
Current expense (benefit):
Federal		$	—			$	—
State			—				—
Foreign			—				—
Current income tax benefit			—				—
Deferred expense (benefit):
Federal			—				—
State			—				—
Foreign			—				—
Deferred income tax expense			—				—
Total		$	—			$	—

 

The following summarizes activity related to the Company’s valuation allowance (in thousands): 

 

		Year Ended December 31,
		2025				2024
Valuation allowance at beginning of period		$	38,637			$	32,308
Change charged to expense (income)			5,032				6,329
Release of valuation allowance			—				—
Valuation allowance at end of period		$	43,669			$	38,637

 

The domestic and foreign components of the Company's loss before tax provision for the years ended December 31, 2025 and 2024, were as follows (in thousands):

 

		Year Ended December 31,
		2025				2024
United States		$	(33,496	)		$	(25,865	)
Foreign			(64	)			(183	)
Loss before taxes		$	(33,560	)		$	(26,048	)

 

The following summarizes the Company’s cash taxes paid by jurisdiction (in thousands):

 

		Year Ended December 31,
		2025				2024
Federal		$	—			$	—
State			—				—
Foreign			—				—
Total taxes paid		$	—			$	—

 

A reconciliation of the income tax benefit computed using the federal statutory income tax rate to the Company’s effective income tax rate is as follows (in thousands): 

 

		Year Ended December 31,
		2025								2024
		Amount				Percent				Amount			Percent
Federal tax (benefit) at statutory rate		$	(7,034	)			21.0	%		$	(5,431	)	21.0	%
State and local income Taxes			—				-				(34	)	-
Foreign tax effects			—				-				—		-
Change in tax laws and rates			—				-				—		-
Effects of cross-border tax laws			—				-				—		-
Federal tax credits			—				-				—		-
Domestic change in valuation allowance			5,288				(16.0	)			5,672		(21.8	)
Nontaxable or nondeductible items
Stock warrant costs			1,498				(4.0	)			(387	)	1.5
Other permanent differences			74				-				60		(0.2	)
Other items			174				(1.0	)			120		(0.5	)
Total tax (expense) benefit		$	—				-	%		$	—		(0.0	)%

 

The principal components of the Company’s deferred tax assets and liabilities consist of the following (in thousands):

 

		Year Ended December 31,
		2025				2024
Deferred tax assets:
Start-up costs		$	13,851			$	11,792
Federal net operating loss carryforwards			15,972				12,965
174 R&D Carryforward			9,130				8,935
State tax loss carryforwards			270				560
Foreign net operating loss carryforwards			290				332
Fixed Assets			20				14
Tax credit carryforward			1,919				1,919
ROU Liability			78				104
Deferred compensation			2,207				2,108
Total deferred tax assets		$	43,737			$	38,729
Less valuation allowance			(43,669	)			(38,637	)
Net deferred tax assets		$	68			$	92
Deferred tax liabilities:
ROU Asset		$	(68	)		$	(92	)
Total deferred tax liabilities		$	(68	)		$	(92	)
Net deferred taxes		$	—			$	—

 

The Company has incurred net operating losses since inception. As of December 31, 2025, the Company had total US federal operating loss carry forwards of approximately $76.1 million. Of this, $6.1 million will expire commencing in 2035, with the rest having no set expiration date. The value of these carryforwards depends on the Company’s ability to generate taxable income. Additionally, because federal tax laws limit the time during which the net operating loss carryforwards may be applied against future taxes, if the Company fails to generate taxable income prior to the expiration dates of the carry forwards the Company may not be able to fully utilize the net operating loss carryforwards to reduce future income taxes. Net operating loss carry forwards generated in 2018 and later years do not expire, but will only be able to offset 80% of future taxable income. Finally, the Company has not undertaken a detailed analysis of the application of IRC Section 382 with respect to limitations on the utilization of net operating loss carryforwards and other deferred tax assets as management does not believe an ownership change has occurred within the meaning of IRC Section 382. Management intends to undertake a Section 382 analysis prior to the utilization of any net operating loss carryforwards in the future. Based on current and ongoing losses, there is a full valuation allowance against the deferred tax asset for these carryforwards.

 

The Company conducts business in various locations and, as a result, files income tax returns in the United States federal jurisdiction, in multiple state jurisdictions, and internationally as required. As of December 31, 2025, the Company had state operating losses of approximately $6.2 million which expire commencing in 2036. Since the Company is in a loss carryforward position, the Company is generally subject to examination by the US federal, state and local income tax authorities for all tax years in which a loss carryforward is available.

 

Management has evaluated the positive and negative evidence for the realizability of its deferred tax assets. The Company has cumulative losses and there is no assurance of future taxable income, therefore, valuation allowances have been recorded to fully offset the deferred tax asset at December 31, 2025. A valuation allowance of $43.7 million and $38.6 million has been established at December 31, 2025 and 2024, respectively. The change in the valuation allowance for the year ended December 31, 2025 was primarily due to additional operating losses and capitalized research costs.

 

The Company conducts research and development (“R&D”) activities that qualify for tax credits in both the United States and Australia. For U.S. federal income tax purposes, R&D tax credits are accounted for under ASC 740, Income Taxes. The Company has recorded a full valuation allowance against its U.S. federal R&D tax credit carryforwards, as it has determined that it is more likely than not that these deferred tax assets will not be realized. These credits, if not utilized, will begin to expire in 2037. For Australian purposes, the Company may be eligible to receive refundable tax incentives under the Australian Research and Development Tax Incentive program. As these incentives are refundable in cash and are not dependent on future taxable income, the Company recognizes the benefit of the Australian R&D incentive as a reduction to research and development expense in the consolidated statements of operations when it is probable that (i) the Company will comply with the relevant program requirements and (ii) the incentive will be received. During the year ended December 31, 2025, the Company received $0.1 million in cash refunds related to a $0.2 million refundable R&D tax credit associated with its 2023 R&D activities in Australia, which was recognized in 2024.

 

The Company has a liability for unrecognized tax benefits of $0.3 million (excluding accrued interest and penalties) as of December 31, 2025. The Company's policy is to record interest and penalties related to income taxes as part of its income tax provision.

 

A reconciliation of the beginning and ending unrecognized tax benefits excluding interest and penalties is as follows (in thousands): 

 

		Year Ended December 31,
		2025				2024
Balance, beginning of year		$	339			$	339
Additions for tax positions related to the current year			—				—
Additions for tax positions related to prior years			—				—
Reductions due to lapse of statutes of limitations			—				—
Decreases related to settlements with tax authorities			—				—
Balance, end of year		$	339			$	339

 

The Company does not believe that its tax positions will significantly change due to any settlement and/or expiration of statutes of limitations prior to  December 31, 2025 within the next year. 

 

On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) (H.R.1) was signed into law by the President of the United States. The OBBBA contains significant provisions impacting corporate taxation in the U.S. with multiple effective dates. Among the changes effective in 2025 are modifications to capitalization of domestic research and development costs, accelerated depreciation of fixed assets and other qualifying property, as well as limitations on deductions for interest expense. Changes effective in 2026 include, among others, modifications to certain international tax provisions. The impacts of OBBBA are reflected in our results for the year ended December 31, 2025. There was no material effect on our income tax expense or effective tax rate.