Scilex Holding Co Income Taxes Disclosure

14. Income Taxes

The reconciliation between U.S. federal income taxes at the statutory rate and the Company’s provision for income taxes are as follows for the years ended December 31, 2025 (in thousands):

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of the Company’s net deferred tax liabilities and related valuation allowance are as follows as of December 31, 2025 and 2024 (in thousands):

The Company has evaluated the available evidence supporting the realization of its gross deferred tax assets, including the amount and timing of future taxable income, and has determined that it is more likely than not that the deferred tax assets will not be realized. Due to such uncertainties surrounding the realization of the deferred tax assets, the Company maintains a valuation allowance of $111.4 million against its deferred tax assets as of December 31, 2025. Realization of the deferred tax assets will be primarily dependent upon the Company’s ability to generate sufficient taxable income prior to the expiration of its net operating losses. The valuation allowance is $113.7 million as of December 31, 2024, and $111.4 million as of December 31, 2025. The valuation allowance decreases by $2.3 million during the year ended December 31, 2025.

As of December 31, 2025, the Company had a federal net operating loss carryforward of approximately $345.8 million, of which approximately $14.7 million will begin to expire in 2033 for federal tax purposes, and approximately $331.1 million in federal net operating losses carryforward can be carried forward indefinitely. While these federal net operating loss (“NOL”) do not expire, the Tax Cuts & Jobs Act of 2017 limits the amount of federal net operating loss utilized each year after December 31, 2017, to 80% of taxable income. As of December 31, 2025, the Company has a state net operating loss carryforward of approximately $250.5 million.

As of December 31, 2025, the Company had a foreign net operating loss carryforward of approximately $38.1 million for the Vivasor China entities.

As of December 31, 2025, the Company had federal research and development income tax credits of $3.4 million which will begin to expire in 2033. As of December 31, 2025, the Company had California research and development income tax credits of $1.9 million that have an indefinite life and will not expire.

Pursuant to Internal Revenue Code Section 38, a corporation’s ability to utilize its NOL and tax credit carryforwards may be subject to annual limitations in the event of an ownership change, as defined under Section 382.

The Company has not performed a Section 382 ownership change analysis for periods subsequent to December 31, 2022. Management has been advised to undertake a Section 382 study for the period from 2023 through 2025; such analysis is currently in progress.

Utilization of pre-2020 NOLs has been carried out in accordance with the limitations established in the prior study performed.

The Company is subject to taxation in U.S. federal and state tax jurisdictions. The Company has incurred net operating losses since inception. Accordingly, all tax years remain open to examination by taxing authorities to the extent of net operating losses carried forward and utilized in future periods. Upon utilization, the statute of limitations will remain open for examination for three years from the date of utilization. There are no active tax examinations as of December 31, 2025.

During the year ended December 31, 2025, Semnur ceased to be a member of the consolidated federal income tax group of the Company due to a reduction in ownership below the threshold required under Internal Revenue Code Section 1504.

As of December 31, 2025 and 2024, the Company had $1.1 million and $1.2 million in total unrecognized tax benefits, respectively, which have been reflected as a reduction in deferred tax assets. If these were to be recognized, they would affect the effective tax rate, however given the full valuation allowance in the jurisdiction in which the unrecognized tax benefits relate to, the impact on the effective tax rate would be nil.

The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense. No interest or penalties have been recognized as of and for the years ended December 31, 2025 and 2024.

The Company believes that no material amount of the liabilities for uncertain tax positions are expected to reverse within 12 months of December 31, 2025.