SOLENO THERAPEUTICS INC Income Taxes Disclosure

Note 9. Income Taxes

Provision (Benefit) for Income Taxes

The Company recorded no provision for income taxes for the years ended December 31, 2025, 2024 and 2023.

Deferred Tax Assets and Liabilities

Deferred income taxes reflect the net tax effects of loss and 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. Significant components of the Company's deferred tax assets for federal and state income taxes are as follows (in thousands):

The Company has recorded a full valuation allowance against its net deferred tax assets due to the uncertainty as to whether such assets will be realized. The valuation allowance decreased by $3.6 million from December 31, 2024 to December 31, 2025 primarily due to expensing of unamortized basis of capitalized research and development expenses.

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 (in thousands):

As of December 31, 2025, the Company had $179.7 million of federal and $122.1 million of state net operating losses available to offset future taxable income. The Federal net operating loss carryforwards arising from years prior to 2018 began to expire in 2022, however post 2017 federal net operating loss carryforwards of $162.5 million may be carried forward indefinitely. The state net operating loss carryforwards will begin to expire in 2028. As of December 31, 2025, the Company also had $24.6 million of federal orphan drug and research and development credits and $6.4 million of state research and development credit carryforwards. The federal research and development credit carryforward begin to expire in 2025 and the state research and development credit can be carried forward indefinitely.

Utilization of net operating loss and tax credit carryforwards may be subject to certain limitations under Section 382 of the Internal Revenue Code of 1986, as amended, in the event of a change in the Company’s ownership, as defined. The annual limitation may result in the expiration of the net operating loss and tax credit before utilization. The Company has completed a Section 382 analysis from January 1, 2017 through June 30, 2025 and determined that a change in ownership has occurred on March 7, 2017, December 21, 2018, June 30, 2020, September 26, 2023, and June 30, 2024. As a result, the net operating loss carryforwards and tax credit carryforwards may be subject to annual limitations before being applied to reduce future income tax liabilities. For years ended after December 31, 2025, the utilization of net operating losses and tax credit carryforwards may be subject to further limitation in the event an additional ownership change were to occur for tax purposes.

U.S. taxes and foreign withholding taxes have not been provided on undistributed earnings for certain non-U.S. subsidiaries as of December 31, 2025, as the earnings, if any, are intended to be indefinitely reinvested.

The Company uses the “more likely than not” criterion for recognizing the tax benefit of uncertain tax positions and to establish measurement criteria for income tax benefits. The Company has determined it has $9.3 million of unrecognized assets and liabilities related to uncertain tax positions as of December 31, 2025. In the event the Company should need to recognize interest and penalties related to unrecognized tax liabilities, this amount will be recorded as a component of other expense.

There were no unrecognized tax benefits that would impact the effective tax rate as of December 31, 2025 and December 31, 2024. As of December 31, 2025, unrecognized tax benefits of $9.3 million would be offset by a change in valuation allowance.

The Company files income tax returns in the U.S. federal jurisdiction, certain state jurisdictions, United Kingdom and Ireland. In the normal course of business, the Company is subject to examination by federal, state, local and foreign jurisdictions, where applicable. In the U.S federal jurisdiction, tax years 2006 forward remain open to examination, in the state tax jurisdiction, years 2008 forward remain open to examination and in the foreign jurisdiction, years 2015 forward remain open to examination. The Company is currently not under audit by any federal, state, local or foreign jurisdiction.