TALPHERA, INC. Income Taxes Disclosure

14. Income Taxes

 

The Company did not accrue or pay any income taxes in the years ended December 31, 2025 or 2024.

 

Net deferred tax assets as of December 31, 2025 and 2024, consist of the following (in thousands):

 

		December 31, 2025				December 31, 2024
Deferred tax assets:
Accruals and other		$	1,854			$	1,347
Research credits			3,006				8,379
Net operating loss carryforward			63,733				90,142
Section 59(e) R&D expenditures			2,763				1,136
Section 174 R&D expenditures			1,780				2,446
XOMA royalty			1,819				1,371
Total deferred tax assets			74,955				104,821
Deferred tax liabilities:
IP from acquisition			(2,468	)			(1,852	)
Total deferred tax liabilities			(2,468	)			(1,852	)
Valuation allowance			(72,487	)			(102,969	)
Net deferred tax assets		$	—			$	—

 

The Company adopted ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures prospectively, as disclosed in Note 1. The following is a reconciliation between the provision for income taxes and income taxes computed using the U.S. federal statutory corporate tax rate for the year ended December 31, 2025, in accordance with the new disclosure requirements (in thousands):

 

		Year Ended December 31, 2025
		Amount				Percent
Tax at statutory federal rate		$	(3,001	)			21	%
State tax—net of federal benefit			-				0	%
Research credits			(93	)			1	%
Stock options			266				(2	)%
Other			(89	)			1	%
Change in valuation allowance			(24,439	)			171	%
Revaluation of put option liability			276				(2	)%
Expiration of NOL’s/credits due to ownership change			27,080				(190	)%
Provision for income taxes		$	-				0	%

 

The following is a reconciliation between the provision for income taxes and income taxes computed using the U.S. federal statutory corporate tax rate for the year ended December 31, 2024, in accordance with the guidance prior to the adoption of ASU 2023-09 (in thousands):

 

		Year Ended December 31, 2024
Tax at statutory federal rate		$	(2,731	)
State tax—net of federal benefit			55
Research credits			(363	)
Stock options			319
Other			10
Change in valuation allowance			2,860
Revaluation of put option liability			(150	)
Expiration of NOL’s/credits due to ownership change			—
Provision for income taxes		$	—

 

ASC 740 requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of deferred tax assets is dependent on future taxable income, if any, the timing and the amount of which are uncertain. Accordingly, the deferred tax assets have been fully offset by a valuation allowance. The valuation allowance decreased by $30.5 million and increased by $2.9 million during the years ended December 31, 2025 and 2024, respectively.

 

As of December 31, 2025, the Company had federal net operating loss carryforwards of $295.9 million, of which $12.7 million federal net operating losses generated before January 1, 2018, will begin to expire in 2029. Federal net operating losses of $283.2 million generated from 2018 to 2025, will carryforward indefinitely but are subject to the 80% taxable income limitation. As of December 31, 2025, the Company had state net operating loss carryforwards of $23.0 million, which begin to expire in 2028.

 

As of December 31, 2025, the Company had federal research credit carryovers of $0.1 million, which begin to expire in 2045. As of December 31, 2025, the Company had state research credit carryovers of $4.9 million, which will carryforward indefinitely.

 

Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes, such as research credits, to offset its post-change income may be limited. Based on an analysis performed by the Company as of December 31, 2025, an ownership change occurred September 10, 2025. The ownership change results in an annual limitation of approximately $1.7 million for the first five years after the change, and a limitation of approximately $0.6 million thereafter for federal net operating loss carryforwards, and a limitation of approximately $0.6 million annually for California net operating loss carryforwards. As a result of the change, approximately $102.2 million in federal net operating loss carryforwards approximately $119.6 million of California net operating loss carryforwards, and approximately $7.5 million of federal research and development credit carryforwards will expire unutilized.

 

Uncertain Tax Positions

 

A reconciliation of the beginning and ending balances of the unrecognized tax benefits during the years ended December 31, 2025 and 2024, is as follows (in thousands):

 

 

 

		Year Ended December 31,
		2025				2024
Unrecognized benefit—beginning of period		$	3,031			$	2,835
Gross decrease—NOL’s/credits limitation			(1,753	)			—
Gross increases—current period tax positions			97				196
Unrecognized benefit—end of period		$	1,375			$	3,031

 

The entire amount of the unrecognized tax benefits would not impact the Company’s effective tax rate if recognized.

 

There were no accrued interest or penalties related to unrecognized tax benefits in the years ended December 31, 2025 or 2024. The Company files income tax returns in the United States, California, and other states. The tax years 2005 through 2014, and 2016 through 2025, remain open in all jurisdictions. The Company is not currently under examination by income tax authorities in U.S. federal, state or foreign jurisdictions. The Company does not anticipate any significant changes within 12 months of this reporting date of its uncertain tax positions.