Traws Pharma, Inc. Income Taxes Disclosure
11. Income Taxes
The Company accounts for income taxes under FASB ASC 740 (“ASC 740”). Deferred income tax assets and liabilities are determined based upon differences between financial reporting and tax bases of assets and liabilities, which are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
Income taxes have been based on the following income (loss) before income tax expense:
December 31, | ||||||
| 2025 | | 2024 | |||
Domestic | $ | 15,660,000 | $ | (161,830,000) | ||
Foreign |
| (6,490,000) |
| (4,696,000) | ||
$ | 9,170,000 | $ | (166,526,000) | |||
As of December 31, 2025, the Company had federal net operating loss (“NOL”) carry forwards of $132,839,000 state NOL carry forwards of $39,718,000, foreign NOL of $1,610,000 and federal research and development tax credit carry forwards of $0, which may be available to reduce future taxable income. The federal NOL, that was generated before the 2025 tax year, and the tax credit carry forwards will begin to expire at various dates starting in 2026. The state NOL carry forwards will begin to expire at various dates starting in 2026. In accordance with Section 382 of the Internal Revenue Code of 1986, as amended, a change in equity ownership of greater than 50% within a three-year period results in an annual limitation on the Company’s ability to utilize its NOL carryforwards created during the tax periods prior to the change in ownership. The Company has determined that they have gone through an ownership change during 2024 and completed an ownership change analysis pursuant to Section 382. As a result, the utilization of a portion of the Company’s
NOL carryforwards is subject to an annual limitation under Section 382. The limitation may cause certain NOLs to expire unused before being fully utilized. Because the Company has incurred cumulative net operating losses since inception, all tax years remain open to examination by U.S. federal and state income tax authorities.
The Company’s reserves related to taxes are based on a determination of whether and how much of a tax benefit taken by the Company in its tax filings or positions is more likely than not to be realized. The Company recognized no material adjustment for unrecognized income tax benefits. Through December 31, 2025, the Company had no unrecognized tax benefits or related interest and penalties accrued.
The principal components of the Company’s deferred tax assets are as follows:
December 31, | ||||||
| 2025 | | 2024 | |||
Deferred tax assets: | ||||||
Net operating loss carryovers | $ | 29,865,000 | $ | 28,324,000 | ||
Non-qualified stock options |
| 2,544,000 |
| 2,509,000 | ||
Deferred revenue |
| — |
| 696,000 | ||
Fixed assets |
| — |
| 2,000 | ||
Accrued expenses |
| 686,000 |
| 459,000 | ||
Capitalized research and development costs |
| 6,671,000 |
| 4,839,000 | ||
Healthcare withholding - SARs | — | 11,000 | ||||
Deferred tax assets |
| 39,766,000 |
| 36,840,000 | ||
Less valuation allowance |
| (39,766,000) |
| (36,840,000) | ||
Net deferred tax assets | $ | — | $ | — | ||
ASC 740 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After consideration of all the evidence, both positive and negative, the Company has recorded a full valuation allowance against its deferred tax assets at December 31, 2025. The Company experienced a net change in valuation allowance of $2,926,000 and $(137,452,000) for the years ended December 31, 2025 and 2024, respectively.
A reconciliation of the provision for income to the amount computed by applying the 21% statutory income tax rate to income before income taxes after the adoption of ASU 2023-09 as follows:
Year Ended December 31, | |||||
| 2025 | ||||
Percent | |||||
Federal statutory income tax | $ | 1,927,000 | 21.00 | % | |
State and Local Income Taxes, Net of Federal Income Tax Effect (a) |
| — | |||
Foreign Tax Effect | |||||
Australia | |||||
Statutory tax rate differential |
| (260,000) | (2.83) | ||
Research and development costs | 1,626,000 | 17.72 | |||
Other foreign jurisdictions | (3,000) | (0.03) | |||
Change in Valuation Allowance | 2,162,000 | 23.56 | |||
Nontaxable or Nondeductible Items |
| ||||
Warrants | (5,579,000) | (60.81) | |||
Other | 23,000 | 0.26 | |||
Other Reconciling Items | |||||
Stock options expired or cancelled | 104,000 | 1.13 | |||
Effective income tax rate | $ | — | — | % | |
| (a) | The Company did not record state income tax expense or benefit for the period; therefore, no state-related reconciling item is included in the effective tax rate reconciliation. |
The Company did not pay income taxes during the year ended December 31, 2025. Income tax payments were not required during the period as a result of generating net operating losses. Accordingly, no disaggregation of income taxes paid by jurisdiction has been provided.
As previously disclosed for the years ended December 31, 2024 prior to the adoption of ASU 2023-09, the following is a reconciliation of the difference between the effective income tax rate and federal statutory rate:
December 31, | |||
2024 | |||
Federal income tax expense at statutory rate | 21.0 | % | |
Permanent items | (17.9) | ||
Foreign permanent items | (0.7) | ||
Foreign rate differential | 0.1 | ||
State income tax, net of federal benefit | 0.5 | ||
State expirations | — | ||
Tax credits | — | ||
Change in valuation allowance | 83.6 | ||
Deferred tax adjustment | (1.0) | ||
State tax rate changes | — | ||
Sec 382 expirations | (84.0) | ||
Other | (1.6) | ||
Effective income tax rate | — | % |
On July 4, 2025, the One Big Beautiful Bill Act, or OBBBA, was signed into law in the United States. This comprehensive tax legislation contains a broad range of tax reforms, including provisions that allow for the immediate expensing of domestic research and development expenses, restore and make permanent 100% bonus depreciation for qualifying assets, and ease limitations on the deductibility of interest expense. The legislation has multiple effective dates, with certain provisions taking effect in 2025 and others being implemented through various future years. The Company has accounted for the provisions of the OBBBA in its consolidated financial statements. The changes did not impact income taxes due to its cumulative tax loss and tax effect of a full valuation allowance against those balances.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Apr 15, 2026 | Showing above |
| 2024 | Mar 31, 2025 | |
| 2023 | Apr 1, 2024 | |
| 2022 | Mar 30, 2023 | |
| 2021 | Mar 21, 2022 | |
| 2020 | Mar 18, 2021 | |
| 2019 | Mar 27, 2020 | |
| 2018 | Apr 1, 2019 | |
| 2017 | Mar 16, 2018 | |
| 2016 | Mar 29, 2017 | |
| 2015 | Mar 28, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.