Company: SION
Filing Date: 2025-01-17
Form Type: S-1
Source: 0001193125-25-008474
Chunk: 342

Company: Sionna Therapeutics, Inc.
Filing Date: 2025-01-17
Form: S-1
Chunk 342
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 The Company reevaluates the positive and negative evidence at each reporting period. The
Company’s valuation allowance increased during 2023 by approximately $14.2 million, primarily due to the capitalization of research and experimental expenditures and the increase in net operating loss and tax credit carryforwards.

Under the provision of the Internal Revenue Code, the net operating loss and tax credit carryforwards are subject to review and possible adjustment by
the Internal Revenue Service and state tax authorities. Net operating loss and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative change in the ownership interest of significant shareholders over a
three-year period in excess of 50%, as defined under Section 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset
future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership change may further affect the limitation in future years.
The Company has not yet completed a change in control analysis, as defined under Section 382 and 383 of the Internal Revenue Code, through December 31, 2023, and the Company has not determined whether the future utilization of net
operating loss carryforwards may be materially limited based on past financings. In addition, the Company may complete future financings that could result in a change in control in the future which may limit the amount of tax attributes available to
offset future tax liabilities.

We account for income taxes by evaluating a probability threshold that a tax position must meet before a financial
statement benefit is recognized. The minimum threshold is a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on
the technical merits of the position.

The Company didn’t have any unrecognized tax benefits as of December 31, 2023 or 2022,
respectively. The Company does not expect its unrecognized tax benefits to change significantly over the next year. Realization of the future tax benefits is dependent on the many factors, including the Company’s ability to generate taxable
income. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2023 and 2022, the Company’s balance of interest and penalties was zero.

F-27

The Company files tax returns as prescribed by