Note 7 – Income Taxes

The Company’s income tax (benefit)/provision is as follows for the years ended December 31, 2024 and 2023:

Schedule of Income Tax (Benefit)/Provision 

The reconciliation of income taxes using the statutory U.S. income tax rate and the benefit from income taxes for the years ended December 31, 2024 and 2023 are as follows:

Schedule of Reconciliation of Income Tax Rate and Benefit from Income Taxes 

As of December 31, 2024, and 2023, the Company had U.S. federal net operating loss carry forwards of approximately $116.5 million and $113.1 million, respectively. Approximately $47.1 million of the U.S. federal net operating loss generated in tax years beginning before January 1, 2018 expire beginning with the year ending December 31, 2025 through 2037. The remaining U.S. federal net operating loss of approximately $69.4 million does not expire, however it is limited to 80% of each subsequent year’s net income. As of December 31, 2024, and 2023, the Company had U.S. state net operating loss carry forwards of approximately $55.7 million and $45.2 million, respectively, some of which expire beginning with the year ending December 31, 2025 through 2044. U.S. federal net operating losses of approximately $4.4 million expired during 2024. The timing and manner in which the Company can utilize operating loss carryforwards in any year may be limited by provisions of the Internal Revenue Code regarding changes in ownership of corporations. Such limitation may have an impact on the ultimate realization of its carryforwards and future tax deductions.

Under Section 382 of the Code, use of the Company’s net operating loss carryforwards is limited if the Company experiences a cumulative change in ownership of greater than 50% in a moving three-year period. The Company experienced an ownership change as a result of the Merger and therefore the Company’s ability to utilize its net operating loss and certain credit carryforwards are limited. The limitation is determined by the fair market value of the Company’s common stock outstanding immediately prior to the ownership change, multiplied by the applicable federal rate. It is expected that the Merger caused the Company’s net operating loss carryforwards to be limited. However, the limitation had no impact on the Company’s financial statements since the Company recorded a full valuation allowance for the deferred tax assets as of December 31, 2024 and 2023.

The principal components of the deferred tax assets and liabilities, and related valuation allowances as of December 31, 2024 and 2023 are as follows:

Schedule of Deferred Tax Assets and Related Valuation Allowances 

The valuation allowance for deferred tax assets increased by approximately $5.4 million during the year ended December 31, 2024, due mainly to increases in the Company’s deferred tax asset related to increases in the Company’s cumulative deductible temporary differences and decreases in the Company’s cumulative taxable temporary differences. The valuation allowance for deferred tax assets (decreased) by approximately $(4.1) million during the year ended December 31, 2023, due mainly to write-offs of the gross deferred tax asset related to share-based compensation, net of increases in the Company’s deferred tax assets related to its net operating loss carryforward and capitalized research expenses. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets may be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the net operating losses and temporary differences become deductible. Management considers projected future taxable income and tax planning strategies in making this assessment.

The Company’s policy for recording interest and penalties associated with tax audits is to record such items as a component of general and administrative expense. There were no amounts accrued for penalties and interest for the years ended December 31, 2024 and 2023. The Company does not expect its uncertain tax position to change during the next twelve months. Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.

The Company files U.S. federal income tax returns and state income tax returns. Since the Company had losses in the past, all prior years that generated net operating loss carryforwards are open and subject to audit examination in relation to the net operating loss generated from those years.