Note 12 – Income Taxes

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company’s deferred tax assets relate primarily to its net operating loss carryforwards and other balance sheet basis differences. In accordance with ASC 740, “Income Taxes,” the Company recorded a valuation allowance to fully offset the gross deferred tax asset, because it is not more likely than not that the Company will realize future benefits associated with these deferred tax assets at December 31, 2023 and 2022.

As of December 31, 2023 and 2022, the Company had deferred tax assets of approximately $40,200 and $37,400, respectively, against which a full valuation allowance of $40,200 and $37,400, respectively had been recorded. The change in the valuation allowance for the year ended December 31, 2023 was an increase of $2,800. The increase in the valuation allowance for the year ended December 31, 2023 was mainly attributable to increases in net operating losses and non-deductible research expenses, which resulted in an increase in the deferred tax assets with a corresponding valuation allowance. Significant components of the Company’s deferred tax assets at December 31, 2023 and 2022 were as follows:

 Schedule of Deferred Tax Assets

A reconciliation of the federal statutory tax rate and the effective tax rates for the years ended December 31, 2023 and 2022 is as follows:

 Schedule of Effective Income Tax Rate Reconciliation

The Company had approximately $151,400 and $134,100 of gross net operating loss (“NOL”) carryforwards (Federal, state and Israel) as of December 31, 2023 and 2022, respectively. Sections 382 and 383 of the Internal Revenue Code, and similar state regulations, contain provisions that may limit the NOL carryforwards available to be used to offset income in any given year upon the occurrence of certain events, including changes in the ownership interests of significant stockholders. In the event of a cumulative change in ownership in excess of 50% over a three-year period, the amount of the NOL carryforwards that the Company may utilize in any one year may be limited.

The Tax Cuts and Jobs Act of 2017 (TCJA) has modified the IRC 174 expenses related to research and development for the tax years beginning after December 31, 2021. Under the TCJA, the Company must now capitalize the expenditures related to research and development activities and amortize over five years for U.S. activities and 15 years for non-U.S. activities using a mid-year convention. Since this has been the Company’s policy since 2019, the current year net capitalization of research and development costs in accordance with IRC 174 was $1.8 million for a total net accumulated gross amount of $10.6 million as of December 31, 2023.

During the year ended December 31, 2021, the Company incurred an ownership change under Internal Revenue Code Section 382, resulting in an annual NOL utilization limitation of approximately $3,700. None of the Company’s NOL carryforwards or deferred tax assets were required to be reduced since the limitation did not preclude the Company from potentially utilizing all of its NOL carryforwards. Future significant ownership changes could cause a portion or all of the Company’s NOL carryforwards to expire before utilization, however.

A reconciliation of the Company’s NOLs for the years ended December 31, 2023 and 2022 is as follows:

 Schedule of Reconciliation of NOL

The Company’s Federal and state NOLs of $3,300 and $34,266, respectively, begin to expire after 2036 through 2042. The Company’s Federal NOL of $32,376, generated since 2018, and the Israel NOL of $81,480 do not expire. A check the box election for Israel was made and accepted by the IRS as of January 1, 2019. As such, approximately $37,600 of Israeli NOLs are available for use in the U.S and have an indefinite life.

The Company follows guidance on accounting for uncertainty in income taxes which prescribes a minimum threshold a tax position is required to meet before being recognized in the financial statements. The Company does not have any liabilities as of December 31, 2023 and 2022 to account for potential income tax exposure. The Company is obligated to file income tax returns in the U.S. federal jurisdiction, several U.S. States and Israel. Since the Company had losses in the past, all prior years that generated net operating loss carry-forwards are open and subject to audit examination in relation to the net operating loss generated from those years.