Quoin Pharmaceuticals, Ltd. Income Taxes Disclosure

NOTE 14 – INCOME TAXES

The Company’s U.S. and foreign loss before income taxes are set forth below:

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Income tax expense differed from the amounts computed by applying the U.S. Federal statutory income tax rate to income (loss) before income taxes, as presented in conformity with ASU 2023-09 as follows:

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Significant components of the Company’s deferred tax assets and liabilities at December 31, 2025 and December 31, 2024 are as follows:

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The income tax benefit for the years ended December 31, 2024 as presented in conformity with ASU 2023-09 as follows, differed from the amounts computed by applying the U.S. federal income tax rate of 21% to loss before tax benefit as a result of nondeductible expenses, tax credits generated, utilization of net operating loss carryforwards, and increases in the Company’s valuation allowance.

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In assessing the realizability of the net deferred tax assets, the Company considers all relevant positive and negative evidence to determine whether it is more likely than not that some portion of the deferred income tax will not be realized. The realization of the gross deferred tax assets is dependent on several factors, including the generation of sufficient taxable income prior to expiration of the net operation loss carryforwards. At December 31, 2025 and 2024 the Company has recorded a full valuation allowance against its net deferred tax assets of approximately $12,014,660 and $8,468,983 respectively. The change in the valuation allowance during the year ended 2025 was approximately $3,546,000.

At December 31, 2025, the Company had federal net operation loss (NOL) carryforwards of approximately $34,811,000. At December 31, 2025, the Company had federal research and development credit carryforwards of approximately $434,000. The federal net operating loss carryforwards begin to expire in 2028, losses generated in 2018 or later of $34,811,000 will carry forward indefinitely. The federal credit carryforwards begin to expire in 2045. Sections 382 and 383 of the Internal Revenue Code of 1986 subject the future utilization of net operating losses and certain other tax attributes, such as research and experimental tax credits, to an annual limitation in the event of certain ownership changes, as defined. The Company may be subject to the net operating loss utilization provision of Section 382 of the Internal Revenue Code. The effect of an ownership change would be the imposition of an annual limitation of the use of NOL carryforwards attributable to periods before the change. The amount of the annual limitation depends upon the value of the Company immediately before the change, changes to the Company’s capital during a specified period prior to the change, and the federal published interest rate. Although the Company has not completed an analysis under Section 382 of the Code, it is likely that the utilization of the NOLs will be limited.

The Internal Revenue Code (the “IRC”) contains limitations on the use of net operating loss carryforwards after the occurrence of a substantial ownership change as defined by IRC Section 382. The Company has not performed a detailed analysis, however utilization of such net operating loss carryforwards will likely be significantly limited due to the shares issued in the Primary Financing and the Merger.

Entities are also required to evaluate, measure, recognize and disclose any uncertain income tax provisions taken on their income tax returns. The Company has analyzed its tax positions and has concluded that as of December 31, 2025 there were no uncertain positions. The Company’s U.S. federal and state net operating losses have occurred since its inception in 2009 and as such, tax years subject to potential tax examination could apply from that date. This is because the utilization of net operating losses from prior years opens the relevant year to audit by the IRS and/or state taxing authorities. Interest and penalties, if any, as they relate to income taxes assessed, are included in the income tax provision. The Company did not have any unrecognized tax benefits and has not accrued any interest or penalties for the 12 months ended December 31, 2025 and 2024.

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 had to 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. Therefore, the capitalization of research and development costs in accordance with IRC 174 resulted in a gross deferred tax asset of $6,717,000 as at December 31, 2024. The One Big Beautiful Bill Act of 2025 (OBBBA) further amended IRC 174 by introduction IRC 174A allowing immediate deduction of R&D expenses for U.S. activities from 2025 onwards, reversing the five-year amortization under the TCJA. The OBBBA further provided the option of amending prior years’ returns (2022-2024) to deduct previously capitalized R&D expenses. As of December 31, 2025, the Company does not intend to amend its prior year returns.