Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

There was no provision for income taxes for the years ended December 31, 2022 and 2021, due to the Company’s operating losses and a full valuation allowance on deferred tax assets. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:

	December 31,
	2022			2021
Deferred tax assets:
Net operating loss carry forwards	$	17,548,951		$	12,059,019
Capitalized research and development costs		22,913,646			18,865,707
Accrued liabilities		691,212			156,415
Tax credit carryforwards		9,457,090			8,730,816
Stock-based compensation		2,086,266			1,745,654
Deferred collaboration funding		2,151,339			3,312,415
Operating lease		63,824			94,946
Debt issuance costs		229,073			—
Unrealized foreign exchange gain		13,756			(3,616	)
Total deferred tax assets		55,155,157			44,961,356
Valuation allowance		(55,033,001	)		(44,866,411	)
Net deferred tax assets		122,156			94,945
Deferred tax liabilities:
Operating lease right of use asset		(59,470	)		(94,945	)
Fair value debt		(62,686	)		—
Total deferred tax liabilities		(122,156	)		(94,945	)
	$	—		$	—

A reconciliation of the U.S. federal statutory tax rate to the effective tax rate is as follows:

	December 31,
	2022			2021
Federal statutory rate		21.0	%		21.0	%
R&D and Orphan Drug credits		2.7	%		6.4	%
State income tax, net of federal tax benefit		15.9	%		5.4	%
Valuation allowance		(38.9	%)		(33.2	%)
Share-based compensation		(0.7	%)		(0.3	%)
Other, net		0.0	%		0.7	%
Effective tax rate		0.0	%		0.0	%

Management currently believes that it is more likely than not that the deferred tax assets relating to the loss carryforwards and other temporary differences will not be realized in the future. Through December 31, 2022, for income tax reporting purposes, the Company had U.S. federal net operating loss carryforwards of $66.6 million and research and development credits and Orphan Drug credits of $9.4 million that can be carried forward and offset against taxable income. For state purposes, the Company had state net operating loss carryforwards of $65.6 million and research and development credits of $67 thousand that can be carried forward and offset against taxable income. Federal net operating loss generated prior to 2018 and Massachusetts net operating losses can be carried forward for 20 years and begin to expire in 2031. Research and development credits and Orphan Drug credits begin to expire in 2032 and 2034, respectively. Federal net operating loss generated after 2017 can be carried forward indefinitely. Utilization of net operating losses may be subject to substantial annual limitations due to the “change in ownership” provisions of the Internal Revenue Code of 1986, and similar state provisions. The annual limitations may result in the expiration of net operating losses before utilization.

There were no uncertain tax positions that require accrual or disclosure in the financial statements as of December 31, 2022 and 2021. The Company’s policy is to recognize interest and penalties related to income tax, if any, in income tax expense. As of December 31, 2022 and 2021, the Company had no accruals for interest or penalties related to income tax matters.

Beginning in 2022, the Tax Cuts and Jobs Act of 2017 (“TCJA”) eliminated the option to deduct research and development expenditures in the current year pursuant to IRC Section 174 and requires taxpayers to amortize them

over five years for research performed in the U.S. and fifteen years for research performed outside the U.S. We have included the impact of this provision, which results in a gross deferred tax asset of approximately $19.0 million as of December 31, 2022.

The 2017 merger of Opexa Therapeutics, Inc. and private Acer Therapeutics Inc. resulted in an ownership change for the Company. Additional ownership changes in the future could result in additional limitations on the Company’s net operating loss carryforwards and certain other tax attributes. Consequently, even if the Company achieves profitability, it may not be able to utilize a material portion of its net operating loss carryforwards and certain other tax attributes, which could increase its tax obligations and thus have a material adverse effect on its cash flow and results of operations.

Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an ‘‘ownership change,’’ the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income and taxes may be limited. In general, an “ownership change” generally occurs if there is a cumulative change in the Company’s ownership by “five-percent shareholders” that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. The Company experienced an ownership change on July 17, 2015 and August 3, 2018, and may experience ownership changes in the future as a result of this issuance or future transactions in the Company’s stock, some of which may be outside the Company’s control. As a result, if the Company earns net taxable income, the Company’s ability to use the Company’s pre-change net operating loss carryforwards, or other pre-change tax attributes, to offset U.S. federal and state taxable income and taxes may be subject to significant limitations.