Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

8. INCOME TAXES

121

There was no provision for income taxes for the years ended December 31, 2021 and 2020, 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,
	2021			2020
Deferred tax assets:
Net operating loss carry forwards	$	12,059,019		$	11,979,869
Capitalized research and development costs		18,865,707			18,650,538
Accrued liabilities		156,415			111,481
Tax credit carryforwards		8,730,816			7,755,146
Stock-based compensation		1,745,654			1,229,407
Deferred collaboration funding		3,312,415			—
Operating lease		94,946			86,491
Total deferred tax assets		44,964,972			39,812,932
Valuation allowance		(44,866,411	)		(39,726,441	)
Net deferred tax assets		98,561			86,491
Deferred tax liabilities:
Operating lease right of use asset		(94,945	)		(86,491	)
Unrealized foreign exchange gain		(3,616	)		—
Total deferred tax liabilities		(98,561	)		(86,491	)
	$	—		$	—

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

	December 31,
	2021			2020
Federal statutory rate		21.0	%		21.0	%
R&D and Orphan Drug credits		6.4	%		2.5	%
State income tax, net of federal tax benefit		5.4	%		1.5	%
Valuation allowance		(33.2	%)		(24.3	%)
Share-based compensation		(0.3	%)		(0.8	%)
Other, net		0.7	%		0.1	%
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, 2021, for income tax reporting purposes, the Company had U.S. federal and state net operating loss carryforwards of $51.1 million and research and development credits and Orphan Drug credits of $8.7 million that can be carried forward and offset against taxable income. For state purposes, the Company had state net operating loss carryforwards of $1.7 million and research and development credits of $0.1 million that can be carried forward and offset against taxable income. Federal net operating loss, research and development credits, and Orphan Drug credits generated prior to 2018 and Massachusetts net operating losses can be carried forward for 20 years and begin to expire in 2022. 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, 2021 and 2020. The Company’s policy is to recognize interest and penalties related to income tax, if any, in income tax expense. As of December 31, 2021 and 2020, the Company had no accruals for interest or penalties related to income tax matters.

122

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.