Income Tax

12 Months Ended

Dec. 31, 2023

Income Tax

Income Tax

14.        Income Tax

The components of income tax benefit are as follows:

	2023		2022
Current Expense:
Federal	$	—	$	—
State		—		—
Foreign		—		—
		—		—
Deferred Expense:
Federal	$	(521,420)	$	(215,937)
State		(49,700)		—
Foreign		—		—
Total	$	(571,120)	$	(215,937)

The differences between the company’s income tax benefit and the benefit computed at the 21% United States statutory income tax rate were as follows:

	2023		2022
Federal income tax benefit at statutory rate:	$	(8,620,900)	$	(8,734,000)
Increase (reduction) in income tax resulting from:
State income taxes		(8,900)		(146,000)
Foreign rate differential		(2,200)		(19,000)
Nondeductible expenses		57,200		1,000
Research and development credit		—		(1,312,000)
Stock based compensation		351,500		192,000
Excess executive compensation		—		9,000
Prior Period True-Ups		(288,400)		—
Change in state tax rate		358,000		—
Purchase Accounting Adjustment		(571,120)		—
Reserve for loss carryforwards limited by Sec. 382		—		8,000
Other		(5,300)		65,063
Increase in valuation allowance		8,159,000		9,720,000
Income tax (benefit) provision	$	(571,120)	$	(215,937)

The tax effects of temporary differences and operating loss carryforwards that gave rise to significant portions of the deferred tax assets and deferred tax liabilities were as follows at December 31, 2023 and 2022:

	2023		2022
Deferred tax assets:
Net operating losses	$	28,914,050	$	24,542,949
R&D credits		3,830,306		3,822,392
Stock compensation		2,799,908		2,974,242
Lease liability		2,951,877		—
Deferred revenue		6,307		7,465
Section 174 costs		7,481,832		4,041,814
Other		319,826		—
Unrealized gains/losses		507,547		583,683
Deferred tax assets		46,811,653		35,972,545
Deferred tax liabilities:
Intangible assets		—		—
Property, plant and equipment, primarily due to differences in depreciation		(738,290)		(553,840)
Lease liability		(5,573,944)		(2,732,712)
Other		—		(99,272)
Deferred tax liabilities		(6,312,234)		(3,385,824)
Valuation allowance		(40,499,419)		(32,586,721)
Net deferred tax (liabilities)	$	—	$	—

At December 31, 2023 and December 31, 2022, the Company evaluated all significant available positive and negative evidence, including the existence of losses in recent years and management’s forecast of future taxable income, and, as a result, determined it was more likely than not that federal, foreign, and state deferred tax assets, including benefits related to net operating loss carryforwards, would not be realized. Accordingly, the deferred tax assets have been fully offset by a valuation allowance of $40.5 milion and $32.6 million as of December 31, 2023 and 2022, respectively.

As of December 31, 2023, and 2022, the Company’s U.S. federal net operating loss (“NOL”) carryforwards were approximately $197.0 million and $174.3 million, respectively. However, due to Section 382 limitations, only $136.3 million of the NOLs are available to offset future taxable income. Of the $136.3 million of available federal net operating loss carryforwards, $128.2 million were incurred after December 31, 2017 and therefore, will not expire. The remaining $8.1 million of available federal net operating loss carryforwards begin to expire in 2029. As of December 31, 2023, and 2022, the Company had state NOL carryforwards of approximately $126.5 million and $124.5 million, respectively. Due to Section 382 limitations, only $2.8 million of the state NOLs are available to offset future taxable income. The state net operating losses that are available to offset future taxable income begin to expire in 2032.

The Company’s ability to utilize its NOL and research and development (R&D) credit carryforwards may be substantially limited due to ownership changes that have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the Code), as well as similar state provisions. These ownership changes may limit the amount of NOL and R&D credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an “ownership change,” as defined by Section 382 of the Code, results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percent of the outstanding stock of a company by certain stockholders or public groups. The Company completed a Section 382 study during 2021. It was determined that the Company has experienced five ownership changes of over 50% since 2013, the latest occurring on June 30, 2020. Going forward, the utilization of loss carryforwards and tax credits generated before June 30, 2020 will be subject to an annual limitation. As a result of the ownership changes and limitations, $58.2 million of federal NOLs

and $2.9 million of federal R&D credits will expire unutilized, in addition to Section 382 limits on Pelican already in place.

The Company has evaluated its tax positions to consider whether it has any unrecognized tax benefits. As of December 31, 2023, the Company had no unrecognized tax benefits. The Company does not anticipate a significant change in total unrecognized tax benefits or the Company’s effective tax rate due to the settlement of audits or the expiration of statutes of limitations within the next twelve months. Furthermore, the Company does not expect any cash settlement with the taxing authorities as a result of these unrecognized tax benefits as the Company has sufficient unutilized carryforward attributes to offset the tax impact of these adjustments.

The following is a tabular reconciliation of the Company’s change in gross unrecognized tax positions at December 31, 2023:

	2023		2022
Beginning balance	$	—	$	—
Gross increases for tax positions related to the acquisition of Elusys Therapeutics		1,480,974		—
Gross increases for tax positions related to the current periods		-		—
Divestiture of equity interests in ElusysTherapeutics		(1,480,974)		—
Ending balance	$	—	$	—

The Company recognizes interest and/or penalties related to uncertain tax positions in income tax expense. There were no uncertain tax positions as of December 31, 2023 and 2022 that would impact the effective tax rate if recognized, and as such, no interest or penalties were recorded to income tax expense.

The Company has analyzed its filing positions in all significant federal, state, and foreign jurisdictions where it is required to file income tax returns, as well as open tax years in these jurisdictions. With few exceptions, the Company is no longer subject to United States Federal, state, and local tax examinations by tax authorities for years before 2020, although carryforward attributes that were generated prior to 2020 may still be adjusted upon examination by the taxing authorities if they either have been or will be used in a future period. No income tax returns are currently under examination by taxing authorities.