INCOME TAXES

12 Months Ended

Dec. 31, 2021

INCOME TAXES [Abstract]

INCOME TAXES

Note 17
INCOME TAXES

The Company was incorporated in Delaware on October 15, 2020 as a wholly owned subsidiary of MOR for the purpose of effecting the Business Combination. MOR was organized as a limited liability company and became a wholly owned subsidiary of the Company upon completion of the Merger with Helix on March 2, 2021. As a result, the Company was treated as a partnership for federal and state income tax purposes through March 2, 2021. Accordingly, the Company’s taxable income, deductions, assets and liabilities are reported by the members on their respective income tax returns. Therefore, no provision for federal or state income tax has been made by the Company for all business activity from its inception through March 2, 2021.

The Company accounts for income taxes under FASB ASC 740 (“ASC 740”). Deferred income tax assets and liabilities are determined based upon differences between financial reporting and tax bases of assets and liabilities, which are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

For financial reporting purposes, the Company’s consolidated loss before income taxes for the U.S. and foreign entities, in the aggregate, is as follows:

	2021
United States	$	(26,398,610	)
Foreign		(129,984	)
Total loss before provision for income taxes	$	(26,528,594	)

The income tax expense or benefit consisted of the following for the period from March 3, 2021 to December 31, 2021:

	2021
Current:
Federal		—
State		22,511
Foreign		—
	$	22,511
Deferred:		—
Federal		—
State		—
Foreign		—
		—
Total	$	22,511

The reconciliation between the Company’s effective tax rate on income from continuing operations and statutory tax rate for the years ended December 31, 2021 and 2020 is as follows:

	2021
Income tax expense (benefit) at federal statutory rate		21.0%
Loss from MOR LLC Period		(1.52)%
Stock based compensation		2.01%
State taxes		6.10%
Rate change		0.63%
Other differences		(0.16)%
Valuation allowance		(28.14)%
Income tax expense		(0.08)%

The Global Intangible Low-Taxed Income (“GILTI”) provisions of the Tax Reform Act, enacted on December 22, 2017, require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. An accounting policy election is available to either account for the tax effects of GILTI in the period that is subject to such taxes or to provide deferred taxes for book and tax basis differences that upon reversal may be subject to such taxes. In accordance with FASB guidance, the Company’s policy will be to recognize GILTI in the period it arises, and it will not recognize a deferred charge with regard to GILTI. The Company concluded it was not subject to GILTI in 2021 and as such there was no impact from GILTI included in its 2021 provision.

The following items comprise the Company’s net deferred tax assets and liabilities as of December 31, 2021:

	2021
Deferred tax assets
Allowance for doubtful accounts	$	94,027
Other accruals		499,739
Deferred Revenue		81,423
Stock Compensation		2,492,471
Lease liability		231,335
Net operating loss carry forwards		10,815,077
Net deferred income tax assets		14,214,072
Valuation allowance		11,209,305
Total net deferred income tax assets	$	3,004,767
Unrealized Foreign Exchange Gain/Loss	$	1,538
Prepaid Expenses		19,517
Property, plant and equipment		631,150
Goodwill and intangible assets		2,352,562
Net deferred income tax liability	$	3,004,767

As of the year ended December 31, 2021, the Company has federal, state, and foreign net operating loss carryforwards of approximately $42,265,205 and $39,089,984 and $238,312, respectively. Federal net operating loss carryforwards in the amount of $9,004,500 begin expiring in 2035 and approximately $33,260,705 have an indefinite life. The federal NOL carryforwards of $33,260,705 are subject to an 80% limitation on taxable income, do not expire and will carryforward indefinitely. State net operating loss carryforwards begin expiring in 2035. Foreign net operating loss carryforwards in the amount of $238,312 begin expiring in 2024.

The utilization of the Company’s net operating losses may be subject to a U.S. federal limitation due to the “change in ownership provisions” under Section 382 of the Internal Revenue Code and other similar limitations in various state jurisdictions. Such limitations may result in a reduction of the amount of net operating loss carryforwards in future years and possibly the expiration of certain net operating loss carryforwards before their utilization. The Company has not completed a full study to assess whether an “ownership change” as defined in Section 382 has occurred or whether there have been multiple ownership changes prior to the Company’s prior acquisition of Helix and since inception. Future changes in the Company’s stock ownership, which may be outside of the Company’s control, may trigger an “ownership change.” In addition, future equity offerings or acquisitions that have equity as a component of the purchase price could result in an “ownership change.”

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. The Company cannot rely on a history of earnings since this year is the initial year. Based on this assessment, management has established a full valuation allowance against all of the deferred tax assets because it is more likely than not that all of the deferred tax assets will not be realized.

As of December 31, 2021, deferred tax assets were offset by the deferred tax liabilities and a valuation allowance on any remaining balance. A valuation allowance of $11,209,305 has been recorded in order to measure only the portion of the deferred tax asset that more likely than not will be realized. The valuation allowance changed by $11,209,305 in the year. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income are improved or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth in the relevant jurisdictions.

During 2021, the Company completed the acquisition of Helix, see Note 4. In connection with the acquisition of Helix, the Company recorded additional net deferred tax assets of $3,694,500 primarily related to NOLs incurred by Helix prior to the acquisition. A valuation allowance of $3,694,500 was recorded against Helix’s deferred tax assets due to limitations on the ability to utilize the NOLs. There is no net impact of the above adjustments, and no adjustment has been recorded to goodwill in acquisition accounting.

As required by the uncertain tax position guidance in ASC No. 740, Income Tax, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. The Company has taken certain positions that management feels, although not free from doubt, should not result in a successful challenge by certain tax authorities. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company applied the uncertain tax position guidance in ASC No. 740, Accounting for Income, to all tax positions for which the statute of limitations remained open. Any estimates of tax contingencies contain assumptions and judgments about potential actions by taxing jurisdictions. Any interest and penalties related to uncertain tax positions would be included as part of the income tax provision. The Company’s conclusions regarding uncertain tax positions may be subject to review and adjustment at a later date based upon ongoing analysis of or changes in tax laws, regulations and interpretations thereof as well as other factors.

The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examinations by federal, foreign, and state and local jurisdictions, where applicable. There are currently no pending tax examinations. The Company’s tax years are still open under statute from 2018 to the present in the U.S. and from 2016 to present in the Company’s foreign operations. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service and state and local tax authorities to the extent utilized in a future period.

The Company is also subject to certain non-income taxes such as value added taxes, sales taxes, and property taxes.