INCOME TAXES

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 10 – INCOME TAXES 

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

	December 31,
	2021			2020
United States	$	(15,420,364	)	$	—
Foreign		(41,011,337	)		(6,864,676	)
Total	$	(56,431,701	)	$	(6,864,676	)

For the year ended December 31, 2021, the Company recorded an income tax benefit of $7,454,805. For the year ended December 31, 2020, the Company had no income tax expense or benefit. The income tax benefit is as follows:

	December 31,
	2021		2020
Deferred tax benefit – United States	$	—	$	—
Deferred tax benefit – Foreign		7,454,805		—
Total income tax benefit	$	7,454,805	$	—

The Company’s deferred tax assets and deferred tax liabilities consist of the following:

	December 31,
	2021			2020
Deferred tax assets:
Net operating loss carryforwards	$	5,509,522		$	1,340,152
Stock-based compensation		858,791			—
Accrued bonus		121,051			—
Intangible amortization		23,204			—
Other		35,456			—
Less valuation allowances		(6,548,024	)		(1,340,152	)
Total deferred tax assets	$	—		$	—
Deferred tax liabilities:
Indefinite lived intangible assets		(1,607,122	)		—
Net deferred tax liabilities	$	(1,607,122	)	$	—

The Company had the following potentially utilizable net operating loss tax carryforwards:

	December 31,
	2021		2020
Federal	$	9,411,533	$	—
State	$	8,664,242	$	—
Foreign	$	11,911,845	$	5,057,176

The Tax Cuts and Jobs Act of 2017 (the “Act”) limits the net operating loss deduction to 80% of taxable income for losses arising in tax years beginning after December 31, 2017. However, the net operating losses now have an indefinite carryforward as opposed to the former 20-year carryforward. As of December 31, 2021, the Company had federal net operating loss carryforwards of $9,411,533 which can be carried forward indefinitely. In addition, the Company has state net operating loss carryforwards of $8,664,242 which can be carried forward indefinitely and Canadian net operating loss carryforwards of $11,911,845 which will begin to expire in 2030.

The Company’s effective tax rate varied from the statutory rate as follows:

	December 31,
	2021			2020
Federal income tax at the statutory rate		(21.0	)%		(21.0	)%
State income tax rate (net of federal)		(1.0	)%		—%
Foreign tax rate differential		(4.0	)%		(5.5	)%
Intangible asset impairment		4.3	%		—%
Non-deductible expenses		1.4	%		7.4	%
Change in valuation allowance		7.0	%		19.1	%
Effective income tax rate		(13.3	)%		—	%

On September 16, 2021, the Company acquired MagicMed. In connection with the acquisition, the Company recorded intangible assets from IPR&D valued at $35,500,000, which would be tested for impairment for book purposes, but without a tax basis, creating a deferred tax liability of $9,061,927. The deferred tax liability decreased to $1,607,122 due to an impairment on intangible asset of $29,048,164 and an impairment of goodwill of $8,225,862 for the year ended December 31, 2021.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. 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. The valuation allowance increased by $5,207,872 and $1,340,152 during the years ended December 31, 2021 and 2020, respectively.

The Company files U.S. federal and state returns. The Company’s foreign subsidiary also files a local tax return in their local jurisdiction. From a U.S. federal, state and Canadian perspective the years that remains open to examination are consistent with each jurisdiction’s statute of limitations.