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Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes

Note 15 – Income Taxes

 

Prior to April 15, 2015, AgEagle Aerial Inc. was treated as a disregarded entity for income tax purposes. Income taxes, if any, were the responsibility of the sole member. Effective April 22, 2015, the Company elected to be classified as a corporation for income tax purposes. On March 26, 2018, the Company’s predecessor company, EnerJex Resources, Inc. (“EnerJex”), consummated the transactions contemplated by the Agreement and Plan of Merger (the “Merger Agreement”), dated October 19, 2017, pursuant to which AgEagle Merger Sub, Inc., a wholly owned subsidiary of EnerJex, merged with and into AgEagle Aerial Systems Inc., a then privately held company (“AgEagle Sub”), with AgEagle Sub surviving as a wholly owned subsidiary of EnerJex (the “Merger”). In connection with the Merger, EnerJex changed its name to AgEagle Aerial Systems Inc. AgEagle Sub changed its name initially to “Eagle Aerial, Inc. and then to” AgEagle Aerial, Inc. Following the Merger, AgEagle Aerial Inc. became a wholly owned subsidiary of AgEagle Aerial Systems, Inc., and the group files a consolidated U.S. federal income tax return as well as income tax returns in various states.

 

As of December 31, 2023 and 2022, the total of all net deferred tax assets was $17,794,764 and $11,170,665, respectively. The amount of and ultimate realization of the benefits from the deferred tax assets for income tax purposes is dependent, in part, upon the tax laws in effect, the Company’s future earnings, and other future events, the effects of which cannot be determined. Because of the uncertainty surrounding the realization of the deferred tax assets the Company has established a valuation allowance of $17,794,764 and $11,170,665 as of December 31, 2023 and 2022, respectively. The change in the valuation allowance during the years ended December 31, 2023 and 2022 was $6,624,099 and $2,350,212, respectively.

 

 

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

 

Note 15 – Income Taxes - Continued

 

As of December 31, 2023, the Company has a federal and state net operating loss carryforward of approximately $55,288,195 and $20,863,524, respectively. Of those balances, the Company has $6,296,936 of federal net operating losses expiring in 2035-2037 and the remaining amounts have no expiration. The Company has a foreign net operating loss carryforward of $32,403,001 which expire in 2028-2030. The Company has state net operating carryforwards of $15,181,695 which expire between 2024-2041, and the remaining amounts have no expiration.

 

As of December 31, 2022, the Company has a federal and state net operating loss carryforward of approximately $38,733,732 and $17,975,553, respectively. Of those balances, the Company has $7,661,107 of federal net operating losses expiring in 2035-2037 and the remaining amounts have no expiration. The Company has a foreign net operating loss carryforward of $11,428,419 which expire in 2028-2029. The Company has state net operating carryforwards of $13,113,999 which expire between 2024-2041, and the remaining amounts have no expiration.

 

The timing and manner in which we can utilize our net operating loss carryforward and future income tax deductions in any year may be limited by provisions of the Internal Revenue Code regarding the change in ownership of corporations. Such limitations may have an impact on the ultimate realization of our carryforwards and future tax deductions. Section 382 of the Internal Revenue Code (“Section 382”) imposes limitations on a corporation’s ability to utilize net operating losses if it experiences an “ownership change.” In general terms, an ownership change may result from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50 percentage points over a three-year period. Any unused annual limitation may be carried over to later years, and the amount of the limitation may under certain circumstances be increased by the built-in gains in assets held by us at the time of the change that are recognized in the five-year period after the change. The Company has not conducted a formal ownership change analysis as required under Section 382; however, we intend to do so if we anticipate recognizing tax benefits associated with the net operating loss carryforwards.

 

As of December 31, 2023, the Company determined it is more likely than not that it will not realize our temporary deductible differences and net operating loss carryforwards, and as such, has provided a full valuation allowance on our net deferred tax asset.

 

During the years ended December 31, 2023 and 2022, the Company did not recognize any uncertain tax positions, interest or penalty expense related to income taxes. AgEagle files U.S. federal and state income tax returns, as required by law. The federal return generally has a three-year statute of limitations, and most states have a four-year statute of limitations; however, the taxing authorities can review the tax year in which the net operating loss was generated when the loss is utilized on a tax return. We currently do not have any open income tax audits. The Company is open to federal and state examination on the 2020 through 2022 income tax returns filed.

 

 

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

 

Note 15 – Income Taxes - Continued

 

For the years ended December 31, 2023 and 2022, a reconciliation of income tax expense at the federal statutory rate to income tax expense at the Company’s effective rate is as follows:

 

   2023   2022 
   Amount   Rate   Rate   Amount 
Computed tax at the expected statutory rate  $(8,931,931)   21.00%  $(12,233,282)   21.00%
State and local income taxes, net of federal   (152,856)   0.36%   (193,910)   0.33%
Goodwill impairment   3,313,121    (7.79)%   8,590,427    (14.75)%
Other permanent items   41,757    (0.10)%   301,687    (0.51)%
Other adjustments   (1,762,090)   4.14%   (57,579)   0.09%
Stock compensation   (12,606)   0.03%   172,056    (0.30)%
Return to provision adjustment   196,163    (0.46)%   369,793    (0.63)%
Foreign tax differential   684,343    (1.61)%   700,596    (1.20)%
Change in valuation allowance   6,624,099    (15.57)%   2,350,212    (4.03)%
Income tax expense (benefit)  $—    0.00%  $—    0.00%

 

As of December 31, 2023 and 2022, the temporary differences, tax credits and carryforwards that gave rise to the following deferred tax assets (liabilities):

 

Deferred Tax Assets:  2023   2022 
Other current liabilities  $17,806   $— 
Equity compensation   1,109,854    1,001,945 
Other accrued expenses   16,406    754,211 
Net operating loss carry forward   16,889,316    10,396,086 
Tax credits   150,351    150,351 
Right of Use (ROU) - Liability   147,861    (127,473)
Total Deferred Tax Assets  $18,331,594   $12,175,120 
           
Valuation Allowance   (17,794,764)   (11,170,665)
           
Deferred Tax Liabilities:          
Property and equipment   (1,183)   (100,019)
Intangible assets   (410,463)   (1,036,649)
Right of Use (ROU) - Asset   (125,184)   132,213 
Total Deferred Tax Liabilities  $(536,830)  $(1,004,455)
Net Deferred Tax  $—   $— 

 

 

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

 

Note 15 – Income Taxes- Continued

 

The Company’s provision is primarily driven by the full valuation allowance in 2023 and 2022.

 

The provision for income taxes consisted of the following for the years ended December 31, 2023 and 2022:

 

   2023   2022 
Current          
U.S. Federal  $—   $— 
U.S. State   (5,750)   5,750 
U.S. Foreign   —    — 
 Total current provision   (5,750)   5,750 
Deferred   —    — 
U.S. Federal   —    — 
U.S. State   —    — 
U.S. Foreign   —    — 
Total deferred benefit   —    — 
Change in valuation allowance   —    — 
Total provision for income taxes  $(5,750)  $5,750 

 

The Company’s loss before provision for incomes taxes consisted of the following amounts:

 

   2023   2022 
   For the Years Ended December 31, 
   2023   2022 
United States  $(32,930,150)  $(48,536,722)
International   (9,491,587)   (9,717,001)
Total net loss before provision for income taxes  $(42,421,737)  $(58,253,723)