Note 11 - Income Taxes

The Company is subject to federal and state income taxes with respect to its allocatable share of any taxable income or loss of Andina Holdings, LLC, which includes operations of Stryve Foods, LLC, as well as any standalone income or loss the Company generates. Andina Holdings, LLC is treated as a partnership for federal income tax purposes, and for most applicable state and local income tax purposes, and generally does not pay income taxes in most jurisdictions. Instead, Andina Holdings, LLC taxable income or loss is passed through to its members, including the Company. Despite its partnership treatment, Andina Holdings, LLC is liable for income taxes in those states not recognizing its pass-through status and for certain of its subsidiaries not taxed as pass-through entities. Prior to the Business Combination Agreement, the loss at Stryve Foods, LLC was passed through to its members and therefore recorded no tax provision in those periods prior to the Closing Date of the Business Combination.

On March 27, 2020, the United States federal government enacted the Coronavirus Aid, Relief and Economic Security Act (the CARES Act) and on December 27, 2020 enacted the Consolidated Appropriations Act, 2021, neither of which had a material impact on the Company's provision for income taxes.

On August 16, 2022, the United States federal government enacted the Inflation Reduction Act of 2022. The Company does not currently expect the law to have a material impact on the Company's provision for income taxes.

Valuation Allowance

The Company recorded a valuation allowance of $13,784,320 and $8,613,779 as of December 31, 2022 and 2021, respectively. In determining the need for a valuation allowance, the Company assessed the available positive and negative evidence to estimate whether future taxable income would be generated to permit use of the existing deferred tax assets (“DTAs”). As of December 31, 2022 and 2021, a significant piece of objective negative evidence evaluated was the three-year cumulative loss before taxes. Such objective evidence limits the ability to consider other subjective evidence, such as projections for future growth. The Company determined that there is uncertainty regarding the utilization of certain DTAs such as the investment in Andina Holdings, LLC, federal and state operating losses and state net operating losses, and the interest expense limitation. Therefore, a valuation allowance has been recorded against the DTAs for which it is more-likely-than-not they will not be realized. The amount of DTA considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as projections for growth.

The Company has established a 100% valuation allowance against the deferred tax assets as the Company does not believe it is more likely than not that these assets will be realized. The Company's valuation allowance increased by approximately $5,170,541 and $8,613,779 in 2022 and 2021, respectively.

Upon audit, tax authorities may challenge all or part of a tax position. A tax position successfully challenged by a taxing authority could result in an adjustment to our provision for income taxes in the period in which a final determination is made. The Company did not maintain any unrecognized tax benefits as of December 31, 2022 and 2021.

Net Operating Loss Carryforwards

The Company has United States federal tax net operating losses (NOLs) of $28,294,533 and state NOLs of $13,852,988 as of December 31, 2022. As of December 31, 2021, the Company has federal and state NOLs of $6,532,420 and $3,835,281. The federal NOLs are carried forward indefinitely and the state NOLs will expire between 2036 and 2042.

The Company is subject to taxation in the United States and various state jurisdictions. All periods since inception are subject to examination by these taxing authorities, where applicable. The Company is not currently under United States federal or state income tax examinations by tax authorities.

Tax Receivable Agreement Liability

In conjunction with the Business Combination, the Company also entered into a TRA with the Seller and Holdings. Pursuant to the TRA, the Company is required to pay the Seller 85% of the amount of savings, if any, in United States federal, state, local and foreign income tax that the Company actually realizes as a result of (a) tax basis adjustments resulting from taxable exchanges of Class B common units of Holdings and Class V common stock of the Company acquired by the Company in exchange for Class A common stock of the Company and (a) tax deductions in respect of portions of certain payments made under the TRA. All such payments to the Seller are the obligations of the Company. As of December 31, 2022, there have been shares of Class B common units of Holdings and Class V common stock of the Company exchanged for Class A common stock of the Company.

The estimation of liability under the TRA is by its nature imprecise and subject to significant assumptions regarding the amount and timing of future taxable income. As of December 31, 2022 and 2021, the Company has recorded a full valuation allowance against its net deferred tax assets as the realizability of the tax benefit is not at the more likely than not threshold. Since the benefit has not been recorded, the Company has determined that the TRA liability is not probable and therefore no TRA liability existed as of December 31, 2022 and 2021.