UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 20192022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ________
Commission file number: 001-36492
AGEAGLE AERIAL SYSTEMS INC.
(Exact name of registrant as specified in its charter)
AGEAGLE AERIAL SYSTEMS INC. | |
(Exact name of registrant as specified in its charter) |
Nevada | 88-0422242 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
8863 E. 34th Street | 67226 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code:(316) 202-2076(620) 325-6363
Securities registered pursuant to Section 12(b) of the Act:
Title of | Trading Symbol(s) | Name of | ||
Common Stock, par value $0.001 per share | UAVS | NYSE American LLC |
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐☒ No ☒☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “emerging growth company” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated Filer |
| Smaller reporting company | ☒ |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that require a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter was $4,732,318.$83,234,320.
As of April 13, 2020,4, 2023, there were 16,774,39491,071,375 shares of Common Stock, par value $0.001 per share, issued and outstanding.
AGEAGLE AERIAL SYSTEMS INC.
2 |
Table of Contents |
3
This report may containAnnual Report on Form 10-K (“Annual Report”) contains forward-looking statements within the meaning of the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, or the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management and involve risks and uncertainties. Forward-looking statements include statements regarding our plans, strategies, objectives, expectations and intentions, which are subject to change at any time at our discretion. Forward-looking statements include our assessment, from time to time of our competitive position, the industry environment, potential growth opportunities, the effects of regulation and events outside of our control, such as natural disasters, wars or health epidemics. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “hopes,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” or similar expressions.
Forward-looking statements involve knownare merely predictions and unknown risks,therefore inherently subject to uncertainties and other factors which maycould cause ourthe actual results performance or achievements to bediffer materially different from any future results, performance or achievements expressed or implied by the forward-looking statement. These uncertainties and other factors include, among other things:
· | unexpected technical and marketing difficulties inherent in major research and product development efforts; | |
· | our ability to remain a market innovator, to create new market opportunities, and/or to expand into new markets; | |
· | the potential need for changes in our long-term strategy in response to future developments; | |
· | our ability to attract and retain skilled employees; | |
· | our ability to raise sufficient capital to support our operations and fund our growth initiatives; | |
· | unexpected changes in significant operating expenses, including components and raw materials; | |
· | any disruptions or threatened disruptions to or relations with our resellers, suppliers, customers and employees, including shortages in components for our products; | |
· | changes in the supply, demand and/or prices for our products; | |
· | increased competition, including from companies which may have substantially greater resources than we have, and, in the unmanned aircraft systems segments from lower-cost commercial drone manufacturers who may seek to enhance their systems’ capabilities over time; | |
· | the complexities and uncertainty of obtaining and conducting international business, including export compliance and other reporting and compliance requirements; | |
· | the impact of potential security and cyber threats or the risk of unauthorized access to our, our customers’ and/or our suppliers’ information and systems; | |
· | uncertainty in the customer adoption rate of commercial use unmanned aerial systems; | |
· | changes in the regulatory environment and the consequences to our financial position, business and reputation that could result from failing to comply with such regulatory requirements; |
3 |
Table of Contents |
· | our ability to continue to successfully integrate acquired companies into our operations, including the ability to timely and sufficiently integrate international operations into our ongoing business and compliance programs; | |
· | our ability to respond and adapt to unexpected legal, regulatory and government budgetary changes, including those resulting from the ongoing COVID-19 pandemic, such as supply chain disruptions, vaccine mandates, the threat of future variants and resulting government-mandated shutdowns, quarantine policies, travel restrictions and social distancing, curtailment of trade and other business restrictions affecting our ability to manufacture and sell our products; | |
· | failure to develop new products or integrate new technology into current products; | |
· | unfavorable results in legal proceedings to which we may be subject; | |
· | failure to establish and maintain effective internal control over financial reporting; and | |
· | general economic and business conditions in the United States and elsewhere in the world, including the impact of inflation. |
Set forth below in Item 1A, “Risk Factors,” are additional significant uncertainties and other factors affecting forward-looking statements. The reader should understand that the uncertainties and other factors identified in this Annual Report are not a comprehensive list of all the uncertainties and other factors that may affect forward-looking statements. We discuss many of these risks in greater detail in “Risk Factors.” Given these uncertainties, you shoulddo not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this report. You should read this report and the documents that we reference in this report and have filed as exhibits to the report completely and with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we assume noundertake any obligation to update theseor revise any forward-looking statements publicly, or to update the reasons actual resultslist of uncertainties and other factors that could differ materially fromaffect those anticipated in these forward-looking statements, even if new information becomes available in the future.statements.
ITEM 1. | BUSINESS |
Overview
AgEagle™ Aerial Systems Inc. (“("AgEagle” or “the Company”the "Company”) designs, produces, through its wholly owned subsidiaries, is actively engaged in designing and supports technologically-advanced small, unmanned aerial vehicles (“UAVs” or “drones”). In addition, providing new utility to UAVs, the Company pioneersdelivering best-in-class drones, sensors and innovates advanced aerial imaging data collection and analytics technologies capable of addressing the impending food and environmental sustainability crises that threaten our planet. Historically, the Company’s daily efforts have focused on delivering the tools and strategies necessary to define and implement commercial drone construction and delivery, along with sustainability and precision farming solutionssoftware that solve important problems confronting the global agricultural industry. In fact,for our customers. Founded in 2010, AgEagle has spent eight years serving customers, covering more than two million acres in 50 countries monitoring 53 different crops. AgEagle remains intent on earning distinction as a trusted partnerwas originally formed to clients seeking to adoptpioneer proprietary, professional-grade, fixed-winged drones and support productive agricultural approaches to better farming practices which limit the impact on our natural resources, reduce reliance on inputs and materially increase crop yields and profits.
In early 2019, AgEagle further expanded its marketing efforts to provide for the introduction ofParkView, its proprietary aerial imagery and data analytics platform, designed to support municipal, state and federal agencies charged with assessing and supporting sustainability initiatives involving public parks and recreation areas, also referred to as urban green spaces.
In the first half of 2019, the Company introducedHempOverview, a scalable, responsive and cost-effective Software-as-a-Solution (“SaaS”) web- and map-based technology platform to support the operations of domestic industrial hemp programs for state and tribal nation departments of agriculture, growers and processors – a solution that provides users with what the Company believes is the gold standard for regulatory oversight, operational assistance and reporting capabilities for the fast emerging industrial hemp industry.
The Company also designs, produces, distributes and supports technologically advanced small UAVs or drones that AgEagle offers for commercial sale to the precision agriculture industry. In addition to UAV sales, in late 2018, the Company introduced a new drone-leasing program, alleviating farmers and agribusinesses from significant upfront costs associated with purchasing a drone, while also relieving them from ongoing drone maintenance and support requirements. Additionally, the new program provides the option of engaging a trained AgEagle pilot to operate the drone and manage the entire image collection process, creating a truly turnkey aerial imagery capture solution for its customers.
4
In the third quarter of 2019, AgEagle announced that it had begun to actively pursue expansion opportunities within the emerging Drone Logistics and Transportation market and revealed that it had received its first purchase orders from a major ecommerce company to manufacture and assemble UAVs designed to meet the critical specifications for drones that are meant to carry packaged goods in urban and suburban areas.
Central to the Company’s long-term growth strategy, AgEagle will continue to identify opportunities to leverage its proprietary technological platform and industry expertise to penetrate new, high growth market sectors that may benefit from the Company’s advanced aerial imagery-based data collection and analytics solutions.solutions for the agriculture industry. Today, the Company is earning distinction as a globally respected market leader offering customer-centric, advanced, autonomous unmanned aerial systems (“UAS”) which drive revenue at the intersection of flight hardware, sensors and software for industries that include agriculture, military/defense, public safety, surveying/mapping and utilities/engineering, among others. AgEagle has also achieved numerous regulatory firsts, including earning governmental approvals for its commercial and tactical drones to fly Beyond Visual Line of Sight (“BVLOS”) and/or Operations Over People (“OOP”) in the United States, Canada, Brazil and the European Union and being awarded Blue UAS certification from the Defense Innovation Unit of the U.S. Department of Defense.
Research AgEagle’s shift and development activities are integralexpansion from solely manufacturing fixed-wing farm drones in 2018, to our business and we follow a disciplined approach to investing our resources to create new technologies and solutions.
Our Unmanned Aerial Vehicles Business
Our first commercially available product was theAgEagle Classic, which was followed shortly thereafter by theRAPID System. As we improved and matured our product, we launched theRX-60 and subsequently our current UAV product, theRX-48. The success AgEagle has achieved with its legacy products, whichoffering what the Company believes has carriedis one of the industry’s best fixed-wing, full-stack drone solutions, culminated in 2021 when the Company acquired three market-leading companies engaged in producing UAS airframes, sensors and software for commercial and government use. In addition to a robust portfolio of proprietary, connected hardware and software products; an established global network of over into200 UAS resellers; and enterprise customers worldwide; these acquisitions also brought AgEagle a highly valuable workforce comprised largely of experienced engineers and technologists with deep expertise in the continued improvementfields of robotics, automation, manufacturing and data science. In 2022, theRX-60 andRX-48, stems from AgEagle’s ability Company successfully integrated all three acquired companies with AgEagle to invent and deliver advanced solutions utilizing its proprietary technologies and trade secrets that help farmers, agronomists and other precision agricultural professionals operate more effectively and efficiently. The Company’sform one global company focused on taking autonomous flight performance to a higher level.
4 |
Table of Contents |
Our core technological capabilities developed over five years of researchinclude robotics and innovation, include arobotics systems autonomy; advanced thermal and multispectral sensor design and development; embedded software and firmware; secure wireless digital communications and networks; lightweight laminated shell that allows the UAV platform to perform under challenging flying conditions, a camera with a Near Infrared (NIR) filter, a rugged foot launcher (RX-60airframes; small UAS (“sUAS”), design, integration and high-end software that automates drone flightsoperations; power electronics and provides geo-referenced data. All of AgEagle’s proprietary UAVs are electrically powered, weigh approximately six pounds fully loaded, are capable of flying over approximately 400 acres (roughly 60 minutes of airtime) perpropulsion systems; controls and systems integration; fixed wing flight; flight from their launch location,management software; data capture and are configured to carry a camera with an NIR filter that uses near infrared images to capture crop data. The Company’s leadership believes that these characteristics make its UAVs well suited for providing a complete aerial view of a farmer’s field to help precisely identify crop healthanalytics; human-machine interface development and field conditions faster than any other method available.integrated mission solutions.
The Company’s UAVs were initially specificallyCompany is currently headquartered in Wichita, Kansas, where we house our sensor manufacturing operations, and we operate our business and drone manufacturing in Raleigh, North Carolina and Lausanne, Switzerland which supports our international business activities.
Strategic Acquisitions in 2021(the “2021 Acquisitions”)
MicaSense™, Inc.
In January 2021, AgEagle acquired MicaSense™, Inc. ("MicaSense”), a company that has been at the forefront of advanced drone sensor development since its founding in 2014. In early 2022, AgEagle completed development and brought to market the Altum-PT™ and RedEdge-P™ -- next generation thermal and multispectral sensors which offer critical advancements on MicaSense’s legacy sensor products to customers primarily in agriculture, plant research, land management and forestry management. Today, AgEagle’s multispectral sensors are distributed in over 75 countries worldwide and help customers use drone-based imagery to make better and more informed business decisions.
Measure Global, Inc.
In April 2021, AgEagle acquired Measure Global, Inc. ("Measure”), a company founded in 2020. Serving a world class customer base, Measure enables its customers to realize the transformative benefits of drone technology through its Ground Control solution. Offered as Software-as-a-Service (“SaaS”), Ground Control is a cloud-based, plug-and-play operating system that empowers pilots and large enterprises with everything they need to operate drone fleets, fly autonomously, collaborate globally, visualize data, and integrate with existing business systems and processes. Ground Control serves a world class customer base, including many Fortune 500 companies. By adding Measure’s advanced software to the AgEagle platform, combined with its sensors and other data capture and analytics innovations, our customers can capitalize on the significant economic, safety and efficiency benefits made possible by drones used at scale.
senseFly™, S.A.
In October 2021, the Company acquired senseFly, S.A. and senseFly Inc. (collectively “senseFly”), a global leader in fixed-wing drones that simplify the collection and analysis of geospatial data, allowing professionals to make better and faster decisions. Founded in 2009, senseFly develops and produces a proprietary line of eBee™-branded, high performance, fixed-wing drones which have flown more than one million flights around the world. Safe, ultra-light and easy to use, these autonomous drones are utilized by thousands of customers around the world in agriculture, government/defense, engineering, and construction, among other industry verticals, to collect actionable aerial data intelligence.
2022 Integration Activities
In 2022, the Company built an enterprise architecture designed to seamlessly integrate the acquisitions completed in 2021, thereby unifying four disparate brands under one global brand: AgEagle. As part of this process, AgEagle executed an action plan to create long-term sustainable value through the efficiencies derived from economies of scale, sharing and optimizing resources – in particular, human capital and knowledge – and combining assets. Critical to the success of the integration and integral to the Company’s ability to stay disciplined, structurally organized and rooted in its core values was:
5 |
Table of Contents |
· | implementation of a new enterprise resource planning (“ERP”) system; | |
· | collapse of all acquired websites and the creation and launch of one website, found at www.ageagle.com, showcasing the Company’s full suite of products and capabilities; | |
· | creation of an Intranet employee portal to support and promote enterprise-wide communication and connectivity; | |
· | consolidation of the Company’s business and manufacturing operations in the United States from multiple offices spread across the country in Kansas, North Carolina, Texas, Washington and Washington, D.C. to three centralized locations in Wichita, Kansas, Raleigh, North Carolina and Lausanne, Switzerland – an initiative which commenced in late 2022 and is expected to be completed in 2023; | |
· | commitment to customer-centric product development roadmaps designed to best leverage the right combination of process, tools, training and project management to effectively meet product enhancement and new product launch deadlines and achieve post-launch sales and marketing key performance indicators; and | |
· | shifts in the responsibilities of senior and mid-level management to optimize strengths and squarely align functional and cross-functional goals and objectives. |
Our Branded Line of Unmanned Aerial Vehicles
eBee™ Line of Professional Drones
Sold worldwide through AgEagle’s direct sales team and global network of trusted resellers, the Company’s eBee line of commercial and government/military UAS have logged more than 500,000 flight hours on more than one million successful missions over the past decade. Moreover, according to AgEagle’s analysis of official FAA Part 107 commercial drone registration data supplied to the Company pursuant to a Freedom of Information Act Request submission, from 2016 through 2021, the eBee was the commercial sUAS of choice for U.S. commercial drone operators, outnumbering all other fixed wing drones registered, including Vertical Take-Off and Landing (“VTOL”) aircraft, accounting for 41% of all commercial fixed-wing drone registrations in the United States.
· | eBee Ag – a reliable, affordable drone solution to help farmers, agronomists and service providers map and monitor crops quickly and easily. The eBee Ag and its drone sensor deliver timely plant health insights with accuracy and efficiency that complements precision agriculture workflows. With its dual-purpose Duet M camera, eBee Ag captures accurate RGB and multispectral data from the sky to help users make better decisions on the ground. eBee Ag also features available Real-Time Kinematic (“RTK”) functionality for greater mapping precision. With its available RTK, the agriculture drone can achieve absolute accuracy down to 2.5 cm (1.0 inch) with its RGB camera. Highly-accurate vegetative index maps allow users to understand every acre while managing problematic areas field-wide – before they impact profits. Equipped with its standard battery, eBee Ag is capable of up to 45-minutes of flight. An available endurance battery increases flight times up to 55 minutes — allowing the drone to cover more than 160 hectares (395 acres) in a single flight and save precious time and money when compared with conventional crop scouting. | |
· | eBee Geo – an affordable fixed-wing mapping drone designed to meet the highest demands of surveyors, civil engineers and GIS professionals worldwide. Built upon more than 10 years of drone mapping experience, eBee Geo is rugged, intuitive to operate and makes surveying and mapping small to large areas faster and more efficient than using terrestrial surveying equipment alone. The data collected can quickly be processed into highly-accurate georeferenced orthomosaics, digital elevation models, digital surface models and high-density point clouds to bring additional value beyond common vectors. Designed to complement the user’s surveying toolkit, eBee Geo comes with everything needed to get started, including professional drone camera technology and eMotion, AgEagle’s flight planning software originally designed and developed by senseFly. With eBee Geo, a user can map up to 160 ha (395 ac) at 120 m (400 ft) with a maximum flight time of 45 minutes. eBee Geo is also available with RTK positioning. Combined with the Company’s purpose-built Sensor Optimized for Drone Applications (“S.O.D.A”), users are assured of sharp, accurate mapping outputs – even in the harshest conditions. |
6 |
Table of Contents |
· | eBee TAC™– Designed specifically for government and military mapping and mission planning applications, the eBee TAC operates in disconnected environments, providing a higher accuracy mobile solution to map and locally share aerial imagery data on rapidly changing field conditions to analyze and provide near real-time situational awareness to ground forces. Weighing only 3.5 pounds and featuring a digital camouflage skin for increased stealth and up to 90 minutes flight time and silent mission mode, the eBee TAC can be rapidly deployed, from assembly to hand-launch, in three minutes by a single user to generate 3D modeling, terrain and thermal maps. Each system features National Defense Authorization Act (“NDAA”) compliant drone, sensors and active components, secure extension, Endurance activation, two Endurance batteries, one Pitot Pro-kit, two micro-SD cards with adapters, AES256-bit encryption, pixel camouflage and an IP67 hard transport case with STANAG military standard certification that is lightweight, rugged and dust and water resistant. Camera options include RGB, multispectral and thermal payloads; and the system can also be upgraded to include additional features and payloads. | |
· | In March 2022, AgEagle’s eBee TAC™ Unmanned Aerial System was the first approved drone to be added to the U.S. Department of Defense’s (“DoD”) Defense Innovation Unit’s (“DIU”) Blue UAS Cleared List as part of Blue sUAS 2.0. The eBee TAC successfully completed a series of demonstrations in association with Blue sUAS 2.0 to provide the DIU with information and verification of the drone systems’ mission planning and launch capabilities, range and endurance, NDAA compliance, operational safety of flight procedures and cyber security, in addition to scripted and ad hoc flight profiles. Based on its evaluation, the DIU designated the eBee TAC as an approved light-weight, medium-range UAS available for immediate procurement by the DoD without a waiver to operate; and is also available for procurement by other Federal Government agencies. AgEagle’s success with Blue sUAS 2.0 follows eBee‘s use as an integral asset for both conventional and unconventional Department of Defense units for over five years. | |
· | eBee X – the eBee X has been recognized as the fixed-wing drone that revolutionized the unmanned aerial vehicle sector with its ease-of-use and multiple, state-of-the-art sensors designed to suit a wide range of mapping jobs. At just 1.6 kg (3.5 lbs.), eBee X is a lightweight, ultra-portable solution that is easy for a single person to operate. With a unique Endurance Extension option enabling a flight time of up to 90 minutes and single-flight coverage of up to 500 ha at 122m (1,236 acres at 400 ft.), the eBee X is a premium drone that offers users the high-precision of on-demand RTK/PPK for achieving absolute accuracy of down to 1.5 cm (0.6 in) – without ground control points. This capability makes the eBee X ideal for BVLOS operations, such as long corridor mapping missions for utility companies, expansive crop scouting in agriculture and by enterprise customers who desire a robust and professional drone fleet. | |
The eBee X has proven that it meets the highest possible quality and ground risk safety standards, and due to its lightweight design, the effects of ground impact are reduced. Consequently, the eBee X has been granted BVLOS operations permission in Brazil and has been approved to run OOP and BVLOS operations in Canada. | ||
On June 21, 2022, the Company announced that the eBee X was the first drone in its class to receive design verification essential for BVLOS and OOP from the European Union Aviation Safety Agency, enabling drone operations to seek Specific Operations Risk Assessment (“SORA”) authorization to fly BVLOS and OOP with eBee X in 27 European Union member states, as well as Iceland, Lichtenstein, Norway and Switzerland. | ||
In October 2022, the eBee X series of fixed wing unmanned aircraft systems, including the eBee X, eBee Geo and eBee TAC, were the first and only drones on the market to comply with Category 3 of the Operations of Small Unmanned Aircraft Systems Over People rules published in the Federal Registry by the FAA in March 2021. Securing a Part 107 certificate of waiver from the FAA is a long, arduous and costly process for sUAS users. Now that the eBee has proven compliant with Category 3 of the rules, eBee drone operators no longer need an FAA waiver for OOP or Operations Over Moving Vehicles. This major milestone was achieved by AgEagle following months of work, historic reliability review and extensive testing conducted by Virginia Tech Mid-Atlantic Aviation Partnership (“MAAP”). Becoming the first and only UAS approved for OOP and over moving vehicles in the U.S. is expected to have material impact on AgEagle’s growth and standing as a recognized leader in the industry in the years to come. |
7 |
Table of Contents |
· | eBee VISION – in December 2022, AgEagle announced its latest innovation in commercial and tactical drone technology with the unveiling of its new eBee VISION Intelligence, Surveillance and Reconnaissance (“ISR”) UAS. Scheduled for global commercial release during the first half of 2023,the eBee VISION delivers high resolution, medium-range video imagery made possible by its 32x zoom and powerful thermal observation capabilities. Its sensor payloads are capable of detecting, tracking and geo-locating objects in both day and night conditions. Offering up to 90 minutes of flight time and the same ease-of-use that has earned AgEagle’s eBee line of drones industry distinction, the eBee VISION can be deployed and operated by a single person. Designed, developed and manufactured by AgEagle’s research and development team in Switzerland, the eBee VISION is NDAA compliant, weighs less than 3.5 pounds/1.6 kilograms and can be carried in a backpack. | |
In December 2022, eBee VISION prototypes were successfully tested by European Armed Forces. According to an official from a UAV experimentation unit of a European military force present at the testing, “eBee VISION‘s specifications fill the gap between low endurance quadcopters and large military fixed-wing drones. The small size, lightweight, ease-of-use, autonomy, range and sensor capabilities make it a promising drone for tactical ISR missions.” | ||
As a result of the tests, European military units have ordered multiple eBee VISION prototypes, with delivery expected in early 2023. Commercial production of eBee VISION is planned for worldwide availability in mid-2023 worldwide. Additional demonstrations with other military forces in the United States and NATO countries are being scheduled for the first quarter of 2023. |
Market Opportunity for UAVs
Drones have transformed from being freelance videographer toys to mission critical inspection tools for enterprise businesses like construction, energy and agriculture, and for military/defense applications worldwide. Moreover, the number of use cases for drones has also grown as drone hardware has become more advanced, safe and reliable. Advanced aerial mapping, crop monitoring, publicly safety uses, disaster response and consumer drone deliveries have all become available as the commercial drone industry has matured.
According to DRONEII’s Drone Market Report, published in September 2022, the overall global drone market was worth an estimated $30.6 billion in 2022 and is expected to experience a compound annual growth rate (“CAGR”) of 8.3% through the year 2030, reaching $55.8 billion. Even more bullish on its industry outlook, Precedence Research reported in July 2022 that it believes the commercial drone market segment alone is poised to grow from $24.4 billion in 2022 to $504 billion by 2030, representing a 46.04% CAGR over the forecast period 2022 to 2030.
In September 2022, the Drone Infrastructure Inspection Grant Act was passed by the U.S. House of Representatives. This bi-partisan bill establishes programs within the Department of Transportation (“DOT”) to support the use of drones and other sUAS when inspecting, repairing or constructing road infrastructure, electric grid infrastructure, water infrastructure or other critical infrastructure. Specifically, DOT must award grants in the aggregate of $100 million to state, tribal and local governments, metropolitan planning organizations, or groups of those entities to purchase or otherwise use drones to increase profitsefficiency, reduce costs, improve worker and community safety, reduce carbon emissions, or meet other priorities related to critical infrastructure projects. Grant recipients must use domestically manufactured drones that are made by pinpointingcompanies not subject to influence or control from certain foreign entities, including China and Russia. This legislation is supported by the U.S. Chamber of Commerce, National League of Cities, National Council of State Legislatures, American Association of State Highway and Transportation Officials, Commercial Drone Alliance and Association of Unmanned Vehicle Systems International among others. This bill is currently pending approval by the U.S. Senate.
8 |
Table of Contents |
On the military/defense front, drone technologies are providing numerous tactical advantages to warfighters worldwide, including conducting surveillance and mapping missions; relaying crucial real-time information on enemy movements, locations and positions of strategic targets; and transporting valuable supplies and equipment to remote or far-forward areas, where nutrients or chemicalsamong other tactical capabilities. In its 2023 report titled “Global Military Drones Market,” The Business Research Company (“TBRC”) noted that the global military drones market size will grow from $14.54 billion 2022 to $15.88 billion in 2023 at a CAGR of 9.2%. Moreover, by 2027, the market size is forecast to climb to $20.64 by 2027, a 6.8% CAGR. TBRC’s report notes that increasing government funding for military drones to enhance efficiency in military operations is boosting the demand for production of military drones. The report further cites a May 2021 article published by the National Defense Industrial Association, a U.S.-based trade association for the United States’ government and defense industry, which revealed that in fiscal year 2021, the DoD allotted $7.5 billion for a range of robotic platforms and associated technologies. For the purchase of unmanned systems, the Navy and Air Force each received about $1.1 billion; the Army received $885 million; the Marine Corps received $70 million; and the U.S. Special Operations Command (“SOCOM”) received $90 million.
Sensor Solutions
Setting entirely new standards of excellence for high resolution aerial imaging solutions, our proprietary thermal and multispectral sensors are broadly recognized as the cameras of choice worldwide for advanced applications in agriculture, plant research, land management and forestry management.
· | Altum-PT – an optimized three-in-one solution for advanced remote sensing and agricultural research. It seamlessly integrates an ultra-high resolution panchromatic imager, a built-in 320X256 radiometric thermal imager and five discrete spectral bands to produce synchronized outputs such as RGB color, crop vigor, heat maps and high resolution panchromatic in just one flight. Offering twice the spatial resolution of the prior Altum™ sensor, Altum-PT, introduced in early 2022 the sensor that empowers users with deeper analytical capabilities and broader, more diverse applications; enable them to discern issues at the plant level, even in the early growth stages; and conduct early stage stand counting, as well as season-long soil monitoring, among other critical uses. Altum-PT also features a global shutter for distortion-free results, open APIs and a new storage device allowing for two captures per second. | |
· | RedEdge-P – Offering three times the capture speed and twice the spatial resolution of the RedEdge-MX, the all new RedEdge-P, launched in early 2022, the sensor that builds on the legacy of the rugged, high-quality, multispectral sensor that the industry has come to trust and adds the power of a higher resolution, panchromatic band to double the output data resolution. A single camera solution which is compatible with a wide array of drone aircraft ranging from large fixed wing to small multirotor, RedEdge-P captures calibrated high-resolution multispectral and RGB imagery with an optimized field of view and capture rate for efficient flights. This solution seamlessly integrates a high resolution, all-color imager with synchronized multispectral imagers to enable pixel-aligned outputs at previously unattainable resolutions, while maintaining the efficiency and reliability of its RedEdge™ legacy. Processing of data outputs is enabled through industry standard software platforms, including AgEagle’s Ground Control flight management software. With RedEdge-P, agricultural professionals benefit from a sensor that can enable effective plant counting and spectral analysis of small plants. Likewise, federal, state and local government and commercial forestry enterprises will also benefit from precise, efficient data collection and tree-level analysis as opposed to being limited to analyzing large swaths of land to make critical forestry management decisions. | |
AgEagle also offers a wide range of drone cameras to suit every mapping job, from land surveying and topographic mapping to urban planning, crop mapping, thermal mapping and more. | ||
· | Aeria X – a compact drone photogrammetry sensor that offers the ideal blend of size, weight and DSLR-like image quality. It produces stunning image detail and clarity in virtually all light conditions, allowing users to map for more hours per day. |
9 |
Table of Contents |
· | Duet M – a high resolution RGB and multispectral mapping camera rig used to create geo-accurate multispectral maps and high resolution digital surface models quickly and easily. This sensor is ideal for water management, such as mapping field drains and areas of compaction; spotting malfunctioning irrigation lines; and evaluating the consistency of plant vigor across a field. | |
· | Duet T– a rugged dual RGB/thermal mapping camera rig used to create geo-accurate thermal maps and digital surface models quickly and easily. The Duet T includes a high resolution thermal infrared (640 x 512 px) camera and a S.O.D.A. RGB camera. | |
· | S.O.D.A. – the first photogrammetry camera built for professional use which quickly became an industry standard for drone operators worldwide upon being introduced in 2016. It captures sharp aerial images, across light conditions, with which to produce detailed, vivid orthomosaics and ultra-accurate 3D digital surface models. | |
· | S.O.D.A. 3D – a professional drone photogrammetry camera that changes orientation during flight to capture three images (two oblique and one nadir) instead of just one, providing for a much wider field of view. It is optimized for quick, robust image processing with Pix4DMapper. Designed specifically for use with the eBee X aircraft, the S.O.D.A. 3D can achieve coverage of vast areas of flat, homogenous terrain (up to 500 ac / 1,235 ac per 122m / 400ft flight). The unique ability of the S.O.D.A. 3D to capture images in two orientations and the resulting wider field of view translates to stunning digital 3D reconstructions in vertically-focused environments. such as urban areas or open-pit mines - anywhere with walls or steep sides. This system of data recording means that less image overlap is needed, resulting in more efficient flights and greater flight coverage, not to mention quicker image processing for results. |
Market Opportunity for Sensor Solutions
Sensors for drones are increasingly being used for surveying, mapping and inspections – particularly in the mining, construction, energy, environmental management, agriculture, infrastructure and waste management industries. Moreover, with every new innovation in sensor technologies, the functionality and the underpinning value proposition of commercial UAS continues to improve and allows for an even wider range of possible applications.
Due in large measure to increasing demand of drone sensors for mapping services, LiDAR and GPS, the outlook for the drone sensor market is forecasted to grow to $66.6 billion by 2030, according to a January 2022 research report released by Market Research Future. Verified Market Research (“VMR”) also published its industry research report in January 2022, stating that the global drone sensor market will climb to $60.67 billion by 2028 from $10.88 billion in 2020, representing a CAGR of 23.97% from 2021 to 2028. Key market drivers in VMR’s report cite adoption of drones across different industry verticals, including agriculture, landscaping and military and defense, as well as a rise in the need for collecting high quality and real-time data insight.
Our Branded Software Solutions
Ground Control
A cloud-based, plug-and-play operating system, Ground Control provides individual pilots and large enterprises with everything they need to completely automate and scale their drone operations workflows. Offered as Software-as-a-Service, Ground Control continues to earn the trust and fidelity of its blue chip, industry-diverse customers by providing a single platform to automate flight management systems safely and securely; easily manage drone programs of any scope and scale; and process, analyze and share drone-captured image data and visualization necessary for assessing risks, improving workflow processes and achieving time and cost efficiencies across enterprises of virtually any size. With the aim of empowering AgEagle’s customers to readily extend their reach and human capability through adoption of scalable autonomous drone programs, Ground Control users can:
· | plan missions via Keyhole Markup Language (“KML”) files or build a grid or waypoint flight; check airspace for Low Altitude Authorization and Notification Capability (“LAANC”) authorization and confirm local weather conditions are favorable. | |
· | fly with GPS-aided manual control or automated grid and waypoint patterns, and push web-based flight plans to mobile devices for ground-based in-field control – all with a simple, easy-to-use flight interface. | |
· | capture raw data and live streaming field images with multispectral cameras, like AgEagle’s RedEdge-P and Altum-PT, and automatically convert into organized map indices and composites; or fly an RTK-enabled drone for improved post-flight processing. | |
· | process captured imagery into high-quality data products and photogrammetry, and create orthomosaics, digital surface models and contour maps; or upload ground control points (“GCPs”) with user’s maps for increased accuracy. | |
· | analyze drone data or view orthomosaics and other 2D data files on an interactive, account-wide map. | |
· | collaborate and support operations with detailed information about missions, including flight logs with screen shots, playbacks and incident flagging; and efficiently manage equipment and workflows with automatic usage tracking capabilities. | |
· | benefit from Ground Control’s obsession to deliver industry-leading, customer-centric support and service. |
Ground Control has been integrated with several other industry leading UAS technologies, including AgEagle’s own line of proprietary sensors and airframes. In addition, Ground Control’s industry partnerships include integrations with:
· | DJI drone platforms, which work seamlessly with Ground Control’s flight app and permits users to sync flights flown with the DJI Go app and use DJI Geo Unlock; | |
· | Parrot’s ANAFI, ANAFI USA and ANAFI Thermal drone platforms, which pair ANAFI’s rapid deployment and ease of operation with Ground Control’s standard flight tools, as well as enable users to tailor and expand their use through selection of additional program management and data processing capabilities; | |
· | Pix4D software, which makes it easy to create high quality orthomosaics, digital surface models and control maps in the Ground Control platform; and | |
· | Wing’s OpenSky airspace access app, which empowers drone flyers to abide by airspace rules and regulations and request authorization to fly in controlled airspace in near real-time wherever OpenSky is available. |
eMotion
AgEagle also offers eMotion, a drone flight and data management solution created specifically for aerial mapping use. With eMotion, flights are built using intuitive mission blocks and flight modes. Users simply need to choose a block (aerial mapping, corridor, etc.), highlight the region they want to map, define key settings, and eMotion auto-generates the drone’s flight plan. Multi-flight missions are supported, and the software’s full 3D environment adds a new dimension to drone flight management, helping users to plan, simulate and control the drone’s trajectory for safer flights, more consistent performance and improved data quality. Moreover, eMotion’s built-in Flight Data Manager automatically handles the georeferencing and preparation of images requires for post-processing in software such as Pix4Dmapper. Connecting wirelessly to a user’s drone, to industry cloud solutions, to survey-grade base stations and to airspace and live weather data, eMotion is advanced, scalable drone software that anyone can use.
10 |
Table of Contents |
HempOverview
As one of the agriculture industry’s leading pioneers of advanced aerial-image-based data collection and analytics solutions, AgEagle leveraged our expertise to champion the use of proven, advanced web- and map-based technologies as the means to streamline and ultimately standardize hemp cultivation in the United States. Growers need to be applied, as opposedregistered/permitted; crops need to traditional widespread land application processes, thus decreasing input costs, reducingbe monitored and inspected; and enforcement operations must be established to ensure compliance with state and federal mandates. Through HempOverview, we believe that AgEagle represents the amountfirst agriculture technology company to bring to market an advanced agtech solution that is designed to meet the unique complexities and vigorous oversight, compliance and enforcement demands of chemicals appliedthe emerging American hemp industry and potentially increasing yields. AgEagle’s products were designed for busy agriculture professionals who do not have the time to process images on their computers, which someunique needs and demands of its competitors require. Thekey stakeholders.
HempOverview comprises four modules:
1) | Registration: secure, scalable software to handle all farmer and processer application and licensing matters. | |
2) | Best Management Practices: iterative, intelligent data collection and analysis utilizing satellite imagery and advanced, proprietary algorithms to help farmers reduce input costs, avoid missteps, detect pest impacts and monitor water usage. | |
3) | Oversight and Enforcement: integration of data management and satellite imagery to provide continuous monitoring of all hemp fields in the state, predict and respond to issues and assist in proper crop testing. | |
4) | Reporting: generation of actionable reports for USDA requirements, legislative oversight and support of research institutions. |
In November 2019, the Florida Department of Agriculture and Consumer Services (FDACS) licensed the HempOverview solution to manage its online application submission and registration process for hemp growers and their farms and hemp fields in the State of Florida for the years 2020, 2021 and 2022. In June 2021, the State of Florida expanded its licensing of the HempOverview platform to provide for access to all four of the modules. FDACS also tasked AgEagle with developing a custom registration software can automatically take pictures from the camera, stitch the photos together through the cloud,platform to enhance communications, licensing and deliver a geo-referenced, high quality aerial mapgeneral compliance relating to the user’s desktop or tablet device using specialty precision agriculture software such as SST Software, SMS Software or most other agricultural software solutions. The resultoversight and protection of more than 500 endangered and commercially exploited wild plants native to Florida. For instance, in an effort to curb exploitation of saw palmetto, a plant whose extract is a prescription or zone map that can then be used in herbal supplements often marketed for its urinary tract and prostate health benefits, FDACS requires harvesters and sellers of saw palmetto berries to obtain a field computer thatNative Plant Harvesting Permit. According to a related FDACS notice, “Widespread gathering of these berries is typically found indepleting a sprayer or applicator designed to drive through fields to precisely applywildlife food source and threatening the amountstability of nutrients or chemicals required to continue or restore the production of healthy crops.some ecosystems.”
In additionJanuary 2021, the Iowa Department of Agriculture and Land Stewardship also licensed the HempOverview platform to UAV sales,manage the state’s online registration, payment processing, comprehensive data collection and compliance oversight for the 2021, 2022 and 2023 planting seasons.
Market Opportunity for Drone Software Solutions
Rapid adoption of UAS for commercial and government/military purposes continues to fuel the growth of the global drone software market, with particularly robust demand expected for applications in late 2018, AgEagle introducedareas that include mapping and surveillance, agriculture 4.0 and precision farming, academic research, infrastructure inspection and maintenance, search and rescue and shipping and delivery. In a new drone-leasing program, alleviating farmersJuly 2022 report published by Allied Market Research, the firm’s market analysts reported that the global drone software market was valued at $5.96 billion in 2021, and agribusinessesis now projected to reach $21.93 billion by 2031, growing at a CAGR of 14.5% from significant upfront costs associated with purchasing2022 to 2031.
11 |
Table of Contents |
Market Opportunity for U.S. Industrial Hemp and Hemp-Derived CBD
According to the November 2022 report of the industry research firm Markets and Markets, the global industrial hemp market is estimated to be valued at $6.8 billion in 2033 and is projected to reach $18.1 billion by 2027, recording a drone, while21.6% CAGR. Following the legalization of industrial hemp production in the United States, the country’s industrial hemp industry has grown rapidly, as it is one of the largest consumers of hemp-derived products, including oilseeds and cannabidiol (“CBD”). CBD is a non-intoxicant cannabinoid that has become more popular as a food supplement and as an ingredient in pharmaceutical and cosmetic products. Hemp bioplastics made from hemp seeds and CBD oil is also relieving them from ongoing drone maintenancedriving growth of the industry. Growing consumer demand for sustainable goods, as well as corporate and government initiatives and support, requirements. Additionally,are expected to fuel the new program providesgrowth of hemp-based biofuel and bioplastics.
AgEagle’s Manufacturing Operations
For years, federal agencies have been using drones for a wide range of use cases, from mapping to surveillance, search and rescue, and scientific research. However, in recent years federal agencies’ use of and ability to procure UAS has evolved, largely stemming from security concerns about drones from Chinese manufacturers. In 2020, for example, the optionU.S. Department of engagingInterior grounded its entire fleet of drones over concerns “that Chinese parts in them might be used for spying, making exceptions only for emergency missions like fighting wildfires and search-and-rescue operations,” as The New York Times reported on January 29, 2020.
Former President Donald Trump issued an executive order just before leaving office that said the U.S. government would seek to prevent “the use of taxpayer dollars to procure UAS that present unacceptable risks and are manufactured by, or contain software or critical electronic components from, foreign adversaries, and to encourage the use of domestically produced UAS.” As a trained result, the General Services Administration works to ensure that only drones approved by the DoD’s Defense Innovation Unit are permitted under Multiple Award Schedule contracts.
AgEagle pilotbelieves that these measures to operate the droneban China-manufactured drones and manage the entire image collection process,components has fueled and will continue to fuel, demand for “Made in America” drones and components, creating a truly turnkey aerial imagery capture solutionsignificant opportunity for U.S.-based drone manufacturers, like AgEagle. Consequently, it is AgEagle’s intention to establish best industry practices and define quality standards for manufacturing, assembly, design/engineering and testing of drones, drone subcomponents and related drone equipment in the Company’s customers.U.S. facilities. The Company also has established manufacturing operations in its Lausanne, Switzerland facility, where it assembles its line of eBee-branded fixed wing drones for AgEagle’s international customer base.
AgEagle’s commitment to its discerning customers has driven its efforts to establish recognized centers of excellence in drone airframes, sensors and software, which, in turn, has resulted in the Company’s drone production operations receiving official ISO:9001 certification for its Quality Management System (“QMS”) in 2022. Meeting a wide variety of strict standards, AgEagle has demonstrated that it delivers consistently high-quality products and services in every aspect of its fixed-wing drone operations, including design, manufacturing, marketing, sales and after-sales. An international certification, ISO:9001 recognizes organizational excellence and good quality practices based on a strong customer focus, robust process approach and proof of continual improvement. The certification was achieved following an extensive audit across AgEagle’s drone operations, led by the Company’s dedicated in-house quality management team. The QMS was developed over a two-year period, outlining a framework of policies, processes and procedures to help achieve the Company’s high-performance objectives.
5
Acquisition of Agribotix
In August 2018, we acquired certain assets of Agribotix, LLC, a Colorado limited liability company (“Agribotix”), which included Agribotix’s primary product,FarmLens™.Agribotix was engaged in the business of providing integrated agricultural drone solutions and drone-enabled software technologies and services for precision agriculture.Key Growth Strategies
We believed that purchasing FarmLens,benefitted usintend to materially grow our business by leveraging our proprietary, best-in-class, full-stack drone solutions, industry influence and deep pool of talent with specialized expertise in robotics, automation, custom manufacturing and data science to achieve greater penetration of the global UAS industry – with near-term emphasis on capturing larger market share of the agriculture, energy/utilities, infrastructure and government/military verticals. We expect to accomplish this goal by first bringing three core values to life in our shareholders by developing important vertically integrated productsday-to-day operations and services.FarmLens is a subscription cloud analytics service that processes data, primarily collectedaligning them with a drone, such as those produced by AgEagle,our efforts to earn the trust and makes such data actionable by farmerscontinued business of our customers and agronomists.FarmLensis currently sold by AgEagle as a subscription service and offered either standalone or in a bundle with drone platforms manufactured by leading drone providers like AgEagle, DJI and senseFly.industry partners:
12 |
Table of Contents |
· | Curiosity – this pushes us to find value where others aren’t looking. It inspires us to see around corners for our customers, understanding the problems they currently face or will be facing in the future, and delivering them solutions best suited for their unique needs. | |
· | Passion – this fuels our obsession with excellence, our desire to try the difficult things and tackle big problems, and our commitment to meet our customers’ needs – and then surpass them. | |
· | Integrity – this is not optional or situational at AgEagle – it is the foundation for everything we do, even when no one is watching. | |
· | Key components of our growth strategy include the following: | |
· | Establish three centers of excellence with respective expertise in UAS software, sensors and airframes. These centers of excellence cross pollinate ideas, industry insights and skillsets to yield intelligent autonomous solutions that fully leverage AgEagle’s experienced team’s specialized knowledge and know-how in robotics, automation, custom manufacturing and data science. | |
· | Deliver new and innovative solutions. AgEagle’s research and development efforts are critical building blocks of the Company, and we intend to continue investing in our own innovations, pioneering new and enhanced products and solutions that enable us to satisfy our customers – both in response to and in anticipation of their needs. AgEagle believes that by investing in research and development, the Company can be a leader in delivering innovative autonomous robotics systems and solutions that address market needs beyond our current target markets, enabling us to create new opportunities for growth. | |
· | Foster our entrepreneurial culture and continue to attract, develop and retain highly skilled personnel. AgEagle’s company culture encourages innovation and entrepreneurialism, which helps to attract and retain highly skilled professionals. We intend to preserve this culture to nurture the design and development of the innovative, highly technical system solutions that give us our competitive advantage. | |
· | Effectively manage our growth portfolio for long-term value creation. Our production and development programs present numerous investment opportunities that we believe will deliver long-term growth by providing our customers with valuable new capabilities. We evaluate each opportunity independently, as well as within the context of other investment opportunities, to determine its relative cost, timing and potential for generation of returns, and thereby its priority. This process helps us to make informed decisions regarding potential growth capital requirements and supports our allocation of resources based on relative risks and returns to maximize long-term value creation, which is the key objective of our growth strategy. We also review our portfolio on a regular basis to determine if and when to narrow our focus on the highest potential growth opportunities. | |
· | Growth through acquisition. Through successful execution of our growth-through-acquisition strategies, we intend to acquire technologically advanced UAS companies and intellectual property that complement and strengthen our value proposition to the market. We believe that by investing in complementary acquisitions, we can accelerate our revenue growth and deliver a broader array of innovative autonomous flight systems and solutions that address specialized market needs within our current target markets and in emerging markets that can benefit from innovations in artificial intelligence-enabled robotics and data capture and analytics. |
Competitive Strengths
AgEagle believes the following attributes and capabilities provide us with long-term competitive advantages:
13 |
Table of Contents |
· | Proprietary technologies, in-house capabilities and industry experience –We believe our decade of experience in commercial UAS design and engineering; in-house manufacturing, assembly and testing capabilities; and advanced technology development skillset serve to differentiate AgEagle in the marketplace. In fact, approximately 70% of our Company’s global workforce is comprised of engineers and data scientists with deep experience and expertise in robotics, automation, custom manufacturing, and data analytics. In addition, AgEagle is committed to meeting and exceeding quality and safety standards for manufacturing, assembly, design and engineering and testing of drones, drone subcomponents and related drone equipment in our U.S. and Swiss-based manufacturing operations. As a result, we have earned ISO:9001 international certification for our Quality Management System. | |
· | AgEagle is more than just customer- and product-centric, we are obsessed with innovation and knowing the needs of our customers before they do– We are focused on capitalizing on our specialized expertise in innovating and commercializing advanced drone, sensor and software technologies to provide our existing and future customers with autonomous robotic solutions that meet the highest possible safety and operational standards and fit their specific business needs. We have established three Centers of Excellence that our leadership has challenged to cross-pollinate ideas, industry insights and interdisciplinary skillsets to generate intelligent autonomous solutions that efficiently leverage our expertise in robotics, automation and manufacturing to solve problems for our customers, irrespective of the industry sector in which they may operate. | |
· | We offer market-tested drones, sensors and software solutions that have earned the longstanding trust and fidelity of customers worldwide– through successful execution of our acquisition integration strategy in 2022, AgEagle is now delivering a unified line of industry trusted drones, sensors and software that have been vigorously tested and consistently proven across multiple industry verticals and use cases. For instance, our line of eBee fixed wing drones have flown more than one million flights over the past decade serving customers spanning surveying and mapping; engineering and construction; military/defense; mining, quarries and aggregates; agriculture humanitarian aid and environmental monitoring, to name just a few. Featured in over 100 research publications globally, advanced sensor innovations developed and commercialized by AgEagle have served to forge new industry standards for high performance, high resolution, thermal and multispectral imaging for commercial drone applications in agriculture, plant research, land management and forestry. In addition, we have championed the development of end-to-end software solutions which power autonomous flight and deliver actionable, contextual data and analytics for numerous Fortune 500 companies, government agencies and a wide range of businesses in agriculture, energy and utilities, construction and other industry sectors. | |
· | Our eBee TAC UAS has been approved by the Defense Innovation Unit (DIU) for procurement by the Department of Defense – We believe that the eBee TAC is ideally positioned to become an in-demand, mission critical tool for the U.S. military, government and civil agencies and our allies worldwide; and expect that this will prove to be a major growth catalyst for our Company in 2022, positively impacting our financial performance in the years ahead. eBee TAC is available for purchase by U.S. government agencies and all branches of the military on GSA Schedule Contract #47QTCA18D003G, supplied by Hexagon US Federal and partner Tough Stump Technologies as a standalone solution or as part of the Aerial Reconnaissance Tactical Edge Mapping Imagery System (“ARTEMIS”). Tough Stump is actively engaged in training military ground forces based in the U.S. and in Central Europe on the use of eBee TAC for mid-range tactical mapping and reconnaissance missions. | |
· | Our eBee X series of fixed wing UAS, including the eBee X, eBee Geo and eBee TAC, are the first and only drones on the market to comply with Category 3 of the sUAS Over People rules published by the FAA. It is another important testament to our commitment to provide best-in-class solutions to our commercial customers, and we believe it will serve as a key driver in the growth of eBee utilization in the United States. We further believe it will improve the business applications made possible by our drone platform for a wide range of commercial enterprises which stand to benefit from adoption of drones in their businesses – particularly those in industries such as insurance for assessment of storm damage, telecommunications for network coverage mapping and energy for powerline and pipeline inspections, just to name a few. |
14 |
Table of Contents |
· | Our eBee X series of drones are the world’s first UAS in its class to receive design verification for BVLOS and OOP from European Union Aviation Safety Agency (“EASA”). The EASA design verification report (“DVR”) demonstrates that the eBee X meets the highest possible quality and ground risk safety standards and, thanks to its lightweight design, effects of ground impact are reduced. As such, drone operators conducting advanced drone operations in 27 European Member States, Iceland, Liechtenstein, Norway, and Switzerland can obtain the HIGH or MEDIUM robustness levels of the M2 mitigation without additional verification from EASA. Regulatory constraints relating to limitations of BVLOS and OOP have continued to be a gating factor to widespread adoption of commercial drone technologies across a wide range of industry sectors worldwide. Being the first company to receive this DVR from EASA for M2 mitigation is a milestone for AgEagle and our industry in the European Union and will be key to fueling growth of our international customer base. | |
· | Our global reseller network currently has more than 200 drone solutions providers in 75+ countries – By leveraging our relationships with the specialty retailers that comprise our global reseller network, AgEagle benefits from enhanced brand-building, lower customer acquisition costs and increased reach, revenues and geographic and vertical market penetration. With the integration of our 2021 acquisitions completed in 2021 (the “2021 Acquisitions”), we can now leverage our collective reseller network to accelerate our revenue growth by educating and encouraging our partners to market AgEagle’s full suite of airframes, sensors and software as bundled solutions in lieu of marketing only previously siloed products or product lines to end users. | |
In November 2022, we partnered with government contractor W.S. Darley & Co. (“Darley”) to expand the market reach of AgEagle’s high performance fixed wing drones and sensors to the U.S. first responder and tactical defense markets. Distinguished as one of the nation’s longest standing government contracting organizations, Darley is expected to become a key contributor to AgEagle’s success in delivering best-in-class UAS solutions to a wide range of state and federal agencies. Providing our best-in-class autonomous flight solutions for public safety applications through trusted resellers like Darley represents an entirely new market opportunity for AgEagle and one we intend to vigorously pursue in the coming year. |
Government Regulation
UAV Regulation
AgEagle is subject to industry-specific regulations due to the nature of the products we sell to our customers. For example, certain aspects of our U.S. business are subject to regulation by the Federal Aviation Administration (“FAA”), which regulates airspace for all air vehicles in the U.S. National Airspace System.
In August 2016, the FAA’s final rules for routine use of certain small UAS in the U.S. National Airspace System went into effect, providing safety rules for small UAS (under 55 pounds) conducting non-recreational operations. These rules limit flights to visual-line-of-sight daylight operation, unless the UAS has anti-collision lights in which case twilight operation is permitted. TheFarmLensplatform extends AgEagle’s reach as final rule also addresses height and speed restrictions, operator certification, optional use of a business through key partnerships. visual observer, aircraft registration and marking and operational limits, including prohibiting flights over unprotected people on the ground who are not directly participating in the operation of the UAS. Current FAA regulations require drone operators to register their systems with the FAA and secure operating licenses for their drones. These regulations continue to evolve to accommodate the integration of UAS into the National Airspace System for commercial applications.
In April 2021, the FAA’s final rule for remote identification of UAS went into effect. On the same day, the final rule for operation of small UAS over people also went into effect. This rule permits routine operations of small unmanned aircraft over people, moving vehicles and at night under certain conditions, provided that the operation meets the requirements of one of four operational categories.
15 |
Table of Contents |
On October 2018,27, 2022, AgEagle announced that it was expandingthe Company’s eBee X series of fixed wing UAS were the first and only drones on Agribotix’s existing partnershipthe market at that time to comply with The Climate Corporation’sFieldView™platform, enabling farmersCategory 3 (as defined below) of the Operations of Small Unmanned Aerial Systems Over People rules published by the FAA. Now that the eBee has proven compliant with Category 3 (as defined below) of the rules, eBee drone operators no longer need an FAA waiver for OOP or Operations Over Moving Vehicles. Category 3 eligible sUAS must not cause injury to share imagesa human being that is equivalent to or greater than the severity of injury caused by a transfer of 25 foot-pounds of kinetic energy upon impact fromFarmLens to theirFieldView accounts a rigid object, does not contain any exposed rotating parts that could lacerate human skin upon impact with a human being, and compare them alongside other valuable metrics, including plantingdoes not contain any safety defects. Category 3 aircraft also require FAA-accepted means of compliance and yield data. To date,FarmLenshas processed agricultural imagery for approximately two million acresFAA-accepted declaration of crops and analyzed data for over 53 different crop types from over 50 countries around the world. compliance.
In December 2018, AgEagle unveiled its plansOur non-U.S. operations are subject to develop aFarmLens Mobile app, extending the numerous benefitslaws and regulations of foreign jurisdictions, which may include regulations that are more stringent than those imposed by theFarmLensplatform to mobile devices. TheFarmLens Mobile app was commercially launched in 2019 and is now available for download U.S. government on any iPhone, iPad or Android device.our U.S. operations.
HempOverview Platform
Domestic Hemp Production and Prevailing Regulatory Changes
With the passing of the 2018 Farm Bill in December 2018, industrial hemp is now recognized as an agricultural commodity, such as corn, wheat, or soybeans.
More specifically, the 2018 Farm Bill authorizes state departments of agriculture, including agencies representing the District of Columbia, the Commonwealth of Puerto Rico and any other territory or possession of the United States, and Indian tribal governments, to submit plans to the USDA applying for primary regulatory authority over the production of hemp in their respective state or tribal territory. For more information on state and tribal nation plan submission,submissions, please visithttps://www.federalregister.gov/documents/2019/10/31/2019-23749/establishment-of-a-domestic-hemp-production-program.
Market Opportunity in U.S. Industrial Hemp and Hemp-Derived CBD
According to research firm Frontier Data’s Global State of Hemp: 2019 Industry Outlook, 2018 sales of hemp worldwide were driven by continued strength in Chinese textiles, European industrials, Canadian foods and the U.S. hemp-derived CBD market. However, continued demand in the CBD market “will be the main driving force behind the global hemp market’s continued growth,” which the firm estimates will reach $5.7 billion by 2020.
In theHemp & CBD Industry Factbook 2019, published byHemp Industry Daily, rising consumer enthusiasm for and awareness of CBD – combined with widespread, easy access to CBD products at traditional retail outlets – is expected to drive a surge in CBD sales over the coming years, increasing to $10.3 billion by 2024.
HempOverviewwww.ams.usda.gov/rules-regulations/hemp/state-and-tribal-plan-review.
As one of January 15, 2023, 42 states, two U.S. territories and 53 tribal nations have had their hemp production plans approved by the agriculture industry’s leading pioneers of advanced aerial-image-based data collectionUSDA; and analytics solutions, AgEagle is intent on leveraging our expertiseeight states and seven tribal nations require hemp growers to champion the use of proven, advanced web- and map-based technologies asseek a meansUSDA Hemp Producer License in order to streamline and ultimately standardize hemp cultivation in the United States. Growers need to be registered/permitted; crops need to be monitored and inspected; and enforcement operations must be established to ensure compliance with state and federal mandates. Through the introduction ofHempOverview, AgEagle represents the first agriculture technology company to its knowledge to bring to market an advanced agtech solution that is designed to meet the unique complexities and vigorous oversight, compliance and enforcement demands of the emerging American hemp industry and the unique needs and demands of its key stakeholders.operate.
6
HempOverview is comprised of four modules:
In November, 2019, AgEagle announced that the Florida Department of Agriculture and Consumer Services (“FDACS”) has chosen theHempOverview solution to manage its online application submission and registration process for hemp growers and their farms and hemp fields in the State of Florida for the years 2020, 2021 and 2022. In addition, the Company has entered discussions with several other states across the nation, as well as with certain growers and processors, and expects to announce additional newHempOverview clients in 2020.Environmental
HempOverview has also been created to support hemp processors who contract with growers, helping to ensure profitable production on existing contracted acres while maintaining governmental compliance in a changing regulatory landscape. More specifically,HempOverview supports full, cloud-based mobile- and desktop-based software application and enables users to:
HempOverview focuses on simultaneously collecting data, analyzing field-related problems and providing readily accessible analysis and reporting for achieving and sustaining end-to-end visibility and best management practices for the growing industrial and CBD hemp supply chain.
Commercial Drone Package Delivery
Over the past year, there has been a surge of prominent companies, including Alphabet (Google), FedEx, Intel, Qualcomm, Amazon, Target, Walmart, Alibaba, UPS, 7-Eleven, Uber and many others, actively developing commercial drone delivery service initiatives as part of their long-term strategic plans. These companies intend to leverage the latest in UAV technologies to deliver food, consumer products, medicines and other types of lightweight freight direct to consumers and businesses in the fastest, most cost efficient and environmentally responsible manner possible – a practical alternative to costly auto transport.
AgEagle’s proven expertise in manufacturing rugged, reliable and professional grade UAVs makes the Company a logical partner for designing, manufacturing and testing drone platforms in the fast growing package delivery market – a market forecasted by ResearchandMarkets will climb to $11.2 billion by 2022 and subsequently rise to $29.06 billion by 2027. The anticipated growth of the industry is expected to be largely fueled by the high usage of drones in the ecommerce industry for delivery of products in rural areas, where automotive transport vehicles cannot readily reach or where deliveries take longer time to arrive.
7
In September 2019, the Company announced that it was actively pursuing expansion opportunities within the Drone Logistics and Transportation market, and reported that it had received its first purchase order from a major unnamed ecommerce company to manufacture and assemble UAVs designed to meet the critical specifications for drones that are meant to carry goods in urban and suburban areas. AgEagle is currently working in close collaboration with this new customer on its tethered test flight operations and ongoing development. In association with the initial purchase order, AgEagle recorded its first revenues in the second half of 2019 and will recognize additional revenues from the project in the first quarter of 2020.
Sustainability Platform
The negative impact of agriculture on both the environment and society has been widely documented with unsustainable farming practices serving to confound land conversion and habitat loss, wasteful water consumption, soil erosion and degradation, pollution and climate change. It has been reported that agricultural production is believed to be responsible for 70% of river and stream pollution from chemicals, silt and animal waste (source: Food and Agriculture Organization of the United Nations). Moreover, agriculture is the largest consumer of the Earth’s available freshwater: 70% of withdrawals from watercourses and groundwater are for agricultural usage, three times more than 50 years ago. By 2050, the global water demand of agriculture is estimated to increase by a further 19% due to irrigational needs (source: GlobalAgriculture.org).
Left unchecked, many believe that farming practiced without care presents the greatest global threat to species and ecosystems, especially given that demand for more food - and healthier food - is rising exponentially. According to the World Resources Institute, our planet will need 70 percent more food to feed a global population of 9.6 billion by 2050. In view of looming environmental and social crises facing the planet, both consumer packaged goods companies and their supply chain partners recognize the need to accelerate their shift towards greater transparency in their sustainability practices and policies as they assume greater responsibility for mitigating the use of chemicals in crop production and preserving natural resources.
ParkView Platform
Leveraging the underlying imaging technology and robust analytics capabilities of AgEagle’sFarmLensplatform, AgEagle announced the formal market introduction of itsParkView solution in March 2019.ParkView is a proprietary aerial imagery and data analytics platform designed specifically for assessing and supporting sustainability initiatives involving municipal, state and federal public parks and recreation areas. The Company further announced that it won its firstParkViewcustomer with the signing of Denver Parks and Recreation (“DPR”) in Denver, Colorado. DPR will utilizeParkView to better inform vegetative maintenance and natural resource preservation for its green infrastructure, comprising more than 6,000 acres of public green space within the city limits. AgEagle’s staff was also contracted to provide DPR with in-depth training on best management practices for UAV operations in a municipal setting.
Research has shown that urban green infrastructure can materially improve water quality and conservation, attract investment, revive distressed neighborhoods, encourage redevelopment and provide outdoor recreational opportunities for cities of all scope and sizes worldwide, thus effectively helping to align social, economic, public health and environmental goals.
Growth Strategy
We intend to grow our business by achieving greater market penetration of the growing precision agriculture marketplace; by promoting our new service targeting the sustainable agriculture marketplace for the 2020 growing season; and by creating new, easier to use and higher value products that position AgEagle as a leading innovator and trusted solutions provider in high growth markets where advanced aerial imaging and data capture and analytics technologies can be used to achieve specific business and sustainability objectives. Currently, our management is actively exploring new vertical expansion opportunities in other industries outside of agriculture and its related areas, including drone-enabled package delivery.
8
Key components of our growth strategy include the following:
9
Competitive Strengths
AgEagle believes the following attributes and capabilities provide us with long-term competitive advantages:
10
Government Regulation
UAV Regulation
AgEagle’s UAV products are subject to regulations of the FAA. On June 21, 2016, the FAA announced it had finalized the first operational rules for routine commercial use of small Unmanned Aerial Systems (UAS), which for purposes of the regulations are unmanned aircraft weighing less than 55 pounds that are conducting non-hobbyist operations. UAS operators-for-hire will have to pass a written test and be vetted by the TSA, but no longer need to be airplane pilots as current law requires. The rules went into effect on August 20, 2016. Among other things, the new regulations require:
The new regulations also establish a remote pilot in command position. A person operating a small unmanned aircraft must either hold a remote pilot airman certificate with a small unmanned aircraft system rating or be under the direct supervision of a person who does hold a remote pilot certificate (remote pilot in command). A pilot’s license is no longer required. To qualify for a remote pilot certificate, a person must: demonstrate aeronautical knowledge by either passing an initial aeronautical knowledge test at an FAA-approved knowledge testing center; or hold a part 61 pilot certificate other than student pilot, complete a flight review within the previous 24 months, and complete a small UAS online training course provided by the FAA. The person must also be vetted by the TSA and be at least 16 years old. Applicants will obtain a temporary remote pilot certificate upon successful completion of TSA security vetting. The FAA anticipates that it will be able to issue a temporary remote pilot certificate within 10 business days after receiving a completed remote pilot certificate application.
The regulations do not require the use of a visual observer. In addition, FAA airworthiness certification is not required. However, the remote pilot in command must conduct a preflight check of the small UAS to ensure that it is in a condition for safe operation.
Most of the restrictions can be waived by the FAA if the applicant demonstrates that his or her operation can safely be conducted under the terms of a certificate of waiver. The FAA maintains an online portal where a company or individual can apply for a certificate of waiver.
Drone Package Delivery Regulation
The FAA is encouraging innovation through the Unmanned Aircraft Systems (UAS) Integration Pilot Program (IPP) by working with industry,various federal, state, local and tribal governmentsnon-U.S. laws and regulations relating to realizeenvironmental protection, including the benefitsdischarge, treatment, storage, disposal and remediation of drones, while informinghazardous substances and wastes. We could also be affected by future ruleslaws and regulations relating to climate change, including laws related to greenhouse gas emissions and regulating energy efficiency. These laws and regulations could lead to increased environmental compliance expenditures, increased energy and raw materials costs and new and/or additional investment in designs and technologies. We continually assess our compliance status and management of environmental matters to ensure our operations are in compliance with all applicable environmental laws and regulations. ParticipantsInvestigation, remediation and operation and maintenance costs associated with environmental compliance and management of sites are a normal, recurring part of our operations. These costs often are allowable costs under our contracts with the U.S. government. While environmental protection regulations have not had a significant adverse effect on our overall operations historically, it is reasonably possible that costs incurred to ensure continued environmental compliance in these programsthe future could have a material impact on our results of operations, financial condition or cash flows if additional work requirements or more stringent clean-up standards are amongimposed by regulators, or if new areas of soil, air and groundwater contamination are discovered and/or expansions of work scope are prompted by the first to prove their concepts, including package delivery by drone, through part 135 air carrier certification. Part 135 certification is the only path for small drones to carry the propertyresults of another for compensation beyond visual line of sight.investigations.
11
As participants in these programs move to prove their concepts, they must use FAA’s existing Part 135 certification process, some of which FAA has adapted for drone operations by granting exemptions for rules that don’t apply to drones, such as the requirement to carry the flight manuals on board the aircraft. All Part 135 applicants must go through the full five phases of the certification process.
The FAA issues air carrier certificates to U.S. applicants based on the type of services they plan to provide and where they want to conduct their operations. Operators must obtain airspace authorizations and air carrier or operating certificates before they can begin operations.
Certificates are available for four types of Part 135 operations:
UPS Flight Forward, Inc., a participant in the Integration Pilot Program (IPP), became the first company to receive a Standard Part 135 air carrier certificate to operate a drone aircraft. On September 27, 2019, UPS Flight Forward conducted its first package delivery by drone with its part 135 certification when it flew medical supplies at WakeMed’s hospital campus in Raleigh, North Carolina. The FAA issued a Part 135 Single pilot air carrier certificate for drone operations to Wing Aviation, LLC in April 2019. Wing Aviation is also part of the IPP.
The FAA is currently working on six additional Part 135 air carrier certificate applications that have been submitted by IPP operators and one 135 applications that were submitted by an FAA Partnership for Safety Plan (PSP) participant.Suppliers
In early February 2020, the FAA issued proposed safety standards for specific drones for package deliveries. This represents a big step toward allowing routine package delivery by drones. This proposal marks the first time the FAA has presented a formal policy that addresses certain safety and airworthiness requirements for drones making package deliveries. The proposal is meant to certify specific drones for parcel delivery as a special class of aircraft in ways similar to how other manned aircraft, such as airliners, helicopters and small private planes are treated. The FAA’s goal is to allow for full integration in the national airspace, but its focus appears to be on drones used for package delivery. The FAA had requested public comments be submitted by March 4, 2020. Tens of thousands of comments were received by the FAA prior to the deadline opining on the proposed rules. The FAA will review the comments submitted and may or may not make changes to the proposed rules before publishing a final rule.
Domestic Hemp Cultivation Regulation
The 2018 Farm Bill directed the United States Department of Agriculture (“USDA”) to establish a national regulatory framework for hemp production in the United States. The USDA established the U.S. Domestic Hemp Production Program through an interim final rule outlining provisions for the USDA to approve plans submitted by States and Indian Tribes for the domestic production of hemp. It also established a Federal plan for producers in States or territories of Indian tribes that do not have their own USDA-approved plan. The program includes provisions for maintaining information on the land where hemp is produced, testing the levels of delta-9 tetrahydrocannabinol, disposing of plants not meeting necessary requirements, licensing requirements and ensuring compliance with the requirements of the Rule. For more information relating to the Establishment of a Domestic Hemp Production Program, please visithttps://www.federalregister.gov/documents/2019/10/31/2019-23749/establishment-of-a-domestic-hemp-production-program.
AgEagle has developedHempOverview to provide users with a gold industry standard for fully complying with federal, state and tribal regulations associated with hemp cultivation.
12
Manufacturing
As of today,2022, we manufacture and assemble all of our products at our manufacturing facility in Neodesha, Kansas.
Suppliers
Currently, we havemaintained strong relationships established with companies that provide many of the parts and services necessary to construct our advanced fixed wingfixed-wing drones and newly introduced UAVS drones, such as Botlink, MicaSense and 3DR.sensors. As our Company grows, we expect to pursue additional supplier relationships from which we can source cheaperless costly and better supplies to stay ahead of the needs of the market. In addition, we have forged strong relationships with key suppliers in the U.S. and in U.S.-allied countries based on their ability to meet our needs and delivery timelines. We will continue to expand upon our suppliers’ expertise to improve our existing products and develop new solutions. In 2022, we experienced some supply chain delays due primarily to logistical issues relating to COVID-19 shutdown mandates. We may continue to experience potential supply chain disruptions in 2023 for the same reason.
16 |
|
Table of Contents |
Revenue MixOperating Segment Revenues
The table below reflects our revenue by operating segment for the periodsyears indicated by product mix:below:
For the Year Ended December 31, |
| For the Year Ended December 31, |
| |||||||||||||
Type | 2019 | 2018 |
| 2022 |
|
| 2021 |
| ||||||||
Drone Assembly and Product Sales | $ | 267,622 | $ | 93,217 | ||||||||||||
Subscription Sales | 29,055 | 14,596 | ||||||||||||||
Drones |
| $ | 9,840,321 |
| $ | 2,428,858 |
| |||||||||
Sensors |
| 8,655,434 |
| 6,793,727 |
| |||||||||||
Software-as-a-Service (SaaS) |
|
| 598,670 |
|
|
| 538,367 |
| ||||||||
Total | $ | 296,677 | $ | 107,813 |
| $ | 19,094,425 |
|
| $ | 9,760,952 |
|
Research and Development
Research and development activities are partcore components of our business, and we follow a disciplined approach to investing our resources to create new drone technologies and solutions. A fundamental part of this approach is a well-defined screening process that helps us identify commercial opportunities that support current desired technological capabilities in the markets we serve. Our research includes the expansion of our fixed wing products, providing for developing a portfolio of UAVs, sensors and ongoing software platform development costs, as well as other technological solutions to problems to which our existing and prospective customers must confront. We cannot predict when, if ever, we will successfully commercialize these projects, or the exact level of capital expenditures they could require, which could be substantial.
Risks Relating to Our Business
Our business is subject to numerous risks and uncertainties, including those highlighted in the section titled “Risk Factors” found in Item 1A within this Annual Report on Form 10-K. Some of these risks include, but are not limited to, risks associated with:
13
Recent Developments
On April 7, 2020, we entered into a Securities Purchase Agreement (the “Agreement”) with an institutional investor (the “Purchaser”). Pursuant to the terms of the Agreement, the Board authorized 1,050 shares of a newly designated series of preferred stock, the Series E Convertible Preferred Stock (the “Preferred Stock”). The Preferred Stock is convertible at $0.25 per share into an aggregate of 4,200,000 shares of the common stock, par value $0.001 per share (the “Conversion Shares”). The purchase price for the Preferred Stock was $1,050,000 (the “Purchase Price”). The Company also entered into a Registration Rights Agreement, granting registration rights to the Purchaser with respect to the Conversion Shares and common stock underlying warrants currently owned by the Purchaser (the “Warrant Shares”).
Pursuant to the terms of the Registration Rights Agreement, we shall file an initial registration statement registering the Conversion Shares and the Warrant Shares (the “Registrable Securities”), no later than the 15th calendar day following the date the this Annual Report on Form 10-K is filed (the “Filing Date”) and, with respect to any additional registration statements the earliest practical date on which we are permitted by SEC Guidance to file such additional registration statement related to the Registrable Securities. We shall have the registration statement declared effective with the Securities and Exchange Commission (the “Commission”), no later than the 90th calendar day following the Filing Date, or, in the event of a “full review” by the Commission, the 120th calendar day following the Filing Date.
On April 7, 2020, as a condition to the consummation of the Agreement, we entered into a Leak-Out Agreement, with Mr. Bret Chilcott, our President and director, and the Purchaser, with respect to the shares Mr. Chilcott beneficially owns. The restriction on the disposition of the shares is for a period of seven months from the date of the closing of the Agreement. Thereafter, for a period of an additional six months, Mr. Chilcott may sell no more than $25,000 per calendar month of shares of common stock.
Organizational History
On March 26, 2018, our predecessor company, EnerJex Resources, Inc. (“EnerJex”), a Nevada company, 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 Nevada corporation and a wholly-owned subsidiary of EnerJex, merged with and into AgEagle Aerial Systems Inc., a privately held company organized under the laws of the state of Nevada (“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. (the “Company, “we,” “our,” or “us”) and AgEagle Sub changed its name initially to “Eagle Aerial, Inc.” and then to” AgEagleto “AgEagle Aerial, Inc.
” Prior to the Merger, EnerJex was formerly known as Millennium Plastics Corporation (“Millennium) and was incorporated in the State of Nevada on March 31, 1999. In August 2006, Millennium acquired Midwest Energy, Inc., a Nevada corporation pursuant to a reverse merger. After such merger, Midwest Energy became a wholly-owned subsidiary, and as a result of such merger, the former Midwest Energy stockholders controlled approximately 98% of our outstanding shares of common stock. Midwest then changed its name to EnerJex Resources, Inc., (“EnerJex”) in connection with this merger, and in November 2007, it changed the name of Midwest Energy (one of our wholly-owned subsidiaries) to EnerJex Kansas, Inc. (“EnerJex Kansas”). All of its operations conducted prior to this merger, all of the EnerJex operations were conducted through EnerJex Kansas, Inc., Black Sable Energy, LLC, a Texas limited liability company (“Black Sable”) and Black Raven Energy, Inc. a Nevada corporation (“Black Raven”). Its leasehold interests were held in ourits wholly-owned subsidiaries Black Sable, Working Interest, LLC, EnerJex Kansas and Black Raven. As of December 31, 2021, the Company continued with the wholly-owned subsidiaries, AgEagle Aerial, Inc. and EnerJex Kansas, Inc.
On August 28, 2018,January 27, 2021 (“MicaSense Acquisition Date”), we closedentered into a stock purchase agreement (the "MicaSense Purchase Agreement”) with Parrot Drones S.A.S. and Justin B. McAllister (the "MicaSense Sellers”) pursuant to which the transactions contemplated byCompany acquired 100% of the Asset Purchase Agreementissued and outstanding capital stock of MicaSense, Inc. from the MicaSense Sellers (the “Purchase Agreement”“MicaSense Acquisition”) dated July 25, 2018 with AgEagle Aerial, Inc.,. The aggregate purchase price for the shares of MicaSense was $23,000,000, less any debt, and subject to a customary working capital adjustment. MicaSense became a wholly-owned subsidiary of the Company; Agribotix, LLC,Company as a Colorado limited liability companyresult of the MicaSense Acquisition.
On April 19, 2021 (the “Measure Acquisition Date”), the Company entered into a stock purchase agreement (the "Measure Purchase Agreement”) with Brandon Torres Declet (“Agribotix” orMr. Torres Declet”), in his capacity as representative of the “Seller”);sellers, and the other partiessellers named therein. Pursuant toin the Measure Purchase Agreement we acquired all right, title and interest in and to all assets owned by Agribotix and utilized in their business for providing integrated agricultural drone solutions and drone-enabled software technologies and services for precision agriculture, except for certain excluded assets as set forth in the Purchase Agreement. At closing, we also assumed certain commitments under various third-party contracts(the "Measure Sellers”) pursuant to which the termsCompany acquired 100% of the issued and outstanding capital stock of Measure Global, Inc. (“Measure”) from the Measure Sellers (the “Measure Acquisition”). The aggregate purchase price for the shares of Measure is $45,000,000, less the amount of Measure’s debt and transaction expenses, and subject to a customary working capital adjustment. Measure became a wholly-owned subsidiary of the Company as a result of the Measure Acquisition.
17 |
Table of Contents |
On October 18, 2021 (the “senseFly S.A. Acquisition Date”), the Company entered into a stock purchase agreement with Parrot Drones S.A.S. pursuant to which the Company acquired 100% of the issued and outstanding capital stock of senseFly S.A. from Parrot Drones S.A.S. (the “senseFly S.A. Purchase Agreement.Agreement”) The aggregate purchase price for the shares of senseFly S.A. is $21,000,000, less the amount of senseFly S.A.’s debt and subject to a customary working capital adjustment. senseFly S.A. became a wholly-owned subsidiary of the Company as a result.
14
TableOn October 18, 2021 (the “senseFly Inc. Acquisition Date), AgEagle Aerial and the Company entered into a stock purchase agreement (the "senseFly Inc. Purchase Agreement”) with Parrot Inc. pursuant to which AgEagle Aerial agreed to acquire 100% of Contentsthe issued and outstanding capital stock of senseFly Inc. from Parrot Inc. The aggregate purchase price for the shares of senseFly Inc. is $2,000,000, less the amount of senseFly Inc.’s debt and subject to a customary working capital adjustment. senseFly Inc. became a wholly-owned subsidiary of the Company as a result.
Our Headquarters
Our principal executive offices are located at 117 S. 48863 E. 34th Street Neodesha,North, Wichita, Kansas 6675767226 and our telephone number is 316-202-2076.620-325-6363. Our website address is www.ageagle.com. The information contained on, or that can be accessed through, our website is not a part of this Annual Report. We have included our website address in this Annual Report solely as an inactive textual reference.
EmployeesHuman Capital Resources
As of December 31, 2019,March 15, 2023, we employed 692 full-time employees and 4one part-time employees.employee. We acknowledge that our employees are the Company’s most valued asset and the driving force behind our success. For this reason, we aspire to be an employer that is known for cultivating a positive and welcoming work environment and one that fosters growth, provides a safe place to work, supports diversity and embraces inclusion. To support these objectives, our human resources programs are designed to develop talent to prepare them for critical roles and leadership positions for the future; reward and support employees through competitive pay, benefit and perquisite programs; enhance the Company’s culture through efforts aimed at making the workplace more engaging and inclusive; acquire talent and facilitate internal talent mobility to create a high performing, diverse workforce; engage employees as brand ambassadors of the Company’s products; and evolve and invest in technology, tools and resources to enable employees at work.
Intellectual Property
WeAs reflected in the table below, we currently have a registered trademarks, several patents or pending patents for our proprietary drone, sensor and software technologies filed in the United States and certain jurisdictions abroad. As of March 15, 2023, our trademark onportfolio includes 63 registered and/or pending in various countries and 21 patents in various stages of the AgEagle andFarmLens name and logo. In 2020, we also plan to apply for registered trademark protection on theParkView andHempOverview names and logos.patent granting process. We also plan to file provisional patents on certain aspects of our current and future technology. We consider our UAV and sensor manufacturing processprocesses to be a trade secretsecrets and have non-disclosure agreements with current employees and business partners to protect those and other trade secrets held by the Company. Risks related to the protection and exploitation of IP rights are set forth in “Item 1A—Risk Factors”.
18 |
Table of Contents |
Trademarks |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Mark |
| Country |
|
| Application No. |
| Filing Date |
|
| Registration No. |
|
| Registration Date |
| Status | |
(RE)DEFINING AGRICULTURAL DRONE SENSING |
| US |
|
| 88/521832 |
| 7/18/2019 |
|
| 6078193 |
|
| 6/16/2020 |
| Registered | |
ALTUM |
| US |
|
| 88/412439 |
| 5/2/2019 |
|
| 6823409 |
|
| 8/23/2022 |
| Registered | |
ALTUM-PT |
| US |
|
| 97/174411 |
| 12/15/2021 |
|
| 6918181 |
|
| 12/6/2022 |
| Registered | |
Canada |
| 2198057 |
|
| 6/15/2022 |
|
|
|
|
|
|
| Pending |
|
| |
China |
|
|
|
| 6/15/2022 |
| 1672211 |
|
| 6/15/2022 |
|
| Registered |
|
| |
European Union |
|
|
|
| 6/15/2022 |
| 1672211 |
|
| 6/15/2022 |
|
| Registered |
|
| |
Japan |
|
|
|
| 6/15/2022 |
|
|
|
|
|
|
| Pending |
|
| |
Mexico |
|
|
|
| 6/15/2022 |
|
|
|
|
|
|
| Pending |
|
| |
Madrid Protocol |
| A0124015 |
|
| 6/15/2022 |
| 1672211 |
|
| 6/15/2022 |
|
| Registered |
|
| |
MICASENSE |
| US |
|
| 86/659942 |
| 6/11/2015 |
|
| 4922111 |
|
| 3/22/2016 |
| Registered | |
REDEDGE |
| US |
|
| 88/749873 |
| 1/7/2020 |
|
| 6344611 |
|
| 5/11/2021 |
| Registered | |
REDEDGE-MX |
| US |
|
| 88/749880 |
| 1/7/2020 |
|
| 6359035 |
|
| 5/25/2021 |
| Registered | |
REDEDGE-P |
| US |
|
| 97/105307 |
| 11/2/2021 |
|
| 6917109 |
|
| 12/6/2022 |
| Registered | |
Canada |
| 2189471 |
|
| 4/29/2022 |
|
|
|
|
|
|
| Pending |
|
| |
European Union |
|
|
|
| 4/29/2022 |
| 1664529 |
|
| 4/29/2022 |
|
| Registered |
|
| |
Japan |
|
|
|
| 4/29/2022 |
|
|
|
|
|
|
| Pending |
|
| |
Mexico |
|
|
|
| 4/29/2022 |
|
|
|
|
|
|
| Pending |
|
| |
Madrid Protocol |
| A0122452 |
|
| 4/29/2022 |
| 1664529 |
|
| 4/29/2022 |
|
| Registered |
|
| |
THE SENSOR THAT DOESN'T COMPROMISE |
| US |
|
| 88/521846 |
| 7/18/2019 |
|
| 6062427 |
|
| 5/26/2020 |
| Registered | |
AGEAGLE |
| US |
|
| 68/08302 |
| 7/20/2021 |
|
| 90837274 |
|
| 8/2/2022 |
| Registered | |
THE DRONE AGE |
| US |
|
| 88/946058 |
| 6/3/2020 |
|
|
|
|
|
|
| Pending | |
Canada |
| 2068393 |
|
| 12/3/2020 |
|
|
|
|
|
|
| Pending |
|
| |
SENSEFLY, A KAMBILL COMPANY AND DESIGN |
| India |
|
|
|
| 12/16/2021 |
|
| 5249406 |
|
| 8/1/2022 |
| Registered | |
EBEE |
| Australia |
|
|
|
| 3/13/2013 |
|
| 1553690 |
|
| 3/13/2013 |
| Registered | |
Brazil |
|
|
|
| 3/25/2013 |
| 840461313 |
|
| 1/12/2016 |
|
| Registered |
|
| |
Brazil |
|
|
|
| 3/25/2013 |
| 840461305 |
|
| 3/6/2018 |
|
| Registered |
|
| |
Canada |
| TMA932233 |
|
| 3/15/2013 |
| 1618501 |
|
| 3/21/2016 |
|
| Registered |
|
| |
China |
|
|
|
| 3/13/2013 |
| 1156183 |
|
| 12/24/2013 |
|
| Registered |
|
| |
European Union |
|
|
|
| 3/13/2013 |
| 1156183 |
|
| 3/13/2017 |
|
| Registered |
|
| |
Russia |
|
|
|
| 3/13/2013 |
| 1156183 |
|
| 11/13/2014 |
|
| Registered |
|
| |
South Africa |
| 2013/06574 |
|
| 3/14/2013 |
|
|
|
|
|
|
| Pending |
|
| |
South Africa |
| 2013/06573 |
|
| 3/14/2013 |
|
|
|
|
|
|
| Pending |
|
| |
Switzerland |
| 61158/2012 |
|
| 9/18/2012 |
| 638841 |
|
| 1/21/2013 |
|
| Registered |
|
| |
US |
| 79128567 |
|
| 3/13/2013 |
| 4503673 |
|
| 4/1/2014 |
|
| Registered |
|
| |
WIPO |
|
|
|
| 3/13/2013 |
| 7/8/5065 |
|
| 3/13/2013 |
|
| Registered |
|
| |
EXOM |
| Australia |
|
|
|
| 1/22/2015 |
|
| 1241930 |
|
| 1/22/2015 |
| Registered | |
Brazil |
|
|
|
| 1/30/2015 |
| 908933975 |
|
|
|
|
| Registered |
|
| |
China |
|
|
|
| 1/22/2015 |
| 1241930 |
|
| 1/22/2015 |
|
| Registered |
|
| |
European Union |
|
|
|
| 1/22/2015 |
| 1241930 |
|
| 1/22/2015 |
|
| Registered |
|
| |
Russia |
|
|
|
| 1/22/2015 |
| 1241930 |
|
| 1/22/2015 |
|
| Registered |
|
| |
South Africa |
|
|
|
| 1/23/2015 |
| 2015/01806 |
|
|
|
|
| Pending |
|
| |
Switzerland |
| 59684/2014 |
|
| 8/20/2014 |
| 663964 |
|
| 9/24/2014 |
|
| Registered |
|
| |
WIPO |
|
|
|
| 1/22/2015 |
| 1241930 |
|
| 1/22/2015 |
|
| Registered |
|
| |
United Kingdom |
|
|
|
| 1/22/2015 |
| UK00801241930 |
|
| 2/11/2016 |
|
| Registered |
|
| |
SENSEFLY |
| Australia |
|
|
|
| 11/8/2011 |
|
| 1100123 |
|
| 11/8/2011 |
| Registered | |
Brazil |
|
|
|
| 3/4/2016 |
| 910715637 |
|
| 4/17/2018 |
|
| Registered |
|
| |
Brazil |
|
|
|
| 3/4/2016 |
| 910715580 |
|
| 4/17/2018 |
|
| Registered |
|
| |
Canada |
| TMA1013798 |
|
| 2/25/2016 |
| 1769512 |
|
| 1/24/2019 |
|
| Registered |
|
| |
China |
|
|
|
| 11/8/2011 |
| 1100123 |
|
| 11/8/2011 |
|
| Registered |
|
| |
European Union |
|
|
|
| 11/8/2011 |
| 1100123 |
|
| 11/8/2011 |
|
| Registered |
|
| |
Russia |
|
|
|
| 11/8/2011 |
| 1100123 |
|
| 11/8/2011 |
|
| Registered |
|
| |
Switzerland |
| 62950/2010 |
|
| 5/8/2011 |
| 615741 |
|
| 5/26/2011 |
|
| Registered |
|
| |
US |
| 79106546 |
|
| 11/8/2011 |
| 4166369 |
|
| 7/3/2012 |
|
| Registered |
|
| |
WIPO |
|
|
|
|
|
| 1100123 |
|
| 11/8/2011 |
|
| Registered |
|
| |
ALBRIS |
| Australia |
|
|
|
| 9/9/2016 |
|
| 1814255 |
|
| 9/9/2016 |
| Registered | |
China |
|
|
|
|
|
| 1322220 |
|
| 9/9/2016 |
|
| Registered |
|
| |
European Union |
|
|
|
|
|
| 132220 |
|
| 9/9/2016 |
|
| Registered |
|
| |
Russia |
|
|
|
|
|
| 132220 |
|
| 9/9/2016 |
|
| Registered |
|
| |
Switzerland |
| 53355/2016 |
|
| 3/16/2016 |
| 685791 |
|
| 3/30/2016 |
|
| Registered |
|
| |
US |
| 79197603 |
|
| 9/9/2016 |
| 5178765 |
|
| 4/11/2017 |
|
| Registered |
|
| |
WIPO |
|
|
|
|
|
| 132220 |
|
| 9/9/2016 |
|
| Registered |
|
| |
EBEE TAC |
| Switzerland |
|
| 15306/2020 |
| 10/29/2020 |
|
| 754619 |
|
| 11/6/2020 |
| Registered | |
WIPO |
|
|
|
| 4/21/2021 |
| 1615756 |
|
| 4/21/2021 |
|
| Registered |
|
|
19 |
Table of Contents |
Patents and Pending Patents | |||||||||||||||||||||||
Invention Name |
| Country Code |
| Status |
| Application No. |
|
| Filing Date |
| Publication No. |
|
| Publication Date |
| Patent No. |
|
| Patent Date | ||||
REFLECTANCE PANELS FEATURING MACHINE-READABLE SYMBOL AND METHODS OF USE |
| US |
| NP-Filed |
| 62/160732 |
|
| 5/13/15 |
|
|
|
|
|
|
|
|
|
| ||||
REFLECTANCE PANELS FEATURING MACHINE-READABLE SYMBOL AND METHODS OF USE |
| US |
| Granted |
| 15/154719 |
|
| 5/13/16 |
| 20170352110 |
|
| 12/7/17 |
|
| 10467711 |
|
| 11/5/19 | |||
THERMAL CALIBRATION OF AN INFRARED IMAGE SENSOR |
| US |
| Granted |
| 15/620627 |
|
| 6/12/17 |
| 20170358105 |
|
| 12/14/17 |
|
| 10518900 |
|
| 12/31/19 | |||
THERMAL CALIBRATION OF AN INFRARED IMAGE SENSOR |
| US |
| NP-Filed |
| 62/350116 |
|
| 6/14/16 |
|
|
|
|
|
|
|
|
|
|
| |||
MULTI-SENSOR IRRADIANCE ESTIMATION |
| PCT |
| Converted |
| US2017/066524 |
|
| 12/14/17 |
| WO2018/136175 |
|
| 7/26/18 |
|
|
|
|
|
| |||
MULTI-SENSOR IRRADIANCE ESTIMATION |
| US |
| Granted |
| 16/037952 |
|
| 7/17/18 |
| 20180343367 |
|
| 11/29/18 |
|
| 11290623 |
|
| 3/29/22 | |||
MULTI-SENSOR IRRADIANCE ESTIMATION |
| China |
| Published |
| 201780083888.1 |
|
| 12/14/17 |
| CN110291368A |
|
| 9/27/19 |
|
|
|
|
|
| |||
MULTI-SENSOR IRRADIANCE ESTIMATION |
| Europe |
| Published |
| 17892899.0 |
|
| 12/14/17 |
| 3571480 |
|
| 11/27/19 |
|
|
|
|
|
| |||
MULTI-SENSOR IRRADIANCE ESTIMATION |
| Japan |
| Published |
| 2019-529189 |
|
| 12/14/17 |
| 2020-515809 |
|
| 5/28/20 |
|
|
|
|
|
| |||
IMAGE SENSOR AND THERMAL CAMERA DEVICE, SYSTEM AND METHOD |
| Europe |
| Published |
| 19892185.0 |
|
| 12/3/19 |
| 3890466 |
|
| 10/13/21 |
|
|
|
|
|
| |||
IMAGE SENSOR AND THERMAL CAMERA DEVICE, SYSTEM AND METHOD |
| China |
| Allowed |
| 201980079714.7 |
|
| 12/3/19 |
| CN113226007A |
|
| 8/6/21 |
|
|
|
|
|
| |||
IMAGE SENSOR AND THERMAL CAMERA DEVICE, SYSTEM AND METHOD |
| US |
| Published |
| 17/299258 |
|
| 6/2/21 |
| 20220038644 |
|
| 2/3/22 |
|
|
|
|
|
| |||
IMAGE SENSOR AND THERMAL CAMERA DEVICE, SYSTEM AND METHOD |
| PCT |
| Converted |
| US2019/064296 |
|
| 12/3/19 |
| WO2020/117847 |
|
| 6/11/20 |
|
|
|
|
|
| |||
DIFFUSER FOR IRRADIANCE SENSOR |
| US |
| Published |
| 17/720093 |
|
| 4/13/22 |
| 20220333979 |
|
| 10/20/22 |
|
|
|
|
|
| |||
DIFFUSER FOR LIGHT SENSOR |
| US |
| NP-Filed |
| 63/174929 |
|
| 4/14/21 |
|
|
|
|
|
|
|
|
|
|
| |||
AERIAL IMAGING SYSTEM AND METHOD HAVING MULTISPECTRAL AND PANCHROMATIC SENSORS |
| PCT |
| Pending |
| US2022/075938 |
|
| 9/2/22 |
|
|
|
|
|
|
|
|
|
|
| |||
AERIAL IMAGING SYSTEM AND METHOD HAVING MULTISPECTRAL AND PANCHROMATIC SENSORS |
| US |
| NP-Filed |
| 63/240730 |
|
| 9/3/21 |
|
|
|
|
|
|
|
|
|
|
| |||
CAMERA |
| US |
| Granted |
| 29/691510 |
|
| 5/16/19 |
|
|
|
|
|
| D907099 |
|
| 1/5/21 | ||||
CAMERA |
| US |
| Granted |
| 29/691512 |
|
| 5/16/19 |
|
|
|
|
|
| D907100 |
|
| 1/5/21 | ||||
LIGHT SENSOR |
| US |
| Granted |
| 29/691513 |
|
| 5/16/19 |
|
|
|
|
|
| D906845 |
|
| 1/5/21 | ||||
LENS HOUSING |
| US |
| Granted |
| 29/691516 |
|
| 5/16/19 |
|
|
|
|
|
| D907102 |
|
| 1/5/21 |
20 |
Table of Contents |
Where You Can Find Additional Information
The Company is subject to the reporting requirements under the Exchange Act. The Company files with, or furnishes to, the SEC quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports and will furnish its proxy statement. These filings are available free of charge on the Company’s website, wwwageagle.com, shortly after they are filed with, or furnished to, the SEC. The SEC maintains an Internet website, www.sec.gov, which contains reports and information statements and other information regarding issuers.
ITEM 1A. | RISK FACTORS |
The risk factors discussed below could cause our actual results to differ materially from those expressed in any forward-looking statements. Although we have attempted to list comprehensively these important factors, we caution you that other factors may in the future prove to be important in affecting our results of operations. New factors emerge from time to time, and it is not possible for us to predict all of these factors, nor can we assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement.
The risks described below set forth what we believe to be the most material risks associated with the purchase of our common stock.Common Stock. Before you invest in our common stock,Common Stock, you should carefully consider these risk factors, as well as the other information contained in this prospectus.
Risks Related to Our Business and the Industries We Serve
We have a history of operating losses and expect to incur significant additional operating expenses.
Through our wholly-owned subsidiary, AgEagle Aerial, Inc. (“AgEagle Sub”), we have been operating for over ten years. It was not until 2021 that we acquired the latest go-to-market airframes, sensors and software technologies of our products. As of December 31, 2022, we had an accumulated deficit of approximately eight years. However, AgEagle Sub has only been in$111,553,444 which included net losses of approximately $58,253,723 and $30,108,680 for the UAV business for half of that timeyears ended December 31, 2022 and just begun to operate in the hemp industry.2021, respectively. We are currently still incurring significant net losses as we continue to invest in theour business development stagestrategy and have limited commercial sales ofgrow our products and, accordingly,business. As a result we cannot guarantee thatwhen we will become profitable.can expect to generate sufficient cash flows from operations to be adequate to cover our operating business. Moreover, even if we achieve profitability, given the competitive and evolving nature of the industries in which we operate, we may be unable to sustain or increase profitability and failure to do so would adversely affect itsour business, including our ability to raise additional funds.
15
21 |
Table of Contents |
We will need substantial additional funding and may be unable to raise capital when needed, which would force us to delay, curtail or eliminate one or more of our research and development programs or commercialization efforts.
Our operations have consumed substantial amounts of cash since inception. We expect to continue to spend substantial amounts on product and software development. We will require additional funds to support our continued research and development activities, as well as the costs of commercializing, marketing and selling any existing and new products and/or services resulting from those activities.
Until such time, if ever, that we can generate sufficient revenue and achieve profitability, we expectwill need to seek to financemeet our future cash needs through equity or debt financings or corporate collaborations and/or strategic arrangements. We currently havefinancings. There can be no other commitments or agreements relating to any of these types of transactions and cannot be certainassurance that additional fundingwe will be available on acceptablesuccessful in our capital raising efforts.
On May 25, 2021, the Company entered into an at-the-market Sales Agreement (the "ATM Sales Agreement”) with Stifel, Nicolaus & Company, Incorporated and Raymond James & Associates, Inc. as sales agents (the "Agents”), in connection with the offer and sale from time to time of shares of the Company’s Common stock, having an aggregate offering price of up to $100,000,000 (the "ATM Shares”), through an at-the-market equity offering program (the "ATM Offering”). During 2022, we raised total gross proceeds of $17.8 million in debt and equity transactions, including $4.6 million through the ATM Offering.
On June 26 2022, the Company entered into a Securities Purchase Agreement with an institutional investor (the “Investor”) which is an existing shareholder of the Company. Pursuant to the terms orof that agreement, the Company issued and sold to the Investor 10,000 shares of the Series F 5% Preferred Convertible Stock (“Series F”) and warrants to purchase up to 16,129,032 shares of the Company’s Common Stock at all.$0.96 per share in a registered direct offering and raised a total of $10,000,000 in gross proceeds.
On December 6, 2022, the Company and the Investor entered into a Securities Purchase Agreement pursuant to which the Company issued and sold to the Investor (i) a 8% original issue discount promissory note (the “Note”) in the aggregate principal amount of $3,500,000, and (ii) a common stock purchase warrant (the “Warrant”) to purchase up to 5,000,000 shares of the Company’s Common Stock (the “Shares”) at an exercise price of $0.44 per share, subject to standard anti-dilution adjustments. The Note is an unsecured obligation of the Company. It has an original issue discount of 4% and bears interest at 8% per annum. The Company received net proceeds of $3,285,000 net of the original issue discount of $140,000 and $75,000 of issuance costs. The Warrant is not exercisable for the first six months after issuance and has a five-year term from the initial exercise date of June 6, 2023.
On March 10, 2023, the Company issued and sold to the Investor an additional 3,000 shares of Series F convertible into 2,381 shares of the Company’s common stock, per $1,000 Stated Value per share of Preferred Stock, at a conversion price of $0.42 per share and associated common stock warrant to purchase up to 7,142,715 shares of common stock at the exercise price of $0.42 per share warrant (the “Additional Warrant”) in a private placement and raised $3,000,000 in gross proceeds. The Additional Warrant is exercisable upon issuance and has a three-year term.
Despite the foregoing, we will require additional financing in the future. If we are unable to raise additional capital, we may have to delay, curtail or eliminate commercializing, marketing and selling one or more of our solutions. Should the financing we require be unavailable to us, or on terms unacceptable to us when we require it, the consequences could have a material adverse effect on our business, operating results, financial condition and prospects.
In addition, if additional funds are obtained through arrangements with collaborative partners or other non-dilutive sources, we may have to relinquish economic and/or proprietary rights to some of our technologies or products under development that we would otherwise seek to develop or commercialize by ourselves. Such events may have a material adverse effect on our business, operating results, financial condition and prospects.
22 |
Table of Contents |
Our independent registered public accounting firm’s report contains an explanatory paragraph that expresses substantial doubt about our ability to continue as a “going concern.”
As of December 31, 2022, the Company had $4,349,837 of cash on hand and working capital of $9,079,091. During the year ended December 31, 2022, the Company incurred a net loss of $58,253,723, and used cash in operating activities of $20,107,670. While the Company has historically been successful in raising capital to meet its working capital needs, the ability to continue raising such capital to enable the Company to continue its growth is not guaranteed. As the Company will require additional liquidity to continue its operations and meet its financial obligations over the next twelve months, there is substantial doubt about the Company’s ability to continue as a going concern. The Company is evaluating strategies to obtain the required additional funding for future operation and the restructuring of operations to grow revenues and reduce expenses.
If the Company is unable to generate significant sales growth in the near term and raise additional capital, there is a risk that the Company could default on obligations; and could be required to discontinue or significantly reduce the scope of its operations if no other means of financing options are available. The consolidated financial statements contained in this Annual Report do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities or any other adjustment that might be necessary should the Company be unable to continue as a going concern.
Risks Related to Our Business and the Industries We Serve
We operate in evolving markets, which makes it difficult to evaluate our business and future prospects.
AgEagle’s drone, sensor and software technologies are and will be sold in new and rapidly evolving markets. The commercial UAV industry is in the early stages of customer adoption and the FAA’s definition of regulations relating to the integration of commercial drones into the U.S. National Airspace System is rapidly evolving. Accordingly, our business and future prospects may be difficult to evaluate. We cannot accurately predict the extent to which demand for our drone systems and solutions will increase, if at all. The challenges, risks and uncertainties frequently encountered by companies in rapidly evolving markets could impact our ability to do the following:
● | Generate sufficient revenue to achieve sustainable profitability; | |
● | Acquire and maintain market share; | |
● | Achieve or manage growth in our business operations; | |
● | Renew contracts; | |
● | Attract and retain software and system engineers and other highly qualified personnel; | |
● | Successfully develop for the commercial market new products and end-to-end solutions; | |
● | Adapt to new or changing polices and spending priorities of current and prospective clients; and | |
● | Access to additional capital when required and on reasonable terms. |
If we fail to address these and other challenges, risks and uncertainties successfully, our business, results of operations and financial condition would be materially harmed.
Product development is a long, expensive, and uncertain process.
23 |
Table of Contents |
The development of both UAV software and hardwaresystems is a costly, complex and time-consuming process, and investments in product development often involve a long wait until a return, if any, can be achieved on such investment. We might face difficulties or delays in the development process that will result in our inability to timely offer products that satisfy the market, which might allow competing products to emerge during the development and certification process. We anticipateplan to continue making significant investments in research and development relating to our products and technology services, but such investments are inherently speculative and require substantial capital expenditures. Any unforeseen technical obstacles and challenges that we encounter in the research and development process could result in delays in or the abandonment of product commercialization, may substantially increase development costs, and maywill likely negatively affect our results of operations.
Successful technical development of our products does not guarantee successful commercialization.
Although we have successfully completed the technical development ofacquired our two originalfully developed go-to-market UAV systems, as well as theRX-60sensors, andRX-48 systems, and have developed or acquired several software platforms which we offertechnology solutions ready for sale or subscription, we may still fail to achieve commercial success for a number ofseveral reasons, including, among others, the following:
● | failure to obtain the required regulatory approvals for their use; | |
● | rapid obsolescence of a product due to new, more advanced technologies; | |
● | prohibitive production costs; | |
● | competing products; | |
● | lack of product innovation; | |
● | unsuccessful distribution and marketing through our sales channels; | |
● | insufficient cooperation from our supply and distribution partners; and | |
● | product development that does not align with or meet customer needs. |
16
Our success in the market for the products and services we develop will depend largely on our ability to properly demonstrate their capabilities. Upon demonstration, our solutions may not have the capabilities they were designed to have or that we believed they would have. Furthermore, even if we do successfully demonstrate our products’ capabilities, potential customers may be more comfortable doing business with a competitor;our competitors; or may not feel there is a significant need for the products we develop. As a result, significant revenue from our current and new product investments may not be achieved for a number ofseveral years, if at all.all, and that will affect the Company’s profitability.
We face competition from other companies, many of which have substantially greater resources.
Our competitors may be able to provide customers with products that have different or greater capabilities or benefits than we can provide in areas such as technical qualifications, past contract performance, geographic presence, price, and the availability of key professional personnel. Furthermore, many of our competitors may be able to utilize their substantially greater resources and economies of scale to develop competing products and technologies, manufacture in high volumes more efficiently, divert sales away from us by winning broader contracts or hire away our employees by offering more lucrative compensation packages. Small business competitors may be able to offer more cost competitive solutions, due to their lower overhead costs. The markets for commercial drones and services are quickly expanding, and competition is intensifying as additional competitors enter the market and current competitors expand their product offerings. In order to secure contracts successfully when competing with larger, better financed companies, we may be forced to agree to contractual terms that provide for lower aggregate payments to us over the life of the contract, which could adversely affect our margins. Our failure to compete effectively could have a material adverse effect on our business, prospects, financial condition or future operating results.
24 |
Table of Contents |
If we fail to protect our intellectual property rights, we could lose our ability to compete in the marketplace.
Our intellectual property and proprietary rights are important to our ability to remain competitive and successful in the development of our products and to our future growth potential. Patent protection can be limited and not all intellectual property can be patented. We expect to rely on a combination of patent, trademark, copyright and trade secret laws, as well as confidentiality and non-disclosure agreements and procedures, non-competition agreements and other contractual provisions to protect our intellectual property, other proprietary rights and our brand. As we currently do notonly have anya limited amount of granted patent or copyright protections, we must rely on trade secrets and nondisclosure agreements, which provide limited protections. Our intellectual property rights may be challenged, invalidated, or circumvented by third parties. We may not be able to prevent the unauthorized disclosure or use of our technical knowledge or other trade secrets by employees or competitors.
Furthermore, our competitors may independently develop technologies and products that are substantially equivalent or superior to our technologies and products, which could result in decreased revenues. Litigation may be necessary to enforce our intellectual property rights, which could result in substantial costs to us and substantial diversion of management’s attention. If we do not adequately protect our intellectual property, our competitors could use it to enhance their products. Our inability to adequately protect our intellectual property rights could adversely affect our business and financial condition, and the value of our brand and other intangible assets.
Other companies may claim that we infringe their intellectual property, which could materially increase our costs and harm our ability to generate future revenue and profit.
We do not believe that our technologies infringe on the proprietary rights of any third party; however, claims of infringement are becoming increasingly common and third parties may assert infringement claims against us. It may be difficult or impossible to identify, prior to receipt of notice from a third party, the trade secrets, patent position or other intellectual property rights of a third party, either in the United States or in foreign jurisdictions. Any such assertion may result in litigation or may require us to obtain a license for the intellectual property rights of third parties. If we are required to obtain licenses to use any third-party technology, we would have to pay royalties, which may significantly reduce any profit on our products. In addition, any such litigation could be expensive and disruptive to itsour ability to generate revenue or enter into new market opportunities. If any of our products were found to infringe other parties’ proprietary rights and we are unable to come to terms regarding a license with such parties, we may be forced to modify our products to make them non-infringing or to cease production of such products altogether.
The nature of our business involves significant risks and uncertainties that may not be covered by insurance or indemnification.
We have developed and sold products and services in circumstances where insurance or indemnification may not be available, for example, in connection with the collection and analysis of various types of information. In addition, our products and services raise questions with respect to issues of civil liberties, intellectual property, trespass, conversion, and similar concepts, which may create legal issues. Indemnification to cover potential claims or liabilities resulting from the failure of any technologies that we develop or deploy may be available in certain circumstances but not in others. Currently, the unmanned aerial systems industry lacks a formative insurance market. We may not be able to maintain insurance to protect against all operational risks and uncertainties that our customers confront. Substantial claims resulting from an accident, product failure, or personal injury or property liability arising from our products and services in excess of any indemnity or insurance coverage (or for which indemnity or insurance coverage is not available or is not obtained) could harm our financial condition, cash flows and operating results. Any accident, even if fully covered or insured, could negatively affect our reputation among our customers and the public, and make it more difficult for us to compete effectively.
17
25 |
Table of Contents |
We may incur substantial product liability claims relating to our products.
As a manufacturer of UAV products, and with aircraft and aviation sector companies under increased scrutiny in recent years, claims could be brought against us if use or misuse of one of our UAV products causes, or merely appears to have caused, personal injury or death. In addition, defects in our products may lead to other potential life, health and property risks. Any claims against us, regardless of their merit, could severely harm our financial condition, strain our management and other resources. We are unable to predict if we will be able to obtain or maintain product liability insurance for any products that may be approved for marketing.of our products.
OneWe maintain cash deposits in excess of our contracts related to manufacturing and assembly of drones for the purpose of package delivery contains performance obligations that require innovative design capabilities, are technologically complex, require state-of-the-art manufacturing and assembly expertise, or are dependent upon factors not wholly within our control. Failure to meet these obligationsfederally insured limits. Adverse developments affecting financial institutions, including bank failures, could adversely affect our growthliquidity and financial performance.
We regularly maintain domestic cash deposits in Federal Deposit Insurance Corporation (“FDIC”) insured banks, which exceed the FDIC insurance limits. We also maintain cash deposits in foreign banks where we operate, some of which are not insured or are only partially insured by the FDIC or other similar agencies. Bank failures, events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, or concerns or rumors about such events, may lead to liquidity constraints. For example, on March 10, 2023, Silicon Valley Bank failed and was taken into receivership by the FDIC. Additionally, on March 15, 2023, Credit Suisse announced that it would borrow up to 50 billion Swiss francs, or $53.7 billion, from the Swiss National Bank to address its liquidity concerns. We have historically maintained deposits less than $1 million euros at Credit Suisse and have now lowered our bank balances as part of our risk mitigation plan in connection with the foregoing. We may increase our deposits at Credit Suisse in the future prospects. Early terminationhowever; and there can be no assurance that we will be able to effectively mitigate the risk of client contractsloss should a similar event impact Credit Suisse in the future or contract penaltiesany other bank at which we maintain deposits. The failure of a bank, or other adverse conditions in the financial or credit markets impacting financial institutions at which we maintain balances, could adversely affectimpact our resultsliquidity and financial performance. There can be no assurance that our deposits in excess of operations.
We design, develop, manufacture and assemble technologically advanced and innovative UAVs,the FDIC or other comparable insurance limits will be backstopped by the U.S. or applicable foreign government, or that any bank or financial institution with which are expectedwe do business will be able to be appliedobtain needed liquidity from other banks, government institutions or by our first customer for drone-enabled package deliveryacquisition in a variety of environments. Problems and delays in development or delivery as a result of issues with respect to design, technology, licensing and intellectual property rights, labor, inability to achieve learning curve assumptions, manufacturing materials or components could prevent us from meeting contract requirements. Either we or the customer may generally terminate a contract as a resultevent of a material uncured breach by the other. If we breach a contractfailure or fail to perform in accordance with contractual service levels, delivery schedules, performance specifications, or other contractual requirements set forth in our contracted scope of services, the other party thereto may terminate such contract for default, and we may be required to refund money previously paid to us by the customer or to pay penalties or other damages. Even if we have not breached, we may deal with various situations from time to time that may result in the amendment or termination of a contract. These steps can result in significant current period charges and/or reductions in current or future revenue. Other factors that may affect revenue and future profitability include inaccurate cost estimates, design issues, unforeseen costs and expenses not covered by insurance or indemnification from the customer, diversion of management’s focus in responding to unforeseen problems, and loss of follow-on work.liquidity crisis.
If our subcontractors or suppliers fail to perform their contractual obligations, our performance and reputation as a contractor and our ability to obtain future business could suffer.
As a prime contractor, weWe often rely upon other companies to perform work we are obligated to perform for our customers. As we secure more work under certain of our contracts, we expect to require an increasing level of support from subcontractors that provide complementary or supplementary services to our offers. We are responsible for the work performed by our subcontractors, even though in some cases we have limited involvement in that work. If one or more of our subcontractors fails to satisfactorily perform the agreed-upon services on a timely basis or violates contracting policies, laws or regulations, our ability to perform our obligations as a prime contractor or meet our customers’ requirements may be compromised. In extreme cases, performance, or other deficiencies on the part of our subcontractors could result in a customer terminating our contract for default. A termination for default could expose us to liability, including liability for the costs of re-procurement, could damage our reputation and could hurt our ability to compete for future contracts.
For certain of the components included in our products, there are a limited number of suppliers we can rely upon. If we are unable to obtain these components when needed, we could experience delays in the manufacturing of our products and our financial results could be adversely affected.
We acquire most of the components for the manufacture of our products from suppliers and subcontractors. We have not entered into any agreements or arrangements with any potential suppliers or subcontractors. Suppliers of some of the components of our products may require us to place orders with significant lead-timeslead-time to assure supply in accordance with itstheir manufacturing requirements. Our present lack of working capital may cause us to delay the placement of such ordersrequirements and may result in delays in supply.enter into agreements specifically for our technological services business. Delays in supply may significantly hurt our ability to fulfill our contractual obligations and may significantly hurttherefore our business and result of operations. In addition, we may not be able to continue to obtain such components from these suppliers on satisfactory commercial terms. Disruptions of itsour manufacturing operations would ensue if we were required to obtain components from alternative sources, which would have an adverse effect on our business, results of operations and financial condition.
18
26 |
Table of Contents |
If we are unable to recruit and retain key management, technical and sales personnel, our business would be negatively affected.
For our business to be successful, we need to attract and retain highly qualified executive, technical and sales personnel. The failure to recruit additional key personnel when needed, with specific qualifications, on acceptable terms and with an ability to maintain positive relationships with our partners, might impede our ability to continue to develop, commercialize and sell our products and services. To the extent the demand for skilled personnel exceeds supply, we could experience higher labor, recruiting and training costs in order to attract and retain such employees. The loss of any members of our management team may also delay or impair achievement of our business objectives and result in business disruptions due to the time needed for their replacements to be recruited and become familiar with our business. We face competition for qualified personnel from other companies with significantly more resources available to them and thus may not be able to attract the level of personnel needed for our business to succeed.
If our proposed marketing efforts are unsuccessful, we may not earn enough revenue to become profitable.
Our future growth depends on our gaining market acceptance and regular production orders for our products and services. Our marketing plan includes attendance at trade shows, makingconducting private demonstrations, advertising, social media, public relations, promotional materials and advertising campaigns in print and/or broadcast media. In addition, our marketing plan incorporates strategies to nurture, expand and leverage our global reseller network and relationships with government and defense contractors to achieve greater market penetration in the commercial and government/military verticals. In the event we are not successful in obtaining a significant volume of orders for our products and technology services, we will face significant obstacles in expanding our business. We cannot give any assurance that our marketing efforts will be successful. If they are not, revenue may not be sufficient to cover our fixed costs and we may not become profitable.
Our operating margins may be negatively impacted by reduction in sales or an increase in the cost of products sold.
Expectations regarding future sales and expenses are largely fixed in the short term. We maintain raw materials and finished goods at a volume we feel is necessary for anticipated distribution and sales. Therefore, we may not be able to reduce costs in a timely manner to compensate for any unexpected shortfalls between forecasted and actual sales.
We face a significant risk of failure because we cannot accurately forecast our future revenues and operating results.
The rapidly changing nature of the markets in which we compete makes it difficult to accurately forecast our revenues and operating results. Furthermore, we expect our revenues and operating results to fluctuate in the future due to a number of factors, including the following:
● | the timing of sales or subscription of our products; | |
● | unexpected delays in introducing new products and services; | |
● | increased expenses, whether related to sales and marketing or administration; and | |
● | costs related to possible acquisitions of businesses. |
27 |
Table of Contents |
19
Rapid technological changes may adversely affect the market acceptance of our products and could adversely affect our business, financial condition, and results of operations.
The markets in which we compete are subject to technological changes, introduction of new products, change in customer demands and evolving industry standards. Our future success will depend upon our ability to keep pace with technological developments and to timely address the increasingly sophisticated needs of our customers by supporting existing and new technologies and by developing and introducing enhancements to our current products and services and new products and services. We may not be successful in developing and marketing enhancements to our products that will respond to technological change, evolving industry standards or customer requirements. In addition, we may experience difficulties internally or in conjunction with key vendors and partners that could delay or prevent the successful development, introduction and sale of such enhancements and such enhancements may not adequately meet the requirements of the market and may not achieve any significant degree of market acceptance. If release dates of our new products or enhancements are delayed or, if when released, they fail to achieve market acceptance, our business, operating results, and financial condition may be adversely affected.
Our products are subjectFailure to regulations of the Federal Aviation Administration (the “FAA”).
In August 2016, regulationsobtain necessary regulatory approvals from the FAA relating toor other governmental agencies, or limitations put on the commercial use of UAVssmall UAS in response to public privacy concerns, may prevent us from expanding the sales of our drone solutions to commercial and industrial customers in the United States.
The regulation of small UAS for commercial use in the United States became law. Asis undergoing substantial change and the ultimate treatment is uncertain. In August 2016, the FAA’s final rules regarding the routine use of certain small UAS (under 55 pounds) in the U.S. National Airspace System went into effect, providing safety regulations for small UAS conducting non-recreational operations and contain various limitations and restrictions for such operations, including a requirement that operators keep UAS within visual-line-of-sight and prohibiting flights over unprotected people on the ground who are not directly participating in the operation of the UAS. In April 2021, the FAA’s final rules requiring remote identification of UAS went into effect. On the same day, the final rule for operation of small UAS to fly over people and at night under certain conditions also went into effect. We cannot assure you that any additional final rules will result users of systems like ours are only required to take a knowledge exam at an approved FAA testing station similar to an automobile driver’s license exam. Prior toin the new law, users had to hold a pilot’s license, have an observer present and file various documents before flights. In the event new FAA rules or regulations are promulgated or current rules are revised that may negatively affect commercial usageexpanded use of our UAVs, such rulesUAS and laws could adversely disrupt our operationsUAS solutions by commercial and overall sales.industrial entities. In addition, there exists public concern regarding the privacy implications of U.S. commercial use of small UAS. This concern has included calls to develop explicit written policies and procedures establishing usage limitations. We cannot assure you that the response from regulatory agencies, customers and privacy advocates to these concerns will not delay or restrict the adoption of small UAS by the commercial use markets.
Federal, state and tribal government regulation of domestic hemp cultivation is new and subject to constant change and evolution, and unfavorable developments could have an adverse effect on our operating results.
Any changes in laws or regulations relating to domestic hemp cultivation could adversely affect our business, results of operations and our business prospects for ourHempOverview SaaS platform.
Our future results may be affected by various legal and regulatory proceedings and legal compliance risks, including those involving product liability, antitrust, intellectual property, environmental, regulations of the FAA, regulations of the USDA and state or tribal departments of agriculture, the U.S. Foreign Corrupt Practices Act and other anti-bribery, anti-corruption or other matters.
The outcome of any future legal proceedings may differ from our expectations because the outcomes of litigation, including regulatory matters, are often difficult to reliably predict. Various factors or developments can lead us to change current estimates of liabilities and related insurance receivables where applicable; or make such estimates for matters previously not susceptible of reasonable estimates, such as a significant judicial ruling or judgment, a significant settlement, significant regulatory developments or changes in applicable law. A future adverse ruling, settlement or unfavorable development could result in future charges that could have a material adverse effect on our results of operations or cash flows in any particular period. We are not currently involved in or subject to any such legal or regulatory proceedings, but we cannot guarantee that such proceedings may not occur in the future.
We may pursue additional strategic transactions in the future, which could be difficult to implement, disrupt our business or change our business profile significantly.
We intend to consider additional potential strategic transactions, which could involve acquisitions of businesses or assets, joint ventures or investments in businesses, products or technologies that expand, complement or otherwise relate to our current or future business. We may also consider, from time to time, opportunities to engage in joint ventures or other business collaborations with third parties to address particular market segments. Should our relationships fail to materialize into significant agreements, or should we fail to work efficiently with these companies, we may lose sales and marketing opportunities and our business, results of operations and financial condition could be adversely affected.
20
28 |
Table of Contents |
These activities, if successful, create risks such as, among others: (i) the need to integrate and manage the businesses and products acquired with our own business and products; (ii) additional demands on our resources, systems, procedures and controls; (iii) disruption of our ongoing business; (iv) potential unknown or unquantifiable liabilities associated with the target company; and (v) diversion of management’s attention from other business concerns. Moreover, these transactions could involve: (a) substantial investment of funds or financings by issuance of debt or equity securities; (b) substantial investment with respect to technology transfers and operational integration; and (c) the acquisition or disposition of product lines or businesses. Also, such activities could result in one-time charges and expenses and have the potential to either dilute the interests of our existing shareholders or result in the issuance of, or assumption of debt. Such acquisitions, investments, joint ventures or other business collaborations may involve significant commitments of financial and other resources. Any such activities may not be successful in generating revenue, income or other returns, and any resources we committed to such activities will not be available to us for other purposes. Moreover, if we are unable to access the capital markets on acceptable terms or at all, we may not be able to consummate acquisitions, or may have to do so on the basis of a less than optimal capital structure. Our inability to take advantage of growth opportunities or address risks associated with acquisitions or investments in businesses may negatively affect our operating results.
Additionally, any impairment of goodwill or other intangible assets acquired in an acquisition or in an investment, or charges to earnings associated with any acquisition or investment activity, may materially reduce our earnings. Future acquisitions or joint ventures may not result in their anticipated benefits and we may not be able to properly integrate acquired products, technologies or businesses with our existing products and operations or successfully combine personnel and cultures. Failure to do so could deprive us of the intended benefits of those acquisitions.
BreachesCyberattacks and other security breaches of network or information technology security could have an adverse effect on our business.
Cyber-attacksWe maintain information necessary to conduct our business, including confidential and proprietary information as well as personal information regarding our customers and employees, in digital form. We also use computer systems to deliver our products and services and operate our businesses. Data maintained in digital form is subject to the risk of unauthorized access, modification, exfiltration, destruction or other breachesdenial of network or IT securityaccess and our computer systems are subject to cyberattacks that may cause equipment failures or disrupt ourresult in disruptions in service. We use many third-party systems and operations.software, which are also subject to supply chain and other cyberattacks. We develop and maintain an information security program to identify and mitigate cyber risks, but the development and maintenance of this program is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated. Accordingly, despite our efforts, the risk of unauthorized access, modification, exfiltration, destruction or denial of access with respect to data or systems and other cybersecurity attacks cannot be eliminated entirely, and the risks associated with a potentially material incident remain. In addition, we provide some confidential, proprietary and personal information to third parties in certain cases when it is necessary to pursue business objectives. While we obtain assurances that these third parties will protect this information and, where we believe appropriate, monitor the protections employed by these third parties, there is a risk the confidentiality of data held by third parties may be subject to attempts to breach the security of our networks and IT infrastructure through cyber-attack, malware, computer viruses and other means of unauthorized access. compromised.
The potential liabilities associated with these events could exceed the insurance coverage we maintain. Our inability to operate our facilities as a result of such events, even for a limited period of time, may result in significant expenses or loss of market share to other competitors in the defense electronics market.competitors. In addition, a failure to protect the privacy of customer and employee confidential data against breaches of networktechnology platforms or IT security could result in damage to our reputation. To date, we have not been subject to cyber-attacks or other cyber incidents which, individually or in the aggregate, resulted in a material adverse effect on our business, operating results and financial condition.
The preparation of our financial statements involves use of estimates, judgments and assumptions, and our financial statements may be materially affected if our estimates prove to be inaccurate.
Financial statements prepared in accordance with generally accepted accounting principles in the United States require the use of estimates, judgments, and assumptions that affect the reported amounts. Different estimates, judgments, and assumptions reasonably could be used that would have a material effect on the financial statements, and changes in these estimates, judgments and assumptions are likely to occur from period to period in the future. These estimates, judgments, and assumptions are inherently uncertain, and, if they prove to be wrong, then we face the risk that charges to income will be required.
29 |
Table of Contents |
Our results of operations can be significantly affected by foreign currency fluctuations and regulations.
A significant portion of our revenues is currently derived in the local currencies of the foreign jurisdictions in which our products are sold. Accordingly, we are subject to risks relating to fluctuations in currency exchange rates. In the future, and especially as we further expand our sales efforts in international markets, our customers will increasingly make payments in non-U.S. currencies. Fluctuations in foreign currency exchange rates could affect our revenues, operating costs and operating margins. In addition, currency devaluation can result in a loss to us if we hold deposits of that currency or if it reduces the cost-competitiveness of our products. We cannot predict the effect of future exchange rate fluctuations on our operating results.
Our results could be adversely affected by natural disasters, public health crises, political crises, or other catastrophic events.
Natural disasters, such as hurricanes, tornadoes, floods, earthquakes and other adverse weather and climate conditions; unforeseen public health crises, such as pandemics and epidemics; political crises, such as terrorist attacks, war, labor unrest, and other political instability; or other catastrophic events, such as disasters occurring at our manufacturing facilities, could disrupt our operations or the operations of one or more of our vendors. In particular, these types of events could impact our product supply chain from or to the impacted region and could impact our ability to operate. In addition, these types of events could negatively impact consumer spending in the impacted regions. Disasters occurring at our manufacturing facilities could impact our reputation and our customers’ perception of our brands. To the extent any of these events occur, our operations and financial results could be adversely affected.
For instance, Russia’s military conflict in Ukraine have led to, and may lead to, additional sanctions being levied by the United States, European Union and other countries against Russia. Russia’s military incursion and the resulting sanctions could adversely affect global energy and financial markets. Although our business does not have any direct exposure to Russia or the adjoining geographic regions, the extent and duration of the military action, sanctions, and resulting market disruptions are impossible to predict, but could be substantial. Any such disruptions caused by Russian military action or resulting sanctions may magnify the impact of other risks described in this section. We cannot predict the progress or outcome of the situation in Ukraine, as the conflict and governmental reactions are rapidly developing and beyond our control. Prolonged unrest intensified military activities or more extensive sanctions impacting the region could have a material adverse effect on the global economy, and such effect could in turn have a material adverse effect on the operations, results of operations, financial condition, liquidity and business outlook of our business.
International trade disruptions or disputes could adversely affect our business and operating results.
Significant portions of our business are conducted in Europe, Asia, and other international geographies. Interruptions in international relationships such as the exit by the U.K., commonly referred to as “Brexit” from the EU, or the rapidly evolving conflict between Russia and Ukraine, and trade disputes such as the current trade negotiations between the U.S. and China, could result in changes to regulations governing our products and our intellectual property, disruption of our manufacturing or commercial operations, our inability to timely engage with and collect payment from customers in Russia and other affected regions, or otherwise affect our ability to do business. Although these global problems transcend our company and afflict companies across industries and borders, these and similar events could adversely affect us, or our business partners or customers.
We are subject to the Foreign Corrupt Practices Act (the “FCPA”), which generally prohibits companies and their intermediaries from making payments to non-U.S. government officials for the purpose of obtaining or retaining business or securing any other improper advantage.
We are also subject to anti-bribery laws in the jurisdictions in which we operate. Although we have policies and procedures designed to ensure that we, our employees and our agents comply with the FCPA and other anti-bribery laws, there is no assurance that such policies or procedures will protect us against liability under the FCPA or other laws for actions taken by our agents, employees and intermediaries with respect to our business or any businesses that we acquire. We do business in a number of countries in which FCPA violations by other companies have recently been enforced. Failure to comply with the FCPA, other anti-bribery laws or other laws governing the conduct of business with foreign government entities, including local laws, could disrupt our business and lead to severe criminal and civil penalties, including imprisonment, criminal and civil fines, loss of our export licenses, suspension of our ability to do business with the federal government, denial of government reimbursement for our products and/or exclusion from participation in government healthcare programs. Other remedial measures could include further changes or enhancements to our procedures, policies, and controls and potential personnel changes and/or disciplinary actions, any of which could have a material adverse effect on our business, financial condition, results of operations and liquidity. We could also be adversely affected by any allegation that we violated such laws.
30 |
Table of Contents |
We are subject to governmental export and import controls that could impair our ability to compete in international markets due to licensing requirements and subject us to liability if we are not in compliance with applicable laws.
Our products are subject to export control and import laws, tariffs, and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations, and various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Controls. Exports of our products must be made in compliance with these laws, tariffs, and regulations. If we fail to comply with these laws, tariffs, and regulations, we and certain of our employees could be subject to substantial civil or criminal penalties, including the possible loss of export or import privileges; fines, which may be imposed on us and responsible employees or managers; and, in extreme cases, the incarceration of responsible employees or managers. In addition, changes in our products or changes in applicable export or import laws, tariffs, and regulations may create delays in the introduction and sale of our products in international markets or, in some cases, prevent the export or import of our products to certain countries, governments or persons altogether. Any change in export or import laws and regulations, shift in the enforcement or scope of existing laws, tariffs, and regulations, or change in the countries, governments, persons, products, or technologies targeted by such laws, tariffs, and regulations, could also result in decreased use of our products, or in our decreased ability to export or sell our products to existing or potential customers. Any decreased use of our products or limitation on our ability to export or sell our products would likely adversely affect our business, financial condition and results of operations.
Our business may be adversely affected by the ongoing coronavirus pandemic.
TheIn December 2019, a novel strain of coronavirus (“COVID-19”) was reported to have surfaced in Wuhan, China. On March 11, 2020, the World Health Organization declared the outbreak of the novel coronavirus (COVID-19) has evolved into a global pandemic. The coronavirus has spread to many regions of the world, includingCOVID-19 pandemic is affecting the United States. The extentStates and global economies and is likely to which COVID-19 impacts our business and operating results will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19 and the actions to contain the coronavirus or treat its impact, among others.
21
Should the coronavirus continue to spread,affect our business operations could be delayed or interrupted. For instance, we currently utilizeand those of third parties to, among other things, manufacture components and parts for the proprietary and contracted droneson which we produce, and to perform quality testing. We also manufacture and assemble products and perform various services at our manufacturing facility. If either we or any third-parties in the supply chain for materials usedrely, including by causing disruptions in our manufacturing and assembly processes are adversely impacted by restrictions resulting from the coronavirus pandemic, ourglobal supply chain, may be disrupted, limiting our ability to manufactureobtain raw materials, the manufacturing of and assembleshort-term demand for our products.
The spread of the coronavirus, which has caused a broad impact globally, including restrictions on travel and quarantine policies put into place by businesses and governments, may havehad a material economic effect on our business. While the potential economic impact brought on by and the duration of the pandemic may be difficult to assess or predict, it has already caused, and is likely to result in further, significant disruptions of global financial markets, which may reduce our ability to access capital either at all or on favorable terms. In addition, a recession, depression or other sustained adverse market event resulting from the spread of the coronavirus could materially and adversely affect our business and the value of our common stock.Common Stock.
In addition, as a result of the pandemic, our ability to access components and parts needed to manufacture drones and sensors, and to perform quality testing have been impacted. During the years ended December 31, 2022 and 2021, our supply chain was adversely impacted by the pandemic, causing material delays in the delivery of critical supply orders associated with timely fulfilling our obligations to our customers. As a consequence, significant inventory purchases were made in 2021 and 2022 in order to secure the manufacturing of our products in an effort to prevent delays in our 2022 and 2023 revenues, however supply-chain and labor shortages is on-going situation that we continue to monitor closely. If either we or any third-parties in the supply chain for materials used in our manufacturing and assembly processes continue to be adversely impacted by restrictions resulting from the coronavirus pandemic, our supply chain may be further disrupted, limiting our ability to manufacture and assemble products.
31 |
Table of Contents |
As of the date of this filing, our manufacturing facilities remain operational and we have resumed research and development activities that were temporarily suspended as a result of the COVID-19 pandemic, however we have experienced, and may continue to experience, challenges in hiring necessary staff members to conduct our research and development activities, including technical staff. Further, while the potential economic impact brought on by, and the duration of, the COVID-19 pandemic is difficult to assess or predict, the impact of the COVID-19 pandemic on the global financial markets may reduce our ability to access capital, which could negatively impact our short-term and long-term liquidity. Additionally, the stock market has been unusually volatile during and following the COVID-19 outbreak and such volatility may continue. Macro factors have impacted, and may continue to negatively impact the UAV market. To date, during certain periods of the COVID-19 pandemic, our stock price fluctuated significantly, and such fluctuation will likely continue to occur.
The ultimate impact of the current pandemic, or any other health epidemic, is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business or the global economy as a whole. However, these effects could have a material impact on our operations.liquidity, capital resources, operations and business and those of the third parties on which we rely. We will continue to monitor the situation closely.
Worldwide and domestic economic trends and financial market conditions, including an economic decline in the agricultural industry,industries we serve, may adversely affect our operating performance.
We intend to distribute our products and services in a number of countries and derive revenues from both inside and outside the United States. We expect our business will be subject to global competition and may be adversely affected by factors in the United States and other countries that are beyond our control, such as disruptions in financial markets, economic downturns in the form of either contained or widespread recessionary conditions, elevated unemployment levels, sluggish or uneven recovery, in specific countries or regions, or in the agricultural industry; social, political or labor conditions in specific countries or regions; natural and other disasters affecting our operations or our customers and suppliers; or adverse changes in the availability and cost of capital, interest rates, tax rates, or regulations in the jurisdictions in which we operate. Unfavorable global or regional economic conditions, including an economic decline in the agricultural industry,industries we serve – including, but not limited to, agriculture, construction, energy, environmental monitoring, military/defense and public safety – could adversely impact our business, liquidity, financial condition and results of operations.
Our senior management and key employees are important to our customer relationships and overall business.
We believe that our success depends in part on the continued contributions of our senior management and key employees. We rely heavily on our executive officers, senior management and key employees to generate business and execute programs successfully. In addition, the relationships and reputation that members of our management team and key employees have established and maintain with certain key customers continue to our ability to maintain good customer relations and to identify new business opportunities. The loss of any of our executive officers, members of our senior management team or key employees could significantly delay or prevent the achievement of our business objectives and could materially harm our business and customer relationships and impair our ability to identify and secure new contracts and otherwise manage our business.
We indemnify our officers and directors against liability to us and our security holders, and such indemnification could increase our operating costs.
Our bylaws allow us to indemnify our officers and directors against claims associated with carrying out the duties of their offices. Our bylaws also allow us to reimburse them for the costs of certain legal defenses. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our officers, directors or control persons, the SEC has advised that such indemnification is against public policy and is therefore unenforceable.
Risks Associated with Our Capital StockSecurities
32 |
|
Table of Contents |
22
The market price of our securities may be volatile and may fluctuate in a way that is disproportionate to our operating performance.
Our securities may experience substantial volatility as a result of a number of factors, including, among others:
● | sales or potential sales of substantial amounts of our | |
● | announcements about us or about our competitors or new product introductions; | |
● | developments concerning our product manufacturers; | |
● | the loss or unanticipated underperformance of our global distribution channel; | |
● | litigation and other developments relating to our patents or other proprietary rights or those of our competitors; | |
● | conditions in the UAV, domestic hemp cultivation and drone-enabled package delivery industries; | |
● | governmental regulation and legislation; | |
● | variations in our anticipated or actual operating results; | |
● | changes in securities analysts’ estimates of our performance, or our failure to meet analysts’ expectations; | |
● | foreign currency values and fluctuations; and | |
● | overall political and economic |
Our Common Stock closed as high as $1.76 and as low as $0.31 per share between January 1, 2022 and December 31, 2022 on NYSE American. On March 15, 2023, the closing price of our common stock, as reported on NYSE American was $0.37. Many of these factors are beyond our control. The stock markets have historically experienced substantial price and volume fluctuations. These fluctuations often have been unrelated or disproportionate to the operating performance of these companies. These broad market and industry factors could reduce the market price of our securities, regardless of our actual operating performance.
We do not intend to pay cash dividends. As a result, capital appreciation, if any, will be your sole source of gain.
We intend to retain future earnings, if any, to fund the development and growth of our business. In addition, the terms of existing and future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, from the sale of our common stockCommon Stock will be your sole source of gain for the foreseeable future.
Provisions in our articles of incorporation, our by-laws and Nevada law might discourage, delay or prevent a change in control of our companyCompany or changes in our management and, therefore, depress the trading price of our common stock.Common Stock.
Provisions of our Articles of Incorporation, our By-Laws and Nevada law may have the effect of deterring unsolicited takeovers or delaying or preventing a change in control of our Company or changes in our management, including transactions in which our stockholders might otherwise receive a premium for their shares over then current market prices. In addition, these provisions may limit the ability of stockholders to approve transactions that they may deem to be in their best interests. These provisions include:
Table of Contents |
● | the inability of stockholders to call special meetings; and | |
● | the ability of our board of directors to designate the terms of and issue new series of preferred stock without stockholder approval, which could include the right to approve an acquisition or other change in our control or could be used to institute a rights plan, also known as a poison pill, that would work to dilute the stock ownership of a potential hostile acquirer, likely preventing acquisitions that have not been approved by our board of directors. |
23
The existence of the forgoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our common stock.Common Stock. They could also deter potential acquirers of our company, thereby reducing the likelihood that you could receive a premium for your common stockCommon Stock in an acquisition.
We will incur increasedsignificant costs as a result of operating as a public reporting company, and our management will beis required to devote substantial time to newregulatory compliance initiatives.
As a public reporting company, we will incur significant legal, accounting and other expenses that we did not incur asotherwise incurred by a private company. In addition, the Sarbanes-Oxley Act of 2002 and rules subsequently implemented by the SEC, have imposed various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will needcontinue to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increasehave increased our legal and financial compliance costs and will makehave made some activities more time consuming and costly. For example, we expect that these rules and regulations maywill continue to make it more difficult and more expensive for us to obtain director and officer liability insurance.
We currently have outstanding, and we may in the future issue, instruments which are convertible into shares of common stock,Common Stock, which will result in additional dilution to our shareholders.
We currently have an outstanding instrumentinstruments which isare convertible into shares of common stock,Common Stock, and we may need to issue similar instruments in the future. In the event that these convertible instruments are converted into shares of outstanding common stock,Common Stock, or that we make additional issuances of other convertible or exchangeable securities, you could experience additional dilution. Furthermore, we cannot assure you that we will be able to issue shares or other securities in any other offering at a price per share that is equal to or greater than the price per share paid by investors or the then current market price.
FINRA sales practice requirements may limit a stockholder’s ability to buy and sell our securities.
The Financial Industry Regulatory Authority, Inc. (“FINRA”) has adopted rules that a broker-dealer must have reasonable grounds for believing that an investment recommended to a customer is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives, and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for certain customers. FINRA requirements will likely make it more difficult for broker-dealers to recommend that their customers buy our common stock,Common Stock, which may have the effect of reducing the level of trading activity in the shares, resulting in fewer broker-dealers may bebeing willing to make a market in our shares, potentially reducing a stockholder’s ability to resell our securities.
If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our shares or if our results of operations do not meet their expectations, the price of our securities and trading volume could decline.
The trading market for our securities will be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not have any control over these analysts. If one or more of these analyst’s cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our share price or trading volume to decline. Moreover, if one or more of the analysts who cover us downgrade our stock, or if our results of operations do not meet their expectations, the price of our securities could decline.
ITEM 1B. | UNRESOLVED STAFF COMMENTS |
Not applicable.
24
34 |
Table of Contents |
ITEM 2. | PROPERTIES |
The Company leases office space located at 117 South 4thStreet, Neodesha, Kansas 66757. This serves as our corporate headquarters and manufacturing facility. The facility is a lease of 4,000 square feet at a cost of $500 per month. This lease terminated on September 30, 2019 but has a year-to-year option to renew upon approval by the city commission of Neodesha. We have exercised our option and have been approved to renew the lease through September 30, 2020 at a monthly cost of $600 per month.
As of December 31, 2022, the Company is a party to the following non-cancellable operating leases for manufacturing facilities and office space:
Location | Purpose | Initial Term (months) | Lease Expiration Date | ||||||
8863 E. 34th Street, North Wichita, Kansas | Manufacturing Facility & Corporate Headquarters | 36 | October 31, 2023 | ||||||
Route de Genève 38 1033 Cheseaux-sur-Lausanne, Switzerland | Distribution & Assembly Facility & Offices | 60 | April 30, 2028 | ||||||
10107 Division Drive Raleigh, North Carolina | Distribution & Offices | 60 | June 14, 2023 | ||||||
600 Congress Avenue Austin, Texas | Offices | 17 | December 31, 2022 | ||||||
1701 Rhode Island Avenue NW Washington, DC | Offices | 15 | December 31, 2022 | ||||||
1300 N. Northlake Way Seattle, Washington | Offices | 60 | January 2026 |
As of December 31, 2022, the Company held properties in Lausanne, Switzerland; Raleigh, NC; Austin, TX; Washington, DC; Seattle, WA represent non-cancelable lease obligations assumed by the Company as a result of the Agribotix acquisition,its 2021 business acquisitions of senseFly S.A., senseFly Inc. Measure Global Inc, and MicaSense, Inc., respectively. Starting late 2022, the Company assumed a lease forhas started to consolidate its business and manufacturing operations from multiple offices to three centralized locations in Boulder, Colorado for $2,000 a month. The lease ended on May 31, 2019Wichita, Kansas, Raleigh, North Carolina and Lausanne, Switzerland. We expect to complete our consolidation efforts before the Company renewed the lease for another year with an option to terminate at any time with a 30-day prior notice period.end of 2023.
ITEM 3. | LEGAL PROCEEDINGS |
Legal Proceedings
From time to time, we may become involved in lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. Although we currently maintain liability insurance coverage intended to cover professional liability and certain other claims, we cannot assure that our insurance coverage will be adequate to cover liabilities arising out of claims asserted against us in the future where the outcomes of such claims are unfavorable to us. Liabilities in excess of our insurance coverage, including coverage for professional liability and certain other claims, could have a material adverse effect on our business, financial condition and results of operations.
ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
25
35 |
Table of Contents |
ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Our common stockCommon Stock is currently quoted on the NYSE American under the symbol “UAVS.”
The following table sets forth, for the period indicated, the quarterly high and low per shareclosing sales prices (perper share of our common stockCommon Stock for each quarter during our last two fiscal years, as well as a large portion of our first quarter in 2020, of2023, as reported by the New York Stock Exchange.
2020 | High | Low | ||||||
First Quarter (through March 31, 2020) | $ | 0.72 | $ | 0.30 | ||||
2019 | High | Low | ||||||
First Quarter | $ | 0.58 | $ | 0.41 | ||||
Second Quarter | $ | 0.42 | $ | 0.23 | ||||
Third Quarter | $ | 0.33 | $ | 0.23 | ||||
Fourth Quarter | $ | 0.65 | $ | 0.31 | ||||
2018 | High | Low | ||||||
First Quarter | $ | 5.65 | $ | 3.55 | ||||
Second Quarter | $ | 2.04 | $ | 1.78 | ||||
Third Quarter | $ | 1.73 | $ | 1.62 | ||||
Fourth Quarter | $ | 0.59 | $ | 0.53 |
2023 |
| High |
|
| Low |
| ||
First Quarter (through March 15, 2023) |
| $ | 0.58 |
|
| $ | 0.35 |
|
2022 |
| High |
|
| Low |
| ||
First Quarter |
| $ | 1.76 |
|
| $ | 0.91 |
|
Second Quarter |
| $ | 1.19 |
|
| $ | 0.58 |
|
Third Quarter |
| $ | 0.79 |
|
| $ | 0.46 |
|
Fourth Quarter |
| $ | 0.58 |
|
| $ | 0.31 |
|
2021 |
| High |
|
| Low |
| ||
First Quarter |
| $ | 15.69 |
|
| $ | 5.47 |
|
Second Quarter |
| $ | 8.35 |
|
| $ | 4.06 |
|
Third Quarter |
| $ | 5.01 |
|
| $ | 2.94 |
|
Fourth Quarter |
| $ | 3.05 |
|
| $ | 1.53 |
|
As of March 31, 2020,15, 2023, we had approximately 365327 individual shareholders of record of our common stock.Common Stock. We believe that the number of beneficial owners of our common stockCommon Stock is greater than the number of record holders, because a number of shares of our common stockCommon Stock is held through brokerage firms in “street name.”
Dividend Policy
We do not intend to pay cash dividends to our stockholders in the foreseeable future. We currently intend to retain all of our available funds and future earnings, if any, to finance the growth and development of our business. Any future determination related to our dividend policy will be made at the discretion of our Board of Directors and will depend upon, among other factors, our results of operations, financial condition, capital requirements, contractual restrictions, business prospects and other factors our boardBoard of directorsDirectors may deem relevant.
36 |
Table of Contents |
Equity Compensation Plan
The following table provides information as of December 31, 20192022 about our equity compensation plan and arrangements:
Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans |
| Number of securities to be issued upon exercise of outstanding options and restricted stock units |
|
| Weighted-average exercise price of outstanding options, and restricted stock units |
|
| Number of securities remaining available for future issuance under equity compensation plans |
| ||||||||||||
Equity compensation plans approved by security holders | 2,273,415 | $ | 0.42 | 665,861 |
| 3,590,191 |
| $ | 1.56 |
| 3,957,102 |
| ||||||||||||
Equity compensation plans not approved by security holders | 207,055 | 0.06 | — |
|
| — |
|
|
| — |
|
|
| — |
| |||||||||
Total | 2,480,470 | $ | 0.48 | 665,861 |
|
| 3,590,191 |
|
| $ | 1.56 |
|
|
| 3,957,102 |
|
26
Recent Sales of Unregistered Securities
NoneOn December 6, 2022, the Company issued and sold to an institutional investor (the “Investor”) a Common Stock Purchase Warrant (the “Warrant”) to purchase up to 5,000,000 shares of the Company’s Common Stock (the “Shares”) at an exercise price of $0.44 per share, subject to adjustments pursuant to the Purchase Agreement. The Warrant is not exercisable for the first six months after issuance and has a five-year term from the exercise date. If at the time of the exercise, there is no effective registration statement registering, or the prospectus contained therein, is not available for the issuance of the Shares, then the Warrant may be exercised, in whole or in part, by means of a “cashless exercise.” The Shares issuable to the Investor upon exercise of the Warrant will be issued in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 promulgated thereunder. Neither the Shares nor the Warrant has been registered under the Securities Act, or applicable state securities laws, and none may be offered or sold in the United States absent registration under the Securities Act or an exemption from such registration requirements.
Issuer Purchases of Securities
There were no repurchases of the Company’s securities during the year ended December 31, 2022.
Purchases of Equity Securities by Issuer and Its Affiliates
None.
ITEM 6. | [RESERVED] |
37 |
|
Table of Contents |
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion highlights the principal factors that have affected our financial condition and results of operations as well as our liquidity and capital resources for the periods described. This discussion should be read in conjunction with our Consolidated Financial Statements and the related notes included in Item 8 of this Form 10-K. This discussion contains forward-looking statements. Please see the explanatory note concerning “Forward-Looking Statements” in Part I of this Annual Report on Form 10-K and Item 1A. Risk Factors for a discussion of the uncertainties, risks and assumptions associated with these forward-looking statements. The operating results for the periods presented were not significantlymaterially affected by inflation.
Company Overview
AgEagle™ Aerial Systems Inc. (“("AgEagle” or “the Company”the "Company”) designs, produces, through its wholly owned subsidiaries, is actively engaged in designing and supports technologically-advanced small, unmanned aerial vehicles (“UAVs” or “drones”). In addition, providing new utility to UAVs, the Company pioneers,delivering best-in-class drones, sensors and innovates advanced aerial imaging data collection and analytics technologies capable of addressing the impending food and environmental sustainability crises that threaten our planet. Historically, the Company has focused on delivering tools and strategies necessary to define and implement commercial drone construction and delivery, along with sustainability and precision farming solutionssoftware that solve important problems confronting the global agricultural industry. In fact,for our customers. Founded in 2010, AgEagle has spent eight years serving customers, covering more than two million acres in 50 countries monitoring 53 different crops. AgEagle remains intent on earning distinction as a trusted partnerwas originally formed to clients seeking to adoptpioneer proprietary, professional-grade, fixed-winged drones and support productive agricultural approaches to better farming practices which limit the impact on our natural resources, reduce reliance on inputs and materially increase crop yields and profits.
In early 2019, AgEagle further expanded its marketing efforts to provide for the introduction ofParkView, its proprietary aerial imagery and data analytics platform, designed to support municipal, state and federal agencies charged with assessing and supporting sustainability initiatives involving public parks and recreation areas, also referred to as urban green spaces.
In late May 2019, AgEagle announced the introduction ofHempOverview, a proprietary web- and map-based Software-as-a-Solution (SaaS) technology designed to aid U.S. state and territorial departments of agriculture, growers and processors in efficiently optimizing oversight, compliance and enforcement of the new hemp cultivation industry fast emerging in the United States.Growers, state administrators and/or processors may connect and maintain proactive two-way communications and collaborate on developing best practices for hemp cultivation registration/permitting, planting/harvesting planning, regulatory oversight and compliance enforcement. Moreover, anticipated benefits for state administrators include lower program management costs, new revenue channel development, real or near real-time remote, centralized oversight of hemp fields, and much more.
On November 12, 2019, the Company announced that the Florida Department of Agriculture and Consumer Services (FDACS) had chosen AgEagle’sHempOverviewsoftware-as-a-solution (SaaS) platform to manage the online application submission and registration process for hemp growers and their farms and hemp fields for the 2020, 2021 and 2022 planting seasons.
27
The Company also designs, produces, distributes and supports technologically advanced small unmanned aerial vehicles (UAVs or drones) that AgEagle offers for commercial sale to the precision agriculture industry. In addition to UAV sales, in late 2018, the Company introduced a new drone-leasing program, alleviating farmers and agribusinesses from significant upfront costs associated with purchasing a drone, while also relieving them from ongoing drone maintenance and support requirements. Additionally, the new program provides the option of engaging a trained AgEagle pilot to operate the drone and manage the entire image collection process, creating a truly turnkey aerial imagery capture solution for its customers.
On September 3, 2019, we announced that we actively begun pursuing expansion opportunities within the emerging Drone Logistics and Transportation Market – a market forecasted by MarketsandMarkets to grow to $29.06 billion by the year 2027. Accordingly, companies, including Alphabet (Google), FedEx, Intel, Qualcomm, Amazon, Target, Walmart, Alibaba, UPS, 7-Eleven, Uber and others, are developing commercial drone delivery service initiatives as part of their long-term strategic growth plans. We believe these companies intend to leverage the latest in unmanned aerial vehicle technologies to deliver consumer products, foods, medicines and other types of lightweight freight direct to consumers and businesses in the fastest, most cost efficient and environmentally responsible manner possible – a practical alternative to costly auto transport.
We received our first purchase orders from a major ecommerce company to manufacture and assemble UAVs designed to meet the critical specifications for drones that are meant to carry goods in urban and suburban areas. Revenue generation from these purchase orders commenced in the third quarter ended September 30, 2019 and is expected to continue and increase in the fourth quarter of 2019.
Central to the Company’s long-term growth strategy, AgEagle will continue to identify opportunities to leverage its proprietary technological platform and industry expertise to penetrate new, high growth market sectors that may benefit from the Company’s advanced aerial imagery-based data collection and analytics solutions for the agriculture industry. Today, the Company is earning distinction as a globally respected market leader offering customer-centric, advanced, autonomous unmanned aerial systems (“UAS”) which drive revenue at the intersection of flight hardware, sensors and software for industries that include agriculture, military/defense, public safety, surveying/mapping and utilities/engineering, among others. AgEagle has also achieved numerous regulatory firsts, earning governmental approvals for its commercial and tactical drones to fly Beyond Visual Line of Sight (“BVLOS”) and/or Operations Over People (“OOP”) in the United States, Canada, Brazil and the European Union and being awarded Blue UAS certification from the Defense Innovation Unit of the U.S. Department of Defense.
AgEagle’s shift and expansion from solely manufacturing fixed-wing farm drones in 2018, to offering what the Company believes is one of the industry’s best fixed-wing, full-stack drone solutions, culminated in 2021 when the Company acquired three market-leading companies engaged in producing UAS airframes, sensors and software for commercial and government use. In addition to a robust portfolio of proprietary, connected hardware and software products; an established global network of over 200 UAS resellers; and enterprise customers worldwide; these acquisitions also brought AgEagle a highly valuable workforce comprised largely of experienced engineers and technologists with deep expertise in the fields of robotics, automation, manufacturing and data science. In 2022, the Company succeeded in integrating all three acquired companies with AgEagle to form one global company focused on taking autonomous flight performance to a higher level.
Our core technological capabilities include robotics and robotics systems autonomy; advanced thermal and multispectral sensor design and development; embedded software and firmware; secure wireless digital communications and networks; lightweight airframes; small UAS (“sUAS”) design, integration and operations; power electronics and propulsion systems; controls and systems integration; fixed wing flight; flight management software; data capture and analytics; human-machine interface development and integrated mission solutions.
ResearchAgEagle is led by a proven management team with years of drone industry experience and development activities are integral tois currently headquartered in Wichita, Kansas, where we house our sensor manufacturing operations, and we operate our business and we follow a disciplined approach to investingdrone manufacturing operations in Raleigh, North Carolina. In addition, the Company operates business and manufacturing operations in Lausanne, Switzerland in support of our resources to create new technologies and solutions.international business activities.
38 |
Table of Contents |
Key Growth Strategies
OurWe intend to materially grow our business is seasonalby leveraging our proprietary, best-in-class, full-stack drone solutions, industry influence and deep pool of talent with specialized expertise in naturerobotics, automation, custom manufacturing and as a result,data science to achieve greater penetration of the global UAS industry – with near-term emphasis on capturing larger market share of the agriculture, energy/utilities, infrastructure and government/military verticals. We expect to accomplish this goal by first bringing three core values to life in our revenueday-to-day operations and expensesaligning them with our efforts to earn the trust and associated revenue trends fluctuate from quarter to quarter.continued business of our customers and industry partners:
The following summarizes key components of our growth strategy include the following:
· | ||
· | Passion – this fuels our obsession with excellence, our desire to | |
· | Integrity – this is not optional or situational at | |
Key components of our growth strategy include the following: | ||
· | Establish three centers of excellence with respective expertise in |
28
· | Deliver new and innovative | |
· | Foster our entrepreneurial culture and continue to attract, develop and retain highly skilled personnel. AgEagle’s company culture encourages innovation and entrepreneurialism, which helps attract and retain highly skilled professionals. We believe this culture is key to nurture the design and development of the innovative, highly technical system solutions that give us our competitive advantage. | |
· | Effectively manage our growth portfolio for long-term value creation. Our production and development programs present numerous investment opportunities that we believe will deliver long-term growth by providing our customers with valuable new capabilities. We evaluate each opportunity independently, as well as within the context of other investment opportunities, to determine its relative cost, timing and potential for generation of returns, and thereby its priority. This process helps us make informed decisions regarding potential growth capital requirements and supports our allocation of resources based on relative risks and returns to maximize long-term value creation, which is the key objective of our growth strategy. We also review our portfolio on a regular basis to determine if and when to narrow our focus on the highest potential growth opportunities. | |
· | Growth through acquisition. Through successful execution of our growth-through-acquisition strategies, we intend to acquire technologically advanced UAS companies and intellectual property that complement and strengthen our value proposition to the market. We believe that by investing in complementary acquisitions, we can accelerate our revenue growth and deliver a broader array of innovative autonomous flight systems and solutions that address specialized market needs within our current target markets and in emerging markets that can benefit from innovations in artificial intelligence-enabled robotics and data capture and analytics. |
39 |
29
Competitive Strengths
AgEagle believes the following attributes and capabilities provide us with long-term competitive advantages:
AgEagle believes the following attributes and capabilities provide us with long-term competitive advantages: | ||
· | Proprietary | |
· | AgEagle is more than just customer- and product-centric, we are obsessed with innovation and knowing the needs of our customers before they do–We are | |
· | We offer market-tested drones, sensors and software solutions that have earned the longstanding trust and fidelity of | |
· | Our eBee TAC™ UAS has been approved by the Defense Innovation Unit (DIU) for procurement by the Department of Defense – We believe that the eBee TAC is ideally positioned to |
40 | ||
Table of Contents |
· | ||
· | Our eBee X series of drones are the world’s first UAS in its class to receive design verification for BVLOS and OOP from European Union Aviation Safety Agency (“EASA”). The EASA design verification report demonstrates that the eBee X meets the highest possible quality and ground risk safety standards and, thanks to its lightweight design, effects of ground impact are reduced. As such, drone operators conducting advanced drone operations in 27 European Member States, Iceland, Liechtenstein, Norway, and Switzerland can obtain the HIGH or MEDIUM robustness levels of the M2 mitigation without additional verification from EASA.Regulatory constraints relating to limitations of BVLOS and OOP have continued to be a gating factor to widespread adoption of commercial drone technologies across a wide range of industry sectors worldwide. | |
· | Our global reseller network currently has more than 200 drone solutions providers in 75+ countries – By leveraging our relationships with the specialty retailers that comprise our global | |
In November 2022, we partnered with government contractor Darley to expand the market reach of AgEagle’s high performance fixed wing drones and sensors to the U.S. first responder and tactical defense markets. Distinguished as one of the nation’s longest standing government contracting organizations, Darley is |
Impact of the War in Ukraine and COVID-19 On Our Business Operations
Global economic challenges, including the impact of the war in Ukraine, the COVID-19 pandemic, rising inflation and supply-chain disruptions, adverse labor market conditions could cause economic uncertainty and volatility. During the year ended December 31, 2022, the COVID-19 pandemic and other supply chain disruptions continued to have a significant negative impact on the UAV industry, our customers and our business globally. The aforementioned risks and their respective impact on the UAV industry and our operational and financial performance remains uncertain and outside of our control. Specifically, as a result of the aforementioned continuing risks, our ability to access components and parts needed in order to manufacture our proprietary drones and sensors, and to perform quality testing have been, and continue to be, impacted. If we or any of the third-parties in the supply chain for materials used in our manufacturing and assembly processes continue to be adversely impacted, our supply-chain may be further disrupted, limiting its ability to manufacture and assemble products. We expect the pandemic, inflation and supply chain disruptions and its effects to continue to have a significant negative impact on our business for the duration of the pandemic and during the subsequent economic recovery, which could be for an extended period.
30
TableFor the year ended December 31, 2022, our supply chain was adversely impacted by the COVID-19 pandemic and other global economic challenges, causing material delays in the delivery of Contentscritical components associated with production of our Altum-PT™ and RedEdge-P™ multispectral sensors, that we began to sell in early 2022. These delays resulted in a significant backlog of purchase orders for our sensors. Steps taken in early 2022 to expand our supply sources has allowed us to resolve the majority of our backlogged sensor orders and be better positioned to meet ongoing global market demand in the foreseeable future. While we believe we have largely overcome our supply chain challenges, this is an ongoing situation we will continue to monitor closely.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses during the reporting period. Our most criticalSignificant estimates include those related to revenue recognition, inventoriesthe reserve for obsolete inventory, valuation of stock issued for services and reserves for excessstock options, valuation of intangible assets, and obsolescence, accounting for stock-based awards, and income taxes.the valuation of deferred tax assets. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.
We believe the following critical accounting estimates affect the more significant judgments and estimates used in preparing our consolidated financial statements. Please see Note 2 to our consolidated financial statements, which are included in Item 8 “Financial Statements and Supplementary Data” of this Annual Report, for our Summary of Significant Accounting Policies. There have been no material changes made to the critical accounting estimates during the periods presented in the consolidated financial statements.
Revenue Recognition
The majority
Most of our revenue is generated pursuant to written contractual arrangements to develop, manufacture and/or modify complexthe Company’s revenues are derived primarily through the sales of drone, sensors and related products,accessories, and to provide associated engineering, technicalsoftware subscriptions. All contracts and other services according to customer specifications. These contractsagreements are a fixed price and we accountare accounted for all revenue contracts in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”).
The Company generally recognizes revenue on sales to customers, dealers and distributors upon satisfaction of performance obligations which generally occurs once control transfers to customers, which is when product is shipped or delivered depending on specific shipping terms and, where applicable, customer acceptance has been obtained. The Company records revenue in the statements of operations and comprehensive loss, net of any sales, use, value added, or certain excise taxes imposed by governmental authorities on specific sales transactions and net of any discounts, allowances and returns.
Under fixed-price contracts, we agreethe Company agrees to perform the specified work for a pre-determined price. To the extent ourthe Company’s actual costs vary from the estimates upon which the price was negotiated, weit will generate more or less profit or could incur a loss. We accountThe Company accounts for a contract after it has been approved by all parties to the arrangement, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.
Topic 606 requires revenue to be recognized when promised goods or services are transferred to customersAdditionally, customer payments received in amounts that reflect the consideration to whichadvance of the Company expects to be entitled in exchange for those goods or servicescompleting performance obligations are recorded as contract liabilities. Customer deposits represent customer prepayments and recognizeare recognized as revenue under the new standard as costs are incurred. Under previous U.S. generally accepted accounting principles (GAAP), revenue was generally recognized when deliveries were made, performance milestones were attained, or as costs were incurred. The new standard accelerates the timing of when the revenue is recognized, however, it does not change the total amount of revenue recognized on our UAVS contracts. The new standard does not affect revenue recognition for purposes of our UAVS or software subscription sales as eachterm of the Company’s revenue transactions represent a singlesale or performance obligation that is satisfied atcompleted.
42 |
Table of Contents |
The Company’s software subscriptions to its platforms, HempOverview and Ground Control, are offered on a point in time or monthlysubscription basis. These subscription fees which are recognized ratably over the subscriptioneach monthly membership period as defined in the new ASU. Accordingly, the Company recognizes revenue for small UAS product contracts with customers at the point in time when the transfer of control passes to the customer, which is generally upon delivery.services are provided.
Inventories and ReserveProvision for Obsolescence
Our policy for valuation of inventory, including the determination of obsolete inventory, requires us to perform a detailed assessment of inventory at each balance sheet date, which includes a review of, among other factors, an estimate of future demand for products within specific time horizons, valuation of existing inventory, as well as product lifecycle and product development plans. Inventory reserves are also provided to cover risks arising from slow-moving items. We write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated net realizable value based on assumptions about future demand and market conditions. We may be required to record additional inventory write-downs if actual market conditions are less favorable than those projected by our management.
31
Goodwill and Intangible Assets
The assets and liabilities of acquired businesses are recorded under the acquisition method of accounting at their estimated fair values at the date of acquisition. Goodwill represents costs in excess of fair values assigned to the underlying identifiable net assets of acquired businesses. Intangible assets from acquired businesses are recognized at fair value on the acquisition date and consist of customer programs, trademarks, customer relationships, technology and other intangible assets. Customer programs include values assigned to major programs of acquired businesses and represent the aggregate value associated with the customer relationships, contracts, technology and trademarks underlying the associated program and are amortized on a straight-line basis over a period of expected cash flows used to measure fair value, which ranges from four to five years.
OurAs of December 31, 2022 and 2021, our goodwill balance was $3.1M at December 31, 2019$23.2 million and $3.3M at December 31, 2018.$64.9 million, respectively. We perform an annual impairment test of our goodwill at least annually in the fourth quarter or more frequently whenever events or changes in circumstances indicate the carrying value of goodwill may be impaired. Such events or changes in circumstances may include a significant deterioration in overall economic conditions, changes in the business climate of our industry, a decline in our market capitalization, operating performance indicators, competition, reorganizations of our business. Our goodwill has been allocated to and is tested for impairment at a level referred to as the business segment. The level at which we test goodwill for impairment requires us to determine whether the operations below the business segment constitute a self-sustaining business for which discrete financial information is available and segment management regularly reviews the operating results.results which is referred to as a reporting unit.
We use a quantitative approach when testing goodwill. To perform the quantitative impairment test, we compare the fair value of a reporting unit to its carrying value, including goodwill. If the fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is not impaired. If the carrying value of the reporting unit, including goodwill, exceeds its fair value, a goodwill impairment loss is recognized in an amount equal to that excess. We generally estimate the fair value of each reporting unit using a combination of a discounted cash flow (DCF)(“DCF”) analysis and market-based valuation methodologies such as comparable public company trading values and values observed in recent business acquisitions. Determining fair value requires the exercise of significant judgments, including the amount and timing of expected future cash flows, long-term growth rates, discount rates and relevant comparable public company earnings multiples and relevant transaction multiples. The cash flows employed in the DCF analysis are based on our best estimate of future sales, earnings, and cash flows after considering factors such as general market conditions, existing firm orders, expected future orders, changes in working capital, long term business plans and recent operating performance.
43 |
Table of Contents |
Finite-lived intangibles are amortized to expense over the applicable useful lives, ranging from fourfive to fiveten years, based on the nature of the asset and the underlying pattern of economic benefit as reflected by future net cash inflows. We perform an impairment test of finite-lived intangibles whenever events or changes in circumstances indicate their carrying value may be impaired. If events or changes in circumstances indicate the carrying value of a finite-lived intangible may be impaired, the sum of the undiscounted future cash flows expected to result from the use of the asset group would be compared to the asset group’s carrying value. If the asset group’s carrying amount exceedexceeds the sum of the undiscounted future cash flows, we would determine the fair value of the asset group and record an impairment loss in net earnings.
InAs of December 31, 2022, we performed our annual goodwill impairment tests for our three reporting units. The results of our annual impairment test indicated that the fourth quarterfair value of 2019,the sensors reporting unit exceeded its carrying amount, while the fair value of the SaaS and drones reporting units were less than their carrying amount, indicating an impairment. As of December 31, 2022, the Company recorded an aggregate goodwill impairment charge of $41,687,871 on the two impaired reporting units. This impairment charge is based on the excess carrying value of the reporting units over their fair values.
As of December 31, 2021, we performed our annual goodwill and finite-lived intangible assets impairment testtests for our Agribotixthree reporting unit.units. The results of that testthese tests indicated that for our Agribotixthe Company’s sensors and software reporting unit an impairment exists for the recorded goodwill of $3.3M but not for related finite-intangibles assets of approximately $521K as of December 31, 2019. In our 2019 impairment test, theunits exceeded their respective carrying value of the reporting unit, including goodwill, exceededamounts, while the fair value of the SaaS reporting unit. Duringunit was less than the year ended December 31, 2019, we recognizedamount reflected in the consolidated balance sheet. Accordingly, the Company recorded a partial$12,357,921 goodwill impairment charge on its SaaS reporting unit during the fourth quarter of 2021. The results of these tests indicated that for our goodwillreporting units no impairment charges were necessary related to our finite-intangibles assets of approximately $163,000.$13.6 million.
32
Share-Based Compensation Awards
The value we assign to the options that we issue is based on the fair market value as calculated by the Black-Scholes pricing model. To perform a calculation of the value of our options, we determine an estimate of the volatility of our stock. We need to estimate volatility because there has not been enough trading of our stock to determine an appropriate measure of volatility. We believe our estimate of volatility is reasonable, and we review the assumptions used to determine this whenever we issue new equity instruments. If we have a material error in our estimate of the volatility of our stock, our expenses could be understated or overstated. All share-based awards are expensed on a straight-line basis over the vesting period of the options.
Income Taxes
We are required to estimate our income taxes, which includes estimating our current income taxes as well as measuring the temporary differences resulting from different treatmentResults of items for tax and accounting purposes. We currently have significant deferred assets, which are subject to periodic recoverability assessments. Realizing our deferred tax assets principally depends on our achieving projected future taxable income. We may change our judgments regarding future profitability due to future market conditions and other factors, which may result in recording a valuation allowance against those deferred tax assets.Operations
We followed the guidance in SEC Staff Accounting Bulletin 118 (“SAB 118”), which provides additional clarification regarding the application of ASC Topic 740 in situations where we do not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) for the reporting period in which the Act was enacted. SAB 118 provides for a measurement period beginning in the reporting period that includes the Act’s enactment date and ending when the Company has obtained, prepared, and analyzed the information needed in order to complete the accounting requirements but in no circumstances should the measurement period extend beyond one year from the enactment date.
Results of Operations
Year Ended December 31, 20192022 as Compared to Year Ended December 31, 20182021
DuringRevenues
For the year ended December 31, 2019, we recorded2022, revenues of $296,677were $19,094,425 as compared to revenues$9,760,952 during the year ended December 31, 2021, an increase of $107,813 for the same period in 2018, a 175% increase.$9,333,473, or 95.6%. The increase was largely dueattributable to newthe revenues derived from purchase orderssales of our eBee drone products acquired in the senseFly Acquisition in the fourth quarter of 2021, coupled with total sensor sales climbing 305% to manufacture and assemble drones and related delivery products designed to meet specific criteria for package delivery in urban and suburban area.$9,840,321 from $2,428,858. Revenue growth was also positively impacted by continued focusstrong demand for our Altum-PT and RedEdge-P multispectral sensors, which resulted in total sensor sales rising 27% to $8,655,434 from $6,793,727. In addition, SaaS subscriptions increased 11% to $598,670 for the twelve months ended December 31, 2022, compared to $538,367 for the same period in the prior year. The COVID-19 pandemic and its effects continue to have a negative impact on expansionour business due to global supply chain constraints, inflation, and adverse labor market conditions, which could last for an extended period of time. Although we understand that market conditions impacting supply chain are not predictable at this time, we do believe we have made material progress in addressing our platform, providingbacklog of orders for aerial imagingour sensors in the third quarter of 2022 and analytics solutions which serve new and emerging markets including management by municipal parks and recreation agencies of urban green spaces, as well as registration, oversight and compliance of hemp fields by state departments of agriculture.will continue to monitor the situation on an on-going basis.
DuringCost of Sales
44 |
Table of Contents |
For the year ended December 31, 2019,2022, cost of sales totaled $202,049, a $140,369, or 228%, increase whenwas $10,876,308 as compared to $61,680 in the year ended December 31, 2018. We had a gross profit$5,504,708 during 2021, an increase of $94,628,$5,371,600, or 32% gross profit margin, during the year ended December 31, 2019 compared to $46,133, or 43% gross profit margin, for the comparable 12-month period in 2018.97.6%. The primary factors contributing to the increase in our cost of sales was attributable to new sales of eBees, acquired in the senseFly Acquisition in October 2021, and declinean increase in sensor sales, as well as higher costs associated with the effects of supply chain constraints, including shortages in electronic components and inflation caused by higher costs to acquire electronic components, increased labor expenses and higher freight-in costs.
Gross Profit
For the twelve months ended December 31, 2022, gross profit was $8,218,117 as compared to $4,256,244 for the twelve months ended December 31, 2021, an increase of $3,961,873, or 93.1%. For the twelve months ended December 31, 2022, gross profit margin was 43.0% as compared to 43.6% for the twelve months ended December 31, 2021. The decrease in gross profit margin was mainly due to a slight decline in our drone and sensor margins as a result of higher component and labor costs along with increased shipping expenses over the continued shift in mix of products and services we now offer customers in the new markets we serve.twelve-month period.
We recorded totalOperating Expenses
For the year ended December 31, 2022, operating expenses of $2,616,821 during 2019, a 24% increasewere $72,494,954, as compared to operating$34,549,016 during 2021, an increase of $37,945,938, or 109.8%. Operating expenses of $2,106,732 in the same period of 2018. Our operating expenses are comprisedcomprise of general and administrative expenses, professional fees, selling expenses, and research and development, expenses. sales and marketing, along with goodwill impairment costs.
General and administrative expenses totaled $1,850,225 in 2019 compared to $1,333,371 in 2018, an increase of 39%. The increase was due primarily to an increase in salary expense for new and existing employees along with stock compensation costs for employees and directors due toAdministrative Expenses
For the issuance of options. Also, as a part of the increase was additional amortization expense related to the intangibles acquired to support the business acquired from Agribotix. Lastly, we recorded a loss on impairment of $162,984 related to the goodwill acquired in the Agribotix acquisition which has been included in general and administrative expenses. Lastly, the increase inyear ended December 31, 2022, general and administrative expenses were $17,757,708 as compared to $14,957,410 for the prior year ended December 31, 2021, resulting in an increase of $2,800,298, or 18.7%. The increase was primarily due to costs associated with the senseFly acquisition which can be mainly attributed to additional payroll, bonus, and social charges along with the office rents for Raleigh, North Carolina and Lausanne, Switzerland. Also contributing to the increase was ERP costs offset by a significant decreasereduction in investor relations costs. Professional fees totaling $662,633 in 2019 werestock compensation expenses incurred for legal, accountingrelated to employees and investor relations,directors and compared to $696,222 in 2018. This represented a decline in professional fees of 5%, or $33,589 from 2018 when there was higher legal, audit, accounting and tax servicesadditional amortization expense associated with the reverse merger completedintangibles acquired as part of the 2021 Acquisitions and platform development costs.
Research and Development
For the Agribotix acquisition. 2019twelve months ended December 30, 2022, research and development expenses in comparison were offset by$8,113,774 as compared to $4,082,799 for the twelve months ended December 31, 2021, an increase in costs related to consulting services for ourHempOverview platform. Selling expenses of $65,015 in 2019 compared to $77,139 in 2018, represented a decrease of 16% due to less costs associated with our website investment that was launched in 2018 to market our new business model.
33
Research and development costs in 2019 were $38,948, compared to $0 in 2018.$4,030,975, or 98.7%. The increase was largelyattributable to the addition of senseFly’s and Measure’s research and development teams and technological innovations resulting in the new eBee VISION intelligence, surveillance and reconnaissance drone along with continued enhancements and integrations with Measure Ground Control.
Sales and Marketing
For the twelve months ended December 31, 2022, sales and marketing expenses were $4,935,601 as compared to $3,150,886 for the twelve months ended December 31, 2021, an increase of $1,784,715, or 56.6%. The increase was primarily due to the addition of the senseFly marketing and sales teams, and conference related travel that resulted in additional business development of our sustainability platform in terms of an investment in soil sampling equipment required for our sustainable agriculture platform for purposes of monitoring agriculture fields.activities.
Other incomeGoodwill Impairment
For the twelve months ended December 31, 2022, goodwill impairment was $41,687,871 compared to $12,357,921 for the twelve months ended December 31, 2021. This increase was primarily attributable to the goodwill impairment related to our SaaS and drones reporting units recorded in the fourth quarter of 2022. Due to the lower than forecasted sales and profitability along with declining market conditions, decline stock price and changes in our technologies, the Company recorded an impairment charge to these two reporting units of $29,032,294 and $12,655,577, respectively, during the fourth quarter and for the year ended December 31, 2019 was $0 compared to $13,333 for2022.
45 |
Table of Contents |
Total Other Income
For the year ended 2018. The declineDecember 31, 2022, other income, net was due$6,023,114 as compared to the reversal of dealer termination costs accrued from prior periods as a result of all liabilities having that been fully satisfied during the 2018.
Interest expense$184,092 for the year ended December 31, 20192021. The increase was $501primarily due to a $6,463,101 non-cash gain on debt extinguishment associated with reductions of holdback liabilities in connection with our acquisitions of senseFly and MicaSense realized in the third quarter of 2022, offset mainly by foreign exchange realized losses along with interest expense and loss on disposal of fixed assets.
Net Income (Loss)
For the year ended December 31, 2022, the Company incurred a net loss of $58,253,723 as compared to $32,417 in the prior year. The decrease was due to the conversion of all debt as a result of the Enerjex merger in 2018, except for a promissory note assumed which was repaid in full in March 2019.
Our net loss was $2,522,694 in 2019. This represents a $443,011 increase over our net loss of $2,079,683 in 2018. Overall,$30,108,680 for the year ended December 31, 2021, an increase of $28,145,043, or 93.5%. The overall increase in net loss is duewas primarily attributable to a $41.7 million goodwill impairment charged in 2022 on our SaaS and drone reporting units as compared to a $12 million impairment on our SaaS reporting unit in 2021. In addition, in 2022 the Company incurred greater operating and transactional costs as a result of the shifts in2021 Acquisitions. In order to execute our sales and long-term growth strategies along with a twelve months of intangible asset amortizationadditional resources and approximately $163,000 charge of a goodwill impairment. We are in the process of continuinginvestments would be required as we continue to address these shifts by developing new platforms, products and services thatto support prevailing growth opportunitiesopportunities. This increase was offset by a $6,463,101 non-cash gain on debt extinguishment associated with reductions of holdback liabilities in domestic industrial hempconnection with our acquisitions of senseFly and sustainable agriculture and growing our drone-enabled package delivery business.MicaSense realized in the third quarter of 2022.
Cash Flows
Twelve Months Ended December 31, 2019 compared2022 as Compared to the Twelve Months Ended December 31, 2018
Cash on hand was $717,997 at December 31, 2019, a decrease of $1,883,733 compared to the $2,601,730 on hand at December 31, 2018. Cash used in operations for 2019 was $1,818,290 compared to $1,778,138 of cash used by operations for 2018. The decrease in cash was driven largely by payments of accounts payable for increased payroll expenses, consulting expenses, higher R&D expenses and costs associated with being a publicly-traded company.
Cash used by investing activities during 2019 was $24,445, which compared to $1,560,219 in 2018. The use of cash in 2019 was primarily for the purchase of equipment used for purposes of soil sampling equipment required for our sustainable agriculture platform; and the cash used during the previous year was for the acquisition of Agribotix offset by cash received from EnerJex as a result of the reverse merger.
Cash used in financing activities during the twelve-months ended December 31, 2019 totaled $40,998, which compared to cash provided by financing activities of $5,904,798 for the same twelve-month period ended December 31, 2018. During the 2019 year, we paid off debt related to a promissory note acquired as part of the Enerjex merger, whereas in 2018, we were provided cash of $6,200,000 net of $50,000 in fees invested in the Company in exchange for common and preferred shares.
Liquidity and Capital Resources2021
As of December 31, 2019,2022, cash on hand was $4,349,837, a decrease of $10,240,729, or 70.2%, as compared to $14,590,566 as of December 31, 2021. For the year ended December 31, 2022, cash used in operations $20,107,670, an increase of $7,644,542, as compared to $12,463,127 for the year ended December 31, 2021. The increase in cash used in operating activities was mainly driven by greater operating expenses incurred in 2022 as a result of our 2021 Acquisitions, which included higher inventory purchases and prepayments, along with additional accounts payable, accrued expenses and other liabilities associated with the reporting units. Also contributing to the net cash used in operating activities were non-cash charges for goodwill, stock-based compensation, depreciation and amortization expenses, gain on debt extinguishment, dividends on preferred stock Series F, defined benefit obligation expenses and loss on disposal of fixed assets that netted out to $42,268,131.
For the year ended December 31, 2022, cash used in investing activities was $8,359,759, a decrease of $34,137,865, as compared to $42,497,624 for the year ended December 31, 2021. The decrease in cash used in our investing activities resulted from the 2021 Acquisitions, purchase of property and equipment and building improvements related to the new leased warehouse and corporate offices in Wichita, along with recording capitalized costs associated with the development of the Measure Ground Control platform.
For the year ended December 31, 2022, cash provided by financing activities was $17,862,691, a decrease of $27,748,293, or 60.8% as compared to cash provided of $45,610,984 for twelve months ended December 31, 2021. The decrease in cash provided by our financing activities was due to less sales of our Common Stock through an at-the-market (“ATM”) offering and exercise of warrants in the prior year while raising capital through the sale of a new series of Preferred Stock, the Series F 5% Preferred Convertible Stock.
Liquidity and Capital Resources
As of December 31, 2022, we had working capital of $607,285 and$9,079,091. For the year ended December 31, 2022, we incurred a loss from operations of $2,522,193$64,276,837, inclusive of $41,687,871 for goodwill impairment, an increase of $33,984,064, as compared to $30,292,772 for the period then ended. While there can be no guarantees,year ended December 31, 2021. Further, we believeutilized our cash on hand, in connection with cash from operations, will be sufficientour operating activities of $20,107,670, an increase of $7,644,542 as compared to fund operations$12,463,127 for the next year of operations. In addition, we intend to pursue other opportunities of financing with outside investors.ended December 31, 2021.
34
46 |
Table of Contents |
On November 21, 2017, Alpha Capital Anstalt (“Alpha”) signed a binding commitment letter with our predecessor company EnerJex to provide prior to or atJune 26, 2022, the closingBoard of Directors of the merger a minimum of $4 million in new equity capital (the “Private Placement”). The Private Placement was consummated on March 26, 2018. In connection with the Private Placement, Alpha purchased an additional 4,000 shares of Series C Preferred Stock at a purchase price of $1,000 per share for total aggregate consideration of $4 million. The Series C Preferred Stock is convertible into 2,612,245 shares of our common stock. In addition, as consideration for their funding commitment, Alpha received a fee equal to 408,552 shares of our common stock.
Each share of Series C Preferred Stock is convertible into a number of shares of our common stock equal to the quotient determined by dividing (x) the stated value of $1,000 per share, by (y) a conversion price of $0.54. Until the volume weighted average price of our common stock on NYSE exceeds $107.50 with average trading volume of 200,000 shares per day for ten consecutive trading days, the conversion price of our Series C Preferred Stock is subject to full-ratchet, anti-dilution price protection. Under that provision, if, while that full-ratchet, anti-dilution price protection is in effect, we issue shares of our common stock at a price per share (the “Dilutive Price”) that is less than the conversion price, then the conversion price of our Series C Preferred Stock is automatically reduced to be equal to the Dilutive Price. The effect of that reduction is that, upon the issuance of shares of common stock at a Dilutive Price, the Series C Preferred Stock would be convertible into a greater number of shares of our common stock.
On December 27, 2018, we entered into Securities Purchase Agreement (the “Agreement”) with Alpha. Pursuant to the terms of the Agreement, our Board of DirectorsCompany designated a new series of preferred stock,Preferred Stock, the Series DF 5% Preferred Convertible Stock which is non-convertible(“Series F”), and provides for an 8% annual dividendauthorized the sale and is subjectissuance of up to optional redemption by us (the “Series D Preferred Stock”). We issued 2,00035,000 shares of Series D Preferred Stock and a warrant (the “Warrant”)F. The Company issued to purchase 3,703,703an existing investor 10,000 shares of Series F for an aggregate purchase price and gross proceeds of $10,000,000.
For the twelve months ended December 30, 2022, we raised $4,583,341 of net proceeds from our common stock for $2,000,000 in gross proceeds. The shares of common stock underlying the Warrant are referred to as the “Warrant Shares”. We also entered into a registration rights agreement (the “Registration Rights Agreement”) granting registration rights to AlphaATM offering with respect to the Warrant Shares.co-agents Stifel, Nicolaus & Company, Incorporated and Raymond James & Associates.
The Agreement provides that uponincrease in net loss and cash used in operating activities is larger due to the Company’s long-term growth strategy and 2021 Acquisitions which have resulted in additional working capital needs. While the Company has historically been successful in raising capital to meet its working capital needs, the ability to continue raising such capital to enable the Company to continue its growth is not guaranteed. Therefore, there is substantial doubt about the Company’s ability to continue as a subsequent financing or financings with net proceedsgoing concern as the Company will require additional liquidity to continue its operations and meet its financial obligations for 12 months from the date these consolidated financial statements were issued. The Company is evaluating strategies to obtain the required additional funding for future operation and the restructuring of at least $500,000,operations to grow revenues and reduce expenses.
For the year ended December 31, 2021, we must exercise our optional redemptionraised capital of $6,313,943 as a result of the Series D Preferredsale of 1,057,214 shares of Common Stock and apply any and all netin connection with a securities purchase agreement (the "December Purchase Agreement”) entered on December 31, 2020. Also on February 8, 2021, we received $8,305,368 in additional gross proceeds associated with the exercise of 2,516,778 of warrants issued at a price of $3.30 in connection with a securities purchase agreement dated August 4, 2020. During the period from such financing(s) to the redemption in full of the Series D Preferred Stock.
The Warrant is exercisable for a period of five yearsMay 29, 2021, through December 26, 2023, at an exercise price equal to $0.54 per share,31, 2021, we raised $30,868,703 by utilizing our ATM Offering with co-agents Stifel, Nicolaus & Company, Incorporated and is subject to customary adjustments for stock splits dividend, rights offerings, pro rata distributions and fundamental transactions. In addition, in the event that we undertake a subsequent equity financing or financings at an effective price per share that is less than $0.54, the exercise price of the Warrant shall be reduced to the lower price.
Pursuant to the terms of the Registration Rights Agreement, we were required to file an initial registration statement registering the Warrant Shares no later than the 20thcalendar day following the required filing date of the Company’s Annual Report on Form 10-K for the year ending December 31, 2018 (the “Filing Date”) and, with respect to any additional registration statements, the earliest practical date on which we are permitted by SEC Guidance to file such additional registration statement related to such registrable securities. We were required to have the registration statement declared effective with the Securities and Exchange Commission (the “Commission”) no later than the 90th calendar day following the Filing Date or, in the event of a “full review” by the Commission, the 120th calendar day following the Filing Date. Alpha waived the requirement for the filing of such registration statement in 2019. There are no penalties for failure to file or be declared effective by the dates set forth above.Raymond James & Associates.
Our primary need for liquidity is to fund working capital requirements of our business, capital expenditures, acquisitions, debt service, and for general corporate purposes. Our primary source of liquidity is funds generated by financing activities and from private placements. Our ability to fund our operations, to make planned capital expenditures, to make planned acquisitions, to make scheduled debt payments, and to repay or refinance indebtedness depends on our future operating performance and cash flows, which are subject to prevailing economic conditions and financial, business and other factors, some of which are beyond our control.
35
If the Company is unable to generate significant sales growth in the near term and raise additional capital, there is a risk that the Company could default on additional obligations,obligations; and could be required to discontinue or significantly reduce the scope of its operations if no other means of financing operations are available. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities or any other adjustment that might be necessary should the Company be unable to continue as a going concern. The Company is evaluating strategies to obtain the required additional funding for future operations and the restructuring of operations to grow revenues and reduce expenses.
Off-Balance Sheet Arrangements
AtOn December 31, 2019,2022, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources. Since our inception, except for standard operating leases, we have not engaged in any off-balance sheet arrangements, including the use of structured finance, special purpose entities or variable interest entities. We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
Contractual Obligations
GreenBlock Capital LLC Consulting AgreementMaterial contractual obligations arising in the normal course of business primarily consist of business acquisition related liabilities, principal and interest payments for loans made under the COVID program in Switzerland, defined benefit plan obligations, principal and interest payments for operating leases and other purchase obligations. See Notes 5, 8, 10, 11 and 13 to the consolidated financial statements for amounts outstanding as of December 31, 2022 for these contractual obligations.
47 |
Table of Contents |
Inflation
On May 3, 2019, we entered intoDuring the year ended December 31, 2022, inflation has had a consulting agreement with GreenBlock Capital LLC (“Consultant”)negative impact on the unmanned aerial vehicle systems industry, our customers, and our business globally. Specifically, our ability to serve as strategic advisoraccess components and consultant with respectparts needed in order to manufacture our proprietary drones and sensors, and to perform quality testing have been, and continue to be, impacted. If either the development of new business opportunities and the implementation of business strategies related to expansion into the emerging domestic hemp cultivation market. The extentCompany or any of the services will be set forththird-parties in separate scopes of work, from time to time,the supply chain for materials used in our manufacturing and assembly processes continue to be preparedadversely impacted, our supply chain may be further disrupted, limiting its ability to manufacture and mutually agreed to byassemble products. In addition, the parties. As compensation foreventual implications of higher government deficits and debt, tighter monetary policies and potentially higher, long-term interest rates may drive a higher cost of raising capital in the services under the terms of the agreement, Consultant received (i) $25,000 per month during the term of the agreement, (ii) 500,000 shares of restricted common stock upon execution of the agreement, and was entitled to (iii) up to 2,500,000 shares of restricted common stock upon the achievement of predetermined milestones.future.
On October 31, 2019, the consulting agreement was terminated as a result of the Company no longer needing these services to be provided by an outside consultant. There are no early termination penalties incurred as a result of the termination of the consulting agreement. The Consultant may still be entitled to receive up to 2,500,000 shares of restricted common stock after termination of the Agreement, if the achievement of milestones that commenced during the term of the Agreement are completed after termination.
On November 12, 2019, we announced that the Florida Department of Agriculture and Consumer Services (FDACS) had chosen ourHempOverview software-as-a-solution (SaaS) platform to manage the online application submission and registration process for hemp growers and their farms and hemp fields for the 2020, 2021 and 2022 planting seasons (the “Florida Contract”). Prior to the termination of the Agreement with the Consultant, as part of the Consultant’s services, Consultant introduced us to the FDACS, which introduction resulted in us signing the Florida Contract. Since the Consultant was instrumental in identifying and introducing us to FDACS prior to termination of the Agreement, the execution of the Florida Contract is a milestone achieved by the Consultant under the terms of the Agreement. Upon the receipt of our executed purchase from FDACS, the Company will issue 250,000 of the shares of common stock to the Consultant. The Consultant may be entitled to receive up to another 750,000 shares of common stock, which will be contingent upon further milestones to be achieved under the Florida Contract.
Inflation
Our opinion is that inflation has not had, and is not expected to have, a material effect on our operations.
Climate Change
Our opinion is that neither climate change, nor governmental regulations related to climate change, have had, or are expected to have, any material effect on our operations.
36
New Accounting Pronouncements
There were variouscertain updates recently issued by the Financial Accounting Standards Board (“FASB”), most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company iswe are not required to provide information required by this Item.
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Our financial statements are contained in pages F-1 through F-33,F-59, which appear at the end of this Annual Report on Form 10-K.
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
ITEM 9A. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure and Control Procedures
The Company’s Chief Executive Officer and the Company’s Chief Financial Officer evaluated the effectiveness of the Company’s disclosure controls and procedures as of December 31, 20192022, and concluded that the Company’s disclosure controls and procedures are effective. The term disclosure controls and procedures means controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated, recorded, processed, summarized and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure to be reported within the time periods specified in the SEC’s rules and forms.
48 |
Table of Contents |
Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining an adequate system of internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with Generally Accepted Accounting Principles (“US GAAP”).
Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance of such reliability and may not prevent or detect misstatements. Also, projection of any evaluation of effectiveness to future periods is subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has conducted, with the participation of our Chief Executive Officer and our Chief Financial Officer, an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2019.2022. Management’s assessment of internal control over financial reporting used the criteria set forth in SEC Release 33-8810 based on the framework established by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) inInternal Control over Financial Reporting — Guidance for Smaller Public Companies.Based on this evaluation, Management concluded that our system of internal control over financial reporting was effective as of December 31, 2019,2022, based on these criteria.
37
This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. As a smaller reporting company, our management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only the management’s report.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(t) and 15d-15(f) under the Exchange Act, during the fourth quarteryear ended December 31, 20192022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. | OTHER INFORMATION |
None.
ITEM 9C. | DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS |
None.
49 |
Table of Contents |
PART III
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The following table and biographical summaries set forth information including principal occupation and business experience about our directors and executive officers:
Bret Chilcott. Mr. Chilcott has served as a member of the Board of Directors of the Company and as President since the inception of the Company in April 2014 and had served as Chief Executive Officer from February 2016 to July 18, 2018. As of July 18, 2018, Mr. Chilcott stepped down as Chief Executive Officer and currently serves as President, Secretary and Chairman of the Board of the Directors. The pathrequired by this item is incorporated by reference to the Company started when Mr. Chilcott established his advanced composite manufacturing company, Solutions by Chilcott, LLC, whose manufacturing processes led the way to the initial fixed wing design of the Company. Previously, Mr. Chilcott spent over 12 years with Cobalt Boats in Neodesha, Kansas, where he held a variety of positions from Director of Product Development and Engineering to Director of Sales and Marketing. In those positions, he was responsibledefinitive proxy statement for developing strategic product plans for the company as well as the management of regional sales managers. Prior to Cobalt Boats, Mr. Chilcott also spent a number of years working at the Cessna Aircraft Company and Snap-on Tools. It was at Snap-on Tools, acting as a national accounts manager, that Mr. Chilcott first established his blueprint for a dealer network, a model which he carried over successfully to the Company when the Company began selling its product. Mr. Chilcott graduated from Kansas Community College in 1982 with a degree in Sales and Marketing. The Company believes that Mr. Chilcott’s background and experience in composite parts manufacturing provides him with a broad familiarity of the range of issues confronting the Company in the market, which makes him a qualified member of our board.
38
Barrett Mooney. Mr. Mooney was appointed as Chief Executive Officer on July 18, 2018. Mr. Mooney brings an extensive track record of growing agriculture and sustainability businesses. From May 1, 2017 to July 18, 2018, he served as Group Product Lead for The Climate Corporation, a subsidiary of Monsanto (recently acquired by Bayer), where he led the satellite imagery team, managed a team focused on using artificial intelligence to enhance crop yield production an introduced a new organizational structure to improve sales efficiency. Prior to The Climate Corporation, from July 1, 2012 to May 1, 2017, Mr. Mooney co-founded and was CEO and president of HydroBio, a software company that used satellite-driven image analytics to conserve water and maximize crop yields. In May 2017, he sold HydroBio to The Climate Corporation. Mr. Mooney holds a Doctor of Philosophy in Agricultural and Biological Engineering from the University of Florida. He is also a member of the American Society of Agricultural and Biological Engineers.
Nicole Fernandez-McGovern, CPA.In August 2016, Ms. Fernandez-McGovern was named AgEagle’s Chief Financial Officer, charged with overseeing the Company’s global financial operations to include managing financial planning, general tax and accounting activities, capital formation, SEC reporting and other key financial duties. Prior to joining AgEagle, she served as Chief Executive Officer and Chief Financial Officer of Trunity Holdings, Inc., a publicly traded education technology company. While at Trunity, Ms. Fernandez-McGovern led the successful restructuring of the Company by acquiring a new compounding pharmacy business and finalizing the spin-out of the legacy education business into a newly formed private company. From 2011 through 2013, she was President of RCM Financial Consulting, a specialized consulting firm focused on providing interim accounting and financial services to small and medium sized businesses. For the preceding ten years, Ms. Fernandez-McGovern was a financial manager at Elizabeth Arden where she was involved with all aspects of the Nasdaq-listed company’s SEC and financial reporting processes. She launched her professional career at KPMG, LLP in its audit and assurance practice, where she managed various large -scale engagements for both public and privately held companies. Ms. Fernandez-McGovern earned a Master of Business Administration degree with concentration in Accounting and International Business and a Bachelor of Business Administration degree with concentration in Accounting, both from the University of Miami. In addition to being fluent in Spanish, she is also a Certified Public Accountant in the State of Florida and serves on the boards of the South Florida Chapter of Financial Executives International and Pembroke Pines Charter Schools.
Grant Begley. Mr. Begley has served as a member of the Board of Directors of the Company since June 2016. Since July 2011, Mr. Begley has served as President of Concepts to Capabilities Consulting LLC, which advises global executive clients on competitive positioning and performance in aerospace. From August 2010 to September 2011, Mr. Begley was Corporate Senior Vice President for Alion Science and Technology. Prior to Alion, Mr. Begley served as Pentagon Senior Advisor to the Office of the Under Secretary of Defense, for Unmanned Systems, advising on critical issues and leading development of DoD’s 2011 Unmanned Systems Roadmap. Mr. Begley’s career includes defense industry leadership positions for the development of advanced capabilities with Raytheon and Lockheed Martin where he initiated and led cross-corporation unmanned systems and robotics successes. Mr. Begley served in the United States Navy for 26 years, where his duties included operational assignments flying fighter aircraft, designated Top Gun, followed by acquisition assignments for the development and management of next generation manned and unmanned aircraft systems, weapon systems and joint executive acquisition assignments. Mr. Begley holds Master’s degrees in Aerospace and Aeronautic Engineering from the Naval Post-Graduate School and a Bachelor’s degree in General Engineering from the U.S. Naval Academy. The Company believes that Mr. Begley’s 20 plus years of experience as a UAV industry expert, focused on UAV technologies, regulations and commercial applications, will be an invaluable resource to the Board of Directors.
Louisa Ingargiola. Ms. Ingargiola has served as a member of the Board of Directors of the Company since November 27, 2018. In 1990, Ms. Ingargiola joined Boston Capital Partners as an Investment Advisor in their Limited Partnership Division. In this capacity, she worked with investors and partners to report investment results, file tax forms, and recommend investments. In 1992, Ms. Ingargiola joined MetLife Insurance Company as a Budget and Expense Manager. In this capacity she managed a $30 million annual budget. Her responsibilities included budget implementation, expense and variance analysis and financial reporting. From 2007 through 2016, Ms. Ingargiola served as the Chief Financial Officer at MagneGas Corporation (NASDAQ: MNGA) and continues to serve as a director. Ms. Ingargiola currently serves as Chief Financial Officer of Avalon-Globocare (NASDAQ:AVCO) and as the Audit Committee Chair of FTE Networks, Inc. (NYSE:FTNW) and Electra Meccanica (NASDAQ:SOLO) where she has helped manage over $200 Million in equity and debt financing. Ms. Ingargiola also serves as a Director of The JBF Foundation Worldwide, a 501(c)(3) non-profit. Ms. Ingargiola graduated in 1989 from Boston University with a Bachelor’s degree in Business Administration and a concentration in Finance. In 1996, she received her MBA in Health Administration from the University of South Florida.
39
Thomas Gardner. Mr. Gardner has served as a member of the Board of Directors since June 2016 and he and his firm has been engaged as a consultant to the Company. Since May 2010, Mr. Gardner has served as COO and Director at NeuEon, Inc., a technology advisory consulting firm, where he oversees operations and provides strategic technology and business guidance to select clients. Mr. Gardner has extensive experience in the areas of business and technology leadership across many industries, including financial services, manufacturing, telecommunications and consumer goods. Within these sectors, Mr. Gardner has specific expertise in the areas of process improvement, digitization and standardization, mergers and acquisitions, system implementations, enterprise resource planning and work-force optimization. Mr. Gardner holds a dual Bachelor of Science in Accounting and Management from Bryant University. The Company believes that Mr. Gardner’s experience as a data analytics expert, along with his strategic technology and business expertise, brings a unique perspective to the Board of Directors.
Board of Directors’ Term of Office
Directors are elected at our annual meeting of shareholders and serve for one year until the next annual meeting of shareholders or until their successors are elected and qualified.
Family Relationships
There are no family relationships among the officers and directors, nor are there any arrangements or understanding between any of the Directors or Officers of our Company or any other person pursuant to which any Officer or Director was or is to be selected as an officer or director.
Involvement in Certain Legal Proceedings
During the last ten years, none of our officers, directors, promoters or control persons have been involved in any legal proceedings as described in Item 401(f) of Regulation S-K.
Board Meetings; Committee Meetings; and Annual Meeting Attendance
In 2019, the Board of Directors held five meetings and acted by unanimous written consent on various matters. We encourage each director to attend our annual meeting of shareholders in person or by telephone conference call. All of the board members attended the 20192023 Annual Meeting of Shareholders via tele-conference.Stockholders to be filed with the SEC within 120 days of December 31, 2022.
Committees of the Board of Directors
Our Board of Directors has standing audit, compensation and nominating committees, comprised solely of independent directors. Each committee has a charter, which is available at the Company’s website, www.ageagle.com. Each committee member is independent under NYSE American committee independence requirements applicable to the committee on which such member serves.
Audit Committee
ITEM 11. | EXECUTIVE COMPENSATION |
The Audit Committee, whichinformation required by this item is established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, is responsible for assisting the Board of Directors in its oversight of the integrity of the Company’s financial statements, the qualifications and independence of the Company’s independent auditors, and the Company’s internal financial and accounting controls. The Audit Committee has direct responsibility for the appointment, compensation, retention (including termination) and oversight of the Company’s independent auditors, and the Company’s independent auditors report directlyincorporated by reference to the Audit Committee. During 2019, the Audit Committee had a totaldefinitive proxy statement for our 2023 Annual Meeting of four meetings.
40
The members of the Audit Committee are Louisa Ingargiola, Chair, Grant Begley, and Thomas Gardner. Each member of the Audit Committee qualifies as an independent director under the corporate governance standards of the NYSE American and the independence requirements of Rule 10A-3 of the Exchange Act. The Board of Directors has determined that Louisa Ingargiola qualifies as an “audit committee financial expert” as such term is currently defined in Item 407(d)(5) of Regulation S-K and meets the financial sophistication requirements of the NYSE American.
Compensation Committee
The Compensation Committee approves the compensation objectives for the Company, approves the compensation of the chief executive officer and approves or recommends to the Board of Directors for approval the compensation of other executives. The Compensation Committee reviews all compensation components, including base salary, bonus, benefits and other perquisites.
The members of the Compensation Committee are Grant Begley, Chairman, Louisa Ingargiola, and Thomas Gardner. Each member of the compensation committee is a non-employee director within the meaning of Rule 16b-3 of the rules promulgated under the Exchange Act, each is an outside director as defined by Section 162(m) of the United States Internal Revenue Code of 1986, as amended, or the Code, and each is an independent director as defined by the NYSE American. The compensation committee has adopted a written charter that satisfies the applicable standards of the SEC and the NYSE American, which is available on our website. During 2019, the Compensation Committee had a total of two meetings
Nominating and Corporate Governance Committee
The nominating and corporate governance committee is responsible for making recommendations to our board of directors regarding candidates for directorships and the structure and composition of our board and the board committees. In addition, the nominating and corporate governance committee will be responsible for developing and recommending to our board corporate governance guidelines applicable to the company and advising our board on corporate governance matters. During 2018, the Nominating and Corporate Governance Committee had no meetings and acted by unanimous written consent on one occasion.
The members of the Nominating and Corporate Governance Committee are Thomas Gardner, Chairman, Louisa Ingargiola, and Grant Begley. Each member of the nominating and corporate governance committee will be an independent director as defined by the NYSE American. The nominating and corporate governance committee has adopted a written charter that satisfies the applicable standards of the NYSE American, which is available on our website.
The Nominating and Corporate Governance Committee will consider director candidates recommended by security holders. Potential nominees to the Board of Directors are required to have such experience in business or financial matters as would make such nominee an asset to the Board of Directors and may, under certain circumstances, be requiredStockholders to be “independent”, as such term is defined under Section 121(a) of the listing standards of NYSE American and applicable SEC regulations. Security holders wishing to submit the name of a person as a potential nominee to the Board of Directors must send the name, address, and a brief (no more than 500 words) biographical description of such potential nominee to the Nominating and Corporate Governance Committee at the following address: Nominating and Corporate Governance Committee of the Board of Directors, c/o AgEagle Aerial Systems Inc., 117 S. 4th Street, Neodesha, Kansas 66757. Potential director nominees will be evaluated by personal interview, such interview to be conducted by one or more members of the Nominating and Corporate Governance Committee, and/or any other method the Nominating and Corporate Governance Committee deems appropriate, which may, but need not, include a questionnaire. The Nominating and Corporate Governance Committee may solicit or receive information concerning potential nominees from any source it deems appropriate. The Nominating and Corporate Governance Committee need not engage in an evaluation process unless (i) there is a vacancy on the Board of Directors, (ii) a director is not standing for re-election, or (iii) the Nominating and Corporate Governance Committee does not intend to recommend the nomination of a sitting director for re-election. A potential director nominee recommended by a security holder will not be evaluated differently from any other potential nominee. Although it has not done so in the past, the Nominating and Corporate Governance Committee may retain search firms to assist in identifying suitable director candidates.
41
The Board does not have a formal policy on Board candidate qualifications. The Board may consider those factors it deems appropriate in evaluating director nominees made either by the Board or stockholders, including judgment, skill, strength of character, experience with businesses and organizations comparable in size or scope to the Company, experience and skill relative to other Board members, and specialized knowledge or experience. Depending upon the current needs of the Board, certain factors may be weighed more or less heavily. In considering candidates for the Board, the directors evaluate the entirety of each candidate’s credentials and do not have any specific minimum qualifications that must be met. The directors will consider candidates from any reasonable source, including current Board members, stockholders, professional search firms or other persons. The directors will not evaluate candidates differently based on who has made the recommendation.
Changes in Nominating Process
In 2019, there were no material changes to the procedures by which security holders may recommend nominees to our Board of Directors.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires the Company’s directors, officers and stockholders who beneficially own more than 10% of any class of equity securities of the Company registered pursuant to Section 12 of the Exchange Act, collectively referred to herein as the “Reporting Persons,” to file initial statements of beneficial ownership of securities and statements of changes in beneficial ownership of securities with respect to the Company’s equity securities with the SEC. All Reporting Persons are required by SEC regulation to furnish us with copies of all reports that such Reporting Persons filefiled with the SEC pursuant to Section 16(a). Based solely on our reviewwithin 120 days of the copies of such reports and upon written representations of the Reporting Persons received by us, we believe that the following Reporting Persons have not timely complied with the Section 16(a) filing requirements:December 31, 2022.
Code of Ethics
The Company has adopted a Code of Ethics for adherence by its Chief Executive Officer and Chief Financial Officer to ensure honest and ethical conduct; full, fair and proper disclosure of financial information in the Company’s periodic reports filed pursuant to the Securities Exchange Act of 1934; and compliance with applicable laws, rules, and regulations. Any person may obtain a copy of our Code of Ethics, without charge, by mailing a request to the Company at the address appearing on the front page of this Annual Report on Form 10-K or by viewing it on our website found at www.ageagle.com.
42
Executive Compensation
The following table sets forth compensation information for services rendered by certain of our executive officers in all capacities during the last two completed fiscal years. The following information includes the dollar value of base salaries and certain other compensation, if any, whether paid or deferred.
Summary Compensation Table
Name and Principal Position | Year | Salary | Bonus | Equity Awards(4) | All Other Compensation | Total | ||||||||||||||||||
Bret Chilcott (1) | 2019 | $ | 140,000 | $ | — | $ | — | $ | — | $ | 140,000 | |||||||||||||
2018 | $ | 120,539 | $ | — | $ | — | $ | — | $ | 120,539 | ||||||||||||||
Barrett Mooney (2) | 2019 | $ | 220,000 | $ | 12,000 | $ | 99,547 | $ | — | $ | 331,547 | |||||||||||||
2018 | $ | 95,615 | $ | — | $ | 54,995 | $ | — | $ | 150,610 | ||||||||||||||
Nicole Fernandez-McGovern | 2019 | $ | 180,000 | $ | 7,000 | $ | 84,640 | $ | — | $ | 271,640 | |||||||||||||
2018 | $ | 207,500 | (3) | $ | — | $ | 27,759 | $ | — | $ | 235,259 |
Employment Agreements
Bret Chilcott
Mr. Chilcott has served as a member of the Board of Directors of the Company and as President since the inception of the Company in 2010 and had served as Chief Executive Officer from February 2016 to July 18, 2018. As of July 18, 2018, Mr. Chilcott stepped down as Chief Executive Officer and currently serves as President, Secretary and Chairman of the Board of the Directors. Mr. Chilcott has no formal agreement with the Company but did hold the position of Chief Executive of the Company for an annual salary of $175,000. Upon his resignation as Chief Executive Officer of the Company his salary was reduced to $140,000, annually.
Barrett Mooney
Pursuant to an employment offer letter dated July 9, 2018, Mr. Mooney will receive as compensation for his services as Chief Executive Officer a base salary of $220,000 per year, which shall be subject to annual performance review by the Compensation Committee of the Board and may be revised by the Board, in its sole discretion. Mr. Mooney received an initial grant of 75,000 shares of restricted common stock of the Company which is fully vested. Mr. Mooney shall also be eligible to receive an award of 75,000 shares of restricted common stock of the Company which shall fully vest as of January 1, 2019 if, and only if, the stock price of the Company reaches $3.55 per share and the closing price per share is at or above such price at the end of the day on January 1, 2019. In addition, Mr. Mooney is eligible to receive an award of 20,000 nonqualified stock options under the Company’s 2017 Omnibus Equity Incentive Plan (the “Equity Plan”) upon securing one sustainability pilot program on or before October 31, 2018, and an additional award of 30,000 nonqualified stock options under the Equity Plan upon securing a second sustainability pilot program on or before January 31, 2019. Both awards shall provide for immediate vesting and exercisability at an exercise price equal to the fair market value of the Company’s shares of common stock underlying the options as of the date of grant. Mr. Mooney will also be eligible receive an award of up to 55,000 Non-qualified Stock Options under the Equity Plan based upon the results of his annual performance review in the first quarter of 2019.
43
Effective December 18, 2018, an amendment was signed for the original employment offer letter dated July 9, 2018, thereby providing an amendment to provide that in lieu of the issuance of 75,000 shares of restricted common stock of the Company (the “Shares”), the Company shall award to Mr. Mooney 125,000 Non-qualified Stock Options (the “Stock Options”) under the Company’s 2017 Omnibus Equity Incentive Plan (the “Equity Plan”). The Stock Options shall be subject to the terms of the Equity Plan and standard option award agreement which shall have a term of 10 years and provide for vesting over a one-year period and exercisability at an exercise price equal to the fair market value of the Company’s common stock as of the date of the grant. The award of 75,000 shares were returned to the Company and immediately cancelled.
On September 30, 2019, the Board of Directors and the Compensation Committee approved a new compensatory arrangement for Mr. Mooney. Commencing on September 30, 2019, Mr. Mooney shall receive quarterly awards of stock options to purchase 15,000 shares of the Company’s common stock under the Company’s current shareholder approved equity incentive plan. The exercise price at the time of the awards shall be based on the fair market value of the Company’s common stock on the NYSE American on the date of grant. The options will be issued quarterly for a period of two years, will vest in equal amounts over a two-year term from the date of grant, and will be exercisable for a period of five years from date of grant. Mr. Mooney is also entitled to receive bonuses up to $48,000 in cash, 250,000 shares of restricted stock and 225,000 stock options upon the achievement of certain Company operational milestones. The foregoing compensation arrangements are in addition to the current compensation received by Mr. Mooney under his employment agreement.
Nicole Fernandez-McGovern
Based on her agreement commencing with the date of appointment as CFO in August 2016, Ms. Fernandez-McGovern earned a salary of $66,000 per year, payable in monthly installments of $5,500 for 2017. In 2018, her monthly installment payment increased to $8,000 and effective upon the closing of the Merger, Ms. Fernandez-McGovern’s salary increased to $150,000. As part of her compensation upon the closing of the Merger, Ms. Fernandez-McGovern also received 10-year stock options to purchase 265,033 shares of common stock at an exercise price of $0.06 per share, of which half of the options vested upon issuance and the remainder will vest equally over two years. Additionally, on a quarterly basis, Ms. Fernandez-McGovern will be awarded 12,500 shares of stock options to purchase common stock at an exercise price per share equal to the market price of our common stock at the time of issuance during the term of her employment.
Effective January 1, 2019, Ms. Fernandez-McGovern signed a new employment agreement with the Company, whereby her annual base salary increased to $180,000 and a ten-year grant of 50,000 stock options to purchase shares of common stock at an exercise price of $0.54 was awarded. In addition, Ms. Fernandez-McGovern will continue to receive quarterly grants of 12,000 stock options to purchase common stock at an exercise price equal to the market price of our common stock at the time of issue during the term of her employment. All of the awards will vest equally over two years.
On September 30, 2019, the Board of Directors and the Compensation Committee approved a new compensatory arrangement for Ms. Fernandez-McGovern. On September 30, 2019, Ms. Fernandez-McGovern was awarded a stock option to purchase 25,000 shares of the Company’s common stock under the Company’s current shareholder approved equity incentive plan. The option will vest in equal amounts over a two-year term from the date of grant and will be exercisable for a period of five years from date of grant. The exercise price of the stock option is $0.31 per share, which was the fair market value of the Company’s common stock on the NYSE American on September 30, 2019. Ms. Fernandez-McGovern is also entitled to receive bonuses up to $39,000 in cash, 170,000 shares of restricted stock and 175,000 stock options upon the achievement of certain Company operational milestones. The foregoing compensation arrangements are in addition to the current compensation received by Ms. Fernandez-McGovern under her employment agreement.
We have no other formal employment agreements with our executive officers, nor any compensatory plans or arrangements resulting from the resignation, retirement or any other termination of our named executive officers, from a change-in-control, or from a change in any executive officer’s responsibilities following a change-in-control. However, it is possible we will enter into formal employment agreements with our executive officers in the future.
44
Changes in Management
On March 6, 2020, Mr. Mooney tendered his resignation as Chief Executive Officer of the Company. The Board and Mr. Mooney reached a mutual agreement that he will continue in his role as Chief Executive Officer until May 5, 2020 (the “Transition Period”) during which time the Company has commenced its executive search for his replacement.
On March 6, 2020, Mr. Bret Chilcott tendered his resignation as President of the Company and as Chairman of the Board. The Board and Mr. Chilcott reached a mutual agreement that he will continue in his roles as President and Chairman during the Transition Period. Thereafter, Mr. Chilcott will no longer continue as an officer or director of the Company, but will be an employee of the Company and will advise the Company for a period of 12 months after the Transition Period to help ensure a seamless leadership transition. At the end of such 12-month period, it is Mr. Chilcott’s intention to retire.
It was also agreed that after the Transition Period, Mr. Mooney would continue with the Company in the role as Chairman of the Board to replace Mr. Chilcott for a period of 12 months.
The Compensation Committee of the Board and each of Messrs. Mooney and Chilcott are currently in discussions concerning compensation during the Transition Period and in their new roles thereafter. The Company will file an amendment to its Current Report on Form 8-K at such time as compensation terms have been finalized.
Outstanding Equity Awards at 2019 and 2018 Year-Ends
The following table lists the outstanding equity incentive awards held by Named Executive Officers as of the fiscal year ended December 31, 2019 and 2018:
Option Awards | ||||||||||||||||||||||||
Name and Principal Position | Fiscal Year Granted | Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Un-Exercisable (#) | Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | ||||||||||||||||||
Barrett Mooney | 2019 | — | 15,000 | — | $ | 0.45 | 12/29/2024 | |||||||||||||||||
Chief Executive Officer | 2019 | 14,375 | 100,625 | — | $ | 0.31 | 9/28/2024 | |||||||||||||||||
2019 | 62,500 | 187,500 | — | $ | 0.41 | 3/28/2029 | ||||||||||||||||||
2018 | 125,000 | — | — | $ | 0.62 | 12/17/2028 | ||||||||||||||||||
Nicole Fernandez-McGovern | 2019 | — | 12,500 | — | $ | 0.45 | 12/29/2024 | |||||||||||||||||
Chief Financial Officer | 2019 | 10,938 | 76,562 | — | $ | 0.31 | 9/28/2024 | |||||||||||||||||
2019 | 3,125 | 9,375 | — | $ | 0.29 | 6/28/2024 | ||||||||||||||||||
2019 | 37,500 | 112,500 | — | $ | 0.41 | 3/28/2029 | ||||||||||||||||||
2019 | 4,688 | 7,812 | — | $ | 0.41 | 3/29/2024 | ||||||||||||||||||
2019 | 25,000 | 25,000 | — | $ | 0.54 | 12/31/2023 | ||||||||||||||||||
2018 | 6,250 | 6,250 | — | $ | 0.56 | 12/30/2023 | ||||||||||||||||||
2018 | 7,813 | 4,687 | — | $ | 1.64 | 9/29/2023 | ||||||||||||||||||
2018 | 9,375 | 3,125 | — | $ | 1.82 | 6/29/2023 | ||||||||||||||||||
2017 | 265,033 | — | — | $ | 0.06 | 10/02/2027 | ||||||||||||||||||
Bret Chilcott | 2019 | — | — | — | $ | — | — | |||||||||||||||||
President | 2018 | — | — | — | $ | — | — |
45
Potential Payments upon Termination or Change in Control
On March 6, 2020, Mr. Mooney tendered his resignation as Chief Executive Officer of the Company. The Board and Mr. Mooney reached a mutual agreement that he will continue in his role as Chief Executive Officer until May 5, 2020 during which time the Company has commenced an executive search for his replacement.
On March 6, 2020, Mr. Bret Chilcott tendered his resignation as President of the Company and as Chairman of the Board. The Board and Mr. Chilcott reached a mutual agreement that he will continue in his roles as President and Chairman during the Transition Period. Thereafter, Mr. Chilcott will no longer continue as an officer or director of the Company, but will be an employee of the Company and will advise the Company for a period of 12 months after the Transition Period to help ensure a seamless leadership transition. At the end of such 12-month period, it is Mr. Chilcott’s intention to retire.
The Compensation Committee of the Board and each of Messrs. Mooney and Chilcott are currently in discussions concerning compensation during the Transition Period and in their new roles thereafter. The Company will file an amendment to this Current Report on Form 8-K at such time as compensation terms have been finalized.
DIRECTOR COMPENSATION
Pursuant to their respective offer letters, Messrs Grant Begley and Thomas Gardner are entitled to receive for their service on the Board: (1) an initial grant of five-year options to purchase 77,356 shares of common stock as accrued for time served as a Board member at an exercise price of $0.06 per share that vested half upon issuance and the remainder is vesting equally over two years; and (2) additional five-year options to purchase 16,500 shares of common stock issuable per calendar quarter of service at an exercise price per share equal to the market price of our common stock at the time of issuance that will vest equally over two years.
Pursuant to her offer letter, Ms. Louisa Ingargiola is entitled to receive for her service on the board: (1) an initial grant of five-year options to purchase 41,250 shares of common stock upon appointment, which was at an exercise price of $0.77 (equal to the market price of our common stock on the date of grant) that will vest in equal installments every calendar quarter over a one year period; and (2) five-year options to purchase 16,500 shares of common stock per calendar quarter of service at an exercise price per share equal to the market price of our common stock at the time of issuance that will vest in equal installments every calendar quarter for the two year period after date the grant.
Option Exercises for Fiscal 2019 and 2018
Mr. Scott Burell exercised 60,724 options on December 4, 2018 at an exercise price of $0.06 of which 55,801 shares were delivered due to the Company’s withholding obligation relating to the exercise of these options.
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The following table sets forth certain information regarding the beneficial ownership of our common stock as of March 31, 2020 by:
46
The information inrequired by this item is incorporated by reference to the following table has been presented in accordance with the rulesdefinitive proxy statement for our 2023 Annual Meeting of the SEC. Under such rules, beneficial ownership of a class of capital stock includes any shares of such class as to which a person, directly or indirectly, has or shares voting power or investment power and also any shares as to which a person has the right to acquire such voting or investment power within 60 days through the exercise of any stock option, warrant or other right. If two or more persons share voting power or investment power with respect to specific securities, each such person is deemedShareholders to be filed within the beneficial owner of such securities. Except as we otherwise indicate below and under applicable community property laws, we believe that the beneficial owners of the common stock listed below, based on information they have furnished to us, have sole voting and investment power with respect to the shares shown. Except as otherwise indicated, each stockholder named in the table is assumed to have sole voting and investment power with respect to the number of shares listed opposite the stockholder’s name.
Name and Address of Beneficial Owner(1) | Number of Shares(2) | Percent of Class | ||||||
Bret Chilcott | ||||||||
Chairman of the Board and President | 5,800,321 | 36.77 | % | |||||
Barrett Mooney | ||||||||
Chief Executive Officer(3) | 238,958 | 1.51 | % | |||||
Nicole Fernandez-McGovern | ||||||||
Chief Financial Officer(3) | 408,783 | 2.59 | % | |||||
Grant Begley | ||||||||
Director(3) | 164,106 | 1.04 | % | |||||
Thomas Gardner | ||||||||
Director(3) | 246,928 | 1.57 | % | |||||
Louisa Ingargiola | ||||||||
Director(3) | 90,686 | 0.57 | % | |||||
All Directors and Executive Officers as a Group (six persons) | 6,949,782 | 44.05 | % | |||||
GreenBlock Capital, LLC | ||||||||
420 Royal Palm Way | ||||||||
Palm Beach, Florida 33480(4) | 1,346,569 | 8.54 | % | |||||
Alpha Capital Anstalt | ||||||||
Pradafant 7, Furstentums 9490 | ||||||||
Vaduz, Liechtenstein(5) | 1,575,862 | 9.99 | % |
47
Equity Compensation Plans
Company 2017 Omnibus Equity Incentive Plan
The Amended and Restated 2017 Omnibus Equity Plan is a comprehensive incentive compensation plan under which the Company can grant equity-based and other incentive awards to officers, employees and directors of, and consultants and advisers to, the Company The purpose of the Plan is to help the Company attract, motivate and retain such persons and thereby enhance shareholder value. The Plan provides for the grant of awards which are incentive stock options (“ISOs”), non-qualified stock options (“NQSOs”), unrestricted shares , restricted shares, restricted stock units, performance stock, performance units, SARs, tandem stock appreciation rights, distribution equivalent rights, or any combination of the foregoing, to key management employees, non-employee directors, and non-employee consultants of the Company or any of its subsidiaries (each a “participant”) (however, solely Company employees or employees of the Company’s subsidiaries are eligible for incentive stock option awards). The Company has reserved a total of 3,000,000 shares of common stock for issuance as or under awards to be made under the Plan.
Types of Stock Awards
The Plan provides for the grant of incentive stock options and non-qualified stock options. Stock options may be granted to employees, including officers, non-employee directors and consultants of the Company or its affiliates, except that incentive stock options may be granted only to employees.
Share Reserve
The aggregate number of shares of common stock that have been reserved for issuance under the Plan is 3,000,000. As of December 31, 2019, there are 2,273,415 shares underlying options granted under the Plan and 665,861 shares of common stock available for future issuance under the Plan. If a stock option award expires, terminates, is canceled or is forfeited for any reason, the number of shares subject to the stock option award will again be available for issuance. In addition, if stock awards are settled in cash, the share reserve will be reduced by the number of shares of common stock with a value equal to the amount of the cash distributions as of the time that such amount was determined and if stock options are exercised using net exercise, the share reserve will be reduced by the gross number of shares of common stock subject to the exercised portion of the option. We also have 207,055 shares underlying options that have been granted outside of the Plan.
48
Administration
Our Board of Directors, or a duly authorized committee thereof, has the authority to administer the Plan. Subject to the terms of the Plan, our board of directors or the authorized committee, referred to herein as the committee, determines recipients, dates of grant, the numbers and types of stock awards to be granted and the terms and conditions of the stock option awards, including the period of exercisability and vesting schedule applicable to a stock option award. Subject to the limitations set forth below, the committee will also determine the exercise price and the types of consideration to be paid for the award. The committee has the authority to modify outstanding awards under the Plan. The committee has the authority to adopt, alter and repeal administrative rules, guidelines and practices governing the Plan and to perform all other acts, including delegating administrative responsibilities, as it deems advisable to construe and interpret the terms and provisions of the Plan and any stock option award granted under the Plan. Decisions and interpretations or other actions by the committee are in the discretion of the committee and are final binding and conclusive on the Company and all participants in the Plan.
Stock Options
Incentive stock options and non-qualified stock options are granted pursuant to stock option award agreements adopted by the committee. The committee determines the exercise price for a stock option, within the terms and conditions of the Plan, provided that the exercise price shall not be less than (i) in the case of a grant of any NQSO or an ISO to a key employee who at the time of the grant does not own stock representing more than ten percent (10%) of the total combined voting power of all classes of our stock or of any subsidiary, one hundred percent (100%) of the fair market value of a share of common stock as determined on the date the stock option award is granted; (ii) in the case of a grant of an ISO to a key employee who, at the time of grant, owns stock representing more than ten percent (10%) of the total combined voting power of all classes of our stock or of any subsidiary, one hundred ten percent (110%) of the fair market value of a share of common stock, as determined on the date the stock option award is granted. The fair market value of the Common Stock for purposes of determining the exercise price shall be determined by the Committee in accordance with any reasonable method of valuation consistent with applicable requirements of Federal tax law, including, as applicable, the provisions of Code Section 422(c)(8) and 409A as applicable. Stock options granted under the Plan will become exercisable at the rate specified by the committee and may be exercisable for restricted stock, if determined by the committee.
The committee determines the term of stock options granted under the Plan, up to a maximum of ten years. The option holder’s stock option agreement shall provide the rights, if any, that such holder has to exercise the stock option at such time that such holder’s service relationship with us, or any of our affiliates, ceases for any reason, including disability, death, with or without cause, or voluntary resignation. All unvested stock option awards are forfeited if the participant’s employment or service is terminated for any reason, unless our compensation committee determines otherwise.
Acceptable consideration for the purchase of common stock issued upon the exercise of a stock option will be determined by the committee and may include (i) check, bank draft or money order or wire transfer, (ii) if the Company’s common stock is publicly traded, a broker-assisted cashless exercise, or (iii) such other methods as may be approved by the committee, including without limitation, the tender of shares of our common stock previously owned by the option holder or a net exercise of the option.
Unless the committee provides otherwise, options generally are not transferable except by will, the laws of descent and distribution. The committee may provide that a non-qualified stock option may be transferred to a family member, as such term is defined under the applicable securities laws.
Tax Limitations on Incentive Stock Options
The aggregate fair market value, determined at the time of grant, of our common stock with respect to incentive stock options that are exercisable for the first time by an option holder during any calendar year may not exceed $100,000. Options or portions thereof that exceed such limit will generally be treated as non-qualified stock options. No incentive stock option may be granted to any person who, at the time of the grant, owns or is deemed to own stock possessing more than 10% of our total combined voting power or that of any of our affiliates unless (i) the option exercise price is at least 110% of the fair market value of the stock subject to the option on the date of grant, and (ii) the term of the incentive stock option does not exceed five years from the date of grant.
49
Adjustments for Changes in Capital Structure and other Special Transactions
In the event of a stock dividend, stock split, or recapitalization, or a corporate reorganization in which we are a surviving corporation (and our shareholders prior to such transaction continue to own at least 50% of our capital stock after such transaction), including without limitation a merger, consolidation, split-up or spin-off, or a liquidation, or distribution of securities or assets other than cash dividends, the number or kinds of shares subject to the Plan or to any stock option award previously granted, and the exercise price, shall be adjusted proportionately by the committee to reflect such event.
In the event of a merger, consolidation or other form of reorganization with or into another corporation (other than a merger, consolidation, or other form of reorganization in which we are the surviving corporation and our shareholders prior to such transaction continue to own at least 50% of the capital stock after such transaction), a sale or transfer of all or substantially all of the assets of the Company or a tender or exchange offer made by any corporation, person or entity (other than an offer made by us), all stock options held by any option holder shall be fully vested and exercisable by the option holder.
Furthermore, the committee, either before or after the merger, consolidation or other form of reorganization, may take such action as it determines in its sole discretion with respect to the number or kinds of shares subject to the Plan or any option under the Plan.
Amendment, Suspension or Termination
The committee may at any time amend, suspend or terminate any and all parts of the Plan, any stock option award granted under the Plan, or both in such respects as the committee shall deem necessary or desirable, except that no such action may be taken which would impair the rights of any option holder with respect to any stock option award previously granted under the Plan without the option holder’s consent.
Description of Securities
Our authorized capital stock consists of 275,000,000 shares, of which 250,000,000 shares are designated as common stock par value $.001 per share, and 25,000,000 shares are designated as preferred stock, par value $.001 per share of which (i) no shares have been designated as Series A Preferred Stock, (ii) 1,764 shares have been designated as Series B Preferred Stock, (ii) 10,000 shares have been designated as Series C Preferred Stock and (iii) 2,000 shares have been designated as Series D Preferred Stock. As of December 31, 2019, we had 15,424,394 shares of common stock issued and outstanding, 3,501 shares of Series C Preferred Stock and 2,000 shares of Series D Preferred Stock outstanding. No other shares of Preferred Stock are outstanding.2022.
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
On (i) December 15, 2016, the Company issued a promissory note with an aggregate principal amount of $30,000 to GreenBlock Capital, a related party, (ii) January 24, 2017, AgEagle issued a second promissory note with an aggregate principal amount of $30,000 to GreenBlock, and (iii) June 14, 2017, a 3rd promissory note with an aggregate principal amount of $16,050 was issued to GreenBlock (the “Related Party Notes A”). The Related Party Notes A accrue interest at an annual rate of 2% and matured on November 6, 2017. On or about August 1, 2017, GreenBlock entered into extension and modification agreements with AgEagle whereby they agreed to extend the maturity date of the Related Party Notes A to February 28, 2018, and in exchange a conversion feature was added whereby the debt can be converted into AgEagle common stock at $2.00 per share, and amended the interest rate on the note retroactively to accrue at a rate of 8% annually. As of the Merger Date, the principal of $76,050 and the accrued interest of $7,239 were converted at $1.25 per share into 110,371 shares of common stock.
50
Between the dates of March 15 and July 12, 2017, AgEagle issued seven new promissory notes totaling an aggregate amount of $55,000 to Bret Chilcott, who is our Chairman of the Board and President, and at the time was also our CEO. The promissory notes (the “Related Party Notes B”) accrue interest at an annual rate of 2% and matured on November 6, 2017. On or about August 1, 2017, Mr. Chilcott entered into extension and modification agreements with AgEagle whereby they agreed to extend the maturity date of the Related Party Notes B to February 28, 2018, and in exchange a conversion feature was added whereby the debt can be converted into AgEagle common stock at $2.00 per share, and amended the interest rate on the note retroactively to accrue at a rate of 8% annually. As of the Merger Date, the principal of $55,000 and the accrued interest of $3,686 were converted at $1.25 per share into 77,769 shares of common stock.
Director Independence
The Boardinformation required by this item is incorporated by reference to the definitive proxy statement for our 2023 Annual Meeting of Directors has reviewed the independence of our directors based on the listing standards of the NYSE American. Based on this review, the Board of Directors determined that each of Messrs. Begley and Gardner and Ms. Ingargiola are independentShareholders to be filed within the meaningSEC within 120 days of the NYSE American. In making this determination, our Board of Directors considered the relationships that each of these non-employee directors has with us and all other facts and circumstances our board of directors deemed relevant in determining their independence. As required under applicable NYSE American rules, we anticipate that our independent directors will meet in regularly scheduled executive sessions at which only independent directors are present.December 31, 2022.
51
ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Audit Fees
Our independent auditor, D. Brooks and Associates CPAs, billed an aggregateThe information required by this item is incorporated by reference to the definitive proxy statement for our 2023 Annual Meeting of $45,000 forShareholders to be filed within the year endedSEC within 120 days of December 31, 2019 audit and the quarterly reviews for the year ended December 31, 2019. D. Brooks and Associates CPAs billed $32,078 for the December 31, 2018 audit, quarterly reviews for the year ended December 31, 2018 and audit related fees. In addition, $10,550 and $17,515 was billed for tax services in 2019 and 2018, respectively. Audit Fees and Audit Related Fees consist of fees billed for professional services rendered for auditing our Financial Statements, reviews of interim Financial Statements included in quarterly reports, services performed in connection with other filings with the Securities & Exchange Commission and related comfort letters and other services that are normally provided by our independent auditors in connection with statutory and regulatory filings or engagements. Tax Fees consists of fees billed for professional services for tax compliance, tax advice and tax planning. These services include assistance regarding federal, state and local tax compliance and consultation in connection with various transactions and acquisitions. All Other Fees consists of fees billed for professional services associated with the consent by auditors related to the audited financial statements of EnerJex and Agribotix and not paid to D.Brooks and Associates CPA’s.
2019 | 2018 | |||||||
Audit Fees | $ | 45,000 | $ | 32,078 | ||||
Audit-Related Fees | 1,000 | 1,000 | ||||||
Tax Fees | 10,550 | 17,515 | ||||||
All Other Fees | — | 21,000 | ||||||
Total | $ | 56,550 | $ | 71,593 |
52
50 |
Table of Contents |
PART IV
ITEM 15. | EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES |
Exhibit No. | Description | |
53
51 |
Table of Contents |
54
* Filed herewith
Item 16. Form 10-K Summary
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of AgEagle Aerial Systems, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of AgEagle Aerial Systems, Inc. and subsidiaries, (the
Substantial Doubt Regarding Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations, has experienced cash used from operations in excess of its current cash position, and has an accumulated deficit, that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter. Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and Goodwill and other definite life intangibles – impairment assessment As described in Note 2 and Note 7, to the consolidated financial statements, management evaluates goodwill on an annual basis, or more frequently if impairment indicators exist, at each reporting unit level. The Company estimates the fair value of goodwill related to each reporting unit using a discounted cash flow analysis. Prior to the impairment, the fair value of the three reporting units amounted to $64.9 million. The determination of fair value of the goodwill requires significant judgement and estimation. The use of a discounted cash flow analysis requires significant estimation of future cash flows and also an estimation of the results of future operational costs. The Company determined that two of the three reporting units had a significant impairment. Accordingly, the Company recorded a $41.7 million impairment charge. Additionally, the fair value of the related acquired intangible assets was valued using an undiscounted cash flow. The principal consideration for our determination that performing procedures relating to the valuation of goodwill and other definite lived assets is a critical audit matter is the significant judgement and estimation used by management to determine the fair value of these financial instruments, which in turn led to a high degree of auditor judgement, subjectivity and effort in performing procedures and in evaluating the audit evidence obtained, including the involvement of professionals with specialized skill and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. Our audit procedures related to the impairment assessment of the Company’s reporting units included the following, among others:
In addition, for the fair value of goodwill, we evaluated the reasonableness of the discount rate utilized in the discounted cash flow model with the assistance of our internal valuation specialists. /s/ WithumSmith+Brown, PC
We have served as the Company’s auditor since
April 4, 2023
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
See Accompanying Notes to Consolidated Financial Statements.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
See Accompanying Notes to Consolidated Financial Statements.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES CONSOLIDATED AND COMPREHENSIVE LOSS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
See Accompanying Notes to Consolidated Financial Statements.
See Accompanying Notes to Consolidated Financial Statements.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
Note 1 – Description of Business
AgEagle’s shift and expansion from solely manufacturing fixed-wing farm drones in 2018, to offering what the Company believes is one of the industry’s best fixed-wing, full-stack drone solutions, culminated in 2021 when the Company acquired three market-leading companies engaged in producing UAS airframes, sensors and software for commercial and government use. In addition to a robust portfolio of proprietary, connected hardware and software products; an established global network of over 200 UAS resellers; and enterprise customers worldwide; these acquisitions also brought AgEagle a highly valuable workforce comprised largely of experienced engineers and technologists with deep expertise in the fields of robotics, automation, manufacturing and data science. In 2022, the Company succeeded in integrating all three acquired companies with AgEagle to form one global company focused on taking autonomous flight performance to a higher level. Our core technological capabilities include robotics and robotics systems autonomy; advanced thermal and multispectral sensor design and development; embedded software and firmware; secure wireless digital communications and networks; lightweight airframes; small UAS design, integration and operations; power electronics and propulsion systems; controls and systems integration; fixed wing flight; flight management software; data capture and analytics; human-machine interface development and integrated mission solutions.
In April 2021, AgEagle acquired Measure Global, Inc. ("Measure”). Founded in 2020, Measure serves a world class customer base, Measure enables its customers to realize the transformative benefits of drone technology through its Ground Control solution. Offered as Software-as-a-Service (SaaS), Ground Control is a cloud-based, plug-and-play operating system that empowers pilots and large enterprises with everything they need to operate drone fleets, fly autonomously, collaborate globally, visualize data, and integrate with existing business systems and processes. In October 2021, AgEagle acquired senseFly S.A. and concurrent with the acquisition, AgEagle Aerial, Inc. (“AgEagle Aerial), a wholly-owned subsidiary of the AgEagle, acquired senseFly Inc. Collectively senseFly S.A. and senseFly, Inc. are referred to as “senseFly”. Founded in 2009, senseFly provides fixed-wing drone solutions for commercial and government markets that simplify the collection and analysis of geospatial data, allowing professionals to make better decisions, faster. senseFly develops and produces a proprietary line of eBee-branded, high performance, fixed-wing drones which have flown more than one million flights around the world.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
Note 1 – Description of Business – Continued
The Company is currently headquartered in
Note 2 – Summary of Significant Accounting Policies
The summary of significant accounting policies presented below is designed to assist in understanding the Company’s consolidated financial statements. Such consolidated financial statements and accompanying notes are the representations of the Company’s management, who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America (“US GAAP”) in all material respects and have been consistently applied in preparing the accompanying consolidated financial statements.
Basis of Presentation and Consolidation - These consolidated financial statements are presented in United States dollars and have been prepared in accordance with US GAAP. The Company’s consolidated financial statements are prepared using the accrual method of accounting. The Company has elected December 31st as its fiscal year end. In the opinion of management, the Company has made all necessary adjustments, which include normal recurring adjustments, for a fair statement of the Company’s consolidated financial position and results of operations for the periods presented. The consolidated financial statements include the accounts of AgEagle and its wholly-owned subsidiaries, AgEagle Aerial, Inc., MicaSense, Measure and senseFly. All significant intercompany balances and transactions have been eliminated in consolidation. Liquidity and Going Concern – In pursuit of the Company’s long-term growth strategy and recent acquisitions the Company has sustained continued operating losses. During the year ended December 31, 2022, the Company incurred a net loss of $58,253,273 and used cash in operating activities of $20,107,670. As of December 31, 2022, the Company has working capital of $9,079,091. While the Company has historically been successful in raising capital to meet its working capital needs, the ability to continue raising such capital to enable the Company to continue its growth is not guaranteed. Therefore, there is substantial doubt about the Company’s ability to continue as a going concern as the Company will require additional liquidity to continue its operations and meet its financial obligations for twelve months from the date these consolidated financial statements were issued. The Company is evaluating strategies to obtain the required additional funding for future operations and the restructuring of operations to grow revenues and reduce expenses. If the Company is unable to generate significant sales growth in the near term and raise additional capital, there is a risk that the Company could default on additional obligations; and could be required to discontinue or significantly reduce the scope of its operations if no other means of financing operations are available. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities or any other adjustment that might be necessary should the Company be unable to continue as a going concern.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 Note 2 – Summary of Significant Accounting Policies – Continued Risks and Uncertainties – Global economic challenges, including the impact of the war in Ukraine, the COVID-19 pandemic, rising inflation and supply-chain disruptions, adverse labor market conditions could cause economic uncertainty and volatility. During the year ended December 31, 2022, the COVID-19 pandemic continued to have a significant negative impact on the unmanned aerial vehicle (“UAV”) systems industry, the Company’s customers and business globally. The aforementioned risks and their respective impacts on the UAV industry and the Company’s operational and financial performance remains uncertain and outside of the Company’s control. Specifically, because of the aforementioned continuing risks, the Company’s ability to access components and parts needed in order to manufacture its proprietary drones and sensors, and to perform quality testing have been, and continue to be, impacted. If either the Company or any of its third parties in the supply chain for materials used in our manufacturing and assembly processes continue to be adversely impacted, the Company’s supply chain may be further disrupted, limiting its ability to manufacture and assemble products. The Company expects the pandemic, inflation and supply-chain disruptions and its effects to continue to have a significant negative impact on its business for the duration of the pandemic and during the subsequent economic recovery, which could be for an extended period of time. Use of Estimates
Accumulated Other Comprehensive Income (Loss) – AccumulatedOther Comprehensive Income (Loss) refers to revenues, expenses, gains and losses that under US GAAP are included in accumulated other comprehensive (loss) a component of equity within the Consolidated Balance Sheets, rather than net loss in the consolidated statements of operations and comprehensive loss. Under existing accounting standards, other comprehensive income (loss) may include, among other things, unrecognized gains and losses on foreign currency translation and prior service credit related to benefit plans. Fair Value The guidance requires that assets and liabilities carried at fair value be classified and disclosed in one of the
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 Note 2 – Summary of Significant Accounting Policies – Continued For short-term classes of our financial instruments,
Cash Concentrations -The Company maintains its cash balances at financial institutions that are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. The
Trade Receivables and Credit Policy–Trade receivables due from customers are uncollateralized customer obligations due under normal and customary trade The Company estimates an allowance for doubtful accounts based upon an evaluation of the current status of trade receivables, historical experience, and other factors as necessary. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change.
ASC Topic 805, Business Combinations,
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
Note 2 – Summary of Significant Accounting Policies – Continued Intangible Assets - Intangible assets from acquired businesses are recognized at fair value on the acquisition date and consist of customer programs, trademarks, customer relationships, technology, and other intangible assets. Customer programs include values assigned to major programs of acquired businesses and represent the aggregate value associated with the customer relationships, contracts, technology, and trademarks underlying the associated program and are amortized on a straight-line basis over a period of expected cash flows used to measure fair value, which ranges from two to ten years. In accordance with ASC Topic 350-40, Software - Internal-Use Software (“ASC 350-40”), the Company capitalizes certain direct costs of developing internal-use software that are incurred in the application development stage, when developing or obtaining software for internal use. Once an application has reached the development stage, internal and external costs incurred to develop internal-use software are capitalized and amortized on a straight-line basis over the estimated useful life of the software (typically three to five years). Maintenance and enhancement costs, including those costs in the post-implementation stages, are typically expensed as incurred, unless such costs relate to substantial upgrades and enhancements to the software that result in added functionality, in which case the costs are capitalized and amortized on a straight-line basis over the estimated useful life of the software. The Company reviews the carrying value for impairment whenever facts and circumstances exist that would suggest that assets might be impaired or that the useful lives should be modified. Amortization expense related to capitalized internal-use software development costs is included in general and administrative expenses on the consolidated statements of operations and comprehensive loss. As of December 31, 2022 and December 31, 2021, capitalized software development costs for internal-use software, net of accumulated amortization, totaled $721,795 and $278,264, respectively, relate to the Company’s implementation of its enterprise resource planning (“ERP”) software. Internal-use software costs are included in intangibles, net on the consolidated balance sheets. In accordance with ASC Topic 985-20, Software — Costs of Software to be Sold, Leased or Marketed the company capitalizes software development costs for software to be sold, leased or marketed. Costs associated with the planning and design phase of software development are classified as research and development costs and are expensed as incurred. Once technological feasibility has been established, a portion of the costs incurred in development, including coding, testing and quality assurance, are capitalized until available for general release to customers, and subsequently reported at the lower of unamortized cost or net realizable value. Amortization is recorded per the individual technology software being released and is included in use cost of sales on the consolidated statements of operations and comprehensive loss. Annual amortization is recognized on a straight-line basis over the remaining economic life of the software (typically two years). Unamortized capitalized costs determined to be in excess of the net realizable value of a solution are expensed at the date of such determination. As of December 31, 2022 and December 31, 2021, capitalized software development costs, net of accumulated amortization, totaled $1,332,516 and $995,880, respectively, and are included in intangibles, net on the consolidated balance sheets. Finite-lived intangible assets are evaluated for impairment periodically, or whenever events or changes in circumstances indicate that their related carrying amounts may not be recoverable in accordance with ASC Topic 360-10-15, Impairment or Disposal of Long-Lived Assets, (“ASC 360-10-15”). In evaluating intangible assets for recoverability, the Company uses its best estimate of future cash flows expected to result from the use of the asset and eventual disposition in accordance with ASC 360-10-15. To the extent that estimated future undiscounted net cash flows are less than the carrying amount, an impairment loss is recognized in an amount equal to the difference between the carrying value of such asset and its fair value.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 Note 2 – Summary of Significant Accounting Policies – Continued Asset recoverability is an area involving management judgment, requiring assessment as to whether the carrying values of assets are supported by their undiscounted future cash flows. In estimating future cash flows, certain assumptions are required to be made in respect of highly uncertain matters such as revenue growth rates, operating expenses and terminal growth rates. For the year ended December 31, 2022, the Company determined the value of intangible assets was recoverable. As of December 31, 2022 and 2021, the Company reviewed the indicators for impairment and concluded that no impairment of its finite-lived intangible assets existed. Goodwill – The assets and liabilities of acquired businesses are recorded in accordance with ASC 805. Goodwill represents costs in excess of fair values assigned to the underlying identifiable net assets of acquired businesses. Goodwill is not subject to amortization and is tested annually for impairment, or more frequently if events or changes in circumstances indicate that the carrying value of the goodwill may not be recoverable. During the fourth quarter of 2022 and 2021, respectively, and in accordance with ASC Topic 350, Intangibles – Goodwill and other (“ASC 350”), the Company performed its annual goodwill impairment test using a quantitative approach by comparing the carrying value of the reporting unit, including goodwill, to its fair value. If the carrying value of the reporting unit, including goodwill, exceeds its fair value, a goodwill impairment loss is recognized in an amount equal to that excess. The Company estimates the fair value of each reporting unit using a discounted cash flow (“DCF”) (Level 3 input) analysis. Determining fair value requires the exercise of significant judgments, including the amount and timing of expected future cash flows, long-term growth rates, discount rates and relevant comparable public company earnings multiples and relevant trading multiples. The cash flows employed in the DCF analysis are based on estimates of future sales, earnings and cash flows after considering factors such as general market conditions, existing firm orders, expected future orders, changes in working capital, long term business plans and recent operating performance. The DCF analysis used a discount rate of ranging from 26.5%– 41.5%. Revenue Recognition and Concentration – The Company generally recognizes revenue on sales to customers, dealers, and distributors upon satisfaction of performance obligations which generally occurs once controls transfer to customers, which is when product is shipped or delivered depending on specific shipping terms and, where applicable, a customer acceptance has been obtained. The fee is not considered to be fixed or determinable until all material contingencies related to the sales have been resolved. The Company records revenue in the statements of operations net of any sales, use, value added, or certain excise taxes imposed by governmental authorities on specific sales transactions and net of any discounts, allowances and returns. Under fixed-price contracts, the Company agrees to perform the specified work for a pre-determined price. To the extent the Company’s actual costs vary from the estimates upon which the price was negotiated, it will generate more or less profit or could incur a loss. The Company accounts for a contract after it has been approved by all parties to the arrangement, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
Additionally,
Shipping Costs – All shipping costs billed directly to the customer are directly offset to shipping costs resulting in a net expense to the Company, which is included in cost of goods sold in Advertising Costs –Advertising costs are charged to operations as incurred. For the years ended December 31, 2022, and 2021, advertising costs, included in sales and marketing expenses in the consolidated statements of operations and comprehensive loss, were $351,967 and $262,586. Research and Development Vendor Concentrations - As of December 31, 2022 and 2021, there was one significant vendor that the Company relies upon to perform certain services for the
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 Note 2 – Summary of Significant Accounting Policies – Continued Potentially Dilutive Securities– The Company has excluded all common equivalent shares outstanding for unvested restricted stock, warrants
Leases– The Company accounts for its operating leases in accordance with ASC Topic 842, Leases (“ASC 842”), which requires that lessees recognize a right-of-use asset and a lease liability for virtually all their leases with lease terms of more than twelve months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. Income Taxes–The Company accounts for income taxes in accordance with
Stock-Based Compensation Awards– The Company accounts for its stock-based awards in accordance with ASC Subtopic 718-10,
The Black-Scholes option-pricing model requires the input of certain assumptions that require the Company’s judgment, including the expected term and the expected stock price volatility of the underlying stock. The assumptions used in calculating the fair value of stock-based compensation represent management’s best estimates, but these estimates involve inherent uncertainties and the application of judgment. As a result, if factors change resulting in the use of different assumptions, stock-based compensation expense could be materially different in the future.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
Note 2 – Summary of Significant Accounting Policies – Continued
The Company has determined that operates in three segments:
Contingencies -In Recently Issued and Adopted Accounting Pronouncements Adopted During the first quarter of 2022, the Company early adopted Accounting Standards Update (“ASU”) ASU Pending In March 2022, the FASB issued Accounting Standards Update (“ASU”) No. 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”), which addresses areas identified by the FASB as part of its post-implementation review of its previously issued credit losses standard, ASU 2016-13, that introduced the Current Expected Credit Loss (“CECL”) model. ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhances disclosure requirements for certain loan refinancings and restructurings made with borrowers experiencing financial difficulty. In addition, ASU 2022-02 requires a public business entity to disclose current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. ASU 2022-02 is effective for the fiscal years beginning after December 15, 2022 and for periods within those fiscal years. Early adoption is permitted. The adoption of
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
Other recent accounting pronouncements issued by FASB did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.
Impact of the War in Ukraine and COVID-19 On Our Business Operations Global economic challenges, including the impact of the war in Ukraine, the COVID-19 pandemic, rising inflation and supply-chain disruptions, adverse labor market conditions could cause economic uncertainty and volatility. During the year ended December 31, 2022, the COVID-19 pandemic and other supply chain disruptions continued to have a significant negative impact on the UAV industry, our customers and our business globally. The aforementioned risks and their respective impact on the UAV industry and our operational and financial performance remains uncertain and outside of our control. Specifically, as a result of the aforementioned continuing risks, our ability to access components and parts needed in order to manufacture our proprietary drones and sensors, and to perform quality testing have been, and continue to be, impacted. If we or any of our third-parties in the supply chain for materials used in our manufacturing and assembly processes continue to be adversely impacted, our supply-chain may be further disrupted, limiting our ability to manufacture and assemble products. We expect the pandemic, inflation and supply chain disruptions and their effects to continue to have a significant negative impact on our business for the duration of the pandemic and during the subsequent economic recovery, which could be for an extended period. For the year ended December 31, 2022, our supply chain was adversely impacted by the COVID-19 pandemic and other global economic challenges, causing material delays in the delivery of critical components associated with production of our newly developed sensors, that we began to sell in early 2022. These delays resulted in a significant backlog of purchase orders for our sensors. We continue to take steps to expand our supply sources and manufacturing capabilities in order to resolve the majority of our backlogged sensor orders and be better positioned to meet ongoing global market demand in the foreseeable future. While we believe we have largely overcome our supply chain challenges, this is an ongoing situation we will continue to monitor closely. Note 3 - Balance Sheet Accounts Accounts Receivable, net As of December 31, 2022 and 2021, accounts receivable, net consisted of the following:
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
Note 3 Inventories, Net As of December 31, 2022 and 2021, inventories, net consisted of the following:
Property and Equipment, Net As of December 31, 2022 and 2021, property and equipment, net consisted of the following:
For the years ended December 31, 2022 and 2021, depreciation expense is classified within the consolidated statements of operations and comprehensive loss as follows:
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 Note 3 - Balance Sheet Accounts– Continued Accrued Expenses As of December 31, 2022 and 2021, accrued expenses consisted of the following as of:
Note 4 – Notes Receivable Valqari On October 14, 2020, in connection with, and as an incentive to the entry into a two-year exclusive manufacturing agreement (the “Manufacturing Agreement”) to produce a patented Drone Delivery Station for Valqari, LLC (“Valqari), the Company entered into, as payee, a Convertible Promissory Note pursuant to which the Company made a loan to Valqari ("Valqari”) in the principal aggregate amount of $500,000 (the "Note”). The Note accrues interest at a rate of three percent per annum. The Note matured on April 15, 2021 (the "Maturity Date”), at which time all outstanding principal and interest that had accrued, but remained, unpaid was due. The Note provides for an automatic six month extension of the Maturity Date under the following circumstances (i) Valqari has received in writing, (x) a good faith acquisition offer at a consideration value greater than $15,000,000, (y) such offer, upon consummation, would result in a change in control (as defined in the note) of Valqari, and (z) at such time Valqari, is actively engaged in the negotiation or finalization of such acquisition transaction; or (ii) Valqari has initiated, or is in the process of initiating, a conversion to a "C-Corporation” under the Internal Revenue Code, whereas such conversion will be completed no later than one day prior to the extended Maturity Date. Valqari was not permitted to prepay the Note prior to the Maturity Date. The Note is subject to customary representations and warranties by Valqari, as well as events of default, which may lead to acceleration of the payment of the Note such as (i) failure to pay all of the outstanding principal, plus accrued interest on the Maturity Date or Extended Maturity Date, (ii) Valqari filing a petition or action under any bankruptcy, or other law, or (iii) an involuntary petition is filed again Valqari under any bankruptcy statute (that is not dismissed or discharged within 60 days). The indebtedness evidenced by the Note is subordinated in right of payment to the prior payment in full of any senior indebtedness (as defined in the Note) in existence on the date of the Note or incurred thereafter.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 Note 4 – Notes Receivable – Continued On the Maturity Date, AgEagle demanded payment of the Note, including accrued interest, however, Valqari alleged that the Maturity Date was automatically extended to October 14, 2021 (“Extended Maturity Date”), for an additional six months. Upon the Extended Maturity Date, AgEagle demanded payment of the Note, including accrued interest; however, Valqari sought a substantial discount on the amount due under the Note to compensate for alleged breaches by AgEagle under the Manufacturing Agreement. AgEagle disputes the allegations of breach and believes that it is owed a net amount by Valqari under the Manufacturing Agreement, in addition to the amount due under the Note. On November 24, 2021, Valqari made a payment of principal on the Note of $315,000. The parties are continuing to negotiate in an attempt to reach an amicable resolution of their disputes; however, AgEagle reserves the right to take legal action to collect the Note in the event that a settlement is not reached. MicaSense On November 16, 2020, AgEagle, as payee, executed a promissory note with Parrot Drones S.A.S. in connection with its acquisition for 100% of the capital stock of MicaSense (the "MicaSense Acquisition”). As of June 30, 2021, Parrot Drones S.A.S. promised to pay to the Company the principal amount of $100,000 provided, however, that such principal amount was offset and reduced by all amounts paid or due in connection with the purchase price upon closing of the MicaSense Acquisition. (See Note 5) senseFly
On August Note 5 – Business Acquisitions In line with the Company’s strategic growth initiatives, the Company acquired three companies during the year ended December 31, 2021. The financial results of each of these acquisitions are included in the consolidated financial statements beginning on the respective acquisition dates. Each transaction qualified as an acquisition of a business and was accounted for as a business combination. All acquisitions resulted in the recognition of goodwill. The Company paid these premiums resulting in such goodwill for several reasons, including growing the Company’s customer base, acquiring assembled workforces, expanding its presence in certain markets, and expanding and advancing its product and service offerings. The Company recorded the assets acquired and the liabilities assumed at their acquisition date fair value, with the difference between the fair value of the net assets acquired and the acquisition consideration reflected as goodwill. The identifiable intangible assets for acquisitions are valued using the excess earnings method discounted cash flow approach for customer relationships, the relief from royalty method for trade names and technology, the “with or without” method for covenants not to compete and the replacement cost method for the internal property software by incorporating Level 3 inputs, as described under the fair value hierarchy of ASC 820. These unobservable inputs reflect the Company’s assumption about which assumptions market participants would use in pricing an asset on a non-recurring basis. These assets will be amortized over their respective estimated useful lives.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 Note 5 – Business Acquisitions – Continued For the years ended December 31, 2022 and 2021, transaction costs related to business combinations totaled $0 and $636,673, respectively. These costs are included within general and administrative expenses in the consolidated statements of operations. MicaSense On January 27, 2021 (the “MicaSense Acquisition Date”), the Company entered into a stock purchase agreement (the "MicaSense Purchase On May 10, 2021, the Company filed a Form S-3 Registration Statement (the "MicaSense Registration Statement”) with the Securities and Exchange Commission (“SEC”), covering the resale of the Shares. The MicaSense Registration Statement was declared effective on June 1, 2021 (File Number: 333-255940). In addition, the Company shall use its best efforts to keep the MicaSense Registration Statement effective and in compliance with the provisions of the Securities Act (including by preparing and filing with the SEC such amendments, including post-effective amendments, and supplements to the MicaSense Registration Statement and the prospectus used in connection therewith as may be necessary) until all Shares and other
The
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
The Company performed a valuation analysis of the fair market value of the assets acquired and liabilities assumed. Using the total consideration for the MicaSense Acquisition, the Company
The following table summarizes the
The Company recorded revenue from MicaSense of $6,793,727 and an operating loss of $1,266,599 during the period from the MicaSense Acquisition Date through December 31, 2021. Measure On April 19, 2021 (the “Measure Acquisition Date”), the Company entered into a stock purchase agreement (the "Measure Purchase Agreement”) with Brandon Torres Declet (“Mr. Torres Declet”), in his capacity as Measure Sellers’ representative, and the sellers named in the Measure Purchase Agreement (the "Measure Sellers”) pursuant to which the Company agreed to acquire 100% of the issued and outstanding capital stock of Measure from the Measure Sellers (the “Measure Acquisition”). The aggregate purchase price for the shares of Measure is $45,000,000, less the amount of Measure’s debt and transaction expenses, and subject to a customary working capital adjustment. The purchase price comprised $15,000,000 in cash, and shares of Common stock of the Company, having an aggregate value of
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
Note
The The Company performed a valuation analysis of the fair market value of the assets to be acquired and liabilities to be assumed. Using the total consideration for the Measure Acquisition, the Company determined the allocations to such assets and liabilities. The final purchase price allocation, and the necessary detailed valuations and calculations have been finalized. The following table summarizes the allocation of the preliminary purchase price as of the Measure Acquisition Date:
The Company recorded revenue from Measure of $414,388 and an operating loss of $2,257,257 during the period from the Measure Acquisition Date through December 31, 2021.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 Note 5 – Business Acquisitions – Continued Measure On April 19, 2022, in accordance with the terms of the Measure Purchase Agreement, the Company delivered a notice of indemnification to the representative of the Measure Sellers seeking the right to set off certain operating losses from the holdback amount. The Company claimed that the operating losses incurred by Measure from the Measure Acquisition Date through April 19, 2022, resulted from breaches of certain representations and warranties made by the Measure Sellers. The Company claimed that it had sustained operating losses in excess of $13 million as a result of the Measure Sellers’ breaches and claimed the entire holdback amount to be applied against these operating losses. On August 22, 2022, the parties entered into a Memorandum of Understanding and Mutual Release (the “Settlement Agreement”) providing for the full and final settlement of all disputes about the Heldback Shares. Pursuant to the Settlement Agreement, the Company released 498,669 of the 997,338 Heldback Shares to the Measure Sellers with the remaining 498,669 Heldback Shares being released from escrow and cancelled by the Company. senseFly On October 18, 2021 (the “senseFly Acquisition Date”), the Company entered into a stock purchase agreement (the "senseFly S.A. Purchase Agreement”) with Parrot Drones S.A.S. pursuant to which the Company acquired 100% of the issued and outstanding capital stock of senseFly S.A. from Parrot Drones S.A.S. The aggregate purchase price for the shares of senseFly S.A. is $21,000,000, less the amount of senseFly S.A.’s debt and subject to a customary working capital adjustment. The consideration is also subject to a $4,565,000 holdback to cover any post-closing indemnification claims and to satisfy any purchase price adjustments. The holdback was scheduled to be released in two equal installments, less any amounts paid or reserved for outstanding indemnity claims, on December 31, 2022 and December 31, 2023 in accordance with the terms of the senseFly S.A. Purchase Agreement. On October 18, 2021, AgEagle Aerial and the Company entered into a stock purchase agreement (the "senseFly Inc. Purchase Agreement”) with Parrot Inc. pursuant to which AgEagle Aerial agreed to acquire 100% of the issued and outstanding capital stock of senseFly Inc. from Parrot Inc. The aggregate purchase price for the shares of senseFly Inc. is $2,000,000, less the amount of senseFly Inc.’s debt and subject to a customary working capital adjustment. The consideration is also subject to a $435,000 holdback to cover any post-closing indemnification claims and to satisfy any purchase price adjustments. The holdback was scheduled to be released in two equal installments, less any amounts paid or reserved for outstanding indemnity claims, on December 31, 2022 and December 31, 2023 in accordance with the terms of the senseFly Inc. Purchase Agreement. A portion of the consideration under the senseFly S.A. Purchase Agreement comprises shares of Common Stock of the Company, par value $0.001, having an aggregate value of $3,000,000, based on a volume weighted average trading price of the Common Stock over a ten consecutive trading day period prior to the date of issuance of the shares of Common Stock to Parrot Drones S.A.S. The shares of Common Stock are issuable ninety days after the
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 Note 5 – Business Acquisitions – Continued Pursuant to the terms of the senseFly S.A. Purchase Agreement and a Registration Rights Agreement, dated as of October 19, 2021, the Company filed a Form S-3 Registration Statement (the "senseFly Registration Statement”) with the SEC covering the resale of the Common Stock issued to Parrot Drones S.A.S. The senseFly Registration Statement was declared effective on February 9, 2022. The Company agreed to use its best efforts to keep the senseFly Registration Statement effective and in compliance with the provisions of the Securities Act (including by preparing and filing with the SEC such amendments, including post-effective amendments, and supplements to the senseFly Registration Statement and the prospectus used in connection therewith as may be necessary) until all the shares of Common Stock and other securities issued to Parrot Drones S.A.S. and covered by such Registration Statement have been disposed. Parrot Drones S.A.S. reimbursed the Company $50,000 for reasonable legal fees and expenses incurred by the Company in connection with such registration. Pursuant to the senseFly S.A. Purchase Agreement, Parrot S.A.S., senseFly S.A. and the Company entered into a six-month transition services agreement and a technology license and support agreement during which time Parrot Drones S.A.S. will provide senseFly S.A. with certain information technology and related transition services. Under the technology license and support agreement, Parrot Drones S.A.S. granted to senseFly S.A. a non-exclusive worldwide perpetual license, subject to certain termination rights of the parties, with respect to certain technology used in the fixed-wing drone manufacturing business of senseFly S.A. The Company performed a valuation analysis of the fair market value of the assets to be acquired and liabilities to be assumed. Using the total consideration for the SenseFly Acquisition, the Company determined the allocations to such assets and liabilities. The final purchase price allocation, and the necessary detailed valuations and calculations have been finalized. The following
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 Note 5 – Business Acquisitions – Continued The Company recorded revenue from senseFly of $2,428,858 and a net loss of $1,819,377 during the period from the senseFly Acquisition Date through December 31, 2021. Liabilities Related to Business Acquisition Agreements On July 22, 2022, the Company, the MicaSense Buyer and Parrot entered into a Waiver Agreement (the “MicaSense Waiver Agreement”) pursuant to which (i) Parrot agreed to waive the obligation of the Company and the MicaSense Buyer to pay Parrot $2,351,202, or the portion of the holdback amount due on March 31, 2023 (the “MicaSense Remaining Holdback Payment”), and (ii) upon the Company’s payment to Parrot of $1,175,601 (the “MicaSense Final Purchase Price Payment,” representing 50% of the MicaSense Remaining Holdback Payment), the Company and MicaSense Buyer will be released from any further obligation or liability for payment of any holdback amount under the MicaSense Purchase Agreement. On July 29, 2022, the Company made the MicaSense Final Purchase Price Payment to Parrot in full satisfaction of its payment obligations under the MicaSense Purchase Agreement, except for $23,798 owed to Justin McCallister. On July 22, 2022, the Company and Parrot entered into a Waiver Agreement (the “senseFly S.A. Waiver Agreement”) pursuant to which (i) Parrot agreed to waive the obligation of the Company to pay Parrot a portion of the holdback amount due on December 31, 2022 and December 31, 2023 (collectively, the “senseFly S.A. Remaining Holdback Payments”); (ii) the parties agreed to waive Parrot’s obligation to reimburse the Company for a portion of the legal costs and expenses incurred by the Company related to the filing of a registration statement in connection with the transactions contemplated by the senseFly S.A. Purchase Agreement; and (iii) upon the Company’s payment to Parrot of $2,257,500 (“the senseFly S.A. Final Purchase Price Payment,” representing 50% of the senseFly S.A. Remaining Holdback Payments less 50% of the registration statement expenses), the Company will be released from any further obligation or liability for payment of any holdback amount under the senseFly S.A. Purchase Agreement. On July 29, 2022, the Company made the senseFly S.A. Final Purchase Price Payment to Parrot in full satisfaction of its payment obligations under the senseFly S.A. Purchase Agreement and the senseFly S.A. Waiver Agreement. On July 22, 2022, the Company, the senseFly Inc. Buyer, and Parrot Inc. entered into a Waiver Agreement (the “senseFly Inc. Waiver Agreement”) pursuant to which (i) Parrot Inc. agreed to waive the obligation of the Company and the senseFly Inc. Buyer to pay Parrot Inc. a portion of the holdback amount due on December 31, 2022 and December 31, 2023 (collectively, the “senseFly Inc. Remaining Holdback Payments”); (ii) upon the Company’s payment to Parrot Inc. of $217,500 (the “senseFly Inc. Final Purchase Price Payment,” representing 50% of the senseFly Inc. Remaining Holdback Payments), the Company and the senseFly Inc. Buyer will be released from any further obligation or liability for any remaining holdback amount under the senseFly Inc. Purchase Agreement. On July 29, 2022, the Company made the senseFly Inc. Final Purchase Price Payment to Parrot Inc. in full satisfaction of its payment obligations under the senseFly Inc. Purchase Agreement and the senseFly Inc. Waiver Agreement.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 Note 5 – Business Acquisitions – Continued Pursuant to the terms of the Measure Acquisition Purchase Agreement (the “Purchase Agreement”) the Company issued an aggregate of 5,319,145 shares of the Company’s common stock to the Sellers of Measure as part of the consideration for the acquisition, of During the year ended December 31,
The acquisitions of MicaSense and Measure were completed in the first quarter of 2021, while the acquisition of senseFly was completed during the fourth quarter of 2021. The 2021 Acquired Companies have complementary businesses with their products and services providing a full stack solution for the commercial drone industry. The Company has combined legacy MicaSense, Measure and senseFly pro-forma supplemental information as follows.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
Note
Note 6 – Intangibles, Net As of December 31, 2022, intangible assets,
As of December 31, 2021, intangible assets, net other than goodwill, consist of the
The weighted average remaining amortization period in years is
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
Note 6 – Intangibles, Net-Continued For the following years ending, the future amortization expenses consist of the following:
Note 7 –
The annual impairment assessment conducted during the fourth quarter of 2022 indicated that the fair value of the sensors reporting unit exceeded its respective carrying amount, while the fair value of the SaaS and the Company’s Drone reporting units were less than carrying value. The impairment assessment of the SaaS and the Company’s Drone reporting units considered lower than forecasted sales and profitability along with declining markets conditions, declining stock price and changes in our technologies. Accordingly, the Company recorded an impairment charge to SaaS and Drones these reporting units of $29,032,294 and $12,655,577, respectively during the fourth quarter ended December 31, 2022. As of December 31, 2022 and 2021, the change in the carrying value of goodwill for our operating segments (as defined in Note 17), are listed below:
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 Note 8 – COVID Loan On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was enacted, which included amongst its many provisions, the creation of the Paycheck Protection Program (“PPP”). As part of the PPP, qualifying businesses were eligible to receive Small Business Administration (“SBA”) loans for use by such businesses for funding payroll, rent and utilities during a designed twenty-four week period through October 21, 2020 (“PPP Loan”). PPP Loans are unsecured, nonrecourse, accrue interest at a rate of one percent per annum, and mature on May 6, 2022. A portion or all of a PPP Loan is forgivable to the extent that an eligible business meets its obligations under the PPP. Additionally, any amounts owed, including unforgiven amounts under the PPP, are payable over two years, though may be extended up to five years upon approval by the SBA. On May 6, In connection with the senseFly Acquisition, the Company Note 8 – COVID Loan-Continued As of December 31, 2022, scheduled principal
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 Note 9 – Promissory Note Issuance
On
The Company determined the estimated fair value of the common stock warrants issued with the Note to be $1,847,200 using a Black-Scholes pricing model. In accordance with ASC 470-20 Debt, the Company recorded a discount of $1,182,349 on the Note based on the relative fair value of the warrants and total proceeds. At Note issuance, the Company recorded a total discount on the debt of $1,397,350 comprised of the relative fair value of the warrants, the original issue discount, and the issuance
During the year ended December 31,
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
Note
Note 10 – Equity Capital Stock Issuances Preferred Series
On In connection with the Series F Agreement the Company issued a warrant Alpha has the right, subject to certain conditions, including shareholder approval, to purchase up to $25,000,000 of additional shares of Series F and Series F Warrants (collectively the “Series F Option”). The Series F Option will be available for a
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
Note
As of December 31, 2022, Alpha had converted 4,137 shares of Series F into 6,804,545 shares of Common Stock and recorded $172,596 cumulative dividends at the rate per share (as a percentage of the $1,000 stated par value per share of Series F) of 5% per annum, beginning on the first conversation date of June 30, 2022. See Note 18 – Subsequent Events. On December 6, 2022, upon the issuance of the promissory note and common stock warrants with an exercise price of $0.44 (see Note 9), a down round or anti-dilution trigger event occurred resulting in the conversion rate on the Series F and the exercise price of the Series F Warrants issued with the Series F adjusting down to $0.44 from $0.62 and $0.96, respectively (the “Down Round Trigger”). The Down Round Trigger resulted in the Company recognizing a deemed dividend on the common stock warrants and Series F of $565,161 and $1,680,216, respectively, or aggregate deemed dividend of $2,245,377, for the incremental value to the warrant and Series F holder resulting from the reduction in exercise price and conversion price. The deemed dividend on the Series F Warrants represents the difference between fair value of the Series F Warrants under the original terms before the Down Round Trigger and the fair value of the Series F Warrants after Down Round Trigger at the reduced exercise price. The fair value of the Series F Warrants was determined using a Black-Scholes pricing model and the following assumptions: expected life of 3 years, volatility of 150%, risk free rate of 3.77%, and dividend rate of 0%. The deemed dividend on the Series F was determined by computing the additional incremental shares, if converted, resulting from the reduction in the conversion price and the market price of common stock of $0.42 on the date the Down Round Trigger occurred. The deemed dividend to the Series F stockholder was a recorded as additional paid in capital and an increase to accumulated deficit and as an increase to total comprehensive loss attributable to Common Stockholders in computing earnings per share on the consolidated statements of operations. At-the-Market Sales Agreement In accordance with a May 25, 2021 at-the-market Sales Agreement with Stifel, Nicolaus & Company, Incorporated and Raymond James & Associates, Inc. as sales agents, the Company sold 4,251,151 shares of Common Stock at a share price between $1.04 and $1.18, for aggregate proceeds of $4,583,341, net of issuance costs of $141,754 during the year ended December 31, 2022. During the period from May 29, 2021, through December 31, 2021, we raised $30,868,703 by utilizing our ATM Offering with co-agents Stifel, Nicolaus & Company, Incorporated and Raymond James & Associates. Securities Purchase Agreement Dated December 31, 2020 For the year ended December 31, 2021, we raised capital of $6,313,943 as a result of the sale of 1,057,214 shares of Common Stock in connection with a securities purchase agreement (the "December Purchase Agreement”) entered on December 31, 2020.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 Note 10 – Equity-Continued Securities Purchase Agreement Dated August 4, 2020 / Exercise of Warrants On August 4, 2020, the Company and an Investor entered into a securities purchase agreement (the “August Purchase Agreement”) pursuant to which the Company agreed to sell to the Investor in a registered direct offering 3,355,705 shares of Common Stock and warrants to purchase up to 2,516,778 shares of Common Stock at an exercise price of $3.30 per share (the “August Warrants”), for proceeds of $9,900,000, net of issuance costs of $100,000. Upon exercise of the Warrants in full by the Investor, the Company would receive additional gross proceeds of $8,305,368. The shares of Common Stock of the Company underlying the Warrants are referred to as “August Warrant Shares.” The purchase price for each share of Common Stock is $2.98. Net proceeds from the sale were used for working capital, capital expenditures and general corporate purposes. The shares of Common Stock, the August Warrants and the August Warrant Shares were offered by the Company pursuant to an effective shelf registration statement on Form S-3 (File No. 333-239157), which was declared effective on June 19, 2020. On February 8, 2021, the Company received $8,305,368 in additional gross proceeds associated with the exercise of all the August Warrants. Acquisition of MicaSense On April 27, 2021, the Company issued 540,541 shares of Common Stock in connection with the MicaSense Purchase Agreement based on a volume weighted average trading price of the Common Stock over a ten consecutive trading day period prior to the date of issuance of these shares of Common Stock at the fair market value of $3,000,000. Acquisition of Measure Pursuant to the terms of the Measure Acquisition Purchase Agreement (the “Purchase Agreement”) the Company issued an aggregate of 5,319,145 shares of the Company’s common stock to the Sellers of Measure as part of the consideration for the acquisition, of which 997,338 shares were held back (the “Heldback Shares”) to cover post-closing indemnification claims and to satisfy any purchase price adjustments (see Note 5), based on a volume weighted average trading price of the Common Stock over a ten consecutive trading day period prior to the date of issuance of these shares of Common Stock at the fair market value of $24,375,000. Pursuant to the terms of the Purchase Agreement, the Heldback Shares were scheduled to be released in three tranches, on the 12-month, 18-month and 24-month anniversary of the closing date of the acquisition. The Company made a claim for indemnification against the Heldback Shares. Pursuant to the Settlement Agreement entered on August 22, 2022, the Company released all the Measure shares held in escrow along with any disputes regarding the 997,338 Heldback Shares. As a result, 498,669 of the Heldback Shares were released to the Measure Sellers with the remaining 498,669 Heldback Shares being cancelled by the Company which reduced the issued and outstanding common stock and causing an increase to stockholders’ equity of $2,812,500.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 Note 10 – Equity-Continued Acquisition of senseFly In accordance with the terms of the senseFly S.A. Purchase Agreement, the Company issued 1,927,407 shares of Common Stock to Parrot in January 2022 having an aggregate value of $3,000,000, based on a volume weighted average trading price of the Common Stock over a ten consecutive trading day period prior to the date of issuance of the shares of Common Stock to Parrot (see also Note 5). Consulting Agreement On May 3, 2019, the Company entered into a consulting agreement with GreenBlock Capital LLC (“Consultant”) for purposes of advising on certain business opportunities. On October 31, 2019, the consulting agreement was terminated; however, the Consultant continued to be entitled to receive up to 2,500,000 restricted Common Stock after termination of the consulting agreement, if the achievement of milestones that commenced during the term of the consulting agreement were completed within twenty-four months. Subsequent to the aforementioned termination of the consulting agreement, the Consultant sent a demand letter to the Company alleging a breach of this agreement due to the Company’s non-issuance of additional restricted shares of its Common Stock in connection with the Consultant’s alleged achievement of the milestones. As of December 31, 2020, and as a result of this demand, the Company recorded a contingent loss of $1,500,000, based upon the fair market value of $6.00 per share of its Common Stock, which was recorded within professional fees on the consolidated statements of operations and comprehensive loss. For the years ended December 31, 2022 and 2021, the Company recorded additional stock-based compensation expense of $0 and $1,407,000, respectively, which reflected the issuance of 550,000 additional restricted shares of Common Stock that were subsequently issued on May 12, 2021, as settlement for the claims made under the demand, which resulted in a liability amount of $2,907,000 for purposes of payment of the settlement. Exercise of Common Stock Options For the year ended December 31, 2022, 185,000 Common Stock shares were issued in connection with the exercise of stock options previously granted at an average per share exercise price between $0.31 and $0.41 resulting in gross proceeds of $74,350. For the year ended December 31, 2021, 505,167 Common Stock shares were issued in connection with the exercise of stock options previously granted at an average per share exercise price between $0.15 and $2.65 resulting in gross proceeds of $122,970.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 Note 10 – Equity-Continued Stock-Based Compensation The Company determines the fair value of awards granted under the Equity Plan based on the fair value of its Common Stock on the date of grant. Stock-based compensation expenses related to grants under the Equity Plan are included in general and administrative expenses on the consolidated statements of operations and comprehensive loss. 2017 Omnibus Equity Incentive Plan
On March 26, 2018, the On June 18, 2019, at the Annual Meeting of Shareholders of the Company, the shareholders approved a proposal to increase the number of shares of Common Stock reserved for issuance under the Equity Plan from 2,000,000 to 3,000,000. On July 15, 2020, the Company held its 2020 annual meeting of stockholders and approved a proposal to increase the number of shares of Common Stock reserved for issuance under the Equity Plan from 3,000,000 to 4,000,000. To the extent that an award lapses, expires, is canceled, is terminated unexercised or ceases to be exercisable for any reason, or the rights of its holder terminate, any shares subject to such award shall again be available for the grant of a new award. The number of shares for which awards which are options or stock appreciation rights (“SARs”) may be granted to a participant under the Equity Plan during any calendar year is limited to 500,000. For purposes of qualifying awards as “performance-based” compensation under Code Section 162(m), the maximum amount of cash compensation that may be paid to any person under the Equity Plan in any single calendar year shall be $500,000. On June 16, 2021, the Company held its 2021 annual meeting of stockholders and approved a proposal to increase the number of shares of Common Stock reserved for issuance under the Equity Plan from 4,000,000 to 10,000,000. To the extent that an award lapses, expires, is canceled, is terminated unexercised or ceases to be exercisable for any reason, or the rights of its holder terminate, any shares subject to such award shall again be available for the grant of a new award. The number of shares for which awards which are options or SARs may be granted to a participant under the Equity Plan during any calendar year is limited to 500,000. For purposes of qualifying awards as
The Company determines the fair value of awards granted under the Equity Plan based on the fair value of its Common Stock on the date of grant. Stock-based compensation expenses related to grants under the Equity Plan are included in general and administrative expenses on the consolidated statements of operations.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 Note 10 – Equity-Continued Restricted Stock Units For the year ended December 31, 2022, a summary of RSU activity is as follows:
For the year ended December 31, 2022, the aggregate fair value of RSUs at the time of vesting was $697,361. As of December 31, 2022, the Company had $425,878 of unrecognized stock-based compensation expense related to RSUs, which will be amortized over approximately sixteen months. During the year ended December 31, For the year ended December 31, 2021, a summary of RSU activity is as follows:
For the year ended December 31, 2021, the aggregate fair value of RSUs at the time of vesting was $5,555,503. As of December 31,2021, the Company
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 Note 10 – Equity-Continued Issuance of RSUs to Officers Brandon Torres-Declet On June 13, 2022, the Company released 354,107 shares of Common Stock to For the year ended December 31, 2022, the Company recognized Michael Drozd On May 24, 2021, and as a part of a separation agreement between the Company and Mr. J. Michael Drozd ("Mr. Drozd"), the Company's former Chief Executive Officer, the Company issued to Mr. Drozd 145,152 RSUs, which vested immediately. These RSUs were valued at, and for the year ended December 31,
On April 19, 2021, the Board, upon recommendation of the Compensation Committee of the Board (“Compensation Committee”), approved awards of 100,000 RSUs to Mr. Drozd, and in accordance with his applicable amended respective employment letter. The Company determined the fair market value of these RSUs to be $540,000 based on the market price of the Company’s Common Stock on the date of grant of $5.40. These RSUs vest equally on a pro-rata basis over one year of continued employment. Upon Mr. Drozd’s separation from the Company, 91,667 RSUs were canceled and only 8,333 were released and issued. For the year ended December 31, 2021, the Company recognized $44,998 in stock-based compensation expense related to these awards. Jesse Stepler On April 19, 2021, the Board approved, in connection with the Measure Acquisition, an award of 10,000 RSUs to Mr. Jesse Stepler upon his appointment of as senior management of Measure. The Company determined the fair market value of these RSUs to be $54,000 based on the market price of the Company’s Common Stock on the date of grant. These RSUs vest equally on a pro-rata basis over one year of continued employment. For the year ended December 31, 2021, the Company recognized $37,824 in stock-based compensation expenses related to this award.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 Note 10 – Equity-Continued Issuances to Current Officers of Company On April 11, 2022, the Company granted an officer 46,367 RSUs, which vested immediately. For the year ended December 31, 2022, the Company recognized stock-based compensation expense of $46,831, based upon the market price of its Common Stock of $1.01 per share on the date of grant of these RSUs. Additionally, on the same date, the Company granted the same officer 46,367 RSUs, which vests over a period from the date of grant through the first anniversary of the senseFly Acquisition Date. For year ended December 31, 2022, the Company recognized stock-based compensation expense of $46,831, based upon the market price of its Common Stock of $1.01 per share on the date of grant of these RSUs. On March 1, 2022, upon recommendation of the Compensation Committee of the Board (“Compensation Committee”) the Board, in connection 2021 executive compensation plan granted an officer of the Company was granted 62,500 RSUs, which vested immediately. For the year ended December 31, 2022, the Company recognized stock-based compensation expense of $68,750, based upon the market price of its Common Stock of $1.10 per share on the date of grant of these RSUs. On January 1, 2022, upon recommendation of the Compensation Committee, the Board issued to an officer two grants of 50,000 RSUs each, in connection with a bonus way forward plan. These two grants vest over nine and twenty-one months, respectively, from the date of grant. For the year ended December 31, 2022, the Company recognized stock-based compensation expense of $44,840 and $78,500, based upon the market price of its Common Stock of $1.57 per share on the date of grant of these RSUs. On November 1, 2021, upon recommendation of the Compensation Committee, the Board issued to Ms. Nicole Fernandez-McGovern, CFO and EVP of Operations of the Company, a grant of 75,000 RSUs in connection with senseFly Acquisition achievement. The Company determined the fair market value of these RSUs to be $220,500 based on the market price of the Company’s Common Stock on the grant date of $2.94. For the year ended December 31, 2022, the Company recognized $146,951 in stock-based compensation expense related to the RSU awards. For the year ended December 31, 2021, the Company recognized $72,362 in stock-based compensation expense related to the RSU awards. On May 4, 2021, upon recommendation of the Compensation Committee, the Board issued to Ms. Fernandez-McGovern of 111,250 RSUs, which vested immediately in connection with 2020 Compensation Plan. These RSUs were valued at, and for the year ended December 31, 2021, and the Company recognized stock-based compensation expense of $640,800 based upon the market price of the Company's Common Stock of $5.76 per share on the date of grant of these RSUs. On April 19, 2021, the Board, upon recommendation of the Compensation Committee, approved awards of 125,000 RSUs to Ms. Fernandez-McGovern in accordance with her applicable amended respective employment letters. The Company determined the fair market value of these RSUs to be $675,000 based on the market price of the Company’s Common Stock on the date of grant of $5.40. These RSUs vest equally on a pro-rata basis over one year of continued employment. For the year ended December 31, 2022, the Company recognized $202,147 in stock-based compensation expense related to the RSU awards. For the year ended December 31, 2021, the Company recognized $472,853 in stock-based compensation expense related to the RSU awards.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 Note 10 – Equity-Continued Stock Options For the year ended December 31, 2022, a summary of the options activity is as follows:
As of December 31, 2022, the Company has $376,797 of total unrecognized compensation cost related to stock options, which will be amortized over approximately twenty-four months. During the year ended December 31,
Intrinsic value is measured using the fair market value at the date of exercise (for shares exercised) or
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
Note
As of December 31, 2021, the Company had approximately $2,036,000 of total unrecognized compensation cost related to stock options, which will be amortized over approximately twenty-four months. During the year ended December 31, 2021, the Company recognized $1,657,221 of stock compensation related to stock options.
For the year ended December 31, 2022, and 2021, the significant weighted average assumptions relating to the valuation of the Company’s stock options granted
Issuances of Options to Officers and Directors For the year ended December 31,
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 Note 10 – Equity-Continued For the year ended December 31, 2021, the Company issued to directors and officers to purchase 580,000 shares of Common Stock at exercise prices ranging from $0.84 to $3.37 per share, which vest over a period of two years from the date of grant and expire on dates between January 3, 2025, and December 31, 2026. The Company determined the fair market value of these unvested options to be $1,231,400. In connection with the issuance of these options to officers and directors, for the year ended December 31, 2022, the Company recognized stock-based compensation expense of $678,660. For the year ended December 31, 2021 the Company recognized stock-based compensation expense of $286,312. Prior to January 1, 2021, the Company previously issued to directors and officers options to purchase 2,743,580 shares of Common Stock at exercise prices ranging from $0.04 to $3.18 per share, with vesting periods ranging from immediate vesting to periods of up to three years from the grant dates, and expire on dates between March 30, 2023, and December 29, 2029. In connection with the issuance of these options to employees and directors, for the year ended December 31, 2022, the Company recognized stock-based compensation expense of $453,356, for the year ended December 31, 2021 the Company recognized stock-based compensation expense of $684,950. Cancellations of Options During the year ended December 31, 2022, as a result of employee terminations and options expirations, stock options aggregating 307,501, with estimated values of approximately $1,063,673, were cancelled. During the year ended December 31, 2021, 257,932 options were cancelled with a grant-date fair value $764,034 due to employee terminations. Note 11 – Retirement Plans Defined Benefit Plan senseFly S.A. sponsors a defined benefit pension plan (the “Defined Benefit Plan”) covering all its employees. The Defined Benefit Plan provides benefits in the event of retirement, death or disability, with benefits based on age and salary. The Defined Benefit Plan is funded through contributions paid by senseFly S.A. and its employees, respectively. The Defined Benefit Plan assets are Groupe Mutuel Prévoyance (“GMP”), which invests these plan assets in cash and cash equivalents, equities, bonds, real estate and alternative investments. The Projected Benefit Obligation (“PBO”) includes in full the accrued liability for the plan death and disability benefits, irrespective of the extent to which these benefits may be reinsured with an insurer. The actuarial valuations are based on the census data as of December 31, 2022, provided by GMP. The Company recognizes the overfunded or underfunded status of the Defined Benefit Plan as an asset or liability in its consolidated balance sheets and recognizes changes in the funded status of the Defined Benefit Plan in the year in which the changes occur through accumulated other comprehensive income or loss. The Defined Benefit Plan’s assets and benefit obligations are remeasured as of December 31st each year.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 Note 11 – Retirement Plans- Continued The net periodic benefit cost of the Defined Benefit Plan for the period from January 1, 2022 through December 31, 2022 was as follows:
The PBO is the present value of benefits earned to date by plan participants, including the effect of assumed future salary increases. The changes in the projected benefit obligation for the period from January 1, 2022 through December 31, 2022 were as follows:
For the period from January 1, 2022 through December 31, 2022, the change in fair value of the Pension Plan assets were as follows:
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
senseFly S.A.’s investment objectives are to ensure that the assets of its Defined Benefit Plan are invested to provide an optimal rate of investment return on the total investment portfolio, consistent with the assumption of a reasonable risk level, and to ensure that pension funds are available to meet the plans' benefit obligations as they become due. senseFly S.A. believes that a well-diversified investment portfolio will result in The following tables present the fair value of the
The following table shows the unfunded status of the Defined Benefit Plan, defined as plan assets less the projected benefit obligation as of December 31, 2022:
As of December 31, The Defined Benefit Plan has a PBO in excess of Defined Benefit Plan assets. For the period from January 1, 2022 through December 31, 2022, the amounts recognized in accumulated other comprehensive loss related to the Defined Benefit Plan were as follows:
The net prior service credit included in accumulated other comprehensive loss as of December 31, 2022, is expected to be recognized as a component of net periodic benefit cost during the year ending December 31, 2023.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 Note 11 – Retirement Plans- Continued The actuarial assumptions for the Defined Benefit Plan were as follows:
The following table shows expected benefit payments from the Defined Benefit Plan for the next five fiscal years and the aggregate five years thereafter:
Defined Contribution Plan The Company sponsors the AgEagle Aerial Systems 401(k) Plan (the “401(k) Plan”) that covers substantially all eligible employees in the United States. The Company matches contributions made by eligible employees, subject to certain percentage limits of the employees’ earnings. For the years ended December 31, 2022 and 2021, the Company's employer contribution to the 401(k) Plan totaled $149,543 and $11,127, respectively.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 Note 12 – Warrants Warrants Issued On December 6, 2022, the Company
Upon exercise of
On February 8, 2021, the Company received $8,305,368 in additional gross proceeds associated with the exercise of 2,516,778 of warrants As of December 31,
A summary of activity related to warrants for the
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 Note 13 – Leases Operating Leases
The Company determines if an arrangement is or contains a lease at contract inception and recognizes a right-of-use asset and a lease liability at the lease commencement date. Leases with an initial term of twelve months or less, but greater than one month, are not recorded on the balance sheet for select asset classes. The lease liability is measured at the present value of future lease payments as of the lease commencement date, or the opening balance sheet date for leases Right-of-use assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease terms at the commencement dates. The Company uses its incremental borrowing rates as the Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received. The components of a lease are split into three categories: lease components, non-lease components and non-components; however, the Company has elected to combine lease and non-lease components into a single component. Operating lease expense is recognized on a straight-line basis over the lease term and is included in general and administrative expense on the consolidated statement of The Company has
As a result of the As a
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 Note 13 – Leases As a result of the senseFly Acquisition, the Company assumed the operating leases for office spaces in Raleigh, North Carolina and Lausanne, Switzerland. The operating lease in Raleigh will expire in June 2023 and while the operating lease in Lausanne was set to expire in April 2023; the Company was required to notify the landlord of its intention to not renew the lease
For the years ended December 31,
As of December 31, 2022, scheduled future maturities of the Company’s lease liabilities are as follows:
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
Note As of December 31, 2022 and 2021, the weighted average lease-term and discount rate of the Company’s leases are as follows:
For the years ended December 31, 2022 and 2021, supplemental cash flow information related to leases is as follows:
Note 14 – Commitments and
Ms. Kelly J. Anderson Appointment as Board Member and Chairman of the Audit Committee
On December 6, 2022, the Board of Directors of AgEagle appointed Kelly J. Anderson as a Board member to fill the vacancy created by the recent resignation of Luisa Ingargiola, effective December 5, 2022. Ms. Anderson qualifies as an independent director under the corporate governance standards of the NYSE American and meets the financial sophistication requirements of the NYSE American. She also meets the independence requirements of Rule 10A-3 of the Securities Exchange Act of 1934, as amended, and qualifies as an “audit committee financial expert” as such term is currently defined in Item 407(d)(5) of Regulation S-K. Also effective on December 5, 2022, Ms. Anderson was appointed to the Company’s Compensation Committee and Nominating and Corporate Governance Committee and was appointed to chair the Company’s Audit Committee. As compensation for services as an independent director, Ms. Anderson shall receive an annual cash fee of $60,000, payable quarterly; and a quarterly grant of 25,000 stock options with an exercise price at the current market price of the Company’s Common Stock at the time of issuance (the “Quarterly Options”). The Quarterly Options are exercisable for a period of five years from the date of grant and vest in equal quarterly installments over a period of two years from the date of grant.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 Note 14 – Commitments and Contingencies-Continued Ms. Luisa Ingargiola Departure of Board Member On November 18, 2022, Ms. Luisa Ingargiola resigned as a director, a member of the Compensation Committee and Nominating and Corporate Governance committee, and the chair of the Audit Committee of AgEagle. Ms. Ingargiola’s resignation from the Company’s Board of Directors was not a result of any disagreement with management or any matter relating to the Company’s operations, policies or practices. Executive Appointments and Departures Mr. Michael O’Sullivan Appointment as Chief Commercial Officer On April 11, 2022, Michael O’Sullivan (“Mr. O’Sullivan”) was appointed as the Company’s Chief Commercial Officer, Mr. O’Sullivan will receive an annual base salary of 250,000 CHF per year, subject to annual performance reviews and revisions by and at the sole discretion of the Compensation Committee. In accordance with the 2022 Executive Compensation Plan and as approved by the Compensation Committee, Mr. O’Sullivan will be eligible to receive an annual cash bonus of up to 30% of his then-current base salary and RSUs with a fair value of up to 150,000 CHF, based upon achievement of the performance milestones established in the 2022 Executive Compensation Plan. Furthermore, Mr. O’Sullivan is entitled to a service-based bonus, comprised of a cash bonus of 87,500 CHF and RSUs with a fair value of 87,500 CHF. Upon execution of his employment agreement with the Company, Mr. O’Sullivan was immediately granted RSUs with a fair value of 43,750 CHF, as part of his service-based bonus. The remaining RSUs with a fair value of 43,750 CHF and the cash payment of 87,500 CHF will vest in October 2022. In addition, Mr. O’Sullivan is entitled to receive a quarterly grant of 10,000 stock options at the fair market value of the Company’s Common Stock on the grant date, vesting over two years, and exercisable for a period of five years. Mr. O’Sullivan is provided with severance benefits in the event of termination without cause or for good reason, as defined in his employment offer letter. Upon execution of a severance agreement entered into between Mr. O’Sullivan and the Company, Mr. O’Sullivan will be entitled to the following benefits: (i) three months of base salary, paid in the form of salary continuation, in accordance with the terms of a Separation Agreement to be entered into at the time of termination; (ii) three months of paid Garden Leave, which is paid in the form of salary continuation, in accordance with the laws of Switzerland; and (iii) a grant of fully-vested RSUs with a fair market value of 150,000 CHF on the date of termination of employment, pursuant to the terms of the separation agreement. The severance benefits are conditioned upon (i) continued compliance in all material respects with Mr. O’Sullivan’s continuing obligations to the Company, including, without limitation, the terms of the amended employment offer letter and of the confidentiality agreement that survive termination of employment with the Company, and (ii) signing (without revoking if such right is provided under applicable law) a separation agreement and general release in a form provided to the executive officer by the Company on or about the date of termination of employment.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 Note 14 – Commitments and Contingencies-Continued Mr. Barrett Mooney Appointment as Chief Executive Officer and Chairman of the Board On January 17, 2022, Mr. Barrett Mooney, the Company’s Chairman of the Board and the Chief Executive Officer immediately preceding Mr. Michael Drozd, was reappointed to serve as the Chief Executive Officer of the Company and to continue in his role as Chairman of the Board. In his role as Chief Executive Officer, Mr. Mooney will receive an annual base salary of $380,000 per year, subject to annual performance reviews and revisions by and at the sole discretion of the Compensation Committee. In accordance with the 2022 Executive Compensation Plan, approved by the Compensation Committee, Mr. Mooney is entitled to receive an annual bonus comprised of up to 35% of his base salary in cash and 350,000 in RSUs, based upon his performance as determined by certain metrics established by the Board and Mr. Mooney. In addition, Mr. Mooney is entitled to receive a quarterly grant of 25,000 stock options at the fair market value of the Company’s Common Stock on the issuance date, vesting over two years, and exercisable for a period of five years. Mr. Mooney is provided with severance benefits in the event of termination without cause or for good reason, as defined in her amended employment offer letter. Upon execution of a severance agreement entered into between Mr. Mooney and the Company, Mr. Mooney will be entitled to the following benefits: (i) six months of base salary, paid in the form of salary continuation, in accordance with the terms of a Separation Agreement to be entered into at the time of termination; (ii) reimbursement of COBRA health insurance premiums at the same rate as if the executive officer were an active employee of the Company (conditioned on the executive officer having elected COBRA continuation coverage) for a period of 6 months or, if earlier, until the executive officer is eligible for group health insurance benefits from another employer; and (iii) a grant of fully-vested RSUs with a fair market value of $190,000 on the date of termination of employment, pursuant to the terms of the separation agreement. The severance benefits are conditioned upon (i) continued compliance in all material respects with Mr. Mooney’s continuing obligations to the Company, including, without limitation, the terms of the amended employment offer letter and of the confidentiality agreement that survive termination of employment with the Company, and (ii) signing (without revoking if such right is provided under applicable law) a separation agreement and general release in a form provided to the executive officer by the Company on or about the date of termination of employment. In the event the Board of Directors (the “Board”) determines in its discretion that Mr. Mooney must relocate his principal place of performance of her duties, the Company shall pay and/or reimburse his expenses in connection with such relocation. Mr. Torres Declet Resignation as Chief Executive Officer On January 17, 2022, the Company and Mr. Brandon Torres Declet mutually agreed to Mr. Torres Declet’s resignation as Chief Executive Officer and as a director of the Company. In connection with his departure, and in accordance with his employment agreement with the Company, Mr. Torres Declet will receive base salary continuation equal to six months of his then annual salary, reimbursement of COBRA health insurance premiums for a period of six months at the same rate as if Mr. Torres Declet were an active employee of the Company, and a grant of fully-vested restricted shares of Common Stock of the Company with a fair market value of $125,000 on the date of termination of employment, resulting in the issuance of 111,607 RSUs.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 Note 14 – Commitments and Contingencies-Continued Appointment as Chief Executive Officer and Chief Operating Officer On April 19, 2021, in connection with the Measure Acquisition, the Board approved the appointment of Mr. Torres Declet as the Company’s Chief Operating Officer. Mr. Declet also served as the President of Measure. Prior to joining the Company, Mr. Declet, co-founded Measure, and since 2014, served as its President. In his position as Chief Operating Officer, Mr. Declet received an annual base salary of $225,000 per year, subject to increases at the discretion of the Board. Mr. Declet was eligible for an annual cash bonus of up to 20% of his then-current base salary, as determined by the Board in its good faith discretion, based on the achievement of a combination of personal and Company objectives. Mr. Declet was also eligible to participate in any benefit plans offered by the Company as in effect from time to time on the same basis as generally made available to other employees of the Company. Mr. Declet would be awarded a one-time grant of 125,000 RSUs that vest on a pro rata basis over one year commencing on the date of closing of the Measure Acquisition. Additionally, Mr. Declet was entitled to be granted, on a quarterly basis, non-qualified options to acquire 25,000 shares of Company Common Stock. On May 24, 2021, Mr. Torres Declet was appointed to serve as the new Chief Executive Officer of the Company. Mr. Torres Declet did not continue to serve as the Company’s Chief Operating Officer. On June 11, 2021, the Board upon recommendation of the Compensation Committee, approved an increase in Mr. Torres Declet’s annual base salary from $225,000 to $235,000, effective as of May 24, 2021, commensurate with his new position as Chief Executive Officer. Mr. Torres Declet was entitled to receive an annual 20% bonus, comprised of a mix of cash and RSUs, based upon his performance as determined by certain metrics established by the Board and Mr. Torres Declet. On November 12, 2021, the Board, in connection with the 2021 senseFly Acquisition and the 2021 Executive Bonus Compensation Plan, approved a bonus of $10,000 cash and 75,000 RSUs to Mr. Torres Declet. On February 7, 2022, the Company’s Board, upon recommendation of the Compensation Committee, approved the 2021 Executive Bonus Award comprising of $5,000 in cash bonus and the issuance of 42,500 RSUs for Mr. Torres Declet, the Company’s Chief Executive Officer. Mr. J. Michael Drozd Resignation as Chief Executive Officer On May 24, 2021, the Company and Mr. J. Michael Drozd (“Mr. Drozd”) mutually agreed to Mr. Drozd’s resignation as Chief Executive Officer, effective immediately (the “Termination Date”). Mr. Drozd resigned to pursue new career opportunities. In connection with his departure, Mr. Drozd and the Company entered into a separation agreement and General Release, dated June 11, 2021 ("Separation Agreement”), pursuant to which, among other things, the Company agreed to and did pay Mr. Drozd the following: (i) his regular base salary at the annual rate of $235,000 through the Termination Date; (ii) an annual performance bonus comprised of $37,130 in cash and 118,500 shares of the Company’s Common Stock, (iii) severance pay equal to six months of his base salary as of the Termination Date; (iv) reimbursement for six months’ of COBRA health insurance premiums at the same rate as if Mr. Drozd were an active employee of the Company; (v) cash payment equal to three days of accrued and unused vacation days; and (vi) 26,652 fully-vested RSUs with a fair value of $125,000 at the date of grant. Additionally, Mr. Drozd’s then outstanding and unvested equity awards continued to be governed by the terms of the applicable award agreements, except that 8,333 of the 100,000 RSUs granted to him on April 19, 2021, in accordance with his employment agreement with the Company, vested on the effective date of the Separation Agreement.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 Note 14 – Commitments and Contingencies-Continued Nicole Fernandez-McGovern Employment Arrangements for Nicole Fernandez-McGovern, Chief Financial Officer On April 19, 2021, the Board of Directors of the Company, upon recommendation of the Compensation Committee, approved changes in the compensation of Mrs. Nicole Fernandez-McGovern (“Mrs. Nicole Fernandez-McGovern”) and entered into an agreement whereby (i) an additional one-time grant of 125,000 RSUs that will vest on a pro rata basis over one year subject to the terms of an RSU grant agreement, and (ii) an increase in the number of grants, on a quarterly basis, of non-qualified options from 15,000 to 25,000 shares of Company common stock subject to the terms of the Plan, and the vesting requirements, the term of the option and exercisability at an exercise price equal to the fair market value of the option shares will be set forth in a grant agreement as of each date of grant. Mrs. Fernandez-McGovern’s current base salary and potential bonus payments have not been changed however she is provided with severance benefits in the event of termination without cause or for good reason, as defined in her amended employment offer letter. Upon execution of a severance agreement entered between Mrs. Fernandez-McGovern and the Company, Mrs. Fernandez-McGovern will be entitled to the following benefits: (i) six months of base salary, paid in the form of salary continuation, in accordance with the terms of a Separation Agreement to be entered into at the time of termination; (ii) reimbursement of COBRA health insurance premiums at the same rate as if the executive officer were an active employee of the Company (conditioned on the executive officer having elected COBRA continuation coverage) for a period of 6 months or, if earlier, until the executive officer is eligible for group health insurance benefits from another employer; and (iii) a grant of fully-vested RSUs with a fair market value of $125,000 on the date of termination of employment, pursuant to the terms of the separation agreement. The severance benefits are conditioned upon (i) continued compliance in all material respects with Mrs. Fernandez-McGovern’s continuing obligations to the Company, including, without limitation, the terms of the amended employment offer letter and of the confidentiality agreement that survive termination of employment with the Company, and (ii) signing (without revoking if such right is provided under applicable law) a separation agreement and general release in a form provided to the executive officer by the Company on or about the date of termination of employment. In the event the Board of Directors (the “Board”) determines in its discretion that Mrs. Fernandez-McGovern must relocate her principal place of performance of her duties, the Company shall pay and/or reimburse her expenses in connection with such relocation. Approval of 2022 Executive Compensation Plan and Awards to Ms. Fernandez-McGovern On February 7, 2022, the Company’s Board, upon recommendation of the Compensation Committee, approved the 2021 Executive Bonus Award comprising of $10,000 in cash bonus and the issuance of 62,500 RSUs for Mrs. Nicole Fernandez-McGovern, the Company’s Chief Financial Officer. Additionally, on February 7, 2022, the Company’s Board, upon recommendation of the Compensation Committee, approved the adoption of its 2022 Executive Compensation Plan pursuant to which, if all performance milestones related to the Company’s operational, financial, and strategic targets are met, Mrs. Fernandez-McGovern will be eligible to receive the following:(i) an annual cash bonus of up to 35% of her then-current base salary and RSUs with a fair value of up to $300,000, based upon achievement of the performance milestones established in the 2022 Executive Compensation Plan. (ii) a service-based bonus, comprised of a cash bonus of $50,000 and RSUs with a fair value of $50,000, which is payable in October 2022, and (iii) a quarterly grant of 25,000 stock options at the fair market value of the Company’s Common Stock on the grant date, vesting over two years, and exercisable for a period of five years.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 Note 14 – Commitments and Contingencies-Continued On November 12, 2021, the Board, in connection with the 2021 senseFly Acquisition and the 2021 executive compensation plan, approved a spot bonus of cash bonus of $10,000 and 75,000 RSUs to Mrs. Fernandez-McGovern. The Company has various employment agreements with various employees of theCompany which it considers normal and in the ordinary course of business along with agreements for all its directors which it has previously disclosed. The Company has no other formal employment agreements with our executive officers, nor any compensatory plans or arrangements resulting from the resignation, retirement, or any other termination of our named executive officers, from a change-in-control, or from a change in any executive officer’s responsibilities following a change-in-control. However, it is possible that the Company will enter into formal employment agreements with its executive officers in the future. Purchase Commitments The Company routinely places orders for manufacturing services and materials. As of December 31, 2022, the Company had purchase commitments of approximately $3,155,867. These purchase commitments are expected to be realized during the year ending December 31, 2023. Note 15 – Related Party Transactions The following reflects the related party transactions during the years ended December 31, 2022 and 2021, respectively: Mrs. Fernandez-McGovern is one of the principals of Premier Financial Filings, a full-service financial printer. Premier Financial Filings provided contracted financial services to the Company. For the years ended December 31, 2022 and 2021, the expenses related to services provided by Premier Financial Filings to the Company, were $18,371 and $33,930, respectively. These expenses are included within general and administrative expenses in the Company’s consolidated statements of operations. One of the Company’s directors, Mr. Thomas Gardner, is one of the principals of NeuEon, Inc, which provides services to the Company as the Chief Technology Officer. For the years ended December 31, 2022 and 2021, the expenses related to services provided by NeuEon Inc. to the Company were $153,750 and $293,750, respectively. These expenses are included within the general and administrative expenses in the Company’s consolidated statements of operations. Following his resignation as Chief Executive Officer in May 2020, Mr. Mooney agreed to provide consulting services to the Company, as needed, at a fixed fee of $4,500 per month on a month-to-month basis, plus reimbursement for travel expenses. On July 20, 2020, the Board, upon recommendation of the Compensation Committee, increased Mr. Mooney’s monthly fee for consulting services to $10,000 from $4,500 per month. For the years ended December 31, 2022 and 2021, the Company recognized $0 and $25,000 of expenses, which are included in the general and administrative expenses in the Company’s consolidated statement of operations.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 Note 16 – 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”),
As of
On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, provides for an acceleration of alternative minimum tax credit refunds, the deferral of certain employer payroll taxes, the availability of an employee retention credit, and expands the availability of net operating loss usage. In addition, other governments in state and local markets in which we operate also enacted certain relief measures. On December
The timing and manner in which we can utilize our net operating loss carry forward
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 Note 16 – Income Taxes-Continued As of December 31, 2022, the Company determined it is more likely than not that
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
Note The Company’s provision is primarily driven by the full valuation allowance in 2022 and 2021.
The Company’s income (loss) before provision for incomes taxes consisted of the following amounts:
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 Note 17 – Segment Information The Company conducts the business through the following three operating segments: Drones, Sensors and SaaS. The accounting policies of the operating segments are the same as those described in Note 2. Non-allocated administrative and other expenses are reflected in Corporate. Corporate assets include cash, prepaid expenses, notes receivable, right of use asset and other assets. As of December 31, 2022 and 2021 and for the years then ended operating information about the Company’s reportable segments consisted of the following: Goodwill and Assets
Net (Loss) Income
(1) Includes goodwill impairment $41,687,871 for the Drone and SaaS reporting segments (2) Includes goodwill impairment $12,357,921 for the SaaS reporting segment
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 Note 17 – Segment Information-Continued Revenues by Geographic Area
Note 18 – Subsequent Events
On
At a Special Meeting of the Shareholders of AgEagle, held on February 3, 2023 in Miami, Florida, the Company’s shareholders of record as of the close of business on December 9, 2022 and entitled to vote, approved the issuance of shares of the Company’s Common Stock, par value $0.001 per share (the On March 9, 2023, the Company received an Investor Notice to purchase an additional 3,000 shares of Series F Convertible Preferred (the “Additional Series F Preferred”) convertible into 2,381 shares of the Company’s Common Stock per $1,000 Stated Value per share of Preferred Stock, at a conversion price of $0.42 per share and associated Common Stock warrant to purchase up to 7,142,715 shares of Common Stock at the exercise price of $0.42 per share warrant (the “Additional Warrant”) for an aggregate purchase price
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 Note 18 – Subsequent Events-Continued The Additional Series F Preferred and the Additional Warrant were issued in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act. Neither the Additional Series F Preferred nor the Additional Warrant has been registered under the Securities Act, or applicable state securities laws, and none may be offered or sold in the United States absent registration under the Securities Act or an exemption from such registration requirements. The Company
|