UNITED STATES


SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

☒  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For The Quarterly Period Ended March 31, 20192020

 

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 issuer as specified in its charter)

 

Nevada 88-0422242
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)

 

117 S. 4th Street
Neodesha, Kansas 66757
(Address of principal executive offices, including zip code)

 

620-325-6363

Registrant’s phone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common StockUAVSNYSE American

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding twelve months (or shorter period that the registrant was required to submit and post such files).

YES  ☒  NO  ☐

 

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,” “smaller reporting company” or an “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filerAccelerated filer    
Non-accelerated filerSmaller reporting company
  Emerging growth company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐  No  ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class Outstanding at May 15, 201914, 2020
Common Stock,stock, $.001 par value 14,949,39433,305,742

  

 

Table of Contents 

  

TABLE OF CONTENTS

 

  Page
PART IFINANCIAL INFORMATION3
   
ITEM 1.FINANCIAL STATEMENTS:3
   
 Condensed Interim Consolidated Balance Sheets as of March 31, 2019 (unaudited)2020 and December 31, 2018 (audited)2019 (unaudited)3
   
 Condensed Interim Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 20192020 and 20182019 (unaudited)4
Condensed Interim Consolidated Statement of Stockholders’ Equity for the Three Months Ended March 31, 2020 and 2019 (unaudited)5
   
 Condensed Interim Consolidated Statements of Cash Flows for the Three Months Ended March 31, 20192020 and 20182019 (unaudited)6
   
 Notes to Condensed Interim Consolidated Financial Statements (unaudited)7
   
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS2226
   
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK3135
   
ITEM 4.CONTROLS AND PROCEDURES3135
   
PART IIOTHER INFORMATION3236
   
ITEM 1.LEGAL PROCEEDINGS3236
   
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS3336
   
ITEM 3.DEFAULTS UPON SENIOR SECURITIES3336
   
ITEM 4.MINE SAFETY DISCLOSURES3336
   
ITEM 5.OTHER INFORMATION3336
   
ITEM 6EXHIBITS3336
   
SIGNATURES3437

 

2 

Table of Contents 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

AGEAGLE AERIAL SYSTEMS INC.

CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2019,2020 AND DECEMBER 31, 20182019

(Unaudited)

 

 As of As of
 March 31, December 31, March 31, December 31,
ASSETS 2019 2018 2020 2019
CURRENT ASSETS:                
Cash $2,151,124  $2,601,730  $356,084  $717,997 
Accounts receivable  11,493   93   50,038   65,833 
Inventories, net  134,137   149,482   116,053   221,167 
Prepaid and other current assets  66,872   80,370   107,013   124,163 
Total current assets  2,363,626   2,831,675   629,188   1,129,160 
                
Property and equipment, net  25,142   28,374   36,121   37,776 
Intangible assets, net  635,282   677,118   482,337   520,573 
Goodwill  3,270,984   3,270,984   3,108,000   3,108,000 
Total assets $6,295,034  $6,808,151  $4,255,646  $4,795,509 
                
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Accounts payable $227,958  $197,827  $85,154  $57,432 
Accrued expenses  21,825   41,841   34,086   36,416 
Accrued dividends  41,333   1,333   204,000   163,555 
Contract liability  2,524   4,892 
Contract liabilities  40,978   264,472 
Payroll liabilities  29,172   13,521   6,877    
Promissory note  9,028   40,998 
Total current liabilities  331,840   300,412   371,095   521,875 
Total liabilities  331,840   300,412   371,095   521,875 
                
COMMITMENTS AND CONTINGENCIES (SEE NOTE 9)                
                
STOCKHOLDERS’ EQUITY :        
STOCKHOLDERS’ EQUITY:        
Preferred stock, $0.001 par value, 25,000,000 shares authorized:                
Preferred stock, Series B, $0.001 par value, 0 shares authorized, 0 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively      
Preferred stock, Series C Convertible, $0.001 par value, 10,000 shares authorized, 3,636 shares issued and outstanding at March 31, 2019 and 4,662 at December 31, 2018  4   5 
Preferred stock, Series D Convertible, $0.001 par value, 2,000 shares authorized, 2,000 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively  2   2 
Common Stock, $0.001 par value, 250,000,000 shares authorized, 14,449,394 and 12,549,394 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively  14,449   12,549 
Preferred stock, Series C Convertible, $0.001 par value, 10,000 shares authorized, 3,312 shares issued and outstanding at March 31, 2020 and 3,501 at December 31, 2019  3   4 
Preferred stock, Series D, $0.001 par value, 2,000 shares authorized, 2,000 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively  2   2 
Common stock, $0.001 par value, 250,000,000 shares authorized, 15,610,019 and 15,424,394 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively  15,610   15,424 
Additional paid-in capital  12,190,295   12,171,274   12,470,994   12,456,989 
Accumulated deficit  (6,241,556)  (5,676,091)  (8,602,058)  (8,198,785)
Total stockholders’ equity $5,963,194  $6,507,739  $3,884,551  $4,273,634 
Total liabilities and stockholders’ equity $6,295,034  $6,808,151  $4,255,646  $4,795,509 

 

See accompanying notes to thethese condensed interim consolidated financial statements.

 

Table of Contents 

 

AGEAGLE AERIAL SYSTEMS, INC.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 20192020 AND 20182019

(Unaudited)

 

 For the Three Months Ended  March 31, For the Three Months Ended March 31,
 2019 2018 2020 2019
Revenues $45,993  $29,191  $391,280  $45,993 
Cost of sales  33,948   23,798   174,483   33,948 
Gross Profit  12,045   5,393   216,797   12,045 
                
Operating Expenses:                
Selling expenses  12,127   4,627   3,041   12,127 
General and administrative  474,902   40,853   445,531   474,902 
Professional fees  90,019   151,061   171,498   90,019 
Total Operating Expenses  577,048   196,541   620,070   577,048 
Loss from Operations  (565,003)  (191,148)  (403,273)  (565,003)
                
Other Income (Expenses):        
Other income     15,065 
Other Expenses:        
Interest expense  (462)  (27,414)     (462)
Total Other Expenses, Net  (462)  (12,349)
Total Other Expenses     (462)
Loss Before Income Taxes  (565,465)  (203,497)  (403,273)  (565,465)
Provision for income taxes            
Net Loss $(565,465) $(203,497) $(403,273) $(565,465)
                
Net Loss Per Share - Basic and Diluted $(0.04) $(0.04) $(0.03) $(0.04)
                
Weighted Average Number of Shares Outstanding During the Period -- Basic and Diluted  13,254,949   4,919,236   15,599,109   13,254,949 

 

See accompanying notes to thethese condensed interim consolidated financial statements.

 

Table of Contents 

 

AGEAGLE AERIAL SYSTEMS INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE THREE MONTHS ENDED MARCH 31, 20192020

(Unaudited)

 

  Par $ .0001 Preferred Stock Series A Shares Preferred Stock Series A Amount Par $ .0001 Preferred Stock Series B Shares Preferred Stock Series B Amount Par $ .0001 Preferred Stock Series C Shares Preferred Stock Series C Amount Par $ .0001 Preferred Stock Series D Shares Preferred Stock Series D Amount Par $ .0001 Common Shares Common Stock Amount Additional Paid-In Capital Accumulated Deficit Total
Stockholders’ Equity
Balance as of December 31, 2018    $     $   4,662  $5   2,000  $2   12,549,394  $12,549  $12,171,274  $(5,676,091) $6,507,739 
Conversion of Series C Preferred Stock              (1,026)  (1)        1,900,000   1,900   (1,899)      
Dividend on Series D Preferred Stock                                (40,000)     (40,000)
Share compensation period costs                                60,920      60,920 
Net loss                                   (565,465)  (565,465)
Balance as of March 31, 2019    $     $   3,636  $4   2,000  $2   14,449,394  $14,449  $12,190,295  $(6,241,556) $5,963,194 
  Par $ .0001 Preferred Stock Series B Shares Preferred Stock Series B Amount Par $ .0001 Preferred Stock Series C Shares Preferred Stock Series C Amount Par $ .0001 Preferred Stock Series D Shares Preferred Stock Series D Amount Par $ .0001 Common Shares Common stock Amount Additional Paid-In Capital Accumulated Deficit Total
Stockholders’ Equity
Balance as of December 31, 2019    $   3,501  $4   2,000  $2   15,424,394  $15,424  $12,456,989  $(8,198,785) $4,273,634 
Conversion of Series C        (189)  (1)        350,000   350   (349)      
Purchase of Acquisition                    (164,375)  (164)  164       
Dividend on Series D Preferred Stock                          (40,445)     (40,445)
Stock compensation period costs                          54,635      54,635 
Net loss                             (403,273)  (403,273)
Balance as of March 31, 2020    $   3,312  $3   2,000  $2   15,610,019  $15,610  $12,470,994  $(8,602,058) $3,884,551 

  

AGEAGLE AERIAL SYSTEMS INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE THREE MONTHS ENDED MARCH 31, 20182019

(Unaudited)

 

  Par $ .0001 Preferred Stock Series A Shares Preferred Stock Series A Amount Par $ .0001 Preferred Stock Series B Shares Preferred Stock Series B Amount Par $ .0001 Preferred Stock Series C Shares Preferred Stock Series C Amount Par $ .0001 Preferred Stock Series D Shares Preferred Stock Series D Amount Par $ .0001 Common Shares Common Stock Amount Additional Paid-In Capital Accumulated Deficit Total
Stockholders’ Equity (Deficit)
Balance as of December 31, 2017  80,000  $   14  $   12  $     $   651,796  $420  $1,939,832  $(3,596,408) $(1,656,156)
Pre-merger issuances and conversions of shares  (80,000)     (6)     (12)           3,548,204             
                                                     
AgEagle debt conversion into common shares                          787,891   788   1,503,013      1,503,801 
Ag Eagle shareholder common stock conversion to Enerjex common shares              2,056            2,757,063   6,537   (6,537)      
Investment in Agribotix                           200,000   200   999,800      1,000,000 
Issuance of common and prefered stock for Enerjex Series shareholders upon merger           0.01   197   1         1,887,094   1,887   (606,443)     (604,555)
Issuance of common stock Series C in connection with investment upon merger              4,626   6               3,979,994      3,980,000 
Share compensation period costs                                2,491      2,491 
Net loss                                    (203,497)  (203,497)
Balance as of March 31, 2018    $   8  $0.01   6,879  $7     $   9,832,048  $9,832  $7,812,150  $(3,799,905) $4,022,084 
  Par $ .0001 Preferred Stock Series B Shares Preferred Stock Series B Amount Par $ .0001 Preferred Stock Series C Shares Preferred Stock Series C Amount Par $ .0001 Preferred Stock Series D Shares Preferred Stock Series D Amount Par $ .0001 Common Shares Common stock Amount Additional Paid-In Capital Accumulated Deficit Total Stockholders’ Equity
Balance as of December 31, 2018    $   4,662  $5   2,000  $2   12,549,394  $12,549  $12,171,274  $(5,676,091) $6,507,739 
Conversion of Series C        (1,026)  (1)        1,900,000   1,900   (1,899)      
Dividend on Series D Preferred Stock                          (40,000)     (40,000)
Stock compensation period costs                          60,920      60,920 
Net loss                             (565,465)  (565,465)
Balance as of March 31, 2019    $   3,636  $4   2,000  $2   14,449,394  $14,449  $12,190,295  $(6,241,556) $5,963,194 

 

Note: Amounts have been adjusted to reflect 25 to 1 stock split upon merger

  

See accompanying notes to thethese condensed interim consolidated financial statements statements.

 

Table of Contents 

 

AGEAGLE AERIAL SYSTEMS, INC.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 20192020 AND 20182019

(Unaudited)

 

 For the Three Months Ended March 31, For the Three Months Ended March 31,
 2019 2018 2020 2019
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net loss $(565,465) $(203,497) $(403,273) $(565,465)
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation and amortization  45,068   4,151   42,175   45,068 
Stock-based compensation  60,920   2,491   54,635   60,920 
                
Changes in assets and liabilities:                
Accounts receivable  (11,400)  171   15,795   (11,400)
Inventories  15,345   15,267   105,114   15, 345 
Prepaid expenses and other assets  13,498   (114,276)  417,150   13,498 
Contract liability  (2,368)   
Contract liabilities  (223,494)  (2,368)
Accounts payable  30,131   (461,415)  27,722   30,131 
Accrued liabilities  (20,016)  (39,634)  (2,330)  (20,016)
Accrued interest     27,412 
Accrued payroll liabilities  15,651   (469)
Payroll liabilities  6,877   15,651 
Net cash used in operating activities  (418,636)  (769,799)  (359,629)  (418,636)
                
CASH FLOW FROM INVESTING ACTIVITIES:                
Cash received in reverse merger     256,255 
Investment in unconsolidated investee     (35,000)
Net cash provided by investing activities     221,255 
        
Purchases of property and equipment  (2,284)   
Net cash used in investing activities  (2,284)   
                
CASH FLOWS FROM FINANCING ACTIVITIES:                
Payments on promissory note  (31,970)        (31,970)
Proceeds from the issuance of Common Stock and Series C convertible preferred stock in connection with merger, net of $20,000 in fees     3,980,000 
Net cash (used in) provided by financing activities  (31,970)  3,980,000 
Net cash used in financing activities     (31,970)
                
Net increase (decrease) in cash  (450,606)  3,431,456 
Net decrease in cash  (361,913)  (450,606)
Cash at beginning of period  2,601,730   35,289   717,997   2,601,730 
Cash at end of period $2,151,124  $3,466,745  $356,084  $2,151,124 
                
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                
Interest cash paid $462  $  $  $462 
Income taxes paid $  $  $  $ 
                
NON-CASH INVESTING AND FINANCING ACTIVITIES:                
Assets acquired (liabilities assumed) in reverse merger:        
Cash $  $256,255 
Accounts payable     (860,812)
Net liabilities assumed $  $(604,557)
                
Investment made in unconsolidated investee $  $1,000,000 
Conversion of Series B and C preferred stock into common stock $189  $1,026 
Accrued dividends on Series D Preferred Stock $40,000  $  $40,445  $40,000 

 

See accompanying notes to thethese condensed interim consolidated financial statements.

 

Table of Contents 

 

AGEAGLE AERIAL SYSTEMS, INC.

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 20192020

(Unaudited)

 

Note 1 – Description of Business

 

AgEagle Aerial Systems Inc. (“AgEagle,”AgEagle” or “the Company,” “we,” “our,” “us”Company”) designs, produces and supports technologically-advanced small, unmanned aerial vehicles (“UAVs” or “its,”“drones”) was created. In addition, to pioneer, innovateproviding new utility to UAVs, the Company pioneers and advanceinnovates advanced aerial imaging data collection and analytics technologies capable of addressing the impending food and environmental sustainability crises that threaten our planet. TheHistorically, the Company’s daily efforts arehave focused on delivering the metrics, tools and strategies necessary to define and implement intelligentcommercial drone construction and delivery, along with sustainability and precision farming solutions that solve important problems confronting the global agricultural industry. SinceIn fact, AgEagle through its foundingrecent acquisition, has spent eight years serving customers, covering more than two million acres in 2010,50 countries and monitoring 53 different crops. AgEagle has beenremains intent on becomingearning distinction as a trusted partner to major food manufacturers and precision growersclients seeking to adopt 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-advancedtechnologically advanced small unmanned aerial vehicles (UAVsUAVs or drones)drones that AgEagle offers for commercial sale commercially 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.

 

 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.

 

The Company is headquartered at 117 South 4th Street, Neodesha, Kansas 66757. Its website address is http://www.ageagle.com.

Table of Contents

AGEAGLE AERIAL SYSTEMS, INC.

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2020

(Unaudited)

Note 1 – Description of Business – Continued

 

Corporate History; Recent Business Combination

 

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 IncInc. (the “Company, “we,” “our,” or “us”) and AgEagle Sub changed its name initially to “Eagle Aerial, Inc. and then to” AgEagle Aerial, Inc.

 

Prior to

On August 28, 2018, we closed the Merger, EnerJex was formerly known as Millennium Plastics Corporation (“Millennium) and was incorporated intransaction contemplated by the State of Nevada on March 31, 1999. In August 2006, Millennium acquired Midwest Energy,Asset Purchase Agreement (the “Purchase Agreement”) dated July 25, 2018 with AgEagle Aerial, 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 were through EnerJex Kansas, Inc., Black Sable Energy,Company; Agribotix, LLC, a TexasColorado limited liability company (“Black Sable”Agribotix” or the “Seller”); and Black Raven Energy, Inc.the other parties named therein. Pursuant to the Purchase Agreement, we acquired all right, title and interest in and to all assets owned by Agribotix, which included Agribotix’s primary product, FarmLens™, utilized in their business for providing integrated agricultural drone solutions and drone-enabled software technologies and services for precision agriculture.

The Company believes that purchasing FarmLens benefitted us and our shareholders by developing important vertically integrated products and services.FarmLens is a Nevada corporation (“Black Raven”). Our leasehold interests were heldsubscription cloud analytics service that processes data, primarily collected with a drone such as those produced by AgEagle and makes such data actionable by farmers and agronomists.FarmLensis currently sold by AgEagle as a subscription service and offered either standalone or in our wholly-owned subsidiaries Black Sable, Working Interest, LLC, EnerJexa bundle with drone platforms manufactured by leading drone providers like AgEagle, DJI and senseFly.

To date,FarmLens, has processed agricultural imagery for approximately two million acres of crops and analyzed data for over 53 different crop types from over 50 countries around the world.

The Company is currently headquartered in Neodesha, Kansas, but plans to relocate its headquarters and Black Raven.manufacturing operations to Wichita, Kansas during the second quarter of this year.

 

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Table of Contents 

 

AGEAGLE AERIAL SYSTEMS, INC.

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 20192020

(Unaudited)

Note 1 – Description of Business-Continued

On August 28, 2018, AgEagle acquired all right, title and interest in and to all assets owned by Agribotix, LLC, Agribotix, LLC, a Colorado limited liability company (“Agribotix” ) to be utilized in their business of providing integrated agricultural drone solutions and drone-enabled software technologies and services for precision agriculture. AgEagle’s management believes that purchasing Agribotix’s primary product, FarmLens™, will benefit the Company and its shareholders by developing important vertically integrated products and services. FarmLens is a subscription cloud analytics service that processes data, primarily collected with a drone such as ours, and makes such data actionable by farmers and agronomists. FarmLens is currently sold by the Company 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.

 

Note 2 – Summary of Significant Accounting Policies

 

Basis of Presentation and Consolidation - These consolidated financial statements are presented in United States dollars and have been prepared in accordance with accounting principles generally accepted in the United States. The Company’s consolidated financial statements are prepared using the accrual method of accounting. The Company has elected a December 31 fiscal year end.

The consolidated financial statements include the accounts of AgEagle Aerial Systems, Inc. and its wholly-owned subsidiaries AgEagle Aerial, Inc., EnerJex Kansas, Inc., Black Sable Energy LLC and Black Raven Energy, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.

The accompanying interim unaudited condensed consolidated financial statements have been prepared under the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information, which included condensed consolidated financial statements of the Company and its wholly owned subsidiaries as of March 31, 2019.2020.Accordingly, the condensed consolidated financial statements do not include all the information and notes necessary for a comprehensive presentation of the financial position and results of operations and should be read in conjunction with the audited financial statements of the Company for the year ended December 31, 20182019 and included in the Form 10-K filed with the SEC on March 27, 2019.April 13, 2020. It is management’s opinion that all material adjustments (consisting of normal recurring adjustments) have been made, which are necessary for a fair financial statement presentation. The results for the interim period are not necessarily indicative of the results to be expected for the year ending December 31, 2019.2020.

 

TableBasis of Contents

AGEAGLE AERIAL SYSTEMS, INC.

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCHPresentation and Consolidation - These interim condensed consolidated statements are presented in United States dollars and have been prepared in accordance with accounting principles generally accepted in the United States. The Company has elected a December 31 2019

(Unaudited)fiscal year end.

 

Note 2 – SummaryThe interim condensed consolidated financial statements include the accounts of Significant Accounting Policies-ContinuedAgEagle Aerial Systems Inc. and its wholly-owned subsidiaries AgEagle Aerial, Inc., EnerJex Kansas, Inc., Black Sable Energy, LLC, and Black Raven Energy, Inc., was dissolved effective November 2019. All significant intercompany balances and transactions have been eliminated in consolidation.

 

The summary of significant accounting policies presented below is designed to assist in understanding the Company’s interim condensed consolidated financial statements. Such interim condensed 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 interim condensed consolidated financial statements.

 

Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the allowancereserve for bad debt warranty and dealer termination costs, obsolete inventory, valuation of stock issued for services and stock options, valuation and estimated useful life of intangible assets and property and equipment, and the valuation of deferred tax assets.

 

Fair Value of Financial Instruments - Unless otherwise disclosed, the fair value of the Company’s financial instruments, including cash, accounts receivable, convertible debt, promissory notes, accounts payable and accrued expenses, approximates their recorded values due to their short-term maturities.

Cash and Cash Equivalents - Cash and cash equivalents includes any highly liquid investments with an original maturity of three months or less. The Company held no cash equivalents as of March 31, 20192020 or December 31, 2018.2019. The Company maintains cash balances at financial institutions that are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 Our$250,000. The Company’s bank balances at timetimes may exceed the FDIC limit. To date, the Company has not experienced any losses on its invested cash.

 

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AGEAGLE AERIAL SYSTEMS, INC.

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2020

(Unaudited)

Note 2 – Summary of Significant Accounting Policies – Continued

Receivables and Credit Policy -Trade receivables due from customers are uncollateralized customer obligations due under normal trade terms requiring payment within 30 days from the invoice date. Terms with our distributor allow for payment terms of 45 days from the invoice date. Trade receivables are stated at the amount billed to the customer. The Company generally does not charge interest on overdue customer account balances. Payments of trade receivables are allocated to the specific invoices identified on the customer’s remittance advice or, if unspecified, are applied to the earliest unpaid invoices.

 

The Company estimates an allowance for doubtful accounts based upon an evaluation of the current status of 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. The Company determined that no allowance was necessary as of March 31, 20192020 and December 31, 2018.

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AGEAGLE AERIAL SYSTEMS, INC.

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2019

(Unaudited)

Note 2 – Summary of Significant Accounting Policies-Continued2019.

 

Inventories - Inventories, which consist of raw materials, finished goods and work-in-process, are stated at the lower of cost or net realizable value, with cost being determined by the average-cost method, which approximates the first-in, first-out method. Cost components include direct materials and direct labor, as well as in-bound freight. At each balance sheet date, the Company evaluates its ending inventories for excess quantities and obsolescence. This evaluation primarily includes an analysis of forecasted demand in relation to the inventory on hand, among consideration of other factors. The physical condition (e.g., age and quality) of the inventories is also considered in establishing its valuation. Based upon the evaluation, provisions are made to reduce excess or obsolete inventories to their estimated net realizable values. Once established, write-downs are considered permanent adjustments to the cost basis of the respective inventories. These adjustments are estimates, which could vary significantly, either favorably or unfavorably, from the amounts that the Company may ultimately realize upon the disposition of inventories if future economic conditions, customer inventory levels, product discontinuances, sales return levels or competitive conditions differ from the Company’s estimates and expectations. As of March 31, 20192020 and December 31, 2018,2019, the Company had recorded a provision for obsolescence of $10,000 and $10,369, respectively.$10,000.

 

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 is recognized for therepresents costs in excess of cost of an acquired entity over the amountsfair values assigned to the underlying identifiable net assets of acquired and liabilities assumed in a business combination. The Company’s goodwill relates to an acquisition that occurred in August 2018.businesses. Goodwill is not amortized, but evaluatedsubject to amortization and is tested annually for recoverabilitythe impairment, or more frequently if events or changes in circumstances indicate that the carrying amountvalue of such assetthe goodwill may not be recoverable orrecoverable.

Intangible assets from acquired businesses are recognized at least annually.When assessing goodwill for impairment, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the 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 reporting unit is less than its carrying amount. If, after assessing the totalitystraight-line basis over a period of events or circumstances, we determine it is more likely than not that theexpected cash flows used to measure fair value, of a reporting unit is less than its carrying amount, then we perform a two-step impairment test. If we conclude otherwise, then no further action is taken. We also have the optionwhich ranges from four to bypass the qualitative assessment and only perform a quantitative assessment, which is the first step of the two-step impairment test. In the two-step impairment test, we measure the recoverability of goodwill by comparing a reporting unit’s carrying amount, including goodwill, to the estimated fair value of the reporting unit.As of March 31, 2019, there have been no events or changes in circumstances that indicate that it is more likely than not that a goodwill impairment has occurred since the assessment date of August 2018.five years.

 

Intangible AssetsRevenue Recognition and Concentration Acquired in Business Combinations The Company performs valuationsmajority of assets acquiredthe Company’s revenue is generated pursuant to written contractual arrangements to develop, manufacture and/or modify complex drone related products, and liabilities assumed on each acquisitionto provide associated engineering, technical and other services according to customer specifications. These contracts are at a fixed price and are accounted for asin accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”).Under fixed-price contracts, the Company agrees to perform the specified work for a business combination and allocatespre-determined price. To the purchaseextent the Company’s actual costs vary from the estimates upon which the price of each acquired business to our respective net tangible and intangible assets. Acquired intangible assets include customer relationships, technology, noncompete agreements and trade names.was negotiated, it will generate more or less profit or could incur a loss. The Company uses valuation techniquesaccounts for a contract after it has been approved by all parties to value these intangibles assets, with the primary technique being a discounted cash flow analysis. A discounted cash flow analysis requires us to make various assumptionsarrangement, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and estimates including projected revenue, gross margins, operating costs, growth rates, useful lives and discount rates. Intangible assets are amortized over their estimated useful lives using the straight-line method which approximates the pattern in which the economic benefits are consumed.collectability of consideration is probable.

 

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AGEAGLE AERIAL SYSTEMS, INC.

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 20192020

(Unaudited)

 

Note 2 – Summary of Significant Accounting Policies-ContinuedPolicies – Continued

 

Long-Lived AssetsThe Company reviews its long-lived assets and certain identifiable intangible assets held and used for impairment whenever events or changes in circumstances indicate that their carrying value of such assets may not be recoverable. If the estimated undiscounted cash flows that are expected to result from the use of the assets is less than the carrying amount of the assets, an impairment loss is recorded equal to the excess of the carrying amount of the fair value of the assets less costs to sell. There were no impairment losses recorded by the Company during the three-month period ending March 31, 2019 or 2018.

Business Combinations - The Company recognizes, with certain exceptions, 100% of the fair value of assets acquired, liabilities assumed, and non-controlling interests when the acquisition constitutes a change in control of the acquired entity. Shares issued in consideration for a business combination, contingent consideration arrangements and pre-acquisition loss and gain contingencies are all measured and recorded at their acquisition-date fair value. Subsequent changes to the fair value of contingent consideration arrangements are generally reflected in earnings. Any in-process research and development assets acquired are capitalized as of the acquisition date. Acquisition-related transaction costs are expensed as incurred. The operating results of entities acquired are included in the accompanying consolidated statements of operations from the date of acquisition.

Revenue Recognition and Concentration -The Company generally recognizes revenue on sales to customers, dealers and distributors upon satisfaction of our performance obligations which generally occurs once controls transfer to customers, which is when the goods areproduct is shipped and control transfers to our customers. Revenue reflects the consideration we expect to receive in exchange for our products. The Company generally ships using FOB Shipping Point terms.. The Company assesses collectability basedor delivered depending on the creditworthiness of the customer as determined by evaluations and the customer’s payment history. specific shipping terms.Additionally, customers are required to place a deposit onor pay upon shipping for each UAV or drone delivery assembly part ordered. Customer payments received in advance of the Company completing performance obligations are recorded as contract liabilities.

 

As a result of the Agribotix acquisition, the Company now has an additional product line which is the sale of subscriptionSubscription services for use of the Company’s proprietaryFarmLensplatform to process aerial imaging. These subscription feesandHempOverview platforms are recognized ratably over each monthlythe membership period as the services are provided.

 

Sales concentration information for customers comprising more than 10% of the Company’s total net sales such customers is summarized below:

 

 Percent of total sales for three months
ended March 31,
 Percent of total sales for three months
ended March 31,
Customers 2019 2018 2020 2019
Customer A  68.0%     95.6%  68.0%
Customer B  29.1%        29.1%
Customer C     31.8%
Customer D     27.8%
Customer E     19.1%

Accounts receivables due from Customer A and C comprised all of the accounts receivable as of March 31, 2019.

The table below reflects our revenue for the periods indicated by product mix.

  For the three months ended March 31,
Type 2020 2019
Drone Assembly and Product Sales $374,278  $38,083 
Software Platform Sales  17,002   7,910 
Total $391,280  $45,993 

Vendor ConcentrationAs of March 31, 2020, there was one significant vendor that the Company relies upon to perform stitching itsFarmLensplatform. This vendor provides services to the Company which can be replaced by alternative vendors should the need arise.

Shipping CostsShipping costs for the three months ended March 31, 2020 and 2019 totaled $301 and $758, respectively. 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 on the condensed statements of operations.

 

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AGEAGLE AERIAL SYSTEMS, INC.

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 20192020

(Unaudited)

 

Note 2 – Summary of Significant Accounting Policies-Continued

The table below reflects our revenue for the periods indicated by product mix.

  For three months ended March 31,
Type 2019 2018
Product Sales $38,083  $29,191 
Subscription Sales  7,910    
Total $45,993  $29,191 

Vendor Concentration- As of March 31, 2019, there was one significant vendor upon which the Company relied to perform stitching in itsFarmLensplatform. This vendor provided services to the Company which can be replaced by alternative vendors should the need arise.

Shipping Costs - Shipping costs for the three months ended March 31, 2019 and 2018 totaled $758 and $952, respectively . 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 on the statement of operations.

Advertising CostsPoliciesAdvertising costs are expensed as incurred. No advertising costs were recorded for the three months ended March 31, 2019, and $906 for the three months ended March 31, 2018.Continued

 

Earnings Per Share - Basic loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the year.period. Diluted loss per share is computed by dividing net loss by the weighted average number of Commoncommon shares outstanding plus Common Stockcommon stock equivalents (if dilutive) related to warrants, options and convertible instruments.

 

Potentially Dilutive Securities - The Company has excluded all common equivalent shares outstanding for warrants, options and convertible instruments to purchase Common Stockcommon stock from the calculation of diluted net loss per share because all such securities are antidilutive for the periods presented. For the three-month period ended March 31, 2019,2020, the Company had 4,531,924 warrants and 1,756,6652,569,970 options to purchase Common Stock,common stock; and 3,6363,312 shares of Series C Preferred Stock which may be converted into 6,733,0676,133,333 shares of Common Stock.common stock. For the three-month period ended March 31, 2018,2019, the Company had 828,2004,531,924 warrants and 1,184,3001,963,720 options to purchase Common Stock, 6,887common stock, and 3,636 shares of Series C Preferred Series B and C sharesStock which were convertible into 4,498,0026,733,333 shares of Common Stock. common stock.

 

Income Taxes - The Company accounts for income taxes in accordance with FASB (Financial Accounting Standards Board) ASC Topic 740, Accounting for Income Taxes. This topic requires an asset and liability approach for accounting for income taxes. The Company evaluates its tax positions that have been taken or are expected to be taken on income tax returns to determine if an accrual is necessary for uncertain tax positions. The Company will recognize future accrued interest and penalties related to unrecognized tax benefits in income tax expense if incurred. All income tax returns not filed more than three years ago are subject to federal and state tax examinations by tax authorities.

Stock-Based Compensation Awards The Company accounts for its stock-based awards in accordance with ASC Subtopic 718-10, “Compensation – Stock Compensation”, which requires fair value measurement on the grant date and recognition of compensation expense for all stock-based payment awards made to employees and directors. For stock options, the Company estimates the fair value using a closed option valuation (Black-Scholes) model. The estimated fair value is then expensed over the requisite service period of the award which is generally the vesting period and the related amount is recognized in the consolidated statements of operations. The Company recognizes forfeitures at the time they occur.

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.

 

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AGEAGLE AERIAL SYSTEMS, INC.

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 20192020

(Unaudited)

 

Note 2 – Summary of Significant Accounting Policies-ContinuedPolicies – Continued

Recently Issued Accounting Pronouncements

 

Share-Based Compensation Awards - The value the Company assigns to the options that are issued 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 a 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.Adopted

 

In January 2016, the FASB issued ASU 2016-01, Financial Instruments: Recognition and Measurement of Financial Assets and Financial Liabilities, which addresses certain aspects of recognition, measurement, presentation and disclosure of financial statements. The Company’s adoption of ASU No. 2016-01 effective January 1, 2019 did not have a material impact on the condensed interim consolidated financial statements.

 

In February 2016, FASB issued Account Standards Update 2016-02 – Leases (Topic 842) intended to improve financial reporting of leasing transactions whereby lessees will need to recognize a right-of-use asset and a lease liability for virtually all their leases. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current Generally Accepted Accounting Principles (GAAP),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. However, unlike current GAAP — which requires only capital leases to be recognized on the balance sheet — the new ASU will require both types of leases to be recognized on the balance sheet. The Company adopted this ASU on January 1, 2019 and it did not have a material impact on the Company’s condensed interim consolidated financial statements.statements as the Company currently has no leases with a term of more than twelve months.

In January 2017, the FASB issued ASU 2017-04,Intangibles-Goodwill and Other (Topic 350). The update simplifies the process for assessing goodwill for impairment. The amended guidance removes the second step that was previously required. Under this ASU, impairment charges to goodwill are based on the excess of a reporting unit’s carrying value to its fair value. ASU 2017-04 is effective for us for the fiscal year ending September 30, 2021, with early adoption permitted for periods beginning after January 1, 2017. The Company adopted ASU 2017-04 on January 1, 2019 and applied the guidance to the annual impairment test (see Note 5).

 

In August 2016,2018, the FASB issued ASU 2016-15,2018-13, Statement of Cash FlowsDisclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (Topic 230): Classification of Certain Cash Receipts and Cash Payments820). This ASU removes or modifies current disclosures while adding certain new disclosure requirements. The new guidance is intended to reduce diversity in practice in how transactions are classified in the statement of cash flows. This ASU is effective for fiscal years, and for interim periods within those fiscal years beginning after December 15, 2017.2019 and interim periods therein, with early adoption permitted for the removed or modified disclosures. The adoption ofremoved and modified disclosures can be adopted retrospectively, and the added disclosures should be adopted prospectively. The Company adopted this standardASU on January 1, 2020 and it did not have a material impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, Business Combinations—Clarifying the definition of a business (Topic 805). This ASU clarifies the definition of a business with the objective of providing a more robust framework to evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The Company’s adoption of ASU No. 2017-01 effective May 1, 2018 did not have a material impact on the consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718). This ASU reduces the diversity in practice and cost and complexity when applying the guidance in Topic 718 to a change in terms or conditions of a share-based payment award. The Company’s adoption of ASU No. 2017-09 effective May 1, 2018 did not have a material impact on itscondensed interim consolidated financial statements.

 

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AGEAGLE AERIAL SYSTEMS, INC.

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 20192020

(Unaudited)

Note 2 – Summary of Significant Accounting Policies – Continued

Pending Adoption

 

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.

 

Note 3 — Inventories

 

Inventories consist of the following at:

 

 March 31,
2019
 December 31,
2018
 March 31,
2020
 December 31,
2019
        
Raw materials $97,427  $109,826  $75,432  $193,022 
Work-in-process  27,364   30,088   40,113   26,456 
Finished goods  19,346   19,937   10,508   11,689 
Gross inventory $144,136  $158,851  $126,053  $231,167 
Less obsolete reserve  (10,000)  (10,369)  (10,000)  (10,000)
Total $134,137  $149,482  $116,053  $221,167 

 

Note 4 — Property and Equipment

 

Property and equipment consist of the following at:

 

 March 31,
2019
 December 31,
2018
 March 31,
2020
 December 31,
2019
        
Property and equipment $116,313  $116,313  $143,042  $140,758 
Less accumulated depreciation  (91,171)  (87,939)  (106,921)  (102,982)
 $25,142  $28,374  $36,121  $37,776 

 

Depreciation expense for the three months ended March 31, 2020 and 2019 was $3,939 and 2018 was $3,232, and $4,151, respectively.

Note 5 — Intangible Assets

Intangible assets are recorded at cost and consist of the assets acquired in 2018 related to the acquisition of Agribotix. Amortization is computed using the straight-line method over the estimate useful life of the asset. We will annually assess intangible and other long-lived assets for impairment. Intangible assets were comprised of the following at March 31, 2019:

Intangible Assets Estimated Life Gross Cost Accumulated Amortization Net Book Value
Intellectual Property/Technology 5 yrs. $433,400  $(50,563) $382,837 
Customer Base 5 yrs.  72,000   (8,400)  63,600 
Tradenames - Trademarks 5 yrs.  58,200   (6,790)  51,410 
Non-compete agreement 4 yrs.  160,900   (23,465)  137,435 
Carrying value as of March 31, 2019   $724,500  $(89,218) $635,282 

Amortization expense for the three months ended March 31, 2019 and 2018 was $41,836 and $0, respectively.

 

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AGEAGLE AERIAL SYSTEMS, INC.

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2020

(Unaudited)

Note 5 – Intangible Assets

Intangible assets are recorded at cost and consist of assets acquired in 2018 as a result of a business acquisition in 2018. Amortization is computed using the straight-line method over the estimate useful life of the asset. Intangible assets were comprised of the following at March 31, 2020:

Intangible Assets Estimated Life Gross Cost Accumulated Amortization Net Book Value
Intellectual Property/Technology 5 yrs. $433,400  $(137,243) $296,157 
Customer Base 5 yrs.  72,000   (22,800)  49,200 
Tradenames - Trademarks 5 yrs.  58,200   (18,430)  39,770 
Non-compete agreement 4 yrs.  160,900   (63,690)  97,210 
Carrying value as of March 31, 2020   $724,500  $(242,163) $482,337 

The weighted average remaining amortization period in years is 3.5 years. Amortization expense for the three months ended March 31, 2020 and 2019 was $38,236 and $41,836, respectively.

Future amortization is as follows for fiscal years ending:

  2020 (months remaining) 2021 2022 2023
Intellectual Property/Technology $65,010  $86,680  $86,680  $57,786 
Customer Base  10,800   14,400   14,400   9,600 
Tradenames and Trademarks  8,730   11,640   11,640   7,760 
Non-compete Agreement  30,169   40,225   26,817    
Total $114,709  $152,945  $139,537  $75,146 

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AGEAGLE AERIAL SYSTEMS, INC.

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2020

(Unaudited)

 

Note 6 Promissory Note

 

As part of the liabilities assumed from the EnerJex Merger, the Company recorded a promissory note for a principal amount of $125,556 and accrued interest of $4,171 payable over twelve months and maturing on March 27, 2019. The total amount outstanding as March 31, 2019 was $9,028, resulting in principal payments of $31,970 made in the first three months of 2019. The Company recorded interest of $462 for the three months ended March 31, 2019. The note was paid in full in April 2019.

 

Note 7 – Stockholders’ Equity

 

Capital Stock Issuances as of the date of Merger

 

As a result of the Merger all the holders of the Company’s 10% Series A Cumulative Redeemable Perpetual Preferred Stock (the “Series A Preferred Stock”) had their shares automatically converted into 902,186 shares of the Company’s common stock. The Company’s Series B Convertible Preferred Stock of 8.25 shares (the “Series B Preferred Stock”) remained outstanding and were convertible into 5,388 shares of the Company’s common stock. The Company’s Series C Convertible Preferred Stock (the “Series C Preferred Stock”) included 2,879 of remaining shares after the conversion and retirement of all the Company’s promissory notes due. These shares are convertible into 1,471,425 shares of the Company’s common stock. Furthermore, an additional 4,000 shares of Series C Preferred Stock were issued and are convertible into 3,020,797 shares of the Company’s common stock, as they were issued to the current holder of Series C Preferred Stock in connection with a $4 million financing of Series C Preferred Stock (the “Financing”).

On May 11, 2018, we issued an additional 250 shares of our Series C Preferred Stock, convertible into 163,265 shares of our common stock and received a cash payment of $250,000 for the issuance of the Series C Preferred Stock. The Series C Preferred Stock includes a beneficial ownership limitation preventing conversion of shares of Series C Preferred Stock into more than 9.99% of the number of shares of our common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the Series C Preferred Stock.

On November 21, 2017, Alpha Capital Anstalt (“Alpha”) signed a binding commitment letter EnerJex to provide prior to or at the closing 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. At the time of private placement, the Series C Preferred Stock was 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 $1.53. 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.

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AGEAGLE AERIAL SYSTEMS, INC.

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2020

(Unaudited)

Note 7 – Equity – Continued

Series C Preferred Stock

During the three monthsthree-month period ended March 31, 2020, Alpha Capital Anstalt converted 189 shares of Series C Preferred Stock into 350,000 shares of common stock at a conversion price of $0.54. During the three-month period ended March 31, 2019, Alpha Capital Anstalt converted a total of 1,026 shares of Series C Preferred Stock into 1,900,000 shares of Common Stockcommon stock at a conversion price of $0.54.

 

Series D Preferred Stock

 

On December 27, 2018, AgEagle Aerial Systems Inc.(the (the “Company”) entered into a Securities Purchase Agreement (the “Agreement”) with Alpha Capital Anstalt (the “Purchaser”). Pursuant to the terms of the Agreement, the Board of Directors of the Company (the “Board”) designated a new series of preferred stock, the Series D Preferred Stock, which is non-convertible and provides for an 8% annual dividend and is subject to optional redemption by the Company (the “Preferred Stock”). The Company issued 2,000 shares of Preferred Stock and a warrant to purchase 3,703,703 shares of common stock, par value $0.001 per share (the “Warrant,” and the shares of common stock underling the warrants, the “Warrant Shares”) for $2,000,000 in gross proceeds. The Company also entered into a Registration Rights Agreement, granting registration rights to the Purchaser with respect to the Warrant Shares. During the three months ended March 31, 2019, the Company recorded $40,000 of accrued dividends.

The Agreement provides that upon a subsequent financing or financings with net proceeds of at least $500,000, the Company must exercise its optional redemption of the Preferred Stock (as more fully described below in Item 5.03) and apply any and all net proceeds from such financing(s) to the redemption in full of the Preferred Stock.

 

The Preferred Stock is non-convertible, provides for an 8% annual dividend payable semi-annually and has liquidation rights senior to the Common Stock,common stock, but pari passu with the Company’s Series C Preferred Stock. During the three months ended March 31, 2020 and 2019, the Company recorded $40,444 and $40,000 of accrued dividends, respectively. As of March 31, 2020 and December, 31, 2019, accumulated accrued dividends totaled $204,000 and $163,555, respectively, as presented on the condensed interim consolidated balance sheets.

The Preferred Stock has no voting rights, except that the Company shall not undertake certain corporate actions as set forth in the Certificate of Designation that would materially impact the holders of Preferred Stock without their consent.

 

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AGEAGLE AERIAL SYSTEMS, INC.

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2019

(Unaudited)

The Preferred Stock is subject to optional redemption by the Company at 115% of the stated value of the Preferred Stock outstanding at the time of such redemption, plus any accrued but unpaid dividends and all liquidated damages or other amounts due. Any such optional redemption may only be exercised after giving notice and upon satisfaction of certain equity conditions set forth in the Certificate of Designation, including (i) all dividends, liquidated damages and other amounts have been paid; (ii) there is an effective registration statement covering the Warrant Shares, or the Warrant Shares can be exercised through a cashless exercise without restriction under Rule 144, (iii) the Warrant Shares are listed on an exchange, (iv) the holder is not in possession of material, non-public information, (v) there is a sufficient number of authorized shares for issuance of all Warrant Shares, and (vi) for each trading day in a period of 20 consecutive trading days prior to the redemption date, the daily trading volume for the Common Stockcommon stock on the principal trading market exceeds $200,000 per trading day.

 

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NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2020

(Unaudited)

Note 7 – Equity-Continued

Series C Preferred Stock

On November 21, 2017, Alpha Capital Anstalt (“Alpha”) signed a binding commitment letter EnerJex to provide prior to or at the closing 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. At the time of private placement the Series C Preferred Stock was 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 $1.53. 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.Stockholders’ Equity – Continued

 

Options Issued

 

The Board of Directors of the Company unanimously approved a proposal to adopt and approveOn March 26, 2018, the EnerJex 2017 Omnibus Equity Incentive Plan (the “Plan”). The Board of Directors recommended that this proposal be presented to became effective. Under the EnerJex shareholders for approval. The Plan, became effective on March 26, 2018, the date of the Merger, and 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 Company has reserved a total of 2,000,000 shares of Common Stock for issuance as or under awards to be made under the Plan. 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 Plan shall continue in effect, unless sooner terminated, until the tenth (10th) anniversary of the date on which it is adopted by the Board of Directors (except as to awards outstanding on that date). The Board of Directors in its discretion may terminate the Plan at any time with respect to any shares for which awards have not theretofore been granted; provided, however, that the Plan’s termination shall not materially and adversely impair the rights of a holder, without the consent of the holder, with respect to any award previously granted. The numberThere are 3,000,000 shares of sharescommon stock reserved for which awards which are options or SARs may be granted to a participant under the 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 Plan in any single calendar year shall be $500,000.Plan.

 

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AGEAGLE AERIAL SYSTEMS, INC.

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2019

(Unaudited)

Note 7 – Equity-Continued

During the three months endedOn March 31, 2019,2020, the Company issued options to purchase 540,00087,000 shares of Common Stockcommon stock to directors and employees of the Company at the fair value exercise price ranging fromof $0.41 to $0.54 per share expiring on March 30, 2024 to March 31, 2029.2025. The Company determined the fair-market value of the options to be $156,134.$21,492. In connection with the issuance of these options, the Company recognized $1,944 inno stock compensation expense for the three months ended March 31, 2019.2020.

 

During the year ended Decemberperiods March 31, 2018,2020 and 2019, the Company issued options to purchase 534,598 shares of Common Stock to directors and employees of the Company at the fair value exercise price ranging from $0.51 to $4.33 per share expiring between March 30, 2023 to December 17, 2028. The Company determined the fair-market value of the options to be $449,491. In connection with the issuance of these options, the Companycompany recognized $57,627 stock compensation expense forof $54,635 and $60,920, respectively on options previously issued under the three months ended March 31, 2019.Plan that vested.

 

On October 4, 2017, AgEagle Sub issued options to purchase 927,774 shares of Common Stock to employees and directors, that were approved by the board at an exercise price of $0.06 per share. These options were assumed by the Company in the Merger. In connection with the issuance of these options to employees and directors for the three months ended March 31, 2019 and 2018, the Company recorded $1,349 and $2,491, respectively of stock compensation expense.

The fair value of options granted during the three months endedthree-month periods ending March 31, 2020 and 2019 were determined using the Black-Scholes option valuation model. The expected term of options granted is based on the simplified method in accordance with Securities and Exchange Commission Staff Accounting Bulletin 107 and represents the period of time that options granted are expected to be outstanding. The Company makes assumptions with respect to expected stock price volatility based on the average historical volatility of peers with similar attributes. In addition, the Company determines the risk-free rate by selecting the U.S. Treasury with maturities similar to the expected terms of grants, quoted on an investment basis in effect at the time of grant for that business day.

 

The significant weighted average assumptions relating to the valuation of the Company’s stock options granted during the three months ended March 31, 2019 were as follows: 

March 31, 2019
Dividend yield0%
Expected life3.5-6.5 Years
Expected volatility82.4%
Risk-free interest rate2.23%

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AGEAGLE AERIAL SYSTEMS, INC.

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2019

(Unaudited)

Note 7 – Equity-Continued

A summary of the options activity for the three months ended March 31, 2019 is as follows:

  Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value
Outstanding at January 1, 2019  1,494,158  $0.46   6.93 Years   $409,678 
Granted  540,000   0.42   8.68Years     
Exercised/Forfeited  (70,438)  0.49   — Years     
Outstanding at March 31, 2019  1,963,720   0.45   7.19 Years    256,049 
Exercisable at period end  1,101,835  $0.26   6.75 Years   $256,049 

For options granted during the three months ended March 31, 2019, the fair value of the Company’s stock was based upon the close of market price on the date of grant. The future expected stock-based compensation expense expected to be recognized in future years is $383,614, through March 29, 2022.

Intrinsic value is measured using the fair market value at the date of exercise (for shares exercised) or at March 31, 2019 (for outstanding options), less the applicable exercise price.

A summary of the options activity for the three months ended March 31, 2018 is as follows:

      Weighted  
    Weighted Average  
    Average Remaining Aggregate
    Exercise Contractual Intrinsic
  Shares Price Term Value
         
Outstanding at January 1, 2018  1,134,830  $0.06   8.5 years  $ 
Granted  49,500   4.33   5.0 years    
Outstanding at March 31, 2018  1,184,330  $4.19   4.0 years  $ 
Exercisable at end of the year  786,914  $0.06   4.0 years  $ 

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AGEAGLE AERIAL SYSTEMS, INC.

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 20192020

(Unaudited)

Note 7 – Equity – Continued

The significant weighted average assumptions relating to the valuation of the Company’s stock options granted during the three months ended March 31, 2020 were as follows:

March 31, 2020
Dividend yield0.00%
Expected life3.5 Years
Expected volatility90.07%
Risk-free interest rate0.29%

A summary of the options activity for the three months ended March 31, 2020 is as follows:

  Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value
Outstanding at January 1, 2020  2,480,470  $0.39   6.28  $378,111 
Granted  87,000   0.41   5    
Outstanding at March 31, 2020  2,567,470   0.39   6  $381,158 
Exercisable at period end  1,668,517  $0.38   5.64  $342,608 

For options granted during the three months ended March 31, 2020, the fair value of the Company’s stock was based upon the close of market price on the date of grant. As of March 31, 2020, the future expected stock-based compensation expense e to be recognized in future years is $226,051, through March 31, 2022.

Intrinsic value is measured using the fair market value at the date of exercise (for shares exercised) or at March 31, 2020 (for outstanding options), less the applicable exercise price.

A summary of the options activity for the three months ended March 31, 2019 is as follows:

  Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value
Outstanding at January 1, 2019  1,494,158  $0.46   6.93  $409,678 
Granted  540,000   0.42   8.68    
Exercised/Forfeited  (70,438)  0.49       
Outstanding at March 31, 2019  1,963,720   0.45   7.19   256,049 
Exercisable at period end  1,101,835  $0.26   6.75  $256,049 

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NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2020

(Unaudited)

 

Note 8 – Warrants to Purchase Common Stock

 

As of March 31, 2019, the Company had outstanding, in connection with the issuance of debentures in 2017, warrants to purchase 828,221 shares of the Company’s Common Stock at an exercise price of $1.51 with expiration on August 2, 2024.

On December 27, 2018, the Company issued 2,000 shares of Preferred Stock and a warrant (the “Warrant”) to purchase 3,703,703 shares of the Company’s Common Stock, par value $0.001 per share (the “Common Stock”), for $2,000,000 in gross proceeds. The shares of Common Stock underling the Warrant are referred to as the “Warrant Shares”. The Company also entered into a registration rights agreement (the “Registration Rights Agreement”) granting registration rights to the Purchaser with respect to the Warrant Shares.

The Warrant is exercisable for a period of five years through December 26, 2023, at an exercise price equal to $0.54 per share, and is subject to customary adjustments for stock splits dividend, rights offerings, pro rata distributions and fundamental transactions. In addition, in the event the Company undertakes 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.

The Warrant provides that the Warrant holder shall have a “Beneficial Ownership Limitation” equal to 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Warrant holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation, as provided for in the Warrant.

All warrants outstanding as of March 31, 20192020 are scheduled to expire between December 26, 2023 and October 21, 2024.

 

A summary of activity related to warrants for the three months ended March 31, 2020 follows:

  Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term
Outstanding at January 1, 2020  4,531,924  $0.72   4.05 
Outstanding at March 31, 2020  4,531,924   0.72   3.80 
Exercisable at March 31, 2020  4,531,924   0.72   3.80 

A summary of activity related to warrants for the three months ended March 31, 2019 follows:

 

  Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term
Outstanding at January 1, 2019  4,531,924  $0.72   5.05 
Outstanding at March 31, 2019  4,531,924   0.72   5.05 
Exercisable at March 31, 2019  4,531,924   0.72   5.05 

 

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NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 20192020

(Unaudited)

A summary of activity related to warrants for the three months ended March 31, 2018 follows:

  Shares Weighted- Average Exercise Price ($) Weighted-Average Remaining Contractual Term
Outstanding at January 1, 2018  828,221  $1.51    
Outstanding at March 31, 2018   828,221  $1.51   6.10 
Exercisable at March 31, 2018  828,221  $1.51   6.10 

 

Note 9 – Commitments and Contingencies

 

Operating Leases

 

The Company leases office space inlocated at 117 South 4thStreet, Neodesha, Kansas for66757. This serves as the corporate headquarters and manufacturing facility. The facility is 4,000 square feet at a cost of $500 aper month. TheThis lease terminatesterminated on September 30, 2019 withbut has a year to yearyear-to-year option to renew upon approval by the city commission of Neodesha. Rent expense was $1,500The Company has exercised its option and $900 forhas approved to renew the three months ended March 31, 2019 and 2018, respectively.lease through September 30, 2020 at a monthly cost of $600 per month.

 

As a result of the Agribotix acquisition, the Company assumed a lease for offices in Boulder, Colorado for $2,000 a month. The lease endsended on May 31, 2019 and hasthe Company renewed the lease for another year with an option to terminate at any time with a 30-day prior notice period. Rent

Total rent expense was $6,000$7,500 and $13,600 for the three months ended March 31, 2020 and 2019, respectively, which is included in general and 2018, respectively.administrative expenses on the statements of operations.

GreenBlock Capital LLC Consulting Agreement

On May 3, 2019, the Company entered into a consulting agreement with GreenBlock Capital LLC (“Consultant”) to serve as strategic advisor and consultant to the Company with respect to the development of business opportunities and the implementation of business strategies to be agreed to by both parties. The extent of the services will be set forth in separate scopes of work, from time to time, to be prepared and mutually agreed to by the parties. As compensation for the services under the terms of the agreement, Consultant shall receive (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 (iii) up to 2,500,000 shares of restricted common stock upon the achievement of predetermined milestones.

The Consultant was also previously engaged by the Company between March 2015 and August 2016 to provide consulting services. The Consultant beneficially owns approximately 5.86% of the shares of the Company’s common stock issued and outstanding; and holds options to purchase 207,055 shares of the Company’s common stock, exercisable until January 14, 2021 at an exercise price of $0.06 per share.

On October 31, 2019, the consulting agreement with the Consultant was terminated as a result of the Company no longer needing these services to be provided by an outside consultant. During the term of the agreement, the Company paid to the Consultant (i) $25,000 per month and issued (ii) 500,000 restricted shares of common stock at the execution of the agreement. The agreement also provided for the issuance of up to an additional 2,500,000 shares of restricted common stock upon the achievement of milestones that were to be determined by the Company and the Consultant during the term of the agreement. 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 the Shares after termination of the Agreement, if the achievement of milestones that commenced during the term of the Agreement are completed after termination.

 

Note 10 — Related Party Transactions

 

The following reflects the related party transactions during the three months ended March 31, 20192020 and 2018.2019.

 

The Company’s Chief Financial Officer, Nicole 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 and their related expenses have been included within general and administrative expenses. For the three months ended March 31, 20192020 and 2018,2019, Premier Financial Filings provided services to the Company resulting in fees of $2,605 and $2,674, respectively recorded in general and $110, respectively. The fee incurred during the three months endedadministrative costs. There are no payables due to Premier Financials Filings as of March 31, 2019 is included in accounts payable as of March2020 and December 31, 2019.

 

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NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 20192020

(Unaudited)

 

Note 11 – Subsequent Events

 

On May 3, 2019, AgEagle Aerial Systems Inc. (the “Company”), entered into a Consulting Agreement with GreenBlock Capital LLC (“Consultant”), to serve as strategic advisor and consultant to the Company with respect to the development of business opportunities and the implementation of business strategies to be agreed to by both parties (the “Services”). The extent of the Services will be set forth in separate scopes of work, from time to time, to be prepared and mutually agreed to by the parties. As compensation for the Services under the terms of the agreement, Consultant shall receive (i) $25,000 per month during the term of the agreement, (ii) 500,000 shares of restricted stock upon execution of the agreement, and (iii) up to 2,500,000 shares of restricted stock upon the achievement of to-be-determined milestones.Preferred C Share Conversions

The Consultant was previously engaged bySeries C Preferred Stock has anti-dilution protection in the Company between March 2015 and August 2016 to provide consulting services.event there is a subsequent equity offering at a price that is less than $0.54.  The Consultant beneficially owns approximately 5.86% ofSeries E Convertible Preferred Stock (the “Preferred Stock”) issued in the shares ofoffering described below has a $0.25 conversion price that triggered the Company’s common stock issued and outstanding shares, and holds options to purchase 207,055 shares of the Company’s common stock, exercisable until January 14, 2021 at an exercise price of $0.06 per share.

On April 15, 2019, AgEagle Aerial Systems, Inc. (the “Company”), received notification from Mr. Corbett Kull that effective immediately he is resigning as a director of the Company. Mr. Kull did not serve on any of the committees of the Board of Directors (the “Board”). Mr. Kull’s resignation was not due to a disagreement with the Company on any matter relating to the Company’s operations, policies or practices.Series C anti-dilution protection. 

 

As a result, on April 7, 2020, upon the consummation of Mr. Kull’s resignation,the Preferred Stock offering, the initial conversion price of the Series C Preferred Stock was adjusted from $0.54 per share to $0.25 per share, which resulted in a total of 14,747,984 shares of common stock being issuable upon conversion of the remaining Series C Preferred Stock. During the months of April and May 2020, Alpha Capital Anstalt converted 3,312 shares of Series C Preferred Stock into 14,747,984 shares of common stock at a conversion price of $0.25.

Warrant Conversions

During the month of April 2020, Alpha Capital Anstalt converted 3,703,703 warrants into 2,497,739 shares of common stock at a conversion price of $0.25.

Securities Purchase Agreement Entered in April

On April 7, 2020, the Company entered into a Securities Purchase Agreement (the “Agreement”) with Alpha Capital Anstalt (“Alpha”). Pursuant to the terms of the Agreement, the Board currently consists of four directors, threeDirectors of whom are independent.the Company (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”).

Registration Rights

Pursuant to the terms of the Registration Rights Agreement, the Company was obligated to 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 Company files its Annual Report on Form 10-K for the year ending December 31, 2019 (the “Filing Date”) and, with respect to any additional registration statements the earliest practical date on which the Company is permitted by SEC Guidance to file such additional registration statement related to the Registrable Securities. The Company was obligated to have the registration statement declared effective with the Securities and Exchange Commission (the “Commission”), no later than the 90thcalendar day following the Filing Date, or, in the event of a “full review” by the Commission, the 120thcalendar day following the Filing Date.

The Company would be required to pay to Alpha an amount in cash, as partial liquidated damages and not lookingas a penalty, equal to the product of 1.0% multiplied by the Purchase Price for failure to file the registration statement or have the registration statement declared effective by the dates set forth above. The parties agree that the maximum aggregate liquidated damages payable to Alpha shall be 6.0% of the Purchase Price paid by the Alpha pursuant to the Agreement. If the Company failed to pay any partial liquidated damages in full within seven days after the date payable, the Company will pay interest thereon at a rate of 18% per annum (or such lesser maximum amount that is permitted to be paid by applicable law) to Alpha, accruing daily from the date such partial liquidated damages are due until such amounts, plus all such interest thereon, are paid in full.

Leak-Out Agreement

On April 7, 2020, as a condition to the consummation of the Agreement, the Company entered into a Leak-Out Agreement with Mr. Bret Chilcott, a director and the President of the Company, and Alpha with respect to the shares Mr. Chilcott beneficially owns. The restriction on the disposition of the shares is for a replacementperiod of seven months from the date of the closing of the Agreement. Thereafter, for a period of an additional six months, Mr. Kull at this time.Chilcott may sell no more than $25,000 per calendar month of shares of Company common stock.

 

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NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2020

(Unaudited)

Note 11 – Subsequent Events – Continued

Amendment to the Articles of Incorporation

On April 2, 2020, the Company’s Board authorized 1,050 shares of 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. The Preferred Stock has liquidation rights senior to the common stock, but pari passu with the Series C Preferred Stock and the Series D Preferred Stock. The Preferred Stock has no voting rights. The conversion price adjusts for stock splits and combinations and is subject to anti-dilution protection for subsequent equity issuances until such time as no shares of Series E Preferred Stock are outstanding. The Certificate of Designation of the Series E Convertible Preferred Stock was filed with the State of Nevada on April 2, 2020.

Filing of Registration Statement

Pursuant to the terms of the Registration Rights Agreement executed on April 7, 2020, the Company filed an initial registration statement registering the Conversion Shares and the Warrant Shares on April 27, 2020. The Company’s registration statement was declared effective May 6, 2020.

Approval of Compensation by Compensation Committee

As announced on March 12, 2020, Mr. Barrett Mooney and Mr. Brett Chilcott resigned from their current roles, effective on May 5, 2020. Mr. Mooney now serves as Chairman of the Board, and Mr. Chilcott no longer serves in management of the Company.

At the time of the announcement, the Compensation Committee of the Board of Directors and each of Messrs. Mooney and Chilcott were in discussions about compensation prior to the effective date of their resignation and thereafter.

On April 16, 2020 the Compensation Committee agreed to the following terms:

Mr. Barrett Mooney:

March 6, 2020 through April 4, 2020 current salary and benefits;
$50,000 in cash. $25,000 of which was paid in a lump sum in April 2020, and the balance will be paid in equal installments over a six month period beginning on May 5, 2020;
Will remain eligible for bonuses of up to $15,000 as approved by the Board based upon certain revenue and operational targets;
Commencing May 5, 2020 in his role as Chairman, will receive (i) a quarterly grant of 16,500 stock options at the fair market value of the stock on the issuance date vesting over two years and exercisable for a period of five years and (ii) reimbursement for travel expenses; and
Will provide consulting services, as needed, at a fixed fee of $4,500 per month on a month-to-month basis plus reimbursement for travel expenses.

Mr. Bret Chilcott:

From May 5, 2020 through May 4, 2021, salary of $140,000 and benefits; and

After May 4, 2021, for a period of 12 months, will provide consulting services, as needed, at a fixed fee of $4,500 per month on a month-to-month basis plus reimbursement for travel expenses.

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NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2020

(Unaudited)

Note 11 – Subsequent Events – Continued

2020 Executive Compensation Plan

The Compensation Committee also approved a 2020 Executive Compensation Plan for Nicole Fernandez-McGovern, the Chief Financial Officer and EVP of Operations, and the Chief Executive Officer to be hired. The Plan is as follows, with the Cash Bonus, Option and Restricted Stock Units (RSUs) components to be dependent upon achieving certain to-be-determined financial and operational milestones:

  Chief Executive Officer Chief Financial Officer/ EVP of Operations
Annual Salary $250,000  $200,000 
Cash Bonus $50,000  $30,000 
Stock Options (Quarterly Grants)  15,000   15,000 
RSUs  150,000   125,000 

Appointment of Chief Executive Officer and Compensatory Arrangements

On April 28, 2020, the Company extended an offer of employment that was accepted by Mr. Michael Drozd to serve as the Company’s new Chief Executive Officer. Mr. Drozd will join the Company on or before June 1, 2020. The Company previously announced that Mr. Barrett Mooney would resign from his role as Chief Executive Officer effective as of May 5, 2020, but would remain with the Company as Chairman of the Board thereafter. In the event Mr. Drozd joins after May 5, 2020, Ms. Nicole Fernandez-McGovern, the Company’s Chief Financial Officer will act as Interim Chief Executive Officer until Mr. Drozd officially commences his new role on May 18, 2020. Ms. Fernandez-McGovern will not receive any additional compensation for serving as Interim Chief Executive Officer.

From 2015 through 2019, Mr. Drozd served as President of Eurofins AgBio Division, a global business focused primarily on testing for the agriculture sector (seed, plant and animals) with an emphasis on using genetic analysis. From 2014 until 2015, he was Chief Operating Officer of Arbiom, a French biotechnology company where he restructured the organization, materially increasing overall efficiency and improving resource allocations through numerous measured steps and initiatives. Mr. Drozd served as President and CEO of Aseptia/Wright Foods from 2011 through 2014, a leading technology company in shelf-stable food processing and co-packaging.

Mr. Drozd will receive a base salary of $235,000 per year, which shall be subject to annual performance review by the Compensation Committee of the Board and may be revised by the Committee, in its sole discretion. Mr. Drozd is entitled to receive an annual 20% bonus, which may be a mix of cash and stock options, based upon his performance as determined by certain metrics to be established by the Board and Mr. Drozd. He will receive an initial grant of 100,000 restricted stock units under the Company’s 2017 Omnibus Equity Incentive Plan (the “Equity Plan”), which will fully vest after one year of continued employment. Mr. Drozd is eligible to receive a quarterly award of 15,000 non-qualified stock options under the Equity Plan. At the time of issuance, the stock option award agreements will set forth the vesting, exercisability and exercise price of the stock options as of the date of the grants.

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NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2020

(Unaudited)

Note 11 – Subsequent Events – Continued

On May 5, 2020, the Company announced that Mr. Michael Drozd who has been appointed to replace Mr. Mooney as Chief Executive Officer and will commence in that role on May 18, 2020. Until such time as Mr. Drozd assumes his role as Chief Executive Officer, Ms. Nicole Fernandez-McGovern, the Company’s current Chief Financial Officer, will also serve as Interim Chief Executive Officer, and thereafter, will continue in her role as Chief Financial Officer. Ms. Fernandez-McGovern will not receive any additional compensation for serving as Interim Chief Executive Officer.

Securities Purchase Agreement Entered in May

On May 11, 2020, the Company and Alpha Captial Anstalt entered into a securities purchase agreement (the “Purchase Agreement”) pursuant to which the Company agreed to sell to Alpha Captial Anstalt in a registered direct offering 2,400,000 shares of common stock, par value $0.001, and pre-funded warrants (the “Warrants”) to purchase up to 3,260,377 shares of common stock, for gross proceeds of approximately $6 million. The purchase price for each share of common stock is $1.06 and the purchase price for each Warrant is $1.059. The exercise price for each Warrant is $0.001. Net proceeds from the sale will be used to repurchase 262 shares of the Company’s Series E Preferred Stock, convertible into 1,046,699 shares of common stock, currently held by Alpha Captial Anstalt at a repurchase price of $1.06 per share of common stock. The Company expects to use the balance for working capital and general corporate purposes. The Shares and the Warrants are being offered by the Company pursuant to an effective shelf registration statement on Form S-3 (File No. 333-237860), which was declared effective on May 6, 2020.

Pursuant to the terms of the Purchase Agreement, the Company has agreed to certain restrictions on future stock offerings, including that during the 60-day period following the closing, the Company will not issue (or enter into any agreement to issue) any shares of common stock or common stock equivalents, subject to certain exceptions. The exercise price of the Warrants and the shares of the common stock issuable upon the exercise thereof will be subject to adjustment in the event of any stock dividends and splits, reverse stock split, recapitalization, reorganization or similar transaction, as described in the Warrants. The Warrants will be exercisable on a “cashless” basis in certain circumstances.

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Item 2. Management’s Discussion Andand Analysis Ofof Financial Condition Andand Results Ofof Operations

 

The information contained in this Form 10-Q is intended to update the information contained in our Annual Report on Form 10-K for the year ended December 31, 20182019 filed with the Securities and Exchange Commission on March 28, 2019April 13, 2020 (the “Form 8-K”10-K”) and presumes that readers have access to, and will have read, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other information contained in such Form 10-K. The following discussion and analysis also should be read together with our financial statements and the notes to the financial statements included elsewhere in this Form 10-Q.

 

The following discussion contains certain statements that may be deemed “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements appear in a number of places in this Report, including, without limitation, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements are not guarantees of future performance and involve risks, uncertainties and requirements that are difficult to predict or are beyond our control. Forward-looking statements speak only as of the date of this quarterly report. You should not put undue reliance on any forward-looking statements. We strongly encourage investors to carefully read the factors described in our Form 10-K in the section entitled “Risk Factors” for a description of certain risks that could, among other things, cause actual results to differ from these forward-looking statements. We assume no responsibility to update the forward-looking statements contained in this quarterly report on Form 10-Q. The following should also be read in conjunction with the unaudited Financial Statements and notes thereto that appear elsewhere in this report.

 

Except as otherwise indicated herein or as the context otherwise requires, references in this offering circular to “we,” “us,” “our,” “Company,” and “AgEagle” refer to AgEagle Aerial Systems, Inc., a Nevada corporation.

 

Company Overview

 

Headquartered

AgEagle Aerial Systems Inc. (“AgEagle” or “the Company”) designs, produces and supports technologically-advanced small, unmanned aerial vehicles (“UAVs” or “drones”). In addition, providing new utility to UAVs, the Company pioneers 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 solutions that solve important problems confronting the global agricultural industry. In fact, through its recent acquisition, the Company has spent eight years serving customers, covering more than two million acres in Neodesha, Kansas we50 countries monitoring 53 different crops. AgEagle remains intent on earning distinction as a trusted partner to clients seeking to adopt 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.

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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 one ofmeant to carry packaged goods in urban and suburban areas.

Central to the industry’s leading pioneers of technologicallyCompany’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 that utilizesdrone-based aerial imagery to help promote and proactively support corporate and farming sustainability initiatives. We are trusted to help the world’s growers and consumer packaged goods companies proactively assess and manage the health of commercial crops, reduce the chemicals in produced foods and products and preserve and protect natural resources.solutions.

 

On March 26, 2018, EnerJex Resources, Inc. (“EnerJex”),Research and development activities are integral to our business and we follow a Nevada company, consummated the transactions contemplated by the Agreementdisciplined approach to investing our resources to create new technologies and Plan of Merger (the “Merger Agreement”), dated October 19, 2017, pursuant to which AgEagle Merger Sub, Inc., a Nevada corporationsolutions.

 Our business is seasonal in nature 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”)result, our revenue and AgEagle Sub changed its name to “AgEagle Aerial, Inc.” As a result of the Merger, through AgEagle Sub, we are engaged in the business of designing, developing, producing, distributing and supporting technologically-advanced small unmanned aerial vehicles (UAVs or drones) that we supply to the precision agriculture industry. Additionally, we recently announced a new service offering using our leased UAVsexpenses and associated data processing services for the sustainable agriculture industry. We are headquartered in Neodesha, Kansas, and are a manufacturer of unmanned aerial vehicles focused on providing actionable datarevenue trends fluctuate from quarter to the precision agriculture industry.quarter.

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Our Unmanned Aerial Vehicles Business

 

We design, produce, distribute and support technologically-advanced small unmanned aerial systems (UAVs or drones) that we offer for sale commercially to the precision agriculture industry. Additionally, we recently announced a new service offering using our leased UAVs and associated data processing services for the sustainable agriculture industry.

Our first commercially available product was theAgEagle Classic, which was followed shortly thereafter by theRAPID System.System. As we improved and matured our product, we launched theRX-60 and subsequently our current UAV product, the RX-48.RX-48. The success we haveAgEagle has achieved with ourits legacy products, which we believethe Company believes has carried over into the continued improvement of theRX-60 andRX-48, stems from ourAgEagle’s ability to invent and deliver advanced solutions utilizing ourits proprietary technologies and trade secrets that help farmers, agronomists and other precision agricultural professionals operate more effectively and efficiently. OurThe Company’s core technological capabilities, developed over five years of research and innovation, include a 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-60)(RX-60), and high-end software that automates drone flights and provides geo-referenced data.

Our UAV is an advanced fixed wing drone. Its design is based upon the years of experience our management has with aircraft and composite parts construction. All of ourAgEagle’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) per flight from their launch location, and are configured to carry a camera with ouran NIR filter that uses near infrared images to capture crop data. We believeThe Company’s leadership believes that these characteristics make ourits UAVs well suited for providing a complete aerial view of a farmer’s field to help precisely identify crop health and field conditions faster than any other method available.

 

OurThe Company’s UAVs were initially specifically designed to help farmers increase profits by pinpointing areas where nutrients or chemicals need to be applied, as opposed to traditional widespread land application processes, thus decreasing input costs, reducing the amount of chemicals applied and potentially increasing yields. OurAgEagle’s products were designed for busy agriculture professionals who do not have the time to process images on their computers, which some of ourits competitors require. The software can automatically take pictures from the camera, stitch the photos together through the cloud, and deliver a geo-referenced, high quality aerial map 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 result is a prescription or zone map that can then be used in a field computer that is typically found in a sprayer or applicator designed to drive through fields to precisely apply the amount of nutrients or chemicals required to continue or restore the production of healthy crops.

 

In addition to UAV sales, in late 2018, weAgEagle 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 ourthe Company’s customers.

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.

 

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Our businessAgEagle’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 seasonalexpected to be largely fueled by the high usage of drones in naturethe ecommerce industry for delivery of products in rural areas, where automotive transport vehicles cannot readily reach or where deliveries take longer time to arrive.

In September 2019, the Company announced that it was actively pursuing expansion opportunities within the Drone Logistics and asTransportation market, and reported that it had received its first purchase order from a result, our revenuemajor unnamed ecommerce company to manufacture and expensesassemble UAVs designed to meet the critical specifications for drones that are meant to carry goods in urban and associated revenue trends fluctuatesuburban 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 had recognized additional revenues from the project in the first quarter of 2020.

Subsequent to quarter. In addition, researchthe end of the first quarter 2020, the Company announced that it had received follow-on purchase orders from the ecommerce company client relating to the continued manufacture and development activities are integral to our businessassembly of drones used for the testing and we follow a disciplined approach to investing our resources to create new technologiesrefining of client’s commercial drone small delivery vehicles, systems and solutions.operations currently in development.

 

Acquisition of AgribotixHempOverview Platform

 

On August 28, 2018, we closedWith the transactions contemplated by the Asset Purchase Agreement (the “Purchase Agreement”) dated July 25, 2018 with AgEagle Aerial, Inc., a wholly-owned subsidiarypassing of the Company; Agribotix, LLC,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.

As one of the agriculture industry’s leading pioneers of advanced aerial-image-based data collection and analytics solutions, AgEagle is intent on leveraging our expertise to champion the use of proven, advanced web- and map-based technologies as a Colorado limited liabilitymeans 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 (“Agribotix” orto its knowledge to bring to market an advanced agtech solution that is designed to meet the “Seller”);unique complexities and vigorous oversight, compliance and enforcement demands of the emerging American hemp industry and the other parties named therein. Pursuantunique needs and demands of its key stakeholders.

HempOverview is comprised of 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.          

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In November, 2019, AgEagle announced that the Florida Department of Agriculture and Consumer Services (“FDACS”) has chosen theHempOverview solution to the Purchase Agreement, we acquired all right, titlemanage its online application submission and interest inregistration process for hemp growers and to all assets owned by Agribotixtheir farms and utilized in their business of providing integrated agricultural drone solutions and drone-enabled software technologies and services for precision agriculture, except for certain excluded assets as set forthhemp fields in the Purchase Agreement. At closing, we also assumedState 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 commitments under various third-party contracts pursuantgrowers and processors, and expects to announce additional newHempOverview clients in 2020.

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 terms of the Purchase Agreement.growing industrial and CBD hemp supply chain.

We believe that purchasing Agribotix’s primary product,FarmLens Platform

Our FarmLens™,. will benefitplatform has benefitted us and our shareholders by developing important vertically integrated products and services.services with our drone-enabled software technologies.FarmLens is a subscription cloud analytics service that processes data, primarily collected with a drone, such as ours,those produced by AgEagle, and makes such data actionable by farmers and agronomists.FarmLensis currently sold by usAgEagle 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.

TheFarmLensplatform extends ourAgEagle’s reach as a business through key partnerships with, and direct integration into offerings by leading agricultural companies, including John Deere and The Climate Corporation, a subsidiary of Bayer. In October 2018, AgEagle announced that we were expanding on Agribotix’s existing partnership with The Climate Corporation’sFieldView™platform, enabling farmers to share images fromFarmLens to theirFieldView accounts and compare them alongside other valuable metrics, including planting and yield data. To date, Agribotix has processed agricultural imagery for approximately 1.3 million acres of crops and analyzed data for over 50 different crop types from over 50 countries around the world.

In December 2018, we unveiled our plans to develop aFarmLens Mobile app, extending the numerous benefits of theFarmLensplatform to mobile devices. TheFarmLens Mobile app will be commercially launched toward the end of the second quarter 2019 and available for download on any iPhone, iPad or Android device.

partnerships.

Our Sustainability

ParkView 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).

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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 our 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.

In support of our efforts to promote our sustainability platform, in October 2018 we became a corporate partner of the Cool Farm Alliance (CFA), a non-profit organization promoting sustainability in the agriculture industry. Through the CFA’s Cool Farm Tool, businesses can utilize farming data to collaborate and develop sustainability metrics that provide the necessary insights to decrease their impact on the environment. By combining AgEagle’s technological capabilities and the unique data we can collect with the knowledge and expertise of the CFA team, we see an opportunity to measurably contribute to the establishment of a gold industry standard for sustainable agriculture.

For the upcoming growing season, we announced an agreement with one of the largest specialty crop producers in North America as our first customer on our sustainability platform and drone leasing program for the 2019 crop season. As part of the agreement, we are providing access to UAVs equipped with sensors for the growing season, along with access to data connected devices for farms covering thousands of acres in the United States. We are also setting up a network of soil moisture monitoring devices with rain gauges and soar sensors to provide in-depth data analytics at the field level. All of this is expected to culminate in a sustainability dashboard and scorecard that will provide data to assess and affirm soil health, water utilization efficiency and pest and disease control; which will, in turn, aid this specialty crop producer in showcasing its sustainability efforts and results to its customers and supply chain partners.

Leveraging the underlying imaging technology and robust analytics capabilities of AgEagle’sFarmLens,platform, AgEagle announced the formal market introduction of itsParkView solution in March 2019 AgEagle introduced2019.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. In tandem with the formal market launch ofParkView, theThe Company further announced that it signedwon its firstParkViewcustomer with the signing of Denver Parks and Recreation (“DPR”) in Denver, Colorado as the first customer on theParkView platform.Colorado. DPR will utilize aerial imagery and sensor dataParkView 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. In addition, ourAgEagle’s staff willwas 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.

 

Our 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 20192020 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 technologyand 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.areas, including drone-enabled package delivery.

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Key components of our growth strategy include the following:

 

 Build a strong worldwide distribution networkAchieving greater market penetration of the U.S. industrial hemp industry by working to offer aestablishHempOverview and other related products and services as the gold industry standard for hemp cultivation oversight, compliance, enforcement and commerce.AgEagle is – and intends to remain – at the leading edge of leveraging best-in-class precisiontechnology to provide turnkey solutions for state and tribal regulatory departments of agriculture, platform.We believe we can establish our flying wing productindustrial hemp and systems as leading technologieshemp-derived CBD growers and processors. At this time, AgEagle believes that it is the only company in the precisionnation with extensive experience in agriculture marketplace. We will work to identifythat is effectively addressing the emerging needs and establish relationships with dealers and customers in key agricultural regions worldwide, which will help make it possible for every farmer in those markets to have access to the AgEagle platform. Potential distributors are spread across six continents, covering a majoritychallenges of the world’s major regions includingdomestic hemp cultivation industry through the U.S., Canada, South America, Eastern and Western Europe, Southeast Asia and Oceania.application of advanced technology – a key competitive differential that the Company hopes to capitalize on in the coming year.

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 Market our new UAV-based monitoring service for large food manufacturers desiring to achievePursue the expansion of the AgEagle platform of products and maintain optimal sustainability practices on their farms.solutions into other complementary industries besides agriculture, including the Drone Logistics and Transportation market. We have begun actively exploring opportunities outside of traditional agriculture as we continue to expand and grow the AgEagle platform. We are confident in the processUAV products and solutions we offer today and believe that these products and solutions could provide other industries the same kind of marketing a new service foroptimization we are currently providing the 2019 growing season targeted towards large food manufacturers that are being pressured by consumers to create food products with less chemicals that are more sustainably sourced. We believe our current technology, combined with other available third-party platforms/solutions via a well-defined modern RESTful API, will allow us to offer a product to these consumer products manufacturers that will serve to accelerate business growth faster than if we just focused on growth opportunities within the precision agriculture marketplace.
Continue to explore partnerships with companies that can expand our offerings. We intend to expand our product offerings by building relationships and partnerships with companies that have vertical, synergistic technologies.industry. In addition other technology alliances may include the acquisition or development of other electronics, software, sensors or more advanced aerial platforms. We are constantly meeting and in discussions with groups that could fill these roles and collaborate with us on new development ideas.
Support and expand our University Drone Program.Subsequent to the end of 2018,drone package deliveries, we introduced our new University Drone Program providing for AgEagle’s aerial imaging collection and data processing systems to be purchased and utilized by colleges and universities to enhance the curriculum of their agriculture technology departments – including in precision ag, agronomy, plant science and mapping, among other related study areas. In January 2019, we announced that both Arkansas State University-Newport (ASU) and Modesto Junior College (MJC) in California have teamed with our Company to provide students with hands-on training and experience properly operating drones, creating digital aerial maps through the AgEagleFarmLens platform, and using data collected to achieve sustainable farming objectives. We believe that our University Drone Program not only represents a new revenue channelsolutions and services may also be well suited for the aerial imaging and data collection and analytics needs involved in land surveying and scanning, insurance, inspections and search and rescue operations, among other industrial applications. As of today, we manufacture all of our proprietary and contracted products at our secure manufacturing facility in Neodesha, Kansas, which allows us but it will serve as a powerful brand-building opportunity forto avoid many of the potential difficulties that may arise if our manufacturing facilities were otherwise located outside the U.S., which is of particular importance to those AgEagle among thosecustomers who are studying to become commercial growers, agronomistsrely on confidentiality and precision and sustainability ag experts and specialists.protection of trade secrets in the development of their drone package delivery initiatives.
   
 Deliver new and innovative solutions in the precision agriculture space. Our research and development efforts are the foundation of our 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. We believe that by investing in research and development, we can be a leader in delivering innovative products that address market needs within our current target markets, enabling us to create new opportunities for growth.
   
 Work with municipal, state and federal public parks and recreations agencies to adoptParkViewas a preferred solution for assessing and supporting sustainability initiatives for ‘urban green’ spaces.With the signing of Denver Parks and Recreation in Denver, Colorado, AgEagle now has a client who is benefitting from the utilization ofParkView to better inform vegetative maintenance and natural resource preservation of its green infrastructure, comprising more than 6,000 acres of public green space within the city limits. We intend to market ourParkView platform to other prospective U.S. city, state and federal agencies.
Deliver new and innovative solutions. AgEagle’s research and development efforts are the foundation 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 the Company’s 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 products that address market needs within our current target markets, enabling us to create new opportunities for growth.
Pursue the expansion of the AgEagle platform of products and solutions into other industries besides agriculture.We have begun actively exploringThe Company may investigate and pursue opportunities outside of traditional agriculture as we continue to expand and grow the AgEagle platform. We are confident in the UAV products and solutions we offer today and believe that these products and solutions could provide other industries the same kind of optimization we are currently providing the agriculture industry. These industries have yet to be identified by the AgEagle team but may include verticals such as land surveying and scanning, insurance, inspections and search and rescue.

 

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Off-Balance Sheet ArrangementsImpact of COVID-19 On Our Business Operations

 

Since our inception, except for standard operating leases, we have not engaged in any off-balance sheet arrangements,The outbreak of the novel coronavirus (COVID-19) has evolved into a global pandemic. The coronavirus has spread to many regions of the world, including the useUnited States. The extent 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.

Should the coronavirus continue to spread, our business operations could be delayed or interrupted. For instance, we currently utilize third parties to, among other things, manufacture components and parts for the proprietary and contracted drones 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 used in our manufacturing and assembly processes are adversely impacted by restrictions resulting from the coronavirus pandemic, our supply chain may be disrupted, limiting our ability to manufacture and assemble products.

The spread of structured finance, special purpose entities or variable interest entities. We have no off-balance sheet arrangements that have or are reasonably likely tothe coronavirus, which has caused a broad impact globally, including restrictions on travel and quarantine policies put into place by businesses and governments, may have a current or futurematerial 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 condition, changesmarkets, which may reduce our future 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.

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 in the future. We will continue to monitor the situation closely.

During the three months ended March 31, 2020, aside from complying with ’shelter at home’ mandates in those states affecting our employees, most of whom worked virtually from their homes, it is our belief that our financial condition, revenues or expenses, results ofperformance and business operations liquidity, capital expenditures or capital resources that is material to stockholders.were not materially impacted by the virus.

 

Critical Accounting Policies

 

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 (“GAAP”). The preparation of these 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 financial statements and the reported amount of revenues and expenses during the reporting period. Our most critical estimates include those related to revenue recognition, inventories and reserves for excess and obsolescence, accounting for stock-based awards, and income taxes. 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.

 

See Note 2 in the accompanying unaudited condense interim consolidated financial statements for a listing of our critical accounting policies.

 

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Results of Operations

 

For the Three Months endedEnded March 31, 20192020 and 20182019

 

For the three months ended March 31, 2019,2020, we recorded revenues of $45,993$391,280 compared to revenues of $29,191$45,993 for the same period in 2018,2019, a 58%751% increase. The increase was largely due to a shiftnew revenues derived from purchase orders to manufacture and assemble drones and related delivery products designed to meet specific criteria for package delivery in the drone industry from do-it-yourself, early adopter farmers to a more services-oriented model whereby advancedurban and suburban area. Revenue growth was also positively impacted by continued focus on expansion of our platform, providing for aerial imagery-based data collectionimaging and analytics solutions that utilizedrone-based aerial imagery to help promotewhich serve new and proactively support corporateemerging markets including registration, oversight and farming sustainability initiatives. The Company is in the processcompliance of continuing to address this change in the market through strategic acquisitions, promoting our new service targeting the sustainable agriculture marketplace for the 2019 growing season; andhemp fields 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 toward sustainable markets as resultstate departments of the recent infusion of operating capital and significant reduction of debt.agriculture.

 

For the three months ended March 31, 2019,2020, cost of sales totaled $33,948,$174,483 a $10,150 or 43%414% increase as compared to $23,798$33,948 for the three months ended March 31, 2018.2019. We also had gross profit of $12,045$216,797, or 26%55%, during the three months ended March 31, 20192020 compared to $5,393$12,045, or 18%26%, for the comparable period in 2018,2019, resulting in an increase in our profit margin in the current period. The main contributorprimary factors contributing to the increase in our cost of sales and gross profit margin was due to the additional sales recorded forcontinued shift in mix of products and services we now offer customers in the quarter, which also led to an increase in our gross margin. Gross margin also increased due to sales of ourFarmLens platform for purposes of processing the imagery and less slow-moving such as newer sensors, cameras and other parts for the planes being sold at a discount.new markets we serve.

 

We recorded total operating expenses of $577,048$620,070 during the three months ended March 31, 2019,2020, a 194%7.5% increase as compared to operating expenses of $196,541$577,048 in the same period of 2018.2019. Our operating expenseexpenses are comprised of general and administrative costs, professional fee and selling costs. General and administrative expenses totaled $474,902$445,531 in the three months ended March 31, 20192020 compared to $40,853$474,902 in 2018, an increase2019, a decrease of 1,062%,6.2%. The decrease was due to amortization costs associated with intangibles assets acquired as a result of the Agribotix acquisition, D&O insurance, financial filing fees and investor relations in connection with on-going expenses related to us being publicly traded not incurred in the prior period. We also had additional general and administrative costs relatedprimarily to an increase in salary costsexpense for new and existing employees, along withinsurance expense and public relations costs offset by a decrease in stock compensation costs for employees and directors due to the issuance of options.options, investor relations expenses and financial services costs. Also, part of the decrease was attributable to less amortization expense related to the intangibles. Professional fees totaling $90,019 in the three months ended March 31, 2019 were expenses incurred for legal and accounting, compared to $151,061 in the three months ended March 31, 2018 which related to a decrease in legal and accounting and consulting services associated with the completion of the reverse merger finalized on March 26, 2018. For the three months ended March 31, 2019, we recorded selling expenses of $12,127 compared to $4,627$171,498 for the three months ended March 31, 2018, representing an increase of 162%2020 increased due to more travel expenses for purposes ofadditional legal, accounting and business development.

There was no other income recorded during the three months ended March 31, 2019,development costs required to expand our growth opportunities compared to $15,065 for the three months ended March 31, 2018, representing a decrease due the reversal of dealer termination costs accrued from prior periods as a result of all liabilities having been fully satisfied during the period.$90,019 in 2019.

 

Interest expense for the three months ended March 31, 20192020 was $462$0 as compared to $27,414$462 in the three months ended March 31, 2018.2019. The increasedecrease was due to the conversion of all debt as a result of the merger in 2018, except for a promissory note assumed as a result of the EnerJex merger, and the amortization of debt discounts and warrant expense upon completion of the reverse merger onwhich was repaid in full in March 26, 2018.2019.

 

Our net loss was $403,273 for the three months ended March 31, 2020. This represents a 28.7% decrease from our net loss of $565,465 in the three months ended March 31, 2019. This represents a $361,968 increase from our net loss of $203,497 in the three months ended March 31, 2018, Overall, the increasedecrease in net loss is due to morean increase in our revenue and gross margins offset by greater operating costs and less growthgreater operating costs as a result of the shifts in our sales for the period as we begin to implement our new initiativesand long-term growth strategies. We are in the process of continuing to address these shifts by developing new platforms, products and services that support prevailing growth opportunities in domestic industrial hemp and sustainable agriculture market. and growing our drone-enabled package delivery business.

 

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Cash Flows

 

March 31, 2019 compared2020 Compared to December 31, 20182019

 

Cash on hand was $2,151,124$356,084 at March 31, 20192020 compared to the $2,601,730$717,997 at December 31, 2018,2019, a decrease of $450,606.$361,913. Cash used in operations for the three months ended March 31, 20192020 was $(418,636)$(359,629) compared to $(769,799)$(418,636) of cash used in operations for the three months ended March 31, 2018.2019. The decrease in cash was driven mainlylargely by payments of payablesaccounts payable for legalincreased payroll expenses, accounting and auditingconsulting expenses, higher business development expenses and costs associated with being a tail-policy for D&O insurance as a result of the reverse merger that was paid in the first quarter of 2018.publicly-traded company.

 

There was $2,284 cash used in our investing activities during the three months ended March 31, 2020 as compared to no cash provided by or used in investing activities during the three months ended March 31, 2019 as compared to2019. The increase in cash provided byused in our investing activities during the three months ended March 31, 2018 of $221,255. The use of cash in the quarter ended March 31, 2018 was due to cash receivedresulted from the mergerpurchase of property and a payment made to Agribotixequipment for purposes of its future acquisition.our platform development team.

 

Cash used in financing activities during the three months ended March 31, 20192020 was $31,970$0 compared to cash provided by investingused in financing activities of $3,980,000$31,970 as of March 31, 2018.2019. The decrease in cash used by our financing activities was as a result of a $4,000,000 investment that occurreddue to payments on promissory notes no longer required due to full repayment being made in the first quarter of 2018, net of $20,000 in fees invested in exchange for Common and Preferred shares in the Company,2019.

 

Liquidity and Capital Resources

As of March 31, 2019,2020, we had working capital of $2,031,786$258,093 and a loss from operations of $565,465$403,273 for the period then ended. While there can be no guarantees, we believe cash on hand, in connection with cash from operations, will be sufficient to fund operations for the next year of operations. In addition, we intend to pursue other opportunities of financing opportunities with outside investors.

 

On November 21, 2017, Alpha Capital Anstalt (“Alpha”) signed a binding commitment letter with our predecessor company EnerJex to provide prior to or at the closing of the Mergermerger 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. At the time of private placement theThe Series C Preferred Stock wasis convertible into 2,612,245 shares of our Common Stock.common stock. In addition, as consideration for their funding commitment, Alpha received a fee equal to 408,552 shares of our Common Stock.common stock.

 

Each share of Series C Preferred Stock is convertible into a number of shares of our Common Stockcommon stock equal to the quotient determined by dividing (x) the stated value of $1,000 per share, by (y) a conversion price of $1.53.$0.54. Until the volume weighted average price of our Common Stockcommon 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 Stockcommon 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 Stockcommon stock at a Dilutive Price, the Series C Preferred Stock would be convertible into a greater number of shares of our Common Stock.common stock.

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On December 27, 2018, AgEagle Aerial Systems, Inc. (the “Company”)we entered into Securities Purchase Agreement (the “Agreement”) with an institutional investor (the “Purchaser”).Alpha. Pursuant to the terms of the Agreement, theour Board of Directors of the Company (the “Board”) designated a new series of preferred stock, the Series D Preferred Stock, which is non-convertible and provides for an 8% annual dividend and is subject to optional redemption by the Companyus (the “Preferred“Series D Preferred Stock”). The CompanyWe issued 2,000 shares of Series D Preferred Stock and a warrant (the “Warrant”) to purchase 3,703,703 shares of the Company’s Common Stock, par value $0.001 per share (the “Common Stock”),our common stock for $2,000,000 in gross proceeds. The shares of Common Stock underlingcommon stock underlying the Warrant are referred to as the “Warrant Shares”. The CompanyWe also entered into a registration rights agreement (the “Registration Rights Agreement”) granting registration rights to the PurchaserAlpha with respect to the Warrant Shares.

 

The Agreement provides that upon a subsequent financing or financings with net proceeds of at least $500,000, the Companywe must exercise itsour optional redemption of the Series D Preferred Stock (as more fully described in Item X) and apply any and all net proceeds from such financing(s) to the redemption in full of the Series D Preferred Stock.

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The Warrant is exercisable for a period of five years through December 26, 2023, at an exercise price equal to $0.54 per share, and is subject to customary adjustments for stock splits dividend, rights offerings, pro rata distributions and fundamental transactions. In addition, in the event the Company undertakesthat 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.

 

The Warrant provides that the Warrant holder shall have a “Beneficial Ownership Limitation” equalOur primary need for liquidity is to 9.99%fund working capital requirements of the numberour business, capital expenditures, acquisitions, debt service, and for general corporate purposes. To date, our primary source of sharesliquidity 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 the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Warrant holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation, as provided for in the Warrant.

Pursuant to the terms of the Registration Rights Agreement, the Company shall 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 the Company is permitted by SEC Guidance to file such additional registration statement related to such registrable securities. The Company 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. There are no penalties for failure to file or be declared effective by the dates set forth above.

The Series C and D Preferred Stock were issued pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D promulgated thereunder, in reliance on the recipient’s status as an “accredited investor” as defined in Rule 501(a) of Regulation D.beyond our control.

 

Off-Balance Sheet Arrangements

 

At March 31, 2019,2020, 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.

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Contractual Obligations

 

We have no material contractual obligations.

 

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.

 

New Accounting Pronouncements

 

There were various updates recently issued, 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.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.

 

Item 4. 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 March 31, 20192020 and had concluded that the Company’s disclosure controls and procedures are effective. The termdisclosure controls and proceduresmeans 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 recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures 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 is accumulated 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.

 

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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 (“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 March 31, 2019. 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, 2018, based on these criteria. 

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 three months ended March 31, 20192020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II — OTHER INFORMATION

 

Item 1. 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 1A. Risk Factors.

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

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Item 2. Recent Sales of Unregistered Equity Securities and Use of Proceeds

 

None.

 

Item 3. Defaults Upon Senior Securities.

 

None

 

Item 4. Mine Safety Disclosures

 

Not applicable

 

Item 5. Other Information.

 

None.

 

Item 6. Exhibits

 

Exhibit No. Description
31.131 Rule 13(a)-14(a)/15(d)-14(a) Certification of principal executive officer,
31.2Rule 13(a)-14(a)/15(d)-14(a) Certification of principal financial and accounting officer
32.132 Section 1350 Certification of principal executive officer,
32.2Section 1350 Certification of principal financial officer and principal accounting officer
101.INS XBRL INSTANCE DOCUMENT
101.SCH  XBRL TAXONOMY EXTENSION SCHEMA
101.CAL  XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
101.DEF  XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
101.LAB XBRL TAXONOMY EXTENSION LABEL LINKBASE
101.PRE  XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE

 

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 AgEagle Aerial Systems, Inc.
   
 By:/s/ Barrett Mooney 
Barrett Mooney
Chief Executive Officer
(Principal Executive Officer)
By:/s/ Nicole Fernandez-McGovern 
  Nicole Fernandez-McGovern
  Interim Chief Executive Officer and Chief Financial Officer
  (Principal Executive, Financial and Accounting Officer)

 

Date: May 15, 201914, 2020

 

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