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

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

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.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “emerging growth company” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of ~~November~~August 14, ~~2022,~~2023, there were ~~87,844,818~~109,512,375 shares of Common Stock, par value $0.001 per share, issued and outstanding.

~~AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS~~

~~AND COMPREHENSIVE INCOME (LOSS)~~

~~(UNAUDITED)~~

For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
Revenues $ 5,490,714 $ 2,021,707 $ 14,620,565 $ 5,660,662
Cost of sales 3,407,573 1,226,911 8,622,436 2,885,008
Gross Profit 2,083,141 794,796 5,998,129 2,775,654

Operating Expenses:
General and administrative 4,175,090 2,783,290 14,093,655 10,428,040
Research and development 1,818,540 777,036 6,185,777 2,115,367
Sales and marketing 1,236,841 1,034,004 3,736,548 1,813,069
Total Operating Expenses 7,230,471 4,594,330 24,015,980 14,356,476
Loss from Operations (5,147,330 ) (3,799,534 ) (18,017,851 ) (11,580,822 )

Other Income (Expense):
Interest (expense) income, net (6,727 ) 3,834 (29,776 ) 12,850
Paycheck protection program loan forgiveness — — — 108,532
Gain on debt extinguishment 6,486,899 — 6,486,899 —
Other income, net 332,110 24,798 27,372 79,836
Total Other Income, net 6,812,282 28,632 6,484,495 201,218
Income (Loss) Before Income Taxes 1,664,952 (3,770,902 ) (11,533,356 ) (11,379,604 )
Provision for income taxes — — — —
Net Income (Loss) $ 1,664,952 $ (3,770,902 ) $ (11,533,356 ) $ (11,379,604 )

Comprehensive Income:
Amortization of unrecognized periodic pension costs 97,846 — 100,487 —
Foreign currency cumulative translation adjustment (372,368 ) — (220,060 ) —
Total comprehensive income (loss), net of tax $ 1,390,430 $ (3,770,902 ) $ (11,652,929 ) $ (11,379,604 )
Accrued dividends on preferred stock series F (94,694 ) — (94,694 ) —
Total comprehensive income (loss) available to common stockholders $ 1,295,736 $ (3,770,902 ) $ (11,747,623 ) $ (11,379,604 )
Net Earnings (Loss) Per Common Share - Basic $ 0.02 $ (0.05 ) $ (0.14 ) $ (0.17 )

Net Earnings (Loss) Per Common Share - Diluted $ 0.01 $ (0.05 ) $ (0.14 ) $ (0.17 )

Weighted Average Number of Shares Outstanding During the Period - Basic 85,966,687 75,144,113 81,004,011 68,243,666

Weighted Average Number of Shares Outstanding During the Period - Diluted 113,623,789 75,144,113 81,004,011 68,243,666

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

	2023			2022			2023			2022
	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2023			2022			2023			2022
Revenues	$	3,278,212		$	5,287,873		$	7,335,281		$	9,129,851
Cost of sales		2,246,678			2,737,777			4,325,115			5,214,863
Gross Profit		1,031,534			2,550,096			3,010,166			3,914,988

Operating Expenses:
General and administrative		3,498,761			4,437,185			7,078,283			9,918,564
Research and development		1,369,479			2,182,313			2,951,822			4,367,237
Sales and marketing		955,845			1,319,177			1,933,720			2,499,706
Lease impairment charge		79,287			—			79,287			—
Total Operating Expenses		5,903,372			7,938,675			12,043,112			16,785,507
Loss from Operations		(4,871,838	)		(5,388,579	)		(9,032,946	)		(12,870,519	)

Other Income (Expense):
Interest expense, net		(289,604	)		(6,719	)		(595,101	)		(23,051	)
Other expense, net		(129,141	)		(206,438	)		(262,035	)		(304,738	)
Total Other Expense, net		(418,745	)		(213,157	)		(857,136	)		(327,789	)
Loss Before Income Taxes		(5,290,583	)		(5,601,736	)		(9,890,082	)		(13,198,308	)
Provision for income taxes		—			—			—			—
Net Loss attributable to common stockholders	$	(5,290,583	)	$	(5,601,736	)	$	(9,890,082	)	$	(13,198,308	)

Net Loss Per Common Share – Basic and Diluted	$	(0.05	)	$	(0.07	)	$	(0.11	)	$	(0.17	)
Net Loss Per Common Share – Basic	$	(0.05	)	$	(0.07	)	$	(0.11	)	$	(0.17	)

Weighted Average Number of Shares Outstanding During the Period – Basic and Diluted		96,217,930			81,659,858			92,922,549			79,732,890
Weighted Average Number of Shares Outstanding During the Period – Basic		96,217,930			81,659,858			92,922,549			79,732,890

Comprehensive Loss:
Net Loss attributable to common stockholders	$	(5,290,583	)	$	(5,601,736	)	$	(9,890,082	)	$	(13,198,308	)
Amortization of unrecognized periodic pension costs		699			2,641			44,044			2,641
Foreign currency cumulative translation adjustment		72,525			132,136			123,784			152,308
Total comprehensive loss, net of tax		(5,217,359	)		(5,466,959	)		(9,722,254	)		(13,043,359	)
Accrued dividends on Series F Preferred Stock		(54,234	)		—			(121,156	)		—
Deemed dividend on Series F Preferred Stock and warrant		(4,654,918	)		—			(4,910,894	)		—
Total comprehensive loss available to common stockholder	$	(9,926,511	)	$	(5,466,959	)	$	(14,754,304	)	$	(13,043,359	)

See accompanying notes to these condensed consolidated financial statements.

~~AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES~~
~~CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY~~
~~FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022~~
~~(UNAUDITED)~~

Par $0.001 Preferred Stock, Series F Convertible Shares Preferred Stock, Series F Convertible Amount Par
$0.001
Common Stock Common Stock Amount Additional Paid-In Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders’ Equity
Balance as of June 30, 2022 9,690 $ 10 82,445,570 $ 82,445 $ 147,686,141 $ 84,355 (64,252,652 ) $ 83,600,299
Settlement of heldback shares from contingent liability related to Measure acquisition — — (498,669 ) (499 ) 2,812,999 — — 2,812,500
Conversion of Preferred Stock, Series F Convertible shares to Common Stock (3,379 ) (4 ) 5,450,000 5,450 (5,446 ) — — —
Dividends of preferred stock series F — — — — (94,694 ) — — (94,694 )
Issuance of Restricted Common Stock — — 12,917 14 (14 ) — — —
Exercise of stock options — — 35,000 35 12,815 — — 12,850
Stock-based compensation expense — — — — 556,837 — — 556,837
Amortization of unrecognized periodic pension costs — — — — — 97,846 — 97,846
Foreign currency cumulative translation adjustment — — — — — (372,368 ) — (372,368 )
Net loss — — — — — — 1,664,952 1,664,952
Balance as of September 30, 2022 6,311 $ 6 87,444,818 $ 87,445 $ 150,968,638 $ (190,167 ) (62,587,700 ) $ 88,278,222 )

Par $0.001 Preferred Stock, Series F Convertible Shares Preferred Stock, Series F Convertible Amount Par
$0.001
Common Stock Common Stock Amount Additional Paid-In Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders’ Equity
Balance as of December 31, 2021 — $ — 75,314,988 $ 75,315 $ 127,626,536 $ (70,594 ) $ (51,054,344 ) $ 76,576,913
Settlement of heldback shares from contingent liability related to Measure acquisition — — (498,669 ) (499 ) 2,812,999 — — 2,812,500
Issuance of Preferred Stock, Series F Convertible, net of issuance costs 10,000 10 — — 9,919,990 — — 9,920,000
Conversion of Preferred Stock, Series F Convertible shares to Common Stock (3,689 ) (4 ) 5,950,000 5,950 (5,946 ) — — —
Dividends of preferred stock series F — — — — (94,694 ) — — (94,694 )
Sale of Common Stock, net of issuance costs — — 4,251,151 4,251 4,579,090 — — 4,583,341
Issuance of Common Stock for acquisition of senseFly — — 1,927,407 1,927 2,998,073 — — 3,000,000
Issuance of Restricted Common Stock — — 314,941 316 (316 ) — — —
Exercise of stock options — — 185,000 185 74,165 — — 74,350
Stock-based compensation expense — — — — 3,058,741 — — 3,058,741
Amortization of unrecognized periodic pension costs — — — — — 100,487 — 100,487
Foreign currency translation adjustment — — — — — (220,060 ) — (220,060 )
Net loss — — — — — — (11,533,356 ) (11,533,356 )
Balance as of September 30, 2022 6,311 $ 6 87,444,818 $ 87,445 $ 150,968,638 $ (190,167 ) $ (62,587,700 ) $ 88,278,222

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023

(UNAUDITED)

	Par $0.001 Preferred Stock, Series F Convertible Shares			Preferred Stock, Series F Convertible Amount			Par $0.001 Common Stock		Common Stock Amount		Additional Paid-In Capital			Accumulated Other Comprehensive Income		Accumulated Deficit			Total Stockholders’ Equity
Balance as of March 31, 2023		7,865		$	8			90,771,375	$	90,772	$	158,378,640		$	104,687	$	(116,408,919	)	$	42,165,188
Sales of common stock, net of issuance costs		—			—			16,720,000		16,720		3,800,680			—		—			3,817,400
Conversion of Preferred Stock, Series F Convertible shares to Common Stock		(840	)		(1	)		2,000,000		2,000		(1,999	)		—		—			—
Dividends on Series F Preferred Stock		—			—			—		—		(54,234	)		—		—			(54,234	)
Deemed dividend on Series F Preferred Stock and warrant		—			—			—		—		4,654,918			—		(4,654,918	)		—
Stock-based compensation expense		—			—			—		—		469,835			—		—			469,835
Amortization of unrecognized periodic pension costs		—			—			—		—		—			699		—			699
Foreign currency cumulative translation adjustment		—			—			—		—		—			72,525		—			72,525
Net loss		—			—			—		—		—			—		(5,290,583	)		(5,290,583	)
Balance as of June 30, 2023		7,025		$	7			109,491,375	$	109,492	$	167,247,840		$	177,911	$	(126,354,420	)	$	41,180,830

See accompanying notes to condensed consolidated financial statements.

~~AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES~~

	Par $0.001 Preferred Stock, Series F Convertible Shares			Preferred Stock, Series F Convertible Amount			Par $0.001 Common Stock Shares		Common Stock Amount		Additional Paid-In Capital			Accumulated Other Comprehensive Income		Accumulated Deficit			Total Stockholders’ Equity
Balance as of December 31, 2022		5,863		$	6			88,466,613	$	88,467	$	154,679,363		$	10,083	$	(111,553,444	)	$	43,224,475
Sales of common stock, net of issuance costs		—			—			16,720,000		16,720		3,800,680			—		—			3,817,400
Issuance of Preferred Stock, Series F Convertible, net of issuance cost		3,000			3			—		—		2,999,997			—		—			3,000,000
Conversion of Preferred Stock, Series F Convertible shares to Common Stock		(1,838	)		(2	)		4,304,762		4,305		(4,303	)		—		—			—
Dividends on Series F Preferred Stock		—			—			—		—		(121,156	)		—		—			(121,156	)
Deemed dividend on Series F Preferred Stock and warrant		—			—			—		—		4,910,894			—		(4,910,894	)		—
Stock-based compensation expense		—			—			—		—		982,365			—		—			982,365
Amortization of unrecognized periodic pension costs		—			—			—		—		—			44,044		—			44,044
Foreign currency cumulative translation adjustment		—			—			—		—		—			123,784		—			123,784
Net loss		—			—			—		—		—			—		(9,890,082	)		(9,890,082	)
Balance as of June 30, 2023		7,025		$	7			109,491,375	$	109,492	$	167,247,840		$	177,911	$	(126,354,420	)	$	41,180,830

~~CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY~~

~~FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021~~

~~(UNAUDITED)~~

Par
$0.001
Common Stock Common Stock Amount Additional Paid-In Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders’ Equity
Balance as of June 30, 2021 74,668,560 $ 74,669 $ 123,377,671 $ — $ (28,554,366 ) $ 94,897,974
Sales of Common Stock, net of issuance costs 434,777 435 2,221,107 — — 2,221,542
Exercise of stock options 81,861 81 37,262 — — 37,343
Stock-based compensation expense 104,166 104 792,927 — — 793,031
Net loss — — — — (3,770,902 ) (3,770,902 )
Balance as of September 30, 2021 75,289,364 $ 75,289 $ 126,428,967 $ — $ (32,325,268 ) $ 94,178,988

Par
$0.001
Common Stock Common Stock Amount Additional Paid-In Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders’ Equity
Balance as of December 31, 2020 58,636,365 $ 58,636 $ 47,241,757 $ — $ (20,945,664 ) $ 26,354,729
Sale of Common Stock, net of issuance costs 6,763,091 6,763 37,175,883 — — 37,182,646
Sale of Common Stock from exercise of warrants 2,516,778 2,517 8,302,851 — — 8,305,368
Issuance of Common Stock for MicaSense Acquisition 540,541 541 2,999,459 — — 3,000,000
Issuance of Common Stock for Measure Acquisition 5,319,145 5,319 24,369,681 — — 24,375,000
Stock issued in exchange for professional services 550,000 550 2,906,450 — — 2,907,000
Exercise of stock options 487,876 487 112,681 — — 113,168
Stock-based compensation expense 475,568 476 3,320,205 — — 3,320,681
Net loss — — — — (11,379,604 ) (11,379,604 )
Balance as of September 30, 2021 75,289,364 $ 75,289 $ 126,428,967 $ — $ (32,325,268 ) $ 94,178,988

See accompanying notes to condensed consolidated financial statements.

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(UNAUDITED)~~

For the Nine Months Ended
September 30,
2022 2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (11,533,356 ) $ (11,379,604 )
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation 3,058,741 3,320,681
Stock issued in exchange for professional services — 2,907,000
Paycheck Protection Program loan forgiveness — (108,532 )
Depreciation and amortization 2,887,244 784,701
Defined benefit plan obligation and other (148,851 ) —
Loss on disposal of property and equipment — 3,712
Gain on debt extinguishment (6,486,899 ) —
Changes in assets and liabilities:
Accounts receivable, net (396,617 ) (193,348 )
Inventories, net (2,221,569 ) (912,683 )
Prepaid expenses and other assets 22,579 (523,638 )
Accounts payable (281,937 ) 622,825
Accrued expenses and other liabilities (193,818 ) (1,452,158 )
Contract liabilities (307,610 ) 253,323
COVID loan (173,313 ) —
Other 433,357 —
Net cash used in operating activities (15,342,049 ) (6,677,721 )

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (250,379 ) (225,642 )
Payment of acquisition-related liabilities (6,610,900 ) —
Acquisition of MicaSense, net of cash acquired — (14,536,863 )
Acquisition of Measure, net of cash acquired — (14,916,850 )
Capitalization of platform development costs (635,568 ) (762,881 )
Capitalization of internal use software costs (565,894 ) —
Notes receivable — (200,000 )
Net cash used in investing activities (8,062,741 ) (30,642,236 )

CASH FLOWS FROM FINANCING ACTIVITIES:
Sales of Common Stock, net of issuance costs 4,583,341 37,182,646
Sale of Common Stock from exercise of warrants — 8,305,368
Sale of Preferred Stock, Series F Convertible, net of issuance costs 9,920,000 —
Exercise of stock options 74,350 113,168
Net cash provided by financing activities 14,577,691 45,601,182

Effects of foreign exchange rates on cash flows (460,980 ) —

Net (decrease) increase in cash (9,288,079 ) 8,281,225
Cash at beginning of period 14,590,566 23,940,333
Cash at end of period $ 5,302,487 $ 32,221,558

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest cash paid $ — $ —
Income taxes paid $ — $ —
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Stock consideration for the senseFly Acquisition $ 3,000,000 —
Conversion of Preferred Stock, Series F Convertible to Common Stock 5,950 —
Dividends on preferred stock series F 94,694 —
Issuance of Restricted Common Stock 316 —
Settlement of Common Stock from contingent liability related to Measure $ 2,812,500 $ —
Acquisition liability related to the MicaSense Acquisition $ — $ 5,000,000
Stock consideration for the MicaSense Acquisition $ — $ 3,000,000
Acquisition liability related to the Measure Acquisition $ — $ 5,625,000
Stock consideration for the Measure Acquisition $ — $ 24,375,000

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022

	Par $0.001 Preferred Stock, Series F Convertible Shares			Preferred Stock, Series F Convertible Amount		Par $0.001 Common Stock		Common Stock Amount		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Stockholders’ Equity
Balance as of March 31, 2022		—		$	—		81,568,546	$	81,568	$	136,988,255		$	(50,422	)	$	(58,650,916	)	$	78,368,485
Issuance of Preferred Stock, Series F Convertible, net of issuance costs		10,000			10		—		—		9,919,990			—			—			9,920,000
Conversion of Preferred Stock, Series F Convertible shares to Common Stock		(310	)		—		500,000		500		(500	)		—			—			—
Exercise of stock options		—			—		75,000		75		30,675			—			—			30,750
Issuance of Restricted Common Stock		—			—		302,024		302		(302	)		—			—			—
Stock-based compensation expense		—			—		—		—		748,023			—			—			748,023
Foreign currency cumulative translation adjustment		—			—		—		—		—			132,136			—			132,136
Amortization of unrecognized periodic pension costs		—			—		—		—		—			2,641			—			2,641
Net loss		—			—		—		—		—			—			(5,601,736	)		(5,601,736	)
Balance as of June 30, 2022		9,690		$	10		82,445,570	$	82,445	$	147,686,141		$	84,355		$	(64,252,652	)	$	83,600,299

See accompanying notes to condensed consolidated financial statements.

	Par $0.001 Preferred Stock, Series F Convertible Shares			Preferred Stock, Series F Convertible Amount		Par $0.001 Common Stock		Common Stock Amount		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Stockholders’ Equity
Balance as of December 31, 2021		—		$	—		75,314,988	$	75,315	$	127,626,536		$	(70,594	)	$	(51,054,344	)	$	76,576,913
Sale of Common Stock, net of issuance costs		—			—		4,251,151		4,251		4,579,090			—			—			4,583,341
Issuance of Common Stock for acquisition of senseFly		—			—		1,927,407		1,927		2,998,073			—			—			3,000,000
Issuance of Restricted Common Stock		—			—		302,024		302		(302	)		—			—			—
Issuance of Preferred Stock, Series F Convertible, net of issuance costs		10,000			10		—		—		9,919,990			—			—			9,920,000
Exercise of stock options		—			—		150,000		150		61,350			—			—			61,500
Stock-based compensation expense		—			—		—		—		2,501,904			—			—			2,501,904
Conversion of Preferred Stock, Series F Convertible shares to Common Stock		(310	)		—		500,000		500		(500	)		—			—			—
Foreign currency translation adjustment		—			—		—		—		—			152,308			—			152,308
Amortization of unrecognized periodic pension costs		—			—		—		—		—			2,641			—			2,641
Net loss		—			—		—		—		—			—			(13,198,308	)		(13,198,308	)
Balance as of June 30, 2022		9,690		$	10		82,445,570	$	82,445	$	147,686,141		$	84,355		$	(64,252,652	)	$	83,600,299
Balance		9,690		$	10		82,445,570	$	82,445	$	147,686,141		$	84,355		$	(64,252,652	)	$	83,600,299

See accompanying notes to condensed consolidated financial statements.

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	2023			2022
	For the Six Months Ended June 30,
	2023			2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(9,890,082	)	$	(13,198,308	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		982,365			2,501,904
Depreciation and amortization		2,014,256			1,844,196
Defined benefit plan obligation and other		(197,649	)		(5,644	)
Amortization of debt discount		337,770			—
Lease impairment charge		79,287			—
Changes in assets and liabilities:
Accounts receivable, net		132,005			(944,064	)
Inventories, net		259,406			(1,702,158	)
Prepaid expenses and other assets		174,320			(846,691	)
Accounts payable		(365,772	)		(348,416	)
Accrued expenses and other liabilities		(54,136	)		(290,443	)
Contract liabilities		(60,191	)		1,168,007
Other		(194,899	)		193,528
Net cash used in operating activities		(6,783,320	)		(11,628,089	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(48,107	)		(137,149	)
Acquisition of senseFly, net of cash acquired		—			(489,989	)
Acquisition of MicaSense, net of cash acquired		—			(2,446,512	)
Capitalization of platform development costs		(232,441	)		(319,799	)
Capitalization of internal use software costs		(143,796	)		(610,643	)
Net cash used in investing activities		(424,344	)		(4,004,092	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Sales of Common Stock, net of issuance costs		3,817,400			4,583,341
Sale of Preferred Stock, Series F Convertible		3,000,000			9,920,000
COVID loans		(40,927	)		—
		—			61,500
Net cash provided by financing activities		6,776,473			14,564,841

Effects of foreign exchange rates on cash flows		283,781			(17,633	)

Net decrease in cash		(147,410	)		(1,084,973	)
Cash at beginning of period		4,349,837			14,590,566
Cash at end of period	$	4,202,427		$	13,505,593

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest cash paid	$	—		$	—
Income taxes paid	$	—		$	—
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Conversion of Preferred Stock, Series F Convertible to Common Stock	$	4,305		$	500
Issuance of Restricted Common Stock	$	—		$	302
Dividends on Series F Preferred Stock	$	121,155		$	—
Deemed dividend on Series F Preferred stock and warrant	$	4,910,894		$	—
Stock consideration for senseFly Acquisition	$	—		$	3,000,000

See accompanying notes to condensed consolidated financial statements.

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2022~~2023 AND ~~2021~~2022
(UNAUDITED)

~~(UNAUDITED)~~

Note 1 – Description of the Business and Basis of Presentation

Description of Business – AgEagle™ Aerial Systems Inc. (“AgEagle” or the “Company”), through its wholly-owned subsidiaries, AgEagle Aerial, Inc., DBA MicaSense™, Inc. (“MicaSense”), Measure Global, Inc. (“Measure”), senseFly SA and senseFly Inc. (collectively “senseFly”), is actively engaged in designing and delivering best-in-class ~~autonomous unmanned aerial systems,~~drones, sensors and software that solve important problems for its customers in a wide range of industry verticals, including energy/utilities, infrastructure, agriculture and government.

~~During~~Founded in 2010, AgEagle was originally formed to pioneer proprietary, professional-grade, fixed-winged drones and aerial imagery-based data collection and analytics solutions for the agriculture industry. Today, the Company is earning distinction as a globally respected market leader offering customer-centric, advanced, autonomous unmanned aerial systems (“UAS”) which drive revenue at the intersection of flight hardware, sensors and software for industries that include agriculture, military/defense, public safety, surveying/mapping and utilities/engineering, among others. AgEagle has also achieved numerous regulatory firsts, including earning governmental approvals for its commercial and tactical drones to fly Beyond Visual Line of Sight (“BVLOS”) and/or Operations Over People (“OOP”) in the United States, Canada, Brazil and the European Union .D

AgEagle’s shift and expansion from solely manufacturing fixed-wing farm drones in 2018, to offering what the Company believes is one of the industry’s best fixed-wing, full-stack drone solutions, culminated in 2021 when the Company acquired three market-leading companies engaged in producing UAS airframes, sensors and software for commercial and government use. In addition to a robust portfolio of proprietary, connected hardware and software products; an established global network of over 200 UAS resellers; and enterprise customers worldwide; these acquisitions also brought AgEagle a workforce comprised largely of experienced engineers and technologists with deep expertise in the fields of robotics, automation, manufacturing and data science. In 2022, the Company succeeded in integrating all three acquired companies with AgEagle to form one global company focused on taking autonomous flight performance to a higher level.

The business acquisitions completed during the year ended December 31, 2021, by the Company ~~acquired~~of 100% of the outstanding stock of MicaSense, Measure and senseFly, ~~respectively. These three business acquisitions~~respectively, are collectively referred to as the “2021 Business Acquisitions.”

The Company is currently headquartered in Wichita, Kansas, where it houses its sensor manufacturing operations and Lausanne, Switzerland where we it operates its drone manufacturing operations.

Basis of Presentation – The condensed consolidated financial statements of the Company are presented in United States dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). In the opinion of management, the Company has made all necessary adjustments, which include normal recurring adjustments, for a fair statement of the Company’s consolidated financial position and results of operations for the periods presented. Certain information and disclosures included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the U.S. Securities and Exchange Commission (“SEC”) rules. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes for the year ended December 31, ~~2021,~~2022, included in the Company’s Annual Report on Form 10-K, as filed with the SEC on April ~~12, 2022.~~4, 2023. The results for the ~~three~~three- and ~~nine month~~six-month periods ended ~~September~~June 30, 2023, and 2022, are not necessarily indicative of the results to be expected for a full year, any other interim periods or any future year or ~~period.~~periods.

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022
(UNAUDITED)

Note 1 – Description of the Business and Basis of Presentation - Continued

The condensed consolidated financial statements include the accounts of AgEagle and its wholly-owned subsidiaries, AgEagle Aerial, Inc., Measure Global, Inc., senseFly S.A. and senseFly Inc. All significant intercompany balances and transactions have been eliminated in consolidation.

A description of certain of the Company’s accounting policies and other financial information is included in the Company’s audited consolidated financial statements filed with the SEC on Form 10-K for the year ended December 31, 2022. The summary of significant accounting policies presented below is designed to assist in understanding the Company’s condensed consolidated financial statements. Such condensed consolidated financial statements and accompanying notes are the representations of the Company’s management, who are responsible for their integrity and objectivity.

Liquidity and Going Concern – In pursuit of the Company’s long-term growth strategy and ~~recent~~ acquisitions, the Company has sustained continued operating losses. During the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the Company incurred a net loss of $~~11,533,356~~9,890,082 and used cash in operating activities of $~~15,342,049~~6,783,320. As of ~~September~~June 30, ~~2022,~~2023, the Company has working capital of $~~10,221~~7,537,254 ~~,025~~ and an accumulated deficit of $~~62,587,700~~126,354,420. While the Company has historically been successful in raising capital to meet its working capital needs, the ability to continue raising such capital ~~to enable the Company to continue its growth~~ is not guaranteed. ~~Therefore, there~~There is substantial doubt about the Company’s ability to continue as a going concern as the Company will require additional liquidity to continue its operations and meet its financial obligations for 12twelve (12) months from the date these condensed consolidated financial statements were issued. The Company is evaluating strategies to obtain the required additional funding for future ~~operation~~operations and the restructuring of operations to grow revenues and reduce expenses.

If the Company is unable to generate significant sales growth in the near term and raise additional capital, there is a risk that the Company could default on additional obligations; and could be required to discontinue or significantly reduce the scope of its operations if no other means of financing operations are available. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities or any other adjustment that might be necessary should the Company be unable to continue as a going concern.

~~AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021Note 2 – Summary of Significant Accounting Policies

~~(UNAUDITED)~~

~~Note 1 – Description~~The summary of significant accounting policies presented below is designed to assist in understanding the Company’s condensed consolidated financial statements. Such condensed consolidated financial statements and accompanying notes are the representations of the ~~Business~~Company’s management, who are responsible for their integrity and ~~Basis~~objectivity. These accounting policies conform to accounting principles generally accepted in the United States of ~~Presentation – Continued~~America (“US GAAP”) in all material respects and have been consistently applied in preparing the accompanying condensed consolidated financial statements.

Risks and Uncertainties – Global economic challenges, including the impact of ~~the~~ war, ~~in Ukraine, the COVID-19 pandemic,~~pandemics, rising inflation and supply-chain disruptions and adverse labor market conditions could cause economic uncertainty and volatility. During the three and nine months ended September 30, 2022, the COVID-19 pandemic continued to have a significant negative impact on the unmanned aerial vehicle (“UAV”) systems industry, the Company’s customers and business globally. The aforementioned risks and their respective impacts on the UAV industry and the Company’s operational and financial performance ~~remains~~remain uncertain and outside of the Company’s control. Specifically, ~~as a result~~because of the aforementioned continuing risks, the Company’s ability to access components and parts needed in order to manufacture its proprietary drones and sensors, and to perform quality testing have been, and continue to be, impacted. If either the Company or any of its third parties in the supply chain for materials used in our manufacturing and assembly processes continue to be adversely impacted, the Company’s supply chain may be further disrupted, limiting its ability to manufacture and assemble products. ~~The Company expects the pandemic, inflation and supply-chain disruptions and its effects to continue to have a significant negative impact on its business for the duration~~

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022
(UNAUDITED)

Note 2 – Summary of ~~the pandemic and during the subsequent economic recovery, which could be for an extended period of time.~~Significant Accounting Policies-Continued

A description of certain of the Company’s accounting policies and other financial information is included in the Company’s audited consolidated financial statements filed with the SEC on Form 10-K for the year ended December 31, 2021. The summary of significant accounting policies presented below is designed to assist in understanding the Company’s condensed consolidated financial statements. Such condensed consolidated financial statements and accompanying notes are the representations of the Company’s management, who are responsible for their integrity and objectivity.

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 revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the reserve for obsolete inventory, valuation of stock issued for services and stock options, valuation of intangible assets, ~~including goodwill, foreign currency exchange rates, valuation of defined benefit plan obligations~~ and the valuation of deferred tax assets.

Fair Value Measurements and Disclosures – ASC Topic 820, Fair Value Measurement (“ASC 820”), requires companies to determine fair value based on the price that would be received to sell the asset or paid to transfer the liability to a market participant. ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement.

The guidance requires that assets and liabilities carried at fair value be classified and disclosed in one of the following categories:

●	Level 1: Quoted market prices in active markets for identical assets or liabilities.

●	Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.

●	Level 3: Unobservable inputs that are not corroborated by market data.

For short-term classes of our financial instruments, which include cash, accounts receivable, prepaid expenses, notes receivable, accounts payable and accrued expenses, their carrying amounts approximate fair value due to their short-term nature. The outstanding loans related to the ~~business acquisitions~~COVID Loans and ~~COVID Loans~~promissory note are carried at face value, which approximates fair value. As ~~of September~~June 30, ~~2022~~2023, and December 31, ~~2021,~~2022, the Company did not have any financial assets or liabilities measured and recorded at fair value on the Company’s condensed consolidated balance sheets on a recurring basis.

~~AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

~~(UNAUDITED)~~

~~Note 2 –~~ ~~Summary of Significant Accounting Policies~~Inventories

~~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. At each balance sheet date, the Company evaluates its 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.

Cash Concentrations – The Company maintains its cash balances at financial institutions that are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. The Company has significant cash balances at financial institutions which throughout the year regularly exceed the federally insured limit of $250,000. Any loss incurred or a lack of access to such funds could have a significant adverse impact on the Company’s financial condition, results of operations, and cash flows.

Revenue Recognition and Concentration – ~~The majority~~Most of the Company’s revenues are derived primarily through the sales of ~~drone and drone related products and services,~~drones, sensors and related accessories, and software subscriptions. All contracts and agreements are aat fixed ~~price~~prices and are accounted for in accordance with ASC Topic 606, Revenue from Contracts with Customers.

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022
(UNAUDITED)

Note 2 – Summary of Significant Accounting Policies-Continued

The Company generally recognizes revenue on sales to customers, dealers, and distributors upon satisfaction of performance obligations which generally occurs once ~~control transfers~~controls transfer to customers, which is when product is shipped or delivered depending on specific shipping terms and, where applicable, a customer acceptance has been obtained. The fee is not considered to be fixed or determinable until all material contingencies related to the sales have been resolved. The Company records revenue in the statements of operations and comprehensive loss net of any sales, use, value added, or certain excise taxes imposed by governmental authorities on specific sales transactions and net of any discounts, allowances and returns.

~~Under fixed-price contracts,~~

The Company’s software subscriptions to its platforms, HempOverview and Ground Control, are offered on a subscription basis. These subscription fees are recognized equally over the ~~Company agrees to perform~~membership period as the specified work for a pre-determined price. To the extent the Company’s actual costs vary from the estimates upon which the price was negotiated, it will generate more or less profit or could incur a loss. The Company accounts for a contract after it has been approved by all parties to the arrangement, the rights of the partiesservices are ~~identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.~~provided.

Additionally, customer payments received in advance of the Company completing performance obligations are recorded as contract liabilities. Customer deposits represent customer prepayments and are recognized as revenue when the term of the sale or performance obligation is completed.

~~The Company’s software subscriptions to its platforms,~~ ~~HempOverview~~ ~~and~~ ~~Ground Control~~~~, are offered on a subscription basis. These subscription fees are recognized ratably over each monthly membership period as the services are provided.~~

~~AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

~~(UNAUDITED)~~

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

~~Capitalized Software Development Costs~~ ~~— Software development costs for software to be sold, leased or marketed are accounted for in accordance with ASC Topic 985-20,~~ ~~Software — Costs of Software to be Sold, Leased or Marketed~~. Costs associated with the planning and design phase of software development are classified as research and development costs and are expensed as incurred. Once technological feasibility has been established, a portion of the costs incurred in development, including coding, testing and quality assurance, are capitalized until available for general release to customers, and subsequently reported at the lower of unamortized cost or net realizable value. Amortization is recorded per the individual technology software being released and is included in cost of sales on the condensed consolidated statements of operations and comprehensive income (loss). Annual amortization is recognized on a straight-line basis over the remaining economic life of the software (typically two years). Unamortized capitalized costs determined to be in excess of the net realizable value of a solution are expensed at the date of such determination. As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021, capitalized software development costs, net of accumulated amortization, totaled~~2022, respectively, contract liabilities represent $~~1,301,691~~440,165 and $~~995,880~~496,390~~, respectively, and are included in intangibles, net on the condensed consolidated balance sheets.~~.

Internal-use Software Costs —– Internal-use software ~~development~~ costs are accounted for in accordance with ASC Topic 350-40, Internal-Use Software. The costs incurred in the preliminary stages of development are expensed as research and development costs as incurred. Once an application has reached the development stage, internal and external costs incurred to develop internal-use software are capitalized and amortized on a straight-line basis over the estimated useful life of the software (typically three to five years). Maintenance and enhancement costs, including those costs in the post-implementation stages, are typically expensed as incurred, unless such costs relate to substantial upgrades and enhancements to the software that result in added functionality, in which case the costs are capitalized and amortized on a straight-line basis over the estimated useful life of the software. The Company reviews the carrying value for impairment whenever facts and circumstances exist that would suggest that assets might be impaired or that the useful lives should be modified. Amortization expense related to capitalized internal-use software development costs is included in general and administrative expenses on the condensed consolidated statements of ~~operations and comprehensive income (loss).~~ operations.

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022
(UNAUDITED)

Note 2 – Summary of Significant Accounting Policies - Continued

As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, capitalized software ~~development~~ costs for internal-use software ~~net of accumulated amortization, totaled $740,923~~ ~~and $278,264, respectively, relate~~related to the Company’s implementation of its enterprise resource planning (“ERP”) ~~software. Internal-use~~ software, ~~costs~~totaled $699,404 and $721,795, respectively, net of accumulated amortization and are included in ~~intangibles,~~intangible assets, net on the condensed consolidated balance sheets. The Company placed its ERP into service on May 1, 2022.

Further, capitalized software costs for internal-use software include costs incurred in connection with our HempOverview and Ground Control which we offer to our customers under SaaS arrangements. We account for these capitalized development costs in accordance with ASC 350-40 as our customer do not have the contractual right to take possession of the software at any time during the hosting period without significant penalty nor is it feasible for our customers to run the hosted software on their own. As of June 30, 2023 and December 31, 2022, respectively, capitalized software development costs for our hosted platforms, net of accumulated amortization, totaled $1,220,659 and $1,332,516, respectively, and are included in intangible assets, net on the condensed consolidated balance sheets.

Goodwill and Intangible Assets - The assets and liabilities of acquired businesses are recorded under the acquisition method of accounting at their estimated fair values at the date of acquisition. Goodwill represents costs in excess of fair values assigned to the underlying identifiable net assets of acquired businesses. Intangible assets from acquired businesses are recognized at fair value on the acquisition date and consist of customer programs, trademarks, customer relationships, technology and other intangible assets. Customer programs include values assigned to major programs of acquired businesses and represent the aggregate value associated with the customer relationships, contracts, technology and trademarks underlying the associated program and are amortized on a straight-line basis over a period of expected cash flows used to measure fair value, which ranges from four to five years.

As of June 30, 2023 and December 31, 2022 our goodwill balance was $23,179,411. We performed an annual impairment test of the Company’s goodwill in the fourth quarter of 2022 and unless events or changes in circumstances indicate the carrying value of goodwill may be impaired we may look to perform such test sooner versus on an annual basis. Such events or changes in circumstances may include a significant deterioration in overall economic conditions, changes in the business climate of our industry, a decline in our market capitalization, decline in operating performance indicators, competition, or a reorganizations of our business. Our goodwill has been allocated to and is tested for impairment at a level referred to as the business segment. The level at which we test goodwill for impairment requires us to determine whether the operations below the business segment constitute a self-sustaining business for which discrete financial information is available and segment management regularly reviews the operating results which is referred to as a reporting unit.

As of June 30, 2023 and December 31, 2022 our intangible assets balance was $10,069,558 and $11,507,653, respectively. Finite-lived intangibles are amortized to expense over the applicable useful lives, ranging from five to ten years, based on the nature of the asset and the underlying pattern of economic benefit as reflected by future net cash inflows. We perform an impairment test of finite-lived intangibles whenever events or changes in circumstances indicate their carrying value may be impaired. If events or changes in circumstances indicate the carrying value of a finite-lived intangible may be impaired, the sum of the undiscounted future cash flows expected to result from the use of the asset group would be compared to the asset group’s carrying value. If the asset group’s carrying amount exceeds the sum of the undiscounted future cash flows, we would determine the fair value of the asset group and record an impairment loss in net earnings.

As of June 30, 2023, the Company deemed that no impairment was indicated for the carrying value of the goodwill nor its intangible assets. At December 31, 2022 the Company recorded an impairment expense on its goodwill in connection with its annual impairment test. At June 30, 2023 there have been no events or changes in circumstances which indicate an interim impairment test is required. The Company will perform its annual analysis during the fourth quarter of 2023.

Foreign Currency —- The Company translates assets and liabilities of its foreign subsidiary, senseFly S.A., predominately in Swiss Franc to their U.S. dollar equivalents at exchange rates in effect as of the balance sheet date. Translation adjustments are not included in determining net income but are recorded in accumulated other comprehensive income ~~(loss)~~ on the condensed consolidated balance sheets. The Company translates the condensed consolidated statements of operations and comprehensive ~~income (loss)~~loss of its foreign subsidiary at average exchange rates for the applicable period. Foreign currency transaction gains and losses, arising primarily from changes in exchange rates on foreign currency denominated revenues, certain purchases and intercompany transactions are recorded in other income (expense) ~~income,~~, net in the condensed consolidated statements of operations and comprehensive ~~income (loss).~~loss.

Shipping Costs – All shipping costs billed directly to the customer are directly offset to shipping costs resulting in a net expense to the Company, which is included in cost of goods sold in the accompanying condensed consolidated statements of operations and comprehensive ~~income (loss).~~loss. For the three ~~and nine~~ months ended ~~September 30,~~June, 2023 and 2022, ~~and 2021,~~ shipping costs ~~were~~totaled $~~75,074~~57,545 and $~~27,024~~85,516, ~~respectively,~~respectively. For the six-month periods ended June 30, 2023 and 2022, shipping costs totaled $~~220,049~~122,481 and $~~62,614~~144,975, respectively.

Advertising Costs – Advertising costs are charged to operations as incurred and presented in sales and marketing expenses in the condensed consolidated statements of operations and comprehensive ~~income (loss).~~loss. For the three ~~and nine~~ months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, advertising costs were $~~139,480~~27,729 and $~~50,941~~103,756, respectively, and for the six months ended $~~303,862~~68,418 and $~~141,626~~164,382, respectively.

Vendor Concentrations – As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, there was one significant vendor that the Company relies upon to perform certain services for the Company’s technology platform. This vendor provides services to the Company, which can be replaced by alternative vendors should the need arise.

~~AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

~~(UNAUDITED)~~

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

~~Income (Loss)~~Loss Per Common Share and Potentially Dilutive Securities – Basic ~~income (loss)~~loss per share is computed by dividing net ~~income (loss)~~loss by the weighted average number of common shares outstanding for the period. Diluted ~~income (loss)~~loss per share is computed by dividing net ~~income (loss)~~loss by the weighted average number of common shares outstanding plus Common Stock, par value $0.001 (“Common Stock”) equivalents (if dilutive) related to warrants, options, and convertible instruments. For the three and six months ended June 30, 2023 and 2022, the Company has excluded all common equivalent shares outstanding for restricted stock units (“RSUs”) and ~~convertible instruments.~~options to purchase Common Stock from the calculation of diluted net loss per share, because these securities are anti-dilutive for the periods presented. As of ~~September~~June 30, ~~2022,~~2023, the Company had ~~629,367~~455,972 of unvested RSUs, ~~2,484,373~~2,778,982 options outstanding to purchase shares of Common Stock and ~~6,311~~53,351,747 ~~shares of Series F Preferred Stock convertible into 10,179,032 shares of Common Stock, and~~ ~~16,129,032~~ ~~Common Stock~~common stock warrants. As of ~~December 31, 2021,~~June 30, 2022, the Company had ~~821,405~~675,367 unvested RSUs, ~~and~~ ~~2,541,667~~2,452,248 options outstanding to purchase shares of Common ~~Stock.~~

The following dilutive shares have been excluded from the calculation of diluted net loss per share as their effect would be anti-dilutive for the three months ended September 30, 2022, 629,367 of unvested RSUs, 727,667 options outstanding to purchase shares of Common Stock, 6,311 shares of Preferred Stock, Series F Convertible into 10,179,032 shares of Common Stock and ~~16,129,032 Common Stock~~5,000,000 common stock warrants. ~~See Note 7 — Equity.~~

Segment Reporting – –In accordance with ASC Topic 280, Segment Reporting, (“ASC 280”), the Company identifies operating segments as components of an entity for which discrete financial information is available and is regularly reviewed by the chief operating decision maker in making decisions regarding resource allocation and performance assessment. The Company defines the term “chief operating decision maker” to be its chief executive officer.

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022
(UNAUDITED)

Note 2 – Summary of Significant Accounting Policies-Continued

The Company has determined that it operates in ~~three~~four segments: ~~Drones and Custom Manufacturing, Sensors and Software-as-a Service (“SaaS”).~~

	●	Drones, which comprises revenues earned from contractual arrangements to develop, manufacture and /or modify complex drone related products, and to provide associated engineering, technical and other services according to customer specifications.

	●	Sensors, which comprises the revenue earned through the sale of sensors, cameras, and related accessories.

	●	SaaS, which comprises revenue earned through the offering of online-based subscriptions.

	●	Corporate, which comprises corporate costs only.

~~Accounting Pronouncements – Adopted~~ – ~~During the first quarter of 2022, the Company early adopted Accounting Standards Update (“ASU”) ASU 2020-06,~~ ~~Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40)~~ (“ASU 2020-06”). The update simplifies the accounting for convertible debt instruments and convertible preferred stock by reducing the number of accounting models and limiting the number of embedded conversion features separately recognized from the primary contract. The guidance also includes targeted improvements to the disclosures for convertible instruments and earnings per share. For smaller reporting companies, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The Company adopted ASU 2020-06 in the first quarter of 2022 using the modified retrospective method. Prior to its adoption of ASU 2020-06, the Company did not have financial instruments that would have required a cumulative effect to be recognized as an adjustment to its opening balance of accumulated deficit.

New Accounting Pronouncements ~~– Pending~~ —- In March 2022, the FASB issued Accounting Standards Update (“ASU”) No. 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”), which addresses areas identified by the FASB as part of its post-implementation review of its previously issued credit losses standard, ASU 2016-13, that introduced the Current Expected Credit Loss (“CECL”) model. ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhances disclosure requirements for certain loan refinancings and restructurings made with borrowers experiencing financial difficulty. In addition, ASU 2022-02 requires a public business entity to disclose current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. ASU 2022-02 is effective for the fiscal years beginning after December 15, 2022, and for periods within those fiscal years. Early adoption is permitted. The ~~adoption of~~Company adopted ASU 2022-02 iseffective January 1, 2023 and it did not ~~expected to~~ have a material impact on the Company’s condensed consolidated financial statements.

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 condensed consolidated financial statements.

Note 3 – Balance Sheets

Balance Sheet Disclosure

Accounts Receivable, net

As of June 30, 2023 and December 31, 2022, accounts receivable, net consist of the following:

Schedule of Accounts Receivable, Net

	June 30, 2023			December 31, 2022
Accounts receivable	$	2,120,217		$	2,229,840
Less: Provision for doubtful accounts		(17,097	)		(16,800	)
Accounts receivable, net	$	2,103,120		$	2,213,040

Inventories, Net

As of June 30, 2023 and December 31, 2022, inventories, net consist of the following:

Schedule of Inventories

	June 30, 2023			December 31, 2022
Raw materials	$	4,451,551		$	5,288,206
Work-in process		849,645			1,106,056
Finished goods		1,546,566			614,400
Gross inventories		6,847,762			7,008,662
Less: Provision for obsolescence reserve		(327,448	)		(322,815	)
Inventories, net	$	6,520,314		$	6,685,847

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2022~~2023 AND ~~2021~~2022
(UNAUDITED)

~~(UNAUDITED)~~

Note 3 – Balance Sheets – Continued

~~Accounts Receivable, net~~Prepaids and Other Current Assets

As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021, accounts receivable,~~2022, prepaid and other current assets, net consist of the following:

Schedule of accounts receivable, net
September 30, 2022 December 31, 2021
Accounts receivable $ 3,202,003 $ 2,918,435
Less: Provisions for doubtful accounts (23,984 ) (29,556 )
Accounts receivable, net $ 3,178,019 $ 2,888,879

~~Inventories, Net~~Schedule of Prepaid and Other Current Assets

	June 30, 2023		December 31, 2022
Prepaid inventories	$	208,538		281,484
Prepaid software licenses and annual fees		326,851		184,429
Prepaid rent		131,537		234,691
Prepaid insurance		85,107		167,794
Prepaid VAT charges		57,373		99,558
Prepaid other and other current assets		91,737		61,592
Prepaid and other current assets	$	901,143	$	1,029,548

~~As of September 30, 2022 and December 31, 2021, inventories, net consist of the following:~~

Schedule Of Inventories
September 30, 2022 December 31, 2021
Raw materials $ 3,098,858 $ 2,862,293
Work-in process 1,386,567 647,829
Finished goods 1,892,104 833,785
Gross inventories 6,377,529 4,343,907
Less: Provision for obsolescence (260,000 ) (305,399 )
Inventories, net $ 6,117,529 $ 4,038,508

Property and Equipment, Net

As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, property and equipment, net consist of the following:

Schedule Of Property and Equipment
Estimated
Useful
Life September 30, December 31,
Type (Years) 2022 2021
Leasehold improvements 3 $ 106,837 $ 81,993
Production tools and equipment 4-5 563,814 417,779
Computer and office equipment 3-5 581,822 559,110
Furniture 5 79,277 77,971
Drone equipment 3 117,769 95,393
Total Property and equipment 1,449,519 1,232,246
Less: Accumulated depreciation (611,461 ) (280,118 )
Total Property and equipment, net $ 838,058 $ 952,128

Schedule of Property and Equipment, Net

	Useful Life		June 30,			December 31,
	Estimated
	Useful Life		June 30,			December 31,
Type	(Years)		2023			2022
Leasehold improvements		3	$	106,837		$	106,837
Production tools and equipment		5		691,268			632,514
Computer and office equipment		3-5		521,505			507,637
Furniture		5		73,647			77,799
Drone equipment		3		170,109			170,109
Property and equipment				1,563,366			1,494,896
Less: Accumulated depreciation				(912,376	)		(703,741	)
Property and equipment, net			$	650,990		$	791,155

Property and Equipment Depreciation Expense

Schedule of Property and Equipment Depreciation Expense

Type	2023		2022		2023		2022
Classification within the Condensed Consolidated Statements of Operations and Comprehensive Loss.	For the Three Months Ended June 30,				For the Six Months Ended June 30,
Type	2023		2022		2023		2022
Cost of sales	$	—	$	70,463	$	—	$	135,306
General and administrative		99,227		43,941		199,924		89,833
Depreciation expense	$	99,227	$	114,404	$	199,924	$	225,139

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2022~~2023 AND ~~2021~~2022
(UNAUDITED)

~~(UNAUDITED)~~

Note 3 – Balance ~~Sheets-Continued~~Sheets - Continued

For the three and nine months ended September 30, 2022 and 2021, depreciation expense is classified within the condensed consolidated statements of operations and comprehensive income (loss) as follows:

Schedule of statements of operations and comprehensive loss
For the Three Months Ended September 30, For the Nine Months Ended September 30,
Type 2022 2021 2022 2021
Cost of sales $ 61,747 $ — $ 199,555 $ —
General and administrative 48,429 36,226 138,271 90,281
Total $ 110,176 $ 36,226 $ 337,826 $ 90,281

Intangible Assets, net

As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, intangible assets, net, other than goodwill, ~~consist~~consisted of the following:

Schedule of intangible assets, net
Name Estimated Life (Years) Balance as of December 31, 2021 Additions Amortization Balance as of September 30, 2022
Intellectual property/technology 5-7 $ 5,427,294 $ — $ (700,629 ) $ 4,726,665
Customer base 3-10 4,047,319 — (868,847 ) 3,178,472
Tradenames and trademarks 5-10 1,985,236 — (168,569 ) 1,816,667
Non-compete agreement 2-4 831,501 — (378,380 ) 453,121
Platform development costs 3 995,880 635,569 (329,758 ) 1,301,691
Internal use software costs 3 278,264 565,894 (103,235 ) 740,923
Total intangibles assets, net $ 13,565,494 $ 1,201,463 $ (2,549,418 ) $ 12,217,539

Schedule of Intangible Assets, net

Name	Estimated Life (Years)		Balance as of December 31, 2022		Additions		Amortization			Balance as of June 30, 2023
Intellectual property/technology		5-7	$	4,473,861	$	—	$	(404,484	)	$	4,069,377
Customer base		3-10		2,885,657		—		(568,830	)		2,316,827
Tradenames and trademarks		5-10		1,757,891		—		(103,972	)		1,653,919
Non-compete agreement		2-4		335,933		—		(226,561	)		109,372
Platform development costs		3		1,332,516		232,441		(344,298	)		1,220,659
Internal use software costs		3		721,795		143,796		(166,187	)		699,404
Intangibles assets, net			$	11,507,653	$	376,237	$	(1,814,332	)	$	10,069,558

As of ~~September~~June 30, ~~2022,~~2023, the weighted average remaining amortization period in years is ~~4.78~~4.32. years. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, amortization expense was $~~932,880~~913,691 and $~~2,549,418~~851,284, respectively, and $~~293,599~~1,814,332 and $~~694,420~~288,065, respectively.

~~AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

~~(UNAUDITED)~~

~~Note 3 – Balance Sheets-Continued~~

For the following years ending, the future amortization expenses consist of the following:

Schedule of future amortization expenses
For the Years Ending December 31,
(rest of year)
2022 2023 2024 2025 2026 Thereafter Total
Intellectual property/
technology $ 252,806 $ 808,968 $ 808,968 $ 808,968 $ 808,968 $ 1,237,987 $ 4,726,665
Customer base 292,816 1,137,663 889,364 141,145 141,145 576,339 3,178,472
Tradenames and trademarks 58,775 207,944 207,944 207,944 207,944 926,116 1,816,667
Non-compete agreement 117,188 335,933 — — — — 453,121
Platform development costs 150,409 602,091 427,264 121,927 — — 1,301,691
Internal use software costs 70,346 281,386 281,386 107,805 — — 740,923
Total Intangible Assets, Net $ 942,340 $ 3,373,985 $ 2,614,926 $ 1,387,789 $ 1,158,057 $ 2,740,442 $ 12,217,539

Schedule of Intangible Assets Future Amortization Expenses

Name	(rest of year) 2023		2024		2025		2026		2027		Thereafter		Total
	For the Years Ending December 31,
Name	(rest of year) 2023		2024		2025		2026		2027		Thereafter		Total
Intellectual property/technology	$	404,484	$	808,968	$	808,968	$	808,968	$	808,968	$	429,021	$	4,069,377
Customer base		568,833		889,364		141,145		141,145		141,145		435,195		2,316,827
Tradenames and trademarks		103,973		207,944		207,944		207,944		207,944		718,170		1,653,919
Non-compete agreement		109,372		—		—		—		—		—		109,372
Platform development costs		369,668		565,232		259,896		25,863		—		—		1,220,659
Internal use software costs		167,580		346,707		171,220		13,897		—		—		699,404
Intangible assets, net	$	1,723,910	$	2,818,215	$	1,589,173	$	1,197,817	$	1,158,057	$	1,582,386	$	10,069,558

~~Accrued Expenses~~

~~As of September 30, 2022 and December 31, 2021, accrued expenses consist of the following:~~

Schedule of accrued expenses
September 30, 2022 December 31, 2021
Accrued compensation and related liabilities $ 791,482 $ 1,039,979
Accrued professional fees 528,125 267,949
Provision for warranty expense 268,780 286,115
Other 215,912 307,598
Total accrued expenses $ 1,804,299 $ 1,901,641

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, 2023 AND 2022
(UNAUDITED)

Note 3 – Balance Sheets - Continued

Accrued Liabilities

As of June 30, 2023 and December 31, 2022, ~~AND 2021~~accrued expenses consist of the following:

~~(UNAUDITED)~~

Schedule of Accrued Expenses

	June 30, 2023		December 31, 2022
Accrued purchases and customer deposits	$	315,197	$	102,319
Accrued compensation and related liabilities		299,445		774,916
Provision for warranty expense		296,055		288,807
Accrued dividends		293,751		172,596
Accrued interest		160,222		—
Accrued professional fees		158,485		262,737
Other		58,998		79,331
Total accrued expenses	$	1,582,153	$	1,680,706

Note 4 – Notes Receivable

Valqari

On October 14, 2020, in connection with, and as an incentive to the entry into a two-year exclusive manufacturing agreement (the “Manufacturing Agreement”) to produce a patented Drone Delivery Station for Valqari, LLC (“Valqari), the Company entered into, as payee, a Convertible Promissory Note pursuant to which the Company made a loan to Valqari in the principal aggregate amount of ~~$500,000~~$500,000 (the “Note”). The Note accrues interest at a rate of three percent per annum.

The Note matured on April 15, 2021 (the “Maturity Date”), at which time all outstanding principal and interest that had accrued, but remained, unpaid was due. The Note provides for an automatic six month extension of the Maturity Date under the following circumstances (i) Valqari has received in writing, (x) a good faith acquisition offer at a consideration value greater than $15,000,000, (y) such offer, upon consummation, would result in a change in control (as defined in the note) of Valqari, and (z) at such time Valqari, is actively engaged in the negotiation or finalization of such acquisition transaction; or (ii) Valqari has initiated, or is in the process of initiating, a conversion to a “C-Corporation” under the Internal Revenue Code, whereas such conversion will be completed no later than one day prior to the extended Maturity Date. Valqari was not permitted to prepay the Note prior to the Maturity Date.

The Note is subject to customary representations and warranties by Valqari, as well as events of default, which may lead to acceleration of the payment of the Note such as (i) failure to pay all of the outstanding principal, plus accrued interest on the Maturity Date or Extended Maturity Date, (ii) Valqari filing a petition or action under any bankruptcy, or other law, or (iii) an involuntary petition is filed again Valqari under any bankruptcy statute (that is not dismissed or discharged within 60 days). The indebtedness evidenced by the Note is subordinated in right of payment to the prior payment in full of any senior indebtedness (as defined in the Note) in existence on the date of the Note or incurred thereafter.

On the Maturity Date, AgEagle demanded payment of the Note, including accrued interest, however, Valqari alleged that the Maturity Date was automatically extended to October 14, 2021 (“Extended Maturity Date”) ~~as the Note provided~~, for an ~~automatic six-month extension of the Maturity Date under certain circumstances within the terms and conditions of the Note.~~additional six months. Upon the Extended Maturity Date, AgEagle demanded payment of the Note, including accrued interest; however, Valqari sought a substantial discount on the amount due under the Note to compensate for alleged breaches by AgEagle under the Manufacturing Agreement. AgEagle disputes the allegations of breach and believes that it is owed a net amount by Valqari under the Manufacturing Agreement, in addition to the amount due under the Note. On November 24, 2021, Valqari made a payment of principal on the Note of ~~$315,000.~~$315,000. The parties ~~continue~~are continuing to negotiate in an attempt to reach an amicable resolution of their disputes; however, AgEagle reserves the right to take legal action to collect the Note in the event that a settlement is not reached. ~~As of September 30, 2022 and December 31, 2021, the balance remaining under the Note is $~~

~~185,000~~.

~~MicaSense~~

On November 16, 2020, and in connection with its January 27, 2021 acquisition of 100% of the capital stock of MicaSense (“MicaSense Acquisition), AgEagle, as payee, executed a promissory note with Parrot Drones S.A.S. (“Parrot”) in the principal amount of $100,000. The principal amount owed by Parrot was offset and reduced by all amounts paid or due in connection with the purchase price upon closing of the MicaSense Acquisition.

~~senseFly~~

On August 25, 2021, and in connection with its acquisition of 100% of the capital stock of senseFly (the senseFly Acquisition”) from Parrot, AgEagle Aerial, as payee, executed a promissory note in the principal amount of $200,000. The principal amount owed by Parrot was off-set and reduced by all amounts paid or due in connection with the purchase price upon closing of the senseFly Acquisition.

~~Note 5 –~~ ~~Business Acquisitions~~

During the year ended December 31, 2021, the Company acquired 100% of the outstanding capital stock of MicaSense, Measure and senseFly, respectively. The financial results for each of these acquisitions are included in the condensed consolidated financial statements beginning on their respective acquisition dates.

~~There were~~ no transaction costs related to business combinations for the three and nine months ended September 30, 2022. For the three and nine months ended September 30, 2021, transaction costs related to business combinations were $~~69,079~~ ~~and $402,546, respectively.~~

~~Transaction costs related to business combinations are included within general and administrative expense on the condensed consolidated statements of operations and comprehensive income (loss).~~

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2022~~2023 AND ~~2021~~2022
(UNAUDITED)

~~(UNAUDITED)~~

Note 5 – ~~Business Acquisitions-Continued~~COVID Loans

~~MicaSense~~In connection with the senseFly Acquisition, the Company assumed the obligations for two COVID Loans originally made by the SBA to senseFly S.A. on July 27, 2020 (“senseFly COVID Loans”). As of senseFly Acquisition Date, the fair value of the COVID Loan was $1,440,046 (“senseFly COVID Loans”). For the three and six months ended June 30, 2023, senseFly S.A. made the required payments on the senseFly COVID Loans, including principal and accrued interest, aggregating approximately $40,927, for the three and six months ended June 30, 2023, respectively, no payments of principal and interest were required. As of June 30, 2023, the Company’s outstanding obligations under the senseFly COVID Loans are $875,718.

As of June 30, 2023, scheduled principal payments due under the senseFly COVID Loans are as follows:

Schedule of Maturity of SenseFly Covid Loans


Year ending December 31,
2023 (rest of year)	$	416,931
2024		91,758
2025		91,758
2026		91,758
2027		183,512
Total	$	875,718

Note 6 – Promissory Note

On ~~January 27, 2021 (the “MicaSense Acquisition Date”),~~December 6, 2022, the Company entered into a ~~stock purchase agreement~~Securities Purchase Agreement (the ~~“MicaSense~~“Promissory Note Purchase Agreement”) with ~~Parrot and Justin B. McAllister (collectively~~an institutional investor (the “Investor”) which is an existing shareholder of the ~~“MicaSense Sellers”) pursuant~~Company. Pursuant to ~~which~~the terms of the Promissory Note Purchase Agreement, the Company has agreed to ~~acquire 100%~~issue to the Investor (i) an 8% original issue discount promissory note (the “Note”) in the aggregate principal amount of $3,500,000, and (ii) a common stock purchase warrant (the “Promissory Note Warrant”) to purchase up to 5,000,000 shares of the ~~issued~~Company’s Common Stock (the “Shares”) at an exercise price of $0.44 per share, subject to standard anti-dilution adjustments. The Note is an unsecured obligation of the Company. It has an original issue discount of 4% and ~~outstanding capital stock~~bears interest at 8% per annum. The Company received net proceeds of ~~MicaSense~~$3,285,000 net of the original issue discount of $140,000 and $75,000 of issuance costs. The Promissory Note Warrant is not exercisable for the first six months after issuance and has a five-year term from the ~~MicaSense Sellers (the “MicaSense Acquisition”). The aggregate purchase price~~initial exercise date of June 6, 2023. If at the time of the exercise, there is no effective registration statement registering, or the prospectus contained therein, is not available for the shares of MicaSense was $23,000,000, less any debt, and subject to a customary working capital adjustment. A portion of the consideration comprises shares of Common Stock of the Company, having an aggregate value of $3,000,000 based on a volume weighted average trading price of the Common Stock over a ten consecutive trading day period prior to the date of issuance of the ~~shares~~Shares, then the Promissory Note Warrant may be exercised, in whole or in part, by means of ~~Common Stock~~a “cashless exercise.” The Shares issuable to the MicaSense Sellers. On April 27, 2021, the Company issued 540,541 restricted shares of its Common Stock. The consideration is also subject to a remaining holdback amount of $4,750,000 to cover any post-closing indemnification claims and to satisfy any purchase price adjustments. The holdback was scheduled to be released in two equal installments, less any amounts paid or reserved for outstanding indemnity claims, on March 31, 2022 and March 31, 2023. The first installment of $2,375,000 was paid on March 31, 2022 (see below disclosure - ~~Liabilities Related to Business Acquisition Agreements~~ ~~for waiver~~Investor upon exercise of the ~~second installment~~).

On May 10, 2021, the Company filed a Form S-3 Registration Statement (the “MicaSense Registration Statement”) with the Securities and Exchange Commission (“SEC”), covering the resale of the Shares. The MicaSense Registration Statement was declared effective on June 1, 2021 (File Number: 333-255940). In addition, the Company shall use its best efforts to keep the MicaSense Registration Statement effective and in compliance with the provisions of the Securities Act (including by preparing and filing with the SEC such amendments, including post-effective amendments, and supplements to the MicaSense Registration Statement and the prospectus used in connection therewith as may be necessary) until all Shares and other securities covered by the MicaSense Registration Statement have been disposed. The MicaSense Sellers reimbursed the Company for reasonable legal fees and expenses incurred by the Company in connection with such registration.

The MicaSense Purchase Agreement contains certain customary representations, warranties, and covenants, including representations and warranties by the MicaSense Sellers with respect to MicaSense’s business, operations and financial condition. The MicaSense Purchase Agreement also includes post-closing covenants relating to the confidentiality and employee non-solicitation obligations of the MicaSense Sellers, and the agreement of the MicaSense Sellers not to compete with certain aspects of the business of MicaSense following the closing of the transaction. The completion of the transactions contemplated by the MicaSense Purchase Agreement is subject to customary closing conditions, including, among others: (i) the absence of a material adverse effect on MicaSense, (ii) the delivery by the parties of certain ancillary documents, including the registration Rights Agreement, and (iii) the execution by a key employee of MicaSense of an employment agreement. Subject to certain limitations, each of the partiesPromissory Note Warrant will be ~~indemnified for damages resulting from third party claims and breaches of the parties’ respective representations, warranties, and covenants in the MicaSense Purchase Agreement.~~

~~AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

~~(UNAUDITED)~~

~~Note 5 – Business Acquisitions-Continued~~

The Company performed a valuation analysis of the fair market value of the assets acquired and liabilities assumed. Using the total consideration for the MicaSense Acquisition, the Company determined the allocations to such assets and liabilities. The final purchase price allocation, and the necessary detailed valuations and calculations have been finalized.

~~The following table summarizes the allocation of the purchase price as of the MicaSense Acquisition Date:~~

Schedule of allocation preliminary purchase price
Net purchase price, including debt paid at close $ 23,375,681

Plus: fair value of liabilities assumed:
Current liabilities 702,925
Fair value of liabilities assumed $ 702,925

Less: fair value of assets acquired:
Cash $ 885,273
Other tangible assets 1,165,666
Identifiable intangible assets 3,061,803
Fair value of assets acquired $ 5,112,742

Net nonoperating assets 25,000
Adjustments for seller transaction expenses related to purchase price allocation 32,032
Goodwill $ 18,972,896

~~Measure~~

On April 19, 2021 (the “Measure Acquisition Date”), the Company entered into a stock purchase agreement (the “Measure Purchase Agreement”) with Brandon Torres Declet (“Mr. Torres Declet”), in his capacity as Measure Sellers’ representative, and the sellers named in the Measure Purchase Agreement (the “Measure Sellers”) pursuant to which the Company agreed to acquire 100% of the issued and outstanding capital stock of Measure from the Measure Sellers (the “Measure Acquisition”). The aggregate purchase price for the shares of Measure was $45,000,000, less the amount of Measure’s debt and transaction expenses, and subject to a customary working capital adjustment. The purchase price comprised $15,000,000 in cash, and shares of Common Stock of the Company, having an aggregate value of $30,000,000 based on a volume weighted average trading price of the Common Stock over a seven consecutive trading day period prior to the date of issuance of the shares of Common Stock to the Measure Sellers. The Company issued 5,319,145 shares of Common Stock, in the aggregate, to the Measure Sellers, of which 997,338 Common Stock shares with an aggregate value of $5,625,000 were held in escrow to cover any post-closing indemnification claims and to satisfy any purchase price adjustments (the “Heldback Shares”). The 5,319,154 of common stock shares issued as consideration resulted in an increase to stockholder’s equity of $24,375,000 and an acquisition related liability of $5,625,000 for the Heldback Shares which was recorded on the Measure Acquisition Date. Further, the Company paid $5,000,000 of the cash portion of the purchase price ninety days after the closing date of the transaction. As of December 31, 2021, the Company completed the payment of the cash portion of the purchase price. The holdback was scheduled to be released October 19, 2022, (see disclosure below - ~~Liabilities Related to Business Acquisition Agreements)~~ ~~less any amounts paid or reserved for outstanding indemnity claims and certain amounts subject to employee retention conditions set forth in the Measure Purchase Agreement.~~

~~AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

~~(UNAUDITED)~~

~~Note 5 – Business Acquisitions-Continued~~

The Measure Purchase Agreement contains certain customary representations, warranties, and covenants, including representations and warranties by the Measure Sellers with respect to Measure’s business, operations and financial condition. The Measure Purchase Agreement also includes post-closing covenants relating to the confidentiality and employee non-solicitation obligations of the Measure Sellers, and the agreement of the Measure Sellers not to compete with certain aspects of the business of Measure following the closing of the transaction. The completion of the transactions contemplated by the Purchase Agreement is subject to: (i) the absence of a material adverse effect on Measure, (ii) the delivery by the parties of certain ancillary documents, and (iii) the execution by key employees of Measure of employment offer letters. Subject to certain limitations, each of the parties will be indemnified for damages resulting from third party claims and breaches of the parties’ respective representations, warranties, and covenants in the Purchase Agreement.

~~The Shares issued to the Measure Sellers pursuant to the Measure Purchase Agreement were~~ issued in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), ~~to a limited number of persons who are “accredited investors” or “sophisticated persons” as those terms are defined in~~and Rule ~~501 of Regulation D~~506 promulgated ~~by the SEC, without the use of any general solicitation or advertising to market or otherwise offer the securities for sale. None of~~thereunder. Neither the Shares ~~have~~nor the Promissory Note Warrant has been registered under the Securities Act, or applicable state securities laws, and none may be offered or sold in the United States absent registration under the Securities Act or an exemption from such registration requirements.

The Company ~~performed a preliminary valuation analysis of~~determined the estimated fair ~~market~~ value of the ~~assets~~common stock warrants issued with the Note to be ~~acquired and liabilities to be assumed. Using the total consideration for the Acquisition,~~$1,847,200 using a Black-Scholes pricing model. In accordance with ASC 470-20 Debt, the Company ~~estimated~~recorded a discount of $1,182,349 on the ~~allocations to such assets~~Note based on the relative fair value of the warrants and ~~liabilities. The final purchase price allocation~~total proceeds. At Note issuance, the Company recorded a total discount on the debt of $1,397,350 comprised of the relative fair value of the warrants, the original issue discount, and the ~~detailed valuations and necessary have been completed.~~

issuance costs. The ~~following table summarizes~~aggregate discount will be amortized into interest expense over the ~~allocation~~approximate two-year term of the ~~purchase price as~~Note. The Company used the following assumptions in determining the fair value of the ~~Measure Acquisition Date:~~warrants: expected term of five years, volatility rate of 135.8%, risk free rate of 3.73%, and dividend rate of 0%.

During the three and six months ended June 30, 2023, the Company recognized $168,885 and $337,770, respectively, of interest expense related to the amortization of the discounts and which has been included in interest expense on the condensed consolidated statements of operations and comprehensive loss. As of June 30, 2023, the unamortized discount is $1,013,309.

Schedule of allocation preliminary purchase price
Net purchase price, including debt paid at close $ 45,403,394

Plus: fair value of liabilities assumed:
Deferred revenue 319,422
Other tangible liabilities 272,927
Fair value of liabilities assumed $ 592,349

Less: fair value of assets acquired:
Cash 486,544
Other tangible assets 312,005
Identifiable intangibles 2,668,689

Fair value of assets acquired $ 3,467,238

Net nonoperating assets 39,775
Goodwill $ 42,488,730

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, 2023 AND 2022
(UNAUDITED)

Note 6 – Promissory Note - Continued

Beginning June 1, 2023, and on the first business day of each month thereafter, the Company shall pay 1/20^th of the original principal amount of the Note plus any accrued but unpaid interest, with any remaining principal plus accrued interest payable in full upon the maturity date of December 31, 2024 or the occurrence of an Event of Default (as defined in the Note). In addition, to the extent the Company raises any equity capital (by private placement, public offering or otherwise), the Company shall utilize 50% of the net proceeds from such equity financing to prepay the Note, within two business days of the Company’s receipt of such funds. In the event such equity financing is provided by the Investor, pursuant to the terms of that certain Securities Purchase Agreement, dated as June 26, 2022, ~~AND 2021~~

~~(UNAUDITED)~~

or otherwise (an “Additional Investment”), the Investor shall agree to accept 50% less warrant coverage in connection with such Additional Investment, up to $3,300,000 of such Additional Investment. During the three and six months ended June 30, 2023, the Company recorded $70,778 and $160,222, respectively, of interest expense related to the Note ~~5 – Business Acquisitions-Continued~~

~~On April 19, 2022,~~ in ~~accordance with~~the consolidated statements of operations and comprehensive loss; and as of June 30, 2023, there is $160,222 of accrued interest including in accrued expenses on the unaudited condensed consolidated balance sheet. As of June 30, 2023, no payments have been made per the terms of the ~~Measure Purchase Agreement,~~Note and the Company ~~delivered a notice of indemnification~~is currently in discussion with the Investor to amend the ~~representative~~terms of the ~~Measure Sellers seeking~~Note.

As of June 30, 2023, scheduled principal payments due under the right to set off certain operating losses from the holdback amount. The Company is claimed that the operating losses incurred by Measure from the Measure Acquisition date through April 19, 2022, resulted from breaches of certain representationsNote and ~~warranties made by the Measure Sellers. The Company claimed that it had sustained operating losses in excess of $13 million as a result~~amortization of the ~~Measure Sellers’ breaches and claimed the entire holdback amount to be applied against these operating losses.~~ discount are as follows:

On August 22, 2022, the parties entered into a Memorandum of Understanding and Mutual Release (the “Settlement Agreement”) providing for the full and final settlement of all disputes about the Heldback Shares. Pursuant to the Settlement Agreement, the Company released 498,669 of the 997,338 Heldback Shares to the Measure Sellers with the remaining 498,669 Heldback Shares being released from escrow and cancelled by the Company.

Schedule of Principal Payments Due under Note and Amortization of Discount

	Principal Payments		Discount Amortization			Balance, Net of Discount
Current portion of promissory note liability	$	1,927,430	$	(337,770	)	$	1,589,660
Long term portion of promissory note liability		1,572,570		(675,539	)		897,031
Total	$	3,500,000	$	(1,013,309	)	$	2,486,691

Note 7 – Stockholders’ Equity

~~senseFly~~Common Stock and Warrant Transaction

On ~~October 18, 2021 (the “senseFly Acquisition Date”),~~June 5, 2023, the Company entered into a ~~stock purchase agreement~~Securities Purchase Agreement (the ~~“senseFly S.A. Purchase~~“Purchase Agreement”) with Parrot pursuant to which the Company acquired 100% of the issued and outstanding capital stock of senseFly S.A. from Parrot. The aggregate purchase price for the shares of senseFly S.A. is $21,000,000, less the amount of senseFly S.A.’s debt and subject to a customary working capital adjustment. The consideration is also subject to a $4,565,000 holdback to cover any post-closing indemnification claims and to satisfy any purchase price adjustments (see disclosure below)certain accredited investors (the “Investors”). The holdback was scheduled to be released in two equal installments, less any amounts paid or reserved for outstanding indemnity claims, on December 31, 2022 and December 31, 2023 in accordance with the terms of the senseFly S.A. Purchase Agreement.

On October 18, 2021, AgEagle Aerial and the Company entered into a stock purchase agreement (the “senseFly Inc. Purchase Agreement”) with Parrot Inc. pursuant to which AgEagle Aerial agreed to acquire 100% of the issued and outstanding capital stock of senseFly Inc. from Parrot Inc. The aggregate purchase price for the shares of senseFly Inc. is $2,000,000, less the amount of senseFly Inc.’s debt and subject to a customary working capital adjustment. The consideration is also subject to a $435,000 holdback to cover any post-closing indemnification claims and to satisfy any purchase price adjustments(see disclosure below). The holdback was scheduled to be released in two equal installments, less any amounts paid or reserved for outstanding indemnity claims, on December 31, 2022, and December 31, 2023 in accordance with the terms of the senseFly Inc. Purchase Agreement.

A portion of the consideration under the senseFly S.A. Purchase Agreement comprises shares of Common Stock of the Company, par value $0.001, having an aggregate value of $3,000,000, based on a volume weighted average trading price of the Common Stock over a ten consecutive trading day period prior to the date of issuance of the shares of Common Stock to Parrot. The shares of Common Stock are issuable ninety days after the closing date of the transaction. In accordance with the terms of the senseFly S.A. Purchase Agreement, the Company issued 1,927,407 shares of Common Stock to Parrot in January 2022.

Pursuant to the terms of the ~~senseFly S.A.~~ Purchase Agreement, ~~and a Registration Rights Agreement, dated as of October 19, 2021,~~ the Company filed a Form S-3 Registration Statement (the “senseFly Registration Statement”) with the SEC covering the resale of the Common Stock issued to Parrot. The senseFly Registration Statement was declared effective on February 9, 2022. The Companyhas agreed to ~~use its best efforts~~issue and sell to keep the senseFly Registration Statement effective and in compliance with the provisions of the Securities Act (including by preparing and filing with the SEC such amendments, including post-effective amendments, and supplements to the senseFly Registration Statement and the prospectus used in connection therewith as may be necessary) until all theInvestors (i) 16,720,000 shares of Common Stock (the “Offering Shares”) at $0.25 per share and ~~other securities issued~~(ii) warrants to ~~Parrot~~purchase up to 25,080,000 shares of common stock (the “Warrants”), exercisable at $0.38 per share (the “Warrant Shares” together with the Warrants and ~~covered by such Registration Statement have been disposed. Parrot reimbursed~~Offering Shares, the “Securities”) and raised gross sales proceeds of $4,180,000. The Warrant is for a term of 5.5 years commencing on the closing date but is not exercisable for the first six months after closing. As a result, pursuant to the Purchase Agreement the Company ~~$50,000~~issued 16,720,000 shares of Common Stock for ~~reasonable legal fees~~proceeds of $3,817,400, net of issuance costs from the offering and ~~expenses incurred~~warrants to purchase up to 25,080,000 shares of common stock exercisable at $0.38 per share.

Pursuant to the terms of the Purchase Agreement, the Company has agreed to certain restrictions on future stock offerings, including that during the 90 day period following the date of the execution of the Purchase Agreement, the Company will not (i) issue (or enter into any agreement to issue) any shares of common stock or common stock equivalents, subject to certain exceptions, or (ii) file any registration statement or any amendment or supplement thereto relating to the offering or resale of any shares of the Company or any securities convertible into or exercisable or exchangeable for shares of Company, subject to certain exceptions. From the date of the execution of the Purchase Agreement until the six (6) month anniversary of the date of closing, neither the Company nor any Subsidiary shall effect or enter into an agreement to effect any issuance by the Company ~~in connection with such registration.~~

~~Parrot granted to senseFly S.A.~~or any of its Subsidiaries of shares of common stock or common stock equivalents (or a ~~non-exclusive worldwide perpetual license,~~combination of units thereof) involving a variable rate transaction, subject to certain ~~termination rights of the parties, with respect to certain technology used in the fixed-wing drone manufacturing business of senseFly S.A.~~exceptions.

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2022~~2023 AND ~~2021~~2022
(UNAUDITED)

~~(UNAUDITED)~~

Note 7 – Stockholders’ Equity – Continued

~~Note 5 – Business Acquisitions-Continued~~

~~The Company has performed a preliminary valuation analysis~~For twelve (12) months following the closing date of the ~~fair market value~~Offering, in the event the Company or any of its subsidiaries proposes to offer and sell shares of Common Stock or common stock equivalents (the “Offered Securities”) to investors primarily for capital raising purposes (each, a “Future Offering”), the Investors shall have the right, but not the obligation, to participate in each such Future Offering in an amount of up to 50% in the aggregate of the ~~assets~~Offered Securities.

The Offering Shares were issued pursuant to a prospectus supplement to be ~~acquired~~filed with the Securities and ~~liabilities~~Exchange Commission (the “Commission”) on June 7, 2023, and the prospectus included in the Company’s Registration Statement on Form S-3 (Registration No. 333-252801), which was filed with the Commission on April 23, 2021, and was declared effective on May 6, 2021. The Warrants were issued in a concurrent private placement under Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) and have not been registered under the Securities Act, or applicable state securities laws.

The Warrant will be issued on the date of closing. The exercise price of the Warrants and the number of Warrant Shares 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, but has no anti-dilution protection provisions. The Warrants will be ~~assumed. Using~~exercisable on a “cashless” basis only in the ~~total consideration~~event there is no effective registration statement registering, or the prospectus contained therein is not available for the ~~Acquisition, the Company has estimated the allocations to such assets and liabilities.~~

~~The final purchase price allocation and the detailed valuations and necessary have been completed.~~

~~The following table summarizes the allocation~~sale of the ~~preliminary purchase price~~Warrant Shares. The Warrants contain a beneficial ownership limitation, such that none of such Warrants may be exercised, if, at the time of such exercise, the holder would become the beneficial owner of more than 4.99% or 9.99%, as ~~of the senseFly Acquisition Date:~~

Schedule of allocation preliminary purchase price
Net purchase price $ 20,774,526

Plus: fair value of liabilities assumed:
Current liabilities 3,913,386
Defined benefit plan obligation 278,823
Debt assumed at close 2,461,721
Fair value of liabilities assumed $ 6,653,930

Less: fair value of assets acquired:
Cash 859,044
Other tangible assets 6,327,641
Identifiable intangible assets 7,335,570
Fair value of assets acquired $ 14,522,255

Net nonoperating assets 250,624
Goodwill $ 12,655,577

~~Liabilities Related to Business Acquisition Agreements~~

On July 22, 2022, the Company, the MicaSense Buyer, and Parrot entered into a Waiver Agreement (the “MicaSense Waiver Agreement”) pursuant to which (i) Parrot agreed to waive the obligation of the Company and the MicaSense Buyer to pay Parrot $2,351,202, or the portion of the holdback amount due on March 31, 2023 (the “MicaSense Remaining Holdback Payment”) and (ii) upon the Company’s payment to Parrot of $1,175,601 (“the MicaSense Final Purchase Price Payment,” representing 50% of the MicaSense Remaining Holdback Payment), the Company and MicaSense Buyer will be released from any further obligation or liability for payment of any holdback amount under the MicaSense Purchase Agreement. On July 29, 2022, the Company made the MicaSense Final Purchase Price Payment to Parrot in full satisfaction of its payment obligations under the MicaSense Purchase Agreement and the MicaSense Waiver Agreement.

On July 22, 2022, the Company and Parrot entered into a Waiver Agreement (the “senseFly S.A. Waiver Agreement”) pursuant to which (i) Parrot agreed to waive the obligation of the Company to pay Parrot a portion of the holdback amount due on December 31, 2022 and December 31, 2023 (collectively, the “senseFly S.A. Remaining Holdback Payments”); (ii) the parties agreed to waive Parrot’s obligation to reimburse the Company for a portion of the legal costs and expenses incurreddetermined by the Company related to the filing of a registration statement in connection with the transactions contemplated by the senseFly S.A. Purchase Agreement; and (iii) upon the Company’s payment to Parrot of $2,257,500 (“the senseFly S.A. Final Purchase Price Payment,” representing 50% of the senseFly S.A. Remaining Holdback Payments less 50% of the registration statement expenses), the Company will be released from any further obligation or liability for payment of any holdback amount under the senseFly S.A. Purchase Agreement. On July 29, 2022, the Company made the senseFly S.A. Final Purchase Price Payment to Parrot in full satisfaction of its payment obligations under the senseFly S.A. Purchase Agreement and the senseFly S.A. Waiver Agreement.

~~AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

~~(UNAUDITED)~~

~~Note 5 – Business Acquisitions-Continued~~

On July 22, 2022, the Company, the senseFly Inc. Buyer, and Parrot Inc. entered into a Waiver Agreement (the “senseFly Inc. Waiver Agreement”) pursuant to which (i) Parrot Inc. agreed to waive the obligation of the Company and the senseFly Inc. Buyer to pay Parrot Inc. a portion of the holdback amount due on December 31, 2022 and December 31, 2023 (collectively, the “senseFly Inc. Remaining Holdback Payments”); (ii) upon the Company’s payment to Parrot Inc. of $217,500 (the “senseFly Inc. Final Purchase Price Payment,” representing 50% of the senseFly Inc. Remaining Holdback Payments), the Company and the senseFly Inc. Buyer will be released from any further obligation or liability for any remaining holdback amount under the senseFly Inc. Purchase Agreement. On July 29, 2022, the Company made the senseFly Inc. Final Purchase Price Payment to Parrot Inc. in full satisfaction of its payment obligations under the senseFly Inc. Purchase Agreement and the senseFly Inc. Waiver Agreement.

~~Pursuant to the terms of the Measure Acquisition Purchase Agreement (the “Purchase Agreement”) the Company issued an aggregate of 5,319,145 shares~~Investor, of the Company’s ~~common stock to~~outstanding shares of Common Stock following the ~~Sellers~~exercise of Measure as part of the consideration for the acquisition, of which 997,338 shares were held back (the “Heldback Shares”) to cover post-closing indemnification claims and to satisfy any purchase price adjustments (see also disclosure above). such Warrant.

Pursuant to the terms of the Purchase Agreement, the ~~Heldback Shares were scheduled to be released in three tranches,~~Company filed a registration statement on Form S-1 Registration No. 333-273332) providing for the ~~12-month, 18-month and 24-month anniversary~~resale by the Investors of the ~~closing date~~Warrant Shares issuable upon exercise of the acquisition. The Company made a claim for indemnification against the Heldback Shares. Pursuant to the Settlement Agreement entered on August 22, 2022 the Company released all the Measure shares held in escrow along with any disputes regarding the 997,338 Heldback Shares. As a result, 498,669 of the Heldback Shares were released to the Measure Sellers with the remaining 498,669 Heldback Shares being cancelled by the Company which reduced the issued and outstanding common stock and causing an increase to stockholders’ equity of $2,812,500.Warrants.

During the three and nine months ended September 30, 2022, the Company recognized a debt extinguishment gain in connection with the settlement of the acquisition related liabilities disclosed above in the amount of $6,486,899 which has been presented on the condensed consolidated statement of operations and comprehensive income (loss).

~~As of September 30, 2022 and December 31, 2021, liabilities related to business acquisition agreements consist of the following:~~

Schedule of liabilities related to acquisition agreements
September 30, 2022 December 31, 2021
Holdback related to MicaSense Acquisition Agreement $ — $ 4,821,512
Holdback related to Measure Acquisition — 5,625,000
Holdback related to senseFly Acquisition — 8,489,989
Total acquisition agreement related liabilities - 18,936,501
Less: Current portion business acquisition agreement-related liabilities — (10,061,501 )
Long term portion of business acquisition agreement-related liabilities $ — $ 8,875,000

~~Pro-Forma Information~~

The unaudited pro-forma information for the three and nine months ended September 30, 2021 was calculated after applying the Company’s accounting policies and the impact of acquisition date fair value adjustments. The pro-forma financial information presents the combined results of operations of the 2021 Business Acquisitions as if they had occurred on January 1, 2021 after giving effect to certain pro-forma adjustments. The pro-forma adjustments reflected herein include only those adjustments that are factually supportable and directly attributable to the acquisition.

~~AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

~~(UNAUDITED)~~

~~Note 5 – Business Acquisitions-Continued~~

~~For the three and nine months ended September 30, 2021, pro-forma information is as follows:~~

Schedule of pro-forma information
Three Months Ended
September 30,
2021 Nine Months Ended
September 30,
2021
Revenues $ 5,350,849 $ 14,844,275
Net Loss $ (5,715,064 ) $ (17,137,742 )

~~Note 6 –~~ ~~COVID Loans~~

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was enacted, which included amongst its many provisions, the creation of the Paycheck Protection Program (“PPP”). As part of the PPP, qualifying businesses were eligible to receive Small Business Administration (“SBA”) loans for use by such businesses for funding payroll, rent and utilities during a designed twenty-four week period through October 21, 2020 (“PPP Loan”). PPP Loans are unsecured, nonrecourse, accrue interest at a rate of one percent per annum, and mature on May 6, 2022. A portion or all of a PPP Loan is forgivable to the extent that an eligible business meets its obligations under the PPP. Additionally, any amounts owed, including unforgiven amounts under the PPP, are payable over two years, though may be extended up to five years upon approval by the SBA.

On May 6, 2020, AgEagle received a PPP Loan in the amount of $107,439. During the quarter ended June 30, 2021, the outstanding principal and accrued interest under the PPP Loan were forgiven by the SBA.

In connection with the ~~senseFly Acquisition,~~Offering, the Company ~~assumed~~also entered into a Lock-up Agreement with the ~~obligations~~Investors and each officer and director of the Company (collectively, the “Shareholders”), for ~~two COVID Loans originally made by~~ the ~~SBA~~benefit of the Investors, with respect to ~~senseFly S.A.~~the shares beneficially owned the Shareholders. The restrictions on ~~July 27, 2020 (“senseFly COVID Loans”). For~~ the ~~three~~disposition of the shares is for a period of 30 days from the date of the closing of the Offering, except for the continuous use of any existing Rule 10b5-1 trading plan and nine months ended September 30, 2022, no payments of principal and interest were required. As of September 30, 2022 and December 31, 2021, the Company’s outstanding obligations under the senseFly COVID Loans were $~~1,014,566~~other customary exceptions. ~~and $1,259,910, respectively.~~

~~As of September 30, 2022, scheduled principal payments due under the senseFly COVID Loans are as follows:~~

Schedule of debt disclosure
Year ending December 31,
2022 (rest of year) $ 169,010
2023 422,610
2024 84,590
2025 84,590
2026 84,590
Thereafter 169,176
Total $ 1,014,566

~~AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

~~(UNAUDITED)~~

~~Note 7 –~~ ~~Equity~~

Preferred Series F Convertible Stock

On June 26, 2022 (the “Series F Closing Date”), the Company entered into a Securities Purchase Agreement (the “Series F Agreement”) with Alpha Capital Anstalt (“Alpha”). Pursuant to the terms of the Series F Agreement, the Board of Directors of the Company (the “Board”) designated a new series of Preferred Stock, the Series F 5% Preferred Convertible Stock (“Series F”), and authorized the sale and issuance of up to 35,000 shares of Series F. The Company issued to Alpha 10,000 shares of Series F for an aggregate purchase price and gross proceeds of ~~$10,000,000.~~$10,000,000, however the company received proceeds of $9,920,000 net of issuance costs. The10,000 shares of Series F are convertible into 16,129,032 shares of Common Stock at ~~$0.62~~$0.62 per ~~share.~~share, subject to adjustment. Alpha will be entitled to receive cumulative dividends at the rate per share (as a percentage of the ~~$1,000~~$1,000 stated par value per share of Series F) of 5%5% per annum, payable on January 1, April 1, July 1 and October 1, beginning on the first conversion date and subsequent conversion dates.

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022

(UNAUDITED)

Note 7 – Stockholders’ Equity – Continued

In connection with the Series F Agreement, the Company issued a warrant to Alpha to purchase 16,129,032 shares of Common Stock, par value ~~$0.001~~$0.001 per share (“Series F ~~Warrant”~~Warrants”) with an exercise price equal to ~~$0.96~~$0.96, subject to adjustment, per share of Common Stock. The Series F Warrant, and the shares of Common Stock underling the Series F Warrant are collectively referred to as the “Series F Warrant Shares”. The Series F Warrant iswas not exercisable for the first six months after its issuance and has a three-year term from its exercise date. Upon exercise of the Series F Warrants in full by Alpha, the Company would receive additional gross proceeds of approximately ~~$10,000,000.~~$10,000,000.

Alpha has the right, subject to certain conditions, including shareholder approval, to purchase up to ~~$25,000,000~~$25,000,000 of additional shares of Series F and Series F Warrants (collectively the “Series F Option”). The Series F Option will be available for a period of eighteen months after such shareholder approval at a purchase price equal to the average of the volume weighted average price for three trading days prior to the date that Alpha gives notice to the Company that it will exercise the Series F Option.

Commencing from the Series F Closing Date and for a period of six months thereafter, upon any issuance by the Company or any of its Subsidiaries of Common Stock or Common Stock equivalents for cash consideration, indebtedness or a combination of units thereof (a “Subsequent Financing”), Alpha will have the right to participate in up to an amount of the Subsequent Financing equal to 50% of the Subsequent Financing on the same terms, conditions and price provided for in the Subsequent Financing.

~~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.

On December 6, 2022, upon the issuance of the promissory note and common stock warrants with an exercise price of $0.44 (see Note 6), a down round or anti-dilution trigger event occurred resulting in the conversion rate on the Series F and the exercise price of the Series F Warrants issued with the Series F adjusting down to $0.44 from $0.62 and $0.96, respectively (the “December Down Round Trigger”). The December Down Round Trigger resulted in the Company recognizing a deemed dividend on the common stock warrants and Series F of $565,161 and $1,680,216, respectively, or aggregate deemed dividend of $2,245,377, for the incremental value to the warrant and Series F holder resulting from the reduction in exercise price and conversion price.

The deemed dividend on the Series F Warrants represents the difference between fair value of the Series F Warrants under the original terms before the December Down Round Trigger and the fair value of the Series F Warrants after December Down Round Trigger at the reduced exercise price. The fair value of the Series F Warrants was determined using a Black-Scholes pricing model and the following assumptions: expected life of 3 years, volatility of 150%, risk free rate of 3.77%, and dividend rate of 0%.

On March 9, 2023, the Company received an Investor Notice from Alpha to purchase an additional 3,000 shares of Series F Convertible Preferred (the “Additional Series F Preferred”) convertible into 2,381 shares of the Company’s Common Stock per $1,000 Stated Value per share of Series F Preferred Stock, at a conversion price of $0.42 per share and associated common stock warrants to purchase up to 7,142,715 shares of Common Stock at the exercise price of $0.42 per share warrant (the “Additional Warrant”) for an aggregate purchase price of $3,000,000. The Additional Warrant is exercisable upon issuance and has a three-year term. On March 10, 2023, the Company issued and sold the Additional Series F Preferred and the Additional Warrant.

As a result of issuing the additional 3,000 shares of Series F Convertible Preferred, a down round or anti-dilution trigger event occurred resulting in the conversion rate on the Series F and the exercise price of the Series F Warrants issued with the Series F adjusting down to $0.42 from $0.44 (the “March Down Round Trigger”). The March Down Round Trigger resulted in the Company recognizing a deemed dividend on the common stock warrants and Series F Preferred Stock of $38,226 and $217,750, respectively, or aggregate deemed dividend of $255,976, for the incremental value to the warrant and Series F holder resulting from the reduction in exercise price and conversion price.

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022

(UNAUDITED)

Note 7 – Stockholders’ Equity – Continued

The deemed dividend on the Series F Warrants represents the difference between fair value of ~~September~~the Series F Warrants under the original terms before the March Down Round Trigger and the fair value of the Series F Warrants after March Down Round Trigger at the reduced exercise price. The fair value of the Series F Warrants was determined using a Black-Scholes pricing model and the following assumptions: expected life of 3 years, volatility of 131%, risk free rate of 4.46%, and dividend rate of 0%.

Upon the issuance of the Offering Shares and Warrants on June 8, 2023, a down round or anti-dilution trigger event occurred resulting in the conversion price of the remaining Series F Preferred Stock and the exercise price of the Series F Warrants adjusting down from $0.42 per share to $0.25 per share (the “June Down Round Trigger”). The June Down Round Trigger resulted in the Company recognizing a deemed dividend on the common stock warrants and Series F Preferred Stock of $787,823 and $3,867,095, respectively, or an aggregate deemed dividend of $4,654,918, for the incremental value to the warrant and Series F holder resulting from the reduction in exercise price and conversion price.

The deemed dividend on the Series F Warrants represents the difference between fair value of the Series F Warrants under the original terms before the down round trigger and the fair value of the Series F Warrants after down round trigger at the reduced exercise price. The fair value of the Series F Warrants was determined using a Black-Scholes pricing model and the following assumptions: expected life of 2.5 years, volatility of 106%, risk free rate of 4.28%, and dividend rate of 0%.

All deemed dividends to the Series F stockholder were recorded as additional paid in capital and an increase to accumulated deficit and as an increase to total comprehensive loss attributable to Common Stockholders in computing earnings per share on the condensed consolidated statements of operations and comprehensive loss.

During the three and six months ended June 30, ~~2022,~~2023, Alpha ~~had~~ converted ~~3,689~~840 and 1,838 shares of Series F into ~~5,950,000~~2,000,000 and 4,304,762 shares of Common Stock, respectively. As a result, for the same periods, the Company recorded $54,234and ~~recorded~~$121,155 cumulative dividends, respectively, which are included in accrued expenses on the unaudited condensed consolidated balance sheets, at the rate per share (as a percentage of the ~~$1,000~~$1,000 stated par value per share of Series F) of 5%5% per annum, beginning on the first conversation date of June 30, ~~2022, of $94,694. See Note 11 – Subsequent Events.~~2022.

~~Capital Stock Issuances~~

~~Issuance of Common Stock to Officers and Directors~~

~~For the nine months ended September 30, 2022,~~ ~~185,000~~ ~~Common Stock shares were issued in connection with the exercise of stock options previously granted at an average per share exercise price between $0.31~~ ~~and $0.41~~ ~~resulting in gross proceeds of $74,350~~.

~~AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

~~(UNAUDITED)~~

~~Note 7 – Equity-Continued~~

At-the-Market Sales Agreement

In accordance with a May 25, 2021, at-the-market Sales Agreement with Stifel, Nicolaus & Company, Incorporated and Raymond James & Associates, Inc. as sales agents, ~~during the nine months ended September 30, 2022,~~ the Company sold 4,251,151 shares of Common Stock at a share price between ~~$1.04~~$1.04 and ~~$1.18,~~$1.18, for ~~aggregate~~ proceeds of $4,583,341, net of issuance costs of $141,754., in 2022. For the three and six months ended June 30, 2023, there were no at-the-market sales.

Acquisition of senseFly

In accordance with the terms of the senseFly S.A. Purchase Agreement, the Company issued 1,927,407 shares of Common Stock to Parrot Drones S.A.S.(“Parrot”) in January 2022 having an aggregate value of ~~$3,000,000,~~$3,000,000, based on a volume weighted average trading price of the Common Stock over a ten consecutive trading day period prior to the date of issuance of the shares of Common Stock to ~~Parrot (see also Note 5).~~Parrot.

~~Consulting Agreement~~

~~On May 3, 2019, the Company entered into a consulting agreement with GreenBlock Capital LLC (“Consultant”) for purposes~~Exercise of ~~advising on certain business opportunities.~~ ~~On October 31, 2019, the consulting agreement was terminated; however, the Consultant continued to be entitled to receive up to 2,500,000 restricted~~ Common Stock ~~after termination of~~Options

For the ~~consulting agreement, if the achievement of milestones that commenced during the term of the consulting agreement~~six months ended June 30, 2022, 150,000 Common Stock shares were ~~completed within twenty-four months.~~ ~~Subsequent to the aforementioned termination of the consulting agreement, the Consultant sent a demand letter to the Company alleging a breach of this agreement due to the Company’s non-issuance of additional restricted shares of its Common Stock~~issued in connection with the ~~Consultant’s alleged achievement~~exercise of ~~the milestones. As~~stock options previously granted at exercise price of ~~December 31, 2020, and as a result~~$0.41 resulting in gross proceeds of this demand, the Company recorded a contingent loss of $1,500,000, based upon the fair market value of $6.00 per share of its Common Stock, which was recorded within professional fees on the condensed consolidated statements of operations and comprehensive income (loss)$61,500. For the three and ~~nine~~six months ended ~~September~~June 30, 2021, the Company recorded additional stock-based compensation expense of $0 and $1,407,000, respectively, which reflected the issuance of 550,000 additional restricted shares of Common Stock that were subsequently issued on May 12, 2021 as settlement for the claims made under the demand, which resulted in a liability amount of $2,907,000 for purposes of payment of the settlement.

~~Securities Purchase Agreement Dated August 4, 2020 / Exercise of Warrants~~

On August 4, 2020, the Company and an Investor entered into a securities purchase agreement (the “August Purchase Agreement”) pursuant to which the Company agreed to sell to the Investor in a registered direct offering 3,355,705 shares of Common Stock and warrants to purchase up to 2,516,778 shares of Common Stock at an exercise price of $3.30 per share (the “August Warrants”), for proceeds of $9,900,000, net of issuance costs of $100,000. Upon2023, there was no exercise of the Warrants in full by the Investor, the Company would receive additional gross proceeds of $8,305,368. The shares of Common Stock of the Company underlying the Warrants are referred to as “August Warrant Shares.”stock options.

The purchase price for each share of Common Stock is $2.98. Net proceeds from the sale were used for working capital, capital expenditures and general corporate purposes. The shares of Common Stock, the August Warrants and the August Warrant Shares were offered by the Company pursuant to an effective shelf registration statement on Form S-3 (File No. 333-239157), which was declared effective on June 19, 2020. On February 8, 2021, the Company received $8,305,368 in additional gross proceeds associated with the exercise of all of the August Warrants.

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2022~~2023 AND ~~2021~~2022

(UNAUDITED)

Note 7 – ~~Equity-Continued~~Stockholders’ Equity – Continued

~~Stock-Based~~Stock-based Compensation

The Company determines the fair value of awards granted under the Equity Plan based on the fair value of its Common Stock on the date of grant. Stock-based compensation expenses related to grants under the Equity Plan are included in general and administrative expenses on the condensed consolidated statements of operations and comprehensive ~~income (loss).~~loss. For the three and six months ended June 30, 2023, the Company recorded $469,835 and $982,365, respectively, of stock-based compensation, for the same period during 2022, $748,023 and $ 2,501,904 were recorded, respectively.

Pension Costs

senseFly S.A. sponsors a defined benefit pension plan (the “Defined Benefit Plan”) covering all its employees. The Defined Benefit Plan provides benefits in the event of retirement, death or disability, with benefits based on age and salary. The Defined Benefit Plan is funded through contributions paid by senseFly S.A. and its employees, respectively. The Defined Benefit Plan assets are Groupe Mutuel Prévoyance (“GMP”), which invests these plan assets in cash and cash equivalents, equities, bonds, real estate and alternative investments.

The Projected Benefit Obligation (“PBO”) includes in full the accrued liability for the plan death and disability benefits, irrespective of the extent to which these benefits may be reinsured with an insurer. The actuarial valuations are based on the census data as of December 31, 2022, provided by GMP.

The Defined Benefit Plan has a PBO in excess of Defined Benefit Plan liabilities. For the three and six months ended June 30, 2023, the amounts recognized in accumulated other comprehensive loss related to the Defined Benefit Plan were $699 and $44,044, respectively. For the three and six months ended June 30, 2022, the amounts recognized in accumulated other comprehensive loss related to the Defined Benefit Plan was $2,641.

Restricted Stock Units

For the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, a summary of RSU activity is as follows:

Schedule of restricted stock unit activity
Shares Weighted Average Grant Date Fair Value
Outstanding as of December 31, 2021 1,147,250 $ 3.78
Granted 457,091 1.18
Canceled (168,250 ) 2.81
Vested and released (429,107 ) 3.44
Outstanding as of September 30, 2022 1,006,984 $ 2.90
Vested as of September 30, 2022 377,617 $ 3.72
Unvested as of September 30, 2022 629,367 $ 2.41

Summary of RSU Activity

	Shares			Weighted Average Grant Date Fair Value
Outstanding as of December 31, 2022		1,028,960		$	2.31
Granted		1,620,940			0.40
Canceled		(99,754	)		1.55
Vested and released		(354,107	)		3.02
Outstanding as of June 30, 2023		2,550,146		$	1.12
Vested as of June 30, 2023		2,094,174		$	1.04
Unvested as of June 30, 2023		455,972		$	1.51

For the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the aggregate fair value of ~~RSUs~~RSU awards at the time of vesting was $~~538,198~~644,969.

~~As of September~~For the three and six months ended June 30, ~~2022,~~2023, the Company recognized $381,155 and $734,417 of stock compensation expense, respectively and had approximately $~~540,635~~170,717 of unrecognized stock-based compensation expense related to RSUs, which will be amortized over approximately ~~thirteen~~eighteen months.

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022

(UNAUDITED)

Note 7 – Stockholders’ Equity - Continued

For the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, a summary of RSU activity is as follows:

Shares Weighted Average Grant Date Fair Value
Outstanding as of December 31, 2020 100,000 $ 1.34
Granted 631,402 5.31
Canceled (91,667 ) 5.40
Vested and released (253,485 ) 3.39
Outstanding as of September 30, 2021 386,250 $ 5.52
Vested as of September 30, 2021 234,582 $ 5.60
Unvested as of September 30, 2021 151,668 $ 5.40

	Shares			Weighted Average Grant Date Fair Value
Outstanding as of December 31, 2021		1,147,250		$	3.78
Granted		440,841			1.20
Canceled		(106,000	)		2.86
Vested and released		(354,107	)		3.02
Outstanding as of June 30, 2022		1,127,984		$	3.10
Vested as of June 30, 2022		452,617		$	4.01
Unvested as of June 30, 2022		675,367		$	2.48

For the ~~nine~~six months ended ~~September 30, 2021,~~June 2022, the aggregate fair value of ~~RSUs~~RSU awards at the time of vesting was $~~3,353,162~~527,699.

~~AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBERFor the three and six months ended June 30, 2022, ~~AND 2021~~the Company recognized $375,047 and $1,575,284 of stock compensation expense, respectively and had approximately $910,000 of unrecognized stock-based compensation expense related to RSUs, which will be amortized over approximately 16 months.

~~(UNAUDITED)~~

~~Note 7 – Equity-Continued~~

Issuance of RSUs to Current Officers

~~On June 13, 2022,~~ of the Company ~~issued 302,024 shares~~

On May 11, 2023, upon recommendation of Common Stock to its former chief executive officer, Mr. Brandon Torres Declet (“Mr. Torres Declet”). This issuance of Common Stock included 147,917 shares for previously vested RSUs, 111,607 shares as agreed upon in a separation agreement with Mr. Torres Declet, and 42,500 shares in satisfaction of a performance bonus approved by the Compensation Committee of the Board (“Compensation Committee”), the Board granted to the officers of ~~Directors. See Note 9 – Commitments and Contingencies.~~

~~On April 11, 2022,~~ the Company ~~granted an officer~~ in connection with the 2022 executive compensation plan 968,690~~46,367~~ RSUs, which vested immediately.

On March 29, 2023, upon recommendation of the Compensation Committee, the Board granted to the officers of the Company in connection with the 2022 executive compensation plan, granted to the officers of the Company 640,000 RSUs, which vested immediately.

For the ~~nine~~three and six months ended ~~September~~June 30, ~~2022,~~2023, the Company recognized stock-based compensation expense of $46,367, based upon the market price of its Common Stock of $1.01 per share on the date of grant of these RSUs. Additionally, on the same date, the Company granted the same officer 46,367 RSUs, which vests over a period from the date of grant through the first anniversary of the senseFly Acquisition Date. For the three$371,105 and nine months ended September 30, 2022, the Company recognized stock-based compensation expense of $22,440 and $42,196, based upon the market price of its Common Stock of $1.01 per share on the date of grant of these RSUs.

$~~On March 1, 2022, the Company granted an officer a grant of 62,500 RSUs, which vested immediately.~~ 639,905For the nine months ended September 30, 2022, the Company recognized stock-based compensation expense of $68,750, based upon the market price of its Common Stock of $1.10 per share on the date of grant of these RSUs.

~~On January 21, 2022, the Company granted a former chief executive officer~~ ~~a grant of 111,607~~ ~~RSUs, which vested immediately.~~ For the nine months ended September 30, 2022, the Company recognized stock-based compensation expense of $125,000, based upon the market price of its Common Stock of $1.12 per share on the date of grant of these RSUs. Additionally, on January 24, 2022, the Company granted to this former chief executive officer 42,500 RSUs, which vested immediately. For the nine months ended September 30, 2022, the Company recognized stock-based compensation expense of $48,025,, respectively, based upon the market price of its Common Stock ~~of $1.13~~between $0.38 and $0.42 per share on the date of grant of these RSUs.

~~On January 1, 2022,~~

Stock Options

For the ~~Company issued to an officer two grants of 50,000 RSUs each. These two grants vest over nine and twenty-one months, respectively, from the date of grant. For~~ ~~the three and nine~~six months ended ~~September~~June 30, ~~2022,~~2023, a summary of the ~~Company recognized stock-based compensation expense~~options activity is as follows:

Summary of ~~$37,660 and $111,751, based upon the market price of its Common Stock of $1.57 per share on the date of grant of these RSUs.~~Options Activity

	Shares			Weighted Average Exercise Price		Weighted Average Fair Value		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding as of December 31, 2022		2,561,231		$	2.18	$	1.19		3.33	$	31,124
Granted		275,000			0.35		0.16		3.02		—
Exercised		—			—		—		—		—
Expired/Forfeited		(57,249	)		5.73		3.08		—		—
Outstanding as of June 30, 2023		2,778,982		$	1.93	$	1.05		3.01	$	9,750
Exercisable as of June 30, 2023		2,232,641		$	2.26	$	1.23		2.65	$	9,750

~~On May 24, 2021, the Company issued to a former chief executive officer a grant of 26,652 RSUs as part of a separation agreement. This award was valued at $125,000 and vested immediately. For~~ the nine months ended September 30, 2021, the Company recognized stock-based compensation expense of $125,000 based upon the market price of its Common Stock of $4.69 per share on the date of grant of these RSUs.

~~On March 5, 2021, the Company issued to an officer~~ ~~a grant of~~ ~~10,000 RSUs, which vested immediately.~~ For the nine months ended September 30, 2021, the Company recognized stock-based compensation expense of $58,400 based upon the market price of its Common Stock of $5.84 per share on the date of grant of these RSUs.

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2022~~2023 AND ~~2021~~2022

(UNAUDITED)

Note 7 – Stockholders’ Equity-Continued

~~Stock Options~~

For the ~~nine~~three and six months ended ~~September~~June 30, 2023, the Company recognized $88,681 and $247,948, respectively of stock compensation expense and had approximately $153,161 of total unrecognized compensation cost related to stock options, which will be amortized through June 30, 2025.

For the six months ended June 30, 2022, a summary of the options activity is as follows:

Schedule of options activity
Shares Weighted Average Exercise Price Weighted Average Fair Value Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value
Outstanding as of December 31, 2021 2,541,667 $ 2.88 $ 1.57 4.27 $ 1,244,029
Granted 395,000 0.76 0.36 3.02 —
Exercised (185,000 ) 0.40 0.29 — 10,750
Expired/Forfeited (267,294 ) 6.22 3.34 — —
Outstanding as of September 30, 2022 2,284,373 $ 2.37 $ 1.29 3.47 $ 89,334
Exercisable as of September 30, 2022 1,836,095 $ 2.42 $ 1.33 3.16 $ 89,334

	Shares			Weighted Average Exercise Price		Weighted Average Fair Value		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding as of December 31, 2021		2,541,667		$	2.88	$	1.57		4.27	$	1,244,029
Granted		260,000			0.91		0.43		3.02		—
Exercised		(150,000	)		0.41		0.30		—		35,415
Expired/Forfeited		(199,419	)		6.11		3.28		—		—
Outstanding as of June 30, 2022		2,452,248		$	2.56	$	1.39		3.61	$	240,897
Exercisable as of June 30, 2022		1,759,030		$	2.36	$	1.30		3.34	$	240,897

~~As of September~~For the three and six months ended June 30, 2022, the Company recognized $376,902 and $926,620, respectively in stock compensation expense, and has $~~741,497~~1,105,155 of total unrecognized compensation cost related to stock options, which will be amortized over approximately ~~twenty-seven~~twenty-four months.

Intrinsic value is measured using the fair market value at the date of exercise (for shares exercised) or as of ~~September~~June 30, ~~2022~~2023 (for outstanding options), less the applicable exercise price.

For the ~~nine~~three and six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, the significant ~~weighted average~~ assumptions relating to the valuation of the Company’s stock options granted were as follows:

Schedule of Significant Weighted Average Assumptions

	2023			2022
	June 30,
	2023			2022
Stock price	$	0.35		$	0.65
Dividend yield		—	%		—	%
Expected life (years)		3.02			3.02
Expected volatility		64.37	%		69.91	%
Risk-free interest rate		4.12	%		2.73	%

Schedule of Share-Based Payment Award, Stock Options, Valuation Assumptions
Nine Months Ended September 30,
2022 2021
Stock price $ 0.46 $ 3.01
Dividend yield — % — %
Expected life (years) 3.02 3.01
Expected volatility 69.84 % 84.01 %
Risk-free interest rate 3.25 % 0.37 %

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2022~~2023 AND ~~2021~~2022

(UNAUDITED)

Note 7 – Stockholders’ Equity-Continued

Issuances of Options to Officers and Directors

~~On September 30, 2022, the Company issued to directors and officers options to purchase~~ ~~135,000~~ ~~shares of Common Stock at an exercise price of $0.23~~ ~~per share, which vest over a period of two years from the date of grant and expire on September 29, 2027. The Company determined the fair market value of these unvested options to be $30,510. In connection with the issuance of these options, for the three and nine months ended September 30, 2022, the Company did not recognize stock-based compensation expense.~~

On June 30, ~~2022, the Company issued to directors and officers options to purchase~~ ~~135,000~~ ~~shares of Common Stock at an exercise price of $0.31~~ ~~per share, which vest over a period of two years from the date of grant and expire on June 29, 2027. The Company determined the fair market value of these unvested options to be $42,120. In connection with the issuance of these options, for the three and nine months ended September 30, 2022, the Company recognized stock-based compensation expense of $5,322, respectively.~~

~~On March 31, 2022,~~2023, the Company issued to directors and officers options to purchase 125,000 shares of Common Stock at an exercise price of $~~0.56~~0.23 per share, which ~~vest~~vests over a period of two years from the date of grant and expires on June 29, 2028. The Company determined the fair market value of these unvested options to be $13,000. For the three and six months ended June 30, 2023, the Company recognized stock-based compensation expense of $17, respectively, based upon the fair value market price of $0.10.

On March 31, 2023, the Company issued to directors and officers options to purchase 150,000 shares of Common Stock at an exercise price of $0.45 per share, which vests over a period of two years from the date of grant, and expire on March 30, ~~2027.~~2028. The Company determined the fair market value of these unvested options to be $~~70,250~~31,350. ~~In connection with the issuance of these options, for~~For the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the Company recognized stock-based compensation expense of $~~8,781~~3,919 and $~~17,654~~3,961,

~~Prior to January 1, 2022, the Company issued to directors and officers to purchase~~ ~~430,000~~ shares of Common Stock at exercise prices ranging from $1.61 to $3.37 per share, which vest over a period of two years from the date of grant and expire on dates between March 30, 2026, and September 29, 2026. The Company determined respectively, based upon the fair value market value of these unvested options to be $1,056,429. In connection with the issuance of these options to employees and directors, for the three and nine months ended September 30, 2022, the Company recognized stock-based compensation expenseprice of $~~117,888~~0.21 ~~and $~~.

~~433,713, respectively.~~

Cancellations of Options

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2021 the Company recognized stock-based compensation expense~~2023, as a result of employee terminations and options expirations, stock options aggregating 34,061 and 57,249, respectively with fair market values of approximately $~~101,965~~87,363 and $~~153,518~~176,273, ~~respectively.~~

~~Prior to January 1, 2021, the Company previously issued to directors and officers options to purchase~~ ~~2,743,580~~ shares of Common Stock at exercise prices ranging from $0.04 to $3.18 per share, with vesting periods ranging from immediate vesting to periods of up to three years from the grant dates, and expire on dates between March 30, 2023, and September 29, 2029. In connection with the issuance of these options to employees and directors, forrespectively, were cancelled. For the three and ~~nine~~six months ended ~~September 30, 2022, the Company recognized stock-based compensation expense of $108,641~~ ~~and $369,365, respectively, for the three and nine months ended September 30, 2021 the Company recognized stock-based compensation expense of and $152,777~~ ~~and $541,708, respectively.~~

~~Cancellations of Options~~

~~During the three and nine months ended September~~June 30, 2022, as a result of employee terminations and options expirations, stock options aggregating ~~67,875~~166,249 and ~~267,294~~199,419, respectively with fair market values of approximately $~~237,926~~513,500 and $~~892,227~~654,300, respectively, were cancelled. ~~During the nine months ended September 30, 2021,~~

~~237,934~~ ~~options were cancelled with a grant-date fair value $723,915~~ ~~due to employee terminations.~~

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2022~~2023 AND ~~2021~~2022

(UNAUDITED)

Note 8 – Leases

Operating Leases

In May 2023, the Company executed a sublease agreement for their facility located in Seattle, Washington; however, the Company remains the primary obligor under the original lease. The sublease commenced June 1, 2023 and requires a total of $433,137 rental payments over a thirty-two-month term. Due to the anticipated sublease income being less than the total rental payments required on the primary lease, we recorded an impairment charge on the right-of-use asset associated with this lease of $79,287 which has been included on the accompanying condensed consolidated statements of operations as a lease impairment charge. During the six months ended June 30, 2023, we recognized $13,356 of rental income on the straight-line basis as an offset to rent expenses within general and administrative expenses.

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, operating lease expense payments were $~~326,542~~264,430 and $~~1,254,893~~528,343, respectively, and $~~75,270~~628,449 and $~~213,608~~961,922, respectively. Operating lease expense payments are included in general and administrative expenses on the condensed consolidated statements of operations and comprehensive ~~income (loss).~~loss.

As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, balance sheet information related to the Company’s operating leases is as follows:

Schedule of Company's operating leases

Schedule of Operating Lease
Balance Sheet Location September 30,
2022 December 31, 2021
Right of use asset Right of use asset $ 1,148,993 $ 2,019,745
Current portion of operating lease liability Current portion of operating lease liability $ 739,602 $ 1,235,977
Long-term portion of operating lease liability Long-term portion of operating lease liability $ 493,774 $ 942,404

Balance Sheet Location	June 30, 2023		December 31, 2022
Right of use asset	$	3,546,549	$	3,952,317
Current portion of lease liability	$	801,887	$	628,113
Long-term portion lease liability	$	2,842,944	$	3,161,703

As of ~~September~~June 30, ~~2022,~~2023, scheduled future maturities of the Company’s lease liabilities are as follows:

Schedule of Company's lease liabilities

Year Ending December 31,
2023 (rest of year)	$	512,380
2024		964,671
2025		970,744
2026		762,255
2027		743,301
Thereafter		185,825
Total future minimum lease payments, undiscounted		4,139,176
Less: Amount representing interest		(494,345	)
Present value of future minimum lease payments	$	3,644,831
Present value of future minimum lease payments – current	$	801,887
Present value of future minimum lease payments – long-term	$	2,842,944

Schedule of future maturities
Year Ending December 31,
2022 (rest of year) $ 324,028
2023 525,834
2024 221,370
2025 227,443
2026 18,954
Total future minimum lease payments, undiscounted 1,317,629
Less: Amount representing interest (84,253 )
Present value of future minimum lease payments $ 1,233,376
Present value of future minimum lease payments – current $ 739,602
Present value of future minimum lease payments – long-term $ 493,774

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022

(UNAUDITED)

Note 8– Leases – Continued

As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the weighted average lease-term and discount rate of the Company’s leases are as follows:

Schedule of weighted average lease-term and discount rate leases
Other Information September 30,
2022 December 31,
2021
Weighted-average remaining lease terms (in years) 2.1 2.3
Weighted-average discount rate 6.0 % 6.0 %

~~AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021Schedule of weighted average lease-term and discount rate leases

Other Information	June 30, 2023			December 31, 2022
Weighted-average remaining lease terms (in years)		4.4			4.8
Weighted-average discount rate		6.0	%		6.0	%

~~(UNAUDITED)~~

~~Note 8 – Leases-Continued~~

For the three and ~~nine~~six months ended ~~September 30,~~June 31, 2023 and 2022, ~~and 2021,~~ supplemental cash flow information related to leases is as follows:

Schedule Of Cash Flow Supplemental Information
For the Three Months Ended September 30, For the Nine Months Ended September 30,
Other Information 2022 2021 2022 2021
Cash paid for amounts included in the measurement of liabilities: 326,542 75,270 1,245,893 213,608
Operating cash flows for operating leases $ $ $ $
Lease liabilities related to the acquisition of right of use assets:
Operating leases $ — $ — $ — $ 925,298

Schedule Of Cash Flow Supplemental Information


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
Other Information	2023		2022		2023		2022
Cash paid for amounts included in the measurement of liabilities: Operating cash flows for operating leases	$	264,430	$	628,449	$	528,343	$	961,922

Note 9 – Warrants

Warrants Issued

On June 5, 2023, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain accredited and institutional investors (the “Investors”) pursuant to which the Company issued warrants to purchase up to 25,080,000 shares of common stock (the “Warrants”), exercisable at $0.38 per share (the “Offering”) (see Note 7 for further disclosures).

On March 9, 2023, the Company received an Investor Notice from Alpha (described above in Note 8) resulting in the issuance of a Common Stock warrant to purchase up to 7,142,715 shares of Common Stock at the exercise price of $0.42 per share warrant (the “Additional Warrant”) for an aggregate purchase price of $3,000,000. The Additional Warrant is exercisable upon issuance and has a three-year term. On March 10, 2023, the Company issued and sold the Additional Series F Preferred along with the associated Additional Warrant. On June 5, 2023, upon entering the Purchase Agreement a Down Round was triggered reducing the exercise price of the Additional Warrant to $0.25.

On December 6, 2022, the Company entered into a Promissory Note Purchase Agreement (described above in Note 7), pursuant to which the Company issued the right to purchase up to 5,000,000 shares of Common Stock at an exercise price of $0.44 per share (see Note 8 for further disclosures), subject to standard anti-dilution adjustments. The Promissory Note Warrant is not exercisable for the first six months after issuance and has a five-year term from the initial exercise date of June 6, 2023.

On June 26, 2022, the Company entered into a Securities Purchase Agreement (described above in Note 7) with Alpha. In connection with the Series F Agreement the Company issued a warrant to Alpha to purchase 16,129,032 shares of Common Stock, par value $0.001 per share Series F Warrant with an exercise price equal to $0.96, subject to adjustment, per share of Common Stock. The Series F Warrants were not exercisable for the first six months after its issuance and have a three-year term from its initial exercise date of December 30, 2022. Upon the issuance of the 5,000,000 shares of Common Stock warrants at $0.44 per share, the Series F Warrant exercise price was reduced to $0.44, the warrants were further reduced in March upon issuance of additional Series F Preferred shares to $0.42 and in June to $0.25 upon entering the Purchase Agreement(see Note 7 for explanation regarding the December, March and June Down Rounds along with any other further disclosures related to Series F Preferred Stock).

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022

(UNAUDITED)

Note 9 – Warrants – Continued

A summary of activity related to warrants for the periods presented is as follows:

Schedule of summary of activity related to warrants

	Shares		Weighted Average Exercise Price			Weighted Average Remaining Contractual Term
Outstanding as of December 31, 2021		—	$	—			—
Issued		21,129,032		0.29	*		—
Exercised		—		—			—
Outstanding as of December 31, 2022		21,129,032	$	0.29	*		—
Issued - March 2023		7,142,715		0.25	*		—
Issued - June 2023		25,080,000		0.38			—
Exercised		—		—			—
Outstanding as of June 30, 2023		53,351,747		0.33	*		4.05
Exercisable as of June 30, 2023		28,271,747		0.28	*		2.81

*	Reflects the exercise price after the Down Round Trigger events on December 6, 2022, March 9, 2023, and June 6, 2023 (see Note 7).

As of June 30, 2023, the intrinsic value of the warrants was nil.

Note 10 – Commitments and Contingencies

~~Resignation of Mr. Torres Declet as Chief Executive Officer~~

On January 17, 2022, the Company and Mr. Torres Declet mutually agreed to Mr. Torres Declet’s resignation as Chief Executive Officer and as a director of the Company. In connection with his departure, and in accordance with his employment agreement with the Company, Mr. Torres Declet received base salary continuation equal to six months of his then annual salary, reimbursement of COBRA health insurance premiums for a period of six months at the same rate as if Mr. Torres Declet were an active employee of the Company, and a grant of RSUs with a fair market value of $~~125,000~~ at the date of termination of employment. On January 21, 2022, the Company granted 111,607 RSUs with a fair market value of $1.12 per share of Common Stock on the grant date. On January 24, 2022, the Company issued a grant of 42,500 fully vested RSUs with a fair market value of $1.13 per share of Common Stock on the grant date in satisfaction of a performance bonus approved by the Compensation Committee of the Board of Directors. See Note 7 – Equity.

Existing Employment and Board Agreements

The Company has various employment agreements with certain of its executive officers and directors that serve as Board members, which it considers normal and in the ordinary course of business.

The Company has no other formal employment agreements with our executive officers, nor any compensatory plans or arrangements resulting from the resignation, retirement, or any other termination of our named executive officers, from a change-in-control, or from a change in any executive officer’s responsibilities following a change-in-control. However, it is possible that the Company will enter into formal employment agreements with its executive officers in the future.

Purchase Commitments

The Company routinely places orders for manufacturing services and materials. As of ~~September~~June 30, ~~2022,~~2023, the Company had purchase commitments of ~~approximately~~ $~~2,666,928~~2,377,378. These purchase commitments are expected to be realized during the year ending December 31, ~~2022.~~2023. As of December 31, 2022, the Company had purchase commitments of $3,155,867.

SEC Investigation

The Company is subject to an investigation by the Division of Enforcement of the United States Securities and Exchange Commission limited to Section 16 violations. The Company is cooperating with the investigation and has responded to requests for documents, testimony and information regarding various transactions and disclosures going back to 2018. At this point, we are unable to predict what the timing or the outcome of the SEC investigation may be or what, if any, consequences the SEC investigation may have with respect to the Company. However, the SEC investigation could result in additional legal expenses and divert management’s attention from other business concerns and harm our business. If the SEC were to determine that legal violations occurred, we could be required to pay civil penalties or other amounts, and remedies or conditions could be imposed as part of any resolution. Currently, the Company estimates the penalties ranging from $150,000 to $200,000.

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2022~~2023 AND ~~2021~~2022

(UNAUDITED)

Note 1011 – Segment Information

Non-allocated administrative and other expenses are reflected in Corporate. Corporate assets include cash, prepaid expenses, notes receivable, right of use ~~asset~~assets and other assets.

As of ~~September~~June 30, ~~2022~~2023, and December 31, ~~2021,~~2022, and for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively, information about the Company’s reportable segments consisted of the following:

Goodwill and Assets

Schedule of Goodwill and Assets

Schedule of consolidated results from reportable segments
	Corporate		Drones and Custom Manufacturing		Sensors		SaaS		Total		Corporate		Drones		Sensors		SaaS		Total
As of September 30, 2022
As of June 30, 2023
Goodwill	$	—	$	12,655,577	$	18,972,896	$	33,238,809	$	64,867,282	$	—	$	—	$	18,972,896	$	4,206,515	$	23,179,411
Assets	$	5,800,179	$	25,378,040	$	27,003,229	$	37,162,836	$	95,344,284	$	5,243,877	$	13,295,689	$	25,836,168	$	7,337,117	$	51,712,851

As of December 31, 2021
As of December 31, 2022
Goodwill	$	—	$	12,655,577	$	18,972,896	$	33,238,809	$	64,867,282	$	—	$	—	$	18,972,896	$	4,206,515	$	23,179,411
Assets	$	14,516,466	$	27,073,211	$	25,548,066	$	37,545,298	$	104,683,041	$	4,785,643	$	14,930,789	$	26,081,788	$	8,386,654	$	54,184,874

Condensed Consolidated Operating Results

Schedule of Net (Loss) Income

	Corporate			Drones			Sensors			SaaS			Total
Three Months Ended June 30, 2023
Revenues	$	—		$	1,267,641		$	1,884,857		$	125,714		$	3,278,212
Cost of sales		—			752,167			1,217,169			277,342			2,246,678
Loss from operations		(2,092,686	)		(2,304,994	)		(78,071	)		(396,087	)		(4,871,838	)
Other expense, net		(238,520	)		(180,163	)		—			(62	)		(418,745	)
Net loss	$	(2,331,206	)	$	(2,485,157	)	$	(78,071	)	$	(396,149	)	$	(5,290,583	)

Three Months Ended June 30, 2022
Revenues	$	—		$	3,036,182		$	2,094,092		$	157,599		$	5,287,873
Cost of sales		—			1,589,334			1,080,583			67,860			2,737,777
Loss from operations		(2,722,252	)		(1,891,540	)		(26,986	)		(747,801	)		(5,388,579	)
Other income (expense), net		1,403			(210,713	)		(1,819	)		(2,028	)		(213,157	)
Net loss	$	(2,720,849	)	$	(2,102,253	)	$	(28,805	)	$	(749,829	)	$	(5,601,736	)

	Corporate			Drones			Sensors			SaaS			Total
Six Months Ended June 30, 2023
Revenues	$	—		$	3,234,083		$	3,855,052		$	246,146		$	7,335,281
Cost of sales		—			1,589,892			2,222,601			512,622			4,325,115
(Loss) income from operations		(4,010,845	)		(4,337,800	)		159,583			(843,884	)		(9,032,946	)
Other expense, net		(495,720	)		(361,354	)		—			(62	)		(857,136	)
Net loss	$	(4,506,565	)	$	(4,699,154	)	$	159,583		$	(843,946	)	$	(9,890,082	)

Six Months Ended June 30, 2022
Revenues	$	—		$	5,775,163		$	3,027,110		$	327,578		$	9,129,851
Cost of sales		—			3,159,100			1,727,095			328,668			5,214,863
Loss from operations		(5,961,196	)		(4,515,645	)		(810,124	)		(1,583,554	)		(12,870,519	)
Other income (expense), net		2,791			(323,955	)		(1,818	)		(4,807	)		(327,789	)
Net loss	$	(5,958,405	)	$	(4,839,600	)	$	(811,942	)	$	(1,588,361	)	$	(13,198,308	)

Corporate Drones and Custom Manufacturing Sensors SaaS Total
Three Months Ended September 30, 2022
Revenues $ — $ 2,081,410 $ 3,256,797 $ 152,507 $ 5,490,714
Cost of sales — 1,180,612 1,851,089 375,872 3,407,573
Loss from operations (2,233,559 ) (2,688,835 ) 592,795 (817,731 ) (5,147,330 )
Other income (expense), net 6,488,327 327,066 (1,819 ) (1,292 ) 6,812,282
Net income (loss) $ 4,254,768 $ (2,361,769 ) $ 590,976 $ (819,023 ) $ 1,664,952

Three Months Ended September 30, 2021
Revenues $ — $ — $ 1,909,921 $ 111,786 $ 2,021,707
Cost of sales — — 1,052,297 174,614 1,226,911
Loss from operations (2,645,834 ) — (439,582 ) (714,118 ) (3,799,534 )
Other income, net 3,834 — — 24,798 28,632
Net loss $ (2,642,000 ) $ — $ (439,582 ) $ (689,320 ) $ (3,770,902 )

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2022~~2023 AND ~~2021~~2022

(UNAUDITED)

Note 1011 – Segment ~~Information-Continued~~Information - Continued

Corporate Drones and Custom Manufacturing Sensors SaaS Total
Nine Months Ended September 30, 2022
Revenues $ — $ 7,856,573 $ 6,283,907 $ 480,085 $ 14,620,565
Cost of sales — 4,339,712 3,578,184 704,540 8,622,436
Loss from operations (8,194,751 ) (7,204,483 ) (217,328 ) (2,401,289 ) (18,017,851 )
Other income (expense), net 6,491,117 3,114 (3,638 ) (6,098 ) 6,484,495
Net loss $ (1,703,634 ) $ (7,201,369 ) $ (220,966 ) $ (2,407,387 ) $ (11,533,356 )

Nine Months Ended September 30, 2021
Revenues $ — $ — $ 5,300,329 $ 360,333 $ 5,660,662
Cost of sales — — 2,462,464 422,544 2,885,008
(Loss) Income from operations (10,029,230 ) — (226,539 ) (1,325,053 ) (11,580,822 )
Other income, net 119,064 — 26,785 55,369 201,218
Net (loss) income $ (9,910,166 ) $ — $ (199,754 ) $ (1,269,684 ) $ (11,379,604 )

Revenues by Geographic Area

Schedule of geographical revenues

Schedule of geographical revenues
	Drones and Custom Manufacturing		Sensors		SaaS		Total		Drones		Sensors		SaaS		Total
Three Months Ended September 30, 2022
Three Months Ended June 30, 2023
North America									$	554,597	$	762,759	$	125,714	$	1,443,070
Latin America										301,192		47,381		—		348,573
Europe, Middle East and Africa										347,243		902,353		—		1,249,596
Asia Pacific										64,609		155,130		—		219,739
Other										—		17,234		—		17,234
Total									$	1,267,641	$	1,884,857	$	125,714	$	3,278,212

Three Months Ended June 30, 2022
North America	$	1,191,083	$	1,182,218	$	152,507	$	2,525,808	$	2,046,581	$	808,320	$	157,599	$	3,012,500
Europe, Middle East and Africa		603,443		1,250,610		—		1,854,053		789,487		795,755		—		1,585,242
Asia Pacific		286,884		696,954		—		983,838		200,114		376,936		—		577,050
Other		—		127,015		—		127,015		—		113,081		—		113,081
Total	$	2,081,410	$	3,256,797	$	152,507	$	5,490,714	$	3,036,182	$	2,094,092	$	157,599	$	5,287,873

Three Months Ended September 30, 2021
North America	$	—	$	737,229	$	111,786	$	849,015
Europe, Middle East and Africa		—		725,770		—		725,770
Asia Pacific		—		343,786		—		343,786
Other		—		103,136		—		103,136
Total	$	—	$	1,909,921	$	111,786	$	2,021,707

	Drones		Sensors		SaaS		Total
Six Months Ended June 30, 2023
North America	$	1,154,088	$	1,213,310	$	246,146	$	2,613,544
Latin America		873,197		140,461		—		1,013,658
Europe, Middle East and Africa		1,086,200		1,858,525		—		2,944,725
Asia Pacific		120,598		606,538		—		727,136
Other		—		36,218		—		36,218
Total	$	3,234,083	$	3,855,052	$	246,146	$	7,335,281

Six Months Ended June 30, 2022
North America	$	3,282,153	$	1,168,208	$	327,578	$	4,777,939
Europe, Middle East and Africa		2,002,677		1,150,134		—		3,152,811
Asia Pacific		490,333		544,678		—		1,035,011
Other		—		164,090		—		164,090
Total	$	5,775,163	$	3,027,110	$	327,578	$	9,129,851

~~AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

~~(UNAUDITED)~~

~~Note 10 – Segment Information-Continued~~

Drones and Custom Manufacturing Sensors SaaS Total
Nine Months Ended September 30, 2022
North America $ 4,473,236 $ 2,350,426 $ 480,085 $ 7,303,747
Europe, Middle East and Africa 2,606,120 2,400,744 — 5,006,864
Asia Pacific 777,217 1,241,632 — 2,018,849
Other — 291,105 — 291,105
Total $ 7,856,573 $ 6,283,907 $ 480,085 $ 14,620,565

Nine Months Ended September 30, 2021
North America $ — $ 2,045,925 $ 360,333 $ 2,406,258
Europe, Middle East and Africa — 2,014,126 — 2,014,126
Asia Pacific — 954,060 — 954,060
Other — 286,218 — 286,218
Total $ — $ 5,300,329 $ 360,333 $ 5,660,662

Note 1112 – Subsequent Events

As disclosed in a Current Report on Form 8-K filed on December 6, 2022, AgEagle Aerial Systems Inc. (the “Company”) entered into a Securities Purchase Agreement (the “Purchase Agreement”), dated December 6, 2022, with Alpha Capital Anstalt, an institutional investor (the “Investor”) which is an existing shareholder of the Company. Pursuant to the terms of the Agreement, among other things, the Company issued to the Investor an 8% original issue discount promissory note (the “Note”) in the aggregate principal amount of $3,500,000. The Note is an unsecured obligation of the Company. It has an original issue discount of 4% and bears interest at 8% per annum. Commencing on June 1, 2023 and on the first business day of each month thereafter, the Company was obligated to pay 1/20th of the original principal amount of the Note plus any accrued but unpaid interest, with any remaining principal plus accrued interest payable in full upon the Maturity Date (the “Monthly Amortization Payments”).

On August 14, 2023, the Company and the Investor entered into a Note Amendment Agreement (the “Note Amendment Agreement”), pursuant to which the parties agreed to amend the Note to provide for the following:

(i) defer payment of the Monthly Amortization Payments for June 2023, July 2023 and August 2023 in the aggregate amount of $525,000, and the September Monthly Amortization Payment, in the amount of $175,000, until September 15, 2023;

(ii) increase the principal amount of the Note by $595,000 so that the current principal amount of the Note is $4,095,000; and

(iii) delete and replace Section 3(a) of the Note governing Events of Defaults, as follows:

“Event of Default”, wherever used herein, means with respect to (a) Sections 3(a)(i), (ii), (iii), and (v), the fifth (5^th) Trading Day after the occurrence of the event and if subject to cure not cured within such five Trading Day period, and (b) with respect to Sections 3(a)(iv), (vi), and (vii), the day of the occurrence of any one of the following events (whatever the reason and whether it shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body).”

Except as expressly amended in the Note Amendment Agreement, each of the Purchase Agreement and the Note, shall remain in full force and effect in accordance with their respective terms and provisions.

A copy of the Note Amendment Agreement is attached hereto as Exhibit 10.1 and is incorporated herein by reference. The foregoing summary of the terms of the Note Amendment Agreement is subject to, and qualified in its entirety by, such document.

~~Conversion of Series F to Common Stock~~

~~During the months of October and November 2022, Alpha converted 248 shares of Series F to 400,000 shares of Common Stock.~~

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion highlights the principal factors that have affected our financial condition and results of operations as well as our liquidity and capital resources for the periods described. This discussion should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes included in Item 8 of ~~the~~this Form 10-K. This discussion contains forward-looking statements. Please see the explanatory note concerning “Forward-Looking Statements” in Part I of the Annual Report on Form 10-K and Item 1A. Risk Factors for a discussion of the uncertainties, risks and assumptions associated with these forward-looking statements. The operating results for the periods presented were not materially affected by inflation.

Overview

~~AgEagle™~~ AgEagle^™Aerial Systems Inc. (“AgEagle” ~~or the~~, “Company”, “We”, “Our”, “Us”), through its wholly owned subsidiaries, is actively engaged in designing and delivering best-in-class drones, sensors and software that solve important problems for our customers. Founded in 2010, AgEagle was originally formed to pioneer proprietary, professional-grade, fixed-winged drones and aerial imagery-based data collection and analytics solutions for the agriculture industry. Today, the Company is earning distinction as a globally respected industry leader offering innovative autonomous UAV systems to a wide range of industry verticals, including energy/utilities, infrastructure, agriculture and government, among others.

~~The Company’s~~AgEagle’s shift and expansion from solely manufacturing fixed-wing farm drones in 2018, to offering what ~~the Company believes~~we believe is one of the industry’s best fixed-wing, full-stack drone solutions, culminated in 2021 when ~~AgEagle~~we acquired three market-leading companies engaged in producing ~~UAV~~UAS airframes, sensors and software for commercial and government use. In addition to a robust portfolio of proprietary, connected hardware and software ~~products,~~products; an established global network of ~~nearly~~over 200 ~~UAV resellers~~UAS resellers; and enterprise customers ~~worldwide,~~worldwide; these acquisitions also brought AgEagle a highly valuable workforce comprised largely of experienced engineers and technologists with deep expertise in the fields of robotics, automation, manufacturing and data science. ~~Through its efforts~~In 2022, we succeeded in integrating all three acquired companies with AgEagle to ~~establish three centers of excellence~~form one global company focused on ~~pioneering innovations~~taking autonomous flight performance to a higher level.

AgEagle has also achieved numerous regulatory firsts, earning governmental approvals for its commercial and tactical drones to fly Beyond Visual Line of Sight (“BVLOS”) and/or Operations Over People (“OOP”) in ~~flight hardware, sensors~~the United States, Canada, Brazil and ~~software, AgEagle will continue to produce leading-edge products that serve as catalysts for~~ the ~~creation of new markets for autonomous robotics, while driving material market expansion for the Company’s existing offerings.~~European Union.

AgEagle is led by a proven management team with years of drone industry ~~experience.~~

~~The Company~~experience and is currently headquartered in Wichita, Kansas, where ~~it maintains its U.S.~~we house our business and sensor manufacturing ~~operations.~~operations; and we operate drone manufacturing operations in Lausanne, Switzerland in support of our international business activities.

We intend to grow our business and preserve our leadership position by developing new drones, sensors and software and capturing a significant share of the global drone market. In addition, ~~AgEagle has business operations~~we expect to accelerate our growth and expansion through strategic acquisitions of companies offering distinct technological and competitive advantages and have defensible IP protection in ~~Austin, Texas; Lausanne, Switzerland; Raleigh, North Carolina; Seattle, Washington; and Washington, D.C.~~place, if applicable.

Key Growth Strategies

We intend to materially grow our business by leveraging our proprietary, best-in-class, full-stack drone solutions, industry influence and deep pool of talent with specialized expertise in robotics, automation, custom manufacturing and data science to achieve greater penetration of the global ~~UAV~~UAS industry – with near-term emphasis on capturing larger market share of the agriculture, energy/utilities, infrastructure and government/military verticals. We expect to accomplish this goal by first bringing three core values to life in our day-to-day operations and aligning them with our efforts to earn the trust and continued business of our customers and industry partners:

	1.●	Curiosity – this pushes us to find value where others aren’t looking. It inspires us to see around corners for our customers, understanding the problems they currently face or will be facing in the future, and delivering them solutions best suited for their unique needs.

	2.●	Passion – this fuels our obsession with excellence, our desire to try the difficult things and tackle big problems, and our commitment to meet our customers’ needs – and then surpass them.

	3.●	Integrity – this is not optional or situational at AgEagle – it is the foundation for everything we do, even when no one is watching.

~~Key components of our growth strategy include the following:~~

		Key components of our growth strategy include the following:

	●	~~Optimize the strengths of AgEagle’s~~Establish three centers of excellence with respective expertise in ~~UAV software,~~UAS drones, sensors and ~~airframes.~~software. These centers of excellence ~~will continue to cross-pollinate~~cross pollinate ideas, industry insights and skillsets to yield intelligent autonomous solutions that ~~effectively demonstrate~~fully leverage AgEagle’s experienced team’s specialized knowledge and know-how in robotics, automation, custom manufacturing and data science.

	●	Deliver new and innovative solutions. AgEagle’s research and development efforts are critical building blocks of the Company, and we intend to continue investing in our own innovations, pioneering new and enhanced products and solutions that enable us to satisfy our customers – both in response to and in anticipation of their needs. AgEagle believes that by investing in research and development, the Company can be a leader in delivering innovative autonomous robotics systems and solutions that address market needs beyond our current target markets, enabling us to create new opportunities for growth.

	●	Foster our entrepreneurial culture and continue to attract, develop and retain highly skilled personnel. AgEagle’s company culture encourages innovation and entrepreneurialism, which helps attract and retain highly skilled professionals. We believe this culture is key to nurture the design and development of the innovative, highly technical system solutions that give us our competitive advantage.

	●	Effectively manage our growth portfolio for long-term value creation. Our production and development programs present numerous investment opportunities that we believe will deliver long-term growth by providing our customers with valuable new capabilities. We evaluate each opportunity independently, as well as within the context of other investment opportunities, to determine its relative cost, timing and potential for generation of returns, and thereby its priority. This process helps us make informed decisions regarding potential growth capital requirements and supports our allocation of resources based on relative risks and returns to maximize long-term value creation, which is the key objective of our growth strategy. We also review our portfolio on a regular basis to determine if and when to narrow our focus on the highest potential growth opportunities.

	●	Growth through acquisition. Through successful execution of our growth-through-acquisition strategies, we intend to acquire technologically advanced ~~UAV~~UAS companies and intellectual property that complement and strengthen our value proposition to the market. We believe that by investing in complementary acquisitions, we can accelerate our revenue growth and deliver a broader array of innovative autonomous flight systems and solutions that address specialized market needs within our current target markets and in emerging markets that can benefit from innovations in artificial intelligence-enabled robotics and data capture and analytics.

Competitive Strengths

~~AgEagle believes~~We believe that the following attributes and capabilities provide us with long-term competitive advantages:

	●	Proprietary technologies, in-house capabilities and industry experience –We believe our decade of experience in commercial ~~UAV~~UAS design and engineering; in-house manufacturing, assembly and testing capabilities; and advanced technology development skillset serve to differentiate AgEagle in the marketplace. In fact, approximately 70% of our global workforce is comprised of engineers and data scientists with deep experience and expertise in robotics, automation, custom manufacturing, and data analytics. In addition, AgEagle is committed to meeting and exceeding quality and safety standards for manufacturing, assembly, design and engineering and testing of drones, drone subcomponents and related drone equipment in our ~~Wichita-based~~U.S. and ~~Swiss~~Swiss-based manufacturing operations. As a result, we have earned ISO:9001 international certification for our Quality Management System.

	●	AgEagle is more than just customer- and product-centric, we are obsessed with innovation and knowing the needs of our customers before they do – We are focused on capitalizing on our specialized expertise in innovating and commercializing advanced drone, sensor and software technologies to provide our existing and future customers with autonomous robotic solutions that meet the highest possible safety and operational standards and fit their specific business needs. We have established three Centers of Excellence that our leadership has challenged to cross-pollinate ideas, industry insights and interdisciplinary skillsets to generate intelligent autonomous solutions that efficiently leverage our expertise in robotics, automation and manufacturing to solve problems for our customers, irrespective of the industry sector in which they may operate.

		In December 2022, we unveiled our new eBee™ VISION, a small, fixed-wing UAS designed to provide real-time, enhanced situational awareness for critical intelligence, surveillance and reconnaissance missions; to produce and deliver eBee™ VISION fixed-wing drones and customized command and control software that proves compatible and is in full compliance with the DoD Robotic and Autonomous System-Air Interoperability Profile (“RAS-A IOP”). In addition, three branches of European military forces have taken delivery of eBee VISION drones in 2023. In anticipation of achieving commercial production of eBee VISIONs later this year, we have teams hosting live demonstrations of eBee VISION prototypes for officials of government and military agencies in Austria, the Baltics, Italy, Poland, Spain and across the United States. In May 2023, we released the new RedEdge-P™ dual high resolution and RGB composite drone sensor, representing yet another AgEagle technological advancement in aerial imaging cameras, seamlessly integrating the power and performance of the RedEdge-P and the new RedEdge-P blue cameras in a single solution. The RedEdge-P dual doubles analytical capabilities with the benefit of a single camera workflow. Its coastal blue band – the first of its kind in the market – was specifically designed for vegetation analysis of water bodies; environmental monitoring; water management; habitat monitoring, protection and restoration; and vegetation species and weeds identification, including differentiating and counting plants, trees, invasive species and weeds. In April of this year, AgEagle released Field Check for the Measure Ground Control mobile app. Measure Ground Control is a complete Software-as-a-Service solution for drone program management that is available as a web app and mobile app for both iOS and Android devices. The software’s capabilities include mission and equipment management, flight control, data processing and analysis, secure data storage and sharing, online collaboration and reporting. Field Check’s unique feature set enables users to review and validate the quality of their drone-captured imagery on-site. Capturing target imagery right the first time in one trip to a project site allows users to eliminate time loss and costs associated with project reworks by ensuring data capture is complete and ready for processing into high-resolution outputs before leaving a site. Reflecting our software development team’s superb problem-solving capabilities, Field Check provides our clients with a competitive edge in their drone operations and across the industries they serve by avoiding project repeats and downtime due to data processing errors or poor image quality.

	●	We offer market-tested drones, sensors and software solutions that have earned the longstanding trust and fidelity of customers worldwide –~~through~~ Through successful execution of our acquisition integration strategy in 2021, AgEagle is now delivering a unified line of industry trusted drones, sensors and software that have been vigorously tested and consistently proven across multiple industry verticals and use cases. For instance, our line of eBeefixed wing drones ~~pioneered by senseFly,~~ have flown more than one million flights over the past decade serving customers spanning surveying and mapping; engineering and construction; military/defense; mining, quarries and aggregates; agriculture humanitarian aid and environmental monitoring, ~~among~~to name just a few. Featured in over 100 research publications globally, advanced sensor innovations developed and commercialized by ~~MicaSense,~~AgEagle have served to forge new industry standards for high performance, high resolution, thermal and multispectral imaging for commercial drone applications in agriculture, plant research, land management and forestry. In addition, we have championed the development of end-to-end software solutions which power autonomous flight and deliver actionable, contextual data and analytics for ~~a who’s who of~~numerous Fortune 500 companies, government agencies and a wide range of businesses in agriculture, energy and utilities, construction and other industry sectors.

	●	AgEagle was awarded a Multiple Award Schedule (“MAS”) Contract by the U.S. federal government’s General Services Administration (“GSA”) – In April 2023, the centralized procurement arm of the federal government, the GSA, awarded us with a five-year MAS contract. The GSA Schedule Contract is a highly coveted award in the government contracting space and is the result of a rigorous proposal process involving the demonstration of products and services in-demand by government agencies, and the negotiation of their prices, qualifications, terms and conditions. Contractors selling through the GSA Contract are carefully vetted and must have a proven track record in the industry. We believe that this will serve to advance our efforts to achieve deeper penetration of the government sector over the next five years.

	●	Our eBee TAC^™UAS is available for purchase for all military branches of US – We believe that the eBee TAC is ideally positioned to become an in-demand, mission critical tool for the U.S. military, government and civil agencies and our allies worldwide; and expect that this will prove to be a major growth catalyst for us in 2023, positively impacting our financial performance in the years ahead. In addition to being available for purchase under our own GSA Schedule Contract, the eBee TAC is available for purchase by U.S. government agencies and all branches of the military on GSA Schedule Contract #47QTCA18D003G, supplied by Hexagon US Federal and partner Tough Stump Technologies as a standalone solution or as part of the Aerial Reconnaissance Tactical Edge Mapping Imagery System (“ARTEMIS”). Tough Stump is actively engaged in training military ground forces based in the U.S. and in Central Europe on the use of eBee TAC for mid-range tactical mapping and reconnaissance missions.

	●	Our eBee^™*X series of fixed wing UAS, including the eBee X, eBee Geo* and eBee TAC, are the first and only drones on the market to comply with Category 3 of the sUAS Over People rules published by the FAA*. It is another important testament of our commitment to providing best-in-class solutions to our commercial customers, and we believe it will serve as a key driver in the growth of eBee* utilization in the United States. We further believe it will improve the business applications made possible by our drone platform for a wide range of commercial enterprises which stand to benefit from adoption of drones in their businesses – particularly those in industries such as insurance for assessment of storm damage, telecommunications for network coverage mapping and energy for powerline and pipeline inspections, just to name a few.

	●	*Our eBee X* series of drones are the world’s first UAS in its class to receive design verification for BVLOS and OOP from European Union Aviation Safety Agency (“EASA”).** The EASA design verification report demonstrates that the eBee X meets the highest possible quality and ground risk safety standards and, thanks to its lightweight design, effects of ground impact are reduced. As such, drone operators conducting advanced drone operations in 27 European Member States, Iceland, Liechtenstein, Norway, and Switzerland can obtain the HIGH or MEDIUM robustness levels of the M2 mitigation without additional verification from EASA. Regulatory constraints relating to limitations of BVLOS and OOP have continued to be a gating factor to widespread adoption of commercial drone technologies across a wide range of industry sectors worldwide. Being the first company to receive this DVR from EASA for M2 mitigation is a milestone for AgEagle and our industry in the European Union and will be key to fueling growth of our international customer base.

	●	Our global reseller network currently has more than 200 drone solutions providers in 75+ countries – By leveraging our relationships with the specialty retailers that comprise our global reseller network, AgEagle benefits from enhanced brand-building, lower customer acquisition costs and increased reach, revenues and geographic and vertical market penetration. With the integration of our 2021 Acquisitions, we can now leverage our collective reseller network to accelerate our revenue growth by educating and encouraging our partners to market AgEagle’s full suite of airframes, sensors and software as bundled solutions in lieu of marketing only previously siloed products or product lines to end users.

		In late 2022, we partnered with government contractor Darley to expand the market reach of AgEagle’s high performance fixed wing drones and sensors to the U.S. first responder and tactical defense markets. Distinguished as one of the nation’s longest standing government contracting organizations, Darley is expected to become a key contributor to AgEagle’s success in delivering best-in-class UAS solutions to a wide range of state and federal agencies. Providing our best-in-class autonomous flight solutions for public safety applications through trusted resellers like Darley represents an entirely new market opportunity for AgEagle and one we intend to vigorously pursue in the current year.

Impact of the ~~War in Ukraine~~Risks and ~~COVID-19 On~~Uncertainties on Our Business Operations

Global economic challenges, including the impact of the war, ~~in Ukraine, the COVID-19 pandemic,~~pandemics, rising inflation and supply-chain disruptions, regulatory investigations adverse labor and capital market conditions could cause economic uncertainty and volatility. During the three months ended September 30, 2022, the COVID-19 pandemic and other supply chain disruptions continued to have a significant negative impact on the UAV industry, our customers and our business globally. The aforementioned risks and their respective ~~impact~~impacts on the UAV industry and our operational and financial performance remains uncertain and outside of our control. Specifically, ~~as a result~~because of the aforementioned continuing risks, the our ability to access components and parts needed in order to manufacture ~~our~~its proprietary drones and sensors, and to perform quality testing have been, and continue to be, impacted. If either we or any of our ~~third-parties~~third parties in the supply chain for materials used in our manufacturing and assembly processes continue to be adversely impacted, our ~~supply-chain~~supply chain may be further disrupted, limiting its ability to manufacture and assemble products. ~~We expect the pandemic, inflation~~

Three and supply chain disruptions and its effects to continue to have a significant negative impact on our business for the duration of the pandemic and during the subsequent economic recovery, which could be for an extended period.

For the three and nine months ended September 30, 2022, our supply chain was adversely impacted by the COVID-19 pandemic and other global economic challenges, causing material delays in the delivery of critical components associated with production of our ~~Altum-PT~~ ~~and~~ ~~RedEdge-P~~ multispectral sensors, introduced to market in the fourth quarter of 2021. These delays resulted in a significant backlog of purchase orders for our sensors. Steps taken in early 2022 to expand our supply sources has allowed us to resolve the majority of our backlogged sensor orders and be better positioned to meet ongoing global market demand in the foreseeable future. While we believe we have largely overcome our supply chain challenges, this is an ongoing situation we will continue to monitor closely.

~~Three Months and Nine~~Six Months Ended ~~September~~June 30, ~~2022~~2023 as Compared to Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022

Revenues

For the three months ended ~~September~~June 30, ~~2022,~~2023, revenues were ~~$5,490,714~~$3,278,212 as compared to ~~$2,021,707~~$5,287,873 for the three months ended ~~September~~June 30, ~~2021,~~2022, a decrease of 2,009,661, or 38.0%. The decrease mainly was attributable to a decline in revenues of the eBee series of drone products of $1,768,541, $209,235 of our RedEdge-P and Altum-PT™ panchromatic sensors, due to continued supply chain and manufacturing constraints and $31,885 of our SaaS subscription services related to our HempOverview and Ground Control platforms. In addition, the launch of the panchromatic series commenced in the second quarter of 2022, which resulted in higher sales last year due to immediate strong demand and orders for our next generation sensors.

For the six months ended June 30, 2023, revenues were $7,335,281 as compared to $9,129,851 for the six months ended June 30, 2022, a decrease of $1,794,570 or 19.7%. The decline in revenues is mainly attributed to the eBee drone products of $2,541,081 and $81,432 of our SaaS subscription services related to our HempOverview and Ground Control platforms. Offsetting these decreases was an increase in revenues of ~~$3,469,007, or 172%. The increase was~~$827,943 attributable to the revenues derived from our sensor sales, specifically the RedEdge-P and Altum-PT panchromatic sensor series. Our continued innovation has demonstrated growth in our sales leading to strong demand of our ~~eBee™~~products, specifically for our panchromatic sensor series, offsetting this growth are delays in our newly announced VISION drone ~~products acquired in the senseFly Acquisition in the fourth quarter of 2021. Revenue growth was also positively~~product and Field Check for Measure Ground Control mobile app which we have just begun to deliver to marketplace. Additionally, our business continues to be negatively impacted by ~~continued strong demand for~~supply chain constraints, inflation, adverse labor market conditions and manufacturing disruptions due to the consolidation of our manufacturing facilities.

~~Altum-PT~~™Cost of Sales and Gross Profit

~~RedEdge-P~~~~™ multispectral sensors, which resulted in total sensor~~

For the three months ended June 30, 2023, cost of sales ~~rising 71%~~was $2,246,678 as compared to ~~$3,256,797 from $1,909,921. In addition, SaaS subscriptions increased 36% to $152,507~~$2,737,777 for the three months ended ~~September~~June 30, 2022, ~~compared to $111,786 for the same three-month period in the prior year. The COVID-19 pandemic and its effects continue to have~~ a ~~negative impact on our business due to global supply chain, inflation and adverse labor market conditions, which could be for an extended period~~decrease of time. Although we understand that market conditions impacting supply chain are not predictable at this time, we do believe we have made material progress in addressing our backlog of orders for our sensors in the third quarter of this year and expect to full resolve it prior to year-end.

~~For the nine months ended September 30, 2022, revenues were $14,620,565, which compared to $5,660,662 for the nine months ended September 30, 2021, an increase of $8,959,903,~~$491,099 or ~~158%. The increase was driven by sales of our~~ ~~eBee~~ drones acquired in the senseFly Acquisition in the fourth quarter of 2021, coupled with total sensor sales climbing 19% to $6,283,907 from $5,300,329 and SaaS subscriptions increasing $33% to $480,085 from $360,333. The improvement in SaaS subscriptions was largely attributable to a 207% increase in SaaS software subscriptions for ~~Measure Ground Control~~~~, which saw sales rise to $389,406 from $126,804. Offsetting the increase was a decline in SaaS subscriptions sales of~~ ~~HempOverview,~~ ~~which totaled $90,678, down 26% from $121,743.~~

~~Cost of Sales~~

For the three months ended September 30, 2022, cost of sales totaled $3,407,573 as compared to $1,226,911 for the three months ended September 30, 2021, an increase of $2,180,662 or 178%. The increase in our cost of sales was attributable to new sales of ~~eBee~~s stemming from the senseFly Acquisition in the fourth quarter of 2021, together with higher sales of our sensor products, coupled with the effects of supply chain constraints, including shortages in electronic components and inflation caused by higher costs to acquire electronic components, increased labor expenses and freight-in costs.

For the nine months ended September 30, 2022, cost of sales was $8,622,436 as compared to $2,885,008 for the nine months ended September 30, 2021, an increase of $5,737,428 or 199%. The increase in our cost of sales was attributable to new sales of eBees, acquired in the senseFly Acquisition in October 2021, and an increase in sensor sales, as well as higher costs associated with the effects of supply chain constraints, including shortages in electronic components and inflation caused by higher costs to acquire electronic components, increased labor expenses and higher freight-in costs.

~~Gross Profit~~

~~For the three months ended September 30, 2022, gross profit was $2,083,141 as compared to $794,796 for the three months ended September 30, 2021, an increase of $1,288,345, or 162%~~17.9%. For the three months ended ~~September~~June 30, ~~2022,~~2023, gross profit ~~margin~~ was ~~38%~~$1,031,534 or 31%, as compared to ~~39%~~$2,550,096 or 48% for the three months ended ~~September~~June 30, ~~2021.~~2022, a decrease of $1,518,562, or 17% in actual gross margin. The primary factors contributing to the decrease in our cost of sales and the gross profit margin were due to the decline in revenues from our drone products along with significant price reduction in mid-Q2 to stimulate market demand and bring us in line specifically with competitive products manufactured in China as our products become older while awaiting the new ebee VISION. In addition, to drone sales our sensor sales continue to experience supply chain pressure related to our sensor sales specifically as a result of increase in raw components and labor costs.

For the six months ended June 30, 2023, cost of sales was $4,325,115 as compared to $5,214,863 for the six months ended June 30, 2022, a decrease of $889,748, or 17.1%. For the six months ended June 30, 2023, gross profit was $3,010,166 or 41% as compared to $3,914,988 or 43% for the six months ended June 30, 2022, a decrease of $904,822, or 2% in actual gross margin. The decrease in gross profit margin was a result of our ~~senseFly entity~~drone products along with significant price reduction in mid-Q2 to stimulate market demand and bring us in line specifically with competitive products manufactured in China as our products become older while awaiting the new ebee VISION. In addition to drone sales ~~which have lower margins along with an increase in~~ our ~~cost of goods sold for~~ sensor sales ~~over the three months.~~

~~For the nine months ended September 30, 2022, gross profit was $5,998,129~~continue to experience supply chain pressure related to our sensor sales specifically as compared to $2,775,654 for the nine months ended September 30, 2021, an increase of $3,222,475, or 116%. For the nine months ended September 30, 2022, gross profit margin was 41% as compared to 49% for the nine months ended September 30, 2021. The decrease in gross profit margin was a result of ~~our senseFly entity drone sales which have lower margins along with an~~ increase in ~~our cost of goods sold for sensor sales over the nine month period.~~raw components and labor costs.

Operating Expenses

For the three months ended ~~September~~June 30, ~~2022,~~2023, operating expenses were ~~$7,230,471~~$5,903,372, as compared to ~~$4,594,330~~$7,938,675 for the three months ended ~~September~~June 30, ~~2021, an increase~~2022, a decrease of ~~$2,636,141,~~$2,035,303, or ~~57%~~25.6%. ~~Operating expenses are comprised of general and administrative, research and development and sales and marketing expenses.~~

For the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, operating expenses were ~~$24,015,980,~~$12,043,112, as compared to ~~$14,356,476~~$16,785,507 for the ~~nine~~six months ended ~~September~~June 30, ~~2021, an increase~~2022, a decrease of ~~$9,659,504,~~$4,742,395, or ~~67%~~28.3%.

Operating expenses comprise general and administrative, professional fees, sales and marketing and research and ~~development and sales and marketing.~~development.

General and Administrative Expenses

For the three months ended ~~September~~June 30, ~~2022,~~2023, general and administrative expenses were ~~$4,175,090~~$3,498,761 as compared to ~~$2,783,290~~$4,437,185 for the three months ended ~~September~~June 30, ~~2021, an increase~~2022, a decrease of ~~$1,391,800,~~$938,424, or ~~50%~~21.1%. The ~~increase~~decrease was primarily ~~the~~a result of the ~~inclusion~~integration of the ~~newly acquired senseFly businesses, along with~~2021 Business Acquisitions that provided continued ~~increases~~decreases in general and administrative costs ~~from our two other~~in professional fees, relating mainly to legal and consulting fees, insurance, lease expenses due to combination of offices, reduction in employee payroll related costs due to integration of roles, ERP consulting integration costs, reduction in R&D consultants, less stock compensation costs offset by increased shareholder annual meeting costs.

For the six months ended June 30, 2023, general and administrative expenses were $7,078,283 as compared to $9,918,564 for the six months ended June 30, 2022, a decrease of $2,840,281, or 28.6%. The decrease was primarily a result of the integration of the 2021 ~~business acquisitions. These~~Business Acquisitions which provided costs primarily included lease expenses ~~payroll-related~~due to combination of offices, reduction in employee payroll related costs ~~for new and existing employees, amortization~~due to integration of ~~our acquired intangibles, stock-based~~roles, ERP consulting integration costs, reduction in R&D consultants, less stock compensation ~~expenses, and~~ costs ~~incurred in the design and development of our internal use software.~~offset by increased shareholder annual meeting costs.

For the nine months ended September 30, 2022, general and administrative expenses were $14,093,655 as compared to $10,428,040 for the nine months ended September 30, 2021, an increase of $3,665,615 or 35%. The increase was primarily the result of the inclusion of the newly acquired senseFly businesses, along with continued increases in general and administrative costs from our two other 2021 business acquisitions. These costs primarily included lease expenses, payroll-related costs for new and existing employees, amortization of our acquired intangibles, stock-based compensation expenses and costs incurred for the design and development of our internal use software.

Research and Development

For the three months ended ~~September~~June 30, ~~2022,~~2023, research and development expenses were ~~$1,818,540~~$1,369,479 as compared to ~~$777,036~~$2,182,313 for the three months ended ~~September~~June 30, ~~2021, an increase~~2022, a decrease of ~~$1,041,504,~~$812,834, or ~~134%~~37.2%. The ~~increase~~decrease was primarily due to the ~~addition~~integration of ~~senseFly and Measure’s~~ research and development teams ~~and technological innovations we are pursuing on~~that provide development of our ~~airframes~~new airframe, sensor and software ~~solutions.~~technologies resulting in a reduction in our consultants and internal headcounts.

For the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, research and development expenses were ~~$6,185,777~~$2,951,822, as compared to ~~$2,115,367~~$4,367,237 for the ~~nine~~six months ended ~~September~~June 30, ~~2021, an increase~~2022, a decrease of ~~$4,070,410,~~$1,415,415, or ~~192%~~32.4%. The ~~increase~~decrease was ~~attributable~~primarily due to the ~~addition~~integration of ~~senseFly’s and Measure’s~~ research and development teams ~~and technological innovations we are pursuing on~~that provide development of our ~~airframes~~new airframe, sensor and software ~~solutions.~~technologies resulting in a reduction in our consultants and internal headcounts.

Sales and Marketing

For the three months ended ~~September~~June 30, ~~2022,~~2023, sales and marketing expenses were ~~$1,236,841~~$955,845 as compared to ~~$1,034,004~~$1,319,177 for the three months ended ~~September~~June 30, ~~2021, an increase~~2022, a decrease of ~~$202,837,~~$363,332, or ~~20%~~27.5%. The ~~increase~~decrease was primarily due to a decrease of travel and payroll related costs due to the integration of sales and marketing teams, along with a decrease in consulting expenses due to branding and website integration done in prior year along with less trade-shows offset by more in-person demos with our sales and marketing team for the new ebee VISON.

For the six months ended June 30, 2023, sales and marketing expenses were $1,933,720 as compared to $2,499,706 for the six months ended June 30, 2022, a decrease of $565,986, or 22.6%. The decrease was primarily due to the ~~addition~~integration of ~~the senseFly and Measure~~ sales and marketing ~~teams.~~

~~For the nine months ended September 30, 2022,~~teams, along with a decrease in consulting expenses due to branding and website integration done in prior year along with less trade-shows offset by more in-person demos with our sales and marketing ~~expenses were $3,736,548 as compared to $1,813,069~~team for the ~~nine months ended September 30, 2021, an increase of $1,923,479, or 106%~~new ebee VISON. ~~The increase was primarily due to the addition of the senseFly and Measure sales and marketing teams.~~

~~Total~~ Other ~~Income~~Expense, net

For the three months ended ~~September~~June 30, ~~2022, total~~2023, other ~~income~~expense, net was ~~$6,812,282,~~$418,745 as compared to ~~total other income of $28,632~~$213,157 for the three months ended ~~September~~June 30, ~~2021.~~2022. The ~~change was~~increase is primarily attributable to ~~a non-cash gain on debt extinguishment associated~~the promissory note’s original issue discount of 4% and interest at 8% per annum issued in December 2022 along with ~~reductions of holdback liabilities in connection with our acquisitions of senseFly and MicaSense, which totaled $6,486,899, in addition~~net foreign currency transaction losses incurred by the drone (senseFly) business.

For the six months ended June 30, 2023, other expense, net was $857,136 as compared to ~~higher~~ other income, net ~~which climbed~~of $327,789 for the six months ended June 30, 2022. The increase is primarily attributable to ~~$332,110 from $24,798 for~~the promissory note’s original issue discount of 4% and interest at 8% per annum issued in December 2022 along with net foreign currency transaction losses incurred by the drone (senseFly) business.

Net Loss

For the three months ended ~~September~~June 30, ~~2022 and 2021, respectively.~~

~~For the nine months ended September 30, 2022, total other income was $6,484,495 as compared to total other income~~2023, we incurred a net loss of $201,218 for the nine months ended September 30, 2021. The increase was primarily due to a $6,486,899 non-cash gain on debt extinguishment associated with reductions of holdback liabilities in connection with our acquisitions of senseFly and MicaSense realized in the third quarter of 2022, offset by other income generated from the Paycheck Protection Program loan forgiveness and higher interest income and other income booked for the nine months ended September 30, 2021.

~~Net Income (Loss)~~

~~For all the aforementioned reasons, the Company achieved net income of $1,664,952 for the three months ended September 30, 2022,~~$5,290,583 as compared to a net loss of ~~$3,770,902~~$5,601,736 for the three months ended ~~September~~June 30, ~~2021, representing~~2022, a ~~144% improvement.~~decrease of $311,153, or 5.6 %. Overall, we have experienced a decline in our drone business due to revenues decreasing for our legacy products that will be offset by year-end with the sales of our new product. In addition, due to the decrease in our sales price for ebee products for the quarter our margins were severely impacted diminishing our bottom-line results reflecting a sharp decrease in our operating expenses for the quarter of approximately $2.0M.

For the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the Company incurred a net loss of ~~$11,533,356~~$9,890,082 as compared to a net loss of ~~$11,379,604~~$13,198,308 for the ~~nine~~six months ended ~~September~~June 30, 2022, a decrease of $3,308,226, or 25.1 %. The overall decrease in net loss was primarily attributable to a decrease in operating costs as a result of the integration of the 2021 ~~increasing $153,752, or 1%.~~Business Acquisitions. In addition, in order to achieve our long-term growth strategies, additional resources and investments will be required as we continue to address these shifts by developing new technologies, products and services that support prevailing growth ~~opportunities.~~opportunities for our new products as we see the sharp decline in a competitive market of our legacy products that need to offset by our new products launched in 2022 (Panchro Sensors) and 2023 (ebee VISION).

Cash Flows

~~Nine~~Six Months Ended ~~September~~June 30, ~~2022~~2023 as Compared to the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022

As of ~~September~~June 30, ~~2022,~~2023, cash on hand was ~~$5,302,487~~$4,202,427, as compared to ~~$14,590,566~~$4,349,837 as of December 31, ~~2021,~~2022, a decrease of ~~$9,288,079, or 64%.~~$147,410.

For the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, cash used in operations was ~~$15,342,049, an increase~~$6,783,320, a decrease of ~~$8,664,328,~~$4,803,842, or ~~129%~~41.3%, as compared to cash used of ~~$6,677,721~~$11,628,089 for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. The ~~increase~~decrease in cash used in operating activities was principally driven by ~~the~~lower sales and operating expenses ~~of our 2021 Business Acquisitions incurred in 2022,~~ which included ~~higher~~significantly lower inventory purchases, ~~and prepayments, and~~prepaids, accounts payable, accrued expenses and ~~other~~contract liabilities. ~~Further, during the nine months ended September 30, 2022, we incurred a non-cash operating gain on debt of extinguishment of $6,486,899.~~

For the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, cash used in investing activities was ~~$8,062,741,~~$424,344, a decrease of ~~$22,579,495,~~$3,579,748, or ~~74%~~89.4%, as compared to cash used of ~~$30,642,236~~$4,004,092 for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. The decrease in cash used in our investing activities ~~was due to investments in~~resulted mainly from the business ~~acquisitions~~acquisition of MicaSense and ~~Measure~~senseFly that occurred in ~~the prior year, offset by the increase~~2022 and a decrease in ~~capitalized~~platform and internal use software costs ~~associated~~along with ~~the development~~purchases of ~~the~~ ~~HempOverview~~ property and ~~Measure Ground Control~~ ~~platforms and platforms and the senseFly business acquisition.~~equipment.

For the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, cash provided by financing activities was ~~$14,577,691,~~$6,776,473, a decrease of ~~$31,023,491,~~$7,747,441, or ~~68%~~53.2%, as compared to cash provided of ~~$45,601,182~~$14,564,841 for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. The decrease in cash provided by our financing activities was due to less sales of our Common ~~Stock~~stock through an at-the-market (“ATM”) offering and exercise of warrants in the prior ~~year.~~year offset by the sale of Series F Preferred stock issuance of Common Stock and Warrant Transaction, (“the Offering”).

Liquidity and Capital Resources

As of ~~September~~June 30, ~~2022,~~2023, we had working capital of ~~$10,221,025.~~$7,537,254. For the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, we incurred a loss from operations of ~~$18,017,851, an increase~~$9,032,946, a decrease of ~~$6,437,029,~~$3,837,573, or ~~56%~~29,8%, as compared to ~~a loss from operations of $11,580,822~~$12,870,519 for the ~~nine~~six months ended ~~September~~June 30, ~~2021. Further,~~2022. While we utilized cash in our operating activities of $15,342,049, an increase of $8,664,328, or 129%, as compared to cash used in operating activities of $6,677,721 for the nine months ended September 30, 2021.

On June 26, 2022, the Board of Directors of the Company designated a new series of Preferred Stock, the Series F 5% Preferred Convertible Stock (“Series F”), and authorized the sale and issuance of up to 35,000 shares of Series F. The Company issued to an existing investor 10,000 shares of Series F for an aggregate purchase price and gross proceeds of $10,000,000.

~~For the nine months ended September 30, 2022, we raised $4,583,341 of net proceeds from our ATM offering with co-agents Stifel, Nicolaus & Company, Incorporated and Raymond James & Associates.~~

~~The increase in net loss and cash used in operating activities is larger due to the Company’s long-term growth strategy and recent acquisitions which~~ have ~~resulted in additional working capital needs. While the Company has~~ historically been successful in raising capital to meet its working capital needs, the ability to continue raising such capital to enable ~~the Company~~us to continue ~~its~~our growth is not guaranteed. ~~Therefore, there is substantial doubt about the Company’s ability to continue as a going concern as the Company~~We will require additional liquidity to continue its operations and meet its financial obligations ~~for 12~~over the next twelve (12) months, ~~from the date these condensed consolidated financial statements were issued. The Company~~there is substantial doubt about our ability to continue as a going concern. We are evaluating strategies to obtain the required additional funding for future ~~operation~~operations and the restructuring of operations to grow revenues and reduce expenses.

During the six months ended June 30, 2023, we raised $6,817,400 in equity from the additional sale of Series F Preferred Stock and Offering of our Common Stock.

Off-Balance Sheet Arrangements

On ~~September~~June 30, ~~2022,~~2023, 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.

~~Inflation~~

Inflation

During the ~~three and nine~~six months ended ~~September~~June 30, ~~2022,~~2023, inflation ~~has~~ had a negative impact on the unmanned aerial vehicle systems industry, our customers and our business globally. Specifically, our ability to access components, parts and ~~parts~~labor needed ~~in order~~ to manufacture our proprietary drones and sensors, and to perform quality testing have been, and continue to be, impacted. If either the Company or any of its ~~third-parties~~third parties in the supply chain for materials used in our manufacturing and assembly processes continue to be adversely impacted, our supply chain may be further disrupted, limiting ~~its~~our ability to manufacture and assemble products. ~~In addition, the eventual implications of higher government deficits~~We expect inflation and ~~debt, tighter monetary policies and potentially higher, long-term interest rates may drive~~its effects to continue to have a ~~higher cost of raising capital in the future.~~significant negative impact on our business.

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 certain updates recently~~Recently issued by the Financial Accounting Standards Board (“FASB”), most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on ~~the Company’s~~our consolidated financial position, results of operations or cash flows.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are 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 ~~September~~June 30, ~~2022~~2023 and concluded that the Company’s disclosure controls and procedures are effective. The term disclosure controls and procedures means controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated, recorded, processed, summarized and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure to be reported within the time periods specified in the SEC’s rules and forms.

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~~six months ended ~~September~~June 30, ~~2022~~2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II.

OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

~~Legal Proceedings~~As required by Item 103 of Regulation S-K, for a discussion of current legal proceedings, please see Note 10 – Commitments and Contingencies to our Condensed Consolidated Financial Statements for the Three and Six Months Ended June 30, 2023 and 2022 (unaudited)..

~~None.~~

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.

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

10.1		Note Amendment Agreement, dated August 14, 2023 by and between AgEagle Aerial Systems Inc. and Alpha Capital Anstalt

31.1		Rule 13(a)-14(a)/15(d)-14(a) Certification of principal executive officer

31.2		Rule 13(a)-14(a)/15(d)-14(a) Certification of principal financial officer

32.1		Section 1350 Certification of principal executive officer

32.2		Section 1350 Certification of principal financial officer and principal accounting officer

101.INS		Inline XBRL ~~INSTANCE DOCUMENT~~Instance Document
101.SCH		Inline XBRL ~~TAXONOMY EXTENSION SCHEMA~~Taxonomy Extension Schema Document
101.CAL		Inline XBRL ~~TAXONOMY EXTENSION CALCULATION LINKBASE~~Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL ~~TAXONOMY EXTENSION DEFINITION LINKBASE~~Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL ~~TAXONOMY EXTENSION LABEL LINKBASE~~Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL ~~TAXONOMY EXTENSION PRESENTATION LINKBASE~~Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

~~SIGNATURES~~

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	AGEAGLE AERIAL SYSTEMS INC.

Dated: ~~November~~August 14, ~~2022~~2023	By:	/s/ Barrett Mooney
		Barrett Mooney
		Chief Executive Officer and Chairman of the Board

Dated: ~~November~~August 14, ~~2022~~2023	By:	/s/ Nicole Fernandez-McGovern
		Nicole Fernandez-McGovern
		Chief Financial Officer, Executive Vice President of Operations and Secretary

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signatures	Title	Date

/s/ Barrett Mooney	Chief Executive Officer and Chairman of the Board	~~November~~August 14, ~~2022~~2023
~~Barrett~~Barret Mooney	(Principal Executive Officer)

/s/ Nicole Fernandez-McGovern	Chief Financial Officer, Executive Vice President of Operations and Secretary	~~November~~August 14, ~~2022~~2023
Nicole Fernandez-McGovern	(Principal Financial and Accounting Officer)

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

8863 E. 34^th34th Street North, Wichita, Kansas		67226
(Address of principal executive offices)		(Zip Code)

Title of Each Class		Trading Symbol(s)		Name of Each Exchange on Which Registered
Common Stock, par value $0.001 per share		UAVS		NYSE American LLC

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

PART I	FINANCIAL INFORMATION	3

ITEM 1.	FINANCIAL ~~STATEMENTS~~STATEMENTS::	3

	Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2022~~2023 (unaudited) and December 31, ~~2021~~2022	3

	Condensed Consolidated Statements of Operations and Comprehensive ~~Income (Loss)~~Loss for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, 2023 and 2022 ~~and 2021(unaudited)~~(unaudited)	4

	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, 2023 and 2022 ~~and 2021 (unaudited~~(unaudited))	5

	Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, 2023 and 2022 ~~and 2021(unaudited)~~(unaudited)	89

	Notes to Condensed Consolidated Financial Statements (unaudited)	910

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	3633

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	4241

ITEM 4.	CONTROLS AND PROCEDURES	4241

PART II		4342

ITEM 1.	LEGAL PROCEEDINGS	4342

ITEM 1A.	RISK FACTOR	42

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	4342

ITEM 3.	DEFAULT UPON SENIOR SECURITIES	4342

ITEM 4.	MINE SAFETY DISCLOSURES	4342

ITEM 5.	OTHER INFORMATION	4342

ITEM 6.	EXHIBITS	4442

SIGNATURES	45	43

							June 30, 2023			December 31, 2022
							As of
	As of						June 30, 2023			December 31, 2022
	September 30, 2022 (unaudited)			December 31, 2021			(unaudited)
ASSETS
CURRENT ASSETS:
Cash	$	5,302,487		$	14,590,566		$	4,202,427		$	4,349,837
Accounts receivable, net		3,178,019			2,888,879			2,103,120			2,213,040
Inventories, net		6,117,529			4,038,508			6,520,314			6,685,847
Prepaid and other current assets		1,209,555			1,292,570			901,143			1,029,548
Note receivable		185,000			185,000
Notes receivable								185,000			185,000
Total current assets		15,992,590			22,995,523			13,912,004			14,463,272

Property and equipment, net		838,058			952,128			650,990			791,155
Right of use asset		1,148,993			2,019,745
Right of use assets								3,546,549			3,952,317
Intangible assets, net		12,217,539			13,565,494			10,069,558			11,507,653
Goodwill		64,867,282			64,867,282			23,179,411			23,179,411
Other assets		279,822			282,869			354,339			291,066
Total assets	$	95,344,284		$	104,683,041		$	51,712,851		$	54,184,874

LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable	$	2,194,112		$	2,526,829		$	1,502,463		$	1,845,135
Accrued expenses		1,804,299			1,901,641
Accrued liabilities								1,582,153			1,680,706
Promissory note, net of debt discount								1,589,660			287,381
Contract liabilities		653,237			971,140			440,165			496,390
Current portion of liabilities related to acquisition agreements		—			10,061,501
Current portion of lease liabilities		739,602			1,235,977			801,887			628,113
Current portion of COVID loans		380,315			451,889			458,422			446,456
Total current liabilities		5,771,565			17,148,977			6,374,750			5,384,181

Long term portion of liabilities related to acquisition agreements		—			8,875,000
Long term portion of lease liabilities		493,774			942,404			2,842,944			3,161,703
Long term portion of COVID loans		634,251			808,021			417,296			446,813
Defined benefit plan obligation		166,472			331,726			—			106,163
Long term portion of promissory note, net of debt discount								897,031			1,861,539
Total liabilities		7,066,062			28,106,128			10,532,021			10,960,399

COMMITMENTS AND CONTINGENCIES (SEE NOTE 9)
COMMITMENTS AND CONTINGENCIES (SEE NOTE 11)								-			-

STOCKHOLDERS’ EQUITY:
Preferred Stock, $0.001 par value, 25,000,000 shares authorized:
Preferred Stock, Series F Convertible, $0.001 par value, 35,000 shares authorized, 6,311 shares issued and outstanding as of September 30, 2022, and no shares issued and outstanding as of December 31, 2021, respectively		6			—
Common Stock, $0.001 par value, 250,000,000 shares authorized, 87,444,818 and 75,314,988 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively		87,445			75,315
Preferred Stock, Series F Convertible, $0.001 par value, 35,000 shares authorized, 7,025 shares issued and outstanding as of June 30, 2023, and 5,863 shares issued and outstanding as of December 31, 2022, respectively								7			6
Preferred Stock, $0.001 par value, 25,000,000 shares authorized: Preferred Stock, Series F Convertible, $0.001 par value, 35,000 shares authorized, 7,025 shares issued and outstanding as of June 30, 2023, and 5,863 shares issued and outstanding as of December 31, 2022, respectively								7			6
Common Stock, $0.001 par value, 250,000,000 shares authorized, 109,491,375 and 88,466,613 shares issued and outstanding as of June 30, 2023, and December 31, 2022, respectively								109,492			88,467
Additional paid-in capital		150,968,638			127,626,536			167,247,840			154,679,363
Accumulated deficit		(62,587,700	)		(51,054,344	)		(126,354,420	)		(111,553,444	)
Accumulated other comprehensive loss		(190,167	)		(70,594	)
Accumulated other comprehensive income								177,911			10,083
Total stockholders’ equity		88,278,222			76,576,913			41,180,830			43,224,475
Total liabilities and stockholders’ equity	$	95,344,284		$	104,683,041		$	51,712,851		$	54,184,874


	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Revenues	$	5,490,714		$	2,021,707		$	14,620,565		$	5,660,662
Cost of sales		3,407,573			1,226,911			8,622,436			2,885,008
Gross Profit		2,083,141			794,796			5,998,129			2,775,654

Operating Expenses:
General and administrative		4,175,090			2,783,290			14,093,655			10,428,040
Research and development		1,818,540			777,036			6,185,777			2,115,367
Sales and marketing		1,236,841			1,034,004			3,736,548			1,813,069
Total Operating Expenses		7,230,471			4,594,330			24,015,980			14,356,476
Loss from Operations		(5,147,330	)		(3,799,534	)		(18,017,851	)		(11,580,822	)

Other Income (Expense):
Interest (expense) income, net		(6,727	)		3,834			(29,776	)		12,850
Paycheck protection program loan forgiveness		—			—			—			108,532
Gain on debt extinguishment		6,486,899			—			6,486,899			—
Other income, net		332,110			24,798			27,372			79,836
Total Other Income, net		6,812,282			28,632			6,484,495			201,218
Income (Loss) Before Income Taxes		1,664,952			(3,770,902	)		(11,533,356	)		(11,379,604	)
Provision for income taxes		—			—			—			—
Net Income (Loss)	$	1,664,952		$	(3,770,902	)	$	(11,533,356	)	$	(11,379,604	)

Comprehensive Income:
Amortization of unrecognized periodic pension costs		97,846			—			100,487			—
Foreign currency cumulative translation adjustment		(372,368	)		—			(220,060	)		—
Total comprehensive income (loss), net of tax	$	1,390,430		$	(3,770,902	)	$	(11,652,929	)	$	(11,379,604	)
Accrued dividends on preferred stock series F		(94,694	)		—			(94,694	)		—
Total comprehensive income (loss) available to common stockholders	$	1,295,736		$	(3,770,902	)	$	(11,747,623	)	$	(11,379,604	)
Net Earnings (Loss) Per Common Share - Basic	$	0.02		$	(0.05	)	$	(0.14	)	$	(0.17	)

Net Earnings (Loss) Per Common Share - Diluted	$	0.01		$	(0.05	)	$	(0.14	)	$	(0.17	)

Weighted Average Number of Shares Outstanding During the Period - Basic		85,966,687			75,144,113			81,004,011			68,243,666

Weighted Average Number of Shares Outstanding During the Period - Diluted		113,623,789			75,144,113			81,004,011			68,243,666


	For the Nine Months Ended September 30,
	2022			2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(11,533,356	)	$	(11,379,604	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		3,058,741			3,320,681
Stock issued in exchange for professional services		—			2,907,000
Paycheck Protection Program loan forgiveness		—			(108,532	)
Depreciation and amortization		2,887,244			784,701
Defined benefit plan obligation and other		(148,851	)		—
Loss on disposal of property and equipment		—			3,712
Gain on debt extinguishment		(6,486,899	)		—
Changes in assets and liabilities:
Accounts receivable, net		(396,617	)		(193,348	)
Inventories, net		(2,221,569	)		(912,683	)
Prepaid expenses and other assets		22,579			(523,638	)
Accounts payable		(281,937	)		622,825
Accrued expenses and other liabilities		(193,818	)		(1,452,158	)
Contract liabilities		(307,610	)		253,323
COVID loan		(173,313	)		—
Other		433,357			—
Net cash used in operating activities		(15,342,049	)		(6,677,721	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(250,379	)		(225,642	)
Payment of acquisition-related liabilities		(6,610,900	)		—
Acquisition of MicaSense, net of cash acquired		—			(14,536,863	)
Acquisition of Measure, net of cash acquired		—			(14,916,850	)
Capitalization of platform development costs		(635,568	)		(762,881	)
Capitalization of internal use software costs		(565,894	)		—
Notes receivable		—			(200,000	)
Net cash used in investing activities		(8,062,741	)		(30,642,236	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Sales of Common Stock, net of issuance costs		4,583,341			37,182,646
Sale of Common Stock from exercise of warrants		—			8,305,368
Sale of Preferred Stock, Series F Convertible, net of issuance costs		9,920,000			—
Exercise of stock options		74,350			113,168
Net cash provided by financing activities		14,577,691			45,601,182

Effects of foreign exchange rates on cash flows		(460,980	)		—

Net (decrease) increase in cash		(9,288,079	)		8,281,225
Cash at beginning of period		14,590,566			23,940,333
Cash at end of period	$	5,302,487		$	32,221,558

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest cash paid	$	—		$	—
Income taxes paid	$	—		$	—
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Stock consideration for the senseFly Acquisition	$	3,000,000			—
Conversion of Preferred Stock, Series F Convertible to Common Stock		5,950			—
Dividends on preferred stock series F		94,694			—
Issuance of Restricted Common Stock		316			—
Settlement of Common Stock from contingent liability related to Measure	$	2,812,500		$	—
Acquisition liability related to the MicaSense Acquisition	$	—		$	5,000,000
Stock consideration for the MicaSense Acquisition	$	—		$	3,000,000
Acquisition liability related to the Measure Acquisition	$	—		$	5,625,000
Stock consideration for the Measure Acquisition	$	—		$	24,375,000

Schedule of accounts receivable, net
	September 30, 2022			December 31, 2021
Accounts receivable	$	3,202,003		$	2,918,435
Less: Provisions for doubtful accounts		(23,984	)		(29,556	)
Accounts receivable, net	$	3,178,019		$	2,888,879

Schedule Of Property and Equipment
	Estimated
	Useful
	Life		September 30,			December 31,
Type	(Years)		2022			2021
Leasehold improvements		3	$	106,837		$	81,993
Production tools and equipment		4-5		563,814			417,779
Computer and office equipment		3-5		581,822			559,110
Furniture		5		79,277			77,971
Drone equipment		3		117,769			95,393
Total Property and equipment				1,449,519			1,232,246
Less: Accumulated depreciation				(611,461	)		(280,118	)
Total Property and equipment, net			$	838,058		$	952,128

Schedule of statements of operations and comprehensive loss
	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
Type	2022		2021		2022		2021
Cost of sales	$	61,747	$	—	$	199,555	$	—
General and administrative		48,429		36,226		138,271		90,281
Total	$	110,176	$	36,226	$	337,826	$	90,281

Schedule of future amortization expenses
	For the Years Ending December 31,
	(rest of year) 2022		2023		2024		2025		2026		Thereafter		Total
Intellectual property/ technology	$	252,806	$	808,968	$	808,968	$	808,968	$	808,968	$	1,237,987	$	4,726,665
Customer base		292,816		1,137,663		889,364		141,145		141,145		576,339		3,178,472
Tradenames and trademarks		58,775		207,944		207,944		207,944		207,944		926,116		1,816,667
Non-compete agreement		117,188		335,933		—		—		—		—		453,121
Platform development costs		150,409		602,091		427,264		121,927		—		—		1,301,691
Internal use software costs		70,346		281,386		281,386		107,805		—		—		740,923
Total Intangible Assets, Net	$	942,340	$	3,373,985	$	2,614,926	$	1,387,789	$	1,158,057	$	2,740,442	$	12,217,539

Schedule of accrued expenses
	September 30, 2022		December 31, 2021
Accrued compensation and related liabilities	$	791,482	$	1,039,979
Accrued professional fees		528,125		267,949
Provision for warranty expense		268,780		286,115
Other		215,912		307,598
Total accrued expenses	$	1,804,299	$	1,901,641

Schedule of allocation preliminary purchase price
Net purchase price, including debt paid at close	$	23,375,681

Plus: fair value of liabilities assumed:
Current liabilities		702,925
Fair value of liabilities assumed	$	702,925

Less: fair value of assets acquired:
Cash	$	885,273
Other tangible assets		1,165,666
Identifiable intangible assets		3,061,803
Fair value of assets acquired	$	5,112,742

Net nonoperating assets		25,000
Adjustments for seller transaction expenses related to purchase price allocation		32,032
Goodwill	$	18,972,896

Schedule of allocation preliminary purchase price
Net purchase price, including debt paid at close	$	45,403,394

Plus: fair value of liabilities assumed:
Deferred revenue		319,422
Other tangible liabilities		272,927
Fair value of liabilities assumed	$	592,349

Less: fair value of assets acquired:
Cash		486,544
Other tangible assets		312,005
Identifiable intangibles		2,668,689

Fair value of assets acquired	$	3,467,238

Net nonoperating assets		39,775
Goodwill	$	42,488,730

Schedule of allocation preliminary purchase price
Net purchase price	$	20,774,526

Plus: fair value of liabilities assumed:
Current liabilities		3,913,386
Defined benefit plan obligation		278,823
Debt assumed at close		2,461,721
Fair value of liabilities assumed	$	6,653,930

Less: fair value of assets acquired:
Cash		859,044
Other tangible assets		6,327,641
Identifiable intangible assets		7,335,570
Fair value of assets acquired	$	14,522,255

Net nonoperating assets		250,624
Goodwill	$	12,655,577

Schedule of pro-forma information
	Three Months Ended September 30, 2021			Nine Months Ended September 30, 2021
Revenues	$	5,350,849		$	14,844,275
Net Loss	$	(5,715,064	)	$	(17,137,742	)

Schedule of debt disclosure
Year ending December 31,
2022 (rest of year)	$	169,010
2023		422,610
2024		84,590
2025		84,590
2026		84,590
Thereafter		169,176
Total	$	1,014,566

	Shares			Weighted Average Grant Date Fair Value
Outstanding as of December 31, 2020		100,000		$	1.34
Granted		631,402			5.31
Canceled		(91,667	)		5.40
Vested and released		(253,485	)		3.39
Outstanding as of September 30, 2021		386,250		$	5.52
Vested as of September 30, 2021		234,582		$	5.60
Unvested as of September 30, 2021		151,668		$	5.40

Schedule of options activity
	Shares			Weighted Average Exercise Price		Weighted Average Fair Value		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding as of December 31, 2021		2,541,667		$	2.88	$	1.57		4.27	$	1,244,029
Granted		395,000			0.76		0.36		3.02		—
Exercised		(185,000	)		0.40		0.29		—		10,750
Expired/Forfeited		(267,294	)		6.22		3.34		—		—
Outstanding as of September 30, 2022		2,284,373		$	2.37	$	1.29		3.47	$	89,334
Exercisable as of September 30, 2022		1,836,095		$	2.42	$	1.33		3.16	$	89,334

Schedule of Share-Based Payment Award, Stock Options, Valuation Assumptions
	Nine Months Ended September 30,
	2022			2021
Stock price	$	0.46		$	3.01
Dividend yield		—	%		—	%
Expected life (years)		3.02			3.01
Expected volatility		69.84	%		84.01	%
Risk-free interest rate		3.25	%		0.37	%

Schedule of Operating Lease
	Balance Sheet Location	September 30, 2022		December 31, 2021
Right of use asset	Right of use asset	$	1,148,993	$	2,019,745
Current portion of operating lease liability	Current portion of operating lease liability	$	739,602	$	1,235,977
Long-term portion of operating lease liability	Long-term portion of operating lease liability	$	493,774	$	942,404

Schedule of future maturities
Year Ending December 31,
2022 (rest of year)	$	324,028
2023		525,834
2024		221,370
2025		227,443
2026		18,954
Total future minimum lease payments, undiscounted		1,317,629
Less: Amount representing interest		(84,253	)
Present value of future minimum lease payments	$	1,233,376
Present value of future minimum lease payments – current	$	739,602
Present value of future minimum lease payments – long-term	$	493,774