Stockholders’ Equity

6 Months Ended

Jun. 30, 2024

Equity [Abstract]

Stockholders’ Equity

Note 7 – Stockholders’ Equity

Capital Stock Issuances

Common Stock and Warrant Transaction

On February 16, 2024, the Company received a notification from an investor to convert $100,000 of principal outstanding on a Convertible Note (see Note 6) into 79,828 shares of common stock at a conversion price of $1.25.

On March 6, 2024, the Company entered into a warrant exercise agreement with several institutional investors holding warrants issued to such Investors pursuant a securities purchase agreement, dated as of June 5, 2023, in connection with a private placement. The Exercise Agreement provides that for those Investors who exercise their Existing Warrants they will receive a reduction in the Exercise Price to $0.60 per share of Common Stock. The shares of Common Stock issuable upon exercise of the Existing Warrants were registered pursuant to a registration statement on Form S-1 File No. 333-273332 and declared effective on July 27, 2023. The Company received up to $497,701 from the exercise of 829,500 warrants converted to 829,500 shares of common stock. The reduction in exercise price (“March 2024 Down Round Trigger”) triggered several anti-dilution protections embedded in outstanding Preferred Series F Convertible Stock and Common Stock Warrants (see below).

On April 12, 2024, the Company received an Investor Notice from Alpha for the aggregate purchase of 1,050 shares of Series F Convertible Preferred convertible into 1,418,919 shares of Common Stock, in the aggregate, at a conversion price of $0.74 and warrants to purchase up to 1,418,919 shares of Common Stock at an exercise price of $0.74 per share for an aggregate purchase price of $1,050,000.

On May 31, 2024, the Company entered into an Assignment Agreement (the “Assignment Agreement”) with Alpha pursuant to which, among other things, Alpha transferred and assigned to certain institutional and accredited investors (the “Assignees”), the rights and obligations to purchase up to $525,000 of Series F Convertible Preferred and accompanying warrants pursuant to the Additional Investment Right provided in the SPA (the “Assigned Rights”).

In connection with the Assigned Rights, the Company received Investor Notices from Alpha and certain of the Assignees for the aggregate purchase of 1,050 shares of Series F Convertible Preferred convertible into 1,632,970 shares of Common Stock at a conversion price of $0.643 and warrants to purchase up to 1,632,970 shares of Common Stock at an exercise price of $0.643 per share, the Company raised gross sales proceeds of $1,050,000.

Preferred Series F Convertible Stock

Purchase History

On June 26, 2022 (the “Series F Closing Date”), the Company entered into a Securities Purchase Agreement (the “Series F Agreement”) with 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.

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023

(UNAUDITED)

Note 7 – Stockholders’ Equity-Continued

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 an initial conversion price of $8.40, post slit per share and associated Common Stock warrant to purchase up to 357,136 shares of Common Stock, post-split, at an initial exercise price of $8.40, post-split (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. This issuance triggered anti-dilution provisions embedded in Series F and Common Stock warrants outstanding (the “March 2023 Down Round Trigger”).

On March 6, 2024, in connection with the Assigned Rights, the Company received Investor Notices from Alpha and the Assignees for the aggregate purchase of 1,000 shares of Series F Convertible Preferred convertible into 829,394 shares of Common Stock at an initial conversion price of $1.2057 and warrants to purchase up to 829,394 shares of Common Stock at an initial exercise price of $1.2057 per share for an aggregate purchase price of $1,000,000. The conversion price and exercise price are subject to adjustment based on anti-dilution protection provisions in connection with subsequent equity issuances embedded in the Securities Purchase Agreement. The Warrants were immediately exercisable upon issuance and have a three-year term.

On April 12, 2024, the Company received an Investor Notice from Alpha for the aggregate purchase of 1,050 shares of Series F Convertible Preferred convertible into 1,418,919 shares of Common Stock, at a conversion price of $0.74 per shares for an aggregate purchase price of $1,050,000.

On May 31, 2024, the Company entered into an Assignment Agreement with Alpha pursuant to which, among other things, Alpha transferred and assigned to certain institutional and accredited investors, the rights and obligations to purchase up to $525,000 of Series F Convertible Preferred and accompanying warrants pursuant to the Additional Investment Right provided in the SPA. Also, in connection with the Assigned Rights, the Company received Investor Notices from Alpha and certain of the Assignees for the aggregate purchase of 1,050 shares of Series F Convertible Preferred convertible into 1,632,970 shares of Common Stock at a conversion price of $0.643 at an exercise price of $0.643 per share for an aggregate purchase price of $1,050,000.

Conversions

For the three and six months ended June 30, 2024, Alpha and other investors converted 1,750 and 4,880 shares of Series F into 2,916,667 and 5,868,718 shares of Common Stock, respectively. As a result, for the same periods, the Company recorded $49,748 and $110,983 cumulative dividends, which are included in accrued expenses on the condensed consolidated balance sheets, at the rate per share (as a percentage of the $1,000 stated par value per share of Series F) of 5% per annum, beginning on the first conversation date of June 30, 2022.

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

As of June 30, 2024 and 2023, there are 4,295 and 7,865 Series F outstanding, respectively.

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023

(UNAUDITED)

Note 7 – Stockholders’ Equity-Continued

Down Round Triggers and Anti-dilution

The reduced warrant exercise price of $0.60 on March 6, 2024, the March 2024 Down Round Trigger, triggered anti-dilution protection provisions in connection with subsequent equity issuances embedded in the Series F and Common Stock warrants issued with the Series F. As a result, the Company recognized an aggregate deemed dividend of $5,249,704 which has been reflected in stockholders’ equity and increased the net loss available to common stockholders in the earning per share calculation as presented on the accompanying condensed consolidated statements of operations and comprehensive loss.

For the March 2024 Down Round Trigger, the deemed dividend on the Series F Warrants of $147,030 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 the 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 2-3 years, volatility of 196.80%, risk free rate of 4.55%, and dividend rate of 0%.

On May 31, 2024, the Company entered into an Assignment Agreement with Alpha pursuant to which, among other things, Alpha transferred and assigned to certain institutional and accredited investors, the rights and obligations to purchase up to $525,000 of Series F Convertible Preferred and accompanying warrants pursuant to the Additional Investment Right provided in the SPA. The Assignment Agreement also provides that Alpha will receive a reduction in the Exercise Price (as defined in the Existing Warrants) from $7.60 to $0.60 per share of Common Stock for certain warrants previously issued to Alpha on June 5, 2023. As result, the company recorded a deemed dividend on the Series F Warrants of $7,751 which 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 the 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 4 years, volatility of 247.07%, risk free rate of 4.61%, and dividend rate of 0%.

Deemed Dividends

During the three and six months ended June 30, 2024, the deemed dividend on the Series F were $7,751 and $5,257,455, respectively which represents the value of the incremental shares issuable upon conversion of the Series F into shares of common stock at the reduced conversion price and the market price of the common stock on the date the Down Round Trigger occurred.

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 $8.40 per share and associated common stock warrants to purchase up to 357,136 shares of Common Stock at the exercise price of $8.40 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 $8.40 from $8.80 (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 SIX MONTHS ENDED JUNE 30, 2024 AND 2023

(UNAUDITED)

Note 7 – Stockholders’ Equity-Continued

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 $8.40 per share to $5.00 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.

Stock-based Compensation

The Company determines the fair value of awards granted under the 2017 Omnibus Equity Incentive Plan (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 loss. For the three and six-months ended June 30, 2024, the Company recorded $28,535 and $47,115, respectively. The stock-based compensation, for the same period during 2023, $469,835 and $982,365 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, 2023, provided by GMP.

The Defined Benefit Plan has a PBO in excess of Defined Benefit Plan assets. For the three and six months ended June 30, 2024, the amounts recognized in accumulated other comprehensive loss related to the Defined Benefit Plan were $0, compared to $699 and $44,044, respectively for the same period during 2023.

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023

(UNAUDITED)

Note 7 – Stockholders’ Equity-Continued

Restricted Stock Units (“RSUs”)

For the six months ended June 30, 2024, a summary of RSU activity is as follows:

	Shares			Weighted Average Grant Date Fair Value
Outstanding as of December 31, 2023		152,703		$	18.03
Granted		45,073			0.52
Canceled		(989	)		9.66
Vested and released		(34,361	)		15.06
Outstanding as of June 30, 2024		162,426			14.18
Vested as of June 30, 2024		135,046			16.40
Unvested as of June 30, 2024		27,380		$	3.24

For the six months ended June 30, 2024, the aggregate fair value of RSU awards at the time of vesting was $21,478.

For the three and six months ended June 30, 2024, the Company recognized $21,212 and $31,073 of stock compensation expense, respectively, and had approximately $23,000 of unrecognized stock-based compensation expense related to RSUs, which will be amortized over approximately twenty four months.

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

	Shares			Weighted Average Grant Date Fair Value
Outstanding as of December 31, 2022		51,484		$	46.22
Granted		82,300			7.91
Canceled		(5,184	)		32.06
Outstanding as of June 30, 2023		128,600			22.27
Vested as of June 30, 2023		104,712			20.83
Unvested as of June 30, 2023		23,888		$	28.58

For the six months ended June 30, 2023, the aggregate fair value of RSU awards at the time of vesting was $644,969.

For the three and six months ended June 30, 2023, the Company recognized $381,155 and $734,417 of stock compensation expense, respectively, and had $170,717 of unrecognized stock-based compensation expense related to RSUs.

Issuance of RSUs to Current Officers and Directors of the Company

For the three and six months ended June 30, 2024, the Company granted 6,000 RSUs and 11,000 RSUs, respectively, equal to $6,300 to the four non-executive directors as quarterly board compensation, which vested immediately.

For the three and six months ended June 30, 2023, upon recommendation of the Compensation Committee of the Board (“Compensation Committee”), in connection with the 2022 executive compensation plan granted to the officers of the Company, 48,435 RSUs post-split and 80,435 RSUs post-split, which vested immediately.

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023

(UNAUDITED)

Note 7 – Stockholders’ Equity-Continued

Stock Options

For the six months ended June 30, 2024, a summary of the options activity is as follows:

	Shares			Weighted Average Exercise Price		Weighted Average Fair Value		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding as of December 31, 2023		125,264		$	40.61	$	22.04		23.80	$	45,880
Granted		—			—		—		—		—
Exercised		—			—		—		—		—
Expired/Forfeited		(122,014	)		38.42		20.87		—		—
Outstanding as of June 30, 2024		3,250		$	120.76	$	64.92		1.49	$	—
Exercisable as of June 30, 2024		3,250		$	120.76	$	64.92		1.49	$	—

As of June 30, 2024, the Company had no unrecognized compensation cost related to stock options.

Intrinsic value is measured using the fair market value at the date of exercise (for shares exercised) or as of June 30, 2024 (for outstanding options), less the applicable exercise price.

For the three and six months ended June 30, 2024, the Company recognized $7,323 and $16,042, respectively of stock compensation expense.

For the six months ended June 30, 2023, a summary of the options activity is as follows:

	Shares			Weighted Average Exercise Price		Weighted Average Fair Value		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding as of December 31, 2022		128,059		$	43.68	$	23.76		3.33	$	9,750
Granted		13,750			7.00		3.23		3.02		—
Exercised		—			—		—		—		—
Expired/Forfeited		(2,863	)		114.69		61.60		—		—
Outstanding as of June 30, 2023		138,946		$	38.59	$	20.95		3.01	$	9,750
Exercisable as of June 30, 2023		111,608		$	45.19	$	24.69		2.65	$	9,750

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

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023

(UNAUDITED)

Note 7 – Stockholders’ Equity-Continued

For the six months ended June 30, 2024 and 2023, the significant assumptions relating to the valuation of the Company’s stock options granted were as follows:

	June 30,
	2024			2023
Stock price	$	—		$	7.00
Dividend yield		—	%		—	%
Expected life (years)		—			3.02
Expected volatility		—	%		64.37	%
Risk-free interest rate		—	%		4.12	%

Issuances of Options to Officers and Directors

For the six months ended June 30 2024, no options were granted during this period.

On June 30, 2023, the Company issued to directors and officers options to purchase 6,250 shares of Common Stock at an exercise price of $4.60 per share, which vest 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 $2.00.

On March 31, 2023, the Company issued to directors and officers options to purchase 7,500 shares of Common Stock at an exercise price of $9.00 per share, which vest over a period of two years from the date of grant, and expire on March 30, 2028. The Company determined the fair market value of these unvested options to be $31,350.

For the three and six months ended June 30, 2023, the Company recognized stock-based compensation expense of $3,919 and $3,961, respectively, based upon the fair value market price of $4.20.

Cancellations of Options

For the six months ended June 30, 2024 and 2023, as a result of employee terminations and options expirations, stock options aggregating 122,014 and 2,863 with fair market values of $2,489,019 and $176,273 were canceled, respectively. Of the 122,014 stock options cancelled during the six months ended June 30, 2024, 45,297 were options historically granted to the Board of Directors, these options were cancelled and reissued as RSU’s. Each option cancelled resulted in a subsequent grant of RSU’s with ratio of 2 RSU’s granted for each option cancelled.