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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-K

 

(Mark One)

 

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

For the fiscal year ended December 31, 2021

 

OR

 

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

 

For the transition period from _______ to ________

 

Commission file number: 001-36492

 

AGEAGLE AERIAL SYSTEMS INC.

(Exact name of registrant as specified in its charter)

 

Nevada 88-0422242
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
   
8863 E. 34th Street North, Wichita, Kansas 67226
(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code: (620) 325-6363

 

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

 

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

  

Securities registered pursuant to Section 12(g) of the Act: None.

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No

 

 
 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

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

 

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

 

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

 

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

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter was $386,867,106.

 

As of April 12, 2022, there were 81,568,546 shares of Common Stock, par value $0.001 per share, issued and outstanding.

 
 


AGEAGLE AERIAL SYSTEMS INC.

 

TABLE OF CONTENTS

  

PART I   4
ITEM 1. BUSINESS 4
ITEM 1A. RISK FACTORS 17
ITEM 1B. UNRESOLVED STAFF COMMENTS 26
ITEM 2. PROPERTIES 26
ITEM 3. LEGAL PROCEEDINGS 27
ITEM 4. MINE SAFETY DISCLOSURES 27
PART II   28
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 28
ITEM 6. [RESERVED] 29
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 29
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 36
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 37
ITEM 9A. CONTROLS AND PROCEDURES 37
ITEM 9B. OTHER INFORMATION 38
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS   38
PART III   39
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 39
ITEM 11. EXECUTIVE COMPENSATION 39
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 39
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 39
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 39
PART IV   40
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES 40
INDEX TO FINANCIAL STATEMENTS F-1

 

 

 

PART I

 

This report may contain forward-looking statements within the meaning of the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, or the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management and involve risks and uncertainties. Forward-looking statements include statements regarding our plans, strategies, objectives, expectations and intentions, which are subject to change at any time at our discretion. Forward-looking statements include our assessment, from time to time of our competitive position, the industry environment, potential growth opportunities, the effects of regulation and events outside of our control, such as natural disasters, wars or health epidemics. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “hopes,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” or similar expressions.

 

Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. We discuss many of these risks in greater detail in “Risk Factors.” Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this report. You should read this report and the documents that we reference in this report and have filed as exhibits to the report completely and with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

 

ITEM 1.   BUSINESS

 

 Overview

 

AgEagle™ Aerial Systems Inc. (“AgEagle” or the “Company”), 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 best-in-class, autonomous unmanned aerial systems (“UAS”) to a wide range of industry verticals, including energy/utilities, infrastructure, agriculture and government, among others.

 

The Company’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 AgEagle 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 nearly 200 UAS resellers; and enterprise customers worldwide; these acquisitions also brought AgEagle a highly valuable workforce comprised largely of experienced engineers and technologists with deep expertise in the fields of robotics, automation, manufacturing and data science.

 

AgEagle is led by a proven management team with years of drone industry experience. AgEagle's CEO has been appointed to the U.S. Federal Aviation Administration's ("FAA") Advanced Aviation Advisory Committee and Unmanned Aircraft Systems Beyond Visual Line of Sight Aviation Rulemaking Committee. In addition, the Company is participating in the FAA's BEYOND program, AgEagle has played a hands-on role in helping to establish necessary rulemaking guidelines and regulations for the future of autonomous flight and the full integration of drones into the U.S. airspace.

 

The Company is headquartered in Wichita, Kansas, where it also houses its U.S. manufacturing operations. In addition, AgEagle has business operations in Austin, Texas; Lausanne, Switzerland; Raleigh, North Carolina; Seattle, Washington; and Washington, D.C.

 

4

 

 

Strategic Acquisitions

 

MicaSense, Inc.

 

In January 2021, AgEagle acquired MicaSense™, Inc. (“MicaSense”), based in Seattle, Washington. MicaSense has been at the forefront of advanced drone sensor development since its founding in 2014, having formed integration partnerships with several leading fixed-wing and multi-rotor drone manufacturers. MicaSense’s patented, high precision thermal and multispectral sensors serve the aerial mapping and analytics needs of the agriculture market. MicaSense’s high performance proprietary products, including Altum-PTRedEdge-PRedEdge-MX™ and Atlas Flight, have global distribution in over 75 countries and help growers, land managers and researchers use drone-based imagery to make informed business decisions. More than 100 research publications have featured MicaSense sensor data.

 

Measure Global, Inc.

 

In April 2021, AgEagle acquired Measure Global, Inc. (“Measure”), a company founded in 2020 with business operations in Washington, D.C. and Austin, Texas. Serving a world class customer base, Measure enables its customers to realize the transformative benefits of drone technology through its Ground Control solution. Offered as Software-as-a-Service (“SaaS”), Ground Control is a cloud-based, plug-and-play operating system that empowers pilots and large enterprises with everything they need to operate drone fleets, fly autonomously, collaborate globally, visualize data, and integrate with existing business systems and processes. Ground Control serves a world class customer base, including Marathon Pipeline, Los Angeles Police Department, Nationwide Insurance, Rayonier, SECO Energy, Skanska and Syngenta, as well as many other Fortune 500 companies.

 

As commercial and industrial businesses continue to recover from the impact of the global pandemic, and the use of drones across a wide variety of industries and applications gain greater acceptance, AgEagle believes companies will seek trusted and robust partners capable of providing a one-stop shop for high quality drone solutions that effectively address business challenges. By adding Measure’s advanced software to the AgEagle platform, combined with our sensors and other data capture and analytics innovations, our customers can capitalize on the significant economic, safety and efficiency benefits made possible by drones used at scale.

 

senseFly, S.A.

 

In October 2021, the Company acquired senseFly, S.A. and senseFly Inc. (collectively “senseFly”) a global leader in fixed-wing drones that simplify the collection and analysis of geospatial data, allowing professionals to make better and faster decisions. Founded in 2009, senseFly develops and produces a proprietary line of eBee-branded, high performance, fixed-wing drones which have flown more than one million flights around the world. Safe, ultra-light and easy to use, these autonomous drones are utilized by thousands of customers around the world in agriculture, government, engineering, and construction, among other industry verticals, to collect actionable aerial data intelligence. With operations in Lausanne, Switzerland and Raleigh, North Carolina, senseFly’s line of eBee-branded drones have earned distinction as the best-selling commercial fixed-wing drones in the United States over the past three consecutive years, according to data supplied by the FAA; and Flyability has ranked senseFly’s eBee as the top commercial drone in the market for mapping and surveying applications.

 

In March 2021, the Defense Innovation Unit (“DIU”) sought proposals from UAS vendors and in the brief period the Request for Prototype Proposals was listed on its website, www.sam.gov, DIU received more than 100 responses. From this group, senseFly, along with ten other companies, were selected to participate in the 2.0 program to prototype a new approval process, significantly increasing the variety of UAS capabilities available to all branches of the U.S. military. In October 2021, senseFly was named to the Blue sUAS 2.0 list, published by the U.S. Department of Defense’s (“DoD”) Defense Innovation Unit :(DIU”). The 2.0 project was subsequently created to increase the diversity, capability and affordability of unmanned aerial systems (UAS) on DIU’s “Blue UAS Cleared List,” bringing a greater variety of drones with a wide range of modalities, capabilities and price points. A secondary part of the project involves: 1) an effort to define a common standard across the DoD for UAS vendor onboarding; 2) the means to communicate that standard; and 3) a uniform process to assist authorized vendors in the procurement process.

 

Subsequent to the end of 2021, senseFly completed DIU’s required testing, evaluation and demonstration process. As a result, the NDAA-compliant eBee TAC™ Unmanned Aerial System was the first approved drone to be added to DIU’s Blue Cleared List as part of the Blue sUAS 2.0 project. Systems added to this list do not require a DoD exception to policy to procure or operate, as they have undergone a cyber-security evaluation, a policy compliance check and were issued the necessary administrative documentation.

 

5

 

 

Designed specifically for government and military mapping and mission planning applications, the eBee TAC operates in disconnected environments, providing a higher accuracy mobile solution to map and locally share aerial imagery data on rapidly changing field conditions to analyze and provide near real-time situational awareness to ground forces. Weighing only 3.5 pounds and featuring a digital camouflage skin for increased stealth and up to 90 minutes flight time and silent mission mode, the eBee TAC can be rapidly deployed, from assembly to hand-launch, in three minutes by a single user to generate 3D modeling, terrain and thermal maps. eBee TAC is available for purchase on the GSA Schedule Contract #47QTCA18D003G as a standalone solution or as part of the Aerial Reconnaissance Tactical Edge Mapping Imagery System (“ARTEMIS”) supplied by Hexagon US Federal and partner Tough Stump Technologies, which also provide extensive training programs for the system.

 

Our Branded Line of Unmanned Aerial Vehicles

 

eBee Line of Professional Drones

 

When AgEagle acquired senseFly in October 2021, the Company gained a diverse portfolio of proprietary fixed-wing drones, which include:

 

eBee Ag a reliable, affordable drone solution to help farmers, agronomists and service providers map and monitor crops quickly and easily. The eBee Ag and its drone sensor deliver timely plant health insights with accuracy and efficiency that complements precision agriculture workflows. With its dual-purpose Duet M camera, eBee Ag captures accurate RGB and multispectral data from the sky to help users make better decisions on the ground. eBee Ag also features available Real-Time Kinematic (“RTK”) functionality for greater mapping precision. With its available RTK, the agriculture drone can achieve absolute accuracy down to 2.5 cm (1.0 inch) with its RGB camera. Highly-accurate vegetative index maps allow users to understand every acre while managing problematic areas field-wide – before they impact profits. Equipped with its standard battery, eBee Ag is capable of up to 45-minutes of flight. An available endurance battery increases flight times up to 55 minutes — allowing the drone to cover more than 160 hectares (395 acres) in a single flight and save precious time and money when compared with conventional crop scouting.

 

eBee Geo an affordable fixed-wing mapping drone designed to meet the highest demands of surveyors, civil engineers and GIS professionals worldwide. Built upon more than 10 years of drone mapping experience, eBee Geo is rugged, intuitive to operate and makes surveying and mapping small to large areas faster and more efficient than using terrestrial surveying equipment alone. The data collected can quickly be processed into highly-accurate georeferenced orthomosaics, digital elevation models, digital surface models and high-density point clouds to bring additional value beyond common vectors. Designed to complement the user’s surveying toolkit, eBee Geo comes with everything needed to get started, including professional drone camera technology and eMotion, AgEagle’s flight planning software originally designed and developed by senseFly. With eBee Geo, a user can map up to 160 ha (395 ac) at 120 m (400 ft) with a maximum flight time of 45 minutes. eBee Geo is also available with RTK positioning. Combined with the Company’s purpose-built Sensor Optimized for Drone Applications (“S.O.D.A”.), users are assured of sharp, accurate mapping outputs – even in the harshest conditions.

 

  eBee TACDesigned specifically for government and military mapping and mission planning applications, the eBee TAC operates in disconnected environments, providing a higher accuracy mobile solution to map and locally share aerial imagery data on rapidly changing field conditions to analyze and provide near real-time situational awareness to ground forces. Weighing only 3.5 pounds and featuring a digital camouflage skin for increased stealth and up to 90 minutes flight time and silent mission mode, the eBee TAC can be rapidly deployed, from assembly to hand-launch, in three minutes by a single user to generate 3D modeling, terrain and thermal maps. Each system features National Defense Authorization Act (“NDAA”) compliant drone, sensors and active components, secure extension, Endurance activation, two Endurance batteries, one Pitot Pro-kit, two micro-SD cards with adapters, AES256-bit encryption, pixel camouflage and an IP67 hard transport case with STANAG military standard certification that is lightweight, rugged and dust and water resistant. Camera options include RGB, multispectral and thermal payloads; and the system can also be upgraded to include additional features and payloads.

 

eBee X – the eBee X has been recognized as the fixed-wing drone that revolutionized the unmanned aerial vehicle sector with its ease-of-use and multiple, state-of-the-art sensors designed to suit a wide range of mapping jobs. At just 1.6 kg (3.5 lbs.), eBee X is a lightweight, ultra-portable solution that is easy for a single person to operate. With a unique Endurance Extension option enabling a flight time of up to 90 minutes and single-flight coverage of up to 500 ha at 122m (1,236 acres at 400 ft.), the eBee X is a premium drone that offers users the high-precision of on-demand RTK/PPK for achieving absolute accuracy of down to 1.5 cm (0.6 in) – without ground control points. This capability makes the eBee X ideal for beyond visual line of sight (“BVLOS”) operations, such as long corridor mapping missions for utility companies, expansive crop scouting in agriculture and by enterprise customers who desire a robust and professional drone fleet. eBee X has been approved for BVLOS and/or object oriented programming (“OOP”) in Brazil, Canada, China, Denmark, France, Spain, and Switzerland.

 

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Market Opportunity for UAVs

 

Drones have transformed from being freelance videographer toys to mission critical inspection tools for enterprise businesses like construction, energy and agriculture. Moreover, the number of use cases for drones has also grown as drone hardware has become more advanced, safe and reliable. Advanced aerial mapping, crop monitoring, publicly safety uses, disaster response and consumer drone deliveries have all become available as the drone industry has matured. According to a September 2021 article published in Robotics Business Review, titled “What is the Future of Robotics? The Commercial Drone Market Provides Clues,” the author shares that, according to the FAA’s website there are over 350,000 commercial drones in the United States, with some of the largest fleets numbering in the hundreds. “Adoption has been primarily driven by the various safety and efficiency benefits that drones provide to industrial jobsites.” He goes on to note that “these hundreds of thousands of drones are now conducting programmed crop scans, completing exterior building inspections and performing thermal scans of solar farms with routine swiftness. They are keeping workers safely away from disaster areas or dangerous construction tasks (i.e., inspecting roofs, scaling scaffolding, climbing utility poles), saving time and resources and protecting human well-being. However, the industry would not have gotten to this point without the help of advanced software solutions.”

 

Looking ahead, Allied Market Research reports that the global UAV market is projected to reach $70.9 billion by 2030, up from $24.7 billion in 2020, with the North American market expected to be the highest revenue contributor, accounting for $24.2 billion by 2030 – up from $9.8 billion in 2020. Global tech market advisory firm, ABI Research, is predicting even more pronounced growth, suggesting in its 2021 Small Unmanned Aerial Systems: Annual Update that “the drone market is set to be worth $92 billion by 2030, with a compound annual growth rate of 25% over the $9.5 billion in annual revenue for 2020. Of this revenue, 70% is in the commercial sector ($63 billion).

 

Sensor Solutions

 

In January 2021, AgEagle acquired MicaSense’s line of high performance, proprietary sensors, which include:

 

Altum-PT an optimized three-in-one solution for advanced remote sensing and agricultural research. It seamlessly integrates an ultra-high resolution panchromatic imager, a built-in 320X256 radiometric thermal imager and five discrete spectral bands to produce synchronized outputs such as RGB color, crop vigor, heat maps and high resolution panchromatic in just one flight. Offering twice the spatial resolution of the prior Altum™ sensor, Altum-PT, introduced to market in November 2021 empowers users with deeper analytical capabilities and broader, more diverse applications; enable them to discern issues at the plant level, even in the early growth stages; and conduct early stage stand counting, as well as season-long soil monitoring, among other critical uses. Altum-PT also features a global shutter for distortion-free results, open APIs and a new storage device allowing for two captures per second.

 

RedEdge-MX – widely viewed as one of the most flexible sensor solutions on the market, with optimized GSD (ground sample distance, or resolution), a DLS two light sensor, a global shutter for distortion-free images, the ability to generate plant health indexes and RGB (color) images from one flight, and the freedom of platform-agnostic data. The RedEdge-MX is considered the industry gold standard for uses that include phenotyping, crop health mapping, water management, fertilizer management, disease identification, species differentiation, weed detection, advanced crop scouting, terrain modeling and leak scouting, among others.

 

RedEdge-MX Dual Camera Imaging System – a synchronized 10-band solution for advanced remote sensing and agricultural research. This solution seamlessly integrates two five-band cameras, the RedEdge-MX and the RedEdge-MX Blue, capturing 10-band imagery in one flight. The system synchronizes capture of all 10 bands, allowing the creation of multiple indices and deeper analytical insights. During processing, bands from either camera may be used interchangeably. Compatible with DJI drones and industry standard software platforms (Pix4D, Agisoft), this sensor solution ensures that flying with two cameras is just as easy as flying with one and enables direct comparison between satellite and drone data. It is compatible with a wide range of aircraft ranging from large fixed wings to small multirotors; and comes standard with an integration kit for DJI drones. Because the two cameras are both versions of RedEdge-MX, flight planning and data processing can be completed with existing industry-standard tools. The system is plug-and-play and requires no new equipment or upgrading of a user’s software set-up.

 

  RedEdge-P Offering three times the capture speed and twice the spatial resolution of the RedEdge-MX, the all new RedEdge-P, launched in October 2021, builds on the legacy of the rugged, high-quality, multispectral sensor that the industry has come to trust and adds the power of a higher resolution, panchromatic band to double the output data resolution. A single camera solution which is compatible with a wide array of drone aircraft ranging from large fixed wing to small multirotor, RedEdge-P captures calibrated high-resolution multispectral and RGB imagery with an optimized field of view and capture rate for efficient flights. This solution seamlessly integrates a high resolution, all-color imager with synchronized multispectral imagers to enable pixel-aligned outputs at previously unattainable resolutions, while maintaining the efficiency and reliability of its RedEdge legacy. Processing of data outputs are enabled through industry standard software platforms, including AgEagle’s Ground Control flight management software. With RedEdge-P, agricultural professionals benefit from a sensor that can enable effective plant counting and spectral analysis of small plants. Likewise, federal, state and local government and commercial forestry enterprises will also benefit from precise, efficient data collection and tree-level analysis as opposed to being limited to analyzing large swaths of land to make critical forestry management decisions.

 

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The acquisition of senseFly also added several sensor solutions, marketed by senseFly, including:

 

Aeria X – a compact drone photogrammetry sensor that offers the ideal blend of size, weight and DSLR-like image quality. It produces stunning image detail and clarity in virtually all light conditions, allowing users to map for more hours per day.

 

Duet M – a high resolution RGB and multispectral mapping camera rig used to create geo-accurate multispectral maps and high resolution digital surface models quickly and easily. This sensor is ideal for water management, such as mapping field drains and areas of compaction; spotting malfunctioning irrigation lines; and evaluating the consistency of plant vigor across a field.

 

Duet T – a rugged dual RGB/thermal mapping camera rig used to create geo-accurate thermal maps and digital surface models quickly and easily. The Duet T includes a high resolution thermal infrared (640 x 512 px) camera and a S.O.D.A. RGB camera.

 

S.O.D.A. – the first photogrammetry camera built for professional use which quickly became an industry standard for drone operators worldwide upon being introduced in 2016. It captures sharp aerial images, across light conditions, with which to produce detailed, vivid orthomosaics and ultra-accurate 3D digital surface models.

 

  S.O.D.A. 3D – a professional drone photogrammetry camera that changes orientation during flight to capture three images (two oblique and one nadir) instead of just one, providing for a much wider field of view. It is optimized for quick, robust image processing with Pix4DMapper. Designed specifically for use with the eBee X aircraft, the S.O.D.A. 3D can achieve coverage of vast areas of flat, homogenous terrain (up to 500 ac / 1,235 ac per 122m / 400ft flight). The unique ability of the S.O.D.A. 3D to capture images in two orientations and the resulting wider field of view translates to stunning digital 3D reconstructions in vertically-focused environments. such as urban areas or open-pit mines - anywhere with walls or steep sides. This system of data recording means that less image overlap is needed, resulting in more efficient flights and greater flight coverage, not to mention quicker image processing for results.

 

S.O.D.A. Corridor – a solution that combines the S.O.D.A. photogrammetry sensor with the Company’s eMotion software that helps make corridor mapping easy. With its portrait camera position, Corridor requires 30% fewer images to map the same linear route and is used in road construction, river mapping, coastline mapping, train track planification and pipeline inspection.

 

Market Opportunity for Sensor Solutions

 

Sensors for drones are increasingly being used for surveying, mapping and inspections – particularly in the mining, construction, energy, environmental management, agriculture, infrastructure and waste management industries. Moreover, with every new innovation in sensor technologies, the functionality, and the underpinning value proposition of commercial UAS continues to improve and allows for an even wider range of applications.

 

Due in large measure to increasing demand of drone sensors for mapping services, LiDAR and GPS, the outlook for the drone sensor market is forecasted to grow to $66.6 billion by 2030, according to a January 2022 research report released by Market Research Future. Verified Market Research (VMR) also published its industry research report in January 2022, stating that the global drone sensor market will climb to $60.67 billion by 2028 from $10.88 billion in 2020, representing a compound annual growth rate of 23.97% from 2021 to 2028. Key market drivers in VMR’s report cite adoption of drones across different industry verticals, including agriculture, landscaping and military and defense, as well as a rise in the need for collecting high quality and real-time data insight.

 

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Our Branded Software Solutions 

 

Ground Control

 

In April 2021, the Company acquired Measure , an aerial intelligence company and developer of a cloud-based, plug-and-play operating system known as Ground Control. Ground Control provides individual pilots and large enterprises with everything they need to completely automate and scale their drone operations workflows. Key capabilities of the technology include autonomous flight control and data collection, program management and compliance, data processing and analysis and integrations with existing customer systems.

 

Marketed and sold as a SaaS solution and enabled for both iOS and Android mobile devices, Ground Control ensures safe and automated operations while capturing the real-time, data-driven insights necessary to allow its users to reap the full benefits of their drone systems. With end-to-end program management, user-friendly flight control and in-platform data analysis, Ground Control has helped businesses save thousands of hazardous man-hours and realize millions of dollars in operational benefits. Customers include many Fortune 500 companies and both large and small businesses operating within the energy/utilities, media, insurance, first responder, construction and agriculture markets, among many others.

 

Ground Control has been integrated with several other industry leading UAS technologies, including AgEagle’s own line of proprietary sensors and airframes. In addition, Ground Control’s industry partnerships include integrations with:

 

DJI drone platforms, which work seamlessly with Ground Control’s flight app and permits users to sync flights flown with the DJI Go app and use DJI Geo Unlock;
   
Parrot’s ANAFI, ANAFI USA and ANAFI Thermal drone platforms, which pair ANAFI’s rapid deployment and ease of operation with Ground Control’s standard flight tools, as well as enable users to tailor and expand their use through selection of additional program management and data processing capabilities;
   
Pix4D software, which makes it easy to create high quality orthomosaics, digital surface models and control maps in the Ground Control platform;
   
Scopito drone data analysis software, which provides Ground Control customers with easy-to-use drone inspection data delivered in an interactive webmap; and
   
Wing’s OpenSky airspace access app, which empowers drone flyers to abide by airspace rules and regulations and request authorization to fly in controlled airspace in near real-time wherever OpenSky is available.

 

eMotion

 

With the acquisition of senseFly in October 2021, AgEagle expanded its line of proprietary drone flight and data management solutions with the addition of eMotion. With eMotion, flights are built using intuitive mission blocks and flight modes. Users simply need to choose a block (aerial mapping, corridor, etc.), highlight the region they want to map, define key settings, and eMotion auto-generates the drone’s flight plan. Multi-flight missions are supported, and the software’s full 3D environment adds a new dimension to drone flight management, helping users to plan, simulate and control the drone’s trajectory for safer flights, more consistent performance and improved data quality. Moreover, eMotion’s built-in Flight Data Manager automatically handles the georeferencing and preparation of images requires for post-processing in software such as Pix4Dmapper. Connecting wirelessly to a user’s drone, to industry cloud solutions, to survey-grade base stations, and to airspace and live weather data, eMotion is advanced, scalable drone software that anyone can use.

 

HempOverview Technology

 

As one of the agriculture industry’s leading pioneers of advanced aerial-image-based data collection and analytics solutions, AgEagle leveraged our expertise to champion the use of proven, advanced web- and map-based technologies as a means to streamline and ultimately standardize hemp cultivation in the United States. Growers need to be registered/permitted; crops need to be monitored and inspected; and enforcement operations must be established to ensure compliance with state and federal mandates. Through HempOverview, we believe that AgEagle represents the first agriculture technology company to bring to market an advanced agtech solution that is designed to meet the unique complexities and vigorous oversight, compliance and enforcement demands of the emerging American hemp industry and the unique needs and demands of its key stakeholders.

 

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HempOverview comprises four modules:

 

  1) Registration: secure, scalable software to handle all farmer and processer application and licensing matters.
     
  2) Best Management Practices: iterative, intelligent data collection and analysis utilizing satellite imagery and advanced, proprietary algorithms to help farmers reduce input costs, avoid missteps, detect pest impacts and monitor water usage.
     
  3) Oversight and Enforcement: integration of data management and satellite imagery to provide continuous monitoring of all hemp fields in the state, predict and respond to issues and assist in proper crop testing.
     
  4) Reporting: generation of actionable reports for the United States Department of Agriculture (“USDA”) requirements, legislative oversight and support of research institutions.

 

In November 2019, the Florida Department of Agriculture and Consumer Services (“FDACS”) licensed the HempOverview solution to manage its online application submission and registration process for hemp growers and their farms and hemp fields in the State of Florida for the years 2020, 2021 and 2022. In June 2021, the State of Florida expanded its licensing of the HempOverview platform to provide for access to all four of the modules. FDACS also tasked AgEagle with developing a custom registration software platform to enhance communications, licensing and general compliance relating to the oversight and protection of more than 500 endangered and commercially exploited wild plants native to Florida. For instance, in an effort to curb exploitation of saw palmetto, a plant whose extract is used in herbal supplements often marketed for its urinary tract and prostate health benefits, FDACS requires harvesters and sellers of saw palmetto berries to obtain a Native Plant Harvesting Permit. According to a related FDACS notice, “Widespread gathering of these berries is depleting a wildlife food source and threatening the stability of some ecosystems.”

 

In January 2021, the Iowa Department of Agriculture and Land Stewardship also licensed the HempOverview platform to manage the state’s online registration, payment processing, comprehensive data collection and compliance oversight for the 2021, 2022 and 2023 planting seasons.

 

FarmLens

 

In 2018, we acquired FarmLens (“FarmLens”), a subscription cloud analytics service that processes data, primarily collected with a drone and makes such data actionable by farmers and agronomists. Our user-friendly FarmLens solution can easily and quickly stitch virtually thousands of high-resolution, multispectral images together to produce detailed prescription maps for everything from disease and pest infestations to weather impact and improper irrigation – all before these issues can be detected by the naked eye and at materially lower costs than satellite imagery or manned aircraft flyovers.

 

Used as a PC-based system or on any mobile device, FarmLens helps users save time and eliminates technological hassles and costly computing requirements. The FarmLens platform has benefitted us and our shareholders by allowing us to develop important vertically integrated products and services with our drone-enabled software technologies, including HempOverview. FarmLens is currently sold by AgEagle as a subscription service and offered either standalone or in a bundle with drone platforms manufactured by leading drone providers.

 

Market Opportunity for Drone Software Solutions

 

  Rapid adoption of UAS for commercial and military purposes continues to fuel the growth of the global drone software market, with particularly robust demand for applications that include mapping and surveillance, agriculture and precision farming, academic research, infrastructure inspection and maintenance, search and rescue and shipping and delivery are expected In a October 2021 market study published by Global Industry Analysts, the world’s only influencer-driven market research company estimated the global market for drone software was $5.7 billion in 2020 and is projected to reach a revised size of $21.9 billion by 2026, growing at a CAGR of 24.7% over the forecast period.

 

Market Opportunity for U.S. Industrial Hemp and Hemp-Derived CBD

 

Data Bridge Market Research released a report in January 2022, forecasting that the industrial hemp market will reach $21.2 billion by 2027, representing a compound annual growth rate of 21.02% in its forecast period 2020 through 2027. According to the research firm, the growing preference for eco-friendly products in thermal insulation, construction markets, fiberglass alternatives and automotive products is expected to drive the market through its forecast period. While not as bullish, Grand View Research reported in October 2021 its outlook for the industry, projecting that the global industrial hemp market will reach $12.01 billion by 2028 due to increased use of hemp oil in food and beverage products, as well as increased demand for high quality cosmetics, personal care products and protein supplements. However, Grand View Research also noted the market in North America is expected to register the fastest volume-based CAGR of 21.2% through 2028 primarily due to rising demand for hemp in the automotive industry for manufacturing panels as an alternative to fiberglass.

 

On February 17, 2022, the USDA released its first National Hemp Report with data on planted and harvested area, yields per acre, production and value of industrial hemp, based on a survey sent to 20,501 producers. The report formed a benchmark for the crop and help farmers decide how much and what type of hemp to grow.

 

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Our Manufacturing Services

 

For the past several years, security experts have expressed concerns that UAVs made in China or other adversarial countries could be used to spy on U.S. interest by exfiltration of data back to the country of origin. In fact, in May 2019, the U.S. Department of Homeland Security warned in an alert that drones are a potential risk to an organization’s information.

 

Data released by Drone Industry Insights in late 2019 revealed that China-based Da Jiang Innovations (“DJI”) accounted for about 70% of all drone sales worldwide – and up to 80% of the U.S. market (Source: https://droneii.com/product/chinese- drone-market-report). Citing the threat of Chinese manufacturers, the U.S. General Services Administration (“GSA”) announced in January 2021 that it will no longer include Chinese drones in its suite of offerings as of February 1, 2021. The press release stated, “GSA has recently determined that, due to the significant risk associated with offering drones under GSA’s Multiple Award Schedules (“MAS”) program, it will remove all drones as defined by 49 USC Ch. 448 from MAS contracts, except those drones approved by the Department of Defense (“DoD”) Defense Innovation Unit (“DIU”) through its Blue sUAS Program. DIU’s Blue sUAS Program, is a program that provides secure, trusted, small drone capability to the U.S. government and matures the market for American-made small drones. (Source: https://interact.gsa.gov/blog/removal-drones-gsa-multiple-award-schedule-contracts).

 

In October 2020, the Department of Justice also recently banned the use of agency grants to purchase drones and other unmanned aerial systems from foreign groups; and the federal government is not likely to stop these limited policy bans. Congress has already taken steps to check DJI’s ability to operate in the U.S. and it is considering more. It effectively cemented the Defense Department’s ban into law in the National Defense Authorization Act for 2020. Congress has also considered broader bans, such as the draft American Security Drone Act of 2021, which would bar any federal agency from acquiring Chinese drones or drones made with Chinese components; and would also codify the different policy prohibitions on using federal grant money to buy Chinese drones and components – an aspect of the law clearly aimed at curbing use of the technology at the state and local levels.

 

AgEagle believes that these measures to ban China-manufactured drones and components has fueled and will continue to. fuel, demand for “Made in America” drones and components, creating a significant opportunity for U.S.-based drone manufacturers, like AgEagle. Consequently, it is our intention to establish best industry practices and define quality standards for manufacturing, assembly, design/engineering and testing of drones, drone subcomponents and related drone equipment in our Wichita facility.

 

We will work to optimize our own proprietary designs and customer requirements to meet scalable manufacturing requirements, mission capabilities and equipment specifications. Within this framework, we expect to develop products with feedback and input from manufacturing, quality, supply chain managers, key suppliers, logistics personnel and our customers. We will incorporate this input into product designs in an effort to maximize efficiencies and quality of our products, while minimizing time to market. As a result, we believe that we will achieve a take a product from its design phase to full scale production deliveries while achieving high reliability, quality, and safety yields.

 

BEYOND Program- Integrating UAVs into National Airspace

 

In November 2020, AgEagle was selected as an industry partner in the next phase of the U.S. Department of Transportation’s (“US DOT”) Unmanned Aircraft System Integration Pilot Program (“IPP”), known as the BEYOND program. The original IPP was launched through a Presidential Memorandum in October 2017 with nine regional participants. The IPP participants and their industry partners used innovative strategies to craft successful safety cases to operate drones under FAA’s existing regulations. On October 30, 2020, the US DOT announced that the three-year IPP successfully concluded on October 25, 2020. In the release, U.S. Chief Technology Officer Michael Kratsios noted, “The IPP propelled the American drone industry forward, allowing for unprecedented expansions in testing and operations through innovative private-public partnerships across the country. Now, the BEYOND program will build upon this success, tackling the next big challenges facing drone integration.”

 

Eight of the nine state, local and tribal governments that participated in the original program signed new agreements with the FAA to participate in the BEYOND program, including the Kansas Department of Transportation (KDOT). AgEagle was selected by KDOT to serve as an industry partner in the BEYOND program to help solve key challenges including:

 

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  Beyond Visual Line of Sight (“BVLOS”) operations that are repeatable, scalable and economically viable with specific emphasis on infrastructure inspection, public operations and small package delivery;
     
  Leveraging industry operations to better analyze and quantify the societal and economic benefits of unmanned aerial systems (“UAS”) operations; and
     
  Focusing on community engagement efforts to collect, analyze and address community concerns.

 

  We believe that once the FAA ultimately determines and approves final regulations allowing for safe integration of commercial UAVs flown BVLOS into the U.S. airspace, the promising growth of drone delivery solutions is sure to take flight; and there has been positive developments in this regard.

 

While it is our intention to continue identifying, pursuing and winning contract design, manufacturing, assembly and testing of drone delivery platforms with key industry partners, it is also our intention to design, develop and bring to market our own proprietary, end-to-end drone solutions. Participating in the BEYOND program will empower AgEagle to lead select pilot projects in key areas of interest to us.

 

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 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:

 

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

 

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

 

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

 

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Competitive Strengths

 

AgEagle believes 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 UAS design and engineering; in-house manufacturing, assembly and testing capabilities; and advanced technology development skillset serve to differentiate AgEagle in the marketplace. In fact, approximately 70% of our Company’s global workforce is comprised of engineers and data scientists with deep experience and expertise in robotics, automation, custom manufacturing, and data analytics. In addition, AgEagle is committed to meeting and exceeding quality and safety standards for manufacturing, assembly, design and engineering and testing of drones, drone subcomponents and related drone equipment in our Wichita-based manufacturing operations.

 

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

 

We offer market-tested drones, sensors and software solutions that have earned the longstanding trust and fidelity of customers worldwide – through successful execution of our acquisition 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 eBee fixed 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 just a few. Featured in over 100 research publications globally, advanced sensor innovations developed and commercialized by MicaSense, 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 Fortune 500 companies, government agencies and a wide range of businesses in agriculture, energy and utilities, construction and other industry sectors.

 

Our eBee TAC UAS has been approved by the Defense Innovation Unit (DIU) for procurement by the Department of Defense – We are of the belief that the eBee TAC is ideally positioned to become an in-demand, mission critical tool for the U.S. military, government and civil agencies and our allies worldwide; and expect that this will prove to be a major growth catalyst for our Company in 2022, positively impacting our financial performance in the years ahead.

 

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 and consolidation of our 2021 acquisitions, we believe we can 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.

 

Leading-edge research, regulatory guidance and pilot programs – In order to propel functional commercial applications of drone solutions in real world, real-time environments, and to best aid in the determination and ultimate adoption of a regulatory framework to guide and direct mainstream commercial use of drones beyond visual line of sight, AgEagle is a participant in the FAA’s BEYOND program in Kansas, and is engaged in partnering with other leading drone solutions companies on pilot projects with long-term commercial potential.

 

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Government Regulation

 

UAV Regulation

 

AgEagle’s proprietary drones are subject to regulations of the FAA. On June 21, 2016, the FAA announced it had finalized the first operational rules for routine commercial use of small UAS, which for purposes of the regulations are unmanned aircraft weighing less than 55 pounds that are conducting non-hobbyist operations. UAS operators-for-hire will have to pass a written test and be vetted by the TSA, but no longer need to be airplane pilots as current law requires. The rules went into effect on August 20, 2016. For additional insight into these initial regulations created for commercial UAS operations, please see https://www.faa.gov/news/press_releases/news_story.cfm?newsId=20515.

 

Domestic Hemp Production and Prevailing Regulatory Changes

 

With the passing of the 2018 Farm Bill in December 2018, industrial hemp is now recognized as an agricultural commodity, such as corn, wheat, or soybeans.

 

More specifically, the 2018 Farm Bill authorizes state departments of agriculture, including agencies representing the District of Columbia, the Commonwealth of Puerto Rico and any other territory or possession of the United States, and Indian tribal governments, to submit plans to the USDA applying for primary regulatory authority over the production of hemp in their respective state or tribal territory. For more information on state and tribal nation plan submissions, please visit https://www.ams.usda.gov/rules-regulations/hemp/state-and-tribal-plan-review.

 

As of February 1, 2022, forty-five states, two U.S. territories and forty-six tribal nations have had their hemp production plans approved by the USDA, and five states will continue to operate their hemp production plans in accordance with the 2014 pilot guidelines issued by the National Institute of Food and Agriculture, which handles the extramural research aspects of industrial hemp cultivation.

 

Recent FAA Regulatory Updates

 

On March 10, 2022, the FAA’s Unmanned Aircraft Systems BVLOS Aviation Rulemaking Committee (“ARC”) – a committee on which AgEagle’s Chief Executive Officer (“CEO”) serves as a member – tendered its final report to the Federal Aviation Administration, recommending significant changes to the FAA’s regulations for UAS. As the FAA recognized in prescribing this committee’s original charter in June 2021, “the UAS capability to fly without the pilot onboard, and indeed beyond the pilot’s visual line-of-sight, is what offers the most societal benefits[,]” yet this practice is largely prohibited under existing regulations and has only been permitted on a very limited case-by-case basis through FAA waivers. The central mission of the ARC, therefore, was to develop recommendations for regulations that would better support and promote the development of BVLOS operations.

 

To that end, the ARC suggested several broad changes to ensure the safe expansion of BVLOS UAS operations. First and foremost, the ARC proposed that the FAA reframe its regulations based on the level of risk acceptable in the use of UAS broadly, rather than trying to create regulations to address specific types of operations. The goal of this approach would be to eliminate the kind of inconsistencies and opacity that may result from the case-by-case waiver approach the FAA has adopted to date. Such an approach, the ARC concluded, would provide “clear guidance for the industry and regulators” while allowing operators to determine the means of compliance that best fit their operations, whether that be “through qualitative or quantitative methods, or a hybrid approach.”

 

The ARC’s proposal also includes new rules regarding the right of way. In areas considered “Shielded” (within 100 feet of a structure or a critical infrastructure), UAS will have the right of way over other forms of aircraft. Under this proposed rule, UAS will enjoy an operational space that is largely free of crewed aircraft, as a UAS that is operating within the boundaries of a structure or obstacle “would be considered part of the structure/obstacle.” The ARC is aware of the undeniable benefits that drone technology offers for the inspection and monitoring of infrastructure and property, as reflected in the proposed rulemaking.

 

Separately, whether a crewed aircraft must yield to a UAS in “Non-Shielded” areas that are low altitude (below 400 feet) will depend on whether the crewed aircraft is equipped with an Automatic Dependent Surveillance-Broadcast (ADS-B) transmitter or Traffic Awareness Beacon System (“TABS”) broadcasting their position. If so, then the Automatic Dependent Surveillance-B (“ADS-B”) equipped crewed aircraft will have the right of way over drones in nonshielded low-altitude areas; but if the crewed aircraft is not equipped with ADS-B or TABS, then the drone maintains the right of way in those areas. The ARC stated that the purpose of this rule is to improve safety by encouraging the use of ADS-B and TABS systems in low-altitude areas.

 

While the FAA has recently imposed strict rules on drone operations by requiring they broadcast remote ID information, the ARC’s proposal reflects a desire to loosen the regulations in other areas. Very soon, drone manufacturers and operators will be required to comply with the new Remote ID rule (there is a compliance date of September 16, 2022, for manufacturers, and September 16, 2023, for operators). The ARC’s proposal, if codified, will undoubtedly create exciting new opportunities for drone operators within the United States.

 

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Suppliers

 

In 2021 and 2020, we maintained strong relationships established with companies that provide many of the parts and services necessary to construct our advanced fixed-wing drones, such as MicaSense. On January 26, 2021, the Company and AgEagle Sensor Systems, Inc., a wholly-owned subsidiary of the Company (the “Buyer”), entered into a stock purchase agreement (the “MicaSense Purchase Agreement”) with Parrot Drones S.A.S. and Justin B. McAllister (the “Sellers”) pursuant to which the Buyer agreed to acquire 100% of the issued and outstanding capital stock of MicaSense, Inc. (“MicaSense”) from the Sellers. The transaction closed on January 27, 2021. MicaSense manufactures and sells drone sensors for vegetation mapping and other drone applications.

 

As our Company grows, we expect to pursue additional supplier relationships from which we can source less costly and better supplies to stay ahead of the needs of the market. In addition, we have forged strong relationships with key suppliers in the U.S. and in U.S.-allied countries based on their ability to meet our needs and delivery timelines. We will continue to expand upon our suppliers’ expertise to improve our existing products and develop new solutions. In 2020, we experienced some supply chain delays due primarily to logistical issues relating to COVID-19 shutdown mandates. Unfortunately, we do anticipate encountering potential delays in 2022 for the same reason.

 

Segment Reporting

 

The table below reflects our revenue by operating segment for the years indicated below:

 

    For the Year Ended December 31,
Type   2021   2020
Drones and Custom Manufacturing   $ 2,428,858     $ 1,218,735  
Sensors     6,793,727        
SaaS     538,367       66,648  
Total   $ 9,760,952     $ 1,285,383  

 

Research and Development

 

Research and development activities are part of our business, and we follow a disciplined approach to investing our resources to create new drone technologies and solutions. A fundamental part of this approach is a well-defined screening process that helps us identify commercial opportunities that support current desired technological capabilities in the markets we serve. Our research includes the expansion of our wing products, providing for developing a portfolio of UAVs, sensors and ongoing software platform development costs, as well as other technological solutions to problems to which our existing and prospective customers must confront.

 

Risks Relating to Our Business

 

Our business is subject to numerous risks and uncertainties, including those highlighted in the section titled “Risk Factors” found in Item 1A within this Annual Report on Form 10-K. Some of these risks include, but are not limited to, risks associated with:

 

  our need for additional funding;
     
  our ability to protect our intellectual property rights;
     
  rapid technological changes in the industry;
     
  governmental policies and regulations regarding the industries in which we operate;
     
  our ability to maintain strong relationships with our customers, suppliers and distributors; and
     
  worldwide and domestic economic trends and financial market conditions, including an economic decline in the agricultural industry.

 

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Recent Developments

 

Organizational History

 

On March 26, 2018, our predecessor company, EnerJex Resources, Inc. (“EnerJex”), a Nevada company, consummated the transactions contemplated by the Agreement and Plan of Merger (the “Merger Agreement”), dated October 19, 2017, pursuant to which AgEagle Merger Sub, Inc., a Nevada corporation and a wholly-owned subsidiary of EnerJex, merged with and into AgEagle Aerial Systems Inc., a privately held company organized under the laws of the state of Nevada (“AgEagle Sub”), with AgEagle Sub surviving as a wholly-owned subsidiary of EnerJex (the “Merger”). In connection with the Merger, EnerJex changed its name to AgEagle Aerial Systems Inc. (the “Company, “we,” “our,” or “us”) and AgEagle Sub changed its name initially to “Eagle Aerial, Inc.” and then to “AgEagle Aerial, Inc.” Prior to this merger all of the EnerJex operations were conducted through EnerJex Kansas, Inc., Black Sable Energy, LLC, a Texas limited liability company (“Black Sable”) and Black Raven Energy, Inc. a Nevada corporation (“Black Raven”). Its leasehold interests were held in its wholly-owned subsidiaries Black Sable, Working Interest, LLC, EnerJex Kansas and Black Raven. As of December 31, 2021, the Company continues with the wholly-owned subsidiaries, AgEagle Aerial, Inc. and EnerJex Kansas, Inc.

 

On January 27, 2021 (“MicaSense Acquisition Date”), we entered into a stock purchase agreement (the “MicaSense Purchase Agreement”) with Parrot Drones S.A.S. and Justin B. McAllister (the “MicaSense Sellers”) pursuant to which the Company agreed to acquire 100% of the issued and outstanding capital stock of MicaSense, Inc. from the MicaSense Sellers (the “MicaSense Acquisition”). The aggregate purchase price for the shares of MicaSense was $23,000,000, less any debt, and subject to a customary working capital adjustment. Upon completion of the MicaSense Acquisition, MicaSense became a 100% wholly-owned subsidiary of the Company.

 

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 representative of the sellers, 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 Global, Inc. (“Measure”) from the Measure Sellers (the “Measure Acquisition”). The aggregate purchase price for the shares of Measure is $45,000,000, less the amount of Measure’s debt and transaction expenses, and subject to a customary working capital adjustment. Upon completion of the Measure Acquisition, Measure became a 100% wholly-owned subsidiary of the Company.

 

On October 18, 2021 (the “senseFly S.A. Acquisition Date”), the Company entered into a stock purchase agreement with Parrot Drones S.A.S. pursuant to which the Company acquired 100% of the issued and outstanding capital stock of senseFly S.A. from Parrot Drones S.A.S. (the “senseFly S.A. Purchase Agreement”) 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. Upon completion of the senseFly S.A.S. Acquisition, senseFly Inc. became a 100% wholly-owned subsidiary of the Company.

 

On October 18, 2021 (the “senseFly Inc. Acquisition Date), AgEagle Aerial and the Company entered into a stock purchase agreement (the “senseFly Inc. Purchase Agreement”) with Parrot Inc. pursuant to which AgEagle Aerial agreed to acquire 100% of 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.

 

Our Headquarters

 

Our principal executive offices are located at 8863 E. 34th Street North, Wichita, Kansas 67226 and our telephone number is 620-325-6363. Our website address is www.ageagle.com. The information contained on, or that can be accessed through, our website is not a part of this Annual Report. We have included our website address in this Annual Report solely as an inactive textual reference.

 

Employees

 

As of March 31, 2022, we employed 121 full-time and 3 part-time employees.

 

Intellectual Property

 

We currently have registered trademarks, several patents or pending patents for our proprietary drone, sensor and software technologies filed in the United States and certain jurisdictions abroad. We consider our UAV and sensor manufacturing processes to be trade secrets and have non-disclosure agreements with current employees and business partners to protect those and other trade secrets held by the Company.

 

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Where You Can Find Additional Information

 

The Company is subject to the reporting requirements under the Exchange Act. The Company files with, or furnishes to, the SEC quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports and will furnish its proxy statement. These filings are available free of charge on the Company’s website, wwwageagle.com, shortly after they are filed with, or furnished to, the SEC. The SEC maintains an Internet website, www.sec.gov, which contains reports and information statements and other information regarding issuers.

 

ITEM 1A. RISK FACTORS

 

The risk factors discussed below could cause our actual results to differ materially from those expressed in any forward-looking statements. Although we have attempted to list comprehensively these important factors, we caution you that other factors may in the future prove to be important in affecting our results of operations. New factors emerge from time to time and it is not possible for us to predict all of these factors, nor can we assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement.

 

The risks described below set forth what we believe to be the most material risks associated with the purchase of our Common Stock. Before you invest in our Common Stock, you should carefully consider these risk factors, as well as the other information contained in this prospectus.

 

Risks Related to Our Business and the Industries We Serve

 

We operate in evolving markets, which makes it difficult to evaluate our business and future prospects.

 

AgEagle’s drone, sensor and software technologies are and will be sold in new and rapidly evolving markets. The commercial UAV industry is in the early stages of customer adoption and the FAA’s definition of regulations relating to the integration of commercial drones into the U.S. airspace is still ill-defined but advancing. Accordingly, our business and future prospects may be difficult to evaluate. We cannot accurately predict the extent to which demand for our drone systems and solutions will increase, if at all. The challenges, risks and uncertainties frequently encountered by companies in rapidly evolving markets could impact our ability to do the following:

 

  Generate sufficient revenue to achieve sustainable profitability;
     
  Acquire and maintain market share;
     
  Achieve or manage growth in our business operations;
     
  Renew contracts;
     
  Attract and retain software and system engineers and other highly qualified personnel;
     
  Successfully develop and commercial market new products and end-to-end solutions;
     
  Adapt to new or changing polices and spending priorities of prospective clients; and
     
  Access additional capital when required and on reasonable terms.

 

If we fail to address these and other challenges, risks and uncertainties successfully, our business, results of operations and financial condition would be materially harmed.

 

We have a history of operating losses and expect to incur significant additional operating expenses.

 

Through our wholly-owned subsidiary, AgEagle Aerial, Inc., we have been operating for over ten years, but it not until recently that we have acquired the latest go-to-market airframes, sensors and software technologies. We are currently still in the business development stage of our products and commercial sales, and accordingly, we cannot guarantee that we will become profitable. Moreover, even if we achieve profitability, given the competitive and evolving nature of the industries in which we operate, we may be unable to sustain or increase profitability and failure to do so would adversely affect its business, including our ability to raise additional funds.

 

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We will need additional funding and may be unable to raise capital when needed, which would force us to delay, curtail or eliminate one or more of our research and development programs or commercialization efforts.

 

Our operations have consumed substantial amounts of cash since inception. We expect to continue to spend substantial amounts on product and software development. We will require additional funds to support our continued research and development activities, as well as the costs of commercializing, marketing and selling any new products and/or services resulting from those activities.

 

Until such time, if ever, that we can generate sufficient revenue and achieve profitability, we expect to seek to finance future cash needs through equity or debt financings or corporate collaborations and/or strategic arrangements. On May 25, 2021, the Company entered into an at-the-market Sales Agreement (the "ATM Sales Agreement") with Stifel, Nicolaus & Company, Incorporated and Raymond James & Associates, Inc. as sales agents (the "Agents"), in connection with the offer and sale from time to time of up to $100,000,000 of shares of the Company's Common Stock (the "ATM Shares"), through an at-the-market equity offering program (the "ATM Offering"). If we are unable to raise additional capital, we may have to delay, curtail or eliminate commercializing, marketing and selling one or more of our solutions. During the period from May 26, 2021 through December 31, 2021, the Company sold 5,705,877 shares of its Common Stock, par value $0.001, at a stock price between $5.00 and $6.30 per share, for proceeds of $30,868,703, net of issuance costs of $954,707.

 

Product development is a long, expensive and uncertain process.

 

The development of both UAV software and hardware is a costly, complex and time-consuming process, and investments in product development often involve a long wait until a return, if any, can be achieved on such investment. We might face difficulties or delays in the development process that will result in our inability to timely offer products that satisfy the market, which might allow competing products to emerge during the development and certification process. We anticipate making significant investments in research and development relating to our products and technology services, but such investments are inherently speculative and require substantial capital expenditures. Any unforeseen technical obstacles and challenges that we encounter in the research and development process could result in delays in or the abandonment of product commercialization, may substantially increase development costs, and may negatively affect our results of operations.

 

Successful technical development of our products does not guarantee successful commercialization.

 

Although we have successfully acquired our fully-developed go-to-market UAV systems sensor and software technology solutions which we offer for sale or subscription, we may still fail to achieve commercial success for several reasons, including, among others, the following:

 

  failure to obtain the required regulatory approvals for their use;
     
  rapid obsolescence of a product due to new, more advanced technologies;
     
  prohibitive production costs;
     
  competing products;
     
  lack of product innovation;
     
  unsuccessful distribution and marketing through our sales channels;
     
  insufficient cooperation from our supply and distribution partners; and
     
  product development that does not align with or meet customer needs.

 

Our success in the market for the products and services we develop will depend largely on our ability to properly demonstrate their capabilities. Upon demonstration, our solutions may not have the capabilities they were designed to have or that we believed they would have. Furthermore, even if we do successfully demonstrate our products’ capabilities, potential customers may be more comfortable doing business with our competitor; or may not feel there is a significant need for the products we develop. As a result, significant revenue from our current and new product investments may not be achieved for several years, if at all that will result in profitability to the Company.

 

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We face competition from other companies, many of which have substantially greater resources.

 

Our competitors may be able to provide customers with different or greater capabilities or benefits than we can provide in areas such as technical qualifications, past contract performance, geographic presence, price and the availability of key professional personnel. Furthermore, many of our competitors may be able to utilize their substantially greater resources and economies of scale to develop competing products and technologies, manufacture in high volumes more efficiently, divert sales away from us by winning broader contracts or hire away our employees by offering more lucrative compensation packages. Small business competitors may be able to offer more cost competitive solutions, due to their lower overhead costs. The markets for commercial drones and services are quickly expanding, and competition is intensifying as additional competitors enter the market and current competitors expand their product offerings. In order to secure contracts successfully when competing with larger, better financed companies, we may be forced to agree to contractual terms that provide for lower aggregate payments to us over the life of the contract, which could adversely affect our margins. Our failure to compete effectively with respect to any of these or other factors could have a material adverse effect on our business, prospects, financial condition or future operating results.

 

If we fail to protect our intellectual property rights, we could lose our ability to compete in the marketplace.

 

Our intellectual property and proprietary rights are important to our ability to remain competitive and successful in the development of our products and to our future growth potential. Patent protection can be limited and not all intellectual property can be patented. We expect to rely on a combination of patent, trademark, copyright and trade secret laws, as well as confidentiality and non-disclosure agreements and procedures, non-competition agreements and other contractual provisions to protect our intellectual property, other proprietary rights and our brand. We currently only have a limited amount of granted patent or copyright protections, we must rely on trade secrets and nondisclosure agreements, which provide limited protections. As a result, our intellectual property rights may be challenged, invalidated or circumvented by third parties. We may not be able to prevent the unauthorized disclosure or use of our technical knowledge or other trade secrets by employees or competitors.

 

Furthermore, our competitors may independently develop technologies and products that are substantially equivalent or superior to our technologies and products, which could result in decreased revenues. Litigation may be necessary to enforce our intellectual property rights, which could result in substantial costs to us and substantial diversion of management’s attention. If we do not adequately protect our intellectual property, our competitors could use it to enhance their products. Our inability to adequately protect our intellectual property rights could adversely affect our business and financial condition, and the value of our brand and other intangible assets.

 

Other companies may claim that we infringe their intellectual property, which could materially increase our costs and harm our ability to generate future revenue and profit.

 

We do not believe that our technologies infringe on the proprietary rights of any third party; however, claims of infringement are becoming increasingly common and third parties may assert infringement claims against us. It may be difficult or impossible to identify, prior to receipt of notice from a third party, the trade secrets, patent position or other intellectual property rights of a third party, either in the United States or in foreign jurisdictions. Any such assertion may result in litigation or may require us to obtain a license for the intellectual property rights of third parties. If we are required to obtain licenses to use any third-party technology, we would have to pay royalties, which may significantly reduce any profit on our products. In addition, any such litigation could be expensive and disruptive to its ability to generate revenue or enter into new market opportunities. If any of our products were found to infringe other parties’ proprietary rights and we are unable to come to terms regarding a license with such parties, we may be forced to modify our products to make them non-infringing or to cease production of such products altogether.

 

The nature of our business involves significant risks and uncertainties that may not be covered by insurance or indemnification.

 

We have developed and sold products and services in circumstances where insurance or indemnification may not be available, for example, in connection with the collection and analysis of various types of information. In addition, our products and services raise questions with respect to issues of civil liberties, intellectual property, trespass, conversion and similar concepts, which may create legal issues. Indemnification to cover potential claims or liabilities resulting from the failure of any technologies that we develop or deploy may be available in certain circumstances but not in others. Currently, the unmanned aerial systems industry lacks a formative insurance market. We may not be able to maintain insurance to protect against all operational risks and uncertainties that our customers confront. Substantial claims resulting from an accident, product failure, or personal injury or property liability arising from our products and services in excess of any indemnity or insurance coverage (or for which indemnity or insurance coverage is not available or is not obtained) could harm our financial condition, cash flows and operating results. Any accident, even if fully covered or insured, could negatively affect our reputation among our customers and the public, and make it more difficult for us to compete effectively.

 

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We may incur substantial product liability claims relating to our products.

 

As a manufacturer of UAV products, and with aircraft and aviation sector companies under increased scrutiny, claims could be brought against us if use or misuse of one of our UAV products causes, or merely appears to have caused, personal injury or death. In addition, defects in our products may lead to other potential life, health and property risks. Any claims against us, regardless of their merit, could severely harm our financial condition, strain our management and other resources. We are unable to predict if we will be able to obtain or maintain product liability insurance for any products that may be approved for marketing.

 

If our subcontractors or suppliers fail to perform their contractual obligations, our performance and reputation as a contractor and our ability to obtain future business could suffer.

 

We often rely upon other companies to perform work we are obligated to perform for our customers. As we secure more work under certain of our contracts, we expect to require an increasing level of support from subcontractors that provide complementary or supplementary services to our offers. We are responsible for the work performed by our subcontractors, even though in some cases we have limited involvement in that work. If one or more of our subcontractors fails to satisfactorily perform the agreed-upon services on a timely basis or violates contracting policies, laws or regulations, our ability to perform our obligations as a prime contractor or meet our customers’ requirements may be compromised. In extreme cases, performance or other deficiencies on the part of our subcontractors could result in a customer terminating our contract for default. A termination for default could expose us to liability, including liability for the costs of re-procurement, could damage our reputation and could hurt our ability to compete for future contracts.

 

For certain of the components included in our products, there are a limited number of suppliers we can rely upon. If we are unable to obtain these components when needed, we could experience delays in the manufacturing of our products and our financial results could be adversely affected.

 

We acquire most of the components for the manufacture of our products from suppliers. Suppliers of some of the components may require us to place orders with significant lead-times to assure supply in accordance with its manufacturing requirements and enter into agreements specifically for our technological services business. Delays in supply may significantly hurt our ability to fulfill our contractual obligations and may significantly hurt our business and result of operations. In addition, we may not be able to continue to obtain such components from these suppliers on satisfactory commercial terms. Disruptions of its manufacturing operations would ensue if we were required to obtain components from alternative sources, which would have an adverse effect on our business, results of operations and financial condition.

 

If we are unable to recruit and retain key management, technical and sales personnel, our business would be negatively affected.

 

For our business to be successful, we need to attract and retain highly qualified executive, technical and sales personnel. The failure to recruit additional key personnel when needed, with specific qualifications, on acceptable terms and with an ability to maintain positive relationships with our partners, might impede our ability to continue to develop, commercialize and sell our products and services. To the extent the demand for skilled personnel exceeds supply, we could experience higher labor, recruiting and training costs in order to attract and retain such employees. The loss of any members of our management team may also delay or impair achievement of our business objectives and result in business disruptions due to the time needed for their replacements to be recruited and become familiar with our business. We face competition for qualified personnel from other companies with significantly more resources available to them and thus may not be able to attract the level of personnel needed for our business to succeed.

 

If our proposed marketing efforts are unsuccessful, we may not earn enough revenue to become profitable.

 

Our future growth depends on our gaining market acceptance and regular production orders for our products and services. Our marketing plan includes attendance at trade shows, conducting private demonstrations, advertising, public relations, promotional materials and advertising campaigns in print and/or broadcast media. In addition, our marketing plan incorporates strategies to nurture, expand and leverage our global reseller network and relationships with government and defense contractors to achieve greater market penetration in the commercial and government/military verticals. In the event we are not successful in obtaining a significant volume of orders for our products and technology services, we will face significant obstacles in expanding our business. We cannot give any assurance that our marketing efforts will be successful. If they are not, revenue may not be sufficient to cover our fixed costs and we may not become profitable.

 

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Our operating margins may be negatively impacted by reduction in sales or an increase in the cost of products sold.

 

Expectations regarding future sales and expenses are largely fixed in the short term. We maintain raw materials and finished goods at a volume we feel is necessary for anticipated distribution and sales. Therefore, we may not be able to reduce costs in a timely manner to compensate for any unexpected shortfalls between forecasted and actual sales.

 

We face a significant risk of failure because we cannot accurately forecast our future revenues and operating results.

 

The rapidly changing nature of the markets in which we compete makes it difficult to accurately forecast our revenues and operating results. Furthermore, we expect our revenues and operating results to fluctuate in the future due to a number of factors, including the following:

 

  the timing of sales or subscription of our products;
     
  unexpected delays in introducing new products and services;
     
  increased expenses, whether related to sales and marketing or administration; and
     
  costs related to possible acquisitions of businesses.  

 

Rapid technological changes may adversely affect the market acceptance of our products and could adversely affect our business, financial condition and results of operations.

 

The markets in which we compete are subject to technological changes, introduction of new products, change in customer demands and evolving industry standards. Our future success will depend upon our ability to keep pace with technological developments and to timely address the increasingly sophisticated needs of our customers by supporting existing and new technologies and by developing and introducing enhancements to our current products and services and new products and services. We may not be successful in developing and marketing enhancements to our products that will respond to technological change, evolving industry standards or customer requirements. In addition, we may experience difficulties internally or in conjunction with key vendors and partners that could delay or prevent the successful development, introduction and sale of such enhancements and such enhancements may not adequately meet the requirements of the market and may not achieve any significant degree of market acceptance. If release dates of our new products or enhancements are delayed or, if when released, they fail to achieve market acceptance, our business, operating results and financial condition may be adversely affected.

 

Failure to obtain necessary regulatory approvals from the FAA or other governmental agencies, or limitations put on the use of small UAS in response to public privacy concerns, may prevent us from expanding the sales of our drone solutions to commercial and industrial customers in the United States.

 

The regulation of small UAS for commercial use in the United States is undergoing substantial change and the ultimate treatment is uncertain. On February 14, 2012, the FAA Modernization and Reform Act of 2012 was enacted, establishing various deadlines for the FAA to allow expanded use of small UAS for both public and commercial applications. On June 21, 2016, the FAA released its final rules regarding the routine use of certain small UAS (under 55 pounds) in the U.S. National Airspace System pursuant to the act (the “Part 107 Rules”). The Part 107 Rules, which became effective in August 2016, provided safety regulations for small UAS conducting non-recreational operations and contain various limitations and restrictions for such operations, including a requirement that operators keep UAS within visual-line-of-sight and prohibiting flights over unprotected people on the ground who are not directly participating in the operation of the UAS. On December 28, 2020, the FAA announced final rules requiring remote identification of drones and allowing operators of small drones to fly over people and at night under certain conditions. We cannot assure you that any final rules enacted in furtherance of the FAA’s announced proposals will result in the expanded use of our drones and drone solutions by commercial and industrial entities. In addition, there exists public concern regarding the privacy implications of U.S. commercial use of small UAS. This concern has included calls to develop explicit written policies and procedures establishing usage limitations. We cannot assure you that the response from regulatory agencies, customers and privacy advocates to these concerns will not delay or restrict the adoption of small UAS by the commercial use markets.

 

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On March 10, 2022, the FAA’s Unmanned Aircraft Systems Beyond Visual Line of Sight Aviation Rulemaking Committee (“ARC”) issued its final report to the FAA. In terms of key recommendations, the ARC recommends that the FAA set an acceptable level of risk (ALR) for UAS that is consistent across all types of operations being performed. The ARC envisions that this approach will allow the FAA to adopt a common and consistent set of regulations and guidance, giving operators the flexibility to meet the ALR through qualitative or quantitative methods, or a hybrid approach. Next, the ARC recommends a series of modifications to the right of way rules in Low Altitude Shielded Areas (within 100’ of a structure or critical infrastructure as defined in 42 U.S.C. § 5195c)2 and in Low Altitude Non-Shielded Areas (below 400’) to accommodate uncrewed aircraft (“UA”) operations. Specifically, the ARC recommends several amendments to Right of Way rules to:

 

  allow automatic means for see-and-avoid responsibility;

 

  give UA right of way in Shielded Areas;

 

  give UA right of way over crewed aircraft that are not equipped with ADS-B or TABS in Non-Shielded Low Altitude Areas; and

 

  give crewed aircraft that are equipped with ADS-B or TABS (and broadcasting their position) right of way in Non-Shielded Low Altitude Areas.

 

The ARC also recommends an approach to operator qualification that would extend Part 107, Remote Pilot Certificate with Small UAS Rating, to cover topics associated with Extended Visual Line of Sight (EVLOS) and shielded UAS operations. The recommendation creates a new Remote Pilot certificate rating to cover BVLOS operations beyond the scope of the extended Part 107 rating. The examination for both ratings would consist of a knowledge test on relevant areas, while practical training and qualifications would be tied to new Remote Air Carrier and Remote Operating certificates, which would be required for most commercial 1-to-many operations. The qualifications would be based on specific UA systems, Use Cases, and operational restrictions.

 

In addition, the ARC recommends that the FAA establish a new BVLOS Rule which includes a process for qualification of UA and UAS, applicable to aircraft up to 800,000 ft-lb of kinetic energy (in accordance with the Operation Risk Matrix).

 

Finally, the ARC recommends that the FAA adopt a non-mandatory regulatory scheme for third party services to be used in support of UAS BVLOS operations. In addition to its recommendations, the ARC identified certain issues relevant to UAS BVLOS operations that are beyond this ARC’s scope, but which are identified in this report as considerations for future ARCs to address. Similarly, the ARC also identified several issues that are beyond the FAA’s scope of authority. However, these recommendations are in the interest of providing a full framework of actions and policies to promote safe and widespread adoption of UAS BVLOS activities.

 

Federal, state and tribal government regulation of domestic hemp cultivation is new and subject to constant change and evolution, and unfavorable developments could have an adverse effect on our operating results.

 

Any changes in laws or regulations relating to domestic hemp cultivation could adversely affect our business, results of operations and our business prospects for our HempOverview SaaS platform.

 

We may pursue additional strategic transactions in the future, which could be difficult to implement, disrupt our business or change our business profile significantly.

 

We intend to consider additional potential strategic transactions, which could involve acquisitions of businesses or assets, joint ventures or investments in businesses, products or technologies that expand, complement or otherwise relate to our current or future business. We may also consider, from time to time, opportunities to engage in joint ventures or other business collaborations with third parties to address particular market segments. Should our relationships fail to materialize into significant agreements, or should we fail to work efficiently with these companies, we may lose sales and marketing opportunities and our business, results of operations and financial condition could be adversely affected.

 

These activities, if successful, create risks such as, among others: (i) the need to integrate and manage the businesses and products acquired with our own business and products; (ii) additional demands on our resources, systems, procedures and controls; (iii) disruption of our ongoing business; (iv) potential unknown or unquantifiable liabilities associated with the target company; and (v) diversion of management’s attention from other business concerns. Moreover, these transactions could involve: (a) substantial investment of funds or financings by issuance of debt or equity securities; (b) substantial investment with respect to technology transfers and operational integration; and (c) the acquisition or disposition of product lines or businesses. Also, such activities could result in one-time charges and expenses and have the potential to either dilute the interests of our existing shareholders or result in the issuance of, or assumption of debt. Such acquisitions, investments, joint ventures or other business collaborations may involve significant commitments of financial and other resources. Any such activities may not be successful in generating revenue, income or other returns, and any resources we committed to such activities will not be available to us for other purposes. Moreover, if we are unable to access the capital markets on acceptable terms or at all, we may not be able to consummate acquisitions, or may have to do so on the basis of a less than optimal capital structure. Our inability to take advantage of growth opportunities or address risks associated with acquisitions or investments in businesses may negatively affect our operating results.

 

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Additionally, any impairment of goodwill or other intangible assets acquired in an acquisition or in an investment, or charges to earnings associated with any acquisition or investment activity, may materially reduce our earnings. Future acquisitions or joint ventures may not result in their anticipated benefits and we may not be able to properly integrate acquired products, technologies or businesses with our existing products and operations or successfully combine personnel and cultures. Failure to do so could deprive us of the intended benefits of those acquisitions.

 

Breaches of network or information technology security could have an adverse effect on our business.

 

Cyber-attacks or other breaches of technology platforms or IT security may cause equipment failures or disrupt our systems and operations. We may be subject to attempts to breach the security of our technology platforms and IT infrastructure through cyber-attack, malware, computer viruses and other means of unauthorized access. The potential liabilities associated with these events could exceed the insurance coverage we maintain. Our inability to operate our facilities as a result of such events, even for a limited period of time, may result in significant expenses or loss of market share to other competitors in the defense electronics market. In addition, a failure to protect the privacy of customer and employee confidential data against breaches of technology platforms or IT security could result in damage to our reputation. To date, we have not been subject to cyber-attacks or other cyber incidents which, individually or in the aggregate, resulted in a material adverse effect on our business, operating results and financial condition.

 

The preparation of our financial statements involves use of estimates, judgments and assumptions, and our financial statements may be materially affected if our estimates prove to be inaccurate.

 

Financial statements prepared in accordance with generally accepted accounting principles in the United States require the use of estimates, judgments, and assumptions that affect the reported amounts. Different estimates, judgments, and assumptions reasonably could be used that would have a material effect on the financial statements, and changes in these estimates, judgments and assumptions are likely to occur from period to period in the future. These estimates, judgments, and assumptions are inherently uncertain, and, if they prove to be wrong, then we face the risk that charges to income will be required.

 

Our results could be adversely affected by natural disasters, public health crises, political crises or other catastrophic events.

 

Natural disasters, such as hurricanes, tornadoes, floods, earthquakes and other adverse weather and climate conditions; unforeseen public health crises, such as pandemics and epidemics; political crises, such as terrorist attacks, war, labor unrest, and other political instability; or other catastrophic events, such as disasters occurring at our manufacturing facilities, could disrupt our operations or the operations of one or more of our vendors. In particular, these types of events could impact our product supply chain from or to the impacted region and could impact our ability to operate. In addition, these types of events could negatively impact consumer spending in the impacted regions. Disasters occurring at our manufacturing facilities could impact our reputation and our customers’ perception of our brands. To the extent any of these events occur, our operations and financial results could be adversely affected.

 

For instance, Russia’s recent military interventions in Ukraine have led to, and may lead to, additional sanctions being levied by the United States, European Union and other countries against Russia. Russia’s military incursion and the resulting sanctions could adversely affect global energy and financial markets. Although our business does not have any direct exposure to Russia or the adjoining geographic regions, the extent and duration of the military action, sanctions, and resulting market disruptions are impossible to predict, but could be substantial. Any such disruptions caused by Russian military action or resulting sanctions may magnify the impact of other risks described in this section. We cannot predict the progress or outcome of the situation in Ukraine, as the conflict and governmental reactions are rapidly developing and beyond our control. Prolonged unrest, intensified military activities, or more extensive sanctions impacting the region could have a material adverse effect on the global economy, and such effect could in turn have a material adverse effect on the operations, results of operations, financial condition, liquidity and business outlook of our business.

 

Our business may be adversely affected by the ongoing coronavirus pandemic.

 

In December 2019, a novel coronavirus disease (“COVID-19”) was reported. On January 30, 2020, the World Health Organization (“WHO”) declared COVID-19 a Public Health Emergency of International Concern. On February 28, 2020, the WHO raised its assessment of the COVID-19 threat from high to very high at a global level due to the continued increase in the number of cases and affected countries, and on March 11, 2020, the WHO characterized COVID-19 as a pandemic.

 

The outbreak of the novel coronavirus (COVID-19) has evolved into a global pandemic. The coronavirus has spread to many regions of the world, including the United States. The extent to which COVID-19 impacts our business and operating results will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19 and the actions to contain the coronavirus or treat its impact, among others.

 

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The spread of the coronavirus, which has caused a broad impact globally, including restrictions on travel and quarantine policies put into place by businesses and governments, may have a material economic effect on our business. While the potential economic impact brought on by and the duration of the pandemic may be difficult to assess or predict, it has already caused, and is likely to result in further, significant disruptions of global financial markets, which may reduce our ability to access capital either at all or on favorable terms. In addition, a recession, depression or other sustained adverse market event resulting from the spread of the coronavirus could materially and adversely affect our business and the value of our Common Stock.

 

In addition, as a result of the pandemic, our ability to access components and parts needed in order to manufacture our proprietary drones and sensors, and to perform quality testing have been impacted. If either we or any third-parties in the supply chain for materials used in our manufacturing and assembly processes continue to be adversely impacted by restrictions resulting from the coronavirus pandemic, our supply chain may be further disrupted, limiting our ability to manufacture and assemble products.

 

The ultimate impact of the current pandemic, or any other health epidemic, is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business or the global economy as a whole. However, these effects could have a material impact on our operations. We will continue to monitor the situation closely.

 

Worldwide and domestic economic trends and financial market conditions, including an economic decline in the agricultural industry, may adversely affect our operating performance.

 

We intend to distribute our products and services in a number of countries and derive revenues from both inside and outside the United States. We expect our business will be subject to global competition and may be adversely affected by factors in the United States and other countries that are beyond our control, such as disruptions in financial markets, economic downturns in the form of either contained or widespread recessionary conditions, elevated unemployment levels, sluggish or uneven recovery, in specific countries or regions, or in the agricultural industry; social, political or labor conditions in specific countries or regions; natural and other disasters affecting our operations or our customers and suppliers; or adverse changes in the availability and cost of capital, interest rates, tax rates, or regulations in the jurisdictions in which we operate. Unfavorable global or regional economic conditions, including an economic decline in the agricultural industry, could adversely impact our business, liquidity, financial condition and results of operations.

 

Our senior management and key employees are important to our customer relationships and overall business.

 

We believe that our success depends in part on the continued contributions of our senior management and key employees. We rely heavily on our executive officers, senior management and key employees to generate business and execute programs successfully. In addition, the relationships and reputation that members of our management team and key employees have established and maintain with certain key customers continue to our ability to maintain good customer relations and to identify new business opportunities. The loss of any of our executive officers, members of our senior management team or key employees could significantly delay or prevent the achievement of our business objectives and could materially harm our business and customer relationships and impair our ability to identify and secure new contracts and otherwise manage our business.

 

We indemnify our officers and directors against liability to us and our security holders, and such indemnification could increase our operating costs.

 

Our bylaws allow us to indemnify our officers and directors against claims associated with carrying out the duties of their offices. Our bylaws also allow us to reimburse them for the costs of certain legal defenses. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our officers, directors or control persons, the SEC has advised that such indemnification is against public policy and is therefore unenforceable.

 

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Risks Associated with Our Capital Stock

 

The market price of our securities may be volatile and may fluctuate in a way that is disproportionate to our operating performance.

 

Our securities may experience substantial volatility as a result of a number of factors, including, among others:

 

  sales or potential sales of substantial amounts of our Common Stock;
     
  announcements about us or about our competitors or new product introductions;
     
  developments concerning our product manufacturers;
     
  the loss or unanticipated underperformance of our global distribution channel;
     
  litigation and other developments relating to our patents or other proprietary rights or those of our competitors;
     
  conditions in the UAV, domestic hemp cultivation and drone-enabled package delivery industries;
     
  governmental regulation and legislation;
     
  variations in our anticipated or actual operating results;
     
  changes in securities analysts’ estimates of our performance, or our failure to meet analysts’ expectations;
     
  foreign currency values and fluctuations; and
     
  overall political and economic conditions, including Russia’s invasion of Ukraine.

 

Many of these factors are beyond our control. The stock markets have historically experienced substantial price and volume fluctuations. These fluctuations often have been unrelated or disproportionate to the operating performance of these companies. These broad market and industry factors could reduce the market price of our securities, regardless of our actual operating performance.

 

We do not intend to pay cash dividends. As a result, capital appreciation, if any, will be your sole source of gain.

 

We intend to retain future earnings, if any, to fund the development and growth of our business. In addition, the terms of existing and future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, from the sale of our Common Stock will be your sole source of gain for the foreseeable future.

 

Provisions in our articles of incorporation, our by-laws and Nevada law might discourage, delay or prevent a change in control of our company or changes in our management and, therefore, depress the trading price of our Common Stock.

 

Provisions of our Articles of Incorporation, our By-Laws and Nevada law may have the effect of deterring unsolicited takeovers or delaying or preventing a change in control of our Company or changes in our management, including transactions in which our stockholders might otherwise receive a premium for their shares over then current market prices. In addition, these provisions may limit the ability of stockholders to approve transactions that they may deem to be in their best interests. These provisions include:

 

  the inability of stockholders to call special meetings; and
     
  the ability of our board of directors to designate the terms of and issue new series of preferred stock without stockholder approval, which could include the right to approve an acquisition or other change in our control or could be used to institute a rights plan, also known as a poison pill, that would work to dilute the stock ownership of a potential hostile acquirer, likely preventing acquisitions that have not been approved by our board of directors.

 

The existence of the forgoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our Common Stock. They could also deter potential acquirers of our company, thereby reducing the likelihood that you could receive a premium for your Common Stock in an acquisition.

 

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We incur increased costs as a result of operating as a public reporting company, and our management is required to devote substantial time to new compliance initiatives.

 

As a public reporting company, we incur significant legal, accounting and other expenses not otherwise incurred by a private company. In addition, the Sarbanes-Oxley Act of 2002 and rules subsequently implemented by the SEC, have imposed various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel continue to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have increased our legal and financial compliance costs and have made some activities more time consuming and costly. For example, we expect that these rules and regulations will continue to make it more difficult and more expensive for us to obtain director and officer liability insurance.

 

We currently have outstanding, and we may in the future issue, instruments which are convertible into shares of Common Stock, which will result in additional dilution to our shareholders.

 

We currently have an outstanding instrument which is convertible into shares of Common Stock, and we may need to issue similar instruments in the future. In the event that these convertible instruments are converted into shares of outstanding Common Stock, or that we make additional issuances of other convertible or exchangeable securities, you could experience additional dilution. Furthermore, we cannot assure you that we will be able to issue shares or other securities in any other offering at a price per share that is equal to or greater than the price per share paid by investors or the then current market price.

 

FINRA sales practice requirements may limit a stockholder’s ability to buy and sell our securities.

 

The Financial Industry Regulatory Authority, Inc. (“FINRA”) has adopted rules that a broker-dealer must have reasonable grounds for believing that an investment recommended to a customer is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives, and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for certain customers. FINRA requirements will likely make it more difficult for broker-dealers to recommend that their customers buy our Common Stock, which may have the effect of reducing the level of trading activity in the shares, resulting in fewer broker-dealers may be willing to make a market in our shares, potentially reducing a stockholder’s ability to resell our securities.

 

If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our shares or if our results of operations do not meet their expectations, the price of our securities and trading volume could decline.

 

The trading market for our securities will be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not have any control over these analysts. If one or more of these analyst’s cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our share price or trading volume to decline. Moreover, if one or more of the analysts who cover us downgrade our stock, or if our results of operations do not meet their expectations, the price of our securities could decline.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

Not applicable.

 

ITEM 2. PROPERTIES

 

As of December 31, 2021, the Company is a party to the following non-cancellable operating leases for manufacturing facilities and office space:

 

Location   Purpose   Initial Term  
(months)
  Lease Expiration Date
8863 E. 34th Street, North   Wichita, Kansas     Manufacturing Facility &   Corporate Headquarters       36       October 31, 2023  
Route de Genève 38   1033 Cheseaux-sur-Lausanne, Switzerland     Distribution & Assembly Facility & Offices       60       April 30, 2023  
10107 Division Drive   Raleigh, North Carolina     Offices       60       December 31, 2022  
600 Congress Avenue   Austin, Texas     Offices       17       December 31, 2022  
1701 Rhode Island Avenue NW   Washington, DC     Offices       15       December 31, 2022  
1300 N. Northlake Way   Seattle, Washington     Offices       60       January 2026  

 

As of December 31, 2021, the Company held properties in Lausanne, Switzerland; Raleigh, NC; Austin, TX; Washington, DC; Seattle, WA represent non-cancelable lease obligations assumed by the Company as a result of its 2021 business acquisitions of senseFly S.A., senseFly Inc. Measure Global Inc, and MicaSense, Inc., respectively.

 

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ITEM 3. LEGAL PROCEEDINGS

 

Legal Proceedings

 

From time to time, we may become involved in lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. Although we currently maintain liability insurance coverage intended to cover professional liability and certain other claims, we cannot assure that our insurance coverage will be adequate to cover liabilities arising out of claims asserted against us in the future where the outcomes of such claims are unfavorable to us. Liabilities in excess of our insurance coverage, including coverage for professional liability and certain other claims, could have a material adverse effect on our business, financial condition and results of operations.

 

Lopez v. AgEagle Aerial Systems, Inc., et al., Case No. 2:21-cv-01810 (C.D. Cal.), consolidated with Madrid v. AgEagle Aerial Systems, Inc., et al., Case No. 2:21-cv-01991 (C.D. Cal.)

 

As previously disclosed, AgEagle and certain of its current and former officers and directors were named as defendants in two putative securities class actions filed in the U.S. District Court for the Central District of California (Lopez v. AgEagle Aerial Systems Inc., et al., Case No. 2:21-cv01810; and Madrid v. AgEagle Aerial Systems Inc., et al., Case No. 2:21-cv-01991). These matters were consolidated, and a Lead Plaintiff designated by Court Order. On July 30, 2021, the Court-appointed Lead Plaintiff filed a voluntary dismissal of the consolidated securities class action.

 

Nostrand and Rickerson v. Mooney et al. (Defendants) and AgEagle Aerial Systems, Inc. (Nominal Defendant), Case No. 3:21-cv-00130 (D. Nev.)

 

As previously disclosed, on March 17, 2021, John Nostrand and Drew Rickerson filed a shareholder derivative complaint against the Company as the nominal defendant, Barrett Mooney, Grant Begley, Luisa Ingargolia, Thomas Gardner, Bret Chilcott, J. Michael Drozd, and Nicole Fernandez-McGovern. On July 20, 2021, the Plaintiffs in this derivative action filed a voluntary dismissal of the action.

 

Granja v. AgEagle Aerial Systems Inc. (Nominal Defendant), et al, Case No. 2:21-cv-06056 (C.D. Cal.)

 

On July 27,2021, a separate shareholder filed a similar derivative complaint against the Company as the nominal defendant and certain of its current and former officers and directors in the U.S. District Court for the Central District of California (Granja v. AgEagle Aerial Systems Inc., et al, Case No. 2:21-cv-06056). On August 11, 2021, the Plaintiff in this California derivative action filed a voluntary dismissal of the action.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

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PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Our Common Stock is currently quoted on the NYSE American under the symbol “UAVS.”

 

The following table sets forth, for the period indicated, the quarterly high and low closing sales prices per share of our Common Stock for each quarter during our last two fiscal years, as well as a large portion of our first quarter in 2022, of as reported by the New York Stock Exchange.

 

2022   High   Low
First Quarter (through March 31, 2022)     $ 1.76     $ 0.91  

 

2021   High   Low
First Quarter   $ 15.69     $ 5.47  
Second Quarter   $ 8.35     $ 4.06  
Third Quarter   $ 5.01     $ 2.94  
Fourth Quarter   $ 3.05     $ 1.53  

 

2020   High   Low
First Quarter   $ 0.72     $ 0.30  
Second Quarter   $ 2.30     $ 0.34  
Third Quarter   $ 3.42     $ 1.15  
Fourth Quarter   $ 7.93     $ 1.98  

 

As of March 31, 2022, we had approximately 367 individual shareholders of record of our Common Stock. We believe that the number of beneficial owners of our Common Stock is greater than the number of record holders, because a number of shares of our Common Stock is held through brokerage firms in “street name.”

 

Dividend Policy

 

We do not intend to pay cash dividends to our stockholders in the foreseeable future. We currently intend to retain all our available funds and future earnings, if any, to finance the growth and development of our business. Any future determination related to our dividend policy will be made at the discretion of our Board of Directors and will depend upon, among other factors, our results of operations, financial condition, capital requirements, contractual restrictions, business prospects and other factors our Board of Directors may deem relevant.

 

Equity Compensation Plan

 

The following table provides information as of December 31, 2021 about our equity compensation plan and arrangements:

 

Plan category   Number of securities to
be issued upon exercise
of outstanding options
and restricted stock units
  Weighted-average
exercise price of
outstanding options,
and restricted stock units
  Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plans approved by security holders     3,688,917     $ 1.98       4,639,733  
Equity compensation plans not approved by security holders                  
Total     3,688,917     $ 1.98       4,639,733  

 

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 Recent Sales of Unregistered Securities

 

None.

 

Purchases of Equity Securities by Issuer and Its Affiliates

 

None.

 

ITEM 6. SELECTED FINANCIAL DATA

 

This item is not required for Smaller Reporting Companies.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

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

 

Overview

 

AgEagle™ Aerial Systems Inc. (“AgEagle” or the “Company”), 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 best-in-class, autonomous unmanned aerial systems (UAS) to a wide range of industry verticals, including energy/utilities, infrastructure, agriculture and government, among others.

 

The Company’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 AgEagle 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 nearly 200 UAS resellers, and enterprise customers worldwide, these acquisitions also brought AgEagle a highly valuable workforce comprised largely of experienced engineers and technologists with deep expertise in the fields of robotics, automation, manufacturing and data science.

 

AgEagle is led by a proven management team with years of drone industry experience. In view of AgEagle’s CEO’s appointment to the U.S. Federal Aviation Administration’s (FAA) Advanced Aviation Advisory Committee and Unmanned Aircraft Systems Beyond Visual Line of Sight Aviation Rulemaking Committee, in addition to, and the Company’s participation in the FAA’s BEYOND program, AgEagle has played a hands-on role in helping to establish necessary rulemaking guidelines and regulations for the future of autonomous flight and the full integration of drones into the U.S. airspace.

 

The Company is headquartered in Wichita, Kansas, where it also houses its U.S. manufacturing operations. In addition, AgEagle has business operations in Austin, Texas; Lausanne, Switzerland; Raleigh, North Carolina; Seattle, Washington; and Washington, D.C.

 

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 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:

 

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  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:

 

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

 

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

 

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

 

Competitive Strengths

 

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

 

Proprietary technologies, in-house capabilities and industry experience – We believe our decade of experience in commercial UAS design and engineering; in-house manufacturing, assembly and testing capabilities; and advanced technology development skillset serve to differentiate AgEagle in the marketplace. In fact, approximately 70% of our Company’s global workforce is comprised of engineers and data scientists with deep experience and expertise in robotics, automation, custom manufacturing and data analytics. In addition, AgEagle is committed to meeting and exceeding quality and safety standards for manufacturing, assembly, design and engineering and testing of drones, drone subcomponents and related drone equipment in our Wichita-based and Swiss manufacturing operations.

 

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

 

  We offer market-tested drones, sensors and software solutions that have earned the longstanding trust and fidelity of customers worldwide – through successful execution of our acquisition 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 eBee fixed 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 just a few. Featured in over 100 research publications globally, advanced sensor innovations developed and commercialized by MicaSense, 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 Fortune 500 companies, government agencies and a wide range of businesses in agriculture, energy and utilities, construction and other industry sectors.

 

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Impact of COVID-19 On Our Business Operations

 

The outbreak of the novel coronavirus (“COVID-19”) has evolved into a global pandemic. The coronavirus has spread to many regions of the world, including the United States. The extent to which COVID-19 impacts our business and operating results will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19 and the actions to contain the coronavirus or treat its impact, among others.

 

The spread of the coronavirus, which has caused a broad impact globally, including restrictions on travel and quarantine policies put into place by businesses and governments, may have a material economic effect on our business. While the potential economic impact brought on by and the duration of the pandemic may be difficult to assess or predict, it has already caused, and is likely to result in further, significant disruptions of global financial markets, which may reduce our ability to access capital either at all or on favorable terms. In addition, a recession, depression or other sustained adverse market event resulting from the spread of the coronavirus could materially and adversely affect our business and the value of our Common Stock.

 

In addition, as a result of the pandemic, our ability to access components and parts needed in order to manufacture our proprietary drones and sensors, and to perform quality testing have been impacted. If either we or any third-parties in the supply chain for materials used in our manufacturing and assembly processes continue to be adversely impacted by restrictions resulting from the coronavirus pandemic, our supply chain may be further disrupted, limiting our ability to manufacture and assemble products.

 

The ultimate impact of the current pandemic, or any other health epidemic, is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business or the global economy as a whole. However, these effects can have a material impact on our operations.

 

During the year ended December 31, 2021, our supply chain was adversely impacted by the pandemic, causing material delays in the delivery of critical supply orders associated with timely fulfilling our obligations to our large ecommerce client. As a consequence, significant inventory purchases were made in 2021 in order to secure the manufacturing of our products in an effort to prevent delays in 2022. This is an on-going situation that we continue to monitor closely.

 

Critical Accounting Policies and Estimates

 

Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses during the reporting period. Our most critical estimates include those related to revenue recognition, inventories and reserves for excess and obsolescence, accounting for stock-based awards, and income taxes. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.

 

We believe the following critical accounting estimates affect the more significant judgments and estimates used in preparing our consolidated financial statements. Please see Note 2 to our consolidated financial statements, which are included in Item 8 “Financial Statements and Supplementary Data” of this Annual Report, for our Summary of Significant Accounting Policies. There have been no material changes made to the critical accounting estimates during the periods presented in the consolidated financial statements.

 

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Revenue Recognition

 

 The majority of our revenue is generated pursuant to written 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. These contracts are fixed price, and we account for all revenue contracts in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). Under fixed-price contracts, we agree to perform the specified work for a pre-determined price. To the extent our actual costs vary from the estimates upon which the price was negotiated, we will generate more or less profit or could incur a loss. We account for a contract after it has been approved by all parties to the arrangement, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

 

Topic 606 requires revenue to be recognized when promised goods or services are transferred to customers in amounts that reflect the consideration to which the Company expects to be entitled in exchange for those goods or services and recognize revenue under the new standard as costs are incurred. Under previous US GAAP revenue was generally recognized when deliveries were made, performance milestones were attained, or as costs were incurred. The new standard accelerates the timing of when the revenue is recognized, however, it does not change the total amount of revenue recognized on our UAVS contracts. The new standard does not affect revenue recognition for purposes of our UAVS, sensor or software subscription sales as each of the Company’s revenue transactions represent a single performance obligation that is satisfied at a point in time or monthly subscription fees which are recognized ratably over the subscription period, as defined in the new ASU. Accordingly, the Company recognizes revenue for small UAS product contracts with customers at the point in time when the transfer of control passes to the customer, which is generally upon shipping.

 

Inventories and Provision for Obsolescence

 

Our policy for valuation of inventory, including the determination of obsolete inventory, requires us to perform a detailed assessment of inventory at each balance sheet date, which includes a review of, among other factors, an estimate of future demand for products within specific time horizons, valuation of existing inventory, as well as product lifecycle and product development plans. Inventory reserves are also provided to cover risks arising from slow-moving items. We write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated net realizable value based on assumptions about future demand and market conditions. We may be required to record additional inventory write-downs if actual market conditions are less favorable than those projected by our management.

 

Business Combinations

 

The Company records acquisitions pursuant to ASC Topic 805, Business Combinations, (“ASC 805”). The Company recognizes, with certain exceptions, 100% of the fair value of assets acquired, liabilities assumed, and non-controlling interests when the acquisition constitutes a change in control of the acquired entity. Shares issued in consideration for a business combination, contingent consideration arrangements and pre-acquisition loss and gain contingencies are all measured and recorded at their acquisition-date fair value. Subsequent changes to fair value of contingent consideration arrangements are generally reflected in earnings. Any in-process research and development assets acquired are capitalized as of the acquisition date. Acquisition-related transaction costs are expensed as incurred. The operating results of entities acquired are included in the accompanying consolidated statements of operations and comprehensive loss from the respective dates of acquisition.

 

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Goodwill and Intangible Assets

 

 Intangible assets from acquired businesses are recognized at fair value on the acquisition date and consist of customer programs, trademarks, customer relationships, technology, and other intangible assets. Customer programs include values assigned to major programs of acquired businesses and represent the aggregate value associated with the customer relationships, contracts, technology, and trademarks underlying the associated program and are amortized on a straight-line basis over a period of expected cash flows used to measure fair value, which ranges from three to five years.

 

In accordance with ASC Topic 350-40, Software - Internal-Use Software (“ASC 350-40”), the Company capitalizes certain direct costs of developing internal-use software that are incurred in the application development stage, when developing or obtaining software for internal use. Once the internal use software is ready for its intended use, it is amortized on a straight-line basis over its useful life.

Finite-lived intangible assets are evaluated for impairment periodically, or whenever events or changes in circumstances indicate that their related carrying amounts may not be recoverable in accordance with ASC Topic 360-10-15, Impairment or Disposal of Long-Lived Assets, (“ASC 360-10-15”). In evaluating intangible assets for recoverability, the Company uses its best estimate of future cash flows expected to result from the use of the asset and eventual disposition in accordance with ASC 360-10-15. To the extent that estimated future undiscounted net cash flows are less than the carrying amount, an impairment loss is recognized in an amount equal to the difference between the carrying value of such asset and its fair value.

 

Asset recoverability is an area involving management judgment, requiring assessment as to whether the carrying values of assets are supported by their undiscounted future cash flows. In estimating future cash flows, certain assumptions are required to be made in respect of highly uncertain matters such as revenue growth rates, operating expenses and terminal growth rates.

 

Goodwill represents costs in excess of fair values assigned to the underlying identifiable net assets of acquired businesses. Goodwill is not subject to amortization and is tested annually for impairment, or more frequently if events or changes in circumstances indicate that the carrying value of the goodwill may not be recoverable.

 

As of December 31, 2021 and 2020, our goodwill balance was $64.9 million and $3.1 million, respectively. We perform an annual impairment test of our goodwill at least annually in the fourth quarter or more frequently whenever events or changes in circumstances indicate the carrying value of goodwill may be impaired. Such events or changes in circumstances may include a significant deterioration in overall economic conditions, changes in the business climate of our industry, a decline in our market capitalization, operating performance indicators, competition, reorganizations of our business. Our goodwill has been allocated to and is tested for impairment at a level referred to as the business segment. The level at which we test goodwill for impairment requires us to determine whether the operations below the business segment constitute a self-sustaining business for which discrete financial information is available and segment management regularly reviews the operating results.

 

We use both qualitative and quantitative approaches when testing goodwill for impairment. To perform a qualitative assessment, we review events and circumstances that could affect the significant inputs used to determine if the fair value is less than the carrying value of goodwill. If the qualitative assessment indicates that a goodwill impairment may exist, or we decide not to perform a qualitative assessment, we proceed to perform a quantitative assessment. To perform the quantitative impairment test, we compare the fair value of a reporting unit to its carrying value, including goodwill. If the fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is not impaired. If the carrying value of the reporting unit, including goodwill, exceeds its fair value, a goodwill impairment loss is recognized in an amount equal to that excess. We generally estimate the fair value of each reporting unit using a combination of a discounted cash flow (“DCF”) analysis and market-based valuation methodologies such as comparable public company trading values and values observed in recent business acquisitions. Determining fair value requires the exercise of significant judgments, including the amount and timing of expected future cash flows, long-term growth rates, discount rates and relevant comparable public company earnings multiples and relevant transaction multiples. The cash flows employed in the DCF analysis are based on our best estimate of future sales, earnings and cash flows after considering factors such as general market conditions, existing firm orders, expected future orders, changes in working capital, long term business plans and recent operating performance.

 

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Finite-lived intangibles are amortized to expense over the applicable useful lives, ranging from four to five 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 exceed 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.

 

During the fourth quarter 2021, we performed our annual goodwill and finite-lived intangible assets impairment tests for our three reporting units. The results of these tests indicated that the Company’s Drones and Custom Manufacturing and Sensors reporting units exceeded their respective carrying amounts, while the fair value of the SaaS reporting unit was less than its carrying amount reflected in the consolidated balance sheets. Accordingly, the Company recorded a $12,357,921 goodwill impairment charge on its SaaS reporting unit during the fourth quarter of 2021. The results of these tests indicated that for our reporting units no impairment charges were necessary related to our finite-intangibles assets of $13,565,494.

 

As of December 31, 2020, we performed our annual goodwill and finite-lived intangible assets impairment tests for our Drones and Custom Manufacturing and SaaS reporting units. The results of these tests indicated that for these reporting units no impairment charges existed for the recorded goodwill of $3,108,000 or the related finite-intangibles assets of $440,000.

 

Share-Based Compensation Awards

 

The value we assign to the options that we issue is based on the fair market value as calculated by the Black-Scholes pricing model. To perform a calculation of the value of our options, we determine an estimate of the volatility of our stock. We need to estimate volatility because there has not been enough trading of our stock to determine an appropriate measure of volatility. We believe our estimate of volatility is reasonable, and we review the assumptions used to determine this whenever we issue new equity instruments. If we have a material error in our estimate of the volatility of our stock, our expenses could be understated or overstated. All share-based awards are expensed on a straight-line basis over the vesting period of the options.

 

Income Taxes

 

We are required to estimate our income taxes, which includes estimating our current income taxes as well as measuring the temporary differences resulting from different treatment of items for tax and accounting purposes. We currently have significant deferred assets, which are subject to periodic recoverability assessments. Realizing our deferred tax assets principally depends on our achieving projected future taxable income. We may change our judgments regarding future profitability due to future market conditions and other factors, which may result in recording a valuation allowance against those deferred tax assets.

 

Results of Operations

 

Year Ended December 31, 2021 as Compared to Year Ended December 31, 2020

 

For the year ended December 31, 2021, revenues were $9,760,952 as compared to $1,285,383 during the year ended December 31, 2020, an increase of $8,475,569, or 659%. The increase was primarily attributable to the new revenues derived from the acquisition of MicaSense, Measure and senseFly businesses. The largest increase can be attributed to our strong sensor sales related specifically to the Altum™, RedEdge-MX™, and RedEdge-MX™ Blue, followed by new sales associated with ebee products. In addition, revenue growth was also positively impacted by increased sales of our SaaS subscription services related to the HempOverview, Ground Control and Atlas Flight platforms which accounted for subscription and licensing sales to various enterprise customers and the states of Iowa and Florida.

 

For the year ended December 31, 2021, cost of sales was $5,504,708 as compared to $711,650 for the year ended December 31, 2020, an increase of $4,793,058, or 674%. We had a gross profit of $4,256,244, or 44% and $573,733 or 45%, respectively, for the years ended December 31, 2021, and 2020, a decrease in our profit margins of 2%. The primary factors contributing to the increase in our cost of sales and decrease in gross profit margin were (i) due to the increase in our cost of components and parts, and (ii) discontinuation of certain of our older sensors and airframes that the Company will no longer be able to sell due to lack of sourcing of certain critical components needed to produce these products.

 

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For the year ended December 31, 2021, operating expenses were $34,549,016, as compared to $5,505,040 for the year ended December 31, 2020, an increase of $29,043,976, or 528%. Operating expenses comprise general and administrative, professional fees, sales and marketing, and research and development, and goodwill impairment. For the year ended December 31, 2021, general and administrative expenses were $12,260,610 as compared to $2,732,274 for the year ended December 31, 2020, an increase of $9,528,336, or 350%. The increase was primarily due to costs for additional payroll and bonus payments associated with new hires and existing employees for the MicaSense, Measure and senseFly acquisitions (“Business Acquisitions”), and stock compensation expenses related to employees and directors, ERP and related implementation costs, rent cost associated with our new leases for Wichita, Seattle, Washington D.C., Austin, Switzerland and Raleigh offices, and additional amortization expense associated with the intangibles acquired as part of the recent Business Acquisitions and platform development costs. For the year ended December 31, 2021, professional fees were $2,696,800 as compared to $2,703,371, a decrease of $6,571 for the year ended December 31, 2020, or less than 1%. This was mainly due to similar consulting, legal and stock-compensation costs as in the prior year. Also included in our operating expenses were sales and marketing costs that increased to $3,150,886 from $40,003 in the prior year's comparable period due to addition of the MicaSense, Measure and senseFly sales and marketing teams, hiring of additional employees and related business development consultants. Lastly, we recorded research and development expenses totaled $4,082,799 as compared to $29,392 for the year ended December 31, 2020, an increase of $4,053,407, or 1,379%. The increase was mainly due to the MicaSense, Measure and senseFly acquisitions costs incurred for the development of new airframe, sensor and software technologies. We recorded a $12,357,921 goodwill impairment charge related to our SaaS reporting unit in the fourth quarter of 2021. The impairment charge considered lower than forecasted sales and profitability along with declining markets conditions and changes in our technologies.

 

For the year ended December 31, 2021, other income, net was $184,092 as compared to other expense, net of $1,143 for the year ended December 31, 2020. The change was primarily attributable to the loan owed under the Paycheck Protection Program ("PPP Loan") for AgEagle, offset by grant income for Measure contracts.

 

For the year ended December 31, 2021, the Company incurred a net loss of $30,108,680 as compared to a net loss of $4,932,540 for the year ended December 31, 2020, an increase of $25,176,230, or 510%. The overall increase in net loss was primarily attributable to greater operating and transactional costs as a result of the 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 platforms, products and services that support prevailing growth opportunities.

 

Cash Flows

 

Year ended December 31, 2021 as Compared to the Year ended December 31, 2020

 

As of December 31, 2021, cash on hand was $14,590,566, a decrease of $9,349,767, or 39%, as compared to $23,940,333 as of December 31, 2020. For the year ended December 31, 2021, cash used in operations $12,463,128, an increase of $10,206,556, as compared to $2,256,571 for the year ended December 31, 2020. The increase in cash used in operating activities was mainly driven by an increase in operating loss due to greater overhead expenses along with an increase in accrued expenses related to issuance of Common stock and accrued liabilities for the MicaSense, Measure and senseFly acquisitions.

 

For the year ended December 31, 2021, cash used in investing activities was $42,497,624, an increase of $41,718,601, as compared to $779,023 for the year ended December 31, 2020. The increase in cash used in our investing activities resulted from the acquisitions of MicaSense, Measure and senseFly acquisitions, purchase of property and equipment and building improvements related to the new leased warehouse and corporate offices in Wichita, along with recording capitalized costs associated with the development of the HempOverview and Measure Ground Control platforms.

 

For the year ended December 31, 2021, cash provided by financing activities was $45,610,984, an increase of $19,353,054, as compared to the year ended December 31, 2020. The increase in cash provided by our financing activities was due to sales of our Common stock and the exercise of warrants issued in connection with a securities purchase agreement dated August 4, 2020 and the ATM, in connection with the Company’s ATM Offering.

 

Liquidity and Capital Resources

 

As of December 31, 2021, we had working capital of $5,846,546. For the year ended December 31, 2021, we incurred a loss from operations of $30,292,772, inclusive of $12,357,921 for goodwill impairment, an increase of $25,361,465, as compared to $4,931,307 for the year ended December 31, 2020. While there can be no guarantees, we believe the cash on hand, in connection with cash generated from revenue, will be sufficient to fund the next twelve months of operations. In addition, we intend to pursue other opportunities of raising capital with outside investors.

 

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For the year ended December 31, 2021, we raised capital of $6,613,943 as a result of the sale of 1,057,214 shares of Common Stock in connection with a securities purchase agreement (the "December Purchase Agreement") entered on December 31, 2020. Also on February 8, 2021, we received $8,305,368 in additional gross proceeds associated with the exercise of 2,516,778 of warrants issued at a price of $3.30 per share in connection with a securities purchase agreement dated August 4, 2020. During the period from May 26, 2021 through December 31, 2021, we raised $30,868,703 of net proceeds from our ATM Offering with co-agents Stifel, Nicolaus &Company, Incorporated and Raymond James & Associates.

 

The Company has continued to realize losses from operations. However, because of our capital raise efforts, we believe that we will have sufficient cash to meet our anticipated operating costs and capital expenditure requirements through December 2022. Our primary need for liquidity is to fund working capital requirements of our business, capital expenditures, acquisitions, debt service, and for general corporate purposes. Our primary source of liquidity is funds generated by financing activities and from private placements. Our ability to fund our operations, to make planned capital expenditures, to make planned acquisitions, to make scheduled debt payments, and to repay or refinance indebtedness depends on our future operating performance and cash flows, which are subject to prevailing economic conditions and financial, business and other factors, some of which are beyond our control.

 

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

 

Off-Balance Sheet Arrangements

 

On December 31, 2021, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources. Since our inception, except for standard operating leases, we have not engaged in any off-balance sheet arrangements, including the use of structured finance, special purpose entities or variable interest entities. We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

 

Contractual Obligations

 

Material contractual obligations arising in the normal course of business primarily consist of business acquisition related liabilities, principal and interest payments for loans made under the Paycheck Protection Program, defined benefit plan obligations, principal and interest payments for operating leases and other purchase obligations. See Notes 5, 8, 10, 11 and 13 to the consolidated financial statements for amounts outstanding as of December 31, 2021 for these contractual obligations.

 

Inflation

 

Our opinion is that inflation did not have a material effect on our operations for the year ended December 31, 2021.

 

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

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

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

 

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Our financial statements are contained in pages F-1 through F-33, which appear at the end of this Annual Report on Form 10-K.

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure and Control Procedures

 

The Company’s Chief Executive Officer and the Company’s Chief Financial Officer evaluated the effectiveness of the Company’s disclosure controls and procedures as of December 31, 2021 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.

 

Management’s Report on Internal Control over Financial Reporting

 

The Company’s management is responsible for establishing and maintaining an adequate system of internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with Generally Accepted Accounting Principles (“US GAAP”).

 

Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance of such reliability and may not prevent or detect misstatements. Also, projection of any evaluation of effectiveness to future periods is subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

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Management has conducted, with the participation of our Chief Executive Officer and our Chief Financial Officer, an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2021. Management’s assessment of internal control over financial reporting used the criteria set forth in SEC Release 33-8810 based on the framework established by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control over Financial Reporting — Guidance for Smaller Public Companies. Based on this evaluation, Management concluded that our system of internal control over financial reporting was effective as of December 31, 2021, based on these criteria.

 

This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. As a smaller reporting company, our management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only the management’s report.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(t) and 15d-15(f) under the Exchange Act, during the year ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 9B. OTHER INFORMATION

 

None. 

 

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

 

None.

 

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PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

The information required by this item is incorporated by reference to the definitive proxy statement for our 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days of December 31, 2021.

 

ITEM 11. EXECUTIVE COMPENSATION

 

The information required by this item is incorporated by reference to the definitive proxy statement for our 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days of December 31, 2021.

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 

 

The information required by this item is incorporated by reference to the definitive proxy statement for our 2022 Annual Meeting of Shareholders to be filed within the SEC within 120 days of December 31, 2021.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

The information required by this item is incorporated by reference to the definitive proxy statement for our 2022 Annual Meeting of Shareholders to be filed within the SEC within 120 days of December 31, 2021.

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

The information required by this item is incorporated by reference to the definitive proxy statement for our 2022 Annual Meeting of Shareholders to be filed within the SEC within 120 days of December 31, 2021.

 

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PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES

 

Exhibit No.   Description
     
3.1   Amended and Restated Articles of Incorporation, as currently in effect (incorporated by reference to Exhibit 3.1 to the Form 10-Q filed on August 14, 2008)
     
3.2   Certificate of Amendment of Articles of Incorporation as filed with the Nevada Secretary of State on May 29, 2014 (incorporated herein by reference as Exhibit 3.1 on Current Report Form 8-K filed on May 29, 2014)
     
3.3   Certificate of Amendment of Articles of Incorporation (incorporated by reference as Exhibit 3.1 on Current Report Form 8-K filed on May 29, 2014)
     
3.4   Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock (incorporated herein by reference as Exhibit 4.1 on Current Report Form 8-K filed on March 11, 2015)
     
3.5   Certificate of Designation of Series C Preferred Stock filed with the Nevada Secretary of State on April 27, 2017 (incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on April 28, 2017)
     
3.6   Amendment to Certificate of Designation of Series C Preferred Stock (incorporated by reference to Exhibit 3.3 to the Form 8-K filed on March 29, 2018)
     
3.7   Certificate of Designation for Series A Preferred Stock (incorporated by reference to Exhibit 4.1 to the Form 8-K filed on January 6, 2011).
     
3.8   Amended and Restated Certificate of Designation of Preferences, Rights and Limitations of the 10% Series A Redeemable Perpetual Preferred Stock (incorporated by reference to Exhibit 3.1 to the Form 8-K filed on March 29, 2018)
     
3.9   Certificate of Amendment to Amended and Restated Certificate of Designation of Preferences, Rights and Limitations of the 10% Series A Redeemable Perpetual Preferred Stock (incorporated by reference to Exhibit 3.2 to the Form 8-K filed on March 29, 2018)
     
3.10   Certificate of Amendment to the Articles of Incorporation of Energex Resources, Inc. to change the company’s name (incorporated by reference to Exhibit 3.4 to the Form 8-K filed on March 29, 2018)
     
3.11   Certificate of Amendment to the Articles of Incorporation of EnerJex Resources, Inc. to effect a 1-for-25 reverse stock split (incorporated by reference to Exhibit 3.5 to the Form 8-K filed on March 29, 2018)
     
3.12   Articles of Merger, dated March 26, 2018, by and between AgEagle Aerial Systems, Inc. and AgEagle Merger Sub, Inc.(incorporated by reference from Exhibit 3.6 on Form 8-K filed on March 29, 2018)
     
3.13   Amended and Restated Bylaws, as currently in effect (incorporated by reference to Appendix C to Schedule 14A filed on May 22, 2013)
     
3.14   Certificate of Designation of Series D 8% Preferred Stock filed with the Nevada Secretary of State on December 26, 2018 (incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on December 28, 2018)

 

3.15   Certificate of Designation for the Series E Convertible Preferred Stock filed with the Nevada Secretary of State on April 2, 2020 (incorporated herein by reference to Exhibit 3.1 of the Current Report on Form 8-K filed on April 8, 2020)
     
4.1*   Description of Registrant’s Securities
     
4.2   Pre-Funded Common Stock Purchase Warrant (Incorporated by reference to Exhibit 4.1 on Form 8-K filed on January 5, 2021)
     
4.3   Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.1 on Form 8-K filed on June August 6, 2020)
     
10.1   2017 Equity Incentive Plan of the Registrant (Incorporated by reference to the Registration Statement on Form S-1 (Reg. No. 333-226324) originally filed on July 24, 2018)
     
10.2   ASSET PURCHASE AGREEMENT, dated as of July 25, 2018, into by and among the (i) Registrant, (ii) EAGLE AERIAL SYSTEMS, INC., a Nevada corporation and wholly-owned subsidiary of Registrant, (iii) AGRIBOTIX, LLC, a Colorado limited liability company, (iv) the individuals listed on the signature page thereof, and (v) Paul Hoff, in his capacity as the representative of the Seller Investor. (Incorporated by reference to Exhibit 10.1 on Form 8-K filed on July 31, 2018).

 

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10.3   Employment Agreement for Nicole Fernandez-McGovern dated January 1, 2019
     
10.4   AgEagle Employee Confidentiality and Proprietary Rights Agreement between AgEagle Aerial Systems Inc and Nicole Fernandez-McGovern dated January 1, 2019
     
10.5   Employment Agreement for Michael Drozd, dated April 28, 2020 (Incorporated by reference to Exhibit 10.1 to the Form 8-K filed on May 1, 2020)
     
10.6*   AgEagle Employee Confidentiality and Proprietary Rights Agreement between AgEagle Aerial Systems Inc. and J. Michael Drozd dated as of May 18, 2020
     
10.7   Securities Purchase Agreement by and between AgEagle Aerial Systems Inc. and Alpha Anstalt Capital, dated December 31, 2020 (incorporated herein by reference to Exhibit 10.1 of the Current Report on Form 8-K filed on January 5, 2020)
     
10.8   Lease Agreement, dated August 3, 2020, by and among AgEagle Aerial Systems Inc. and U.S. Business Centers, L.L.C. (Incorporated herein by reference to Exhibit 10.1 of the Current Report on Form 8-K filed on August 7, 2020)
     
10.9   Convertible Promissory Note, dated October 14, 2020 (Incorporated herein by reference to Exhibit 10.1 of the Current Report on Form 8-K filed on October 16, 2020)
     
10.10   Stock Purchase Agreement, dated as of January 26, 2021, by and among Parrot Drones S.A.S., Justin B. McAllister, AgEagle Aerial Systems Inc. and AgEagle Sensor Systems, Inc. (Incorporated herein by reference to Exhibit 10.1 of the Current Report on Form 8-K filed on January 27, 2021)
     
10.11   Registration Rights Agreement, dated as of January 27, 2021, by and among Parrot Drones S.A.S., Justin B. McAllister, AgEagle Aerial Systems Inc. and AgEagle Sensor Systems, Inc. (Incorporated herein by reference to Exhibit 10.2 of the Current Report on Form 8-K filed on January 27, 2021)
     
10.12   Stock Purchase Agreement dated as of April 19, 2021, by and among the Sellers named therein, Brandon Torres Declet, in his capacity as Seller's representative and AgEagle Aerial Systems Inc. (Incorporated herein by reference to Exhibit 10.1 of the Current Report on Form 8-K filed on April 23, 2021)
     
10.13   Employment Offer Letter between AgEagle Aerial Systems Inc. and Brandon Torres Declet. (Incorporated herein by reference to Exhibit 10.2 of the Current Report on Form 8-K filed on April 23, 2021)
     
10.14   Amended Employment Offer Letter between AgEagle Aerial Systems Inc. and Michael Drozd. (Incorporated herein by reference to Exhibit 10.3 of the Current Report on Form 8-K filed on April 23, 2021)
     
10.15   Separation and General Release dated June 11, 2021, by and between AgEagle Aerial Systems Inc. and Michael Drozd. (Incorporated herein by reference to Exhibit 10.3 of the Quarterly Report on Form 10-Q filed on August 18, 2021)
     
10.16   Amended Employment Offer Letter between AgEagle Aerial Systems Inc. and Nicole Fernandez-McGovern. (Incorporated herein by reference to Exhibit 10.4 of the Current Report on Form 8-K filed on April 23, 2021)
     
10.17   Sales Agreement among AgEagle Aerial Systems Inc., Stifel, Nicolaus & Company, Incorporated and Raymond James & Associates, Inc. (Incorporated herein by reference to Exhibit 10.1 of the Current Report on Form 8-K filed on May 28, 2021)

 

41

 

 

10.18   Stock Purchase Agreement dated as of October 18, 2021, by and among Parrot Drones S.A.S. and AgEagle Aerial Systems Inc. (Incorporated herein by reference to Exhibit 10.1 of the Current Report on Form 8-K filed on October 21, 2021)
     
10.19   Stock Purchase Agreement dated as of October 18, 2021, by and among Parrot Inc., AgEagle Aerial Systems Inc. and AgEagle Aerial Inc. (Incorporated herein by reference to Exhibit 10.2 of the Current Report on Form 8-K filed on October 21, 2021)
     
10.20   Registration Rights Agreement dated as of October 19, 2021, by and between Parrot Drones S.A.S. and AgEagle Aerial Inc. (Incorporated herein by reference to Exhibit 10.3 of the Current Report on Form 8-K filed on October 21, 2021)
     
14.1   Code of Ethics of the Registrant Applicable To Directors, Officers And Employees (Incorporated by reference to the Registration Statement on Form S-1 (Reg. No. 333-226324) originally filed on July 24, 2018)
     
21.1*   List of Subsidiaries
     
23.1*   Consent of WithumSmith+Brown, PC., an independent registered public accounting firm
     
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   XBRL INSTANCE DOCUMENT
101.SCH    XBRL TAXONOMY EXTENSION SCHEMA
101.CAL    XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
101.DEF    XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
101.LAB   XBRL TAXONOMY EXTENSION LABEL LINKBASE
101.PRE    XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE

 

* Filed herewith

 

42

 

 

Item 16.Form 10-K Summary

 

None.

 

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: April 12, 2022 By: /s/ Barrett Mooney
    Barrett Mooney
    Chief Executive Officer and Chairman of the Board
     
Dated: April 12, 2022 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   April 12, 2022
Barret Mooney   (Principal Executive Officer)    
         
/s/ Nicole Fernandez-McGovern   Chief Financial Officer, Executive Vice President   of Operations and Secretary   April 12, 2022
Nicole Fernandez-McGovern   (Principal Financial and Accounting Officer)    
         
/s/ Barrett Mooney   Chairman of the Board   April 12, 2022
Barrett Mooney        
         
/s/ Grant Begley   Director   April 12, 2022
Grant Begley        
         
/s/ Luisa Ingargiola   Director   April 12, 2022
Luisa Ingargiola        
         
/s/ Thomas Gardner   Director   April 12, 2022
Thomas Gardner        

 

43

 

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

Contents Page No.
   
Report of Independent Registered Public Accounting Firm F-2
   
Consolidated Balance Sheets as of December 31, 2021 and 2020 F-3
   
Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2021 and 2020 F-4
   
Consolidated Statements of Stockholders’ Equity and Comprehensive Loss for the Years Ended December 31, 2021 and 2020 F-5
   
Consolidated Statements of Cash Flows for the Years Ended December 31, 2021 and 2020 F-6
   
Notes to the Consolidated Financial Statements F-7

 

F-1

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders

AgEagle Aerial Systems, Inc.

 

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of AgEagle Aerial Systems, Inc. and subsidiaries, (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2021, and the related consolidated notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

 

Business Combinations

 

As described in Note 1 and Note 5, the Company acquired three companies during the year ended December 31, 2021. A significant component of each acquisition included identifiable intangible assets. The preliminary valuation of identifiable intangible assets was conducted using the excess earnings method discount approach and other valuation methods.

We identified the business combinations as a critical audit matter since the assumptions as described above involve high levels of management judgment and in turn led to a high degree of auditor judgment, effort and subjectivity in performing procedures and evaluating audit evidence related to management’s valuation methods and significant assumptions. In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.

 

The primary procedures we performed to address this critical audit matter included:

 

- Evaluating the appropriateness of management’s valuation methodologies.

 

- Assessing the reasonableness of various inputs of the excess earnings method discount approach and other valuation methods.

 

- Involving the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.

 

Goodwill and other indefinite-life intangibles – impairment assessment

 

As described in Note 2 and Note 7, the Company estimates the fair value of each reporting unit using a combination of a discounted cash flow analysis and market-based valuation methodology. The fair value of the SaaS reporting unit was less than the amount reflected in the consolidated balance sheet. Accordingly, the company recorded a $12.4 million impairment charge on its SaaS reporting unit.

 

We identified the impairment assessment as a critical audit matter since the assumptions as described above involve high levels of management judgment and in turn led to a high degree of auditor judgment, effort and subjectivity in performing procedures and evaluating audit evidence related to management’s valuation methods and significant assumptions. In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.

 

The primary procedures we performed to address this critical audit matter included:

 

- Evaluating the appropriateness of management’s valuation methodologies.

 

- Assessing the reasonableness of various inputs of the discounted cash flow analysis.

 

- Involving the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.

 

WithumSmith+Brown, PC

 

We have served as the Company’s auditor since 2020.

 

Orlando, Florida

April 12, 2022

 

PCAOB ID NUMBER 100 

F-2

 

 

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

                 
    As of December 31,
ASSETS   2021   2020
CURRENT ASSETS:                
Cash   $ 14,590,566     $ 23,940,333  
Accounts receivable, net     2,888,879        
Inventories, net     4,038,508       135,647  
Prepaid and other current assets     1,292,570       122,011  
Notes receivable     185,000       600,000  
Total current assets     22,995,523       24,797,991  
                 
Property and equipment, net     952,128       122,589  
Right of use asset     2,019,745       257,363  
Intangible assets, net     13,565,494       440,527  
Goodwill     64,867,282       3,108,000  
Other assets     282,869        
Total assets   $ 104,683,041     $ 28,726,470  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Accounts payable   $ 2,526,829     $ 159,812  
Accrued expenses     1,901,641       1,844,825  
Contract liabilities     971,140       2,302  
Current portion of liabilities related to acquisition agreements     10,061,501        
Current portion of lease liabilities     1,235,977       85,895  
Current portion of COVID loans     451,889       89,533  
Total current liabilities     17,148,977       2,182,367  
                 
Long term portion of liabilities related to acquisition agreements     8,875,000        
Long term portion of lease liabilities     942,404       171,468  
Long term portion of COVID loans     808,021       17,906  
Defined benefit plan obligation     331,726        
Total liabilities     28,106,128       2,371,741  
                 
COMMITMENTS AND CONTINGENCIES (SEE NOTE 13)                
                 
STOCKHOLDERS’ EQUITY:                
Preferred Stock, $0.001 par value, 25,000,000 shares authorized, no shares issued and outstanding as of December 31, 2021 and 2020, respectively            
Common Stock, $0.001 par value, 250,000,000 shares authorized, 75,314,988 and 58,636,365 shares issued and outstanding as of December 31, 2021 and 2020, respectively     75,315       58,636  
Additional paid-in capital     127,626,536       47,241,757  
Accumulated deficit     (51,054,344 )     (20,945,664 )
Accumulated other comprehensive loss     (70,594 )      
Total stockholders’ equity     76,576,913       26,354,729  
Total liabilities and stockholders’ equity