AgEagle Aerial Systems Inc 10-Q for FY2022 Q1
AgEagle Aerial Systems Inc. (UAVS)
About this 10-Q
AgEagle Aerial Systems Inc filed this 10-Q on May 16, 2022, covering the quarter ended March 31, 2022 (FY2022 Q1).
Headline figures
Quarter ended March 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $3.84M
- up 125.8% from $1.7M a year earlier
- Net loss
- $7.6M
- compared with a net loss of $2.93M a year earlier
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One)
For
the quarterly period ended
OR
For the transition period from _______ to ________
Commission
file number:
(Exact name of registrant as specified in its charter)
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Registrant’s
telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
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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.
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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 | ☐ | |
| ☒ | 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 ☐
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 $97,066,570.
As of May 16, 2022, there were shares of Common Stock, par value $0.001 per share, issued and outstanding.
AGEAGLE AERIAL SYSTEMS INC.
TABLE OF CONTENTS
2
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
| AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES |
| CONDENSED CONSOLIDATED BALANCE SHEETS |
| As of | ||||||||
| ASSETS | March
31, 2022 (unaudited) | December 31, 2021 | ||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories, net | ||||||||
| Prepaid and other current assets | ||||||||
| Notes receivable | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Right of use asset | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Contract liabilities | ||||||||
| Current portion of liabilities related to acquisition agreements | ||||||||
| Current portion of lease liabilities | ||||||||
| Current portion of COVID loans | ||||||||
| Total current liabilities | ||||||||
| Long term portion of liabilities related to acquisition agreements | ||||||||
| Long term portion of lease liabilities | ||||||||
| Long term portion of COVID loans | ||||||||
| Defined benefit plan obligation | ||||||||
| Total liabilities | ||||||||
| COMMITMENTS AND CONTINGENCIES (SEE NOTE 9) | ||||||||
| STOCKHOLDERS’ EQUITY: | ||||||||
| Preferred Stock, $par value, shares authorized, shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively | ||||||||
| Common Stock, $ par value, shares authorized, and shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to these condensed consolidated financial statements.
3
| AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARES |
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS |
| (UNAUDITED) |
| For the Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Revenues | $ | $ | ||||||
| Cost of sales | ||||||||
| Gross Profit | ||||||||
| Operating Expenses: | ||||||||
| General and administrative | ||||||||
| Research and development | ||||||||
| Sales and marketing | ||||||||
| Total Operating Expenses | ||||||||
| Loss from Operations | ( | ) | ( | ) | ||||
| Other (Expense) Income, Net: | ||||||||
| Interest (expense) income, net | ( | ) | ||||||
| Other (expense) income, net | ( | ) | ||||||
| Total Other (Expense) Income, Net | ( | ) | ||||||
| Loss Before Income Taxes | ( | ) | ( | ) | ||||
| Provision for income taxes | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Comprehensive (Income) Loss: | ||||||||
| Cumulative translation adjustment | ( | ) | ||||||
| Total comprehensive loss, net of tax | $ | ( | ) | $ | ( | ) | ||
| Net Loss Per Common Share – Basic and Diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted Average Number of Common Shares Outstanding During the Period – Basic and Diluted | ||||||||
See accompanying notes to these condensed consolidated financial statements.
4
| AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES | |
| CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY | |
| FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021 | |
| (UNAUDITED) | |
| Common Stock | Common Stock Amount | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Stockholders’ Equity | |||||||||||||||||||
| Balance as of December 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Sales of common stock, net of issuance costs | ||||||||||||||||||||||||
| Issuance of Common Stock for SenseFly Acquisition | ||||||||||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||||||
| Stock-based compensation expense | — | |||||||||||||||||||||||
| Currency translation adjustment | — | |||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance as of March 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Common Stock | Common Stock Amount | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Stockholders’ Equity | |||||||||||||||||||
| Balance as of December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Sale of Common Stock, net of issuance costs | ||||||||||||||||||||||||
| Sale of Common Stock from exercise of warrants | ||||||||||||||||||||||||
| Exercise of options | ||||||||||||||||||||||||
| Stock-based compensation expense | ||||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance as of March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
See Accompanying Notes to Condensed Consolidated Financial Statements.
5
| AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES |
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
| (UNAUDITED) |
| For the Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation | ||||||||
| Depreciation and amortization | ||||||||
| Defined benefit plan obligation and other | ( | ) | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable, net | ( | ) | ( | ) | ||||
| Inventories, net | ( | ) | ( | ) | ||||
| Prepaid expenses and other assets | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses and other liabilities | ( | ) | ||||||
| Contract liabilities | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Acquisition of senseFly, net of cash acquired | ( | ) | ||||||
| Acquisition of MicaSense, net of cash acquired | ( | ) | ( | ) | ||||
| Capitalization of platform development costs | ( | ) | ( | ) | ||||
| Capitalization of internal use software costs | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Sales of Common Stock, net of issuance costs | ||||||||
| Sale of Common Stock from exercise of warrants | ||||||||
| Exercise of stock options | ||||||||
| Net cash provided by financing activities | ||||||||
| Effects of foreign exchange rates on cash flows | ( | ) | ||||||
| Net (decrease) increase in cash | ( | ) | ||||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Interest cash paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Acquisition liability related to the MicaSense Acquisition | $ | $ | ||||||
| Stock consideration for the MicaSense Acquisition | $ | $ | ||||||
| Stock consideration for the senseFly Acquisition | $ | $ | ||||||
See Accompanying Notes to Condensed Consolidated Financial Statements.
6
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(UNAUDITED)
Note 1 – Description of the Business and Basis of Presentation
Description of Business – AgEagle™ Aerial Systems Inc. (“AgEagle” or the “Company”), through its wholly-owned subsidiaries, AgEagle Aerial, Inc, MicaSense™, Inc. (“MicaSense”), Measure Global, Inc. (“Measure”), senseFly SA and senseFly Inc. (collectively “senseFly”), is actively engaged in designing and delivering best-in-class autonomous unmanned aerial systems, sensors and software that solve important problems for its customers in a wide range of industry verticals, including energy/utilities, infrastructure, agriculture and government.
During the year ended December 31, 2021, the Company acquired a 100% of the outstanding stock of MicaSense, Measure and senseFly, respectively. These three business acquisitions are collectively referred to as the “2021 Business Acquisitions”.
Basis of Presentation – The condensed consolidated financial statements of the Company are presented in United States dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP”). In the opinion of management, the Company has made all necessary adjustments, which include normal recurring adjustments, for a fair statement of the Company’s consolidated financial position and results of operations for the periods presented. Certain information and disclosures included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the U.S. Securities and Exchange Commission (“SEC”) rules. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes for the year ended December 31, 2021, included in the Company’s annual Report on Form 10-K, as filed with the SEC on April 12, 2022. The results for the three months ended March 31, 2022 and 2021 are not necessarily indicative of the results to be expected for a full year, any other periods or any future year or period.
Liquidity – The Company has continued to realize losses from operations. However, because of its capital raise efforts, the Company believes that it will have sufficient cash to meet its anticipated operating costs and capital expenditure requirements through March 2023. The Company’s primary need for liquidity is to fund working capital requirements of our business, capital expenditures, acquisitions, debt service, and for general corporate purposes. The Company’s primary source of liquidity is funds generated by financing activities and from private placements. The Company’s 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 condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities or any other adjustment that might be necessary should the Company be unable to continue as a going concern.
Risks and Uncertainties – Global economic challenges, including the impact of the war in Ukraine, the COVID-19 pandemic, rising inflation and supply-chain disruptions, adverse labor market conditions could cause economic uncertainty and volatility. During the three months ended March 31, 2022, the COVID-19 pandemic continued to have a significant negative impact on the unmanned aerial vehicle (“UAV”) systems industry, the Company’s customers and business globally. The aforementioned risks and their respective impacts on the UAV industry and the Company’s operational and financial performance remains uncertain and outside of the Company’s control. Specifically, as a result of the aforementioned continuing risks, the Company’s ability to access components and parts needed in order to manufacture its proprietary drones and sensors, and to perform quality testing have been, and continue to be, impacted. If either the Company or any of its third parties in the supply chain for materials used in our manufacturing and assembly processes continue to be adversely impacted, the Company’s supply chain may be further disrupted, limiting its ability to manufacture and assemble products. The Company expects the pandemic, inflation and supply-chain disruptions and its effects to continue to have a significant negative impact on its business for the duration of the pandemic and during the subsequent economic recovery, which could be for an extended period of time.
7
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(UNAUDITED)
Note 1 – Description of the Business and Basis of Presentation- Continued
Correction of Prior Period Information – During the review of the Company’s condensed consolidated financial statements for the three and six month periods ended June 30, 2021, the Company identified an error in the accounting and presentation of revenue and related expenses recorded for the MicaSense Acquisition related to the three months ended March 31, 2021. This error resulted in the recording of $394,743 in additional revenues, $129,510 in additional cost of sales, and $232,252 in additional operating expenses, resulting in additional net income of $32,033. If reported correctly, the Company would have recorded $1,306,849 in revenues, $492,394 in cost of sales, $3,808,236 in operating expenses, and a net loss of ($2,962,563) for the three months ended March 31, 2021. Instead, the Company recorded revenues of $1,701,592, cost of sales of $621,904, operating expenses of $4,040,488, and a net loss of ($2,930,530) for the three months ended March 31, 2021. To correct this error, the Company recorded the correction in the three month period ended June 30, 2021. If reported correctly for the three months ended June 30, 2021, then the Company would have reported $2,332,107 in revenues, $1,088,739 in cost of sales, $6,030,872 in operating expenses, and a net loss of ($4,646,139). In accordance with the SEC’s Staff Accounting Bulletin Nos. 99 and 108 (“SAB 99” and ”SAB 108”), the Company evaluated this error and concluded that although the adjustment to revenue was quantitatively material, the cumulative effects were quantitatively and qualitatively immaterial and would not have materially impacted a reasonable investor’s opinion of the Company. This is further supported by the fact that the impact would not have been significant in comparison to prior periods, as the financial results still supported the Company’s increased year-over-year growth in revenue as reported and discussed in both periods within the Management Discussion & Analysis. Therefore, as permitted by SAB 108 and treated under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 250, Accounting Changes and Error Corrections, the Company corrected previously recorded results for the three and six months ended June 30, 2021, to account for the error in this current filing. As a result, the statement of operations for the six months ended June 30, 2021 reflects the corrected revenues, cost of goods sold, operating expenses and net loss.
Note 2 – Summary of Significant Accounting Policies
A description of certain of the Company’s accounting policies and other financial information is included in the Company’s audited consolidated financial statements filed with the SEC on Form 10-K for the fiscal year ended December 31, 2021. The summary of significant accounting policies presented below is designed to assist in understanding the Company’s condensed consolidated financial statements. Such condensed consolidated financial statements and accompanying notes are the representations of the Company’s management, who are responsible for their integrity and objectivity.
Use of Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the allowance for doubtful accounts, reserve for obsolete inventory, valuation of stock issued for services and stock options, valuation of intangible assets including goodwill, foreign currency exchange rates, valuation of defined benefit plan obligations and the valuation of deferred tax assets.
Fair Value Measurements and Disclosures – ASC Topic 820, Fair Value Measurement (“ASC 820”), requires companies to determine fair value based on the price that would be received to sell the asset or paid to transfer the liability to a market participant. ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement.
The guidance requires that assets and liabilities carried at fair value be classified and disclosed in one of the following categories:
| ● | Level 1: Quoted market prices in active markets for identical assets or liabilities. |
| ● | Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data. |
| ● | Level 3: Unobservable inputs that are not corroborated by market data. |
For short-term classes of our financial instruments, which include cash, accounts receivable, notes receivable and accounts payable, and which are not reported at fair value, the carrying amounts approximate fair value due to their short-term nature. The outstanding loan owed under the Paycheck Protection Program Loan (“PPP Loan”) is carried at face value, which approximates fair value. As of March 31, 2022 and December 31, 2021, the Company did not have any financial assets or liabilities measured and recorded at fair value on the Company’s condensed consolidated balance sheets on a recurring basis.
Inventories – Inventories, which consist of raw materials, finished goods and work-in-process, are stated at the lower of cost or net realizable value, with cost being determined by the average-cost method, which approximates the first-in, first-out method. Cost components include direct materials and direct labor. At each balance sheet date, the Company evaluates its inventories for excess quantities and obsolescence. This evaluation primarily includes an analysis of forecasted demand in relation to the inventory on hand, among consideration of other factors. The physical condition (e.g., age and quality) of the inventories is also considered in establishing its valuation. Based upon the evaluation, provisions are made to reduce excess or obsolete inventories to their estimated net realizable values. Once established, write-downs are considered permanent adjustments to the cost basis of the respective inventories. These adjustments are estimates, which could vary significantly, either favorably or unfavorably, from the amounts that the Company may ultimately realize upon the disposition of inventories if future economic conditions, customer inventory levels, product discontinuances, sales return levels or competitive conditions differ from the Company’s estimates and expectations.
8
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(UNAUDITED)
Note 2 – Summary of Significant Accounting Policies-Continued
Revenue Recognition and Concentration – The majority of the Company’s revenues are derived primarily through the sales of drone and drone related products and services, sensors and related accessories, and software subscriptions. All contracts and agreements are a fixed price and are accounted for in accordance with ASC Topic 606, Revenue from Contracts with Customers.
The Company generally recognizes revenue on sales to customers, dealers, and distributors upon satisfaction of performance obligations which generally occurs once controls transfer to customers, which is when product is shipped or delivered depending on specific shipping terms and, where applicable, a customer acceptance has been obtained. The fee is not considered to be fixed or determinable until all material contingencies related to the sales have been resolved. The Company records revenue in the statements of operations and comprehensive loss, net of any sales, use, value added, or certain excise taxes imposed by governmental authorities on specific sales transactions and net of any discounts, allowances and returns.
Under fixed-price contracts, the Company agrees to perform the specified work for a pre-determined price. To the extent the Company’s actual costs vary from the estimates upon which the price was negotiated, it will generate more or less profit or could incur a loss. The Company accounts for a contract after it has been approved by all parties to the arrangement, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.
Additionally, customer payments received in advance of the Company completing performance obligations are recorded as contract liabilities. Customer deposits represent customer prepayments and are recognized as revenue when the term of the sale or performance obligation are completed.
The Company’s software subscriptions to its platforms, HempOverview and Ground Control, are offered on a subscription basis. These subscription fees are recognized ratably over each monthly membership period as the services are provided.
As
of March 31, 2022 and December 31, 2021, no one customer comprised more than 10% of the Company’s accounts receivable, net. For
the three months ended March 31, 2022, no one customer comprised more than
Capitalized
Software Development Costs - Software development costs for software to be sold, leased or marketed are accounted for in
accordance with ASC Topic 985-20, Software — Costs of Software to be Sold, Leased or Marketed. Costs associated with
the planning and design phase of software development are classified as research and development costs and are expensed as incurred.
Once technological feasibility has been established, a portion of the costs incurred in development, including coding, testing and
quality assurance, are capitalized until available for general release to customers, and subsequently reported at the lower of
unamortized cost or net realizable value. Amortization is recorded per the individual technology software being released and is
included in cost of sales on the condensed consolidated statements of operations. Annual amortization is recognized on a
straight-line basis over the remaining economic life of the software (typically two years). Unamortized capitalized costs determined
to be in excess of the net realizable value of a solution are expensed at the date of such determination. As of March 31, 2022 and
December 31, 2021, capitalized software development costs, net of accumulated amortization, totaled $
9
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(UNAUDITED)
Note 2 – Summary of Significant Accounting Policies-Continued
Internal-use
Software Costs - Internal-use software development costs are accounted for in accordance with ASC
Topic 350-40, Internal-Use Software. The costs incurred in the preliminary stages of development are expensed as research and development
costs as incurred. Once an application has reached the development stage, internal and external costs incurred to develop internal-use
software are capitalized and amortized on a straight-line basis over the estimated useful life of the software (typically three to five
years). Maintenance and enhancement costs, including those costs in the post-implementation stages, are typically expensed as incurred,
unless such costs relate to substantial upgrades and enhancements to the software that result in added functionality, in which case the
costs are capitalized and amortized on a straight-line basis over the estimated useful life of the software. The Company reviews the carrying
value for impairment whenever facts and circumstances exist that would suggest that assets might be impaired or that the useful lives
should be modified. Amortization expense related to capitalized internal-use software development costs is included in general and administrative
expenses on the condensed consolidated statements of operations. As of March 31, 2022 and December 31, 2021, capitalized software development
costs for internal-use software of $
Foreign
Currency - The Company translate assets and liabilities of its foreign subsidiary,
senseFly S.A., to their U.S. dollar equivalents at exchange rates in effect as of the balance sheet date. Translation adjustments
are not included in determining net income but are recorded in accumulated other comprehensive income (loss) on the condensed
consolidated balance sheets. The Company translates the condensed consolidated statements of operations and comprehensive loss of its
foreign subsidiary at average exchange rates for the applicable period. Foreign currency transaction gains and losses, arising primarily
from changes in exchange rates on foreign currency denominated revenues, certain purchases and intercompany transactions are recorded
in other (expense) income, net in the condensed consolidated statements of operations and comprehensive loss. For the three
months ended March 31, 2022 and 2021, foreign currency transaction losses, net were $
Shipping
Costs – All shipping costs billed directly to the customer are directly offset
to shipping costs resulting in a net expense to the Company, which is included in cost of goods sold in the accompanying condensed
consolidated statements of operations and comprehensive loss. For the three months ended March 31, 2022 and 2021, shipping costs were $
Advertising
Costs – Advertising costs are charged to operations as incurred and presented in sales
and marketing expenses in the condensed consolidated statements of operations and comprehensive loss. For the three months ended March
31, 2022 and 2021, advertising costs were $
Vendor Concentrations – As of March 31, 2022 and December 31, 2021, there was one significant vendor that the Company relies upon to perform certain services for the Company’s technology platform. This vendor provides services to the Company, which can be replaced by alternative vendors should the need arise.
Segment Reporting – The Company operates in three segments: Drones and Custom Manufacturing, Sensors and Software-as-a Service (“SaaS”).
10
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(UNAUDITED)
Note 2 – Summary of Significant Accounting Policies-Continued
New Accounting Pronouncements – Pending - In March 2022, the FASB issued Accounting Standards Update (“ASU”) No. 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”), which addresses areas identified by the FASB as part of its post-implementation review of its previously issued credit losses standard, ASU 2016-13, that introduced the Current Expected Credit Loss (“CECL”) model. ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhances disclosure requirements for certain loan refinancings and restructurings made with borrowers experiencing financial difficulty. In addition, ASU 2022-02 requires a public business entity to disclose current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. ASU 2022-02 is effective for the fiscal years beginning after December 15, 2022 and for periods within those fiscal years. Early adoption is permitted. The adoption of ASU 2022-02 is not expected to have a material impact on the Company’s consolidated financial statements.
Other recent accounting pronouncements issued by FASB did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.
Note 3 – Balance Sheets
Accounts Receivable, net
As of March 31, 2022 and December 31, 2021, accounts receivable, net consist of the following:
| Schedule of accounts receivable, net | ||||||||
| March 31, 2022 | December 31, 2021 | |||||||
| Accounts receivable | $ | $ | ||||||
| Less: Provisions for doubtful accounts | ( | ) | ( | ) | ||||
| Accounts receivable, net | $ | $ | ||||||
Inventories, Net
As of March 31, 2022 and December 31, 2021, inventories, net consist of the following:
| Schedule Of Inventories | ||||||||
| March 31, 2022 | December 31, 2021 | |||||||
| Raw materials | $ | $ | ||||||
| Work-in process | ||||||||
| Finished goods | ||||||||
| Gross inventories | ||||||||
| Less: Provision for obsolescence | ( | ) | ( | ) | ||||
| Inventories, net | $ | $ | ||||||
Property and Equipment, Net
As of March 31, 2022 and December 31, 2021, property and equipment, net consist of the following:
| Schedule Of Property and Equipment | ||||||||||||
| Estimated | ||||||||||||
| Useful | ||||||||||||
| Life | March 31, | December 31, | ||||||||||
| Type | (Years) | 2022 | 2021 | |||||||||
| Leasehold improvements | $ | $ | ||||||||||
| Equipment and vehicles | ||||||||||||
| Computer and office equipment | ||||||||||||
| Furniture | ||||||||||||
| Drone equipment | ||||||||||||
| Production fixtures | ||||||||||||
| Tooling | ||||||||||||
| Less: Accumulated Depreciation | ( | ) | ( | ) | ||||||||
| Total Property and Equipment, net | $ | $ | ||||||||||
11
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(UNAUDITED)
Note 3 – Balance Sheets-Continued
For the three months ended March 31, 2022 and 2021, depreciation expense is classified within the condensed consolidated statements of operations and comprehensive loss as follows:
| Schedule of statements of operations and comprehensive loss | ||||||||
| For the Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Cost of Sales | $ | $ | ||||||
| General and Administrative | ||||||||
| Total Depreciation Expense | $ | $ | ||||||
Intangible Assets, net
As of March 31, 2022 and December 31, 2021, intangible assets, net, other than goodwill, consist of following:
| Schedule of intangible assets, net | ||||||||||||||||||||
| Name | Estimated Life (Years) | Balance as of December 31, 2021 | Additions | Amortization | Balance as of March 31, 2022 | |||||||||||||||
| Intellectual property/technology | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Customer base | ( | ) | ||||||||||||||||||
| Tradenames and trademarks | ( | ) | ||||||||||||||||||
| Non-compete agreement | ( | ) | ||||||||||||||||||
| Platform development costs | ( | ) | ||||||||||||||||||
| Internal use software costs | ||||||||||||||||||||
| Total Intangibles Assets, Net | $ | $ | $ | ( | ) | $ | ||||||||||||||
As
of March 31, 2022, the weighted average remaining amortization period in years is
For the following years ending, the future amortization expenses consist of the following:
| Schedule of future amortization expenses | ||||||||||||||||||||||||||||
| For the Years Ending December 31, | ||||||||||||||||||||||||||||
| (rest of year) 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter | Total | ||||||||||||||||||||||
| Intellectual property/ technology | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Customer base | ||||||||||||||||||||||||||||
| Tradenames and trademarks | ||||||||||||||||||||||||||||
| Non-compete agreement | ||||||||||||||||||||||||||||
| Platform development costs | ||||||||||||||||||||||||||||
| Internal use software costs | ||||||||||||||||||||||||||||
| Total Intangible Assets, Net | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
Accrued Expenses
As of March 31, 2022 and December 31, 2021, accrued expenses consist of the following:
| Schedule of accrued expenses | ||||||||
| March 31, 2022 | December 31, 2021 | |||||||
| Accrued compensation and related liabilities | $ | $ | ||||||
| Provision for warranty expense | ||||||||
| Accrued professional fees | ||||||||
| Other | ||||||||
| Total accrued expenses | $ | $ | ||||||
12
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(UNAUDITED)
Note 4 – Notes Receivable
Valqari
On October 14, 2020, in connection with, and as an incentive to the entry into a two-year exclusive manufacturing agreement (the “Manufacturing Agreement”) to produce a patented Drone Delivery Station for Valqari, LLC (“Valqari), the Company entered into, as payee, a Convertible Promissory Note pursuant to which the Company made a loan to Valqari in the principal aggregate amount of $500,000 (the “Note”). The Note accrues interest at a rate of three percent per annum.
The Note matured on April 15, 2021 (the “Maturity Date”), at which time all outstanding principal and interest that had accrued, but remained, unpaid was due. On the Maturity Date, AgEagle demanded payment of the Note, including accrued interest, however, Valqari alleged that the Maturity Date was extended to October 14, 2021 (“Extended Maturity Date”) as the Note provided for an automatic six-month extension of the Maturity Date under certain circumstances within the terms and conditions of the Note. Upon the Extended Maturity Date, AgEagle demanded payment of the Note, including accrued interest; however, Valqari sought a substantial discount on the amount due under the Note to compensate for alleged breaches by AgEagle under the Manufacturing Agreement. AgEagle disputes the allegations of breach and believes that it is owed a net amount by Valqari under the Manufacturing Agreement, in addition to the amount due under the Note. On November 24, 2021, Valqari made a payment of principal on the Note of $315,000. The parties continue to negotiate in an attempt to reach an amicable resolution of their disputes; however, AgEagle reserves the right to take legal action to collect the Note in the event that a settlement is not reached.
MicaSense
On November 16, 2020, and in connection with its January 27, 2021 acquisition of 100% of the capital stock of MicaSense (“MicaSense Acquisition), AgEagle, as payee, executed a promissory note with Parrot Drones S.A.S. in the principal amount of $100,000. The principal amount owed by Parrot Drones S.A.S. was offset and reduced by all amounts paid or due in connection with the purchase price upon closing of the MicaSense Acquisition.
senseFly
On August 25, 2021, and in connection with its acquisition of 100% of the capital stock of senseFly (the senseFly Acquisition”) from Parrot Drones S.A.S., AgEagle Aerial, as payee, executed a promissory note in the principal amount of $200,000. The principal amount owed by Parrot Drones S.A.S. was off-set and reduced by all amounts paid or due in connection with the purchase price upon closing of the senseFly Acquisition.
Note 5 – Business Acquisitions
During the year ended December 31, 2021, the Company acquired 100% of the capital stock of MicaSense, Measure and senseFly, respectively. The financial results of each of these acquisitions are included in the condensed consolidated financial statements beginning on the respective acquisition dates.
For
the three months ended March 31, 2022 and 2021, transaction costs related to business combinations totaled $
13
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(UNAUDITED)
Note 5 – Business Acquisitions-Continued
MicaSense
On January 27, 2021 (the “MicaSense Acquisition Date”), the Company entered into a stock purchase agreement (the “MicaSense Purchase Agreement”) with Parrot Drones S.A.S. and Justin B. McAllister (collectively the “MicaSense Sellers”) pursuant to which the Company agreed to acquire 100% of the issued and outstanding capital stock of MicaSense 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. A portion of the consideration comprises shares of Common stock of the Company, having an aggregate value of $3,000,000 based on a volume weighted average trading price of the Common stock over a ten consecutive trading day period prior to the date of issuance of the shares of Common stock to the MicaSense Sellers. On April 27, 2021 the Company issued 540,541 restricted shares of its Common Stock. The consideration is also subject to a remaining holdback amount of $2,375,000 as of March 31, 2022 to cover any post-closing indemnification claims and to satisfy any purchase price adjustments The holdback is scheduled to be released in two equal installments, less any amounts paid or reserved for outstanding indemnity claims, on March 31, 2022 and March 31, 2023 in accordance with the terms of the MicaSense Purchase Agreement.
On May 10, 2021, the Company filed a Form S-3 Registration Statement (the “MicaSense Registration Statement”) with the Securities and Exchange Commission (“SEC”), covering the resale of the Shares. The MicaSense Registration Statement was declared effective on June 1, 2021 (File Number: 333-255940). In addition, the Company shall use its best efforts to keep the MicaSense Registration Statement effective and in compliance with the provisions of the Securities Act (including by preparing and filing with the SEC such amendments, including post-effective amendments, and supplements to the MicaSense Registration Statement and the prospectus used in connection therewith as may be necessary) until all Shares and other securities covered by the MicaSense Registration Statement have been disposed. The MicaSense Sellers reimbursed the Company for reasonable legal fees and expenses incurred by the Company in connection with such registration.
The MicaSense Purchase Agreement contains certain customary representations, warranties, and covenants, including representations and warranties by the MicaSense Sellers with respect to MicaSense’s business, operations and financial condition. The MicaSense Purchase Agreement also includes post-closing covenants relating to the confidentiality and employee non-solicitation obligations of the MicaSense Sellers, and the agreement of the MicaSense Sellers not to compete with certain aspects of the business of MicaSense following the closing of the transaction. The completion of the transactions contemplated by the MicaSense Purchase Agreement is subject to customary closing conditions, including, among others: (i) the absence of a material adverse effect on MicaSense, (ii) the delivery by the parties of certain ancillary documents, including the registration Rights Agreement, and (iii) the execution by a key employee of MicaSense of an employment agreement. Subject to certain limitations, each of the parties will be indemnified for damages resulting from third party claims and breaches of the parties’ respective representations, warranties, and covenants in the MicaSense Purchase Agreement.
The Company performed a valuation analysis of the fair market value of the assets acquired and liabilities assumed. Using the total consideration for the MicaSense Acquisition, the Company determined the allocations to such assets and liabilities. The final purchase price allocation, and the necessary detailed valuations and calculations have been finalized.
The following table summarizes the allocation of the purchase price as of the MicaSense Acquisition Date:
| Schedule of allocation preliminary purchase price | ||||
| Net purchase price, including debt paid at close | $ | |||
| Plus: fair value of liabilities assumed: | ||||
| Current liabilities | ||||
| Fair value of liabilities assumed | $ | |||
| Less: fair value of assets acquired: | ||||
| Cash | $ | |||
| Other tangible assets | ||||
| Identifiable intangible assets | ||||
| Fair value of assets acquired | $ | |||
| Net nonoperating assets | ||||
| Adjustments for seller transaction expenses related to purchase price allocation | ||||
| Goodwill | $ |
14
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(UNAUDITED)
Note 5 – Business Acquisitions-Continued
Measure
On April 19, 2021 (the “Measure Acquisition Date”), the Company entered into a stock purchase agreement (the “Measure Purchase Agreement”) with Brandon Torres Declet (“Mr. Torres Declet”), in his capacity as Measure Sellers’ representative, and the sellers named in the Measure Purchase Agreement (the “Measure Sellers”) pursuant to which the Company agreed to acquire 100% of the issued and outstanding capital stock of Measure from the Measure Sellers (the “Measure Acquisition”). The aggregate purchase price for the shares of Measure is $45,000,000, less the amount of Measure’s debt and transaction expenses, and subject to a customary working capital adjustment. The purchase price comprised $15,000,000 in cash, and shares of Common stock of the Company, having an aggregate value of $30,000,000 based on a volume weighted average trading price of the Common stock over a seven consecutive trading day period prior to the date of issuance of the shares of Common stock to the Measure Sellers. The Company issued 5,319,145 shares of Common Stock, in the aggregate, to the Measure Sellers, and paid $5,000,000 of the cash portion of the purchase price ninety days after the closing date of the transaction. As of December 31, 2021, the Company completed the payment of the cash portion of the purchase price. The consideration is also subject to a $5,625,000 holdback to cover any post-closing indemnification claims and to satisfy any purchase price adjustments. The holdback is scheduled to be released on the date that is eighteen months from the closing date, less any amounts paid or reserved for outstanding indemnity claims and certain amounts subject to employee retention conditions set forth in the Measure Purchase Agreement. (See Note 11)
The Measure Purchase Agreement contains certain customary representations, warranties, and covenants, including representations and warranties by the Measure Sellers with respect to Measure’s business, operations and financial condition. The Measure Purchase Agreement also includes post-closing covenants relating to the confidentiality and employee non-solicitation obligations of the Measure Sellers, and the agreement of the Measure Sellers not to compete with certain aspects of the business of Measure following the closing of the transaction. The completion of the transactions contemplated by the Purchase Agreement is subject to: (i) the absence of a material adverse effect on Measure, (ii) the delivery by the parties of certain ancillary documents, and (iii) the execution by key employees of Measure of employment offer letters. Subject to certain limitations, each of the parties will be indemnified for damages resulting from third party claims and breaches of the parties’ respective representations, warranties, and covenants in the Purchase Agreement.
The Shares issuable to the Measure Sellers pursuant to the Measure Purchase Agreement were issued in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), to a limited number of persons who are “accredited investors” or “sophisticated persons” as those terms are defined in Rule 501 of Regulation D promulgated by the SEC, without the use of any general solicitation or advertising to market or otherwise offer the securities for sale. None of the Shares have been registered under the Securities Act, or applicable state securities laws, and none may be offered or sold in the United States absent registration under the Securities Act or an exemption from such registration requirements.
The Company performed a preliminary valuation analysis of the fair market value of the assets to be acquired and liabilities to be assumed. Using the total consideration for the Acquisition, the Company estimated the allocations to such assets and liabilities. The final purchase price allocation and the detailed valuations and necessary have been completed.
The following table summarizes the allocation of the purchase price as of the Measure Acquisition Date:
| Schedule of allocation preliminary purchase price | ||||
| Net purchase price, including debt paid at close | $ | |||
| Plus: fair value of liabilities assumed: | ||||
| Deferred revenue | ||||
| Other tangible liabilities | ||||
| Fair value of liabilities assumed | $ | |||
| Less: fair value of assets acquired: | ||||
| Cash | ||||
| Other tangible assets | ||||
| Identifiable intangibles | ||||
| Fair value of assets acquired | $ | |||
| Net nonoperating assets | ||||
| Goodwill | $ |
15
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(UNAUDITED)
Note 5 – Business Acquisitions-Continued
senseFly
On October 18, 2021 (the “senseFly Acquisition Date”), the Company entered into a stock purchase agreement (the “senseFly S.A. Purchase Agreement”) with Parrot Drones S.A.S. pursuant to which the Company acquired 100% of the issued and outstanding capital stock of senseFly S.A. from Parrot Drones S.A.S. The aggregate purchase price for the shares of senseFly S.A. is $21,000,000, less the amount of senseFly S.A.’s debt and subject to a customary working capital adjustment. The consideration is also subject to a $4,565,000 holdback to cover any post-closing indemnification claims and to satisfy any purchase price adjustments. The holdback is scheduled to be released in two equal installments, less any amounts paid or reserved for outstanding indemnity claims, on December 31, 2022 and December 31, 2023 in accordance with the terms of the senseFly S.A. Purchase Agreement
On October 18, 2021, AgEagle Aerial and the Company entered into a stock purchase agreement (the “senseFly Inc. Purchase Agreement”) with Parrot Inc. pursuant to which AgEagle Aerial agreed to acquire 100% of the issued and outstanding capital stock of senseFly Inc. from Parrot Inc. The aggregate purchase price for the shares of senseFly Inc. is $2,000,000, less the amount of senseFly Inc.’s debt and subject to a customary working capital adjustment. The consideration is also subject to a $435,000 holdback to cover any post-closing indemnification claims and to satisfy any purchase price adjustments. The holdback is scheduled to be released in two equal installments, less any amounts paid or reserved for outstanding indemnity claims, on December 31, 2022 and December 31, 2023 in accordance with the terms of the senseFly Inc. Purchase Agreement.
A portion of the consideration under the senseFly S.A. Purchase Agreement comprises shares of Common Stock of the Company, par value $0.001, having an aggregate value of $3,000,000, based on a volume weighted average trading price of the Common Stock over a ten consecutive trading day period prior to the date of issuance of the shares of Common Stock to Parrot Drones S.A.S. The shares of Common Stock are issuable ninety days after the closing date of the transaction. In accordance with the terms of the senseFly S.A. Purchase Agreement, the Company issued 1,927,407 shares of Common Stock to Parrot Drones S.A.S.
Pursuant to the terms of the senseFly S.A. Purchase Agreement and a Registration Rights Agreement, dated as of October 19, 2021, the Company filed a Form S-3 Registration Statement (the “senseFly Registration Statement”) with the SEC covering the resale of the Common Stock issued to Parrot Drones S.A.S. The senseFly Registration Statement was declared effective on February 9, 2022. The Company agreed to use its best efforts to keep the senseFly Registration Statement effective and in compliance with the provisions of the Securities Act (including by preparing and filing with the SEC such amendments, including post-effective amendments, and supplements to the senseFly Registration Statement and the prospectus used in connection therewith as may be necessary) until all the shares of Common Stock and other securities issued to Parrot Drones S.A.S. and covered by such Registration Statement have been disposed. Parrot Drones S.A.S. reimbursed the Company $50,000 for reasonable legal fees and expenses incurred by the Company in connection with such registration.
Parrot Drones S.A.S. granted to senseFly S.A. a non-exclusive worldwide perpetual license, subject to certain termination rights of the parties, with respect to certain technology used in the fixed-wing drone manufacturing business of senseFly S.A.
The Company has performed a preliminary valuation analysis of the fair market value of the assets to be acquired and liabilities to be assumed. Using the total consideration for the Acquisition, the Company has estimated the allocations to such assets and liabilities. The final purchase price allocation will be determined when the Company completes the detailed valuations and necessary calculations.
16
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(UNAUDITED)
Note 5 – Business Acquisitions-Continued
The following table summarizes the allocation of the preliminary purchase price as of the senseFly Acquisition Date:
| Schedule of allocation preliminary purchase price | ||||
| Net purchase price | $ | |||
| Plus: fair value of liabilities assumed: | ||||
| Current liabilities | ||||
| Defined benefit plan obligation | ||||
| Debt assumed at close | ||||
| Fair value of liabilities assumed | $ | |||
| Less: fair value of assets acquired: | ||||
| Cash | ||||
| Other tangible assets | ||||
| Identifiable intangible assets | ||||
| Fair value of assets acquired | $ | |||
| Net nonoperating assets | ||||
| Goodwill | $ |
Liabilities Related to Business Acquisition Agreements
As of March 31, 2022 and December 31, 2021, liabilities related to acquisition agreements consist of the following:
| Schedule of liabilities related to acquisition agreements | ||||||||
| March 31, 2022 | December 31, 2021 | |||||||
| Holdback related to MicaSense Acquisition Agreement | $ | $ | ||||||
| Holdback related to Measure Acquisition | ||||||||
| Holdback related to senseFly Acquisition | ||||||||
| Total acquisition agreement related liabilities | ||||||||
| Less: Current portion acquisition agreement-related liabilities | ( | ) | ( | ) | ||||
| Long term portion of business acquisition agreement-related liabilities | $ | $ | ||||||
As of March 31, 2022, scheduled future maturities of the Company’s business-acquisition related liabilities consist of the following:
| Scheduled Of future maturities business-acquisition | ||||
| Year ending December 31, | ||||
| 2022 (rest of year) | $ | |||
| 2023 | ||||
| Total | $ | |||
Pro-Forma Information
The unaudited pro-forma information for the three months ended March 31, 2021, was calculated after applying the Company’s accounting policies and the impact of acquisition date fair value adjustments. The pro-forma financial information presents the combined results of operations of the 2021 Business Acquisitions, as if they had occurred on January 1, 2021 after giving to certain pro-forma adjustments. The pro-forma adjustments reflected herein include only those adjustments that are factually supportable and directly attributable to the acquisition.
17
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(UNAUDITED)
Note 5 – Business Acquisitions-Continued
For the three months ended March 31, 2021, pro-forma information is as follows:
| Schedule of pro-forma information | ||||
| Three Months Ended March 31, 2021 | ||||
| Revenues | $ | |||
| Net loss | $ | ( | ) | |
Note 6 – COVID Loans
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was enacted, which included amongst its many provisions, the creation of the Paycheck Protection Program (“PPP”). As part of the PPP, qualifying businesses were eligible to receive Small Business Administration (“SBA”) loans for use by such businesses for funding payroll, rent and utilities during a designed twenty-four week period through October 21, 2020 (“PPP Loan”). PPP Loans are unsecured, nonrecourse, accrue interest at a rate of one percent per annum, and mature on May 6, 2022. A portion or all of a PPP Loan is forgivable to the extent that an eligible business meets its obligations under the PPP. Additionally, any amounts owed, including unforgiven amounts under the PPP, are payable over two years, though may be extended up to five years upon approval by the SBA.
On May 6, 2020, AgEagle received a PPP Loan in the amount of $107,439. During the quarter ended June 30, 2021, the outstanding principal and accrued interest under the PPP Loan were forgiven by the SBA.
In
connection with the senseFly Acquisition, the Company assumed the obligations for two COVID Loans originally made by the SBA to senseFly
S.A. on July 27, 2020 (“senseFly COVID Loans”). For the three months ended March 31, 2022, no payments of principal and interest
were required. As of March 31, 2022 and December 31, 2021, the Company’s outstanding obligations under the senseFly COVID Loans
were $
As of March 31, 2022, scheduled principal payments due under the senseFly COVID Loans are as follows:
| Schedule of debt disclosure | ||||
| Year ending December 31, | ||||
| 2022 (rest of year) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | $ | |||
Note 7 – Equity
Capital Stock Issuances
Consulting Agreement
On May 3, 2019, the Company entered into a consulting agreement with GreenBlock Capital LLC (“Consultant”) for purposes of advising on certain business opportunities. On October 31, 2019, the consulting agreement was terminated; however, the Consultant continued to be entitled to receive up to 2,500,000 restricted Common Stock after termination of the consulting agreement, if the achievement of milestones that commenced during the term of the consulting agreement were completed within twenty-four months. Subsequent to the aforementioned termination of the consulting agreement, the Consultant sent a demand letter to the Company alleging a breach of this agreement due to the Company’s non-issuance of additional restricted shares of its Common Stock in connection with the Consultant’s alleged achievement of the milestones. As of December 31, 2020, and as a result of this demand, the Company recorded a contingent loss of $1,500,000, based upon the fair market value of $6.00 per share of its Common Stock, which was recorded within professional fees on the condensed consolidated statements of operations and comprehensive loss. For the three months ended March 31, 2021, the Company recorded additional stock-based compensation expense of $1,407,000, which reflected the issuance of 550,000 additional restricted shares of Common Stock that were subsequently issued on May 12, 2021, which resulted in a liability amount of $2,907,000 for purposes of payment of the settlement.
18
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(UNAUDITED)
Note 7 – Equity-Continued
December Purchase Agreement
In January 2021, the Company issued 1,057,214 shares of Common stock in connection with a securities purchase agreement (the “December Purchase Agreement”) entered into on December 31, 2020, the gross proceeds associated with this exercise were $6,313,943, net of issuance costs.
Securities Purchase Agreement Dated August 4, 2020 / Exercise of Warrants
On August 4, 2020, the Company and an Investor entered into a securities purchase agreement (the “August Purchase Agreement”) pursuant to which the Company agreed to sell to the Investor in a registered direct offering 3,355,705 shares of Common Stock and warrants to purchase up to 2,516,778 shares of Common Stock at an exercise price of $3.30 per share (the “August Warrants”), for proceeds of $9,900,000 net of issuance costs of $100,000. Upon exercise of the Warrants in full by the Investor, the Company will receive additional gross proceeds of $8,305,368. The shares of Common Stock underlying the Warrants are referred to as “August Warrant Shares.”
The purchase price for each share of Common Stock is $2.98. Net proceeds from the sale were used for working capital, capital expenditures and general corporate purposes. The shares of Common Stock, the August Warrants and the August Warrant Shares were offered by the Company pursuant to an effective shelf registration statement on Form S-3 (File No. 333-239157), which was declared effective on June 19, 2020. On February 8, 2021, the Company received $8,305,368 in additional gross proceeds associated with the exercise of 2,516,778 of the August Warrants.
At-the-Market Sales Agreement
For
the three months ended March 31, 2022, and in accordance with a May 25, 2021 at-the-market Sales Agreement with Stifel, Nicolaus &
Company, Incorporated and Raymond James & Associates, Inc. as sales agents, the Company sold shares of Common Stock at
a share price between $1.04 and $1.18, for proceeds of $
Stock-based Compensation
The Company determines the fair value of awards granted under the Equity Plan based on the fair value of its Common Stock on the date of grant. Stock-based compensation expenses related to grants under the Equity Plan are included in general and administrative expenses on the condensed consolidated statements of operations and comprehensive loss.
19
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(UNAUDITED)
Note 7 – Equity-Continued
RSUs
For the three months ended March 31, 2022, a summary of RSU activity is as follows:
| Schedule of restricted stock unit activity | ||||||||
| Shares | Weighted Average Grant Date Fair Value | |||||||
| Outstanding as of December 31, 2021 | $ | |||||||
| Granted | $ | |||||||
| Canceled | ( | ) | $ | |||||
| Released | $ | |||||||
| Outstanding as of March 31, 2022 | $ | |||||||
| Vested as of March 31, 2022 | $ | |||||||
| Unvested as of March 31, 2022 | $ | |||||||
For the three months ended March 31, 2022, the aggregate fair value of RSU awards at the time of vesting was $.
As of March 31, 2022, the Company had approximately $ of unrecognized stock-based compensation expense related to RSUs, which will be amortized over approximately nineteen months.
For the three months ended March 31, 2021, a summary of RSU activity is as follows:
| Shares | Weighted Average Grant Date Fair Value | |||||||
| Outstanding as of December 31, 2020 | $ | |||||||
| Granted | $ | |||||||
| Canceled | $ | |||||||
| Released | $ | |||||||
| Outstanding as of March 31, 2021 | $ | |||||||
| Vested as of March 31, 2021 | $ | |||||||
| Unvested as of March 31, 2021 | $ | |||||||
For the three months ended March 31, 2021, the aggregate fair value of RSU awards at the time of vesting was $.
Issuance of RSUs to Officers and Directors
On March 1, 2022, the Company issued to an officer of the company 62,500 RSUs, which vested immediately. For the three months ended March 31, 2022, Company recognized stock-based compensation expense of $68,750 based upon the market price of its Common Stock of $1.10 per share on the date of grant of these RSUs.
On January 1, 2022, the Company issued to an officer of the company two grants of 50,000 RSUs each. These two grants vest over nine and twenty-one months, respectively, from the date of grant. For the three months ended March 31, 2022, Company recognized stock-based compensation expense of $36,841 based upon the market price of its Common Stock of $1.57 per share on the date of grant of these RSUs.
On March 5, 2021, the Company issued to an officer of the company 10,000 RSUs, which vested immediately. For the three months ended March 31, 2021, Company recognized stock-based compensation expense of $58,400 based upon the market price of its Common Stock of $5.84 per share on the date of grant of these RSUs.
20
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(UNAUDITED)
Note 7 – Equity-Continued
Stock Options
For the three months ended March 31, 2022, a summary of the options activity is as follows:
| Schedule of options activity | ||||||||||||||||||||
| Shares | Weighted Average Exercise Price | Weighted Average Fair Value | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | ||||||||||||||||
| Outstanding as of December 31, 2021 | $ | $ | $ | |||||||||||||||||
| Granted | $ | $ | $ | |||||||||||||||||
| Exercised | ( | ) | $ | $ | — | $ | ||||||||||||||
| Expired/Forfeited | ( | ) | $ | $ | — | $ | ||||||||||||||
| Outstanding as of March 31, 2022 | $ | $ | $ | |||||||||||||||||
| Exercisable as of March 31, 2022 | $ | $ | $ | |||||||||||||||||
As of March 31, 2022, the Company had approximately $ of total unrecognized compensation cost related to stock options, which will be amortized through March 31, 2024.
Intrinsic value is measured using the fair market value at the date of exercise (for shares exercised) or as of March 31, 2022 (for outstanding options), less the applicable exercise price.
For the three months ended March 31, 2022 and 2021, the significant assumptions relating to the valuation of the Company’s stock options granted were as follows:
| Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions | ||||||||
| March 31, | ||||||||
| 2022 | 2021 | |||||||
| Dividend yield | % | $ | % | |||||
| Expected life (years) | $ | |||||||
| Expected volatility | % | % | ||||||
| Risk-free interest rate | % | $ | % | |||||
Issuances of Options to Officers and Directors
On
March 31, 2022, the Company issued to directors and officers options to purchase
On
March 31, 2021, the Company issued to directors and officers options
to purchase
Prior to January 1, 2021, the Company previously issued to directors and officers options to purchase 2,743,580 shares of Common Stock at exercise prices ranging from $0.04 to $3.18 per share, with vesting periods ranging from immediate vesting to periods of up to three years from the grant dates, and expire on dates between March 30, 2023, and September 29, 2029. In connection with the issuance of these options to employees and directors, for the three months ended March 31, 2022 and 2021, the Company recognized $and $, respectively, in stock-based compensation expense.
21
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(UNAUDITED)
Note 7 – Equity-Continued
Cancellations of Options
For
the three months ended March 31, 2022 and 2021, as a result of employee terminations and options expirations, stock options aggregating
with fair market values of $
Note 8 – Leases
Operating Leases
As
of March 31, 2022 and December 31, 2021, consolidated operating lease liabilities of $
For
the three months ended March 31, 2022 and 2021, operating lease expense payments were $
As of March 31, 2022 and December 31, 2021, balance sheet information related to the Company’s operating leases is as follows:
| Schedule of Future Minimum Rental Payments for Operating Lease | ||||||||||
| Balance Sheet Location | March 31, 2022 | December 31, 2021 | ||||||||
| Right of use asset | Right of use asset | $ | $ | |||||||
| Current portion of operating lease liability | Current portion of operating lease liability | $ | ||||||||
| Long-term portion of operating lease liability | Long-term portion of operating lease liability | $ | $ | |||||||
As of March 31, 2022, scheduled future maturities of the Company’s lease liabilities are as follows:
| Schedule of future maturities | ||||
| Year Ending December 31, | ||||
| 2022 (rest of year) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Total future minimum lease payments, undiscounted | ||||
| Less: Amount representing interest | ( | ) | ||
| Present value of future minimum lease payments | $ | |||
| Present value of future minimum lease payments – current | $ | |||
| Present value of future minimum lease payments – long-term | $ | |||
As of March 31, 2022 and December 31, 2021, the weighted average lease-term and discount rate of the Company’s leases are as follows:
| Schedule of weighted average lease-term and discount rate leases | ||||||||
| Other Information | March 31, 2022 | December 31, 2021 | ||||||
| Weighted-average remaining lease terms (in years) | ||||||||
| Weighted-average discount rate | % | % | ||||||
22
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(UNAUDITED)
Note 8 – Leases-Continued
For the three months ended March 31, 2022 and 2021, supplemental cash flow information related to leases is as follows:
| Schedule Of Cash Flow Supplemental Information | ||||||||
| For the Three Months | ||||||||
| March 31, | ||||||||
| Other Information | 2022 | 2021 | ||||||
| Cash paid for amounts included in the measurement of liabilities: Operating cash flows for operating leases | $ | $ | ||||||
| Lease liabilities related to the acquisition of right of use assets: Operating leases | $ | $ | ||||||
Note 9 – Commitments and Contingencies
Resignation of Mr. Brandon Torres Declet as Chief Executive Officer
On
January 17, 2022, the Company and Mr. Brandon Torres Declet (“Mr. Torres Declet”) mutually agreed to Mr. Torres Declet’s
resignation as Chief Executive Officer and as a director of the Company. In connection with his departure, and in accordance with his
employment agreement with the Company, Mr. Torres Declet will receive base salary continuation equal to six months of his then annual
salary, reimbursement of COBRA health insurance premiums for a period of six months at the same rate as if Mr. Torres Declet were an
active employee of the Company, and a grant of fully-vested RSUs with a fair market value of $
Existing Employment and Board Agreements
The Company has various employment agreements with certain of its executive officers and directors that serve as Board members, for which it considers normal and in the ordinary course of business.
The Company has no other formal employment agreements with our executive officers, nor any compensatory plans or arrangements resulting from the resignation, retirement, or any other termination of our named executive officers, from a change-in-control, or from a change in any executive officer’s responsibilities following a change-in-control. However, it is possible that the Company will enter into formal employment agreements with its executive officers in the future.
Purchase Commitments
The
Company routinely places orders for manufacturing services and materials. As of March 31, 2022, the Company had purchase commitments
of approximately $
Note 10 – Segment Information
Non-allocated administrative and other expenses are reflected in Corporate. Corporate assets include cash, prepaid expenses, notes receivable, right of use asset and other assets.
As of March 31, 2022 and December 31, 2021, and for the three months ended March 31, 2022 and 2021, respectively, information about the Company’s reportable segments consisted of the following:
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AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(UNAUDITED)
Note 10 – Segment Information-Continued
Goodwill and Assets
| Schedule of consolidated results from reportable segments | ||||||||||||||||||||
| Corporate | Drones and Custom Manufacturing | Sensors | SaaS | Total | ||||||||||||||||
| As of March 31, 2022 | ||||||||||||||||||||
| Goodwill | $ | $ | $ | $ | $ | |||||||||||||||
| Assets | $ | $ | $ | $ | $ | |||||||||||||||
| As of December 31, 2021 | ||||||||||||||||||||
| Goodwill | $ | $ | $ | $ | $ | |||||||||||||||
| Assets | $ | $ | $ | $ | $ | |||||||||||||||
Net (Loss) Income
| Corporate | Drones and Custom Manufacturing | Sensors | SaaS | Total | ||||||||||||||||
| Three Months Ended March 31, 2022 | ||||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | |||||||||||||||
| Cost of sales | ||||||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Other income (expense), net | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| Three Months Ended March 31, 2021 | ||||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | |||||||||||||||
| Cost of sales | ||||||||||||||||||||
| (Loss) Income from operations | ( | ) | ( | ) | ||||||||||||||||
| Other income, net | ||||||||||||||||||||
| Net (loss) income | $ | ( | ) | $ | $ | $ | $ | ( | ) | |||||||||||
Revenues by Geographic Area
| Schedule of geographical revenues | ||||||||||||||||
| Three Months Ended March 31, 2022 | Drones and Custom Manufacturing | Sensors | SaaS | Total | ||||||||||||
| North America | $ | $ | $ | $ | ||||||||||||
| Europe, Middle East and Africa | ||||||||||||||||
| Asia Pacific | ||||||||||||||||
| Other | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Three months Ended March 31, 2021 | Drones and Custom Manufacturing | Sensors | SaaS | Total | ||||||||||||
| North America | $ | $ | $ | $ | ||||||||||||
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AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(UNAUDITED)
Note 11 – Subsequent Events
Appointment of Chief Commercial Officer
On April 11, 2022, Michael O’Sullivan (“Mr. O’Sullivan”) was appointed as the Company’s Chief Commercial Officer, Mr. O’Sullivan will receive an annual base salary of 250,000 CHF per year, subject to annual performance reviews and revisions by and at the sole discretion of the Compensation Committee. In accordance with the 2022 Executive Compensation Plan and as approved by the Compensation Committee, Mr. O’Sullivan will be eligible to receive an annual cash bonus of up to 30% of his then-current base salary and RSUs with a fair value of up to 150,000 CHF, based upon achievement of the performance milestones established in the 2022 Executive Compensation Plan. Furthermore, Mr. O’Sullivan is entitled to a service-based bonus, comprised of a cash bonus of 87,500 CHF and RSUs with a fair value of 87,500 CHF. Upon execution of his employment agreement with the Company, Mr. O’Sullivan was immediately granted RSUs with a fair value of 43,750 CHF, as part of his service-based bonus. The remaining RSUs with a fair value of 43,750 CHF and the cash payment of 87,500 CHF will vest in October 2022. In addition, Mr. O’Sullivan is entitled to receive a quarterly grant of 25,000 stock options at the fair market value of the Company’s Common Stock on the grant date, vesting over two years, and exercisable for a period of five years.
Mr. O’Sullivan is provided with severance benefits in the event of termination without cause or for good reason, as defined in his employment offer letter. Upon execution of a severance agreement entered into between Mr. O’Sullivan and the Company, Mr. O’Sullivan will be entitled to the following benefits: (i) three months of base salary, paid in the form of salary continuation, in accordance with the terms of a Separation Agreement to be entered into at the time of termination; (ii) a grant of fully-vested RSUs with a fair market value of 150,000 CHF on the date of termination of employment, pursuant to the terms of the separation agreement.
The severance benefits are conditioned upon (i) continued compliance in all material respects with Mr. O’Sullivan’s continuing obligations to the Company, including, without limitation, the terms of the amended employment offer letter and of the confidentiality agreement that survive termination of employment with the Company, and (ii) signing (without revoking if such right is provided under applicable law) a separation agreement and general release in a form provided to the executive officer by the Company on or about the date of termination of employment.
Measure Purchase Agreement – Delivery of Notice of Indemnification
On April 19, 2022, in accordance with the terms of the Measure Purchase Agreement, the Company delivered a notice of indemnification to the representative of the Measure Sellers seeking the right to set off certain operating losses from the holdback amount. The Company is claiming that the operating losses incurred by Measure from the Measure Acquisition date through April 19, 2022, resulted from breaches of certain representations and warranties made by the Measure Sellers. The Company is claiming that it has sustained operating losses in excess of $13 million as a result of the Measure Sellers’ breaches and has claimed the entire holdback amount to be applied against these operating losses. The Company has commenced settlement negotiations with the Measure Sellers. The Company intends to vigorously pursue what it believes are meritorious claims and defend its rights under the Measure Purchase Agreement, but Company management is unable to provide assurance as to the ultimate outcome of these claims. (See Note 5)
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| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion highlights the principal factors that have affected our financial condition and results of operations as well as our liquidity and capital resources for the periods described. This discussion should be read in conjunction with our 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 the Annual Report on Form 10-K and Item 1A. Risk Factors for a discussion of the uncertainties, risks and assumptions associated with these forward-looking statements. The operating results for the periods presented were not materially affected by inflation.
Overview
AgEagle™ 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 UAV systems 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 UAV 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 UAV 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 participation in the Unmanned Aircraft Systems Beyond Visual Line of Sight Aviation Rulemaking Committee, and its participation in the U.S. Federal Aviation Administration’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 maintains 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 UAV 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 UAV 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 UAV 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 UAV 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. |
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| ● | 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. |
Impact of COVID-19 On Our Business Operations
Global economic challenges, including the impact of the war in Ukraine, the COVID-19 pandemic, rising inflation and supply-chain disruptions, adverse labor market conditions could cause economic uncertainty and volatility. During the three months ended March 31, 2022, the COVID-19 pandemic continued to have a significant negative impact on the UAV industry, our customers, and our business globally. The aforementioned risks and their respective impacts on the UAV industry and our operational and financial performance remains uncertain and outside of our control. Specifically, as a result of the aforementioned continuing risks, our ability to access components and parts needed in order to manufacture its proprietary drones and sensors, and to perform quality testing have been, and continue to be, impacted. If either the Company or any of its third-parties in the supply chain for materials used in our manufacturing and assembly processes continue to be adversely impacted, our supply chain may be further disrupted, limiting its ability to manufacture and assemble products. We expect the pandemic, inflation and supply-chain disruptions and its effects to continue to have a significant negative impact on its business for the duration of the pandemic and during the subsequent economic recovery, which could be for an extended period of time.
For the three months ended March 31, 2022, 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.
Three Months Ended March 31, 2022 as Compared to Three Months Ended March 31, 2021
Revenues
For the three months ended March 31, 2022, revenues were $3,841,978 as compared to $1,701,592 for the three months ended March 31, 2021, an increase of $2,140,386, or 125.8%. The increase of $2,738,982 was attributable to the revenues derived from our ebee drone products as a result of the senseFly acquisition and $149,975 of increased sales of our SaaS subscription services related to the HempOverview and Ground Control platforms. Offsetting these increases was a decline in revenues of $748,571 related to our sensor sales, specifically the RedEdge and Altum™ sensor products due to the COVID-19 pandemic and its effects that continue to have a negative impact on the business due to supply chain, inflation and adverse labor market conditions, which could be for an extended period of time.
28
Cost of Sales
For the three months ended March 31, 2022, cost of sales was $2,477,086 as compared to $621,904 for the three months ended March 31, 2021, an increase of $1,855,182, or 298.3%. For the three months ended March 31, 2022, gross profit was $1,364,892 as compared the $1,079,688 for the three months ended March 31, 2021, an increase of $285,204, or 26.4%. The primary factors contributing to the increase in our cost of sales and decrease in gross profit margin were due to the increase in our cost of components and parts brought forth by the COVID-19 pandemic and its associated negative effects on supply chain, inflation and adverse labor market conditions, and a continued shift in our product mix as a result of the MicaSense and senseFly acquisitions, both of which resulted in lower gross profit margins.
Operating Expenses
For the three months ended March 31, 2022, operating expenses were $8,846,833, as compared to $4,040,488 for the three months ended March 31, 2021, an increase of $4,806,345, or 119.0%. Operating expenses comprise general and administrative, professional fees, sales and marketing and research and development.
General and Administrative Expenses
For the three months ended March 31, 2022, general and administrative expenses were $5,481,380 as compared to $3,509,979 for the three months ended March 31, 2021, an increase of $1,971,401, or 56.2%. The increase was primarily as a result of the inclusion of the newly acquired senseFly businesses, along with continued increases in general and administrative costs from all of the other 2021 business acquisitions. These costs primarily included lease expenses, payroll-related costs for new and existing employees, amortization of our acquired intangibles and stock-based compensation expenses, offset by a decrease in professional fees, related mainly to legal and consulting fees.
Research and Development
For the three months ended March 31, 2022, research and development expenses were $2,184,924 as compared to $232,804 for the three months ended March 31, 2021, an increase of $1,952,120, or 838.5%. The increase was primarily due to the addition of senseFly and Measure’s research and development teams that provide development of our new airframe and software technologies.
Sales and Marketing
For the three months ended March 31, 2022, sales and marketing expenses were $1,180,529 as compared to $297,705 for the three months ended March 31, 2021, an increase of $882,824, or 296.5%. The increase was primarily due to the addition of the senseFly and Measure sales and marketing teams.
Other Expense/(Income), net
For the three months ended March 31, 2022, other expense, net was $114,631 as compared to other income, net of $30,270 for the three months ended March 31, 2021. The change was primarily attributable to the net foreign currency transaction losses incurred by senseFly.
Net Loss
For the three months ended March 31, 2022, the Company incurred a net loss of $7,596,572 as compared to a net loss of $2,930,530 for the three months ended March 31, 2021, an increase of $4,666,042, or 159.2%. The overall increase in net loss was primarily attributable to greater operating and transactional costs as a result of the 2021 Business Acquisitions and a decrease in gross profit margins due to supply chain constraints. In addition, in order to achieve our long-term growth strategies additional resources and investments will be required as we continue to address these shifts by developing new technologies, products and services that support prevailing growth opportunities.
29
Cash Flows
Three Months Ended March 31, 2022 as Compared to the Three Months Ended March 31, 2021
As of March 31, 2022, cash on hand was $9,186,639, as compared to $14,590,566 as of December 31, 2021, a decrease of $5,403,927, or 37%.
For the three months ended March 31, 2022, cash used in operations was $6,510,343, an increase of $5,381,752, or 121%, as compared to cash used of $1,128,591 for the three months ended March 31, 2021. The increase in cash used in operating activities was principally driven by the operating expenses of our 2021 Business Acquisitions, which included higher inventory purchases and prepayments, and accounts payable, offset by deferred revenue resulting in customer backlog for prepayments on future sales.
For the three months ended March 31, 2022, cash used in investing activities was $3,503,158, a decrease of $9,775,733, or 35.8%, as compared to cash used of $13,278,891 for the three months ended March 31, 2021. The decrease in cash used in our investing activities resulted from the business acquisition of MicaSense in the prior year, offset by the increase in capitalized costs associated with the development of the HempOverview and Measure Ground Control platforms and the senseFly business acquisition.
For the three months ended March 31, 2022, cash provided by financing activities was $4,614,091, a decrease of $10,046,600, or 45.9%, as compared to cash provided of $14,660,691 for the three months ended March 31, 2021. The decrease in cash provided by our financing activities was due to less sales of our Common stock through an at-the-market (“ATM”) offering and exercise of warrants in the prior year.
Liquidity and Capital Resources
As of March 31, 2022, we had working capital of $3,101,003. For the three months ended March 31, 2022, we incurred a loss from operations of $7,481,941, an increase of $4,521,141, or 152.7%, as compared to $2,960,800 for the three months ended March 31, 2021. While there can be no guarantees, we believe the cash on hand, in connection with cash generated from revenues, 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.
During the three months ended March 31, 2022, we raised $4,583,341 of net proceeds from our ATM offering with co-agents Stifel, Nicolaus & Company, Incorporated and Raymond James & Associates.
Off-Balance Sheet Arrangements
On March 31, 2022, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources. Since our inception, except for standard operating leases, we have not engaged in any off-balance sheet arrangements, including the use of structured finance, special purpose entities or variable interest entities. We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
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Inflation
During the three months ended March 31, 2022, inflation has a negative impact the unmanned aerial vehicle systems industry, our customers, and our business globally. Specifically, our ability to access components and parts needed in order to manufacture its proprietary drones and sensors, and to perform quality testing have been, and continue to be, impacted. If either the Company or any of its third-parties in the supply chain for materials used in our manufacturing and assembly processes continue to be adversely impacted, our supply chain may be further disrupted, limiting its ability to manufacture and assemble products. We expect inflation and its effects to continue to have a significant negative impact on its business
Climate Change
Our opinion is that neither climate change, nor governmental regulations related to climate change, have had, or are expected to have, any material effect on our operations.
New Accounting Pronouncements
There were certain updates recently 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 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.
| ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure and Control Procedures
The Company’s Chief Executive Officer and the Company’s Chief Financial Officer evaluated the effectiveness of the Company’s disclosure controls and procedures as of March 31, 2022 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.
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Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(t) and 15d-15(f) under the Exchange Act, during the three months ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| PART II. | OTHER INFORMATION |
| ITEM 1. | LEGAL PROCEEDINGS |
Legal Proceedings
None.
| ITEM 1A. | RISK FACTORS |
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, and are not required to provide the information under this item.
| ITEM 2. | RECENT SALES OF UNREGISTERED EQUITY SECURITIES AND USE OF PROCEEDS |
None.
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
| ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
| ITEM 5. | OTHER INFORMATION |
None.
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| ITEM 6. | EXHIBITS |
| Exhibit No. | Description | |
| 10.1 | Offer Letter of Employment between AgEagle Aerial System, Inc. and Barrett Mooney, dated February 7, 2022 | |
| 10.2 | Employment Agreement between senseFly SA and Michael O’ Sullivan, dated March 31, 2022 | |
| 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 |
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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: May 16, 2022 | By: | /s/ Barrett Mooney |
| Barrett Mooney | ||
| Chief Executive Officer and Chairman of the Board | ||
| Dated: May 16, 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 | May 16, 2022 | ||
| Barret Mooney | (Principal Executive Officer) | |||
| /s/ Nicole Fernandez-McGovern | Chief Financial Officer, Executive Vice President of Operations and Secretary | May 16, 2022 | ||
| Nicole Fernandez-McGovern | (Principal Financial and Accounting Officer) |
34
Exhibit 10.1
February 7, 2022
Barrett Mooney
1854 E. Lake Dr.
Centennial, CO 80121
barrett.mooney@gmail.com
Re: Offer of Employment
Dear Dr. Mooney,
AgEagle Aerial Systems, Inc., a Nevada corporation (the “Company”) is pleased to offer you a position as Chief Executive Officer (CEO) of the Company, pursuant to the following terms and conditions of employment. Further, the Company asks for you to retain your position as Chairman of the Board and as a director of the Company’s Board of Directors (the “Board”).
You shall commence employment as of January 19, 2022 (your “Commencement Date”). You shall be based out of your home office in Centennial, CO and will report to the Board.
As a condition of your employment, and in consideration of your employment and the payments and benefits provided herein, you are required to sign and return to the Company the enclosed Employee Confidentiality and Proprietary Rights Agreement (the “Confidentiality Agreement”). During your employment with the Company, you are required to devote your full business time and best efforts to your duties, and you may not, except with prior written permission from the Company, be employed or engaged in any capacity with any business other than the Company, provided, however, this limitation shall not be construed as preventing you from serving on the board of directors of any corporation that is not a Restricted Business (provided that you have informed the Board of your intention to so serve and that neither the Board nor the Chairman of the Company has objected thereto within twenty (20) days of its receipt of your notice). You acknowledge and agree that, as an employee of the Company, you will comply with all laws and regulations, as well as Company rules, policies and procedures as may be in effect from time to time.
Your base salary shall be $380,000 per year, paid in accordance with the Company’s standard payroll procedures. You shall be eligible for an annual cash bonus of up to 35% of your then-current base salary and Restricted Stock Units (RSUs) equal to $350,000, as determined by the Board in its good faith discretion, based on your and the Company’s satisfaction of a combination of personal and Company goals. Such grant of RSUs shall be subject to the terms of an RSU grant agreement and, at the Company’s election, either subject to, or not subject to, the Company’s 2017 Omnibus Equity Incentive Plan (the “Equity Plan”). Such goals for a given calendar year will be established by the Board, in consultation with you. This bonus is subject to your continued employment with the Company through the end of the calendar year for which the bonus is being paid. Any cash bonus for an applicable calendar year shall be paid no later than the end of the first quarter of the following calendar year. Lastly, the Board shall review your performance annually, and the Board, in its sole discretion, may revise your compensation package.
Additionally, you shall be awarded 25,000 shares of Nonqualified Stock Options quarterly. The options will be subject to the terms of the Equity Plan, and the vesting requirements, the term of the option and exercisability at an exercise price equal to the fair market value of the option shares as of the date of grant will be outlined upon issuance.
All option awards provided for hereunder shall be subject to your continued employment with the Company through the applicable vesting date or event, as well as your execution of and continued compliance with the Confidentiality Agreement and applicable option award agreements under the terms of the Equity Plan.
Additionally, the Company shall withhold from any payments made to you (including, without limitation, those specified in this offer letter) all federal, state, local or other taxes and withholdings as shall be required pursuant to any law or governmental regulation or ruling.
As soon as practicable following your execution of this letter and commencement of employment with the Company it is agreed that, will result in the execution of formal executive agreements wherein terms and conditions of employment will be addressed in detail, which will include, but not be limited to, the following: (i) compensation (base salary, bonus and equity), (ii) benefits (health, and life Insurance, and Vacation), (iii) termination of employment (including successor transition), and (iv) restrictions (confidentiality, non-compete clauses, breach and legal remedies).
During your employment, you will receive vacation, sick and personal days in accordance with the current PTO policy. As an executive, the Company covers the monthly expense associated with premiums for health benefits offered by the Company for you and your dependents. In the event the Board determines in its discretion that you must relocate your principal place of performance of your duties, the Company shall pay directly and/or reimburse you for expenses, that you incur in connection with such relocation, following your presentment to the Company of invoices or other acceptable documentation substantiating such expense in accordance with the Company’s expense reimbursement policy. Any benefits to which you are entitled shall be determined in accordance with such plans and programs and Company policy. The Company reserves the right to suspend, amend or terminate any employee benefit plan or program at any time.
In the event of termination without Cause (as defined in the Stock Purchase Agreement) or for “Good Reason” (as defined below), the Company will provide you with Severance Benefits (defined below), conditioned on (i) your continued compliance in all material respects with your continuing obligations to the Company, including, without limitation, the terms of this Agreement and of the Confidentiality Agreement that survive termination of your employment with the Company, and (ii) your signing (without revoking if such right is provided under applicable law) a separation agreement and general release in a form provided to you by the Company on or about the date of your termination of employment (the “Separation Agreement”). The “Severance Benefits” shall consist of (i) 6 months of your base salary, paid in the form of salary continuation, in accordance with the terms of the Separation Agreement; (ii) reimbursement of your COBRA health insurance premiums at the same rate as if you were an active employee of the Company (conditioned on your having elected COBRA continuation coverage) for a period of 6 months or, if earlier, until you are eligible for group health insurance benefits from another employer; and (iii) a grant of fully-vested restricted shares of common stock of the Company with a fair market value of $190,000 on the date of your termination of employment, pursuant to the terms of, and effective on the effective date of, the Separation Agreement.
As used herein, “Good Reason” means (i) a material diminution in your duties, responsibilities, and authority, associated with your position as CEO of the Company, (ii) a reduction in your compensation or benefits hereunder, or (iii) requiring you relocate your principal place of performance of your duties. Notwithstanding the above, no termination of employment shall constitute a termination for Good Reason unless you provide notice of the condition constituting Good Reason no later than thirty (30) days after initially becoming aware of the existence of the condition, and the Company fails to cure such condition within thirty (30) days after receiving such notice.
This offer is not a guarantee of employment for a specific period of time. Your employment with the Company, should you accept this offer, will be “at-will,” which means that you or the Company may terminate your employment for any or no reason, at any time in accordance with the terms of this offer letter. In the event you elect to resign your employment with the Company, you agree to provide the Company with 90 days’ written notice of your termination of employment. During this notice period, the Company may ask you to perform specific duties or no duties at all and may ask you not to attend work during all or any part of your notice period. During your notice period, you will continue to receive the salary and benefits that you had been receiving immediately prior to such period, subject to any changes generally made for other employees of the Company. Further, upon termination of your employment for any reason, you agree to cooperate with the Company with respect to those business-related matters of which you have knowledge and to assist with the orderly return of Company property and transition of your work to others, as directed by the Company.
In addition, departure from the role of CEO, for any reason, will concurrently end your participation on the AgEagle Board of Directors. The Board, in its sole discretion, may invite you to rejoin the Board.
You should be aware that Company employees are not permitted to make any unauthorized use of documents or other information, which could reasonably be considered or construed to be confidential or proprietary information of another individual or company. Likewise, Company employees may not bring with them onto the premises of the Company or place on Company devices or within the Company’s information systems any confidential documents or other forms of tangible information relating to their prior employer’s business. Further, you represent to the Company that you are not subject to any contract or other restriction or obligation that is inconsistent with your accepting this offer of employment and performing your duties.
This offer of employment and continued employment is conditioned on your establishing your identity and authorization to work as required by the Immigration Reform and Control Act of 1986 (IRCA). Enclosed is a copy of the Employment Verification Form (I-9), with instructions required by IRCA. Please review this document and bring the appropriate original documentation on your first day of work. This offer is also contingent upon your satisfactory completion (at the Company’s sole discretion) of reference, drug and background checks. This is a standard procedure required for all new hires. Please see the attached consent and waiver form for this procedure.
This offer letter, as well as all matters concerning, arising out of or relating to your employment shall be governed by and construed under the laws of the State of Colorado, without regard to its conflict-of-law principles. Further, any dispute concerning or arising out of this offer letter or otherwise out of your employment with the Company shall be heard exclusively pursuant to the dispute resolution provisions set forth in the Confidentiality Agreement.
By signing this letter, you acknowledge that (1) you have not relied upon any representations other than those set forth in this offer letter, the Stock Purchase Agreement or the Confidentiality Agreement; (2) the terms of this offer and the Confidentiality Agreement constitute the entire understanding and contain a complete statement of all the agreements between you and the Company concerning your employment with the Company; (3) this offer letter and the Confidentiality Agreement supersede all prior and contemporaneous oral or written agreements, understandings or communications between you and the Company concerning your employment with the Company; and (4) any subsequent agreement or representation between you and the Company shall not be binding on the Company unless contained in a writing signed by you and an authorized representative of the Company.
If you have any questions or issues that may arise after reviewing this offer letter, please do not hesitate to contact me. We look forward to welcoming you to AgEagle Aerial Systems Inc.
Sincerely,
 |
|
| Grant Begley |
“Agreed and Acknowledged” (please sign, date, and retain a copy for your records)
 |
|
| Barrett Mooney, Ph.D. | |
| Date: 4/13/2022 |
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Exhibit 10.2
| EMPLOYMENT AGREEMENT | ||
| (“Agreement”) | ||
| dated | March 31, 2022 | |
| between | senseFly SA | |
| Route de Genève 38 | ||
| 1033 Cheseaux-Lausanne | ||
| (“Company”) | ||
| and | Michael O’Sullivan | |
| Chemin du Grand Pin 2A 1802 Corseaux | ||
| (“Employee”) | ||
| (the Company and the Employee together the “Parties”, each a “Party”) | ||
| (the Company and its direct and indirect affiliates (i.e. any entity which, directly or indirectly, controls, or is controlled by, or is un-der common control with such entity) from time to time the “Group”, each a “Group Company”) |
AgEagle - Michael O'Sullivan_Employment Agreement_03.31.2022
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| 1 | Commencement Date |
This Agreement enters into force on March 31, 2022 and replaces any former employment contract between the Parties.
There is no probation period.
For the calculation of years of service, 1 October 2019 will be considered the start date of the employment.
The Employee confirms not to be in any contractual relationship with the Company or any of its affiliates except for the present Agreement.
| 2 | Function and Duties |
The Employee is employed as Chief Commercial Officer of the Group. His duties and responsibilities are governed by the organizational regulations of the Company and the Group as well as the directives received by the Company and the Group.
The Employee’s role and responsibilities will be aligned with local market conditions and reviewed annually, and the exact key performance indicators will be finalized within 30 days after signing this Agreement.
The Employee reports to the Chief Executive Officer of the Group.
The Employee shall perform his tasks with due care and preserve the best interests of the Company and the Group. The Employee shall use his entire work effort and working time for the benefit of the Company and the Group. Every paid or unpaid outside activity requires the Company’s prior written approval. However, this limitation shall not be construed as preventing the Employee from serving on the board of directors of any corporation that is not competing (provided that the Employee has informed the Company of his intention to so serve and that the Company has not objected thereto within twenty (20) days of its receipt of his notice).
The Employee acknowledges and agrees that, as an employee of the Company, he will comply with all laws and regulations, as well as rules, policies and procedures of the Company and the Group as may be in effect from time to time.
| 3 | Working Time |
The ordinary weekly working time is 42 hours (100% employment). Due to the Employee’s position, the performance of additional hours (overtime /excess time) is expected. Compensation for such additional hours is included in the Employee’s fixed salary.
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| 4 | Vacation and Public Holidays |
The Employee is entitled to 25 vacation days per calendar year. The vacation days granted last will be taken first. Furthermore, the official public holidays of the Canton of Vaud apply.
| 5 | Place of Work |
The Employee’s ordinary place of work is at the Company’s seat. However, the Employee may be required to undertake substantial travel as well as to work from different locations in Switzerland and abroad for longer periods of time to which the Employee herewith explicitly agrees.
| 6 | Salary |
The Employee shall receive a base salary of CHF 250’000 gross per year, payable in twelve monthly instalments, less all applicable deductions (sec. 11).
| 7 | Annual Cash Bonus |
The Employee is eligible to an annual cash bonus amounting to maximum 30% of the Employee’s annual base salary and will be rendered by the Company.
Any cash bonus for an applicable calendar year shall be paid no later than the end of the first quarter of the following calendar year. Lastly, the Company’s board of directors shall review the Employee’s performance annually, and the Company’s board of directors, in its sole discretion, may revise the Employee’s compensation package.
| 8 | Compensation rendered by AgEagle Aerial Systems Inc. |
| 8.1 | Annual RSU Award |
The Employee is eligible to an annual RSU award, amounting to maximum the equivalent to CHF 150’000, the exact amount determined by the Board of AgEagle Aerial Systems Inc. in its good faith discretion.
Such grant of RSUs shall be subject to the terms of an RSU grant agreement with AgEagle Aerial Systems Inc. and, at AgEagle Aerial Systems Inc.’s election, either subject to, or not subject to, the 2017 Omnibus Equity Incentive Plan of AgEagle Aerial Systems Inc. (the “Equity Plan”). Such goals for a given calendar year will be established by the Chief Executive Officer and the Board of AgEagle Aerial Systems Inc, in consultation with the Employee.
The RSU bonus is subject to the Employee’s continued employment with the Company through the end of the calendar year for which the bonus is being paid.
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| 8.2 | Options |
As a member of the C-Suite of AgEagle Group, the Employee is also to be awarded 10’000 shares of Nonqualified Stock Options quarterly. The options will be subject to the terms of the Equity Plan of AgEagle Aerial Systems Inc., including governing law and jurisdiction clauses, and the vesting requirements, the term of the option and exercisability at an exercise price equal to the fair market value of the option shares as of the date of grant will be outlined upon issuance.
The options will be subject to the Employee’s continued employment with the Company through the applicable vesting date or event, as well as his execution of and continued compliance with the Confidentiality Agreement and applicable option award agreements under the terms of the Equity Plan.
| 8.3 | One-time Retention Bonus |
The Employee shall be eligible to receive a retention bonus for 2022, comprised of CHF 87’500 gross and Restricted Stock Units (RSUs) equal to CHF 87’500 gross. Half of the RSUs (43’750) were/will be granted shortly after signing of the offer letter and this Agreement, the remaining RSUs (43’750) will vest and the cash amount (CHF 87’500) will be paid coincidently with the anniversary of the SenseFly acquisition.
| 9 | Other Payments |
Potential other payments, which the Company or any other Group Company renders in addition to the fixed salary, are always made on a voluntary basis and at the Company’s or the respective Group Company’s (as applicable) discretion. The Employee is not entitled to respective payments and any such payments rendered in the past do not entitle the Employee to any payments in the future.
| 10 | Expenses |
The Company shall reimburse the Employee for expenses incurred in the due fulfillment of the Employee’s duties, as evidenced by respective receipts. Any expenses in excess of CHF 1’000 need to be pre-approved by the Company’s board of directors. Reimbursements are paid monthly.
| 11 | Deductions and Contributions |
All payments and benefits in kind rendered under this Agreement shall be understood as gross amounts, from which the employee contributions to domestic and foreign social security institutions, pension schemes and insurances, as prescribed by law, regulations or agreements, will be deducted before payout. Moreover, domestic and foreign withholding taxes to be borne by the Employee will be deducted, if applicable.
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| 12 | Pension Fund |
With regard to pension funds (BVG), the pension fund regulations applicable to the Company apply in their respective version as amended from time to time.
| 13 | Intellectual Property Rights |
All computer-programs, inventions, designs, creations, data, findings, works, methods, documents and the like which the Employee solely or jointly with others, makes, conceives or contributes to during his activities under his employment agreement (collectively the “Work Results”) belong exclusively to the Company, regardless of whether or not they are protected under applicable laws and regulations. To the extent the rights in any Work Results do not already vest in the Company by virtue of art. 332 para. 1 of the Swiss Code of Obligations or art. 17 of the Swiss Copyright Act, the Employee hereby assigns and transfers any and all rights to and in connection with the Work Results to the Company. The Company is free to exploit, change, modify and use the Work Results at its own discretion without referring to the Employee as the creator or author of the Work Results. Subject only to art. 332 para. 4 CO, the Employee is not entitled to any additional remuneration for the Work Results and the assignment of his rights therein.
During and after the term of his employment, if reasonably required, the Employee will support the Company in the process of patenting inventions or registering other intellectual property rights in the Work Results.
| 14 | Sickness and Accidents |
Regarding insurances, the terms stated on Annex 1 to this Agreement apply.
If the Employee is ill or unable to perform work for any other reason, he shall be obliged to inform the Company thereof before 9:00 a.m. on the first day of absence.
If the Employee is unable to work due to illness or an accident, which exceeds three working days, a medical certificate from the Employee’s doctor must be provided to the Company. The Company has the right to request a medical certificate already at an earlier date and has the right to have the Employee examined by a doctor of its choice.
| 15 | Termination |
This Agreement can be terminated by either Party subject to a notice period of 3 months as to any date (i.e. not necessarily to the end of a calendar month).
The Company has the right to release the Employee from work for the whole or part of the notice period (garden leave). With the initiation of garden leave, all entitlements to potential variable pay will end. Furthermore, all untaken vacation entitlements, if any, will be considered as duly compensated in case of garden leave. In case of garden leave, the Employee shall make efforts to find a new, non-competing employment or to take up a new, non-competing self-employment respectively. Upon request of the Company, the Employee shall present his respective efforts made. The Employee shall inform the Company of a new employment or self-employment immediately. The respective income derived from such employment will be set-off against the Company’s payment obligations.
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| 16 | Severance |
In the event of termination without Cause (as defined in the Stock Purchase Agreement) or for “Good Reason” (as defined below), the Company will provide the Employee with Severance Benefits (defined below), conditioned on (i) the Employee’s continued compliance in all material respects with his continuing obligations to the Company and the Group, including, without limitation, the terms of this Agreement and of the Confidentiality Agreement that survive termination of the Employee’s employment with the Company, and (ii) the Employee’s signing (without revoking if such right is provided under applicable law) a separation agreement with a re-stated non-compete undertaking and a general release in a form provided to the Employee by the Company on or about the date of the Employee’s termination of employment (the “Separation Agreement”). The “Severance Benefits” shall consist of (i) 3 months of the Employee’s base salary after the end of the employment, i.e. after the notice period is completed, paid in the form of salary continuation, in accordance with the terms of the Separation Agreement; and (ii) a grant of fully-vested restricted shares of common stock of AgEagle Aerial Systems Inc. with a fair market value of USD 150’000 on the date of the Employee’s termination of employment, pursuant to the terms of, and effective on the effective date of, the Separation Agreement.
As used herein, “Good Reason” means (i) a material diminution in the Employee’s duties, responsibilities, and authority, associated with the Employee’s position as Chief Commercial Officer of the Group, (ii) a substantive reduction in the Employee’s compensation or benefits hereunder, or (iii) requiring the Employee to relocate his principal place of performance of his duties. Notwithstanding the above, no termination of employment shall constitute a termination for Good Reason unless the Employee provides notice of the condition constituting Good Reason no later than thirty (30) days after initially becoming aware of the existence of the condition, and the Company fails to cure such condition within thirty (30) days after receiving such notice.
| 17 | Return of Items and Documents |
Upon the Company’s first request, but at the latest at the end of the employment or the start of the garden leave, the Employee shall return to the Company all (physical and electronic) items, documents, correspondence, drafts and notes concerning the Company and/or the Group. There is no right of retention. The Employee is not entitled to keep copies. Where copies cannot be returned for technical reasons (for instance digital copies, data carriers or similar), they must be permanently deleted and the permanent deletion shall be confirmed by the Employee in writing.
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| 18 | Confidentiality |
During the employment as well as thereafter, the Employee shall keep this Agreement and its content as well as all business affairs, documents and information of (and about) the Company and the Group, in particular trade and business secrets, strictly confidential. The Employee is not permitted to use such information for any purpose other than the proper fulfilment of this Agreement (prohibition to exploit).
| 19 | Non-Compete and Non-Solicit Obligation |
The Employee hereby undertakes not to, during the employment as well as for a period of twelve months years following the end date of the employment, in Switzerland, the US and all other territories the Group is active directly or indirectly, be it as principal, employee, consultant or otherwise
| i) | compete with the Company or any other Group Company in any way or conduct any preparatory activities for a later competition or solicitation; |
| ii) | work or be active for, invest in, or lend money to, any company directly or indirectly competing with the Company or any other Group Company (other than investments in a listed company not exceeding 5% of its economic participation or voting rights); |
| iii) | solicit or entice away any employee, customer, supplier or other business partner of the Company or any other Group Company or discourage any person from doing business with the Company and/or any other Group Company; or |
| iv) | conduct any preparatory activities regarding, assist any person or entity in doing, or facilitate, any of the above. |
The Employee undertakes to immediately notify the Company in case the Employee is contacted by a third party with respect to a potential employment or other activity that may be competing with the Company or a Group Company. Upon request of the Company, the Employee shall provide the Company with all information and documents that may reasonably be of assistance to the Company to protect its rights.
The Employee hereby undertakes to pay a contractual penalty of an amount corresponding to six monthly base salaries to the Company in case of each breach of the non-compete/non-solicit obligation. In the event of a continued breach, the Employee shall pay an additional contractual penalty equal to one monthly base salary for every started month of continued breach. Payment of a contractual penalty does not release the Employee from adhering to the non-compete/non-solicit obligation. Further, the Company has the right to claim compensation for any damage caused by the Employee to the Company or any other Group Company and to request specific performance (Realexekution).
The Employee hereby expressly acknowledges that it is permitted and proportionate for the Company and/or any other Group Company to request an injunction ((super)provisorische Massnahme) to enforce the confidentiality obligation and/or the non-compete/non-solicit obligation.
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| 20 | Regulations |
The Company’s and Group’s regulations in their respective applicable version (as amended from time to time) are directives within the meaning of article 321d of the Swiss Code of Obligations and the Employee is obliged to comply with them.
| 21 | Miscellaneous |
This Agreement (including the documents it refers to) constitutes the entire understanding between the Parties relating to the employment relationship; there are no oral or other ancillary agreements. Changes and amendments to this Agreement (including this sec. 21) are only valid in writing.
The Employee accepts that the Company may store, transfer, process and delete all data relating to the Employee and that the Company has the right to transfer any data relating to the Employee to other Group companies within Switzerland and abroad.
| 22 | Governing Law and Jurisdiction |
This Agreement shall be governed by the substantive laws of Switzerland (excluding its rules on conflict of laws).
Venue for any dispute arising from this Agreement shall be the courts according to article 34 of the Swiss Civil Procedural Code.
Signatures on next page
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This Agreement is made on the date set forth on the cover page of this Agreement.
| The Company: | |
 |
|
| Nicole Fernandez-McGovern CFO & EVP of Operations |
|
| The Employee: | |
| Michael O’Sullivan | |
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ANNEX 1 - INSURANCE (AS A GUIDE)
| a. | Accident insurance. The Employee will be insured, in accordance with the Federal law on accident insurance (LAA) of March 20, 1981, against accidents and professional diseases and non-professional accidents. The premiums for the insurance against accidents and professional diseases will be the sole responsibility of the Employer. Those of the insurance against non-professional accidents the responsibility of the Employee. The premiums having to be borne by the Employee will be deducted by the Employer from the Employee’s gross salary. |
In the event of temporary incapacity for work, the services cover 90% of the salary of the Employee from the 3rd day of incapacity, during the 1st and 2nd day of incapacity the salary is maintained at 100%,. (Cf. General conditions Vaudoise Insurance).
| b. | Additional accident insurance. In case of disability, a capital of 3 times the annual LAA salary (capped gross salary) with progression B will be allocated in proportion to the degree of invalidity decided by the AI. In case of death a capital of 2 times the annual LAA salary will be allocated. (Cf. General conditions Vaudoise Insurance). |
| c. | Loss of earnings in case of illness insurance. The Employer covers the financial consequences of an incapacity for work of the Employee in case of illness. |
The insured salary is 90% of the capped annual salary, for a maximum period of 730 days, from the 31st days of illness. During this 30-day waiting period, the salary will be 100% maintained from the 1st to the 7th days of illness, then 80% from the 8th to the 30th days of illness (Cf. General conditions Vaudoise Insurance).
| d. | Occupational Insurance. If the annual salary exceeds the LPP entry threshold, the Employee will be insured according to the occupational insurance plan agreed by the Employer. The Employee’s share (40%) will be deducted by the Employer from the Employee’s gross salary. The Employer’s share is about 60%. The maximum co-ordinated salary is CHF 200’000 - gross annual. (Cf. General conditions Groupe Mutuel). |
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Exhibit 31.1
CERTIFICATION
I, Barrett Mooney, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the three months ended March 31, 2022 of AgEagle Aerial Systems Inc. (the “registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: May 16, 2022 | /s/ Barrett Mooney |
| Barrett Mooney | |
| Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION
I, Nicole Fernandez-McGovern, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the three months ended March 31, 2022 of AgEagle Aerial Systems Inc. (the “registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: May 16, 2022 | /s/ Nicole Fernandez-McGovern |
| Nicole Fernandez-McGovern | |
| Chief Financial Officer (Principal Financial Officer), | |
| Executive Vice President of Operations and Secretary |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of AgEagle Aerial Systems, Inc. (the “Company”) on Form 10-Q for the three months ended March 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Barrett Mooney, Chief Executive Officer (Principal Executive Officer) of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: May 16, 2022
| /s Barrett Mooney | |
| Barrett Mooney | |
| Chief Executive Officer (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of AgEagle Aerial Systems, Inc. (the “Company”) on Form 10-Q for the three months ended March 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Nicole Fernandez-McGovern, Chief Financial Officer (Principal Financial Officer) of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: May 16, 2022
| /s/ Nicole Fernandez-McGovern | |
| Nicole Fernandez-McGovern | |
| Chief Financial Officer (Principal Financial Officer), Executive Vice President of Operations and Secretary |