NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
Note 1 – Description of Business
AgEagle Aerial Systems,
Inc. (“AgEagle” or “the Company”) was created to pioneer, innovate and advance aerial imaging data collection
and analytics technologies capable of addressing the impending food and environmental sustainability crises that threaten the planet.
The Company’s daily efforts are focused on delivering the metrics, tools and strategies necessary to define and implement
intelligent sustainability and precision farming solutions that solve important problems confronting the agricultural industry.
Since its founding in 2010, the Company has remained intent on becoming a trusted partner to major food manufacturers and precision
growers seeking to adopt and support productive agricultural approaches to better farming practices which limit impact on natural
resources, reduce reliance on inputs and materially increase crop yields and profits.
The Company designs,
produces, distributes and supports technologically-advanced small unmanned aerial vehicles (UAVs or drones) that AgEagle offers
for sale commercially to the precision agriculture industry. In addition to UAV sales, in late 2018, the Company introduced a new
drone-leasing program, alleviating farmers and agribusinesses from significant upfront costs associated with purchasing a drone,
while also relieving them from ongoing drone maintenance and support requirements. Additionally, the new program provides the option
of engaging a trained AgEagle pilot to operate the drone and manage the entire image collection process, creating a truly turnkey
aerial imagery capture solution for its customers.
Additionally, the Company
recently announced a new service offering using its leased UAVs and associated data processing services for the sustainable agriculture
industry.
AgEagle is the nation’s first drone-based aerial imagery company to utilize leading-edge
data capture technology and customized analytics solutions to help promote and proactively support corporate and farming sustainability
initiatives.
On August 28, 2018, AgEagle
acquired all right, title and interest in and to all assets owned by Agribotix, LLC to be utilized in their business of providing
integrated agricultural drone solutions and drone-enabled software technologies and services for precision agriculture. AgEagle’s
management believes that purchasing Agribotix’s primary product,
FarmLens™,
will benefit the Company and
its shareholders by developing important vertically integrated products and services.
FarmLens
is a subscription cloud analytics
service that processes data, primarily collected with a drone such as ours, and makes such data actionable by farmers and agronomists.
FarmLens
is currently sold by the Company as a subscription service and offered either standalone or in a bundle with drone
platforms manufactured by leading drone providers like AgEagle, DJI and senseFly.
The Company is headquartered
in Neodesha, Kansas. Its website address is http://www.ageagle.com.
Corporate History; Recent Business Combinations
On March 26, 2018 (the
“Merger Date”), the Company consummated the transactions contemplated by that certain Agreement and Plan of Merger
(the “Merger Agreement”), dated October 19, 2017, pursuant to which AgEagle Merger Sub, Inc., a Nevada corporation
and the Company’s wholly-owned subsidiary, merged with and into AgEagle Aerial Systems Inc., a privately held company organized
under the laws of the state of Nevada (“AgEagle Sub”), with AgEagle Sub surviving as its wholly-owned subsidiary (the
“Merger”). In connection with the Merger, the Company changed its name to AgEagle Aerial Systems Inc. and AgEagle Sub
changed its name to “AgEagle Aerial, Inc.” The Company’s Common Stock continues to trade on the NYSE American
under its new symbol “UAVS” since March 27, 2018.
Prior to the merger,
the Company was formerly known as Millennium Plastics Corporation and was incorporated in the State of Nevada on March 31,
1999. In August 2006, the Company acquired Midwest Energy, Inc., a Nevada corporation pursuant to a reverse merger. After
such merger, Midwest Energy became a wholly-owned subsidiary, and as a result of such merger, the former Midwest Energy
stockholders controlled approximately 98% of our outstanding shares of Common Stock. The Company changed its name to EnerJex
Resources, Inc., (“EnerJex”) in connection with this merger, and in November 2007, it changed the name of Midwest
Energy (one of our wholly-owned subsidiaries) to EnerJex Kansas, Inc. (“EnerJex Kansas”). All of its operations
conducted prior to this merger were through EnerJex Kansas, Inc., Black Sable Energy, LLC, a Texas limited liability company
(“Black Sable”) and Black Raven Energy, Inc. a Nevada corporation (“Black Raven”). The
Company’s leasehold interests were held in our wholly-owned subsidiaries Black Sable, Working Interest, LLC, EnerJex
Kansas and Black Raven.
AGEAGLE AERIAL SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
Note 1 – Description of Business-Continued
On August 28, 2018, the
Company closed the transactions contemplated by the previously announced Asset Purchase Agreement (the “Purchase Agreement”)
dated July 25, 2018 with AgEagle Aerial, Inc., a wholly-owned subsidiary of the Company, Agribotix, LLC, a Colorado limited liability
company (sometimes also referred to herein as” Agribotix” or the “Seller”), and the other parties named
therein. Pursuant to the Purchase Agreement, the Company acquired all right, title and interest in and to all assets owned by the
Seller utilized in the Seller’s business of providing integrated agricultural drone solutions and drone-enabled software
technologies and services for precision agriculture, except for certain excluded assets as set forth in the Purchase Agreement.
At closing, the Company also assumed certain liabilities under various third-party contracts pursuant to the terms of the Purchase
Agreement.
Note 2 – Summary of Significant Accounting
Policies
Basis of Presentation
and Consolidation
- These financial consolidated statements are presented in United States dollars and have been prepared
in accordance with accounting principles generally accepted in the United States. The Company’s consolidated financial statements
are prepared using the accrual method of accounting. The Company has elected a December 31 fiscal year end.
The consolidated financial
statements include the accounts of AgEagle Aerial Systems Inc. and its wholly-owned subsidiaries AgEagle Aerial, Inc., EnerJex
Kansas, Inc., Black Sable Energy, LLC, Black Raven Energy, Inc. All significant intercompany balances and transactions have been
eliminated in consolidation.
The summary of significant
accounting policies presented below is designed to assist in understanding the Company’s consolidated financial statements.
Such consolidated financial statements and accompanying notes are the representations of the Company’s management, who are
responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted
in the United States of America (“US GAAP”) in all material respects, and have been consistently applied in preparing
the accompanying consolidated financial statements.
Use of Estimates -
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates. Significant estimates include the allowance for bad debt,
warranty and dealer termination costs, obsolete inventory, valuation of stock issued for services and stock options, valuation
of intangible assets and the valuation of deferred tax assets.
Fair Value of Financial
Instruments -
Unless otherwise disclosed, the fair value of the Company’s financial instruments, including cash,
accounts receivable, convertible debt, promissory notes, accounts payable and accrued expenses, approximates their recorded values
due to their short-term maturities.
Cash and Cash Equivalents
-
Cash and cash equivalents includes any highly liquid investments with an original maturity of three months or less.
Receivables and
Credit Polic
y
-
Trade receivables due from customers are uncollateralized customer obligations due under
normal trade terms requiring payment within 30 days from the invoice date. Terms with our distributor allow for payment terms of
45 days from the invoice date. Trade receivables are stated at the amount billed to the customer. The Company generally does not
charge interest on overdue customer account balances. Payments of trade receivables are allocated to the specific invoices identified
on the customer’s remittance advice or, if unspecified, are applied to the earliest unpaid invoices.
The Company estimates an
allowance for doubtful accounts based upon an evaluation of the current status of receivables, historical experience, and other
factors as necessary. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change.
The Company determined that no allowance was necessary as of December 31, 2018 and December 31, 2017.
AGEAGLE AERIAL SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
Note 2 – Summary of Significant Accounting
Policies-Continued
Inventorie
s -
Inventories,
which consist of raw materials, finished goods and work-in-process, are stated at the lower of cost or net realizable value, with
cost being determined by the average-cost method, which approximates the first-in, first-out method. Cost components include direct
materials and direct labor, as well as in-bound freight. At each balance sheet date, the Company evaluates its ending inventories
for excess quantities and obsolescence. This evaluation primarily includes an analysis of forecasted demand in relation to the
inventory on hand, among consideration of other factors. The physical condition (e.g., age and quality) of the inventories is also
considered in establishing its valuation. Based upon the evaluation, provisions are made to reduce excess or obsolete inventories
to their estimated net realizable values. Once established, write-downs are considered permanent adjustments to the cost basis
of the respective inventories. These adjustments are estimates, which could vary significantly, either favorably or unfavorably,
from the amounts that the Company may ultimately realize upon the disposition of inventories if future economic conditions, customer
inventory levels, product discontinuances, sales return levels or competitive conditions differ from the Company’s estimates
and expectations. As of December 31, 2018 and 2017, the Company had recorded a provision for obsolescence of $10,369 and $15,369,
respectively.
Goodwill
-
We review the recoverability of goodwill whenever events or changes in circumstances indicate that the carrying
amount of such assets may not be recoverable or o on an annual basis. The estimated future cash flows are based upon, among
other things assumptions about expected future operating performance, and may differ from actual cash flows. If the sum of
the projected undiscounted cash flows (excluding interest) is less than the carrying value of the assets, the assets will
be written down to the estimated fair value in the period in which the determination is made. As of December 31, 2018,
there have been no events or changes in circumstances that indicate that it is more likely than not that a goodwill
impairment has occurred since assessment date of August 2018.
Intangible Assets –
Acquired in Business Combinations
-
We perform valuations of assets acquired and liabilities assumed on each acquisition
accounted for as a business combination and allocate the purchase price of each acquired business to our respective net tangible
and intangible assets. Acquired intangible assets include: customer relationships and trade names. We use valuation techniques
to value these intangibles assets, with the primary technique being a discounted cash flow analysis. A discounted cash flow analysis
requires us to make various assumptions and estimates including projected revenue, gross margins, operating costs, growth rates,
useful lives and discount rates Intangible assets are amortized over their estimated useful lives using the straight-line method
which approximates the pattern in which the economic benefits are consumed.
Business Combinations
-
The Company recognizes, with certain exceptions, 100% of the fair value of assets acquired, liabilities assumed, and non-controlling
interests when the acquisition constitutes a change in control of the acquired entity. Shares issued in consideration for a business
combination, contingent consideration arrangements and pre-acquisition loss and gain contingencies are all measured and recorded
at their acquisition-date fair value. Subsequent changes to fair value of contingent consideration arrangements are generally reflected
in earnings. Any in-process research and development assets acquired are capitalized as of the acquisition date. Acquisition-related
transaction costs are expensed as incurred. The operating results of entities acquired are included in the accompanying consolidated
statements of operations from the date of acquisition.
Revenue Recognition
and Concentration-
The Company generally recognizes revenue on sales to customers, dealer and distributors upon satisfaction
of our performance obligations when the goods are shipped. The Company generally ships FOB Shipping Point terms. Shipping documents
are used to verify delivery and customer acceptance. The Company assesses whether the sales price is fixed or determinable based
on the payment terms associated with the transaction and quantity of drones being purchased. The Company assesses collectability
based on the creditworthiness of the customer as determined by evaluations and the customer’s payment history. Additionally,
customers are required to place a deposit on each UAV ordered.
AGEAGLE AERIAL SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
Note 2 – Summary of Significant Accounting
Policies-Continued
As a result of the Agribotix
acquisition, the Company now has an additional product line which is the sale of subscription services for use of the
FarmLens
™
platform to process aerial imaging. These subscription fees are recognized ratably over each monthly membership period.
The Company has executed
one significant non-exclusive worldwide distributor agreement in 2016 and amended this agreement to make it non-exclusive by allowing
the Company the right to sell its products directly into the marketplace. Only the non-exclusive worldwide distributor has the
right of return within twelve months of purchase up to a certain percentage of the annual sales volume less a restocking fee. As
of December 31, 2018, no sales of the Company are subject to this right of return clause per the distributor agreement.
Sales concentration information
for customers comprising more than 10% of the Company’s total net sales such customers is summarized below:
|
|
Percent of total sales for year ended December 31,
|
Customers
|
|
2018
|
|
2017
|
Customer A
|
|
|
18.0
|
%
|
|
|
*
|
|
Customer B
|
|
|
10.4
|
%
|
|
|
*
|
|
Customer C
|
|
|
*
|
|
|
|
20.9
|
%
|
The table below reflects
our revenue for the periods indicated by product mix.
|
|
For the Year Ended December 31,
|
Type
|
|
2018
|
|
2017
|
Product Sales
|
|
$
|
93,219
|
|
|
$
|
116,035
|
|
Subscription Sales
|
|
|
14,594
|
|
|
|
—
|
|
Total
|
|
$
|
107,813
|
|
|
$
|
116,035
|
|
Vendor Concentration
-As
of December 31, 2018, there was one significant vendors that the Company relies upon to perform stitching its
FarmLens
platform.
This vendor provided services to the Company which can be replaced by alternative vendors should the need arise.
Shipping Costs -
Shipping
costs for the year ended December 31, 2018 totaled $ 5,239, and $5,648 for the year ended December 31, 2017. 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 shipments of operations.
Advertising Costs
–
Advertising costs are expensed as incurred. Advertising costs amounted to $1,454 for the year ended December 31, 2018, and $11,775
for the year ended December 31, 2017
.
Earnings
Per Share
- Basic loss per share is computed by dividing net loss by the weighted average number of common shares outstanding
for the year. Diluted loss per share is computed by dividing net loss by the weighted average number of common shares outstanding
plus Common Stock equivalents (if dilutive) related to warrants, options and convertible instruments.
AGEAGLE AERIAL SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
Note 2 – Summary of Significant Accounting
Policies-Continued
Potentially
Dilutive Securities
- The Company has excluded all common equivalent shares outstanding for warrants, options and convertible
instruments to purchase Common Stock from the calculation of diluted net loss per share because all such securities are antidilutive
for the periods presented. For the year ended December 31, 2018, the Company had 3,703,703 warrants and 1,287,103 options to purchase
Common Stock, 4,662 shares of Series C Preferred Stock which may be converted into 8,633,333 shares of Common Stock. For the year
ended December 31, 2017, the Company had 828,200 warrants and 1,134,800 options to purchase Common Stock, and 1,095,864 potential
convertible shares which may be issued resulting from the provisions of convertible notes.
Income Taxes -
The
Company accounts for income taxes in accordance with FASB ASC Topic 740,
Accounting for Income Taxes
. This topic requires
an asset and liability approach for accounting for income taxes. The Company evaluates its tax positions that have been taken or
are expected to be taken on income tax returns to determine if an accrual is necessary for uncertain tax positions. The Company
will recognize future accrued interest and penalties related to unrecognized tax benefits in income tax expense if incurred. All
income tax returns not filed more than three years ago are subject to federal and state tax examinations by tax authorities.
Share-Based Compensation
Awards
- The value we assign to the options that we issue is based on the fair market value as calculated by the Black-Scholes
pricing model. To perform a calculation of the value of our options, we determine an estimate of the volatility of our stock. We
need to estimate volatility because there has not been enough trading of our stock to determine an appropriate measure of volatility.
We believe our estimate of volatility is reasonable, and we review the assumptions used to determine this whenever we issue a new
equity instruments. If we have a material error in our estimate of the volatility of our stock, our expenses could be understated
or overstated. All share-based awards are expensed on a straight-line basis over the vesting period of the options.
Recently Issued Accounting
Standards -
In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts
with Customers (Topic 606). This updated guidance supersedes the current revenue recognition guidance, including industry-specific
guidance. The updated guidance introduces a five-step model to achieve its core principal of the entity recognizing revenue to
depict the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects
to be entitled in exchange for those goods or services. This standard provides a single set of guidelines for revenue recognition
to be used across all industries and requires additional disclosures. It is effective for annual and interim reporting periods
beginning after December 15, 2017.
Topic 606 requires revenue
to be recognized when promised goods or services are transferred to customers in amounts that reflect the consideration to which
the Company expects to be entitled in exchange for those goods or services and recognize revenue under the new standard as costs
are incurred. Under previous U.S. generally accepted accounting principles (GAAP), revenue was generally recognized when deliveries
were made, performance milestones were attained, or as costs were incurred. The new standard accelerates the timing of when the
revenue is recognized, however, it does not change the total amount of revenue recognized on these contracts. The new standard
does not affect revenue recognition for purposes of the Company’s sales as each of the Company’s revenue transactions
represent a single performance obligation that is satisfied at a point time or monthly subscription fees which are recognized ratably
over the subscription period, as defined in the new ASU. Accordingly, the Company recognizes revenue for small UAVS product contracts
with customers at the point in time when the transfer of control passes to the customer, which is generally when title and risk
of loss transfer. The Company adopted the updated guidance effective January 1, 2018 using the full retrospective method, however
the new standard did not have a material impact on the Company’s consolidated financial position and consolidated results
of operations, as it did not change the manner or timing of recognizing revenue on a majority of its revenue transactions.
AGEAGLE AERIAL SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
Note 2 – Summary of Significant Accounting
Policies-Continued
In January 2016, the FASB
issued ASU 2016-01,
Financial Instruments: Recognition and Measurement of Financial Assets and Financial Liabilities
,
which addresses certain aspects of recognition, measurement, presentation and disclosure of financial statements. This guidance
will be effective in the first quarter of fiscal year 2019 and early adoption is not permitted. The Company is currently evaluating
which transition method it will adopt and the expected impact of the updated guidance, but does not believe the adoption of the
updated guidance will have a significant impact on its consolidated financial statements.
In February 2016, FASB
issued Account Standards Update 2016-02 –
Leases
(Topic 842) intended to improve financial reporting of
leasing transaction whereby lessees will need to recognize a right-of-use asset and a lease liability for virtually all of their
leases. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more
than twelve months. Consistent with current Generally Accepted Accounting Principles (GAAP), the recognition, measurement, and
presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance
or operating lease. However, unlike current GAAP—which requires only capital leases to be recognized on the balance sheet—the
new ASU will require both types of leases to be recognized on the balance sheet. The Company is currently evaluating the impact
of the updated guidance.
In August 2016, the FASB
issued ASU 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
.
The new guidance is intended to reduce diversity in practice in how transactions are classified in the statement of cash flows.
This ASU is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. The
adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
In January 2017, the FASB
issued ASU 2017-01,
Business Combinations—Clarifying the definition of a business
(Topic 805). This ASU
clarifies the definition of a business with the objective of providing a more robust framework to evaluate whether transactions
should be accounted for as acquisitions (or disposals) of assets or businesses. The Company’s adoption of ASU No. 2017-01
effective May 1, 2018 did not have a material impact on the consolidated financial statements.
In May 2017, the FASB issued
ASU 2017-09,
Compensation—Stock Compensation
(Topic 718). This ASU reduces the diversity in practice and
cost and complexity when applying the guidance in Topic 718 to a change in terms or conditions of a share-based payment award.
The Company’s adoption of ASU No. 2017-09 effective May 1, 2018 did not have a material impact on its 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 financial statements.
AGEAGLE AERIAL SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
Note 3 — Inventories
Inventories consist of the following at:
|
|
December 31,
|
|
|
2018
|
|
2017
|
Raw materials
|
|
$
|
109,826
|
|
|
$
|
106,569
|
|
Work-in process
|
|
|
30,088
|
|
|
|
34,850
|
|
Finished goods
|
|
|
19,937
|
|
|
|
32,582
|
|
Gross inventory
|
|
|
159,851
|
|
|
|
174,001
|
|
Less obsolete reserve
|
|
|
(10,369
|
)
|
|
|
(15,369
|
)
|
Total
|
|
$
|
149,482
|
|
|
$
|
158,632
|
|
Note 4 — Property and Equipment
Property and equipment consist of the following
at:
|
|
December 31,
|
|
|
2018
|
|
2017
|
Property and equipment
|
|
$
|
116,313
|
|
|
$
|
108,664
|
|
Less accumulated depreciation
|
|
|
(87,939
|
)
|
|
|
(69,961
|
)
|
|
|
$
|
28,374
|
|
|
$
|
38,703
|
|
Depreciation expense for the years ended December
31, 2018 and 2017 was $17,980 and $18,453 respectively.
Note 5 — Intangible Assets
Intangible assets are
recorded at cost and consist of the assets acquired for the acquisition of Agribotix. Amortization is computed using the straight-line
method over the estimated life of the asset. The Company will annually assess intangible and other long-lived assets for impairment.
Intangible assets were comprised of the following at December 31, 2018:
|
|
Estimated
Life
|
|
Gross Cost
|
|
Accumulated Amortization
|
|
Net Book Value
|
Carrying value as of December 31, 2017
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Intellectual Property/Technology
|
|
5 Years
|
|
|
433,400
|
|
|
|
(28,893
|
)
|
|
|
404,507
|
|
Customer Base
|
|
20 Years
|
|
|
72,000
|
|
|
|
(1,200
|
)
|
|
|
70,800
|
|
Tradenames and Trademarks
|
|
5 Years
|
|
|
58,200
|
|
|
|
(3,880
|
)
|
|
|
54,320
|
|
Non-compete Agreement
|
|
4 Years
|
|
|
160,900
|
|
|
|
(13,409
|
)
|
|
|
147,491
|
|
Carrying value as of December 31, 2018
|
|
|
|
$
|
724,500
|
|
|
$
|
(47,382
|
)
|
|
$
|
677,118
|
|
Amortization expense for the years ended December
31, 2018 and 2017 was $47,382 and $0, respectively.
AGEAGLE AERIAL SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
N
ote 6 —Investment in Unconsolidated
Investee
In November 2017, AgEagle
Sub entered into a multi-agreement arrangement with Agribotix, headquartered in Boulder, Colorado, an agricultural information
processing company providing actionable data to the agriculture industry. Pursuant to the Exchange Agreement whereby AgEagle Sub
exchanged 200,000 shares of the Company’s Common Stock it received in the Merger (equal to an aggregate value of $1,000,000)
for 20% of the equity membership interests of Agribotix.
Prior
to August 28, 2018, the Company accounted for its initial investment in Agribotix using the equity method of accounting. The ownership
interest was accounted for as if Agribotix was a consolidated subsidiary and all identifiable assets, including goodwill and identifiable
intangibles, were recorded at fair value and amortized, with this amortization recorded in “memo” and included in the
Company’s portion of earnings of Agribotix. The Company acquired all the assets of Agribotix on August 28, 2018. As of the
date of acquisition, the Company adjusted the difference between the carrying value of the Company’s investment to fair value,
which is reflected in the purchase consideration recorded upon the acquisition of Agribotix. See Note 7. unaudited summary
financial information for Agribotix for the five months ended August 28, 2018 is as follows:
STATEMENT OF OPERATIONS
|
|
|
Revenues
|
|
$
|
129,171
|
|
Cost of sales
|
|
|
100,366
|
|
Gross profit
|
|
|
28,805
|
|
Operating expenses
|
|
|
418,333
|
|
Operating loss
|
|
|
(389,528
|
)
|
Other expense
|
|
|
(3,845
|
)
|
Net loss
|
|
|
(393,373
|
)
|
Amortization of “memo” intangible assets
|
|
|
(88,755
|
)
|
Total adjusted net loss
|
|
|
(482,128
|
)
|
Adjustment to fair value of ownership interest
|
|
$
|
(482,128
|
)
|
Ownership interest
|
|
|
20
|
%
|
Share of adjusted net income
|
|
|
—
|
|
Note 7 – Acquisition
On August 28, 2018, pursuant
to the Purchase Agreement, the Company acquired, all right, title and interest in and to all assets owned by the Seller utilized
in the Seller’s business of providing integrated agricultural drone solutions and drone-enabled software technologies and
services for precision agriculture, except for certain excluded assets as set forth in the Purchase Agreement (the “Purchased
Assets”). At closing, the Company assumed certain liabilities under various third-party contracts pursuant to the terms of
the Purchase Agreement.
The consideration for
the Purchased Assets made at closing included the following: (a) a cash payment of $150,000 (of which $110,000 was previously
paid), (b) 200,000 shares of Common Stock of the Company at a value of $5.00 per share (all of which shares were issued to the
Seller pursuant to an exchange agreement between the Company and the Seller dated as of November 20, 2017), (c) an amount payable
at closing equal to the sum of: (i) 500,000 shares of Common Stock at a value of $2.00 per share (the “Closing Shares”);
and (ii) $450,000 in cash. In addition, the Seller paid on the 90th day following the closing equal to the sum of: (i) the number
of shares of Common Stock that is calculated by dividing $2,000,000 by the $2.00 share and (ii) $400,000 in cash.
AGEAGLE AERIAL SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
Note 7 – Acquisition-Continued
If
revenue of the business for the one-year period ending on the first anniversary of the closing date is at least $1,000,000, plus
the Capital Investment Multiplier (as defined below), then the Seller shall earn the number of shares of Common Stock that is calculated
by dividing $250,000 by the Average Price (calculated as if the 20–trading day period to which reference is made above ends
on such first anniversary), provided that in no event shall the Average Price be less than $2.00. “Capital Investment Multiplier”
means 1.5 times the amount of capital invested by the Company or its affiliates in the Seller to support and advance the business,
inclusive of loans or other investments provided to Seller prior to the closing, less $250,000.
The Purchase Agreement
contains customary representations, warranties and covenants, including provisions for indemnification in the event of any damages
suffered by either party as a result of, among other things, breaches of representations and warranties contained therein. An aggregate
amount equal $75,000 in cash, 50% of the number of Closing Shares and 25% of the number of Post-Closing Shares were deposited in
an escrow account with a third-party escrow agent to secure the indemnification obligations of the Seller pursuant to the terms
of the Purchase Agreement.
In accordance with ASC
805, “Business Combinations”, the Company accounted for the acquisition of Agribotix using the acquisition method of
accounting. The purchase price was allocated to specific identifiable tangible and intangible assets at their respective fair values
at the date of acquisition.
The
following table summarizes the total fair value of the consideration transferred as well as the fair values of the assets acquired
and liabilities assumed.
Common Stock consideration
|
|
$
|
3,000,000
|
|
Cash paid
|
|
|
1,000,000
|
|
Total purchase consideration
|
|
|
4,000,000
|
|
Inventory
|
|
|
(3,685
|
)
|
Property and equipment
|
|
|
(7,650
|
)
|
Intangibles assets
|
|
|
(724,500
|
)
|
Deferred revenue
|
|
|
6,819
|
|
Goodwill
|
|
$
|
3,270,984
|
|
Goodwill
is calculated as the excess of the consideration transferred over the net assets recognized and represents the expected revenue
and benefits of the combined company.
Goodwill recognized as a result of the acquisition is not deductible for tax
purposes. See Note 5 for additional information about other intangible assets. The recognized goodwill related to Agribotix is
directly attributable to synergies expected to arise after the acquisition.
As noted above, control
was obtained on August 28, 2018, the closing date of the transactions contemplated by the Purchase Agreement, at which time the
Company took over the operations of Agribotix and personnel.
The accompanying consolidated
financial statement includes the activity of Agribotix for the period after the acquisition commencing August 29, 2018 and ending
December 31, 2018.
AGEAGLE AERIAL SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
Note 7 – Acquisition-Continued
The following unaudited
proforma financial information gives effect to the Company’s acquisition of Agribotix as if the acquisition had occurred
on January 1, 2018 and had been included in the Company’s consolidated statement of operations for the years ended December
31, 2018 and 2017:
|
|
For the years ended December 31,
|
|
|
2018
|
|
2017
|
Revenue
|
|
$
|
314,486
|
|
|
$
|
357,727
|
|
Net Income
|
|
$
|
(2,702,928
|
)
|
|
$
|
(1,460,046
|
)
|
Note 8 – Debt
Convertible Notes Payable
On May 6, 2015, the Company
closed a private placement pursuant to a subscription agreement whereby two institutional investors (the “2015 Holders”)
purchased convertible notes having an aggregate principal amount of $500,000, convertible into Common Stock of the Company at $2.00
per share and maturing on November 6, 2016. Interest on the notes accrued at a rate of 8% annually and was payable quarterly. It
was determined that there were no aggregate beneficial conversion features. On or about March 4, 2016, the Company and the 2015
Holders entered into extension and modification agreements whereby the 2015 Holders agreed to extend the maturity date of the notes
to November 6, 2016, and permanently waive all rights and remedies, of whatever nature, with respect to the various defaults that
occurred under this subscription agreement and notes, including, without limitation, (I) the Company’s failure to become
a public SEC reporting company on or before September 30, 2015, (ii) the Company’s failure to pay interest on the notes,
and (iii) modifying and waiving certain participation rights in future financings. For the years ended December 31,
2018
and
2017, the Company recorded
$9,111 and
$40,000 of interest expense, respectively.
As of the Merger Date, the principal amount of the promissory note of $500,000 and its accrued interest of $114,556 were converted
at $1.25 per share into 814,381 shares of Common Stock.
On September 6, 2016, the
Company closed a private placement pursuant to a subscription agreement whereby an existing institutional investor (the “2016
Holder”) purchased a convertible note having a principal amount of $300,000, convertible into shares of Common Stock of the
Company at $3.00 per share and maturing on September 30, 2017. Interest on the note accrues at a rate of 8% annually and is payable
quarterly. It was determined that there were no aggregate beneficial conversion features. For the years ended December 31,
2018
and
2017
,
the Company recorded interest expense of
$5,467
and
$24,000, respectively. As of the Merger Date, the principal amount of the promissory note of $300,000 and its accrued
interest of $42,933 were converted at $1.25 per share into 454,440 shares of Common Stock.
On February 3, 2017, the
Company closed a private placement pursuant whereby a bridge loan (the “2017 Note A”) agreement was executed with an
accredited investor (the “2017 Holder Note A”) to purchase a convertible promissory note with an aggregate principal
amount of $175,000, an original issue discount of $25,000, convertible into shares of Common Stock of the Company at $2.50 per
share and maturing 90 days following issuance, or May 4, 2017. After payment of a finder’s fee and other expenses, the Company
received net proceeds of $101,250. In addition, the Company also issued to the 2017 Holder Note A warrant to purchase 200,000 shares
of the Company’s Common Stock at an exercise price per share of $2.50. To the extent the entire unpaid principal balance
of the note is not paid in full on the maturity date, (i) interest on the unpaid principal balance will accrue from the maturity
date at the rate of 18% per annum, and will continue until the date the note is paid in full, and (ii) the Company will issue to
the 2017 Holder Note A an additional warrant to purchase 100,000 shares of Common Stock for each ninety (90) calendar day period
that the unpaid principal balance of the note and any accrued interest is not paid in full by such date. Upon conversion as of
Merger Date, the Company had issued an additional 300,000 warrants to purchase shares resulting from the default of the loan.
AGEAGLE AERIAL SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
Note 8 – Debt-Continued
For the year ended December
31, 2018, the Company recorded $7,077 of interest expense. For the year ended December 31, 2017
,
the Company recorded interest expense of $ 28,566 and the $25,000 of original issue discount. For the year ended December
31, 2018, the Company recorded $7,077 of interest expense. As of the date of the merger on March 26, 2018, the principal amount
of the promissory note of $175,000 and its accrued interest of $35,642 were converted at $2.50 per share into 139,567 shares of
Common Stock.
On July 2017, the Company
closed a private placement pursuant to a subscription agreement whereby an existing institutional investor (the “2017 Note
B”) purchased a convertible note having a principal amount of $100,005, convertible into Common Stock of the Company at $2.00
per share and maturing on February 28, 2018. Interest on the note accrues at a rate of 8% annually payable upon maturity. It was
determined that there were no aggregate beneficial conversion features. For the years ended December 31,
2018
and
2017, the Company recorded
$1,822 and
$3,778 of interest expense, respectively.
As of the Merger Date, the principal amount of the promissory note of $100,005 and its accrued interest of $5,600 were converted
at $1.25 per share into 139,943 shares of Common Stock.
On September 2017, the
Company closed a private placement pursuant to a subscription agreement whereby an existing institutional investor (the “2017
Note C”) purchased a convertible note having a principal amount of $35,000, convertible into shares of Common Stock of the
Company at $2.00 per share and maturing on February 28, 2018. Interest on the note accrues at a rate of 8% annually payable upon
maturity. It was determined that there were no aggregate beneficial conversion features. For the years ended December 31,
2018
and
2017, the Company recorded
$638 and
$731 of interest expense, respectively.
As of the Merger Date, the principal amount of the promissory note of $35,000 and the accrued interest of $1,369 were converted
at $1.25 per share into 48,194 shares of Common Stock.
On October 2017, the Company
closed a private placement pursuant to a subscription agreement whereby an existing institutional investor purchased a convertible
note having a principal amount of $50,000, (the “2017 Note D”) convertible into shares of Common Stock of the Company
at $2.00 per share and maturing on February 28, 2018. Interest on the note accrues at a rate of 8% annually payable upon maturity.
It was determined that there were no aggregate beneficial conversion features. For the years ended December 31,
2018
and
2017, the Company recorded
$911 and
$8
1
1
of interest expense, respectively.
As
of the Merger Date, the principal of $50,000 and
the accrued interest of $1,722 were converted at $1.25 per share into 68,540 shares of Common Stock.
Promissory Notes
On December 15, 2016, the
Company issued a promissory note with an aggregate principal amount of $30,000 to a shareholder of the Company. On January 24,
2017, the Company issued a second promissory note with an aggregate principal amount of $30,000 to the same related party.
On September 14, 2017, the Company issued a third promissory note with an aggregate principal amount of $16,050 to the same
shareholder. All three promissory notes (the “Related Party Notes A”) accrue interest at an annual rate of 2% and matured
on November 6, 2017. On or about August 1, 2017, the Company and the shareholder promissory note A holder entered into extension
and modification agreements whereby they agreed to extend the maturity date of the Related Party Notes A to February 28, 2018,
added a conversion feature whereby the debt can be converted into shares of Common Stock of the Company at $2.00 per share and
amended the interest rate on the note retroactively to accrue at a rate of 8% annually. It was determined that there were no aggregate
beneficial conversion features. For the years ended December 31, 2018 and 2017, the Company recorded
$1,386
and
$5,420 of interest expense, respectively. As of the Merger Date, the principal of $76,050 and the accrued interest of
$7,239 were converted at $1.25 per share into 110,371 shares of Common Stock.
AGEAGLE AERIAL SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
Note 8 – Debt-Continued
On March 5, 2017, the Company
issued a promissory note with an aggregate principal amount of $10,000 to an executive of the Company. On May 15, 2017, the Company
issued a second promissory note with an aggregate principal amount of $10,000 to the same executive of the Company. On September
15, 2017, the Company issued a 3
rd
promissory note with an aggregate principal amount of $32,000 to the same executive
of the Company. On July 25, 2017, the Company issued a 3
rd
promissory note with an aggregate principal amount of
$3,000 to the same executive of the Company with the amended terms agreed to on August 1, 2017 per the modification agreement.
The promissory notes (the “Related Party Notes B”) accrue interest at an annual rate of 2% and mature on November 6,
2017. On or about August 1, 2017, the Company and the executive of the Company promissory note B holder entered into extension
and modification agreements whereby they agreed to extend the maturity date of the Related Party Notes B to February 28, 2018,
added a conversion feature whereby the debt can be converted into shares of Common Stock of the Company at $2.00 per share and
amended the interest rate on the note retroactively to accrue at a rate of 8% annually. It was determined that there were no aggregate
beneficial conversion features. For the years ended December 31, 2018 and 2017 the Company recorded $1,002 and $2,684 of interest
expense, respectively. As of the Merger Date, the principal of $55,000 and the accrued interest of $3,686 were converted at $1.25
per share into 77,769 shares of Common Stock.
As of the Merger Date,
all the AgEagle shares of Common Stock issued in connection with conversion of debt noted above were subsequently converted into
EnerJex shares and then split at a rate of 25 to 1 resulting in a conversion rate of 1.6564 per AgEagle share into a total of 787,891
shares of EnerJex Common Stock and 1,631 shares of Series C Preferred Stock.
As
part of the liabilities assumed from the EnerJex Merger, the Company recorded a promissory note for a principal amount of $125,556
and accrued interest of $4,171 payable over twelve months and maturing on March 27, 2019. The total amount outstanding as of December
31, 2018 was $40,998, resulting in payments of $88,729 made in 2018. The Company recorded interest of $3,670 for the year ended
December 31, 2018.
Note 9 – Equity
Capital Stock Issuances
As a result of the Merger
all the holders of the Company’s 10% Series A Cumulative Redeemable Perpetual Preferred Stock (the “Series A Preferred
Stock”) had their shares automatically converted into 902,186 shares of the Company’s Common Stock. The Company’s
Series B Convertible Preferred Stock of 8.25 shares (the “Series B Preferred Stock”) remained outstanding and were
convertible into 5,388 shares of the Company’s Common Stock. The Company’s Series C Convertible Preferred Stock (the
“Series C Preferred Stock”) included 2,879 of remaining shares after the conversion and retirement of all the Company’s
promissory notes due. These shares are convertible into 1,471,425 shares of the Company’s Common Stock. Furthermore, an additional
4,000 shares of Series C Preferred Stock were issued and are convertible into 3,020,797 shares of the Company’s Common Stock,
as they were issued to the current holder of Series C Preferred Stock in connection with a $4 million financing of Series C Preferred
Stock (the “Financing”).
On May 11, 2018, we issued
an additional 250 shares of our Series C Preferred Stock, convertible into 163,265 shares of our Common Stock and received a cash
payment of $250,000 for the issuance of the Series C Preferred Stock. The Series C Preferred Stock includes a beneficial ownership
limitation preventing conversion of shares of Series C Preferred Stock into more than 9.99% of the number of shares of our Common
Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of the Series C Preferred
Stock.
AGEAGLE AERIAL SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
Note 9 – Equity-Continued
On April 16, 2018, Alpha
Capital Anstalt converted 8.25 shares of Series B Preferred Stock, representing the last of the outstanding Series B shares, into
5,388 shares of Common Stock at a conversion price of $1.53.
During the year ended December
31 2018, Alpha Capital Anstalt converted 2,467 shares of Series C Preferred Stock into 1,611,082 shares of Common Stock at a conversion
price of $1.53.
In connection with an investor
relations agreement, dated April 4, 2018, the Company issued 60,000 shares of its Common Stock to the investor relations firm,
and its designees, and agreed to register such shares on its next registration statement (the “Registration Rights”).
On July 24, 2018, in connection with the filing of the Company’s registration statement on form S-1, a waiver of the Registration
Rights was obtained from the investor relations firm in exchange for 125,000 additional shares, which were issued by the Company
and approved by the Board. The Company recognized a total of $400,415 of investor relations expense at a fair value of $2.12 and
$2.26 per share within general and administrative costs related to these issuances.
On August 28, 2018 and
ninety-days thereafter, pursuant to the Purchase Agreement for Agribotix the Company issued 1,275,000 shares at a $2.00 share price.
On December 4 ,2018,
our former board director Mr. Scott Burell exercised 60,724 options at an exercise price of $0.06 resulting in the issuance of
55,801 shares as due to the Company’s withholding obligation relating to the exercise of these options some shares were held
back.
On
December 27, 2018, AgEagle Aerial Systems Inc. (the “Company”) entered into Securities Purchase Agreement (the “Agreement”)
with an institutional investor (the “Purchaser”). Pursuant to the terms of the Agreement, the Board of Directors of
the Company (the “Board”) designated a new series of preferred stock, the Series D Preferred Stock, which is non-convertible
and provides for an 8% annual dividend and is subject to optional redemption by the Company (the “Preferred Stock”).
The Company issued 2,000 shares of Preferred Stock and a warrant (the “Warrant”) to purchase 3,703,703 shares of the
Company’s Common Stock, par value $0.001 per share (the “Common Stock”), for $2,000,000 in gross proceeds. The
shares of Common Stock underling the Warrant are referred to as the “Warrant Shares”. The Company also entered into
a registration rights agreement (the “Registration Rights Agreement”) granting registration rights to the Purchaser
with respect to the Warrant Shares.
The Agreement provides
that upon a subsequent financing or financings with net proceeds of at least $500,000, the Company must exercise its optional redemption
of the Preferred Stock (as more fully described below in Item 5.03) and apply any and all net proceeds from such financing(s) to
the redemption in full of the Preferred Stock.
Warrants Issued
The Warrants of 3,703,703
are exercisable for a period of five years through December 26, 2023, at an exercise price equal to $0.54 per share, and is subject
to customary adjustments for stock splits dividend, rights offerings, pro rata distributions and fundamental transactions. In
addition, in the event the Company undertakes a subsequent equity financing or financings at an effective price per share that
is less than $0.54, the exercise price of the Warrant shall be reduced to the lower price.
The Warrant provides that
the Warrant holder shall have a “Beneficial Ownership Limitation” equal to 9.99% of the number of shares of the Common
Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant.
The Warrant holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation, as provided for in
the Warrant.
AGEAGLE AERIAL SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
Note 9 – Equity-Continued
Pursuant to the terms of
the Registration Rights Agreement, the Company shall file an initial registration statement registering the Warrant Shares no later
than the 20
th
calendar day following the required filing date of the Company’s Annual Report on Form 10-K for
the year ending December 31, 2018 (the “Filing Date”) and, with respect to any additional registration statements,
the earliest practical date on which the Company is permitted by SEC Guidance to file such additional registration statement related
to such registrable securities. The Company shall have the registration statement declared effective with the Securities and Exchange
Commission (the “Commission”) no later than the 90
th
calendar day following the Filing Date or, in the event
of a “full review” by the Commission, the 120
th
calendar day following the Filing Date. There are no penalties
for failure to file or be declared effective by the dates set forth above.
Options Issued
The Board of Directors
of the Company has unanimously approved a proposal to adopt and approve the EnerJex 2017 Omnibus Equity Incentive Plan (the “Plan”).
The Board of Directors recommended that this proposal be presented to the EnerJex shareholders for approval. The Plan became effective
on March 26, 2018, the date of the Merger, and is a comprehensive incentive compensation plan under which the Company can grant
equity-based and other incentive awards to officers, employees and directors of, and consultants and advisers to, the Company.
The purpose of the Plan is to help the Company attract, motivate and retain such persons and thereby enhance shareholder value.
The Company has reserved
a total of 2,000,000 shares of Common Stock for issuance as or under awards to be made under the Plan. To the extent that an award
lapses, expires, is canceled, is terminated unexercised or ceases to be exercisable for any reason, or the rights of its holder
terminate, any shares subject to such award shall again be available for the grant of a new award. The Plan shall continue in effect,
unless sooner terminated, until the tenth (10th) anniversary of the date on which it is adopted by the Board of Directors (except
as to awards outstanding on that date). The Board of Directors in its discretion may terminate the Plan at any time with respect
to any shares for which awards have not theretofore been granted; provided, however, that the Plan’s termination shall not
materially and adversely impair the rights of a holder, without the consent of the holder, with respect to any award previously
granted. The number of shares for which awards which are options or SARs may be granted to a participant under the Plan during
any calendar year is limited to 500,000. For purposes of qualifying awards as “performance-based” compensation under
Code Section 162(m), the maximum amount of cash compensation that may be paid to any person under the Plan in any single calendar
year shall be $500,000.
On
December 31, 2018, the Company issued options to purchase 534,598 shares of Common Stock to directors and employees of the Company
at the fair value exercise price ranging from $0.51 to $4.33 per share expiring on March 30, 2023 to December 17, 2028. The Company
determined the fair-market value of the options to be $449,491. In connection with the issuance of these options, the Company recognized
$102,698 stock compensation expense for the year ended December 31, 2018.
On October 4, 2017, AgEagle
Sub issued options to purchase 927,774 shares of Common Stock to employees and directors, that were approved by the board at an
exercise price of $0.06 per share. These options were assumed by the Company in the Merger. In connection with the issuance of
these options to employees and directors for the year ended December 31, 2018, the Company recorded $7,895 of stock compensation
expense and $22,192 for the year ended December 31, 2017.
AGEAGLE AERIAL SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
Note 9 – Equity-Continued
On March 1, 2015, AgEagle
Sub entered into a strategic consulting agreement with a related party and granted 207,055 stock options exercisable over five
years from the grant date at an exercise price per share of $2.60. On October 4, 2017, AgEagle Sub held a board meeting to approve
the modification of the existing 207,055 options to purchase Common Stock from an exercise price of $2.60 to $0.06 per share. These
options were assumed by the Company in the Merger. In connection with these options, the Company recognized no stock compensation
expense for the year ended December 31, 2018 as they were all fully vested.
The fair value of options
granted during the year ended December 31, 2018 were determined using the Black-Scholes option valuation model. The expected term
of options granted is based on the simplified method in accordance with Securities and Exchange Commission Staff Accounting Bulletin
107 and represents the period of time that options granted are expected to be outstanding. The Company makes assumptions with respect
to expected stock price volatility based on the average historical volatility of peers with similar attributes. In addition, the
Company determines the risk-free rate by selecting the U.S. Treasury with maturities similar to the expected terms of grants, quoted
on an investment basis in effect at the time of grant for that business day.
The significant weighted
average assumptions relating to the valuation of the Company’s stock options granted during the year ended December 31, 2018
were as follows:
|
|
December 31,
2017
|
|
March 31,
2018
|
|
June 30,
2018
|
|
September 30,
2018
|
|
December 31,
2018
|
Dividend Yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected life
|
|
|
3.04 to 6.25 Years
|
|
|
|
3.5 Years
|
|
|
|
3.5 Years
|
|
|
|
3.5 Years
|
|
|
|
3.5-6.5 Years
|
|
Expected volatility
|
|
|
74.80 to 80.41%
|
|
|
|
77.03
|
%
|
|
|
78.66
|
%
|
|
|
76.04
|
%
|
|
|
80.5
|
%
|
Risk-free interest rate
|
|
|
1.89 to 2.33%
|
|
|
|
2.81
|
%
|
|
|
2.68
|
%
|
|
|
3.01
|
%
|
|
|
2.59
|
%
|
For options granted in
2018, the fair value of the Company’s stock was obtained per the close of market as of December 31, 2018. The future expected
stock-based compensation expense expected to be recognized in future years is $288,401, through December 31, 2020.
Intrinsic value is measured
using the fair market value at the date of exercise (for shares exercised) or at December 31, 2018 (for outstanding options), less
the applicable exercise price.
A summary of the options
activity for the year ended December 31, 2018, are as follows:
|
|
Shares
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Term
|
|
Aggregate
Intrinsic Value
|
Outstanding at January 1, 2018
|
|
|
1,134,830
|
|
|
$
|
0.06
|
|
|
|
8.5 Years
|
|
|
$
|
—
|
|
Granted
|
|
|
534,598
|
|
|
|
1.35
|
|
|
|
5.94 Years
|
|
|
$
|
—
|
|
Exercised/Cancelled
|
|
|
(175,270
|
)
|
|
|
0.60
|
|
|
|
- Years
|
|
|
$
|
—
|
|
Outstanding at December 31, 2018
|
|
|
1,494,158
|
|
|
$
|
0.46
|
|
|
|
6.93 Years
|
|
|
$
|
—
|
|
Exercisable at December 31, 2018
|
|
|
782,147
|
|
|
$
|
0.22
|
|
|
|
7.07 Years
|
|
|
$
|
—
|
|
AGEAGLE AERIAL SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
Note 9 – Equity-Continued
For options granted or
modified in 2017, the fair value of the Company’s stock used in estimating the fair value of the stock options was estimated
using a discounted cash flow method and recent sales of its Common Stock.
Intrinsic value is
measured using the fair market value at the date of exercise (for shares exercised) or at December 31, 2017 (for outstanding options),
less the applicable exercise price.
A summary of the options
activity for the year ended December 31, 2017 are as follows:
|
|
For the Year Ended December 31, 2017
|
|
|
Shares*
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Term
|
|
Aggregate Intrinsic Value
|
Outstanding at beginning of year
|
|
|
207,055
|
|
|
$
|
0.06
|
|
|
|
4.0 years
|
|
|
$
|
—
|
|
Granted
|
|
|
927,775
|
|
|
$
|
0.06
|
|
|
|
10.0 years
|
|
|
$
|
—
|
|
Outstanding at end of year
|
|
|
1,134,830
|
|
|
$
|
0.06
|
|
|
|
8.5 years
|
|
|
$
|
—
|
|
Exercisable at end of year
|
|
|
521,873
|
|
|
$
|
0.06
|
|
|
|
7.9 years
|
|
|
$
|
—
|
|
*- Amounts have been converted to reflect a
stock split and conversion rate of 1.656 that occurred upon the EnerJex merger.
As of the Merger Date,
all outstanding AgEagle shares of Common Stock and newly issued in connection with conversion of debt were subsequently converted
into EnerJex shares and then split at a rate of 25 to 1 resulting in a conversion rate of 1.6564 per AgEagle share. The financial
statements give a retrospective effect to the reverse stock split.
Note 10 – Warrants to Purchase Common
Stock
As of December 31, 2018,
the Company had outstanding, in connection with the issuance of debentures in the prior year, warrants to purchase 828,221
shares of the Company’s Common Stock at an exercise price of $1.51. All warrants outstanding as of December 31, 2018 are
scheduled to expire between February 2, 2024 and October 31, 2024.
On December 27, 2018, the
Company issued 2,000 shares of Preferred Stock and a warrant (the “Warrant”) to purchase 3,703,703 shares of the Company’s
Common Stock, par value $0.001 per share (the “Common Stock”), for $2,000,000 in gross proceeds. The shares of Common
Stock underling the Warrant are referred to as the “Warrant Shares”. The Company also entered into a registration rights
agreement (the “Registration Rights Agreement”) granting registration rights to the Purchaser with respect to the Warrant
Shares.
The Warrant is exercisable
for a period of five years through December 26, 2023, at an exercise price equal to $0.54 per share, and is subject to customary
adjustments for stock splits dividend, rights offerings, pro rata distributions and fundamental transactions. In addition, in the
event the Company undertakes a subsequent equity financing or financings at an effective price per share that is less than $0.54,
the exercise price of the Warrant shall be reduced to the lower price.
The Warrant provides that
the Warrant holder shall have a “Beneficial Ownership Limitation” equal to 9.99% of the number of shares of the Common
Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant.
The Warrant holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation, as provided for in
the Warrant.
AGEAGLE AERIAL SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
Note 10 – Warrants to Purchase Common
Stock-Continued
A summary of activity related
to warrants for the year ended December 31, 2018 follows:
|
|
Shares
|
|
Weighted Average Exercise Price ($)
|
|
Weighted Average Remaining Contractual Term
|
Outstanding at December 31, 2017
|
|
|
828,221
|
|
|
$
|
1.51
|
|
|
|
5.34
|
|
Granted
|
|
|
3,703,703
|
|
|
$
|
0.54
|
|
|
|
4.99
|
|
Outstanding at December 31, 2018
|
|
|
4,531,924
|
|
|
$
|
0.72
|
|
|
|
5.05
|
|
Exercisable at December 31, 2018
|
|
|
4,531,924
|
|
|
$
|
0.72
|
|
|
|
5.05
|
|
*- Amounts have been converted to reflect a
stock split and conversion rate of 1.656 that occurred upon the EnerJex merger.
A summary of activity related
to warrants for the year ended December 31, 2017 follows:
|
|
Shares*
|
|
Weighted Average Exercise Price ($)
|
|
Weighted Average Remaining Contractual Term
|
Outstanding at December 31, 2016
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
Granted
|
|
|
828,221
|
|
|
$
|
1.51
|
|
|
|
6.60
|
|
Outstanding at December 31, 2017
|
|
|
828,221
|
|
|
$
|
1.51
|
|
|
|
6.40
|
|
Exercisable at December 31, 2017
|
|
|
828,221
|
|
|
$
|
1.51
|
|
|
|
6.40
|
|
*- Amounts have been converted to reflect a
stock split and conversion rate of 1.656 that occurred upon the EnerJex merger.
Note 11 – Commitments and Contingencies
Operating Leases
The Company leases office
space in Neodesha, Kansas for $500 a month. On August 22, 2018, the Company executed an amendment to the lease to renew the term
of the lease for an additional one year terminating on September 30, 2019 with no option to renew unless approved by the city commission
of Neodesha.
As a result of the Agribotix
acquisition, the Company assumed a lease for offices in Boulder, Colorado for $2,000 a month. The lease ends on May 31, 2019 and
has an option to terminate at any time with a 30-day prior notice period.
Rent expense was $13,600
and $3,900 for the years ended December 31, 2018 and 2017, respectively.
Merger Agreement
On March 26, 2018,
EnerJex Resources, Inc. (“EnerJex”), a Nevada company, consummated the transactions contemplated by that certain
Agreement and Plan of Merger, dated October 19, 2017, pursuant to which AgEagle Merger Sub, Inc., a Nevada corporation and a
wholly-owned subsidiary of EnerJex, merged with and into AgEagle Aerial Systems Inc., a privately held company organized
under the laws of the state of Nevada (“AgEagle Sub”), with AgEagle Sub surviving as a wholly-owned subsidiary of
EnerJex (the “Merger”). In connection with the Merger, EnerJex changed its name to AgEagle Aerial Systems Inc.
(the “Company”) and AgEagle Sub changed its name to “Eagle Aerial Systems, Inc.” The Company’s
Common Stock will continue to trade on the NYSE American under its new symbol “UAVS” commencing on March 27,
2018. As a result of the Merger, through AgEagle Sub, the Company is now engaged in the business of designing, developing,
producing, distributing and supporting technologically-advanced small unmanned aerial vehicles (UAVs or drones) that it
supplies to the precision agriculture industry.
AGEAGLE AERIAL SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
Note 11 – Commitments and Contingencies-Continued
Each share of Common Stock
issued and outstanding and underlying options and warrants of AgEagle Sub outstanding immediately prior to the Merger was exchanged
for 1.66 shares of Company Common Stock (the “Exchange Ratio”). As a result, at the effective time of the Merger (the
“Effective Time”), 5,439,526 shares of AgEagle Sub’s capital stock, representing all currently outstanding shares
of Common Stock and all other debt or equity securities convertible into Common Stock (except options and warrants as described
below) were automatically converted into 7,944,941 shares of Company Common Stock. In addition, at the Effective Time, 685,100
outstanding options and 500,000 warrants to purchase shares of AgEagle Sub Common Stock were assumed by EnerJex and converted into
1,134,830 options and 828,221 warrants to purchase shares of Common Stock of the Company.
All holders of EnerJex’s
10% Series A Cumulative Redeemable Perpetual Preferred Stock (the “Series A Preferred Stock”) had their shares automatically
converted into 896,640 shares of the Company’s Common Stock. EnerJex’s Series B Convertible Preferred Stock (the “Series
B Preferred Stock”) remains outstanding, and 1,624 shares of Series C Convertible Preferred Stock (the “Series C Preferred
Stock”) are now convertible into 1,060,432 shares of Company Common Stock. Furthermore, an additional 5,051 shares of Series
C Preferred Stock, convertible into 3,298,348 shares of Company Common Stock, were issued to the current holder of Series C Preferred
Stock in connection with a $4 million financing of Series C Preferred Stock (the “Financing”) and the conversion and
retirement of $425,000 in prior EnerJex promissory notes due and owing to such holder.
As of the Effective Time,
the former shareholders of AgEagle Sub owned approximately 67% of the Company’s Common Stock (inclusive of the AgEagle Sub
assumed stock options and warrants), the former EnerJex holders of Common Stock, the Series A Preferred Stock, the Series B Preferred
Stock and the Series C Preferred Stock, which were outstanding immediately prior to the Financing, collectively own 12.7% of the
Company’s Common Stock on a fully-diluted basis.
In connection with the
Merger, AgEagle waived the requirement for EnerJex to have paid and satisfied in full all outstanding indebtedness of EnerJex such
that there would be no continuing liabilities of EnerJex subsequent to the closing of the Merger (“Liability Condition”).
In consideration for AgEagle waiving the Liability Condition, the 1,215,278 shares of Common Stock to be held in escrow (valued
at $350,000) owned by certain former principal stockholders, officers and directors of EnerJex to secure losses, if any, that may
be suffered by the AgEagle indemnified parties pursuant to the indemnification obligations under the Merger Agreement, were never
issued and such former principal stockholders, officers and directors are not entitled to receive such shares. However, such former
principal stockholders, officers and directors received, in the aggregate, deferred salaries and fees valued at approximately $297,500.
In lieu of payment of the deferred salaries and fees in cash, such amounts have been converted into an aggregate of 1,032,986 shares
of Company Common Stock.
Prior to the Merger, EnerJex
operated as an oil exploration and production company engaged in the acquisition, development, exploration and production of oil
in Eastern Kansas. In connection with the Merger, EnerJex disposed of its principal assets, consisting primarily of its Kansas
oil and gas properties.
AGEAGLE AERIAL SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
Note 11 – Commitments and Contingencies-Continued
Employment and Board Agreements
On July 10, 2018, the
Company appointed Corbett Kull as an independent director to serve on the Company’s Board of Directors (the “Board”).
Mr. Kull’s appointment fills a vacancy on the Board.
As compensation for his
services as an independent director, Mr. Kull received an initial grant of 41,250 stock options at an exercise price of $1.77 per
share (the “Initial Grant”). The Initial Grant is exercisable for a period of five years and vests in equal quarterly
installments over a one-year period from the date of grant. In addition, Mr. Kull will receive a quarterly grant of 16,500 with
an exercise price at the current market price of the Company’s Common Stock at the time of issuance (the “Quarterly
Options”). The Quarterly Options are exercisable for a period of five years from the date of grant and vest in equal quarterly
installments over a period of two years from the date of grant.
Effective November 21,
2018, Mr. Scott Burell resigned from the Board of Directors of the Company and his positions as a member of the Compensation and
Nominating and Corporate Governance Committee and Chairman of the Audit Committee. As a result of his resignation, Mr. Burell did
not receive any options for the last quarter of 2018 as options are awarded upon completion of the term. To replace Mr. Burell,
Ms. Louisa Ingargiola was appointed on November 27, 2018 as a director of the Board of Directors of the Company, a member of the
Compensation and Nominating and Corporate Governance Committee and Chairman of the Audit Committee.
Pursuant to his offer letter
Mr. Louisa Ingargiola is entitled to receive for his service on the board: (1) an initial grant of five-year options to purchase
41,250 shares of Common Stock upon appointment, which was at an exercise price of $0.77 (equal to the market price of our Common
Stock on the date of grant) that will vest in equal installments every calendar quarter over a one year period; and (2) five-year
options to purchase 16,500 shares of Common Stock per calendar quarter of service at an exercise price per share equal to the market
price of our Common Stock at the time of issuance that will vest in equal installments every calendar quarter for the two year
period after date the grant.
Effective as of July 18,
2018, Mr. Barrett Mooney joined the Company as Chief Executive Officer. Mr. Bret Chilcott, founder of the Company, stepped down
as Chief Executive Officer, but will remain with the Company as President and Chairman of the Board.
Pursuant to an employment
offer letter dated July 9, 2018, Mr. Mooney will receive as compensation for his services as Chief Executive Officer a base salary
of $220,000 per year, which shall be subject to annual performance review by the Compensation Committee of the Board and may be
revised by the Board, in its sole discretion. Mr. Mooney received an initial grant of 75,000 shares of restricted Common Stock
of the Company which is fully vested. Mr. Mooney was also eligible to receive an award of 75,000 shares of restricted Common Stock
of the Company which fully vested as of January 1, 2019 if, and only if, the stock price of the Company reached $3.55 per share
and the closing price per share was at or above such price at the end of the day on January 1, 2019.
In addition, Mr. Mooney
is eligible to receive an award of 20,000 non-qualified stock options under the Company’s 2017 Omnibus Equity Incentive Plan
(the “Equity Plan”) upon securing one sustainability pilot program on or before October 31, 2018, and an additional
award of 30,000 non-qualified stock options under the Equity Plan upon securing a second sustainability pilot program on or before
January 31, 2019. Both awards shall provide for immediate vesting and exercisability at an exercise price equal to the fair market
value of the Company’s shares of Common Stock underlying the options as of the date of grant. Mr. Mooney will also be eligible
to receive an award of up to 55,000 non-qualified stock options under the Equity Plan based upon the results of his annual performance
review in the first quarter of 2019.
AGEAGLE AERIAL SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
Note 11 – Commitments and Contingencies-Continued
Effective December 18,
2018, an amendment was signed for the original employment offer letter dated July 9, 2018 hereby providing an amendment to provide
that in lieu of the issuance of 75,000 shares of restricted Common Stock of the Company (the “Shares”), the Company
shall award to Executive 125,000 Nonqualified Stock Options (the “Stock Options”) under the Company’s 2017 Omnibus
Equity Incentive Plan (the “Equity Plan”). The Stock Options shall be subject to the terms of the Equity Plan and standard
option award agreement which shall have a term of 10 years and provide for vesting over a one-year period and exercisability at
an exercise price equal to the fair market value of the Company’s Common Stock as of the date of the grant. The award of
75,000 shares were returned to the company and immediately cancelled.
Note 12 — Related Party Transactions
The following reflects the related party transactions during the
years ended December 31, 2018 and 2017.
Consulting Ag
r
eement
On March 1, 2015,
the Company entered into a strategic consulting agreement to assist it with raising capital and strategic positioning in an e
f
fort
to increase its valuation. Under the terms of the agreement, the Company agreed to issue 125,000 shares of the Company
’
s
Common Stock on May 1, 2015, an additional 125,000 shares of Common Stock on January 15, 2016 and 125,000 stock options exercisable
for five years from the issuance date. As of December 31, 2015, no shares were issued to the consultant. The Company recognized
$1,250,000 of consulting expense during 2015 and 2016 related to the value of the shares earned, which was based on the estimated
fair value of the stock as of December 31, 2015, based on the terms of a transaction which ultimately closed on February 22, 2016
by issuing 500,000 shares of its Common Stock, as there was no dis-incentive for non-performance. During 2016, the Company recognized
$555,556 of consulting expense related to the issuance of the Common Stock and $138,802 related to the stock options. No additional
expense was recorded for the yea
r
-ended December 31, 2017 for the common shares granted
in connection with the strategic consulting agreement executed in March 2015. During the 2017, the Company recognized $6,397 of
additional consulting expense related to the issuance of the Common Stock for the stock options as a result of the modification
of the exercise price of the options from $2.60 per share to $0.10 per share.
Promissory Notes
The Company issued promissory
notes for an aggregate amount of $76,050 (the “Related Party Notes A”) that accrued interest at an annual rate of 8%
and were set to mature as of the date of the Merger. For the years ended December 31, 2018 and 2017, the Company recorded
$1,386
and
$5,420 of interest expense, respectively. As of the Merger Date, the principal of $76,050 and the accrued interest of
$7,239 were converted at $1.25 per share into 110,371 shares of the Company’s Common Stock.
The Company issued promissory
notes for an aggregate amount of $55,000 (the “Related Party Notes B”) that accrued interest at an annual rate of 8%
and were set to mature as of the date of the Merger. It was determined that there were no aggregate beneficial conversion features.
For the years ended December 31, 2018 and 2017 the Company recorded $1,002 and $2,684 of interest expense, respectively. As of
the Merger Date, the principal of $55,000 and the accrued interest of $3,686 were converted at $1.25 per share into 77,769 shares
of the Company’s Common Stock.
AGEAGLE AERIAL SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
Note 12 — Related Party Transactions-Continued
Transactions with Officers
The Company’s Chief
Financial Officer, Nicole Fernandez-McGovern, is one of the principals of Premier Financial Filings, a full-service financial printer.
Premier Financial Filings provided contracted financial services to the Company and their related expenses have been included within
general and administrative expenses. For the year ended December 31, 2018, Premier Financial Filings provided services to the Company
resulting in fees of $13,302, and an accounts payable of $1,915 as of December 31, 2018.
Note 13 – Income Taxes
Prior to April
15, 2015, AgEagle Aerial Systems Inc. was treated as a disregarded entity for income tax purposes. Income taxes, if any, were the
responsibility of the sole member. In April 2015, the Company was converted to a corporation.
The Company
accounts for income taxes in accordance with FASB ASC Topic 740, Accounting for Income Taxes which requires the Company to provide
a net deferred tax asset or liability equal to the expected future tax benefit or expense of temporary reporting differences between
book and tax accounting and any available operating loss or tax credit carryforwards. At December 31, 2018 and 2017, the total
of all deferred tax assets was $1,400,620 and $899,073 respectively. The amount of and ultimate realization of the benefits from
the deferred tax assets for income tax purposes is dependent, in part, upon the tax laws in effect, the Company’s future
earnings, and other future events, the effects of which cannot be determined. Because of the uncertainty surrounding the realization
of the deferred tax assets the Company has established a valuation allowance of $1,400,620 and $899,073 for the years ended December
31, 2018 and 2017, respectively. The change in the valuation allowance for the years ended December 31, 2018 and 2017 was $501,548
and $192,125 respectively.
On December
22, 2017, the Tax Cuts and Jobs Act (the “Act”) was signed into law. The Act decreases the U.S. corporate federal income
tax rate from a maximum of 35% to a flat 21% effective January 1, 2018. The impact of the re-measurement on the Corporation’s
net deferred tax asset, as of December 31, 2017, was an approximately $99,539 decrease in deferred tax assets, with a corresponding
decrease in the Company’s valuation allowance, and no impact on income tax expense. The Act also includes a number of other
provisions including, among others, the elimination of net operating loss carrybacks and limitations on the use of future losses,
the repeal of the Alternative Minimum Tax regime and the repeal of the domestic production activities deduction. These provisions
are not expected to have a material effect on the Corporation.
Given the
significant complexity of the Act and anticipated additional implementation guidance from the Internal Revenue Service, further
implications of the Act may be identified in future periods.
At December 31,
2018, the Company had a net operating loss carry forward of approximately $2 million expiring in 2035-2037. Approximately a $100,000
of net operating loss carry forward with no expiration. Management has determined that a 100% valuation allowance be established
against net operating losses where it is more likely than not that such losses will expire or will not be available before they
are utilized.
The Company
acquired
EnerJex, Inc. in 2018 and changed the name from EnerJex, Inc. to AgEagle Aerial Systems Inc. The federal net operating losses carried
forward by EnerJex, Inc. prior to the acquisition are not available to the Company. This limitation is due to the IRC 382 limitation
requirement that the business that generated the net operating losses continue for a minimum of two years after the acquisition.
AGEAGLE AERIAL SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
Note 13 – Income Taxes-Continued
The components of income tax benefit
for the years ended December 31, 2018 and 2017 consist of the following:
|
|
2018
|
|
2017
|
Deferred tax benefit:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(435,942
|
)
|
|
$
|
(166,991
|
)
|
State
|
|
|
(65,606
|
)
|
|
|
(25,134
|
)
|
Increase in valuation allowance
|
|
$
|
(501,548
|
)
|
|
$
|
(192,125
|
)
|
A reconciliation of income
tax expense at the federal statutory rate to income tax expense at the Company’s effective rate for the years ended December
31 is as follows:
|
|
2018
|
|
2017
|
|
|
Amount
|
|
Rate
|
|
Amount
|
|
Rate
|
Computed tax at the expected statutory rate
|
|
$
|
(436,733
|
)
|
|
|
21.00
|
%
|
|
$
|
(271,053
|
)
|
|
|
34.00
|
%
|
State and local income taxes, net of federal
|
|
|
(65,606
|
)
|
|
|
3.16
|
|
|
|
(20,998
|
)
|
|
|
2.64
|
|
Other non-deductible expenses
|
|
|
743
|
|
|
|
(0.04
|
)
|
|
|
387
|
|
|
|
(0.05
|
)
|
Change due to impact of tax rates
|
|
|
—
|
|
|
|
(0.00
|
)
|
|
|
99,502
|
|
|
|
(12.49
|
)
|
Provision to return true up
|
|
|
48
|
|
|
|
(0.00
|
)
|
|
|
37
|
|
|
|
(0.00
|
)
|
Change in valuation allowance
|
|
|
501,548
|
|
|
|
(24.12
|
)
|
|
|
192,125
|
|
|
|
(24.10
|
)
|
Income tax benefit
|
|
$
|
—
|
|
|
|
0.00
|
%
|
|
$
|
—
|
|
|
|
0.00
|
%
|
The temporary differences,
tax credits and carryforwards that gave rise to the following deferred tax assets at December 31 is as follows:
Deferred tax assets:
|
|
2018
|
|
2017
|
Deferred revenue
|
|
$
|
1,182
|
|
|
$
|
—
|
|
Property and equipment
|
|
|
6,221
|
|
|
|
5,209
|
|
Interest
|
|
|
5,826
|
|
|
|
38,629
|
|
Goodwill amortization
|
|
|
(17,876
|
)
|
|
|
—
|
|
Intangibles tax amortization
|
|
|
7,488
|
|
|
|
—
|
|
Stock options for consulting services employees and directors
|
|
|
32,083
|
|
|
|
5,363
|
|
Stock options for consulting services-related party
|
|
|
51,878
|
|
|
|
51,878
|
|
Common Stock for consulting services-related party
|
|
|
302,000
|
|
|
|
302,000
|
|
Warrant expense
|
|
|
2,194
|
|
|
|
2,194
|
|
Net operating loss carryforward
|
|
|
1,021,276
|
|
|
|
493,751
|
|
Total Deferred tax assets
|
|
|
1,400,620
|
|
|
|
899,024
|
|
Valuation allowance
|
|
|
(1,400,620
|
)
|
|
|
(899,024
|
)
|
Net Deferred tax assets
|
|
$
|
—
|
|
|
$
|
—
|
|
AGEAGLE AERIAL SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
Note 14- Subsequent Events
Preferred C Share Conversions
During the month of January
2019, Alpha Capital Anstalt converted 270 shares of Series C Preferred Stock into 433,369 shares of Common Stock at a conversion
price of $0.54.
During the month of February
2019, Alpha Capital Anstalt converted 216 shares of Series C Preferred Stock into 400,000 shares of Common Stock at a conversion
price of $0.54.
During the month of March
2019, Alpha Capital Anstalt converted 540 shares of Series C Preferred Stock into 1,000,000 shares of Common Stock at a conversion
price of $0.54.
New Employment Agreement with Chief Financial
Officer
Effective January 1, 2019,
Ms. Fernandez-McGovern signed a new employment agreement with the Company, whereby her annual base salary increased to $180,000
and a ten-year grant of 50,000 stock options to purchase shares of Common Stock at an exercise price of $0.54 were granted. In
addition, Ms. Fernandez-McGovern will continue to receive quarterly awards of 12,000 stock options to purchase Common Stock at
an exercise price equal to the market price of our Common Stock at the time of issue during the term of her employment. All of
the awards will vest equally over two years.
F-29