See accompanying notes to condensed consolidated financial
statements.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 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 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 and nine month periods ended September
30, 2022 are not necessarily indicative of the results to be expected for a full year, any other periods or any future year or period.
Liquidity and Going Concern
– In pursuit of the Company’s long-term growth strategy and recent acquisitions the Company has sustained continued operating
losses. During the nine months ended September 30, 2022, the Company incurred a net loss of $11,533,356
and used cash in operating activities of $15,342,049.
As of September 30, 2022, the Company has working capital of $10,221,025
and an accumulated deficit of $62,587,700.
While the Company has historically been successful in raising capital to meet its working capital needs, the ability to continue raising
such capital to enable the Company to continue its growth is not guaranteed. Therefore, there is substantial doubt about the Company’s
ability to continue as a going concern as the Company will require additional liquidity to continue its operations and meet its financial
obligations for 12 months from the date these condensed consolidated financial statements were issued. The Company is evaluating strategies
to obtain the required additional funding for future operation and the restructuring of operations to grow revenues and reduce expenses.
If the Company is unable to generate
significant sales growth in the near term and raise additional capital, there is a risk that the Company could default on additional obligations;
and could be required to discontinue or significantly reduce the scope of its operations if no other means of financing operations are
available. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification
of recorded asset amounts or the amount and classification of liabilities or any other adjustment that might be necessary should the Company
be unable to continue as a going concern.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Note 1 – Description of the Business and
Basis of Presentation – Continued
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 and nine months ended September 30,
2022, the COVID-19 pandemic continued to have a significant negative impact on the unmanned aerial vehicle (“UAV”) systems
industry, the Company’s customers and business globally. The aforementioned risks and their respective impacts on the UAV industry
and the Company’s operational and financial performance remains 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.
A description of certain of the
Company’s accounting policies and other financial information is included in the Company’s audited consolidated financial
statements filed with the SEC on Form 10-K for the year ended December 31, 2021. The summary of significant accounting policies presented
below is designed to assist in understanding the Company’s condensed consolidated financial statements. Such condensed consolidated
financial statements and accompanying notes are the representations of the Company’s management, who are responsible for their integrity
and objectivity.
Use of Estimates –
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Significant estimates include the reserve for obsolete inventory, valuation of stock
issued for services and stock options, valuation of intangible assets including goodwill, foreign currency exchange rates, valuation of
defined benefit plan obligations and the valuation of deferred tax assets.
Fair Value Measurements
and Disclosures – ASC Topic 820, Fair Value Measurement (“ASC 820”), requires companies to determine fair
value based on the price that would be received to sell the asset or paid to transfer the liability to a market participant. ASC 820 emphasizes
that fair value is a market-based measurement, not an entity-specific measurement.
The guidance requires that assets
and liabilities carried at fair value be classified and disclosed in one of the following categories:
● |
Level 1: Quoted
market prices in active markets for identical assets or liabilities. |
|
|
● |
Level 2: Observable market-based
inputs or unobservable inputs that are corroborated by market data. |
|
|
● |
Level 3: Unobservable inputs
that are not corroborated by market data. |
For short-term classes of our financial
instruments, which include cash, accounts receivable, prepaid expenses, notes receivable, accounts payable and accrued expenses, their
carrying amounts approximate fair value due to their short-term nature. The outstanding loans related to the business acquisitions and
COVID Loans are carried at face value, which approximates fair value. As of September 30, 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.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Note 2 – Summary of Significant Accounting
Policies
Inventories – Inventories,
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.
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 control
transfers to customers, which is when product is shipped or delivered depending on specific shipping terms and, where applicable,
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 is completed.
The Company’s software subscriptions
to its platforms, HempOverview and Ground Control, are offered on a subscription basis. These subscription fees are recognized
ratably over each monthly membership period as the services are provided.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Note 2 – Summary of Significant Accounting
Policies-Continued
Capitalized Software Development
Costs — Software development costs for software to be sold, leased or marketed are accounted for in accordance with ASC Topic
985-20, Software — Costs of Software to be Sold, Leased or Marketed. Costs associated with the planning and design phase
of software development are classified as research and development costs and are expensed as incurred. Once technological feasibility
has been established, a portion of the costs incurred in development, including coding, testing and quality assurance, are capitalized
until available for general release to customers, and subsequently reported at the lower of unamortized cost or net realizable value.
Amortization is recorded per the individual technology software being released and is included in cost of sales on the condensed consolidated
statements of operations and comprehensive income (loss). Annual amortization is recognized on a straight-line basis over the remaining
economic life of the software (typically two years). Unamortized capitalized costs determined to be in excess of the net realizable value
of a solution are expensed at the date of such determination. As of September 30, 2022 and December 31, 2021, capitalized software development
costs, net of accumulated amortization, totaled $1,301,691 and $995,880, respectively, and are included in intangibles, net on the condensed
consolidated balance sheets.
Internal-use Software Costs
— Internal-use software development costs are accounted for in accordance with ASC Topic 350-40, Internal-Use Software.
The costs incurred in the preliminary stages of development are expensed as research and development costs as incurred. Once an application
has reached the development stage, internal and external costs incurred to develop internal-use software are capitalized and amortized
on a straight-line basis over the estimated useful life of the software (typically three to five years). Maintenance and enhancement costs,
including those costs in the post-implementation stages, are typically expensed as incurred, unless such costs relate to substantial upgrades
and enhancements to the software that result in added functionality, in which case the costs are capitalized and amortized on a straight-line
basis over the estimated useful life of the software. The Company reviews the carrying value for impairment whenever facts and circumstances
exist that would suggest that assets might be impaired or that the useful lives should be modified. Amortization expense related to capitalized
internal-use software development costs is included in general and administrative expenses on the condensed consolidated statements of
operations and comprehensive income (loss). As of September 30, 2022 and December 31, 2021, capitalized software development costs for
internal-use software, net of accumulated amortization, totaled $740,923 and $278,264, respectively, relate to the Company’s implementation
of its enterprise resource planning (“ERP”) software. Internal-use software costs are included in intangibles, net on the
condensed consolidated balance sheets.
Foreign Currency —
The Company translates 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 income (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 income (loss).
Shipping Costs – All
shipping costs billed directly to the customer are directly offset to shipping costs resulting in a net expense to the Company, which
is included in cost of goods sold in the accompanying condensed consolidated statements of operations and comprehensive income (loss).
For the three and nine months ended September 30, 2022 and 2021, shipping costs were $75,074 and $27,024, respectively, and $220,049 and
$62,614, respectively.
Advertising Costs –
Advertising costs are charged to operations as incurred and presented in sales and marketing expenses in the condensed consolidated statements
of operations and comprehensive income (loss). For the three and nine months ended September 30, 2022 and 2021, advertising costs were
$139,480 and $50,941, respectively, and $303,862 and $141,626, respectively.
Vendor Concentrations –
As of September 30, 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.
AGEAGLE
AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Note 2 – Summary of Significant Accounting
Policies-Continued
Income (Loss) Per Common Share
and Potentially Dilutive Securities – Basic income (loss) per share is computed by dividing net income (loss)
by the weighted average number of common shares outstanding for the period. Diluted income (loss) per share is computed by dividing net
income (loss) by the weighted average number of common shares outstanding plus Common Stock, par value $0.001 (“Common Stock”)
equivalents (if dilutive) related to warrants, options, restricted stock units (“RSUs”) and convertible instruments. As of
September 30, 2022, the Company had 629,367 of unvested RSUs, 2,484,373 options outstanding to purchase shares of Common Stock, and 6,311
shares of Series F Preferred Stock convertible into 10,179,032 shares of Common Stock, and 16,129,032 Common Stock warrants. As of December
31, 2021, the Company had 821,405 unvested RSUs and 2,541,667 options outstanding to purchase shares of Common Stock.
The following dilutive shares have
been excluded from the calculation of diluted net loss per share as their effect would be anti-dilutive for the three months ended September
30, 2022, 629,367 of unvested RSUs, 727,667 options outstanding to purchase shares of Common Stock, 6,311 shares of Preferred Stock, Series
F Convertible into 10,179,032 shares of Common Stock, and 16,129,032 Common Stock warrants. See Note 7 — Equity.
Segment Reporting –
The Company operates in three segments: Drones and Custom Manufacturing, Sensors and Software-as-a Service (“SaaS”).
Accounting Pronouncements –
Adopted – During the first quarter of 2022, the Company early adopted Accounting Standards Update (“ASU”) ASU 2020-06,
Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s
Own Equity (Subtopic 815-40) (“ASU 2020-06”). The update simplifies the accounting for convertible debt instruments and
convertible preferred stock by reducing the number of accounting models and limiting the number of embedded conversion features separately
recognized from the primary contract. The guidance also includes targeted improvements to the disclosures for convertible instruments
and earnings per share. For smaller reporting companies, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023,
including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December
15, 2020. The Company adopted ASU 2020-06 in the first quarter of 2022 using the modified retrospective method. Prior to its adoption
of ASU 2020-06, the Company did not have financial instruments that would have required a cumulative effect to be recognized as an adjustment
to its opening balance of accumulated deficit.
New Accounting Pronouncements
– Pending — In March 2022, the FASB issued Accounting Standards Update (“ASU”) No. 2022-02, Financial Instruments-Credit
Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”), which addresses areas identified
by the FASB as part of its post-implementation review of its previously issued credit losses standard, ASU 2016-13, that introduced the
Current Expected Credit Loss (“CECL”) model. ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings
by creditors that have adopted the CECL model and enhances disclosure requirements for certain loan refinancings and restructurings made
with borrowers experiencing financial difficulty. In addition, ASU 2022-02 requires a public business entity to disclose current-period
gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. ASU 2022-02
is effective for the fiscal years beginning after December 15, 2022 and for periods within those fiscal years. Early adoption is permitted.
The adoption of 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.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Note 3 – Balance Sheets
Accounts Receivable, net
As of September 30, 2022 and December
31, 2021, accounts receivable, net consist of the following:
Schedule of accounts receivable, net |
|
|
|
|
|
|
|
|
|
|
September
30, 2022 |
|
December
31, 2021 |
Accounts
receivable |
|
$ |
3,202,003 |
|
|
$ |
2,918,435 |
|
Less:
Provisions for doubtful accounts |
|
|
(23,984 |
) |
|
|
(29,556 |
) |
Accounts
receivable, net |
|
$ |
3,178,019 |
|
|
$ |
2,888,879 |
|
Inventories, Net
As of September 30, 2022 and December
31, 2021, inventories, net consist of the following:
Schedule Of Inventories |
|
|
|
|
|
|
|
|
|
|
September
30, 2022 |
|
December
31, 2021 |
Raw
materials |
|
$ |
3,098,858 |
|
|
$ |
2,862,293 |
|
Work-in
process |
|
|
1,386,567 |
|
|
|
647,829 |
|
Finished
goods |
|
|
1,892,104 |
|
|
|
833,785 |
|
Gross
inventories |
|
|
6,377,529 |
|
|
|
4,343,907 |
|
Less:
Provision for obsolescence |
|
|
(260,000 |
) |
|
|
(305,399 |
) |
Inventories,
net |
|
$ |
6,117,529 |
|
|
$ |
4,038,508 |
|
Property and Equipment, Net
As of September 30, 2022 and December
31, 2021, property and equipment, net consist of the following:
Schedule Of Property and Equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated |
|
|
|
|
Useful |
|
|
|
|
Life |
|
September
30, |
|
December
31, |
Type |
|
(Years) |
|
2022 |
|
2021 |
Leasehold
improvements |
|
|
3 |
|
|
$ |
106,837 |
|
|
$ |
81,993 |
|
Production
tools and equipment |
|
|
4-5 |
|
|
|
563,814 |
|
|
|
417,779 |
|
Computer
and office equipment |
|
|
3-5 |
|
|
|
581,822 |
|
|
|
559,110 |
|
Furniture |
|
|
5 |
|
|
|
79,277 |
|
|
|
77,971 |
|
Drone
equipment |
|
|
3 |
|
|
|
117,769 |
|
|
|
95,393 |
|
Total
Property and equipment |
|
|
|
|
|
|
1,449,519 |
|
|
|
1,232,246 |
|
Less:
Accumulated depreciation |
|
|
|
|
|
|
(611,461 |
) |
|
|
(280,118 |
) |
Total
Property and equipment, net |
|
|
|
|
|
$ |
838,058 |
|
|
$ |
952,128 |
|
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Note 3 – Balance Sheets-Continued
For the three and nine months ended
September 30, 2022 and 2021, depreciation expense is classified within the condensed consolidated statements of operations and comprehensive
income (loss) as follows:
Schedule of statements of operations and comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Three Months Ended September 30, |
|
For
the Nine Months Ended September 30, |
Type |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
Cost
of sales |
|
$ |
61,747 |
|
|
$ |
— |
|
|
$ |
199,555 |
|
|
$ |
— |
|
General
and administrative |
|
|
48,429 |
|
|
|
36,226 |
|
|
|
138,271 |
|
|
|
90,281 |
|
Total |
|
$ |
110,176 |
|
|
$ |
36,226 |
|
|
$ |
337,826 |
|
|
$ |
90,281 |
|
Intangible Assets, net
As of September 30, 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 September 30, 2022 |
Intellectual
property/technology |
|
|
5-7 |
|
|
$ |
5,427,294 |
|
|
$ |
— |
|
|
$ |
(700,629 |
) |
|
$ |
4,726,665 |
|
Customer
base |
|
|
3-10 |
|
|
|
4,047,319 |
|
|
|
— |
|
|
|
(868,847 |
) |
|
|
3,178,472 |
|
Tradenames
and trademarks |
|
|
5-10 |
|
|
|
1,985,236 |
|
|
|
— |
|
|
|
(168,569 |
) |
|
|
1,816,667 |
|
Non-compete
agreement |
|
|
2-4 |
|
|
|
831,501 |
|
|
|
— |
|
|
|
(378,380 |
) |
|
|
453,121 |
|
Platform
development costs |
|
|
3 |
|
|
|
995,880 |
|
|
|
635,569 |
|
|
|
(329,758 |
) |
|
|
1,301,691 |
|
Internal
use software costs |
|
|
3 |
|
|
|
278,264 |
|
|
|
565,894 |
|
|
|
(103,235 |
) |
|
|
740,923 |
|
Total
intangibles assets, net |
|
|
|
|
|
$ |
13,565,494 |
|
|
$ |
1,201,463 |
|
|
$ |
(2,549,418 |
) |
|
$ |
12,217,539 |
|
As
of September 30, 2022, the weighted average remaining amortization period in years is 4.78. For the three and nine months ended September
30, 2022 and 2021, amortization expense was $932,880 and $2,549,418, respectively, and $293,599 and $694,420, respectively.
AGEAGLE
AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Note 3 – Balance Sheets-Continued
For the following years ending,
the future amortization expenses consist of the following:
Schedule of future amortization expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Years Ending December 31, |
|
|
(rest
of year) 2022 |
|
2023 |
|
2024 |
|
2025 |
|
2026 |
|
Thereafter |
|
Total |
Intellectual
property/ technology |
|
$ |
252,806 |
|
|
$ |
808,968 |
|
|
$ |
808,968 |
|
|
$ |
808,968 |
|
|
$ |
808,968 |
|
|
$ |
1,237,987 |
|
|
$ |
4,726,665 |
|
Customer
base |
|
|
292,816 |
|
|
|
1,137,663 |
|
|
|
889,364 |
|
|
|
141,145 |
|
|
|
141,145 |
|
|
|
576,339 |
|
|
|
3,178,472 |
|
Tradenames
and trademarks |
|
|
58,775 |
|
|
|
207,944 |
|
|
|
207,944 |
|
|
|
207,944 |
|
|
|
207,944 |
|
|
|
926,116 |
|
|
|
1,816,667 |
|
Non-compete
agreement |
|
|
117,188 |
|
|
|
335,933 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
453,121 |
|
Platform
development costs |
|
|
150,409 |
|
|
|
602,091 |
|
|
|
427,264 |
|
|
|
121,927 |
|
|
|
— |
|
|
|
— |
|
|
|
1,301,691 |
|
Internal
use software costs |
|
|
70,346 |
|
|
|
281,386 |
|
|
|
281,386 |
|
|
|
107,805 |
|
|
|
— |
|
|
|
— |
|
|
|
740,923 |
|
Total
Intangible Assets, Net |
|
$ |
942,340 |
|
|
$ |
3,373,985 |
|
|
$ |
2,614,926 |
|
|
$ |
1,387,789 |
|
|
$ |
1,158,057 |
|
|
$ |
2,740,442 |
|
|
$ |
12,217,539 |
|
Accrued Expenses
As of September 30, 2022 and December
31, 2021, accrued expenses consist of the following:
Schedule of accrued expenses |
|
|
|
|
|
|
|
|
|
|
September 30, 2022 |
|
December 31, 2021 |
Accrued compensation and related liabilities |
|
$ |
791,482 |
|
|
$ |
1,039,979 |
|
Accrued professional fees |
|
|
528,125 |
|
|
|
267,949 |
|
Provision for warranty expense |
|
|
268,780 |
|
|
|
286,115 |
|
Other |
|
|
215,912 |
|
|
|
307,598 |
|
Total accrued expenses |
|
$ |
1,804,299 |
|
|
$ |
1,901,641 |
|
AGEAGLE
AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 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. As of September 30, 2022 and December 31, 2021, the balance remaining under the Note is $185,000.
MicaSense
On November 16, 2020, and in connection
with its January 27, 2021 acquisition of 100% of the capital stock of MicaSense (“MicaSense Acquisition), AgEagle, as payee, executed
a promissory note with Parrot Drones S.A.S. (“Parrot”) in the principal amount of $100,000. The principal amount owed by Parrot
was offset and reduced by all amounts paid or due in connection with the purchase price upon closing of the MicaSense Acquisition.
senseFly
On August
25, 2021, and in connection with its acquisition of 100% of the capital stock of senseFly (the senseFly Acquisition”) from Parrot,
AgEagle Aerial, as payee, executed a promissory note in the principal amount of $200,000. The principal amount owed by Parrot was off-set
and reduced by all amounts paid or due in connection with the purchase price upon closing of the senseFly Acquisition.
Note 5 – Business
Acquisitions
During the year ended December
31, 2021, the Company acquired 100% of the outstanding capital stock of MicaSense, Measure and senseFly, respectively. The financial results
for each of these acquisitions are included in the condensed consolidated financial statements beginning on their respective acquisition
dates.
There were no transaction costs
related to business combinations for the three and nine months ended September 30, 2022. For the three and nine months ended September
30, 2021, transaction costs related to business combinations were $69,079 and $402,546, respectively.
Transaction costs related to business
combinations are included within general and administrative expense on the condensed consolidated statements of operations and comprehensive
income (loss).
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 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 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 $4,750,000 to cover any post-closing indemnification claims and to satisfy any purchase price adjustments. The holdback
was scheduled to be released in two equal installments, less any amounts paid or reserved for outstanding indemnity claims, on March 31,
2022 and March 31, 2023. The first installment of $2,375,000 was paid on March 31, 2022 (see below disclosure - Liabilities Related
to Business Acquisition Agreements for waiver of the second installment).
On May 10, 2021, the Company filed
a Form S-3 Registration Statement (the “MicaSense Registration Statement”) with the Securities and Exchange Commission (“SEC”),
covering the resale of the Shares. The MicaSense Registration Statement was declared effective on June 1, 2021 (File Number: 333-255940).
In addition, the Company shall use its best efforts to keep the MicaSense Registration Statement effective and in compliance with the
provisions of the Securities Act (including by preparing and filing with the SEC such amendments, including post-effective amendments,
and supplements to the MicaSense Registration Statement and the prospectus used in connection therewith as may be necessary) until all
Shares and other securities covered by the MicaSense Registration Statement have been disposed. The MicaSense Sellers reimbursed the Company
for reasonable legal fees and expenses incurred by the Company in connection with such registration.
The MicaSense Purchase Agreement
contains certain customary representations, warranties, and covenants, including representations and warranties by the MicaSense Sellers
with respect to MicaSense’s business, operations and financial condition. The MicaSense Purchase Agreement also includes post-closing
covenants relating to the confidentiality and employee non-solicitation obligations of the MicaSense Sellers, and the agreement of the
MicaSense Sellers not to compete with certain aspects of the business of MicaSense following the closing of the transaction. The completion
of the transactions contemplated by the MicaSense Purchase Agreement is subject to customary closing conditions, including, among others:
(i) the absence of a material adverse effect on MicaSense, (ii) the delivery by the parties of certain ancillary documents, including
the registration Rights Agreement, and (iii) the execution by a key employee of MicaSense of an employment agreement. Subject to certain
limitations, each of the 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.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Note 5 – Business
Acquisitions-Continued
The Company performed a valuation
analysis of the fair market value of the assets acquired and liabilities assumed. Using the total consideration for the MicaSense Acquisition,
the Company determined the allocations to such assets and liabilities. The final purchase price allocation, and the necessary detailed
valuations and calculations have been finalized.
The following table summarizes
the allocation of the purchase price as of the MicaSense Acquisition Date:
Schedule of allocation preliminary purchase price |
|
|
|
|
Net
purchase price, including debt paid at close |
|
$ |
23,375,681 |
|
|
|
|
|
|
Plus:
fair value of liabilities assumed: |
|
|
|
|
Current
liabilities |
|
|
702,925 |
|
Fair
value of liabilities assumed |
|
$ |
702,925 |
|
|
|
|
|
|
Less:
fair value of assets acquired: |
|
|
|
|
Cash |
|
$ |
885,273 |
|
Other
tangible assets |
|
|
1,165,666 |
|
Identifiable
intangible assets |
|
|
3,061,803 |
|
Fair
value of assets acquired |
|
$ |
5,112,742 |
|
|
|
|
|
|
Net
nonoperating assets |
|
|
25,000 |
|
Adjustments
for seller transaction expenses related to purchase price allocation |
|
|
32,032 |
|
Goodwill |
|
$ |
18,972,896 |
|
Measure
On April 19, 2021 (the “Measure
Acquisition Date”), the Company entered into a stock purchase agreement (the “Measure Purchase Agreement”) with Brandon
Torres Declet (“Mr. Torres Declet”), in his capacity as Measure Sellers’ representative, and the sellers named in the
Measure Purchase Agreement (the “Measure Sellers”) pursuant to which the Company agreed to acquire 100% of the issued
and outstanding capital stock of Measure from the Measure Sellers (the “Measure Acquisition”). The aggregate purchase price
for the shares of Measure was $45,000,000, less the amount of Measure’s debt and transaction expenses, and subject to a customary
working capital adjustment. The purchase price comprised $15,000,000 in cash, and shares of Common Stock of the Company, having an aggregate
value of $30,000,000 based on a volume weighted average trading price of the Common Stock over a seven consecutive trading day period
prior to the date of issuance of the shares of Common Stock to the Measure Sellers. The Company issued 5,319,145 shares of Common
Stock, in the aggregate, to the Measure Sellers, of which 997,338 Common Stock shares with an aggregate value of $5,625,000 were held
in escrow to cover any post-closing indemnification claims and to satisfy any purchase price adjustments (the “Heldback Shares”).
The 5,319,154 of common stock shares issued as consideration resulted in an increase to stockholder’s equity of $24,375,000 and
an acquisition related liability of $5,625,000 for the Heldback Shares which was recorded on the Measure Acquisition Date. Further, the
Company paid $5,000,000 of the cash portion of the purchase price ninety days after the closing date of the transaction. As of December
31, 2021, the Company completed the payment of the cash portion of the purchase price. The holdback was scheduled to be released October
19, 2022, (see disclosure below - Liabilities Related to Business Acquisition Agreements) less any amounts paid or reserved for
outstanding indemnity claims and certain amounts subject to employee retention conditions set forth in the Measure Purchase Agreement.
AGEAGLE
AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Note 5 – Business
Acquisitions-Continued
The Measure Purchase Agreement
contains certain customary representations, warranties, and covenants, including representations and warranties by the Measure Sellers
with respect to Measure’s business, operations and financial condition. The Measure Purchase Agreement also includes post-closing
covenants relating to the confidentiality and employee non-solicitation obligations of the Measure Sellers, and the agreement of the Measure
Sellers not to compete with certain aspects of the business of Measure following the closing of the transaction. The completion of the
transactions contemplated by the Purchase Agreement is subject to: (i) the absence of a material adverse effect on Measure, (ii) the delivery
by the parties of certain ancillary documents, and (iii) the execution by key employees of Measure of employment offer letters. Subject
to certain limitations, each of the parties will be indemnified for damages resulting from third party claims and breaches of the parties’
respective representations, warranties, and covenants in the Purchase Agreement.
The Shares issued to the Measure
Sellers pursuant to the Measure Purchase Agreement were issued in reliance upon the exemption from registration provided by Section 4(a)(2)
of the Securities Act of 1933, as amended (the “Securities Act”), to a limited number of persons who are “accredited
investors” or “sophisticated persons” as those terms are defined in 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 |
|
$ |
45,403,394 |
|
|
|
|
|
|
Plus:
fair value of liabilities assumed: |
|
|
|
|
Deferred
revenue |
|
|
319,422 |
|
Other
tangible liabilities |
|
|
272,927 |
|
Fair
value of liabilities assumed |
|
$ |
592,349 |
|
|
|
|
|
|
Less:
fair value of assets acquired: |
|
|
|
|
Cash |
|
|
486,544 |
|
Other
tangible assets |
|
|
312,005 |
|
Identifiable
intangibles |
|
|
2,668,689 |
|
|
|
|
|
|
Fair
value of assets acquired |
|
$ |
3,467,238 |
|
|
|
|
|
|
Net
nonoperating assets |
|
|
39,775 |
|
Goodwill |
|
$ |
42,488,730 |
|
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Note 5 – Business
Acquisitions-Continued
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 claimed 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 claimed that it had sustained operating losses in excess of $13 million as a result of the Measure
Sellers’ breaches and claimed the entire holdback amount to be applied against these operating losses. On
August 22, 2022, the parties entered into a Memorandum of Understanding and Mutual Release (the “Settlement Agreement”) providing
for the full and final settlement of all disputes about the Heldback Shares. Pursuant to the Settlement Agreement, the Company released
498,669 of the 997,338 Heldback Shares to the Measure Sellers with the remaining 498,669 Heldback Shares being released from escrow and
cancelled by the Company.
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 pursuant to which the Company acquired 100% of the issued and outstanding capital stock of senseFly S.A. from Parrot. The aggregate
purchase price for the shares of senseFly S.A. is $21,000,000, less the amount of senseFly S.A.’s debt and subject to a customary
working capital adjustment. The consideration is also subject to a $4,565,000 holdback to cover any post-closing indemnification claims
and to satisfy any purchase price adjustments (see disclosure below). The holdback was scheduled to be released in two equal installments,
less any amounts paid or reserved for outstanding indemnity claims, on December 31, 2022 and December 31, 2023 in accordance with the
terms of the senseFly S.A. Purchase Agreement.
On October 18, 2021, AgEagle Aerial
and the Company entered into a stock purchase agreement (the “senseFly Inc. Purchase Agreement”) with Parrot Inc. pursuant
to which AgEagle Aerial agreed to acquire 100% of the issued and outstanding capital stock of senseFly Inc. from Parrot Inc. The aggregate
purchase price for the shares of senseFly Inc. is $2,000,000, less the amount of senseFly Inc.’s debt and subject to a customary
working capital adjustment. The consideration is also subject to a $435,000 holdback to cover any post-closing indemnification claims
and to satisfy any purchase price adjustments(see disclosure below). The holdback was scheduled to be released in two equal installments,
less any amounts paid or reserved for outstanding indemnity claims, on December 31, 2022, and December 31, 2023 in accordance with the
terms of the senseFly Inc. Purchase Agreement.
A portion of the consideration
under the senseFly S.A. Purchase Agreement comprises shares of Common Stock of the Company, par value $0.001, having an aggregate value
of $3,000,000, based on a volume weighted average trading price of the Common Stock over a ten consecutive trading day period prior to
the date of issuance of the shares of Common Stock to Parrot. The shares of Common Stock are issuable ninety days after the closing date
of the transaction. In accordance with the terms of the senseFly S.A. Purchase Agreement, the Company issued 1,927,407 shares of Common
Stock to Parrot in January 2022.
Pursuant to the terms of the senseFly
S.A. Purchase Agreement and a Registration Rights Agreement, dated as of October 19, 2021, the Company filed a Form S-3 Registration Statement
(the “senseFly Registration Statement”) with the SEC covering the resale of the Common Stock issued to Parrot. The senseFly
Registration Statement was declared effective on February 9, 2022. The 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 and covered by such Registration Statement
have been disposed. Parrot reimbursed the Company $50,000 for reasonable legal fees and expenses incurred by the Company in connection
with such registration.
Parrot 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.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Note 5 – Business
Acquisitions-Continued
The Company 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 and the detailed
valuations and necessary have been completed.
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 |
|
$ |
20,774,526 |
|
|
|
|
|
|
Plus:
fair value of liabilities assumed: |
|
|
|
|
Current
liabilities |
|
|
3,913,386 |
|
Defined
benefit plan obligation |
|
|
278,823 |
|
Debt
assumed at close |
|
|
2,461,721 |
|
Fair
value of liabilities assumed |
|
$ |
6,653,930 |
|
|
|
|
|
|
Less:
fair value of assets acquired: |
|
|
|
|
Cash |
|
|
859,044 |
|
Other
tangible assets |
|
|
6,327,641 |
|
Identifiable
intangible assets |
|
|
7,335,570 |
|
Fair
value of assets acquired |
|
$ |
14,522,255 |
|
|
|
|
|
|
Net
nonoperating assets |
|
|
250,624 |
|
Goodwill |
|
$ |
12,655,577 |
|
Liabilities Related to Business Acquisition
Agreements
On July 22, 2022, the Company,
the MicaSense Buyer, and Parrot entered into a Waiver Agreement (the “MicaSense Waiver Agreement”) pursuant to which (i) Parrot
agreed to waive the obligation of the Company and the MicaSense Buyer to pay Parrot $2,351,202, or the portion of the holdback amount
due on March 31, 2023 (the “MicaSense Remaining Holdback Payment”) and (ii) upon the Company’s payment to Parrot of
$1,175,601 (“the MicaSense Final Purchase Price Payment,” representing 50% of the MicaSense Remaining Holdback Payment), the
Company and MicaSense Buyer will be released from any further obligation or liability for payment of any holdback amount under the MicaSense
Purchase Agreement. On July 29, 2022, the Company made the MicaSense Final Purchase Price Payment to Parrot in full satisfaction of its
payment obligations under the MicaSense Purchase Agreement and the MicaSense Waiver Agreement.
On July 22, 2022, the Company and
Parrot entered into a Waiver Agreement (the “senseFly S.A. Waiver Agreement”) pursuant to which (i) Parrot agreed to waive
the obligation of the Company to pay Parrot a portion of the holdback amount due on December 31, 2022 and December 31, 2023 (collectively,
the “senseFly S.A. Remaining Holdback Payments”); (ii) the parties agreed to waive Parrot’s obligation to reimburse
the Company for a portion of the legal costs and expenses incurred by the Company related to the filing of a registration statement in
connection with the transactions contemplated by the senseFly S.A. Purchase Agreement; and (iii) upon the Company’s payment to Parrot
of $2,257,500 (“the senseFly S.A. Final Purchase Price Payment,” representing 50% of the senseFly S.A. Remaining Holdback
Payments less 50% of the registration statement expenses), the Company will be released from any further obligation or liability for payment
of any holdback amount under the senseFly S.A. Purchase Agreement. On July 29, 2022, the Company made the senseFly S.A. Final Purchase
Price Payment to Parrot in full satisfaction of its payment obligations under the senseFly S.A. Purchase Agreement and the senseFly S.A.
Waiver Agreement.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Note 5 – Business
Acquisitions-Continued
On July 22, 2022, the Company,
the senseFly Inc. Buyer, and Parrot Inc. entered into a Waiver Agreement (the “senseFly Inc. Waiver Agreement”) pursuant to
which (i) Parrot Inc. agreed to waive the obligation of the Company and the senseFly Inc. Buyer to pay Parrot Inc. a portion of the holdback
amount due on December 31, 2022 and December 31, 2023 (collectively, the “senseFly Inc. Remaining Holdback Payments”); (ii)
upon the Company’s payment to Parrot Inc. of $217,500 (the “senseFly Inc. Final Purchase Price Payment,” representing
50% of the senseFly Inc. Remaining Holdback Payments), the Company and the senseFly Inc. Buyer will be released from any further obligation
or liability for any remaining holdback amount under the senseFly Inc. Purchase Agreement. On July 29, 2022, the Company made the senseFly
Inc. Final Purchase Price Payment to Parrot Inc. in full satisfaction of its payment obligations under the senseFly Inc. Purchase Agreement
and the senseFly Inc. Waiver Agreement.
Pursuant
to the terms of the Measure Acquisition Purchase Agreement (the “Purchase Agreement”) the Company issued an aggregate of 5,319,145
shares of the Company’s common stock to the Sellers of Measure as part of the consideration for the acquisition, of which 997,338
shares were held back (the “Heldback Shares”) to cover post-closing indemnification claims and to satisfy any purchase price
adjustments (see also disclosure above). Pursuant to the terms of the Purchase Agreement, the Heldback Shares were scheduled to be released
in three tranches, on the 12-month, 18-month and 24-month anniversary of the closing date of the acquisition. The Company made a claim
for indemnification against the Heldback Shares. Pursuant to the Settlement Agreement entered on August 22, 2022 the Company released
all the Measure shares held in escrow along with any disputes regarding the 997,338 Heldback Shares. As a result, 498,669 of the Heldback
Shares were released to the Measure Sellers with the remaining 498,669 Heldback Shares being cancelled by the Company which reduced the
issued and outstanding common stock and causing an increase to stockholders’ equity of $2,812,500.
During the three and nine months
ended September 30, 2022, the Company recognized a debt extinguishment gain in connection with the settlement of the acquisition related
liabilities disclosed above in the amount of $6,486,899 which has been presented on the condensed consolidated statement of operations
and comprehensive income (loss).
As of September 30, 2022 and December
31, 2021, liabilities related to business acquisition agreements consist of the following:
Schedule of liabilities related to acquisition agreements |
|
|
|
|
|
|
|
|
|
|
September
30, 2022 |
|
December
31, 2021 |
Holdback
related to MicaSense Acquisition Agreement |
|
$ |
— |
|
|
$ |
4,821,512 |
|
Holdback
related to Measure Acquisition |
|
|
— |
|
|
|
5,625,000 |
|
Holdback
related to senseFly Acquisition |
|
|
— |
|
|
|
8,489,989 |
|
Total
acquisition agreement related liabilities |
|
|
- |
|
|
|
18,936,501 |
|
Less:
Current portion business acquisition agreement-related liabilities |
|
|
— |
|
|
|
(10,061,501 |
) |
Long
term portion of business acquisition agreement-related liabilities |
|
$ |
— |
|
|
$ |
8,875,000 |
|
Pro-Forma Information
The unaudited pro-forma information
for the three and nine months ended September 30, 2021 was calculated after applying the Company’s accounting policies and the impact
of acquisition date fair value adjustments. The pro-forma financial information presents the combined results of operations of the 2021
Business Acquisitions as if they had occurred on January 1, 2021 after giving effect to certain pro-forma adjustments. The pro-forma adjustments
reflected herein include only those adjustments that are factually supportable and directly attributable to the acquisition.
AGEAGLE
AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Note 5 – Business
Acquisitions-Continued
For the three and nine months ended
September 30, 2021, pro-forma information is as follows:
Schedule of pro-forma information |
|
|
|
|
|
|
|
|
|
|
Three
Months Ended September 30, 2021 |
|
Nine
Months Ended September 30, 2021 |
Revenues |
|
$ |
5,350,849 |
|
|
$ |
14,844,275 |
|
Net
Loss |
|
$ |
(5,715,064 |
) |
|
$ |
(17,137,742 |
) |
Note 6 – COVID Loans
On
March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was enacted, which included amongst its
many provisions, the creation of the Paycheck Protection Program (“PPP”). As part of the PPP, qualifying businesses
were eligible to receive Small Business Administration (“SBA”) loans for use by such businesses for funding payroll, rent
and utilities during a designed twenty-four week period through October 21, 2020 (“PPP Loan”). PPP Loans are unsecured, nonrecourse,
accrue interest at a rate of one percent per annum, and mature on May 6, 2022. A portion or all of a PPP Loan is forgivable to the extent
that an eligible business meets its obligations under the PPP. Additionally, any amounts owed, including unforgiven amounts under the
PPP, are payable over two years, though may be extended up to five years upon approval by the SBA.
On May 6, 2020, AgEagle received
a PPP Loan in the amount of $107,439. During the quarter ended June 30, 2021, the outstanding principal and accrued interest under the
PPP Loan were forgiven by the SBA.
In connection with the senseFly
Acquisition, 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 and nine months ended September 30, 2022, no payments of principal and interest were required. As of
September 30, 2022 and December 31, 2021, the Company’s outstanding obligations under the senseFly COVID Loans were $1,014,566 and
$1,259,910, respectively.
As of September 30, 2022, scheduled
principal payments due under the senseFly COVID Loans are as follows:
Schedule of debt disclosure |
|
|
|
|
|
Year
ending December 31, |
|
|
2022 (rest of year) |
|
|
$ |
169,010 |
|
2023 |
|
|
|
422,610 |
|
2024 |
|
|
|
84,590 |
|
2025 |
|
|
|
84,590 |
|
2026 |
|
|
|
84,590 |
|
Thereafter |
|
|
|
169,176 |
|
Total |
|
|
$ |
1,014,566 |
|
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Note 7 – Equity
Preferred Series F Convertible Stock
On June 26, 2022 (the “Series
F Closing Date”), the Company entered into a Securities Purchase Agreement (the “Series F Agreement”) with Alpha Capital
Anstalt (“Alpha”). Pursuant to the terms of the Series F Agreement, the Board of Directors of the Company (the “Board”)
designated a new series of Preferred Stock, the Series F 5% Preferred Convertible Stock (“Series F”), and authorized the sale
and issuance of up to 35,000 shares of Series F. The Company issued to Alpha 10,000 shares of Series F for an aggregate purchase price
and gross proceeds of $10,000,000. The shares of Series F are convertible into 16,129,032 shares of Common Stock at $0.62 per share. Alpha
will be entitled to receive cumulative dividends at the rate per share (as a percentage of the $1,000 stated par value per share of Series
F) of 5% per annum, payable on January 1, April 1, July 1 and October 1, beginning on the first conversion date and subsequent conversion
dates.
In connection with the Series F
Agreement the Company issued a warrant to Alpha to purchase 16,129,032 shares of Common Stock, par value $0.001 per share (“Series
F Warrant”) with an exercise price equal to $0.96 per share of Common Stock. The Series F Warrant, and the shares of Common Stock
underling the Series F Warrant are collectively referred to as the “Series F Warrant Shares”. The Series F Warrant is not
exercisable for the first six months after its issuance and has a three-year term from its exercise date. Upon exercise of the Series
F Warrants in full by Alpha, the Company would receive additional gross proceeds of approximately $10,000,000.
Alpha has the right, subject to
certain conditions, including shareholder approval, to purchase up to $25,000,000 of additional shares of Series F and Series F Warrants
(collectively the “Series F Option”). The Series F Option will be available for a period of eighteen months after such shareholder
approval at a purchase price equal to the average of the volume weighted average price for three trading days prior to the date that Alpha
gives notice to the Company that it will exercise the Series F Option.
Commencing from the Series F Closing
Date and for a period of six months thereafter, upon any issuance by the Company or any of its Subsidiaries of Common Stock or Common
Stock equivalents for cash consideration, indebtedness or a combination of units thereof (a “Subsequent Financing”), Alpha
will have the right to participate in up to an amount of the Subsequent Financing equal to 50% of the Subsequent Financing on the same
terms, conditions and price provided for in the Subsequent Financing.
The Preferred Stock has no voting
rights, except that the Company shall not undertake certain corporate actions as set forth in the Certificate of Designation that would
materially impact the holders of Preferred Stock without their consent.
As of September 30, 2022, Alpha
had converted 3,689 shares of Series F into 5,950,000 shares of Common Stock and recorded cumulative dividends at the rate per share (as
a percentage of the $1,000 stated par value per share of Series F) of 5% per annum, beginning on the first conversation date of June 30,
2022, of $94,694. See Note 11 – Subsequent Events.
Capital Stock Issuances
Issuance of Common Stock to
Officers and Directors
For the nine months ended September
30, 2022, 185,000 Common Stock shares were issued in connection with the exercise of stock options previously granted at an average per
share exercise price between $0.31 and $0.41 resulting in gross proceeds of $74,350.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Note 7 – Equity-Continued
At-the-Market Sales Agreement
In accordance with a May 25, 2021
at-the-market Sales Agreement with Stifel, Nicolaus & Company, Incorporated and Raymond James & Associates, Inc. as sales agents,
during the nine months ended September 30, 2022, the Company sold 4,251,151 shares of Common Stock at a share price between $1.04 and
$1.18, for aggregate proceeds of $4,583,341, net of issuance costs of $141,754.
Acquisition of senseFly
In accordance with the terms of
the senseFly S.A. Purchase Agreement, the Company issued 1,927,407 shares of Common Stock to Parrot in January 2022 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 (see also Note 5).
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 income (loss). For
the three and nine months ended September 30, 2021, the Company recorded additional stock-based compensation expense of $0 and $1,407,000,
respectively, which reflected the issuance of 550,000 additional restricted shares of Common Stock that were subsequently issued on May
12, 2021 as settlement for the claims made under the demand, which resulted in a liability amount of $2,907,000 for purposes of payment
of the settlement.
Securities Purchase Agreement
Dated August 4, 2020 / Exercise of Warrants
On August 4, 2020, the Company
and an Investor entered into a securities purchase agreement (the “August Purchase Agreement”) pursuant to which the Company
agreed to sell to the Investor in a registered direct offering 3,355,705 shares of Common Stock and warrants to purchase up to 2,516,778
shares of Common Stock at an exercise price of $3.30 per share (the “August Warrants”), for proceeds of $9,900,000, net of
issuance costs of $100,000. Upon exercise of the Warrants in full by the Investor, the Company would receive additional gross proceeds
of $8,305,368. The shares of Common Stock of the Company underlying the Warrants are referred to as “August Warrant Shares.”
The purchase price for each share
of Common Stock is $2.98. Net proceeds from the sale were used for working capital, capital expenditures and general corporate purposes.
The shares of Common Stock, the August Warrants and the August Warrant Shares were offered by the Company pursuant to an effective shelf
registration statement on Form S-3 (File No. 333-239157), which was declared effective on June 19, 2020. On February 8, 2021, the Company
received $8,305,368 in additional gross proceeds associated with the exercise of all of the August Warrants.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Note 7 – Equity-Continued
Stock-Based Compensation
The Company determines the fair
value of awards granted under the Equity Plan based on the fair value of its Common Stock on the date of grant. Stock-based compensation
expenses related to grants under the Equity Plan are included in general and administrative expenses on the condensed consolidated statements
of operations and comprehensive income (loss).
Restricted Stock Units
For the nine months ended September
30, 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 |
|
|
1,147,250 |
|
|
$ |
3.78 |
|
Granted |
|
|
457,091 |
|
|
|
1.18 |
|
Canceled |
|
|
(168,250 |
) |
|
|
2.81 |
|
Vested and released |
|
|
(429,107 |
) |
|
|
3.44 |
|
Outstanding as of September 30, 2022 |
|
|
1,006,984 |
|
|
$ |
2.90 |
|
Vested as of September 30, 2022 |
|
|
377,617 |
|
|
$ |
3.72 |
|
Unvested as of September 30, 2022 |
|
|
629,367 |
|
|
$ |
2.41 |
|
For the nine months ended September
30, 2022, the aggregate fair value of RSUs at the time of vesting was $538,198.
As of September 30, 2022, the Company
had $540,635 of unrecognized stock-based compensation expense related to RSUs, which will be amortized over approximately thirteen months.
For the nine months ended September
30, 2021, a summary of RSU activity is as follows:
| |
Shares | |
Weighted
Average Grant Date Fair Value |
Outstanding
as of December 31, 2020 | |
| 100,000 | | |
$ | 1.34 | |
Granted | |
| 631,402 | | |
| 5.31 | |
Canceled | |
| (91,667 | ) | |
| 5.40 | |
Vested
and released | |
| (253,485 | ) | |
| 3.39 | |
Outstanding
as of September 30, 2021 | |
| 386,250 | | |
$ | 5.52 | |
Vested
as of September 30, 2021 | |
| 234,582 | | |
$ | 5.60 | |
Unvested
as of September 30, 2021 | |
| 151,668 | | |
$ | 5.40 | |
For the nine months ended September
30, 2021, the aggregate fair value of RSUs at the time of vesting was $3,353,162.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Note 7 – Equity-Continued
Issuance of RSUs to Officers
On June 13, 2022, the Company issued
302,024 shares of Common Stock to its former chief executive officer, Mr. Brandon Torres Declet (“Mr. Torres Declet”). This
issuance of Common Stock included 147,917 shares for previously vested RSUs, 111,607 shares as agreed upon in a separation agreement with
Mr. Torres Declet, and 42,500 shares in satisfaction of a performance bonus approved by the Compensation Committee of the Board of Directors.
See Note 9 – Commitments and Contingencies.
On
April 11, 2022, the Company granted an officer 46,367 RSUs, which vested immediately. For
the nine months ended September 30, 2022, the Company recognized stock-based compensation expense of $46,367, based upon the market price
of its Common Stock of $1.01 per share on the date of grant of these RSUs. Additionally, on the same date, the Company granted the same
officer 46,367 RSUs, which vests over a period from the date of grant through the first anniversary of the senseFly Acquisition Date.
For the three and nine months ended September 30, 2022, the Company recognized stock-based compensation expense of $22,440 and $42,196,
based upon the market price of its Common Stock of $1.01 per share on the date of grant of these RSUs.
On
March 1, 2022, the Company granted an officer a grant of 62,500 RSUs, which vested immediately. For the nine months ended September
30, 2022, the Company recognized stock-based compensation expense of $68,750, based upon the market price of its Common Stock of $1.10
per share on the date of grant of these RSUs.
On
January 21, 2022, the Company granted a former chief executive officer a grant of 111,607 RSUs,
which vested immediately. For the nine months ended September 30, 2022, the Company recognized stock-based compensation expense
of $125,000, based upon the market price of its Common Stock of $1.12 per share on the date of grant of these RSUs. Additionally, on January
24, 2022, the Company granted to this former chief executive officer 42,500 RSUs, which vested immediately. For the nine months ended
September 30, 2022, the Company recognized stock-based compensation expense of $48,025, respectively, based upon the market price of its
Common Stock of $1.13 per share on the date of grant of these RSUs.
On
January 1, 2022, the Company issued to an officer two grants of 50,000 RSUs each. These two grants vest over nine and twenty-one months,
respectively, from the date of grant. For the three and nine months ended September 30, 2022, the Company recognized stock-based
compensation expense of $37,660 and $111,751, based upon the market price of its Common Stock of $1.57 per share on the date of grant
of these RSUs.
On
May 24, 2021, the Company issued to a former chief executive officer a grant of 26,652 RSUs as part of a separation agreement. This award
was valued at $125,000 and vested immediately. For the nine months ended September 30, 2021, the Company recognized stock-based
compensation expense of $125,000 based upon the market price of its Common Stock of $4.69 per share on the date of grant of these
RSUs.
On
March 5, 2021, the Company issued to an officer a grant of 10,000 RSUs, which vested immediately.
For the nine months ended September 30, 2021, the Company recognized stock-based compensation expense of $58,400 based upon
the market price of its Common Stock of $5.84 per share on the date of grant of these RSUs.
AGEAGLE
AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Intrinsic value is measured using
the fair market value at the date of exercise (for shares exercised) or as of September 30, 2022 (for outstanding options), less
the applicable exercise price.
For the nine months ended September
30, 2022 and 2021, the significant weighted average assumptions relating to the valuation of the Company’s stock options granted
were as follows:
On September 30, 2022, the
Company issued to directors and officers options to purchase 135,000 shares of Common Stock at an exercise price of $0.23 per share, which
vest over a period of two years from the date of grant and expire on September 29, 2027. The Company determined the fair market value
of these unvested options to be $30,510. In connection with the issuance of these options, for the three and nine months ended September
30, 2022, the Company did not recognize stock-based compensation expense.
On June 30, 2022, the Company issued
to directors and officers options to purchase 135,000 shares of Common Stock at an exercise price of $0.31 per share, which vest over
a period of two years from the date of grant and expire on June 29, 2027. The Company determined the fair market value of these unvested
options to be $42,120. In connection with the issuance of these options, for the three and nine months ended September 30, 2022, the Company
recognized stock-based compensation expense of $5,322, respectively.
On March 31, 2022, the Company
issued to directors and officers options to purchase 125,000 shares of Common Stock at an exercise price of $0.56 per share, which vest
over a period of two years from the date of grant and expire on March 30, 2027. The Company determined the fair market value of these
unvested options to be $70,250. In connection with the issuance of these options, for the three and nine months ended September 30, 2022,
the Company recognized stock-based compensation expense of $8,781 and $17,654,
Prior to January 1, 2022, the Company
issued to directors and officers to purchase 430,000 shares of Common Stock at exercise prices ranging from $1.61 to $3.37 per share,
which vest over a period of two years from the date of grant and expire on dates between March 30, 2026, and September 29, 2026. The Company
determined the fair market value of these unvested options to be $1,056,429. In connection with the issuance of these options to employees
and directors, for the three and nine months ended September 30, 2022, the Company recognized stock-based compensation expense of $117,888
and $433,713, respectively. For the three and nine months ended September 30, 2021 the Company recognized stock-based compensation expense
of and $101,965 and $153,518, respectively.
Prior to January 1, 2021, the Company
previously issued to directors and officers options to purchase 2,743,580 shares of Common Stock at exercise prices ranging from $0.04
to $3.18 per share, with vesting periods ranging from immediate vesting to periods of up to three years from the grant dates, and expire
on dates between March 30, 2023, and September 29, 2029. In connection with the issuance of these options to employees and directors,
for the three and nine months ended September 30, 2022, the Company recognized stock-based compensation expense of $108,641 and $369,365,
respectively, for the three and nine months ended September 30, 2021 the Company recognized stock-based compensation expense of and $152,777
and $541,708, respectively.
During the three and nine months
ended September 30, 2022, as a result of employee terminations and options expirations, stock options aggregating 67,875 and 267,294,
respectively with fair market values of approximately $237,926 and $892,227, respectively, were cancelled. During the nine months ended
September 30, 2021, 237,934 options were cancelled with a grant-date fair value $723,915 due to employee terminations.
For the three and nine months ended
September 30, 2022 and 2021, operating lease expense payments were $326,542 and $1,254,893 respectively, and $75,270 and $213,608, respectively.
Operating lease expense payments are included in general and administrative expenses on the condensed consolidated statements of
operations and comprehensive income (loss).
As of September 30, 2022 and December
31, 2021, balance sheet information related to the Company’s operating leases is as follows:
As of September 30, 2022, scheduled
future maturities of the Company’s lease liabilities are as follows:
As of September 30, 2022 and December
31, 2021, the weighted average lease-term and discount rate of the Company’s leases are as follows:
On January 17, 2022, the Company
and Mr. Torres Declet mutually agreed to Mr. Torres Declet’s resignation as Chief Executive Officer and as a director of the Company.
In connection with his departure, and in accordance with his employment agreement with the Company, Mr. Torres Declet received base salary
continuation equal to six months of his then annual salary, reimbursement of COBRA health insurance premiums for a period of six months
at the same rate as if Mr. Torres Declet were an active employee of the Company, and a grant of RSUs with a fair market value of $125,000
at the date of termination of employment. On January 21, 2022, the Company granted 111,607 RSUs with a fair market value of $1.12 per
share of Common Stock on the grant date. On January 24, 2022, the Company issued a grant of 42,500 fully vested RSUs with a fair market
value of $1.13 per share of Common Stock on the grant date in satisfaction of a performance bonus approved by the Compensation Committee
of the Board of Directors. See Note 7 – Equity.
The Company has various employment
agreements with certain of its executive officers and directors that serve as Board members, which it considers normal and in the ordinary
course of business.
The Company has
no other formal employment agreements with our executive officers, nor any compensatory plans or arrangements resulting from the resignation,
retirement, or any other termination of our named executive officers, from a change-in-control, or from a change in any executive officer’s
responsibilities following a change-in-control. However, it is possible that the Company will enter into formal employment agreements
with its executive officers in the future.
The Company routinely places orders
for manufacturing services and materials. As of September 30, 2022, the Company had purchase commitments of approximately $2,666,928.
These purchase commitments are expected to be realized during the year ending December 31, 2022.
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 September 30, 2022 and December
31, 2021, and for the three and nine months ended September 30, 2022 and 2021, respectively, information about the Company’s reportable
segments consisted of the following: