See Accompanying Notes to Consolidated
Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
Note 1 – Description of Business
AgEagle™ Aerial
Systems Inc. (“AgEagle” or the “Company”), through its wholly-owned subsidiaries, is actively engaged in
designing and delivering best-in-class drones, sensors and software that solve important problems for our customers. Founded in
2010, AgEagle was originally formed to pioneer proprietary, professional-grade, fixed-winged drones and aerial imagery-based data
collection and analytics solutions for the agriculture industry. Today, the Company is earning distinction as a globally respected
industry leader offering best-in-class, autonomous unmanned aerial systems (“UAS”) to a wide range of industry verticals,
including energy/utilities, infrastructure, agriculture and government, among others.
The Company’s
shift and expansion from solely manufacturing fixed-wing farm drones in 2018, to offering what the Company believes is one of the
industry’s best fixed-wing, full-stack drone solutions, culminated in 2021 when AgEagle acquired three market-leading companies
engaged in producing UAS airframes, sensors and software for commercial and government use. In addition to a robust portfolio of
proprietary, connected hardware and software products; an established global network of nearly 200 UAS resellers; and enterprise
customers worldwide; these acquisitions also brought AgEagle a highly valuable workforce comprised largely of experienced engineers
and technologists with deep expertise in the fields of robotics, automation, manufacturing and data science.
AgEagle
is led by a proven management team with years of drone industry experience. In view of AgEagle’s CEO’s appointment to
the U.S. Federal Aviation Administration’s (FAA) Advanced Aviation Advisory Committee and Unmanned Aircraft Systems Beyond
Visual Line of Sight Aviation Rulemaking Committee, in addition to and the Company’s participation in
the FAA’s BEYOND program, AgEagle has played a hands-on role in helping to establish necessary rulemaking guidelines and
regulations for the future of autonomous flight and the full integration of drones into the U.S. airspace.
In
January 2021, AgEagle acquired MicaSense™, Inc. (“MicaSense”). Founded in 2014, MicaSense has been at the forefront
of advanced drone sensor development since its founding in 2014, having formed integration partnerships with several leading fixed
wing and multi-rotor drone manufacturers. MicaSense’s patented, high precision thermal and multispectral sensors serve the
aerial mapping and analytics needs of the agriculture market. MicaSense’s high performance proprietary products, including Altum™, RedEdge-MX™,
RedEdge-MX™ Blue and Atlas Flight, have global distribution in over 70 countries.
In
April 2021, AgEagle acquired Measure Global, Inc. (“Measure”). Founded in 2020, Measure serves a world class customer
base, Measure enables its customers to realize the transformative benefits of drone technology through its Ground Control
solution. Offered as Software-as-a-Service (SaaS), Ground Control is a cloud-based, plug-and-play operating system that
empowers pilots and large enterprises with everything they need to operate drone fleets, fly autonomously, collaborate globally,
visualize data, and integrate with existing business systems and processes.
In
October 2021, AgEagle acquired senseFly S.A. a wholly-owned subsidiary of senseFly Inc. Concurrent with the acquisition, AgEagle
Aerial, Inc. (“AgEagle Aerial), a wholly-owned subsidiary of the AgEagle, acquired senseFly Inc. Collectively senseFly S.A.
and senseFly Inc. are referred to as “senseFly”. Founded in 2009, senseFly provides fixed-wing drone solutions for
commercial and government markets that simplify the collection and analysis of geospatial data, allowing professionals to make
better decisions, faster. senseFly develops and produces a proprietary line of eBee-branded, high performance, fixed-wing
drones which have flown more than one million flights around the world.
Collectively,
MicaSense, Measure and senseFly are referred to as the “2021 Acquired Companies”.
The Company is headquartered
in Wichita, Kansas, where it also houses its U.S. manufacturing operations. In addition, the 2021 Acquired Companies have business
operations in Austin, Texas; Lausanne, Switzerland; Raleigh, North Carolina; Seattle, Washington and Washington, D.C.
The Company intends to
grow its business and preserve its leadership position by developing new drones, sensors and software and capturing a significant
share of the global drone market. In addition, the Company expects to accelerate our growth and expansion through strategic
acquisitions of companies offering distinct technological and competitive advantages and have defensible IP protection in place, if applicable.
Note 2 – Summary of Significant
Accounting Policies
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.
Basis of Presentation
and Consolidation - These financial consolidated statements are presented in United States dollars and have been prepared
in accordance with US GAAP.
The consolidated
financial statements include the accounts of AgEagle and its wholly-owned subsidiaries, AgEagle Aerial, Inc., EnerJex Kansas, Inc.,
MicaSense, Measure and senseFly. All significant intercompany balances and transactions have been eliminated in consolidation.
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 doubtful accounts, reserve for obsolete inventory, valuation of stock issued for services and stock options,
valuation of intangible assets, including goodwill, valuation of defined benefit plan obligations and the valuation of deferred
tax assets.
Accumulated
Other Comprehensive Loss - Other comprehensive loss refers to revenues, expenses, gains and losses that under US GAAP are included
in accumulated other comprehensive loss a component of equity within the consolidated balance sheets, rather than net income in
the consolidated statements of operations and comprehensive loss. Under existing accounting standards, other comprehensive
income or loss may include, among other things, unrecognized gains and losses on foreign currency translation and prior service credit
related to benefit plans.
Fair Value Measurements
and Disclosures – Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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 and cash equivalents, accounts receivable, notes receivable and accounts payable, and which
are not reported at fair value, the carrying amounts approximate fair value due to their short-term nature. The outstanding loan owed
under the Paycheck Protection Program Loan (“PPP Loan”) is carried at face value, which approximates fair value. As of December
31, 2021 and 2020, the Company did not have any financial assets or liabilities measured and recorded at fair value on the Company’s
consolidated balance sheets on a recurring basis. (See Note 8)
Cash Concentrations -The Company maintains its cash balances at financial institutions that are insured by the Federal Deposit
Insurance Corporation (“FDIC”) up to $250,000. The Company’s bank balances at times may exceed the FDIC limit. To
date, the Company has not experienced any losses on its invested cash.
Trade Receivables and Credit Policy – Trade receivables due from customers are uncollateralized customer obligations
due under normal and customary trade terms. 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 trade 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.
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.
Business
Combinations - The Company records acquisitions pursuant to ASC Topic 805, Business Combinations, (“ASC
805”). The Company recognizes, with certain exceptions, 100% of the fair value of assets acquired, liabilities assumed, and non-controlling
interests when the acquisition constitutes a change in control of the acquired entity. Shares issued in consideration for a business
combination are measured and recorded at their acquisition-date fair value. Subsequent changes to fair value of contingent consideration
arrangements are generally reflected in earnings. Acquisition-related transaction costs are expensed as incurred. The operating results
of entities acquired are included in the accompanying consolidated statements of operations and comprehensive loss from the respective
dates of acquisition.
Intangible
Assets - Intangible assets from acquired businesses are recognized at fair value on the acquisition date and consist
of customer programs, trademarks, customer relationships, technology, and other intangible assets. Customer programs include values assigned
to major programs of acquired businesses and represent the aggregate value associated with the customer relationships, contracts, technology,
and trademarks underlying the associated program and are amortized on a straight-line basis over a period of expected cash flows used
to measure fair value, which ranges from three to five years.
In accordance with ASC Topic
350-40, Software - Internal-Use Software (“ASC 350-40”), the Company capitalizes certain direct costs of developing
internal-use software that are incurred in the application development stage, when developing or obtaining software for internal use.
Once the internal use software is ready for its intended use, it is amortized on a straight-line basis over its useful life.
Finite-lived intangible assets
are evaluated for impairment periodically, or whenever events or changes in circumstances indicate that their related carrying amounts
may not be recoverable in accordance with ASC Topic 360-10-15, Impairment or Disposal of Long-Lived Assets, (“ASC 360-10-15”).
In evaluating intangible assets for recoverability, the Company uses its best estimate of future cash flows expected to result from the
use of the asset and eventual disposition in accordance with ASC 360-10-15. To the extent that estimated future undiscounted net cash
flows are less than the carrying amount, an impairment loss is recognized in an amount equal to the difference between the carrying value
of such asset and its fair value.
Asset recoverability is an area
involving management judgment, requiring assessment as to whether the carrying values of assets are supported by their undiscounted future
cash flows. In estimating future cash flows, certain assumptions are required to be made in respect of highly uncertain matters such as
revenue growth rates, operating expenses and terminal growth rates.
For the year ended December 31,
2021, the Company determined the value of intangible assets was recoverable. As of December 31, 2021 and 2020, the Company reviewed the
indicators for impairment and concluded that no impairment of its finite-lived intangible assets existed.
Goodwill – The
assets and liabilities of acquired businesses are recorded in accordance with ASC 805. Goodwill represents costs in excess of fair
values assigned to the underlying identifiable net assets of acquired businesses. Goodwill is not subject to amortization and is tested
annually for impairment, or more frequently if events or changes in circumstances indicate that the carrying value of the goodwill may
not be recoverable.
During the fourth quarter of 2021 and 2020, respectively,
and in accordance with ASC Topic 350, Intangibles – Goodwill and other (“ASC 350”), the Company performed
its annual goodwill impairment test using a quantitative approach by comparing the carrying value of the reporting unit, including goodwill,
to its fair value. If the carrying value of the reporting unit, including goodwill, exceeds its fair value, a goodwill impairment loss
is recognized in an amount equal to that excess. The Company estimates the fair value of each reporting unit using a combination of a
discounted cash flow (“DCF”) (Level 3 input) analysis and market-based valuation methodology such as comparable public company
trading values. Determining fair value requires the exercise of significant judgments, including the amount and timing of expected future
cash flows, long-term growth rates, discount rates and relevant comparable public company earnings multiples and relevant trading multiples.
The cash flows employed in the DCF analysis are based on estimates of future sales, earnings and cash flows after considering factors
such as general market conditions, existing firm orders, expected future orders, changes in working capital, long term business plans
and recent operating performance. The DCF analysis for the Sensor reporting unit used a discount rate of 17.5%, while the DCF analysis
for the SaaS reporting unit used a discount rate of 25.5%. The discount rates reflect the different market conditions and risk factors
prevalent within each respective industry. As a result of the Company’s recent acquisition of senseFly, which comprises the Drone
and Custom Manufacturing reporting unit, the Company performed a qualitative assessment to determine whether a quantitative goodwill test
was necessary. In performing its qualitative assessment, the Company reviewed events and circumstances that could affect the significant
inputs used to determine if the fair value is less than the carrying value of goodwill and concluded that the fair value of the Drones
and Custom Manufacturing reporting unit exceeded its carrying value.
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 (“ASC 606”).
The Company generally recognizes
revenue on sales to customers, dealers, and distributors upon satisfaction of performance obligations which generally occurs once controls
transfer to customers, which is when product is shipped or delivered depending on specific shipping terms and, where applicable,
a customer acceptance has been obtained. The fee is not considered to be fixed or determinable until all material contingencies related
to the sales have been resolved. The Company records revenue in the statements of operations and comprehensive loss, net of any
sales, use, value added, or certain excise taxes imposed by governmental authorities on specific sales transactions and net of any discounts,
allowances and returns.
Under
fixed-price contracts, the Company agrees to perform the specified work for a pre-determined price. To the extent the Company’s
actual costs vary from the estimates upon which the price was negotiated, it will generate more or less profit or could incur a loss.
The Company accounts for a contract after it has been approved by all parties to the arrangement, the rights of the parties are identified,
payment terms are identified, the contract has commercial substance and collectability of consideration is probable.
Additionally, customer payments
received in advance of the Company completing performance obligations are recorded as contract liabilities. Customer deposits represent
customer prepayments and are recognized as revenue when the term of the sale or performance obligation are completed.
The Company’s software subscriptions
to its platforms, FarmLens, Atlas 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.
Revenue concentration information
for customers comprising more than 10% of the Company’s total net revenues is summarized below:
Sales concentration information |
|
|
|
|
|
|
Percent
of Net Sales for Year Ended December 31, |
Customers |
|
2021 |
|
2020 |
Customer
A |
|
|
— |
% |
|
|
93.7 |
% |
As of December 31, 2021 and 2020,
there were no accounts receivable amounts due
from Customer A, and no one customer comprised more than 10% of revenues for the year ended December 31, 2021.
Provision
for Warranty Expense - The Company provides warranties against defects in materials and workmanship of its drone systems for
specified periods of time. For the years ended December 31, 2021 and 2020, drones and related accessories sold are covered by the warranty
for a period of up to one year from the date of sale by the Company. Estimated warranty expenses are recorded as an accrued expenses
in the consolidated balance sheets with a corresponding provision to cost of sales in the consolidated statements of operations and
comprehensive loss. This estimate is recognized concurrent with the recognition of revenue on the sale to a customer. The Company
reserve for warranty expense is based on its historical experience and management’s expectation of future conditions, taking into
consideration the location and type of customer and the type of drone, which directly correlate to the materials and components under
warranty, the duration of the warranty period, and the logistical costs to service the warranty. An increase in warranty claims or in
the costs associated with servicing those claims would likely result in an increase in the reserve and a decrease in gross profit.
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 consolidated statements of
operations and comprehensive loss. For the years ended December 31, 2021 and 2020, shipping costs were $296,100
and $6,122, respectively.
Advertising
Costs – Advertising costs are charged to operations as incurred. For the years ended December 31, 2021 and 2020, advertising
costs, included in sales and marketing expenses in the consolidated statements of operations and comprehensive loss, were $262,586
and $45,567.
Research
and Development – For the years ended December 31, 2021 and 2020, research and development expenses were $4,082,799
and $29,392, respectively. Research
and development costs are expensed as incurred and are included in the accompanying consolidated statements of operations and comprehensive
loss.
Vendor Concentrations - As
of December 31, 2021 and 2020, 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.
Defined Benefit Plan - The
Company estimates liabilities and expenses for its defined benefit plan. Estimated amounts are based on historical information, current
information, and estimates regarding future events and circumstances. Significant assumptions used in the valuation of these benefit plan
liabilities include the expected return on plan assets, discount rate, and rate of increase in compensation levels.
Loss Per Common 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, par value $0.0001
(“Common Stock”) equivalents (if dilutive) related to warrants, options, and convertible instruments.
Potentially
Dilutive Securities – The Company has excluded all common equivalent shares outstanding for warrants
and options to purchase Common Stock from the calculation of diluted net loss per share, because all such securities are anti-dilutive
for the periods presented. As of December 31, 2021, the Company had 821,405
unvested restricted stock units and 2,541,667
options outstanding to purchase shares of Common Stock. There were no
warrants outstanding as of December 31, 2021. As of December 31, 2020, the Company had 2,516,778
warrants and 2,255,267
options to purchase shares of Common Stock.
Leases – The
Company accounts for its operating leases in accordance with ASC Topic 842, Leases (“ASC 842”), which requires that
lessees recognize a right-of-use asset and a lease liability for virtually all their leases with lease terms of more than twelve months.
Consistent with current 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.
Income Taxes – The
Company accounts for income taxes in accordance with ASC Topic 740, Accounting for Income Taxes, (“ASC 740”) which
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.
Stock-Based
Compensation Awards – The Company accounts for its stock-based awards in accordance with ASC Subtopic
718-10, Compensation – Stock Compensation (“ASC 718-10”), which requires fair value measurement
on the grant date and recognition of compensation expense for all stock-based payment awards made to employees and directors. For stock
options, the Company estimates the fair value using a closed option valuation (Black-Scholes) model. The estimated fair value is then
expensed over the requisite service period of the award, which is generally the vesting period. Stock-based compensation expenses
are presented in the consolidated statements of operations and comprehensive loss within general and administrative expenses.
The Company recognizes forfeitures at the time they occur.
The Black-Scholes option-pricing
model requires the input of certain assumptions that require the Company’s judgment, including the expected term and the expected
stock price volatility of the underlying stock. The assumptions used in calculating the fair value of stock-based compensation represent
management’s best estimates, but these estimates involve inherent uncertainties and the application of judgment. As a result, if
factors change resulting in the use of different assumptions, stock-based compensation expense could be materially different in the future.
Segment Reporting –
In accordance with ASC Topic 280, Segment Reporting, (“ASC 280”), the Company identifies operating segments as components
of an entity for which discrete financial information is available and is regularly reviewed by the chief operating decision maker in
making decisions regarding resource allocation and performance assessment. The Company defines the term “chief operating decision
maker” to be its chief executive officer.
The Company has determined that
operates and reports in three segments:
| ● | Drones
and Custom Manufacturing, which comprises revenues earned from contractual arrangements to
develop, manufacture and /or modify complex drone related products, and to provide associated
engineering, technical and other services according to customer specifications |
| ● | Sensors,
which comprises the revenue earned through the sale of sensors, cameras, and related accessories |
| ● | SaaS,
which comprises revenue earned through the offering of online-based subscriptions. |
Contingencies - In the ordinary
course of business, the Company is subject to loss contingencies that cover a range of matters. An estimated loss from a loss contingency,
such as a legal proceeding or claim, is accrued if it is probable that a liability has been incurred and the amount of the loss can be
reasonably estimated. In determining whether a loss should be accrued, the Company evaluates, among other factors, the degree of probability
and the ability to reasonably estimate the amount of any such loss.
Recently Issued and Adopted Accounting Pronouncements
Adopted
In December 2019, the FASB issued
ASU 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies
the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intra-period
tax allocation, the methodology for calculating income taxes in an interim period and the recognition for deferred tax liabilities for
outside basis differences. ASU 2019-12 also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or
rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. ASU 2019-12 became effective
for the Company on March 1, 2021 and did not have a significant impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued
ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General, which modifies the disclosure requirements for
employers that sponsor defined benefit pension or other postretirement plans. ASU 2018-14 is effective for fiscal years ending after December
15, 2020. As a result of its business acquisition of senseFly, which provides a defined benefit plan for employees in its Lausanne, Switzerland
office, the Company adopted ASU 2018-14. The adoption of ASU 2018-14 did not have a material impact on the Company’s consolidated
financial statements.
Pending
In October 2021, the FASB issued
ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,
which requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination.
ASU 2021-08 is effective for the fiscal year beginning after December 15, 2022. The adoption is not expected to have a material impact
on the Company’s consolidated financial statements.
In March 2020, the FASB
issued ASU 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial
Reporting (“ASU 2020-04”), which provides optional guidance to ease the potential burden in accounting for the
discontinuation of a reference rate such as LIBOR, formerly known as the London Interbank Offered Rate, because of reference rate
reform. ASU 2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022. The Company will
apply ASU 2020-04 prospectively, as and when, it enters into transactions to which this guidance applies. The
adoption is not expected to have a material impact on its consolidated financial statements.
In January 2017, the FASB issued
Accounting Standards Update 2017-04 Intangibles - Goodwill and other, which simplifies the test for goodwill impairment. ASU
2017-04 eliminates Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had
to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized
assets and liabilities) following the procedure that would be required in determining the fair value of the assets acquired and liabilities
assumed in a business combination. Instead, an entity should perform its annual, or interim, goodwill impairment test by comparing the
fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying
amount exceeds the reporting unit’s fair value, however the loss recognized should not exceed the total amount of goodwill allocated to
the reporting unit. ASU 2017-04 requires prospective adoption and is effective for the fiscal year beginning after December 15, 2022.
The adoption is not expected to have a material impact on its consolidated financial statements.
In June 2016, the FASB issued ASU
2016-13, Financial Instruments – Credit Losses (Topic 326) (“ASU 2016-13”), which provides guidance on how an
entity should measure credit losses on financial instruments. The ASU is effective for smaller reporting companies for fiscal years beginning
after December 15, 2022, including interim periods within those fiscal years. The Company does not expect that ASU 2016-13 will 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 consolidated
financial statements.
Impact of COVID-19 Pandemic
In December 2019, a novel coronavirus
disease (“COVID-19”) was reported. On January 30, 2020, the World Health Organization (“WHO”) declared COVID-19
a Public Health Emergency of International Concern. On February 28, 2020, the WHO raised its assessment of the COVID-19 threat from high
to very high at a global level due to the continued increase in the number of cases and affected countries, and on March 11, 2020, the
WHO characterized COVID-19 as a pandemic.
The outbreak of the novel coronavirus
(COVID-19) has evolved into a global pandemic. The coronavirus has spread to many regions of the world, including the United States. The
extent to which COVID-19 impacts our business and operating results will depend on future developments that are highly uncertain and cannot
be accurately predicted, including new information that may emerge concerning COVID-19 and the actions to contain the coronavirus or treat
its impact, among others.
The spread of the coronavirus,
which has caused a broad impact globally, including restrictions on travel and quarantine policies put into place by businesses and governments,
may have a material economic effect on our business. While the potential economic impact brought on by and the duration of the pandemic
may be difficult to assess or predict, it has already caused, and is likely to result in further, significant disruptions of global financial
markets, which may reduce our ability to access capital either at all or on favorable terms. In addition, a recession, depression or other
sustained adverse market event resulting from the spread of the coronavirus could materially and adversely affect our business and the
value of our Common Stock.
In addition, as a result of the
pandemic, our ability to access components and parts needed in order to manufacture the Company’s proprietary drones and
sensors, and to perform quality testing have been impacted. If either we or any third-parties in the supply chain for materials used
in our manufacturing and assembly processes continue to be adversely impacted by restrictions resulting from the coronavirus pandemic,
our supply chain may be further disrupted, limiting our ability to manufacture and assemble products.
The ultimate impact of the current
pandemic, or any other health epidemic, is highly uncertain and subject to change. We do not yet know the full extent of potential delays
or impacts on our business or the global economy as a whole. However, these effects could have a material impact on our operations.
We will continue to monitor the situation closely.
Note3 - Balance Sheet Accounts
Inventories, Net
As of December 31, 2021 and 2020, inventories, net consist of the
following:
Schedule
Of Inventories |
|
|
|
|
|
|
|
|
|
|
December
31, |
|
|
2021 |
|
2020 |
Raw
materials |
|
$ |
2,862,293 |
|
|
$ |
88,091 |
|
Work-in
process |
|
|
40,113 |
|
|
|
50,447 |
|
Finished
goods |
|
|
833,785 |
|
|
|
— |
|
Consignment
inventory |
|
|
607,716 |
|
|
|
7,109 |
|
Gross
inventories |
|
|
4,343,907 |
|
|
|
145,647 |
|
Less:
Provision for obsolescence |
|
|
(305,399 |
) |
|
|
(10,000 |
) |
Inventories,
net |
|
$ |
4,038,508 |
|
|
$ |
135,647 |
|
Property and Equipment, Net
As of December 31, 2021 and 2020,
property and equipment, net consist of the following:
Schedule Of Property and
Equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated |
|
|
|
|
Useful |
|
|
|
|
Life |
|
December
31, |
Type |
|
(Years) |
|
2021 |
|
2020 |
Leasehold
improvements |
|
|
3 |
|
|
$ |
81,993 |
|
|
$ |
22,265 |
|
Equipment
and vehicles |
|
|
5 |
|
|
|
132,831 |
|
|
|
100,532 |
|
Computer
and office equipment |
|
|
3-5 |
|
|
|
559,110 |
|
|
|
23,369 |
|
Furniture |
|
|
5 |
|
|
|
77,971 |
|
|
|
54,798 |
|
Drone
equipment |
|
|
3 |
|
|
|
95,393 |
|
|
|
32,138 |
|
Production
fixtures |
|
|
5 |
|
|
|
163,580 |
|
|
|
— |
|
Tooling |
|
|
4 |
|
|
|
121,368 |
|
|
|
— |
|
|
|
|
|
|
|
|
1,232,246 |
|
|
|
232,102 |
|
Less
accumulated depreciation |
|
|
|
|
|
|
(280,118 |
) |
|
|
(110,513 |
) |
Total
Property and equipment, net |
|
|
|
|
|
$ |
952,128 |
|
|
$ |
122,589 |
|
Depreciation expense for the years
ended December 31, 2021 and 2020 was $184,660
and $20,716, respectively.
Depreciation expense included in cost of sales on the consolidated statements of operations and comprehensive loss for the years
ended December 31, 2021 and 2020 are $55,613
and $0, respectively. The remaining
depreciation expense for the years ended December 31, 2021 and 2020 is included in general and administrative on the consolidated statements
of operations and comprehensive loss. For the years ended December 31, 2021 and 2020, the Company recorded $15,055
and $13,185, respectively,
on disposals of property and equipment, respectively, resulting in losses of $3,712
and $594, respectively, which are included in
other income (expense) on the consolidated statements of operations and comprehensive loss.
Accrued Expenses
As of December 31, 2021 and 2020,
accrued expenses consist of the following as of:
Schedule
Of Accounts Payable And Accrued Liabilities | |
| | | |
| | |
| |
December
31, |
| |
2021 | |
2020 |
Accrued
compensation and related liabilities | |
$ | 1,039,979 | | |
$ | 80,091 | |
Provision
for warranty expense | |
| 286,115 | | |
| 15,593 | |
Accrued
professional fees | |
| 267,949 | | |
| 85,633 | |
Accrued
settlement liability | |
| — | | |
| 1,500,000 | |
Other | |
| 307,598 | | |
| 163,508 | |
Total
accrued expenses | |
$ | 1,901,641 | | |
$ | 1,844,825 | |
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 (“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. The Note provides for an automatic six month extension of the Maturity Date under the following circumstances (i) Valqari has received
in writing, (x) a good faith acquisition offer at a consideration value greater than $15,000,000, (y) such offer, upon consummation, would
result in a change in control (as defined in the note) of Valqari, and (z) at such time Valqari, is actively engaged in the negotiation
or finalization of such acquisition transaction; or (ii) Valqari has initiated, or is in the process of initiating, a conversion to a
“C-Corporation” under the Internal Revenue Code, whereas such conversion will be completed no later than one day prior to the
extended Maturity Date. Valqari was not permitted to prepay the Note prior to the Maturity Date. On April 15, 2021, the Note was
extended for an additional six months, until October 14, 2021 (“Extended Maturity Date”).
The Note is subject to customary
representations and warranties by Valqari, as well as events of default, which may lead to acceleration of the payment of the Note such
as (i) failure to pay all of the outstanding principal, plus accrued interest on the Maturity Date or Extended Maturity Date, (ii) Valqari
filing a petition or action under any bankruptcy, or other law, or (iii) an involuntary petition is filed again Valqari under any bankruptcy
statute (that is not dismissed or discharged within 60 days). The indebtedness evidenced by the Note is subordinated in right of payment
to the prior payment in full of any senior indebtedness (as defined in the Note) in existence on the date of the Note or incurred thereafter.
On 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 are continuing to negotiate
in an attempt to reach an amicable resolution of their disputes; however, AgEagle reserves the right to take legal action to collect
the Note in the event that a settlement is not reached.
MicaSense
On November 16, 2020, AgEagle,
as payee, executed a promissory note with Parrot Drones S.A.S. in connection with its acquisition for 100% of the capital stock of MicaSense
(the “MicaSense Acquisition”). As of June 30, 2021, Parrot Drones S.A.S. promised to pay to the Company the principal amount
of $100,000 provided, however, that such principal amount was offset and reduced by all amounts paid or due in connection with the purchase
price upon closing of the MicaSense Acquisition. (See Note 5)
senseFly
On August
25, 2021, AgEagle Aerial, as payee, executed a promissory note in connection with its acquisition for 100% of the capital stock of senseFly
(the “senseFly Acquisition”). As of September 30, 2021, Parrot Drones S.A.S. promised to pay to the Company the principal amount
of $200,000 provided, however, that such principal amount was off-set and reduced by all amounts paid or due in connection with the purchase
price upon closing of the senseFly Acquisition. (See Note 5)
Note 5 – Business Acquisitions
In line with the Company’s
strategic growth initiatives, the Company acquired three companies during the year ended December 31, 2021. The financial results of each
of these acquisitions are included in the consolidated financial statements beginning on the respective acquisition dates. Each transaction
qualified as an acquisition of a business and was accounted for as a business combination. All acquisitions resulted in the recognition
of goodwill. The Company paid these premiums resulting in such goodwill for several reasons, including growing the Company’s customer
base, acquiring assembled workforces, expanding its presence in certain markets, and expanding and advancing its product and service offerings.
The Company recorded the assets acquired and the liabilities assumed at their acquisition date fair value, with the difference between
the fair value of the net assets acquired and the acquisition consideration reflected as goodwill.
The identifiable intangible assets
for acquisitions are valued using the excess earnings method discounted cash flow approach for customer relationships, the relief from
royalty method for trade names and technology, the “with or without” method for covenants not to compete and the replacement
cost method for the internal property software by incorporating Level 3 inputs, as described under the fair value hierarchy of ASC 820.
These unobservable inputs reflect the Company’s assumption about which assumptions market participants would use in pricing an asset
on a non-recurring basis. These assets will be amortized over their respective estimated useful lives.
For the years ended December 31,
2021 and 2020, transaction costs related to business combinations totaled $636,673
and $18,327, respectively.
These costs are included within general and administrative expense in the consolidated statements of operations and comprehensive
loss.
MicaSense
On January 27, 2021 (the “MicaSense
Acquisition Date”), the Company entered into a stock purchase agreement (the “MicaSense Purchase Agreement”) with Parrot
Drones S.A.S. and Justin B. McAllister (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 $4,821,512 holdback to cover any post-closing indemnification claims, a key employee payment, and
to satisfy any purchase price adjustments. The holdback is scheduled to be released in two equal installments, less any amounts
paid or reserved for outstanding indemnity claims, on March 31, 2022 and March 31, 2023 in accordance with the terms of the MicaSense
Purchase Agreement. (See Note 17)
On May 10, 2021, the Company filed
a Form S-3 Registration Statement (the “MicaSense Registration Statement”) with the Securities and Exchange Commission (“SEC”),
covering the resale of the Shares. The MicaSense Registration Statement was declared effective on June 1, 2021 (File Number: 333-255940).
In addition, the Company shall use its best efforts to keep the MicaSense Registration Statement effective and in compliance with the
provisions of the Securities Act (including by preparing and filing with the SEC such amendments, including post-effective amendments,
and supplements to the MicaSense Registration Statement and the prospectus used in connection therewith as may be necessary) until all
Shares and other securities covered by the MicaSense Registration Statement have been disposed. The MicaSense Sellers reimbursed the Company
for reasonable legal fees and expenses incurred by the Company in connection with such registration.
The MicaSense Purchase Agreement
contains certain customary representations, warranties, and covenants, including representations and warranties by the MicaSense Sellers
with respect to MicaSense’s business, operations and financial condition. The MicaSense Purchase Agreement also includes post-closing
covenants relating to the confidentiality and employee non-solicitation obligations of the MicaSense Sellers, and the agreement of the
MicaSense Sellers not to compete with certain aspects of the business of MicaSense following the closing of the transaction. The completion
of the transactions contemplated by the MicaSense Purchase Agreement is subject to customary closing conditions, including, among others:
(i) the absence of a material adverse effect on MicaSense, (ii) the delivery by the parties of certain ancillary documents, including
the Registration Rights Agreement, and (iii) the execution by a key employee of MicaSense of an employment agreement. Subject to certain
limitations, each of the parties will be indemnified for damages resulting from third party claims and breaches of the parties’
respective representations, warranties, and covenants in the MicaSense Purchase Agreement.
The Company performed a valuation
analysis of the fair market value of the assets acquired and liabilities assumed. Using the total consideration for the MicaSense Acquisition,
the Company determined the allocations to such assets and liabilities. The final purchase price allocation, and the necessary detailed
valuations and calculations have been finalized.
The following table summarizes
the allocation of the purchase price as of the MicaSense Acquisition Date:
Schedule of allocation preliminary purchase price |
|
|
Calculation
of Goodwill: |
|
|
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 |
|
|
2,050,939 |
|
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 |
|
The Company recorded revenue from
MicaSense of $6,793,727
and an operating loss of $1,266,599
during the period from the MicaSense Acquisition Date through December 31, 2021.
Measure
On April 19, 2021 (the “Measure
Acquisition Date”), the Company entered into a stock purchase agreement (the “Measure Purchase Agreement”) with Brandon
Torres Declet (“Mr. Torres Declet”), in his capacity as Measure Sellers’ representative, and the sellers named in the
Measure Purchase Agreement (the “Measure Sellers”) pursuant to which the Company agreed to acquire 100% of the issued
and outstanding capital stock of Measure from the Measure Sellers (the “Measure Acquisition”). The aggregate purchase price
for the shares of Measure is $45,000,000, less the amount of Measure’s debt and transaction expenses, and subject to a customary
working capital adjustment. The purchase price comprised $15,000,000 in cash, and shares of Common stock of the Company, having an aggregate
value of $30,000,000 based on a volume weighted average trading price of the Common stock over a seven consecutive trading day period
prior to the date of issuance of the shares of Common stock to the Measure Sellers. The Company issued 5,319,145 shares of Common
Stock, in the aggregate, to the Measure Sellers, and paid $5,000,000 of the cash portion of the purchase price ninety days after the closing
date of the transaction. As of December 31, 2021, the Company completed the payment of the cash portion of the purchase price. The
consideration is also subject to a $5,625,000 holdback to cover any post-closing indemnification claims and to satisfy any purchase price
adjustments. The holdback is scheduled to be released on the date that is eighteen months from the closing date, less any amounts paid
or reserved for outstanding indemnity claims and certain amounts subject to employee retention conditions set forth in the Measure Purchase
Agreement.
The Measure Purchase Agreement
contains certain customary representations, warranties, and covenants, including representations and warranties by the Measure Sellers
with respect to Measure’s business, operations and financial condition. The Measure Purchase Agreement also includes post-closing
covenants relating to the confidentiality and employee non-solicitation obligations of the Measure Sellers, and the agreement of the Measure
Sellers not to compete with certain aspects of the business of Measure following the closing of the transaction. The completion of the
transactions contemplated by the Purchase Agreement is subject to: (i) the absence of a material adverse effect on Measure, (ii) the delivery
by the parties of certain ancillary documents, and (iii) the execution by key employees of Measure of employment offer letters. Subject
to certain limitations, each of the parties will be indemnified for damages resulting from third party claims and breaches of the parties’
respective representations, warranties, and covenants in the Purchase Agreement.
The Shares issuable to the Measure
Sellers pursuant to the Measure Purchase Agreement were issued in reliance upon the exemption from registration provided by Section 4(a)(2)
of the Securities Act of 1933, as amended (the “Securities Act”), to a limited number of persons who are “accredited investors”
or “sophisticated persons” as those terms are defined in Rule 501 of Regulation D promulgated by the SEC, without the use of
any general solicitation or advertising to market or otherwise offer the securities for sale. None of the Shares have been registered
under the Securities Act, or applicable state securities laws, and none may be offered or sold in the United States absent registration
under the Securities Act or an exemption from such registration requirements.
The Company performed a preliminary
valuation analysis of the fair market value of the assets to be acquired and liabilities to be assumed. Using the total consideration
for the Acquisition, the Company estimated the allocations to such assets and liabilities. The final purchase price allocation will be
determined when the Company completes the detailed valuations and necessary calculations. The final allocation could differ materially
from the preliminary allocation and may include (1) changes in fair values of tangible assets; (2) changes in allocations to intangible
assets such as trade names, developed technology and customer relationships, as well as goodwill; and (3) other changes to assets and
liabilities.
The following table summarizes
the allocation of the preliminary purchase price as of the Measure Acquisition Date:
Schedule of allocation preliminary purchase price |
|
|
|
|
Calculation
of Goodwill: |
|
|
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 |
|
The Company recorded revenue from
Measure of $414,388
and an operating loss of $2,257,257
during the period from the Measure Acquisition Date through December 31, 2021.
senseFly
On October 18, 2021 (the “senseFly
Acquisition Date”), the Company entered into a stock purchase agreement (the “senseFly S.A. Purchase Agreement”) with
Parrot Drones S.A.S. pursuant to which the Company acquired 100% of the issued and outstanding capital stock of senseFly S.A. from Parrot
Drones S.A.S. The aggregate purchase price for the shares of senseFly S.A. is $21,000,000, less the amount of senseFly S.A.’s debt
and subject to a customary working capital adjustment. The consideration is also subject to a $4,565,000 holdback to cover any post-closing
indemnification claims and to satisfy any purchase price adjustments. The holdback is scheduled to be released in two equal installments,
less any amounts paid or reserved for outstanding indemnity claims, on December 31, 2022 and December 31, 2023 in accordance with the
terms of the senseFly S.A. Purchase Agreement
On October 18, 2021, AgEagle Aerial
and the Company entered into a stock purchase agreement (the “senseFly Inc. Purchase Agreement”) with Parrot Inc. pursuant
to which AgEagle Aerial agreed to acquire 100% of the issued and outstanding capital stock of senseFly Inc. from Parrot Inc. The aggregate
purchase price for the shares of senseFly Inc. is $2,000,000, less the amount of senseFly Inc.’s debt and subject to a customary
working capital adjustment. The consideration is also subject to a $435,000 holdback to cover any post-closing indemnification claims
and to satisfy any purchase price adjustments. The holdback is scheduled to be released in two equal installments, less any amounts paid
or reserved for outstanding indemnity claims, on December 31, 2022 and December 31, 2023 in accordance with the terms of the senseFly
Inc. Purchase Agreement.
A portion of the consideration
under the senseFly S.A. Purchase Agreement comprises shares of Common Stock of the Company, par value $0.001, having an aggregate value
of $3,000,000, based on a volume weighted average trading price of the Common Stock over a ten consecutive trading day period prior to
the date of issuance of the shares of Common Stock to Parrot Drones S.A.S. The shares of Common Stock are issuable ninety days after the
closing date of the transaction. Pursuant to the terms of the senseFly S.A. Purchase Agreement and a Registration Rights Agreement, dated
as of October 19, 2021, the Company filed a Form S-3 Registration Statement (the “senseFly Registration Statement”) with the
SEC covering the resale of the Common Stock issued to Parrot Drones S.A.S. The senseFly Registration Statement was declared effective
on February 9, 2022. The Company agreed to use its best efforts to keep the senseFly Registration Statement effective and in compliance
with the provisions of the Securities Act (including by preparing and filing with the SEC such amendments, including post-effective amendments,
and supplements to the senseFly Registration Statement and the prospectus used in connection therewith as may be necessary) until all
the shares of Common Stock and other securities issued to Parrot Drones S.A.S. and covered by such Registration Statement have been disposed.
Parrot Drones S.A.S. reimbursed the Company $50,000 for reasonable legal fees and expenses incurred by the Company in connection with
such registration.
Pursuant to the senseFly S.A. Purchase
Agreement, Parrot S.A.S., senseFly S.A. and the Company entered into a six-month transition services agreement and a technology license
and support agreement during which time Parrot Drones S.A.S. will provide senseFly S.A. with certain information technology and related
transition services. Under the technology license and support agreement, Parrot Drones S.A.S. granted to senseFly S.A. a non-exclusive
worldwide perpetual license, subject to certain termination rights of the parties, with respect to certain technology used in the fixed-wing
drone manufacturing business of senseFly S.A.
The Company has performed a preliminary
valuation analysis of the fair market value of the assets to be acquired and liabilities to be assumed. Using the total consideration
for the Acquisition, the Company has estimated the allocations to such assets and liabilities. The final purchase price allocation will
be determined when the Company completes the detailed valuations and necessary calculations. The final allocation could differ materially
from the preliminary allocation used in the pro forma adjustments. The final allocation may include (1) changes in fair values of tangible
assets; (2) changes in allocations to intangible assets such as trade names, developed technology and customer relationships, as well
as goodwill; and (3) other changes to assets and liabilities.
The following table summarizes
the allocation of the preliminary purchase price as of the senseFly Acquisition Date:
Schedule of allocation preliminary purchase price |
|
|
|
|
Calculation
of Goodwill: |
|
|
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 |
|
The Company recorded revenue from
senseFly of $2,428,858
and an operating loss of $1,803,369
during the period from the senseFly Acquisition Date through December 31, 2021.
Liabilities Related to Business Acquisition
Agreements
As of December 31, 2021, liabilities
related to acquisition agreements consist of the following:
Liabilities
Related To Business Acquisition Agreements |
|
|
|
|
|
|
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 Agreement |
|
|
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 |
|
As of December, 31, 2021, scheduled
future maturities of the Company’s business-acquisition related liabilities consist of the following:
scheduled
Of future maturities business-acquisition |
|
|
|
|
Year
ending December 31, 2023 |
|
$ |
8,875,000 |
|
Pro-Forma Information (Unaudited)
The acquisitions of MicaSense and
Measure were completed in the first quarter of 2021, while the acquisition of senseFly was completed during the fourth quarter of 2021.
The 2021 Acquired Companies have complementary businesses with their products and services providing a full stack solution for the commercial
drone industry. The Company has combined legacy MicaSense, Measure and senseFly pro-forma supplemental information as follows.
The unaudited pro forma information
for the years ended December 31, 2021 and 2020 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 MicaSense,
Measure and senseFly as if these acquisitions had occurred on January 1, 2020 after giving to certain pro-forma adjustments. The pro-forma
adjustments reflected herein include only those adjustments that are factually supportable and directly attributable to the acquisitions.
These pro forma adjustments include:
Business
Acquisition Pro Forma Information |
|
|
|
|
|
|
|
|
For
the Year Ended December 31, (Unaudited) |
|
2021 |
|
2020 |
Revenues |
$ |
19,564,651 |
|
|
$ |
20,146,276 |
|
Net
loss |
$ |
(36,395,212 |
) |
|
$ |
(14,994,871 |
) |
Note 6 – Intangibles,
Net
As of December 31, 2021, intangible
assets, net, other than goodwill, consist of following:
Intangible Assets | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Name | |
Estimated Life (Years) | |
Balance as of January 1, 2021 | |
Additions | |
Accumulated Amortization | |
Impairment | |
Balance as of December 31, 2021 |
Intellectual property/technology | |
| 5 | | |
$ | 231,146 | | |
$ | 5,671,026 | | |
$ | (474,878 | ) | |
$ | — | | |
$ | 5,427,294 | |
Customer base | |
| 5 | | |
| 38,400 | | |
| 4,411,499 | | |
| (402,580 | ) | |
| — | | |
| 4,047,319 | |
Tradenames and trademarks | |
| 5 | | |
| 31,040 | | |
| 2,082,338 | | |
| (128,142 | ) | |
| — | | |
| 1,985,236 | |
Non-compete agreement | |
| 4 | | |
| 67,042 | | |
| 901,198 | | |
| (136,739 | ) | |
| — | | |
| 831,501 | |
Platform development costs | |
| 3 | | |
| 72,899 | | |
| 1,097,808 | | |
| (174,827 | ) | |
| — | | |
| 995,880 | |
Internal use software | |
| 3 | | |
| — | | |
| 278,264 | | |
| — | | |
| — | | |
| 278,264 | |
Total | |
| | | |
$ | 440,527 | | |
$ | 14,442,133 | | |
$ | (1,317,166 | ) | |
$ | — | | |
$ | 13,565,494 | |
As of December 31, 2020, intangible assets, net other
than goodwill, consist of the following:
Name | |
Estimated Life (Years) | |
Balance as of January 1, 2020 | |
Additions | |
Accumulated Amortization | |
Impairment | |
Balance as of December 31, 2020 |
Intellectual property/technology | |
| 5 | | |
$ | 317,826 | | |
$ | — | | |
$ | (86,680 | ) | |
$ | — | | |
$ | 231,146 | |
Customer base | |
| 5 | | |
| 52,800 | | |
| — | | |
| (14,400 | ) | |
| — | | |
| 38,400 | |
Tradenames and trademarks | |
| 5 | | |
| 42,680 | | |
| — | | |
| (11,640 | ) | |
| — | | |
| 31,040 | |
Non-compete agreement | |
| 4 | | |
| 107,267 | | |
| — | | |
| (40,225 | ) | |
| — | | |
| 67,042 | |
Platform development costs | |
| 3 | | |
| — | | |
| 72,899 | | |
| — | | |
| — | | |
| 72,899 | |
Total | |
| | | |
$ | 520,573 | | |
$ | 72,899 | | |
$ | (152,945 | ) | |
$ | — | | |
$ | 440,527 | |
The
weighted average remaining amortization period in years is 5.6 years. Amortization expense for the years ended December 31, 2021 and
2020 was $1,317,166 and $152,945, respectively.
For the following fiscal years
ending, the future amortization expense is as follows:
Future amortization | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
December 31, |
| |
2022 | |
2023 | |
2024 | |
2025 | |
2026 | |
Thereafter | |
Total |
Intellectual property/ technology | |
$ | 890,955 | | |
$ | 867,559 | | |
$ | 809,773 | | |
$ | 809,773 | | |
$ | 809,773 | | |
$ | 1,239,462 | | |
$ | 5,427,294 | |
Customer base | |
| 1,149,406 | | |
| 1,148,134 | | |
| 891,150 | | |
| 141,145 | | |
| 141,145 | | |
| 576,340 | | |
| 4,047,319 | |
Tradenames and trademarks | |
| 218,243 | | |
| 215,856 | | |
| 208,096 | | |
| 208,096 | | |
| 208,096 | | |
| 926,848 | | |
| 1,985,236 | |
Non-compete agreement | |
| 474,237 | | |
| 357,264 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 831,501 | |
Platform development costs | |
| 390,235 | | |
| 390,235 | | |
| 215,408 | | |
| — | | |
| — | | |
| — | | |
| 995,880 | |
Internal use software | |
| 69,566 | | |
| 92,755 | | |
| 92,755 | | |
| 23,189 | | |
| — | | |
| — | | |
| 278,264 | |
Total | |
$ | 3,192,642 | | |
$ | 3,071,803 | | |
$ | 2,217,182 | | |
$ | 1,182,203 | | |
$ | 1,159,014 | | |
$ | 2,742,650 | | |
$ | 13,565,494 | |
Note 7 – Goodwill
Goodwill represents the difference
between the purchase price and the estimated fair value of net assets acquired, when accounted for by the acquisition method of accounting.
As of December 31, 2021, the goodwill balance relates to a business acquisition completed in 2015 and to the 2021 Acquired Companies,
respectively. (See Note 5)
The annual impairment assessment
conducted during the fourth quarter of 2021 indicated that the fair values of the Company’s Drones and Custom Manufacturing and
Sensors reporting units exceeded their respective carrying amounts, while the fair value of the SaaS reporting unit was less than the
amount reflected in the consolidated balance sheet. The impairment assessment of the SaaS reporting unit considered lower than
forecasted sales and profitability along with declining markets conditions and changes in our technologies. Accordingly, the Company
recorded an impairment charge to its SaaS reporting unit of $12,357,921
during the fourth quarter of 2021.
The annual impairment assessment
conducted during the fourth quarter of 2020 indicated that the fair values of the Company's Drone and Custom Manufacturing and
SaaS reporting units exceeded their respective carrying amounts. Accordingly, no impairment charge was recorded during
the fourth quarter of 2020.
As of December 31, 2021 and 2020,
the change in the carrying value of goodwill for our operating segments (as defined in Note 16), are listed below:
Schedule Of Goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drones and Custom Manufacturing |
|
Sensors |
|
SaaS |
|
Total |
Balance as of December 31, 2020 |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
3,108,000 |
|
|
$ |
3,108,000 |
|
Acquisitions |
|
|
18,972,896 |
|
|
|
12,655,577 |
|
|
|
42,488,730 |
|
|
|
74,117,203 |
|
Impairment |
|
|
— |
|
|
|
— |
|
|
|
(12,357,921 |
) |
|
|
(12,357,921 |
) |
Balance as of December 31, 2021 |
|
$ |
18,972,896 |
|
|
$ |
12,655,577 |
|
|
$ |
33,238,809 |
|
|
$ |
64,867,282 |
|
Note 8 – 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. On May 16, 2021, the outstanding principal and accrued interest due under the PPP Loan were forgiven
by the SBA. For the year ended, December 31, 2021, the Company recognized a $108,532
gain on extinguishment of debt related to the AgEagle PPP Loan forgiveness, which is presented in other income (expense) in the
consolidated statements of operations and comprehensive loss.
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. As
of senseFly Acquisition Date, the fair value of the COVID Loans were $1,440,046 (“senseFly COVID Loans”). During
the year ended December 31, 2021, senseFly S.A. made the required payments on the senseFly COVID Loans, including principal and accrued
interest, aggregating approximately $356,000.
As of December 31, 2021, the Company’s outstanding obligations under the senseFly COVID Loans are $1,259,910.
As of December 31, 2021, scheduled principal payments
due under the senseFly COVID Loans are as follows:
Schedule of debt disclosure |
|
|
|
|
Year
ending December 31, |
|
|
2022 |
|
$ |
451,889 |
|
2023 |
|
|
451,889 |
|
2024 |
|
|
89,033 |
|
2025 |
|
|
89,033 |
|
2026 |
|
|
89,033 |
|
Thereafter |
|
|
89,033 |
|
Total |
|
$ |
1,259,910 |
|
Note 9 – Equity
Series C Preferred Stock
Each share of Series C Preferred
Stock is convertible into a number of shares of our Common Stock equal to the quotient determined by dividing (x) the stated
value of $1,000 per share, by (y) a conversion price of $0.54. Until the volume weighted average price of our Common Stock on NYSE exceeds
$107.50 with average trading volume of 200,000 shares per day for ten consecutive trading days, the conversion price of our Series C Preferred
Stock is subject to full-ratchet, anti-dilution price protection. Under that provision, if, while that full-ratchet, anti-dilution price
protection is in effect, the Company issues shares of our Common Stock at a price per share (the “Dilutive Price”) that is
less than the conversion price, then the conversion price of our Series C Preferred Stock is automatically reduced to be equal to the
Dilutive Price. The effect of that reduction is that, upon the issuance of shares of Common Stock at a Dilutive Price, the Series C Preferred
Stock would be convertible into a greater number of shares of our Common Stock.
The Series C Preferred Stock anti-dilution
protection was initially triggered on December 27, 2018, as a result of the Company issuing of the Series D Preferred Stock,
(the “Series D Preferred Stock”) as described below. The Series D Preferred Stock had a $0.54 conversion price thereby qualifying
as a subsequent equity offering at a price less than $1.53 per share of Common Stock.
During January 2020, Alpha Capital
Anstalt (“Alpha”) converted 189 shares of Series C Preferred Stock into 350,000 shares of Common Stock at a conversion price
of $0.54 per share of Common Stock.
On April 7, 2020, upon the issuance
of the Series E Preferred Stock, (the “Series E Preferred Stock”) offering (see below), a subsequent anti-dilution provision
was triggered for the Series C Preferred Stock whereby the conversion price was further adjusted from $0.54 per share of Common Stock
to $0.25 per share of Common Stock (a “Down Round”), which resulted in approximately 13,248,000 shares of Common Stock being
issuable upon conversion of the remaining Series C Preferred Stock. As a result of this Down Round being triggered, the Company recorded
a deemed dividend in the amount of $3,841,920, which represented the intrinsic spread between the previous conversion price of $0.54 per
share of Common Stock and the adjusted conversion price of $0.25 per share of Common Stock multiplied by 13,248,000 Common Stock shares
issuable upon conversion. The deemed dividend was recorded as a reduction of retained earnings and increase in additional paid-in-capital
and increased the net loss to common stockholders by the same amount in computing basic and fully diluted earnings per share.
During April 2020, Alpha converted
3,312 shares of Series C Preferred Stock into 13,247,984 shares of Common Stock at a conversion price of $0.25. As of December
31, 2020, no Series C Preferred Stock remain issued and outstanding.
Series D Preferred Stock
On December 27, 2018, the Company
entered into Securities Purchase Agreement (the “Series D Purchase Agreement”) with an Investor (the “Purchaser”).
Pursuant to the terms of the Series D Purchase 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, 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 Series D Preferred Stock
and a warrant (the “Series D Warrant”) to purchase 3,703,703 shares of the Company’s Common Stock, par value $0.001
per share of Common Stock, for $2,000,000 in gross proceeds. The shares of Common Stock underling the Series D Warrant are referred to
as the “Series D 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 Series D Warrant Shares.
The Series D Purchase 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 Series D Preferred Stock and apply any and all net proceeds from such financing(s) to the redemption in full
of the Series D Preferred Stock. The Series D Preferred Stock is nonconvertible, provides for an 8% annual dividend payable semi-annually,
and has liquidation rights senior to the Common Stock, but pari passu with the Company’s Series C Preferred Stock. The Series D
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 Series D Preferred Stock without their consent.
The Preferred Stock is subject
to optional redemption by the Company at 115% of the stated value of the Series D Preferred Stock outstanding at the time of such redemption,
plus any accrued but unpaid dividends and all liquidated damages or other amounts due. Any such optional redemption may only be exercised
after giving notice and upon satisfaction of certain equity conditions set forth in the Series D Preferred Stock Certificate of Designation
for Nevada Profit Corporations with the Secretary of State of the State of Nevada (“Series D Preferred Stock Certificate of Designation”),
including (i) all dividends, liquidated damages and other amounts have been paid; (ii) there is an effective registration statement covering
the Series D Warrant Shares, or the Series D Warrant Shares can be exercised through a cashless exercise without restriction under Rule
144, (iii) the Series D Warrant Shares are listed on an exchange, (iv) the holder is not in possession of material, non-public information,
(v) there is a sufficient number of authorized shares for issuance of all Series D Warrant Shares, and (vi) for each trading day in a
period of twenty consecutive trading days prior to the redemption date, the daily trading volume for the Common Stock on the principal
trading market exceeds $200,000 per trading day.
On April 7, 2020, upon the issuance
of the Series E Preferred Stock, (the “Series E Preferred Stock”) offering (see below), a subsequent anti-dilution provision
was triggered for the Series D Warrant Shares whereby the exercise price of the Series D Warrant Shares was adjusted from $0.54 to $0.25
per share of Common Stock (a “Series D Warrant Down Round). Upon the Series D Warrant Down Round being triggered, the Company recognized
$208,918 of a deemed dividend for the difference between the fair value of the original warrants right before modification and
the fair value of the modified warrants. The fair value of the warrants was determined using the Black-Scholes option-pricing model
based on the following assumptions: expected life of 3.5 years, expected dividend rate of 0%, volatility of 90.0%, and
an interest rate of 0.29%. The deemed dividend to the preferred stockholders was a recorded as additional paid in capital and
a reduction of retained earnings and as an increase to net loss attributable to Common Stockholders in computing earnings per share on
the consolidated statements of operations and comprehensive loss.
On June 5, 2020, the Company and
Alpha entered into a letter agreement whereby they agreed to amend the Original Series D Preferred Stock and terminate the Series D Purchase
Agreement. Alpha is a current holder of less than 10% of the Company’s issued and outstanding Common Stock and has no material relationship
with the Company.
On June 5, 2020, the Board approved
an amendment to the Series D Preferred Stock Certificate of Designation k the “Amended Series D Preferred Stock Certificate of Designation”).
The amendment among other things, (i) provided for the ability of the Holder to convert their Series D Preferred Stock, including all
accrued, but unpaid dividends, into shares of Common Stock, par value $0.001 per share of the Company, (ii) set a conversion price at
$0.54 per share (subject to customary adjustments), and (iii) increased the stated value of the Series D Preferred Stock from $1,000 to
$1,116.67. The Amended and Restated Certificate of Designation of the Series D Preferred Stock was filed with the Secretary of the State
of Nevada effective as of June 8, 2020.
The holder of the Series D Preferred
Stock approved the Amended Series D Preferred Stock Certificate of Designation. There is no class or series of stock which is senior to
the Series D Preferred Stock as to the payment of distributions upon dissolution of the Company, and therefore the approval of any other
class or series of stock of the Company to the amendments to the Series D Preferred Stock Certificate of Designation is not required pursuant
to Nevada law.
On the date of the Amended Series
D Preferred Stock Certificate of Designation, the Series D Preferred Stock’s fair value of the Company’s Common Stock price
was $1.45 per share of the Company’s Common Stock, which is higher than the effective conversion price of $0.54 per share
of Company Common Stock that was agreed to on June 5, 2020. Due to the modification of the Series D Preferred Stock, the Company recorded
a deemed dividend of $3,763,591 representing the intrinsic value of $0.91 per share of Common Stock multiplied by the number of Common
Stock shares to be issued upon conversion. The deemed dividend to the Series D Preferred Stock stockholders was a recorded as additional
paid in capital, a reduction of retained earnings, and an increase to net loss attributable to Common Stockholders in computing basic
and fully diluted earnings per share.
During June 2020, the holder of
Series D Preferred Stock converted 1,890 shares of Series D Preferred Stock, and all outstanding accrued dividends totaling $233,333,
into 3,500,000 shares of Common Stock at a conversion price of $0.54 per share of the Company’s Common Stock.
During the year ended December
31, 2020, the holder of Series D Preferred Stock converted the remaining 110 shares of the Series D Preferred Stock into 635,815 shares
of Common Stock at a conversion price of $0.54 per share of Common Stock, which includes an additional 421,308 of Common Stock shares
to correct conversions that occurred in June 2020 that were computed using the stated value of $1,000 rather than $1,116.67.
Series E Preferred Stock
On April 7, 2020, the Company entered
into a Securities Purchase Agreement (the “Series E Purchase Agreement”) with Alpha, pursuant to the terms of the agreement,
the Board authorized 1,050 shares of a newly designated series of preferred stock, the Series E Convertible Preferred Stock. The Series
E Convertible Preferred Stock was convertible at $0.25 per share of Common Stock into an aggregate of 4,200,000 shares of the Common Stock,
par value $0.001 per share. The purchase price for the Series E Convertible Preferred Stock was $1,050,000 of which the Company received
net proceeds of $1,010,000. The Series E Convertible Preferred Stock has liquidation rights senior to the Common Stock, but pari passu
with the Series C Preferred Stock and the Series D Preferred Stock. The Series E Convertible Preferred Stock has no voting rights. The
conversion price adjusts for stock splits and combinations and is subject to anti-dilution protection for subsequent equity issuances
until such time as no shares of Series E Convertible Preferred Stock are outstanding. The Certificate of Designation of the Series E Convertible
Preferred Stock was filed with the State of Nevada on April 2, 2020. The Company also entered into a Registration Rights Agreement, granting
registration rights to Alpha with respect to the Conversion Shares and Common Stock underlying warrants held by Alpha.
On the date that the Series E
Convertible Preferred Stock was consummated, the fair value of the Company’s Common Stock price was $0.37 per share, which was
higher than the effective conversion price of $0.25 per share of Common Stock that was agreed to on April 7, 2020. As a result,
the Company recognized a beneficial conversion feature (“BCF”) of $378,240 on 788 of Series E Convertible
Preferred Stock shares representing the intrinsic value of $0.12 per share of Common Stock multiplied by the number of Common Stock shares
to be issued upon conversion. The remaining amount of 262 shares was repurchased as described below. The discount to the Series E Convertible
Preferred Stock resulting from the BCF is presented as an increase to net loss attributable to Common Stockholders in computing basic
and fully diluted earnings per share in the consolidated statements of operations and comprehensive loss.
On May 11, 2020, the Company entered
into a Series E Purchase Agreement for the sale of Common Stock as described above with Alpha whereby we agreed to repurchase 262 shares
of Series E Convertible Preferred Stock with the proceeds from the new issuance. The repurchase of the Series E Convertible Preferred
Stock was convertible into 1,048,000 shares of Common Stock at a repurchase price of $1.06 per share of Common Stock. The Company increased
its net loss available to Common Stockholders in computing earnings per share for the excess of the consideration paid for the Series
E Preferred Convertible Stock over its carrying value totaling $848,880. As of December 31, 2020, no Series E Preferred Convertible
Stock remained issued and outstanding.
Capital Stock Issuances
GreenBlock Capital LLC
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 June 18, 2019, the Company issued 500,000 shares of restricted Common Stock to the Consultant, and the Company recognized $170,000
of stock-based compensation expense at a fair value of $0.34 per share within professional fees on the consolidated statements of operations
and comprehensive loss. 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. On June 30, 2020, the Company issued an additional 250,000 shares of restricted Common Stock.to the
Consultant, and recognized stock-based compensation expense of $297,500 at a fair value of $1.19 per share, which was reflected in professional
fees in the consolidated statements of operations and comprehensive loss. 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 consolidated statements of operations and comprehensive
loss. For the quarter ended March 31, 2021, the Company recorded additional stock-based compensation expense of $1,407,000, which
reflected the issuance of 550,000 additional restricted shares of Common Stock that were issued on May 12, 2021, which resulted in a
liability amount of $2,907,000 for purposes of payment of the settlement.
December Purchase Agreement
In January 2021, the Company issued
1,057,214 shares of Common stock in connection with a securities purchase agreement (the “December Purchase Agreement”) entered
into on December 31, 2020, the gross proceeds associated with this exercise were $6,313,943, net of issuance costs.
Exercise of Warrants
On February 8, 2021, the Company
received $8,305,368 in additional gross proceeds associated with the exercise of 2,516,778 of warrants issued at a price of $3.30 per
share in connection with a securities purchase agreement dated August 4, 2020.
Securities Purchase Agreement
Dated May 11, 2020
On May 11, 2020, the Company and
an Investor entered into a securities purchase agreement (the “May Purchase Agreement”) pursuant to which the Company agreed
to sell to the Investor in a registered direct offering 2,400,000 shares of Common Stock, par value $0.001, and pre-funded warrants (the
“Pre-Funded Warrants”) to purchase up to 3,260,377 shares of Common Stock, for gross proceeds of approximately $6,000,000
(which includes subsequent payment of the exercise price of the Pre-Funded Warrants in the amount of $3,267). The purchase price for
each share of Common Stock was $1.06 and the purchase price for each Pre-Funded Warrant was $1.05999. The exercise price for each Warrant
was $0.001. Net proceeds from the sale were used to repurchase 262 shares of the Company’s Series E Preferred Stock, convertible
into 1,048,000 shares of Common Stock currently held by the Investor at a repurchase price of $1.06 per share of Common Stock (see below).
The Company expects to use the balance for working capital and general corporate purposes. The Company increased net loss available to
Common Stockholders in computing earnings per share for the excess of the consideration paid for the Series E Preferred Stock over its carrying
value totaling $848,880 as presented on the consolidated statements of operations and comprehensive loss.
Pursuant to the terms of the May
Purchase Agreement, the Company had agreed to certain restrictions on future stock offerings, including that during the 60-day period
following the closing, the Company did not issue (or enter into any agreement to issue) any shares of Common Stock or Common Stock equivalents,
subject to certain exceptions. The exercise price of the Warrants and the shares of the Common Stock issuable upon the exercise thereof
were subject to adjustment in the event of any stock dividends and splits, reverse stock split, recapitalization, reorganization, or similar
transaction, as described in the Warrants, and were exercisable on a “cashless” basis in certain circumstances.
Securities Purchase Agreement Dated June 24, 2020
On June 24, 2020, the Company and
the Investor entered into a securities purchase agreement (the “June Purchase Agreement”) pursuant to which the Company agreed
to sell to the Investor in a registered direct offering 4,407,400 shares of Common Stock, par value $0.001, pre-funded warrants to purchase
up to 1,956,236 shares of Common Stock, and warrants (the “Warrants”) to purchase up to 2,455,476 shares of Common Stock at
an exercise price of $1.35 per share, for gross proceeds of $7,000,000 (which includes subsequent payment of the exercise price of the
Pre-Funded Warrants in the amount of $1,956) and net proceeds of $6,950,000 after issuance costs. Upon exercise of the Warrants in full
by the Investor, the Company will receive additional gross proceeds of $3,314,892. The shares of Common Stock underlying the Pre-Funded
Warrants and the Warrants are referred to as “June Warrant Shares.”
The purchase price for each share
of Common Stock is $1.10 and the purchase price for each Pre-Funded Warrant is $1.099 per share of Common Stock. The exercise price for
each Pre-Funded Warrant is $0001. The Shares, Pre-funded Warrants, Warrants and June Warrant Shares are being offered by the Company
pursuant to a shelf registration statement on Form S-3 (File No. 333-239157), which was declared effective by the SEC on June 19, 2020.
Pursuant to the terms of the June
Purchase Agreement, the Company agreed to certain restrictions on future stock offerings, including that during the 75-day period following
the closing, the Company will not issue (or enter into any agreement to issue) any shares of Common Stock or Common Stock equivalents,
subject to certain exceptions, including if the consolidated closing price on the trading market on which the Company’s Common Stock
is traded at the time is greater than $1.90 (adjusted for any subsequent stock splits or similar capital adjustments) for five consecutive
trading days, the Company may issue such securities at not less than $1.90 per Common Stock Equivalent. The Investor has a right from
the date of the June Purchase Agreement until December 31, 2020 to participate in a subsequent financing 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”), in an amount equal to 50% of the Subsequent Financing on the same terms, conditions and price
provided for in the Subsequent Financing.
The exercise price of the Prefunded
Warrants and the Warrants and the number of June Warrant Shares issuable upon the exercise thereof will be subject to adjustment in the
event of any stock dividends and splits, reverse stock split, recapitalization, reorganization or similar transaction, as described in
the Prefunded Warrants and the Warrants. The Warrants will be exercisable on a “cashless” basis only in the event there is
no effective registration statement registering, or the prospectus contained therein is not available for the sale of the shares underlying
the Warrants. The Pre-Funded Warrants allow for cashless exercise at any time. The Pre-Funded Warrants and the Warrants each contain a
beneficial ownership limitation, such that none of such Pre-Funded Warrants nor the Warrants may be exercised, if, at the time of such
exercise, the holder would become the beneficial owner of more than 9.99% of our outstanding shares of Common Stock following the exercise
of such Pre-Funded Warrant or Warrant. For the year ended December 31, 2020, the Company received $3,314,893 in additional gross
proceeds associated with exercise of 2,455,476 of the June Warrant Shares into Common Stock.
Securities Purchase Agreement
Dated August 4, 2020
On August 4, 2020, the Company
and an Investor entered into a securities purchase agreement (the “August Purchase Agreement”) pursuant to which the Company
agreed to sell to the Investor in a registered direct offering 3,355,705 shares of Common Stock and warrants to purchase up to 2,516,778
shares of Common Stock at an exercise price of $3.30 per share (the “August Warrants”), for proceeds of $9,900,000 net of
issuance costs of $100,000. Upon exercise of the Warrants in full by the Investor, the Company will receive additional gross proceeds
of $8,305,367. The shares of Common Stock underlying the Warrants are referred to as “August Warrant Shares.”
The purchase price for each share
of Common Stock is $2.98. Net proceeds from the sale will be used for working capital, capital expenditures and general corporate purposes.
The shares, the August Warrants and the August Warrant Shares are being 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.
Pursuant to the terms of the August
Purchase Agreement, the Company has agreed to certain restrictions on future stock offerings, including that during the 75-day period
following the closing, the Company will not issue (or enter into any agreement to issue) any shares of Common Stock or Common Stock equivalents,
subject to certain exceptions, including if the consolidated closing price on the trading market on which the Company’s Common Stock
is traded at the time is greater than $5.00 (adjusted for any subsequent stock splits or similar capital adjustments) for ten consecutive
trading days, the Company may issue such securities at not less than $5.00 per Common Stock Equivalent. In addition, the Company’s
executive officers and directors agreed that they shall not sell (or hedge in any manner) any of their shares of the Common Stock for
a period ending September 7, 2020. The Investor has a right from the date of the August Purchase Agreement until December 31, 2020, to
participate in a subsequent financing 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”), in an amount equal to 50% of the Subsequent Financing
on the same terms, conditions and price provided for in the Subsequent Financing.
The exercise price of the August
Warrants and the number of August Warrant Shares issuable upon the exercise thereof will be subject to adjustment in the event of any
stock dividends and splits, reverse stock split, recapitalization, reorganization or similar transaction, as described in the Warrants.
The Warrants will be exercisable on a “cashless” basis only in the event there is no effective registration statement registering,
or the prospectus contained therein is not available for the sale of the shares underlying the August Warrants. The August Warrants contain
a beneficial ownership limitation, such that none of such August Warrants may be exercised, if, at the time of such exercise, the holder
would become the beneficial owner of more than 9.99% of our outstanding shares of Common Stock following the exercise of such August Warrant.
The August Warrant is for a ten-month term and is not exercisable for the first six months.
Securities Purchase Agreement
Dated December 31, 2020
On December 31, 2020, the Company,
and an Investor entered into a securities purchase agreement (the “December Purchase Agreement”) pursuant to which the Company
agreed to sell to the Investor in a registered direct offering pre-funded warrants (the “December Pre-Funded Warrants”) to
purchase up to 1,057,214 shares of Common Stock, par value $0.001 Common Stock, for gross proceeds of approximately $6.4 million (which
includes subsequent payment of the exercise price of the December Pre-Funded Warrants in the amount of $1,057). The shares of Common Stock
underlying the December Pre-Funded Warrants are referred to as the “December Warrant Shares.”
The purchase price for each December
Pre-Funded Warrant is $6.029, the exercise price for each December Pre-Funded Warrant is $0.001. Net proceeds from the sale will be used
for working capital. The December Pre-Funded Warrants and the December Warrant Shares are being 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.
Pursuant to the terms of the December
Purchase Agreement, the Company has agreed to certain restrictions on future stock offerings, including that during the 45-trading day
period following the closing, the Company will not issue (or enter into any agreement to issue) any shares of Common Stock or Common Stock
equivalents, subject to certain limited exceptions. The Investor has a right from the date of the December Purchase Agreement until April
30, 2021 to participate in a subsequent financing 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”), in an amount
equal to 50% of the Subsequent Financing on the same terms, conditions and price provided for in the Subsequent Financing.
The exercise price of the December
Prefunded Warrants and the number of December Warrant Shares issuable upon the exercise thereof will be subject to adjustment in the event
of any stock dividends and splits, reverse stock split, recapitalization, reorganization or similar transaction, as described in the December
Prefunded Warrants. The December Pre-Funded Warrants allow for cashless exercise at any time. The December Pre-Funded Warrants contain
a beneficial ownership limitation such that none of the December Pre-Funded Warrants may be exercised, if, at the time of such exercise,
the holder would become the beneficial owner of more than 9.99% of our outstanding shares of Common Stock following the exercise of such
December Pre-Funded Warrants.
Filing of Registration Statement
Pursuant to the terms of the Registration
Rights Agreement executed on April 7, 2020, the Company filed an initial registration statement with the SEC registering the Conversion
Shares and the April Warrant Shares on April 27, 2020. The Company’s registration statement was declared effective May 6, 2020.
Filing of Registration Statement for At-the-Market
Sales Agreement
Pursuant to the terms of the Registration
Rights Agreement executed on February 5, 2021, the Company filed an initial registration statement with the SEC for up to $200,000,000
of securities which may be issued by the Company from time to time in indeterminate amounts and at indeterminate times.
On May 25, 2021, the Company entered
into an at-the-market Sales Agreement (the “ATM Sales Agreement”) with Stifel, Nicolaus & Company, Incorporated and Raymond
James & Associates, Inc. as sales agents (the “Agents”), in connection with the offer and sale from time to time of shares
of the Company’s Common stock, having an aggregate offering price of up to $100,000,000 (the “ATM Shares”), through an
at-the-market equity offering program (the “ATM Offering”).
The ATM Shares are being offered
and sold pursuant to the Company’s shelf registration statement on Form S-3 (File No. 333-252801), which was filed with the SEC
on February 5, 2021, and declared effective on May 6, 2021. A prospectus supplement relating to the ATM Offering was filed with the SEC
on May 25, 2021.
Subject to the terms and conditions
of the ATM Sales Agreement, the Agents will use reasonable efforts, consistent with its normal trading and sales practices and applicable
law and regulations to sell ATM Shares from time to time based upon the Company’s instructions, including any price, time or size
limits or other customary parameters or conditions the Company may impose.
Under the Sales Agreement, the
Agents may sell ATM Shares by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415 of
the Securities Act of 1933, as amended (the “Securities Act”), and the rules and regulations thereunder, including, without
limitation, sales made by means of ordinary brokers’ transactions, directly on or through NYSE American LLC, on or through any other
national securities exchange or facility thereof, a trading facility of a national securities association, an alternative trading system,
or any other market venue, in the over-the-counter market, in privately negotiated transactions, to or through a market maker or a combination
of any such methods. The Company agreed to pay the Agents a commission equal to 3% of the gross proceeds from the sales of ATM Shares
pursuant to the Sales Agreement.
The ATM Sales Agreement contains
customary representations and warranties and also contains customary indemnification obligations of the Company and the Agents, including
for liabilities under the Securities Act, other obligations of the parties and termination provisions.
The provisions of the ATM Sales
Agreement, including the representations and warranties contained therein, are not for the benefit of any party other than the parties
to such agreement and are not intended as documents for investors and the public to obtain factual information about the current state
of affairs of the parties to those documents and agreements. Rather, investors and the public should look to other disclosures contained
in the Company’s filings with the SEC.
During the period from May 26,
2021 through December 31, 2021, the Company sold 5,705,877 shares of its Common Stock, par value $0.001, at a stock price between $5.00
and $6.30 per share, for proceeds of $30,868,703, net of issuance costs of $954,707.
2017 Omnibus Equity Incentive Plan
On March 26, 2018, the 2017 Omnibus
Equity Incentive Plan (the “Equity Plan”) became effective. Under the Equity Plan, the Company may grant equity-based and
other incentive awards to officers, employees, and directors of, and consultants and advisers to, the Company. The purpose of the Equity
Plan is to help the Company attract, motivate, and retain such persons and thereby enhance shareholder value. The Equity Plan shall continue
in effect, unless sooner terminated, until the tenth (10th) anniversary of the date on which it is adopted by the Board (except as to
awards outstanding on that date). The Board in its discretion may terminate the Equity Plan at any time with respect to any shares for
which awards have not theretofore been granted; provided, however, that the Equity 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. On June 18, 2019, at the
Annual Meeting of Shareholders of the Company, the shareholders approved a proposal to increase the number of shares of Common Stock reserved
for issuance under the Equity Plan from 2,000,000 to 3,000,000.
On July 15, 2020, the Company held
its 2020 annual meeting of stockholders and approved a proposal to increase the number of shares of Common Stock reserved for issuance
under the Equity Plan from 3,000,000 to 4,000,000. 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 number of shares for which awards which are options or stock appreciation rights (“SARs”)
may be granted to a participant under the Equity 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 Equity Plan in any single calendar year shall be $500,000.
On June 16, 2021, the Company held
its 2021 annual meeting of stockholders and approved a proposal to increase the number of shares of Common Stock reserved for issuance
under the Equity Plan from 4,000,000 to 10,000,000. 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 number of shares for which awards which are options or SARs may be granted to a participant under the
Equity 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 Equity Plan in any single
calendar year shall be $500,000.
The Company awards restricted stock
units (“RSUs”) to employees, which have restriction periods tied primarily to continued service through the vesting period.
Unless otherwise approved by the Board, RSUs have cliff vesting periods ranging from one to two years, though the Board may approve RSU
awards that vest immediately or over a shorter period, which results in stock-based compensation expense being recognized in total on
the date of grant or over the shorter vesting period.
The Company awards stock options
to employees and to the Board of Directors. Stock option awards vest in equal annual installments over two years from the date of grant,
though the Board may approve stock option awards that vest immediately, which results in stock-based compensation expense being recognized
in total on the date of grant.
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 consolidated statements of operations
and comprehensive loss.
RSUs
For the year ended December 31,
2021, RSU activity consisted of the following:
Schedule of restricted stock unit activity | |
| | | |
| | |
|
|
Shares | |
Weighted Average Grant Date Fair Value |
Non-vested as of December 31, 2020 | |
| 100,000 | | |
$ | 1.34 | |
Granted | |
| 1,392,402 | | |
$ | 3.99 | |
Canceled | |
| (91,667 | ) | |
$ | 5.40 | |
Released | |
| (253,485 | ) | |
$ | 3.39 | |
Vested | |
| (325,845 | ) | |
$ | 5.34 | |
Non-vested as of December 31, 2021 | |
| 821,405 | | |
$ | 3.16 | |
For the year ended December 31,
2021, the aggregate fair value of RSU awards at the time of vesting was $5,555,503.
As of December 31, 2021, the Company
had approximately $2,138,000 of unrecognized stock-based compensation expense related to RSUs, which will be amortized over approximately
twenty-two months.
For the year ended December
31, 2020, there were 100,000 RSUs that were issued to Mr. Drozd at a fair market value of $1.34 on the date of grant.
Issuance of RSUs
On November 12, 2021, the Board,
in connection 2021 executive compensation plan, approved awards of 75,000 RSUs each to Mr. Brandon Torres Declet (“Mr. Torres Declet”),
the then Chief Executive Officer of the Company, and Ms. Nicole Fernandez-McGovern (“Ms. Fernandez-McGovern”), the Company’s
Chief Financial Officer and Executive Vice President of Operations, respectively. The Company determined the fair market value of these
RSUs to be $441,000 based on the market price of the Company’s Common Stock on the grant date For the year ended December
31, 2021, the Company recognized $144,725
in stock-based compensation expense related to the RSU awards.
During
the fourth quarter of 2021, the Board approved a grant of 611,000 RSUs to non-executive employees of the Company. The Company determined
the fair market value of these RSUs to be $1,761,340 based on the market price of the Company’s Common Stock at the respective
grant dates. For the year ended December 31, 2021, the Company recognized $218,319 in stock-based compensation expense related
to these awards.
On May
24, 2021, and as a part of a separation agreement between Company and Mr. J. Michael Drozd ("Mr. Drozd"), the Company's former Chief
Executive Officer, the Company issued to Mr. Drozd 145,152 RSUs, which vested immediately. These RSUs were valued at, and for
the year ended December 31, 2021 the Company recognized stock-based compensation expense of $680,783 based upon the market price
of the Company's Common Stock of $4.69 per share on the date of grant of these RSUs. (See Note 13)
On May
4, 2021, the Board approve a grant to Ms. Fernandez-McGovern of 111,250 RSUs, which vested immediately. These RSUs were valued
at, and for the year ended December 31, 2021, and the Company recognized stock-based compensation expense of $640,800 based upon
the market price of the Company's Common Stock of $5.76 per share on the date of grant of these RSUs.
On April 19, 2021, the Board approved,
in connection with the Measure Acquisition, an award of 10,000 RSUs to Mr. Jesse Stepler upon his appointment of as senior management
of Measure. The Company determined the fair market value of these RSUs to be $54,000 based on the market price of the Company’s
Common Stock on the date of grant. These RSUs vest equally on a pro-rata basis over one year of continued employment. For the
year ended December 31, 2021, the Company recognized $37,824 in stock-based compensation expense related to this award.
On April 19, 2021, the Board approved,
in connection with the Measure Acquisition, an award of 125,000 RSUs was granted to Mr. Declet upon his appointment as senior management
of the Company. The Company determined the fair market value of these RSUs to be $675,000 based on the market price of the Company’s
Common Stock on the date of grant. These RSUs vest equally on a pro-rata basis over one year of continued employment. For the year ended
December 31, 2021, the Company recognized $472,856 in stock-based compensation expense related to this award.
On April 19, 2021, the Board,
upon recommendation of the Compensation Committee of the Board (“Compensation Committee”), approved awards of 100,000 and
125,000 RSUs to Mr. Drozd, and Ms. Fernandez-McGovern, respectively, and in accordance with their applicable amended respective employment
letters. The Company determined the fair market value of these RSUs to be $1,215,000 based on the market price of the Company’s
Common Stock on the date of grant. These RSUs vest equally on a pro-rata basis over one year of continued employment. Upon Mr.
Drozd’s separation from the Company, 91,667 RSUs were canceled. For the year ended December 31, 2021, the Company recognized $517,854
in stock-based compensation expense related to these awards.
On
March 5, 2021, the Company issued to Ms. Fernandez-McGovern and a non-executive employee 10,000 RSUs and 5,000 RSUs, respectively, which
vested immediately. These RSUs were valued at, and for the year ended December 31, 2021, and the Company recognized stock-based
compensation expense of $87,600 based upon the market price of the Company’s Common Stock of $5.84 per share on the
date of grant of these RSUs.
On
May 18, 2020, the Company issued in connection with the commencement of employment of its Chief Executive Officer, 100,000 RSUs which
fully vested after one year of continued employment. The Company determined the fair-market value of the restricted stock units to be
$134,000. In connection with the issuance of these restricted stock units, the Company recognized $50,518 in stock compensation expense
for the twelve months ended December 31 and $82,786 in stock compensation expense for the year ended December 31, 2020.
Stock Options
The fair values of stock options
granted during the years ended December 31, 2021 and 2020 were determined using the Black-Scholes option valuation model. The
expected term of options granted is based on the simplified method in accordance with SEC Staff Accounting Bulletin No. 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.
For the year ended December 31,
2021, the significant assumptions relating to the valuation of the Company’s stock options granted were as follows:
Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions |
|
|
|
|
|
|
December
31, 2021 |
Dividend
yield |
|
|
— |
% |
Expected
life (years) |
|
|
5.91 |
|
Expected
volatility |
|
|
83.10 |
% |
Risk-free
interest rate |
|
|
1.42 |
% |
For the year ended December 31,
2021, a summary of the options activity is as follows:
As of December 31, 2021, the Company
had approximately $2,036,000 of total unrecognized compensation cost related to stock options, which will be amortized over approximately
twenty-four months.
Intrinsic value is measured using
the fair market value at the date of exercise (for shares exercised) or as of December 31, 2021 (for outstanding options), less the
applicable exercise price.
For the year ended December 31,
2020, the significant assumptions relating to the valuation of the Company’s stock options granted were as follows:
For the year ended December 31,
2020, a summary of the options activity is as follows:
For the year ended December
31, 2021, the Company issued to non-executives employees options to purchase 469,500
shares of Common Stock at exercise prices ranging from $1.44 to $5.42 per share, which expire on dates between January
3, 2025 and December 31, 2026. The Company determined the fair market value of these unvested options to be $1,759,843. In connection
with the issuance of these options, the Company recognized $629,999
in stock-based compensation expense for the year ended December 31, 2021.
For the year ended December
31, 2021, the Company issued to directors and officers options to purchase 580,000
shares of Common Stock at exercise prices ranging from $0.84 to $3.37 per share, which expire on dates between January
3, 2025 and December 31, 2026. The Company determined the fair market value of these unvested options to be $1,231,400. In connection
with the issuance of these options, the Company recognized $286,312
in stock-based compensation expense for the year ended December 31, 2021.
On April 27, 2021, the Company
issued 540,541 shares of Common Stock in connection with the MicaSense Purchase Agreement 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 these shares of Common Stock at the fair
market value of $3,000,000.
On April 19, 2021, the Company
issued 5,319,145 shares of Common Stock in connection with the Measure Purchase Agreement 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 these shares of Common Stock at the fair
market value of $24,375,000.
See Note 17 for further detail.
senseFly S.A. sponsors a defined
benefit pension plan (the “Defined Benefit Plan”) covering all its employees. The Defined Benefit Plan provides benefits in
the event of retirement, death or disability, with benefits based on age and salary. The Defined Benefit Plan is funded through contributions
paid by senseFly S.A. and its employees, respectively. The Defined Benefit Plan assets are administered by Groupe Mutuel Prévoyance
(“GMP”), which invests these plan assets in cash and cash equivalents, equities, bonds, real estate and alternative investments.
The Projected Benefit Obligation
(“PBO”) includes in full the accrued liability for the plan death and disability benefits, irrespective of the extent to which
these benefits may be reinsured with an insurer. The actuarial valuations are based on the census data as of October 31, 2021, provided
by GMP.
The Company recognizes the overfunded
or underfunded status of the Defined Benefit Plan as an asset or liability in its consolidated balance sheets and recognizes changes in
the funded status of the Defined Benefit Plan in the year in which the changes occur through accumulated other comprehensive income or
loss. The Defined Benefit Plan’s assets and benefit obligations are remeasured as of December 31st each year.
For the period from October 18,
2021 (the “senseFly Acquisition Date) through December 31, 2021, the net periodic benefit cost of the Defined Benefit Plan was as
follows:
The PBO is the present value of
benefits earned to date by plan participants, including the effect of assumed future salary increases. For the period from the senseFly
Acquisition Date through December 31, 2021,the changes in the projected benefit obligation were as follows:
For the period from the senseFly
Acquisition Date through December 31, 2021, the change in fair value of the Pension Plan assets were as follows:
senseFly S.A.’s investment
objectives are to ensure that the assets of its Defined Benefit Plan are invested to provide an optimal rate of investment return on the
total investment portfolio, consistent with the assumption of a reasonable risk level, and to ensure that pension funds are available
to meet the plans’ benefit obligations as they become due. senseFly S.A. believes that a well-diversified investment portfolio will result
in the highest attainable investment return with an acceptable level of overall risk. Investment strategies and allocation decisions are
also governed by applicable governmental regulatory agencies. senseFly’s investment strategy with respect to the Defined Benefit
Plan is to invest in accordance with the following allocation: 30.93% in equities, 34.94% in bonds, 15.46% in real estate, 9.28% in alternative
investments and 9.39% in cash and cash equivalents.
As of December 31, 2021, the following
table presents the fair value of the Defined Benefit Plan assets by major categories and by levels within the fair value hierarchy:
As of December 31, 2021, the following
table presents the unfunded status of the Defined Benefit Plan, defined as plan assets less the projected benefit obligation:
As of December 31, 2021, the underfunded
status is included in other liabilities in the consolidated balance sheets.
The Defined Benefit Plan has an
ABO and PBO in excess of Defined Benefit Plan assets. For the period from the senseFly Acquisition Date through December 31, 2021, the
amounts recognized in accumulated other comprehensive loss related to the Defined Benefit Plan were as follows:
As of December 31, 2021,
the net prior service credit included in accumulated other comprehensive loss is expected to be recognized as a component of net periodic
benefit cost during the year ending December 31, 2022.
The following table presents the
expected benefit payments from the Defined Benefit Plan for the next five fiscal years and the aggregate five years thereafter:
The Company sponsors the AgEagle
Aerial Systems 401(k) Plan (the “401(k) Plan”) that covers substantially all eligible employees in the United States. The
Company matches contributions made by eligible employees, subject to certain percentage limits of the employees’ earnings. For
the year ended December 31, 2021, the Company’s employer contribution to the 401(k) Plan was $11,127.
On June 24, 2020, the Company entered
into a purchase agreement, described above in Note 7, pursuant to which the Company agreed to sell to the Investor in a registered direct
offering June Warrant Shares to purchase up to 2,455,476 shares of Common Stock at an exercise price of $1.35 per share.
On August 4, 2020, the Company
entered into a purchase agreement, described above in Note 7, pursuant to which the Company agreed to sell to the Investor in a registered
direct offering Warrants to purchase up to 2,516,778 shares of Common Stock at an exercise price of $3.30 per share. Upon exercise of
the Warrants in full by the Investor, the Company will receive additional gross proceeds of approximately $8,305,367.
As of December 31, 2020, the Company
had outstanding warrants, in connection with the issuance of securities purchase agreement dated August 4, 2020, to purchase 2,516,778
shares of the Company’s Common Stock at an exercise price of $3.30 with an expiration date on June 6, 2021.
On December 27, 2018, the Company
issued 2,000 shares of Series D Warrant to purchase 3,703,703 shares of the Company’s Common Stock for $2,000,000 in gross proceeds.
The shares of Common Stock underlying the Warrant are referred to as the “Warrant Shares.” The Company also entered into a
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.
On April 7, 2020, upon the issuance
of the Series E Preferred Stock, offering, a subsequent anti-dilution provision was triggered for the Series D Warrant whereby the exercise
price of the Warrant Shares was adjusted from $0.54 to $0.25 per share a Warrant Down Round. (See Note 9)
In connection with an issuance
of debentures in 2017, the Company issued a warrant to purchase 828,221 shares of the Company’s Common Stock at an exercise price
of $1.51 with an expiration date on August 2, 2024. These warrants were exercised at a cashless price of $1.51 per share on September
22, 2020 into 405,716 shares of common stock.
In July 2020, the Company received
$2,632,500 in additional gross proceeds associated with exercise of 1,950,000 of the June Warrant Shares into Common Stock. During December
2020, the Company received $682,393 in additional gross proceeds associated with exercise of 505,476 shares of the June Warrant.
For the year ended December
31, 2020, 6,987,400 warrants were converted into 5,808,931 shares of Common Stock at a weighted average conversion price of $0.79. The
Company received cash proceeds of $3,314,893 associated with exercise of the warrants.
On February 8, 2021, the Company
received $8,305,368 in additional gross proceeds associated with the exercise of 2,516,778 of warrants issued at a price of $3.30 in connection
with a securities purchase agreement dated August 4, 2020.
A summary of activity related to
warrants for the periods presented is as follows:
The Company determines if an arrangement
is or contains a lease at contract inception and recognizes a right-of-use asset and a lease liability at the lease commencement date. Leases
with an initial term of twelve months or less, but greater than one month, are not recorded on the balance sheet for select asset classes. The
lease liability is measured at the present value of future lease payments as of the lease commencement date, or the opening balance sheet
date for leases existing at adoption of ASC 842. The right-of-use asset recognized is based on the lease liability adjusted
for prepaid and deferred rent and unamortized lease incentives.
Right-of-use assets and lease liabilities
are recognized based on the present value of the future minimum lease payments over the lease terms at the commencement dates. The
Company uses its incremental borrowing rates as the discount rate for its leases, which is equal to the rate of interest the Company would
have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. The incremental borrowing rate
for all existing leases as of the opening balance sheet date was based upon the remaining terms of the leases; the incremental borrowing
rate for all new or amended leases is based upon the lease terms. The lease terms for all the Company’s leases include
the contractually obligated period of the leases, plus any additional periods covered by options to extend the leases that the Company
is reasonably certain to exercise.
Certain adjustments to the right-of-use
asset may be required for items such as initial direct costs paid or incentives received. The components of a lease are split into three
categories: lease components, non-lease components and non-components; however, the Company has elected to combine lease and non-lease
components into a single component. Operating lease expense is recognized on a straight-line basis over the lease term and is included
in general and administrative expense on the consolidated statements of operations and comprehensive loss. Variable lease payments
are expensed as incurred.
The Company has an operating lease
in Wichita, Kansas, which serves as its corporate offices. The lease commencement date was November 1, 2020, and will expire on October
31, 2023, unless sooner terminated or extended. The estimated cash rent payments due through the expiration of this operating lease total
$181,500.
As a result of the MicaSense Acquisition,
the Company assumed an operating lease for office space in Seattle, Washington that expires in January 2026 with a 3% per year increase,
and two months of abated rent for December 2020 and January 2021. The estimated cash rent payments due through the expiration of this
operating lease total approximately $891,000.
As a result of the Measure Acquisition,
the Company assumed the operating leases for office space in Washington, D.C. and Austin, Texas. The prior operating lease in Washington,
D.C. expired in September 2021 and the current operating lease in Austin, Texas expires in December 2021. The Company signed a new operating
lease agreement for its office space in Washington, D.C. in July 2021, beginning on October 1, 2021 and expiring in December 2022. Additionally,
the Company signed a new operating lease agreement for its office space in Austin, Texas commencing in August 2021 and expiring in December
2022. The estimated cash rent payments due through the expiration these two operating leases total approximately $208,000.
As of December 31, 2021 and 2020,
balance sheet information related to the Company’s operating leases is as follows:
For the years ended December 31,
2021 and 2020, operating lease expense payments were $532,892
and $48,840, respectively, and are
included in general and administrative expenses in the consolidated statements of operations and comprehensive loss.
As of December, 31, 2021, scheduled future maturities
of the Company’s lease liabilities are as follows:
As of December 31, 2021 and 2020,
the weighted average lease-term and discount rate of the Company’s leases are as follows:
For the year ended December 31, 2021 and 2020, supplemental
cash flow information related to leases is as follows:
On January 17, 2022, Mr. Barrett
Mooney, the Company's Chairman of the Board and the Chief Executive Officer immediately preceding Mr. Brandon Torres Declet, was reappointed
to serve as the Chief Executive Officer of the Company (See Note 17). Mr. Mooney will continue in his role as Chairman of the
Board. In his role as Chief Executive Officer, Mr. Mooney will receive an annual base salary of $380,000
per year, subject to annual performance reviews and revisions by and at the sole discretion of the Compensation Committee. In
his role as Chief Executive Officer, Mr. Mooney will receive an annual base salary of $380,000
per year, subject to annual performance reviews and revisions by and at the sole discretion of the Compensation Committee. In
accordance with the 2022 Executive Compensation Plan, approved by the Compensation Committee, Mr. Mooney is entitled to receive an annual
bonus comprised of up to 35% of his base salary in cash and 350,000 in RSUs, based upon his performance as determined by certain metrics
established by the Board and Mr. Mooney. In addition, Mr. Mooney is entitled to receive a quarterly grant of 25,000
stock options at the fair market value of the Company's Common Stock on the grant date, vesting over two years, and exercisable
for a period of five years.
Effective May 5, 2020, Mr. Mooney
was appointed Chairman of the Board of the Company. Prior to being recently appointed Chief Executive Officer Mr. Mooney agreed to provide
the Company with consulting services, as needed, at a fixed price of $4,500 per month on a month-to-month basis, plus reimbursement for
travel expenses. Commencing in August 2020, Mr. Mooney’s consulting fee increased to $10,000 per month.
Effective May 5, 2020, Mr. Mooney
resigned as the then Chief Executive Officer of the Company, and prospectively, no longer served as senior management of the Company.
In connection with his resignation, Mr. Mooney received his then current salary and benefits from March 6, 2020 through April
4, 2020. Mr. Mooney was paid $50,000 in cash, $25,000 of which was paid in a lump sum in April 2020, and the balance paid in equal installments
over a six-month period, which commenced on May 5, 2020. Mr. Mooney remained eligible for up to $15,000 bonus, as approved by the
Board, based on the achievement of certain revenue and operational targets.
On January 17, 2022, the Company
and Mr. Brandon Torres Declet mutually agreed to Mr. Torres Declet’s resignation as Chief Executive Officer and as a director of
the Company. In connection with his departure, and in accordance with his employment agreement with the Company, Mr. Torres Declet will
receive base salary continuation equal to six months of his then annual salary, reimbursement of COBRA health insurance premiums for a
period of six months at the same rate as if Mr. Torres Declet were an active employee of the Company, and a grant of fully-vested restricted
shares of Common Stock of the Company with a fair market value of $125,000 on the date of termination of employment.
On May 24, 2021, Mr. Torres Declet
was appointed to serve as the then new Chief Executive Officer of the Company. Mr. Torres Declet did not continue to serve as
the Company’s Chief Operating Officer. On June 11, 2021, the Board upon recommendation of the Compensation Committee, approved
an increase in Mr. Torres Declet’s annual base salary from $225,000 to $235,000, effective as of May 24, 2021, commensurate with
his new position as Chief Executive Officer. Mr. Torres Declet was entitled to receive an annual 20% bonus, comprised of a mix of cash
and RSUs, based upon his performance as determined by certain metrics established by the Board and Mr. Torres Declet.
On April 19, 2021, in connection
with the Measure Acquisition, the Board approved the appointment of Mr. Torres Declet as the Company’s Chief Operating Officer.
Mr. Declet also served as the President of Measure. Prior to joining the Company, Mr. Declet, co-founded Measure, and since 2014, served
as its President. In his position as Chief Operating Officer, Mr. Declet received an annual base salary of $225,000 per year, subject
to increases at the discretion of the Board. Mr. Declet was eligible for an annual cash bonus of up to 20% of his then-current base salary,
as determined by the Board in its good faith discretion, based on the achievement of a combination of personal and Company objectives.
Mr. Declet was also eligible to participate in any benefit plans offered by the Company as in effect from time to time on the same basis
as generally made available to other employees of the Company. Mr. Declet was awarded a one-time grant of 125,000 RSUs that vest on a
pro rata basis over one year commencing on the date of closing of the Measure Acquisition. This grant had a fair value of $675,000, based
on the fair value of the Company’s Common Stock on the date of grant. For the year ended December 31, 2021, the Company recognized
stock-based compensation of $472,856 related to this award. Additionally, Mr. Declet was entitled to be granted, on a quarterly basis,
non-qualified options to acquire 25,000 shares of Company Common Stock.
On May 24, 2021, the Company and
Mr. J. Michael Drozd (“Mr. Drozd”) mutually agreed to Mr. Drozd’s resignation as Chief Executive Officer, effective
immediately (the “Termination Date”). Mr. Drozd resigned to pursue new career opportunities. In connection with his departure,
Mr. Drozd and the Company entered into a separation agreement and General Release, dated June 11, 2021 (“Separation Agreement”),
pursuant to which, among other things, the Company agreed to and paid Mr. Drozd the following: (i) his regular base salary at
the annual rate of $235,000 through the Termination Date; (ii) an annual performance bonus comprised of $37,130 in cash and 118,500 shares
of the Company’s Common Stock, (iii) severance pay equal to six months of his base salary as of the Termination Date; (iv) reimbursement
for six months’ of COBRA health insurance premiums at the same rate as if Mr. Drozd were an active employee of the Company; (v)
cash payment equal to three days of accrued and unused vacation days; and (vi) 26,652 fully-vested RSUs with a fair value of $125,000
on the date of grant. Additionally, Mr. Drozd’s then outstanding and unvested equity awards continued to be governed by
the terms of the applicable award agreements, except that 8,333 of the 100,000 RSUs granted to him on April 19, 2021, in accordance with
his employment agreement with the Company, vested on the effective date of the Separation Agreement.
On April 28, 2020, Mr. Michael
Drozd was appointed to serve as the Company’s then Chief Executive Officer, commencing May 18, 2020. Mr. Drozd received
an annual base salary of $235,000 per year, subject to annual performance reviews and revisions by and at the sole discretion of the
Compensation Committee. Mr. Drozd was entitled to receive an annual 20% bonus, comprised of a mix of cash and stock options, based upon
his performance as determined by certain metrics established by the Board and Mr. Drozd. Mr. Drozd received an initial grant of 100,000
RSUs, which were scheduled to become fully vested after one year of continued employment. Mr. Drozd was eligible to receive a
quarterly award of 15,000 non-qualified stock options. At the time of issuance, each stock option award agreement was to have set forth
the vesting, exercisability, and exercise price of the stock options as of the date of the grants.
Effective May 5, 2020, Mr. Chilcott
resigned as the then President and Chairman of the Board of the Company. Mr. Chilcott no longer serves as an executive or director
of the Company. For a period of twelve months from his date of resignation, Mr. Chilcott agreed to remain an employee and advise the
Company to ensure a seamless leadership transition. Mr. Chilcott received his then base annual salary of $140,000, plus benefits, during
the twelve-month that concluded May 4, 2021.
On November 12, 2021, the Board,
in connection 2021 executive compensation plan, approved cash bonuses of $10,000 each to Mr. Torres Declet and Ms. Fernandez-McGovern,
respectively.
The Company has various employment
agreements with various executive officers and directors of the Company 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.
On April 7, 2020, as a condition
to the consummation of the Series E Preferred Agreement, the Company entered into a Leak-Out Agreement with Mr. Bret Chilcott (“Mr.
Chilcott”), founder, former director and President of the Company, and Alpha with respect to the shares Mr. Chilcott beneficially
owns. The restriction on the disposition of the shares is for a period of seven months from the date of the closing of the agreement.
Thereafter, for a period of an additional six months, Mr. Chilcott may sell no more than $25,000 per calendar month of shares of Company
Common Stock.
On August 26, 2020, the Company,
together with Mr. Chilcott and Alpha, who was a party to the Leak Out Agreement, agreed to amend the Leak Out Agreement to change the
restrictions on the disposition of Mr. Chilcott’s shares that are subject to the Leak Out Agreement (the “Amended Leak Out
Agreement”). The Amended Leak Out Agreement provides that Mr. Chilcott (together with his affiliates) may sell or otherwise dispose
of his shares for a period of twelve (12) months commencing on September 7, 2020 (the “Restricted Period”) in an amount representing
no more than 50,000 shares per calendar month during the Restricted Period. Upon expiration of the Restricted Period, the restrictions
set forth in the Amended Leak Out Agreement ceased.
The Company routinely places orders
for manufacturing services and materials. As of December 31, 2021, the Company had purchase commitments of approximately $2,240,000. These
purchase commitments are expected to be realized during the year ending December 31, 2022.
The following reflects the related
party transactions during the years ended December 31, 2021 and 2020, respectively:
Ms. 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. For the years ended December 31, 2021 and 2020, the expenses related to services provided by Premier
Financial Filings to the Company, were $33,930
and $23,524, respectively. These expenses are
included within general and administrative expenses in the Company’s consolidated statements of operations and comprehensive
loss.
One of the Company’s directors,
Mr. Thomas Gardner, is one of the principals of NeuEon, Inc, which provide services to the Company as the Chief Technology Officer. For
the years ended December 31, 2021 and 2020, the expenses related to services provided by NeuEon Inc. to the Company were $293,750
and $118,500, respectively. These expenses are included within in the general and administrative expense in the Company’s
consolidated statements of operations and comprehensive loss.
Following his resignation as Chief
Executive Officer in May 2020, Mr. Mooney agreed to provide consulting services to the Company, as needed, at a fixed fee of $4,500 per
month on a month-to-month basis, plus reimbursement for travel expenses. On July 20, 2020, the Board, upon recommendation of the
Compensation Committee, increased Mr. Mooney’s monthly fee for consulting services to $10,000 from $4,500 per month. For the years
ended December 31, 2021 and 2020, the Company recognized $25,000
and $66,500 of expenses,
which are included in the general and administrative expenses in the Company’s consolidated statements of operations and
comprehensive loss.
Prior to April 15, 2015, AgEagle
Aerial Inc. was treated as a disregarded entity for income tax purposes. Income taxes, if any, were the responsibility of the sole member.
Effective April 22, 2015, the Company elected to be classified as a corporation for income tax purposes. On March 26, 2018, the Company’s
predecessor company, EnerJex Resources, Inc. (“EnerJex”), consummated the transactions contemplated by the Agreement and
Plan of Merger (the “Merger Agreement”), dated October 19, 2017, pursuant to which AgEagle Merger Sub, Inc., a wholly-owned
subsidiary of EnerJex, merged with and into AgEagle Aerial Systems Inc., a then privately held company (“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. AgEagle Sub changed its name initially to “Eagle Aerial, Inc.” and then to “AgEagle
Aerial, Inc.” Following the Merger, AgEagle Aerial Inc. became a wholly owned subsidiary of AgEagle Aerial Systems, Inc., and the group
files a consolidated U.S. federal income tax return as well as income tax returns in various states.
As of December 31, 2021 and 2020,
the total of all net deferred tax assets was $8,820,453 and $3,277,467, 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 $8,820,453 and $3,277,467 as of December 31, 2021 and 2020,
respectively. The change in the valuation allowance during the years ended December 31, 2021 and 2020 was $5,542,986 and $498,367,
respectively.
On December 27, 2020, the Consolidations
Appropriations Act, 2021 (“CAA”) was signed into law and included in the government appropriations and additional economic
stimulus. The CAA enhances and expands certain provisions of the CARES Act. The CAA modifies the tax deductibility of expenses relating
to the PPP loan forgiveness, Employee Retention Credit eligibility and extends other CARES Act provisions. We continue to monitor
new and updated legislation, however the provisions enacted have not had a material impact on our consolidated financial statements.
As of December 31, 2021, the Company
has a federal and state net operating loss carry forward of approximately $39,363,972 and $16,840,478 respectively. Of those balances,
the Company has $8,242,818 of federal net operating losses expiring in 2035-2037 and the remaining amounts have no expiration. The Company
has a foreign net operating loss carry forwards of $1,711,418 which expire in 2028. The Company has state net operating carry forwards
of $12,265,405, which expire between 2025-2041, and the remaining amounts have no expiration. As of December 31, 2020, the Company has
a federal and state net operating loss carry forward of approximately $22,890,426 and $12,406,1130 respectively. Of those balances, the
Company has $8,242,818 of federal net operating losses expiring in 2035-2037 and the remaining amounts have no expiration. The Company
has state net operating loss carry forwards of $10,584,638 expiring in 2025-2040, and the remaining amounts have no expiration. The Act
changed the rules on net operating loss carry forwards. The twenty-year limitation was eliminated for losses incurred after January 1,
2018, giving the taxpayer the ability to carry forward losses indefinitely. However, net operating loss carry forward arising after January
1, 2018, will now be limited to eighty percent of taxable income.
As of December 31, 2021, the Company
determined it is more likely than not that it will not realize our temporary deductible differences and net operating loss carryforwards,
and as such, has provided a full valuation allowance on our net deferred tax asset.
During the years ended December
31, 2021 and 2020, the Company did not recognize any uncertain tax positions, interest or penalty expense related to income taxes. AgEagle
files U.S. federal and state income tax returns, as required by law. The federal return generally has a three-year statute of limitations, and
most states have a four-year statute of limitations; however, the taxing authorities can review the tax year in which the net operating
loss was generated when the loss is utilized on a tax return. We currently do not have any open income tax audits. The
Company is open to federal and state examination on the 2018 through 2020 income tax returns filed.
For the years ended December 31,
2021 and 2020, a reconciliation of income tax expense at the federal statutory rate to income tax expense at the Company’s effective
rate is as follows:
As of December 31, 2021 and 2020,
the temporary differences, tax credits and carryforwards that gave rise to the following deferred tax assets (liabilities):
The Company conducts the business
through the following three operating and reporting segments: Drones and Custom Manufacturing, Sensors and SaaS.
The accounting policies of the
operating segments are the same as those described in Note 2. 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 December 31, 2021 and 2020
and for the years then ended operating information about the Company’s reportable segments consisted of the following:
For the year ended December 31, 2021, segment revenue
by geographic area consisted of the following:
For the year ended December 31, 2020, revenue by
geographic area consisted of the following: