See accompanying notes to condensed consolidated
financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(UNAUDITED)
Note 1 – Description of the
Business and Basis of Presentation
Description of
Business – AgEagle™ Aerial Systems Inc. (“AgEagle” or the “Company”), through its wholly-owned
subsidiaries, AgEagle Aerial, Inc, MicaSense™, Inc. (“MicaSense”), Measure Global, Inc. (“Measure”),
senseFly SA and senseFly Inc. (collectively “senseFly”), is actively engaged in designing and delivering best-in-class
autonomous unmanned aerial systems, sensors and software that solve important problems for its customers in a wide range of industry
verticals, including energy/utilities, infrastructure, agriculture and government.
During
the year ended December 31, 2021, the Company acquired 100% of the outstanding stock of MicaSense, Measure and senseFly, respectively.
These three business acquisitions are collectively referred to as the “2021 Business Acquisitions.”
Basis of Presentation
– The condensed consolidated financial statements of the Company are presented in United States dollars and have been
prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
In the opinion of management, the Company has made all necessary adjustments, which include normal recurring adjustments, for a
fair statement of the Company’s consolidated financial position and results of operations for the periods presented. Certain
information and disclosures included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have
been condensed or omitted pursuant to the U.S. Securities and Exchange Commission (“SEC”) rules. These condensed consolidated
financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes for
the year ended December 31, 2021, included in the Company’s Annual Report on Form 10-K, as filed with the SEC on April 12,
2022. The results for the three and six month periods ended June 30, 2022 are not necessarily indicative of the results to be expected
for a full year, any other periods or any future year or period.
Liquidity –
The Company has continued to realize losses from operations. However, because of its capital raise efforts, the Company believes
that it will have sufficient cash to meet its anticipated operating costs and capital expenditure requirements through August
2023. The Company’s primary need for liquidity is to fund working capital requirements of our business, capital expenditures,
acquisitions, debt service, and for general corporate purposes. The Company’s primary source of liquidity is funds generated by
financing activities and from private placements. The Company’s ability to fund our operations, to make planned capital expenditures,
to make planned acquisitions, to make scheduled debt payments, and to repay or refinance indebtedness depends on our future operating
performance and cash flows, which are subject to prevailing economic conditions and financial, business and other factors, some of which
are beyond our control.
If the Company is
unable to generate significant sales growth in the near term and raise additional capital, there is a risk that the Company could
default on additional obligations; and could be required to discontinue or significantly reduce the scope of its operations if
no other means of financing operations are available. The condensed consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities or
any other adjustment that might be necessary should the Company be unable to continue as a going concern.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(UNAUDITED)
Note 1 – Description of the
Business and Basis of Presentation – Continued
Risks and Uncertainties
– Global economic challenges, including the impact of the war in Ukraine, the COVID-19 pandemic, rising inflation and
supply-chain disruptions, adverse labor market conditions could cause economic uncertainty and volatility. During the three and
six months ended June 30, 2022, the COVID-19 pandemic continued to have a significant negative impact on the unmanned aerial vehicle
(“UAV”) systems industry, the Company’s customers and business globally. The aforementioned risks and their respective
impacts on the UAV industry and the Company’s operational and financial performance remains uncertain and outside of the
Company’s control. Specifically, as a result of the aforementioned continuing risks, the Company’s ability to access
components and parts needed in order to manufacture its proprietary drones and sensors, and to perform quality testing have been,
and continue to be, impacted. If either the Company or any of its third parties in the supply chain for materials used in our manufacturing
and assembly processes continue to be adversely impacted, the Company’s supply chain may be further disrupted, limiting its
ability to manufacture and assemble products. The Company expects the pandemic, inflation and supply-chain disruptions and its
effects to continue to have a significant negative impact on its business for the duration of the pandemic and during the subsequent
economic recovery, which could be for an extended period of time.
Correction of Prior
Period Information – During the review of the Company’s condensed consolidated financial statements for the three and
six month periods ended June 30, 2021, the Company identified an error in the accounting and presentation of revenue and related expenses
recorded for the MicaSense Acquisition (See Note 5 – Business Acquisitions) related
to the three months ended March 31, 2021. This error resulted in the recording of $394,743 in additional revenues, $129,510 in additional
cost of sales, and $232,252 in additional operating expenses, resulting in additional net income of $32,033. If reported correctly, the
Company would have recorded $1,306,849 in revenues, $492,394 in cost of sales, $3,808,236 in operating expenses, and a net loss of ($2,962,563)
for the three months ended March 31, 2021. Instead, the Company recorded revenues of $1,701,592, cost of sales of $621,904, operating
expenses of $4,040,488, and a net loss of ($2,930,530) for the three months ended March 31, 2021. To correct this error, the Company
recorded the correction in the three month period ended June 30, 2021. If reported correctly for the three months ended June 30, 2021,
then the Company would have reported $2,332,107 in revenues, $1,088,739 in cost of sales, $6,030,872 in operating expenses, and a net
loss of ($4,646,139). In accordance with the SEC’s Staff Accounting Bulletin Nos. 99 and 108 (“SAB 99” and ”SAB 108”),
the Company evaluated this error and concluded that although the adjustment to revenue was quantitatively material, the cumulative effects
were quantitatively and qualitatively immaterial and would not have materially impacted a reasonable investor’s opinion of the
Company. This is further supported by the fact that the impact would not have been significant in comparison to prior periods, as the
financial results still supported the Company’s increased year-over-year growth in revenue as reported and discussed in both periods
within the Management Discussion & Analysis. Therefore, as permitted by SAB 108 and treated under the Financial Accounting Standards
Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 250, Accounting Changes and Error Corrections,
the Company corrected previously recorded results for the three and six months ended June 30, 2021, to account for the error in this
current filing. As a result, the statement of operations for the six months ended June 30, 2021 reflects the corrected revenues, cost
of goods sold, operating expenses and net loss.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(UNAUDITED)
Note 2 – Summary of Significant
Accounting Policies
A description of
certain of the Company’s accounting policies and other financial information is included in the Company’s audited
consolidated financial statements filed with the SEC on Form 10-K for the year ended December 31, 2021. The summary of significant
accounting policies presented below is designed to assist in understanding the Company’s condensed consolidated financial
statements. Such condensed consolidated financial statements and accompanying notes are the representations
of the Company’s management, who are responsible for their integrity and objectivity.
Use
of Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in
the United States of America requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates
include the allowance for doubtful accounts, reserve for obsolete inventory, valuation of stock issued for services and stock
options, valuation of intangible assets including goodwill, foreign currency exchange rates, valuation of defined benefit plan
obligations and the valuation of deferred tax assets.
Fair Value Measurements
and Disclosures – ASC Topic 820, Fair Value Measurement (“ASC 820”), requires companies to determine
fair value based on the price that would be received to sell the asset or paid to transfer the liability to a market participant.
ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement.
The guidance requires
that assets and liabilities carried at fair value be classified and disclosed in one of the following categories:
● |
Level 1: Quoted market prices in active markets for identical assets or liabilities. |
|
|
● |
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data. |
|
|
● |
Level 3: Unobservable inputs that are not corroborated by market data. |
For short-term classes
of our financial instruments, which include cash, accounts receivable, notes receivable and accounts payable, and which are not
reported at fair value, the carrying amounts approximate fair value due to their short-term nature. The outstanding loans related
to the business acquisitions and COVID Loans are carried at face value, which approximates fair value. As of June 30, 2022 and
December 31, 2021, the Company did not have any financial assets or liabilities measured and recorded at fair value on the Company’s
condensed consolidated balance sheets on a recurring basis.
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.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2022 AND 2021
(UNAUDITED)
Note 2 – Summary of Significant
Accounting Policies-Continued
Revenue Recognition
and Concentration – The majority of the Company’s revenues are derived primarily through the sales of drone
and drone related products and services, sensors and related accessories, and software subscriptions. All contracts and agreements
are a fixed price and are accounted for in accordance with ASC Topic 606, Revenue from Contracts with Customers.
The Company generally
recognizes revenue on sales to customers, dealers and distributors upon satisfaction of performance obligations which generally
occurs once controls transfer to customers, which is when product is shipped or delivered depending on specific shipping terms
and, where applicable, customer acceptance has been obtained. The fee is not considered to be fixed or determinable until all material
contingencies related to the sales have been resolved. The Company records revenue in the statements of operations and comprehensive
loss, net of any sales, use, value added, or certain excise taxes imposed by governmental authorities on specific sales transactions
and net of any discounts, allowances and returns.
Under
fixed-price contracts, the Company agrees to perform the specified work for a pre-determined price. To the extent the Company’s
actual costs vary from the estimates upon which the price was negotiated, it will generate more or less profit or could incur a
loss. The Company accounts for a contract after it has been approved by all parties to the arrangement, the rights of the parties
are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.
Additionally, customer
payments received in advance of the Company completing performance obligations are recorded as contract liabilities. Customer deposits
represent customer prepayments and are recognized as revenue when the term of the sale or performance obligation are completed.
The Company’s
software subscriptions to its platforms, HempOverview and Ground Control, are offered on a subscription basis. These
subscription fees are recognized ratably over each monthly membership period as the services are provided.
As of June 30, 2022
and December 31, 2021, no one customer comprised more than 10% of the Company’s accounts receivable, net. For the three and
six months ended June 30, 2022 and 2021, no one customer comprised more than 10% of revenues.
Capitalized Software
Development Costs — Software development costs for software to be sold, leased or marketed are accounted for in accordance
with ASC Topic 985-20, Software — Costs of Software to be Sold, Leased or Marketed. Costs associated with the planning
and design phase of software development are classified as research and development costs and are expensed as incurred. Once technological
feasibility has been established, a portion of the costs incurred in development, including coding, testing and quality assurance,
are capitalized until available for general release to customers, and subsequently reported at the lower of unamortized cost or
net realizable value. Amortization is recorded per the individual technology software being released and is included in cost of
sales on the condensed consolidated statements of operations. Annual amortization is recognized on a straight-line basis over the
remaining economic life of the software (typically two years). Unamortized capitalized costs determined to be in excess of the
net realizable value of a solution are expensed at the date of such determination. As of June 30, 2022 and December 31, 2021, capitalized
software development costs, net of accumulated amortization, totaled $1,316,277 and $995,880, respectively, and are included in
intangibles, net on the condensed consolidated balance sheets.
AGEAGLE AERIAL SYSTEMS INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(UNAUDITED)
Note 2 – Summary of Significant
Accounting Policies-Continued
Internal-use Software
Costs — Internal-use software development costs are accounted for in accordance with ASC Topic 350-40, Internal-Use
Software. The costs incurred in the preliminary stages of development are expensed as research and development costs as incurred.
Once an application has reached the development stage, internal and external costs incurred to develop internal-use software are
capitalized and amortized on a straight-line basis over the estimated useful life of the software (typically three to five years).
Maintenance and enhancement costs, including those costs in the post-implementation stages, are typically expensed as incurred,
unless such costs relate to substantial upgrades and enhancements to the software that result in added functionality, in which
case the costs are capitalized and amortized on a straight-line basis over the estimated useful life of the software. The Company
reviews the carrying value for impairment whenever facts and circumstances exist that would suggest that assets might be impaired
or that the useful lives should be modified. Amortization expense related to capitalized internal-use software development costs
is included in general and administrative expenses on the condensed consolidated statements of operations. As of June 30, 2022
and December 31, 2021, capitalized software development costs for internal-use software of $659,906 and $278,264, respectively,
relate to the Company’s implementation of its enterprise resource planning (“ERP”) software, which was not yet
placed into service. Internal-use software costs and are included in intangibles, net on the condensed consolidated balance sheets.
Foreign Currency
— The Company translate assets and liabilities of its foreign subsidiary, senseFly S.A., to their U.S. dollar equivalents
at exchange rates in effect as of the balance sheet date. Translation adjustments are not included in determining net income but
are recorded in accumulated other comprehensive income (loss) on the condensed consolidated balance sheets. The Company
translates the condensed consolidated statements of operations and comprehensive loss of its foreign subsidiary at average exchange
rates for the applicable period. Foreign currency transaction gains and losses, arising primarily from changes in exchange rates
on foreign currency denominated revenues, certain purchases and intercompany transactions are recorded in other (expense)
income, net in the condensed consolidated statements of operations and comprehensive income.
Shipping Costs – All
shipping costs billed directly to the customer are directly offset to shipping costs resulting in a net expense to the Company,
which is included in cost of goods sold in the accompanying condensed consolidated statements of operations and comprehensive
loss. For the three and six months ended June 30, 2022 and 2021, shipping costs were $85,516 and $9,003, respectively, and $144,975
and $28,900, respectively.
Advertising Costs
– Advertising costs are charged to operations as incurred and presented in sales and marketing expenses in the condensed
consolidated statements of operations and comprehensive loss. For the three and six months ended June 30, 2022 and 2021, advertising
costs were $103,756 and $39,321, respectively, and $164,382 and $90,685, respectively.
Vendor Concentrations
– As of June 30, 2022 and December 31, 2021, there was one significant vendor that the Company relies upon to perform
certain services for the Company’s technology platform. This vendor provides services to the Company, which can
be replaced by alternative vendors should the need arise.
Loss
Per Common Share and Potentially Dilutive Securities – Basic
loss per share is computed by dividing net loss by the weighted average number of common
shares outstanding for the period. Diluted loss per share is computed by dividing net loss
by the weighted average number of common shares outstanding plus Common Stock, par value
$0.001
(“Common Stock”) equivalents (if dilutive) related to warrants, options,
and convertible instruments. For the three and six month ended June 30, 2022 and 2021, the
Company has excluded all common equivalent shares outstanding for restricted stock units
(“RSUs”) and options to purchase Common Stock from the calculation of diluted
net loss per share, because these securities are anti-dilutive for the periods presented.
As of June 30, 2022, the Company had 675,367
of unvested RSUs, 2,452,248
options outstanding to purchase shares of Common Stock, and 9,690 shares of Preferred
Stock, Series F Convertible into 16,129,032
shares of Common Stock, and 16,129,032
Common Stock warrants. As of December 31, 2021, the Company had 821,405
unvested RSUs and 2,541,667
options outstanding to purchase shares of Common Stock. See Note 7 — Equity.
Segment
Reporting – The Company operates in three segments: Drones and Custom Manufacturing, Sensors and Software-as-a Service (“SaaS”).
AGEAGLE AERIAL SYSTEMS
INC. AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2022 AND 2021
(UNAUDITED)
Note 2 – Summary of Significant
Accounting Policies-Continued
Accounting
Pronouncements – Adopted – During the first quarter of 2022,
the Company early adopted Accounting Standards Update (“ASU”) ASU 2020-06, Debt
– Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging
– Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”).
The update simplifies the accounting for convertible debt instruments and convertible preferred
stock by reducing the number of accounting models and limiting the number of embedded conversion
features separately recognized from the primary contract. The guidance also includes targeted
improvements to the disclosures for convertible instruments and earnings per share. For
smaller reporting companies, ASU 2020-06 is effective for fiscal years beginning after
December 15, 2023, including interim periods within
those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning
after December 15, 2020. The Company adopted ASU 2020-06 in the first quarter of 2022 using
the modified retrospective method. Prior to its adoption of ASU 2020-06, the Company did
not have financial instruments that would have required a cumulative effect to be recognized
as an adjustment to its opening balance of accumulated deficit.
New Accounting
Pronouncements – Pending — In March 2022, the FASB issued Accounting Standards Update (“ASU”) No. 2022-02,
Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”),
which addresses areas identified by the FASB as part of its post-implementation review of its previously issued credit losses standard,
ASU 2016-13, that introduced the Current Expected Credit Loss (“CECL”) model. ASU 2022-02 eliminates the accounting
guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhances disclosure requirements for
certain loan refinancings and restructurings made with borrowers experiencing financial difficulty. In addition, ASU 2022-02 requires
a public business entity to disclose current-period gross write-offs for financing receivables and net investment in leases by
year of origination in the vintage disclosures. ASU 2022-02 is effective for the fiscal years beginning after December 15, 2022
and for periods within those fiscal years. Early adoption is permitted. The adoption of ASU 2022-02 is not expected to have a material
impact on the Company’s consolidated financial statements.
Other recent accounting
pronouncements issued by FASB did not or are not believed by management to have a material impact on the Company’s present
or future consolidated financial statements.
Note 3 – Balance Sheets
Accounts Receivable, net
As of June 30, 2022
and December 31, 2021, accounts receivable, net consist of the following:
Schedule of accounts receivable, net |
|
|
|
|
|
|
|
|
|
|
June
30, 2022 |
|
December
31, 2021 |
Accounts receivable |
|
$ |
3,787,376 |
|
|
$ |
2,918,435 |
|
Less: Provisions for doubtful accounts |
|
|
(23,985 |
) |
|
|
(29,556 |
) |
Accounts receivable, net |
|
$ |
3,763,391 |
|
|
$ |
2,888,879 |
|
AGEAGLE AERIAL SYSTEMS
INC. AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2022 AND 2021
(UNAUDITED)
Note 3 – Balance
Sheets-Continued
Inventories, Net
As of June 30, 2022
and December 31, 2021, inventories, net consist of the following:
Schedule
Of Inventories | |
| | | |
| | |
| |
June
30, 2022 | |
December
31, 2021 |
Raw
materials | |
$ | 2,500,642 | | |
$ | 2,862,293 | |
Work-in process | |
| 466,994 | | |
| 647,829 | |
Finished
goods | |
| 2,995,773 | | |
| 833,785 | |
Gross
inventories | |
| 5,963,409 | | |
| 4,343,907 | |
Less:
Provision for obsolescence | |
| (315,009 | ) | |
| (305,399 | ) |
Inventories,
net | |
$ | 5,648,400 | | |
$ | 4,038,508 | |
Property and Equipment, Net
As of June 30, 2022
and December 31, 2021, property and equipment, net consist of the following:
Schedule Of Property and Equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated |
|
|
|
|
Useful |
|
|
|
|
Life |
|
June
30, |
|
December
31, |
Type |
|
(Years) |
|
2022 |
|
2021 |
Leasehold improvements |
|
|
3 |
|
|
$ |
106,837 |
|
|
$ |
81,993 |
|
Production tools and equipment |
|
|
4-5 |
|
|
|
303,536 |
|
|
|
417,779 |
|
Computer and office equipment |
|
|
3-5 |
|
|
|
575,214 |
|
|
|
559,110 |
|
Furniture |
|
|
5 |
|
|
|
79,590 |
|
|
|
77,971 |
|
Drone equipment |
|
|
3 |
|
|
|
282,436 |
|
|
|
95,393 |
|
Total
Property and equipment |
|
|
|
|
|
|
1,347,613 |
|
|
|
1,232,246 |
|
Less: Accumulated depreciation |
|
|
|
|
|
|
(504,907 |
) |
|
|
(280,118 |
) |
Total Property and equipment, net |
|
|
|
|
|
$ |
842,706 |
|
|
$ |
952,128 |
|
AGEAGLE AERIAL SYSTEMS INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2022 AND 2021
(UNAUDITED)
Note 3 – Balance Sheets-Continued
For the three and
six months ended June 30, 2022 and 2021, depreciation expense is classified within the condensed consolidated statements of operations
and comprehensive loss as follows:
Schedule of statements
of operations and comprehensive loss | |
| | | |
| | | |
| | | |
| | |
| |
For
the Three Months Ended June 30, | |
For
the Six Months Ended June 30, |
Type | |
2022 | |
2021 | |
2022 | |
2021 |
Cost
of sales | |
$ | 70,463 | | |
$ | — | | |
$ | 135,306 | | |
$ | — | |
General
and administrative | |
| 43,941 | | |
| 34,321 | | |
| 89,833 | | |
| 54,055 | |
Total | |
$ | 114,404 | | |
$ | 34,321 | | |
$ | 225,139 | | |
$ | 54,055 | |
Intangible Assets, net
As of June 30, 2022
and December 31, 2021, intangible assets, net, other than goodwill, consist of following:
Schedule of intangible assets, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
|
Estimated
Life (Years) |
|
Balance
as of December 31, 2021 |
|
Additions |
|
Amortization |
|
Balance as
of June 30, 2022 |
Intellectual property/technology |
|
|
5-7 |
|
|
$ |
5,427,294 |
|
|
$ |
— |
|
|
$ |
(447,824 |
) |
|
$ |
4,979,470 |
|
Customer base |
|
|
3-10 |
|
|
|
4,047,319 |
|
|
|
— |
|
|
|
(576,032 |
) |
|
|
3,471,287 |
|
Tradenames and trademarks |
|
|
5-10 |
|
|
|
1,985,236 |
|
|
|
— |
|
|
|
(109,792 |
) |
|
|
1,875,444 |
|
Non-compete agreement |
|
|
2-4 |
|
|
|
831,501 |
|
|
|
— |
|
|
|
(254,488 |
) |
|
|
577,013 |
|
Platform development costs |
|
|
3 |
|
|
|
995,880 |
|
|
|
509,982 |
|
|
|
(189,585 |
) |
|
|
1,316,277 |
|
Internal use software costs |
|
|
3 |
|
|
|
278,264 |
|
|
|
420,460 |
|
|
|
(38,817 |
) |
|
|
659,907 |
|
Total intangibles assets, net |
|
|
|
|
|
$ |
13,565,494 |
|
|
$ |
930,442 |
|
|
$ |
(1,616,538 |
) |
|
$ |
12,879,398 |
|
As
of June 30, 2022, the weighted average remaining amortization period in years is 5.06. For
the three and six months ended June 30, 2022 and 2021, amortization expense was $851,284
and $1,616,538,
respectively, and $288,065
and $400,821,
respectively.
For the following
years ending, the future amortization expenses consist of the following:
Schedule of future amortization expenses | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
For
the Years Ending December 31, |
| |
(rest
of year) 2022 | |
2023 | |
2024 | |
2025 | |
2026 | |
Thereafter | |
Total |
Intellectual
property/ technology | |
$ | 447,824 | | |
$ | 866,755 | | |
$ | 808,968 | | |
$ | 808,968 | | |
$ | 808,968 | | |
$ | 1,237,987 | | |
$ | 4,979,470 | |
Customer
base | |
| 576,031 | | |
| 1,147,263 | | |
| 889,364 | | |
| 141,145 | | |
| 141,145 | | |
| 576,339 | | |
| 3,471,287 | |
Tradenames
and trademarks | |
| 109,792 | | |
| 215,704 | | |
| 207,944 | | |
| 207,944 | | |
| 207,944 | | |
| 926,116 | | |
| 1,875,444 | |
Non-compete
agreement | |
| 241,080 | | |
| 335,933 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 577,013 | |
Platform
development costs | |
| 280,115 | | |
| 560,229 | | |
| 385,402 | | |
| 90,531 | | |
| — | | |
| — | | |
| 1,316,277 | |
Internal
use software costs | |
| 116,454 | | |
| 232,908 | | |
| 232,908 | | |
| 77,637 | | |
| — | | |
| — | | |
| 659,907 | |
Total
Intangible Assets, Net | |
$ | 1,771,296 | | |
$ | 3,358,792 | | |
$ | 2,524,586 | | |
$ | 1,326,225 | | |
$ | 1,158,057 | | |
$ | 2,740,442 | | |
$ | 12,879,398 | |
Accrued Expenses
As of June 30, 2022
and December 31, 2021, accrued expenses consist of the following:
Schedule of accrued expenses |
|
|
|
|
|
|
|
|
|
|
June 30, 2022 |
|
December 31, 2021 |
Accrued compensation and related liabilities |
|
$ |
822,065 |
|
|
$ |
1,039,979 |
|
Accrued professional fees |
|
|
476,404 |
|
|
|
267,949 |
|
Provision for warranty expense |
|
|
274,435 |
|
|
|
286,115 |
|
Other |
|
|
— |
|
|
|
307,598 |
|
Total accrued expenses |
|
$ |
1,572,904 |
|
|
$ |
1,901,641 |
|
AGEAGLE AERIAL SYSTEMS INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(UNAUDITED)
Note 4 – Notes Receivable
Valqari
On October 14, 2020, in
connection with, and as an incentive to the entry into a two-year exclusive manufacturing agreement (the “Manufacturing
Agreement”) to produce a patented Drone Delivery Station for Valqari, LLC (“Valqari), the Company entered
into, as payee, a Convertible Promissory Note pursuant to which the Company made a loan to Valqari in the principal aggregate amount
of $500,000 (the “Note”). The Note accrues interest at a rate of three percent per annum.
The Note matured on April
15, 2021 (the “Maturity Date”), at which time all outstanding principal and interest that had accrued, but remained,
unpaid was due. On the Maturity Date, AgEagle demanded payment of the Note, including accrued interest, however, Valqari alleged
that the Maturity Date was extended to October 14, 2021 (“Extended Maturity Date”) as the Note provided for an automatic
six-month extension of the Maturity Date under certain circumstances within the terms and conditions of the Note. Upon the Extended
Maturity Date, AgEagle demanded payment of the Note, including accrued interest; however, Valqari sought a substantial discount
on the amount due under the Note to compensate for alleged breaches by AgEagle under the Manufacturing Agreement. AgEagle disputes
the allegations of breach and believes that it is owed a net amount by Valqari under the Manufacturing Agreement, in addition to
the amount due under the Note. On November 24, 2021, Valqari made a payment of principal on the Note of $315,000. The parties continue
to negotiate in an attempt to reach an amicable resolution of their disputes; however, AgEagle reserves the right to take legal
action to collect the Note in the event that a settlement is not reached. As of June 30, 2022 and December 31, 2021, the balance
remaining under the Note is $185,000.
MicaSense
On November 16, 2020,
and in connection with its January 27, 2021 acquisition of 100% of the capital stock of MicaSense (“MicaSense Acquisition),
AgEagle, as payee, executed a promissory note with Parrot Drones S.A.S. (“Parrot”) in the principal amount of $100,000.
The principal amount owed by Parrot was offset and reduced by all amounts paid or due in connection with the purchase price upon
closing of the MicaSense Acquisition.
senseFly
On
August 25, 2021, and in connection with its acquisition of 100% of the capital stock of senseFly (the senseFly Acquisition”)
from Parrot, AgEagle Aerial, as payee, executed a promissory note in the principal amount of $200,000. The principal amount owed
by Parrot was off-set and reduced by all amounts paid or due in connection with the purchase price upon closing of the senseFly
Acquisition.
Note 5 –
Business Acquisitions
During the year ended
December 31, 2021, the Company acquired 100% of the outstanding capital stock of MicaSense, Measure and senseFly, respectively.
The financial results for each of these acquisitions are included in the condensed consolidated financial statements beginning
on their respective acquisition dates.
There were no transaction
costs related to business combinations for the three and six months ended June 30, 2022. For the three and six months ended June
30, 2021, transaction costs related to business combinations were $185,703 and $333,467, respectively.
Transaction costs
related to business combinations are included within general and administrative expense on the condensed consolidated statements
of operations and comprehensive loss.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(UNAUDITED)
Note 5 –
Business Acquisitions-Continued
MicaSense
On January 27, 2021 (the
“MicaSense Acquisition Date”), the Company entered into a stock purchase agreement (the “MicaSense Purchase Agreement”)
with Parrot and Justin B. McAllister (collectively the “MicaSense Sellers”) pursuant to which the Company agreed to acquire
100% of the issued and outstanding capital stock of MicaSense from the MicaSense Sellers (the “MicaSense Acquisition”). The
aggregate purchase price for the shares of MicaSense was $23,000,000, less any debt, and subject to a customary working capital adjustment.
A portion of the consideration comprises shares of Common Stock of the Company, having an aggregate value of $3,000,000 based on a volume
weighted average trading price of the Common Stock over a ten consecutive trading day period prior to the date of issuance of the shares
of Common Stock to the MicaSense Sellers. On April 27, 2021 the Company issued 540,541 restricted shares of its Common Stock. The consideration
is also subject to a remaining holdback amount of $2,375,000 as of June 30, 2022 to cover any post-closing indemnification claims and
to satisfy any purchase price adjustments. The holdback was scheduled to be released in two equal installments, less any amounts paid
or reserved for outstanding indemnity claims, on March 31, 2022 and March 31, 2023. The first installment of $2,375,000 was paid on March
31, 2022. See Note 11 – Subsequent Events.
On May 10, 2021,
the Company filed a Form S-3 Registration Statement (the “MicaSense Registration Statement”) with the Securities and
Exchange Commission (“SEC”), covering the resale of the Shares. The MicaSense Registration Statement was declared effective
on June 1, 2021 (File Number: 333-255940). In addition, the Company shall use its best efforts to keep the MicaSense Registration
Statement effective and in compliance with the provisions of the Securities Act (including by preparing and filing with the SEC
such amendments, including post-effective amendments, and supplements to the MicaSense Registration Statement and the prospectus
used in connection therewith as may be necessary) until all Shares and other securities covered by the MicaSense Registration Statement
have been disposed. The MicaSense Sellers reimbursed the Company for reasonable legal fees and expenses incurred by the Company
in connection with such registration.
The MicaSense Purchase
Agreement contains certain customary representations, warranties, and covenants, including representations and warranties by the
MicaSense Sellers with respect to MicaSense’s business, operations and financial condition. The MicaSense Purchase Agreement
also includes post-closing covenants relating to the confidentiality and employee non-solicitation obligations of the MicaSense
Sellers, and the agreement of the MicaSense Sellers not to compete with certain aspects of the business of MicaSense following
the closing of the transaction. The completion of the transactions contemplated by the MicaSense Purchase Agreement is subject
to customary closing conditions, including, among others: (i) the absence of a material adverse effect on MicaSense, (ii) the delivery
by the parties of certain ancillary documents, including the registration Rights Agreement, and (iii) the execution by a key employee
of MicaSense of an employment agreement. Subject to certain limitations, each of the parties will be indemnified for damages resulting
from third party claims and breaches of the parties’ respective representations, warranties, and covenants in the MicaSense
Purchase Agreement.
The Company performed
a valuation analysis of the fair market value of the assets acquired and liabilities assumed. Using the total consideration for
the MicaSense Acquisition, the Company determined the allocations to such assets and liabilities. The final purchase price allocation,
and the necessary detailed valuations and calculations have been finalized.
The following table
summarizes the allocation of the purchase price as of the MicaSense Acquisition Date:
Schedule of allocation preliminary purchase price | |
| | |
Net purchase price, including debt paid at close | |
$ | 23,375,681 | |
| |
| | |
Plus: fair value of liabilities assumed: | |
| | |
Current liabilities | |
| 702,925 | |
Fair value of liabilities assumed | |
$ | 702,925 | |
| |
| | |
Less: fair value of assets acquired: | |
| | |
Cash | |
$ | 885,273 | |
Other tangible assets | |
| 1,165,666 | |
Identifiable intangible assets | |
| 3,061,803 | |
Fair value of assets acquired | |
$ | 5,112,742 | |
| |
| | |
Net nonoperating assets | |
| 25,000 | |
Adjustments for seller transaction expenses related to purchase price allocation | |
| 32,032 | |
Goodwill | |
$ | 18,972,896 | |
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(UNAUDITED)
Note 5 –
Business Acquisitions-Continued
Measure
On April 19, 2021
(the “Measure Acquisition Date”), the Company entered into a stock purchase agreement (the “Measure Purchase
Agreement”) with Brandon Torres Declet (“Mr. Torres Declet”), in his capacity as Measure Sellers’ representative,
and the sellers named in the Measure Purchase Agreement (the “Measure Sellers”) pursuant to which the Company
agreed to acquire 100% of the issued and outstanding capital stock of Measure from the Measure Sellers (the “Measure Acquisition”).
The aggregate purchase price for the shares of Measure is $45,000,000, less the amount of Measure’s debt and transaction
expenses, and subject to a customary working capital adjustment. The purchase price comprised $15,000,000 in cash, and shares of
Common Stock of the Company, having an aggregate value of $30,000,000 based on a volume weighted average trading price of the Common
Stock over a seven consecutive trading day period prior to the date of issuance of the shares of Common Stock to the Measure Sellers. The
Company issued 5,319,145 shares of Common Stock, in the aggregate, to the Measure Sellers, and paid $5,000,000 of the cash portion
of the purchase price ninety days after the closing date of the transaction. As of December 31, 2021, the Company completed
the payment of the cash portion of the purchase price. The consideration is also subject to a $5,625,000 holdback to cover any
post-closing indemnification claims and to satisfy any purchase price adjustments. The holdback is scheduled to be released October
19, 2022, 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 and the detailed valuations and necessary have been completed.
The following table
summarizes the allocation of the purchase price as of the Measure Acquisition Date:
Schedule of allocation preliminary purchase price | |
| | |
Net
purchase price, including debt paid at close | |
$ | 45,403,394 | |
| |
| | |
Plus:
fair value of liabilities assumed: | |
| | |
Deferred
revenue | |
| 319,422 | |
Other
tangible liabilities | |
| 272,927 | |
Fair
value of liabilities assumed | |
$ | 592,349 | |
| |
| | |
Less:
fair value of assets acquired: | |
| | |
Cash | |
| 486,544 | |
Other
tangible assets | |
| 312,005 | |
Identifiable
intangibles | |
| 2,668,689 | |
| |
| | |
Fair
value of assets acquired | |
$ | 3,467,238 | |
| |
| | |
Net
nonoperating assets | |
| 39,775 | |
Goodwill | |
$ | 42,488,730 | |
On April 19, 2022,
in accordance with the terms of the Measure Purchase Agreement, the Company delivered a notice of indemnification to the representative
of the Measure Sellers seeking the right to set off certain operating losses from the holdback amount. The Company is claiming
that the operating losses incurred by Measure from the Measure Acquisition date through April 19, 2022, resulted from breaches
of certain representations and warranties made by the Measure Sellers. The Company is claiming that it has sustained operating
losses in excess of $13 million as a result of the Measure Sellers’ breaches and has claimed the entire holdback amount to
be applied against these operating losses. The Company has commenced settlement negotiations with the Measure Sellers. The Company
intends to vigorously pursue what it believes are meritorious claims and defend its rights under the Measure Purchase Agreement,
but Company management is unable to provide assurance as to the ultimate outcome of these claims.
AGEAGLE AERIAL SYSTEMS INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(UNAUDITED)
Note 5 –
Business Acquisitions-Continued
senseFly
On October 18, 2021
(the “senseFly Acquisition Date”), the Company entered into a stock purchase agreement (the “senseFly S.A. Purchase
Agreement”) with Parrot pursuant to which the Company acquired 100% of the issued and outstanding capital stock of senseFly
S.A. from Parrot. The aggregate purchase price for the shares of senseFly S.A. is $21,000,000, less the amount of senseFly S.A.’s
debt and subject to a customary working capital adjustment. The consideration is also subject to a $4,565,000 holdback to cover
any post-closing indemnification claims and to satisfy any purchase price adjustments. 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. See Note 11 – Subsequent Events.
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. See Note 11 – Subsequent Events.
A portion of the
consideration under the senseFly S.A. Purchase Agreement comprises shares of Common Stock of the Company, par value $0.001, having
an aggregate value of $3,000,000, based on a volume weighted average trading price of the Common Stock over a ten consecutive trading
day period prior to the date of issuance of the shares of Common Stock to Parrot. The shares of Common Stock are issuable ninety
days after the closing date of the transaction. In accordance with the terms of the senseFly S.A. Purchase Agreement, the Company
issued 1,927,407 shares of Common Stock to Parrot.
Pursuant to the terms
of the senseFly S.A. Purchase Agreement and a Registration Rights Agreement, dated as of October 19, 2021, the Company filed a
Form S-3 Registration Statement (the “senseFly Registration Statement”) with the SEC covering the resale of the Common
Stock issued to Parrot. The senseFly Registration Statement was declared effective on February 9, 2022. The Company agreed to use
its best efforts to keep the senseFly Registration Statement effective and in compliance with the provisions of the Securities
Act (including by preparing and filing with the SEC such amendments, including post-effective amendments, and supplements to the
senseFly Registration Statement and the prospectus used in connection therewith as may be necessary) until all the shares of Common
Stock and other securities issued to Parrot and covered by such Registration Statement have been disposed. Parrot reimbursed the
Company $50,000 for reasonable legal fees and expenses incurred by the Company in connection with such registration.
Parrot granted to
senseFly S.A. a non-exclusive worldwide perpetual license, subject to certain termination rights of the parties, with respect to
certain technology used in the fixed-wing drone manufacturing business of senseFly S.A.
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.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(UNAUDITED)
Note 5 –
Business Acquisitions-Continued
The following table
summarizes the allocation of the preliminary purchase price as of the senseFly Acquisition Date:
Schedule of allocation preliminary purchase price |
|
|
|
|
Net purchase price |
|
$ |
20,774,526 |
|
|
|
|
|
|
Plus: fair value of liabilities assumed: |
|
|
|
|
Current liabilities |
|
|
3,913,386 |
|
Defined benefit plan obligation |
|
|
278,823 |
|
Debt assumed at close |
|
|
2,461,721 |
|
Fair value of liabilities assumed |
|
$ |
6,653,930 |
|
|
|
|
|
|
Less: fair value of assets acquired: |
|
|
|
|
Cash |
|
|
859,044 |
|
Other tangible assets |
|
|
6,327,641 |
|
Identifiable intangible assets |
|
|
7,335,570 |
|
Fair value of assets acquired |
|
$ |
14,522,255 |
|
|
|
|
|
|
Net nonoperating assets |
|
|
250,624 |
|
Goodwill |
|
$ |
12,655,577 |
|
Liabilities Related to Business
Acquisition Agreements
As of June 30, 2022
and December 31, 2021, liabilities related to business acquisition agreements consist of the following:
Schedule of liabilities related to acquisition agreements |
|
|
|
|
|
|
|
|
|
|
June
30, 2022 |
|
December
31, 2021 |
Holdback related to MicaSense Acquisition Agreement |
|
$ |
2,375,000 |
|
|
$ |
4,821,512 |
|
Holdback related to Measure Acquisition |
|
|
5,625,000 |
|
|
|
5,625,000 |
|
Holdback related to senseFly Acquisition |
|
|
5,000,000 |
|
|
|
8,489,989 |
|
Total acquisition agreement related liabilities |
|
|
13,000,000 |
|
|
|
18,936,501 |
|
Less: Current portion business acquisition agreement-related liabilities |
|
|
(9,000,000 |
) |
|
|
(10,061,501 |
) |
Long term portion of business acquisition agreement-related liabilities |
|
$ |
4,000,000 |
|
|
$ |
8,875,000 |
|
See Note 11 –
Subsequent Events.
As of June 30, 2022,
scheduled future maturities of the Company’s business acquisition related liabilities consist of the following:
Scheduled Of future maturities business-acquisition |
|
|
|
|
|
Year
ending December 31, |
|
|
2022 (rest of year) |
|
|
$ |
9,000,000 |
|
2023 |
|
|
|
4,000,000 |
|
Total |
|
|
$ |
13,000,000 |
|
Pro-Forma Information
The unaudited pro-forma
information for the three and six months ended June 30, 2021 was calculated after applying the Company’s accounting policies
and the impact of acquisition date fair value adjustments. The pro-forma financial information presents the combined results of
operations of the 2021 Business Acquisitions as if they had occurred on January 1, 2021 after giving to certain pro-forma adjustments.
The pro-forma adjustments reflected herein include only those adjustments that are factually supportable and directly attributable
to the acquisition.
AGEAGLE AERIAL SYSTEMS INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(UNAUDITED)
Note 5 –
Business Acquisitions-Continued
For the three and
six months ended June 30, 2021, pro-forma information is as follows:
Schedule of pro-forma information |
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30, 2021 |
|
Six
Months Ended June 30, 2021 |
Revenues |
|
$ |
4,955,402 |
|
|
$ |
9,493,427 |
|
Net Loss |
|
$ |
6,019,501 |
|
|
$ |
11,422,678 |
|
Note 6 – COVID Loans
On
March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was enacted, which included amongst
its many provisions, the creation of the Paycheck Protection Program (“PPP”). As part of the PPP, qualifying
businesses were eligible to receive Small Business Administration (“SBA”) loans for use by such businesses for funding
payroll, rent and utilities during a designed twenty-four week period through October 21, 2020 (“PPP Loan”). PPP Loans
are unsecured, nonrecourse, accrue interest at a rate of one percent per annum, and mature on May 6, 2022. A portion or all of
a PPP Loan is forgivable to the extent that an eligible business meets its obligations under the PPP. Additionally, any amounts
owed, including unforgiven amounts under the PPP, are payable over two years, though may be extended up to five years upon approval
by the SBA.
On May 6, 2020, AgEagle
received a PPP Loan in the amount of $107,439. During the quarter ended June 30, 2021, the outstanding principal and accrued interest
under the PPP Loan were forgiven by the SBA.
In connection with
the senseFly Acquisition, the Company assumed the obligations for two COVID Loans originally made by the SBA to senseFly S.A. on
July 27, 2020 (“senseFly COVID Loans”). For the three and six months ended June 30, 2022, no payments of principal
and interest were required. As of June 30, 2022 and December 31, 2021, the Company’s outstanding obligations under the senseFly
COVID Loans were $1,208,479 and $1,259,910, respectively.
As of June 30, 2022, scheduled principal
payments due under the senseFly COVID Loans are as follows:
Schedule of debt disclosure |
|
|
|
|
|
Year
ending December 31, |
|
|
2022 (rest of year) |
|
|
$ |
388,316 |
|
2023 |
|
|
|
431,501 |
|
2024 |
|
|
|
86,370 |
|
2025 |
|
|
|
86,370 |
|
2026 |
|
|
|
86,370 |
|
Thereafter |
|
|
|
129,552 |
|
Total |
|
|
$ |
1,208,479 |
|
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(UNAUDITED)
Note 7 – Equity
Preferred Series F Convertible
Stock
On June 26, 2022 (the “Series
F Closing Date”), the Company entered into a Securities Purchase Agreement (the “Series F Agreement”) with Alpha Capital
Anstalt (“Alpha”). Pursuant to the terms of the Series F Agreement, the Board of Directors of the Company (the “Board”)
designated a new series of Preferred Stock, the Series F 5% Preferred Convertible Stock (“Series F”), and authorized the
sale and issuance of up to 35,000 shares of Series F. The Company issued to Alpha 10,000 shares of Series F for an aggregate purchase
price and gross proceeds of $10,000,000. The shares of Series F are convertible into 16,129,032 shares of Common Stock at $0.62 per share.
Alpha will be entitled to receive cumulative dividends at the rate per share (as a percentage of the $1,000 stated par value per share
of Series F) of 5% per annum, payable on January 1, April 1, July 1 and October 1, beginning on the first conversion date and subsequent
conversion dates.
In connection with
the Series F Agreement the Company issued a warrant to Alpha to purchase 16,129,032 shares of Common Stock, par value $0.001 per
share (“Series F Warrant”) with an exercise price equal to $0.96 per share of Common Stock. The Series F Warrant, and
the shares of Common Stock underling the Series F Warrant are collectively referred to as the “Series F Warrant Shares”.
The Series F Warrant is not exercisable for the first six months after its issuance and has a three-year term from its exercise
date. Upon exercise of the Series F Warrants in full by Alpha, the Company would receive additional gross proceeds of approximately
$10,000,000.
Alpha has the right,
subject to certain conditions, including shareholder approval, to purchase up to $25,000,000 of additional shares of Series F and
Series F Warrants (collectively the “Series F Option”). The Series F Option will be available for a period of eighteen
months after such shareholder approval at a purchase price equal to the average of the volume weighted average price for three
trading days prior to the date that Alpha gives notice to the Company that it will exercise the Series F Option.
Commencing from the
Series F Closing Date and for a period of six months thereafter, upon any issuance by the Company or any of its Subsidiaries of
Common Stock or Common Stock equivalents for cash consideration, indebtedness or a combination of units thereof (a “Subsequent
Financing”), Alpha will have the right to participate in up to an amount of the Subsequent Financing equal to 50% of the
Subsequent Financing on the same terms, conditions and price provided for in the Subsequent Financing.
The Preferred Stock
has no voting rights, except that the Company shall not undertake certain corporate actions as set forth in the Certificate of
Designation that would materially impact the holders of Preferred Stock without their consent.
As
of June 30, 2022, Alpha had converted 310 shares of Series F into 500,000 shares of Common Stock. See Note 11 – Subsequent Events.
AGEAGLE
AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(UNAUDITED)
Note 7 – Equity-Continued
Capital Stock Issuances
Issuance of Common Stock to Officers
and Directors
For the three months
ended June 30, 2022, shares were issued in connection with options previously granted as a total of 75,000 stock options were exercised
to purchase Common Stock at an average per share price of $0.41 per share of Common Stock.
On June 13, 2022, the Company
issued 302,024 shares of Common Stock to its former chief executive officer, Mr. Brandon Torres Declet (“Mr. Torres Declet”).
This issuance of Common Stock included 147,917 shares for previously vested RSUs, 111,607 shares as agreed upon in a separation agreement
with Mr. Torres Declet, and 42,500 shares in satisfaction of a performance bonus approved
by the Compensation Committee of the Board of Directors. See Note 9 – Commitments and Contingencies.
At-the-Market
Sales Agreement
In accordance with
a May 25, 2021 at-the-market Sales Agreement with Stifel, Nicolaus & Company, Incorporated and Raymond James & Associates,
Inc. as sales agents, during the three and six months ended June 30, 2022, the Company sold 4,251,151 shares of Common Stock at
a share price between $1.04 and $1.18, for aggregate proceeds of $4,583,341, net of issuance costs of $141,754.
Consulting Agreement
On May 3, 2019, the
Company entered into a consulting agreement with GreenBlock Capital LLC (“Consultant”) for purposes of advising on
certain business opportunities. On October 31, 2019, the consulting agreement
was terminated; however, the Consultant continued to be entitled to receive up to 2,500,000 restricted Common Stock after termination
of the consulting agreement, if the achievement of milestones that commenced during the term of the consulting agreement were completed
within twenty-four months. Subsequent to the aforementioned termination of the consulting agreement, the
Consultant sent a demand letter to the Company alleging a breach of this agreement due to the Company’s non-issuance of additional
restricted shares of its Common Stock in connection with the Consultant’s alleged achievement of the milestones. As of December
31, 2020, and as a result of this demand, the Company recorded a contingent loss of $1,500,000, based upon the fair market value
of $6.00 per share of its Common Stock, which was recorded within professional fees on the condensed consolidated statements of
operations and comprehensive loss. For the three and six months ended June 30, 2021, the Company recorded additional stock-based
compensation expense of $1,407,000, which reflected the issuance of 550,000 additional restricted shares of Common Stock that were
subsequently issued on May 12, 2021, which resulted in a liability amount of $2,907,000 for purposes of payment of the settlement.
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 from the sale of the securities under the December Purchase
Agreement were $6,313,943, net of issuance costs.
Securities Purchase
Agreement Dated August 4, 2020 / Exercise of Warrants
On August 4, 2020,
the Company and an Investor entered into a securities purchase agreement (the “August Purchase Agreement”) pursuant
to which the Company agreed to sell to the Investor in a registered direct offering 3,355,705 shares of Common Stock and warrants
to purchase up to 2,516,778 shares of Common Stock at an exercise price of $3.30 per share (the “August Warrants”),
for proceeds of $9,900,000, net of issuance costs of $100,000. Upon exercise of the Warrants in full by the Investor, the Company
would receive additional gross proceeds of $8,305,368. The shares of Common Stock of the Company underlying the Warrants are referred
to as “August Warrant Shares.”
The purchase price
for each share of Common Stock is $2.98. Net proceeds from the sale were used for working capital, capital expenditures and general
corporate purposes. The shares of Common Stock, the August Warrants and the August Warrant Shares were offered by the Company pursuant
to an effective shelf registration statement on Form S-3 (File No. 333-239157), which was declared effective on June 19, 2020.
On February 8, 2021, the Company received $8,305,368 in additional gross proceeds associated with the exercise of all of the August
Warrants.
Stock-Based Compensation
The Company determines
the fair value of awards granted under the Equity Plan based on the fair value of its Common Stock on the date of grant. Stock-based
compensation expenses related to grants under the Equity Plan are included in general and administrative expenses on the condensed
consolidated statements of operations and comprehensive loss.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(UNAUDITED)
Note 7 – Equity-Continued
Restricted Stock
Units
For the six months
ended June 30, 2022, a summary of RSU activity is as follows:
Schedule of restricted stock unit activity |
|
|
|
|
|
|
|
|
|
|
Shares |
|
Weighted
Average Grant Date Fair Value |
Outstanding as of December 31, 2021 |
|
|
1,147,250 |
|
|
$ |
3.78 |
|
Granted |
|
|
440,841 |
|
|
|
1.20 |
|
Canceled |
|
|
(106,000 |
) |
|
|
2.86 |
|
Vested and released |
|
|
(354,107 |
) |
|
|
3.02 |
|
Outstanding as of June 30, 2022 |
|
|
1,127,984 |
|
|
$ |
3.10 |
|
Vested as of June 30, 2022 |
|
|
452,617 |
|
|
$ |
4.01 |
|
Unvested as of June 30, 2022 |
|
|
675,367 |
|
|
$ |
2.48 |
|
For the six months
ended June 30, 2022, the aggregate fair value of RSUs at the time of vesting was $527,699.
As of June 30, 2022,
the Company had approximately $910,000 of unrecognized stock-based compensation expense related to RSUs, which will be amortized
over approximately sixteen months.
For the six months
ended June 30, 2021, a summary of RSU activity is as follows:
|
|
Shares |
|
Weighted
Average Grant Date Fair Value |
Outstanding as of December 31, 2020 |
|
|
100,000 |
|
|
$ |
1.34 |
|
Granted |
|
|
631,402 |
|
|
|
5.31 |
|
Canceled |
|
|
(91,667 |
) |
|
|
5.40 |
|
Vested and released |
|
|
(100,000 |
) |
|
|
1.34 |
|
Outstanding as of June 30, 2021 |
|
|
539,753 |
|
|
$ |
5.30 |
|
Vested as of June 30, 2021 |
|
|
323,067 |
|
|
$ |
5.23 |
|
Unvested as of June 30, 2021 |
|
|
216,668 |
|
|
$ |
5.40 |
|
For the six months
ended June 30, 2021, the aggregate fair value of RSUs at the time of vesting was $3,353,162.
Issuance of RSUs
to Officers
On
April 11, 2022, the Company granted an officer 46,367 RSUs, which vested immediately.
For the three and six months ended June 30, 2022, the Company recognized stock-based compensation expense of $46,831, based
upon the market price of its Common Stock of $1.01 per share on the date of grant of these RSUs. Additionally, on the same date,
the Company granted the same officer 46,367 RSUs, which vest over a period from the date of grant through the first anniversary
of the senseFly Acquisition Date. For the three and six months ended June 30, 2022, the Company recognized stock-based compensation
expense of $19,757, based upon the market price of its Common Stock of $1.01 per share on the date of grant of these RSUs.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(UNAUDITED)
Note 7 – Equity-Continued
On
March 1, 2022, the Company granted an officer a grant of 62,500 RSUs, which vested immediately. For the six months ended June
30, 2022, the Company recognized stock-based compensation expense of $68,750, based upon the market price of its Common Stock of $1.10
per share on the date of grant of these RSUs.
On
January 21, 2022, the Company granted a former chief executive officer a grant of 111,607
RSUs, which vested immediately. For the six months ended June 30, 2022, the Company recognized stock-based compensation
expense of $125,000, based upon the market price of its Common Stock of $1.12 per share on the date of grant of these RSUs. Additionally,
on January 24, 2022, the Company granted to this former chief executive officer 42,500 RSUs, which vested immediately. For the
three and six months ended June 30, 2022, the Company recognized stock-based compensation expense of $0 and $48,025, respectively,
based upon the market price of its Common Stock of $1.13 per share on the date of grant of these RSUs.
On
January 1, 2022, the Company issued to an officer two grants of 50,000 RSUs each. These two grants vest over nine and twenty-one
months, respectively, from the date of grant. For the three and six months ended June 30, 2022, the Company recognized stock-based
compensation expense of $37,250 and $74,091, based upon the market price of its Common Stock of $1.57 per share on the date of
grant of these RSUs.
On
May 24, 2021, the Company issued to a former chief executive officer a grant of 26,652 RSUs as part of a separation agreement. This award
was valued at $125,000 and vested immediately. For the three and six months ended June
30, 2021, the Company recognized stock-based compensation expense of $125,000 based upon the market price of its Common Stock of
$4.69 per share on the date of grant of these RSUs.
On
March 5, 2021, the Company issued to an officer a grant of 10,000 RSUs, which vested immediately.
For the six months ended June 30, 2021, the Company recognized stock-based compensation expense of $58,400 based upon the
market price of its Common Stock of $5.84 per share on the date of grant of these RSUs.
AGEAGLE AERIAL SYSTEMS INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(UNAUDITED)
Intrinsic value is
measured using the fair market value at the date of exercise (for shares exercised) or as of June 30, 2022 (for outstanding
options), less the applicable exercise price.
For the six months
ended June 30, 2022 and 2021, the significant weighted average assumptions relating to the valuation of the Company’s stock
options granted were as follows:
On June 30, 2022,
the Company issued to directors and officers options to purchase 135,000 shares of Common Stock at an exercise price of $0.31 per
share, which vest over a period of two years from the date of grant and expire on June 29, 2027. The Company determined the fair
market value of these unvested options to be $42,120. In connection with the issuance of these options, for the three and six months
ended June 30, 2022, the Company did not recognize stock-based compensation expense.
On March 31, 2022,
the Company issued to directors and officers options to purchase 125,000 shares of Common Stock at an exercise price of $0.56 per
share, which vest over a period of two years from the date of grant and expire on March 30, 2027. The Company determined the fair
market value of these unvested options to be $70,250.
In connection with
the issuance of these options, for the three and six months ended June 30, 2022, the Company recognized stock-based compensation
expense of $8,878, based upon the market price of its Common Stock of $0.56 per share on the date of grant of these options.
On June 30, 2021,
the Company issued to directors and officers options to purchase 150,000 shares of Common Stock at an exercise price of $2.84 per
share, which vest over a period of two years from the date of grant and expire on June 29, 2026. The Company determined the fair
market value of these unvested options to be $426,000. In connection with the issuance of these options, for the three and six
months ended June 30, 2022, the Company recognized stock-based compensation expense of $43,944 and $136,969, respectively.
On March 31, 2021,
the Company issued to directors and officers options to purchase 130,000 shares of Common Stock at an exercise price of $3.37 per
share, which vest over a period of two years from the date of grant and expire on March 30, 2026. The Company determined the fair
market value of these unvested options to be $438,100. In connection with the issuance of these options, for the three and six
months ended June 30, 2022, the Company recognized stock-based compensation expense of $48,356 and $96,744, respectively. In connection
with the issuance of these options, for the six months ended June 30, 2021, the Company recognized stock-based compensation expense
of $50,979, respectively.
Prior to January
1, 2021, the Company previously issued to directors and officers options to purchase 2,743,580 shares of Common Stock at exercise
prices ranging from $0.04 to $3.18 per share, with vesting periods ranging from immediate vesting to periods of up to three years
from the grant dates, and expire on dates between March 30, 2023, and September 29, 2029. In connection with the issuance of these
options to employees and directors, for the three and six months ended June 30, 2022 and 2021, the Company recognized stock-based
compensation expense of $120,817 and $260,724, respectively, and $180,309 and $388,932, respectively.
For the three and
six months ended June 30, 2022, as a result of employee terminations and options expirations, stock options aggregating 166,249
and 199,419, respectively with fair market values of approximately $513,500 and $654,300, respectively, were cancelled. For the
three and six months ended June 30, 2021, there were no cancellations of options as a result of employee terminations or options
expirations.
As of June 30, 2022 and
December 31, 2021, consolidated operating lease liabilities of $1,545,643
and $2,178,381,
are recorded net of accumulated amortization of $917,265
and $282,668,
respectively.
For the three and
six months ended June 30, 2022 and 2021, operating lease expense payments were $628,449 and $961,922, respectively, and $75,270
and $133,700, respectively. Operating lease expense payments are included in general and administrative expenses on the condensed
consolidated statements of operations and comprehensive loss.
As of June 30, 2022
and December 31, 2021, balance sheet information related to the Company’s operating leases is as follows:
As of June 30, 2022,
scheduled future maturities of the Company’s lease liabilities are as follows:
As of June 30, 2022
and December 31, 2021, the weighted average lease-term and discount rate of the Company’s leases are as follows:
On January 17, 2022,
the Company and Mr. Torres Declet mutually agreed to Mr. Torres Declet’s resignation as Chief Executive Officer and as a
director of the Company. In connection with his departure, and in accordance with his employment agreement with the Company, Mr.
Torres Declet received base salary continuation equal to six months of his then annual salary, reimbursement of COBRA health insurance
premiums for a period of six months at the same rate as if Mr. Torres Declet were an active employee of the Company, and a grant
of RSUs with a fair market value of $125,000 at the date of termination of employment. On January 21, 2022, the Company granted
111,607 RSUs with a fair market value of $1.12 per share of Common Stock on the grant date. On January 24, 2022, the Company issued
a grant of 42,500 fully vested RSUs with a fair market value of $1.13 per share of Common Stock on the grant date in satisfaction
of a performance bonus approved by the Compensation Committee of the Board of Directors. See Note 7 – Equity.
The Company has various
employment agreements with certain of its executive officers and directors that serve as Board members, which it considers normal
and in the ordinary course of business.
The
Company has no other formal employment agreements with our executive officers, nor any compensatory plans or arrangements resulting
from the resignation, retirement, or any other termination of our named executive officers, from a change-in-control, or from a
change in any executive officer’s responsibilities following a change-in-control. However, it is possible that the Company
will enter into formal employment agreements with its executive officers in the future.
The Company routinely
places orders for manufacturing services and materials. As of June 30, 2022, the Company had purchase commitments of approximately
$5,582,000. These purchase commitments are expected to be realized during the year ending December 31, 2022.
Non-allocated administrative
and other expenses are reflected in Corporate. Corporate assets include cash, prepaid expenses, notes receivable, right of use
asset and other assets.
As of June 30, 2022
and December 31, 2021, and for the three and six months ended June 30, 2022 and 2021, respectively, information about the Company’s
reportable segments consisted of the following: