UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One)
For
the quarterly period ended
OR
For the transition period from _______ to ________
Commission
file number:
| (Exact name of registrant as specified in its charter) |
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or other jurisdiction of incorporation or organization) |
(I.R.S.
Employer Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s
telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “emerging growth company” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No
As of November 19, 2024, there were (after split 50:1) shares of Common Stock, par value $ per share, issued and outstanding.
AGEAGLE AERIAL SYSTEMS INC.
TABLE OF CONTENTS
| 2 |
EXPLANATARY NOTE
AgEagle Aerial Systems Inc. (the “Company”, “we”, “us”, and “our”) filed its Annual Report on Form 10-K for the fiscal year ended December 31, 2023 with the U.S. Securities and Exchange Commission (“SEC”) on April 1, 2024 (the “Original Form 10-K”) and filed quarterly reports on Form 10-Q for the three, six, and nine months ended March 31, 2023, June 30, 2023, and September 30, 2023 on May 15, 2023, August 14, 2023, and November 13, 2023, respectively, (collectively referred to has the “Original 2023 Form 10-Qs”) and filed quarterly reports for the three and six months ended March 31, 2024 and June 30, 2024 on May 15, 2024 and August 14, 2024, respectively, (collectively referred to has the “Original 2024 Form 10-Qs”). Subsequent to the filing of the Original Form 10-K and the Original 2023 and 2024 Form 10-Qs for the year end and interim periods during our fiscal year 2023 and fiscal year 2024, we identified an error that was present in all aforementioned filings.
On November 7, 2024, the audit committee of the Company’s board of directors concluded, after discussion with the Company’s management, that the previously issued consolidated financial statements as of and for the years ended December 31, 2023 and 2022 and the Form 10-Qs for the quarterly periods March 31, 2023, June 30, 2023, September 30, 2023, March 31, 2024 and June 30, 2024 should no longer be relied upon due to the errors discussed below and require restatement.
We plan to file an amendment to the Original Form 10-K, correcting the error present at December 31, 2023 and 2022 and restate all of the quarterly financial information in the Original 2023 Form 10-Qs in the amendment to the Original Form 10-K.
This Form 10-Q restates the quarterly financial statements periods in the Original 2024 Form 10-Qs and their comparative prior periods. See Note 12 included in this Form 10-Q to the accompanying quarterly consolidated financial statements for further details of the correction of the errors and a summary of the impact on the quarterly consolidated financial statements for all periods impacted by the error, which was isolated to the consolidated statements of operations and comprehensive loss.
Background of Restatement
Subsequent to the filing of our Original Form 10-K and Original Form 2024 and 2023 10-Qs, management identified an error in the computation of net loss attributable to common stockholders and total comprehensive loss as presented on our consolidated statements of operations and comprehensive loss included in the Original Form 10-K and Original Form 2024 and 2023 10-Qs. The error in the computation of net loss attributable to common stockholders resulted in an understatement of net loss per common share basic and diluted as presented on our consolidated statements of operations and an overstatement of comprehensive loss for the quarterly periods included in the Original 2024 and Original 2023 Form 10-Qs and the fiscal year ends included in the Original Form 10-K.
The net loss attributable to common stockholders erroneously excluded accrued cumulative dividends on outstanding Series F preferred stock and deemed dividends resulting from the triggering of down round features embedded within outstanding equity-linked financial instruments. Pursuant to ASC 260 Earnings Per Share, income (loss) available to common stockholders shall be computed by deducting dividends accumulated for the period on cumulative preferred stock. Also, the value of the effect of a down round feature shall be recognized in an equity-classified freestanding financial instrument when the down round feature is triggered. That effect shall be treated as a dividend and as an increase to net loss available to common stockholders in computation of earnings per share.
Further, the accrued cumulative dividends and deemed dividends were included as a component of other comprehensive loss. However, pursuant to ASC 220 – Income Statement – Reporting Comprehensive Income items required to be reported as direct adjustments to additional paid-in capital and retained earnings are not considered to be components of other comprehensive income (loss).
| 3 |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| As of | ||||||||
September 30, 2024 (unaudited) | December
31, 2023 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories, net | ||||||||
| Prepaid and other current assets | ||||||||
| Note receivable | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Right-of-use assets | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Convertible note | ||||||||
| Other short-term loan | ||||||||
| Contract liabilities | ||||||||
| Current portion of lease liabilities | ||||||||
| Current portion of COVID loan | ||||||||
| Total current liabilities | ||||||||
| Long-term portion of lease liabilities | ||||||||
| Long-term portion of COVID loan | ||||||||
| Defined benefit plan obligation | ||||||||
| Total liabilities | ||||||||
| COMMITMENTS AND CONTINGENCIES (NOTE 10) | ||||||||
| STOCKHOLDERS’ EQUITY: | ||||||||
| Preferred Stock, $ par value, shares authorized: | ||||||||
| Preferred Stock, Series F Convertible, $ par value, shares authorized, shares issued and outstanding as of September 30, 2024, and shares issued and outstanding as of December 31, 2023 | ||||||||
| Common Stock, $ par value, shares authorized, and shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to these condensed consolidated financial statements.
| 4 |
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
For the Three Months Ended September 30, | For
the Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 (Restated) | 2024 | 2023 (Restated) | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross Profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Research and development | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| Impairment charge | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss on debt extinguishment | ( | ) | ( | ) | ||||||||||||
| Gain/loss on disposal of fixed assets | ( | ) | ||||||||||||||
| Other expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss before provision for income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Accrued dividends on Series F Preferred Stock | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Deemed dividends on Series F Preferred Stock and Warrants | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss attributable to common stockholders | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss per common share - basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted average number of shares outstanding during the period – Basic and Diluted(i) | (i) | (ii) | (i) | (ii) | ||||||||||||
| Comprehensive loss: | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Amortization of unrecognized periodic pension costs | ( | ) | ||||||||||||||
| Foreign currency cumulative translation adjustment | ( | ) | ( | ) | ||||||||||||
| Total comprehensive loss , net of tax | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| (i) | |
| (ii) |
See accompanying notes to these condensed consolidated financial statements.
| 5 |
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024
(UNAUDITED)
| Par $0.001 Preferred Stock, Series F Convertible Shares | Preferred Stock, Series F Convertible Amount | Par $0.001 Common Stock | Common Stock Amount | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Total
Stockholders’ Equity | |||||||||||||||||||||||||
| Balance as of June 30, 2024 | $ | | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||
| Issuance of Preferred Stock, Series F Convertible, net of issuance cost | — | |||||||||||||||||||||||||||||||
| Conversion of Preferred Stock, Series F Convertible shares to Common Stock | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Dividends on Series F Preferred Stock | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | ||||||||||||||||||||||||||||||
| Reduction of Conversion Price on Convertible note | — | — | ||||||||||||||||||||||||||||||
| Deemed dividend on Series F Preferred Stock and Warrants | — | — | ( | ) | ||||||||||||||||||||||||||||
| Issuance costs for sale of Preferred Stock | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Foreign currency cumulative translation adjustment | — | — | ||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance as of September 30, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| 6 |
| Par $0.001 Preferred Stock, Series F Convertible Shares | Preferred Stock, Series F Convertible Amount | Par $0.001 Common Stock | Common Stock Amount | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Total
Stockholders’ Equity | |||||||||||||||||||||||||
| Balance as of December 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Effect on existing shares due to Reverse Split on February 9, 2024 | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Issuance of Preferred Stock, Series F Convertible, net of issuance cost | — | |||||||||||||||||||||||||||||||
| Conversion of Preferred Stock, Series F Convertible shares to Common Stock | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Conversion of Convertible Note principal to Common Stock | — | |||||||||||||||||||||||||||||||
| Dividends on Series F Preferred Stock | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Exercise of warrants issued with Series F | — | |||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | ||||||||||||||||||||||||||||||
| Issuance of Restricted Common Stock | — | ( | ) | |||||||||||||||||||||||||||||
| Conversion Price of Promissory Note on Exchange Agreement | — | — | ||||||||||||||||||||||||||||||
| Deemed dividend on Series F Preferred Stock | — | — | ( | ) | ||||||||||||||||||||||||||||
| Issuance costs for sale of Preferred Stock | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Foreign currency cumulative translation adjustment | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance as of September 30, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| 7 |
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023
(UNAUDITED)
| Par $0.001 Preferred Stock, Series F Convertible Shares | Preferred Stock, Series F Convertible Amount | Par
$0.001 Common Stock | Common Stock Amount | Additional Paid-In Capital | Accumulated Other Comprehensive Income | Accumulated Deficit | Total
Stockholders’ Equity | |||||||||||||||||||||||||
| Balance as of June 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Effect on existing shares due to Reverse Split on February 9, 2024 | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Conversion of Preferred Stock, Series F Convertible shares to Common Stock | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Dividends on Series F Preferred Stock | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Conversion of warrants issued with promissory note and incremental value modification | — | |||||||||||||||||||||||||||||||
| Issuance of Restricted Common Stock | — | ( | ) | |||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | ||||||||||||||||||||||||||||||
| Amortization of unrecognized periodic pension costs | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Foreign currency cumulative translation adjustment | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance as of September 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| 8 |
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023
(UNAUDITED)
| Par $0.001 Preferred Stock, Series F Convertible Shares | Preferred Stock, Series F Convertible Amount | Par $0.001 Common Stock Shares | Common Stock Amount | Additional Paid-In Capital | Accumulated Other Comprehensive Income | Accumulated Deficit | Total
Stockholders’ Equity | |||||||||||||||||||||||||
| Balance as of December 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Effect on existing shares due to Reverse Split on February 9, 2024 | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Sales of common stock, net of issuance costs | — | |||||||||||||||||||||||||||||||
| Issuance of Preferred Stock, Series F Convertible, net of issuance cost | — | |||||||||||||||||||||||||||||||
| Conversion of Preferred Stock, Series F Convertible shares to Common Stock | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Dividends on Series F Preferred Stock | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Deemed dividend on Series F Preferred Stock and warrant | — | — | ( | ) | ||||||||||||||||||||||||||||
| Conversion of warrants issued with promissory note and incremental value modification | — | |||||||||||||||||||||||||||||||
| Issuance of Restricted Common Stock | — | ( | ) | |||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | ||||||||||||||||||||||||||||||
| Amortization of unrecognized periodic pension costs | — | — | ||||||||||||||||||||||||||||||
| Foreign currency cumulative translation adjustment | — | — | ||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance as of September 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| 9 |
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation | ||||||||
| Depreciation and amortization | ||||||||
| Loss on disposal of fixed assets | ||||||||
| Interest added to convertible note payable | ||||||||
| Interest expense for reduction in convertible note conversion price | ||||||||
| Defined benefit plan obligation | ( | ) | ( | ) | ||||
| Amortization of debt discount and warrant modification | ||||||||
| Loss on debt extinguishment | ||||||||
| Goodwill impairment | ||||||||
| Lease impairment charge | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | ( | ) | ||||||
| Inventories, net | ||||||||
| Prepaid expenses and other assets | ||||||||
| Accounts payable | ||||||||
| Accrued expenses and other liabilities | ( | ) | ||||||
| Contract liabilities | ( | ) | ( | ) | ||||
| Other | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Proceeds of sales of asset | ||||||||
| Capitalization of platform development costs | ( | ) | ||||||
| Capitalization of internal use software costs | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Sales of common stock, net of issuance costs | ||||||||
| Sale of Series F preferred stock | ||||||||
| Repayments on COVID loans | ( | ) | ( | ) | ||||
| Payment to convertible note | ( | ) | ||||||
| Conversion of warrants issued with Series F shares | ||||||||
| Other short-term loan, net of payment | ( | ) | ||||||
| Issuance costs for sale of preferred stock | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Effects of foreign exchange rates on cash flows | ( | ) | ( | ) | ||||
| Net change in cash | ( | ) | ( | ) | ||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Interest cash paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Conversion of Preferred Stock, Series F Convertible to Common Stock | $ | $ | ||||||
| Issuance of Restricted Common Stock | $ | $ | ||||||
| Accrued dividends on Series F Preferred Stock | $ | $ | ||||||
| Deemed dividend on Series F Preferred stock and warrant | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
| 10 |
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(UNAUDITED)
Note 1 – Description of the Business and Basis of Presentation
Description of Business – AgEagle™ Aerial Systems Inc. (“AgEagle” or the “Company”, “we”, “our”), through its wholly-owned subsidiaries, AgEagle Aerial, Inc., DBA MicaSense™, Inc. (“MicaSense”), Measure Global, Inc. (“Measure”), senseFly SA, and senseFly Inc. (collectively “senseFly”), is actively engaged in designing and delivering best-in-class drones, sensors and software that solve important problems for its customers in a wide range of industry verticals, including energy/utilities, infrastructure, agriculture and government.
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 market leader offering customer-centric, advanced, autonomous unmanned aerial systems (“UAS”) which drive revenue at the intersection of flight hardware, sensors and software for industries that include agriculture, military/defense, public safety, surveying/mapping and utilities/engineering, among others. AgEagle has also achieved numerous regulatory firsts, including earning governmental approvals for its commercial and tactical drones to fly Beyond Visual Line of Sight (“BVLOS”) and/or Operations Over People in the United States, Canada, Brazil and the European Union and being awarded Blue UAS certification from the Defense Innovation Unit of the U.S. Department of Defense.
The Company is currently headquartered in Wichita, Kansas, where we house our sensor manufacturing operations, and we operate drone distribution and coordinate global customer service operations out of Raleigh, North Carolina. In addition, the Company operates engineering and drone manufacturing operations in Lausanne, Switzerland in support of our international business activities.
Reverse
Stock Split - On February 8, 2024, the Company filed a Certificate of Amendment to its Articles of Incorporation, as amended to date
effecting a
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 United States of America (“US 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 US 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, 2023, included in the Company’s Annual Report on Form 10-K, as filed with the SEC on April 1, 2024. The Company has identified a computation error of net loss attributable to common stockholders resulting in an understatement of net loss per common share basic and diluted as presented on our consolidated statements of operations and comprehensive loss that is presented in the previously filed 10-K and will be amending the previous filed 10-K. The results for the three and nine-month periods ended September 30, 2024 and 2023, are not necessarily indicative of the results to be expected for a full year, any other interim periods or any future year or periods.
The condensed consolidated financial statements include the accounts of AgEagle and its wholly-owned subsidiaries, AgEagle Aerial, Inc., Measure Global, Inc. and senseFly. All significant intercompany balances and transactions have been eliminated in consolidation.
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, 2023. 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.
| 11 |
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(UNAUDITED)
Note 1 – Description of the Business and Basis of Presentation-Continued
Liquidity
and Going Concern – In pursuit of the Company’s long-term growth strategy and acquisitions, the Company has sustained
continued operating losses. During the nine months ended September 30, 2024, the Company incurred a net loss of $
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.
Note 2 – Summary of Significant Accounting Policies
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. These accounting policies conform to US GAAP in all material respects and have been consistently applied in preparing the accompanying condensed consolidated financial statements.
Risks and Uncertainties – Global economic challenges, including natural disasters, such as hurricanes, tornadoes, floods, earthquakes and other adverse weather and climate conditions; unforeseen public health crises, such as pandemics and epidemics; political crises, such as terrorist attacks, war, labor unrest, and other political instability; or other catastrophic events, such as disasters occurring at our manufacturing facilities, could disrupt our operations or the operations of one or more of our vendors. 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, because 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 disrupted, limiting its ability to manufacture and assemble products.
Use of Estimates – The preparation of condensed consolidated financial statements in conformity with US GAAP 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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the reserve for obsolete inventory, valuation of intangible assets, and valuation of goodwill.
Fair Value Measurements and Disclosures – 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.
| 12 |
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(UNAUDITED)
Note 2 – Summary of Significant Accounting Policies-Continued
The guidance requires that assets and liabilities carried at fair value be classified and disclosed in one of the following categories:
| ● | Level 1: Quoted market prices in active markets for identical assets or liabilities. | |
| ● | Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data. | |
| ● | Level 3: Unobservable inputs that are not corroborated by market data. |
For short-term classes of our financial instruments, which include cash, accounts receivable, prepaid expenses, notes receivable, accounts payable and accrued expenses, their carrying amounts approximate fair value due to their short-term nature. The outstanding loan related to the COVID Loans is carried at face value, which approximates fair value. As of September 30, 2024 and December 31, 2023, 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.
Cash
Concentrations - The Company maintains its cash balances at financial institutions that are insured by the Federal Deposit Insurance
Corporation up to $
Accounts
Receivable 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. As of September 30, 2024 and December 31, 2023, the Company had an accounts receivable
balance of $
| 13 |
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(UNAUDITED)
Note 2 – Summary of Significant Accounting Policies-Continued
Allowance
for Credit Losses - We establish allowances for credit losses on accounts receivable, under ASC 326-20-55-37. The adequacy of these
allowances is assessed quarterly through consideration of factors such as customer credit ratings, bankruptcy filings, published or estimated
credit default rates, age of the receivable, expected loss rates and collateral exposures. Collateral exposure is the excess of the carrying
value of a financial asset over the fair value of the related collateral. We determine the creditworthiness of our customers by assigning
internal credit ratings based upon publicly available information and information obtained directly from the customers. As of September 30, 2024 and December 31, 2023, the Company had an allowance for credit losses of $ and $
Our net accounts receivable represents amounts billed and due from customers. Based on historical perspective, nearly all of our accounts receivable as of September 30, 2024 would be collected in calendar year 2024 because the majority of our accounts receivable are due from value added resellers (“VARs”) and sovereign governments, including the U.S. Department of Defense. However, under the new guidance, the Company has elected to recognize credit losses based on our collection history and our customers payment terms.
Revenue Recognition – The Company’s revenues are derived primarily through the sales of drones, sensors and related accessories, and software subscriptions. The Company utilized ASC Topic 606 and its related amendments, Revenue from Contracts with Customers, which requires revenue to be recognized in a manner that depicts the transfer of goods or services to customers in amounts that reflect the consideration to which the entity expects to be entitled in exchange for those goods or services.
Generally, we recognize revenue when it satisfies its obligation by providing the benefits of the service to the customer, either over time or at a point in time. A performance obligation is satisfied over time if one of the following criteria are met:
| a. | the customer simultaneously receives and consumes the benefits as the entity performs; or | |
| b. | the entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced; or | |
| c. | the entity’s performance does not create an asset with an alternative use to the entity, and the entity has an enforceable right to payment for performance completed to date. |
Revenue recognition under ASC 606 as described below creates following revenue streams:
| ● | Sensor Sales – sales are recognized on products when the related goods have been shipped, title has passed to the customer, and there are no undeliverable elements or uncertainties. Amounts incurred related to shipping and handling are included in cost of revenue. | |
| ● | Drone Sales - sales are recognized on products when the related goods have been shipped, title has passed to the customer, and there are no undeliverable elements or uncertainties. Amounts incurred related to shipping and handling are included in cost of revenue. | |
| ● | Software Sales – are subscription sales of our software that are recognized equally over the membership period as the services are provided. |
The Company recognizes revenue on sales to customers, dealers, and distributors upon satisfaction of performance obligations which 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 condensed consolidated statements of operations and comprehensive loss net of any sales and 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.
| 14 |
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(UNAUDITED)
Note 2 – Summary of Significant Accounting Policies-Continued
The Company’s software subscriptions to its platforms, HempOverview and Ground Control, are offered on a subscription basis. These subscription fees are recognized equally over the membership period as the services are provided.
Additionally,
customer payments received in advance of the Company completing performance obligations are recorded as contract liabilities. Customer
deposits represent customer prepayments and are recognized as revenue when the term of the sale or performance obligation is completed.
As of September 30, 2024 and December 31, 2023, contract liabilities represent amounts of $
Internal-
Use Software Costs – Internal-use software 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 to
As
of September 30, 2024 and December 31 2023, capitalized software costs for internal-use software related to the Company’s implementation
of its enterprise resource planning software, totaled $
Goodwill and Intangible Assets – The assets and liabilities of acquired businesses are recorded under the acquisition method of accounting at their estimated fair values at the date of acquisition. Goodwill represents costs in excess of fair values assigned to the underlying identifiable net assets of acquired businesses. 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 four to five years.
As
of September 30, 2024 and December 31, 2023, the goodwill balance was $
| 15 |
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(UNAUDITED)
Note 2 – Summary of Significant Accounting Policies-Continued
As
of September 30, 2024 and December 31, 2023, our intangible assets balance was $
Foreign Currency – The Company translates assets and liabilities of its foreign subsidiary, senseFly S.A., predominately in Swiss Franc 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 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 income (expense), net in the condensed consolidated statements of operations and comprehensive loss.
Shipping
Costs – All shipping costs billed directly to the customer are directly offset to shipping costs resulting in a net expense
to the Company, which is included in cost of sales in the accompanying condensed consolidated statements of operations and comprehensive
loss. For the three months ended September 30, 2024 and 2023, shipping costs totaled $
Advertising
Costs – Advertising costs are charged to operations as incurred and presented in sales and marketing expenses in the condensed
consolidated statements of operations and comprehensive loss. For the three months ended September 30, 2024 and 2023, advertising costs
were $
Segment Reporting – In accordance with ASC Topic 280, Segment Reporting, 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.
| 16 |
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(UNAUDITED)
Note 2 – Summary of Significant Accounting Policies-Continued
The Company has determined that it operates in four segments:
| ● | Drones, 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. | |
| ● | Software as a service (“SaaS”), which comprises revenue earned through the offering of online-based subscriptions. | |
| ● | Corporate, which comprises corporate costs only. |
New Accounting Pronouncements – In March 2024, the Securities and Exchange Commission (“SEC”) has released a final rule that requires registrants to provide comprehensive climate-related disclosures in their annual reports and registration statements, including those for IPOs, beginning with annual reports for the year ending December 31, 2027, for smaller reporting companies (“SRC”). Registrants must disclose climate-related financial metrics and impacts on their financial estimates and assumptions in a footnote to the audited financial statements. The disclosures will also need to be addressed as part of management’s internal control over financial reporting (“ICFR”) and will be subject to the financial statement and ICFR audit (if applicable) of an independent registered public accounting firm. We are currently evaluating the impacts of the improvements to our disclosure.
In
December 2023, Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09,
Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). The ASU focuses on income tax disclosures
around effective tax rates and cash income taxes paid. ASU 2023-09 requires public business entities to disclose, on an annual basis,
a rate reconciliation presented in both dollars and percentages.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting – Improvements to Reportable Segment Disclosures. The ASU will now require public entities to disclose its significant segment expenses categories and amounts for each reportable segment. Under the ASU, a significant segment expense is an expense that is:
| ● | significant to the segment, | |
| ● | regularly provided to or easily computed from information regularly provided to the chief operating decision maker and | |
| ● | included in the reported measure of segment profit or loss. |
The ASU is effective for public entities for fiscal years beginning after December 15, 2023, and interim periods in fiscal years beginning after December 15, 2024 (calendar year public entity will adopt the ASU in its 2024 Form 10-K). The ASU should be adopted retrospectively unless it’s impracticable to do so. Early adoption of the ASU is permitted, including in an interim period. The adoption of ASU 2023-07 is expected to have a financial statement disclosure impact only and is not expected to have a material impact on the Company’s condensed consolidated financial statements.
| 17 |
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(UNAUDITED)
Note 3 – Balance Sheets
Accounts Receivable, Net
As of September 30, 2024 and December 31, 2023, accounts receivable, net consist of the following:
| September 30, 2024 | December 31, 2023 | |||||||
| Accounts receivable | $ | $ | ||||||
| Less: Allowance for credit losses* | ( | ) | ||||||
| Accounts receivable, net | $ | $ | ||||||
| * |
Inventories, Net
As of September 30, 2024 and December 31, 2023, inventories, net consist of the following:
| September 30, 2024 | December 31, 2023 | |||||||
| Raw materials | $ | $ | ||||||
| Work in process | ||||||||