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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2022

 

OR

 

 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______ to ________

 

Commission file number: 001-36492

 

AGEAGLE AERIAL SYSTEMS INC.

(Exact name of registrant as specified in its charter)

 

Nevada 88-0422242
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
   
8863 E. 34th Street North, Wichita, Kansas 67226
(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code: (620) 325-6363

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class   Trading Symbol(s)   Name of Each Exchange on Which Registered
Common Stock, par value $0.001 per share   UAVS   NYSE American LLC

  

Securities registered pursuant to Section 12(g) of the Act: None.

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.

Yes No

 

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.

Yes No

 

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).

Yes No

 

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  ☐
Non-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

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter was $54,889,621.

 

As of August 15, 2022, there were 86,995,570 shares of Common Stock, par value $0.001 per share, issued and outstanding.

 

 
 

 

AGEAGLE AERIAL SYSTEMS INC.

 

TABLE OF CONTENTS

 

PART I FINANCIAL INFORMATION 3
     
ITEM 1. FINANCIAL STATEMENTS: 3
     
  Condensed Consolidated Balance Sheets as of June 30, 2022 (unaudited) and December 31, 2021 3
     
  Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Six Months Ended June 30, 2022 and 2021(unaudited) 4
     
  Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30, 2022 and 2021 (unaudited) 5
     
  Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021(unaudited) 8
     
  Notes to Condensed Consolidated Financial Statements (unaudited) 9
     
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  34
     
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  40
     
ITEM 4. CONTROLS AND PROCEDURES  40
     
PART II    41
     
ITEM 1. LEGAL PROCEEDINGS  41
     
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS  41
     
ITEM 3. DEFAULT UPON SENIOR SECURITIES  41
     
ITEM 4. MINE SAFETY DISCLOSURES  41
     
ITEM 5. OTHER INFORMATION  41
     
ITEM 6. EXHIBITS  42
     
SIGNATURES  43

 

2
 

 

 PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

                 
    As of
    June 30,
2022
(unaudited)
  December 31, 2021
ASSETS                
CURRENT ASSETS:                
Cash   $ 13,505,593     $ 14,590,566  
Accounts receivable, net     3,763,391       2,888,879  
Inventories, net     5,648,400       4,038,508  
Prepaid and other current assets     2,122,181       1,292,570  
Note receivable     185,000       185,000  
Total current assets     25,224,565       22,995,523  
                 
Property and equipment, net     842,706       952,128  
Right of use asset     1,433,845       2,019,745  
Intangible assets, net     12,879,398       13,565,494  
Goodwill     64,867,282       64,867,282  
Other assets     284,015       282,869  
Total assets   $ 105,531,811     $ 104,683,041  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Accounts payable   $ 2,158,741     $ 2,526,829  
Accrued expenses     1,572,904       1,901,641  
Contract liabilities     2,132,917       971,140  
Current portion of liabilities related to acquisition agreements     9,000,000       10,061,501  
Current portion of lease liabilities     981,632       1,235,977  
Current portion of COVID loans     604,067       451,889  
Total current liabilities     16,450,261       17,148,977  
                 
Long term portion of liabilities related to acquisition agreements     4,000,000       8,875,000  
Long term portion of lease liabilities     564,011       942,404  
Long term portion of COVID loans     604,412       808,021  
Defined benefit plan obligation     312,828       331,726  
Total liabilities     21,931,512       28,106,128  
                 
COMMITMENTS AND CONTINGENCIES (SEE NOTE 9)                
                 
STOCKHOLDERS’ EQUITY:                
Preferred Stock, $0.001 par value, 25,000,000 shares authorized:                
Preferred Stock, Series F Convertible, $0.001 par value, 35,000 shares authorized, 9,690 shares issued and outstanding as of June 30, 2022, and no shares issued and outstanding as of December 31, 2021, respectively     10           
Common Stock, $0.001 par value, 250,000,000 shares authorized, 82,445,570 and 75,314,988 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively     82,445       75,315  
Additional paid-in capital     147,686,141       127,626,536  
Accumulated deficit     (64,252,652 )     (51,054,344 )
Accumulated other comprehensive income (loss)     84,355       (70,594 )
Total stockholders’ equity     83,600,299       76,576,913  
Total liabilities and stockholders’ equity   $ 105,531,811     $ 104,683,041  

 

See accompanying notes to these condensed consolidated financial statements.

 

3
 

 

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)

 

                                 
    For the Three Months Ended   For the Six Months Ended
    June 30,   June 30,
    2022   2021   2022   2021
Revenues   $ 5,287,873     $ 1,937,364     $ 9,129,851     $ 3,638,955  
Cost of sales     2,737,777       959,229       5,214,863       1,658,097  
Gross Profit     2,550,096       978,135       3,914,988       1,980,858  
                                 
Operating Expenses:                                
General and administrative     4,437,185       4,331,787       9,918,564       7,635,114  
Research and development     2,182,313       907,000       4,367,237       1,335,605  
Sales and marketing     1,319,177       559,833       2,499,706       791,427  
Total Operating Expenses     7,938,675       5,798,620       16,785,507       9,762,146  
Loss from Operations     (5,388,579 )     (4,820,485 )     (12,870,519 )     (7,781,288 )
                                 
Other Income (Expense):                                
Interest (expense) income, net     (6,719 )     6,164       (23,051 )     9,015  
Foreign currency transaction gain/losses, net     (206,438 )           (304,738 )      
Paycheck protection program loan forgiveness           108,532             108,532  
Other income, net           27,617             55,039  
Total Other Income (Expense), net     (213,157 )     142,313       (327,789 )     172,586  
Loss Before Income Taxes     (5,601,736 )     (4,678,172 )     (13,198,308 )     (7,608,702 )
Provision for income taxes                        
Net Loss   $ (5,601,736 )   $ (4,678,172 )   $ (13,198,308 )   $ (7,608,702 )
                                 
Comprehensive Income:                                
Amortization of unrecognized periodic pension costs     2,641             2,641        
Foreign currency cumulative translation adjustment     132,136             152,308        
Total comprehensive loss, net of tax   $ (5,466,959 )   $ (4,678,172 )   $ (13,043,359 )   $ (7,608,702 )
                                 
Net Loss Per Common Share - Basic and Diluted   $ (0.07 )   $ (0.07 )   $ ( $0.17)   $ (0.12 )
                                 
Weighted Average Number of Shares Outstanding During the Period -- Basic and Diluted     81,659,858       68,338,866       79,732,890       64,795,122  

 

See accompanying notes to these condensed consolidated financial statements.

 

4
 

 

 AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES  
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022
(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 Loss   Accumulated Deficit   Total Stockholders’ Equity
Balance as of March 31, 2022         $       81,568,546     $ 81,568     $ 136,988,255     $ (50,422 )   $ (58,650,916 )   $ 78,368,485  
Issuance of Preferred Stock, Series F Convertible, net of issuance costs     10,000       10                   9,919,990                   9,920,000  
Conversion of Preferred Stock, Series F Convertible shares to Common Stock     (310 )           500,000       500       (500 )                  
Exercise of stock options                 75,000       75       30,675                   30,750  
Issuance of Restricted Common Stock                 302,024       302       (302 )                  
Stock-based compensation expense                             748,023                   748,023  
Foreign currency cumulative translation adjustment                                   132,136             132,136  
Amortization of unrecognized periodic pension costs                                   2,641             2,641  
Net loss                                         (5,601,736 )     (5,601,736 )
Balance as of June 30, 2022     9,690     $ 10       82,445,570     $ 82,445     $ 147,686,141     $ 84,355     $ (64,252,652 )   $ 83,600,299 )

 

5
 

 

    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 Loss   Accumulated Deficit   Total Stockholders’ Equity
Balance as of December 31, 2021         $       75,314,988     $ 75,315     $ 127,626,536     $ (70,594 )   $ (51,054,344 )   $ 76,576,913  
Sale of Common Stock, net of issuance costs                 4,251,151       4,251       4,579,090                   4,583,341  
Issuance of Common Stock for acquisition of senseFly                 1,927,407       1,927       2,998,073                   3,000,000  
Issuance of Restricted Common Stock                 302,024       302       (302 )                  
Issuance of Preferred Stock, Series F Convertible, net of issuance costs     10,000       10                   9,919,990                   9,920,000  
Exercise of stock options                 150,000       150       61,350                   61,500  
Stock-based compensation expense                             2,501,904                   2,501,904  
Conversion of Preferred Stock, Series F Convertible shares to Common Stock     (310         500,000       500       (500 )                  
Foreign currency translation adjustment                                   152,308             152,308  
Amortization of unrecognized periodic pension costs      —                               2,641             2,641  
Net loss                                         (13,198,308 )     (13,198,308 )
Balance as of June 30, 2022     9,690     $ 10       82,445,570     $ 82,445     $ 147,686,141     $ 84,355     $ (64,252,652 )   $ 83,600,299  

 

See accompanying notes to condensed consolidated financial statements.

 

6
 

 

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES  
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021
(UNAUDITED)

 

                               
    Common Stock   Common Stock Amount   Additional Paid-In Capital   Accumulated Other Comprehensive Loss   Accumulated Deficit   Total Stockholders’ Equity
Balance as of March 31, 2021     62,500,815     $ 62,501     $ 62,344,452     $     $ (23,876,194 )   $ 38,530,759  
Sales of Common Stock, net of issuance costs     5,271,100       5,271       28,641,890                   28,647,161  
Issuance of Common Stock for MicaSense Acquisition     540,541       541       2,999,459                   3,000,000  
Issuance of Common Stock for Measure Acquisition     5,319,145       5,319       24,369,681                   24,375,000  
Stock issued in exchange for professional services     550,000       550       2,906,450                   2,907,000  
Exercise of stock options     130,557       131       34,314                   34,445  
Stock-based compensation expense     356,402       356       2,081,425                   2,081,781  
Net loss                             (4,678,172 )     (4,678,172 )
Balance as of June 30, 2021     74,668,560     $ 74,669     $ 123,377,671     $     $ (28,554,366 )   $ 94,897,974  

 

    Common Stock   Common Stock Amount   Additional Paid-In Capital   Accumulated Other Comprehensive Loss   Accumulated Deficit   Total Stockholders’ Equity
Balance as of December 31, 2020     58,636,365     $ 58,636     $ 47,241,757     $     $ (20,945,664 )   $ 26,354,729  
Sale of Common Stock, net of issuance costs     6,328,314       6,328       34,954,776                   34,961,104  
Sale of Common Stock from exercise of warrants     2,516,778       2,517       8,302,851                   8,305,368  
Issuance of Common Stock for MicaSense Acquisition     540,541       541       2,999,459                   3,000,000  
Issuance of Common Stock for Measure Acquisition     5,319,145       5,319       24,369,681                   24,375,000  
Stock issued in exchange for professional services     550,000       550       2,906,450                   2,907,000  
Exercise of stock options     406,015       407       75,418                   75,825  
Stock-based compensation expense     371,402       371       2,527,279                   2,527,650  
Net loss                             (7,608,702 )     (7,608,702 )
Balance as of June 30, 2021     74,668,560     $ 74,669     $ 123,377,671     $     $ (28,554,366 )   $ 94,897,974  

 

See accompanying notes to condensed consolidated financial statements.

 

7
 

 

 AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

 

                 
    For the Six Months Ended
June 30,
    2022   2021
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net loss   $ (13,198,308 )   $ (7,608,702 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Stock-based compensation     2,501,904       2,527,650  
Stock issued in exchange for professional services           2,907,000  
Paycheck protection program loan forgiveness           (108,532 )
Depreciation and amortization     1,844,196       454,876  
Defined benefit plan obligation and other     (5,644 )      
Provision for bad debts           47,262  
Loss on disposal of property and equipment           3,712  
Changes in assets and liabilities:                
Accounts receivable, net     (944,064 )     (383,059 )
Inventories, net     (1,702,158 )     (206,031 )
Prepaid expenses and other assets     (846,691 )     (220,339 )
Accounts payable     (348,416 )     587,482  
Accrued expenses and other liabilities     (290,443 )     (1,649,198 )
Contract liabilities     1,168,007       141,644  
Other     193,528        
Net cash used in operating activities     (11,628,089 )     (3,506,235 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
Purchases of property and equipment     (137,149 )     (210,576 )
Acquisition related liabilities     (2,936,501 )        
Acquisition of MicaSense, net of cash acquired           (14,536,863 )
Acquisition of Measure, net of cash acquired           (9,445,258 )
Capitalization of platform development costs     (319,799 )     (369,060 )
Capitalization of internal use software costs     (610,643 )      
Net cash used in investing activities     (4,004,092 )     (24,561,757 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Sales of Common Stock, net of issuance costs     4,583,341       34,961,104  
Sale of Common Stock from exercise of warrants           8,305,368  
Sale of Preferred Stock, Series F Convertible, net of issuance costs     9,920,000        
Exercise of stock options     61,500       75,825  
Net cash provided by financing activities     14,564,841       43,342,297  
                 
Effects of foreign exchange rates on cash flows     (17,633 )      
                 
Net (decrease) increase in cash     (1,084,973 )     15,274,305  
Cash at beginning of period     14,590,566       23,940,333  
Cash at end of period   $ 13,505,593     $ 39,214,638  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                
Interest cash paid   $     $  
Income taxes paid   $     $  
NON-CASH INVESTING AND FINANCING ACTIVITIES:                
Stock consideration for the senseFly Acquisition   $ 3,000,000        
Conversion of Preferred Stock, Series F Convertible to Common Stock     500        
Issuance of Restricted Common Stock     302        
Acquisition liability related to the MicaSense Acquisition   $     $ 5,000,000  
Stock consideration for the MicaSense Acquisition   $     $ 3,000,000  
Acquisition liability related to the Measure Acquisition   $     $ 5,471,592  
Stock consideration for the Measure Acquisition   $     $ 24,375,000  

 

See accompanying notes to condensed consolidated financial statements.

 

8
 

 

  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

 

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.

 

9
 

 

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.

 

10
 

 

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.

 

11
 

 

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.

 

12
 

  

  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 ConcentrationsAs 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”). 

 

13
 

 

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 – AdoptedDuring 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:

 

               
    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  

 

14
 

 

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:

 

          
   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:

 

                       
    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  

 

15
 

 

  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:

 

                    
   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:

 

                                       
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:

 

                                   
   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:

 

               
    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  

 

16
 

 

  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.

 

17
 

 

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:

 

     
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 

 

18
 

 

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: 

 

     
Net purchase price, including debt paid at close  $45,403,394 
      
Plus: fair value of liabilities assumed: