AgEagle(UAVS) - 2024 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION Financial Statements H1 2024 financial statements show a working capital deficit, ongoing net losses, and substantial doubt about going concern Condensed Consolidated Balance Sheets As of June 30, 2024, total assets decreased to $22.8 million, liabilities increased, resulting in a $2.8 million working capital deficit Condensed Consolidated Balance Sheet Highlights (in USD) | Account | June 30, 2024 (unaudited) | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash | $977,208 | $819,024 | | Accounts receivable, net | $1,538,941 | $2,057,546 | | Inventories, net | $6,382,209 | $6,936,980 | | Total current assets | $9,351,120 | $10,547,111 | | Goodwill | $7,402,644 | $7,402,644 | | Total assets | $22,830,836 | $25,155,901 | | Liabilities & Equity | | | | Accounts payable | $3,145,128 | $3,062,794 | | Convertible note | $4,264,541 | $4,504,500 | | Total current liabilities | $12,160,933 | $11,031,432 | | Total liabilities | $14,756,362 | $14,458,345 | | Accumulated deficit | $(180,085,841) | $(165,583,091) | | Total stockholders' equity | $8,074,474 | $10,697,556 | Condensed Consolidated Statements of Operations and Comprehensive Loss Revenues for H1 2024 were $7.3 million with improved gross profit, but the company reported a $9.2 million net loss Statement of Operations Highlights (unaudited, in USD) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $3,392,538 | $3,278,212 | $7,286,985 | $7,335,281 | | Gross Profit | $1,554,575 | $1,031,534 | $3,508,997 | $3,010,166 | | Loss from operations | $(2,540,468) | $(4,871,838) | $(4,934,356) | $(9,032,946) | | Net loss | $(2,929,708) | $(5,290,583) | $(9,245,295) | $(9,890,082) | | Net loss per share | $(0.24) | $(1.10) | $(0.90) | $(2.13) | Condensed Consolidated Statements of Cash Flows Net cash used in operations significantly decreased to $3.0 million in H1 2024, with $3.3 million provided by financing activities Cash Flow Summary for Six Months Ended June 30 (unaudited, in USD) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(2,983,430) | $(6,783,320) | | Net cash used in investing activities | $(92,995) | $(424,344) | | Net cash provided by financing activities | $3,289,258 | $6,776,473 | | Net change in cash | $158,184 | $(147,410) | | Cash at end of period | $977,208 | $4,202,427 | Notes to Condensed Consolidated Financial Statements Notes detail business, accounting policies, and financial condition, including a reverse stock split and going concern doubt - The company designs and delivers drones, sensors, and software for industries including energy, infrastructure, agriculture, and government[34][35] - A 1-for-20 reverse stock split of the company's common stock became effective on February 9, 2024. All share and per-share data have been retroactively adjusted[37] - The company has substantial doubt about its ability to continue as a going concern due to a net loss of $9.2 million and cash used in operations of $3.0 million in the first six months of 2024, along with a working capital deficit of $2.8 million[41] - In February 2024, the company exchanged a promissory note with Alpha Capital for a new Convertible Note with a principal of $4.85 million, due January 2025. The conversion price was later reduced to $0.60, triggering a non-cash interest expense of $3.5 million[90][94] - Down round triggers in March and May 2024 related to equity issuances resulted in the company recognizing an aggregate deemed dividend of $5.26 million, which increased the net loss available to common stockholders[111][114] - Subsequent to June 30, 2024, the company amended its SPA with Alpha Capital to extend the investment period and lower the minimum investment amount. The Convertible Note was also amended, increasing the principal balance to $4.85 million due to accrued interest and liquidated damages[164] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strategic shift, flat revenues, improved gross profit, reduced operating expenses, and ongoing liquidity concerns - The company's key growth strategy includes a laser-like focus on the higher volume defense & security market, while continuing to serve precision agriculture and other commercial markets[170] - The company was awarded a five-year Multiple Award Schedule (MAS) Contract by the U.S. General Services Administration (GSA) in April 2023, which is expected to help penetrate the government sector[183] - The company highlights that global economic challenges, including inflation and supply-chain disruptions, continue to negatively impact its ability to access components and manufacture products[190] Results of Operations H1 2024 revenues were flat at $7.3 million, gross profit increased, operating expenses decreased, and net loss reduced to $9.2 million Financial Performance Comparison (Six Months Ended June 30) | Metric | 2024 | 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $7,286,985 | $7,335,281 | -0.7% | | Gross Profit | $3,508,997 | $3,010,166 | +16.6% | | Operating Expenses | $8,443,353 | $12,043,112 | -29.9% | | Net Loss | $9,245,295 | $9,890,082 | -6.5% | - The decrease in operating expenses for the first half of 2024 was driven by a $2.0 million reduction in G&A, a $0.7 million reduction in R&D, and a $0.7 million reduction in Sales & Marketing, primarily due to integration of roles and reduced consulting and advertising spend[197][198][200] - Other expense increased by $3.45 million in H1 2024, primarily due to $3.49 million in non-cash interest expense recognized from the anti-dilution protection features of its convertible note being triggered[201] Liquidity and Capital Resources The company faces a $2.8 million working capital deficit and substantial doubt about its ability to continue as a going concern - The company reported a working capital deficit of $2,809,813 as of June 30, 2024[204] - Management has concluded there is substantial doubt about the company's ability to continue as a going concern and will require additional liquidity to continue operations for the next twelve months[204] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the company is not required to provide market risk disclosures - As a "smaller reporting company," AgEagle is not required to provide information regarding quantitative and qualitative disclosures about market risk[211] Controls and Procedures Disclosure controls were ineffective as of June 30, 2024, due to a material weakness in accounting for complex debt transactions - The CEO and CFO concluded that the company's disclosure controls and procedures were not effective as of June 30, 2024[212] - A material weakness was identified in internal controls related to the accounting for a complex debt transaction, specifically the modification of a convertible debt agreement[214] - To remediate the weakness, the company has contracted a technical accounting expert to help review complex transactions[214] PART II OTHER INFORMATION Legal Proceedings The company reports no legal proceedings - None[216] Risk Factors As a smaller reporting company, the company is not required to provide risk factor information - The company is a smaller reporting company and is not required to provide information under this item[216] Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities or use of proceeds - None[216] Defaults Upon Senior Securities The company reports no defaults upon senior securities - None[216]