AgEagle(UAVS) - 2024 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents AgEagle's unaudited financial statements, management's analysis, market risk, and controls ITEM 1. FINANCIAL STATEMENTS This section presents AgEagle Aerial Systems Inc.'s unaudited condensed consolidated financial statements for the three months ended March 31, 2024 and 2023, including balance sheets, statements of operations and comprehensive loss, statements of changes in stockholders' equity, and statements of cash flows, along with detailed notes explaining business operations, accounting policies, and specific financial line items Condensed Consolidated Balance Sheets Presents the company's financial position, including assets, liabilities, and equity, as of specific dates Balance Sheet Summary | ASSETS (as of) | March 31, 2024 | December 31, 2023 | | :----------------------- | :------------- | :---------------- | | Cash | $822,921 | $819,024 | | Accounts receivable, net | $1,351,355 | $2,057,546 | | Inventories, net | $6,438,206 | $6,936,980 | | Total current assets | $9,333,127 | $10,547,111 | | Total assets | $23,221,107 | $25,155,901 | | LIABILITIES (as of) | | | | Accounts payable | $2,647,583 | $3,062,794 | | Convertible note | $4,749,491 | $4,504,500 | | Total current liabilities | $11,299,123 | $11,031,432 | | Total liabilities | $14,168,187 | $14,458,345 | | STOCKHOLDERS' EQUITY (as of) | | | | Total stockholders' equity | $9,052,920 | $10,697,556 | - Total assets decreased by approximately $1.93 million from December 31, 2023, to March 31, 2024[10] - Total stockholders' equity decreased by approximately $1.64 million from December 31, 2023, to March 31, 2024[10] Condensed Consolidated Statements of Operations and Comprehensive Loss Details the company's revenues, expenses, and net loss for the reported periods Operations and Comprehensive Loss Summary | Metric (Three Months Ended March 31) | 2024 | 2023 | | :----------------------------------- | :----------- | :----------- | | Revenues | $3,894,447 | $4,057,069 | | Cost of sales | $1,940,025 | $2,078,437 | | Gross Profit | $1,954,422 | $1,978,632 | | Total operating expenses | $4,348,310 | $6,139,740 | | Loss from operations | $(2,393,888) | $(4,161,108) | | Total other expense, net | $(3,921,699) | $(438,391) | | Net loss attributable to common stockholders | $(6,315,587) | $(4,599,499) | | Net loss per common share - basic and diluted | $(0.77) | $(1.03) | | Total comprehensive loss, net of tax | $(6,479,240) | $(4,504,895) | - Revenues decreased by 4.0% year-over-year, from $4.06 million in Q1 2023 to $3.89 million in Q1 2024[11] - Net loss increased by 37.3% year-over-year, from $(4.60 million) in Q1 2023 to $(6.32 million) in Q1 2024, primarily due to a significant increase in other expenses, net[11] - Operating expenses decreased by 29.2% year-over-year, from $6.14 million in Q1 2023 to $4.35 million in Q1 2024[11] Condensed Consolidated Statements of Changes in Stockholders' Equity Outlines changes in the company's equity accounts over the reporting periods - As of March 31, 2024, total stockholders' equity was $9.05 million, down from $10.70 million as of December 31, 2023[14] - The Company effected a 1-for-20 reverse stock split on February 9, 2024, retroactively adjusting all share and per share data[13][23] - A deemed dividend of $5.25 million was recognized in Q1 2024 due to anti-dilution provisions triggered by a reduced warrant exercise price, increasing net loss available to common stockholders[13][110][112] Condensed Consolidated Statements of Cash Flows Summarizes the cash inflows and outflows from operating, investing, and financing activities Cash Flow Summary | Cash Flow Activity (Three Months Ended March 31) | 2024 | 2023 | | :----------------------------------------------- | :----------- | :----------- | | Net cash used in operating activities | $(1,553,093) | $(4,189,928) | | Net cash used in investing activities | $(43,081) | $(254,191) | | Net cash provided by financing activities | $1,641,894 | $2,955,402 | | Net change in cash | $3,897 | $(1,501,929) | | Cash at end of period | $822,921 | $2,847,908 | - Cash used in operating activities decreased by 62.9% year-over-year, from $4.19 million in Q1 2023 to $1.55 million in Q1 2024, primarily due to lower operating expenses and inventory purchases[18][190] - Cash provided by financing activities decreased by 44.4% year-over-year, from $2.96 million in Q1 2023 to $1.64 million in Q1 2024, mainly due to less common stock sales and warrant exercises in the prior year, partially offset by preferred stock sales[18][192] Notes to Condensed Consolidated Financial Statements Provides detailed explanations of accounting policies and specific financial statement line items Note 1 – Description of the Business and Basis of Presentation Describes AgEagle's business, operations, and the basis for financial statement presentation - AgEagle designs and delivers drones, sensors, and software for various industries including energy/utilities, infrastructure, agriculture, and government[20] - The Company completed a 1-for-20 reverse stock split effective February 9, 2024[23] - The Company has an accumulated deficit of $177.15 million and a working capital deficit of $1.97 million as of March 31, 2024, raising substantial doubt about its ability to continue as a going concern[29] Note 2 – Summary of Significant Accounting Policies Outlines the key accounting principles and methods used in preparing the financial statements - The Company's revenue is primarily derived from sales of drones, sensors, and software subscriptions, recognized when performance obligations are satisfied[44][45] - Goodwill balance remained at $7.40 million as of March 31, 2024, and December 31, 2023, with impairment tests performed annually or sooner if circumstances indicate[56] - The Company operates in four segments: Drones, Sensors, Software as a Service (SaaS), and Corporate[67] Note 3 – Balance Sheets Provides detailed breakdowns and explanations for specific balance sheet accounts Balance Sheet Details | Account | March 31, 2024 | December 31, 2023 | | :-------------------------- | :------------- | :---------------- | | Accounts receivable, net | $1,351,355 | $2,057,546 | | Inventories, net | $6,438,206 | $6,936,980 | | Property and equipment, net | $666,152 | $799,892 | | Intangible assets, net | $2,456,592 | $2,615,281 | | Accrued liabilities | $1,690,640 | $1,944,352 | - Accounts receivable, net, decreased by $706,191 (34.3%) from December 31, 2023, to March 31, 2024[71] - Amortization expense for intangible assets was $179,372 for Q1 2024, significantly lower than $900,641 for Q1 2023[77] Note 4 – COVID Loans Details the company's assumed COVID-related loans and their repayment status - The Company assumed senseFly COVID Loans totaling $665,225 as of March 31, 2024[81] - Payments on senseFly COVID Loans aggregated $160,514 for Q1 2024, compared to $44,598 for Q1 2023[81] - One COVID loan repayment period was extended from December 2023 to June 2025[81] Note 5 – Promissory Note and Exchange Agreement Explains the terms and accounting impact of the convertible note and related agreements - On February 8, 2024, the Company exchanged a Promissory Note for a Convertible Note of $4.85 million due January 8, 2025, with an initial conversion price of $2.00 per share, adjusted to $1.25 after the reverse stock split[90] - The Convertible Note accrues interest at 12% per annum, increasing to 18% upon an Event of Default[90] - On March 6, 2024, the conversion price was further reduced to $0.60 due to dilution protection, resulting in $3.49 million in interest expense for the incremental value[95] Note 6 – Other Short-Term Loan Describes the terms and financial impact of a future receipts agreement - On January 24, 2024, the Company entered into a Future Receipts Agreement, selling $1.51 million in future receipts for $1.05 million, receiving net proceeds of $1.00 million[96] - The Company recorded a debt discount of $512,000, amortizing $164,572 as interest expense in Q1 2024[96][98] - As of March 31, 2024, the total outstanding balance under this loan is $1.03 million, with an unamortized debt discount of $347,428[98] Note 7 – Stockholders' Equity Details changes in stockholders' equity, including stock-based compensation and warrant exercises - On March 6, 2024, the Company received $497,701 from the exercise of 829,500 warrants at a reduced exercise price of $0.60 per share[101] - The reduced warrant exercise price triggered anti-dilution provisions, resulting in a $5.25 million deemed dividend reflected in stockholders' equity and increasing net loss available to common stockholders[110][112] - Stock-based compensation expense decreased significantly from $512,529 in Q1 2023 to $18,580 in Q1 2024[115] Note 8 – Leases Provides information on the company's lease arrangements, right-of-use assets, and lease liabilities Lease Metrics | Lease Metric | March 31, 2024 | December 31, 2023 | | :---------------------------------- | :------------- | :---------------- | | Right-of-use-assets | $3,112,824 | $3,525,406 | | Current portion of lease liabilities | $873,344 | $901,925 | | Long-term portion lease liabilities | $2,336,393 | $2,721,743 | | Weighted-average remaining lease terms (in years) | 3.7 | 3.9 | | Weighted-average discount rate | 6.1% | 6.1% | - Operating lease expense payments were $245,050 for Q1 2024, a slight decrease from $261,480 for Q1 2023[134] Note 9 – Warrants Details the outstanding warrants, their exercise prices, and the impact of anti-dilution provisions - As of March 31, 2024, 3,370,301 warrants were outstanding and exercisable, with a weighted average exercise price of $2.13 and a remaining contractual term of 4.06 years[145] - The reduction in warrant exercise price to $0.60 on March 6, 2024, triggered down round provisions, leading to a deemed dividend (as detailed in Note 7)[139][144] Note 10 – Commitments and Contingencies Discloses the company's purchase commitments and other potential liabilities - As of March 31, 2024, the Company had purchase commitments of $2.67 million, expected to be realized during the year ending December 31, 2024[153] - The Company entered into an exclusive engagement letter with Dawson James Securities, Inc. on March 6, 2024, for equity and equity-linked securities offerings, including warrants to Dawson[151][152] Note 11 – Segment Information Presents financial data broken down by the company's operating segments and geographic regions Segment Performance | Segment (Three Months Ended March 31, 2024) | Revenues | Net Income (Loss) | | :------------------------------------------ | :--------- | :---------------- | | Drones | $1,146,612 | $(1,925,563) | | Sensors | $2,633,540 | $878,507 | | SaaS | $114,295 | $(421,039) | | Corporate | $0 | $(4,847,492) | | Total | $3,894,447 | $(6,315,587) | - Sensor segment revenues increased from $1.97 million in Q1 2023 to $2.63 million in Q1 2024, while Drone revenues decreased from $1.97 million to $1.15 million[156] - Europe, Middle East and Africa (EMEA) was the largest geographic revenue contributor in Q1 2024 with $1.69 million, followed by North America with $1.48 million[156] Note 12 – Subsequent Events Reports significant events that occurred after the balance sheet date - From April 1 to May 15, 2024, Alpha converted 835 shares of Series F Preferred Stock into 1,391,667 shares of Common Stock[158] - Effective April 15, 2024, William Irby was appointed Chief Executive Officer and Director, with an annual base salary of $375,000 and eligibility for RSU sign-on and performance bonuses[160][161] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on AgEagle's financial condition, results of operations, liquidity, and capital resources for the three months ended March 31, 2024, compared to the same period in 2023. It highlights the Company's strategic focus on defense and security markets, product innovation, and challenges related to liquidity and global economic factors Overview Provides a general introduction to AgEagle's business, strategic focus, and market position - AgEagle, through its subsidiaries, designs and delivers drones, sensors, and software, expanding from agriculture to defense, security, and commercial markets[164] - The Company has achieved regulatory approvals for its commercial and tactical drones to fly Beyond Visual Line of Sight (BVLOS) and/or Operations Over People (OOP) in multiple regions[165] - AgEagle is focused on growing its business, generating cash, and preserving its leadership position through new product development and strategic acquisitions[167] Key Growth Strategies Outlines the company's strategic initiatives for business expansion and market penetration - The Company intends to shift priority to a laser-like focus on the higher volume defense & security market while continuing to grow in precision agriculture and other civil/commercial markets[170] - AgEagle plans to deliver new and innovative solutions through continued investment in R&D and foster an entrepreneurial culture[170] - Growth through acquisition of technologically advanced companies and intellectual property is a key component of the strategy[170] Competitive Strengths Highlights AgEagle's core advantages, including technology, manufacturing, and regulatory achievements - AgEagle possesses proprietary technologies, in-house manufacturing capabilities, and a workforce primarily composed of experienced engineers and data scientists[169] - The eBee X series drones were the first commercial drones to receive C2 class identification label in accordance with EASA regulations, allowing flights closer to uninvolved people[171] - The eBee TAC UAS is available for purchase by all U.S. military branches and government agencies, including through the Company's GSA Schedule Contract[174] - In March 2024, AgEagle was selected to provide 50 RedEdge-P cameras to Greece's Hellenic Republic Ministry of Rural Development for agricultural monitoring[178] Impact of the Risks and Uncertainties On Our Business Operations Discusses how global economic factors and supply chain issues affect the company's operations - Global economic challenges, including war, pandemics, rising inflation, and supply-chain disruptions, continue to impact the UAV industry and AgEagle's operations[179] - The Company's ability to access components, parts, and labor for manufacturing proprietary drones and sensors has been, and continues to be, impacted[179] Three Months Ended March 31, 2024 as Compared to Three Months Ended March 31, 2023 Provides a comparative analysis of financial performance for the specified periods Revenues Analyzes the changes in revenue streams and their underlying drivers - Revenues decreased by $162,622 (4.0%) to $3.89 million in Q1 2024, compared to $4.06 million in Q1 2023[181] - Sensor sales increased by $663,345, offset by an $819,830 decline in eBee drone product revenues and a $6,137 decrease in SaaS subscription services[181] - Drone declines are attributed to customers postponing purchases until the eBee VISION release in September 2023, and longer purchase cycles for VARs and military contracts[181] Cost of Sales and Gross Profit Examines the trends in cost of sales and their impact on gross profit margins - Cost of sales decreased by $138,412 (6.7%) to $1.94 million in Q1 2024[182] - Gross profit decreased by $24,210 (1.2%) to $1.95 million in Q1 2024[182] - The decrease in gross profit was due to declining revenues from sensor and drone products, significant price reductions to stimulate demand, and supply chain pressures on sensor sales[182] Operating Expenses Discusses the changes and drivers of the company's total operating expenses - Total operating expenses decreased by $1.79 million (29.2%) to $4.35 million in Q1 2024[183] General and Administrative Expenses Details the factors influencing general and administrative costs - General and administrative expenses decreased by $896,864 (25.1%) to $2.68 million in Q1 2024, primarily due to less stock compensation expense and reduced stock price, partially offset by legal fees[184] Research and Development Explains the changes in research and development expenditures - Research and development expenses decreased by $452,114 (28.6%) to $1.13 million in Q1 2024, due to the integration of R&D teams and a reduction in consultants and internal headcounts[185] Sales and Marketing Analyzes the trends and drivers of sales and marketing expenses - Sales and marketing expenses decreased by $442,452 (45.2%) to $535,423 in Q1 2024, driven by reduced travel, integration of sales and marketing teams, and decreased digital advertising spend[186] Other Expense, net Explains the significant changes in other non-operating expenses - Other expense, net, significantly increased to $3.92 million in Q1 2024 from $438,391 in Q1 2023[187] - This increase was primarily due to $3.79 million in interest expense recognized from the anti-dilution price protection embedded in the convertible note, which reduced its conversion price from $1.25 to $0.60[187] Net Loss Discusses the factors contributing to the company's net loss - Net loss increased by $1.72 million (37.3%) to $6.32 million in Q1 2024, compared to $4.60 million in Q1 2023[188] - The increased loss was due to reduced sales and higher other expenses related to the convertible note, partially offset by lower operating expenses[188] Cash Flows Analyzes the cash generated or used in operating, investing, and financing activities - Cash on hand increased slightly by $3,897 (0.5%) to $822,921 as of March 31, 2024, from $819,024 as of December 31, 2023[189] - Net cash used in operating activities decreased by $2.64 million (62.9%) to $1.55 million in Q1 2024, driven by lower operating expenses, inventory purchases, and prepayments[190] - Net cash provided by financing activities decreased by $1.31 million (44.4%) to $1.64 million in Q1 2024, due to less common stock sales and warrant exercises in the prior year, partially offset by Series F Preferred stock sales[192] Liquidity and Capital Resources Assesses the company's ability to meet its short-term and long-term financial obligations - As of March 31, 2024, the Company had a working capital deficit of $1.97 million and incurred an operating loss of $2.39 million[193] - There is substantial doubt about the Company's ability to continue as a going concern, requiring additional liquidity to meet financial obligations over the next twelve months[193] - Management is evaluating strategies to obtain additional funding and restructure operations to grow revenues and reduce expenses[193] Off-Balance Sheet Arrangements Discloses any material off-balance sheet financial commitments - As of March 31, 2024, the Company did not have any material off-balance sheet arrangements, other than standard operating leases[194] Inflation Discusses the impact of inflationary pressures on the company's business operations - Inflation has negatively impacted the UAV systems industry and AgEagle's business globally, affecting access to components, parts, and labor for manufacturing[195] - The Company expects inflation and its effects to continue to have a significant negative impact on its business[195] Climate Change States management's assessment of climate change's impact on the company - Management believes that neither climate change nor related governmental regulations have had, or are expected to have, any material effect on the Company's operations[196] New Accounting Pronouncements Summarizes recently issued accounting standards and their expected impact - ASU 2023-09 (Income Taxes) and ASU 2023-07 (Segment Reporting) are effective for public business entities for annual periods beginning after December 15, 2024, and fiscal years beginning after December 15, 2023, respectively[197][198] - The adoption of these ASUs is expected to have a financial statement disclosure impact only and is not expected to materially impact the Company's consolidated financial statements[197][198] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a smaller reporting company, AgEagle Aerial Systems Inc. is not required to provide quantitative and qualitative disclosures about market risk - The Company is exempt from providing market risk disclosures as it qualifies as a "smaller reporting company"[199] ITEM 4. CONTROLS AND PROCEDURES This section details the evaluation of AgEagle's disclosure controls and procedures, noting their ineffectiveness as of March 31, 2024, due to a material weakness identified in accounting for a complex debt transaction Evaluation of Disclosure and Control Procedures Assesses the effectiveness of the company's disclosure controls and procedures - The Company's CEO and CFO concluded that disclosure controls and procedures were not effective as of March 31, 2024[202] Changes in Internal Control over Financial Reporting Reports on any changes in internal control over financial reporting during the period - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, internal control over financial reporting during Q1 2024[203] Material Weakness over a Complex Debt Transaction Identifies a material weakness in internal controls related to a complex debt transaction - A material weakness was identified in internal controls related to accounting for the modification of a complex convertible debt agreement[204] PART II – OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, and exhibits ITEM 1. LEGAL PROCEEDINGS AgEagle Aerial Systems Inc. reported no legal proceedings during the period - There were no legal proceedings to report[206] ITEM 1A. RISK FACTORS As a smaller reporting company, AgEagle Aerial Systems Inc. is not required to provide specific risk factor disclosures under this item - The Company is exempt from providing risk factor information as it qualifies as a "smaller reporting company"[207] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS AgEagle Aerial Systems Inc. reported no unregistered sales of equity securities or use of proceeds during the period - There were no unregistered sales of equity securities or use of proceeds to report[208] ITEM 3. DEFAULTS UPON SENIOR SECURITIES AgEagle Aerial Systems Inc. reported no defaults upon senior securities during the period - There were no defaults upon senior securities to report[209] ITEM 4. MINE SAFETY DISCLOSURES Mine safety disclosures are not applicable to AgEagle Aerial Systems Inc.'s operations - Mine safety disclosures are not applicable[210] ITEM 5. OTHER INFORMATION AgEagle Aerial Systems Inc. reported no other information required under this item - There was no other information to report[211] ITEM 6. EXHIBITS This section lists the exhibits filed with the Form 10-Q, including certifications and XBRL taxonomy extensions Exhibits List | Exhibit No. | Description | | :------------ | :---------------------------------------------------------------- | | 31.1 | Rule 13(a)-14(a)/15(d)-14(a) Certification of principal executive officer | | 31.2 | Rule 13(a)-14(a)/15(d)-14(a) Certification of principal financial officer | | 32.1 | Section 1350 Certification of principal executive officer | | 32.2 | Section 1350 Certification of principal financial officer and principal accounting officer | | 101.INS | XBRL INSTANCE DOCUMENT | | 101.SCH | XBRL TAXONOMY EXTENSION SCHEMA | | 101.CAL | XBRL TAXONOMY EXTENSION CALCULATION LINKBASE | | 101.DEF | XBRL TAXONOMY EXTENSION DEFINITION LINKBASE | | 101.LAB | XBRL TAXONOMY EXTENSION LABEL LINKBASE | | 101.PRE | XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE | SIGNATURES This section contains the official signatures of the company's executive officers - The report was signed by William Irby, Chief Executive Officer and Director, and Mark DiSiena, Chief Financial Officer, on May 15, 2024[215][216]