ITEM 1A. RISK FACTORS
The risk factors discussed below could cause our actual results to differ materially from those expressed in any forward-looking statements. Although we have attempted to list comprehensively these important factors, we caution you that other factors may in the future prove to be important in affecting our results of operations. New factors emerge from time to time, and it is not possible for us to predict all of these factors, nor can we assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement.
The risks described below set forth what we believe to be the most material risks associated with the purchase of our Common Stock. Before you invest in our Common Stock, you should carefully consider these risk factors, as well as the other information contained in this prospectus.
We have a history of operating losses and expect to incur significant additional operating expenses.
We have been operating through our wholly-owned subsidiary, AgEagle Aerial, Inc. for over ten years. It was not until 2021 that we acquired the latest go-to-market airframes, sensors and software technologies of our products. As of December 31, 2025, we had an accumulated deficit of approximately $231.2 million which included a net loss of approximately $5.3 million and a net loss of $35.0 million for the years ended December 31, 2025 and 2024, respectively. We are currently still incurring significant net losses as we continue to invest in our business strategy and grow our business as a result, we cannot guarantee that when we expect to generate sufficient cash flows from operations to be adequate to cover our operating business. Moreover, even if we achieve profitability, given the competitive and evolving nature of the industries in which we operate, we may be unable to sustain or increase profitability and failure to do so would adversely affect our business, including our ability to raise additional funds.
17
Table of Contents
We will need additional funding and may be unable to raise capital when needed, which would force us to delay, curtail or eliminate one or more of our research and development programs or commercialization efforts.
Our operations have consumed substantial amounts of cash since inception. We expect to continue to spend substantial amounts on product and software development. We will require additional funds to support our continued research and development activities, as well as the costs of commercializing, marketing and selling any existing and new products and/or services resulting from those activities. Until such time, that we can generate sufficient revenue and achieve profitability, we will need to meet our future cash needs through equity or debt financing. There can be no assurance that we will be successful in our capital raising efforts.
On June 26, 2022, the Company entered into a Securities Purchase Agreement (the “Series F Agreement”) with Alpha (as defined below). Pursuant to the terms of the Series F Agreement, the Board of Directors of the Company (the “Board” or the “Board of Directors”) designated a new series of Preferred Stock, the Series F 5% Preferred Convertible Stock (“Series F Convertible Preferred”), and authorized the sale and issuance of up to 35,000 shares of Series F Convertible Preferred. On June 5, 2023, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain accredited investors (the “Investors”), which included Alpha Capital Anstalt (“Alpha”). Pursuant to the terms of the Purchase Agreement, the Company has agreed to issue and sell to Investors (i) 16,720 shares of common stock at $250.00 per share and (ii) warrants to purchase up to 25,080 shares of common stock (the “Warrants”), exercisable at $380.00 per share and raised gross sales proceeds of $4,180,000. The Warrant is for a term of 5.5 years commencing on the closing date but is not exercisable for the first six months after closing. As a result, pursuant to the Purchase Agreement the Company issued 16,720 shares of common stock for proceeds of $3,817,400, net of issuance costs from the offering and warrants to purchase up to 25,080 shares of common stock exercisable at $380.00 per share.
On November 15, 2023, the Company and the Investors entered into an assignment agreement, pursuant to which, among other things, Alpha transferred and assigned to certain Investors (the “Assignees”) the rights and obligations to purchase up to $1,850,000, or 1,850 shares at a price of $1,000 per share, of Series F Convertible Preferred pursuant to the additional investment right provided in the Series F Agreement (the “Assigned Rights”).
18
Table of Contents
On March 6, 2024, in connection with the Assigned Rights, the Company received investor notices from Alpha and the Assignees for the aggregate purchase of 1,000 shares of Series F Convertible Preferred convertible into 16,588 shares of Common Stock at a conversion price of $60.29 and warrants to purchase up to 16,588 shares of Common Stock an exercise price of $60.29 per share for an aggregate purchase price of $1,000,000. The Warrants were immediately exercisable upon issuance and have a three-year term.
On April 12, 2024, the Company received an investor notice from Alpha for the aggregate purchase of 1,050 shares of Series F Convertible Preferred convertible into 28,378 shares of Common Stock, in the aggregate, at a conversion price of $37.00 and warrants to purchase up to 28,378 shares of Common Stock at an exercise price of $37.00 per share (based on the VWAPs of the Company’s common stock for April 9, 2024, April 10, 2024, and April 11,2024) for an aggregate purchase price of $1,050,000. The Warrants were immediately exercisable upon issuance and have a three-year term.
On May 31, 2024, the Company received investor notices from Alpha and certain of the Assignees for the aggregate purchase of 1,050 shares of Series F Convertible Preferred convertible into 32,659 shares of Common Stock at a conversion price of $32.15 and warrants to purchase up to 32,659 shares of Common Stock at an exercise price of $32.15 per share for an aggregate purchase price of $1,050,000. The Warrants were immediately exercisable upon issuance and have a three-year term.
On July 25, 2024, the Company received investor notice from Alpha for the aggregate purchase of 500 shares of Series F Convertible Preferred convertible into 21,598 shares of Common Stock at a conversion price of $23.15 and warrants to purchase up to 21,598 shares of Common Stock at an exercise price of $23.15 per share for an aggregate purchase price of $500,000. The Warrants were immediately exercisable upon issuance and have a three-year term.
On August 27, 2024, the Company received investor notice from Alpha for the aggregate purchase of 500 shares of Series F Convertible Preferred convertible into 24,765 shares of Common Stock at a conversion price of $20.19 and warrants to purchase up to 24,765 shares of Common Stock at an exercise price of $20.19 per share for an aggregate purchase price of $500,000. The Warrants were immediately exercisable upon issuance and have a three-year term.
On September 30, 2024, the Company entered into a placement agency agreement (the “Placement Agency Agreement”) with Spartan Capital Securities, LLC (the “Placement Agent”) in connection with the issuance and sale by the Company in a public offering (the “Offering”) of 538,000 units (the “Units”), consisting of common units (“Common Units”), each consisting of one share of common stock of the Company, $0.001 par value per share, one Series A warrant (“Series A Warrant”) to purchase one share of common stock and one Series B warrant (“Series B Warrant”) to purchase one share of common stock and pre-funded Units (the “Pre-Funded Units” and together with the Common Units, the “Units”), with each Pre-Funded Unit consisting of one pre-funded warrant (the “Pre-Funded Warrants”) to purchase one share of common stock, one Series A Warrant to purchase one share of common stock and one Series B Warrant to purchase one share of common stock, resulting in net proceed of $5,677,739.
On October 7, 2024, as part of “October 2024 Offering”, the Company issued and delivered to Alpha 1,500 shares of Series F 5% Convertible Preferred Stock with an aggregate stated value of $1,500,000 and having all the rights and benefits of Series F 5% Convertible Preferred Stock convertible into 1,363,636 shares of Common Stock with a conversion price of $1.10 as of December 31, 2024.
On December 18, 2024, the Company received investor notice from Alpha for the aggregate purchase of 750 shares of Series F Convertible Preferred convertible into 142,857 shares of Common Stock at a conversion price of $5.25 and warrants to purchase up to 142,857 shares of Common Stock at an exercise price of $5.25 per share for an aggregate purchase price of $750,000. The Warrants were immediately exercisable upon issuance and have a three-year term.
19
Table of Contents
On February 7, 2025, the Company received investor notice from Alpha for the aggregate purchase of 1,000 shares of Series F Convertible Preferred convertible into 450,390 shares of Common Stock at a conversion price of $2.22 and warrants to purchase up to 450,390 shares of Common Stock at an exercise price of $2.22 per share for an aggregate purchase price of $1,000,000. The Warrants were immediately exercisable upon issuance and have a three-year term.
On March 17, 2025, the Company received investor notice from Alpha for the aggregate purchase of 500 shares of Series F Convertible Preferred convertible into 415,420 shares of Common Stock at a conversion price of $1.20 and warrants to purchase up to 415,420 shares of Common Stock at an exercise price of $1.20 per share for an aggregate purchase price of $ 500,000. The Warrants were immediately exercisable upon issuance and have a three-year term.
On May 5, 2025, the Company received investor notice from Alpha for the aggregate purchase of 500 shares of Series F Convertible Preferred convertible into 602,846 shares of Common Stock at a conversion price of $0.83 and warrants to purchase up to 602,846 shares of Common Stock at an exercise price of $0.83 per share for an aggregate purchase price of $ 500,000. The Warrants were immediately exercisable upon issuance and have a three-year term.
On June 6, 2025, the Company received investor notice from Alpha for the aggregate purchase of 500 shares of Series F Convertible Preferred convertible into 418,831 shares of Common Stock at a conversion price of $1.19 and warrants to purchase up to 418,831 shares of Common Stock at an exercise price of $1.19 per share for an aggregate purchase price of $ 500,000. The Warrants were immediately exercisable upon issuance and have a three-year term.
On June 9, 2025, the Company received investor notice from Alpha for the aggregate purchase of 1,000 shares of Series F Convertible Preferred convertible into 838,364 shares of Common Stock at a conversion price of $1.19 and warrants to purchase up to 838,364 shares of Common Stock at an exercise price of $1.19 per share for an aggregate purchase price of $ 1,000,000. The Warrants were immediately exercisable upon issuance and have a three-year term.
On June 17, 2025, the Company received investor notice from Alpha for the aggregate purchase of 1,000 shares of Series F Convertible Preferred convertible into 797,067 shares of Common Stock at a conversion price of $1.26 and warrants to purchase up to 797,067 shares of Common Stock at an exercise price of $1.26 per share for an aggregate purchase price of $ 1,000,000. The Warrants were immediately exercisable upon issuance and have a three-year term.
On July 11, 2025, the Company received investor notice from Alpha for the aggregate purchase of 800 shares of Series F Convertible Preferred convertible into 671,818 shares of Common Stock at a conversion price of $1.19 and warrants to purchase up to 671,818 shares of Common Stock at an exercise price of $1.19 per share for an aggregate purchase price of $ 800,000. The Warrants were immediately exercisable upon issuance and have a three-year term.
On July 18, 2025, the Company received investor notice from Alpha for the aggregate purchase of 1,000 shares of Series F Convertible Preferred convertible into 714,286 shares of Common Stock at a conversion price of $1.40 and warrants to purchase up to 714,286 shares of Common Stock at an exercise price of $1.40 per share for an aggregate purchase price of $ 1,000,000. The Warrants were immediately exercisable upon issuance and have a three-year term.
On July 21, 2025, the Company received investor notice from Alpha for the aggregate purchase of 500 shares of Series F Convertible Preferred convertible into 357,143 shares of Common Stock at a conversion price of $1.40 and warrants to purchase up to 357,143 shares of Common Stock at an exercise price of $1.40 per share for an aggregate purchase price of $ 500,000. The Warrants were immediately exercisable upon issuance and have a three-year term.
On July 24, 2025, the Company received investor notice from Alpha for the aggregate purchase of 1,000 shares of Series F Convertible Preferred convertible into 456,621 shares of Common Stock at a conversion price of $2.19 and warrants to purchase up to 456,621 shares of Common Stock at an exercise price of $2.19 per share for an aggregate purchase price of $ 1,000,000. The Warrants were immediately exercisable upon issuance and have a three-year term.
On August 22, 2025, the Company received investor notice from Alpha for the aggregate purchase of 500 shares of Series F Convertible Preferred convertible into 275,497 shares of Common Stock at a conversion price of $1.82 and warrants to purchase up to 275,497 shares of Common Stock at an exercise price of $1.82 per share for an aggregate purchase price of $ 500,000. The Warrants were immediately exercisable upon issuance and have a three-year term.
On September 19, 2025, the Company received investor notice from Alpha for the aggregate purchase of 500 shares of Series F Convertible Preferred convertible into 272,598 shares of Common Stock at a conversion price of $1.83 and warrants to purchase up to 272,598 shares of Common Stock at an exercise price of $1.832 per share for an aggregate purchase price of $ 500,000. The Warrants were immediately exercisable upon issuance and have a three-year term.
On October 3, 2025, the Company received investor notice from Alpha for the aggregate purchase of 2,000 shares of Series F Convertible Preferred convertible into 967,165 shares of Common Stock at a conversion price of $2.07 and warrants to purchase up to 967,165 shares of Common Stock at an exercise price of $2.07 per share for an aggregate purchase price of $ 2,000,000. The Warrants were immediately exercisable upon issuance and have a three-year term.
On October 6, 2025, the Company received investor notice from Alpha for the aggregate purchase of 1,000 shares of Series F Convertible Preferred convertible into 426,857 shares of Common Stock at a conversion price of $2.34 and warrants to purchase up to 426,857 shares of Common Stock at an exercise price of $2.34 per share for an aggregate purchase price of $ 1,000,000. The Warrants were immediately exercisable upon issuance and have a three-year term.
On November 24, 2025, the Company received investor notice from Alpha for the aggregate purchase of 500 shares of Series F Convertible Preferred convertible into 440,645 shares of Common Stock at a conversion price of $1.14 and warrants to purchase up to 440,645 shares of Common Stock at an exercise price of $1.14 per share for an aggregate purchase price of $ 500,000. The Warrants were immediately exercisable upon issuance and have a three-year term.
On December 22, 2025, the Company received investor notice from Alpha for the aggregate purchase of 500 shares of Series F Convertible Preferred convertible into 520,021 shares of Common Stock at a conversion price of $0.96 and warrants to purchase up to 520,021 shares of Common Stock at an exercise price of $0.96 per share for an aggregate purchase price of $ 500,000. The Warrants were immediately exercisable upon issuance and have a three-year term.
On November 5, 2025, the Company executed a certificate of designation of preferences, rights and limitations of the Series G Convertible Preferred Stock (the “Certificate of Designation”), designating 100,000 shares of Series G Convertible Preferred Stock ("Series G"), with a par value of $0.001 and a stated value of $1,000.
On November 10, 2025, the Company received investor notice from Alpha for the aggregate purchase of 10,000 shares of Series G Convertible Preferred convertible into 8,130,081 shares of Common Stock at a conversion price of $1.23 for an aggregate purchase price of $ 10,000,000. Also, on this date, the Company received notice from another investor to buy 2,000 shares of Series G Convertible Preferred into 1,626,016 shares of Common Stock at the same conversion price for an aggregate purchase price of $2,000,000.
In addition to sales of Series F Convertible Preferred Stock and Series G Convertible Preferred in 2025,we believe our current cash balance, and working capital, help to alleviate previous doubt regarding our ability to continue as a going concern. As of December 31, 2025, our cash balance was expected to be sufficient enough to meet our financial obligations for at least the next twelve months from the date these consolidated financial statements are issued and we believe we have access to sufficient capital to implement our business strategy while meeting our financial obligations under the Purchase Agreement.
We operate in evolving markets, which makes it difficult to evaluate our business and future prospects.
AgEagle’s drone, sensors and software technologies are and will be sold in new and rapidly evolving markets. The commercial UAV industry is in the early stages of customer adoption and the FAA’s definition of regulations relating to the integration of commercial drones into the U.S. National Airspace System is rapidly evolving. Accordingly, our business and future prospects may be difficult to evaluate. We cannot accurately predict the extent to which demand for our drone systems and solutions will increase, if at all. The challenges, risks and uncertainties frequently encountered by companies in rapidly evolving markets could impact our ability to do the following:
● Generate sufficient revenue to achieve sustainable profitability;
● Acquire and maintain market share;
● Achieve or manage growth in our business operations;
● Renew contracts;
20
Table of Contents
● Access to additional capital when required and on reasonable terms.
If we fail to address these and other challenges, risks and uncertainties successfully, our business, results of operations and financial condition would be materially harmed.
Product development is a long, expensive, and uncertain process.
The development of UAV systems is a costly, complex and time-consuming process, and investments in product development often involve a long wait until a return, if any, can be achieved on such investment. We might face difficulties or delays in the development process that will result in our inability to timely offer products that satisfy the market, which might allow competing products to emerge during the development and certification process. We plan to continue making significant investments in research and development relating to our products and technology services, but such investments are inherently speculative and require substantial capital expenditures. Any unforeseen technical obstacles and challenges that we encounter in the research and development process could result in delays in or the abandonment of product commercialization, may substantially increase development costs, and will likely negatively affect our results of operations.
Successful technical development of our products does not guarantee successful commercialization.
Although we have successfully acquired our fully developed go-to-market UAV systems, sensors, and software technology solutions ready for sale or subscription, we may still fail to achieve commercial success for several reasons, including, among others, the following:
● failure to obtain the required regulatory approvals for their use;
● rapid obsolescence of a product due to new, more advanced technologies;
● prohibitive production costs;
● competing products;
● lack of product innovation;
● unsuccessful distribution and marketing through our sales channels;
● insufficient cooperation from our supply and distribution partners; and
● product development that does not align with or meet customer needs.
Our success in the market for the products and services we develop will depend largely on our ability to properly demonstrate their capabilities. Upon demonstration, our solutions may not have the capabilities they were designed to have or that we believed they would have. Furthermore, even if we do successfully demonstrate our products’ capabilities, potential customers may be more comfortable doing business with our competitors; or may not feel there is a significant need for the products we develop. As a result, significant revenue from our current and new product investments may not be achieved for several years, if at all, and that will affect the Company’s profitability.
We face competition from other companies, many of which have substantially greater resources.
Our competitors may be able to provide customers with products that have different or greater capabilities or benefits than we can provide in areas such as technical qualifications, past contract performance, geographic presence, price, and the availability of key professional personnel. Furthermore, many of our competitors may be able to utilize their substantially greater resources and economies of scale to develop competing products and technologies, manufacture in high volumes more efficiently, divert sales away from us by winning broader contracts or hire away our employees by offering more lucrative compensation packages. Small business competitors may be able to offer more cost competitive solutions, due to their lower overhead costs. The markets for commercial drones and services are quickly expanding, and competition is intensifying as additional competitors enter the market and current competitors expand their product offerings. In order to secure contracts successfully when competing with larger, better financed companies, we may be forced to agree to contractual terms that provide for lower aggregate payments to us over the life of the contract, which could adversely affect our margins. Our failure to compete effectively could have a material adverse effect on our business, prospects, financial condition or future operating results.
21
Table of Contents
If we fail to protect our intellectual property rights, we could lose our ability to compete in the marketplace.
Our intellectual property and proprietary rights are important to our ability to remain competitive and successful in the development of our products and to our future growth potential. Patent protection can be limited and not all intellectual property can be patented. We expect to rely on a combination of patent, trademark, copyright and trade secret laws, as well as confidentiality and non-disclosure agreements and procedures, non-competition agreements and other contractual provisions to protect our intellectual property, other proprietary rights and our brand. As we currently only have a limited amount of granted patent or copyright protections, we must rely on trade secrets and nondisclosure agreements, which provide limited protections. Our intellectual property rights may be challenged, invalidated, or circumvented by third parties. We may not be able to prevent the unauthorized disclosure or use of our technical knowledge or other trade secrets by employees or competitors.
Furthermore, our competitors may independently develop technologies and products that are substantially equivalent or superior to our technologies and products, which could result in decreased revenues. Litigation may be necessary to enforce our intellectual property rights, which could result in substantial costs to us and substantial diversion of management’s attention. If we do not adequately protect our intellectual property, our competitors could use it to enhance their products. Our inability to adequately protect our intellectual property rights could adversely affect our business and financial condition, and the value of our brand and other intangible assets.
Other companies may claim that we infringe their intellectual property, which could materially increase our costs and harm our ability to generate future revenue and profit.
We do not believe that our technologies infringe on the proprietary rights of any third party; however, claims of infringement are becoming increasingly common and third parties may assert infringement claims against us. It may be difficult or impossible to identify, prior to receipt of notice from a third party, the trade secrets, patent position or other intellectual property rights of a third party, either in the United States or in foreign jurisdictions. Any such assertion may result in litigation or may require us to obtain a license for the intellectual property rights of third parties. If we are required to obtain licenses to use any third-party technology, we would have to pay royalties, which may significantly reduce any profit on our products. In addition, any such litigation could be expensive and disruptive to our ability to generate revenue or enter into new market opportunities. If any of our products were found to infringe other parties’ proprietary rights and we are unable to come to terms regarding a license with such parties, we may be forced to modify our products to make them non-infringing or to cease production of such products altogether.
The nature of our business involves significant risks and uncertainties that may not be covered by insurance or indemnification.
We have developed and sold products and services in circumstances where insurance or indemnification may not be available, for example, in connection with the collection and analysis of various types of information. In addition, our products and services raise questions with respect to issues of civil liberties, intellectual property, trespass, conversion, and similar concepts, which may create legal issues. Indemnification to cover potential claims or liabilities resulting from the failure of any technologies that we develop or deploy may be available in certain circumstances but not in others. Currently, the uncrewed aerial systems industry lacks a formative insurance market. We may not be able to maintain insurance to protect against all operational risks and uncertainties that our customers confront. Substantial claims resulting from an accident, product failure, or personal injury or property liability arising from our products and services in excess of any indemnity or insurance coverage (or for which indemnity or insurance coverage is not available or is not obtained) could harm our financial condition, cash flows and operating results. Any accident, even if fully covered or insured, could negatively affect our reputation among our customers and the public, and make it more difficult for us to compete effectively.
22
Table of Contents
We may incur substantial product liability claims relating to our products.
As a manufacturer of UAV products, and with aircraft and aviation sector companies under increased scrutiny in recent years, claims could be brought against us if use or misuse of one of our UAV products causes, or merely appears to have caused, personal injury or death. In addition, defects in our products may lead to other potential life, health and property risks. Any claims against us, regardless of their merit, could severely harm our financial condition, strain our management and other resources. We are unable to predict if we will be able to obtain or maintain product liability insurance for any of our products.
We maintain cash deposits in excess of federally insured limits. Adverse developments affecting financial institutions, including bank failures, could adversely affect our liquidity and financial performance.
We regularly maintain domestic cash deposits in Federal Deposit Insurance Corporation (“FDIC”) insured banks, which exceed the FDIC insurance limits. We also maintain cash deposits in foreign banks where we operate, some of which are not insured or are only partially insured by the FDIC or other similar agencies. Bank failures, events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, or concerns or rumors about such events, may lead to liquidity constraints. For example, on March 10, 2023, Silicon Valley Bank failed and was taken into receivership by the FDIC. Additionally, on March 15, 2023, Credit Suisse announced that it would borrow up to 50 billion Swiss francs, or $53.7 billion, from the Swiss National Bank to address its liquidity concerns. We have historically maintained deposits less than $1 million euros at Credit Suisse and have now lowered our funds as part of our risk mitigation plan in connection with the foregoing, we may increase our deposits at Credit Suisse in the future however there can be no assurance that we will be able to effectively mitigate the risk of loss should a similar event impact Credit Suisse in the future or any other bank at which we maintain deposits. The failure of a bank, or other adverse conditions in the financial or credit markets impacting financial institutions at which we maintain balances, could adversely impact our liquidity and financial performance. There can be no assurance that our deposits in excess of the FDIC or other comparable insurance limits will be backstopped by the U.S. or applicable foreign government, or that any bank or financial institution with which we do business will be able to obtain needed liquidity from other banks, government institutions or by acquisition in the event of a failure or liquidity crisis.
If our subcontractors or suppliers fail to perform their contractual obligations, our performance and reputation as a contractor and our ability to obtain future business could suffer.
We often rely upon other companies to perform work we are obligated to perform for our customers. As we secure more work under certain of our contracts, we expect to require an increasing level of support from subcontractors that provide complementary or supplementary services to our offers. We are responsible for the work performed by our subcontractors, even though in some cases we have limited involvement in that work. If one or more of our subcontractors fails to satisfactorily perform the agreed-upon services on a timely basis or violates contracting policies, laws or regulations, our ability to perform our obligations as a prime contractor or meet our customers’ requirements may be compromised. In extreme cases, performance, or other deficiencies on the part of our subcontractors could result in a customer terminating our contract for default. A termination for default could expose us to liability, including liability for the costs of re-procurement, could damage our reputation and could hurt our ability to compete for future contracts.
For certain of the components included in our products, there are a limited number of suppliers we can rely upon. If we are unable to obtain these components when needed, we could experience delays in the manufacturing of our products and our financial results could be adversely affected.
Suppliers of some of the components of our products may require us to place orders with significant lead-time to assure supply in accordance with their manufacturing requirements and enter into agreements specifically for our technological services business. Delays in supply may significantly hurt our ability to fulfill our contractual obligations and therefore our business and result of operations. In addition, we may not be able to continue to obtain such components from these suppliers on satisfactory commercial terms. Disruptions of our manufacturing operations would ensue if we were required to obtain components from alternative sources, which would have an adverse effect on our business, results of operations and financial condition.
23
Table of Contents
If we are unable to recruit and retain key management, technical and sales personnel, our business would be negatively affected.
For our business to be successful, we need to attract and retain highly qualified executive, technical and sales personnel. The failure to recruit additional key personnel when needed, with specific qualifications, on acceptable terms and with an ability to maintain positive relationships with our partners, might impede our ability to continue to develop, commercialize and sell our products and services. To the extent the demand for skilled personnel exceeds supply, we could experience higher labor, recruiting and training costs in order to attract and retain such employees. The loss of any members of our management team may also delay or impair achievement of our business objectives and result in business disruptions due to the time needed for their replacements to be recruited and become familiar with our business. We face competition for qualified personnel from other companies with significantly more resources available to them and thus may not be able to attract the level of personnel needed for our business to succeed.
If our proposed marketing efforts are unsuccessful, we may not earn enough revenue to become profitable.
Our future growth depends on our gaining market acceptance and regular production orders for our products and services. Our marketing plan includes attendance at trade shows, conducting private demonstrations, advertising, social media, public relations, promotional materials and advertising campaigns in print and/or broadcast media. In addition, our marketing plan incorporates strategies to nurture, expand and leverage our global reseller network and relationships with government and defense contractors to achieve greater market penetration in the commercial and government/military verticals. In the event we are not successful in obtaining a significant volume of orders for our products and technology services, we will face significant obstacles in expanding our business. We cannot give any assurance that our marketing efforts will be successful. If they are not, revenue may not be sufficient to cover our fixed costs and we may not become profitable.
Our operating margins may be negatively impacted by a reduction in sales or an increase in the cost of products sold.
Expectations regarding future sales and expenses are largely fixed in the short term. We maintain raw materials and finish goods at a volume we feel is necessary for anticipated distribution and sales. Therefore, we may not be able to reduce costs in a timely manner to compensate for any unexpected shortfalls between forecasted and actual sales. Additionally, the countries in which we purchase raw materials from to manufacture our finished product could become subject to new trade restrictions, including increased taxation on imported goods, customs restrictions, tariffs or quotas.
We face a significant risk of failure because we cannot accurately forecast our future revenues and operating results.
The rapidly changing nature of the markets in which we compete makes it difficult to accurately forecast our revenues and operating results. Furthermore, we expect our revenues and operating results to fluctuate in the future due to a number of factors, including the following:
● the timing of sales or subscription of our products;
● unexpected delays in introducing new products and services;
● costs related to possible acquisitions of businesses.
24
Table of Contents
Rapid technological changes may adversely affect the market acceptance of our products and could adversely affect our business, financial condition, and results of operations.
The markets in which we compete are subject to technological changes, introduction of new products, changes in customer demands and evolving industry standards. Our future success will depend upon our ability to keep pace with technological developments and to timely address the increasingly sophisticated needs of our customers by supporting existing and new technologies and by developing and introducing enhancements to our current products and services and new products and services. We may not be successful in developing and marketing enhancements to our products that will respond to technological change, evolving industry standards or customer requirements. In addition, we may experience difficulties internally or in conjunction with key vendors and partners that could delay or prevent the successful development, introduction and sale of such enhancements and such enhancements may not adequately meet the requirements of the market and may not achieve any significant degree of market acceptance. If the release dates of our new products or enhancements are delayed or, if when released, they fail to achieve market acceptance, our business, operating results, and financial condition may be adversely affected.
Failure to obtain necessary regulatory approvals from the FAA or other governmental agencies, or limitations put on the use of small UAS in response to public privacy concerns, may prevent us from expanding the sales of our drone solutions to commercial and industrial customers in the United States.
The regulation of small UAS for commercial use in the United States is undergoing substantial change and the ultimate treatment is uncertain. In August 2016, the FAA’s final rules regarding the routine use of certain small UAS (under 55 pounds) in the U.S. National Airspace System went into effect, providing safety regulations for small UAS conducting non-recreational operations and contain various limitations and restrictions for such operations, including a requirement that operators keep UAS within visual-line-of-sight and prohibiting flights over unprotected people on the ground who are not directly participating in the operation of the UAS. In April 2021, the FAA’s final rules requiring remote identification of UAS went into effect. On the same day, the final rule for operation of small UAS to fly over people and at night under certain conditions also went into effect. We cannot assure you that any additional final rules will result in the expanded use of our UAS and UAS solutions by commercial and industrial entities. In addition, there exists public concern regarding the privacy implications of U.S. commercial use of small UAS. This concern has included calls to develop explicit written policies and procedures establishing usage limitations. We cannot assure you that the response from regulatory agencies, customers and privacy advocates to these concerns will not delay or restrict the adoption of small UAS by the commercial use markets.
We may pursue additional strategic transactions in the future, which could be difficult to implement, disrupt our business or change our business profile significantly.
We intend to consider additional potential strategic transactions, which could involve acquisitions of businesses or assets, joint ventures or investments in businesses, products or technologies that expand, complement or otherwise relate to our current or future business. We may also consider, from time to time, opportunities to engage in joint ventures or other business collaborations with third parties to address particular market segments. Should our relationships fail to materialize into significant agreements, or should we fail to work efficiently with these companies, we may lose sales and marketing opportunities and our business, results of operations and financial condition could be adversely affected.
These activities, if successful, create risks such as, among others: (i) the need to integrate and manage the businesses and products acquired with our own business and products; (ii) additional demands on our resources, systems, procedures and controls; (iii) disruption of our ongoing business; (iv) potential unknown or unquantifiable liabilities associated with the target company; and (v) diversion of management’s attention from other business concerns. Moreover, these transactions could involve: (a) substantial investment of funds or financings by issuance of debt or equity securities; (b) substantial investment with respect to technology transfers and operational integration; and (c) the acquisition or disposition of product lines or businesses. Also, such activities could result in one-time charges and expenses and have the potential to either dilute the interests of our existing shareholders or result in the issuance of, or assumption of debt. Such acquisitions, investments, joint ventures or other business collaborations may involve significant commitments of financial and other resources. Any such activities may not be successful in generating revenue, income or other returns, and any resources we committed to such activities will not be available to us for other purposes. Moreover, if we are unable to access the capital markets on acceptable terms or at all, we may not be able to consummate acquisitions or may have to do so on the basis of a less than optimal capital structure. Our inability to take advantage of growth opportunities or address risks associated with acquisitions or investments in businesses may negatively affect our operating results.
Additionally, any impairment of goodwill or other intangible assets acquired in an acquisition or in an investment, or charges to earnings associated with any acquisition or investment activity, may materially reduce our earnings. Future acquisitions or joint ventures may not result in their anticipated benefits and we may not be able to properly integrate acquired products, technologies or businesses with our existing products and operations or successfully combine personnel and cultures. Failure to do so could deprive us of the intended benefits of those acquisitions.
25
Table of Contents
Cyberattacks and other security breaches of network or information technology security could have an adverse effect on our business.
We maintain information necessary to conduct our business, including confidential and proprietary information as well as personal information regarding our customers and employees, in digital form. We also use computer systems to deliver our products and services and operate our businesses. Data maintained in digital form is subject to the risk of unauthorized access, modification, exfiltration, destruction or denial of access and our computer systems are subject to cyberattacks that may result in disruptions in service. We use many third-party systems and software, which are also subject to supply chain and other cyberattacks. We develop and maintain an information security program to identify and mitigate cyber risks, but the development and maintenance of this program is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated. Accordingly, despite our efforts, the risk of unauthorized access, modification, exfiltration, destruction or denial of access with respect to data or systems and other cybersecurity attacks cannot be eliminated entirely, and the risks associated with a potentially material incident remain. In addition, we provide some confidential, proprietary and personal information to third parties in certain cases when it is necessary to pursue business objectives. While we obtain assurances that these third parties will protect this information and, where we believe appropriate, monitor the protections employed by these third parties, there is a risk the confidentiality of data held by third parties may be compromised.
The potential liabilities associated with these events could exceed the insurance coverage we maintain. Our inability to operate our facilities as a result of such events, even for a limited period of time, may result in significant expenses or loss of market share to other competitors. In addition, a failure to protect the privacy of customer and employee confidential data against breaches of technology platforms or IT security could result in damage to our reputation. To date, we have not been subject to cyber-attacks or other cyber incidents which, individually or in aggregate, resulted in a material adverse effect on our business, operating results and financial condition.
Successful cybersecurity attacks or other security incidents however, could result in, for example, one or more of the following: unauthorized access to, disclosure, modification, misuse, loss, or destruction of company, customer, or other third party data or systems; theft or import or export of sensitive, regulated, or confidential data including personal information and intellectual property, including key innovations in artificial intelligence, quantum, or other disruptive technologies; the loss of access to critical data or systems through ransomware, crypto mining, destructive attacks or other means; and business delays, service or system disruptions or denials of service.
We may not be successful in our artificial intelligence initiatives, which could adversely affect our business, reputation, or financial results.
The development of generative artificial intelligence (“AI”) technologies is complex, and there are technical challenges associated with achieving the desired level of accuracy, efficiency, and reliability. The algorithms and models utilized in generative AI systems may have limitations, including biases, errors, or inability to handle certain data types or scenarios. Furthermore, there is a risk of system failures, disruptions, or vulnerabilities that could compromise the integrity, security, or privacy of the generated content. These limitations or failures could result in reputational damage, legal liabilities, or loss of user confidence.
26
Table of Contents
The preparation of our financial statements involves use of estimates, judgments and assumptions, and our financial statements may be materially affected if our estimates prove to be inaccurate.
Financial statements prepared in accordance with generally accepted accounting principles in the United States require the use of estimates, judgments, and assumptions that affect the reported amounts. Different estimates, judgments, and assumptions reasonably could be used that would have a material effect on the financial statements, and changes in these estimates, judgments and assumptions are likely to occur from period to period in the future. These estimates, judgments, and assumptions are inherently uncertain, and, if they prove to be wrong, then we face the risk that charges to income will be required.
Our results of operations can be significantly affected by foreign currency fluctuations and regulations.
A significant portion of our revenues are currently derived in the local currencies of the foreign jurisdictions in which our products are sold. Accordingly, we are subject to risks relating to fluctuations in currency exchange rates. In the future, and especially as we further expand our sales efforts in international markets, our customers will increasingly make payments in non-U.S. currencies. Fluctuations in foreign currency exchange rates could affect our revenues, operating costs, and operating margins. In addition, currency devaluation can result in a loss to us if we hold deposits of that currency or if it reduces the cost-competitiveness of our products. We cannot predict the effect of future exchange rate fluctuations on our operating results.
Our results could be adversely affected by natural disasters, public health crises, political crises, or other catastrophic events.
Natural disasters, such as hurricanes, tornadoes, floods, earthquakes and other adverse weather and climate conditions; unforeseen public health crises, such as pandemics and epidemics; political crises, such as terrorist attacks, war, labor unrest, and other political instability; or other catastrophic events, such as disasters occurring at our manufacturing facilities, could disrupt our operations or the operations of one or more of our vendors. In particular, these types of events could impact our product supply chain from or to the impacted region and could impact our ability to operate. In addition, these types of events could negatively impact consumer spending in the impacted regions. Disasters occurring at our facilities could impact on our reputation and our customers’ perception of our brands. To the extent any of these events occur, our operations and financial results could be adversely affected.
International trade disruptions or disputes could adversely affect our business and operating results.
Significant portions of our business are conducted in Europe, Asia, and other international geographies. Interruptions in international relationships such as the exit by the U.K., commonly referred to as “Brexit” from the EU, or the rapidly evolving conflicts between Russia and Ukraine, Israel and Hamas, Isreal, the United States and Iran and trade disputes such as the current trade negotiations between the U.S. and China, could result in changes to regulations governing our products and our intellectual property, disruption of our manufacturing or commercial operations, our inability to timely engage with and collect payment from customers in Russia and other affected regions, or otherwise affect our ability to do business. Although these global problems transcend our company and afflict companies across industries and borders, these and similar events could adversely affect us, or our business partners or customers.
Russia’s military conflict in Ukraine have led to, and may lead to, additional sanctions being levied by the United States, European Union and other countries against Russia. Russia’s military incursion and the resulting sanctions could adversely affect global energy and financial markets. Although our business does not have any direct exposure to Russia or the adjoining geographic regions, the extent and duration of the military action, sanctions, and resulting market disruptions are impossible to predict, but could be substantial. Any such disruptions caused by Russian military action or resulting sanctions may magnify the impact of other risks described in this section. We cannot predict the progress or outcome of the situation in Ukraine, as the conflict and governmental reactions are rapidly developing and beyond our control. Prolonged unrest intensified military activities or more extensive sanctions impacting the region could have a material adverse effect on the global economy, and such effect could in turn have a material adverse effect on the operations, results of operations, financial condition, liquidity and business outlook of our business.
27
Table of Contents
There has been volatility in financial markets as a result of a number of factors, including, but not limited to, banking instability, global conflict, including the wars in Iran, Ukraine, and the Israel-Hamas war, inflation, changes in interest rates, and volatile markets. There is a risk that as a result of these macroeconomic factors, we could experience declines in all, or in portions of our business. Economic uncertainty may cause some of our current or potential customers to curtail spending in our marketplace and may ultimately result in cost challenges to our operations. Any resulting adverse effects to our customers’ liquidity or financial performance could reduce the demand for our products or affect our allowance for collectability of accounts receivable. These adverse conditions could result in reductions in revenue, increased operating expenses, longer sales cycles, slower adoption of new technologies, and increased competition. We cannot predict the timing, strength, or duration of any economic slowdown or any subsequent recovery generally. If general economic conditions significantly deviate from present levels, our business, financial condition, and operating results could be adversely affected.
We are subject to the Foreign Corrupt Practices Act (the “FCPA”), which generally prohibits companies and their intermediaries from making payments to non-U.S. government officials for the purpose of obtaining or retaining business or securing any other improper advantage.
We are also subject to anti-bribery laws in the jurisdictions in which we operate. Although we have policies and procedures designed to ensure that we, our employees and our agents comply with the FCPA and other anti-bribery laws, there is no assurance that such policies or procedures will protect us against liability under the FCPA or other laws for actions taken by our agents, employees and intermediaries with respect to our business or any businesses that we acquire. We do business in a number of countries in which FCPA violations by other companies have recently been enforced. Failure to comply with the FCPA, other anti-bribery laws or other laws governing the conduct of business with foreign government entities, including local laws, could disrupt our business and lead to severe criminal and civil penalties, including imprisonment, criminal and civil fines, loss of our export licenses, suspension of our ability to do business with the federal government, denial of government reimbursement for our products and/or exclusion from participation in government healthcare programs. Other remedial measures could include further changes or enhancements to our procedures, policies, and controls and potential personnel changes and/or disciplinary actions, any of which could have a material adverse effect on our business, financial condition, results of operations and liquidity. We could also be adversely affected by any allegation that we violated such laws.
We are subject to governmental export and import controls that could impair our ability to compete in international markets due to licensing requirements and subject us to liability if we are not in compliance with applicable laws.
Our products are subject to export control and import laws, tariffs, and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations, and various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Controls. Exports of our products must be made in compliance with these laws, tariffs, and regulations. If we fail to comply with these laws, tariffs, and regulations, we and certain of our employees could be subject to substantial civil or criminal penalties, including the possible loss of export or import privileges; fines, which may be imposed on us and responsible employees or managers; and, in extreme cases, the incarceration of responsible employees or managers. In addition, changes in our products or changes in applicable export or import laws, tariffs, and regulations may create delays in the introduction and sale of our products in international markets or, in some cases, prevent the export or import of our products to certain countries, governments or persons altogether. Any change in export or import laws and regulations, shift in the enforcement or scope of existing laws, tariffs, and regulations, or change in the countries, governments, persons, products, or technologies targeted by such laws, tariffs, and regulations, could also result in decreased use of our products, or in our decreased ability to export or sell our products to existing or potential customers. Any decreased use of our products or limitations on our ability to export or sell our products would likely adversely affect our business, financial condition and results of operations.
28
Table of Contents
Worldwide and domestic economic trends and financial market conditions, including an economic decline in the industries we serve, may adversely affect our operating performance.
We intend to distribute our products and services in a number of countries and derive revenues from both inside and outside the United States. We expect our business will be subject to global competition and may be adversely affected by factors in the United States and other countries that are beyond our control, such as disruptions in financial markets, economic downturns in the form of either contained or widespread recessionary conditions, elevated unemployment levels, sluggish or uneven recovery, in specific countries or regions, or in the agricultural industry; social, political or labor conditions in specific countries or regions; natural and other disasters affecting our operations or our customers and suppliers; or adverse changes in the availability and cost of capital, interest rates, tax rates, or regulations in the jurisdictions in which we operate. Unfavorable global or regional economic conditions, including an economic decline in the industries we serve – including, but not limited to, agriculture, construction, energy, environmental monitoring, military/defense and public safety – could adversely impact our business, liquidity, financial condition and results of operations.
Our senior management and key employees are important to our customer relationships and overall business.
We believe that our success depends in part on the continued contributions of our senior management and key employees. We rely heavily on our executive officers, senior management and key employees to generate business and execute programs successfully. In addition, the relationships and reputation that members of our management team and key employees have established and maintain with certain key customers continue to our ability to maintain good customer relations and to identify new business opportunities. The loss of any of our executive officers, members of our senior management team or key employees could significantly delay or prevent the achievement of our business objectives and could materially harm our business and customer relationships and impair our ability to identify and secure new contracts and otherwise manage our business.
We indemnify our officers and directors against liability to us and our security holders, and such indemnification could increase our operating costs.
Our bylaws allow us to indemnify our officers and directors against claims associated with carrying out the duties of their offices. Our bylaws also allow us to reimburse them for the costs of certain legal defenses. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our officers, directors or control persons, the SEC has advised that such indemnification is against public policy and is therefore unenforceable.
Risks Associated with Our Securities
Our executive officers and directors may sell shares of their stock, and these sales could adversely affect our stock price.
Sales of our common stock by our executive officers and directors, or the perception that such sales may occur, could adversely affect the market price of our common stock. Our executive officers and directors may sell stock in the future, either as part, or outside, of trading plans under Rule 10b5-1 under the Exchange Act.
The market price of our securities may be volatile and may fluctuate in a way that is disproportionate to our operating performance.
Our securities may experience substantial volatility as a result of a number of factors, including, among others:
● sales or potential sales of substantial amounts of our Common Stock;
● potential stock splits;
● announcements about us or about our competitors or new product introductions;
● developments concerning our product manufacturers;
29
Table of Contents
● the loss or unanticipated underperformance of our global distribution channel;
● governmental regulation and legislation;
● variations in our anticipated or actual operating results;
● foreign currency values and fluctuations; and
Our Common Stock closed as high as $3.40 and as low as $0.75 per share between January 1, 2025 and December 31, 2025 on NYSE American.
We do not intend to pay cash dividends. As a result, capital appreciation, if any, will be your sole source of gain.
We intend to retain future earnings, if any, to fund the development and growth of our business. In addition, the terms of existing and future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, from the sale of our Common Stock will be your sole source of gain for the foreseeable future.
Provisions in our articles of incorporation, our by-laws and Nevada law might discourage, delay or prevent a change in control of our Company or changes in our management and, therefore, depress the trading price of our Common Stock.
Provisions of our Articles of Incorporation, our By-Laws and Nevada law may have the effect of deterring unsolicited takeovers or delaying or preventing a change in control of our Company or changes in our management, including transactions in which our stockholders might otherwise receive a premium for their shares over then current market prices. In addition, these provisions may limit the ability of stockholders to approve transactions that they may deem to be in their best interests. These provisions include:
● the inability of stockholders to call special meetings; and
The existence of the forgoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our Common Stock. They could also deter potential acquirers of our company, thereby reducing the likelihood that you could receive a premium for your Common Stock in an acquisition.
We incur significant costs as a result of operating as a public reporting company, and our management is required to devote substantial time to regulatory compliance initiatives.
As a public reporting company, we incur significant legal, accounting and other expenses not otherwise incurred by a private company. In addition, the Sarbanes-Oxley Act of 2002 and rules subsequently implemented by the SEC, have imposed various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel continue to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have increased our legal and financial compliance costs and have made some activities more time consuming and costly. For example, we expect that these rules and regulations will continue to make it more difficult and more expensive for us to obtain director and officer liability insurance.
30
Table of Contents
We currently have outstanding, and we may in the future issue, instruments which are convertible into shares of Common Stock, which will result in additional dilution to our shareholders.
We currently have outstanding instruments which are convertible into shares of Common Stock, and we may need to issue similar instruments in the future. In the event that these convertible instruments are converted into shares of outstanding Common Stock, or that we make additional issuances of other convertible or exchangeable securities, you could experience additional dilution. Furthermore, we cannot assure you that we will be able to issue shares or other securities in any offering at a price per share that is equal to or greater than the price per share paid by investors or the current market price.
Financial Industry Regulatory Authority, Inc. ("FINRA") sales practice requirements may limit a stockholder’s ability to buy and sell our securities.
The Financial Industry Regulatory Authority, Inc. (“FINRA”) has adopted rules that a broker-dealer must have reasonable grounds for believing that an investment recommended to a customer is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives, and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for certain customers. FINRA requirements will likely make it more difficult for broker-dealers to recommend that their customers buy our Common Stock, which may have the effect of reducing the level of trading activity in the shares, resulting in fewer broker-dealers being willing to make a market in our shares, potentially reducing a stockholder’s ability to resell our securities.
If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our shares or if our results of operations do not meet their expectations, the price of our securities and trading volume could decline.
The trading market for our securities will be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not have any control over these analysts. If one or more of these analyst’s cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our share price or trading volume to decline. Moreover, if one or more of the analysts who cover us downgrade our stock, or if our results of operations do not meet their expectations, the price of our securities could decline.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 1C. CYBER SECURITY
Cybersecurity Risk Management and Strategy
We have developed and implemented a cybersecurity risk management program intended to protect the confidentiality, integrity, and availability of our critical systems and information.
We design and assess our program based on the National Institute of Standards and Technology Cybersecurity Framework Special Publication 800-53, 800-61, rev 2 (“NIST CSF). This does not imply that we meet any particular technical standards, specifications, or requirements. We use the NIST CSF as a guide to help us identify, assess, and manage cybersecurity risks relevant to our business.
31
Table of Contents
Our cybersecurity risk management program is integrated into our overall enterprise risk management program and shares common methodologies, reporting channels, and governance processes that apply across the enterprise risk management program to other legal, compliance, strategic, operational, and financial risk areas.
Our cybersecurity risk management program includes the following:
There can be no assurance that our cybersecurity risk management program and processes, including our policies, controls or procedures, will be fully implemented, complied with or effective in protecting our systems and information.
We have not identified risks from known cybersecurity threats, including as a result of any prior cybersecurity incidents, that have materially affected or are reasonably likely to materially affect us, including our operations, business strategy, results of operations, or financial condition. For more information, please see "Cyberattacks and other security breaches of network or information technology security could have an adverse effect on our business" to Item 1A: Risk Factors for further insights into cyber attack-related risks.
Cybersecurity Governance
Our Board considers cybersecurity risks as part of its risk oversight function of cybersecurity and other information technology risks.
The Audit Committee oversees management’s implementation of our cybersecurity risk management program and receives updates on the cybersecurity risk management program from management at least annually. In addition, management updates the Audit Committee regarding any material or significant cybersecurity incidents, as well as incidents with lesser impact potential as necessary.
The Audit Committee reports to the full Board annually regarding cybersecurity. The full Board also receives annual briefings from external experts on cybersecurity as part of the Board’s continuing education on topics that impact public companies.
Ongoing Risks
We have not experienced any material cybersecurity incidents. We have not identified risks from known cybersecurity threats, including as a result of any prior cybersecurity incidents, that have materially affected us, including our operations, business strategy, results of operations, or financial condition. For more information on our
cybersecurity-related risks, see “Cyberattacks and other security breaches of network or information technology security could have an adverse effect on our business” in Item 1A Risk Factors of this Annual Report.
32
Table of Contents
Risk Management and Strategy
The Company recognizes the critical importance of cybersecurity in safeguarding sensitive information, maintaining operational resilience, and protecting stakeholders’ interests. This cybersecurity policy is designed to establish a comprehensive framework for identifying, assessing, mitigating, and responding to cybersecurity risks across the organization.
The Company is in the process of establishing a cybersecurity policy which implements protocols to evaluate, recognize, and address significant risks, including those posed by cybersecurity threats. This strategy encompasses the utilization of standard traffic monitoring tools, educating personnel to identify and report abnormal activities, and partnering with reputable service providers capable of upholding security standards equivalent to or exceeding our own.
These measures are to be seamlessly integrated into our broader operational risk management framework aimed at minimizing exposure to unnecessary risks across our operations. For cybersecurity, we collaborate with expert consultants and third-party service providers to implement industry-standard strategies aimed at identifying and mitigating potential threats or vulnerabilities within our systems. Additionally, the policy strategy will have a comprehensive cyber crisis response plan to manage high severity security incidents, ensuring efficient coordination across the organization. We are aware of the risks associated with third-party service providers and have implemented policies and processes to oversee and assist with managing these risks. Our management team evaluates third-party providers before engagement and monitors these providers on an ongoing basis commensurate with the level of risk and complexity of the relationship with, and the activities performed by, such providers. This approach is designed to help identify and mitigate risks related to data breaches or other cybersecurity incidents originating from third-parties in order to better protect our assets and data.
Cybersecurity threats have not significantly impacted our operations, and we do not anticipate such risks materially affecting our business, strategy, financial condition, or results of operations. However, given the escalating sophistication of cyber threats, our preventive measures may not always suffice. Despite well-designed controls, we acknowledge the inability to foresee all security breaches, including those stemming from third-party misuse of AI technologies, and the potential challenges in implementing timely preventive measures. See “Cyberattacks and other security breaches of network or information technology security could have an adverse effect on our business” in Item 1A, “Risk Factors” for further discussion of cyber attack-related risks.
The Chief Operating Officer oversees our information security programs, including cybersecurity initiatives, and is integrated into our Cybersecurity Incident response process. The Audit committee oversees cybersecurity risk management activities, supported by Company management, the Board of Directors, and external consultants. We assess and prioritize risks based on potential impact, implement technical controls, and monitor third-party vendors’ security practices.
ITEM 2. PROPERTIES
As of December 31, 2025, the Company is a party to the following non-cancellable operating leases for manufacturing facilities and office space:
Location Purpose Initial Term (months) Lease Expiration Date
Route de Genève 38
1300 N. Northlake Way
Seattle, Washington (Subleased) Offices 60 January 30, 2026
As of December 31, 2025, the Company held properties in Wichita, KS, Lausanne, Switzerland; and Seattle, Washington and represent non-cancellable lease obligations assumed by the Company as a result of its 2021 business acquisitions of senseFly S.A., senseFly Inc., Measure Global Inc., and MicaSense, Inc., respectively. The Company intends to relocate its headquarters to Allen, Texas in 2026.
33
Table of Contents
ITEM 3. LEGAL PROCEEDINGS
From time to time, we may become involved in lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. Although we currently maintain liability insurance coverage intended to cover professional liability and certain other claims, we cannot assure that our insurance coverage will be adequate to cover liabilities arising out of claims asserted against us in the future where the outcomes of such claims are unfavorable to us. Liabilities in excess of our insurance coverage, including coverage for professional liability and certain other claims, could have a material adverse effect on our business, financial condition and results of operations.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our Common Stock is currently quoted on the NYSE American under the symbol “UAVS.”
The following table sets forth, for the period indicated, the quarterly high and low closing sales prices per share of our Common Stock for each quarter during our last two fiscal years, as reported by the New York Stock Exchange. The first table represents the price closures for fiscal year 2025, while the second table represents the price closures for fiscal year 2024 prior to the approved reverse stock split as of October 14, 2024 as well as the adjusted 50 for 1 reverse stock split on a historical basis for comparison.
High Pre High Post Low Pre Low Post
As of March 31, 2026, we had approximately 294 individual shareholders of record of our Common Stock. We believe that the number of beneficial owners of our Common Stock is greater than the number of record holders, because a number of shares of our Common Stock is held through brokerage firms in “street name.”
Dividend Policy
We do not intend to pay cash dividends to our stockholders in the foreseeable future. We currently intend to retain all our available funds and future earnings, if any, to finance the growth and development of our business. Any future determination related to our dividend policy will be made at the discretion of our Board of Directors and will depend upon, among other factors, our results of operations, financial condition, capital requirements, contractual restrictions, business prospects and other factors our Board of Directors may deem relevant.
34
Table of Contents
Equity Compensation Plan
The following table sets forth information as of the fiscal year ended December 31, 2025 about our equity compensation plan and arrangements.
Equity compensation plans approved by stockholders 52,040 $ 33.63 8,491
Equity compensation plans not approved by stockholders — — —
35
Table of Contents
Recent Sales of Unregistered Securities
As of December 31,2025 there were no sales of unregistered securities.
Issuer Purchases of Securities
There were no repurchases of the Company’s securities during the year ended December 31, 2025 by or on behalf of the Company or any “affiliated purchaser,” as defined in § 240.10b-18(a)(3) of the Exchange Act.
Purchases of Equity Securities by Issuer and Its Affiliates
None.
ITEM 6. [RESERVED]
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion highlights the principal factors that have affected our financial condition and results of operations as well as our liquidity and capital resources for the periods described. This discussion should be read in conjunction with our Consolidated Financial Statements and the related notes included in Item 8 "Financial Statements and Supplementary Data" of this Annual Report. This discussion contains forward-looking statements. Please see the explanatory note concerning "Cautionary Note Regarding Forward-Looking Statements” in Part I of this Annual Report and Item 1A. Risk Factors for a discussion of the uncertainties, risks and assumptions associated with these forward-looking statements.
Overview
AgEagle, through its wholly owned subsidiaries, is actively engaged in designing and delivering best-in-class drones, sensors and software that solve important problems for our customers. Founded in 2010, AgEagle was originally formed to pioneer proprietary, professional-grade, fixed-winged drones and aerial imagery-based data collection and analytics solutions for the agriculture industry. Today, the Company is earning distinction as a globally respected market leader offering customer-centric, advanced, autonomous UAS which drive revenue at the intersection of flight hardware, sensors and software for industries that include agriculture, military/defense, public safety, surveying/mapping and utilities/engineering, among others. AgEagle has also achieved numerous regulatory firsts, earning governmental approvals for its commercial and tactical drones to fly BVLOS and/or OOP in the United States, Canada, Brazil and the European Union and being awarded Blue UAS certification from the Defense Innovation Unit of the U.S. Department of War.
AgEagle’s shift and expansion from solely manufacturing fixed-wing farm drones in 2018, to offering what the Company believes is one of the industry’s best fixed-wing, full-stack drone solutions, culminated in 2021 when the Company acquired three market-leading companies engaged in producing UAS airframes, sensors and software for commercial and government use. In addition to a robust portfolio of proprietary, connected hardware and software products; an established global network of over 165 UAS resellers; and enterprise customers worldwide; these acquisitions also brought AgEagle a highly valuable workforce comprised largely of experienced engineers and technologists with deep expertise in the fields of robotics, automation, manufacturing and data science. In 2022, the Company succeeded in integrating all three acquired companies with AgEagle to form one global company focused on taking autonomous flight performance to a higher level.
Our core technological capabilities include robotics and robotics systems autonomy; advanced thermal and multispectral sensor design and development; embedded software and firmware; secure wireless digital communications and networks; lightweight airframes; UAS design, integration and operations; power electronics and propulsion systems; controls and systems integration; fixed wing flight; flight management software; data capture and analytics; human-machine interface development and integrated mission solutions.
36
Table of Contents
The Company is currently headquartered in Wichita, Kansas, where we house our sensor manufacturing operations, and we manufacture drones in Lausanne, Switzerland. We also operate a distribution and service center for our drone products in Raleigh, North Carolina. which supports our international business activities.
We intend to grow our business and preserve our leadership position by developing new drones, sensors and software and capturing a significant share of the global drone market. In addition, we expect to accelerate our growth and expansion through strategic acquisitions of companies offering distinct technological and competitive advantages and have defensible IP protection in place, if applicable.
Key Growth Strategies
We intend to materially grow our business by leveraging our proprietary, best-in-class, full-stack drone solutions, industry influence and deep pool of talent with specialized expertise in robotics, automation, custom manufacturing and data science to achieve greater penetration of the global UAS industry – with near-term emphasis on capturing larger market share of the agriculture, energy/utilities, infrastructure and government/military verticals. We expect to accomplish this goal by first bringing three core values to life in our day-to-day operations and aligning them with our efforts to earn the trust and continued business of our customers and industry partners:
Key components of our growth strategy include the following:
37
Table of Contents
Competitive Strengths
38
Table of Contents
39
Table of Contents
Impact of the Risks and Uncertainties on Our Business Operations
Global economic challenges, including the impact of the war, pandemics, rising inflation and supply-chain disruptions, regulatory investigations adverse labor and capital market conditions could cause economic uncertainty and volatility. The aforementioned risks and their respective impacts on the UAV industry and our operational and financial performance remain uncertain and outside of our control. Specifically, because of the aforementioned continuing risks, our 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 we or any of our third parties in the supply chain for materials used in our manufacturing and assembly processes continue to be adversely impacted, our supply chain may be further disrupted, limiting its ability to manufacture and assemble products.
40
Table of Contents
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses during the reporting period. Significant estimates include the reserve for obsolete inventory, stock options and consideration, valuation of intangible assets, fair value of derivative liabilities, and deemed dividends resulting from the triggering of down round provisions and modifications to equity-linked instruments.
We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.
We believe the following critical accounting estimates affect the more significant judgments and estimates used in preparing our consolidated financial statements. Please see Note 2 to our consolidated financial statements, which are included in Item 8 “Financial Statements and Supplementary Data” of this Annual Report, for our Summary of Significant Accounting Policies. There have been no material changes made to the critical accounting estimates during the periods presented in the consolidated financial statements.
Revenue Recognition
Most of the Company’s revenues are derived primarily through the sales of drones, 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 control transfers to customers, which is when product is shipped or delivered depending on specific shipping terms and, where applicable, customer acceptance has been obtained. 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. Contract liabilities are short-term in nature and are expected to be recognized in the next fiscal year. Customer deposits represent customer prepayments and are recognized as revenue when the term of the sale or performance obligation is completed.
Inventories and Provision for Obsolescence
Our policy for valuation of inventory, including the determination of obsolete inventory, requires us to perform a detailed assessment of inventory at each balance sheet date, which includes a review of, among other factors, an estimate of future demand for products within specific time horizons, valuation of existing inventory, as well as product lifecycle and product development plans. Inventory reserves are also provided to cover risks arising from slow-moving items. We write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated net realizable value based on assumptions about future demand and market conditions. We may be required to record additional inventory write-downs if actual market conditions are less favorable than those projected by our management.
41
Table of Contents
Goodwill and Intangible Assets
The assets and liabilities of acquired businesses are recorded under the acquisition method of accounting at their estimated fair values at the date of acquisition. Goodwill represents costs in excess of fair values assigned to the underlying identifiable net assets of acquired businesses. Intangible assets from acquired businesses are recognized at fair value on the acquisition date and consist of customer programs, trademarks, customer relationships, technology and other intangible assets. Customer programs include values assigned to major programs of acquired businesses and represent the aggregate value associated with the customer relationships, contracts, technology, and trademarks underlying the associated program and are amortized on a straight-line basis over a period of expected cash flows used to measure fair value, which ranges from four to five years.
As of December 31, 2025 our goodwill balance was fully impaired compared to the December 31, 2024 balance of $4.5 million, after goodwill impairment charges recognized during the years ended December 31, 2025 and 2024 of $4.5 million and $2.9 million, respectively. We perform an annual impairment test of our goodwill at least annually in the fourth quarter or more frequently whenever events or changes in circumstances indicate the carrying value of goodwill may be impaired. Such events or changes in circumstances may include a significant deterioration in overall economic conditions, changes in the business climate of our industry, a decline in our market capitalization, operating performance indicators, competition, and reorganizations of our business. Our goodwill has been allocated to and is tested for impairment at a level referred to as the business segment. The level at which we test goodwill for impairment requires us to determine whether the operations below the business segment constitute a self-sustaining business for which discrete financial information is available, and segment management regularly reviews the operating results which is referred to as a reporting unit.
We use a quantitative approach when testing goodwill. To perform the quantitative impairment test, we compare the fair value of a reporting unit to its carrying value, including goodwill. If the fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is not impaired. If the carrying value of the reporting unit, including goodwill, exceeds its fair value, a goodwill impairment loss is recognized in an amount equal to that excess. We generally estimate the fair value of each reporting unit using a combination of a discounted cash flow (“DCF”) analysis and market-based valuation methodologies such as comparable public company trading values and values observed in recent business acquisitions. Determining fair value requires the exercise of significant judgments, including the amount and timing of expected future cash flows, long-term growth rates, discount rates and relevant comparable public company earnings multiples and relevant transaction multiples. The cash flows employed in the DCF analysis are based on our best estimate of future sales, earnings, and cash flows after considering factors such as general market conditions, existing firm orders, expected future orders, changes in working capital, long term business plans and recent operating performance.
As of December 31, 2025, we performed our annual goodwill impairment tests for our Sensor reporting unit. The results of our annual impairment test indicated that the fair value of the sensors reporting unit was less than their carrying amount, indicating an impairment. As of December 31, 2025, the Company recorded an aggregate goodwill impairment charge of $4.5 million. This impairment charge is based on the excess carrying value of the reporting unit over its fair value which resulted in a full impairment charge of the goodwill balance.
As of December 31, 2024, we performed our annual goodwill impairment tests for our three reporting units. The results of our annual impairment test indicated that the fair value of the sensors reporting unit and the fair value of the SaaS reporting units were less than their carrying amount, indicating an impairment. As of December 31, 2024, the Company recorded an aggregate goodwill impairment charge of $2.9 million on the two impaired reporting units. This impairment charge is based on the excess carrying value of the reporting units over their fair values.
Finite-lived intangibles are amortized to expense over the applicable useful lives, ranging from three to ten years, based on the nature of the asset and the underlying pattern of economic benefit as reflected by future net cash inflows. We perform an impairment test of finite-lived intangibles whenever events or changes in circumstances indicate their carrying value may be impaired. If events or changes in circumstances indicate the carrying value of a finite-lived intangible may be impaired, the sum of the undiscounted future cash flows expected to result from the use of the asset group is compared to the asset group’s carrying value. If the asset group’s carrying amount exceeds the sum of the undiscounted future cash flows, we would determine the fair value of the asset group and record an impairment loss in net earnings. The intangible assets related to the historical acquisitions were fully impaired as of December 31, 2025, leaving a balance of $56,850 for internal use software, compared to the balance of $2.0 million as of December 31,2024.
42
Table of Contents
Share-Based Compensation Awards
The value we assign to the options that we issue is based on the fair market value as calculated by the Black-Scholes pricing model. To perform a calculation of the value of our options, we determine an estimate of the volatility of our stock. We need to estimate volatility because there has not been enough trading of our stock to determine an appropriate measure of volatility. We believe our estimate of volatility is reasonable, and we review the assumptions used to determine this whenever we issue new equity instruments. If we have a material error in our estimate of the volatility of our stock, our expenses could be understated or overstated. All share-based awards are expensed on a straight-line basis over the vesting period of the options.
Results of Operations
Year Ended December 31, 2025 as Compared to Year Ended December 31, 2024
Revenues
For the year ended December 31, 2025, revenues were $12.8 million as compared to $13.4 million during the year ended December 31, 2024, a decrease of $0.6 million, or 4.3%. The decline in revenues is mainly due to the RedEdge-P and Altum-PTTM panchromatic sensors of $1.7 million, $0.3 million of our SaaS subscription services related to our HempOverview and Ground Control platforms, offsetting with the increase of the eBee drone products of $1.6 million. For the sensors, the declines are attributed to staffing challenges and rebuilding a best in class sales team along with delayed R&D activity which impeded our ability to market new versions of our sensors.
Cost of Sales
For the year ended December 31, 2025, cost of sales was $6.2 million as compared to $7.1 million during 2024, a decrease of $0.9 million, or 13.1%. The primary factors contributing to the decrease in our cost of sales and the increase gross profit margin were due to better inventory management sourcing and having a full year of automated processes in the new bill of material system.
Gross Profit
For the year ended December 31, 2025, gross profit was $6.6 million as compared to $6.3 million for the year ended December 31, 2024, an increase of $0.4 million or 5.6%. For the year ended December 31, 2025, gross profit margin was 51.8% as compared to 47.0% for the year ended December 31, 2024. The increase in gross profit margin was a result of cost of sales decreasing, during 2025 resale agreements were renegotiated to limit discounts on product sales and encourage resellers to achieve hit certain sales targets to achieve larger discounts. During the 2025 calendar year pricing of products stabilized increasing gross profit.
General and Administrative Expenses
For the year ended December 31, 2025, general and administrative expenses were $9.0 million as compared to $9.6 million for the prior year ended December 31, 2024, resulting in a decrease of $0.6 million, or 6.4%. The decrease was driven by reductions in legal fees, consulting fees, stock compensation costs and the decrease in shareholder special meeting costs.
43
Table of Contents
Research and Development
For the year ended December 31, 2025, research and development expenses were $3.6 million as compared to $4.0 million for the year ended December 31, 2024, a decrease of $0.4 million or 9.0%. The decrease was primarily due to the reduction of staff related to the Measure business unit that ceased operations in December 2024.
Sales and Marketing
For the year ended December 31, 2025, sales and marketing expenses were $3.1 million as compared to $2.4 million for the year ended December 31, 2024, an increase of $0.6 million, or 25.5%. The increase was primarily due to increased in headcount, travel, tradeshows, general marketing activities, along with in-person demos, particularly for the eBee VISON.
Impairment
Goodwill Impairment
For the year ended December 31, 2025, goodwill impairment was $4.5 million. The impairment was attributable to the goodwill related to our sensor reporting unit, specifically due to lower sales compared to forecasted sales along with the declining market conditions. The goodwill on the sensor's reporting unit was deemed fully impaired. For the year ending December 31, 2024, the Company recorded a partial goodwill impairment of $2.9 million. The impairment was attributable to the goodwill related to our sensor reporting unit, specifically due to lower sales compared to forecasted sales along with the declining market conditions.
Intangible Impairment
The annual intangible impairment conducted during the fourth quarter of 2025 indicated an impairment of $1.3 million related to the sensor reporting unit. Accordingly, the Company recorded a full impairment charge to sensor units of $1.3 million, which is included in “Impairment” on the accompanying consolidated statements of operations and comprehensive loss.
The goodwill and intangible impairment recorded on the sensor reporting unit resulted in a full impairment charges. As of December 31, 2025, the carrying value of goodwill and intangible assets, after the impairment charges, is zero for the sensor's reporting unit.
Other Income (Expenses), net
For the year ended December 31, 2025, other income, net for the Company reported a gain of $9.5 million as compared to a loss of $22.4 million for the year ended December 31, 2024. The fluctuation of $31.9 million was primarily due to the 2024 $15.3 million on loss on equity financing, $1.6 million of loss on debt extinguishment, and $8.4 million interest on promissory note, offset by the 2024 $3.1 million gain and the 2025 gain of $8.6 million on change in fair value of warrant liabilities.
Net Loss
For the year ended December 31, 2025, the Company incurred a net loss of $5.3 million as compared to a net loss of $35.0 million for the year ended December 31, 2024, a decrease in loss of $29.8 million or 84.9%. Overall, the net loss decrease is primarily a result of a $15.3 million loss on equity financing that was not recorded in 2025 along with 2025 gain on fair value or warrant liabilities of $8.6 million. The Company also incurred impairment of goodwill and intangible assets of $5.8 million related to the sensor reporting until offset by $1.4 million credit for the employee retention credit.
44
Table of Contents
Cash Flows
For the Year Ended December 31, 2025 as Compared to the Year Ended December 31, 2024
As of December 31, 2025, cash on hand was $29.9 million, an increase of $26.2 million or 726.2%, as compared to $3.6 million as of December 31, 2024. For the year ended December 31, 2025, cash used in operations was $9.9 million, an increase of $3.3 million, as compared to $6.6 million for the year ended December 31, 2024. The increase in cash used in operating activities was driven by $8.6 million warrant liability change offset by $5.8 million impairment expense and paydown of accounts payable of $1.3 million.
For the year ended December 31, 2025, cash used in investing activities was $0.1 million, as compared to $0.1 million for the year ended December 31, 2024. These costs are related to property and equipment.
For the year ended December 31, 2025, cash provided by financing activities was $36.2 million an increase of $26.7 million, or 279.4% as compared to cash provided of $9.5 million for the year ended December 31, 2024. The increase in cash provided by our financing activities was due to exercise of Series B Warrants, sale and conversion of warrants issued with Series F Convertible Preferred shares, sale of Series F Preferred stock, and the sale of Series G Preferred stock.
Liquidity and Capital Resources
As of December 31, 2025, we had a working capital of $34.5 million. For the year ended December 31, 2025, we incurred a loss from operations of $14.8 million, a increase of $2.2 million, as compared to $12.6 million for the year ended December 31, 2024. Further, we utilized our cash in our operating activities of $9.9 million, an increase of $3.3 million as compared to $6.6 million for the year ended December 31, 2024.
During the year ended December 31, 2025, we raised $36.8 million in equity from the additional sale of Series F and Series G Preferred Stock, and for the conversion of warrants of Series B and Series F.
During the year ended December 31, 2024, we raised $15.7 million in equity from the additional sale of Series F Preferred Stock and Offering of our Common Stock and for the conversion of warrants.
Our primary need for liquidity is to fund working capital requirements of our business, capital expenditures, acquisitions, debt service, and for general corporate purposes. Our primary source of liquidity is funds generated by financing activities and from private placements. Our 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.
In addition to sales of Series F Preferred and Series F Preferred in 2025, we believe our current cash balance, and working capital, help alleviate previous doubt regarding our ability to continue as a going concern. As of December 31, 2025, our cash balance was sufficient enough to meet our financial obligations for at least the next twelve months from the date the consolidated financial statements are issued, and we believe we have access to sufficient capital to implement our business strategy while meeting our financial obligations under the Purchase Agreement.
Off-Balance Sheet Arrangements
On December 31, 2025, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources. Since our inception, except for standard operating leases, we have not engaged in any off-balance sheet arrangements, including the use of structured finance, special purpose entities or variable interest entities. We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
45
Table of Contents
Contractual Obligations
Material contractual obligations arising in the normal course of business primarily consist of principal and interest payments for loans made under the COVID program in Switzerland, defined benefit plan obligations, principal and interest payments for operating leases and other purchase obligations. See Notes 6, 10, 12 and 13 to the consolidated financial statements for amounts outstanding as of December 31, 2025, for these contractual obligations.
Inflation
During the year ended December 31, 2025, inflation has had a negative impact on the uncrewed aerial vehicle systems industry, our customers, and our business globally. Specifically, our ability to access components and parts needed in order to manufacture our proprietary drones and sensors, and to perform quality testing have been, and continue to be, impacted. If either the Company or any of the third-parties in the supply chain for materials used in our manufacturing and assembly processes continue to be adversely impacted, our supply chain may be further disrupted, limiting its ability to manufacture and assemble products. In addition, the eventual implications of higher government deficits and debt, tighter monetary policies and potentially higher, long-term interest rates may drive a higher cost of raising capital in the future.
Environmental Regulations
AgEagle is subject to various federal, state, local and non-U.S. laws and regulations relating to environmental protection, including the discharge, treatment, storage, disposal and remediation of hazardous substances and wastes. We could also be affected by future laws and regulations relating to the Earth’s climate, including laws related to greenhouse gas emissions and regulating energy efficiency. These laws and regulations could lead to increased environmental compliance expenditures, increased energy and raw materials costs and new and/or additional investment in designs and technologies. We continually assess our compliance status and management of environmental matters to ensure our operations are in compliance with all applicable environmental laws and regulations. Investigation, remediation and operation and maintenance costs associated with environmental compliance and management of sites are a normal, recurring part of our operations. These costs often are allowable costs under our contracts with the U.S. government. While environmental protection regulations have not had a significant adverse effect on our overall operations historically, it is reasonably possible that costs incurred to ensure continued environmental compliance in the future could have a material impact on our results of operations, financial condition or cash flows if additional work requirements or more stringent clean-up standards are imposed by regulators, or if new areas of soil, air and groundwater contamination are discovered and/or expansions of work scope are prompted by the results of investigations.
Recent Events
On March 4, 2026, the Company entered into a private placement subscription (the “Aerodrome Agreement”) with Aerodrome Group Ltd. (“Aerodrome”). Pursuant to the Aerodrome Agreement, the Company purchased 11,523,750 ordinary shares of Aerodrome at a price of 0.80 new Israeli shekels (“NIS”) per share for an aggregate of 9,219,000 NIS. The Aerodrome Agreement also outlined the framework for the creation of a joint venture between EagleNXT and Aerodrome that would distribute advanced autonomous uncrewed systems in the United States and Canada. The formation of the joint venture is subject to the execution of mutually acceptable definitive documents setting forth the terms and conditions governing the joint venture and applicable regulatory approvals. The Aerodrome Agreement is subject to customary closing conditions.
[1]Note to AgEagle: Language duplicated from the Business section.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our financial statements are contained in pages F-1 through F-50, which appear at the end of this Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
46
Table of Contents
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure and Control Procedures
The Company’s Chief Executive Officer and the Company’s Chief Financial Officer evaluated the effectiveness of the Company’s disclosure controls and procedures as of December 31, 2025, and concluded that the Company’s disclosure controls and procedures were effective. The term disclosure controls and procedures means controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated, recorded, processed, summarized and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure to be reported within the time periods specified in the SEC’s rules and forms.
Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining an adequate system of internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with Generally Accepted Accounting Principles (“US GAAP”).
Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance of such reliability and may not prevent or detect misstatements. Also, projection of any evaluation of effectiveness to future periods is subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has conducted, with the participation of our Chief Executive Officer and our Chief Financial Officer, an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2025. Management’s assessment of internal control over financial reporting used the criteria set forth in SEC Release 33-8810 based on the framework established by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control over Financial Reporting — Guidance for Smaller Public Companies. Based on this evaluation, Management concluded that our system of internal control over financial reporting were effective as of December 31, 2025, based on these criteria.
This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. As a smaller reporting company, our management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only the management’s report.
Material Weakness over Financial Reporting
During the preparation of our interim condensed consolidated financial statements for the period ended September 30, 2024, management identified a material weakness in our internal controls related to the computation of net loss attributable to common stockholders resulting in an understatement of loss per share (“EPS”) as presented on our consolidated statements of operations and comprehensive income loss. In addition to the EPS computation error, accrued dividends and deemed dividends were included as a component of other comprehensive loss instead of being included in net loss attributable to common stockholders.
We have amended the 2024 filings impacted by this identified error. The Company has also engaged an external consultant with technical accounting expertise to assist the Company with the technical documentation and accounting for significant and unusual transactions.
Changes in Internal Control over Financial Reporting
Other than as described above, there were no changes in our internal control over financial reporting, as defined in Rules 13a-15(t) and 15d-15(f) under the Exchange Act, during the year ended December 31, 2025, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
47
Table of Contents
ITEM 9B. OTHER INFORMATION
Insider Trading Plan
During the year ended December 31, 2025, no director or officer of the Company adopted or terminated a “Rule 10-b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item is incorporated by reference to the definitive proxy statement for our 2025 Annual Meeting of Stockholders to be filed with the SEC within 120 days of December 31, 2025 (our “Proxy Statement”).
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 will be set forth in the sections entitled “Compensation Discussion and Analysis” and “Executive Officers” in our Proxy Statement and is incorporated in this Annual Report by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this item will be set forth in the section entitled “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” in our Proxy Statement and is incorporated in this report by.
Information regarding our equity compensation plans will be set forth in the section entitled “Executive Compensation” in our Proxy Statement and is incorporated in this report by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item will be set forth in the section entitled “Transactions with Related Persons” in our Proxy Statement and is incorporated in this report by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item will be set forth in the section entitled “—Ratification of Selection of Independent Registered Public Accounting Firm” in our Proxy Statement and is incorporated in this report by reference.
48
Table of Contents
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES
Exhibit No. Description
4.1 Description of Registrant's Securities
49
Table of Contents
50
Table of Contents
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.
101.INS Inline XBRL Instance Document
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File (embedded within the Inline XBRL document)
* Filed herewith
Item 16. Form 10-K Summary
None.
51
Table of Contents
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
AGEAGLE AERIAL SYSTEMS INC.
Dated: March 31, 2026 By: /s/ William Irby
William Irby
Chief Executive Officer and Director of the Company
Dated: March 31, 2026 By: /s/ Alison Burgett
Alison Burgett
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signatures Title Date
William Irby (Principal Executive Officer)
/s/ Alison Burgett Chief Financial Officer March 31, 2026
Alison Burgett (Principal Financial and Accounting Officer)
/s/ Grant Begley Director
Grant Begley
/s/ Brent Klavon Director March 31, 2026
Brent Klavon
/s/ Kevin Lowdermilk Director March 31, 2026
Kevin Lowdermilk
/s/ L B Day Director March 31, 2026
L B Day
52
Table of Contents
INDEX TO FINANCIAL STATEMENTS
Contents Page No.
Report of Independent Registered Public Accounting Firm (PCAOB ID 606 ) F-2
Report of Independent Registered Public Accounting Firm (PCAOB ID 100) F-4
Consolidated Balance Sheets as of December 31, 2025 and 2024 F-5
Notes to the Consolidated Financial Statements F-9
F-1
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
AgEagle Aerial Systems Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of AgEagle Aerial Systems Inc. and Subsidiaries (the Company) as of December 31, 2025, and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity (deficit), and cash flows for the year then ended, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Accounting for and Valuation of Liability Classified Derivative Financial Instruments
As described in Note 2, Note 8, Note 9, and Note 11 to the financial statements, the Company accounts for its derivative financial instruments, which include Series A warrants and Series B warrants, based on an assessment of the instruments’ specific terms and the applicable accounting standards. The derivative financial instruments, classified as liabilities, are stated at fair value at each reporting period with the change in fair value recorded in the statement of operations. The fair value of the Series A warrants on the date of issuance and at year end as of December 31, 2025 were estimated using a Black Scholes model. During 2025, the contractual terms of the Series B were amended resulting in the Series B being reclassified to stockholders' equity (deficit) (see Note 8). As of December 31, 2025, the fair value of Series A warrants was approximately $50.0 thousand, resulting in approximately $8.5 million of gain related to the change in fair value for the year ended December 31, 2025.
F-2
Table of Contents
The principal considerations for our determination that performing procedures relating to the accounting for and valuation of the derivative financial instruments as a critical audit matter are: (i) the significant judgment used by management when determining the valuation method; (ii) management’s significant assumptions related to the implied volatility and probability of subsequent equity sales; (iii) the high degree of auditor judgment, subjectivity, and effort used in performing procedures and evaluating audit evidence related to the accounting for the fair value of the derivative financial instruments, and (iv) the audit effort involved in the use of professionals with specialized skill and knowledge.
Our audit procedures related to the accounting for and valuation of liability classified derivative financial instruments included the following, among others:
● Evaluating the professional credentials of management’s valuation specialist.
Accounting for Down Round Triggers and Deemed Dividends
As described in Note 9 to the financial statements, the Company has equity-linked instruments that include down round provisions in which the conversion or exercise price is adjusted down upon the Company’s issuance of its common stock or common stock equivalents at a price per share that is less than the conversion or exercise price of the equity-linked instrument. Upon a down round provision being triggered, the Company will compute the incremental value provided to the holder of the equity instrument for the reduction in the conversion or exercise price using a Black Scholes model. The Company determines the incremental value by computing the fair value of the equity-linked instrument prior to and after the down round provision trigger. During the year ended December 31, 2025, there were six down round triggers that occurred which resulted in deemed dividends totaling approximately $7.6 million.
The principal considerations for our determination that performing procedures relating to the accounting for down round triggers and deemed dividends as a critical audit matter are: (i) the significant judgment by management when determining the valuation method; (ii) management’s significant assumptions related to the implied volatility used in the Black Scholes model; (iii) the high degree of auditor effort used in performing procedures and evaluating audit evidence related to the accounting for the down round triggers and the deemed dividends, and (iv) the audit effort involved in the use of professionals with specialized skill and knowledge.
Our audit procedures related to accounting for down round triggers and deemed dividends included the following, among others:
● Testing the mathematical accuracy of the Black Scholes calculation.
/s/ Grassi & Co., CPAs, P.C.
We have served as the Company’s auditor since 2025.
Glastonbury, Connecticut
March 31, 2026
PCAOB ID Number 606
F-3
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
AgEagle Aerial Systems, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of AgEagle Aerial Systems, Inc. and subsidiaries, (the “Company”) as of December 31, 2024, and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity (deficit) and comprehensive loss and cash flows for the year ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024, and the results of its operations and its cash flows for the year ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America
Substantial Doubt Regarding Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations, has experienced cash used from operations in excess of its current cash position, and has an accumulated deficit that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ WithumSmith+Brown, PC
We served as the Company’s auditor from 2020 to July 2025
Orlando, Florida
March 31, 2025
PCAOB ID Number 100
F-4
Table of Contents
AGEAGLE AERIAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31,
ASSETS
CURRENT ASSETS:
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Other short-term loan — 99,735
COMMITMENTS AND CONTINGENCIES (NOTE 13)
STOCKHOLDERS’ EQUITY (DEFICIT):
Preferred Stock, $0.001 par value, 25,000,000 shares authorized:
Accumulated other comprehensive income (loss) 191,185 (86,376 )
See Accompanying Notes to Consolidated Financial Statements.
F-5
Table of Contents
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For the Years Ended December 31,
Operating expenses:
Other income (expense):
Gain on change in fair value of warrant liabilities 8,584,000 3,094,000
Gain (loss) on disposal of fixed assets (1,385 ) 13,522
Provision for income taxes — —
Accrued dividends on Series F Preferred Stock (201,867 ) (234,439 )
Net loss per common share - Basic and Diluted $ (0.52 ) $ (46.24 )
Comprehensive loss:
Amortization of unrecognized periodic pension costs 16,012 10,246
Foreign currency cumulative translation adjustment 261,549 (202,925 )
See Accompanying Notes to Consolidated Financial Statements.
F-6
Table of Contents
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE YEARS ENDED December 31, 2025 and 2024
Dividends on Series F Preferred Stock — — — — — — (234,439 ) — — (234,439 )
Stock-based compensation expense — — — — — — 80,606 — — 80,606
Issuance of Restricted Common Stock — — — — 688 — — — — —
Dividends on Series F Preferred Stock — — — — — — (201,867 ) — — (201,867 )
Stock-based compensation expense — — — — — — 417,747 — — 417,747
Issuance of Restricted Common Stock — — — — 235,147 235 (235 ) — — —
Alternate Cashless Exercise of Series A Warrants — — — — 63,017 63 (63 ) — — —
See Accompanying Notes to Consolidated Financial Statements.
F-7
Table of Contents
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
CASH FLOWS FROM OPERATING ACTIVITIES:
Defined benefit plan obligation and other (82,877 ) (88,777 )
Loss (gain) on disposal of property and equipment 1,385 (13,522 )
Interest added to convertible note payable — 1,164,590
Interest expense for reduction in convertible note conversion price — 6,351,221
Amortization of debt discount and warrant modification 35,265 1,116,735
Gain on change in fair value of warrant liabilities (8,584,000 ) (3,094,000 )
Changes in assets and liabilities:
Accrued liabilities and other liabilities (45,729 ) 185,000
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of property and equipment (74,658 ) (49,485 )
Proceeds from the sale of property and equipment — 27,510
Capitalization of internal-use software costs — (72,102 )
Net cash used in investing activities (74,658 ) (94,077 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the sale of Common Stock and warrant liabilities — 5,688,239
Proceeds from the exercise of Series F warrants 4,224,319 —
Payments on convertible note — (4,235,757 )
Conversion of warrants issued with Series F shares — 497,701
Effects of foreign exchange rates on cash flows 72,875 (80,405 )
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid $ — $ —
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Conversion of Preferred Stock Series F to Common Stock $ 13,089 $ 201
Conversion of Preferred Stock Series G to Common Stock $ 4,913 $ —
Series F Warrants exchanged for shares of Common Stock $ 89 $ —
Issuance of vested restricted Common Stock $ 235 $ —
Accrued dividends on Series F Preferred Stock $ 201,867 $ 234,439
Accrued expense settled with Series B Warrant exercise $ 350,000 $ —
Alternate cashless exercise of Series A Warrants $ — $ 6,309
See Accompanying Notes to Consolidated Financial Statements.
F-8
Table of Contents
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024
Note 1– Description of Business
AgEagleTM Aerial Systems Inc. (“AgEagle” or the “Company” or “we”, “our”, or “us”) is actively engaged in designing and delivering best-in-class drones and sensors that solve important problems for our customers. Founded in 2010, AgEagle was originally formed to pioneer proprietary, professional-grade, fixed-winged drones and aerial imagery-based data collection and analytics solutions for the agriculture industry. Today, the Company is earning distinction as a globally respected market leader offering customer-centric, advanced, autonomous uncrewed aerial systems (“UAS”) which drive revenue at the intersection of flight hardware, sensors and software for industries that include agriculture, military/defense, public safety, surveying/mapping and utilities/engineering, among others. AgEagle has also achieved numerous regulatory firsts, earning governmental approvals for its commercial and tactical drones to fly Beyond Visual Line of Sight (“BVLOS”) and/or Operations Over People (“OOP”) in the United States, Canada, Brazil and the European Union and being awarded Blue UAS certification from the Defense Innovation Unit of the U.S. Department of Defense.
AgEagle’s shift and expansion from solely manufacturing fixed-wing farm drones in 2018, to offering what the Company believes is one of the industry’s best fixed-wing, full-stack drone solutions, culminated in 2021 when the Company acquired three market-leading companies engaged in producing UAS airframes, sensors and software for commercial and government use. In addition to a robust portfolio of proprietary, connected hardware and software products; an established global network of over 165 UAS resellers; and enterprise customers worldwide; these acquisitions also brought AgEagle a highly valuable workforce comprised largely of experienced engineers and technologists with deep expertise in the fields of robotics, automation, manufacturing, and data science. In 2022, the Company succeeded in integrating all three acquired companies with AgEagle to form one global company focused on taking autonomous flight performance to a higher level.
Our core technological capabilities include robotics and robotics systems autonomy; advanced thermal and multispectral sensor design and development; embedded software and firmware; secure wireless digital communications and networks; lightweight airframes; small UAS design, integration and operations; power electronics and propulsion systems; controls and systems integration; fixed wing flight; flight management software; data capture and analytics; human-machine interface development and integrated mission solutions.
In January 2021, AgEagle acquired MicaSenseTM, Inc. (“MicaSense”). Founded in 2014, MicaSense has been at the forefront of advanced drone sensor development since its founding in 2014, having formed integration partnerships with several leading fixed wing and multi-rotor drone manufacturers. MicaSense’s patented, high precision thermal and multispectral sensors serve the aerial mapping and analytics needs of the agriculture market. MicaSense’s high performance proprietary products have global distribution in over 75 countries.
In April 2021, AgEagle acquired Measure Global, Inc. (“Measure”). Founded in 2020, Measure served a world class customer base, Measure enables its customers to realize the transformative benefits of drone technology through its Ground Control solution. Offered as Software-as-a-Service (“SaaS”), Ground Control is a cloud-based, plug-and-play operating system that empowers pilots and large enterprises with everything they need to operate drone fleets, fly autonomously, collaborate globally, visualize data, and integrate with existing business systems and processes. In 2024, we made the strategic decision to not renew any SaaS subscriptions. As of December 31, 2024, Measure no longer had operations. We do not anticipate this decision to have a significant effect on the Company’s consolidated financial position or financial results. In 2025, we sold the Measure domain name with a net book value of zero and received cash proceeds of $250,000 which has been included in other income on the accompanying statements of operations and comprehensive loss.
In October 2021, AgEagle acquired senseFly S.A. and concurrent with the acquisition, AgEagle Aerial, Inc. (“AgEagle Aerial”), a wholly owned subsidiary of AgEagle, acquired senseFly Inc. Collectively senseFly S.A. and senseFly, Inc. are referred to as “senseFly”. Founded in 2009, senseFly provides fixed-wing drone solutions for commercial and government markets that simplify the collection and analysis of geospatial data, allowing professionals to make better decisions, faster. senseFly develops and produces a proprietary line of eBee-branded, high performance, fixed-wing drones which have flown more than one million flights around the world.
F-
9
Table of Contents
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2025 AND
2024
Note 1– Description of Business – Continued
Collectively, MicaSense, Measure and senseFly are referred to as the “2021 Acquired Companies.”
The Company is currently headquartered in Wichita, Kansas, where we house our sensor manufacturing operations, and we operate business and drone manufacturing operations in Raleigh, North Carolina. In addition, the Company operates business and manufacturing operations in Lausanne, Switzerland, in support of our international business activities.
The Company intends to grow our business and preserve our leadership position by developing new drones, sensors and software and capturing a significant share of the global drone market. In addition, we expect to accelerate our growth and expansion through strategic acquisitions of companies offering distinct technological and competitive advantages and have defensible IP protection in place, if applicable.
On October 3, 2024, the Board approved a reverse stock split of the Company’s authorized, issued and outstanding shares of common stock, par value $0.001 per share, at a ratio of one (1) share of common stock for every fifty (50) shares of common stock (the “Reverse Stock Split”). The Company filed a Certificate of Change with the Secretary of State of the State of Nevada to effectuate the Reverse Stock Split. The Reverse Stock Split was effective on October 14, 2024. All share and per share amounts have been adjusted for the effect of the Reverse Stock Split.
Note 2– Summary of Significant Accounting Policies
The summary of significant accounting policies presented below is designed to assist in understanding the Company’s consolidated financial statements. Such consolidated financial statements and accompanying notes are the representations of the Company’s management, who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America (“US GAAP”) in all material respects and have been consistently applied in preparing the accompanying consolidated financial statements.
Basis of Presentation and Consolidation – These consolidated financial statements are presented in United States dollars and have been prepared in accordance with US GAAP. The Company’s consolidated financial statements are prepared using the accrual method of accounting. The Company has elected December 31 as its fiscal year end. 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.
The consolidated financial statements include the accounts of AgEagle and its wholly owned subsidiaries, AgEagle Aerial, Inc., Measure (currently inactive) and senseFly. All significant intercompany balances and transactions have been eliminated in consolidation. As of January 1, 2023, MicaSense ceased to exist as a standalone entity and was merged into AgEagle Aerial Systems, Inc. (AgEagle).
Liquidity and Going Concern – In pursuit of the Company’s long-term growth strategy and acquisitions the Company has sustained continued operating losses. During the year ended December 31, 2025, the Company generated a net loss of $5.3 million and used cash in operating activities of $10.0 million. As of December 31, 2025, the Company has working capital of $34.5 million, accumulated deficit of $(231,234,641), cash balance of $29,858,655. During the year ended December 31, 2025 Company received cash proceeds from financing activities of $36,204,975 primarily from the sale of Series F and G preferred stock and the exercise of warrants. We believe our current cash balance, working capital help alleviate previous substantial doubt regarding our ability to continue as a going concern. As of December 31, 2025, our cash balance is sufficient enough to meet our financial obligations for at least the next twelve months from the date of these consolidated financial statements are issued and we have access to sufficient capital to implement our business strategy while meeting our financial obligations via the Securities Purchase Agreement executed in November of 2025 (see Note 9).
F-
10
Table of Contents
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2025 AND
2024
Note 2– Summary of Significant Accounting Policies – Continued
Risks and Uncertainties – Global economic challenges, including the impact of the war in Ukraine and Iran, rising inflation supply-chain disruptions, and adverse labor market conditions could cause economic uncertainty and volatility. The aforementioned risks and their respective impacts on the UAV industry and the Company’s operational and financial performance remain uncertain and outside of the Company’s control. Specifically, because of the aforementioned continuing risks, the Company’s ability to access components and parts needed in order to manufacture its proprietary drones and sensors, and to perform quality testing have been, and continue to be, impacted. If either the Company or any of its third parties used in our manufacturing and assembly processes continue to be adversely impacted by these matters, the Company’s supply chain may be disrupted, limiting its ability to manufacture and assemble products. The Company expects inflation and supply-chain disruptions and its effects to continue to have a significant negative impact on its business for an extended period of time.
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 revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the reserve for obsolete inventory, valuation of intangible assets, fair value of derivative liabilities, and the value of deemed dividends resulting from the triggering of down round provisions and modifications to equity-linked instruments.