UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-K
(Mark
One)
For
the fiscal year ended December 31, 2023
OR
For
the transition period from _______ to ________
Commission
file number: 001-36492
AGEAGLE AERIAL SYSTEMS INC.
(Exact name of registrant as specified in its charter)
(Address of principal executive offices) (Zip Code)
Registrant’s
telephone number, including area code: (620)325-6363
Securities
registered pursuant to Section 12(b) of the Act:
Title of Each Class Trading Symbol(s) Name of Each Exchange on Which Registered
Common Stock, par value $0.001 per share UAVS NYSE American LLC
Securities
registered pursuant to Section 12(g) of the Act: None.
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer,” “emerging growth company”
and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated Filer ☒ Smaller reporting company ☒
Emerging growth company ☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. ☐
If
securities are registered pursuant to Section 12(b) of the Exchange Act, indicate by check mark whether the financial statements of
the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate
by check mark whether any of those error corrections are restatements that require a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D(b). ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The
aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which
the common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter was
$25,134,429.
As
of March 31, 2024, there were 10,891,427shares
of Common Stock, par value $0.001 per share, issued and outstanding consistent with the 1-for-20 reverse stock split executed on
February 8, 2024. At a pre-split view, there were 217,828,540
shares of Common Stock, par value $0.001 per share, issued and outstanding.
AGEAGLE
AERIAL SYSTEMS INC.
TABLE
OF CONTENTS
PART I 3
ITEM 1. BUSINESS 4
ITEM 1A. RISK FACTORS 24
ITEM 1B. UNRESOLVED STAFF COMMENTS 37
ITEM 1C. CYBER-SECURITY 37
ITEM 2. PROPERTIES 39
ITEM 3. LEGAL PROCEEDINGS 39
ITEM 4. MINE SAFETY DISCLOSURES 39
ITEM 6. [RESERVED] 41
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 52
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 52
ITEM 9A. CONTROLS AND PROCEDURES 52
ITEM 9B. OTHER INFORMATION 53
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS 53
PART III 54
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 54
ITEM 11. EXECUTIVE COMPENSATION 54
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 54
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES 55
INDEX TO FINANCIAL STATEMENTS F-1
PART
I
This
Annual Report on Form 10-K (“Annual Report”) contains forward-looking statements within the meaning of the Securities Act
of 1933, as amended, or the Securities Exchange Act of 1934, as amended, or the Private Securities Litigation Reform Act of 1995. Investors
are cautioned that such forward-looking statements are based on our management’s beliefs and assumptions and on information currently
available to our management and involve risks and uncertainties. Forward-looking statements include statements regarding our plans, strategies,
objectives, expectations and intentions, which are subject to change at any time at our discretion. Forward-looking statements include
our assessment, from time to time of our competitive position, the industry environment, potential growth opportunities, the effects
of regulation and events outside of our control, such as natural disasters, wars or health epidemics. Forward-looking statements include
all statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,”
“could,” “estimates,” “expects,” “hopes,” “intends,” “may,” “plans,”
“potential,” “predicts,” “projects,” “should,” “will,” “would”
or similar expressions.
Forward-looking
statements are merely predictions and therefore inherently subject to uncertainties and other factors which could cause the actual results
to differ materially from the forward-looking statement. These uncertainties and other factors include, among other things:
● our ability to attract and retain skilled employees;
● changes in the supply, demand and/or prices for our products;
● unfavorable results in legal proceedings to which we may be subject;
Set
forth below in Item 1A, “Risk Factors,” are additional significant uncertainties and other factors affecting forward-looking
statements. The reader should understand that the uncertainties and other factors identified in this Annual Report are not a comprehensive
list of all the uncertainties and other factors that may affect forward-looking statements. We do not undertake any obligation to update
or revise any forward-looking statements or the list of uncertainties and other factors that could affect those statements.
ITEM
1. BUSINESS
Overview
AgEagleTM
Aerial Systems Inc. (“AgEagle” or the “Company”), 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 unmanned aerial systems (“UAS”) which drive revenue at the intersection of
flight hardware, sensors and software for industries that include agriculture, military/defense, public safety, surveying/mapping and
utilities/engineering, among others. AgEagle has also achieved numerous regulatory firsts, including earning governmental approvals for
its commercial and tactical drones to fly Beyond Visual Line of Sight (“BVLOS”) and/or Operations Over People (“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 200 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 successfully integrated 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 (“sUAS”)
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.
As the Company pursues its strategy to pursue new initiatives that improve its operations and cost structure, the
Company is also expanding and improving its information technologies, resulting in a larger technological presence, utilization of “cloud”
computing services, and corresponding exposure to cybersecurity risk. Certain technologies, such as use of autonomous vehicles, remote-controlled
equipment, virtual reality, automation and artificial intelligence, present new and significant cybersecurity safety risks that must be
analyzed and addressed before implementation. If we fail to assess and identify cybersecurity risks associated with new initiatives, we
may become increasingly vulnerable to such risks. As such, the Company is developing and securing technology that aims to secure against
hacking and malicious attacks. As the software that drives our drones and cameras become more autonomous and interconnected, they become
potential targets for cyber threats. Ensuring the security of data transmission and control systems has been and continue to be critical
in preventing unauthorized access and misuse.
The
Company is currently headquartered in Wichita, Kansas, where we house our sensor manufacturing operations, and we operate our business
and drone manufacturing in Raleigh, North Carolina and Lausanne, Switzerland which supports our international business activities.
Strategic
Acquisitions in 2021(the “2021 Acquisitions”)
MicaSenseTM,
Inc.
In
January 2021, AgEagle acquired MicaSenseTM, Inc. (“MicaSense”), a company that has been at the forefront of advanced
drone sensor development since its founding in 2014. In early 2022, AgEagle completed development and brought to market the Altum-PTTM
and RedEdge-PTM -- next generation thermal and multispectral sensors which offer critical advancements
on MicaSense’s legacy sensor products to customers primarily in agriculture, plant research, land management and forestry management.
Today, AgEagle’s multispectral sensors are distributed in over 75 countries worldwide and help customers use drone-based imagery
to make better and more informed business decisions.
Measure
Global, Inc.
In
April 2021, AgEagle acquired Measure Global, Inc. (“Measure”), a company founded in 2020. Serving 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. Ground Control serves a world class customer base, including many Fortune
500 companies. By adding Measure’s advanced software to the AgEagle platform, combined with its sensors and other data capture
and analytics innovations, our customers can capitalize on the significant economic, safety and efficiency benefits made possible by
drones used at scale.
senseFlyTM,
S.A.
In
October 2021, the Company acquired senseFly, S.A. and senseFly Inc. (collectively “senseFly”), a global leader in fixed-wing
drones that simplify the collection and analysis of geospatial data, allowing professionals to make better and faster decisions. Founded
in 2009, senseFly develops and produces a proprietary line of eBeeTM-branded, high performance, fixed-wing drones which have
flown more than one million flights around the world. Safe, ultra-light and easy to use, these autonomous drones are utilized by thousands
of customers around the world in agriculture, government/defense, engineering, and construction, among other industry verticals, to collect
actionable aerial data intelligence.
2022
Integration Activities
In
2022, the Company built an enterprise architecture designed to seamlessly integrate the acquisitions completed in 2021, thereby unifying
four disparate brands under one global brand: AgEagle. As part of this process, AgEagle executed an action plan to create long-term sustainable
value through the efficiencies derived from economies of scale, sharing and optimizing resources – in particular, human capital
and knowledge – and combining assets. Critical to the success of the integration and integral to the Company’s ability to
stay disciplined, structurally organized and rooted in its core values was:
Our
Branded Line of Unmanned Aerial Vehicles
eBeeTM
Line of Professional Drones
Sold
worldwide through AgEagle’s direct sales team and global network of trusted resellers, the Company’s eBee line of
commercial and government/military UAS have logged more than 500,000 flight hours on more than one million successful missions over the
past decade. Moreover, according to AgEagle’s analysis of official FAA Part 107 commercial drone registration data supplied to
the Company pursuant to a Freedom of Information Act Request submission, from 2016 through 2021, the eBee was the commercial sUAS
of choice for U.S. commercial drone operators, outnumbering all other fixed wing drones registered, including Vertical Take-Off and Landing
(“VTOL”) aircraft, accounting for 41% of all commercial fixed-wing drone registrations in the United States.
Market
Opportunity for UAVs
Drones
have transformed from being freelance videographer toys to mission critical inspection tools for enterprise businesses like
construction, energy and agriculture, and for military/defense applications worldwide. Moreover, the number of use cases for drones
has also grown as drone hardware has become more advanced, safer and more reliable. Advanced aerial mapping, crop monitoring,
publicly safety uses, disaster response and consumer drone deliveries have all become available as the commercial drone industry has
matured.
According
to DRONEII’s Drone Market Report, published in September 2022, the overall global drone market was worth an estimated $30.6 billion
in 2022 and is expected to experience a compound annual growth rate (“CAGR”) of 8.3% through the year 2030, reaching $55.8
billion. Even more bullish on its industry outlook, Precedence Research reported in July 2022 that it believes the commercial drone market
segment alone is poised to grow from $24.4 billion in 2022 to $504 billion by 2030, representing a 46.04% CAGR over the forecast period
2022 to 2030.
In
September 2022, the Drone Infrastructure Inspection Grant Act was passed by the U.S. House of Representatives. This bi-partisan bill
establishes programs within the Department of Transportation (“DOT”) to support the use of drones and other sUAS when inspecting,
repairing or constructing road infrastructure, electric grid infrastructure, water infrastructure or other critical infrastructure. Specifically,
DOT must award grants in the aggregate of $100 million to state, tribal and local governments, metropolitan planning organizations, or
groups of those entities to purchase or otherwise use drones to increase efficiency, reduce costs, improve worker and community safety,
reduce carbon emissions, or meet other priorities related to critical infrastructure projects. Grant recipients must use domestically
manufactured drones that are made by companies not subject to influence or control from certain foreign entities, including China and
Russia. This legislation is supported by the U.S. Chamber of Commerce, National League of Cities, National Council of State Legislatures,
American Association of State Highway and Transportation Officials, Commercial Drone Alliance and Association of Unmanned Vehicle Systems
International among others. This bill is currently pending approval by the U.S. Senate.
On
the military/defense front, drone technologies are providing numerous tactical advantages to warfighters worldwide, including conducting
surveillance and mapping missions; relaying crucial real-time information on enemy movements, locations and positions of strategic targets;
and transporting valuable supplies and equipment to remote or far-forward areas, among other tactical capabilities. In its 2023 report
titled “Global Military Drones Market,” The Business Research Company (“TBRC”) noted that the global military
drones market size will grow from $14.54 billion 2022 to $15.88 billion in 2023 at a CAGR of 9.2%. Moreover, by 2027, the market size
is forecast to climb to $20.64 by 2027, a 6.8% CAGR. TBRC’s report notes that increasing government funding for military drones
to enhance efficiency in military operations is boosting the demand for production of military drones. The report further cites a May
2021 article published by the National Defense Industrial Association, a U.S.-based trade association for the United States’ government
and defense industry, which revealed that in fiscal year 2021, the DoD allotted $7.5 billion for a range of robotic platforms and associated
technologies. For the purchase of unmanned systems, the Navy and Air Force each received about $1.1 billion; the Army received $885 million;
the Marine Corps received $70 million; and the U.S. Special Operations Command (“SOCOM”) received $90 million.
Sensor
Solutions
Setting
entirely new standards of excellence for high resolution aerial imaging solutions, our proprietary thermal and multispectral sensors
are broadly recognized as the cameras of choice worldwide for advanced applications in agriculture, plant research, land management and
forestry management.
Market
Opportunity for Sensor Solutions
Sensors
for drones are increasingly being used for surveying, mapping and inspections – particularly in the mining, construction, energy,
environmental management, agriculture, infrastructure and waste management industries. Moreover, with every new innovation in sensor
technologies, the functionality and the underpinning value proposition of commercial UAS continues to improve and allows for an even
wider range of possible applications.
Due
in large measure to increasing demand of drone sensors for mapping services, LiDAR and GPS, the outlook for the drone sensor market is
forecasted to grow to $66.6 billion by 2030, according to a January 2022 research report released by Market Research Future. Verified
Market Research (“VMR”) also published its industry research report in January 2022, stating that the global drone sensor
market will climb to $60.67 billion by 2028 from $10.88 billion in 2020, representing a CAGR of 23.97% from 2021 to 2028. Key market
drivers in VMR’s report cite adoption of drones across different industry verticals, including agriculture, landscaping and military
and defense, as well as a rise in the need for collecting high quality and real-time data insight.
Our
Branded Software Solutions
Ground
Control
A
cloud-based, plug-and-play operating system, Ground Control provides individual pilots and large enterprises with everything they
need to completely automate and scale their drone operations workflows. Offered as Software-as-a-Service, Ground Control continues
to earn the trust and fidelity of its blue chip, industry-diverse customers by providing a single platform to automate flight management
systems safely and securely; easily manage drone programs of any scope and scale; and process, analyze and share drone-captured image
data and visualization necessary for assessing risks, improving workflow processes and achieving time and cost efficiencies across enterprises
of virtually any size. With the aim of empowering AgEagle’s customers to readily extend their reach and human capability through
adoption of scalable autonomous drone programs, Ground Control users can:
Ground
Control has been integrated with several other industry leading UAS technologies, including AgEagle’s own line of proprietary
sensors and airframes. In addition, Ground Control’s industry partnerships include integrations with:
eMotion
AgEagle
also offers eMotion, a drone flight and data management solution created specifically for aerial mapping use. With eMotion,
flights are built using intuitive mission blocks and flight modes. Users simply need to choose a block (aerial mapping, corridor, etc.),
highlight the region they want to map, define key settings, and eMotion auto-generates the drone’s flight plan. Multi-flight
missions are supported, and the software’s full 3D environment adds a new dimension to drone flight management, helping users to
plan, simulate and control the drone’s trajectory for safer flights, more consistent performance and improved data quality. Moreover,
eMotion’s built-in Flight Data Manager automatically handles the georeferencing and preparation of images required for post-processing
in software such as Pix4Dmapper. Connecting wirelessly to a user’s drone, to industry cloud solutions, to survey-grade base
stations and to airspace and live weather data, eMotion is advanced, scalable drone software that anyone can use.
HempOverview
As
one of the agriculture industry’s leading pioneers of advanced aerial-image-based data collection and analytics solutions, AgEagle
leveraged our expertise to champion the use of proven, advanced web- and map-based technologies as the means to streamline and ultimately
standardize hemp cultivation in the United States. Growers need to be registered/permitted; crops need to be monitored and inspected;
and enforcement operations must be established to ensure compliance with state and federal mandates. Through HempOverview, we
believe that AgEagle represents the first agriculture technology company to bring to market an advanced agtech solution that is designed
to meet the unique complexities and vigorous oversight, compliance and enforcement demands of the emerging American hemp industry and
the unique needs and demands of its key stakeholders.
HempOverview
comprises four modules:
In
November 2019, the Florida Department of Agriculture and Consumer Services (FDACS) licensed the HempOverview solution to manage
its online application submission and registration process for hemp growers and their farms and hemp fields in the State of Florida for
the years 2020, 2021 and 2022. In June 2021, the State of Florida expanded its licensing of the HempOverview platform to provide
for access to all four of the modules. FDACS also tasked AgEagle with developing a custom registration software platform to enhance communications,
licensing and general compliance relating to the oversight and protection of more than 500 endangered and commercially exploited wild
plants native to Florida. For instance, in an effort to curb exploitation of saw palmetto, a plant whose extract is used in herbal supplements
often marketed for its urinary tract and prostate health benefits, FDACS requires harvesters and sellers of saw palmetto berries to obtain
a Native Plant Harvesting Permit. According to a related FDACS notice, “Widespread gathering of these berries is depleting a wildlife
food source and threatening the stability of some ecosystems.”
In
January 2021, the Iowa Department of Agriculture and Land Stewardship also licensed the HempOverview platform to manage the state’s
online registration, payment processing, comprehensive data collection and compliance oversight for the 2021, 2022 and 2023 planting
seasons.
Market
Opportunity for Drone Software Solutions
Rapid
adoption of UAS for commercial and government/military purposes continues to fuel the growth of the global drone software market, with
particularly robust demand expected for applications in areas that include mapping and surveillance, agriculture 4.0 and precision farming,
academic research, infrastructure inspection and maintenance, search and rescue and shipping and delivery. In a July 2022 report published
by Allied Market Research, the firm’s market analysts reported that the global drone software market was valued at $5.96 billion
in 2021, and is now projected to reach $21.93 billion by 2031, growing at a CAGR of 14.5% from 2022 to 2031.
Market
Opportunity for U.S. Industrial Hemp and Hemp-Derived CBD
According
to the November 2022 report of the industry research firm Markets and Markets, the global industrial hemp market is estimated to be valued
at $6.8 billion in 2033 and is projected to reach $18.1 billion by 2027, recording a 21.6% CAGR. Following the legalization of industrial
hemp production in the United States, the country’s industrial hemp industry has grown rapidly, as it is one of the largest consumers
of hemp-derived products, including oilseeds and cannabidiol (“CBD”). CBD is a non-intoxicant cannabinoid that has become
more popular as a food supplement and as an ingredient in pharmaceutical and cosmetic products. Hemp bioplastics made from hemp seeds
and CBD oil is also driving growth of the industry. Growing consumer demand for sustainable goods, as well as corporate and government
initiatives and support, are expected to fuel the growth of hemp-based biofuel and bioplastics.
AgEagle’s
Manufacturing Operations
For
years, federal agencies have been using drones for a wide range of use cases, from mapping to surveillance, search and rescue, and scientific
research. However, in recent years federal agencies’ use of and ability to procure UAS has evolved, largely stemming from security
concerns about drones from Chinese manufacturers. In 2020, for example, the U.S. Department of Interior grounded its entire fleet of
drones over concerns “that Chinese parts in them might be used for spying, making exceptions only for emergency missions like fighting
wildfires and search-and-rescue operations,” as The New York Times reported on January 29, 2020.
Former
President Donald Trump issued an executive order before leaving office stating that the U.S. government would seek to prevent
“the use of taxpayer dollars to procure UAS that present unacceptable risks and are manufactured by, or contain software or
critical electronic components from, foreign adversaries, and to encourage the use of domestically produced UAS.” As a result,
the General Services Administration works to ensure that only drones approved by the Department of Defense’s Defense Innovation Unit
are permitted under Multiple Award Schedule contracts.
AgEagle
believes that these measures to ban China-manufactured drones and components has fueled and will continue to fuel, demand for “Made
in America” drones and components, creating a significant opportunity for U.S.-based drone manufacturers, like AgEagle. Consequently,
it is AgEagle’s intention to establish best industry practices and define quality standards for manufacturing, assembly, design/engineering
and testing of drones, drone subcomponents and related drone equipment in the Company’s U.S. facilities. The Company also has established
manufacturing operations in its Lausanne, Switzerland facility, where it assembles its line of eBee-branded fixed wing drones
for AgEagle’s international customer base.
AgEagle’s
commitment to its discerning customers has driven its efforts to establish recognized centers of excellence in drone airframes, sensors
and software, which, in turn, has resulted in the Company’s drone production operations receiving official ISO:9001 certification
for its Quality Management System (“QMS”) in 2022. Meeting a wide variety of strict standards, AgEagle has demonstrated that
it delivers consistently high-quality products and services in every aspect of its fixed-wing drone operations, including design, manufacturing,
marketing, sales and after-sales. An international certification, ISO:9001 recognizes organizational excellence and good quality practices
based on a strong customer focus, robust process approach and proof of continual improvement. The certification was achieved following
an extensive audit across AgEagle’s drone operations, led by the Company’s dedicated in-house quality management team. The
QMS was developed over a two-year period, outlining a framework of policies, processes and procedures to help achieve the Company’s
high-performance objectives.
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:
Competitive
Strengths
AgEagle
believes the following attributes and capabilities provide us with long-term competitive advantages:
Government
Regulation
UAV
Regulation
AgEagle
is subject to industry-specific regulations due to the nature of the products we sell to our customers. For example, certain aspects
of our U.S. business are subject to regulation by the Federal Aviation Administration (“FAA”), which regulates airspace for
all air vehicles in the U.S. National Airspace System.
In
August 2016, the FAA’s final rules for routine use of certain small UAS in the U.S. National Airspace System went into effect,
providing safety rules for small UAS (under 55 pounds) conducting non-recreational operations. These rules limit flights to visual-line-of-sight
daylight operation, unless the UAS has anti-collision lights in which case twilight operation is permitted. The final rule also addresses
height and speed restrictions, operator certification, optional use of a visual observer, aircraft registration and marking and operational
limits, including prohibiting flights over unprotected people on the ground who are not directly participating in the operation of the
UAS. Current FAA regulations require drone operators to register their systems with the FAA and secure operating licenses for their drones.
These regulations continue to evolve to accommodate the integration of UAS into the National Airspace System for commercial applications.
In
April 2021, the FAA’s final rule for remote identification of UAS went into effect. On the same day, the final rule for operation
of small UAS over people also went into effect. This rule permits routine operations of small unmanned aircraft over people, moving vehicles
and at night under certain conditions, provided that the operation meets the requirements of one of four operational categories.
On
October 27, 2022, AgEagle announced that the Company’s eBee X series of fixed wing UAS were the first and only drones on
the market at that time to comply with Category 3 (as defined below) of the Operations of Small Unmanned Aerial Systems Over People rules
published by the FAA. Now that the eBee has proven compliant with Category 3 (as defined below) of the rules, eBee drone
operators no longer need an FAA waiver for OOP or Operations Over Moving Vehicles. Category 3 eligible sUAS must not cause injury to
a human being that is equivalent to or greater than the severity of injury caused by a transfer of 25 foot-pounds of kinetic energy upon
impact from a rigid object, does not contain any exposed rotating parts that could lacerate human skin upon impact with a human being,
and does not contain any safety defects. Category 3 aircraft also require FAA-accepted means of compliance and FAA-accepted declaration
of compliance.
Our
non-U.S. operations are subject to the laws and regulations of foreign jurisdictions, which may include regulations that are more stringent
than those imposed by the U.S. government on our U.S. operations.
Domestic
Hemp Production and Prevailing Regulatory Changes
With
the passing of the 2018 Farm Bill in December 2018, industrial hemp is now recognized as an agricultural commodity, such as corn, wheat,
or soybeans.
More
specifically, the 2018 Farm Bill authorizes state departments of agriculture, including agencies representing the District of Columbia,
the Commonwealth of Puerto Rico and any other territory or possession of the United States, and Indian tribal governments, to submit
plans to the USDA applying for primary regulatory authority over the production of hemp in their respective state or tribal territory.
For more information on state and tribal nation plan submissions, please visit https://www.ams.usda.gov/rules-regulations/hemp/state-and-tribal-plan-review.
As
of December 31, 2023 all 50 states, 3 U.S. territories and 63 tribal nations have had their hemp production plans approved by the USDA.
Risks
associated with environmental, social and governance matters (“ESG”), including especially climate change and other environmental
impacts, could negatively affect our business and operations.
Environmental,
social and governance matters significantly impact our business and operations and present evolving risks and challenges. Environmental
impacts, including climate change specifically, create short and long-term financial risks to our business globally. Climate related
changes can increase the frequency and severity of significant weather events and natural disasters. While we maintain insurance coverage
to cover certain risks of losses for damage or destruction to facilities and property and for interruption of our business, such insurance
may not cover specific losses and the amount of our insurance coverage may not be adequate to cover all of our losses. As a result, our
future operating results could be materially and adversely affected, including if our losses are not adequately or timely covered by
our insurance.
Increased
attention on ESG matters, including from our customers, shareholders and other stakeholders, may lead to us expending more resources
addressing these issues. Legislative and regulatory efforts to combat climate change and address ESG issues may prove costly and burdensome
for us to comply with and will likely continue to impact us, our customers and our suppliers.
Environmental
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 climate change, 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.
Suppliers
In
2023, we maintained strong relationships established with companies that provide many of the parts and services necessary to
construct our advanced fixed-wing drones and sensors. As our Company grows, we expect to pursue additional supplier relationships
from which we can source less costly and better supplies to stay ahead of the needs of the market. In addition, we have forged
strong relationships with key suppliers in the U.S. and in U.S.-allied countries based on their ability to meet our needs and
delivery timelines. We will continue to expand upon our suppliers’ expertise to improve our existing products and develop new
solutions. In 2023, we experienced some supply delays from in our inability to muster funds due to high interest rates and tighter
borrowing requirements that continue to crimp borrowing capacity, and thereby hindering our ability to fulfill current and backorders
of our products to convert accounts receivables into cash. We may continue to experience potential supply chain disruptions in 2024
for the same reason.
Operating
Segment Revenues
The
table below reflects our revenue by operating segment for the years indicated below:
For the Year Ended December 31,
Research
and Development
Research
and development activities are core components of our business, and we follow a disciplined approach to investing our resources to create
new drone technologies and solutions. A fundamental part of this approach is a well-defined screening process that helps us identify
commercial opportunities that support current desired technological capabilities in the markets we serve. Our research includes the expansion
of our fixed wing products, providing for developing a portfolio of UAVs, sensors and ongoing software platform development costs, as
well as other technological solutions to problems to which our existing and prospective customers must confront. We cannot predict when,
if ever, we will successfully commercialize these projects, or the exact level of capital expenditures they could require, which could
be substantial.
Organizational
History
On
March 26, 2018, our predecessor company, EnerJex Resources, Inc. (“EnerJex”), a Nevada company, consummated the transactions
contemplated by the Agreement and Plan of Merger (the “Merger Agreement”), dated October 19, 2017, pursuant to which AgEagle
Merger Sub, Inc., a Nevada corporation and a wholly-owned subsidiary of EnerJex, merged with and into AgEagle Aerial Systems Inc., a
privately held company organized under the laws of the state of Nevada (“AgEagle Sub”), with AgEagle Sub surviving as a wholly-owned
subsidiary of EnerJex (the “Merger”). In connection with the Merger, EnerJex changed its name to AgEagle Aerial Systems Inc.
(the “Company, “we,” “our,” or “us”) and AgEagle Sub changed its name initially to “Eagle
Aerial, Inc.” and then to “AgEagle Aerial, Inc.” Prior to this merger, all of the EnerJex operations were conducted
through EnerJex Kansas, Inc., Black Sable Energy, LLC, a Texas limited liability company (“Black Sable”) and Black Raven
Energy, Inc. a Nevada corporation (“Black Raven”). Its leasehold interests were held in its wholly-owned subsidiaries Black
Sable, Working Interest, LLC, EnerJex Kansas and Black Raven. As of December 31, 2021, the Company continued with the wholly-owned subsidiaries,
AgEagle Aerial, Inc. and EnerJex Kansas, Inc.
On
January 27, 2021 (“MicaSense Acquisition Date”), we entered into a stock purchase agreement (the “MicaSense Purchase
Agreement”) with Parrot Drones S.A.S. and Justin B. McAllister (the “MicaSense Sellers”) pursuant to which the Company
acquired 100% of the issued and outstanding capital stock of MicaSense, Inc. from the MicaSense Sellers (the “MicaSense Acquisition”).
The aggregate purchase price for the shares of MicaSense was $23 million less any debt, and subject to a customary working capital adjustment.
MicaSense became a wholly-owned subsidiary of the Company as a result of the MicaSense Acquisition.
On
April 19, 2021 (the “Measure Acquisition Date”), the Company entered into a stock purchase agreement (the “Measure
Purchase Agreement”) with Brandon Torres Declet (“Mr. Torres Declet”), in his capacity as representative of the sellers,
and the sellers named in the Measure Purchase Agreement (the “Measure Sellers”) pursuant to which the Company acquired 100%
of the issued and outstanding capital stock of Measure Global, Inc. (“Measure”) from the Measure Sellers (the “Measure
Acquisition”). The aggregate purchase price for the shares of Measure is $45 million, less the amount of Measure’s debt and
transaction expenses, and subject to a customary working capital adjustment. Measure became a wholly-owned subsidiary of the Company
as a result of the Measure Acquisition.
On
October 18, 2021 (the “senseFly S.A. Acquisition Date”), the Company entered into a stock purchase agreement with Parrot
Drones S.A.S. pursuant to which the Company acquired 100% of the issued and outstanding capital stock of senseFly S.A. from Parrot Drones
S.A.S. (the “senseFly S.A. Purchase Agreement”) The aggregate purchase price for the shares of senseFly S.A. is $21,000,000,
less the amount of senseFly S.A.’s debt and subject to a customary working capital adjustment. senseFly S.A. became a wholly-owned
subsidiary of the Company as a result.
On
October 18, 2021 (the “senseFly Inc. Acquisition Date), AgEagle Aerial and the Company entered into a stock purchase agreement
(the “senseFly Inc. Purchase Agreement”) with Parrot Inc. pursuant to which AgEagle Aerial agreed to acquire 100% of the
issued and outstanding capital stock of senseFly Inc. from Parrot Inc. The aggregate purchase price for the shares of senseFly Inc. is
$2 million , less the amount of senseFly Inc.’s debt and subject to a customary working capital adjustment. senseFly Inc. became
a wholly-owned subsidiary of the Company as a result.
Our
Headquarters
Our
principal executive offices are located at 8201 E. 34th Street North, Suite 1307, Wichita, Kansas 67226 and our telephone
number is 620-325-6363. Our website address is www.ageagle.com. The information contained on, or that can be accessed through, our website
is not a part of this Annual Report. We have included our website address in this Annual Report solely as an inactive textual reference.
Human
Capital Resources
As
of March 31, 2024, we employed 64 full-time employees and 2 part-time employees. We acknowledge that our employees are the Company’s
most valued asset and the driving force behind our success. For this reason, we aspire to be an employer that is known for cultivating
a positive and welcoming work environment and one that fosters growth, provides a safe place to work, supports diversity and embraces
inclusion. To support these objectives, our human resources programs are designed to develop talent to prepare them for critical roles
and leadership positions for the future; reward and support employees through competitive pay, benefit and perquisite programs; enhance
the Company’s culture through efforts aimed at making the workplace more engaging and inclusive; acquire talent and facilitate
internal talent mobility to create a high performing, diverse workforce; engage employees as brand ambassadors of the Company’s
products; and evolve and invest in technology, tools and resources to enable employees at work.
Diversity, Equity, and Inclusion
We
are committed to fostering, cultivating and preserving a culture of diversity, equity and inclusion (DE&I). We recognize that a diverse,
extensive talent pool provides the best opportunity to acquire unique perspectives, experiences, ideas, and solutions to drive our business
forward. We believe that diverse teams solving complex problems leads to the best business results. We promote diversity by developing
policies, programs, and procedures that foster a work environment where differences are respected, and all employees are treated fairly.
Talent Management
We
recognize the importance of attracting and retaining the best employees. Our continued success is not only contingent upon seeking out
the best possible candidates, but also retaining and developing the talent that lies within the organization. We strive to attract, develop,
and retain the best and brightest from all walks of life and backgrounds. Our goal is to offer opportunities for employees to improve
their skills to achieve their career goals.
Employee Health and Safety
We
acted quickly to protect the health and safety of our employees in response to the pandemic protocols. In March 2020, all employees who
could work remotely began working from home. Employees continue to have the flexibility to work remotely or on a hybrid basis with most
of our employees. The health and safety of our employees has been and continues to be a priority.
No
OSHA recordable or lost time injuries in the US and zero injuries at our other global sites.
Intellectual
Property
As
reflected in the table below, we currently have registered trademarks, several patents or pending patents for our proprietary drone,
sensor and software technologies filed in the United States and certain jurisdictions abroad. As of December 31, 2023, our trademark
portfolio includes 63 registered and/or pending in various countries and 21 patents in various stages of the patent granting process.
We also consider our UAV and sensor manufacturing processes to be trade secrets and have non-disclosure agreements with current employees
and business partners to protect those and other trade secrets held by the Company. Risks related to the protection and exploitation
of IP rights are set forth in “Risk Factors.”
Trademarks
Patents and Pending Patents
THERMAL CALIBRATION OF AN INFRARED IMAGE SENSOR US NP-Filed 62/350116 6/14/16
Where
You Can Find Additional Information
The
Company is subject to the reporting requirements under the Exchange Act. The Company files with, or furnishes to, the SEC quarterly reports
on Form 10-Q, current reports on Form 8-K, and amendments to those reports and will furnish its proxy statement. These filings are available
free of charge on the Company’s website, wwwageagle.com, shortly after they are filed with, or furnished to, the SEC. The SEC maintains
an Internet website, www.sec.gov, which contains reports and information statements and other information regarding issuers.
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.
Through
our wholly-owned subsidiary, AgEagle Aerial, Inc., we have been operating 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, 2023, we had an accumulated
deficit of approximately $165.58 million which included net losses of approximately $42.42 million and $58.25 million for the years ended
December 31, 2023 and 2022, 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.
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