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.
Risks Related to Our Business and
the Industries We Serve
We operate in evolving markets,
which makes it difficult to evaluate our business and future prospects.
AgEagle’s drone,
sensor 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. airspace is still ill-defined but advancing. 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;
● Access 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.
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, but it not until recently that we have acquired the
latest go-to-market airframes, sensors and software technologies. We are currently still in the business development stage of our products
and commercial sales, and accordingly, we cannot guarantee that we will become profitable. 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 its business, including our ability to raise additional funds.
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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 new products and/or services resulting from those activities.
Until
such time, if ever, that we can generate sufficient revenue and achieve profitability, we expect to seek to finance future cash needs
through equity or debt financings or corporate collaborations and/or strategic arrangements. On May 25, 2021, the Company entered into
an at-the-market Sales Agreement (the "ATM Sales Agreement") with Stifel, Nicolaus & Company, Incorporated and Raymond James &
Associates, Inc. as sales agents (the "Agents"), in connection with the offer and sale from time to time of up to $100,000,000 of
shares of the Company's Common Stock (the "ATM Shares"), through an at-the-market equity offering program (the "ATM Offering"). If
we are unable to raise additional capital, we may have to delay, curtail or eliminate commercializing, marketing and selling one or more
of our solutions. During the period from May 26, 2021 through December 31, 2021, the Company sold 5,705,877 shares of its Common Stock,
par value $0.001, at a stock price between $5.00 and $6.30 per share, for proceeds of $30,868,703, net of issuance costs of $954,707.
Product development is a long,
expensive and uncertain process.
The development of
both UAV software and hardware 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 anticipate 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 may 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 sensor and software technology solutions which we offer 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 competitor; 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 that will result in profitability
to the Company.
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We face competition from other
companies, many of which have substantially greater resources.
Our competitors may
be able to provide customers with 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 with respect to any of these or other factors could have a material adverse effect
on our business, prospects, financial condition or future operating results.
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. 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. As a result, 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 its 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 unmanned 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.
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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, 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 products that may be approved for marketing.
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.
We acquire most of
the components for the manufacture of our products from suppliers. Suppliers of some of the components may require us to place
orders with significant lead-times to assure supply in accordance with its 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 may significantly hurt 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 its 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.
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, 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.
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Our operating margins may be negatively
impacted by 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 finished 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.
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.
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, change 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 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. On
February 14, 2012, the FAA Modernization and Reform Act of 2012 was enacted, establishing various deadlines for the FAA to
allow expanded use of small UAS for both public and commercial applications. On June 21, 2016, the FAA released its final rules
regarding the routine use of certain small UAS (under 55 pounds) in the U.S. National Airspace System pursuant to the act (the
“Part 107 Rules”). The Part 107 Rules, which became effective in August 2016, provided 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. On December 28, 2020, the FAA announced final rules requiring remote identification
of drones and allowing operators of small drones to fly over people and at night under certain conditions. We cannot assure you
that any final rules enacted in furtherance of the FAA’s announced proposals will result in the expanded use of our drones
and drone 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.
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On
March 10, 2022, the FAA’s Unmanned Aircraft Systems Beyond Visual Line of Sight Aviation Rulemaking Committee (“ARC”)
issued its final report to the FAA. In terms of key recommendations, the ARC recommends that the FAA set an acceptable level of
risk (ALR) for UAS that is consistent across all types of operations being performed. The ARC envisions that this approach will
allow the FAA to adopt a common and consistent set of regulations and guidance, giving operators the flexibility to meet the ALR
through qualitative or quantitative methods, or a hybrid approach. Next, the ARC recommends a series of modifications to the right
of way rules in Low Altitude Shielded Areas (within 100’ of a structure or critical infrastructure as defined in 42 U.S.C.
§ 5195c)2 and in Low Altitude Non-Shielded Areas (below 400’) to accommodate uncrewed aircraft (“UA”) operations.
Specifically, the ARC recommends several amendments to Right of Way rules to:
● allow automatic means for see-and-avoid responsibility;
● give UA right of way in Shielded Areas;
The
ARC also recommends an approach to operator qualification that would extend Part 107, Remote Pilot Certificate with Small
UAS Rating, to cover topics associated with Extended Visual Line of Sight (EVLOS) and shielded UAS operations. The recommendation creates
a new Remote Pilot certificate rating to cover BVLOS operations beyond the scope of the extended Part 107 rating. The examination for
both ratings would consist of a knowledge test on relevant areas, while practical training and qualifications would be tied to new Remote
Air Carrier and Remote Operating certificates, which would be required for most commercial 1-to-many operations. The qualifications would
be based on specific UA systems, Use Cases, and operational restrictions.
In
addition, the ARC recommends that the FAA establish a new BVLOS Rule which includes a process for qualification of UA and UAS, applicable
to aircraft up to 800,000 ft-lb of kinetic energy (in accordance with the Operation Risk Matrix).
Finally,
the ARC recommends that the FAA adopt a non-mandatory regulatory scheme for third party services to be used in support of UAS BVLOS
operations. In addition to its recommendations, the ARC identified certain issues relevant to UAS BVLOS operations that are beyond
this ARC’s scope, but which are identified in this report as considerations for future ARCs to address. Similarly, the ARC
also identified several issues that are beyond the FAA’s scope of authority. However, these recommendations are in the interest
of providing a full framework of actions and policies to promote safe and widespread adoption of UAS BVLOS activities.
Federal, state and tribal government
regulation of domestic hemp cultivation is new and subject to constant change and evolution, and unfavorable developments could
have an adverse effect on our operating results.
Any changes in laws
or regulations relating to domestic hemp cultivation could adversely affect our business, results of operations and our business
prospects for our HempOverview SaaS platform.
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.
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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.
Breaches of network or information
technology security could have an adverse effect on our business.
Cyber-attacks or
other breaches of technology platforms or IT security may cause equipment failures or disrupt our systems and operations. We may
be subject to attempts to breach the security of our technology platforms and IT infrastructure through cyber-attack, malware,
computer viruses and other means of unauthorized access. 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 the defense electronics market.
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 the aggregate, resulted in a material adverse effect on our business, operating results and financial
condition.
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 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 manufacturing facilities could impact 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.
For instance, Russia’s
recent military interventions 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.
Our business may be adversely
affected by the ongoing coronavirus pandemic.
In December 2019,
a novel coronavirus disease (“COVID-19”) was reported. On January 30, 2020, the World Health Organization (“WHO”)
declared COVID-19 a Public Health Emergency of International Concern. On February 28, 2020, the WHO raised its assessment of the
COVID-19 threat from high to very high at a global level due to the continued increase in the number of cases and affected countries,
and on March 11, 2020, the WHO characterized COVID-19 as a pandemic.
The outbreak of the
novel coronavirus (COVID-19) has evolved into a global pandemic. The coronavirus has spread to many regions of the world, including
the United States. The extent to which COVID-19 impacts our business and operating results will depend on future developments that
are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19 and the
actions to contain the coronavirus or treat its impact, among others.
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The spread of the
coronavirus, which has caused a broad impact globally, including restrictions on travel and quarantine policies put into place
by businesses and governments, may have a material economic effect on our business. While the potential economic impact brought
on by and the duration of the pandemic may be difficult to assess or predict, it has already caused, and is likely to result in
further, significant disruptions of global financial markets, which may reduce our ability to access capital either at all or on
favorable terms. In addition, a recession, depression or other sustained adverse market event resulting from the spread of the
coronavirus could materially and adversely affect our business and the value of our Common Stock.
In addition, as a result
of the pandemic, our ability to access components and parts needed in order to manufacture our proprietary drones and sensors,
and to perform quality testing have been impacted. If either we or any third-parties in the supply chain for materials used in our manufacturing
and assembly processes continue to be adversely impacted by restrictions resulting from the coronavirus pandemic, our supply chain may
be further disrupted, limiting our ability to manufacture and assemble products.
The ultimate impact
of the current pandemic, or any other health epidemic, is highly uncertain and subject to change. We do not yet know the full extent
of potential delays or impacts on our business or the global economy as a whole. However, these effects could have a material
impact on our operations. We will continue to monitor the situation closely.
Worldwide and domestic economic
trends and financial market conditions, including an economic decline in the agricultural industry, 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 agricultural industry, 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.
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Risks Associated with Our Capital
Stock
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;
● announcements about us or about our competitors or new product introductions;
● developments concerning our product manufacturers;
● 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
Many of these factors
are beyond our control. The stock markets have historically experienced substantial price and volume fluctuations. These fluctuations
often have been unrelated or disproportionate to the operating performance of these companies. These broad market and industry
factors could reduce the market price of our securities, regardless of our actual operating performance.
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.
25
We incur increased costs as
a result of operating as a public reporting company, and our management is required to devote substantial time to new 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.
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
an outstanding instrument which is 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 other offering at a price per share that is
equal to or greater than the price per share paid by investors or the then current market price.
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 may be 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 2. PROPERTIES
As of December 31,
2021, 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
10107 Division Drive Raleigh, North Carolina Offices 60 December 31, 2022
600 Congress Avenue Austin, Texas Offices 17 December 31, 2022
1701 Rhode Island Avenue NW Washington, DC Offices 15 December 31, 2022
1300 N. Northlake Way Seattle, Washington Offices 60 January 2026
As of December 31, 2021, the Company
held properties in Lausanne, Switzerland; Raleigh, NC; Austin, TX; Washington, DC; Seattle, WA represent non-cancelable 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.
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ITEM 3. LEGAL PROCEEDINGS
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.
Lopez v. AgEagle Aerial Systems, Inc., et al., Case
No. 2:21-cv-01810 (C.D. Cal.), consolidated with Madrid v. AgEagle Aerial Systems, Inc., et al., Case No. 2:21-cv-01991 (C.D. Cal.)
As previously disclosed,
AgEagle and certain of its current and former officers and directors were named as defendants in two putative securities class
actions filed in the U.S. District Court for the Central District of California (Lopez v. AgEagle Aerial Systems Inc., et al.,
Case No. 2:21-cv01810; and Madrid v. AgEagle Aerial Systems Inc., et al., Case No. 2:21-cv-01991). These matters were consolidated,
and a Lead Plaintiff designated by Court Order. On July 30, 2021, the Court-appointed Lead Plaintiff filed a voluntary dismissal
of the consolidated securities class action.
Nostrand and Rickerson v. Mooney et al. (Defendants)
and AgEagle Aerial Systems, Inc. (Nominal Defendant), Case No. 3:21-cv-00130 (D. Nev.)
As previously disclosed,
on March 17, 2021, John Nostrand and Drew Rickerson filed a shareholder derivative complaint against the Company as the nominal
defendant, Barrett Mooney, Grant Begley, Luisa Ingargolia, Thomas Gardner, Bret Chilcott, J. Michael Drozd, and Nicole Fernandez-McGovern.
On July 20, 2021, the Plaintiffs in this derivative action filed a voluntary dismissal of the action.
Granja v. AgEagle Aerial Systems Inc. (Nominal Defendant),
et al, Case No. 2:21-cv-06056 (C.D. Cal.)
On July 27,2021,
a separate shareholder filed a similar derivative complaint against the Company as the nominal defendant and certain of its current
and former officers and directors in the U.S. District Court for the Central District of California (Granja v. AgEagle Aerial Systems
Inc., et al, Case No. 2:21-cv-06056). On August 11, 2021, the Plaintiff in this California derivative action filed a voluntary
dismissal of the action.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
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 well as a large portion of our first quarter in 2022, of as reported by the New York Stock
Exchange.
As of March 31, 2022,
we had approximately 367 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.
Equity Compensation Plan
The following table
provides information as of December 31, 2021 about our equity compensation plan and arrangements:
Equity compensation plans not approved by security holders — — —
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Recent
Sales of Unregistered Securities
None.
Purchases of Equity Securities by
Issuer and Its Affiliates
None.
ITEM 6. SELECTED FINANCIAL DATA
This item is not
required for Smaller Reporting Companies.
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 of this Form 10-K. This discussion contains forward-looking statements. Please
see the explanatory note concerning “Forward-Looking Statements” in Part I of this Annual Report on Form 10-K and Item
1A. Risk Factors for a discussion of the uncertainties, risks and assumptions associated with these forward-looking statements.
The operating results for the periods presented were not materially affected by inflation.
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
industry leader offering best-in-class, autonomous unmanned aerial systems (UAS) to a wide range of industry verticals, including
energy/utilities, infrastructure, agriculture and government, among others.
The Company’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 AgEagle 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 nearly 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.
AgEagle
is led by a proven management team with years of drone industry experience. In view of AgEagle’s CEO’s appointment to
the U.S. Federal Aviation Administration’s (FAA) Advanced Aviation Advisory Committee and Unmanned Aircraft Systems Beyond
Visual Line of Sight Aviation Rulemaking Committee, in addition to, and the Company’s participation
in the FAA’s BEYOND program, AgEagle has played a hands-on role in helping to establish necessary rulemaking guidelines
and regulations for the future of autonomous flight and the full integration of drones into the U.S. airspace.
The Company is headquartered