UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-K
(Mark One)
☒ ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31,
2021
OR
☐ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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 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 is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
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. ☐
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 $386,867,106.
As
of April 12, 2022, there were 81,568,546 shares
of Common Stock, par value $0.001 per share, issued and outstanding.
AGEAGLE AERIAL SYSTEMS INC.
TABLE
OF CONTENTS
PART I 4
ITEM 1. BUSINESS 4
ITEM 1A. RISK FACTORS 17
ITEM 1B. UNRESOLVED STAFF COMMENTS 26
ITEM 2. PROPERTIES 26
ITEM 3. LEGAL PROCEEDINGS 27
ITEM 4. MINE SAFETY DISCLOSURES 27
ITEM 6. [RESERVED] 29
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 36
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 37
ITEM 9A. CONTROLS AND PROCEDURES 37
ITEM 9B. OTHER INFORMATION 38
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS 38
PART III 39
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 39
ITEM 11. EXECUTIVE COMPENSATION 39
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 39
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES 40
INDEX TO FINANCIAL STATEMENTS F-1
PART I
This report may contain
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
involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements
to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
We discuss many of these risks in greater detail in “Risk Factors.” Given these uncertainties, you should not place
undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and
assumptions only as of the date of this report. You should read this report and the documents that we reference in this report
and have filed as exhibits to the report completely and with the understanding that our actual future results may be materially
different from what we expect. Except as required by law, we assume no obligation to update these forward-looking statements publicly,
or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even
if new information becomes available in the future.
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
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. AgEagle's CEO has been appointed 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, the Company is participating 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
in Wichita, Kansas, where it also houses its U.S. manufacturing operations. In addition, AgEagle has business operations in Austin,
Texas; Lausanne, Switzerland; Raleigh, North Carolina; Seattle, Washington; and Washington, D.C.
4
Strategic Acquisitions
MicaSense, Inc.
In January 2021,
AgEagle acquired MicaSenseTM, Inc. (“MicaSense”), based in Seattle, Washington. MicaSense has been at the forefront
of advanced drone sensor development since its founding in 2014, having formed integration partnerships with several leading fixed-wing
and multi-rotor drone manufacturers. MicaSense’s patented, high precision thermal and multispectral sensors serve the aerial
mapping and analytics needs of the agriculture market. MicaSense’s high performance proprietary products, including Altum-PT, RedEdge-P, RedEdge-MXTM
and Atlas Flight, have global distribution in over 75 countries and help growers, land managers and researchers
use drone-based imagery to make informed business decisions. More than 100 research publications have featured MicaSense sensor
data.
Measure Global, Inc.
In April 2021, AgEagle
acquired Measure Global, Inc. (“Measure”), a company founded in 2020 with business operations in Washington, D.C. and
Austin, Texas. 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 Marathon Pipeline, Los Angeles Police Department, Nationwide
Insurance, Rayonier, SECO Energy, Skanska and Syngenta, as well as many other Fortune 500 companies.
As commercial and
industrial businesses continue to recover from the impact of the global pandemic, and the use of drones across a wide variety of
industries and applications gain greater acceptance, AgEagle believes companies will seek trusted and robust partners capable of
providing a one-stop shop for high quality drone solutions that effectively address business challenges. By adding Measure’s
advanced software to the AgEagle platform, combined with our 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.
senseFly, 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 eBee-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, engineering, and construction, among other industry verticals,
to collect actionable aerial data intelligence. With operations in Lausanne, Switzerland and Raleigh, North Carolina, senseFly’s
line of eBee-branded drones have earned distinction as the best-selling commercial fixed-wing drones in the United
States over the past three consecutive years, according to data supplied by the FAA; and Flyability has ranked senseFly’s
eBee as the top commercial drone in the market for mapping and surveying applications.
In March 2021, the
Defense Innovation Unit (“DIU”) sought proposals from UAS vendors and in the brief period the Request for Prototype
Proposals was listed on its website, www.sam.gov, DIU received more than 100 responses. From this group, senseFly, along with ten
other companies, were selected to participate in the 2.0 program to prototype a new approval process, significantly increasing
the variety of UAS capabilities available to all branches of the U.S. military. In October 2021, senseFly was named to the Blue
sUAS 2.0 list, published by the U.S. Department of Defense’s (“DoD”) Defense Innovation Unit :(DIU”). The
2.0 project was subsequently created to increase the diversity, capability and affordability of unmanned aerial systems (UAS) on
DIU’s “Blue UAS Cleared List,” bringing a greater variety of drones with a wide range of modalities, capabilities
and price points. A secondary part of the project involves: 1) an effort to define a common standard across the DoD for UAS vendor
onboarding; 2) the means to communicate that standard; and 3) a uniform process to assist authorized vendors in the procurement
process.
Subsequent to the
end of 2021, senseFly completed DIU’s required testing, evaluation and demonstration process. As a result, the NDAA-compliant
eBee TACTMUnmanned Aerial System was the first approved drone to be added to DIU’s Blue Cleared List
as part of the Blue sUAS 2.0 project. Systems added to this list do not require a DoD exception to policy to procure or operate,
as they have undergone a cyber-security evaluation, a policy compliance check and were issued the necessary administrative documentation.
5
Designed specifically
for government and military mapping and mission planning applications, the eBee TAC operates in disconnected environments,
providing a higher accuracy mobile solution to map and locally share aerial imagery data on rapidly changing field conditions to
analyze and provide near real-time situational awareness to ground forces. Weighing only 3.5 pounds and featuring a digital camouflage
skin for increased stealth and up to 90 minutes flight time and silent mission mode, the eBee TAC can be rapidly
deployed, from assembly to hand-launch, in three minutes by a single user to generate 3D modeling, terrain and thermal maps. eBee
TAC is available for purchase on the GSA Schedule Contract #47QTCA18D003G as a standalone solution or as part of the Aerial
Reconnaissance Tactical Edge Mapping Imagery System (“ARTEMIS”) supplied by Hexagon US Federal and partner Tough
Stump Technologies, which also provide extensive training programs for the system.
Our Branded Line of Unmanned Aerial Vehicles
eBee Line of Professional Drones
When AgEagle acquired
senseFly in October 2021, the Company gained a diverse portfolio of proprietary fixed-wing drones, which include:
6
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. Moreover, the number of use cases for drones has also grown as drone hardware has become more advanced, safe and
reliable. Advanced aerial mapping, crop monitoring, publicly safety uses, disaster response and consumer drone deliveries have
all become available as the drone industry has matured. According to a September 2021 article published in Robotics Business
Review, titled “What is the Future of Robotics? The Commercial Drone Market Provides Clues,” the author
shares that, according to the FAA’s website there are over 350,000 commercial drones in the United States, with some of the
largest fleets numbering in the hundreds. “Adoption has been primarily driven by the various safety and efficiency benefits
that drones provide to industrial jobsites.” He goes on to note that “these hundreds of thousands of drones are now
conducting programmed crop scans, completing exterior building inspections and performing thermal scans of solar farms with routine
swiftness. They are keeping workers safely away from disaster areas or dangerous construction tasks (i.e., inspecting roofs, scaling
scaffolding, climbing utility poles), saving time and resources and protecting human well-being. However, the industry would not
have gotten to this point without the help of advanced software solutions.”
Looking ahead, Allied
Market Research reports that the global UAV market is projected to reach $70.9 billion by 2030, up from $24.7 billion in 2020,
with the North American market expected to be the highest revenue contributor, accounting for $24.2 billion by 2030 – up
from $9.8 billion in 2020. Global tech market advisory firm, ABI Research, is predicting even more pronounced growth, suggesting
in its 2021 Small Unmanned Aerial Systems: Annual Update that “the drone market is set to be worth $92 billion by
2030, with a compound annual growth rate of 25% over the $9.5 billion in annual revenue for 2020. Of this revenue, 70% is
in the commercial sector ($63 billion).
Sensor Solutions
In January 2021,
AgEagle acquired MicaSense’s line of high performance, proprietary sensors, which include:
7
The acquisition of
senseFly also added several sensor solutions, marketed by senseFly, including:
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 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 compound annual growth rate 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.
8
Our Branded Software Solutions
Ground Control
In April 2021, the Company acquired
Measure , an aerial intelligence company and developer of a cloud-based, plug-and-play operating system known as Ground Control.
Ground Control provides individual pilots and large enterprises with everything they need to completely automate and scale their
drone operations workflows. Key capabilities of the technology include autonomous flight control and data collection, program management
and compliance, data processing and analysis and integrations with existing customer systems.
Marketed and sold as a SaaS solution
and enabled for both iOS and Android mobile devices, Ground Control ensures safe and automated operations while capturing the real-time,
data-driven insights necessary to allow its users to reap the full benefits of their drone systems. With end-to-end program management,
user-friendly flight control and in-platform data analysis, Ground Control has helped businesses save thousands of hazardous man-hours
and realize millions of dollars in operational benefits. Customers include many Fortune 500 companies and both large and small businesses
operating within the energy/utilities, media, insurance, first responder, construction and agriculture markets, among many others.
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
With the acquisition of senseFly
in October 2021, AgEagle expanded its line of proprietary drone flight and data management solutions with the addition of eMotion.
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
requires 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 Technology
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 a 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.
9
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.
FarmLensTM
In 2018, we acquired FarmLensTM
(“FarmLens”), a subscription cloud analytics service that processes data, primarily collected with a drone and makes
such data actionable by farmers and agronomists. Our user-friendly FarmLens solution can easily and quickly stitch
virtually thousands of high-resolution, multispectral images together to produce detailed prescription maps for everything from
disease and pest infestations to weather impact and improper irrigation – all before these issues can be detected by the
naked eye and at materially lower costs than satellite imagery or manned aircraft flyovers.
Used as a PC-based
system or on any mobile device, FarmLens helps users save time and eliminates technological hassles and costly
computing requirements. The FarmLens platform has benefitted us and our shareholders by allowing us to develop
important vertically integrated products and services with our drone-enabled software technologies, including HempOverview.
FarmLens is currently sold by AgEagle as a subscription service and offered either standalone or in a bundle with drone
platforms manufactured by leading drone providers.
Market Opportunity for Drone Software
Solutions
Rapid
adoption of UAS for commercial and military purposes continues to fuel the growth of the global drone software market, with particularly
robust demand for applications that include mapping and surveillance, agriculture and precision farming, academic research, infrastructure
inspection and maintenance, search and rescue and shipping and delivery are expected In a October 2021 market study published by
Global Industry Analysts, the world’s only influencer-driven market research company estimated the global market for drone
software was $5.7 billion in 2020 and is projected to reach a revised size of $21.9 billion by 2026, growing at a CAGR of 24.7%
over the forecast period.
Market Opportunity for U.S. Industrial
Hemp and Hemp-Derived CBD
Data
Bridge Market Research released a report in January 2022, forecasting that the industrial hemp market will reach $21.2 billion
by 2027, representing a compound annual growth rate of 21.02% in its forecast period 2020 through 2027. According to the research
firm, the growing preference for eco-friendly products in thermal insulation, construction markets, fiberglass alternatives and
automotive products is expected to drive the market through its forecast period. While not as bullish, Grand View Research reported
in October 2021 its outlook for the industry, projecting that the global industrial hemp market will reach $12.01 billion by 2028
due to increased use of hemp oil in food and beverage products, as well as increased demand for high quality cosmetics, personal
care products and protein supplements. However, Grand View Research also noted the market in North America is expected to register
the fastest volume-based CAGR of 21.2% through 2028 primarily due to rising demand for hemp in the automotive industry for manufacturing
panels as an alternative to fiberglass.
On
February 17, 2022, the USDA released its first National Hemp Report with data
on planted and harvested area, yields per acre, production and value of industrial hemp, based on a survey sent to 20,501 producers.
The report formed a benchmark for the crop and help farmers decide how much and what type of hemp to grow.
10
Our Manufacturing Services
For the past several
years, security experts have expressed concerns that UAVs made in China or other adversarial countries could be used to spy on
U.S. interest by exfiltration of data back to the country of origin. In fact, in May 2019, the U.S. Department of Homeland Security
warned in an alert that drones are a potential risk to an organization’s information.
Data released by Drone
Industry Insights in late 2019 revealed that China-based Da Jiang Innovations (“DJI”) accounted for about 70% of all drone
sales worldwide – and up to 80% of the U.S. market (Source: https://droneii.com/product/chinese- drone-market-report). Citing the
threat of Chinese manufacturers, the U.S. General Services Administration (“GSA”) announced in January 2021 that it will
no longer include Chinese drones in its suite of offerings as of February 1, 2021. The press release stated, “GSA has recently
determined that, due to the significant risk associated with offering drones under GSA’s Multiple Award Schedules (“MAS”)
program, it will remove all drones as defined by 49 USC Ch. 448 from MAS contracts, except those drones approved
by the Department of Defense (“DoD”) Defense Innovation Unit (“DIU”) through its Blue sUAS Program.
DIU’s Blue sUAS Program, is a program that provides secure, trusted, small drone capability to the U.S. government and matures
the market for American-made small drones. (Source: https://interact.gsa.gov/blog/removal-drones-gsa-multiple-award-schedule-contracts).
In October 2020,
the Department of Justice also recently banned the use of agency grants to purchase drones and other unmanned aerial systems from
foreign groups; and the federal government is not likely to stop these limited policy bans. Congress has already taken steps to
check DJI’s ability to operate in the U.S. and it is considering more. It effectively cemented the Defense Department’s
ban into law in the National Defense Authorization Act for 2020. Congress has also considered broader bans, such as the draft American
Security Drone Act of 2021, which would bar any federal agency from acquiring Chinese drones or drones made with Chinese components;
and would also codify the different policy prohibitions on using federal grant money to buy Chinese drones and components –
an aspect of the law clearly aimed at curbing use of the technology at the state and local levels.
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 our 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 our Wichita facility.
We will work to optimize
our own proprietary designs and customer requirements to meet scalable manufacturing requirements, mission capabilities and equipment
specifications. Within this framework, we expect to develop products with feedback and input from manufacturing, quality, supply
chain managers, key suppliers, logistics personnel and our customers. We will incorporate this input into product designs in an
effort to maximize efficiencies and quality of our products, while minimizing time to market. As a result, we believe that we will
achieve a take a product from its design phase to full scale production deliveries while achieving high reliability, quality, and
safety yields.
BEYOND Program- Integrating UAVs
into National Airspace
In November 2020,
AgEagle was selected as an industry partner in the next phase of the U.S. Department of Transportation’s (“US DOT”)
Unmanned Aircraft System Integration Pilot Program (“IPP”), known as the BEYOND program. The original IPP was launched
through a Presidential Memorandum in October 2017 with nine regional participants. The IPP participants and their industry partners
used innovative strategies to craft successful safety cases to operate drones under FAA’s existing regulations. On October
30, 2020, the US DOT announced that the three-year IPP successfully concluded on October 25, 2020. In the release, U.S. Chief Technology
Officer Michael Kratsios noted, “The IPP propelled the American drone industry forward, allowing for unprecedented expansions
in testing and operations through innovative private-public partnerships across the country. Now, the BEYOND program will build
upon this success, tackling the next big challenges facing drone integration.”
Eight of the nine
state, local and tribal governments that participated in the original program signed new agreements with the FAA to participate
in the BEYOND program, including the Kansas Department of Transportation (KDOT). AgEagle was selected by KDOT to serve as an industry
partner in the BEYOND program to help solve key challenges including:
11
We believe
that once the FAA ultimately determines and approves final regulations allowing for safe integration of commercial UAVs flown BVLOS
into the U.S. airspace, the promising growth of drone delivery solutions is sure to take flight; and there has been positive developments
in this regard.
While it is our intention
to continue identifying, pursuing and winning contract design, manufacturing, assembly and testing of drone delivery platforms
with key industry partners, it is also our intention to design, develop and bring to market our own proprietary, end-to-end drone
solutions. Participating in the BEYOND program will empower AgEagle to lead select pilot projects in key areas of interest to us.
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:
12
Competitive Strengths
AgEagle believes
the following attributes and capabilities provide us with long-term competitive advantages:
13
Government Regulation
UAV Regulation
AgEagle’s
proprietary drones are subject to regulations of the FAA. On June 21, 2016, the FAA announced it had finalized the first operational
rules for routine commercial use of small UAS, which for purposes of the regulations are unmanned aircraft weighing less than 55 pounds
that are conducting non-hobbyist operations. UAS operators-for-hire will have to pass a written test and be vetted by the TSA, but no
longer need to be airplane pilots as current law requires. The rules went into effect on August 20, 2016. For additional insight
into these initial regulations created for commercial UAS operations, please see https://www.faa.gov/news/press_releases/news_story.cfm?newsId=20515.
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 February 1,
2022, forty-five states, two U.S. territories and forty-six tribal nations have had their hemp production plans approved by the
USDA, and five states will continue to operate their hemp production plans in accordance with the 2014 pilot guidelines issued
by the National Institute of Food and Agriculture, which handles the extramural research aspects of industrial hemp cultivation.
Recent FAA Regulatory Updates
On
March 10, 2022, the FAA’s Unmanned Aircraft Systems BVLOS Aviation Rulemaking Committee (“ARC”) – a committee
on which AgEagle’s Chief Executive Officer (“CEO”) serves as a member – tendered its final
report to the Federal Aviation Administration, recommending significant changes to the FAA’s
regulations for UAS. As the FAA recognized in prescribing this committee’s original charter in June 2021, “the UAS
capability to fly without the pilot onboard, and indeed beyond the pilot’s visual line-of-sight, is what offers the most
societal benefits[,]” yet this practice is largely prohibited under existing regulations and has only been permitted on a
very limited case-by-case basis through FAA waivers. The central mission of the ARC, therefore, was to develop recommendations
for regulations that would better support and promote the development of BVLOS operations.
To that end, the
ARC suggested several broad changes to ensure the safe expansion of BVLOS UAS operations. First and foremost, the ARC proposed
that the FAA reframe its regulations based on the level of risk acceptable in the use of UAS broadly, rather than trying to create
regulations to address specific types of operations. The goal of this approach would be to eliminate the kind of inconsistencies
and opacity that may result from the case-by-case waiver approach the FAA has adopted to date. Such an approach, the ARC concluded,
would provide “clear guidance for the industry and regulators” while allowing operators to determine the means of compliance
that best fit their operations, whether that be “through qualitative or quantitative methods, or a hybrid approach.”
The ARC’s proposal
also includes new rules regarding the right of way. In areas considered “Shielded” (within 100 feet of a structure
or a critical infrastructure), UAS will have the right of way over other forms of aircraft. Under this proposed rule, UAS will
enjoy an operational space that is largely free of crewed aircraft, as a UAS that is operating within the boundaries of a structure
or obstacle “would be considered part of the structure/obstacle.” The ARC is aware of the undeniable benefits that
drone technology offers for the inspection and monitoring of infrastructure and property, as reflected in the proposed rulemaking.
Separately, whether
a crewed aircraft must yield to a UAS in “Non-Shielded” areas that are low altitude (below 400 feet) will depend on
whether the crewed aircraft is equipped with an Automatic Dependent Surveillance-Broadcast (ADS-B) transmitter or Traffic Awareness
Beacon System (“TABS”) broadcasting their position. If so, then the Automatic Dependent Surveillance-B (“ADS-B”)
equipped crewed aircraft will have the right of way over drones in nonshielded low-altitude areas; but if the crewed aircraft is
not equipped with ADS-B or TABS, then the drone maintains the right of way in those areas. The ARC stated that the purpose of this
rule is to improve safety by encouraging the use of ADS-B and TABS systems in low-altitude areas.
While
the FAA has recently imposed strict rules on drone operations by requiring they broadcast remote ID information,
the ARC’s proposal reflects a desire to loosen the regulations in other areas. Very soon, drone manufacturers and operators will
be required to comply with the new Remote ID rule (there is a compliance date of September 16, 2022, for manufacturers, and September
16, 2023, for operators). The ARC’s proposal, if codified, will undoubtedly create exciting new opportunities for drone operators
within the United States.
14
Suppliers
In 2021 and 2020,
we maintained strong relationships established with companies that provide many of the parts and services necessary to construct our
advanced fixed-wing drones, such as MicaSense. On January 26, 2021, the Company and AgEagle Sensor Systems, Inc., a wholly-owned
subsidiary of the Company (the “Buyer”), entered into a stock purchase agreement (the “MicaSense Purchase Agreement”)
with Parrot Drones S.A.S. and Justin B. McAllister (the “Sellers”) pursuant to which the Buyer agreed to acquire 100% of
the issued and outstanding capital stock of MicaSense, Inc. (“MicaSense”) from the Sellers. The transaction closed on
January 27, 2021. MicaSense manufactures and sells drone sensors for vegetation mapping and other drone applications.
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 2020, we experienced some supply chain
delays due primarily to logistical issues relating to COVID-19 shutdown mandates. Unfortunately, we do anticipate encountering
potential delays in 2022 for the same reason.
Segment Reporting
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 part 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 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.
Risks Relating to Our Business
Our business is subject
to numerous risks and uncertainties, including those highlighted in the section titled “Risk Factors” found in Item
1A within this Annual Report on Form 10-K. Some of these risks include, but are not limited to, risks associated with:
● our need for additional funding;
● our ability to protect our intellectual property rights;
● rapid technological changes in the industry;
15
Recent Developments
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 continues
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 agreed to acquire 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 $23,000,000, less any debt, and subject to a customary working capital adjustment. Upon
completion of the MicaSense Acquisition, MicaSense became a 100% wholly-owned subsidiary of the Company.
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 agreed to acquire 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 $45,000,000, less the amount of Measure’s debt and transaction expenses,
and subject to a customary working capital adjustment. Upon completion of the Measure Acquisition, Measure became a 100%
wholly-owned subsidiary of the Company.
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. Upon completion of the senseFly S.A.S. Acquisition, senseFly
Inc. became a 100% wholly-owned subsidiary of the Company.
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 $2,000,000, less
the amount of senseFly Inc.’s debt and subject to a customary working capital adjustment.
Our Headquarters
Our principal executive
offices are located at 8863 E. 34th Street North, 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.
Employees
As of March 31, 2022,
we employed 121 full-time and 3 part-time employees.
Intellectual Property
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. We 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.
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.
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