ITEM 1A. RISK FACTORS 17
ITEM 1B. UNRESOLVED STAFF COMMENTS 31
ITEM 1C. CYBER-SECURITY 31
ITEM 2. PROPERTIES 33
ITEM 3. LEGAL PROCEEDINGS 34
ITEM 4. MINE SAFETY DISCLOSURES 34
ITEM 6. [RESERVED] 36
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 46
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 46
ITEM 9A. CONTROLS AND PROCEDURES 47
ITEM 9B. OTHER INFORMATION 48
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS 48
PART III 48
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 48
ITEM 11. EXECUTIVE COMPENSATION 48
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 48
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES 49
INDEX TO FINANCIAL STATEMENTS F-1
PART
I
This
Annual Report on Form 10-K (“Annual Report”), including “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
in Item 7, contains forward-looking statements within the meaning of the Securities Act
of 1933, as amended, or the Securities Exchange Act of 1934, as amended, or the Private Securities Litigation Reform Act of 1995. Investors
are cautioned that such forward-looking statements are based on our management’s beliefs and assumptions and on information currently
available to our management and involve risks and uncertainties. Forward-looking statements include statements regarding our plans, strategies,
objectives, expectations and intentions, which are subject to change at any time at our discretion. Forward-looking statements include
our assessment, from time to time of our competitive position, the industry environment, potential growth opportunities, the effects
of regulation and events outside of our control, such as natural disasters, wars or health epidemics. Forward-looking statements include
all statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,”
“could,” “estimates,” “expects,” “hopes,” “intends,” “may,” “plans,”
“potential,” “predicts,” “projects,” “should,” “will,” “would”
or similar expressions.
Forward-looking
statements are merely predictions and therefore inherently subject to uncertainties and other factors which could cause the actual results
to differ materially from the forward-looking statement. These uncertainties and other factors include, among other things:
● our ability to attract and retain skilled employees;
● changes in the supply, demand and/or prices for our products;
● unfavorable results in legal proceedings to which we may be subject;
Set
forth below in Item 1A, “Risk Factors,” are additional significant uncertainties and other factors affecting forward-looking
statements. The reader should understand that the uncertainties and other factors identified in this Annual Report are not a comprehensive
list of all the uncertainties and other factors that may affect forward-looking statements. We do not undertake any obligation to update
or revise any forward-looking statements or the list of uncertainties and other factors that could affect those statements.
ITEM
1. BUSINESS
Overview
AgEagleTM
Aerial Systems Inc. (“AgEagle” or the “Company”, “we”, “our” or “us”), through its wholly owned subsidiaries, is actively engaged
in designing and delivering best-in-class drones, sensors and software that solve important problems for our customers. Founded in 2010,
AgEagle was originally formed to pioneer proprietary, professional-grade, fixed-winged drones and aerial imagery-based data collection
and analytics solutions for the agriculture industry. Today, the Company is earning distinction as a globally respected market leader
offering customer-centric, advanced, autonomous uncrewed aerial systems (“UAS”) which drive revenue at the intersection of
flight hardware, sensors and software for industries that include military/defense, public safety, surveying/mapping, agriculture, and
utilities/engineering, among others. AgEagle has also achieved numerous regulatory firsts, including earning governmental approvals for
its commercial and tactical drones to fly Beyond Visual Line of Sight (“BVLOS”) and/or Operations Over People (“OOP”)
in the United States, Canada, Brazil and the European Union and being awarded Blue UAS certification from the Defense Innovation Unit
of the U.S. Department of Defense.
AgEagle’s
shift and expansion from solely manufacturing fixed-wing farm drones in 2018, to offering what the Company believes is one of the industry’s
best fixed-wing, full-stack drone solutions, culminated in 2021 when the Company acquired three market-leading companies engaged in producing
UAS airframes, sensors and software for commercial and government use. In addition to a robust portfolio of proprietary, connected hardware
and software products; an established global network of over 200 UAS resellers; and enterprise customers worldwide; these acquisitions
also brought AgEagle a highly valuable workforce comprised largely of experienced engineers and technologists with deep expertise in
the fields of robotics, automation, manufacturing and data science. In 2022, the Company successfully integrated all three acquired companies
with AgEagle to form one global company focused on taking autonomous flight performance to a higher level.
Our
core technological capabilities include robotics and robotics systems autonomy; advanced thermal and multispectral sensor design and
development; embedded software and firmware; secure wireless digital communications and networks; lightweight airframes; small UAS (“sUAS”)
design, integration and operations; power electronics and propulsion systems; controls and systems integration; fixed wing flight; flight
management software; data capture and analytics; human-machine interface development and integrated mission solutions.
As
the Company pursues its strategy to pursue new initiatives that improve its operations and cost structure, the Company is also expanding
and improving its information technologies, resulting in a larger technological presence, utilization of “cloud” computing
services, and corresponding exposure to cybersecurity risk. Certain technologies, such as use of autonomous vehicles, remote-controlled
equipment, virtual reality, automation and artificial intelligence, present new and significant cybersecurity safety risks that must
be analyzed and addressed before implementation. If we fail to assess and identify cybersecurity risks associated with new initiatives,
we may become increasingly vulnerable to such risks. As such, the Company is developing and securing technology that aims to secure against
hacking and malicious attacks. As the software that drives our drones and cameras become more autonomous and interconnected, they become
potential targets for cyber threats. Ensuring the security of data transmission and control systems has been and continue to be critical
in preventing unauthorized access and misuse.
The
Company is currently headquartered in Wichita, Kansas, where we house our sensor manufacturing operations, and we manufacture drones
in Lausanne, Switzerland.
Product
Lines
senseFlyTM,
S.A. – Uncrewed Aerial Vehicles
In
October 2021, the Company acquired senseFly, S.A. and senseFly Inc. (collectively “senseFly”), a global leader in fixed-wing
drones that simplify the collection and analysis of geospatial data, allowing professionals to make better and faster decisions. Founded
in 2009, senseFly develops and produces a proprietary line of eBeeTM-branded, high performance, fixed-wing drones which have
flown more than one million flights around the world. Safe, ultra-light and easy to use, these autonomous drones are utilized by thousands
of customers around the world in agriculture, government/defense, engineering, and construction, among other industry verticals, to collect
actionable aerial data intelligence.
MicaSenseTM,
Inc. – Multi Spectral Cameras
In
January 2021, AgEagle acquired MicaSenseTM, Inc. (“MicaSense”), a company that has been at the forefront of advanced
drone sensor development since its founding in 2014. In early 2022, AgEagle completed development and brought to market the Altum-PTTM
and RedEdge-PTM — next generation thermal and multispectral sensors which offer critical advancements
on MicaSense’s legacy sensor products to customers primarily in agriculture, plant research, land management and forestry management.
Today, AgEagle’s multispectral sensors are distributed in over 75 countries worldwide and help customers use drone-based imagery
to make better and more informed business decisions.
Measure
Global, Inc.
In
April 2021, AgEagle acquired Measure Global, Inc. (“Measure”), a company founded in 2020. Measure offered a Software-as-a-Service
(“SaaS”) product known as “Ground Control” as a cloud-based, plug-and-play operating system that enabled
pilots and large enterprises to operate drone fleets, fly autonomously, collaborate globally, visualize data, and integrate with existing
business systems and processes. Measure ceased operations on December 31, 2024.
senseFlyTM,
S.A. and SenseFly Inc.
In
October 2021, the Company acquired senseFly, S.A. and senseFly Inc. (collectively “senseFly”), a global leader in fixed-wing
drones that simplify the collection and analysis of geospatial data, allowing professionals to make better and faster decisions. Founded
in 2009, senseFly develops and produces a proprietary line of eBeeTM-branded, high performance, fixed-wing drones which have
flown more than one million flights around the world. Safe, ultra-light and easy to use, these autonomous drones are utilized by thousands
of customers around the world in agriculture, government/defense, engineering, and construction, among other industry verticals, to collect
actionable aerial data intelligence.
Our
Branded Line of Uncrewed Aerial Vehicles
eBeeTM
Line of Professional Drones
Sold
worldwide through AgEagle’s direct sales team and global network of trusted resellers, the Company’s eBee line of
commercial and government/military UAS have logged more than 500,000 flight hours on more than one million successful missions over the
past decade.
Market
Opportunity for UAVs
Drones
have transformed from being freelance videographer toys to mission critical inspection tools for enterprise businesses like construction,
energy and agriculture, and for military/defense applications worldwide. Moreover, the number of use cases for drones has also grown
as drone hardware has become more advanced, safer and more reliable. Advanced aerial mapping, crop monitoring, publicly safety uses,
disaster response and consumer drone deliveries have all become available as the commercial drone industry has matured.
In
September 2022, the Drone Infrastructure Inspection Grant Act was passed by the U.S. House of Representatives. This bi-partisan bill
establishes programs within the Department of Transportation (“DOT”) to support the use of drones and other sUAS when inspecting,
repairing or constructing road infrastructure, electric grid infrastructure, water infrastructure or other critical infrastructure. Specifically,
DOT must award grants in the aggregate of $100 million to state, tribal and local governments, metropolitan planning organizations, or
groups of those entities to purchase or otherwise use drones to increase efficiency, reduce costs, improve worker and community safety,
reduce carbon emissions, or meet other priorities related to critical infrastructure projects. Grant recipients must use domestically
manufactured drones that are made by companies not subject to influence or control from certain foreign entities, including China and
Russia. This legislation is supported by the U.S. Chamber of Commerce, National League of Cities, National Council of State Legislatures,
American Association of State Highway and Transportation Officials, Commercial Drone Alliance and Association of Uncrewed Vehicle Systems
International among others. This bill is currently pending approval by the U.S. Senate.
The
Military Drone Market is expected to see substantial growth in the coming years. A recent report
from Straits Research said that the global military drone market size was valued at USD 21.81 billion
in 2024 and is expected to grow from USD 24.25 billion in 2025 to reach USD 56.69 billion by 2033, growing at a CAGR of 11.20% during
the forecast period (2025-2033). The report said: “A military drone, also known as an uncrewed aerial vehicle (UAV), is a type
of aircraft that operates without a human pilot on board. These drones are equipped with advanced technologies for surveillance, reconnaissance,
intelligence gathering, and, in some cases, targeted strikes. Military drones are used extensively in modern warfare for a variety of
roles, including combat, surveillance, logistical support, and search-and-rescue missions. The global market is experiencing rapid growth,
driven by technological advancements and increasing global demand for enhanced surveillance, intelligence, and reconnaissance capabilities.
As nations recognize the strategic advantages of uncrewed aerial systems (UAS) in military operations, drones are increasingly deployed
in both combat and non-combat roles. This expansion is further supported by rising defense budgets, particularly in regions such as Asia-Pacific,
Europe, and the Middle East. Despite the promising growth, there are significant challenges facing the global market, including complex
regulatory issues and ethical concerns surrounding the use of autonomous weapons. However, innovations in artificial intelligence (AI),
miniaturization, and battery life are expected to open new growth opportunities, enabling more advanced, efficient, and versatile drone
capabilities in the near future.”
Straits
Research continued: “Geopolitical tensions, especially in regions like Asia-Pacific, the Middle East, and Eastern Europe, are driving
a significant demand for military drones. As nations seek to strengthen their surveillance, intelligence, and tactical capabilities,
military drones have become integral to modern defense strategies. For example, the Indo-Pacific region increasingly views drones as
vital for maintaining a strategic balance in contested areas. Similarly, Russia’s actions in Ukraine have highlighted the tactical advantages
of drones, prompting Eastern European nations near the conflict zone to prioritize drone investments to enhance border security and ensure
readiness in case of escalations.
Multi Spectral Cameras
Setting
entirely new standards of excellence for high resolution aerial imaging solutions, our proprietary thermal and multispectral sensors
are broadly recognized as the cameras of choice worldwide for advanced applications in agriculture, plant research, land management and
forestry management.
Market
Opportunity for Sensor Solutions
Sensors
for drones are increasingly being used for surveying, mapping and inspections – particularly in the mining, construction, energy,
environmental management, agriculture, infrastructure and waste management industries. Moreover, with every new innovation in sensor
technologies, the functionality and the underpinning value proposition of commercial UAS continues to improve and allows for an even
wider range of possible applications.
AgEagle’s
Manufacturing Operations
For
years, federal agencies have been using drones for a wide range of use cases, from mapping to surveillance, search and rescue, and scientific
research. However, in recent years federal agencies’ use of and ability to procure UAS has evolved, largely stemming from security
concerns about drones from Chinese manufacturers. In 2020, for example, the U.S. Department of Interior grounded its entire fleet of
drones over concerns “that Chinese parts in them might be used for spying, making exceptions only for emergency missions like fighting
wildfires and search-and-rescue operations,” as The New York Times reported on January 29, 2020.
AgEagle
believes that these measures to ban China-manufactured drones and components not only protects our nation, but has fueled and will continue
to fuel, demand for “Made in America” drones and components, creating a significant opportunity for U.S.-based drone manufacturers,
like AgEagle. Consequently, it is AgEagle’s intention to establish best industry practices and define quality standards for manufacturing,
assembly, design/engineering and testing of drones, drone subcomponents and related drone equipment in the Company’s U.S. facilities.
The Company also has established manufacturing operations in its Lausanne, Switzerland facility, where it assembles its line of eBee-branded
fixed wing drones for AgEagle’s international customer base.
AgEagle’s
commitment to its discerning customers has driven its efforts to establish recognized centers of excellence in drone airframes, sensors
and software, which, in turn, has driven the the Company’s drone production and distribution operations to actively seek ISO:9001
certification for its Quality Management System (“QMS”), a process that the Company expects to complete within the second
quarter of 2025. Demonstrating that the Company delivers consistently high-quality products and services in every aspect of its fixed-wing
drone operations, including design, manufacturing, marketing, sales and after-sales. An international certification, ISO:9001 recognizes
organizational excellence and good quality practices based on a strong customer focus, robust process approach and proof of continual
improvement.
Competitive
Strengths
AgEagle
believes the following attributes and capabilities provide us with long-term competitive advantages:
Government
Regulation
UAV
Regulation
AgEagle
is subject to industry-specific regulations due to the nature of the products we sell to our customers. For example, certain aspects
of our U.S. business are subject to regulation by the Federal Aviation Administration (“FAA”), which regulates airspace for
all air vehicles in the U.S. National Airspace System.
In
August 2016, the FAA’s final rules for routine use of certain small UAS in the U.S. National Airspace System went into effect,
providing safety rules for small UAS (under 55 pounds) conducting non-recreational operations. These rules limit flights to visual-line-of-sight
daylight operation, unless the UAS has anti-collision lights in which case twilight operation is permitted. The final rule also addresses
height and speed restrictions, operator certification, optional use of a visual observer, aircraft registration and marking and operational
limits, including prohibiting flights over unprotected people on the ground who are not directly participating in the operation of the
UAS. Current FAA regulations require drone operators to register their systems with the FAA and secure operating licenses for their drones.
These regulations continue to evolve to accommodate the integration of UAS into the National Airspace System for commercial applications.
In
April 2021, the FAA’s final rule for remote identification of UAS went into effect. On the same day, the final rule for operation
of small UAS over people also went into effect. This rule permits routine operations of small uncrewed aircraft over people, moving vehicles
and at night under certain conditions, provided that the operation meets the requirements of one of four operational categories.
On
October 27, 2022, AgEagle announced that the Company’s eBee X series of fixed wing UAS were the first and only drones on
the market at that time to comply with Category 3 (as defined below) of the Operations of Small Uncrewed Aerial Systems Over People rules
published by the FAA. Now that the eBee has proven compliant with Category 3 (as defined below) of the rules, eBee drone
operators no longer need an FAA waiver for OOP or Operations Over Moving Vehicles. Category 3 eligible sUAS must not cause injury to
a human being that is equivalent to or greater than the severity of injury caused by a transfer of 25 foot-pounds of kinetic energy upon
impact from a rigid object, does not contain any exposed rotating parts that could lacerate human skin upon impact with a human being,
and does not contain any safety defects. Category 3 aircraft also require FAA-accepted means of compliance and FAA-accepted declaration
of compliance.
Our
non-U.S. operations are subject to the laws and regulations of foreign jurisdictions, which may include regulations that are more stringent
than those imposed by the U.S. government on our U.S. operations.
Environmental
AgEagle
is subject to various federal, state, local and non-U.S. laws and regulations relating to environmental protection, including the discharge,
treatment, storage, disposal and remediation of hazardous substances and wastes. We could also be affected by future laws and regulations
relating to climate change, including laws related to greenhouse gas emissions and regulating energy efficiency. These laws and regulations
could lead to increased environmental compliance expenditures, increased energy and raw materials costs and new and/or additional investment
in designs and technologies. We continually assess our compliance status and management of environmental matters to ensure our operations
are in compliance with all applicable environmental laws and regulations. Investigation, remediation and operation and maintenance costs
associated with environmental compliance and management of sites are a normal, recurring part of our operations. These costs often are
allowable costs under our contracts with the U.S. government. While environmental protection regulations have not had a significant adverse
effect on our overall operations historically, it is reasonably possible that costs incurred to ensure continued environmental compliance
in the future could have a material impact on our results of operations, financial condition or cash flows if additional work requirements
or more stringent clean-up standards are imposed by regulators, or if new areas of soil, air and groundwater contamination are discovered
and/or expansions of work scope are prompted by the results of investigations.
Suppliers
In
2024, we maintained strong relationships established with companies that provide many of the parts and services necessary to construct
our advanced fixed-wing drones and sensors. As our Company grows, we expect to pursue additional supplier relationships from which we
can source less costly and better supplies to stay ahead of the needs of the market. In addition, we have forged strong relationships
with key suppliers in the U.S. and in U.S.-allied countries based on their ability to meet our needs and delivery timelines. We will
continue to expand upon our suppliers’ expertise to improve our existing products and develop new solutions. In 2023, we experienced
some supply delays from in our inability to muster funds due to high interest rates and tighter borrowing requirements that continue
to crimp borrowing capacity, and thereby hindering our ability to fulfill current and backorders of our products to convert accounts
receivables into cash. We may continue to experience potential supply chain disruptions in 2025 for the same reason.
Operating
Segment Revenues
The
table below reflects our revenue by operating segment for the years indicated below:
For the Year Ended December 31,
Research
and Development
Research
and development activities are core components of our business, and we follow a disciplined approach to investing our resources to create
new drone technologies and solutions. A fundamental part of this approach is a well-defined screening process that helps us identify
commercial opportunities that support current desired technological capabilities in the markets we serve. Our research includes the expansion
of our fixed wing products, providing for developing a portfolio of UAVs, sensors and ongoing software platform development costs, as
well as other technological solutions to problems to which our existing and prospective customers must confront. We cannot predict when,
if ever, we will successfully commercialize these projects, or the exact level of capital expenditures they could require, which could
be substantial.
Organizational
History
On
March 26, 2018, our predecessor company, EnerJex Resources, Inc. (“EnerJex”), a Nevada company, consummated the transactions
contemplated by the Agreement and Plan of Merger (the “Merger Agreement”), dated October 19, 2017, pursuant to which AgEagle
Merger Sub, Inc., a Nevada corporation and a wholly-owned subsidiary of EnerJex, merged with and into AgEagle Aerial Systems Inc., a
privately held company organized under the laws of the state of Nevada (“AgEagle Sub”), with AgEagle Sub surviving as a wholly-owned
subsidiary of EnerJex (the “Merger”). In connection with the Merger, EnerJex changed its name to AgEagle Aerial Systems Inc.
(the “Company, “we,” “our,” or “us”) and AgEagle Sub changed its name initially to “Eagle
Aerial, Inc.” and then to “AgEagle Aerial, Inc.” Prior to this merger, all of the EnerJex operations were conducted
through EnerJex Kansas, Inc., Black Sable Energy, LLC, a Texas limited liability company (“Black Sable”) and Black Raven
Energy, Inc. a Nevada corporation (“Black Raven”). Its leasehold interests were held in its wholly-owned subsidiaries Black
Sable, Working Interest, LLC, EnerJex Kansas and Black Raven. As of December 31, 2021, the Company continued with the wholly-owned subsidiaries,
AgEagle Aerial, Inc. and EnerJex Kansas, Inc.
On
January 27, 2021 (“MicaSense Acquisition Date”), we entered into a stock purchase agreement (the “MicaSense Purchase
Agreement”) with Parrot Drones S.A.S. and Justin B. McAllister (the “MicaSense Sellers”) pursuant to which the Company
acquired 100% of the issued and outstanding capital stock of MicaSense, Inc. from the MicaSense Sellers (the “MicaSense Acquisition”).
The aggregate purchase price for the shares of MicaSense was $23 million less any debt, and subject to a customary working capital adjustment.
MicaSense became a wholly-owned subsidiary of the Company as a result of the MicaSense Acquisition.
On
April 19, 2021 (the “Measure Acquisition Date”), the Company entered into a stock purchase agreement (the “Measure
Purchase Agreement”) with Brandon Torres Declet (“Mr. Torres Declet”), in his capacity as representative of the sellers,
and the sellers named in the Measure Purchase Agreement (the “Measure Sellers”) pursuant to which the Company acquired 100%
of the issued and outstanding capital stock of Measure Global, Inc. (“Measure”) from the Measure Sellers (the “Measure
Acquisition”). The aggregate purchase price for the shares of Measure is $45 million, less the amount of Measure’s debt and
transaction expenses, and subject to a customary working capital adjustment. Measure became a wholly-owned subsidiary of the Company
as a result of the Measure Acquisition.
On
October 18, 2021 (the “senseFly S.A. Acquisition Date”), the Company entered into a stock purchase agreement with Parrot
Drones S.A.S. pursuant to which the Company acquired 100% of the issued and outstanding capital stock of senseFly S.A. from Parrot
Drones S.A.S. (the “senseFly S.A. Purchase Agreement”) The aggregate purchase price for the shares of senseFly S.A. is
$21 million, less the amount of senseFly S.A.’s debt and subject to a customary working capital adjustment. senseFly S.A.
became a wholly-owned subsidiary of the Company as a result.
On
October 18, 2021 (the “senseFly Inc. Acquisition Date), AgEagle Aerial and the Company entered into a stock purchase agreement
(the “senseFly Inc. Purchase Agreement”) with Parrot Inc. pursuant to which AgEagle Aerial agreed to acquire 100% of the
issued and outstanding capital stock of senseFly Inc. from Parrot Inc. The aggregate purchase price for the shares of senseFly Inc. is
$2 million , less the amount of senseFly Inc.’s debt and subject to a customary working capital adjustment. senseFly Inc. became
a wholly-owned subsidiary of the Company as a result.
Our
Headquarters
Our
principal executive offices are located at 8201 E. 34th Street North, Suite 1307, Wichita, Kansas 67226 and our telephone
number is 620-325-6363. Our website address is www.ageagle.com. The information contained on, or that can be accessed through, our website
is not a part of this Annual Report. We have included our website address in this Annual Report solely as an inactive textual reference.
Human
Capital Resources
As
of March 31, 2025, we employed 50 full-time employees and 2 part-time employees. We acknowledge that our employees are the Company’s
most valued asset and the driving force behind our success. For this reason, we aspire to be an employer that is known for cultivating
a positive and welcoming work environment and one that fosters growth, provides a safe place to work, supports diversity and embraces
inclusion. To support these objectives, our human resources programs are designed to develop talent to prepare them for critical roles
and leadership positions for the future; reward and support employees through competitive pay, benefit and perquisite programs; enhance
the Company’s culture through efforts aimed at making the workplace more engaging and inclusive; acquire talent and facilitate
internal talent mobility to create a high performing, diverse workforce; engage employees as brand ambassadors of the Company’s
products; and evolve and invest in technology, tools and resources to enable employees at work.
Diversity,
Equity, and Inclusion
We
are committed to fostering, cultivating and preserving a culture of diversity, equity and inclusion (DE&I). We recognize that a diverse,
extensive talent pool provides the best opportunity to acquire unique perspectives, experiences, ideas, and solutions to drive our business
forward. We believe that diverse teams solving complex problems leads to the best business results. We promote diversity by developing
policies, programs, and procedures that foster a work environment where differences are respected, and all employees are treated fairly.
Talent
Management
We
recognize the importance of attracting and retaining the best employees. Our continued success is not only contingent upon seeking out
the best possible candidates but also retaining and developing the talent that lies within the organization. We strive to attract, develop,
and retain the best and brightest from all walks of life and backgrounds. Our goal is to offer opportunities for employees to improve
their skills to achieve their career goals.
Employee
Health and Safety
We
acted quickly to protect the health and safety of our employees in response to the pandemic protocols. In March 2020, all employees who
could work remotely began working from home. Employees continue to have the flexibility to work remotely or on a hybrid basis with most
of our employees. The health and safety of our employees has been and continues to be a priority.
No
OSHA recordable or lost time injuries in the US and zero injuries at our other global sites.
Intellectual
Property
As
reflected in the table below, we currently have registered trademarks, several patents or pending patents for our proprietary drone,
sensor and software technologies filed in the United States and certain jurisdictions abroad. As of December 31, 2024, our trademark
portfolio includes registered and/or pending in various countries and patents in various stages of the patent granting process.
We also consider our UAV and sensor manufacturing processes to be trade secrets and have non-disclosure agreements with current employees
and business partners to protect those and other trade secrets held by the Company. Risks related to the protection and exploitation
of IP rights are set forth in “Risk Factors.”
Trademarks
Patents and Pending Patents
THERMAL CALIBRATION OF AN INFRARED IMAGE SENSOR US NP-Filed 62/350116 6/14/16
Where
You Can Find Additional Information
The
Company is subject to the reporting requirements under the Exchange Act. The Company files with, or furnishes to, the Securities and
Exchange Commission (“SEC”) annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K,
and amendments to those reports and other filings with the SEC. These filings are available free of charge on the Company’s
website, www.ageagle.com, as soon as reasonably practicable 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. The information found on our website is not incorporated into this or any other report we file with or furnish to
the SEC.
ITEM
1A. RISK FACTORS
The
risk factors discussed below could cause our actual results to differ materially from those expressed in any forward-looking statements.
Although we have attempted to list comprehensively these important factors, we caution you that other factors may in the future prove
to be important in affecting our results of operations. New factors emerge from time to time, and it is not possible for us to predict
all of these factors, nor can we assess the impact of each such factor on the business or the extent to which any factor, or combination
of factors, may cause actual results to differ materially from those contained in any forward-looking statement.
The
risks described below set forth what we believe to be the most material risks associated with the purchase of our Common Stock. Before
you invest in our Common Stock, you should carefully consider these risk factors, as well as the other information contained in this
prospectus.
We
have a history of operating losses and expect to incur significant additional operating expenses.
We have been operating through
our wholly-owned subsidiary, AgEagle Aerial, Inc. for over ten years. It was not until 2021 that we acquired
the latest go-to-market airframes, sensors and software technologies of our products. As of December 31, 2024, we had an accumulated
deficit of approximately $218.4 million which included net losses of approximately $35.0 million and $42.4 million for the years ended
December 31, 2024 and 2023, respectively. We are currently still incurring significant net losses as we continue to invest in our business
strategy and grow our business as a result, we cannot guarantee that when we expect to generate sufficient cash flows from operations
to be adequate to cover our operating business. Moreover, even if we achieve profitability, given the competitive and evolving nature
of the industries in which we operate, we may be unable to sustain or increase profitability and failure to do so would adversely affect
our business, including our ability to raise additional funds.
We
will need additional funding and may be unable to raise capital when needed, which would force us to delay, curtail or eliminate one
or more of our research and development programs or commercialization efforts.
Our
operations have consumed substantial amounts of cash since inception. We expect to continue to spend substantial amounts on product and
software development. We will require additional funds to support our continued research and development activities, as well as the costs
of commercializing, marketing and selling any existing and new products and/or services resulting from those activities. Until such time,
that we can generate sufficient revenue and achieve profitability, we will need to meet our future cash needs through equity or debt
financings. There can be no assurance that we will be successful in our capital raising efforts.
On
March 10, 2023, the Company issued and sold to the Alpha Capital Anstalt (“Alpha” or “Investor”) an
additional 3,000 shares of Series F convertible into 2,381 shares of the Company’s common stock, per $1,000 Stated Value per
share of Preferred Stock, at a conversion price of $420.00 per share and associated common stock warrant to purchase up to 7,143
shares of common stock at the exercise price of $420.00 per share warrant (the “Additional Warrant”) in a private
placement and raised $3,000,000 in gross proceeds. The Additional Warrant is exercisable upon issuance and has a three-year
term.
On
June 5, 2023, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain accredited
investors, which included Alpha, (the “Investors”). Pursuant to the terms of the Purchase Agreement, the Company has agreed to issue and sell to
Investors (i) 16,720 shares of Common Stock (the “Offering Shares”) at $250.00 per share and (ii) warrants to purchase up
to 25,080 shares of common stock (the “Warrants”), exercisable at $380.00 per share (the “Warrant Shares” together
with the Warrants and Offering Shares, the “Securities”) and raised gross sales proceeds of $4,180,000. The Warrant is for
a term of 5.5 years commencing on the closing date but is not exercisable for the first six months after closing. As a result, pursuant
to the Purchase Agreement the Company issued 16,720 shares of Common Stock for proceeds of $3,817,400, net of issuance costs from the
offering and warrants to purchase up to 25,080 shares of common stock exercisable at $380.00 per share.
On
November 15, 2023, the Company and Investors, which included Alpha, entered into the Assignment Agreement, pursuant to which, among other
things, (i) Alpha transferred and assigned to certain institutional and accredited investors (the “Assignees”), the rights
and obligations to purchase up to $1,850,000 or 1,850 shares at a price of $1,000 per share of Series F Preferred pursuant to the Additional
Investment Right provided in the Series F Agreement (the “Assigned Rights”), (ii) the Series F Agreement was amended so that
the Assignees are party thereto and have the same rights and obligations thereunder as the investor to the extent of the Assigned Rights,
(iii) the time period during which the investor can provide an investor notice was extended from August 3, 2024 until February 3, 2025;
and (iv) Alpha and the Company agreed to a one-time waiver of the Minimum Subscription Requirement to allow exercise of the Assigned
Rights.
Pursuant
to the investor notices received by the Company from Alpha and the Assignees on November 15, 2023, delivered in connection with
the Assignment, the Investor and the Assignees have provided notices of their desire to purchase 1,850 shares of Preferred Stock (the
“November Additional Series F Preferred”) convertible into 14,836 shares of Common Stock (the “November Conversion
Shares”) at a conversion price of $124.70 per share and warrants (the “November Additional Warrants”) to purchase up
to 14,836 shares of our Common Stock an exercise price of $124.70 per share for an aggregate purchase price of $1,850,000. The November
Additional Warrants will be exercisable upon issuance and have a three-year term.
Pursuant
to the Investor Notice received by the Company from Alpha, the Company sold to Alpha 650 shares of November Additional Series F Preferred,
which are part of the 1,850 shares and are convertible into 5,213 shares of Common Stock at a conversion price of $124.70 per share (which
was adjusted to $100.00 per share as a result of the Common Stock Offering) and November Additional Warrants to purchase up to 5,213
shares of our Common Stock an initial exercise price of $124.70 per share (which was adjusted to $100.00 per warrant as a result of the
Common Stock Offering) for an aggregate purchase price of $650,000.
On
March 6, 2024, in connection with the Assigned Rights, the Company received investor notices from Alpha and the Assignees for the aggregate
purchase of 1,000 shares of Series F Convertible Preferred convertible into 16,588 shares of Common Stock at a conversion price of $60.29
and warrants to purchase up to 16,588 shares of Common Stock an exercise price of $60.29 per share for an aggregate purchase price of
$1,000,000. The Warrants were immediately exercisable upon issuance and have a three-year term.
On
April 12, 2024, the Company received an investor notice from Alpha for the aggregate purchase of 1,050 shares of Series F Convertible
Preferred convertible into 28,378 shares of Common Stock, in the aggregate, at a conversion price of $37.00 and warrants to purchase
up to 28,378 shares of Common Stock at an exercise price of $37.00 per share (based on the VWAPs of the Company’s common stock
for April 9, 2024, April 10, 2024, and April 11,2024) for an aggregate purchase price of $1,050,000. The Warrants were immediately exercisable
upon issuance and have a three-year term.
On
May 31, 2024, the Company received investor notices from Alpha and certain of the Assignees for the aggregate purchase of 1,050 shares
of Series F Convertible Preferred convertible into 32,659 shares of Common Stock at a conversion price of $32.15 and warrants to purchase
up to 32,659 shares of Common Stock at an exercise price of $32.15 per share for an aggregate purchase price of $1,050,000. The Warrants
were immediately exercisable upon issuance and have a three-year term.
On
July 25, 2024, the Company received investor notice from Alpha for the aggregate purchase of 500 shares of Series F Convertible Preferred
convertible into 21,598 shares of Common Stock at a conversion price of $23.15 and warrants to purchase up to 21,598 shares of Common
Stock at an exercise price of $23.15 per share for an aggregate purchase price of $500,000. The Warrants were immediately exercisable
upon issuance and have a three-year term.
On
August 27, 2024, the Company received investor notice from Alpha for the aggregate purchase of 500 shares of Series F Convertible
Preferred convertible into 24,765 shares of Common Stock at a conversion price of $20.19 and warrants to purchase up to 24,765
shares of Common Stock at an exercise price of $20.19 per share for an aggregate purchase price of $500,000. The Warrants were
immediately exercisable upon issuance and have a three-year term.
On
September 30, 2024, the Company entered into a placement agency agreement (the “Placement
Agency Agreement”) with Spartan Capital Securities, LLC (the “Placement Agent”) in connection with the issuance and
sale by the Company in a public offering (the “Offering”) of 538,000 units (the “Units”), consisting of common units
(“Common Units”), each consisting of one share of common stock of the Company, $0.001 par value per share, one Series A warrant
(“Series A Warrant”) to purchase one share of common stock and one Series B warrant (“Series B Warrant”) to purchase
one share of common stock and pre-funded Units (the “Pre-Funded Units” and together with the Common Units, the “Units”),
with each Pre-Funded Unit consisting of one pre-funded warrant (the “Pre-Funded Warrants”) to purchase one share of common
stock, one Series A Warrant to purchase one share of common stock and one Series B Warrant to purchase one share of common stock, resulting
in net proceed of $5,677,739.
On
October 7, 2024, as part of “October 2024 Offering”, the Company issued and delivered to Alpha 1,500 shares of Series F 5%
Convertible Preferred Stock with an aggregate stated value of $1,500,000 and having all the rights and benefits of Series F 5% Convertible
Preferred Stock convertible into 1,363,636 shares of Common Stock with a conversion price of $1.10 as of December 31, 2024.
On
December 18, 2024, the Company received investor notice from Alpha for the aggregate purchase of 750 shares of Series F Convertible Preferred
convertible into 142,857 shares of Common Stock at a conversion price of $5.25 and warrants to purchase up to 142,857 shares of Common
Stock at an exercise price of $5.25 per share for an aggregate purchase price of $750,000. The Warrants were immediately exercisable
upon issuance and have a three-year term.
Despite
the foregoing, we will require additional financing in the future. 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. Should the financing we require be unavailable
to us, or on terms unacceptable to us when we require it, the consequences could have a material adverse effect on our business, operating
results, financial condition, and prospects.
In
addition, if additional funds are obtained through arrangements with collaborative partners or other non-dilutive sources, we may have
to relinquish economic and/or proprietary rights to some of our technologies or products under development that we would otherwise seek
to develop or commercialize by ourselves. Such events may have a material adverse effect on our business, operating results, financial
condition and prospects.
Our
independent registered public accounting firm’s report contains an explanatory paragraph that expresses substantial doubt about
our ability to continue as a “going concern.”
As
of December 31, 2024, the Company had $3.6 million cash on hand and a working capital of $3.1 million. During the year ended December
31, 2024, the Company incurred a net loss of approximately $35.0 million and used cash in operating activities of approximately $6.6
million. While the Company has historically been successful in raising capital to meet its working capital needs, the ability to continue
raising such capital to enable the Company to continue its growth is not guaranteed. As the Company will require additional liquidity
to continue its operations and meet its financial obligations over the next twelve months, there is substantial doubt about the Company’s
ability to continue as a going concern. The Company is evaluating strategies to obtain the required additional funding for future operations
and the restructuring of operations to grow revenues and reduce expenses.
If
the Company is unable to generate significant sales growth in the near term and raise additional capital, there is a risk that the Company
could default on obligations; and could be required to discontinue or significantly reduce the scope of its operations if no other means
of financing options are available. The consolidated financial statements contained in this Annual Report do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities or any other
adjustment that might be necessary should the Company be unable to continue as a going concern.
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. National Airspace System is rapidly evolving. Accordingly, our business and future prospects may be difficult to evaluate. We
cannot accurately predict the extent to which demand for our drone systems and solutions will increase, if at all. The challenges, risks
and uncertainties frequently encountered by companies in rapidly evolving markets could impact our ability to do the following:
● Generate sufficient revenue to achieve sustainable profitability;
● Acquire and maintain market share;
● Achieve or manage growth in our business operations;
● Renew contracts;
● Access to additional capital when required and on reasonable terms.
If
we fail to address these and other challenges, risks and uncertainties successfully, our business, results of operations and financial
condition would be materially harmed.
Product
development is a long, expensive, and uncertain process.
The
development of UAV systems is a costly, complex and time-consuming process, and investments in product development often involve a long
wait until a return, if any, can be achieved on such investment. We might face difficulties or delays in the development process that
will result in our inability to timely offer products that satisfy the market, which might allow competing products to emerge during
the development and certification process. We plan to continue making significant investments in research and development relating to
our products and technology services, but such investments are inherently speculative and require substantial capital expenditures. Any
unforeseen technical obstacles and challenges that we encounter in the research and development process could result in delays in or
the abandonment of product commercialization, may substantially increase development costs, and will likely negatively affect our results
of operations.
Successful
technical development of our products does not guarantee successful commercialization.
Although
we have successfully acquired our fully developed go-to-market UAV systems, sensors, and software technology solutions ready for sale
or subscription, we may still fail to achieve commercial success for several reasons, including, among others, the following:
● failure to obtain the required regulatory approvals for their use;
● rapid obsolescence of a product due to new, more advanced technologies;
● prohibitive production costs;
● competing products;
● lack of product innovation;
● unsuccessful distribution and marketing through our sales channels;
● insufficient cooperation from our supply and distribution partners; and
● product development that does not align with or meet customer needs.
Our
success in the market for the products and services we develop will depend largely on our ability to properly demonstrate their capabilities.
Upon demonstration, our solutions may not have the capabilities they were designed to have or that we believed they would have. Furthermore,
even if we do successfully demonstrate our products’ capabilities, potential customers may be more comfortable doing business with
our competitors; or may not feel there is a significant need for the products we develop. As a result, significant revenue from our current
and new product investments may not be achieved for several years, if at all, and that will affect the Company’s profitability.
We
face competition from other companies, many of which have substantially greater resources.
Our
competitors may be able to provide customers with products that have different or greater capabilities or benefits than we can provide
in areas such as technical qualifications, past contract performance, geographic presence, price, and the availability of key professional
personnel. Furthermore, many of our competitors may be able to utilize their substantially greater resources and economies of scale to
develop competing products and technologies, manufacture in high volumes more efficiently, divert sales away from us by winning broader
contracts or hire away our employees by offering more lucrative compensation packages. Small business competitors may be able to offer
more cost competitive solutions, due to their lower overhead costs. The markets for commercial drones and services are quickly expanding,
and competition is intensifying as additional competitors enter the market and current competitors expand their product offerings. In
order to secure contracts successfully when competing with larger, better financed companies, we may be forced to agree to contractual
terms that provide for lower aggregate payments to us over the life of the contract, which could adversely affect our margins. Our failure
to compete effectively could have a material adverse effect on our business, prospects, financial condition or future operating results.
If
we fail to protect our intellectual property rights, we could lose our ability to compete in the marketplace.
Our
intellectual property and proprietary rights are important to our ability to remain competitive and successful in the development of
our products and to our future growth potential. Patent protection can be limited and not all intellectual property can be patented.
We expect to rely on a combination of patent, trademark, copyright and trade secret laws, as well as confidentiality and non-disclosure
agreements and procedures, non-competition agreements and other contractual provisions to protect our intellectual property, other proprietary
rights and our brand. As we currently only have a limited amount of granted patent or copyright protections, we must rely on trade secrets
and nondisclosure agreements, which provide limited protections. Our intellectual property rights may be challenged, invalidated, or
circumvented by third parties. We may not be able to prevent the unauthorized disclosure or use of our technical knowledge or other trade
secrets by employees or competitors.
Furthermore,
our competitors may independently develop technologies and products that are substantially equivalent or superior to our technologies
and products, which could result in decreased revenues. Litigation may be necessary to enforce our intellectual property rights, which
could result in substantial costs to us and substantial diversion of management’s attention. If we do not adequately protect our
intellectual property, our competitors could use it to enhance their products. Our inability to adequately protect our intellectual property
rights could adversely affect our business and financial condition, and the value of our brand and other intangible assets.
Other
companies may claim that we infringe their intellectual property, which could materially increase our costs and harm our ability to generate