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Stockholders’ Equity
 9 Months Ended
Sep. 30, 2024
Equity [Abstract]  
Stockholders’ Equity

Note 7 – Stockholders’ Equity

 

Common Stock and Warrant Transaction

 

On February 16, 2024, the Company received a notification from an investor to convert $100,000 of principal outstanding on a Convertible Note (see Note 6) into 79,828 shares of common stock at a conversion price of $1.25.

 

On March 6, 2024, the Company entered into a warrant exercise agreement with several institutional investors holding warrants issued to such Investors pursuant a securities purchase agreement, dated as of June 5, 2023, in connection with a private placement. The Exercise Agreement provides that for those Investors who exercise their Existing Warrants they will receive a reduction in the Exercise Price to $0.60 per share of Common Stock. The shares of Common Stock issuable upon exercise of the Existing Warrants were registered pursuant to a registration statement on Form S-1 File No. 333-273332 and declared effective on July 27, 2023. The Company received up to $497,701 from the exercise of 829,500 warrants converted to 829,500 shares of common stock. The reduction in exercise price (“March 2024 Down Round Trigger”) triggered several anti-dilution protections embedded in outstanding Preferred Series F Convertible Stock and Common Stock Warrants (see below).

 

 

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

(UNAUDITED)

 

Note 7 – Stockholders’ Equity – Continued

 

On June 5, 2023, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain accredited investors (the “Investors”). Pursuant to the terms of the Purchase Agreement, the Company agreed to issue and sell to Investors (i) 836,000 shares of Common Stock (the “Offering Shares”) at $5.00 per share and (ii) warrants to purchase up to 1,254,000 shares of common stock (the “Warrants”), exercisable at $7.60 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 836,000 shares of Common Stock for proceeds of $3,817,400, net of issuance costs from the offering and warrants to purchase up to 1,254,000 shares of common stock exercisable at $7.60 per share. The Warrants issued did not include any anti-dilution price protections from subsequent equity sales. This Purchase Agreement resulted in the June 2023 Down Round Trigger (see below).

 

Preferred Series F Convertible Stock

 

Purchase History

 

On June 26, 2022, the Company entered into a Securities Purchase Agreement (the “Series F Agreement”) with Alpha. Pursuant to the terms of the Series F Agreement, the Board of Directors of the Company (the “Board”) designated a new series of Preferred Stock, the Series F 5% Preferred Convertible Stock (“Series F”), and authorized the sale and issuance of up to 35,000 shares of Series F.

 

On March 9, 2023, the Company received an Investor Notice from Alpha to purchase an additional 3,000 shares of Series F Convertible Preferred (the “Additional Series F Preferred”) convertible into 2,381 shares of the Company’s Common Stock per $1,000 Stated Value per share of Series F Preferred Stock, at an initial conversion price of $8.40, post slit per share and associated Common Stock warrant to purchase up to 357,136 shares of Common Stock, post-split, at an initial exercise price of $8.40, post-split (the “Additional Warrant”) for an aggregate purchase price of $3,000,000. The Additional Warrant is exercisable upon issuance and has a three-year term. On March 10, 2023, the Company issued and sold the Additional Series F Preferred and the Additional Warrant. This issuance triggered anti-dilution provisions embedded in Series F and Common Stock warrants outstanding.

 

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 829,394 shares of Common Stock at an initial conversion price of $1.2057 and warrants to purchase up to 829,394 shares of Common Stock at an initial exercise price of $1.2057 per share for an aggregate purchase price of $1,000,000. The conversion price and exercise price are subject to adjustment based on anti-dilution protection provisions in connection with subsequent equity issuances embedded in the Securities Purchase Agreement. The Warrants were immediately exercisable upon issuance and have a three-year term. The reduction in exercise price (“March 2024 Down Round Trigger”) triggered several anti-dilution protections embedded in outstanding Preferred Series F Convertible Stock (“Series F”) and Common Stock Warrants (“Series F Warrants”) issued with Series F (see below).

 

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 1,418,919 shares of Common Stock, at a conversion price of $0.74 and 1,418,919 of common stock warrants with an exercise price of $0.74 exercisable for three years for an aggregate purchase price of $1,050,000.

 

 

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

(UNAUDITED)

 

Note 7 – Stockholders’ Equity-Continued

 

On May 31, 2024, the Company entered into an Assignment Agreement with Alpha pursuant to which, among other things, Alpha transferred and assigned to certain institutional and accredited investors, the rights and obligations to purchase up to $525,000 of Series F Convertible Preferred and accompanying warrants pursuant to the Additional Investment Right provided in the SPA. Also, in connection with the Assigned Rights, 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 1,632,970 shares of Common Stock at a conversion price of $0.643 and 1,632,970 of common stock warrants with at an exercise price of $0.643 and exercisable for a period of three years for an aggregate purchase price of $1,050,000.

 

On July 25, 2024, the Company received an Investor Notice from Alpha for the aggregate purchase of 500 shares of Series F Convertible Preferred convertible into 1,079,914 shares of Common Stock, in the aggregate, at a conversion price of $0.463 and warrants to purchase up to 1,079,914 shares of Common Stock at an exercise price of $0.463 for an aggregate purchase price of $500,000.

 

On August 27, 2024, the Company received an Investor Notice from Alpha for the aggregate purchase of 500 shares of Series F Convertible Preferred convertible into 1,238,237 shares of Common Stock, in the aggregate, at a conversion price of $0.4038 and warrants to purchase up to 1,238,237 shares of Common Stock at an exercise price of $0.4038 for an aggregate purchase price of $500,000. The purchase transaction triggered several anti-dilution protections embedded in the outstanding Series F and Series F warrants as the conversion price and exercise price of the Series and Series F Warrants issued in the purchase were less than the conversion and exercise price after the March 2024 Down Round Trigger of $.60 (the “August 2024 Down Round Trigger”). See below for further disclosures of the financial statement impact for these triggers.

 

Conversions

 

For the three and nine months ended September 30, 2024, Alpha and other investors converted 1,595 and 6,475 shares of Series F into 3,481,757 and 9,350,474 shares of Common Stock, respectively. As a result, for the same periods, the Company recorded $47,879 and $158,862 cumulative dividends, which are included in accrued expenses on the condensed consolidated balance sheets, at the rate per share (as a percentage of the $1,000 stated par value per share of Series F) of 5% per annum, beginning on the first conversation date of June 30, 2022.

 

During the three and nine months ended September 30, 2023, Alpha converted 750 and 2,588 shares of Series F into 3,000,000 and 7,304,762 shares of Common Stock, respectively. As a result, for the same periods, the Company recorded $49,122 and $170,277 cumulative dividends, respectively, which are included in accrued expenses on the condensed consolidated balance sheets, at the rate per share (as a percentage of the $1,000 stated par value per share of Series F) of 5% per annum, beginning on the first conversation date of June 30, 2022.

 

As of September 30, 2024, there are 3,700 Preferred Series F outstanding.

 

Down Round Triggers, Anti-dilution, and Deemed Dividends

 

The reduced warrant exercise price of $0.60 on March 6, 2024, the March 2024 Down Round Trigger, triggered anti-dilution protection provisions in connection with subsequent equity issuances embedded in the Series F and Common Stock warrants issued with the Series F. The March 2024 Down Round Trigger resulted in the Company recognizing a deemed dividend on the Series F and Series F Warrants of $5,102,674 and $147,030, respectively, and an aggregate deemed dividend of $5,249,704 for the incremental fair value to the Series F and the Series F Warrant holders resulting from the reduction in conversion price and exercise price.

 

On May 31, 2024, the Company entered into an Assignment Agreement with Alpha pursuant to which, among other things, Alpha transferred and assigned to certain institutional and accredited investors, the rights and obligations to purchase up to $525,000 of Series F Convertible Preferred and accompanying warrants pursuant to the Additional Investment Right provided in the SPA. The Assignment Agreement also provides that Alpha will receive a reduction in the Exercise Price (as defined in the Existing Warrants) from $7.60 to $0.60 per share of Common Stock for certain warrants previously issued to Alpha on June 5, 2023. As result, the Company recorded a deemed dividend on the Series F Warrants of $7,751 which represents the difference between fair value of the

 

Series F Warrants under the original terms before the Down Round Trigger and the fair value of the Series F Warrants after the Down Round Trigger at the reduced exercise price.

 

 

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

(UNAUDITED)

 

Note 7 – Stockholders’ Equity – Continued

 

The fair value of the Series F Warrants was determined using a Black-Scholes pricing model and the following assumptions: expected life of 4 years, volatility of 247.07%, risk free rate of 4.61%, and dividend rate of 0%.

 

On August 27, 2024, Alpha exercised its Additional Investment Right for the aggregate purchase of 500 shares of Series F Convertible Preferred convertible into 1,238,237 shares of Common Stock, in the aggregate, at a conversion price of $0.4038 and warrants to purchase up to 1,238,237 shares of Common Stock at an exercise price of $0.4038 per share for an aggregate purchase price of $500,000. The Assignment Agreement also provides that Alpha will receive a reduction in the Exercise Price (as defined in the Existing Warrants) from $0.60 to $0.4038 per share of Common Stock for certain warrants previously issued to Alpha on June 5, 2023. As a result, the Company recorded a deemed dividend of $1,450,232.

 

The August 2024 Down Round Triggered anti-dilution protection provisions in connection with subsequent equity issuances embedded in the Series F and Serries F Warrants and reduced the conversion and exercise price of on outstanding Series F and Series F Warrants from $.60 to $.4038. As a result, the Company recognized a deemed dividend of $1,233,686 and $216,546 on the Series F and Series F Warrants, respectively, an aggregate deemed dividend of $1,450,232 for the incremental fair value to the Series F and the Series F Warrant holders resulting from the reduction in conversion price and exercise price.

 

The fair value of the Series F and Series F Warrants was determined using a Black-Scholes pricing model and the following assumptions: expected life of 1-3 years, volatility of 101.70 – 119.75%, risk free rate of 3.72 - 4.34%, and dividend rate of 0%.

 

The March 2023 Down Round Triggered anti-dilution protection provisions in connection with subsequent equity issuances embedded in the Series F and Serries F Warrants and reduced the conversion and exercise price of on outstanding Series F and Series F Warrants from $8.80 to $8.40. As a result, the Company recognized an aggregate deemed dividend of $255,976 which has been reflected in stockholders’ equity and increased the net loss available to common stockholders in the earning per share calculation as presented on the accompanying condensed consolidated statements of operations and comprehensive loss.

 

The March 2023 Down Round Trigger resulted in the Company recognizing a deemed dividend on the Series F and Series F Warrants of $217,750 and $38,226, respectively, or aggregate deemed dividend of $255,976, for the incremental value to the Series F and Series F Warrant holders resulting from the reduction in conversion price and exercise price.

 

The June 2023 Down Round Triggered anti-dilution protection provisions in connection with subsequent equity issuances embedded in the Series F and Serries F Warrants and reduced the conversion and exercise price of any outstanding Series F and Series F Warrants from $8.40 to $5.00. As a result, the Company recognized an aggregate deemed dividend of $4,654,918 which has been reflected in stockholders’ equity and increased the net loss available to common stockholders in the earning per share calculation as presented on the accompanying condensed consolidated statements of operations and comprehensive loss.

 

The June 2023 Down Round Trigger resulted in the Company recognizing a deemed dividend on the Series F and Series F Warrants of $3,867,095 and $787,823, respectively, for the incremental value to the Series F and Series F Warrant holders resulting from the reduction in conversion price and exercise price.

 

 

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

(UNAUDITED)

 

Note 7 – Stockholders’ Equity-Continued

 

Stock-based Compensation

 

The Company determines the fair value of awards granted under the 2017 Omnibus Equity Incentive Plan (the “Equity Plan”) based on the fair value of its Common Stock on the date of grant. Stock-based compensation expenses related to grants under the Equity Plan are included in general and administrative expenses on the condensed consolidated statements of operations and comprehensive loss. For the three and nine-months ended September 30, 2024, the Company recorded $16,675 and $63,791, respectively. The stock-based compensation, for the same period during 2023, $142,845 and $1,125,209 were recorded, respectively.

 

All deemed dividends to the Series F stockholder were recorded as additional paid in capital and an increase to accumulated deficit and as an increase to total net loss attributable to Common Stockholders in computing earnings per share on the condensed consolidated statements of operations and comprehensive loss.

 

During the three and nine months ended September 30, 2024, the aggregate deemed dividends recognized on these down round triggers were $1,450,232 and $6,707,687, respectively. During the three and nine months ended September 30, 2023, the aggregate deemed dividends recognized on these down round triggers were $0 and $4,910,894, respectively.

 

Pension Costs

 

senseFly S.A. sponsors a defined benefit pension plan (the “Defined Benefit Plan”) covering all its employees. The Defined Benefit Plan provides benefits in the event of retirement, death or disability, with benefits based on age and salary. The Defined Benefit Plan is funded through contributions paid by senseFly S.A. and its employees, respectively. The Defined Benefit Plan assets are Groupe Mutuel Prévoyance (“GMP”), which invests these plan assets in cash and cash equivalents, equities, bonds, real estate and alternative investments.

 

The Projected Benefit Obligation (“PBO”) includes in full the accrued liability for the plan death and disability benefits, irrespective of the extent to which these benefits may be reinsured with an insurer. The actuarial valuations are based on the census data as of December 31, 2023, provided by GMP.

 

The Defined Benefit Plan has a PBO in excess of Defined Benefit Plan assets. For the three and nine months ended September 30, 2024, the amounts recognized in accumulated other comprehensive loss related to the Defined Benefit Plan were $0, compared to ($742) and $43,302, respectively for the same period during 2023.

 

Restricted Stock Units (“RSUs”)

 

For the nine months ended September 30, 2024, a summary of RSU activity is as follows:

 

   Shares   Weighted Average Grant Date Fair Value 
Outstanding as of December 31, 2023   152,703   $18.03 
Granted   399,073    0.33 
Cancelled   (2,140)   10.09 
Vested and released   (34,361)   15.06 
Outstanding as of September 30, 2024   515,275    4.66 
Vested as of September 30, 2024   149,046    14.87 
Unvested as of September 30, 2024   366,229   $0.51 

 

 

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

(UNAUDITED)

 

Note 7 – Stockholders’ Equity-Continued

 

For the nine months ended September 30, 2024, the aggregate fair value of RSU awards at the time of vesting was $131,504.

 

For the three and nine months ended September 30, 2024, the Company recognized $16,675 and $47,749 of stock compensation expense, respectively, and had approximately $104,809 of unrecognized stock-based compensation expense related to RSUs, which will be amortized over approximately twenty-one months.

 

For the nine months ended September 30, 2023, a summary of RSU activity is as follows:

 

   Shares   Weighted Average Grant Date Fair Value 
Outstanding as of December 31, 2022   51,484   $46.20 
Granted   100,036    7.11 
Cancelled   (7,677)   31.46 
Vested and released   (19,375)   7.68 
Outstanding as of September 30, 2023   124,468    21.70 
Vested as of September 30, 2023   103,511    20.28 
Unvested as of September 30, 2023   20,957   $28.70 

 

For the nine months ended September 30, 2023, the aggregate fair value of RSU awards at the time of vesting was $710,769.

 

For the three and nine months ended September 30, 2023, the Company recognized $86,905 and $821,321 of stock compensation expense, respectively, and had $72,542 of unrecognized stock-based compensation expense related to RSUs.

 

Issuance of RSUs to Current Officers and Directors of the Company

 

For the three and nine months ended September 30, 2024, the Company granted 300,000 RSUs to officers, equal to $95,970 as compensation, which vest over two years.

 

For the three and nine months ended September 30, 2024, the Company granted 14,000 RSUs and 25,000 RSUs, respectively, equal to $7,560 to the four non-executive directors as quarterly board compensation, which vested immediately.

 

On September 29, 2023, upon recommendation of the Compensation Committee of the Board (“Compensation Committee”), in lieu of the payment of $15,000 for each Board member or a total of $45,000 as quarterly cash compensation, three (3) non-executive directors each received 4,412, totaling 13,235 RSUs equal to $45,000, which were immediately vested, also in lieu of the issuance of stock options for the purchase of 30,000 shares of common stock, for each of these three (3) non-executive directors received a total of 4,500 in restricted stock awards, which vested immediately for a fair value of $15,300 in the aggregate or $5,100 each.

 

 

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

(UNAUDITED)

 

Note 7 – Stockholders’ Equity-Continued

 

Stock Options

 

For the nine months ended September 30, 2024, a summary of the options activity is as follows:

 

   Shares   Weighted Average Exercise Price   Weighted Average Fair Value   Weighted Average Remaining Contractual Term (Years)   Aggregate Intrinsic Value 
Outstanding as of December 31, 2023   125,264   $40.61   $22.04    23.80   $45,880 
Granted   —    —    —    —    — 
Exercised   —    —    —    —    — 
Expired/Forfeited   (122,514)   39.11    21.24    —    — 
Outstanding as of September 30, 2024   2,750   $105.96   $57.01    1.78   $— 
Exercisable as of September 30, 2024   2,750   $105.96   $57.01    1.78   $— 

 

As of September 30, 2024, the Company had no unrecognized compensation cost related to stock options.

 

Intrinsic value is measured using the fair market value at the date of exercise (for shares exercised) or as of September 30, 2024 (for outstanding options), less the applicable exercise price.

 

For the three and nine months ended September 30, 2024, the Company recognized $0 and $16,042, respectively of stock compensation expense.

 

For the nine months ended September 30, 2023, a summary of the options activity is as follows:

 

   Shares   Weighted Average Exercise Price   Weighted Average Fair Value   Weighted Average Remaining Contractual Term (Years)   Aggregate Intrinsic Value 
Outstanding as of December 31, 2022   128,059   $43.68   $23.76    3.33   $9,750 
Granted   16,250    6.45    2.96    3.02    — 
Exercised   —    —    —    —    — 
Expired/Forfeited   (7,230)   69.20    38.12    —    — 
Outstanding as of September 30, 2023   137,079   $37.92   $20.54    2.84   $6,194 
Exercisable as of September 30, 2023   114,746   $43.56   $23.70    2.53   $6,194 

 

For the three and nine months ended September 30, 2023, the Company recognized $55,940 and $303,888, respectively of stock compensation expense and had $100,971 of total unrecognized compensation cost related to stock options, which will be amortized through September 30, 2025.

 

 

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

(UNAUDITED)

 

Note 7 – Stockholders’ Equity-Continued

 

For the nine months ended September 30, 2024 and 2023, the significant assumptions relating to the valuation of the Company’s stock options granted were as follows:

 

   2024   2023 
   September 30, 
   2024   2023 
Stock price  $—   $6.40 
Dividend yield   —%   —%
Expected life (years)   —    3.02 
Expected volatility   —%   63.64%
Risk-free interest rate   —%   4.22%

 

Cancellations of Options

 

For the nine months ended September 30, 2024 and 2023, as a result of employee terminations and options expirations, stock options aggregating 122,514 and 7,230 with fair market values of $2,543,229 and $275,636 were cancelled, respectively. Of the 122,514 stock options cancelled during the nine months ended September 30, 2024, 45,297 were options historically granted to the Board of Directors, these options were cancelled and reissued as RSU’s. Each option cancelled resulted in a subsequent grant of RSU’s with ratio of 2 RSU’s granted for each option cancelled.