AgEagle Aerial Systems Inc

Previous wording

In early October 2023, theeBee X series of drones were designated with the C6 class identification label in accordance with European Union regulations. As of January 1, 2024, drone operators of C6-labeledeBees will be able to conduct BVLOS operations with airspace observers over a controlled ground area in a sparsely populated environment throughout Europe. Operators simply need to submit a required declaration with their applicable National Aviation Authority indicating whether they intend to fly missions in accordance with the European Standard Scenario- (“STS-”) 01 or STS-02. The inclusion of the C6 marking alongside our C2-labeledeBee drones will significantly enhance the market advantages for our European customers. It grants access to areas and operational modes restricted to drones weighing over 4 kg, all without the requirement for formal permissions or regulatory waivers. Currently, onlyeBee drones possess both the C2 and C6 marking, affirming their status as the safest choice for flying over people and conducting BVLOS operations. As of January 1, 2024, drone operators of C6-labeledeBees will be able to conduct BVLOS operations with airspace observers over a controlled ground area in a sparsely populated environment throughout Europe. Operators simply need to submit a required declaration with their applicable National Aviation Authority indicating whether they intend to fly missions in accordance with the European Standard Scenario- (“STS-”) 01 or STS-02. The inclusion of the C6 marking alongside our C2-labeledeBeedrones will significantly enhance the market advantages for our European customers. It grants access to areas and operational modes restricted to drones weighing over 4 kg, all without the requirement for formal permissions or regulatory waivers. Currently, onlyeBeedrones possess both the C2 and C6 marking, affirming their status as the safest choice for flying over people and conducting BVLOS operations.

Current wording

In early October 2023, theeBee X series of drones were designated with the C6 class identification label in accordance with European Union regulations. As of January 1, 2024, drone operators of C6-labeledeBees will be able to conduct BVLOS operations with airspace observers over a controlled ground area in a sparsely populated environment throughout Europe. Operators simply need to submit a required declaration with their applicable National Aviation Authority indicating whether they intend to fly missions in accordance with the European Standard Scenario- (“STS-”) 01 or STS-02. The inclusion of the C6 marking alongside our C2-labeledeBeedrones will significantly enhance the market advantages for our European customers. It grants access to areas and operational modes restricted to drones weighing over 4 kg, all without the requirement for formal permissions or regulatory waivers. Currently, onlyeBeedrones possess both the C2 and C6 marking, affirming their status as the safest choice for flying over people and conducting BVLOS operations. As of January 1, 2024, drone operators of C6-labeledeBees will be able to conduct BVLOS operations with airspace observers over a controlled ground area in a sparsely populated environment throughout Europe. Operators simply need to submit a required declaration with their applicable National Aviation Authority indicating whether they intend to fly missions in accordance with the European Standard Scenario- (“STS-”) 01 or STS-02. The inclusion of the C6 marking alongside our C2-labeledeBeedrones will significantly enhance the market advantages for our European customers. It grants access to areas and operational modes restricted to drones weighing over 4 kg, all without the requirement for formal permissions or regulatory waivers. Currently, onlyeBeedrones possess both the C2 and C6 marking, affirming their status as the safest choice for flying over people and conducting BVLOS operations.

Previous wording

Three Months Ended March 31, 2024 as Compared to Three Months Ended March 31, 2023

Current wording

Three and Six Months Ended June 30, 2024 as Compared to Three and Six Months Ended June 30, 2023

Previous wording

For the three months ended March 31, 2024, revenues were $3,894,447 as compared to $4,057,069 for the three months ended March 31, 2023, a decrease of $162,622, or 4.0%. The decrease of $162,622 was attributable to an increase of $663,345 revenues derived from our sensor sales, specifically theRedEdge andAltum™panchromatic series. Offsetting these increases was a decline in revenues ofeBee drone products by $819,830 and $6,137 of our SaaS subscription services related to theHempOverview and Ground Controlplatforms. Our continued innovation has demonstrated growth in our sales leading to strong demand of our products, specifically for our panchromatic sensor series. For the drones, the declines are attributed to customer’s postponing drone purchases until the new eBee VISION was released in September 2023. After release in late 2023, certain VARS and military contracts have a longer purchase cycle which has continued to impact the first quarter of 2024.

Current wording

For the three months ended June 30, 2024, revenues were $3,392,538 as compared to $3,278,212 for the three months ended June 30, 2023, an increase of $114,326, or 3.5%. The increase of $114,326 was attributable to an increase of $67,677 revenues derived from our sensor sales, specifically theRedEdge andAltum™panchromatic series, an increase of $83,773 in revenues of theeBee drone products, offsetting these increases was a decline of $37,124 in our SaaS subscription services related to theGround Controlplatforms. Our continued innovation has demonstrated growth in our sales leading to strong demand for our products, specifically for our panchromatic sensor series.

Previous wording

For the three months ended March 31, 2024, cost of sales was $1,940,025 as compared to $2,078,437 for the three months ended March 31, 2023, a decrease of $138,412, or 6.7%. For the three months ended March 31, 2024, gross profit was $1,954,422 as compared to $1,978,632 for the three months ended March 31, 2023, a decrease of $24,210, or 1.2%. The primary factors contributing to the decrease in our cost of sales and the gross profit margin were due to the decline in revenues from our sensor and our drone products along with significant price reduction in prior year to stimulate market demand and bring us in line specifically with competitive products manufactured in China and clearing out inventory to make way for the launch of the*eBee VISION.*In addition, our sensor sales continue to experience supply chain pressure, because of increases in raw components, labor costs and lack of process automation.

Current wording

For the six months ended June 30, 2024, cost of sales was $3,777,988 as compared to $4,325,115 for the six months ended June 30, 2023, a decrease of $547,127, or 12.6%. For the six months ended June 30, 2024, gross profit was $3,508,997 or 48.2% as compared to $3,010,166 or 41% for the six months ended June 30, 2023, an increase of $498,831, or 16.6% in actual gross margin. The increase in gross profit margin was a result of our drone products along with significant price reduction in the second quarter of 2023 to stimulate market demand and bring us in line specifically with competitive products manufactured in China as our products become older while awaiting the new*ebee VISION.*In addition to drone sales our sensor sales continue to experience supply chain pressure related to our sensor sales specifically as a result of an increase in raw components and labor costs.

Previous wording

For the three months ended March 31, 2024, operating expenses were $4,348,310, as compared to $6,139,740 for the three months ended March 31, 2023, a decrease of $1,791,430, or 29.2%. Operating expenses comprise general and administrative, sales and marketing, and research and development.

Current wording

For the three months ended June 30, 2024, operating expenses were $4,095,043, as compared to $5,903,372 for the three months ended June 30, 2023, a decrease of $1,808,329, or 30.6%.

Previous wording

For the three months ended March 31, 2024, general and administrative expenses were $2,682,658 as compared to $3,579,522 for the three months ended March 31, 2023, a decrease of $896,864 or 25.1%. The decrease was primarily related to less stock compensation expense related to terminated employees, and the reduced stock price, offset by legal fees.

Current wording

For the three months ended June 30, 2024, general and administrative expenses were $2,359,105 as compared to $3,498,761 for the three months ended June 30, 2023, a decrease of $1,139,656 or 32.6%. The decrease was primarily related to less stock compensation expense related to terminated employees, and the reduced stock price, less intangible amortization during 2024 due to the impairment recorded on December 31, 2023, less shareholders annual meeting cost, offset by legal fees, accounting and consulting expense.

Previous wording

For the three months ended March 31, 2024, research and development expenses were $1,130,229 as compared to $1,582,343 for the three months ended March 31, 2023, a decrease of $452,114, or 28.6%. The decrease was primarily due to the integration of research and development teams that provide development of our new airframe, sensor and software technologies resulting in a reduction in our consultants and internal headcounts.

Current wording

For the three months ended June 30, 2024, research and development expenses were $1,082,007 as compared to $1,369,479 for the three months ended June 30, 2023, a decrease of $287,472, or 21.0%. The decrease was primarily due to the integration of research and development teams that provide development of our new airframe, sensor and software technologies resulting in a reduction in our consultants and internal headcounts.

Previous wording

For the three months ended March 31, 2024, sales and marketing expenses were $535,423 as compared to $977,875 for the three months ended March 31, 2023, a decrease of $442,452, or 45.2%. The decrease was primarily due to the decrease in travel, integration of sales and marketing teams that lead to a reduction of consulting expenses along with decrease in digital advertising spend as we look to attend in-person trade shows.

Current wording

For the three months ended June 30, 2024, sales and marketing expenses were $653,931 as compared to $955,845 for the three months ended June 30, 2023, a decrease of $301,914, or 31.6%. The decrease was primarily due to the decrease in travel, integration of sales and marketing teams that lead to a reduction of consulting expenses along with decrease in digital advertising spend as we look to attend in-person trade shows.

Previous wording

For the three months ended March 31, 2024, other expense, net was $3,921,699 as compared to $438,391 for the three months ended March 31, 2023. Due to anti-dilution price protections embedded in the convertible note that were triggered during the three months ended March 31, 2024, we recognized interest expense of $3,785,344 for the incremental value of the convertible note conversion feature being reduced from its original conversion price of $1.25 to $0.60.

Current wording

For the six months ended June 30, 2024, other expense, net was $4,310,939 as compared to other income, net of $857,136 for the six months ended June 30, 2023, an increase of $3,453,803. The increase is primarily attributable to the promissory note’s original issue discount of 4% and interest at 8% per annum issued in December 2022 along with the anti-dilution price protections embedded in the convertible note that were triggered during the six months ended June 30, 2024, we recognized interest expense of $3,488,851 for the incremental value of the convertible note conversion feature being reduced from its original conversion price of $1.25 to $0.60 which is the gross amount recorded in the prior quarter of 2024.

Previous wording

Three Months Ended March 31, 2024 as Compared to the Three Months Ended March 31, 2023

Current wording

Six Months Ended June 30, 2024 as Compared to the Six Months Ended June 30, 2023

Previous wording

As of March 31, 2024, cash on hand was $822,921, as compared to $819,024 as of December 31, 2023, a increase of $3,897, or 0.5%.

Current wording

As of June 30, 2024, cash on hand was $977,208, as compared to $819,024 as of December 31, 2023, a increase of $158,184, or 19.3%.

Previous wording

For the three months ended March 31, 2024, cash used in operations was $1,553,093 a decrease of $2,636,835 or 62.9%, as compared to cash used of $4,189,928 for the three months ended March 31, 2023. The decrease in cash used in operating activities was principally driven by the lower operating expenses which included significantly lower inventory purchases and prepayments offset by higher accounts receivables, account payables and accrued expenses.

Current wording

For the six months ended June 30, 2024, cash used in operations was $2,983,430, a decrease of $3,799,889 or 56.0%, as compared to cash used of $6,783,320 for the six months ended June 30, 2023. The decrease in cash used in operating activities was principally driven by the lower operating expenses which included significantly lower inventory purchases and prepayments offset by higher accounts receivables, account payables and accrued expenses.

Previous wording

For the three months ended March 31, 2024, cash used in investing activities was $43,081, a decrease of $211,110, or 83.1%, as compared to cash used of $254,191 for the three months ended March 31, 2023. The decrease is related to the capitalization of the internal software during 2023 which not continued in 2024.

Current wording

For the six months ended June 30, 2024, cash used in investing activities was $92,995, a decrease of $331,349, or 78.1%, as compared to cash used of $424,344 for the six months ended June 30, 2023. The decrease is related to the capitalization of the internal software during 2023 which did not continued in 2024.

Previous wording

For the three months ended March 31, 2024, cash provided by financing activities was $1,641,894 a decrease of $1,313,508 or 44.4%, as compared to cash provided of $2,955,402 for the three months ended March 31, 2023. The decrease in cash provided by our financing activities was due to less sales of our Common stock through an at-the-market (“ATM”) offering and exercise of warrants in the prior year offset by the sale of Series F Preferred stock.

Current wording

For the six months ended June 30, 2024, cash provided by financing activities was $3,289,258 a decrease of $3,487,215 or 51.5%, as compared to cash provided of $6,776,473 for the six months ended June 30, 2023. The decrease in cash provided by our financing activities was due to less sales of our Common stock through an at-the-market offering and exercise of warrants in the prior year offset by the sale of Series F Preferred stock.

Previous wording

As of March 31, 2024, we had a working capital deficit of $1,965,996. For the three months ended March 31, 2024, we incurred a loss from operations of $2,393,888, a decrease of $1,767,220, or 42.5%, as compared to $4,161,108 for the three months ended March 31, 2023. While we have historically been successful in raising capital to meet its working capital needs, the ability to continue raising such capital to enable us to continue our growth is not guaranteed. We will require additional liquidity to continue its operations and meet its financial obligations over the next twelve months, there is substantial doubt about our ability to continue as a going concern. We are evaluating strategies to obtain the required additional funding for future operations and the restructuring of operations to grow revenues and reduce expenses.

Current wording

As of June 30, 2024, we had a working capital deficit of $2,809,813. For the six months ended June 30, 2024, we incurred a loss from operations of $4,934,356, a decrease of $4,098,590, or 45.4%, as compared to $9,032,946 for the six months ended June 30, 2023. While we have historically been successful in raising capital to meet its working capital needs, the ability to continue raising such capital to enable us to continue our growth is not guaranteed. We will require additional liquidity to continue its operations and meet its financial obligations over the next twelve months, there is substantial doubt about our ability to continue as a going concern. We are evaluating strategies to obtain the required additional funding for future operations and the restructuring of operations to grow revenues and reduce expenses.

Previous wording

During the three months ended March 31, 2024, inflation has had a negative impact on the unmanned aerial vehicle systems industry, our customers, and our business globally. Specifically, our ability to access components, parts and labor needed to manufacture its proprietary drones and sensors, and to perform quality testing have been, and continue to be, impacted. If either the Company or any of its third parties in the supply chain for materials used in our manufacturing and assembly processes continue to be adversely impacted, our supply chain may be further disrupted, limiting its ability to manufacture and assemble products. We expect inflation and its effects to continue to have a significant negative impact on our business.

Current wording

During the six months ended June 30, 2024, inflation has had a negative impact on the unmanned aerial vehicle systems industry, our customers, and our business globally. Specifically, our ability to access components, parts and labor needed to manufacture its proprietary drones and sensors, and to perform quality testing have been, and continue to be, impacted. If either the Company or any of its third parties in the supply chain for materials used in our manufacturing and assembly processes continue to be adversely impacted, our supply chain may be further disrupted, limiting its ability to manufacture and assemble products. We expect inflation and its effects to continue to have a significant negative impact on our business.