Problems at AgEagle Aerial Systems (UAVS)
Problems at AgEagle Aerial Systems (UAVS)
AgEagle Aerial Systems (NYSE: UAVS — $826 million) describes itself as a “pioneer in advanced commercial drone technologies” and has promoted the rumor of an Amazon partnership. In reality, the company owns no patents, currently uses an external part-time Chief Technology Officer, and has spent approximately $40,000 on research and development in the last three years. An Amazon spokesperson has denied any partnership. AgEagle has also taken financing from a Lichtenstein-based hedge fund involved in pump-and-dumps.
The substance of AgEagle as a business is small. According to the company’s most recent 10-K, AgEagle employs 6 full-time employees and owns no patents. On LinkedIn, the company currently has 12 employees. In its most recent 10-Q, AgEagle disclosed having only $7,109 of finished goods and on page 34 of its 2019 10-K the company discloses,
“Research and development costs in 2019 were $38,948, compared to $0 in 2018.”
AgEagle has not broken out research and development costs in its 10-Qs for 2020. However, on page 31 of its most recent 10-Q, the company did disclose,
“The Company contracted external fractional CTO services to a firm whereby one of our board members is currently a shareholder. For the three and nine months ended September 30, 2020, the Company paid $25,000 and $86,000 in fees.”
AgEagle’s single Glassdoor review also raises concerns about the company:
“What unfolded over my short stint at this place was the biggest cluster[mess] I have ever experienced in my life… It was clear that the job I was hired to do did not exist… if you categorize yourself as any sort of geospatial professional, don’t come anywhere near this place.”
Unsurprisingly, AgEagle’s “drone” appears to be a remote-controlled plane hooked up to a GoPro camera:
For the nine months ended September 30, 2020 AgEagle recognized $1.1 million in revenue from its drone sales. The company has an unusually liberal revenue recognition policy:
“The Company generally recognizes revenue on sales to customers, dealers and distributors upon satisfaction of performance obligations, which generally occurs once controls transfer to customers, which is when product is shipped or delivered depending on specific shipping terms.” (Page 12 of most recent 10-Q)
According to an SEC Full-Text Search, AgEagle is the only NYSE or NASDAQ listed company to use that specific disclosure in the last five years. In addition, one undisclosed entity named “Customer A” accounted for 94% of AgEagle’s revenue in 2020.
AgEagle would like you to believe that “Customer A” is Amazon. In press releases, AgEagle describes Customer A as a “major ecommerce company.” Slide 4 of its investor presentation mentions Amazon without stating Amazon is a customer.
In addition, screenshots of an unlisted YouTube video that mentions AgEagle and Amazon spread among investors in April 2020. The account used for the video belongs to Morgan Chilcott, the daughter of AgEagle’s founder and former CEO Bret Chilcott:
Reddit accounts began to put the video and Chilcott connection together as “proof” of an Amazon partnership.
The Amazon news is not true.
In October 2020, the Wichita Business Journal asked Amazon about a potential relationship with AgEagle and an Amazon spokesperson said that “there is no partnership” and Amazon “has not worked with AgEagle in any capacity.”
Amazon’s denial has not dampened the hope of investors in the ~10-person, CTO-less, patent-less, R&D-less company. If AgEagle’s false Amazon promotion does not raise concern, its management history should.
Michael Drzord, AgEagle’s CEO, previously served as a Vice President of Silver Elephant Mining Corp, a microcap Canadian silver company. Mr. Drzord was also CEO of Aseptia, a food processing company that was accused of fraud three years after he left.
Nicole Fernandez-McGovern, AgEagle’s CFO, previously served as the CEO and CFO of Truinity Holdings, a publicly-traded education company that has since changed names and fallen 99%.
Luisa Ingargiola, chair of AgEagle’s audit committee, previously served as a director of COPsync (COYNQ) and FTE Networks (FTNW), both of which also fell 99%. Ms. Ingargiola also served on the boards of Biocorrx (BICX) and CBD Energy (CBDEF), both of them fell over 90%. Ms. Ingargiola also served as the CFO of MagneGas (TRNX), which later changed names and fell 99%.
Some of those companies have ties to Alpha Capital Anstalt, a Liechtenstein-based hedge fund that was previously mentioned in a 2018 SEC complaint involving stock-promoter Barry Honig. The SEC’s 2018 complaint alleged,
“Alpha frequently co-invested with Honig, and participated in several rounds of the Company A PIPE financings, resulting in Company A's issuance of millions of shares to Alpha at steeply discounted prices…” [and] “Alpha violated Sections 5(a) and (c) of the Securities Act.”
Alpha Capital has played a large role at AgEagle. Alpha invested in Enerjex Resources in 2017 to help take AgEagle public in a reverse merger. Alpha Capital has completed a series of dilutive financing deals with AgEagle using preferred stock. These deals have, in part, led to a large increase in the number of shares outstanding; there are over 55 million shares today, up from about 10 million three years ago.
Many companies involved in financing deals with Alpha Capital have experienced larges rises followed by steep falls. Based on an SEC Full-Text Search for "Alpha Capital Anstalt" 54 companies have done deals with the firm in the last five years. Of those 54 companies, 38 have fallen at least 90% sometime in the last five years and six are now defunct. Below is a table of Alpha Capital deals:
Stock promoters have actively discussed AgEagle. MarketingSentinel.com has published at least 11 articles on AgEagle Aerial Systems in the last 45 days. StocksRegister.com has published 11 articles as well.
The company is frequently mentioned on StockTwits, where nearly 50,000 users follow the company. An anonymous GoogleDoc uploaded to the platform repeatedly promotes the theory AgEagle is working with Amazon and mentions “Amazon” 98-times.
Last month, The Motley Fool published an article about AgEagle and Amazon and wrote, “nothing has come of that Amazon talk yet.”
One cause for hope among investors is AgEagle’s acquisition of MicaSense, a ~30-person, sensors company acquired on January 26, 2021, for $23 million. But a $23 million acquisition does not justify a roughly $800 million market value.
AgEagle seems to agree. Earlier this month, AgEagle also filed a prospectus to sell up to $200 million in stock and warned investors “you may lose all or part of your investment.”
Further Reading
“AgEagle Short Pitch” (ValueInvestorsClub)
“AgEagle Aerial Systems: Termination Of Ridiculous Amazon E-Commerce Pipedream Should Send Stock Back To Penny Territory” (SeekingAlpha)
“AgEagle Short Pitch” (Bonitas Research, published 30 minutes ago)
This article is not investment advice and represents the opinions of its sole author, Edwin Dorsey. You can reach the author by email at edwin@585research.com. This article is for paid subscribers of The Bear Cave newsletter. If this article was forwarded to you please consider becoming a paid subscriber to receive articles like this twice every month for $44/month. Learn more here.