AgEagle Aerial Systems Inc. Fair Value Disclosure
Note 8 – Fair Value Measurements
In connection with the October 2024 Offering, we sold units comprised of common stock, Series A Warrants and a Series B Warrants (collectively referred to as the “Warrants”) (see Note 9). The Series A and B Warrants were deemed to be derivative liabilities due to variability in the ultimate settlement of the Series A and B Warrants caused by various settlement provisions embedded within the Warrants. Therefore, these Warrants meet the definition of a derivative liability requiring the Warrants to be reported at fair value upon issuance and subsequently at each reporting period.
The following tables present information about the Company’s derivative liabilities that are measured at fair value on a recurring basis as of December 31, 2024 and October 1, 2024 (Issuance) and indicate the fair value hierarchy of the valuation techniques that the Company utilized to determine such fair value:
| Fair Value Measurements at October 1, 2024 (Issuance) | ||||||||||||||||
| Quoted Prices in Active Markets for Identical Assets | Other Observable Inputs | Significant Unobservable Inputs | ||||||||||||||
| (Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
| Derivative liabilities - warrants | $ | $ | $ | 19,494,000 | $ | 19,494,000 | ||||||||||
| Total | $ | $ | $ | 19,494,000 | $ | 19,494,000 | ||||||||||
| Fair Value Measurements at December 31, 2024 | ||||||||||||||||
| Quoted Prices in Active Markets for Identical Assets | Other Observable Inputs | Significant Unobservable Inputs | ||||||||||||||
| (Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
| Derivative liabilities - warrants | $ | $ | $ | 16,400,000 | $ | 16,400,000 | ||||||||||
| Total | $ | $ | $ | 16,400,000 | $ | 16,400,000 | ||||||||||
The fair value of the warrants was determined using a Black-Scholes pricing model and the following assumptions:
| December 31, 2024 | October 1, 2024 | |||||||
| Exercise price | $ | 1.9445 | $ | 12.00 - $25.00 | ||||
| Stock price | $ | $ | ||||||
| Expected term | 4.75 | 5.00 | ||||||
| Volatility | 133.00 | % | 108.00 | % | ||||
| Risk-free rate | 4.28 | % | 3.45 | % | ||||
| Dividend yield | 0.00 | % | 0.00 | % | ||||
| Probability of capital raise below exercise price | 100 | % | 100 | % | ||||
As of December 31, 2024 and Issuance, the Company measured the Warrants using significant unobservable inputs that are based on little or no verifiable market data, which is Level 3 in the fair value hierarchy, resulting in a fair value estimate of approximately $13.1 million. Inherent in a Black Scholes options pricing model are assumptions related to expected share-price volatility, expected term, risk-free interest rate and dividend yield. The Company estimates the volatility of its common stock based on historical volatility. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates remaining at zero. The probability of a capital raise below the Warrants’ current exercise price is a significant unobservable input based on management’s estimate factoring in the Company’s capital needs and the Company’s stock price, which is volatile. Fluctuations to this estimate could significantly impact the fair value.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023
Note 8 – Fair Value Measurements- Continued
| Amount | ||||
| Gross proceeds | $ | 6,466,500 | ||
| Less: placement agent and legal fees | (778,261 | ) | ||
| Net proceeds | 5,688,239 | |||
| Less: Series F issued for Alpha consent | (1,500,000 | ) | ||
| Less: Fair value of warrant liabilities at Issuance | (19,494,000 | ) | ||
| Loss on equity financing | $ | (15,305,761 | ) | |
During the year ended December 31, 2024, we recognized a fair value gain on the warrant liabilities of $3,094,000 for the change in fair value between issuance and year end. A reconciliation of the warrant liabilities is below:
| Amount | ||||
| Balance, beginning of the year | $ | |||
| Warrant liabilities at issuance | 19,494,000 | |||
| Change in fair value of warrant liabilities | (3,094,00 | ) | ||
| Balance, end of the year | $ | 16,400,000 | ||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2024 | Mar 31, 2025 | Showing above |
| 2017 | Mar 23, 2018 | |
| 2016 | Mar 31, 2017 | |
| 2015 | Apr 11, 2016 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.