What happened

Shares of agriculture drone manufacturer AgEagle Aerial Systems (UAVS 1.12%) crashed and slipped 9.7% as of 1:30 p.m. EDT Tuesday. The stock has fallen precipitously this year, and today's drop proves investors don't have faith in the company. AgEagle shares are now down a whopping 77% year to date and are languishing as a micro-cap stock.

The fact is the market has solid reasons to be miffed despite AgEagle just delivering stupendous second-quarter numbers.

So what

AgEagle generated $1.94 million in revenue in the second quarter, announced Monday, versus only $16,000 (yes, you read that right) in the same quarter last year. Its gross margin jumped from only 8% to 50%, and net loss narrowed to $0.07 per share from $0.31 a share a year ago. Over the six months ended June 30, the company halved its net loss to $0.21 per share.

So far, so good. But here are four reasons that the market is worried anyway.

First, AgEagle isn't growing organically, but rather is banking heavily on acquisitions for growth. So MicaSense, acquired earlier this year, was a major contributor to AgEagle's Q2 revenue, topped with contributions from Measure Global, an aerial intelligence solutions company that AgEagle acquired during the quarter.

The second reason is even more worrisome. As of June 30, AgEagle had $39.21 million cash in hand, up from $23.94 million it held as of the end of December 2020. That sounds good, but the fact is that AgEagle raised $28.65 million in Q2 by selling nearly 5.2 million shares at prices ranging from $5.02 to $6.30 per share. The equity dilution hit the stock, and it's changing hands at around $3.40 as of this writing.

While issuance of more shares isn't necessarily bad, I'd consider it a yellow flag if a company has to consistently sell shares to raise cash for growth. For AgEagle, growth here primarily means acquisitions and new hiring.

That brings me to the third point, which is perhaps the worst of the lot. Or wait, maybe the fourth is.

A worried man staring at his computer screen.

Image source: Getty Images.

When I tried to dive deeper into AgEagle's second-quarter numbers, I found the company hasn't filed its 10-Q quarterly report yet, and has submitted a notification of late filing to the Securities and Exchange Commission.

Sure, companies can sometimes miss regulatory filing deadlines, and AgEagle has stated in the notification that it intends to file the 10-Q within the stipulated grace period. However, the reason AgEagle gave for the late filing caught my attention: It said the 10-Q couldn't have been compiled and reviewed within the due date "without undue hardship and expense."

Given that quarterly filings aren't as onerous as annual filings and require little disclosure, I'm wondering what hardship AgEagle may have faced, or what expenses were so high that it couldn't possibly cover them.

Finally, AgEagle stated during its second-quarter earnings call that it doesn't consider its business relationship with a "high-profile e-commerce customer" material anymore.

Speculation that AgEagle was working with Amazon last year sent investor perception about AgEagle, and therefore its stock price, shooting through the roof. With that company now out of AgEagle's growth band, it's no wonder the stock is falling.

Now what

AgEagle might be operating in a high-potential industry -- the global agriculture drone market is expected to grow at double-digit rates through 2025 -- but it has yet to find its footing, continues to burn cash, and is still struggling to lay a foundation for its future. I wouldn't bet on AgEagle just yet.