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Also on February 10 2017, the Company and its subsidiaries, and successor lender entered into a binding letter agreement dated February 10, 2017, which was subsequently amended on March 30, 2017 (as amended, the “letter agreement”) pursuant to which:

The restated secured note shall:

We will have 2 options to extend the maturity dateTable of the restated secured note by 90 days each upon payment of an extension fee of $100,000, which shall be applied against the principal balance of the note.Contents

So long as we repay the $3,300,000 in indebtedness on or prior to the maturity date, as extended, all other amounts payable under the restated secured note shall be forgiven.

The Closing is expected to occur on or before May 1, 2017 (the February 10, 2017 letter agreement provided for a Closing on or before April 30, 2017. This was amended to May 1, 2017 in the amendment).

Our Business

Our principal strategy is to acquire, develop, explore and produce domestic onshore oil and natural gas properties. Our business activities are currently focused in Kansas, Colorado, Nebraska, and Texas.Headquarters

Our total net proved oilprincipal executive offices are located at 117 S. 4^th Street, Neodesha, Kansas 66757 and gas reserves asour telephone number is 316-202-2076. Our website address is www.ageagle.com. The information contained on, or that can be accessed through, our website is not a part of December 31, 2016 were 1.6 million barrels of oil equivalents (BOE), of which 64.1% was natural gas. Of the 1.6 million BOE of total proved reserves, approximately 12.2% are classified as proved developed producing, approximately 42.3% are classified as proved developed non-producing, and approximately 45.5% are classified as proved undeveloped.

The total PV10 (present value) ofthis Annual Report. We have included our proved reserves as of December 31, 2016 was approximately $3.4 million. “PV10” means the estimated future gross revenue to be generated from the production of proved reserves, net of estimated production and future development and abandonment costs after giving consideration of salvage value there were no material abandonment costs included in future development costs, using prices and costs in effect at the determination date, before income taxes, and without giving effect to non-property related expenses, discounted to a present value using an annual discount rate of 10% in accordance with the guidelines of the SEC. PV10 is a non-GAAP financial measure and generally differs from the standardized measure of discounted future net cash flows, the most directly comparable GAAP financial measure, because it does not include the effects of income taxes on future net revenues. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Reserves” page 36, for a reconciliation to the comparable GAAP financial measure.

Except where noted, the discussion regarding our businesswebsite address in this Annual Report on Form 10-K issolely as of December 31, 2016.an inactive textual reference.

Our Colorado Properties

The table below summarizes our current Colorado and Nebraska acreage by project name as of December 31, 2016.

Adena Field Project

The Adena Field Project is located in the Denver-Julesburg (“D-J”) Basin in Morgan County, Colorado, where we owned a 100% working interest in 18,280 gross acres as of December 31, 2016. Our acreage position covers the majority of Adena Field, which is the third largest oil field ever discovered in Colorado behind Rangely Field and Wattenberg Field. The Adena Field has cumulatively produced 75 million barrels of oil and 125 billion cubic feet of natural gas since its discovery in the early 1950s. Our acreage in this project is currently held-by-production (see “Glossary” on page 15 for definition of held-by-production). The majority of the producing wells in the Adena Field were temporarily abandoned or shut-in during the mid-1980’s when oil prices collapsed, and a relatively small number of wells have been produced since that time.

Approximately 112 wells on our acreage are currently shut-in or temporarily abandoned. Our current understanding of the field indicates that most of the remaining 97 shut-in oil wells are candidates for reactivation, recompletion or use in a larger scale EOR project. The same is true for the remaining 14 shut-in injection wells.  We have a significant EOR project study under way at the present time and have begun field sampling and EOR flood modeling for each project. We intend to reactivate vintage secondary recovery injection wells simultaneously with the reactivation and/or recompletion of producer wells. Recompletions and reactivations are expected to cost approximately $200,000 to $250,000 per well and are expected to result in stabilized production rates of approximately 10 barrels of oil per day. We have also identified a number of wells on our acreage that are prospective for natural gas production from the J-Sand and D-Sand formations.Employees

As of December 31, 2016, the Adena Field Project was producing approximately 75 gross barrels of oil per day from 9 J-Sand wells2018, we employed 5 full-time and 2 D-Sand wells at a depth of approximately 5,500 feet. One J sand gas producer was temporarily shut-in because of low natural gas prices and due to reservoir management practices.  Multiple wells are off production because they require maintenance work; however, we have delayed maintenance expenditures due to low commodity prices. We intend to pursue our reactivation and recompletion strategy once oil prices recover.1 part-time employee.

Our working interest inIntellectual Property

We currently have a registered trademark on the Adena Field ProjectAgEagle andFarmLens name and logo. We also plan to file provisional patents on certain aspects of our current and future technology. Finally, we consider our UAV manufacturing process to be a trade secret and have non-disclosure agreements with current employees to protect those and other trade secrets held by the Company.

Where You Can Find Additional Information

The Company is subject to a 30% reversionary working interest that will be assigned to an unrelated third party after payout of all acquisition, operating, development, and financing costs including interest (approximately $39.5 million at December 31, 2016).

Niobrara – Colorado & Nebraska

Our Niobrara Project is located in the northeastern portion ofreporting requirements under the D-J Basin, where we owned a 100% working interest in approximately 34,000 gross acres as of December 31, 2016. Our acreage is located in Phillips and Sedgwick Counties, Colorado, and Perkins County, Nebraska.

Approximately 21,000 developed acres in this project are held by production and approximately 12,000 undeveloped acres are held by leases. As of December 31, 2016, we owned a 100% working interest in 24 Niobrara gas wells and we owned approximately a 6% overriding royalty interest in 180 Niobrara gas wells that are operated by Titan Energy. All of these wells are located in Amherst Field in Phillips and Sedgwick Counties, Colorado. As of December 31, 2016, we produced approximately 90 net mcf of natural gas per day from the Niobrara formation at a depth of approximately 2,500 feet.

Our existing Niobrara acreage was high-graded based on structural features identified through analysis of 114 miles of 2D and 165 square miles (105,000 acres) of 3D seismic data on our original position of 330,000 net acres. We have identified more than 150 highly-ranked Niobrara drilling locations on our acreage based on 3D seismic analysis, which has historically yielded success rates of approximately 90% in this play. Our acreage is well situatedExchange Act. The Company files with, direct accessor furnishes to, the Cheyenne Hub market in immediate proximitySEC quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports and will furnish its proxy statement. These filings are available free of charge on the Company’s website, wwwageagle.com, shortly after they are filed with, or furnished to, the 1,679-mile Rocky Mountain Express pipelineSEC. The SEC maintains an Internet website, www.sec.gov, which contains reports and the 436-mile Trailblazer pipeline.

DJ Basin Resource Play Exposure

Other operators in the DJ basin have recently permitted, drilledinformation statements and tested numerous wells on trend with our Niobrara Project acreage and our Adena Field Project acreage. These operators are targeting oil production from conventional reservoirs and unconventional resource plays in Permian and Pennsylvanian aged carbonates and shales. These plays are in the early stages of exploration and development, and widespread economic success has not yet been established. We continue to monitor these exploration efforts closely and we currently own and control all depths that are prospective for these plays under all of our current acreage position.

Our Kansas Properties

The table below summarizes our current Kansas acreage by project name as of December 31, 2016.

Mississippian Project

Our Mississippian Project is located in Woodson and Greenwood Counties in Southeast Kansas, where we own a 90% working interest in 4,949 gross acres. Approximately 73.5% of the gross leased acres in this project are currently held-by-production.

As of December 31, 2016, our Mississippian Project was producing approximately 100 gross barrels of oil per day from the Mississippian formation at a depth of approximately 1,700 feet.

Cherokee Project

On August 12, 2015, EnerJex Resources, Inc., through its subsidiaries, EnerJex Kansas, Inc., and Working Interest, LLC, sold the Cherokee Project for approximately $2.8 million to Haas Petroleum, LLC, BAM Petroleum, LLC and MorMeg, LLC. The effective date of the sale was July 1, 2015.

Our Texas Properties

The table below summarizes our current Texas acreage by project name as of December 31, 2016.

El ToroProject

Our El Toro Project is located in Atascosa and Frio Counties in South Texas. As of December 31, 2016 we owned a 60% working interest in 458 gross acres. As of December 31, 2016, this project was producing approximately 7 gross barrels of oil per day from the Olmos formation at a depth of approximately 4,500 feet.

Our Business Strategy

Our principal strategy focuses on the development of oil and gas properties that have low production decline rates and offer drilling opportunities with low risk profiles. Our oil and gas operations are in Kansas, Colorado, Nebraska, and Texas. The principal elements of our business strategy are:other information regarding issuers.

The risk factors discussed below could cause our actual results to differ materially from those expressed in any forward-looking statements. Although we have attempted to list comprehensively these important factors, we caution you that other factors may in the future prove to be important in affecting our results of operations. New factors emerge from time to time and it is not possible for us to predict all of these factors, nor can we assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement.

The risks described below set forth what we believe to be the most material risks associated with the purchase of our Common Stock. Before you invest in our Common Stock, you should carefully consider these risk factors, as well as the other information contained in this prospectus.

Risks Related to Our future financial resultsBusiness and Industry

We have a limited operating history and there can be no assurance that we can achieve or maintain profitability.

Through our wholly-owned subsidiary, Eagle Aerial Systems, Inc. (“AgEagle Sub”), we have been operating for approximately eight years. However, AgEagle Sub has only been in the UAV business for half of that time. We are currently in the business development stage and have limited commercial sales of our products and, accordingly, we cannot guarantee that we will become profitable. Moreover, even if we achieve profitability, given the competitive and evolving nature of the industry in which we operate, we may be unable to sustain or increase profitability and its failure to do so would adversely affect its business, including its ability to raise additional funds.

We will need substantial additional funding and may be unable to raise capital when needed, which would force us to delay, curtail or eliminate one or more of our research and development programs or commercialization efforts.

Our operations have consumed substantial amounts of cash since inception. We expect to continue to depend on:spend substantial amounts on product development. We will require additional funds to support continued research and development activities, as well as the costs of commercializing, marketing and selling any new products resulting from those research and development activities. We have based this estimate, however, on assumptions that may prove to be wrong, and we could spend available financial resources much faster than we currently expect.

Until such time, if ever, that we can generate a sufficient amount of product revenue and achieve profitability, we expect to seek to finance future cash needs through equity or debt financings or corporate collaboration and strategic arrangements. We currently have no other commitments or agreements relating to any of these types of transactions and cannot be certain that additional funding will be available on acceptable terms, or at all. If we are unable to raise additional capital, we may have to delay, curtail or eliminate commercializing, marketing and selling one or more of our products.

Product development is a long, expensive and uncertain process.

The development of both UAV software and hardware is a costly, complex and time-consuming process, and investments in product development often involve a long wait until a return, if any, can be achieved on such investment. We might face difficulties or delays in the development process that will result in our inability to timely offer products that satisfy the market, which might allow competing products to emerge during the development and certification process. We anticipate making significant investments in research and development relating to our products and services, but such investments are inherently speculative and require substantial capital expenditures. Any unforeseen technical obstacles and challenges that we encounter in the research and development process could result in delays in or the abandonment of product commercialization, may substantially increase development costs, and may negatively affect our results of operations.

Successful technical development of our products does not guarantee successful commercialization.

Although we have successfully completed the technical development of our two original UAV systems, as well as the new RX-60 and RX-48 systems, we may still fail to achieve commercial success for a number of reasons, including, among others, the following:

We cannot guaranteeOur success in the market for the products and services we develop will depend largely on our ability to properly demonstrate their capabilities. Upon demonstration, our platform of systems may not have the capabilities they were designed to have or that we will succeedbelieved they would have. Furthermore, even if we do successfully demonstrate our products’ capabilities, potential customers may be more comfortable doing business with a competitor; or may not feel there is a significant need for the products we develop. As a result, significant revenue from our current and new product investments may not be achieved for a number of years, if at all.

If we fail to protect our intellectual property rights, we could lose our ability to compete in the marketplace.

Our intellectual property and proprietary rights are important to our ability to remain competitive and successful in the development of our products and our business. Patent protection can be limited and not all intellectual property can be patented. We expect to rely on a combination of patent, trademark, copyright, and trade secret laws as well as confidentiality agreements and procedures, non-competition agreements and other contractual provisions to protect our intellectual property, other proprietary rights and our brand. As we currently do not have any granted patent, trademark or copyright protections, we must rely on trade secrets and nondisclosure agreements, which provide limited protections. Our intellectual property rights may be challenged, invalidated or circumvented by third parties. We may not be able to prevent the unauthorized disclosure or use of our technical knowledge or other trade secrets by employees or competitors.

Furthermore, our competitors may independently develop technologies and products that are substantially equivalent or superior to our technologies and products, which could result in decreased revenues. Litigation may be necessary to enforce our intellectual property rights, which could result in substantial costs to us and substantial diversion of management attention. If we do not adequately protect our intellectual property, our competitors could use it to enhance their products. Our inability to adequately protect our intellectual property rights could adversely affect our business and financial condition, and the value of our brand and other intangible assets.

Other companies may claim that we infringe their intellectual property, which could materially increase our costs and harm our ability to generate future revenue and profit.

We do not believe that our technologies infringe on the proprietary rights of any third party, however claims of infringement are becoming increasingly common and third parties may assert infringement claims against us. It may be difficult or impossible to identify, prior to receipt of notice from a third party, the trade secrets, patent position or other intellectual property rights of a third party, either in the United States or in foreign jurisdictions. Any such assertion may result in litigation or may require us to obtain a license for the intellectual property rights of third parties. If we are required to obtain licenses to use any third-party technology, we would have to pay royalties, which may significantly reduce any profit on our products. In addition, any such litigation could be expensive and disruptive to its ability to generate revenue or enter into new market opportunities. If any of these respects. Further,our products were found to infringe other parties’ proprietary rights and we cannot knoware unable to come to terms regarding a license with such parties, we may be forced to modify our products to make them non-infringing or to cease production of such products altogether.

The nature of our business involves significant risks and uncertainties that may not be covered by insurance or indemnification.

We have developed and sold products and services in circumstances where insurance or indemnification may not be available; for example, in connection with the collection and analysis of various types of information. In addition, our products and services raise questions with respect to issues of civil liberties, intellectual property, trespass, conversion and similar concepts, which may create legal issues. Indemnification to cover potential claims or liabilities resulting from the failure of any technologies that we develop or deploy may be available in certain circumstances but not in others. Currently, the unmanned aerial systems industry lacks a formative insurance market. We may not be able to maintain insurance to protect against all operational risks and uncertainties that our customers confront. Substantial claims resulting from an accident, product failure, or personal injury or property liability arising from our products and services in excess of any indemnity or insurance coverage (or for which indemnity or insurance coverage is not available or is not obtained) could harm our financial condition, cash flows and operating results. Any accident, even if fully covered or insured, could negatively affect our reputation among our customers and the pricepublic, and make it more difficult for us to compete effectively.

We may incur substantial product liability claims relating to our products.

As a manufacturer of crude oilUAV products, and natural gas prevailing at the timewith aircraft and aviation sector companies under increased scrutiny, claims could be brought against us if use or misuse of production will be at a level allowing for profitable production,one of our UAV products causes, or thatmerely appears to have caused, personal injury or death. In addition, defects in our products may lead to other potential life, health and property risks. Any claims against us, regardless of their merit, could severely harm our financial condition, strain our management and other resources. We are unable to predict if we will be able to obtain additional funding at terms favorable to us to increase our capital resources. A detailed description of these and other risksor maintain product liability insurance for any products that could materially impact our actual results is in “Risk Factors” under ITEM 1A.may be approved for marketing.

Drilling ActivityIf we not able to recruit and retain key management, technical and sales personnel, our business would be negatively affected.

For our business to be successful, we need to attract and retain highly qualified technical, management and sales personnel. The failure to recruit additional key personnel when needed, with specific qualifications, on acceptable terms and with an ability to maintain positive relationships with our partners, might impede our ability to continue to develop, commercialize and sell our products and services. To the extent the demand for skilled personnel exceeds supply, we could experience higher labor, recruiting and training costs in order to attract and retain such employees. The loss of any members of our management team may also delay or impair achievement of our business objectives and result in business disruptions due to the time needed for their replacements to be recruited and become familiar with our business. We face competition for qualified personnel from other companies with significantly more resources available to them and thus may not be able to attract the level of personnel needed for our business to succeed.

If our proposed marketing efforts are unsuccessful, we may not earn enough revenue to become profitable.

Our future growth depends on our gaining market acceptance and regular production orders for our products and services. Our marketing plan includes attendance at trade shows, making private demonstrations, advertising, promotional materials and advertising campaigns in print and/or broadcast media. In the event we are not successful in obtaining a significant volume of orders for our products and services, we will face significant obstacles in expanding our business. We cannot give any assurance that our marketing efforts will be successful. If they are not, revenue may not be sufficient to cover our fixed costs and we may not become profitable.

Our operating margins may be negatively impacted by reduction in sales or products sold.

Expectations regarding future sales and expenses are largely fixed in the short term. We maintain raw materials and finished goods at a volume we feel is necessary for anticipated distribution and sales. Therefore, we may not be able to reduce costs in a timely manner to compensate for any unexpected shortfalls between forecasted and actual sales.

We face a significant risk of failure because we cannot accurately forecast our future revenues and operating results.

The following table sets forthrapidly changing nature of the markets in which we compete makes it difficult to accurately forecast our revenues and operating results. Furthermore, we expect our revenues and operating results to fluctuate in the future due to a number of our drilling activities,factors, including both oil and gas production wells and water injection wells that were drilled and completed during the year ended December 31, 2016 and the year ended December 31, 2015.following:

Net Production, Average Sales Price and Average Production and Lifting Costs

The table below sets forth our net oil and gas production (net of all royalties, overriding royalties and production due to others) for the years ended December 31, 2016 and 2015, the average sales prices, average production costs and direct lifting costs per unit of production.

Results of Oil and Gas Producing Activities

The following table showsRapid technological changes may adversely affect the results of operations from our oil and gas producing activities from the years ended December 31, 2016 and 2015. Results of operations from these activities have been determined using historical revenues, production costs, depreciation, depletion and amortization of the capitalized costs subject to amortization. General and administrative expenses and interest expense have been excluded from this determination.

Active Wells

The following table sets forth the number of wells in which we owned a working interest that were actively producing oil and gas or actively injecting water as of December 31, 2016.

Reserves

Proved Reserves

The estimated total PV10 (present value)market acceptance of our proved reserves as of December 31, 2016 was $3.4 million, compared to $8.8 million as of December 31, 2015. Our total net proved oilproducts and gas reserves as of December 31, 201 were 1.6 million BOE (64.1% natural gas), compared to 2.6 million BOE (59.4% oil) as of December 31, 2015. Of the 1.6 million net BOE of total proved reserves at December 31, 2016, approximately 12.2% are classified as proved developed producing, approximately 42.3% are classified as proved developed non-producing, and approximately 45.5% are classified as proved undeveloped. See “Glossary” on page 17 for our definition of PV10.

The estimated PV10 of the 1.6 million BOE is set forth in the following table. The PV10 is calculated using an average net oil price of $37.36 per barrel, an average net natural gas price of $1.65 per mcf and an average natural gas liquids price of $8.55 per barrel, and by applying an annual discount rate of 10% to the forecasted future net cash flow.

In 2016 the Company invested approximately $17,100 in its oil and gas properties. These reduced expenditures were in response to extremely low commodity prices. The Company has approximately $1.7 million of current asset on hand and important infrastructure in Colorado completed which will facilitate the exploitation and development of proved undeveloped reserves over the next five years. At year end the Company’s review of proved undeveloped reserves revealed challenges but the Company maintains its belief that reserves will be developed within five years of their initial recording as a proved undeveloped reserve. In addition it believes it has the financial wherewithal to develop all it’s proved undeveloped reserves within the five year time frames required; utilizing its balance sheet, to borrow funds as needed and it has the ability to joint venture any of its assets.

Summary of Proved Oil and Gas Reserves

December 31, 2016

Oil and Gas Reserves Reported to Other Agencies

We did not file any estimates of total proved net oil and gas reserves with, or include such information in reports to any federal authority or agency, other than the SEC, during the year ended December 31, 2016.

Title to Properties

We believe that we have satisfactory title to or rights in all of our producing properties. As is customary in the oil and gas industry, minimal investigation of title is made at the time of acquisition of undeveloped properties. In most cases, we investigate title and obtain title opinions from counsel or have title reviewed by professional landmen only when we acquire producing properties or before we begin drilling operations. However, any acquisition of producing properties without obtaining title opinions is subject to a greater risk of title defects.

Our properties are subject to customary royalty interests, liens under indebtedness, liens incident to operating agreements and liens for current taxes and other burdens, including mineral encumbrances and restrictions. Further, our debt is secured by liens substantially on all of our assets. These burdens have not materially interfered with the use of our properties in the operation of our business to date, though there can be no assurance that such burdens will not materially impact our operations in the future

Saleof Oil and Gas

We do not intend to refine our oil production. We expect to sell all or most of our production to a small number of purchasers in a manner consistent with industry practices at prevailing rates by means of long-term and short-term sales contracts, some of which may have fixed price components. In 2016, we sold oil to ARM Energy Management LLC, Coffeyville Resources, Inc., and Sunoco Logistics, Inc. on a month-to-month basis (i.e., without a long-term contract). We sold our natural gas to United Energy Trading on a month-to-month basis and Western Operating Company under a long-term contract. Under current conditions, we should be able to find other purchasers, if needed. All of our produced oil is held in tank batteries. Each respective purchaser picks up the oil from our tank batteries and transports it by truck to refineries. In addition, our Board of Directors has implemented a crude oil and gas hedging strategy that will allow management to hedge the majority of our net production in an effort to mitigate our exposure to changing oil and natural gas prices in the intermediate term. We had an ISDA master agreement and a deferred premium put options with BP through December 31, 2016. 

Secondary Recovery and Other Production Enhancement Strategies

When an oil field is first produced, the oil typically is recovered as a result of natural pressure within the producing formation, often assisted by pumps of various types. The only natural force present to move the crude oil to the wellbore is the pressure differential between the higher pressure in the formation and the lower pressure in the wellbore. At the same time, there are many factors that act to impede the flow of crude oil, depending on the nature of the formation and fluid properties, such as pressure, permeability, viscosity and water saturation. This stage of production is referred to as “primary production”, which typically only recovers 5% to 15% of the crude oil originally in place in a producing formation.

Production from oil fields can often be enhanced through the implementation of “secondary recovery”, also known as water flooding, which is a method in which water is injected into the reservoir through injector wells in order to maintain or increase reservoir pressure and push oil to the adjacent producing wellbores. We utilize water flooding as a secondary recovery technique for the majority of our oil properties in Kansas, even in the early stages of production and we use a secondary recovery technique in parts of the Adena Field Project in Colorado.

As a water flood matures over time, the fluid produced contains increasing amounts of water and decreasing amounts of oil. Surface equipment is used to separate the produced oil from water, with the oil going to holding tanks for sale and the water being re-injected into the oil reservoir.

In addition, we may utilize 3D seismic analysis, horizontal drilling, and other technologies and production techniques to improve drilling results and oil recovery, and to ultimately enhance our production and returns. We also believe use of such technologies and production techniques in exploring for, developing, and exploiting oil properties will help us reduce drilling risks, lower finding costs and provide for more efficient production of oil from our properties.

Markets and Marketing

The oil and gas industry has experienced dramatic price volatility in recent years. As a commodity, global oil prices respond to macro-economic factors affecting supply and demand. In particular, world oil prices have risen and fallen in response to political unrest and supply uncertainty in the Middle East, and changing demand for energy in rapidly emerging market economies, notably India and China. North American prospects became more attractive as oil prices rose worldwide. Escalating conflicts in the Middle East and the ability of OPEC to control supply and pricing are some of the factors impacting the availability of global supply. As a commodity, natural gas prices respond mainly to regional supply and demand imbalances. Factors that affect the supply side include production of natural gas, levels of natural gas imports and fluctuations in underground storage. Factors that affect the demand side include peak demand brought on by winter heating and summer cooling requirements and increasing demand from the petrochemical industry for their produced products such as plastics, fertilizers, paints, soaps etc. The costs of steel and other products used to construct drilling rigs and pipeline infrastructure, as well as, drilling and well-servicing rig rates, are impacted by the commodity price volatility.

Our market is affected by many factors beyond our control, such as the availability of other domestic production, commodity prices, the proximity and capacity of oil and gas pipelines, and general fluctuations of global and domestic supply and demand. In 2016 we had month-to-month sales contracts with ARM Energy Management LLC, Coffeyville Resources, Inc., Sunoco Logistics, Inc., United Energy Trading and Western Operating Company and we do not anticipate difficulty in finding additional sales opportunities, as and when needed.

Oil and gas sales prices are negotiated based on factors such as the spot price or posted price for oil and gas, price regulations, regional price variations, hydrocarbon quality, distances from wells to pipelines, well pressure, and estimated reserves. Many of these factors are outside our control. Oil and gas prices have historically experienced high volatility, related in part to ever-changing perceptions within the industry of future supply and demand.

Competition

The oil and gas industry is intensely competitive and we must compete against larger companies that may have greater financial and technical resources than we do and substantially more experience in our industry. These competitive advantages may better enable our competitors to sustain the impact of higher exploration and production costs, oil and gas price volatility, productivity variances between properties, overall industry cycles and other factors related to our industry. Their advantage may also negatively impact our ability to acquire prospective properties, develop reserves, attract and retain quality personnel and raise capital.

Research and Development Activities

We have not spent a material amount of time or money on research and development activities in the last two years.

Governmental Regulations

Our oil and gas exploration, production and related operations, when developed, are subject to extensive rules and regulations promulgated by federal, state, tribal and local authorities and agencies that impose requirements relating to the exploration and production of oil and natural gas. For example, laws and regulations often address conservation matters, including provisions for the unitization or pooling of oil and gas properties, the spacing, plugging and abandonment of wells, rates of production, water discharge, prevention of waste, and other matters. Prior to drilling, we are often required to obtain permits for drilling operations, drilling bonds and file reports concerning operations. Failure to comply with any such rules and regulations can result in substantial penalties. Moreover, laws and regulations may place burdens from previous operations on current lease owners that can be significant.

The public attention on the production of oil and gas will most likely increase the regulatory burden on our industry and increase the cost of doing business, which maycould adversely affect our profitability. Although we believe we are currently in substantial compliance with all applicable laws and regulations, because such rules and regulations are frequently amended or reinterpreted, we are unable to predict the future cost or impact of complying with such laws. Significant expenditures may be required to comply with governmental laws and regulations and may have a material adverse effect on ourbusiness, financial condition and results of operations.

The pricemarket in which we compete is subject to technological changes, introduction of new products, change in customer demands and evolving industry standards. Our future success will depend upon our ability to keep pace with technological developments and to timely address the increasingly sophisticated needs of our customers by supporting existing and new technologies and by developing and introducing enhancements to our current products and new products. We may not be successful in developing and marketing enhancements to our products that will respond to technological change, evolving industry standards or customer requirements. In addition, we may receiveexperience difficulties internally or in conjunction with key vendors and partners that could delay or prevent the successful development, introduction and sale of such enhancements and such enhancements may not adequately meet the requirements of the market and may not achieve any significant degree of market acceptance. If release dates of our new products or enhancements are delayed or, if when released, they fail to achieve market acceptance, our business, operating results and financial condition may be adversely affected.

Our products are subject to regulations of the Federal Aviation Administration (the “FAA”).

In August 2016, regulations from the saleFAA relating to the commercial use of oilUAVs in the United States became law. As a result, users of systems like ours are only required to take a knowledge exam at an approved FAA testing station similar to an automobile driver’s license exam. Prior to the new law, users had to hold a pilot’s license, have an observer present and gas willfile various documents before flights. In the event new FAA rules or regulations are promulgated or current rules are revised that may negatively affect commercial usage of our UAVs, such rules and laws could adversely disrupt our operations and overall sales.

Our future results may be affected by various legal and regulatory proceedings and legal compliance risks, including those involving product liability, antitrust, intellectual property, environmental, regulations of the costFAA, the U.S. Foreign Corrupt Practices Act and other anti-bribery, anti-corruption, or other matters.

The outcome of transporting productsany future legal proceedings may differ from our expectations because the outcomes of litigation, including regulatory matters, are often difficult to markets. Effective January 1, 1995, FERC implemented regulations establishing an indexing systemreliably predict. Various factors or developments can lead us to change current estimates of liabilities and related insurance receivables where applicable; or make such estimates for transportation rates for oil and gas pipelines, which, generally, would indexmatters previously not susceptible of reasonable estimates, such rates to inflation, subject to certain conditions and limitations.as a significant judicial ruling or judgment, a significant settlement, significant regulatory developments or changes in applicable law. A future adverse ruling, settlement or unfavorable development could result in future charges that could have a material adverse effect on our results of operations or cash flows in any particular period. We are not ablecurrently involved in or subject to predict with certaintyany such legal or regulatory proceedings, but we cannot guarantee that such proceedings may not occur in the effect, if any, of these regulations on our intended operations. However, the regulations may increase transportation costs or reduce well head prices for oil and natural gas.

Environmental Mattersfuture.

Our operations

If we do not receive the governmental approvals necessary for the sales or export of our products, or if our products are not compliant in other countries, our sales may be negatively impacted. Similarly, if our suppliers and properties are subjectpartners do not receive government approvals necessary to extensiveexport their products or designs to us, our revenues may be negatively impacted and changing federal, statewe may fail to implement our growth strategy.

A license may be required in the future to initiate marketing activities. We may also be required to obtain a specific export license for any hardware exported. We may not be able to receive all the required permits and locallicenses for which we may apply in the future. If we do not receive the required permits for which we apply, our revenues may be negatively impacted. In addition, if government approvals required under these laws and regulations relatingare not obtained, or if authorizations previously granted are not renewed, our ability to environmental protection, includingexport our products could be negatively impacted, which may have a negative impact on our revenues and a potential material negative impact on our financial results.

We may pursue additional strategic transactions in the generation, storage, handling, emission, transportationfuture, which could be difficult to implement, disrupt our business or change our business profile significantly.

We intend to consider additional potential strategic transactions, which could involve acquisitions of businesses or assets, joint ventures or investments in businesses, products or technologies that expand, complement or otherwise relate to our current or future business. We may also consider, from time to time, opportunities to engage in joint ventures or other business collaborations with third parties to address particular market segments. Should our relationships fail to materialize into significant agreements, or should we fail to work efficiently with these companies, we may lose sales and dischargemarketing opportunities and its business, results of materials into the environment,operations and relating to safety and health. The recent trend in environmental legislation and regulation generally is toward stricter standards, and this trend will likely continue.financial condition could be adversely affected.

These lawsactivities, if successful, create risks such as, among others: (i) the need to integrate and regulations may:manage the businesses and products acquired with our own business and products; (ii) additional demands on our resources, systems, procedures and controls; (iii) disruption of our ongoing business; (iv) potential unknown or unquantifiable liabilities associated with the target company; and (v) diversion of management’s attention from other business concerns. Moreover, these transactions could involve: (a) substantial investment of funds or financings by issuance of debt or equity securities; (b) substantial investment with respect to technology transfers and operational integration; and (c) the acquisition or disposition of product lines or businesses. Also, such activities could result in one-time charges and expenses and have the potential to either dilute the interests of our existing shareholders or result in the issuance of, or assumption of debt. Such acquisitions, investments, joint ventures or other business collaborations may involve significant commitments of financial and other resources. Any such activities may not be successful in generating revenue, income or other returns, and any resources we committed to such activities will not be available to us for other purposes. Moreover, if we are unable to access the capital markets on acceptable terms or at all, we may not be able to consummate acquisitions, or may have to do so on the basis of a less than optimal capital structure. Our inability to take advantage of growth opportunities or address risks associated with acquisitions or investments in businesses may negatively affect our operating results.

Additionally, any impairment of goodwill or other intangible assets acquired in an acquisition or in an investment, or charges to earnings associated with any acquisition or investment activity, may materially reduce our earnings. Future acquisitions or joint ventures may not result in their anticipated benefits and we may not be able to properly integrate acquired products, technologies or businesses with our existing products and operations or successfully combine personnel and cultures. Failure to do so could deprive us of the intended benefits of those acquisitions.

The permits required forBreaches of network or information technology security could have an adverse effect on our operationsbusiness.

Cyber-attacks or other breaches of network or IT security may cause equipment failures or disrupt our systems and operations. We may be subject to revocation, modificationattempts to breach the security of our networks and renewal by issuing authorities. Governmental authoritiesIT infrastructure through cyber-attack, malware, computer viruses and other means of unauthorized access. The potential liabilities associated with these events could exceed the insurance coverage we maintain. Our inability to operate our facilities as a result of such events, even for a limited period of time, may result in significant expenses or loss of market share to other competitors in the defense electronics market. In addition, a failure to protect the privacy of customer and employee confidential data against breaches of network or IT security could result in damage to our reputation. To date, we have the power to enforce their regulations, and violations arenot been subject to finescyber-attacks or injunctions, or both. In the opinion of management, we are in substantial compliance with current applicable environmental laws and regulations, and have no material commitments for capital expenditures to comply with existing environmental requirements. Nevertheless, changes in existing environmental laws and regulationsother cyber incidents which, individually or in interpretations thereof could havethe aggregate, resulted in a significant impactmaterial adverse effect on us, as well as the oilour business, operating results and gas industry in general.financial condition.

The Comprehensive Environmental, Response, Compensation,preparation of our financial statements involves use of estimates, judgments and Liability Act,assumptions, and our financial statements may be materially affected if our estimates prove to be inaccurate.

Financial statements prepared in accordance with generally accepted accounting principles in the United States require the use of estimates, judgments, and assumptions that affect the reported amounts. Different estimates, judgments, and assumptions reasonably could be used that would have a material effect on the financial statements, and changes in these estimates, judgments, and assumptions are likely to occur from period to period in the future. These estimates, judgments, and assumptions are inherently uncertain, and, if they prove to be wrong, then we face the risk that charges to income will be required.

Our results could be adversely affected by natural disasters, public health crises, political crises, or other catastrophic events.

Natural disasters, such as amended (“CERCLA”), and comparable state statutes impose strict, joint and several liability on owners and operators of sites and on persons who disposed of or arranged for the disposal of “hazardous substances” found at such sites. It is not uncommon for the neighboring land ownershurricanes, tornadoes, floods, earthquakes, and other third parties to file claims for personal injuryadverse weather and property damage allegedly caused by the hazardous substances released into the environment. The Federal Resource Conservationclimate conditions; unforeseen public health crises, such as pandemics and Recovery Act,epidemics; political crises, such as amended (“RCRA”),terrorist attacks, war, labor unrest, and comparable state statutes govern the disposal of “solid waste” and “hazardous waste” and authorize the imposition of substantial fines and penalties for noncompliance. Although CERCLA currently excludes petroleum from its definition of “hazardous substance,” state laws affectingother political instability; or other catastrophic events, such as disasters occurring at our operations may impose clean-up liability relating to petroleum and petroleum related products. In addition, although RCRA classifies certain oil and gas field wastes as “non-hazardous”, such exploration and production wastesmanufacturing facilities, could be reclassified as hazardous wastes thereby making such wastes subject to more stringent handling and disposal requirements.

The Federal Water Pollution Control Act of 1972, as amended (“Clean Water Act”), and analogous state laws impose restrictions and controls on the discharge of pollutants into federal and state waters. These laws also regulate the discharge of storm water in process areas. Pursuant to these laws and regulations, we are required to obtain and maintain approvals or permits for the discharge of wastewater and storm water and develop and implement spill prevention, control and countermeasure plans, also referred to as “SPCC plans”, in connection with on-site storage of greater than threshold quantities of oil and gas. The EPA issued revised SPCC rules in July 2002 whereby SPCC plans are subject to more rigorous review and certification procedures. We believe that our operations are in substantial compliance with applicable Clean Water Act and analogous state requirements, including those relating to wastewater and storm water discharges and SPCC plans.

The Endangered Species Act, as amended (“ESA”), seeks to ensure that activities do not jeopardize endangered or threatened animal, fish and plant species, nor destroy or modify the critical habitat of such species. Under ESA, exploration and production operations, as well as actions by federal agencies, may not significantly impair or jeopardize the species or its habitat. ESA provides for criminal penalties for willful violations of the Act. Other statutes that provide protection to animal and plant species and that may apply to our operations include, but are not necessarily limited to, the Fish and Wildlife Coordination Act, the Fishery Conservation and Management Act, the Migratory Bird Treaty Act and the National Historic Preservation Act. Although we believe that our operations will be in substantial compliance with such statutes, any change in these statutes or any reclassification of a species as endangered could subject us to significant expenses to modifydisrupt our operations or the operations of one or more of our vendors. In particular, these types of events could force usimpact our product supply chain from or to discontinue certainthe impacted region and could impact our ability to operate. In addition, these types of events could negatively impact consumer spending in the impacted regions. Disasters occurring at our manufacturing facilities could impact our reputation and our customers’ perception of our brands. To the extent any of these events occur, our operations altogether.and financial results could be adversely affected.

PersonnelWorldwide and domestic economic trends and financial market conditions, including an economic decline in the agricultural industry, may adversely affect our operating performance.

We currentlyintend to distribute in a number of countries and derive revenues from both inside and outside the United States. We expect our business will be subject to global competition and may be adversely affected by factors in the United States and other countries that are beyond our control, such as disruptions in financial markets, economic downturns in the form of either contained or widespread recessionary conditions, elevated unemployment levels, sluggish or uneven recovery, in specific countries or regions, or in the agricultural industry; social, political or labor conditions in specific countries or regions; natural and other disasters affecting our operations or our customers and suppliers; or adverse changes in the availability and cost of capital, interest rates, tax rates, or regulations in the jurisdictions in which we operate. Unfavorable global or regional economic conditions, including an economic decline in the agricultural industry, could adversely impact our business, liquidity, financial condition and results of operations.

For certain of the components included in our products there are a limited number of suppliers we can rely upon and if we are unable to obtain these components when needed we could experience delays in the manufacturing of our products and our financial results could be adversely affected.

We acquire most of the components for the manufacture of our products from suppliers and subcontractors. We have 10 full-time employees, two temporary employeenot entered into any agreements or arrangements with any potential suppliers or subcontractors. Suppliers of some of the components may require us to place orders with significant lead-times to assure supply in accordance with its manufacturing requirements. Our present lack of working capital may cause us to delay the placement of such orders and one part-time employee including field personnel. As productionmay result in delays in supply. Delays in supply may significantly hurt our ability to fulfill our contractual obligations and drilling activities increase or decrease,may significantly hurt our business and result of operations. In addition, we may havenot be able to continue to adjust our technical, operational and administrative personnel as appropriate. We are using and will continue to use independent consultants and contractors to perform various professional services, particularly in the area of land services, reservoir engineering, geology, drilling, water hauling, pipeline construction, well design, well-site monitoring and surveillance, permitting and environmental assessment. We believe that this use of third-party service providers may enhance our ability to contain operating and general expenses, and capital costs.

Facilities

Executive offices are maintained at 4040 Broadway, Suite 508, San Antonio, Texas 78209 under a lease expiring November 2017.  We also have a field office located at 165 South Union Blvd, Suite 410, Lakewood Colorado 80228, under a lease which expires October 2019.

GLOSSARY

ITEM 1A. RISK FACTORS.

In the course of conducting our business operations, we are exposed to a variety of risks that are inherent to the oil and gas industry. The following discusses some of the key inherent risk factors that could affect our business and operations. Other factors besides those discussed below or elsewhere in this report also could adversely affect our business and operations, and these risk factors should not be considered a complete list of potential risks that may affect us.

Risks Related to Recent Developments

Due to our substantial liquidity concerns, we may be unable to continue as a going concern.

On February 10, 2017, our lender sold our secured loan to PWCM Investment Company IC LLC, and certain financial institutions (collectively, the "successor lender") pursuant to a loan sale agreement between Enerjex, our former lender, and the successor lender. The successor lender purchased from our prior lender allsuppliers on satisfactory commercial terms. Disruptions of its right, title and interest in,manufacturing operations would ensue if we were required to and under our credit agreement and loan documents, in exchange for (i) a cash payment of $5,000,000, (ii) a synthetic equity interest equal to 10% of the proceeds, after successor lenders realization of a 150% return on the cash purchase price within 5 years of the closing date, and (iii) at any time prior to February 10, 2022, Buyer may acquire the synthetic equity interest above. In connection with the loan sale agreement, we released our prior lender and its successors, including the successor lender,obtain components from any and all claims under the credit agreement and loan documents. The Company is seeking stockholder approval of this transaction at the annual meeting of its stockholders to be held on April 27, 2017.

Also on February 10, 2017, we and our subsidiaries and the successor lender entered into a binding letter agreement dated February 10, 2017, pursuant toalternative sources, which the successor lender would agree to forgive our existing secured loan in the approximate principal amount of $17,295,000, and in exchange enter into a secured promissory note (which we refer to as the "restated secured note") in the original principal amount of $4,500,000. So long as we repay the $3,300,000 in indebtedness on or prior to the maturity date, as extended, all other amounts payable under the restated secured note shall be forgiven.

As consideration for the loan forgiveness, and subject to obtaining stockholder approval prior to the closing, we agreed to convey to successor lender all of our right, title, and interest, in and to all real property leases and oil and gas producing properties and other assets situated in the States of Colorado, Texas and Nebraska, including all our equipment and tangible personal property owned and used in connection with our ownership and operation of those real property leases and oil and gas producing properties. The assets we are conveying (i) shall include our assets in the Adena Field, the NECO Project, Weld County, East Crown and certain other oil and gas plugging, lease and other bonds. Subject to obtaining shareholder approval prior to the closing, we will also transfer to successor lender all of our right, title, and interest in and to all our Oakridge Energy, Inc. shares.

If this transaction closes, we will retain the Kansas-based assets, which currently generate a majority of our revenue and cash flow from operations, and the successor lender will agree that the conveyance of all of our other oil and gas assets, the Oakridge Energy shares, and the restated secured note in the principal amount of $4,500,000, payable with a discount at $3,300,000 provided the loan is paid in full prior to the maturity date November 1, 2017, subject to extension. We are seeking stockholder approval of that transaction at the annual meeting of its stockholders scheduled for April 27, 2017.

Due to our indebtedness, liquidity issues and the potential for restructuring transactions, there is risk that, among other things:

The occurrence of certain of these events has already negatively affected our business and may continue to have a materialan adverse effect on our business, results of operations and financial condition.

The Closing is expectedWe indemnify our officers and directors against liability to occur on or before May 1, 2017.us and our security holders, and such indemnification could increase our operating costs.

Should weOur bylaws allow us to indemnify our officers and directors against claims associated with carrying out the duties of their offices. Our bylaws also allow us to reimburse them for the costs of certain legal defenses. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our officers, directors or control persons, the SEC has advised that such indemnification is against public policy and is therefore unenforceable.

Risks Associated with Our Capital Stock

One of our stockholders beneficially owns a significant percentage of our outstanding capital stock and will have the ability to control our affairs.

Our Chairman of the Board and President, Bret Chilcott, currently owns approximately 46.2% of our issued and outstanding capital stock. By virtue of his holdings, he may have significant influence over the election of the members of our board of directors, our management and our affairs, and may make it difficult for us to consummate corporate transactions such as mergers, consolidations or the sale of all or substantially all of our assets that may be favorable from our standpoint or that of our other stockholders.

The market price of our securities may be volatile and may fluctuate in a way that is disproportionate to our operating performance.

Our securities may experience substantial volatility as a result of a number of factors, including, among others:

Many of these factors are beyond our control. The stock markets have historically experienced substantial price and volume fluctuations. These fluctuations often have been unrelated or disproportionate to the operating performance of these companies. These broad market and industry factors could reduce the market price of our securities, regardless of our actual operating performance.

We do not intend to pay cash dividends. As a result, capital appreciation, if any, will be ableyour sole source of gain.

We intend to close this transaction,retain future earnings, if any, to fund the development and growth of our business. In addition, the terms of existing and future debt agreements could create issues as principal and interest payments become due andmay preclude us from paying dividends. As a result, capital appreciation, if any, from the debt matures thatsale of our Common Stock will threaten our ability to continue as a going concern. We will likely seek bankruptcy protection if this transaction is not approved bybe your sole source of gain for the stockholders.foreseeable future.

Until we repay the full amountProvisions in our articles of incorporation, our by-laws and Nevada law might discourage, delay or prevent a change in control of our outstanding credit facility, we may continue to have substantial indebtedness, which is secured by substantially allcompany or changes in our management and, therefore, depress the trading price of our assets.Common Stock.

WhileProvisions of our bank sold its rights underArticles of Incorporation, our credit facility toBy-Laws and Nevada law may have the successor lender, and the successor lender has agreed toeffect of deterring unsolicited takeovers or delaying or preventing a transactionchange in control of our company or changes in our management, including transactions in which we can contribute certainour stockholders might otherwise receive a premium for their shares over then current market prices. In addition, these provisions may limit the ability of our assets, our sharesstockholders to approve transactions that they may deem to be in Oakridge Energy, and reduce our loan amount from $17,925,000 to a restated note in the original principal amount of $4,500,000, subject to a $1,200,000 discount provided that we repay the successor lender $3,300,000 prior to the maturity date of November 1, 2017 (subject to extension). In exchange we can retain our Kansas oil and gas assets. Unless and until this transaction closes (which is dependent on the approval of our stockholders), we will remain in default on our obligations, and the successor lender may enforce its rights as secured parties and we will likely lose all of our Kansas assets and may be forced to liquidate the Company.

We are unable to fulfill our obligations under our credit facility which is adversely affecting our business.

As of December 31, 2016, we had total indebtedness of $17,925,000 under the credit facility and our borrowing base was $17,925,000. Our substantial indebtedness, and the related interest expense, could have important consequences to us, including:their best interests. These provisions include:

The covenantsexistence of the forgoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our Common Stock. They could also deter potential acquirers of our company, thereby reducing the likelihood that you could receive a premium for your Common Stock in an acquisition.

FINRA sales practice requirements may limit a stockholder’s ability to buy and sell our securities.

The Financial Industry Regulatory Authority, Inc. (“FINRA”) has adopted rules that a broker-dealer must have reasonable grounds for believing that an investment recommended to a customer is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives, and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for certain customers. FINRA requirements will likely make it more difficult for broker-dealers to recommend that their customers buy our Common Stock, which may have the effect of reducing the level of trading activity in the shares, resulting in fewer broker-dealers may be willing to make a market in our Credit Facility impose significant operatingshares, potentially reducing a stockholder’s ability to resell our securities.

If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our shares or if our results of operations do not meet their expectations, the price of our securities and financial restrictions on us.trading volume could decline.

The credit facility imposes significant operatingtrading market for our securities will be influenced by the research and financial restrictions on us. These restrictions limitreports that industry or securities analysts publish about us or our ability and the abilitybusiness. We do not have any control over these analysts. If one or more of these analyst’s cease coverage of our subsidiaries, among other things, to:company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our share price or trading volume to decline. Moreover, if one or more of the analysts who cover us downgrade our stock, or if our results of operations do not meet their expectations, the price of our securities could decline.

The credit facility also contains various affirmative covenants with which we are required to comply. With the signing of the “Eleventh Amendment” on November 13, 2015 certain covenants were waived until December 31, 2016. With these covenants waived, we were incompliance with the affirmative covenant provisions of the credit facility.Not applicable.

We are currently unable to comply with some or all of these covenants. If we do not obtain waivers fromhave one leased facility located at 117 South 4^thStreet, Neodesha, Kansas 66757. This serves as the successor lender, we would be unable to make additional borrowings under these facilities; our indebtedness under these agreements would remain in defaultcorporate headquarters and repayment of debt could be accelerated. If our indebtedness is accelerated, we will not be able to repay our indebtedness or borrow sufficient funds to refinance it. In addition, if we incur additional indebtedness in the future, we may be subject to additional covenants, which may be more restrictive than those to which we are currently subject.

Our 2016 oil and gas reserve report shows a material decline in our estimated reserves, which will have adverse implications to our business.

Our 2016 oil and gas reserve report shows a material decline in our estimated reserves. There are numerous uncertainties inherent in estimating quantities of proved oil and natural gas reserves and in projecting future rates of production and timing of development expenditures, including many factors beyond our control. For example, estimates of quantities of proved reserves and their PV10 value are affected by changes in crude oil and gas prices, because estimates are based on prevailing prices at the time of their determination. Further, reserve engineeringmanufacturing facility. The facility is a subjective processlease of estimating underground accumulations4,000 square feet at a cost of oil and natural gas that cannot be measured in any exact way, and$500 per month. Monthly rent increases $100 every year until the accuracy of any reserve estimate is a functionexpiration of the qualitylease in September 30, 2018. On August 22, 2018, the Company executed an amendment to the lease to renew the term of available data andthe lease for an additional one year, terminating on September 30, 2019 with no option to renew unless approved by our landlord the city commission of engineering and geological interpretation and judgment. Neodesha.

As a result estimates made by different engineers often vary from one another.

The reduction in our reserve estimates is likely to change the schedule of future production and development drilling that was contemplated in our 2015 reserve report. Reserve estimates are generally different, and often materially so, from the quantities of oil and natural gas that are ultimately recovered. Furthermore, estimates of quantities of proved reserves and their PV10 value may be affected by changes in crude oil and gas prices because the Company’s estimates are based on prevailing prices at the time of their determination.

Current volatile market conditions and significant fluctuations in energy prices may continue indefinitely, negatively affecting our business prospects and viability.

The oil and gas markets are very volatile, and we cannot predict future oil and natural gas prices. Historically, oil and natural gas prices have been volatile and are subject to fluctuations in response to changes in supply and demand, market uncertainty and a variety of additional factors that are beyond our control. Further declines in the price of oil and natural gas will have a material adverse effect on our planned operations and financial condition. Additionally, the amount of any royalty payment we receive from the production of oil and gas from our oil and gas interests will depend on numerous factors beyond our control.

We may continue to incur substantial write-downs of the carrying valueAgribotix acquisition, we assumed a lease for offices in Boulder, Colorado for $2,000 per month. The lease, providing for 1,000 square feet of our oiloffice space, ends on May 31, 2019 and gas properties, which would adversely impact our earnings.has an option to terminate at any time with a 30-day prior notice period.

We review the carrying value ofbelieve that our oilexisting facilities are suitable and gas properties under the full cost method of accounting. Under the full cost method of accounting, the net book value of oil and gas properties, less deferred income taxes, may not exceed a calculated “ceiling.” The ceiling limitation is (a) the present value of future net revenues computed by applyingadequate to meet our current prices of oil & gas reserves (with consideration of price changes only to the extent provided by contractual arrangements) to estimated future production of proved oil & gas reserves as of the date of the latest balance sheet presented, less estimated future expenditures (based on current costs) to be incurred in developing and producing the proved reserves computed using a discount factor of 10 percent and assuming continuation of existing economic conditionsplus (b) the cost of properties not being amortizedplus (c) the lower of cost or estimated fair value of unproven properties included in the costs being amortizedless (d) income tax effects related to differences between book and tax basis of properties. Future cash outflows associated with settling accrued retirement obligations are excluded from the calculation. Estimated future cash flows are calculated using end-of-period costs and an un-weighted arithmetic average of commodity prices in effect on the first day of each of the previous 12 months held flat for the life of the production, except where prices are defined by contractual arrangements. 

Any excess of the net book value of proved oil and gas properties, less related deferred income taxes, over the ceiling is charged to expense and reflected as additional DD&A in the statement of operations. The ceiling calculation is performed quarterly. For the year ended December 31, 2015 impairment charges of $48,930,087 were recorded. For the year ended December 31, 2016 impairment charges of $8,032,670 were recorded.

Our stock price has declined below $1.00 per share. If the average closing price of our common stock is less than $1.00 per share for a period of over 30 consecutive trading days, the NYSE could delist our common stock.

The NYSE requires that the average closing price of a listed company’s common stock not be less than $1.00 per share for a period of over 30 consecutive trading dates. Under NYSE rules, a company can avoid delisting, if, during the six month period following receipt of the NYSE notice and on the last trading day of any calendar month, a company’s common stock price per share and 30 trading-day average share price is at least $1.00. During this six month period, a company’s common stock will continue to be traded on the NYSE, subject to compliance with other continued listingbusiness requirements.

In the future, if our common stock ultimately were to be delisted for any reason, it could negatively impact us by (i) reducing the liquidity and market price of our common stock; (ii) reducing the number of investors willing to hold or acquire our common stock, which could negatively impact our ability to raise equity financing; (iii) limiting our ability to use a registration statement to offer and sell freely tradeable securities, thereby preventing us from accessing the public capital markets; and (iv) impairing our ability to provide equity incentives to our employees.

Risks Associated with our Industry

Oil and gas prices are volatile. Future price volatility may negatively impact cash flows which could result in an inability to cover our operating and/or capital expenditures.

Our future revenues, profitability, future growth and the carrying value of our properties depend substantially on the prices we realize for our oil and gas production. Our realized prices may also affect the amount of cash flow available for operating and/or capital expenditures and our ability to borrow and raise additional capital.

Oil and gas prices are subject to wide fluctuations in response to relatively minor changes in or perceptions regarding supply and demand. Historically, the markets for oil and gas have been volatile, and they are likely to continue to be volatile in the future. Among the factors that can cause this volatility are:

It is impossible to predict oil and gas price movements with certainty. A drop in oil and gas prices may not only decrease our future revenues on a per unit basis but also may reduce the amount of oil and gas that we can produce economically. A substantial or extended decline in oil and gas prices would materially and adversely affect our future business enough to potentially force us to cease our business operations. In addition, our reserves, financial condition, results of operations, liquidity and ability to finance and execute planned capital expenditures will also suffer in such a price decline.Legal Proceedings

Declining economic conditionsFrom time to time, we may become involved in lawsuits and worsening geopolitical conditions could negatively impact our business.

Our operations are affected by local, national and worldwide economic conditions. Marketslegal proceedings which arise in the United Statesordinary course of business. However, litigation is subject to inherent uncertainties, and elsewhere have been experiencing volatility and disruption for more than 5 years, due in part to the financial stresses affecting the liquidity of the banking system and the financial markets generally. The consequences of a potential or prolonged recession may include a lower level of economic activity, decreasing demand for petroleum products and uncertainty regarding energy prices and the capital and commodity markets.

In addition, actual and attempted terrorist attacks in the United States, Middle East, Southeast Asia and Europe, and war or armed hostilities in the Middle East, the Persian Gulf, North Africa, Iran, North Korea or elsewhere, or the fear of such events, could further exacerbate the volatility and disruption to the financial markets and economies.

While the ultimate outcome and impact of the current economic conditions cannot be predicted, a lower level of economic activity mightan adverse result in a decline in energy consumption, which may materially adversely affect the price of oil and gas, our revenues, liquidity and future growth.  Instability in the financial markets, as a result of recession or otherwise, also may affect the cost of capital and our ability to raise capital.

The oil and natural gas business involves numerous uncertainties and operating risks that can prevent us from realizing profits and can cause substantial losses.

Our development, exploitation and exploration activities may be unsuccessful for many reasons, including weather, cost overruns, equipment shortages and mechanical difficulties. Moreover, the successful drilling of a well does not ensure a profit on investment. A variety of factors, both geological and market-related, can cause a well to become uneconomical or only marginally economical. In addition to their cost, unsuccessful wells can hurt our efforts to replace reserves.

The oil and natural gas business involves a variety of operating risks, including:

If we experience any of these problems, it could affect well bores, gathering systems and processing facilities, which could adversely affect our ability to conduct operations. We could also incur substantial losses as a result of:

Because we use third-party drilling contractors to drill our wells, we may not realize the full benefit of worker compensation laws in dealing with their employees. Our insurance does not protect us against all operational risks. We do not carry business interruption insurance at levels that would provide enough funds for us to continue operating without access to other funds. For some risks, we may not obtain insurance if we believe the cost of available insurance is excessive relative to the risks presented. In addition, pollution and environmental risks generally are not fully insurable. If a significant accident or other event occurs and is not fully covered by insurance, it could impact our operations enough to force us to cease our operations.

Approximately 45.5% of our total proved reserves as of December 31, 2016 consist of undeveloped reserves, and those reservesmatters may not ultimately be developed or produced.

Our estimated total proved PV10 (present value) before tax of reserves as of December 31, 2016 was $3.4 million, versus $8.8 million as of December 31, 2015.  Of the 1.6 million BOE of total proved reserves, approximately 12.2% are classified as proved developed producing, approximately 42.3% are classified as proved developed non-producing, and approximately 45.5% are classified as proved undeveloped.

Assuming we can obtain adequate capital resources, we plan to develop and produce all of our proved reserves, but ultimately some of these reserves may not be developed or produced. Furthermore, not all of our undeveloped or developed non-producing reserves may be produced in the time periods we have planned, at the costs we have budgeted, or at all. For further information please see the disclosures in Footnote 14 to the Notes to the Financial Statements.

Because we face uncertainties in estimating proved recoverable reserves, you should not place undue reliance on such reserve information.

Our reserve estimates and the future net cash flows attributable to those reserves at December 31, 2016 were prepared by Cobb & Associates, Inc., an independent petroleum consultant.  There are numerous uncertainties inherent in estimating quantities of proved reserves and cash flows from such reserves, including factors beyond our control and the control of these independent consultants and engineers. Reserve engineering is a subjective process of estimating underground accumulations of oil and gas that can be economically extracted, which cannot be measured in an exact manner. The accuracy of an estimate of quantities of reserves, or of cash flows attributable to these reserves, is a function of the available data, assumptions regarding future oil and gas prices, expenditures for future development and exploitation activities, and engineering and geological interpretation and judgment. Reserves and future cash flows may also be subject to material downward or upward revisions based upon production history, development and exploitation activities and oil and gas prices. Actual future production, revenue, taxes, development expenditures, operating expenses, quantities of recoverable reserves and value of cash flows from those reserves may vary significantly from the assumptions and estimates in our reserve reports. Any significant variance from these assumptions to actual figures could greatly affect our estimates of reserves, the economically recoverable quantities of oil and gas attributable to any particular group of properties, the classification of reserves based on risk of recovery, and estimates of the future net cash flows. In addition, reserve engineers may make different estimates of reserves and cash flows based on the same available data. The estimated quantities of proved reserves and the discounted present value of future net cash flows attributable to those reserves included in this report were prepared by Cobb & Associates, Inc. in accordance with rules of the Securities and Exchange Commission, or SEC, and are not intended to represent the fair market value of such reserves.

The present value of future net cash flows from our proved reserves is not necessarily the same as the current market value of our estimated reserves. We base the estimated discounted future net cash flows from our proved reserves on prices and costs. However, actual future net cash flows from our oil and gas properties also will be affected by factors such as:

The timing of both our production and our incurrence of expenses in connection with the development and production of our properties will affect the timing of actual future net cash flows from proved reserves, and thus their actual present value. In addition, the 10% discount factor we use when calculating discounted future net cash flows may not be the most appropriate discount factor based on interest rates in effectarise from time to time and risks associated with our business or the oil and gas industry in general.

The differential between the New York Mercantile Exchange, or NYMEX, or other benchmark price of oil and gas and the wellhead price we receive could have a material adverse effect on our results of operations, financial condition and cash flows.

The prices that we receive for our oil production in Texas, Colorado and Kansas are typically based on a discount to the relevant benchmark prices, such as NYMEX, that are used for calculating hedge positions. The prices we receive for our natural gas production in Colorado is based upon local market conditions but generally we receive a discount to Henry Hub. The difference between the benchmark price and the price we receive is called a differential.  We cannot accurately predict oil and gas differentials. In recent years for example, production increases from competing North American producers, in conjunction with limited refining and pipeline capacity have widened this differential. Recent economic conditions, including volatility in the price of oil and gas, have resulted in both increases and decreases in the differential between the benchmark price for oil and gas and the wellhead price we receive.  These fluctuations could have a material adverse effect on our results of operations, financial condition and cash flows by decreasing the proceeds we receive for our oil and gas production in comparison to what we would receive if not for the differential.

The oil and gas business involves numerous uncertainties and operating risks that can prevent us from realizing profits and can cause substantial losses.

Our development, exploitation and exploration activities may be unsuccessful for many reasons, including weather, cost overruns, equipment shortages and mechanical difficulties. Moreover, the successful drilling of an oil and gas well does not ensure a profit on investment. A variety of factors, both geological and market-related, can cause a well to become uneconomical or only marginally economical. In addition to their cost, unsuccessful wells can hurt our efforts to replace reserves.

The oil and gas business involves a variety of operating risks, including:

If we experience any of these problems, it could affect well bores, gathering systems and processing facilities, which could adversely affect our ability to conduct operations. We could also incur substantial losses as a result of:

Because we use third-party drilling contractors to drill our wells, we may not realize the full benefit of worker compensation laws in dealing with their employees. Our insurance does not protect us against all operational risks. We do not carry business interruption insurance at levels that would provide enough funds for us to continue operating without access to other funds. For some risks, we may not obtain insurance if we believe the cost of available insurance is excessive relative to the risks presented. In addition, pollution and environmental risks generally are not fully insurable. If a significant accident or other event occurs and is not fully covered by insurance, it could impact our operations enough to force us to cease our operations.

Drilling wells is speculative, and any material inaccuracies in our forecasted drilling costs, estimates or underlying assumptions will materially affectharm our business.

Developing Although we currently maintain liability insurance coverage intended to cover professional liability and exploring for oil and gas involves a high degree of operational and financial risk, which precludes definitive statements as to the time required and costs involved in reaching certain objectives. The budgeted costs of drilling, completing and operating wells are often exceeded and can increase significantly when drilling costs rise due to a tightening in the supply of various types of oil and gas field equipment and related services. Drilling may be unsuccessful for many reasons, including geological conditions, weather, cost overruns, equipment shortages and mechanical difficulties. Moreover, the successful drilling of an oil and gas well does not ensure a profit on investment. Exploratory wells bear a much greater risk of loss than development wells. A variety of factors, both geological and market-related, can cause a well to become uneconomical or only marginally economic. Our initial drilling and development sites, and any potential additional sitesother claims, we cannot assure that may be developed, require significant additional exploration and development, regulatory approval and commitments of resources prior to commercial development. If our actual drilling and development costs are significantly more than our estimated costs, we may not be able to continue our business operations as proposed and would be forced to modify our plan of operation.

Development of our reserves, when established, may not occur as scheduled and the actual results may not be as anticipated. Drilling activity and lack of access to economically acceptable capital may result in downward adjustments in reserves or higher than anticipated costs. Our estimatesinsurance coverage will be based on various assumptions, including assumptions over which we have control and assumptions required by the SEC relatingadequate to oil and gas prices, drilling and operating expenses, capital expenditures, taxes and availabilitycover liabilities arising out of funds. We have control over our operations that affect, among other things, acquisitions and dispositions of properties, availability of funds, use of applicable technologies, hydrocarbon recovery efficiency, drainage volume and production decline rates that are part of these estimates and assumptions and any variance in our operations that affects these items within our control may have a material effect on reserves.  The process of estimating our oil and gas reserves is extremely complex, and requires significant decisions and assumptions in the evaluation of available geological, geophysical, engineering and economic data for each reservoir. Our estimates may not be reliable enough to allowclaims asserted against us to be successful in our intended business operations. Our actual production, revenues, taxes, development expenditures and operating expenses will likely vary from those anticipated. These variances may be material. In 2015 we had a carried interest in the drilling of two exploratory wells and we drilled no developmental wells.

Unless we replace our oil and gas reserves, our reserves and production will decline, which would adversely affect our cash flows and income.

Unless we conduct successful development, exploitation and exploration activities or acquire properties containing proved reserves, our proved reserves will decline as those reserves are produced. Producing oil and gas reservoirs generally are characterized by declining production rates that vary depending upon reservoir characteristics and other factors. Our future oil and gas production, and, therefore our cash flow and income, are highly dependent on our success in efficiently developing and exploiting our current reserves and economically finding or acquiring additional recoverable reserves. We may be unable to make such acquisitions because we are:

If we are unable to develop, exploit, find or acquire additional reserves to replace our current and future production, our cash flow and income will decline as production declines, until our existing properties would be incapable of sustaining commercial production.

In order to exploit successfully our current oil and gas leases and others that we acquire in the future we will needwhere the outcomes of such claims are unfavorable to generate significant amounts of capital.

The oil and gas exploration, development and production business is a capital-intensive undertaking. In order for us to be successful in acquiring, investigating, developing, and producing oil and gas from our current mineral leases and other leases that we may acquire in the future, we will need to generate an amount of capitalus. Liabilities in excess of that generated from our results of operations. In order to generate that additional capital, we may need to obtain an expanded debt facility and issue additional shares of our equity securities. There can be no assurance that we will be successful in either obtaining that expanded debt facility or issuing additional shares of our equity securities, and our inability to generate the needed additional capital may have a material adverse effect on our prospects and financial results of operations. If we are able to issue additional equity securities in order to generate such additional capital, then those issuances may occur at prices that represent discounts to our trading price, and will dilute the percentage ownership interest of those persons holding our shares prior to such issuances. Unless we are able to generate additional enterprise value with the proceeds of the sale of our equity securities, those issuances may adversely affect the value of our shares that are outstanding prior to those issuances.

A significant portion of our potential future reserves and our business plan depend upon secondary recovery techniques to establish production. There are significant risks associated with such techniques.

We anticipate that a significant portion of our future reserves and our business plan will be associated with secondary recovery projects that are either in the early stage of implementation or are scheduled for implementation subject to availability of capital. We anticipate that secondary recovery will affect our reserves and our business plan, and the exact project initiation dates and, by the very nature of water flood operations, the exact completion dates of such projects are uncertain. In addition, the reserves and our business plan associated with these secondary recovery projects, as with any reserves, are estimates only, as the success of any development project, including these water flood projects, cannot be ascertained in advance. If we are not successful in developing a significant portion of our reserves associated with secondary recovery methods, then the project may be uneconomic or generate less cash flow and reserves than we had estimated prior to investing the capital. Risks associated with secondary recovery techniques include, but are not limited to, the following:

If any of these risks occur, it could adversely affect our financial condition or results of operations.

Any acquisitions we complete are subject to considerable risk.

Even if we make acquisitions that we believe are good for our business, all acquisitions involve potential risks, including, among other things:

Our decision to acquire a property will depend in part on the evaluation of data obtained from production reports and engineering studies, geophysical and geological analyses and seismic and other information, the results of which are often incomplete or inconclusive.

Our reviews of acquired properties can be inherently incomplete because it is not always feasible to perform an in-depth review of the individual properties involved in each acquisition. Even a detailed review of records and properties may not necessarily reveal existing or potential problems, nor will it permit a buyer to become sufficiently familiar with the properties to assess fully their deficiencies and potential. Inspections may not always be performed on every well, and environmental problems, such as ground water contamination, plugging or orphaned well liability are not necessarily observable even when an inspection is undertaken.

We must obtain governmental permits and approvals for drilling operations, which can result in delays in our operations, be a costly and time consuming process, and result in restrictions on our operations.

Regulatory authorities exercise considerable discretion in the timing and scope of permit issuances in the regions in which we operate. Compliance with the requirements imposed by these authorities can be costly and time consuming and may result in delays in the commencement or continuation of our exploration or production operations and/or fines. Regulatory or legal actions in the future may materially interfere with our operations or otherwise have a material adverse effect on us. In addition, we are often required to prepare and present to federal, state or local authorities data pertaining to the effect or impact that a proposed project may have on the environment, threatened and endangered species, and cultural and archaeological artifacts. Accordingly, the permits we need may not be issued, or if issued, may not be issued in a timely fashion, or may involve requirements that restrict our ability to conduct our operations or to do so profitably.

Due to our lack of geographic diversification, adverse developments in our operating areas would materially affect our business.

We currently only lease and operate oil and gas properties located in Colorado, Nebraska, Kansas and Texas. As a result of this concentration, we may be disproportionately exposed to the impact of delays or interruptions of production from these properties caused by significant governmental regulation, transportation capacity constraints, curtailment of production, natural disasters, adverse weather conditions or other events which impact this area.

We depend on a small number of customers for all, or a substantial amount of our sales. If these customers reduce the volumes of oil and gas they purchase from us, our revenue and cash flow will decline to the extent we are not able to find new customers for our production.

In Kansas, we sell oil to Coffeyville Resources. There are approximately six potential purchasers of oil in Kansas. If a key purchaser were to reduce the volume of oil it purchases from us, our revenue and cash available for operations will decline to the extent we are not able to find new customers to purchase our production at equivalent prices.

We currently sell oil to Sunoco Logistics, Inc. in Texas. There are numerous purchasers in Texas, but increased production volumes from extensive shale drilling activity in the area could result in reduced purchases by several of our purchasers.

In Colorado we sell oil to ARM Energy Management LLC. There are a number of potential purchasers of our oil in Colorado but increased production volumes from the DJ basin could result in reduced purchases by our purchasers. If a key purchaser were to reduce the volume of oil it purchases from us, our revenue and cash available for operations will decline to the extent we are not able to find new customers to purchase our production at equivalent prices.

We sell natural gas to United Energy Trading and Western Operating Company in Colorado. There are other purchasers for our natural gas in Colorado. If a key purchaser were to reduce the volume of gas it purchases from us, our revenue and cash available for operations will decline to the extent we are not able to find new customers to purchase our production at equivalent prices.

We are not the operator of some of our properties and we have limited control over the activities on those properties.

We are not the operator of our Mississippian Project, and our dependence on the operator of this project limits our ability to influence or control the operation or future development of this project. Such limitations could materially adversely affect the realization of our targeted returns on capital related to exploration, drilling or production activities and lead to unexpected future costs.

We may suffer losses or incur liability for events for which we or the operator of a property have chosen not to obtain insurance.

Our operations are subject to hazards and risks inherent in producing and transporting oil and gas, such as fires, natural disasters, explosions, pipeline ruptures, spills, and acts of terrorism, all of which can result in the loss of hydrocarbons, environmental pollution, personal injury claims and other damage to our and others’ properties. As protection against operating hazards, we maintain insurance coverage, against some, but not all, potential losses. In addition, pollutionincluding coverage for professional liability and environmental risks generally are not fully insurable. As a result of market conditions, existing insurance policies may not be renewed andcertain other desirable insurance may not be available on commercially reasonable terms, if at all. The occurrence of an event that is not covered, or not fully covered, by insuranceclaims, could have a material adverse effect on our business, financial condition and results of operations.

Not applicable.

PART II

Our business depends in partCommon Stock is currently quoted on processing facilities owned by others. Any limitation in the availability of those facilities could interfere with our ability to market our oil and gas production and could harm our business.NYSE American under the symbol “UAVS.”

The marketabilityfollowing table sets forth, for the period indicated, the quarterly high and low per share sales prices (per share of our oil and gas production will depend in part onCommon Stock for each quarter during our last two fiscal years as reported by the availability, proximity and capacity of pipelines and oil and gas processing facilities. The amount of oil and gas that can be produced and sold is subject to curtailment in certain circumstances, such as pipeline interruptions due to scheduled and unscheduled maintenance, excessive pressure, physical damage or lack of available capacity on such systems. The curtailments arising from these and similar circumstances may last from a few days to several months. In many cases, we will be provided only with limited, if any, notice as to when these circumstances will arise and their duration. Any significant curtailment in pipeline capacity or the capacity of processing facilities could significantly reduce our ability to market our oil and gas production and could materially harm our business.

Cost and availability of drilling rigs, equipment, supplies, personnel and other services could adversely affect our ability to execute on a timely basis our development, exploitation and exploration plans.New York Stock Exchange.

Shortages or an increase in cost of drilling rigs, equipment, supplies or personnel could delay or interrupt our operations, which could impact our financial condition and results of operations. Drilling activity in the geographic areas in which we conduct drilling activities may increase, which would lead to increases in associated costs, including those related to drilling rigs, equipment, supplies and personnel and the services and products of other vendors to the industry. Increased drilling activity in these areas may also decrease the availability of rigs. We do not have any contracts for drilling rigs and drilling rigs may not be readily available when we need them. Drilling and other costs may increase further and necessary equipment and services may not be available to us at economical prices.

Our exposure to possible leasehold defects and potential title failure could materially adversely impact our ability to conduct drilling operations.

We obtain the right and access to properties for drilling by obtaining oil and gas leases either directly from the hydrocarbon owner, or through a third party that owns the lease. The leases may be taken or assigned to us without title insurance. There is a risk of title failure with respect to such leases, and such title failures could materially adversely impact our business by causing us to be unable to access properties to conduct drilling operations.

Our reserves are subject to the risk of depletion because many of our leases are in mature fields that have produced large quantities of oil and gas to date.

A significant portion of our operations are located in or near established fields in Colorado, Nebraska, Kansas and Texas. As a result, many of our leases are in, or directly offset, areas that have produced large quantities of oil and gas to date.  As such, our reserves may be negatively impacted by offsetting wells or previously drilled wells, which could significantly harm our business.

Our lease ownership may be diluted due to financing strategies we may employ in the future.

To accelerate our development efforts we may take on working interest partners who will contribute to the costs of drilling and completion operations and then share in any cash flow derived from production. In addition, we may in the future, due to a lack of capital or other strategic reasons, establish joint venture partnerships or farm out all or part of our development efforts. These economic strategies may have a dilutive effect on our lease ownership and could significantly reduce our operating revenues.

We may face lease expirations on leases that are not currently held-by-production.

We have numerous leases that are not currently held-by-production, some of which have near term lease expirations and are likely to expire. Although we believe that we can maintain our most desirable leases by conducting drilling operations or by negotiating lease extensions, we can make no guarantee that we can maintain these leases.

We are subject to complex laws and regulations, including environmental regulations, which can adversely affect the cost, manner or feasibility of doing business.

Development, production and sale of oil and gas in the United States are subject to extensive laws and regulations, including environmental laws and regulations. We may be required to make large expenditures to comply with environmental and other governmental regulations. Matters subject to regulation include, but are not limited to:

Under these laws and regulations, we could be liable for personal injuries, property damage, oil and gas spills, discharge of hazardous materials, remediation and clean-up costs and other environmental damages. Failure to comply with these laws and regulations also may result in the suspension or termination of our operations and subject us to administrative, civil and criminal penalties. Moreover, these laws and regulations could change in ways that substantially increase our costs. Accordingly, any of these liabilities, penalties, suspensions, terminations or regulatory changes could materially adversely affect our financial condition and results of operations enough to possibly force us to cease our business operations.

Our operations may expose us to significant costs and liabilities with respect to environmental, operational safety and other matters.

We may incur significant costs and liabilities as a result of environmental and safety requirements applicable to our oil and gas production activities. We may also be exposed to the risk of costs associated with Kansas Corporation Commission, the Texas Railroad Commission and the State of Colorado Oil and Gas Conservation Commission requirements to plug orphaned and abandoned wells on our oil and gas leases from wells previously drilled by third parties. In addition, we may indemnify sellers or lessors of oil and gas properties for environmental liabilities they or their predecessors may have created. These costs and liabilities could arise under a wide range of federal, state and local environmental and safety laws and regulations, including regulations and enforcement policies, which have tended to become increasingly strict over time. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, imposition of cleanup and site restoration costs, liens and to a lesser extent, issuance of injunctions to limit or cease operations. In addition, claims for damages to persons or property may result from environmental and other impacts of our operations.

Strict, joint and several liability may be imposed under certain environmental laws, which could cause us to become liable for the conduct of others or for consequences of our own actions that were in compliance with all applicable laws at the time those actions were taken. New laws, regulations or enforcement policies could be more stringent and impose unforeseen liabilities or significantly increase compliance costs. If we are not able to recover the resulting costs through insurance or increased revenues, our ability to operate effectively could be adversely affected.

We operate in a highly competitive environment and our competitors may have greater resources than do we.

The oil and gas industry is intensely competitive and we compete with other companies, many of which are larger and have greater financial, technological, human and other resources. Many of these companies not only explore for and produce crude oil and gas but also carry on refining operations and market petroleum and other products on a regional, national or worldwide basis. Such companies may be able to pay more for productive oil and gas properties and exploratory prospects or define, evaluate, bid for and purchase a greater number of properties and prospects than our financial or human resources permit. In addition, such companies may have a greater ability to continue exploration activities during periods of low oil and gas market prices. Our ability to acquire additional properties and to discover reserves in the future will be dependent upon our ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment. If we are unable to compete, our operating results and financial position may be adversely affected.

Risks Associated with our Stock

We have ceased paying dividends on our Series A preferred stock, causing the trading price of the preferred stock to dramatically decline

On November 4, 2015, we announced that we would not be declaring the monthly dividend for the month of November 2015 on our 10.00% Series A Cumulative Redeemable Perpetual Preferred Stock in order to preserve our cash resources. We have not declared the monthly dividend since, and do not expect to do so in the near future. The failure to declare and pay monthly dividends on our preferred stock caused its trading price to decline substantially.

We do not expect to pay dividends to holders of our common stock because of the terms of our debt facility, and our need to reinvest cash flow from operations in our business.

It is unlikely that we will pay any dividends to the holders of our common stock in the foreseeable future. The terms of our debt facility require that the lender approve any such distributions, and the lender is unlikely to provide that consent so long as we have significant unpaid indebtedness outstanding.

Ownership of our common stock is highly concentrated, and such concentration may prevent other stockholders from influencing significant corporate decisions and may result in conflicts of interest that could cause our stock price to decline.

Our directors, officers and principal stockholders (stockholders owning 10% or more of our common stock) and their affiliates beneficially owned approximately 3,973,168 shares or 47.17% of the outstanding shares of common stock, stock options, and derivatives that could have been converted to common stock at December 31, 2016, and as of the filing of this Annual Report on Form 10-K. Such stockholders will have significant influence over the outcome of all matters submitted to our stockholders for approval, including the election of directors and other corporate actions.

Two of our Directors, Ryan A. Lowe and Lance W. Helfert, served on the investment committee of West Coast Asset Management, Inc. West Coast Asset Management was the managing member of West Coast Opportunity Fund, LLC, a private investment vehicle formed for the purpose of investing in a wide variety of securities and financial instruments. West Coast Opportunity Fund, LLC was terminated in July 2015 and all of the assets of the fund, including EnerJex common and preferred shares were distributed to the shareholders of that fund. West Coast Asset Management’s principals also manage Montecito Venture Partners, LLC. Montecito Venture Partners, LLC beneficially owned 1.53% of our common stock and .7% of our Series A preferred stock at December 31, 2016 and as of the date of this filing.West Coast Asset Management, Inc. was dissolved in September 2016.

In addition, we engage from time to time in transactions with certain of these significant stockholders.

As stated above, Montecito Venture Partners affiliatesof March 19, 2019, we had approximately 378 individual shareholders of record of our directors Mr. Lowe and Mr. Helfert, beneficially own, asCommon Stock. We believe that the number of December 31, 2016, 1.53%beneficial owners of our common stock and .7%Common Stock is greater than the number of our Series A preferred stock. The interestsrecord holders, because a number of Montecito Venture Partners, and their affiliates, may differ from those of our other stockholders. Montecito Venture Partners, and their affiliates are in the business of making investments in companies and maximizing the return on those investments. They currently have, and may from time to time in the future acquire, interests in businesses that directly or indirectly compete with certain aspects of our business or our suppliers’ or customers’ businesses.

We have derivative securities currently outstanding and we may issue derivative securities in the future. Exercise of the derivatives will cause dilution to existing and new stockholders.

The exercise of our outstanding options and warrants, will cause additional shares of common stock to be issued, resulting in dilution to our existing and future common stockholders

We have the ability to issue additional shares of our common stock and preferred stock without asking for stockholder approval, which could cause your investment to be diluted.Common Stock is held through brokerage firms in “street name.”

Our amended and restated articles of incorporation authorize the board of directors to issue up to 250,000,000 shares of common stock and 25,000,000 shares of preferred stock.   The power of the board of directors to issue shares of common stock, preferred stock or warrants or options to purchase shares of common stock or preferred stock is generally not subject to shareholder approval.  Accordingly, any additional issuance of our common stock, or preferred stock that may be convertible into common stock, or debt instruments that may be convertible into common or preferred stock, may have the effect of diluting one’s investment.

Although our common stock is traded on the NYSE MKT and our Series A preferred stock is traded on the OTC PINK, daily trading volumes are small making it difficult for investors to sell their shares.

Our common stock and our Series A preferred stock trade under the symbol “ENRJ,” and “ENRJP,” respectively but trading volume has been minimal. Therefore, the market for our common stock is limited. The trading price of our stock could be subject to wide fluctuations. Investors may not be able to purchase additional shares or sell their shares within the time frame or at a price they desire.

The price of our common stock and Series A preferred stock may be volatile and you may not be able to resell your shares at a favorable price.

Regardless of whether an active trading market for our stock develops, the market price of our stock may be volatile and you may not be able to resell your shares at or above the price you paid for such shares. Many factors beyond our control, including but not limited to the following factors could affect our stock price:

Our amended and restated articles of incorporation, restated bylaws and Nevada Law contain provisions that could discourage an acquisition or change of control of us.

Our amended and restated articles of incorporation authorize our board of directors to issue preferred stock and common stock without stockholder approval. The election by our board of directors to issue Series A preferred stock, and any future election to issue more preferred stock, could make it more difficult for a third party to acquire control of us. In addition, provisions of the articles of incorporation and bylaws could also make it more difficult for a third party to acquire control of us. In addition, Nevada’s “Combination with Interested Stockholders’ Statute” and its “Control Share Acquisition Statute” may have the effect in the future of delaying or making it more difficult to effect a change in control of us.

These statutory anti-takeover measures may have certain negative consequences, including an effect on the ability of our stockholders or other individuals to (i) change the composition of the incumbent board of directors; (ii) benefit from certain transactions which are opposed by the incumbent board of directors; and (iii) make a tender offer or attempt to gain control of us, even if such attempt were beneficial to us and our stockholders. Since such measures may also discourage the accumulations of large blocks of our common stock by purchasers whose objective is to seek control of us or have such common stock repurchased by us or other persons at a premium, these measures could also depress the market price of our common stock. Accordingly, our stockholders may be deprived of certain opportunities to realize the “control premium” associated with take-over attempts.

We have no plans to pay dividends on our common stock. You may not receive funds without selling your stock.Dividend Policy

We do not anticipate paying anyintend to pay cash dividends onto our common stockstockholders in the foreseeable future. We currently intend to retain all of our available funds and future earnings, if any, to finance the expansiongrowth and development of our business. OurAny future determination related to our dividend policy with regard to our common stock is within the discretion of our board of directors and will depend upon various factors, including our business, financial condition, results of operations, capital requirements, investment opportunities and restrictions contained in current or future financing instruments, including the consent of debt holders and holders of Series A Shares, if applicable at such time, and other factors our Board of Directors deems relevant.

Additional Risks and Uncertainties

We are an oil and gas acquisition, exploration and development company. If any of the risks that we face actually occur, irrespective of whether those risks are described in this section or elsewhere in this report, our business, financial condition and operating results could be materially adversely affected.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

Not applicable.

ITEM 3. LEGAL PROCEEDINGS.

On September 23, 2016 the Company, American Standard Energy Corporation, Baylor Operating LLC, Bernard Given and Loeb & Loeb LLP were sued by Geronimo Holdings Corporation and Randal Capps in the 143rd Judicial District Court located in Pecos, Texas. The suit among other things, seeks damages for an alleged unlawful sale of properties in Crockett County Texas and for alleged unpaid royalties. The Company believes the suit is without merit and will vigorously defend itself. The Company has faith that it will prevail and at December 31, 2016 no reserve for potential losses arising from this matter has been recorded. Additionally under its agreement with Baylor Operating LLC, Baylor has agreed to indemnify and defend the Company against all lawsuits and claims including this one.

On April 26, 2016 C&F Ranch, LLC sued the Company in Allen County Kansas for alleged breach of contract related to the rental of certain lands located on the C&F Ranch. The Company believes that has paid all rents owe to C&F Ranch LLC and will vigorously defend itself. The Company has faith that it will prevail and at December 31, 2016 no reserve for potential losses arising from this matter has been recorded.

ITEM 4. MINE SAFETY DISCLOSURE

None

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market Information for Common Stock

Our common stock trades on the NYSE MKT under the symbol “ENRJ.” The following table lists the quotations for the high and low sales prices of our common stock for the years ended December 31, 2015 and December 31, 2016. The market price of our common stock has been volatile. For an additional discussion, see “Item 1A: Risk Factors” of this Annual Report on Form 10-K.  

Holders

As of March 31, 2017, there were 341 holders of record of our common stock, and 9 holders of record of our Series A preferred stock.

Dividends

We have never paid or declared any cash dividends on our common stock. Through October 2015, we paid a monthly dividend of $.20833 per share or $2.50 annual dividend per share on the Company’s non-convertible 10.0% Series A Cumulative Redeemable Perpetual Preferred Stock. On November 4, 2015 the Company suspended the monthly dividend for the month of November 2015 on its 10.00% Series A Cumulative Redeemable Perpetual Preferred Stock (“Series A Preferred Stock”) in order to preserve its cash resources. Payment of future dividends on the Series A Preferred Stock will be determined by the Company’s Board of Directors.

Under the terms of the Series A Preferred Stock, the dividend for the month of November 2015, and any future unpaid dividends, will accumulate. If the Company does not pay dividends on its Series A Preferred Stock for six monthly periods (whether consecutive or non-consecutive), the dividend rate will increase to 12.0% per annum and the holders of the Series A Preferred Stock will have the right, at the next meeting of stockholders, to elect two directors to serve on the Company’s Board of Directors along with other members of the Board, until all accumulated accrued and unpaid dividends are paid in full.

We do not expect to pay any cash dividends on our common stock in the foreseeable future. Additionally, we are contractually prohibited by the terms of our outstanding debt from paying cash dividends on our common stock. Payment of future dividends on common stock, if any, will bemade at the discretion of our Board of Directors and will depend onupon, among other factors, our financial condition, results of operations, financial condition, capital requirements, contractual restrictions, contained in current or future financing instruments, including the consent of debt holders and holders of Series A Preferred Stock, if applicable at such time,business prospects and other factors our Boardboard of Directors deemsdirectors may deem relevant.

Securities Authorized for Issuance under

Equity Compensation PlansPlan

The following table sets forthprovides information as of fiscal year ended December 31, 2016, regarding outstanding options granted under2018 about our stock option plansequity compensation plan and options reserved for future grant under the plans.arrangements .

Recent Sales of Unregistered Securities

None.None

Issuer

Purchases of Equity Securities by Issuer and Its Affiliates

None.

ITEM 6. SELECTED FINANCIAL DATA.

Not applicable.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS .

This Management’s Discussionitem is not required for Smaller Reporting Companies.

The following discussion highlights the principal factors that have affected our financial condition and Analysisresults of Financial Conditionoperations as well as our liquidity and Results of Operations sectioncapital resources for the periods described. This discussion should be read in conjunction with our Consolidated Financial Statements and the other sectionsrelated notes included in Item 8 of this Form 10-K. This discussion contains forward-looking statements. Please see the explanatory note concerning “Forward-Looking Statements” in Part I of this Annual Report on Form 10-K including “Items 1 and 2. Business and Properties” and “Item 8: Financial Statements and Supplementary Data”. This section includes forward-looking statements within the meaning of Section 27AItem 1A. Risk Factors for a discussion of the Securities Act, and Section 21E of the Exchange Act. Forward-looking statements such as “will”, “believe,” “are projected to be” and similar expressions are statements regarding future events or our future performance, and include statements regarding projected operating results. These forward-looking statements are based on current expectations, beliefs, intentions, strategies, forecastsuncertainties, risks and assumptions and involve a number of risks and uncertainties that could cause actual results to differ materially from those anticipated byassociated with these forward-looking statements. These risks include, but areThe operating results for the periods presented were not limited to: our ability to deploy capital in a manner that maximizes stockholder value; the ability to identify suitable acquisition candidates or business and investments opportunities; the ability to reduce our operating costs; general economic conditions and our expected liquidity in future periods. These forward-looking statements are based on our current expectations and could besignificantly affected by inflation.

Company Overview

On March 26, 2018, EnerJex Resources, Inc. (“EnerJex”), a Nevada company, consummated the uncertaintiestransactions contemplated by the Agreement and risk factors described throughout this filingPlan of Merger (the “Merger Agreement”), dated October 19, 2017, pursuant to which AgEagle Merger Sub, Inc., a Nevada corporation and particularly ina wholly-owned subsidiary of EnerJex, merged with and into AgEagle Aerial Systems Inc., a privately held company organized under the “Risk Factors” set forth in Part I, Item 1Alaws of this Annual Reportthe state of Nevada (“AgEagle Sub”), with AgEagle Sub surviving as a wholly-owned subsidiary of EnerJex (the “Merger”). In connection with the Merger, EnerJex changed its name to AgEagle Aerial Systems Inc. (the “Company, “we,” “our,” or “us”) and AgEagle Sub changed its name to “AgEagle Aerial, Inc.” Our Common Stock will continue to trade on Form 10-K.the NYSE American under its new symbol “UAVS” commencing on March 27, 2018. As a result of the Merger, through AgEagle Sub, we are now engaged in the business of designing, developing, producing, distributing and supporting technologically-advanced small unmanned aerial vehicles (UAVs or drones) that we supply to the precision agriculture industry. Additionally, we recently announced a new service offering using our actual results may differ materially from those anticipated in these forward-looking statements.leased UAVs and associated data processing services for the sustainable agriculture industry.

Overview We are headquartered in Neodesha, Kansas, and are a manufacturer of unmanned aerial vehicles focused on providing actionable data to the precision agriculture industry. We design, produce, distribute and support technologically-advanced small unmanned aerial vehicles (UAVs or drones) that we offer for sale commercially to the precision agriculture industry. Additionally, we recently announced a new service offering using our UAVs and associated data processing services for the sustainable agriculture industry and aerial imaging processing services.

 Historically, AgEagle derived the majority of its revenue from the sale of its AgEagle Classic and RAPID systems. However, as a result of the development of our new product, the RX-60 and RX-48, we will no longer manufacture and distribute our previous two systems. We believe that the UAV industry is currently in the early stages of development and has significant growth potential. Additionally, we believe that some of the innovative potential products in our research and development pipeline will emerge and gain traction as new growth platforms in the future, creating market opportunities.

We deliver advanced solutions utilizing our proprietary technologies and trade secrets that help farmers, agronomists and other precision agricultural professionals operate more effectively and efficiently. Our UAVs were initially specifically designed to help farmers increase profits by pinpointing areas where nutrients or chemicals need to be applied, as opposed to traditional widespread land application processes, thus decreasing input costs, reducing the amount of chemicals applied and potentially increasing yields. Our products are designed for busy agriculture professionals who do not have the time to process images on their computers, which some of our competitors require.

In addition to UAV sales, in late 2018, we introduced a new drone-leasing program, alleviating farmers and agribusinesses from significant upfront costs associated with purchasing a drone, while also relieving them from ongoing drone maintenance and support requirements. Additionally, the new program provides the option of engaging a trained AgEagle pilot to operate the drone and manage the entire image collection process, creating a truly turnkey aerial imagery capture solution for our customers.

Our principal strategybusiness is seasonal in nature and, as a result, our revenue and expenses and associated revenue trends fluctuate from quarter to develop, acquire, explorequarter. For example, we anticipate that the second and produce domestic onshore oilthird quarter of each year will generally represent our strongest quarter in terms of customer contracts. Conversely, during the winter months and gas properties. Our businessthe end of year holidays, when the growing season is not on-going, we generally anticipate lower customer contracts. In addition, our net revenue is impacted by our marketing strategies, including the timing and amount of paid advertising and promotional activity. We also anticipate that our net revenue will be impacted by the timing and success of our ongoing product expansion. 

Research and development activities are currently focusedintegral to our business and we follow a disciplined approach to investing our resources to create new technologies and solutions. With the welcoming of our new CEO, Mr. Barrett Mooney, in Kansas, Colorado, Nebraska,2018, we continue to invest in our future success. Under his leadership, we intend to expand our software offerings and Texas.

Results of Operations

The following table presents selected information regarding our operating results from continuing operations.

⁽¹⁾ 2016 crude oil revenues decreased $2.1 million or 47% to 2.4 million from $4.5 millionleverage his experience in fiscal 2015.  This decrease was due to the continued decline in crude oil prices. Realized oil prices dropped $3.49 or 8% during 2016 from an average of $44.24 per bbl in 2015 to an average of $40.75 per bbl in 2016. Declining prices accounted for approximately $200,000 of the $2.1 million drop in crude oil revenues. A decrease in production volumes in 2016 accounted for $1.9 million of the $2.1 million decrease in revenues. Volumes decreased by approximately 43,600 bbls or 43% to 58,653 bbls in 2016 compared to production of 102,289 bbls in 2015.  2016 natural gas revenues decreased approximately $282,000 or 80% to $71,700 from $353,600 million in 2015. The decrease was due to lower natural gas prices in 2016. Natural gas prices decreased $.37 per mcf or 20% from an average price of $1.88 in 2015 to an average price of $1.51 in 2016. This drop in prices accounted for $69,100 of the overall $282,000 decrease in revenues. A decrease in production volumes accounted for the remaining $213,000 decrease in revenues. Natural gas volumes decreased approximately 140,900 mcf or 75% in 2016 from 188,400 mcf in 2015 to 47,600 mcf in 2016.

⁽²⁾ 2016 lease operating expenses decreased $1.8 million or 41% to $2.7 million from $4.5 million in 2015. However, lease operating expenses per boe increased 19% or $6.30 to $39.97 in 2016 from $33.67 per boe in 2015.  

⁽³⁾ The depletion expense decrease is due primarily to the impairment of oil and gas properties necessitated by the SEC quarterly ceiling tests. The Company reviews the carrying value of oil and gas properties accounted for by use of the full cost rules of accounting. This method dictates that the net book value of oil and gas properties, less deferred income taxes, may not exceed a calculated “ceiling.” Any excess of the net book value of proved oil and gas properties, less related deferred income taxes, over the ceiling is charged to expense and reflected in the statement of operations. For the year ended December 31, 2015 impairments of $16,401,376, $11,421,613, $9,720,983 and $11,386,115 were record in the first, second, third and fourth quarters respectively. For the year ended December 31, 2016 impairments of $4,506,933, $2,137,663, $800,000 and $588,073were record in the first, second, third and fourth quarters respectively. Because of these write downs depletion expense per boe decreased 54% or $4.47 per boe from $8.29 per boe in 2015 to $3.82 per boe in 2016. As a result, 2016 depletion expense decreased approximately $854,000 to approximately $254,000 from $1,108,039 in 2015.

⁽⁴⁾ Professional fees decreased 54% or approximately $370,000 thousand from approximately $681,000 in 2015 to approximately $310,500 in 2016. Investor relation expenditures decreased approximately $110,000 and Consulting fees including tax, third party engineering and audit decreased by approximately $308,000. These decreases were partially offset by increases in legal fees of approximately $48,000.

⁽⁵⁾ Salaries decreased 15% or approximately $300,000. The decrease was due primarily to decreased head counts.

⁽⁶⁾ Administrative expenses decreased approximately $97,000 or 15%. The decrease was due primarily to decreased spending on SEC matters, travel, training and office supplies of $122,000, $21,000, $30,000 and $18,000 respectively. These decreases were partially offset by an increase spending for ITbuilding scalable digital solutions promoting sustainability and software and reduced recovers of overhead costs from a joint interest partner of $34,000 and $60,000 respectively.

Reserves

Of the 1.6 million BOE of total proved reserves, approximately 12.2% are classified as proved developed producing, approximately 42.3% are classified as proved developed non-producing, and approximately 45.5% are classified as proved undeveloped.

The following table presents summary information regarding our estimated net proved reserves as of December 31, 2016. All calculations of estimated net proved reserves have been made in accordance with the rules and regulations of the SEC, and, except as otherwise indicated, give no effect to federal or state income taxes. The estimates of net proved reserves are based on the reserve reports prepared by Cobb & Associates Inc., our independent petroleum consultants. For additional information regarding our reserves, please see Note 13 to our audited financial statements for the fiscal year ended December 31, 2016.

Summary of Proved Oil and Gas Reserves

December 31, 2016

In 2016 the Company invested approximately $17,100 in its oil and gas properties. These reduced expenditures were in response to extremely low commodity prices. The Company has approximately $1.7 million of current asset on hand and important infrastructure in Colorado completed which will facilitate the exploitation and development of proved undeveloped reserves over the next five years. At year end the Company’s review of proved undeveloped reserves revealed challenges but the Company maintains its belief that reserves will be developed within five years of their initial recording as a proved undeveloped reserve. In addition it believes it has the financial wherewithal to develop all it’s proved undeveloped reserves within the five year time frames required; utilizing its balance sheet, to borrow funds as needed and it has the ability to joint venture any of its assets.

Liquidity and Capital Resources

Liquidity is a measure of a company’s ability to meet potential cash requirements. We have historically met our capital requirements through debt financing, revenues from operations, asset sales and the issuance of equity securities. Due to the dramatic deterioration of oil prices, the resulting decline in our reserves as reflected in our reserve report which caused a corresponding reduction in our borrowing base, and the recent issuances of equity securities from our “shelf” registration, it will be more difficult in 2016 to use our historical means of meeting our capital requirements to provide us with adequate liquidity to fund our operations and capital programs. Accordingly, the Company has chosen to preserve liquidity by not devoting capital to its oil and gas properties, while minimizing expenditures for operating, general and administrative expenses. With positive working capital, we will be positioned to capitalize on increases in commodity pricing when such changes occur.

The following table summarizes total current assets, total current liabilities and working capital at year ended December 31, 2016 compared to the year ended December 31, 2015.

Senior Secured Credit Facility

On October 3, 2011, the Company, DD Energy, Inc., EnerJex Kansas, Inc., Black Sable Energy, LLC and Working Interest, LLC (“Borrowers”) entered into an Amended and Restated Credit Agreement with Texas Capital Bank, N.A. (“Bank”) and other financial institutions and banks that may become a party to the Credit Agreement from time to time. The facilities provided under the Amended and Restated Credit Agreement were to be used to refinance Borrowers prior outstanding revolving loan facility with Bank, dated July 3, 2008, and for working capital and general corporate purposes.

At our option, loans under the facility will bear stated interest based on the Base Rate plus Base Rate Margin, or Floating Rate plus Floating Rate Margin (as those terms are defined in the Credit Agreement). The Base Rate will be, for any day, a fluctuating rate per annum equal to the higher of (a) the Federal Funds Rate plus 0.50% and (b) the Bank’s prime rate. The Floating Rate shall mean, at Borrower’s option, a per annum interest rate equal to (i) the Eurodollar Rate plus Eurodollar Margin, or (ii) the Base Rate plus Base Rate Margin (as those terms are defined in the Amended and Restated Credit Agreement). Eurodollar borrowings may be for one, two, three, or six months, as selected by the Borrowers. The margins for all loans are based on a pricing grid ranging from 0.00% to 0.75% for the Base Rate Margin and 2.25% to 3.00% for the Floating Rate Margin based on the Company’s Borrowing Base Utilization Percentage (as defined in the Amended and Restated Credit Agreement).

On December 15, 2011, we entered into a First Amendment to Amended and Restated Credit Agreement and Second Amended and Restated Promissory Note in the amount of $50,000,000 with the Bank. The Amendment reflects the addition of Rantoul Partners, as an additional Borrower and adds as additional security for the loans the assets held by Rantoul Partners.

On August 31, 2012, we entered into a Second Amendment to Amended and Restated Credit Agreement with the Bank. The Second Amendment: (i) increased the borrowing base to $7,000,000, (ii) reduced the minimum interest rate to 3.75% and (iii) added additional new leases as collateral for the loan.

On November 2, 2012, we entered into a Third Amendment to Amended and Restated Credit Agreement with the Bank. The Third Amendment (i) increased the borrowing base to $12,150,000 and (ii) clarified certain continuing covenants and provided a limited waiver of compliance with one of the covenants so clarified for the fiscal quarter ended December 31, 2011.

On January 24, 2013, we entered into a Fourth Amendment to Amended and Restated Credit Agreement, which was made effective as of December 31, 2012 with the Bank. The Fourth Amendment reflects the following changes: (i) the Bank consented to the restructuring transactions related to the dissolution of Rantoul Partners, and (ii) the Bank terminated a Limited Guaranty, as defined in the Credit Agreement, executed by Rantoul Partners in favor of the Bank.

On April 16, 2013, the Bank increased our borrowing base to $19,500,000.

On September 30, 2013, we entered into a Fifth Amendment to the Amended and Restated Credit Agreement. The Fifth Amendment reflects the following changes: (i) expanded principal commitment amount of the Bank to $100,000,000; (ii) increased the Borrowing Base to $38,000,000; (iii) added Black Raven Energy, Inc. to the Credit Agreement as borrower parties; (iv) added certain collateral and security interests in favor of the Bank; and (v) reduced the Company’s current interest rate to 3.30%.

On November 19, 2013, we entered into a Sixth Amendment to the Amended and Restated Credit Agreement. The Sixth Amendment reflects the following changes: (i) the addition of Iberia Bank as a participant in our credit facility, and (ii) a technical correction to our covenant calculations.

On May 22, 2014, we entered into a Seventh Amendment to the Amended and Restated Credit Agreement. The Seventh Amendment reflects the Bank’s consent to our issuance of up to 850,000 shares of our 10% Series A Cumulative Redeemable Perpetual Preferred Stock.analytics. 

On August 15, 2014,28, 2018, we entered into an Eighth Amendmentclosed the transactions contemplated by the Asset Purchase Agreement (the “Purchase Agreement”) dated July 25, 2018 with AgEagle Aerial, Inc., a wholly-owned subsidiary of the Company, Agribotix, LLC, a Colorado limited liability company (“Agribotix” or the “Seller”), and the other parties named therein. Pursuant to the Amended and Restated Credit Agreement. The Eighth Amendment reflects the following changes: (i) the borrowing base was increased from $38 million to $40 million, and (ii) the maturity of the facility was extended by three years to October 3, 2018.

On April 29, 2015,Purchase Agreement, we entered into a Ninth Amendment to the Amended and Restated Credit Agreement. In the Ninth Amendment, the Banks (i) re-determined the Borrowing Base based upon the recent Reserve Report dated January 1, 2015, (ii) imposed affirmative obligations on the Company to use a portion of proceeds received with regard to future sales of securities or certain assets to repay the loan, (iii) consented to non-compliance by the Company with certain terms of the Credit Agreement, (iv) waived certain provisions of the Credit Agreement, and (v) agreed to certain other amendments to the Credit Agreement.

On May 1, 2015, the Borrowers and the Banks entered into a Letter Agreement to clarify that up to $1,000,000 in proceeds from any potential future securities offering will be unencumbered by the Banks’ Liens as described in the Credit Agreement through November 1, 2015, and that, until November 1, 2015, such proceeds shall not be subject to certain provisions in the Credit Agreement prohibiting the Company from declaring and paying dividends that may be due and payable to holders of securities issued in such potential offerings or issued prior to the Letter Agreement.

On August 12, 2015, we entered into a Tenth Amendment to the Amended and Restated Credit Agreement. The Tenth Amendment reflects the following changes: (i) allow the Company to sell certain oil assets in Kansas, (ii) allow for approximately $1,300,000 of the proceeds from the sale to be reinvested in Company owned oil and gas projects and (iii) apply not less than $1,500,000 from the proceed of the sale to outstanding loan balances.

On November 13, 2015, the Company entered into a Eleventh Amendment to the Amended and Restated Credit Agreement. The Eleventh Amendment reflects the following changes: (i) waived certain provisions of the Credit Agreement, (ii) suspend certain hedging requirements, and (iii) to make certain other amendments to the Credit Agreement.

Our current borrowing base is $17,925,000, of which we had borrowed $17,925,000 as of December 31, 2016. The interest rate on amounts borrowed under our credit facility during 2016 was approximately 8.7% and for the year ended December 31, 2015, the interest rate on amounts borrowed was approximately 4.3%. This facility expires on October 3, 2018. 

On April 1, 2016, the Company informed the Bank that it would cease making the mandatory monthly borrowing base reduction payments and did not make the required April 1, 2016 payment. The Company made its mandatory quarterly interest payments on April 6, 2016, and May 2, 2016. On April 7, 2016 the Company entered into a Forbearance Agreement whereby the Bank agreed to not exercise remedies and rights afforded it under the Amended and Restated Credit Agreement for thirty days. The thirty day period was to be used by the Company to pursue strategic alternatives.

On April 28, 2016 the Bank informed the Company that it would extend the above Forbearance Agreement period to May 31, 2016 upon effecting a principal reduction of $125,000. In addition, the Company will receive an automatic extension to September 15, 2016 upon meeting certain terms and conditions specified by the Bank. On May 31, 2016, the Company and the Bank amended the Forbearance Agreement to extend the forbearance period to August 31, 2016. On July 29, 2016, the Company and the Bank amended the Forbearance Agreement to extend the forbearance period to October 1, 2016. 

On October 1, 2016, the Company and the Bank could not reach an agreement to extend the Third Amendment to the Forbearance Agreement. Following this outcome, the Company decided to discontinue payment of interest on its outstanding loan obligations with the Bank. The Company continued to evaluate plans to restructure, amend or refinance existing debt through private options.

On February 10, 2017, the Company, the Bank and IberiaBank (collectively, "Sellers"), and PWCM Investment Company IC LLC, and certain financial institutions (collectively, "Buyers") entered into a Loan Sale Agreement ("LSA"), pursuant to which Seller sold to Buyers, and Buyers purchased from Sellers,acquired all of Sellers' right, title and interest in and to all assets owned by the Agribotix utilized in their business of providing integrated agricultural drone solutions and drone-enabled software technologies and services for precision agriculture, except for certain excluded assets as set forth in the Purchase Agreement. At closing, we also assumed certain commitments under various third-party contracts pursuant to the Credit Agreement and Loan Documents, in exchange for (i) a cash payment of $5,000,000 (the "Cash Purchase Price"), (ii) a Synthetic Equity Interest equal to 10%terms of the Proceeds, after Buyer's realization of 150% return on the Cash Purchase Price within five (5) years of the Closing Date, with payment being distributed 65.78947368% to TCB and 34.21052632% to IberiaBank, and (iii) at any time prior to February 10, 2022, Buyer may acquire the interest in clause (ii) above.

In connection with the LSA, we release Sellers and its successors as holders of the rights under the Credit Agreement and Loan Documents, including Buyers, from any and all claims under the Credit Agreement and Loan Documents.

Also on February 10, 2017, the Company and its subsidiaries, and PWCM Investment Company IC LLC, a Delaware limited liability company and other buyers (collectively, the "successor lender"), entered into a binding letter agreement dated February 10, 2017, which was subsequently amended on March 30, 2017 (as amended, the “letter agreement”) pursuant to which:

The restated secured note shall:

We will have 2 options to extend the maturity date of the restated secured note by 90 days each upon payment of an extension fee of $100,000, which shall be applied against the principal balance of the note.

So long as we repay the $3,300,000 in indebtedness on or prior to the maturity date, as extended, all other amounts payable under the restated secured note shall be forgiven.

The Closing is expected to occur on or before May 1, 2017 (the February 10, 2017 letter agreement provided for a Closing on or before April 30, 2017. This was amended to May 1, 2017 in the amendment).

Satisfaction of our cash obligations for the next 12 months

We will not be able to meet our cash obligations for the next 12 months unless the proposed loan forgiveness transaction with our successor lender under out secured credit facility discussed above closes

If the loan forgiveness transaction with the successor lender does not close, our indebtedness under our secured credit facility will remain outstanding and in default, and the secured lender will likely foreclose on all of our assets and we will not be able to continue as a going concern. We will also need to raise additional funds to continue operations and to meet our near term cash obligations after the transaction. We may raise additional funds assets sales and cash flow generated from operations.

Due to the declines in oil prices, the resulting decline in our reserves caused a corresponding reduction to our borrowing base, our continued default of our obligations under the secured credit facility, our issuances of equity securities from our “shelf” registration, our issuance of Series B preferred equity with an anti-dilution protection, and, if the loan restructuring transaction is closed, the reduced size of our business (as discussed above we will only retain the Kansas assets) it will be more difficult in 2017 to use our historical means to meet our cash obligations in the next twelve months.

Summary of product research and development that we will perform for the term of our planAgreement. 

We do not anticipate performing any significantbelieve that purchasing Agribotix’s primary product researchFarmLens™, a subscription cloud analytics service that processes data, primarily collected with a drone such as ours, and development undermakes such data usable by farmers and agronomists it will benefit us and our plan of operation.shareholders by developing important vertically integrated products and services.FarmLens is currently sold by us as a subscription and offered either standalone or in a bundle with major drone platforms manufactured by leading drone providers like AgEagle, DJI, and senseFly. 

Expected purchase or sale of any significant equipment

We anticipate that we will purchaseTheFarmLensplatform extends our reach as a business by partnering with and directly integrating into offerings by leading agricultural companies like John Deere’s Operations Center and The Climate Corporation’s FieldView. To date, Agribotix has processed agricultural imagery for over 50 different crop types from over 50 countries around the necessary production and field service equipment required to produce oil and gas during our normal course of operations over the next 12 months.

Significant changes in the number of employees

We currently have 10 full-time employees, two temporary employees and one part-time employee including field personnel. As production and drilling activities increase or decrease, we will adjust our technical, operational and administrative personnel as appropriate. We use and will continue to use independent consultants and contractors to perform various professional services, particularly in the area of land services, reservoir engineering, geology, drilling, water hauling, pipeline construction, well design, well-site monitoring and surveillance, permitting and environmental assessment. We believe that this use of third-party service providers may enhance our ability to contain operating and general expenses, and capital costs.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.world.

Critical Accounting Policies and Estimates

Our accounting policiesmanagement’s discussion and estimates that are critical to our business operations and understanding of our results of operations include those relating to our oil and gas properties, asset retirement obligations and the value of share-based payments. This is not a comprehensive list of all of the accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. GAAP, with no need for our judgment in the application. There are also areas in which our judgment in selecting any available alternative would not produce a materially different result. However, certain of our accounting policies are particularly important to the portrayalanalysis of our financial positioncondition and results of operations and we may use significant judgment in the application; as a result, they are subject to an inherent degree of uncertainty. In applying those policies, we use our judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Our most critical estimates include those related to revenue recognition, inventories and reserves for excess and obsolescence, accounting for stock-based awards, and income taxes. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates on historical experience observationand on various other factors that we believe are reasonable under the circumstances, the results of trends inwhich form the industry,basis for making judgments about the carrying value of assets and information availableliabilities that are not readily apparent from other outside sources, as appropriate. For asources. Our actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting estimates affect our more detailed discussion on the application of thesesignificant judgments and other accounting policies,estimates used in preparing our consolidated financial statements. Please see Note 1, Summary of Significant Accounting Policies,2 to our consolidated financial statements, which are included in Item 8 “Financial Statements and Supplementary Data” of this report.

Oil and Gas Properties

We followAnnual Report, for our Summary of Significant Accounting Policies. There have been no material changes made to the full-cost method ofcritical accounting under which all costs associated with property acquisition, exploration and development activities are capitalized. We also capitalize internal costs that can be directly identified with our acquisition, exploration and development activities and do not include costs related to production, general corporate overhead or similar activities.

Proved properties are amortized usingestimates during the units of production method (UOP). Currently we only have operationsperiods presented in the Unites States of America. The UOP calculation multiplies the percentage of estimated proved reserves produced each quarter by the cost of these reserves. The amortization base in the UOP calculation includes the sum of proved property, net of accumulated depreciation, depletion and amortization (DD&A), estimated future development costs (future costs to access and develop proved reserves) and asset retirement costs, less related salvage value.

The cost of unproved properties are excluded from the amortization calculation until it is determined whether or not proved reserves can be assigned to such properties or until development projects are placed into service. Geological and geophysical costs not associated with specific properties are recorded as proved property immediately. Unproved properties are reviewed for impairment quarterly.consolidated financial statements

Revenue Recognition

 Revenue is recognized when earned. Our revenue recognition policies are in compliance with Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) Topic 606, Revenue from Contracts with Customers, and the Securities and Exchange Commission Staff Accounting Bulletin No. 101 and 104. This updated guidance supersedes the current revenue recognition guidance, including industry-specific guidance. The updated guidance introduces a five-step model to achieve its core principal of the entity recognizing revenue to depict the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This standard provides a single set of guidelines for revenue recognition to be used across all industries and requires additional disclosures. It is effective for annual and interim reporting periods beginning after December 15, 2017.

Topic 606 requires revenue to be recognized when promised goods or services are transferred to customers in amounts that reflect the consideration to which the Company expects to be entitled in exchange for those goods or services and recognize revenue under the new standard as costs are incurred. Under previous U.S. generally accepted accounting principles (GAAP), revenue was generally recognized when deliveries were made, performance milestones were attained, or as costs were incurred. The new standard accelerates the timing of when the revenue is recognized, however, it does not change the total amount of revenue recognized on these contracts. The new standard does not affect revenue recognition for purposes of the Company’s sales as each of the Company’s revenue transactions represent a single performance obligation that is satisfied at a point time or monthly subscription fees which are recognized ratably over the subscription period, as defined in the new ASU. Accordingly, the Company recognizes revenue for small UAS product contracts with customers at the point in time when the transfer of control passes to the customer, which is generally when title and risk of loss transfer. The Company adopted the updated guidance effective January 1, 2018 using the full costretrospective method, however the new standard did not have a material impact on our consolidated financial position and consolidated results of accounting,operations, as it did not change the net book valuemanner or timing of oil and gas properties, less deferred income taxes,recognizing revenue on a majority of our revenue transactions. 

Goodwill

We review the recoverability of goodwill whenever events or changes in circumstances indicate that the carrying amount of such assets may not exceed a calculated “ceiling.”be recoverable or o on an annual basis. The ceiling limitation is (a) the present value of future net revenues computed by applying current prices of oil & gas reserves (with consideration of price changes only to the extent provided by contractual arrangements) to estimated future production of proved oil & gas reserves as of the date of the latest balance sheet presented, less estimated future expenditures (based on current costs) to be incurred in developing and producing the proved reserves computed using a discount factor of 10 percent and assuming continuation of existing economic conditionsplus (b) the cost of properties not being amortizedplus (c) the lower of cost or estimated fair value of unproven properties included in the costs being amortizedless (d) income tax effects related to differences between book and tax basis of properties. Future cash outflows associated with settling accrued retirement obligations are excluded from the calculation. Estimated future cash flows are calculated using end-of-period costsbased upon, among other things assumptions about expected future operating performance, and an unweighted arithmetic average of commodity prices in effect onmay differ from actual cash flows. If the first day of eachsum of the previous 12 months held flat forprojected undiscounted cash flows (excluding interest) is less than the lifecarrying value of the production, except where prices are defined by contractual arrangements.assets, the assets will be written down to the estimated fair value in the period in which the determination is made. As of December 31, 2018, there have been no events or changes in circumstances that indicate that it is more likely than not that a goodwill impairment has occurred since assessment date of August 2018.

Any excessIntangible Assets – Acquired in Business Combinations

We perform valuations of the net book value of proved oilassets acquired and gas properties, less related deferred income taxes, over the ceiling is charged to expense and reflected as additional DD&A in the statement of operations. The ceiling calculation is performed quarterly. For the year ended December 31, 2016 impairments of $4,506,933, $2,137,663, $800,000 and $588,073 were recorded for the first, second, third quarters and fourth quarters respectively. For the year ended December 31, 2015 impairments of $16,401,376, $11,421,613, $9,720,983 and $11,386,115 were record in the first, second, third and fourth quarters respectively.

Proceeds from the sale or disposition of oil and gas properties areliabilities assumed on each acquisition accounted for as a reductionbusiness combination and allocate the purchase price of each acquired business to capitalizedour respective net tangible and intangible assets. Acquired intangible assets include: customer relationships and trade names. We use valuation techniques to value these intangibles assets, with the primary technique being a discounted cash flow analysis. A discounted cash flow analysis requires us to make various assumptions and estimates including projected revenue, gross margins, operating costs, unless a significant portion (greater than 25%) of our reserve quantitiesgrowth rates, useful lives and discount rates Intangible assets are sold,amortized over their estimated useful lives using the straight-line method which approximates the pattern in which case a gain or loss is recognized in income. In 2015 the Company sold its Cherokee project assets located in Kansas for net proceeds of $2,867,305. At the time of the sale the reserve quantities made up approximately 6.7% of total reserve quantities. Accordingly, the net proceeds reduced the carrying value of our oil and gas properties.economic benefits are consumed.

Asset Retirement ObligationsShare-Based Compensation Awards

The asset retirement obligation relates to the plug and abandonment costs when our wells are no longer useful. We determine the value of the liability by obtaining quotes for this service and estimate the increase we will face in the future. We then discount the future value based on an intrinsic interest rate that is appropriate for us. If costs rise more than what we have expected there could be additional charges in the future however we monitor the costs of the abandoned wells and we will adjust this liability if necessary.