UNITED STATES


SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM Form 10-Q

 

☒QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended SeptemberJune 30, 2017

☐TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-364922022

 

 (ENERJEX RESOURCES LOGO)OR

 

ENERJEX RESOURCES, INC.

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to ________

Commission file number: 001-36492

AGEAGLE AERIAL SYSTEMS INC.

(Exact name of registrant as specified in its charter)

 

Nevada88-0422242
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
organization)
8863 E. 34th Street North, Wichita, Kansas67226
4040 Broadway, Suite 425
San Antonio, Texas78209
(Address of principal executive offices)(Zip Code)

Registrant’s telephone number, including area code: (620)325-6363

Securities registered pursuant to Section 12(b) of the Act:

Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common Stock, par value $0.001 per shareUAVS
(210) 592-1670
(Registrant’s telephone number, including area code)NYSE American LLC

  

Securities registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.

Yes ☐No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “emerging growth company” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer☐ ☐Accelerated filer☐
Non-accelerated filer☐   (Do not check if a smaller reporting company) ☒Smaller reporting company☒
Emerging growth company☐☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes   ☐      No   ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐No☒

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

 

The numberaggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter was $54,889,621.

As of August 15, 2022, there were 86,995,570 shares of Common Stock, $0.001 par value outstanding on November 9, 2017 was 10,321,397 shares.$0.001 per share, issued and outstanding.

 

 

AGEAGLE AERIAL SYSTEMS INC.

 

TABLE OF CONTENTS

 

ENERJEX RESOURCES, INC.

FORM 10-Q

TABLE OF CONTENTS

PART IFINANCIAL INFORMATIONPage3
PART IFINANCIAL INFORMATION3
ITEM 1.FINANCIAL STATEMENTSSTATEMENTS:3
Condensed Consolidated Balance Sheets at Septemberas of June 30, 2017 (Unaudited)2022 (unaudited) and December 31, 201620213
Condensed Consolidated Statements of Operations and Comprehensive Income for the threeThree and nine  months ended SeptemberSix Months Ended June 30, 20172022 and 2016 (Unaudited)2021(unaudited)4
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30, 2022 and 2021 (unaudited)5
Condensed Consolidated Statements of Cash Flows for the nine months ended SeptemberSix Months Ended June 30, 20172022 and 2016 (Unaudited)2021(unaudited)58
Notes to Condensed Consolidated Financial Statements (Unaudited)(unaudited)69
FORWARD-LOOKING STATEMENTS16
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS18 34
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK28 40
ITEM 4.CONTROLS AND PROCEDURES 40
ITEM 4.PART IICONTROLS AND PROCEDURES29 41
ITEM 1.PART IILEGAL PROCEEDINGSOTHER INFORMATION30 41
ITEM 1.LEGAL PROCEEDINGS30
ITEM 1A.2.RISK FACTORS30
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS33 41
ITEM 3.DEFAULT UPON SENIOR SECURITIES 41
ITEM 4.MINE SAFETY DISCLOSURES 41
ITEM 5.OTHER INFORMATION 41
ITEM 6.EXHIBITS 42
ITEM 3.SIGNATURESDEFAULTS UPON SENIOR SECURITIES34
ITEM 4.MINE SAFETY DISCLOSURES34
ITEM 5.OTHER INFORMATION34
ITEM 6.EXHIBITS34
SIGNATURES35 43

 


PART 1I – FINANCIAL INFORMATION

 

ITEMItem 1. FINANCIAL STATEMENTSFinancial Statements.

 

EnerJex Resources, Inc. and SubsidiariesAGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

Condensed Consolidated Balance Sheets

         
  As of
  June 30,
2022
(unaudited)		 December 31, 2021
ASSETS        
CURRENT ASSETS:        
Cash $13,505,593  $14,590,566 
Accounts receivable, net  3,763,391   2,888,879 
Inventories, net  5,648,400   4,038,508 
Prepaid and other current assets  2,122,181   1,292,570 
Note receivable  185,000   185,000 
Total current assets  25,224,565   22,995,523 
         
Property and equipment, net  842,706   952,128 
Right of use asset  1,433,845   2,019,745 
Intangible assets, net  12,879,398   13,565,494 
Goodwill  64,867,282   64,867,282 
Other assets  284,015   282,869 
Total assets $105,531,811  $104,683,041 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Accounts payable $2,158,741  $2,526,829 
Accrued expenses  1,572,904   1,901,641 
Contract liabilities  2,132,917   971,140 
Current portion of liabilities related to acquisition agreements  9,000,000   10,061,501 
Current portion of lease liabilities  981,632   1,235,977 
Current portion of COVID loans  604,067   451,889 
Total current liabilities  16,450,261   17,148,977 
         
Long term portion of liabilities related to acquisition agreements  4,000,000   8,875,000 
Long term portion of lease liabilities  564,011   942,404 
Long term portion of COVID loans  604,412   808,021 
Defined benefit plan obligation  312,828   331,726 
Total liabilities  21,931,512   28,106,128 
         
COMMITMENTS AND CONTINGENCIES (SEE NOTE 9)        
         
STOCKHOLDERS’ EQUITY:        
Preferred Stock, $0.001 par value, 25,000,000 shares authorized:        
Preferred Stock, Series F Convertible, $0.001 par value, 35,000 shares authorized, 9,690 shares issued and outstanding as of June 30, 2022, and 0 shares issued and outstanding as of December 31, 2021, respectively  10   —   
Common Stock, $0.001 par value, 250,000,000 shares authorized, 82,445,570 and 75,314,988 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively  82,445   75,315 
Additional paid-in capital  147,686,141   127,626,536 
Accumulated deficit  (64,252,652)  (51,054,344)
Accumulated other comprehensive income (loss)  84,355   (70,594)
Total stockholders’ equity  83,600,299   76,576,913 
Total liabilities and stockholders’ equity $105,531,811  $104,683,041 

 

  September 30,  December 31, 
  2017  2016 
  (Unaudited)    
Assets      
Current assets:        
Cash and cash equivalents $15,099  $128,035 
Restricted cash  —   50,000 
Accounts receivable  257,152   600,255 
Derivative receivable  —   10,570 
Inventory  —   185,733 
Marketable securities  —   210,990 
Deposits and prepaid expenses  179,424   493,384 
Total current assets  451,675   1,678,967 
Non-current assets:        
Fixed assets, net of accumulated depreciation of $600,085 and $1,817,711  196,691   2,077,055 
Oil and gas properties using full-cost accounting, net of accumulated DD&A of $8,594,167 and $15,189,716  1,414,598   3,437,030 
Other non-current assets  —   798,809 
Total non-current assets  1,611,289   6,312,894 
Total assets $2,062,964  $7,991,861 
         
Liabilities and Stockholders’ Deficit        
Current liabilities:        
Accounts payable $153,170  $294,241 
Accrued liabilities  709,300   1,535,165 
Note Payable  105,806   — 
Current portion of long term debt  4,500,000   17,925,000 
Total current liabilities  5,468,276   19,754,406 
         
Asset retirement obligation  1,593,281   3,314,191 
Other long-term liabilities  6,039,972   3,401,149 
Total non-current liabilities  7,633,253   6,715,340 
Total liabilities  13,101,529   26,469,746 
Commitments & Contingencies        
Stockholders’ Deficit:        
10% Series A cumulative perpetual redeemable preferred stock, $0.001 par value, 25,000,000 shares authorized; 938,248 shares issued and outstanding September 30, 2017 and December 31, 2016  938   938 
Series B convertible preferred stock, $0.001 par value, 1,764 shares authorized, and 1,374 and 1,764 issued and outstanding at September 30, 2017 and December 31, 2016, respectively.  1   2 
Series C convertible preferred stock, $0.001 par value, 500 shares authorized; 300 and 0 shares, issued and outstanding at September 30, 2017 and December 31, 2016, respectively  1   — 
Series C convertible preferred stock issuable  150,000   — 
Common stock, $0.001 par value, 250,000,000 shares authorized; shares issued and outstanding 10,321,397 at September 30, 2017 and 8,423,936 at December 31, 2016, respectively  10,322   8,424 
Paid-in capital  69,610,909   69,090,613 
Accumulated deficit  (80,810,736)  (87,577,862)
Total stockholders’ deficit  (11,038,565)  (18,477,885)
Total liabilities and stockholders’ deficit $2,062,964  $7,991,861 
         

See Notesaccompanying notes to Condensed Consolidated Financial Statements (unaudited).these condensed consolidated financial statements.

 


EnerJex Resources, Inc. and Subsidiaries

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)

                 
  For the Three Months Ended For the Six Months Ended
  June 30, June 30,
  2022 2021 2022 2021
Revenues $5,287,873  $1,937,364  $9,129,851  $3,638,955 
Cost of sales  2,737,777   959,229   5,214,863   1,658,097 
Gross Profit  2,550,096   978,135   3,914,988   1,980,858 
                 
Operating Expenses:                
General and administrative  4,437,185   4,331,787   9,918,564   7,635,114 
Research and development  2,182,313   907,000   4,367,237   1,335,605 
Sales and marketing  1,319,177   559,833   2,499,706   791,427 
Total Operating Expenses  7,938,675   5,798,620   16,785,507   9,762,146 
Loss from Operations  (5,388,579)  (4,820,485)  (12,870,519)  (7,781,288)
                 
Other Income (Expense):                
Interest (expense) income, net  (6,719)  6,164   (23,051)  9,015 
Foreign currency transaction gain/losses, net  (206,438)  —   (304,738)  — 
Paycheck protection program loan forgiveness  —   108,532   —   108,532 
Other income, net  —   27,617   —   55,039 
Total Other Income (Expense), net  (213,157)  142,313   (327,789)  172,586 
Loss Before Income Taxes  (5,601,736)  (4,678,172)  (13,198,308)  (7,608,702)
Provision for income taxes  —   —   —   — 
Net Loss $(5,601,736) $(4,678,172) $(13,198,308) $(7,608,702)
                 
Comprehensive Income:                
Amortization of unrecognized periodic pension costs  2,641   —   2,641   — 
Foreign currency cumulative translation adjustment  132,136   —   152,308   — 
Total comprehensive loss, net of tax $(5,466,959) $(4,678,172) $(13,043,359) $(7,608,702)
                 
Net Loss Per Common Share - Basic and Diluted $(0.07) $(0.07) $( $0.17) $(0.12)
                 
Weighted Average Number of Shares Outstanding During the Period -- Basic and Diluted  81,659,858   68,338,866   79,732,890   64,795,122 

 

Condensed Consolidated Statements of OperationsSee accompanying notes to these condensed consolidated financial statements.

 

(Unaudited)

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022
(UNAUDITED)

 

  For the Three Months Ended  For the Nine Months Ended 
  September 30,  September 30, 
  2017  2016  2017  2016 
             
Oil revenues $187,297  $454,825  $1,082,492  $1,581,972 
Natural gas revenues  —   18,929   19,509   43,461 
Total revenues  187,297   473,754   1,102,001   1,625,433 
                 
Expenses:                
Direct operating costs  205,253   569,109   1,013,389   1,916,774 
Depreciation, depletion and amortization  80,449   63,644   305,684   312,322 
Impairment of oil and gas asset  —   800,000   —   7,444,597 
Professional fees  —   43,968   422,538   181,086 
Salaries  130,741   297,244   407,888   1,044,639 
Administrative expense  190,341   124,090   461,378   435,616 
Total expenses  606,784   1,898,055   2,610,877   11,335,034 
Loss from operations  (419,487)  (1,424,301)  (1,508,876)  (9,709,601)
                 
Other income (expense):                
Interest expense  (184,148)  (339,719)  (908,642)  (1,001,937)
Gain on loan sale agreement  —   —   11,500,124   — 
Loss on derivatives  —   (68,459)  —   (2,449,855)
Other income  285,000   138,075   531,846   2,312,261 
Total other income (expense)  100,852   (270,103)  11,123,328   (1,139,531)
Net (loss) income $(318,635) $(1,694,404) $9,614,452  $(10,849,132)
                 
Net (loss) income  (318,635)  (1,694,404)  9,614,452   (10,849,132)
Preferred dividends  (879,608)  (860,061)  (2,847,324)  (2,130,604)
Net (loss) income attributable to common stockholders $(1,198,243) $(2,554,465) $6,767,128  $(12,979,736)
Net (loss) income per share basic $(0.12) $(0.30) $0.72  $(1.54)
Weighted average shares basic  10,321,397   8,423,936   9,416,837   8,423,936 
Net (loss) income per share diluted $(0.12) $(0.30) $0.45  $(1.54)
Weighted average shares diluted  10,321,397   8,423,936   15,151,107   8,423,936 
                                 
  Par $0.001 Preferred Stock, Series F Convertible Shares Preferred Stock, Series F Convertible Amount Par
$0.001
Common Stock		 Common Stock Amount Additional Paid-In Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders’ Equity
Balance as of March 31, 2022  —  $—   81,568,546  $81,568  $136,988,255  $(50,422) $(58,650,916) $78,368,485 
Issuance of Preferred Stock, Series F Convertible, net of issuance costs  10,000   10   —   —   9,919,990   —   —   9,920,000 
Conversion of Preferred Stock, Series F Convertible shares to Common Stock  (310)  —   500,000   500   (500)  —   —   — 
Exercise of stock options  —   —   75,000   75   30,675   —   —   30,750 
Issuance of Restricted Common Stock  —   —   302,024   302   (302)  —   —   — 
Stock-based compensation expense  —   —   —   —   748,023   —   —   748,023 
Foreign currency cumulative translation adjustment  —   —   —   —   —   132,136   —   132,136 
Amortization of unrecognized periodic pension costs  —   —   —   —   —   2,641   —   2,641 
Net loss  —   —   —   —   —   —   (5,601,736)  (5,601,736)
Balance as of June 30, 2022  9,690  $10   82,445,570  $82,445  $147,686,141  $84,355  $(64,252,652) $83,600,299)

  Par $0.001 Preferred Stock, Series F Convertible Shares Preferred Stock, Series F Convertible Amount  Par
$0.001
Common Stock		 Common Stock Amount Additional Paid-In Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders’ Equity
Balance as of December 31, 2021  —  $—   75,314,988  $75,315  $127,626,536  $(70,594) $(51,054,344) $76,576,913 
Sale of Common Stock, net of issuance costs  —   —   4,251,151   4,251   4,579,090   —   —   4,583,341 
Issuance of Common Stock for acquisition of senseFly  —   —   1,927,407   1,927   2,998,073   —   —   3,000,000 
Issuance of Restricted Common Stock  —   —   302,024   302   (302)  —   —   — 
Issuance of Preferred Stock, Series F Convertible, net of issuance costs  10,000   10   —   —   9,919,990   —   —   9,920,000 
Exercise of stock options  —   —   150,000   150   61,350   —   —   61,500 
Stock-based compensation expense  —   —   —   —   2,501,904   —   —   2,501,904 
Conversion of Preferred Stock, Series F Convertible shares to Common Stock  (310)   —  500,000   500   (500)  —   —   — 
Foreign currency translation adjustment  —   —   —   —   —   152,308   —   152,308 
Amortization of unrecognized periodic pension costs   —   —   —   —   —   2,641   —   2,641 
Net loss  —   —   —   —   —   —   (13,198,308)  (13,198,308)
Balance as of June 30, 2022  9,690  $10   82,445,570  $82,445  $147,686,141  $84,355  $(64,252,652) $83,600,299 

 

See Notesaccompanying notes to Condensed Consolidated Financial Statements (unaudited).condensed consolidated financial statements.

 


AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021
(UNAUDITED)

                         
  Common Stock Common Stock Amount Additional Paid-In Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders’ Equity
Balance as of March 31, 2021  62,500,815  $62,501  $62,344,452  $—  $(23,876,194) $38,530,759 
Sales of Common Stock, net of issuance costs  5,271,100   5,271   28,641,890   —   —   28,647,161 
Issuance of Common Stock for MicaSense Acquisition  540,541   541   2,999,459   —   —   3,000,000 
Issuance of Common Stock for Measure Acquisition  5,319,145   5,319   24,369,681   —   —   24,375,000 
Stock issued in exchange for professional services  550,000   550   2,906,450   —   —   2,907,000 
Exercise of stock options  130,557   131   34,314   —   —   34,445 
Stock-based compensation expense  356,402   356   2,081,425   —   —   2,081,781 
Net loss  —   —   —   —   (4,678,172)  (4,678,172)
Balance as of June 30, 2021  74,668,560  $74,669  $123,377,671  $—  $(28,554,366) $94,897,974 

  Common Stock Common Stock Amount Additional Paid-In Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders’ Equity
Balance as of December 31, 2020  58,636,365  $58,636  $47,241,757  $—  $(20,945,664) $26,354,729 
Sale of Common Stock, net of issuance costs  6,328,314   6,328   34,954,776   —   —   34,961,104 
Sale of Common Stock from exercise of warrants  2,516,778   2,517   8,302,851   —   —   8,305,368 
Issuance of Common Stock for MicaSense Acquisition  540,541   541   2,999,459   —   —   3,000,000 
Issuance of Common Stock for Measure Acquisition  5,319,145   5,319   24,369,681   —   —   24,375,000 
Stock issued in exchange for professional services  550,000   550   2,906,450   —   —   2,907,000 
Exercise of stock options  406,015   407   75,418   —   —   75,825 
Stock-based compensation expense  371,402   371   2,527,279   —   —   2,527,650 
Net loss  —   —   —   —   (7,608,702)  (7,608,702)
Balance as of June 30, 2021  74,668,560  $74,669  $123,377,671  $—  $(28,554,366) $94,897,974 

See accompanying notes to condensed consolidated financial statements.

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

         
  For the Six Months Ended
June 30,
  2022 2021
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss $(13,198,308) $(7,608,702)
Adjustments to reconcile net loss to net cash used in operating activities:        
Stock-based compensation  2,501,904   2,527,650 
Stock issued in exchange for professional services  —   2,907,000 
Paycheck protection program loan forgiveness  —   (108,532)
Depreciation and amortization  1,844,196   454,876 
Defined benefit plan obligation and other  (5,644)  — 
Provision for bad debts  —   47,262 
Loss on disposal of property and equipment  —   3,712 
Changes in assets and liabilities:        
Accounts receivable, net  (944,064)  (383,059)
Inventories, net  (1,702,158)  (206,031)
Prepaid expenses and other assets  (846,691)  (220,339)
Accounts payable  (348,416)  587,482 
Accrued expenses and other liabilities  (290,443)  (1,649,198)
Contract liabilities  1,168,007   141,644 
Other  193,528   — 
Net cash used in operating activities  (11,628,089)  (3,506,235)
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Purchases of property and equipment  (137,149)  (210,576)
Acquisition related liabilities  (2,936,501)   — 
Acquisition of MicaSense, net of cash acquired  —   (14,536,863)
Acquisition of Measure, net of cash acquired  —   (9,445,258)
Capitalization of platform development costs  (319,799)  (369,060)
Capitalization of internal use software costs  (610,643)  — 
Net cash used in investing activities  (4,004,092)  (24,561,757)
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Sales of Common Stock, net of issuance costs  4,583,341   34,961,104 
Sale of Common Stock from exercise of warrants  —   8,305,368 
Sale of Preferred Stock, Series F Convertible, net of issuance costs  9,920,000   — 
Exercise of stock options  61,500   75,825 
Net cash provided by financing activities  14,564,841   43,342,297 
         
Effects of foreign exchange rates on cash flows  (17,633)  — 
         
Net (decrease) increase in cash  (1,084,973)  15,274,305 
Cash at beginning of period  14,590,566   23,940,333 
Cash at end of period $13,505,593  $39,214,638 
         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:        
Interest cash paid $—  $— 
Income taxes paid $—  $— 
NON-CASH INVESTING AND FINANCING ACTIVITIES:        
Stock consideration for the senseFly Acquisition $3,000,000   — 
Conversion of Preferred Stock, Series F Convertible to Common Stock  500   — 
Issuance of Restricted Common Stock  302   — 
Acquisition liability related to the MicaSense Acquisition $—  $5,000,000 
Stock consideration for the MicaSense Acquisition $—  $3,000,000 
Acquisition liability related to the Measure Acquisition $—  $5,471,592 
Stock consideration for the Measure Acquisition $—  $24,375,000 

See accompanying notes to condensed consolidated financial statements.

EnerJex Resources, Inc. and SubsidiariesAGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash FlowsNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(Unaudited)(UNAUDITED)

 

  For the Nine Months Ended 
  September  30, 
  2017  2016 
Cash flows from operating activities        
Net income (loss) $9,614,452  $(10,849,132)
Depreciation, depletion and amortization  212,186   312,322 
Write-off of inventory  71,982   — 
Amortization of deferred financing costs  223,790   90,323 
Impairment of oil and gas assets  —   7,444,597 
Stock, options and warrants issued for services  13,690   217,283 
Accretion of asset retirement obligation  93,498   169,110 
Settlement of asset retirement obligation  —   (2,767)
Amortization of prepaid expenses  241,101   — 
Loss on derivatives  —   2,449,855 
Gain on loan sale agreement, net of cash  (11,500,124)  — 
Adjustments to reconcile net income (loss) to cash used in operating activities:        
Accounts receivable  (15,656)  (156,835)
Inventory  (15,944)  (81,805)
Prepaid expenses  55,601   (76,261)
Accounts payable  (67,008)  (762,193)
Accrued liabilities  556,677   (360,153)
Cash used in operating activities  (515,752)  (1,291,986)
         
Cash flows from investing activities        
Purchase of fixed assets  —   (243,274)
Additions to oil and gas properties  (4,635)  (16,794)
Cash used in investing activities  (4,635)  (260,068)
         
Cash flows from financing activities        
Bank account transfer on loan sale agreement  (92,547)  — 
Repayments of long-term debt  —   (686,660)
Proceeds from sale of preferred stock  450,000   — 
Cash provided by (used in) financing activities  357,453   (686,660)
         
Net (decrease) in cash  (162,930)  (2,238,714)
Cash – beginning  178,035   3,101,682 
Cash – ending $15,099  $862,968 
         
Supplemental disclosures:        
Interest paid $—  $919,089 
Income taxes paid $—  $— 
         
Non-cash transactions:        
Beneficial conversion feature on Series C preferred stock accounted as preferred dividend $208,500  $— 
Accrued preference dividend included in long term debt $2,638,824  $— 
Conversion of Series B preferred into common stock $1,897  $— 

See Notes to Condensed Consolidated Financial Statements (unaudited).


EnerJex Resources, Inc.Note 1 – Description of the Business and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)Basis of Presentation

 

Note 1Description of Business – AgEagle™ Aerial Systems Inc. (“AgEagle” or the “Company”), through its wholly-owned subsidiaries, AgEagle Aerial, Inc, MicaSense™, Inc. (“MicaSense”), Measure Global, Inc. (“Measure”), senseFly SA and senseFly Inc. (collectively “senseFly”), is actively engaged in designing and delivering best-in-class autonomous unmanned aerial systems, sensors and software that solve important problems for its customers in a wide range of industry verticals, including energy/utilities, infrastructure, agriculture and government.

During the year ended December 31, 2021, the Company acquired 100% of the outstanding stock of MicaSense, Measure and senseFly, respectively. These three business acquisitions are collectively referred to as the “2021 Business Acquisitions.”

Basis of Presentation

– The unaudited condensed consolidated financial statements of EnerJex Resources, Inc. (“we”, “us”, “our”, “EnerJex” and “Company”) have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and reflect all adjustments which, in the opinion of management, are necessary for a fair presentation. All such adjustments are of a normal recurring nature. The results of operations for the interim period are not necessarily indicative of the results to be expected for a full year. Certain amounts in the prior year statements have been reclassified to conform to the current year presentations. The statements should be read in conjunction with the financial statements and footnotes thereto included in our Annual Report Form 10-K for the fiscal year ended December 31, 2016, filed with the Securities and Exchange Commission on March 31, 2017.

Our consolidated financial statements include the accounts of our wholly-owned subsidiaries, EnerJex Kansas, Inc., Black Sable Energy, LLC, Working Interest, LLC and Black Raven Energy, Inc., for the three and nine month periods ended September 30, 2017, and for the year ended December 31, 2016. All intercompany transactions and accounts have been eliminated in consolidation.

Note 2 – Going Concern

The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

Merger Agreement

On October 19, 2017, EnerJex entered into an Agreement and Plan of Merger (the “Merger Agreement”) with AgEagle Aerial Systems, Inc., a Nevada corporation (“AgEagle”), which designs, develops, produces, and distributes technologically advanced small unmanned aerial vehicles (UAV or drones) that are supplied to the agriculture industry, and AgEagle Merger Sub, Inc., a Nevada corporation and wholly-owned subsidiary of the Company (“Merger Sub”). Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will be merged with and into AgEagle, Merger Sub will cease to exist and AgEagle will survive as a wholly-owned subsidiary of the Company (the “Merger”). The respective boards of directors of EnerJex and AgEagle have approved the Merger Agreement and the transactions contemplated thereby.

At the effective time of the Merger (the “Effective Time”), the shares of AgEagle capital stock will be automatically converted into the right to receive equal to 85% of the then issued and outstanding capital stock of the Company on a fully diluted basis. In addition, at the Effective Time all outstanding options and warrants to purchase shares of AgEagle common stock will be assumed by the Company and converted into options and warrants to purchase shares of Company common stock. No fractional shares of Company common stock will be issued in the Merger but will be rounded to the nearest whole share. Following the consummation of the Merger, former stockholders of AgEagle with respect to the Merger are expected to own 85% of the Company’s outstanding common stock (inclusive of the AgEagle assumed stock options and warrants), and current common and Series A Preferred stockholders of the Company are expected to own 15% of the Company, excluding shares of common stock that may be issuedpresented in connection with the conversion of the Company’s Series B Preferred StockUnited States dollars and Series C Preferred Stock, and not including any additional shares which may be issued in connection with the Company’s closing obligation to provide up to $4 million in new working capital and the elimination of all liabilities currently on the Company’s balance sheet.

In connection with the Merger, the Company will also file a proxy statement seeking stockholder approval to: (a) amend the terms of its Series A Preferred Stock (as discussed below); (b) approve the issuance of the Company’s shares in connection with the Merger to the AgEagle shareholders and new investors, in excess of 19.9% of the Company’s total issued and outstanding shares of common stock; (c) approve the issuance of shares to current Company management and directors in lieu of deferred salary and fees, a majority of which will be held in escrow to secure the Company’s indemnity obligations under the Merger Agreement; and (d) change the name of the Company to “AgEagle Aerial Resources, Inc.”


The Merger Agreement provides that, immediately following the Effective Time, the existing board of directors and officers of the Company will resign and new directors and officers will be appointed by AgEagle.

The Company intends to dispose of its principal assets, consisting primarily of its Kansas oil and gas properties, concurrently with the closing of the Merger. In the event the Merger is not consummated, the Company does not have a present intention to dispose of the above described assets.

The completion of the Merger is subject to various customary conditions, including, among other things: (a) the approval of the stockholders of the Company and AgEagle; (b) the accuracy of the representations and warranties made by each of the Company and AgEagle and the compliance by each of the Company and AgEagle with their respective obligations under the Merger Agreement; (c) approval of the stockholders of the Company for the issuance of its common stock and any other securities (x) to the AgEagle stockholders in connection with the Merger and (y) in connection with the financing transactions contemplated by the Merger Agreement; (d) approval for the listing of shares of the Company’s common stock to be issued in the Merger and other related transactions on the NYSE American; and (e) that all of the Company’s assets as disclosed shall have been sold, transferred or otherwise disposed of and the corresponding debt and liabilities shall have been extinguished. The Company’s existing cash resources are insufficient to satisfy all of its outstanding liabilities. Accordingly, in order to satisfy the condition and consummate the Merger, the Company will be required to raise additional funding prior to the closing of the Merger, the failure of which could result in the Company’s failure to consummate the Merger Agreement.

The Merger Agreement contains customary representations, warranties and covenants, including covenants obligating each of the Company and AgEagle to continue to conduct its respective business in the ordinary course, to provide reasonable access to each other’s information and to use reasonable best efforts to cooperate and coordinate to make any filings or submissions that are required to be made under any applicable laws or requested to be made by any government authority in connection with the Merger. The Merger Agreement also contains a customary “no solicitation” provision pursuant to which, prior to the earlier of January 31, 2018, or the completion or termination of the Merger, neither the Company nor AgEagle may solicit or engage in discussions with any third party regarding another acquisition proposal unless, in the Company’s case, it has received an unsolicited, bona fide written proposal that the recipient’s board of directors determines is or would reasonably be expected to result in a superior proposal. The Company has paid AgEagle a $50,000 non-refundable fee at the signing of the Merger Agreement. The Merger Agreement contains certain termination rights in favor of each of the Company and AgEagle.

In addition, the Merger Agreement contains provisions for indemnification in the event of any damages suffered by either party as a result of breaches of representations and warranties contained therein. The aggregate maximum indemnification obligation of any indemnifying party for damages with respect to breaches of representations and warranties set forth in the Merger Agreement shall not exceed, in the aggregate, $350,000, other than fraud, intentional misrepresentation or willful breach. An indemnifying party shall satisfy its indemnification obligations with shares of Company common stock equal to the aggregate amount of losses of the indemnified party, calculated based upon the greater of (i) the value of the Company common stock as of the closing of the Merger; and (ii) the average closing price of the Company common stock on the NYSE American for the five trading days immediately prior to the date such a claim is made. The Company has agreed to deposit an aggregate of 1,215,278 shares of common stock to be issued to current officers and directors of the Company in lieu of deferred salary and fees into escrow to secure its indemnification obligations, the issuance of such shares requiring the approval of the Company’s common stockholders.

In connection with, and as a condition to the closing of the Merger, the Company is seeking the consent of the holder of its Series A Preferred Stock (“Series A Preferred Stock”) to amend the terms thereof to: (i) allow the Company to pay all accrued but unpaid dividends up to September 30, 2017 in additional shares of Series A Preferred Stock based on the value of the liquidation preference thereof, (ii) eliminate the right of the Series A Preferred Stock holders to receive any dividends accruing after September 30, 2017, and (iii) convert each share of Series A Preferred Stock into 10 shares of Company common stock. An affirmative vote of 66.7% of all shares of Series A Preferred Stock voting as a class as of the record date of the proxy statement is required to amend the terms of the Certificate of Designation to provide for these changes, as required under the Merger Agreement.


As of September 30, 2017, the Series A Preferred Stock had accrued a total of $6,039,972 in accrued but unpaid dividends, which would result in an additional 241,599 shares of Series A Preferred Stock being issued by the Company to satisfy these accrued dividends.

The Merger Agreement provides either party the right to terminate the Merger if it has not been consummated by January 31, 2018, provided that if all of the conditions to closing shall have been satisfied or shall be capable of being satisfied at such time, the required closing date may be extended until March 31, 2018.

Financing Transactions

On October 3, 2011, the Company entered into an Amended and Restated Credit Agreement with Texas Capital Bank, and other financial institutions and banks that may become a party to the Credit Agreement from time to time (“TCB” or “Bank”). The facilities provided under the Amended and Restated Credit Agreement were to be used to refinance a prior outstanding revolving loan facility with TCB dated July 3, 2008, and for working capital and general corporate purposes. On August 15, 2014, the Company entered into an Eighth Amendment to the Amended and Restated Credit Agreement. Among other things the Eighth Amendment extended the maturity of the Agreement by three years to October 3, 2018. On August 12, 2015, the Company entered into a Tenth Amendment to the Amended and Restated Credit Agreement. Among other things, the Tenth Amendment established the requirement of monthly borrowing base reductions commencing September 1, 2015 and continuing on the first of each month thereafter. On November 13, 2015, the Company entered into an 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) suspended certain hedging requirements, and (iii) amended certain other items of the Credit Agreement.

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 payment on April 6, 2016 and on April 7, 2016, 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. 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. Upon the expiration of the Third Forbearance agreement, the Company did not enter into a Fourth Forbearance Agreement. Also, at that time the Company discontinued payment of interest on its outstanding loan obligations with the Bank.

Throughout 2016, the Company evaluated plans to restructure, amend or refinance existing debt through private options. On February 14, 2017, the Company announced that a group of investors unrelated to the Company had purchased from EnerJex’s secured bank lender all rights to the Company’s secured indebtedness, and that EnerJex had executed a definitive written agreement for the discharge of the Company’s secured indebtedness with the purchasing investor group. Final closing on this agreement occurred on May 10, 2017.

On February 10, 2017, the Company, TCB 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 Sellers sold to Buyers, and Buyers purchased from Sellers, all of Sellers’ right, title and interest in, to and under 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% of the proceeds, after Buyer’s realization of a 150% return on the Cash Purchase Price within five (5) years of the closing date of the sale, 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, the Company released 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 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:

1.the successor lender agreed to forgive our existing secured loan in the approximate principal amount of $17,295,000, and in exchange entered into a secured promissory note (which we refer to as the “restated secured note”) in the original principal amount of $4,500,000.

2.we:

a.conveyed our oil and gas properties and associated performance and surety bonds in Colorado, Texas, and Nebraska;

b.conveyed all of our shares of Oakridge Energy, Inc. (together, the “conveyed oil and gas assets”); and

c.retained our assets in Kansas and continued as a going concern. The Kansas assets currently provide most of our current operating revenue.

The restated secured note:

a.is secured by a first-priority lien in the Company’s oil and gas producing assets situated in the State of Kansas,

b.evidences accrued interest on the $4,500,000 principal balance at a rate of 16% per annum,

c.bears interest from and after May 1, 2017, at a rate of 16.0% per annum,

d.is pre-payable in full at a discount at any time during the term of the restated secured note upon EnerJex paying $3,300,000 to successor lender, and

e.matures and is due and payable in full on November 1, 2017.

We have two options to extend the maturity date of the restated secured note by 90 days each (first to January 30, 2018 and then to April 30, 2018), upon payment of extension fees of $100,000 for each extension.

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 are to be forgiven.

The closing occurred on May 10, 2017. As part of the closing procedures and net settlement, we issued a promissory note to Pass Creek Resources LLC in the amount of $105,806. The promissory bears interest at 16% per annum and matured on June 9, 2017. The amount due was not paid on June 9, 2017, but the holder has not provided the Company a notice of default.

In connection with the May 10, 2017 closing and in consideration of the satisfaction of $13,425,000 of the amount due under the Credit Agreement, as amended, the Company and certain of its subsidiaries transferred to PCR Holdings LLC, an affiliate of the successor lenders under the Credit Agreement, all of the Company’s oil and gas properties and assets located in Colorado, Texas, and Nebraska, as well as the Company’s shares of Oakridge Energy, Inc.

To evidence the Company’s remaining $4,500,000 of indebtedness to PWCM Investment Company IC LLC (“PWCM”), RES Investment Group, LLC (“RES”), Round Rock Development Partners, LP (“Round Rock”), and Cibolo Holdings, LLC (“Cibolo Holdings,” and together with PWCM, RES and Round Rock, “Successor Lenders”), the Company’s subsidiaries (except Kansas Holdings, LLC) entered into a Second Amended and Restated Credit Agreement with Cortland Capital Market Services LLC, as Administrative Agent, and the other financial institutions and banks parties thereto (the “New Credit Agreement”), and a related Amended and Restated Note (the “New Note”), in the amount of $3.3 million as described above.


Our subsidiaries’ obligations under the credit agreement and note are non-recourse and are secured by a first-priority lien in the Company’s and its subsidiaries’ oil properties and assets located in Kansas. The Company was removed as a borrower under the Credit Agreement, but entered into a Guaranty of Recourse Carveouts, pursuant to which the Company guarantees its subsidiaries’ payment of certain fees and expenses due under the Credit Agreement, and may be liable for certain conduct, such as fraud, bad faith, gross negligence, and waste of the Kansas oil properties or assets.

These conditions raise substantial doubt about the Company’s ability to continue as a going concern for the next twelve months following the issuance of these financial statements. The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America on(“U.S. GAAP”). In the opinion of management, the Company has made all necessary adjustments, which include normal recurring adjustments, for a going concern basis, which contemplatesfair statement of the realizationCompany’s consolidated financial position and results of assetsoperations for the periods presented. Certain information and the satisfaction of liabilitiesdisclosures included in the normal courseannual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the U.S. Securities and Exchange Commission (“SEC”) rules. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes for the year ended December 31, 2021, included in the Company’s Annual Report on Form 10-K, as filed with the SEC on April 12, 2022. The results for the three and six month periods ended June 30, 2022 are not necessarily indicative of business. Accordingly, the results to be expected for a full year, any other periods or any future year or period.

Liquidity – The Company has continued to realize losses from operations. However, because of its capital raise efforts, the Company believes that it will have sufficient cash to meet its anticipated operating costs and capital expenditure requirements through August 2023. The Company’s primary need for liquidity is to fund working capital requirements of our business, capital expenditures, acquisitions, debt service, and for general corporate purposes. The Company’s primary source of liquidity is funds generated by financing activities and from private placements. The Company’s ability to fund our operations, to make planned capital expenditures, to make planned acquisitions, to make scheduled debt payments, and to repay or refinance indebtedness depends on our future operating performance and cash flows, which are subject to prevailing economic conditions and financial, business and other factors, some of which are beyond our control.

If the Company is unable to generate significant sales growth in the near term and raise additional capital, there is a risk that the Company could default on additional obligations; and could be required to discontinue or significantly reduce the scope of its operations if no other means of financing operations are available. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of assetsrecorded asset amounts or the amount and classification of liabilities or any other adjustment that might be necessary should the Company be unable to continue as a going concern.

 

Note 3 – Stock Options and Warrants

 

A summary of stock options and warrants is as follows:AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

   Options  Weighted
Avg.
Exercise
Price		  Warrants  Weighted
Avg.
Exercise
Price		 
Outstanding December 31, 2016   207,664  $9.69   1,904,286  $2.75 
Granted   —   —   —   — 
Cancelled   (50,000)  —   —   — 
Exercised   —   —   —   — 
Outstanding September 30, 2017   157,664  $9.69   1,904,286  $2.75 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(UNAUDITED)

 

Note 41 – Asset Retirement ObligationDescription of the Business and Basis of Presentation – Continued

 

Our asset retirement obligations relateRisks and Uncertainties – Global economic challenges, including the impact of the war in Ukraine, the COVID-19 pandemic, rising inflation and supply-chain disruptions, adverse labor market conditions could cause economic uncertainty and volatility. During the three and six months ended June 30, 2022, the COVID-19 pandemic continued to have a significant negative impact on the liabilities associated withunmanned aerial vehicle (“UAV”) systems industry, the abandonmentCompany’s customers and business globally. The aforementioned risks and their respective impacts on the UAV industry and the Company’s operational and financial performance remains uncertain and outside of oilthe Company’s control. Specifically, as a result of the aforementioned continuing risks, the Company’s ability to access components and natural gas wells.parts needed in order to manufacture its proprietary drones and sensors, and to perform quality testing have been, and continue to be, impacted. If either the Company or any of its third parties in the supply chain for materials used in our manufacturing and assembly processes continue to be adversely impacted, the Company’s supply chain may be further disrupted, limiting its ability to manufacture and assemble products. The amounts recognized are basedCompany expects the pandemic, inflation and supply-chain disruptions and its effects to continue to have a significant negative impact on numerous estimatesits business for the duration of the pandemic and assumptions, including future retirement costs, inflation rates and credit adjusted risk-free interest rates. The following showsduring the changes in asset retirement obligations:subsequent economic recovery, which could be for an extended period of time.

 

Asset retirement obligations, December 31, 2016  $3,314,191 
Release of liabilities   (1,814,408)
Accretion   93,498 
Asset retirement obligations, September 30, 2017  $1,593,281 

Correction of Prior Period Information – During the review of the Company’s condensed consolidated financial statements for the three and six month periods ended June 30, 2021, the Company identified an error in the accounting and presentation of revenue and related expenses recorded for the MicaSense Acquisition (See Note 5 – Long-Term Debt

Senior Secured Credit Facility

On October 3, 2011, the Company and DD Energy, Inc., EnerJex Kansas, Inc., Black Sable Energy, LLC and Working Interest, LLC, its subsidiaries (“Borrowers”) entered into an Amended and Restated Credit Agreement with Texas Capital Bank, N.A. (the “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 used to refinance the Borrowers’ prior outstanding revolving loan facility with the 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 nine 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 reflected the addition of Rantoul Partners as an additional Borrower and added 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 our borrowing base to $7,000,000, (ii) reduced the minimum interest rate to 3.75%, and (ii) 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 our 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 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 reflected the following changes: (i) the Bank consented to the restructuring transactionsBusiness Acquisitions) related to the dissolution of Rantoul Partners, and (ii) the Bank terminated a Limited Guaranty, as definedthree months ended March 31, 2021. This error resulted in the Credit Agreement, executed by Rantoul Partnersrecording of $394,743 in favoradditional revenues, $129,510 in additional cost of sales, and $232,252 in additional operating expenses, resulting in additional net income of $32,033. If reported correctly, the Company would have recorded $1,306,849 in revenues, $492,394 in cost of sales, $3,808,236 in operating expenses, and a net loss of ($2,962,563) for the three months ended March 31, 2021. Instead, the Company recorded revenues of $1,701,592, cost of sales of $621,904, operating expenses of $4,040,488, and a net loss of ($2,930,530) for the three months ended March 31, 2021. To correct this error, the Company recorded the correction in the three month period ended June 30, 2021. If reported correctly for the three months ended June 30, 2021, then the Company would have reported $2,332,107 in revenues, $1,088,739 in cost of sales, $6,030,872 in operating expenses, and a net loss of ($4,646,139). In accordance with the SEC’s Staff Accounting Bulletin Nos. 99 and 108 (“SAB 99” and ”SAB 108”), the Company evaluated this error and concluded that although the adjustment to revenue was quantitatively material, the cumulative effects were quantitatively and qualitatively immaterial and would not have materially impacted a reasonable investor’s opinion of the Bank.

On April 16, 2013,Company. This is further supported by the Bankfact that the impact would not have been significant in comparison to prior periods, as the financial results still supported the Company’s increased our borrowing base to $19.5 million.

On September 30, 2013, we entered into a Fifth Amendment toyear-over-year growth in revenue as reported and discussed in both periods within the AmendedManagement Discussion & Analysis. Therefore, as permitted by SAB 108 and Restated Credit Agreement. The Fifth Amendment reflectedtreated under the following changes: (i) an expanded principal commitment amount of the Bank to $100,000,000, (ii) an increase in our Borrowing Base to $38,000,000, (iii) the addition of Black Raven Energy, Inc., our wholly-owned subsidiary, to the Credit Agreement as a borrower party, (iv) the addition of certain collateralFinancial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 250, Accounting Changes and security interests in favor of the Bank, and (v) the reduction of our 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 reflected the following changes: (i) the addition of Iberia Bank as a participant in our credit facility (together with the Bank, the “Banks”)Error Corrections, 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 reflected the Bank’s consent to our issuance of up to 850,000 shares of our 10% Series A Cumulative Redeemable Perpetual Preferred Stock.

On August 15, 2014, we entered into an Eighth Amendment to the Amended and Restated Credit Agreement. The Eighth Amendment reflected 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, 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 our recent Reserve Report dated January 1, 2015, (ii) imposed affirmative obligations on the Company corrected previously recorded results for the three and six months ended June 30, 2021, to useaccount for the error in this current filing. As 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 would 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 reflected the following changes, it: (i) allowed the Company to sell certain oil assets in Kansas, (ii) allowed for approximately $1,300,000 of the proceeds from the sale to be reinvested in Company owned oil and gas projects, and (iii) provided that not less than $1,500,000 from the proceeds of the sale would be applied to outstanding loan balances.

On November 13, 2015, the Company entered into an Eleventh Amendment to the Amended and Restated Credit Agreement. The Eleventh Amendment reflected the following changes: (i) waived certain provisions of the Credit Agreement, (ii) suspended certain hedging requirements, and (iii) amended other provisions of the Credit Agreement.

On April 1, 2016, the Company informed the Banks 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 payment on April 6, 2016 and on April 7, 2016 entered into a Forbearance Agreement whereby the Banks agreed to not exercise remedies and rights afforded it under the Amended and Restated Credit Agreement for thirty days. On May 31, 2016, the Company and the Banks amended the Forbearance Agreement to extend the forbearance period to August 31, 2016. On July 29, 2016, the Company and the Banks entered into a Third Forbearance Agreement which extended the forbearance period to October 1, 2016. Upon the expiration of the Third Forbearance agreement, the Company did not enter into a fourth Forbearance Agreement. Also, at that time the Company discontinued payment of interest on its outstanding loan obligations with the Banks.

On February 10, 2017, the Company and the other Sellers entered into and completed the transactions contemplated by the LSA, described in greater detail in “Part I” – “Item 1 Financial Statements” of this report above under “Note 2 – Going Concern” – “Financing Transactions”.

Below is a table showing the reconciliation of the gain on LSA as set forth onresult, the statement of operations for the ninesix months ended SeptemberJune 30, 2017:

Forgiveness of existing secured loan $17,925,000 
Forgiveness of accrued interest  1,306,801 
Issuance of secured promissory note  (4,500,000)
Transfer of oil and gas properties  (1,902,726)
Transfer of gas gathering system  (1,772,588)
Transfer of shares of Oakridge Energy, Inc.  (210,990)
Transfer of ARO liability  1,814,407 
Transfer of other assets  (1,159,780)
Gain on LSA $11,500,124 


To evidence2021 reflects the Company’s remaining $4,500,000corrected revenues, cost of indebtedness to PWCM Investment Company IC LLC (“PWCM”), RES Investment Group, LLC (“RES”), Round Rock Development Partners, LP (“Round Rock”),goods sold, operating expenses and Cibolo Holdings, LLC (“Cibolo Holdings,” and together with PWCM, RES and Round Rock, “Successor Lenders”), the Company’s subsidiaries (except Kansas Holdings, LLC) entered into a Second Amended and Restated Credit Agreement with Cortland Capital Market Services LLC, as Administrative Agent, and the other financial institutions and banks parties thereto (the “New Credit Agreement”), and a related Amended and Restated Note (the “New Note”), in the amount of $3.3 million as described above under “Note 2 – Going Concern” – “Financing Transactions”.net loss.

 

Our subsidiaries’ obligations under

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(UNAUDITED)

Note 2 – Summary of Significant Accounting Policies

A description of certain of the credit agreementCompany’s accounting policies and note are non-recourse and are secured by a first-priority lienother financial information is included in the Company’s and the subsidiaries’ oil properties and assets located in Kansas. The Company was removed as a borrower under the Credit Agreement, but entered into a Guaranty of Recourse Carveouts, pursuant to which the Company guarantees the Subsidiaries’ payment of certain fees and expenses due under the Credit Agreement, and may be liable for certain conduct, such as fraud, bad faith, gross negligence, and waste of the Kansas oil properties or assets.

As of September 30, 2017, the principal balance of $105,806 along with accrued interest remained due under the promissory note with Pass Creek Resources LLC.

Note 6 – Commitments & Contingencies

As of September 30, 2017, the Company had an outstanding irrevocable letter of credit in the amount of $50,000 issued in favor of the Texas Railroad Commission. The letter of credit is required by the Texas Railroad Commission for all companies operating in the state of Texas with production greater than limits they prescribe.

Rent expense for the nine months ended September 30, 2017 and 2016 was approximately $75,000 and $104,000, respectively. Future non-cancellable minimum lease payments are approximately $35,000 for the remainder of 2017, $91,000 for 2018, and $77,000 for 2019.

We, as a lessee and operator of oil and gas properties, are subject to various federal, state and local laws and regulations relating to discharge of materials into, and protection of, the environment. These laws and regulations may, among other things, impose liability on the lessee under an oil and gas lease for the cost of pollution clean-up resulting from operations and subject to the lessee to liability for pollution damages. In some instances, the Company may be directed to suspend or cease operations in the affected area. As of September 30, 2017, we have no reserve for environmental remediation and are not aware of any environmental claims.

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 in connection with this proceeding. The Company has faith that it will prevail and at September 30, 2017, 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 it has paid all rents owed to C&F Ranch LLC and will vigorously defend itself in connection with this proceeding. The Company has faith that it will prevail and at September 30, 2017, no reserve for potential losses arising from this matter has been recorded.

Note 7 – Impairment of Oil and Gas Properties

Pursuant to full cost accounting rules, the Company must perform a ceiling test each quarter on its proved oil and natural gas assets within each separate cost center. All of the Company’s costs are included in one cost center as all of the Company’s operations are located in the United States. The Company’s ceiling test was calculated using trailing twelve-month, unweighted-average first-day-of-the-month prices for oil and natural gas as of September 30, 2017, which were based on a West Texas Intermediate oil price of $42.46 per Bbl and a Henry Hub natural gas price of $2.63 per Mcf (adjusted for basis and quality differentials), respectively. For the nine-month period ended September 30, 2017, the Company’s present value of future estimate cash flows discounted at 10%, exceeded the net book value of those assets. Accordingly, the Company did not record an impairment charge. This test resulted in a pre-tax write-down of $7,444,597 for the nine-month period ended September 30, 2016.


Note 8 – Equity Transactions

We accrued dividends of $879,608 and $2,638,823 for our Series A Preferred Stock for the three and nine months ended September 30, 2017, respectively. At September 30, 2017, accumulated dividends payable to the Series A Preferred Stock holders totaled $6,039,972.

On April 27, 2017, the Company entered into an Additional Issuance Agreement with Alpha Capital Anstalt, for the purchase of 300 restricted shares of its newly designated Series C Convertible Preferred Stock in consideration for $300,000, with an option to purchase an additional 200 shares of Series C Convertible Preferred Stock for an aggregate purchase price of $200,000. As of September 30, 2017, the Company had issued 300 shares of Series C Convertible Preferred Stock for an aggregate purchase price of $300,000. In addition, during the nine months ending September 30, 2017, the Company had received $150,000 from Alpha Capital Anstalt to purchase an additional 150 shares of Series C Convertible Preferred Stock. As of September 30, 2017, the additional 150 shares of Series C Convertible Preferred Stock have not been issued and are reflected as Series C Convertible Preferred Stock Issuable on the balance sheet in the aggregate amount of $150,000.

The Company recorded a beneficial conversion feature of $208,500 based on the fair value of the common stock and the conversion rate as of the date of issuance. This amount was recorded as a deemed distribution for the nine months ended September 30, 2017.

The Series C Convertible Preferred Stock (“Series C Preferred Stock”) is non-voting (except to the extent required by law and except for certain consent rights relating to amending the certificate of incorporation or bylaws, and the like), ranks senior to the common stock with respect to dividends and with respect to distributions upon a deemed dissolution, liquidation or winding-up of the Company, and ranks junior to the Company’s Series A preferred stock and Series B preferred stock with respect to dividends and with respect to distributions upon a deemed dissolution, liquidation or winding-up of the Company. Upon request of the Holders, the Company can seek stockholder approval to remove the Issuance Limitation described therein and to allow for further adjustments related to anti-dilution protection, only if such stockholder approval is obtained. The Series C Convertible Preferred Stock has a liquidation preference of $1,000 per share, and is convertible at the option of the holder at a conversion price equal to $0.30 per share, or a ratio equal to approximately 3,333 shares of common stock for each one (1) share of Series C Convertible Preferred Stock, subject to customary adjustments. Dividends are payable on the shares of Series C Convertible Preferred Stock only if and to the extent that dividends are payable on the common stock into which the Series C Convertible Preferred Stock is convertible. The Series C Convertible Preferred Stock has no maturity date and can be redeemed by the Company beginning twelve months after the closing of the offering or upon a change of control for the redemption price of $1,000 per share, as adjustable as provided in the designation of the Series C Preferred Stock.

The Series C Preferred Stock includes a beneficial ownership limitation preventing conversion of shares of Series C Preferred Stock into more than 9.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the Series C Preferred Stock. In addition, the Company may not convert the Series C Preferred Stock into a number of shares of common stock which, when aggregated with any shares of common stock issued on or after the original issue date and prior to such conversion date in connection with any conversion of Series C Preferred Stock would exceed 1,683,944 shares of common stock (19.99% of the outstanding shares as of the original issue date), subject to adjustment for forward and reverse stock splits, recapitalizations and the like. In the event conversion of the Series C Preferred Stock is limited pursuant to these provisions, each holder shall be entitled to a pro rata portion of the issuable maximum.


Pursuant to the anti-dilutive provisions of the Securities Purchase Agreement dated as of March 11, 2015, which requires the Company to issue additional shares of common stock to adjust the purchase price paid by purchasers in the Company’s March 2015 offering, in the event any shares are sold (or convertible securities are sold), with a price per share less than the purchase price paid by the March 2015 purchasers subject to the terms of the Securities Purchase Agreement, Alpha Capital Anstalt received 597,461 shares of common stock. In addition, the Series B Convertible Preferred Stock conversion ratio equal to approximately 571 shares of common stock for each one (1) share of Preferred Stock reset to approximately 3,333 shares of common stock for each one (1) share of Series B Convertible Preferred Stock, to be consistent with the terms of the Series C Convertible Preferred Stock, pursuant to the anti-dilution requirements of the Series B Convertible Preferred Stock.

During the nine months ending September 30, 2017, Alpha Capital Anstalt converted 390 shares of Series B Convertible Preferred Stock into 1,300,000 shares of common stock.

See also the description of the Alpha Capital Anstalt warrant exercises which occurred subsequent to September 30, 2017, as described in “Note 10 – Subsequent Events”.

Note 9 – Related Party Transaction

Effective May 1, 2017, the Company entered into an agreement with Camber Energy, Inc., pursuant to which EnerJex will be responsible for performing certain general and administrative services for Camber for a fee of $150,000 per month. This fee includes payments to vendors who provide accounting services to Camber. Richard E. Menchaca, a member of the Board of Directors of the Company, is a co-guarantor of bank debt held by Camber Energy, Inc. and Robert Schleizer, our newly appointed Interim Chief Financial Officer is also the Chief Financial Officer and a Director of Camber Energy, Inc.

Note 10 – Subsequent Events

See the subsequent events in “Note 2 – Going Concern”.

On October 23, 2017, Alpha Capital Anstalt exercised warrants to purchase 1,000,000 shares of our common stock for an aggregate exercise price of $300,000 (or $0.30 per share), pursuant to the terms of such warrants, and was issued 1,000,000 shares of common stock.

On November 6, 2017, Alpha Capital Anstalt exercised warrants to purchase 771,428 shares of our common stock for an aggregate exercise price of $231,429 (or $0.30 per share), pursuant to the terms of such warrants, and was issued 771,428 shares of common stock.

We have reviewed all material events through the date of this report in accordance with ASC 855-10.


FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements. These forward-lookingaudited consolidated financial statements are subject to a number of risks and uncertainties, many of which are beyond our control. All statements, other than statements of historical fact, contained in this report, including statements regarding future events, our future financial performance, business strategy and plans and objectives of management for future operations, are forward-looking statements. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” or “should” or the negative of these terms or other comparable terminology. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks outlined under “Risk Factors” or elsewhere in this report, our latest Annual Report on Form 10-K, filed with the SEC on March 31, 2017 and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, filed with the SEC on August 21, 2017, which may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time and it is not possible for us to predict all risk factors, nor can we address the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual results to differ materially from those contained in any forward-looking statements. The factors impacting these risks and uncertainties include, but are not limited to:

●inability to complete and/or risks associated with recently disclosed and pending business combination transactions;
●inability to attract and obtain additional development capital;
●inability to achieve sufficient future sales levels or other operating results;
●inability to efficiently manage our operations;
●effect of our hedging strategies on our results of operations;
●defaults under our secured obligations or material debt agreements;
●estimated quantities and quality of oil reserves;
●our ability to raise capital in the future;
●outstanding debt obligations and our ability to repay such obligations as they come due;
●ongoing and potential future litigation, judgments and settlements;
●declining local, national and worldwide economic conditions;
●fluctuations in the price of oil;
●continued weather conditions that impact our abilities to efficiently manage our drilling and development activities;
●the inability of management to effectively implement our strategies and business plans;
●approval of certain parts of our operations by state regulators;
●inability to hire or retain sufficient qualified operating field personnel;
●increases in interest rates or our cost of borrowing;
●deterioration in general or regional economic conditions;
●adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations;
●the occurrence of natural disasters, unforeseen weather conditions, or other events or circumstances that could impact our operations or could impact the operations of companies or contractors we depend upon in our operations;
●inability to acquire mineral leases at a favorable economic value that will allow us to expand our development efforts;
●adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations; and
●changes in U.S. GAAP or in the legal, regulatory and legislative environments in the markets in which we operate.


You should not place undue reliance on any forward-looking statement, each of which applies only as of the date of this report. Except as required by law, we undertake no obligation to update or revise publicly any of the forward-looking statements after the date of this report to conform our statements to actual results or changed expectations. For a detailed description of these and other factors that could cause actual results to differ materially from those expressed in any forward-looking statement, please see “Risk Factors” in this document and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC on March 31, 2017 and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, filed with the SEC on August 21, 2017.

You should read the matters described in “Risk Factors” and the other cautionary statements made in this report, and incorporated by reference herein, as being applicable to all related forward-looking statements wherever they appear in this report. We cannot assure you that the forward-looking statements in this report will prove to be accurate and therefore prospective investors are encouraged not to place undue reliance on forward-looking statements.

This information should be read in conjunction with the interim unaudited financial statements and the notes thereto included in this Quarterly Report on Form 10-Q, and the audited financial statements and notes thereto and “Part II”, “Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K for the year ended December 31, 2016 (the “Annual Report”2021. The summary of significant accounting policies presented below is designed to assist in understanding the Company’s condensed consolidated financial statements. Such condensed consolidated financial statements and accompanying notes are the representations of the Company’s management, who are responsible for their integrity and objectivity.

Use of Estimates– The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the allowance for doubtful accounts, reserve for obsolete inventory, valuation of stock issued for services and stock options, valuation of intangible assets including goodwill, foreign currency exchange rates, valuation of defined benefit plan obligations and the valuation of deferred tax assets.

Fair Value Measurements and Disclosures– ASC Topic 820, Fair Value Measurement (“ASC 820”), requires companies to determine fair value based on the price that would be received to sell the asset or paid to transfer the liability to a market participant. ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement.

The guidance requires that assets and liabilities carried at fair value be classified and disclosed in one of the following categories:

●Level 1: Quoted market prices in active markets for identical assets or liabilities.
●Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
●Level 3: Unobservable inputs that are not corroborated by market data.

For short-term classes of our financial instruments, which include cash, accounts receivable, notes receivable and accounts payable, and which are not reported at fair value, the carrying amounts approximate fair value due to their short-term nature. The outstanding loans related to the business acquisitions and COVID Loans are carried at face value, which approximates fair value. As of June 30, 2022 and December 31, 2021, the Company did not have any financial assets or liabilities measured and recorded at fair value on the Company’s condensed consolidated balance sheets on a recurring basis.

Inventories– Inventories, which consist of raw materials, finished goods and work-in-process, are stated at the lower of cost or net realizable value, with cost being determined by the average-cost method, which approximates the first-in, first-out method. Cost components include direct materials and direct labor. At each balance sheet date, the Company evaluates its inventories for excess quantities and obsolescence. This evaluation primarily includes an analysis of forecasted demand in relation to the inventory on hand, among consideration of other factors. The physical condition (e.g., age and quality) of the inventories is also considered in establishing its valuation. Based upon the evaluation, provisions are made to reduce excess or obsolete inventories to their estimated net realizable values. Once established, write-downs are considered permanent adjustments to the cost basis of the respective inventories. These adjustments are estimates, which could vary significantly, either favorably or unfavorably, from the amounts that the Company may ultimately realize upon the disposition of inventories if future economic conditions, customer inventory levels, product discontinuances, sales return levels or competitive conditions differ from the Company’s estimates and expectations.

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2022 AND 2021

(UNAUDITED)

Note 2 – Summary of Significant Accounting Policies-Continued

Revenue Recognition and Concentration – The majority of the Company’s revenues are derived primarily through the sales of drone and drone related products and services, sensors and related accessories, and software subscriptions. All contracts and agreements are a fixed price and are accounted for in accordance with ASC Topic 606, Revenue from Contracts with Customers.

 

Certain capitalizedThe Company generally recognizes revenue on sales to customers, dealers and distributors upon satisfaction of performance obligations which generally occurs once controls transfer to customers, which is when product is shipped or delivered depending on specific shipping terms used below and, otherwise defined below,where applicable, customer acceptance has been obtained. The fee is not considered to be fixed or determinable until all material contingencies related to the sales have the meanings given to such termsbeen resolved. The Company records revenue in the footnotesstatements of operations and comprehensive loss, net of any sales, use, value added, or certain excise taxes imposed by governmental authorities on specific sales transactions and net of any discounts, allowances and returns.

Under fixed-price contracts, the Company agrees to ourperform the specified work for a pre-determined price. To the extent the Company’s actual costs vary from the estimates upon which the price was negotiated, it will generate more or less profit or could incur a loss. The Company accounts for a contract after it has been approved by all parties to the arrangement, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

Additionally, customer payments received in advance of the Company completing performance obligations are recorded as contract liabilities. Customer deposits represent customer prepayments and are recognized as revenue when the term of the sale or performance obligation are completed.

The Company’s software subscriptions to its platforms, HempOverview and Ground Control, are offered on a subscription basis. These subscription fees are recognized ratably over each monthly membership period as the services are provided.

As of June 30, 2022 and December 31, 2021, no one customer comprised more than 10% of the Company’s accounts receivable, net. For the three and six months ended June 30, 2022 and 2021, no one customer comprised more than 10% of revenues.

Capitalized Software Development Costs — Software development costs for software to be sold, leased or marketed are accounted for in accordance with ASC Topic 985-20, Software — Costs of Software to be Sold, Leased or Marketed. Costs associated with the planning and design phase of software development are classified as research and development costs and are expensed as incurred. Once technological feasibility has been established, a portion of the costs incurred in development, including coding, testing and quality assurance, are capitalized until available for general release to customers, and subsequently reported at the lower of unamortized cost or net realizable value. Amortization is recorded per the individual technology software being released and is included in cost of sales on the condensed consolidated statements of operations. Annual amortization is recognized on a straight-line basis over the remaining economic life of the software (typically two years). Unamortized capitalized costs determined to be in excess of the net realizable value of a solution are expensed at the date of such determination. As of June 30, 2022 and December 31, 2021, capitalized software development costs, net of accumulated amortization, totaled $1,316,277 and $995,880, respectively, and are included in intangibles, net on the condensed consolidated balance sheets.

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(UNAUDITED)

Note 2 – Summary of Significant Accounting Policies-Continued

Internal-use Software Costs— Internal-use software development costs are accounted for in accordance with ASC Topic 350-40, Internal-Use Software. The costs incurred in the preliminary stages of development are expensed as research and development costs as incurred. Once an application has reached the development stage, internal and external costs incurred to develop internal-use software are capitalized and amortized on a straight-line basis over the estimated useful life of the software (typically three to five years). Maintenance and enhancement costs, including those costs in the post-implementation stages, are typically expensed as incurred, unless such costs relate to substantial upgrades and enhancements to the software that result in added functionality, in which case the costs are capitalized and amortized on a straight-line basis over the estimated useful life of the software. The Company reviews the carrying value for impairment whenever facts and circumstances exist that would suggest that assets might be impaired or that the useful lives should be modified. Amortization expense related to capitalized internal-use software development costs is included in general and administrative expenses on the condensed consolidated statements of operations. As of June 30, 2022 and December 31, 2021, capitalized software development costs for internal-use software of $659,906 and $278,264, respectively, relate to the Company’s implementation of its enterprise resource planning (“ERP”) software, which was not yet placed into service. Internal-use software costs and are included in intangibles, net on the condensed consolidated balance sheets.

Foreign Currency — The Company translate assets and liabilities of its foreign subsidiary, senseFly S.A., to their U.S. dollar equivalents at exchange rates in effect as of the balance sheet date. Translation adjustments are not included in determining net income but are recorded in accumulated other comprehensive income (loss) on the condensed consolidated balance sheets. The Company translates the condensed consolidated statements of operations and comprehensive loss of its foreign subsidiary at average exchange rates for the applicable period. Foreign currency transaction gains and losses, arising primarily from changes in exchange rates on foreign currency denominated revenues, certain purchases and intercompany transactions are recorded in other (expense) income, net in the condensed consolidated statements of operations and comprehensive income.

Shipping Costs– All shipping costs billed directly to the customer are directly offset to shipping costs resulting in a net expense to the Company, which is included in cost of goods sold in the accompanying condensed consolidated statements of operations and comprehensive loss. For the three and six months ended June 30, 2022 and 2021, shipping costs were $85,516 and $9,003, respectively, and $144,975 and $28,900, respectively.

Advertising Costs– Advertising costs are charged to operations as incurred and presented in sales and marketing expenses in the condensed consolidated statements of operations and comprehensive loss. For the three and six months ended June 30, 2022 and 2021, advertising costs were $103,756 and $39,321, respectively, and $164,382 and $90,685, respectively.

Vendor Concentrations – As of June 30, 2022 and December 31, 2021, there was one significant vendor that the Company relies upon to perform certain services for the Company’s technology platform. This vendor provides services to the Company, which can be replaced by alternative vendors should the need arise.

Loss Per Common Share and Potentially Dilutive Securities– Basic loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted loss per share is computed by dividing net loss by the weighted average number of common shares outstanding plus Common Stock, par value $0.001 (“Common Stock”) equivalents (if dilutive) related to warrants, options, and convertible instruments. For the three and six month ended June 30, 2022 and 2021, the Company has excluded all common equivalent shares outstanding for restricted stock units (“RSUs”) and options to purchase Common Stock from the calculation of diluted net loss per share, because these securities are anti-dilutive for the periods presented. As of June 30, 2022, the Company had 675,367 of unvested RSUs, 2,452,248 options outstanding to purchase shares of Common Stock, and 9,690 shares of Preferred Stock, Series F Convertible into 16,129,032 shares of Common Stock, and 16,129,032 Common Stock warrants. As of December 31, 2021, the Company had 821,405 unvested RSUs and 2,541,667 options outstanding to purchase shares of Common Stock. See Note 7 — Equity.

Segment Reporting – The Company operates in three segments: Drones and Custom Manufacturing, Sensors and Software-as-a Service (“SaaS”). 

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2022 AND 2021

(UNAUDITED)

Note 2 – Summary of Significant Accounting Policies-Continued

Accounting Pronouncements – Adopted – During the first quarter of 2022, the Company early adopted Accounting Standards Update (“ASU”) ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”). The update simplifies the accounting for convertible debt instruments and convertible preferred stock by reducing the number of accounting models and limiting the number of embedded conversion features separately recognized from the primary contract. The guidance also includes targeted improvements to the disclosures for convertible instruments and earnings per share. For smaller reporting companies, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The Company adopted ASU 2020-06 in the first quarter of 2022 using the modified retrospective method. Prior to its adoption of ASU 2020-06, the Company did not have financial instruments that would have required a cumulative effect to be recognized as an adjustment to its opening balance of accumulated deficit.

New Accounting Pronouncements – Pending — In March 2022, the FASB issued Accounting Standards Update (“ASU”) No. 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”), which addresses areas identified by the FASB as part of its post-implementation review of its previously issued credit losses standard, ASU 2016-13, that introduced the Current Expected Credit Loss (“CECL”) model. ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhances disclosure requirements for certain loan refinancings and restructurings made with borrowers experiencing financial difficulty. In addition, ASU 2022-02 requires a public business entity to disclose current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. ASU 2022-02 is effective for the fiscal years beginning after December 15, 2022 and for periods within those fiscal years. Early adoption is permitted. The adoption of ASU 2022-02 is not expected to have a material impact on the Company’s consolidated financial statements.

Other recent accounting pronouncements issued by FASB did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.

Note 3 – Balance Sheets

Accounts Receivable, net

As of June 30, 2022 and December 31, 2021, accounts receivable, net consist of the following:

Schedule of accounts receivable, net        
  June 30, 2022 December 31, 2021
Accounts receivable $3,787,376  $2,918,435 
Less: Provisions for doubtful accounts  (23,985)  (29,556)
Accounts receivable, net $3,763,391  $2,888,879 

14

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2022 AND 2021

(UNAUDITED)

Note 3 – Balance Sheets-Continued

Inventories, Net

As of June 30, 2022 and December 31, 2021, inventories, net consist of the following:

Schedule Of Inventories        
  June 30, 2022 December 31, 2021
Raw materials $2,500,642  $2,862,293 
Work-in process  466,994   647,829 
Finished goods  2,995,773   833,785 
Gross inventories  5,963,409   4,343,907 
Less: Provision for obsolescence  (315,009)  (305,399)
Inventories, net $5,648,400  $4,038,508 

Property and Equipment, Net

As of June 30, 2022 and December 31, 2021, property and equipment, net consist of the following:

Schedule Of Property and Equipment            
  Estimated  
  Useful  
  Life June 30, December 31,
Type (Years) 2022 2021
Leasehold improvements  3  $106,837  $81,993 
Production tools and equipment  4-5   303,536   417,779 
Computer and office equipment  3-5   575,214   559,110 
Furniture  5   79,590   77,971 
Drone equipment  3   282,436   95,393 
Total Property and equipment      1,347,613   1,232,246 
Less: Accumulated depreciation      (504,907)  (280,118)
Total Property and equipment, net     $842,706  $952,128 

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2022 AND 2021

(UNAUDITED)

Note 3 – Balance Sheets-Continued

For the three and six months ended June 30, 2022 and 2021, depreciation expense is classified within the condensed consolidated statements of operations and comprehensive loss as follows:

Schedule of statements of operations and comprehensive loss                
  For the Three Months Ended June 30, For the Six Months Ended June 30,
Type 2022 2021 2022 2021
Cost of sales $70,463  $—  $135,306  $— 
General and administrative  43,941   34,321   89,833   54,055 
Total $114,404  $34,321  $225,139  $54,055 

Intangible Assets, net

As of June 30, 2022 and December 31, 2021, intangible assets, net, other than goodwill, consist of following:

Schedule of intangible assets, net                    
Name Estimated Life (Years) Balance as of December 31, 2021 Additions Amortization Balance as of June 30, 2022
Intellectual property/technology  5-7  $5,427,294  $—  $(447,824) $4,979,470 
Customer base  3-10   4,047,319   —   (576,032)  3,471,287 
Tradenames and trademarks  5-10   1,985,236   —   (109,792)  1,875,444 
Non-compete agreement  2-4   831,501   —   (254,488)  577,013 
Platform development costs  3   995,880   509,982   (189,585)  1,316,277 
Internal use software costs  3   278,264   420,460   (38,817)  659,907 
Total intangibles assets, net     $13,565,494  $930,442  $(1,616,538) $12,879,398 

As of June 30, 2022, the weighted average remaining amortization period in years is 5.06. For the three and six months ended June 30, 2022 and 2021, amortization expense was $851,284 and $1,616,538, respectively, and $288,065 and $400,821, respectively.

 For the following years ending, the future amortization expenses consist of the following:

Schedule of future amortization expenses                            
  For the Years Ending December 31,
  (rest of year)
2022		 2023 2024 2025 2026 Thereafter Total
Intellectual property/
technology		 $447,824  $866,755  $808,968  $808,968  $808,968  $1,237,987  $4,979,470 
Customer base  576,031   1,147,263   889,364   141,145   141,145   576,339   3,471,287 
Tradenames and trademarks  109,792   215,704   207,944   207,944   207,944   926,116   1,875,444 
Non-compete agreement  241,080   335,933   —   —   —   —   577,013 
Platform development costs  280,115   560,229   385,402   90,531   —   —   1,316,277 
Internal use software costs  116,454   232,908   232,908   77,637   —   —   659,907 
Total Intangible Assets, Net $1,771,296  $3,358,792  $2,524,586  $1,326,225  $1,158,057  $2,740,442  $12,879,398 

Accrued Expenses

As of June 30, 2022 and December 31, 2021, accrued expenses consist of the following:

Schedule of accrued expenses        
  June 30, 2022 December 31, 2021
Accrued compensation and related liabilities $822,065  $1,039,979 
Accrued professional fees  476,404   267,949 
Provision for warranty expense  274,435   286,115 
Other  —     307,598 
Total accrued expenses $1,572,904  $1,901,641 

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(UNAUDITED)

Note 4 – Notes Receivable

Valqari

On October 14, 2020, in connection with, and as an incentive to the entry into a two-year exclusive manufacturing agreement (the “Manufacturing Agreement”) to produce a patented Drone Delivery Station for Valqari, LLC (“Valqari), the Company entered into, as payee, a Convertible Promissory Note pursuant to which the Company made a loan to Valqari in the principal aggregate amount of $500,000 (the “Note”). The Note accrues interest at a rate of three percent per annum.

The Note matured on April 15, 2021 (the “Maturity Date”), at which time all outstanding principal and interest that had accrued, but remained, unpaid was due. On the Maturity Date, AgEagle demanded payment of the Note, including accrued interest, however, Valqari alleged that the Maturity Date was extended to October 14, 2021 (“Extended Maturity Date”) as the Note provided for an automatic six-month extension of the Maturity Date under certain circumstances within the terms and conditions of the Note. Upon the Extended Maturity Date, AgEagle demanded payment of the Note, including accrued interest; however, Valqari sought a substantial discount on the amount due under the Note to compensate for alleged breaches by AgEagle under the Manufacturing Agreement. AgEagle disputes the allegations of breach and believes that it is owed a net amount by Valqari under the Manufacturing Agreement, in addition to the amount due under the Note. On November 24, 2021, Valqari made a payment of principal on the Note of $315,000. The parties continue to negotiate in an attempt to reach an amicable resolution of their disputes; however, AgEagle reserves the right to take legal action to collect the Note in the event that a settlement is not reached. As of June 30, 2022 and December 31, 2021, the balance remaining under the Note is $185,000.

MicaSense

On November 16, 2020, and in connection with its January 27, 2021 acquisition of 100% of the capital stock of MicaSense (“MicaSense Acquisition), AgEagle, as payee, executed a promissory note with Parrot Drones S.A.S. (“Parrot”) in the principal amount of $100,000. The principal amount owed by Parrot was offset and reduced by all amounts paid or due in connection with the purchase price upon closing of the MicaSense Acquisition.

senseFly

On August 25, 2021, and in connection with its acquisition of 100% of the capital stock of senseFly (the senseFly Acquisition”) from Parrot, AgEagle Aerial, as payee, executed a promissory note in the principal amount of $200,000. The principal amount owed by Parrot was off-set and reduced by all amounts paid or due in connection with the purchase price upon closing of the senseFly Acquisition.

Note 5 – Business Acquisitions

During the year ended December 31, 2021, the Company acquired 100% of the outstanding capital stock of MicaSense, Measure and senseFly, respectively. The financial results for each of these acquisitions are included in the condensed consolidated financial statements included above under “Part I - Financial Information” -“Item 1. Financial Statements”.beginning on their respective acquisition dates.

 

All referencesThere were 0 transaction costs related to business combinations for the three and six months ended June 30, 2022. For the three and six months ended June 30, 2021, transaction costs related to business combinations were $185,703 and $333,467, respectively.

Transaction costs related to business combinations are included within general and administrative expense on the condensed consolidated statements of operations and comprehensive loss.

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(UNAUDITED)

Note 5 – Business Acquisitions-Continued

MicaSense

On January 27, 2021 (the “MicaSense Acquisition Date”), the Company entered into a stock purchase agreement (the “MicaSense Purchase Agreement”) with Parrot and Justin B. McAllister (collectively the “MicaSense Sellers”) pursuant to which the Company agreed to acquire 100% of the issued and outstanding capital stock of MicaSense from the MicaSense Sellers (the “MicaSense Acquisition”). The aggregate purchase price for the shares of MicaSense was $23,000,000, less any debt, and subject to a customary working capital adjustment. A portion of the consideration comprises shares of Common Stock of the Company, having an aggregate value of $3,000,000 based on a volume weighted average trading price of the Common Stock over a ten consecutive trading day period prior to the date of issuance of the shares of Common Stock to the MicaSense Sellers. On April 27, 2021 the Company issued 540,541 restricted shares of its Common Stock. The consideration is also subject to a remaining holdback amount of $2,375,000 as of June 30, 2022 to cover any post-closing indemnification claims and to satisfy any purchase price adjustments. The holdback was scheduled to be released in this reporttwo equal installments, less any amounts paid or reserved for outstanding indemnity claims, on March 31, 2022 and March 31, 2023. The first installment of $2,375,000 was paid on March 31, 2022. See Note 11 – Subsequent Events.

On May 10, 2021, the Company filed a Form S-3 Registration Statement (the “MicaSense Registration Statement”) with the Securities and Exchange Commission (“SEC”), covering the resale of the Shares. The MicaSense Registration Statement was declared effective on June 1, 2021 (File Number: 333-255940). In addition, the Company shall use its best efforts to “we,” “us,” “our,” “Company”keep the MicaSense Registration Statement effective and “EnerJex” referin compliance with the provisions of the Securities Act (including by preparing and filing with the SEC such amendments, including post-effective amendments, and supplements to EnerJex Resources,the MicaSense Registration Statement and the prospectus used in connection therewith as may be necessary) until all Shares and other securities covered by the MicaSense Registration Statement have been disposed. The MicaSense Sellers reimbursed the Company for reasonable legal fees and expenses incurred by the Company in connection with such registration.

The MicaSense Purchase Agreement contains certain customary representations, warranties, and covenants, including representations and warranties by the MicaSense Sellers with respect to MicaSense’s business, operations and financial condition. The MicaSense Purchase Agreement also includes post-closing covenants relating to the confidentiality and employee non-solicitation obligations of the MicaSense Sellers, and the agreement of the MicaSense Sellers not to compete with certain aspects of the business of MicaSense following the closing of the transaction. The completion of the transactions contemplated by the MicaSense Purchase Agreement is subject to customary closing conditions, including, among others: (i) the absence of a material adverse effect on MicaSense, (ii) the delivery by the parties of certain ancillary documents, including the registration Rights Agreement, and (iii) the execution by a key employee of MicaSense of an employment agreement. Subject to certain limitations, each of the parties will be indemnified for damages resulting from third party claims and breaches of the parties’ respective representations, warranties, and covenants in the MicaSense Purchase Agreement.

The Company performed a valuation analysis of the fair market value of the assets acquired and liabilities assumed. Using the total consideration for the MicaSense Acquisition, the Company determined the allocations to such assets and liabilities. The final purchase price allocation, and the necessary detailed valuations and calculations have been finalized.

The following table summarizes the allocation of the purchase price as of the MicaSense Acquisition Date:

Schedule of allocation preliminary purchase price    
Net purchase price, including debt paid at close $23,375,681 
     
Plus: fair value of liabilities assumed:    
Current liabilities  702,925 
Fair value of liabilities assumed $702,925 
     
Less: fair value of assets acquired:    
Cash $885,273 
Other tangible assets  1,165,666 
Identifiable intangible assets  3,061,803 
Fair value of assets acquired $5,112,742 
     
Net nonoperating assets  25,000 
Adjustments for seller transaction expenses related to purchase price allocation  32,032 
Goodwill $18,972,896 

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(UNAUDITED)

Note 5 – Business Acquisitions-Continued

Measure

On April 19, 2021 (the “Measure Acquisition Date”), the Company entered into a stock purchase agreement (the “Measure Purchase Agreement”) with Brandon Torres Declet (“Mr. Torres Declet”), in his capacity as Measure Sellers’ representative, and the sellers named in the Measure Purchase Agreement (the “Measure Sellers”) pursuant to which the Company agreed to acquire 100% of the issued and outstanding capital stock of Measure from the Measure Sellers (the “Measure Acquisition”). The aggregate purchase price for the shares of Measure is $45,000,000, less the amount of Measure’s debt and transaction expenses, and subject to a customary working capital adjustment. The purchase price comprised $15,000,000 in cash, and shares of Common Stock of the Company, having an aggregate value of $30,000,000 based on a volume weighted average trading price of the Common Stock over a seven consecutive trading day period prior to the date of issuance of the shares of Common Stock to the Measure Sellers. The Company issued 5,319,145 shares of Common Stock, in the aggregate, to the Measure Sellers, and paid $5,000,000 of the cash portion of the purchase price ninety days after the closing date of the transaction. As of December 31, 2021, the Company completed the payment of the cash portion of the purchase price. The consideration is also subject to a $5,625,000 holdback to cover any post-closing indemnification claims and to satisfy any purchase price adjustments. The holdback is scheduled to be released October 19, 2022, less any amounts paid or reserved for outstanding indemnity claims and certain amounts subject to employee retention conditions set forth in the Measure Purchase Agreement.

The Measure Purchase Agreement contains certain customary representations, warranties, and covenants, including representations and warranties by the Measure Sellers with respect to Measure’s business, operations and financial condition. The Measure Purchase Agreement also includes post-closing covenants relating to the confidentiality and employee non-solicitation obligations of the Measure Sellers, and the agreement of the Measure Sellers not to compete with certain aspects of the business of Measure following the closing of the transaction. The completion of the transactions contemplated by the Purchase Agreement is subject to: (i) the absence of a material adverse effect on Measure, (ii) the delivery by the parties of certain ancillary documents, and (iii) the execution by key employees of Measure of employment offer letters. Subject to certain limitations, each of the parties will be indemnified for damages resulting from third party claims and breaches of the parties’ respective representations, warranties, and covenants in the Purchase Agreement.

The Shares issuable to the Measure Sellers pursuant to the Measure Purchase Agreement were issued in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), to a limited number of persons who are “accredited investors” or “sophisticated persons” as those terms are defined in Rule 501 of Regulation D promulgated by the SEC, without the use of any general solicitation or advertising to market or otherwise offer the securities for sale. None of the Shares have been registered under the Securities Act, or applicable state securities laws, and none may be offered or sold in the United States absent registration under the Securities Act or an exemption from such registration requirements.

The Company performed a preliminary valuation analysis of the fair market value of the assets to be acquired and liabilities to be assumed. Using the total consideration for the Acquisition, the Company estimated the allocations to such assets and liabilities. The final purchase price allocation and the detailed valuations and necessary have been completed.

The following table summarizes the allocation of the purchase price as of the Measure Acquisition Date: 

Schedule of allocation preliminary purchase price    
Net purchase price, including debt paid at close $45,403,394 
     
Plus: fair value of liabilities assumed:    
Deferred revenue  319,422 
Other tangible liabilities  272,927 
Fair value of liabilities assumed $592,349 
     
Less: fair value of assets acquired:    
Cash  486,544 
Other tangible assets  312,005 
Identifiable intangibles  2,668,689 
     
Fair value of assets acquired $3,467,238 
     
Net nonoperating assets  39,775 
Goodwill $42,488,730 

On April 19, 2022, in accordance with the terms of the Measure Purchase Agreement, the Company delivered a notice of indemnification to the representative of the Measure Sellers seeking the right to set off certain operating losses from the holdback amount. The Company is claiming that the operating losses incurred by Measure from the Measure Acquisition date through April 19, 2022, resulted from breaches of certain representations and warranties made by the Measure Sellers. The Company is claiming that it has sustained operating losses in excess of $13 million as a result of the Measure Sellers’ breaches and has claimed the entire holdback amount to be applied against these operating losses. The Company has commenced settlement negotiations with the Measure Sellers. The Company intends to vigorously pursue what it believes are meritorious claims and defend its rights under the Measure Purchase Agreement, but Company management is unable to provide assurance as to the ultimate outcome of these claims.

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(UNAUDITED)

Note 5 – Business Acquisitions-Continued

senseFly

On October 18, 2021 (the “senseFly Acquisition Date”), the Company entered into a stock purchase agreement (the “senseFly S.A. Purchase Agreement”) with Parrot pursuant to which the Company acquired 100% of the issued and outstanding capital stock of senseFly S.A. from Parrot. The aggregate purchase price for the shares of senseFly S.A. is $21,000,000, less the amount of senseFly S.A.’s debt and subject to a customary working capital adjustment. The consideration is also subject to a $4,565,000 holdback to cover any post-closing indemnification claims and to satisfy any purchase price adjustments. The holdback is scheduled to be released in two equal installments, less any amounts paid or reserved for outstanding indemnity claims, on December 31, 2022 and December 31, 2023 in accordance with the terms of the senseFly S.A. Purchase Agreement. See Note 11 – Subsequent Events.

On October 18, 2021, AgEagle Aerial and the Company entered into a stock purchase agreement (the “senseFly Inc. Purchase Agreement”) with Parrot Inc. pursuant to which AgEagle Aerial agreed to acquire 100% of the issued and our wholly-owned operating subsidiaries, EnerJex Kansas,outstanding capital stock of senseFly Inc., Black Sable Energy, LLC, Working Interest, LLC, from Parrot Inc. The aggregate purchase price for the shares of senseFly Inc. is $2,000,000, less the amount of senseFly Inc.’s debt and Black Raven Energy,subject to a customary working capital adjustment. The consideration is also subject to a $435,000 holdback to cover any post-closing indemnification claims and to satisfy any purchase price adjustments. The holdback is scheduled to be released in two equal installments, less any amounts paid or reserved for outstanding indemnity claims, on December 31, 2022, and December 31, 2023 in accordance with the terms of the senseFly Inc. unlessPurchase Agreement. See Note 11 – Subsequent Events.

A portion of the context requires otherwise. We report ourconsideration under the senseFly S.A. Purchase Agreement comprises shares of Common Stock of the Company, par value $0.001, having an aggregate value of $3,000,000, based on a volume weighted average trading price of the Common Stock over a ten consecutive trading day period prior to the date of issuance of the shares of Common Stock to Parrot. The shares of Common Stock are issuable ninety days after the closing date of the transaction. In accordance with the terms of the senseFly S.A. Purchase Agreement, the Company issued 1,927,407 shares of Common Stock to Parrot.

Pursuant to the terms of the senseFly S.A. Purchase Agreement and a Registration Rights Agreement, dated as of October 19, 2021, the Company filed a Form S-3 Registration Statement (the “senseFly Registration Statement”) with the SEC covering the resale of the Common Stock issued to Parrot. The senseFly Registration Statement was declared effective on February 9, 2022. The Company agreed to use its best efforts to keep the senseFly Registration Statement effective and in compliance with the provisions of the Securities Act (including by preparing and filing with the SEC such amendments, including post-effective amendments, and supplements to the senseFly Registration Statement and the prospectus used in connection therewith as may be necessary) until all the shares of Common Stock and other securities issued to Parrot and covered by such Registration Statement have been disposed. Parrot reimbursed the Company $50,000 for reasonable legal fees and expenses incurred by the Company in connection with such registration.

Parrot granted to senseFly S.A. a non-exclusive worldwide perpetual license, subject to certain termination rights of the parties, with respect to certain technology used in the fixed-wing drone manufacturing business of senseFly S.A.

The Company has performed a preliminary valuation analysis of the fair market value of the assets to be acquired and liabilities to be assumed. Using the total consideration for the Acquisition, the Company has estimated the allocations to such assets and liabilities. The final purchase price allocation will be determined when the Company completes the detailed valuations and necessary calculations.

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(UNAUDITED)

Note 5 – Business Acquisitions-Continued

The following table summarizes the allocation of the preliminary purchase price as of the senseFly Acquisition Date: 

Schedule of allocation preliminary purchase price    
Net purchase price $20,774,526 
     
Plus: fair value of liabilities assumed:    
Current liabilities  3,913,386 
Defined benefit plan obligation  278,823 
Debt assumed at close  2,461,721 
Fair value of liabilities assumed $6,653,930 
     
Less: fair value of assets acquired:    
Cash  859,044 
Other tangible assets  6,327,641 
Identifiable intangible assets  7,335,570 
Fair value of assets acquired $14,522,255 
     
Net nonoperating assets  250,624 
Goodwill $12,655,577 

Liabilities Related to Business Acquisition Agreements

As of June 30, 2022 and December 31, 2021, liabilities related to business acquisition agreements consist of the following:

Schedule of liabilities related to acquisition agreements        
  June 30, 2022 December 31, 2021
Holdback related to MicaSense Acquisition Agreement $2,375,000  $4,821,512 
Holdback related to Measure Acquisition  5,625,000   5,625,000 
Holdback related to senseFly Acquisition  5,000,000   8,489,989 
Total acquisition agreement related liabilities  13,000,000   18,936,501 
Less: Current portion business acquisition agreement-related liabilities  (9,000,000)  (10,061,501)
Long term portion of business acquisition agreement-related liabilities $4,000,000  $8,875,000 

See Note 11 – Subsequent Events.

As of June 30, 2022, scheduled future maturities of the Company’s business acquisition related liabilities consist of the following:

Scheduled Of future maturities business-acquisition     
Year ending December 31,  
2022 (rest of year)  $9,000,000 
2023   4,000,000 
Total  $13,000,000 

Pro-Forma Information

The unaudited pro-forma information for the three and six months ended June 30, 2021 was calculated after applying the Company’s accounting policies and the impact of acquisition date fair value adjustments. The pro-forma financial information presents the combined results of operations of the 2021 Business Acquisitions as if they had occurred on January 1, 2021 after giving to certain pro-forma adjustments. The pro-forma adjustments reflected herein include only those adjustments that are factually supportable and directly attributable to the basisacquisition.

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(UNAUDITED)

Note 5 – Business Acquisitions-Continued

For the three and six months ended June 30, 2021, pro-forma information is as follows:

Schedule of pro-forma information        
  Three Months Ended
June 30,
2021		 Six Months Ended
June 30,
2021
Revenues $4,955,402  $9,493,427 
Net Loss $6,019,501  $11,422,678 

Note 6 – COVID Loans

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was enacted, which included amongst its many provisions, the creation of the Paycheck Protection Program (“PPP”). As part of the PPP, qualifying businesses were eligible to receive Small Business Administration (“SBA”) loans for use by such businesses for funding payroll, rent and utilities during a designed twenty-four week period through October 21, 2020 (“PPP Loan”). PPP Loans are unsecured, nonrecourse, accrue interest at a rate of one percent per annum, and mature on May 6, 2022. A portion or all of a December 31 fiscal year end.PPP Loan is forgivable to the extent that an eligible business meets its obligations under the PPP. Additionally, any amounts owed, including unforgiven amounts under the PPP, are payable over two years, though may be extended up to five years upon approval by the SBA.

On May 6, 2020, AgEagle received a PPP Loan in the amount of $107,439. During the quarter ended June 30, 2021, the outstanding principal and accrued interest under the PPP Loan were forgiven by the SBA.

 

In addition, unlessconnection with the context otherwise requiressenseFly Acquisition, the Company assumed the obligations for two COVID Loans originally made by the SBA to senseFly S.A. on July 27, 2020 (“senseFly COVID Loans”). For the three and six months ended June 30, 2022, no payments of principal and interest were required. As of June 30, 2022 and December 31, 2021, the Company’s outstanding obligations under the senseFly COVID Loans were $1,208,479 and $1,259,910, respectively.

As of June 30, 2022, scheduled principal payments due under the senseFly COVID Loans are as follows:

Schedule of debt disclosure     
Year ending December 31,  
2022 (rest of year)  $388,316 
2023   431,501 
2024   86,370 
2025   86,370 
2026   86,370 
Thereafter   129,552 
Total  $1,208,479 

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(UNAUDITED)

Note 7 – Equity

Preferred Series F Convertible Stock

On June 26, 2022 (the “Series F Closing Date”), the Company entered into a Securities Purchase Agreement (the “Series F Agreement”) with Alpha Capital Anstalt (“Alpha”). Pursuant to the terms of the Series F Agreement, the Board of Directors of the Company (the “Board”) designated a new series of Preferred Stock, the Series F 5% Preferred Convertible Stock (“Series F”), and authorized the sale and issuance of up to 35,000 shares of Series F. The Company issued to Alpha 10,000 shares of Series F for an aggregate purchase price and gross proceeds of $10,000,000. The shares of Series F are convertible into 16,129,032 shares of Common Stock at $0.62 per share. Alpha will be entitled to receive cumulative dividends at the rate per share (as a percentage of the $1,000 stated par value per share of Series F) of 5% per annum, payable on January 1, April 1, July 1 and October 1, beginning on the first conversion date and subsequent conversion dates.

In connection with the Series F Agreement the Company issued a warrant to Alpha to purchase 16,129,032 shares of Common Stock, par value $0.001 per share (“Series F Warrant”) with an exercise price equal to $0.96 per share of Common Stock. The Series F Warrant, and the shares of Common Stock underling the Series F Warrant are collectively referred to as the “Series F Warrant Shares”. The Series F Warrant is not exercisable for the first six months after its issuance and has a three-year term from its exercise date. Upon exercise of the Series F Warrants in full by Alpha, the Company would receive additional gross proceeds of approximately $10,000,000.

Alpha has the right, subject to certain conditions, including shareholder approval, to purchase up to $25,000,000 of additional shares of Series F and Series F Warrants (collectively the “Series F Option”). The Series F Option will be available for a period of eighteen months after such shareholder approval at a purchase price equal to the average of the volume weighted average price for three trading days prior to the date that Alpha gives notice to the Company that it will exercise the Series F Option.

Commencing from the Series F Closing Date and for a period of six months thereafter, upon any issuance by the Company or any of its Subsidiaries of Common Stock or Common Stock equivalents for cash consideration, indebtedness or a combination of units thereof (a “Subsequent Financing”), Alpha will have the right to participate in up to an amount of the Subsequent Financing equal to 50% of the Subsequent Financing on the same terms, conditions and price provided for in the Subsequent Financing.

The Preferred Stock has no voting rights, except that the Company shall not undertake certain corporate actions as set forth in the Certificate of Designation that would materially impact the holders of Preferred Stock without their consent.

As of June 30, 2022, Alpha had converted 310 shares of Series F into 500,000 shares of Common Stock. See Note 11 – Subsequent Events.

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(UNAUDITED)

Note 7 – Equity-Continued

Capital Stock Issuances

Issuance of Common Stock to Officers and Directors

For the three months ended June 30, 2022, shares were issued in connection with options previously granted as a total of 75,000 stock options were exercised to purchase Common Stock at an average per share price of $0.41 per share of Common Stock.

On June 13, 2022, the Company issued 302,024 shares of Common Stock to its former chief executive officer, Mr. Brandon Torres Declet (“Mr. Torres Declet”). This issuance of Common Stock included 147,917 shares for previously vested RSUs, 111,607 shares as agreed upon in a separation agreement with Mr. Torres Declet, and 42,500 shares in satisfaction of a performance bonus approved by the Compensation Committee of the Board of Directors. See Note 9 – Commitments and Contingencies.

At-the-Market Sales Agreement

In accordance with a May 25, 2021 at-the-market Sales Agreement with Stifel, Nicolaus & Company, Incorporated and Raymond James & Associates, Inc. as sales agents, during the three and six months ended June 30, 2022, the Company sold 4,251,151 shares of Common Stock at a share price between $1.04 and $1.18, for aggregate proceeds of $4,583,341, net of issuance costs of $141,754.

Consulting Agreement

On May 3, 2019, the Company entered into a consulting agreement with GreenBlock Capital LLC (“Consultant”) for purposes of advising on certain business opportunities. On October 31, 2019, the consulting agreement was terminated; however, the Consultant continued to be entitled to receive up to 2,500,000 restricted Common Stock after termination of the consulting agreement, if the achievement of milestones that commenced during the term of the consulting agreement were completed within twenty-four months. Subsequent to the aforementioned termination of the consulting agreement, the Consultant sent a demand letter to the Company alleging a breach of this agreement due to the Company’s non-issuance of additional restricted shares of its Common Stock in connection with the Consultant’s alleged achievement of the milestones. As of December 31, 2020, and as a result of this demand, the Company recorded a contingent loss of $1,500,000, based upon the fair market value of $6.00 per share of its Common Stock, which was recorded within professional fees on the condensed consolidated statements of operations and comprehensive loss. For the three and six months ended June 30, 2021, the Company recorded additional stock-based compensation expense of $1,407,000, which reflected the issuance of 550,000 additional restricted shares of Common Stock that were subsequently issued on May 12, 2021, which resulted in a liability amount of $2,907,000 for purposes of payment of the settlement.

December Purchase Agreement

In January 2021, the Company issued 1,057,214 shares of Common Stock in connection with a securities purchase agreement (the “December Purchase Agreement”) entered into on December 31, 2020. The gross proceeds from the sale of the securities under the December Purchase Agreement were $6,313,943, net of issuance costs.

Securities Purchase Agreement Dated August 4, 2020 / Exercise of Warrants

On August 4, 2020, the Company and an Investor entered into a securities purchase agreement (the “August Purchase Agreement”) pursuant to which the Company agreed to sell to the Investor in a registered direct offering 3,355,705 shares of Common Stock and warrants to purchase up to 2,516,778 shares of Common Stock at an exercise price of $3.30 per share (the “August Warrants”), for proceeds of $9,900,000, net of issuance costs of $100,000. Upon exercise of the Warrants in full by the Investor, the Company would receive additional gross proceeds of $8,305,368. The shares of Common Stock of the Company underlying the Warrants are referred to as “August Warrant Shares.”

The purchase price for each share of Common Stock is $2.98. Net proceeds from the sale were used for working capital, capital expenditures and general corporate purposes. The shares of Common Stock, the August Warrants and the August Warrant Shares were offered by the Company pursuant to an effective shelf registration statement on Form S-3 (File No. 333-239157), which was declared effective on June 19, 2020. On February 8, 2021, the Company received $8,305,368 in additional gross proceeds associated with the exercise of all of the August Warrants.

Stock-Based Compensation

The Company determines the fair value of awards granted under the Equity Plan based on the fair value of its Common Stock on the date of grant. Stock-based compensation expenses related to grants under the Equity Plan are included in general and administrative expenses on the condensed consolidated statements of operations and comprehensive loss.

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(UNAUDITED)

Note 7 – Equity-Continued

Restricted Stock Units

For the six months ended June 30, 2022, a summary of RSU activity is as follows:

Schedule of restricted stock unit activity        
  Shares Weighted Average Grant Date Fair Value
Outstanding as of December 31, 2021  1,147,250  $3.78 
Granted  440,841   1.20 
Canceled  (106,000)  2.86 
Vested and released  (354,107)  3.02 
Outstanding as of June 30, 2022  1,127,984  $3.10 
Vested as of June 30, 2022  452,617  $4.01 
Unvested as of June 30, 2022  675,367  $2.48 

For the six months ended June 30, 2022, the aggregate fair value of RSUs at the time of vesting was $527,699.

As of June 30, 2022, the Company had approximately $910,000 of unrecognized stock-based compensation expense related to RSUs, which will be amortized over approximately sixteen months.

For the six months ended June 30, 2021, a summary of RSU activity is as follows:

  Shares Weighted Average Grant Date Fair Value
Outstanding as of December 31, 2020  100,000  $1.34 
Granted  631,402   5.31 
Canceled  (91,667)  5.40 
Vested and released  (100,000)  1.34 
Outstanding as of June 30, 2021  539,753  $5.30 
Vested as of June 30, 2021  323,067  $5.23 
Unvested as of June 30, 2021  216,668  $5.40 

For the six months ended June 30, 2021, the aggregate fair value of RSUs at the time of vesting was $3,353,162.

Issuance of RSUs to Officers

On April 11, 2022, the Company granted an officer 46,367 RSUs, which vested immediately. For the three and six months ended June 30, 2022, the Company recognized stock-based compensation expense of $46,831, based upon the market price of its Common Stock of $1.01 per share on the date of grant of these RSUs. Additionally, on the same date, the Company granted the same officer 46,367 RSUs, which vest over a period from the date of grant through the first anniversary of the senseFly Acquisition Date. For the three and six months ended June 30, 2022, the Company recognized stock-based compensation expense of $19,757, based upon the market price of its Common Stock of $1.01 per share on the date of grant of these RSUs.

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(UNAUDITED)

Note 7 – Equity-Continued

On March 1, 2022, the Company granted an officer a grant of 62,500 RSUs, which vested immediately. For the six months ended June 30, 2022, the Company recognized stock-based compensation expense of $68,750, based upon the market price of its Common Stock of $1.10 per share on the date of grant of these RSUs.

On January 21, 2022, the Company granted a former chief executive officer a grant of 111,607 RSUs, which vested immediately. For the six months ended June 30, 2022, the Company recognized stock-based compensation expense of $125,000, based upon the market price of its Common Stock of $1.12 per share on the date of grant of these RSUs. Additionally, on January 24, 2022, the Company granted to this former chief executive officer 42,500 RSUs, which vested immediately. For the three and six months ended June 30, 2022, the Company recognized stock-based compensation expense of $0 and $48,025, respectively, based upon the market price of its Common Stock of $1.13 per share on the date of grant of these RSUs.

On January 1, 2022, the Company issued to an officer two grants of 50,000 RSUs each. These two grants vest over nine and twenty-one months, respectively, from the date of grant. For the three and six months ended June 30, 2022, the Company recognized stock-based compensation expense of $37,250 and $74,091, based upon the market price of its Common Stock of $1.57 per share on the date of grant of these RSUs.

On May 24, 2021, the Company issued to a former chief executive officer a grant of 26,652 RSUs as part of a separation agreement. This award was valued at $125,000 and vested immediately. For the three and six months ended June 30, 2021, the Company recognized stock-based compensation expense of $125,000 based upon the market price of its Common Stock of $4.69 per share on the date of grant of these RSUs.

On March 5, 2021, the Company issued to an officer a grant of 10,000 RSUs, which vested immediately. For the six months ended June 30, 2021, the Company recognized stock-based compensation expense of $58,400 based upon the market price of its Common Stock of $5.84 per share on the date of grant of these RSUs.

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(UNAUDITED)

Note 7 – Equity-Continued

Stock Options

For the six months ended June 30, 2022, a summary of the options activity is as follows: 

 Schedule of options activity                     
  Shares Weighted Average Exercise Price Weighted Average Fair Value Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value
 Outstanding as of December 31, 2021   2,541,667  $2.88  $1.57   4.27  $1,244,029 
 Granted   260,000   0.91   0.43   3.02   — 
 Exercised   (150,000)  0.41   0.30   —   35,415 
 Expired/Forfeited   (199,419)  6.11   3.28   —   — 
 Outstanding as of June 30, 20220   2,452,248  $2.56  $1.39   3.61  $240,897 
 Exercisable as of June 30, 2022   1,759,030  $2.36  $1.30   3.34  $240,897 

As of June 30, 2022, the Company has $1,105,155 of total unrecognized compensation cost related to stock options, which will be amortized over approximately twenty four months.

Intrinsic value is measured using the fair market value at the date of exercise (for shares exercised) or as of June 30, 2022 (for outstanding options), less the applicable exercise price.

For the six months ended June 30, 2022 and 2021, the significant weighted average assumptions relating to the valuation of the Company’s stock options granted were as follows:

        
  June 30,
  2022 2021
Stock price $0.65  $5.27 
Dividend yield  —%  —%
Expected life (years)  3.02   3.01 
Expected volatility  69.91%  84.16%
Risk-free interest rate  2.73%  0.32%

Issuances of Options to Officers and Directors

On June 30, 2022, the Company issued to directors and officers options to purchase 135,000 shares of Common Stock at an exercise price of $0.31 per share, which vest over a period of two years from the date of grant and expire on June 29, 2027. The Company determined the fair market value of these unvested options to be $42,120. In connection with the issuance of these options, for the three and six months ended June 30, 2022, the Company did 0t recognize stock-based compensation expense.

On March 31, 2022, the Company issued to directors and officers options to purchase 125,000 shares of Common Stock at an exercise price of $0.56 per share, which vest over a period of two years from the date of grant and expire on March 30, 2027. The Company determined the fair market value of these unvested options to be $70,250.

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(UNAUDITED)

Note 7 – Equity-Continued

In connection with the issuance of these options, for the three and six months ended June 30, 2022, the Company recognized stock-based compensation expense of $8,878, based upon the market price of its Common Stock of $0.56 per share on the date of grant of these options.

On June 30, 2021, the Company issued to directors and officers options to purchase 150,000 shares of Common Stock at an exercise price of $2.84 per share, which vest over a period of two years from the date of grant and expire on June 29, 2026. The Company determined the fair market value of these unvested options to be $426,000. In connection with the issuance of these options, for the three and six months ended June 30, 2022, the Company recognized stock-based compensation expense of $43,944 and $136,969, respectively.

On March 31, 2021, the Company issued to directors and officers options to purchase 130,000 shares of Common Stock at an exercise price of $3.37 per share, which vest over a period of two years from the date of grant and expire on March 30, 2026. The Company determined the fair market value of these unvested options to be $438,100. In connection with the issuance of these options, for the three and six months ended June 30, 2022, the Company recognized stock-based compensation expense of $48,356 and $96,744, respectively. In connection with the issuance of these options, for the six months ended June 30, 2021, the Company recognized stock-based compensation expense of $50,979, respectively.

Prior to January 1, 2021, the Company previously issued to directors and officers options to purchase 2,743,580 shares of Common Stock at exercise prices ranging from $0.04 to $3.18 per share, with vesting periods ranging from immediate vesting to periods of up to three years from the grant dates, and expire on dates between March 30, 2023, and September 29, 2029. In connection with the issuance of these options to employees and directors, for the three and six months ended June 30, 2022 and 2021, the Company recognized stock-based compensation expense of $120,817 and $260,724, respectively, and $180,309 and $388,932, respectively.

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(UNAUDITED)

Note 7 – Equity-Continued

Cancellations of Options

For the three and six months ended June 30, 2022, as a result of employee terminations and options expirations, stock options aggregating 166,249 and 199,419, respectively with fair market values of approximately $513,500 and $654,300, respectively, were cancelled. For the three and six months ended June 30, 2021, there were no cancellations of options as a result of employee terminations or options expirations.

Note 8 – Leases

Operating Leases

As of June 30, 2022 and December 31, 2021, consolidated operating lease liabilities of $1,545,643 and $2,178,381, are recorded net of accumulated amortization of $917,265 and $282,668, respectively.

For the three and six months ended June 30, 2022 and 2021, operating lease expense payments were $628,449 and $961,922, respectively, and $75,270 and $133,700, respectively. Operating lease expense payments are included in general and administrative expenses on the condensed consolidated statements of operations and comprehensive loss.

As of June 30, 2022 and December 31, 2021, balance sheet information related to the Company’s operating leases is as follows: 

Schedule of Operating Lease          
  Balance Sheet Location June 30,  
2022		 December 31, 2021
Right of use asset Right of use asset $1,433,845  $2,019,745 
Current portion of operating lease liability Current portion of operating lease liability $981,632  $1,235,977 
Long-term portion of operating lease liability Long-term portion of operating lease liability $564,011  $942,404 

As of June 30, 2022, scheduled future maturities of the Company’s lease liabilities are as follows:

Schedule of future maturities    
Year Ending December 31,  
2022 (rest of year) $652,418 
2023  530,640 
2024  221,370 
2025  227,443 
2026  18,954 
Total future minimum lease payments, undiscounted  1,650,825 
Less: Amount representing interest  (105,182)
Present value of future minimum lease payments $1,545,643 
Present value of future minimum lease payments – current $981,632 
Present value of future minimum lease payments – long-term $564,011 

As of June 30, 2022 and December 31, 2021, the weighted average lease-term and discount rate of the Company’s leases are as follows:

Schedule of weighted average lease-term and discount rate leases        
Other Information June 30,
2022		 December 31,
2021
Weighted-average remaining lease terms (in years)  2.1   2.3 
Weighted-average discount rate  6.0%  6.0%

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(UNAUDITED)

Note 8 – Leases-Continued

For the three and six months ended June 30, 2022 and 2021, supplemental cash flow information related to leases is as follows:

Schedule Of Cash Flow Supplemental Information                
  For the Three Months Ended June 30, For the Six Months Ended June 30,
Other Information 2022 2021 2022 2021
Cash paid for amounts included in the measurement of liabilities:                
Operating cash flows for operating leases $628,449  $75,270  $961,922  $133,700 
Lease liabilities related to the acquisition of right of use assets:                
Operating leases $—  $—  $—  $925,298 

Note 9 – Commitments and Contingencies

Resignation of Mr. Torres Declet as Chief Executive Officer

On January 17, 2022, the Company and Mr. Torres Declet mutually agreed to Mr. Torres Declet’s resignation as Chief Executive Officer and as a director of the Company. In connection with his departure, and in accordance with his employment agreement with the Company, Mr. Torres Declet received base salary continuation equal to six months of his then annual salary, reimbursement of COBRA health insurance premiums for a period of six months at the same rate as if Mr. Torres Declet were an active employee of the Company, and a grant of RSUs with a fair market value of $125,000 at the date of termination of employment. On January 21, 2022, the Company granted 111,607 RSUs with a fair market value of $1.12 per share of Common Stock on the grant date. On January 24, 2022, the Company issued a grant of 42,500 fully vested RSUs with a fair market value of $1.13 per share of Common Stock on the grant date in satisfaction of a performance bonus approved by the Compensation Committee of the Board of Directors. See Note 7 – Equity.

Existing Employment and Board Agreements

The Company has various employment agreements with certain of its executive officers and directors that serve as Board members, which it considers normal and in the ordinary course of business.

The Company has no other formal employment agreements with our executive officers, nor any compensatory plans or arrangements resulting from the resignation, retirement, or any other termination of our named executive officers, from a change-in-control, or from a change in any executive officer’s responsibilities following a change-in-control. However, it is possible that the Company will enter into formal employment agreements with its executive officers in the future.

Purchase Commitments

The Company routinely places orders for manufacturing services and materials. As of June 30, 2022, the Company had purchase commitments of approximately $5,582,000. These purchase commitments are expected to be realized during the year ending December 31, 2022.

Note 10 – Segment Information

Non-allocated administrative and other expenses are reflected in Corporate. Corporate assets include cash, prepaid expenses, notes receivable, right of use asset and other assets.

As of June 30, 2022 and December 31, 2021, and for the purposesthree and six months ended June 30, 2022 and 2021, respectively, information about the Company’s reportable segments consisted of this report only:the following:

 

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(UNAUDITED)

Note 10 – Segment Information-Continued

Goodwill and Assets

Schedule of consolidated results from reportable segments                     
  Corporate Drones and Custom Manufacturing Sensors SaaS Total
As of June 30, 2022                     
Goodwill  $—  $12,655,577  $18,972,896  $33,238,809  $64,867,282 
Assets  $14,677,207  $25,845,816  $27,714,407  $37,294,381  $105,531,811 
                      
As of December 31, 2021                     
Goodwill  $—  $12,655,577  $18,972,896  $33,238,809  $64,867,282 
Assets  $14,516,466  $27,073,211  $25,548,066  $37,545,298  $104,683,041 

Net (Loss) Income

  Corporate Drones and Custom Manufacturing Sensors SaaS Total
Three Months Ended June 30, 2022                    
Revenues $—  $3,036,182  $2,094,092  $157,599  $5,287,873 
Cost of sales  —   1,589,334   1,080,583   67,860   2,737,777 
Loss from operations  (2,722,252)  (1,891,540)  (26,986)  (747,801)  (5,388,579)
Other income (expense), net  1,403   (210,713)  (1,819)  (2,028)  (213,157)
Net loss $(2,720,849) $(2,102,253) $(28,805) $(749,829) $(5,601,736)
                     
Three Months Ended June 30, 2021                    
Revenues $—  $ —  $ 1,708,820  $ 228,544  $ 1,937,364 
Cost of sales  —   —   735,111   224,118   959,229 
Loss from operations  (4,200,690)  —   (12,667)  (607,128)  (4,820,485)
Other income, net  108,498   —   3,244   30,571   142,313 
Net loss $(4,092,192) $—  $ (9,423) $ (576,557) $ (4,678,172)

  Corporate Drones and Custom Manufacturing Sensors SaaS Total
Six Months Ended June 30, 2022                    
Revenues $—  $5,775,163  $3,027,110  $327,578  $9,129,851 
Cost of sales  —   3,159,100   1,727,095   328,668   5,214,863 
Loss from operations  (5,961,196)  (4,515,645)  (810,124)  (1,583,554)  (12,870,519)
Other income (expense), net  2,791   (323,955)  (1,818)  (4,807)  (327,789)
Net loss $(5,958,405) $(4,839,600) $(811,942) $(1,588,361) $(13,198,308)
                     
Six Months Ended June 30, 2021                    
Revenues $—  $—  $3,390,408  $248,547  $3,638,955 
Cost of sales  —   —   1,410,167   247,930   1,658,097 
(Loss) Income from operations  (7,383,396)  —   213,043   (610,935)  (7,781,288)
Other income, net  115,230   —   26,785   30,571   172,586 
Net (loss) income $(7,268,166) $—  $239,828  $(580,364) $(7,608,702)

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(UNAUDITED)

Note 10 – Segment Information-Continued

Revenues by Geographic Area

Schedule of geographical revenues                
  Drones and Custom Manufacturing Sensors SaaS Total
Three Months Ended June 30, 2022                
North America $2,046,581  $808,320  $157,599  $3,012,500 
Europe, Middle East and Africa  789,487   795,755   —   1,585,242 
Asia Pacific  200,114   376,936   —   577,050 
Other  —   113,081   —   113,081 
Total $3,036,182  $2,094,092  $157,599  $5,287,873 
                 
Three Months Ended June 30, 2021                
North America $—  $659,604  $228,544  $888,148 
Europe, Middle East and Africa  —   649,352   —   649,352 
Asia Pacific  —   307,588   —   307,588 
Other  —   92,276   —   92,276 
Total $—  $1,708,820  $228,544  $1,937,364 

  Drones and Custom Manufacturing Sensors SaaS Total
Six Months Ended June 30, 2022                
North America $3,282,155  $1,168,208  $327,576  $4,777,939 
Europe, Middle East and Africa  2,002,677   1,150,134   —   3,152,811 
Asia Pacific  490,333   544,678   —   1,035,011 
Other  —   164,090   —   164,090 
 Total $5,775,165  $3,027,110  $327,576  $9,129,851 
         
Six Months Ended June 30, 2021                
North America $—  $1,308,696  $248,547  $1,557,243 
Europe, Middle East and Africa  —   1,288,356   —   1,288,356 
Asia Pacific  —   610,274   —   610,274 
Other  —   183,082   —   183,082 
Total  $—   $3,390,408   $248,547   $3,638,955 

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(UNAUDITED)

Note 11 – Subsequent Events

Waiver Agreement in connection with the Company’s 2021 MicaSense Acquisition

On July 22, 2022, the Company, the MicaSense Buyer, and Parrot entered into a Waiver Agreement (the “MicaSense Waiver Agreement”) pursuant to which (i) Parrot agreed to waive the obligation of the Company and the MicaSense Buyer to pay Parrot $2,351,202, or the portion of the holdback amount due on March 31, 2023 (the “MicaSense Remaining Holdback Payment”) and (ii) upon the Company’s payment to Parrot of $1,175,601 (“the MicaSense Final Purchase Price Payment,” representing 50% of the MicaSense Remaining Holdback Payment), the Company and MicaSense Buyer will be released from any further obligation or liability for payment of any holdback amount under the MicaSense Purchase Agreement.

On July 29, 2022, the Company made the MicaSense Final Purchase Price Payment to Parrot in full satisfaction of its payment obligations under the MicaSense Purchase Agreement and the MicaSense Waiver Agreement.

Waiver Agreement in connection with the Company’s 2021 senseFly S.A. Acquisition

On July 22, 2022, the Company and Parrot entered into a Waiver Agreement (the “senseFly S.A. Waiver Agreement”) pursuant to which (i) Parrot agreed to waive the obligation of the Company to pay Parrot a portion of the holdback amount due on December 31, 2022 and December 31, 2023 (collectively, the “senseFly S.A. Remaining Holdback Payments”); (ii) the parties agreed to waive Parrot’s obligation to reimburse the Company for a portion of the legal costs and expenses incurred by the Company related to the filing of a registration statement in connection with the transactions contemplated by the senseFly S.A. Purchase Agreement; and (iii) upon the Company’s payment to Parrot of $2,257,500 (“the senseFly S.A. Final Purchase Price Payment,” representing 50% of the senseFly S.A. Remaining Holdback Payments less 50% of the registration statement expenses), the Company will be released from any further obligation or liability for payment of any holdback amount under the senseFly S.A. Purchase Agreement.

On July 29, 2022, the Company made the senseFly S.A. Final Purchase Price Payment to Parrot in full satisfaction of its payment obligations under the senseFly S.A. Purchase Agreement and the senseFly S.A. Waiver Agreement.

Waiver Agreement in connection with the Company’s 2021 senseFly Inc. Acquisition

On July 22, 2022, the Company, the senseFly Inc. Buyer, and Parrot Inc. entered into a Waiver Agreement (the “senseFly Inc. Waiver Agreement”) pursuant to which (i) Parrot Inc. agreed to waive the obligation of the Company and the senseFly Inc. Buyer to pay Parrot Inc. a portion of the holdback amount due on December 31, 2022 and December 31, 2023 (collectively, the “senseFly Inc. Remaining Holdback Payments”); (ii) upon the Company’s payment to Parrot Inc. of $217,500 (the “senseFly Inc. Final Purchase Price Payment,” representing 50% of the senseFly Inc. Remaining Holdback Payments), the Company and the senseFly Inc. Buyer will be released from any further obligation or liability for any remaining holdback amount under the senseFly Inc. Purchase Agreement.

On July 29, 2022, the Company made the senseFly Inc. Final Purchase Price Payment to Parrot Inc. in full satisfaction of its payment obligations under the senseFly Inc. Purchase Agreement and the senseFly Inc. Waiver Agreement.

Conversion of Series F to Common Stock

During the months of July and August 2022, Alpha converted 2,821 shares of Series F to 4,550,000 shares of Common Stock.

ITEM 2.●“Bbl” refers to one stock tank barrel, or 42 U.S. gallons liquid volume, used in this report in reference to crude oil or other liquid hydrocarbons;
●“Boe” barrels of oil equivalent, determined using the ratio of one Bbl of crude oil, condensate or natural gas liquids, to six Mcf of natural gas;
●“Mcf” refers to a thousand cubic feet of natural gas;
●“SEC” or the “Commission” refers to the United States Securities and Exchange Commission; and
●“Securities Act” refers to the Securities Act of 1933, as amended.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

AVAILABLE INFORMATION

We file annual, quarterly and other reports and other information with the SEC. You can read these SEC filings and reports over the Internet at the SEC’s website at www.sec.gov or on our website atwww.enerjex.com. You can also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, NE, Washington, DC 20549 on official business days between the hours of 10:00 am and 3:00 pm. Please call the SEC at (800) SEC-0330 for further information on the operations of the public reference facilities. We will provide a copy of our annual report to security holders, including audited financial statements, at no charge upon receipt of a written request to us at EnerJex Resources, Inc., 4040 Broadway, Suite 425, San Antonio, Texas 78209.

INDUSTRY AND MARKET DATA

The market data and certain other statistical information used throughout this report are based on independent industry publications, government publications, reports by market research firms or other published independent sources. In addition, some data is based on our good faith estimates. Although we believe that this information is reliable, we cannot guarantee the accuracy and completeness of this information, and we have not independently verified any of it.


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion ofhighlights the principal factors that have affected our financial condition and results of operations as well as our liquidity and capital resources for the periods described. This discussion should be read in conjunction with our financial statementsConsolidated Financial Statements and the related notes included in Item 8 of the Form 10-K. This discussion contains forward-looking statements. Please see the explanatory note concerning “Forward-Looking Statements” in Part I of the Annual Report on Form 10-K and Item 1A. Risk Factors for a discussion of the uncertainties, risks and assumptions associated with these forward-looking statements. The operating results for the periods presented were not materially affected by inflation.

Overview

AgEagle™ Aerial Systems Inc. (“AgEagle” or the “Company”), through its wholly-owned subsidiaries, is actively engaged in designing and delivering best-in-class drones, sensors and software that solve important problems for our customers. Founded in 2010, AgEagle was originally formed to our financial statements included elsewherepioneer proprietary, professional-grade, fixed-winged drones and aerial imagery-based data collection and analytics solutions for the agriculture industry. Today, the Company is earning distinction as a globally respected industry leader offering best-in-class, autonomous UAV systems to a wide range of industry verticals, including energy/utilities, infrastructure, agriculture and government, among others.

The Company’s shift and expansion from solely manufacturing fixed-wing farm drones in this report.2018, to offering what the Company believes is one of the industry’s best fixed-wing, full-stack drone solutions, culminated in 2021 when AgEagle acquired three market-leading companies engaged in producing UAV airframes, sensors and software for commercial and government use. In addition to historical financial information,a robust portfolio of proprietary, connected hardware and software products, an established global network of nearly 200 UAV resellers, and enterprise customers worldwide, these acquisitions also brought AgEagle a highly valuable workforce comprised largely of experienced engineers and technologists with deep expertise in the fields of robotics, automation, manufacturing and data science.

AgEagle is led by a proven management team with years of drone industry experience. In view of AgEagle’s participation in the Unmanned Aircraft Systems Beyond Visual Line of Sight Aviation Rulemaking Committee, and its participation in the U.S. Federal Aviation Administration’s BEYOND program, AgEagle has played a hands-on role in helping to establish necessary rulemaking guidelines and regulations for the future of autonomous flight and the full integration of drones into the U.S. airspace.

The Company is headquartered in Wichita, Kansas, where it maintains its U.S. manufacturing operations. In addition, AgEagle has business operations in Austin, Texas; Lausanne, Switzerland; Raleigh, North Carolina; Seattle, Washington; and Washington, D.C.

Key Growth Strategies

We intend to materially grow our business by leveraging our proprietary, best-in-class, full-stack drone solutions, industry influence and deep pool of talent with specialized expertise in robotics, automation, custom manufacturing and data science to achieve greater penetration of the global UAV industry – with near-term emphasis on capturing larger market share of the agriculture, energy/utilities, infrastructure and government/military verticals. We expect to accomplish this goal by first bringing three core values to life in our day-to-day operations and aligning them with our efforts to earn the trust and continued business of our customers and industry partners:

1.Curiosity – this pushes us to find value where others aren’t looking. It inspires us to see around corners for our customers, understanding the problems they currently face or will be facing in the future, and delivering them solutions best suited for their unique needs.

2.Passion – this fuels our obsession with excellence, our desire to try the difficult things and tackle big problems, and our commitment to meet our customers’ needs – and then surpass them.

3.Integrity – this is not optional or situational at AgEagle – it is the foundation for everything we do, even when no one is watching.

Key components of our growth strategy include the following:

●Establish three centers of excellence with respective expertise in UAV software, sensors and airframes. These centers of excellence will cross pollinate ideas, industry insights and skillsets to yield intelligent autonomous solutions that fully leverage AgEagle’s experienced team’s specialized knowledge and know-how in robotics, automation, custom manufacturing and data science.

●Deliver new and innovative solutions. AgEagle’s research and development efforts are critical building blocks of the Company, and we intend to continue investing in our own innovations, pioneering new and enhanced products and solutions that enable us to satisfy our customers – both in response to and in anticipation of their needs. AgEagle believes that by investing in research and development, the Company can be a leader in delivering innovative autonomous systems and solutions that address market needs beyond our current target markets, enabling us to create new opportunities for growth.

●Growth through acquisition. Through successful execution of our growth-through-acquisition strategies, we intend to acquire technologically advanced UAV companies and intellectual property that complement and strengthen our value proposition to the market. We believe that by investing in complementary acquisitions, we can accelerate our revenue growth and deliver a broader array of innovative autonomous flight systems and solutions that address specialized market needs within our current target markets and in emerging markets that can benefit from innovations in artificial intelligence-enabled robotics and data capture and analytics.

Competitive Strengths

AgEagle believes the following discussionattributes and analysis contains forward-looking statements that involvecapabilities provide us with long-term competitive advantages:

●Proprietary technologies, in-house capabilities and industry experience –We believe our decade of experience in commercial UAV design and engineering; in-house manufacturing, assembly and testing capabilities; and advanced technology development skillset serve to differentiate AgEagle in the marketplace. In fact, approximately 70% of our Company’s global workforce is comprised of engineers and data scientists with deep experience and expertise in robotics, automation, custom manufacturing and data analytics. In addition, AgEagle is committed to meeting and exceeding quality and safety standards for manufacturing, assembly, design and engineering and testing of drones, drone subcomponents and related drone equipment in our Wichita-based and Swiss manufacturing operations.

●AgEagle is more than just customer- and product-centric, we are obsessed with innovation and knowing the needs of our customers before they do – We are focused on capitalizing on our specialized expertise in innovating and commercializing advanced drone, sensor and software technologies to provide our existing and future customers with autonomous robotic solutions that meet the highest possible safety and operational standards and fit their specific business needs. We have established three Centers of Excellence that our leadership has challenged to cross-pollinate ideas, industry insights and interdisciplinary skillsets to generate intelligent autonomous solutions that efficiently leverage our expertise in robotics, automation and manufacturing to solve problems for our customers, irrespective of the industry sector in which they may operate.

●We offer market-tested drones, sensors and software solutions that have earned the longstanding trust and fidelity of customers worldwide – through successful execution of our acquisition strategy in 2021, AgEagle is now delivering a unified line of industry trusted drones, sensors and software that have been vigorously tested and consistently proven across multiple industry verticals and use cases. For instance, our line of eBee fixed wing drones, pioneered by senseFly, have flown more than one million flights over the past decade serving customers spanning surveying and mapping; engineering and construction; military/defense; mining, quarries and aggregates; agriculture humanitarian aid and environmental monitoring, among just a few. Featured in over 100 research publications globally, advanced sensor innovations developed and commercialized by MicaSense, have served to forge new industry standards for high performance, high resolution, thermal and multispectral imaging for commercial drone applications in agriculture, plant research, land management and forestry. In addition, we have championed the development of end-to-end software solutions which power autonomous flight and deliver actionable, contextual data and analytics for a who’s who of Fortune 500 companies, government agencies and a wide range of businesses in agriculture, energy and utilities, construction and other industry sectors.

Impact of the War in Ukraine and COVID-19 On Our Business Operations

Global economic challenges, including the impact of the war in Ukraine, the COVID-19 pandemic, rising inflation and supply-chain disruptions, adverse labor market conditions could cause economic uncertainty and volatility. During the three months ended June 30, 2022, the COVID-19 pandemic continued to have a significant negative impact on the UAV industry, our customers, and our business globally. The aforementioned risks uncertainties and assumptions. Our actual resultstheir respective impacts on the UAV industry and timingour operational and financial performance remains uncertain and outside of selected events may differ materially from those anticipated in these forward-looking statementsour control. Specifically, as a result of many factors, including those discussed under,the aforementioned continuing risks, our ability to access components and incorporated by referenceparts needed in ITEM 1A. Risk Factorsorder to manufacture its proprietary drones and elsewhere in this report.

Overview

On October 19, 2017, EnerJex entered the Merger Agreement with AgEagle, described in greater detail under “Part I” – “Item 1 Financial Statements” of this report above under “Note 2 – Going Concern” – “Merger Agreement”.

The completion of the Merger is subjectsensors, and to various customary conditions described in greater detail under “Part I” – “Item 1 Financial Statements” of this report above under “Note 2 – Going Concern” – “Merger Agreement”.

In the event the Merger closes, the shareholders of AgEagle will become our majority shareholders, our operations will changeperform quality testing have been, and continue to those of AgEagle, i.e., the design, development, production, and distribution of technologically advanced small unmanned aerial vehicles (UAV or drones) that are supplied to the agriculture industry and we will also dispose of our current principal assets, consisting of our Kansas oil and gas properties, concurrently with the closing of the Merger. In the event the Merger is not consummated,be, impacted. If either the Company does not have a present intention to disposeor any of its third-parties in the above described assets or to change its business focus.

Our current principal strategy is to consummate the pending Merger with AgEagle. Wesupply chain for materials used in our manufacturing and assembly processes continue to managebe adversely impacted, our existing assets with reduced operating expenses while workingsupply-chain may be further disrupted, limiting its ability to completemanufacture and assemble products. We expect the Merger. In the event that the Merger does not close, we will continue to operate as an oilpandemic, inflation and gas company.

We will continue to investigate multiple opportunities to both increasesupply chain disruptions and unlock value and accelerate growth in an accretive manner on behalf of shareholders, including but not limited to mergers, acquisitions, joint ventures, and non-dilutive financings. There can be no assurance of the results or timing associated with this process.  

Plan of Operations

The Board of Directors is currently focused on the pending Merger, but is continuing to pursue possible strategic transactions involving opportunities both in and outside the oil and gas industry that will offer the opportunity for future growth and net cash flow. Those opportunities may involve a business combination with another business enterprise, the acquisition of one or more groups of assets, an equity or debt financing transaction to provide capital with which to fund operations and expansion, and other similar transactions. To illustrate the types of transactions that the Company is investigating, the Company has been investigating the acquisition by purchase or contribution of certain operating oil and gas assets.

As discussed previously, on October 19, 2017, the Company executed the Merger Agreement with AgEagle which is subject to shareholder approval at a meeting to be scheduled. While we are confident the Merger will be approved, the Company expectsits effects to continue to pursue other acquisition andhave a significant negative impact on our business combination opportunities. No assurance can be given that any one or more of these potential business combinations or asset acquisition opportunities will be consummated.


Recent Developments

The following is a brief description of our most significant corporate developments that have occurred since the end of 2015:

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.

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.

 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 October 26, 2016, the NYSE American (the “NYSE”) delisted our Series A preferred stock from the NYSE due to the failure to maintain a market capitalization of above $1 million. On January 11, 2017, we announced that we received a letter of noncompliance from the NYSE due to our failure to hold an annual meeting for the fiscal year ended December 31, 2015. On January 17, 2017, we announced that the NYSE had accepted our plan to restore compliance with certain NYSE regulations on or before March 31, 2017. The NYSE subsequently granted an extension and on April 27, 2017, the Company held an annual meeting of shareholders.

On February 10, 2017, we and the other Sellers entered into the LSA, described in greater detail in “Part I” – “Item 1 Financial Statements” of this report above under “Note 2 – Going Concern” – “Financing Transactions” and thereafter, the Company entered into the New Credit Agreement and New Note, also described in “Note 2 – Going Concern” under “Financing Transactions”.

Additional information regarding the Merger, the operations of AgEagle, which will become the operationsduration of the Company inpandemic and during the event the Merger is completed and risk factors associated with the Merger, cansubsequent economic recovery, which could be found in the Current Report on Form 8-K which we filed with the SEC on October 10, 2017.

On October 19, 2017, concurrently with the execution of the Merger Agreement, a principal stockholder of AgEagle (the “Key AgEagle Stockholder”) entered into a voting agreement in favor of EnerJex (the “EnerJex Voting Agreement”). Pursuant to the EnerJex Voting Agreement, the Key AgEagle Stockholder has agreed, among other things, to vote all shares of capital stock of AgEagle beneficially owned by him in favor of the Merger and the adoption of the Merger Agreement and the approval of the transactions contemplated by the Merger Agreement, and any actions required in furtherance thereof. The AgEagle Voting Agreement will terminate upon the earliest to occur of: (i) the termination of the Merger Agreement in accordance with its terms; or (ii) the date on which the Merger becomes effective.

In connection with, and as a condition to the closing of the Merger, the Company is seeking the consent of the holder of its Series A Preferred Stock (“Series A Preferred Stock”) to amend the terms thereof to: (i) allow the Company to pay all accrued but unpaid dividends up to September 30, 2017 in additional shares of Series A Preferred Stock based on the value of the liquidation preference thereof, (ii) eliminate the right of the Series A Preferred Stock holders to receive any dividends accruing after September 30, 2017, and (iii) convert each share of Series A Preferred Stock into 10 shares of Company common stock. An affirmative vote of 66.7% of all shares of Series A Preferred Stock voting as a class as of the record date of the proxy statement is required to amend the terms of the Certificate of Designation to provide for these changes, as required under the Merger Agreement.

As of September 30, 2017, the Series A Preferred Stock had accrued a total of $6,039,972 in accrued but unpaid dividends, which would result in an additional 241,599 shares of Series A Preferred Stock being issued by the Company to satisfy these accrued dividends.


On October 19, 2017, the Company received notice from NYSE Regulation, Inc. that it is not compliance with certain NYSE American (“NYSE American”) continued listing standards relating to stockholders’ equity. Specifically, the Company is not in compliance with Section 1003(a)(i) (requiring stockholders’ equity of $2.0 million or more if an issuer has reported losses from continuing operations and/or net losses in two of its three most recent fiscal years) of the NYSE American Company Guide (the “Company Guide”). As a result, the Company has become subject to the procedures and requirements of Section 1009 of the Company Guide and is required to submit a plan by November 19, 2017, advising the NYSE American of the actions the Company has taken or will take to regain compliance with the NYSE American continued listing standards. The plan period may not exceed April 19, 2019.

The Company intends to submit a plan by the November 19, 2017 deadline. The plan will be based in significant part upon the merger and the associated financing. The Company expects that its common stock will continue to be listed on the NYSE American while the Company seeks to regain compliance with the listing standard noted, subject to the Company’s compliance with other continued listing requirements. If the Company fails to submit a plan or if the Company’s plan is not accepted then the NYSE American may commence delisting procedures. Upon completion of the Merger, the Company will be required to satisfy all applicable requirements for the initial listing on the NYSE American.

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

The table below sets forth our net oil production (net of all royalties, overriding royalties and production due to others), the average sales prices, average production costs and direct lifting costs per unit of production for the three and nine-month periods ended September 30, 2017 and 2016.

  For the Three Months
Ended
September 30,		  For the Nine Months
Ended
September 30,		 
  2017  2016  2017  2016 
Net Production                
Oil (Bbl)  5,450   14,015   25,083   44,961 
Natural gas (Mcf)  —   11,493   11,649   39,692 
                
Average Sales Prices                
Oil (Bbl) $42.71  $32.45  $43.03  $35.19 
Natural gas (Mcf) $—  $1.65  $1.67  $1.06 
                 
Average Production Cost(1)                
Per barrel of oil equivalent (“Boe”) $52.42  $39.72  $48.68  $43.22 
                 
Average Lifting Costs(2)                
Per Boe $37.66  $35.73  $37.40  $37.16 

(1)Production costs include all operating expenses, transportation expenses, depreciation, depletion and amortization, lease operating expenses and all associated taxes. Impairment of oil properties is not included in production costs.
(2)Direct lifting costs do not include impairment expense or depreciation, depletion and amortization.


Results of Operations for the Three and Nine Months Ended September 30, 2017 and 2016 compared.

Income:

  Three Months Ended  Increase /  Nine Months Ended  Increase / 
  September 30,  (Decrease)  September 30,  (Decrease) 
  2017  2016  $  2017  2016  $ 
Oil revenues $187,297  $454,825  $(267,528) $1,082,492  $1,581,972  $(499,480)
Natural gas revenues  —   18,929   (18,929)  19,509   43,461   (23,952)
Total $187,297  $473,754  $(286,457)  1,102,001  $1,625,433  $(523,432)

Oil Revenues

Oil revenues for the nine months ended September 30, 2017, were $1,082,492 compared to revenues of $1,581,972 for the nine months ended September 30, 2016 and for the three months ended September 30, 2017, were $187,297 compared to revenues of $454,285 for the same period in 2016. Of the year-to-date oil revenue decrease of $499,480, approximately $852,109 (offset by the increase in prices as described below) was due to lower production volumes. Oil production decreased approximately 44% in the first nine months of 2017 from barrels produced in the first nine months of 2016 to barrels produced for the first nine months ended September 30, 2017. The production decrease was due primarily to the curtailment of both growth and maintenance capital expenditures, and the conveyance of the Company’s oil and gas properties in Colorado, Nebraska and Texas in connection with the restructuring of its outstanding senior debt in May 2017.

This was offset by an increase in revenues of approximately $352,629 due to higher crude oil prices. Crude oil prices increased $7.84 or 22% to an average price of $43.03 per barrel for the first nine months of 2017 compared to $35.19 per barrel for the same period in 2016.

Natural Gas Revenues

Natural gas revenues for the nine months ended September 30, 2017 were $19,509 compared to natural gas revenues of $43,461 for the nine months ended September 30, 2016 and for the three months ended September 30, 2017 were $-0- compared to natural gas revenues of $18,929 for the same period in 2016. Of the year-to-date revenue decrease of $23,952, approximately $46,964 (offset by the increase in prices as described below) was due to lower production volumes. Production decreased in the first nine months of 2017 from 39,692 Mcf for the nine months ended September 30, 2016, to 11,649 Mcf for the comparable period of 2017, as shown in the table above. The production decrease was due primarily to the curtailment of both growth and maintenance capital expenditures and the conveyance of the Company’s oil and gas properties in Colorado, Nebraska and Texas in connection with the restructuring of its outstanding senior debt in May 2017. This was offset by an increase in revenues of approximately $23,012 due to higher natural gas prices. Natural gas prices increased $0.58 or 53% from an average price of $1.09 per Mcf for the first nine months of 2016 to an average price of $1.67 per Mcf for the same period of 2017.


Expenses:

  Three Months Ended  Increase /  Nine Months Ended  Increase / 
  September 30,  (Decrease)  September 30,  (Decrease) 
  2017  2016     2017  2016    
Production expenses:                        
Direct operating costs $205,253  $569,109  $(363,856) $1,013,389  $1,916,774  $(903,385)
Depreciation, depletion and amortization  80,449   63,644   16,805   305,684   312,322   (6,638)
Impairment of oil & gas properties  —   800,000   (800,000)  —   7,444,597   (7,444,597)
Total production expenses  285,702   1,432,753   (1,147,051)  1,319,073   9,673,693   (8,354,620)
                         
General expenses:                        
Professional fees  —   43,968   (43,968)  422,538   181,086   241,452 
Salaries  130,741   297,244   (166,503)  407,888   1,044,639   (636,751)
Administrative expense  190,341   124,090   66,251   461,378   435,616   25,762 
Total general expenses  321,082   465,302   (144,220)  1,291,084   1,661,341   (369,537)
Total production and general expenses  606,784   1,898,055   (1,291,271)  2,610,877   11,335,034   (8,724,157)
                         
(Loss) from operations  (419,487)  (1,424,301)  1,004,814   (1,508,876)  (9,709,601)  8,200,725 
                         
Other income (expense)                        
Interest expense  (184,148)  (339,719)  155,571   (908,642)  (1,001,937)  93,295 
Gain on loan sale agreement  —   —   —   11,500,124   —   11,500,124 
Loss on derivatives  —   (68,459)  68,459   —   (2,449,855)  2,449,855 
Other income  285,000   138,075   146,925   531,846   2,312,261   (1,780,415)
Total other income (expense)  100,852   (270,103)  370,955   11,123,127   (1,139,531)  12,262,859 
                         
Net income (loss) $(318,635) $(1,694,404) $1,375,769  $9,614,452   (10,849,132) $20,463,584 


Direct Operating Costs

Direct operating costs include direct labor and equipment costs related to pumping, gauging, pulling, well repairs, compression, transportation costs, and general maintenance requirements in our oil and gas fields. These costs also include certain contract labor costs, and other non-capitalized expenses. Direct operating costs for the nine months ended September 30, 2017 decreased by $903,385, or 47% to $1,013,389 from $1,916,774 for the nine months ended September 30, 2016 and for the three months ended September 30, 2017 were $205,253 compared to $569,109 for the same period in 2016. Year-to-date direct operating costs per Boe decreased $1.29 or approximately 3% to $37.40 for 2017, compared to $37.16 per boe for the same period of 2016. The decrease was primarily due to the curtailment of both growth and maintenance capital expenditures, and the conveyance of the Company’s oil and gas properties in Colorado, Nebraska and Texas.

Depreciation, Depletion and Amortization

Depreciation, depletion and amortization for the nine months ended September 30, 2017 was $305,684 compared to $312,322 for the nine months ended September 30, 2016 and for the three months ended September 30, 2017 was $80,449 compared to $63,644 for the same period in 2016. The year-to-date decrease in depletion expense of $16,805 or approximately 26% was due to the decrease in our depletable base year-over-year resulting from the impairment sustained in 2016 and further reduced by lower production volumes. Depletion expense per Boe decreased $1.29 or approximately 44% in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2017 and also as discussed above production decreased approximately 44% nine months over nine months due primarily to lower spending on lease operating expenditures and lower investments in maintenance capital.

Impairment of Oil and Gas Properties

Under the full cost method of accounting, capitalized oil and gas property costs less accumulated depletion and net of deferred income taxes may not exceed an amount equal to the sum of the present value, discounted at 10%, of estimated future net revenues from proved oil and gas reserves and the cost of unproved properties not subject to amortization (without regard to estimates of fair value), or estimated fair value, if lower, of unproved properties that are not subject to amortization. Should capitalized costs exceed this ceiling, an impairment expense is recognized.extended period.

 

For the three and ninesix months ended SeptemberJune 30, 2017,2022, our supply chain was adversely impacted by the pandemic, causing material delays in the delivery of critical supply orders associated with timely fulfilling our obligations to our large ecommerce client. As a consequence, significant inventory purchases were made in 2021 in order to secure the manufacturing of our products in an effort to prevent delays in 2022. This is an on-going situation that we were not requiredcontinue to record an impairment expense on our evaluated oilmonitor closely.

Three Months and gas properties dueSix Months June 30, 2022 as Compared to improved commodity pricesThree and market conditions. For the three and nine months ended SeptemberSix Months Ended June 30, 2016, we recognized an impairment expense on our evaluated oil and gas properties of $800,000 and $7,444,597, respectively.2021

 

Professional FeesRevenues

 

Professional fees forFor the ninethree months ended SeptemberJune 30, 20172022, revenues were $422,538$5,287,873 as compared to $181,086 for the nine months ended September 30, 2016 and $0$1,937,364 for the three months ended SeptemberJune 30, 20172021, an increase of $3,350,509, or 172.9%. The increase was attributable to the revenues derived from our ebee drone products acquired in the senseFly Acquisition. Offsetting these increases was a decline in revenues of $70,946 for our SaaS subscription services related to the HempOverview and Ground Control Platforms. The COVID-19 pandemic and its effects continue to have a negative impact on our business due to global supply chain, inflation and adverse labor market conditions, which could be for an extended period of time Although we understand that market conditions impacting supply chain are not predictable at this time, we do believe that our backlog in sales will be resolved by no later than the end of the third quarter 2022.

 For the six months ended June 30, 2022, revenues were $9,129,851 as compared to $43,968$3,638,955 for the same period in 2016.six months ended June 30, 2021, an increase of $5,490,896, or 150.9%. The increase was attributable to the revenues derived from our ebee drone products in year-to-date professional feesthe senseFly acquisition and $79,030 of $241,452increased sales of our SaaS subscription services related to the HempOverview and Ground Control platforms. Offsetting these increases was primarilya decline in revenues of $363,298 related to our sensor sales, specifically the RedEdge and Altum™ sensor products. The COVID-19 pandemic and its effects continue to have a negative impact on the business due to increased spendingsupply chain, inflation and adverse labor market conditions, which could be for an extended period of time. Although we understand that market conditions impacting our supply chain are not predictable at this time, we do believe that our backlog in 2017 on consulting, legal and investor relation services. These increases were partially offsetsales will be resolved by decreasedno later than the end of the third party reserve engineering fees.

quarter 2022.

Salaries

36

Cost of Sales

 

Salaries forFor the ninethree months ended SeptemberJune 30, 2017 were $407,8882022, cost of sales was $2,737,777 as compared to $1,044,639 for the nine months ended September 30, 2016 and $130,741$959,229 for the three months ended SeptemberJune 30, 20172021, an increase of $1,778,548, or 185.4%. The increase in our cost of sales was attributable to our senseFly entity, which was acquired in October 2021, and the effects of supply chain constraints, including shortages in electronic components and inflation caused by higher costs to acquire electronic components, increased labor expenses and freight-in costs.

For the six months ended June 30, 2022, cost of sales was $5,214,863 as compared to $297,244$1,658,097 for the same periodsix months ended June 30, 2021, an increase of $3,556,766, or 214.5%. The increase in 2016. The decreaseour cost of sales the costs was attributable to our senseFly entity, which was acquired in year-to-date salariesOctober 2021, and the effects of approximately $636,751 is due primarilysupply chain constraints, including shortages in electronic components and inflation caused by higher costs to a reduced number of employees from the prior period.


Administrative Expensesacquire electronic components, increased labor expenses and higher freight-in costs.

 

Administrative expenses forGross Profit

For the ninethree months ended SeptemberJune 30, 2017 were $461,3782022, gross profit was $2,550,096 as compared to $435,616 for the nine months ended September 30, 2016 and $190,341$978,135 for the three months ended SeptemberJune 30, 20172021, an increase of $1,571,961, or 160.7%. For the three months ended June 30, 2022, gross profit margin was 48.2% as compared to $124,090 for the same period in 2016. The year-to-date decrease of $25,762 in 2017 compared to 2016, was due primarily to decreased general and administrative services provided from a working interest partner, and decreased IT, telecom, software, and meals, travel, and entertainment.

Interest Expense

Interest expense for the nine months ended September 30, 2017 was $908,642 compared to $1,001,937 for the nine months ended September 30, 2016, a decrease of $93,295 and $184,14850.5% for the three months ended SeptemberJune 30, 20172021. The decrease in gross profit margin was a result of our senseFly entity drone sales which has lower margins along with increase in our cost of goods sold for sensor sales.

For the six months ended June 30, 2022, gross profit was $3,914,988 as compared the $1,980,858 for the six months ended June 30, 2021, an increase of $1,934,130, or 97.6%. For the six months ended June 30, 2022, gross profit margin was 42.9% as compared to $339,71954.4% for the same periodsix months ended June 30, 2021. The decrease in 2016. Interest expense decreasedgross profit margin was a result of our senseFly entity drone sales which has lower margins along with an increase in our cost of goods sold for sensor sales.

Operating Expenses

For the three months ended June 30, 2022, operating expenses were $7,938,675 as compared to $5,798,620 for the three months ended June 30, 2021, an increase of $2,140,055, or 36.9%. Operating expenses comprise general and administrative, research and development, sales and marketing.

For the six months ended June 30, 2022, operating expenses were $16,785,507, as compared to $9,762,146 for the six months ended June 30, 2021, an increase of $7,023,361, or 71.9%. Operating expenses comprise general and administrative, professional fees, sales and marketing and research and development.

General and Administrative Expenses

For the three months ended June 30, 2022, general and administrative expenses were $4,437,185 as compared to $4,331,787 for the three months ended June 30, 2021, an increase of $105,398, or 2.4%. The increase was primarily the result of the inclusion of the newly acquired senseFly businesses, along with continued increases in general and administrative costs from our two other 2021 business acquisitions. These costs primarily included lease expenses, payroll-related costs for new and existing employees, amortization of our acquired intangibles, stock-based compensation expenses, and costs incurred in the design and development of our internal use software. The increases were offset by a decrease in professional fees, related mainly to legal and consulting fees.

For the six months ended June 30, 2022, general and administrative expenses were $9,918,564 as compared to $7,635,114 for the six months ended June 30, 2021, an increase of $2,283,450, or 29.9%. The increase was primarily as a result of the reductioninclusion of debt under the Loan Sale Agreement (“LSA”) (see “Part I” – “Item 1 Financial Statements”newly acquired senseFly businesses, along with continued increases in general and administrative costs from our two other 2021 business acquisitions. These costs primarily included lease expenses, payroll-related costs for new and existing employees, amortization of this report above under “Note 2 – Going Concern” – “Financing Transactions”our acquired intangibles, stock-based compensation expenses and costs incurred for further information)the design and development of our internal use software. These increases were offset by higher interest rate charges undera decrease in professional fees, related mainly to legal and consulting fees.

Research and Development

For the forbearance agreement also described underthree months ended June 30, 2022, research and development expenses were $2,182,313 as compared to $907,000 for the Note 2.three months ended June 30, 2021, an increase of $1,275,313, or 140.6%. The increase was primarily due to the addition of senseFly and Measure’s research and development teams that provide development of our new airframe and software technologies.

For the six months ended June 30, 2022, research and development expenses were $4,367,237 as compared to $1,335,605 for the six months ended June 30, 2021, an increase of $3,031,632, or 227%. The increase was primarily due to the addition of senseFly and Measure’s research and development teams that provide development of our new airframe and software technologies.

Sales and Marketing

For the three months ended June 30, 2022, sales and marketing expenses were $1,319,177 as compared to $559,833 for the three months ended June 30, 2021, an increase of $759,344, or 135.6%. The increase was primarily due to the addition of the senseFly and Measure sales and marketing teams.

For the six months ended June 30, 2022, sales and marketing expenses were $2,499,706 as compared to $791,427 for the six months ended June 30, 2021, an increase of $1,708,279, or 215.8%. The increase was primarily due to the addition of the senseFly and Measure sales and marketing teams.

 

Gain on Loan Sale AgreementOther Expense/(Income), net

 

For the nine months ended September 30, 2017, we recognized a gain of $11,500,124 on the LSA and the restructuring of our debt completed thereby. For the three and nine months ended September 30, 2016, and the three months ended SeptemberJune 30, 2017, we had no loan sale gains or sale2022, other expense, net was $213,157 as compared to other income, net of loans. 

Loss on Derivatives

All of the Company’s hedge contracts expired in 2016, so we incurred no unrealized gains or losses in the nine-months ended September 2017. We recorded an unrealized loss of $2,449,855 in the marking to market of our derivative contracts for the first nine months of 2016 and $68,459$142,313 for the three months ended SeptemberJune 30, 2016.

Other Income

Other income decreased2021. The change was primarily attributable to the net foreign currency transaction losses incurred by $1,780,415 from $2,312,261 for the nine months ended September 30, 2016 to $531,846 for the nine months ended September 30, 2017 and decreased by $146,925 forsenseFly during the three months ended SeptemberJune 30, 20172022, offset by the forgiveness of the Company’s Paycheck Protection Program Plan loan during the three months ended June 30, 2021.

For the six months ended June 30, 2022, other expense, net was $327,789 as compared to other income, net of $172,586 for the same period in 2016.six months ended June 30, 2021. The decreasechange was dueprimarily attributable to the expiration of derivative contracts in 2016, resulting in no realization of gains from their monetization in 2017net foreign currency transaction losses incurred by senseFly during the six months ended June 30, 2022, offset by income from performing certain general and administrative services for Camber Energy, Inc., for a feethe forgiveness of $150,000 per month beginning in May 2017.the Company’s Paycheck Protection Program Plan loan during the six months ended June 30, 2021.

 

Net Income (Loss)Loss

 

The net income forFor the ninethree months ended SeptemberJune 30, 2017 was $9,614,4522022, the Company incurred a net loss of $5,601,736 as compared to a net loss of $10,849,132 for the nine months ended September 30, 2016 and net loss was $318,635$4,678,172 for the three months ended SeptemberJune 30, 2017, compared2021, an increase of $923,564, or 19.7%. The increase in net loss was primarily attributable to a decrease in gross profit margins due to supply chain constraints and higher operating costs as a result of the inclusion of a full quarter’s expenses of the 2021 Business Acquisitions, offset by the absence of transactional costs incurred for the 2021 Business Acquisitions.

For the six months ended June 30, 2022, the Company incurred a net loss of $1,694,404$13,198,308 as compared to a net loss of $7,608,702 for the same period in 2016.six months ended June 30, 2021, an increase of $5,589,606, or 73.5%. The year-to-dateoverall increase in net loss was primarily attributable to a decrease in gross profit margins due to supply chain constraints and higher operating costs as a result of the net incomeinclusion of the full six- month’s expenses of the 2021 Business Acquisitions, offset by the absence of the transactional costs as a result of the 2021 Business Acquisitions. In addition, in order to achieve our long-term growth strategies, additional resources and investments will be required as we continue to address these shifts by developing new technologies, products and services that support prevailing growth opportunities.

Cash Flows

Six Months Ended June 30, 2022 as Compared to the Six Months Ended June 30, 2021

As of June 30, 2022, cash on hand was $13,505,593 as compared to $14,590,566 as of December 31, 2021, a decrease of $1,084,973, or 7.4%.

For the six months ended June 30, 2022, cash used in operations was $11,628,089, an increase of $8,121,854, or 231.6%, as compared to cash used of $3,506,235 for the three months ended June 30, 2021. The increase in cash used in operating activities was principally driven by the operating expenses of our 2021 Business Acquisitions, which included higher inventory purchases and prepayments, and accounts payable, offset by deferred revenue resulting in customer backlog for prepayments on future sales.

For the six months ended June 30, 2022, cash used in investing activities was $4,004,092, a decrease of $20,557,665, or 83.7%, as compared to cash used of $24,561,757 for the six months ended June 30, 2021. The decrease in cash used in our investing activities resulted from the business acquisition of MicaSense in the prior year, offset by the increase in capitalized costs associated with the development of the HempOverview and Measure Ground Control platforms and the senseFly business acquisition.

For the six months ended June 30, 2022, cash provided by financing activities was $14,564,841, a decrease of $28,777,456, or 66.4%, as compared to cash provided of $43,342,297 for the six months ended June 30, 2021. The decrease in cash provided by our financing activities was due primarily to the gain from the LSAless sales of $11,500,124our Common Stock through an at-the-market (“ATM”) offering and the reductionexercise of warrants in the impairment of oil and gas properties of $7,444,597.prior year.

 

Liquidity and Capital Resources

 

Liquidity isAs of June 30, 2022, we had working capital of $8,774,304. For the six months ended June 30, 2022, we incurred a measure of a company’s ability to meet potential cash requirements. We have historically met our capital requirements through debt financing, revenuesloss from operations asset sales, andof $12,870,519, an increase of $5,089,231, or 65.4%, as compared to a loss from operations of $7,781,288 for the issuance of equity securities. Due tosix months ended June 30, 2021. While there can be no guarantees, we believe the declinecash on hand, in oil prices and the restructuring of our outstanding debt, itconnection with cash generated from revenues, will be more difficult during the remainder of 2017 and into 2018 to use our historical means of meeting our capital requirements to provide us with adequate liquiditysufficient to fund our operations andthe next twelve months of operations. In addition, we intend to pursue other opportunities of raising capital program.


The following table summarizes total current assets, total current liabilities and working capital.

  September  30,
2017		  December 31,
2016		  Increase /
(Decrease)		 
          
Current Assets $451,675  $1,678,967  $(1,227,292)
             
Current Liabilities $5,468,276  $19,754,406  $(14,286,130)
             
Working Capital Deficit $(5,016,601) $(18,075,439) $(13,058,838)

The working capital deficit at September 30, 2017 was $5,016,601 compared to $18,075,439 at December 31, 2016. The year-to-date decrease in the working capital deficit was primarily due to the $13.5 million of debt forgiven as part of the LSA.

We had $515,752 of cash used in operating activities for the nine months ended September 30, 2017, which was mainly due to $11.5 million of gain on the LSA, offset by the $9.7 million net income for the period.

We had $4,635 of cash used in investing activities for the nine months ended September 30, 2017, which was solely due to the purchase of oil and gas properties.

We had $357,453 of cash provided by financing activities for the nine months ended September 30, 2017, which was due to proceeds from the sale of Series C Convertible Preferred Stock of $450,000 and bank balance transfer on loan sale agreement.

The unaudited condensed consolidated financial statements included in “Part I” – “Item 1 Financial Statements” of this report have been prepared assuming that the Company will continue as a going concern. There is currently substantial doubt about the Company’s ability to continue as a going concern as discussed in “Note 2 – Going Concern” to the unaudited condensed consolidated financial statements.

The Company’s Senior Secured Credit Facility is described in “Part I” – “Item 1 Financial Statements” of this report above under “Note 5 – Long-Term Debt” – “Senior Secured Credit Facility”. “Note 6 – Commitments & Contingencies” to the unaudited condensed consolidated financial statements includes additional information on certain commitments and contingencies of the Company. “Part I” – “Item 1 Financial Statements” of this report above under “Note 2 – Going Concern” – “Financing Transactions” includes a discussion of the LSA and related transactions and “Note 2 – Going Concern” – “Merger Agreement” includes information on the pending Merger.

Recent Funding and Related Transactionswith outside investors.

 

On April 10, 2017, we obtained an unsecured loan in the principal amount of $150,000 from an affiliate of the holder of our issued and outstanding shares of Series B Preferred Stock (the “lender”). The loan was converted into 150 shares of Series Convertible Preferred Stock.

On April 27, 2017, the Company entered into an Additional Issuance Agreement with Alpha Capital Anstalt, for the purchase of 300 restricted shares of its newly designated Series C Convertible Preferred Stock in consideration for $300,000, of which $150,000 was payable in cash and $150,000 was payable via a note conversion, with an option to purchase an additional 200 shares of Series C Convertible Preferred Stock for an aggregate purchase price of $200,000. As of September 30, 2017, the Company had issued 300 shares of Series C Convertible Preferred Stock for an aggregate purchase price of $300,000. In addition, during the nine months ending September 30, 2017, the Company had received $150,000 from Alpha Capital Anstalt to purchase an additional 150 shares of Series C Convertible Preferred Stock. As of September 30, 2017, the additional 150 shares of Series C Convertible Preferred Stock have not been issued and are reflected as Series C Convertible Preferred Stock Issuable on the balance sheet in the aggregate amount of $150,000. The shares have also not been issued as of the date of this filing.


The Series C Preferred Stock is non-voting (except to the extent required by law and except for certain consent rights relating to amending the certificate of incorporation or bylaws, and the like), ranks senior to the common stock with respect to dividends and with respect to distributions upon a deemed dissolution, liquidation or winding-up of the Company, and ranks junior to the Company’s Series A preferred stock and Series B preferred stock with respect to dividends and with respect to distributions upon a deemed dissolution, liquidation or winding-up of the Company. Upon request of the Holders, the Company can seek stockholder approval to remove the Issuance Limitation described therein and to allow for further adjustments related to anti-dilution protection, only if such stockholder approval is obtained. The Series C Convertible Preferred Stock has a liquidation preference of $1,000 per share, and is convertible at the option of the holder at a conversion price equal to $0.30 per share, or a ratio equal to approximately 3,333 shares of common stock for each one (1) share of Series C Convertible Preferred Stock, subject to customary adjustments. Dividends are payable on the shares of Series C Convertible Preferred Stock only if and to the extent that dividends are payable on the common stock into which the Series C Convertible Preferred Stock is convertible. The Series C Convertible Preferred Stock has no maturity date and can be redeemed by the Company beginning twelve months after the closing of the offering or upon a change of control for the redemption price of $1,000 per share, as adjustable as provided in the designation of the Series C Preferred Stock. 

The Series C Preferred Stock includes a beneficial ownership limitation preventing conversion of shares of Series C Preferred Stock into more than 9.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the Series C Preferred Stock. In addition, the Company may not convert the Series C Preferred Stock into a number of shares of common stock which, when aggregated with any shares of common stock issued on or after the original issue date and prior to such conversion date in connection with any conversion of Series C Preferred Stock would exceed 1,683,944 shares of common stock (19.99% of the outstanding shares as of the original issue date), subject to adjustment for forward and reverse stock splits, recapitalizations and the like. In the event conversion of the Series C preferred is limited pursuant to these provisions, each holder shall be entitled to a pro rata portion of the issuable maximum.

Pursuant to the anti-dilutive provisions of the Securities Purchase Agreement dated as of March 11, 2015, which requires the Company to issue additional shares of common stock to adjust the purchase price paid by purchasers in the Company’s March 2015 offering, in the event any shares are sold (or convertible securities are sold), with a price per share less than the purchase price paid by the March 2015 purchasers subject to the terms of the Securities Purchase Agreement, Alpha Capital Anstalt received 597,461 shares of common stock. In addition, the Series B Convertible Preferred Stock conversion ratio equal to approximately 571 shares of common stock for each one (1) share of Preferred Stock reset to approximately 3,333 shares of common stock for each one (1) share of Series B Convertible Preferred Stock, to be consistent with the terms of the Series C Convertible Preferred Stock, pursuant to the anti-dilution requirements of the Series B Convertible Preferred Stock.

During the nine months ending September 30, 2017, Alpha Capital Anstalt converted 390 shares of Series B Convertible Preferred Stock into 1,300,000 shares of common stock.

Effective May 1, 2017, the Company entered into an agreement with Camber Energy, Inc., pursuant to which EnerJex will be responsible for performing certain general and administrative services for Camber for a fee of $150,000 per month. Richard E. Menchaca, a member ofJune 26, 2022, the Board of Directors of the Company isdesignated a co-guarantornew series of bank debt held by Camber Energy, Inc.Preferred Stock, the Series F 5% Preferred Convertible Stock (“Series F”), and Robert Schleizer,authorized the sale and issuance of up to 35,000 shares of Series F. The Company issued to an existing investor 10,000 shares of Series F for an aggregate purchase price and gross proceeds of $10,000,000.

For the six months ended June 30, 2022, we raised $4,583,341 of net proceeds from our newly appointed Interim Chief Financial Officer is also the Chief Financial Officer of Camber Energy, Inc.ATM offering with co-agents Stifel, Nicolaus & Company, Incorporated and Raymond James & Associates.

Off-Balance Sheet Arrangements

 

On July 14, 2017, the Company entered intoJune 30, 2022, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a Secured Promissory Note for $100,000 with Alpha Capital Anstalt, which has a maturity date of November 15, 2017, and accrues interest at a rate of 8% per annum. The amount due under the note is secured by a security interest, subordinate to certain other security interests of the Company,current or future effect on our financial condition, changes in substantially all of the Company’s assets.

On July 28, 2017, the Company received an advance of $50,000 from Alpha Capital Anstalt.


Summary of product research and development

We do not anticipate performing any significant product research and development under our plan of operations.

Expected purchasefinancial condition, revenue or sale of any significant equipment

We anticipate that we will purchase the necessary production and field service equipment required to produce oil during our normal courseexpenses, results of operations, overliquidity, capital expenditures or capital resources. Since our inception, except for standard operating leases, we have not engaged in any off-balance sheet arrangements, including the next twelve months.

Significant changes in the number of employees

At September 30, 2017, we had one full-time employee, including field personnel. As production and drilling activities increase or decrease, we may have 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.

Off-Balance Sheet Arrangements

structured finance, special purpose entities or variable interest entities. We do not have anyno 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. stockholders.

 

Critical Accounting PoliciesInflation

During the three and Estimatessix months ended June 30, 2022, inflation has had a negative impact on the unmanned aerial vehicle systems industry, our customers, and our business globally. Specifically, our ability to access components and parts needed in order to manufacture our proprietary drones and sensors, and to perform quality testing have been, and continue to be, impacted. If either the Company or any of its third-parties in the supply chain for materials used in our manufacturing and assembly processes continue to be adversely impacted, our supply chain may be further disrupted, limiting its ability to manufacture and assemble products. In addition, the eventual implications of higher government deficits and debt, tighter monetary policies and potentially higher, long-term interest rates may drive a higher cost of raising capital in the future.

Climate Change

 

Our critical accounting estimates include the value ofopinion is that neither climate change, nor governmental regulations related to climate change, have had, or are expected to have, any material effect on our oil and gas properties, asset retirement obligations, and share-based payments.operations.

 

Oil and Gas PropertiesNew Accounting Pronouncements

 

We follow the full-cost method of 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 using the units of production (UOP) method. Currently we only have operations in the Unites States of America. The UOP calculation multiplies the percentage of estimated proved reserves produced each quarterThere were certain updates recently issued by the costFinancial Accounting Standards Board (“FASB”), most 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.

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 applying current prices of oil & gas reserves (with consideration of price changes onlywhich represented technical corrections to the extent provided by contractual arrangements)accounting literature or application 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)specific industries and are not expected to be incurred in developing and producing the proved reserves computed using a discount factor of 10 percent and assuming continuation of existing economic conditions plus (b) the cost of properties not being amortized plus (c) the lower of cost or estimated fair value of unproven properties included in the costs being amortized less (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 unweighted 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 three and nine months ended September 30 30, 2017, we were not required to record an impairment expense on our evaluated oil and gas properties. For the nine months ended September 30, 2017, we incurred no impairment charges and for the nine months ended September 30, 2016 our impairment charge was $7,444,597.

Asset Retirement Obligations

The asset retirement obligation relates to the plugging 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.

Share-Based Payments

The value we assign to the options and warrants that we issue is based on the fair market value as calculated by the Black-Scholes pricing model. To perform a calculation of the value of our options and warrants, we determine an estimate of the volatility of our stock. We need to estimate volatility because there has not been enough trading of our stock to determine an appropriate measure of volatility. We believe our estimate of volatility is reasonable, and we review the assumptions used to determine this whenever we issue new equity instruments. If we have a material error in our estimateimpact on the Company’s consolidated financial position, results of the volatility of our stock, our expenses could be understatedoperations or overstated.cash flows.

 

Effects of Inflation and Pricing

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The oil industry is very cyclical and the demand for goods and services of oil field companies, suppliers and others associated with the industry puts extreme pressure on the economic stability and pricing structure within the industry. Material changes in prices impact revenue stream, estimates of future reserves, borrowing base calculations of bank loans and value of properties in purchase and sale transactions. Material changes in prices can impact the value of oil companies and their ability to raise capital, borrow money and retain personnel. We anticipate business costs and the demand for services related to production and exploration will fluctuate while the commodity prices for oil remains volatile.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We areAs a smaller“smaller reporting Companycompany” as defined by Rule 12b-2 under the Exchange Act, andItem 10 of Regulation S-K, we are not required to provide the information required underby this item.Item.

 


ITEM 4.CONTROLS AND PROCEDURES

 

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure and Control Procedures

 

Disclosure Controls and Procedures.

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to management, including the InterimThe Company’s Chief Executive Officer and Interimthe Company’s Chief Financial Officer (our principal executive officer and principal financial officer), to allow timely decisions regarding required disclosures. The Company’s management, including our Interim Chief Executive Officer and our Interim Chief Financial Officer (our principal executive officer and principal financial officer), evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Company’s Interim Chief Executive OfficerJune 30, 2022 and Interim Chief Financial Officer (our principal executive officer and principal financial officer) concluded that the Company’s disclosure controls and procedures were effectiveare effective. The term disclosure controls and procedures means controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as of September 30, 2017.amended, is accumulated, recorded, processed, summarized and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure to be reported within the time periods specified in the SEC’s rules and forms.

 

Changes in Internal Control Overover Financial Reporting

 

There have not been anywere no changes in our internal control over financial reporting, as defined in Rules 13a-15(t) and 15d-15(f) under the Exchange Act, during the three months ended SeptemberJune 30, 20172022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 


PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

We may become involved in various routine legal proceedings incidental to our business. However, to our knowledge as of the date of this report, there are no material pending legal proceedings to which we are a party or to which any of our property is subject, except the legal proceedings discussed below.

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 in connection with this proceeding. The Company has faith that it will prevail and at September 30, 2017, 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 it has paid all rents owe to C&F Ranch LLC and will vigorously defend itself in connection with this proceeding. The Company has faith that it will prevail and at September 30, 2017, no reserve for potential losses arising from this matter has been recorded.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed below and in “Part I” - “Item 1A. Risk Factors” in our 2016 Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on March 31, 2017, and “Part II” – “Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, filed with the SEC on August 21, 2017, which could materially affect our business, financial condition or future results and which risk factors are incorporated by reference herein. You should also review the risk factors relating to the Merger set forth under AgEagle Risk Factors in our Current Report on Form 8-K, filed with the SEC on October 20, 2017. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially affect our business, financial condition or future results.

In the event the Merger closes, it will cause immediate and substantial dilution to existing shareholders and a change of control of the Company.

As described above, we are party to a Merger Agreement with AgEagle relating to the acquisition by us of the outstanding securities of AgEagle.  We anticipate the consideration exchanged with AgEagle for the securities of AgEagle will be 85% of our total outstanding securities on a fully-diluted basis.  As such, in the event the contemplated transaction closes, the issuance of the common stock consideration to AgEagle will result in immediate and substantial dilution to the interests of our then shareholders and result in a change of control of the Company.

The Merger Agreement limits our ability to pursue alternatives to the Merger.

The Merger Agreement contains provisions that could adversely impact competing proposals to acquire us. These provisions include the prohibition on us generally from soliciting any acquisition proposal or offer for a competing transaction. These provisions might discourage a third party that might have an interest in acquiring all or a significant part of our company from considering or proposing an acquisition, even if that party were prepared to pay consideration with a higher value than the current proposed Merger consideration.


Failure to complete the Merger could negatively impact our stock price and future business and financial results.

If the Merger is not completed, our ongoing business may be adversely affected and we would be subject to a number of risks, including the following:

PART II.OTHER INFORMATION

 

ITEM 1.●we will not realize the benefits expected from the Merger, including a potentially enhanced competitive and financial position, expansion of operations, and will instead be subject to all the risks we currently face as an independent company;
●we may experience negative reactions from the financial markets and our partners and employees;
●the Merger Agreement places certain restrictions on the conduct of our business prior to the completion of the Merger or the termination of the Merger Agreement. Such restrictions, the waiver of which is subject to the consent of AgEagle, may prevent us from making certain acquisitions, taking certain other specified actions or otherwise pursuing business opportunities during the pendency of the Merger; and
●matters relating to the Merger (including integration planning) may require substantial commitments of time and resources by our management, which would otherwise have been devoted to other opportunities that may have been beneficial to us as an independent company.LEGAL PROCEEDINGS

 

The Merger Agreement may be terminated in accordance with its terms and the Merger may not be completed.

The completion of the Merger is subject to various customary conditions, including, among other things: (a) the approval of the shareholders of the Company and AgEagle; (b) the accuracy of the representations and warranties made by each of the Company and AgEagle and the compliance by each of the Company and AgEagle with their respective obligations under the Merger Agreement; (c) approval of the shareholders of the Company for the issuance of its common stock and any other securities (x) to the AgEagle shareholders in connection with the Merger and (y) in connection with the financing transactions contemplated by the Merger Agreement; (d) approval for the listing of shares of the Company’s common stock to be issued in the Merger and other related transactions on the NYSE American; and (e) that all of the Company’s assets as disclosed shall have been sold, transferred or otherwise disposed of and the corresponding debt and liabilities shall have been extinguished. The Company’s existing cash resources are insufficient to satisfy all of its outstanding liabilities. Accordingly, in order to satisfy the condition and consummate the Merger, the Company will be required to raise additional funding prior to the closing of the Merger, the failure of which could result in the Company’s failure to consummate the Merger Agreement. These conditions to the closing of the Merger may not be fulfilled and, accordingly, the Merger may not be completed. In addition, if the Merger is not completed by January 31, 2018, provided that if all of the conditions to closing shall have been satisfied or shall be capable of being satisfied at such time, the required closing date may be extended until March 31, 2018, either we or AgEagle may choose not to proceed with the Merger, and the parties can mutually decide to terminate the Merger Agreement at any time, before or after shareholder approval. In addition, we or AgEagle may elect to terminate the Merger Agreement in certain other circumstances.

Termination of the Merger Agreement could negatively impact the Company.

In the event the Merger Agreement is terminated, our business may have been adversely impacted by our failure to pursue other beneficial opportunities due to the focus of management on the Merger, and the market price of our common stock might decline to the extent that the current market price reflects a market assumption that the Merger will be completed. If the Merger Agreement is terminated and our board of directors seek another business combination, our shareholders cannot be certain that we will be able to find a party willing to offer equivalent or more attractive consideration than the consideration provided for by the Merger.


We will be subject to business uncertainties and contractual restrictions while the Merger is pending.

Uncertainty about the effect of the Merger on our partners may have an adverse effect on us. These uncertainties may impair our ability to attract, retain and motivate key personnel until the Merger is completed, and could cause partners and others that deal with us to seek to change existing business relationships, cease doing business with us or cause potential new partners to delay doing business with us until the Merger has been successfully completed. Retention of certain employees may be challenging during the pendency of the Merger, as certain employees may experience uncertainty about their future roles or compensation structure. If key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the business, our business following the Merger could be negatively impacted. In addition, the Merger Agreement restricts us from making certain acquisitions and taking other specified actions until the Merger is completed without the consent of AgEagle. These restrictions may prevent us from pursuing attractive business opportunities that may arise prior to the completion of the Merger.

We are currently not in compliance with NYSE American continued listing standards and if we are unable to maintain compliance with NYSE American continued listing standards, our common stock may be delisted from the NYSE American equities market, which would likely cause the liquidity and market price of our common stock to decline.

Our common stock is currently listed on the NYSE American. The NYSE American will consider suspending dealings in, or delisting, securities of an issuer that does not meet its continued listing standards. If we cannot meet the NYSE American continued listing requirements, the NYSE American may delist our common stock, which could have an adverse impact on us and the liquidity and market price of our stock.

We may be unable to comply with NYSE American continued listing standards. Our business has been and may continue to be affected by worldwide macroeconomic factors, which include uncertainties in the credit and capital markets. External factors that affect our stock price, such as liquidity requirements of our investors, as well as our performance, could impact our market capitalization, revenue and operating results, which, in turn, could affect our ability to comply with the NYSE American’s listing standards. The NYSE American has the ability to suspend trading in our common stock or remove our common stock from listing on the NYSE American if in the opinion of the exchange: (a) the financial condition and/or operating results of the Company appear to be unsatisfactory; or (b) it appears that the extent of public distribution or the aggregate market value of our common stock has become so reduced as to make further dealings on the exchange inadvisable; or (c) we have sold or otherwise disposed of our principal operating assets, or have ceased to be an operating company; or (d) we have failed to comply with our listing agreements with the exchange (which include that we receive additional listing approval from the exchange prior to us issuing any shares of common stock, something we have inadvertently failed to comply with in the past); or (e) any other event shall occur or any condition shall exist which makes further dealings on the exchange unwarranted.

On October 19, 2017, the Company received notice from NYSE Regulation, Inc. that it is not in compliance with certain NYSE American (“NYSE American”) continued listing standards relating to stockholders’ equity. Specifically, the Company is not in compliance with Section 1003(a)(i) (requiring stockholders’ equity of $2.0 million or more if an issuer has reported losses from continuing operations and/or net losses in two of its three most recent fiscal years) of the NYSE American Company Guide (the “Company Guide”). As a result, the Company has become subject to the procedures and requirements of Section 1009 of the Company Guide and is required to submit a plan by November 19, 2017, advising the NYSE American of the actions the Company has taken or will take to regain compliance with the NYSE American continued listing standards. The plan period may not exceed April 19, 2019.

The Company intends to submit a plan by the November 19, 2017 deadline. The plan will be based in significant part upon the merger and the associated financing. The Company expects that its common stock will continue to be listed on the NYSE American while the Company seeks to regain compliance with the listing standard noted, subject to the Company’s compliance with other continued listing requirements. If the Company fails to submit a plan or if the Company’s plan is not accepted then the NYSE American may commence delisting procedures. Upon completion of the Merger, the Company will be required to satisfy all applicable requirements for the initial listing on the NYSE American.


If we are unable to retain compliance with the NYSE American criteria for continued listing, our common stock would be subject to delisting. A delisting of our common stock could negatively impact us by, among other things, reducing the liquidity and market price of our common stock and reducing the number of investors willing to hold or acquire our common stock, which could negatively impact our ability to raise equity financing. In addition, delisting from the NYSE American might negatively impact our reputation and, as a consequence, our business. Additionally, if we were delisted from the NYSE American and we are not able to list our common stock on another national exchange we will no longer be eligible to use Form S-3 registration statements and will instead be required to file a Form S-1 registration statement for any primary or secondary offerings of our common stock, which would delay our ability to raise funds in the future, may limit the type of offerings of common stock we could undertake, and would increase the expenses of any offering, as, among other things, registration statements on Form S-1 are subject to SEC review and comments whereas take downs pursuant to a previously filed Form S-3 are not.

If we are delisted from the NYSE American, your ability to sell your shares of our common stock would also be limited by the penny stock restrictions, which could further limit the marketability of your shares.

If our common stock is delisted from the NYSE American, it would come within the definition of “penny stock” as defined in the Exchange Act and would be covered by Rule 15g-9 of the Exchange Act. That Rule imposes additional sales practice requirements on broker-dealers who sell securities to persons other than established customers and accredited investors. For transactions covered by Rule 15g-9, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser’s written agreement to the transaction prior to the sale. Consequently, Rule 15g-9, if it were to become applicable, would affect the ability or willingness of broker-dealers to sell our securities, and accordingly would affect the ability of shareholders to sell their securities in the public market. These additional procedures could also limit our ability to raise additional capital in the future.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

On April 27, 2017, the Company entered into an Additional Issuance Agreement with Alpha Capital Anstalt, for the purchase of 300 restricted shares of its newly designated Series C Convertible Preferred Stock in consideration for $300,000, with an option to purchase an additional 200 shares of Series C Convertible Preferred Stock for an aggregate purchase price of $200,000. As of September 30, 2017, the Company had issued 300 shares of Series C Convertible Preferred Stock for an aggregate purchase price of $300,000. In addition, during the nine months ending September 30, 2017, the Company had received $150,000 from Alpha Capital Anstalt to purchase an additional 150 shares of Series C Convertible Preferred Stock. As of September 30, 2017, and the date of this filing, the additional 150 shares of Series C Convertible Preferred Stock have not been issued and are reflected as Series C Convertible Preferred Stock Issuable on the balance sheet as of September 30, 2017, in the aggregate amount of $150,000.

We claim an exemption from registration pursuant to Section 4(a)(2) and/or Rule 506 of Regulation D of the Securities Act, since the transaction did not involve a public offering, the recipient was an “accredited investor”, and acquired the securities for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof. The securities are subject to transfer restrictions, and the certificates evidencing the securities contain an appropriate legend stating that such securities have not been registered under the Securities Act and may not be offered or sold absent registration or pursuant to an exemption therefrom and are further subject to the terms of the escrow agreement. The securities were not registered under the Securities Act and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the Securities Act and any applicable state securities laws.

Pursuant to the anti-dilutive provisions of the Securities Purchase Agreement dated as of March 11, 2015, which requires the Company to issue additional shares of common stock to adjust the purchase price paid by purchasers in the Company’s March 2015 offering, in the event any shares are sold (or convertible securities are sold), with a price per share less than the purchase price paid by the March 2015 purchasers subject to the terms of the Securities Purchase Agreement, Alpha Capital Anstalt received 597,461 shares of common stock. In addition, the Series B Convertible Preferred Stock conversion ratio equal to approximately 571 shares of common stock for each one (1) share of Preferred Stock reset to approximately 3,333 shares of common stock for each one (1) share of Series B Convertible Preferred Stock, to be consistent with the terms of the Series C Convertible Preferred Stock, pursuant to the anti-dilution requirements of the Series B Convertible Preferred Stock.  


As the issuance of the anti-dilutive shares did not involve a “sale” of securities under Section 2(a)(3) of the Securities Act, we believe that no registration of such securities, or exemption from registration for such securities, was required under the Securities Act. Notwithstanding the above, to the extent such shares are deemed “sold or offered”, we claim an exemption from registration pursuant to Section 4(a)(2) and/or Rule 506 of Regulation D of the Securities Act, since the transaction did not involve a public offering, the recipient was an “accredited investor”, and acquired the securities for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof. The securities are subject to transfer restrictions, and the certificates evidencing the securities contain an appropriate legend stating that such securities have not been registered under the Securities Act and may not be offered or sold absent registration or pursuant to an exemption therefrom and are further subject to the terms of the escrow agreement. The securities were not registered under the Securities Act and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the Securities Act and any applicable state securities laws.

During the nine months ending September 30, 2017, Alpha Capital Anstalt converted 390 shares of Series B Convertible Preferred Stock into 1,300,000 shares of common stock.

We claim an exemption from registration provided by Section 3(a)(9) of the Securities Act for such issuance, as the securities were exchanged by us with our existing security holder in a transaction where no commission or other remuneration was paid or given directly or indirectly for soliciting such exchange.

Pursuant to the Merger, the Company will issue unregistered shares of Company common stock to the stockholders of AgEagle with respect to the Merger equal to 85% of the then issued and outstanding capital stock of the Company on a fully diluted basis.

The shares to be issued by the Company to the stockholders of AgEagle in the Merger and related transactions will be issued exempt from registration under Section 4(a)(2) of the Securities Act because the offer and sale of such securities does not involve a “public offering” as defined in Section 4(a)(2) of the Securities Act and other applicable requirements will be met.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.Legal Proceedings

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES.

ITEM 1A.RISK FACTORS

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, and are not required to provide the information under this item.

ITEM 2.RECENT SALES OF UNREGISTERED EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION.

ITEM 5.OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS.

Exhibit
No.ITEM 6.		Description
2.1***Agreement and Plan of Merger and Reorganization, dated as of October 19, 2017, by and among EnerJex Resources, Inc., AgEagle Merger Sub, Inc., and AgEagle Aerial Systems, Inc. (filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed with the Commission on October 20, 2017, and incorporated herein by reference)
3.1Certificate of Designation of Series C Preferred Stock as filed with the Secretary of State of Nevada on April 27, 2017 (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the Commission on April 28, 2017, and incorporated herein by reference)


10.1Form of Additional Issuance Agreement among Enerjex Resources, Inc. and Alpha Capital Anstalt effective as of April 27, 2017 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on April 28, 2017, and incorporated herein by reference)
10.2Form of Services Agreement among EnerJex Resources, Inc., and Camber Energy, Inc. dated April 27, 2017 (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the Commission on April 28, 2017, and incorporated herein by reference)
10.3Second Amended and Restated Credit Agreement dated May 10, 2017, by and among the Registrant, EnerJex Kansas, Inc., Black Raven Energy, Inc., Black Sable Energy, LLC, Adena, LLC, Working Interest, LLC, Kansas Holdings, LLC and Cortland Capital Market Services LLC (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on May 12, 2017, and incorporated herein by reference)
10.4Amended and Restated Note dated May 10, 2017, by and among the Registrant, EnerJex Kansas, Inc., Black Raven Energy, Inc., Black Sable Energy, LLC, Adena, LLC, Working Interest, LLC, Kansas Holdings, LLC and Cortland Capital Market Services LLC (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the Commission on May 12, 2017, and incorporated herein by reference)
10.5Guaranty of Recourse Carveouts dated May 10, 2017, by and between the Registrant and Cortland Capital Market Services LLC (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed with the Commission on May 12, 2017, and incorporated herein by reference)
10.6$100,000 Secured Promissory Note dated July 14, 2017, by the Company in favor of Alpha Capital Anstalt (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on July 20, 2017, and incorporated herein by reference)
10.7Voting Agreement, dated as of October 19, 2017, by and among EnerJex Resources, Inc. and a principal stockholder of AgEagle (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on October 20, 2017, and incorporated herein by reference)
31.1*Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1Audited Financial Statements of AgEagle Aerial Systems, Inc. for the years ended December 31, 2016 and 2015 (filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K, filed with the Commission on October 20, 2017, and incorporated herein by reference)
99.2Unaudited Financial Statements of AgEagle Aerial Systems, Inc. as of June 30, 2017 (filed as Exhibit 99.2 to the Company’s Current Report on Form 8-K, filed with the Commission on October 10, 2017, and incorporated herein by reference)
101.INS*XBRL Instance Document
101.SCH*XBRL Taxonomy Extension Schema Document
101.CAL*XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*XBRL Taxonomy Extension Label Linkbase Document
101.PRE*XBRL Taxonomy Extension Presentation Linkbase DocumentEXHIBITS

 

Exhibit No.*Filed herewith.Description

**Furnished herewith.

31.1***The schedules to the AgreementRule 13(a)-14(a)/15(d)-14(a) Certification of principal executive officer
31.2Rule 13(a)-14(a)/15(d)-14(a) Certification of principal financial officer
32.1Section 1350 Certification of principal executive officer
32.2Section 1350 Certification of principal financial officer and Plan of Merger have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish supplementally a copy of any omitted schedules to the Securities and Exchange Commission upon request.principal accounting officer
101.INSXBRL INSTANCE DOCUMENT
101.SCH XBRL TAXONOMY EXTENSION SCHEMA
101.CAL XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
101.DEF XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
101.LABXBRL TAXONOMY EXTENSION LABEL LINKBASE
101.PRE XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE

 


SIGNATURES

 

In accordance with the requirementsSection 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

ENERJEX RESOURCES, INC.
 (Registrant)  

By:/s/ Louis G. SchottAGEAGLE AERIAL SYSTEMS INC.
Louis G. Schott
Dated: August 15, 2022

Interim By:

/s/ Barrett Mooney
Barrett Mooney
Chief Executive Officer

(Principaland Chairman of the Board

Dated: August 15, 2022By:/s/ Nicole Fernandez-McGovern
Nicole Fernandez-McGovern
Chief Financial Officer, Executive Officer) 

Vice President of Operations and Secretary

 

Date: November 14, 2017

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

SignaturesTitleDate
/s/ Barrett MooneyChief Executive OfficerAugust 15, 2022
Barret Mooney(Principal Executive Officer)
/s/ Nicole Fernandez-McGovernChief Financial Officer, Executive Vice President of Operations and SecretaryAugust 15, 2022
Nicole Fernandez-McGovern(Principal Financial and Accounting Officer)

43