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 ~~September 30, 2017~~March 31, 2023

☐ 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

☐	~~TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~ AGEAGLE AERIAL SYSTEMS INC.
(Exact name of registrant as specified in its charter)

~~Commission file number 001-36492~~

Nevada

~~ENERJEX RESOURCES, INC.~~
~~(Exact name of registrant as specified in its charter)~~
~~Nevada~~
88-0422242
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
~~organization)~~
8863 E. 34th Street North, Wichita, Kansas
67226
~~4040 Broadway, Suite 425~~
~~San Antonio, Texas~~ ~~78209~~
(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 Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
Common Stock, par value $0.001 per share
UAVS
~~(210) 592-1670~~
NYSE American LLC
~~(Registrant’s telephone number, including area code)~~
Securities registered pursuant to Section 12(g) of the Act: None.

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 ☒

~~The number~~As of May 15, 2023, there were 92,321,375 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.

~~ENERJEX RESOURCES, INC.~~
~~FORM 10-Q~~
~~TABLE OF CONTENTS~~

~~Page~~
~~PART I~~ ~~FINANCIAL INFORMATION~~ 3
~~ITEM 1.~~ ~~FINANCIAL STATEMENTS~~ 3

AGEAGLE AERIAL SYSTEMS INC.
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
3
ITEM 1.
FINANCIAL STATEMENTS:
3
Condensed Consolidated Balance Sheets ~~at September 30, 2017 (Unaudited)~~as of March 31, 2023 (unaudited) and December 31, ~~2016~~2022
3
Condensed Consolidated Statements of Operations and Comprehensive Loss for the ~~three~~Three Months Ended March 31, 2023 and ~~nine months ended September 30, 2017 and 2016 (Unaudited)~~2022 (unaudited)
4
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2023 and 2022 (unaudited)
5
Condensed Consolidated Statements of Cash Flows for the ~~nine months ended September 30, 2017~~Three Months Ended March 31, 2023 and ~~2016 (Unaudited)~~2022 (unaudited)
5
6
Notes to Condensed Consolidated Financial Statements ~~(Unaudited)~~(unaudited)
6
7
~~FORWARD-LOOKING STATEMENTS~~
16
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
18
29
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
28
36
ITEM 4.
CONTROLS AND PROCEDURES
29
36
PART II
~~OTHER INFORMATION~~
30
37
ITEM 1.
LEGAL PROCEEDINGS
30
37
ITEM 1A.
RISK ~~FACTORS~~FACTOR
30
37
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
33
37
ITEM 3.
~~DEFAULTS~~DEFAULT UPON SENIOR SECURITIES
34
37
ITEM 4.
MINE SAFETY DISCLOSURES
34
37
ITEM 5.
OTHER INFORMATION
34
37
ITEM 6.
EXHIBITS
34
38
SIGNATURES
39

~~SIGNATURES~~ 352
Table of Contents

PART 1I – FINANCIAL INFORMATION

Item 1. Financial Statements.

~~ITEM 1. FINANCIAL STATEMENTS~~
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

~~EnerJex Resources, Inc. and Subsidiaries~~

~~Condensed Consolidated Balance Sheets~~

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 Notes to Condensed Consolidated Financial Statements (unaudited).~~

~~EnerJex Resources, Inc. and Subsidiaries~~

~~Condensed Consolidated Statements of Operations~~

~~(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

	As of
ASSETS	March 31, 2023 (unaudited)			December 31, 2022
CURRENT ASSETS:
Cash	$	2,847,908		$	4,349,837
Accounts receivable, net		2,910,500			2,213,040
Inventories, net		6,583,888			6,685,847
Prepaid and other current assets		838,495			1,029,548
Notes receivable		185,000			185,000
Total current assets		13,365,791			14,463,272

Property and equipment, net		700,079			791,155
Right of use asset		3,783,318			3,952,317
Intangible assets, net		10,855,866			11,507,653
Goodwill		23,179,411			23,179,411
Other assets		302,875			291,066
Total assets	$	52,187,340		$	54,184,874

LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable	$	1,467,193		$	1,845,135
Accrued expenses		1,205,554			1,680,706
Promissory note, net of debt discount		933,694			287,381
Contract liabilities		554,926			496,390
Current portion of lease liabilities		620,973			628,113
Current portion of COVID loans		451,144			446,456
Total current liabilities		5,233,484			5,384,181

Long term portion of lease liabilities		2,998,202			3,161,703
Long term portion of COVID loans		406,354			446,813
Defined benefit plan obligation		—			106,163
Long term portion of promissory note, net of debt discount		1,384,112			1,861,539
Total liabilities		10,022,152			10,960,399

COMMITMENTS AND CONTINGENCIES (SEE NOTE 11)

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, 7,865 shares issued and outstanding as of March 31, 2023, and 5,863 shares issued and outstanding as of December 31, 2022, respectively		8			6
Common Stock, $0.001 par value, 250,000,000 shares authorized, 90,771,375 and 88,466,613 shares issued and outstanding as of March 31, 2023, and December 31, 2022, respectively		90,772			88,467
Additional paid-in capital		158,378,640			154,679,363
Accumulated deficit		(116,408,919	)		(111,553,444	)
Accumulated other comprehensive income		104,687			10,083
Total stockholders’ equity		42,165,188			43,224,475
Total liabilities and stockholders’ equity	$	52,187,340		$	54,184,874

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

~~EnerJex Resources, Inc. and Subsidiaries~~

~~Condensed Consolidated Statements of Cash Flows~~

~~(Unaudited)~~

Table of Contents

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 $ —

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

	For the Three Months Ended March 31,
	2023			2022
Revenues	$	4,057,069		$	3,841,978
Cost of sales		2,078,437			2,477,086
Gross Profit		1,978,632			1,364,892

Operating Expenses:
General and administrative		3,579,522			5,481,380
Research and development		1,582,343			2,184,924
Sales and marketing		977,875			1,180,529
Total Operating Expenses		6,139,740			8,846,833
Loss from Operations		(4,161,108	)		(7,481,941	)

Other Income (Expense):
Interest expense, net		(305,497	)		(16,332	)
Other expense, net		(132,894	)		(98,299	)
Total Other Expense, net		(438,391	)		(114,631	)
Loss Before Income Taxes		(4,599,499	)		(7,596,572	)
Provision for income taxes		—			—
Net Loss attributable to common stockholders	$	(4,599,499	)	$	(7,596,572	)

Net Loss Per Common Share – Basic and Diluted	$	(0.05	)	$	(0.10	)

Weighted Average Number of Shares Outstanding During the Period – Basic and Diluted		89,649,999			77,923,660

Comprehensive Loss:
Net Loss attributable to common stockholders	$	(4,599,499	)	$	(7,596,572	)
Amortization of unrecognized periodic pension costs		43,345			—
Foreign currency cumulative translation adjustment		51,259			20,172
Total comprehensive loss, net of tax		(4,504,895	)		(7,576,400	)
Accrued dividends on Series F Preferred Stock		(66,921	)		—
Deemed dividend on Series F Preferred Stock and warrant		(255,976	)		—
Total comprehensive loss available to common stockholder	$	(4,827,792	)	$	(7,576,400	)

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

Table of Contents

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2023
(UNAUDITED)

	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, 2022		5,863		$	6			88,466,613	$	88,467	$	154,679,363		$	10,083	$	(111,553,444	)	$	43,224,475
Issuance of Preferred Stock, Series F Convertible, net of issuance cost		3,000			3			—		—		2,999,997			—		—			3,000,000
Conversion of Preferred Stock, Series F Convertible shares to Common Stock		(998	)		(1	)		2,304,762		2,305		(2,304	)		—		—			—
Dividends on Series F Preferred Stock		—			—			—		—		(66,921	)		—		—			(66,921	)
Deemed dividend on Series F Preferred Stock and warrant		—			—			—		—		255,976			—		(255,976	)		—
Stock-based compensation expense		—			—			—		—		512,529			—		—			512,529
Amortization of unrecognized periodic pension costs		—			—			—		—		—			43,345		—			43,345
Foreign currency cumulative translation adjustment		—			—			—		—		—			51,259		—			51,259
Net loss		—			—			—		—		—			—		(4,599,499	)		(4,599,499	)
Balance as of March 31, 2023		7,865		$	8			90,771,375	$	90,772	$	158,378,640		$	104,687	$	(116,408,919	)	$	42,165,188

~~EnerJex Resources, Inc. and Subsidiaries~~See accompanying notes to condensed consolidated financial statements.

~~Notes~~

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2022
(UNAUDITED)

Par $0.001 Preferred Stock, Series F Convertible Shares

Preferred Stock, Series F Convertible Amount

Par
$0.001
Common Stock
Shares

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

Sales of common stock, net of issuance costs

—

—

4,251,151

4,251

4,579,090

—

—

4,583,341

Issuance of Common Stock for SenseFly Acquisition

—

—

1,927,407

1,927

2,998,073

—

—

3,000,000

Exercise of stock options

—

—

75,000

75

30,675

—

—

30,750

Stock-based compensation expense

—

—

—

—

1,753,881

—

—

1,753,881

Foreign currency cumulative translation adjustment

—

—

—

—

—

20,172

—

20,172

Net loss

—

—

—

—

—

—

(7,596,572 )

(7,596,572 )
Balance as of March 31, 2022

—

$ —

81,568,546

$ 81,568

$ 136,988,255

$ (50,422 )

$ (58,650,916 )

$ 78,368,485

See accompanying notes to ~~Condensed Consolidated Financial Statements (Unaudited)~~condensed consolidated financial statements.

Table of Contents

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	For the Three Months Ended March 31,
	2023			2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(4,599,499	)	$	(7,596,572	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		512,529			1,753,881
Depreciation and amortization		1,001,338			875,990
Defined benefit plan obligation and other		(148,764	)		(7,992	)
Amortization of debt discount		168,885			—
Changes in assets and liabilities:
Accounts receivable, net		(684,800	)		(232,756	)
Inventories, net		138,756			(1,287,229	)
Prepaid expenses and other assets		228,733			(144,118	)
Accounts payable		(383,607	)		(594,938	)
Accrued expenses and other liabilities		(547,170	)		(105,019	)
Contract liabilities		56,577			828,410
COVID loans		(44,598	)		—
Other		67,094			—
Net cash used in operating activities		(4,234,526	)		(6,510,343	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(5,337	)		(74,951	)
Acquisition of senseFly, net of cash acquired		—			(489,989	)
Acquisition of MicaSense, net of cash acquired		—			(2,446,512	)
Capitalization of platform development costs		(139,509	)		(319,799	)
Capitalization of internal use software costs		(109,345	)		(171,907	)
Net cash used in investing activities		(254,191	)		(3,503,158	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Sales of Common Stock, net of issuance costs		—			4,583,341
Sale of Preferred Stock, Series F Convertible		3,000,000			—
Exercise of stock options		—			30,750
Net cash provided by financing activities		3,000,000			4,614,091

Effects of foreign exchange rates on cash flows		(13,212	)		(4,517	)

Net decrease in cash		(1,501,929	)		(5,403,927	)
Cash at beginning of period		4,349,837			14,590,566
Cash at end of period	$	2,847,908		$	9,186,639

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest cash paid	$	—		$	—
Income taxes paid	$	—		$	—
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Conversion of Preferred Stock, Series F Convertible to Common Stock	$	2,305		$	—
Dividends on Series F Preferred Stock	$	66,921		$	—
Deemed dividend on Series F Preferred stock and warrant	$	255,976		$	—
Stock consideration for the senseFly Acquisition	$	—		$	3,000,000

See accompanying notes to condensed consolidated financial statements.

Table of Contents

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(UNAUDITED)

Note 1 – Description of the Business and Basis of Presentation

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

Founded in 2010, AgEagle was originally formed to pioneer 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 market leader offering customer-centric, advanced, autonomous unmanned aerial systems (“UAS”) which drive revenue at the intersection of flight hardware, sensors and software for industries that include agriculture, military/defense, public safety, surveying/mapping and utilities/engineering, among others. AgEagle has also achieved numerous regulatory firsts, including earning governmental approvals for its commercial and tactical drones to fly Beyond Visual Line of Sight (“BVLOS”) and/or Operations Over People (“OOP”) in the United States, Canada, Brazil and the European Union and being awarded Blue UAS certification from the Defense Innovation Unit of the U.S. Department of Defense.

AgEagle’s shift and expansion from solely manufacturing fixed-wing farm drones in 2018, to offering what the Company believes is one of the industry’s best fixed-wing, full-stack drone solutions, culminated in 2021 when the Company acquired three market-leading companies engaged in producing UAS airframes, sensors and software for commercial and government use. In addition to a robust portfolio of proprietary, connected hardware and software products; an established global network of over 200 UAS 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. In 2022, the Company succeeded in integrating all three acquired companies with AgEagle to form one global company focused on taking autonomous flight performance to a higher level.

The business acquisitions completed during the year ended December 31, 2021 by the Company of 100% of the outstanding stock of MicaSense, Measure and senseFly, respectively are collectively referred to as the "2021 Business Acquisitions.”

The ~~unaudited~~Company is currently headquartered in Wichita, Kansas, where we house our sensor manufacturing operations, and we operate business and drone manufacturing operations in Raleigh, North Carolina. In addition, the Company operates business and manufacturing operations in Lausanne, Switzerland in support of our international business activities.

Basis of Presentation – The 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 issued~~presented in ~~connection with the conversion of the Company’s Series B Preferred Stock~~United 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:~~

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.~~

~~we:~~

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

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

~~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:~~

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

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

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

~~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~~

~~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 ("U.S. GAAP”). In the opinion of management, the Company has made all necessary adjustments, which include normal recurring adjustments, for a fair statement of the Company’s consolidated financial position and results of operations for the periods presented. Certain information and disclosures included in the annual 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, 2022, included in the Company’s Annual Report on Form 10-K, as filed with the SEC on April 4, 2023. The results for the three-month period ended March 31, 2023 and 2022, are not necessarily indicative of the results to be expected for a full year, any other interim periods or any future year or periods.

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AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(UNAUDITED)

Note 1 – Description of the Business and Basis of Presentation-Continued

The condensed consolidated financial statements include the accounts of AgEagle and its wholly-owned subsidiaries, AgEagle Aerial, Inc., Measure Global, Inc. and senseFly. All significant intercompany balances and transactions have been eliminated in consolidation.

A description of certain of the Company’s accounting policies and other financial information is included in the Company’s audited consolidated financial statements filed with the SEC on Form 10-K for the year ended December 31, 2022. 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.

Liquidity and Going Concern – In pursuit of the Company’s long-term growth strategy and acquisitions, the Company has sustained continued operating losses. During the three months ended March 31, 2023, the Company incurred a net loss of $4,599,499 and used cash in operating activities of $4,234,526. As of March 31, 2023, the Company has working capital of $8,132,307 and an accumulated deficit of $116,408,919. While the Company has historically been successful in raising capital to meet its working capital needs, the ability to continue raising such capital is not guaranteed. There is substantial doubt about the Company’s ability to continue as a going concern ~~basis, which contemplates~~as the ~~realization of assets~~Company will require additional liquidity to continue its operations and meet its financial obligations for 12 months from the date these condensed consolidated financial statements were issued. The Company is evaluating strategies to obtain the required additional funding for future operations and the ~~satisfaction~~restructuring of ~~liabilities~~operations to grow revenues and reduce expenses.

If the Company is unable to generate significant sales growth in the ~~normal course~~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 ~~business. Accordingly, the~~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 ~~assets~~recorded 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 2 – Summary of Significant Accounting Policies

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. These accounting policies conform to accounting principles generally accepted in the United States of America (“US GAAP”) in all material respects and have been consistently applied in preparing the accompanying condensed consolidated financial statements.

Risks 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. The aforementioned risks and their respective impacts on the UAV industry and the Company’s operational and financial performance remains uncertain and outside of the Company’s control. Specifically, because of the aforementioned continuing risks, the Company’s ability to access components and 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.

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AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(UNAUDITED)

Note 2 – Summary of Significant Accounting Policies-Continued

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 reserve for obsolete inventory, valuation of stock issued for services and stock options, valuation of intangible assets, 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, prepaid expenses, notes receivable, accounts payable and accrued expenses, their carrying amounts approximate fair value due to their short-term nature. The outstanding loan related to the COVID Loans is carried at face value, which approximates fair value. As of March 31, 2023 and December 31, 2022, 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.

Cash Concentrations -The Company maintains its cash balances at financial institutions that are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. The Company has significant cash balances at financial institutions which throughout the year regularly exceed the federally insured limit of $250,000. Any loss incurred or a lack of access to such funds could have a significant adverse impact on the Company's financial condition, results of operations, and cash flows.

Revenue Recognition and Concentration – Most of the Company’s revenues are derived primarily through the sales of drones, 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.

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AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(UNAUDITED)

Note 2 – Summary of Significant Accounting Policies-Continued

The Company generally recognizes revenue on sales to customers, dealers, and distributors upon satisfaction of performance obligations which generally occurs once controls transfer to customers, which is when product is shipped or delivered depending on specific shipping terms and, where applicable, a customer acceptance has been obtained. The fee is not considered to be fixed or determinable until all material contingencies related to the sales have been resolved. The Company records revenue in the statements 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 perform 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.

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

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 is completed. As of March 31, 2023 and December 31, 2022, respectively, contract liabilities represents $554,926 and $496,390.

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 and comprehensive loss. Annual amortization is recognized on a straight-line basis over the remaining economic life of the software (typically three 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 March 31, 2023 and December 31, 2022, respectively, capitalized software costs for platform development, net of accumulated amortization, totaled $1,306,380 and $1,332,516, respectively, and are included in intangible assets, net on the condensed consolidated balance sheets.

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.

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AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(UNAUDITED)

Note 2 – Summary of Significant Accounting Policies-Continued

As of March 31, 2023 and December 31 2022, capitalized software costs for internal-use software related to the Company’s implementation of its enterprise resource planning (“ERP”) software, totaled $751,976 and $721,795, respectively, net of accumulated amortization and are included in intangible assets, net on the condensed consolidated balance sheets. The Company placed its ERP into service on May 1, 2022.

Foreign Currency - The Company translates 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 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 income (expense), net in the condensed consolidated statements of operations and comprehensive loss.

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 months ended March 31, 2023 and 2022, shipping costs were $64,936 and $59,458, 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 months ended March 31, 2023 and 2022, advertising costs were $40,689 and $60,626, respectively.

Vendor Concentrations – As of March 31, 2023 and December 31, 2022, 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 $0.0001 (“Common Stock”) equivalents (if dilutive) related to warrants, options, and convertible instruments. For the three months ended March 31, 2023 and 2022, 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 March 31, 2023, the Company had 499,856 unvested RSUs and 2,690,543 options outstanding to purchase shares of Common Stock. As of December 31, 2022, the Company had 557,476 unvested RSUs, and 2,561,231 options outstanding to purchase shares of Common Stock. As of March 31, 2023 and December 31, 2022, the company has 28,271,747 and 21,129,032 common stock warrants, respectively.

Segment Reporting – In accordance with ASC Topic 280, Segment Reporting,(“ASC 280”), the Company identifies operating segments as components of an entity for which discrete financial information is available and is regularly reviewed by the chief operating decision maker in making decisions regarding resource allocation and performance assessment. The Company defines the term “chief operating decision maker” to be its chief executive officer.

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AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(UNAUDITED)

Note 2 – Summary of Significant Accounting Policies-Continued

The Company has determined that it operates in four segments:

	·	Drones, which comprises revenues earned from contractual arrangements to develop, manufacture and /or modify complex drone related products, and to provide associated engineering, technical and other services according to customer specifications.

	·	Sensors, which comprises the revenue earned through the sale of sensors, cameras, and related accessories.

	·	SaaS, which comprises revenue earned through the offering of online-based subscriptions.

	·	Corporate, which comprises corporate costs only.

New Accounting Pronouncements - 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 Company adopted ASU 2022-02 effective January 1, 2023 and it did not have a material impact on the Company’s condensed 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 condensed consolidated financial statements.

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AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(UNAUDITED)

Note 3 – ~~Stock Options and Warrants~~Balance Sheets

~~A summary of stock options and warrants is as follows:~~Accounts Receivable, net

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

As of March 31, 2023 and December 31, 2022, accounts receivable, net consist of the following:

	March 31, 2023			December 31, 2022
Accounts receivable	$	2,927,417		$	2,229,840
Less: Provisions for doubtful accounts		(16,917	)		(16,800	)
Accounts receivable, net	$	2,910,500		$	2,213,040

Inventories, Net

As of March 31, 2023 and December 31, 2022, inventories, net consist of the following:

	March 31, 2023			December 31, 2022
Raw materials	$	4,455,666		$	5,288,206
Work-in process		898,614			1,106,056
Finished goods		1,554,238			614,400
Gross inventories		6,908,518			7,008,662
Less: Provision for obsolescence		(324,630	)		(322,815	)
Inventories, net	$	6,583,888		$	6,685,847

Prepaids and Other Current Assets

As of March 31, 2023 and December 31, 2022, prepaid and other current assets, net consist of the following:

	March 31, 2023		December 31, 2022
Prepaid inventories	$	226,177		281,484
Prepaid software licenses and annual fees		208,144		184,429
Prepaid rent		156,914		234,691
Prepaid insurance		92,734		167,794
Prepaid VAT charges		90,165		99,558
Prepaid other and other current assets		64,361		61,592
Prepaid and other current assets	$	838,495	$	1,029,548

Table of Contents

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(UNAUDITED)

Note 3 – Balance Sheets-Continued

Property and Equipment, Net

As of March 31, 2023 and December 31, 2022, property and equipment, net consist of the following:

	Estimated
	Useful Life		March 31,			December 31,
Type	(Years)		2023			2022
Leasehold improvements		3	$	106,837		$	106,837
Production tools and equipment		5		638,575			632,514
Computer and office equipment		3-5		515,010			507,637
Furniture		5		77,486			77,799
Drone equipment		3		170,109			170,109
Total Property and equipment				1,508,017			1,494,896
Less: Accumulated depreciation				(807,938	)		(703,741	)
Total: Property and equipment, net			$	700,079		$	791,155

Property and Equipment Depreciation Expense

Classification within the Condensed Consolidated Statements of Operations and Comprehensive Loss	For the Three Months Ended March 31,
	2023		2022
Cost of sales	$	63,663	$	64,843
General and administrative		37,034		45,892
Total: Depreciation expense	$	100,697	$	110,735

Intangible Assets, net

As of March 31, 2023 and December 31, 2022, intangible assets, net, other than goodwill, consist of following:

Name	Estimated Life (Years)		Balance as of December 31, 2022		Additions		Amortization			Balance as of March 31, 2023
Intellectual property/technology		5-7	$	4,473,861	$	—	$	(202,242	)	$	4,271,619
Customer base		3-10		2,885,657		—		(284,416	)		2,601,241
Tradenames and trademarks		5-10		1,757,891		—		(51,986	)		1,705,905
Non-compete agreement		2-4		335,933		—		(117,188	)		218,745
Platform development costs		3		1,332,516		139,509		(165,645	)		1,306,380
Internal use software costs		3		721,795		109,345		(79,164	)		751,976
Total Intangibles assets, net			$	11,507,653	$	248,854	$	(900,641	)	$	10,855,866

As of March 31, 2023, the weighted average remaining amortization period in years is 4.53 years. For the three months ended March 31, 2023 and 2022, amortization expense was $900,641 and $765,255, respectively.

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AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(UNAUDITED)

Note 3 – Balance Sheets-Continued

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

	For the Years Ending December 31,
	(rest of year) 2023		2024		2025		2026		2027		Thereafter		Total
Intellectual property/technology	$	606,726	$	808,968	$	808,968	$	808,968	$	808,968	$	429,021	$	4,271,619
Customer base		853,247		889,364		141,145		141,145		141,145		435,195		2,601,241
Tradenames and trademarks		155,959		207,944		207,944		207,944		207,944		718,170		1,705,905
Non-compete agreement		218,745		—		—		—		—		—		218,745
Platform development costs		531,583		534,254		228,917		—		—		11,626		1,306,380
Internal use software costs		246,946		335,223		160,695		9,112		—		—		751,976
Total Intangible assets, net	$	2,613,206	$	2,775,753	$	1,547,669	$	1,167,169	$	1,158,057	$	1,594,012	$	10,855,866

Accrued Expenses

As of March 31, 2023 and December 31, 2022, accrued expenses consist of the following:

	March 31, 2023		December 31, 2022
Accrued compensation and related liabilities	$	251,647	$	774,916
Provision for warranty expense		289,304		288,807
Accrued professional fees		244,155		262,737
Accrued Interest		89,444		—
Other		331,004		354,246
Total accrued expenses	$	1,205,554	$	1,680,706

Note 4 – ~~Asset Retirement Obligation~~Notes Receivable

Our asset retirement obligations relate to the liabilities associated with the abandonment of oil and natural gas wells. The amounts recognized are based on numerous estimates and assumptions, including future retirement costs, inflation rates and credit adjusted risk-free interest rates. The following shows the changes in asset retirement obligations:

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

~~Note 5 – Long-Term Debt~~

~~Senior Secured Credit Facility~~Valqari

On October ~~3, 2011, the Company~~14, 2020, in connection with, and ~~DD Energy, Inc., EnerJex Kansas, Inc., Black Sable Energy, LLC and Working Interest, LLC, its subsidiaries (“Borrowers”) entered into~~as 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~~incentive 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~~entry into a ~~First Amendment~~two-year exclusive manufacturing agreement (the “Manufacturing Agreement”) 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 securityproduce a patented Drone Delivery Station 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%Valqari, LLC (“Valqari), ~~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 transactions related to the dissolution of Rantoul Partners, and (ii) the Bank terminated a Limited Guaranty, as defined in the Credit Agreement, executed by Rantoul Partners in favor of the Bank.

~~On April 16, 2013, the Bank increased our borrowing base to $19.5 million.~~

On September 30, 2013, we entered into a Fifth Amendment to the Amended and Restated Credit Agreement. The Fifth Amendment reflected 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 collateral 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”), 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 to use a portion of proceeds received with regard to future sales of securities or certain assets to repay the loan, (iii) consented to non-compliance by the Company with certain terms of the Credit Agreement, (iv) waived certain provisions of the Credit Agreement, and (v) agreed to certain other amendments to the Credit Agreement.

On May 1, 2015, the Borrowers and the Banks entered into a Letter Agreement to clarify that up to $1,000,000 in proceeds from any potential future securities offering will be unencumbered by the Banks’ liens as described in the Credit Agreement through November 1, 2015, and that, until November 1, 2015, such proceeds 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 intoas payee, 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 “Convertible Promissory Note ~~2 – Going Concern” – “Financing Transactions~~”.

~~Below is a table showing the reconciliation of the gain on LSA as set forth on the statement of operations for the nine months ended September 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

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 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~~made a loan to Valqari in the ~~Subsidiaries’~~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. The Note provides for an automatic six month extension of the Maturity Date under the following circumstances (i) Valqari has received in writing, (x) a good faith acquisition offer at a consideration value greater than $15,000,000, (y) such offer, upon consummation, would result in a change in control (as defined in the note) of Valqari, and (z) at such time Valqari, is actively engaged in the negotiation or finalization of such acquisition transaction; or (ii) Valqari has initiated, or is in the process of initiating, a conversion to a "C-Corporation” under the Internal Revenue Code, whereas such conversion will be completed no later than one day prior to the extended Maturity Date. Valqari was not permitted to prepay the Note prior to the Maturity Date.

Table of Contents

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(UNAUDITED)

Note 4 – Notes Receivable-Continued

The Note is subject to customary representations and warranties by Valqari, as well as events of default, which may lead to acceleration of the payment of ~~certain fees and expenses~~the Note such as (i) failure to pay all of the outstanding principal, plus accrued interest on the Maturity Date or Extended Maturity Date, (ii) Valqari filing a petition or action under any bankruptcy, or other law, or (iii) an involuntary petition is filed again Valqari under any bankruptcy statute (that is not dismissed or discharged within 60 days). The indebtedness evidenced by the Note is subordinated in right of payment to the prior payment in full of any senior indebtedness (as defined in the Note) in existence on the date of the Note or incurred thereafter.

On the Maturity Date, AgEagle demanded payment of the Note, including accrued interest, however, Valqari alleged that the Maturity Date was automatically extended to October 14, 2021 (“Extended Maturity Date”), for an additional six months. 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 ~~Credit~~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, ~~and may be liable for certain conduct, such as fraud, bad faith, gross negligence, and waste~~in addition to the amount due under the Note. On November 24, 2021, Valqari made a payment of principal on the ~~Kansas oil properties or assets.~~Note of $315,000. The parties are continuing 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.

Note 5 – Liabilities Related to Business Acquisition Agreements

As of ~~September 30, 2017,~~March 31, 2023 and December 31, 2022, liabilities related to acquisition agreements consist of the ~~principal balance of $105,806 along with accrued interest remained due under the promissory note with Pass Creek Resources LLC.~~following:

	March 31, 2023		December 31, 2022
Holdback related to MicaSense Acquisition Agreement	$	—	$	23,798
Holdback related to Measure Acquisition		—		—
Holdback related to senseFly Acquisition		—		—
Total acquisition agreement related liabilities		—		23,798
Less: Current portion acquisition agreement-related liabilities		—		—
Long term portion of business acquisition agreement-related liabilities	$	—	$	—

The remaining liability related to MicaSense Acquisition Agreement as of December 31, 2022 was classified within accrued liabilities on the condensed consolidated balance sheets.

Table of Contents

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(UNAUDITED)

Note 6 – ~~Commitments & Contingencies~~COVID Loans

In connection with the senseFly 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”). As of senseFly Acquisition Date, the fair value of the COVID Loan was $1,440,046 (“senseFly COVID Loans”). For the three months ended March 31, 2023, senseFly S.A. made the required payments on the senseFly COVID Loans, including principal and accrued interest, aggregating approximately $44,598, for the three months ended March 31, 2022, no payments of principal and interest were required. As of March 31, 2023, the Company’s outstanding obligations under the senseFly COVID Loans are $857,498.

As of ~~September 30, 2017,~~March 31, 2023, scheduled principal payments due under 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.senseFly COVID Loans are as follows:

Year ending December 31,
2023 (rest of year)	$	405,993
2024		90,302
2025		90,302
2026		90,302
2027		180,599
Total	$	857,498

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.Note 7 – Promissory Note

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,~~December 6, 2022, the Company entered into ~~an Additional Issuance~~a Securities Purchase 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,~~(the “Promissory Note Purchase Agreement”) with an ~~option~~institutional investor (the “Investor”) which is an existing shareholder of the Company. Pursuant to ~~purchase an additional 200 shares~~the terms of ~~Series C Convertible Preferred Stock for an aggregate purchase price of $200,000. As of September 30, 2017,~~the Promissory Note Purchase Agreement, the Company ~~had issued 300 shares of Series C Convertible Preferred Stock for~~has agreed to issue to the Investor (i) 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 sheet8% original issue discount promissory note (the “Note”) in the aggregate principal amount of ~~$150,000.~~$3,500,000, and (ii) a common stock purchase warrant (the “Promissory Note Warrant”) to purchase up to 5,000,000 shares of the Company’s Common Stock (the “Shares”) at an exercise price of $0.44 per share, subject to standard anti-dilution adjustments. The Note is an unsecured obligation of the Company. It has an original issue discount of 4% and bears interest at 8% per annum. The Company received net proceeds of $3,285,000 net of the original issue discount of $140,000 and $75,000 of issuance costs. The Promissory Note Warrant is not exercisable for the first six months after issuance and has a five-year term from the initial exercise date of June 6, 2023. If at the time of the exercise, there is no effective registration statement registering, or the prospectus contained therein, is not available for the issuance of the Shares, then the Promissory Note Warrant may be exercised, in whole or in part, by means of a “cashless exercise.” The Shares issuable to the Investor upon exercise of the Promissory Note Warrant will be 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”), and Rule 506 promulgated thereunder. Neither the Shares nor the Promissory Note Warrant has 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 ~~recorded a beneficial conversion feature of $208,500 based on~~determined the estimated fair value of the common stock warrants issued with the Note to be $1,847,200 using a Black-Scholes pricing model. In accordance with ASC 470-20 Debt, the Company recorded a discount of $1,182,349 on the Note based on the relative fair value of the warrants and total proceeds. At Note issuance, the Company recorded a total discount on the debt of $1,397,350 comprised of the relative fair value of the warrants, the original issue discount, and the ~~conversion rate as~~issuance costs. The aggregate discount will be amortized into interest expense over the approximate two-year term of the ~~date~~Note. The Company used the following assumptions in determining the fair value of ~~issuance. This amount was recorded as a deemed distribution for~~ the ~~nine months ended September 30, 2017.~~warrants: expected term of five years, volatility rate of 135.8%, risk free rate of 3.73%, and dividend rate of 0%.

Table of Contents

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(UNAUDITED)

~~The Series C Convertible Preferred Stock (“Series C Preferred Stock~~”)Note 7 – Promissory Note- Continued

During the three months ended March 31, 2023, the Company recognized $168,885 of interest expense related to the amortization of the discounts and which has been included in interest expense on the condensed consolidated statements of operations and comprehensive loss. As of March 31, 2023, the unamortized discount is ~~non-voting (except~~$1,182,194.

Beginning June 1, 2023, and on the first business day of each month thereafter, the Company shall pay 1/20^th of the original principal amount of the Note plus any accrued but unpaid interest, with any remaining principal plus accrued interest payable in full upon the maturity date of December 31, 2024 or the occurrence of an Event of Default (as defined in the Note). In addition, to the extent ~~required by law and except for certain consent rights relating to amending~~ the ~~certificate of incorporation~~Company raises any equity capital (by private placement, public offering or ~~bylaws, and~~otherwise), 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~~Company shall utilize 50% of the ~~Company, and ranks junior~~net proceeds from such equity financing to prepay the Note, within two business days of 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~~receipt 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.funds. In the event ~~conversion of~~such equity financing is provided by the ~~Series C Preferred Stock is limited~~Investor, pursuant to ~~these provisions, each holder shall be entitled to a pro rata portion~~the terms of ~~the issuable maximum.~~

~~Pursuant to the anti-dilutive provisions of the~~that certain Securities Purchase Agreement, dated as June 26, 2022, or otherwise (an “Additional Investment”), the Investor shall agree to accept 50% less warrant coverage in connection with such Additional Investment, up to $3,300,000 of such Additional Investment. During the three months ended March 31, 2023, the Company recorded $70,000 of interest expense related to the Note in the consolidated statements of operations and comprehensive loss and as of March ~~11, 2015, which requires~~31, 2023 there is $89,444 of accrued interest including in accrued expenses on the unaudited condensed consolidated balance sheet.

As of March 31, 2023, scheduled principal payments due under the Note and amortization of the discount are as follows:

	Principal Payments		Discount Amortization			Balance, Net of Discount
Current portion of promissory note liability	$	1,440,349	$	(506,655	)	$	933,694
Long term portion of promissory note liability		2,059,651		(675,539	)		1,384,112
Total	$	3,500,000	$	(1,182,194	)	$	2,317,806

Note 8 – Stockholders' Equity

Capital Stock Issuances

Preferred Series F Convertible Stock

On June 26, 2022 (the “Series F Closing Date”), 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),entered into a Securities Purchase Agreement (the “Series F Agreement”) with ~~a price per share less than the purchase price paid by the March 2015 purchasers subject~~Alpha Capital Anstalt (“Alpha”). Pursuant to the terms of the ~~Securities Purchase~~Series F 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(the “Board”) designated a ~~co-guarantor~~new series of ~~bank debt held by Camber Energy, Inc.~~Preferred Stock, the Series F 5% Preferred Convertible Stock (“Series F”), and ~~Robert Schleizer, our newly appointed Interim Chief Financial Officer is also~~authorized the ~~Chief Financial Officer~~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, however the company received proceeds of $9,920,000 net of issuance costs. The 10,000 shares of Series F are convertible into 16,129,032 shares of Common Stock at $0.62 per share, subject to adjustment. Alpha will be entitled to receive cumulative dividends at the rate per share (as a ~~Director~~percentage of ~~Camber Energy, Inc.~~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.

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AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(UNAUDITED)

Note 108 – ~~Subsequent Events~~Stockholders' Equity-Continued

~~See~~In connection with the ~~subsequent events~~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 Warrants”) with an exercise price equal to $0.96, subject to adjustment, 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.

On December 6, 2022, upon the issuance of the promissory note and common stock warrants with an exercise price of $0.44 (see Note ~~2 – Going Concern~~”7), a down round or anti-dilution trigger event occurred resulting in the conversion rate on the Series F and the exercise price of the Series F Warrants issued with the Series F adjusting down to $0.44 from $0.62 and $0.96, respectively (the “December Down Round Trigger”). The December Down Round Trigger resulted in the Company recognizing a deemed dividend on the common stock warrants and Series F of $565,161 and $1,680,216, respectively, or aggregate deemed dividend of $2,245,377, for the incremental value to the warrant and Series F holder resulting from the reduction in exercise price and conversion price.

The deemed dividend on the Series F Warrants represents the difference between fair value of the Series F Warrants under the original terms before the December Down Round Trigger and the fair value of the Series F Warrants after December Down Round Trigger at the reduced exercise price. The fair value of the Series F Warrants was determined using a Black-Scholes pricing model and the following assumptions: expected life of 3 years, volatility of 150%, risk free rate of 3.77%, and dividend rate of 0%.

On ~~October 23, 2017,~~March 9, 2023, the Company received an Investor Notice from Alpha ~~Capital Anstalt exercised warrants~~ to purchase ~~1,000,000~~an additional 3,000 shares of ~~our common stock~~Series F Convertible Preferred (the “Additional Series F Preferred”) convertible into 2,381 shares of the Company’s Common Stock per $1,000 Stated Value per share of Series F Preferred Stock, at a conversion price of $0.42 per share and associated Common Stock warrant to purchase up to 7,142,715 shares of Common Stock at the exercise price of $0.42 per share warrant (the “Additional Warrant”) for an aggregate purchase price of $3,000,000. The Additional Warrant is exercisable upon issuance and has a three-year term. On March 10, 2023, the Company issued and sold the Additional Series F Preferred and the Additional Warrant.

As a result of issuing the additional 3,000 shares of Series F Convertible Preferred, a down round or anti-dilution trigger event occurred resulting in the conversion rate on the Series F and the exercise price of ~~$300,000 (or $0.30~~the Series F Warrants issued with the Series F adjusting down to $0.42 from $0.44 (the “March Down Round Trigger”). The March Down Round Trigger resulted in the Company recognizing a deemed dividend on the common stock warrants and Series F of $38,226 and $217,750, respectively, or aggregate deemed dividend of $255,976, for the incremental value to the warrant and Series F holder resulting from the reduction in exercise price and conversion price.

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AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(UNAUDITED)

Note 8 – Stockholders' Equity-Continued

The deemed dividend on the Series F Warrants represents the difference between fair value of the Series F Warrants under the original terms before the down round trigger and the fair value of the Series F Warrants after down round trigger at the reduced exercise price. The fair value of the Series F Warrants was determined using a Black-Scholes pricing model and the following assumptions: expected life of 3 years, volatility of 131%, risk free rate of 4.46%, and dividend rate of 0%.

Both deemed dividends to the Series F stockholder were recorded as additional paid in capital and an increase to accumulated deficit and as an increase to total comprehensive loss attributable to Common Stockholders in computing earnings per ~~share), pursuant to~~share on the condensed consolidated statements of operations and comprehensive loss.

During the three months ended March 31, 2023, Alpha had converted 998 shares of Series F into 2,304,762 shares of Common Stock and recorded $66,921 cumulative dividends, included in accrued expenses on the unaudited condensed consolidated balance sheets, at the rate per share (as a percentage of the $1,000 stated par value per share of Series F) of 5% per annum, beginning on the first conversation date of June 30, 2022.

At-the-Market Sales Agreement

For the three months ended March 31, 2022, and 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, the Company sold 4,251,151 shares of Common Stock at a share price between $1.04 and $1.18, for proceeds of $4,583,341, net of issuance costs of $141,754. For the three months ended March 31, 2023, there were no at-the-market sales.

Acquisition of senseFly

In accordance with the terms of ~~such warrants, and was~~the senseFly S.A. Purchase Agreement, the Company issued ~~1,000,000~~1,927,407 shares of ~~common stock.~~Common Stock to Parrot Drones S.A.S.(“Parrot”) in January 2022 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.

~~On November 6, 2017, Alpha Capital Anstalt exercised warrants to purchase 771,428~~Exercise of Common Stock Options

For the three months ended March 31, 2022, 75,000 Common Stock shares were issued in connection with the exercise of ~~our common~~ stock ~~for~~options previously granted at an ~~aggregate~~ exercise price of ~~$231,429 (or $0.30 per share), pursuant to~~$0.41 resulting in gross proceeds of $30,750. For the ~~terms~~three months ended March 31, 2023 there were no exercise of ~~such warrants, and was issued 771,428 shares~~stock options.

Stock-based Compensation

The Company determines the fair value of ~~common stock.~~

~~We have reviewed all material events through~~awards granted under the Equity Plan based on the fair value of its Common Stock on the date of ~~this report~~grant. Stock-based compensation expenses related to grants under the Equity Plan are included in ~~accordance with ASC 855-10.~~general and administrative expenses on the condensed consolidated statements of operations and comprehensive loss. For the three-months ended March 31, 2023 and 2022, respectively, the company recorded $512,529 and $1,753,881 of stock based compensation.

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AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

~~FORWARD-LOOKING~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(UNAUDITED)

Note 8 – Stockholders' Equity-Continued

Pension Costs

senseFly S.A. sponsors a defined benefit pension plan (the “Defined Benefit Plan”) covering all its employees. The Defined Benefit Plan provides benefits in the event of retirement, death or disability, with benefits based on age and salary. The Defined Benefit Plan is funded through contributions paid by senseFly S.A. and its employees, respectively. The Defined Benefit Plan assets are Groupe Mutuel Prévoyance (“GMP”), which invests these plan assets in cash and cash equivalents, equities, bonds, real estate and alternative investments.

This report contains forward-looking statements. These forward-looking 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, containedThe Projected Benefit Obligation (“PBO”) includes 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~~full 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~~accrued liability 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~~plan death and disability benefits, irrespective 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~~these benefits may be reinsured with an insurer. The actuarial valuations are based on the census data as of ~~factors, may cause our actual results~~December 31, 2022, provided by GMP.

The Defined Benefit Plan has a PBO in excess of Defined Benefit Plan assets. For the three-months ended March 31, 2023, the amounts recognized in accumulated other comprehensive loss related to ~~differ materially from those contained in any forward-looking statements. The factors impacting these risks and uncertainties include, but are not limited to:~~the Defined Benefit Plan were $43,345.

Restricted Stock Units

For the three months ended March 31, 2023, a summary of RSU activity is as follows:

	Shares			Weighted Average Grant Date Fair Value
Outstanding as of December 31, 2022		1,028,960		$	2.31
Granted		649,750			0.42
Canceled		(55,870	)		1.68
Outstanding as of March 31, 2023		1,622,840			1.58
Vested as of March 31, 2023		1,122,984			1.61
Unvested as of March 31, 2023		499,856		$	1.50

For the three months ended March 31, 2023, the aggregate fair value of RSU awards at the time of vesting was $272,908.

As of March 31, 2023, the Company had approximately $304,000 of unrecognized stock-based compensation expense related to RSUs, which will be amortized over approximately twenty months.


●	~~inability to complete and/or risks associated with recently disclosed and pending business combination transactions;~~21
	●	~~inability to attract and obtain additional development capital;~~
	●	~~inability to achieve sufficient future sales levels or other operating results;~~Table of Contents
	●	~~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~~AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(UNAUDITED)

Note 8 – Stockholders' Equity-Continued

For the three months ended March 31, 2022, a summary of RSU activity is as follows:

	Shares			Weighted Average Grant Date Fair Value
Outstanding as of December 31, 2021		1,147,250		$	3.78
Granted		340,607			1.26
Canceled		(25,500	)		2.94
Outstanding as of March 31, 2022		1,462,357			3.21
Vested as of March 31, 2022		721,609			3.74
Unvested as of March 31, 2022		740,748		$	2.69

For the three months ended March 31, 2022, the aggregate fair value of RSU awards at the time of vesting was $427,890.

As of March 31, 2022, the Company had approximately $1,340,000 of unrecognized stock-based compensation expense related to RSUs, which ~~applies only as~~will be amortized over approximately nineteen months.

Issuance of RSUs to Current Officers of the Company

On March 29, 2023, upon recommendation of the Compensation Committee of the Board (“Compensation Committee”) the Board, in connection with the 2022 executive compensation plan granted to the officers of the Company 640,000 RSUs, which vested immediately. For the three months ended March 31, 2023, the Company recognized stock-based compensation expense of $268,800, based upon the market price of its Common Stock of $0.42 per share on the date of ~~this report. Except as required by law, we undertake no obligation to update or revise publicly any~~grant of these RSUs.

Stock Options

For the three months ended March 31, 2023, a summary of the ~~forward-looking statements after~~options activity is as follows:

	Shares			Weighted Average Exercise Price		Weighted Average Fair Value		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding as of December 31, 2022		2,561,231		$	2.18	$	1.19		3.33	$	31,124
Granted		150,000			0.45		0.21		3.02		—
Exercised		—			—		—		—		—
Expired/Forfeited		(20,688	)		7.34		3.95		—		—
Outstanding as of March 31, 2023		2,690,543			2.05		3.19		3.81		93,764
Exercisable as of March 31, 2023		2,148,109		$	2.34	$	1.28		2.87	$	83,521

As of March 31, 2023, the Company had approximately $241,711 of total unrecognized compensation cost related to stock options, which will be amortized through March 31, 2025.

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AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(UNAUDITED)

Note 8 – Stockholders' Equity-Continued

Intrinsic value is measured using the fair market value at the date of ~~this report~~exercise (for shares exercised) or as of March 31, 2023 (for outstanding options), less the applicable exercise price.

For the three months ended March 31, 2023 and 2022, the significant assumptions relating to ~~conform our statements~~the valuation of the Company’s stock options granted were as follows:

		March 31,
	2023			2022
Stock price	$	0.45		$	1.19
Dividend yield	—		%		—	%
Expected life (years)		3.02			3.02
Expected volatility		65.78	%		69.18	%
Risk-free interest rate		3.81	%		2.45	%

Issuances of Options to ~~actual results or changed expectations. For~~Officers and Directors

On March 31, 2023, the Company issued to directors and officers options to purchase 150,000 shares of Common Stock at an exercise price of $0.45 per share, which vest over a ~~detailed description~~period of two years from the date of grant, and expire on March 30, 2028. The Company determined the fair market value of these ~~and other factors that could cause actual results~~unvested options 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~~be $31,350. For the ~~fiscal year~~three months ended ~~December 31, 2016, filed with the SEC on~~ March 31, ~~2017 and our Quarterly Report on Form 10-Q for~~2023, the ~~quarter ended June 30, 2017, filed with~~Company recognized stock-based compensation expense of $42 based upon the ~~SEC on August 21, 2017.~~fair value market price of $0.21.

~~You should read~~Cancellations of Options

For the ~~matters described~~three months ended March 31, 2023 and 2022, as a result of employee terminations and options expirations, stock options aggregating 20,688 and 33,170 with fair market values of $81,658 and $140,793 were cancelled, respectively.

Note 9 – Leases

Operating Leases

For the three months ended March 31, 2023 and 2022, operating lease expense payments were $261,480 and $323,573, respectively. Operating lease expense payments are included in “~~Risk Factors~~”general and administrative expenses on the condensed consolidated statements of operations and comprehensive loss.

As of March 31, 2023 and December 31, 2022, balance sheet information related to the Company’s operating leases is as follows:

Balance Sheet Location	March 31, 2023		December 31, 2022
Right of use asset	$	3,783,318	$	3,952,317
Current portion of lease liability	$	620,973	$	628,113
Long-term portion lease liability	$	2,998,202	$	3,161,703

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AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(UNAUDITED)

Note 9 – Leases-Continue

As of March 31, 2023, scheduled future maturities of the Company’s lease liabilities are as follows:

Year Ending December 31,
2023 (rest of year)	$	663,174
2024		946,961
2025		947,497
2026		948,033
2027		731,502
Thereafter		182,875
Total future minimum lease payments, undiscounted		4,420,042
Less: Amount representing interest		(800,867	)
Present value of future minimum lease payments	$	3,619,175
Present value of future minimum lease payments – current	$	620,973
Present value of future minimum lease payments – long-term	$	2,998,202

As of March 31, 2023 and December 31, 2022, the weighted average lease-term and discount rate of the Company’s leases are as follows:

Other Information	March 31, 2023			December 31, 2022
Weighted-average remaining lease terms (in years)		4.6			4.8
Weighted-average discount rate		6.0	%		6.0	%

For the three months ended March 31, 2023 and 2022, supplemental cash flow information related to leases is as follows:

	For the Three Months
	March 31,
Other Information	2023		2022
Cash paid for amounts included in the measurement of liabilities: Operating cash flows for operating leases	$	261,222	$	323,573

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AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(UNAUDITED)

Note 10 – Warrants

Warrants Issued

On March 9, 2023, the Company received an Investor Notice from Alpha (described above in Note 8) resulting in the issuance of a Common Stock warrant to purchase up to 7,142,715 shares of Common Stock at the exercise price of $0.42 per share warrant (the “Additional Warrant”) for an aggregate purchase price of $3,000,000. The Additional Warrant is exercisable upon issuance and has a three-year term. On March 10, 2023, the Company issued and sold the Additional Series F Preferred along with the associated Additional Warrant.

On December 6, 2022, the Company entered into a Promissory Note Purchase Agreement (described above in Note 7), pursuant to which the Company issued the right to purchase up to 5,000,000 shares of Common Stock at an exercise price of $0.44 per share (see Note 8 for further disclosures), subject to standard anti-dilution adjustments. The Promissory Note Warrant is not exercisable for the first six months after issuance and has a five-year term from the initial exercise date of June 6, 2023.

On June 26, 2022, the Company entered into a Securities Purchase Agreement (described above in Note 8) with Alpha. 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, subject to adjustment, per share of Common Stock. The Series F Warrants were not exercisable for the first six months after its issuance and have a three-year term from its initial exercise date of December 30, 2022. Upon the issuance of the 5,000,000 shares of Common Stock warrants at $0.44 per share, the Series F Warrant exercise price was reduced to $0.42 (see Note 8 for explanation regarding the December and March Down Rounds along with any other ~~cautionary statements made~~further disclosures related to Series F Preferred Stock). Upon exercise of the Series F Warrants in ~~this report,~~full by the investor, the Company would receive additional gross proceeds of approximately $6,774,193.

A summary of activity related to warrants for the periods presented is as follows:

	Shares		Weighted Average Exercise Price			Weighted Average Remaining Contractual Term
Outstanding as of December 31, 2021		—	$	—			—
Issued		21,129,032		0.42	*		—
Exercised		—		—			—
Outstanding as of December 31, 2022		21,129,032	$	0.42	*		—
Issued		7,142,715		0.42			—
Exercised		—		—			—
Outstanding as of March 31, 2023		28,271,747	$	0.42	*		3.06
Exercisable as of March 31, 2023		23,271,747	$	0.42			2.95

* Reflects the exercise price after the Down Round Trigger events on December 6, 2022 and ~~incorporated by reference herein,~~March 9, 2023 (see Note 8).

As of March 31, 2023, the intrinsic value of the warrants was nil.

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AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(UNAUDITED)

Note 11 – Commitments and Contingencies

Existing Employment and Board Agreements

The Company has various employment agreements with certain of its executive officers and directors that serve as ~~being applicable to all related forward-looking statements wherever they appear~~Board members, which it considers normal and in ~~this report. We cannot assure you~~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 ~~forward-looking statements~~Company will enter into formal employment agreements with its executive officers in ~~this report will prove~~the future.

Purchase Commitments

The Company routinely places orders for manufacturing services and materials. As of March 31, 2023, the Company had purchase commitments of approximately $2,594,596. These purchase commitments are expected to be ~~accurate and therefore prospective investors are encouraged not to place undue reliance on forward-looking statements.~~realized during the year ending December 31, 2023.

Note 12 – Segment Information

~~This information should be read~~Non-allocated administrative and other expenses are reflected in ~~conjunction with the interim unaudited financial statements~~Corporate. Corporate assets include cash, prepaid expenses, notes receivable, right of use asset and ~~the notes thereto included in this Quarterly Report on Form 10-Q,~~other assets.

As of March 31, 2023 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”).~~

~~Certain capitalized terms used below and otherwise defined below, have the meanings given to such terms in the footnotes to our consolidated financial statements included above under “Part I - Financial Information”~~ -~~“Item 1. Financial Statements~~”.

~~All references in this report to “we,” “us,” “our,” “Company” and “EnerJex~~” refer to EnerJex Resources, Inc. and our wholly-owned operating subsidiaries, EnerJex Kansas, Inc., Black Sable Energy, LLC, Working Interest, LLC, and Black Raven Energy, Inc. unless the context requires otherwise. We report our financial information on the basis of a December 31 fiscal year end.

~~In addition, unless the context otherwise requires~~2022, and for the ~~purposes~~three months ended March 31, 2023 and 2022, respectively, information about the Company’s reportable segments consisted of ~~this report only:~~the following:

Goodwill and Assets

	Corporate		Drones		Sensors		SaaS		Total
As of March 31, 2023
Goodwill	$	—	$	—	$	18,972,896	$	4,206,515	$	23,179,411
Assets	$	4,074,316	$	14,367,712	$	26,239,043	$	7,506,269	$	52,187,340

As of December 31, 2022
Goodwill	$	—	$	—	$	18,972,896	$	4,206,515	$	23,179,411
Assets	$	4,785,643	$	14,930,789	$	26,081,788	$	8,386,654	$	54,184,874

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AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(UNAUDITED)

Note 12 – Segment Information-Continued

Net Loss

	Corporate			Drones			Sensors			SaaS			Total
Three Months Ended March 31, 2023
Revenues	$	—		$	1,966,442		$	1,970,195		$	120,432		$	4,057,069
Cost of sales		—			837,725			1,005,432			235,280			2,078,437
Loss from operations		(1,535,560	)		(2,032,806	)		237,654			(830,396	)		(4,161,108	)
Other expense, net		(257,201	)		(181,190	)		—			—			(438,391	)
Net loss	$	(1,792,761	)	$	(2,213,996	)	$	237,654		$	(830,396	)	$	(4,599,499	)

Three Months Ended March 31, 2022
Revenues	$	—		$	2,738,982		$	933,018		$	169,978		$	3,841,978
Cost of sales		—			1,569,766			646,512			260,808			2,477,086
Loss from operations		(3,238,946	)		(2,624,107	)		(783,137	)		(835,751	)		(7,481,941	)
Other income (expense), net		1,388			(113,238	)		—			(2,781	)		(114,631	)
Net loss	$	(3,237,558	)	$	(2,737,345	)	$	(783,137	)	$	(838,532	)	$	(7,596,572	)

Revenues by Geographic Area

Three Months Ended March 31, 2023	Drones		Sensors		SaaS		Total
North America	$	599,491	$	450,552	$	120,432	$	1,170,475
Europe, Middle East and Africa		738,956		956,172		—		1,695,128
Asia Pacific		55,989		451,408		—		507,397
Other		572,006		112,063		—		684,069
	$	1,966,442	$	1,970,195	$	120,432	$	4,057,069

Three Months Ended March 31, 2022	Drones		Sensors		SaaS		Total
North America	$	1,235,572	$	359,888	$	169,978	$	1,765,438
Europe, Middle East and Africa		1,213,191		354,379		—		1,567,570
Asia Pacific		290,219		167,742		—		457,961
Other		—		51,009		—		51,009
	$	2,738,982	$	933,018	$	169,978	$	3,841,978

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AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(UNAUDITED)

Note 13 – Subsequent Events

During the period from April 1, 2023 through May 12, 2023, Alpha had converted 651 shares of Series F into 1,550,000 shares of Common Stock.

On May 11, 2023, in connection with the 2022 executive compensation plan granted to the officers of the Company an additional 968,690 RSUs, were granted as a result of a correction to the initial grants approved by the Compensation Committee on March 29, 2023. The RSU’s vested immediately at a fair value of $0.38.


●	“~~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;~~28
	●	“~~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~~Table of ~~natural gas;~~Contents
	●	“~~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.~~

ITEM 2.

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 at~~~~www.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 statements~~Condensed Consolidated Financial Statements and the related notes included in Item 8 of this Form 10-K. This discussion contains forward-looking statements. Please see the explanatory note concerning “Forward-Looking Statements” in Part I of 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”, "Company”, “We”, “Our”, “Us”), 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 elsewhere~~pioneer proprietary, professional-grade, fixed-winged drones and aerial imagery-based data collection and analytics solutions for the agriculture industry. AgEagle’s shift and expansion from solely manufacturing fixed-wing farm drones in ~~this report.~~2018, to offering what we believe is one of the industry’s best fixed-wing, full-stack drone solutions, culminated in 2021 when we acquired three market-leading companies engaged in producing UAS 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 over 200 UAS 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 ~~following discussion~~fields of robotics, automation, manufacturing and ~~analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated~~data science. In 2022, the we succeeded in ~~these forward-looking statements as~~integrating all three acquired companies with AgEagle to form one global company focused on taking autonomous flight performance to a ~~result of many factors, including those discussed under, and incorporated by reference in, ITEM 1A. Risk Factors and elsewhere in this report.~~higher level.

~~Overview~~AgEagle has also achieved numerous regulatory firsts, earning governmental approvals for its commercial and tactical drones to fly Beyond Visual Line of Sight (“BVLOS”) and/or Operations Over People (“OOP”) in the United States, Canada, Brazil and the European Union and being awarded Blue UAS certification from the Defense Innovation Unit of the U.S. Department of Defense.

~~On October 19, 2017, EnerJex entered the Merger Agreement~~AgEagle is led by a proven management team with ~~AgEagle, described~~years of drone industry experience and is currently headquartered 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 subject 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~~Wichita, Kansas, where we house our ~~majority shareholders, our~~sensor manufacturing operations, will change 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~~operate our business and drone manufacturing operations in Raleigh, North Carolina. In addition, we operate business and manufacturing operations in Lausanne, Switzerland in support 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, the Company does not have a present intention to dispose of the above described assets or to change itsinternational business ~~focus.~~

Our current principal strategy is to consummate the pending Merger with AgEagle. We continue to manage our existing assets with reduced operating expenses while working to complete the Merger. In the event that the Merger does not close, we will continue to operate as an oil and gas company.activities.

We ~~will continue~~intend to ~~investigate multiple opportunities to both increase~~grow our business and ~~unlock value~~preserve our leadership position by developing new drones, sensors and ~~accelerate growth in an accretive manner on behalf of shareholders, including but not limited to mergers, acquisitions, joint ventures,~~software and ~~non-dilutive financings. There can be no assurance~~capturing a significant share of the ~~results or timing associated~~global drone market. In addition, we expect to accelerate our growth and expansion through strategic acquisitions of companies offering distinct technological and competitive advantages and have defensible IP protection in place, if applicable.

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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 UAS 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 ~~process.~~ 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:

	·	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.

	·	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.

	·	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 UAS drones, sensors and software. These centers of excellence 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 robotics systems and solutions that address market needs beyond our current target markets, enabling us to create new opportunities for growth.

	·	Foster our entrepreneurial culture and continue to attract, develop and retain highly skilled personnel. AgEagle’s company culture encourages innovation and entrepreneurialism, which helps attract and retain highly skilled professionals. We believe this culture is key to nurture the design and development of the innovative, highly technical system solutions that give us our competitive advantage.

	·	Effectively manage our growth portfolio for long-term value creation. Our production and development programs present numerous investment opportunities that we believe will deliver long-term growth by providing our customers with valuable new capabilities. We evaluate each opportunity independently, as well as within the context of other investment opportunities, to determine its relative cost, timing and potential for generation of returns, and thereby its priority. This process helps us make informed decisions regarding potential growth capital requirements and supports our allocation of resources based on relative risks and returns to maximize long-term value creation, which is the key objective of our growth strategy. We also review our portfolio on a regular basis to determine if and when to narrow our focus on the highest potential growth opportunities.

	·	Growth through acquisition. Through successful execution of our growth-through-acquisition strategies, we intend to acquire technologically advanced UAS 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.

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Competitive Strengths

~~Plan~~We believe that the following attributes and capabilities provide us with long-term competitive advantages:

	·	Proprietary technologies, in-house capabilities and industry experience –We believe our decade of experience in commercial UAS 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 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 U.S. and Swiss-based manufacturing operations. As a result, we have earned ISO:9001 international certification for our Quality Management System.

	·	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 integration strategy in 2022, 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 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, to name just a few. Featured in over 100 research publications globally, advanced sensor innovations developed and commercialized by AgEagle 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 numerous Fortune 500 companies, government agencies and a wide range of businesses in agriculture, energy and utilities, construction and other industry sectors.

	·	Our eBee TAC^™ UAS has been approved by the Defense Innovation Unit (DIU) for procurement by the Department of Defense – We believe that the eBee TAC is ideally positioned to become an in-demand, mission critical tool for the U.S. military, government and civil agencies and our allies worldwide; and expect that this will prove to be a major growth catalyst for us in 2022, positively impacting our financial performance in the years ahead. eBee TAC is available for purchase by U.S. government agencies and all branches of the military on GSA Schedule Contract #47QTCA18D003G, supplied by Hexagon US Federal and partner Tough Stump Technologies as a standalone solution or as part of the Aerial Reconnaissance Tactical Edge Mapping Imagery System ("ARTEMIS”). Tough Stump is actively engaged in training military ground forces based in the U.S. and in Central Europe on the use of eBee TAC for mid-range tactical mapping and reconnaissance missions.

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	·	Our eBee^™ X series of fixed wing UAS, including the eBee X, eBee Geo and eBee TAC, are the first and only drones on the market to comply with Category 3 of the sUAS Over People rules published by the FAA. It is another important testament of our commitment to providing best-in-class solutions to our commercial customers, and we believe it will serve as a key driver in the growth of eBee utilization in the United States. We further believe it will improve the business applications made possible by our drone platform for a wide range of commercial enterprises which stand to benefit from adoption of drones in their businesses – particularly those in industries such as insurance for assessment of storm damage, telecommunications for network coverage mapping and energy for powerline and pipeline inspections, just to name a few.

	·	*Our eBee X* series of drones are the world’s first UAS in its class to receive design verification for BVLOS and OOP from European Union Aviation Safety Agency ("EASA”).** The EASA design verification report demonstrates that the eBee X meets the highest possible quality and ground risk safety standards and, thanks to its lightweight design, effects of ground impact are reduced. As such, drone operators conducting advanced drone operations in 27 European Member States, Iceland, Liechtenstein, Norway, and Switzerland can obtain the HIGH or MEDIUM robustness levels of the M2 mitigation without additional verification from EASA. Regulatory constraints relating to limitations of BVLOS and OOP have continued to be a gating factor to widespread adoption of commercial drone technologies across a wide range of industry sectors worldwide. Being the first company to receive this DVR from EASA for M2 mitigation is a milestone for AgEagle and our industry in the European Union and will be key to fueling growth of our international customer base.

	·	Our global reseller network currently has more than 200 drone solutions providers in 75+ countries – By leveraging our relationships with the specialty retailers that comprise our global reseller network, AgEagle benefits from enhanced brand-building, lower customer acquisition costs and increased reach, revenues and geographic and vertical market penetration. With the integration of our 2021 Acquisitions, we can now leverage our collective reseller network to accelerate our revenue growth by educating and encouraging our partners to market AgEagle’s full suite of airframes, sensors and software as bundled solutions in lieu of marketing only previously siloed products or product lines to end users.

		In November 2022, we partnered with government contractor Darley to expand the market reach of AgEagle’s high performance fixed wing drones and sensors to the U.S. first responder and tactical defense markets. Distinguished as one of the nation’s longest standing government contracting organizations, Darley is expected to become a key contributor to AgEagle’s success in delivering best-in-class UAS solutions to a wide range of state and federal agencies. Providing our best-in-class autonomous flight solutions for public safety applications through trusted resellers like Darley represents an entirely new market opportunity for AgEagle and one we intend to vigorously pursue in the coming year.

Impact of the Risks and Uncertainties 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. The ~~Board of Directors is currently focused~~aforementioned risks and their respective impacts on the ~~pending Merger, but is continuing to pursue possible strategic transactions involving opportunities both in~~UAV industry and our operational and financial performance remains uncertain 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 expects to continue to pursue other acquisition and 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 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 operations~~ of the ~~Company in the event the Merger is completed and risk factors associated with the Merger, can 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~~our control. Specifically, because of the ~~Merger Agreement, a principal stockholder of AgEagle (the “Key AgEagle Stockholder”) entered into a voting agreement~~aforementioned continuing risks, the our ability to access components and parts needed in ~~favor of EnerJex (the “EnerJex Voting Agreement”). Pursuant~~order to ~~the EnerJex Voting Agreement, the Key AgEagle Stockholder has agreed, among other things,~~manufacture its proprietary drones and sensors, and to ~~vote all shares of capital stock of AgEagle beneficially owned by him in favor of the Merger~~perform quality testing have been, 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.

~~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~~impacted. If either we or any of our third parties in the ~~NYSE American while the Company seeks~~supply chain for materials used in our manufacturing and assembly processes continue to ~~regain compliance with the listing standard noted, subject~~be adversely impacted, our supply chain may be further disrupted, limiting its ability to ~~the Company’s compliance with other continued listing requirements. If the Company fails~~manufacture and assemble products.

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Three Months Ended March 31, 2023 as Compared 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.Three Months Ended March 31, 2022

Revenues

~~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 forFor 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,~~March 31, 2023, revenues were ~~$1,082,492~~$4,057,069 as compared to ~~revenues of $1,581,972 for the nine months ended September 30, 2016 and~~$3,841,978 for the three months ended ~~September 30, 2017, were $187,297 compared to revenues~~March 31, 2022, an increase of ~~$454,285 for the same period in 2016. Of the year-to-date oil revenue decrease~~$215,091, or 5.6%. The increase of ~~$499,480, approximately $852,109 (offset by the increase in prices as described below)~~$1,037,177 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 primarilyattributable to the ~~curtailment of both growth~~revenues derived from our sensor sales, specifically the RedEdge 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~~Altum™ panchromatic series. Offsetting these increases was ~~offset by an increase~~a decline in revenues of ~~approximately $352,629 due~~eBee drone products $772,540 and $49,546 of our SaaS subscription services related to ~~higher crude oil prices. Crude oil prices increased $7.84 or 22%~~the HempOverview and Ground Control platforms. Our continued innovation has demonstrated growth in our sales leading to ~~an average price~~strong demand of ~~$43.03 per barrel~~our products, specifically for our panchromatic sensor series, offsetting this growth are delays in our newly announced eBee VISION drone product and Field Check for Measure Ground Control mobile app. Additionally, our business continues to be negatively impacted by supply chain constraints, inflation, and adverse labor market conditions.

Cost of Sales and Gross Profit

For the ~~first nine~~three months ended March 31, 2023, cost of ~~2017~~sales was $2,078,437 as 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~~$2,477,086 for the three months ended ~~September 30, 2017 were $-0-~~March 31, 2022, a decrease of $398,649, or 16.1%. For the three months ended March 31, 2023, gross profit was $1,978,632 as 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$1,364,892 for the three months ended ~~September 30, 2017~~March 31, 2022, an increase of $613,740, or 45%. The primary factors contributing to the decrease in our cost of sales and increase in gross profit margin were ~~$205,253~~due to the decrease in our cost of components and parts brought forth in the prior year by COVID-19 pandemic and its associated negative effects on supply chain, inflation and adverse labor market conditions, and an increase in our sales volume specifically for drone and sensor sales.

Operating Expenses

For the three months ended March 31, 2023, operating expenses were $6,139,740, as compared to ~~$569,109~~$8,846,833 for the ~~same period in 2016. Year-to-date direct operating costs per Boe decreased $1.29~~three months ended March 31, 2022, a decrease of $2,707,093, or ~~approximately 3% to $37.40 for 2017,~~30.6 %. Operating expenses comprise general and administrative, sales and marketing and research and development.

General and Administrative Expenses

For the three months ended March 31, 2023, general and administrative expenses were $3,579,522 as compared to ~~$37.16 per boe~~$5,481,380 for the ~~same period~~three months ended March 31, 2022, a decrease of ~~2016.~~$1,901,858, or 34.7 %. The decrease was primarily as a result of the integration of 2021 Business Acquisitions that provided continued decreases in general and administrative costs in professional fees, relating mainly to audit and consulting fees, insurance, rental expenses due to closing of offices, less stock compensation costs offset by increased shareholder annual meeting costs.

Research and Development

For the three months ended March 31, 2023, research and development expenses were $1,582,343 as compared to $2,184,924 for the three months ended March 31, 2022, a decrease of $602,581, or 27.6 %. The decrease was primarily due to the ~~curtailment~~integration of ~~both growth~~research and ~~maintenance capital expenditures,~~development teams that provide development of our new airframe, sensor and ~~the conveyance of the Company’s oil~~software technologies resulting in a reduction in our consultants and ~~gas properties in Colorado, Nebraska and Texas.~~internal headcounts.

~~Depreciation, Depletion~~Sales and ~~Amortization~~Marketing

~~Depreciation, depletion and amortization for~~For the ~~nine~~three months ended ~~September 30, 2017 was $305,684~~March 31, 2023, sales and marketing expenses were $977,875 as compared to ~~$312,322 for the nine months ended September 30, 2016 and~~$1,180,529 for the three months ended ~~September 30, 2017~~March 31, 2022, a decrease of $202,654, or 17.2 %. The decrease 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~~primarily due to the decrease of travel, integration of sales and marketing teams that lead to a reduction of consulting expenses along with 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 compareddigital advertising spend as we look 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.attend in-person trade shows.

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~~Impairment of Oil and Gas Properties~~Other Expense, net

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.

For the three ~~and nine~~ months ended ~~September 30, 2017, we were not required to record an impairment~~March 31, 2023, other expense, on our evaluated oil and gas properties due to improved commodity prices and market conditions. For the three and nine months ended September 30, 2016, we recognized an impairment expense on our evaluated oil and gas properties of $800,000 and $7,444,597, respectively.

~~Professional Fees~~

~~Professional fees for the nine months ended September 30, 2017 were $422,538~~net was $438,391 as compared to ~~$181,086 for the nine months ended September 30, 2016 and $0~~$114,631 for the three months ended ~~September 30, 2017 compared to $43,968 for the same period in 2016.~~March 31, 2022. The ~~increase in year-to-date professional fees of $241,452~~change was primarily ~~due~~attributable to ~~increased spending~~the promissory note’s original issue discount of 4% and interest at 8% per annum issued in ~~2017 on consulting, legal and investor relation services. These increases were partially offset~~December 2022 along with net foreign currency transaction losses incurred by ~~decreased third party reserve engineering fees.~~the drone (senseFly) business.

~~Salaries~~Net Loss

~~Salaries for the nine months ended September 30, 2017 were $407,888 compared to $1,044,639 for the nine months ended September 30, 2016 and $130,741 for~~For the three months ended September 30, 2017 compared to $297,244 for the same period in 2016. The decrease in year-to-date salaries of approximately $636,751 is due primarily to a reduced number of employees from the prior period.

~~Administrative Expenses~~

Administrative expenses for the nine months ended September 30, 2017 were $461,378 compared to $435,616 for the nine months ended September 30, 2016 and $190,341 for the three months ended September 30, 2017 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 $184,148 for the three months ended September 30, 2017 compared to $339,719 for the same period in 2016. Interest expense decreased as a result of the reduction of debt under the Loan Sale Agreement (“~~LSA”) (see “Part I” – “Item 1 Financial Statements” of this report above under “Note 2 – Going Concern” – “Financing Transactions” for further information) offset by higher interest rate charges under the forbearance agreement also described under the Note 2.~~

~~Gain on Loan Sale Agreement~~

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 September 30, 2017, we had no loan sale gains or sale of loans.

~~Loss on Derivatives~~

~~All of the Company’s hedge contracts expired in 2016, so~~March 31, 2023, we incurred ~~no unrealized gains or losses in the nine-months ended September 2017. We recorded an unrealized~~a net loss of ~~$2,449,855 in the marking to market of our derivative contracts for the first nine months of 2016 and $68,459 for the three months ended September 30, 2016.~~

~~Other Income~~

Other income decreased 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 for the three months ended September 30, 2017 compared to the same period in 2016. The decrease was due to the expiration of derivative contracts in 2016, resulting in no realization of gains from their monetization in 2017 offset by income from performing certain general and administrative services for Camber Energy, Inc., for a fee of $150,000 per month beginning in May 2017.

~~Net Income (Loss)~~

~~The net income for the nine months ended September 30, 2017 was $9,614,452~~$4,599,499 as compared to a net loss of ~~$10,849,132 for the nine months ended September 30, 2016 and net loss was $318,635~~$7,596,572 for the three months ended ~~September 30, 2017,~~March 31, 2022, a decrease of $2,997,073, or 39.5 %. The overall decrease in net loss was primarily attributable to increase in sales and gross profit margins due to increased demand for new products and reduction in component costs along with integration of 2021 business acquisitions that lead to overall reduction in operating expenses.

Cash Flows

Three Months Ended March 31, 2023 as Compared to the Three Months Ended March 31, 2022

As of March 31, 2023, cash on hand was $2,847,908, as compared to ~~net loss~~$4,349,837 as of ~~$1,694,404~~December 31, 2022, a decrease of $1,501,929, or 34.5%.

For the three months ended March 31, 2023, cash used in operations was $4,234,526, a decrease of $2,275,817, or 35.0 %, as compared to cash used of $6,510,343 for the ~~same period in 2016.~~three months ended March 31, 2022. The ~~year-to-date increase in the net income was due primarily to the gain from the LSA of $11,500,124 and the reduction in the impairment of oil and gas properties of $7,444,597.~~

~~Liquidity and Capital Resources~~

Liquidity is a measure of a company’s ability to meet potential cash requirements. We have historically met our capital requirements through debt financing, revenues from operations, asset sales, and the issuance of equity securities. Due to the decline in oil prices and the restructuring of our outstanding debt, it 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 liquidity to fund our operations and 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~~was principally driven by the ~~nine~~lower operating expenses which included significant lower inventory purchases and prepayments offset by higher accounts receivables, account payables and accrued expenses.

For the three 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~~March 31, 2023, cash used in investing activities was $254,191, a decrease of $3,248,967, or 92.7 %, as compared to cash used of $3,503,158 for the ~~nine~~three months ended ~~September 30, 2017, which was solely due to~~March 31, 2022. The decrease in cash used in our investing activities resulted mainly from the ~~purchase~~business acquisition of ~~oil~~MicaSense and ~~gas properties.~~senseFly that occurred in 2022 and a decrease in platform and internal use software costs.

~~We had $357,453 of~~For the three months ended March 31, 2023, cash provided by financing activities was $3,000,000, a decrease of $1,614,091, or 35.0 %, as compared to cash provided of $4,614,091 for the ~~nine~~three months ended ~~September 30, 2017, which~~March 31, 2022. The decrease in cash provided by our financing activities was due to ~~proceeds from~~less sales of our Common stock through an at-the-market (“ATM”) offering and exercise of warrants in the prior year offset by the sale of Series ~~C Convertible~~F Preferred ~~Stock of $450,000 and bank balance transfer on loan sale agreement.~~stock.

~~The unaudited condensed consolidated~~Liquidity and Capital Resources

As of March 31, 2023, we had working capital of $8,132,307. For the three months ended March 31, 2023, we incurred a loss from operations of $4,161,108, a decrease of $3,320,833, or 44.4%, as compared to $7,481,941 for the three months ended March 31, 2022. While we have historically been successful in raising capital to meet its working capital needs, the ability to continue raising such capital to enable us to continue our growth is not guaranteed. We will require additional liquidity to continue its operations and meet its financial ~~statements included in “Part I” – “Item 1 Financial Statements” of this report have been prepared assuming that~~obligations over the ~~Company will continue as a going concern. There~~next twelve months, there is ~~currently~~ substantial doubt about ~~the Company’s~~our ability to continue as a going ~~concern as discussed in “Note 2 – Going Concern~~”concern. We are evaluating strategies to obtain 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~~required 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 Transactions~~

~~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,~~funding 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,~~future operations and the ~~like), ranks senior~~restructuring of operations to ~~the common stock with respect to dividends~~grow revenues 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.reduce expenses.

During the ~~nine~~three months ~~ending September 30, 2017, Alpha Capital Anstalt converted 390 shares~~ended March 31, 2023, we raised $3,000,000 in equity and convertible debt financing transactions from the sale of Series ~~B Convertible~~F Preferred ~~Stock into 1,300,000 shares of common~~ stock.

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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 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 of Camber Energy, Inc.

Off-Balance Sheet Arrangements

On ~~July 14, 2017, the Company entered into~~March 31, 2023, 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 purchase~~financial 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 course~~expenses, results of operations, ~~over~~liquidity, 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 ~~any~~no 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 Policies~~Inflation

During the three months ended March 31, 2023, inflation has had a negative impact on the unmanned aerial vehicle systems industry, our customers, and ~~Estimates~~our business globally. Specifically, our ability to access components, parts and labor needed 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, our supply chain may be further disrupted, limiting its ability to manufacture and assemble products. We expect inflation and its effects to continue to have a significant negative impact on our business.

Climate Change

Our ~~critical accounting estimates include the value of~~opinion 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~~New Accounting Pronouncements

In March 2022, the FASB issued Accounting Standards Update (“ASU”) No. 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and ~~Gas Properties~~

~~We follow~~Vintage Disclosures (“ASU 2022-02”), which addresses areas identified by the ~~full-cost method~~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 ~~under which all costs associated~~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 ~~property acquisition, exploration~~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 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~~net investment in leases by year of ~~production (UOP) method. Currently we only have operations~~origination in the Unites States of America. The UOP calculation multiplies the percentage of estimated proved reserves produced each quarter by the cost of these reserves. The amortization base in the UOP calculation includes the sum of proved property, net of accumulated depreciation, depletion and amortization (DD&A), estimated future development costs (future costs to access and develop proved reserves) and asset retirement costs, less related salvage value.

~~The cost of unproved properties are excluded from the amortization calculation until it~~vintage disclosures. ASU 2022-02 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 only to the extent provided by contractual arrangements) to estimated future production of proved oil & gas reserves as of the date of the latest balance sheet presented, less estimated future expenditures (based on current costs) to be incurred in developing and producing the proved reserves computed using a discount factor of 10 percent and assuming continuation of existing economic 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 flateffective for the ~~life of the production, except where prices are defined by contractual arrangements.~~fiscal years beginning after December 15, 2022, and for periods within those fiscal years. Early adoption is permitted. We adopted ASU 2022-02 effective January 1, 2023 and it did not have a material impact on our condensed consolidated financial statements.

Any ~~excess~~other recently issued by the Financial Accounting Standards Board (“FASB”), most 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~~which represented technical corrections to the ~~plugging~~accounting literature or application to specific industries 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 havenot 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~~impact on the our ~~estimate~~consolidated financial position, results of ~~the volatility of our stock, our expenses could be understated~~operations or ~~overstated.~~cash flows.

~~Effects of Inflation and Pricing~~

Table of Contents

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 are~~As a ~~smaller~~“smaller reporting ~~Company~~company” as defined by ~~Rule 12b-2 under the Exchange Act, and~~Item 10 of Regulation S-K, we are not required to provide ~~the~~ information required ~~under~~by 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 ~~Interim~~the 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 Officer~~March 31, 2023 and ~~Interim Chief Financial Officer (our principal executive officer and principal financial officer)~~ concluded that the Company’s disclosure controls and procedures ~~were effective~~are effective. The term disclosure controls and proceduresmeans 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 ~~Over~~over Financial Reporting

There ~~have not been any~~were 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 ~~September 30, 2017~~March 31, 2023 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 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:~~

	●	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;~~36

	●	~~the Merger Agreement places certain restrictions on the conduct~~Table 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; andContents

	●	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.

PART II.

OTHER INFORMATION

~~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.

~~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.~~
ITEM 1.
LEGAL PROCEEDINGS

None.

ITEM 1A.

RISK FACTORS

~~ITEM 4. MINE SAFETY DISCLOSURES.~~

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.~~		~~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)37
~~3.1~~		Certificate 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)

~~10.1~~		Form 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)
~~10.2~~		~~Form~~Table 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)Contents
~~10.3~~		Second 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)
~~10.4~~		Amended 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)
~~10.5~~		Guaranty 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)
~~10.7~~		Voting 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~~
~~99.1~~		Audited 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)
~~99.2~~		Unaudited 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 Document~~

ITEM 6.

EXHIBITS

Exhibit No.

~~Filed herewith.~~

Description

~~Furnished herewith.~~

31.1	~~***~~	~~The schedules to the Agreement~~ Rule 13(a)-14(a)/15(d)-14(a) Certification of principal executive officer

31.2		Rule 13(a)-14(a)/15(d)-14(a) Certification of principal financial officer

32.1		Section 1350 Certification of principal executive officer

32.2		Section 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.INS		XBRL INSTANCE DOCUMENT
101.SCH		XBRL TAXONOMY EXTENSION SCHEMA
101.CAL		XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
101.DEF		XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
101.LAB		XBRL TAXONOMY EXTENSION LABEL LINKBASE
101.PRE		XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE

Table of Contents

SIGNATURES

In accordance with ~~the requirements~~Section 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. Schott~~ AGEAGLE AERIAL SYSTEMS INC.
	~~Louis G. Schott~~
Dated: May 15, 2023	~~Interim~~ By:	/s/ Barrett Mooney
		Barrett Mooney
		Chief Executive Officer and Chairman of the Board

Dated: May 15, 2023	By:	/s/ Nicole Fernandez-McGovern
		Nicole Fernandez-McGovern
		Chief Financial Officer, Executive Vice President of Operations and Secretary

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.

Signatures	Title	Date

/s/ Barrett Mooney	Chief Executive Officer and Chairman of the Board	May 15, 2023
Barret Mooney	(Principal Executive Officer)

/s/ Nicole Fernandez-McGovern	Chief Financial Officer, Executive Vice President of Operations and Secretary	May 15, 2023
Nicole Fernandez-McGovern	(Principal Financial and Accounting Officer)

~~Date: November 14, 2017~~

	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

	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 Shares		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
Sales of common stock, net of issuance costs		—		—		4,251,151		4,251		4,579,090		—			—			4,583,341
Issuance of Common Stock for SenseFly Acquisition		—		—		1,927,407		1,927		2,998,073		—			—			3,000,000
Exercise of stock options		—		—		75,000		75		30,675		—			—			30,750
Stock-based compensation expense		—		—		—		—		1,753,881		—			—			1,753,881
Foreign currency cumulative translation adjustment		—		—		—		—		—		20,172			—			20,172
Net loss		—		—		—		—		—		—			(7,596,572	)		(7,596,572	)
Balance as of March 31, 2022		—	$	—		81,568,546	$	81,568	$	136,988,255	$	(50,422	)	$	(58,650,916	)	$	78,368,485

	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

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

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

	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

	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	)

	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	)