UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM Form 10-Q
(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
Commission file number 001-364922022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ________
Commission file number: 001-36492
AGEAGLE AERIAL SYSTEMS INC.
(Exact name of registrant as specified in its charter)
| Nevada | 88-0422242 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| 8863 E. 34th Street North, Wichita, Kansas | 67226 | |
| (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 | NYSE American LLC |
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 | ☒ | 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 Act). Yes ☐No☒
The numberAs of November 14, 2022, there were 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,AGEAGLE AERIAL SYSTEMS INC.
FORM 10-Q
TABLE OF CONTENTS
PART 1I – FINANCIAL INFORMATION
ITEMItem 1. FINANCIAL STATEMENTSFinancial Statements.
EnerJex Resources, Inc. and Subsidiaries
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
Condensed Consolidated Balance SheetsCONDENSED 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 | ||||
| As of | ||||||||
| September 30, 2022 (unaudited) | December 31, 2021 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | 5,302,487 | $ | 14,590,566 | ||||
| Accounts receivable, net | 3,178,019 | 2,888,879 | ||||||
| Inventories, net | 6,117,529 | 4,038,508 | ||||||
| Prepaid and other current assets | 1,209,555 | 1,292,570 | ||||||
| Note receivable | 185,000 | 185,000 | ||||||
| Total current assets | 15,992,590 | 22,995,523 | ||||||
| Property and equipment, net | 838,058 | 952,128 | ||||||
| Right of use asset | 1,148,993 | 2,019,745 | ||||||
| Intangible assets, net | 12,217,539 | 13,565,494 | ||||||
| Goodwill | 64,867,282 | 64,867,282 | ||||||
| Other assets | 279,822 | 282,869 | ||||||
| Total assets | $ | 95,344,284 | $ | 104,683,041 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Accounts payable | $ | 2,194,112 | $ | 2,526,829 | ||||
| Accrued expenses | 1,804,299 | 1,901,641 | ||||||
| Contract liabilities | 653,237 | 971,140 | ||||||
| Current portion of liabilities related to acquisition agreements | — | 10,061,501 | ||||||
| Current portion of lease liabilities | 739,602 | 1,235,977 | ||||||
| Current portion of COVID loans | 380,315 | 451,889 | ||||||
| Total current liabilities | 5,771,565 | 17,148,977 | ||||||
| Long term portion of liabilities related to acquisition agreements | — | 8,875,000 | ||||||
| Long term portion of lease liabilities | 493,774 | 942,404 | ||||||
| Long term portion of COVID loans | 634,251 | 808,021 | ||||||
| Defined benefit plan obligation | 166,472 | 331,726 | ||||||
| Total liabilities | 7,066,062 | 28,106,128 | ||||||
| COMMITMENTS AND CONTINGENCIES (SEE NOTE 9) | ||||||||
| STOCKHOLDERS’ EQUITY: | ||||||||
| Preferred Stock, $ par value, shares authorized: | ||||||||
| Preferred Stock, Series F Convertible, $par value, shares authorized, shares issued and outstanding as of September 30, 2022, and shares issued and outstanding as of December 31, 2021, respectively | 6 | — | ||||||
| Common Stock, $ par value, shares authorized, and shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively | 87,445 | 75,315 | ||||||
| Additional paid-in capital | 150,968,638 | 127,626,536 | ||||||
| Accumulated deficit | (62,587,700 | ) | (51,054,344 | ) | ||||
| Accumulated other comprehensive loss | (190,167 | ) | (70,594 | ) | ||||
| Total stockholders’ equity | 88,278,222 | 76,576,913 | ||||||
| Total liabilities and stockholders’ equity | $ | 95,344,284 | $ | 104,683,041 | ||||
See Notesaccompanying notes to Condensed Consolidated Financial Statements (unaudited).these condensed consolidated financial statements.
EnerJex Resources, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
| AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) |
| (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 | ||||||||||||
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues | $ | 5,490,714 | $ | 2,021,707 | $ | 14,620,565 | $ | 5,660,662 | ||||||||
| Cost of sales | 3,407,573 | 1,226,911 | 8,622,436 | 2,885,008 | ||||||||||||
| Gross Profit | 2,083,141 | 794,796 | 5,998,129 | 2,775,654 | ||||||||||||
| Operating Expenses: | ||||||||||||||||
| General and administrative | 4,175,090 | 2,783,290 | 14,093,655 | 10,428,040 | ||||||||||||
| Research and development | 1,818,540 | 777,036 | 6,185,777 | 2,115,367 | ||||||||||||
| Sales and marketing | 1,236,841 | 1,034,004 | 3,736,548 | 1,813,069 | ||||||||||||
| Total Operating Expenses | 7,230,471 | 4,594,330 | 24,015,980 | 14,356,476 | ||||||||||||
| Loss from Operations | (5,147,330 | ) | (3,799,534 | ) | (18,017,851 | ) | (11,580,822 | ) | ||||||||
| Other Income (Expense): | ||||||||||||||||
| Interest (expense) income, net | (6,727 | ) | 3,834 | (29,776 | ) | 12,850 | ||||||||||
| Paycheck protection program loan forgiveness | — | — | — | 108,532 | ||||||||||||
| Gain on debt extinguishment | 6,486,899 | — | 6,486,899 | — | ||||||||||||
| Other income, net | 332,110 | 24,798 | 27,372 | 79,836 | ||||||||||||
| Total Other Income, net | 6,812,282 | 28,632 | 6,484,495 | 201,218 | ||||||||||||
| Income (Loss) Before Income Taxes | 1,664,952 | (3,770,902 | ) | (11,533,356 | ) | (11,379,604 | ) | |||||||||
| Provision for income taxes | — | — | — | — | ||||||||||||
| Net Income (Loss) | $ | 1,664,952 | $ | (3,770,902 | ) | $ | (11,533,356 | ) | $ | (11,379,604 | ) | |||||
| Comprehensive Income: | ||||||||||||||||
| Amortization of unrecognized periodic pension costs | 97,846 | — | 100,487 | — | ||||||||||||
| Foreign currency cumulative translation adjustment | (372,368 | ) | — | (220,060 | ) | — | ||||||||||
| Total comprehensive income (loss), net of tax | $ | 1,390,430 | $ | (3,770,902 | ) | $ | (11,652,929 | ) | $ | (11,379,604 | ) | |||||
| Accrued dividends on preferred stock series F | (94,694 | ) | — | (94,694 | ) | — | ||||||||||
| Total comprehensive income (loss) available to common stockholders | $ | 1,295,736 | $ | (3,770,902 | ) | $ | (11,747,623 | ) | $ | (11,379,604 | ) | |||||
| Net Earnings (Loss) Per Common Share - Basic | $ | 0.02 | $ | (0.05 | ) | $ | (0.14 | ) | $ | (0.17 | ) | |||||
| Net Earnings (Loss) Per Common Share - Diluted | $ | 0.01 | $ | (0.05 | ) | $ | (0.14 | ) | $ | (0.17 | ) | |||||
| Weighted Average Number of Shares Outstanding During the Period - Basic | 85,966,687 | 75,144,113 | 81,004,011 | 68,243,666 | ||||||||||||
| Weighted Average Number of Shares Outstanding During the Period - Diluted | 113,623,789 | 75,144,113 | 81,004,011 | 68,243,666 | ||||||||||||
See Notesaccompanying notes to Condensed Consolidated Financial Statements (unaudited).these condensed consolidated financial statements.
EnerJex Resources, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES | |
| CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY | |
| FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 | |
| (UNAUDITED) | |
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2017 | 2016 | |||||||
| Cash flows from operating activities | ||||||||
| Net income (loss) | $ | 9,614,452 | $ | (10,849,132 | ) | |||
| Depreciation, depletion and amortization | 212,186 | 312,322 | ||||||
| Write-off of inventory | 71,982 | — | ||||||
| Amortization of deferred financing costs | 223,790 | 90,323 | ||||||
| Impairment of oil and gas assets | — | 7,444,597 | ||||||
| Stock, options and warrants issued for services | 13,690 | 217,283 | ||||||
| Accretion of asset retirement obligation | 93,498 | 169,110 | ||||||
| Settlement of asset retirement obligation | — | (2,767 | ) | |||||
| Amortization of prepaid expenses | 241,101 | — | ||||||
| Loss on derivatives | — | 2,449,855 | ||||||
| Gain on loan sale agreement, net of cash | (11,500,124 | ) | — | |||||
| Adjustments to reconcile net income (loss) to cash used in operating activities: | ||||||||
| Accounts receivable | (15,656 | ) | (156,835 | ) | ||||
| Inventory | (15,944 | ) | (81,805 | ) | ||||
| Prepaid expenses | 55,601 | (76,261 | ) | |||||
| Accounts payable | (67,008 | ) | (762,193 | ) | ||||
| Accrued liabilities | 556,677 | (360,153 | ) | |||||
| Cash used in operating activities | (515,752 | ) | (1,291,986 | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of fixed assets | — | (243,274 | ) | |||||
| Additions to oil and gas properties | (4,635 | ) | (16,794 | ) | ||||
| Cash used in investing activities | (4,635 | ) | (260,068 | ) | ||||
| Cash flows from financing activities | ||||||||
| Bank account transfer on loan sale agreement | (92,547 | ) | — | |||||
| Repayments of long-term debt | — | (686,660 | ) | |||||
| Proceeds from sale of preferred stock | 450,000 | — | ||||||
| Cash provided by (used in) financing activities | 357,453 | (686,660 | ) | |||||
| Net (decrease) in cash | (162,930 | ) | (2,238,714 | ) | ||||
| Cash – beginning | 178,035 | 3,101,682 | ||||||
| Cash – ending | $ | 15,099 | $ | 862,968 | ||||
| Supplemental disclosures: | ||||||||
| Interest paid | $ | — | $ | 919,089 | ||||
| Income taxes paid | $ | — | $ | — | ||||
| Non-cash transactions: | ||||||||
| Beneficial conversion feature on Series C preferred stock accounted as preferred dividend | $ | 208,500 | $ | — | ||||
| Accrued preference dividend included in long term debt | $ | 2,638,824 | $ | — | ||||
| Conversion of Series B preferred into common stock | $ | 1,897 | $ | — | ||||
| 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 June 30, 2022 | 9,690 | $ | 10 | 82,445,570 | $ | 82,445 | $ | 147,686,141 | $ | 84,355 | (64,252,652 | ) | $ | 83,600,299 | ||||||||||||||||||
| Settlement of heldback shares from contingent liability related to Measure acquisition | — | — | (498,669 | ) | (499 | ) | 2,812,999 | — | — | 2,812,500 | ||||||||||||||||||||||
| Conversion of Preferred Stock, Series F Convertible shares to Common Stock | (3,379 | ) | (4 | ) | 5,450,000 | 5,450 | (5,446 | ) | — | — | — | |||||||||||||||||||||
| Dividends of preferred stock series F | — | — | — | — | (94,694 | ) | — | — | (94,694 | ) | ||||||||||||||||||||||
| Issuance of Restricted Common Stock | — | — | 12,917 | 14 | (14 | ) | — | — | — | |||||||||||||||||||||||
| Exercise of stock options | — | — | 35,000 | 35 | 12,815 | — | — | 12,850 | ||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | 556,837 | — | — | 556,837 | ||||||||||||||||||||||||
| Amortization of unrecognized periodic pension costs | — | — | — | — | — | 97,846 | — | 97,846 | ||||||||||||||||||||||||
| Foreign currency cumulative translation adjustment | — | — | — | — | — | (372,368 | ) | — | (372,368 | ) | ||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | 1,664,952 | 1,664,952 | ||||||||||||||||||||||||
| Balance as of September 30, 2022 | 6,311 | $ | 6 | 87,444,818 | $ | 87,445 | $ | 150,968,638 | $ | (190,167 | ) | (62,587,700 | ) | $ | 88,278,222 | ) | ||||||||||||||||
| Par $0.001 Preferred Stock, Series F Convertible Shares | Preferred Stock, Series F Convertible Amount | Par $0.001 Common Stock | Common Stock Amount | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Stockholders’ Equity | |||||||||||||||||||||||||
| Balance as of December 31, 2021 | — | $ | — | 75,314,988 | $ | 75,315 | $ | 127,626,536 | $ | (70,594 | ) | $ | (51,054,344 | ) | $ | 76,576,913 | ||||||||||||||||
| Settlement of heldback shares from contingent liability related to Measure acquisition | — | — | (498,669 | ) | (499 | ) | 2,812,999 | — | — | 2,812,500 | ||||||||||||||||||||||
| Issuance of Preferred Stock, Series F Convertible, net of issuance costs | 10,000 | 10 | — | — | 9,919,990 | — | — | 9,920,000 | ||||||||||||||||||||||||
| Conversion of Preferred Stock, Series F Convertible shares to Common Stock | (3,689 | ) | (4 | ) | 5,950,000 | 5,950 | (5,946 | ) | — | — | — | |||||||||||||||||||||
| Dividends of preferred stock series F | — | — | — | — | (94,694 | ) | — | — | (94,694 | ) | ||||||||||||||||||||||
| Sale of Common Stock, net of issuance costs | — | — | 4,251,151 | 4,251 | 4,579,090 | — | — | 4,583,341 | ||||||||||||||||||||||||
| Issuance of Common Stock for acquisition of senseFly | — | — | 1,927,407 | 1,927 | 2,998,073 | — | — | 3,000,000 | ||||||||||||||||||||||||
| Issuance of Restricted Common Stock | — | — | 314,941 | 316 | (316 | ) | — | — | — | |||||||||||||||||||||||
| Exercise of stock options | — | — | 185,000 | 185 | 74,165 | — | — | 74,350 | ||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | 3,058,741 | — | — | 3,058,741 | ||||||||||||||||||||||||
| Amortization of unrecognized periodic pension costs | — | — | — | — | — | 100,487 | — | 100,487 | ||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | (220,060 | ) | — | (220,060 | ) | ||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | (11,533,356 | ) | (11,533,356 | ) | ||||||||||||||||||||||
| Balance as of September 30, 2022 | 6,311 | $ | 6 | 87,444,818 | $ | 87,445 | $ | 150,968,638 | $ | (190,167 | ) | $ | (62,587,700 | ) | $ | 88,278,222 | ||||||||||||||||
See Notesaccompanying notes to Condensed Consolidated Financial Statements (unaudited).condensed consolidated financial statements.
| AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES | |
| CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY | |
| FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 | |
| (UNAUDITED) | |
| Par $0.001 Common Stock | Common Stock Amount | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Stockholders’ Equity | |||||||||||||||||||
| Balance as of June 30, 2021 | 74,668,560 | $ | 74,669 | $ | 123,377,671 | $ | — | $ | (28,554,366 | ) | $ | 94,897,974 | ||||||||||||
| Sales of Common Stock, net of issuance costs | 434,777 | 435 | 2,221,107 | — | — | 2,221,542 | ||||||||||||||||||
| Exercise of stock options | 81,861 | 81 | 37,262 | — | — | 37,343 | ||||||||||||||||||
| Stock-based compensation expense | 104,166 | 104 | 792,927 | — | — | 793,031 | ||||||||||||||||||
| Net loss | — | — | — | — | (3,770,902 | ) | (3,770,902 | ) | ||||||||||||||||
| Balance as of September 30, 2021 | 75,289,364 | $ | 75,289 | $ | 126,428,967 | $ | — | $ | (32,325,268 | ) | $ | 94,178,988 | ||||||||||||
| 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, 2020 | 58,636,365 | $ | 58,636 | $ | 47,241,757 | $ | — | $ | (20,945,664 | ) | $ | 26,354,729 | ||||||||||||
| Sale of Common Stock, net of issuance costs | 6,763,091 | 6,763 | 37,175,883 | — | — | 37,182,646 | ||||||||||||||||||
| Sale of Common Stock from exercise of warrants | 2,516,778 | 2,517 | 8,302,851 | — | — | 8,305,368 | ||||||||||||||||||
| Issuance of Common Stock for MicaSense Acquisition | 540,541 | 541 | 2,999,459 | — | — | 3,000,000 | ||||||||||||||||||
| Issuance of Common Stock for Measure Acquisition | 5,319,145 | 5,319 | 24,369,681 | — | — | 24,375,000 | ||||||||||||||||||
| Stock issued in exchange for professional services | 550,000 | 550 | 2,906,450 | — | — | 2,907,000 | ||||||||||||||||||
| Exercise of stock options | 487,876 | 487 | 112,681 | — | — | 113,168 | ||||||||||||||||||
| Stock-based compensation expense | 475,568 | 476 | 3,320,205 | — | — | 3,320,681 | ||||||||||||||||||
| Net loss | — | — | — | — | (11,379,604 | ) | (11,379,604 | ) | ||||||||||||||||
| Balance as of September 30, 2021 | 75,289,364 | $ | 75,289 | $ | 126,428,967 | $ | — | $ | (32,325,268 | ) | $ | 94,178,988 | ||||||||||||
See accompanying notes to condensed consolidated financial statements.
| AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES |
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
| (UNAUDITED) |
EnerJex Resources, Inc.
| For the Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (11,533,356 | ) | $ | (11,379,604 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation | 3,058,741 | 3,320,681 | ||||||
| Stock issued in exchange for professional services | — | 2,907,000 | ||||||
| Paycheck Protection Program loan forgiveness | — | (108,532 | ) | |||||
| Depreciation and amortization | 2,887,244 | 784,701 | ||||||
| Defined benefit plan obligation and other | (148,851 | ) | — | |||||
| Loss on disposal of property and equipment | — | 3,712 | ||||||
| Gain on debt extinguishment | (6,486,899 | ) | — | |||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable, net | (396,617 | ) | (193,348 | ) | ||||
| Inventories, net | (2,221,569 | ) | (912,683 | ) | ||||
| Prepaid expenses and other assets | 22,579 | (523,638 | ) | |||||
| Accounts payable | (281,937 | ) | 622,825 | |||||
| Accrued expenses and other liabilities | (193,818 | ) | (1,452,158 | ) | ||||
| Contract liabilities | (307,610 | ) | 253,323 | |||||
| COVID loan | (173,313 | ) | — | |||||
| Other | 433,357 | — | ||||||
| Net cash used in operating activities | (15,342,049 | ) | (6,677,721 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchases of property and equipment | (250,379 | ) | (225,642 | ) | ||||
| Payment of acquisition-related liabilities | (6,610,900 | ) | — | |||||
| Acquisition of MicaSense, net of cash acquired | — | (14,536,863 | ) | |||||
| Acquisition of Measure, net of cash acquired | — | (14,916,850 | ) | |||||
| Capitalization of platform development costs | (635,568 | ) | (762,881 | ) | ||||
| Capitalization of internal use software costs | (565,894 | ) | — | |||||
| Notes receivable | — | (200,000 | ) | |||||
| Net cash used in investing activities | (8,062,741 | ) | (30,642,236 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Sales of Common Stock, net of issuance costs | 4,583,341 | 37,182,646 | ||||||
| Sale of Common Stock from exercise of warrants | — | 8,305,368 | ||||||
| Sale of Preferred Stock, Series F Convertible, net of issuance costs | 9,920,000 | — | ||||||
| Exercise of stock options | 74,350 | 113,168 | ||||||
| Net cash provided by financing activities | 14,577,691 | 45,601,182 | ||||||
| Effects of foreign exchange rates on cash flows | (460,980 | ) | — | |||||
| Net (decrease) increase in cash | (9,288,079 | ) | 8,281,225 | |||||
| Cash at beginning of period | 14,590,566 | 23,940,333 | ||||||
| Cash at end of period | $ | 5,302,487 | $ | 32,221,558 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Interest cash paid | $ | — | $ | — | ||||
| Income taxes paid | $ | — | $ | — | ||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Stock consideration for the senseFly Acquisition | $ | 3,000,000 | — | |||||
| Conversion of Preferred Stock, Series F Convertible to Common Stock | 5,950 | — | ||||||
| Dividends on preferred stock series F | 94,694 | — | ||||||
| Issuance of Restricted Common Stock | 316 | — | ||||||
| Settlement of Common Stock from contingent liability related to Measure | $ | 2,812,500 | $ | — | ||||
| Acquisition liability related to the MicaSense Acquisition | $ | — | $ | 5,000,000 | ||||
| Stock consideration for the MicaSense Acquisition | $ | — | $ | 3,000,000 | ||||
| Acquisition liability related to the Measure Acquisition | $ | — | $ | 5,625,000 | ||||
| Stock consideration for the Measure Acquisition | $ | — | $ | 24,375,000 | ||||
See accompanying notes to condensed consolidated financial statements.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Note 1 – Description of the Business and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)Basis of Presentation
Note 1Description of Business – AgEagle™ Aerial Systems Inc. (“AgEagle” or the “Company”), through its wholly-owned subsidiaries, AgEagle Aerial, Inc., MicaSense™, Inc. (“MicaSense”), Measure Global, Inc. (“Measure”), senseFly SA, and senseFly Inc. (collectively “senseFly”), is actively engaged in designing and delivering best-in-class autonomous unmanned aerial systems, sensors and software that solve important problems for its customers in a wide range of industry verticals, including energy/utilities, infrastructure, agriculture and government.
During the year ended December 31, 2021, the Company acquired 100% of the outstanding stock of MicaSense, Measure and senseFly, respectively. These three business acquisitions are collectively referred to as the “2021 Business Acquisitions.”
Basis of Presentation
– The unaudited condensed consolidated financial statements of EnerJex Resources, Inc. (“we”, “us”, “our”, “EnerJex” and “Company”) have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and reflect all adjustments which, in the opinion of management, are necessary for a fair presentation. All such adjustments are of a normal recurring nature. The results of operations for the interim period are not necessarily indicative of the results to be expected for a full year. Certain amounts in the prior year statements have been reclassified to conform to the current year presentations. The statements should be read in conjunction with the financial statements and footnotes thereto included in our Annual Report Form 10-K for the fiscal year ended December 31, 2016, filed with the Securities and Exchange Commission on March 31, 2017.
Our consolidated financial statements include the accounts of our wholly-owned subsidiaries, EnerJex Kansas, Inc., Black Sable Energy, LLC, Working Interest, LLC and Black Raven Energy, Inc., for the three and nine month periods ended September 30, 2017, and for the year ended December 31, 2016. All intercompany transactions and accounts have been eliminated in consolidation.
Note 2 – Going Concern
The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
Merger Agreement
On October 19, 2017, EnerJex entered into an Agreement and Plan of Merger (the “Merger Agreement”) with AgEagle Aerial Systems, Inc., a Nevada corporation (“AgEagle”), which designs, develops, produces, and distributes technologically advanced small unmanned aerial vehicles (UAV or drones) that are supplied to the agriculture industry, and AgEagle Merger Sub, Inc., a Nevada corporation and wholly-owned subsidiary of the Company (“Merger Sub”). Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will be merged with and into AgEagle, Merger Sub will cease to exist and AgEagle will survive as a wholly-owned subsidiary of the Company (the “Merger”). The respective boards of directors of EnerJex and AgEagle have approved the Merger Agreement and the transactions contemplated thereby.
At the effective time of the Merger (the “Effective Time”), the shares of AgEagle capital stock will be automatically converted into the right to receive equal to 85% of the then issued and outstanding capital stock of the Company on a fully diluted basis. In addition, at the Effective Time all outstanding options and warrants to purchase shares of AgEagle common stock will be assumed by the Company and converted into options and warrants to purchase shares of Company common stock. No fractional shares of Company common stock will be issued in the Merger but will be rounded to the nearest whole share. Following the consummation of the Merger, former stockholders of AgEagle with respect to the Merger are expected to own 85% of the Company’s outstanding common stock (inclusive of the AgEagle assumed stock options and warrants), and current common and Series A Preferred stockholders of the Company are expected to own 15% of the Company, excluding shares of common stock that may be issuedpresented in connection with the conversion of the Company’s Series B Preferred StockUnited States dollars and Series C Preferred Stock, and not including any additional shares which may be issued in connection with the Company’s closing obligation to provide up to $4 million in new working capital and the elimination of all liabilities currently on the Company’s balance sheet.
In connection with the Merger, the Company will also file a proxy statement seeking stockholder approval to: (a) amend the terms of its Series A Preferred Stock (as discussed below); (b) approve the issuance of the Company’s shares in connection with the Merger to the AgEagle shareholders and new investors, in excess of 19.9% of the Company’s total issued and outstanding shares of common stock; (c) approve the issuance of shares to current Company management and directors in lieu of deferred salary and fees, a majority of which will be held in escrow to secure the Company’s indemnity obligations under the Merger Agreement; and (d) change the name of the Company to “AgEagle Aerial Resources, Inc.”
The Merger Agreement provides that, immediately following the Effective Time, the existing board of directors and officers of the Company will resign and new directors and officers will be appointed by AgEagle.
The Company intends to dispose of its principal assets, consisting primarily of its Kansas oil and gas properties, concurrently with the closing of the Merger. In the event the Merger is not consummated, the Company does not have a present intention to dispose of the above described assets.
The completion of the Merger is subject to various customary conditions, including, among other things: (a) the approval of the stockholders of the Company and AgEagle; (b) the accuracy of the representations and warranties made by each of the Company and AgEagle and the compliance by each of the Company and AgEagle with their respective obligations under the Merger Agreement; (c) approval of the stockholders of the Company for the issuance of its common stock and any other securities (x) to the AgEagle stockholders in connection with the Merger and (y) in connection with the financing transactions contemplated by the Merger Agreement; (d) approval for the listing of shares of the Company’s common stock to be issued in the Merger and other related transactions on the NYSE American; and (e) that all of the Company’s assets as disclosed shall have been sold, transferred or otherwise disposed of and the corresponding debt and liabilities shall have been extinguished. The Company’s existing cash resources are insufficient to satisfy all of its outstanding liabilities. Accordingly, in order to satisfy the condition and consummate the Merger, the Company will be required to raise additional funding prior to the closing of the Merger, the failure of which could result in the Company’s failure to consummate the Merger Agreement.
The Merger Agreement contains customary representations, warranties and covenants, including covenants obligating each of the Company and AgEagle to continue to conduct its respective business in the ordinary course, to provide reasonable access to each other’s information and to use reasonable best efforts to cooperate and coordinate to make any filings or submissions that are required to be made under any applicable laws or requested to be made by any government authority in connection with the Merger. The Merger Agreement also contains a customary “no solicitation” provision pursuant to which, prior to the earlier of January 31, 2018, or the completion or termination of the Merger, neither the Company nor AgEagle may solicit or engage in discussions with any third party regarding another acquisition proposal unless, in the Company’s case, it has received an unsolicited, bona fide written proposal that the recipient’s board of directors determines is or would reasonably be expected to result in a superior proposal. The Company has paid AgEagle a $50,000 non-refundable fee at the signing of the Merger Agreement. The Merger Agreement contains certain termination rights in favor of each of the Company and AgEagle.
In addition, the Merger Agreement contains provisions for indemnification in the event of any damages suffered by either party as a result of breaches of representations and warranties contained therein. The aggregate maximum indemnification obligation of any indemnifying party for damages with respect to breaches of representations and warranties set forth in the Merger Agreement shall not exceed, in the aggregate, $350,000, other than fraud, intentional misrepresentation or willful breach. An indemnifying party shall satisfy its indemnification obligations with shares of Company common stock equal to the aggregate amount of losses of the indemnified party, calculated based upon the greater of (i) the value of the Company common stock as of the closing of the Merger; and (ii) the average closing price of the Company common stock on the NYSE American for the five trading days immediately prior to the date such a claim is made. The Company has agreed to deposit an aggregate of 1,215,278 shares of common stock to be issued to current officers and directors of the Company in lieu of deferred salary and fees into escrow to secure its indemnification obligations, the issuance of such shares requiring the approval of the Company’s common stockholders.
In connection with, and as a condition to the closing of the Merger, the Company is seeking the consent of the holder of its Series A Preferred Stock (“Series A Preferred Stock”) to amend the terms thereof to: (i) allow the Company to pay all accrued but unpaid dividends up to September 30, 2017 in additional shares of Series A Preferred Stock based on the value of the liquidation preference thereof, (ii) eliminate the right of the Series A Preferred Stock holders to receive any dividends accruing after September 30, 2017, and (iii) convert each share of Series A Preferred Stock into 10 shares of Company common stock. An affirmative vote of 66.7% of all shares of Series A Preferred Stock voting as a class as of the record date of the proxy statement is required to amend the terms of the Certificate of Designation to provide for these changes, as required under the Merger Agreement.
As of September 30, 2017, the Series A Preferred Stock had accrued a total of $6,039,972 in accrued but unpaid dividends, which would result in an additional 241,599 shares of Series A Preferred Stock being issued by the Company to satisfy these accrued dividends.
The Merger Agreement provides either party the right to terminate the Merger if it has not been consummated by January 31, 2018, provided that if all of the conditions to closing shall have been satisfied or shall be capable of being satisfied at such time, the required closing date may be extended until March 31, 2018.
Financing Transactions
On October 3, 2011, the Company entered into an Amended and Restated Credit Agreement with Texas Capital Bank, and other financial institutions and banks that may become a party to the Credit Agreement from time to time (“TCB” or “Bank”). The facilities provided under the Amended and Restated Credit Agreement were to be used to refinance a prior outstanding revolving loan facility with TCB dated July 3, 2008, and for working capital and general corporate purposes. On August 15, 2014, the Company entered into an Eighth Amendment to the Amended and Restated Credit Agreement. Among other things the Eighth Amendment extended the maturity of the Agreement by three years to October 3, 2018. On August 12, 2015, the Company entered into a Tenth Amendment to the Amended and Restated Credit Agreement. Among other things, the Tenth Amendment established the requirement of monthly borrowing base reductions commencing September 1, 2015 and continuing on the first of each month thereafter. On November 13, 2015, the Company entered into an Eleventh Amendment to the Amended and Restated Credit Agreement. The Eleventh Amendment reflects the following changes: (i) waived certain provisions of the Credit Agreement, (ii) suspended certain hedging requirements, and (iii) amended certain other items of the Credit Agreement.
On April 1, 2016, the Company informed the Bank that it would cease making the mandatory monthly borrowing base reduction payments and did not make the required April 1, 2016 payment. The Company made its mandatory quarterly interest payment on April 6, 2016 and on April 7, 2016, entered into a Forbearance Agreement whereby the Bank agreed to not exercise remedies and rights afforded it under the Amended and Restated Credit Agreement for thirty days. On May 31, 2016, the Company and the Bank amended the Forbearance Agreement to extend the forbearance period to August 31, 2016. On July 29, 2016, the Company and the Bank amended the Forbearance Agreement to extend the forbearance period to October 1, 2016. Upon the expiration of the Third Forbearance agreement, the Company did not enter into a Fourth Forbearance Agreement. Also, at that time the Company discontinued payment of interest on its outstanding loan obligations with the Bank.
Throughout 2016, the Company evaluated plans to restructure, amend or refinance existing debt through private options. On February 14, 2017, the Company announced that a group of investors unrelated to the Company had purchased from EnerJex’s secured bank lender all rights to the Company’s secured indebtedness, and that EnerJex had executed a definitive written agreement for the discharge of the Company’s secured indebtedness with the purchasing investor group. Final closing on this agreement occurred on May 10, 2017.
On February 10, 2017, the Company, TCB and IberiaBank (collectively, “Sellers”), and PWCM Investment Company IC LLC, and certain financial institutions (collectively, “Buyers”) entered into a Loan Sale Agreement (“LSA”), pursuant to which Sellers sold to Buyers, and Buyers purchased from Sellers, all of Sellers’ right, title and interest in, to and under the Credit Agreement and Loan Documents, in exchange for (i) a cash payment of $5,000,000 (the “Cash Purchase Price”), (ii) a Synthetic Equity Interest equal to 10% of the proceeds, after Buyer’s realization of a 150% return on the Cash Purchase Price within five (5) years of the closing date of the sale, with payment being distributed 65.78947368% to TCB and 34.21052632% to IberiaBank, and (iii) at any time prior to February 10, 2022, Buyer may acquire the interest in clause (ii) above. In connection with the LSA, the Company released Sellers and its successors as holders of the rights under the Credit Agreement and Loan Documents, including Buyers, from any and all claims under the Credit Agreement and Loan Documents.
Also on February 10, 2017, the Company and its subsidiaries, and successor lender entered into a binding letter agreement dated February 10, 2017, which was subsequently amended on March 30, 2017 (as amended, the “letter agreement”) pursuant to which:
The restated secured note:
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, 2021, included in the Company’s Annual Report on Form 10-K, as filed with the SEC on April 12, 2022. The results for the three and nine month periods ended September 30, 2022 are not necessarily indicative of the results to be expected for a full year, any other periods or any future year or period.
Liquidity and Going Concern – In pursuit of the Company’s long-term growth strategy and recent acquisitions the Company has sustained continued operating losses. During the nine months ended September 30, 2022, the Company incurred a net loss of $11,533,356 and used cash in operating activities of $15,342,049. As of September 30, 2022, the Company has working capital of $10,221,025 and an accumulated deficit of $62,587,700. While the Company has historically been successful in raising capital to meet its working capital needs, the ability to continue raising such capital to enable the Company to continue its growth is not guaranteed. Therefore, there is substantial doubt about the Company’s ability to continue as a going concern basis, which contemplatesas the realization of assetsCompany 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 operation and the satisfactionrestructuring of liabilitiesoperations to grow revenues and reduce expenses.
If the Company is unable to generate significant sales growth in the normal coursenear 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, theits operations if no other means of financing operations are available. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of assetsrecorded asset amounts or the amount and classification of liabilities or any other adjustment that might be necessary should the Company be unable to continue as a going concern.
Note 3 – Stock Options and Warrants
A summary of stock options and warrants is as follows:
| 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 | |||||||||||
Note 4 – Asset Retirement Obligation
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
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
Senior Secured Credit FacilityNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
On October 3, 2011, the Company and DD Energy, Inc., EnerJex Kansas, Inc., Black Sable Energy, LLC and Working Interest, LLC, its subsidiaries (“Borrowers”) entered into an Amended and Restated Credit Agreement with Texas Capital Bank, N.A. (the “Bank”) and other financial institutions and banks that may become a party to the Credit Agreement from time to time. The facilities provided under the Amended and Restated Credit Agreement were used to refinance the Borrowers’ prior outstanding revolving loan facility with the Bank, dated July 3, 2008, and for working capital and general corporate purposes.
At our option, loans under the facility will bear stated interest based on the Base Rate plus Base Rate Margin, or Floating Rate plus Floating Rate Margin (as those terms are defined in the Credit Agreement). The Base Rate will be, for any day, a fluctuating rate per annum equal to the higher of (a) the Federal Funds Rate plus 0.50% and (b) the Bank’s prime rate. The Floating Rate shall mean, at Borrower’s option, a per annum interest rate equal to (i) the Eurodollar Rate plus Eurodollar Margin, or (ii) the Base Rate plus Base Rate Margin (as those terms are defined in the Amended and Restated Credit Agreement). Eurodollar borrowings may be for one, two, three, or nine months, as selected by the Borrowers. The margins for all loans are based on a pricing grid ranging from 0.00% to 0.75% for the Base Rate Margin and 2.25% to 3.00% for the Floating Rate Margin based on the Company’s Borrowing Base Utilization Percentage (as defined in the Amended and Restated Credit Agreement).
On December 15, 2011, we entered into a First Amendment to Amended and Restated Credit Agreement and Second Amended and Restated Promissory Note in the amount of $50,000,000 with the Bank. The Amendment reflected the addition of Rantoul Partners as an additional Borrower and added as additional security for the loans the assets held by Rantoul Partners.
On August 31, 2012, we entered into a Second Amendment to Amended and Restated Credit Agreement with the Bank. The Second Amendment: (i) increased our borrowing base to $7,000,000, (ii) reduced the minimum interest rate to 3.75%, and (ii) added additional new leases as collateral for the loan.
On November 2, 2012, we entered into a Third Amendment to Amended and Restated Credit Agreement with the Bank. The Third Amendment (i) increased our borrowing base to $12,150,000, and (ii) clarified certain continuing covenants and provided a limited waiver of compliance with one of the covenants so clarified for the quarter ended December 31, 2011.
On January 24, 2013, we entered into a Fourth Amendment to Amended and Restated Credit Agreement, which was made effective as of December 31, 2012, with the Bank. The Fourth Amendment reflected the following changes: (i) the Bank consented to the restructuring 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 into a Forbearance Agreement whereby the Banks agreed to not exercise remedies and rights afforded it under the Amended and Restated Credit Agreement for thirty days. On May 31, 2016, the Company and the Banks amended the Forbearance Agreement to extend the forbearance period to August 31, 2016. On July 29, 2016, the Company and the Banks entered into a Third Forbearance Agreement which extended the forbearance period to October 1, 2016. Upon the expiration of the Third Forbearance agreement, the Company did not enter into a fourth Forbearance Agreement. Also, at that time the Company discontinued payment of interest on its outstanding loan obligations with the Banks.
On February 10, 2017, the Company and the other Sellers entered into and completed the transactions contemplated by the LSA, described in greater detail in “Part I” – “Item 1 Financial Statements” of this report above under “Note 2 – Going Concern” – “Financing Transactions”.
Below is a table showing the reconciliation of the gain on LSA as set forth 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 |
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 under “Note 2 – Going Concern” – “Financing Transactions”.
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 the Subsidiaries’ payment of certain fees and expenses due under the Credit Agreement, and may be liable for certain conduct, such as fraud, bad faith, gross negligence, and waste of the Kansas oil properties or assets.
As of September 30, 2017, the principal balance of $105,806 along with accrued interest remained due under the promissory note with Pass Creek Resources LLC.(UNAUDITED)
Note 61 – Commitments & ContingenciesDescription of the Business and Basis of Presentation – Continued
As of September 30, 2017,Risks and Uncertainties – Global economic challenges, including the Company had an outstanding irrevocable letter of credit in the amount of $50,000 issued in favorimpact of the Texas Railroad Commission. The letter of credit is required bywar in Ukraine, the Texas Railroad Commission for all companies operating in the state of Texas with production greater than limits they prescribe.
Rent expense for the nine months ended September 30, 2017COVID-19 pandemic, rising inflation and 2016 was approximately $75,000supply-chain disruptions, adverse labor market conditions could cause economic uncertainty and $104,000, respectively. Future non-cancellable minimum lease payments are approximately $35,000 for the remainder of 2017, $91,000 for 2018, and $77,000 for 2019.
We, as a lessee and operator of oil and gas properties, are subject to various federal, state and local laws and regulations relating to discharge of materials into, and protection of, the environment. These laws and regulations may, among other things, impose liability on the lessee under an oil and gas lease for the cost of pollution clean-up resulting from operations and subject to the lessee to liability for pollution damages. In some instances, the Company may be directed to suspend or cease operations in the affected area. As of September 30, 2017, we have no reserve for environmental remediation and are not aware of any environmental claims.
On September 23, 2016, the Company, American Standard Energy Corporation, Baylor Operating LLC, Bernard Given and Loeb & Loeb LLP were sued by Geronimo Holdings Corporation and Randal Capps in the 143rd Judicial District Court located in Pecos, Texas. The suit among other things, seeks damages for an alleged unlawful sale of properties in Crockett County, Texas and for alleged unpaid royalties. The Company believes the suit is without merit and will vigorously defend itself in connection with this proceeding. The Company has faith that it will prevail and at September 30, 2017, no reserve for potential losses arising from this matter has been recorded. Additionally, under its agreement with Baylor Operating LLC, Baylor has agreed to indemnify and defend the Company against all lawsuits and claims including this one.
On April 26, 2016, C&F Ranch, LLC sued the Company in Allen County, Kansas for alleged breach of contract related to the rental of certain lands located on the C&F Ranch. The Company believes that it has paid all rents owed to C&F Ranch LLC and will vigorously defend itself in connection with this proceeding. The Company has faith that it will prevail and at September 30, 2017, no reserve for potential losses arising from this matter has been recorded.
Note 7 – Impairment of Oil and Gas Properties
Pursuant to full cost accounting rules, the Company must perform a ceiling test each quarter on its proved oil and natural gas assets within each separate cost center. All of the Company’s costs are included in one cost center as all of the Company’s operations are located in the United States. The Company’s ceiling test was calculated using trailing twelve-month, unweighted-average first-day-of-the-month prices for oil and natural gas as of September 30, 2017, which were based on a West Texas Intermediate oil price of $42.46 per Bbl and a Henry Hub natural gas price of $2.63 per Mcf (adjusted for basis and quality differentials), respectively. For the nine-month period ended September 30, 2017, the Company’s present value of future estimate cash flows discounted at 10%, exceeded the net book value of those assets. Accordingly, the Company did not record an impairment charge. This test resulted in a pre-tax write-down of $7,444,597 for the nine-month period ended September 30, 2016.
Note 8 – Equity Transactions
We accrued dividends of $879,608 and $2,638,823 for our Series A Preferred Stock forvolatility. During the three and nine months ended September 30, 2017, respectively. At September 30, 2017, accumulated dividends payable2022, the COVID-19 pandemic continued to have a significant negative impact on the Series A Preferred Stock holders totaled $6,039,972.unmanned aerial vehicle (“UAV”) systems industry, the Company’s customers and business globally. The aforementioned risks and their respective impacts on the UAV industry and the Company’s operational and financial performance remains uncertain and outside of the Company’s control. Specifically, as a result 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. The Company expects the pandemic, inflation and supply-chain disruptions and its effects to continue to have a significant negative impact on its business for the duration of the pandemic and during the subsequent economic recovery, which could be for an extended period of time.
On April 27, 2017, the Company entered into an Additional Issuance Agreement with Alpha Capital Anstalt, for the purchaseA description of 300 restricted shares of its newly designated Series C Convertible Preferred Stock in consideration for $300,000, with an option to purchase an additional 200 shares of Series C Convertible Preferred Stock for an aggregate purchase price of $200,000. As of September 30, 2017, the Company had issued 300 shares of Series C Convertible Preferred Stock for an aggregate purchase price of $300,000. In addition, during the nine months ending September 30, 2017, the Company had received $150,000 from Alpha Capital Anstalt to purchase an additional 150 shares of Series C Convertible Preferred Stock. As of September 30, 2017, the additional 150 shares of Series C Convertible Preferred Stock have not been issued and are reflected as Series C Convertible Preferred Stock Issuable on the balance sheet in the aggregate amount of $150,000.
The Company recorded a beneficial conversion feature of $208,500 based on the fair valuecertain of the common stockCompany’s accounting policies and the conversion rate as of the date of issuance. This amount was recorded as a deemed distribution for the nine months ended September 30, 2017.
The Series C Convertible Preferred Stock (“Series C Preferred Stock”)other financial information is non-voting (except to the extent required by law and except for certain consent rights relating to amending the certificate of incorporation or bylaws, and the like), ranks senior to the common stock with respect to dividends and with respect to distributions upon a deemed dissolution, liquidation or winding-up of the Company, and ranks junior to the Company’s Series A preferred stock and Series B preferred stock with respect to dividends and with respect to distributions upon a deemed dissolution, liquidation or winding-up of the Company. Upon request of the Holders, the Company can seek stockholder approval to remove the Issuance Limitation described therein and to allow for further adjustments related to anti-dilution protection, only if such stockholder approval is obtained. The Series C Convertible Preferred Stock has a liquidation preference of $1,000 per share, and is convertible at the option of the holder at a conversion price equal to $0.30 per share, or a ratio equal to approximately 3,333 shares of common stock for each one (1) share of Series C Convertible Preferred Stock, subject to customary adjustments. Dividends are payable on the shares of Series C Convertible Preferred Stock only if and to the extent that dividends are payable on the common stock into which the Series C Convertible Preferred Stock is convertible. The Series C Convertible Preferred Stock has no maturity date and can be redeemed by the Company beginning twelve months after the closing of the offering or upon a change of control for the redemption price of $1,000 per share, as adjustable as provided in the designation of the Series C Preferred Stock.
The Series C Preferred Stock includes a beneficial ownership limitation preventing conversion of shares of Series C Preferred Stock into more than 9.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the Series C Preferred Stock. In addition, the Company may not convert the Series C Preferred Stock into a number of shares of common stock which, when aggregated with any shares of common stock issued on or after the original issue date and prior to such conversion date in connection with any conversion of Series C Preferred Stock would exceed 1,683,944 shares of common stock (19.99% of the outstanding shares as of the original issue date), subject to adjustment for forward and reverse stock splits, recapitalizations and the like. In the event conversion of the Series C Preferred Stock is limited pursuant to these provisions, each holder shall be entitled to a pro rata portion of the issuable maximum.
Pursuant to the anti-dilutive provisions of the Securities Purchase Agreement dated as of March 11, 2015, which requires the Company to issue additional shares of common stock to adjust the purchase price paid by purchasersincluded in the Company’s March 2015 offering, in the event any shares are sold (or convertible securities are sold), with a price per share less than the purchase price paid by the March 2015 purchasers subject to the terms of the Securities Purchase Agreement, Alpha Capital Anstalt received 597,461 shares of common stock. In addition, the Series B Convertible Preferred Stock conversion ratio equal to approximately 571 shares of common stock for each one (1) share of Preferred Stock reset to approximately 3,333 shares of common stock for each one (1) share of Series B Convertible Preferred Stock, to be consistent with the terms of the Series C Convertible Preferred Stock, pursuant to the anti-dilution requirements of the Series B Convertible Preferred Stock.
During the nine months ending September 30, 2017, Alpha Capital Anstalt converted 390 shares of Series B Convertible Preferred Stock into 1,300,000 shares of common stock.
See also the description of the Alpha Capital Anstalt warrant exercises which occurred subsequent to September 30, 2017, as described in “Note 10 – Subsequent Events”.
Note 9 – Related Party Transaction
Effective May 1, 2017, the Company entered into an agreement with Camber Energy, Inc., pursuant to which EnerJex will be responsible for performing certain general and administrative services for Camber for a fee of $150,000 per month. This fee includes payments to vendors who provide accounting services to Camber. Richard E. Menchaca, a member of the Board of Directors of the Company, is a co-guarantor of bank debt held by Camber Energy, Inc. and Robert Schleizer, our newly appointed Interim Chief Financial Officer is also the Chief Financial Officer and a Director of Camber Energy, Inc.
Note 10 – Subsequent Events
See the subsequent events in “Note 2 – Going Concern”.
On October 23, 2017, Alpha Capital Anstalt exercised warrants to purchase 1,000,000 shares of our common stock for an aggregate exercise price of $300,000 (or $0.30 per share), pursuant to the terms of such warrants, and was issued 1,000,000 shares of common stock.
On November 6, 2017, Alpha Capital Anstalt exercised warrants to purchase 771,428 shares of our common stock for an aggregate exercise price of $231,429 (or $0.30 per share), pursuant to the terms of such warrants, and was issued 771,428 shares of common stock.
We have reviewed all material events through the date of this report in accordance with ASC 855-10.
This report contains forward-looking statements. These forward-lookingaudited consolidated financial statements are subject to a number of risks and uncertainties, many of which are beyond our control. All statements, other than statements of historical fact, contained in this report, including statements regarding future events, our future financial performance, business strategy and plans and objectives of management for future operations, are forward-looking statements. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” or “should” or the negative of these terms or other comparable terminology. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks outlined under “Risk Factors” or elsewhere in this report, our latest Annual Report on Form 10-K, filed with the SEC on March 31, 2017 and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, filed with the SEC on August 21, 2017, which may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time and it is not possible for us to predict all risk factors, nor can we address the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual results to differ materially from those contained in any forward-looking statements. The factors impacting these risks and uncertainties include, but are not limited to:
You should not place undue reliance on any forward-looking statement, each of which applies only as of the date of this report. Except as required by law, we undertake no obligation to update or revise publicly any of the forward-looking statements after the date of this report to conform our statements to actual results or changed expectations. For a detailed description of these and other factors that could cause actual results to differ materially from those expressed in any forward-looking statement, please see “Risk Factors” in this document and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC on March 31, 2017 and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, filed with the SEC on August 21, 2017.
You should read the matters described in “Risk Factors” and the other cautionary statements made in this report, and incorporated by reference herein, as being applicable to all related forward-looking statements wherever they appear in this report. We cannot assure you that the forward-looking statements in this report will prove to be accurate and therefore prospective investors are encouraged not to place undue reliance on forward-looking statements.
This information should be read in conjunction with the interim unaudited financial statements and the notes thereto included in this Quarterly Report on Form 10-Q, and the audited financial statements and notes thereto and “Part II”, “Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K for the year ended December 31, 2016 (the “Annual Report”).
Certain capitalized terms used2021. The summary of significant accounting policies presented below and otherwise defined below, haveis designed to assist in understanding the meanings given to such terms in the footnotes to ourCompany’s condensed consolidated financial statements. Such condensed consolidated financial statements included above under “Part I - Financial Information” -“Item 1. Financial Statements”.and accompanying notes are the representations of the Company’s management, who are responsible for their integrity and objectivity.
All referencesUse of Estimates – The preparation of financial statements in this reportconformity with accounting principles generally accepted in the United States of America requires management to “we,” “us,” “our,” “Company”make estimates and “EnerJex” referassumptions 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 including goodwill, foreign currency exchange rates, valuation of defined benefit plan obligations and the valuation of deferred tax assets.
Fair Value Measurements and Disclosures – ASC Topic 820, Fair Value Measurement (“ASC 820”), requires companies to 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 informationdetermine fair value based on the basis ofprice that would be received to sell the asset or paid to transfer the liability to a December 31 fiscal year end.market participant. ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement.
In addition, unlessThe guidance requires that assets and liabilities carried at fair value be classified and disclosed in one of the context otherwise requires and for the purposes of this report only:following categories:
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AVAILABLE INFORMATIONFor 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 loans related to the business acquisitions and COVID Loans are carried at face value, which approximates fair value. As of September 30, 2022 and December 31, 2021, the Company did not have any financial assets or liabilities measured and recorded at fair value on the Company’s condensed consolidated balance sheets on a recurring basis.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
We file annual, quarterlyNote 2 – Summary of Significant Accounting Policies
Inventories– Inventories, which consist of raw materials, finished goods and other reports and other information with the SEC. You can read these SEC filings and reports over the Internetwork-in-process, are stated at the SEC’s website at www.sec.govlower 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 our website atwww.enerjex.com. You can also obtain copieshand, among consideration of other factors. The physical condition (e.g., age and quality) of the documents at prescribed rates by writinginventories 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 Public Reference Sectioncost basis of the SEC at 100 F Street, NE, Washington, DC 20549 on official business days betweenrespective inventories. These adjustments are estimates, which could vary significantly, either favorably or unfavorably, from the hoursamounts that the Company may ultimately realize upon the disposition of 10:00 aminventories if future economic conditions, customer inventory levels, product discontinuances, sales return levels or competitive conditions differ from the Company’s estimates and 3:00 pm. Please call the SEC at (800) SEC-0330 for further information on the operationsexpectations.
Revenue Recognition and Concentration – The majority of the public reference facilities. We will provideCompany’s revenues are derived primarily through the sales of drone and drone related products and services, sensors and related accessories, and software subscriptions. All contracts and agreements are a 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 DATAfixed price and are accounted for in accordance with ASC Topic 606, Revenue from Contracts with Customers.
The market dataCompany generally recognizes revenue on sales to customers, dealers and distributors upon satisfaction of performance obligations which generally occurs once control transfers to customers, which is when product is shipped or delivered depending on specific shipping terms and, where applicable, customer acceptance has been obtained. The fee is not considered to be fixed or determinable until all material contingencies related to the sales have been resolved. The Company records revenue in the statements of operations and comprehensive loss, net of any sales, use, value added, or certain other statistical information used throughout this reportexcise 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 basedidentified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.
Additionally, customer payments received in advance of the Company completing performance obligations are recorded as contract liabilities. Customer deposits represent customer prepayments and are recognized as revenue when the term of the sale or performance obligation is completed.
The Company’s software subscriptions to its platforms, HempOverview and Ground Control, are offered 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 guaranteea subscription basis. These subscription fees are recognized ratably over each monthly membership period as the accuracy and completeness of this information, and we have not independently verified any of it.services are provided.
ITEM 2. MANAGEMENT’S DISCUSSIONAGEAGLE AERIAL SYSTEMS INC. AND ANALYSIS OFSUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL CONDITIONSTATEMENTS
FOR THE THREE AND RESULTS OF OPERATIONS.NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Note 2 – Summary of Significant Accounting Policies-Continued
The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes to our financial statements included elsewhere in this report. In addition to historical financial information, the following discussion 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 in these forward-looking statements as a result of many factors, including those discussed under, and incorporated by reference in, ITEM 1A. Risk Factors and elsewhere in this report.Capitalized Software Development Costs
Overview
On October 19, 2017, EnerJex entered the Merger Agreement with AgEagle, described in greater detail under “Part I” – “Item 1 Financial Statements” of this report above under “Note 2 – Going Concern” – “Merger Agreement”.
The completion of the Merger is 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 our majority shareholders, our operations will change to those of AgEagle, i.e., the design, — Software development production, and distribution of technologically advanced small unmanned aerial vehicles (UAV or drones) that are supplied to the agriculture industry and we will also dispose of our current principal assets, consisting of our Kansas oil and gas properties, concurrently with the closing of the Merger. In the event the Merger is not consummated, the Company does not have a present intention to dispose of the above described assets or to change its 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.
We will continue to investigate multiple opportunities to both increase and unlock value and accelerate growth in an accretive manner on behalf of shareholders, including but not limited to mergers, acquisitions, joint ventures, and non-dilutive financings. There can be no assurance of the results or timing associated with this process.
Plan of Operations
The Board of Directors is currently focused on the pending Merger, but is continuing to pursue possible strategic transactions involving opportunities both in and outside the oil and gas industry that will offer the opportunitycosts 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 meetingsoftware to be scheduled. While wesold, leased or marketed are confident the Merger willaccounted for in accordance with ASC Topic 985-20, Software — Costs of Software to be approved, the Company expects to continue to pursue other acquisition and business combination opportunities. No assurance can be given that any oneSold, Leased or more of these potential business combinations or asset acquisition opportunities will be consummated.
Recent DevelopmentsMarketed
The following is a brief description of our most significant corporate developments that have occurred since the end of 2015:
On April 1, 2016, the Company informed the Bank that it would cease making the mandatory monthly borrowing base reduction payments and did not make the required April 1, 2016 payment. The Company made its mandatory quarterly interest payments on April 6, 2016, and May 2, 2016. On April 7, 2016 the Company entered into a Forbearance Agreement whereby the Bank agreed to not exercise remedies and rights afforded it under the Amended and Restated Credit Agreement for thirty days.
On April 28, 2016, the Bank informed the Company that it would extend the above Forbearance Agreement period to May 31, 2016, upon effecting a principal reduction of $125,000.
On October 1, 2016, the Company and the Bank could not reach an agreement to extend the Third Amendment to the Forbearance Agreement. Following this outcome, the Company decided to discontinue payment of interest on its outstanding loan obligations with the Bank. The Company continued to evaluate plans to restructure, amend or refinance existing debt through private options.
On October 26, 2016, the NYSE American (the “NYSE”) delisted our Series A preferred stock from the NYSE due to the failure to maintain a market capitalization of above $1 million. On January 11, 2017, we announced that we received a letter of noncompliance from the NYSE due to our failure to hold an annual meeting for the fiscal year ended December 31, 2015. On January 17, 2017, we announced that the NYSE had accepted our plan to restore compliance with certain NYSE regulations on or before March 31, 2017. The NYSE subsequently granted an extension and on April 27, 2017, the Company held an annual meeting of shareholders.
On February 10, 2017, we and the other Sellers entered into the LSA, described in greater detail in “Part I” – “Item 1 Financial Statements” of this report above under “Note 2 – Going Concern” – “Financing Transactions” and thereafter, the Company entered into the New Credit Agreement and New Note, also described in “Note 2 – Going Concern” under “Financing Transactions”.
Additional information regarding the Merger, the operations of AgEagle, which will become the operations of the Company in the event the Merger is completed and risk factors Costs 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 executionplanning 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 Merger Agreement,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 income (loss). Annual amortization is recognized on a principal stockholder of AgEagle (the “Key AgEagle Stockholder”) entered into a voting agreement in favor of EnerJex (the “EnerJex Voting Agreement”). Pursuant tostraight-line basis over the EnerJex Voting Agreement, the Key AgEagle Stockholder has agreed, among other things, to vote all shares of capital stock of AgEagle beneficially owned by him in favorremaining economic life of the Merger and the adoptionsoftware (typically two years). Unamortized capitalized costs determined to be in excess of the Merger Agreement and the approvalnet realizable value 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)a solution are expensed at the date on which the Merger becomes effective.
In connection with, and as a condition to the closing of the Merger, the Company is seeking the consent of the holder of its Series A Preferred Stock (“Series A Preferred Stock”) to amend the terms thereof to: (i) allow the Company to pay all accrued but unpaid dividends up to September 30, 2017 in additional shares of Series A Preferred Stock based on the value of the liquidation preference thereof, (ii) eliminate the right of the Series A Preferred Stock holders to receive any dividends accruing after September 30, 2017, and (iii) convert each share of Series A Preferred Stock into 10 shares of Company common stock. An affirmative vote of 66.7% of all shares of Series A Preferred Stock voting as a class as of the record date of the proxy statement is required to amend the terms of the Certificate of Designation to provide for these changes, as required under the Merger Agreement.
such determination. As of September 30, 2017,2022 and December 31, 2021, capitalized software development costs, net of accumulated amortization, totaled $1,301,691 and $995,880, respectively, and are included in intangibles, net on the Series A Preferred Stock had accruedcondensed 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 totalstraight-line basis over the estimated useful life of $6,039,972the software (typically three to five years). Maintenance and enhancement costs, including those costs in accrued but unpaid dividends, which wouldthe post-implementation stages, are typically expensed as incurred, unless such costs relate to substantial upgrades and enhancements to the software that result in an additional 241,599 shares of Series A Preferred Stock being issued byadded functionality, in which case the Company to satisfy these accrued dividends.
On October 19, 2017,costs are capitalized and amortized on a straight-line basis over 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)estimated useful life of the NYSE Americansoftware. The Company Guide (the “Company Guide”)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 and comprehensive income (loss). As a result, the Company has become subject to the proceduresof September 30, 2022 and requirementsDecember 31, 2021, capitalized software development costs for internal-use software, net of Section 1009 of the Company Guideaccumulated amortization, totaled $740,923 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$278,264, respectively, relate to the Company’s compliance withimplementation of its enterprise resource planning (“ERP”) software. Internal-use software costs are included in intangibles, net on the condensed consolidated balance sheets.
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 continued listing requirements. Ifcomprehensive income (loss) on the condensed consolidated balance sheets. The Company translates the condensed consolidated statements of operations and comprehensive income (loss) of its foreign subsidiary at average exchange rates for the applicable period. Foreign currency transaction gains and losses, arising primarily from changes in exchange rates on foreign currency denominated revenues, certain purchases and intercompany transactions are recorded in other (expense) income, net in the condensed consolidated statements of operations and comprehensive income (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, fails to submit a plan or ifwhich is included in cost of goods sold in the Company’s plan is not accepted then the NYSE American may commence delisting procedures. Upon completionaccompanying condensed consolidated statements of the Merger, the Company will be required to satisfy all applicable requirements for the initial listing on the NYSE American.
Net Production, Average Sales Priceoperations 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 forcomprehensive income (loss). For the three and nine-month periods ended September 30, 2017 and 2016.
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Net Production | ||||||||||||||||
| Oil (Bbl) | 5,450 | 14,015 | 25,083 | 44,961 | ||||||||||||
| Natural gas (Mcf) | — | 11,493 | 11,649 | 39,692 | ||||||||||||
| Average Sales Prices | ||||||||||||||||
| Oil (Bbl) | $ | 42.71 | $ | 32.45 | $ | 43.03 | $ | 35.19 | ||||||||
| Natural gas (Mcf) | $ | — | $ | 1.65 | $ | 1.67 | $ | 1.06 | ||||||||
| Average Production Cost(1) | ||||||||||||||||
| Per barrel of oil equivalent (“Boe”) | $ | 52.42 | $ | 39.72 | $ | 48.68 | $ | 43.22 | ||||||||
| Average Lifting Costs(2) | ||||||||||||||||
| Per Boe | $ | 37.66 | $ | 35.73 | $ | 37.40 | $ | 37.16 | ||||||||
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, 2017,2022 and 2021, shipping costs were $1,082,492 compared$75,074 and $27,024, respectively, and $220,049 and $62,614, respectively.
Advertising Costs– Advertising costs are charged to revenuesoperations as incurred and presented in sales and marketing expenses in the condensed consolidated statements of $1,581,972 foroperations and comprehensive income (loss). For the three and nine months ended September 30, 20162022 and 2021, advertising costs were $139,480 and $50,941, respectively, and $303,862 and $141,626, respectively.
Vendor Concentrations – As of September 30, 2022 and December 31, 2021, there was one significant vendor that the Company relies upon to perform certain services for the Company’s technology platform. This vendor provides services to the Company, which can be replaced by alternative vendors should the need arise.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Note 2 – Summary of Significant Accounting Policies-Continued
The following dilutive shares have been excluded from the calculation of diluted net loss per share as their effect would be anti-dilutive for the three months ended September 30, 2017, were $187,297 compared2022, 629,367 of unvested RSUs, 727,667 options outstanding to revenuespurchase shares of $454,285Common Stock, 6,311 shares of Preferred Stock, Series F Convertible into 10,179,032 shares of Common Stock, and 16,129,032 Common Stock warrants. See Note 7 — Equity.
Segment Reporting – The Company operates in three segments: Drones and Custom Manufacturing, Sensors and Software-as-a Service (“SaaS”).
Accounting Pronouncements – Adopted – During the first quarter of 2022, the Company early adopted Accounting Standards Update (“ASU”) ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”). The update simplifies the accounting for convertible debt instruments and convertible preferred stock by reducing the same period in 2016. Ofnumber of accounting models and limiting the year-to-date oil revenue decreasenumber of $499,480, approximately $852,109 (offset byembedded conversion features separately recognized from the increase in prices as described below) was dueprimary contract. The guidance also includes targeted improvements to lower production volumes. Oil production decreased approximately 44%the disclosures for convertible instruments and earnings per share. For smaller reporting companies, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The Company adopted ASU 2020-06 in the first nine monthsquarter of 2017 from barrels produced2022 using the modified retrospective method. Prior to its adoption of ASU 2020-06, the Company did not have financial instruments that would have required a cumulative effect to be recognized as an adjustment to its opening balance of accumulated deficit.
New Accounting Pronouncements – Pending — In March 2022, the FASB issued Accounting Standards Update (“ASU”) No. 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”), which addresses areas identified by the FASB as part of its post-implementation review of its previously issued credit losses standard, ASU 2016-13, that introduced the Current Expected Credit Loss (“CECL”) model. ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhances disclosure requirements for certain loan refinancings and restructurings made with borrowers experiencing financial difficulty. In addition, ASU 2022-02 requires a public business entity to disclose current-period gross write-offs for financing receivables and net investment in leases by year of origination in the first nine months of 2016 to barrels producedvintage disclosures. ASU 2022-02 is effective for the first nine months ended September 30, 2017.fiscal years beginning after December 15, 2022 and for periods within those fiscal years. Early adoption is permitted. The production decrease was due primarilyadoption of ASU 2022-02 is not expected to the curtailment of both growth and maintenance capital expenditures, and the conveyance ofhave a material impact on 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.consolidated financial statements.
This was offsetOther recent accounting pronouncements issued by an increase in revenues of approximately $352,629 dueFASB did not or are not believed by management to higher crude oil prices. Crude oil prices increased $7.84 or 22% to an average price of $43.03 per barrel for the first nine months of 2017 compared to $35.19 per barrel for the same period in 2016.
Natural Gas Revenues
Natural gas revenues for the nine months ended September 30, 2017 were $19,509 compared to natural gas revenues of $43,461 for the nine months ended September 30, 2016 and for the three months ended September 30, 2017 were $-0- compared to natural gas revenues of $18,929 for the same period in 2016. Of the year-to-date revenue decrease of $23,952, approximately $46,964 (offset by the increase in prices as described below) was due to lower production volumes. Production decreased in the first nine months of 2017 from 39,692 Mcf for the nine months ended September 30, 2016, to 11,649 Mcf for the comparable period of 2017, as shown in the table above. The production decrease was due primarily to the curtailment of both growth and maintenance capital expenditures and the conveyance ofhave a material impact on 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 $0.58present 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.future consolidated financial statements.
Expenses:AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Note 3 – Balance Sheets
| 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 CostsAccounts Receivable, net
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 endedAs of September 30, 2017 decreased by $903,385, or 47% to $1,013,389 from $1,916,774 for the nine months ended September 30, 20162022 and for the three months ended September 30, 2017 were $205,253 compared to $569,109 for the same period in 2016. Year-to-date direct operating costs per Boe decreased $1.29 or approximately 3% to $37.40 for 2017, compared to $37.16 per boe for the same period of 2016. The decrease was primarily due to the curtailment of both growth and maintenance capital expenditures, and the conveyanceDecember 31, 2021, accounts receivable, net consist of the Company’s oil and gas properties in Colorado, Nebraska and Texas.following:
| Schedule of accounts receivable, net | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Accounts receivable | $ | 3,202,003 | $ | 2,918,435 | ||||
| Less: Provisions for doubtful accounts | (23,984 | ) | (29,556 | ) | ||||
| Accounts receivable, net | $ | 3,178,019 | $ | 2,888,879 | ||||
Depreciation, Depletion and Amortization
Inventories, Net
Depreciation, depletion and amortization for the nine months endedAs of September 30, 2017 was $305,684 compared to $312,322 for2022 and December 31, 2021, inventories, net consist of the nine months ended September 30, 2016 and for the three months ended September 30, 2017 was $80,449 compared to $63,644 for the same period in 2016. The year-to-date decrease in depletion expense of $16,805 or approximately 26% was due to the decrease in our depletable base year-over-year resulting from the impairment sustained in 2016 and further reduced by lower production volumes. Depletion expense per Boe decreased $1.29 or approximately 44% in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2017 and also as discussed above production decreased approximately 44% nine months over nine months due primarily to lower spending on lease operating expenditures and lower investments in maintenance capital.following:
| Schedule Of Inventories | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Raw materials | $ | 3,098,858 | $ | 2,862,293 | ||||
| Work-in process | 1,386,567 | 647,829 | ||||||
| Finished goods | 1,892,104 | 833,785 | ||||||
| Gross inventories | 6,377,529 | 4,343,907 | ||||||
| Less: Provision for obsolescence | (260,000 | ) | (305,399 | ) | ||||
| Inventories, net | $ | 6,117,529 | $ | 4,038,508 | ||||
Impairment of OilProperty and Gas PropertiesEquipment, Net
Under the full cost methodAs of accounting, capitalized oilSeptember 30, 2022 and gasDecember 31, 2021, property costs less accumulated depletion and equipment, net of deferred income taxes may not exceed an amount equal to the sumconsist 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.following:
| Schedule Of Property and Equipment | ||||||||||||
| Estimated | ||||||||||||
| Useful | ||||||||||||
| Life | September 30, | December 31, | ||||||||||
| Type | (Years) | 2022 | 2021 | |||||||||
| Leasehold improvements | 3 | $ | 106,837 | $ | 81,993 | |||||||
| Production tools and equipment | 4-5 | 563,814 | 417,779 | |||||||||
| Computer and office equipment | 3-5 | 581,822 | 559,110 | |||||||||
| Furniture | 5 | 79,277 | 77,971 | |||||||||
| Drone equipment | 3 | 117,769 | 95,393 | |||||||||
| Total Property and equipment | 1,449,519 | 1,232,246 | ||||||||||
| Less: Accumulated depreciation | (611,461 | ) | (280,118 | ) | ||||||||
| Total Property and equipment, net | $ | 838,058 | $ | 952,128 | ||||||||
14
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Note 3 – Balance Sheets-Continued
For the three and nine months ended September 30, 2017, we were not required to record an impairment2022 and 2021, depreciation expense on our evaluated oilis classified within the condensed consolidated statements of operations and gas properties due to improved commodity pricescomprehensive income (loss) as follows:
| Schedule of statements of operations and comprehensive loss | ||||||||||||||||
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| Type | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Cost of sales | $ | 61,747 | $ | — | $ | 199,555 | $ | — | ||||||||
| General and administrative | 48,429 | 36,226 | 138,271 | 90,281 | ||||||||||||
| Total | $ | 110,176 | $ | 36,226 | $ | 337,826 | $ | 90,281 | ||||||||
Intangible Assets, net
As of September 30, 2022 and market conditions.December 31, 2021, intangible assets, net, other than goodwill, consist of following:
| Schedule of intangible assets, net | ||||||||||||||||||||
| Name | Estimated Life (Years) | Balance as of December 31, 2021 | Additions | Amortization | Balance as of September 30, 2022 | |||||||||||||||
| Intellectual property/technology | 5-7 | $ | 5,427,294 | $ | — | $ | (700,629 | ) | $ | 4,726,665 | ||||||||||
| Customer base | 3-10 | 4,047,319 | — | (868,847 | ) | 3,178,472 | ||||||||||||||
| Tradenames and trademarks | 5-10 | 1,985,236 | — | (168,569 | ) | 1,816,667 | ||||||||||||||
| Non-compete agreement | 2-4 | 831,501 | — | (378,380 | ) | 453,121 | ||||||||||||||
| Platform development costs | 3 | 995,880 | 635,569 | (329,758 | ) | 1,301,691 | ||||||||||||||
| Internal use software costs | 3 | 278,264 | 565,894 | (103,235 | ) | 740,923 | ||||||||||||||
| Total intangibles assets, net | $ | 13,565,494 | $ | 1,201,463 | $ | (2,549,418 | ) | $ | 12,217,539 | |||||||||||
As of September 30, 2022, the weighted average remaining amortization period in years is 4.78. For the three and nine months ended September 30, 2016, we recognized an impairment2022 and 2021, amortization expense on our evaluated oilwas $932,880 and gas properties$2,549,418, respectively, and $293,599 and $694,420, respectively.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Note 3 – Balance Sheets-Continued
For the following years ending, the future amortization expenses consist of $800,000the following:
| Schedule of future amortization expenses | ||||||||||||||||||||||||||||
| For the Years Ending December 31, | ||||||||||||||||||||||||||||
| (rest of year) 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter | Total | ||||||||||||||||||||||
| Intellectual property/ technology | $ | 252,806 | $ | 808,968 | $ | 808,968 | $ | 808,968 | $ | 808,968 | $ | 1,237,987 | $ | 4,726,665 | ||||||||||||||
| Customer base | 292,816 | 1,137,663 | 889,364 | 141,145 | 141,145 | 576,339 | 3,178,472 | |||||||||||||||||||||
| Tradenames and trademarks | 58,775 | 207,944 | 207,944 | 207,944 | 207,944 | 926,116 | 1,816,667 | |||||||||||||||||||||
| Non-compete agreement | 117,188 | 335,933 | — | — | — | — | 453,121 | |||||||||||||||||||||
| Platform development costs | 150,409 | 602,091 | 427,264 | 121,927 | — | — | 1,301,691 | |||||||||||||||||||||
| Internal use software costs | 70,346 | 281,386 | 281,386 | 107,805 | — | — | 740,923 | |||||||||||||||||||||
| Total Intangible Assets, Net | $ | 942,340 | $ | 3,373,985 | $ | 2,614,926 | $ | 1,387,789 | $ | 1,158,057 | $ | 2,740,442 | $ | 12,217,539 | ||||||||||||||
Accrued Expenses
As of September 30, 2022 and $7,444,597, respectively.December 31, 2021, accrued expenses consist of the following:
| Schedule of accrued expenses | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Accrued compensation and related liabilities | $ | 791,482 | $ | 1,039,979 | ||||
| Accrued professional fees | 528,125 | 267,949 | ||||||
| Provision for warranty expense | 268,780 | 286,115 | ||||||
| Other | 215,912 | 307,598 | ||||||
| Total accrued expenses | $ | 1,804,299 | $ | 1,901,641 | ||||
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Note 4 – Notes Receivable
Professional FeesValqari
Professional feesOn October 14, 2020, in connection with, and as an incentive to the entry into a two-year exclusive manufacturing agreement (the “Manufacturing Agreement”) to produce a patented Drone Delivery Station for Valqari, LLC (“Valqari), the Company entered into, as payee, a Convertible Promissory Note pursuant to which the Company made a loan to Valqari in the principal aggregate amount of $500,000 (the “Note”). The Note accrues interest at a rate of three percent per annum.
The Note matured on April 15, 2021 (the “Maturity Date”), at which time all outstanding principal and interest that had accrued, but remained, unpaid was due. On the Maturity Date, AgEagle demanded payment of the Note, including accrued interest, however, Valqari alleged that the Maturity Date was extended to October 14, 2021 (“Extended Maturity Date”) as the Note provided for an automatic six-month extension of the Maturity Date under certain circumstances within the terms and conditions of the Note. Upon the Extended Maturity Date, AgEagle demanded payment of the Note, including accrued interest; however, Valqari sought a substantial discount on the amount due under the Note to compensate for alleged breaches by AgEagle under the Manufacturing Agreement. AgEagle disputes the allegations of breach and believes that it is owed a net amount by Valqari under the Manufacturing Agreement, in addition to the amount due under the Note. On November 24, 2021, Valqari made a payment of principal on the Note of $315,000. The parties continue to negotiate in an attempt to reach an amicable resolution of their disputes; however, AgEagle reserves the right to take legal action to collect the Note in the event that a settlement is not reached. As of September 30, 2022 and December 31, 2021, the balance remaining under the Note is $185,000.
MicaSense
On November 16, 2020, and in connection with its January 27, 2021 acquisition of 100% of the capital stock of MicaSense (“MicaSense Acquisition), AgEagle, as payee, executed a promissory note with Parrot Drones S.A.S. (“Parrot”) in the principal amount of $100,000. The principal amount owed by Parrot was offset and reduced by all amounts paid or due in connection with the purchase price upon closing of the MicaSense Acquisition.
senseFly
On August 25, 2021, and in connection with its acquisition of 100% of the capital stock of senseFly (the senseFly Acquisition”) from Parrot, AgEagle Aerial, as payee, executed a promissory note in the principal amount of $200,000. The principal amount owed by Parrot was off-set and reduced by all amounts paid or due in connection with the purchase price upon closing of the senseFly Acquisition.
Note 5 – Business Acquisitions
During the year ended December 31, 2021, the Company acquired 100% of the outstanding capital stock of MicaSense, Measure and senseFly, respectively. The financial results for each of these acquisitions are included in the condensed consolidated financial statements beginning on their respective acquisition dates.
There were no transaction costs related to business combinations for the three and nine months ended September 30, 2017 were $422,538 compared to $181,086 for2022. For the three and nine months ended September 30, 20162021, transaction costs related to business combinations were $69,079 and $0 for$402,546, respectively.
Transaction costs related to business combinations are included within general and administrative expense on the three months ended Septembercondensed consolidated statements of operations and comprehensive income (loss).
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 compared to $43,968 for the same period in 2016. The increase in year-to-date professional fees of $241,452 was primarily due to increased spending in 2017 on consulting, legal and investor relation services. These increases were partially offset by decreased third party reserve engineering fees.2022 AND 2021
(UNAUDITED)
Note 5 – Business Acquisitions-Continued
SalariesMicaSense
SalariesOn January 27, 2021 (the “MicaSense Acquisition Date”), the Company entered into a stock purchase agreement (the “MicaSense Purchase Agreement”) with Parrot and Justin B. McAllister (collectively the “MicaSense Sellers”) pursuant to which the Company agreed to acquire 100% of the issued and outstanding capital stock of MicaSense from the MicaSense Sellers (the “MicaSense Acquisition”). The aggregate purchase price for the shares of MicaSense was $23,000,000, less any debt, and subject to a customary working capital adjustment. A portion of the consideration comprises shares of Common Stock of the Company, having an aggregate value of $3,000,000 based on a volume weighted average trading price of the Common Stock over a ten consecutive trading day period prior to the date of issuance of the shares of Common Stock to the MicaSense Sellers. On April 27, 2021, the Company issued 540,541 restricted shares of its Common Stock. The consideration is also subject to a remaining holdback amount of $4,750,000 to cover any post-closing indemnification claims and to satisfy any purchase price adjustments. The holdback was scheduled to be released in two equal installments, less any amounts paid or reserved for outstanding indemnity claims, on March 31, 2022 and March 31, 2023. The first installment of $2,375,000 was paid on March 31, 2022 (see below disclosure - Liabilities Related to Business Acquisition Agreements for waiver of the second installment).
On May 10, 2021, the Company filed a Form S-3 Registration Statement (the “MicaSense Registration Statement”) with the Securities and Exchange Commission (“SEC”), covering the resale of the Shares. The MicaSense Registration Statement was declared effective on June 1, 2021 (File Number: 333-255940). In addition, the Company shall use its best efforts to keep the MicaSense Registration Statement effective and in compliance with the provisions of the Securities Act (including by preparing and filing with the SEC such amendments, including post-effective amendments, and supplements to the MicaSense Registration Statement and the prospectus used in connection therewith as may be necessary) until all Shares and other securities covered by the MicaSense Registration Statement have been disposed. The MicaSense Sellers reimbursed the Company for reasonable legal fees and expenses incurred by the Company in connection with such registration.
The MicaSense Purchase Agreement contains certain customary representations, warranties, and covenants, including representations and warranties by the MicaSense Sellers with respect to MicaSense’s business, operations and financial condition. The MicaSense Purchase Agreement also includes post-closing covenants relating to the confidentiality and employee non-solicitation obligations of the MicaSense Sellers, and the agreement of the MicaSense Sellers not to compete with certain aspects of the business of MicaSense following the closing of the transaction. The completion of the transactions contemplated by the MicaSense Purchase Agreement is subject to customary closing conditions, including, among others: (i) the absence of a material adverse effect on MicaSense, (ii) the delivery by the parties of certain ancillary documents, including the registration Rights Agreement, and (iii) the execution by a key employee of MicaSense of an employment agreement. Subject to certain limitations, each of the parties will be indemnified for damages resulting from third party claims and breaches of the parties’ respective representations, warranties, and covenants in the MicaSense Purchase Agreement.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Note 5 – Business Acquisitions-Continued
The Company performed a valuation analysis of the fair market value of the assets acquired and liabilities assumed. Using the total consideration for the MicaSense Acquisition, the Company determined the allocations to such assets and liabilities. The final purchase price allocation, and the necessary detailed valuations and calculations have been finalized.
The following table summarizes the allocation of the purchase price as of the MicaSense Acquisition Date:
| Schedule of allocation preliminary purchase price | ||||
| Net purchase price, including debt paid at close | $ | 23,375,681 | ||
| Plus: fair value of liabilities assumed: | ||||
| Current liabilities | 702,925 | |||
| Fair value of liabilities assumed | $ | 702,925 | ||
| Less: fair value of assets acquired: | ||||
| Cash | $ | 885,273 | ||
| Other tangible assets | 1,165,666 | |||
| Identifiable intangible assets | 3,061,803 | |||
| Fair value of assets acquired | $ | 5,112,742 | ||
| Net nonoperating assets | 25,000 | |||
| Adjustments for seller transaction expenses related to purchase price allocation | 32,032 | |||
| Goodwill | $ | 18,972,896 |
Measure
On April 19, 2021 (the “Measure Acquisition Date”), the Company entered into a stock purchase agreement (the “Measure Purchase Agreement”) with Brandon Torres Declet (“Mr. Torres Declet”), in his capacity as Measure Sellers’ representative, and the sellers named in the Measure Purchase Agreement (the “Measure Sellers”) pursuant to which the Company agreed to acquire 100% of the issued and outstanding capital stock of Measure from the Measure Sellers (the “Measure Acquisition”). The aggregate purchase price for the shares of Measure was $45,000,000, less the amount of Measure’s debt and transaction expenses, and subject to a customary working capital adjustment. The purchase price comprised $15,000,000 in cash, and shares of Common Stock of the Company, having an aggregate value of $30,000,000 based on a volume weighted average trading price of the Common Stock over a seven consecutive trading day period prior to the date of issuance of the shares of Common Stock to the Measure Sellers. The Company issued 5,319,145 shares of Common Stock, in the aggregate, to the Measure Sellers, of which 997,338 Common Stock shares with an aggregate value of $5,625,000 were held in escrow to cover any post-closing indemnification claims and to satisfy any purchase price adjustments (the “Heldback Shares”). The 5,319,154 of common stock shares issued as consideration resulted in an increase to stockholder’s equity of $24,375,000 and an acquisition related liability of $5,625,000 for the Heldback Shares which was recorded on the Measure Acquisition Date. Further, the Company paid $5,000,000 of the cash portion of the purchase price ninety days after the closing date of the transaction. As of December 31, 2021, the Company completed the payment of the cash portion of the purchase price. The holdback was scheduled to be released October 19, 2022, (see disclosure below - Liabilities Related to Business Acquisition Agreements) less any amounts paid or reserved for outstanding indemnity claims and certain amounts subject to employee retention conditions set forth in the Measure Purchase Agreement.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Note 5 – Business Acquisitions-Continued
The Measure Purchase Agreement contains certain customary representations, warranties, and covenants, including representations and warranties by the Measure Sellers with respect to Measure’s business, operations and financial condition. The Measure Purchase Agreement also includes post-closing covenants relating to the confidentiality and employee non-solicitation obligations of the Measure Sellers, and the agreement of the Measure Sellers not to compete with certain aspects of the business of Measure following the closing of the transaction. The completion of the transactions contemplated by the Purchase Agreement is subject to: (i) the absence of a material adverse effect on Measure, (ii) the delivery by the parties of certain ancillary documents, and (iii) the execution by key employees of Measure of employment offer letters. Subject to certain limitations, each of the parties will be indemnified for damages resulting from third party claims and breaches of the parties’ respective representations, warranties, and covenants in the Purchase Agreement.
The Shares issued to the Measure Sellers pursuant to the Measure Purchase Agreement were issued in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), to a limited number of persons who are “accredited investors” or “sophisticated persons” as those terms are defined in Rule 501 of Regulation D promulgated by the SEC, without the use of any general solicitation or advertising to market or otherwise offer the securities for sale. None of the Shares have been registered under the Securities Act, or applicable state securities laws, and none may be offered or sold in the United States absent registration under the Securities Act or an exemption from such registration requirements.
The Company performed a preliminary valuation analysis of the fair market value of the assets to be acquired and liabilities to be assumed. Using the total consideration for the Acquisition, the Company estimated the allocations to such assets and liabilities. The final purchase price allocation and the detailed valuations and necessary have been completed.
The following table summarizes the allocation of the purchase price as of the Measure Acquisition Date:
| Schedule of allocation preliminary purchase price | ||||
| Net purchase price, including debt paid at close | $ | 45,403,394 | ||
| Plus: fair value of liabilities assumed: | ||||
| Deferred revenue | 319,422 | |||
| Other tangible liabilities | 272,927 | |||
| Fair value of liabilities assumed | $ | 592,349 | ||
| Less: fair value of assets acquired: | ||||
| Cash | 486,544 | |||
| Other tangible assets | 312,005 | |||
| Identifiable intangibles | 2,668,689 | |||
| Fair value of assets acquired | $ | 3,467,238 | ||
| Net nonoperating assets | 39,775 | |||
| Goodwill | $ | 42,488,730 |
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Note 5 – Business Acquisitions-Continued
On April 19, 2022, in accordance with the terms of the Measure Purchase Agreement, the Company delivered a notice of indemnification to the representative of the Measure Sellers seeking the right to set off certain operating losses from the holdback amount. The Company is claimed that the operating losses incurred by Measure from the Measure Acquisition date through April 19, 2022, resulted from breaches of certain representations and warranties made by the Measure Sellers. The Company claimed that it had sustained operating losses in excess of $13 million as a result of the Measure Sellers’ breaches and claimed the entire holdback amount to be applied against these operating losses. On August 22, 2022, the parties entered into a Memorandum of Understanding and Mutual Release (the “Settlement Agreement”) providing for the full and final settlement of all disputes about the Heldback Shares. Pursuant to the Settlement Agreement, the Company released 498,669 of the 997,338 Heldback Shares to the Measure Sellers with the remaining 498,669 Heldback Shares being released from escrow and cancelled by the Company.
senseFly
On October 18, 2021 (the “senseFly Acquisition Date”), the Company entered into a stock purchase agreement (the “senseFly S.A. Purchase Agreement”) with Parrot pursuant to which the Company acquired 100% of the issued and outstanding capital stock of senseFly S.A. from Parrot. The aggregate purchase price for the shares of senseFly S.A. is $21,000,000, less the amount of senseFly S.A.’s debt and subject to a customary working capital adjustment. The consideration is also subject to a $4,565,000 holdback to cover any post-closing indemnification claims and to satisfy any purchase price adjustments (see disclosure below). The holdback was scheduled to be released in two equal installments, less any amounts paid or reserved for outstanding indemnity claims, on December 31, 2022 and December 31, 2023 in accordance with the terms of the senseFly S.A. Purchase Agreement.
On October 18, 2021, AgEagle Aerial and the Company entered into a stock purchase agreement (the “senseFly Inc. Purchase Agreement”) with Parrot Inc. pursuant to which AgEagle Aerial agreed to acquire 100% of the issued and outstanding capital stock of senseFly Inc. from Parrot Inc. The aggregate purchase price for the shares of senseFly Inc. is $2,000,000, less the amount of senseFly Inc.’s debt and subject to a customary working capital adjustment. The consideration is also subject to a $435,000 holdback to cover any post-closing indemnification claims and to satisfy any purchase price adjustments(see disclosure below). The holdback was scheduled to be released in two equal installments, less any amounts paid or reserved for outstanding indemnity claims, on December 31, 2022, and December 31, 2023 in accordance with the terms of the senseFly Inc. Purchase Agreement.
A portion of the consideration under the senseFly S.A. Purchase Agreement comprises shares of Common Stock of the Company, par value $0.001, having an aggregate value of $3,000,000, based on a volume weighted average trading price of the Common Stock over a ten consecutive trading day period prior to the date of issuance of the shares of Common Stock to Parrot. The shares of Common Stock are issuable ninety days after the closing date of the transaction. In accordance with the terms of the senseFly S.A. Purchase Agreement, the Company issued 1,927,407 shares of Common Stock to Parrot in January 2022.
Pursuant to the terms of the senseFly S.A. Purchase Agreement and a Registration Rights Agreement, dated as of October 19, 2021, the Company filed a Form S-3 Registration Statement (the “senseFly Registration Statement”) with the SEC covering the resale of the Common Stock issued to Parrot. The senseFly Registration Statement was declared effective on February 9, 2022. The Company agreed to use its best efforts to keep the senseFly Registration Statement effective and in compliance with the provisions of the Securities Act (including by preparing and filing with the SEC such amendments, including post-effective amendments, and supplements to the senseFly Registration Statement and the prospectus used in connection therewith as may be necessary) until all the shares of Common Stock and other securities issued to Parrot and covered by such Registration Statement have been disposed. Parrot reimbursed the Company $50,000 for reasonable legal fees and expenses incurred by the Company in connection with such registration.
Parrot granted to senseFly S.A. a non-exclusive worldwide perpetual license, subject to certain termination rights of the parties, with respect to certain technology used in the fixed-wing drone manufacturing business of senseFly S.A.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Note 5 – Business Acquisitions-Continued
The Company has performed a preliminary valuation analysis of the fair market value of the assets to be acquired and liabilities to be assumed. Using the total consideration for the Acquisition, the Company has estimated the allocations to such assets and liabilities.
The final purchase price allocation and the detailed valuations and necessary have been completed.
The following table summarizes the allocation of the preliminary purchase price as of the senseFly Acquisition Date:
| Schedule of allocation preliminary purchase price | ||||
| Net purchase price | $ | 20,774,526 | ||
| Plus: fair value of liabilities assumed: | ||||
| Current liabilities | 3,913,386 | |||
| Defined benefit plan obligation | 278,823 | |||
| Debt assumed at close | 2,461,721 | |||
| Fair value of liabilities assumed | $ | 6,653,930 | ||
| Less: fair value of assets acquired: | ||||
| Cash | 859,044 | |||
| Other tangible assets | 6,327,641 | |||
| Identifiable intangible assets | 7,335,570 | |||
| Fair value of assets acquired | $ | 14,522,255 | ||
| Net nonoperating assets | 250,624 | |||
| Goodwill | $ | 12,655,577 |
Liabilities Related to Business Acquisition Agreements
On July 22, 2022, the Company, the MicaSense Buyer, and Parrot entered into a Waiver Agreement (the “MicaSense Waiver Agreement”) pursuant to which (i) Parrot agreed to waive the obligation of the Company and the MicaSense Buyer to pay Parrot $2,351,202, or the portion of the holdback amount due on March 31, 2023 (the “MicaSense Remaining Holdback Payment”) and (ii) upon the Company’s payment to Parrot of $1,175,601 (“the MicaSense Final Purchase Price Payment,” representing 50% of the MicaSense Remaining Holdback Payment), the Company and MicaSense Buyer will be released from any further obligation or liability for payment of any holdback amount under the MicaSense Purchase Agreement. On July 29, 2022, the Company made the MicaSense Final Purchase Price Payment to Parrot in full satisfaction of its payment obligations under the MicaSense Purchase Agreement and the MicaSense Waiver Agreement.
On July 22, 2022, the Company and Parrot entered into a Waiver Agreement (the “senseFly S.A. Waiver Agreement”) pursuant to which (i) Parrot agreed to waive the obligation of the Company to pay Parrot a portion of the holdback amount due on December 31, 2022 and December 31, 2023 (collectively, the “senseFly S.A. Remaining Holdback Payments”); (ii) the parties agreed to waive Parrot’s obligation to reimburse the Company for a portion of the legal costs and expenses incurred by the Company related to the filing of a registration statement in connection with the transactions contemplated by the senseFly S.A. Purchase Agreement; and (iii) upon the Company’s payment to Parrot of $2,257,500 (“the senseFly S.A. Final Purchase Price Payment,” representing 50% of the senseFly S.A. Remaining Holdback Payments less 50% of the registration statement expenses), the Company will be released from any further obligation or liability for payment of any holdback amount under the senseFly S.A. Purchase Agreement. On July 29, 2022, the Company made the senseFly S.A. Final Purchase Price Payment to Parrot in full satisfaction of its payment obligations under the senseFly S.A. Purchase Agreement and the senseFly S.A. Waiver Agreement.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Note 5 – Business Acquisitions-Continued
On July 22, 2022, the Company, the senseFly Inc. Buyer, and Parrot Inc. entered into a Waiver Agreement (the “senseFly Inc. Waiver Agreement”) pursuant to which (i) Parrot Inc. agreed to waive the obligation of the Company and the senseFly Inc. Buyer to pay Parrot Inc. a portion of the holdback amount due on December 31, 2022 and December 31, 2023 (collectively, the “senseFly Inc. Remaining Holdback Payments”); (ii) upon the Company’s payment to Parrot Inc. of $217,500 (the “senseFly Inc. Final Purchase Price Payment,” representing 50% of the senseFly Inc. Remaining Holdback Payments), the Company and the senseFly Inc. Buyer will be released from any further obligation or liability for any remaining holdback amount under the senseFly Inc. Purchase Agreement. On July 29, 2022, the Company made the senseFly Inc. Final Purchase Price Payment to Parrot Inc. in full satisfaction of its payment obligations under the senseFly Inc. Purchase Agreement and the senseFly Inc. Waiver Agreement.
Pursuant to the terms of the Measure Acquisition Purchase Agreement (the “Purchase Agreement”) the Company issued an aggregate of 5,319,145 shares of the Company’s common stock to the Sellers of Measure as part of the consideration for the acquisition, of which 997,338 shares were held back (the “Heldback Shares”) to cover post-closing indemnification claims and to satisfy any purchase price adjustments (see also disclosure above). Pursuant to the terms of the Purchase Agreement, the Heldback Shares were scheduled to be released in three tranches, on the 12-month, 18-month and 24-month anniversary of the closing date of the acquisition. The Company made a claim for indemnification against the Heldback Shares. Pursuant to the Settlement Agreement entered on August 22, 2022 the Company released all the Measure shares held in escrow along with any disputes regarding the 997,338 Heldback Shares. As a result, 498,669 of the Heldback Shares were released to the Measure Sellers with the remaining 498,669 Heldback Shares being cancelled by the Company which reduced the issued and outstanding common stock and causing an increase to stockholders’ equity of $2,812,500.
During the three and nine months ended September 30, 2017 were $407,888 compared2022, the Company recognized a debt extinguishment gain in connection with the settlement of the acquisition related liabilities disclosed above in the amount of $6,486,899 which has been presented on the condensed consolidated statement of operations and comprehensive income (loss).
As of September 30, 2022 and December 31, 2021, liabilities related to $1,044,639business acquisition agreements consist of the following:
| Schedule of liabilities related to acquisition agreements | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Holdback related to MicaSense Acquisition Agreement | $ | — | $ | 4,821,512 | ||||
| Holdback related to Measure Acquisition | — | 5,625,000 | ||||||
| Holdback related to senseFly Acquisition | — | 8,489,989 | ||||||
| Total acquisition agreement related liabilities | - | 18,936,501 | ||||||
| Less: Current portion business acquisition agreement-related liabilities | — | (10,061,501 | ) | |||||
| Long term portion of business acquisition agreement-related liabilities | $ | — | $ | 8,875,000 | ||||
Pro-Forma Information
The unaudited pro-forma information for the three and nine months ended September 30, 20162021 was calculated after applying the Company’s accounting policies and $130,741 forthe impact of acquisition date fair value adjustments. The pro-forma financial information presents the combined results of operations of the 2021 Business Acquisitions as if they had occurred on January 1, 2021 after giving effect to certain pro-forma adjustments. The pro-forma adjustments reflected herein include only those adjustments that are factually supportable and directly attributable to the acquisition.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Note 5 – Business Acquisitions-Continued
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 theand nine months ended September 30, 20172021, pro-forma information is as follows:
| Schedule of pro-forma information | ||||||||
| Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2021 | |||||||
| Revenues | $ | 5,350,849 | $ | 14,844,275 | ||||
| Net Loss | $ | (5,715,064 | ) | $ | (17,137,742 | ) | ||
Note 6 – COVID Loans
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was enacted, which included amongst its many provisions, the creation of the Paycheck Protection Program (“PPP”). As part of the PPP, qualifying businesses were $461,378 comparedeligible to $435,616receive Small Business Administration (“SBA”) loans for use by such businesses for funding payroll, rent and utilities during a designed twenty-four week period through October 21, 2020 (“PPP Loan”). PPP Loans are unsecured, nonrecourse, accrue interest at a rate of one percent per annum, and mature on May 6, 2022. A portion or all of a PPP Loan is forgivable to the extent that an eligible business meets its obligations under the PPP. Additionally, any amounts owed, including unforgiven amounts under the PPP, are payable over two years, though may be extended up to five years upon approval by the SBA.
On May 6, 2020, AgEagle received a PPP Loan in the amount of $107,439. During the quarter ended June 30, 2021, the outstanding principal and accrued interest under the PPP Loan were forgiven by the SBA.
In 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”). For the three and nine months ended September 30, 20162022, no payments of principal and $190,341 for the three months endedinterest were required. As of September 30, 2017 compared to $124,090 for2022 and December 31, 2021, the same period in 2016. The year-to-date decreaseCompany’s outstanding obligations under the senseFly COVID Loans were $1,014,566 and $1,259,910, respectively.
As of $25,762 in 2017 compared to 2016, wasSeptember 30, 2022, scheduled principal payments due primarily to decreased general and administrative services provided from a working interest partner, and decreased IT, telecom, software, and meals, travel, and entertainment.under the senseFly COVID Loans are as follows:
| Schedule of debt disclosure | |||||
| Year ending December 31, | |||||
| 2022 (rest of year) | $ | 169,010 | |||
| 2023 | 422,610 | ||||
| 2024 | 84,590 | ||||
| 2025 | 84,590 | ||||
| 2026 | 84,590 | ||||
| Thereafter | 169,176 | ||||
| Total | $ | 1,014,566 | |||
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Note 7 – Equity
Interest ExpensePreferred Series F Convertible Stock
Interest expenseOn June 26, 2022 (the “Series F Closing Date”), the Company entered into a Securities Purchase Agreement (the “Series F Agreement”) with Alpha Capital Anstalt (“Alpha”). Pursuant to the terms of the Series F Agreement, the Board of Directors of the Company (the “Board”) designated a new series of Preferred Stock, the Series F 5% Preferred Convertible Stock (“Series F”), and authorized the sale and issuance of up to 35,000 shares of Series F. The Company issued to Alpha 10,000 shares of Series F for an aggregate purchase price and gross proceeds of $10,000,000. The shares of Series F are convertible into 16,129,032 shares of Common Stock at $0.62 per share. Alpha will be entitled to receive cumulative dividends at the rate per share (as a percentage of the $1,000 stated par value per share of Series F) of 5% per annum, payable on January 1, April 1, July 1 and October 1, beginning on the first conversion date and subsequent conversion dates.
In connection with the Series F Agreement the Company issued a warrant to Alpha to purchase 16,129,032 shares of Common Stock, par value $0.001 per share (“Series F Warrant”) with an exercise price equal to $0.96 per share of Common Stock. The Series F Warrant, and the shares of Common Stock underling the Series F Warrant are collectively referred to as the “Series F Warrant Shares”. The Series F Warrant is not exercisable for the ninefirst six months endedafter its issuance and has a three-year term from its exercise date. Upon exercise of the Series F Warrants in full by Alpha, the Company would receive additional gross proceeds of approximately $10,000,000.
Alpha has the right, subject to certain conditions, including shareholder approval, to purchase up to $25,000,000 of additional shares of Series F and Series F Warrants (collectively the “Series F Option”). The Series F Option will be available for a period of eighteen months after such shareholder approval at a purchase price equal to the average of the volume weighted average price for three trading days prior to the date that Alpha gives notice to the Company that it will exercise the Series F Option.
Commencing from the Series F Closing Date and for a period of six months thereafter, upon any issuance by the Company or any of its Subsidiaries of Common Stock or Common Stock equivalents for cash consideration, indebtedness or a combination of units thereof (a “Subsequent Financing”), Alpha will have the right to participate in up to an amount of the Subsequent Financing equal to 50% of the Subsequent Financing on the same terms, conditions and price provided for in the Subsequent Financing.
The Preferred Stock has no voting rights, except that the Company shall not undertake certain corporate actions as set forth in the Certificate of Designation that would materially impact the holders of Preferred Stock without their consent.
As of September 30, 2017 was $908,642 compared to $1,001,937 for2022, Alpha had converted 3,689 shares of Series F into 5,950,000 shares of Common Stock and recorded cumulative dividends at the nine months ended September 30, 2016,rate per share (as 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 resultpercentage of the reduction$1,000 stated par value per share of debt underSeries F) of 5% per annum, beginning on the Loan Sale Agreement (“LSA”) (see “Part I”first conversation date of June 30, 2022, of $94,694. See Note 11 – “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.Subsequent Events.
Gain on Loan Sale AgreementCapital Stock Issuances
Issuance of Common Stock to Officers and Directors
For the nine months ended September 30, 2017, we recognized2022, 185,000 Common Stock shares were issued in connection with the exercise of stock options previously granted at an average per share exercise price between $ and $ resulting in gross proceeds of $74,350.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Note 7 – Equity-Continued
At-the-Market Sales Agreement
In accordance with a gainMay 25, 2021 at-the-market Sales Agreement with Stifel, Nicolaus & Company, Incorporated and Raymond James & Associates, Inc. as sales agents, during the nine months ended September 30, 2022, the Company sold shares of $11,500,124Common Stock at a share price between $1.04 and $1.18, for aggregate proceeds of $4,583,341, net of issuance costs of $141,754.
Acquisition of senseFly
In accordance with the terms of the senseFly S.A. Purchase Agreement, the Company issued 1,927,407 shares of Common Stock to 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 (see also Note 5).
Consulting Agreement
On May 3, 2019, the Company entered into a consulting agreement with GreenBlock Capital LLC (“Consultant”) for purposes of advising on certain business opportunities. On October 31, 2019, the consulting agreement was terminated; however, the Consultant continued to be entitled to receive up to 2,500,000 restricted Common Stock after termination of the consulting agreement, if the achievement of milestones that commenced during the term of the consulting agreement were completed within twenty-four months. Subsequent to the aforementioned termination of the consulting agreement, the Consultant sent a demand letter to the Company alleging a breach of this agreement due to the Company’s non-issuance of additional restricted shares of its Common Stock in connection with the Consultant’s alleged achievement of the milestones. As of December 31, 2020, and as a result of this demand, the Company recorded a contingent loss of $1,500,000, based upon the fair market value of $6.00 per share of its Common Stock, which was recorded within professional fees on the LSAcondensed consolidated statements of operations and the restructuring of our debt completed thereby.comprehensive income (loss). For the three and nine months ended September 30, 2016,2021, the Company recorded additional stock-based compensation expense of $0 and $1,407,000, respectively, which reflected the issuance of 550,000 additional restricted shares of Common Stock that were subsequently issued on May 12, 2021 as settlement for the claims made under the demand, which resulted in a liability amount of $2,907,000 for purposes of payment of the settlement.
Securities Purchase Agreement Dated August 4, 2020 / Exercise of Warrants
On August 4, 2020, the Company and an Investor entered into a securities purchase agreement (the “August Purchase Agreement”) pursuant to which the Company agreed to sell to the Investor in a registered direct offering 3,355,705 shares of Common Stock and warrants to purchase up to 2,516,778 shares of Common Stock at an exercise price of $3.30 per share (the “August Warrants”), for proceeds of $9,900,000, net of issuance costs of $100,000. Upon exercise of the Warrants in full by the Investor, the Company would receive additional gross proceeds of $8,305,368. The shares of Common Stock of the Company underlying the Warrants are referred to as “August Warrant Shares.”
The purchase price for each share of Common Stock is $2.98. Net proceeds from the sale were used for working capital, capital expenditures and general corporate purposes. The shares of Common Stock, the August Warrants and the August Warrant Shares were offered by the Company pursuant to an effective shelf registration statement on Form S-3 (File No. 333-239157), which was declared effective on June 19, 2020. On February 8, 2021, the Company received $8,305,368 in additional gross proceeds associated with the exercise of all of the August Warrants.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Note 7 – Equity-Continued
Stock-Based Compensation
The Company determines the fair value of awards granted under the Equity Plan based on the fair value of its Common Stock on the date of grant. Stock-based compensation expenses related to grants under the Equity Plan are included in general and administrative expenses on the condensed consolidated statements of operations and comprehensive income (loss).
Restricted Stock Units
For the nine months ended September 30, 2022, a summary of RSU activity is as follows:
| Schedule of restricted stock unit activity | ||||||||
| Shares | Weighted Average Grant Date Fair Value | |||||||
| Outstanding as of December 31, 2021 | 1,147,250 | $ | 3.78 | |||||
| Granted | 457,091 | 1.18 | ||||||
| Canceled | (168,250 | ) | 2.81 | |||||
| Vested and released | (429,107 | ) | 3.44 | |||||
| Outstanding as of September 30, 2022 | 1,006,984 | $ | 2.90 | |||||
| Vested as of September 30, 2022 | 377,617 | $ | 3.72 | |||||
| Unvested as of September 30, 2022 | 629,367 | $ | 2.41 | |||||
For the nine months ended September 30, 2022, the aggregate fair value of RSUs at the time of vesting was $.
As of September 30, 2022, the Company had $ of unrecognized stock-based compensation expense related to RSUs, which will be amortized over approximately thirteen months.
For the nine months ended September 30, 2021, a summary of RSU activity is as follows:
| Shares | Weighted Average Grant Date Fair Value | |||||||
| Outstanding as of December 31, 2020 | 100,000 | $ | 1.34 | |||||
| Granted | 631,402 | 5.31 | ||||||
| Canceled | (91,667 | ) | 5.40 | |||||
| Vested and released | (253,485 | ) | 3.39 | |||||
| Outstanding as of September 30, 2021 | 386,250 | $ | 5.52 | |||||
| Vested as of September 30, 2021 | 234,582 | $ | 5.60 | |||||
| Unvested as of September 30, 2021 | 151,668 | $ | 5.40 | |||||
For the nine months ended September 30, 2021, the aggregate fair value of RSUs at the time of vesting was $.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Note 7 – Equity-Continued
Issuance of RSUs to Officers
On June 13, 2022, the Company issued 302,024 shares of Common Stock to its former chief executive officer, Mr. Brandon Torres Declet (“Mr. Torres Declet”). This issuance of Common Stock included 147,917 shares for previously vested RSUs, 111,607 shares as agreed upon in a separation agreement with Mr. Torres Declet, and 42,500 shares in satisfaction of a performance bonus approved by the Compensation Committee of the Board of Directors. See Note 9 – Commitments and Contingencies.
On April 11, 2022, the Company granted an officer 46,367 RSUs, which vested immediately. For the nine months ended September 30, 2022, the Company recognized stock-based compensation expense of $46,367, based upon the market price of its Common Stock of $1.01 per share on the date of grant of these RSUs. Additionally, on the same date, the Company granted the same officer 46,367 RSUs, which vests over a period from the date of grant through the first anniversary of the senseFly Acquisition Date. For the three and nine months ended September 30, 2022, the Company recognized stock-based compensation expense of $22,440 and $42,196, based upon the market price of its Common Stock of $1.01 per share on the date of grant of these RSUs.
On March 1, 2022, the Company granted an officer a grant of 62,500 RSUs, which vested immediately. For the nine months ended September 30, 2022, the Company recognized stock-based compensation expense of $68,750, based upon the market price of its Common Stock of $1.10 per share on the date of grant of these RSUs.
On January 21, 2022, the Company granted a former chief executive officer a grant of 111,607 RSUs, which vested immediately. For the nine months ended September 30, 2022, the Company recognized stock-based compensation expense of $125,000, based upon the market price of its Common Stock of $1.12 per share on the date of grant of these RSUs. Additionally, on January 24, 2022, the Company granted to this former chief executive officer 42,500 RSUs, which vested immediately. For the nine months ended September 30, 2022, the Company recognized stock-based compensation expense of $48,025, respectively, based upon the market price of its Common Stock of $1.13 per share on the date of grant of these RSUs.
On January 1, 2022, the Company issued to an officer two grants of 50,000 RSUs each. These two grants vest over nine and twenty-one months, respectively, from the date of grant. For the three and nine months ended September 30, 2022, the Company recognized stock-based compensation expense of $37,660 and $111,751, based upon the market price of its Common Stock of $1.57 per share on the date of grant of these RSUs.
On May 24, 2021, the Company issued to a former chief executive officer a grant of 26,652 RSUs as part of a separation agreement. This award was valued at $125,000 and vested immediately. For the nine months ended September 30, 2021, the Company recognized stock-based compensation expense of $125,000 based upon the market price of its Common Stock of $4.69 per share on the date of grant of these RSUs.
On March 5, 2021, the Company issued to an officer a grant of 10,000 RSUs, which vested immediately. For the nine months ended September 30, 2021, the Company recognized stock-based compensation expense of $58,400 based upon the market price of its Common Stock of $5.84 per share on the date of grant of these RSUs.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Note 7 – Equity-Continued
Stock Options
For the nine months ended September 30, 2022, a summary of the options activity is as follows:
| Schedule of options activity | ||||||||||||||||||||||
| Shares | Weighted Average Exercise Price | Weighted Average Fair Value | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | ||||||||||||||||||
| Outstanding as of December 31, 2021 | 2,541,667 | $ | 2.88 | $ | 1.57 | $ | 1,244,029 | |||||||||||||||
| Granted | 395,000 | 0.76 | 0.36 | — | ||||||||||||||||||
| Exercised | (185,000 | ) | 0.40 | 0.29 | — | 10,750 | ||||||||||||||||
| Expired/Forfeited | (267,294 | ) | 6.22 | 3.34 | — | — | ||||||||||||||||
| Outstanding as of September 30, 2022 | 2,284,373 | $ | 2.37 | $ | 1.29 | $ | 89,334 | |||||||||||||||
| Exercisable as of September 30, 2022 | 1,836,095 | $ | 2.42 | $ | 1.33 | $ | 89,334 | |||||||||||||||
As of September 30, 2022, the Company has $ of total unrecognized compensation cost related to stock options, which will be amortized over approximately twenty-seven months.
Intrinsic value is measured using the fair market value at the date of exercise (for shares exercised) or as of September 30, 2022 (for outstanding options), less the applicable exercise price.
For the nine months ended September 30, 2022 and 2021, the significant weighted average assumptions relating to the valuation of the Company’s stock options granted were as follows:
| Schedule of Share-Based Payment Award, Stock Options, Valuation Assumptions | ||||||||
| Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Stock price | $ | 0.46 | $ | 3.01 | ||||
| Dividend yield | — | % | — | % | ||||
| Expected life (years) | ||||||||
| Expected volatility | % | % | ||||||
| Risk-free interest rate | % | % | ||||||
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Note 7 – Equity-Continued
Issuances of Options to Officers and Directors
On September 30, 2022, the Company issued to directors and officers options to purchase 135,000 shares of Common Stock at an exercise price of $ per share, which vest over a period of two years from the date of grant and expire on September 29, 2027. The Company determined the fair market value of these unvested options to be $30,510. In connection with the issuance of these options, for the three and nine months ended September 30, 2022, the Company did not recognize stock-based compensation expense.
On June 30, 2022, the Company issued to directors and officers options to purchase 135,000 shares of Common Stock at an exercise price of $ per share, which vest over a period of two years from the date of grant and expire on June 29, 2027. The Company determined the fair market value of these unvested options to be $42,120. In connection with the issuance of these options, for the three and nine months ended September 30, 2022, the Company recognized stock-based compensation expense of $, respectively.
On March 31, 2022, the Company issued to directors and officers options to purchase 125,000 shares of Common Stock at an exercise price of $ per share, which vest over a period of two years from the date of grant and expire on March 30, 2027. The Company determined the fair market value of these unvested options to be $70,250. In connection with the issuance of these options, for the three and nine months ended September 30, 2022, the Company recognized stock-based compensation expense of $ and $,
Prior to January 1, 2022, the Company issued to directors and officers to purchase 430,000 shares of Common Stock at exercise prices ranging from $1.61 to $3.37 per share, which vest over a period of two years from the date of grant and expire on dates between March 30, 2026, and September 29, 2026. The Company determined the fair market value of these unvested options to be $1,056,429. In connection with the issuance of these options to employees and directors, for the three and nine months ended September 30, 2022, the Company recognized stock-based compensation expense of $ and $, respectively. For the three and nine months ended September 30, 2021 the Company recognized stock-based compensation expense of and $ and $, respectively.
Prior to January 1, 2021, the Company previously issued to directors and officers options to purchase 2,743,580 shares of Common Stock at exercise prices ranging from $0.04 to $3.18 per share, with vesting periods ranging from immediate vesting to periods of up to three years from the grant dates, and expire on dates between March 30, 2023, and September 29, 2029. In connection with the issuance of these options to employees and directors, for the three and nine months ended September 30, 2022, the Company recognized stock-based compensation expense of $ and $, respectively, for the three and nine months ended September 30, 2021 the Company recognized stock-based compensation expense of and $ and $, respectively.
Cancellations of Options
During the three and nine months ended September 30, 2022, as a result of employee terminations and options expirations, stock options aggregating and , respectively with fair market values of approximately $237,926 and $892,227, respectively, were cancelled. During the nine months ended September 30, 2021, options were cancelled with a grant-date fair value $723,915 due to employee terminations.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Note 8 – Leases
Operating Leases
For the three and nine months ended September 30, 2022 and 2021, operating lease expense payments were $326,542 and $1,254,893 respectively, and $75,270 and $213,608, respectively. Operating lease expense payments are included in general and administrative expenses on the condensed consolidated statements of operations and comprehensive income (loss).
As of September 30, 2022 and December 31, 2021, balance sheet information related to the Company’s operating leases is as follows:
| Schedule of Operating Lease | ||||||||||
| Balance Sheet Location | September 30, 2022 | December 31, 2021 | ||||||||
| Right of use asset | Right of use asset | $ | 1,148,993 | $ | 2,019,745 | |||||
| Current portion of operating lease liability | Current portion of operating lease liability | $ | 739,602 | $ | 1,235,977 | |||||
| Long-term portion of operating lease liability | Long-term portion of operating lease liability | $ | 493,774 | $ | 942,404 | |||||
As of September 30, 2022, scheduled future maturities of the Company’s lease liabilities are as follows:
| Schedule of future maturities | ||||
| Year Ending December 31, | ||||
| 2022 (rest of year) | $ | 324,028 | ||
| 2023 | 525,834 | |||
| 2024 | 221,370 | |||
| 2025 | 227,443 | |||
| 2026 | 18,954 | |||
| Total future minimum lease payments, undiscounted | 1,317,629 | |||
| Less: Amount representing interest | (84,253 | ) | ||
| Present value of future minimum lease payments | $ | 1,233,376 | ||
| Present value of future minimum lease payments – current | $ | 739,602 | ||
| Present value of future minimum lease payments – long-term | $ | 493,774 | ||
As of September 30, 2022 and December 31, 2021, the weighted average lease-term and discount rate of the Company’s leases are as follows:
| Schedule of weighted average lease-term and discount rate leases | ||||||||
| Other Information | September 30, 2022 | December 31, 2021 | ||||||
| Weighted-average remaining lease terms (in years) | 2.1 | 2.3 | ||||||
| Weighted-average discount rate | 6.0 | % | 6.0 | % | ||||
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Note 8 – Leases-Continued
For the three and nine months ended September 30, 2022 and 2021, supplemental cash flow information related to leases is as follows:
| Schedule Of Cash Flow Supplemental Information | ||||||||||||||||
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| Other Information | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Cash paid for amounts included in the measurement of liabilities: | 326,542 | 75,270 | 1,245,893 | 213,608 | ||||||||||||
| Operating cash flows for operating leases | $ | $ | $ | $ | ||||||||||||
| Lease liabilities related to the acquisition of right of use assets: | ||||||||||||||||
| Operating leases | $ | — | $ | — | $ | — | $ | 925,298 | ||||||||
Note 9 – Commitments and Contingencies
Resignation of Mr. Torres Declet as Chief Executive Officer
On January 17, 2022, the Company and Mr. Torres Declet mutually agreed to Mr. Torres Declet’s resignation as Chief Executive Officer and as a director of the Company. In connection with his departure, and in accordance with his employment agreement with the Company, Mr. Torres Declet received base salary continuation equal to six months of his then annual salary, reimbursement of COBRA health insurance premiums for a period of six months at the same rate as if Mr. Torres Declet were an active employee of the Company, and a grant of RSUs with a fair market value of $125,000 at the date of termination of employment. On January 21, 2022, the Company granted 111,607 RSUs with a fair market value of $1.12 per share of Common Stock on the grant date. On January 24, 2022, the Company issued a grant of 42,500 fully vested RSUs with a fair market value of $1.13 per share of Common Stock on the grant date in satisfaction of a performance bonus approved by the Compensation Committee of the Board of Directors. See Note 7 – Equity.
Existing Employment and Board Agreements
The Company has various employment agreements with certain of its executive officers and directors that serve as Board members, which it considers normal and in the ordinary course of business.
The Company has no other formal employment agreements with our executive officers, nor any compensatory plans or arrangements resulting from the resignation, retirement, or any other termination of our named executive officers, from a change-in-control, or from a change in any executive officer’s responsibilities following a change-in-control. However, it is possible that the Company will enter into formal employment agreements with its executive officers in the future.
Purchase Commitments
The Company routinely places orders for manufacturing services and materials. As of September 30, 2022, the Company had purchase commitments of approximately $2,666,928. These purchase commitments are expected to be realized during the year ending December 31, 2022.
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Note 10 – Segment Information
Non-allocated administrative and other expenses are reflected in Corporate. Corporate assets include cash, prepaid expenses, notes receivable, right of use asset and other assets.
As of September 30, 2022 and December 31, 2021, and for the three and nine months ended September 30, 2022 and 2021, respectively, information about the Company’s reportable segments consisted of the following:
Goodwill and Assets
| Schedule of consolidated results from reportable segments | |||||||||||||||||||||
| Corporate | Drones and Custom Manufacturing | Sensors | SaaS | Total | |||||||||||||||||
| As of September 30, 2022 | |||||||||||||||||||||
| Goodwill | $ | — | $ | 12,655,577 | $ | 18,972,896 | $ | 33,238,809 | $ | 64,867,282 | |||||||||||
| Assets | $ | 5,800,179 | $ | 25,378,040 | $ | 27,003,229 | $ | 37,162,836 | $ | 95,344,284 | |||||||||||
| As of December 31, 2021 | |||||||||||||||||||||
| Goodwill | $ | — | $ | 12,655,577 | $ | 18,972,896 | $ | 33,238,809 | $ | 64,867,282 | |||||||||||
| Assets | $ | 14,516,466 | $ | 27,073,211 | $ | 25,548,066 | $ | 37,545,298 | $ | 104,683,041 | |||||||||||
Net (Loss) Income
| Corporate | Drones and Custom Manufacturing | Sensors | SaaS | Total | ||||||||||||||||
| Three Months Ended September 30, 2022 | ||||||||||||||||||||
| Revenues | $ | — | $ | 2,081,410 | $ | 3,256,797 | $ | 152,507 | $ | 5,490,714 | ||||||||||
| Cost of sales | — | 1,180,612 | 1,851,089 | 375,872 | 3,407,573 | |||||||||||||||
| Loss from operations | (2,233,559 | ) | (2,688,835 | ) | 592,795 | (817,731 | ) | (5,147,330 | ) | |||||||||||
| Other income (expense), net | 6,488,327 | 327,066 | (1,819 | ) | (1,292 | ) | 6,812,282 | |||||||||||||
| Net income (loss) | $ | 4,254,768 | $ | (2,361,769 | ) | $ | 590,976 | $ | (819,023 | ) | $ | 1,664,952 | ||||||||
| Three Months Ended September 30, 2021 | ||||||||||||||||||||
| Revenues | $ | — | $ | — | $ | 1,909,921 | $ | 111,786 | $ | 2,021,707 | ||||||||||
| Cost of sales | — | — | 1,052,297 | 174,614 | 1,226,911 | |||||||||||||||
| Loss from operations | (2,645,834 | ) | — | (439,582 | ) | (714,118 | ) | (3,799,534 | ) | |||||||||||
| Other income, net | 3,834 | — | — | 24,798 | 28,632 | |||||||||||||||
| Net loss | $ | (2,642,000 | ) | $ | — | $ | (439,582 | ) | $ | (689,320 | ) | $ | (3,770,902 | ) | ||||||
33
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Note 10 – Segment Information-Continued
| Corporate | Drones and Custom Manufacturing | Sensors | SaaS | Total | ||||||||||||||||
| Nine Months Ended September 30, 2022 | ||||||||||||||||||||
| Revenues | $ | — | $ | 7,856,573 | $ | 6,283,907 | $ | 480,085 | $ | 14,620,565 | ||||||||||
| Cost of sales | — | 4,339,712 | 3,578,184 | 704,540 | 8,622,436 | |||||||||||||||
| Loss from operations | (8,194,751 | ) | (7,204,483 | ) | (217,328 | ) | (2,401,289 | ) | (18,017,851 | ) | ||||||||||
| Other income (expense), net | 6,491,117 | 3,114 | (3,638 | ) | (6,098 | ) | 6,484,495 | |||||||||||||
| Net loss | $ | (1,703,634 | ) | $ | (7,201,369 | ) | $ | (220,966 | ) | $ | (2,407,387 | ) | $ | (11,533,356 | ) | |||||
| Nine Months Ended September 30, 2021 | ||||||||||||||||||||
| Revenues | $ | — | $ | — | $ | 5,300,329 | $ | 360,333 | $ | 5,660,662 | ||||||||||
| Cost of sales | — | — | 2,462,464 | 422,544 | 2,885,008 | |||||||||||||||
| (Loss) Income from operations | (10,029,230 | ) | — | (226,539 | ) | (1,325,053 | ) | (11,580,822 | ) | |||||||||||
| Other income, net | 119,064 | — | 26,785 | 55,369 | 201,218 | |||||||||||||||
| Net (loss) income | $ | (9,910,166 | ) | $ | — | $ | (199,754 | ) | $ | (1,269,684 | ) | $ | (11,379,604 | ) | ||||||
Revenues by Geographic Area
| Schedule of geographical revenues | ||||||||||||||||
| Drones and Custom Manufacturing | Sensors | SaaS | Total | |||||||||||||
| Three Months Ended September 30, 2022 | ||||||||||||||||
| North America | $ | 1,191,083 | $ | 1,182,218 | $ | 152,507 | $ | 2,525,808 | ||||||||
| Europe, Middle East and Africa | 603,443 | 1,250,610 | — | 1,854,053 | ||||||||||||
| Asia Pacific | 286,884 | 696,954 | — | 983,838 | ||||||||||||
| Other | — | 127,015 | — | 127,015 | ||||||||||||
| Total | $ | 2,081,410 | $ | 3,256,797 | $ | 152,507 | $ | 5,490,714 | ||||||||
| Three Months Ended September 30, 2021 | ||||||||||||||||
| North America | $ | — | $ | 737,229 | $ | 111,786 | $ | 849,015 | ||||||||
| Europe, Middle East and Africa | — | 725,770 | — | 725,770 | ||||||||||||
| Asia Pacific | — | 343,786 | — | 343,786 | ||||||||||||
| Other | — | 103,136 | — | 103,136 | ||||||||||||
| Total | $ | — | $ | 1,909,921 | $ | 111,786 | $ | 2,021,707 | ||||||||
AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Note 10 – Segment Information-Continued
| Drones and Custom Manufacturing | Sensors | SaaS | Total | |||||||||||||
| Nine Months Ended September 30, 2022 | ||||||||||||||||
| North America | $ | 4,473,236 | $ | 2,350,426 | $ | 480,085 | $ | 7,303,747 | ||||||||
| Europe, Middle East and Africa | 2,606,120 | 2,400,744 | — | 5,006,864 | ||||||||||||
| Asia Pacific | 777,217 | 1,241,632 | — | 2,018,849 | ||||||||||||
| Other | — | 291,105 | — | 291,105 | ||||||||||||
| Total | $ | 7,856,573 | $ | 6,283,907 | $ | 480,085 | $ | 14,620,565 | ||||||||
| Nine Months Ended September 30, 2021 | ||||||||||||||||
| North America | $ | — | $ | 2,045,925 | $ | 360,333 | $ | 2,406,258 | ||||||||
| Europe, Middle East and Africa | — | 2,014,126 | — | 2,014,126 | ||||||||||||
| Asia Pacific | — | 954,060 | — | 954,060 | ||||||||||||
| Other | — | 286,218 | — | 286,218 | ||||||||||||
| Total | $ | — | $ | 5,300,329 | $ | 360,333 | $ | 5,660,662 | ||||||||
Note 11 – Subsequent Events
Conversion of Series F to Common Stock
During the months of October and November 2022, Alpha converted 248 shares of Series F to 400,000 shares of Common Stock.
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion highlights 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 Consolidated Financial Statements and the related notes included in Item 8 of the Form 10-K. This discussion contains forward-looking statements. Please see the explanatory note concerning “Forward-Looking Statements” in Part I of the Annual Report on Form 10-K and Item 1A. Risk Factors for a discussion of the uncertainties, risks and assumptions associated with these forward-looking statements. The operating results for the periods presented were not materially affected by inflation.
Overview
AgEagle™ Aerial Systems Inc. (“AgEagle” or the “Company”), through its wholly owned subsidiaries, is actively engaged in designing and delivering best-in-class drones, sensors and software that solve important problems for our customers. Founded in 2010, AgEagle was originally formed to 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 industry leader offering innovative autonomous UAV systems to a wide range of industry verticals, including energy/utilities, infrastructure, agriculture and government, among others.
The Company’s shift and expansion from solely manufacturing fixed-wing farm drones in 2018, to offering what the Company believes is one of the industry’s best fixed-wing, full-stack drone solutions, culminated in 2021 when AgEagle acquired three market-leading companies engaged in producing UAV airframes, sensors and software for commercial and government use. In addition to a robust portfolio of proprietary, connected hardware and software products, an established global network of nearly 200 UAV resellers and enterprise customers worldwide, these acquisitions also brought AgEagle a highly valuable workforce comprised largely of experienced engineers and technologists with deep expertise in the fields of robotics, automation, manufacturing and data science. Through its efforts to establish three centers of excellence focused on pioneering innovations in flight hardware, sensors and software, AgEagle will continue to produce leading-edge products that serve as catalysts for the creation of new markets for autonomous robotics, while driving material market expansion for the Company’s existing offerings.
AgEagle is led by a proven management team with years of drone industry experience.
The Company is headquartered in Wichita, Kansas, where it maintains its U.S. manufacturing operations. In addition, AgEagle has business operations in Austin, Texas; Lausanne, Switzerland; Raleigh, North Carolina; Seattle, Washington; and Washington, D.C.
Key Growth Strategies
We intend to materially grow our business by leveraging our proprietary, best-in-class, full-stack drone solutions, industry influence and deep pool of talent with specialized expertise in robotics, automation, custom manufacturing and data science to achieve greater penetration of the global UAV industry – with near-term emphasis on capturing larger market share of the agriculture, energy/utilities, infrastructure and government/military verticals. We expect to accomplish this goal by first bringing three core values to life in our day-to-day operations and aligning them with our efforts to earn the trust and continued business of our customers and industry partners:
| 1. | Curiosity – this pushes us to find value where others aren’t looking. It inspires us to see around corners for our customers, understanding the problems they currently face or will be facing in the future, and delivering them solutions best suited for their unique needs. | |
| 2. | Passion – this fuels our obsession with excellence, our desire to try the difficult things and tackle big problems, and our commitment to meet our customers’ needs – and then surpass them. | |
| 3. | Integrity – this is not optional or situational at AgEagle – it is the foundation for everything we do, even when no one is watching. |
Key components of our growth strategy include the following:
| ● | Optimize the strengths of AgEagle’s three centers of excellence with respective expertise in UAV software, sensors and airframes. These centers of excellence will continue to cross-pollinate ideas, industry insights and skillsets to yield intelligent autonomous solutions that effectively demonstrate AgEagle’s experienced team’s specialized knowledge and know-how in robotics, automation, custom manufacturing and data science. | |
| ● | Deliver new and innovative solutions. AgEagle’s research and development efforts are critical building blocks of the Company, and we intend to continue investing in our own innovations, pioneering new and enhanced products and solutions that enable us to satisfy our customers – both in response to and in anticipation of their needs. AgEagle believes that by investing in research and development, the Company can be a leader in delivering innovative autonomous systems and solutions that address market needs beyond our current target markets, enabling us to create new opportunities for growth. | |
| ● | Growth through acquisition. Through successful execution of our growth-through-acquisition strategies, we intend to acquire technologically advanced UAV companies and intellectual property that complement and strengthen our value proposition to the market. We believe that by investing in complementary acquisitions, we can accelerate our revenue growth and deliver a broader array of innovative autonomous flight systems and solutions that address specialized market needs within our current target markets and in emerging markets that can benefit from innovations in data capture and analytics. |
Competitive Strengths
AgEagle believes 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 UAV design and engineering; in-house manufacturing, assembly and testing capabilities; and advanced technology development skillset serve to differentiate AgEagle in the marketplace. In fact, approximately 70% of our global workforce is comprised of engineers and data scientists with deep experience and expertise in robotics, automation, custom manufacturing and data analytics. In addition, AgEagle is committed to meeting and exceeding quality and safety standards for manufacturing, assembly, design and engineering and testing of drones, drone subcomponents and related drone equipment in our Wichita-based and Swiss manufacturing operations. | |
| ● | AgEagle is more than just customer- and product-centric, we are obsessed with innovation and knowing the needs of our customers before they do – We are focused on capitalizing on our specialized expertise in innovating and commercializing advanced drone, sensor and software technologies to provide our existing and future customers with autonomous robotic solutions that meet the highest possible safety and operational standards and fit their specific business needs. We have established three Centers of Excellence that our leadership has challenged to cross-pollinate ideas, industry insights and interdisciplinary skillsets to generate intelligent autonomous solutions that efficiently leverage our expertise in robotics, automation and manufacturing to solve problems for our customers, irrespective of the industry sector in which they may operate. |
| ● | We offer market-tested drones, sensors and software solutions that have earned the longstanding trust of customers worldwide – through successful execution of our acquisition strategy in 2021, AgEagle is now delivering a unified line of industry trusted drones, sensors and software that have been vigorously tested and consistently proven across multiple industry verticals and use cases. For instance, our line of eBee fixed wing drones, pioneered by senseFly, have flown more than one million flights over the past decade serving customers spanning surveying and mapping; engineering and construction; military/defense; mining, quarries and aggregates; agriculture humanitarian aid and environmental monitoring, among just a few. Featured in over 100 research publications globally, advanced sensor innovations developed and commercialized by MicaSense, have served to forge new industry standards for high performance, high resolution, thermal and multispectral imaging for commercial drone applications in agriculture, plant research, land management and forestry. In addition, we have championed the development of end-to-end software solutions which power autonomous flight and deliver actionable, contextual data and analytics for a who’s who of Fortune 500 companies, government agencies and a wide range of businesses in agriculture, energy and utilities, construction and other industry sectors. |
Impact of the War in Ukraine and COVID-19 On Our Business Operations
Global economic challenges, including the impact of the war in Ukraine, the COVID-19 pandemic, rising inflation and supply-chain disruptions, adverse labor market conditions could cause economic uncertainty and volatility. During the three months ended September 30, 2017,2022, the COVID-19 pandemic and other supply chain disruptions continued to have a significant negative impact on the UAV industry, our customers and our business globally. The aforementioned risks and their respective impact on the UAV industry and our operational and financial performance remains uncertain and outside of our control. Specifically, as a result of the aforementioned continuing risks, our ability to access components and parts needed in order to manufacture our proprietary drones and sensors, and to perform quality testing have been, and continue to be, impacted. If we had no loan sale gains or saleany of loans. our 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 the pandemic, inflation and supply chain disruptions and its effects to continue to have a significant negative impact on our business for the duration of the pandemic and during the subsequent economic recovery, which could be for an extended period.
For the three and nine months ended September 30, 2022, our supply chain was adversely impacted by the COVID-19 pandemic and other global economic challenges, causing material delays in the delivery of critical components associated with production of our Altum-PT and RedEdge-P multispectral sensors, introduced to market in the fourth quarter of 2021. These delays resulted in a significant backlog of purchase orders for our sensors. Steps taken in early 2022 to expand our supply sources has allowed us to resolve the majority of our backlogged sensor orders and be better positioned to meet ongoing global market demand in the foreseeable future. While we believe we have largely overcome our supply chain challenges, this is an ongoing situation we will continue to monitor closely.
Three Months and Nine Months Ended September 30, 2022 as Compared to Three and Nine Months Ended September 30, 2021
Loss on DerivativesRevenues
All ofFor the Company’s hedge contracts expired in 2016, so we incurred no unrealized gains or losses in the nine-monthsthree months ended September 2017. We recorded an unrealized loss of $2,449,855 in the marking30, 2022, revenues were $5,490,714 as compared to market of our derivative contracts for the first nine months of 2016 and $68,459$2,021,707 for the three months ended September 30, 2016.2021, an increase of $3,469,007, or 172%. The increase was attributable to the revenues derived from sales of our eBee™ drone products acquired in the senseFly Acquisition in the fourth quarter of 2021. Revenue growth was also positively impacted by continued strong demand for our Altum-PT™ and RedEdge-P™ multispectral sensors, which resulted in total sensor sales rising 71% to $3,256,797 from $1,909,921. In addition, SaaS subscriptions increased 36% to $152,507 for the three months ended September 30, 2022 compared to $111,786 for the same three-month period in the prior year. The COVID-19 pandemic and its effects continue to have a negative impact on our business due to global supply chain, inflation and adverse labor market conditions, which could be for an extended period of time. Although we understand that market conditions impacting supply chain are not predictable at this time, we do believe we have made material progress in addressing our backlog of orders for our sensors in the third quarter of this year and expect to full resolve it prior to year-end.
Other Income
Other income decreased by $1,780,415 from $2,312,261For the nine months ended September 30, 2022, revenues were $14,620,565, which compared to $5,660,662 for the nine months ended September 30, 20162021, an increase of $8,959,903, or 158%. The increase was driven by sales of our eBee drones acquired in the senseFly Acquisition in the fourth quarter of 2021, coupled with total sensor sales climbing 19% to $531,846$6,283,907 from $5,300,329 and SaaS subscriptions increasing $33% to $480,085 from $360,333. The improvement in SaaS subscriptions was largely attributable to a 207% increase in SaaS software subscriptions for Measure Ground Control, which saw sales rise to $389,406 from $126,804. Offsetting the increase was a decline in SaaS subscriptions sales of HempOverview, which totaled $90,678, down 26% from $121,743.
Cost of Sales
For the three months ended September 30, 2022, cost of sales totaled $3,407,573 as compared to $1,226,911 for the three months ended September 30, 2021, an increase of $2,180,662 or 178%. The increase in our cost of sales was attributable to new sales of eBees stemming from the senseFly Acquisition in the fourth quarter of 2021, together with higher sales of our sensor products, coupled with the effects of supply chain constraints, including shortages in electronic components and inflation caused by higher costs to acquire electronic components, increased labor expenses and freight-in costs.
For the nine months ended September 30, 2022, cost of sales was $8,622,436 as compared to $2,885,008 for the nine months ended September 30, 20172021, an increase of $5,737,428 or 199%. The increase in our cost of sales was attributable to new sales of eBees, acquired in the senseFly Acquisition in October 2021, and decreasedan increase in sensor sales, as well as higher costs associated with the effects of supply chain constraints, including shortages in electronic components and inflation caused by $146,925higher costs to acquire electronic components, increased labor expenses and higher freight-in costs.
Gross Profit
For the three months ended September 30, 2022, gross profit was $2,083,141 as compared to $794,796 for the three months ended September 30, 20172021, an increase of $1,288,345, or 162%. For the three months ended September 30, 2022, gross profit margin was 38% as compared to 39% for the same period in 2016.three months ended September 30, 2021. The decrease in gross profit margin was a result of our senseFly entity drone sales which have lower margins along with an increase in our cost of goods sold for sensor sales over the three months.
For the nine months ended September 30, 2022, gross profit was $5,998,129 as compared to $2,775,654 for the nine months ended September 30, 2021, an increase of $3,222,475, or 116%. For the nine months ended September 30, 2022, gross profit margin was 41% as compared to 49% for the nine months ended September 30, 2021. The decrease in gross profit margin was a result of our senseFly entity drone sales which have lower margins along with an increase in our cost of goods sold for sensor sales over the nine month period.
Operating Expenses
For the three months ended September 30, 2022, operating expenses were $7,230,471 as compared to $4,594,330 for the three months ended September 30, 2021, an increase of $2,636,141, or 57%. Operating expenses are comprised of general and administrative, research and development and sales and marketing expenses.
For the nine months ended September 30, 2022, operating expenses were $24,015,980, as compared to $14,356,476 for the nine months ended September 30, 2021, an increase of $9,659,504, or 67%. Operating expenses comprise general and administrative, research and development and sales and marketing.
General and Administrative Expenses
For the three months ended September 30, 2022, general and administrative expenses were $4,175,090 as compared to $2,783,290 for the three months ended September 30, 2021, an increase of $1,391,800, or 50%. The increase was primarily the result of the inclusion of the newly acquired senseFly businesses, along with continued increases in general and administrative costs from our two other 2021 business acquisitions. These costs primarily included lease expenses, payroll-related costs for new and existing employees, amortization of our acquired intangibles, stock-based compensation expenses, and costs incurred in the design and development of our internal use software.
For the nine months ended September 30, 2022, general and administrative expenses were $14,093,655 as compared to $10,428,040 for the nine months ended September 30, 2021, an increase of $3,665,615 or 35%. The increase was primarily the result of the inclusion of the newly acquired senseFly businesses, along with continued increases in general and administrative costs from our two other 2021 business acquisitions. These costs primarily included lease expenses, payroll-related costs for new and existing employees, amortization of our acquired intangibles, stock-based compensation expenses and costs incurred for the design and development of our internal use software.
Research and Development
For the three months ended September 30, 2022, research and development expenses were $1,818,540 as compared to $777,036 for the three months ended September 30, 2021, an increase of $1,041,504, or 134%. The increase was primarily due to the expirationaddition of derivative contractssenseFly and Measure’s research and development teams and technological innovations we are pursuing on our airframes and software solutions.
For the nine months ended September 30, 2022, research and development expenses were $6,185,777 as compared to $2,115,367 for the nine months ended September 30, 2021, an increase of $4,070,410, or 192%. The increase was attributable to the addition of senseFly’s and Measure’s research and development teams and technological innovations we are pursuing on our airframes and software solutions.
Sales and Marketing
For the three months ended September 30, 2022, sales and marketing expenses were $1,236,841 as compared to $1,034,004 for the three months ended September 30, 2021, an increase of $202,837, or 20%. The increase was primarily due to the addition of the senseFly and Measure sales and marketing teams.
For the nine months ended September 30, 2022, sales and marketing expenses were $3,736,548 as compared to $1,813,069 for the nine months ended September 30, 2021, an increase of $1,923,479, or 106%. The increase was primarily due to the addition of the senseFly and Measure sales and marketing teams.
Total Other Income
For the three months ended September 30, 2022, total other income was $6,812,282, as compared to total other income of $28,632 for the three months ended September 30, 2021. The change was primarily attributable to a non-cash gain on debt extinguishment associated with reductions of holdback liabilities in 2016, resultingconnection with our acquisitions of senseFly and MicaSense, which totaled $6,486,899, in no realizationaddition to higher other income, net, which climbed to $332,110 from $24,798 for the three months ended September 30, 2022 and 2021, respectively.
For the nine months ended September 30, 2022, total other income was $6,484,495 as compared to total other income of gains from their monetization$201,218 for the nine months ended September 30, 2021. The increase was primarily due to a $6,486,899 non-cash gain on debt extinguishment associated with reductions of holdback liabilities in 2017connection with our acquisitions of senseFly and MicaSense realized in the third quarter of 2022, offset by other income generated from performing certain generalthe Paycheck Protection Program loan forgiveness and administrative serviceshigher interest income and other income booked for Camber Energy, Inc., for a fee of $150,000 per month beginning in May 2017.the nine months ended September 30, 2021.
Net Income (Loss)
TheFor all the aforementioned reasons, the Company achieved net income of $1,664,952 for the three months ended September 30, 2022, as compared to a net loss of $3,770,902 for the three months ended September 30, 2021, representing a 144% improvement.
For the nine months ended September 30, 2022, the Company incurred a net loss of $11,533,356 as compared to a net loss of $11,379,604 for the nine months ended September 30, 20172021, increasing $153,752, or 1%. In order to achieve our long-term growth strategies, additional resources and investments will be required as we continue to address these shifts by developing new technologies, products and services that support prevailing growth opportunities.
Cash Flows
Nine Months Ended September 30, 2022 as Compared to the Nine Months Ended September 30, 2021
As of September 30, 2022, cash on hand was $9,614,452$5,302,487 as compared to $14,590,566 as of December 31, 2021, a net lossdecrease of $10,849,132$9,288,079, or 64%.
For the nine months ended September 30, 2022, cash used in operations was $15,342,049, an increase of $8,664,328, or 129%, as compared to cash used of $6,677,721 for the nine months ended September 30, 20162021. The increase in cash used in operating activities was principally driven by the operating expenses of our 2021 Business Acquisitions incurred in 2022, which included higher inventory purchases and net loss was $318,635 forprepayments, and accounts payable, accrued expenses and other liabilities. Further, during the threenine months ended September 30, 2017,2022, we incurred a non-cash operating gain on debt of extinguishment of $6,486,899.
For the nine months ended September 30, 2022, cash used in investing activities was $8,062,741, a decrease of $22,579,495, or 74%, as compared to net losscash used of $1,694,404$30,642,236 for the same periodnine months ended September 30, 2021. The decrease in 2016. The year-to-datecash used in our investing activities was due to investments in the business acquisitions of MicaSense and Measure in the prior year, offset by the increase in capitalized costs associated with the net incomedevelopment of the HempOverview and Measure Ground Control platforms and platforms and the senseFly business acquisition.
For the nine months ended September 30, 2022, cash provided by financing activities was $14,577,691, a decrease of $31,023,491, or 68%, as compared to cash provided of $45,601,182 for the nine months ended September 30, 2021. The decrease in cash provided by our financing activities was due primarily to the gain from the LSAless sales of $11,500,124our Common Stock through an at-the-market (“ATM”) offering and the reductionexercise of warrants in the impairment of oil and gas properties of $7,444,597.prior year.
Liquidity and Capital Resources
Liquidity isAs of September 30, 2022, we had working capital of $10,221,025. For the nine months ended September 30, 2022, we incurred a measure of a company’s ability to meet potential cash requirements. We have historically met our capital requirements through debt financing, revenuesloss from operations asset sales, and the issuance of equity securities. Due to the decline in oil prices and the restructuring$18,017,851, an increase 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$6,437,029, or 56%, as 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 milliona loss from operations of debt forgiven as part of the LSA.
We had $515,752 of cash used in operating activities$11,580,822 for the nine months ended September 30, 2017, which was mainly due2021. Further, we utilized cash in our operating activities of $15,342,049, an increase of $8,664,328, or 129%, as compared to $11.5 million of gain on the LSA, offset by the $9.7 million net income for the period.
We had $4,635 of cash used in investingoperating activities of $6,677,721 for the nine months ended September 30, 2017, which was solely due to the purchase of oil and gas properties.2021.
We had $357,453On June 26, 2022, the Board of cash provided by financing activitiesDirectors of the Company designated a new series of Preferred Stock, the Series F 5% Preferred Convertible Stock (“Series F”), and authorized the sale and issuance of up to 35,000 shares of Series F. The Company issued to an existing investor 10,000 shares of Series F for an aggregate purchase price and gross proceeds of $10,000,000.
For the nine months ended September 30, 2017, which was2022, we raised $4,583,341 of net proceeds from our ATM offering with co-agents Stifel, Nicolaus & Company, Incorporated and Raymond James & Associates.
The increase in net loss and cash used in operating activities is larger due to proceeds from the sale of Series C Convertible Preferred Stock of $450,000Company’s long-term growth strategy and bank balance transfer on loan sale agreement.
The unaudited condensed consolidated financial statements includedrecent acquisitions which have resulted in “Part I” – “Item 1 Financial Statements” of this report have been prepared assuming thatadditional working capital needs. While the Company willhas historically been successful in raising capital to meet its working capital needs, the ability to continue as a going concern. Thereraising such capital to enable the Company to continue its growth is currentlynot guaranteed. Therefore, there is substantial doubt about the Company’s ability to continue as a going concern as discussed in “Note 2 – Going Concern”the Company will require additional liquidity to continue its operations and meet its financial obligations for 12 months from 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 unauditeddate these condensed consolidated financial statements includeswere issued. The Company is evaluating strategies to obtain the required additional information on certain commitmentsfunding for future operation and contingenciesthe restructuring 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 LSAoperations to grow revenues and related transactions and “Note 2 – Going Concern” – “Merger Agreement” includes information on the pending Merger.reduce expenses.
Recent Funding and Related TransactionsOff-Balance Sheet Arrangements
On April 10, 2017, we obtained an unsecured loan in the principal amount of $150,000 from an affiliate of the holder of our issued and outstanding shares of Series B Preferred Stock (the “lender”). The loan was converted into 150 shares of Series Convertible Preferred Stock.
On April 27, 2017, the Company entered into an Additional Issuance Agreement with Alpha Capital Anstalt, for the purchase of 300 restricted shares of its newly designated Series C Convertible Preferred Stock in consideration for $300,000, of which $150,000 was payable in cash and $150,000 was payable via a note conversion, with an option to purchase an additional 200 shares of Series C Convertible Preferred Stock for an aggregate purchase price of $200,000. As of September 30, 2017, the Company had issued 300 shares of Series C Convertible Preferred Stock for an aggregate purchase price of $300,000. In addition, during the nine months ending September 30, 2017, the Company had received $150,000 from Alpha Capital Anstalt to purchase an additional 150 shares of Series C Convertible Preferred Stock. As of September 30, 2017, the additional 150 shares of Series C Convertible Preferred Stock have not been issued and are reflected as Series C Convertible Preferred Stock Issuable on the balance sheet in the aggregate amount of $150,000. The shares have also not been issued as of the date of this filing.
The Series C Preferred Stock is non-voting (except to the extent required by law and except for certain consent rights relating to amending the certificate of incorporation or bylaws, and the like), ranks senior to the common stock with respect to dividends and with respect to distributions upon a deemed dissolution, liquidation or winding-up of the Company, and ranks junior to the Company’s Series A preferred stock and Series B preferred stock with respect to dividends and with respect to distributions upon a deemed dissolution, liquidation or winding-up of the Company. Upon request of the Holders, the Company can seek stockholder approval to remove the Issuance Limitation described therein and to allow for further adjustments related to anti-dilution protection, only if such stockholder approval is obtained. The Series C Convertible Preferred Stock has a liquidation preference of $1,000 per share, and is convertible at the option of the holder at a conversion price equal to $0.30 per share, or a ratio equal to approximately 3,333 shares of common stock for each one (1) share of Series C Convertible Preferred Stock, subject to customary adjustments. Dividends are payable on the shares of Series C Convertible Preferred Stock only if and to the extent that dividends are payable on the common stock into which the Series C Convertible Preferred Stock is convertible. The Series C Convertible Preferred Stock has no maturity date and can be redeemed by the Company beginning twelve months after the closing of the offering or upon a change of control for the redemption price of $1,000 per share, as adjustable as provided in the designation of the Series C Preferred Stock.
The Series C Preferred Stock includes a beneficial ownership limitation preventing conversion of shares of Series C Preferred Stock into more than 9.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the Series C Preferred Stock. In addition, the Company may not convert the Series C Preferred Stock into a number of shares of common stock which, when aggregated with any shares of common stock issued on or after the original issue date and prior to such conversion date in connection with any conversion of Series C Preferred Stock would exceed 1,683,944 shares of common stock (19.99% of the outstanding shares as of the original issue date), subject to adjustment for forward and reverse stock splits, recapitalizations and the like. In the event conversion of the Series C preferred is limited pursuant to these provisions, each holder shall be entitled to a pro rata portion of the issuable maximum.
Pursuant to the anti-dilutive provisions of the Securities Purchase Agreement dated as of March 11, 2015, which requires the Company to issue additional shares of common stock to adjust the purchase price paid by purchasers in the Company’s March 2015 offering, in the event any shares are sold (or convertible securities are sold), with a price per share less than the purchase price paid by the March 2015 purchasers subject to the terms of the Securities Purchase Agreement, Alpha Capital Anstalt received 597,461 shares of common stock. In addition, the Series B Convertible Preferred Stock conversion ratio equal to approximately 571 shares of common stock for each one (1) share of Preferred Stock reset to approximately 3,333 shares of common stock for each one (1) share of Series B Convertible Preferred Stock, to be consistent with the terms of the Series C Convertible Preferred Stock, pursuant to the anti-dilution requirements of the Series B Convertible Preferred Stock.
During the nine months ending September 30, 2017, Alpha Capital Anstalt converted 390 shares of Series B Convertible Preferred Stock into 1,300,000 shares of common stock.
Effective May 1, 2017, the Company entered into an agreement with Camber Energy, Inc., pursuant to which EnerJex will be responsible for performing certain general and administrative services for Camber for a fee of $150,000 per month. Richard E. Menchaca, a member 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.
On July 14, 2017, the Company entered into 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, 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 or sale of any significant equipment
We anticipate that2022, we will purchase the necessary production and field service equipment required to produce oil during our normal course of operations over 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
We dodid not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, 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 use of structured finance, special purpose entities or variable interest entities. We have 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.
Critical Accounting Policies and Estimates
Our critical accounting estimates include the value of our oil and gas properties, asset retirement obligations, and share-based payments.
Oil and Gas Properties
We follow the full-cost method of accounting under which all costs associated with property acquisition, exploration and development activities are capitalized. We also capitalize internal costs that can be directly identified with our acquisition, exploration and development activities and do not include costs related to production, general corporate overhead or similar activities.
Proved properties are amortized using the units of production (UOP) method. Currently we only have operations in the Unites States of America. The UOP calculation multiplies the percentage of estimated proved reserves produced each quarter by the cost of these reserves. The amortization base in the UOP calculation includes the sum of proved property, net of accumulated depreciation, depletion and amortization (DD&A), estimated future development costs (future costs to access and develop proved reserves) and asset retirement costs, less related salvage value.
The cost of unproved properties are excluded from the amortization calculation until it is determined whether or not proved reserves can be assigned to such properties or until development projects are placed into service. Geological and geophysical costs not associated with specific properties are recorded as proved property immediately. Unproved properties are reviewed for impairment quarterly.
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 flat for the life of the production, except where prices are defined by contractual arrangements.stockholders.
Inflation
Any excess of the net book value of proved oil and gas properties, less related deferred income taxes, over the ceiling is charged to expense and reflected as additional DD&A in the statement of operations. The ceiling calculation is performed quarterly. For
During the three and nine months ended September 30, 30, 2017, we were not required2022, inflation has had a negative impact on the unmanned aerial vehicle systems industry, our customers, and our business globally. Specifically, our ability to record an impairment expenseaccess components and parts needed in order to manufacture our proprietary drones and sensors, and to perform quality testing have been, and continue to be, impacted. If either the Company or any of its third-parties in the supply chain for materials used in our manufacturing and assembly processes continue to be adversely impacted, our supply chain may be further disrupted, limiting its ability to manufacture and assemble products. In addition, the eventual implications of higher government deficits and debt, tighter monetary policies and potentially higher, long-term interest rates may drive a higher cost of raising capital in the future.
Climate Change
Our 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 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.operations.
Asset Retirement ObligationsNew Accounting Pronouncements
The asset retirement obligation relatesThere were certain updates recently issued by the Financial Accounting Standards Board (“FASB”), most of which represented technical corrections to the pluggingaccounting 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 our estimateimpact on the Company’s consolidated financial position, results of the volatility of our stock, our expenses could be understatedoperations or overstated.cash flows.
Effects of Inflation and Pricing
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The oil industry is very cyclical and the demand for goods and services of oil field companies, suppliers and others associated with the industry puts extreme pressure on the economic stability and pricing structure within the industry. Material changes in prices impact revenue stream, estimates of future reserves, borrowing base calculations of bank loans and value of properties in purchase and sale transactions. Material changes in prices can impact the value of oil companies and their ability to raise capital, borrow money and retain personnel. We anticipate business costs and the demand for services related to production and exploration will fluctuate while the commodity prices for oil remains volatile.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We areAs a smaller“smaller reporting Companycompany” as defined by Rule 12b-2 under the Exchange Act, andItem 10 of Regulation S-K, we are not required to provide the information required underby this item.Item.
| ITEM 4. | CONTROLS AND PROCEDURES |
ITEM 4. CONTROLS AND PROCEDURES.Evaluation of Disclosure and Control Procedures
Disclosure Controls and Procedures.
Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to management, including the InterimThe Company’s Chief Executive Officer and Interimthe Company’s Chief Financial Officer (our principal executive officer and principal financial officer), to allow timely decisions regarding required disclosures. The Company’s management, including our Interim Chief Executive Officer and our Interim Chief Financial Officer (our principal executive officer and principal financial officer), evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Company’s Interim Chief Executive OfficerSeptember 30, 2022 and Interim Chief Financial Officer (our principal executive officer and principal financial officer) concluded that the Company’s disclosure controls and procedures were effectiveare effective. The term disclosure controls and procedures means controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as of September 30, 2017.amended, is accumulated, recorded, processed, summarized and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure to be reported within the time periods specified in the SEC’s rules and forms.
Changes in Internal Control Overover Financial Reporting
There have not been anywere no changes in our internal control over financial reporting, as defined in Rules 13a-15(t) and 15d-15(f) under the Exchange Act, during the three months ended September 30, 20172022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We may become involved in various routine legal proceedings incidental to our business. However, to our knowledge as of the date of this report, there are no material pending legal proceedings to which we are a party or to which any of our property is subject, except the legal proceedings discussed below.
On September 23, 2016, the Company, American Standard Energy Corporation, Baylor Operating LLC, Bernard Given and Loeb & Loeb LLP were sued by Geronimo Holdings Corporation and Randal Capps in the 143rd Judicial District Court located in Pecos, Texas. The suit among other things, seeks damages for an alleged unlawful sale of properties in Crockett County, Texas and for alleged unpaid royalties. The Company believes the suit is without merit and will vigorously defend itself in connection with this proceeding. The Company has faith that it will prevail and at September 30, 2017, no reserve for potential losses arising from this matter has been recorded. Additionally, under its agreement with Baylor Operating LLC, Baylor has agreed to indemnify and defend the Company against all lawsuits and claims including this one.
On April 26, 2016, C&F Ranch, LLC sued the Company in Allen County, Kansas for alleged breach of contract related to the rental of certain lands located on the C&F Ranch. The Company believes that it has paid all rents owe to C&F Ranch LLC and will vigorously defend itself in connection with this proceeding. The Company has faith that it will prevail and at September 30, 2017, no reserve for potential losses arising from this matter has been recorded.
In addition to the other information set forth in this report, you should carefully consider the factors discussed below and in “Part I” - “Item 1A. Risk Factors” in our 2016 Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on March 31, 2017, and “Part II” – “Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, filed with the SEC on August 21, 2017, which could materially affect our business, financial condition or future results and which risk factors are incorporated by reference herein. You should also review the risk factors relating to the Merger set forth under AgEagle Risk Factors in our Current Report on Form 8-K, filed with the SEC on October 20, 2017. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially affect our business, financial condition or future results.
In the event the Merger closes, it will cause immediate and substantial dilution to existing shareholders and a change of control of the Company.
As described above, we are party to a Merger Agreement with AgEagle relating to the acquisition by us of the outstanding securities of AgEagle. We anticipate the consideration exchanged with AgEagle for the securities of AgEagle will be 85% of our total outstanding securities on a fully-diluted basis. As such, in the event the contemplated transaction closes, the issuance of the common stock consideration to AgEagle will result in immediate and substantial dilution to the interests of our then shareholders and result in a change of control of the Company.
The Merger Agreement limits our ability to pursue alternatives to the Merger.
The Merger Agreement contains provisions that could adversely impact competing proposals to acquire us. These provisions include the prohibition on us generally from soliciting any acquisition proposal or offer for a competing transaction. These provisions might discourage a third party that might have an interest in acquiring all or a significant part of our company from considering or proposing an acquisition, even if that party were prepared to pay consideration with a higher value than the current proposed Merger consideration.
Failure to complete the Merger could negatively impact our stock price and future business and financial results.
If the Merger is not completed, our ongoing business may be adversely affected and we would be subject to a number of risks, including the following:
| PART II. | OTHER INFORMATION |
| ITEM 1. | ||
The Merger Agreement may be terminated in accordance with its terms and the Merger may not be completed.
The completion of the Merger is subject to various customary conditions, including, among other things: (a) the approval of the shareholders of the Company and AgEagle; (b) the accuracy of the representations and warranties made by each of the Company and AgEagle and the compliance by each of the Company and AgEagle with their respective obligations under the Merger Agreement; (c) approval of the shareholders of the Company for the issuance of its common stock and any other securities (x) to the AgEagle shareholders in connection with the Merger and (y) in connection with the financing transactions contemplated by the Merger Agreement; (d) approval for the listing of shares of the Company’s common stock to be issued in the Merger and other related transactions on the NYSE American; and (e) that all of the Company’s assets as disclosed shall have been sold, transferred or otherwise disposed of and the corresponding debt and liabilities shall have been extinguished. The Company’s existing cash resources are insufficient to satisfy all of its outstanding liabilities. Accordingly, in order to satisfy the condition and consummate the Merger, the Company will be required to raise additional funding prior to the closing of the Merger, the failure of which could result in the Company’s failure to consummate the Merger Agreement. These conditions to the closing of the Merger may not be fulfilled and, accordingly, the Merger may not be completed. In addition, if the Merger is not completed by January 31, 2018, provided that if all of the conditions to closing shall have been satisfied or shall be capable of being satisfied at such time, the required closing date may be extended until March 31, 2018, either we or AgEagle may choose not to proceed with the Merger, and the parties can mutually decide to terminate the Merger Agreement at any time, before or after shareholder approval. In addition, we or AgEagle may elect to terminate the Merger Agreement in certain other circumstances.
Termination of the Merger Agreement could negatively impact the Company.
In the event the Merger Agreement is terminated, our business may have been adversely impacted by our failure to pursue other beneficial opportunities due to the focus of management on the Merger, and the market price of our common stock might decline to the extent that the current market price reflects a market assumption that the Merger will be completed. If the Merger Agreement is terminated and our board of directors seek another business combination, our shareholders cannot be certain that we will be able to find a party willing to offer equivalent or more attractive consideration than the consideration provided for by the Merger.
We will be subject to business uncertainties and contractual restrictions while the Merger is pending.
Uncertainty about the effect of the Merger on our partners may have an adverse effect on us. These uncertainties may impair our ability to attract, retain and motivate key personnel until the Merger is completed, and could cause partners and others that deal with us to seek to change existing business relationships, cease doing business with us or cause potential new partners to delay doing business with us until the Merger has been successfully completed. Retention of certain employees may be challenging during the pendency of the Merger, as certain employees may experience uncertainty about their future roles or compensation structure. If key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the business, our business following the Merger could be negatively impacted. In addition, the Merger Agreement restricts us from making certain acquisitions and taking other specified actions until the Merger is completed without the consent of AgEagle. These restrictions may prevent us from pursuing attractive business opportunities that may arise prior to the completion of the Merger.
We are currently not in compliance with NYSE American continued listing standards and if we are unable to maintain compliance with NYSE American continued listing standards, our common stock may be delisted from the NYSE American equities market, which would likely cause the liquidity and market price of our common stock to decline.
Our common stock is currently listed on the NYSE American. The NYSE American will consider suspending dealings in, or delisting, securities of an issuer that does not meet its continued listing standards. If we cannot meet the NYSE American continued listing requirements, the NYSE American may delist our common stock, which could have an adverse impact on us and the liquidity and market price of our stock.
We may be unable to comply with NYSE American continued listing standards. Our business has been and may continue to be affected by worldwide macroeconomic factors, which include uncertainties in the credit and capital markets. External factors that affect our stock price, such as liquidity requirements of our investors, as well as our performance, could impact our market capitalization, revenue and operating results, which, in turn, could affect our ability to comply with the NYSE American’s listing standards. The NYSE American has the ability to suspend trading in our common stock or remove our common stock from listing on the NYSE American if in the opinion of the exchange: (a) the financial condition and/or operating results of the Company appear to be unsatisfactory; or (b) it appears that the extent of public distribution or the aggregate market value of our common stock has become so reduced as to make further dealings on the exchange inadvisable; or (c) we have sold or otherwise disposed of our principal operating assets, or have ceased to be an operating company; or (d) we have failed to comply with our listing agreements with the exchange (which include that we receive additional listing approval from the exchange prior to us issuing any shares of common stock, something we have inadvertently failed to comply with in the past); or (e) any other event shall occur or any condition shall exist which makes further dealings on the exchange unwarranted.
On October 19, 2017, the Company received notice from NYSE Regulation, Inc. that it is not in compliance with certain NYSE American (“NYSE American”) continued listing standards relating to stockholders’ equity. Specifically, the Company is not in compliance with Section 1003(a)(i) (requiring stockholders’ equity of $2.0 million or more if an issuer has reported losses from continuing operations and/or net losses in two of its three most recent fiscal years) of the NYSE American Company Guide (the “Company Guide”). As a result, the Company has become subject to the procedures and requirements of Section 1009 of the Company Guide and is required to submit a plan by November 19, 2017, advising the NYSE American of the actions the Company has taken or will take to regain compliance with the NYSE American continued listing standards. The plan period may not exceed April 19, 2019.
The Company intends to submit a plan by the November 19, 2017 deadline. The plan will be based in significant part upon the merger and the associated financing. The Company expects that its common stock will continue to be listed on the NYSE American while the Company seeks to regain compliance with the listing standard noted, subject to the Company’s compliance with other continued listing requirements. If the Company fails to submit a plan or if the Company’s plan is not accepted then the NYSE American may commence delisting procedures. Upon completion of the Merger, the Company will be required to satisfy all applicable requirements for the initial listing on the NYSE American.
If we are unable to retain compliance with the NYSE American criteria for continued listing, our common stock would be subject to delisting. A delisting of our common stock could negatively impact us by, among other things, reducing the liquidity and market price of our common stock and reducing the number of investors willing to hold or acquire our common stock, which could negatively impact our ability to raise equity financing. In addition, delisting from the NYSE American might negatively impact our reputation and, as a consequence, our business. Additionally, if we were delisted from the NYSE American and we are not able to list our common stock on another national exchange we will no longer be eligible to use Form S-3 registration statements and will instead be required to file a Form S-1 registration statement for any primary or secondary offerings of our common stock, which would delay our ability to raise funds in the future, may limit the type of offerings of common stock we could undertake, and would increase the expenses of any offering, as, among other things, registration statements on Form S-1 are subject to SEC review and comments whereas take downs pursuant to a previously filed Form S-3 are not.
If we are delisted from the NYSE American, your ability to sell your shares of our common stock would also be limited by the penny stock restrictions, which could further limit the marketability of your shares.
If our common stock is delisted from the NYSE American, it would come within the definition of “penny stock” as defined in the Exchange Act and would be covered by Rule 15g-9 of the Exchange Act. That Rule imposes additional sales practice requirements on broker-dealers who sell securities to persons other than established customers and accredited investors. For transactions covered by Rule 15g-9, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser’s written agreement to the transaction prior to the sale. Consequently, Rule 15g-9, if it were to become applicable, would affect the ability or willingness of broker-dealers to sell our securities, and accordingly would affect the ability of shareholders to sell their securities in the public market. These additional procedures could also limit our ability to raise additional capital in the future.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
On April 27, 2017, the Company entered into an Additional Issuance Agreement with Alpha Capital Anstalt, for the purchase of 300 restricted shares of its newly designated Series C Convertible Preferred Stock in consideration for $300,000, with an option to purchase an additional 200 shares of Series C Convertible Preferred Stock for an aggregate purchase price of $200,000. As of September 30, 2017, the Company had issued 300 shares of Series C Convertible Preferred Stock for an aggregate purchase price of $300,000. In addition, during the nine months ending September 30, 2017, the Company had received $150,000 from Alpha Capital Anstalt to purchase an additional 150 shares of Series C Convertible Preferred Stock. As of September 30, 2017, and the date of this filing, the additional 150 shares of Series C Convertible Preferred Stock have not been issued and are reflected as Series C Convertible Preferred Stock Issuable on the balance sheet as of September 30, 2017, in the aggregate amount of $150,000.
We claim an exemption from registration pursuant to Section 4(a)(2) and/or Rule 506 of Regulation D of the Securities Act, since the transaction did not involve a public offering, the recipient was an “accredited investor”, and acquired the securities for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof. The securities are subject to transfer restrictions, and the certificates evidencing the securities contain an appropriate legend stating that such securities have not been registered under the Securities Act and may not be offered or sold absent registration or pursuant to an exemption therefrom and are further subject to the terms of the escrow agreement. The securities were not registered under the Securities Act and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the Securities Act and any applicable state securities laws.
Pursuant to the anti-dilutive provisions of the Securities Purchase Agreement dated as of March 11, 2015, which requires the Company to issue additional shares of common stock to adjust the purchase price paid by purchasers in the Company’s March 2015 offering, in the event any shares are sold (or convertible securities are sold), with a price per share less than the purchase price paid by the March 2015 purchasers subject to the terms of the Securities Purchase Agreement, Alpha Capital Anstalt received 597,461 shares of common stock. In addition, the Series B Convertible Preferred Stock conversion ratio equal to approximately 571 shares of common stock for each one (1) share of Preferred Stock reset to approximately 3,333 shares of common stock for each one (1) share of Series B Convertible Preferred Stock, to be consistent with the terms of the Series C Convertible Preferred Stock, pursuant to the anti-dilution requirements of the Series B Convertible Preferred Stock.
As the issuance of the anti-dilutive shares did not involve a “sale” of securities under Section 2(a)(3) of the Securities Act, we believe that no registration of such securities, or exemption from registration for such securities, was required under the Securities Act. Notwithstanding the above, to the extent such shares are deemed “sold or offered”, we claim an exemption from registration pursuant to Section 4(a)(2) and/or Rule 506 of Regulation D of the Securities Act, since the transaction did not involve a public offering, the recipient was an “accredited investor”, and acquired the securities for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof. The securities are subject to transfer restrictions, and the certificates evidencing the securities contain an appropriate legend stating that such securities have not been registered under the Securities Act and may not be offered or sold absent registration or pursuant to an exemption therefrom and are further subject to the terms of the escrow agreement. The securities were not registered under the Securities Act and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the Securities Act and any applicable state securities laws.
During the nine months ending September 30, 2017, Alpha Capital Anstalt converted 390 shares of Series B Convertible Preferred Stock into 1,300,000 shares of common stock.
We claim an exemption from registration provided by Section 3(a)(9) of the Securities Act for such issuance, as the securities were exchanged by us with our existing security holder in a transaction where no commission or other remuneration was paid or given directly or indirectly for soliciting such exchange.
Pursuant to the Merger, the Company will issue unregistered shares of Company common stock to the stockholders of AgEagle with respect to the Merger equal to 85% of the then issued and outstanding capital stock of the Company on a fully diluted basis.
The shares to be issued by the Company to the stockholders of AgEagle in the Merger and related transactions will be issued exempt from registration under Section 4(a)(2) of the Securities Act because the offer and sale of such securities does not involve a “public offering” as defined in Section 4(a)(2) of the Securities Act and other applicable requirements will be met.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.Legal Proceedings
None.
| ITEM 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 |
None.
| ITEM 6. | EXHIBITS |
| Exhibit No. | Description | |
| 31.2 | Rule 13(a)-14(a)/15(d)-14(a) Certification of | |
| 32.1 | Section 1350 Certification of | |
| 32.2 | Section 1350 Certification of | |
| 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 |
In accordance with the requirementsSection 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| AGEAGLE AERIAL SYSTEMS INC. | ||
| Dated: November 14, 2022 | By: | /s/ Barrett Mooney |
| Barrett Mooney | ||
| Chief Executive Officer and Chairman of the Board | ||
| Dated: November 14, 2022 | By: | /s/ Nicole Fernandez-McGovern |
| Nicole Fernandez-McGovern | ||
| Chief Financial Officer, Executive Vice President of Operations and Secretary | ||
ENERJEX RESOURCES, INC. (Registrant)
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.
| Title | Date | |||
| /s/ Barrett Mooney |
| Chief Executive Officer | November 14, 2022 | |
| Barrett Mooney | (Principal Executive Officer) | |||
| /s/ Nicole Fernandez-McGovern | Chief Financial Officer, Executive Vice President of Operations and Secretary | November 14, 2022 | ||
| Nicole Fernandez-McGovern | (Principal Financial and Accounting Officer) |
45
Date: November 14, 2017