8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 FORM 8-K

CURRENT REPORT PURSUANT

TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported) March 26, 2018

AGEAGLE AERIAL SYSTEMS INC.

(Exact Name of Registrant as Specified in Its Charter)

Nevada	001-36492	88-0422242
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

117 S. 4th Street
Neodesha, Kansas	66757
(Address of Principal Executive Offices)	(Zip Code)

(620) 325-6363

(Registrant’s Telephone Number, Including Area Code)

EnerJex Resources, Inc.
4040 Broadway, Suite 425
San Antonio, Texas 78209

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).

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. ¨

Item 2.01 Completion of Acquisition or Disposition of Assets.

On March 26, 2018, EnerJex Resources, Inc. (“EnerJex”), a Nevada company, consummated the transactions contemplated by that certain Agreement and Plan of Merger (the “Merger Agreement”), dated October 19, 2017, pursuant to which AgEagle Merger Sub, Inc., a Nevada corporation and a wholly-owned subsidiary of EnerJex, merged with and into AgEagle Aerial Systems, Inc., a privately held company organized under the laws of the state of Nevada (“AgEagle Sub”), with AgEagle Sub surviving as a wholly-owned subsidiary of EnerJex (the “Merger”). In connection with the Merger, EnerJex changed its name to AgEagle Aerial Systems Inc. (the “Company, “we,” “our,” or “us”) and AgEagle Sub changed its name to “Eagle Aerial Systems, Inc.” Our common stock will continue to trade on the NYSE American under its new symbol “UAVS” commencing on March 27, 2018. As a result of the Merger, through AgEagle Sub, we are now engaged in the business of designing, developing, producing, distributing and supporting technologically-advanced small unmanned aerial vehicles (UAVs or drones) that we supply to the precision agriculture industry.

Throughout this Current Report on Form 8-K, unless otherwise designated or the context suggests otherwise, all references to shares and per share price of the Company, reflect a 1-for-25 reverse stock split consummated on March 26, 2018 (the “Reverse Split”).

Each share of common stock issued and outstanding and underlying options and warrants of AgEagle Sub outstanding immediately prior to the Merger was exchanged for 1.66 shares of Company common stock (the “Exchange Ratio”). As a result, at the effective time of the Merger (the “Effective Time”), 5,439,526 shares of AgEagle Sub’s capital stock, representing all currently outstanding common shares and all other debt or equity securities convertible into common shares (except options and warrants as described below) were automatically converted into 7,949,837 shares of Company common stock and 1,637.72 shares of the Company’s Series C Convertible Preferred Stock (the “Series C Preferred Stock”) convertible into 1,069,533 shares of Company common stock. In addition, at the Effective Time, 685,100 outstanding options and 500,000 warrants to purchase shares of AgEagle Sub common stock were assumed by EnerJex and converted into 1,134,829 options and 828,222 warrants to purchase shares of common stock of the Company.

All holders of EnerJex’s 10% Series A Cumulative Redeemable Perpetual Preferred Stock (the “Series A Preferred Stock”) had their shares automatically converted into 896,640 shares of the Company’s common stock. Simultaneously with the closing of the Merger, the holders of Series A Preferred Stock that held such shares on March 21, 2018 received all accrued but unpaid dividends prior to September 30, 2017 in additional shares of Series A Preferred Stock. The shares of Series A Preferred Stock issued in lieu of a cash payment of the accrued and unpaid dividends prior to September 30, 2017 is equal to $0.25749 per share prior to the conversion of all shares of Series A Preferred Stock into Company common stock at a ratio of 10 to 1. The total number of additional shares of Series A Preferred Stock issued was 241,599. The holders of the shares of Series A Preferred Stock that were originally issued by the Company after September 30, 2017 are not be entitled to receive any dividends on those shares of Series A Preferred Stock.

A total of 8.25 shares of EnerJex’s Series B Convertible Preferred Stock (the “Series B Preferred Stock”) convertible into 5,388 remain outstanding as of the Effective Time. Also, 621.86 shares of Series C Preferred Stock are now convertible into 406,112 shares of Company common stock, which shares of Series C Preferred Stock include the conversion and retirement of $425,000 in prior EnerJex promissory notes due and owing to an existing holder. Furthermore, an additional 4,626 shares of Series C Preferred Stock, convertible into 3,020,797 shares of Company common stock, were issued to the current holder of Series C Preferred Stock in connection with a $4 million financing of Series C Preferred Stock (the “Financing”), including a funding commitment equal to 2.5% of the outstanding Company common stock on a fully diluted basis. 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.

As of the Effective Time, the former shareholders of AgEagle Sub own approximately 67% of the Company’s common stock (inclusive of the AgEagle Sub assumed stock options and warrants), the former EnerJex holders of common stock, the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock, which were outstanding immediately prior to the Financing, collectively own 12.7% of the Company’s common stock on a fully-diluted basis.

In connection with the Merger, AgEagle waived the requirement for EnerJex to have paid and satisfied in full all outstanding indebtedness of EnerJex such that there would be no continuing liabilities of EnerJex subsequent to the closing of the Merger (“Liability Condition”). In consideration for AgEagle waiving the Liability Condition, the 1,215,278 shares of common stock to be held in escrow (valued at $350,000) owned by certain former principal stockholders, officers and directors of EnerJex to secure losses, if any, that may be suffered by the AgEagle indemnified parties pursuant to the indemnification obligations under the Merger Agreement, were never issued and such former principal stockholders, officers and directors are not entitled to receive such shares. However, such former principal stockholders, officers and directors received, in the aggregate, deferred salaries and fees valued at approximately $297,500. In lieu of payment of the deferred salaries and fees in cash, such amounts have been converted into an aggregate of 1,032,986 shares of Company common stock.

Prior to the Merger, EnerJex operated as an oil exploration and production company engaged in the acquisition, development, exploration and production of oil in Eastern Kansas. In connection with the Merger, EnerJex disposed of its principal assets, consisting primarily of its Kansas oil and gas properties.

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Deed in Lieu of Foreclosure Agreement

On March 26, 2018, EnerJex and its subsidiaries, EnerJex Kansas, Inc., Black Raven Energy, Inc., Working Interest, LLC, Adena, LLC, Kansas Holdings, LLC, and Black Sable Energy, LLC (the "Subsidiaries"), Pass Creek Resources, LLC (“Pass Creek”) and Cortland Capital Market Services, LLC (“Administrative Agent”) entered into a Deed in Lieu of Foreclosure Agreement whereby the Subsidiaries agreed to transfer to Pass Creek or entered into a Deed in Lieu of Foreclosure Agreement whereby the Subsidiaries agreed to transfer to Pass Creek or its designees all of each Subsidiaries right, title, and interests in interest in the “Properties” in lieu of the parties defending against a foreclosure action and a collection action for the “Loan.”

The Subsidiaries, EnerJex, Pass Creek and the Administrative Agent are parties to a certain Second Amended and Restated Credit Agreement dated as of May 10, 2017 (the “Original Credit Agreement”), as amended by that certain First Amendment to the Second Amended and Restated Credit Agreement dated as of December 22, 2017 (the “First Amendment”, and together with the Original Credit Agreement, the “Credit Agreement”), pursuant to which Pass Creek extended a term loan to the Subsidiaries (the “Loan”). The principal and interest due on the Loan is approximately $5.2 million. EnerJex was removed as a Borrower under the Loan but entered into a Guaranty of Resources Carveouts. Pass Creek and EnerJex have settled all of EnerJex’s obligations to Pass Creek and the Administrative Agent.

In connection with the Deed in Lieu of Foreclosure Transaction, Administrative Agent and Pass Creek executed a release and covenant not to sue (the “Release”), with respect to EnerJex and the Subsidiaries. EnerJex also executed a promissory note with Pass Creek in the principal amount of $125,555.97. This promissory note bears interest at 5% per annum and principal and interest shall be paid monthly over a 12 month period.

The Deed in Lieu of Foreclosure and the release and covenant not to sue are summaries of the documents and qualified in their entirety by the documents filed as exhibits to this Current Report on Form 8-K.

Organizational History

We are headquartered in Neodesha, Kansas, and are a leading manufacturer of unmanned aerial vehicles focused on providing actionable data to the precision agriculture industry. AgEagle Sub was founded in 2010 by Bret Chilcott, its President and Chief Executive Officer, as Solutions by Chilcott, LLC, a Kansas limited liability company. In April 2015, Solutions by Chilcott was converted into a corporation and then merged into AgEagle, a newly-formed Nevada corporation.

Our history is rooted in advanced composite parts manufacturing, first for commercial trucks and then as a vendor to the government manufacturing micro wind turbine blades. Around 2011, we also began applying our expertise in composite parts manufacturing on a research project at Kansas State University that was attempting to use model airplanes to monitor and analyze crops. After several months, Mr. Chilcott and KSU agreed to continue the commercialization phase of this project under the auspices of AgEagle, and in 2012, we completed the first prototype of our UAV. Over the next year, Mr. Chilcott traveled throughout the mid-western United States meeting with farmers and agronomists, compiling test data, operating history, market information, and then in early 2014, AgEagle sold its first commercial UAV.

Our Products and Services

We design, produce, distribute and support technologically-advanced small unmanned aerial vehicles (UAVs or drones) that we offer for sale commercially to the precision agriculture industry. Our first commercially available product was the AgEagle Classic which was followed shortly thereafter by the RAPID System. As we improved and matured our product we launched the RX-60 and subsequently our current product is the RX-48. In February 2016, we signed a worldwide distribution agreement with Raven Industries, Inc. (“Raven”) under which Raven will purchase the RX-60 and RX-48 for the agriculture markets for resale through their network of dealers worldwide. Raven and its network of dealers offer the RX-60 and RX-48 systems to the public, including a subscription for a software package that is provided by a third party. The first shipment of our RX-60 system to Raven occurred in March 2016.

The success we have achieved with our products, which we believe has carried over into the new RX-48, stems from our ability to invent and deliver advanced solutions utilizing our proprietary technologies and trade secrets that help farmers, agronomists and other precision agricultural professionals operate more effectively and efficiently. Our core technological capabilities, developed over five years of innovation, include a lightweight laminated shell that allows the UAV platform to perform under challenging flying conditions, a camera with a Near Infrared (NIR) filter, a rugged foot launcher (RX-60), and high end software provided by third parties that automates drone flights and provides geo-referenced data.

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Our UAV, often referred to as a “flying wing,” is an advanced fixed wing model UAV whose design is based upon the years of experience our management has with aircraft and composite parts construction. We design all of our UAVs to be man-portable, thereby allowing one person to launch and operate them through a hand-held control unit or tablet. All of our UAVs are electrically powered, weigh approximately four to six pounds fully loaded, are capable of flying over approximately 400 acres (roughly 60 minutes of airtime) per flight from their launch location, and are configured to carry a camera with our NIR filter that uses near infrared images to capture crop data. We believe that these characteristics make our UAVs well suited for providing a complete aerial view of a farmer’s field to help precisely identify crop health and field conditions faster than any other method available.

Our UAVs were specifically designed to help farmers increase profits by pinpointing areas where nutrients or chemicals need to be applied, as opposed to traditional widespread land application processes, thus decreasing input costs and increasing yields. The RX-60 and RX-48 systems, were designed for busy agriculture professionals who do not have the time to process images on their computers, which some of our competitors require. Through a relationship with our strategic partner, our UAV can be programmed using a tablet device to overlay a flight path over a farmer’s specific crop area. The software can automatically take pictures from the camera, stitch the photos together through the cloud, and deliver a geo-referenced, high quality aerial map to the user’s desktop or tablet device using specialty precision agriculture software such as SST or SMS. The result is a prescription or zone map that can then be used on a field computer in a spray and precisely apply the amount of nutrients or chemicals required to continue or restore the production of healthy crops for farmers.

Figure 1: AgEagle Prescription Map

Partnership with Raven

In February 2016, we signed a worldwide, exclusive distribution agreement with Raven Industries. Under this initial three-year distribution agreement, Raven private labels and purchases our fixed wing UAVs, exclusively for the agriculture markets over the initial term, for resale through their network of Ag Retailers worldwide. Raven has the right to renew the agreement after the expiration of the initial term. In 2017, we amended our agreement with Raven to make it non-exclusive and to allow us to sell our products directly into the market. The agreement contains other standard termination provisions, covenants and warranties, as more fully set forth therein.

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On the date we entered into the distribution agreement with Raven, we also simultaneously entered into a stock purchase agreement with Raven whereby we sold 200,000 shares of our common stock to Raven for an aggregate purchase price of $500,000. In connection with the financing, Raven was entitled to designate one director to serve on our board of directors. In March 2016, Raven exercised this right and we appointed Lindsay Edwards to the board. In addition, at any time until the consummation of the first public offering, Raven has the first right to participate in any offer or sale of new securities in an amount up to 50% of such securities that we may issue, which issuance excludes (a) shares or options to purchase shares under our Stock Option Plan, (b) securities upon the exercise, exchange or conversion of securities issued and outstanding as of the date of the stock purchase agreement and (c) securities issued pursuant to acquisitions or strategic transactions approved by a majority of our disinterested directors. Pursuant to the stock purchase agreement, during the term of the distribution agreement, Raven has a right of first refusal on any sale of all or substantially all of our assets or a sale of AgEagle in any transaction in which there is a change in control in the holders of a majority of the voting securities after the transaction, or on an exclusive license of all of our intellectual property.

Raven is a publicly traded corporation (NASDAQ: RAVN) based in Sioux Falls, South Dakota that is a leading provider of precision agriculture products designed to reduce operating costs, decrease inputs and improve yields of farmers through their Applied Technology division.

Agribotix – Data and SAAS Agreements

In November 2017, AgEagle entered into a multi-agreement arrangement with Agribotix, LLC (“Agribotix”), headquartered in Boulder, Colorado, a leading agricultural information processing company providing actionable data to the agriculture industry. Agribotix’s platform delivers agricultural intelligence to increase yields and profits using drone-enabled technologies. Agribotix was founded in 2013 by Dr. Tom McKinnon, its Chief Technology Officer.

AgEagle believes that developing a strong working relationship with Agribotix will benefit AgEagle and its shareholders in developing important vertically integrated products and services. Agribotix’s primary product is FarmLens™, a subscription cloud analytics service that processes data, primarily collected with a drone such as AgEagle’s, and makes such data usable by farmers and agronomists. FarmLens is currently sold by Agribotix as a subscription and offered either standalone or in a bundle with major drone platforms manufactured by leading drone providers like AgEagle, DJI, and senseFly.

Agribotix extends the reach of its FarmLens platform by partnering with and directly integrating into offerings by leading agricultural companies like John Deere’s Operations Center and The Climate Corporation’s FieldView. To date, Agribotix has processed agricultural imagery for over 50 different crop types from over 50 countries around the world.

The agreements reached between AgEagle and Agribotix include:

· Dealer Agreement whereby AgEagle appointed Agribotix as a non-exclusive dealer of AgEagle’s products on a worldwide, best efforts basis. The term of the agreement is for twelve months with marketing and sales commencing on or after January 1, 2018, and automatically renews for one-year periods unless otherwise terminated. Either party may terminate the agreement with 30 days’ written notice. Both parties agree to provide standard reporting and support services. Agribotix is required to maintain proper insurance and is obligated to standard confidentiality clauses. AgEagle has the right to audit Agribotix on an annual basis for its business under this agreement. Both parties agreed to standard indemnification clauses.

· Distribution and Resale Agreement whereby Agribotix appointed AgEagle as a non-exclusive distributor of Agribotix products and analytic services including FarmLens on a worldwide, best efforts basis. The term of the agreement is for twelve months and automatically renews for one-year periods unless otherwise terminated. Either party may terminate the agreement with 90 days’ written notice. Both parties agree to provide standard reporting and support services. AgEagle is required to maintain proper insurance and is obligated to standard confidentiality clauses. Both parties agree to standard indemnification clauses.

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· Exchange Agreement whereby, to further align interests between the parties, AgEagle has agreed to exchange shares of the Company’s common stock it receives in the Merger equal to an aggregate value of $1,000,000 for 20% of the equity membership interests of Agribotix. This Exchange Agreement may be terminated by either party based on further due diligence of the parties, or in the instance that the Merger does not close. The shares of EnerJex that would be issued to Agribotix at the closing of the Merger would not affect the Merger exchange ratio, and therefore would not be additionally dilutive to EnerJex shareholders.

Consumer Products and Services

UAV Market Overview

Unmanned aerial vehicles, or UAVs, have been in use for decades, whether it be a drone for military surveillance by the U.S. Government, a commercial UAV used to scan and survey property, or by hobbyists who fly their personal devices simply to get a different view of the world. All three of these examples fall under the same burgeoning industry, one that is increasing in number and effectiveness as aircrafts, sensors and automation technologies mature. As the potential benefits of UAV technology extend beyond its traditional military use, commercial customers have started to shift resources into the drone opportunity so as to reach levels of efficiency not previously experienced. Despite the obstacles the industry will continue to face and be required to maneuver through, the first operational rules for routine commercial use of UAVs went into effect on August 20, 2016. The current landscape and targeted industries in the UAV marketplace can be seen below:

 

Figure 2: Industries in the UAV Marketplace

The military’s use of drones are recognized and have been around for many years. The participants in this market are well entrenched at this point, with companies such as Boeing, Lockheed Martin and AeroVironment providing surveillance and attack drones to the U.S. military and Department of Defense. The growth of unmanned systems for military and civil use is projected to continue through the next decade. It is estimated that UAV spending in the civil market will increase substantially over the next decade, from $2.8 billion worldwide in 2017 to $11.8 billion in 2026, and the segment is expected to generate $73.5 billion over the next 10 years, according to The Teal Group. Commercial use is expected to be the fastest growing civil segment, rising more than twelvefold from $512 million in 2017 to $6.5 billion in 2026. This growth is forecasted to be fueled, in part, by the estimated $1.3 billion in investments in the sector by technology companies and venture capitalists since 2013.

As compared to the relatively mature military drone sector, the hobbyist and consumer market has been growing steadily over the past five years. Market leaders include companies such as Dajiang Innovation Technology (“DJI”) and Parrot EPA with many smaller, lessor known companies jumping into the fray. Should consumers continue to adopt this technology, not only do we believe the industry will experience its projected growth, but it will provide for a significant number of purchasing options as competition increases.

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The segment of the UAV industry that has received the most attention recently is the commercial market, which was brought into the spotlight in early 2015 when the FAA released its new proposed guidelines for commercial UAV use, and then in June 2016, when the FAA announced it had finalized the first operational rules for routine commercial use of UAVs. These rules went into effect on August 20, 2016. According to CB Insights, 2016 saw a record number of investments in the drone industry, topping $454 million across 100 transactions, due to venture firms and technology companies moving into the drone space with sizable investments. In Q1 of 2017, the sector saw a quarterly deals record of 32 investments worth $113 million giving 2017 a funding run-rate of 122 deals worth over $506 million, both new records. While regulatory uncertainty has kept many on the sidelines, the new clarity from the FAA has started to help investors get more comfortable. The primary segments in the commercial market, as seen in the above chart, include Precision Agriculture, Inspection/Surveillance, Mapping/Surveying, Film/Photo/Video and Public Safety/First Responders. AgEagle falls under the precision agriculture segment, which as an industry is relatively new and ripe with opportunity for those innovative solutions that solve today’s current problems.

Figure 3: Global UAV Investment History

Precision Agriculture Industry Overview

Precision agriculture is a farming management concept based on observing, measuring, and responding to inter and intra-field variability in crops. Over the years, as farmers have been increasingly under pressure to increase profit margins and comply with new governmental regulations, entrepreneurs have been searching for solutions that present the prospect of new operational efficiencies. This has led to a number of changes in the agricultural industry, with precision agriculture being recognized by some as one of the largest technological opportunities in agriculture since the introduction of hydraulics in the 1940’s. As agriculture and technology companies realize the potential benefits from this new technology, many are introducing innovative products and services to the agriculture arena, focused on helping farmers capitalize upon this new found technology.

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Precision agriculture technologies provide the information and systems that allow a farmer to optimize and customize the timing, amount, and placement of inputs (seed, fertilizer, pesticides, irrigation, etc.) for any given section of a field. This allows the farmer to produce the maximum yield from the entire field at the lowest possible cost. The concept has been enabled by technologies that include:

· Crop yield monitors mounted on GPS-equipped combines;

· variable rate technology, like seeders, sprayers, etc.;

· an array of real-time vehicle mountable sensors that measure everything from chlorophyll levels to plant water status; and

· multi- and hyper-spectral aerial and satellite imagery, from which products like Normalized Difference Vegetation Index (“NDVI”) maps can be made.

The total value of U.S. crops in 2014 was estimated at $195 billion. While 2015 and 2016 saw slight downturns due to commodity pricing, even a modest improvement in yield would have a substantial aggregate economic impact for the roughly $200 billion industry. There are a few trends that drive where we believe the precision agriculture marketplace is heading: the increased use of auto steering and variable rate controls for inputs, advanced sensors and Big Data, the push into the food and grocery industry by WalMart and Amazon, and customers who are realizing their return on investment.

The first trend is possibly the most important. Guidance and auto steering have provided farmers with significant benefits by reducing costly application overlaps by field equipment. This, combined with variable rate application equipment, will allow farmers to break their fields into specific sections based on criteria such as soil type and historical yield. With this information available on a section by section basis, farmers are then able to minimize their costs and increase profitability across the farm as a whole.

However, we believe it is the data behind the equipment that is going to drive the ag industry forward. Advanced sensors and filters allow the farmer to not only view weather and soil data, but through use of a device such as a drone, it would allow that information to be coupled with real time plant health data for in-depth analysis. This analysis supports real time predictive decision-making to drive costs lower and improve crop yields.

Finally, as farmers have begun to adopt this new technology, we believe the returns on their investments are beginning to materialize. By having this increased functionality and the expanded offerings of precision agriculture devices, integrated software, analytics, and cloud services, the hope is that the adoption rates of these new solutions continue to grow over the coming years.

· Figure 4: AgEagle Crop Health Map

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As the demographic for farmers shift to a younger, more technologically-minded group, many are forecasting an increase in the rate of growth of precision agriculture. A current estimate of the precision agriculture market by Markets and Markets projects a roughly $7.9 billion global marketplace by 2022, with an estimated compound annual growth rate of 13.5% from 2016 to 2022. The growth rate outside the U.S., including developing countries where the need to improve productivity is even greater, is expected to be higher. More companies, ranging from large public companies (e.g., Monsanto (biotech, seeds, chemicals) and John Deere (equipment)), to small privately owned or venture backed companies, are expected to begin focusing on this opportunity with the goal of providing specialty farm management software, cloud services, sensors, data analytics, and even drone imaging services.

Precision Agriculture UAV Market

While precision agriculture is beginning to transform traditional farming methods, we believe that the commercial UAV market is strategically placed to play a substantial role in this transformation. UAVs have many commercial applications, as described above, and many industry experts now expect one of the biggest impacts to be on the agriculture industry. Drone technology, if executed properly, can make farming more efficient, lower operating costs and reduce farming’s environmental impact. Current estimates from Zion Market Research expect the industry for drones used in agriculture to reach more than $3.0 billion by 2021, up from approximately $674 million in 2015. These estimates are in spite of the ban that was previously in place by the FAA prior to the announcement in June 2016 that the FAA finalized the first operational rules for routine commercial use of UAVs, which went into effect on August 20, 2016.

The use of drones for agriculture can add real time high definition imagery collected on demand to help farmers see what is happening in the field without having to walk through the field. UAVs costs a fraction of what an airplane or a satellite costs, and at the same time, they can provide a superior set of images with a potential resolution equivalent of taking a picture while standing next to the plant. These small, unmanned rotary and fixed wing aircrafts can fly at low altitudes and be programmed to fly a certain pattern using a variety of software. They can take high definition images with visual and multi spectral cameras, providing specific plant health information in real time. This new imagery would need to be integrated with all the other data a farmer collects to increase productivity. Successful entrants in the UAV space will be the ones who can integrate the existing data and the science of agronomy into the images through partnering or acquisitions.

Market Size

We believe that the precision agriculture sector of the UAV market presents robust opportunities for our products. The United Nations Food and Agriculture Organization (“FAO”) projects that the world will require 70% more food production by 2050 in order to keep up with population growth. That number is nearly 100% when looking at just developing counties. To accomplish this, the agriculture sector will need to become more efficient, producing an average of 250 bushels per acre (“bpa”), possibly as much as 300, from the approximately 200 bpa that are currently produced. Farmers and agronomists are seeking ways to increase yields while lowering input costs and overall environmental impact of chemicals and water consumption. In collaboration with the precision agriculture products already available today, we believe our UAVs can help to accomplish this goal with the actionable data we provide them.

Recent estimates from a report published by Goldman Sachs in March 2016 further estimates the total addressable market for precision agriculture to be $1.4 billion in the U.S. and $5.9 billion globally over the next five years. Such market size translates to approximately 47,000 UAV units in the U.S. and 197,400 UAV units around the world. In addition, Goldman Sachs suggests that the commercial UAV industry has a $21 billion total addressable market with an estimated triple-digit compound annual growth rate from 2016 to 2020.

Other research firms have published their estimates for the precision agriculture market over the last couple years as well. PricewaterhouseCoopers pegs the addressable market for agriculture drones to be worth $32.4 billion, second only to the infrastructure sector. Global Market Insights sees the market surpassing $1.0 billion by 2024, with global shipments exceeding 200,000 UAV units by 2024. Markets and Markets expects the agriculture drone market to grow from $864 million in 2016 to $4.2 billion in 2022, representing a 30%+ CAGR during that period.

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Our Growth Strategy

We intend to grow our business by establishing our leadership position in the growing precision agriculture marketplace for UAVs through our partnership with Raven and through direct sales, and by creating new, easier to use and higher value products that enable us to remain a leading platform available to our customers. We may also elect to pursue additional opportunities in different industries outside of agriculture and its related areas. Key components of this strategy include the following:

Build a strong worldwide distribution network with Raven and organically to offer a best-in-class precision ag platform.

We believe we can establish our flying wing product and systems as leading technologies in the precision agriculture marketplace. Under Raven’s distribution platform, we will have access to dealers and customers in key agricultural regions worldwide, which will help make it possible for farmers in those markets to have access to the AgEagle platform. Raven’s distributors are spread across six continents, covering a majority of the world’s major regions including the U.S., Canada, South America, Eastern and Western Europe, Southeast Asia, and Oceania. We are also building our own distribution channels in parallel with Raven, both in the US and internationally.

Continue to explore partnerships with companies that can expand our offerings.

We intend to expand our product offerings by building relationships, partnerships and possibly acquisitions of companies that have vertical, synergistic technologies. Our first venture into this concept has been and will continue to be to work with Raven to integrate our UAV system with its current precision agriculture products in order to connect the data and improve the effectiveness and efficiency of this data for farmers. In addition, other technology alliances may include the acquisition or development of other electronics, software, sensors or more advanced aerial platforms. We are constantly meeting and in discussions with groups that could fill these roles and help with additional development ideas. We see the potential to acquire such synergistic companies to be an exciting potential growth strategy for AgEagle, especially as the number of companies in the market start to consolidate over the coming years.

Deliver new and innovative solutions in the precision ag space.

Our research and development efforts are the foundation of AgEagle and we plan to continue to invest in R&D. We plan to continue innovating new and enhanced products that enable us to satisfy our customers through better, more capable products and services, both in response to and in anticipation of their needs. We believe that by investing in research and development we can be a leader in delivering innovative products that address market needs within our current target markets, enabling us to create new opportunities for growth.

Pursue the expansion of the AgEagle platform of products into other industries besides agriculture.

We may investigate and pursue opportunities outside of agriculture as we continue to expand and grow the AgEagle platform. We are confident in the UAV product we have today, and believe that this product could provide other industries the same kind of optimization we are currently providing the agriculture industry. These industries have yet to be identified by the AgEagle team, but may include verticals such as land surveying and scanning, insurance, inspections and search and rescue.

Competitive Strengths

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

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Partnership with Raven. Our partnership with Raven has provided and will continue to provide broader access to our products for customers around the world through Raven and its network of dealers. Raven is a leading provider of precision agricultural products in the world, with a loyal customer base and global outreach. We will work together with Raven to provide actionable data to assist customers in making informed input and variable rate decisions. We also intend to capitalize on Raven’s expertise and knowledge within the precision agriculture industry to continue improving and advancing our products offerings.

Proprietary Technology and Trade Secrets. We believe our unique design and assembly process differentiates our product from our competitors. We are confident that our UAVs are industry-leading in durability due to the lightweight laminated shell of the wing, which is made using a proprietary manufacturing process developed by our founder over five years of innovating. This process, which hardens the material used to build the shell, allows the UAV to perform in harsh weather conditions (with wind speeds up to 30 miles per hour) and bring itself to an unassisted landing, all at a total weight of about four to six pounds. This design is an important trade secret and we have non-disclosure agreements with our employees in order to keep it unique to AgEagle.

Product Has Global Appeal. We believe that our technology addresses a need for better data in the agriculture industry worldwide. With our new global distribution platform, we believe that we are well-positioned for our advanced products to be a viable solution for farmers worldwide.

Increased Margins for Farmers. We believe our UAVs will directly enhance margins of our customers by reducing the amount of nutrients and chemicals needed to manage their farms. The software equipped on our UAVs will deliver a high-quality aerial map upon completion of the flight, allowing the user to accurately identify the specific areas that are malnourished. This software is compatible with precision applicator tractors, which assist users in applying a precise amount of nutrients in only the necessary areas.

Empower Customers Through Our Self-Serve Platform. Our UAVs are specially designed to provide users with a portable and easy to operate device, which can be controlled with a hand-held unit or tablet. The UAVs are equipped with a camera and near infrared filter whose images provide a holistic aerial view of the fields along with meaningful data that is uploaded and delivered to the user within a very short time frame. As a result, this platform allows users to quickly detect any issues in their fields, which enables them to address such issues in a timely manner before any damage, or further damage affects their fields.

All Manufacturing of our Products is Completed in the United States. As of today, we manufacture all of our products at our manufacturing facility in Neodesha, Kansas, which allows us to avoid many of the potential difficulties that may arise if our manufacturing facilities were otherwise located outside the U.S. In addition, all of our research and development activities are performed in the U.S.

Government Regulation

Our products are subject to regulations of the FAA. On June 21, 2016, the FAA announced it has finalized the first operational rules for routine commercial use of small UAS, which for purposes of the regulations are unmanned aircraft weighing less than 55 pounds that are conducting non-hobbyist operations. UAS operators-for-hire will have to pass a written test and be vetted by the TSA, but no longer need to be airplane pilots as current law requires. The rules went into effect on August 20, 2016. Among other things, the new regulations require:

· preflight inspection by the remote pilot in command;

· minimum weather visibility of 3 miles from the control station;

· visual line-of-sight to the aircraft from the pilot and person manipulating the controls;

· prohibit flying the aircraft over any persons not directly participating in the operation, not under a covered structure or not inside a covered stationary vehicle;

· daylight or civil twilight operations (30 minutes before official sunrise to 30 minutes after official sunset, local time);

· maximum groundspeed of 100 mph (87 knots); and

· maximum altitude of 400 feet above ground level or, if higher than 400 feet above ground level, the aircraft must remain within 400 feet of a structure.

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 The new regulations also establish a remote pilot in command position. A person operating a small unmanned aircraft must either hold a remote pilot airman certificate with a small unmanned aircraft system rating or be under the direct supervision of a person who does hold a remote pilot certificate (remote pilot in command). A pilot’s license is no longer required. To qualify for a remote pilot certificate, a person must: demonstrate aeronautical knowledge by either passing an initial aeronautical knowledge test at an FAA-approved knowledge testing center, or hold a part 61 pilot certificate other than student pilot, complete a flight review within the previous 24 months, and complete a small UAS online training course provided by the FAA. The person must also be vetted by the TSA and be at least 16 years old. Applicants will obtain a temporary remote pilot certificate upon successful completion of TSA security vetting. The FAA anticipates that it will be able to issue a temporary remote pilot certificate within 10 business days after receiving a completed remote pilot certificate application.

The regulations do not require the use of a visual observer. In addition, FAA airworthiness certification is not required. However, the remote pilot in command must conduct a preflight check of the small UAS to ensure that it is in a condition for safe operation.

Most of the restrictions can be waived by the FAA if the applicant demonstrates that his or her operation can safely be conducted under the terms of a certificate of waiver. The FAA maintains an online portal where a company or individual can apply for a certificate of waiver.

Manufacturing

As of today, we manufacture all of our products at our manufacturing facility in Neodesha, Kansas. We believe our current facilities are sufficient to adapt to our growth plans for the next two to three years and we have no current plans to expand our manufacturing capabilities.

Suppliers

Currently, we have strong relationships established with companies that provide many of the parts and services necessary to construct our advanced fixed wing product, such as Botlink, GoPro and 3DR. We have relationships with these suppliers and hope to continue to build and find new relationships from which we can source cheaper and better supplies to stay ahead of the needs of the market. 

 Our flight planning and photo stitching software is provided by Botlink, a private company in North Dakota. We have worked closely with Botlink to optimize their software to work with our platforms. We consider our relationship with Botlink to be good; however, a loss of this relationship could have a materially adverse effect on our product offerings and results of operations.

Research and Development

Research and development activities are integral to our business and we follow a disciplined approach to investing our resources to create new technologies and solutions. A fundamental part of this approach is a well-defined screening process that helps us identify commercial opportunities that support current desired technological capabilities in the precision agriculture space. Our research includes the expansion of our wing products so as to build a portfolio of UAVs, as well as other solutions to problems with which agriculture professionals struggle.

Employees

As of December 31, 2017, we had a total of 5 employees. We tend to increase the number of employees during the grow season in the U.S. which runs from May to September. We have not experienced a work stoppage since we commenced operations. None of our employees are represented by employee union(s). We believe relations with all of our employees are good.

Legal Proceedings

From time to time, we may become party to litigation or other legal proceedings that we consider to be a part of the ordinary course of our business. We are not currently involved in legal proceedings that could reasonably be expected to have a material adverse effect on our business, prospects, financial condition or results of operations. We may become involved in material legal proceedings in the future.

Property

We have one leased facility located at 117 South 4th Street, Neodesha, Kansas 66757. This serves as the corporate headquarters and manufacturing facility. The facility is a lease of 4,000 square feet at a cost of $200 per month. Monthly rent increases by $100 every year until the expiration of the lease in 2018.

Executive Office

Our principal executive offices are located at 117 S. 4^th Street, Neodesha, Kansas 66757 and its telephone number is (620) 325-6363. Our website address is http://www.ageagle.com. The information contained on or connected to our website is expressly not incorporated by reference into this Current Report on Form 8-K.

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Risk Factors

We may fail to realize the anticipated benefits of the Merger.

The success of the Merger will depend on, among other things, the combined company’s ability to achieve its business objectives, including the successful development of its products. If we are not able to achieve these objectives, the anticipated benefits of the Merger may not be realized fully, may take longer to realize than expected, or may not be realized at all.

Prior to the consummation of the Merger, EnerJex and AgEagle operated independently. Any delays in the integration process or inability to realize the full extent of the anticipated benefits of the Merger could have an adverse effect on the business prospects and results of operations of the combined company. Such an adverse effect may impact the value of the shares of the combined company’s common stock after the completion of the Merger.

Potential difficulties that may be encountered in the integration process include the following:

· using the combined company’s cash and other assets efficiently to develop the business of the combined company;

· potential unknown or currently unquantifiable liabilities associated with the Merger and the operations of the combined company; and

· performance shortfalls as a result of the diversion of management’s attention that was caused by completing the Merger.

We will incur losses for the foreseeable future and might never achieve profitability.

We may never become profitable. We will need substantial funding and product development is an expensive and uncertain process. That, together with projected general and administrative expenses, is expected to result in increased operating losses. Even if we achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis.

Our management will be required to devote substantial time to comply with public company regulations.

We will continue to incur significant legal, accounting and other expenses related to being a public company. The rules implemented by the SEC and the NYSE American, impose various requirements on public companies, including those related to corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these requirements. Certain members of our management, post-Merger, do not have experience in addressing these requirements.

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Risks Related to Our Business and Industry

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

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

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

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

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

Product development is a long, expensive and uncertain process.

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

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

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

· failure to obtain the required regulatory approvals for their use;

· prohibitive production costs;

· competing products;

· rapid evolvement of the product due to new technologies;

· lack of product innovation;

· unsuccessful distribution and marketing through our sales channels;

· insufficient cooperation from our supply and distribution partners; and

· product development that does not align with or meet customer needs.

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

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

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

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

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

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

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

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

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

As a manufacturer of UAV products, and with aircraft and aviation sector companies under increased scrutiny, claims could be brought against us if use or misuse of one of our UAV products causes, or merely appears to have caused, personal injury or death. In addition, defects in our products may lead to other potential life, health and property risks. Any claims against us, regardless of their merit, could severely harm our financial condition, strain our management and other resources. We are unable to predict if we will be able to obtain or maintain product liability insurance for any products that may be approved for marketing.

If we are unable to recruit and retain key management, technical and sales personnel, our business would be negatively affected.

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

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

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

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

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

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

The rapidly changing nature of the markets in which we compete makes it difficult to accurately forecast our revenues and operating results. Furthermore, we expect our revenues and operating results to fluctuate in the future due to a number of factors, including the following:

· the timing of sales of our products;

· unexpected delays in introducing new products;

· increased expenses, whether related to sales and marketing, or administration; and

· costs related to possible acquisitions of businesses.

Rapid technological changes may adversely affect the market acceptance of our products and could adversely affect our business, financial condition and results of operations.

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

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

In August 2016, regulations from the FAA relating to the commercial use of UAVs in the United States became law. As a result, users of systems like ours are only required to take a knowledge exam at an approved FAA testing station similar to an automobile driver’s license exam. Prior to the new law, users had to hold a pilot’s license, have an observer present and file various documents before flights. We saw a decrease in revenues of approximately 52% during 2016, which we believe may have been partially due to the uncertainty of the FAA regulations prior to the enactment of the new law. In the event new FAA rules or regulations are promulgated or current rules are revised that may negatively affect commercial usage of our UAVs, such rules and laws could adversely disrupt our operations and overall sales.

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

The outcome of any future legal proceedings may differ from our expectations because the outcomes of litigation, including regulatory matters, are often difficult to reliably predict. Various factors or developments can lead us to change current estimates of liabilities and related insurance receivables where applicable, or make such estimates for matters previously not susceptible of reasonable estimates, such as a significant judicial ruling or judgment, a significant settlement, significant regulatory developments or changes in applicable law. A future adverse ruling, settlement or unfavorable development could result in future charges that could have a material adverse effect on our results of operations or cash flows in any particular period. We are not currently involved in or subject to any such legal or regulatory proceedings, but we cannot guarantee that such proceedings may not occur in the future.

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

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

Our global distribution agreement with Raven leaves open the possibility that we may be left without an effective distribution platform in the event the Raven agreement is terminated or is not renewed upon completion of the initial term of the agreement.

In the event our agreement with Raven is terminated or modified, whether by triggering an early termination or reaching the completion of the initial term, we may be left without an effective platform through which we can immediately distribute our products. If there is an early termination, this could substantially impact the global rollout and market acceptance of our products. This may result in our business, operating results and financial condition being adversely affected.

Currently, Raven has a non-exclusive worldwide right to distribute our products in the agriculture market. Our agreement with Raven covers our fixed wing product, with a right of first opportunity for us to provide multirotor and other format UAVs. If we cannot provide such extended product offerings, Raven may use other suppliers for such requirements, which would compete with our market share.

As of December 31, 2017, three UAVs were returned and approximately twenty-one units have been converted to include components from the newer models. At this time we have determined that all the U.S. former dealers based on their right of return clause have been properly account for and completed therefore no expense was recorded for the year ended December 31, 2017 and there is no remaining liability.

We may pursue additional strategic transactions in the future, which could be difficult to implement, disrupt our business or change our business profile significantly.

We intend to consider additional potential strategic transactions, which could involve acquisitions of businesses or assets, joint ventures or investments in businesses, products or technologies that expand, complement or otherwise relate to our current or future business. We may also consider, from time to time, opportunities to engage in joint ventures or other business collaborations with third parties to address particular market segments. Should our relationships fail to materialize into significant agreements or should we fail to work efficiently with these companies, we may lose sales and marketing opportunities and its business, results of operations and financial condition could be adversely affected.

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

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

Breaches of network or information technology security could have an adverse effect on our business.

Cyber-attacks or other breaches of network or IT security may cause equipment failures or disrupt our systems and operations. We may be subject to attempts to breach the security of our networks and IT infrastructure through cyber-attack, malware, computer viruses and other means of unauthorized access. The potential liabilities associated with these events could exceed the insurance coverage we maintain. Our inability to operate our facilities as a result of such events, even for a limited period of time, may result in significant expenses or loss of market share to other competitors in the defense electronics market. In addition, a failure to protect the privacy of customer and employee confidential data against breaches of network or IT security could result in damage to our reputation. To date, we have not been subject to cyber-attacks or other cyber incidents which, individually or in the aggregate, resulted in a material adverse effect on our business, operating results or financial condition.

The preparation of our financial statements involves use of estimates, judgments and assumptions, and our financial statements may be materially affected if our estimates prove to be inaccurate.

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

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

Natural disasters, such as hurricanes, tornadoes, floods, earthquakes, and other adverse weather and climate conditions; unforeseen public health crises, such as pandemics and epidemics; political crises, such as terrorist attacks, war, labor unrest, and other political instability; or other catastrophic events, such as disasters occurring at our manufacturing facilities, could disrupt our operations or the operations of one or more of our vendors. In particular, these types of events could impact our product supply chain from or to the impacted region and could impact our ability to operate. In addition, these types of events could negatively impact consumer spending in the impacted regions. Disasters occurring at our manufacturing facilities could impact our reputation and our customers’ perception of our brands. To the extent any of these events occur, our operations and financial results could be adversely affected.

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

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

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

We acquire most of the components for the manufacture of our products from suppliers and subcontractors. We have not entered into any agreements or arrangements with any potential suppliers or subcontractors. Suppliers of some of the components may require us to place orders with significant lead-times to assure supply in accordance with its manufacturing requirements. Our present lack of working capital may cause us to delay the placement of such orders and may result in delays in supply. Delays in supply may significantly hurt our ability to fulfill our contractual obligations and may significantly hurt our business and result of operations. In addition, we may not be able to continue to obtain such components from these suppliers on satisfactory commercial terms. Disruptions of its manufacturing operations would ensue if we were required to obtain components from alternative sources, which would have an adverse effect on our business, results of operations and financial condition.

Risks Associated with Our Securities

As a result of the Merger, Mr. Bret Chilcott, our new Chief Executive Officer and President beneficially owns a majority of our outstanding capital stock and will have the ability to control our affairs.

As a result of the Merger, our Chief Executive Officer and President, Bret Chilcott owns approximately 59.4% of the issued and outstanding common stock, which is estimated to equal approximately 36% of our total capitalization after the Merger on a fully-diluted basis (assuming conversion or exercise of all convertible securities, outstanding stock options and warrants, and issuance of additional shares of Series C Preferred Stock in connection with the $4 million financing). By virtue of his holdings, he may influence the election of the members of our board of directors, our management and our affairs, and may make it difficult for us to consummate corporate transactions such as mergers, consolidations or the sale of all or substantially all of our assets that may be favorable from our standpoint or that of our other shareholders.

We do not know whether an active, liquid and orderly trading market will develop for our common stock.

An active trading market for our securities may not develop or be sustained after the completion of the Merger. The lack of an active or liquid market may impair your ability to sell our securities at the time you wish to sell them or at a price that you consider reasonable.

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

Following the Merger, our shares may experience substantial volatility as a result of a number of factors, including, among others:

· sales or potential sales of substantial amounts of our common stock;

· announcements about us or about our competitors or new product introductions;

· developments concerning our product manufacturers;

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· the loss or unanticipated underperformance of our global distribution channel;

· litigation and other developments relating to our patents or other proprietary rights or those of our competitors;

· conditions in the UAV industry;

· governmental regulation and legislation;

· variations in our anticipated or actual operating results;

· changes in securities analysts’ estimates of our performance, or our failure to meet analysts’ expectations;

· foreign currency values and fluctuations; and

· overall political and economic conditions.

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

We intend to retain future earnings, if any, to fund the development and growth of our business. In addition, the terms of existing and future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, our common stock will be your sole source of gain for the foreseeable future.

Provisions in our articles of incorporation and by-laws, and Nevada law might discourage, delay or prevent a change in control of our company or changes in our management and, therefore, depress the trading price of our common stock.

Provisions of our articles of incorporation and by-laws, and Nevada law may have the effect of deterring unsolicited takeovers or delaying or preventing a change in control of our company or changes in our management, including transactions in which our shareholders might otherwise receive a premium for their shares over then current market prices. In addition, these provisions may limit the ability of shareholders to approve transactions that they may deem to be in their best interests. These provisions include:

· the inability of shareholders to call special meetings; and

· the ability of our board of directors to designate the terms of and issue new series of preferred stock without shareholder approval, which could include the right to approve an acquisition or other change in our control or could be used to institute a rights plan, also known as a poison pill, that would work to dilute the stock ownership of a potential hostile acquirer, likely preventing acquisitions that have not been approved by our board of directors.

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

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

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

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

The trading market for our securities will be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not have any control over these analysts. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause the price of our securities or trading volume to decline. Moreover, if one or more of the analysts who cover us downgrade our stock, or if our results of operations do not meet their expectations, the price of our securities could decline.

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Item 3.01 Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing.

In connection with the completion of the Merger, the Company notified FINRA that each outstanding share of the Series A Preferred Stock was converted into the right to receive ten (10) shares of Company common stock.. Trading of the Series A Preferred Stock was suspended as of the closing of trading on March 26, 2018. The Company filed a Form 15 to suspend its reporting obligations under Section 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Item 3.02 Unregistered Sales of Equity Securities

On November 21, 2017, Alpha Capital Anstalt (“Alpha”) signed a binding commitment letter EnerJex to provide prior to or at the closing of the Merger a minimum of $4 million in new equity capital (the “Private Placement”). The Private Placement was consummated on March 26, 2018. In connection with the Private Placement, an additional 4,626 shares of Series C Preferred Stock, convertible into 3,020,797 shares of Company common stock, were issued. The number of shares of Series C Preferred Stock issued in the Private Placement also includes shares of Series C Preferred Stock issued as a funding commitment equal to 2.5% of the outstanding Company common stock on a fully diluted basis. 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.

Each share of Series C Preferred Stock is convertible into a number of shares of Company common stock equal to the quotient determined by dividing (x) the stated value of $1,000 per share, by (y) a conversion price of $1.53. Until the volume weighted average price of our common stock on NYSE exceeds $107.50 with average trading volume of 200,000 shares per day for ten consecutive trading days, the conversion price of our Series C Preferred Stock is subject to full-ratchet, anti-dilution price protection. Under that provision, if, while that full-ratchet, anti-dilution price protection is in effect, we issue shares of our common stock at a price per share (the “Dilutive Price”) that is less than the conversion price, then the conversion price of our Series C Preferred Stock is automatically reduced to be equal to the Dilutive Price. The effect of that reduction is that, upon the issuance of shares of common stock at a Dilutive Price, the Series C Preferred Stock would be convertible into a greater number of shares of our common stock.

The Series C Preferred Stock was issued pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D promulgated thereunder, in reliance on the recipient’s status as an “accredited investor” as defined in Rule 501(a) of Regulation D.

Item 4.01 Changes in Registrant’s Certifying Accountant.

On March 26, 2018, in connection with the Merger, we engaged D. Brooks and Associates CPA’s, P.A. (“D. Brooks”) as our independent registered public accounting firm and dismissed RBSM LLP (“RBSM”) on the same date. D. Brooks was the independent registered public accounting firm for AgEagle Sub prior to the Merger. The decision to engage D. Brooks and to dismiss RBSM was approved by the Company's Audit Committee. The audit report of RBSM on the financial statements of EnerJex for the years ended December 31, 2017 and 2016 did not contain any adverse opinion or disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles.  

For the years ended December 31, 2017 and 2016, and the subsequent period through March 26, 2018, there were no disagreements between EnerJex and RBSM on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of RBSM would have caused RBSM to make reference to the subject matter of the disagreements in connection with its reports.

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For the years ended December 31, 2017 and 2016, and the subsequent period through March 26, 2018, there were no “reportable events” (defined below) requiring disclosure pursuant to Item 304(a)(1)(v) of Regulation S-K. As used herein, the term “reportable event” means any of the items listed in paragraphs (a)(1)(v)(A)-(D) of Item 304 of Regulation S-K.

Attached as Exhibit 16.1 is a copy of RBSM’s letter addressed to the SEC relating to the statements made by the Company in this Current Report on Form 8-K.

On March 26, 2018, we engaged D.Brooks, as our principal accountant. D. Brooks was the independent registered public accounting firm for AgEagle Sub prior to the Merger. Accordingly, the Audit Committee, together with management, believed it was in the best interests of the Company to engage D. Brooks as the independent registered public accounting firm for the Company. During the year ended December 31, 2017 and the subsequent period through March 26, 2018, neither EnerJex nor anyone on its behalf consulted D. Brooks regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on EnerJex’s consolidated financial statements, and neither a written report nor oral advice was provided to EnerJex that D. Brooks concluded was an important factor considered by EnerJex in reaching a decision as to any accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of Regulation S-K) or a reportable event.

Item 5.01 Changes in Control of Registrant

In connection with the consummation of the Merger, as described in Item 2.01 of this Current Report on Form 8-K , as of the Effective Time, the former shareholders of AgEagle Sub now own 7,949,837 shares of common stock, and options exercisable into 1,963,051 shares of common stock and 1,623.79 shares of Series C Preferred Stock convertible into 1,060,432 shares of common stock, collectively representing approximately 67% of the Company’s common stock on a fully diluted basis, and the former EnerJex holders of common stock, Series A Preferred Stock, Series B Preferred Stock and previously issued Series C Preferred Stock, collectively own 2,070,417 shares, representing 12.7% of the Company’s common stock on a fully-diluted basis. An additional 5,050.60 shares of Series C Preferred Stock, convertible into 3,298,348 shares of common stock, were issued to Alpha in connection with the funding of $4 million in new capital and the conversion and retirement of $425,000 in prior EnerJex promissory notes at Closing. Other than the transactions and agreements disclosed in this Current Report on Form 8-K, we know of no other arrangements which may result in a change in control.

The following table and the related notes present information on the beneficial ownership of shares of the Company common stock by:

· the Company Directors;

· the Company Executive Officers;

· the Company Directors and Executive Officers as a group; and

· each shareholder known by us to beneficially own more than five percent of the Company common stock on an as-converted basis.

Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the securities. The number of shares owned, total shares beneficially owned and the percentage of common stock beneficially is based upon a total of 9,886,305 shares of Company common stock issued and outstanding as of the Effective Time, excluding 332,657 shares of EnerJex common stock to be issued upon the exercise of stock options that are vested or will vest within 60 days after the Merger closing to the persons named below.

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The table excludes the conversion to common stock of EnerJex’s Series B Preferred Stock and Series C Preferred Stock in the total shares of EnerJex outstanding, however, such shares of Series B Preferred Stock and Series C Preferred Stock have been included in the holdings of the individual shareholder if such preferred shares are convertible within 60 days’ (subject to blocking provisions as disclosed in the footnote below).

Beneficial Owner (1)(2)	Number of Shares Beneficially Owned		Percentage of Common Stock Beneficially Owned
Bret Chilcott, President, Chief Executive Officer, Secretary and Director (3)		5,875,321		59.4	%
Nicole Fernandez-McGovern, Chief Financial Officer (4)		217,479		1.2	%
Lindsay Edwards, Director		*		*
Grant Begley, Director (4)		50,781		*
Thomas Gardner, Director (4)		105,151		*
Scott Burell, Director (4)		50,781		*
All directors and officers as a group (6 persons)		6,299,513		60.6	%
5% Shareholders
GreenBlock Capital, LLC (5)		938,593		9.0	%
Alpha Capital Anstalt (6)		889,767		8.9	%

* Less than 1%

(1)	Unless otherwise indicated, such individual’s address is c/o AgEagle, 117 South 4th Street, Neodesha, Kansas 66757.
(2)	The persons named in this table have sole voting and investment power with respect to all shares of common stock reflected as beneficially owned by them. A person is deemed to be the beneficial owner of securities that can be acquired by such person within sixty (60) days from March 26, 2018, and the total outstanding shares used to calculate each beneficial owner’s percentage includes such shares, although such shares are not taken into account in the calculations of the total number of shares or percentage of outstanding shares. Beneficial ownership as reported does not include shares subject to option or conversion that are not exercisable within 60 days of March 26, 2018.
(3)	Includes shares issuable upon conversion of $55,000 in notes payable at the closing of the Merger.
(4)	All shares are comprised of options that have vested or will vest within 60 days.
(5)	Includes conversion of $77,124 of notes and accrued interest into common stock, but excludes options to purchase 188,705 shares of common stock. Mr. Chris Spencer, a Partner of GreenBlock Capital, LLC, has sole investment and voting power with respect to the shares. The address for GreenBlock Capital, LLC is 420 Royal Palm Way, Palm Beach, Florida 33480.
(6)	Alpha holds the EnerJex Series B Preferred Stock and Series C Preferred Stock, which are currently convertible into an aggregate of 4,492,729 shares of EnerJex common stock, which have been excluded from the table because under the terms of both the Series B and Series C Certificates of Designation, the holder thereof may not own in excess of 9.9% of the Company’s voting (i.e., common) stock. The address for Alpha Anstalt is Pradafant 7, Furstentums 9490, Vaduz, Liechtenstein.

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Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

In connection with the consummation of the Merger, as described in Item 2.01 of this Current Report on Form 8-K, immediately following the Effective Time, the existing board of directors and officers of EnerJex resigned and the directors and officers of AgEagle Sub were appointed to serve as directors and officers of the Company.

Name	Position
Executive Officers
Bret Chilcott	Chief Executive Officer, President, Secretary and Director
Nicole Fernandez-McGovern	Chief Financial Officer
Directors
Lindsay Edwards	Non-Executive Director
Grant Begley (1)(2)(3)	Independent Director
Scott Burell (1)(2)(3)	Independent Director
Thomas Gardner (1)(2)(3)	Independent Director

(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Nominating and Corporate Governance Committee

Bret Chilcott. Mr. Chilcott has served as a member of our board of directors and as President since the inception of the Company in April 2014 and as Chief Executive Officer since February 2016. The path to AgEagle started when Mr. Chilcott established his advanced composite manufacturing company, Solutions by Chilcott, LLC, whose manufacturing processes led the way to the initial AgEagle fixed wing design. Previously, Mr. Chilcott spent over 12 years with Cobalt Boats in Neodesha, Kansas, where he held a variety of positions from Director of Product Development and Engineering to Director of Sales and Marketing. In those positions, he was responsible for developing strategic product plans for the company as well as the management of regional sales managers. Prior to Cobalt Boats, Mr. Chilcott also spent a number of years working at the Cessna Aircraft Company and Snap-on Tools. It was at Snap-on Tools, acting as a national accounts manager, that Mr. Chilcott first established his blueprint for a dealer network, a model which he carried over successfully to AgEagle when AgEagle began selling its product. Mr. Chilcott graduated from Kansas Community College in 1982 with a degree in Sales and Marketing. We believe that Mr. Chilcott’s background and experience in composite parts manufacturing provides him with a broad familiarity of the range of issues confronting our company in the market, which makes him a qualified member of our board.

Nicole Fernandez-McGovern. Ms. Fernandez-McGovern has served as our Chief Financial Officer since April 2016. From April 2013 to January 2016, Ms. Fernandez-McGovern served as the CEO and CFO of Trunity Holdings, Inc. (OTCQB: TNTY), where she was able to lead a successful restructuring of the company by acquiring a new compounding pharmacy business and finalizing the spin-out of the legacy educational business into a newly formed private company. From January 2011 to April 2013, Ms. Fernandez-McGovern was President of RCM Financial Consulting, a consulting firm where she provided interim accounting and financial services to small and medium sized companies. Ms. Fernandez-McGovern was also a financial manager at Elizabeth Arden, Inc. (NASDAQ: RDEN) from July 2001 to October 2010, where she was involved in all aspects of the SEC and financial reporting process. Her career began with KPMG LLP in the audit and assurance practice where she managed various large scale engagements for both public and privately held companies. Ms. Fernandez-McGovern has a Master of Business Administration with a concentration in Accounting and International Business and a Bachelor of Business Administration with a concentration in accounting, both from the University of Miami. She is also a Certified Public Accountant in the State of Florida, serves on the boards of the South Florida Chapter of Financial Executives International and Pembroke Pines Charter Schools Advisory Board and is fluent in Spanish.

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Lindsay Edwards. Ms. Edwards has served as a member of our board of directors since March 2016. Since September 2012, Ms. Edwards has served as in-house legal counsel for Raven Industries, Inc. (NASDAQ: RAVN). From September 2010 to September 2012, Ms. Edwards was an associate in the litigation section at May & Johnson, PC in Sioux Falls, SD. Her legal career started in 2006 in Omaha, NE, where she was an associate with Husch Blackwell LLP. Her primary practice areas were corporate litigation, employment law, corporate governance and contracting. Throughout her career, Ms. Edwards has represented an array of clients spanning from small community businesses to Fortune 500 companies. Ms. Edwards received her Juris Doctor from the University of Arkansas School of Law in 2006. Prior to attending law school, Ms. Edwards received her Bachelor of Science in Criminal Justice and Psychology from the University of South Dakota. We believe that Ms. Edwards’ legal background and experience as in-house legal counsel for Raven, along with her broad understanding of our business, are valuable resources to our board.

Grant Begley. Mr. Begley has served as a member of our board of directors since June 2016. Since July 2011, Mr. Begley has served as President of Concepts to Capabilities Consulting LLC, which advises global executive clients on competitive positioning and performance in aerospace. From August 2010 to September 2011, Mr. Begley was Corporate Senior Vice President for Alion Science and Technology. Prior to Alion, Mr. Begley served as Pentagon Senior Advisor to the Office of the Under Secretary of Defense, for Unmanned Systems, advising on critical issues and leading development of DoD’s 2011 Unmanned Systems Roadmap. Mr. Begley’s career includes defense industry leadership positions for the development of advanced capabilities with Raytheon and Lockheed Martin where he initiated and led cross-corporation unmanned systems and robotics successes. Mr. Begley served in the United States Navy for 26 years, where his duties included operational assignments flying fighter aircraft, designated Top Gun, followed by acquisition assignments for the development and management of next generation manned and unmanned aircraft systems, weapon systems and joint executive acquisition assignments. Mr. Begley holds Master’s degrees in Aerospace and Aeronautic Engineering from the Naval Post-Graduate School and a Bachelor’s degree in General Engineering from the U.S. Naval Academy. We believe that Mr. Begley’s 20 plus years of experience as a UAV industry expert, focused on UAV technologies, regulations and commercial applications, will be an invaluable resource to our board.

Scott Burell. Mr. Burell has served as a member of our board of directors since June 2016. Concurrently from November 2006 until November 2017, he served as the Chief Financial Officer, Secretary and Treasurer of CombiMatrix Corporation (NASDAQ: CBMX), a publicly traded diagnostics laboratory that was acquired in November 2017 by Invitae Corporation (NYSE: NVTA). Mr. Burell served as CombiMatrix’s Vice President of Finance since November 2001 and as Controller from February 2001 to November 2001. From May 1999 to February 2001, Mr. Burell was the Controller for Network Commerce, Inc. (NASDAQ: SPNW), a publicly traded technology and information infrastructure company located in Seattle, Washington. Prior to this, Mr. Burell spent nine years with Arthur Andersen’s Audit and Business Advisory practice in Seattle. During his tenure in public accounting, Mr. Burell worked with many clients, both public and private, in the high-tech and healthcare markets, and was involved in numerous public offerings, spin-offs, mergers and acquisitions. Mr. Burell has been a licensed C.P.A. in the State of Washington since 1992 (currently inactive). Mr. Burell also serves on the Board of Directors of Microbot Medical, Inc. (NASDAQ: MBOT), an Israeli-based medical device company specializing in the researching, designing, developing and commercializing of transformational micro-robotics medical technologies. He also is a member of the Board of Directors of CollPlant, as well as CollPlant (TLV: CLPT), a regenerative medicine company focused on development and commercializing tissue repair products, initially for orthobiologics and advanced would care markets. He is a member of the National Association of Corporate Directors, the Orange County chapter of the Forum for Corporate Directors and is a member of the American Institute of Certified Public Accountants. He holds Bachelor of Science degrees in both Accounting and Business Finance from Central Washington University. We believe that Mr. Burell’s background in accounting and experience as a chief financial officer of a public company, coupled with his corporate governance expertise, qualify Mr. Burell as a valuable member of our board.

Thomas Gardner. Mr. Gardner has served as a member of our board of directors since June 2016 and he and his firm has been engaged as a consultant to AgEagle. Since May 2010, Mr. Gardner has served as COO and Director at NeuEon, Inc., a technology advisory consulting firm, where he oversees operations and provides strategic technology and business guidance to select clients. Mr. Gardner has extensive experience in the areas of business and technology leadership across many industries, including financial services, manufacturing, telecommunications and consumer goods. Within these sectors, Mr. Gardner has specific expertise in the areas of process improvement, digitization and standardization, mergers and acquisitions, system implementations, enterprise resource planning and work-force optimization. Mr. Gardner holds a dual Bachelor of Science in Accounting and Management from Bryant University. We believe that Mr. Gardner’s experience as a data analytics expert, along with his strategic technology and business expertise, brings a unique perspective to our board.

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Summary Compensation Table

The following summary compensation table indicates the total compensation received by, or earned by Mr. Bret Chilcott, Chief Executive Officer of AgEagle and, as proposed, of the combined company after the Merger, during the years ended December 31, 2017 and 2016.  Mr. Chilcott was our only named executive officer during the years ended December 31, 2017 and 2016.

Name and Principal Position	Year	Salary		Bonus		Equity Awards		All Other Compensation		Total
Bret Chilcott	2016	$	31,200		-0-		-0-		-0-	$	31,200
Bret Chilcott	2017	$	31,200		-0-		-0-		-0-	$	31,200

Employment Agreements

As the CFO of AgEagle Sub and of the Company, Ms. Fernandez earned a salary of $66,000 per year, payable in monthly installments of $5,500. As of December 31, 2017, Ms. Fernandez is owed $71,000 for deferred compensation for services rendered in 2017 and part of 2016. As part of her compensation, Ms. Fernandez shall also receive ten year stock options to purchase 282,240 shares of common stock at an exercise price of $0.06 per share, of which half of the options vest upon issuance and the remainder will vest equally over two years. Ms. Fernandez will be awarded additional stock options to purchase 12,500 shares of common stock on a quarterly basis at an exercise price per share equal to the market price of our common stock at the time of issuance during the term of her employment.

We have 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 we will enter into formal employment agreements with our executive officers following the Merger.

Non-Employee Director Compensation

Pursuant to their respective offer letters, each independent director is entitled to receive for their service on the board: (1) an initial grant of ten year options to purchase 82,379 shares of common stock at an exercise price of $.06 per share that vest half upon issuance and the remainder will vest over 2 years equally and (2) additional five year options to purchase 5,000 shares of common stock per calendar quarter of service at an exercise price per share equal to the market price of our common stock at the time of issuance. 

Company 2017 Omnibus Equity Incentive Plan

The 2017 Omnibus Equity Plan became effective at the Effective Time (the “Plan”). The Plan is a comprehensive incentive compensation plan under which we can grant equity-based and other incentive awards to officers, employees and directors of, and consultants and advisers to, the Company The purpose of the Plan is to help us attract, motivate and retain such persons and thereby enhance shareholder value. The Plan provides for the grant of awards which are incentive stock options (“ISOs”), non-qualified stock options (“NQSOs”), unrestricted shares , restricted shares, restricted stock units, performance stock, performance units, SARs, tandem stock appreciation rights, distribution equivalent rights, or any combination of the foregoing, to key management employees, non-employee directors, and non-employee consultants of the Company or any of its subsidiaries (each a “participant”) (however, solely Company employees or employees of the Company’s subsidiaries are eligible for incentive stock option awards). We have reserved a total of 2,000,000 shares of common stock for issuance as or under awards to be made under the Plan.

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Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.

On March 23, 2018, the Company filed an amended and restated Certificate of Designation of Preferences, Rights and Limitations of the 10% Series A Redeemable Perpetual Preferred Stock (the “Amended and Restated Series A Designation”). The Company's board of directors approved the Amended and Restated Series A Designation, a copy of which is filed hereto as Exhibit 3.1. The Amended and Restated Series A Designation was approved by the requisite holders of Series A Preferred Stock at EnerJex’s Special Meeting held on March 21, 2018. The Amended and Restated Series A Designation was effective on March 26, 2018.

On March 23, 2018, the Company filed an amendment to the Amended and Restated Series A Designation (the “Series A Amendment”). The Company's board of directors approved the Series A Amendment, a copy of which is filed hereto as Exhibit 3.2. The Series A Amendment was approved by the requisite holders of Series A Preferred Stock at EnerJex’s Special Meeting held on March 21, 2018. The Series A Amendment was effective on March 26, 2018.

On March 23, 2018, the Company filed an amendment to the Certificate of Designation of the Series C Preferred Stock (the “Series C Amendment”). The Company's board of directors approved the Series C Amendment, a copy of which is filed hereto as Exhibit 3.3. The Series C Amendment was approved by the sole holder of Series C Preferred Stock. The Series C Amendment was effective on March 26, 2018.

Name Change

On March 26, 2018, the Company filed a Certificate of Amendment to its Articles of Incorporation changing the Company’s name to AgEagle Aerial Systems, Inc. (the “Name Change Amendment”). The Name Change Amendment was approved by the requisite holders of common stock at EnerJex’s Special Meeting held on March 21, 2018. The Name Change Amendment was effective on March 26, 2018.

1-for-25 Reverse Stock Split

On March 23, 2018, the Company filed a Certificate of Amendment to its Articles of Incorporation effecting a 1-for-25 reverse stock split of the Company’s common stock (the “Reverse Split Amendment”). The Reverse Split Amendment was effective on March 26, 2018.

The Reverse Split was previously approved by our stockholders on April 27, 2017. On that date, at an annual meeting of stockholders, the Company received approval from holders of the required shares of voting securities of the Company granting discretionary authority to the Board of the Directors of the Company, at any time or times for a period of 12 months after the date thereof, to adopt an amendment to the Company’s Articles of Incorporation, as amended, to effect a reverse stock split.

The Reverse Split was implemented by the Company so that in connection with the Merger, the Company would regain compliance with the NYSE American’s continued listing requirements governing the Company’s stock price and stockholders’ equity.

The above descriptions of the Amended and Restated Series A Designation, the Series A Amendment, the Series C Amendment, the Name Change Amendment and the Reverse Split Amendment do not purport to be complete and are qualified in their entirety by reference to the full text of the amendments, which are attached hereto as Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5, respectively.

Item 8.01 Other Items

The information set forth in Item 5.03 is incorporated by reference.

Effective March  26, 2018, as a result of the Reverse Split, every twenty-five (25) shares of the Company’s issued and outstanding common stock were converted into one (1) share of issued and outstanding common stock. The number of authorized shares remains unchanged. No fractional shares will be issued in connection with the Reverse Split. Any fractional shares of common stock resulting from the Reverse Split will be rounded up to the nearest whole share. It is not necessary for stockholders to exchange their existing stock certificates for new stock certificates in connection with the Reverse Split. Stockholders who hold their shares in brokerage accounts are not required to take any action to exchange their shares.

The Reverse Split has no impact on shareholders’ proportionate equity interests or voting rights in the Company or the par value of the Company’s common stock, which remains unchanged.

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Item 9.01 Financial Statements and Exhibits.

(a) Financial Statements of Businesses Acquired.

The financial statements required by Item 9.01(a) are filed herewith.

(b) Pro Forma Financial Information.

The pro forma financial information required by Item 9.01(b) is filed herewith.

(d) Exhibits.

Exhibit No.	Description
2.1	Agreement and Plan of Merger by and among EnerJex Resources, Inc., AgEagle Merger Sub, Inc., AgEagle Aerial Systems, Inc., and Bret Chilcott dated October 19, 2017 (incorporated herein by reference as Exhibit 2.1 to the Form 8-K filed on October 20, 2017)
3.1	Amended and Restated Certificate of Designation of Preferences, Rights and Limitations of the 10% Series A Redeemable Perpetual Preferred Stock

3.2 Certificate of Amendment to Amended and Restated Certificate of Designation of Preferences, Rights and Limitations of the 10% Series A Redeemable Perpetual Preferred Stock

3.3	Amendment to Certificate of Designation of Series C Preferred Stock
3.4	Certificate of Amendment to the Articles of Incorporation of EnerJex Resources, Inc. to change the company’s name
3.5	Certificate of Amendment to the Articles of Incorporation of EnerJex Resources, Inc. to effect a 1-for-25 reverse stock split
3.6	Articles of Merger, dated March 26, 2018, by and between AgEagle Aerial Systems, Inc. and AgEagle Merger Sub, Inc.
10.1	Form of Deed in Lieu of Foreclosure Agreement, dated March 26, 2018
10.2	Form of Release and Covenant Not to Sue, dated March 26, 2018
10.3	Form of Promissory Note between EnerJex Resources, Inc. and Pass Creek Resources, LLC dated March 26, 2018
10.4	Form of Additional Issuance and Exchange Agreement, dated March 26, 2018, by and among EnerJex Resources, Inc. and the investor named therein, relating to the purchase of shares of Series C Preferred Stock
10.5	Voting Agreement, dated as of October 19, 2017, by and among EnerJex Resources, Inc. and a principal stockholder of AgEagle (incorporated by reference to Exhibit 10.1 on Form 8-K filed October 20, 2017)
16.1	Letter from RBSM LLP
99.1	Financial Statements of AgEagle Aerial Systems, Inc.
99.2	Pro Forma Financial Information

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: March 28, 2018

AGEAGLE AERIAL SYSTEMS INC.
By:	/s/ Nicole Fernandez-McGovern
Name:	Nicole Fernandez-McGovern
Title:	Chief Financial Officer

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EX-3.1

Exhibit 3.1

 

 

 

 

 

EX-3.2

Exhibit 3.2

 

 

 

 

 

EX-3.3

Exhibit 3.3

 

EX-3.4

Exhibit 3.4

 

EX-3.5

Exhibit 3.5

 

EX-3.6

Exhibit 3.6

 

 

 

 

 

 

 

EX-10.1

Exhibit 10.1

DEED IN LIEU OF FORECLOSURE AGREEMENT

This Deed in Lieu of Foreclosure Agreement (“Agreement”) is made as of the ___ day of March, 2018, by and among ENERJEX KANSAS, INC. (f/k/a Midwest Energy, Inc.), a Nevada corporation (“EnerJex Kansas”), BLACK RAVEN ENERGY, INC., a Nevada corporation (“Black Raven”), WORKING INTEREST, LLC, a Kansas limited liability company (“Working Interest”), ADENA, LLC, a Colorado limited liability company (“Adena”), KANSAS HOLDINGS, LLC, a Delaware limited liability company (“Kansas Holdings”) and BLACK SABLE ENERGY, LLC, a Texas limited liability company (“Black Sable”; together with EnerJex Kansas, Black Raven, Working Interest, Adena and Kansas Holdings, individually, a “Borrower” and collectively, the “Borrowers”), ENERJEX RESOURCES, INC., a Nevada corporation (“Guarantor”) (Borrowers and Guarantor are hereinafter sometimes jointly referred to as the “Obligors”), PASS CREEK RESOURCES LLC, a Delaware limited liability company (“Pass Creek”) and CORTLAND CAPITAL MARKET SERVICES LLC, a Delaware limited liability company, in its capacity as administrative agent (“Administrative Agent”) under the Credit Agreement (as hereinafter defined).

RECITALS:

A.                The owners of the oil and gas leases and the associated property affixed to the surfaces of the real property as legally described in Exhibits A-1 to A-3 attached hereto (collectively, the “Sites”) are each a Borrower under the Credit Agreement (as hereafter defined). The Sites have been improved with certain oil and gas extraction equipment and infrastructure (collectively, the “Improvements”; the Sites and the Improvements are hereinafter sometimes collectively referred to as the “Real Properties”). The Real Properties, together with all personal property of any Borrower relating thereto, are hereinafter referred to as the “Properties”.

B.                 Pass Creek provided a term loan in the original principal amount of Four Million Five Hundred Thousand and 00/100 Dollars ($4,500,000.00) (the “Loan”) to Borrowers, which Loan is evidenced, secured or otherwise governed, in part, by the following documents:

(1)               that certain Second Amended and Restated Credit Agreement dated as of May 10, 2017 (the “Original Credit Agreement”) by and among Borrowers, Pass Creek and Administrative Agent, as amended by that certain First Amendment to Second Amended and Restated Credit Agreement dated as of December 22, 2017 (the “First Amendment”; together with the Original Credit Agreement and as further amended, modified or supplemented from time to time, collectively, the “Credit Agreement”) by and among Borrowers, Guarantor, Pass Creek and Administrative Agent (capitalized terms used but not defined herein shall have the meanings ascribed to them in the Credit Agreement);

(2)               that certain Amended and Restated Note dated as of May 10, 2017 (the “Original Note”) made by Borrowers and payable to the order of Pass Creek in the principal amount of Four Million Five Hundred Thousand and 00/100 Dollars ($4,500,000.00), as amended by that certain Second Amended and Restated Note dated as of December 22, 2017 (the “Amended Note”; together with the Original Note and as further amended, modified or supplemented from time to time, collectively, the “Note”) made by Borrowers and payable to the order of Pass Creek in the principal amount of Four Million Eight Hundred Thousand and 00/100 Dollars ($4,800,000.00);

(3)               those certain mortgages as described on Exhibit B attached hereto and made a part hereof (as amended, modified or supplemented from time to time, collectively, the “Mortgages”);

(4)               that certain Guaranty of Recourse Carveouts dated as of May 10, 2017 (as further amended, modified or supplemented from time to time, the “Guaranty”) by Guarantor in favor of Administrative Agent for the ratable benefit of the Administrative Agent and the Banks; and

(5)               the other Loan Documents (as defined in the Credit Agreement).

The Credit Agreement, Note, Mortgages and all other documents which evidence, guarantee or secure the Loan or were otherwise executed in connection therewith, all as may have been modified, supplemented, restated or replaced from time to time, are hereinafter collectively referred to as the “Loan Documents.”

C.                 Pass Creek is the current holder of the Note.

D.                Guarantor has executed and delivered that certain Promissory Note dated as of May 10, 2017 (the “Guarantor Note”), made by Guarantor payable to the order of Pass Creek in the principal amount of One Hundred Five Thousand Eight Hundred Five and 74/100 Dollars ($105,805.74).

E.                 As of March 20, 2018, the amount of principal and interest due with respect to the Loan under the Loan Documents was $5,199,917.07 of which $4,537,124.04 was unpaid principal of the Note and $662,793.03 was accrued and unpaid interest on the unpaid principal of the Note calculated at the applicable rate under the Credit Agreement.

F.                  The Borrowers have informed Pass Creek and Administrative Agent that on or about March 23, 2018, the merger of AgEagle Merger Sub, Inc., a Nevada corporation and wholly-owned subsidiary of Guarantor, into AgEagle Aerial Systems, Inc., a Nevada corporation, shall be consummated pursuant to that certain Agreement and Plan of Merger dated as of October 19, 2017 among such parties and Bret Chilcott (the “Merger Event”).

G.                The Loan matures no later than March 26, 2018 (the “Maturity Date”) and in order to avoid the cost, expense, time and inconvenience involved in defending foreclosure actions on the Loan, the Obligors have requested that Administrative Agent and Pass Creek, subject to the terms and conditions set forth in this Agreement, enter into a deed in lieu transaction whereby Obligors shall convey or cause to be conveyed to Pass Creek (or its designee) all of the Obligors’ right, title and interest in and to the Properties (the “Deed In Lieu Transaction”) and accept the Deed In Lieu Documents (as hereinafter defined).

H.                As a condition precedent to the Merger Event, the Deed In Lieu Documents shall be delivered to Holland & Knight LLP (“H&K”), as counsel to the Administrative Agent and Pass Creek.

I.                    In connection with the Deed In Lieu Transaction, the Administrative Agent and Pass Creek shall execute and deliver to H&K, a release and covenant not to sue (the “Release and Covenant”) with respect to the Borrowers’ and Guarantor’s respective obligations and liabilities under the Loan and the Loan Documents (but specifically excluding the Excluded Obligations (as defined hereinafter)) and subject to and conditioned upon the terms, provisions and conditions set forth in this Agreement. In the event that the Deed In Lieu Transaction is consummated in accordance with this Agreement and the Deed In Lieu Documents, then Administrative Agent and Pass Creek shall direct H&K to release the Release and Covenant to Borrowers.

J.                   Subject to the conditions set forth in this Agreement, Administrative Agent and Pass Creek have agreed to accept the conveyance of the Properties to avoid the necessity of litigation, foreclosure and the delays associated therewith and Administrative Agent and Pass Creek acknowledge a direct benefit in this regard.

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K.                The Obligors and Pass Creek are of the good faith opinion that the value of the assets transferred pursuant to the Deed in Lieu Documents and the Release and Covenant constitute fair consideration for the Properties.

NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby mutually acknowledged, the parties hereto hereby agree as follows:

1.Incorporation of Recitals. The foregoing Recitals are hereby incorporated into the body of this Agreement as if fully set forth herein.

2.Transfers; Consideration.

(a)Upon the occurrence of the Merger Event, the Deed In Lieu Documents and all other documents (other than the Release and Covenant) held by H&K in accordance with the terms and conditions of the Closing Instructions (as defined hereinafter) shall, as applicable, be immediately recorded or delivered to Pass Creek upon the written notice to H&K by Administrative Agent, at the direction of Pass Creek (the “Transfer”). In addition to the foregoing, if the Deed in Lieu Transaction is effectuated (including, without limitation, the successful recording of the Warranty Deeds in each of Linn County, Kansas, Greenwood County, Kansas and Woodson County, Kansas), then the Administrative Agent shall, at the direction of Pass Creek, instruct H&K in writing to deliver the Release and Covenant to the Obligors.

(b)The Obligors agree to the Transfer to Pass Creek or Pass Creek’s designee, and Pass Creek agrees to accept or cause its designee to accept, all of each Borrower’s right, title and interest in the Properties (as applicable) free of any right of redemption or any other right or interest of anyone other than Pass Creek (or Administrative Agent) claiming by, under or through the Obligors, but such conveyance shall be subject to the encumbrances expressly agreed to by Pass Creek (the “Permitted Title Matters”), the Leases (as hereinafter defined) and the Loan Documents, in each case, in accordance with the terms of this Agreement. If effectuated in accordance with the terms hereof, the Transfer shall occur on the date specified in the applicable notice to H&K (the “Closing Date”) in accordance with the terms and conditions of the Closing Instructions at the offices of H&K (through delivery of such deeds, bill of sale, assignments and other transfer documents as Pass Creek or its designee may reasonably require, in the forms attached hereto as Exhibit E).

(c)Concurrent herewith, the parties hereto shall execute and deliver the documents described in Exhibit C attached hereto (the “Deed In Lieu Documents”) and deposit fully executed originals of such documents with H&K, in accordance with the terms of the Closing Instructions to (i) facilitate the Transfer of the Properties to Pass Creek or its designee, as applicable, and (ii) otherwise more fully express the agreements of the parties relating to such Transfer (such documents listed on Exhibit C and all other documents delivered by Obligors pursuant to this Agreement, the “Closing Documents”).

(d)Concurrent herewith and as a condition precedent to this Agreement, Guarantor shall execute and deliver to H&K that certain Promissory Note dated as of even date herewith (the “DIL Note”) made by Guarantor payable to the order of Pass Creek in the amount of One Hundred Twenty-Five Thousand Five Hundred Fifty-Five and 97/100 Dollars ($125,555.97).

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(e)The consideration given by Pass Creek and/or received by the Obligors in connection with the Transfer of the Properties by the Obligors to Pass Creek or its designee, as applicable, includes, without limitation, (a) the cost savings to the Obligors of not having to engage in legal proceedings relating to the exercise of remedies under the Mortgages by Administrative Agent or Pass Creek and (b) the Release and Covenant to be delivered to the Obligors by Administrative Agent and Pass Creek. The consideration received by Pass Creek or its designee, as applicable, in connection with the Transfer of the Properties to Pass Creek or its designee includes, without limitation, the cost savings and the savings of time, delay and inconvenience that would be involved in pursuing a foreclosure action.

3.Closing Instructions. The consummation of the transactions contemplated hereunder (the “Closing”) shall occur on the Closing Date pursuant to the Closing Instructions in substantially the form of Exhibit F attached hereto (the “Closing Instructions”) executed by the Obligors, Pass Creek, Administrative Agent and H&K.

4.Closing Costs. The parties hereby agree that:

(a)Borrowers shall pay to Pass Creek and Administrative Agent all out-of-pocket expenses accrued or incurred by either Pass Creek or Administrative Agent on or before the date hereof (including all reasonable fees, charges and disbursements of counsel to either Pass Creek or Administrative Agent (directly to such counsel if requested)) plus such additional amounts of such fees, charges and disbursements as shall constitute its estimate of such reasonable fees, charges and disbursements incurred or to be incurred through the closing proceedings; provided that such estimate shall not thereafter preclude a final settling of accounts between Borrowers and either Pass Creek or Administrative Agent; and

(b)there shall be no credits or prorations for real estate taxes or other customarily prorated expenses relating to the Properties at Closing, as Pass Creek shall take title to the Properties subject to all such real estate taxes and other expenses and with the full benefit of any prepaid expenses or deposits.

5.Reserved.

6.Representations, Warranties and Covenants.

(a)Each Obligor hereby represents and warrants to Administrative Agent and Pass Creek that each Obligor (as applicable) has delivered to Administrative Agent all of the following on or before the date hereof: all essential data, correspondence, documents, agreements, waivers, notices, applications and other records in respect to the Properties and relating to transactions with taxing authorities, governmental agencies, utilities, vendors and others with whom Pass Creek (or its designee) may be dealing subsequent to Closing.

(b)Each Obligor hereby further represents and warrants to Administrative Agent and Pass Creek as of the date of the execution and delivery hereof as follows (which representations and warranties shall be deemed to be re-made as of the Closing Date):

(i)This Agreement and the Closing Documents to be executed by the Obligors have been duly authorized, executed and delivered by the Obligors and are legal, valid and binding obligations and are enforceable in accordance with their respective terms except as may be limited by Debtor Relief Laws or by general equitable principles, and do not violate any provisions of any agreement executed by or otherwise affecting any of the Obligors or the Properties other than the Loan Documents.

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(ii)Borrowers are the owners of fee simple title to the Properties (as applicable), subject only to the Permitted Title Matters. The Transfer of the Properties is made voluntarily by the Obligors with no intent to defraud any creditors of the Obligors. Obligors are fully represented by counsel in connection with the negotiation of this Agreement, and the transactions contemplated hereunder are the free and voluntary act of Obligors and such actions were not made under duress.

(iii)None of the Obligors has received any written notice from any governmental authority of any violation of any law, zoning ordinance, code or regulation affecting the Properties which has not heretofore been cured. There are no actions, suits, proceedings, judgments, orders, decrees, pending or outstanding, or to the Obligors’ knowledge, threatened against the Properties, which could adversely affect the validity or enforceability of the transactions contemplated hereunder. None of the Obligors have any construction contracts related to any of the Properties.

(iv)All financial and operating statements furnished to Pass Creek or Administrative Agent by the Obligors in connection with the transactions described in this Agreement are true and correct in all material respects and fairly present the financial posture of the parties or property described therein as of the period therein described and do not omit to state any material liability, contingent or otherwise, or any facts necessary thereto, the omission of which would be materially misleading as of the date furnished to Pass Creek or Administrative Agent, as applicable.

(v)A true, complete and correct list of all of the all leases, subleases and rental agreements affecting the Real Properties (the “Leases”) is set forth on Exhibit G attached hereto. The Leases constitute all of the leases and tenancies in respect to the Real Properties; the Leases contain no options to purchase in favor of any tenant thereunder; Borrowers, as lessors under such Leases (as applicable), are not in monetary default thereunder and, to the best knowledge of Borrowers, the lessees under such Leases are not in material default thereunder and have no material claims or rights of setoff against Borrowers. Except as otherwise set forth on Exhibit G, all payments due to be made to any Borrower pursuant to the Leases are current. The Obligors have delivered to Pass Creek original or copies of all of the Leases. Exhibit G accurately sets forth all unapplied security deposits made by the tenants under the Leases and there are no unapplied security deposits other than those set forth on Exhibit G and all unapplied security deposits shall be delivered to Pass Creek at Closing.

(vi)A true, complete and correct list of all maintenance, service and operating agreements and other agreements affecting the Real Properties is set forth on Exhibit H attached hereto (collectively, the “Service Agreements”) and there are no monetary defaults thereunder except for such defaults as are specifically described on Exhibit H hereto, each of which shall be remedied by the Obligors on or before the Closing Date. The Obligors have delivered to Pass Creek originals or copies of all of the Service Agreements.

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(vii)There are no contracts for sale of all or any portion of the Properties.

(viii)The Borrowers have no employees.

(ix)There are no past-due taxes owed to any federal, state or local authority in connection with the Properties.

(c)The Obligors hereby acknowledge and agree as follows:

(i)The execution and delivery of this Agreement and the Closing Documents and the performance of the provisions hereof and thereof (A) do not require the consent or approval of any person or entity which has not been obtained prior to the date hereof and (B) will not violate or result in any breach or violation of, or constitute a default under, any law or court order or any agreement, indenture, mortgage, deed of trust, bank loan or credit agreement or other instrument to which any of the Obligors is a party or by which it is bound.

(ii)There are no pending or, to the best of Obligors’ knowledge, threatened bankruptcy, reorganization, insolvency, receivership, creditor assignment or other similar proceedings concerning any of the Obligors, whether voluntary or involuntary.

(iii)None of the Obligors incurred any finder’s or broker’s commission or any other commission or fee to any person in connection with the transactions contemplated by this Agreement.

(iv)Obligors, hereby voluntarily and knowingly waive (i) any and all rights of redemption pursuant to K.S.A 60-2414(a), and (ii) any and all rights of reinstatement.

(v)Obligors have not contracted for any labor or materials which have not been fully paid for or which may give rise to a lien, encumbrance or charge upon the Properties.

(vi)The amount of the outstanding balance of the Loan exceeds the current value of the Properties.

(d)The Obligors hereby acknowledge and agree that between the date of this Agreement and the consummation of the Closing, the Obligors shall not without the prior written consent of the Administrative Agent and Pass Creek

(i)Enter into or modify any contracts or agreements pertaining to the Properties;

(ii)Enter into any new leases of all or any portion of the Properties, or any amendments to the Leases or enter into any new service or maintenance contracts;

(iii)Convey or remove from the Real Properties, or from any other location where so located, any of the personal property or intangible property comprising the Properties; and

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(iv)Take any action or refrain from taking any action, the result of which would result in a material adverse effect on the physical condition or value of the Properties.

(e)The Obligors jointly and severally, for themselves, their successors, heirs, executors, administrators and assigns agree to indemnify, defend and hold Administrative Agent, Pass Creek, its designee, and their respective affiliates, employees, directors, officers, shareholders, attorneys, agents, successors and assigns harmless from and against any and all losses, costs, damages and expenses, including reasonable attorneys’ fees and court costs, suffered or incurred by any of such indemnitees as a direct or indirect result of or in connection with any breach of any of the covenants, representations and warranties of the Obligors set forth herein or in any of the Closing Documents. Obligors acknowledge that the effectiveness of the Release and Covenant is premised on the representations, warranties and covenants made herein by Obligors. This section shall survive the Closing and termination of this Agreement.

7.Statement of Intent; No Merger. Administrative Agent, Pass Creek and the Obligors expressly state that it is their desire and intention that no merger or other termination or extinguishment of titles, estates or other interests shall occur as a result of any of the assignments, conveyances or other transfers contemplated hereunder or under the Closing Documents, even though Pass Creek and/or its designee will become the owner and holder of multiple interests in the Real Properties and, accordingly, the Mortgages and all of the other Loan Documents shall continue in full force and effect after the acquisition of the Properties by Pass Creek or its designee, as applicable. Without intending to limit the generality of the foregoing sentence, it is the desire and intention of Pass Creek and the Obligors that each title, estate and other interest held by Pass Creek or its designee, as applicable, pursuant to a separate instrument shall be completely separate and distinct from each other title, estate or interest, and, more specifically, Pass Creek’s or its designee’s, as applicable, title to the Properties obtained pursuant to the Closing Documents shall not merge with Pass Creek’s or Administrative Agent’s liens and security interests in the Properties obtained pursuant to the Loan Documents.

8.Covenant Not To Sue; Release.

(a)Subject to the provisions of Sections 8(c) and 8(d) below, Administrative Agent and Pass Creek shall deliver the Release and Covenant to H&K at Closing, in the form of Exhibit D attached hereto. The Release and Covenant shall constitute a release, satisfaction, and discharge of the indebtedness, obligations or liabilities evidenced or secured by the Loan Documents, except and specifically excluding the amounts owed as described on Schedule 8(a) attached hereto and made a part hereof (collectively the “Excluded Obligations”). The Release and Covenant shall not constitute a release, satisfaction or discharge of any: (i) action brought by the Administrative Agent or Pass Creek under the Loan Documents, at law or in equity for the purpose of obtaining from any Borrower title to the Properties or easement or other rights in the Properties, (ii) render ineffective or unenforceable Administrative Agent’s or Pass Creek’s right to foreclose the Mortgages or to pursue any of their other rights or remedies under the Loan Documents in any manner except that neither Administrative Agent nor Pass Creek shall have any right to pursue or obtain (except with respect to the Excluded Obligations) a deficiency and/or a personal judgment or award against the Obligors or any Borrower Related Party (as such term is defined in the Release and Covenant), (iii) otherwise affect the provisions of the Loan Documents, (iv) render ineffective or unenforceable Administrative Agent’s or Pass Creek’s right to collect any amounts due from any Obligor with respect to the Excluded Obligations, (v) render ineffective or unenforceable Administrative Agent’s or Pass Creek’s right to collect any amounts due from any Obligor with respect to any obligation to Administrative Agent or Pass Creek which is not related to the Loan, (vi) render ineffective or unenforceable Administrative Agent’s or Pass Creek’s right to collect any amounts due from Guarantor with respect to the DIL Note, or (vii) render ineffective or unenforceable Administrative Agent’s or Pass Creek’s right to enforce their respective rights under this Agreement.

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(b)The Obligors hereby jointly and severally release and forever discharge Administrative Agent, Pass Creek and their respective affiliates, employees, directors, officers, shareholders, attorneys, agents, successors and assigns of and from any and all agreements, representations, warranties, covenants, indemnities, actions, claims, demands, damages, debts, losses, indebtedness, causes of action either at law or in equity and obligations of whatever kind or nature, whether known or unknown, direct or indirect, new or existing and all other duties and liabilities whatsoever which any of them may have under or in connection with the Loan Documents or the Loan.

(c)Notwithstanding anything contained in this Agreement to the contrary, neither the Release and Covenant nor the release set forth in Section 8(b) above nor any of the other provisions hereof nor any provision of applicable law shall be deemed to release, discharge or otherwise affect: (i) any of the agreements, representations, warranties, covenants, indemnities or other duties, obligations or liabilities of the parties hereto as set forth in or arising from the provisions of this Agreement or the Closing Documents; or (ii) any of the Obligors’ environmental indemnification provisions set forth in the Loan Documents, which expressly survive the Closing, the foreclosure of the Mortgages or any deed or other transfer in lieu of such foreclosure.

(d)Notwithstanding anything contained herein to the contrary, the Release and Covenant shall be null and void if:

(i)any suit, action, claim or proceeding (A) to enjoin, rescind or otherwise set aside the Transfer of all or any portion of the Properties to Pass Creek and/or its designee or any other transactions consummated pursuant to this Agreement or the Closing Documents, (B) to challenge the validity or enforceability of the Transfer of the Properties to Pass Creek and/or is designee or any of such other transactions, or (C) which might otherwise adversely affect the validity or enforceability of the Transfer of the Properties to Pass Creek and/or its designee or any of such other transactions arising from this Agreement (any such suit, action, claim or proceeding being hereinafter referred to as an “Adverse Proceeding”) has been or is commenced or made by or on behalf of the Obligors, the Borrower Related Parties (as defined in the Release and Covenant) or any of their respective successors or assigns; or

(ii)any Adverse Proceeding has been or is commenced or made by any person or entity other than the Obligors, the Borrower Related Parties, Pass Creek or its designee (a “Third Party”) and, as a result of such Adverse Proceeding, Pass Creek or its designee, as the case may be, is obligated to convey (or reconvey, as the case may be) all or any portion of the Properties to any Borrower or to a receiver, trustee or other party for the benefit of the Obligors or any of their respective creditors; or

(iii)any Adverse Proceeding has been or is commenced or made by or on behalf of the Obligors, the Borrower Related Parties or any of their respective successors or assigns and, as a result of such Adverse Proceeding, Administrative Agent, Pass Creek or its designee suffers any loss, cost, damage or expense against which the Obligors fail to fully indemnify, defend and hold Administrative Agent, Pass Creek, its designee and their respective successors and assigns harmless as required under Section 8(e) below; or

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(iv)any Obligor files a voluntary petition in bankruptcy or is adjudicated a bankrupt or insolvent or files any petition or answer seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under the present or any future federal, state, or other statute or law; or

(v)the commencement of any involuntary petition in bankruptcy against any Obligor or the institution against any Obligor of any reorganization, arrangement, composition, readjustment, dissolution, liquidation or similar proceedings under any present or future federal, state or other statute or law; or

(vi)Any of Obligors’ representations or warranties contained herein are untrue, or any Obligor breaches any of their respective obligations under this Agreement or any of the Closing Documents.

(e)       The Obligors hereby jointly and severally agree to indemnify, defend (with counsel reasonably satisfactory to Administrative Agent or Pass Creek, as applicable) and hold Administrative Agent, Pass Creek and their respective affiliates, employees, directors, officers, shareholders, attorneys, agents, successors and assigns harmless from and against any and all losses, damages, claims, liability, costs and expenses (including court costs and reasonable attorneys’ fees) that may be suffered or incurred by any such indemnitees as a direct or indirect result of or in connection with any Adverse Proceedings commenced by or on behalf of the Obligors or any of their respective successors or assigns.

9.Obligations to Third Parties. The Obligors hereby acknowledge and agree that the acceptance by Pass Creek or its designee, if applicable, of title to the Properties pursuant to the terms of this Agreement shall not create any obligations on the part of Pass Creek or its designee to third parties which have or may have claims of any kind whatsoever against any of the Obligors with respect to the Properties, and that neither Pass Creek nor its designee assumes, or agrees to discharge, any liabilities pertaining to the Properties which occurred or accrued prior to the Closing Date. No person or entity not a party to this Agreement shall have any “third party beneficiary” or other rights hereunder.

10.Future Assurances; Power of Attorney. The Obligors hereby acknowledge and agree that they shall hereafter execute and deliver, or cause to be executed and delivered, and do or cause to be done such further acts as may reasonably be deemed by Administrative Agent or Pass Creek to be necessary or desirable to carry out and effectuate the intent of this Agreement and the Closing Documents. Obligors hereby grant a power of attorney in favor of Pass Creek which shall irrevocably constitute and appoint Pass Creek as Obligors’ true and lawful agent and attorney-in-fact, with full power of substitution, for Obligors and in Obligors’ name, place and stead, or otherwise, solely with respect to the Properties, and carry out and effectuate the intent of this Agreement and the Closing Documents, to: (a) endorse any checks or drafts payable to Obligors in the name of and in favor of Pass Creek as provided herein; (b) to demand and receive from time to time any and all property, rights, titles, interests and liens hereby sold, assigned and transferred, or intended so to be, and to give receipts for same; (c) to collect all rent, revenues and income, (d) from time to time, to institute and prosecute, in Pass Creek’s own name, any and all proceedings at law, in equity, or otherwise, that Pass Creek may deem proper in order to collect, assert or enforce any claim, right or title, of any kind, in and to the property, rights, titles, interests and liens hereby sold, assigned or transferred, or intended so to be, and to defend and compromise any and all actions, suits or proceedings with respect to any of the said property, rights, titles, interests and liens; (e) execute and date any document on behalf of Obligors necessary or desirable to carry out and effectuate the intent of this Agreement, the Closing Documents or the Closing Instructions, and (f) generally to do all and any such acts and things in relation to the Properties as Pass Creek shall in good faith deem advisable. Obligors hereby declare that the appointment made and the powers granted pursuant to such power of attorney are coupled with an interest and are and shall be irrevocable by Obligors in any manner, or for any reason.

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11.Remedies. In the event of a breach or default by the Obligors of any agreements, covenants, representations, warranties, indemnities or other duties or obligations hereunder or under any of the Closing Documents, Administrative Agent and Pass Creek and its designee shall be entitled to exercise any and all rights and remedies available at law or in equity. The Obligors acknowledge and agree that money damages may not be an adequate remedy for a breach by the Obligors of any of their respective agreements, covenants, representations, warranties, indemnities or other duties or obligations under this Agreement or the Closing Documents and that Administrative Agent and Pass Creek (and its designee) and their respective nominees shall have the absolute right to the remedies of injunctive relief and specific performance, both temporary and permanent, without bond, to enforce the agreements, covenants, representations, warranties, indemnities and other duties and obligations of the Obligors under this Agreement and the Closing Documents, which relief shall be cumulative and not exclusive of any right, remedy or relief otherwise available to Administrative Agent or Pass Creek (or its designee) at law or in equity.

12.Survival. The obligations and liabilities of the parties hereunder and under the Closing Documents are intended to survive the Closing and shall not be deemed to be merged into any deed or any other document delivered in connection with the Closing.

13.Applicable Law. This Agreement and the Closing Documents shall be construed and enforced in all respects in accordance with the laws of the State of Kansas, excluding its choice of law rules.

14.Time. Time is of the essence of this Agreement.

15.Entire Agreement. This Agreement, the Credit Agreement and the Closing Documents contain the entire agreement between the parties relating to the transaction contemplated hereby, and all prior or contemporaneous agreements, understandings, representations and statements, oral or written, are merged herein.

16.Joint and Several Liability; Successors. The obligations of Obligors under this Agreement and the Closing Documents shall be joint and several. This Agreement shall be binding on and inure to the benefit of the parties hereto, and their respective heirs, legatees, executors, estates, legal representatives, assigns and other successors. Pass Creek and its designee shall have the right to assign their rights, title, obligations, duties and interests in this Agreement and the Closing Documents directly or indirectly to any other person or entity; provided that notice of any such assignment shall be provided to Administrative Agent. None of the Obligors shall have the right to assign their respective obligations, duties or liabilities arising in connection with this Agreement or the Closing Documents directly or indirectly without the prior written consent of Administrative Agent and Pass Creek.

17.Counterparts; Electronic Transmission. This Agreement may be executed in any number of counterparts and each of such counterparts shall, for all purposes, be deemed to be an original, and all such counterparts shall together constitute but one and the same agreement. This Agreement may be executed by one or more parties hereto as a facsimile, telecopy, pdf or other reproduction, and an executed copy of this Agreement may be delivered by one or more parties hereto by facsimile, e-mail or other electronic transmission pursuant to which the signature of or on behalf of such party can be seen, and such execute and delivery shall be considered valid, binding and effective for all purposes.

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18.Severability. If any provision of this Agreement or the Closing Documents or the application thereof to any party or circumstance shall be determined by any court of competent jurisdiction to be invalid or unenforceable to any extent, the remainder of this Agreement and the Closing Documents or the application of such provision to persons or circumstances, other than those as to which it is determined invalid or unenforceable, shall not be affected thereby, and each provision of this Agreement and the Closing Documents shall be valid and shall be enforced to the fullest extent permitted by law.

19.Captions. The captions in this Agreement are inserted only as a matter of convenience and for reference and in no way define, limit or describe the scope of this Agreement or the scope or content of any of its provisions.

20.Attorneys’ Fees. Except as otherwise expressly provided to the contrary in this Agreement, the Obligors, jointly and severally, shall be responsible for paying all attorneys’ fees and other costs with respect to the negotiation of this Agreement and the consummation of the transactions contemplated hereby, including, without limitation, the fees and expenses of Holland & Knight LLP, as counsel to the Administrative Agent and Pass Creek, and of one firm of local counsel in each relevant jurisdiction for each such party. In the event that any dispute between the parties hereto should result in any legal action or proceeding, the prevailing party shall be reimbursed by the losing party for all reasonable costs and attorneys’ fees, including, but not limited to, attorneys’ fees incurred in the course of appeal.

21.Notices. Any notice, request or demand given or made under this Agreement or any of the Closing Documents shall be in writing and shall be hand delivered or sent by Federal Express or other reputable courier service or by postage prepaid registered or certified mail, return receipt requested, and shall be deemed given (i) when received at the following applicable addresses if hand delivered or if sent by Federal Express or other reputable courier service, and (ii) five (5) business days after being postmarked and addressed as follows if sent by registered or certified mail, return receipt requested:

If to any Borrower or the Guarantor:	[Insert Borrower Name] 4040 Broadway, Suite 508 San Antonio, Texas 78209 Attn: Louis Schott, Chief Executive Officer Telephone: (210) 451-5545 Electronic Mail: lgschott@hotmail.com
With copy to:	Dickinson Wright PLLC 350 East Las Olas Blvd., Suite 1750 Ft. Lauderdale, Florida 33301 Attn: Joel D. Mayersohn Telephone: (954) 991-5426 Facsimile: (844) 670-6009 Electronic Mail: jmayersohn@dickinsonwright.com
If to Pass Creek or its designee:	Pass Creek Resources 404 Broadway, Suite 508 San Antonio, Texas Attn: Robert Watson Jr. Telephone: (210) 451-5545 Facsimile: (210) 463-9297 Electronic Mail: rwatson@passcreekresources.com
With copy to:	Holland & Knight LLP 131 S. Dearborn St., 30th Floor Chicago, Illinois 60603 Attn: Joshua M. Spencer Telephone: (312) 715-5709 Facsimile: (312) 578-6666 Electronic Mail: joshua.spencer@hklaw.com
If to Administrative Agent:	Cortland Capital Market Services LLC 225 W. Washington Street, 21st Floor Chicago, Illinois 60606 Attn: Legal Department and Maria Villagomez Facsimile: (312) 376-0751 Electronic Mail: legal@cortlandglobal.com and CPCagency@cortlandglobal.com
With copy to:	Holland & Knight LLP 131 S. Dearborn St., 30th Floor Chicago, Illinois 60603 Attn: Joshua M. Spencer Telephone: (312) 715-5709 Facsimile: (312) 578-6666 Electronic Mail: joshua.spencer@hklaw.com

Any addresses or names specified above may be changed by a notice given by the party desiring the change to the other parties in accordance with the foregoing provisions.

22.Transfers Absolute; No Duress.

(a)The Obligors acknowledge and agree that: (i) the Transfer of the Properties to Pass Creek or its designee, as applicable, is an absolute conveyance and transfer of all of the right, title and interest of the Borrowers (as applicable) in and to the Properties in fact as well as form and is not intended as a mortgage, trust conveyance, deed of trust or security instrument of any kind; (ii) the consideration for such Transfer is legally adequate and provides a reasonably equivalent value for such Transfer; and (iii) the Obligors have no further interest (including rights of redemption) or claims in or to the Properties or to the proceeds and profits which after the Closing Date may be derived therefrom, of any kind whatsoever.

(b)The Transfer of the Properties to Pass Creek or its designee, as applicable, and the other acts taken and to be taken by the Obligors pursuant to this Agreement and the Closing Documents are being made at the request of Obligors and are the free and voluntary acts of the Obligors, and that in executing and delivering this Agreement and the Closing Documents and in directing the execution thereof, the Obligors are not acting under a misapprehension as to the effect thereof, nor under any duress, undue influence or misrepresentation by Administrative Agent or Pass Creek or its designee. The Obligors acknowledge that they have been represented by competent and experienced legal counsel in connection with the negotiation of this Agreement.

11

23.Consent to Jurisdiction. TO INDUCE PASS CREEK AND ADMINISTRATIVE AGENT TO ACCEPT THIS AGREEMENT, EACH OBLIGOR IRREVOCABLY AGREES THAT, SUBJECT TO PASS CREEK'S SOLE AND ABSOLUTE ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY WAY ARISING OUT OF OR RELATED TO THIS AGREEMENT WILL BE LITIGATED IN COURTS HAVING SITUS IN TOPEKA, KANSAS. EACH OBLIGOR HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY COURT LOCATED WITHIN TOPEKA, KANSAS, WAIVES PERSONAL SERVICE OF PROCESS UPON SUCH OBLIGOR, AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY REGISTERED MAIL DIRECTED TO SUCH OBLIGOR AT THE ADDRESS STATED IN THIS AGREEMENT AND SERVICE SO MADE WILL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT.

24.WAIVER OF RIGHT TO TRIAL BY JURY. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES HERETO HEREBY KNOWINGLY AND VOLUNTARILY MUTUALLY (A) WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION, CLAIM, COUNTERCLAIM, CROSS-CLAIM, THIRD-PARTY CLAIM, DISPUTE, DEMAND, SUIT OR PROCEEDING ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY, AND (B) AGREE THAT ANY SUCH ACTION, CLAIM, SUIT OR PROCEEDING SHALL BE TRIED BEFORE A JUDGE AND NOT BEFORE A JURY.

25.Confidentiality. Obligors shall, at all times prior to and post-Closing, maintain the confidentiality of this Agreement, including any communications, statements, discussions, negotiations, settlement discussions and exchanges related hereto, and shall not, except as required by law, governmental regulation applicable to any Obligor or any Obligor’s filing or disclosure obligations with the Securities and Exchange Commission, disclose the terms of this Agreement or of the transaction contemplated hereby, to any third parties whomsoever other than attorneys and accountants representing Obligors, Pass Creek, the Administrative Agent and such other persons whose assistance is required in carrying out the terms of this Agreement, without Pass Creek’s and Administrative Agent’s express, written consent. In the event any Obligor is required by a court order to disclose the terms of this Agreement, such Obligor shall endeavor to give no less than ten (10) days written notice to Administrative Agent and Pass Creek. Obligors shall not at any time issue a press release or otherwise communicate with media representatives regarding this Agreement or the transaction contemplated hereby, whether prior to or post-Closing, unless such release or communication has received the prior written approval of Administrative Agent and Pass Creek, which approval may be withheld by such parties in their sole discretion. This section shall survive the Closing or termination of this Agreement.

26.Guaranty of Excluded Obligations. Guarantor hereby unconditionally and irrevocably guaranties to Administrative Agent, for the benefit of the Administrative Agent and Pass Creek, the punctual payment and performance when due, whether at stated maturity or by acceleration or otherwise, of: (i) the Excluded Obligations and (ii) the DIL Note. This Guaranty is a present and continuing guaranty of payment and not of collectibility, and Administrative Agent shall not be required to prosecute collection, enforcement or other remedies against any Borrower or any other guarantor of the Excluded Obligations or the DIL Note (as applicable), or to enforce or resort to any collateral for the repayment of the Excluded Obligations or DIL Note or other rights or remedies pertaining thereto, before calling on Guarantor for payment. If for any reason the Borrowers shall fail or be unable to pay, punctually and fully, any of the Excluded Obligations or the DIL Note, the Guarantor shall pay such obligations to Administrative Agent, for the benefit of the Administrative Agent and Pass Creek, in full immediately upon demand. One or more successive actions may be brought against the Guarantor, as often as Administrative Agent deems advisable, until all of the Excluded Obligations and the DIL Note are paid and performed in full.

12

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

13

IN WITNESS WHEREOF, the parties have caused these presents to be executed the day and year first above written.

BORROWERS:

ENERJEX KANSAS, INC. (f/k/a Midwest Energy, Inc.), a Nevada corporation

By:   

Name: Louis Schott

Title: Chief Executive Officer

BLACK RAVEN ENERGY, INC., a Nevada corporation

By:

Name: Louis Schott

Title: Chief Executive Officer

WORKING INTEREST, LLC, a Kansas limited liability company

By:

Name: Louis Schott

Title: Chief Executive Officer

ADENA, LLC, a Colorado limited liability company

By:

Name: Louis Schott

Title: Chief Executive Officer

KANSAS HOLDINGS, LLC, a Delaware limited liability company

By:

Name: Louis Schott

Title: Chief Executive Officer

[Signature Page to Deed in Lieu of Foreclosure Agreement]

BLACK SABLE ENERGY, LLC, a Texas limited liability company

By:   

Name: Louis Schott

Title: Chief Executive Officer

[Signature Page to Deed in Lieu of Foreclosure Agreement]

GUARANTOR:

ENERJEX RESOURCES, INC., a Nevada corporation

By:

Name:   

Title:

[Signature Page to Deed in Lieu of Foreclosure Agreement]

PASS CREEK:

PASS CREEK RESOURCES LLC, a Delaware limited liability company

By:

Name:   

Title:

[Signature Page to Deed in Lieu of Foreclosure Agreement]

ADMINISTRATIVE AGENT:

CORTLAND CAPITAL MARKET SERVICES LLC, a Delaware limited liability company

By:

Name:   

Title:

[Signature Page to Deed in Lieu of Foreclosure Agreement]

Schedule 8(a)

Excluded Obligations

Payment Summary	Payoff Amount
Credit Facility Amendment Fee (per First Amendment)	$	70,000.00
Outstanding principal balance of Guarantor Note	$	93,767.47
Outstanding Legal Fees and Expenses	$	183,518.75
Credit Facility Net Revenue Repayments	$	71,959.69
Payments Owed to Haas Petroleum (paid by Pass Creek)	$	25,060.06
Fees owed to Cortland Capital Market Services LLC	$	6,250.00
Total Payment Obligations	$	450,555.97

EX-10.2

Exhibit 10.2

EXHIBIT D

RELEASE AND COVENANT NOT TO SUE

THIS RELEASE AND COVENANT NOT TO SUE is made as of this 26th day of March, 2018 (this “Release and Covenant”), by PASS CREEK RESOURCES LLC, a Delaware limited liability company (“Pass Creek”) and CORTLAND CAPITAL MARKET SERVICES LLC, a Delaware limited liability company, in its capacity as administrative agent (“Administrative Agent”) under the Credit Agreement (as defined in the Deed In Lieu Agreement (as defined hereinafter)) to and for the benefit of ENERJEX KANSAS, INC. (f/k/a Midwest Energy, Inc.), a Nevada corporation (“EnerJex Kansas”), BLACK RAVEN ENERGY, INC., a Nevada corporation (“Black Raven”), WORKING INTEREST, LLC, a Kansas limited liability company (“Working Interest”), ADENA, LLC, a Colorado limited liability company (“Adena”), KANSAS HOLDINGS, LLC, a Delaware limited liability company (“Kansas Holdings”) and BLACK SABLE ENERGY, LLC, a Texas limited liability company (“Black Sable”; together with EnerJex Kansas, Black Raven, Working Interest, Adena and Kansas Holdings, collectively, the “Borrowers”), ENERJEX RESOURCES, INC., a Nevada corporation (“Guarantor”) (Borrowers and Guarantor are hereinafter sometimes jointly referred to as the “Obligors”).

This Release and Covenant is being executed and delivered pursuant to that certain Deed in Lieu of Foreclosure Agreement dated as of March 26, 2018 (“Deed In Lieu Agreement”), by and among the Obligors, Administrative Agent and Pass Creek. Terms appearing as initially capitalized terms and not expressly defined herein shall have the respective meanings given them in the Deed In Lieu Agreement.

In consideration of the mutual covenants and agreements contained herein and in the Deed In Lieu Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Pass Creek and Administrative Agent each hereby agree as follows:

1.Pass Creek and Administrative Agent, for themselves and their respective affiliates, successors and assigns (the “Covenantors”), do hereby covenant and agree not to sue or commence, assert, bring, file or continue in any court or other tribunal, in any jurisdiction, any suit, action, litigation, complaint, counterclaim, cross-claim, cross-complaint, third-party complaint or other pleading for any actions or causes of action of every kind and nature whatsoever, whether fixed or contingent, known or unknown, direct or indirect, and whether based on contract, tort, statute or other legal or equitable theory of recovery (“Claim” or “Claims”), which the Covenantors have had, have or hereafter may have against the Obligors, or any of their respective past, present or future affiliates, managers, members, partners, shareholders, officers, directors, affiliates, agents, employees, attorneys, legal representatives, successors or assigns (collectively, the “Borrower Related Parties”), with respect to, or in any way arising from, related to or connected with, the Properties, the Loan or the Loan Documents, except and specifically excluding the amounts owed as described on Schedule 1 attached hereto and made a part hereof (collectively the “Excluded Obligations”).

2.This Release and Covenant constitutes a release, satisfaction, and discharge of the indebtedness, obligations or liabilities evidenced or secured by the Loan documents, except and specifically excluding the Excluded Obligations.

3.Notwithstanding anything contained to the contrary set forth herein:

(a) Neither this Release and Covenant nor the release set forth in Section 8(b) of the Deed in Lieu Agreement nor any of the other provisions hereof or of the Deed In Lieu Agreement nor any provision of applicable law shall be deemed to release, discharge or otherwise affect any of the agreements, representations, warranties, covenants, indemnities or other duties, obligations or liabilities of the parties hereto as set forth in or arising from the provisions of this Release and Covenant, the Deed In Lieu Agreement or the Closing Documents.

(b) This Release and Covenant shall not constitute a release of or operate to release, satisfy, discharge or otherwise affect: (i) any action brought by the Administrative Agent or Pass Creek under the Loan Documents, at law or in equity for the purpose of obtaining from any Borrower title to the Properties or easement or other rights in the Properties, (ii) render ineffective or unenforceable Administrative Agent’s or Pass Creek’s right to foreclose the Mortgages or to pursue any of their other rights or remedies under the Loan Documents in any manner except that neither Administrative Agent nor Pass Creek shall have any right to pursue or obtain (except with respect to the Excluded Obligations) a deficiency and/or a personal judgment or award against the Obligors or any Borrower Related Party, (iii) otherwise affect the provisions of the Loan Documents, (iv) render ineffective or unenforceable Administrative Agent’s or Pass Creek’s right to collect any amounts due from any Obligor with respect to the Excluded Obligations, (v) render ineffective or unenforceable Administrative Agent’s or Pass Creek’s right to collect any amounts due from any Obligor with respect to any obligation to Administrative Agent or Pass Creek which is not related to the Loan, (vi) render ineffective or unenforceable Administrative Agent’s or Pass Creek’s right to enforce their respective rights under the Deed In Lieu Agreement or this Release and Covenant, or (vii) render ineffective or unenforceable Administrative Agent’s or Pass Creek’s right to collect any amounts due from any Obligor with respect to any obligation to Pass Creek or Administrative Agent which is not set forth in the Loan Documents.

(c) This Release and Covenant shall not be deemed to release, discharge or otherwise affect the Excluded Obligations or any of the agreements, representations, warranties, covenants, indemnities or other duties, obligations or liabilities of the Obligors set forth in or arising from the provisions of the Deed In Lieu Agreement or the Closing Documents.

4.Notwithstanding anything contained herein to the contrary, this Release and Covenant shall be null and void if:

(a) any suit, action, claim or proceeding (i) to enjoin, rescind or otherwise set aside the Transfer of all or any portion of the Properties to Pass Creek and/or its designee or any other transactions consummated pursuant to the Deed In Lieu Agreement or the Closing Documents, (ii) to challenge the validity or enforceability of the Transfer of the Properties to Pass Creek and/or its designee or any of such other transactions, (iii) which might otherwise adversely affect the validity or enforceability of the Transfer of the Properties to Pass Creek and/or its designee or any of such other transactions arising from the Deed In Lieu Agreement, or (iv) brought by any shareholder, officer or employee of any of the Obligors or any unrelated third party against Pass Creek or Administrative Agent arising out of the Loan or the transactions contemplated pursuant to the Deed in Lieu Agreement or the Closing Documents (any such suit, action, claim or proceeding being hereinafter referred to as an “Adverse Proceeding”) has been or is commenced or made by or on behalf of the Obligors, the Borrower Related Parties or any of their respective successors or assigns; or

(b) any Adverse Proceeding has been or is commenced or made by any person or entity other than the Obligors, the Borrower Related Parties, Pass Creek or its designee (a “Third Party”) and, as a result of such Adverse Proceeding, Pass Creek or its designee is obligated to convey (or reconvey, as the case may be) all or any portion of the Properties to one or more of the Obligors or to a receiver, trustee or other party for the benefit of the Obligors or any of their respective creditors; or

(c) any Adverse Proceeding has been or is commenced or made by or on behalf of the Obligors, the Borrower Related Parties or any of their respective successors or assigns and, as a result of such Adverse Proceeding, Administrative Agent, Pass Creek or its designee suffers any loss, cost, damage or expense against which the Obligors fail to fully indemnify, defend and hold Administrative Agent, Pass Creek, its designee and their respective successors and assigns harmless as required under the terms of the Deed In Lieu Agreement; or

(d) any Obligor files a voluntary petition in bankruptcy or is adjudicated a bankrupt or insolvent or files any petition or answer seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under the present or any future federal, state, or other statute or law; or

(e) the commencement of any involuntary petition in bankruptcy against any Obligor or the institution against any Obligor of any reorganization, arrangement, composition, readjustment, dissolution, liquidation or similar proceedings under any present or future federal, state or other statute or law; or

(f) any of Obligors’ representations or warranties contained in the Deed In Lieu Agreement are untrue, or the Obligors breach any of their respective obligations under the Deed In Lieu Agreement or under any of the Closing Documents.

5.The Obligors hereby jointly and severally agree to indemnify, defend (with counsel reasonably satisfactory to Administrative Agent or Pass Creek, as applicable) and hold Administrative Agent, Pass Creek and their respective affiliates, employees, directors, officers, shareholders, attorneys, agents, successors and assigns harmless from and against any and all losses, damages, claims, liability, costs and expenses (including court costs and reasonable attorneys’ fees) that may be suffered or incurred by any such indemnitees as a direct or indirect result of or in connection with any Adverse Proceedings commenced by or on behalf of the Obligors or any of their respective successors or assigns.

6.In the event of a conflict between any term or provision of the Deed In Lieu Agreement and any term or provision of this Release and Covenant, the term or provision of this Release and Covenant shall govern.

7.The undersigned each represent and warrant that it has full power and authority to execute this Release and Covenant for and on behalf of Pass Creek or Administrative Agent (as applicable) and that this Release and Covenant is binding upon and enforceable against Pass Creek and Administrative Agent in accordance with its terms.

[Signature Page Follows]

IN WITNESS WHEREOF, this Release and Covenant Not To Sue has been signed and delivered as of the date first written above.

PASS CREEK:

PASS CREEK RESOURCES LLC, a Delaware limited liability company

By:

Name:  

Title:

[Signature Page to Release and Covenant Not to Sue]

ADMINISTRATIVE AGENT:

CORTLAND CAPITAL MARKET SERVICES LLC, a Delaware limited liability company

By:

Name:   

Title:

[Signature Page to Release and Covenant Not to Sue]

Schedule 1

Excluded Obligations

Payment Summary	Payoff Amount
Credit Facility Amendment Fee (per First Amendment)	$	70,000.00
Outstanding principal balance of Guarantor Note	$	93,767.47
Outstanding Legal Fees and Expenses	$	183,518.75
Credit Facility Net Revenue Repayments	$	71,959.69
Payments Owed to Haas Petroleum (paid by Pass Creek)	$	25,060.06
Fees owed to Cortland Capital Market Resources LLC	$	6,250.00
Total Payment Obligations	$	450,555.97

Schedule 1 to Release and Covenant Not to Sue

EX-10.3

Exhibit 10.3

PROMISSORY NOTE

$125,555.97 March 26, 2018

1.Agreement to Pay. FOR VALUE RECEIVED, ENERJEX RESOURCES, INC., a Nevada corporation (“Maker”) hereby promises to pay to the order of PASS CREEK RESOURCES LLC, a Delaware limited liability company (“Lender”), the principal sum of ONE HUNDRED TWENTY FIVE THOUSAND FIVE HUNDRED FIFTY FIVE and 97/100 DOLLARS ($125,555.97) (the “Loan”), at the place and in the manner hereinafter provided, together with interest thereon at the rate or rates described below, and any and all other amounts which may be due and payable hereunder from time to time. The maturity date of this Promissory Note (the “Note”) is March 26, 2019 (the “Maturity Date”).

2.Interest Rate.

2.1Interest Prior to Default. Interest shall accrue on the outstanding principal balance of this Note from the date hereof through the Maturity Date at an annual rate equal to six percent (6%) (“Interest Rate”).

2.2Interest After Default. From and after the Maturity Date, or upon the occurrence and during the continuance of an Event of Default (as defined hereinafter), interest shall accrue on the balance of principal remaining unpaid during any such period at an annual rate (“Default Rate”) equal to five percent (5%) plus the Interest Rate; provided, however, in no event shall the Default Rate exceed the maximum rate permitted by law. The interest accruing under this paragraph shall be immediately due and payable by Maker to the holder of this Note upon demand and shall be additional indebtedness evidenced by this Note.

2.3Interest Calculation. Interest on this Note shall be calculated on the basis of a 360-day year and the actual number of days elapsed in any portion of a month in which interest is due. Maker hereby acknowledges and agrees that the use of a 360-day year in the calculation of the interest hereunder will result in a greater effective rate of interest than the stated rate set forth above. Maker hereby waives any and all counter claims, defenses, causes of action, arguments or other claims it may have against Lender in connection with or in any way related to the calculation of interest based upon a 360-day year.

3.Payment Terms.

3.1Principal and Interest. Payments of principal and interest due under this Note, if not sooner declared to be due in accordance with the provisions hereof, shall be made as follows:

(a)  Regularly Scheduled Interest and Principal Payments. Commencing on April 1, 2018 and continuing on the first (1st) day of each month thereafter (each, a “Payment Date”), to and including the month in which the Maturity Date occurs, Maker shall pay and deliver to Lender: (i) consecutive monthly payments of principal in an amount to fully amortize the principal balance of this Note over a twelve (12) month period; and (ii) accrued and unpaid interest on the outstanding principal balance of this Note, in arrears.

(b)       Maturity Date. The unpaid principal balance of this Note, if not sooner paid or declared to be due in accordance with the terms hereof, together with all accrued and unpaid interest thereon and any other amounts due and payable hereunder, shall be due and payable in full on the Maturity Date.

3.2Application of Payments. Prior to the occurrence of an Event of Default, all payments and prepayments on account of the indebtedness evidenced by this Note shall be applied as follows: (a) first, to fees, expenses, costs and other similar amounts then due and payable to Lender, (b) second, to accrued and unpaid interest on the principal balance of this Note, (c) third, to the payment of principal due in the month in which the payment or prepayment is made, (d) fourth, to any escrows, impounds or other amounts which may then be due and payable, (e) fifth, to any other amounts then due Lender hereunder, and (f) last, to the unpaid principal balance of this Note in the inverse order of maturity. Any prepayment on account of the indebtedness evidenced by this Note shall not extend or postpone the due date or reduce the amount of any subsequent monthly payment of principal and interest due hereunder. After an Event of Default has occurred and is continuing, payments may be applied by Lender to amounts owed hereunder in such order as Lender shall determine, in its sole discretion.

3.3Method of Payments. All payments of principal and interest hereunder shall be paid by automatic debit, wire transfer, check or in coin or currency which, at the time or times of payment, is the legal tender for public and private debts in the United States of America and shall be made at such place as Lender or the legal holder or holders of this Note may from time to time appoint in the payment invoice or otherwise in writing, and in the absence of such appointment, then at the offices of Lender at:

Pass Creek Resources

404 Broadway, Suite 508

San Antonio, Texas

Attn: Robert Watson Jr.

Payment made by check shall be deemed paid on the date Lender receives such check; provided, however, that if such check is subsequently returned to Lender unpaid due to insufficient funds or otherwise, the payment shall not be deemed to have been made and shall continue to bear interest until collected. Notwithstanding the foregoing, the final payment due under this Note must be made by wire transfer or other final funds.

3.4Late Charge. If any payment of interest or principal due hereunder is not made within ten (10) days after such payment is due in accordance with the terms hereof, then, in addition to the payment of the amount so due, Maker shall pay to Lender a “late charge” of five cents for each whole dollar so overdue to defray part of the cost of collection and handling such late payment. Maker agrees that the damages to be sustained by the holder hereof for the detriment caused by any late payment are extremely difficult and impractical to ascertain, and that the amount of five cents for each one dollar due is a reasonable estimate of such damages, does not constitute interest, and is not a penalty. Notwithstanding the foregoing, this Section 3.4 shall not be applicable to the final principal payment, if any, that is due in full upon the Maturity Date in accordance with Section 3.1(b).

3.5Prepayment. Provided that no Event of Default then exists, Maker reserves the right to prepay, without penalty, an any Payment Date, the unpaid principal balance of this Note, in whole or in part; provided, that (a) Maker pays, at the time of such prepayment, all accrued and unpaid interest and all other unpaid indebtedness then due, and (b) Maker acknowledges that no such amount prepaid may be reborrowed.

4.Events of Default. The occurrence of any one or more of the following events shall constitute an "Event of Default" under this Note:

4.1 the failure by Maker to pay (i) any installment of principal or interest payable pursuant to this Note when due, or (ii) any other amount payable to Lender under this Note or any other document within ten (10) days of the date when any such payment is due in accordance with the terms hereof or thereof; or

4.2 the occurrence of the dissolution, insolvency or winding-up, as applicable, of Maker.

5.Remedies. At the election of the holder hereof, and without notice, the principal balance remaining unpaid under this Note, and all unpaid interest accrued thereon and any other amounts due hereunder, shall be and become immediately due and payable in full upon the occurrence of any Event of Default. Failure to exercise this option shall not constitute a waiver of the right to exercise same in the event of any subsequent Event of Default. No holder hereof shall, by any act of omission or commission, be deemed to waive any of its rights, remedies or powers hereunder or otherwise unless such waiver is in writing and signed by the holder hereof, and then only to the extent specifically set forth therein. The rights, remedies and powers of the holder hereof, as provided in this Note, are cumulative and concurrent, and may be pursued singly, successively or together against Maker and any other security given at any time to secure the repayment hereof, all at the sole discretion of the holder hereof. If any attorneys are employed to collect this Note or any part hereof, Maker promises and agrees to pay all costs of collection, including reasonable attorneys' fees and court costs.

6.Covenants and Waivers. Maker and all others who now or may at any time become liable for all or any part of the obligations evidenced hereby, expressly agree hereby to be jointly and severally bound, and jointly and severally: (i) waive and renounce any and all homestead, redemption and exemption rights and the benefit of all valuation and appraisement privileges against the indebtedness evidenced by this Note or by any extension or renewal hereof; (ii) waive presentment and demand for payment, notices of nonpayment and of dishonor, protest of dishonor, and notice of protest; (iii) except as expressly provided in this Note, waive any and all notices in connection with the delivery and acceptance hereof and all other notices in connection with the performance, default, or enforcement of the payment hereof or hereunder; (iv) waive any and all lack of diligence and delays in the enforcement of the payment hereof; (v) agree that the liability of Maker, any guarantor, endorser or obligor shall be unconditional and without regard to the liability of any other person or entity for the payment hereof, and shall not in any manner be affected by any indulgence or forbearance granted or consented to by Lender to any of them with respect hereto; (vi) consent to any and all extensions of time, renewals, waivers, or modifications that may be granted by Lender with respect to the payment or other provisions hereof, and to the release of any security at any time given for the payment hereof, or any part thereof, with or without substitution, and to the release of any person or entity liable for the payment hereof; and (vii) consent to the addition of any and all other makers, endorsers, guarantors, and other obligors for the payment hereof, and to the acceptance of any and all other security for the payment hereof, and agree that the addition of any such makers, endorsers, guarantors or other obligors, or security shall not affect the liability of Maker, any guarantor and all others now liable for all or any part of the obligations evidenced hereby. This provision is a material inducement for Lender making the Loan to Maker.

7.Other General Agreements.

7.1The Loan is a business loan which comes within the purview of applicable law. Maker agrees that the Loan evidenced by this Note is an exempted transaction under the Truth In Lending Act, 15 U.S.C., Section 1601, et seq.

7.2Time is of the essence hereof.

7.3This Note is governed and controlled as to validity, enforcement, interpretation, construction, effect and in all other respects by the statutes, laws and decisions of the State of Texas. This Note may not be changed or amended orally but only by an instrument in writing signed by the party against whom enforcement of the change or amendment is sought.

7.4Lender shall not be construed for any purpose to be a partner, joint venturer, agent or associate of Maker or of any lessee, operator, concessionaire or licensee of Maker in the conduct of its business, and by the execution of this Note, Maker agrees to indemnify, defend, and hold Lender harmless from and against any and all damages, costs, expenses and liability that may be incurred by Lender as a result of a claim that Lender is such partner, joint venturer, agent or associate.

7.5If this Note is executed by more than one party, the obligations and liabilities of each Maker under this Note shall be joint and several and shall be binding upon and enforceable against each Maker and their respective successors and assigns. This Note shall inure to the benefit of and may be enforced by Lender and its successors and assigns.

7.6If any provision of this Note is deemed to be invalid by reason of the operation of law, or by reason of the interpretation placed thereon by any administrative agency or any court, Maker and Lender shall negotiate an equitable adjustment in the provisions of the same in order to effect, to the maximum extent permitted by law, the purpose of this and the validity and enforceability of the remaining provisions, or portions or applications thereof, shall not be affected thereby and shall remain in full force and effect.

7.7If the interest provisions herein shall result, at any time, in an effective rate of interest which, for any month, exceeds the limit of usury or other laws applicable to the Loan, all sums in excess of those lawfully collectible as interest of the period in question shall, without further agreement or notice between or by any party hereto, be applied upon principal immediately upon receipt of such monies by Lender, with the same force and effect as though the payer has specifically designated such extra sums to be so applied to principal and Lender had agreed to accept such extra payment(s) as a premium-free prepayment. Notwithstanding the foregoing, however, Lender may at any time and from time to time elect by notice in writing to Maker to reduce or limit the collection to such sums which, when added to the said first-stated interest, shall not result in any payments toward principal in accordance with the requirements of the preceding sentence. In no event shall any agreed to or actual exaction as consideration for this Note transcend the limits imposed or provided by the law applicable to this Note for the use or detention of money or for forbearance in seeking its collection.

7.8Lender may at any time assign its rights in this Note, or any part thereof and transfer its rights in any or all of the collateral (if any), and Lender thereafter shall be relieved from all liability with respect to such collateral (if any). In addition, Lender may at any time sell one or more participations in the Note. Maker may not assign its interest in this Note, or any other agreement with Lender or any portion thereof, either voluntarily or by operation of law, without the prior written consent of Lender.

8.Notices. Any notice, request or demand given or made under this Agreement or any of the Closing Documents shall be in writing and shall be hand delivered or sent by Federal Express or other reputable courier service or by postage prepaid registered or certified mail, return receipt requested, and shall be deemed given (i) when received at the following applicable addresses if hand delivered or if sent by Federal Express or other reputable courier service, and (ii) five (5) business days after being postmarked and addressed as follows if sent by registered or certified mail, return receipt requested:

If to Maker:	EnerJex Resources, Inc. 4040 Broadway, Suite 508 San Antonio, Texas 78209 Attn: Louis Schott, Chief Executive Officer Telephone: (210) 451-5545 Electronic Mail: lgschott@hotmail.com
With copy to:	Dickinson Wright PLLC 350 East Las Olas Blvd., Suite 1750 Ft. Lauderdale, Florida 33301 Attn: Joel D. Mayersohn Telephone: (954) 991-5426 Facsimile: (844) 670-6009 Electronic Mail: jmayersohn@dickinsonwright.com
If to Lender:	Pass Creek Resources 404 Broadway, Suite 508 San Antonio, Texas Attn: Robert Watson Jr. Telephone: (210) 451-5545 Facsimile: (210) 463-9297 Electronic Mail: rwatson@passcreekresources.com
With copy to:	Holland & Knight LLP 131 S. Dearborn St., 30th Floor Chicago, Illinois 60603 Attn: Joshua M. Spencer Telephone: (312) 715-5709 Facsimile: (312) 578-6666 Electronic Mail: joshua.spencer@hklaw.com

9.Consent to Jurisdiction. TO INDUCE LENDER TO ACCEPT THIS NOTE, MAKER IRREVOCABLY AGREES THAT, SUBJECT TO LENDER'S SOLE AND ABSOLUTE ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY WAY ARISING OUT OF OR RELATED TO THIS NOTE WILL BE LITIGATED IN COURTS HAVING SITUS IN SAN ANTONIO, TEXAS. MAKER HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY COURT LOCATED WITHIN SAN ANTONIO, TEXAS, WAIVES PERSONAL SERVICE OF PROCESS UPON MAKER, AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY REGISTERED MAIL DIRECTED TO MAKER AT THE ADDRESS STATED IN THIS NOTE AND SERVICE SO MADE WILL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT.

10.Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES HERETO HEREBY KNOWINGLY AND VOLUNTARILY MUTUALLY (A) WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION, CLAIM, COUNTERCLAIM, CROSS-CLAIM, THIRD-PARTY CLAIM, DISPUTE, DEMAND, SUIT OR PROCEEDING ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS NOTE AND THE TRANSACTIONS CONTEMPLATED HEREBY, AND (B) AGREE THAT ANY SUCH ACTION, CLAIM, SUIT OR PROCEEDING SHALL BE TRIED BEFORE A JUDGE AND NOT BEFORE A JURY.

11.Option. The Maker hereby grants to the Lender (or any other subsequent holder of this Note) an option to convert the principal outstanding balance of this Note into common stock of the Maker at a pre-split cost of $0.06125 per share (the “Option”). The Option may be exercised within thirty (30) days after the Maker has received written notice of the Lender’s or such other subsequent holder’s intent to exercise the Option. Upon exercise of the Option, this Note shall be deemed cancelled upon the receipt by Lender, or such other subsequent holder of this Note, of the common stock shares (and all other documents or agreements in connection therewith) necessary for Lender or such other subsequent holder of this Note to become a shareholder of the Maker. Notwithstanding any other provision to the contrary contained herein or in any other document, the exercise of the Option shall be at the sole and absolute discretion of the Lender or such other subsequent holder of this Note, and Lender shall be under no obligation to exercise such Option.

[Signature Page Follows]

IN WITNESS WHEREOF, Maker has executed and delivered this Promissory Note as of the day and year first written above.

MAKER:

ENERJEX RESOURCES, INC., a Nevada corporation

By:   

Name: Louis Schott

Title: Chief Executive Officer

[Signature Page to Promissory Note]

EX-10.4

Exhibit 10.4

ADDITIONAL ISSUANCE AND EXCHANGE AGREEMENT

This Additional Issuance and Exchange Agreement (this “Agreement”), dated as of March 26, 2018, is made pursuant to that certain Securities Purchase Agreement, dated as of March 11, 2015, as amended (the “Purchase Agreement”), by and between EnerJex Resources, Inc. (the “Company”) and Alpha Capital Anstalt (the “Purchaser”) for:

1. The purchase of $4,000,000 of the Company’s Series C Convertible Preferred Stock (the “Preferred Stock”), which Preferred Stock shall be issued pursuant to the Certificate of Designation of the Series C Convertible Preferred Stock filed with the Secretary of State of Nevada, as amended on March 26, 2018 (the “Certificate of Designation”) and have a Conversion Price equal to $0.06125;

2. The exchange of certain Secured Promissory Notes set forth on Annex A attached hereto (collectively, the “Notes”) for shares of Preferred Stock; and

3. The issuance of shares of Preferred Stock in lieu of the issuance of a number of shares of Parent Stock pursuant to, and as defined in, that certain Agreement and Plan of Merger, dated October 19, 2017, by and among AgEagle Aerial Systems, Inc., the Company and certain other shareholders thereof (the “Merger Agreement” and the merger contemplated thereunder, the “Merger”), which number of shares is set forth on Annex A attached hereto.

4. The issuance of shares of Preferred Stock to the Purchaser in satisfaction of a commitment fee.

Capitalized terms used and not otherwise defined herein that are defined in the Purchase Agreement shall have the meanings given such terms in the Purchase Agreement.

For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

1.       Issuance of Preferred Stock.

(a) Additional Subscription Amount. At the closing of the Merger, in consideration for the payment of $4,000,000 (the “Purchase Price”), the Company hereby agrees to issue, against such payment, to the Purchaser 4,000 shares of Preferred Stock of the Company. The Company shall deliver to the Purchaser the shares of Preferred Stock against payment of the Purchase Price.

(b) Exchange of Secured Promissory Notes. At the closing of the Merger, the Purchaser shall exchange the Notes, including all accrued but unpaid interest thereon, into 236 shares of Preferred Stock.

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(c) Merger Consideration. Issuance of 1,624 shares of Preferred Stock in lieu of 26,510,806 shares of Parent Stock that would otherwise be issued to the Purchaser at the closing of the Merger.

(d) Commitment Fee. In satisfaction of that certain Commitment Letter Agreement, dated as of November 20, 2017, the issuance of 625.60 shares of Preferred Stock.

2.       Documents. Except as set forth in the Certificate of Designation with respect to the Preferred Stock and the shares of Common Stock issuable under the Preferred Stock (the “Conversion Shares”), the rights and obligations of the parties hereto shall be identical in all respects to the rights and obligations of such Purchaser and of the Company with respect to the Series B Convertible Preferred Stock (“Series B Preferred Stock”) and the Underlying Shares issued and issuable pursuant to the Purchase Agreement; provided, however, subject to Section 3(f), where applicable and with respect to the unregistered characteristics of the Preferred Stock and Conversion Shares (ie. Section 4.1 as it applies to the Warrant Shares), the obligations of the Conversion Shares shall be identical to the Company’s obligations with respect to the Warrant Shares. Any rights of a Purchaser or covenants of the Company which are dependent on such Purchaser holding securities of the Company or which are determined in magnitude by such Purchaser’s purchase of securities pursuant to the Purchase Agreement shall be deemed to include any securities purchased or issuable hereunder. The Purchase Agreement is hereby amended so that the term “Preferred Stock” includes the Preferred Stock issued hereunder and “Underlying Shares” and “Warrant Shares” includes the Conversion Shares and “Subscription Amount” shall be deemed to include the Purchase Price hereunder.

3.       Representations and Warranties of the Company. The Company hereby makes to the Purchaser the following representations and warranties:

(a)       Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, its board of directors or its stockholders in connection therewith other than in connection with the Required Approvals. This Agreement has been duly executed by the Company and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

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(b)       No Conflicts. The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby do not and will not: (i) conflict with or violate any provision of the Company’s certificate or articles of incorporation, bylaws or other organizational or charter documents; or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien (except as contemplated by the Security Documents) upon any of the properties or assets of the Company in connection with, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any material agreement, credit facility, debt or other material instrument (evidencing Company debt or otherwise) or other material understanding to which such Company is a party or by which any property or asset of the Company is bound or affected; or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company is bound or affected, except, in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.

(c)       Issuance of the Preferred Stock. The Preferred Stock is duly authorized and, upon the execution of this Agreement by a Purchaser, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents. The Conversion Shares, when issued in accordance with the terms of the Certificate of Designation, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company. The Company has reserved from its duly authorized capital stock a number of shares of Common Stock for issuance of the Conversion Shares at least equal to the Required Minimum on the date hereof.

(d)       Affirmation of Prior Representations and Warranties. The Company hereby represents and warrants to each Purchaser that the Company’s representations and warranties listed in Section 3.1 of the Purchase Agreement are true and correct as of the date hereof.

(e)       Affirmation of Adjustment to Series B and Series C Convertible Preferred Stock. The Company represents and warrants that, pursuant to Section 7(b) of the Certificate of Designation to the Series B Convertible Preferred Stock and the Certificate of Designation, the Conversion Price is currently $0.06125, subject to further adjustment therein.

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(f)       No Duty of Confidentiality. The Company represents and warrants that all material terms of the transactions contemplated hereunder have been publicly disclosed and accordingly neither it nor any other Person acting on its behalf has provided any of the Purchasers or their agents or counsel with any information that it believes constitutes or might constitute material, non-public information. The Company acknowledges and agrees that the Purchaser has not owed, does not owe and will not owe, any duty of confidentiality or similar obligation under this or any agreement, whether written or oral, to the Company or any of its Subsidiaries or any of their respective officers, directors, agents, employees or Affiliates.

(g)       Registered Characteristics; Rule 144 Tacking. The Company acknowledges and agrees that in accordance with Section 3(a)(9) of the Securities Act and Rule 144, the applicable holding period of the following securities of the Company held by the Purchaser (and resale status) is as follows:

(i)       Immediately upon conversion of the 8.25 Series B Preferred Stock, the Conversion Shares issuable thereunder shall be freely tradeable and free of any restrictions on resale or Securities Act legends. The holding period of the Series B Preferred Stock tacks back to the original issue date which exceeds 6 months.

(ii)       Immediately upon conversion of the 396.858 shares of Preferred Stock held by the Purchaser prior to the closing of the Merger, the Underlying Shares issuable thereunder shall be freely tradeable and free of any restrictions on resale or Securities Act legends. The holding period of such securities tacks back to the original issue date which exceeds 6 months.

(iii)       Immediately upon conversion of the 236 shares of Preferred Stock issued hereunder to the Purchaser pursuant to Section 1.(b), the Underlying Shares issuable thereunder shall be freely tradeable and free of any restrictions on resale or Securities Act legends. The holding period of such securities tacks back to the original issue date which exceeds 6 months.

(iv)       The holding period of the shares of Preferred Stock issued pursuant to Section 1(d) (and Conversion Shares thereunder upon conversion) tacks back to December __, 2017.

The Company agrees not to take any position contrary to this Section 3(f) and, promptly upon the request of the Purchaser, shall provide a legal opinion of its counsel to effect the removal of any legends or other restrictions on resale as set forth above. Upon conversion of the securities in clauses (i) through (iii) above (and (iv) if then registered or Rule 144 is available), the Company shall deliver the Conversion Shares required to be delivered by the Corporation electronically through the Depository Trust Company or another established clearing corporation performing similar functions and otherwise in compliance with Section 4.1 of the Purchase Agreement.

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4.       Representations and Warranties of the Purchaser. The Purchaser hereby represents and warrants as of the date hereof to the Company as follows:

i.       Authority. The execution, delivery and performance by such Purchaser of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate or similar action on the part of such Purchaser. This Agreement has been duly executed by such Purchaser and, when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

ii.       Own Account. Such Purchaser (i) understands that the shares of Preferred Stock and Conversion Shares are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law, (ii) is acquiring the Preferred Stock as principal for its own account and not with a view to or for distributing or reselling such shares of Preferred Stock or any part thereof in violation of the Securities Act or any applicable state securities law, (iii) has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law and (iv) has no arrangement or understanding with any other persons regarding the distribution of such Preferred Stock (this representation and warranty not limiting such Purchaser’s right to sell the Conversion Shares pursuant to the Registration Statement or otherwise in compliance with applicable federal and state securities laws) in violation of the Securities Act or any applicable state securities law. Such Purchaser is acquiring the shares of Preferred Stock hereunder in the ordinary course of its business. Such Purchaser does not have any agreement or understanding, directly or indirectly, with any Person to distribute any of the Preferred Stock or Conversion Shares.

iii.       Purchaser Status. Such Purchaser is an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act.

iv.       General Solicitation. Such Purchaser is not purchasing the Preferred Stock as a result of any advertisement, article, notice or other communication regarding the Preferred Stock published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.

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v.       Affirmation of Prior Representations and Warranties. Such Purchaser hereby represents and warrants to the Company that its representations and warranties listed in Section 3.2 of the Purchase Agreement are true and correct as of the date hereof.

5.       Non-Public Information. The Company covenants and agrees that neither it, nor any other Person acting on its behalf will provide any Purchaser or its agents or counsel with any information that constitutes, or the Company reasonably believes constitutes, material non-public information, unless prior thereto such Purchaser shall have consented to the receipt of such information and agreed with the Company to keep such information confidential. The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company.

6.       Effect on Transaction Documents. Except as expressly set forth above, all of the terms and conditions of the Transaction Documents shall continue in full force and effect after the execution of this Agreement and shall not be in any way changed, modified or superseded by the terms set forth herein, including, but not limited to, any other obligations the Company may have to the Purchaser under the Transaction Documents. Notwithstanding the foregoing, this Agreement shall be deemed for all purposes as an amendment to any Transaction Document as required to serve the purposes hereof, and in the event of any conflict between the terms and provisions of the Certificate of Designation or any other Transaction Document, on the one hand, and the terms and provisions of this Agreement, on the other hand, the terms and provisions of this Agreement shall prevail.

7.       Registration Rights Agreement. The Company shall file a resale registration statement registering all of the shares underlying the Preferred Stock within 45 days of the closing of the Merger and cause such registration statement to be declared effective within 90 days of the closing of the Merger Agreement and maintain the effectiveness of such registration statement until the earlier of (x) the 12-month anniversary of the closing date of the Merger and (y) the first day as of which all Securities issued and sold hereunder may be sold under Rule 144 and the Company is then in compliance with the current public information required under Rule 144 (“144 Date”). In the event that the Company fails to meet any of the deadlines above, or maintain the effectiveness of the registration statement as required above, the Company shall pay the Purchaser, in cash on each monthly anniversary, liquidated damages equal to 2% per month of the Stated Value of the Preferred Stock then outstanding (pro-rata for any partial months). Additionally, if, prior to the 144 Date, the Company shall determine to prepare and file with the Commission a registration statement relating to an offering for its account or the account of others under the Securities Act of the Common Stock, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with the stock option or other employee benefit plans, the Company shall deliver to each Purchaser a written notice of such determination and if, within 15 Business Days after the date of delivery of such notice, the Purchaser (or any permitted successor or assign) shall so request in writing, the Company shall include in such registration statement all or any part of the Conversion Shares that such Purchaser requests to be registered. In the case of inclusion in a firm-commitment underwritten offering, the Purchasers must sell their Conversion Shares on the same terms set by the underwriters for shares of Common Stock to be sold for the account of the Company.

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8.       Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and each Purchaser.

9.       Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be delivered as set forth in the Purchase Agreement.

10.       Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Purchaser. The Company may not assign (except by merger) its rights or obligations hereunder without the prior written consent of the Purchaser of the then-outstanding Securities. The Purchaser may assign their rights hereunder in the manner and to the Persons as permitted under the Purchase Agreement.

11.       Execution and Counterparts. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

12.       Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be determined in accordance with the provisions of the Purchase Agreement.

13.       Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

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14.       Headings. The headings in this Agreement are for convenience only, do not constitute a part of the Agreement and shall not be deemed to limit or affect any of the provisions hereof.

15.       Market Standstill. From the date hereof until __ days following the date hereof, the Company), other than an Exempt Issuance, neither the Company nor any Subsidiary shall make any issuance whatsoever of Common Stock or Common Stock Equivalents. Other than to the Purchaser, the Company shall not issue any additional shares of Preferred Stock after the date hereof.

[SIGNATURE PAGE FOLLOWS]

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Executed as of the first date written above by the undersigned duly authorized representatives of the Company and the Purchaser:

ENERJEX RESOURCES, INC.

By:
	Name:
	Title:

ALPHA CAPITAL ANSTALT

Signature of Authorized Signatory:

Name of Authorized Signatory:

Title of Authorized Signatory:

9 

Annex A

Promissory Notes:

$50,000 Secured Promissory Note issued on July 14, 2017.

$50,000 Secured Promissory Note issued on July 27, 2017.

$125,000 Secured Promissory Note issued on August 30, 2017.

Parent Stock:

26,510,806 shares.

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EX-16.1

Exhibit 16.1

March 28, 2018

U.S. Securities and Exchange Commission

100 F Street, N.E.

Washington, DC 20002.

Re: AgEagle Aerial Systems, Inc. (F.K.A EnerJex Resources, Inc.)

Commission File Number 001-36492.

Ladies and Gentlemen:

We have read Item 4.01 of AGEAGLE AERIAL SYSTEMS, INC.’s Form 8-K dated March 26, 2018 and we agree with the statements made regarding our firm. We have no basis to agree or disagree with other statements contained therein.

Sincerely,

/s/ RBSM LLP

EX-99.1

Exhibit 99.1

AGEAGLE AERIAL SYSTEMS, INC .

Index to the Financial Statements

	Page
Contents
Report of Independent Registered Public Accounting Firm	2
Audited Financial Statements
Balance Sheets as of December 31, 2017 and 2016	3
Statements of Operations for the years ended December 31, 2017 and 2016	4
Statements of Changes in Stockholders’ Deficit for the years ended December 31, 2017 and 2016	5
Statements of Cash Flows for the years ended December 31, 2017 and 2016	6
Notes to Financial Statements	7

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Stockholders of AgEagle Aerial Systems, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of AgEagle Aerial Systems, Inc. (the Company) as of December 31, 2017 and 2016, and the related statements of operations, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2017. In our opinion, the financial statements present fairly, in all material respects, the financial position of AgEagle Aerial Systems, Inc. as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company’s auditor since 2015.

Palm Beach Gardens, Florida

March 27, 2018

D. Brooks and Associates CPA’s, P.A. 4440 PGA Blvd., Suite 104, Palm Beach Gardens, FL 33410 – (561) 429-6225

2

AGEAGLE AERIAL SYSTEMS, INC.
Balance Sheets

	As of December 31,
	2017			2016
ASSETS
CURRENT ASSETS:
Cash	$	35,289		$	15,887
Accounts receivable, net		255			18,886
Inventories, net		158,632			148,404
Prepaid expense		3,384			2,156
Notes receivable		75,000			—
Total current assets		272,560			185,333
Property and equipment, net		38,703			44,380
Total assets	$	311,263		$	229,713
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES:
Accounts payable	$	426,154		$	76,425
Accrued expenses		59,354			127,063
Accrued interest		185,335			79,019
Payroll liabilities		5,521			13,818
Convertible notes payable		1,160,005			800,000
Promissory note – related party		131,050			30,000
Total current liabilities		1,967,419			1,126,325
Total liabilities		1,967,419			1,126,325
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ DEFICIT:
Common stock, $0.0001 par value; 100,000,000 shares authorized; 4,200,000 shares issued and outstanding		420			420
Additional paid-in capital		1,939,832			1,902,161
Accumulated deficit		(3,596,408	)		(2,799,193	)
Total stockholders’ deficit		(1,656,156	)		(896,612	)
Total liabilities and stockholders’ deficit	$	311,263		$	229,713

The accompanying notes are an integral part of the financial statements.

3

AGEAGLE AERIAL SYSTEMS, INC.

Statements of Operations

	Years Ended December 31,
	2017			2016
Revenues	$	116,035		$	373,324
Cost of revenues		111,811			338,244
Gross Profit		4,224			35,080
Operating Expenses:
General and administrative		250,168			363,787
Professional fees		402,706			554,043
Consulting fees – related party		7,992			694,356
Research and development		10,221			7,019
Total operating expenses		671,087			1,675,545
Loss From Operations		(666,863	)		(1,640,465	)
Other Income (Expenses):
Interest expense		(142,810	)		(53,575	)
Dealer termination expenses		12,458			(114,728	)
Loss on disposal of fixed assets		—			(3,747	)
Total other expenses net		(130,352	)		(172,050	)
Loss before income taxes		(797,215	)		(1,812,515	)
Provision for income taxes		—			—
Net Loss	$	(797,215	)	$	(1,812,515	)
Net Loss per Share – Basic and Diluted	$	(0.19	)	$	(0.44	)
Weighted Average Number of Shares Outstanding During the Period – Basic and Diluted		4,200,000			4,099,167

The accompanying notes are an integral part of the financial statements.

4

AGEAGLE AERIAL SYSTEMS, INC.
Statement of Changes in Stockholders’ Deficit
For The Years Ended December 31, 2017 and 2016

	Common Stock				Additional Paid In		Accumulated
	Shares		Amount		Capital		Deficit			Total
Balance at December 31, 2015		3,500,000	$	350	$	707,873	$	(986,678	)	$	(278,455	)
Sales of common stock		200,000		20		499,980		—			500,000
Issuance of common stock for consulting services-related party		500,000		50		555,506		—			555,556
Issuance of stock options for consulting services-related party		—		—		138,802		—			138,802
Net loss		—		—		—		(1,812,515	)		(1,812,515	)
Balance at December 31, 2016		4,200,000		420		1,902,161		(2,799,193	)		(896,612	)
Issuance of employee and director stock options		—		—		6,397		—			6,397
Stock compensation period costs		—		—		22,192		—			22,192
Warrants issued with convertible promissory note		—		—		9,082		—			9,082
Net loss		—		—		—		(797,215	)		(797,215	)
Balance at December 31, 2017		4,200,000	$	420	$	1,939,832	$	(3,596,408	)	$	(1,656,156	)

The accompanying notes are an integral part of the financial statements.

5

AGEAGLE AERIAL SYSTEMS, INC.
Statements of Cash Flows

	Years Ended December 31,
	2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(797,215	)	$	(1,812,515	)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss on disposal of fixed assets		—			3,747
Depreciation		18,453			22,549
Issuance of stock options for consulting services-related party		—			138,802
Issuance of employee and director stock options		6,397			—
Stock compensation expenses		22,192			—
Warrants issued with convertible promissory note		9,082			—
Accretion for debt discounts, warrants and issuance costs		25,000			—
Issuance of common stock for consulting services-related party		—			555,556
Changes in assets and liabilities:
Accounts receivable		18,631			25,903
Prepaid expense		(1,228	)		(88	)
Inventories		(10,228	)		(6,275	)
Accounts payable		349,729			7,346
Accrued expenses		(67,709	)		114,570
Accrued interest		106,315			53,575
Accrued payroll liabilities		(8,297	)		—
Net cash used in operating activities		(328,878	)		(896,829	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed asset		—			2,841
Issuance of note receivable		(75,000	)		—
Purchases of property and equipment		(12,775	)		—
Net cash (used in) provided by investing activities		(87,775	)		2,841
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of convertible notes payable		335,005			300,000
Issuance of promissory note – related party		101,050			30,000
Sale of common stock		—			500,000
Net cash provided by financing activities		436,055			830,000
Net increase (decrease) in cash		19,402			(63,988	)
Cash at beginning of year		15,887			79,875
Cash at end of year	$	35,289		$	15,887

The accompanying notes are an integral part of the financial statements.

6

AGEAGLE AERIAL SYSTEMS, INC.

Notes to Financial Statements

Note 1 – Description of Business

AgEagle Aerial Systems, Inc. (the “Company” or “AgEagle”), headquartered in Neodesha, Kansas, was organized in 2011 as Solutions by Chilcott, LLC, a Kansas company. The Company began operations in 2011, building composite parts for truck companies, and in 2012, moved into advanced composite parts as a Tier 1 vendor to the U.S. government manufacturing micro wind turbine blades. The Company then worked with a research project at Kansas State University (“KSU”) that was trying to use model airplanes to monitor and analyze crops. During the initial phase of the project, KSU and the Company came to the conclusion that this business opportunity would be better as its own entity, so the project was taken on by Solutions by Chilcott, LLC. Solutions by Chilcott, LLC was converted into AgEagle Aerial Systems, Inc., a Nevada Corporation, on April 22, 2015. The Company develops and manufactures unmanned aerial vehicles (“UAV”) for sale to the precision agriculture industry. The Company’s products include the AgEagle RX-60 and RX-48 Systems. The Company primarily sells products in the United States but also in Canada and Australia, through one exclusive distributor in the agricultural industry.

Note 2 – Summary of Significant Accounting Policies

Basis of Presentation – These financial statements are presented in United States dollars and have been prepared in accordance with accounting principles generally accepted in the United States. The Company’s financial statements are prepared using the accrual method of accounting. The Company has elected a December 31 fiscal year end.

Use of Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the allowance for bad debt, warranty and dealer termination costs, obsolete inventory, valuation of stock based compensation and the valuation of deferred tax assets. Therefore, the determination of estimates requires the exercise of judgment.

Fair Value of Financial Instruments – Unless otherwise disclosed, the fair value of the Company’s financial instruments including cash, accounts receivable, convertible debt, accounts payable and accrued expenses approximates their recorded values due to their short-term maturities.

Cash and Cash Equivalents – Cash and cash equivalents includes any highly liquid investments with an original maturity of three months or less.

Receivables and Credit Policy – Trade receivables due from customers are uncollateralized customer obligations due under normal trade terms requiring payment within 30 days from the invoice date. Terms with our distributor allow for payment terms of 45 days from the invoice date. Trade receivables are stated at the amount billed to the customer. The Company generally does not charge interest on overdue customer account balances. Payments of trade receivables are allocated to the specific invoices identified on the customer’s remittance advice or, if unspecified, are applied to the earliest unpaid invoices.

The Company estimates an allowance for doubtful accounts based upon an evaluation of the current status of receivables, historical experience, and other factors as necessary. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change. The Company determined that no allowance was necessary as of December 31, 2017 and 2016.

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

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AGEAGLE AERIAL SYSTEMS, INC.

Notes to Financial Statements

Note 2 – Summary of Significant Accounting Policies – Continued

Provisions for Inventory Obsolescence – The Company recorded a provision for estimated obsolescence and shrinkage of inventory in 2017 of $15,369. Our estimates consider the cost of inventory, forecasted demand, the estimated market value, the shelf life of the inventory and our historical experience. During 2016, during our inventory observations we recorded permanent adjustments for all inventory considered to be obsolete. If demand for a product declines or a change in the features of our products changes the components required to build it is reasonably likely that circumstances may cause the estimate to change, which would result in additional charges to net income.

Research and Development – The Company expenses in the period incurred research and development costs, which totaled $10,221 and $7,019 for the years ended December 31, 2017 and 2016, respectively.

Property and Equipment – Property and equipment are recorded at cost, and are being depreciated using the straight-line method over the estimated useful lives of the related assets, ranging from three to seven years. Leasehold improvements are recorded at cost and amortized on a straight- line basis over the shorter of their estimated lives or the remaining lease term. Significant renewals and betterments are capitalized. Maintenance and repairs that do not improve or extend the lives of the respective assets are expensed. At the time property and equipment are retired or otherwise disposed of, the cost and related accumulated depreciation accounts are relieved of the applicable amounts. Gains or losses from retirements or sales are reflected in the statements of operations.

Shipping Costs – Shipping costs, which total $5,648 and $12,088, respectively, for the years ended December 31, 2017 and 2016, are recorded as cost of revenue and any amounts billed to customers for shipping costs, which total $5,648 and $12,088, respectively, for the years ended December 31, 2017 and 2016, are recorded as revenue.

Revenue Recognition and Concentration – The Company recognizes revenues for the sale of its products in the period when persuasive evidence of an arrangement with a customer, distributor or dealer exists, product delivery and acceptance have occurred and title has transferred to the customer, dealer or the distributor, the sales price is fixed or determinable and collectability of the resulting receivable is reasonably assured.

The Company generally ships FOB Shipping Point terms. Shipping documents are used to verify delivery and customer acceptance. The Company assesses whether the sales price is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund. The Company assesses collectability based on the creditworthiness of the customer as determined by evaluations and the customer’s payment history. Additionally, dealers are required to place a deposit on each drone ordered. The Company has executed various dealer agreements, including one significant non-exclusive worldwide distributor agreement in 2016 whereby the dealers agreed to purchase AgEagle drones and other related products. Under the terms of the dealer agreements except the one significant worldwide distributor agreement, the dealers take ownership of the products, with no right of return, and the Company deems the items sold upon release of shipment to the dealer. The non-exclusive worldwide distributor has the right of return within twelve months of purchase up to a certain percentage of the annual sales volume less a restocking fee.

Sales concentration information for customers comprising more than 10% of our total net sales such customers is summarized below: 

	Percent of total sales for period ended December 31,
Customers	2017			2016
Customer A		20.1	%		81.4	%

There were no accounts receivable due to Customer A as of December 31, 2017, however there was $13,577 due to Customer A at December 31, 2016.

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AGEAGLE AERIAL SYSTEMS, INC.

Notes to Financial Statements

Note 2 – Summary of Significant Accounting Policies – Continued

Advertising costs – Advertising costs are expensed as incurred. Advertising costs amounted to $11,775 and $10,257 for the years ended December 31, 2017 and 2016, respectively.

Earnings Per Share – Basic loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the year. Diluted loss per share is computed by dividing net loss by the weighted average number of common shares outstanding plus common stock equivalents (if dilutive) related to warrants, options and convertible instruments. 

Potentially Dilutive Securities – Options, warrants and convertible debt were all considered anti-dilutive for the year ended December 31, 2017 and 2016 due to net losses that the Company reported. The following table sets forth the securities that were not included for the year ended December 31, 2017 and 2016 in the diluted net loss per share calculation because their effect was anti-dilutive:

	2017		2016
Options		685,100		125,000
Warrants		500,000		-
Convertible Debt and Accrued Interest		661,594		415,444
Total Potentially Dilutive Securities		1,846,694		540,444

Income Taxes – The Company accounts for income taxes in accordance with FASB ASC Topic 740, Accounting for Income Taxes. This topic requires an asset and liability approach for accounting for income taxes.

The Company evaluates its tax positions that have been taken or are expected to be taken on income tax returns to determine if an accrual is necessary for uncertain tax positions. As of December 31, 2017 and 2016, the unrecognized tax benefit accrual was $0. The Company will recognize future accrued interest and penalties related to unrecognized tax benefits in income tax expense if incurred. All years are subject to Federal and state tax examinations by tax authorities.

Recently Issued Accounting Pronouncements – In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers. This updated guidance supersedes the current revenue recognition guidance, including industry-specific guidance. The updated guidance introduces a five-step model to achieve its core principal of the entity recognizing revenue to depict the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The updated guidance is effective for interim and annual periods beginning after December 15, 2016, and early adoption is not permitted. In July 2015, the FASB decided to delay the effective date of ASU 2014-09 until December 15, 2017. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. The Company is currently evaluating which transition method it will adopt and the expected impact of the updated guidance, but does not believe the adoption of the updated guidance will have a significant impact on its financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments: Recognition and Measurement of Financial Assets and Financial Liabilities, which addresses certain aspects of recognition, measurement, presentation and disclosure of financial statements. This guidance will be effective in the first quarter of fiscal year 2019 and early adoption is not permitted. The Company is currently evaluating which transition method it will adopt and the expected impact of the updated guidance, but does not believe the adoption of the updated guidance will have a significant impact on its consolidated financial statements.

9

 AGEAGLE AERIAL SYSTEMS, INC.

Notes to Financial Statements

Note 2 – Summary of Significant Accounting Policies – Continued

In February 2016, FASB issued Account Standards Update 2016-02 – Leases (Topic 842) intended to improve financial reporting of leasing transaction whereby lessees will need to recognize a right-of-use asset and a lease liability for virtually all of their leases. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current Generally Accepted Accounting Principles (GAAP), the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP—which requires only capital leases to be recognized on the balance sheet—the new ASU will require both types of leases to be recognized on the balance sheet. The Company is currently in the process of evaluating the impact of adoption of this ASU on the financial statements.

In August 2016, the FASB issued Accounting Standards Updated 2016-15, “Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments” (ASU 2016-15). The standard addresses eight specific cash flow issues to reduce diversity in practice in how certain cash receipts and cash payments are presented on the Statements of Cash Flows. ASU 2016-15 is effective for the calendar year ending December 31, 2018. The amendments require a retrospective approach to adoption and early adoption is permitted, including in an interim period. The Company does not believe it will have a material impact.

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

Note 3 – Notes Receivable

In November 2017, AgEagle entered into a multi-agreement arrangement with Agribotix, LLC (“Agribotix”), headquartered in Boulder, Colorado, a leading agricultural information processing company providing actionable data to the agriculture industry.  Agribotix’s platform delivers agricultural intelligence to increase yields and profits using drone-enabled technologies. Agribotix was founded in 2013 by Dr. Tom McKinnon, its Chief Technology Officer.

AgEagle believes that developing a strong working relationship with Agribotix will benefit AgEagle and its shareholders in developing important vertically integrated products and services.  Agribotix’s primary product is FarmLens™, a subscription cloud analytics service that processes data, primarily collected with a drone such as AgEagle’s, and makes such data usable by farmers and agronomists. FarmLens is currently sold by Agribotix as a subscription and offered either standalone or in a bundle with major drone platforms manufactured by leading drone providers like AgEagle, DJI, and senseFly.

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AGEAGLE AERIAL SYSTEMS, INC.

Notes to Financial Statements

Note 3 – Notes Receivable – Continued

Agribotix extends the reach of its FarmLens platform by partnering with and directly integrating into offerings by leading agricultural companies like John Deere’s Operations Center and The Climate Corporation’s FieldView.  To date, Agribotix has processed agricultural imagery for over 50 different crop types from over 50 countries around the world.

The agreements reached between AgEagle and Agribotix include:

· Dealer Agreement whereby AgEagle appointed Agribotix as a non-exclusive dealer of AgEagle’s products on a worldwide, best efforts basis.  The term of the agreement is for twelve months with marketing and sales commencing on or after January 1, 2018, and automatically renews for one-year periods unless otherwise terminated.  Either party may terminate the agreement with 30 days written notice.  Both parties agree to provide standard reporting and support services.  Agribotix is required to maintain proper insurance and is obligated to standard confidentiality clauses.  AgEagle has the right to audit Agribotix on an annual basis for its business under this agreement.  Both parties agreed to standard indemnification clauses.

· Distribution and Resale Agreement whereby Agribotix appointed AgEagle as a non-exclusive distributor of Agribotix products and analytic services including FarmLens on a worldwide, best efforts basis. The term of the agreement is for twelve months and automatically renews for one-year periods unless otherwise terminated.  Either party may terminate the agreement with 90 days written notice. Both parties agree to provide standard reporting and support services. AgEagle is required to maintain proper insurance and is obligated to standard confidentiality clauses. Both parties agree to standard indemnification clauses.

· Exchange Agreement whereby, to further align interests between the parties, AgEagle has agreed to exchange shares of the Company’s common stock it receives in the Merger equal to an aggregate value of $1,000,000 for 20% of the equity membership interests of Agribotix.  This Exchange Agreement may be terminated by either party based on further due diligence of the parties, or in the instance that the Merger does not close. The shares of EnerJex that would be issued to Agribotix at the closing of the Merger would not affect the Merger exchange ratio, and therefore would not be additionally dilutive to EnerJex shareholders.

· As part of the signing of the exchange agreement two promissory notes for $50,000 and $25,000 with a 6% per annum interest payable were executed between Agribotix and AgEagle in exchange for exclusive dealing until the later of 120 days after the signing date, or the termination date as defined per the exchange agreement. The principal amount of the promissory notes (and all accrued interest) shall be due and payable on demand but not earlier than March 31, 2018; provided however, if the merger agreement (the “Merger Agreement”) between AgEagle and Agribotix has been signed and is pending closing as of the maturity date, such date shall be extended until the merger agreement has either been closed or has terminated in accordance with its terms. As of December 31, 2017 the Company has recorded interest income and receivable for both notes of $616.

11

AGEAGLE AERIAL SYSTEMS, INC.

Notes to Financial Statements

Note 4 – Property and Equipment

Property and equipment consist of the following at December 31:

	2017			2016
Furniture and equipment	$	108,664			95,888
Less accumulated depreciation		(69,961	)		(51,508	))
	$	38,703		$	44,380

Depreciation expense for the years ended December 31, 2017 and 2016 was $18,453 and $22,549, respectively.

Note 5 – Debt

Convertible Promissory Notes

On May 6, 2015, the Company closed a private placement pursuant to a subscription agreement whereby two institutional investors (the “2015 Holders”) purchased convertible notes having an aggregate principal amount of $500,000, convertible into common stock of the Company at $2.00 per share (adjusted from $1.00 per share due to stock-split) and maturing on November 6, 2016. Interest on the notes accrues at a rate of 8% annually and is payable quarterly. It was determined that there were no aggregate beneficial conversion features. On or about March 4, 2016, the Company and the 2015 Holders entered into extension and modification agreements whereby the 2015 Holders agreed to extend the maturity date of the notes to November 6, 2016 and permanently waive all rights and remedies, of whatever nature, with respect to the various defaults that occurred under this subscription agreement and notes, including, without limitation, (i) the Company’s failure to become a public SEC reporting company on or before September 30, 2015, (ii) the Company’s failure to pay interest on the notes, and (iii) modifying and waiving certain participation rights in future financings. For the year ended December 31, 2017 and 2016, the Company recorded $40,000 and $40,000 of interest expense, respectively. As a result of non-payment of the interest due, the Company has accrued interest as of December 31, 2017 of $105,444.

On June 6, 2016, the Company closed a private placement pursuant to a subscription agreement whereby an existing institutional investor (the “2016 Holder”) purchased a convertible note having a principal amount of $300,000, convertible into common stock of the Company at $3.00 per share and maturing on June 30, 2017. Interest on the notes accrues at a rate of 8% annually and is payable quarterly. It was determined that there were no aggregate beneficial conversion features. For the years ended December 31, 2017 and 2016 the Company recorded interest expense of $ 24,000 and $13,467 respectively. As a result of non-payment of the interest due the Company has accrued interest as of December 31, 2017 of $37,467.

On or about February 2, 2017, the Company, the 2015 Holders and the 2016 Holder entered into a consent and waiver agreement whereby such holders, as applicable, agreed to permanently waive all rights and remedies, of whatever nature, with respect to the defaults that occurred under all of the subscription agreements and notes, including, without limitation, (i) the Company’s failure to become a public SEC reporting company on or before September 30, 2016, and (ii) waiving certain participation rights in future financings, most favored nation rights, and restrictions on future issuances of Company securities. In addition, on March 24, 2017, the Company and the 2016 Holder entered into a modification agreement whereby the Company agreed to accrue and pay interest to the 2016 Holder on the aggregate unconverted and then outstanding principal amount of the note issued in 2016 at a rate of 8% per annum, irrespective of any late fees that may be (or have been) incurred in connection with such failure, payable on the earlier of the newly extended maturity date of November 6, 2017 or the date the Company becomes a public SEC reporting company. The Company is currently in discussions to extend the maturity date through the closing of the merger agreement.

12

AGEAGLE AERIAL SYSTEMS, INC.

Notes to Financial Statements

Note 5 – Debt – Continued

On February 3, 2017, the Company closed a private placement pursuant whereby a bridge loan (the “2017 Note A”) agreement was executed with an accredited investor (the “2017 Holder Note A”) to purchase a convertible promissory note with an aggregate principal amount of $175,000, an original issue discount of $25,000, convertible into common stock of the Company at $2.50 per share and maturing 90 days following issuance, or May 4, 2017. After payment of a finder’s fee and other expenses, the Company received net proceeds of $101,250. In addition, the Company also issued to the 2017 Holder Note A warrants to purchase 200,000 shares of the Company’s common stock at an exercise price per share of $2.50. To the extent the entire unpaid principal balance of the note is not paid in full on the maturity date, (i) interest on the unpaid principal balance will accrue from the maturity date at the rate of 18% per annum, and will continue until the date the note is paid in full, and (ii) the Company will issue to the 2017 Holder Note A an additional warrant to purchase 100,000 shares of common stock for each ninety (90) calendar day period that the unpaid principal balance of the note and any accrued interest is not paid in full by such date. The Company has not paid the unpaid balance thereby resulting in a default of the loan and additional warrants to purchase 200,000 shares of common stock issued as of December 31, 2017.

The Company determined the fair value of the warrants to be $5,070 and based on their relative fair values, $4,927 was allocated to the warrant. It was determined that there were no aggregate beneficial conversion features. The fair value of the warrants was determined using the Black-Scholes-Merton valuation model and the following assumptions: volatility – 74.80%, risk free rate – 2.27 %, dividend rate – 0.00%.  The amount allocated to the warrants was recorded as a discount against the 2017 Note A, with offsetting entry to additional paid-in capital. The warrant expense has been fully amortized into interest expense over the term of the 2017 bridge loan.

Due to the default of the loan, an additional warrant to purchase 100,000 shares of common stock was issued on August 1, 2017. The fair value of the warrant $1,938 was determined using the Black-Scholes-Merton valuation model and was fully expensed as of December 31, 2017. The following are the assumptions used to determine the fair value of the warrants: volatility – 77.67%, risk free rate – 2.05 %, dividend rate – 0.00%.  The amount allocated to the warrants was recorded as a discount against the 2017 Note A, with offsetting entry to additional paid-in capital. 

Due to the default of the loan, an additional warrant to purchase 100,000 shares of common stock was issued on November 1, 2017. The fair value of the warrant $2,217 was determined using the Black-Scholes-Merton valuation model and was fully expensed as of December 31, 2017. The following are the assumptions used to determine the fair value of the warrants: volatility – 80.41%, risk free rate – 2.22 %, dividend rate – 0.00%.  The amount allocated to the warrants was recorded as a discount against the 2017 Note A, with offsetting entry to additional paid-in capital. 

On July 2017, the Company closed a private placement pursuant to a subscription agreement whereby an existing institutional investor purchased a convertible note having a principal amount of $100,005, (the “2017 Note B”) convertible into common stock of the Company at $2.00 per share and maturing on February 28, 2018. Interest on the note accrues at a rate of 8% annually payable upon maturity. It was determined that there were no aggregate beneficial conversion features. For the twelve months ended December 31, 2017, the Company recorded $3,778 of interest expense. As a result of non-payment of the interest due, the Company has accrued interest as of December 31, 2017 of $3,778.

On September 2017, the Company closed a private placement pursuant to a subscription agreement whereby an existing institutional investor purchased a convertible note having a principal amount of $35,000, (the “2017 Note C”) convertible into common stock of the Company at $2.00 per share and maturing on February 28, 2018. Interest on the note accrues at a rate of 8% annually payable upon maturity. It was determined that there were no aggregate beneficial conversion features. For the twelve months ended December 31, 2017, the Company recorded $731 of interest expense. As a result of non-payment of the interest due, the Company has accrued interest as of December 31, 2017 of $731.

On October 2017, the Company closed a private placement pursuant to a subscription agreement whereby an existing institutional investor purchased a convertible note having a principal amount of $50,000, (the “2017 Note D”) convertible into common stock of the Company at $2.00 per share and maturing on February 28, 2018. Interest on the note accrues at a rate of 8% annually payable upon maturity. It was determined that there were no aggregate beneficial conversion features. For the twelve months ended December 31, 2017, the Company recorded $811 of interest expense. As a result of non-payment of the interest due, the Company has accrued interest as of December 31, 2017 of $811.

13

AGEAGLE AERIAL SYSTEMS, INC.

Notes to Financial Statements

Note 5 – Debt – Continued

Promissory Note – Related Party

On December 15, 2016, the Company issued a promissory note with an aggregate principal amount of $30,000 to a related party. On January 24, 2017, the Company issued a 2^nd promissory note with an aggregate principal amount of $30,000 to the same related party. On June 14, 2017, the Company issued a 3^rd promissory note with an aggregate principal amount of $16,050 to the same related party. All three promissory notes (the “Related Party Notes A”) accrue interest at an annual rate of 2% and matured on November 6, 2017. On or about August 1, 2017, the Company and the related party promissory note A holders entered into extension and modification agreements whereby they agreed to extend the maturity date of the Related Party Notes A to February 28, 2018, added a conversion feature whereby the debt can be converted into common stock of the Company at $2.00 per share and amended the interest rate on the note retroactively to accrue at a rate of 8% annually. It was determined that there were no aggregate beneficial conversion features. For the three and twelve months ended December 31, 2017 the Company recorded $1,555 and $5,420 of interest expense, respectively. As a result of non-payment of the interest due, the Company has accrued interest as of December 31, 2017 of $5,853.

On March 5, 2017, the Company issued a promissory note with an aggregate principal amount of $10,000 to a related party. On May 15, 2017, the Company issued a 2^nd promissory note with an aggregate principal amount of $10,000 to the same related party. On June 15, 2017, the Company issued a 3^rd promissory note with an aggregate principal amount of $32,000 to the same related that is part of management of the Company. On July 25, 2017, the Company issued a 4^th promissory note with an aggregate principal amount of $3,000 to the same related that is part of management of the Company with the amended terms agreed to on August 1, 2017 per the modification agreement. The promissory notes (the “Related Party Notes B”) accrue interest at an annual rate of 2% and matured on November 6, 2017. On or about August 1, 2017, the Company and the related party promissory note B holders entered into extension and modification agreements whereby they agreed to extend the maturity date of the Related Party Notes B to February 28, 2018, added a conversion feature whereby the debt can be converted into common stock of the Company at $2.00 per share and amended the interest rate on the note retroactively to accrue at a rate of 8% annually. It was determined that there were no aggregate beneficial conversion features. For the three and twelve months ended December 31, 2017 the Company recorded $1,124 and $2,684 of interest expense, respectively. As a result of non-payment of the interest due, the Company has accrued interest as of December 31, 2017 of $2,684.

Note 6 – Income Taxes

Prior to April 15, 2015, AgEagle Aerial Systems, Inc. was treated as a disregarded entity for income tax purposes. Income taxes, if any, were the responsibility of the sole member. In April 2015, the Company was converted to a corporation.

The Company accounts for income taxes in accordance with FASB ASC Topic 740, Accounting for Income Taxes which requires the Company to provide a net deferred tax asset or liability equal to the expected future tax benefit or expense of temporary reporting differences between book and tax accounting and any available operating loss or tax credit carryforwards. At December 31, 2017 and 2016, the total of all deferred tax assets was $904,293 and $663,676, respectively. The amount of and ultimate realization of the benefits from the deferred tax assets for income tax purposes is dependent, in part, upon the tax laws in effect, the Company’s future earnings, and other future events, the effects of which cannot be determined. Because of the uncertainty surrounding the realization of the deferred tax assets the Company has established a valuation allowance of $904,293 and $1,081,902 for the years ended December 31, 2017 and 2016, respectively. The change in the valuation allowance for the years ended December 31, 2017 and 2016 was $192,162 and $663,676, respectively.

On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was signed into law. The Act decreases the U.S. corporate federal income tax rate from a maximum of 35% to a flat 21% effective January 1, 2018. The impact of the re-measurement on the Corporation’s net deferred tax asset, as of December 31, 2017, was an approximately $103,638 decrease in deferred tax assets, with a corresponding decrease in the Company’s valuation allowance, and no impact on income tax expense. The Act also includes a number of other provisions including, among others, the elimination of net operating loss carrybacks and limitations on the use of future losses, the repeal of the Alternative Minimum Tax regime and the repeal of the domestic production activities deduction. These provisions are not expected to have a material effect on the Corporation.

Given the significant complexity of the Act and anticipated additional implementation guidance from the Internal Revenue Service, further implications of the Act may be identified in future periods.

14

AEAGLE AERIAL SYSTEMS, INC.

Notes to Financial Statements

Note 6 – Income Taxes – Continued

The components of income tax benefit for the years ended December 31, 2017 and 2016 consist of the following:

	2017			2016
Deferred tax benefit:
Federal	$	(167,029	)	$	(615,857	)
State		(25,133	)		(47,819	)
Increase in valuation allowance	$	(192,162	)	$	(663,676	)

A reconciliation of income tax expense at the federal statutory rate to income tax expense at the Company’s effective rate for the years ended December 31 is as follows:

	2017						2016
	Amount			Rate			Amount			Rate
Computed tax at the expected statutory rate	$	(271,053	)		34.00	%	$	(616,255	)		34.00	%
State and local income taxes, net of federal		(25,134	)		2.64			(47,819	)		2.64
Other non-deductible expenses		387			(0.02	)		398			(0.02	)
Change due to impact of tax rates		103,638			(13.00	)
Change in valuation allowance		192,162			(23.62	)		663,676			(36.62	)
Income tax benefit	$	—			0.00	%	$	—			0.00	%

The temporary differences, tax credits and carryforwards that gave rise to the following deferred tax assets at December 31 is as follows:

	2017			2016
Deferred tax assets:
Depreciation	$	4,458		$	5,815
Interest		38,629			19,630
Stock options for consulting services employees and directors		5,363			-
Stock options for consulting services-related party		51,878			76,332
Common stock for consulting services-related party		302,000			458,000
Warrant expense		2,194			-
Net operating loss carryforward		499,771			552,125
Total Deferred tax assets		904,293			1,081,902
Valuation allowance		(904,293	)		(1,081,092	)
Net Deferred tax assets	$	—		$	—

15

AGEAGLE AERIAL SYSTEMS, INC.

Notes to Financial Statements

Note 7 – Equity

Issuance of Common Stock and Stock Split

From inception through April 10, 2015, the Company was a member-managed limited liability company (LLC) solely owned by its Chief Executive Officer. On April 22, 2015, the Company issued 3,500,000 shares of common stock to its sole member upon conversion of the Company from an LLC to a corporation.

On February 25, 2016, the Company signed a Securities Purchase Agreement with its worldwide exclusive distributer partner whereby the Company agreed to sell 200,000 shares of Common Stock for $500,000, and a representative of the purchaser of the common stock will be appointed to the Board of Directors of the Company.

On February 22, 2016, the Company issued 500,000 shares of the Company’s common stock to a related party in connection with the strategic consulting agreement executed in March 2015 for service to be rendered over eighteen months. The value of the shares was based on the estimated fair value of the stock based on the most recent sales price of our stock on February 25, 2016 since there was no dis-incentive for non-performance. As of December 31, 2016 all expense related to this agreement was recorded through the end of the contract term.

On June 7, 2016, the Company effected a 1-for-2 reverse stock split of its common stock. The financial statements give a retrospective effect to the reverse stock split.

Stock Options

The Company has an Employee, Director and Consultant Stock Option Plan that has 1,000,000 shares authorized. In June 2016, the Board authorized the issuance of 724,181 options to employees and directors to be issued in connection with the public offering. As a result of the public offering not being completed the options were forfeited during the year ended December 31, 2016, resulting in no compensation expense. Stock options typically vest over a three-year period and have a life of ten years from the date granted. On October 4, 2017, the Company issued options to purchase 560,100 shares of common stock to employees and directors that were approved by the board at an exercise price of $0.10 per share. The Company recorded $22,192 of stock-based compensation expense in 2017 in connection with the issuance of the options to employees and directors.

On March 1, 2015, the Company entered into a strategic consulting agreement with a related party and granted 125,000 stock options exercisable over five years from the grant date at an exercise price per share of $2.60. On October 4, 2017, the Company held a board meeting to approve the modification of the existing 125,000 options to purchase common stock from an exercise price of $2.60 to $0.10. The Company compared the fair value of the options immediately prior to the modification to their fair value immediately after the modification and determined that the option holders received incremental compensation of $6,397, of which the full amount of $6,397 was related to fully vested options and recognized as expense on the date of modification.

The fair value of options granted were determined using the Black-Scholes option valuation model and a revaluation was performed at each reporting period through August 2017 which represented the expiration of the consulting agreement. The expected term of options granted is based on the simplified method in accordance with Securities and Exchange Commission Staff Accounting Bulletin 107, and represents the period of time that options granted are expected to be outstanding. The Company makes assumptions with respect to expected stock price volatility based on the average historical volatility of peers with similar attributes. In addition, the Company determines the risk free rate by selecting the U.S. Treasury with maturities similar to the expected terms of grants, quoted on an investment basis in effect at the time of grant for that business day.

The significant weighted average assumptions relating to the valuation of the Company’s stock options for the years ended December 31, 2017 and 2016 were as follows:

	December 31, 2017	December 31, 2016
Dividend yield	0%	0%
Expected life	3.04 to 6.25 yrs.	4.38 to 4.79 yrs.
Expected volatility	74.80 to 80.41%	47.09 to 92.34%
Risk-free interest rate	1.89 to 2.33%	1.01 to 1.21%

16

AGEAGLE AERIAL SYSTEMS, INC.

Notes to Financial Statements

Note 7 – Equity – Continued

A summary of the status of options activity at December 31, 2017, and changes during the year then ended is as follows:

	For the Year Ended December 31, 2017
					Weighted
			Weighted		Average
			Average		Remaining		Aggregate
			Exercise		Contractual		Intrinsic
	Shares		Price		Term		Value
Outstanding at beginning year		125,000	$	0.10		4.0 years	$	—
Granted		560,100		0.10		10.0 years		—
Outstanding at end of the year		685,100		0.10		8.5 years	$	—
Exercisable at end of the year		440,056	$	0.10		7.85 years	$	—

For options granted or modified in 2017, the fair value of the Company’s stock used in estimating the fair value of the stock options was estimated using a discounted cash flow method and recent sales of its common stock.

A summary of the status of options activity at December 31, 2016, and changes during the year then ended is as follows:

	For the Year Ended December 31, 2016
						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic
	Shares			Price		Term		Value
Outstanding at beginning year		125,000		$	2.60		5.0 years	$	—
Granted		724,181			—		—		—
Canceled/Expired/Forfeited		(724,181	)		—		—		—
Outstanding at end of the year		125,000		$	2.60		4.0 years	$	—
Exercisable at end of the year		125,000		$	2.60		4.0 years	$	—

For options granted or modified in 2016, the fair value of the Company’s stock used in estimating the fair value of the stock options was estimated using a discounted cash flow method and recent sales of its common stock.

The total intrinsic value of options exercised as of December 31, 2016 and 2015 was $0. Intrinsic value is measured using the fair market value at the date of exercise (for shares exercised) or at December 31, 2016 (for outstanding options), less the applicable exercise price.

During the years 2016, the Company recorded $138,802 respectively, of non-cash compensation expense related to the vested stock options issued to a related party consultant.

17

AGEAGLE AERIAL SYSTEMS, INC.

Notes to Financial Statements

Note 8 – Warrants to Purchase Common Stock

The total intrinsic value of options as of December 31, 2017 was $0. Intrinsic value is measured using the fair value at the date of exercise (for shares exercised) or at December 31, 2017 (for outstanding options), less the applicable exercise price.

During the year ended December 31, 2017, the Company issued, in connection with the issuance of debentures, warrants to purchase 500,000 shares of the Company’s Common Stock at an exercise price of $2.50. All warrants outstanding as of December 31, 2017 are scheduled to expire February 2, 2024 and August 2, 2024.

The grant-date fair value of warrants is estimated using the BSM valuation model.  The per share weighted average fair value of the warrants granted during 2017 was $0.17 and was determined using the following assumptions:  expected price volatility 74.80% to 80.41%, risk-free interest rate ranging between 2.05% to 2.27%, zero expected dividend yield, and 7.0-year life of warrants.  The Company makes assumptions with respect to expected stock price volatility based on the average historical volatility of peers with similar attributes. In addition, the Company determines the risk-free rate by selecting the U.S. Treasury with maturities similar to the expected terms of grants, quoted on an investment basis in effect at the time of grant for that business day. The fair value of the Company’s stock used in estimating the fair value of the stock options was estimated using a discounted cash flow method.

A summary of activity related to warrants for the year ended December 31, 2017 is as follows:  

	Shares		Weighted- Average Exercise Price ($)		Weighted-Average Remaining Contractual Term
Outstanding at December 31, 2016		—	$	—		—
Issued		500,000	$	2.50		6.60
Outstanding at December 31, 2017		500,000	$	2.50		6.40
Exercisable at December 31, 2017		500,000	$	2.50		6.40

Note 9 – Commitments and Contingencies

Operating Leases

The Company leased office space in Neodesha, Kansas for $100 a month from August 2014 to September 2015, $200 a month from October 2015 to September 2016, and $300 a month from October 2016 to December 31, 2017. The lease terminates on September 30, 2018 with no option to renew unless approved by the city commission. Rent expense was $3,900 and $2,578 for the years ended December 31, 2017 and 2016, respectively.

The future minimum lease payments for non-cancelable operating leases having remaining terms in excess of one year as of December 31, 2017 are as follows:

Year ending December 31:	Lease Payments
2018		2,700
Thereafter		—
Total Minimum Lease Payments	$	2,700

18

AGEAGLE AERIAL SYSTEMS, INC.

Notes to Financial Statements

Note 9 – Commitments and Contingencies – Continued

Service Agreements

On March 31, 2016, the Company signed a long-term agreement with a third party to deliver a cloud-based drone operations platform providing data processing and delivery, automated drone control airspace awareness, manned aircraft locations, weather overlays and redundancy of radio and cellular connection for the Company. Under this agreement, the third party will provide hardware and software availability, aerial map processing and hosting, and private labeling of all customer touch points. The costs of the subscriptions will be provided at a discounted rate from the standard pricing of the third party at least until December 30, 2020.

On January 10, 2017, the Company engaged the services of an institutional banker to act as an underwriter assisting the Company with listing its securities on a national stock exchange or other quotation system. In exchange, the Company will pay an underwriting discount equal to 10% of the aggregate price upon closing the offering. Also, at closing, for the price of $50, the Company will sell to the institutional banker a warrant to purchase shares of the Company’s common stock equal to 5% of the shares sold in the offering. The exercise price shall be 115% of the public offering price of the securities.

Exclusive Distribution Agreement

On February 17, 2016, the Company signed a long-term distribution agreement with a third party to be the worldwide exclusive distribution partner (“distributor”) for the Company. Under this agreement, the distributor will private label and purchase the Company’s fixed wing UAVs, exclusively for the agriculture markets over an initial term, for resale through their network of dealers worldwide. To maintain their exclusivity as a distributor, the third party is expected to attain certain sales thresholds over the course of the distribution agreement. The distributor also has the first right of refusal to be the exclusive or non-exclusive distributor of any future Company systems in the agricultural industry, including any multicopter, rotor wing or unmanned aerial spraying systems. Under the terms of the agreement, the Company agreed to terminate all existing dealer agreements, which triggered both the “Termination for Convenience” clause and the right of return clause in the existing dealer agreements. The dealer agreements stipulate that if any such dealer agreement is terminated by the Company without cause, the Company will, at the dealer’s option, repurchase any or all unsold drones in the dealer’s inventory or in transit to the dealer on the effective date of termination and any other marketing material. The purchase price for such unsold products and other material will be the actual net invoice price paid by dealer less any prior credits. The dealer will return the product undamaged and in merchantable condition.

On February 22, 2016, the Company entered into a dealer termination agreement with a certain dealer in relation to its exclusive distributor agreement for Canada. The parties mutually agreed that the Company will pay the dealer installments through September 1, 2016, totaling $100,000 for the termination of the dealer’s exclusive distributor agreement. As of December 31, 2017, there is no remaining accrual as the dealer termination installments obligations have been fully satisfied. As of December 31, 2016, the Company has recorded the termination costs of $100,000 in other expense and had accrued a remaining payment due to the dealer of $20,000. In 2017, the obligation was fully satisfied and as result no further accrual was needed as of December 31, 2017.

As of December 31, 2016, three UAV’s have been returned and seventeen units have been converted to include components from the newer models. As a result, management determined that termination costs of $74,715 were recorded in other expense for the year ended December 31, 2016 and a remaining accrual of $18,365 remained for one pending dealer return and the conversion of four units.

As of December 31, 2017, three UAVs were returned and approximately twenty-one units have been converted to include components from the newer models. At this time management has determined that all the U.S. former dealers based on their right of return clause have been properly account for and completed therefore no expense was recorded for the year ended December 31, 2017 and there is no remaining liability either.

The Company provides a one-year warranty for all units sold to a customer through their exclusive dealer agreement that is included in the price of the product. Based on historical experience, the Company has recorded as an estimate for the warranty accrual expense of $248 in 2017 and $4,398 in 2016 which represents approximately 1% of sales revenue for the year. The warranty accrual will remain until the product contractual warranty period is over or the Company is required to perform product maintenance on the product as contractually required.

19

AGEAGLE AERIAL SYSTEMS, INC.

Notes to Financial Statements

Note 9 – Commitments and Contingencies – Continued

Merger Agreement

On October 19, 2017, the Company entered into Agreement and Plan of Merger (the “Merger Agreement”) with EnerJex Resources, Inc., (NYSE American: ENRJ) and AgEagle 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. Upon completion of the Merger transaction, EnerJex’s Common and Series A Preferred shareholders will own approximately 15% of the combined company.

Note 10 – Related Party Transactions

The following reflects the related party transactions during the years ended December 31, 2017 and 2016.

Consulting Agreement

On March 1, 2015, the Company entered into a strategic consulting agreement to assist it with raising capital and strategic positioning in an effort to increase its valuation. Under the terms of the agreement, the Company agreed to issue 125,000 shares of the Company’s common stock on May 1, 2015, an additional 125,000 shares of common stock on January 15, 2016 and 125,000 stock options exercisable for five years from the issuance date. As of December 31, 2015, no shares were issued to the consultant. The Company recognized $1,250,000 of consulting expense during 2015 and 2016 related to the value of the shares earned, which was based on the estimated fair value of the stock as of December 31, 2015, based on the terms of a transaction which ultimately closed on February 22, 2016 by issuing 500,000 shares of its common stock, as there was no dis-incentive for non-performance. During 2016, the Company recognized $555,556 of consulting expense related to the issuance of the common stock and $138,802 related to the stock options. No additional expense was recorded for the year-ended December 31, 2017 for the common shares granted in connection with the strategic consulting agreement executed in March 2015. During the 2017, the Company recognized $6,397 of additional consulting expense related to the issuance of the common stock for the stock options as a result of the modification of the exercise price of the options from $2.60 per share to $0.10 per share.

On December 15, 2016, the Company issued a promissory note with the consultants of the strategic consulting agreement for $30,000. The interest is payable upon maturity of the note together with the principal amount of $30,000 on June 30, 2017. On January 24, 2017, the Company issued a 2^nd promissory note with an aggregate principal amount of $30,000 to the same related party. On June 14, 2017, the Company issued a 3^rd promissory note with an aggregate principal amount of $16,050 to the same related party. All three promissory notes accrue interest at 8% annually, mature on February 28, 2018 and can convert into common stock of the Company at $2.00 per share.

On March 5, 2017, the Company issued a promissory note with an aggregate principal amount of $10,000 to a related party. On May 15, 2017, the Company issued a 2^nd promissory note with an aggregate principal amount of $10,000 to the same related party. On June 15, 2017, the Company issued a 3^rd promissory note with an aggregate principal amount of $32,000 to the same related that is part of management of the Company. On July 25, 2017, the Company issued a 3^rd promissory note with an aggregate principal amount of $3,000 to the same related that is part of management of the Company with the amended terms agreed to on August 1, 2017 per the modification agreement. The promissory notes accrue interest at an annual rate of 8%, mature on February 28, 2018 and can convert into common stock of the Company at $2.00 per share.

Note 11 – Subsequent Events

On March 22, 2018, the Board approved the modification of the conversion price for the promissory notes for the 2015 Note Holders, the 2016 Note Holder, 2017 Note B, 2017 Note C, 2017 Note D, 2017 Related Party Notes A, and 2017 Related Party Notes B conversion price from their original conversion price of either $3.00 or $2.00 per share to $1.25 per share. In exchange all the notes maturity dates will be extended through the closing of the merger agreement.

On March 26, 2018, the Company consummated the Merger with EnerJex contemplated by the Merger Agreement, pursuant to which Merger Sub merged with and into the Company, with the Company surviving as a wholly-owned subsidiary of EnerJex (the “Merger”). In connection with the Merger, EnerJex changed its name to AgEagle Aerial Systems, Inc. and the Company changed its name to “Eagle Aerial Systems, Inc.” The post-Merger company’s common stock commenced trading on the NYSE American under its new symbol “UAVS” on March 27, 2018.

Each share of common stock issued and outstanding and underlying options and warrants of the Company outstanding immediately prior to the Merger was exchanged for 1.66 shares of EnerJex common stock. As a result, at the effective time of the Merger (the “Effective Time”), 5,439,526 shares of the Company’s capital stock, representing all currently outstanding common shares and all other debt or equity securities convertible into common shares (except options and warrants as described below) were automatically converted into 7,949,837 shares of EnerJex common stock. In addition, at the Effective Time, 685,100 outstanding options and 500,000 warrants to purchase shares of the Company’s common stock were assumed by EnerJex and converted into 1,134,830 options and 828,222 warrants to purchase shares of common stock of EnerJex.

The Company has evaluated subsequent events through March 23, 2018, which is the date these financial statements were available for issuance.

20

EX-99.2

Exhibit 99.2

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

The following information and all other information contained in this proxy statement/prospectus does not give effect to a previously approved reverse stock split in a ratio of up to 1 to 25, which the Board of the Company may enact at or prior to closing of the Merger.

The following unaudited pro forma combined financial statements were prepared using the acquisition method of accounting under existing U.S. generally accepted accounting principles, or GAAP, and give effect to the Merger between EnerJex and AgEagle, including material subsequent events that will occur either prior to or in connection with the closing of the Merger. For accounting purposes, AgEagle is considered to be acquiring EnerJex in the Merger. AgEagle was determined to be the accounting acquirer based upon the terms of the Merger Agreement and other factors including: (i) AgEagle security holders are expected to own approximately 67% of the voting interests of the combined company immediately following the closing of the Merger; (ii) directors appointed by AgEagle will constitute the board of directors of the combined company; and (iii) employees of AgEagle will constitute the entire management of the combined company.

The unaudited pro forma combined balance sheet as of December 31, 2017 assumes that the Merger took place on December 31, 2017 and combines the historical balance sheets of EnerJex and AgEagle as of December 31, 2017. The unaudited pro forma combined statement of operations for the twelve months ended December 31, 2017 assumes that the Merger took place as of January 1, 2017, and combines the historical results of EnerJex and AgEagle for the twelve months ended December 31, 2017. The unaudited pro forma combined statement of operations for the year ended December 31, 2016 assumes that the Merger took place as of January 1, 2016, and combines the historical results of EnerJex and AgEagle for the year ended December 31, 2016. The historical financial statements of EnerJex and AgEagle have been adjusted to give pro forma effect to events that are (i) directly attributable to the Merger, including material subsequent events that will occur either prior to or in connection with the closing of the Merger, (ii) factually supportable, and (iii) with respect to the statements of operations, expected to have a continuing impact on the combined results.

Because AgEagle will be treated as the accounting acquirer, AgEagle’s assets and liabilities will be recorded at their pre-combination carrying amounts and the historical operations that are reflected in the financial statements will be those of AgEagle. EnerJex’s assets and liabilities will be measured and recognized at their fair values as of the transaction date, and consolidated with the assets, liabilities and results of operations of AgEagle after the consummation of the Merger.

The unaudited pro forma combined financial statements are based on the assumptions and adjustments that are described in the accompanying notes. In summary, the unaudited pro forma combined financial statements include: (1) an adjustment to record cash at closing from an investment from an accredited investor of $4 million, (2) the elimination of all accounts receivable, deposits, prepaids and fixed assets from EnerJex’s balance sheet, (3) adjustments recorded by EnerJex to remove and transfer the oil and gas properties concurrently with the closing of the Merger, which will result in the removal of the net oil and gas properties asset to be transferred back to the lenders in exchange for the extinguishment of the associated debt, such extinguishment in the liabilities resulting in an adjustment to the profit and loss statement as a gain, (4) a previous AgEagle investment in Agribotix per terms of an exchange agreement, (5) the conversion of certain Enerjex’s accounts payable, accrued expenses, interest expenses and promissory notes into common stock and preferred stock, (6) adjustments for AgEagle’s promissory notes and debentures along with all related interest to be converted into common stock and preferred stock, (7) adjustments to accrued dividends payable to Series A Preferred stock holders, and (8) as part of the reverse merger, an adjustment to eliminate the deficit accumulated since inception for EnerJex, as going forward the operations of AgEagle will be the surviving operating entity.

The application of the acquisition method of accounting is dependent upon certain valuations and other studies that have yet to be completed. Accordingly, the pro forma adjustments are preliminary, subject to further revision as additional information becomes available and additional analyses are performed, and have been made solely for the purpose of providing unaudited pro forma combined financial statements. Differences between these preliminary estimates and the final acquisition accounting will occur and these differences could have a material impact on the accompanying unaudited pro forma combined financial statements and the combined company’s future results of operations and financial position. The actual amounts recorded as of the completion of the Merger may differ materially from the information presented in these unaudited pro forma combined financial statements.

The unaudited pro forma combined financial statements do not give effect to the potential impact of current financial conditions, regulatory matters, operating efficiencies or other savings or expenses that may be associated with the integration of the two companies. The unaudited pro forma combined financial statements have been prepared for illustrative purposes only and are not necessarily indicative of the financial position or results of operations in future periods or the results that actually would have been realized had AgEagle and EnerJex been a combined company during the specified period.

The unaudited pro forma combined financial statements, including the notes thereto, should be read in conjunction with the separate AgEagle and EnerJex historical financial statements, and their respective management’s discussion and analysis of financial condition and results of operations. AgEagle’s historical audited financial statements for the twelve months ended December 31, 2017 and 2016 are included in this filing. EnerJex’s historical audited consolidated financial statements for the years ended December 31, 2017 and 2016 are included in its Annual Report on Form 10-K as filed with the SEC on March 23, 2018.

Unaudited Pro Forma Condensed Combined Balance Sheets

	December 31, 2017
	AgEagle Aerial Systems, Inc.			EnerJex Resources, Inc.			Pro Forma Adjustments				Preferred Stock Conversion				Pro Forma Combined
ASSETS
Current assets
Cash		35,289			677,936			4,000,000		(A)						4,713,225
Accounts receivable, net		255			143,799			(143,799	)	(B)						255
Inventories		158,632			-											158,632
Deposits and prepaid expenses		3,384			223,648			(223,648	)	(C)						3,384
Notes Receivable		75,000			-			-								75,000
Total current assets		272,560			1,045,383			3,632,553								4,950,496
Non Current assets
Fixed Assets		108,664			796,776			(796,776	)							108,664
Less accumulated depreciation		(69,961	)		(618,661	)		618,661								(69,961	)
Net Fixed Assets		38,703			178,115			(178,115	)	(D)						38,703
Oil and gas properties using full-cost accounting		-			10,008,764			(10,008,764	)							-
Less accumulated depreciation		-			(8,597,539	)		8,597,539								-
Net oil and gas properties using full-cost accounting		-			1,411,225			(1,411,225	)	(E)						-
Investment in AgriBotix		-			-			1,000,000		(F)						1,000,000
Total non-current assets		38,703			1,589,340			(589,340	)							1,038,703
TOTAL ASSETS		311,263			2,634,723			3,043,213								5,989,199
LIABILITIES
Current liabilities
Accounts payable		426,154			217,941			(17,941	)	(G)						626,155
Accrued expenses		59,354			1,034,827			(534,827	)	(G)						559,354
Accrued  interest		185,335			-			(185,335	)	(G)						-
Payroll liabilities		5,521			-											5,521
Convertible notes payable		1,160,005			-			(1,160,005	)	(G)						-
Promissory note – related party		131,050			-			(131,050	)	(G)						-
Current portion of long term debt		-			4,876,903			(4,876,903	)	(E)						-
Total current liabilities		1,967,419			6,129,671			(6,906,061	)							1,191,030
Asset retirement obligation		-			1,611,845			(1,611,845	)	(E)						-
Other long-term liabilities		-			6,919,579							(6,919,579	)	(H)		-
Total non-current liabilities		-			8,531,424			(1,611,845	)							-
TOTAL LIABILITIES		1,967,419			14,661,095			(8,517,906	)							1,191,030
Commitments and Contingencies
STOCKHOLDERS’  (DEFICIT) EQUITY
Common stock, $0.0001 par value - 100,000,000 share authorized, 4,200,000 shares issued and outstanding at December 31, 2017		420			-			200		(F)						620
Common stock, $0.001 par value, 250,000,000 shares authorized; shares issued and outstanding upon  closing  a conversion from AgEagle common shares par value to Enerjex par value will occur								7,330		(K)						7,330
Common stock, $0.001 par value, 250,000,000 shares authorized; shares issued and outstanding 16,294,891 at  December 31, 2017					16,295			(15,255	)	(A) (G)						1,040
Common stock, $0.001 par value, 250,000,000 shares authorized; shares issued and outstanding upon  closing the conversion from Series A Preferred to common shares including accrued dividends, 11,511,767					-			-				425		(J)		425
10% Series A cumulative perpetual redeemable preferred stock, $0.001 par value, 25,000,000 shares authorized; 938,248 shares issued and outstanding December 31, 2017					2,000			-				(1,528	)	(H)		472
Series B convertible preferred stock, $0.001 par value, 1,764 shares authorized, and 352 issued and outstanding at December 31, 2017					1			-				4		(H)		5
Series C convertible preferred stock, $0.001 par value, 500 shares authorized; 300 shares, issued and outstanding at December 31, 2017					1			-								1
Series C convertible preferred stock issuable					200,000			4,000,000		(A)(L)		(4,193,130	)	(L)		6,870
Additional paid-in-capital		1,939,832			74,185,091			(78,860,916	)	(A)(B)(C)(D) (E)(F)(G)(I)(J)(K)(L)		11,113,808		(H)(L)		8,377,816
Accumulated deficit		(3,596,408	)		(86,429,760	)		86,429,760		(I)						(3,596,408	)
Total Stockholders’ (Deficit) Equity		(1,656,156	)		(12,026,372	)		11,561,119								4,798,170
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		311,263			2,634,723			3,043,213								5,989,199

The accompanying notes are an integral part of these condensed consolidated financial statements.

Unaudited Pro Forma Condensed Combined Statement of Operations

	For the Twelve Months Ended   December 31, 2017
	AgEagle Aerial Systems, Inc.			EnerJex Resources, Inc.			Pro Forma Adjustments				Pro Forma Combined
Revenues		116,035			1,329,005			(1,329,005	)	(M)		116,035
Cost of Sales		111,811			1,363,946			(1,363,946	)	(M)		111,811
Gross Profit		4,223			(34,941	)		34,941				4,223
Operating Expenses:
Selling, general and administrative		260,388			1,242,327			(1,178,187	)	(N)		324,528
Impairment of oil and gas asset		-			-							-
Professional fees		402,706			1,390,512			(252,016	)	(N)		1,541,202
Consulting Fees – related party		7,992			-							7,992
Total operating expenses		671,086			2,632,839			(1,430,203	)			1,873,722
Loss from Operations		(666,863	)		(2,667,780	)		1,465,144				(1,869,498	)
Other expense		12,458			692,879			(692,879	)	(O)		12,458
Interest expense		(142,810	)		(1,250,191	)		1,250,191		(O)		(142,810	)
Gain on loan sale agreement		-			11,500,124			(11,500,124	)	(P)		-
Loss on derivatives contracts		-			-					(Q)		-
Income (Loss)  before Income Taxes		(797,215	)		8,275,032			(9,477,668	)			(1,999,850	)
Provision for income taxes		-
Net (Loss) Income		(797,215	)		8,275,032			(9,477,668	)			(1,999,850	)
Net (Loss) Income		(797,215	)		8,275,032			(9,477,668	)			(1,999,851	)
Beneficial conversion on Series C Preferred Stock		-			(208,500	)		208,500		(H)		-
Deemed dividend for anti-dilution provision		-			(3,400,000	)		3,400,000		(H)		-
Preferred dividends		-			(3,518,430	)		2,847,324		(H)		(671,106	)
Net Income (Loss) attributable to common stockholders		(797,215	)		1,148,102			(3,021,844	)			(2,670,957	)
Net (Loss) Income Per Share – Basic		(0.19	)		0.11							(0.27	)
Weighted average shares basic		4,200,000			10,503,070							9,886,305
Net (Loss) Income Per Share – Diluted		(0.19	)		0.11							(0.16	)
Weighted average shares diluted		4,200,000			10,503,070							16,518,637

The accompanying notes are an integral part of these condensed consolidated financial statements.

Unaudited Pro Forma Condensed Combined Statement of Operations

	For the Twelve Months Ended   December 31, 2016
	AgEagle Aerial Systems, Inc.			EnerJex Resources, Inc.			Pro Forma Adjustments				Pro Forma Combined
Revenues		373,324			2,461,727			(2,461,727	)	(M)		373,324
Cost of Sales		338,244			2,661,258			(2,661,258	)	(M)		338,244
Gross Profit		35,080			(199,531	)		199,531				35,080
Operating Expenses:
Selling, general and administrative		427,146			2,596,131			(2,201,212	)	(N)		822,065
Impairment of oil and gas asset		-			8,032,670			(8,032,670	)	(E)		-
Professional fees		554,043			310,471			(310,000	)	(N)		554,514
Consulting Fees - related party		694,356			-							694,356
Total operating expenses		1,675,545			10,939,272			(10,543,882	)			2,070,935
Loss from Operations		(1,640,465	)		(11,138,803	)		10,743,413				(2,035,854	)
Other expense (income)		(118,475	)		2,406,340			(2,406,340	)	(O)		(118,475	)
Interest expense		(53,575	)		(1,911,906	)		1,911,906		(O)		(53,575	)
Loss on derivative contracts		-			(2,531,401	)		2,531,401		(Q)		-
Loss before Income Taxes		(1,812,515	)		(13,175,770	)		12,780,380				(2,207,904	)
Provision for income taxes		-
Net Loss		(1,812,515	)		(13,175,770	)		12,780,380				(2,207,904	)
Net Loss		(1,812,515	)		(13,175,770	)		12,780,380				(2,207,905	)
Preferred dividends		-			(3,010,211	)		3,010,211		(H)		-
Net Loss attributable to common stockholders		(1,812,515	)		(16,185,981	)		15,790,591				(2,207,905	)
Net Loss Per Share – Basic		(0.44	)		(1.92	)						(0.22	)
Weighted average shares basic		4,099,167			8,423,936							9,886,305
Net Loss Per Share –  Diluted		(0.44	)		(1.92	)						(0.13	)
Weighted average shares diluted		4,099,167			8,423,936							16,518,637

The accompanying notes are an integral part of these condensed consolidated financial statements.

Notes to the Unaudited Pro Forma Condensed Combined Financial Statements

1. Description of the Proposed Transaction

As of March 26, 2018, EnerJex Resources, Inc. (“EnerJex”) and AgEagle Aerial Systems, Inc. (“AgEagle”) closed their Agreement and Plan of Merger dated October 19, 2017, which we refer to as the Merger Agreement, that sets forth the terms and conditions of the business combination of EnerJex and AgEagle. Under the Merger Agreement, AgEagle Merger Sub, Inc., a wholly owned subsidiary of EnerJex (“Merger Sub”), merged with and into AgEagle, with AgEagle surviving as a wholly owned subsidiary of EnerJex (the “Merger”).

2. Basis of Presentation

EnerJex, a Nevada corporation, had a fiscal year ended December 31, 2017 during the periods presented. The most recent financial information available for EnerJex is for the twelve months ended December 31, 2017. The information presented for EnerJex as of December 31, 2017 is deemed to be current for these unaudited pro forma condensed combined financial statements. AgEagle, a Nevada corporation, reports on a calendar year basis and is utilizing financial statements as of December 31, 2017 for these pro forma condensed combined financial statements.

The unaudited pro forma condensed combined financial statements were prepared in accordance with regulations of the Securities and Exchange Commission and are intended to show how the Merger might affect the historical financial statements if the transaction had been completed on December 31, 2017 for the purposes of the balance sheet and December 31 2017 and 2016 for the purposes of the statement of operations. The pro forma adjustments reflecting the completion of the transactions are based upon the accounting rules for reverse capitalizations.

Based on the terms of the Merger Agreement, AgEagle is deemed to be the accounting acquirer because the former AgEagle shareholders, board of directors and management have voting control and operating control of the combined company. The Merger will be accounted for as a capital transaction accompanied by a recapitalization with no goodwill or other intangibles recorded.

The historical financial data has been adjusted to give pro forma effects to events that are (i) directly attributable to the Merger (ii) factually supportable, and (iii) with respect to the statements of operations, expected to have a continuing impact on the combined results. The unaudited pro forma condensed combined financial statements do not give effect to the potential impact of current financial conditions, regulatory matters, operating efficiencies or other savings or expenses that may be associated with the transactions. The unaudited pro forma condensed combined financial data also do not include any integration costs. The unaudited pro forma condensed combined financial statements have been prepared for illustrative purposes only and are not necessarily indicative of the financial position or results of operations in future periods or the results that actually would have been realized had the Merger occurred prior to the specified period.

3. Pro Forma Adjustments

The pro forma adjustments in the unaudited pro forma condensed combined balance sheet as of December 31, 2017 and statement of operations for the twelve months ended December 31, 2017 are as follows:

(A)	To record cash at closing for purposes of investment from accredited investors (1)		4,000,000
(B)	Adjustment to record removal of accounts receivable in anticipation of merger (2)		143,799
(C)	Adjustment to record removal of deposits and prepaid expenses in anticipation of merger (3)		223,648
(D)	Adjustment to record removal of fixed assets in anticipation of merger to be assumed by EnerJex (4)		178,115
(E)	Adjustments to remove and transfer oil and gas properties concurrently with the closing of the merger (5):
	Removal of net oil and gas properties to be transferred in return for extinguishment of associated debt	$	(1,411,225	)
	Removal of net oil and gas asset retirement obligation as a result of property to being transferred in return for extinguishment of associated debt		1,611,845
	Elimination of debt associated with oil and gas assets as a result of property being transferred		4,876,903
	Elimination of amortization and related costs associated with oil and gas assets removed at closing		3,142,817
	Total pro forma adjustment to P&L - Gain on extinguishment of debt	$	8,220,340
(F)	Investment in Agribotix per terms of Exchange Agreement to be recorded on a cost basis (6)	$	1,000,000
(G)	Adjustments to common stock as a result of convertible equity raised prior to merger to remove payables, accrued expenses and existing debt prior to merger (7)
	Accounts payable converted to common or preferred shares as part of closing of merger	$	17,941
	Accrued expenses converted to common or preferred shares as part of closing of merger		534,827
	Interest expense converted to common or preferred shares as part of closing of merger		185,335
	Promissory notes converted to common or preferred shares as part of closing of merger	$	1,345,340
(H)	Adjustments to accrued dividends payable to Series A Preferred stockholders, conversion of shares into common stock and elimination of preferred dividends into stock at closing (8)	$	6,455,824
(I)	Adjustment to eliminate the deficit accumulated since inception for EnerJex as going forward the operations of AgEagle will be the surviving operating entity (9)
(J)	Adjustment to convert at closing from Series A Preferred to common shares of EnerJex, at an exchange ratio of 1 share of preferred for 10 shares of common stock or a pre-reverse split basis (10)
(K)	Adjustment to convert at closing the AgEagle common shares par value of $.0001 to EnerJex par value of $.001 (11)
(L)	Issuance of additional Series C Preferred Shares in connection with the $4,000,000 private placement (12)
(M)	Adjustment to EnerJex’s revenue and cost of goods sold as a result of transfer of EnerJex’s income producing assets (13)
(N)	Adjustment to EnerJex’s SG&A expenses related to the operations of the EnerJex income producing assets, transferred at closing (13)
(O)	Adjustment to EnerJex’s existing interest expense and other income(expense) related to debt and other assets eliminated at closing (13)
(P)	Adjustment to EnerJex’s gain on loan sale agreement eliminated as a result of transfer of EnerJex’s income producing assets at closing (13)
(Q)	Adjustment to EnerJex’s existing changes in fair value derivative contract cost expense related to contracts eliminated at closing (13)

(1) Investment from Alpha Capital Anstalt providing $4 million for 4,000 shares of Series C Preferred Stock. .

(2) All EnerJex accounts receivable related to operations of the oil and gas assets have been  eliminated in the transfer of such assets to the third party lender.

(3) All EnerJex deposits and prepaid expenses related to operations of the oil and gas assets have been eliminated in the transfer of such assets to the third party lender.

(4) All EnerJex fixed assets related to operations of the oil and gas assets have been  eliminated in the transfer of such assets to the third party lender.

(5) EnerJex completed as of the closing of the merger, an agreement with the lender of its  long term debt to forgive such debt in return for the transfer of the Company’s remaining oil gas assets. Such agreement eliminated the relevant assets, debt, retirement obligations and other liabilities associated with ownership of said assets.

(6) AgEagle has an agreement with Agribotix, in connection with other reseller agreements, to exchange 20% of Agribotix’s equity for $1,000,000 of AgEagle common stock concurrently with the closing of the Merger at the market price of the Company’s common stock at such time. Such share exchange was included in the Merger consideration paid to the AgEagle shareholders.

(7) EnerJex raised approximately $650,000 in connection with the sale of 1,1061,752 shares of Series A Preferred Stock on December 20, 2017. These funds in addition to other cash on hand prior to the merger allowed the Company to eliminate a significant portion of its current payables, accrued expenses, interest and notes of EnerJex.

(8) All accrued but unpaid dividends of the Series A Preferred Stock were converted into 241,599 additional shares of Series A Preferred Stock by approval of over 67% of the Series A shareholders..

(9) Per GAAP accounting rules.

(10) Each share of Series A Preferred stock was converted into 10 shares of common stock, on a pre reverse split basis. The adjustment resulted in the recording of $11,511,767 to APIC and $11,512 to eliminate the Preferred Series A shares from the Balance Sheet  

(11) Adjustment made for issuance of shares of EnerJex to the AgEagle shareholders, at a 41.41 to 1 ratio.

(12) Capital committed from Alpha Capital Anstalt made for issuance of additional shares of Series C Preferred Stock.

(13) Per GAAP accounting rules, as AgEagle is the accounting acquiring party, historical revenue, costs of goods sold, SG&A related to oil/gas operations, interest expense, gain on loan sale agreement, and derivative contract costs of EnerJex would be eliminated at closing.

4. Earnings Per Share

The pro forma weighted-average shares outstanding gives effect to the issuance of 7,848,712 shares of common stock of EnerJex in connection with the merger as if they occurred at the beginning of the period presented. The pro forma weighted average shares outstanding takes into effect the 25:1 reverse split as of March 26, 2018.

5. Common Share Reconciliation per Proforma Balance Sheet

EnerJex shares issued to AgEagle shareholders	7,949,837
EnerJex Existing Shareholders as of 12/31/17	1,039,828
EnerJex Series A Preferred Shareholders including accrued dividends converted to common shares	424,701
EnerJex accrued salaries converted to common shares	471,939
Total Common Shares Outstanding as of Closing	9,886,305
Series B Outstanding at closing	5,388
Series C Outstanding at closing	4,663,893
Options to be issued	1,963,051
Total Common Shares Outstanding as of Closing – Diluted	16,518,637