Filing Identity and Reporting Period
The provided filing is EnerJex Resources, Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2017, filed August 21, 2017. The request identifies Ageagle Aerial Systems Inc.; this does not match the registrant named in the filing and should be verified.
EnerJex’s business was domestic onshore oil and gas acquisition, development, exploration, and production, with remaining operations concentrated in Kansas after the May 2017 debt restructuring.
Financial Results and Key Metrics
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Total revenue | $285,691, versus $595,680 in 2016 | $914,704, versus $1,151,679 in 2016 |
| Operating income (loss) | $(532,508), versus $(2,757,632) | $(1,089,388), versus $(8,285,298) |
| Net income (loss) | $11,169,795, versus $(3,462,938) | $9,933,088, versus $(9,154,727) |
| Net income (loss) attributable to common stockholders | $10,081,687, versus $(4,147,077) | $7,965,371, versus $(10,425,270) |
| Basic earnings (loss) per share | $1.06, versus $(0.49) | $0.89, versus $(1.24) |
- Revenue consisted primarily of oil sales. First-half oil revenue was $895,195, while natural gas revenue was $19,509.
- First-half oil production declined to 19,633 barrels from 30,911 barrels; natural gas production declined to 11,649 Mcf from 27,515 Mcf.
- Average first-half oil price increased to $45.42 per barrel from $36.46. Average natural gas price increased to $1.67 per Mcf from $0.89.
- First-half direct operating costs were $808,136, down from $1,347,665. Production costs were $47.73 per Boe versus $44.97, while lifting costs were $37.33 per Boe versus $37.97.
- No oil and gas impairment was recorded in 2017, compared with a $6,644,596 impairment charge in the first half of 2016.
- Cash used in operating activities was $532,526; cash used in investing activities was $4,635; and cash provided by financing activities was $450,000. Cash declined from $178,035 at the beginning of the year to $90,874 at June 30, 2017.
- Total assets were $2,366,754, down from $7,991,861 at December 31, 2016. Stockholders’ deficit was $(9,806,063), compared with $(18,477,885).
- Working capital deficit was $4,744,155, improved from $18,075,439, primarily because of debt forgiveness.
- Current liabilities were $5,437,736, including $4,605,806 of current debt. Accrued Series A preferred dividends totaled $5,160,364.
Material Changes and Unusual Items
- The May 10, 2017 loan restructuring generated an $11,500,124 accounting gain. The transaction forgave approximately $17.295 million of secured debt and accrued interest, while the Company transferred oil and gas assets in Colorado, Texas, and Nebraska and shares of Oakridge Energy.
- The Company retained its Kansas assets and entered into a secured financing arrangement involving a stated $4.5 million obligation, with the ability to satisfy it for $3.3 million if paid by the applicable maturity date. The obligation bears 16% interest and was due November 1, 2017, subject to two 90-day extensions costing $100,000 each.
- A $105,806 promissory note due to Pass Creek Resources matured June 9, 2017 and remained unpaid at June 30; no default notice had been provided.
- The Company issued 300 shares of Series C convertible preferred stock for $300,000 and recorded an additional $150,000 as preferred stock issuable. Series B conversions resulted in 1,300,000 common shares issued during the quarter, and anti-dilution provisions resulted in 597,461 additional common shares.
- Effective May 1, 2017, EnerJex began providing general and administrative services to Camber Energy, Inc. for $150,000 per month. The arrangement involves related-party connections through a director and the interim CFO.
Outlook, Liquidity, Risks, and Contingencies
Management substantially curtailed capital spending because of low commodity prices and limited capital. It intended to prioritize Kansas drilling, reactivation, recompletion, acquisitions, strategic transactions, and potential financings if commodity prices and capital availability improved. No transaction was assured.
The filing states that substantial doubt exists regarding the Company’s ability to continue as a going concern for the twelve months following issuance. Management indicated that failure to obtain financing could require further business reductions, asset sales, or bankruptcy protection.
- Liquidity was constrained by only $90,874 of cash, a significant working capital deficit, declining production, and debt secured by Kansas oil properties.
- The Company had substantially curtailed maintenance and growth capital expenditures, contributing to lower production and revenue.
- Key risks included oil and gas price volatility, reserve and production declines, inability to raise capital, debt default or foreclosure, potential delisting, dilution, litigation, regulatory and environmental liabilities, and possible changes in business focus or control.
- An irrevocable $50,000 letter of credit remained outstanding in favor of the Texas Railroad Commission.
- Pending litigation involved alleged improper property sales and unpaid royalties in Texas and an alleged breach of contract concerning Kansas land rentals. The Company recorded no reserves and stated that it intended to defend both matters.
- On July 14, 2017, the Company issued a $100,000 secured note to Alpha Capital at 8% interest, and on July 28 received an additional $50,000 advance.
- On August 17, 2017, Robert Schleizer became interim CFO, replacing Douglas M. Wright.
Investor Verification Checklist
- Confirm the issuer: the supplied filing is for EnerJex Resources, Inc., not Ageagle Aerial Systems Inc.
- Verify the final status and repayment or extension of the $3.3 million discounted secured debt obligation and the unpaid $105,806 note.
- Assess whether the Company obtained sufficient financing to address the going-concern uncertainty after June 30, 2017.
- Reconcile the reported net income with the largely non-cash $11.5 million debt-restructuring gain and review recurring operating cash generation.
- Evaluate the impact of asset transfers and curtailed capital spending on future production, reserves, and revenue.
- Review dilution from Series B and Series C preferred stock conversions, anti-dilution issuances, and related financing terms.
- Monitor litigation, environmental obligations, the Texas letter of credit, debt liens, and any NYSE American listing compliance issues.