U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

☒[X]       Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 20152016

☐[  ]       Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Transition Period from __________ to _________

Commission file number: 001-32624

FieldPoint Petroleum Corporation
(Exact name of small business issuer as specified in its charter)
 
Colorado
Colorado
84-0811034
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S.
  (I.R.S. Employer
Identification No.)

609 Castle Ridge Road, Suite 335
Austin, Texas  78746
(Address of Principal Executive Offices)   (Zip Code)
 
(512) 579-3560
(Issuer's Telephone Number, Including Area
609 Castle Ridge Road, Suite 335
                  Austin, Texas 78746                  
(Address of Principal Executive Offices) (Zip Code)

(former name, address and fiscal year, if changed since last report)
 
                           (512) 579-3560                           
(Issuer's Telephone Number, Including Area Code)

(former name, address and fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒No ☐   X   No        

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ☒[ X ] No  ☐[ ]

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

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

Large accelerated filer [___]  Accelerated filer [__]
Non-accelerated filer [___] (Do not check if a smaller reporting company) Smaller reporting company [ X ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes       ☐ No☒   X   
 
As of August 10, 2015,11, 2016, the number of shares outstanding of the Registrant's $.01 par value common stock was 8,880,101.8,900,101.
 
1

PART I – FINANCIAL INFORMATION

Item 1.
Item 1. Financial Statements

FieldPoint Petroleum Corporation

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

  
June 30,
2015
  
December 31, 2014
 
ASSETS
 
     
CURRENT ASSETS:    
Cash and cash equivalents $1,115,989  $978,145 
Certificates of deposit  -   30,815 
Accounts receivable:        
Oil and natural gas sales  644,326   589,643 
Joint interest billings, less allowance for doubtful accounts of approximately $174,000 each period  
282,392
   
309,417
 
Unrealized gain on commodity derivatives  24,000   - 
Prepaid income taxes  354,113   350,486 
Deferred income tax asset—current  91,000   98,000 
Prepaid expenses and other current assets  86,832   74,032 
Total current assets  2,598,652   2,430,538 
         
PROPERTY AND EQUIPMENT:        
Oil and natural gas properties (successful efforts method)  41,033,974   40,873,612 
Other equipment  108,460   108,460 
Less accumulated depletion and depreciation  (21,465,581)  (20,514,981)
Net property and equipment  19,676,853   20,467,091 
         
Total assets $22,275,505  $22,897,629 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
         
CURRENT LIABILITIES:        
Short-term debt$ 7,240,000$-
Accounts payable and accrued expenses  670,585   546,731 
Oil and gas revenues payable  448,945   315,954 
Total current liabilities  8,359,530   862,685 
         
LONG-TERM DEBT  -   7,240,000 
DEFERRED INCOME TAXES  1,718,000   2,064,000 
ASSET RETIREMENT OBLIGATION  1,815,292   1,763,043 
Total liabilities  11,892,822   11,929,728 
         
STOCKHOLDERS’ EQUITY:        
Common stock, $.01 par value, 75,000,000 shares authorized; 9,062,385 and 9,052,385 shares issued, respectively, and 8,135,385 and 8,125,385 outstanding, respectively  
90,623
   
90,523
 
Additional paid-in capital  12,242,095   12,116,487 
Retained earnings  16,857   727,783 
Treasury stock, 927,000 shares, each period, at cost  (1,966,892)  (1,966,892)
Total stockholders’ equity  10,382,683   10,967,901 
Total liabilities and stockholders’ equity $22,275,505  $22,897,629 
 
 
 
June 30,
 
 
December 31,
 
 
 
 2016 
 
 
 2015 
 
 
ASSETS
 
 
 
 
 
 
 
 
CURRENT ASSETS:
 
 
 
 
 
 
Cash and cash equivalents
  $835,664 
  $1,467,279 
Accounts receivable:
       
       
Oil and natural gas sales
    463,063 
    536,413 
Joint interest billings, less allowance for doubtful accounts of approximately $237,000 each period
    200,397 
    221,159 
Prepaid income taxes
    23,503 
    23,442 
Prepaid expenses and other current assets
    74,598 
    67,236 
Total current assets
    1,597,225 
    2,315,529 
 
       
       
PROPERTY AND EQUIPMENT:
       
       
Oil and natural gas properties (successful efforts method)
    41,090,294 
    41,085,514 
Other equipment
    108,460 
    108,460 
Less accumulated depletion, depreciation and impairment
    (33,617,414)
    (32,989,814)
Net property and equipment
    7,581,340 
    8,204,160 
 
       
       
OTHER ASSETS
    25,000 
    - 
 
       
       
Total assets
  $9,203,565 
  $10,519,689 
 
       
       
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
       
       
CURRENT LIABILITIES:
       
       
Short-term debt
  $6,478,333 
  $6,478,333 
Accounts payable and accrued expenses
    1,023,190 
    891,611 
Oil and gas revenues payable
    455,760 
    459,627 
Asset retirement obligation - current
    80,467 
    127,795 
Total current liabilities
    8,037,750 
    7,957,366 
 
       
       
ASSET RETIREMENT OBLIGATION
    1,722,887 
    1,685,185 
Total liabilities
    9,760,637 
    9,642,551 
 
       
       
STOCKHOLDERS’ EQUITY:
       
       
Common stock, $.01 par value, 75,000,000 shares authorized
       
9,817,101 and 9,807,101 shares issued, respectively, and 8,890,101 and 8,880,101 outstanding, respectively
    98,170 
    98,070 
Additional paid-in capital
    13,015,097 
    13,001,447 
Accumulated deficit
    (11,703,447)
    (10,255,487)
Treasury stock, 927,000 shares, each period, at cost
    (1,966,892)
    (1,966,892)
Total stockholders’ equity (deficit)
    (557,072)
    877,138 
Total liabilities and stockholders’ equity
  $9,203,565 
  $10,519,689 
See accompanying notes to these unaudited condensed consolidated financial statements.

 
2
FieldPoint Petroleum Corporation

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 
Three Months Ended
 
 
Six Months Ended
 
 
Three Months Ended
June 30,
  
Six Months Ended
June 30,
 
 
 June 30,  
 
 2015  2014  2015  2014 
 
 2016 
 
 
 2015 
 
 
 2016 
 
 
 2015 
 
REVENUE:        
 
 
 
Oil and natural gas sales $1,147,129  $2,367,540  $2,237,486  $5,271,755 
  $751,035 
  $1,147,129 
  $1,319,774 
  $2,237,486 
Well operational and pumping fees  1,262   17,664   2,524   26,614 
    1,262 
    2,524 
Disposal fees  30,286   13,105   55,633   13,105 
    28,283 
    30,286 
    42,995 
    55,633 
Total revenue  1,178,677   2,398,309   2,295,643   5,311,474 
    780,580 
    1,178,677 
    1,365,293 
    2,295,643 
                
       
COSTS AND EXPENSES:                
       
Production expense  721,370   985,810   1,540,763   1,965,278 
    681,089 
    721,370 
    1,341,364 
    1,540,763 
Depletion and depreciation  443,800   623,500   950,600   1,449,000 
    307,800 
    443,800 
    627,600 
    950,600 
Exploration expense  -   -   15,497   - 
    - 
    15,497 
Accretion of discount on asset retirement obligations  
27,000
   
25,000
   
53,000
   
51,000
 
    27,000 
    54,000 
    53,000 
General and administrative  283,307   355,982   656,634   851,534 
    289,365 
    283,307 
    664,802 
    656,634 
Total costs and expenses  1,475,477   1,990,292   3,216,494   4,316,812 
    1,305,254 
    1,475,477 
    2,687,766 
    3,216,494 
                
       
OPERATING INCOME (LOSS)  (296,800)  408,017   (920,851)  994,662 
OPERATING LOSS
    (524,674)
    (296,800)
    (1,322,473)
    (920,851)
                
       
OTHER INCOME (EXPENSE):                
       
Interest income  104   348   226   671 
    659 
    104 
    771 
    226 
Interest expense  (64,434)  (62,784)  (127,879)  (131,236)
    (63,542)
    (64,434)
    (126,382)
    (127,879)
Realized gain (loss) on commodity derivative  25,234   (882)  25,234   (882)
    - 
    25,234 
    - 
    25,234 
Unrealized gain (loss) on commodity derivatives  
24,000
   
6,209
   
24,000
   (40,000)
    - 
    24,000 
    - 
    24,000 
Warrant modification expense(66,124)-(66,124)-
    - 
    (66,124)
    - 
    (66,124)
Miscellaneous  9,258   9,099   15,878   9,728 
    124 
    9,258 
    124 
    15,878 
Total other expense  (71,962)  (48,010)  (128,665)  (161,719)
Total other income (expense)
    (62,759)
    (71,962)
    (125,487)
    (128,665)
                
       
INCOME (LOSS) BEFORE INCOME TAXES  (368,762)  360,007   (1,049,516)  832,943 
LOSS BEFORE INCOME TAXES
    (587,433)
    (368,762)
    (1,447,960)
    (1,049,516)
                
       
INCOME TAX EXPENSE – CURRENT  (410)  (12,000)  (410)  (76,000)
    - 
    (410)
    - 
    (410)
INCOME TAX BENEFIT (EXPENSE) – DEFERRED  108,000   (121,000)  339,000   (222,000)
INCOME TAX BENEFIT – DEFERRED
    - 
    108,000 
    - 
    339,000 
TOTAL INCOME TAX PROVISION  107,590   (133,000)  338,590   (298,000)
    - 
    107,590 
    - 
    338,590 
                
       
NET INCOME (LOSS) $(261,172) $227,007  $(710,926) $534,943 
NET LOSS
  $(587,433)
  $(261,172)
  $(1,447,960)
  $(710,926)
                
       
EARNINGS (LOSS) PER SHARE:                
LOSS PER SHARE:
       
BASIC $(0.03) $0.03  $(0.09) $0.07 
  $(0.07)
  $(0.03)
  $(0.16)
  $(0.09)
DILUTED $(0.03) $0.02  $(0.09) $0.06 
  $(0.07)
  $(0.03)
  $(0.16)
  $(0.09)
                
       
WEIGHTED AVERAGE SHARES OUTSTANDING:                
       
BASIC  8,135,385   8,070,386   8,135,330   8,068,373 
    8,890,101 
    8,135,385 
    8,890,046 
    8,135,330 
DILUTED  8,135,385   10,042,271   8,135,330   9,551,477 
    8,890,101 
    8,135,385 
    8,890,046 
    8,135,330 
       
 
See accompanying notes to these unaudited condensed consolidated financial statements.

 
3
FieldPoint Petroleum Corporation

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 
For the Six Months Ended
 
 
For the Six Months Ended
June 30,
 
 
 June 30,
 
 2015  2014 
 
  2016  
 
 
 2015 
 
    
 
 
 
CASH FLOWS FROM OPERATING ACTIVITIES:    
 
 
 
Net income (loss) $(710,926) $534,943 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:        
Unrealized (gain) loss on commodity derivatives  (24,000)  40,000 
Net loss
  $(1,447,960)
  $(710,926)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
       
Unrealized gain on commodity derivatives
    - 
    (24,000)
Depletion and depreciation  950,600   1,449,000 
    627,600 
    950,600 
Exploration expense  15,497   - 
    - 
    15,497 
Accretion of discount on asset retirement obligations  53,000   51,000 
    54,000 
    53,000 
Deferred income tax expense (benefit)  (339,000)  222,000 
Deferred income tax benefit
    - 
    (339,000)
Stock compensation expense  59,584   - 
    13,750 
    59,584 
Warrant modification expense66,124-
    - 
    66,124 
Changes in current assets and liabilities:        
       
Accounts receivable  (27,658)  (174,416)
    94,112 
    (27,658)
Income taxes receivable  (3,627)  91,283 
Prepaid expenses and other assets  (12,800)  (79,214)
Prepaid income taxes
    (61)
    (3,627)
Prepaid expenses and other current assets
    (7,362)
    (12,800)
Accounts payable and accrued expenses  56,522   592,937 
    117,642 
    56,522 
Oil and gas revenues payable  132,991   114,529 
    (3,867)
    132,991 
Other  30,815   - 
    - 
    30,815 
Net cash provided by operating activities  247,122   2,842,062 
Net cash provided by (used in) operating activities
    (552,146)
    247,122 
        
       
CASH FLOWS FROM INVESTING ACTIVITIES:        
       
Additions to oil and natural gas properties and other equipment  (109,278)  (2,938,140)
    (79,469)
    (109,278)
Net cash used in investing activities  (109,278)  (2,938,140)
    (79,469)
    (109,278)
        
CASH FLOWS FROM FINANCING ACTIVITIES:        
Proceeds from long term debt  -   500,000 
Common stock issued from the exercise of warrants  -   22,259 
Net cash provided by financing activities  -   522,259 
        
       
NET CHANGE IN CASH AND CASH EQUIVALENTS  137,844   426,181 
    (631,615)
    137,844 
        
       
CASH AND CASH EQUIVALENTS, beginning of the period
  978,145   2,648,487 
    1,467,279 
    978,145 
        
       
CASH AND CASH EQUIVALENTS, end of the period
 $1,115,989  $3,074,668 
  $835,664 
  $1,115,989 
        
       
SUPPLEMENTAL INFORMATION:        
       
Cash paid during the period for interest $127,862  $190,847 
  $128,308 
  $127,862 
Cash paid during the period for income taxes $4,841  $33,622 
  $1,343 
  $4,841 
Change in accrued capital expenditures $67,332  $1,499,545 
  $57,299 
  $67,332 
See accompanying notes to these unaudited condensed consolidated financial statements.

 
4
FieldPoint Petroleum Corporation

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
1.Nature of Business, Organization and Basis of Preparation and Presentation
1.       Nature of Business, Organization and Basis of Preparation and Presentation

FieldPoint Petroleum Corporation (the “Company”, “FieldPoint”, “our”, or “we”) is incorporated under the laws of the state of Colorado. The Company is engaged in the acquisition, operation and development of oil and natural gas properties, which are located in Louisiana, New Mexico, Oklahoma, Texas, and Wyoming.

The condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. However, in the opinion of management, all adjustments (which consist only of normal recurring adjustments) necessary to present fairly the financial position and results of operations for the periods presented have been made. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Form 10-K filing for the year ended December 31, 2014.2015.

2.Liquidity
2.       Liquidity and Going Concern
Our condensed consolidated financial statements for the six months ended June 30, 2016, were prepared assuming that we will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business for the twelve-month period following the date of these consolidated financial statements. Continued low oil and natural gas prices during 2015 and 2016 have had a significant adverse impact on our business, and as a result of our financial condition, substantial doubt exists that we will be able to continue as a going concern.
 
As of June 30, 2015,2016, the Company has a working capital deficit of approximately $5,761,000 because we had$6,441,000 primarily due to reclassthe classification of our line of credit as a current liability. The line of credit provides for certain financial covenants and ratios measured quarterly which include a current ratio, leverage ratio, and interest coverage ratio requirements.  The Company is out of compliance with our current ratio and our leverage ratioall three ratios as of June 30, 2015.2016, and we do not expect to regain compliance in 2016 without an amendment to our credit agreement. We have requested that Citibank amend the credit agreement and/or waive some or all of the covenants, and while they have been open and cooperative, there is no assurance that an accommodation will be reached. We are currently in technical default of the process of requesting an amended lending agreement or waiver from Citibank although there can be no assurances that it will be granted.  UnlessLoan Agreement unless and until such amendment or waiver is granted, Citibank could require us to pay off the note and we would need to secure alternative financing in the debt or equity market which may or may not be available.
Citibank is in a first lien position on all of our properties. We are current on all interest payments but expectCitibank lowered our borrowing base from $11,000,000 to $5,500,000 on December 1, 2015. As a result of the redetermination of the credit base, the Company had a borrowing base deficiency in the amount of $1,495,000 on December 1, 2015.  As an election under the Loan Agreement, the Company agreed to pay and cure the deficiency in three equal monthly installments of $498,333 each, due on December 31, 2015, January 31, 2016 and February 29, 2016. We made our first required deficiency payment in the amount of $516,667 on December 29, 2015. However, we did not make the required deficiency payments in January or February 2016. As of June 30, 2016, our loan balance is $6,478,333 and our borrowing base deficiency is $978,333.

To mitigate our current borrowing base of $11,000,000 to be lowered.financial situation, we are taking the following steps. We are actively meeting with investors for possible equity investments, including business combinations. We have filed an amended registration statement on Form S-3 that is not yet effective and, pending approval by the SEC, this will permit a limited at the market (ATM) capital raise. We are investigating other sources of capital.
Our ability to continue as a “going concern” is dependent on many factors, including, among other things, our ability to comply with the covenants in our existing debt agreements, our ability to cure any defaults that occur under our debt agreements or to obtain waivers or forbearances with respect to any such defaults, and our ability to pay, retire, amend, replace or refinance our indebtedness as defaults occur or as interest and principal payments come due. Our ability to continue as a going concern is also dependent on raising additional capital to fund our operations and ultimately on generating future profitable operations. While we are actively involved in seeking new sources of working capital, there can be no assurance that we will be able to raise sufficient additional capital or to have positive net operating cash flow despite a net loss for the six months ended June 30, 2015.from operations to address all of our cash flow needs. Additional capital could be on terms that are highly dilutive to our shareholders. If we are not able to find alternative sources of cash or generate positive cash flow from operations, our business and shareholders may be materially and adversely affected.
 
3.Recently Issued Accounting Pronouncements
On May 11, 2016, the Company received notification from the NYSE MKT that it was noncompliant with the NYSE MKT continued listing standards; specifically, Section 1003(a) of the Company Guide related to financial impairment. The Company's stockholders' equity is below the $2.0 million threshold required for listed companies that have reported losses from continuing operations in two of its three most recently completed fiscal years. The Company had 30 days to submit a plan to regain compliance; whereupon NYSE Regulation reviewed the plan and determined to accept it, as supplemented, and granted a plan period through November 13, 2017, the targeted completion date. NYSE Regulation staff will review the Company periodically for compliance with the initiatives outlined in the plan. If the Company is not in compliance with the continued listing standards by the targeted completion date of November 13, 2017, or if the Company does not make progress consistent with the plan during the plan period, NYSE Regulation staff will initiate delisting proceeding as appropriate. If our initiatives to regain compliance are not successful and the Company is delisted from the NYSE MKT, it could have a significant impact on our ability to raise additional capital.

In February 2015, the3.        Recently Issued Accounting Pronouncements
The FASB issued ASU 2015-02, "Amendments2016-09 “Compensation – Stock Compensation” simplifying the accounting for share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities and classification on the statements of cash flows. Under the new standard, all excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) should be recognized as income tax expense or benefit on the statements of income. Under current GAAP, excess tax benefits are recognized in additional paid-in capital while tax deficiencies are recognized either as an offset to accumulated excess tax benefits, if any, or on the Consolidation Analysis," which makes changes to both the variable interest model and the voting model, affecting all reporting entities involved with limited partnerships or similar entities, particularly industries such as the oil and gas, transportation and real estate sectors. In addition to reducing the numberstatements of consolidation models from four to two, theincome.  The new accounting guidance simplifies and improves current guidance by placing more emphasis on risk of loss when determining a controlling financial interest and reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a variable interest entity. The requirements of the guidance areis effective for annual reporting periods beginning after December 15, 2015, including2016.  Early adoption is permitted in any interim or annual period. Certain provisions require retrospective/modified retrospective transition while others are to be applied prospectively. Management plans to adopt ASU 2016-09 effective January 1, 2017.
In February 2016, the FASB issued Update No. 2016-02 - Leases to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This authoritative guidance is effective for fiscal years beginning after December 15, 2018 and interim periods within that reporting period, with early adoption permitted.those fiscal years. The adoption of ASU 2015-02Company is currently not expectedevaluating the provisions of this guidance and assessing its impact in relation to have a material effect on our consolidated financial statements.the Company's leases.

In April 2015, the FASB issued ASU 2015-03, "Simplifying the Presentation of Debt Issuance Costs", which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the associated debt liability, consistent with the presentation of a debt discount. The guidance is effective on a retrospective basis for annual periods beginning after December 15, 2015, including interim periods within that reporting period, with early adoption permitted. The Company adopted this accounting standard update as of January 1, 2016. The Company did not have any debt issuance costs at January 1, 2016, and the adoption of the updated standard is currently not expected to have a materialhad no effect on our consolidated financial statements and related disclosures.

See accompanying notesIn August 2014, the FASB issued Accounting Standards Update No. 2014-15 – Presentation of Financial Statements – Going Concern that requires management to these unaudited condensed consolidatedevaluate whether there are conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date that the entity’s financial statements are issued, or within one year after the date that the entity’s financial statements are available to be issued, and to provide disclosures when certain criteria are met. This guidance is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company is currently evaluating the provisions of this guidance and assessing its impact.
 
5
4.Oil and Natural Gas Properties
4.       Oil and Natural Gas Properties
 
No wells were drilled or completed during the three or six months ended June 30, 2016 or 2015.

5.Earnings Per Share
5.       Earnings Per Share

Basic earnings per share are computed based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share take common stock equivalents (such as options and warrants) into consideration using the treasury stock method. The Company had 7,911,7267,177,010 and 7,955,2107,911,726 warrants outstanding with an exercise price of $4.00 at June 30, 20152016 and 2014,2015, respectively. The dilutive effect of the warrants for the three and six months ended June 30, 20152016 and 20142015 is presented below.

 
For the Three Months Ended
June 30,
  
For the Six Months Ended
June 30,
 
 
For the Three Months Ended
June 30,
 
 
For the Six Months Ended
June 30,
 
 2015  2014  2015  2014 
 
2016
 
 
2015
 
 
2016
 
 
2015
 
        
 
 
 
Net income (loss) $(261,172) $227,007  $(710,926) $534,943 
Net loss
  $(587,433)
  $(261,172)
  $(1,447,960)
  $(710,926)
                
       
Weighted average common stock outstanding  8,135,385   8,070,386   8,135,330   8,068,373 
    8,890,101 
    8,135,385 
    8,890,046 
    8,135,330 
Weighted average dilutive effect of stock warrants  -   1,971,885   -   1,483,104 
    - 
Dilutive weighted average shares  8,135,385   10,042,271   8,135,330   9,551,477 
    8,890,101 
    8,135,385 
    8,890,046 
    8,135,330 
                
       
Earnings (loss) per share:                
Loss per share:
       
Basic $(0.03) $0.03  $(0.09) $0.07 
  $(0.07)
  $(0.03)
  $(0.16)
  $(0.09)
Diluted $(0.03) $0.02  $(0.09) $0.06 
  $(0.07)
  $(0.03)
  $(0.16)
  $(0.09)

6.
Income Taxes
6.       Income Taxes
In November 2015, the FASB issued Accounting Standards Update No. 2015-17 – Balance Sheet Classification of Deferred Taxes that simplifies the presentation of deferred income taxes on the balance sheet. Under the new standard, deferred tax assets and liabilities are classified as noncurrent on the balance sheet. This new update is effective for financial statements issued for fiscal years beginning after December 15, 2016 (and interim periods within those fiscal years), with early adoption permitted and allows prospective or retrospective application. The Company adopted this accounting standard update prospectively as of January 1, 2016. The adoption of this standard had no impact on the consolidated balance sheet as of June 30, 2016, or December 31, 2015.
 
For the three and six months endingended June 30, 2016, the Company’s deferred tax assets were reduced in full by a valuation allowance due to our determination that it is more likely than not that some or all of the deferred tax assets will not be realized in the future. As a result, the Company has not recognized an income tax benefit associated with its net loss for the three or six months ended June 30, 2016. For the three and six months ended June 30, 2015, the tax provision is approximately 29% and 32%, respectively, of book income before tax. The rate for the three months ended June 30, 2015, differed slightly from the statutory federal and state rates due primarily to permanent differences in book and taxable income related to the warrant modification expense. The rate for the six months ended June 30, 2015, differed slightly from the statutory federal and state rates due primarily to permanent differences in book and taxable income related to the warrant modification expense and stock compensation expense. For the three and six months ending June 30, 2014, the tax provision is approximately 37% and 36%, respectively, of book income before tax and approximate the statutory federal and state rates.
 
6
7.Related Party Transactions

The Company leased office space from the estate7.       Line of its former president through January 2014 for $2,500 a month. Beginning February 1, 2014, the Company no longer rents office space from the estate.Credit

During the six month period ended June 30, 2014, the Company paid a relative of a Board member $28,000 for petroleum engineering services. There were no comparable payments during the three and six month periods ended June 30, 2015.

8.
Debt
 
The Company has a line of credit with a bank thatwith a borrowing base of $5,500,000 at June 30, 2016, and December 31, 2015. The amount outstanding under this line of credit was $6,478,333 which is $978,333 over the borrowing base at June 30, 2016, and December 31, 2015.
The agreement requires monthlyquarterly interest-only payments until maturity on October 18, 2016. The interest rate is based on a LIBOR or Prime option. The Prime option provides for the interest rate to be prime plus a margin ranging between 1.75% and 2.25% and the LIBOR option to be the 3-month LIBOR rate plus a margin ranging between 2.75% and 3.25%, both depending on the borrowing base usage. Currently, we have elected the LIBOR interest rate option in which our interest rate was approximately 4% as of June 30, 2016, and December 31, 2015, respectively. The commitment fee is .50% of the unused borrowing base.
The line of credit provides for certain financial covenants and ratios measured quarterly which include a current ratio that cannot be less than 1.10:1.00, a leverage ratio that cannot be more than 3.50:1.00, and an interest coverage ratio requirements.that cannot be less than 3.50:1.00. The Company is out of compliance with our current ratio and our leverage ratioall three ratios as of June 30, 2015.2016, and is in technical default of the agreement. We are in the process of requestingcontinue to negotiate with Citibank for an amended lendingcredit agreement orand waiver from Citibank although there can be no assurancesof covenants that it will be granted.they may not grant. Unless and until such amendment or waiver is granted, Citibank could require us to pay off the note and we would need to secure alternative financing in the debt or equity market which, may or may not be available.available on reasonable terms. Citibank is in a first lien position on all of our properties. We are current on all interest payments but expect our current

As a result of the redetermination of the credit base, the Company had a borrowing base deficiency in the amount of $11,000,000$1,495,000 on December 1, 2015.  As an election under the Loan Agreement, the Company agreed to be lowered bypay and cure the bank.
deficiency in three equal monthly installments of $498,333 each, due on December 31, 2015, January 31, 2016 and February 29, 2016. We made our first required deficiency payment in the amount of $516,667 on December 29, 2015. However, we did not make the required deficiency payments in January or February 2016. As of June 30, 2016, our loan balance is $6,478,333 and our borrowing base deficiency $978,333.
 
9.Stockholders’ Equity
8.       Stockholders’ Equity

There were 7,911,7267,177,010 warrants with an exercise price of $4.00 outstanding at June 30, 2015.2016. There have been no warrants issued or exercised during the six months ended June 30, 2015.2016. The weighted average expected life of the warrants was 3.252.25 years at December 31, 2014,2015, and was 2.751.75 years at June 30, 2015.

On June 24, 2015, the Board of Directors announced that it had approved a temporary reduction to the exercise price of its publicly traded warrants to $1.00 per share. This is a temporary modification for a period of 33 days commencing at the opening of trading on July 6, 2015, and ending at the close of trading on August 7, 2015. During this period, 734,716 warrants were exercised at a price of $1.00 per share for total proceeds of $734,716. Of this, $452,131 has been received by the Company and the remaining $282,585 is still being processed. Any and all warrants remaining unexercised after August 7, 2015, remain in full force and effect for the duration of their term with the initial exercise price of $4.00 per share.2016.
 
The fair value of the change in exercise price of the warrants of approximately $66,000 was reported as other expense and increased additional paid in capital during the three and six months ended June 30, 2015. The fair value of the temporary modification of the exercise price was calculated by multiplying the number of warrants actually exercised during the temporary modification period by the change in the value of the warrants immediately before and immediately after the announcement of the reduction in exercise price.
As a signing bonus to his “at will” employment agreement, Phillip Roberson, as President and CFO, is entitled to receive a total of 50,000 shares of common stock, of which 10,000 shares were immediately vested.vested in 2014 and 20,000 shares vested in 2015. An additional 10,000 shares were receivedvested and vestedissued on January 1, 2015, and again2016. The remaining 10,000 shares vested at the last six-month anniversary date on July 1, 2015. Ten thousand shares will be received and vested at each of the six month anniversary dates of the commencement date until all are received and vested.2016. The fair value of this stock grant was $275,000 on July 1, 2014, of which $29,792$6,875 and $59,584$13,750 was recognized as non-cash stock compensation expense during the three and six months ended June 30, 2015,2016, respectively. TheThere is no remaining future expense related to this stock grant is $45,833after June 30, 2016.
9.       Subsequent Events
On August 12, 2016, the Company entered into a binding agreement with HFT Enterprises, LLC (the “Buyer”) in order to provide liquidity to the Company. The closing date will be on or before September 30, 2016. The Buyer will purchase in two equal tranches, a number of newly-issued shares of common stock of the Company equal to 19.9% of the total number of issued and is expectedoutstanding shares of the Company, as measured on the date of the Agreement, for a price of $0.45 per share (the shares to be recognized overpurchased, the weighted average expected life“Shares”). The first tranche will be purchased at the closing date and the second tranche will be purchased by December 31, 2016. The shares will be restricted shares that are not registered under the Securities Act of less than1933, as amended (the “Securities Act”), and therefore the Buyer must hold the Shares indefinitely unless they are registered with the Securities and Exchange Commission and qualified by state authorities, or an exemption from such registration and qualification requirements is available. Also on the Closing Date, the Company will grant the right to purchase an undivided 100% working interest on or before December 31, 2016 in the Company's Elkhorn and JC Kinney leases in the Big Muddy Oil Field in Converse County, Wyoming for a purchase price of $430,000. As a contingency of the purchase, all proceeds from the sale of the Lease Interest must be used to pay down the Company's indebtedness owed to Citibank. Other contingencies include Citibank will have agreed with the Company that they will extend the maturity date on the Company's current indebtedness owed until December 31, 2017, with interest payments due only and no principal payments due during such period. Also, the Buyer will have the right to nominate one year.member of the Board of Directors.
 
7
10.Commodity Derivatives

On May 13, 2015, we entered into the following commodity positions to hedge our oil production price risk, effective from June 1, 2015, to December 31, 2015. No commodity positions were outstanding at December 31, 2014. These positions were outstanding at June 30, 2015:

Period Volume (Barrels)  $/Barrel 
  Daily  Total  Floor  Ceiling 
NYMEX –WTI Collars June 1 – December 2015  200   36,800  $55.00  $70.00 

The following table summarizes the fair value of our open commodity derivatives as of June 30, 2015 and December 31, 2014:

       Fair Value 
 Balance Sheet June 30,  December 31, 
 Location 2015  2014 
Derivatives not designated as hedging instruments     
 
Commodity derivativesCurrent Assets $24,000  $- 
The following table summarizes the change in fair value of our commodity derivatives:

     Fair Value 
Income Statement
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
Location2015 2014 2015 2014 
Derivatives not designated as hedging instruments     
      
Unrealized gain (loss) on commodity derivatives
Other Income (Expense)
 $24,000  $6,209  $24,000  $(40,000)
Realized gain (loss) on commodity derivatives  $25,234  $(882) $25,234  $(882)

Unrealized gains and losses, at fair value, are included on our consolidated balance sheets as current or non-current assets or liabilities based on the anticipated timing of cash settlements under the related contracts.  Changes in the fair value of our commodity derivative contracts are recorded in earnings as they occur and included in other income (expense) on our consolidated statements of operations.  We estimate the fair values of collar contracts based on the present value of the difference in exchange-quoted forward price curves and contractual settlement prices multiplied by notional quantities.  We internally valued the option contracts using industry-standard option pricing models and observable market inputs.  We use our internal valuations to determine the fair values of the contracts that are reflected on our consolidated balance sheets.  Realized gains and losses are also included in other income (expense) on our consolidated statements of operations.
8
We are exposed to credit losses in the event of non-performance by the counterparties on our commodity derivatives positions and have considered the exposure in our internal valuations.  However, we do not anticipate non-performance by the counterparties over the term of the commodity derivatives positions. To estimate the fair value of our commodity derivatives positions, we use market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique.  These inputs can be readily observable, market corroborated or generally unobservable.  We primarily apply the market approach for recurring fair value measurements and attempt to use the best available information.  We determine the fair value based upon the hierarchy that prioritizes the inputs used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and lowest priority to unobservable inputs (Level 3 measurement).  The three levels of fair value hierarchy are as follows:

·Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. At June 30, 2015, we had no Level 1 measurements.

·Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.  Level 2 includes those financial instruments that are valued using models or other valuation methodologies.  These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors and current market and contractual prices for the underlying instruments, as well as other relevant economic measures.  Our derivatives, which consist of commodity collars, are valued using commodity market data which is derived by combining raw inputs and quantitative models and processes to generate forward curves.  Where observable inputs are available, directly or indirectly, for substantially the full term of the asset or liability, the instrument is categorized in Level 2.  At June 30, 2015, all of our commodity derivatives were valued using Level 2 measurements.

·Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources.  These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.  At June 30, 2015, we had no Level 3 measurements.
9
PART I
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Company’s Condensed Consolidated Financial Statements, and respective notes thereto, included elsewhere herein. The information below should not be construed to imply that the results discussed herein will necessarily continue into the future or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of the management of FieldPoint Petroleum Corporation.

General

FieldPoint Petroleum Corporation derives its revenues from its operating activities including sales of oil and natural gas and operating oil and natural gas properties. The Company's capital for investment in producing oil and natural gas properties has been provided by cash flow from operating activities and from bank financing. The Company categorizes its operating expenses into the categories of production expenses and other expenses.

The Company completed drilling the Ranger 8A-1H well in the Taylor Serbin field in Texas in 2014. Production began February 1, 2014. The Company completed drilling the Ranger 11A-1H well in the Taylor Serbin field in Texas in 2014. Production began May 20, 2014.

In July 2014, the Company completed the Ranger 8A-2H and the Ranger 8A3-3H in Lee County, Texas. The Company has a 25% working interest and 18.75% net revenue interest in each well.  The net cost to drill and complete the wells was approximately $850,000 per well. The wells were successfully completed and are in production.

The Company has temporarily suspended drilling and exploration activities due to low commodity prices and has no near-term plans at this time to drill a fourth well in the East Lusk field in New Mexico or continue development of the Taylor Serbin field. Furthermore, we plan to limit any remedial work that does not increase production and reduce general and administrative costs as much as possible until commodity pricing improves. As we are out of compliance with our revolving line of credit and may have our borrowing base decreased, we do not expect to reinstate our drilling programs until commodity prices and our cash flow improve.
Going concern
We have incurred net losses of $587,433 and $1,447,960 for the three and six months ended June 30, 2016, respectively. We expect that the Company will continue to experience operating losses and negative cash flow for so long as commodity prices remain depressed. Our financial statements for the fiscal years ended December 31, 2015 and 2014, include an explanatory paragraph expressing substantial doubt as to our ability to continue as a going concern. The financial statements have been prepared "assuming that the Company will continue as a going concern." Our ability to continue as a going concern is dependent on raising additional capital to fund our operations and ultimately on generating future profitable operations. We have filed an amended registration statement on Form S-3 that is not yet effective and, pending approval by the SEC, this will permit a limited at the market (ATM) capital raise. We are investigating other sources of capital. There can be no assurance that we will be able to raise sufficient additional capital or have positive cash flow from operations to address all of our cash flow needs. If we are not able to find alternative sources of cash or generate positive cash flow from operations, our business and shareholders may be materially and adversely affected.
On May 11, 2016, the Company received notification from the NYSE MKT that it was noncompliant with the NYSE MKT continued listing standards; specifically, Section 1003(a) of the Company Guide related to financial impairment. The Company's stockholders' equity is below the $2.0 million threshold required for listed companies that have reported losses from continuing operations in two of its three most recently completed fiscal years. The Company had 30 days to submit a plan to regain compliance; whereupon NYSE Regulation reviewed the plan and determined to accept it, as supplemented, and granted a plan period through November 13, 2017, the targeted completion date. NYSE Regulation staff will review the Company periodically for compliance with the initiatives outlined in the plan. If the Company is not in compliance with the continued listing standards by the targeted completion date of November 13, 2017, or if the Company does not make progress consistent with the plan during the plan period, NYSE Regulation staff will initiate delisting proceeding as appropriate. If our initiatives to regain compliance are not successful and the Company is delisted from the NYSE MKT, it could have a significant impact on our ability to raise additional capital.

Results of Operations

Comparison of three months ended June 30, 2015,2016, to the three months ended June 30, 20142015

  Quarter Ended June 30, 
  2015  2014 
Revenue:    
Oil sales $1,064,687  $2,184,142 
Natural gas sales  82,442   183,398 
Total oil and natural gas sales $1,147,129  $2,367,540 
         
Sales volumes:        
Oil (Bbls)  20,074   23,551 
Natural gas (Mcf)  28,549   43,151 
Total (BOE)  24,832   30,743 
Average sales prices:        
Oil ($/Bbl) $53.04  $92.74 
Natural gas ($/Mcf)  2.89   4.25 
Total ($/BOE) $46.20  $77.01 
         
Costs and expenses ($/BOE)
        
Lease operating expense (lifting costs) $29.05  $32.07 
Depletion and depreciation  17.87   20.28 
Exploration expense  -   - 
Accretion of discount on asset retirement obligations  1.09   0.81 
General and administrative  11.41   11.58 
Total $59.42  $64.74 
 
10
 
 
Quarter Ended June 30,
 
 
 
2016
 
 
2015
 
Revenue:
 
 
 
 
 
 
Oil sales
  $700,516 
  $1,064,687 
Natural gas sales
    50,519 
    82,442 
Total oil and natural gas sales
  $751,035 
  $1,147,129 
 
       
       
Sales volumes:
       
       
Oil (Bbls)
    17,740 
    20,074 
Natural gas (Mcf)
    24,214 
    28,549 
Total (BOE)
    21,776 
    24,832 
 
       
       
Average sales prices:
       
       
Oil ($/Bbl)
  $39.49 
  $53.04 
Natural gas ($/Mcf)
    2.09 
    2.89 
Total ($/BOE)
  $34.49 
  $46.20 
 
       
       
 
Costs and expenses ($/BOE)
       
       
Production expense (lifting costs)
  $31.28 
  $29.05 
Depletion and depreciation
    14.13 
    17.87 
Accretion of discount on asset retirement obligations
    1.24 
    1.09 
General and administrative
    13.29 
    11.41 
Total
  $59.94 
  $59.42 
Oil and natural gas sales revenues decreased 52%35% or $1,220,411$396,094 to $1,147,129$751,035 for the three-month periodthree months ended June 30, 2015,2016, from the comparable 20142015 period. Average oil sales prices decreased 43%26% to $53.04$39.49 for the three-month periodthree months ended June 30, 2015,2016, compared to $92.74$53.04 for the period ended June 30, 2014.2015. Average natural gas sales prices decreased 28% to $2.89$2.09 for the three-month periodthree months ended June 30, 2015,2016, compared to $4.25$2.89 for the period ended June 30, 2014.2015. Decreased oil and natural gas production accounted for a decrease in revenue of approximately $384,000.$136,000. Lower commodity prices for oil and natural gas accountaccounted for a decrease in revenue of approximately $836,000.$260,000. We have temporarily suspended drilling and exploration activity due to low commodity prices and expect our volumes to decline in the coming quarters unless or until drilling and exploration activities are re-established.

Lease operating expensesProduction expense decreased 27%6% or $264,440$40,281 to $721,370$681,089 for the three month periodmonths ended June 30, 2015,2016, from the comparable 20142015 period. This was primarily due to a decrease in non-critical workover activity.activity and production taxes. Lifting costs per BOE decreased $3.02increased $2.23 to $29.05$31.28 for the 20152016 period compared to $32.07$29.05 for the three months ended June 30, 2014,2015, due mainly to less workover activity and general decreaseadditional costs incurred to settle asset retirement liabilities in costs and lease operating expenses.the three months ended June 30, 2016. We anticipate lease operating expenses to remain stable over the following quarters due to a cessation of new well activity as a result of low commodity pricing.

Depletion and depreciation decreased 29%31% or $179,700$136,000 to $443,800$307,800 for the three month periodmonths ended June 30, 2015,2016, versus $623,500$443,800 in the 20142015 comparable period. This was primarily due to lower production volumes during the three months ended June 30, 2015.2016.

General and administrative overhead cost decreased 20%costs increased 2% or $72,675$6,058 to $283,307$289,365 for the three-month periodthree months ended June 30, 2015,2016, from the three-month periodthree months ended June 30, 2014.2015. This was primarily attributable to a decreasean increase in board fees, consulting and professional services. At this time, the Company anticipates general and administrative expenses to remain stable or decrease slightly in the coming quarters.
 
Other expenses,expense, net for the quarter ended June 30, 2015, were $71,9622016, was $62,759 compared to other expense, net of $48,010$71,962 for the quarter ended June 30, 2014.2015. The net increasedecrease in other expense was primarily due to the warrant modification expense of $66,124 offset by a realized gain on commodity derivatives of $25,234 and an unrealized gain on commodity derivatives of $24,000 in the three months ended June 30, 2015.
 
11
Results of Operations

Comparison of Six Months Ended June 30, 20152016 to the Six Months Ended June 30, 20142015

 Six Months Ended June 30, 
 
Six Months Ended June 30,
 
 2015  2014 
 
2016
 
 
2015
 
Revenues:    
 
 
 
Oil sales $2,058,684  $4,789,422 
  $1,217,717 
  $2,058,684 
Natural gas sales  178,802   482,333 
    102,057 
    178,802 
Total $2,237,486  $5,271,755 
  $1,319,774 
  $2,237,486 
        
       
Sales volumes:        
       
Oil (Bbls)  41,768   51,560 
    34,942 
    41,768 
Natural gas (Mcf)  62,882   87,634 
    54,071 
    62,882 
Total (BOE)  52,248   66,166 
    43,954 
    52,248 
        
       
Average sales prices        
       
Oil ($/Bbl) $49.29  $92.89 
  $34.85 
  $49.29 
Natural gas ($/Mcf)  2.84   5.50 
    1.89 
    2.84 
Total ($/BOE) $42.82  $79.68 
  $30.03 
  $42.82 
Costs and expenses ($/BOE)        
Lease operating expense $29.49  $29.70 
Depletion and depreciation  18.19   21.90 
Exploration expense  0.30   - 
Accretion of discount on asset retirement obligations  1.01   0.77 
General and administrative  12.57   12.87 
Total $61.56  $65.24 
Costs and expenses ($/BOE)
 
 
 
 
 
 
Production expense (lifting costs)
  $30.52 
  $29.49 
Depletion and depreciation
    14.28 
    18.19 
Exploration expense
    - 
    0.30 
Accretion of discount on asset retirement obligations
    1.23 
    1.01 
General and administrative
    15.12 
    12.57 
Total
  $61.15 
  $61.56 
Oil and natural gas sales revenues decreased 58%41% or $3,034,269$917,712 to $1,319,774 for the six months ended June 30, 2016, from $2,237,486 for the six month period ended June 30,comparable 2015 from $5,271,755 for the comparable 2014 period. An overall decrease in oil and natural gas production accounted for a decrease in revenue of approximately $1,046,000$362,000 while a decrease in oil and natural gas commodity prices decreased revenue by approximately $1,988,000.$556,000. Sales volumes decreased 21%16% on a BOE basis primarily due to production depletion which was not replaced due to a cessation of drilling activity. Average oil sales prices decreased $43.60$14.44 to $34.85 for the six months ended June 30, 2016, compared to $49.29 for the six month periodmonths ended June 30, 2015, compared to $92.89 for the six month period ended June 30, 2014.2015. Average natural gas sales prices decreased 48%34% to $1.89 for the six months ended June 30, 2016, compared to $2.84 for the six month periodmonths ended June 30, 2015, compared to $5.50 for the six month period ended June 30, 2014.2015. We anticipate volumes to decrease in the coming quarters primarily due to suspension of drilling and exploration activity due to low commodity prices and expect our volumes to decline in the coming quarters unless or until drilling and exploration activities are re-established.

Lease operating expensesProduction expense decreased 22%13% or $424,515$199,399 to $1,540,763$1,341,364 for the six month periodmonths ended June 30, 2015,2016, from the comparable 20142015 period. This was primarily due to a general decrease in workover and remedial activity and generally lower costs and lease operating expenses. Lifting costs per BOE decreased 1%increased 3%, from $29.70$29.49 to $29.49$30.52 for the 2015 period.2016 period mainly due to additional costs incurred to settle asset retirement liabilities in the six months ended June 30, 2016. We anticipate lease operating expenses to remain stable over the following quarters due to a continued decrease of workover and remedial activity.
 
Depletion and depreciation expense decreased 34% to $950,600,$627,600, compared to $1,449,000$950,600 for the comparable 20142015 period. This was primarily due to a decrease in production.

General and administrative overhead cost decreased 23%increased 1% or $194,900$8,168 to $656,634$664,802 for the six month periodmonths ended June 30, 2015,2016, from the six month periodmonths ended June 30, 2014.2015. This was attributable primarily to a decreasean increase in salary expenses board fees, and professional services. In the coming quarters we anticipate general and administrative expenses to remain stable or decrease slightly.
 
12
Other expense, net for the six months ended June 30, 2015,2016, amounted to $128,665$125,487 compared to other expense, net of $161,719$128,665 for the comparable 20142015 period. A realized gain of $25,234 and an unrealized gain of $24,000 on commodity derivatives was reported during the six month periodmonths ended June 30, 2015. Warrant modification expense of $66,124 was reported during the six months period ended June 30, 2015. An unrealized loss $40,000 on commodity derivatives was reported during the 2014 period.
 
Liquidity and Capital Resources

Cash flow provided byused in operating activities was $247,122$552,146 for the six month periodmonths ended June 30, 2015,2016, as compared to $2,842,062$247,122 of cash flow provided by operating activities in the comparable 20142015 period. The decrease in cash flows from operating activities was primarily due to lowera greater net income and depletion, a deferred tax benefit and changes in accounts payable.loss.

Cash flow used in investing activities was $109,278$79,469 for the six month periodmonths ended June 30, 2015,2016, and $2,938,140$109,278 in the comparable 20142015 period due to fewer additions to oil and natural gas properties and equipment in the current period.

No cash flow was provided by or used in financing activities for the six month periodmonths ended June 30, 2015. Cash flow provided by financing activities for the six month period ended June 30, 2014 included $500,000 from the draw on our line of credit plus $22,259 from the exercise of 5,565 of our outstanding publicly traded common stock purchase warrants at an exercise price of $4.00 per share.2015 or 2016.

We are out of compliance with ourthe current ratio, leverage ratio, and our leverageinterest coverage ratio required by our line of credit as of June 30, 2015. We2016, and are in technical default of the process of requestingagreement. We continue to negotiate with Citibank for an amended lendingcredit agreement orand waiver from Citibank although there can be no assurancesof covenants that it will be granted.they may not grant. Unless and until such amendment or waiver is granted, Citibank could require us to pay off the note and we would need to secure alternative financing in the debt or equity market which, may or may not be available.available on reasonable terms. Citibank is in a first lien position on all of our properties. We are current on all interest payments but expect our current borrowing base
On May 11, 2016, the Company received notification from the NYSE MKT that it was noncompliant with the NYSE MKT continued listing standards; specifically, Section 1003(a) of $11,000,000the Company Guide related to be loweredfinancial impairment. The Company's stockholders' equity is below the $2.0 million threshold required for listed companies that have reported losses from continuing operations in two of its three most recently completed fiscal years. The Company had 30 days to submit a plan to regain compliance; whereupon NYSE Regulation reviewed the plan and determined to accept it, as supplemented, and granted a plan period through November 13, 2017, the targeted completion date. NYSE Regulation staff will review the Company periodically for compliance with the initiatives outlined in the plan. If the Company is not in compliance with the continued listing standards by the lender. Wetargeted completion date of November 13, 2017, or if the Company does not make progress consistent with the plan during the plan period, NYSE Regulation staff will initiate delisting proceeding as appropriate. If our initiatives to regain compliance are not successful and the Company is delisted from the NYSE MKT, it could have a positive net operating cash flow for the year despite an earnings loss.significant impact on our ability to raise additional capital.
 
Subsequent Events

Under the temporary reduction to the exercise price of its publicly traded warrants as described in “Note 9 – Stockholder’s Equity”, 734,716 warrants were exercised at a price of $1.00 per share between July 6 and August 7, 2015. The Company has received $432,151 of the total proceeds of $734,716 as of August 12, 2015. The uncollected balance of $282,585 is still being processed but is expected to be received shortly.
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PART I
Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We periodically enter into certain commodity price risk management transactions to manage our exposure to oil and natural gas price volatility. These transactions may take the form of futures contracts, swaps or options. All data relating to our derivative positions is presented in accordance with authoritative guidance. Accordingly, unrealized gains and losses related to the change in fair value of derivative contracts that qualify and are designated as cash flow hedges are recorded as other comprehensive income or loss and such amounts are reclassified to oil and natural gas sales revenues as the associated production occurs. Derivative contracts that do not qualify for hedge accounting treatment are recorded as derivative assets and liabilities at fair value in the consolidated balance sheet, and the associated unrealized gains and losses are recorded as current expense or income in the consolidated statement of operations. While such derivative contracts do not qualify for hedge accounting, management believes these contracts can be utilized as an effective component of commodity price risk management activities. There were no commodity positions open at June 30, 2016. On May 13, 2015, we entered into a commodity derivative position effective June 1, 2015. The collars havehad a floor of $55.00 per barrel and a ceiling of $70.00 for 200 barrels of oil per day from June 1, 2015, to December 31, 2015. We had a realized gain of $25,234 and a net unrealized gain of $24,000 on commodity derivative transactions during the six month period endingmonths ended June 30, 2015. On March 27, 2014, we entered into a commodity derivative position effective April 1, 2014. The collars had a floor of $87.50 and a ceiling of $105.00 for 200 barrels of oil per day from April 1, 2014, to September 30, 2014. We had a realized loss of $882 and a net unrealized loss of $40,000 on commodity derivative transactions during the six month period ending June 30, 2014.

PART I
Item 4.
Item 4. CONTROLS AND PROCEDURES

a)
Disclosure Controls and Procedures

Disclosure Controls and Procedures
Our Principal Executive Officer, Roger D. Bryant, and our Principal Financial Officer, Phillip H. Roberson, have established and are currently maintaining disclosure controls and procedures for the Company. The disclosure controls and procedures have been designed to provide reasonable assurance that the information required to be disclosed by the Company in reports that it files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and to ensure that information required to be disclosed by the Company is accumulated and communicated to the Company's management as appropriate to allow timely decisions regarding required disclosure.

The Principal Executive Officer and the Principal Financial Officer conducted a review and evaluation of the effectiveness of the Company’s disclosure controls and procedures and have concluded, based on their evaluation as of the end of the period covered by this Report, that our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and to ensure that information required to be disclosed by the Company is accumulated and communicated to management, including our principal executive officer and our principal financial officer, to allow timely decisions regarding required disclosure and we refer you to Exchange Act Rule 13a-15(e).

b)b)       Changes in Internal Control over Financial Reporting

There have been no changes to the Company’s system of internal controls over financial reporting during the quarter ended June 30, 2015,2016, that have materially affected, or are reasonably likely to materially affect, the Company’s system of controls over financial reporting.  As part of a continuing effort to improve the Company’s business processes, management is evaluating its internal controls and may update certain controls to accommodate any modifications to its business processes or accounting procedures.
 
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c)
Limitations of Any Internal Control Design
c)Limitations of Any Internal Control Design

Our principal executive and financial officers do not expect that our disclosure controls or internal controls will prevent all error and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives and our principal executive and financial officers have determined that our disclosure controls and procedures are effective at doing so, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
 
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PART II

OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

None.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Default Upon Senior Securities

None.Our line of credit provides for certain financial covenants and ratios which include a current ratio that cannot be less than 1.10:1.00, a leverage ratio that cannot be more than 3.50:1.00, and an interest coverage ratio that cannot be less than 3.50:1.00. The Company is out of compliance with all three ratios as of June 30, 2016, and is in technical default of the agreement. We continue to negotiate with Citibank for an amended credit agreement and waiver of covenants that they may not grant. Unless and until such amendment or waiver is granted, Citibank could require us to pay off the note and we would need to secure alternative financing in the debt or equity market which, may or may not be available on reasonable terms. Citibank is in a first lien position on all of our properties.

As a result of the redetermination of the credit base, the Company had a borrowing base deficiency in the amount of $1,495,000 on December 1, 2015.  As an election under the Loan Agreement, the Company agreed to pay and cure the deficiency in three equal monthly installments of $498,333 each, due on December 31, 2015, January 31, 2016 and February 29, 2016. We made our first required deficiency payment in the amount of $516,667 on December 29, 2015. However, we did not make the required deficiency payments in January or February 2016. As of June 30, 2016, our loan balance is $6,478,333 and our borrowing base deficiency $978,333. The Company’s plans to cure the borrowing base deficiency are discussed in Note 2 – Liquidity and Going Concern.
Item 4. Mine Safety Disclosures

None.

Item 5. Other Information
None.

None.

Item 6. Exhibits

 Exhibits
 
 
31.1
Certifications of Chief Executive Officer
 
31.2
Certifications of Chief Financial Officer
 
32.1
Certification of Chief Executive Officer Pursuant to U.S.C. Section 1350
 
32.2
Certification of Chief Financial Officer Pursuant to U.S.C. Section 1350
 101.INSXBRL Instance Document
 101.SCHXBRL Schema Document
 101.CALXBRL Calculation Linkbase Document
 101.LABXBRL Label Linkbase Document
 101.PREXBRL Presentation Linkbase Document
 101.DEFXBRL Definition Linkbase Document
 
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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date:  August 15, 2016August 14, 2015By:  
By:   
/s/  Roger D. Bryant
 Roger D. Bryant, Principal Executive Officer

Date: 
August 14, 2015
By:   
/s/ Phillip H. Roberson
 
Date:  August 15, 2016By:
/s/ Phillip H. Roberson
Phillip H. Roberson, Principal Financial Officer
 
 
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