NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
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,
2016.
2.
Liquidity and Going Concern
Our
condensed consolidated financial statements for the six months
ended June 30, 2017 and 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 2016 and 2017 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, 2017, and December 31, 2016, the Company has a working
capital deficit of approximately $4,732,000 and $6,629,000,
respectively, primarily due to the 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 all
three ratios as of June 30, 2017, and we do not expect to regain
compliance in 2017. A Forbearance Agreement was executed in
October 2016 as discussed below.
Citibank
is in a first lien position on all our properties. We are current
on all interest payments but Citibank lowered our borrowing base
from $11,000,000 to $5,500,000 on December 1, 2015. During the
three months ended June 30, 2017, the Company sold non-producing
and non-economic assets in Lea County, New Mexico, and used
$2,115,000 of the proceeds to pay toward the principal balance of
our line of credit to cure our borrowing base deficiency. Our loan
balance is $4,363,333 as of June 30, 2017.
In
October 2016, we executed a sixth amendment to the original loan
agreement, which provides for Citibank’s forbearance from
exercising remedies relating to the current defaults including the
principal payment deficiencies. The Forbearance Agreement runs
through January 1, 2018, and requires that we make a $500,000 loan
principal pay down by September 30, 2017, and adhere to other
requirements including weekly cash balance reports, quarterly
operating reports, monthly accounts payable reports and that we pay
all associated legal expenses. Furthermore, under the agreement
Citibank may sweep any excess cash balances exceeding a net amount
of $800,000 less equity offering proceeds, which will be applied
towards the outstanding principal balance. The Company paid
$2,115,000 toward the principal balance in June 2017.
To
mitigate our current financial situation, we are taking the
following steps. We are actively meeting with investors for
possible equity investments, including business combinations. We
filed a new shelf registration statement on Form S-3 that was
effective August 15, 2016, to permit the future sale of equity
securities, including a limited at the market (ATM) capital raise.
The shelf registration statement will be effective for a period of
three years from its effective date; provided, however, if the
Company’s common stock is delisted from the NYSE American
(formerly NYSE MKT) due to its non-compliance with continued
listing requirements (see disclosures below), the Company will no
longer be eligible to use Form S-3 and will be required to withdraw
its shelf registration statement. We are investigating other
sources of capital.
On
August 12, 2016, the Company entered into a binding Stock and
Mineral Purchase Agreement (the “SMPA”) with HFT
Enterprises, LLC (the “Buyer”), to provide liquidity to
the Company. The Buyer purchased newly-issued shares of common
stock of the Company equal to 19.9% of the total number of issued
and outstanding shares of the Company, as measured on the date of
the Agreement, for a price of $0.45 per share (the shares to be
purchased, the “Shares”). In November 2016, the Buyer
purchased for gross proceeds of $398,053 paid in consideration of
884,564 shares of unregistered common stock. In December 2016, the
Buyer purchased for gross proceeds of $199,027 paid in
consideration of 442,282 shares of unregistered common stock. The
remaining 442,282 shares of the second tranche were purchased in
January 2017 for gross proceeds of $199,027 paid in consideration
of 442,282 shares of unregistered common stock. Euro Pacific
Capital, Inc. acted as the placement agent and garnered a fee of
5%.
The
SMPA also granted to the Buyer, a related party after the purchase
of the stock discussed above, 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.
The SMPA was amended on January 9, 2017, to add the right to the
Buyer to purchase an undivided 100% of working interest in the
mineral lease covering the Quinoco Sulimar Field in Chaves County,
New Mexico, in lieu of the Wyoming property, for a purchase price
to be determined. Additionally, it extended the purchase date of
either property to on or before April 1, 2017. The Board of
Directors voted March 24, 2017, to extend the agreement for the
Quinoco Sulimar Field only to June 30, 2017. The agreement has been
verbally extended to August 31, 2017. As a condition of the
purchase, all proceeds from the sale of the working interest must
be used to pay down the Company’s indebtedness owed to
Citibank. Other conditions include the requirement that Citibank
will have agreed to extend the maturity date on the Company’s
current indebtedness owed until December 31, 2017, which was
accomplished in the Forbearance Agreement discussed above. Also,
the Buyer has been granted the right to nominate one member of the
Board of Directors.
On May
11, 2016, the Company received notification from the NYSE American
(formerly NYSE MKT) that it was noncompliant with the NYSE American
(formerly NYSE MKT) continued listing standards; specifically,
Section 1003(a)(i) 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 submitted 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, to regain compliance, the targeted
completion date. NYSE Regulation staff will review the Company
periodically for compliance with the initiatives outlined in the
plan.
Additionally,
on April 28, 2017, the Company received notification from the NYSE
American (formerly NYSE MKT) that it was noncompliant with the NYSE
American (formerly NYSE MKT) continued listing standards;
specifically, Section 1003(a)(ii) of the Company Guide.
The Company’s stockholders’ equity has been 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 (Section 1003(a)(i)) and is now
below the $4.0 million threshold required for listed companies that
have reported losses from continuing operations in three of its
four most recent fiscal years (Section 1003(a)(ii)). The Company
was given the opportunity to and submitted a supplement to the Plan
to address how it intends to regain compliance with Section
1003(a)(ii). The Plan period to regain compliance with all of
the continued listing standards by November 13, 2017, remain the
same. The Company will be subject to periodic reviews by the
Exchange. If the Company is not in compliance with the continued
listing standards by November 13, 2017, or if the Company does not
make progress consistent with the Plan, the Exchange will initiate
delisting procedures as appropriate. If our initiatives to regain
compliance are not successful and the Company is delisted from the
NYSE American (formerly NYSE MKT), it could have a significant
adverse impact on our ability to raise additional
capital.
Our
warrants listed on the NYSE American (formerly NYSE MKT) as FPP WS
expire March 23, 2018. If the warrants trade at sub-penny before
that date, the NYSE will immediately suspend and move to delist the
warrants.
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 cash
flow 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
In May 2014, the FASB issued Accounting Standards Update No.
2014-09, “Revenue from Contracts with Customers”. Under
this new standard, revenue is recognized at the time goods or
services are transferred to a customer for the amount of
consideration the entity expects to be entitled in exchange for the
specific goods or services. Additional disclosures will be required
to describe the nature, amount, timing, and uncertainty of revenue
and cash flows from contracts with customers. The Company currently
follows the sales method of accounting for oil, NGL and natural gas
production, which is generally consistent with the revenue
recognition provision of the new standard. However, we are
currently evaluating the impact, if any, that this standard will
have on our consolidated financial statements. Our evaluation
process includes (i) review of revenue contracts and transactions
and (ii) assessing the impact this guidance will have on our
processes and internal controls. This evaluation will continue
throughout 2017, and we are currently planning to adopt this new
standard January 1, 2018.
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 those fiscal years. The Company is currently
evaluating the provisions of this guidance and assessing its impact
in relation to the Company's leases.
In
November 2016, the FASB issued Accounting Standards Update No.
2016-18, “Statement of Cash Flows: Restricted Cash”, to
require amounts generally described as restricted cash and
restricted cash equivalents to be included with cash and cash
equivalents when reconciling the beginning-of-period and
end-of-period total amounts shown on the statement of cash flows.
The guidance is effective for the annual period ending after
December 15, 2017, and interim periods within those fiscal years,
using a retrospective transition method to each period presented.
The Company plans to adopt the new standard December 31, 2017, and
does not expect any impact on our consolidated statement of cash
flows.
4.
Oil and Natural Gas
Properties
No
wells were drilled or completed during the three or six months
ended June 30, 2017 or 2016.
In the
three months ended June 30, 2017, the Company sold its net interest
in the Hermes, Cronos and Mercury wells. These wells were not
economic to our interests. We also sold our net interest in the
unproved Bilbrey acreage that was held by production. The gross
proceeds from the sale of our net interest in these properties was
$2,145,000 and we recognized a gain of $2,030,477. We continue to
evaluate our portfolio for other properties to divest in order to
regain compliance with our bank’s debt covenants and with the
NYSE American (formerly NYSE MKT).
On a
quarterly basis, the Company compares our most recent engineering
reports to forward strip pricing as of the end of the quarter and
production to determine impairment charges, if needed, in order to
write down the carrying value of certain properties to fair value.
In order to determine the amounts of the impairment charges, the
Company compares net capitalized costs of proved oil and natural
gas properties to estimated undiscounted future net cash flows
using management's expectations of economically recoverable proved
reserves. If the net capitalized cost exceeds the undiscounted
future net cash flows, the Company impairs the net cost basis down
to the discounted future net cash flows, which is management's
estimate of fair value. In order to determine the fair value, the
Company estimates reserves, future operating and development costs,
future commodity prices and a discounted cash flow model utilizing
a 10 percent discount rate. The estimates used by management for
the fair value measurements utilized in this review include
significant unobservable inputs, and therefore, the fair value
measurements are classified as Level 3 of the fair value hierarchy.
Based on its current circumstances, the Company has not recorded
any impairment charges during the three or six months ended June
30, 2017.
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 7,177,010 warrants outstanding with an
exercise price of $4.00 at June 30, 2017 and 2016. The dilutive
effect of the warrants for the three months ended June 30, 2017 and
2016, is presented below.
|
For the Three
Months Ended
June
30,
|
For the Six
Months Ended
June
30,
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss)
|
$
1,747,186
|
$
(587,433
)
|
$
1,338,135
|
$
(1,447,960
)
|
|
|
|
|
|
Weighted average
common stock outstanding
|
10,669,229
|
8,890,101
|
10,643,571
|
8,890,046
|
Weighted average
dilutive effect of stock warrants
|
-
|
-
|
-
|
-
|
Dilutive weighted
average shares
|
10,669,229
|
8,890,101
|
10,643,571
|
8,890,046
|
|
|
|
|
|
Earnings (loss) per
share:
|
|
|
|
|
Basic
|
$
0.16
|
$
(0.07
)
|
$
0.13
|
$
(0.16
)
|
Diluted
|
$
0.16
|
$
(0.07
)
|
$
0.13
|
$
(0.16
)
|
For the
three and six months ended June 30, 2017 and 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, 2017, the Company recognized $3,846 in state income tax
expense, which is less than 1% income tax rate. This rate differs
from the statutory federal and state rate due to net operating
losses from prior years. The Company had no income tax expense for
the three or six months ended June 30, 2016.
The
Company has a line of credit with a bank with a borrowing base of
$5,500,000 at June 30, 2017, and December 31, 2016. The amount
outstanding under this line of credit was $6,478,333 which is
$978,333 over the borrowing base at December 31, 2016. During the
three months ended June 30, 2017, the company sold non-producing
and non-economic assets in Lea County, New Mexico, and used
$2,115,000 of the proceeds to pay toward the principal balance of
our line of credit to cure our borrowing base deficiency. Our loan
balance is $4,363,333 as of June 30, 2017. Although our borrowing
base is $5,500,000, we cannot draw additional amounts on the line
of credit while we remain in technical default on the loan. We plan
to continue evaluating our portfolio for non-producing assets which
can be liquidated to reduce debt further.
The
sixth amendment to the original loan agreement requires quarterly
interest-only payments until maturity on January 1, 2018. 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, 2017, and December 31, 2016,
respectively. The commitment fee is .50% of the unused borrowing
base. Citibank is in a first lien position on all our properties
and assets.
The
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, 2017, and
December 31, 2016, and is in technical default of the
agreement.
In
October 2016, we executed a sixth amendment to the original loan
agreement, which provides for Citibank’s forbearance from
exercising remedies relating to the current defaults including the
principal payment deficiencies. The Forbearance Agreement runs
through January 1, 2018, and requires that we make a $500,000 loan
principal pay down by September 30, 2017, and adhere to other
requirements including weekly cash balance reports, quarterly
operating reports, monthly accounts payable reports and that we pay
all associated legal expenses. Furthermore, under the agreement
Citibank may sweep any excess cash balances exceeding a net amount
of $800,000 less equity offering proceeds, which will be applied
towards the outstanding principal balance. The Company paid
$2,115,000 toward the principal balance in June 2017.
There
were 7,177,010 warrants with an exercise price of $4.00 outstanding
at June 30, 2017. There have been no warrants issued or exercised
during the three and six months ended June 30, 2017. The weighted
average expected life of the warrants was less than one year at
June 30, 2017.
As a
signing bonus to his “at will” employment agreement,
Phillip Roberson, as President and CFO, received a total of 50,000
shares of common stock that vested over a three year period
beginning on July 1, 2014. On January 1, 2016, 10,000 shares were
vested and issued. The final 10,000 shares vested at the last
six-month anniversary date on July 1, 2016. The fair value of this
stock grant was $275,000 on July 1, 2014, of which $13,750 was
recognized as non-cash stock compensation expense during the six
months ended June 30, 2016. Mr. Roberson was awarded, as part of
his annual compensation, on his third anniversary date 5,000
shares, and will receive on his fourth anniversary date 6,000
shares, on his fifth anniversary date 7,000 shares, on his sixth
anniversary date 8,000 shares, on his seventh anniversary date
9,000 shares, and each annual anniversary date thereafter 10,000
shares. Mr. Roberson’s contract was extended by the
Compensation Committee to July 1, 2018.
On
August 12, 2016, the Company entered into a binding Stock and
Mineral Purchase Agreement (the “SMPA”) with HFT
Enterprises, LLC (the “Buyer”) in order to provide
liquidity to the Company. The Buyer purchased newly-issued
restricted shares of common stock of the Company equal to 19.9% of
the total number of issued and outstanding shares of the Company,
as measured on the date of the Agreement, for a price of $0.45 per
share. In 2016, the Buyer purchased for gross proceeds of $597,080
paid in consideration of 1,326,846 shares of unregistered common
stock. The remaining shares were purchased in January 2017, for
gross proceeds of $199,027 paid in consideration of 442,282 shares
of unregistered common stock. Costs incurred by the Company to
issue the stock was $11,807 for the six months ended June 30,
2017.
The
SMPA also granted to the Buyer, a related party after the purchase
of the stock discussed above, 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.
The SMPA was amended on January 9, 2017, to add the right to the
Buyer to purchase an undivided 100% of working interest in the
mineral lease covering the Quinoco Sulimar Field in Chaves County,
New Mexico, in lieu of the Wyoming property, for a purchase price
to be determined. Additionally, it extended the purchase date of
either property to on or before April 1, 2017. The Board of
Directors voted March 24, 2017, to extend the agreement for the
Quinoco Sulimar Field only to June 30, 2017. The agreement has been
verbally extended to August 31, 2017. As a condition of the
purchase, all proceeds from the sale of the working interest must
be used to pay down the Company’s indebtedness owed to
Citibank. Other conditions include the requirement that Citibank
will have agreed to extend the maturity date on the Company’s
current indebtedness owed until December 31, 2017, which was
accomplished in the Forbearance Agreement discussed above. Also,
the Buyer has been granted the right to nominate one member of the
Board of Directors.
On July
20, 2017, the Company announced the sale of an additional 401 net
acres of non-producing leasehold in Lea County, New Mexico, for
$1,200,000. The Company used $1,000,000 of the proceeds to reduce
our credit line with Citibank to $3,363,333 and the additional
$200,000 was reserved for general corporate purposes.
PART I