Effective March 17, 2017 the Board of Directors declared a dividend of one right (a “Right”) for each of the Company’s issued and outstanding shares of common stock, $0.001 par value per share (“Common Stock”). The dividend was paid to the stockholders of record at the close of business on March 27, 2017 (the “Record Date”). Each Right entitles the registered holder, subject to the terms of the Rights Agreement dated as of March 16, 2017 (the “Rights Agreement”) between the Company and the Rights Agent, Continental Stock Transfer & Trust Company, to purchase from the Company one one-thousandth of a share of the Company’s Series A Preferred Stock at a price of $1.10 (the “Exercise Price”), subject to certain adjustments.

The Rights will not be exercisable until the “Distribution Date”, which is generally defined as the earlier to occur of:(i) a public announcement or filing that a person or group has, become an “Acquiring Person” which is defined as a person or group of affiliated or associated persons or persons acting in concert who, at any time after the date of the Rights Agreement, have acquired, or obtained the right to acquire, beneficial ownership of 4.95% or more of the Company’s outstanding shares of Common Stock; or a person or group currently owning 4.95% (or more) of the Company’s outstanding shares acquires additional shares of the Company’s stock; subject to certain exceptions; or (ii) the commencement of, or announcement of an intention to commence, a tender offer or exchange offer the consummation of which would result in any person becoming an Acquiring Person.

The Rights, unless extended by the Board of Directors will expire prior to the earlier of March 16, 2020; or a date the Board of Directors determines by resolution in its business judgment that the Agreement is no longer necessary or appropriate; or in certain other specified circumstances.  On March 16, 2020 the Board of Directors by unanimous resolution acting without meeting determined to extend the expiration date of the Rights Agreement to March 16, 2021 as expressly contemplated by the Rights Agreement.

At any time after any person or group of affiliated or associated persons becomes an Acquiring Person, the Board, at its option, may exchange each Right (other than Rights owned by such person or group of affiliated or associated persons which will have become void), in whole or in part, at an exchange ratio of two shares of Common Stock per outstanding Right (subject to adjustment).

For further information on the Rights Agreement, please refer to the Rights Agreement that was attached in full as an exhibit to the Company’s Form 8-K filed with SEC on March 17, 2017.

Series A Preferred Stock has a par value of $0.0001 and 10,000 shares have been designated.  No shares of Series A Preferred Stock have been issued by the Company pursuant to the Rights Agreement described above or otherwise.

We report basic earnings per common share, which excludesexclude the effect of potentially dilutive securities, and diluted earnings per common share which include the effect of all potentially dilutive securities unless their impact is anti-dilutive. The following are reconciliations of the numerators and denominators of our basic and diluted earnings per share (in(in thousands except for share and per share amounts)amounts):

Options issued to the Company’s directors in which the exercise price was higher than the average market price each quarter were excluded from diluted shares as they would have been anti-dilutive.  In addition, the shares that would be issued to employees and Company directors if the thirty day trailing average of WTI postings as published by the U.S. Energy Information Administration meets or exceeds $85 per barrel have also been excluded from this calculation.  (See Note 13.(10) Commitments and Contingencies)

The Company recorded depletion expense of $163,000$142,000 and $172,000$163,000 for the three months ended March 31, 20192020 and 2018,2019, respectively.  During the three months ended March 31, 20192020 and 2018,2019, the Company also recorded in “Accumulated depreciation, depletion, and amortization” a $(7,000)$2,000 loss on asset retirement obligations and a $7,000 gainloss on asset retirement obligations, respectively.

During April 2020, the Company’s senior credit facility with Prosperity Bank after Prosperity Bank’s most recent review of the Company’s currently owned producing properties was amended to decrease the borrowing base to $3.1 million, subject to a credit limit based on current covenants of $1.442 million.  The borrowing base remains subject to the existing periodic redetermination provisions in the credit facility. The interest rate remained prime plus 0.50% per annum.  This rate was 3.75% at the date of the amendment.  The maximum line of credit of the Company under the Prosperity Bank credit facility remained $50 million.  The next borrowing base review will take place in July 2020.

 During the second quarter of 2020, the Company was approved by the Small Business Administration to receive a Paycheck Protection Program (“PPP”) loan in the amount of approximately $166,000.  This loan was funded by Prosperity Bank in May 2019.2020.  The PPP loan is not part of the credit facility with Prosperity Bank as described above and therefore is not subject to the same terms as Company’s credit facility.  The PPP loan has an interest rate of 1% with a maturity date of May 2022.  There are no payments due during the first six months of the loan.  After the six-month period has expired, all outstanding accrued interest is due.  At that time, the remaining unforgiven portion of the loan will be due in 18 equal monthly installments of principal and interest.  The Company may apply for forgiveness of the amount due on the PPP loan based on spending the loan proceeds on eligible expenses as defined by statute.

We lease certain office space, a storage yard, and field vehicles to support our operations.  A more detailed description of the Company’s lease types is included below.

The Company maintains an office to support its corporate operations.  This office agreement is with a third party and was structured with a 39 month initial term.  The Company can renew the lease for 36 additional months by providing to the Landlord written notice of intent to exercise the renewal not less than nine months prior to expiration of the initial term.  The Company’s corporate office lease is classified as an operating lease.

The Company maintains a yard to store certain equipment used in its field operations.  This storage yard agreement is with a third party and is on a month-to-month lease.  However, the Company intends to continue to renew this lease for the foreseeable future.  Based on the Company’s intent to renew the lease, the Company is assuming the same lease term as its corporate office lease for calculation of its right of use asset and lease liability.  The Company’s storage yard is classified as an operating lease.

The Company leases certain vehicles from a third party for use in its field operations.  The lease term for each vehicle is based on expected daily use of the vehicles by the field personnel, typically between 18 and 36 months.  The Company also pays an upfront fee at the commencement of the lease term.  The Company can continue to lease the vehicles past the initial lease term on a month-to-month basis.  In addition, each vehicle has a residual value guarantee at the end of the lease term.  The Company’s field vehicle leases are classified as finance leases.

In order to determine whether the Company’s contracts contain a lease component, the Company is required to exciseexercise significant judgement.judgment.  The Company will review each contract to determine if: an asset is specified in the contract; the asset is physically distinct; the supplier does not have substantive substitution rights; the Company obtains substantially all economic benefit from use of the asset; and the Company can direct the use of the asset.  The Company also determines the appropriate discount rate to use on each lease.  If there is a stated rate in the contract, the Company will use the stated rate as its discount rate.  The contract associated with the field vehicles includes a stated rate typically between 5% and 6.5%.  These stated rates for the field vehicle agreements were used as the discount rates.  If there is no stated rate, the Company will use its borrowing rate as the discount rate.  The contracts associated with the offices and yard do not include a stated rate.  The Company used its borrowing rate of 6% as the discounts rate for these agreements.

Components of lease costs for the three months ended March 31, 2020 and 2019 (in thousands)(in thousands):

Supplemental lease related cash flow information for the three months ended March 31, 2020 and 2019 (in thousands)(in thousands):

Supplemental lease related balance sheet information as of March 31, 2020 and December 31, 2019 (in thousands)(in thousands):

Weighted average remaining lease term and discount rate as of March 31, 2019:2020:

Maturity of lease liabilities as of March 31, 2019 (in thousands)2020 (in thousands):

FASB ASC 820, “Fair Value Measurements and Disclosures”, establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under FASB ASC 820 are described as follows:

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Further, although the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

Upon completion of wells, the Company records an asset retirement obligation at fair value using Level 3 assumptions.

Nonfinancial assets and liabilities are measured at fair value on a nonrecurring basis upon impairment.  The carrying amounts of other financial instruments including cash and cash equivalents, accounts receivable, account payables, accrued liabilities and long termlong-term debt in our balance sheet approximates fair value as of March 31, 20192020 and December 31, 2018.2019.

Commencing in the quarter ended March 31, 2015 and continuing into the quarter ended June 30, 2018, the Company implemented cost reduction measures including compensation reductions for each employee as well as members of the Board of Directors.  These compensation reductions were to remain in place until such time, if any, that the market price of crude oil, calculated as a thirty daythirty-day trailing average of WTI postings as published by the U.S. Energy Information Administration meets or exceeds $70 per barrel.  In May 2018, oil prices as so calculated exceeded $70 and compensation reverted to the levels in place before the reductions became effective. At such time, if any, that the market price of crude oil, calculated as a thirty daythirty-day trailing average of WTI postings as published by the U.S. Energy Information Administration meets or exceeds $85 per barrel, all previous reductions made will be reimbursed, a portion which may be paid in stock, to each employee and members of the Board of Directors if is still employed by the Company or still a member of the Board of Directors.  For the period January 1, 2015 through March 31, 2019,2020, the reductions were approximately $432,000.$373,000.  Of the $432,000,$373,000, approximately $103,000 will$45,000 would be paid in the Company’s common stock.  The $103,000$45,000 value represents approximately 100,000 common shareshares valued at $1.03$0.45 per share which represents the closing price on March 29, 2019.31, 2020.  The Company has not accrued any liabilities associated with these compensation reductions.

The Company is not a party to any pending material legal proceeding.   To the knowledge of management, no federal, state, or local governmental agency is presently contemplating any proceeding against the Company which would have a result materially adverse to the Company. To the knowledge of management, no director, executive officer or affiliate of the Company or owner of record or beneficiallybeneficial owner of more than 5% of the Company’s common stock is a party adverse to the Company or has a material interest adverse to the Company in any proceeding.

During the first three months of 2019, 30.02020, 31.6 MBbl gross of oil were sold from the Company’s properties.  Of the 30.031.6 MBbl sold, 23.4 MBbl were net to the Company after required payments to all of the royalty interests and the one remaining drilling program participants.participant.  The Company’s net sales from its properties during the first three months of 20192020 of 23.4 MBbl of oil compares to net sales of 23.723.4 MBbl of oil during the first three months of 2018.2019.  The Company’s net revenue from its oil and gas properties was $1.2 million$963,000 during the first three months of 2019 compared to $1.4$1.2 million during the first three months of 2018.2019.  This decrease in net revenue was primarily due to a $175,000 decrease related to an $7.48$8.82 per barrel decrease in the average oil price from $57.36 per barrel during the first three months of 2018 to $49.88 per barrel during the first three months of 2019 and a $17,000 decrease related to approximately a 300 Bbl decrease in sales volumes.  The 300 Bbl decrease was primarily due to natural declines, partially offset by increased production on$41.06 per barrel during the Veverka D lease as a resultfirst three months of a polymer work performed in the second quarter 2018, and by increased production on the BSU #1-30 well which was completed in October 2018.2020.

The Company reported a net loss from continuing operationsof $(527,000) or $(0.05) per share of common stock during the first quarter of 2020 compared to a net loss of $(96,000) or $(0.01) per share of common stock during the first quarter of 2019 compared to a net income from continuing operations of $133,000 or $0.01 per share of common stock during the first quarter of 2018.2019.  The $229,000$431,000 decrease in net income was primarily due to a $196,000an $208,000 decrease in revenues, a $49,000$185,000 increase in production costcosts and taxes, partially offset byand a $29,000 increase$43,000 decrease in gain on sale of assets.

The Company recognized $1.2 million$963,000 in revenues during the first quarter of 20192020 compared to $1.4$1.2 million during the first quarter of 2018.2019. The $196,000$208,000 decrease in net revenuerevenues was primarily due to a $175,000 decrease related to an $7.48$8.82 per barrel decrease in the average oil price from $57.36 per barrel during the first three months of 2018 to $49.88 per barrel during the first three months of 2019, and a $17,000 decrease related to approximately a 300 Bbl decrease in sales volumes.  The 300 Bbl decrease was primarily due to natural declines, partially offset by increased production on the Veverka D lease as a result of a polymer performed in the second quarter 2018, and by increased production on the BSU #1-30 well which was completed in October 2018.

Production costs and taxes increased $185,000 from $779,000 during the first quarter of 2018.2019 to $964,000 during the first quarter of 2020.  This decreaseincrease was primarily due to a $51,000 increase related to change in the oil inventory quarterly adjustments, a $20,000 increase in pumping charges primarily related to replacement of a company pumper with a contract pumper, and a $17,000 increase in chemical costs, partially offset by a $38,000 decrease in well and equipment repair costs.adjustment.

Gain on sale of assets increased $29,000decreased $43,000 from $16,000 during the first quarter of 2018 to $45,000 during the first quarter of 2019.2019 to $2,000 during the first quarter of 2020.  This increasedecrease was primarily related to recordinggain on sale of equipment inventory to a third party during the first quarter of 2019, partially offset by recording gains on sales of company vehicles during the first quarter of 2018.2019.

At March 31, 2019,2020, the Company had a revolving credit facility with Prosperity Bank.  This has historically been the Company’s primary source to fund working capital and future capital spending.  Under the credit facility, loans and letters of credit are available to the Company on a revolving basis in an amount outstanding not to exceed the lesser of $50 million or the Company’s borrowing base in effect from time to time. As of March 31, 2019,2020, the Company’s borrowing base was $3$4 million, subject to a credit limit based on current covenants of approximately $2.74$1.97 million.  The credit facility is secured by substantially all of the Company’s producing and non-producing oil and gas properties.  The credit facility includes certain covenants with which the Company is required to comply.  At March 31, 2019,2020, these covenants include the following: (a) Current Ratio > 1:1; (b) Funded Debt to EBITDA < 3.5x; and (c) Interest Coverage > 3.0x.  At March 31, 2019,2020, the interest rate on this credit facility was 6.00%3.75%.  The Company was in compliance with all covenants during the quarter ended March 31, 2019.2020.  The Company had no outstanding borrowing under the facility as of March 31, 20192020 or December 31, 2018.2019.  However, if the Company had borrowings under the credit facility at March 31, 2020, the Company would not have been in compliance with EBITDA related covenants as the Company reported negative EBITDA for the trailing four quarters ended March 31, 2020.

During April 2020, the Company’s senior credit facility with Prosperity Bank after Prosperity Bank’s most recent review of the Company’s currently owned producing properties was amended to decrease the borrowing base to $3.1 million, subject to a credit limit based on current covenants of $1.442 million.  The borrowing base remains subject to the existing periodic redetermination provisions in the credit facility. The interest rate remained prime plus 0.50% per annum.  This rate was 3.75% at the date of the amendment.  The maximum line of credit of the Company under the Prosperity Bank credit facility remained $50 million.  The next borrowing base review will take place in May 2019.July 2020.

Net cash used inprovided operating activities from continuing operations was $18,000$174,000 during the first three months of 20192020 compared to $71,000 provided by$(18,000) used in operating activities from continuing operations during the first three months of 2018.2019.  Cash flow used inprovided by working capital was $102,000$508,000 during the first three months of 20192020 compared to $270,000$(102,000) used in working capital during the first three months of 2018.2019. The $168,000 decrease in cash flow used in working capital was primarily due to changes in inventory, and changes in accounts payable.  The $89,000 decrease$192,000 increase in cash provided by operating activities was primarily due to a $196,000$610,000 increase in cash flow provided by working capital, partially offset by the $208,000 decrease in revenues, and a $49,000the $185,000 increase in production cost and taxes, partially offset by the $168,000 decrease in cash flow used in working capital.taxes.  Net cash provided byused in investing activities from continuing operations was $139,000$(81,000) during the first three months of 20192020 compared to $(41,000) used in$139,000 provided by investing activities from continuing operations during the first three months of 2018.2019.  This increasedecrease in cash flow provided by investing activities was primarily due to proceeds from the sale of materialsequipment inventory to a third party during the first three months of 2019.  Cash flow used in financing activities from continuing operations2019 and drilling costs paid during the first three months of 2019 was $(12,000) compared to $(16,000)2020.  Cash flow used in financing activities during the first three months of 2018.2020 was $(8,000) compared to $(12,000) used in financing activities during the first three months of 2019.

Commencing in the quarter ended March 31, 2015 and continuing into the quarter ended June 30, 2018, the Company implemented cost reduction measures including compensation reductions for each employee as well as members of the Board of Directors.  These compensation reductions were to remain in place until such time, if any, that the market price of crude oil, calculated as a thirty daythirty-day trailing average of WTI postings as published by the U.S. Energy Information Administration meets or exceeds $70 per barrel.  In May 2018, oil prices as so calculated exceeded $70 and compensation reverted to the levels in place before the reductions became effective. At such time, if any, that the market price of crude oil, calculated as a thirty daythirty-day trailing average of WTI postings as published by the U.S. Energy Information Administration meets or exceeds $85 per barrel, all previous reductions made will be reimbursed, a portion which may be paid in stock, to each employee and members of the Board of Directors if is still employed by the Company or still a member of the Board of Directors.  For the period January 1, 2015 through March 31, 2019,2020, the reductions were approximately $432,000.$373,000.  Of the $432,000,$373,000, approximately $103,000 will$45,000 would be paid in the Company’s common stock.  The $103,000$45,000 value represents approximately 100,000 common shareshares valued at $1.03$0.45 per share which represents the closing price on March 29, 2019.31, 2020.  The Company has not accrued any liabilities associated with these compensation reductions.

The Company is not a party to any pending material legal proceeding.   To the knowledge of management, no federal, state, or local governmental agency is presently contemplating any proceeding against the Company which would have a result materially adverse to the Company.  To the knowledge of management, no director, executive officer or affiliate of the Company or owner of record or beneficiallybeneficial owner of more than 5% of the Company’s common stock is a party adverse to the Company or has a material interest adverse to the Company in any proceeding.

The borrowing base under the Company’s revolving credit facility will be determined from time to time by the lender, consistent with its customary natural gas and crude oil lending practices. Reductions in estimates of the Company’s natural gas and crude oil reserves could result in a reduction in the Company’s borrowing base, which would reduce the amount of financial resources available under the Company’s revolving credit facility to meet its capital requirements. Such a reduction could be the result of lower commodity prices or production, inability to drill or unfavorable drilling results, changes in natural gas and crude oil reserve engineering, the lender’s inability to agree to an adequate borrowing base or adverse changes in the lenders’ practices regarding estimation of reserves.  If cash flow from operations or the Company’s borrowing base decreases for any reason, the Company’s ability to undertake exploration and development activities could be adversely affected.  As a result, the Company’s ability to replace naturally declining production may be limited. In addition, if the borrowing base is reduced, the Company may be required to pay down its borrowings under the revolving credit facility so that outstanding borrowings do not exceed the reduced borrowing base. This requirement could further reduce the cash available to the Company for capital spending and, if the Company did not have sufficient capital to reduce its borrowing level, could cause the Company to default under its revolving credit facility.

The Company's major market risk exposure is in the pricing applicable to its oil production.  Realized pricing is primarily driven by the prevailing worldwide price for crude oil.  Historically, prices received for oil and gas production have been volatile and unpredictable and price volatility is expected to continue.  The average monthly Kansas oil prices received during the first three months of 20192020 ranged from a low of $46.39$27.31 per barrel to a high of $52.93$53.04 per barrel.  The Company anticipates a continued reduction in average oil prices during the second quarter of 2020.

As of March 31, 2020 and December 31, 2019, the Company hashad no open positions related to derivative agreements relating to commodities.

At March 31, 2019,2020, the Company had balances on financing leases outstanding of approximately $112,000,$82,000, and no balance owed on its credit facility with Prosperity Bank.  As of March 31, 2019,2020, the interest rate on the credit facility was variable at a rate equal to prime plus 0.50% per annum.  The Company’s credit facility interest rate at March 31, 20192020 was 6.00%3.75%.  The Company’s financing leases of $112,000$82,000 have fixed interest rates ranging from 5.0% to 6.5%.

The annual impact on interest expense and the Company’s cash flows of a 10% increase in the interest rate on the credit facility would be approximately zero assuming borrowed amounts under the credit facility remained at the same amount owed as of March 31, 2019.2020.  The Company did not have any open derivative contracts relating to interest rates at March 31, 20192020 or December 31, 2018.2019.

Certain statements in this report, including statements of the future plans, objectives, and expected performance of the Company, are forward-looking statements that are dependent upon certain events, risks and uncertainties that may be outside the Company’s control, and which could cause actual results to differ materially from those anticipated. Some of these include, but are not limited to, the market prices of oil and gas, economic and competitive conditions, inflation rates, legislative and regulatory changes, financial market conditions, political and economic uncertainties of foreign governments, future business decisions, and other uncertainties, all of which are difficult to predict.

There are numerous uncertainties inherent in projecting future rates of production and the timing of development expenditures. The total amount or timing of actual future production may vary significantly from estimates. The drilling of exploratory wells can involve significant risks, including those related to timing, success rates and cost overruns. Lease and rig availability, complex geology and other factors can also affect these risks.  Additionally, fluctuations in oil and gas prices, or a prolonged period of low prices, may substantially adversely affect the Company's financial position, results of operations, and cash flows.

The Company’s Chief Executive Officer and Chief Financial Officer has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer has concluded that the Company’s disclosure controls and procedures, as of the end of the period covered by this Report, were adequate and effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. The effectiveness of a system of disclosure controls and procedures is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness of internal controls, and fraud. Due to such inherent limitations, there can be no assurance that any system of disclosure controls and procedures will be successful in preventing all errors or fraud, or in making all material information known in a timely manner to the appropriate levels of management.

During the three months ended March 31, 2019,2020, there have been no changes to the Company’s system of internal controls over financial reporting 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.

None.

Refer to Item 1A Risk Factors in the Company’s Report on Form 10-K for the year ended December 31, 20182019 filed on March 28, 201930, 2020 which is incorporated by this reference.

None.

None.

Not Applicable

None.

The following exhibits are filed with this report:

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