On May 2,3. ASSETS AVAILABLE FOR SALE

During the nine months ended September 30, 2018, the Company reclassified $0.7 million of assets reported as available for sale at December 31, 2017 the Amendedto property and Restated Credit Agreement, dated July 30, 2010, between U.S. Energy Corp.’s wholly-owned subsidiary,equipment, net. These assets are comprised of land parcels owned by Energy One and Wells Fargo Bank N.A. was sold, assigned and transferred to APEG Energy II, L.P. (“APEG”) (the “Credit Agreement”). APEG purchased and assumedin Riverton, Wyoming. The Company has determined that the assets do not meet all of Wells Fargo’s rights and obligationsthe criteria for classification as available for sale because, although the lender to Energy One under the credit facility. Concurrently, U.S. Energy Corp., Energy One and APEG entered intoCompany has a Limited Forbearance Agreement dated May 2, 2017. On June 28, 2017, U.S. Energy Corp., Energy One and APEG entered into a Fifth Amendment to the Credit Agreement providingplan for among other things, an extensiondisposing of the maturity date to July 19, 2019, new financial coverage ratio covenantsassets, it is not actively marketing them and a limited release and waiver with respect to any historical Company non-compliance with any and all financial covenants by the Company. As of September 30, 2017, the Company was in compliance with all financial covenants and fully conforming with all requirements under its credit agreement. On October 5, 2017, U.S. Energy Corp. announceddoes not consider it probable that the Company,assets will be sold within the Company’s wholly owned subsidiary Energy One LLC and APEG, entered into an exchange agreement (the “Exchange Agreement”), pursuant to which, on the terms and subject to the conditions of the Exchange Agreement, APEG will exchange $4,463,380 of outstanding borrowings under the Company’s Credit Facility, for 5,819,270 new shares of common stock of the Company. Please refer to Note 13 entitled “Subsequent Events” for further information.next 12 months.

4. LIQUIDITY

As of September 30, 2017,2018, the Company had cash and cash equivalents of $1.8$3.0 million and working capital of $3.6 million. Management believes overhead and mining expense eliminations have poisedDuring the nine months ended September 30, 2018, the Company to survive the continued low commodity price environment. However, there can be no assurance that the Company will be able to complete future financings, dispositions or acquisitions on acceptable terms or at all. The significantly lower oil price environment has substantially decreased ourincurred a net loss of $1.0 million and used $0.9 million of cash flows fromin operating activities. Sustained low oil prices could significantly reduce or eliminate our planned capital expenditures. If production is not replaced through the acquisition or drilling of new wells our production levels will lower due to the natural decline of production from existing wells.

Our strategy is to continue to (1) maintain adequate liquidity  and selectively participate in new drilling and completion activities, subject to economic and industry conditions, (2) pursue accretive acquisition and disposition opportunities, and(3) evaluate various avenues to strengthenaddress the July 2019 maturity of our balance sheet and improve our liquidity position.existing credit facility through either extending the maturity of the existing credit facility or entering into a new credit facility with a new lender.  We expect to fund any near-term capital requirements and working capital needs from existing cash on hand. Because production from existing oil and natural gas wells declines over time, further reductions of capital expenditures used to drill and complete new oil and natural gas wells would likely result in lower levels of oil and natural gas production in the future.

5. COMMODITY PRICE RISK DERIVATIVES

The Company’s wholly-owned subsidiary Energy One has historically entered into crude oilcommodity price derivative contracts (“economic hedges”). with BP Energy, a third-party hedge counterparty. The derivative contracts are priced based on West Texas Intermediate (“WTI”) quoted prices for crude oil.oil and Henry Hub quoted prices for natural gas. The Company is a guarantor of Energy One’s obligations under the economic hedges.hedges, which, are pari-passu to amounts borrowed under the Credit Facility and are secured by Energy One’s oil and gas properties. The objective of utilizing the economic hedges is to reduce the effect of price changes on a portion of the Company’s future oil production, achieve more predictable cash flows in an environment of volatile oil and natural gas prices and to manage the Company’s exposure to commodity price risk. The use of these derivative instruments limits the downside risk of adverse price movements. However, there is a risk that such use may limit the Company’s ability to benefit from favorable price movements. Energy One may, from time to time, add incrementalcommodity price derivatives to hedge additional production, restructure existing derivative contracts or enter into new transactions to modify the terms of current contracts in order to realize the current value of its existing positions. The Company does not engage in speculative derivative activities or derivative trading activities, nor does it use derivatives with leveraged features. The Company had a net liability from commodity risk derivatives of $37 thousand at September 30, 2018 and $161 thousand at December 31, 2017. Presented below is a summary of outstanding crude oil and natural gas swaps as of September 30, 2017.2018.

Unrealized gains and losses resulting from derivativesDerivatives are recorded at fair value in the consolidated balance sheet.sheets. Changes in fair value are included in the “change in unrealized“(loss) gain (loss) on oil price risk derivatives”commodity derivative contracts” in the condensed consolidated statements of operations and comprehensive loss. For the nine months ended September 30, 2018 and 2017, the Company’s unrealized gains from derivatives amounted to $124 thousand and $29 thousand, respectively. Derivative contract settlements are included in the (loss) gain on commodity derivative contracts in the condensed consolidated statement of operations. For the nine months ended September 30, 20172018 and 2016,2017, the Company’s unrealized gains (losses)realized (loss) gain from derivatives amounted to $0.03$(349) thousand and $(1.6) million,$217 thousand, respectively. Derivative contract settlements are included in the “realized gain (loss) on oil price risk derivatives” in the consolidated statement of operations. All derivative positions are carried at their fair value and included in Commodity derivative contracts on the condensed consolidated balance sheet and are included in “Commodity price risk derivatives.” Forsheets. The following table summarizes the nine months endedfair value of our open commodity derivatives as of September 30, 2018, and December 31, 2017 (in thousands). Please see Note 14 for further disclosure.

6. OIL AND GAS PRODUCING ACTIVITIES

Divestitures

On October 3, 2017, the Company, Energy One and 2016,Statoil Oil and Gas LP (“Statoil”) entered into a purchase and sale agreement (the “Purchase Agreement”), pursuant to which the Company assigned, sold, and conveyed certain non-operated assets in the Williston Basin, North Dakota in consideration for the elimination of $4.0 million in outstanding liabilities to Statoil and payment by Statoil to the Company of $2.0 million in cash. U.S. Energy has historically accounted for the eliminated liabilities on the Company’s realized gains from derivatives amountedbalance sheet under “Payable to $0.2major operator” and $1.4 million, respectively.

“Contingent ownership interests.” The Purchase Agreement was unanimously approved by the board of directors of the Company and closed on October 5, 2017, with an effective date of August 1, 2017.

Ceiling Test and Impairment

The reserves used in the Company’s full cost ceiling test incorporate assumptions regarding pricing and discount rates in the determination of present value. In the calculation of the ceiling test as of September 30, 2017,2018, the Company used a price of $43.89$59.78 per barrel forof oil and $2.92$2.83 per MMbtu forof natural gas (as further(in each case adjusted for property specific gravity,transportation, quality, local markets and distance from markets)basis differentials applicable to our properties on a weighted average basis) to compute the future cash flows of the Company’s producing properties. These prices compare to $42.75$47.01 per barrel forof oil and $2.48$2.98 per MMbtu forof natural gas used in the calculation of the Ceiling Testceiling test as of December 31, 2016.2017. The Company used a discount factor ofused was 10%.

For the three and nine months ended September 30, 2018 and 2017, and 2016, ceiling testthe Company recorded no impairment charges for the Company’s oil and gas properties amounted to $0 and $9.6 million, respectively.charges.

Disposition of Mining Segment7. DEBT

In February 2006,On December 27, 2017, the Company reacquiredreceived shareholder approval for the Mt. Emmons molybdenum mining properties (the “Property”exchange agreement (“Exchange Agreement”). In February 2016, by and among the Company, Energy One and APEG Energy II, L.P., (“APEG”), an entity controlled by Angelus Private Equity Group, LLC pursuant to which, on the terms and subject to the conditions of the Exchange Agreement, APEG exchanged $4.5 million  of outstanding borrowings under the Company’s Board of Directors decided to dispose of the Property rather than continuing the Company’s long-term development strategy whereby the Company entered into the following agreements:

Under U.S. GAAP, the disposal of a segment is reported as discontinued operations in the Company’s financial statements. Presented below are the assets and liabilities associated with the Company’s mining segment as of September 30, 2017 and December 31, 2016:

At the option of the holder, each share of Preferred Stock was initially convertible into approximately 13.33 shares of the Company’s $0.01 par value common stock (the “Conversion Rate”)Credit Facility, for an aggregate of 666,667 shares of common stock. The Conversion Rate is subject to anti-dilution adjustments for stock splits, stock dividends, certain reorganization events, and to price-based anti-dilution protections if the Company subsequently issues shares for less than 90% of fair value on the date of issuance. Each share of Preferred Stock will be convertible into a number of5,819,270 newly-issued shares of common stock equal to the ratio of the initial conversionCompany, par value to$0.01 per share, with an exchange price of $0.767 representing a 1.3% premium over the conversion value as adjusted for accumulated dividends multiplied by the Conversion Rate. In no event will the aggregate number30-day volume weighted average price of shares of common stock issued upon conversion be greater than approximately 793,000 shares. The Preferred Stock will generally not vote with the Company’s common stock on an as-converted basisSeptember 20, 2017 (the “Exchange Shares”). Accrued, unpaid interest on matters put before the Company’s shareholders. The holdersCredit Facility held by APEG was paid in cash at the closing of the Preferred Stock have the right to approve specified matters as set forth in the Certificatetransaction. As of Designations and have the right to require the Company to repurchase the Preferred Stock in connection with a change of control. However, the Company’s Board of Directors has the ability to prevent any change of control that could trigger a redemption obligation related to the Preferred Stock.

During the first quarter of 2016, the Company recorded the fair valueSeptember 30, 2018, APEG holds approximately 43% of the Preferredoutstanding Common Stock based on the initial liquidation preference of $2,000. Since the cash consideration paid by MEM for the Preferred Stock was a nominal amount, the Company recorded a charge to operations of approximately $2,000 associated with the issuance.  U.S. Energy.

Combined Results of Operations for Discontinued Operations

The results of operations of the discontinued mining operations are presented separately in the accompanying financial statements. Presented below are the components for the nine months ended September 30, 2017 and 2016:

Energy One, a wholly-owned subsidiary of the Company, has a credit facilityCredit Facility (the “Credit Facility”) with APEG Energy II, L.P. (“APEG”).which matures in July 2019. As of September 30, 2017 and 2016,2018, outstanding borrowings under the credit facilityCredit Facility amounted to $6.0 million. U.S. Energy Corp., Energy One and APEG entered into a Limited Forbearance Agreement dated May 2, 2017. On June 28, 2017, U.S. Energy Corp., Energy One and APEG entered into a Fifth Amendment to the credit facility providing for, among other things, an extension of the maturity date to July 19, 2019, new financial coverage ratio covenants and a waiver with respect to any historical Company non-compliance with any and all financial covenants. As of September 30, 2017 and 2016, the borrowing base was $6.0 million.$937 thousand. Borrowings under the credit facilityCredit Facility are secured by Energy One’s oil and gas producing properties and substantially all of the Company’s cash and equivalents. Each borrowing under the agreement has a term of six months, but can be continued at the Company’s election through July 2019 if the Company remains in compliance with the covenants under the credit facility.properties. The interest rate on the credit facilityCredit Facility is currently fixed at 8.75%. Please refer to Note 13 entitled “Subsequent Events” for further information.

Pursuant to the terms of the Credit Facility, Energy One is required to comply with customary affirmative covenants and with certain negative covenants. The principal negative financial covenants do not permit (as the following terms are defined in the Fifth Amendment)Amendment to the Credit Agreement) (i) PDPProved Developed Producing Coverage Ratio to be less than 1.2 to 1; and (ii) the current ratio to be less than 1.0 to 1.0. Please note that the liabilities carried on the Company’s balance sheet under “Payable to major operator” and “Contingent ownership interests” are excluded from any covenant calculations. As of September 30, 2017, the Company is in compliance with all credit facility covenants. Additionally, the Credit AgreementFacility prohibits or limits Energy One’s ability to incur additional debt, pay cash dividends and other restricted payments, sell assets, enter into transactions with affiliates, and to merge or consolidate with another company. The Company is a guarantor of Energy One’s obligations under the Credit Agreement.Facility. As of September 30, 2018, the Company was in compliance with all Credit Facility covenants.

8. COMMITMENTS AND CONTINGENCIES

Commitments

Lessee Operating Leases.In August 2017, the Company entered into a lease agreement for office space in Denver, Colorado. The original term of the lease is 65 months; extending until January 2023. At September 30, 2018, the future minimum rental commitments of the lease were $319 thousand. The following table presents the future minimum rental commitments at September 30, 2018, by year (in thousands):

Contingencies

From time to time, the Company is party to certain legal actions and claims arising in the ordinary course of business. While the outcome of these events cannot be predicted with certainty, management does not expect these matters to have a materially adverse effect on the Company’s financial position or results of operations. Following is updated information related to currently pending legal matters:

North Dakota Properties.On June 8, 2011, Brigham Oil & Gas, L.P. (“Brigham”), as the operator of the Williston 25-36 #1H Well, filed an action in the State of North Dakota, County of Williams, in District Court, Northwest Judicial District, Case No. 53-11-CV-00495 to interplead to the court with respect to the undistributed suspended royalty funds from this well to protect itself from potential litigation. Brigham became aware of an apparent dispute with respect to ownership of the mineral interest between the ordinary high-water mark and the ordinary low water mark of the Missouri River. Brigham suspended payment of certain royalty proceeds of production related to the minerals in and under this property pending resolution of the apparent dispute. Brigham was subsequently sold to Statoil ASA (“Statoil”) who assumed Brigham’s rights and obligations under this case. The Company owns a working interest, not royalty interest, in this well and no funds have been withheld.

On January 28, 2013, the District Court Northwest Judicial District issued an Order for Partial Summary Judgment holding that the State of North Dakota as part of its title to the beds of navigable waterways owns the minerals in the area between the ordinary high and low watermarks on these waterways, and that this public title excludes ownership and any proprietary interest by riparian landowners. This issue has been appealed to the North Dakota Supreme Court. The Company’s legal position is aligned with Brigham, who will continue to provide legal counsel in this case for the benefit of all working interest owners.

The Company is also a party to litigation that seeks to reform certain assignments of mineral interests it acquired from Brigham. This matter involves the depth below the surface to which the assignments were effective. The plaintiff is seeking to reform the agreement such that the Company’s assignment would be revised to be 12 feet closer to the surface. This dispute affects one of the Company’s producing wells. The matter was settled on July 7, 2017 with the court ruling in favor Brigham and therefore U.S. Energy will retain all interests in all subject leases.

Texas Quiet Title Action – Willerson Lease. In September 2013, the Company acquired from Chesapeake a 15% working interest in approximately 4,244 gross mineral acres referred to as the Willerson lease. In January 2014, Willerson inquired if their lease had terminated due to the failure to achieve production in paying quantities pursuant to the terms of the lease. The Company along with Crimson and Liberty filed a declaratory judgment action in the District Court of Dimmit County in May 2014 seeking a determination from the court that the lease remains valid and in effect. The lessors counterclaimed for breach of contract, trespass, and related causes of action. In January 2016, the lessors filed a third-party petition alleging breach of contract, trespass, and related causes of action against Chesapeake and EXCO Operating Company, LP. The matter has settled in 2017 with the Company’s portion of such settlement being $75,000 plus related legal fees of $165,000 as reflected in the Company’s financial statements under “Professional fees, insurance and other” as of September 30, 2017.

Arbitration of Employment Claim. A former employee has claimed that the Company owes up to $1.8 million under an Executive Severance and Non-Compete agreement (the “Agreement”) due to a change of control and termination of employment without cause. The Agreement requires that any disputes be submitted to binding arbitration and a request for arbitration was submitted by the parties in March 2016. This matter was settled in May 2017 for $175,000 plus non-essential equipment of $15,000 as reflected in the Company’s financial statements under “Rental and other income/(loss)” as of September 30, 2017.

Contingent Ownership Interests.As of September 30, 2017, the Company had recognized a contingent liability associated with uncertain ownership interests of $1.6 million. This liability arises when the calculations of respective joint ownership interests by operators differs from the Company’s calculations. These differences relate to a variety of matters, including allocation of non-consent interests, complex payout calculations for individual and group wells and the timing of reversionary interests. Accordingly, these matters are subject to legal interpretation and the related obligations are presented as a contingent liability in the accompanying condensed consolidated balance sheet as of September 30, 2017. While the Company has classified this entire amount as a current liability, most of these issues are expected to be resolved through arbitration, mediation or litigation. This matter was settled on October 4, 2017. Please refer to Note 13 entitled “Subsequent Events” for further information.

Anfield Gain Contingency.In 2007, the Company sold all of its uranium assets for cash and stock of the purchaser, Uranium One Inc. (“Uranium One”). The assets sold included a uranium mill in Utah and unpatented uranium claims in Wyoming, Colorado, Arizona and Utah. Pursuant to the asset purchase agreement, the Company was entitled to additional consideration from Uranium One up to $40,000 based on, among other things, the performance of the mill, and achievement of commercial production and royalties, however no additional consideration has been received from Uranium One. In August 2014, the Company entered into an agreement with Anfield Resources Inc. (“Anfield”) whereby if Anfield was successful in acquiring the property from Uranium One, Anfield would be released from the future payment obligations stemming from the 2007 sale to Uranium One. On September 1, 2015, Anfield acquired the property from Uranium One and is now obligated to provide the following consideration to the Company:

The first tranche of common shares resulted in the issuance of 7,436,505 shares of Anfield with a market value of $750,000 and such shares were delivered to the Company in September 2015. The second tranche of shares resulted in the issuance of 3,937,652 additional shares of Anfield with a market value of $750,000, and such shares were delivered to the Company in September 2016. Since the trading volume in Anfield shares has increased, beginning primarily in the quarter ended June 30, 2016, the Company determined a mark-to-market technique would be the most appropriate method to determine the fair value for Anfield shares. The primary factor in using a mark-to-market valuation in determining the fair value of Anfield shares is justified because of the Company’s belief that due to the increased liquidity in the stock, using current market prices for Anfield shares reflects the most accurate fair value calculation. At September 30, 2017, we determined the fair value of the Anfield shares to be approximately $0.5 million. Please refer to Note 13 entitled “Subsequent Events” for further information.

Preferred Stock9. PREFERRED STOCK

The Company’s articles of incorporation authorize the issuance of up to 100,000 shares of preferred stock, $0.01 par value. Shares of preferred stock may be issued with such dividend, liquidation, voting and conversion features as may be determined by the Board of Directors without shareholder approval. As discussed in Note 5, in February 2016 the Board of Directors approved the designation ofThe Company is authorized to issue 50,000 shares of Series P preferred stock in connection with a shareholder rights plan that expired in 2011.

On February 12, 2016, the Company issued 50,000 shares of newly designated Series A Convertible Preferred Stock (the Preferred Stock”) to Mt. Emmons Mining Company (“MEM”), a subsidiary of Freeport McMoRan. (the “Series A Purchase Agreement”) The Preferred Stock was issued in connection with the disposition of the Company’s mining segment.segment, whereby MEM acquired property and replaced the Company as permittee and operator of a water treatment plant (the “Acquisition Agreement”). The Preferred Stock was issued at $40 per share for an aggregate $2 million. The Preferred Stock liquidation preference, initially $2 million, increases by quarterly dividends of 12.25% per annum (the “Adjusted Liquidation Preference”). At the option of the holder, each share of Preferred Stock may initially be converted into 13.33 shares of the Company’s $0.01 par value Common Stock (the “Conversion Rate”) for an aggregate of 666,667 shares. The Conversion Rate is subject to anti-dilution adjustments for stock splits, stock dividends and certain reorganization events and to price-based anti-dilution protections. At September 30, 2018, the aggregate number of shares of Common Stock issuable upon conversion is 793,349 shares, which is the maximum number of shares issuable upon conversion.

The Preferred Stock is senior to other classes or series of shares of the Company with respect to dividend rights and rights upon liquidation. No dividend or distribution will be declared or paid on junior stock, including the Company’s common stock, (1) unless approved by the holders of Preferred Stock and (2) unless and until a like dividend has been declared and paid on the Preferred Stock on an as-converted basis. The Preferred Stock does not vote with the Company’s Common Stock on an as-converted basis on matters put before the Company’s shareholders. However, the holders of the Preferred Stock have the right to approve specified matters as set forth in the certificate of designations and have the right to require the Company to repurchase the Preferred Stock in connection with a change of control. Concurrent with entry into the Acquisition Agreement and the Series A Purchase Agreement, the Company and MEM entered into an Investor Rights Agreement, which provides MEM rights to certain information and Board observer rights. MEM has agreed that it, along with its affiliates, will not acquire more than 16.86% of the Company’s issued and outstanding shares of Common Stock. In addition, MEM has the right to demand registration of the shares of Common Stock issuable upon conversion of the Preferred Stock under the Securities Act of 1933, as amended.

10. SHAREHOLDERS’ EQUITY

At-the-Market Offering

On January 5, 2018, we entered into a common stock sales agreement with a financial institution pursuant to which we may offer and sell, through the sales agent, common stock representing an aggregate offering price of up to $2.5 million through an at-the-market continuous offering program. During the three months ended September 30, 2018, we issued 357,680 shares of common stock at an average price of $1.52 per share for total proceeds of approximately $0.5 million. Since the beginning of the program in January 2018 through September 30, 2018, we have issued 1,288,537 shares of common stock at an average price of $1.41 for total net proceeds after offering expenses of approximately $1.8 million, leaving $0.7 million available to be issued under the at-the-market offering program.

Warrants

On December 21, 2016, the Company completed a registered direct offering of 1.0 million1,000,000 shares of common stock at a netgross price of $1.50 per share. Concurrently, the investors received warrants to purchase 1.0 million1,000,000 shares of Common Stockcommon stock of the Company at an exercise price of $2.05 per share subject to adjustment, for a period of five years from closing. The total net proceeds received by the Company waswere approximately $1.32 million. The fair value of the warrants upon issuance was $1.24 million, with the remaining $0.08 million$80 thousand being attributed to common stock. The warrants contain a dilutive issuance and other liability provisions which cause the warrants to be accounted for as a liability. Such warrant instruments are initially recorded as a liability and are accounted for at fair value with changes in fair value reported in earnings.

Stock Options As of September 30, 2018, and December 31, 2017, the Company had a warrant liability of $722 thousand and $1.2 million, respectively. As a result of common stock issuances made during the nine months ended September 30, 2018, the warrant exercise price was reduced from $2.05 to $1.13  per share pursuant to the original warrant agreement.

Stock Options

From time to time, the Company grants stock options to directors, executive officers, employees and contractors of the Company under its incentive plan covering shares of common stock to employees of the Company.Amended and Restated 2012 Equity and Performance Incentive Plan (the “2012 Plan”). Stock options, when exercised, are settled through the payment of the exercise price in exchange for new shares of stock underlying the option. These awards typically expire ten years from the grant date.

DuringFor the nine months ended September 30, 2018 and 2017, the Company granted its board of directors 60,000 options in aggregate at an exercise price of $0.72 per share with a 10-year term. The shares were immediately vested and are included in the stock-based compensation expense related tono stock options for the nine months ended September 30, 2017 of $65,000 in comparison to $34,000 recorded for the comparable period in 2016. Management used a Black-Scholes valuation model to assess the stock-based compensation expense related to thewere granted, exercised, forfeited and 69,225 options using the following input assumptions: 80% volatility rate, 2.34% risk free rate, and no associated dividend payments. The Company had $15,000 of unrecognized compensation expense related to non-vested stock options to be recognized through January 2018 as of September 30, 2017 and $80,000 of unrecognized compensation expense related to non-vested stock options as of September 30, 2016.

expired. As of September 30, 2017, the Company had 279,6872018, there was $58 thousand of unrecognized expense related to unvested stock options outstanding with exercise prices ranging from $0.72 to $30.24 with a weighted average exercise price of $10.76 and a remaining weighted-average period of 5.7 years. These shares include 274,132 sharesthat were previously granted, which are exercisablewill be recognized as September 30, 2017 with a weighted average price of $10.79 per share.

stock-based compensation expense through November 2019. Presented below is information about stock options outstanding and exercisable as of September 30, 20172018 and December 31, 2016:

2017:

The following table summarizes information for stock options outstanding and exercisable at September 30, 2017:2018:

As of September 30, 2017, 1,151,000 shares are available for future grants under the Company’s stock option plans.

RestrictedCommon Stock Grants

In January 2015,May 2018, the Board of DirectorsCompany granted 340,711485,168 unrestricted shares of restricted stock under the 2012 Equity Plan to four officersCompany employees and accordingly recorded $596 thousand of the Company. These shares originally vested annually over a period of three years. However, during 2015 vesting was accelerated for three of the four officers in connection with severance agreements for an aggregate of 240,711 shares. The remaining 100,000 shares vested for 33,333 shares in both January 2016 and January 2017 and the remaining shares will vest for 33,334 shares in January 2018. The fair market value of the 340,711 shares on the date of grant was approximately $511,000. As of September 30, 2017, there was $12,671 of unrecognized expense related to unvested restricted stock grants issued in January 2015, which will be recognized as stock-based compensation expense through January 2018.

On September 23, 2016, the Board of Directors granted restricted stock to each member of the Board for 58,500 shares per Board member for an aggregate grant of 351,000 shares. In connection with the resignations of four members of the Company’s Board of Directors, the restricted stock grants were amended and the members of the Board of Directors subsequently agreed to accept 33,332 fully-vested shares each, in lieu of the 58,500 share grants for a total of 199,992 shares. The closing price of the Company’s common stock on the grant date was $1.05, resulting in an aggregate compensation charge of $209,000. As of September 30, 2017, the Company has accrued for the entire aggregate compensation charge over prior quarters and there was $0 of unrecognized expense related to the September 23, 2016 grants.expense. For the nine months ended September 30, 20172018 and 2016,2017, total stock-based compensation expense related to restricted stock grants was $189,000$623  thousand and $25,000$289  thousand, respectively.

As of September 30, 2018, there was no unrecognized expense related to common stock grants.

11. INCOME TAXES

For Federal income tax purposes, as of December 31, 2016 the Company had net operating loss and percentage depletion carryovers of approximately $74.7 million and $2.5 million, respectively. The net operating loss carryovers may be carried back two years and forward twenty years from the year the net operating loss was generated. The net operating losses may be used to offset future taxable income and expire in varying amounts through 2035. In addition, the Company has alternative minimum tax credit carry-forwards of approximately $0.7 million which are available to offset future federal income taxes over an indefinite period. The Company has establishedestimated the applicable effective tax rate expected for the full fiscal year. The Company’s effective tax rate used to estimate income taxes on a valuation allowance for all deferred tax assets including the net operating loss and alternative minimum tax credit carryforwards discussed above since the “more likely than not” realization criterion was not met as of September 30, 2017 and 2016. Accordingly, the Company did not recognize an income tax benefitcurrent year-to-date basis for the nine months ended September 30, 2018, and 2017, is 0% and 2016. Furthermore,0%, respectively.

On December 27, 2017, as a result of a stock issuance (see Note 7) the gross deferred tax assets are subject to limitations under I.R.C. Section 382. The Company still maintains a gross deferred tax asset position that is subject to a valuation allowance.

Deferred tax assets (“DTAs”) are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities and for operating losses and tax credit carry forwards. We review our DTAs and valuation allowance on a quarterly basis. As part of our review, we consider positive and negative evidence, including cumulative results in recent years. Consistent with the position at December 31, 2017, the Company projectsmaintains a net loss for the fiscal year ended December 31, 2017.full valuation allowance recorded against all DTAs. The Company therefore had no recorded DTAs as of September 30, 2018. We anticipate that we will continue to record a valuation allowance against our DTAs until such time as we are able to determine that it is “more-likely-than-not” that those DTAs will be realized.

The Company recognizes, measures, and discloses uncertain tax positions whereby tax positions must meet a “more-likely-than-not” threshold to be recognized. As of September 30, 2017, gross unrecognized tax benefits are immaterial and there was no change in such benefits duringDuring the three monthsand nine-month periods ended September 30, 2017. 2018 and 2017, no adjustments were recognized for uncertain tax positions.

The Company does not expect significant increaseto pay any federal or decrease tostate income taxes for the uncertain tax positions within the next twelve months.fiscal year ended December 31, 2018.

12. EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share is computed based onby dividing net earnings (loss) by the weighted average number of common shares outstanding. The calculation of dilutedoutstanding for the period. Diluted earnings (loss) per share is similarly computed, except that the denominator includes the effect, using the treasury stock method, of stock options, convertible preferred stock and warrants, if including such potential dilutive impactshares of unvested restrictedcommon stock awards and contingently issuableis dilutive.

The following table presents a reconciliation of the weighted-average diluted shares during the periods presented, unless their effect is anti-dilutive. Foroutstanding:

We reported net losses for the three and nine months ended September 30, 2017 and 2016,for the nine-month periods ended September 30, 2018 and 2017. As a result, our basic and diluted weighted average shares outstanding were the same for those periods because the effect of the common stockshare equivalents was anti-dilutive.

The following table presents the weighted-average common share equivalents excluded from the calculation of weighted average shares because they were antidilutive are as follows:diluted earnings per share due to their anti-dilutive effect: