Company Quick10K Filing
Quick10K
Frontier Oilfield Services
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-10-04 M&A
8-K 2018-12-28 M&A
8-K 2018-12-14 Other Events
WPZ Williams Partners 38,808
ZYXI Zynex 290
CBDS Cannabis Sativa 37
SFEG Santa Fe Gold 29
DYNR Dynaresource 22
WCUI Wellness Center 19
LITH US Lithium 1
CSMO Cosmo Ventures 0
GNTH Genethera 0
EVOA EVO Transportation 0
FOSI 2019-06-30
Part 1 - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ex31-1.htm
EX-32.1 ex32-1.htm

Frontier Oilfield Services Earnings 2019-06-30

FOSI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 fosi-10q_063019.htm QUARTERLY REPORT

 


UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549 

 



FORM 10-Q


 

(Mark one)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: June 30, 2019

 

Or

 

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: 0-30746


FRONTIER OILFIELD SERVICES, INC.
(Exact name of registrant as specified in its charter) 


Texas

75-2592165

(State or other jurisdiction of 

incorporation or organization)

(I.R.S. Employer 

Identification Number) 

 

 

220 Travis Street, Suite 501, Shreveport, Louisiana 71101

71101

(Address of principal executive offices)

(Zip Code)

 

(972) 243-2610 

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)


Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, $0.01 par value per share FOSI N/A

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities 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

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒  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 the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

Large Accelerated Filer

 

Accelerated Filer

Non-Accelerated Filer

(Do not check if smaller reporting company)

Smaller Reporting Company

Emerging Growth Company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒  No

 

As of August 13, 2019, there were 14,760,178 shares of common stock, par value $0.01 per share, outstanding. 

 

 

 

 

FRONTIER OILFIELD SERVICES, INC.

Index

 

 

 

 

 

 

Pg. No. 

PART I — Financial Information

 

 

Item 1. Financial Statements

 

 

Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018 (Unaudited)

 

3

Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2019 and 2018 (Unaudited)

 

4

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018 (Unaudited)

 

5

Consolidated Statements of Stockholders’ Deficit for the Six Months Ended June 30, 2019 and 2018 (Unaudited)

 

6

Notes to Consolidated Financial Statements as of June 30, 2019 (Unaudited)

 

7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

10

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

14

Item 4. Controls and Procedures

 

14

 

 

 

PART II — Other Information

 

 

Item 1. Legal Proceedings

 

14

Item 1A. Risk Factors

 

14

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

 

14

Item 3. Defaults Upon Senior Securities

 

14

Item 5. Other Information

 

15

Item 6. Exhibits

 

15

 

 

 

SIGNATURES

 

16

 

 
 

PART 1 — FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

FRONTIER OILFIELD SERVICES, INC. AND SUBSIDIARIES 

CONSOLIDATED BALANCE SHEETS

(UNAUDITED) 

 

 

 

June 30,
2019

 

 

December 31,
2018

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash

 

$

18,939

 

 

$

26,158

 

Accounts receivable, net

 

 

53,864

 

 

 

75,053

 

Total current assets

 

 

72,803

 

 

 

101,211

 

 

 

 

 

 

 

 

 

 

Property and equipment, at cost

 

 

7,616,948

 

 

 

7,616,948

 

Less: accumulated depreciation

 

 

(5,055,747

)

 

 

(4,811,127

)

Property and equipment, net

 

 

2,561,201

 

 

 

2,805,821

 

 

 

 

 

 

 

 

 

 

Intangibles, net

 

 

225,602

 

 

 

262,190

 

Right of Use (Note 7)

 

 

823,074

 

 

 

 

Deposits

 

 

2,302

 

 

 

2,302

 

Total other assets

 

 

1,050,978

 

 

 

264,492

 

Total Assets

 

$

3,684,982

 

 

$

3,171,524

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Current maturities of long-term debt, primarily stockholders, net of deferred loan fees

 

$

7,951,247

 

 

$

7,951,247

 

  Lease liability – current (Note 7)

 

 

101,000

 

 

 

 

Accounts payable

 

 

367,301

 

 

 

1,033,622

 

Accrued liabilities

 

 

1,916,855

 

 

 

1,711,170

 

Total current liabilities

 

 

10,336,403

 

 

 

10,696,039

 

Lease liability – non-current (Note 7)

 

 

722,074

 

 

 

 

Long-term debt, less current maturities

 

 

 

 

 

 

Total Liabilities

 

 

11,058,477

 

 

 

10,696,039

 

Commitments and Contingencies (Note 7)

 

 

 

 

 

 

 

 

Stockholders’ Deficit:

 

 

 

 

 

 

 

 

Common stock- $.01 par value; authorized 100,000,000 shares; 14,760,178 shares issued and outstanding at June 30, 2019 and December 31, 2018

 

 

147,603

 

 

 

147,603

 

Additional paid-in capital

 

 

35,266,295

 

 

 

35,266,295

 

Accumulated deficit

 

 

(42,787,393

)

 

 

(42,938,413

)

Total stockholders’ deficit

 

 

(7,373,495

)

 

 

(7,524,515

)

Total Liabilities and Stockholders’ Deficit

 

$

3,684,982

 

 

$

3,171,524

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3 

 

FRONTIER OILFIELD SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

June 30,
2019

 

 

June 30,
2018

 

 

June 30,
2019

 

 

June 30,
2018

 

Revenue, net of discounts

 

$

202,808

 

 

$

285,220

 

 

$

438,511

 

 

$

585,685

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating costs

 

 

170,610

 

 

 

104,833

 

 

 

343,111

 

 

 

348,340

 

General and administrative

 

 

35,946

 

 

 

183,272

 

 

 

136,605

 

 

 

226,557

 

Depreciation and amortization

 

 

140,604

 

 

 

143,718

 

 

 

281,208

 

 

 

287,436

 

Total costs and expenses

 

 

347,160

 

 

 

431,823

 

 

 

760,924

 

 

 

862,333

 

Operating loss

 

 

(144,352

)

 

 

(146,603

)

 

 

(322,413

)

 

 

(276,648

)

Other (income) expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

109,487

 

 

 

109,550

 

 

 

218,969

 

 

 

219,107

 

Gain on extinguishment of debt

 

 

(692,402

)

 

 

 

 

 

(692,402

)

 

 

 

Income (loss) before provision for income taxes

 

 

438,563

 

 

 

(256,153

)

 

 

151,020

 

 

 

(495,755

)

Provision for income taxes

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

438,563

 

 

$

(256,153

)

 

$

151,020

 

 

$

(495,755

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share – basic and diluted:

 

$

0.03

 

 

$

(0.02

)

 

$

0.01

 

 

$

(0.04

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Common Shares Outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted

 

 

14,760,178

 

 

 

13,868,788

 

 

 

14,760,178

 

 

 

13,868,788

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

4 

 

FRONTIER OILFIELD SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS 

(UNAUDITED)

 

 

 

For the Six Months Ended

 

 

 

June 30, 2019

 

 

June 30, 2018

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

151,020

 

 

$

(495,755

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

281,208

 

 

 

287,436

 

Gain on extinguishment of debt

 

 

(692,402

)

 

 

 

 

 

 

 

 

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

(Increase) decrease in operating assets:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

21,189

 

 

 

(27,995

)

Increase (decrease) in operating liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

 

26,081

 

 

 

(83,758

)

Accrued liabilities

 

 

205,685

 

 

 

278,660

 

Net cash used in operating activities

 

 

(7,219

)

 

 

(41,412

)

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

Repayment of advance to shareholder

 

 

 

 

 

29,413

 

 

 

 

 

 

 

 

 

 

Net cash provided by investing activities

 

 

 

 

 

29,413

 

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net decrease in cash

 

 

(7,219

)

 

 

(11,999

)

Cash at beginning of the period

 

 

26,158

 

 

 

17,156

 

Cash at end of the period

 

$

18,939

 

 

$

5,157

 

 

 

 

 

 

 

 

 

 

Supplemental Cash Flow Disclosures

 

 

 

 

 

 

 

 

Interest paid

 

$

 

 

$

33,637

 

Taxes paid

 

$

 

 

$

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

5 

 

FRONTIER OILFIELD SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT

(UNAUDITED)

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Par Value

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance December 31, 2017

 

 

13,868,788

 

 

$

138,689

 

 

$

34,918,653

 

 

$

(42,052,118

)

 

$

(6,994,776

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

 

 

 

 

 

 

 

 

 

 

(495,755

)

 

 

(495,755

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance June 30, 2018 

 

 

13,868,788

 

 

$

138,689

 

 

$

34,918,653

 

 

$

(42,547,873

)

 

$

(7,490,531

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2018

 

 

14,760,178

 

 

$

147,603

 

 

$

35,266,295

 

 

$

(42,938,413

)

 

$

(7,524,515

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

 

 

 

 

 

 

 

 

 

151,020

 

 

 

151,020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance June 30, 2019

 

 

14,760,178

 

 

$

147,603

 

 

$

35,266,295

 

 

$

(42,787,393

)

 

$

(7,373,495

)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

6 

 

FRONTIER OILFIELD SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(UNAUDITED)

 

1.

BASIS OF PRESENTATION

 

The consolidated financial statements included herein have been prepared by Frontier Oilfield Services, Inc. (“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 omitted. However, in the opinion of management, all adjustments (which include only normal recurring adjustments, unless otherwise indicated) necessary to present fairly the financial position and results of operations for the periods presented have been made. The results for interim periods are not necessarily indicative of trends or of results to be expected for the full year. These financial statements should be read in conjunction with the financial statements of the Company for the year ended December 31, 2018 (including the notes thereto) set forth in Form 10-K.

 

2.

BUSINESS ACTIVITIES

 

Frontier Oilfield Services, Inc. a Texas corporation (and collectively with its subsidiaries, “we”, “our”, “Frontier”, “FOSI”, or the “Company”), was organized on March 24, 1995. The accompanying consolidated financial statements include the accounts of the Company and Frontier Acquisition I, Inc., and its subsidiary Chico Coffman Tank Trucks, Inc. (CTT) and its subsidiary Coffman Disposal, LLC, and Frontier Income and Growth, LLC (FIG) and its subsidiaries Trinity Disposal & Trucking, LLC and Trinity Disposal Wells, LLC.

 

Frontier operates its business in the oilfield service industry and is primarily involved in the disposal of saltwater and other oilfield fluids in Texas. The Company currently owns and operates five disposal wells in Texas, three within the Barnett Shale in North Texas and two in east Texas near the Louisiana state line. The Company’s customers include national, integrated, and independent oil and gas exploration companies.

 

3.

GOING CONCERN

 

The Company’s financial statements are prepared using U.S. generally accepted accounting principles (“U.S. GAAP”) applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As of the date of the financial statements, the Company has generated losses from operations, has an accumulated deficit and working capital deficiency. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.

 

To continue as a going concern and achieve a profitable level of operations, the Company will need, among other things, to increase its business volume and grow revenues, reduce its operating expenses, raise additional capital resources and develop new and stable sources of revenue to meet its operating expenses.

 

The Company’s ability to continue as a going concern will be dependent upon management’s ability to successfully implement management’s plans to pursue additional business volumes from new and existing customers, reduce indebtedness through sales of non-performing assets and conversions of debt to equity, and rationalize the Company’s cost structure to achieve profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. The Company’s continued existence will ultimately be dependent on its ability to generate cash flows to support its operations as well as provide sufficient resources to retire existing liabilities on a timely basis. The Company faces significant risk in implementing its business plan and there can be no assurance that financing for its operations and business plan will be available or, if available, such financing will be on satisfactory terms.

 

4.

SUMMARY OF SELECTED ACCOUNTING POLICIES

 

New Accounting Pronouncements 

In February 2016, the FASB issued ASU 2016-02, Leases, which will, among other impacts, change the criteria under which leases are identified and accounted for as on- or off-balance sheet. The guidance is effective for the fiscal year beginning after December 15, 2018, including interim periods within that year. The new guidance has been adopted by the Company as of January 1, 2019.  The Company has, applied the new accounting standard on a modified retrospective basis to leases existing at the beginning of the earliest period presented in the financial statements. The adoption of the accounting standard resulted in the recognition of a Right of Use asset in the amount of $823,074 and a Lease Liability – Current of $101,000 and a lease liability- Non-Current of $722,074 as of June 30, 2019.

 

7 

 

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-company transactions and balances have been eliminated in consolidation.

 

Fair Value of Financial Instruments

In accordance with the reporting requirements of ASC Topic 825, Financial Instruments, the Company calculates the fair value of its assets and liabilities which qualify as financial instruments under this standard and includes this additional information in the notes to the financial statements when the fair value is different than the carrying value of those financial instruments. The Company does not have assets or liabilities measured at fair value on a recurring basis. Consequently, the Company did not have any fair value adjustments for assets and liabilities measured at fair value at the balance sheet dates, nor gains or losses reported in the statements of operations that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held during the six months ended June 30, 2019 and 2018, except as disclosed.

 

Earnings (Loss) Per Share (EPS)

Basic earnings per common share are calculated by dividing net income or loss by the weighted average number of shares outstanding during the period. Diluted earnings per common share are calculated by adjusting outstanding shares, assuming conversion of all potentially dilutive stock options and warrants. The computation of diluted EPS does not assume conversion, exercise, or contingent issuance of shares that would have an anti-dilutive effect on earnings per common share. Anti-dilution results from an increase in earnings per share or reduction in loss per share from the inclusion of potentially dilutive shares in EPS calculations. Currently there are no stock options in 2019 or 2018 which have been excluded from EPS that could potentially have a dilutive effect on EPS in the future.

 

5.

STOCK BASED COMPENSATION

 

On July 2, 2018, the Company issued an aggregate of 891,390 shares of common stock to the members of the Board of Directors and outside consultants. Two members of the Board of Directors received 250,000 shares each. One member of the Board of Directors received 100,000 shares. Outside consultants to the Company received an aggregate of 291,390 shares in exchange for their services to the Company. The Company recorded stock compensation expense of $356,556 for the year ended December 31, 2018 associated with the stock issuance.

 

6.

BORROWINGS

 

Borrowings as of June 30, 2019 and December 31, 2018 were as follows:

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Revolving credit facility and term loan (a)

 

$

747,757

 

 

$

747,757

 

Term note (b)

 

 

4,321,065

 

 

 

4,321,065

 

 

 

 

 

 

 

 

 

 

Loans from stockholders (c) (d)

 

 

2,870,484

 

 

 

2,870,484

 

Installment notes (e)

 

 

11,941

 

 

 

11,941

 

 

 

 

 

 

 

 

 

 

Total debt

 

 

7,951,247

 

 

 

7,951,247

 

Less current portion

 

 

(7,951,247

)

 

 

(7,951,247

)

Total long-term debt

 

$

 

 

$

 

 

 

a.

The Revolving Credit Facility and Term Loan have a maturity date of July 23, 2017 and a default interest rate, which is the base rate plus the applicable margin plus 2% (6.75% and 7.75%, respectively as of December 31, 2016. The loans are secured by all the Company’s properties and assets except for its disposal wells wherein the Senior Loan Facility has a subordinated secured position with an accredited investor. As of June 30, 2019, the Company was not in compliance with its debt covenants under the Senior Loan Facility and the lender had not exercised its rights under the Senior Loan Facility. The outstanding balance of the Senior Loan Facility is included in current liabilities at June 30, 2019 and December 31, 2018 because the Company did not comply with its debt covenants, including the timely payment of interest and principal.

 

8 

 

 

b.

The Company and its subsidiaries entered into a Term Loan, Guaranty and Security Agreement on July 23, 2012 with ICON (the “Loan Agreement”). On December 27, 2014 an affiliate of an accredited investor who is also a stockholder purchased the note payable under the Loan Agreement. The accredited investor assumed the terms and conditions of the Loan Agreement. The Loan Agreement provides the lender with a senior secured position on the Company’s disposal wells and a subordinated position to the Senior Loan Facility on all other Company properties and assets. As of June 30, 2019, the Company did not comply with its debt covenants under the Loan Agreement and the lender had not exercised its rights under the Loan Agreement. The outstanding balance of the note pursuant to the Loan Agreement is included in current liabilities at June 30, 2019 and December 31, 2018 because that the Company was not in compliance with its debt covenants, including the timely payment of interest.

 

On June 30, 2017, the holder of the Loan Agreement agreed to exchange the outstanding accrued interest on the Loan Agreement for common stock in the company and agreed to lower the interest rate on the Loan Agreement to 3% annually effective July 1, 2017.

 

 

c.

On May 27, 2014 an accredited investor, who is also a stockholder in the Company, entered a loan agreement with the Company for $2,783,484. As of June 30, 2019, and December 31, 2018 the principal balance of the note was $2,783,484. The note bears interest at 9% per annum. The terms of the note require the cash payment of one half of the interest cost monthly (4.5% per annum), and the remaining half is accrued as payment in kind interest. The note and all accrued interest were due and payable in November 27, 2015. The principal and interest on the note payable is past due pursuant to its terms.

 

 

d.

On March 21, 2014 the CEO of the Company, who is also a stockholder in the Company entered a promissory note agreement whereby the CEO loaned the Company $87,000. The promissory note has an interest rate of 7% per annum. The note was to be paid in installments throughout the year ended December 31, 2014 with a portion of the repayment conditioned upon the sale of certain of the Company’s disposal wells. The principal and interest on the note payable to the CEO is past due pursuant to its terms.

 

 

e.

The Company has an installment loan with an outstanding principal balance of approximately $11,941 used to acquire property and equipment for use in the Company’s operations. The collateral for the loan was no longer in use in the Company’s operations and was returned to the lender May 2016. The reduction in principal from the surrender of the collateral was less than the total balance owed. The remaining principal balance of the loan is past due and is classified as a short-term liability.

 

On June 30, 2017, an affiliate of an accredited investor who is also a principal stockholder agreed to exchange approximately $2.0 million in accounts payable and accrued liabilities for 2,013,546 shares of common stock of the Company. The Board approved the exchange and issuance of the shares on June 30, 2017. The liabilities exchanged for common stock included the affiliates full interest in the accrued interest payable to the stockholder associated with the Loan Agreement and the Senior Loan Facility. The 2,013,546 shares of common stock were issued on August 31, 2017.

 

7.

COMMITMENTS AND CONTINGENCIES

 

 

a.

The Company leases land under long-term operating leases where seven of its disposal wells are located. These leases expire on various dates through December 31, 2034. As of January 1, 2019, the Company adopted ASC 842 requiring leases to records assets and liabilities related to leases on the balance sheet. The Company records rent on straight-line basis over the terms of the underlying lease. Rent expense for the three months ended June 30, 2019 and June 30, 2018 was $27,000.

 

Aggregate future lease liabilities under ASC 842 are as follows:

 

Years Ending

 

Disposal Well

 

December 31,

 

Leases

 

2019

 

$

53,000

 

2020

 

 

96,000

 

2021

 

 

96,000

 

2022

 

 

93,000

 

2023

 

 

84,000

 

Thereafter

 

 

804,000

 

 

 

$

1,226,000

 

 

 

 

 

b.

From time to time, the Company is a party to various legal actions arising in the ordinary course of business. The Company accrues costs and legal costs associated with these matters when they become probable and the amount can be reasonably estimated. The Company’s management does not expect any liability from the disposition of such claims and litigation individually or in the aggregate would have a material adverse impact on the Company’s consolidated financial position, results of operations and cash flows.

 

9 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

CAUTIONARY STATEMENT

 

Statements in this report which are not purely historical facts, including statements regarding the Company’s anticipations, beliefs, expectations, hopes, intentions or strategies for the future, may be forward-looking statements within the meaning of Section 21E of the Securities Act of 1934, as amended. All forward-looking statements in this report are based upon information available to us on the date of the report. Any forward-looking statements involve risks and uncertainties that could cause actual results or events to differ materially from events or results described in the forward-looking statements. Important factors with respect to any such forward-looking statements, including certain risks and uncertainties that could cause actual results to differ materially from the Company’s expectations (“Cautionary Statements”), are disclosed in the Company’s annual report on Form 10-K, including, without limitation, in conjunction with the forward-looking statements under the caption “Risk Factors.” In addition, important factors that could cause actual results to differ materially from those in the forward-looking statements included herein include, but are not limited to, limited working capital, limited access to capital, changes from anticipated levels of sales and revenues changes in the oil and gas markets especially in the oil field services markets and fluids disposal business, future national or regional economic and competitive conditions, changes in relationships with customers, difficulties in developing new business in the disposal business, difficulties integrating any new businesses or products acquired, replacing the lost customer revenue, regulatory change, the ability of the Company to meet its stated business goals, the Company’s restructuring initiatives, the Company’s ability to sustain profitability, the Company’s ability to service its debt, its ability to comply with covenants contained in its financing arrangements, the current defaults existing under the Company’s senior and subordinated credit arrangements, and general economic and business conditions. Although the Company believes the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements. We do not undertake to update any forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements.

 

10 

 

DESCRIPTION OF PROPERTIES

 

Our principal executive offices are located at 220 Travis St. Suite 501, Shreveport, Louisiana 71101.

 

The Company has three operating wells near Chico, Texas. Two of these well locations have small buildings for well monitoring and operations. We also own 7.49 acres in Harrison County, Texas on which three of our disposal wells are located, along with a small office and repair shop for the operation of these wells.

 

We are obligated under long-term leases for the use of land where seven of our disposal wells are located. Two of the leases are for extended periods. The first lease expires on February 7, 2023 (with two options to renew for an additional 10 years each). The second lease expires on December 1, 2034 with a one-year renewal option. The aggregate monthly lease payments for the disposal well leases are $9,000.

 

SIGNIFICANT ACCOUNTING POLICIES

 

A summary of significant accounting policies is included in Note 3 to the audited consolidated financial statements included on Form 10-K for the year ended December 31, 2018 as filed with the United States Securities and Exchange Commission. Management believes that the application of these policies on a consistent basis enables the Company to provide useful and reliable financial information about our operating results and financial condition.

 

The preparation of financial statements in conformity with US Generally Accepted Accounting Principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. The Company has adopted the revenue recognition requirements of ASC 606 as of January 1, 2018.

 

RESULTS OF OPERATIONS

 

For the six months ended June 30, 2019, we reported a net income of $151,020 as compared to a net loss of $495,755 for the six months ended June 30, 2018. The components of these results are explained below.

 

Revenue - Total revenue decreased by $147,174 or 25% from $585,685 for the six months ended June 30, 2018 to $438,511 for the six months ended June 30, 2019. The decrease was due lower volumes of fluids disposed in the disposal wells.

 

Expenses - The components of our costs and expenses for the six months ended June 30, 2019 and 2018 are as follows:

 

 

 

For the Six Months Ended

 

 

%

 

 

 

June 30,

 

 

June 30,

 

 

Increase

 

 

 

2019

 

 

2018

 

 

(Decrease)

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Direct operating costs

 

$

343,111

 

 

$

348,340

 

 

 

-2

%

General and administrative

 

 

136,605

 

 

 

226,557

 

 

 

-40

%

Depreciation and amortization

 

 

281,208

 

 

 

287,436

 

 

 

-2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Total cost and expenses

 

$

760,924

 

 

$

862,333

 

 

 

-12

%

 

The decrease in the volumes of saltwater and other fluids disposed caused a decrease in operating expenses for the six months ended June 30, 2019. Management has focused on reducing general and administrative expenses until disposed volumes are increased.

 

11 

 

Other (income) expenses - Interest expense for the six months ended June 30, 2019 was $218,969, compared to interest expense of $219,107 for the six months ended June 30, 2018. Other (income) expense for the six months ended June 30, 2019 included gains of $692,402 for the extinguishment of debt. These gains were due to the reduction of accounts payable with vendors through write offs of dormant accounts.

 

Operating results for the six months ended June 30, 2019 and 2018 reflect net income of $151,020 and a net loss of $495,755 respectively. We have not recorded any federal income taxes for the six months ended June 30, 2019 and 2018 because of our accumulated losses and our substantial net operating loss carry forwards.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Cash Flows and Liquidity

As of June 30, 2019, we had total current assets of $72,803. Our total current liabilities as of June 30, 2019 were approximately $10.3 million, including approximately $8.0 million of debt classified as current liabilities. We had a working capital deficit of approximately $10.3 million and $10.6 million as of June 30, 2019 and December 31, 2018.

 

Management is focused on working closely with our current lenders to fund operations through current cash flows and pay interest costs when excess cash becomes available. Management plans to work with our current lenders and debt holders to lower our cost of borrowing by renegotiating the terms of our existing debt and potentially offering debt holders an opportunity to exchange their debt for equity in the Company. Management will seek additional financing in those instances in which we believe such additional financings will assist in accomplishing our goals. There can be no assurance that management’s plan will succeed.

 

On June 30, 2017, an affiliate of an accredited investor who is also a principal stockholder agreed to exchange approximately $2.0 million in accounts payable and accrued liabilities for 2,013,546 shares of common stock of the Company. The Board approved the exchange and issuance of the shares on June 30, 2017. The liabilities exchanged for common stock included the affiliates full interest in the accrued interest payable to the stockholder associated with the Loan Agreement and the Senior Loan Facility. The 2,013,546 shares of common stock were issued on August 31, 2017.

 

Our ability to obtain access to additional capital through third parties or other debt or equity financing arrangements is strictly contingent upon our ability to locate adequate financing or equity investments on commercially reasonable terms. There can be no assurance that we will be able to obtain such financing on acceptable terms.

 

The following table summarizes our sources and uses of cash for the six months ended June 30, 2019 and 2018:

 

 

 

For the Six Months Ended

 

 

 

June 30, 2019

 

 

June 30, 2018

 

Net cash used in operating activities

 

$

(7,219

)

 

$

(41,412

)

 

 

 

 

 

 

 

 

 

Net cash provided by investing activities

 

 

 

 

 

29,413

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) financing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash

 

$

(7,219

)

 

$

(11,999

)

 

As of June 30, 2019, we had $18,939 in cash, a decrease of $7,219 from December 31, 2018 due to cash used by operations.

 

Net cash used in operating activities was $7,219 for the six months ended June 30, 2019. Net cash used by operating activities was $41,412 for the six months ended June 30, 2018.

 

Net cash provided by investing activities was $29,413 for the six months ended June 30, 2018 due to repayment of an advance from an entity owned by one of the principal shareholders of the Company. The cash advance was held in an investment account of the entity and is due on demand to the Company at any time.

 

12 

 

Capital Expenditures

The Company suspended capital expenditures during the six months ended June 30, 2019 due to the lower volumes disposed. The Company does not currently anticipate any major capital expenditures for the remainder of 2019.

 

Indebtedness

The Company and its subsidiaries entered a Term Loan, Guaranty and Security Agreement (the “Loan Agreement”) on July 23, 2012 with ICON for $5 million. The Loan Agreement has a senior secured position in the Company’s disposal wells and a subordinated position to the Senior Loan Facility on all other Company properties and assets. The covenants in the Loan Agreement are, in all material respects, the same as in the Senior Loan Facility. On December 27, 2014 an affiliate of an accredited investor who is also a stockholder purchased the note payable associated with the Loan Agreement. The accredited investor assumed the terms and conditions of the Loan Agreement. As of March 31, 2019, the Company was not in compliance with its debt covenants under the Loan Agreement and the lender had not exercised their rights under the Loan Agreement. The outstanding balance of the Loan Agreement note is included in current liabilities at June 30, 2019 and December 31, 2018 because the Company was not in compliance with its debt covenants.

 

On June 30, 2017, the holder of the Loan Agreement agreed to exchange the outstanding accrued interest on the Loan Agreement for common stock in the company and agreed to lower the interest rate on the Loan Agreement to 3% annually effective July 1, 2017.

 

On June 30, 2017, an affiliate of an accredited investor who is also a principal stockholder agreed to exchange approximately $2.0 million in accounts payable and accrued liabilities for 2,013,546 shares of common stock of the Company. The Board approved the exchange and issuance of the shares on June 30, 2017. The liabilities exchanged for common stock included the affiliates full interest in the accrued interest payable to the stockholder associated with the Loan Agreement and the Senior Loan Facility. The common stock was issued on August 31, 2017.

 

Outlook

Management may seek to acquire other profitable oilfield service companies to broaden the Company’s customer base and capabilities. Management may need to incur additional financing in those instances in which we believe such additional financings will assist in accomplishing our goals. There can be no assurance that management’s plan will succeed.

 

13 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required for smaller reporting companies.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

Our management evaluated, with the participation of our Chief Executive Officer (CEO) and Chief Accounting Officer (CAO), the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the quarter covered by this quarterly report on Form 10-Q. In making this assessment, the Company used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework .

 

A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by the Company’s internal controls.

 

The Company’s management has identified a material weakness in the effectiveness of internal control over financial reporting related to a shortage of resources in the accounting department required to assure appropriate segregation of duties with employees having appropriate accounting qualifications related to the Company’s unique industry accounting and disclosure rules. Management has outsourced certain financial functions to mitigate the material weakness in internal control over financial reporting. The Company is reviewing its finance and accounting staffing requirements.

 

Internal Control Over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. As a result, no corrective actions were required or undertaken.

 

Limitations on the Effectiveness of Controls

Our management, including the CEO, does not expect that its disclosure controls or its internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control 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 errors or mistakes. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

PART II. OTHER INFORMATION

 

Item 1. LEGAL PROCEEDINGS

 

None. 

 

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Item 3. DEFAULTS UPON SENIOR SECURITIES

 

The outstanding principal balance of the Senior Loan Facility, the Loan Agreement and the two stockholder loans are included in current liabilities at June 30, 2019 because the Company was not in compliance with the debt covenants or payment terms on the indebtedness, including the timely payment of interest and principal in accordance with the loan agreements. To date, none of the holders of the Senior Loan Facility, the Loan Agreement or the two stockholder loans have declared that the Company is in default or have otherwise sought remedies under the respective terms of these loan agreements.

 

14 

 

Item 5. OTHER INFORMATION

 

The Board of Directors and management of the Company are currently evaluating transactions that may provide the Company with an opportunity to improve its current financial condition including; (i) refinancing of all or a portion of our existing debt, (ii) the acquisition of profitable oilfield service companies that could increase the scale of our operations and improve cash flows and (iii) raising additional equity to pay down debt. There can be no assurance the Company will be successful in finding and closing any of the above options.

 

Item 6. EXHIBITS

 

 

(a)

EXHIBITS:

 

 

31.1

Certification of Chief Executive Officer and Chief Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

32.1

Certification of Chief Executive Officer/Chief Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

101

101.INS XBRL Instance Document

 

 

 

 

 

101.SCH XBRL Taxonomy Schema

 

 

 

 

 

101.CAL XBRL Taxonomy Calculation Linkbase

 

 

 

 

 

101.LAB XBRL Taxonomy Label Linkbase

 

 

 

 

 

101.PRE XBRL Taxonomy Presentation Linkbase

 

 

 

 

 

101.DEF XBRL Taxonomy Definition Linkbase

 

15 

 

SIGNATURES

 

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on August 7, 2019.

 

FRONTIER OILFIELD SERVICES, INC.

 

 

 

SIGNATURE:

/s/ Donald Ray Lawhorne

 

 

Donald Ray Lawhorne, Chief Executive Officer and
Chief Accounting Officer

 

 

16