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EX-10.2 - EXECUTIVE EMPLOYMENT AGREEMENT - FRONTIER OILFIELD SERVICES INCd329834dex102.htm
EX-10.1 - EXECUTIVE EMPLOYMENT AGREEMENT - FRONTIER OILFIELD SERVICES INCd329834dex101.htm
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER - FRONTIER OILFIELD SERVICES INCd329834dex311.htm
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER - FRONTIER OILFIELD SERVICES INCd329834dex312.htm
EX-32.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 - FRONTIER OILFIELD SERVICES INCd329834dex322.htm
EX-10.3 - EXECUTIVE EMPLOYMENT AGREEMENT - FRONTIER OILFIELD SERVICES INCd329834dex103.htm
EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 - FRONTIER OILFIELD SERVICES INCd329834dex321.htm
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-Q

 

 

(Mark one)

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

For the quarterly period ended: February 29, 2012

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.

(Formerly TBX Resources, 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)

3030 LBJ Freeway, Suite 1320   75234
(Address of principal executive offices)   (Zip Code)

(972) 234-2610

(Registrant’s telephone number, including area code)

N/A

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

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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    x  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post 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” and “smaller reporting 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   x

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

As of April 12, 2012, there were 9,278,288 shares of common stock, par value $0.01 per share, outstanding.

 

 

 


Table of Contents

FRONTIER OILFIELD SERVICES, INC.

(Formerly TBX Resources, Inc.)

Index

 

     Pg. No.  

PART I – Financial Information

  

Item 1. Financial Statements

  

Condensed Balance Sheets as of February 29, 2012 (Unaudited) and November 30, 2011

     F-1   

Condensed Statements of Operations for the Three Months Ended February 29, 2012 and February  28, 2011 (Unaudited)

     F-2   

Condensed Statements of Cash Flows for the Three Months Ended February 29, 2012 and February  28, 2011 (Unaudited)

     F-3   

Notes to Condensed Financial Statements as of February 29, 2012 (Unaudited)

     F-4   

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

     3   

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

     5   

Item 4T. Controls and Procedures

     5   

PART II – Other Information

  

Item 1. Legal Proceedings

     6   

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

     6   

Item 3. Defaults Upon Senior Securities

     6   

Item 5. Other Information

     6   

Item 6. Exhibits

     6   

SIGNATURES

     8   

 

2


Table of Contents

PART 1 — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FRONTIER OILFIELD SERVICES, INC.

(Formerly TBX Resources, Inc.)

CONDENSED BALANCE SHEETS

 

     February 29,
2012
(Unaudited)
    November 30,
2011
 

ASSETS

  

Current Assets:

    

Cash

   $ 3,767      $ 13,871   

Oil and gas revenue receivable

     1,150        4,057   

Advances receivable from affiliate

     11,200        —     
  

 

 

   

 

 

 

Total current assets

     16,117        17,928   

Office furniture and fixtures, net

     909        996   

Investments in unconsolidated affiliated company (Note 5)

     3,135,595        3,136,553   

Other

     6,211        6,211   
  

 

 

   

 

 

 

Total Assets

   $ 3,158,832      $ 3,161,688   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

  

Current Liabilities:

    

Trade accounts payable and accrued expenses

   $ 73,889      $ 66,746   

Advances payable from affiliate (Note 6)

     640,550        338,490   
  

 

 

   

 

 

 

Total current liabilities

     714,439        405,236   
  

 

 

   

 

 

 

Commitments and Contingencies (Note 9)

    

Stockholders’ Equity:

    

Preferred stock- $.01 par value; authorized 10,000,000;no shares outstanding

     —          —     

Preferred stock subscriptions

     3,150,000        3,000,000   

Common stock- $.01 par value; authorized 100,000,000 shares; 9,278,288 shares issued and outstanding at February 29, 2012, 8,853,288 shares issued and outstanding at November 30, 2011

     92,782        88,532   

Additional paid-in capital

     11,952,452        11,558,639   

Prepaid stock compensation

     (212,500     —     

Accumulated deficit

     (12,538,341     (11,890,719
  

 

 

   

 

 

 

Total stockholders’ equity

     2,444,393        2,756,452   
  

 

 

   

 

 

 

Total Liabilities and Stockholders’ Equity

   $ 3,158,832      $ 3,161,688   
  

 

 

   

 

 

 

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

 

F-1


Table of Contents

FRONTIER OILFIELD SERVICES, INC.

(Formerly TBX Resources, Inc.)

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

 

     For the Three Months Ended  
     Feb. 29, 2012     Feb. 28, 2011  

Revenues:

    

Oil and gas sales

   $ 1,609      $ 1,490   
  

 

 

   

 

 

 

Total revenues

     1,609        1,490   
  

 

 

   

 

 

 

Expenses:

    

Lease operating and taxes

     1,524        372   

General and administrative

     496,662        36,773   

Depreciation

     87        —     

Loss on forfeiture of oil and gas properties

     —          16,089   
  

 

 

   

 

 

 

Total expenses

     498,273        53,234   
  

 

 

   

 

 

 

Operating Loss

     (496,664     (51,744

Other Expense:

    

Equity in loss of unconsolidated affiliated company

     150,958        —     
  

 

 

   

 

 

 

Loss Before Provision for Income Taxes

     (647,622     (51,744

Provision for income taxes

     —          —     
  

 

 

   

 

 

 

Net Loss

   $ (647,622   $ (51,744
  

 

 

   

 

 

 

Net Loss per Common Share, Basic and Diluted

   $ (0.07   $ (0.01
  

 

 

   

 

 

 

Weighted average common shares used in calculations:

    

Basic and Diluted

     9,232,318        4,027,442   
  

 

 

   

 

 

 

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

 

F-2


Table of Contents

FRONTIER OILFIELD SERVICES, INC.

(Formerly TBX Resources, Inc.)

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

 

     For the Three Months Ended  
     Feb. 29, 2012     Feb. 28, 2011  

Cash Flows From Operating Activities:

    

Net loss

   $ (647,622   $ (51,744

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

    

Depreciation

     87        —     

Issuance of common stock for services

     185,563        —     

Equity in loss of unconsolidated affiliated company

     150,958        —     

Allocated and direct expenses to affiliates

     (58,440     —     

Loss on forfeiture of oil and gas properties

     —          16,089   

Changes in operating assets and liabilities other than advances from affiliates:

    

Decrease (increase) in operating assets:

    

Oil and gas revenue receivable

     2,907        (1,117

Advances receivable

     (11,200     —     

Inventory

     —          8,300   

Increase (decrease) in operating liabilities:

    

Trade accounts payable and accrued expenses

     7,143        4,972   

Deferred revenue

     —          (8,300
  

 

 

   

 

 

 

Net cash used in operating activities

     (370,604     (31,800
  

 

 

   

 

 

 

Cash Flows From Investing Activities

     —          —     
  

 

 

   

 

 

 

Cash Flows From Financing Activities:

    

Proceeds from preferred stock subscriptions

     3,000        —     

Advances from affiliates

     357,500        31,576   
  

 

 

   

 

 

 

Net cash provided by financing activities

     360,500        31,576   
  

 

 

   

 

 

 

Net Decrease In Cash

     (10,104     (224

Cash at beginning of period

     13,871        665   
  

 

 

   

 

 

 

Cash at end of period

   $ 3,767      $ 441   
  

 

 

   

 

 

 

Supplemental Schedule of Non-Cash Investing and Financing Activities:

    

Direct deposit of receipts from preferred stock subscriptions used to purchase additional interest in unconsolidated affiliated company

   $ 147,000      $ —     
  

 

 

   

 

 

 

Purchase of additional interest in unconsolidated affiliated company exchanged for advances payable

   $ 3,000      $ —     
  

 

 

   

 

 

 

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

 

F-3


Table of Contents

FRONTIER OILFIELD SERVICES, INC.

(Formerly TBX Resources, Inc.)

NOTES TO CONDENSED FINANCIAL STATEMENTS

February 29, 2012

(Unaudited)

1. BASIS OF PRESENTATION:

The condensed financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been omitted. However, in the opinion of management, all adjustments (which include only normal recurring accruals) 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 November 30, 2011 (including the notes thereto) set forth in Form 10-K.

2. BUSINESS ACTIVITIES:

Frontier Oilfield Services, Inc. (formerly TBX Resources, Inc.), a Texas corporation (“Frontier” or the “Company”), was organized on March 24, 1995. The Company’s principal historical business activity has been acquiring and developing oil and gas properties. However, during fiscal year 2004, the Company began providing contract services to an affiliate, Gulftex Operating, Inc. The services continued to August 31, 2006 when the agreement was terminated by mutual agreement. In the past, the Company’s philosophy was to locate properties with the opportunity of reworking existing wells and/or drilling development wells to make a profit. In addition, the Company has sponsored and/or managed joint venture development partnerships for the purpose of developing oil and gas properties for profit. Management has recently initiated changes to the Company’s business plan. Currently, the primary focus is to secure additional capital through business alliances with third parties or other debt/equity financing arrangements to acquire companies and/or assets which will allow the Company to further operate in the oil field services industry with an emphasis on acquiring companies involved in salt water and drilling fluid disposal. Secondarily Frontier will continue to seek out and acquire producing oil and gas leases and wells.

The Company has a minor overriding interest in 2 producing gas wells in Parker County, Texas and 7 producing gas wells in Denton County, Texas.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Revenue Recognition

Oil and gas revenue is recorded when production is sold. The Company accrues revenue for oil and gas production sold but not paid. See Receivables below.

Equity Method of Accounting

The Company uses the equity method of accounting for its 36.10 % ownership in Frontier Income and Growth, LLC (FIG). Under the equity method of accounting the initial investment is recorded at cost with subsequent earnings recorded as increases to the investment account and losses recorded as decreases to the investment account.

Concentration of Credit Risk

During the three months ended February 29, 2012 the Company received advances from FIG totaling $360,500. There were no advances from FIG for the three months ended February 28, 2011.

 

F-4


Table of Contents

Oil and Gas Revenue Receivable

Receivables consist of accrued oil and gas receivables due from either purchasers of oil and gas or operators in oil and natural gas wells for which the Company owns an interest. Oil and natural gas sales are generally unsecured and such amounts are generally due within 30 days after the month of sale.

Property and Equipment

Property and equipment are stated at the Company’s cost and are depreciated on a straight-line basis over three to five years. Maintenance and repair costs are expensed when incurred, while major improvements are capitalized.

Property and equipment consist of the following:

 

      Feb. 29,
2012
    Feb. 28,
2011
 

Office furniture and fixtures

   $ 46,055      $ 46,055   

Accumulated depreciation and amortization

     (45,146     (45,059
  

 

 

   

 

 

 
   $ 909      $ 996   
  

 

 

   

 

 

 

Equity Instruments Issued for Goods and Services

The Company measures the cost of employee services received in exchange for an award of equity instruments based on the fair value of the award on the grant date. That cost is recognized in the financial statements over the period during which the employee is required to provide services in exchange for the award with a corresponding increase in additional paid-in capital.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Income tax expense is the tax payable for the year plus or minus the change during the period in deferred tax assets and liabilities.

Earnings Per Share (EPS)

Basic earnings per common share is calculated by dividing net income or loss by the weighted average number of shares outstanding during the year. Diluted earnings per common share is calculated by adjusting outstanding shares, assuming conversion of all potentially dilutive stock options. The computation of diluted EPS does not assume conversion, exercise, or contingent issuance of shares that would have an antidilutive effect on earnings per common share. Antidilution results from an increase in earnings per share or reduction in loss per share from the inclusion of potentially dilutive shares in EPS calculations.

Use of Estimates

The preparation of financial statements in conformity with 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. Significant estimates include: estimates of proved reserves as key components of the Company’s depletion rate for oil properties; accruals of operating costs; estimates of production revenues; and calculating asset retirement obligations. Because there are numerous uncertainties inherent in the estimation process, actual results could differ materially from these estimates.

 

F-5


Table of Contents

Fair Value Measurements

The Company adopted fair value accounting for certain financial assets and liabilities that have been evaluated at least annually. The standard defines fair value as the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Management has determined that it will not, at this time, adopt fair value accounting for nonfinancial assets or liabilities currently recorded in the financial statements, which includes property and equipment, investments carried at cost, deposits and other assets. Impairment analyses will be made of all assets using fair value measurements.

Assets and liabilities measured at fair value are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, defined by generally accepted accounting principles and directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:

 

Level 1    Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.
Level 2    Inputs to the valuation methodology include:
  

-   quoted prices for similar assets or liabilities in active markets;

  

-   quoted prices for identical or similar assets or liabilities in inactive markets;

  

-   inputs other than quoted prices that are observable for the asset of liability;

  

-   inputs that are derived principally from or corroborated by observable market data by correlation or other means.

   If the asset or liability has specified (contractual) term, the Level 2 impute must be observable for substantially the full term of the asset or liability.
Level 3    Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

Cash, receivable and payable amounts, accrued expenses and other current liabilities are carried at book value amounts which approximate fair value due to the short-term maturity of these instruments.

4. RECENT ACCOUNTING PRONOUNCEMENTS:

During the three months ended February 29, 2012 and the year ended November 30, 2011, there were several new accounting pronouncements issued by the FASB. Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s financial position or operating results. The Company will monitor these emerging issues to assess any potential future impact on its financial statements.

5. INVESTMENT IN UNCONSOLIDATED AFFILIATED COMPANY:

As of February 29, 2012 the Company’s investments in Frontier Income and Growth, LLC (“FIG”) totaled $3,135,595. The investments reflect a $284,900 net profits interest and a $2,850,695 equity interest. The Company’s share of FIG’s losses totaled $150,958 for the current quarter. The Company’s equity interest and net profits interest in FIG at February 29, 2012 was 36.10 % and 52.10%, respectively.

Below is summarized financial information for FIG and subsidiary.

 

F-6


Table of Contents

FRONTIER INCOME AND GROWTH, LLC AND SUBSIDIARY

Summary Consolidated Balance Sheet

February 29. 2012

(Unaudited)

 

Assets

  

Current assets

   $ 2,410,419   

Property and equipment, less accum. depreciation of $1,386,940

     5,655,372   

Other assets

     144,052   
  

 

 

 

Total Assets

   $ 8,209,843   
  

 

 

 

Liabilities and Members’ Capital

  

Current liabilities

   $ 2,315,008   

Long-term liabilities

     942,305   

Members’ capital

     4,952,530   
  

 

 

 

Total Liabilities and Members’ Capital

   $ 8,209,843   
  

 

 

 

FRONTIER INCOME AND GROWTH, LLC AND SUBSIDIARY

Summary Consolidated Statement of Operations

For the Three Months Ended February 29, 2012

(Unaudited)

 

Revenue

   $ 2,208,175   

Cost of revenue

     2,022,454   

Operating expenses

     250,492   

Depreciation

     286,888   
  

 

 

 

Loss from operations

     (351,659

Other Expenses

     71,903   
  

 

 

 

Net Loss

   $ (423,562
  

 

 

 

6. RELATED PARTY TRANSACTIONS:

The Company conducts substantial transactions with Frontier Income and Growth, LLC (FIG) and Gulftex Oil & Gas, LLC (Gulftex). These related party transactions have a significant impact on the financial condition and operations of the Company. If these transactions were conducted with third parties, the financial condition and operations of the Company could be materially different from reported results.

 

  a. On September 2, 2011 the Company entered into an Investment Agreement with LoneStar Income and Growth, LLC (LoneStar) (see Note 9). Under the Agreement Frontier is required to use the funds it receives form the sales of its preferred shares for the acquisition of 51% of FIG’s membership units first and for other corporate purposes secondly. As of February 29, 2012 the Company’s purchased a 36.10% equity interest in FIG with the $3,150,000 investment received from LoneStar. The Company retained $393,000 of the LoneStar investment that was recorded as an advance from FIG.

 

  b. The Company’s president, Tim Burroughs, formerly held an interest in 25% of the profits of FIG through his one half ownership of Frontier Asset Management, LLC (“FAM”) which has a contractual agreement with FIG for its management services. Once the investors in FIG have been repaid 125% of their initial investment by FIG, FAM’S share of the profit will increase to 50%. The Company, in a letter agreement executed on September 2, 2011, acquired FAM’s contractual interest in the profits of FIG for the issuance of 4,070,000 common shares to FAM. Given Frontier’s share price of $0.07 per share, as of August 31, 2011, the transaction was valued at an estimated $284,900.

 

F-7


Table of Contents
  c. During the three months ended February 29, 2012 the Company received advances from FIG totaling $357,500. Advances from FIG are offset by allocated and direct expenses paid by the Company (see Note 6d below). The balance due FIG as of February 29, 2012 is $640,550. During the three months ended February 28, 2011 the Company received advances from Gulftex totaling $31,576.

 

  d. On September 1, 2011 the Company entered into a service agreement with FIG. Under the agreement Frontier is charging FIG for a portion of administrative services and rent. For the three months ended February 29, 2012 the Company billed $35,040 for these services that is recorded as an offset to general and administrative expense. In addition the Company paid consulting fees billable to FIG totaling $23,400 in the current quarter that was also recorded as an offset to general and administrative expense. The total of these billings are used to reduce the advances payable from FIG (see Note 6c above).

 

  e. During the current quarter the Company advanced Gultex $11,200. The Company previously charged Gulftex rent for a portion of the Company’s office space plus administrative expenses paid by the Company that related to Gulftex’s operations. The Company billed Gulftex for administrative expenses totaling $13,352 for the three months ended February 28, 2011. The Agreement was terminated on August 31, 2011.

7. STOCK BASED COMPENSATION:

 

  a. The Company executed a new Employment Agreement effective December 1, 2011 with its President Mr. Tim Burroughs for one year. Thereafter, the Agreement will automatically renew for successive one (1) year terms unless terminated as provided for in the Employment Agreement. Among other items, the Agreement provides that Mr. Burroughs has the contractual right to the issuance of certain common stock of the Company upon achieving certain goals; 100,000 shares of the Company’s common stock will be set aside for distribution to Mr. Burroughs on a per annual basis (25,000 shares per quarter) beginning 90 days from the date of the employment agreement (25,000 common shares to be issued each quarter). The Company recorded compensation expense of $23,250 with an offsetting credit to stockholders’ equity in the current quarter. In addition Mr. Burroughs will receive the following annual stock grant and options.

 

  i. Grant: Mr. Burroughs shall annually receive 5,000 common shares of the Company common stock times his number of years completed service to the Company to a maximum of 100,000 shares. The Company recorded compensation expense of $16,788 with an offsetting credit to stockholders’ equity in the current quarter.

 

  ii. Option: Mr. Burroughs shall receive the right to purchase up to 15,000 shares of the Company’s common stock per calendar quarter at an exercise price equal to the ending bid price of the last market day prior to the date of the option award. The option exercise period for each option will be up to two years from its date of issuance, at which time the option will expire. In the event of a change in ownership, all unexercised options will be accelerated to the current monthly period. The Company recorded compensation expense of $7,050 with an offsetting credit to stockholders’ equity in the current quarter.

 

  b. The Company executed a new Employment Agreement effective December 1, 2011 with its Executive Vice President Mr. Bernard Richard O’Donnell for one year. Thereafter, the Agreement shall automatically renew for successive one (1) year terms unless terminated as provided for in the Employment Agreement. Among other items, the Agreement provides that Mr. O’Donnell has the contractual right to the issuance of certain common stock of the Company upon achieving certain goals; 100,000 shares of the Company’s common stock will be set aside for distribution to Mr. O’Donnell on a per annual basis (25,000 shares per quarter) beginning 90 days from the date of the employment agreement (25,000 common shares to be issued each quarter). The Company recorded compensation expense of $23,250 with an offsetting credit to stockholders’ equity in the current quarter. In addition Mr. O’Donnell will receive the following annual stock grant and options.

 

F-8


Table of Contents
  i. Grant: Mr. O’Donnell shall annually receive 5,000 common shares of the Company common stock times his number of years completed service to the Company to a maximum of 100,000 shares. The Company recorded compensation expense of $5,925 with an offsetting credit to stockholders’ equity in the current quarter.

 

  ii. Options: Mr. O’Donnell shall receive the right to purchase up to 15,000 shares of the Company’s common stock per calendar quarter at an exercise price equal to the ending bid price of the last market day prior to the date of the option award. The option exercise period for each option will be up to two years from its date of issuance, at which time the option will expire. In the event of a change in ownership, all unexercised options will be accelerated to the current monthly period. The Company recorded compensation expense of $7,050 with an offsetting credit to stockholders’ equity in the current quarter.

 

  d. The Company executed an Employment Agreement effective January 1, 2012 with its Vice President and the Chief Financial Officer Mr. Kenneth K. Conte for one year. Thereafter, the agreement shall automatically renew for successive one (1) year terms unless terminated as provided for in the Employment Agreement. Among other items, the Agreement provides that Mr. Conte has the contractual right to the issuance of certain common stock of the Company upon achieving certain goals; 100,000 shares of the Company’s common stock will be set aside for distribution to Mr. Conte on a per annual basis (25,000 shares per quarter) beginning 90 days from the date of the employment agreement (25,000 common shares to be issued each quarter). In addition Mr. Conte received a grant of 300,000 common shares as a sign on bonus for his services as Chief Financial Officer of the Company. However the granted shares will not be vested in Mr. Conte until such time as he has been continuously employed by the Company for a period of one year from the date of the Agreement. The value of the sign on bonus shares was $255,000 of which $42,500 was recorded as compensation expense in the current quarter with the balance of $212,500 for prepaid compensation recorded as a charge to stockholders’ equity. The offsetting credit for the sign on bonus was to stockholders’ equity. The prepaid portion of the equity award is to be amortized over the remaining ten months of the vesting period.

 

  e. Each Director, except for Mr. O’Donnell, is awarded 25,000 shares of the Company’s common stock per calendar quarter (issued at the beginning of each quarter). The Company recorded compensation expense of $42,500 with an offsetting credit to stockholders’ equity in the current quarter.

 

  f. The Company executed a contract on January 12, 2012 for consulting and marketing services. Under the terms of the contract a portion of the fees to be paid are in the form of the Company’s common stock. The Company recorded professional fees of $17,250 with an offsetting credit to stockholders’ equity in the current quarter.

A summary of the status of the Company’s option grants as of February 29, 2012 and the changes during the period then ended is presented below:

 

      Shares      Weighted-Average
Exercise Price
 

Outstanding December 1, 2011

     —           —     

Granted

     30,000       $ 0.70   

Exercised

     —         $ 0.70   
  

 

 

    

 

 

 

Outstanding February 29, 2012

     30,000       $ 0.70   
  

 

 

    

 

 

 

Options exercisable at February 29, 2012

     30,000       $ 0.70   
  

 

 

    

 

 

 

 

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The weighted average fair value at date of grant for options during three month period ended February 29, 2012 was estimated using the Black-Scholes option valuation model with the following:

 

Average expected life in years

     2   

Average risk-free interest rate

     2.00

Average volatility

     75

Dividend yield

     0

A summary of the status of the Company’s vested and nonvested option grants at February 29, 2012 and the weighted average grant date fair value is presented below:

 

      Shares      Weighted Average
Grant Date

Fair Value per Share
     Weighted Average
Grant Date

Fair Value
 

Vested

     30,000       $ .47       $ 14,100   

Nonvested

     —           —           —     
  

 

 

    

 

 

    

 

 

 

Total

     30,000       $ .47       $ 14,100   
  

 

 

    

 

 

    

 

 

 

The status of the Company’s nonvested stock grant at February 29, 2012 and the grant date value is presented below:

 

      Shares      Grant Date
Value per Share
     Grant Date
Value
 

Nonvested

     300,000       $ .85       $ 252,000   

Forfeited

     —           —           —     
  

 

 

    

 

 

    

 

 

 

Total

     300,000       $ .85       $ 252,000   
  

 

 

    

 

 

    

 

 

 

As of February 29, 2012, the Company’s unrecognized compensation expense related to the nonrested stock grant was $212,500.

8. FORFEITURE OF OIL AND GAS INTERESTS:

The Company was notified in the first quarter of 2011 that it had forfeited its interest in the Johnson #1-H and Johnson #2-H Joint Ventures effective September 7, 2010 for not paying a Special Assessment of $43,008 for estimated workover expenses. If the Company had known of the Special Assessment cash call it would have declined to participate because there was no assurance that the rework would be successful in increasing production to recoup the Special Assessment amount and extend the life of the wells. In addition, the Company no longer is obligated to pay the plug and abandonment costs for these wells.

As a result of the forfeiture the Company wrote-off the book value of the wells, asset retirement obligations, receivables and payables which resulted in a loss of $16,089 in the first quarter of 2011.

9. COMMITMENTS AND CONTINGENCIES:

 

  a. The Company is obligated for $146,549 under an operating lease agreement for rent of its office space in Dallas, Texas. The term of the lease is from March 1, 2011 through May 31, 2014. The average monthly base lease payment over the remaining term of the lease is approximately $5,428. The base lease payment for the current fiscal year is $31,198. Following is a schedule of base lease payments by year:

 

Year

   Amount  

2012

   $ 47,823   

2013

     65,475   

2014

     33,251   
  

 

 

 
   $ 146,549   
  

 

 

 

Rent expense for first quarter of 2012 and 2011 was $9,772 and $16,990, respectively.

 

  b.

The Company entered into two material contracts in September of 2011. On September 2, 2011 the Company entered into an Investment Agreement with LoneStar, a Texas limited liability company, an unrelated third party. The Investment Agreement provides that LoneStar will acquire up to 2,750,000 shares of Frontier’s 2011 Series A 8% Preferred Stock (the “Stock”) for the sum of

 

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  $5,500,000 contingent upon Frontier using the proceeds of the Stock to acquire a majority 51% membership interest in Frontier Income and Growth, LLC (“FIG”), a salt water transportation and disposal company. The Stock has the following attributes in its designation filed with the Texas Secretary of State:

 

  1. Frontier will pay an annual dividend of eight percent (8%) on the principal value ($2.00) of each share.

 

  2. Beginning twelve (12) months from the date of issuance, each share of preferred stock is convertible at the request of either the stockholder or Frontier into two (2) shares of common stock of Frontier and two (2) warrants that will allow the holder to acquire one additional share of Frontier common stock for each warrant at the purchase price of $3.50 per share. The warrants may be exercised in whole or in part at any time within three (3) years from the issue date of the warrant.

As of February 29, 2012 LoneStar tendered the sum of $3,150,000 to purchase 1,575,000 shares of the Stock. As of the date of this report, the shares have not been issued.

On September 1, 2011 Frontier entered into a Subscription Agreement with FIG to acquire a majority 51% membership interest in FIG for the sum of $5,046,000.

10. INCOME TAXES:

The Company computes income taxes using the asset and liability approach. The Company currently has no issue that creates timing differences that would mandate deferred tax expense. Due to the uncertainty as to the utilization of net operating loss carryforwards, an evaluation allowance has been made to the extent of any tax benefit that net operating losses may generate. No provision for income taxes has been recorded for the three months ended February 29, 2012 and February 28, 2011 due to the Company’s net operating losses.

 

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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. Readers are cautioned not to place undue reliance on these forward-looking statements.

DESCRIPTION OF PROPERTIES

GENERAL: We currently have royalty interests in Denton and Wise Counties, Texas.

PROPERTIES

The following is a breakdown of our properties by field as of February 29, 201:

 

Name of Field or Well

   Gross
Producing
Well Count
     Net
Producing
Well Count
 

Newark East, Override Interest

     9         0.04   

PRODUCTIVE WELLS AND ACREAGE:

The following is a breakdown of our productive wells and acreage as of February 28, 2011:

 

Geographic Area

   Total Gross
Oil Wells
     Net
Productive
Oil Wells
     Total Gross
Gas Wells
     Net
Productive
Gas Wells
     Total
Gross
Developed
Acres
     Total Net
Developed
Acres
 

Wise County

     —           —           2         0.0360         224         8.06   

Denton County

     —           —           7         0.0360         566         20.38   

Notes:

 

1. Total Gross Wells are those wells in which the Company holds an overriding interest in as of February 29, 2012.

 

2. Net Productive Wells was calculated by multiplying the overriding interest held by the Company in each of the 9 Gross Wells and adding the resulting products.

 

3. Total Gross Developed Acres is equal to the total surface acres of the properties in which the Company holds an overriding interest.

 

4. Net Developed Acres is equal to the Total Gross Developed Acres multiplied by the percentage of the total overriding interest held by the Company in the respective properties.

 

5. All acreage in which we hold an overriding interest as of February 29, 2012 have or had existing wells located thereon; thus all acreage may be accurately classified as developed.

OIL AND GAS PARTNERSHIP INTERESTS

We currently own a 0.4% overriding interest in the Grasslands L. P. We did not acquire any additional partnership interests in the current quarter.

 

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CRITICAL ACCOUNTING POLICIES

A summary of significant accounting policies is included in Note 2 to the audited financial statements included on Form 10-K for the year ended November 30, 2011 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 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.

RESULTS OF OPERATIONS

For the quarter ended February 29, 2012 we had a net loss of $647,622 as compared to a net loss of $51,744 for the same quarter last year. The components of these results are explained in the following revenue and expenses explanations.

Revenue- Total revenue increased $119, 8.0%, from $1,490 for the three months ended February 28, 2011 to $1,609 for the three months ended February 29, 2012.

The increase in revenue is primarily attributable to an increase in production.

Expenses- The components of our expenses for the first quarter ended February 29, 2012 and February 28, 2011 are as follows:

 

      2012      2011      %
Increase
(Decrease)
 

Lease operating and taxes

     1,524         372         309.68

General and administrative

     496,662         36,773         1250.62

Depreciation, depletion, amortization., & accretion

     87         —           —     

Loss on forfeiture of oil and gas properties

     —           16,089         —     
  

 

 

    

 

 

    

 

 

 

Total expenses

   $ 498,273       $ 53,234         866.23
  

 

 

    

 

 

    

 

 

 

Lease operating expenses increased $1,152 which is primarily attributable to additional charges for compression and marketing fees.

General and administrative expenses increased $459,889. The increase is attributable to higher salaries and benefits of $128,815, stock compensation expense of $168,313, legal and professional fees of $170,513 offset by a decrease in all other expenses totaling $7,752.

Depreciation for the current quarter is $87. There is no deprecation charge in the first quarter of the previous fiscal year.

Loss on the forfeiture of the Johnson #1-H and Johnson a#2-H Joint Ventures totaled $16,089 in the first quarter of the previous fiscal year. There is no comparable loss in the current fiscal quarter.

Other expense of $150,958 in the current fiscal year consists of the Company’s unrealized loss on its equity investment in Frontier Income and Growth, LLC. Other expense for the previous fiscal year was $0.

We have not recorded any income taxes for the three months ended February 29, 2012and February 28, 2011 because of our continued operating losses. Also, since there is continued uncertainty as to the realization of a tax asset, we have not recorded any tax benefit.

 

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LIQUIDITY AND CAPITAL RESOURCES

As of February 29, 2012, we had total assets of $3,158,832 of which investments in our unconsolidated affiliated company amounted to $3,135,595 or 96.2% of the total. Our revenues for the current fiscal quarter totaled $1,609 while the revenues for the same quarter last year totaled $1,490. Our accumulated losses as of February 29, 2012 totaled $12,538,341. The Company had a cash balance of $3,767 as of February 29, 2012. Our current ratio at February 29, 2012 was .02:1 As of February 29, 2012 our stockholders’ equity was $244,393. Our cash used in operations totaled $370,604 for the current quarter while cash used in operations totaled $31,800 for the quarter ended February 28, 2011. This represents an increase of $338,804 in cash used in operating activities. There were no cash flows from investment activities for the current quarter of this year and last year. Cash flows from financing activities for the current quarter consisted of the sale of preferred stock subscriptions totaling $3,000 and advances from FIG totaling $357,500. During the same period last year, we received advances from Gulftex totaling $31,576.

PLAN OF OPERATION FOR THE FUTURE

We have funded operations from cash generated from the sale of preferred stock, revenue from oil and gas sales, partial recovery of a previous loss and loans/advances from affiliates. We expect that the principal source of funds in the near future will be from the sale of preferred stock, oil and gas revenues and advances from an affiliate. Management’s plan is to seek additional equity and/or debt financing. Any such additional funding will be done on an “as needed” basis and will only be done in those instances in which we believe such additional expenditures will increase our profitability. However, actual results may differ from management’s plan and the amount may be material.

In the past we have primarily acquired producing oil and gas properties with opportunities for future development and contracted well operations to contractors. Currently, our primary focus is to secure additional capital through business alliances with third parties or other debt/equity financing arrangements to acquire oil field service companies and/or assets.

Our ability to secure additional capital through business alliances with third parties or other debt/equity financing arrangements to acquire companies and/or assets which will allow the Company to further operate in the oil field services industry is strictly contingent upon our ability to locate adequate financing or equity to pay for these additional companies and/or assets. There can be no assurance that we will be able to obtain the opportunity to buy companies and/or assets that are suitable for our investment or that we may be able to obtain financing or equity to pay for the costs of these additional companies and/or assets at terms that are acceptable to us. Additionally, if economic conditions justify the same, we may hire additional employees although we do not currently have any definite plans to make additional hires.

The oil and gas industry is subject to various trends including the availability of capital for drilling new wells, prices received for crude oil and natural gas, sources of crude oil outside our area of operations, interest rates, and the overall health of the economy. We are not aware of any specific trends that are unusual to our company, as compared to the rest of the oil and gas industry.

ITEM 3. QUANTITATIVE AND QUALATIVE DISCLOSURES ABOUT MARKET RISK.

Not required for smaller reporting companies.

ITEM 4T. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management evaluated, with the participation of our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), 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. Based on this evaluation, management has concluded that, as of February 29, 2012 our disclosure controls and procedures were effective to ensure that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported.

 

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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 and CFO, 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 OFEQUITY SECURITIES AND USE OF PROCEEDS

None.

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

Item 5. OTHER INFORMATION

On April 12, 2012 our Board of Directors approved employment contracts for three executives; Timothy Burroughs, CEO and President, Kenneth Conte, Chief Financial Officer and Bernard R. O’Donnell, Executive Vice President. The contracts for Burroughs and O’Donnell were made effective as of December 1, 2011 and the contract for Conte was made effective January  1, 2012. A conformed copy of each of the employment agreements is attached to this Form as Exhibits 10.1 through 10.3.

Item 6. EXHIBITS

(a) EXHIBITS:

 

     Description
10.1    Employment agreement between the corporation and Timothy Burroughs, President
10.2    Employment agreement between the corporation and Kenneth Conte, Chief Financial Officer
10.3    Employment agreement between the corporation and Bernard R. O’Donnell Executive Vice President

 

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31.1    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2    Certification of Chief Financial 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 pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2    Certification of Chief Financial 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

(b) REPORTS ON FORM 8-K:

      None

 

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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 the 16th day of April, 2012

 

FRONTIER OILFIELD SERVICES, INC.
SIGNATURE:   /s/ Tim Burroughs
 

Tim Burroughs, President and

Chief Executive Officer

In accordance with the Exchange Act, this report has been signed by the following persons on behalf of the registrant and in the capacities indicated, on the 16th day of April, 2012.

 

Signatures    Capacity

/s/ Tim Burroughs

   President and Chief Executive Officer

/s/ Kenneth K. Conte

   Chief Financial Officer

/s/ Bernard R. O’Donnell

   Executive Vice President, Director

/s/ Daniel R. Robinson

   Director

/s/ Donald Ray Lawhorne

   Director

 

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