TRICCAR INC. - FORM 10-Q - November 15, 2016

Attached files

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EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER/CHIEF ACCOUNTING OFFICER - TRICCAR INC.	ex32-1.htm
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF ACCOUNTING OFFICER - TRICCAR INC.	ex31-1.htm

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: September 30, 2016

☐

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) 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 ☐ 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	☒

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 November 15, 2016, there were 11,855,276 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 September 30, 2016 and December 31, 2015 (Unaudited)		3
Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2016 and 2015 (Unaudited)		4
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2016 and 2015 (Unaudited)		5
Notes to Consolidated Financial Statements as of September 30, 2016 (Unaudited)		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		9
Item 3. Quantitative and Qualitative Disclosures about Market Risk		13
Item 4. Controls and Procedures		13

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		14
Item 6. Exhibits		14

SIGNATURES		15

PART 1 — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FRONTIER OILFIELD SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


	September 30, 2016			December 31, 2015

ASSETS
Current Assets:
Cash	$	6,476		$	22,400
Restricted cash		—			77,614
Accounts receivable, net		111,300			210,346
Inventory		—			947
Advance to shareholder		132,190			348,037
Total current assets		249,966			659,344

Property and equipment, at cost		8,481,948			9,170,379
Less: accumulated depreciation		(4,077,367	)		(3,894,475	)
Property and equipment, net		4,404,581			5,275,904

Intangibles, net		426,829			481,707
Deposits		27,302			27,302
Total other assets		454,131			509,009
Total Assets	$	5,108,678		$	6,444,257

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities:
Current maturities of long-term debt, primarily stockholders, net of deferred loan fees	$	7,728,456		$	8,201,992
Accounts payable		2,554,638			2,718,209
Accrued liabilities		2,041,012			1,534,609
Total current liabilities		12,324,106			12,454,810
Long-term debt, less current maturities		—			60,273
Total Liabilities		12,324,106			12,515,083
Commitments and Contingencies (Note 7)
Stockholders’ Deficit:
Common stock- $.01 par value; authorized 100,000,000 shares;
11,855,276 and 11,537,276 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively		118,553			115,373
Additional paid-in capital		32,925,243			32,692,723
Accumulated deficit		(40,259,224	)		(38,878,922	)
Total stockholders’ deficit		(7,215,428	)		(6,070,826	)
Total Liabilities and Stockholders’ Deficit	$	5,108,678		$	6,444,257

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

FRONTIER OILFIELD SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	For the Three Months Ended						For the Nine Months Ended
	September 30, 2016			September 30, 2015			September 30, 2016			September 30, 2015

Revenue, net of discounts	$	284,345		$	235,393		$	1,004,162		$	3,512,681
Costs and expenses:
Direct operating costs		181,060			320,169			578,657			2,121,625
Indirect operating costs		65,514			223,807			283,803			766,656
General and administrative		71,733			185,105			431,396			512,780
Depreciation and amortization		115,322			581,551			345,965			1,773,731
Write off of obsolete inventory		—			—			—			155,735
Loss on impairment of property and equipment		—			3,443,500			—			5,603,346
Total costs and expenses		433,629			4,754,132			1,639,821			10,933,873
Operating loss		(149,284	)		(4,518,739	)		(635,659	)		(7,421,192	)
Other (income) expense:
Interest expense		272,887			320,090			842,658			975,980
Gain on disposal of property and equipment		(57,511	)		(497,486	)		(102,931	)		(489,749	)
(Gain) loss on extinguishment of debt		—			851,492			—			(2,562,470	)
Loss before provision for income taxes		(364,660	)		(5,192,835	)		(1,375,386	)		(5,344,953	)
Provision for state income taxes		4,026			1,298			4,916			1,298
Net loss	$	(368,686	)	$	(5,194,133	)	$	(1,380,302	)	$	(5,346,251	)

Net loss per common share - basic:	$	(0.03	)	$	(0.45	)	$	(0.12	)	$	(0.68	)
Net loss per common share - diluted:	$	(0.03	)	$	(0.45	)	$	(0.12	)	$	(0.68	)

Weighted Average Common Shares Outstanding:
Basic and Diluted		11,864,962			11,537,277			11,724,327			7,951,759
Diluted		11,864,962			11,537,277			11,724,327			7,951,759

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

FRONTIER OILFIELD SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	For the Nine Months Ended
	September 30, 2016			September 30, 2015
Cash Flows From Operating Activities:
Net loss	$	(1,380,302	)	$	(5,346,251	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		345,965			1,773,731
Write off of obsolete inventory		—			155,735
Loss on impairment of property and equipment		—			5,603,346
Gain on extinguishment of debt		—			(2,562,470	)
Gain on disposal of property and equipment		—			(489,749	)
Amortization of capitalized loan fees		150,657			189,255
Stock compensation		29,700
Changes in operating assets and liabilities:
Decrease in operating assets:
Accounts receivable		99,046			894,241
Other receivable		—			51,103
Inventory		947			—
Deposits		—			5,000
Increase (decrease) in operating liabilities:
Accounts payable		(163,571	)		(694,698	)
Accrued liabilities		712,403			773,409
Net cash provided by (used in) operating activities		(205,155	)		352,652

Cash Flows From Investing Activities:
Repayment of advance to shareholder		215,847			—
Proceeds from disposition of CD		77,614			—
Proceeds from sale of property and equipment		—			1,400
Net cash provided by investing activities		293,461			1,400

Cash Flows From Financing Activities:
Payments on debt		(104,230	)		(45,430	)
Net cash provided by (used in) financing activities		(104,230	)		(45,430	)

Net increase in cash		(15,924	)		308,622
Cash at beginning of the period		22,400			114,698
Cash at end of the period	$	6,476		$	423,320

Supplemental Cash Flow Disclosures
Interest paid	$	15,845		$	138,975
Taxes paid	$	4,916		$	—

Supplemental Schedule of Non-Cash Investing and Financing Activities
Conversion of preferred stock and cumulative dividend payable into common stock	$	—		$	172,054
Cumulative dividend payable recorded in accrued liabilities	$	—		$	48,990
Settlement of accrued liabilities through stock issuance	$	206,000		$	—
Proceeds from disposal of property and equipment paid directly to lender	$	—		$	1,171,501

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

FRONTIER OILFIELD SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2016

(Unaudited)

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, 2015 (including the notes thereto) set forth in Form 10-K.

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 nine disposal wells in Texas, six within the Barnett Shale in North Texas and three in east Texas near the Louisiana state line. The Company’s customers include national, integrated, and independent oil and gas exploration companies.

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. As a result, our auditors issued an audit opinion with respect to our 2015 and 2014 annual financial statements which included a statement describing our going concern status.

In order 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 sufficient 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 sufficient 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.

SUMMARY OF SELECTED ACCOUNTING POLICIES

Recently Adopted Accounting Standards

In April 2015, FASB issued an accounting pronouncement ASU 2015-3 related to the presentation of debt issuance costs (FASB ASC Subtopic 835-30). This standard will require debt issuance costs related to a recognized debt liability to be presented on the balance sheet as a direct deduction from the debt liability rather than as an asset. These costs will continue to be amortized to interest expense using the effective interest method. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015, and retrospective adoption is required. We have adopted this pronouncement for our fiscal year beginning January 1, 2016. We do not expect this pronouncement to have a material effect on our consolidated financial statements.

New Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which provides guidance on a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The effective date for this ASU, which was deferred by ASU 2015-14 issued in August 2015, is for fiscal years beginning after December 15, 2017. In March 2016, the FASB also issued ASU 2016-08, an amendment to the guidance in ASU 2014-09 which revises the structure of the indicators to provide indicators of when the entity is the principal or agent in a revenue transaction, and eliminated two of the indicators (“the entity’s consideration is in the form of a commission” and “the entity is not exposed to credit risk”) in making that determination. This amendment also clarifies that each indicator may be more or less relevant to the assessment depending on the terms and conditions of the contract. In April 2016, the FASB also issued ASU 2016-10, which clarifies the implementation guidance on identifying promised goods or services and on determining whether an entity’s promise to grant a license with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The amendments, collectively, should be applied retrospectively to each prior reporting period presented or as a cumulative effect adjustment as of the date of adoption. Early adoption of the guidance is not permitted. The Company is currently evaluating the impact of adopting ASU 2014-09 and the related updates to it on its financial position, results of operations and disclosures.

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which provides guidance for the recognition, measurement, presentation, and disclosure of financial assets and liabilities. The guidance will be effective for the fiscal year beginning after December 15, 2017, including interim periods within that year. The Company is in the process of evaluating the impacts of the adoption of this ASU.

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 will be effective for the fiscal year beginning after December 15, 2018, including interim periods within that year. Once effective, the new guidance must be applied for all periods presented. The Company is in the process of evaluating the impacts of the adoption of this ASU.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which is intended to simplify several aspects of the accounting for share-based payment award transactions. The guidance will be effective for the fiscal year beginning after December 15, 2016, including interim periods within that year. The Company is in the process of evaluating the impacts of the adoption of this ASU.

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 any 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 nine months ended September 30, 2016 and 2015, 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 2016, which have been excluded from EPS that could potentially have a dilutive effect on EPS in the future. The table below sets forth the reconciliation for net loss and weighted average shares used for calculating basic and diluted earnings per share.

STOCK BASED COMPENSATION

The Board of Directors of the Company elected to suspend all stock based compensation in 2015 as part of the Company’s cost cutting and restructuring measures.

In April 2016, the Board of Directors of the Company approved the issuance of an aggregate of 54,000 shares of common stock to the members of the Board of Directors. The three members of the Board of Directors received 18,000 shares each.

BORROWINGS

Borrowings as of September 30, 2016 and December 31, 2015 were as follows:

	September 30,			December 31,
	2016			2015

Revolving credit facility and term loan (a)	$	747,757		$	1,339,462
Term note (b)		4,330,820			4,330,820
Loans from stockholders (c) (d)		2,870,484			2,873,536
Installment notes (e)		11,941			101,652
Deferred loan fees (f)		(232,546	)		(383,205	)
Total debt		7,728,456			8,262,265
Less current portion		(7,728,456	)		(8,201,992	)
Total long-term debt	$	—		$	60,273

The Revolving Credit Facility and Term Loan (Senior Loan Facility) 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 September 30, 2016, and December 31, 2015). The term loan portion of the Senior Loan Facility requires monthly payments of $100,000 plus interest. The Senior Loan Facility also provides for the payment of an unused commitment fee of .375% per annum. The loans are secured by all of the Company’s properties and assets except for its disposal wells wherein the Senior Loan Facility has a subordinated secured position. On April 11, 2014 an accredited investor, who is also a significant stockholder in the Company, purchased the Senior Loan Facility and related collateral from Capital One Bank N.A. and assumed all the existing terms and conditions of the Credit Agreement and Forbearance Agreements. In September 2016, the holder of the Senior Loan Facility foreclosed on certain land and buildings owned by the Company in settlement of a portion of the outstanding amount of principal on the Senior Loan Facility. As a consequence, the Company charged off the net book value of the land and buildings totaling $591,705 against the outstanding principal on the Senior Loan Facility totaling $1,339,462, leaving a principal balance of $747,757 remaining. The Board is considering issuing stock for the deficiency balance of this loan and the related accrued interest.

The Company and its subsidiaries entered into a Term Loan, Guaranty and Security Agreement on July 23, 2012 with ICON in the amount of $5 million (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 for an annual interest rate of 14% with monthly payments of interest and with repayment of the principal and all accrued but unpaid interest due on February 1, 2018. 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 September 30, 2016, the Company was not in compliance 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 September 30, 2016 due to the fact that the Company was not in compliance with its debt covenants, including the timely payment of interest.

On May 27, 2014 an accredited investor, who is also a stockholder in the Company, entered into a loan agreement with the Company for the amount of $2,783,484. As of September 30, 2016 and December 31, 2015 the principal balance of the note was $2,783,484 and $2,783,484, respectively. 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 according to its terms.

On March 21, 2014 the CEO of the Company, who is also a stockholder in the Company entered into 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 have been repaid 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 according to its terms.

The Company has an installment loan with an outstanding principal balance of approximately $11,941 which was 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 has been classified as a short-term liability.

Unamortized debt issuance costs are amortized as interest expense over the terms of the related notes payable using the effective interest method and are classified as a discount to the related recorded debt balance. Total interest expense on debt discount for the nine months ended September 30, 2016 and 2015 was $150,657 and $127,260, respectively.

COMMITMENTS AND CONTINGENCIES

The Company is obligated for approximately $1.3 million under long-term leases for the use of land where seven of its disposal wells are located. Three of the leases are for extended periods of time. 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 no option to renew and the third lease expires on May 31, 2018 with one year renewal options. The aggregate monthly lease payment for the disposal well leases is $10,985.

The Company was a named defendant along with the previously named officers in certain litigation in the 271st Judicial District Wise County, Texas wherein the Plaintiffs alleged they had been damaged by the failure of the Company to complete a disposal well in a joint venture between the parties. On April 23, 2016, the litigation was settled by mutual agreement of the parties. Under the terms of the settlement, the plaintiffs returned to the Company 53,000 shares of restricted and unregistered stock of the Company issued to them in 2013. The Company issued 317,000 shares of restricted and unregistered shares of stock in the Company to the plaintiffs. The Company will have exclusive trading authority over the shares issued to the plaintiffs and will have the right of first refusal to purchase the shares upon any planned sale by the plaintiffs. The Company will also have a call option on the shares which will entitle the Company to purchase the shares at $1.25 per share at any time. The settlement agreement resulted in the termination of the litigation. As of December 31, 2015, the Company recorded a liability of $206,000 associated with the settlement of this litigation.

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.

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.

DESCRIPTION OF PROPERTIES

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

We owned 7.055 acres at 503 W. Sherman St., Chico, Texas on which we had 3 buildings. These facilities served as our executive and administrative offices and headquarters for CTT operations including repair & maintenance facilities for its salt water disposal services business. CTT has three operating wells near Chico, Texas. Two of these disposal 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.

In September 2016, the holder of the Senior Loan Facility foreclosed on certain land and buildings owned by the Company in settlement of a portion of the outstanding amount of principal on the Senior Loan Facility. As a consequence, the Company charged off the net book value of the land and buildings totaling $591,705 against the outstanding principal on the Senior Loan Facility totaling $1,339,462, leaving a principal balance of $747,757 remaining. The Board is considering issuing stock for the deficiency balance of this loan and the related accrued interest.

We are obligated under long-term leases for the use of land where seven of our disposal wells are located. Three of the leases are for extended periods of time. 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 and the third lease expires on May 31, 2018 with no option to renew. The aggregate monthly lease payments for the disposal well leases are $10,985.

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, 2015 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.

RESULTS OF OPERATIONS

For the nine months ended September 30, 2016 we reported a net loss of $1,380,302 as compared to a net loss of $5,346,251 for the nine months ended September 30, 2015. The components of these results are explained below.

Revenue - Total revenue decreased by $2.5 million, or 71% from $3.5 million for the nine months ended September 30, 2015 to $1,004,162 for the nine months ended September 30, 2016. The decrease was due to Management’s decision to no longer provide transportation services as a part of the services offered by the Company and to focus on the disposal business.

Expenses- The components of our costs and expenses for the three months ended September 30, 2016 and 2015 are as follows:

	For the Nine Months Ended				%
	September		September 30,		Increase
	30, 2016		2015		(Decrease)
Costs and expenses:
Direct operating costs	$	578,657	$	2,121,625	-73	%
Indirect operating costs		283,803		766,656	-63	%
General and administrative		431,396		512,780	-16	%
Depreciation and amortization		345,965		1,773,731	-80	%
Write off of obsolete inventory		—		155,735	-100	%
Loss on impairment of property and equipment		—		5,603,346	-100	%

Total cost and expenses	$	1,639,821	$	10,933,873	-85	%

The decrease in the volumes of saltwater and other fluids transported and disposed of necessitated a decrease in operating expenses for the nine months ended September 30, 2016. The decrease in direct costs is primarily attributable to Management’s decision to no longer provide transportation services as a part of the services offered by the Company and to focus on the disposal business. This resulted in the reduction of the number of employees and the related salaries, wages and benefits as well as the elimination of costs for fuel, repairs and maintenance for the truck fleet and the cost of the use of third party disposal wells.

The decrease in indirect costs for the nine months ended September 30, 2016, is the result of an overall reduction of administrative salaries and benefits, insurance costs and utilities resulting from management’s decision to no longer provide transportation services to customers.

Other (Income) Expenses- Other (income)/expenses for the nine months ended September 30, 2016 was approximately $842,658 of interest expense and a gain of $103,000 on the disposal of assets; Other (income)/expenses of $2.0 million for the nine months ended September 30, 2015 included interest expense of $976,000; a gain on disposal of property of $490,000 and a gain on the extinguishment of debt of $2.5 million.

Operating results for the nine months ended September 30, 2016 reflect a net loss of $1,380,302. We have not recorded any federal income taxes for the nine months ended September 30, 2016 and 2015 because of our accumulated losses and our substantial net operating loss carry forwards.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows and Liquidity

As of September 30, 2016, we had total current assets of approximately $250,000. Our total current liabilities as of September 30, 2016 were $12.3 million, including $7.7 million of debt classified as current liabilities. We had a working capital deficit of $12 million as of September 30, 2016 and December 31, 2015.

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.

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 years ended September 30, 2016 and 2015:

	For the Nine Months Ended
	September 30, 2016			September 30, 2015
Net cash provided by (used in) operating activities	$	(205,155	)	$	352,652

Net cash provided by (used in) investing activities		293,461			1,400

Net cash provided by (used in) financing activities		(104,230	)		(45,430	)

Net increase (decrease) in cash	$	(15,924	)	$	308,622

As of September 30, 2016, we had approximately $6,000 in cash, a decrease of approximately $16,000 from December 31, 2015 due to negative cash flow from operating and financing activities.

Net cash used in operating activities was approximately $205,000 for the nine months ended September 30, 2016 due to operating loss. Net cash provided by operating activities was approximately $353,000 for the nine months ended September 30, 2015, due to improved profitability and positive cash flow from operating activities.

Net cash provided by investing activities was $293,000 for the nine months ended September 30, 2016 due to repayment of an advance from an entity owned by one of the principal shareholders of the Company as well as proceeds from the disposition of a certificate of deposit. The cash advance is held in an investment account of the entity and is due on demand to the Company at any time. Net cash provided by investing activities was $1,400 for the nine months ended September 30, 2015.

Net cash used in financing activities was approximately $104,000 for the nine months ended September 30, 2016 which consisted of debt repayments and the reduction in the Senior Loan Facility due to the foreclosure. Net cash used in financing activities was approximately $45,000 for the nine months ended September 30, 2015, which also consisted of debt repayments.

Capital Expenditures

The Company suspended capital expenditures during the nine months ended September 30, 2016 due to the lower volumes disposed. The Company does not currently anticipate any major capital expenditures for the remainder of 2016. The Company made the decision to no longer provide transportation services to our customers which led to significant disposal activities on our transportation equipment in 2015.

Indebtedness

On April 11, 2014 an accredited investor, who is also a stockholder in the Company purchased the Capital One Note from Capital One and assumed all the existing terms and conditions of the Senior Loan Facility including Capital One’s security interest in the Company’s assets.

The Company and its subsidiaries entered into a Term Loan, Guaranty and Security Agreement (the “Loan Agreement”) on July 23, 2012 with ICON for the amount of $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 September 30, 2016, 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 September 30, 2016 due to the fact that the Company was not in compliance with its debt covenants.

On February 12, 2015, the Company executed a settlement agreement in litigation which had been asserted against certain officers of the Company and for which the Company was obligated to indemnify such officers. The effect of the settlement agreement was the cancellation of two subordinated promissory notes totaling $3,665,263. The settlement resulted in the reduction of the Company’s indebtedness by $2,082,408. These promissory notes were owed to the former owners of CTT and related to the acquisition of CTT. The settlement resulted in a one-time gain on extinguishment of debt of $2,082,408 in the three months ended March 31, 2015.

Outlook

Management may seek to acquire other profitable oilfield service companies to broaden the Company’s customer base and capabilities. Management believes that certain acquisitions could be potentially achieved through the issuance of the company’s equity securities or through other financings. 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.

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. Based on that evaluation, the Company’s management, including the CEO, concluded that the Company’s internal controls over financial reporting were not effective in that there was a material weakness as of September 30, 2016.

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

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 September 30, 2016 due to the fact that 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 all of these 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.

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.


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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 November 15, 2016.

FRONTIER OILFIELD SERVICES, INC.


SIGNATURE:	/s/ Donald Ray Lawhorne
	Donald Ray Lawhorne, Chief Executive Officer and Chief Accounting Officer

TRICCAR INC. - FORM 10-Q - November 15, 2016

Attached files

TRICCAR INC. Reports