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: June 30, 2013

Or

 

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

For the transition period from:             to             

Commission File Number: 0-30746

 

 

FRONTIER OILFIELD SERVICES, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Texas   75-2592165

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

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.     x   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   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 August 1, 2013 there were 21,362,296 shares of common stock, par value $0.01 per share, outstanding.

 

 

 


Table of Contents

FRONTIER OILFIELD SERVICES, INC.

Index

 

     Pg. No.  

PART I – Financial Information

  

Item 1. Financial Statements

  

Condensed Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012 (Unaudited)

     F-1 & F-2   

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June  30, 2013 and May 31, 2012 (Unaudited)

     F-3   

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2013 and May  31, 2012 (Unaudited)

     F-4 & F-5   

Notes to Condensed Consolidated Financial Statements as of June 30, 2013 (Unaudited)

     F-6   

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

     1   

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

     4   

Item 4T. Controls and Procedures

     4   

PART II – Other Information

  

Item 1. Legal Proceedings

     4   

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

     5   

Item 3. Defaults Upon Senior Securities

     5   

Item 5. Other Information

     5   

Item 6. Exhibits

     5   

SIGNATURES

     6   


Table of Contents

PART 1 — FINANCIAL INFORMATION

ITEM 1 FINANCIAL STATEMENTS

FRONTIER OILFIELD SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

     June 30, 2013     December 31, 2012  
ASSETS   

Current Assets:

    

Cash

   $ —        $ 67,824   

Certificate of deposit

     77,614        77,614   

Accounts receivable

     3,036,090        3,920,008   

Inventory, primarily parts

     246,087        320,731   

Prepaid expenses, primarily insurance

     472,489        1,403,848   

Deferred loan origination fees, current portion

     324,521        336,297   
  

 

 

   

 

 

 

Total current assets

     4,156,801        6,126,322   
  

 

 

   

 

 

 

Property and equipment:

    

Property and equipment, at cost

     16,592,654        23,850,685   

Less accumulated depreciation

     (1,641,805     (1,589,070
  

 

 

   

 

 

 

Total property and equipment

     14,950,849        22,261,615   
  

 

 

   

 

 

 

Other assets:

    

Intangibles, net (Note 6)

     3,694,858        3,898,245   

Assets held for sale

     5,858,341        —     

Restricted cash

     —          619,922   

Deferred loan fees, net of current portion

     751,279        913,539   

Deposits

     24,037        40,852   
  

 

 

   

 

 

 

Total other assets

     10,328,515        5,472,558   
  

 

 

   

 

 

 

Total Assets

   $ 29,436,165      $ 33,860,495   
  

 

 

   

 

 

 

 

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

 

F-1


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FRONTIER OILFIELD SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

     June 30, 2013     December 31, 2012  
LIABILITIES AND STOCKHOLDERS’ EQUITY     

Current Liabilities:

    

Current portion of long-term debt

   $ 11,755,295      $ 12,727,867   

Accounts payable

     5,814,589        4,665,618   

Accrued liabilities

     848,067        1,063,687   

Financed insurance premiums payable

     —          820,499   

Escrow liability

     —          619,922   

Deferred consideration payable for acquisition of CTT

     2,300,000        2,300,000   
  

 

 

   

 

 

 

Total current liabilities

     20,717,951        22,197,593   

Long-term debt, less current maturities (Note 8)

     2,084,101        2,225,570   

Deferred consideration payable for acquisition of CTT

     —          4,708,348   
  

 

 

   

 

 

 

Total Liabilities

     22,802,052        29,131,511   
  

 

 

   

 

 

 

Commitments and Contingencies (Note 9)

    

Stockholders’ Equity:

    

Preferred stock- $.01 par value; authorized 10,000,000; no shares issued or outstanding at June 30, 2013

     —          —     

Common stock- $.01 par value; authorized 100,000,000 shares; 21,362,296 shares issued and outstanding at June 30, 2013 18,116,357 shares issued and outstanding at December 31, 2012

     213,623        181,163   

Additional paid-in capital

     30,164,734        22,986,615   

Prepaid stock compensation

     (378,750     —     

Accumulated deficit

     (23,365,494     (18,438,794
  

 

 

   

 

 

 

Total stockholders’ equity

     6,634,113        4,728,984   
  

 

 

   

 

 

 

Total Liabilities and Stockholders’ Equity

   $ 29,436,165      $ 33,860,495   
  

 

 

   

 

 

 

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

 

F-2


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FRONTIER OILFIELD SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

     For the Three Months Ended     For the Six Months Ended  
     June 30, 2013     May 31, 2012     June 30, 2013     May 31, 2012  

Revenues, net of discounts

   $ 9,875,701      $ 701      $ 20,867,485      $ 2,309   

Costs and expenses:

        

Direct operating costs

     7,268,518        —          15,391,626        —     

Indirect operating costs

     1,801,239        177        3,805,500        1,701   

General and administrative

     1,828,565        809,173        3,699,733        1,305,834   

Depreciation and amortization

     1,047,055        1,665        2,010,310        1,752   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

     11,945,377        811,015        24,907,169        1,309,287   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (2,069,676     (810,314     (4,039,684     (1,306,978

Other (income) expense:

        

Interest expense

     494,800        —          847,975        —     

Gain on disposal of property and equipment

     (8,183     —          (55,856     —     

Equity in loss of unconsolidated affiliated company

     —          71,491        —          222,449   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision for income taxes

     (2,556,293     (881,805     (4,831,803     (1,529,427

Provision for income taxes

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from continuing operations

     (2,556,293     (881,805     (4,831,803     (1,529,427

Loss from discontinued operations, net of income taxes

     (94,897     —          (94,897     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (2,651,190   $ (881,805   $ (4,926,700   $ (1,529,427
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per common share - basic and diluted:

        

Continuing operations

   $ (0.13   $ (0.09   $ (0.24   $ (0.17

Discontinued operations

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ (0.13   $ (0.09   $ (0.24   $ (0.17
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted Average Common Shares Outstanding:

        

Basic and Diluted

     20,814,211        9,339,701        20,293,560        9,217,222   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

F-3


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FRONTIER OILFIELD SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

     For the Six Months Ended  
     June 30, 2013     May 31, 2012  

Cash Flows From Operating Activities:

    

Net loss

   $ (4,926,700   $ (1,529,427

Less: Loss from discontinued operations, net of taxes

     (94,897     —     
  

 

 

   

 

 

 

Loss from continuing operations, net of taxes

     (4,831,803     (1,529,427

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

    

Depreciation and amortization

     2,010,310        1,752   

Issuance of common stock for services

     1,723,088        462,263   

Equity in loss of unconsolidated affiliated company

     —          222,449   

Advance to officer

     —          6,500   

Allocated and direct expenses to affiliates

     —          (115,079

Gain on sale of property and equipment

     (55,856     —     

Amortization of deferred loan fees

     174,036        —     

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

    

Decrease (increase) in operating assets:

    

Accounts receivable

     458,824        2,383   

Advances receivable from affiliate

     —          (9,233

Inventory, primarily parts

     86,429        —     

Prepaid expenses, primarily insurance

     896,766        (140,000

Deposits

     16,815        —     

Increase (decrease) in operating liabilities:

    

Accounts payable and accrued expenses

     748,159        91,977   

Financed insurance premiums payable

     (820,499     —     
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities of continuing operations

     406,269        (1,006,415

Net cash provided by operating activities of discontinued operations

     624,829        —     
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     1,031,098        (1,006,415
  

 

 

   

 

 

 

Cash Flows From Investing Activities:

    

Purchase of membership units in affiliate

     —          (1,267,000

Purchase of property and equipment

     (517,962     (49,303

Proceeds from sale property and equipment

     86,931        —     

Escrow liability

     (619,922     —     
  

 

 

   

 

 

 

Net cash used in investing activities of continuing operations

     (1,050,953     (1,316,303

Net cash provided by investing activities of discontinued operations

     45,757        —     
  

 

 

   

 

 

 

Net cash used in investing activities

     (1,005,196     (1,316,303
  

 

 

   

 

 

 

Cash Flows From Financing Activities:

    

Proceeds from preferred stock subscriptions

     —          1,625,000   

Net change in line of credit

     45,624        —     

Payments on notes payable

     (1,159,665     —     

Payments from restricted cash account

     619,922        —     

Common stock sales

     400,393        —     

Payments to affiliate

     —          (115,570

Advances from affiliate

     —          803,787   
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities of continuing operations

     (93,726     2,313,217   

Net cash used in financing activities of discontinued operations

     —          —     
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (93,726     2,313,217   
  

 

 

   

 

 

 

Net decrease in cash

     (67,824     (9,501

Cash at beginning of period

     67,824        13,871   
  

 

 

   

 

 

 

Cash at end of period

   $ —        $ 4,370   
  

 

 

   

 

 

 

 

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

 

F-4


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FRONTIER OILFIELD SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

     For the Six Months Ended  
     June 30, 2013      May 31, 2012  
Supplemental Cash Flow Disclosures   

Interest paid

   $ 673,939       $ —     
  

 

 

    

 

 

 
Supplemental Schedule of Non-Cash Investing and Financing Activities   

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

   $ —         $ 358,000   
  

 

 

    

 

 

 

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

   $ —         $ 147,000   
  

 

 

    

 

 

 

Settlement of deferred consideration payable for acquisition of CTT (Note 9)

   $ 4,708,348       $ —     
  

 

 

    

 

 

 

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

 

F-5


Table of Contents

FRONTIER OILFIELD SERVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2013

(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 December 31, 2012 (including the notes thereto) set forth in Form 10-K.

 

2. BUSINESS ACTIVITIES:

Frontier Oilfield Services, Inc. a Texas corporation (and collectively with its subsidiaries, “we”, “our”, “Frontier” or the “Company”), was organized on March 24, 1995. The accompanying condensed consolidated financial statements include the accounts of the Company and Frontier Acquisition I, Inc., and its subsidiary Chico Coffman Tank Trucks, Inc. 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.

The Company’s current business, through its subsidiaries, is in the oil field services industry, including the transportation and disposal of salt water and other oil field fluids in Texas. The Company currently owns and operates thirteen disposal wells in Texas. The Company’s customer base includes national, integrated, and independent oil and gas exploration companies. In addition, the Company has a minor overriding interest in 2 producing gas wells in Wise County, Texas and 7 producing gas wells in Denton County, Texas. Frontier previously was in the business of acquiring and developing oil and gas properties, providing contract services to an affiliate and sponsoring and managing joint venture oil and gas development partnerships.

 

3. SUMMARY OF SELECTED ACCOUNTING POLICIES:

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.

Reclassifications

Certain amounts in the comparative condensed consolidated financial statements have been reclassified from financial statements previously presented to conform to the presentation of the June 30, 2013 financial statements. The Company previously presented “cost of revenue” which includes costs and expenses directly attributable to the production of revenue. The Company reclassified those items of costs and expenses to “direct costs” in the current consolidated statements of operations. In addition, the Company reclassified “operating expenses,” which includes all costs and expenses at the subsidiary level not directly related to the production of income and acquisition related expenses, to “indirect costs” in the current statements of operations.

Fiscal Year Change

On June 28, 2012, the Board of Directors approved the change in the Company’s fiscal year from November 30 to December 31. The change became effective at the end of the quarter ended September 30, 2012. All references to “years”, unless otherwise noted, refer to the 12-month fiscal year, which prior to December 1, 2011, ended on November 30, and beginning with January 1, 2012, ends on December 31, of each year. Therefore, as a result of this change, the Company has presented the statement of operations and statement of cash flows for the six months ended May 31, 2012.

Revenue Recognition

The Company recognizes revenues in accordance with (ASC 605), Revenue Recognition, and Staff Accounting Bulletin No 104, and accordingly all of the following criteria must be met for revenues to be recognized: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price to the buyer is fixed and determinable and collectability is reasonably assured. The majority of the Company’s revenue results from agreements with customers and revenues are generated upon performance of contracted services. Transportation and disposal rates are generally based on a fixed fee per barrel of disposal water or, in certain circumstances transportation is based on an hourly rate. Revenue is recognized based on the number of barrels transported or disposed or at hourly rates for transportation. Rates for other services are based on negotiated rates with the Company’s customers and revenue is recognized when the services have been performed. The Company extends unsecured credit to its customers for amounts invoiced.

 

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Business Combinations

The Company accounts for business combinations under the acquisition method of accounting in accordance with Accounting Standards Codification (ASC) Topic 805, Business Combinations . The acquisition method requires that assets acquired and liabilities assumed including contingencies be recorded at their fair values as of the acquisition date. The Company has finalized the determination of the fair values of the assets acquired and liabilities assumed for CTT.

Fair Value Measurements

The ASC Topic 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value in accordance with U.S. Generally Accepted Accounting Principles, and requires certain disclosures about fair value measurements. In general, fair values of financial instruments are based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the customer’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. Impairment analyses will be made of all assets using future cash flow analysis. An impairment loss would be recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount.

The previous owner of CTT was granted the right to receive additional consideration based on specified earnings targets at the end of the contingency period, which is June 30, 2014 (Note 9), as specified in the stock purchase agreement. The fair value of the earnings based contingent liability is to be determined based on the earnings as of future fiscal period-ends. At this time it is not possible to determine a probable range of possible outcomes of the valuation of the earnings based contingent liability. Future gains and losses on the re-measurement of the earnings based contingent liability will be included in other income (expense).

The fair value measurements of the Company’s contingent liabilities consisted of the following:

 

     Level 1      Level 2      Level 3      Total  

Liabilities

           

Earnings based deferred consideration liability related to the CTT acquisition

     —          —          2,300,000         2,300,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

There were no transfers between the three levels during the six months ended June 30, 2013.

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 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.

 

4. INVESTMENT IN UNCONSOLIDATED AFFILIATED COMPANY:

As of May 31, 2012 the Company’s investments in FIG totaled $4,539,104. The investments reflect a $284,900 net profits interest and a $4,254,204 equity interest. The Company’s share of FIG’s losses totaled $71,491 for the quarter and $222,449 for the quarter to date. The Company’s equity interest and net profits interest in FIG at May 31, 2012 was 48.19% and 60.24%, respectively. The Company acquired a 51% interest in FIG effective June 4, 2012 and acquired the remaining 49% interest in September of 2012. As a result of the acquisition the Company’s net profit interest was impaired and charged to other expense in September of 2012. In addition the Company’s June 30, 2013 FIG investment account was eliminated in consolidation (See Note 5).

 

5. BUSINESS ACQUISITIONS:

Acquisition of Frontier Income and Growth, LLC

On June 4, 2012 , the Company completed the 51% step acquisition of FIG. The Company acquired approximately 124 units of FIG which brought the total units owned by the Company to 1,168 and a 51% majority interest. The cash price paid was $5,080,000 less $1,203,000 borrowed from FIG that resulted in the fair value consideration for the 1,168 units of $3,877,000.

The acquisition date fair value of the Company’s equity interest in FIG held immediately before May 31, 2012 was $3,791,996. The Company’s fair value equity interest was determined by taking the fair value of the net assets acquired and deducting the majority interest ownership immediately before May 31, 2012. There was no gain or loss on re-measuring the investment.

 

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The transaction has been accounted for using the acquisition method of accounting which requires that, among other things, assets acquired and liabilities assumed be recorded at their fair values as of the acquisition date. The Company has finalized the determination of the fair values of the assets acquired and liabilities assumed.

The following details the final fair value of the consideration transferred to effect the acquisition of FIG.

 

Fair value of consideration transferred

   $ 3,877,000   
  

 

 

 

The following is the final fair value of the net assets acquired by the Company in the acquisition, reconciled to the total fair value of the consideration transferred:

 

Cash

   $ 907,132   

Accounts receivable and accrued revenue

     1,794,260   

Inventory

     61,905   

Property and equipment (net)

     7,081,025   

Deposits

     25,960   

Other assets

     1,026,903   

Notes payable

     (2,346,973

Accounts payable and accrued expenses

     (881,216
  

 

 

 

Fair value of net assets acquired as of May 31, 2012

     7,668,996   

Non-controlling interest adjustment

     (3,791,996
  

 

 

 

Fair value of consideration transferred

   $ 3,877,000   
  

 

 

 

In September 2012, the Company acquired the remaining 49% ownership of FIG. The transaction was valued at $5,610,000. The following is the final fair value of the non-controlling interest acquired by the Company in the transaction reconciled to the total final fair value of the consideration transferred:

 

Fair value of 49% interest in FIG

   $ 3,635,361   

Decrease in additional paid-in capital on purchase of 49% interest in FIG

     1,974,639   
  

 

 

 

Fair value of consideration transferred

   $ 5,610,000   
  

 

 

 

The Company’s operating results are substantially affected by the acquisition of FIG which can limit comparability of financial results for the six months ended June 30, 2013 to the six months ended May 31, 2012.

Acquisition of Chico Coffman Tank Trucks, Inc.

The Company through a wholly owned subsidiary, Frontier Acquisition I, Inc. completed the acquisition of Chico Coffman Tank Trucks, Inc. on July 31, 2012 by acquiring all of the issued and outstanding stock of Chico Coffman Tank Trucks, Inc. (“CTT”) inclusive of its wholly owned subsidiary, Coffman Disposal, LLC for the sum of $16,986,939.

The transaction has been accounted for using the acquisition method of accounting which requires that, among other things, assets acquired and liabilities assumed be recorded at their fair values as of the acquisition date. The Company has finalized the determination of the fair values of the assets acquired and liabilities assumed.

The following details the final fair value of the consideration transferred to effect the acquisition of CTT.

 

Cash and debt consideration

   $ 9,978,591      

Earnings based deferred compensation liability

     2,300,000      

Share based deferred compensation liability

     4,708,348      
  

 

 

    

Total fair value consideration

      $ 16,986,939   
     

 

 

 

 

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The following is the final fair value of the net assets acquired by the Company in the acquisition, reconciled to the total fair value of the consideration transferred:

 

Cash

   $ 78,135   

Accounts receivable

     3,023,355   

Inventory

     251,605   

Prepaid expenses

     655,616   

Property and equipment

     15,982,000   

Intangible assets

     4,067,735   

Other assets

     15,356   

Accounts payable and accrued expenses

     (4,682,095

Financed insurance premiums

     (81,024

Notes payable

     (2,323,744
  

 

 

 

Fair value of consideration transferred

   $ 16,986,939   
  

 

 

 

The share based deferred consideration liability was settled in May 2013 in which the company issued an additional 572,913 shares of common stock in full satisfaction of the Company’s liability. A total of 1,750,000 common shares were issued to settle the liability by increasing the amount of the equity by the same amount of the liability settlement with no gain or loss recognized for the liability settlement.

The Company’s operating results are substantially affected by the acquisition of CTT which can limit comparability of financial results for the six months ended June 30, 2013 to the six months ended May 31, 2012.

 

6. INTANGIBLE ASSETS:

In connection with the acquisition of CTT, the Company acquired intangible assets consisting of disposal well permits, and customer relationships. The Company valued the disposal well permits using the build-out (Greenfield) valuation technique. The customer relationships were valued by the Company using the excess earnings valuation technique.

Disposal well permits and customer relationships are considered definite-life intangible assets which are amortizable over their estimated useful life.

The intangible assets, net of amortization as of June 30, 2013 were as follows:

 

     June 30, 2013
            Accumulated            Weighted Average
     Gross      Amortization     Net      Useful Life

Intangible assets:

          

Disposal well permits

   $ 2,093,867       $ (191,938   $ 1,901,929       10 years

Customer relationships

     1,973,867         (180,938     1,792,929       10 years
  

 

 

    

 

 

   

 

 

    
   $ 4,067,734       $ (372,876   $ 3,694,858      
  

 

 

    

 

 

   

 

 

    

Future amortization expense for definite-life intangible assets as of June 30, 2013 is as follows:

 

Periods       
Ending       

June 30,

      

2014

   $ 406,776   

2015

     406,776   

2016

     406,776   

2017

     406,776   

2018

     406,776   

Thereafter

     2,033,854   
  

 

 

 
   $ 4,067,734   
  

 

 

 

 

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7. STOCK BASED COMPENSATION:

Under the terms of the Company’s employment agreements with its officers, certain officers receive a grant of 25,000 of the Company’s common stock per quarter and a grant of 5,000 of the Company’s common shares times the number of years of completed service issued annually. In addition, certain officers receive options to purchase up to 15,000 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 is up to two years from its date of issuance, at which time the option expires. Also, two officers who joined the Company in the first quarter of this year received a grant of certain restricted common stock shares as a sign-on bonus. The granted shares vest proportionally each quarter for the calendar year ended December 31, 2013.

Additionally, 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).

Summary Stock Compensation Table

The following table sets forth the Company’s paid or accrued stock compensation expense to its officers, directors and employees.

 

     Stock
Awards
     Stock
Options
Awards
     Non-Vested
Stock
Awards (1)
     Securities
Underlying
Non-Vested
Stock  (#)
     Total  

Six months ended June 30, 2013

   $ 1,080,638       $ 61,200       $ 378,750         405,000       $ 1,520,588   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Six months ended May 31, 2012

   $ 280,013       $ 30,000       $ 106,250         300,000       $ 416,263   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) As of June 30, 2013 and May 31, 2012, the Company’s unrecognized compensation expense related to the nonvested stock grants was $378,750 and $148,750, respectively.

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. For the six months ended May 31, 2012 the Company recorded professional fees of $46,000 with an offsetting credit to stockholders’ equity. The Company executed a contract on May 10, 2013 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. For the six months ended June 30, 2013 the Company recorded professional fees of $202,500 with an offsetting credit to stockholders’ equity.

A summary of the status of the Company’s option grants as of June 30, 2013 and December 31, 2012 and the changes during the periods then ended is presented below:

 

     Shares      Weighted-Average
Exercise Price
     Weighted Average
Remaining
Contractual Term
(in Years)
     Aggregate
Intrinsic
Value
 

Outstanding December 31, 2012

     150,000       $ 1.54         1.64       $ 231,000   

Granted

     90,000       $ 1.63         1.88       $ 377,000   

Exercised

     —          —          —          —    

Forfeited

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Outstanding June 30, 2013

     240,000       $ 1.57         1.73       $ 608,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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The weighted average fair value at the grant date for options during the six months ended June 30, 2013 was estimated using the Black-Scholes option valuation model with the following inputs:

 

Average expected life in years

     2   

Average risk-free interest rate

     2.00

Average volatility

     75

Dividend yield

     0

Risk-free interest rates for the options were taken from the Daily Federal Yield Curve Rates on the grant dates for the expected life of the options as published by the Federal Reserve. The expected volatility was based upon historical data and other relevant factors such as the Company’s changes in historical volatility, capital structure, and its daily trading volumes.

In calculating the expected life of stock options, the Company determines the amount of time from grant date to contractual term date for vested options. In developing the expected life assumption, all amounts of time are weighted by the number of underlying options.

A summary of the status of the Company’s vested and non-vested option grants at June 30, 2013 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

     240,000       $ .69       $ 166,200   

Nonvested

     —          —          —    
  

 

 

    

 

 

    

 

 

 

Total

     240,000       $ .69       $ 166,200   
  

 

 

    

 

 

    

 

 

 

The status of the Company’s non-vested stock grant at June 30, 2013 and the grant date value is presented below:

 

     Shares      Weighted Average
Grant Date
Value per Share
     Grant Date
Value
 

Nonvested

     202,500       $ 1.87       $ 378,750   

Forfeited

     —          —          —    
  

 

 

    

 

 

    

 

 

 

Total

     202,500       $ 1.87       $ 378,750   
  

 

 

    

 

 

    

 

 

 

 

8. LONG-TERM DEBT:

Long-term debt as of June 30, 2013 was as follows:

 

Revolving credit facility and term loan (a)

   $ 6,287,435   

ICON term note (b)

     5,000,000   

Notes payable

     2,082,408   

Installment notes

     469,553   
  

 

 

 

Total debt

     13,839,396   

Less current portion

     (11,755,295
  

 

 

 

Total long-term debt

   $ 2,084,101   
  

 

 

 

In connection with the acquisition of CTT, the Company and its subsidiaries entered into loan agreements effective July 23, 2012 with Capital One Leverage Finance Corp. (Capital One) and ICON Investments (ICON) the proceeds of which were primarily used for the cash portion of the acquisition. Due to the Company was in technical default, on May 24, 2013, the Company entered into a forbearance agreement with Capital One.

 

  a. Pursuant to the terms of the forbearance agreement, Capital One reduced its loan commitments from $15 million to $9 million consisting of revolving loan commitment of $3 million and a term loan commitment of $6 million subject to the terms of the Credit Agreement. The Credit Agreement has a maturity date of July 23, 2017 and pursuant to the forbearance agreement, provides for default interest rate which is base rate plus the applicable margin plus 2% (6.75% and 7.75% as of June 30, 2013), in which all of the loans were converted into base rate borrowings, bearing default interest rate, at the expiration of the applicable interest period. All new loans shall be base rate borrowings interest, bearing default interest rate. As part of the forbearance agreement, the Company has to raise $2 million in equity, pursue certain potential restructuring transactions and provide daily borrowing base certificates along with other financial reports as requested. The term loan portion of the Credit Agreement requires monthly payments of $100,000 plus interest with the balance of the loan plus unpaid interest due on July 23, 2017. The Credit Agreement 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 Capital One has a subordinated loan position to ICON. Pursuant to the terms of the Credit Agreement and the affirmative covenants, the Company is obligated to maintain all deposits with Capital One Bank, N.A.

 

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The Credit Agreement contains certain restrictive debt covenants that require the Company to maintain a certain ratio and restrictions commencing with the month ending December 31, 2012. The major requirements are that the Company must maintain a monthly Fixed Charge Coverage Ratio each month that cannot be less than 1.0 to 1.0, a rolling twelve month Leverage Ratio determined on the last day of each month that cannot be greater the 4.50 to 1.0 and the Company cannot incur capital expenditures that exceeds $3 million in any fiscal year. As of June 30, 2013, the Company was in technical default resulting from its inability to maintain two financial ratios of the debt covenants and accordingly classified the entire note balance as a current liability.

 

  b. The Company and its subsidiaries entered into a Term Loan, Guaranty and Security Agreement on July 23, 2012 with ICON for the amount of $5 million. The Loan Agreement provides for 14% monthly interest only payments with repayment of the principal and accrued but unpaid interest on February 1, 2018. ICON has a senior secured position on the Company’s disposal wells and a subordinated position to Capital One on all other Company properties and assets. The covenants in the ICON Note are in all material respects the same as in the Capital One Credit Agreement. As of June 30, 2013, the Company was in technical default resulting from its inability to maintain two financial ratios of the debt covenants and accordingly classified the entire note balance as a current liability.

 

9. COMMITMENTS AND CONTINGENCIES:

 

  a. During the year ended December 31, 2012 a complaint was filed with the Texas Railroad Commission (RRC) regarding the operation of one of Trinity Disposal Wells, LLC’s wells in East Texas. The complaint requested that the RRC terminate the well injection permit on the basis that the Company violated the terms of the permit by failing to confine injection fluids to the permitted interval and that the escape of such fluids is causing waste and poses a threat to fresh water. The Company answered the complaint and presented expert testimony contradicting the claim. On May 24, 2013, the RRC dismissed the complaint and ruled in favor of the Company.

 

  b. Share based deferred consideration liability was recorded as part of the CTT purchase consideration based on the Stock Purchase Agreement dated June 29, 2012. The previous owner of CTT received $4,708,348 in consideration in the form of common shares with a right to receive additional common shares if the share price of the company falls below $4.00 per share at the end of the measurement period, which is January 25, 2014, as specified in the stock purchase agreement. The share based deferred compensation liability was settled on May 1, 2013 in which the company issued additional 572,913 common stock shares in full satisfaction of the Company’s liability. A total of 1,750,000 common shares were issued to settle the liability.

 

  c. Earnings based deferred consideration liability was recorded as part of the CTT purchase consideration based on the Stock Purchase Agreement dated June 29, 2012 which was amended on May 1, 2013. The previous owner of CTT was granted the right to receive additional consideration based on specified earnings targets at the end of the measurement period, which ends on June 30, 2014, as specified in the amended agreement dated May 1, 2013. Because the fair value of the earnings based contingent liability will largely be determined based on the earnings as of future fiscal period-ends, it is not possible to determine a probable range of possible outcomes of the valuation of the earnings based contingent liability at this time. Accordingly, there was no change in the fair value from the acquisition date through June 30, 2013. Future gains and losses on the re-measurement of the earnings based contingent liability will be included in other income (expense). As of June 30, 2013, the value of the earnings based liability was $2,300,000.

 

  d. The Company is obligated for $1,529,500 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, 2022 with no option to renew. The monthly lease payment for the disposal wells leases is $10,300. The Company is also obligated for $107,010 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 $7,644.

 

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10. DISCONTINUED OPERATIONS:

On July 24, 2013, the Company approved the plan to sell certain assets and to discontinue the operations of Frontier Income and Growth, LLC (FIG) and its subsidiaries Trinity Disposal & Trucking, LLC and Trinity Disposal Wells, LLC. The effective date of the discontinuation of operations is June 1, 2013.

The fixed assets of FIG are classified as assets held for sale in the consolidated balance sheets as of June 30, 2013 in accordance with Presentation of Financial Statements - Discontinued Operations (ASC 205-20). FIG’s net losses of $94,897 for the quarter ended June 30, 2013 are included in discontinued operations.

The carrying amounts of the fixed assets, net of accumulated depreciation as of June 30, 2013 were $5,858,341. FIG’s revenue and net loss before income tax are summarized as follows:

 

     For the Quarter  
     Ended June 30, 2013  

Revenues

   $ 484,780   
  

 

 

 

Net loss before income tax

   $ (94,897
  

 

 

 

 

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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

Our principal executive offices are located in an office building located at 3030 LBJ Freeway, Dallas, Texas, 75234. The lease on the office space runs through May 31, 2014 with the option to renew the lease for an additional five years. The average base lease payment over the remaining term of the lease is $7,644 per month.

The Company owns 10 acres of vacant land in Johnson County and 7.055 acres in Chico, Texas on which it has 5 buildings used for its water disposal operations in that area. The Company also owns 7.49 acres in Harrison County, Texas on which three of its disposal wells are located along with a small manufactured office and repair shop. In addition, the Company is obligated 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, 2022 with no option to renew. The monthly lease payment for the disposal well leases is $10,300.

Following is information concerning production from our oil and gas wells, productive well counts and both producing and undeveloped acreage. We currently have a minor overriding interest in seven Barnett Shale gas wells in Denton County, Texas and two Barnett Shale gas wells in Wise County, Texas.

 

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 June 30, 2013:

 

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 as of June 30, 2013.

 

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 the Company holds an overriding interest as of June 30, 2013 have or had existing wells located thereon; thus all acreage may be accurately classified as developed.

SIGNIFICANT ACCOUNTING POLICIES

A summary of significant accounting policies is included in Note 2 to the audited consolidated financial statements included on Form 10-K for the year ended December 31, 2012 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.

 

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The preparation of financial statements in conformity with U.S. 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 June 30, 2013 we reported a net loss from continuing operations of $2,556,293 as compared to a net loss of $881,805 for the quarter ended May 31, 2012. The components of these results are explained below.

Revenue - Net revenue for the three months ended June 30, 2013 was $9,875,701, an increase as compared to $701 for the three months ended May 31, 2012. Net revenue for the six months ended June 30, 2013 was $20,867,485, an increase as compared to $2,309 for the six months ended May 31, 2012. The increase in net revenue is attributable to the acquisitions of Chico Coffman Tank Trucks (“CTT”) and Frontier Income and Growth (“FIG”).

Revenues by subsidiaries are as follows:

 

     Six Months Ended  
     June 30, 2013      May 31, 2012  

Chico Coffman Tank Trucks, Inc.

   $ 17,462,949       $ —     

Frontier Income and Growth, LLC. and its subsidiaries, Trinity Disposal & Trucking, LLC and Trinity Disposal Wells, LLC

     3,404,536         —     

Frontier Oilfield Services, Inc.

     —           2,309   
  

 

 

    

 

 

 

Total revenue

   $ 20,867,485       $ 2,309   
  

 

 

    

 

 

 

Expenses- The components of our costs and expenses for the six months ended June 30, 2013 and May 31, 2012 are as follows:

 

     Six Months Ended  
     June 30, 2013      May 31, 2012  
     CTT      FIG      FOSI      Total      FOSI  

Costs and expenses:

              

Direct costs

   $ 12,647,535       $ 2,744,091       $ —         $ 15,391,626       $ —     

Indirect costs

     2,896,982         908,518         —           3,805,500         1,701   

General and administrative

     —           —           3,699,733         3,699,733         1,305,834   

Depreciation and amortization

     1,361,934         645,431         2,945         2,010,310         1,752   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total costs and expenses

   $ 16,906,451       $ 4,298,040       $ 3,702,678       $ 24,907,169       $ 1,309,287   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Direct costs for the six months ended June 30, 2013 were $15,391,626 which is attributable to our acquisitions of CTT and FIG. There were no comparable costs for the quarter ended May 31, 2012.

Indirect costs increased $3,803,799 for the quarter ended June 30, 2013 as compared to the quarter ended May 31, 2012. The increase in indirect costs for the quarter and year-to-date is attributable to our acquisitions of CTT and FIG.

General and administrative expenses increased $2,393,899 for the six months ended June 30, 2013 as compared to the six months ended May 31, 2012. The increase is attributable to stock compensation cost of $1,104,323, salaries and wages of $176,822, legal and professional fees of $519,968 and expenses in all other categories totaling $592,786. The increase in stock compensation cost is mostly attributable to an increase in number of shares awarded and a change in the method of determining the date for issuing common stock shares to executives for years of service. The employment contracts for two executives were modified January 1, 2013 which changed the date for awarding shares from annually to the anniversary date of the executive’s years of service. These changes had the effect of increasing stock compensation cost by $1,104,323 over the amount reported for the six months ended May 31, 2012.

 

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Depreciation and amortization expense totaled $2,010,310 for the six months ended June 30, 2013 and $1,752 for the six months ended May 31, 2012. The increase of $2,008,558 in depreciation expense is attributable to our acquisitions of CTT and FIG.

Interest expense for the six months ended June 30, 2013 was $847,975 which was primarily related to the Capital One and ICON notes. There was no interest expense for the six months ended May 31, 2012.

The Company’s loss on its equity interest in FIG for the six months ended May 31, 2012 was $222,449. FIG’s results since May 31, 2012 are reflected in the Company’s consolidated statement of operations.

The Company disposed of property and equipment in the quarter ended June 30, 2013 for $86,931. The gain related to this transaction was $55,856. The Company also wrote-off the fully depreciated value of the related asset totaling $192,858.

We have not recorded any federal income taxes for the six months ended June 30, 2013 and May 31, 2012 because of our accumulated losses. Also, since there is continued uncertainty as to the realization of a tax asset, we have not recorded any tax benefit. In addition we have not recorded a provision for state income taxes due to the operating loss sustained this quarter.

Net income (loss) – The components of our net income (loss) by subsidiaries are as follows:

 

     Six Months Ended  
     June 30, 2013     May 31, 2012  

Chico Coffman Tank Trucks, Inc. (“CTT”)

   $ 559,546      $ —     

Frontier Income and Growth, LLC. and its subsidiaries, Trinity Disposal & Trucking, LLC and Trinity Disposal Wells, LLC. (“FIG”)

     (991,309     —     

Frontier Oilfield Services, Inc. (“FOSI”)

     (4,494,937     (1,529,427
  

 

 

   

 

 

 

Total net loss

   $ (4,926,700   $ (1,529,427
  

 

 

   

 

 

 

Discontinued operations - On July 24, 2013 , management and the Board of Directors of the Company elected to discontinue the operations and sell the fixed assets of Frontier Income and Growth, LLC (FIG) and its subsidiaries Trinity Disposal & Trucking, LLC and Trinity Disposal Wells, LLC. The effective date of the discontinuation of operations was June 1, 2013. The fixed assets of FIG are classified as assets held for sale in the consolidated balance sheets as of June 30, 2013. FIG’s net losses of $94,897 for the quarter ended June 30, 2013 are included in discontinued operations.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2013, we had total assets of $29,436,165 of which property and equipment amounted to $14,950,849 or 51% of the total. Our revenues for the current fiscal quarter totaled $9,875,701 while the revenues for the quarter ended May 31, 2012 were $701. Our accumulated losses as of June 30, 2013 totaled $23,365,494. The Company had no cash balance as of June 30, 2013. Our current ratio at June 30, 2013 was .18:1. As of June 30, 2013 our stockholders’ equity was $6,634,113. Our cash provided by operating activities totaled $1,031,098 for the six months ended June 30, 2013 while cash used in operating activities totaled $1,006,415 for the six months ended May 31, 2012. This represents an increase of $2,037,513 in cash provided by operating activities. Cash used in investing activities totaled $1,005,196 for the six months ended June 30, 2013 that primarily consisted of the purchase of property and equipment and the release of the CTT escrow liability. Cash flows used in investing activities for the six months ended May 31, 2012 were $1,316,303. Cash flows used in financing activities for the six months ended June 30, 2013 totaled $93,726 that consisted of the sale of common stock totaling $400,393, borrowings totaling $45,624 and payments from the restricted cash account totaling $619,922 offset by payments on notes payable totaling $1,159,665. Cash flows provided by financing activities for the six months ended May 31, 2012 totaled $2,313,217 that consisted of the sale of preferred stock subscriptions totaling $1,625,000 and net advances from FIG totaling $803,787.

In response to the recent losses, the Company is reviewing various aspects of its operations to reduce costs. In connection with its review, the Company has elected to discontinue the operations of Frontier Income and Growth, LLC (FIG) and its subsidiaries Trinity Disposal & Trucking, LLC and Trinity Disposal Wells, LLC. The discontinuation may include the sale of certain assets of Trinity Disposal & Trucking, LLC and Trinity Disposal Wells, LLC, but there can be no assurance that we will receive sufficient value in any sale to cover our losses or that if we cease operations in any service area that the assets will be profitably employed elsewhere.

Due to our recent loses we are attempting to acquire additional equity and debt financing to increase our available cash so that we might pay down our accounts payable and pare back our outstanding indebtedness. Our ability to secure additional capital through business alliances with third parties or other debt/equity financing arrangements will also allow us to acquire companies and/or assets

 

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Table of Contents

to further increase our operations in the water disposal segment of the oilfield services industry. There can be no assurance that we will be able to obtain the additional equity or debt financing or take advantage of any 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. 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 QUALITATIVE 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. 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 and CFO, concluded that the Company’s internal controls over financial reporting were not effective in that there was a material weakness as of June 30, 2013.

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, and intends to make appropriate changes while also considering current liquidity constraints.

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

No material proceedings

 

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

None

Item 3 DEFAULTS UPON SENIOR SECURITIES

None

Item 5 OTHER INFORMATION

On May 1, 2013, the Company entered into an agreement with the former owner of CTT to amend the Stock Purchase Agreement dated June 29, 2012. Under the terms of the new agreement, the section relating to the deferred earn-out consideration which at June 30, 2012 was $2,300,000 was deleted in its entirety. It was further agreed that prior to July 1, 2013, the Company and the seller will replace the earn-out provisions previously set forth and replace it with a revised earn-out provision covering the period from July 1, 2013 to June 30, 2014.

The revised earn-out will be earned each quarter during the new measurement period where CTT exceeds its targeted earnings before interest, taxes, depreciation and amortization threshold for such quarter and, if there is such excess, then the earn-out payment to be made to the seller for such quarter will be an agreed-upon percentage of such excess. Since the targeted earnings and percentage have not been agreed to at this time it is not feasible to determine the effect, if any, on the deferred earn-out consideration liability recorded at June 30, 2013.

In addition, the section of the Agreement pertaining to the deferred stock consideration was amended wherein the Company agreed to issue an additional 572,913 of common stock shares in full satisfaction of the Company’s obligation to issue additional shares under the previous provisions of the Agreement. The amendment did not change the value of the deferred consideration; rather, it settles the Company’s share obligation portion to the seller. The total number of shares issued under the Amended Agreement is 1,750,000.

Item 6 EXHIBITS

 

  (a) EXHIBITS:

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/Chief Financial 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
  101.DEF XBRL Taxonomy Definition Linkbase

 

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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 14 th day of August, 2013

FRONTIER OILFIELD SERVICES, INC.

 

SIGNATURE:   

/s/ Donald R. Lawhorne

  

Donald R. Lawhorne,

Chief Executive Officer

 

6

Exhibit 31.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Donald R. Lawhorne, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Frontier Oilfield Services, Inc.

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report.

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report.

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rule 13a-14 and 15d-14) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls.

Dated this 14 th day of August, 2013

 

/s/ Donald R. Lawhorne
Donald R. Lawhorne,
Chief Executive Officer

Exhibit 31.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John Van der Wiel, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Frontier Oilfield Services, Inc.

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report.

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report.

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rule 13a-14 and 15d-14) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls.

Dated this 14 th day of August, 2013

 

/s/ John Van der Wiel
John Van der Wiel,
Chief Financial Officer

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Frontier Oilfield Services, Inc. (the “ Company ”) on Form 10-Q for the period ended June 30, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “ Report ”), I, Donald R. Lawhorne, Chief Executive Officer and Principal Executive of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as applicable; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

Dated this 14 th day of August, 2013

 

By:   /s/ Donald R. Lawhorne
Donald R. Lawhorne,
Chief Executive Officer

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Frontier Oilfield Services, Inc. (the “ Company ”) on Form 10-Q for the period ended June 30, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “ Report ”), I, John Van der Wiel, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as applicable; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

Dated this 14 th day of August, 2013

 

By:   /s/ John Van der Wiel
John Van der Wiel,
Chief Financial Officer