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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: May 31, 2012

Or

 

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

For the transition period from:                    to                    

Commission File Number: 0-30746

 

 

FRONTIER OILFIELD SERVICES, INC.

(Formerly TBX Resources, Inc.)

(Exact name of registrant as specified in its charter)

 

 

 

Texas   75-2592165

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

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

(972) 234-2610

(Registrant’s telephone number, including area code)

N/A

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

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ¨  Yes    x  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ¨  Yes    ¨   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

¨    Large Accelerated Filer      ¨    Accelerated Filer  
¨    Non-Accelerated Filer   (Do not check if smaller reporting company)    x    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    x  No

As of July 9, 2012, there were 9,428,288 shares of common stock, par value $0.01 per share, outstanding.

 

 

 


Table of Contents

FRONTIER OILFIELD SERVICES, INC.

(Formerly TBX Resources, Inc.)

Index

 

     Pg. No.  

PART I – Financial Information

  

Item 1. Financial Statements

  

Condensed Balance Sheets as of May 31, 2012 (Unaudited) and November 30, 2011

     F-1   

Condensed Statements of Operations for the Three and Six Months Ended May  31, 2012 and 2011 (Unaudited)

     F-2   

Condensed Statements of Cash Flows for the Six Months Ended May 31, 2012 and 2011 (Unaudited)

     F-3   

Notes to Condensed Financial Statements as of May 31, 2012 (Unaudited)

     F-4   

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

     3   

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

     6   

Item 4T. Controls and Procedures

     6   

PART II – Other Information

  

Item 1. Legal Proceedings

     7   

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

     7   

Item 3. Defaults Upon Senior Securities

     7   

Item 5. Other Information

     7   

Item 6. Exhibits

     7   

SIGNATURES

     8   

 

2


Table of Contents

PART 1 — FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

FRONTIER OILFIELD SERVICES, INC.

(Formerly TBX Resources, Inc.)

CONDENSED BALANCE SHEETS

 

     May 31, 2012
(Unaudited)
    November 30,
2011
 
    
ASSETS     

Current Assets:

    

Cash

   $ 4,370      $ 13,871   

Oil and gas revenue receivable

     1,674        4,057   

Advances receivable from affiliates

     9,233        —     

Prepaid finance fees (Note 9)

     140,000        —     
  

 

 

   

 

 

 

Total current assets

     155,277        17,928   

Property and equipment, net

     48,547        996   

Investments in unconsolidated affiliated company (Note 5)

     4,539,104        3,136,553   

Other

     6,211        6,211   
  

 

 

   

 

 

 

Total Assets

   $ 4,749,139      $ 3,161,688   
  

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY     

Current Liabilities:

    

Trade accounts payable and accrued expenses

   $ 158,723      $ 66,746   

Advances payable from affiliate (Note 6)

     1,391,698        338,490   
  

 

 

   

 

 

 

Total current liabilities

     1,550,421        405,236   
  

 

 

   

 

 

 

Commitments and Contingencies (Note 9)

    

Stockholders’ Equity:

    

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

     —          —     

Preferred stock subscriptions

     4,625,000        3,000,000   

Common stock- $.01 par value; authorized 100,000,000 shares;
9,428,288 shares issued and outstanding at May 31, 2012,
8,853,288 shares issued and outstanding at November 30, 2011

     94,282        88,532   

Additional paid-in capital

     12,048,332        11,558,639   

Prepaid stock compensation

     (148,750     —     

Accumulated deficit

     (13,420,146     (11,890,719
  

 

 

   

 

 

 

Total stockholders’ equity

     3,198,718        2,756,452   
  

 

 

   

 

 

 

Total Liabilities and Stockholders’ Equity

   $ 4,749,139      $ 3,161,688   
  

 

 

   

 

 

 

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

 

F-1


Table of Contents

FRONTIER OILFIELD SERVICES, INC.

(Formerly TBX Resources, Inc.)

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

 

     For the Three Months Ended     For the Six Months Ended  
     May 31, 2012     May 31, 2011     May 31, 2012     May 31, 2011  

Revenues:

        

Oil and gas sales

   $ 701      $ 931      $ 2,309      $ 2,421   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     701        931        2,309        2,421   
  

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

        

Lease operating and taxes

     177        3,808        1,701        4,180   

General and administrative

     809,173        19,352        1,305,834        56,126   

Depreciation

     1,665        —          1,752        —     

Loss on forfeiture of oil and gas properties

     —          —          —          16,089   

Gain on sale of office equipment

     —          (2,220     —          (2,220
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     811,015        20,940        1,309,287        74,175   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating Loss

     (810,314     (20,009     (1,306,978     (71,754

Other Expense:

        

Equity in loss of unconsolidated affiliated company

     (71,491     —          (222,449     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss Before Provision for Income Taxes

     (881,805     (20,009     (1,529,427     (71,754

Provision for income taxes

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Loss

   $ (881,805   $ (20,009   $ (1,529,427   $ (71,754
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Loss per Common Share:

        

Basic and Diluted

   $ (0.09   $ (0.01   $ (0.17   $ (0.02
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted Average Common Shares Outstanding:

        

Basic and Diluted

     9,339,701        4,027,442        9,217,222        4,027,442   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

F-2


Table of Contents

FRONTIER OILFIELD SERVICES, INC.

(Formerly TBX Resources, Inc.)

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

 

     For the Six Months Ended  
     May 31, 2012     May 31, 2011  

Cash Flows From Operating Activities:

    

Net loss

   $ (1,529,427   $ (71,754

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

    

Depreciation

     1,752        —     

Issuance of common stock for services

     462,263        —     

Equity in loss of unconsolidated affiliated company

     222,449        —     

Advance to officer

     6,500        —     

Allocated and direct expenses to affiliates

     (115,079     14,076   

Loss on forfeiture of oil and gas properties

     —          16,089   

Gain on sale of office equipment

     —          (2,220

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

    

Decrease (increase) in operating assets:

    

Oil and gas revenue receivable

     2,383        1,760   

Advances receivable from affiliate

     (9,233     —     

Prepaid finance fees

     (140,000     —     

Inventory

     —          8,300   

Increase (decrease) in operating liabilities:

    

Trade accounts payable and accrued expenses

     91,977        346   

Deferred revenue

     —          (8,300
  

 

 

   

 

 

 

Net cash used in operating activities

     (1,006,415     (41,703
  

 

 

   

 

 

 

Cash Flows From Investing Activities:

    

Purchase of membership units in affiliate

     (1,267,000     —     

Purchase of property and equipment

     (49,303     —     
  

 

 

   

 

 

 

Net cash used in investing activities

     (1,316,303     —     
  

 

 

   

 

 

 

Cash Flows From Financing Activities:

    

Proceeds from preferred stock subscriptions

     1,625,000        —     

Payments to affiliate (Note 6)

     (115,570     —     

Advances from affiliate

     803,787        41,481   
  

 

 

   

 

 

 

Net cash provided by financing activities

     2,313,217        41,481   
  

 

 

   

 

 

 

Net decrease in cash

     (9,501     (222

Cash at beginning of period

     13,871        665   
  

 

 

   

 

 

 

Cash at end of period

   $ 4,370      $ 443   
  

 

 

   

 

 

 

Supplemental Schedule of Non-Cash Investing and Financing Activities:

    

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

   $ 358,000      $ —     
  

 

 

   

 

 

 

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

   $ 147,000      $ —     
  

 

 

   

 

 

 

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

 

F-3


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FRONTIER OILFIELD SERVICES, INC.

(Formerly TBX Resources, Inc.)

NOTES TO CONDENSED FINANCIAL STATEMENTS

May 31, 2012

(Unaudited)

1. BASIS OF PRESENTATION:

The condensed financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been omitted. However, in the opinion of management, all adjustments (which include only normal recurring accruals) necessary to present fairly the financial position and results of operations for the periods presented have been made. The results for interim periods are not necessarily indicative of trends or of results to be expected for the full year. These financial statements should be read in conjunction with the financial statements of the Company for the year ended November 30, 2011 (including the notes thereto) set forth in Form 10-K.

2. BUSINESS ACTIVITIES:

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

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

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Revenue Recognition

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

Equity Method of Accounting

The Company uses the equity method of accounting for its 48.19 % ownership in Frontier Income and Growth, LLC (“FIG”). Under the equity method of accounting the initial investment is recorded at cost with subsequent earnings recorded as increases to the investment account and losses recorded as decreases to the investment account.

Concentration of Credit Risk

During the six months ended May 31, 2012 the Company received cash advances from FIG totaling $803,787. There were no advances from FIG for the six months ended May 31, 2011.

 

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Oil and Gas Revenue Receivable

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

Property and Equipment

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

Property and equipment consist of the following:

 

     May 31,  
     2012     2011  

Office furniture, equipment, and software

   $ 95,358      $ 46,055   

Accumulated depreciation

     (46,811     (45,059
  

 

 

   

 

 

 
   $ 48,547      $ 996   
  

 

 

   

 

 

 

Equity Instruments Issued for Goods and Services

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

Income Taxes

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

Earnings Per Share (EPS)

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

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include: estimates of proved reserves as key components of the Company’s depletion rate for oil properties; accruals of operating costs; estimates of production revenues; and calculating asset retirement obligations. Because there are numerous uncertainties inherent in the estimation process, actual results could differ materially from these estimates.

 

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Fair Value Measurements

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

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

 

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

 

Level 2 Inputs to the valuation methodology include:

 

   

quoted prices for similar assets or liabilities in active markets;

 

   

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

 

   

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

 

   

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

If the asset or liability has specified (contractual) term, the Level 2 imput must be observable for substantially the full term of the asset or liability input.

 

Level 3 Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

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

4. RECENT ACCOUNTING PRONOUNCEMENTS:

During the six months ended May 31, 2012 and the year ended November 30, 2011, there were several new accounting pronouncements issued by the FASB. Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s financial position or operating results. The Company will monitor these emerging issues to assess any potential future impact on its financial statements.

5. INVESTMENT IN UNCONSOLIDATED AFFILIATED COMPANY:

As of 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 current quarter and $222,449 for the year to date. The Company’s equity interest and net profits interest in FIG at May 31, 2012 was 48.19% and 60.24%, respectively.

 

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Below is summarized financial information for FIG and subsidiary.

FRONTIER INCOME AND GROWTH, LLC AND SUBSIDIARY

Summary Consolidated Balance Sheet

May 31. 2012

(Unaudited)

 

Assets

  

Current assets

   $ 3,477,320   

Property and equipment, less accum. depreciation of $1,608,604

     5,690,680   

Other assets

     127,948   
  

 

 

 

Total Assets

   $ 9,295,948   
  

 

 

 

Liabilities and Members’ Capital

  

Current liabilities

   $ 2,560,998   

Long-term liabilities

     866,594   

Members’ capital

     5,868,356   
  

 

 

 

Total Liabilities and Members’ Capital

   $ 9,295,948   
  

 

 

 

The Company’s share of members’ capital is approximately 48% as of May 31, 2012. Under the equity method of accounting the Company records its investment in FIG from its initial investment in September of 2011 with subsequent earnings and losses recorded as increase and decreases in the investment account.

FRONTIER INCOME AND GROWTH, LLC AND SUBSIDIARY

Summary Consolidated Statement of Operations

For the Three and Six Months Ended May 31, 2012

(Unaudited)

 

     For the Three
Months Ended
    For the Six
Months Ended
 
     May 31, 2012     May 31, 2012  

Revenue

   $ 2,460,489      $ 4,762,597   

Cost of revenue

     1,998,411        4,098,644   

Operating expenses

     374,885        512,445   

Depreciation

     297,906        584,406   
  

 

 

   

 

 

 

Loss from operations

     (210,713     (432,897

Other Expenses

     96,397        162,179   
  

 

 

   

 

 

 

Net Loss

   $ (307,110   $ (595,076
  

 

 

   

 

 

 

6. RELATED PARTY TRANSACTIONS:

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

 

  a. On September 2, 2011 the Company entered into an Investment Agreement with LoneStar Income and Growth, LLC (“LoneStar”) (see Note 9). Under the Agreement Frontier is required to use the funds it receives from the sales of its preferred shares for the acquisition of 51% of FIG’s membership units first and for other corporate purposes secondly. As of May 31, 2012 the Company purchased a 48.19% equity interest in FIG with the $4,625,000 investment received from LoneStar. The Company retained $1,320,000 of the LoneStar investment that was recorded as an advance from FIG.

 

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

 

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  c. During the six months ended May 31, 2012 the Company received cash advances from FIG totaling $803,787. Advances from FIG are offset by allocated and direct expenses paid by the Company (see Note 6d below). The balance due FIG as of May 31, 2012 is $1,391,698. During the six months ended May 31, 2011 the Company received advances from Gulftex totaling $41,481.

 

  d. On September 1, 2011 the Company entered into a service agreement with FIG. Under the agreement Frontier is charging FIG for a portion of administrative services and rent. For the six months ended May 31, 2012 the Company billed $70,079 for these services that is recorded as an offset to general and administrative expense. In addition the Company paid consulting fees billable to FIG totaling $45,500 for the six months ended May 31, 2012 that was also recorded as an offset to general and administrative expense. The total of these billings are used to reduce the advances payable from FIG (see Note 6c above).

 

  e. The Company previously charged Gulftex rent for a portion of the Company’s office space and Gulftex charged the Company administrative expenses as it related to FOSI’s operations. The Company billed Gulftex for rent totaling $15,211 and Gulftex charged the Company $7,500 for administrative expenses for the six months ended May 31, 2011.The Agreement was terminated on August 31, 2011.

 

  f. As of November 30, 2011 Gulftex had a $310,721 balance of debt that was previously forgiven. During the current fiscal quarter the Company repaid $115,570 of the balance previously forgiven that was charged to paid-in capital. Frontier has not entered into an agreement to pay Gulftex additional monies and the Company at its option may pay Gulftex additional amounts only if requested by Gulftex and there are sufficient funds available to make additional payments. As of the date of this report, Gulftex has not made any further requests for payment.

7. STOCK BASED COMPENSATION:

 

  a. The Company executed a new Employment Agreement effective December 1, 2011 with its President Mr. Tim Burroughs for one year. Thereafter, the Agreement will automatically renew for successive one (1) year terms unless terminated as provided for in the Employment Agreement. Among other items, the Agreement provides that Mr. Burroughs has the contractual right to the issuance of certain common stock of the Company for services rendered; 100,000 shares of the Company’s common stock will be set aside for distribution to Mr. Burroughs on a per annual basis (25,000 shares per quarter) beginning 90 days from the date of the employment agreement (25,000 common shares to be issued each quarter). For the six months ended May 31, 2012, the Company recorded compensation expense of $52,500 with an offsetting credit to stockholders’ equity. In addition Mr. Burroughs will receive the following annual stock grant and options.

 

  i. Grant: Mr. Burroughs shall annually receive 5,000 common shares of the Company common stock times his number of years completed service to the Company to a maximum of 100,000 shares. For the six months ended May 31, 2012, the Company recorded compensation expense of $39,738 with an offsetting credit to stockholders’ equity.

 

  ii. Option: Mr. Burroughs shall receive the right to purchase up to 15,000 shares of the Company’s common stock per calendar quarter at an exercise price equal to the ending bid price of the last market day prior to the date of the option award. The option exercise period for each option will be up to two years from its date of issuance, at which time the option will expire. In the event of a change in ownership, all unexercised options will be accelerated to the current monthly period. For the six months ended May 31, 2012, the Company recorded compensation expense of $15,000 with an offsetting credit to stockholders’ equity.

 

  b.

The Company executed a new Employment Agreement effective December 1, 2011 with its Executive Vice President Mr. Bernard Richard O’Donnell for one year. Thereafter, the Agreement shall automatically renew for successive one (1) year terms unless terminated as provided for in the Employment Agreement. Among other items, the Agreement provides that Mr. O’Donnell has the contractual right to the issuance of certain common stock of the Company for services

 

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  rendered; 100,000 shares of the Company’s common stock will be set aside for distribution to Mr. O’Donnell on a per annual basis (25,000 shares per quarter) beginning 90 days from the date of the employment agreement (25,000 common shares to be issued each quarter). For the six months ended May 31, 2012, the Company recorded compensation expense of $52,500 with an offsetting credit to stockholders’ equity.

 

  i. Grant: Mr. O’Donnell shall annually receive 5,000 common shares of the Company common stock times his number of years completed service to the Company to a maximum of 100,000 shares. For the six months ended May 31, 2012, the Company recorded compensation expense of $14,025 with an offsetting credit to stockholders’ equity.

 

  ii. Options: Mr. O’Donnell shall receive the right to purchase up to 15,000 shares of the Company’s common stock per calendar quarter at an exercise price equal to the ending bid price of the last market day prior to the date of the option award. The option exercise period for each option will be up to two years from its date of issuance, at which time the option will expire. In the event of a change in ownership, all unexercised options will be accelerated to the current monthly period. For the six months ended May 31, 2012, the Company recorded compensation expense of $15,000 with an offsetting credit to stockholders’ equity.

 

  c. The Company executed an Employment Agreement effective January 1, 2012 with its Vice President and the Chief Financial Officer Mr. Kenneth K. Conte for one year. Thereafter, the agreement shall automatically renew for successive one (1) year terms unless terminated as provided for in the Employment Agreement. Among other items, the Agreement provides that Mr. Conte has the contractual right to the issuance of certain common stock of the Company for services rendered; 100,000 shares of the Company’s common stock will be set aside for distribution to Mr. Conte on a per annual basis (25,000 shares per quarter) beginning 90 days from the date of the employment agreement (25,000 common shares to be issued each quarter). For the six months ended May 31, 2012, the Company recorded compensation expense of $29,250. In addition Mr. Conte received a grant of 300,000 common shares as a sign on bonus for his services as Chief Financial Officer of the Company. However the granted shares will not be vested in Mr. Conte until such time as he has been continuously employed by the Company for a period of one year from the date of the Agreement. The value of the sign on bonus shares was $255,000 of which $106,250 was recorded as compensation expense for the six months ended May 31, 2012 with the balance of $148,750 for prepaid compensation as an offset to stockholders’ equity. The prepaid portion of the equity award is to be amortized over the remaining seven months of the vesting period.

 

  d. 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). For the six months ended May 31, 2012, the Company recorded compensation expense of $92,000 with an offsetting credit to stockholders’ equity.

 

  e. 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.

 

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A summary of the status of the Company’s option grants as of May 31, 2012 and the changes during the period then ended is presented below:

 

     Shares      Weighted-Average
Exercise Price
 

Outstanding December 1, 2011

     —        

Granted

     60,000       $ 0.86   

Exercised

     —         $ 0.86   
  

 

 

    

 

 

 

Outstanding May 31, 2012

     60,000       $ 0.86   
  

 

 

    

 

 

 

Options exercisable at May 31, 2012

     60,000       $ 0.86   
  

 

 

    

 

 

 

The weighted average fair value at date of grant for options during six months ended May 31, 2012 was estimated using the Black-Scholes option valuation model with the following:

 

Average expected life in years

     2   

Average risk-free interest rate

     2.00

Average volatility

     75

Dividend yield

     0

A summary of the status of the Company’s vested and nonvested option grants at May 31, 2012 and the weighted average grant date fair value is presented below:

 

     Shares      Weighted Average
Grant Date
Fair Value per Share
     Weighted Average
Grant Date

Fair Value
 

Vested

     60,000       $ .50       $ 30,000   

Nonvested

     —           —           —     
  

 

 

    

 

 

    

 

 

 

Total

     60,000       $ .50       $ 30,000   
  

 

 

    

 

 

    

 

 

 

The status of the Company’s nonvested stock grant at May 31, 2012 and the grant date value is presented below:

 

     Shares      Grant Date
Value per Share
     Grant Date
Value
 

Nonvested

     300,000       $ .85       $ 252,000   

Forfeited

     —           —           —     
  

 

 

    

 

 

    

 

 

 

Total

     300,000       $ .85       $ 252,000   
  

 

 

    

 

 

    

 

 

 

As of May 31, 2012, the Company’s unrecognized compensation expense related to the nonvested stock grant was $148,750.

8. FORFEITURE OF OIL AND GAS INTERESTS:

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

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

 

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9. COMMITMENTS AND CONTINGENCIES:

 

  a. The Company is obligated for $130,950 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 $5,456. The remaining base lease payment for the current fiscal year is $32,224. Following is a schedule of base lease payments by year:

 

Year

   Amount  

2012

   $ 32,224   

2013

     65,475   

2014

     33,251   
  

 

 

 
   $ 130,950   
  

 

 

 

Rent expense for the six months ended May 31, 2012 and 2011 was $24,591 and $29,469, respectively.

 

  b. The Company is pursuing senior debt financing arrangements with two prospective lending sources. In this regard the Company prepaid the due diligence fees of $140,000 (see Note 12).

 

  c. The Company entered into two material contracts in September of 2011. On September 2, 2011 the Company entered into an Investment Agreement with LoneStar, a Texas limited liability company, an unrelated third party. The Investment Agreement provides that LoneStar will acquire up to 2,750,000 shares of Frontier’s 2011 Series A 8% Preferred Stock (the “Stock”) for the sum of $5,500,000 contingent upon Frontier using the proceeds of the Stock to acquire a majority 51% membership interest in FIG, a salt water transportation and disposal company. The Stock has the following attributes in its designation filed with the Texas Secretary of State:

 

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

 

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

As of May 31, 2012 LoneStar tendered the sum of $4,625,000 to purchase 2,312,500 shares of the Stock. As of the date of this report, the shares have not been issued.

On September 1, 2011 Frontier entered into a Subscription Agreement with FIG to acquire a majority 51% membership interest in FIG for the sum of $5,080,000 (see Note 12).

10. SALE OF OFFICE FURNITURE AND FIXTURES:

The Company sold its furniture and fixtures to a third-party in the second quarter of the previous fiscal year for $2,220 and wrote-off the fully depreciated value of the related assets.

11. INCOME TAXES:

The Company computes income taxes using the asset and liability approach. The Company currently has no issue that creates timing differences that would mandate deferred tax expense. Due to the uncertainty as to the utilization of net operating loss carryforwards, an evaluation allowance has been made to the extent of any tax benefit that net operating losses may generate. No provision for income taxes has been recorded for the six months ended May 31, 2012 and May 31, 2011 due to the Company’s net operating losses.

 

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12. SUBSEQUENT EVENTS:

a. 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 total paid by the Company for the 1,168 units is $5,080,000.

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 not finalized the determination of the fair values of the assets acquired and liabilities assumed and, therefore, the fair values set forth are subject to adjustment when the valuations are completed. Under U.S. Generally Accepted Accounting Principles, companies have one year following an acquisition to finalize acquisition accounting.

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

 

Fair value of consideration

   $ 5,080,000   
  

 

 

 

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

 

Estimated fair value of net assets acquired as of May 31, 2012

      $ 7,077,856   

Fair value adjustment to:

     

Increase in property, plant & equipment

     340,000      

Goodwill

     1,296,893      
  

 

 

    

Total fair value adjustments

        1,636,893   

Noncontrolling interest adjustment

        (3,634,749
     

 

 

 

Fair value of consideration transferred

      $ 5,080,000   
     

 

 

 

The Company, with the current preliminary fair value adjustment, calculated that the difference between the fair value of the consideration transferred and the values assigned to the identifiable assets acquired and liabilities assumed resulted in a goodwill adjustment. However, after the Company finalizes the fair value of the property, plant & equipment and intangible assets, the Company anticipates that the difference between the fair value of the consideration transferred and the values assigned to the identifiable tangible and intangible assets acquired and liabilities assumed will result in a gain on acquisition adjustment.

The revenue and earnings related to FIG is included in the Company’s pro forma consolidated statement of operations for the six months ended May 31, 2012 and 2011, and the balance sheet of the Company on a consolidated basis as if these acquisitions had occurred on December 1, 2010.

The pro forma valuation of net assets acquired by the company using the historical information as of November 30, 2011:

 

Book value of net assets acquired as of November 30, 2011

      $ 5,615,296   

Fair value adjustment to:

     

Increase in property, plant & equipment

     340,000      
  

 

 

    

Total fair value adjustments

        340,000   

Gain recognized on bargain purchase

        (37,201

Noncontrolling interest adjustment

        (2,918,095
     

 

 

 

Fair value of consideration transferred

      $ 3,000,000   
     

 

 

 

 

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The pro forma results include (i) fair value adjustments of property and equipment acquired in the acquisition of FIG, (ii) noncontrolling interest adjustments as a result of acquisition of FIG (iii) net loss attributable to noncontrolling interests as a result of the acquisition of FIG. The pro forma results do not include any potential synergies, cost savings or other expected benefits of the acquisition. Accordingly, the pro forma results should not be considered indicative of the results that would have occurred if the acquisition and related borrowings had been consummated as of December 1, 2010 nor are they indicative of future results.

FRONTIER OILFIELD SERVICES, INC

Summary Pro Forma Consolidated Balance Sheet

May 31. 2012 and November 30, 2011

(Unaudited)

 

      May 31, 2012      November 30, 2011  

Assets

     

Current assets

   $ 2,995,399       $ 2,974,467   

Property and equipment, less accum. depreciation of $1,654,875 and $1,145,111 as of May 31, 2012 and November 30, 2011

     6,079,227         5,677,194   

Other assets

     419,059         453,876   
  

 

 

    

 

 

 

Total Assets

   $ 9,493,685       $ 9,105,537   
  

 

 

    

 

 

 

Liabilities and Stockholders’ Equity

     

Current liabilities

   $ 2,719,721       $ 883,426   

Long-term liabilities

     866,594         2,362,016   

Stockholders’ equity:

     

Frontier Oilfield Services, Inc.

     3,291,820         2,942,000   

Noncontrolling interests

     2,615,550         2,918,095   
  

 

 

    

 

 

 

Total stockholders’ equity

     5,907,370         5,860,095   
  

 

 

    

 

 

 

Total Liabilities and Stockholders’ Equity

   $ 9,493,685       $ 9,105,537   
  

 

 

    

 

 

 

FRONTIER OILFIELD SERVICES, INC

Summary Pro Forma Consolidated Statement of Operations

For the Six Months Ended May 31, 2012 and 2011

(Unaudited)

 

     For the Six Months
Ended
    For the Six Months
Ended
 
     May 31, 2012     May 31, 2011  

Revenue

   $ 4,764,906      $ 2,965,133   

Cost of revenue

     4,122,708        2,236,382   

Operating expenses

     1,836,584        644,520   

Depreciation

     586,158        694,540   
  

 

 

   

 

 

 

Loss from operations

     (1,780,544     (610,309

Other expenses

     143,874        59,375   
  

 

 

   

 

 

 

Net loss

     (1,924,418     (669,684

Net loss attributable to noncontrolling interest

     302,545        292,986   
  

 

 

   

 

 

 

Net loss attributable to Frontier Oilfield Services, Inc.

   $ (1,621,873   $ (376,698
  

 

 

   

 

 

 

Net loss per common share

   $ (0.18   $ (0.09
  

 

 

   

 

 

 

b. On June 29, 2012 the Company entered into a stock purchase agreement for a company engaged in the business of transporting and disposing of salt water and other oil field fluids for operators of oil and gas leases. The base purchase price is $17,408,348 which may be adjusted for working capital and earnings before interest, taxes, depreciation and amortization (EBITDA) to be determined not later than 60 days after the closing which is on or prior to July 13, 2012. For its part, the Company will issue 1,177,087 shares of common stock with an agreed upon value of $4,708,348 (subject to the Company’s $4.00 per share make well provision 18 months from the date of closing) plus approximately $5,100,000 in cash and the assumption of the acquired companies liabilities.

 

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c. The Company received a commitment from a lending source for $15 million in senior secured credit facilities consisting of a $9 million five year revolving credit facility and a $6 million five year term loan. The Company plans to use the credit facility for the cash portion of the acquisition and to pay-off some of the existing debt of the company referenced in Note 12b. The closing is scheduled for July 13, 2012.

d. The Company received a six month commitment from a lender for second lien term loans for amounts up to $21 million. The delayed draw term loans are for 66 months with monthly interest only payments with repayment of the principal and accrued but unpaid interest due on the maturity dates of the loans. The Company is scheduled to receive funding on a $5 million delayed draw term loan on July 13, 2012 and will likely use the funds for the cash portion of the acquisition and working capital needs of the Company referenced to in Note 12b.

e. 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 becomes effective at the end of the quarter ending September 30, 2012. As the transition period covers one month or less, in accordance with the Securities and Exchange Commission’s transition reporting rules, the Company’s next quarterly report on Form 10-Q will contain the necessary financial information for the transition period.

 

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

CAUTIONARY STATEMENT

Statements in this report which are not purely historical facts, including statements regarding the Company’s anticipations, beliefs, expectations, hopes, intentions or strategies for the future, may be forward-looking statements within the meaning of Section 21E of the Securities Act of 1934, as amended. All forward-looking statements in this report are based upon information available to us on the date of the report. Any forward-looking statements involve risks and uncertainties that could cause actual results or events to differ materially from events or results described in the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements.

DESCRIPTION OF PROPERTIES

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

PROPERTIES

The following is a breakdown of our properties by field as of May 31, 2012:

 

     Gross      Net  
     Producing      Producing  

Name of Field or Well

   Well Count      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 May 31, 2012:

 

                                 Total         
            Net             Net      Gross      Total Net  
     Total Gross      Productive      Total Gross      Productive      Developed      Developed  

Geographic Area

   Oil Wells      Oil Wells      Gas Wells      Gas Wells      Acres      Acres  

Wise County

     —           —           2         0.0360         224         8.06   

Denton County

     —           —           7         0.0360         566         20.38   

Notes:

 

1. Total Gross Wells are those wells in which the Company holds an overriding interest in as of May 31, 2012.

 

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

 

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

 

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

 

5. All acreage in which we hold an overriding interest as of May 31, 2012 have or had existing wells located thereon; thus all acreage may be accurately classified as developed.

OIL AND GAS PARTNERSHIP INTERESTS

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

 

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CRITICAL ACCOUNTING POLICIES

A summary of significant accounting policies is included in Note 2 to the audited financial statements included on Form 10-K for the year ended November 30, 2011 as filed with the United States Securities and Exchange Commission. Management believes that the application of these policies on a consistent basis enables the Company to provide useful and reliable financial information about our operating results and financial condition.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.

RESULTS OF OPERATIONS

For the second quarter ended May 31, 2012 we reported a net loss of $881,805 as compared to net loss of $20,009 for the same quarter last year. For the six months ended May 31, 2012, we reported a net loss of $1,529,427 as compared to a net loss of $71,754 for the same period last year. The components of these results are explained below.

Revenue- Oil and gas revenue for the three months ended May 31, 2012 was $701, a decrease of 24.7%, as compared to $931 for the three months ended May 31, 2011. Oil and gas revenue for the six months ended May 31, 2012 was $2,309, a decreased of 4.6%, as compared to $2,421 for the six months ended May 31, 2011. The decrease in revenue for the quarter and year-to-date is attributable to lower production and gas prices.

Expenses- The components of our expenses for the three and six months ended May 31, 2012 and 2011 are as follows:

 

                  %                  %  
     Three Months Ended     Increase     Six Months Ended     Increase  
     May 31, 2012      May 31, 2011     (Decrease)     May 31, 2012      May 31, 2011     (Decrease)  

Expenses :

              

Lease operating and taxes

   $ 177       $ 3,808        - 95.35   $ 1,701       $ 4,180        - 59.31

General and administrative

     809,173         19,352        4081.34     1,305,834         56,126        2226.61

Depr, depl, a mort., & accretion

     1,665         —          100.00     1,752         —          100.00

Loss on forfeiture of properties

     —           —          —          —           16,089        - 100.00

Gain on sale of furnishings

     —           (2,220     - 100.00     —           (2,220     - 100.00
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 
   $ 811,015       $ 20,940        3773.04   $ 1,309,287       $ 74,175        1665.13
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Lease operating expenses decreased $3,631 for the quarter ended May 31, 2012 and decreased $2,479 for the six months ended May 31, 2012 over the same periods last year. The decrease in expenses for the quarter and year-to-date is primarily attributable to lower administrative expenses charged to the royalty interests.

General and administrative expenses increased $789,821 for the three months ended May 31, 2012 as compared to the same period last year. The increase is attributable to stock compensation cost of $247,950, salaries and wages of $153,204, legal and professional fees of $388,225 and expenses in all other categories totaling $33,622, offset by lower G&A cost allocations of $33,180. For the six months ended May 31, 2012, general and administrative expenses increased $1,249,708 as compared to the same period last year. The increase is attributable to stock compensation cost of $462,263, salaries and wages of $287,827, legal and professional fees of $558,738 and expenses in all other categories totaling $41,747, offset by lower G&A cost allocations of $54,867.

 

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Depreciation expense totaled $1,665 for the three months ended May 31, 2012 and $0 for the three months ended May 31, 2011. Depreciation expense totaled $1,752 for the six months ended May 31, 2012 and $0 for the six months ended May 31, 2011. The increase in depreciation expense is attributable to the addition of property and equipment.

The Company forfeited its interest in Johnson #1-H and Johnson and #2-H Joint Ventures and wrote-off the book value of the wells, asset retirement obligations, receivables and payables which resulted in a loss of $16,089 for the six month period ended May 31, 2011.

The Company sold its furniture and fixtures in the current quarter of the previous fiscal year for $2,220 and wrote-off the fully depreciated value of the related assets.

Other expenses for the three and six months ended May 31, 2012 totaled $71,491 and $222,449, respectively which is the Company’s unrealized loss on its equity investment in Frontier Income and Growth, LLC. Other expenses for the previous year were $0.

We have not recorded any income taxes for the six months ended May 31, 2012 and 2011 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.

LIQUIDITY AND CAPITAL RESOURCES

As of May 31, 2012, we had total assets of $4,749,139 of which investments in our unconsolidated affiliated company amounted to $4,539,104 or 95.6% of the total. Our revenues for the current fiscal quarter totaled $701 while the revenues for the same quarter last year totaled $931. Our accumulated losses as of May 31, 2012 totaled $13,420,146. The Company had a cash balance of $4,370 as of May 31, 2012. Our current ratio at May 31, 2012 was .10:1 As of May 31, 2012 our stockholders’ equity was $3,198,718. Our cash used in operations totaled $1,121,985 for the six months ended May 31, 2012 while cash used in operations totaled $41,703 for the same period last year. This represents an increase of $1,080,282 in cash used in operating activities. Cash flows from investment activities totaled $1,316,303 for the six months ended May 31, 2012 that primarily consisted of the purchase of membership units in FIG. There were no investing activities for the same period last year. Cash flows from financing activities for the six months ended May 31, 2012 totaled $2,428,787 that consisted of the sale of preferred stock subscriptions totaling $1,625,000 and advances from FIG totaling $803,787. During the same period last year, we received advances from Gulftex totaling $41,481.

PLAN OF OPERATION FOR THE FUTURE

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

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

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

 

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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.

Effective June 4, 2012, LoneStar completed the purchase of $5,000,000 of the preferred stock of Registrant and in accordance with its agreement with LoneStar used the proceeds to acquire a 51% interest in Frontier Income and Growth, LLC.

On June 29, 2012 Registrant by and through a wholly owned subsidiary, Frontier Acquisition I, Inc., executed a Stock Purchase Agreement whereby, upon closing, it will acquire all of the issued and outstanding stock of Chico Coffman Tank Trucks, Inc. (“Coffman”) inclusive of its wholly owned subsidiary, Coffman Disposal, LLC for the sum of $17,408,348 subject to certain negative and positive adjustments based upon the amount, at the time of closing, of Coffman’s indebtedness, seller’s expenses and EBITDA adjustments.

Coffman is a salt water disposal company with its primary base of operations located in Chico, Texas with its trade and service area being in the Barnett Shale oil field located in north central Texas. Coffman had audited 2011 revenues of $40.5 million with an EBITDA of $3,263,929. Coffman’s assets are currently valued on its unaudited financials at $24 million and consist of accounts receivable, rolling stock (trucks and trailers), six permitted disposal wells and the headquarters real property. Coffman has short and long term liabilities of approximately $17.6 million.

Upon closing Mr. JD Coffman will remain as President of Coffman Tank Trucks, Inc. and will report directly to Tim Burroughs, President and CEO of Frontier.

ITEM 3. QUANTITATIVE AND QUALATIVE 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 Financial Officer (CFO), the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the quarter covered by this quarterly report on Form 10-Q. Based on this evaluation, management has concluded that, as of May 31, 2012 our disclosure controls and procedures were effective to ensure that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported.

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

 

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assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

None.

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

None.

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

Item 5. OTHER INFORMATION

None.

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 pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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

 

  101 101.INS XBRL Instance Document

101.SCH XBRL Taxonomy Schema

101.CAL XBRL Taxonomy Calculation Linkbase

101.LAB XBRL Taxonomy Label Linkbase

101.PRE XBRL Taxonomy Presentation Linkbase

(b) REPORTS ON FORM 8-K:

1. Form 8-K, filed on June 6, 2012

2. Form 8-K, filed on July 5, 2012

 

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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 13th day of July, 2012

 

FRONTIER OILFIELD SERVICES, INC.
SIGNATURE:  

/s/ Tim Burroughs

  Tim Burroughs, President and Chief Executive Officer

 

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