UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
| x | ||
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended November 30, 2009
OR
| ¨ | ||
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File No. 0-30746
FRONTIER OILFIELD SERVICES INC.
(Formerly TBX RESOURCES, INC.
(NameExact name of Issuerregistrant as specified in its charter)
| Texas | 75-2592165 | ||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||
3030 LBJ Freeway, Suite 1320 Dallas, Texas 75234 | 75234 | |
| (Address of Principal Executive | Zip Code |
Registrant’s telephone number, including Area Code: (972) 243-2610
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock (Title of Each Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.o¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.o¨
Indicate by check mark whether the registrant (1) has filed all reports 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. xYeso¨ No
þIndicate by check mark whether the registrant has submitted electronically and posted on its corporate website , 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 presiding 12 months (or for such shorter period that the registrant was required to submit and post such files). ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.þx
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 | ||||||||||
| Smaller reporting company | x | |||||||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act):o¨ Yesþx No
The Issuer’s revenues for the most recent fiscal year were $51,726.
On August 1, 2010,February 15, 2012, the aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant was approximately $90,425.$3,071,398. This amount was calculated by reducing the total number of shares of the registrant’s common stock outstanding by the total number of shares of common stock held by officers and directors, and stockholders owning in excess of 5% of the registrant’s common stock, and multiplying the remainder by the average of the bid and asked price for the registrant’s common stock on August 1, 2010,February 15, 2012 as reported on the Over-The-Counter Pink Sheet Market. As of August 1, 2010,February 15, 2012, the Company had 4,027,4428,853,288 issued and outstanding shares of common stock.
Documents Incorporated by Reference:
None
FRONTIER OILFIELD SERVICES, INC.
INDEX
Item 1. | Business | �� | 1 | |||||
Item 1A. | Risk Factors | 4 | ||||||
Item 1B. | 13 | |||||||
Item | Properties | |||||||
Item 3. | Legal Proceedings | 14 | ||||||
Item 5. | ||||||||
Item 6. | Selected Financial Data | 14 | ||||||
Item | ||||||||
Item 7A. | ||||||||
Item 8. | ||||||||
| F-1 | ||||||||
| F-2 | ||||||||
| F-3 | ||||||||
| F-4 | ||||||||
| F-5 | ||||||||
| F-6 | ||||||||
Item 9. | ||||||||
Item 9A (T). | Controls and Procedures | 19 | ||||||
Item | Other Information | |||||||
Item | ||||||||
Item 11. | Executive Compensation | 21 | ||||||
Item | ||||||||
Item 13. | ||||||||
Item 14. | ||||||||
Item 15. | Exhibits, Financial Statement Schedules | 27 | ||||||
| 28 | ||||||||
Certificates | ||||||||
Forward Looking Statements
This annual report on Form 10-K includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which can be identified by the use of forward-looking terminology such as “may,” “can,” “believe,” “expect,” “intend,” “plan,” “seek,” “anticipate,” “estimate,” “will,” or “continue” or the negative thereof or other variations thereon or comparable terminology. All statements other than statements of historical fact included in this annual report on Form 10-K, including without limitation, the statements under “Item 1. Business” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and located elsewhere herein regarding the financial position and liquidity of the Company (defined below) are forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors with respect to any such forward-looking statements, including certain risks and uncertainties that could cause actual results to differ materially from the Company’s expectations (“Cautionary Statements”), are disclosed in this annual report on Form 10-K, including, without limitation, in conjunction with the forward-looking statements and under the caption “Risk Factors.” In addition, important factors that could cause actual results to differ materially from those in the forward-looking statements included herein include, but are not limited to, inability to continue as a going concern, limited working capital, limited access to capital, changes from anticipated levels of sales, future national or regional economic and competitive conditions, changes in relationships with customers, access to capital, difficulties in developing and marketing new products, marketing existing products, customer acceptance of existing and new products, validity of patents, technological change, dependence on key personnel, availability of key component parts, dependence on third party manufacturers, vendors, contractors, product liability, casualty to or other disruption of the production facilities, delays and disruptions in the shipment of the Company’s products, and the ability of the Company to meet its stated business goals. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements. We do not undertake to update any forward-looking statements.
We do not have an operative web site upon which our periodic reports, proxy statements and Reports on 8K appear. Our reports are available on the EDGAR system and may be viewed at http://www.sec.gov.
As used herein, references to the “Company” are to Frontier Oilfield Services, Inc. a Texas corporation (“Frontier”) (formerly TBX Resources Inc., a Texas corporation (“TBX”) and its subsidiaries.
The Company and Liquidity Problems
Frontier Oilfield Services, Inc. was incorporated in the state of Texas in March 1995. In the past we have primarily focused our business efforts on acquiring oil and gas production properties and leases. We dodid this because we believed that the major oil companies were leaving the US domestic oil and gas market due to domestic oil and gas exploration properties being significantly depleted. However this trend has changed and major oil companies are again acquiring domestic properties primarily in fields where natural gas is prevalent. This has increased the competition and prices for oil properties and management believes, due to our current financial condition, that we will not be able to compete for and purchase oil and gas properties as effectively as we have sufficient workingin the past. In response to this trend management has recently initiated changes to the Company’s business plan.
Currently, our primary focus is to secure additional capital to sustain our operations. We have been unable to generate sufficient revenues to sustain our operations. We will have to obtain funds to meet our cash requirements through business alliances such as strategic or financial transactions with third parties the sale of securities 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 transportation and disposal, wireline logging, well perforating and frac tank sales and rentals. Secondarily, we may be requiredwill continue to curtail our operations, seek out and acquire producing oil and gas leases and wells.
Recent Developments
The Company recently entered into three material contracts. On September 2, 2011 we entered into an Investment Agreement with LoneStar Income and Growth, LLC, a merger partner, or seek protection under federal bankruptcy laws. AnyTexas 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 foregoingStock to acquire a majority, 51%, membership interest in Frontier Income and Growth, LLC (“FIG”) who’s wholly owned subsidiary is Trinity Disposal & Trucking, LLC, a salt water transportation and disposal company. The Stock has the following attributes in its designation filed with the Texas Secretary of State:
| a. | Frontier will pay an annual dividend of eight percent (8%) on the principal value ($2.00) of each share. |
| b. | 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 the date hereof LoneStar has tendered the sum of $3,000,000 to purchase 1,500,000 shares of the Stock. As of the date of this report, the preferred shares have not been issued as their issuance is contingent upon the full $5,5000,000 being received so that the FIG acquisition can be completed.
On September 1, 2011 we entered into a Subscription Agreement with FIG to acquire a majority 51% membership interest in FIG for the sum of $5,046,000.
Our 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 distributions will increase to 50%. Frontier, 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.
Upon complete performance of each of the three contracts, Frontier will own 51% of the voting interests and be entitled to receive 63.25% of the profits of FIG.
As the Company will continue to seek additional equity and debt financing to implement its new business plan there is no assurance that the Company will be successful in obtaining any additional funding or if obtained that such funding will be on terms that are unfavorablefavorable to usthe Company or disadvantageous to existingour stockholders. In addition, no assurance may be given that the Company will be successful in raising additional funds or entering into business alliances.
1
On December 15, 2011 our corporate name change from TBX Resources, Inc. to Frontier Oilfield Services, Inc became effective. As a result of November 30, 2009, we had total assetsour name change, our Board of $177,745 of which net oilDirectors and gas properties amounted to $49,591 or 27.9%management decided that it would be in the best interest of the total. Ascorporation to apply for a voluntary change in our stock symbol to a symbol that was representative of November 30, 2008, we had total assetsour new corporate name. Effective February 17, 2012 our request to change our stock symbol to “FOSI” was approved by the Financial Industry Regulatory Authority (FINRA). Our Board of $273,972Directors also recently took several actions including the approval of which net oil and gas properties amounted to $57,619 or 21.0% of the total. Our revenuesamended Bylaws for the current fiscal year totaled $51,726 whilecorporation and appointed a new chief financial officer, Kenneth Conte. Mr. Conte’s biography appears in Item 10 below and the revenues for the previous fiscal year totaled $286,606. Our accumulated lossesamended Bylaws are attached to this report as of November 30, 2009 and 2008 totaled $11,377,279 and $11,053,298, respectively. At November 30, 2009, we had $5,327 in cash as compared to $2,506 for November 30, 2008. As of November 30, 2009 the ratio of current assets to current liabilities was .22:1 as compared to .79:1 for November 30, 2008. We have no long-term debt other than the asset retirement obligations. Our asset retirement obligations as of November 30, 2009 and 2008 were $21,021 and $20,981, respectively. As of November 30, 2009 and 2008, our shareholders’ deficit was $407,065 and $83,584, respectively.
Wells Held By the Company
As further described in the description of properties section during the fiscal year ended 2009 we owned a portion of two producing oil wells in Wise County, Texas. In addition, we have a minor overriding interest in two producing wells in Wise County and nine producing gas wells in Denton County, Texas. Also,During the 2010 fiscal year we hadalso owned a minor interest in threeportion of two producing oil wells in EllisWise County, Oklahoma. The Company sold its working interest in the Oklahoma leases effective March 31, 2009 for $1,686 and wrote off the fully depleted property values totaling $229,038.
2Texas.
Economic factors prevailing in the oil and gas industry change from time to time. The uncertain nature and trend of economic conditions and energy policy in the oil and gas business generally make flexibility of operating policies important in achieving desired profitability. We intend to evaluate continuously all conditions and risks affecting our potential activities and to react to those conditions, as we deem appropriate from time to time by engaging in businesses we believe will be the most profitable for us.
In addition, in order to finance future development and operating activities, we may sponsor or manage public or private partnershipssecure additional capital through business alliances with third parties or other business entities depending upon the number, size and economic feasibility of our generated prospects, the level of participation of industry partners and various other factors.debt/equity financing arrangements. However, potential investors should note that while we currently do not have in place anyone definite financing opportunities andopportunity there can be no assurance that we will be able to enter into suchadditional financing arrangements or that if we are able to enter into such arrangements, we will be able to achieve any profitability as a result of our operations.
General Regulations
Both state and federal authorities regulate i) the transportation and disposal of salt water and drilling fluids and ii) the extraction, production, transportation, and sale of oil, gas, and minerals. The executive and legislative branches of government at both the state and federal levels have periodically proposed and considered proposals for establishment of controls on salt water disposal, alternative fuels, energy conservation, environmental protection, taxation of crude oil imports, limitation of crude oil imports, as well as various other related programs. If any proposals relating to the above subjects were to be enacted, we cannot predict what effect, if any, implementation of such proposals would have upon our operations. A listing of the more significant current state and federal statutory authority for regulation of our current operations and business are provided below.
Federal Regulatory Controls
Historically, the transportation and sale of natural gas in interstate commerce have been regulated by the Natural Gas Act of 1938 (the (“NGA”), the Natural Gas Policy Act of 1978 (the “NGPA”) and associated regulations by the Federal Energy Regulatory Commission (“FERC”). The Natural Gas Wellhead Decontrol Act (the “Decontrol Act”) removed, as of January 1, 1993, all remaining federal price controls from natural gas sold in “first sales.” The FERC’s jurisdiction over natural gas transportation was unaffected by the Decontrol Act.
In 1992, the FERC issued regulations requiring interstate pipelines to provide transportation, separate or “unbundled,” from the pipelines’ sales of gas (Order 636). This regulation fostered increased competition within all phases of the natural gas industry. In December 1992, the FERC issued Order 547, governing the issuance of blanket market sales certificates to all natural gas sellers other than interstate pipelines, and applying to non-first sales that remain subject to the FERC’s NGA jurisdiction. These orders have fostered a competitive market for natural gas by giving natural gas purchasers access to multiple supply sources at market-driven prices. Order No. 547 increased competition in markets in which we sell our natural gas.
The natural gas industry historically has been very heavily regulated; therefore, there is no assurance that the less stringent regulatory approach pursued by the FERC and Congress will continue.
Currently pending in the United States Congress is a comprehensive energy bill which among other things calls for the reduction or elimination of certain tax incentives currently in place for domestic oil companies including the tax deductions permitted for intangible costs and depletion allowances. In the event such legislation became law the loss of these tax benefits would likely have a negative material effect on the finances of the company.
The EPA has asserted federal regulatory authority pursuant to the federal Safe Drinking Water Act, or SDWA, over certain hydraulic fracturing activities involving the use of diesel. In addition, from time to time, Congress has considered legislation to provide for federal regulation of hydraulic fracturing in the United States under the SDWA and to require disclosure of the chemicals used in the hydraulic fracturing process.
State Regulatory Controls
In each state where we conduct or contemplate oil and gas activities, these activities are subject to various regulations. The regulations relate to the extraction, production, transportation and sale of oil and natural gas, the issuance of drilling permits, the methods of developing new production, the spacing and operation
3
We know of no proposed regulation or legislation that will significantlymaterially impede our operations.
Environmental Regulations
Our extraction, production and drilling operations and our proposed salt water disposal operations are subject to environmental protection regulations established by federal, state, and local agencies. To the best of our knowledge, we believe that we are in compliance with the applicable environmental regulations established by the agencies with jurisdiction over our operations. We are acutely aware that the applicable environmental regulations currently in effect could have a material detrimental effect upon our earnings, capital expenditures, or prospects for profitability. Our competitors are subject to the same regulations and therefore, the existence of such regulations does not appear to have any material effect upon our position with respect to our competitors. The Texas Legislature has mandated a regulatory program for the management of hazardous wastes generated during crude oil and natural gas exploration and production, gas processing, oil and gas waste reclamation, salt water disposal and transportation operations. The disposal of these wastes, as governed by the Railroad Commission of Texas, is becoming an increasing burden on the industry.
Revenues from oil and gas production are subject to taxation by the state in which the production occurred. In Texas, the state receives a severance tax of 4.6% for oil production and 7.5% for gas production. These high percentage state taxes can have a significant impact upon the economic viability of marginal wells that we may produce and require plugging of wells sooner than would be necessary in a less arduous taxing environment.
Employees
We currently employ twohave four full time and one part time employees.
Offices
We maintain our corporate offices at 3030 LBJ Freeway, Suite 1320, Dallas, Texas 75234,75234. The Company’s operating lease agreement was extended for thirty-nine months through May 31, 2014 and now paypays a monthly base rental of $6,329. Our lease runs from February 1, 2004 through February 28, 2011 at$5,400 a costportion of approximately $454,629. As of November 30, 2009which is allocated to an affiliate with whom we share the space. The Company’s continuing obligation under the base lease is approximately $94,928.
We may not be able to continue as a going concern or fund our existing capital needs.
Due to the changes occurring in the oil industry we have adopted a going concern. Our existingrevised business plan which will cause the Company to change its primary focus from oil production activities to acquiring businesses and anticipated capital needsassets that are significant. We believe our existing financing arrangementsinvolved in the oil field services industry with an emphasis on salt water and estimated operating cash flows will not be sufficient to fund our operations and working capital needs for the next twelve monthsdrilling fluid disposal. The Company currently has very limited financial resources and there can be no assurance that we will be successful in locating such businesses or assets and if we are successful in locating them that we will be able to successfully acquire them.
Federal legislation and state legislative and regulatory initiatives relating to hydraulic fracturing could result in increased costs and additional operating restrictions or delays as well as adversely affect our services.
Hydraulic fracturing is an important and commonly used process for the completion of oil and natural gas wells in formations with low permeabilities, such as shale formations, and involves the pressurized injection of water, sand and chemicals into rock formations to stimulate production. Due to concerns raised concerning potential impacts of hydraulic fracturing on groundwater quality, legislative and regulatory efforts at the federal level and in some states have been initiated in the United States to render permitting, public disclosure and construction and operational compliance requirements more stringent for hydraulic fracturing. While hydraulic fracturing typically is regulated in the United States by state oil and natural gas commissions, there have been developments indicating that more federal regulatory involvement may occur.
The EPA has asserted federal regulatory authority pursuant to the federal Safe Drinking Water Act, or SDWA, over certain hydraulic fracturing activities involving the use of diesel. In addition, from time to time, Congress has considered legislation to provide for federal regulation of hydraulic fracturing in the United States under the SDWA and to require disclosure of the chemicals used in the hydraulic fracturing process. At the state level, several states have adopted or are considering adopting legal requirements that could impose more stringent requirements on hydraulic fracturing activities. In the event that new or more stringent federal or state legal restrictions relating to use of the hydraulic fracturing process in the United States are adopted in areas where our oil and natural gas exploration and production customers operate, those customers could incur potentially significant added costs to comply with requirements relating to permitting, construction, financial assurance, monitoring, recordkeeping, and/or plugging and abandonment, as well as could experience delays or curtailment in the pursuit of production or development activities, which could reduce demand for our rental tools and services and tubular services businesses.
In addition, certain domestic governmental reviews are either underway or being proposed that focus on environmental aspects of hydraulic fracturing practices. The White House Council on Environmental Quality is coordinating an administration-wide review of hydraulic fracturing practices, and a committee of the United States House of Representatives has conducted an investigation of hydraulic fracturing practices. The EPA has commenced a study of the potential environmental effects of hydraulic fracturing on drinking water and groundwater, with initial results expected to be available by late 2012 and final results by 2014. Moreover, the EPA is planning to develop effluent limitations for the treatment and discharge of wastewater resulting from hydraulic fracturing activities by 2014.
Other governmental agencies, including the U.S. Department of Energy and the U.S. Department of the Interior, are evaluating various other aspects of hydraulic fracturing. These ongoing or proposed studies, depending on their degree of pursuit and any meaningful results obtained, could spur initiatives to further regulate hydraulic fracturing under the SDWA or other regulatory mechanisms, which events could delay or curtail production of oil and natural gas by exploration and production operations, some of which are our customers, and thus reduce demand for our services.
We are subject to extensive and costly environmental laws and regulations that may require us to take actions that will adversely affect our results of operations.
All of our current and proposed operations are significantly affected by stringent and complex foreign, federal, provincial, state and local laws and regulations governing the discharge of substances into the environment or otherwise relating to environmental protection. We could be exposed to liability for cleanup costs, natural resource damages and other damages as a result of our conduct that was lawful at the time it occurred or the conduct of, or conditions caused by, prior operators or other third parties.
Environmental laws and regulations are subject to change in the future, possibly resulting in more stringent requirements. If existing regulatory requirements or enforcement policies change or are more stringently enforced, we may be required to make significant unanticipated capital and operating expenditures.
Any failure by us to comply with applicable environmental laws and regulations may result in governmental authorities taking actions against our business that could adversely impact our operations and financial condition, including the:
issuance of administrative, civil and criminal penalties;
denial or revocation of permits or other authorizations;
reduction or cessation in operations; and
performance of site investigatory, remedial or other corrective actions.
There are risks inherent in reworking, completing and operating disposal wells.
Reworking and completing saltwater disposal wells involves a degree of risk, and sometimes results in unsuccessful efforts, for a variety of reasons. The Company cannot control the outcome of operations entirely, and there can be no assurance that any operation will be successful. The results of any well operations cannot be determined in advance. Even though a well is permitted to accept a certain amount of water, there is no assurance that the well or any specific zone in the well will be capable in fact of absorbing any specific amount of water. A well may also be ruined or rendered unusable during operations due to technical or mechanical difficulties. Should a well be successfully completed or perforated, there is still no assurance that the zone in which the well is completed or perforated will be able to absorb saltwater at a rate that will support profitable operations. Disposal wells can encounter problems that render the well unusable, even after a period of successful operation. There can be no assurance that the Company will be able to successfully rework, complete or operate any specific well, or will be able to operate sufficient wells to achieve a consistent positive cash flow or to achieve profitability.
Our Company Success Will Likely Depend Upon The Continuing Availability Of Certain Disposal Sites.
We believe that there will be available to the Company a number of existing disposal wells and sources of locations for the drilling of new wells necessary to provide the Company with sufficient disposal capacity at a reasonable cost. However, there can be no assurance that disposal wells or disposal well locations will always be available or available at a reasonable cost. There can be no assurance that the Company will have the resources to drill and/or complete additional wells. If we are not able to obtain disposal wells or disposal well drilling locations or the wells or locations are available but their cost is no longer reasonable, the Company’s finances would be directly impacted and it might not have the ability to continue as a going concern.
The Company may not be insured or insured in sufficient amounts or against all liabilities.
The Company could incur substantial liabilities to third parties in connection with reworking or operating disposal wells. The Company may not be able to insure against all such liabilities, may carry insurance in amounts not sufficient to cover all such liabilities or may elect not to insure against such liabilities due to the premium costs involved or other reasons. Other parties with whom the Company contracts for operations may carry liability insurance, but there is no assurance that the insured risks or the level of insurance coverage obtained by such parties will be sufficient to cover all potential liability incurred by such parties or the Company. Further, there may be occurrences resulting in expenses or liabilities to third parties that are of a nature that cannot now or may not in the future be insured. Uninsured liabilities to third parties could reduce the funds available to the Company, could exceed the value of the assets of the Company, and could result in the complete loss of property owned by the Company.
The Company Is Dependent Upon Trucking and Is Subject To Potential Liability.
The Company’s primary method of collecting the salt water from its customers will be by truck. Consequently the Company will have a number of trucks operating on the roads and highways where potential accidents and liability may occur. While the Company anticipates insuring itself from certain risks, there is no assurance that the Company will be able to obtain such insurance or if available that the insurance will be adequate to cover all of any potential liability or judgment rendered against the Company. Should the Company not be insured or the amount of its insurance be inadequate to cover any finding of liability against the Company then it is likely that the Company would not be able to continue as a going concern.
We May Not Obtain Necessary Permits.
We will be required to obtain certain permits, approvals or licenses in connection with our proposed operations. We may not be able to obtain new or transferred permits, approvals or licenses on a timely basis or at all, which would result in material adverse consequences to our business and financial condition.
Our Proposed Salt Water Disposal Operations May Be Subject To Liability or Claims Of Environmental Damages.
We have acquired existing salt water disposal wells and locations which have received the necessary governmental permits for drilling a disposal well. However, although the disposal wells have received certain governmental regulatory licenses, permits or approvals this does not shield the Company from potential claims from third parties claiming contamination of their water supply or other environmental damages. Remediation of environmental contamination or damages can be extremely costly and such costs, if the Company is found liable, could be of such a magnitude as to cause the Company to cease operating as a going concern.
Our Business May Fail.
There is limited operating history upon which to base an assumption that we will be able to achieve its business plans. Our proposed salt water disposal operations are subject to all of the risks inherent in the establishment of a new business enterprise, including the lack of significant operating history and potential undercapitalization. There can be no assurance that future operations will be profitable. Revenues and profits, if any, will depend upon various factors, our ability to acquire suitable assets and to obtain customers. There can be no assurance that we will achieve its projected goals or accomplish its business plans; and such failure could have a material adverse effect on the company and its stockholders. If the we are not able to achieve and maintain operating revenues, it could fail and you could lose your entire investment.
We Will Require Additional Funding To Implement Its Business Plan.
Our estimate of the amounts required to fund our acquisitions and future operations is based upon assumptions that may not prove accurate. If we do not have adequate funds to cover working capital requirements, we will require debt and/or equity financing sources for additional working capital. We may leverage our assets and may use the assets as collateral to secure financing. There is no assurance that the Company will obtain additional debt or equity funding if necessary.
Our Business Depends On Domestic Spending By The Oil And Gas Industry.
Industry conditions are influenced by numerous factors over which we have no control, such as the supply of and demand for oil and gas, domestic and worldwide economic conditions, political instability in oil and gas producing countries and merger and divestiture activity among oil and gas producers. The volatility of the oil and gas industry and the consequent impact on exploration and production activity could adversely impact the level of drilling and workover activity. This reduction may cause a decline in the demand for our proposed services or adversely affect the price of our services. In addition, reduced discovery rates of new oil and gas reserves in our market areas also may have a negative long-term impact on our business, even in an environment of stronger oil and gas prices, to the extent existing capital needsproduction is not replaced and the number of producing wells for us to service declines.
Competition May Adversely Affect Us. The well services industry is highly competitive and fragmented and includes numerous small companies capable of competing effectively in our markets on a local basis, as well as several large companies that possess substantially greater financial and other resources than we do. Our larger competitors’ greater resources could allow those competitors to compete more effectively than we can.
Our Operations Are Subject To Inherent Risks, Some Of Which Are Beyond Our Control.
Our operations are subject to hazards inherent in the oil and gas industry, such as, but not limited to, accidents, blowouts, explosions, craterings, fires and oil spills. These conditions can cause:
personal injury or loss of life;
damage to or destruction of property and equipment and the environment; and
suspension of operations.
The occurrence of a significant event or adverse claim in excess of any insurance coverage that we maintain or that is not covered by insurance could have a material adverse effect on our financial condition and results of operations. Litigation arising from a catastrophic occurrence at a location where our equipment or services are being used may result in our being named as a defendant in lawsuits asserting large claims.
We may be exposed to certain regulatory and financial risks related to climate change.
Climate change is receiving increasing attention from scientists and legislators alike. The debate is ongoing as to the extent to which our climate is changing, the potential causes of this change and its potential impacts. Some attribute global warming to increased levels of greenhouse gases, including carbon dioxide, which has led to significant legislative and regulatory efforts to limit greenhouse gas emissions. A significant focus is being made on companies that are active producers of depleting natural resources.
There are a number of legislative and regulatory proposals to address greenhouse gas emissions, which are in various phases of discussion or implementation. The outcome of foreign, U.S. federal, regional, provincial and state actions to address global climate change could result in a variety of regulatory programs including potential new regulations, additional charges to fund energy efficiency activities, or other regulatory actions. These actions could:
result in increased costs associated with our operations and our customers’ operations;
increase other costs to our business;
adversely impact overall drilling activity in the areas in which we plan to operate;
reduce the demand for carbon-based fuels; and
reduce the demand for our services.
Any adoption of these or similar proposals by foreign, U.S. federal, regional or state governments mandating a substantial reduction in greenhouse gas emissions and implementation of the Kyoto Protocol (the Copenhagen Accord,) or other foreign, U.S. federal, regional or state requirements or other efforts to regulate greenhouse gas emissions, could have far-reaching and significant impacts on the energy industry. Although it is not possible at this time to predict how legislation or new regulations that may be adopted to address greenhouse gas emissions would impact our business, any such future laws and regulations could result in increased compliance costs or additional operating restrictions, and could have a material adverse effect on our business or demand for our services.
Currently proposed legislative changes, including changes to tax laws and regulations, could materially, negatively impact the Company, increase the costs of doing business and decrease the demand for our products.
The current U.S. administration and Congress have proposed several new articles of legislation or legislative and administration changes, including changes to tax laws and regulations, which could have a material negative effect on our Company. Some of the proposed changes that could negatively impact us are:
cap and trade system for emissions;
increase environmental limits on exploration and production activities;
repeal of expensing of intangible drilling costs;
increase of the amortization period for geological and geophysical costs to seven years;
repeal of percentage depletion;
limits on hydraulic fracturing or disposal of hydraulic fracturing fluids;
repeal of the domestic manufacturing deduction for oil and natural gas production;
repeal of the passive loss exception for working interests in oil and natural gas properties;
repeal of the credits for enhanced oil recovery projects and production from marginal wells;
repeal of the deduction for tertiary injectants;
changes to the foreign tax credit limitation calculation; and
changes to healthcare rules and regulations.
We are subject to litigation risks that may not be covered by insurance.
In the ordinary course of business, we become the subject of various claims, lawsuits and administrative proceedings seeking damages or other remedies concerning our commercial operations, employees and other matters, including potential claims from individuals due to accidents or other mishaps involving our proposed trucking operations. We maintain insurance to cover many of our potential losses, and we are subject to various self-retentions and deductibles under our existing credit facilities or otherwise secure additional funding, if necessary. In addition, changes in our operating plans, the acceleration or modification of our existing expansion plans, lower than anticipated revenues, increased expenses, potential acquisitions, or other events may cause us to seek additional financing sooner than anticipated, prevent us from achieving the goals of our business plan or expansion strategy, or prevent our newly acquired businesses, if any, from operating profitably. If we are unable to fund our existing capital needs under our existing credit facilities, or are otherwise unable to secure additional equity financing, if necessary, our businessinsurance policies. It is possible, however, that a judgment could be materially adversely affected.See Management’s Discussionrendered against us in cases in which we could be uninsured and Analysisbeyond the amounts that we currently have reserved or anticipate incurring for such matters.
Our concentration of Financial Condition and Results of Operation—Liquidity and Capital Resources.
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Our future success of our continuing production operations depends upon our ability to find, develop and acquire additional oil and gas reserves that are economically recoverable.
The rate of production from oil and natural gas properties declines as reserves are depleted. As a result, we must locate and develop or acquire new oil and gas reserves to replace those being depleted by production and those that have been sold. We must do this even during periods of low oil and gas prices when it is difficult to raise the capital necessary to finance activities. Without successful exploration or acquisition activities, our reserves and revenues will decline. We may not be able to find and develop or acquire additional reserves at an acceptable cost or haveobtain the necessary financing for these activities.
Oil and gas drilling is a high-risk activity.
Our future success will depend on the success of our drilling programs.proposed salt water operations and our continued acquisition of producing properties. In addition to the numerous operating risks described in more detail below, these activities involve the risk that no commercially productive oil or gas reservoirs will be discovered. In addition, we are often uncertain as to the future cost or timing of drilling, completing and producing wells. Furthermore, our drilling operations may be curtailed, delayed or canceled as a result of a variety of factors, including, but not limited to, the following:
unexpected drilling conditions;
pressure or irregularities in formations;
equipment failures or accidents;
adverse weather conditions;
inability to comply with governmental requirements; and
shortage or delays in the availability of drilling rigs and the delivery of equipment.
If we experience any of these problems, our ability to conduct operations could be adversely affected.
Factors beyond our control affect our ability to market oil and gas.
Our ability to market oil and gas from our wells depends upon numerous factors beyond our control. These factors include, but are not limited to, the following:
the level of domestic production and imports of oil and gas;
the proximity of gas production to gas pipelines;
the availability of pipeline capacity;
the demand for oil and gas by utilities and other end users;
the availability of alternate fuel sources;
the effect of weather;
state and federal regulation of oil and gas marketing; and
federal regulation of gas sold or transported in interstate commerce.
If these factors were to change dramatically, our ability to market oil and gas or obtain favorable prices for our oil and gas could be adversely affected.
The marketability of our production may be dependent upon transportation facilities over which we have no control.
The marketability of our production depends in part upon the availability, proximity, and capacity of pipelines, natural gas gathering systems and processing facilities. Any significant change in market factors affecting these infrastructure facilities could harm our business. We deliver some of our oil and natural gas through gathering systems and pipelines that we do not own. These facilities may not be available to us in the future.
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Our future financial condition, results of our disposal operations and the carrying value of our oil and natural gas properties depend primarily upon the prices we receive for our oil and natural gas production. Oil and natural gas prices historically have been volatile and likely will continue to be volatile in the future, especially given world geopolitical conditions. Our cash flow from operations is highly dependent on the prices that we receive for oil and natural gas. This price volatility also affects the amount of our cash flow available for capital expenditures and our ability to borrow money or raise additional capital. The prices for oil and natural gas are subject to a variety of additional factors that are beyond our control. These factors include:
the level of consumer demand for oil and natural gas;
the domestic and foreign supply of oil and natural gas;
the ability of the members of the Organization of Petroleum Exporting Countries to agree to and maintain oil price and production controls;
the price of foreign oil and natural gas;
domestic governmental regulations and taxes;
the price and availability of alternative fuel sources;
weather conditions, including hurricanes and tropical storms in and around the Gulf of Mexico;
market uncertainty;
political conditions in oil and natural gas producing regions, including the Middle East; and
world wide economic conditions.
These factors and the volatility of the energy markets generally make it extremely difficult to predict future oil and natural gas price movements with any certainty. Also, oil and natural gas prices do not necessarily move in tandem. Declines in oil and natural gas prices would not only reduce revenue, but could reduce the amount of oil and natural gas that we can produce economically and, as a result, could have a material adverse effect upon our financial condition, results of operations, oil and natural gas reserves and the carrying values of our oil and natural gas properties. If the oil and natural gas industry experiences significant price declines, we may, among other things, be unable to meet our financial obligations or make planned expenditures.
Since the end of 1998, oil prices have gone from near historic low prices to historic highs. At the end of 1998, NYMEX oil prices were at historic lows of approximately $11.00 per Bbl, but have generally increased since that time, albeit with fluctuations. For 2009,2011, NYMEX oil prices fluctuated but averaged $62.00$97.00 per Bbl. For 20082010 oil prices were high throughout the year, averagingalso fluctuated but averaged approximately $90.00$80.00 per Bbl. While we attempt to obtain the best price for our crude in our marketing efforts, we cannot control these market price swings and are subject to the market volatility for this type of oil. These price differentials relative to NYMEX prices can have as much of an impact on our profitability as does the volatility in the NYMEX oil prices.
Natural gas prices have also experienced volatility during the last few years. During 1999, natural gas prices averaged approximately $2.35 per Mcf and, like crude oil, have generally trended upward since that time, although with significant fluctuations along the way. During 2009,2011, NYMEX natural gas prices averaged $4.15$4.13 per MMBtu and in 2008,2010, averaged $8.17$4.48 per MMBtu.
We may not be able to replace our reserves or generate cash flows if we are unable to raise capital.
We make, and will continue to make, substantial capital expenditures for the acquisition and production of oil and gas reserves. Historically, we have financed these expenditures primarily with cash generated by operations and proceeds from bank borrowings and equity financing. If our revenues or borrowing base decrease as a result of lower oil and gas prices, operating difficulties or decline in reserves, we may have limited ability to expend the capital necessary to undertake or complete future drilling programs. Additional debt or equity financing or cash generated by operations may not be available to meet these requirements.
We face strong competition from other energy companies that may negatively affect our ability to carry on operations.
We operate in the highly competitive areas of oil and gas exploration, development and production. Factors that affect our ability to successfully compete in the marketplace include, but are not limited to, the following:
the availability of funds and information relating to a property;
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the standards established by us for the minimum projected return on investment;
the availability of alternate fuel sources; and
the intermediate transportation of gas.
The inability to control other associated entities could adversely affect our business.
To the extent that we do not operate all of our properties, our success depends in part upon operations on certain properties in which we may have an interest along with other business entities. Because we have no control over such entities, we are able to neither direct their operations, nor ensure that their operations on our behalf will be completed in a timely and efficient manner. Any delay in such business entities’ operations could adversely affect our operations.
There are substantial risks in acquiring producing properties.
We constantly evaluate opportunities to acquire oil and natural gas properties and frequently engage in bidding and negotiating for these acquisitions. If successful in this process, we may alter or increase our capitalization through the issuance of additional debt or equity securities, the sale of production payments or other measures. Any change in capitalization affects our risk profile.
A change in capitalization, however, is not the only way acquisitions affect our risk profile. Acquisitions may alter the nature of our business. This could occur when the character of acquired properties is substantially different from our existing properties in terms of operating or geologic characteristics.
Operating hazards may adversely affect our ability to conduct business.
Our operations are subject to risks inherent in the oil and gas industry, including but not limited to the following:
blowouts;
cratering;
explosions;
uncontrollable flows of oil, gas or well fluids;
fires;
pollution; and
other environmental risks.
These risks could result in substantial losses to us from injury and loss of life, damage to and destruction of property and equipment, pollution and other environmental damage and suspension of operations. Governmental regulations may impose liability for pollution damage or result in the interruption or termination of operations.
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While estimates of our and gas reserves, and future net cash flows attributable to those reserves, were prepared by independent petroleum engineers, there are numerous uncertainties inherent in estimating quantities of proved reserves and cash flows from such reserves, including factors beyond our control and the control of engineers. Reserve engineering is a subjective process of estimating underground accumulations of oil and gas that cannot be measured in an exact manner. The accuracy of an estimate of quantities of reserves, or of cash flows attributable to these reserves, is a function of many factors, including but not limited to, the following:
the available data;
assumptions regarding future oil and gas prices;
expenditures for future development and exploitation activities; and
engineering and geological interpretation and judgment.
Reserves and future cash flows may also be subject to material downward or upward revisions based upon production history, development and exploitation activities and oil and gas prices. Actual future production, revenue, taxes, development expenditures, operating expenses, quantities of recoverable reserves and value of cash flows from those reserves may vary significantly from the estimates. In addition, reserve engineers may make different estimates of reserves and cash flows based on the same available data. For the reserve calculations, oil was converted to gas equivalent at six Mcf of gas for one Bbl of oil. This ratio approximates the energy equivalency of gas to oil on a Btu basis. However, it may not represent the relative prices received from the sale of our oil and gas production.
The estimated quantities of proved reserves and the discounted present value of future net cash flows attributable to those reserves included in this document were prepared by independent petroleum engineers in accordance with the rules of the SFAS69 and the SEC. These estimates are not intended to represent the fair market value of our reserves.
Loss of executive officers or other key employees could adversely affect our business.
Our success is dependent upon the continued services and skills of our current executive management. The loss of services of any of these key personnel could have a negative impact on our business because of such personnel’s skills and industry experience and the difficulty of promptly finding qualified replacement personnel.
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While our business strategy does not currently contemplate the acquisition of entire businesses, it is possible that we might acquire entire businesses in the future. Potential risks involved in the acquisition of such businesses include the inability to continue to identify business entities for acquisition or the inability to make acquisitions on terms that we consider economically acceptable. Furthermore, there is intense competition for acquisition opportunities in our industry. Competition for acquisitions may increase the cost of, or cause us to refrain from, completing acquisitions. Our strategy of completing acquisitions would be dependent upon, among other things, our ability to obtain debt and equity financing and, in some cases, regulatory approvals. Our ability to pursue our growth strategy may be hindered if we are not able to obtain financing or regulatory approvals. Our ability to grow through acquisitions and manage growth would require us to continue to invest in operational, financial and management information systems and to attract, retain, motivate and effectively manage our employees. The inability to effectively manage the integration of acquisitions could reduce our focus on subsequent acquisitions and current operations, which, in turn, could negatively impact our earnings and growth. Our financial position and results of operation may fluctuate significantly from period to period, based on whether or not significant acquisitions are completed in particular periods.
Risks Related to Our Common Stock
Our common stock is thinly traded which is likely to result in volatile swings in our stock price.
Our stock is thinly traded as much of our issued and outstanding stock is held by our officers and a small number of stockholders. Consequently until our common stock is more widely held and actively traded small sales or purchases will likely cause the price of our common stock to fluctuate dramatically up or down without regard to our financial health, net worth or business prospects.
We may issue additional shares of Common Stock.
Pursuant to our certificate of incorporation, our board of directors has the authority to issue additional series of commonpreferred stock and to determine the rights and restrictions of shares of those series without the approval of our stockholders. The rights of the holders of the current series of common stock may be junior to the rights of common stock that may be issued in the future.
There may be future dilution of our Common Stock.
We are committed to an aggressive acquisition strategy which is likely to require the issuance of common shares as a component of the purchase price for the acquisitions. Any such issuance may result in dilution of our common stock. In addition, to the extent options to purchase common stock under employee and director stock option plans are exercised, holders of our common stock will be diluted. If available funds and cash generated from our operations are insufficient to satisfy our needs, we may be compelled to sell additional equity or convertible debt securities. The sale of additional equity or convertible debt securities could result in additional dilution to our stockholders.
Our management controls a significant percentage of our outstanding common stock and their interests may conflict with those of our stockholders.
Our executive officers and their affiliates beneficially own a substantial percentage of our outstanding common stock. This concentration of ownership could have the effect of delaying or preventing a change in control of the company, or otherwise discouraging a potential acquirer from attempting to obtain control of the company. This could have a material adverse effect on the market price of the common stock or prevent our stockholders from realizing a premium over the then prevailing market prices for their shares of common stock.
Sales of substantial amounts of our common stock may adversely affect our stock price and make future offerings to raise more capital difficult.
Sales of a large number of shares of our common stock in the market or the perception that sales may occur could adversely affect the trading price of our common stock. We may issue restricted securities or register additional shares of common stock in the future for our use in connection with future acquisitions. Except for volume limitations and certain other regulatory requirements applicable to affiliates, such shares may be freely tradable unless we contractually restrict their resale. The availability for sale, or sale, of the shares of common stock eligible for future sale could adversely affect the market price of our common stock.
There are no unresolved comments from the staff of the Securities and Exchange Commission
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General. Following is information concerning production from our oil and gas wells, productive well counts and both producing and undeveloped acreage. During the fiscal year ended November 30, 2005 we acquired an interest in two Barnett Shale gas wells in Wise County, Texas. We alsocurrently have a minor overriding interest in seven Barnett Shale gas wells in Denton County, Texas. We previously acquired severalTexas and two Barnett Shale gas wells and acreages in EllisWise County, Oklahoma which we sold effective March 31, 2009 for $1,686 and wrote off the fully depleted property values totaling $229,038.
Reserves Reported To Other Agencies. We are not required and do not file any estimates of total, proved net oil or gas reserves with reports to any federal authority or agency.
| Oil | Gas | |||||||
| (BBL) | (MCF) | |||||||
Proved Reserves November 30, 2007 | 19,671 | 78,185 | ||||||
| Revisions to previous estimates | (396 | ) | 5,686 | |||||
| Purchases | — | — | ||||||
| Production | (1,153 | ) | (21,754 | ) | ||||
| Sales, transfers and retirements | (17,085 | ) | — | |||||
Proved Reserves November 30, 2008 | 1,037 | 62,117 | ||||||
| Revisions to previous estimates | (60 | ) | (1,031 | ) | ||||
| Purchases | — | — | ||||||
| Production | (21 | ) | (9,656 | ) | ||||
| Sales, transfers and retirements | — | — | ||||||
Proved Reserves November 30, 2009 | 956 | 51,430 | ||||||
The following information pertains to our properties as of November 30, 2009:
| Gross | Net | |||||||
| Producing | Producing | |||||||
| Well | Well | |||||||
| Name of Field or Well | Count | Count | ||||||
| Newark East, Working Interest | 2 | 0.74 | ||||||
| Newark East, Override Interest | 9 | 0.03 | ||||||
Name of Field or Well | Gross Producing Well Count | Net Producing Well Count | ||||||
Newark East, Override Interest | 9 | 0.036 | ||||||
Productive Wells and Acreage
| 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 | — | — | 4 | 0.7424 | 224 | 83.14 | ||||||||||||||||||
| Denton County | — | — | 7 | 0.0360 | 566 | 20.38 | ||||||||||||||||||
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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 | |
| 2. | Net Productive Wells was calculated by multiplying the | |
| 3. | Total Gross Developed Acres is equal to the total surface acres of the properties in which the Company holds | |
| 4. | Net Developed Acres is equal to the Total Gross Developed Acres multiplied by the percentage of the total | |
| 5. | All acreage in which we hold | |
| 6. | Acreage that has existing wells and may be classified as developed may also have additional development potential based on the number of producible zones beneath the surface acreage. A more comprehensive study of all properties currently leased by us would be required to determine precise developmental potential. |
Oil and Gas Partnership Interests
We ownowned a partnership interests in the Johnson No. 1-H, Johnson No. 2-H Joint Ventures of 59.16%76.30% and 65.60%48.69%, respectively.respectively which was forfeited effective September 7, 2010. We did not acquire any additional partnership interests in the current fiscal year. Effective April 1, 2008,
Forfeiture of Oil and Gas Interests
During the first quarter of this fiscal year, we were notified 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 we 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, we are no longer is obligated to pay the plug and abandonment costs for these wells.
As a result of the forfeiture the Company sold its partnership interestswrote-off the book value of the wells, asset retirement obligations, receivables and payables which resulted in the Hagansport No. 1 (32.89%) and No. 2 (66.67%) units to Gulftex.
The lawsuit was settled on February 11, 2010 wherein it is acknowledged that the Company is not currently the rightful ownersubject of certain interestsor involved in the Wise and Denton County, Texas. Gulftex Operating received $97,909 (net of expenses) on behalf of the Company for the Johnson Nos. 1 and 2 gas wells in Wise County, Texas covering the period March 1, 2008 through October 31, 2009. The $97,909 received by Gulftex Operating was used to pay down a portion of its loans to the Company. The Company’s also received $13,973 (net of expenses) for its overrides in nine gas wells in Denton County, Texas covering the period Mach 1, 2008 through October 31, 2009. It is intended that these payments fully resolve all claims by the Company against the defendants.
Item 5. Market For Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities.
Prices for our common stock are currently quoted in the over-the-counter Pink Sheets maintained by the National Quotation Bureau (NQB) owned Pink Sheet OTC Market, Inc. and our ticker symbol is TBXC.PK.FOSI.PK (Formerly TBXC.PK). Prices for our stock were approved for quotation on the over-the-counter on January 27, 2001.
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| QUARTER | LOW BID | HIGH BID | ||||||
| Quarter ending February 28, 2009 | $ | 0.05 | $ | 0.24 | ||||
| Quarter ending May 31, 2009 | $ | 0.03 | $ | 0.24 | ||||
| Quarter ending August 31, 2009 | $ | 0.12 | $ | 0.12 | ||||
| Quarter ending November 30, 2009 | $ | 0.02 | $ | 0.51 | ||||
| QUARTER | LOW BID | HIGH BID | ||||||
| Quarter ending February 29, 2008 | $ | 0.35 | $ | 3.00 | ||||
| Quarter ending May 31, 2008 | $ | 0.75 | $ | 1.75 | ||||
| Quarter ending August 31, 2008 | $ | 0.27 | $ | 0.80 | ||||
| Quarter ending November 30, 2008 | $ | 0.13 | $ | 0.36 | ||||
QUARTER | LOW BID | HIGH BID | ||||||
Quarter ending February 28, 2011 | $ | 0.01 | $ | 0.06 | ||||
Quarter ending May 31, 2011 | $ | 0.01 | $ | 0.09 | ||||
Quarter ending August 31, 2011 | $ | 0.01 | $ | 0.07 | ||||
Quarter ending November 30, 2011 | $ | 0.07 | $ | 1.55 | ||||
QUARTER | LOW BID | HIGH BID | ||||||
Quarter ending February 28, 2010 | $ | 0.01 | $ | 0.19 | ||||
Quarter ending May 31, 2010 | $ | 0.03 | $ | 0.19 | ||||
Quarter ending August 31, 2010 | $ | 0.03 | $ | 0.05 | ||||
Quarter ending November 30, 2010 | $ | 0.02 | $ | 0.06 | ||||
The above information was obtained from the Pink Sheet OTC Market, Inc. web site. Because these are over-the-counter market quotations, these quotations reflect inter-dealer prices, without retail mark-up, markdown or commissions and may not represent actual transactions. We have 780783 shareholders of record for our common stock as of November 30, 2009.
Not applicable as we are a smaller reporting company.
Management’s Discussion and Analysis Ofof Financial Condition and Results Ofof Operations for the Twelve Months Ended November 30, 2009 And 2008.
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.
Recent Financial Developments
Effective November 30, 2010, Gulftex Operating forgave $433,232 in loans and advances to Frontier because we had insufficient working capital to repay them. However, during the current fiscal year circumstances changed and the Company along with Grasslands I, L.P., intervened as third party plaintiffsrepaid $122,551 of the amount previously written-off. Frontier has not entered into an agreement to repay the remaining balance of $310,681. However, the Company may pay Gulftex additional amounts if requested and there are sufficient funds available to make the payments. As of the date of this report, Gulftex has not made any further requests for payment.
Our officers resumed drawing salaries in a lawsuit originally captioned as Clay Bain, et. al. v. Earthwise Energy, Inc. (EEI) which was filed in April 2009October of this fiscal year. Due to the financial condition of the Company in the 14th Judicial District, Dallas County Texas, Cause No. 095253. Our petition requested that we be given certain injunctive reliefprevious fiscal year, Tim Burroughs and be awarded unspecified damagesSherri Cecotti agreed, effective February 16, 2010, to draw no salary until such time as the Company had sufficient cash to sustain the operations including the payment of their salaries. The forbearance of the above officer’s salary was a complete forbearance and not a deferral.
Sale of Furniture and Fixtures
The Company sold its furniture and fixtures to a third-party this fiscal year for certain alleged causes$2,220 and wrote-off the fully depreciated value of action including, but not limited to, fraud, conversionthe related assets. The Company is currently utilizing furniture and violation of fiduciary duty against defendant Earthwise Energy, Inc. but also as against two individuals, Jeffery C. Reynolds and Steven C. Howard who were addedfixtures supplied by its President, Tim Burroughs, at no cost to the lawsuit as third party defendants. Mr. Reynolds isCompany.
Other Developments
On September 1, 2011 we entered into a former member of our Board of Directors who resigned in July 2008. The lawsuit was settled on February 11, 2010 wherein it is acknowledged thatservices agreement with Frontier Income and Growth, LLC. Under the agreement the Company is the rightful owner of certain interests in the Wise and Denton County, Texas. Gulftex Operating received $97,909 (net of expenses) on behalf of the Companycharging Frontier for the Johnson Nos. 1 and 2 gas wells in Wise County, Texas covering the period March 1, 2008 through October 31, 2009. The amount received by Gulftex Operating was used to pay down a portion of its loans toadministrative services and rent. For the Company. The Company’s also received $13,973 (net of expenses) for its overrides in nine gas wells in Denton County, Texas covering the period Mach 1, 2008 through October 31, 2009. It is intended that these payments fully resolve all claims bythree months ended November 30, 2011 the Company against the defendants.
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On June 1, 2007 we entered into a services agreement with Gulftex Operating, Inc. Under the agreement the Company charged Gulftex for a portion of administrative services and rent. For the twelve months ended November 30, 20092010 the Company billed $89,647$63,490 for these services. For the Twelve months endedThe Agreement was terminated on November 30, 2008 the Company billed $96,195 for these services.
Results of Operations
We did not have an impairmentrecorded a net loss of $485,031 for the fiscal year ended November 30, 2009. Our impairment loss for the fiscal year ended November 30, 2008 is 62,086.
Revenue— - Total revenue decreased $234,880, 81.9%$57,840, 89.4%, from $286,606$64,713 for the twelve months ended November 30, 20082010 to $51,726$6,873 for the twelve months ended November 30, 2009.
Expenses - Total expenses increased $153,529, 79.9%, from oil and gas sales as compared to $288,451$192,248 for the twelve months ended November 30, 2008. The decrease from fiscal year 2008 is $236,725 or 82.1% .The average price per MBTU decreased $4.40 and the MBTU sold decreased approximately 10,653 from fiscal year 2008. The average price per barrel decreased $34.36 per barrel and the quantity sold decreased by approximately 1,135 barrels from fiscal year 2008.
November 30, 2009 | $ | 45,495 | 11,101.85 | $ | 4.10 | $ | 6,231 | 131.69 | $ | 47.32 | $ | 51,726 | ||||||||||||||||
November 30, 2008 | $ | 184,947 | 21,754.74 | $ | 8.50 | $ | 103,504 | 1,267.19 | $ | 81.68 | $ | 288,451 | ||||||||||||||||
| 12 Month Change | ||||||||||||||||||||||||||||
2009 vs 2008 | ||||||||||||||||||||||||||||
| Amount | $ | (139,452 | ) | (10,652.89 | ) | $ | (4.40 | ) | $ | (97,273 | ) | (1,135.50 | ) | $ | (34.36 | ) | ||||||||||||
| Percentage | -75.40 | % | -48.97 | % | -51.76 | % | -93.98 | % | -89.61 | % | -42.07 | % | ||||||||||||||||
Lease operating expenses and taxes decreased $36,076, 88.4% from $40,817 for the twelve months ended November 30, 2009.
General and administrative expenses increased $185,807, 133.6%, from $139,081 for the twelve months ended November 30, 2009. The decrease is primarily the result of the sale of our East Texas properties effective April 1, 2008.
Depreciation, depletion, amortization and accretion decreased $12,291, 99.5%, from $12,350 for the twelve months ended November 30, 2009. The increase is due2010 to
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The Company soldforfeited its working interest in oilJohnson #1-H and gas leases located in Ellis County, Oklahoma effective March 31, 2009 for $1,686Johnson and wrote off#2-H Joint Ventures and wrote-off the fully depleted property values totaling $229,038.
Other income in the current fiscal year consists of the Company’s sale of all furniture and fixtures for $2,220 with the resulting write-off of the fully depreciated values of the related assets. Other income of $99,126 in the previous fiscal year consists of a book valuepartial recovery of $145,923. We recordedlosses sustained when a gainformer employee forged Company checks for personal use. On May 26, 2000 the former employee was sentenced to three years’ probation. As part of $1,105,766 on the sale.
Other expense of $148,347 in the current fiscal year consists of the Company’s unrealized loss on its equity investment in Frontier Income and Growth, LLC. Other expenses for the previous fiscal year were $0.
Provision For Income Taxes— - No tax benefits were recorded for the twelve months ended November 30, 20092011 and 20082010 due to the losses we have experienced and a valuation allowance for 100% of the deferred tax assets.
Liquidity and Capital Resources
As of November 30, 2009,2011, we had total assets of $177,745$3,161,688 of which investments in unconsolidated affiliated company amounted to $3,136,553 or 99.2% of the total. As of November 30, 2010, we had total assets of $61,014 of which net oil and gas properties amounted to $49,591$37,567 or 27.9%61.6% of the total assets.total. Our revenues for the current fiscal year totaled $6,873 while the revenues for the previous fiscal year totaled $64,713. Our accumulated losses as of November 30, 2011 and 2010 totaled $11,890,719 and $11,405,688, respectively. At November 30, 2011, we had $13,871 in cash as compared to $665 for November 30, 2010. As of November 30, 2008, we had total assets of $273,972 of which net oil and gas properties amounted to $57,619 or 21.0% of the total assets. Our accumulated losses through November 30, 2009 totaled $11,377,279 while our accumulated losses through November 30, 2008 totaled $11,053,298. At November 30, 2009, we had $5,327 in cash as compared $2,506 for November 30, 2008. As of November 30, 20092011 the ratio of current assets to current liabilities is .22:was .04:1 as compared to .79:.41:1 for November 30, 2008.2010. We currently have no long-term debt other than the asset retirement obligations.debt. Our asset retirement obligations as of November 30, 20092011 and 20082010 were $21,021$0 and $20,981,$21,347, respectively. As of November 30, 2009,2011, our shareholders’ deficitequity was $407,065.$2,756,452. As of November 30, 2008, our2010 we had a shareholders’ deficit was $83,584.
We have funded operations from cash generated from the sale of commonpreferred stock, the sale ofrevenue from oil and gas properties, joint venture feessales, partial recovery of a previous loss and loansloans/advances from affiliates. Our cash used for operations totaled $382,780$298,244 for the twelve months ended November 30, 20092011 while our cash used forprovided by operations totaled $184,117$58,708 for the same period last year. This represents an increase of $198,663$356,952 in cash used for operating activities. Our net capital investments for fiscal years 2009 and 20082011 totaled $2,611,055 while in the previous fiscal year they were $0 and $14,734, respectively. Net cash received from the sale of oil and gas properties for fiscal years 2009 and 2008 was $1,686 and $0, respectively.$0. Net cash provided by financing activities totaled $383,915$2,922,505 for the twelve months ended November 30, 2009 and $177,5362011 while net cash used for financing activities totaled $63,370 for the twelve months ended November 30, 2008.2010. The increase of $206,379$2,985,875 from last fiscal year primarily relates to an increase in advancescash received from our affiliate, Gulftex Operating.
15
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 additional properties companies and/or equipmentassets 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 properties companies and/or equipment.assets. There can be no assurance that we will be able to obtain the opportunity to buy properties companies and/or equipmentassets 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 properties companies and/or equipmentassets at terms that are acceptable to us..us. Additionally, if economic conditions justify the same, we may hire additional employees although we do not currently have any definite plans to make additional hires.
The oil and gas industry is subject to various trends. In particular, at times crude oil prices increase in the summer, during the heavy travel months, and are relatively less expensive in the winter. Of course, the prices obtained for crude oil are dependent upon numerous other factors,trends including the availability of othercapital 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.
As a smaller reporting company, we are not required to complete this item.
16
FRONTIER OILFIELD SERVICES, INC.
| PAGE | ||||
| F-1 | ||||
| F-2 | |||
For The Years Ended November 30, | F-3 | |||
For The Years Ended November 30, | F-4 | |||
For The Years Ended November 30, | F-5 | |||
| F-6 | ||||
17
The Board of Directors and Stockholders
Frontier Oilfield Services, Inc.
(Formerly TBX Resources, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Frontier Oilfield Services, Inc. (Formerly TBX Resources, Inc. and Subsidiaries) (the “Company”), as of November 30, 20092011 and 20082010 and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of TBX Resources,Frontier Oilfield Services, Inc. and Subsidiaries as of November 30, 20092011 and 20082010 and the consolidated results of theirits operations and theirits cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
F-1
| /s/ Turner, Stone & Company, LLP |
Dallas, Texas February 28, 2012 |
FRONTIER OILFIELD SERVICES, INC.
| November 30, | ||||||||
| 2011 | 2010 | |||||||
| ASSETS | ||||||||
Current Assets: | ||||||||
Cash | $ | 13,871 | $ | 665 | ||||
Oil and gas revenues receivable | 4,057 | 8,271 | ||||||
Inventory | — | 8,300 | ||||||
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Total current assets | 17,928 | 17,236 | ||||||
Office furniture and fixtures, net | 996 | — | ||||||
Oil and gas properties (successful efforts), net | — | 37,567 | ||||||
Investments in unconsolidated affiliated company (Note 4) | 3,136,553 | — | ||||||
Other | 6,211 | 6,211 | ||||||
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Total Assets | $ | 3,161,688 | $ | 61,014 | ||||
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| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
Current Liabilities: | ||||||||
Trade accounts payable | $ | 62,855 | $ | 28,339 | ||||
Advances payable from affiliate (Note 5) | 338,490 | — | ||||||
Accrued expenses | 3,891 | 5,270 | ||||||
Deferred revenue | — | 8,300 | ||||||
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Total current liabilities | 405,236 | 41,909 | ||||||
Long-term Liabilities: | ||||||||
Asset retirement obligations | — | 21,347 | ||||||
Commitments and Contingencies (Note 6) | ||||||||
Stockholders’ Equity (Deficit): | ||||||||
Preferred stock- $.01 par value; authorized 10,000,000 shares; no shares outstanding | — | — | ||||||
Preferred stock subscriptions | 3,000,000 | — | ||||||
Common stock- $.01 par value; authorized 100,000,000 shares; | ||||||||
8,853,288 shares issued and outstanding at November 30, 2011, | ||||||||
4,027,442 shares issued and outstanding at November 30, 2010, | 88,532 | 40,274 | ||||||
Additional paid-in capital | 11,558,639 | 11,363,172 | ||||||
Accumulated deficit | (11,890,719 | ) | (11,405,688 | ) | ||||
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Total stockholders’ equity (deficit) | 2,756,452 | (2,242 | ) | |||||
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Total Liabilities and Stockholders’ Equity (Deficit) | $ | 3,161,688 | $ | 61,014 | ||||
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The accompanying notes are an integral part of these financial statements. |
| |||||||
FRONTIER OILFIELD SERVICES, INC. AND SUBSIDIARIES
(Formerly TBX Resources, Inc.)
CONSOLIDATED BALANCE SHEETSSTATEMENTS OFOPERATIONS
| November 30, | ||||||||
| 2009 | 2008 | |||||||
ASSETS | ||||||||
Current Assets | ||||||||
| Cash | $ | 5,327 | $ | 2,506 | ||||
| Oil and gas revenue receivable | 112,122 | 175,812 | ||||||
| Accounts receivable from affiliate | — | 21,824 | ||||||
| Prepaid expense | — | 10,000 | ||||||
| Inventory | 4,494 | — | ||||||
| Total current assets | 121,943 | 210,142 | ||||||
Oil and gas properties (successful efforts) | ||||||||
| Proved properties (acreage costs) | 116,514 | 165,926 | ||||||
| Lease and well equipment | 402,025 | 581,647 | ||||||
| 518,539 | 747,573 | |||||||
| Less: depreciation, depletion and amortization | (468,948 | ) | (689,954 | ) | ||||
| Oil and gas properties, net | 49,591 | 57,619 | ||||||
Other | 6,211 | 6,211 | ||||||
Total Assets | $ | 177,745 | $ | 273,972 | ||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
Current Liabilities | ||||||||
| Trade accounts payable | $ | 30,761 | $ | 19,888 | ||||
| Accrued expenses | 31,932 | 70,901 | ||||||
| Advances from affiliate | 496,602 | 173,786 | ||||||
| Deferred revenue | 4,494 | — | ||||||
| Total current liabilities | 563,789 | 264,575 | ||||||
Long-term Liabilities | ||||||||
| Asset retirement obligations | 21,021 | 20,981 | ||||||
Non-controlling interest in consolidated subsidiary | — | 72,000 | ||||||
Commitments and Contingencies (Note 6) | ||||||||
Stockholders’ Deficit | ||||||||
| Preferred stock- $.01 par value; authorized 10,000,000 shares; no shares outstanding | — | — | ||||||
| Common stock- $.01 par value; authorized 100,000,000 shares; 4,027,442 shares issued and outstanding at November 30, 2009, 4,027,442 shares issued and outstanding at November 30, 2008 | 40,274 | 40,274 | ||||||
| Additional paid-in capital | 10,929,940 | 10,929,440 | ||||||
| Accumulated deficit | (11,377,279 | ) | (11,053,298 | ) | ||||
| Total stockholders’ deficit | (407,065 | ) | (83,584 | ) | ||||
Total Liabilities and Stockholders’ Deficit | $ | 177,745 | $ | 273,972 | ||||
| For The Years Ended November 30, | ||||||||
| 2011 | 2010 | |||||||
Revenues: | ||||||||
Oil and gas sales | $ | 6,873 | $ | 64,713 | ||||
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Total revenues | 6,873 | 64,713 | ||||||
Expenses: | ||||||||
Lease operating and taxes | 4,741 | 40,817 | ||||||
General and administrative | 324,888 | 139,081 | ||||||
Depreciation, depletion, amortization and accretion | 59 | 12,350 | ||||||
Loss on forfeiture of oil and gas properties | 16,089 | — | ||||||
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Total expenses | 345,777 | 192,248 | ||||||
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Operating Loss | (338,904 | ) | (127,535 | ) | ||||
Other Income (Expense): | ||||||||
Gain on sale of office furniture and fixtures | 2,220 | — | ||||||
Equity in loss of unconsolidated affiliated company | (148,347 | ) | — | |||||
Partial loss recovery (Note 10) | — | 99,126 | ||||||
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Total other income (expense) | (146,127 | ) | 99,126 | |||||
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Loss Before Provision for Income Taxes | (485,031 | ) | (28,409 | ) | ||||
Provision for income taxes | — | — | ||||||
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Net Loss | $ | (485,031 | ) | $ | (28,409 | ) | ||
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Net Loss per Common Share | $ | (0.09 | ) | $ | (0.01 | ) | ||
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Weighted Average Common Shares Outstanding | 5,205,251 | 4,027,442 | ||||||
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The accompanying notes are an integral part of these consolidated financial statements.
F-2
FRONTIER OILFIELD SERVICES, INC.
(Formerly TBX Resources, Inc.)
| For The Years Ended November 30, | ||||||||
| 2011 | 2010 | |||||||
Cash Flows From Operating Activities: | ||||||||
Net loss | $ | (485,031 | ) | $ | (28,409 | ) | ||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
Depreciation, depletion, amortization and accretion | 59 | 12,024 | ||||||
Loss on forfeiture of oil and gas properties | 16,089 | — | ||||||
Issuance of common stock for services | 28,000 | — | ||||||
Equity in loss of unconsolidated affiliated company | 148,347 | — | ||||||
Gain on sale of furniture and fixtures | (2,220 | ) | — | |||||
Allocated expenses to affiliates | (40,970 | ) | — | |||||
Accretion of asset retirement obligations | — | 326 | ||||||
Changes in operating assets and liabilities other than advances from/to affiliates: | ||||||||
Decrease (increase) in: | ||||||||
Oil and gas revenues receivable | (2,011 | ) | 103,851 | |||||
Inventory | 8,300 | (3,806 | ) | |||||
Increase (decrease) in: | ||||||||
Trade accounts payable | 40,872 | (2,422 | ) | |||||
Accrued expenses | (1,379 | ) | (26,662 | ) | ||||
Deferred revenues | (8,300 | ) | 3,806 | |||||
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Net cash provided by (used in) operating activities | (298,244 | ) | 58,708 | |||||
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Cash Flows From Investing Activities: | ||||||||
Purchase of membership units in affiliate | (2,610,000 | ) | — | |||||
Purchase of furniture and fixtures | (1,055 | ) | — | |||||
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Net cash used in investing activities | (2,611,055 | ) | — | |||||
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Cash Flows From Financing Activities: | ||||||||
Proceeds from preferred stock subscriptions | 3,000,000 | — | ||||||
Advances from affiliate | 45,056 | 166,171 | ||||||
Payments to affiliate | (122,551 | ) | (229,541 | ) | ||||
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Net cash provided by (used in) financing activities | 2,922,505 | (63,370 | ) | |||||
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Net Increase (Decrease) In Cash | 13,206 | (4,662 | ) | |||||
Cash at beginning of year | 665 | 5,327 | ||||||
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Cash at end of year | $ | 13,871 | $ | 665 | ||||
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Supplemental Schedule of Non-Cash Investing and Financing Activities: | ||||||||
Acquisition of additional net profits interest in unconsolidated affiliated company | $ | 284,900 | $ | — | ||||
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Purchase of additional interest in unconsolidated affiliated company exchanged for advances payable | $ | 390,000 | $ | — | ||||
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Affiliate debt repayment through issuance of common stock | $ | 53,377 | $ | — | ||||
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Affiliate’s debt forgiveness | $ | — | $ | 433,232 | ||||
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The accompanying notes are an integral part of these financial statements. |
| |||||||
FRONTIER OILFIELD SERVICES, INC.
(Formerly TBX RESOURCES, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS
| For The Years Ended November 30, | ||||||||
| 2009 | 2008 | |||||||
Revenues: | ||||||||
| Oil and gas sales | $ | 51,726 | $ | 286,606 | ||||
| Total revenues | 51,726 | 286,606 | ||||||
Expenses: | ||||||||
| Lease operating and taxes (including $0 for 2009 and $3,200 for 2008 to related party) | 67,672 | 236,980 | ||||||
| General and administrative | 373,653 | 367,623 | ||||||
| Loss on impairment of oil and gas properties | — | 62,086 | ||||||
| Depreciation, depletion, amortization and accretion | 8,068 | 39,497 | ||||||
| Gain on sale of oil and gas properties | (1,686 | ) | (1,105,766 | ) | ||||
| Total expenses | 447,707 | (399,580 | ) | |||||
Operating Income (Loss) | (395,981 | ) | 686,186 | |||||
Other Income: | ||||||||
| Minority interest debt forgiveness | 72,000 | — | ||||||
Income (Loss) Before Provision for Income Taxes | (323,981 | ) | 686,186 | |||||
| Provision for income taxes | — | — | ||||||
Net Income (Loss) | $ | (323,981 | ) | $ | 686,186 | |||
Net Income (Loss) per Common Share, Basic | $ | (0.08 | ) | $ | 0.17 | |||
Net Income (Loss) per Common Share, Diluted | $ | (0.08 | ) | $ | 0.17 | |||
Weighted Average Common Shares Outstanding: | ||||||||
Basic | 4,027,442 | 4,027,442 | ||||||
Diluted | 4,027,442 | 4,027,442 | ||||||
F-3
| For The Years Ended November 30, | ||||||||
| 2009 | 2008 | |||||||
Cash Flows From Operating Activities: | ||||||||
| Net income (loss) | $ | (323,981 | ) | $ | 686,186 | |||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Depreciation, depletion and amortization | 8,028 | 25,963 | ||||||
| Accretion of asset retirement obligations | 40 | 13,534 | ||||||
| Stock based compensation | 500 | 98,500 | ||||||
| Gain on sale of oil and gas properties | (1,686 | ) | (1,105,766 | ) | ||||
| Allocated expenses to affiliate | (61,099 | ) | — | |||||
| Minority interest debt forgiveness | (72,000 | ) | ||||||
| Loss on impairment of oil and gas properties | — | 62,086 | ||||||
| Changes in operating assets and liabilities other than advances from affiliate: | ||||||||
| Decrease (increase) in: | ||||||||
| Oil and gas revenue receivable | 63,690 | (112,433 | ) | |||||
| Accounts receivable from affiliates | 21,824 | (21,824 | ) | |||||
| Inventory | (4,494 | ) | 2,584 | |||||
| Prepaid expense | 10,000 | (10,000 | ) | |||||
| Increase (decrease) in: | ||||||||
| Trade accounts payable | 10,873 | (5,527 | ) | |||||
| Accounts payable to affiliate | — | 183,355 | ||||||
| Deferred revenue | 4,494 | (2,584 | ) | |||||
| Accrued expenses | (38,969 | ) | 31,773 | |||||
| Asset retirement obligations — current portion | — | (29,964 | ) | |||||
| Net cash used in operating activities | (382,780 | ) | (184,117 | ) | ||||
Cash Flows From Investing Activities: | ||||||||
| Proceeds from sale of oil and gas property | 1,686 | — | ||||||
| Development of oil and gas properties | — | (14,734 | ) | |||||
| Net cash provided by (used in) investing activities | 1,686 | (14,734 | ) | |||||
Cash Flows From Financing Activities: | ||||||||
| Advances from affiliate | 383,915 | 173,786 | ||||||
| Exercise of common stock options | — | 3,750 | ||||||
| Net cash provided by financing activities | 383,915 | 177,536 | ||||||
Net Increase (Decrease) In Cash | 2,821 | (21,315 | ) | |||||
| Cash at beginning of year | 2,506 | 23,821 | ||||||
| Cash at end of year | $ | 5,327 | $ | 2,506 | ||||
Supplemental Schedule of Non-Cash Investing and Financing Activities: | ||||||||
| Write-off of fully depreciated property and equipment | $ | 229,038 | $ | — | ||||
| Sale of oil and gas properties | $ | — | $ | 92,704 | ||||
| Payables to and advances from affiliate | $ | — | $ | (1,052,548 | ) | |||
| Asset retirement obligations settled | $ | — | $ | (145,923 | ) | |||
| Increase (decrease) in asset retirement obligations | $ | — | $ | 13,534 | ||||
F-4
| Additional | Total | |||||||||||||||||||
| Common Stock | Paid-In | Accumulated | Stockholders’ | |||||||||||||||||
| Shares | Par Value | Capital | Deficit | Deficit | ||||||||||||||||
Balance November 30, 2007 | 4,002,442 | $ | 40,024 | $ | 10,827,440 | $ | (11,739,484 | ) | $ | (872,020 | ) | |||||||||
| Issuance of common stock options for services | — | — | 98,500 | — | 98,500 | |||||||||||||||
| Exercise of common stock options | 25,000 | 250 | 3,500 | — | 3,750 | |||||||||||||||
| Net income | — | — | — | 686,186 | 686,186 | |||||||||||||||
Balance November 30, 2008 | 4,027,442 | 40,274 | 10,929,440 | (11,053,298 | ) | (83,584 | ) | |||||||||||||
| Issuance of common stock options for services | — | — | 500 | — | 500 | |||||||||||||||
| Net loss | — | — | — | (323,981 | ) | (323,981 | ) | |||||||||||||
Balance November 30, 2009 | 4,027,442 | $ | 40,274 | $ | 10,929,940 | $ | (11,377,279 | ) | $ | (407,065 | ) | |||||||||
F-5
| Additional | Accum- | Preferred | Total | |||||||||||||||||||||
| Common Stock | Paid-In | ulated | Stock | Stockholders’ | ||||||||||||||||||||
| Shares | Par Value | Capital | Deficit | Subscriptions | Equity | |||||||||||||||||||
Balance November 30, 2009 | 4,027,442 | $ | 40,274 | $ | 10,929,940 | $ | (11,377,279 | ) | $ | — | $ | (407,065 | ) | |||||||||||
Affiliate debt forgiveness | — | — | 433,232 | — | — | 433,232 | ||||||||||||||||||
Net loss | — | — | — | (28,409 | ) | — | (28,409 | ) | ||||||||||||||||
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Balance November 30, 2010 | 4,027,442 | 40,274 | 11,363,172 | (11,405,688 | ) | — | (2,242 | ) | ||||||||||||||||
Affiliate debt repayment with stock | 355,846 | 3,558 | 49,819 | — | — | 53,377 | ||||||||||||||||||
Services | 400,000 | 4,000 | 24,000 | — | — | 28,000 | ||||||||||||||||||
Affiliate net profits interest | 4,070,000 | 40,700 | 244,200 | — | — | 284,900 | ||||||||||||||||||
Affiliate debt repayment | — | — | (122,551 | ) | — | — | (122,551 | ) | ||||||||||||||||
Preferred stock subscriptions | — | — | — | — | 3,000,000 | 3,000,000 | ||||||||||||||||||
Balance adjustment | — | — | (1 | ) | — | — | (1 | ) | ||||||||||||||||
Net loss | — | — | — | (485,031 | ) | — | (485,031 | ) | ||||||||||||||||
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Balance November 30, 2011 | 8,853,288 | $ | 88,532 | $ | 11,558,639 | $ | (11,890,719 | ) | $ | 3,000,000 | $ | 2,756,452 | ||||||||||||
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The accompanying notes are an integral part of these financial statements. |
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FRONTIER OILFIELD SERVICES, INC.
| 1. | BUSINESS ACTIVITIES: |
Frontier Oilfield Services, Inc. (formerly TBX Resources, Inc.), a Texas corporation (“TBX”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. TheIn the past, the Company’s philosophy iswas 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.
The Company has a minor overriding interest in 12 producing gas wellwells in Parker County, Texas and 67 producing gas wells in Denton County, Texas. We previously acquired 3 wells and acreages in Ellis County, Oklahoma which we sold effective March 31, 2009 for $1,687. Effective April 1, 2008, the Company sold its East Texas properties to Gulftex Operating, Inc. (a company in which Mr. Burroughs, our president, is a 50% shareholder) in exchange for its payables and advances owed to Gulftex. As additional consideration, Gulftex assumed the Company’s East Texas asset retirement obligations.
| 2. | 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.
Equity Method of Consolidation
The consolidated financial statementsCompany uses the equity method of accounting for its 34.84 % ownership in Frontier Income and Growth, LLC. Under the years ended November 30, 2009equity method of accounting the initial investment is recorded at cost with subsequent earnings recorded as increases to the investment account and 2008 includelosses recorded as decreases to the accounts of TBX Resources, Inc., and the Grasslands I, L.P. a limited partnership for which TBX serves as the sole general partner. The accounts of Johnson No. A1, Johnson No. A2, Hagansport Unit I and Unit II joint ventures (sold to Gulftex effective April 1, 2008), in which TBX owns interests, are consolidated on a proportionate basis. All significant intercompany balances and transactions have been eliminated.
Concentration of Credit Risk
The Company received advances from Gulftex totaling $383,916$45,056 and an additional $390,000 in advances from Frontier during the twelve months ended November 30, 2009 and $173,7862011. The Company received advances from Gulftex totaling $166,171 during the twelve months ended November 30, 2008.
Cash and Cash Flows
The Company maintains its cash in a bank deposit account which, at times, may exceed federally insured limits. At November 30, 20092011 and 20082010 no deposits were in excess of FDIC insurance coverage. The Company has not experienced any losses in this account and believes it is not exposed to any significant risks affecting cash. None of the Company’s cash is restricted.
For purposes of the consolidated statements of cash flows, cash includes demand deposits.
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 to 45 days after the month of sale. The manager for the Wise County and Denton County, Texas properties is Earthwise Energy, Inc. which has not paid the Company for its share of the oil and gas production since March of 2008. Accordingly, the
F-6
Inventory
Property and Equipment
Property and equipment are stated at the Company’s cost and are depreciated on a straight-line basis over five to seven years. Maintenance and repair costs are expensed when incurred, while major improvements are capitalized.
Oil and Gas Properties
The Company follows the successful efforts method of accounting for oil and gas exploration and development expenditures. Under this method, costs of successful exploratory wells and all development wells are capitalized. Costs to drill exploratory wells that do not result in proved reserves are expensed.
Significant costs associated with the acquisition of oil and gas properties are capitalized. Upon sale or abandonment of units of property or the disposition of miscellaneous equipment, the cost is removed from the asset account, the related reserves relieved of the accumulated depreciation or depletion and the gain or abandonment loss is credited to or charged against operations. Both proved and unproved oil and gas properties that are individually significant are periodically assessed for impairment of value, and a loss is recognized at the time of impairment. Capitalized costs of producing oil and gas properties, after considering estimated dismantlement and abandonment costs and estimated salvage values are depreciated and depleted by the unit-of-production method. Support equipment and other property and equipment are depreciated over their estimated useful lives.
The Company provides for depreciation, depletion and amortization of its investment in producing oil and gas properties on the unit-of-production method, based upon independent reserve engineers’ estimates of recoverable oil and gas reserves from the property.
Oil and gas properties consist of the following:
| November 30, | ||||||||
| 2009 | 2008 | |||||||
| Proved oil and gas properties | $ | 518,539 | $ | 747,573 | ||||
| Accumulated depreciation, depletion and amortization | (468,948 | ) | (689,954 | ) | ||||
| $ | 49,591 | $ | 57,619 | |||||
F-7
| November 30, | ||||||||
| 2011 | 2010 | |||||||
Proved oil and gas properties | $ | — | $ | 518,539 | ||||
Accumulated depreciation, depletion and amortization | — | (480,972 | ) | |||||
|
|
|
| |||||
| $ | — | $ | 37,567 | |||||
|
|
|
| |||||
| November 30, | ||||||||
| 2009 | 2008 | |||||||
| Office furniture, equipment, and software | $ | 112,768 | $ | 112,768 | ||||
| Accumulated depreciation and amortization | (112,768 | ) | (112,768 | ) | ||||
| $ | — | $ | — | |||||
| November 30, | ||||||||
| 2011 | 2010 | |||||||
Office furniture, equipment, and software | $ | 46,055 | $ | 112,768 | ||||
Accumulated depreciation and amortization | (45,059 | ) | (112,768 | ) | ||||
|
|
|
| |||||
| $ | 996 | $ | — | |||||
|
|
|
| |||||
Depletion, depreciation and amortization expense related to oil and gas properties and property and equipment was $8,028$59 and $25,963$12,024 for the years ended November 30, 20092011 and 2008,2010, respectively.
Long-lived Assets
The Company reviews its long-lived assets to be held and used, including proved oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected undiscounted future cash flows is less than the carrying amount of the assets. In this circumstance, the Company recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset.
Asset Retirement Obligations
The Company accounts for asset retirement obligations by recording the fair value of a liability for an asset retirement obligation (“ARO”) in the period in which it is incurred when a reasonable estimate of fair value can be made. Asset retirement obligations are capitalized as part of the carrying value of the long-lived asset. The Company writes down capitalized ARO assets if they are impaired.
The following table presents changes to the asset retirement liability during the years ended November 30, 20092011 and 2008.
ARO at November 30, 2007 | $ | 183,334 | ||
| Accretion expense | 3,646 | |||
| Liabilities settled | (175,888 | ) | ||
| Changes in estimates | 9,889 | |||
ARO at November 30, 2008 | 20,981 | |||
| Accretion expense | 1,023 | |||
| Liabilities settled | — | |||
| Changes in estimates | (983 | ) | ||
ARO at November 30, 2009 | $ | 21,021 | ||
ARO at November 30, 2009 | $ | 21,021 | ||
Accretion expense | 1,022 | |||
Liabilities settled | — | |||
Changes in estimates | (695 | ) | ||
Adjustment to opening balance | (1 | ) | ||
|
| |||
ARO at November 30, 2010 | 21,347 | |||
Accretion expense | — | |||
Liabilities settled | (21,347 | ) | ||
Changes in estimates | — | |||
ARO at November 30, 2011 | — | |||
|
| |||
| $ | — | |||
|
|
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.
Equity Instruments Issued for 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.
F-8
Basic earnings per common share is calculated by dividing net income or loss by the weighted average number of shares outstanding during the year. Diluted earnings per common share is calculated by adjusting outstanding shares, assuming conversion of all potentially dilutive stock options. The computation of diluted EPS does not assume conversion, exercise, or contingent issuance of shares that would have an antidilutive effect on earnings per common share. Antidilution results from an increase in earnings per share or reduction in loss per share from the inclusion of potentially dilutive shares in EPS calculations.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include: estimates of proved reserves as key components of the Company’s depletion rate for oil properties; accruals
of operating costs; estimates of production revenues; and calculating asset retirement obligations. Because there are numerous uncertainties inherent in the estimation process, actual results could differ materially from these estimates.
Reclassifications
Certain amounts in the comparative consolidated financial statements have been reclassified from financial statements previously presented to conform to the presentation of the 20082011 financial statements.
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 consolidated financial statements, which includes property and equipment, investments carried at cost, deposits and other assets. Impairment analyses will be made of all assets using fair value measurements.
Assets and liabilities measured at fair value are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, defined by generally accepted accounting principles and directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:
Level 1 | Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Plan 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 a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability. | ||||
Level 3 | Inputs to the valuation methodology are unobservable and significant to the fair value measurement. | ||||
Cash, receivable and payable amounts, accrued expenses and other current liabilities are carried at book
F-9
3. RECENT ACCOUNTING PRONOUNCEMENTS:
During the year ended November 30, 20092011 there were several new accounting pronouncements issued by the Financial Accounting Standards Board (FASB) one of which was SFAS No. 168, Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162.. 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 consolidated financial statements.
4. GOING CONCERN:
As of November 30, 2009, the Company has accumulated losses of approximately $11.4 million. The Company does not have sufficient working capital or revenue to sustain its operations. The Company is pursuing equity and/or debt financing to fund operations and execute its plans to acquire additional oil and gas leases and wells. If no additional funds are received, the Company will be forced to rely on existing oil and gas revenue and upon additional funds which may or may not be loaned by an affiliate to preserve the integrity of the corporate entity. No formal commitments or arrangements currently exist with the affiliate to advance or loan funds to the Company. In the event the Company is unable to acquire sufficient funds,2011 the Company’s ongoing operations will be negatively impactedinvestments in Frontier Income and it may not be able to continue asGrowth, LLC (“FIG”) totaled $3,136,533. The investments reflect a going concern. These$284,900 net profits interest and a $3,000,000 equity interest less the Company’s share of FIG’s loss totaling $148,347 for the quarter ended November 30, 2011. The Company’s equity interest and net profits interest in FIG at November 30, 2011 was 34.84 % and 43.52%, respectively.
Below is summarized financial statements have been prepared oninformation for FIG and subsidiary.
Summary Consolidated Balance Sheet
November 30, 2011
(Unaudited)
Assets | ||||
Current assets | $ | 2,956,539 | ||
Property and equipment, less accum. depreciation of $1,100,052 | 5,336,198 | |||
Other assets | 162,765 | |||
|
| |||
Total Assets | $ | 8,455,502 | ||
|
| |||
Liabilities and Members’ Capital | ||||
Current liabilities | $ | 868,190 | ||
Long-term debt | 2,362,016 | |||
Members’ capital | 5,225,296 | |||
|
| |||
Total Liabilities and Members’ Capital | $ | 8,455,502 | ||
|
|
Summary Consolidated Statement of Operations
For the basis that the Company will realize its assets and discharge its liabilities in the normal course of business. The financial statements do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should the Company be unable to continue in operation.
(Unaudited)
Revenue | $ | 1,780,020 | ||
Cost of revenue | 1,389,291 | |||
|
| |||
Gross profit | 390,729 | |||
General and administrative expenses | 629,782 | |||
Depreciation expense | 250,424 | |||
|
| |||
Operating Loss | (489,477 | ) | ||
Interest and loan fees | 44,574 | |||
|
| |||
Net Loss | $ | (534,051 | ) | |
|
|
| 5. | RELATED PARTY TRANSACTIONS: |
The Company conducts substantial transactions with related parties. 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 affected.
| a. | On September 2, 2011 the Company entered into an Investment Agreement with LoneStar (see Note 6). Under the Agreement Frontier is required to use the funds it receives form the sales of its preferred shares for the acquisition of 51% of FIG’s membership units first and for other corporate purposes secondly. The | ||
| 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. |
| c. | On September 1, 2011 the Company entered into a service agreement with FIG. Under the agreement Frontier is charging FIG for a portion of administrative services and rent. For the three months ended November 30, 2011 the Company billed $31,748 for these services that is recorded as an offset to general and administrative expense. The total charges to Frontier at November 30th were $51,510 which was used to reduce the balance of the advance account. |
| d. | On December 1, 2010 the Company entered into a services agreement with Gulftex Oil & Gas, LLC. Under the agreement Frontier charged Gulftex for a portion of administrative services and rent. For the nine months ended November 30, 2011 the Company billed $24,695 for these services that is recorded as an offset to general and administrative expense The Agreement was terminated on August 31, 2011. Gulftex was issued 355,846 common shares in return for cancellation of a portion of the debt owed in the sum of $53,377. There is no outstanding receivable or payable at November 30, 2011. |
| e. | On June 1, 2007 the Company entered into a services agreement with Gulftex Operating, Inc. Under the agreement Frontier charged Gulftex for a portion of administrative services and rent. For the twelve months ended November 30, 2010 the Company billed $63,490 for these services that was recorded as an offset to general and administrative expense. The Agreement was terminated on November 30, 2010. There is no outstanding receivable or payable at November 30, 2011. |
| f. | The Company received cash advances of | ||
| 6. | COMMITMENTS AND CONTINGENCIES: |
| a. | The Company is obligated for |
F-10
Year | Amount | |||
2012 | $ | 63,422 | ||
2013 | 65,475 | |||
2014 | 33,251 | |||
|
| |||
| $ | 162,148 | |||
|
| |||
Rent expense for fiscal years 2011 and 2010 was $51,415 and $68,849, respectively.
| Year | Amount | |||
| 2010 | $ | 75,942 | ||
| 2011 | 18,986 | |||
| $ | 94,928 | |||
| b. | The Company recently entered into two material contracts. On September 2, 2011 the Company entered into an Investment Agreement with LoneStar Income and Growth, LLC, 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 Frontier Income and Growth, LLC (“FIG”), a salt water transportation and disposal company. The Stock has the following attributes in its designation filed with the Texas Secretary of State: |
| 1. | Frontier will pay an annual dividend of eight percent (8%) on the principal value ($2.00) of each share. |
| 2. | Beginning twelve (12) months from the date of issuance, each share of preferred stock is convertible at the request of either the stockholder or Frontier into two (2) shares of common stock of Frontier and two (2) warrants that will allow the holder to acquire one additional share of Frontier common stock for each warrant at the purchase price of $3.50 per share. The warrants may be exercised in whole or in part at any time within three (3) years from the issue date of the warrant. |
As of November 30, 2011 LoneStar tendered the sum of $3,000,000 to purchase 1,500,000 shares of the Stock. As of the date of this report, the shares have not been issued.
On September 1, 2011 Frontier entered into a Subscription Agreement with FIG to acquire a majority 51% membership interest in FIG for the sum of $5,046,000.
| c. | Trio Consulting & Management and Merrit Operating are the bonded operators for |
| 7. | STOCK BASED COMPENSATION: |
The Company executed an amended Employment Agreement effective August 4, 2005 with ourits president Mr. Tim Burroughs for three years. Under the terms of the agreement, Mr. Burroughs is entitled to receive an annual compensation of $150,000, andAmong other items, enumerated in the agreement, plus bonuses of up to 10% for material changes to the Company; for example, when the Company completes a major acquisition, funding or financing. The agreement provides that Mr. Burroughs has the contractual right to require TBXFrontier to issue, upon his request, up to 250,000 common share options subject to certain conditions. The conditions are that the options will not be issued unless Mr. Burroughs makes a demand for their issuance and the number of shares so demanded have vested (the agreement provides that 50,000 potential options vest at the beginning of each employment year for the five year term of the agreement and are cumulative.) The amendment also changed how the options are to be priced. The options are to be priced at a maximum exercise price of one-half the bid price for TBXFrontier common stock as of August 4, 2005 or $0.70 per share (one-half $1.40 the closing bid price on August 4, 2005.) In the event the closing bid price of TBX’sFrontier’s common stock is below $0.70 on the date of a call by Mr. Burroughs, the exercise price would be reduced to the lower actual bid price.
The Company executed an amended Employment Agreement effective April 1, 2006 with ourits Executive Vice President, of Investor Relations, Mr.Dick O’Donnell, having a term of one year, which automatically renews unless otherwise terminated as provided in said agreement. Under the terms of the agreement Mr. O’Donnell is entitled to receive 100,000 shares of TBX common stock upon execution and Board approval of the agreement. The Company recorded compensation expense of $410,000 ($4.10 per share) in the fiscal year ended November 31, 2006 with a corresponding credit to paid-in capital. The shares were valued based upon the fair value of the Company’s common stock on April 1, 2006.
Certain officers agreed to forebear their salary until the Company’s cash flow improved. The Company granted stock awards to the flowing officers in recognition of their forbearance.
| a. | Sherri Cecotti: 100,000 common stock shares as compensation for services rendered as Ms. Cecotti has not received compensation from Frontier during the last two fiscal years. Ms. Cecotti is an officer of Frontier and serves as Secretary. |
| b. | Bernard O’Donnell: 200,000 common stock shares as compensation for services rendered as Mr. O’Donnell has not received compensation for his services as an officer of the Company, Vice President, for two or more years. |
The Company recorded compensation expense at the market value of the shares on the date of the grant that totaled $21,000 with an offsetting credit to stockholders’ equity.
| 8. | FORFEITURE OF OIL AND GAS INTERESTS: |
During the first quarter of this fiscal year, the Company recorded stock based compensation expensewas notified 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 $500 with a corresponding credit to paid-in capital and$43,008 for 2008estimated workover expenses. If the Company recorded stock based compensation expense of $98,500 with a corresponding credit to paid-in capital.
F-11
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.
| 9. | SALE OF OFFICE FURNITURE AND FIXTURES: |
The Company sold its furniture and fixtures to a third-party this fiscal year for $2,220 and wrote-off the fully depreciated value of the related assets.
| 10. | COURT ORDERED RESTITUTION: |
On May 26, 2000 a former employee was sentenced to three years’ probation for forging Company checks. As part of the sentencing the former employee is required to make restitution to the Company in the amount of $152,915. Because of the uncertainty of collecting the amount owed, the Company has not recorded a receivable but instead is recording income as payments are received from the U.S. District Court of Dallas, Texas. The Company received $99,126 during the previous fiscal year and the balance outstanding as of November 30, 2009 and 2008, and the changes during the years then ended2011 is presented below:
| Weighted-Average | ||||||||
| Shares | Exercise Price | |||||||
Outstanding December 1, 2007 | 100,000 | $ | 0.15 | |||||
| Granted | 100,000 | $ | 0.15 | |||||
| Exercised | (25,000 | ) | $ | 0.15 | ||||
| Forfeited | (75,000 | ) | $ | 0.15 | ||||
Outstanding November 30, 2008 | 100,000 | $ | 0.15 | |||||
| Granted | 25,000 | $ | 0.15 | |||||
| Exercised | — | $ | 0.15 | |||||
| Forfeited | (100,000 | ) | $ | 0.15 | ||||
Outstanding November 30, 2009 | 25,000 | $ | 0.15 | |||||
Options exercisable at November 30, 2008 | 100,000 | $ | 0.15 | |||||
Options exercisable at November 30, 2009 | 25,000 | $ | 0.15 | |||||
| 2009 | 2008 | |||||||
| Average expected life in years | 1 | 1 | ||||||
| Average interest rate | 4.00 | % | 4.38 | % | ||||
| Average volatility | 147 | % | 95 | % | ||||
| Dividend yield | 0 | % | 0 | % | ||||
| Weighted Average | ||||||||
| Grant Date | ||||||||
| Shares | Fair Value per Share | |||||||
Nonvested at December 1, 2007 | — | — | ||||||
| Granted | 100,000 | $ | 0.99 | |||||
| Vested | (100,000 | ) | $ | 0.99 | ||||
| Forfeited | — | |||||||
Nonvested at November 30, 2008 | — | |||||||
| Granted | 25,000 | $ | 0.05 | |||||
| Vested | (25,000 | ) | $ | 0.05 | ||||
| Forfeited | — | |||||||
Nonvested at November 30, 2009 | — | |||||||
F-12
| 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, aan 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 twelve months ended November 30, 20092011 due to the Company’s net operating loss carryforward from 2008.
At November 30, 20092011 and 2008,2010, we have net operating loss carryforwards of approximately $9.7 million and $9.3$9.4 million,respectively, remaining for federal income tax purposes. Net operating loss carryforwards may be used in future years to offset taxable income.
The following is a reconciliation of statutory tax expense to our income tax provision:
| November 30, | ||||||||
| 2009 | 2008 | |||||||
| Statutory rate | 35 | % | 35 | % | ||||
| Change in valuation allowance | -35 | % | -35 | % | ||||
| Tax provision | 0 | % | 0 | % | ||||
F-13
| November 30, | ||||||||
| 2011 | 2010 | |||||||
Statutory rate | 35 | % | 35 | % | ||||
Change in valuation allowance | -35 | % | -35 | % | ||||
|
|
|
| |||||
Tax provision | 0 | % | 0 | % | ||||
|
|
|
| |||||
Deferred income taxes primarily represent the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of our deferred taxes are as follows:
| November 30, | ||||||||
| 2009 | 2008 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carryforward | $ | 3,385,000 | $ | 3,270,000 | ||||
| Oil and gas properties | 49,000 | 100,000 | ||||||
| Cash/accrual method differences | 61,000 | 97,000 | ||||||
| Total deferred tax assets | 3,495,000 | 3,467,000 | ||||||
| Valuation allowance | (3,495,000 | ) | (3,467,000 | ) | ||||
| Total net deferred tax assets | $ | — | $ | — | ||||
| November 30, | ||||||||
| 2011 | 2010 | |||||||
Deferred tax assets: | ||||||||
Net operating loss carryforward | $ | 3,385,000 | $ | 3,285,000 | ||||
Oil and gas properties | — | 29,000 | ||||||
Temporary timing differences | 76,000 | 15,000 | ||||||
|
|
|
| |||||
Total deferred tax assets | 3,461,000 | 3,329,000 | ||||||
Valuation allowance | (3,461,000 | ) | (3,329,000 | ) | ||||
|
|
|
| |||||
Total net deferred tax assets | $ | — | $ | — | ||||
|
|
|
| |||||
The Company uses the cash method for income tax reporting purposes.
| For The Year Ended Nov. 30, | ||||||||
| 2009 | 2008 | |||||||
| Oil and gas sales | $ | 51,726 | $ | 286,605 | ||||
| Production costs | (67,672 | ) | (236,980 | ) | ||||
| Depreciation, depletion, amortization and accretion | (8,068 | ) | (39,497 | ) | ||||
| Impairment of oil and gas properties | — | (62,086 | ) | |||||
| (24,014 | ) | (51,958 | ) | |||||
| Income tax benefit | — | — | ||||||
| Results of Operations Excluding Selling, General and Administrative and Joint Venture Activities | $ | (24,014 | ) | $ | (51,958 | ) | ||
| November 30, | ||||||||
| 2009 | 2008 | |||||||
| Property (acreage costs) — Proved | $ | 116,514 | $ | 165,926 | ||||
| Producing assets | 402,025 | 581,647 | ||||||
| 518,539 | 747,573 | |||||||
| Less: depreciation depletion and amortization | (468,948 | ) | (689,954 | ) | ||||
| Net Capitalized Costs | $ | 49,591 | $ | 57,619 | ||||
F-14
| Oil | Gas | |||||||
| (BBL) | (MCF) | |||||||
Proved Reserves November 30, 2007 | 19,671 | 78,185 | ||||||
| Revisions to previous estimates | (396 | ) | 5,686 | |||||
| Purchases | — | — | ||||||
| Production | (1,153 | ) | (21,754 | ) | ||||
| Sales, transfers and retirements | (17,085 | ) | — | |||||
Proved Reserves November 30, 2008 | 1,037 | 62,117 | ||||||
| Revisions to previous estimates | (60 | ) | (1,031 | ) | ||||
| Purchases | — | — | ||||||
| Production | (21 | ) | (9,656 | ) | ||||
| Sales, transfers and retirements | — | — | ||||||
Proved Reserves November 30, 2009 | 956 | 51,430 | ||||||
F-15
| November 30, | ||||||||
| 2009 | 2008 | |||||||
| Future cash inflows | $ | 219,074 | $ | 292,410 | ||||
| Future production costs | (68,272 | ) | (204,484 | ) | ||||
| Future net cash flows | 150,802 | 87,926 | ||||||
| 10% annual discount for estimated timing of cash flows | (43,668 | ) | (18,526 | ) | ||||
Standardized measure of discounted future net cash | $ | 107,134 | $ | 69,400 | ||||
Standardized measure of discounted future net cash flows, begenning of year | $ | 69,400 | $ | 729,719 | ||||
| Sales of oil and gas produced, net of production costs | (13,255 | ) | (101,059 | ) | ||||
| Net changes in prices and production costs | 26,696 | (149,307 | ) | |||||
| Revisions to previous quantity estimates | (1,389 | ) | 6,642 | |||||
| Net change from sales, transfers and disposals of minerals in place | — | (471,852 | ) | |||||
| Accretion of discount | 10,713 | 55,257 | ||||||
| Net change in income taxes | — | — | ||||||
| Other — prior period adjustment | 14,968 | — | ||||||
| 37,734 | (660,319 | ) | ||||||
Standardized measure of discounted future net cash flows, end of year | $ | 107,134 | $ | 69,400 | ||||
F-16
| Net Income | ||||||||||||||||
| (Loss) | ||||||||||||||||
| Per Share | ||||||||||||||||
| Total | Operating | Net | Basic & | |||||||||||||
| Revenues | Income (Loss)1 | Income (Loss) | Diluted | |||||||||||||
2009 | ||||||||||||||||
| lst Quarter | $ | 14,525 | $ | (127,959 | ) | $ | (127,959 | ) | $ | (0.03 | ) | |||||
| 2nd Quarter | 10,320 | (92,124 | ) | (90,437 | ) | (0.02 | ) | |||||||||
| 3rd Quarter | 15,114 | (69,444 | ) | (69,444 | ) | (0.02 | ) | |||||||||
| 4th Quarter | 11,767 | (106,454 | ) | (36,141 | ) | (0.01 | ) | |||||||||
| Total | $ | 51,726 | $ | (395,981 | ) | $ | (323,981 | ) | $ | (0.08 | ) | |||||
2008 | ||||||||||||||||
| lst Quarter | $ | 90,977 | $ | (212,627 | ) | $ | (212,627 | ) | $ | (0.05 | ) | |||||
| 2nd Quarter | 66,304 | 1,016,992 | 1,016,992 | 0.25 | ||||||||||||
| 3rd Quarter | 53,607 | (45,074 | ) | (45,074 | ) | (0.01 | ) | |||||||||
| 4th Quarter | 75,717 | (73,105 | ) | (73,105 | ) | (0.02 | ) | |||||||||
| Total | $ | 286,605 | $ | 686,186 | $ | 686,186 | $ | 0.17 | ||||||||
| Total Revenues | Operating (Loss)1 | Net Income (Loss) | Net Income (Loss) per Share | |||||||||||||
2011 | ||||||||||||||||
lst Quarter | $ | 1,490 | $ | (51,744 | ) | $ | (51,744 | ) | $ | (0.01 | ) | |||||
2nd Quarter | 931 | (20,009 | ) | (20,009 | ) | (0.01 | ) | |||||||||
3rd Quarter | 3,505 | (8,923 | ) | (8,923 | ) | — | ||||||||||
4th Quarter | 947 | (258,228 | ) | (404,355 | ) | (0.07 | ) | |||||||||
|
|
|
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|
|
|
| |||||||||
Total | $ | 6,873 | $ | (338,904 | ) | $ | (485,031 | ) | $ | (0.09 | ) | |||||
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2010 | ||||||||||||||||
lst Quarter | $ | 22,368 | $ | (55,182 | ) | $ | (48,240 | ) | $ | (0.01 | ) | |||||
2nd Quarter | 13,741 | (14,892 | ) | 72,230 | 0.02 | |||||||||||
3rd Quarter | 22,557 | (23,256 | ) | (18,194 | ) | (0.01 | ) | |||||||||
4th Quarter | 6,047 | (34,205 | ) | (34,205 | ) | (0.01 | ) | |||||||||
|
|
|
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|
|
|
| |||||||||
Total | $ | 64,713 | $ | (127,535 | ) | $ | (28,409 | ) | $ | (0.01 | ) | |||||
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| 1 | Operating income is oil and gas sales less oil and gas production costs, depreciation, depletion and amortization, selling, general and administrative expenses and |
F-17
NONE
NONE
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 period covered by this annual report on Form 10-K. Based on this evaluation, management has concluded that, as of November 30, 2008,2011, 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. Management is currently looking for a professional accounting person to become part of its management team in an effort to provide not only complete but timely reports to the Securities and Exchange Commission as required by its rules and forms.
This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this Annual Report.
Limitations on the Effectiveness of Controls.Our management, including the CEO/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.
Scope of the Controls Evaluation.The CEO/CEO and CFO evaluation of our disclosure controls and the company’s internal controls included a review of the controls objectives and design, the controls implementation by the company and the effect of the controls on the information generated for use in this report. In the course of the Controls Evaluation, the CEO and CFO sought to identify data errors, controls problems or acts of fraud and to confirm that appropriate corrective action, including process improvements, werewas being undertaken. This type of evaluation is to be done on a quarterly basis so that the conclusions concerning controls effectiveness can be reported in our quarterly reports on Form 10-QSB10-Q and annual report on Form 10-KSB.10-K. Our internal controls are also evaluated on an ongoing basis byother personnel in the company’s organization and by our independent auditors in connection with their audit and review activities.audit. The overall goals of these various evaluation activities are to monitor our disclosure controls and our internal controls and to make modifications as necessary; the company’s intent in this regard is that the disclosure controls and the internal controls will be maintained as dynamic systems that change (reflecting improvements and corrections) as conditions warrant.
Among other matters, the company sought in its evaluation to determine whether there were any “significant deficiencies” or “material weaknesses” in our internal controls, or whether we had identified any acts of fraud involving personnel who have a significant role in the our internal controls. This information was important both for the controls evaluation generally and because item 5 in the Section 302 Certifications of the CEO and CFO requires that the CEO and CFO disclose that information to the Audit Committee of our Board and to our independent auditors and report on related matters in this section of the
18
Our current executive officers and directors, their ages and present positions with TBX ResourcesFrontier are identified below. Our directors hold office until the annual meeting of the shareholders following their election or appointment and until their successors have been duly elected and qualified. Our officers are elected by and serve at the pleasure of our Board of Directors.
NAME | AGE | POSITION | ||||
Tim Burroughs | ||||||
Kenneth K. Conte | ||||||
| 53 | ||||||
Sherri Cecotti | 46 | Secretary/Treasurer | ||||
Dick O’Donnell | 67 | Director, Executive Vice President | ||||
Daniel R. Robinson | 63 | Director | ||||
Donald Ray Lawhorne | 68 | Director |
TIM BURROUGHS is the President, Chief Executive Officer, Chief Financial Officer and founder of TBX Resources,Frontier Oilfield Services, Inc. Mr. Burroughs has been our Chief Executive Officer and Chief Financial Officer since our company’s inception in 1995. Prior to founding our company, Mr. Burroughs worked for several Dallas/Ft. Worth area based energy companies. Mr. Burroughs also studied business administration at Texas Christian University in Ft. Worth, Texas.
In addition to serving as the President, Chief Executive Officer and Chief Financial Officer of our company, Mr. Burroughs is also the PresidentManager of Marketing Research Group, Inc. and American Eagle Services, Inc. These companies were allFrontier Asset Management, LLC. This company was organized by Mr. Burroughs to participate in various opportunities in the oil and gas industry. However, since the organization of these companies, Mr. Burroughs has decided to not aggressively pursue through these companies the business he originally intended and has instead spentspends the majority of his professional time devoted to our business. In the future, Mr. Burroughs expects to spend little or no time on the business of these other companies. These two companies are currently inactive.Frontier. Mr. Burroughs is a 50% shareholder of Gulftex Operating, Inc. oil and gas operating company that performed services on behalf of Frontier and from which Mr. Burroughs benefited financially. Gultex no longer performs services on behalf of TBX and from which Mr. Burroughs benefits financially.Frontier. See “Certain Relationships and Related Transactions.”
KENNETH K. CONTE was named Vice President and Chief Financial Officer of Frontier Oilfield Services, Inc. effective January 01, 2012. From June 01, 2010 until November 2011 Conte served as Executive Vice President and CFO of NYTEX Energy Holdings, Inc. Dallas, TX. Prior to joining NYTEX and since December 2005, Conte served as Managing Director and Head of Mergers & Acquisitions for National Securities Corporation, formerly vFinance Investments, Inc., New York, NY. From September 2003 to December 2005, Conte served as CEO and CFO of Windsor Technology, LLC, Rochester, NY. From April 2001 to December 2005, Conte also served as Managing Partner of Argilus Investment Banking, Rochester, NY. Furthermore, from December 1998 to April 2001, Conte served as Senior Vice President — Investment Banking for McDonald Investments, Inc., in Cleveland, Ohio.
Conte has also held management positions at the Corporate Banking and Finance Group for Key Bank in Rochester, at Shawmut’s LBO fund, and at The Chase Manhattan Bank.
Conte obtained his MBA in Finance at the William E. Simon Graduate School of Business Administration at the University of Rochester; and a BBA in Accounting from Niagara University.
SHERRI CECOTTI is the Secretary-Treasurer and joined our company in February 2002. Prior to joining our company Ms. Cecotti was employed by the Expo Design Center/Home Depot, from 1999 to 2002 as a store manager and in the central installations office. From 1992-1998 Ms. Cecotti was operations manager for Marshall Fields in Dallas, Texas.
BERNARD R. O’DONNELL is the Executive Vice President for our president, Tim Burroughs resignedCompany. Mr. O’Donnell began with the Company in April 2005. From April 2005 to December 31, 2010 Mr. O’Donnell was also the President and managing principal for Euro American Capital Corporation, a FINRA licensed broker dealer. He has over 33 years of diversified experience in financial sales, investment banking and brokerage operations.
DANIEL R. ROBINSON is an oil and gas executive. He is President and CEO of Placid Refining Company and Placid Holding Company, positions which he has held since 1994. He is also director of Field Point Petroleum Corporation, an AMEX traded public company, where he has served in that capacity since 2004. Mr. Robinson serves as director of the National Petrochemical and Refiners Association (NPRA), a non-profit industry advocacy organization serving the petroleum refining and petrochemical industry. He has been director of the NPRA since 2004.
DONALD RAY LAWHORNE is President, CEO and Director of Pacesetter Management, Inc.; a Director of Orchard Holdings Group, LLC; Manager of Pacesetter Investment Partners, LLC, the general partner for Pacesetter Growth Fund, LP; and Manager of Pacesetter Associates LLC. Mr. Lawhorne has held the aforementioned positions since May 1997. Mr. Lawhorne was also President, CEO and Director of Alliance Enterprise, Inc. from the Board on January 18, 2008, Jeffery C. Reynolds resigned from the Board on July 16, 2008 and Samuel Warren resigned from the Board on July 17, 2008. The Company currently has no members on its Board of Directors and is currently seeking qualified individualsMarch 1994 to serve on the Board.
19February 2010.
Compensation Discussion and Analysis
Our executive compensation program is designed to create strong financial incentive for our officers to increase revenues, profits, operating efficiency and returns, which we expect to lead to an increase in shareholder value. Our Board of Directors conduct periodic reviews of the compensation and benefits programs to ensure that they are properly designed to meet corporate objectives, overseeing of the administration of the cash incentive and equity-based plans and developing the compensation program for the executive officers. Our executive compensation program includes fivefour primary elements. Three of the elements are performance oriented and taken together; all constitute a flexible and balanced method of establishing total compensation for our executive officers. The
Our executive compensation program is intended to be simple and clear, and consists of the following elements are a) base salary, b) annual(depending on individual performance):
Base salary;
Annual incentive plan awards, c) stock-based compensation, d) benefitsawards;
Stock-based compensation; and e) severance/change-in-control compensation.
| Long Term Compensation | ||||||||||||||||||||
| Awards | ||||||||||||||||||||
| Restricted | Securities | |||||||||||||||||||
| Annual Compensation | Stock | Underlying | ||||||||||||||||||
| Name and Position | Year | Salary ($) | Bonus ($) | Awards ($) | Options (#) | |||||||||||||||
| Tim Burroughs, | 2009 | 150,000 | — | — | — | |||||||||||||||
| President | 2008 | 150,000 | — | — | — | |||||||||||||||
| Sherri Cecotti, | 2009 | 52,300 | — | — | — | |||||||||||||||
| Secretary/Treasurer | 2008 | 52,300 | — | — | — | |||||||||||||||
| Dick O’Donnell, | 2009 | — | — | 500 | 25,000 | |||||||||||||||
| Vice President of Operations | 2008 | — | — | 98,500 | 100,000 | |||||||||||||||
| Option Grants This Fiscal Year | ||||||||||||||||||||
| Individual Grants | ||||||||||||||||||||
| Percent | Weighted | |||||||||||||||||||
| Number of | of Total | Average | ||||||||||||||||||
| Securities | Options | Market Price | ||||||||||||||||||
| Underlying | Granted | on Date of | ||||||||||||||||||
| Options | Employees | Issuance | Expiration | |||||||||||||||||
| Name | Year | Granted (#) | in Fiscal Yr. | ($/Share) | Date | |||||||||||||||
| Dick O’Donnell | 2009 | 25,000 | 100 | % | 0.05 | (1 | ) | |||||||||||||
| Dick O’Donnell | 2008 | 100,000 | 100 | % | 1.11 | (1 | ) | |||||||||||||
20
Benefits.
| Number of Securities | ||||||||||||||||||||||||||||
| Underlying | Value of Unexercised | |||||||||||||||||||||||||||
| Shares | Unexercised Options at | Options at | ||||||||||||||||||||||||||
| Acquired on | Value | Fiscal Year End | Fiscal Year End ($) (1) | |||||||||||||||||||||||||
| Name | Year | Exercise (#) | Realized ($) | Exercisable | Unexercisable | Exercisable | Unexercisable | |||||||||||||||||||||
| Dick O’Donnell | 2009 | — | — | 25,000 | — | 1,250 | — | |||||||||||||||||||||
| Dick O’Donnell | 2008 | 25,000 | 46,500 | 100,000 | — | 5,000 | — | |||||||||||||||||||||
21
Provide a competitive compensation program that enables us to retain key executives;
Ensure a strong relationship between our performance results and those of our segments and the total compensation received by an individual;
Balance annual and longer term performance objectives;
Encourage executives to acquire and retain meaningful levels of common shares; and
Work closely with the Chief Executive Officer to ensure that the compensation program supports our objectives and culture.
We believe that the overall compensation of executives should be competitive with the market in which we compete for executive talent. This market consists of both the oil and gas exploration industry and oil and gas service-based industries in which we compete for executive talent. In determining the proper amount for each compensation element, we review publicly available compensation data, as well as the compensation targets for comparable positions at similar corporations within these industries. We also consider the need to maintain levels of compensation that are fair among our executive officers given differences in their respective responsibilities, levels of accountability and decision authority.
Compensation Committee
We do not have a compensation committee of our Board of Directors or other committee that performs the same functions. The Board of Directors as a whole determines executive compensation. The Board of Directors is authorized to create certain committees, including a compensation committee.
Compensation Committee Interlocks and Insider Participation
We do not have a compensation committee of our Board of Directors or other committee that performs the same functions. The three members of the Board of Directors, Bernard O’Donnell, Daniel Robinson, and Donald Ray Lawhorne, each participate in making compensation decisions. Bernard O’Donnell serves as an Executive Vice President in addition to serving as a director.
Role of Management in Determining Compensation Decisions
At the request of our Board of Directors, our management makes recommendations to our Board of Directors relating to executive compensation program design, specific compensation amounts, equity compensation levels and other executive compensation related matters for each of our executive officers, including our Chief Executive Officer. Our Board of Directors maintains decision-making authority with respect to these executive compensation matters.
Our Board of Directors reviews the recommendations of our management with respect to total executive compensation and each element of compensation when making pay decisions.
The objectives and details of why each element of compensation is paid are described below.
Base Salary.Our objective for paying base salaries to executives is to reward them for performing the core responsibilities of their positions and to provide a level of security with respect to a portion of their compensation. We consider a number of factors when setting base salaries for executives, including:
Existing salary levels;
Competitive pay practices;
Individual and corporate performance; and
Internal equity among our executives, taking into consideration their relative contributions to our success.
Stock-Based Compensation. The President, Chief Executive Officer and Chief Financial Officer’s stock-based compensation is derived from his employment Agreement. The Company executed an amended Employment Agreement effective August 4, 2005 with Mr. Tim Burroughs for three years. Among other items, the agreement provides that Mr. Burroughs has the contractual right to require Frontier to issue, upon his request, up to 250,000 common share options subject to certain conditions. The conditions are that the options will not be issued unless Mr. Burroughs makes a demand for their issuance and the number of shares so demanded have vested (the agreement provides that 50,000 potential options vest at the beginning of each employment year for the five year term of the agreement and are cumulative.) The amendment also changed how the options are to be priced. The options are to be priced at a maximum exercise price of one-
half the bid price for Frontier common stock as of August 4, 2005 or $0.70 per share (one-half $1.40 the closing bid price on August 4, 2005.) In the event the closing bid price of Frontier’s common stock is below $0.70 on the date of a call by Mr. Burroughs, the exercise price would be reduced to the lower actual bid price. Mr. Burroughs’ Employment Agreement was further amended in April 2007. In exchange for Frontier dropping the three year service requirement, Mr. Burroughs agreed to forgo his eligibility to call for stock options for fiscal years 2005 and 2006. The Employment Agreement was again amended on December 1, 2010 wherein options were continued for an additional five years at an option price no greater than 50% of the closing price on December 1, 2010 or $0.015 per share (one-half of the $0.03 closing bid price on December 1, 2010). Mr. Burroughs did not call any of his potential stock options as of November 30, 2011. In accordance with the terms of the Amended Employment Agreement, no compensation expense is recognized as of November 30, 2011 related to Mr. Burroughs’ potential common stock options.
Certain officers agreed to forebear their salary until the Company’s cash flow improved. The Company granted stock awards to the flowing officers in recognition of their forbearance.
| c. | Sherri Cecotti: 100,000 common stock shares as compensation for services rendered as Ms. Cecotti has not received compensation from Frontier during the last two fiscal years. Ms. Cecotti is an officer of Frontier and serves as Secretary. |
| d. | Bernard O’Donnell: 200,000 common stock shares as compensation for services rendered as Mr. O’Donnell has not received compensation for his services as an officer of the Company, Vice President, for two or more years. |
Benefits. The Company is currently not offering any benefits to its employees. The Company hopes to offer benefits to its employees once the Company’s cash flow improves.
SUMMARY COMPENSATION TABLE
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards (1) ($) | Total ($) | |||||||||||||||
Tim Burroughs President, CEO, & CFO | 2011 2010 | $ $ | 31,250 18,750 | $ $ | -0- -0- | $ $ | -0- -0- | $ $ | 31,250 18,750 | |||||||||||
Sherri Cecotti Secretary & Treasurer | 2011 2010 | $ $ | 13,373 6,538 | $ $ | -0- -0- | $ $ | 7,000 -0- | $ $ | 20,373 6,538 | |||||||||||
Bernard O’Donnell Executive Vice President & Director | 2011 2010 | $ $ | 36,250 -0- | $ $ | -0- -0- | $ $ | 14,000 -0- | $ $ | 50,250 -0- | |||||||||||
| (1) | A description of the assumptions made in valuation of options and awards granted can be found in Note 7 to the Financial Statements, which is deemed to be a part of this Item. |
Employment Agreements
We executed an amended Employment Agreement effective August 4, 2005 with our president Mr. Tim Burroughs for three years. Under the terms of the agreement, Mr. Burroughs is entitled to receive an annual compensation of $150,000, and other items enumerated in the agreement. The agreement provides that Mr. Burroughs has the contractual right to require Frontier to issue, upon his request, up to 250,000 common share options subject to certain conditions. The conditions are that the options will not issue unless Tim makes a demand for their issuance and the number of shares so demanded have vested (the agreement provides that 50,000 potential options vest at the beginning of each employment year for the five year term of the agreement and are cumulative.) The amendment also changed how the options are to be priced. The options are to be priced at a maximum exercise price of one-half the bid price for Frontier common stock as of August 4, 2005 or $0.70 per share (one-half $1.40 the closing bid price on August 4, 2005.) In the event
the closing bid price of Frontier’s common stock is below $0.70 on the date of a call by Mr. Burroughs, the exercise price would be reduced to the lower actual bid price. In April 2007, in exchange for Frontier dropping the three year service requirement, Mr. Burroughs agreed to forgo his eligibility to call for stock options for fiscal years ending November 30, 2005 and 2006. The Employment Agreement was again amended on December 1, 2010 wherein options were continued for an additional five years at an option price no greater than 50% of the closing price on December 1, 2010 or $0.015 per share (one-half of the $0.03 closing bid price on December 1, 2010).Mr. Burroughs did not call any of his potential stock options as of November 30, 2011.
We executed an amended Employment Agreement effective April 1, 2006 with our Vice President of Investor Relations, Bernard O’Donnell, having a term of one (1) year, which automatically renews unless otherwise terminated as provided in said agreement. Under the terms of the agreement, Mr. O’Donnell is entitled to receive 100,000 shares of Frontier common stock upon execution and Board approval of the agreement. In addition, the company agreed to issue Mr. O’Donnell options to acquire 25,000 shares of common stock per quarter beginning April 1, 2006 for a period of up to three years at an exercise price of $0.15 per share. The option exercise period is one year from its date. The option portion of Mr. O’Donnell’s contract expired on January 2, 2009. Mr. O’Donnell did not exercise his options to acquire Frontier shares in the current fiscal year.
Termination of Employment and Change of Control Arrangement
There is no compensatory plan or arrangement with respect to any individual named above which results or will result from the resignation, retirement or any other termination of employment with us, or from a change in our control.
Compensation of Directors
Each Director receives $250 for each meeting of the Board. In addition to the foregoing, each Director will be awarded 25,000 shares of the Company’s common stock per calendar quarter (issued at the beginning of each quarter). The shareholders of the Company approved the election of the three directors on October 12, 2011. The sitting of the directors became effective 20 days after the mailing of the Information Statement to our shareholders, or on or about November 3, 2011. As such, no directors have been awarded shares of the Company’s common stock as of the date of this filing.
Compensation Committee Report
Our Board of Directors reviewed and discussed the Compensation Discussion and Analysis with management and, based on such discussion, included the Compensation Discussion and Analysis in this Annual Report on Form 10-K.
| ITEM 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
We currently have a total of Certain Beneficial Owners and Management and Related Stockholder Matters.
| NAME AND ADDRESS | PERCENT OF | |||||||||
| TITLE OF CLASS | OF OWNER | AMOUNT OWNED | CLASS | |||||||
| Common stock | Tim Burroughs(1) | 313,259 | 07.78 | % | ||||||
| 3330 LBJ Freeway, Suite 1320 | ||||||||||
| Dallas, TX 75234 | ||||||||||
| Common stock | Tim Burroughs Family Tr (2) | 500,000 | 12.41 | % | ||||||
| 3330 LBJ Freeway, Suite 1320 | ||||||||||
| Dallas, TX 75234 | ||||||||||
| Common stock | Dick O’Donnell | 200,000 | 04.97 | % | ||||||
| 3330 LBJ Freeway, Suite 1320 | ||||||||||
| Dallas, Texas 75234 | ||||||||||
| All Directors and Officers as a Group | 1,013,259 | 25.16 | % | |||||||
TITLE OF CLASS | NAME AND ADDRESS OF OWNER | AMOUNT OWNED | PERCENT OF CLASS | |||||
| Common stock | Tim Burroughs (1) 3330 LBJ Freeway, Suite 1320 Dallas, TX 75234 | 313,259 | 03.54 | |||||
| Common stock | Tim Burroughs Family Tr (2) 3330 LBJ Freeway, Suite 1320 Dallas, TX 75234 | 500,000 | 05.65 | |||||
Marketing Research Group, Inc. (3) 3330 LBJ Freeway, Suite 1320 Dallas, TX 75234 Petroleum Holdings, Inc. (3) 3330 LBJ Freeway, Suite 1320 Dallas, TX 75234 American Eagle Services, Inc. (3) 3330 LBJ Freeway, Suite 1320 Dallas, TX 75234 Bernard O’Donnell 3330 LBJ Freeway, Suite 1320 Dallas, TX 75234 Bernard O’Donnell IRA 3330 LBJ Freeway, Suite 1320 Dallas, TX 75234 Sherri Cecotti 3330 LBJ Freeway, Suite 1320 Dallas, TX 75234 Frontier Asset Management, LLC (4) 3330 LBJ Freeway, Suite 1320 Dallas, TX 75234 Gulftex Oil & Gas, LLC (5) 3330 LBJ Freeway, Suite 1320 Dallas, TX 75234 Common stock 8,012 0.09 Common stock 733 0.01 Common stock 516 0.01 Common stock 400,000 04.52 Common stock 42,500 0.48 Common stock 100,000 01.13 Common stock 4,030,000 45.52 Common stock 355,846 04.02 All Directors and Officers as a Group 5,750,866 64.96 %
| (1) | We executed an amended Employment Agreement effective August 4, 2005 with our president, Mr. Tim Burroughs, having a term of three years. Under the terms of the agreement, Mr. Burroughs is entitled to receive an annual compensation of $150,000, and other items enumerated in the agreement. In addition, |
22
| we agreed to grant Mr. Burroughs common stock options that are to be priced at a maximum exercise price of one-half the bid price for | ||
| (2) | The beneficiary of the Burroughs Family Trust is Becca Burroughs, the daughter of Mr. Burroughs, our CEO. |
| (3) | Tim Burroughs claims a beneficial interest in the stated shares |
| (4) | Tim Burroughs is a 50% owner of Frontier Asset Management, LLC. |
| (5) | Tim Burroughs is a 50% owner of Gulftex Oil & Gas, LLC. |
On September 1, 2011 we entered into a service agreement with Frontier Income and Growth, LLC. Under the agreement the Company is charging FIG for a portion of the operations conducted in the field on behalf of our company are conducted by Gulftex Operating, Inc. (Gulftex). Our president, Tim Burroughs, owns 50% of the common stock of Gulftex. In the past, no compensation was paid to Gulftex or Tim Burroughs for the ownership of Gulftex or for the management activities conducted by Gulftex. However, we paid Gulftex $800.00 per month for the activities conducted by them in operating our wells. Effective Apriladministrative services and rent.
On December 1, 2008, we sold these wells to Gulftex. In addition,2010 we entered into a services agreement with Gulftex effectiveOil & Gas, LLC. Under the agreement the Company charged Gulftex for a portion of administrative services and rent. The Agreement was terminated on August 31, 2011.
On June 1, 2007 wherebywe entered into a services agreement with Gulftex Operating, Inc. Under the agreement the Company provides administrative support services tocharged Gulftex for approximately $8,016 per month.
Audit Fees
The aggregate fees billed by our independent auditors, for professional services rendered for the audit of our annual financial statements on Form 10-K and the reviews of the financial reports included in our Quarterly Reports on Form 10-Q for the years ended November 30, 20092011 and 20082010 amounted to $16,000 and $21,000, and $27,000, respectively.
Tax Fees
No fees were billed by our auditors for professional services in connection with tax compliance, tax advice or tax planning for the years ended November 30, 20092011 and 2008.
All Other Fees
No fees were billed by our auditors for products and services other than those described above under “Audit Fees” and “Tax Fees” for the year ended November 30, 20092011 and 2008.
Board of Directors Pre-Approval Policies and Procedures
In December 2003, the Board of Directors adopted polices and procedures for pre-approving all audit and non-audit services provided by our independent auditors prior to the engagement of the independent auditors with respect to such services. Under the policy, our independent auditors are prohibited from performing certain non-audit services and are pre-approved to perform certain other non-audit and tax related services provided that the aggregate fees for such pre-approved non-audit and tax related services do not exceed a pre-set minimum.
23
Financial Statement Schedules
The following have been made part of this report and appear in Item 8 above.
Report of Independent Registered Public Accounting Firm Balance Sheets – November 30, 2011 and 2010 Statements of Operations- For The Years Ended November 30, 2011 and 2010 Statements of Cash Flows- For The Years Ended November 30, 2011 and 2010 Statements of Changes In Stockholders’ Equity- For The Years Ended November 30, 2011 and 2010 Notes to Financial Statements Exhibits
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 FRONTIER OILFIELD SERVICES, INC.
In accordance with the Exchange Act, this report has been signed by the following persons on behalf of the registrant and in the capacities indicated, on the February, 2012.
28 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||