UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 2008
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to _________
Commission File Number 033-05844
FRONTIER ENERGY CORP.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
NEVADA 87-0443026
------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2413 Morocco Avenue, North Las Vegas, Nevada 89031
---------------------------------------------------
(Address of principal executive offices)
(702) 648-5849
-------------------------------
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark whether the registrant 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 Exchange Act).
[ ] Yes [X] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
85,513,737 as of July 21, 2008.
EXPLANATORY NOTE
The Company amended and restated its financial statements, including the notes
therein, for the three months ended March 31, 2008, in order to correct errors
for paid in capital and interest expense; common stock subscribed and
exploration and development expense; and the related income tax effects.
#
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
TABLE OF CONTENTS
Page No.
Financial Statements
Balance Sheets 4
Statements of Operations 5
Statements of Cash Flows 6
Notes to Financial Statements 7-12
FRONTIER ENERGY CORP.
(AN EXPLORATION STAGE ENTERPRISE)
BALANCE SHEETS
March 31, December 31,
2008 2007
(UNAUDITED) (AUDITED)
(RESTATED)
-------------- -------------
ASSETS
Current assets:
Cash $ 7,657 $ 131
Receivables, net of allowance for doubtful accounts of $76,696 - -
-------------- -------------
Total current assets 7,657 131
Fixed assets, net of $273 accumulated depreciation 820 875
Mineral leases, net of $1,363 accumulated amortization 9,542 9,814
-------------- -------------
Total assets $ 18,019 $ 10,820
============== =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities $ 308,694 $ 300,197
Accrued interest - related parties 7,596 4,694
Due to related parties 68,549 27,567
Loans payable - related parties 108,885 47,000
Loans payable 118,322 145,322
-------------- -------------
Total current liabilities 612,046 524,780
Total liabilities 612,046 524,780
Stockholders' deficit:
Series A preferred stock, $0.001 par value; 1 share
authorized, issued and outstanding - -
Series B preferred stock, $0.001 par value; 10,000,000 shares
authorized; and 80,000 shares issued and outstanding 80 80
Common stock, $0.001 par value; 500,000,000 shares
authorized; and 53,356,464 shares issued and outstanding 53,356 41,256
Additional paid-in capital 6,661,333 6,631,034
Common stock issued for future services on employment agreement - (29,750)
Common stock subscribed 48,485 38,485
Accumulated deficit prior to reentering exploration stage (3,042,536) (3,042,536)
Accumulated deficit after reentering exploration stage (4,314,745) (4,152,529)
-------------- -------------
Total stockholders' deficit (594,027) (513,960)
-------------- -------------
Total liabilities and stockholders' deficit $ 18,019 $ 10,820
============== =============
See Accompanying Notes to Financial Statements
4
FRONTIER ENERGY CORP.
(AN EXPLORATION STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
(UNAUDITED)
Cumulative After
Reentering
For the Three Months Ended Exploration Stage
---------------------------------- through
March 31, 2008 March 31, 2007 March 31, 2008
(RESTATED) (RESTATED)
-------------- -------------- ---------------
Revenue $ - $ - $ -
Operating expenses:
Officer compensation 44,750 101,250 997,900
General and administrative 69,260 968,117 3,114,093
Exploration and development 30,537 59,500 100,016
Loss on impairment of mineral claims - - 80,000
-------------- -------------- ---------------
Total operating expenses 144,547 1,128,867 4,292,009
-------------- -------------- ---------------
Net operating loss (144,547) (1,128,867) (4,292,009)
Interest expense (17,669) - (22,736)
-------------- -------------- ---------------
Net loss $ (162,216) $ (1,128,867) $ (4,314,745)
============== ============== ===============
Earnings (loss) per common share - basic and diluted:
Net loss $ (0.00) $ (0.21)
============== ==============
Weighted average common shares outstanding -
Basic and diluted 50,544,242 5,429,242
============== ==============
See Accompanying Notes to Financial Statements
5
FRONTIER ENERGY CORP.
(AN EXPLORATION STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Cumulative After
Reentering
For the Three Months Ended Exploration Stage
----------------------------------- through
March 31, 2008 March 31, 2007 March 31, 2008
(RESTATED) (RESTATED)
-------------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (162,216) $ (1,128,867) $ (4,314,745)
Adjustments to reconcile loss
to net cash used in operating activities:
Depreciation and amortization expense 327 55 1,637
Stock issued as finders fee for farmin agreement - - 800,000
Loss on impairment of mineral claims - - 80,000
Current period expense for services paid with stock 29,750 89,250 357,000
Consulting services - Stock based 8,000 959,525 2,366,834
Financing cost - Stock based 12,200 - 12,200
Changes in operating assets and liabilities:
Accounts payable and accrued liabilities 59,980 (1,057) 164,068
-------------- -------------- --------------
Net cash used in operating activities (51,959) (81,094) (533,006)
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets - - (1,094)
Acquisition of mineral leases - - (10,905)
-------------- -------------- --------------
Net cash used in investing activities - - (11,999)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock - 15,000 255,507
Proceeds from subscriptions for common stock 10,000 12,485 48,485
Proceeds from borrowings from loans payable 76,485 49,921 269,012
Payments on borrowings from loans payable (27,000) - (27,000)
Proceeds from borrowings from related parties - (662) 2,295
-------------- -------------- --------------
Net cash provided by financing activities 59,485 76,744 548,299
-------------- -------------- --------------
NET CHANGE IN CASH 7,526 (4,350) 3,294
CASH AT BEGINNING OF YEAR 131 23,390 4,363
-------------- -------------- --------------
CASH AT END OF YEAR $ 7,657 $ 19,040 $ 7,657
============== =============== ==============
SUPPLEMENTAL INFORMATION:
Interest paid $ - $ - $ -
============== =============== ==============
Income taxes paid $ - $ - $ -
============== =============== ==============
Non-cash activities:
Shares issued pursuant to farm-in agreement $ - $ - $ 800,000
============== =============== ==============
Shares issued in settlement of accounts payable $ - $ - $ 188,096
============== =============== ==============
Shares issued for mineral claims $ - $ - $ 80,000
============== =============== ==============
Shares issued for settlement of lawsuit $ - $ - $ 6,000
============== =============== ==============
Shares issued for notes payable - related parties $ 14,600 $ - $ 14,600
============== =============== ==============
Shares issued for due to related parties $ 7,600 $ - $ 462,961
============== =============== ==============
See Accompanying Notes to Financial Statements
6
FRONTIER ENERGY CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with Securities and Exchange Commission requirements for interim
financial statements. Therefore, they do not include all of the information
and footnotes required by accounting principles generally accepted in the
United States for complete financial statements. These financial statements
should be read in conjunction with the Form 10-KSB for the year ended December
31, 2007 of Frontier Energy Corp, (the "Company").
The interim financial statements present the balance sheet, statements of
operations and cash flows of the Company. The financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States.
The interim financial information is unaudited. In the opinion of management,
all adjustments necessary to present fairly the financial position as of March
31, 2008 and the results of operations, stockholders' equity and cash flows
presented herein have been included in the financial statements. Interim
results are not necessarily indicative of results of operations for the full
year.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Re-entering Exploration Stage
As described in the Form 10-KSB, the Company distributed the assets and
liabilities of the operating segment of the Company on November 26, 2003.
Subsequent to that date, the Company changed from a computer services company
to an exploration company pursuing interests in the oil and gas industry. The
Company has devoted most of its efforts to establish the new business with
raising capital and acquiring mineral leases.
Going concern
The Company incurred a net loss of approximately $162,000 and $1,129,000 for
the three months ended March 31, 2008 and 2007, respectively, and $4,315,000
from November 26, 2003 re-entry into exploration stage to March 31, 2008. The
Company's current liabilities exceed its current assets by approximately
$604,000 as of March 31, 2008. The Company's sole operations have been
discontinued with no other source of operating revenues. These factors create
substantial doubt about the Company's ability to continue as a going concern.
The Company's management plan to continue as a going concern revolves around
its ability to develop and/or acquire new business operations, as well as,
raise necessary capital to maintain the corporate affairs of the Company.
The ability of the Company to continue as a going concern is dependent on
securing additional sources of capital and the success of the Company's plan.
The financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern.
Reclassification
The financial statements for 2008 reflect certain reclassifications, which have
nominal effect on net income, to conform to classifications in the current
year.
7
FRONTIER ENERGY CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
Use of estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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 revenue and
expenses during the periods presented. Actual results could differ from those
estimates.
Fair Value of Financial Instruments
The Company has financial instruments whereby the fair value of the financial
instruments could be different than that recorded on a historical basis in the
accompanying balance sheets. The Company's financial instruments consist of
cash and payables. The carrying amounts of the Company's financial instruments
approximate their fair values as of March 31, 2008 due to their short-term
nature.
Stock-based compensation
The Company applies SFAS No. 123R, "Accounting for Stock-Based Compensation,"
which requires the recognition of compensation cost based upon the fair value
of stock options at the grant date using the Black-Scholes option pricing
model.
3. NEW ACCOUNTING PROUNCEMENTS
FAS 161
In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative
Instruments and Hedging Activities", an amendment of SFAS No. 133. SFAS 161
applies to all derivative instruments and non-derivative instruments that are
designated and qualify as hedging instruments pursuant to paragraphs 37 and 42
of SFAS 133 and related hedged items accounted for under SFAS 133. SFAS 161
requires entities to provide greater transparency through additional
disclosures about how and why an entity uses derivative instruments, how
derivative instruments and related hedged items are accounted for under SFAS
133 and its related interpretations, and how derivative instruments and related
hedged items affect an entity's financial position, results of operations, and
cash flows. SFAS 161 is effective as of the beginning of an entity's first
fiscal year that begins after November 15, 2008. The Company does not expect
that the adoption of SFAS 161 will have a material impact on its financial
condition or results of operation.
FAS 162
In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles." SFAS 162 will provide framework for selecting
accounting principles to be used in preparing financial statements that are
presented in conformity with U.S. generally accepted accounting principles
(GAAP) for nongovernmental entities. SFAS 162 will be effective 60 days
following the Securities and Exchange Commission's approval of the Public
Company Accounting Oversight Board (PCAOB) amendments to AU Section 411. The
Company does not expect the adoption of SFAS 162 will have a material impact on
its financial condition or results of operation.
8
FRONTIER ENERGY CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
FAS 163
In May 2008, the FASB issued SFAS No. 163, "Accounting for Financial Guarantee
Insurance Contracts - an interpretation of FASB Statement No. 60." SFAS 163
requires that an insurance enterprise recognize a claim liability prior to an
event of default (insured event) when there is evidence that credit
deterioration has occurred in an insured financial obligation. This Statement
also clarifies how Statement 60 applies to financial guarantee insurance
contracts, including the recognition and measurement to be used to account for
premium revenue and claim liabilities. Those clarifications will increase
comparability in financial reporting of financial guarantee insurance contracts
by insurance enterprises. This Statement requires expanded disclosures about
financial guarantee insurance contracts. The accounting and disclosure
requirements of the Statement will improve the quality of information provided
to users of financial statements. SFAS 163 will be effective for financial
statements issued for fiscal years beginning after December 15, 2008. The
Company does not expect the adoption of SFAS 163 will have a material impact on
its financial condition or results of operation.
4. CORRECTION OF AN ERROR
The Company has restated its previously issued March 31, 2008 financial
statements for matters related to the following previously reported items:
additional paid in capital and interest expense; common stock subscribed and
exploration and development expense; and the related income tax effects. The
accompanying financial statements for March 31, 2008 have been restated to
reflect the corrections.
The following is a summary of the restatements for March 31, 2008:
Addition of exploration and development $10,000
Addition of interest expense 12,200
-------
Total increase in March 31, 2008 net loss $22,200
=======
The effect on the Company's previously issued March 31, 2008 financial
statements are summarized as follows:
Balance Sheet as of March 31, 2008
Previously Increase
Reported (Decrease) Restated
----------- ---------- -------------
Current Assets $ 7,657 $ - $ 7,657
Total Assets 18,019 - 18,019
Current Liabilities 612,046 - 612,046
Total Liabilities 612,046 - 612,046
Stockholders' Deficit:
Series A, Preferred Stock - - -
Series B, Preferred Stock 80 - 80
Common Stock 53,356 - 53,356
Additional Paid in Capital 6,649,133 12,200 6,661,333
Common Stock Subscribed 38,485 10,000 48,485
Accumulated Deficit Prior to (3,042,536) - 3,042,536
Reentering Exploration Stage
Accumulated Deficit After
Reentering Exploration Stage (4,292,545) (22,200) (4,314,745)
----------- ---------- -------------
Total Stockholders' Deficit (594,027) - (594,027)
----------- ---------- -------------
Total Liabilities and
Stockholders' Deficit 18,019 - 18,019
Statement of Operations for the Three Months Ended March 31, 2008
Previously Increase
Reported (Decrease) Restated
----------- ---------- -------------
Net Sales $ - $ - $ -
Officer Compensation 44,750 - 44,750
General and Administrative 69,260 - 69,260
Exploration and Development 20,537 10,000 30,537
Loss on Impairment of Mineral Claims - - -
Total Operating Expenses 134,547 10,000 144,547
(Loss) From Operations (134,547) (10,000) (144,547)
Interest Expense (5,469) (12,200) (17,669)
(Loss) Before Taxes (140,016) (22,200) (162,216)
Provision for Income Taxes - - -
Net Income (Loss) (140,016) (22,200) (162,216)
Earnings (loss) per common share -
basic and diluted ($0.00) ($0.00) ($0.00)
5. RELATED PARTY TRANSACTIONS
Due to related parties
An officer of the Company loaned the Company $138,325 during the three month
period ended March 31, 2008 and was repaid $129,259. During the three months
ended March 31, 2008, the officer had accrued salary of $15,000 and was paid
$0. Additionally, the officer converted $7,600 of debt into 3,800,000 shares
of common stock at a conversion rate of $0.002 per share. The fair value of
the common stock was $0.004 as of the grant date and the difference between the
fair value and the conversion rate was $7,600 and recorded as a financing
expense which is included with interest expense. The balance at March 31, 2008
was $68,549.
Loans payable - related parties
During the three months ended March 31, 2008, a family member of an officer and
director of the Company loaned the Company $75,000. The individual converted
$10,000 of debt into 5,000,000 shares of common stock at a conversion rate of
$0.002 per share. The balance at March 31, 2008 was $65,000. Interest expense
for the three month period ended March 31, 2008 was $1,587.
As of January 1, 2008, a director of the Company had an outstanding loan to the
Company totaling $47,000. During the three months ended March 31, 2008, the
director was repaid $1,485 in cash and converted $4,600 of debt into 2,300,000
shares of common stock at a conversion rate of $0.002 per share. The fair
value of the common stock was $0.004 as of the grant date and the difference
between the fair value and the conversion rate was $4,600 and recorded as a
financing expense which is included with interest expense. The balance at
March 31, 2008 was $43,885. Interest expense for the three month period ended
March 31, 2008 was $1,315.
9
FRONTIER ENERGY CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
6. NOTES PAYABLE
Loans payable consists of the following at March 31, 2008:
March 31,
2008
--------
Note payable to entity, unsecured, 0% interest, due upon demand $ 30,000
Note payable to individual, unsecured, interest at 10% per annum,
maturity date of May 2008, balloon payment of principal 10,000
and interest due upon maturity
Note payable to individual, unsecured, interest at 10% per annum,
maturity date of December 2008, monthly principal 78,322
payments of $8,777 with the balance of principal and accrued interest --------
due upon maturity
$118,322
========
Interest expense for the three month period ended March 31, 2008 was $2,567.
7. STOCKHOLDERS' EQUITY
Common Stock
On January 2, 2008, the Company issued a total of 6,100,000 shares of common
stock to one individual who is an officer and director of the Company and to
another individual who is a director of the Company in exchange for the
conversion of debt totaling $12,200. The shares were converted at a rate of
$0.002 per share. The fair value of the common stock was $0.004 as of the
grant date and the difference between the fair value and the conversion rate
was $12,200 and recorded as a financing expense which is included with interest
expense. The fair value of the shares issued was $24,400.
On February 11, 2008, the Company issued 5,000,000 shares of common stock to a
family member of an officer and director of the Company in exchange for the
conversion of debt totaling $10,000. The shares were converted at a rate of
$0.002 per share.
On February 12, 2008, the Company issued 1,000,000 shares of common stock to an
entity in exchange for services rendered totaling $8,000. The shares were
valued at the fair value of the shares of common stock on the grant date.
On March 18, 2008, the Company received $10,000 from an investor which was
recorded as common stock subscribed. As of March 31, 2008, the shares were
unissued.
8. SUBSEQUENT EVENTS
On April 15, 2008, the Company issued 9,500,000 shares of common stock to a
family member of an officer and director of the Company in exchange for cash
totaling $9,500.
10
FRONTIER ENERGY CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
On April 15, 2008, the Company issued 500,000 shares of common stock to a
family member of an officer and director of the Company in exchange for the
conversion of debt totaling $500. The shares were converted at a rate of
$0.001 per share. The fair value of the common stock was $0.033 as of the grant
date and the difference between the fair value and the conversion rate was
$16,000 and recorded as a financing expense which is included with interest
expense.
On April 15, 2008, the Company issued 5,000,000 shares of common stock to a
director of the Company in exchange for the conversion of debt totaling $5,000.
The shares were converted at a rate of $0.001 per share. The fair value of the
common stock was $0.033 as of the grant date and the difference between the
fair value and the conversion rate was $160,000 and recorded as a financing
expense which is included with interest expense.
On April 15, 2008, the Company issued 1,800,000 shares of common stock to an
entity in exchange for cash received in March 2008. The Company reduced its
common stock subscribed by $10,000.
On May 1, 2008, the Company settled a lawsuit with a noteholder and agreed to
issue a total of 15,357,273 shares of common stock to extinguish the debt. On
May 7, 2008, the Company issued a total of 9,000,000 shares and issued the
remaining balance of 6,357,273 shares of common stock on May 19, 2008.
On May 1, 2008, the Company was served with a summons and complaint in an
action for the repayment of a debt owed to its former legal counsel in the
amount of $33,786 which the Company has carried as a payable on its financial
statements. Also on May 1, 2008, the Company and the Creditor entered into a
settlement agreement in which the creditor agreed to dismiss the Action,
release the Company from any further obligations to the Creditor, plus all
accrued interest, through the issuance of 15,357,273 shares of the Company's
common stock to the Creditor at a price of $0.0022 per share, pursuant to a
court order. On May 7, 2008, in accordance with the Settlement Agreement and
the Order, the Company instructed its transfer agent to issue 9,000,000 shares
of unrestricted common stock according to the instructions of the Creditor.
The Company has the obligation to issue an additional 6,357,273 shares of
common stock on the demand of the Creditor.
On June 27, 2008, the Company signed a letter of intent to purchase the
assets and business of Cancen Oil Processors, Inc. ("Cancen"), an Alberta
corporation (the "Proposed Acquisition"). The Proposed Acquisition is subject
to Cancen's rights to a due diligence investigation and the execution of a
definitive agreement for the Proposed Acquisition. On August 7, 2008, the
proposed acquisition was cancelled by Cancen.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS
OF OPERATIONS.
The following discussion of our financial condition and results of
operations should be read in conjunction with the Company's unaudited financial
statements, and notes thereto, included elsewhere in this quarterly report.
This discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ materially from those anticipated
in these forward-looking statements as a result of various factors including,
but not limited to, those discussed in the Company's filings under the
Securities Exchange Act of 1934, as amended.
IN GENERAL
Frontier Energy Corp., through subsidiaries and agreements in which we
intend to participate, is engaged in the acquisition, exploration, development
and operation of oil and gas reserves. We have cancelled the contracts on
certain prospects in 2006 and acquired a working interest in another prospect
during the second quarter of 2007. We have been unable to fund the
exploitation of this prospect, but are seeking to partner with another party.
Our ability to emerge from the exploration stage with respect to any planned
principal business activity is dependent upon our successful efforts to raise
additional equity financing and generate significant revenue. In the three-
month period ended March 31, 2008, the Company had no revenues from operations
or other sources.
We intend to acquire prospects and raise the funds necessary to extract
oil and/or natural gas from such prospects. To date, we have acquired a
working interest in one prospect and are seeking a partner to exploit this
prospect. We intend to seek out other prospects, with the intention of raising
funds to exploit such prospects.
In the alternative, if we are unable to acquire oil or gas properties,
the Company may seek to enter into a merger with an operating company, if the
Board deems it in the best interests of the Company's stockholders. We have
not identified any potential merger target as of the date of this report.
Material Changes in Financial Condition
The Company's financial condition has changed since the end of the year
ended December 31, 2007. On March 31, 2008, the Company had approximately
$7,700 in cash, compared with $131 at the end of the last year. On March 31,
2007, the Company had approximately $19,000 in cash. The fluxuations in the
Company's cash position are due to the Company's attempts at raising additional
capital for operations, either through borrowings or through the sales of its
securities privately.
Material Changes in Results of Operations
Because of the Company's poor financial condition, the Company has cut
operating expenses as much as we deem possible. Our total operating expenses
for the three months ended March 31, 2008 were $144,547, compared with
operating expenses of $1,128,867 for the three months ended March 31, 2007.
The comparison with March 31, 2007 may not be informative, since these expenses
included $1,048,775 in stock-based expenses for common stock issued as
compensation to officers, directors, employees and consultants, while the
stock-based expenses for the quarter ended March 31, 2008 was only $49,950.
Liquidity and Capital Resources
The Company did not generate any revenue in the quarter ended March 31,
2008, the quarter ended March 31, 2007 or the year ended December 31, 2007; nor
has the Company had access to sufficient capital to implement our business
plan. Since our future revenues from operations (if any) will not provide
sufficient capital to allow us to implement our acquisition and merger plans in
the near future, we must secure a source of additional capital.
12
We currently have very limited operating funds ($7,657 as of March 31,
2008), and we will require additional cash to maintain our operations for the
next twelve months. Our operating expenses for the three-month period ending
March 31, 2008 were $144,547, as compared to $1,128,867 for the same period in
2007. Of the $144,547 in total expenses during the three months ended March
31, 2008, $49,950 was stock-based expenses and $327 was depreciation, which are
non-cash items. Based on the cash we currently have, we will likely need
additional financing to continue operations beyond June 30, 2008. We have been
dependent on loans and private sales of our common stock to continue
operations. Thus, our success is entirely dependent upon our ability to raise
additional capital. If the Company cannot raise additional capital in the very
near term, the Company may be forced to discontinue operations.
We believe that we will require an additional $3,000,000 to fund our
currently anticipated requirements for our proposed operations to implement our
business plan over the next twelve-month period, most of which the Company must
raise through loans or the sale of equity. In the longer term, we hope to
satisfy our liquidity requirements from cash flow from operations and to the
extent such funds are insufficient, we must raise additional funds to sustain
operations. We can give no assurances that we will be able to obtain the
required capital from any source or that we will be able to commence
operations.
Variables and Trends
We have no operating history with respect to oil and natural gas
exploration. In the event we are able to obtain the necessary financing to
move forward with our business plan, we expect our expenses to increase
significantly as we grow our business with the acquisition of property or
through acquisitions. Accordingly, the comparison of the financial data for
the periods presented may not be a meaningful indicator of our future
performance and must be considered in light of our operating history.
Recent Accounting Pronouncements
In March 2008, the FASB issued SFAS No. 161, "Disclosures about
Derivative Instruments and Hedging Activities", an amendment of SFAS No. 133.
SFAS 161 applies to all derivative instruments and non-derivative instruments
that are designated and qualify as hedging instruments pursuant to paragraphs
37 and 42 of SFAS 133 and related hedged items accounted for under SFAS 133.
SFAS 161 requires entities to provide greater transparency through additional
disclosures about how and why an entity uses derivative instruments, how
derivative instruments and related hedged items are accounted for under SFAS
133 and its related interpretations, and how derivative instruments and related
hedged items affect an entity's financial position, results of operations, and
cash flows. SFAS 161 is effective as of the beginning of an entity's first
fiscal year that begins after November 15, 2008. The Company does not expect
that the adoption of SFAS 161 will have a material impact on its financial
condition or results of operation.
In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally
Accepted Accounting Principles." SFAS 162 will provide framework for selecting
accounting principles to be used in preparing financial statements that are
presented in conformity with U.S. generally accepted accounting principles
(GAAP) for nongovernmental entities. SFAS 162 will be effective 60 days
following the Securities and Exchange Commission's approval of the Public
Company Accounting Oversight Board (PCAOB) amendments to AU Section 411. The
Company does not expect the adoption of SFAS 162 will have a material impact on
its financial condition or results of operation.
In May 2008, the FASB issued SFAS No. 163, "Accounting for Financial
Guarantee Insurance Contracts - an interpretation of FASB Statement No. 60."
SFAS 163 requires that an insurance enterprise recognize a claim liability
prior to an event of default (insured event) when there is evidence that credit
deterioration has occurred in an insured financial obligation. This Statement
also clarifies how Statement 60 applies to financial guarantee insurance
contracts, including the recognition and measurement to be used to account for
premium revenue and claim liabilities. Those clarifications will increase
comparability in financial reporting of financial guarantee insurance contracts
by insurance enterprises. This Statement requires expanded disclosures about
financial guarantee insurance contracts. The accounting and disclosure
requirements of the Statement will improve the quality of information provided
to users of financial statements. SFAS 163 will be effective for financial
statements issued for fiscal years beginning after December 15, 2008. The
Company does not expect the adoption of SFAS 163 will have a material impact on
its financial condition or results of operation.
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Off Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes
in financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that are material to investors.
ITEM 3. QUANTATATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has not engaged in any transactions, issued or bought any
financial instruments or entered into any contracts that are required to be
disclosed in response to this item.
ITEM 4. CONTROLS AND PROCEDURES
See Item 4T, below.
ITEM 4T. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures
Our management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Rule 13a-
15(f) of the Exchange Act. Under the supervision and with the participation of
our management, including our Chief Executive Officer, we conducted an
evaluation of the effectiveness of our internal control over financial
reporting based upon the framework in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Based on that evaluation, our management concluded that our internal
control over financial reporting is not effective, as of March 31, 2008. In
that regard, we identified the following material weaknesses in our internal
control over financial reporting as of March 31, 2008.
1. Lack of Effective Control in Certain Accounting Areas. There were not
effective financial reporting controls in certain areas that could lead to
inaccurate financial reporting, including: (i) financial personnel have the
ability to change account structures without approval (ii) general ledger
journal entries are not always approved or reviewed prior to entry, and (iii)
accounting staff employees with payable responsibilities also have access to
vendor maintenance controls.
2. Lack of Sufficient Segregation of Authority and Duties. We have not
maintained sufficient segregation of duties or responsibilities, as evidenced
by executive officers (i) having the ability to purchase and receive goods,
(ii) assuming payables activities without verification or maintenance of vendor
controls by others, (iii) holding multiple executive positions simultaneously,
and (iv) having the ability to negotiate contracts with third parties in which
they have an interest, without conflict of interest or oversight control by the
Board of Directors. In addition, the Company lacked a Board of Directors with a
majority of independent directors.
Remediation of Material Weaknesses
1. At this time, management has evaluated the need for additional accounting
personnel to implement segregation of duties but found that this solution would
be expensive and inefficient since the Company has so few transactions that two
accounting personnel would be excessive.
2. Segregation of Authority and Duties. Management has evaluated the
requirement for increased segregation of authority and duties and has made the
conclusion that implementing such changes would not be reasonably feasible,
given the status of the Company at this time.
Management is committed to continuing efforts aimed at improving the design
adequacy and operational effectiveness of its system of internal controls. The
remediation efforts noted above will be subject to our continuing internal
control assessment, testing and evaluation process.
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(b) Changes in internal control over financial reporting.
There have been no changes in our internal control over financial reporting
that occurred during the quarter ended June 30, 2008 that have materially
affected or are reasonably likely to materially affect our internal control
over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
We are not a party to any pending legal proceeding or litigation, except
as described in the following paragraph. In addition, none of our property is
the subject of a pending legal proceeding. We are not aware of any legal
proceedings against the Company or our property contemplated by any
governmental authority.
In 2006, the Company was sued by a former consultant for fees allegedly
owed and repayment of funds purported lent to the Company. The Company and the
consultant have agreed to a settlement of this dispute.
Subsequent Event
On May 1, 2008, the Company was served with a summons and complaint in an
action for the repayment of a debt owed to its former legal counsel in the
amount of $33,786 (the "Debt") which the Company has carried as a payable on
its financial statements. This obligation was transferred to Corporate Debt
Solutions, Inc. (the "Creditor"). This action was brought by the Creditor
against the Company in the Circuit Court of the Twelfth Judicial Circuit,
Sarasota County, Florida (the "Court"), Case Number 2008-CA-006952-NC, and
asserted failure to pay the Debt, plus sums due for interest (the "Action").
Also on May 1, 2008, the Company and the Creditor entered into a settlement
agreement (the "Settlement Agreement") in which the creditor agreed to dismiss
the Action, release the company from any further obligations to the Creditor,
plus all accrued interest, through the issuance of 15,357,273 shares of the
Company's common stock to the Creditor at a price of $0.0022 per share,
pursuant to a court order (the "Order"), in a manner intended to be exempt from
the registration provisions of the Securities Act of 1933, as amended (the
"Act"), pursuant to Section 3(a)(10) of the Act. On May 2, 2008, the Court
held a "fairness" hearing with respect to the Settlement Agreement, pursuant to
Section 3(a)(10) of the Act. On May 2, 2008, the Court issued the Order,
approving the Settlement Agreement and determining that the Settlement
Agreement was "fair" within the meaning of section 3(a)(10) of the Act. The
Court further ordered that the issuance of the Company's common stock to the
Creditor pursuant to the Settlement Agreement and the resale of such shares by
the Creditor, "assuming satisfaction of all other securities laws and
regulations," will be exempt from registration under the Act pursuant to
Section 3(a)(10).
On May 7, 2008, in accordance with the Settlement Agreement and the Order, the
Company instructed its transfer agent to issue 9,000,000 shares of unrestricted
common stock according to the instructions of the Creditor. On May 19, 2008,
the Company issued the remaining 6,357,273 shares of common stock to the
Creditor.
ITEM 1A. RISK FACTORS.
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
On January 2, 2008, the Company issued a total of 6,100,000 shares of
common stock to one individual who is an officer and director of the Company
and to another individual who is a director of the Company in exchange for the
conversion of debt totaling $12,200. The shares were converted at a rate of
$0.002 per share. The issuance of these shares reduced the Company's debt.
On February 11, 2008, the Company issued 5,000,000 shares of common
stock to a family member of an officer and director of the Company in exchange
for the conversion of debt totaling $10,000. The shares were converted at a
rate of $0.002 per share. . The issuance of these shares reduced the
Company's debt.
On February 12, 2008, the Company issued 1,000,000 shares of common
stock to an entity in exchange for services rendered totaling $8,000. The
shares were valued at the fair value of the shares of common stock on the grant
date. The issuance of these shares reduced the Company's cash obligations.
On May 7, 2008, the Company issued 9,000,000 shares of its common stock
in partial payment of the Settlement Agreement with the Creditor, as described
in Item 1, above. As these shares were issued in partial settlement of a debt,
the issuance of these shares reduced the debt of the Company as shown on the
Company's financial statements. The Company is obligated, under the Settlement
Agreement and the Order, to issue an additional 6,357,273 shares of
unrestricted common stock to the Creditor at its demand. Any such additional
issuance will further reduce the Company's outstanding debt.
On May 19, 2008, the Company issued the remaining 6,357,273 shares of
common stock to the Creditor.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
On May 1, 2008, the Company was served with a summons and complaint in an
action for the repayment of a debt owed to its former legal counsel in the
amount of $33,786 (the "Debt") which the Company has carried as a payable on
its financial statements. This obligation was transferred to Corporate Debt
Solutions, Inc. (the "Creditor"). This action was brought by the Creditor
against the Company in the Circuit Court of the Twelfth Judicial Circuit,
Sarasota County, Florida (the "Court"), Case Number 2008-CA-006952-NC, and
asserted failure to pay the Debt, plus sums due for interest (the "Action").
Also on May 1, 2008, the Company and the Creditor entered into a settlement
agreement (the "Settlement Agreement") in which the creditor agreed to dismiss
the Action, release the company from any further obligations to the Creditor,
plus all accrued interest, through the issuance of 15,357,273 shares of the
Company's common stock to the Creditor at a price of $0.0022 per share,
pursuant to a court order (the "Order"), in a manner intended to be exempt from
the registration provisions of the Securities Act of 1933, as amended (the
"Act"), pursuant to Section 3(a)(10) of the Act. On May 2, 2008, the Court
held a "fairness" hearing with respect to the Settlement Agreement, pursuant to
Section 3(a)(10) of the Act. On May 2, 2008, the Court issued the Order,
approving the Settlement Agreement and determining that the Settlement
Agreement was "fair" within the meaning of section 3(a)(10) of the Act. The
Court further ordered that the issuance of the Company's common stock to the
Creditor pursuant to the Settlement Agreement and the resale of such shares by
the Creditor, "assuming satisfaction of all other securities laws and
regulations," will be exempt from registration under the Act pursuant to
Section 3(a)(10).
On May 7, 2008, in accordance with the Settlement Agreement and the Order, the
Company instructed its transfer agent to issue 9,000,000 shares of unrestricted
common stock according to the instructions of the Creditor. On May 19, 2008,
the Company issued the remaining 6,357,273 shares of common stock to the
Creditor.
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ITEM 6. EXHIBITS
EXHIBIT NUMBER. DESCRIPTION
31.1 Certification of Principal Executive Officer and Principal Financial
Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated
under the Securities Exchange Act of 1934, as amended
32.1 Certification of Principal Executive Officer and Principal Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of The Sarbanes-Oxley Act of 2002.
99.1 Settlement Agreement with Corporate Debt Solutions I, Inc. and Court
Order Signed May 2, 2008
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: August 19, 2008
FRONTIER ENERGY CORP.
By: /s/ Robert Genesi
- ---------------------
Name: Robert Genesi
Title: President and Acting Chief Financial Officer
Principal Financial Officer
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