UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark one)
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: March 31, 2019
Or
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from: to
Commission File Number: 0-30746
FRONTIER OILFIELD SERVICES, INC.
(Exact name of registrant as specified in its charter)
| Texas | 75-2592165 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
| 220 Travis Street, Suite 501, Shreveport, Louisiana 71101 | 71101 |
| (Address of principal executive offices) | (Zip Code) |
(972) 243-2610
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer | ☐ | Accelerated Filer | ☐ | |
| Non-Accelerated Filer | ☐ | Smaller Reporting Company | ☒ |
| Emerging Growth Company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
Securities registered pursuant to Section 12(b) of the Act: None
As of May 15, 2019, there were 14,760,178 shares of common stock, par value $0.01 per share, outstanding.
FRONTIER OILFIELD SERVICES, INC.
Index
PART 1 — FINANCIAL INFORMATION
FRONTIER OILFIELD SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| March 31, 2019 | December 31, 2018 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | 20,756 | $ | 26,158 | ||||
| Accounts receivable, net | 69,944 | 75,053 | ||||||
| Advance to shareholder | — | — | ||||||
| Total current assets | 90,700 | 101,211 | ||||||
| Property and equipment, at cost | 7,616,948 | 7,616,948 | ||||||
| Less: accumulated depreciation | (4,933,437 | ) | (4,811,127 | ) | ||||
| Property and equipment, net | 2,683,511 | 2,805,821 | ||||||
| Intangibles, net | 243,896 | 262,190 | ||||||
| Right of Use (Note 7) | 850,074 | — | ||||||
| Deposits | 2,302 | 2,302 | ||||||
| Total other assets | 1,096,272 | 264,492 | ||||||
| Total Assets | $ | 3,870,483 | $ | 3,171,524 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current Liabilities: | ||||||||
| Current maturities of long-term debt, primarily stockholders, net of deferred loan fees | $ | 7,951,247 | $ | 7,951,247 | ||||
| Lease liability – current (Note 7) | 104,000 | — | ||||||
| Accounts payable | 1,054,524 | 1,033,622 | ||||||
| Accrued liabilities | 1,826,516 | 1,711,170 | ||||||
| Total current liabilities | 10,936,287 | 10,696,039 | ||||||
| Long-term debt, less current maturities | — | — | ||||||
| Lease liability – non-current (Note 7) | 746,074 | — | ||||||
| Total Liabilities | 11,682,361 | 10,696,039 | ||||||
| Commitments and Contingencies (Note 7) | ||||||||
| Stockholders’ Deficit: | ||||||||
| Common stock- $.01 par value; authorized 100,000,000 shares; | ||||||||
| 14,760,178 shares issued and outstanding at March 31, 2019 and December 31, 2018 | 147,603 | 147,603 | ||||||
| Additional paid-in capital | 35,266,295 | 35,266,295 | ||||||
| Accumulated deficit | (43,225,776 | ) | (42,938,413 | ) | ||||
| Total stockholders’ deficit | (7,811,878 | ) | (7,524,515 | ) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | 3,870,483 | $ | 3,171,524 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
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FRONTIER OILFIELD SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| For the Three Months Ended | ||||||||
| March 31, 2019 | March 31, 2018 | |||||||
| Revenue, net of discounts | $ | 235,702 | $ | 300,465 | ||||
| Costs and expenses: | ||||||||
| Direct operating costs | 172,320 | 243,507 | ||||||
| General and administrative | 100,659 | 43,285 | ||||||
| Depreciation and amortization | 140,604 | 143,718 | ||||||
| Total costs and expenses | 413,583 | 430,510 | ||||||
| Operating loss | (177,881 | ) | (130,045 | ) | ||||
| Other expense: | ||||||||
| Interest expense | 109,482 | 109,557 | ||||||
| Loss before provision for income taxes | (287,363 | ) | (239,602 | ) | ||||
| Provision for income taxes | — | — | ||||||
| Net loss | $ | (287,363 | ) | $ | (239,602 | ) | ||
| Net loss per common share - basic: | $ | (0.02 | ) | $ | (0.02 | ) | ||
| Weighted Average Common Shares Outstanding: | ||||||||
| Basic | 14,760,178 | 13,868,788 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
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FRONTIER OILFIELD SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the Three Months Ended | ||||||||
| March 31, 2019 | March 31, 2018 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net loss | $ | (287,363 | ) | $ | (239,602 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 140,604 | 143,718 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| (Increase) decrease in operating assets: | ||||||||
| Accounts receivable | 5,109 | (11,832 | ) | |||||
| Increase (decrease) in operating liabilities: | ||||||||
| Accounts payable | 20,902 | (60,311 | ) | |||||
| Accrued liabilities | 115,346 | 144,150 | ||||||
| Net cash used in operating activities | (5,402 | ) | (23,877 | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Repayment of advance to shareholder | — | 13,000 | ||||||
| Net cash provided by investing activities | — | 13,000 | ||||||
| Cash Flows from Financing Activities: | ||||||||
| Payments and adjustments on debt | — | — | ||||||
| Net cash used in financing activities | — | — | ||||||
| Net decrease in cash | (5,402 | ) | (10,877 | ) | ||||
| Cash at beginning of the period | 26,158 | 17,156 | ||||||
| Cash at end of the period | $ | 20,756 | $ | 6,279 | ||||
| Supplemental Cash Flow Disclosures | ||||||||
| Interest paid | $ | — | $ | — | ||||
| Taxes paid | $ | — | $ | — | ||||
| Supplemental Disclosure of Non- Cash Financing Activities | ||||||||
| Recognition of Right of Use asset and Lease liability | $ | 886,497 | $ | — | ||||
The accompanying notes are an integral part of these consolidated financial statements.
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FRONTIER
OILFIELD SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’
DEFICIT
(UNAUDITED)
| Additional | Total | |||||||||||||||||||
| Common Stock | Paid-In | Accumulated | Stockholders’ | |||||||||||||||||
| Shares | Par Value | Capital | Deficit | Equity | ||||||||||||||||
| Balance December 31, 2017 | 13,868,788 | $ | 138,689 | $ | 34,918,653 | ($ | 42,052,118 | ) | ($ | 6,994,776 | ) | |||||||||
| Net Loss | — | — | — | (239,602 | ) | (239,602 | ) | |||||||||||||
| Balance March 31, 2018 | 13,868,788 | $ | 138,689 | $ | 34,918,653 | ($ | 42,291,720 | ) | ($ | 7,234,378 | ) | |||||||||
| Balance December 31, 2018 | 14,760,178 | $ | 147,603 | $ | 35,266,295 | ($ | 42,938,413 | ) | ($ | 7,524,515 | ) | |||||||||
| Net Loss | — | — | — | (287,363 | ) | (287,363 | ) | |||||||||||||
| Balance March 31, 2019 | 14,760,178 | $ | 147,603 | $ | 35,266,295 | ($ | 43,225,776 | ) | ($ | 7,811,878 | ) | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
6
FRONTIER OILFIELD SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(UNAUDITED)
| 1. | BASIS OF PRESENTATION |
The consolidated financial statements included herein have been prepared by Frontier Oilfield Services, Inc. (“the Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been omitted. However, in the opinion of management, all adjustments (which include only normal recurring adjustments, unless otherwise indicated) necessary to present fairly the financial position and results of operations for the periods presented have been made. The results for interim periods are not necessarily indicative of trends or of results to be expected for the full year. These financial statements should be read in conjunction with the financial statements of the Company for the year ended December 31, 2018 (including the notes thereto) set forth in Form 10-K.
| 2. | BUSINESS ACTIVITIES |
Frontier Oilfield Services, Inc. a Texas corporation (and collectively with its subsidiaries, “we”, “our”, “Frontier”, “FOSI”, or the “Company”), was organized on March 24, 1995. The accompanying consolidated financial statements include the accounts of the Company and Frontier Acquisition I, Inc., and its subsidiary Chico Coffman Tank Trucks, Inc. (CTT) and its subsidiary Coffman Disposal, LLC, and Frontier Income and Growth, LLC (FIG) and its subsidiaries Trinity Disposal & Trucking, LLC and Trinity Disposal Wells, LLC.
Frontier operates its business in the oilfield service industry and is primarily involved in the disposal of saltwater and other oilfield fluids in Texas. The Company currently owns and operates eight disposal wells in Texas, six within the Barnett Shale in North Texas and two in east Texas near the Louisiana state line. The Company’s customers include national, integrated, and independent oil and gas exploration companies.
| 3. | GOING CONCERN |
The Company’s financial statements are prepared using U.S. generally accepted accounting principles (“U.S. GAAP”) applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As of the date of the financial statements, the Company has generated losses from operations, has an accumulated deficit and working capital deficiency. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.
To continue as a going concern and achieve a profitable level of operations, the Company will need, among other things, to increase its business volume and grow revenues, reduce its operating expenses, raise additional capital resources and develop new and stable sources of revenue sufficient to meet its operating expenses.
The Company’s ability to continue as a going concern will be dependent upon management’s ability to successfully implement management’s plans to pursue additional business volumes from new and existing customers, reduce indebtedness through sales of non-performing assets and conversions of debt to equity, and rationalize the Company’s cost structure to achieve profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. The Company’s continued existence will ultimately be dependent on its ability to generate enough cash flows to support its operations as well as provide enough resources to retire existing liabilities on a timely basis. The Company faces significant risk in implementing its business plan and there can be no assurance that financing for its operations and business plan will be available or, if available, such financing will be on satisfactory terms.
| 4. | SUMMARY OF SELECTED ACCOUNTING POLICIES |
New Accounting Pronouncements
In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which provides guidance for the recognition, measurement, presentation, and disclosure of financial assets and liabilities. The guidance is effective for the fiscal year beginning after December 15, 2017, including interim periods within that year. This accounting guidance has been adopted by the Company as of January 1, 2018. There was no material effect on the financial statements for the three months ended March 31, 2019 or the year ended December 31, 2018 as a result of adoption of this ASU.
In February 2016, the FASB issued ASU 2016-02, Leases, which will, among other impacts, change the criteria under which leases are identified and accounted for as on- or off-balance sheet. The guidance is effective for the fiscal year beginning after December 15, 2018, including interim periods within that year. The new guidance has been adopted by the Company as of January 1, 2019. The Company has, applied the new accounting standard on a modified retrospective basis to leases existing at the beginning of the earliest period presented in the financial statements. The adoption of the accounting standard resulted in the recognition of a Right of Use asset in the amount of $850,074 and a Lease Liability – Current of $104,000 and a lease liability- Non-Current of $746,074 as of March 31, 2019.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-company transactions and balances have been eliminated in consolidation.
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Fair Value of Financial Instruments
In accordance with the reporting requirements of ASC Topic 825, Financial Instruments, the Company calculates the fair value of its assets and liabilities which qualify as financial instruments under this standard and includes this additional information in the notes to the financial statements when the fair value is different than the carrying value of those financial instruments. The Company does not have assets or liabilities measured at fair value on a recurring basis. Consequently, the Company did not have any fair value adjustments for assets and liabilities measured at fair value at the balance sheet dates, nor gains or losses reported in the statements of operations that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held during the three months ended March 31, 2019 and 2018, except as disclosed.
Earnings (Loss) Per Share (EPS)
Basic earnings per common share are calculated by dividing net income or loss by the weighted average number of shares outstanding during the period. Diluted earnings per common share are calculated by adjusting outstanding shares, assuming conversion of all potentially dilutive stock options and warrants. The computation of diluted EPS does not assume conversion, exercise, or contingent issuance of shares that would have an anti-dilutive effect on earnings per common share. Anti-dilution results from an increase in earnings per share or reduction in loss per share from the inclusion of potentially dilutive shares in EPS calculations. Currently there are no stock options in 2019 or 2018 which have been excluded from EPS that could potentially have a dilutive effect on EPS in the future.
| 5. | STOCK BASED COMPENSATION |
On July 2, 2018, the Company issued an aggregate of 891,390 shares of common stock to the members of the Board of Directors and outside consultants. Two members of the Board of Directors received 250,000 shares each. One member of the Board of Directors received 100,000 shares. Outside consultants to the Company received an aggregate of 291,390 shares in exchange for their services to the Company. The Company recorded stock compensation expense of $356,556 for the year ended December 31, 2018 associated with the stock issuance.
8
| 6. | BORROWINGS |
Borrowings as of March 31, 2019 and December 31, 2018 were as follows:
| March 31, | December 31, | |||||||
| 2019 | 2018 | |||||||
| Revolving credit facility and term loan (a) | $ | 747,757 | $ | 747,757 | ||||
| Term note (b) | 4,321,065 | 4,321,065 | ||||||
| Loans from stockholders (c) (d) | 2,870,484 | 2,870,484 | ||||||
| Installment notes (e) | 11,941 | 11,941 | ||||||
| Total debt | 7,951,247 | 7,951,247 | ||||||
| Less current portion | (7,951,247 | ) | (7,951,247 | ) | ||||
| Total long-term debt | $ | — | $ | — | ||||
| a. | The Revolving Credit Facility and Term Loan have a maturity date of July 23, 2017 and a default interest rate, which is the base rate plus the applicable margin plus 2% (6.75% and 7.75%, respectively as of December 31, 2016. The loans are secured by all the Company’s properties and assets except for its disposal wells wherein the Senior Loan Facility has a subordinated secured position with an accredited investor. As of March 31, 2019, the Company was not in compliance with its debt covenants under the Senior Loan Facility and the lender had not exercised its rights under the Senior Loan Facility. The outstanding balance of the Senior Loan Facility is included in current liabilities at March 31, 2019 and December 31, 2018 because the Company did not comply with its debt covenants, including the timely payment of interest and principal. |
| b. | The Company and its subsidiaries entered into a Term Loan, Guaranty and Security Agreement on July 23, 2012 with ICON (the “Loan Agreement”). On December 27, 2014 an affiliate of an accredited investor who is also a stockholder purchased the note payable under the Loan Agreement. The accredited investor assumed the terms and conditions of the Loan Agreement. The Loan Agreement provides the lender with a senior secured position on the Company’s disposal wells and a subordinated position to the Senior Loan Facility on all other Company properties and assets. As of March 31, 2019, the Company did not comply with its debt covenants under the Loan Agreement and the lender had not exercised its rights under the Loan Agreement. The outstanding balance of the note pursuant to the Loan Agreement is included in current liabilities at March 31, 2019 and December 31, 2018 because that the Company was not in compliance with its debt covenants, including the timely payment of interest. On June 30, 2017, the holder of the Loan Agreement agreed to exchange the outstanding accrued interest on the Loan Agreement for common stock in the company and agreed to lower the interest rate on the Loan Agreement to 3% annually effective July 1, 2017. |
| c. | On May 27, 2014 an accredited investor, who is also a stockholder in the Company, entered a loan agreement with the Company for $2,783,484. As of March 31, 2019, and December 31, 2018 the principal balance of the note was $2,783,484. The note bears interest at 9% per annum. The terms of the note require the cash payment of one half of the interest cost monthly (4.5% per annum), and the remaining half is accrued as payment in kind interest. The note and all accrued interest were due and payable in November 27, 2015. The principal and interest on the note payable is past due pursuant to its terms. |
| d. | On March 21, 2014 the CEO of the Company, who is also a stockholder in the Company entered a promissory note agreement whereby the CEO loaned the Company $87,000. The promissory note has an interest rate of 7% per annum. The note was to be repaid in installments throughout the year ended December 31, 2014 with a portion of the repayment conditioned upon the sale of certain of the Company’s disposal wells. The principal and interest on the note payable to the CEO is past due pursuant to its terms. |
| e. | The Company has an installment loan with an outstanding principal balance of approximately $11,941 used to acquire property and equipment for use in the Company’s operations. The collateral for the loan was no longer in use in the Company’s operations and was returned to the lender May 2016. The reduction in principal from the surrender of the collateral was less than the total balance owed. The remaining principal balance of the loan has been classified as a short-term liability. |
9
On June 30, 2017, an affiliate of an accredited investor who is also a principal stockholder agreed to exchange approximately $2.0 million in accounts payable and accrued liabilities for 2,013,546 shares of common stock of the Company. The Board approved the exchange and issuance of the shares on June 30, 2017. The liabilities exchanged for common stock included the affiliates full interest in the accrued interest payable to the stockholder associated with the Loan Agreement and the Senior Loan Facility. The 2,013,546 shares of common stock were issued on August 31, 2017. |
| 7. | COMMITMENTS AND CONTINGENCIES |
| a. | The Company leases land under long-term operating leases where seven of its disposal wells are located. These leases expire on various dates through December 31, 2034. As of January 1, 2019, the Company adopted ASC 842 requiring leases to records assets and liabilities related to leases on the balance sheet. The Company records rent on straight-line basis over the terms of the underlying lease. Rent expense for the three months ended March 31, 2019 and March 31, 2018 was $27,000.
Aggregate future lease liabilities under ASC 842 are as follows: |
| Years Ending | Disposal Well | ||||
| December 31, | Leases | ||||
| 2019 | $ | 80,000 | |||
| 2020 | 96,000 | ||||
| 2021 | 96,000 | ||||
| 2022 | 93,000 | ||||
| 2023 | 84,000 | ||||
| Thereafter | 804,000 | ||||
| $ | 1,253,000 | ||||
| b. | From time to time, the Company is a party to various legal actions arising in the ordinary course of business. The Company accrues costs and legal costs associated with these matters when they become probable and the amount can be reasonably estimated. The Company’s management does not expect any liability from the disposition of such claims and litigation individually or in the aggregate would have a material adverse impact on the Company’s consolidated financial position, results of operations and cash flows. |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENT
Statements in this report which are not purely historical facts, including statements regarding the Company’s anticipations, beliefs, expectations, hopes, intentions or strategies for the future, may be forward-looking statements within the meaning of Section 21E of the Securities Act of 1934, as amended. All forward-looking statements in this report are based upon information available to us on the date of the report. Any forward-looking statements involve risks and uncertainties that could cause actual results or events to differ materially from events or results described in the forward-looking statements. Important factors with respect to any such forward-looking statements, including certain risks and uncertainties that could cause actual results to differ materially from the Company’s expectations (“Cautionary Statements”), are disclosed in the Company’s annual report on Form 10-K, including, without limitation, in conjunction with the forward-looking statements under the caption “Risk Factors.” In addition, important factors that could cause actual results to differ materially from those in the forward-looking statements included herein include, but are not limited to, limited working capital, limited access to capital, changes from anticipated levels of sales and revenues changes in the oil and gas markets especially in the oil field services markets and fluids disposal business, future national or regional economic and competitive conditions, changes in relationships with customers, difficulties in developing new business in the disposal business, difficulties integrating any new businesses or products acquired, replacing the lost customer revenue, regulatory change, the ability of the Company to meet its stated business goals, the Company’s restructuring initiatives, the Company’s ability to sustain profitability, the Company’s ability to service its debt, its ability to comply with covenants contained in its financing arrangements, the current defaults existing under the Company’s senior and subordinated credit arrangements, and general economic and business conditions. Although the Company believes the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements. We do not undertake to update any forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements.
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DESCRIPTION OF PROPERTIES
Our principal executive offices are located at 220 Travis St. Suite 501, Shreveport, Louisiana 71101.
We owned 7.055 acres at 503 W. Sherman St., Chico, Texas on which we had 3 buildings. These facilities served as our executive and administrative offices and headquarters for CTT operations including repair & maintenance facilities for its salt water disposal services business. CTT has three operating wells near Chico, Texas. Two of these disposal well locations have small buildings for well monitoring and operations. We also own 7.49 acres in Harrison County, Texas on which three of our disposal wells are located, along with a small office and repair shop for the operation of these wells.
We are obligated under long-term leases for the use of land where seven of our disposal wells are located. The leases expire on various dates through December 31, 2034. The aggregate monthly lease payments for the disposal well leases are $9,000.
SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies is included in Note 3 to the audited consolidated financial statements included on Form 10-K for the year ended December 31, 2018 as filed with the United States Securities and Exchange Commission. Management believes that the application of these policies on a consistent basis enables the Company to provide useful and reliable financial information about our operating results and financial condition.
The preparation of financial statements in conformity with US Generally Accepted Accounting Principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. The Company has adopted the revenue recognition requirements of ASC 606 as of January 1, 2018.
RESULTS OF OPERATIONS
For the three months ended March 31, 2019, we reported a net loss of $287,363 as compared to a net loss of $239,602 for the three months ended March 31, 2018. The components of these results are explained below.
Revenue - Total revenue decreased by $64,763 or 21.6% from $300,465 for the three months ended March 31, 2018 to $235,702 for the three months ended March 31, 2019. The decrease was due lower volumes of fluids disposed in the disposal wells.
Expenses- The components of our costs and expenses for the three months ended March 31, 2019 and 2018 are as follows:
| For the Three Months Ended | % |
|||||||||||
| March 31, | March 31, | Increase | ||||||||||
| 2019 | 2018 | (Decrease) | ||||||||||
| Costs and expenses: | ||||||||||||
| Direct operating costs | $ | 172,320 | $ | 243,507 | -29 | % | ||||||
| General and administrative | 100,659 | 43,285 | 133 | % | ||||||||
| Depreciation and amortization | 140,604 | 143,718 | -2 | % | ||||||||
| Total cost and expenses | $ | 413,583 | $ | 430,510 | -4 | % | ||||||
The decrease in the volumes of saltwater and other fluids disposed caused a decrease in operating expenses for the three months ended March 31, 2018. The increase in general and administrative expenses for the three months ended March 31, 2019 was due to higher professional fees.
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Interest Expenses- Interest expense for the three months ended March 31, 2019 was $109,482 compared to interest expense of $109,557 for the three months ended March 31, 2018.
Operating results for the three months ended March 31, 2019 and 2018 reflect a net loss of $287,363 and $239,602 respectively. We have not recorded any federal income taxes for the three months ended March 31, 2019 and 2018 because of our accumulated losses and our substantial net operating loss carry forwards.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows and Liquidity
As of March 31, 2019, we had total current assets of $90,700. Our total current liabilities as of March 31, 2019 were $10.9 million, including approximately $8.0 million of debt classified as current liabilities. We had a working capital deficit of approximately $10.8 million and $10.6 million as of March 31, 2019 and December 31, 2018 respectively.
Management is focused on working closely with our current lenders to fund operations through current cash flows and pay interest costs when excess cash becomes available. Management plans to work with our current lenders and debt holders to lower our cost of borrowing by renegotiating the terms of our existing debt and potentially offering debt holders an opportunity to exchange their debt for equity in the Company. Management will seek additional financing in those instances in which we believe such additional financings will assist in accomplishing our goals. There can be no assurance that management’s plan will succeed.
On June 30, 2017, an affiliate of an accredited investor who is also a principal stockholder agreed to exchange approximately $2.0 million in accounts payable and accrued liabilities for 2,013,546 shares of common stock of the Company. The Board approved the exchange and issuance of the shares on June 30, 2017. The liabilities exchanged for common stock included the affiliates full interest in the accrued interest payable to the stockholder associated with the Loan Agreement and the Senior Loan Facility. The 2,013,546 shares of common stock were issued on August 31, 2017.
Our ability to obtain access to additional capital through third parties or other debt or equity financing arrangements is strictly contingent upon our ability to locate adequate financing or equity investments on commercially reasonable terms. There can be no assurance that we will be able to obtain such financing on acceptable terms.
The following table summarizes our sources and uses of cash for the three months ended March 31, 2019 and 2018:
| For the Three Months Ended | ||||||||
| March 31, 2019 | March 31, 2018 | |||||||
| Net cash used in operating activities | $ | (5,402 | ) | $ | (23,877 | ) | ||
| Net cash provided by investing activities | — | 13,000 | ||||||
| Net cash used in financing activities | — | — | ||||||
| Net decrease) in cash | $ | (5,402 | ) | $ | (10,877 | ) | ||
As of March 31, 2019, we had $20,756 in cash, a decrease of $5,402 from December 31, 2018 due to cash used by operations.
Net cash used in operating activities was $5,402 for the three months ended March 31, 2019 due primarily to the operating loss. Net cash used by operating activities was $23,877 for the three months ended March 31, 2018, due to the operating loss.
Net cash provided by investing activities was $0 for the three months ended March 31, 2019. Net cash provided by investing activities was $13,000 for the three months ended March 31, 2018 due to repayment of an advance from an entity owned by one of the principal shareholders of the Company.
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Capital Expenditures
The Company suspended capital expenditures during the three months ended March 31, 2019. The Company does not currently anticipate any major capital expenditures for the remainder of 2019.
Indebtedness
The Company and its subsidiaries entered a Term Loan, Guaranty and Security Agreement (the “Loan Agreement”) on July 23, 2012 with ICON for $5 million. The Loan Agreement has a senior secured position in the Company’s disposal wells and a subordinated position to the Senior Loan Facility on all other Company properties and assets. The covenants in the Loan Agreement are, in all material respects, the same as in the Senior Loan Facility. On December 27, 2014 an affiliate of an accredited investor who is also a stockholder purchased the note payable associated with the Loan Agreement. The accredited investor assumed the terms and conditions of the Loan Agreement. As of March 31, 2019, the Company was not in compliance with its debt covenants under the Loan Agreement and the lender had not exercised their rights under the Loan Agreement. The outstanding balance of the Loan Agreement note is included in current liabilities at March 31, 2019 and December 31, 2018 because the Company was not in compliance with its debt covenants.
On June 30, 2017, the holder of the Loan Agreement agreed to exchange the outstanding accrued interest on the Loan Agreement for common stock in the company, and agreed to lower the interest rate on the Loan Agreement to 3% annually effective July 1, 2017.
On June 30, 2017, an affiliate of an accredited investor who is also a principal stockholder agreed to exchange approximately $2.0 million in accounts payable and accrued liabilities for 2,013,546 shares of common stock of the Company. The Board approved the exchange and issuance of the shares on June 30, 2017. The liabilities exchanged for common stock included the affiliates full interest in the accrued interest payable to the stockholder associated with the Loan Agreement and the Senior Loan Facility. The common stock was issued on August 31, 2017.
Outlook
Management may seek to acquire other profitable oilfield service companies to broaden the Company’s customer base and capabilities. Management may need to incur additional financing in those instances in which we believe such additional financings will assist in accomplishing our goals. There can be no assurance that management’s plan will succeed.
13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required for smaller reporting companies.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management evaluated, with the participation of our Chief Executive Officer (CEO) and Chief Accounting Officer (CAO), the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the quarter covered by this quarterly report on Form 10-Q. In making this assessment, the Company used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.
A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by the Company’s internal controls.
The Company’s management has identified a material weakness in the effectiveness of internal control over financial reporting related to a shortage of resources in the accounting department required to assure appropriate segregation of duties with employees having appropriate accounting qualifications related to the Company’s unique industry accounting and disclosure rules. Management has outsourced certain financial functions to mitigate the material weakness in internal control over financial reporting. The Company is reviewing its finance and accounting staffing requirements.
Internal Control Over Financial Reporting
There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. As a result, no corrective actions were required or undertaken.
Limitations on the Effectiveness of Controls
Our management, including the CEO, does not expect that its disclosure controls or its internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
None.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Item 3. DEFAULTS UPON SENIOR SECURITIES
The outstanding principal balance of the Senior Loan Facility, the Loan Agreement and the two stockholder loans are included in current liabilities at March 31, 2019 because the Company was not in compliance with the debt covenants or payment terms on the indebtedness, including the timely payment of interest and principal in accordance with the loan agreements. To date, none of the holders of the Senior Loan Facility, the Loan Agreement or the two stockholder loans have declared that the Company is in default or have otherwise sought remedies under the respective terms of these loan agreements.
14
The Board of Directors and management of the Company are currently evaluating transactions that may provide the Company with an opportunity to improve its current financial condition including; (i) refinancing of all or a portion of our existing debt, (ii) the acquisition of profitable oilfield service companies that could increase the scale of our operations and improve cash flows and (iii) raising additional equity to pay down debt. There can be no assurance the Company will be successful in finding and closing any of the above options.
| (a) | EXHIBITS: | ||
| 31.1 | Certification of Chief Executive Officer and Chief Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
| 32.1 | Certification of Chief Executive Officer and Chief Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
| 101 | 101.INS XBRL Instance Document | ||
| 101.SCH XBRL Taxonomy Schema | |||
| 101.CAL XBRL Taxonomy Calculation Linkbase | |||
| 101.LAB XBRL Taxonomy Label Linkbase | |||
| 101.PRE XBRL Taxonomy Presentation Linkbase | |||
| 101.DEF XBRL Taxonomy Definition Linkbase | |||
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 May 21, 2019.
FRONTIER OILFIELD SERVICES, INC.
| SIGNATURE: | /s/ Donald Ray Lawhorne | |
| Donald Ray Lawhorne, Chief Executive Officer and Chief Accounting Officer |
15
Frontier Oilfield Services Inc. 10-Q
Exhibit 31.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Donald Ray Lawhorne, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Frontier Oilfield Services, Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, considering the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report.
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report.
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5. I have disclosed, based on my most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls.
| Dated this May 21, 2019 | |
| /s/ Donald Ray Lawhorne | |
| Donald Ray Lawhorne, | |
| Chief Executive Officer and Chief Accounting Officer | |
Frontier Oilfield Services Inc. 10-Q
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Frontier Oilfield Services, Inc. (the “ Company ”) on Form 10-Q for the period ended March 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “ Report ”), I, Donald Ray Lawhorne, Chief Executive Officer and Chief Accounting Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as applicable; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.
| Dated this May 21, 2019 | ||
| By: | /s/ Donald Ray Lawhorne | |
| Donald Ray Lawhorne, | ||
| Chief Executive Officer and Chief Accounting Officer | ||
Document and Entity Information - shares |
3 Months Ended | |
|---|---|---|
Mar. 31, 2019 |
May 15, 2019 |
|
| Document And Entity Information | ||
| Entity Registrant Name | FRONTIER OILFIELD SERVICES INC | |
| Entity Central Index Key | 0001108645 | |
| Document Type | 10-Q | |
| Trading Symbol | FOSI | |
| Document Period End Date | Mar. 31, 2019 | |
| Amendment Flag | false | |
| Current Fiscal Year End Date | --12-31 | |
| Entity Small Business | true | |
| Entity Emerging Growth Company | true | |
| Entity Ex Transition Period | false | |
| Entity Reporting Status Current | Yes | |
| Entity Filer Category | Non-accelerated Filer | |
| Entity Common Stock, Shares Outstanding | 14,760,178 | |
| Document Fiscal Period Focus | Q1 | |
| Document Fiscal Year Focus | 2019 |
CONSOLIDATED BALANCE SHEETS (Parenthetical) (UNAUDITED) - $ / shares |
Mar. 31, 2019 |
Dec. 31, 2018 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
| Common stock, shares authorized | 100,000,000 | 100,000,000 |
| Common stock, shares issued | 14,760,178 | 14,760,178 |
| Common stock, shares outstanding | 14,760,178 | 14,760,178 |
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2019 |
Mar. 31, 2018 |
|
| Income Statement [Abstract] | ||
| Revenue, net of discounts | $ 235,702 | $ 300,465 |
| Costs and expenses: | ||
| Direct operating costs | 172,320 | 243,507 |
| General and administrative | 100,659 | 43,285 |
| Depreciation and amortization | 140,604 | 143,718 |
| Total costs and expenses | 413,583 | 430,510 |
| Operating loss | (177,881) | (130,045) |
| Other expense: | ||
| Interest expense | 109,482 | 109,557 |
| Loss before provision for income taxes | (287,363) | (239,602) |
| Provision for income taxes | ||
| Net loss | $ (287,363) | $ (239,602) |
| Net loss per common share - basic: (in dollars per share) | $ (0.02) | $ (0.02) |
| Weighted Average Common Shares Outstanding: | ||
| Basic (in shares) | 14,760,178 | 13,868,788 |
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT (UNAUDITED) - USD ($) |
Common Stock [Member] |
Additional Paid-In Capital [Member] |
Accumulated Deficit [Member] |
Total |
|---|---|---|---|---|
| Balance at beginning at Dec. 31, 2017 | $ 138,689 | $ 34,918,653 | $ (42,052,118) | $ 6,994,776 |
| Balance at beginning (in shares) at Dec. 31, 2017 | 13,868,788 | |||
| Net Loss | (239,602) | (239,602) | ||
| Balance at ending at Mar. 31, 2018 | $ 138,689 | 34,918,653 | (42,291,720) | (7,234,378) |
| Balance at ending (in shares) at Mar. 31, 2018 | 13,868,788 | |||
| Balance at beginning at Dec. 31, 2018 | $ 147,603 | 35,266,295 | (42,938,413) | $ (7,524,515) |
| Balance at beginning (in shares) at Dec. 31, 2018 | 14,760,178 | 14,760,178 | ||
| Net Loss | (287,363) | $ (287,363) | ||
| Balance at ending at Mar. 31, 2019 | $ 147,603 | $ 35,266,295 | $ (43,225,776) | $ (7,811,878) |
| Balance at ending (in shares) at Mar. 31, 2019 | 14,760,178 | 14,760,178 |
BASIS OF PRESENTATION |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2019 | |||
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||
| BASIS OF PRESENTATION |
The consolidated financial statements included herein have been prepared by Frontier Oilfield Services, Inc. (“the Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been omitted. However, in the opinion of management, all adjustments (which include only normal recurring adjustments, unless otherwise indicated) necessary to present fairly the financial position and results of operations for the periods presented have been made. The results for interim periods are not necessarily indicative of trends or of results to be expected for the full year. These financial statements should be read in conjunction with the financial statements of the Company for the year ended December 31, 2018 (including the notes thereto) set forth in Form 10-K. |
BUSINESS ACTIVITIES |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2019 | |||
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||
| BUSINESS ACTIVITIES |
Frontier Oilfield Services, Inc. a Texas corporation (and collectively with its subsidiaries, “we”, “our”, “Frontier”, “FOSI”, or the “Company”), was organized on March 24, 1995. The accompanying consolidated financial statements include the accounts of the Company and Frontier Acquisition I, Inc., and its subsidiary Chico Coffman Tank Trucks, Inc. (CTT) and its subsidiary Coffman Disposal, LLC, and Frontier Income and Growth, LLC (FIG) and its subsidiaries Trinity Disposal & Trucking, LLC and Trinity Disposal Wells, LLC.
Frontier operates its business in the oilfield service industry and is primarily involved in the disposal of saltwater and other oilfield fluids in Texas. The Company currently owns and operates eight disposal wells in Texas, six within the Barnett Shale in North Texas and two in east Texas near the Louisiana state line. The Company’s customers include national, integrated, and independent oil and gas exploration companies. |
GOING CONCERN |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2019 | |||
| Going Concern | |||
| GOING CONCERN |
The Company’s financial statements are prepared using U.S. generally accepted accounting principles (“U.S. GAAP”) applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As of the date of the financial statements, the Company has generated losses from operations, has an accumulated deficit and working capital deficiency. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.
To continue as a going concern and achieve a profitable level of operations, the Company will need, among other things, to increase its business volume and grow revenues, reduce its operating expenses, raise additional capital resources and develop new and stable sources of revenue sufficient to meet its operating expenses.
The Company’s ability to continue as a going concern will be dependent upon management’s ability to successfully implement management’s plans to pursue additional business volumes from new and existing customers, reduce indebtedness through sales of non-performing assets and conversions of debt to equity, and rationalize the Company’s cost structure to achieve profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. The Company’s continued existence will ultimately be dependent on its ability to generate enough cash flows to support its operations as well as provide enough resources to retire existing liabilities on a timely basis. The Company faces significant risk in implementing its business plan and there can be no assurance that financing for its operations and business plan will be available or, if available, such financing will be on satisfactory terms. |
SUMMARY OF SELECTED ACCOUNTING POLICIES |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2019 | |||
| Accounting Policies [Abstract] | |||
| SUMMARY OF SELECTED ACCOUNTING POLICIES |
New Accounting Pronouncements
In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which provides guidance for the recognition, measurement, presentation, and disclosure of financial assets and liabilities. The guidance is effective for the fiscal year beginning after December 15, 2017, including interim periods within that year. This accounting guidance has been adopted by the Company as of January 1, 2018. There was no material effect on the financial statements for the three months ended March 31, 2019 or the year ended December 31, 2018 as a result of adoption of this ASU.
In February 2016, the FASB issued ASU 2016-02, Leases, which will, among other impacts, change the criteria under which leases are identified and accounted for as on- or off-balance sheet. The guidance is effective for the fiscal year beginning after December 15, 2018, including interim periods within that year. The new guidance has been adopted by the Company as of January 1, 2019. The Company has, applied the new accounting standard on a modified retrospective basis to leases existing at the beginning of the earliest period presented in the financial statements. The adoption of the accounting standard resulted in the recognition of a Right of Use asset in the amount of $850,074 and a Lease Liability – Current of $104,000 and a lease liability- Non-Current of $746,074 as of March 31, 2019.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-company transactions and balances have been eliminated in consolidation.
Fair Value of Financial Instruments
In accordance with the reporting requirements of ASC Topic 825, Financial Instruments, the Company calculates the fair value of its assets and liabilities which qualify as financial instruments under this standard and includes this additional information in the notes to the financial statements when the fair value is different than the carrying value of those financial instruments. The Company does not have assets or liabilities measured at fair value on a recurring basis. Consequently, the Company did not have any fair value adjustments for assets and liabilities measured at fair value at the balance sheet dates, nor gains or losses reported in the statements of operations that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held during the three months ended March 31, 2019 and 2018, except as disclosed.
Earnings (Loss) Per Share (EPS)
Basic earnings per common share are calculated by dividing net income or loss by the weighted average number of shares outstanding during the period. Diluted earnings per common share are calculated by adjusting outstanding shares, assuming conversion of all potentially dilutive stock options and warrants. The computation of diluted EPS does not assume conversion, exercise, or contingent issuance of shares that would have an anti-dilutive effect on earnings per common share. Anti-dilution results from an increase in earnings per share or reduction in loss per share from the inclusion of potentially dilutive shares in EPS calculations. Currently there are no stock options in 2019 or 2018 which have been excluded from EPS that could potentially have a dilutive effect on EPS in the future. |
STOCK BASED COMPENSATION |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2019 | |||
| Share-based Payment Arrangement [Abstract] | |||
| STOCK BASED COMPENSATION |
On July 2, 2018, the Company issued an aggregate of 891,390 shares of common stock to the members of the Board of Directors and outside consultants. Two members of the Board of Directors received 250,000 shares each. One member of the Board of Directors received 100,000 shares. Outside consultants to the Company received an aggregate of 291,390 shares in exchange for their services to the Company. The Company recorded stock compensation expense of $356,556 for the year ended December 31, 2018 associated with the stock issuance. |
BORROWINGS |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BORROWINGS |
Borrowings as of March 31, 2019 and December 31, 2018 were as follows:
|
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COMMITMENTS AND CONTINGENCIES |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| COMMITMENTS AND CONTINGENCIES |
|
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
3 Months Ended |
|---|---|
Mar. 31, 2019 | |
| Accounting Policies [Abstract] | |
| New Accounting Pronouncements | New Accounting Pronouncements In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which provides guidance for the recognition, measurement, presentation, and disclosure of financial assets and liabilities. The guidance is effective for the fiscal year beginning after December 15, 2017, including interim periods within that year. This accounting guidance has been adopted by the Company as of January 1, 2018. There was no material effect on the financial statements for the three months ended March 31, 2019 or the year ended December 31, 2018 as a result of adoption of this ASU.
In February 2016, the FASB issued ASU 2016-02, Leases, which will, among other impacts, change the criteria under which leases are identified and accounted for as on- or off-balance sheet. The guidance is effective for the fiscal year beginning after December 15, 2018, including interim periods within that year. The new guidance has been adopted by the Company as of January 1, 2019. The Company has, applied the new accounting standard on a modified retrospective basis to leases existing at the beginning of the earliest period presented in the financial statements. The adoption of the accounting standard resulted in the recognition of a Right of Use asset in the amount of $850,074 and a Lease Liability – Current of $104,000 and a lease liability- Non-Current of $746,074 as of March 31, 2019. |
| Principles of Consolidation |
Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-company transactions and balances have been eliminated in consolidation. |
| Fair Value of Financial Instruments | Fair Value of Financial Instruments In accordance with the reporting requirements of ASC Topic 825, Financial Instruments, the Company calculates the fair value of its assets and liabilities which qualify as financial instruments under this standard and includes this additional information in the notes to the financial statements when the fair value is different than the carrying value of those financial instruments. The Company does not have assets or liabilities measured at fair value on a recurring basis. Consequently, the Company did not have any fair value adjustments for assets and liabilities measured at fair value at the balance sheet dates, nor gains or losses reported in the statements of operations that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held during the three months ended March 31, 2019 and 2018, except as disclosed. |
| Earnings (Loss) Per Share (EPS) | Earnings (Loss) Per Share (EPS) Basic earnings per common share are calculated by dividing net income or loss by the weighted average number of shares outstanding during the period. Diluted earnings per common share are calculated by adjusting outstanding shares, assuming conversion of all potentially dilutive stock options and warrants. The computation of diluted EPS does not assume conversion, exercise, or contingent issuance of shares that would have an anti-dilutive effect on earnings per common share. Anti-dilution results from an increase in earnings per share or reduction in loss per share from the inclusion of potentially dilutive shares in EPS calculations. Currently there are no stock options in 2019 or 2018 which have been excluded from EPS that could potentially have a dilutive effect on EPS in the future. |
BORROWINGS (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of borrowings | Borrowings as of March 31, 2019 and December 31, 2018 were as follows:
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COMMITMENTS AND CONTINGENCIES (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commitments and Contingencies Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of lease payments by year |
|
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BUSINESS ACTIVITIES (Details Narrative) |
Mar. 31, 2019
Number
|
|---|---|
| North Texas [Member] | |
| Number of disposal wells | 6 |
| East Texas [Member] | |
| Number of disposal wells | 2 |
| Texas [Member] | |
| Number of disposal wells | 8 |
SUMMARY OF SELECTED ACCOUNTING POLICIES (Details Narrative) |
Mar. 31, 2019
USD ($)
|
|---|---|
| Accounting Policies [Abstract] | |
| Right of Use asset | $ 850,074 |
| Lease liability current | 104,000 |
| Lease liability non current | $ 746,074 |
STOCK BASED COMPENSATION (Details Narrative) |
3 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|
|
Jul. 02, 2018
shares
|
Mar. 31, 2019
Number
shares
|
Mar. 31, 2018
shares
|
Dec. 31, 2018
USD ($)
|
|
| Stock compensation expense | $ | $ 356,556 | |||
| Board of Directors Members [Member] | ||||
| Number of directors received stock | Number | 1 | |||
| Directors stock grant | 100,000 | |||
| Board Of Directors And Outside Consultants [Member] | ||||
| Directors stock grant | 891,390 | |||
| Board of Directors Members (Each) [Member] | ||||
| Number of directors received stock | Number | 2 | |||
| Directors stock grant | 250,000 | |||
| Outside consultants company [Member] | ||||
| Directors stock grant | 291,390 | |||
BORROWINGS (Details) - USD ($) |
Mar. 31, 2019 |
Dec. 31, 2018 |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Long-term debt, net | |||||||||||||
| Total debt | $ 7,951,247 | $ 7,951,247 | |||||||||||
| Less current portion | (7,951,247) | (7,951,247) | |||||||||||
| Total long-term debt | |||||||||||||
| Term Note [Member] | |||||||||||||
| Long-term debt, net | |||||||||||||
| Total debt | [1] | 4,321,065 | 4,321,065 | ||||||||||
| Loans From Stockholders [Member] | |||||||||||||
| Long-term debt, net | |||||||||||||
| Total debt | [2],[3] | 2,870,484 | 2,873,484 | ||||||||||
| Installment Notes [Member] | |||||||||||||
| Long-term debt, net | |||||||||||||
| Total debt | [4] | 11,941 | 11,941 | ||||||||||
| Revolving Credit Facility And Term Loan [Member] | |||||||||||||
| Long-term debt, net | |||||||||||||
| Total debt | [5] | $ 747,757 | $ 747,757 | ||||||||||
| |||||||||||||
BORROWINGS (Details Narrative) - USD ($) |
1 Months Ended | 2 Months Ended | 3 Months Ended | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2017 |
Dec. 31, 2016 |
Aug. 31, 2017 |
Mar. 31, 2019 |
Dec. 31, 2018 |
May 27, 2014 |
Mar. 21, 2014 |
||||||||||
| Long-term debt | $ 7,951,247 | $ 7,951,247 | ||||||||||||||
| Loans From Stockholders [Member] | ||||||||||||||||
| Maturity Date | Nov. 27, 2015 | |||||||||||||||
| Loan payment frequency | Monthly | |||||||||||||||
| Long-term debt | [1],[2] | $ 2,870,484 | 2,873,484 | |||||||||||||
| Debt face amount | $ 2,783,484 | |||||||||||||||
| Debt Interest Rate | 9.00% | |||||||||||||||
| One-half of interest rate to be paid in cash (per annum) | 4.50% | |||||||||||||||
| Accredited Investor Loan [Member] | ||||||||||||||||
| Debt Interest Rate | 3.00% | |||||||||||||||
| Issuance of common stock for debt (shares) | 2,013,546 | 2,013,546 | ||||||||||||||
| Amount of debt extinguished for common stock for debt (shares) | $ 2,000,000 | $ 2,000,000 | ||||||||||||||
| Installment Notes [Member] | ||||||||||||||||
| Long-term debt | [3] | 11,941 | 11,941 | |||||||||||||
| Revolving Credit Facility And Term Loan [Member] | ||||||||||||||||
| Maturity Date | Jul. 23, 2017 | |||||||||||||||
| Variable rate description | Base Rate Plus Applicable Margin Plus 2% | |||||||||||||||
| Spread on variable rate basis | 2.00% | |||||||||||||||
| Default interest rate | 6.75% | |||||||||||||||
| Long-term debt | [4] | $ 747,757 | $ 747,757 | |||||||||||||
| Debt Interest Rate | 7.75% | |||||||||||||||
| Promissory Note Agreement With CEO [Member] | ||||||||||||||||
| Debt face amount | $ 87,000 | |||||||||||||||
| Debt Interest Rate | 7.00% | |||||||||||||||
| ||||||||||||||||
COMMITMENTS AND CONTINGENCIES (Details) |
Mar. 31, 2019
USD ($)
|
|---|---|
| Years Ending December 31, | |
| 2019 | $ 80,000 |
| 2020 | 96,000 |
| 2021 | 96,000 |
| 2022 | 93,000 |
| 2023 | 84,000 |
| Thereafter | 804,000 |
| Total | $ 1,253,000 |
COMMITMENTS AND CONTINGENCIES (Details Narrative) |
3 Months Ended | |
|---|---|---|
|
Mar. 31, 2019
USD ($)
Number
|
Mar. 31, 2018
USD ($)
|
|
| Rental expense | $ | $ 27,000 | $ 27,000 |
| Use of Land Leases [Member] | ||
| Number of wells on land leases | Number | 7 | |
| Lease expiration dates | Dec. 31, 2034 | |