UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark one)

For the quarterly period ended:September 30, 2017March 31, 2018

Or

For the transition period from:           to

Commission File Number:0-30746

FRONTIER OILFIELD SERVICES, INC.

(Exact name of registrant as specified in its charter)

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

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

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

As of October 26, 2017,May 11, 2018, there were 13,868,788 shares of common stock, par value $0.01 per share, outstanding.

FRONTIER OILFIELD SERVICES, INC. 

Index

PART 1 — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FRONTIER OILFIELD SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

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

FRONTIER OILFIELD SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

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

FRONTIER OILFIELD SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

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

FRONTIER OILFIELD SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2017March 31, 2018

(UNAUDITED)

The consolidated financial statements included herein have been prepared by Frontier Oilfield Services, Inc. (“the Company”) has prepared the consolidated financial statements included herein,, 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, 20162017 (including the notes thereto) set forth in Form 10-K.

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 nineeight disposal wells in Texas, six within the Barnett Shale in North Texas and threetwo in east Texas near the Louisiana state line. The Company’s customers include national, integrated, and independent oil and gas exploration companies.

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 sufficient cash flows to support its operations as well as provide sufficient 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.

New Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09,Revenue from Contracts with Customers, which provides guidance on a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The effective date for this ASU, which was deferred by ASU 2015-14 issued in August 2015, is for fiscal years beginning after December 15, 2017. In March 2016, the FASB also issued ASU 2016-08, an amendment to the guidance in ASU 2014-09 which revises the structure of the indicators to provide indicators of when the entity is the principal or agent in a revenue transaction, and eliminated two of the indicators (“the entity’s consideration is in the form of a commission” and “the entity is not exposed to credit risk”) in making that determination.  This accounting guidance in Accounting Standards Codification (“ASC”) 606 has been adopted by the Company using the full retrospective method as of January 1, 2018. The Company reviewed its revenue stream and determined that there will be no impact to its financial position, results of operations or liquidity. It was also determined that there will be no change in the amount or timing of revenue recognized as a result of the adoption of the accounting standard. Therefore, no quantitative adjustment was required to be made to prior periods presented on the unaudited consolidated financial statement after the adoption of the accounting standard.

This amendment also clarifies that each indicator may be more or less relevant to the assessment depending on the terms and conditions of the contract. In April 2016, the FASB also issued ASU 2016-10, which clarifies the implementation guidance on identifying promised goods or services and on determining whether an entity’s promise to grant a license with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The amendments, collectively, should be applied retrospectively to each prior reporting period presented or as a cumulative effect adjustmentnew accounting standards hav been implemented by the Company. This accounting guidance has been adopted by the Company as of the date of adoption. Early adoption of the guidance is not permitted. The Company is currently evaluating the impact of adopting ASU 2014-09 and the related updates to it on its financial position, results of operations and disclosures.January1, 2018.

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 will beis effective for the fiscal year beginning after December 15, 2017, including interim periods within that year. TheThis accounting guidance has been adopted by the Company is in the processas of evaluating the impacts of the adoption of this ASU.January 1, 2018.

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 will beis effective for the fiscal year beginning after December 15, 2018, including interim periods within that year. Once effective, theThe new guidance must behas been applied by the Company as of January 1, 2018 for all periods presented.  The Company is in the process of evaluating the impacts of the adoption of this ASU.

In March 2016, the FASB issued ASU 2016-09,Improvements to Employee Share-Based Payment Accounting, which is intended to simplify several aspects of the accounting for share-based payment award transactions. The guidance will be effective for the fiscal year beginning after December 15, 2016, including interim periods within that year. The Company is in the process of evaluating the impacts of the adoption of this ASU.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly ownedwholly-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 fromthan the carrying value of those financial instruments. The Company does not have any assets or liabilities measured at fair value on a recurring basisbasis. 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 ninethree months ended September 30,March 31, 2018 and 2017, and 2016, 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 isare 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 2018 or 2017 which have been excluded from EPS that could potentially have a dilutive effect on EPS in the future.

The Board of Directors of the Company elected to suspend all stock based compensation in 2015 as part of the Company’s cost cutting and restructuring measures.

In April 2016, the Board of Directors of the Company approved the issuance of an aggregate of 54,000 shares of common stock to the members of the Board of Directors. The three members of the Board of Directors received 18,000 shares each.

Borrowings as of September 30, 2017March 31, 2018 and December 31, 20162017 were as follows:

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 Term Loan Agreement and the Senior Loan Facility. The 2,013,546 shares of common stock were issued on August 31, 2017. In connection with the exchange, the holder of the Term Loan Agreement agreed to lower the interest rate on the Loan Agreement to 3% per annum effective July 1, 2017.

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.

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 three3 buildings. These facilities served as our executive and administrative offices and headquarters for CTT operations including repair & maintenance facilities for its saltwatersalt 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.

In September 2016, the holder of the Senior Loan Facility foreclosed on certain land and buildings owned by the Company in settlement of a portion of the outstanding amount of principal on the Senior Loan Facility. Consequently, the Company charged off the net book value of the land and buildings totaling $591,705 against the outstanding principal on the Senior Loan Facility, leaving a principal balance of $747,757 remaining. The Board is considering issuing stock for the deficiency balance of this loan and the related accrued interest.

We are obligated under long-term leases for the use of land where seven of our disposal wells are located. Three of the leases are for extended periods. The first lease expires on February 7, 2023 (with two options to renew for an additional 10 years each). The second lease expires on December 1, 2034 with a one-year renewal option and the third lease expires on May 31, 2018 with no option to renew. The aggregate monthly lease payments for the disposal well leases are $11,080.

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, 20162017 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 ninethree months ended September 30, 2017,March 31, 2018, we reported a net loss of $1,165,513$239,602 as compared to a net loss of $1,380,302$463,447 for the ninethree months ended September 30, 2016.March 31, 2017. The components of these results are explained below.

Revenue - Total revenue decreased by $118,443$20,326 or 11.7%6.3% from $1,004,162$320,791 for the ninethree months ended September 30, 2016March 31, 2017 to $885,719$300,465 for the ninethree months ended September 30, 2017.March 31, 2018. The decrease was due to the terminationlower volumes of the provisioning of transportation services in late 2016 and lower total volumesfluids disposed in the disposal business.wells.

Expenses -Expenses-The components of our costs and expenses for the ninethree months ended September 30,March 31, 2018 and 2017 and 2016 are as follows:

The decrease in the volumes of saltwater and other fluids transported and disposed of necessitatedcaused a decrease in operating expenses for the ninethree months ended September 30, 2017. The decrease in operating costs is due to lower volumes disposed. This resulted in the reduction of the number of employees and the related salaries, wages and benefits as well as the elimination of costs for repairs and maintenance for the disposal wells.

The decrease inMarch 31, 2018. Management has focused on reducing general and administrative costs for the nine months ended September 30, 2017, is the result of an overall reduction of administrative costs, especially legal fees, insurance costs and utilities resulting from lower disposal volumes.expenses until disposed volumes are increased.

Interest Expenses -Expenses- Interest expense for the ninethree months ended September 30, 2017March 31, 2018 was $723,578. Interest$109,557, a 60% reduction from interest expense was $842,658of $277,497 for the ninethree months ended September 30, 2016.March 31, 2017. This reduction is due to the Loan Agreement interest rate reduction to 3% during 2017.

Operating results for the ninethree months ended September 30,March 31, 2018 and 2017 and 2016 reflect a net loss of $1,165,513$239,602 and $1,380,302$463,447 respectively. We have not recorded any federal income taxes for the ninethree months ended September 30March 31, 2018 and 2017 and 2016 because of our accumulated losses and our substantial net operating loss carry forwards.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows and Liquidity

As of September 30, 2017,March 31, 2018, we had total current assets of approximately $117,000.$104,000. Our total current liabilities as of September 30, 2017March 31, 2018 were $11.1$10.8 million, including $7.9approximately $8.0 million of debt classified as current liabilities. We had a working capital deficit of $11.0approximately $10.7 million and $12.1$10.6 million as of September 30, 2017March 31, 2018 and December 31, 2016, respectively.2017.

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 Term 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 ninethree months ended September 30, 2017March 31, 2018 and 2016:2017:

As of September 30, 2017,March 31, 2018, we had approximately $4,300$6,000 in cash, a decrease of approximately $16,000$10,877 from December 31, 20162017 due to cash used in operating activities.by operations.

Net cash used in operating activities was approximately $119,000$24,000 for the ninethree months ended September 30, 2017March 31, 2018 due primarily to the operating loss. Net cash used by operating activities was approximately $205,000$66,000 for the ninethree months ended September 30, 2016,March 31, 2017, due to the larger net loss.

Net cash provided by investing activities was approximately $103,000$13,000 for the ninethree months ended September 30, 2017March 31, 2018 due to repayment of an advance from an entity owned by one of the principal shareholders of the Company. The cash advance is held in an investment account of the entity and is due on demand to the Company at any time. Net cash provided by investing activities was approximately $293,000$68,000 for the ninethree months ended September 30, 2016 due to a repayment of the advance to the shareholder of approximately $216,000 and proceeds from the disposition of a certificate of deposit for $77,000.March 31, 2017.

Net cash used in financing activities was $0 for the nine months ended September 30, 2017. Net cash used in financing activities was approximately $104,000 for the nine months ended September 30, 2016, which consisted of debt repayments.

Capital Expenditures

The Company suspended capital expenditures during the ninethree months ended September 30, 2017March 31, 2018 due to the lower volumes disposed. The Company does not currently anticipate any major capital expenditures for the remainder of 2017. The Company made the decision to no longer provide transportation services to our customers, which led to significant disposal activities on our transportation equipment in 2015.2018.

Indebtedness

On June 30, 2017, an affiliate ofApril 11, 2014 an accredited investor, who is also a principal stockholder agreed to exchange approximately $2.0 million in accounts payablethe Company purchased the Capital One Note from Capital One and accrued liabilities for 2,013,546 shares of common stockassumed all the existing terms and conditions 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 fullSenior Loan Facility including Capital One’s security interest in the accrued interest payable to the stockholder associated with the Term Loan Agreement and the Senior Loan Facility. The 2,013,546 shares of common stock were issued on August 31, 2017. In connection with the exchange, the holder of the Term Loan Agreement agreed to lower the interest rate on the Loan Agreement to 3% per annum effective July 1, 2017.Company’s assets.

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. The Loan Agreement is held byOn December 27, 2014 an affiliate of an accredited investor who is also a stockholder.stockholder purchased the note payable associated with the Loan Agreement. The accredited investor assumed the terms and conditions of the Loan Agreement. As of September 30, 2017,March 31, 2018, the Company didwas not complyin 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 September 30, 2017March 31, 2018 and December 31, 20162017 because the Company didwas not complyin compliance with its debt covenants.

In September 2016, the holder of the Senior Loan Facility foreclosed on certain land and buildings owned by the Company in settlement of a portion of the outstanding amount of principal on the Senior Loan Facility. Consequently, the Company charged off the net book value of the land and buildings totaling $591,705 against the outstanding principal on the Senior Loan Facility, leaving a principal balance of $747,757 remaining. The Board is considering issuing stock for the deficiency balance of this loan and the related accrued interest.

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 believes that certain acquisitions could be achieved through the issuance of the company’s equity securities or through other financings. 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.

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) inInternal Control-Integrated Framework . Based on that evaluation, the Company’s management, including the CEO, concluded that the Company’s internal controls over financial reporting were not effective in that there was a material weakness as of September 30, 2016.

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.

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

None. 

The Company was a named defendant along with the previously named officers in certain litigation in the 271st Judicial District Wise County, Texas wherein the Plaintiffs alleged they had been damaged by the failure of the Company to complete a disposal well in a joint venture between the parties. On April 23, 2016, the litigation was settled by agreement of the parties. Under the terms of the settlement, the plaintiffs returned to the Company 53,000 shares of restricted and unregistered stock of the Company issued to them in 2013. The Company issued 317,000 shares of restricted and unregistered shares of stock in the Company to the plaintiffs. The Company will have exclusive trading authority over the shares issued to the plaintiffs and will have the right of first refusal to purchase the shares upon any planned sale by the plaintiffs. The Company will also have a call option on the shares, which will entitle the Company to purchase the shares at $1.25 per share at any time. The settlement agreement resulted in the termination of the litigation. As of December 31, 2015, the Company recorded expense of $206,000 associated with the settlement of this litigation.

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 September 30, 2017March 31, 2018 because the Company was not compliantin compliance with the debt covenants or payment terms on the indebtedness, including the timely payment of interest and principal in accordance with all of thesethe 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.

In September 2016, the holder of the Senior Loan Facility foreclosed on certain land and buildings owned by the Company in settlement of a portion of the outstanding amount of principal on the Senior Loan Facility. Consequently, the Company charged off the net book value of the land and buildings totaling $591,705 against the outstanding principal on the Senior Loan Facility totaling $1,339,462, leaving a principal balance of $747,757 remaining. The Board is considering issuing stock for the deficiency balance of this loan and the related accrued interest.

Item 5. OTHER INFORMATION

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.

Item 6. 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/Chief Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, onNovember 14, 2017May 15, 2018.

FRONTIER OILFIELD SERVICES, INC.