Item 1. Financial Statements.
TABLE OF CONTENTS
Page No.
Financial Statements
Balance Sheet 3
Statements of Operations 4
Statement of Stockholders' Deficit 5
Statements of Cash Flows 7
Notes to Financial Statements 8-9
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FRONTIER ENERGY CORP.
CONSOLIDATED BALANCE SHEET
September 30,
2007
(Unaudited)
------------
ASSETS
Current assets
Cash $ 167
Receivables, net of allowance for doubtful accounts of $76,696 -
Officer receivable 7,812
------------
Total current assets 7,979
------------
Fixed assets, net of $164 accumulated depreciation 930
Mineral leases 10,905
------------
Total assets $ 19,814
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable and accrued liabilities $ 311,729
Loans payable 184,322
------------
Total current liabilities 496,051
------------
496,051
Total liabilities
Commitments and contingencies -
Stockholders' deficit
Series A preferred stock, $0.001 par value; 1 share
authorized, issued and outstanding -
Series B preferred stock, $0.001 par value; 10,000,000
authorized; and 40,000 and no shares issued or outstanding 40
Common stock, $0.001 par value; 100,000,000 shares
authorized, 25,956,464 shares issued and outstanding 25,956
Common stock subscribed 38,485
Additional paid-in capital 6,475,194
Common stock issued for future services on employment agreement (119,000)
Accumulated deficit (6,896,912)
------------
Total stockholders' deficit (476,237)
------------
Total liabilities and stockholders' deficit $ 19,814
============
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See Accompanying Notes to Financial Statements
3
FRONTIER ENERGY CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
Cumulative Since
Reentering
For the Three Months Ended For the Nine Months Ended Development Stage
September 30, 2007 September 30, 2006 September 30, 2007 September 30, 2006 December 2004 through
(Unaudited) (Unaudited) (Unaudited) (Unaudited) September 30, 2007
---------- ---------- ----------- ---------- ---------------------
Revenue $ - $ - $ - $ - $ -
Operating expenses
Officer Compensation 101,250 101,250 303,750 446,900 851,900
General and administrative 107,152 27,421 1,544,780 49,323 2,849,604
Exploration and development - - 59,500 9,979 69,479
Loss on impairment of mineral claims - - - - 80,000
---------- ---------- ----------- ---------- ---------------------
Total operating expenses 208,402 128,671 1,908,030 506,202 3,850,983
---------- ---------- ----------- ---------- ---------------------
Net operating expense $ (208,402) $ (128,671) $(1,908,030) $ (506,202) (3,850,983)
========== ========== =========== ========== =====================
Interest Expense 1,555 - 3,393 - 3,393
---------- ---------- ----------- ---------- ---------------------
Net loss (209,957) (128,671) (1,911,423) (506,202) (3,854,376)
========== ========== =========== ========== =====================
Earnings (loss) per common share -
basic and diluted:
Net loss $ (0.01) $ (0.05) $ (0.20) $ (0.28)
========== ========== =========== ==========
Weighted average common shares
outstanding -
Basic and diluted 14,228,203 2,424,645 9,610,896 1,824,111
========== ========== =========== ==========
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See Accompanying Notes to Financial Statements
4
FRONTIER ENERGY CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
(Unaudited)
Preferred A Preferred B Common Stock
----------------- ---------------- ----------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ---------- -------
Balance,
December 31, 2006 1 $ - 40,000 $ 40 3,886,464 $ 3,886
====== ====== ====== ====== ========== =======
Issuance of shares for
consulting services - - - - 21,970,000 21,970
Issuance of 150,000 stock
options for services - - - - - -
Exercise of Options - - - - 100,000 100
Recognized expense
per employment agreement - - - - - -
Common stock subscribed - - - - - -
Net loss - - - - - -
------ ------ ------ ------ ---------- -------
Balance,
September 30, 2007 1 $ - 40,000 $ 40 25,956,464 $25,956
====== ====== ====== ====== ========== =======
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See Accompanying Notes to Financial Statements
5
FRONTIER ENERGY CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
(Unaudited)
(CONTINUED)
Common Stock
Issued for
Future
Services on
Additional Common Employment Accumulated Stockholders'
Paid-in Capital Stock Subscribed Agreement Deficit Defiict
--------------- ---------------- ------------ ----------- ------------
Balance,
December 31, 2006 $ 4,982,210 $ 26,000 $ (386,750) $(4,985,489) $ (360,103)
=============== ================ ============ =========== ============
Issuance of shares for
consulting services 1,450,159 - - - 1,472,129
Issuance of 150,000 stock
options for services 27,925 - - - 27,925
Exercise of Options 14,900 - - - 15,000
Recognized expense
per employment agreement - - 267,750 - 267,750
Common stock subscribed - 12,485 - - 12,485
Net loss - - - (1,911,423) (1,911,423)
--------------- ---------------- ------------ ----------- ------------
Balance,
September 30, 2007 $ 6,475,194 $ 38,485 $ (119,000) $(6,896,912) $ (476,237)
=============== ================ ============ =========== ============
6
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See Accompanying Notes to Financial Statements
FRONTIER ENERGY COPRP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cumulative Since
For the Nine Months Ended Reentering
----------------------------- Development Stage
September 30, 2007 September 30, 2006 December 2004 through
(Unaudited) (Unaudited) September 30, 2007
------------ ------------ ---------------------
Net loss $ (1,911,423) $ (506,202) $ (3,854,376)
Adjustments to reconcile loss
to net cash used in operating activities:
Depreciation 164 - 164
Stock issued as finders fee for farming agreement - - 800,000
Loss on impairment of mineral claims - - 80,000
Stock based expenses 1,767,804 299,650 2,435,654
Changes in operating assets and liabilities:
Accounts payable and accrued liabilities 44,005 62,809 83,359
------------ ------------ ---------------------
Net cash used in operating activities (99,450) (143,743) (455,199)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets - - (1,094)
Acquisition of mineral leases - - (10,905)
Net cash used by financing activities - - (11,999)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 15,000 - 245,507
Proceeds from subscriptions for common stock 12,485 - 38,485
Proceeds from loans 57,000 - 184,527
Proceeds from borrowings from related parties (8,258) 14,985 (5,517)
- - -
------------ ------------ ---------------------
Net cash provided by financing activities 76,227 14,985 463,002
------------ ------------ ---------------------
NET CHANGE IN CASH (23,223) (128,758) (4,196)
CASH AT BEGINNING OF YEAR 23,390 244 4,363
------------ ------------ ---------------------
CASH AT END OF YEAR $ 167 $ (128,514) 167
============ ============ =====================
Interest Paid $ - $ - -
============ ============ =====================
Income Taxes Paid $ - $ - -
============ ============ =====================
Non-cash activites:
Shares issued pursuant to farm-in agreement $ - $ 800,000 800,000
============ ============ =====================
Shares issued in settlement of accounts payable $ - $ 47,216 47,216
============ ============ =====================
Shares issued for mineral claims $ - $ 80,000 80,000
============ ============ =====================
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See Accompanying Notes to Financial Statements
7
FRONTIER ENERGY CORP.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with Securities and Exchange Commission requirements for interim
financial statements. Therefore, they do not include all of the information
and footnotes required by accounting principles generally accepted in the
United States for complete financial statements. These financial statements
should be read in conjunction with the Form 10-KSB for the year ended
December 31, 2006 of Frontier Energy Corp, (the "Company").
The interim financial statements present the balance sheet, statements of
operations, stockholders' equity and cash flows of the Company. The
financial statements have been prepared in accordance with accounting
principles generally accepted in the United States.
The interim financial information is unaudited. In the opinion of
management, all adjustments necessary to present fairly the financial
position as of September 30, 2007 and the results of operations,
stockholders' equity and cash flows presented herein have been included in
the financial statements. Interim results are not necessarily indicative of
results of operations for the full year.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Re-entering Exploration Stage - As described in the Form 10-KSB, the Company
distributed the assets and liabilities of the operating segment of the
Company on November 26, 2003. Subsequent to that date, the Company changed
from a computer services company to an exploration company pursuing
interests in the oil and gas industry. The Company has devoted most of its
efforts to establish the new business with raising capital and acquiring
mineral leases.
Going concern - The Company incurred a net loss of approximately $210,000
and $129,000 for the three months ended September 30, 2007 and 2006 and
$1,911,000 and $506,000 for the nine months ended September 30, 2007 and
2006, and $3,854,000 from November 26, 2003 re-entry into exploration stage.
The Company's liabilities exceed its assets by approximately $476,000 as of
September 30, 2007, not counting prepaid salaries for stock issued under
officer employment agreements. The Company's sole operations have been
discontinued with no other source of operating revenues. These factors
create substantial doubt about the Company's ability to continue as a going
concern. The Company's management plan to continue as a going concern
revolves around its ability to develop and/or acquire new business
operations, as well as, raise necessary capital to maintain the corporate
affairs of the Company.
The ability of the Company to continue as a going concern is dependent on
securing additional sources of capital and the success of the Company's
plan. The financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.
Reclassification - The financial statements for 2006 reflect certain
reclassifications, which have nominal effect on net income, to conform to
classifications in the current year.
2. SIGNIFICANT ACCOUNTING POLICIES
Use of estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenue and expenses during the periods presented. Actual results could
differ from those estimates.
Stock-based compensation - The Company applies SFAS No. 123R, "Accounting
for Stock-Based Compensation," which requires the recognition of
compensation cost based upon the fair value of stock options at the grant
date using the Black-Scholes option pricing model.
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3. NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 159
In February 2007, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 159, "The Fair
Value Option for Financial Assets and Financial Liabilities" ("SFAS
No. 159"). SFAS No. 159 provides the option to report certain financial
assets and liabilities at fair value, with the intent to mitigate volatility
in financial reporting that can occur when related assets and liabilities
are recorded on different bases. This statement is effective for us
beginning January 1, 2008. We do not expect SFAS No. 159 to have a material
impact on our consolidated financial statements.
EITF Issue No. 06-10
In March 2007, the Emerging Issues Task Force ("EITF") reached a consensus
on EITF Issue No. 06-10, "Accounting for Deferred Compensation and
Postretirement Benefit Aspects of Collateral Assignment Split-Dollar Life
Insurance Arrangements" ("EITF 06-10"). EITF 06-10 provides that an
employer should recognize a liability for the postretirement benefit related
to collateral assignment split-dollar life insurance arrangements in
accordance with either SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," or APB No. 12 "Omnibus
Opinion." Entities should recognize the effects of applying EITF 06-10
through either (i) a change in accounting principle through a cumulative-
effect adjustment to retained earnings or to other components of equity or
net assets in the statement of financial position as of the beginning of the
year of adoption or (ii) a change in accounting principle through
retrospective application to all prior periods. The provisions of EITF 06-
10 are effective as of January 1, 2008 and are not expected to have a
material impact on our consolidated financial statements.
4. RELATED PARTY TRANSACTIONS-
Due to Related Parties - An officer of the Company withdrew $5,466 in funds
for personal expenses. The balance at September 30, 2007 was a receivable
of $7,812.
5. STOCKHOLDERS' EQUITY
Common Stock -
During 2007, consultants to the Company were issued 21,970,000 shares of
common stock at par value. Consulting expense of $1,472,129 was recorded
for the issuance of the shares. The shares issued were valued based on a
price per share of that reflected the weighted-average closing price of the
Company during a five day period prior to the date of the consulting
agreements effective dates.
On March 15, 2007, the Company entered into a consulting agreement issuing
150,000 options to acquire common stock of the Company at $0.15 per share.
The stock options were valued using the Black-Scholes valuation model,
recording expense of 27,925. On March 29, 2007, the consultant exercised
100,000 shares at $0.15 pre share for $15,000. As of March 31, 2007, the
consultant held 50,000 stock options at $0.15 per share.
On February 2, 2007, the Company received $12,485 for shares of stock that
were unissued as of June 30, 2007 and recorded as common stock subscribed at
June 30, 2007.
6. NOTES PAYABLE
On February 1, 2007, the Company executed a note payable for $50,000 with
simple interest at 12% per annum. Monies were received on March 1, 2007 for
$46,200 on the note payable. In August 2007, an additional net $800 was
advanced on the loan resulting in a new balance of $47,000. The note is due
and payable with interest on September 30, 2008.
On August 15, 2007, the Company executed a note payable for $10,000 with
simple interest at 10% due and payable on February 15, 2007.
Accrued interest as of September 30, 2007 was $3,393.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
The following discussion of our plan of operations, financial condition
and results of operations should be read in conjunction with the Company's
unaudited financial statements, and notes thereto, included elsewhere herein.
This discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ materially from those anticipated
in these forward-looking statements as a result of various factors including,
but not limited to, those discussed in the Company's filings under the
Securities Exchange Act of 1934, as amended.
IN GENERAL
Frontier Energy Corp., through subsidiaries and agreements in which we
intend to participate, is engaged in the acquisition, exploration, development
and operation of oil and gas reserves. We have cancelled the contracts on
certain prospects in 2006 and acquired a working interest in another prospect
during the second quarter of 2007. We have been unable to fund the
exploitation of this prospect, but are seeking to partner with another party.
Our ability to emerge from the exploration stage with respect to any planned
principal business activity is dependent upon our successful efforts to raise
additional equity financing and generate significant revenue. In the three-
month period ended September 30, 2007, the Company had no revenues from
operations or other sources.
PLAN OF OPERATIONS
We intend to acquire prospects and raise the funds necessary to extract
oil and/or natural gas from such prospects. To date, we have acquired a
working interest in one prospect and are seeking a partner to exploit this
prospect. We intend to seek out other prospects, with the intention of raising
funds to exploit such prospects.
In the alternative, if we are unable to acquire oil or gas properties,
the Company may seek to enter into a merger with an operating company, if the
Board deems it in the best interests of the Company's stockholders. We have
not identified any potential merger target as of the date of this report.
Liquidity and Capital Resources
The Company did not generate any revenue in the quarter ended September
30, 2007; nor has the Company had access to sufficient capital to implement our
business plan. Since our future revenues from operations (if any) will not
provide sufficient capital to allow us to implement our acquisition and merger
plans in the near future, we must secure a source of additional capital.
We currently have very limited operating funds ($167 as of September 30,
2007), and we will require additional cash to maintain our operations for the
next twelve months. Our operating expenses for the three-month period ending
September 30, 2007 were $208,402, as compared to $128,671 for the same period
in 2006. Our operating expenses for the nine-month period ending September 30,
2007 were $1,908,030, as compared to $506,202 for the same period in 2006. Of
the $1,908,030 in expenses during the nine months ended September 30, 2007,
$11,767,971 was stock-based expenses and depreciation, which are non-cash
items. Based on the cash we currently have, we will likely need additional
financing to continue operations beyond December 2007. We have been dependent
on loans and private sales of our common stock to continue operations. Thus,
our success is entirely dependent upon our ability to raise additional capital.
If the Company cannot raise additional capital in the very near term, the
Company may be forced to discontinue operations.
We believe that we will require an additional $3,000,000 to fund our
currently anticipated requirements for our proposed operations to implement our
business plan over the next twelve-month period, most of which the Company must
raise through loans or the sale of equity. In the longer term, we hope to
satisfy our liquidity requirements from cash flow from operations and to the
extent such funds are insufficient, we must raise additional funds to sustain
operations. We can give no assurances that we will be able to obtain the
required capital from any source or that we will be able to commence
operations.
Variables and Trends
We have no operating history with respect to oil and natural gas
exploration. In the event we are able to obtain the necessary financing to
move forward with our business plan, we expect our expenses to increase
significantly as we grow our business with the acquisition of property or
through acquisitions. Accordingly, the comparison of the financial data for
the periods presented may not be a meaningful indicator of our future
performance and must be considered in light of our operating history.
Recent Accounting Pronouncements
Effective January 1, 2006, we adopted Statement of Financial Accounting
Standards ("SFAS") No. 123(R), "Share-Based Payment" ("SFAS No. 123(R)") using
the modified prospective approach, which requires the measurement and
recognition of compensation expense for all share-based payment awards made to
the Company's employees and directors including stock options under the New
Plan. The Company's financial statements as of June 31, 2007, and for the
three months ended June 31, 2007 reflect the effect of SFAS 123(R). Share-
based compensation expense recognized is based on the value of the portion of
share-based payment awards that is ultimately expected to vest. Share-based
compensation expense recognized in the Company's Statements of Operations
during the three months ended June 31, 2007 included compensation expense for
share-based payment awards based on the grant date fair value estimated in
accordance with the provisions of SFAS 123(R). In conjunction with the
adoption of SFAS 123(R), the Company elected to attribute the value of share-
based compensation to expense using the straight-line attribution. Share-based
compensation expense related to stock options was $1,048,775 and $170,000 for
the three months ended June 31, 2007 and 2006, respectively.
In February 2006, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments-an
Amendment of FASB Statements No. 133 and 140" ("SFAS No. 155"). SFAS No. 155
allows financial instruments that contain an embedded derivative and that
otherwise would require bifurcation to be accounted for as a whole on a fair
value basis, at the holders' election. SFAS No. 155 also clarifies and amends
certain other provisions of SFAS No. 133 and SFAS No. 140. This statement is
effective for all financial instruments acquired or issued in fiscal years
beginning after September 15, 2006. We do not expect that the adoption of SFAS
No. 155 will have a material impact on our consolidated financial condition or
results of operations.
In June 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of
Financial Assets-an Amendment of FASB Statement No. 140" ("SFAS No. 156").
SFAS No. 156 provides guidance on the accounting for servicing assets and
liabilities when an entity undertakes an obligation to service a financial
asset by entering into a servicing contract. This statement is effective for
all transactions in fiscal years beginning after September 15, 2006. We do not
expect that the adoption of SFAS No. 156 will have a material impact on our
consolidated financial condition or results of operations.
In June 2006, the Emerging Issues Task Force ("EITF") reached a consensus
on EITF Issue No. 06-3, "How Taxes Collected from Customers and Remitted to
Governmental Authorities Should Be Presented in the Income Statement (That Is,
Gross versus Net Presentation)" ("EITF 06-3"). EITF 06-3 provides that the
presentation of taxes assessed by a governmental authority that is directly
imposed on a revenue-producing transaction between a seller and a customer on
either a gross basis (included in revenues and costs) or on a net basis
(excluded from revenues) is an accounting policy decision that should be
disclosed. The provisions of EITF 06-3 will be effective for us as of
January 1, 2007. We do not expect that the adoption of EITF 06-3 will have a
material impact on our consolidated financial statements.
In July 2006, the FASB issued FIN 48, "Accounting for Uncertainty in
Income Taxes-an interpretation of FASB Statement No. 109" ("FIN 48"). FIN 48
clarifies the recognition threshold and measurement of a tax position taken on
a tax return. FIN 48 is effective for fiscal years beginning after
December 15, 2006. FIN 48 also requires expanded disclosure with respect to
the uncertainty in income taxes. We are currently evaluating the requirements
of FIN 48 and the impact this interpretation may have on our financial
statements.
In September 2006, the SEC Staff issued Staff Accounting Bulletin
No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in the Current Year Financial Statements" ("SAB No. 108"). SAB
No. 108 requires the use of two alternative approaches in quantitatively
evaluating materiality of misstatements. If the misstatement as quantified
under either approach is material to the current year financial statements, the
misstatement must be corrected. If the effect of correcting the prior year
misstatements, if any, in the current year income statement is material, the
prior year financial statements should be corrected. In the year of adoption
(fiscal years ending after November 15, 2006 or calendar year 2006 for us), the
misstatements may be corrected as an accounting change by adjusting opening
retained earnings rather than being included in the current year income
statement. We are currently evaluating the requirements of SAB No. 108 and the
impact it may have on our consolidated financial statements.
In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting
for Defined Benefit Pension and Other Postretirement Plans" ("SFAS No. 158").
SFAS No. 158 requires companies to recognize in their statement of financial
position an asset for a plan's overfunded status or a liability for a plan's
underfunded status and to measure a plan's assets and its obligations that
determine its funded status as of the end of the company's fiscal year.
Additionally, SFAS No. 158 requires companies to recognize changes in the
funded status of a defined benefit postretirement plan in the year that the
changes occur and those changes will be reported in comprehensive income. The
provision of SFAS No. 158 that will require us to recognize the funded status
of our postretirement plans, and the disclosure requirements, will be effective
for us as of December 31, 2006. We do not expect that the adoption of SFAS
No. 158 will have a material impact on our consolidated financial statements.
Off Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes
in financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that are material to investors.