TIDMFRR
RNS Number : 9853S
Frontera Resources Corporation
29 June 2018
29 June 2018
Frontera Resources Corporation
("Frontera" or "the Company")
Frontera Resources Corporation Releases 2017 Annual Results and
Provides Operations Update
Frontera Resources Corporation (AIM: FRR), the European focused
oil and gas exploration and production company, today releases its
audited final results the year ended 31 December 2017.
2017 Annual Results: Highlights
- Revenues from crude oil and gas sales for 2017 totaled $2.6
million.
- Collected the full amount of the arbitration award in the
total amount of $2 million.
- Eliminated $32.2 million of debt and associated debt service,
which cleaned the balance sheet and significantly improved the
financial position of the Company.
- Net loss of $17.9 million, or $0.002 per share on a fully
diluted basis. Of this total, approximately $1.0 million is
reflected in one-time charges associated with restructuring of
debt.
Post Period Operations Update
As previously announced by the Company on 25 May 2018, the well
T-39, the third well of the three-well drilling campaign at the
Company's Taribani complex, situated within the Block 12 license in
Georgia, has been sidetracked from the existing wellbore and
drilled to a vertical depth of 2800m into the Eldari A formation.
Drilling of this interval has been successfully completed under
budget, ahead of the drilling schedule. Following completion of the
open hole well logging, which confirmed 102.5m of combined pay for
Zones 9, 14 and 15, the 7" casing string has been set and cemented.
Cement Bond Logs confirmed very good cement integrity around the
casing.
The Company made a decision to continue well deepening
operations with the intention that Zone 19 of the Eldari B
reservoir to be perforated, tested and in order to further enhance
the well deliverability, produced together with Zones 9, 14 and 15
of the Eldari A reservoir, once flowing pressure of Eldari A and B
reservoir targets are equalized.
On 28 June 2018, the Company successfully completed the T-39
well drilling operations within budget, to a total depth of 3056m
into the Eldari B formation. The 5" liner has been set and cemented
with good cement integrity around the casing confirmed by Cement
Bond Log. Wireline logging data processing of the interval situated
between 2800m and 3056m has confirmed 29.5m of pay for Zone 19 and
pay interval identifications made during the drilling operations.
The Company confirms that it has observed oil stained cuttings and
multiple significant oil and associated gas shows during drilling
of the recently drilled interval with 2.16 SG drilling mud weight,
indicating a highly charged hydrocarbon formation.
Testing of the well is expected to commence on 1 July 2018 and
the Company looks forward to updating the market in due course.
According to CPR estimates for Zones 9, 14, 15 and 19 of the
Eldari A and B reservoir in Taribani, 118.2 million barrels of oil
is considered to be recoverable. 3.2 Trillion Cubic Feet of gas is
considered to be recoverable for Gareji formation, situated below
Eldari B reservoir in Taribani field.
Zaza Mamulaishvili, President and Chief Executive Officer,
commented:
"During the year 2017, the Company eliminated approximately
$32.2 million of debt which is an important milestone for the
Company's growth plans. This has simplified and strengthened our
balance sheet, greatly enhanced the Company's operating and
financial flexibility, and positioned us well for the
implementation of the ongoing operational campaign in 2018.
"We are very pleased with the successful completion of the well
T-39 drilling operations into the Eldari A and B reservoir. Due to
continuous improvement and efficiency of the drilling operations,
the well has been drilled to the target Zones in less time than
anticipated before the commencement of the three-well drilling
campaign. Excellent condition of the gauge hole and vey good
quality cement job represents perfect evidence of the current
operational success. We are very excited to commence the testing of
Zone 19 in addition to the already tested and flowed Zones 9, 14
and 15 in the Taribani field. As a reminder, Zone 19 has previously
been tested in Niko-1 well and produced light, sweet crude oil for
the duration of 40 days at a rate of 960 barrels per day, however
poor cementing and well bore conditions prevented sustainable
production. We believe that the current operational success will
ensure long term, sustainable production from Zone 19."
This announcement contains inside information for the purposes
of Article 7 of EU Regulation 596/2014.
Enquiries:
Frontera Resources (713) 585- 3216
Zaza Mamulaishvili
info@fronteraresources.com
Cairn Financial Advisers LLP +44 (0) 20 7213 0880
Jo Turner / Liam Murray
WH Ireland Limited +44 (0) 20 3411 1880
James Joyce / Alex Bond
Yellow Jersey +44 (0) 203 735 8825
Tim Thompson
Harriet Jackson
Henry Wilkinson
Frontera Resources Corporation
Consolidated Balance Sheets
December 31, 2017 and 2016
2017 2016
Assets
Current assets
Cash and cash equivalents $ 90,445 $ 41,443
Restricted cash - 471,137
Accounts receivable, net 1,716,940 442,087
Inventory 4,971,931 4,937,764
Prepaid expenses and other current assets 2,004,866 3,992,789
--- -------------- --------------
Total current assets 8,784,182 9,885,220
Property and equipment, net 3,025,213 3,793,271
Oil and natural gas properties, full cost method
Properties being depleted 132,674,301 131,557,411
Less: Accumulated depletion (130,556,436) (130,252,466)
--- -------------- --------------
Net oil and gas properties 2,117,865 1,304,945
--------------------------------- --------------
Total assets $ 13,927,260 $ 14,983,436
--------------------------------- -------------- --------------
Liabilities and Stockholders' Deficit
Current liabilities
Accounts payable $ 3,270,773 $ 3,661,935
Accrued liabilities 9,806,040 17,052,788
Long term debt - current - 22,144,117
Capital lease - current 6,405 5,990
--- -------------- --------------
Total current liabilities 13,083,218 42,864,830
Long term debt 35,580,650 30,125,514
Capital lease 5,673 12,079
--- -------------- --------------
Total liabilities 48,669,541 73,002,423
--------------------------------- -------------- --------------
Commitments and contingencies (Note 7)
Stockholders' deficit
Preferred stock 4,400,000 -
Common stock 585,146 353,634
Additional paid-in capital 457,519,907 420,959,005
Accumulated deficit (497,247,334) (479,331,626)
--- -------------- --------------
Total stockholders' deficit (34,742,281) (58,018,987)
--------------------------------- -------------- --------------
Total liabilities and
stockholders' deficit $ 13,927,260 $ 14,983,436
--------------------------------- -------------- --------------
The accompanying notes are an integral part of these
consolidated financial statement
Frontera Resources Corporation
Consolidated Statements of Comprehensive Loss
Years Ended December 31, 2017 and 2016
2017 2016
Revenue - crude oil & natural gas sales $ 2,583,525 $ 3,116,970
--------------- --------------
Operating expenses
Field operating and project costs 6,034,479 6,117,724
General and administrative 7,157,833 7,146,484
Depreciation, depletion and amortization 1,029,545 1,624,993
Impairment of oil & natural gas properties - 2,626,047
--------------- --------------
Total operating expenses 14,221,857 17,515,248
--------------- --------------
Loss from operations (11,638,332) (14,398,278)
--------------- --------------
Other income (expense)
Interest income 17,577 18,273
Interest expense (8,316,099) (9,234,609)
Other,
net 2,021,146 8,185
--------------- --------------
Total other income (expense) (6,277,376) (9,208,151)
--------------- --------------
Loss before income taxes (17,915,708) (23,606,429)
Provision for income taxes - -
--------------- --------------
Net loss and comprehensive loss $ (17,915,708) $(23,606,429)
--------------- --------------
Loss per share
Basic and diluted $ (0.002) $ (0.004)
Number of shares used in calculating
loss per share
Basic and diluted 11,221,421,286 5,567,251,530
The accompanying notes are an integral part of these
consolidated financial statement
Frontera Resources Corporation
Consolidated Statements of Stockholders' Deficit
Years Ended December 31, 2017 and 2016
Additional Total
Preferred Common Paid-in Accumulated Stockholders'
Stock Stock Capital Deficit Deficit
Balances at December
31, 2015 $ - $ 132,176 $ 409,445,380 $ (455,725,197) $ (46,147,641)
Issuance of common
stock - 221,458 11,513,625 - 11,735,083
Net loss - - - (23,606,429) (23,606,429)
------------ ---------- -------------- ---------------- ---------------
Balances at December
31, 2016 - 353,634 420,959,005 (479,331,626) (58,018,987)
Issuance of
preferred
stock 7,200,000 - - - 7,200,000
Redemption of
preferred
stock (2,800,000) - - (2,800,000)
Issuance of common
stock - 231,512 36,560,902 - 36,792,414
Net loss - - - (17,915,708) (17,915,708)
------------ ---------- -------------- ---------------- ---------------
Balances at December
31, 2017 $ 4,400,000 $ 585,146 $ 457,519,907 $ (497,247,334) $ (34,742,281)
------------ ---------- -------------- ---------------- ---------------
The accompanying notes are an integral part of these
consolidated financial statements.
Frontera Resources Corporation
Consolidated Statements of Cash Flows
Years Ended December 31, 2017 and 2016
2017 2016
Cash flows from operating activities
Net loss $ (17,915,708) $ (23,606,429)
Adjustments to reconcile net loss to net cash used in
Operating activities:
Depreciation and depletion 1,029,545 1,624,993
Loss on impairment of oil & gas properties - 2,626,047
Non-cash interest expense 4,920,647 5,721,065
Non-cash interest expense eliminated on debt conversion 1,906,536 -
Loss on debt to equity conversion 144,735 -
Debt issuance cost amortization 340,234 264,840
Non-cash payroll expense 969,748 -
Non-cash expense on debt conversion 999,723 -
Noncash issuance of shares for services - 2,499,145
Changes in operating assets and liabilities:
Account receivable (1,118,264) (114,277)
Inventory (34,167) 117,485
Prepaid expenses 2,083,008 1,146,109
Accounts payable (173,434) 953,809
Accrued liabilities 1,687,993 683,155
---------------
Net cash used in operating activities (5,159,404) (8,084,058)
--------------- ---------------
Investing activities:
Investment in oil and gas properties (1,096,892) (2,238,407)
Investment in property and equipment (87,374) (95,855)
Change in restricted cash 471,137 (471,137)
--------------- ---------------
Net cash used in investing activities (713,129) (2,805,399)
--------------- ---------------
Financing activities:
Proceeds from related party notes payable 233,000 3,980,441
Proceeds from other notes payable 1,024,351 4,888,768
Payments on capital lease (5,991) (5,595)
Proceeds from issuance of common stock 4,670,175 2,430,771
Cost of debt issuance - (479,696)
--------------- ---------------
Net cash provided by financing activities 5,921,535 10,814,689
--------------- ---------------
Net increase (decrease) in cash and cash equivalents 49,002 (74,768)
Cash and cash equivalents - beginning of year 41,443 116,213
--------------- ---------------
Cash and cash equivalents - end of year $ 90,445 $ 41,443
--------------- ---------------
The accompanying notes are an integral part of these
consolidated financial statements.
Frontera Resources Corporation
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
1. Nature of Operations
Frontera Resources Corporation, a Houston, Texas based Cayman
Islands exempted company, and its subsidiaries (collectively
"Frontera" or the "Company") are engaged in the development of oil
and gas projects in emerging marketplaces. Frontera was founded in
1996 and is headquartered in Houston, Texas. The Company emphasizes
development of reserves in known hydrocarbon-bearing basins, and is
attracted to projects that have significant exploration
opportunities. Since 2002, the Company has focused substantially
all of its efforts on the exploration and development of oilfields
in the Black Sea area, namely within Georgia, Moldova, and
Ukraine.
Georgia
In June 1997, the Company entered into a 25-year production
sharing agreement with the Ministry of Fuel and Energy of Georgia
and State Company Georgian Oil ("Georgian Oil"), which gives the
Company the exclusive right to explore, develop and produce crude
oil and natural gas ("Petroleum") in a 5500 square kilometer area
in eastern Georgia known as Block 12, hereafter referred to as the
"Block 12 PSA". The Block 12 PSA can be extended if commercial
production remains viable upon its expiration in June 2022.
Under the terms of the Block 12 PSA, the Company is entitled to
conduct exploration and production activities and is entitled to
recover its cumulative costs and expenses from the Petroleum
produced from Block 12. Following recovery of cumulative costs and
expenses from Block 12 production, the remaining Petroleum sales,
referred to as "Profit Oil" or "Profit Natural Gas", are allocated
between Georgian Oil and Frontera in the proportion of 51% and 49%,
respectively.
Under the terms of the Block 12 PSA, Frontera is exempt from all
taxes imposed by the government of Georgia, and any taxes imposed
on the Company are paid by Georgian Oil on behalf of the Company
from Georgian Oil's 51% share of Profit Oil. Taxes are defined by
the Block 12 PSA to mean all levies, duties, payments, fees, taxes
or contributions payable to or imposed by any government agency,
subdivision, municipal or local authorities within the government
of Georgia.
Moldova
On January 2, 2017, Frontera Resources International LLC, a
wholly-owned subsidiary of the Company, signed a Concession
Agreement with the Government of Moldova (the "Concession
Agreement") regarding the exploration, production and development
of hydrocarbon resources in Moldova. Pursuant to the terms of the
Concession Agreement, Frontera has the exclusive right to explore
for, produce and develop hydrocarbon resources within an area
comprising approximately 3 million acres situated in the southern
portion of the country. The overall term of the Concession
Agreement is 50 years from the date of its execution, including an
initial exploration phase of up to ten years.
Ukraine
In Ukraine, the Company continues focused efforts to secure a
production sharing license in this country. Currently, the Company
has two strategic memoranda of understanding with the government of
Ukraine that serve as the basis for the Company's ongoing efforts.
In July 2015, the Company signed a strategic Memorandum of
Understanding ("MOU") with Ukraine's national energy company,
National Joint Stock Company Naftogaz of Ukraine ("Naftogaz"). This
MOU serves to establish a focused joint effort to work together in
upstream exploration and production projects in Ukraine, as well as
to study the possibility to bring liquefied natural gas (LNG) to
Ukraine from the Company's ongoing work in Georgia. In February
2016, the Company signed a MOU with Ukraine's public joint stock
company UkrGasVydobuvannya ("UGV"), a subsidiary of Naftogaz, which
serves to create a more detailed framework of technical and
commercial cooperation between the Company and UGV in order to move
towards implementation of joint work in specifically targeted
upstream exploration and production projects in Ukraine.
2. Liquidity and Capital Resources
The following selected financial measurements reflect the
Company's financial position and capital resources as of December
31, 2017 and 2016:
2017 2016
Cash and cash equivalents $ 90,445 $ 41,443
Working capital (deficit) (4,299,036) (32,979,610)
Total debt 35,592,728 52,627,934
The Company has incurred net losses and negative cash flows from
operations in most fiscal periods since inception. Management plans
to continue to reduce costs and raise additional financing in order
to continue to facilitate the Company's 2018 operating plan. As of
December 31, 2017 the Company does not have any significant debt
that is scheduled to mature in 2018.
Throughout 2017 and 2016, there has been volatility and
disruption in the global commodity, capital and credit markets.
While these market conditions persist, the Company's ability to
access the capital and credit markets may be adversely affected.
Notwithstanding management's plan to manage costs and raise
additional financing, the Company's viability is dependent upon
producing oil and gas in sufficient quantities and marketing such
oil and gas at sufficient prices to provide positive operating cash
flow to the Company. Commencement of production from its
Mtsarekhavi gas field in the second quarter of 2014, encouraging
results of a current drilling campaign in Taribani, together with
periodic access to capital markets, could provide positive cash
flows for the foreseeable future.
The Company is responsible for providing funding for the
development of Block 12 in Georgia and will require additional
funding in order to obtain certain levels of production and
generate sufficient cash flows to meet future capital and operating
spending requirements. This is dependent upon, among other factors,
achieving significant increases in production, production of oil
and gas at costs that provide acceptable margins, reasonable levels
of taxation from local authorities, and the ability to market the
oil and gas produced at or near world prices.
At the end of 2016 and beginning of 2017 management's continued
efforts succeeded in completion of series of transactions resulting
in significant reduction of Company's debt and improving the
financial position of the Company.
On December 20, 2016 the convertible notes were restructured and
note holders exchanged $30.1 million of notes due in 2016 into new
secured notes due August 2020 (the "2020 Notes"). The 2020 Notes
are not convertible into ordinary shares of the Company, and bear
an interest rate of 10 percent if paid in cash or 12 percent if
paid in-kind with additional notes at the Company's election.
On June 5, 2017, the shareholders approved the increase of the
Company's authorized share capital to 17,250,000,000 shares.
Simultaneously on June 5, 2017, the Company entered into a
standby equity distribution agreement with YA II PN, Ltd (herein
after "YA") (formerly, YA Global Master SPV Ltd, an investment fund
managed by Yorkville Advisors LLC), whereby the entire amount of
debt provided to the Company by YA under the previously announced
SEDA-Backed Loan Agreement (the "SEDA") in the amount of
approximately $6.2 million was eliminated through conversion into
equity via the issuance of 7,200 Series A convertible, preferred,
redeemable shares in the Company (the "Series A") with a par value
of $0.00004 and a liquidation amount of $1,000 per share.
Consequent to the conversion, the entire amount of debt owed to YA
was eliminated from the Company's balance sheet. All other terms
relating to the SEDA remained the same and, as of December 31,
2017, approximately $19 million of commitment was still available
for drawdown. See note 5 for further discussions on the Series A.
On June 6, 2018, the Company and YA agreed to restructure the
Series A share agreement, as more broadly described in Note 11.
In May 2017, the Company approved the conversion of the related
party notes payable into equity. Directors of the Company, Mr.
Steve Nicandros (via an entity controlled by him) and Mr. Zaza
Mamulaishvili, entered into note exchange agreements to eliminate
approximately $26 million related to loans by the executives'
advances to the Company. These loans were previously provided to
the Company to support the Company's on-going operational and
working capital requirements. The conversion was completed on June
30, 2017. Pursuant to the terms of the note exchange, there is a
12-month lock-in period on the sale of the new ordinary shares that
Mr. Nicandros and Mr. Mamulaishvili received at as a result of the
conversion.
3. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All intercompany
transactions and accounts have been eliminated in
consolidation.
Use of Estimates
The preparation of the consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent asset 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.
Estimates of oil and natural gas reserves and their values,
future production rates and future costs and expenses are
inherently uncertain for numerous reasons, including many factors
beyond the Company's control. Reservoir engineering is a subjective
process of estimating underground accumulations of oil and natural
gas that cannot be measured in an exact manner. The accuracy of any
reserve estimate is a function of the quality of data available and
of engineering and geological interpretation and judgment. In
addition, estimates of reserves may be revised based on actual
production, results of subsequent exploitation and development
activities, prevailing commodity prices, operating costs and other
factors. These revisions may be material and could materially
affect the Company's future depletion, depreciation and
amortization expenses.
The Company's revenue, profitability, and future growth are
substantially dependent upon the prevailing and future prices for
oil and natural gas, which are dependent upon numerous factors
beyond its control such as economic, regulatory developments and
competition from other energy sources. The energy markets have
historically been volatile and there can be no assurance that oil
and natural gas prices will not be subject to wide fluctuations in
the future. A substantial or extended decline in oil and natural
gas prices could have a material adverse effect on the Company's
financial position, results of operations, cash flows and
quantities of oil and natural gas reserves that may be economically
produced.
Foreign Currency Transactions
The financial statements of the foreign subsidiaries are
presented in United States dollars, and the majority of
transactions are denominated in United States dollars. Gains and
losses on foreign currency transactions are the result of changes
in the exchange rate between the time a foreign
currency-denominated invoice is recorded and when it is ultimately
paid and are included in operations.
Impairment
Under the full cost method of accounting, the net book value of
natural gas and crude oil properties may not exceed a calculated
"ceiling." The ceiling limitation is the discounted estimated
future net revenue from proved natural gas and crude oil properties
plus the cost of properties not subject to amortization. In
calculating future net revenues, costs used are those as of the end
of the appropriate period. The prices used are the unweighted
average first-day-of-the-month commodity prices for the prior
twelve months. These prices are not changed except where different
prices are fixed and determinable from applicable contracts for the
remaining term of those contracts.
The net book value is compared to the ceiling limitation on both
a quarterly and annual basis. Any excess of the net book value is
written off as impairment expense. Impairment expense recorded in
one period may not be reversed in a subsequent period even though
higher natural gas and crude oil prices may have increased the
ceiling limitation in the subsequent period. For 2017 and 2016, the
Company recorded an impairment charge of $0 and $2.6 million to the
carrying value of the oil & natural gas properties in
Georgia.
Cash and Cash Equivalents
Cash and cash equivalents include all cash balances, money
market accounts and certificates of deposit, all of which have
original maturities of three months or less when purchased.
Fair Value Measurements
The Company's financial instruments consist of cash and cash
equivalents, accounts receivable, accounts payable, and
unconvertible notes payable. The fair value of cash, accounts
receivable and accounts payable are estimated to approximate the
carrying value due to the liquid nature of these instruments. The
fair value of the notes payable was determined based upon discount
rates which approximate variable interest rates for borrowings of a
similar nature.
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. Fair value instruments
are classified in one of the following categories:
Level 1 Unadjusted quoted prices in active markets that are
accessible at the measurement date for identical, unrestricted
assets or liabilities.
Level 2 Quoted prices in markets that are not active, or inputs
which are observable, either directly or indirectly, for
substantially the full term of the asset or liability.
Level 3 Measured based on prices or valuation models that
require inputs that are both significant to the fair value
measurement and less observable for objective sources (i.e.,
supported by little or no market activity).
The Company classifies financial assets and liabilities based on
the lowest level of input that is significant to the fair value
measurement. The Company's assessment of the significance of a
particular input to the fair value measurement requires judgment,
and may affect the valuation of the fair value of assets and
liabilities and their placement within the fair value hierarchy
levels.
Inventory
Inventory consists primarily of materials to be used in the
Company's foreign oilfield operations and crude oil held in stock
tanks. Inventory is valued using the first-in, first-out method and
is stated at the lower of cost or net realizable value. Inventory
consists of the following:
2017 2016
Materials and supplies $ 4,971,931 $ 4,754,803
Crude oil - 182,961
--- ---------- ----------
$ 4,971,931 $ 4,937,764
---------------------------- ---------- ----------
Property and Equipment
Property and equipment are stated at cost. Expenditures for
major renewals and betterments, which extend the original estimated
economic useful lives of applicable assets, are capitalized.
Expenditures for normal repairs and maintenance are charged to
expense as incurred. The costs and related accumulated depreciation
of assets sold or retired are removed from the accounts, and any
gain or loss thereon is reflected in operations. Depreciation of
property and equipment is computed using the straight-line method
over the estimated useful lives of the assets, ranging from three
to seven years. Leasehold improvements are depreciated over the
shorter of the life of the lease or five years.
2017 2016
Field equipment (7 years) $ 8,961,061 $ 9,003,543
Automobiles (5 years) 541,296 541,296
Telecommunication equipment (7
years) 407,831 407,831
Furniture, fixtures, and computers
(7 years) 2,092,126 2,092,126
Leasehold improvements (5 years
or life of lease) 79,099 79,099
Less: Accumulated depreciation
and amortization (9,056,200) (8,330,624)
--- ------------ ------------
Property and equipment, net $ 3,025,213 $ 3,793,271
--- ------------ ------------
Oil and Gas Properties
The Company follows the full cost method of accounting for oil
and gas properties. Accordingly, all costs associated with
acquisition, exploration and development of oil and gas reserves,
including directly related overhead costs, are capitalized.
All capitalized costs of oil and gas properties, including the
estimated future costs to develop proved reserves, are depleted on
the unit-of-production method using estimates of proved reserves.
Investments in unproved properties and major development projects
are not depleted until proved reserves associated with the projects
can be determined or until impairment occurs.
In addition, the capitalized costs are subject to a "ceiling
test," based on current economic and operating conditions,
discounted at a 10% interest rate, plus the lower of cost or fair
value of unproved properties. A ceiling test calculation is
performed at each year-end. For the years ended December 31, 2017
and 2016, the ceiling test calculation used a first day of month
trailing 12-month natural gas and oil average, as adjusted for
basis or location differentials using a 12--month average, and held
constant over the life of the reserves. The future cash outflows
associated with future development or abandonment of wells are
included in the computation of the discounted present value of
future net revenues for purposes of the ceiling test calculation.
No impairment was recorded during the year ended December 31, 2017.
For year ended December 31, 2016, the Company recorded $2.6 million
impairment related to its fields in Georgia.
Sales or other dispositions of oil and gas properties are
accounted for as adjustments of capitalized costs with no gain or
loss recognized, unless such adjustments would significantly alter
the relationship between capitalized costs and proved reserves of
oil and gas, in which case the gain or loss is recognized in
earnings.
Costs Excluded
The costs associated with unproved properties, initially
excluded from the amortization base, relate to unproved leasehold
acreage, wells and production facilities in progress and wells
pending determination of the existence of proved reserves, together
with capitalized interest costs for these projects. Unproved
leasehold costs are transferred to the amortization base with the
costs of drilling the related well once a determination of the
existence of proved reserves has been made or upon impairment of a
lease. Costs of seismic data are allocated to various unproved
leaseholds and transferred to the amortization base with the
associated leasehold costs on a specific project basis.
Costs associated with wells in progress and completed wells that
have yet to be evaluated are transferred to the amortization base
once a determination is made whether or not proved reserves can be
assigned to the property. Costs of dry wells are transferred to the
amortization base immediately upon determination that the well is
unsuccessful.
There were no costs associated with unproved properties related
to continuing exploration at December 31, 2017 and 2016 due to
changes in the Company's development strategy and management's
plans to reduce capital spending in certain oil and gas
properties.
Income Taxes
The Company recognizes deferred tax assets and liabilities for
the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this
method, deferred tax assets and liabilities are determined based on
the difference between the financial statements and the tax bases
of assets and liabilities using enacted rates in effect for the
years in which the differences are expected to reverse. Valuation
allowances are established, when appropriate, to reduce deferred
tax assets to the amount expected to be realized.
The Company accounts for uncertain tax positions by reporting a
liability for tax benefits resulting from uncertain tax positions
taken or expected to be taken in a tax return. The Company
recognizes interest and penalties, if any, related to tax benefits
in income tax expense.
Revenue Recognition
Oil and natural gas revenues are recorded when title passes to
the customer, net of royalties, discounts and allowances, as
applicable. Oil and natural gas sold is not significantly different
from the Company's share of production.
Allowance for Doubtful Accounts
The Company has established an allowance for doubtful accounts
that is based on the Company's review of the collectability of the
receivables in light of historical experience, the nature and
volume of the receivables and other subjective factors. Accounts
receivable are charged against the allowance when they are deemed
uncollectible. The allowance for doubtful accounts balance was $0
at December 31, 2017 and 2016.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and
accounts receivable. The Company maintains its cash in bank
deposits with various major financial institutions. These accounts,
at times, may exceed federally insured limits. Deposits in the
United States are guaranteed by the Federal Deposit Insurance
Corporation up to $250,000. The Company monitors the financial
condition of the financial institutions and does not anticipate any
losses on such accounts.
For the years ended December 31, 2017 and 2016, 100% of the
Company's crude oil sales were to one unrelated customer.
The Company's future revenues depend on operating results from
its operations on the exploration and development of oilfields in
the Black sea area. The success of the Company's operations is
subject to various contingencies beyond management's control. These
contingencies include general and regional economic and political
conditions, prices for crude oil, competition and changes in
regulation. The Company is subject to various additional political
and economic uncertainties in the countries the Company operates in
which could include restrictions on transfer of funds, import and
export duties, quotas and embargoes, domestic and international
customs and tariffs, and changing taxation policies, foreign
exchange restrictions, political conditions and regulations.
Loss Per Share
Basic and diluted loss per share amounts is calculated based on
the weighted average number of common stock outstanding during the
year. Diluted loss per share is calculated using the weighted
average number of shares of common stock outstanding during the
year, including the dilutive effect of stock options, warrants and
convertible notes. Basic and diluted loss per share for the years
ended December 31, 2017 and 2016 are the same since the effect of
all common stock equivalents would be antidilutive to the Company's
net loss per share.
Due to the Company's net operating loss position; there are no
anticipated windfall tax benefits upon exercise of options.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB")
issued Accounting Standards Update ("ASU") No. 2014-09, Revenue
from Contracts with Customers (Topic 606). The comprehensive new
standard will supersede existing revenue recognition guidance and
require revenue to be recognized when promised goods or services
are transferred to customers in amounts that reflect the
consideration to which the company expects to be entitled in
exchange for those goods or services. Adoption of the new rules
could affect the timing of revenue recognition for certain
transactions. The guidance permits two implementation approaches,
one requiring retrospective application of the new standard with
restatement of prior years and one requiring prospective
application of the new standard with disclosure of results under
old standards. The FASB issued several subsequent standards in 2016
containing implementation guidance related to the new standard.
These standards provide additional guidance related to principal
versus agent considerations, licensing, and identifying performance
obligations. Additionally, these standards provide narrow-scope
improvements and practical expedients as well as technical
corrections and improvements. Overall, the new guidance is to be
effective for the fiscal year beginning after December 15, 2018.
Companies are able to early adopt the pronouncement, however not
before fiscal years beginning after December 15, 2017. The Company
is assessing the impact on the Company's consolidated financial
statements.
In July 2015, the FASB issued ASU No. 2015-11, Simplifying the
Measurement of Inventory, which requires companies to measure
inventory at the lower of cost or net realizable value rather than
at the lower of cost or market. Net realizable value is the
estimated selling price in the ordinary course of business, less
reasonably predictable costs of completion, disposal and
transportation. The new standard is effective for the Company for
the fiscal year beginning after December 15, 2016. There is not any
material impact on the consolidated financial statements due to
adoption of this guidance.
In February 2016, the FASB issued ASU No.2016-02, Leases. Under
this new guidance, lessees will be required to recognize assets and
liabilities on the balance sheet for the rights and obligations
created by all leases with terms of more than twelve months. The
standard will take effect for nonpublic companies for fiscal years
beginning after December 15, 2019. The Company is currently
evaluating the impact of the adoption of this guidance.
In August 2016, the FASB issued ASU No. 2016-15 Cash Flow
Statement (Topic 230) - Classification of Certain Cash Receipts and
Cash Payments. This new guidance addresses eight specific cash flow
issues with the objective of reducing the existing diversity in
practice, including: debt prepayment or debt extinguishment costs,
settlement of zero-coupon debt instruments or other debt
instruments, contingent consideration payments made after a
business combination, proceeds from the settlement of insurance
claims, proceeds from the settlement of corporate-owned life
insurance policies, distributions received from equity method
investees, beneficial interests in securitization transactions, and
separately identifiable cash flows and application of the
predominance principle. ASU 2016-15 is effective for fiscal years
beginning after December 15, 2018 and is not expected to have a
material impact on the Company's consolidated financial
statements.
In November 2016, the FASB issued ASU No. 2016-18 Statement of
Cash Flows (Topic 230)-Restricted Cash a consensus of the FASB
Emerging Issues Task Force. This new guidance requires that a
statement of cash flows explain the change during the period in the
total of cash, cash equivalents, and amounts generally described as
restricted cash or restricted cash equivalents. Therefore, amounts
generally described as restricted cash and restricted cash
equivalents should be included with cash and cash equivalents when
reconciling the beginning-of-period and end-of-period total amounts
shown on the statement of cash flows. ASU 2016-18 is effective for
fiscal years beginning after December 15, 2018 and is not expected
to have a material impact on the consolidated financial
statements.
4. Accrued Liabilities
Accrued liabilities consist of the following:
2017 2016
Accrued payables $ 6,712,083 $ 6,043,685
Accrued interest 3,093,957 11,009,103
Accrued benefits - -
--- ---------- -----------
$ 9,806,040 $ 17,052,788
---------------------- ---------- -----------
5. Debt
Debt consists of the following:
2017 2016
Related party notes payable $ - $ 17,530,441
Notes payable 35,580,650 30,125,514
Other notes payable - 4,953,910
Capital lease 12,078 18,069
--- ----------- -------------
Total debt 35,592,728 52,627,934
Less: Current portion - 22,484,351
Less: Current portion - capital lease 6,405 5,990
Less: Debt issuance costs - 340,234
--- ----------- -------------
Current portion, net of issuance costs - 22,144,117
--- ----------- -------------
Total long-term debt $ 35,586,323 $ 30,137,593
--- ----------- -------------
Related Party Notes Payable
On January 11, 2011 a revolving credit facility ("Credit
Facility") was issued by and between the Company, Steve C.
Nicandros, a Director of the Company, and Zaza Mamulaishvili, then
a member of Company's senior management team and now a Director of
the Company (together, the "Lenders") in the amount of $2 million.
The $2 million borrowing limit pursuant to the Credit Facility was
removed on October 30, 2012. Accordingly, during 2017 and 2016, the
Company entered into a series of further notes payable governed by
this Credit Facility with the Lenders in the aggregate amounts of
$0.2 million and $4.0 million, respectively. These notes had a
one-year term, bore interest of 15%, and were classified within
Related Party Notes Payable on the consolidated balance sheet.
In May 2017, the Company approved the conversion of the related
party notes payable into equity. Directors of the Company, Mr.
Steve Nicandros (via an entity controlled by him) and Mr. Zaza
Mamulaishvili, entered into note exchange agreements to eliminate
approximately $26 million related to loans by the executives'
advances to the Company. These loans were previously provided to
the Company to support the Company's on-going operational and
working capital requirements. The conversion was agreed at a fixed
conversion price of one pence per share and was completed on June
30, 2017. Pursuant to the terms of the note exchange, there is a
12-month lock-in period on the sale of the new ordinary shares that
Mr. Nicandros and Mr. Mamulaishvili received at as a result of the
conversion.
2020 Secured Unconvertible Notes Payable
On August 2, 2011, note holders exchanged $18.2 million of notes
that originated in 2007 and 2008 into new notes issued under the
2016 Note Purchase Agreement due August 2016 (the "2016 Notes").
The 2016 Notes accrued interest at the rate of 10% per annum,
matured five years from the date of issuance (August 1, 2016) and
were convertible into Frontera Cayman Shares, at the option of the
holder, at a conversion rate of $0.25 per share. During 2016 the
Company elected to pay the quarterly interest payments in kind on
the convertible notes and issued approximately $1.8 million, in
additional convertible notes in accordance with the terms of the
note purchase agreement.
In October 19, 2016, the Company and the holders of the largest
outstanding group of the 2016 Notes, Outrider Master Fund, LP and
Outrider Management, LLC (collectively "Outrider") agreed to
exchange the 2016 Notes for new secured unconvertible notes
maturing on August 1, 2020. On December 20, 2016, in accordance
with this agreement, Frontera International Corporation, a wholly
owned subsidiary, issued new secured unconvertible notes maturing
on August 1, 2020 to Outrider. This was followed by the issuance of
new notes on the same terms to other holders of the 2016 Notes. As
a result of this exchange, the note holders exchanged $30.1 million
of principal in the original notes into new secured notes due
August 2020. There was $1.5 million in associated interest expense
recognized through the end of year 2016 on the 2020 Notes. The 2020
Notes are not convertible into ordinary shares of the Company and
bear an interest rate of 10 percent if paid in cash or 12 percent
if paid in-kind with additional notes at the Company's election.
Following the issue of the 2020 Notes, the 2016 Notes were
re-assigned to the Company and cancelled. During 2017, the Company
elected quarterly interest payments in kind and issued
approximately $4.0 million in additional unconvertible notes in
accordance with the terms of the 2020 Notes.
As of December 31, 2017 the fair value of 2020 Notes was
approximately $26.7 million.
Other Notes Payable
On June 28, 2011, the Company entered into a standby equity
distribution agreement with YA II PN, Ltd. providing for up to
approximately $35.0 million of additional equity investment,
through the issuance of new shares in the Company. As of December
31, 2017, approximately $19.0 million of commitment amount was
still available for drawdown. The SEDA is effective through
December 31, 2020.
As previously discussed, on June 5, 2017, the Company entered
into an agreement with YA whereby the entire amount related to the
debt, provided to the Company by YA under the SEDA and SEDA-Backed
Loan Agreement in the amount of approximately $6.2 million was
eliminated through conversion into equity through the issuance of
7,200 Series A shares in the Company with par value of $0.00004 and
with liquidation amount of $1,000 per share. The Series A shares
were convertible into a maximum of 1,300,000,000 ordinary shares of
the Company using the conversion price which, in respect of each
conversion, meant the lesser of (i) the Fixed Conversion Price, or
(ii) the Variable Conversion Price, where "Fixed Conversion Price"
meant (a) up to and including December 31, 2017, 1.0 pence per
share, and (b) after December 31, 2017, the lower of 1.0 pence per
share or the closing bid price per share of the ordinary shares of
the Company as of December 31, 2017, and "Variable Conversion
Price" means 90% of the lowest daily volume weighted average price
of the ordinary shares of the Company (as reported by Bloomberg)
over the five consecutive trading days expiring on the trading day
immediately prior to the date of delivery of the relevant
conversion notice.
Pursuant to the terms of the agreement with YA, there was a
limitation on number of ordinary shares that YA was entitled to
convert each month whereby the value of such number of shares could
not exceed $400,000 each month. Additionally, there was a
limitation of a maximum of 1,300,000,000 ordinary shares that YA
was entitled to convert over the 12-month period following the
issuance of Series A shares. Consequent to the conversion, the
entire amount of debt owed to YA was eliminated from the Company's
balance sheet. On June 6, 2018, the Company and YA agreed to
restructure the Series A share agreement, as more broadly described
in Note 11.
On May 15, 2017, the Company entered into a $700,000 convertible
loan with a consortium of financial institutions. On June 8, 2017,
the notes were redeemed and cancelled via conversion into equity
and resulted in the issuance of 323,529,412 ordinary shares and
25,000,000 warrants to the lender. The warrants were issued with
the term of one year at an exercise price of one pence per
share.
Future principal maturities as of December 31, 2017 for
long-term debt obligations are as follows:
2018 $ 6,405
2019 5,673
2020 35,580,650
Total future principal payments on debt $ 35,592,728
--- -----------
6. Income Taxes
The Company has incurred losses since inception and, therefore,
has not been required to pay federal income taxes. As of December
31, 2017, the Company has generated net operating loss ("NOL")
carryforwards of approximately $159 million that may be available
to reduce future income taxes. Several factors may limit the
Company's ability to utilize these carryforwards, including a lack
of future taxable income, a change of Company ownership (as defined
by federal income tax regulations) or the expiration of the
utilization period allowed by federal income tax regulations. The
federal loss carryforwards began to expire in 2017 and continue
through 2037. The Company has a capital loss carryover of $824
thousand that will expire in 2018.
On December 22, 2017, the United States government enacted the
Tax Cuts and Jobs Act, commonly referred to as the Tax Reform Act.
The Tax Reform Act includes significant changes to the U.S. income
tax system including but not limited to: a federal corporate rate
reduction from 35% to 21%; limitations on the deductibility of
interest expense and executive compensation; repeal of the
Alternative Minimum Tax ("AMT"); full expensing provisions related
to business assets; limitations on new NOLs generated in 2018 and
after; creation of new minimum taxes such as the base erosion
anti-abuse tax ("BEAT") and Global Intangible Low-Taxed Income
("GILTI") tax; and the transition of U.S. international taxation
from a worldwide tax system to a modified territorial tax system,
which will result in a one time U.S. tax liability on those
earnings which have not previously been repatriated to the U.S.
(the "Transition Tax").
Beginning January 1, 2018, the U.S. corporate income tax rate
will be 21%. The Company is required to recognize the impacts of
this rate change on its deferred tax assets and liabilities in the
period enacted. As the Company has a valuation allowance against
its net deferred tax assets, remeasurement to the new tax rate was
offset by a change in the valuation allowance. Other provisions in
the legislation, such as interest deductibility may have material
implications to the Company's future financial statements.
The Securities and Exchange Commission staff issued Staff
Accounting Bulletin No. 118 ("SAB 118") to provide guidance that
companies should apply each reporting period related to the income
tax effects of the Tax Reform Act. SAB 118 establishes a one-year
measurement period (through December 22, 2018) where a provisional
amount could be subject to adjustment.
The Company is continuing to analyze the impact of the Tax
Reform Act. Adjustments will be recorded as discrete items in the
provision for income taxes in the period in which those adjustments
become reasonable estimable and/or the accounting is complete. Such
adjustments may result from, among other things, future guidance,
interpretations and regulatory changes from the Internal Revenue
Service, FASB, and/or various tax jurisdictions. The Company will
complete its analysis over the next 12 months
Deferred tax assets are reduced by a valuation allowance when a
determination is made that it is more likely than not that some or
all of the deferred assets will not be realized based on the weight
of all available evidence. The Company determined it was
appropriate to record a full valuation allowance against its net
deferred tax asset. The components of the Company's deferred tax
assets at December 31, 2017 and 2016, are as follows:
2017 2016
Deferred tax assets
Net operating losses - U.S. $ 33,395,759 $ 52,747,172
Depreciation and amortization 3,035 (80,145)
Capital loss carryover 173,210 280,435
Deferred salary 1,091,580 1,437,605
Stock compensation 1,367,801 2,718,306
Accrued interest 461,985 3,298,931
--- ------------- --------------------
36,493,370 60,402,304
Valuation allowance (36,493,370) (60,402,304)
--- ------------- --------------------
Net deferred tax assets $ - $ -
--- ------------- --------------------
During 2017, the valuation allowance decreased $23.9 million
primarily due to the change in the Corporate tax rate. The
effective tax rate for 2017 and 2016 differs from the statutory tax
rate due primarily to the valuation allowance. Profits derived from
oil and gas operating activities are subject to a profits tax on
taxable income as defined by Georgian law. However, under the terms
of the Block 12 PSA, Georgian Oil is responsible for paying the
Company's profit tax liabilities with respect to income derived
from these activities. Although the Company has incurred operating
losses in Georgia, no adjustment with respect to deferred tax
assets or a potentially related valuation allowance has been made,
as any future benefit related to these operating losses would serve
to reduce Georgian Oil's liability.
The Company has determined that no uncertain tax positions exist
where the Company would be required to make additional tax
payments. As a result, the Company has not recorded any additional
liabilities for any unrecognized tax benefits as of December 31,
2017. The Company and its subsidiaries file income tax returns in
the US federal jurisdiction. The Company's accounting policy is to
recognize penalties and interest related to unrecognized tax
benefits as income tax expense. The Company does not have an
accrued liability for the payment of penalties and interest at
December 31, 2017 or 2016, respectively. The Company is subject to
routine audits by taxing jurisdictions. In general, the statute of
limitations for the federal jurisdiction is three years. In some
cases, net operating losses can extend the time for which a taxing
authority may make adjustments. The Company's earliest tax year
with a net operating loss is 1997; consequently, all years since
1997 are open for audit.
7. Commitments and Contingencies
Operating Leases
The Company has noncancelable operating leases for office
facilities and lodging that expire through 2022. Approximate future
minimum annual rental commitments under these operating leases are
as follows:
Year Ending December 31,
2018 $ 576,813
2019 469,695
2020 215,137
2021 184,426
2022 28,500
Rental expense for the years ended December 31, 2017 and 2016
was approximately $562,000 and $406,000, respectively.
Enforcement of Arbitration Award and Collection of Amounts Due
from Defendants
On January 9, 2008, Frontera Eastern Georgia Limited ("FEGL"), a
subsidiary of the Company, served a notice of arbitration and claim
on ARAR, Inc., for breach of contract under drilling services
contract dated May 2, 2007. On December 16, 2008, FEGL entered into
a settlement agreement with ARAR Inc, ARAR Petrol ve Gas Arama
Uretim Paz A.S., and Mr. Fatih Alpay (collectively, "Defendants"),
which was confirmed by the arbitration panel and pursuant to which
Defendants were required to make a series of payments to FEGL
through December 2009 in the aggregate amount of $1.25 million. In
August 2009, the Defendants defaulted on monthly payments and
remained in default on payments due from August 2009 through
December 2009. FEGL applied to the arbitration panel for entry of
an agreed award pursuant to the settlement agreement and, on April
16, 2010, the arbitration panel entered a final, binding award in
favor of FEGL against the Defendants in the amount of $1.43 million
("Final Award"). Following series of subsequent court hearings in
the US courts, on July 16, 2012, the US Court of Appeals for the
Fifth Circuit confirmed the Final Award. In order to enforce the
Final Award against the Defendants' assets located in Turkey, in
July 2010 Frontera filed an enforcement action in the 4th
Commercial Court in Ankara, Turkey. The 4th Commercial Court by its
order dated November 23, 2012, rejected FEGL's request for
enforcement. FEGL filed its appeal with the Appeals Court in Ankara
on June 7, 2013. On June 20, 2014, the Appeals Court granted FEGL's
appeal, overturned the 4th Commercial Court's decision and remanded
the case back to the 4th Commercial Court with instruction to adopt
a new decision in line with the Appeals Court's ruling. On December
20, 2015, the 4th Commercial Court adopted new decision granting
FEGL enforcement of the Final Award. The Defendants appealed this
decision with the Appeals Court in Ankara. On January 16, 2017, the
Appeals court dismissed the Defendants' appeal and affirmed
decision of the 4th Commercial Court. On February 15, 2017, the
Defendants requested another hearing on the Appeals' Courts'
decision by way of "motion to correct the court decision";
Defendant's this motion was dismissed and the 4th Commercial Court
decision granting FEGL enforcement of the Final Award ("Enforcement
Decision") entered into final and binding force. In accordance with
the Enforcement Decision, as a result of subsequent execution
proceedings undertaken in November 2017, FEGL collected from the
Defendants the full amount of the Final Award plus interest and
expenses in the total amount of $2,026,126. Out of this total,
approximately $1.0 million was collected in 2017 and the remaining
balance of approximately $1.0 million was collected in 2018.
Georgian Tax Refund
From the inception of operations in Georgia, the Company has
incurred certain tax expenses which per the terms of the Production
Sharing Agreement with the Georgian government are subject to
reimbursement from the state. The Company has notified the
appropriate authorities and is in the process of collecting a tax
refund from the Georgian government. As of December 31, 2017 the
amount of refund due to the Company was $6.0 million. As
collectibility is uncertain, the Company has not recognized a
receivable as of December 31, 2017 or 2016 for these ongoing
proceedings.
8. Stockholders' Equity
Common Stock
As of December 31, 2017, the Company is authorized to issue
17,250,000,000 shares of common stock, par value $0.00004 per
share. As of December 31, 2017 and 2016, the Company had
14,629,798,423 and 8,842,004,983 shares of common stock issued and
outstanding, respectively. At December 31, 2017 and 2016, 6,513,338
and 7,995,017 additional shares of common stock, respectively, were
reserved for the exercise of existing options and warrants.
Nonqualified Stock Option and Stock Award Plan
In 2000, the Company's Board of Directors approved the 2000
Nonqualified Stock Option and Stock Award Plan (the "Stock Award
Plan"), pursuant to which options may be granted to purchase up to
15% of the Company's common stock authorized to be issued by the
Company, reduced by the total number of shares of stock subject to
stock options and stock awards that have been granted under the
Stock Award Plan and the Frontera Resources Corporation 1998
Employee Stock Incentive Plan. The Board of Directors has appointed
Frontera's chief executive officer as administrator (the
"Administrator") of the Stock Award Plan. In this capacity, the
Administrator determines which employees will receive options, the
number of shares covered by any option agreement, and the exercise
price and other terms of each such option. The Board of Directors
is responsible for administering the Stock Award Plan as it relates
to options granted to the chief executive officer.
Under the terms of the Stock Award Plan, any issued options
expire ten years after the date of grant or upon earlier of
termination of employment or affiliation relationship between the
grantee and the Company. Options granted vest over periods ranging
from immediate vesting to vesting in equal increments over three
years from the date of grant.
A summary of the Company's stock option activity and related
information is as follows:
Weighted-
Average
Exercise
Options Price
Options outstanding at December 31,
2015 9,420,023 $ 0.62
Granted - -
Exercised - -
Canceled (1,425,006) 0.46
------------ ----------
Options outstanding at December 31,
2016 7,995,017 0.65
------------ ----------
Granted - -
Exercised - -
Canceled (1,481,679) 1.43
------------ ----------
Options outstanding at December 31,
2017 6,513,338 $ 0.48
------------ ----------
Options exercisable at December 31,
2017 6,513,338 $ 0.48
The following table summarizes information about stock options
outstanding at December 31, 2017:
Weighted-
Range Number Outstanding Average Number Exercisable Weighted-
of at Remaining Weighted-Average at Average
December December
Exercise 31, Contractual Exercise 31, Exercise
Prices 2017 Life (Years) Price 2017 Price
$ 0.00-1.99 6,013,338 1.50 $ 0.28 6,013,338 $ 0.28
$ 2.00-3.99 500,000 0.63 2.87 500,000 2.87
------------------ ------------------
6,513,338 1.44 $ 0.48 6,513,338 $ 0.48
================== ==================
There were no unvested options at December 31, 2017. No options
were granted in 2017 or 2016.
Preferred Stock
As discussed in Note 5, on May 17, 2017 the Company entered into
agreement with YA, whereby the entire amount of debt, which had
been provided to the Company by YA under the previously announced
SEDA-Backed Loan Agreement, was converted into equity by issuing to
YA 7,200 Series A convertible, preferred, redeemable shares in the
Company (the "Series A") with the redemption value of $1,000 per
share. Over the 12-month period after their issuance, the Series A
shares were convertible into a maximum of 1,300,000,000 ordinary
shares of the Company. During the year ended December 31, 2017 YA
converted 2,800 Series A preferred shares. Accordingly, for the
year ended December 31, 2017 4,400 Series A preferred shares
remained outstanding.
9. Directors' Remuneration and Related Party Transactions
No remuneration was received by each director in his capacity as
director of the Company during 2017 or 2016.
In conjunction with an ongoing consulting agreement, a director
of the Company received consulting fees of $30,000 for the year
ended December 31, 2016. No such fees were paid in 2017.
As previously discussed in Note 5, the Company entered into a
series of Notes Payable with two of the Company's officers. On June
30, 2017 the entire amount of these notes were converted into
equity.
10. Supplemental Disclosures of Cash Flow Information
2017 2016
Supplemental disclosures
Cash paid for interest $ 4,224 $ 39,795
Change in accrued investment in oil & gas properties (104,569) 38,937
Change in accrued investment in property and equipment (5,290) (31,109)
Capital lease equipment reductions - (5,595)
Noncash investing & financing activities
Non-cash interest expense eliminated upon debt conversion 1,790,182 2,704,520
Issuance of paid in kind interest 5,455,137 -
Non-cash proceeds from issuance of common stock from debt conversion 26,681,492 -
Accounts Receivable on issuance of common stock from debt conversion 156,389 -
Accounts Payable on issuance of common stock from debt conversion (80,076)
Director expense reimbursement as consideration received 289,699
Issuance of shares for relief of liability owed to third party 2,130,000 -
Non-cash proceeds from issuance of preferred stock from debt conversion 6,200,277 -
Non-cash proceeds from conversion of preferred stock to common stock 2,800,000 -
Non-cash expense on debt conversion 999,723 -
Issuance of shares for services by 3rd party - 6,599,792
11. Subsequent Events
On February 9, 2018, the Company announced an underwritten offer
to raise approximately $3.5 million at an offer price of $0.007 per
ordinary share, which comprised a fully underwritten offer through
PrimaryBid. On February 12, 2018 Company announced the successful
raise of gross proceeds of $3.5 million. Accordingly, the Company
issued 536,480,687 new ordinary shares pursuant to this
transaction.
On February 13, 2018 the Company announced that, further to the
completion of the fundraising announced on February 12, 2018, an
institutional investor has subscribed for 331,858,407 ordinary
shares at a price of $0.006 per ordinary share raising a further
$2.1 million for the Company.
On May 24, 2018, the Company entered into an agreement with an
unrelated institutional investor to secure funding for the planed
operations at Niko-1 well. Pursuant to the agreement, the investor
shall provide up to $3 million investment, to be disbursed in two
equal tranches by September 1, 2018 and by October 15, 2018,
respectively, in order to fund the Niko-1 well work program to be
commenced in November 2018. In consideration for this financing,
the investor shall receive share in the production from the Niko-1
well in the following proportion: 60% of the well production from
the completion of the work program until recovery of its
investment, and 30% of the well production thereafter.
In 2018, 1,509 Series A preferred shares were converted by YA
resulting in the issuance of 262,697,886 ordinary shares. The last
such conversion occured on April 4, 2018, as announced on the same
date, following which YA was in possession of the remaining 2,891
Series A shares with a redemption value of $2,891,000 which were
redeemable on June 16, 2018. On June 6, 2018 the Company and YA
agreed that the redemption of the remaining 2,891 Series A shares
will take place over 12-month period, on a monthly basis, for which
the Company will be making cash redemption payments to YA of
$265,000 per month. Once redeemed, the Series A shares will be
cancelled. The Company has the right to convert redeemable Series A
shares into ordinary shares, at its option. The Company has the
right to pay down in cash the entire redemption amount for the
outstanding number of Series A shares at any point. As
consideration for this agreement, the Company issued YA 10,000,000
new ordinary shares.
Events occurring after December 31, 2017 were evaluated through
June 26, 2018, the date the consolidated financial statements were
available to be issued, to ensure that any subsequent events
meeting the criteria for recognition or disclosure were
disclosed.
Distribution of Accounts
The Company distributes its report and accounts via electronic
communication. A copy of the report and accounts and financial
statements for the year ended 31 December 2017 is available from
the Company's website www.fronteraresources.com
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR XVLLLVQFLBBV
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