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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Frontera Res | LSE:FRR | London | Ordinary Share | KYG368131069 | ORD SHS USD0.00004 (DI) |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0.2875 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
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
Hot Features
Premium
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.
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