FRONTERA GROUP INC. - Quarter Report: 2015 September (Form 10-Q)

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

 

For the transition period from                    to                   

 

Commission File Number: 333-198524

 

Frontera Group Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Registrant’s telephone number including area code: (702) 472-8762

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [X]  No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files.  Yes [X]  No [  ]

 

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

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes [   ]  No [X]

 

Applicable Only to Corporate Issuers:

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

 

FRONTERA GROUP INC.

 

TABLE OF CONTENTS

 

 

 

 

 

 

2

 

 

 

PART 1 – FINANCIAL INFORMATION

 

 

ITEM 1.  FINANCIAL STATEMENTS

 

 

FRONTERA GROUP INC.

 

For the Three Month Periods Ended September 30, 2015 and 2014

 

(Unaudited)

 

Index to the Condensed Financial Statements

 

 

 

 

 

 

 

 

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FRONTERA GROUP INC.

For the Three Month Periods Ended September 30, 2015 and 2014

Notes to the Condensed Financial Statements

(Unaudited)

 

Note 1 – Organization and Operations

 

Frontera Group Inc. (the “Company”) was incorporated under the laws of the State of Nevada on November 21, 2013. Frontera Group Inc. is an export management company providing business development and market consultancy services that assist small and medium-sized businesses in entering new markets in Central and South America.

 

Note 2 – Summary of Significant Accounting Policies

 

Basis of Presentation – Unaudited Interim Financial Information

 

The accompanying unaudited interim financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) to Form 10-Q and Article 8 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.  The unaudited interim financial statements furnished reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented.  Unaudited interim results are not necessarily indicative of the results for the full fiscal year. These unaudited interim financial statements should be read in conjunction with the financial statements of the Company for the year ended June 30, 2015 and notes thereto contained in the information as part of the Company’s Annual Report on the Form 10-K, which was filed with the Securities and Exchange Commission on July 28, 2015.

 

Use of Estimates and Assumptions and Critical Accounting Estimates and Assumptions

The preparation of 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 assets and liabilities at the date(s) of the financial statements and the reported amounts of revenues and expenses during the reporting period(s).

 

Critical accounting estimates are estimates for which (a) the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or operating performance is material. The Company’s critical accounting estimates and assumptions affecting the financial statements were:

(i)      Assumption as a going concern: Management assumes that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.

(ii)    Allowance for doubtful accounts: Management’s estimate of the allowance for doubtful accounts is based on historical sales, historical loss levels, and an analysis of the collectability of individual accounts; and general economic conditions that may affect a client’s ability to pay. The Company evaluated the key factors and assumptions used to develop the allowance in determining that it is reasonable in relation to the financial statements taken as a whole.

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(iii)   Valuation allowance for deferred tax assets: Management assumes that the realization of the Company’s net deferred tax assets resulting from its net operating loss (“NOL”) carry–forwards for Federal income tax purposes that may be offset against future taxable income was not considered more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards are offset by a full valuation allowance. Management made this assumption based on (a) the Company has incurred recurring losses, (b) general economic conditions, and (c) its ability to raise additional funds to support its daily operations by way of a public or private offering, among other factors;

These significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to these estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.

 

Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

 

Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly.

 

Actual results could differ from those estimates.

 

Fair Value of Financial Instruments

 

The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. 

 

To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels.  The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.  The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:

 

 

Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.

 

The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.  If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

 

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The carrying amount of the Company’s financial assets and liabilities, such as cash, accounts receivable, accounts payable and accrued expenses, approximate their fair value because of the short maturity of those instruments. 

 

Transactions involving related parties cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated.

 

Cash Equivalents

 

The Company considers all highly liquid investments with a maturity of three months or less to be cash and cash equivalents.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

Pursuant to FASB ASC paragraph 310-10-35-47 trade receivables that management has the intent and ability to hold for the foreseeable future shall be reported in the balance sheet at outstanding principal adjusted for any charge-offs and the allowance for doubtful accounts.. The Company follows FASB ASC paragraphs 310-10-35-7 through 310-10-35-10 to estimate the allowance for doubtful accounts. Pursuant to FASB ASC paragraph 310-10-35-9 Losses from uncollectible receivables shall be accrued when both of the following conditions are met: (a) Information available before the financial statements are issued or are available to be issued (as discussed in Section 855-10-25) indicates that it is probable that an asset has been impaired at the date of the financial statements, and (b) The amount of the loss can be reasonably estimated. Those conditions may be considered in relation to individual receivables or in relation to groups of similar types of receivables. If the conditions are met, accrual shall be made even though the particular receivables that are uncollectible may not be identifiable.

 

The Company reviews individually each trade receivable for collectability and performs on-going credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by the review of their current credit information; and determines the allowance for doubtful accounts based on historical write-off experience, customer specific facts and general economic conditions that may affect a client’s ability to pay. Bad debt expense is included in general and administrative expenses, if any.

 

Pursuant to FASB ASC paragraph 310-10-35-41 Credit losses for trade receivables (uncollectible trade receivables), which may be for all or part of a particular trade receivable, shall be deducted from the allowance. The related trade receivable balance shall be charged off in the period in which the trade receivables are deemed uncollectible. Recoveries of trade receivables previously charged off shall be recorded when received.  The Company charges off its trade account receivables against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

 

There was no allowance for doubtful accounts at September 30, 2015 and June 30, 2015.

 

Related Parties

 

The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.

 

Pursuant to Section 850-10-20 the related parties include: a. affiliates (“Affiliate” means, with respect to any specified Person, any other Person that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such Person, as such terms are used in and construed under Rule 405 under the Securities Act)  of the Company; b.  entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15,

to be accounted for by the equity method by the investing entity; c.  trusts for the benefit of employees, such as

 

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pension and profit-sharing trusts that are managed by or under the trusteeship of management; d.  principal owners of the Company; e. management of the Company; f.  other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g.  other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

 

The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of financial statements is not required in those statements.

 

The disclosures shall include:  a. the nature of the relationship(s) involved; b. a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

 

Commitments and Contingencies

 

The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur.  The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment.  In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

 

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements.  If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.

 

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. 

 

Revenue Recognition

 

The Company applies paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition.  The Company recognizes revenue when it is realized or realizable and earned.  The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.

 

The Company derives its revenues from sales contracts with its customer with revenues being generated upon rendering of services.  Persuasive evidence of an arrangement is demonstrated via invoice; service is considered provided when the service is delivered to the customers; and the sales price to the customer is fixed upon acceptance of the purchase order and there is no separate sales rebate, discount, or volume incentive.

 

 

F-8

 

Deferred Tax Assets and Income Tax Provision

 

The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification, which requires recognition of 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 based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. 

 

Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date.

 

The Company adopted the provisions of paragraph 740-10-25-13 of the FASB Accounting Standards Codification. Paragraph 740-10-25-13 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements.  Under paragraph 740-10-25-13, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.  The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement.  Paragraph 740-10-25-13 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.

 

The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its balance sheets and provides valuation allowances as management deems necessary.

 

Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.

 

Tax years that remain subject to examination by major tax jurisdictions

 

The Company discloses tax years that remain subject to examination by major tax jurisdictions pursuant to the ASC Paragraph 740-10-50-15.

 

Earnings per Share

 

Earnings Per Share is the amount of earnings attributable to each share of common stock. For convenience, the term is used to refer to either earnings or loss per share.  Earnings per share ("EPS") is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification.  Pursuant to ASC Paragraphs 260-10-45-10 through 260-10-45-16 Basic EPS shall be computed by dividing income available to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) during the period. 

 

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Income available to common stockholders shall be computed by deducting both the dividends declared in the period on preferred stock (whether or not paid) and the dividends accumulated for the period on cumulative preferred stock (whether or not earned) from income from continuing operations (if that amount appears in the income statement) and also from net income. 

 

The computation of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued during the period to reflect the potential dilution that could occur from common shares issuable through contingent shares issuance arrangement, stock options or warrants.

 

Pursuant to ASC Paragraphs 260-10-45-45-21 through 260-10-45-45-23 Diluted EPS shall be based on the most advantageous conversion rate or exercise price from the standpoint of the security holder. 

 

The dilutive effect of outstanding call options and warrants (and their equivalents) issued by the reporting entity shall be reflected in diluted EPS by application of the treasury stock method unless the provisions of paragraphs 260-10-45-35 through 45-36 and 260-10-55-8 through 55-11 require that another method be applied. Equivalents of options and warrants include non-vested stock granted to employees, stock purchase contracts, and partially paid stock subscriptions (see paragraph 260–10–55–23). Anti-dilutive contracts, such as purchased put options and purchased call options, shall be excluded from diluted EPS.  Under the treasury stock method: a. Exercise of options and warrants shall be assumed at the beginning of the period (or at time of issuance, if later) and common shares shall be assumed to be issued. b. The proceeds from exercise shall be assumed to be used to purchase common stock at the average market price during the period. (See paragraphs 260-10-45-29 and 260-10-55-4 through 55-5.) c. The incremental shares (the difference between the number of shares assumed issued and the number of shares assumed purchased) shall be included in the denominator of the diluted EPS computation.

 

There were no potentially dilutive debt or equity instruments issued and outstanding at any time during the period from Inception (November 21, 2013) through September 30, 2015.

 

Cash Flows Reporting

 

The Company adopted paragraph 230-10-45-24 of the FASB Accounting Standards Codification for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method (“Indirect method”) as defined by paragraph 230-10-45-25 of the FASB Accounting Standards Codification to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments.  The Company reports the reporting currency equivalent of foreign currency cash flows, using the current exchange rate at the time of the cash flows and the effect of exchange rate changes on cash held in foreign currencies is reported as a separate item in the reconciliation of beginning and ending balances of cash and cash equivalents and separately provides information about investing and financing activities not resulting in cash receipts or payments in the period pursuant to paragraph 830-230-45-1 of the FASB Accounting Standards Codification.

 

Subsequent Events

 

The Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements were issued.  Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through filing them on EDGAR.

 

F-10

 

Recently Issued Accounting Pronouncements

 

Management does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, will have a material effect on the accompanying financial statements.

 

Note 3 – Going Concern

 

The Company has elected to adopt early application of Accounting Standards Update No. 2014-15, “Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”).

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.

 

As reflected in the accompanying financial statements, the Company had accumulated deficit at September 30, 2015, a net loss and net cash used in operating activities for the three month period ended September 30, 2015. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

The Company is attempting to commence operations and generate sufficient revenue; however, the Company’s cash position may not be sufficient to support the Company’s daily operations.  Management intends to raise additional funds by way of a private or public offering.  While the Company believes in the viability of its strategy to commence operations and generate sufficient revenue and in its ability to raise additional funds, there can be no assurances to that effect.  The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a public or private offering.

 

The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary if the Company is unable to continue as a going concern.

 

Note 4 – Related Party Transactions

 

Consulting services from President, Chief Executive Officer, Secretary and Treasurer and Chief Financial Officer

 

Consulting services provided by the President, Chief Executive Officer, Secretary and Treasurer and Chief Financial Officer for the three months ended September 30, 2015 and 2014 were as follows:

 

 

(i)        During the three months ended September 30, 2015 and 2014, $1,050 and $1,350 of these related party consulting services was recognized in cost of revenues and $450 and $150, respectively, in officers’ compensation within operating expenses.

 

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Advances from President and CEO

 

From time to time, the President, CEO and significant stockholder of the Company advances funds to the Company for working capital purposes. Those advances are unsecured, non-interest bearing and due on demand. As of September 30, 2015 and June 30, 2015, the advance balance was $30,500 and $7,500, respectively.

 

Accrued Compensation

 

The President and Chief Financial Officer provide management consulting services to the Company. On February 1, 2014 the Company entered into a Management Consulting Agreement with Mr. Krichevcev on the following terms:

I.          The Consultant agrees to act as President and Chief Executive Officer of the Company and to perform the following services and undertake the following responsibilities and duties to the Company as consulting services (the "Consulting Services"):

 

III.     The Company may terminate this Agreement: (i) at any time on two months’ notice; or (ii) without notice upon the occurrence of any of the following events of default (each an “Event of Default”):

 

 

During the three months ended September 30, 2015 and 2014 the Company incurred $1,500 in management consulting services with the President of the Company in each period. These amounts were reported as accrued compensation as of September 30, 2015 and 2014.

 

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On February 1, 2014 the Company entered into a Management Consulting Agreement with Mrs. Varuha on the following terms:

 

I.          The Consultant agrees to act as Secretary, Treasurer and Chief Financial Officer of the Company and to perform the following services and undertake the following responsibilities and duties to the Company as consulting services (the "Consulting Services"):

 

 

II.     In consideration of the provisions of the Consulting Services, the Company shall pay to the Consultant the sum of US$400 per month for the duration of the Agreement.

III.     The Company may terminate this Agreement: (i) at any time on two months’ notice; or (ii) without notice upon the occurrence of any of the following events of default (each an “Event of Default”):

 

 

During the three months ended September 30, 2015 and 2014 the Company incurred $1,200 in consulting services with the Chief Financial Officer of Company in each period. These amounts were reported as accrued compensation as of September 30, 2015 and 2014.

 

These Management Consulting Agreements were extended for the period from February 1, 2015 to January 31, 2016 on the same terms and conditions as the agreements dated February 1, 2014.

 

Note 5 – Stockholders’ Deficit

 

Shares authorized

 

Upon formation the total number of shares of all classes of stock which the Company is authorized to issue is seventy-five million (75,000,000) shares of common stock, par value $0.001 per share.

 

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Common stock

 

In January and March of 2014, the Company sold 4,000,000 shares of its common stock at par to its directors for $4,000 in cash. During the year ended June 30, 2015, the Company sold 3,280,000 common shares at $0.0125 per share for total proceeds of $41,000.

 

Note 6 – Subsequent Events

 

The Company has evaluated all events that occurred after the balance sheet date through the date when the financial statements were issued to determine if they must be reported.  The Management of the Company determined that there were no reportable subsequent events to be disclosed.

 

 

 

 

 

 

 

 

 

 

 

 

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

Forward-Looking Statements and Associated Risks.

 

The following discussion should be read in conjunction with the financial statements and the notes to those statements included elsewhere in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q contains certain statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Certain statements contained in the MD&A are forward-looking statements that involve risks and uncertainties. The forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about our industry, business and future financial results. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those discussed in other sections of this Quarterly Report on Form 10-Q.

 

Our Business

 

Frontera Group Inc. (“the Company”, “we”, “us” or “our”) is an export management company providing business development and market consultancy services that assist small and medium-sized businesses in entering new markets in Central and South America. Our target clients are manufacturers of food products, who are looking for assistance in the areas of marketing, sales and logistics as they expand their sales territories. We specifically target these types of companies because of experience of our management in providing marketing and distribution services to manufacturer of food products.

 

We generate revenue by providing consulting services to small and medium businesses.  We acquire customers through direct marketing, referrals and our primary website, www.fronteragroupinc.com.

 

Frontera Group Inc. is a development stage company as defined by section 915-10-20 of the FASB Accounting Standards Codification.  Although the Company has recognized nominal amounts of revenue, it is still devoting substantially all of its efforts on establishing the business.  All losses accumulated since Inception (November 21, 2013) have been considered as part of the Company’s development stage activities.

 

In June 2014, the FASB issued ASU No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation.

 

The amendments in this Update remove the definition of a development stage entity from the Master Glossary of the Accounting Standards Codification, thereby removing the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information in the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage.

 

For public business entities, those amendments are effective for annual reporting periods beginning after December 15, 2014, and interim periods therein. Frontera Group has elected to early adopt Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. The adoption of this ASU allows the company to remove the inception to date information and all references to development stage.

 

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Our services will include:

 

Market and Competitor Research

 

Breaking into new markets is inherently risky due to the unfamiliarity of the competition and consumer demand. Our comprehensive market and competitor research allows our customers to have insight into their new target market. Our customers are better able to price their products and services competitively and position their brand effectively. Market research services include market, economic and political overview, logistics and cost environment, partnership identification, competitor research including availability of distribution channels, competitor promotional strategies and identification of specific differentiation opportunities. Market and competitor research is the first step for a client's launch into a new market. These services are billed on a project basis, with the scope determined in collaboration with the client. Research can be done as a one-off service prior to a new launch, or as an on-going project with a smaller scope to monitor competition in a particular market.

 

Marketing Strategy Development

 

Essential to the success of entering a new market is an appropriate and effective marketing strategy. After establishing a budget and target market, we develop a marketing plan that can help our clients reach their potential customers. A core part of our marketing services is the design and deployment of specialized reports that capture, measure and analyze target market data to provide insights into market opportunities, value proposition, positioning and messaging development. The result is a custom Business Development plan that addresses overall marketing strategy for a launch to a new market.

 

Translation Services

 

Launching a product in a new market often requires adaptation of packaging, corporate identity documents, and marketing materials to a new language. Our translation services ensure complete compatibility with local culture and market conditions for any corporate communication materials.

 

Trade show and commercial event management

 

An important part of a product or service launch is effective presentation at industry and consumer trade shows. We ensure an effective presentation at trade shows by developing target market appropriate booth design and sales material, as well as helping to manage staffing and logistics. We also consult and manage other commercial events, such as marketing events, product demos, and public relations events.

 

Administration and On-Going Business services

 

We provide services offering ongoing assistance with marketing, sales, and distribution after initial product launch. The scope of services depends on customer requirements. We can provide one-off consultations regarding marketing or distribution strategies, resulting in short-term engagements. For customers who require extra support, we can act as broker of record for a line of products in a specific geographic area. We customarily charge the client a flat monthly fee, with an additional commission depending on a portion of sales made in the target market.

 

As of September 30, 2015 we provided consulting services related to market feasibility studies, competitor research and translation services. Our plan over the next twelve months is to expand our client base and the range of services we provide.

 

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Results of operations for the three-month periods ended September 30, 2015 and 2014.

 

Revenue

 

Our gross revenue for the three-month periods ended September 30, 2015 and 2014 was $2,000 and $7,800 respectively.  Our cost of revenues for the three-month period ended September 30, 2015 was $1,050 (September 30, 2014: $1,350) resulting in a gross profit of $950 and $6,450 respectively. All of our revenues derived from consulting services related to market research and feasibility studies and translation services. The decrease in revenues and gross margin was due to fewer number of projects completed during the three months ended September 30, 2015 compared to the same period in our fiscal 2015.

 

Costs and Expenses

 

The major components of our expenses for the three-month periods ended September 30, 2015 and 2014 are outlined in the table below:

 

 

Compensation - officers

 

The President and Chief Financial Officer provide management consulting services to the Company. On February 1, 2014 the Company entered into a Management Consulting Agreement with Mr. Krichevcev on the following terms:

I.        The Consultant agrees to act as President and Chief Executive Officer of the Company and to perform the following services and undertake the following responsibilities and duties to the Company as consulting services (the "Consulting Services"):

 

 

II.       In consideration of the provisions of the Consulting Services, the Company shall pay to the Consultant the sum of US$500 per month for the duration of the Agreement.

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III.     The Company may terminate this Agreement: (i) at any time on two months’ notice; or (ii) without notice upon the occurrence of any of the following events of default (each an “Event of Default”):

 

During the three months ended September 30, 2015 and 2014 the Company incurred $1,500 in management consulting services with the President of the Company in each period. These amounts were reported as accrued compensation as of September 30, 2015 and 2014. The amount of compensation accrued in each period was the same. However, the amount allocated to the cost of revenue as directly related to sales for the three-month period ended September 30, 2015 was decreased by $300 resulting in the increase of the officer compensation amount within operating expenses and the decrease in costs of revenue for the same period.

 

On February 1, 2014 the Company entered into a Management Consulting Agreement with Ms. Varuha on the following terms:

 

I.     The Consultant agrees to act as Secretary, Treasurer and Chief Financial Officer of the Company and to perform the following services and undertake the following responsibilities and duties to the Company as consulting services (the "Consulting Services"):

 

 

II.   In consideration of the provisions of the Consulting Services, the Company shall pay to the Consultant the sum of US$400 per month for the duration of the Agreement.

III. The Company may terminate this Agreement: (i) at any time on two months’ notice; or (ii) without notice upon the occurrence of any of the following events of default (each an “Event of Default”):

 

During the three months ended September 30, 2015 and 2014 the Company incurred $1,200 in consulting services with the Chief Financial Officer of Company in each period. These amounts were reported as accrued compensation as of September 30, 2015 and 2014.

 

These Management Consulting Agreements were extended for the period from February 1, 2015 to January 31, 2016 on the same terms and conditions as the agreements dated February 1, 2014.

 

Professional fees.

 

The decrease in the professional fees of $1,050 was due to the decrease in the audit and audit related costs during the year end June 30, 2015 audit.

 

Transfer Agent

 

We had engaged our transfer agent during the third quarter of our fiscal 2015 and had no expenses related to the transfer agent services during the quarter ended September 30, 2014. Our common stock has been quoted on the OTC Bulletin Board and in OTC Link since April 23, 2015 under the symbol “FRTG”.

 

General and Administrative

 

The increase in general and administrative expenses of $1,691 was a result of the increased operating activities and implementation of our business plan.

 

Net Loss

 

During the three months ended September 30, 2015 we incurred a net loss of $12,542 compared to a net loss of $5,451 during the three months ended September 30, 2014 due to the factors discussed above.

 

 

Liquidity and Capital Resources

 

 

Liquidity

 

 The Company’s operations in the recent past have been financed primarily through cash flow from operations, equity financing, existing cash and, in the first quarter of fiscal 2016, the cash advance from the Company’s Chief Executive Officer. The Company has incurred net losses for the majority of the past several years. Moving forward, the Company expects to have significant cash outflows in the near term based on the increase in corporate activities and implementation of its business plan.

 

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Our total current liabilities exceed our current assets resulting in working capital deficiency of $38,845 as of September 30, 2015. Our total current liabilities exceed our current assets resulting in working capital deficiency of $26,303 as of June 30, 2015. The $12,916 increase in our working capital deficit during the period was principally due to our operating losses of $12,542 that we incurred in the period.

 

From time to time, the President, Chief Executive Officer and significant stockholder of the Company advances funds to the Company for working capital purposes. Those advances are unsecured, non-interest bearing and due on demand. As of September 30, 2015 and June 30, 2015, the advance balance was $30,500 and $7,500, respectively.

 

If we are not successful in expanding our clientele base, maintaining profitability and positive cash flow, additional capital may be required to maintain ongoing operations. We have explored and are continuing to explore options to provide additional financing to fund future operations as well as other possible courses of action. Such actions include, but are not limited to, securing lines of credit, sales of debt or equity securities (which may result in dilution to existing shareholders), loans and cash advances from our directors or other third parties, and other similar actions. There can be no assurance that we will be able to obtain additional funding (if needed), on acceptable terms or at all, through a sale of our common stock, loans from financial institutions, our directors, or other third parties, or any of the actions discussed above. If we cannot sustain profitable operations, and additional capital is unavailable, lack of liquidity could have a material adverse effect on our business viability, financial position, results of operations and cash flows.

 

Cash Flows

 

The table below, for the period indicated, provides selected cash flow information:

 

 

Cash Flows from Operating Activities

 

During the three months ended September 30, 2015 we used $20,126 in operating activities compared to $6,182 used in operating activities during the three months ended September 30, 2014, an increase of $13,944.

 

During the three months ended June 30, 2015, we incurred an operating loss of $12,542, a $2,500 decrease in prepaid expenses, a $12,784 decrease in accounts payable and accrued liabilities, and a $2,700 increase in the officers’ accrued compensation.

 

The decrease in prepaid expenses is due to the decrease in the prepaid annual OTCQB listing fees that the Company paid in June of 2015. As of September 30, 2015, the Company expensed $3,333 (four months of these fees) for the month of June of 2015 and for the first quarter ended September 30, 2015 with remaining $6,667 reported as prepaid expense on the Balance Sheet as of September 30, 2015.

 

The decrease in accounts payable and accrued expenses during the three-month period ended September 30, 2015 was due to the payment of current liabilities that remained unpaid at the end of our fiscal 2015.

 

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The increase in the officers’ accrued compensation is due to the consulting fees incurred by the Company during the period ended September 30, 2015 that remained unpaid as at the end of the period.

 

By comparison, during the three months ended June 30, 2014, we incurred an operating loss of $5,451, a $4,800 increase in accounts receivable, a $1,369 decrease in accounts payable and accrued liabilities, and a $2,700 increase in the officers’ accrued compensation. The increase in accounts receivable reflected the increase in our sales generated in the period ended September 30, 2014 that remained unpaid at the end of the reporting period.

 

The increase in accounts payable and accrued expenses reflected the increase in our general operating expenses incurred during the period ended September 30, 2014 that remained unpaid at the end of the reporting period.

 

The increase in the officers’ accrued compensation is due to the consulting fees incurred by the Company during the period ended September 30, 2014 that remained unpaid as at the end of this period.

 

Cash Flows from Investing Activities

 

We did not generate or use any cash from investing activities during the three-month periods ended September 30, 2015 and 2014.

 

Cash Flows from Financing Activities

 

During the three months ended September 30, 2015, we generated $23,000 from financing activities while we neither generated or used funds in financing activities during the three months ended September 30, 2014. 

 

During the three months ended September 30, 2015 the Company’s Chief Executive Officer provided $23,000 cash advance for working capital purposes. This advance is unsecured, non-interest bearing and due on demand. As of September 30, 2015 and June 30, 2015, the advance balance was $30,500 and $7,500, respectively.

 

Management expects to keep operating costs to a minimum until cash is available through financing or operating activities. Management plans to continue to seek, in addition to equity financing, other sources of financing (e.g. bank loan, line of credit, shareholder loan) on favorable terms; however, there are no assurances that any such financing can be obtained on favorable terms, if at all.   

 

If we are unable to generate profits sufficient to cover our operating costs or to obtain additional funds for our working capital needs, we may need to cease or curtail operations.  Furthermore, there is no assurance the net proceeds from any successful financing arrangement will be sufficient to cover cash requirements during the initial stages of the Company’s operations.

 

Recent Accounting Pronouncements 

 

See Note 2 to the Unaudited Financial Statements.

 

Off Balance Sheet Arrangements

 

As of September 30, 2015, we did not have any significant off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

 

 

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ITEM 4. CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as of the end of the period covered by this report.  Based on this evaluation, our principal executive officer and principal financial officer concluded as of the evaluation date that our disclosure controls and procedures were effective such that the material information required to be included in our Securities and Exchange Commission reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms relating to our company, particularly during the period when this report was being prepared.

 

Additionally, there were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the evaluation date.  We have not identified any significant deficiencies or material weaknesses in our internal controls, and therefore there were no corrective actions taken.

 

PART II – OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

 

We were not subject to any legal proceedings during the three-month periods ended September 30, 2015, and currently we are not involved in any pending litigation or legal proceeding.

 

ITEM 1A. RISK FACTORS.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item. 

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

No equity securities were sold during the three months ended September 30, 2015 and 2014.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

No senior securities were issued and outstanding during the three-month periods ended September 30, 2015 and 2014.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable to our Company.

 

ITEM 5. OTHER INFORMATION.

 

None.

 

ITEM 6. EXHIBITS
 
The following documents are filed as a part of this report or are incorporated by reference to previous filings, if so indicated:

 

 

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EXHIBIT

NUMBER        DESCRIPTION

 

 

   *  Filed herewith.

 

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

 SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: October 19, 2015

 

 

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In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of Frontera Group Inc. and in the capacities and on the dates indicated.

 

 

 

 

 

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