FRONTERA GROUP INC. - Quarter Report: 2016 March (Form 10-Q)

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FRONTERA GROUP INC.

For the Three and Nine Month Periods Ended March 31, 2016 and 2015

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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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.

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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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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 December 31, 2015, a net loss and net cash used in operating activities for the six month period ended December 31, 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 and nine months ended March 31, 2016 and 2015 were as follows:

(i)

During the three months ended March 31, 2016 and 2015, $0 and $1,350 of these related party consulting services was recognized in cost of revenues and $0 and $1,350, respectively, in officers’ compensation within operating expenses.

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(ii)

During the nine months ended March 31, 2016 and 2015, $1,050 and $4,050 of these related party consulting services was recognized in cost of revenues and $4,350 and $4,050, respectively, in officers’ compensation within operating expenses.

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 purpose. Those advances are unsecured, non-interest bearing and due on demand. As of March 31, 2016 and June 30, 2015, the advance balance was $1,500 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 for the provision of services related to chief executive officer duties at a rate of $500 per month.  During the nine months ended March 31, 2016 and 2015, the Company incurred $3,000 and $4,500 in management consulting services with the President of the Company, respectively.  On January 12, 2016, pursuant to the terms of the Stock Purchase Agreements, the former officer and stockholder forgave accrued compensation of $11,500. Therefore, the accrued compensation was $0 and $4,500 as of March 31, 2016 and 2015.

On February 1, 2014 the Company entered into a Management Consulting Agreement with Mrs. Varuha for the provision of services related to Secretary, Treasurer and Chief Financial Officer duties at a rate of $400 per month.  During the nine months ended March 31, 2016 and 2015, the Company incurred $2,400 and $3,600 in consulting services with the Chief Financial Officer of Company, respectively.  On January 12, 2016, pursuant to the terms of the Stock Purchase Agreements, the former officer and stockholder forgave accrued compensation of $9,200. Therefore, the accrued compensation was $0 and $3,600 as of March 31, 2016 and 2015.

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’ Equity (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. On February 23, 2016, the Company increased its authorized common shares to one billion (1,000,000,000), and decreased the par value to $0.00001 per share. Due to this change, $7,207 was shifted from the Common Stock account to the Additional Paid-in Capital account.

Common stock

As of June 30, 2014, there were a total of 7,280,000 shares of common stock issued and outstanding.  On March 12, 2016, the Company sold 300,000,000 common shares at $0.00003 per share for total proceeds of $9,000. The 300,000,000 shares of common stock were issued to Nanjing Dayu Xianneng Foods, Co, Ltd. The control person that Nanjing Dayu Xianneng Foods CO Ltd is Mr. Daobing Xia.

Change in Control

On January 12, 2016, Mr. Michael Krichevcev, the Company’s Chief Executive Officer and Director, and Ms. Tatiana Varuha, the Company’s Chief Financial Officer and Director, sold all of their 4,000,000 shares of common stock of Frontera Group Inc. to Mr. Gan Ren. The 4,000,000 shares of common stock sold represented a majority of the total issued and outstanding common stock of the Company.  As result of this share purchase transaction, Mr. Gan Ren became the controlling shareholder of the Company.

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In connection with this share purchase transaction, on January 12, 2016, Mr. Krichevcev and Ms. Varuha resigned from all positions they held in the Company, including Chief Executive Officer, Chief Financial Officer, President, Secretary, Treasurer, and Board Director.

On January 12, 2016, Mr. Gan Ren became the President, Board Director, Secretary, Treasurer, Chief Executive Officer and Chief Financial Officer of the Company.  

On March 12, 2016, the Company sold 300,000,000 common shares at $0.00003 per share for total proceeds of $9,000. The 300,000,000 shares of common stock were issued to Nanjing Dayu Xianneng Foods, Co, Ltd. The control person that Nanjing Dayu Xianneng Foods CO Ltd is Mr. Daobing Xia. Mr. Gan Ren still remains the President, Board Director, Secretary, Treasurer, Chief Executive Officer and Chief Financial Officer of the Company.  

Forgiveness of Advances from Former Stockholders and Accrued Compensation – Former Officers

On January 12, 2016, pursuant to the terms of their Stock Purchase Agreements, the former officers and stockholders forgave advances of $34,348 and accrued compensation of $20,700, respectively or $55,048 in aggregate. This amount was recorded as contributions to capital and recognized in additional paid in capital.

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 and referrals.

 

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

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Operating Expenses

 

The major components of our expenses for the three-month periods ended March 31, 2016 and 2015 are outlined in the table below:

 

	For the Three Months  Ended March 31, 2016		For the Three Months  Ended March 31, 2015
Compensation – officers	$                              -		$                     1,350
Professional fees	1,500		18,702
General and administrative	4,236		3,660
	$                      5,736		$                   23,712

 

 

The operating expenses for the three months ended March 31, 2016 of $5,736 decreased by $17,976 from $23,712 for the three months ended March 31, 2015. The increase was due to a decrease in OTC market and transfer agent fees.

Net Loss

 

During the three months ended March 31, 2016, we incurred a net loss of $5,736 compared to a net loss of $22,062 during the three months ended March 31, 2015 due to the decrease in revenue and operating expenses.

 

Results of operations for the nine-month periods ended March 31, 2016 and 2015.

 

Revenue

 

Our gross revenue for the nine-month periods ended March 31, 2016 and 2015 was $2,000 and $15,300 respectively.  Our cost of revenues for the nine-month period ended March 31, 2016 and 2015 was $1,050 and $4,050, respectively, resulting in a gross profit of $950 and $11,250, respectively. All of our revenues derived from consulting services related to market research and feasibility studies and translation services. The decrease in revenues was due to a fewer number of projects completed during the nine months ended March 31, 2016 compared to the same period in our fiscal 2015.

 

Operating Expenses

 

The major components of our expenses for the nine-month periods ended March 31, 2016 and 2015 are outlined in the table below:

 

	For the Nine Months  Ended March 31, 2016		For the Nine Months  Ended March 31, 2015
Compensation – officers	$                         4,350		$                     4,050
Professional fees	7,750		34,247
General and administrative	19,095		6,673
	$                      31,195		$                   44,970

 

 

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The operating expenses for the nine month periods ended March 31, 2016 were $31,195, decreases of $13,775 as compared to $44,970 for the nine months ended March 31, 2015. The decrease was due to an increase in OTC market and transfer agent fees.

Net Loss

 

During the nine months ended March 31, 2016 we incurred a net loss of $30,245 compared to a net loss of $33,720 during the nine months ended March 31, 2015 due to the decrease in revenue and operating expenses.

 

Liquidity and Capital Resources

 

		As of		As of
		March 31,		June 30,
		2016		2015
Total assets	$	9,000	$	9,555
Total liabilities		(1,500)		(35,858)
Working capital (deficiency)	$	7,500	$	(26,303)

 

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, a 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.

  

As of March 31, 2016, we had working capital was $7,500. Our total current liabilities exceed our current assets resulting in working capital deficiency of $26,303 as of June 30, 2015. The increase in our working capital during the period was principally because the proceeds from the issuance of common shares and former stockholders forgave advances of $55,048 as contributions to capital in this 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 March 31, 2016 and June 30, 2015, the advance balance was $1,500 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

 

Cash Flows from Operating Activities

 

During the nine months ended March 31, 2016 we used $24,888 in operating activities compared to $23,635 used in operating activities during the nine months ended March 31, 2015.

 

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