UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2016 |
or
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
Commission file number: 333-205571
FRONTIER DIGITAL MEDIA GROUP, INC.
(Exact name of registrant as specified in its charter)
Colorado | 46-2276094 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
537 Pitkin Way, Castle Rock, Colorado 80104
(Address of principal executive offices) (Zip Code)
(303) 999-8171
(Registrant’s telephone number, including area code)
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 [ ] No [X]
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [ ] No [X]
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.
Large accelerated filer [ ] | Accelerated filer [ ] | Non-accelerated filer [ ] | Smaller reporting company [X] |
(Do not check if a smaller reporting company) |
Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
APPLICABLE 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.
Class | Outstanding as of May 16, 2016 | |
Common Stock, $0.001 | 5,044,000 |
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION | ||
Item 1. | Financial Statements | 3 |
Notes to Financial Statements | 6 | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 10 |
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 14 |
Item 4. | Controls and Procedures | 15 |
PART II - OTHER INFORMATION | ||
Item 1. | Legal Proceedings | 16 |
Item 1A. | Risk Factors | 16 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 16 |
Item 3. | Defaults Upon Senior Securities | 16 |
Item 4. | Mine Safety Disclosures | 16 |
Item 5. | Other Information | 16 |
Item 6. | Exhibits | 16 |
SIGNATURES | 17 |
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PART I – FINANCIAL INFORMATION
Frontier Digital Media Group, Inc.
Consolidated Balance Sheets
As of March 31, 2016, and December 31, 2015
(Unaudited)
March 31, 2016 | December 31, 2015 | |||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 6,290 | $ | 3,809 | ||||
Accounts and other receivables | 1,520 | 1,597 | ||||||
Total current assets | 7,810 | 5,406 | ||||||
Total assets | $ | 7,810 | $ | 5,406 | ||||
Liabilities and Stockholders’ Deficit | ||||||||
Current liabilities | ||||||||
Accrued liabilities | 3,873 | 3,799 | ||||||
Accrued liabilities, related party | – | 4,000 | ||||||
Notes payable, related parties | 22,122 | 16,700 | ||||||
Current liabilities | 25,995 | 24,499 | ||||||
Total liabilities | 25,995 | 24,499 | ||||||
Stockholders’ Deficit | ||||||||
Common stock, $0.001 par value; 100,000,000 shares authorized; 5,034,000 and 5,000,000 shares issued and outstanding as of March 31, 2016, and December 31, 2015 | 5,034 | 5,000 | ||||||
Additional paid-in capital | 1,666 | – | ||||||
Accumulated deficit | (24,885 | ) | (24,093 | ) | ||||
Total Stockholders’ Deficit | (18,185 | ) | (19,093 | ) | ||||
Total Liabilities and Stockholders’ Deficit | $ | 7,810 | $ | 5,406 |
See accompanying notes to unaudited consolidated financial statements
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Frontier Digital Media Group, Inc.
Consolidated Statements of Operations
For the three months ended March 31, 2016 and 2015
(Unaudited)
For the three months ended March 31, | ||||||||
2016 | 2015 | |||||||
Revenues | ||||||||
Revenue | $ | 2,351 | $ | 2,719 | ||||
Revenue, related parties | 1,000 | 4,280 | ||||||
Total revenues | 3,351 | 6,999 | ||||||
Operating expenses | ||||||||
Related party compensation | – | 10,975 | ||||||
General and administrative | 4,143 | 4,726 | ||||||
Total operating expenses | 4,143 | 15,701 | ||||||
Loss from operations | (792 | ) | (8,702 | ) | ||||
Other income (expense) | ||||||||
Interest expense | – | (700 | ) | |||||
Total other income (expense) | – | (700 | ) | |||||
Loss before income taxes | (792 | ) | (9,402 | ) | ||||
Provision for income taxes | – | – | ||||||
Net loss | $ | (792 | ) | $ | (9,402 | ) | ||
Net Loss per common share | ||||||||
Basic and diluted | $ | (0.00 | )* | $ | (0.00 | )* | ||
Weighted average shares outstanding | ||||||||
Basic and diluted | 5,019,033 | 5,000,000 |
*denotes net loss per common share of less than $0.01 per share.
See accompanying notes to unaudited consolidated financial statements
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Frontier Digital Media Group, Inc.
Consolidated Statements of Cash Flows
For the three months ended March 31, 2016 and 2015
(Unaudited)
For the three months ended | ||||||||
2016 | 2015 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (792 | ) | $ | (9,402 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Amortization of discount on convertible notes payable | – | 700 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts and other receivables | 77 | (1,582 | ) | |||||
Income tax payable | – | (4,984 | ) | |||||
Accrued liabilities | 74 | 622 | ||||||
Accrued liabilities - related party | (4,000 | ) | – | |||||
Net cash used in operating activities | (4,641 | ) | (14,646 | ) | ||||
Cash flows from investing activities: | – | – | ||||||
Net cash provided by (used in) investing activities | – | – | ||||||
Cash flows from financing activities: | ||||||||
Proceeds from the sale of common stock | 1,700 | – | ||||||
Proceeds from issuance of convertible notes payable, related party | – | 10,170 | ||||||
Proceeds from issuance of notes payable, related party | 7,622 | – | ||||||
Repayment of notes payable, related party | (2,200 | ) | – | |||||
Net cash provided by financing activities | 7,122 | 10,170 | ||||||
Net increase (decrease) in cash and cash equivalents | 2,481 | (4,476 | ) | |||||
Cash and cash equivalents at beginning of period | 3,809 | 7,202 | ||||||
Cash and cash equivalents at end of period | $ | 6,290 | $ | 2,726 | ||||
Supplemental cash flow information: | ||||||||
Cash paid during the period for interest | $ | – | $ | – | ||||
Cash paid during the period for income taxes | $ | – | $ | 243 |
See accompanying notes to unaudited consolidated financial statements
5 |
Frontier Digital Media Group, Inc.
Notes to the Unaudited Consolidated Financial Statements
March 31, 2016
Note 1 — Interim Financial Statements
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, these condensed consolidated financial statements do not include all of the information and footnotes required for audited annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to make the condensed consolidated financial statements not misleading have been included. The balance sheet at December 31, 2015, has been derived from the Company’s audited consolidated financial statements as of that date.
The unaudited condensed consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and the notes thereto that are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, that was filed with the SEC on April 14, 2016. The results of operations for the three months ended March 31, 2016, are not necessarily indicative of the results to be expected for the full year.
The unaudited condensed consolidated financial statements include the accounts of the Company and Smile Producer, Inc., its wholly owned subsidiary, which was incorporated in the State of Colorado on March 20, 2013. Intercompany balances and transactions have been eliminated in consolidation.
Note 2 — Going Concern
The Company’s financial statements have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities and commitments in the normal course of business.
The Company is in the development stage with limited trading history, has yet to achieve sustained profitability, does not have the existing financial resources to fully implement its business plan and is consequently dependent on outside sources of financing for continuation of its operations. These conditions raise substantial doubt about the ability of the Company to continue as a going concern for a reasonable period.
The Company plans to improve its financial condition through raising capital, however, there is no assurance that the Company will be successful in accomplishing this objective. Management believes that this plan provides an opportunity for the Company to continue as a going concern. The Company cannot give any assurances regarding the success of its management’s plans. The Company’s financial statements do not include adjustments relating to the recoverability of recorded assets or liabilities that might be necessary should it be unable to continue as a going concern.
Note 3 — Summary of Significant Accounting Policies
The significant accounting policies followed by the Company for interim reporting are consistent with those included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. There were no material changes to our significant accounting policies during the interim period ended March 31, 2016.
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Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (the “FASB”) issued guidance to clarify the principles for recognizing revenue. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides a comprehensive framework for revenue recognition that supersedes current general revenue guidance and most industry-specific guidance. In addition, the guidance requires improved disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized. In July 2015, the FASB delayed the effective date of the new guidance by one year. The guidance is now effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Additionally, early adoption is now permitted. However, entities reporting under U.S. GAAP are not permitted to adopt the standard earlier than the original effective date of December 15, 2016. An entity should apply the guidance either retrospectively to each prior reporting period presented or retrospectively with the cumulative adjustment at the date of the initial application. The Company is currently in the process of evaluating the impact of adoption of the new accounting guidance on its consolidated financial statements and has not determined the impact of adoption on its consolidated financial statements.
Note 4 — Notes Payable – Related Parties
In January 2015 and March 2015, the Company issued convertible notes payable to Venture Vest Capital Corporation, a related party, in the total amount of $10,170. The notes had a maturity date of December 31, 2016, and were to pay zero interest through December 31, 2015, at which point an annual interest rate of 6% was to become effective until maturity. The notes were convertible at the holders’ discretion to shares of our common stock at a conversion ratio of $0.01 per common share; the notes were convertible into an aggregate total of 1,017,000 of common stock. The Company reevaluated the embedded conversion feature and determined that the convertible notes did not include a beneficial conversion feature since the fair value of the underlying common stock had nominal value as of the grant dates of the convertible notes.
In September 2015, $2,170 of principal balance of the aforesaid notes was repaid and the remaining balance of $8,000 was canceled and replaced with a new $8,000 non-convertible principal note payable to the same related party. This note was interest free until December 31, 2015, after which time it would bear interest at the rate of 6% per annum, and its maturity date is December 31, 2016. In December 2015, this promissory note was amended to extend the interest-free period until December 31, 2016, after which time it shall bear interest at an annual interest rate of 6% until repaid.
In September 2015, the Company issued a second non-convertible promissory note payable to Venture Vest Capital Corporation for $6,500. The promissory note has a maturity date of December 31, 2016, and was interest free until December 31, 2015, at which time it would bear an annual interest rate of 6% until maturity. In December 2015, this promissory note was amended to extend the interest-free period until December 31, 2016, after which time it shall bear interest at an annual interest rate of 6% until repaid.
In August 2015, the Company issued a promissory note payable to Patrick Dunda, the Company’s President and Chief Executive Officer, for $2,200. The promissory note has a maturity date of December 31, 2016, and pays zero interest through May 31, 2016, at which point an annual interest rate of 6% will become effective until maturity. In March 2016, the Company repaid this promissory note payable in full.
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In March 2016, the Company issued a non-convertible promissory note payable to Terayco Enterprises, a company owned and operated by the father of Janel Dunda, a principal of the Company, for $7,622. The promissory note has a maturity date of December 31, 2016, and is interest free until December 31, 2016, after which time it shall bear interest at an annual interest rate of 6% until maturity or repaid.
Note 5 — Accrued and Other Current Liabilities
Accrued and other current liabilities was comprised of the following at March 31, 2016, and December 31, 2015:
March 31, 2016 | December 31, 2015 | |||||||
Accrued professional fees | $ | 3,800 | $ | 3,622 | ||||
Accrued professional fees due to related party | – | 4,000 | ||||||
Accrued merchant fees | 73 | 177 | ||||||
Accrued and other current liabilities | $ | 3,873 | $ | 7,799 |
Note 6 — Income Taxes
The Company did not incur any federal or state income tax expense or benefit for the three months ended March 31, 2016 and 2015. The Company had income tax receivable balance of $1,041 as of March 31, 2016, and December 31, 2015.
As of December 31, 2015, the Company had net operating losses of approximately $26,000 for federal and state income tax purposes that can be carried forward for up to twenty years and deducted against future federal taxable income. The net operating loss carryforwards expire in various years through 2035.
As of March 31, 2016, and December 31, 2015, management recorded a full valuation allowance against the net deferred tax assets created as a result of the Company’s net operating losses. In assessing the ability to realize a portion of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities and projected future taxable income in making the assessment.
The Company files federal and state income tax returns. These returns remain subject to examination by taxing authorities for all years after December 31, 2011.
Note 7 — Related Party Transactions
Related party revenue
The Company provides services to certain customers that the Company has determined to be related parties, as a principal of the Company, Janel Dunda, is the daughter of the president of these customers (VentureVest Capital Corporation, Terayco, Americans for Truth, and Carriage House).
Revenues, generated from website design services, from these related parties were $1,000 and $4,280 for the three months ended March 31, 2016 and 2015, respectively. As of March 31, 2016, and December 31, 2015, there were no accounts receivable due from related parties.
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Related party compensation
An employee of the Company, Janel Dunda, is considered a related party as she is the spouse of the President and a majority shareholder of the Company. During the three months ended March 31, 2016 and 2015, the Company incurred compensation expense of $0 and $10,975, respectively, for payroll expenses associated with Mrs. Dunda.
Accrued liabilities, related party
In August 2015, $4,000 of our legal expenses were paid by Terayco Enterprises, a company owned and operated by the father of Janel Dunda, a principal of the Company. The Company recorded an accrued liability due to a related party as of December 31, 2015, for this advance made by Terayco Enterprises. During the three months ended March 31, 2016, the Company incurred an additional $3,422 of legal expenses that were paid on behalf of the Company by Terayco Enterprises. These amounts paid on behalf of the Company have been memorialized in a promissory note during March 2016.
Note 8 — Stockholder Equity
Common Stock
The Company is authorized to issue 100,000,000 shares of common stock, par value $0.001 per share. All shares of the Company’s common stock have equal rights and privileges with respect to voting, liquidation and dividend rights. Each share of Common Stock entitles the holder thereof to:
a) | One non-cumulative vote for each share held of record on all matters submitted to a vote of the stockholders; | |
b) | To participate equally and to receive any and all such dividends as may be declared by the Board of Directors out of funds legally available therefore; and | |
c) | To participate pro rata in any distribution of assets available for distribution upon liquidation. |
Stockholders have no pre-emptive rights to acquire additional shares of common stock or any other securities. Common shares are not subject to redemption and carry no subscription or conversion rights. All outstanding shares of common stock are fully paid and non-assessable.
In 2015, the Company filed an S-1 Registration Statement to register 1,000,000 shares of the Company’s common stock to be sold to the public at the price of $0.05 per share for a total of $50,000. The Registration Statement became effective on December 30, 2015. No shares of the Company’s common stock were sold to the public in 2015. During the three months ended March 31, 2016, the Company sold 34,000 shares at $0.05 per share for gross proceeds of $1,700. The shares were sold by the officers and Directors of the Company and no broker commissions were paid as a result of the sales. There can be no assurances that additional shares of common stock will be sold on the S-1 offering or that a trading market will develop for the shares.
As of March 31, 2016, 5,034,000 shares of common stock were issued and outstanding.
Note 9 — Subsequent Event
In April 2016, the Company sold 10,000 shares of common stock at $0.05 per share for gross proceeds of $500.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Our Management’s Discussion and Analysis should be read in conjunction with our unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this quarterly report.
Forward-Looking Statements
This quarterly report on Form 10-Q contains “forward-looking statements” that include information relating to future events, future financial performance, strategies, expectations, competitive environment, regulation and availability of resources. These forward-looking statements include, without limitation, statements regarding: proposed new products or services; our statements concerning litigation or other matters; statements concerning projections, predictions, expectations, estimates or forecasts for our business, financial and operating results and future economic performance; statements of management’s goals and objectives; trends affecting our financial condition, results of operations or future prospects; our financing plans or growth strategies; and other similar expressions concerning matters that are not historical facts. Words such as “may,” “will,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes” and “estimates,” and similar expressions, as well as statements in future tense, identify forward-looking statements.
Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by which, that performance or those results will be achieved. Forward-looking statements are based on information available at the time they are made and/or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.
Business Overview
Frontier Digital Media Group, Inc. (“we, “us,” “our,” or the “Company”) was incorporated in the state of Colorado on September 19, 2011. On March 20, 2013, we formed a wholly owned subsidiary company, Smile Producer, Inc., a Colorado corporation. Our principal executive offices are located at 537 Pitkin Way, Castle Rock, Colorado, 80104, telephone 303-999-8171.
We are a digital design and media company which develops and maintains websites and is a provider of marketing communications services to customers in the United States. We conduct our operations primarily through Smile Producer, Inc., our wholly owned subsidiary company.
We provide a range of marketing communications and consulting services, including all types of advertising, print and digital design, digital motion graphics and client website construction, interactive and mobile marketing, direct marketing, sales promotion, market research, corporate identity and branding, social media and other marketing related services. We have two revenue streams, marketing services and website hosting subscriptions.
As of the date of this filing our management only devotes approximately 35-50 hours in the aggregate per week to our affairs. This time may increase if and when our business activity increases, of which there is no assurance.
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We have not yet generated sustained profits from our operations. Our independent accountants have expressed a “going concern” opinion.
From our inception to date, we have generated very little revenues, and our operations have been limited to organizational, start-up, and capital formation activities and limited sales. We currently have no employees other than our two officers, who are also directors.
In 2015, the Company filed an S-1 Registration Statement to register 1,000,000 shares of the Company’s common stock to be sold to the public at the price of $0.05 per share for a total of $50,000. The Registration Statement became effective on December 30, 2015. As of March 31, 2016, the Company had sold 34,000 shares of common stock at $0.05 per share for gross proceeds of $1,700. Subsequently, in April 2016, the Company sold an additional 10,000 shares at $0.05 per share for gross proceeds of $500. The shares were sold by the officers and Directors of the Company and no broker commissions were paid. There is no guarantee that additional shares will be sold from the Registration Statement.
Even if all of the shares offered on the S-1 Registration Statement are sold, our management will continue to own over a majority of the outstanding shares of the Company. As a result, they have the ability to determine the outcome on all matters requiring approval of our shareholders, including the election of directors and approval of significant corporate transactions.
While our current burn rate is nominal, it is expected that our costs of operations will increase significantly due primarily to the costs associated with being a reporting company. Based upon our current business plan, we may continue to incur losses in the foreseeable future and there can be no assurances that we will ever establish profitable operations. These and other factors raise substantial doubt about our ability to continue as a going concern.
Critical Accounting Policies, Judgments and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). The preparation of these consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe are reasonable 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. Actual results may differ from these estimates.
An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimate that are reasonably likely to occur, could materially impact the consolidated financial statements. We believe that the following critical accounting policies reflect the more significant estimates and assumptions used in the preparation of the consolidated financial statements.
Revenue Recognition
Revenue is recognized when persuasive evidence of an arrangement exists, such as when a purchase order or contract is received from a customer, the price is fixed, title to the goods has passed or services have been rendered, and there is reasonable assurance of collection. The Company classifies selling discounts and rebates, if any, as a reduction of revenue.
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Accounts receivable
The Company reviews accounts receivable periodically for collectability and establishes an allowance for doubtful accounts and records bad debt expense when deemed necessary. Our allowance for doubtful accounts is maintained to provide for losses arising from customers’ inability to make required payments. If there is deterioration of our customers’ credit worthiness and/or there is an increase in the length of time that the receivables are past due greater than the historical assumptions used, additional allowances may be required. As of March 31, 2016, and December 31, 2015, no allowance for doubtful accounts was deemed necessary.
Income Taxes
The Company follows the asset and liability method of accounting for future income taxes. Under this method, future income tax assets and liabilities are recorded based on temporary differences between the carrying amount of assets and liabilities and their corresponding tax basis. In addition, the future benefits of income tax assets including unused tax losses, are recognized, subject to a valuation allowance to the extent that it is more likely than not that such future benefits will ultimately be realized. Future income tax assets and liabilities are measured using enacted tax rates and laws expected to apply when the tax liabilities or assets are to be either settled or realized. The Company’s effective tax rate approximates the Federal statutory rates.
Results of Operations for the Three Months Ended March 31, 2016 compared to the Three Months Ended March 31, 2015
During the three months ended March 31, 2016, we generated revenues of $3,351, compared to revenues of $6,999 during the three months ended March 31, 2015, a decrease of $3,648. The decrease in revenues was attributable to a reduction in our customer and client base, resulting in decreased billings. Due to our limited resources, our efforts were directed towards existing contracts and not towards marketing our services to prospective new clients and new projects. Once we completed this work, we were able to again begin marketing efforts.
Operating expenses, including general and administrative expense, during the three months ended March 31, 2016, were $4,143, compared to $15,701 during the three months ended March 31, 2015, a decrease of $11,558. This was primarily as a result of a $10,975 decrease in related party compensation from $10,975 incurred during the three months ended March 31, 2015, to $0 incurred during the three months ended March 31, 2016.
During the three months ended March 31, 2016, the Company incurred a net loss of $792, compared to a net loss of $9,402 during the three months ended March 31, 2015. The decrease in the net loss of $8,610 for the three months ended March 31, 2016, was primarily related to the $10,975 reduction in related party compensation, partially offset by the $3,648 decrease in revenues described above.
Liquidity and Capital Resources
As of March 31, 2016, we had a cash balance of $6,290, an increase of $2,481 from the $3,809 balance at December 31, 2015. This increase during the three months ended March 31, 2016, was the result of net financing of $7,122 received, partially offset by cash used for operations of $4,641 during the period.
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Operating Activities
Net cash used in operating activities was $4,641 during the three months ended March 31, 2016, compared to $14,646 used in operating activities during the three months ended March 31, 2015. The $10,005 decrease in cash used in operations was primarily due to a decrease in net loss of $8,610 and a decrease of $2,095 in working capital requirements between the two periods.
Investing Activities
We neither generated nor used cash in investing activities during the three months ended March 31, 2016 and 2015.
Financing Activities
Cash flows provided by financing activities were $7,122 and $10,170 during the three months ended March 31, 2016 and 2015, respectively.
During the three months ended March 31, 2016, the Company sold 34,000 shares at $0.05 per share for gross proceeds of $1,700. The shares were sold by the officers and Directors of the Company and no broker commissions were paid as a result of the sales.
In March 2016, the Company repaid the promissory note payable issued to Patrick Dunda, the Company’s President and Chief Executive Officer, in the amount of $2,200.
In March 2016, the Company issued a non-convertible promissory note payable to Terayco Enterprises, a company owned and operated by the father of Janel Dunda, a principal of the Company, for $7,622. The promissory note has a maturity date of December 31, 2016, and is interest free until December 31, 2016, after which time it shall bear interest at an annual interest rate of 6% until maturity or repaid.
In January 2015 and March 2015, we issued convertible notes payable to Venture Vest Capital Corporation, a related party in the total amount of $10,170. The notes had a maturity date of December 31, 2016 and were to pay zero interest through December 31, 2015, at which point an annual interest rate of 6% was to become effective until maturity. The notes were convertible at the holders’ discretion to shares of our common stock at a conversion ratio of $0.01 per common share; the notes were convertible into an aggregate total of 1,017,000 of common stock.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying financial statements, we have incurred net losses of $792 and $9,402 for the three months ended March 31, 2016 and 2015, respectively, and have a working capital deficit of $18,185 as of March 31, 2016, which raises substantial doubt about the Company’s ability to continue as a going concern.
Management believes the Company will continue to incur losses and negative cash flows from operating activities for the foreseeable future and will need additional equity or debt financing to sustain its operations until it can achieve profitability and positive cash flows, if ever. Management plans to seek additional debt and/or equity financing for the Company, but cannot assure that such financing will be available on acceptable terms.
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In 2015, the Company filed an S-1 Registration Statement to register 1,000,000 shares of the Company’s common stock to be sold to the public at the price of $0.05 per share for a total of $50,000. The Registration Statement became effective on December 30, 2015. As of the date of this filing, the Company has sold 44,000 shares of common stock at $0.05 per share for gross proceeds of $2,200.
The shares were sold by the officers and Directors of the Company and no broker commissions were paid. There is no guarantee that additional shares will be sold from the Registration Statement.
The funds raised on the offering will be used for the payment of costs incurred in the filing of the S-1 Registration Statement and for operating capital for the Company.
While management believes that income generated from sales activities of the Company will be sufficient to sustain the company, with the filing of the S-1 Registration Statement, the Company will become a “Reporting Company” as that term is defined by the SEC. As a “Reporting Company”, we will be filing quarterly and annual reports with the SEC, thus incurring the additional costs of audits and legal fees.
While it is hoped that the sale of common stock will be sufficient to meet the financial needs of the Company for the next 12 months, it may be necessary for current management to advance the Company additional funds to meet the needs of the Company.
Our current management has agreed to advance funds to the Company on an “as needed” basis.
Should existing management, stockholders or our affiliates refuse to advance needed funds, however, we would be forced to turn to outside parties to either lend funds to us or buy our securities. There is no assurance that we will be able to raise the necessary funds, when needed, from outside sources. Such a lack of funds could result in severe consequences to us, including among others:
● | failure to make timely filings with the SEC as required by the Exchange Act, which may also result in suspension of trading or quotation of our stock and could result in fines and penalties to us under the Exchange Act; and | |
● | failure to increase sales and income for the company. |
The Company’s continuation as a going concern is dependent upon its ability to ultimately attain profitable operations, generate sufficient cash flow to meet its obligations, and obtain additional financing as may be required. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. There can be no assurance that management will be successful in implementing its business plan or that the successful implementation of such business plan will actually improve our operating results.
Off Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements.
Inflation
We do not believe that inflation has had in the past or will have in the future any significant negative impact on our operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not required for smaller reporting companies.
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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 chief executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of March 31, 2016. Based on this evaluation, our chief executive officer and principal financial officer have concluded such controls and procedures to be ineffective as of March 31, 2016, to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms and to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
In connection with the preparation of our financial statements for the year ended December 31, 2015, and the interim period ended March 31, 2016, due to resource constraints, material weaknesses became evident to management regarding our inability to generate all the necessary disclosure for inclusion in our filings with the Securities and Exchanges Commission (the “SEC”) due to the lack of resources and segregation of duties. A material weakness is a significant deficiency in one or more of the internal control components that alone or in the aggregate precludes our internal controls from reducing to an appropriately low level the risk that material misstatements in our consolidated financial statements will not be prevented or detected on a timely basis.
Change in Internal Control over Financial Reporting
During the three months March 31, 2016, we engaged an outsourced accounting professional to assist with the preparation of our financial statements and our quarterly filings with the SEC. We intend to recruit additional professionals, as our business conditions warrant, to ensure that we include all necessary disclosure in our filings with the Securities and Exchange Commission. Although we believe that these corrective steps will enable management to conclude that the internal controls over our financial reporting are effective when the staff is in place and trained, we cannot provide assurance that these steps will be sufficient. We may be required to expend additional resources to identify, assess and correct any additional weaknesses in internal control.
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There are no legal proceedings, which are pending or have been threatened against us or any of our officers, directors or control persons of which management is aware.
Not required for a smaller reporting company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no unregistered sales of equity securities during the three months ended March 31, 2016 and 2015.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
None.
Exhibit 31.1 — Section 302 Certificate of Principal Executive Officer
Exhibit 31.2 — Section 302 Certificate of Principal Financial Officer
Exhibit 32.1 — Section 906 Certificate of Principal Executive Officer
Exhibit 32.2 — Section 906 Certificate of Principal Financial Officer
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Pursuant to the requirements of Section 13 or 15(d) 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.
FRONTIER DIGITAL MEDIA GROUP, INC.
By: | /s/ Patrick Dunda | |
Patrick Dunda | ||
Chief Executive Officer (Principal Executive Officer and Principal Financial Officer) | ||
Dated: May 23, 2016 |
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