Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
| S | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the fiscal year ended | December 31, 2012 |
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 No. | 000-52297 |
| FRONTIER BEVERAGE COMPANY, INC. |
| (Exact name of registrant as specified in its charter) |
| Nevada | 06-1678089 | |
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| 1837 Harbor Avenue, Post Office Box 13322, Memphis, Tennessee | 38113 |
| (Address of principal executive offices) | (Zip Code) |
| Registrant’s telephone number, including area code | (877) 233-7359 |
Securities registered pursuant to Section 12(b) of the Exchange Act:
| Title of each class | Name of each exchange on which registered | |
| None | None | |
Securities registered pursuant to Section 12(g) of the Exchange Act:
| Common Stock, par value $0.001 per share |
| (Title of class) |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes £ No S
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes £ No S
Indicate by check mark whether the registrant has (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 S No £
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 S No £
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. £
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 S |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes £ No S
The aggregate market value of the voting and non-voting common equity held by non-affiliates as of June 29, 2012 was $210,500 (computed by reference to the price at which the common equity was last sold ($0.05), or the average bid and asked price of such common equity as of the last business day of the registrant’s most recently completed second fiscal quarter). For purposes of the foregoing calculation only, directors, executive officers, and holders of 10% or more of the issuer’s common capital stock have been deemed affiliates.
The number of shares outstanding of the registrant’s common stock as of April 12, 2013 was 18,781,000.
DOCUMENTS INCORPORATED BY REFERENCE: None.
TABLE OF CONTENTS
Throughout this Annual Report on Form 10-K (the “Report”), the terms “we,” “us,” “our,” “Frontier,” or the “Company” refers to Frontier Beverage Company, Inc., a Nevada corporation.
When used in this Report, the words “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “intend,” and similar expressions are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) regarding events, conditions and financial trends which may affect the Company’s future plans of operations, business strategy, operating results and financial position. Such statements are not guarantees of future performance and are subject to risks and uncertainties and actual results may differ materially from those included within the forward-looking statements. Additional factors are described in the Company’s other public reports and filings with the Securities and Exchange Commission (the “SEC”). Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date made. The Company undertakes no obligation to publicly release the result of any revision of these forward-looking statements to reflect events or circumstances after the date they are made or to reflect the occurrence of unanticipated events.
This Report contains certain estimates and plans related to us and the industry in which we operate, which assume certain events, trends and activities will occur and the projected information based on those assumptions. We do not know that all of our assumptions are accurate. If our assumptions are wrong about any events, trends and activities, then our estimates for future growth for our business may also be wrong. There can be no assurance that any of our estimates as to our business growth will be achieved.
The following discussion and analysis should be read in conjunction with our financial statements and the notes associated with them contained elsewhere in this Report. This discussion should not be construed to imply that the results discussed in this Report will necessarily continue into the future or that any conclusion reached in this Report will necessarily be indicative of actual operating results in the future. The discussion represents only the best assessment of management.
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| ITEM 1. | BUSINESS |
Development of the Company
The Company was incorporated under the laws of Nevada on November 18, 2002 under the name Assure Data, Inc. after which it commenced operations as a comprehensive automated data backup and retrieval company for small and medium-sized businesses.
On June 4, 2008, with the approval of the Company’s Board of Directors and a majority of its shareholders, the Company filed a Certificate to Accompany Restated Articles and a Certificate of Amendment along with its Amended and Restated Articles of Incorporation (the “Amendment”). The Amendment pertained to a change in the Company’s capital structure. Prior to the Amendment, the Company was authorized to issue 100,000,000 shares of one class of stock, common stock, $0.001 par value per share (“Common Stock”). The Amendment authorized the Company to issue two classes of stock; 100,000,000 shares of Common Stock and 100,000,000 shares of preferred stock, $0.001 par value per share (“Preferred Stock”).
On November 12, 2009, the Company closed two Subscription Agreement transactions with Terry Harris and Timothy Barham, under which each of them acquired 6,680,000 newly issued shares of restricted Common Stock from the Company for a purchase price of $110,000 each, which was paid in cash. As a result of the transactions, Terry Harris and Timothy Barham each became the owner of approximately 44.5% of the then outstanding shares of Common Stock of the Company. These issuances resulted in a change of control of the Company. At the closing, the existing officers and directors of the Company, Robert Lisle and Max Kipness, acted to nominate Messrs. Harris and Barham to the Board of Directors and then resigned. As a result of the transaction, Terry Harris became President, Treasurer and a director of the Company and Timothy Barham became Vice President, Secretary and a director of the Company.
Subsequent to the change in control described above, the Company entered into a Settlement Agreement on November 13, 2009 (the “Settlement Agreement”) with its former President, Treasurer and director, Robert Lisle, pursuant to which the Company transferred to Mr. Lisle all assets and properties used by the Company in its data storage business, including cash, accounts receivable, intellectual property rights, computers and data storage devices, and use of the name “Assure Data” in exchange for the cancellation of debt of $59,961 owed by the Company to Mr. Lisle.
After the change of control, the Board of Directors resolved to change the principal operations of the Company and move its corporate address to 1837 Harbor Avenue, Memphis, Tennessee 38113. The Company changed its name to Frontier Beverage Company, Inc. on February 4, 2010 and has since abandoned its prior data storage business operations to focus on the development and distribution of alternative beverage and snack products.
On March 1, 2010, the Company entered into a Purchase Agreement (the “Agreement”) with Innovative Beverage Group Holdings, Inc., a Nevada corporation (“Innovative”) and a Trademark Assignment for the purchase of the intellectual property rights of a beverage created and developed by Innovative known as “Unwind.” See further information disclosed at “Item 1. Business – Intellectual Property.”
Though we have suspended operation in light of our inability to maintain adequate working capital, our current focus remains the development, marketing, sale and distribution of alternative beverage and snack products. We launched our first proprietary beverage in early 2010 and our first proprietary snack food in early 2011. Depending upon our ability to obtain future financing for such operations, we intend to continue develop, purchase or license additional proprietary beverages and snack products in various categories to provide consumers with a variety of fresh products in the New Age/Alternative Beverage and snack foods categories.
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The Company’s Common Stock is quoted on the OTC Market Groups, Inc. OTCQB (the “OTCQB”) under the symbol “FBEC.”
Overview of Business
Frontier Beverage Company, Inc. is in the business of developing, marketing and distributing New Age/Alternative Beverages and snack products. “New Age/Alternative Beverages” is an industry categorization for a group of products that include energy drinks/infused water, fruit juices and drinks, dairy and dairy substitutes, and bottled/canned teas. Our mission is to supply the highest quality New Age/Alternative Beverages and snack products at the most economical cost to distributors servicing the retail industry and directly to consumers through our website. We believe our service-oriented business model integrates the elements of research, development, product quality assurance, packaging/distribution efficiency, and advanced management systems to generate higher profit margins for our retailers.
Products
On March 1, 2010, we acquired certain intellectual property rights for a proprietary relaxation beverage created and developed by Innovative Beverage Group Holdings, Inc. known as UnWind Ultimate Relaxation™ (“UnWind”). UnWind is a light beverage designed to relax the consumer’s mind and body without the negative hang-over and side effects of alcohol and other substances. The Company views UnWind as the polar opposite of mainstream energy drinks. Whereas energy drinks generally give the consumer a short burst of energy, UnWind by contrast, contains ingredients believed to calm and relax consumers.
Our proprietary and unique UnWind formulation uses natural ingredients generally known for their calming properties. The main ingredients of melatonin, rose hips, valerian root, and passion flower are combined with the powerful antioxidants of Goji and Acai. Most of the principle ingredients of UnWind are generally regarded as safe (GRAS) by the Food and Drug Administration (“FDA”), meaning that most of the contents in UnWind are generally recognized, among qualified experts, as having been adequately shown to be safe under the conditions of its intended use. However, some of the ingredients are considered dietary ingredients and have not been evaluated by the FDA for safety, effectiveness, or purity. As a product that contains dietary ingredients, UnWind is considered a dietary supplement as defined by the Dietary Supplement Health and Education Act (DSHEA) of 1994. We believe UnWind is a beverage suitable for all adults participating in any lifestyle.
In 2011, we expanded our product offerings and began developing, marketing and distributing a new energy brownie snack product known as Up Snax Energy™ (“Up Snax”). Up Snax is a brownie snack product developed as an alternative to an energy beverage. We intend to sale Up Snax through distributors and small retailers who will order directly from the Company. No additional product offerings were added during 2012.
Overview of Industry
“New Age/Alternative Beverages” is an industry categorization for a group of beverage products that include energy drinks/infused water, fruit juices and drinks, dairy and dairy substitutes, energy drinks, sport drinks, and bottled/canned teas. In its annual beverage market survey for calendar year 2009, The Beverage World Publications Group (“Beverage World”), a global company that provides business intelligence to beverage producers, distributors and marketers (www.beverageworld.com), estimated that the New Age/Alternative Beverage market had sold approximately 365.9 million gallons, representing a 1.2% share of the overall beverage market.
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Competition and Buying Trends
The beverage industry is highly competitive. Competition in the New Age/Alternative Beverage category exists based on price, packaging, flavors, consumer acceptance of products, shelf space and new product development. In order to compete effectively in the beverage industry, we believe that we must produce products that stand out from the competition through taste, visual appearance, price, and product quality. We believe that our principal strength is our product quality and that we will face competition from companies who focus on price as opposed to quality. We will attempt to maintain a competitive edge through product quality and our secret blend of ingredients to create a relaxation beverage.
Our products are expected to compete with a wide variety of New Age/Alternative Beverages produced by companies that have substantially greater financial, marketing and distribution resources. Competition in the New Age/Alternative Beverage industry could have a material adverse effect on our products and business results if we are unable to gain the market share required for us to attain profitability.
Our products also compete with all other liquid refreshments, including those produced by large internationally known companies, all of which have greater financial and marketing resources.
Manufacturing
We do not manufacture our own products, but rely on third-party contract packers (“Co-packers”) to produce and package our products on an “as needed” basis. We have no long term agreement in place for the services and we intend to evaluate and potentially make arrangements with additional Co-packers to manufacture our products.
Governmental Regulations
The production and marketing of our beverages and snack products are subject to the rules and regulations of various federal, state and local health agencies, including in particular the U.S. Food and Drug Administration (“FDA”). The FDA also regulates labeling of our products. We have no regulatory notifications or actions pending at this time.
The production, distribution and sale of our products in the United States is subject to various federal and state regulations, including but not limited to: the Federal Food, Drug and Cosmetic Act; the Dietary Supplement Health and Education Act of 1994; the Occupational Safety and Health Act; various environmental statutes; and various other federal, state and local statutes and regulations applicable to the production, transportation, sale, safety, advertising, labeling and ingredients of such products.
Compliance with applicable federal and state regulations is crucial to the Company’s success. Although we believe that we are in compliance with applicable regulations, should the FDA or any state in which we operate amend its guidelines or impose more stringent interpretations of current laws or regulations, we may not be able to comply with these new guidelines. Such regulations could require the reformulation of certain products to meet new standards, market withdrawal or discontinuation of certain products we are unable to reformulate, imposition of additional record keeping requirements, expanded documentation regarding the properties of certain products, expanded or different labeling and/or additional scientific substantiation. Failure to comply with applicable requirements could result in sanctions being imposed on the Company or the manufacturers of any of our products, including but not limited to fines, injunctions, product recalls, seizures and criminal prosecution.
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Compliance with Environmental Laws
We currently outsource the production and distribution of our products and do not own or operate our own manufacturing facilities. As such, we do not believe that we are subject to any federal, state and local environmental laws and regulations which would have a material adverse effect upon our capital expenditures, net income or competitive position. We have not expended any capital resources on compliance with federal, state or local environmental laws since entering the beverage and snack product industry.
Intellectual Property
On March 1, 2010, the Company entered into a Purchase Agreement with Innovative Beverage Group Holdings, Inc., a Nevada corporation, for the purchase of the intellectual property rights for UnWind, which was created and developed by Innovative. In conjunction with the Purchase Agreement, the parties executed a Trademark Assignment which was filed with the United States Patent and Trademark Office (the “USPTO”) assigning us rights to trademarks for “Unwind Extreme Relaxation” and “Unwind.” Under the terms of the Purchase Agreement, we purchased (i) all rights to the UnWind flavor, including all rights to the proprietary formula used to manufacture UnWind, (ii) the UnWind name and trademark, and all other trademarks, service marks, copyrights, patents and other intellectual property associated therewith, and (iii) all documentation used in and/or necessary for the manufacture and marketing of the UnWind beverage, including but not limited to manufacturing instructions, ingredient lists, and marketing literature or similar material created for UnWind (the “Purchased Property”). As consideration for the Purchased Property, we agreed to pay Innovative or its assigns: (i) sixty cents ($0.60) for every twenty-four (24) cans or bottles (or such other beverage container in which Frontier chooses to sell the UnWind product) of the UnWind flavor brand, and (ii) twelve cents ($0.12) per 12-pack box of any additional delivery system of the UnWind flavor brand (and/or any beverages developed using any of the intellectual property rights included in the Purchased Property) that the Company sells during each fiscal quarter (the “Royalty Payments”).
The Company’s obligation to pay the Royalty Payments to Innovative is perpetual. The Company is obligated to provide a detailed breakdown of product sold during each quarter with Royalty Payments due and payable within thirty (30) days of the end of each fiscal quarter. In the event that UnWind is sold to a third party, the Company’s obligation to make Royalty Payments shall cease. Royalty Payments will not be paid to Innovative on samples or slotting product or product used in lieu of money.
Under terms of the Purchase Agreement, the Company has the right to sell, transfer or convey the Purchased Property to a third-party purchaser (a “Future Sale”). Upon such a Future Sale, the Company is obligated to pay Innovative three and one-half percent (3.5%) of the sales price it receives from such sale of the Purchased Property and/or the sale of any right thereof. Such payment will be due and payable to Innovative within ten (10) days of the closing of any such Future Sale. If the consideration that the Company agrees to receive through a proposed Future Sale involves anything but a lump sum payment of cash, then the Company must allocate three and one-half percent (3.5%) of any consideration received directly to Innovative. Upon completion of a Future Sale transaction, the Company’s obligations to Innovative will cease.
We also have rights to a trademark for “Unwind Ultimate Relaxation,” and applications for trademark registration of “Relaxation Station,” “Relaxing You Not Crashing You,” “Tired of Being Wired,” “Unwind Bulldozer,” and “Unwind Extreme Relaxation.”
Research and Development
During 2012 and 2011, the Company dedicated no funds to research and development. However, in light of our operational focus, we anticipate that we will allocate substantial funds, to the extent available, for future research and development of New Age/Alternative Beverage products.
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Employees
We currently employ one full-time employee and from time to time we also use independent contractors on an as-needed basis for our operations.
Additional Information
Our Internet website is located at http://www.frontierbeverage.com. Reference to our Internet website herein does not constitute incorporation by reference in this Annual Report of the information contained on or hyperlinked from our Internet website and such information should not be considered part of this Annual Report.
We are required to file annual reports on Form 10-K and quarterly reports on Form 10-Q with the SEC on a regular basis, and are required to disclose certain material events in a current report on Form 8-K. The public may read and copy any materials that we file with the SEC at the Public Reference Room at the SEC located at 100 F Street NE, Washington, DC 20549, on official business days during the hours of 10 a.m. to 3 p.m. The public may also obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.
| ITEM 1A. | RISK FACTORS |
The Company is a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act, and as such, is not required to provide the information required under this Item.
| ITEM 1B. | UNRESOLVED STAFF COMMENTS |
None.
| ITEM 2. | PROPERTIES |
The Company’s principal offices are located at 1837 Harbor Avenue, Memphis, Tennessee 38113, in office space owned by Ledbetter Packing Company (“Ledbetter”), one of our product distributors. Terry Harris, Frontier’s President, Treasurer and Director, is also a principal shareholder and vice president of Empire Foods, Inc., the parent of Ledbetter. Mr. Harris made arrangements with Ledbetter for Frontier to use these principal offices at no charge through June of 2010, after which we began paying rent on a month-to-month basis at a rate of $1,500 per month to Ledbetter beginning in July 2010. There is no written lease agreement setting forth the terms of our lease of office space from Ledbetter and the arrangement can be terminated at any time by us or Ledbetter. Management believes this office space is adequate for the Company’s current operational needs. If needed, we believe suitable alternative office space could be obtained by us at reasonable rates.
| ITEM 3. | LEGAL PROCEEDINGS |
There are no material pending legal or governmental proceedings relating to our Company or properties to which we are a party, and to our knowledge, there are no material proceedings to which any of our directors, executive officers, affiliates or shareholders are a party adverse to us or have a material interest adverse to us.
| ITEM 4. | MINE SAFETY DISCLOSURES. |
Not applicable.
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| ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market Information
Our Common Stock is quoted on the OTC Market Groups, Inc. OTCQB under the symbol “FBEC.” The following table shows the high and low bid information for our Common Stock for each quarter ended during the last two fiscal years. This information has been obtained from the OTCQB. The quotations below reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions.
| Quarter Ended | High | Low | ||||||
| Fiscal Year 2012 | ||||||||
| Fourth Quarter | $ | 0.04 | $ | 0.02 | ||||
| Third Quarter | $ | 0.05 | $ | 0.04 | ||||
| Second Quarter | $ | 0.05 | $ | 0.05 | ||||
| First Quarter | $ | 0.07 | $ | 0.04 | ||||
| Fiscal Year 2011 | ||||||||
| Fourth Quarter | $ | 0.13 | $ | 0.04 | ||||
| Third Quarter | $ | 0.17 | $ | 0.12 | ||||
| Second Quarter | $ | 0.35 | $ | 0.12 | ||||
| First Quarter | $ | 0.24 | $ | 0.10 | ||||
On April 8, 2013, the last sale price of our Common Stock reported by the OTCQB was $0.02.
Holders
Records of Securities Transfer Corporation, our transfer agent, indicate that as of April 8, 2013, we had 33 record holders of our Common Stock. The number of registered shareholders excludes any estimate by us of the number of beneficial owners of shares of Common Stock held in “street name.” As of April 8, 2013, we had 18,781,000 shares of our Common Stock outstanding.
Dividends
We do not anticipate that we will declare or pay any dividends in the foreseeable future. Our current policy is to retain earnings, if any, to fund operations, and the development and growth of our business. Any future determination to pay cash dividends will be at the discretion of our Board of Directors and will be dependent upon our financial condition, operating results, capital requirements, applicable contractual restrictions, restrictions in our organizational documents, and any other factors that our Board of Directors deems relevant.
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Securities Authorized for Issuance under Equity Compensation Plans
On May 22, 2008, shareholders representing more than a majority of the Company outstanding shares voted to approve the Company’s 2008 Equity Incentive Plan (the “Plan”). The total number of shares of Common Stock that may be subject to awards under the Plan will not exceed five million shares, subject to customary adjustments as provided in the Plan. The Plan is generally designed to meet the requirements of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), in order to preserve the Company’s ability to take compensation expense deductions in connection with the exercise of options granted and the vesting of performance-based restricted stock under the Plan. The Plan is to be administered by a committee comprised of not less than two individuals appointed by the Board of Directors, each of whom is (i) to the extent required by Rule 16b-3 and the Exchange Act, a “non-employee director,” and (ii) to the extent required by Code Section 162(m), an “outside director.” Until the Company has independent directors, the whole Board of Directors will make such rules and regulations and establish such procedures for the administration of the Plan as it deems advisable. For options issued under the plan, the exercise price may not be less than the fair market value of the stock on the date of grant of the option and the exercise period may not be longer than ten (10) years from the date of the option. To date, no stock awards or stock options have been issued under the Plan.
The following table sets forth certain information, as of December 31, 2012, concerning securities authorized for issuance under the Company’s only equity compensation plan.
| Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | |||||||||
| Equity compensation plans approved by security holders | -0- | -0- | 5,000,000 | |||||||||
| Equity compensation plans not approved by security holders | -0- | -0- | -0- | |||||||||
| Total | -0- | -0- | 5,000,000 | |||||||||
Recent Sales of Unregistered Securities
There are no unreported sales of unregistered securities during the year ended December 31, 2012.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
There were no repurchases of equity securities by the Company or affiliated purchasers during the year ended December 31, 2012.
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| ITEM 6. | SELECTED FINANCIAL DATA |
The Company is a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act, and as such, is not required to provide the information required under this Item.
| ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Cautionary Notice Regarding Forward Looking Statements
This Report contains a number of forward-looking statements that reflect management’s current views and expectations with respect to our business, strategies, products, future results and events and financial performance. All statements made in this Report other than statements of historical fact, including statements that address operating performance, events or developments that management expects or anticipates will or may occur in the future, statements related to distributor channels, volume growth, revenues, profitability, new products, adequacy of funds from operations, statements expressing general optimism about future operating results and non-historical information, are forward looking statements. In particular, the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “may,” “will,” variations of such words, and similar expressions identify forward-looking statements, but are not the exclusive means of identifying such statements and their absence does not mean that the statement is not forward-looking. These forward-looking statements are subject to certain risks and uncertainties, including those discussed herein. Our actual results, performance or achievements could differ materially from historical results as well as those expressed in, anticipated or implied by these forward-looking statements. We do not undertake any obligation to revise any forward-looking statements whether because of new information, future events or otherwise.
Readers should not place undue reliance on these forward-looking statements, which are based on management’s current expectations and projections about future events, are not guarantees of future performance, are subject to risks, uncertainties and assumptions (including those described below) and apply only as of the date of this Report. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors that could cause or contribute to such differences include those discussed in press releases and other communications to shareholders issued by us from time to time which attempt to advise interested parties of the risks and factors that may affect our business.
Overview
In November 2009, the Company abandoned its prior data storage business operations and is now focused exclusively on developing, marketing and distributing New Age/Alternative Beverages and snack products. The descriptive term “New Age/Alternative Beverages” describes products that include energy drinks/infused water, fruit juices and drinks, dairy and dairy substitutes, and bottled/canned teas. On February 4, 2010, the Company changed its name to Frontier Beverage Company, Inc.
In March 2010, we acquired certain intellectual property rights for a proprietary relaxation beverage known as UnWind™. Assuming we are able to finance such operations, we also intend to develop additional proprietary beverage products in various categories to provide consumers with an array of fresh and unique concepts in the New Age/Alternative Beverage category.
In the first quarter of 2011 management expanded the Company’s product offerings and began developing, marketing and distributing Up Snax. Our mission is to supply the highest quality New Age/Alternative Beverages and unique snack products at the most economical cost to distributors servicing the retail industry and directly to consumers through our website. We believe our service-oriented business model integrates the elements of research, development, product quality assurance, packaging/distribution efficiency, and advanced management systems to generate higher profit margins for our retailers.
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We need additional capital to pursue our business plan and conduct our operations; however, the ability to obtain the necessary and appropriate funding is uncertain. In light of our lack of working capital, we have been unable to acquire inventory or effectively market our products and have been forced to suspend much of our operations. As a result, we have had no sales since the first quarter 2012. Nevertheless, in the event that we are able to obtain financing, we intend to expand our product line, either through development or acquisition, and intend to hire sufficient sales personnel necessary for us to revitalize and sustain distribution network for our products. We believe that we will require significant additional capital resources from outside sources including equity and/or debt financings in order to meet our goals and continue operations. We believe we need to raise between $300,000 and $500,000 in order to implement our plans to ramp up operations.
Basis of Presentation of Financial Information
The accompanying financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”), which contemplate continuation of the Company as a going concern, which is dependent upon the Company’s ability to establish itself as a profitable business. At December 31, 2012, the Company has an accumulated deficit of approximately $2,200,000 and for the years ended December 31, 2012 and 2011, incurred net losses of approximately$107,000 and $631,000, respectively. Management’s plans with regard to operations include the marketing of the Company’s beverage and snack products and obtaining additional funds through the issuance of securities or borrowings. Accordingly, management is of the opinion that marketing combined with additional funding will result in improved operations and cash flow in 2013 and beyond. However, there can be no assurance that management will be successful in obtaining additional funding or in attaining profitable operations.
The financial statements do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should the Company be unable to continue in operation.
Liquidity and Capital Resources
As of December 31, 2012, our working capital deficit was approximately $523,000, our accumulated deficit was approximately $2,240,000 and our stockholders’ deficit was approximately $523,000. Operating loss was approximately $107,000 and $631,000 for the years ended December 31, 2012 and 2011, respectively. Net cash outlay from operations was approximately $36,000 and $150,000 for the years ended December 31, 2012 and 2011, respectively.
We began implementing our current business plan in November 2009 and have not yet attained a level of revenue to allow us to meet our current overhead. We have historically reported net losses from operations and negative cash flows. Additionally, we have not yet attained a level of revenues to allow us to meet our current overhead and we had zero cash at December 31, 2012. In light of our lack of working capital, we have been unable to acquire inventory or effectively market our products and have been forced to suspend much of our operations. As a result, we have had no sales since the first quarter of 2012. As such, in order to resume and scale up the operations of the Company, we believe we must obtain additional financing and achieving a positive cash flow while maintaining adequate liquidity. In the event that we are able to obtain the capital necessary to implement our current marketing plan, we do not contemplate attaining profitable operations until at least 2014, and there is no assurance that such an operating level can ever be achieved. We are dependent upon obtaining additional financing in order to adequately fund working capital, infrastructure, manufacturing expenses and sales and marketing expenses to gain market recognition, so that we can achieve a level of revenue adequate to support our cost structure, none of which can be assured.
We can make no assurances that additional financing will be available to us on favorable terms or at all. Additionally, if additional capital is raised through the sale of equity or convertible debt securities, the issuance of such securities would result in dilution to our existing stockholders.
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We believe that over the next twelve (12) months, we will be able to meet the costs of resuming operations with funds generated through debt and equity financing. Although management believes that the required financing to fund product development and increasing inventory levels can be secured at terms satisfactory to the Company, there is no guarantee these funds will be made available, and if funds are available, that the terms will be satisfactory to the Company.
Our change in cash is comprised of the following components for the years ended December 31:
| 2012 | 2011 | |||||||
| Proceeds from notes payable related-parties | $ | 46,476 | $ | 221,411 | ||||
| Capital contributions | 18,000 | 18,000 | ||||||
| Sources of cash and cash equivalents | 64,476 | 239,411 | ||||||
| Net cash used in operating activities | 36,126 | 150,859 | ||||||
| Repayment of debt | 28,605 | 88,264 | ||||||
| Cash used in other investing activities | -0- | 33 | ||||||
| Uses of cash and cash equivalents | 64,731 | 239,156 | ||||||
| Increase (decrease) in cash | $ | (255 | ) | $ | 255 | |||
During the year ended December 31, 2012, working capital deficit increased by $612,666 as follows:
| December 31, | ||||||||||||
| 2012 | 2011 | Change | ||||||||||
| Current assets | $ | -0- | $ | 41,853 | $ | (41,853 | ) | |||||
| Current liabilities | 523,225 | 781,387 | (258,162 | ) | ||||||||
| Working capital deficit | $ | (523,225 | ) | $ | (739,534 | ) | $ | (216,309 | ) | |||
The decrease in working capital deficit is primarily a result of the forgiveness of accrued compensation related to the Company’s officers.
Results of Operations
Year ended December 31, 2012 compared to year ended December 31, 2011
| 2012 | 2011 | Change | |||
| Revenue | $71,252 | $259,245 | $(187,993) | ||
| Cost of goods sold | 7,030 | 235,339 | 228,309 | ||
| Writeoff of beverage inventory | 29,743 | 167,130 | 137,387 | ||
| Operating expenses | 110,777 | 458,514 | 347,737 | ||
| Total expenses | 147,550 | 860,983 | 713,433 | ||
| Operating loss | (76,298) | (601,738) | 525,440 | ||
| Other expense, net | (30,489) | (28,928) | (1,561) | ||
| Net loss | $(106,787) | $(630,666) | $523,879 |
| 11 |
Revenue and Cost of Goods Sold
Revenue for year ended December 31, 2012 was down $187,993, or 73%, from the year ended December 31, 2011. This decrease was directly attributable to a decline in beverage sales and only partially offset by the addition of the UpSnax product line. Cost of Goods Sold decreased $228,309, or 97%, from year ended December 31, 2012 compared to the year ended December 31, 2011. This change is directly a result of the sale of previously written off beverage inventory.
Operating and Beverage Writeoff Expenses
The Company’s principal operating costs include the following items as a percentage of total expense.
| Year Ended December 31, | ||||||||
| 2012 | 2011 | |||||||
| Human resource costs, (accrued officers’ compensation) | -0- | % | 36 | % | ||||
| Writeoff of beverage inventory | 21 | % | 27 | % | ||||
| Professional fees for legal, accounting and consulting | 37 | % | 18 | % | ||||
| Non-cash costs (occupancy expense) | 13 | % | 3 | % | ||||
| Other | 29 | % | 16 | % | ||||
Operating expenses decreased by $347,787 (76%) as a result of the following items:
| Decrease in human resource costs | $ | (224,877 | ) | |
| Decrease in professional fees | (54,989 | ) | ||
| Decrease in bad debt expense | (35,041 | ) | ||
| Net decrease in all other | (32,880 | ) | ||
| $ | (347,787 | ) |
Human resource costs decrease as a result of the forgiveness of officer’s compensation by the current and former officers of the Company.
Professional fees decreased primarily as a result of the elimination of consulting services related marketing, financing and shareholder relations.
Other Expense, net
Other expense increased slightly as a result of an increase in interest expense.
Off Balance Sheet Arrangements
We do not have any off balance sheet arrangements.
| 12 |
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Our Company is a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act, and as such, is not required to provide the information required under this Item.
| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
All financial statements required by this Item are listed in Part IV, Item 15 of this Form 10-K, are presented beginning on Page F-1, and are incorporated herein by this reference.
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
| ITEM 9A. | CONTROLS AND PROCEDURES |
Management’s Annual Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. The Company’s internal control over financial reporting includes those policies and procedures that:
| • | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; | |
| • | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and | |
| • | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In connection with the preparation of our annual financial statements, we have assessed the effectiveness of internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or the COSO Framework. Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of those controls. Based on this evaluation, management has determined that as of December 31, 2012, our internal controls over financial reporting were not effective and there were weaknesses in our internal control over financial reporting as outlined below.
| 13 |
Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports filed or submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported, within the time period specified in the SEC’s rules and forms and is accumulated and communicated to the Company’s management, as appropriate, in order to allow timely decisions in connection with required disclosure.
Evaluation of Disclosure Controls and Procedures
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Mr. Harris, the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) (the Company’s principal financial and accounting officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report.
Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2012 to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure, due to the material weaknesses described below.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
The Company believes its weaknesses in internal controls and procedures is due to the Company’s lack of sufficient personnel with expertise in the area of SEC, generally accepted accounting principles (GAAP) and tax accounting procedures. In addition, the Company lacks the personnel structure, size and complexity to segregate duties sufficiently for proper controls.
The Company is currently without sufficient funds to hire additional personnel with expertise in these areas and to segregate duties for proper controls and until such time as additional personnel are hired, the Company believes that it will continue to recognize a weakness in its internal controls and procedures.
The Company plans to hire additional personnel to properly implement a control structure when and if the appropriate funds become available. In the meantime, the Chief Executive Officer and Chief Financial Officer will continue to perform or supervise the performance of additional accounting and financial analyses and other post-closing procedures including detailed validation work with regard to balance sheet account balances, additional analysis on income statement amounts and managerial review of all significant account balances and disclosures, to ensure that the Company’s Annual Report and the financial statements forming part thereof are in accordance with accounting principles generally accepted in the United States of America.
| 14 |
Changes in Internal Control Over Financial Reporting
There were no changes in our internal controls over financial reporting during the fourth quarter of the year ended December 31, 2012 that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.
Attestation Report of the Registered Public Accounting Firm
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, wherein non-accelerated filers are exempt from Sarbanes-Oxley internal control audit requirements.
| ITEM 9B. | OTHER INFORMATION |
None.
| 15 |
| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE |
Directors and Executive Officers
The following individuals serve or have served during the year ended December 31, 2012 as directors and executive officers of our Company. All directors of our Company hold office until the next annual meeting of shareholders or until their successors have been elected and qualified. The executive officers of our Company are appointed by our Board of Directors and hold office until their death, resignation or removal from office.
|
Executive Officers and Directors |
Age |
Date of Appointment |
Position(s) Held |
| Terry Harris | 41 | November 12, 2009 | President, Treasurer and Director |
| David Harris* | 34 | November 15, 2011 | Vice President, Secretary and Director |
* Mr. David Harris resigned from all positions with the Company on March 21, 2013.
Terry Harris was appointed to the Board of Directors pursuant to the terms of a Subscription Agreements between Mr. Harris and the Company dated October 30, 2009, pursuant to which Mr. Harris acquired 6,680,000 shares of Company Common Stock.
David Harris resigned from all positions with the Company on March 21, 2013 resulting in Mr. Terry Harris remaining as the Company’s sole officer and director.
There are no other arrangements or understandings between our sole officer and director and any other person pursuant to which he was or is to be selected as a director or officer, and there are no arrangements, plans or understandings as to whether non-management shareholders will exercise their voting rights to continue to elect the current Board of Directors. There are also no arrangements, agreements or understandings to our knowledge between non-management shareholders that may directly or indirectly participate in or influence the management of our affairs.
The following is a brief account of the business experience during at least the past five years of our current sole officer and director.
Terry Harris - President, Treasurer and Director
On November 12, 2009, Terry Harris was appointed as President, Treasurer and a Director of the Company and he has been serving as the Company’s sole officer and director since March 21, 2013. Mr. Harris brings over 20 years of experience to the Company, as he has been a principal working in all facets of two businesses controlled by his family, Empire Foods, Inc (“Empire”) and its subsidiary, Ledbetter Packing. Mr. Harris currently serves as Vice President of Empire. Empire is a full service, super-regional, independently-owned sales and marketing company providing services to the consumer packaged goods industry. Empire is headquartered in Cincinnati, Ohio and is one of the largest privately held food brokers in the U.S. Founded in 1959, Ledbetter specializes in custom co-packing of either ingredients or finished goods for consumer meat products. Ledbetter also manufactures meat products found in retail grocery outlets throughout the U.S. including, but not limited to Wal-Mart, Kroger, and Food Lion. In 2008, Mr. Harris and Timothy Barham founded HBB, LLC, a Tennessee limited liability company (“HBB”) to serve as the master worldwide wholesaler of the New Age/Alternative Beverage “drank,” which is a relaxation beverage marketed by Innovative that is similar to UnWind™. HBB has since diversified and is involved in the development and distribution of other products in addition to beverages. Mr. Harris beneficially owns half of HBB and serves as a principal of the company. HBB now oversees, manages and facilitates the sales and marketing of drank on a global scale as well as other non-beverage products. HBB now sells product to large beverage companies and distributors including Anheuser Busch, Miller and Pepsico as well as a number of large and midsize independent distributors.
| 16 |
Significant Employees
The Company has no significant employees.
Family Relationships
None.
Involvement In Certain Legal Proceedings
To the best of our knowledge, during the past ten years, our sole officer and director was not involved in any legal proceedings that are material to an evaluation of his ability or integrity as an officer and director.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires each of our officers and directors and each person who owns more than 10% of a registered class of our equity securities to file with the SEC an initial report of ownership and subsequent reports of changes in such ownership. Such persons are further required by SEC regulations to furnish us with copies of all Section 16(a) forms (including Forms 3, 4 and 5) that they file. Based solely on our review of the copies of such forms received by us with respect to fiscal year 2012, or written representations from certain reporting persons, other than as described below, we believe all of our officers and directors and persons who own more than 10% of our Common Stock have met all applicable filing requirements. Mr. David Harris, who was appointed to serve as a Director on November 15, 2011 and resigned March 21, 2013, filed one late Form 3 in April 2012.
Code of Ethics for Financial Executives
On December 31, 2009, the Company’s Board of Directors approved a Code of Ethics for Financial Executives for 2010 to be signed by the Company’s principal executive officer, principal financial officer, and any other senior officers with financial oversight responsibilities. A form of the Code of Ethics for Financial Executives is attached as Exhibit 14.1 to the Company’s Annual Report on Form 10-K filed with the Commission on April 13, 2010. The Company will provide a copy of this policy free of charge upon written request to Terry Harris, President, Frontier Beverage Company, Inc., 1837 Harbor Avenue, Post Office Box 13322, Memphis, Tennessee 38113.
Board Committees and Financial Expert
The Company does not currently maintain separate audit, nominating or compensation committees. When necessary, the entire Board of Directors performs the tasks that would be required of those committees. Furthermore, we do not have a qualified financial expert serving on the Board of Directors at this time, because we have not been able to hire a qualified candidate and we have inadequate financial resources at this time to hire such an expert.
| 17 |
| ITEM 11. | EXECUTIVE COMPENSATION |
Summary Compensation Table
The table below shows compensation information for services rendered in all capacities for the fiscal years ended December 31, 2012 and 2011. The following information includes the dollar value of base salaries, bonus awards, the number of stock options granted and certain other compensation, if any, whether paid or deferred.
The below table lists the compensation of the Company’s principal executive officers who served the Company in such capacities during the fiscal year ended December 31, 2012. The following information includes the dollar value of base salaries, bonus awards, the number of stock options granted and certain other compensation, if any, whether paid or deferred.
| SUMMARY COMPENSATION TABLE | |||||
| Name and Principal Position | Fiscal Year | Salary ($) | Bonus ($) | All other Compensation ($) | Total ($) |
|
Terry Harris(1) President, Treasurer and Director |
2012 |
-0- |
-0- |
-0- |
-0- |
| 2011 | 120,000 | -0- | -0- | 120,000 | |
|
David Harris(2) Vice Pres., Secretary and Director |
2012 |
-0- |
-0- |
-0- |
-0- |
| 2011 | -0- | -0- | -0- | -0- | |
| (1) | Terry Harris was elected President, Treasurer and Director on November 12, 2009. In November 2012, Mr. Harris forgave approximately $305,000 of accrued officer compensation. |
| (2) | David Harris was elected Vice President, Secretary and Director on November 15, 2011 and resigned on March 21, 2013. |
Narrative Disclosure to Summary Compensation Table
Employment Agreement with Terry Harris
Terry Harris, who serves as a Director and our President and Treasurer, entered into an Employment Agreement with the Company (the “Harris Employment Agreement”), setting forth the terms of his service as President and Treasurer, as well as such other services equal with his position which may be assigned to him by the Board of Directors of the Company. Under the Harris Employment Agreement, which was made retroactively effective as of January 1, 2010, Mr. Harris’ compensation is set at $120,000 annually, and he is entitled to a nondiscretionary annual bonus equal to $1.00 for each case of beverage product sold or distributed by the Company, less $120,000. The annual bonus shall be paid 30 days after the end of the year or Mr. Harris’ termination of employment with the Company, unless otherwise agreed to by Mr. Harris and the Company. If the Harris Employment Agreement is terminated, for any reason, Mr. Harris shall receive a pro-rated amount of the bonus based on the reduced bonus period. Both the base salary and the annual bonus may be increased or decreased at the sole discretion of the Board of Directors of the Company. Mr. Harris is also entitled to participate in and receive benefits under any plan or arrangement made available by the Company to its employees, including any medical, dental, disability, and life insurance and 401(k) programs. Furthermore, Mr. Harris’ employment with the Company is at-will, which means that either the Company or Mr. Harris may terminate the Harris Employment Agreement at any time, with or without reason or notice. The Harris Employment Agreement was approved by the Board of Directors of the Company on June 30, 2010.
| 18 |
Outstanding Equity Awards
There are no stock options or other equity awards outstanding under the Company’s 2008 Equity Incentive Plan. For a description of the Company’s 2008 Equity Incentive Plan, see “ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES - Securities Authorized for Issuance under Equity Compensation Plans.”
Compensation of Directors
The Company does not pay compensation to its directors for their service at this time. We have no present formal plan for compensating our directors for their service in their capacity as such.
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The following table sets forth the ownership, as of April 8, 2012, of our Common Stock by each person known by us to be the beneficial owner of more than 5% of our outstanding Common Stock, each of our directors and executive officers; and all of our directors and executive officers as a group. The information presented below regarding beneficial ownership of our Common Stock has been presented in accordance with the rules of the SEC and is not necessarily indicative of ownership for any other purpose. This table is based upon information derived from our stock records. Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, we believe that each of the shareholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned. Except as otherwise listed below, the address of each person is c/o Frontier Beverage Company, Inc., 1837 Harbor Avenue, Post Office Box 13322, Memphis, Tennessee 38113. Applicable percentages are based upon 18,781,000 shares of Common Stock outstanding as of April 8, 2012.
| Beneficial Ownership | ||
| Name of Beneficial Owner | Shares | Percentage |
|
Terry Harris |
7,285,500 |
38.79% |
|
All Current Officers and Directors as a group |
7,285,500 |
38.79% |
| Timothy
Barham Former Officer and Director |
7,285,500 |
38.79% |
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
Transactions with Related Persons
During the year ending December 31, 2012, the Company received an aggregate, net of repayment, of $5,560 and $9,311, respectively from HBB, LLC (“HBB”) and Baked World, LLC (“Baked World”), both Tennessee limited liability company beneficially owned and controlled by Terry Harris, the Company’s sole officer and director. The Company agreed to pay interest on the loans at eight percent (8%). The loans are due on demand. Also during 2012, Mr. Harris advanced the Company $3,000. As of December 31, 2012, the Company was indebted to HBB, Baked World and Mr. Harris for principal and interest totaling $377,277, $20,219 and $3,362, respectively
During 2012 and 2011, the Company was provided office space, the use of office equipment and accounting personnel by HBB, for which HBB charged the Company $1,500 per month which amounts are included in operating expense and recorded as capital contribution on the accompanying financial statements.
| 19 |
Director Independence
Our securities are not currently listed on a national securities exchange or interdealer quotation system which would require that the Board of Directors include a majority of directors that are “independent.” Furthermore, no members of our Board of Directors would qualify as “independent” directors as such term is defined in the NASDAQ Global Market listing standards.
| ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Audit Fees
We incurred aggregate fees and expenses of $27,000 and $18,000 for fiscal 2012 and 2011, respectively, for services rendered by Sherb & Co. LLP for the audit or review of our 2012 and 2011 financial statements.
Audit-Related Fees
We incurred no fees or expenses for the 2012 and 2011 fiscal years for professional services rendered by Sherb & Co. LLP other than the fees disclosed above under the caption “Audit Fees” for assurance and related services relating to performance of the audit or review of our financial statements.
Tax Fees
We incurred no fees or expenses for the 2012 and 2011 fiscal years for professional services rendered by Sherb & Co. LLP for tax compliance, tax advice, or tax planning.
All Other Fees
We incurred no other fees or expenses for the 2012 and 2011 fiscal years for any other products or professional services rendered by Sherb & Co. LLP other than as described above.
Administration of Engagement of Auditor
The Company does not currently maintain a separate audit committee. When necessary, the entire Board of Directors performs the tasks that would be required of such committees. As such, at its regularly scheduled and special meetings, the Board of Directors considers and pre-approves any audit and non-audit services to be performed by our independent accountants.
| 20 |
| ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
| (a) | Financial Statements |
The following documents are filed as part of this Annual Report on Form 10-K beginning on the pages referenced below:
| (b) | Exhibits |
The following exhibits are filed with this Annual Report on Form 10-K or are incorporated by reference as described below.
| Exhibit | Description |
| 3.1 | Amended and Restated Articles of Incorporation filed June 3, 2008 (incorporated by reference to Exhibit 3.1 of the Company’s Annual Report on Form 10-K filed with the Commission on April 3, 2009). |
| 3.2 | Certificate of Amendment to the Articles of Incorporation effective February 4, 2010 (to change name to Frontier Beverage Company, Inc.) (incorporated by reference to Exhibit 3.2 of the Company’s Annual Report on Form 10-K filed with the Commission on April 13, 2010). |
| 3.3 | Bylaws (incorporated by reference to Exhibit 3.2 of the Company’s Registration Statement on Form SB-2 filed with the Commission on December 16, 2004). |
| 3.4 | Amendment to Bylaws of Frontier Beverage Company, Inc. (f/k/a Assure Data, Inc.) (incorporated by reference to Exhibit 3.2 of the Current Report on Form 8-K filed with the Commission on August 20, 2010). |
| 10.1 | Purchase Agreement between Frontier Beverage Company, Inc. and Innovative Beverage Group Holdings, Inc. dated March 1, 2010 (incorporated by reference to Exhibit 10.0 of the Company’s Report on Form 8-K filed with the Commission on March 5, 2010). |
| 10.2 | Demand Promissory Note payable to HBB, LLC dated November 12, 2009 (incorporated by reference to Exhibit 10.6 of the Company’s Annual Report on Form 10-K filed with the Commission on April 13, 2010). (1) |
| 10.3 | Contract by and Between Beckerman and Frontier Beverages, dated effective as of March 15, 2010 (incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 13, 2010). |
| 10.4 | Employment Agreement with Terry Harris (incorporated by reference to Exhibit 10.1 of the Company’s Report on Form 8-K filed with the Commission on July 7, 2010). (1) |
| 10.5 | Employment Agreement with Timothy Barham (incorporated by reference to Exhibit 10.2 of the Company’s Report on Form 8-K filed with the Commission on July 7, 2010). (1) |
| 10.6 | Universal Note and Security Agreement by and among Frontier Beverage Company, Inc. and Empire Food Brokers, Inc. (Borrowers) and Trust One Bank (Lender) dated June 23, 2010. (incorporated by reference to Exhibit 10.5 of the Company’s Quarterly Report on Form 10-Q filed with the Commission on August 16, 2010). (1) |
| 21 |
| 10.7 | Demand Promissory Note payable to Terry Harris dated April 15, 2010 (incorporated by reference to Exhibit 10.6 of the Company’s Quarterly Report on Form 10-Q filed with the Commission on August 16, 2010).(1) |
| 10.8 | Demand Promissory Note payable to Timothy Barham dated May 12, 2010 (incorporated by reference to Exhibit 10.7 of the Company’s Quarterly Report on Form 10-Q filed with the Commission on August 16, 2010). (1) |
| 10.9 | Independent Consulting Agreement with Halter Capital Corporation effective as of November 12, 2009 (incorporated by reference to Exhibit 10.2 of the Company’s Report on Form 8-K filed with the Commission on November 13, 2009). |
| 14.1 | Code of Ethics (incorporated by reference to Exhibit 14.1 of the Company’s Annual Report on Form 10-K filed with the Commission on April 13, 2010). |
| 31.1 | Certification of Principal Executive Officer of Periodic Report pursuant to Rule 13a-14a/Rule 14d-14(a).* |
| 31.2 | Certification of Principal Financial Officer of Periodic Report pursuant to Rule 13a-14a/Rule 14d-14(a).* |
| 32.1 | Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350.* |
| 32.2 | Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350.* |
* Filed herewith.
(1) Signifies a management agreement.
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.
| DATE: April 15, 2013 | FRONTIER BEVERAGE COMPANY, INC. | |
| By: | /s/ Terry Harris | |
| Terry Harris | ||
| President and Treasurer (Principal Executive Officer) (Principal Financial Officer) (Principal Accounting Officer) | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| SIGNATURE | TITLE | DATE | ||
| /s/ Terry Harris | President, Treasurer and Director (Principal | April 15, 2013 | ||
| Terry Harris | Executive Officer, Principal Financial Officer and Principal Accounting Officer) |
| 22 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Frontier Beverage Company, Inc.
We have audited the accompanying balance sheet of Frontier Beverage Company, Inc., for the year ended December 31, 2012 and the related statement of operations, stockholders’ deficit and cash flows for the year ended December 31, 2012. These financial statements are the responsibility of Frontier Beverage Company, Inc’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Frontier Beverage Company, Inc., as of December 31, 2012 and the results of its operations and its cash flows for the year ended December 31, 2012, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has an accumulated deficit of $2,242,268 through December 31, 2012, and a net loss of $106,787 at December 31, 2012. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are described in note A. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.
| /s/ RBSM LLP | |
| Certified Public Accountants | |
| New York, New York | |
| April 15, 2013 |
| F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Frontier Beverage Company, Inc.
We have audited the accompanying balance sheet of Frontier Beverage Company, Inc., for the year ended December 31, 2011 and the related statement of operations, stockholders’ deficit and cash flows for the year ended December 31, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Frontier Beverage Company, Inc., as of December 31, 2011 and the results of its operations and its cash flows for the year ended December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in note A to the financial statements, the Company has an accumulated deficit of $2,135,481 through December 31, 2011, and a net loss of $630,666 at December 31, 2011. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 1. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.
| /s/ Sherb & Co., LLP | |
| Certified Public Accountants | |
| New York, New York | |
| April 15, 2012 |
| F-2 |
The accompanying footnotes are an integral part of these financial statements.
| F-3 |
The accompanying footnotes are an integral part of these financial statements.
| F-4 |
The accompanying footnotes are an integral part of these financial statements.
| F-5 |
The accompanying footnotes are an integral part of these financial statements.
| F-6 |
FRONTIER BEVERAGE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND BUSINESS
Frontier Beverage Company, Inc., f/k/a Assure Data, Inc. (the “Company”) is a Nevada corporation that was formed in November 2002 and commenced operations in April 2003. The Company provided fully automated remote data backup services for small to medium sized businesses.
On November 12, 2009, the Company closed two Subscription Agreement transactions with Terry Harris and Timothy Barham, under which each of them acquired 6,680,000 newly issued shares of restricted Common Stock from the Company for a purchase price of $110,000 each, which was paid in cash. As a result of the transactions, Terry Harris and Timothy Barham each became the owner of approximately 44.5% of the then outstanding Common Stock of the Company. These issuances resulted in a change of control of the Company. At the closing, the existing officers and directors of the Company, Robert Lisle and Max Kipness, acted to nominate Messrs. Harris and Barham to the Board of Directors and then resigned. As a result of the transaction, Terry Harris became President, Treasurer and a director of the Company and Timothy Barham became Vice President, Secretary and a director of the Company.
Subsequent to the change in control described above, the Company entered into a Settlement Agreement on November 13, 2009 with its former Chief Executive Officer, Robert Lisle, under which the Company transferred to Mr. Lisle all assets and properties used by the Company in its data storage business, including cash, accounts receivable, intellectual property rights, computers and data storage devices, and use of the name “Assure Data” in exchange for the cancellation of the debt of $59,961 owed by the Company to Mr. Lisle.
Subsequent to the closing of the Settlement Agreement and change of control, the Board of Directors decided to change the principal operations of the Company and move its corporate address to 1837 Harbor Avenue, Memphis, Tennessee 38113. The Company has since abandoned its prior data storage business operations and is now focused exclusively on the development and distribution of New Age/Alternative Beverages, and will initially focus specifically on development and distribution of relaxation beverages. The descriptive term “New Age/Alternative Beverages” describes products that include energy drink/infused water, fruit juices and drink, dairy and dairy substitutes, and bottled/canned teas.
Though we have suspended operation in light of our inability to maintain adequate working capital, our current focus remains the development, marketing, sale and distribution of alternative beverage and snack products. We launched our first proprietary beverage in early 2010 and our first proprietary snack food in early 2011. Depending upon our ability to obtain future financing for such operations, we intend to continue develop, purchase or license additional proprietary beverages and snack products in various categories to provide consumers with a variety of fresh products in the New Age/Alternative Beverage and snack foods categories.
On February 4, 2010, the Company changed its name to Frontier Beverage Company, Inc. The Company’s Common Stock trades on the OTC Market Groups, Inc. OTCQB under the symbol “FBEC.”
Basis of presentation and going concern uncertainty
The accompanying financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”), which contemplates continuation of the Company as a going concern, which is dependent upon the Company’s ability to establish itself as a profitable business. At December 31, 2012, the Company has an accumulated deficit of $2,242,268, and for the years ended December 31, 2012 and 2011, incurred net losses of $106,787 and $630,666, respectively. The Company’s ability to continue in business is dependent upon obtaining sufficient financing or attaining profitable operations. However, there can be no assurance that management will be successful in
| F-7 |
FRONTIER BEVERAGE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND
BUSINESS (continued)
Basis of presentation and going concern uncertainty (continued)
obtaining additional funding or in attaining profitable operations, and therefore, these matters raise substantial doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments that might result from the outcome of these uncertainties, nor do they include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should the Company be unable to continue in operation.
NOTE 2 – SUMMARY OF SIGNFICIANT ACCOUNTING POLICIES
Cash
For purposes of the Statements of Cash Flows, the Company considers amounts held by financial institutions and short-term investments with an original maturity of 90 days or less to be cash and cash equivalents. In the future, the Company may periodically make deposits with financial institutions in excess of the maximum federal insurance limits (FDIC) of $250,000 per bank.
Fair Value of Financial Instruments
The Company calculates the fair value of its assets and liabilities which qualify as financial instruments under this statement and includes this additional information in the notes to the financial statements when the fair value is different than the carrying value of those financial instruments. The estimated fair value of cash, accounts receivable and accounts payable approximate their carrying amounts due to the short maturity of these instruments. At December 31, 2012 and 2011, the Company did not have any other financial instruments.
Revenue Recognition
The Company recognizes revenue in accordance with guidance issued by the Financial Accounting Standards Board (“FASB”), which requires 1) evidence of an agreement, 2) delivery of the product or services had occurred, 3) at a fixed or determinable price, and 4) assurance of collection within a reasonable period of time.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are customer obligations due under normal trade terms. Management reviews accounts receivable on a monthly basis to determine if any receivables will be potentially uncollectible. The Company includes any accounts receivable balances that are determined to be uncollectible, along with a general reserve, in its overall allowance for doubtful accounts. After all attempts to collect a receivable have failed, the receivable is written off against the allowance.
The allowance for doubtful accounts is based on the Company’s assessment of the collectability of customer accounts and the aging of the accounts receivable. If there is a deterioration of a major customer’s credit worthiness or actual defaults are higher than the Company’s historical experience, the Company’s estimates of the recoverability of amounts due it could be adversely affected. The Company regularly reviews the adequacy of the Company’s allowance for doubtful accounts through identification of specific receivables where it is expected that payments will not be received. The Company also establishes an unallocated reserve
| F-8 |
FRONTIER BEVERAGE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNFICIANT ACCOUNTING POLICIES (continued)
Accounts Receivable and Allowance for Doubtful Accounts (continued)
that is applied to all amounts that are not specifically identified. In determining specific receivables where collections may not be received, the Company reviews past due receivables and gives consideration to prior collection history and changes in the customer’s overall business condition. The allowance for doubtful accounts reflects the Company’s best estimate as of the reporting dates. Changes may occur in the future, which may require the Company to reassess the collectability of amounts, at which time the Company may need to provide additional allowances in excess of that currently provided.
Inventories
Inventories include only the purchase cost and are stated at the lower of cost or market. Cost is determined using the FIFO method. Inventories consist of raw materials and finished products. The Company writes down inventory during the period in which such materials and products are no longer usable or marketable.
Concentration of Credit Risk
The Company is subject to concentrations of credit risk primarily from cash and cash equivalents and accounts receivable. The Company minimizes its credit risks associated with cash by periodically evaluating the credit quality of its primary financial institutions. The Company does not require collateral to secure its accounts receivables.
Customer Concentration Risk
The Company’s largest customer accounted for 99% of its revenue during 2012. The Company’s 2 largest customers accounted for 31% of its revenue during 2011, while no other customers accounted for more than 10% of its revenues.
Stock Based Compensation
The Company adopted the SFAS guidance which requires companies to expense the value of employee stock options and similar awards and applies to all outstanding and vested stock-based awards. In computing the impact, the fair value of each option is estimated on the date of grant based on the Black-Scholes options-pricing model utilizing certain assumptions for a risk free interest rate; volatility; and expected remaining lives of the awards. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and the Company uses different assumptions, the Company’s stock-based compensation expense could be materially different in the future. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. In estimating the Company’s forfeiture rate, the Company analyzed its historical forfeiture rate, the remaining lives of unvested options, and the amount of vested options as a percentage of total options outstanding. If the Company’s actual forfeiture rate is materially different from its estimate, or if the Company reevaluates the forfeiture rate in the future, the stock-based compensation expense could be significantly different from what we have recorded in the current period. Applying this guidance had no impact on the financial statements for the year ended December 31, 2012 and 2011.
| F-9 |
FRONTIER BEVERAGE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNFICIANT ACCOUNTING POLICIES (continued)
Earnings per Share
The Company calculates earnings per share (“EPS”) in accordance with the SFAS guidance for Earnings per Share, which requires the computation and disclosure of two EPS amounts, basic and diluted. Basic EPS is computed based on the weighted average number of shares of Common Stock outstanding during the period. Diluted EPS is computed based on the weighted average number of shares of Common Stock outstanding plus all potentially dilutive shares of Common Stock outstanding during the period. Such potential dilutive shares of Common Stock consist of stock options, non-vested shares (restricted stock) and warrants. At December 31, 2012 and 2011, there were no potential shares of Common Stock that would have an anti-dilutive effect.
Shipping and Handling Costs
The Company expenses all shipping and handling costs as incurred. These costs are included in cost of sales expense.
Advertising Costs
The Company’s policy regarding advertising is to expense advertising when incurred. The Company incurred no advertising expense for the years ended December 31, 2011 and 2010, respectively.
Comprehensive Income
The Company has no component of other comprehensive income. Accordingly, net income equals comprehensive income for the periods ended December 31, 2011 and 2010.
Income Taxes
Income taxes are provided for the tax effect of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences for financial and income tax reporting related to net operating losses that are available to offset future federal and state income taxes. The deferred tax assets and liabilities represent the future tax consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled.
Use of Estimates
The preparation of financial statements in conformity with the GAAP 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 of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In December 2011, the FASB amended its guidance related to Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more-likely-than-not that a goodwill impairment exists. In determining whether it is more-likely-than-not that a goodwill impairment exists, consideration should be made as to whether there are any adverse qualitative factors indicating that an impairment may exist. The adoption of the new accounting guidance is not expected to have a material impact on our consolidated financial statements.
| F-10 |
FRONTIER BEVERAGE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNFICIANT ACCOUNTING POLICIES (continued)
Recent Accounting Pronouncements
In July 2012, FASB issued Accounting Standards Update (“ASU”) No. 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment” (“ASU 2012-02”). ASU 2012-02 gives entities an option to first assess qualitative factors to determine whether the existence of events and circumstances indicate that it is more likely than not that the indefinite-lived intangible asset impaired. If based on its qualitative assessment an entity concludes that it is more likely than not that the fair value of an indefinite lived intangible asset is less than its carrying amount, quantitative impairment testing is required. However, if an entity concludes otherwise, quantitative impairment testing is not required. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. ASU 2012-02 did not have a material impact on our financial position or results of operations.
In December 2011, the FASB issued ASU No. 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”). ASU 2011-11 enhances current disclosures about financial instruments and derivative instruments that are either offset on the statement of financial position or subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset on the statement of financial position. Entities are required to provide both net and gross information for these assets and liabilities in order to facilitate comparability between financial statements prepared in conformity with U.S. GAAP and financial statements prepared on the basis of International Financial Reporting Standards (“IFRS”). ASU 2011-11 is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. ASU 2011-11 did not have a material impact on our financial position or results of operations.
In September 2011, the FASB issued ASU No. 2011-08 Intangibles – Goodwill & Other (“ASU 2011-08”), which updates the guidance in Accounting Standards Codification (“ASC”) Topic 350, Intangibles – Goodwill & Other (“ACS Topic 350”). The amendments in ASU 2011-08 permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than the carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in ASC Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than fifty percent. If, after assessing the totality of events or circumstances, an entity determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. The amendments in ASU 2011-08 include examples of events and circumstances that an entity should consider in evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. However, the examples are not intended to be all-inclusive and an entity may identify other relevant events and circumstances to consider in making the determination. The examples in this ASU 2011-08 supersede the previous examples under ASC Topic 350 of events and circumstances an entity should consider in determining whether it should test for impairment between annual tests, and also supersede the examples of events and circumstances that an entity having a reporting unit with a zero or negative carrying amount should consider in determining whether to perform the second step of the impairment test.
| F-11 |
FRONTIER BEVERAGE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNFICIANT ACCOUNTING POLICIES (continued)
Recent Accounting Pronouncements (continued)
Under the amendments in ASU 2011-08, an entity is no longer permitted to carry forward its detailed calculation of a reporting unit’s fair value from a prior year as previously permitted under ASC Topic 350. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of ASU 2011-08 did not have a material impact on our financial position or results of operations.
In May 2011, the FASB issued ASU 2011-04 (“ASU 2011-04”), which updated the guidance in ASC Topic 820, Fair Value Measurement. The amendments in ASU 2011-04 generally represent clarifications of Topic 820, but also include some instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has changed. ASU 2011-04 results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. GAAP and IFRS. The amendments in ASU 2011-04 are to be applied prospectively. For public entities, the amendments are effective for interim and annual periods beginning after December 15, 2011. The adoption of ASU 2011-04 did not have a material impact on our financial position or results of operations.
We do not believe there would have been a material effect on the accompanying financial statements had any other recently issued, but not yet effective, accounting standards been adopted in the current period.
NOTE 3 – INVENTORY
Inventory consists of the following at December 31:
| 2012 | 2011 | |||||||
| Raw materials | $ | -0- | $ | 27,337 | ||||
| Finished goods | -0- | 4,304 | ||||||
| -0- | 31,641 | |||||||
| Less: reserve for impairment | -0- | -0- | ||||||
| Net, Inventory | $ | -0- | $ | 31,641 | ||||
NOTE 4 – PREPAID EXPENSE
Prepaid expense consists of the following at December 31:
| 2012 | 2011 | |||||||
| Prepaid marketing | $ | -0- | $7,333 | |||||
| Prepaid insurance | -0- | 1,813 | ||||||
| $ | -0- | $ | 9,146 | |||||
| F-12 |
FRONTIER BEVERAGE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 5 – RELATED PARTIES
During the years ended December 31, 2012 and 2012, the Company received funds from HBB, LLC (“HBB”) and Baked World, LLC (“Baked World”), both Tennessee limited liability companies beneficially owned and controlled by Terry Harris, the Company’s President, Treasurer, sole director and Timothy Barham, a former officer and director of the Company (who resigned those positions effective November 15, 2011). The Company agreed to pay interest on the loans at eight percent (8%) per annum. The loans are due on demand.
The following table details the cash activity between the Company and HBB and Baked World.
| HBB | Baked World | |||||||
| Balance, 1/1/11 | $ | 207,321 | $ | -0- | ||||
| Advances | 171,018 | 9,630 | ||||||
| Repayments | (12,500 | ) | -0- | |||||
| Balance, 12/31/11 | 365,839 | 9,630 | ||||||
| Advances | 28,305 | 15,171 | ||||||
| Repayment | (22,745 | ) | (5,860 | ) | ||||
| Balance, 12/31/12 | $ | 371,399 | $ | 18,941 | ||||
In October 2012, Mr. Harris advanced the Company $3,000. The Company agreed to pay interest on the advance at six percent (6%) per annum. The $3,000 remained outstanding at December 31, 2012.
In April 2010, Mr. Harris agreed to loan the Company approximately $12,000 per month for twelve months with the proceeds from the loan used specifically to make monthly payments in accordance with terms of a public relations consulting agreement with a third party. The Company agreed to pay interest on the loan at six percent (6%) per annum. The Company made repayments to Mr. Harris during 2010 and 2011 directly and through HBB, with a final payment made in June 2011.
On May 12, 2010, Mr. Barham loaned the Company $120,000 on which the Company agreed to pay interest at six percent (6%) per annum. During the year ending December 31, 2010 the Company repaid $84,075 and in January 2011 the Company repaid $35,000 leaving a balance of $924, which remained outstanding at December 31, 2012.
During 2012 and 2011, the Company was provided office space, the use of office equipment and accounting personnel by HBB. HBB charged the Company $1,500 per month which amounts are included in operating expense and recorded as capital contribution on the accompanying financial statements.
NOTE 6 – CAPITAL STOCK
At December 31, 2012, the Company had 100,000,000 authorized shares of Common Stock and 100,000,000 authorized shares of Preferred Stock, both with a par value of $0.001 per share.
Common Stock
At December 31, 2012, the Company had 18,781,000 shares of its Common Stock issued and outstanding. Holders of Common Stock are entitled to one vote per share and are to receive dividends or other distributions when and if declared by the Company’s Board of Directors.
| F-13 |
FRONTIER BEVERAGE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 6 – CAPITAL STOCK (continued)
Preferred Stock
At December 31, 2012, the Company had zero shares of its Preferred Stock issued and outstanding. We are authorized to issue up to 100,000,000 shares of Preferred Stock with designations, rights and preferences determined from time to time by our Board of Directors. Accordingly, our Board of Directors is empowered, without stockholder approval, to issue Preferred Stock with dividend, liquidation, conversion, voting, or other rights which could adversely affect the voting power or other rights of the holders of the Common Stock. In the event of issuance, the Preferred Stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company. If the Company issues shares of Preferred Stock and we are subsequently liquidated or dissolved, the preferred shareholders would have preferential rights to receive a liquidating distribution for their shares prior to any distribution to common shareholders.
Stock Options
On May 22, 2008, shareholders representing more than a majority of the Company outstanding shares voted to approve the 2008 Equity Incentive Plan (the “Plan”). The total number of shares of Common Stock that may be subject to awards under the Plan will not exceed five million shares, subject to customary adjustments as provided in the Plan. The Plan is generally designed to meet the requirements of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), in order to preserve the Company’s ability to take compensation expense deductions in connection with the exercise of options granted and the vesting of performance-based restricted stock under the Plan. The Plan is to be administered by a committee comprised of not less than two individuals appointed by the Board of Directors, each of whom is (i) to the extent required by Rule 16b-3 and the Exchange Act, a “non-employee director,” and (ii) to the extent required by Code Section 162(m), an “outside director.”
Until the Company has independent directors, the whole Board of Directors will make such rule and regulations and establish such procedures for the administration of the Plan as it deems advisable. For options issued under the plan, the exercise price may not be less than the fair market value of the stock on the date of the grant of the option and the exercise period may not be longer than ten (10) years from the date of the option. To date, no stock awards or stock options have been issued under the Plan.
NOTE 7 – INCOME TAXES
Income taxes are accounted for in accordance with the SFAS guidance for Accounting for Income Taxes, which requires the recognition of deferred tax assets and liabilities to reflect the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Measurement of the deferred items is based on enacted tax laws. In the event the future consequences of differences between financial reporting bases and tax bases of the Company’s assets and liabilities result in a deferred tax asset, the guidance requires an evaluation of the probability of being able to realize the future benefits indicated by such assets. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some or the entire deferred tax asset will not be realized.
| F-14 |
FRONTIER BEVERAGE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 7 – INCOME TAXES (continued)
The Company has net operating losses at December 31, 2012 of $2,242,268 expiring through 2032. Utilization of these losses may be limited by the “change of ownership” rules as set forth in section 382 of the Internal Revenue Code.
The difference between the expected income tax expense (benefit) and the actual tax expense (benefit) computed by using the federal statutory rate of 35% is as follows:
| Year Ended December 31, | ||||||||
| 2012 | 2012 | |||||||
| Expected income tax benefit (loss) at statutory rate of 35% | $ | (37,375 | ) | $ | (220,733 | ) | ||
| Change in valuation account | 37,375 | 220,733 | ||||||
| Income tax expense (benefit) | $ | -0- | $ | -0- | ||||
Deferred tax assets and liabilities are provided for significant income and expense items recognized in different years for tax and financial reporting purposes. Temporary differences, which give rise to a net deferred tax asset, are as follows:
| Year Ended December 31, | ||||||||
| Deferred Tax Assets: | 2012 | 2011 | ||||||
| Tax Benefit of net operating loss carry-forward | $ | 785,000 | $ | 746,000 | ||||
| Less: valuation allowance | (785,000 | ) | (746,000 | ) | ||||
| Deferred tax assets | -0- | -0- | ||||||
| Deferred tax liabilities | -0- | -0- | ||||||
| Net deferred tax asset | $ | -0- | $ | -0- | ||||
NOTE 9 – SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the date these financial statements were issued, and has determined it has no other material subsequent events requiring disclosure.
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