Frontier Futures, Inc.
Consolidated Financial Statements
December 31, 2013
Table of Contents
Letter of Attestation
Independent Auditor’s Report
Page(s)
1
2–3
Financial Statements
Consolidated Statement of Financial Condition
4
Consolidated Statement of Income
5
Consolidated Statement of Changes in Stockholders’ Equity
6
Consolidated Statement of Changes in Liabilities Subordinated to
the Claims of General Creditors Pursuant to a Satisfactory
Subordination Agreement
7
Consolidated Statement of Cash Flows
8
Notes to Consolidated Financial Statements
9 – 16
Supplementary Information
Consolidating Statement of Financial Condition
17
Consolidating Statement of Income
18
Statement of the Computation of the Minimum Capital Requirements
19 – 20
Reconciliation of Consolidated Statement of Financial Condition to the
Statement of the Computation of the Minimum Capital Requirements
21
Statement of Segregation Requirements and Funds in Segregation for
Customers Trading on U.S. Commodity Exchanges
22
Statement of Segregation Requirements and Funds in Segregation for
Customers’ Dealer Options Accounts
23
Statement of Secured Amounts and Funds held in Separate Accounts
For Foreign Futures and Foreign Options Customers Pursuant to
Commission Regulations 30.7
24
Exchange Supplementary Information
25
Independent Auditor’s Report on Internal Control Required
by CFTC Regulation 1.16
26 – 27
Independent Auditor’s Report
To the Board of Directors
Frontier Futures, Inc.
Cedar Rapids, Iowa
Report on the Consolidated Financial Statements
We have audited the accompanying consolidated financial statements of Frontier Futures, Inc.
(an “S” Corporation) and its subsidiary, which comprise the consolidated statement of financial
condition as of December 31, 2013, and the related consolidated statements of income,
changes in liabilities subordinated to the claims of general creditors pursuant to a satisfactory
subordination agreement, changes in stockholders’ equity, and cash flows for the year then
ended and the related notes to the consolidated financial statements that you are filing pursuant
to Regulation 1.10 under the Commodity Exchange Act (CEAct).
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated
financial statements in accordance with accounting principles generally accepted in the United
States of America; this includes the design, implementation, and maintenance of internal control
relevant to the preparation and fair presentation of consolidated financial statements that are
free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on
our audit. We conducted our audit in accordance with auditing standards generally accepted in
the United States of America. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements are free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the consolidated financial statements. The procedures selected depend on the
auditor’s judgment, including the assessment of the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity’s preparation and fair
presentation of the consolidated financial statements in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit
also includes evaluating the appropriateness of accounting policies used and the
reasonableness of significant accounting estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements.
2
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Frontier Futures, Inc. and its subsidiaries as of
December 31, 2013, and the results of their operations and their cash flows for the year then
ended in accordance with accounting principles generally accepted in the United States of
America.
Other Matter
Our audit was conducted for the purpose of forming an opinion on the consolidated financial
statements as a whole. The supplementary information on pages 17 and 18 is presented for
purposes of additional analysis and is not a required part of the basic consolidated financial
statements. The supplementary information on pages 19 through 27 is presented for purposes
of additional analysis and is not a required part of the basic consolidated financial statements,
but is supplementary information required by regulations under the CEAct. Such information is
the responsibility of management and was derived from and relates directly to the underlying
accounting and other records used to prepare the consolidated financial statements. The
information has been subjected to the auditing procedures applied in the audit of the
consolidated financial statements and certain additional procedures, including comparing and
reconciling such information directly to the underlying accounting and other records used to
prepare the consolidated financial statements or to the consolidated financial statements
themselves, and other additional procedures in accordance with auditing standards generally
accepted in the United States of America. In our opinion, the information is fairly stated in all
material respects in relation to the consolidated financial statements as a whole.
HONKAMP KRUEGER & CO., P.C.
Dubuque, Iowa
March 27, 2014
3
Frontier Futures, Inc.
Consolidated Statement of Financial Condition
December 31, 2013
ASSETS
Cash and Cash Equivalents
Margins on Deposit With Clearing Organizations
Receivables from Futures Commission Merchants
Receivables from Customers and Non-Customers
Other Receivables (Including $608 from Affiliates)
Guaranty Deposit with Clearing Organizations
Exchange Memberships, at Cost (Market Value $119,000)
Due from Exchange Clearing Organizations
Office Furniture and Equipment, at Cost (Net of
Accumulated Depreciation of $165,690)
Other Assets
Total Assets
$
8,246,313
624,164
18,254,043
14,491
44,569
830,000
12,600
429,556
25,229
47,315
$ 28,528,280
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Payables to Customers
Payables to Noncustomers
Due to Exchange Clearing Organizations
Accounts Payable, Accrued Expenses, and Other Liabilities
Subordinated Loan Agreements
Total Liabilities
Stockholders' Equity
Common Stock, $0.05 Par Value; 2,000,000 Shares Authorized;
98,000 Issued and Outstanding
Additional Paid-In Capital
Retained Earnings (Deficit)
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity
See Accompanying Notes to Consolidated Financial Statements
4
$ 25,658,100
732,773
8,025
104,727
1,450,000
27,953,625
4,900
1,650,000
(1,080,245)
574,655
$ 28,528,280
Frontier Futures, Inc.
Consolidated Statement of Income
Year Ended December 31, 2013
Revenues
Commissions
Commodity Transactions on U.S. Exchanges
Other Brokerage Activities
Interest and Dividends
Interest Earned on Investments Other Than Customer Funds
Other Income
$
2,321
686,292
Total Revenues
3,652,938
Expenses
Floor Brokerage
Clerical and Administrative Employee Expense
Commissions to Other FCMs
Exchange Clearance Fees
Occupancy and Equipment Costs
Promotional Costs
Communications
Data Processing
Trade Errors
Interest
Other Expense
123,385
1,210,740
548,370
106,593
256,527
6,044
49,727
180,804
20,089
118,108
1,051,858
Total Expenses
Net (Loss)
3,672,245
$
See Accompanying Notes to Consolidated Financial Statements
5
2,820,341
143,984
(19,307)
Frontier Futures, Inc.
Consolidated Statement of Changes in Stockholders' Equity
Year Ended December 31, 2013
Common
Stock
Balance, December 31, 2012
$
Retained
Earnings
(Deficit)
Additional
Paid-In Capital
4,900
$
1,650,000
$
(1,057,559)
Total
$
597,341
Net (Loss)
-
-
(19,307)
(19,307)
Distributions
-
-
(3,379)
(3,379)
Balance, December 31, 2013
$
4,900
$
1,650,000
$
(1,080,245)
See Accompanying Notes to Consolidated Financial Statements
6
$
574,655
Frontier Futures, Inc.
Consolidated Statement of Changes in Liabilities
Subordinated to the Claims of General Creditors
Pursuant to a Satisfactory Subordination Agreement
Year Ended December 31, 2013
Subordinated Borrowings as of January 1, 2013
All Satisfactory
Subordinated
Debt
Debt That
Qualifies As
Equity Capital *
$
$
1,470,000
600,000
Increases:
Additions
850,000
650,000
Decreases:
Maturities
Relassification of Borrowings That No Longer
Qualify as Equity Capital Because Due Within 1 Year
Subordinated Borrowings as of December 31, 2013
(870,000)
-
$
1,450,000
* Equity capital is defined in regulation 1.17(d).
See Accompanying Notes to Consolidated Financial Statements
7
(600,000)
$
650,000
Frontier Futures, Inc.
Consolidated Statement of Cash Flows
Year Ended December 31, 2013
Cash Flows from Operating Activities:
Net (Loss)
Adjustments to Reconcile Net (Loss) to Net Cash
(Used) by Operating Activities:
Depreciation
Changes in Assets and Liabilities:
Due (to) from Exchange Clearing Organizations
Margins on Deposit With Clearing Organizations
Receivables from Futures Commission Merchants
Receivables from Customers and Noncustomers
Receivables, Other
Other Assets
Payables to Customers
Payables to Noncustomers
Accounts Payable, Accrued Expenses, and Other Liabilities
$
(19,307)
7,976
(246,877)
(109,123)
(1,984,490)
(247)
(42,430)
(9,690)
(4,828,288)
51,021
15,720
Net Cash (Used) by Operating Activities:
(7,165,735)
Cash Flows from Investing Activities:
Purchase of Office Furniture and Equipment
(1,694)
Net Cash (Used) by Investing Activities:
(1,694)
Cash Flows from Financing Activities:
Distributions to Stockholders
Payments on Subordinated Loan Agreements
(3,379)
(20,000)
Net Cash (Used) by Financing Activities:
(23,379)
(Decrease) in Cash and Cash Equivalents
(7,190,808)
Cash and Cash Equivalents:
Beginning
Ending
Supplemental Disclosure of Cash Flow Information:
Cash Payments for Interest
Cash Payments for Taxes
See Accompanying Notes to Consolidated Financial Statements
8
15,437,121
$
8,246,313
$
118,108
$
3,679
Frontier Futures, Inc.
Notes to Consolidated Financial Statements
NOTE 1. Nature of Business and Significant Accounting Policies
Frontier Futures, Inc. (the “Company”) is registered as a futures commission merchant (FCM) with
the Commodity Futures Trading Commission (CFTC). The Company is a member of the
Minneapolis Grain Exchange. Frontier Futures, Inc. engages principally in executing commodity
futures and options transactions for customers.
A summary of the Company’s significant accounting policies are as follows:
Principles of Consolidation
The accompanying financial statements include the assets, liabilities and members’ equity of
Consultexs, L.L.C. This is a separate limited liability corporation, of which Frontier Futures,
Inc. holds a greater than 50% ownership in. Inter-company transactions that require
elimination are reflected in the consolidating schedules and have been eliminated in the
consolidation.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid instruments, with original maturities of less
than 90 days, that are not held for sale in the ordinary course of business.
Use of Estimates
The preparation of financial statements, in conformity with accounting principles generally
accepted in the United States of America and prevailing industry practices, requires
management to make estimates and assumptions that affect the reported amount of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Income Recognition
In most instances, commissions and related expenses are reported on the half-turn basis for
options transactions and on the round-turn basis for commodity futures transactions, except
the transactions of Midwest Strategic Investments and Focused Seed, LLC. These
introducing brokers report on the half-turn basis for commodity futures transactions and
charge up front on all options transactions. Commission income and related expenses for
commodity futures transactions accounted for on the round-turn basis versus the half-turn
basis were not material. Commission income is presented net of commissions paid or
accrued to introducing brokers.
9
Frontier Futures, Inc.
Notes to Consolidated Financial Statements
NOTE 1. Nature of Business and Significant Accounting Policies (Continued)
Depreciation and Amortization
Office furniture, equipment, and vehicles are being depreciated over the estimated useful lives
of the assets, ranging from five to seven years, primarily using accelerated methods. The
Company’s policy is to capitalize items greater than $500.
Income Tax Interest and Penalty Classification
The Company’s policy is to include interest and penalties related to income taxes in interest
expense and operating expenses, respectively.
Income Taxes
The Company, with the consent of its stockholders, has elected to be taxed as an S
Corporation under Internal Revenue Code Section 1362(a). Under these provisions, the
Company is not required to pay federal corporate income taxes. Instead, the stockholders are
liable for individual federal income taxes on the Company’s taxable income.
The Company recognizes and measures its unrecognized tax benefits or liabilities in
accordance with FASB ASC 740, Income Taxes. Under this guidance, the Company
estimates the likelihood, based on their technical merit, that tax positions will be sustained
upon examination based on the facts, circumstances, and information available at the end of
each period. The level of unrecognized tax benefits or liabilities is adjusted when there is
more information available, or when an event occurs that requires a change.
As of December 31, 2013, the gross amount of unrecognized tax benefits and liabilities was
$0. There were no interest or penalty accruals relating to uncertain tax positions during
2013.
The Company files income tax returns in the U.S. federal jurisdiction as well as various state
jurisdictions. Income tax returns filed for calendar years 2010 to present are open to
examination in the federal and state jurisdictions. The Company does not anticipate that
any potential federal or state audit of open tax years will result in a material change to its
financial position or results of operations.
Advertising
The Company expenses all advertising costs as incurred. Advertising expense was $6,044
for the year ended December 31, 2013.
10
Frontier Futures, Inc.
Notes to Consolidated Financial Statements
NOTE 1. Nature of Business and Significant Accounting Policies (Continued)
Anti-Money Laundering Program
In accordance with the USA Patriot Act, the Company has set up policies and procedures
designed to aid in preventing money laundering through inappropriate use of its facilities as
well as preventing the use of its facilities to ease the funding of terrorist activities. The
Company has a designated Anti-Money Laundering Program Compliance Officer whose
duties include monitoring the Company’s anti-money laundering compliance, overseeing
communications and training for employees, ensuring that proper anti-money laundering
records are kept, and ensuring that currency transaction reports and suspicious activity
reports are filed when warranted.
NOTE 2. Assets Segregated or Held in Separate Accounts under Federal and Other
Regulations
The Company is required under the Commodity Exchange Act (the “Act”) to account for and
segregate all customer assets, as defined by the Act, in connection with transactions in regulated
commodities. At December 31, 2013, funds segregated or held in separate accounts under
regulations included in the statement of financial condition are as follows:
Cash and Cash Equivalents at:
Banks
Exchange Clearing Organizations
Due (to) from Exchange Clearing Organizations
Receivables from other FCMs
$
8,028,576
452,950
377,825
17,636,700
$ 26,496,051
NOTE 3. Receivables From and Payables to Customers
Receivables from and payables to customers represent balances arising in connection with
commodities transactions, including gains and losses on open commodity future contracts.
Marketable, customer-owned securities are held by the Company as collateral for receivables
from customers. Customer-owned securities held by the Company (if any) and the net value of
customers’ options on futures positions are reflected in the statement of financial condition.
11
Frontier Futures, Inc.
Notes to Consolidated Financial Statements
NOTE 4. Employee Benefit Plan
The Company has established a 401(k) profit-sharing plan. The plan does not provide for an
employer matching contribution. The plan provides for an employer discretionary profit-sharing
contribution. Total contributions and administrative fees under the plan for the year ended
December 31, 2013, were $1,334.
NOTE 5. Deposits with Exchange Clearing Organizations
Deposits with exchange clearing organizations at December 31, 2013, are carried at fair value
and consist of:
Margins:
Cash
Guarantee Deposits:
Cash
$
624,164
830,000
$
1,454,164
NOTE 6. Financial Instruments with Off-Balance-Sheet Risk
In the normal course of business, the Company’s customer clearance activities involve the
execution, settlement, and financing of various customer transactions. These activities may
expose the Company to off-balance-sheet risk in the event the customer or other broker is unable
to fulfill its contracted obligations and the Company has to purchase or sell the financial instrument
underlying the contract at a loss.
The Company’s customer commodities activities are transacted on either a cash or margin
basis. In margin transactions, the Company extends credit to its customers, subject to various
regulatory and internal margin requirements, collateralized by cash and securities in the
customers’ accounts. In connection with these activities, the Company executes and clears
customer transactions involving the sale of commodities not yet purchased, substantially all of
which are transacted on a margin basis subject to individual exchange regulations. Such
transactions may expose the Company to significant off-balance-sheet risk in the event margin
deposits are not sufficient to fully cover losses that customers may incur. In the event the
customer fails to satisfy its obligations, the Company may be required to purchase or sell
financial instruments at prevailing market prices to fulfill the customer’s obligations.
12
Frontier Futures, Inc.
Notes to Consolidated Financial Statements
NOTE 6. Financial Instruments with Off-Balance-Sheet Risk (Continued)
The Company seeks to control the risks associated with its customer activities by requiring
customers to maintain margin collateral in compliance with various regulatory and internal
guidelines. The Company monitors required margin levels daily and, pursuant to such
guidelines, requires the customer to deposit additional collateral, or to reduce positions, when
necessary.
NOTE 7. Concentrations of Credit Risk
The Company is engaged in various brokerage activities whose counterparties primarily include
futures commission merchants, introducing brokers, banks, and other financial institutions. In
the event counterparties do not fulfill their obligations, the Company may be exposed to risk.
The risk of default depends on the creditworthiness of the counterparty or issuer of the
instrument. It is the Company’s policy to review, as necessary, the credit standing of each
counterparty with which it conducts business.
The Company does not anticipate nonperformance by clients or counterparties in the preceding
situations. If either a customer or a counterparty fails to perform, the Company may be required
to discharge the obligation of the nonperforming party, and in such circumstances, the Company
may sustain a loss. The Company has a policy of reviewing, as considered necessary, the
credit standing of each counterparty with which it conducts business.
NOTE 8. Commitments, Contingent Liabilities, and Related Party Transactions
The Company leases a building from Frontier Investments Partnership, L.C., which is partially
owned by the majority shareholder of the Company. Under terms of the agreement, the Company
is required to make monthly rental payments of $18,412 through July 31, 2014, which includes
property taxes. The Company is also responsible for payment of insurance and maintenance.
The Company also leases a branch office in Minneapolis on a month-to-month basis from an
unrelated party. Under the terms of the agreement, the Company is required to make rental
payments of $1,034 per month.
The Company also leases various equipment under non-cancellable leases.
13
Frontier Futures, Inc.
Notes to Consolidated Financial Statements
NOTE 8. Commitments, Contingent Liabilities, and Related Party Transactions
(Continued)
At December 31, 2013, the aggregate minimum annual rental commitments under these leases
are as follows:
2014
2015
2016
2017
2018
$
173,323
173,323
173,323
173,323
86,500
$
779,792
Rental expense charged to operations for the year ended December 31, 2013, was $236,346,
including $222,778 to a related party.
The Company subleases vacant building space. Under the terms of the sublease agreement, the
lessee is required to make monthly rental payments of $5,508 through January 31, 2014. Total
rents collected from unrelated parties during the year ended December 31, 2013, were $66,090.
At December 31, 2013, the aggregate minimum annual rental receivable under this lease is as
follows:
2014
$
5,508
The Company also leases employees, office space, and equipment to companies affiliated
through common ownership. Transactions with these affiliates for the year ended December 31,
2013, are as follows:
Leased Employees*
Equipment Rental and Related Services
Office Rent
*
$
225,767
1,154
75,454
$
302,375
The Company leases these items on a month-to-month basis and reflects the transactions as
revenue on the Statement of Income.
The Company received $8,673 from related parties for miscellaneous services performed,
including telephone, postage services, and mail delivery.
The Company also paid $1,394 to related parties for miscellaneous services performed.
14
Frontier Futures, Inc.
Notes to Consolidated Financial Statements
NOTE 9. Net Capital Requirements
The Company is subject to the minimum capital requirements of several regulatory organizations.
Under the most restrictive of these rules, the Company is required to maintain “adjusted net
capital” equivalent to the greater of $1,000,000 or the risk-based requirements as these terms are
defined. Adjusted net capital and funds required to be segregated and secured change from day
to day, but at December 31, 2013, the Company had adjusted net capital and net capital
requirements of $1,857,232 and $1,000,000, respectively. The minimum requirements may
effectively restrict the payment of cash dividends and the repayment of liabilities subordinated to
claims of general creditors.
NOTE 10. 1-FR-FCM Variations
The Company submitted its monthly Form 1-FR-FCM as of December 31, 2013, with the National
Futures Association on January 24, 2014.
There were no material differences between the annual certified Form 1-FR-FCM and the
Company’s corresponding unaudited Form 1-FR-FCM filing as of December 31, 2013.
NOTE 11. Subordinated Loan Agreements
The Company has the following subordinated loan agreements at December 31, 2013:
Note payable – Related Party, interest-only payments due the 7th of
each month at a rate of the greater of 8% per annum or the prime rate
as reported by the Wall Street Journal plus 1% per annum (current
effective rate of 8% at December 31, 2013), with the principal amount
due on November 5, 2016.
Note Payable – Related Party, interest-only payments due the 5th of
each month at a rate of the greater of 8% per annum or the prime rate
as reported by the Wall Street Journal plus 1% per annum (current
effective rate of 8% per annum at December 31, 2013), with the
principal amount due on November 7, 2014.
15
$
650,000 *
600,000
Frontier Futures, Inc.
Notes to Consolidated Financial Statements
NOTE 11. Subordinated Loan Agreements (Continued)
Note Payable - Unrelated Party, interest-only payments due the first
Monday on or after the 15th of each month at a rate of 8.04% per
annum of the total amount of the loan, or $1,340 per month, with the
principal amount due on April 15, 2014.
$
200,000
$ 1,450,000
*
Qualifies as equity capital
Maturities on subordinated loan agreements for the years ending December 31 are as follows:
2014
2015
2016
$
800,000
650,000
$
1,450,000
For the year ended December 31, 2013, interest paid on the subordinated borrowings amounted
to $116,080, of which $100,000 was to related parties.
NOTE 12. Management’s Review
Subsequent events were evaluated through the date the financial statements were available to
the issued, which was March 27, 2014.
16
Supplementary Information
Frontier Futures, Inc.
Consolidating Statement of Financial Condition
December 31, 2013
Frontier
Futures, Inc.
Consultexs, LLC
Consolidated
Total
Eliminations
ASSETS
Cash and Cash Equivalents
Margins on Deposit With Clearing Organizations
Receivables from Futures Commission Merchants
Receivables from Customers and Non-Customers
Other Receivables (Including $608 from Affiliates)
Guaranty Deposit with Clearing Organizations
Exchange Memberships, at Cost (Market Value $119,000)
Due from Exchange Clearing Organizations
Office Furniture and Equipment, at Cost (Net of
Accumulated Depreciation of $165,690)
Other Assets
Total Assets
$
8,222,992
624,164
18,254,043
14,491
67,890
830,000
12,600
429,556
$
25,229
47,315
23,321
43,944
-
$
-
(67,265)
-
$
8,246,313
624,164
18,254,043
14,491
44,569
830,000
12,600
429,556
25,229
47,315
$ 28,528,280
$
67,265
$
(67,265)
$ 28,528,280
$ 25,658,100
732,773
8,025
104,727
1,450,000
$
67,265
-
$
(67,265)
-
$ 25,658,100
732,773
8,025
104,727
1,450,000
(67,265)
27,953,625
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Payables to Customers
Payables to Noncustomers
Due to Exchange Clearing Organizations
Accounts Payable, Accrued Expenses, and Other Liabilities
Subordinated Loan Agreements
Total Liabilities
Stockholders' Equity
Common Stock, $0.05 Par Value; 2,000,000 Shares Authorized;
98,000 Issued and Outstanding
Additional Paid-In Capital
Members Equity
Retained Earnings (Deficit)
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity
27,953,625
67,265
4,900
1,650,000
(1,080,245)
574,655
$ 28,528,280
$
-
-
-
-
67,265
$
(67,265)
17
4,900
1,650,000
(1,080,245)
574,655
$ 28,528,280
Frontier Futures, Inc.
Consolidating Statement of Income
Year Ended December 31, 2013
Frontier
Futures, Inc.
Revenues
Commissions
Commodity Transactions on U.S. Exchanges
Other Brokerage Activities
Interest and Dividends
Interest Earned on Investments Other Than Customer Funds
Other Income
$
Total Revenues
Expenses
Floor Brokerage
Clerical and Administrative Employee Expense
Commissions to Other FCMs
Exchange Clearance Fees
Occupancy and Equipment Costs
Promotional Costs
Communications
Data Processing
Trade Errors
Interest
Other Expense
Total Expenses
Net (Loss)
2,820,341
143,984
Consultexs, LLC
$
$
-
$
2,820,341
143,984
2,321
425,932
260,360
-
2,321
686,292
3,392,578
260,360
-
3,652,938
123,385
984,973
548,370
106,593
256,354
6,044
49,727
180,804
20,089
118,108
1,017,438
225,767
173
34,420
-
123,385
1,210,740
548,370
106,593
256,527
6,044
49,727
180,804
20,089
118,108
1,051,858
3,411,885
$
-
Consolidated
Total
Eliminations
(19,307)
260,360
$
-
$
-
18
3,672,245
$
(19,307)
Frontier Futures, Inc.
Statement of the Computation of the
Minimum Capital Requirements
December 31, 2013
Net Capital
Current Assets, as Defined
$ 28,360,857
Adjusted Liabilities, as Defined
26,503,625
Net Capital
$
1,857,232
Charges Against Net Capital
Charges as Specified in Section 240.15c3-1( c )( 2 )( vi ) and
( vii ) Against Securities Owned by Firm, Including Securities
Representing Investments of Domestic and Foreign
Customer Funds (Market Value of Commercial Paper: $0)
-
Undermargined Commodity Futures and Commodity Options
Accounts - Amount in Each Account Required to Meet
Maintenance Margin Requirements, Less the Amount of
Current Margin Calls in that Account and the Amount of
Any Noncurrent Deficit in the Account
A. Customer Accounts
B. Noncustomer Accounts
-
Charges against Open Commodity Positions in Proprietary
Accounts
Net Capital Computation
Adjusted Net Capital
Net Capital Required:
Risk Based Requirement
Amount of Customer Risk Maintenance Margin
$
$ 8,779,983
8% of Customer Risk Maintenance Margin
Amount of Non-Customer Risk Maintenance Margin
1,857,232
702,399
276,101
8% of Non-Customer Risk Maintenance Margin
22,088
724,487
Minimum Dollar Requirement
1,000,000
Minimum Net Capital Required (Greater of $1,000,000 or RiskBased Requirements)
Excess Net Capital
Computation of Early Warning Level
150% of Risk Based Net Capital Requirement
(Continued)
19
1,000,000
$
857,232
$
1,500,000
Frontier Futures, Inc.
Statement of the Computation of the
Minimum Capital Requirements (Continued)
December 31, 2013
Guaranteed Introducing Brokers
IBs with Which Guarantee Agreements Have Been Entered
into by the FCM and Which Are Currently in Effect:
Focused Seed, LLC
1376 Marion Ave.
Gearhart, OR 97138
Midwest Strategic Investments
373 Collins Road NE, #208
Cedar Rapids, IA 52402
Note: There were no material differences between the above computation and the Company's
corresponding unaudited Form 1-FR-FCM filing as of December 31, 2013.
20
Frontier Futures, Inc.
Reconciliation of Consolidated Statement of Financial Condition
to the Statement of the Computation of the
Minimum Capital Requirements
December 31, 2013
Current Assets:
Total Assets Reflected in Consolidated Statement of Financial Condition
$
Less: Total Assets of Consolidated Subsidiary not
Allowed Pursuant to CFTC Reg. 1.17(f)
28,528,280
(67,265)
Adjusted Total Assets
28,461,015
Less Noncurrent Assets Included in Total Assets:
Receivables from Customers and Noncustomers
Other Receivables
Exchange Memberships
Furniture, Equipment, and Leasehold Improvements
Other Assets
Total Current Assets
(14,407)
(608)
(12,600)
(25,229)
(47,314)
$
28,360,857
$
27,953,625
Total Liabilities
Total Liabilities Reflected in Consolidated Statement of Financial Condition
Less: Total Liabilities of Consolidated Subsidiary not
Allowed Pursuant to CFTC Reg. 1.17(f)
-
Adjusted Total Liabilities
27,953,625
Less: Liabilities Subject to Satisfactory Subordination Agreements
Total Adjusted Liabilities
(1,450,000)
$
26,503,625
Note: The unaudited Form 1-FR-FCM as of December 31, 2013 did not reflect the consolidated
financial information of Consultexs, L.L.C. However, there were no material differences between the
above computation and the Company's corresponding unaudited Form 1-FR-FCM filing as of
December 31, 2013.
21
Frontier Futures, Inc.
Statement of Segregation Requirements and Funds
in Segregation for Customers Trading on
U.S. Commodity Exchanges
as of December 31, 2013
Segregation Requirements (Section 4d(2) of the CEAct)
Net Ledger Balance, as Follows:
Cash
Securities, at Market
Net Unrealized Profit (Loss) in Open Futures Contracts
Traded on a Contract Market
$ 20,086,513
5,404,140
25,490,653
Exchange Traded Options as Follows:
Market Value of Open Option Contracts Purchased on a
Contract Market
Market Value of Open Option Contracts Granted (Sold)
on a Contract Market
1,618,051
(1,465,011)
Net Equity (Deficit)
25,643,693
Accounts Liquidating to a Deficit and Accounts with
Debit Balances - Gross Amount
Less Amount Offset Against U.S. Treasury Obligations
Owned by Particular Customers
Amount Required to be Segregated
Funds in Segregated Accounts
Deposited in Segregated Funds Bank Accounts, Cash
Margins on Deposit with Clearing Organizations of
Contract Markets, Cash
Net Settlement from (to) Clearing Organizations of
Contract Markets
Exchange Traded Options:
Value of Open Long Option Contracts
Value of Open Short Option Contracts
Net Equities with other FCMs:
Net Liquidating Equity
Securities Representing Investments of Customer's
Funds, at Market
Securities Held for Particular Customers or Option
Customers in Lieu of Cash, at Market
Total Amount in Segregation
Excess (Deficiency) Funds in Segregation
$
14,407
-
14,407
$ 25,658,100
$
8,028,576
452,950
(22,825)
537,375
(136,725)
17,636,700
-
$ 26,496,051
$
837,951
Note: There were no material differences between the above computation and the Company's
corresponding unaudited Form 1-FR-FCM filing as of December 31, 2013.
22
Frontier Futures, Inc.
Statement of Segregation Requirements and
Funds in Segregation for Customers' Dealer
Options Accounts
as of December 31, 2013
The Company does not carry customers' dealer option accounts as defined by the Commodity
Exchange Act Regulations 32.6. Therefore, the Company is exempt from the provisions of
Regulation 32.6
Note: There were no material differences between the above computation and the Company's
corresponding unaudited Form 1-FR-FCM filing as of December 31, 2013.
23
Frontier Futures, Inc.
Statement of Secured Amounts and Funds Held in
Separate Accounts for Foreign Futures and Foreign Options
Customers Pursuant to Commission Regulations 30.7
as of December 31, 2013
Foreign Futures and Foreign Options Secured Amounts - Summary
Check the appropriate box to identify the amount shown below:
[
]
Secured amounts in only U.S.-domiciled customers' accounts
[
]
Secured amounts in only U.S. and foreign-domiciled customers' accounts
[
]
Net liquidating equities in all accounts of customers trading on foreign boards of trade
[
]
Amount required to be set aside pursuant to law, rule, or regulation of a foreign
government or a rule of a self-regulatory organization authorized thereunder
Has the FCM changed the method of calculating the amount to be set aside in separate
accounts since the last financial report it filed?
Yes
X
No
Amount to be Set Aside in Separate Section 30.7 Accounts
Funds in Separate Section 30.7 Accounts:
Equities with Registered Futures Commission Merchants:
A. Cash
$
$
-
Total Funds in Separate Section 30.7 Accounts
Excess (Deficiency)
$
Note: There were no material differences between the above computation and the Company's
corresponding unaudited Form 1-FR-FCM filing as of December 31, 2013.
24
-
-
Frontier Futures, Inc.
Exchange Supplementary Information
December 31, 2013
1.
Capital to be Withdrawn Within 6 Months
$
-
2.
Subordinated Debt Maturing Within 6 Months
$
200,000
3.
Subordinated Debt Due to Mature Within 6 Months That You Plan to Renew
$
200,000
If Adjusted Net Capital is Less Than $2,000,000, Please Complete Lines 4 Through 7
4.
Number of Associated Persons
13
5.
Number of Branch Offices
2
6.
Number of Guaranteed Introducing Brokers
2
7.
Number of Guaranteed Introducing Broker Branch Offices
-
Futures Commission Merchants Offering Off-Exchange Foreign Currency Futures
and Options ("Forex") to Retail Customers
8.
Is the Firm a Registered Futures Commission Merchant ("FCM") Offering
or Engaging in Retail Forex Transactions or a Retail Foreign Exchange
Dealer ("RFED")
No
9.
Gross Revenue from Forex Transactions with Retail Customers
$
-
10.
Total Net Aggregate Notional Value of all Open Forex Transactions in
Retail Customer and Non-Customer (Not Proprietary) Accounts
$
-
Note: There were no material differences between the above computation and the Company's
corresponding unaudited Form 1-FR-FCM filing as of December 31, 2013.
25
Independent Auditor’s Report on Internal
Control Required by CFTC Regulation 1.16
To the Board of Directors
Frontier Futures, Inc.
Cedar Rapids, Iowa
In planning and performing our audit of the consolidated financial statements of Frontier Futures,
Inc. and subsidiary (the “Company”) as of and for the year ended December 31, 2013, in
accordance with auditing standards generally accepted in the United States of America, we
considered the Company’s internal control over financial reporting (internal control) as a basis for
designing our auditing procedures for the purpose of expressing our opinion on the consolidated
financial statements, but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control. Accordingly, we do not express an opinion on the effectiveness of the
Company’s internal control.
Also, as required by Regulation 1.16 of the Commodity Futures Trading Commission (CFTC), we
have made a study of the practices and procedures followed by the Company, including
consideration of control activities for safeguarding customer and firm assets. This study included
tests of compliance with such practices and procedures that we considered relevant to the
objectives stated in Regulation 1.16 in making the following:
1. The periodic computations of minimum financial requirements pursuant to Regulation
1.17.
2. The daily computations of the segregation requirements of Section 4d(2) of the
Commodity Exchange Act and the regulations thereunder, and the segregation of
funds based on such computations.
3. The daily computations of the foreign futures and foreign options secured amount
requirements pursuant to Regulation 30.7 of the CFTC.
The management of the Company is responsible for establishing and maintaining internal control
and the practices and procedures referred to in the preceding paragraph. In fulfilling this
responsibility, estimates and judgments by management are required to assess the expected
benefits and related costs of controls, and of the practices and procedures referred to in the
preceding paragraph, and to assess whether those practices and procedures can be expected to
achieve the CFTC’s previously mentioned objectives. Two of the objectives of internal control and
the practices and procedures are to provide management with reasonable but not absolute
assurance that assets for which the Company has responsibility are safeguarded against loss
from unauthorized use or disposition, and that transactions are executed in accordance with
management's authorization and recorded properly to permit the preparation of financial
statements in conformity with generally accepted accounting principles. Regulation1.16d-2 lists
additional objectives of the practices and procedures listed in the preceding paragraph.
26
Because of inherent limitations in internal control and the practices and procedures referred to
previously, error or fraud may occur and not be detected. Also, projection of any evaluation of
them to future periods is subject to the risk that they may become inadequate because of changes
in conditions or that the effectiveness of their design and operation may deteriorate.
A control deficiency exists when the design or operation of a control does not allow management
or employees, in the normal course of performing their assigned functions, to prevent or detect
misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of
control deficiencies, that adversely affects the entity’s ability to initiate, authorize, record, process,
or report financial data reliably in accordance with generally accepted accounting principles such
that there is more than a remote likelihood that a misstatement of the entity’s financial statements
that is more than inconsequential will not be prevented or detected by the entity’s internal control.
A material weakness is a significant deficiency, or combination of significant deficiencies, that
results in more than a remote likelihood that a material misstatement of the financial statements
will not be prevented or detected by the entity’s internal control.
Our consideration of internal control was for the limited purpose described in the first and second
paragraphs and would not necessarily identify all deficiencies in internal control that might be
material weaknesses. We did not identify any deficiencies in internal control and control activities
for safeguarding customer and firm assets that we consider to be material weaknesses as defined
previously. However, material weaknesses may exist that have not been identified.
We understand that practices and procedures that accomplish the objectives referred to in the
second paragraph of this report are considered by the CFTC to be adequate for its purposes in
accordance with the Commodity Exchange Act and related regulations, and that practices and
procedures that do not accomplish such objectives in all material respects indicate a material
inadequacy for such purposes. Based on this understanding and on our study, we believe that
the Company's practices and procedures, as described in the second paragraph of this report,
were adequate at December 31, 2013, to meet the CFTC’s objectives.
This report is intended solely for the information and use of the Board of Directors, management,
the CFTC, the National Futures Association, and other regulatory agencies that rely on Regulation
1.16 of the CFTC in their regulation of registered futures commission merchants, and is not
intended to be and should not be used by anyone other than these specified parties.
HONKAMP KRUEGER & CO., P.C.
Dubuque, Iowa
March 27, 2014
27