<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 8-K/A-1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Original Report: May 9, 1995
FRONTEER DIRECTORY COMPANY, INC.
----------------------------------------------
(Exact Name of Registrant as Specified
in Its Charter)
Colorado 0-17637 45-0411501
- ---------------------------- ---------------- ----------------
(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification
Number)
216 North 23rd Street
Bismarck, North Dakota 58501
--------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (701) 258-4970
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
RAFCO, Ltd.:
Independent Auditors' Report
Consolidated Balance Sheets - March 31, 1995 (Unaudited and
December 31, 1994 and 1993
Consolidated Statements of Operations -
Three Months Ended March 31, 1995 and 1994 (Unaudited) and
Years Ended December 31, 1994, 1993 and 1992
Consolidated Statements of Stockholders' Equity -
Three Months Ended March 31, 1995 (Unaudited) and Years Ended
December 31, 1994, 1993 and 1992
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1995 and 1994 (Unaudited) and Years
Ended December 31, 1994, 1993 and 1992
Notes to Consolidated Financial Statements
(b) Pro Forma Financial Information.
Fronteer Directory Company, Inc.:
Unaudited Pro Forma Condensed Combined Financial Statements
Pro Forma Condensed Combined Balance Sheet - March 31, 1995
(Unaudited)
Pro Forma Condensed Combined Statement of Operations - Six Months
Ended March 31, 1995 (Unaudited)
Pro Forma Condensed Combined Statement of Operations - Year Ended
September 30, 1994 (Unaudited)
Notes to Pro Forma Condensed Combined Financial Statements
(c) Exhibits
2.1 Plan of Reorganization and Exchange Agreement dated April 26,
1995, with Exhibits A, B, C, F, and I.
2.2 Sale and Purchase Agreement dated April 27, 1995, with Exhibits A
and J.
<PAGE>
2.3 Option Agreement dated April 27, 1995, with Exhibits A, B,
and D.
3.0(i) Articles of Amendment to the Registrant's Articles of
Incorporation dated April 28, 1995.
23.1 Consent of KPMG Peat Marwick, LLP.
___________________
Except for Exhibit 23.1 which is filed herewith, all of the above
listed Exhibits were filed with the original Current Report on
Form 8-K dated May 9, 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FRONTEER DIRECTORY COMPANY, INC.
By: /s/ DENNIS W. OLSON
----------------------------------------------------
Dennis W. Olson, President
Date Signed: JULY 10, 1995
--------------------------------------------
DENNIS W. OLSON
--------------------------------------------------------
Printed Name of Signatory
PRESIDENT
--------------------------------------------------------
Title of Signatory
<PAGE>
INDEX TO FINANCIAL STATEMENTS
RAFCO, LTD.:
Independent Auditor's Report F-1
Consolidated Balance Sheets-
March 31, 1995 (Unaudited) and
December 31, 1994 and 1993 F-2
Consolidated Statements of Operations-
Three Months Ended March 31, 1995
and 1994 (Unaudited) and Years
Ended December 31, 1994, 1993 and 1992 F-4
Consolidated Statements of Stockholders'
Equity - Three Months Ended March 31,
1995 (Unaudited) and Years Ended
December 31, 1994, 1993 and 1992 F-5
Consolidated Statements of Cash Flows-
Three Months Ended March 31, 1995
and 1994 (Unaudited) and Years Ended
December 31, 1994, 1993 and 1992 F-6
Notes to Consolidated to Financial Statements F-8
FRONTEER DIRECTORY COMPANY, INC.:
Unaudited Pro Forma Condensed
Combined Financial Statements F-16
Pro Forma Condensed Combined
Balance Sheet - March 31, 1995
(Unaudited) F-17
Pro Forma Condensed Combined
Statement of Operations - Six
Months Ended March 31, 1995
(Unaudited) F-18
Pro Forma Condensed Combined
Statement of Operations - Year
Ended September 30, 1994
(Unaudited) F-19
Notes to Pro Forma Condensed
Combined Financial Statements F-20
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS
RAFCO, LTD.:
We have audited the accompanying consolidated balance sheets of RAFCO, Ltd. and
subsidiaries as of December 31, 1994 and 1993, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1994. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of RAFCO, Ltd. and
subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1994 in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Denver, Colorado
February 17, 1995
<PAGE>
RAFCO, LTD.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
March 31 ---------------------------
ASSETS 1995 1994 1993
- ------ ---- ---- ----
(unaudited)
<S> <C> <C> <C>
Cash and cash equivalents (note 3) $ 989,820 2,276,654 3,981,565
Receivables:
Broker/dealer customers, net 5,164,672 13,705,027 11,793,859
Other trade, net 465,929 465,420 434,346
----------- ---------- ----------
5,630,601 14,170,447 12,228,205
----------- ---------- ----------
Securities purchased under agreement to
resell (note 5) - - 73,463,504
Receivables from brokers or dealers and clearing
organizations:
Securities borrowed 22,200 520,800 1,427,200
Failed to deliver 19,628 168,472 76,442
Clearing organizations 700,212 56,988 248,749
----------- ---------- ----------
742,040 746,260 1,752,391
----------- ---------- ----------
Securities owned, at market value (note 4) 1,608,852 1,406,214 975,909
Property, furniture, and equipment, at cost less
accumulated depreciation of $1,719,828,
$1,773,052 and $1,377,480 in 1995, 1994 and 1993,
respectively (note 7) 1,380,298 1,424,689 1,433,156
Deferred income taxes, net (note 8) 760,521 760,521 760,521
Income taxes receivable - - 205,345
Other assets, net 1,284,299 1,541,173 899,640
----------- ---------- ----------
$ 12,396,431 22,325,958 95,700,236
----------- ---------- ----------
----------- ---------- ----------
(Continued)
</TABLE>
F-2
<PAGE>
RAFCO, LTD.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
<TABLE>
<CAPTION>
December 31
March 31 -------------------------
1995 1994 1993
---- ---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited)
- ------------------------------------
<S> <C> <C> <C>
Payables to customers $ 2,332,168 2,767,761 5,438,856
Securities sold under agreement to repurchase
(note 5) - - 73,463,504
Payables to brokers or dealers and clearing
organizations:
Clearing organizations (note 6) 3,176,719 10,686,842 2,985,702
Clearing correspondent brokers or
dealers - 846,139 1,396,098
Failed to receive and other 130,512 165,080 109,919
------------ ---------- ---------
3,307,231 11,698,061 4,491,719
------------ ---------- ---------
Notes payable (note 7) 1,758,852 1,918,831 1,831,392
Deposits from clearing correspondent brokers
or dealers, net 742,184 1,067,338 4,896,528
Accounts payable, accrued expenses, and other
liabilities 941,125 1,408,052 1,820,371
Accrued commissions payable 508,393 285,234 201,347
Deferred rent concessions (note 10) 1,806,857 1,808,895 1,696,165
Securities sold but not yet purchased, at
market value 152,695 17,193 15,595
------------ ---------- ---------
Total liabilities 11,549,505 20,971,365 93,855,477
------------ ---------- ---------
Minority interest in subsidiary 204,843 166,158 250,398
Stockholders' equity (note 2):
Series A cumulative participating preferred
stock, $.03 par value per share. 600,000
shares authorized; 87,500 shares issued and
outstanding (liquidation preference of 823,750 823,750 823,750
$875,000)
Class A common stock, $.01 par value per share.
10,000,000 shares authorized; 13 shares issued
and outstanding 1 1 1
Class B common stock, $.02 par value per share.
10,000,000 shares authorized; no shares issued
or outstanding - - -
Additional paid-in capital 99 99 99
Retained earnings (deficit) (181,767) 364,585 770,511
------------ ---------- ---------
Total stockholders' equity 642,083 1,188,435 1,594,361
------------ ---------- ---------
Commitments and contingencies
(notes 10 and 11)
$ 12,396,431 22,325,958 95,700,236
------------ ---------- ---------
------------ ---------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
RAFCO, LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended March 31 Years ended December 31
--------------------------- ---------------------------------------
1995 1994 1994 1993 1992
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenue:
Commissions $ 1,646,271 1,160,641 5,792,268 6,527,515 8,443,289
Computer hardware and software operations 1,220,973 427,187 3,515,230 4,041,575 1,915,816
Investment banking 549,338 273,027 3,032,968 1,955,234 1,188,542
Bank services 43,697 285,592 1,152,585 982,959 -
Interest income 223,985 222,439 1,082,576 860,492 709,632
Fees from clearing correspondent brokers or
dealers 101,066 298,042 1,079,931 1,563,827 3,026,224
Transaction charges 105,196 130,818 958,890 790,198 1,855,359
Trading profits, net 102,006 216,181 696,814 2,224,732 492,183
Other, net 27,523 4,754 30,214 70,570 375,535
--------- --------- ---------- ---------- ----------
4,020,055 3,018,681 17,341,476 19,017,102 18,006,580
--------- --------- ---------- ---------- ----------
Expenses:
Commissions 1,234,253 722,921 4,263,665 4,696,299 5,418,952
Computer hardware and software operations 1,229,916 725,391 3,739,649 3,837,293 2,747,851
Administrative salaries and related
employment costs 847,183 881,447 3,418,111 3,354,537 4,068,793
Bank services - 446,569 1,381,991 1,844,921 -
Building, occupancy, and equipment rental
(note 10) 366,425 258,279 1,372,109 1,398,509 1,091,170
Communications 280,582 231,083 944,544 1,051,923 1,280,906
Floor brokerage and clearance 76,403 63,373 324,291 373,094 484,968
Professional fees and litigation and
arbitration settlements 57,665 51,453 299,353 1,008,917 586,868
Interest 200,947 104,903 567,901 415,175 233,702
Other, net 223,104 159,692 1,484,627 1,244,241 1,312,120
--------- --------- ---------- ---------- ----------
4,516,478 3,645,171 17,796,241 19,224,909 17,225,330
--------- --------- ---------- ---------- ----------
Earnings (loss) before minority
interest, income taxes and cumulative
effect of change in accounting for
income taxes (496,423) (626,490) (454,765) (207,807) 781,250
Minority interest loss (earnings) (36,804) 49,944 101,339 (89,883) (56,063)
--------- --------- ---------- ---------- ----------
Earnings (loss) before income taxes and
cumulative effect of change in
accounting for income taxes (533,227) (576,546) (353,426) (297,690) 725,187
Income tax benefit (expense) (note 8) - - - 133,569 (274,019)
--------- --------- ---------- ---------- ----------
Earnings (loss) before cumulative
effect of change in accounting for
income taxes (533,227) (576,546) (353,426) (164,121) 451,168
Cumulative effect of change in accounting for
income taxes (note 8) - - - 141,080 -
--------- --------- ---------- ---------- ----------
Net earnings (loss) $ (533,227) (576,546) (353,426) (23,041) 451,168
--------- --------- ---------- ---------- ----------
--------- --------- ---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
RAFCO, LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994 AND 1993 AND
THREE MONTHS ENDED MARCH 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
Additional Retained
Preferred Common paid-in earnings
stock stock capital (deficit) Total
----- ----- ------- --------- -----
<S> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1,
1992 $ - 1 500,099 353,363 853,463
Purchase and retirement of
common stock (note 2) - - (500,000) - (500,000)
Net earnings - - - 451,168 451,168
--------- - ------- ------- --------
BALANCES AT DECEMBER 31,
1992 - 1 99 804,531 804,631
Proceeds from the issuance
of Series A preferred
stock, net of issuance
costs of $51,250 823,750 - - - 823,750
Series A preferred stock
dividend - - - (10,979) (10,979)
Net loss - - - (23,041) (23,041)
--------- - ------- ------- ---------
BALANCES AT DECEMBER 31,
1993 823,750 1 99 770,511 1,594,361
Series A preferred stock
dividend - - - (52,500) (52,500)
Net loss - - - (353,426) (353,426)
--------- - ------- -------- ---------
BALANCES AT DECEMBER 31,
1994 823,750 1 99 364,585 1,188,435
Series A preferred stock
dividend - - - (13,125) (13,125)
Net loss - - - (533,227) (533,227)
--------- - ------- -------- ---------
BALANCES AT MARCH 31,
1995 (UNAUDITED) $ 823,750 1 99 (181,767) 642,083
--------- - ------- -------- ----------
--------- - ------- -------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
RAFCO, LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended March 31 Year ended December 31
--------------------------- ---------------------------------
1995 1994 1994 1993 1992
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (533,227) (576,546) (353,426) (23,041) 451,168
Adjustments to reconcile net earnings (loss) to net
cash provided (used) by operating activities:
Cumulative effect of change in accounting for income - - - (141,080) -
taxes
Depreciation of property, furniture, and equipment 106,870 110,068 395,572 493,772 350,417
Bad debt expense 6,165 - 3,550 10,982 61,130
Loss on disposal of assets - - - 30,357 10,176
Deferred income tax benefit - - - (118,305) 47,705
Minority interest earnings (loss) 36,804 (49,944) (101,339) 89,883 56,063
Changes in operating assets and liabilities:
Decrease (increase) in customer receivables 8,533,681 (4,567,043) (1,945,792) (784,538) (1,709,078)
Decrease (increase) in receivables from brokers or
dealers and clearing organizations 4,220 (993,423) 1,006,131 (1,422,404) 481,066
Decrease (increase) in securities owned, net of
securities sold but not yet purchased (67,141) 906,476 (428,707) (286,592) 23,858
Decrease (increase) in income taxes receivable - 125,001 205,345 (205,345) 183,414
Decrease (increase) in other assets 258,755 281,960 (624,434) (47,330) 46,063
Increase (decrease) in payables to customers (435,593) (1,262,727) (2,671,095) 2,517,821 (262,227)
Increase (decrease) in payable to brokers or
dealers and clearing organizations (8,390,830) 3,898,958 7,206,342 (2,037,698) 484,075
Increase (decrease) in deposits from clearing
correspondent brokers or dealers (325,154) 1,189,952 (3,829,190) 1,930,434 192,295
Increase (decrease) in accounts payable, accrued
expenses and other liabilities (466,927) (782,327) (412,319) 481,432 (999,957)
Increase (decrease) in accrued commissions payable 223,159 45,627 83,887 (88,831) (41,216)
Increase (decrease) in deferred rent concessions (2,038) 49,768 112,730 187,078 1,439,392
--------- --------- --------- -------- ---------
Net cash provided (used) by operating
activities (1,051,256) (1,624,200) (1,352,745) 586,595 814,344
--------- --------- --------- -------- ---------
</TABLE>
(Continued)
F-6
<PAGE>
RAFCO, LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
<TABLE>
<CAPTION>
Three months ended March 31 Year ended December 31
--------------------------- ---------------------------------
1995 1994 1994 1993 1992
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from investing activities - acquisition of
property, furniture, and equipment, net $ (62,479) (75,940) (387,105) (211,100) (1,293,003)
---------- ---------- ---------- ---------- ----------
Cash flows from financing activities:
Principal payments on notes payable (159,974) (44,701) (156,103) (1,138,801) (840,802)
Proceeds from additional borrowings - - 243,542 1,325,000 729,268
Proceeds from sale of preferred stock, net - - - 823,750 -
Dividends on preferred stock (13,125) (13,125) (52,500) - -
---------- ---------- ---------- ---------- ----------
Net cash provided (used) by financing activities (173,099) (57,826) 34,939 1,009,949 (111,534)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents (1,286,834) (2,924,767) (1,704,911) 1,385,444 (590,193)
Cash and cash equivalents at the beginning of period 2,276,654 3,981,565 3,981,565 2,596,121 3,186,314
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents at the end of period $ 989,820 1,056,798 2,276,654 3,981,565 2,596,121
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Supplemental disclosure of cash flow information -
Cash paid during the period for interest $ 202,246 105,028 574,827 434,719 395,774
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Cash paid (received) during the period for taxes $ - (125,001) (199,890) - 85,325
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Noncash investing activities -
Purchase and retirement of common stock through exchange
for securities $ - - - - 500,000
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
RAFCO, LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(INFORMATION AS OF MARCH 31, 1995 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1995 AND 1994 IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying consolidated financial statements include the accounts of
RAFCO, Ltd. (RAFCO or the Company) and its wholly owned subsidiary, RAF
Financial Corporation (RAF), which operates as a registered securities
broker/dealer and provides various financial consulting services to
financial institutions, and its 56% owned subsidiary, Secutron, Inc.
(Secutron) which operates as a computer hardware and software sales and
consulting company. The Company's other wholly-owned subsidiary, Risk
Analytics, Inc. has no operations and is not included in the accompanying
consolidated financial statements. All intercompany balances and
transactions have been eliminated in consolidation.
The consolidated balance sheet as of March 31, 1995 and the consolidated
statements of operations, stockholders' equity, and cash flows for the
three months ended March 31, 1995 and 1994 were prepared by the Company
without audit. In the opinion of management, all adjustments, consisting
of normal recurring adjustments, necessary for the fair presentation of the
financial position, results of operations and cash flows as of March 31,
1995 and for the three months ended March 31, 1995 and 1994 have been
included.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with an original maturity of three months or less
to be cash equivalents.
Cash on deposit in uninsured accounts totaled $680,544 and $1,598,237 at
March 31, 1995 and December 31, 1994, respectively.
Cash receipts and disbursements relating to securities purchased and sold
under agreements to resell and purchase are generally equal and, therefore,
have been netted and excluded from the statements of cash flows.
SECURITIES
Statement of Financial Accounting Standards No. 115, ACCOUNTING FOR CERTAIN
INVESTMENTS IN DEBT AND EQUITY SECURITIES (SFAS 115) requires that trading
securities be recorded at market value. In accordance with financial
reporting requirements for broker/dealers, all of the Company's financial
instruments, including securities, are recorded at market value.
Accordingly, the adoption of SFAS 115 by the Company as of December 31,
1993 had no effect on the accompanying financial statements. Securities
without a readily available market are recorded at estimated fair value.
Securities are valued monthly and the resulting unrealized appreciation or
depreciation is included in operations as trading profit or loss. Realized
gains and losses are determined using the average cost method.
F-8
<PAGE>
RAFCO, LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Securities transactions are recorded on a settlement-date basis, usually
the fifth business day following the trade date. The effect on the
consolidated financial statements of using settlement date rather than
trade date for the recording of securities transactions is not significant.
DEPRECIATION AND AMORTIZATION
Depreciation of property, furniture, and equipment is computed using the
straight-line method based upon estimated useful lives ranging from 3 to 15
years.
CUSTOMER ACCOUNTS
Receivables from customers include amounts due on cash transactions and
margin accounts. Securities owned by customers are held as collateral for
substantially all of these receivables. An allowance for doubtful accounts
has been established for all unsecured customer receivables.
Amounts due to or from directors or officers of the Company, related to
normal cash accounts with the Company's broker and dealer subsidiary, are
not classified as customer-related in accordance with the rules of the
Securities and Exchange Commission.
INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES (SFAS
109) which prescribes the use of the asset and liability method of
accounting for income taxes. Under the asset and liability method of SFAS
109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under SFAS
109, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment
date.
REVENUE RECOGNITION
Revenue from the sale of computer equipment and installation of software is
generally recognized when the equipment and related software is installed
and accepted by the customer.
RESEARCH AND DEVELOPMENT COSTS
Costs incurred in researching, designing, and planning for the development
of new software are included in computer hardware and software operations
in the accompanying consolidated financial statements. All amounts are
charged to operations as incurred until such time as the costs meet the
criteria for capitalization. Such costs were not significant in 1995,
1994, 1993 or 1992.
F-9
<PAGE>
RAFCO, LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(2) STOCKHOLDERS' EQUITY
During 1993, the Company sold 87,500 shares of $.03 par value Series A
cumulative participating preferred stock (Series A preferred) for $10 a
share. The Series A preferred is nonvoting and has a liquidation
preference of $10 per share plus accrued and unpaid dividends. Regular
dividends are 6% per annum payable quarterly and in certain instance the
holders will be entitled to an annual participating dividend. If the
Company is for any reason unable to pay cash dividends, such unpaid
dividends will accumulate without interest until the Company can legally
pay such dividends. The Company has the option to redeem all or part of
the Series A preferred on a pro rata basis upon 90 days prior written
notice at December 31, 1998 and at December 31 of each year thereafter at
$11 per share plus any unpaid dividends.
On May 18, 1992, the Company purchased a .286802 fractional share of common
stock from an unrelated third party in exchange for marketable securities
with a market value of approximately $500,000. Upon consummation of the
purchase, the fractional share was retired.
(3) SEGREGATED CASH
Pursuant to Rule 15c3-3 of the Securities and Exchange Commission, RAF is
required to maintain cash or cash equivalents on deposit in special reserve
bank accounts for the exclusive benefit of its customers. At March 31,
1995 and December 31, 1994, RAF had balances in such accounts totaling
$1,287,613 and $1,339,570, respectively.
(4) SECURITIES OWNED
Securities owned as of March 31, 1995, December 31, 1994 and 1993 consist
of the following:
<TABLE>
<CAPTION>
December 31
March 31 ------------------
1995 1994 1993
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Corporate equities $ 1,256,385 1,232,718 941,821
Municipal obligations 176,577 116,270 5,685
U.S. government obligations 175,890 57,226 28,403
----------- --------- -------
$ 1,608,852 1,406,214 975,909
----------- --------- -------
----------- --------- -------
</TABLE>
F-10
<PAGE>
RAFCO, LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(5) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND SECURITIES PURCHASED
AND SOLD UNDER AGREEMENT TO RESELL AND REPURCHASE
As a securities broker and dealer, RAF is engaged in various securities and
trading and brokerage activities. A portion of RAF's transactions are
collateralized and are executed with and on behalf of institutional
investors, including other brokers and dealers. RAF's exposure to credit
risk associated with the nonperformance of these customers in fulfilling
their contractual obligations pursuant to securities transactions can be
directly impacted by volatile trading markets which may impair the
customers' ability to satisfy their obligations to RAF. RAF's principal
activities are also subject to the risk of counterparty nonperformance.
In the normal course of business, RAF's customer and correspondent
clearance activities involve the execution, settlement, and financing of
various customer securities transactions. These activities may expose RAF
to off-balance-sheet credit risk in the event the customer is unable to
fulfill its contractual obligations.
RAF's customer securities activities are transacted on either a cash or
margin basis. In margin transactions, RAF extends credit and monitors the
collateral to the customer, subject to various regulatory margin
requirements. In connection with these activities, RAF executes and clears
customer transactions involving the sale of securities not yet purchased.
Such transactions may expose RAF to off-balance-sheet risk in the event
margin requirements are not sufficient to fully cover losses which
customers may incur. In the event the customer fails to satisfy its
obligations, RAF may be required to purchase or sell financial instruments
at prevailing market prices in order to fulfill the customer's obligations.
RAF enters into collateralized matched reverse repurchase and repurchase
agreements which may result in significant credit exposure in the event the
counterparty to the transaction is unable to fulfill its contractual
obligations. In accordance with industry practice, repurchase agreements
are generally collateralized by cash or securities with a market value in
excess of RAF's obligation under the contract. RAF attempts to minimize
credit risk associated with these activities by monitoring customer credit
exposure and collateral values on a daily basis and requiring additional
collateral to be deposited with or returned to RAF when deemed necessary.
At December 31, 1993, RAF had matched repurchase and resale agreements with
total contract amounts of $73,463,504 and an effective interest rate of
3.5%. These contracts expired in 1994.
(6) PAYABLE TO CLEARING ORGANIZATION
The payable to clearing organization represents amounts due on customer
margin debits collateralized by customer securities. This amount bears
interest at a fluctuating rate that generally corresponds to the broker
call money rate (7.25% at December 31, 1994).
F-11
<PAGE>
RAFCO, LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(7) NOTES PAYABLE
The following is a summary of notes payable:
<TABLE>
<CAPTION>
December 31
March 31 -------------------
1995 1994 1993
---- ----- ----
(unaudited)
<S> <C> <C> <C>
Senior subordinated debentures (a) $ 1,325,000 1,325,000 1,325,000
Notes payable to banks which bear interest
at rates ranging from 6% to 9%; payable
in monthly installments of principal and
interest through 1997; secured by
equipment 384,100 490,761 409,914
Mortgages payable to banks, secured by
real property, paid in 1994 - - 48,463
Other 49,752 103,070 48,015
--------- --------- ---------
$ 1,758,852 1,918,831 1,831,392
--------- --------- ---------
--------- --------- ---------
<FN>
(a) In connection with the Series A preferred offering described in note 2, the
Company sold $1,325,000 of 10% Senior Subordinated promissory notes. The
Notes mature on December 31, 2003, are unsecured general obligations of the
Company, and are subordinated to the prior payment in full of all senior
indebtedness.
</TABLE>
Approximate annual maturities of notes payable for years subsequent to
1994, are as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1995 $ 395,701
1996 130,089
1997 68,041
1998 -
1999 -
Thereafter 1,325,000
---------
$ 1,918,831
---------
---------
</TABLE>
(8) INCOME TAXES
Income tax benefit (expense) consisted of the following:
<TABLE>
<CAPTION>
Year ended
December 31
-----------------
1993 1992
---- ----
<S> <C> <C>
Current $ 15,264 (226,314)
Deferred 118,305 (47,705)
------- -------
$ 133,569 (274,019)
------- -------
------- -------
</TABLE>
F-12
<PAGE>
RAFCO, LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(8) INCOME TAXES (CONTINUED)
Income tax benefit (expense) differs from the amount computed by applying
the federal statutory tax rate to earnings (loss) before income taxes as
follows:
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Computed statutory tax benefit (expense) $ 101,254 (246,564)
Decrease (increase) in taxes resulting from:
Earnings of subsidiary not included in the
Company's consolidated tax return - 24,314
State income tax benefit (expense) 17,039 (20,289)
Other, net 15,276 (31,480)
------- ------
Actual tax benefit (expense) $ 133,569 (274,019)
------- -------
------- -------
</TABLE>
Temporary differences between financial statement carrying amounts and the
tax bases of assets and liabilities that result in significant deferred tax
liabilities and assets at December 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
December 31
March 31 ------------------
1995 1994 1993
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Deferred rent concessions, due to
differences in accounting methods $ 705,000 705,468 661,504
Furniture and equipment, primarily due to
differences in depreciation - (19,358) (42,635)
Receivables, due primarily to differences
in the allowance for uncollectible
accounts 40,000 39,747 39,747
Accrued expenses, due to allowances for
losses not deductible for income tax
purposes 70,000 69,112 71,095
Charitable contributions carryforwards 60,000 57,467 30,810
Net operating loss carryforward 203,000 - -
---------- ------- -------
Gross deferred tax asset 1,078,000 852,436 760,521
Less valuation allowance (317,479) (91,915) -
---------- ------- -------
Deferred tax asset, net $ 760,521 760,521 760,521
---------- ------- -------
---------- ------- -------
</TABLE>
F-13
<PAGE>
RAFCO, LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Deferred tax (expense) benefit for 1992 results from timing differences in
the recognition of revenue and expenses for financial statement and income
tax purposes. The sources of these differences were as follows:
<TABLE>
<S> <C>
Differences in accounting for rent concessions $ 485,315
Provision for estimated losses not deductible
for tax purposes (86,700)
Difference in accounting for lease for office (408,711)
space
Other, net (37,609)
------
Total deferred tax expense $ (47,705)
------
------
</TABLE>
Effective January 1, 1993, the Company adopted the provisions of SFAS 109
on a prospective basis. The cumulative effect of this change in the method
of accounting for income taxes was to decrease net loss by $141,080. The
adoption of SFAS 109 did not have a significant effect on the Company's
1993 provision for income taxes.
(9) EMPLOYEE BENEFIT PLAN
The Company has established a 401(k) employee benefit plan covering
substantially all employees. The Company makes matching contributions to
the plan based upon a designated percentage of compensation, as determined
by the Company. Contributions for the three months ended March 31, 1995
and 1994 and the years ended 1994, 1993 and 1992 totaled $7,571, $10,750,
$36,867, $31,836 and $31,355, respectively.
The Company does not provide any post-employment benefits to retired or
terminated employees.
(10) COMMITMENTS AND CONTINGENCIES
The Company leases office space and certain equipment under long-term
noncancelable operating leases. The leases for office space provide for
annual escalations for utilities, taxes, and service costs, as well as
escalating rental rates over the term of the leases. Minimum future rental
payments, net of sublease income, required by such leases are as follows:
<TABLE>
<S> <C>
1995 $ 981,455
1996 975,918
1997 904,936
1998 881,768
1999 841,024
Thereafter 6,758,612
</TABLE>
Rent expense for the three months ended March 31, 1995 and 1994 and the
years ended December 31, 1994, 1993 and 1992 totaled $252,158, $185,054,
$1,018,131, $1,140,248 and $800,872, respectively.
F-14
<PAGE>
RAFCO, LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The Company and RAF are defendants in certain arbitration and litigation
matters arising from RAF's activities as broker and dealer and underwriter.
In the opinion of management, these matters have been adequately provided
for in the accompanying financial statements, and the ultimate resolution
of the arbitration and litigation will not have a significant adverse
effect on the financial condition of the Company.
(11) MINIMUM CAPITAL REQUIREMENTS
RAF, as a registered securities broker and dealer, is subject to the
Securities and Exchange Commission Uniform Net Capital Rule (Rule 15c3-1)
(the Rule). RAF has elected to operate pursuant to the alternative
computation provided by the Rule.
Under the alternative computation provided by the Rule, RAF is required to
maintain "net capital" equal to the greater of $250,000 or 2% of "aggregate
debit" items (primarily customer-related receivables) included in the
formula for Determination of Reserve Requirements for Brokers and Dealers,
as those terms are defined in the Rule. In addition, equity capital may
not be withdrawn if resulting "net capital" would be less than 5% of
"aggregate debits." At December 31, 1994, the Company had a ratio of net
capital to aggregate debits of 10%, a "net capital" requirement of
$280,683, and actual "net capital" of $1,440,795. At March 31, 1995, the
Company had a net capital requirement of $250,000 and actual "net capital"
of $855,238.
(12) EVENT SUBSEQUENT TO DATE OF INDEPENDENT AUDITOR'S REPORT (UNAUDITED)
On April 26, 1995, Fronteer Directory Company, Inc. (Fronteer) acquired all
of the assets of the Company in exchange for the assumption of the
liabilities of the Company and the issuance of 7,223,871 shares of Fronteer
common stock and 87,500 shares of Fronteer preferred stock. RAFCO
dissolved as a corporation and the Fronteer shares were distributed to the
Company's shareholders, who own a 55% interest in Fronteer subsequent to
the combination. The combination was accounted for as a "reverse
acquisition" of Fronteer by RAFCO using the purchase method of accounting.
F-15
<PAGE>
FRONTEER DIRECTORY COMPANY, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On April 26, 1995, Fronteer Directory Company, Inc. (Fronteer) entered into a
Plan of Reorganization and Exchange Agreement (the Agreement) with RAFCO, Ltd.
(RAFCO). Under the Agreement, Fronteer acquired all of the assets of RAFCO in
exchange for the assumption by Fronteer of the liabilities of RAFCO and the
issuance by Fronteer to RAFCO of 7,223,871 shares of $.01 par value common
stock and 87,500 shares of $.10 par value series A voting cumulative preferred
stock ($10.00 per share redemption value). RAFCO dissolved as a corporation and
will distribute Fronteer's common and preferred stock to the shareholders of
RAFCO. The principal assets of RAFCO include all of the outstanding common
stock of RAF Financial Corporation, a registered broker dealer, and
approximately 50% of the outstanding common stock of Secutron Corp., which is
in the software development and consulting business. As a result of the
transaction, the former shareholders of RAFCO acquired a 55% interest in
Fronteer. Accordingly, the transaction will be accounted for as a "reverse
acquisition" (the Acquisition) of Fronteer by RAFCO, using the purchase method
of accounting.
On April 27, 1995, as contemplated by the Agreement, Fronteer entered into a
Sale and Purchase Agreement (Sale Agreement) with Telecom * USA Publishing
Company (Telecom) to sell to Telecom eleven of Fronteer's telephone directories
for $2,400,000, subject to adjustment in certain circumstances as described in
the Sale Agreement. In addition, the Sale Agreement includes the payment of
$800,000 directly by Telecom to certain employees of Fronteer as consideration
for such employees entering into noncompetition agreements with Telecom. Also
on April 27, 1995, Fronteer entered into an option agreement with Telecom
(Option Agreement) which grants Telecom the option to acquire certain additional
telephone directories from June 1, 1997 through June 1, 1999 (the option period)
for a purchase price as determined by the Option Agreement. At the closing of
the Sale Agreement, Telecom made a noninterest bearing $500,000 loan to Fronteer
as consideration for the Option Agreement. If Telecom exercises its option
during the option period, the full amount of the loan will be applied against
the purchase price of such directories. If Telecom does not exercise its
option, the full amount of the loan will be forgiven by Telecom.
The following unaudited pro forma condensed combined balance sheet assumes the
acquisition under the agreement and the transactions contemplated by the Sale
Agreement and Option Agreement (related transactions) occurred on March 31,
1995 and includes the March 31, 1995 historical consolidated balance sheets of
Fronteer and RAFCO. The following unaudited pro forma condensed combined
statement of operations for the year ended September 30, 1994 assumes that the
acquisition and related transactions occurred prior to October 1, 1993, and
includes the historical consolidated statement of operations of Fronteer for the
year ended September 30, 1994 and the historical consolidated statement of
operations of RAFCO for the year ended December 31, 1994, adjusted for the pro
forma effects of the acquisition and related transactions. The following
unaudited pro forma condensed combined statement of operations for the six
months ended March 31, 1995 assumes that the acquisition and related
transactions occurred prior to October 1, 1993 and includes the historical
consolidated statements of operations of Fronteer and RAFCO for the six months
ended March 31, 1995, adjusted for the pro forma effects of the acquisition and
related transactions.
The unaudited pro forma condensed statements of operations are not necessarily
indicative of the results of operations that would actually have occurred if the
acquisition and related transactions had been consummated prior to October 1,
1993. These pro forma condensed combined financial statements should be read in
conjunction with the historical consolidated financial statements and related
notes of Fronteer and RAFCO.
F-16
<PAGE>
FRONTEER DIRECTORY COMPANY, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
FRONTEER RAFCO PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 58,757 989,820 1,500,000 (3) 3,048,577
500,000 (4)
Broker/dealer receivables, net - 5,906,712 - 5,906,712
Trade receivables, net 3,756,188 465,929 - 4,222,117
Securities, at market - 1,608,852 - 1,608,852
Note receivable - - 835,000 (3) 835,000
Other 732,183 786,219 - 1,518,402
--------- ---------- --------- ----------
Total current assets 4,547,128 9,757,532 2,835,000 17,139,660
Property and equipment, net 597,657 1,380,298 (50,937)(3) 1,927,018
Intangible assets, net 161,525 - 6,133,737 (1) 3,195,199
(3,100,063)(3)
Other assets 199,791 1,258,601 - 1,458,392
--------- ---------- --------- ----------
$ 5,506,101 12,396,431 5,817,737 23,720,269
--------- ---------- --------- ----------
--------- ---------- --------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable, accrued expenses, and other
liabilities $ 1,896,748 1,449,518 - 3,346,266
Broker/dealer payables - 6,381,583 - 6,381,583
Current portion of notes payable and long-term
debt 856,097 395,701 - 1,251,798
Other current liabilities 424,910 152,690 100,000 (4) 677,600
--------- ---------- --------- ----------
Total current liabilities 3,177,755 8,379,492 100,000 11,657,247
Notes payable and long-term debt 149,099 1,363,156 400,000 (4) 1,912,255
Deferred rent concessions - 1,806,857 - 1,806,857
Other liabilities 35,000 204,843 - 239,843
Deferred income taxes payable - - 1,689,000 (1)
(816,000)(3) 873,000
Stockholders' equity:
Common, preferred and treasury stock (27,767) 823,751 202,651 (2) 998,635
Additional paid in capital 2,168,623 99 4,245,477 (2) 6,414,199
Retained earnings (deficit) 3,391 (181,767) (3,391)(2) (181,767)
--------- ---------- --------- ----------
2,144,247 642,083 4,444,737 7,231,067
--------- ---------- --------- ----------
$ 5,506,101 12,396,431 5,817,737 23,720,269
--------- ---------- --------- ----------
--------- ---------- --------- ----------
</TABLE>
F-17
<PAGE>
FRONTEER DIRECTORY COMPANY, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED MARCH, 31 1995
(UNAUDITED)
<TABLE>
<CAPTION>
FRONTEER RAFCO PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ----------- --------
<S> <C> <C> <C> <C>
REVENUE:
Directory $ 3,966,637 - - 3,966,637
Broker/dealer - 8,742,372 - 8,742,372
Other 101,422 42,385 - 143,807
--------- --------- ------- ----------
4,068,059 8,784,757 - 12,852,816
COST OF SALES AND OPERATING EXPENSES:
Directory cost of sales 2,508,507 - - 2,508,507
Commissions - 2,523,534 - 2,523,534
General and administrative 996,925 5,988,929 - 6,985,854
Depreciation and amortization 146,207 221,307 103,335 (5) 470,849
Other, net - 447,760 - 447,760
--------- --------- ------- ----------
3,651,639 9,181,530 103,335 12,936,504
--------- --------- ------- ----------
Operating income (loss) 416,420 (396,773) (103,335) (83,688)
OTHER INCOME (EXPENSE):
Interest income 15,098 522,182 43,332 (6) 580,612
Interest expense (59,492) (368,681) (23,076)(6) (451,249)
Other, net - (70,785) - (70,785)
--------- --------- ------- ----------
(44,394) 82,716 20,256 58,578
Net earnings (loss) before income taxes 372,026 (314,057) (83,079) (25,110)
Income tax expense 137,700 - 112,700 (7) 25,000
--------- --------- ------- ----------
Net earnings (loss) 234,326 (314,057) 29,621 (50,110)
--------- --------- ------- ----------
--------- --------- ------- ----------
Pro forma earnings (loss) per common share $ .04 * (.01)
--------- --------- ----------
--------- --------- ----------
Pro forma weighted number of common shares
outstanding $ 5,211,776 * 12,363,500
--------- --------- ----------
--------- --------- ----------
<FN>
* Due to the limited number of RAFCO shares outstanding, presentation of loss
per share is not considered to be meaningful.
</TABLE>
F-18
<PAGE>
FRONTEER DIRECTORY COMPANY, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
FRONTEER RAFCO PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ----------- --------
REVENUE:
<S> <C> <C> <C> <C>
Directory $ 9,003,581 - - 9,003,581
Broker/dealer - 16,228,686 - 16,228,686
Other 155,341 30,214 - 185,555
--------- ---------- -------- ----------
9,158,922 16,258,900 - 25,417,822
COST OF SALES AND OPERATING EXPENSES:
Directory cost of sales 6,387,386 - - 6,387,386
Commissions - 4,263,665 - 4,263,665
General and administrative 2,012,543 11,084,476 - 13,097,019
Depreciation and amortization 336,876 395,572 206,671 (5) 939,119
Other, net - 1,484,627 - 1,484,627
--------- ---------- -------- ----------
8,736,805 17,228,340 206,671 26,171,816
--------- ---------- -------- ----------
Operating income (loss) 422,117 (969,440) (206,671) (753,994)
OTHER INCOME (EXPENSE):
Interest income 47,709 1,082,576 65,000 (6) 1,195,285
Interest expense (162,516) (567,901) (46,152)(6) (776,569)
Other, net 239,490 101,339 - 340,829
--------- ---------- -------- ----------
124,683 616,014 18,848 759,545
Net earnings (loss) before income taxes 546,800 (353,426) (187,823) 5,551
Income tax expense 221,000 - (141,000)(7) 80,000
--------- ---------- -------- ----------
Net earnings (loss) $ 325,800 (353,426) (46,823) (74,449)
--------- ---------- -------- ----------
--------- ---------- -------- ----------
Pro forma earnings (loss) per common share $ .06 * .01
--------- ---------- ---
--------- ---------- ---
Pro forma weighted number of common shares
outstanding 5,186,837 * 12,363,500
--------- ---------- ----------
--------- ---------- ----------
<FN>
* Due to the limited number of RAFCO shares outstanding, presentation of loss
per share is not considered to be meaningful.
</TABLE>
F-19
<PAGE>
FRONTEER DIRECTORY COMPANY, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(A) BASIS OF PRESENTATION
On April 26, 1995, Fronteer entered into a Plan of Reorganization and
Exchange Agreement with RAFCO. Under the Agreement, Fronteer acquired all
of the assets of RAFCO in exchange for the assumption by Fronteer of the
liabilities of RAFCO and the issuance by Fronteer to RAFCO of 7,223,871
shares of $.01 par value common stock and 87,500 shares of $.10 par value
series A voting cumulative preferred stock ($10.00 per share redemption
value). RAFCO dissolved as a corporation and will distribute Fronteer's
common and preferred stock to the shareholders of RAFCO. As a result of
the transaction described in the Agreement, the former shareholders of
RAFCO acquired a 55% interest in Fronteer. Accordingly, the transaction
will be accounted for as a "reverse acquisition" of Fronteer by RAFCO
using the purchase method of accounting.
On April 27, 1995, Fronteer sold certain telephone directories to Telecom
for a purchase price of $2,400,000. The purchase price included a cash
payment of $1,500,000 and a promissory note of $900,000. Also on April 27,
1995, Fronteer granted Telecom the option to purchase certain other
telephone directories in the future. These related transactions were
contemplated by the Agreement.
The accompanying unaudited pro forma condensed combined balance sheet as of
March 31, 1995 includes historical balances, adjusted for the pro forma
effects of the acquisition and related transactions. The unaudited pro
forma condensed combined statement of operations for the six months ended
March 31, 1995 include historical results of operations of Fronteer and
RAFCO, adjusted for the pro forma effects of the acquisition and related
transactions. The unaudited pro forma condensed combined statement of
operations for the year ended September 30, 1994 include the historical
results of operations of Fronteer for the year ended September 30, 1994 and
the historical results of operations of RAFCO for the year ended
December 31, 1994, adjusted for the pro forma effects of the acquisition
and related transactions.
(B) PRO FORMA ADJUSTMENTS
The following pro forma adjustments have been made to the condensed
combined balance sheet as of March 31, 1995 and to the condensed combined
statements of operations for the six months ended March 31, 1995 and the
year ended September 30, 1994:
(1) To reflect the acquisition of Fronteer by RAFCO and the allocation of
the purchase price as follows:
<TABLE>
<S> <C>
Acquisition consideration $ 6,588,984
Less Fronteer net assets acquired 2,144,247
---------
Excess cost of net assets acquired $ 4,444,737
---------
---------
Allocation of excess cost of net assets acquired:
Intangible assets $ 6,133,737
Deferred tax liability (1,689,000)
---------
$ 4,444,737
---------
---------
</TABLE>
F-20
<PAGE>
FRONTEER DIRECTORY COMPANY, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS,
CONTINUED
The acquisition consideration is based on an independent third party
valuation of the common shares issued by Fronteer of $.90 per share.
The preferred stock issued by Fronteer was valued at $1.00 per share.
(2) To reflect the issuance of 7,223,871 shares of $.01 par value Fronteer
common stock and 87,500 shares of $.10 par value series A voting
cumulative preferred stock ($10.00 per share redemption value) and
adjust stockholders' equity to reflect the equity structure of
Fronteer, the surviving corporation, as follows:
<TABLE>
<CAPTION>
Combined
Historical Adjustments Fronteer
---------- ----------- --------
<S> <C> <C> <C>
Fronteer:
Common stock, net of
treasury shares $ (27,767) 151,402 123,635
Preferred stock - 87,500 87,500
Additional paid in capital 2,168,623 4,245,576 6,414,199
Retained earnings 3,391 (3,391) -
--------- --------- ---------
2,144,247 5,268,587 7,412,834
--------- --------- ---------
RAFCO:
Common stock 1 (1) -
Preferred stock 823,750 (823,750) -
Additional paid in capital 99 (99) -
Retained deficit (181,767) - (181,767)
--------- --------- ---------
642,083 (823,850) (181,767)
--------- --------- ---------
$ 2,786,330 4,444,737 7,231,067
--------- --------- ---------
--------- --------- ---------
</TABLE>
(3) To reflect the sale of telephone directories and other assets to
Telecom as follows:
<TABLE>
<S> <C>
Sales price:
Cash $ 1,500,000
Notes receivable 835,000
---------
$ 2,335,000
---------
---------
Financial statement value of directories sold:
Allocation of excess cost of net assets acquired $ 2,963,154
Historical cost basis of assets sold 187,846
---------
3,151,000
Less deferred tax liability related to excess cost
allocated to directories sold (816,000)
---------
$ 2,335,000
---------
---------
</TABLE>
F-21
<PAGE>
FRONTEER DIRECTORY COMPANY, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS,
CONTINUED
The total sales price of $2,400,000 includes a cash payment of
$1,500,000 and a noninterest bearing note receivable of $900,000,
which has been recorded net of discount of $65,000. Excess cost of
net assets acquired allocated to directories sold, net of income tax
effect is equal to the sales price; accordingly, no gain or loss is
recorded on the sale.
(4) To record the note payable in connection with the Option Agreement
granting Telecom the option to purchase certain other Fronteer
directories between June 1, 1997 and June 1, 1999. In consideration
for this option, Telecom made a $500,000 non interest bearing loan to
Fronteer. The note payable has been recorded net of discount of
$100,000.
(5) To reflect additional amortization expense associated with the
increase in intangible assets using a 15 year estimated life as
follows:
<TABLE>
<CAPTION>
Year ended Six months ended
September 30, 1994 March 31, 1995
------------------ --------------
<S> <C> <C>
Amortization expense $ 206,671 103,335
------- -------
------- -------
</TABLE>
(6) To record additional interest income related to the discounting of the
noninterest bearing $900,000 note receivable, and additional interest
expense related to the noninterest bearing $500,000 note payable.
(7) To record the tax effect of the utilization of the RAFCO net loss to
partially offset Fronteer net earnings.
(C) EARNINGS PER SHARE
Earnings per share amounts are based on the weighted average number of
common shares outstanding for the period less preferred stock dividends,
unless antidulitive.
F-22
<PAGE>
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K\A-1
CURRENT REPORT
DATED May 9, 1995
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FRONTEER DIRECTORY COMPANY, INC.
EXHIBITS
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT INDEX
Exhibit Description Page No.
- ------- ----------- --------
2.1 Plan of Reorganization and Exchange Agreement dated
April 26, 1995, with Exhibits A, B, C, F, and I. N/A
2.2 Sale and Purchase Agreement dated April 27, 1995, with Exhibits
A and J. N/A
2.3 Option Agreement dated April 27, 1995, with Exhibits A, B,
and D. N/A
3.0(i) Articles of Amendment to the Registrant's Articles of
Incorporation dated April 28, 1995. N/A
23.1 Consent of KPMG Peat Marwick, LLP.
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS
RAFCO, LTD:
We consent to the inclusion of our report dated February 17, 1995, with respect
to the consolidated balance sheets of RAFCO, Ltd., and subsidiaries as of
December 31, 1994 and 1993, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1994, which report appears in the current
report on Form 8-K/A-1 of Fronteer Directory Company, Inc. dated July 10, 1995.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Denver, Colorado
July 10, 1995
