FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-17637
Fronteer Financial Holdings, Ltd.
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(Exact name of registrant as specified in its charter)
Colorado 45-0411501
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(State or other jurisdiction of (IRS Employer ID No.)
incorporation or organization)
1700 Lincoln Street, Suite 3200, Denver, CO, 80203
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(Address of principal executive offices)
(303) 860-1700
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
The registrant had 15,801,944 shares of its $.01 par value common stock
outstanding as of August 12, 1996.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
<CAPTION>
FRONTEER FINANCIAL HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, September 30,
1996 1995
--------- ------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .............................................. $ 1,265,307 2,148,675
Broker dealer customer receivables, net ................................ 10,122,282 5,004,686
Receivables from brokers or dealers and
clearing organizations ............................................... 570,898 340,995
Trade receivables, net ................................................. 2,841,800 3,323,071
Other receivables ...................................................... 238,231 237,489
Securities owned, at market value ...................................... 2,248,350 1,374,725
Current portion of long-term notes receivable .......................... 402,316 731,766
Deferred directory costs ............................................... 639,188 438,412
Deferred income taxes .................................................. 368,374 368,374
Other assets ........................................................... 358,234 412,967
----------- -----------
Total current assets .............................................. 19,054,980 14,381,160
PROPERTY, FURNITURE AND EQUIPMENT, net
of accumulated depreciation .......................................... 2,201,199 1,698,488
LONG-TERM NOTES RECEIVABLE, net of
current portion ...................................................... -- 109,091
INTANGIBLE ASSETS:
Directory publishing rights and other,
net of accumulated amortization of
$458,925 at 6/30/96 and $161,885 at 9/30/95......................... 4,503,208 4,530,883
----------- ----------
Total assets ...................................................... $25,759,387 20,719,622
=========== ===========
(Continued)
2
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<CAPTION>
FRONTEER FINANCIAL HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
June 30, September 30,
1996 1995
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LIABILITIES AND STOCKHOLDERS' EQUITY: (Unaudited)
<S> <C> <C>
Accounts payable, accrued expenses,
and other liabilities ...................................................... $ 3,116,380 2,958,180
Broker dealer customer payables .............................................. 1,856,958 2,181,284
Payables to brokers or dealers and
clearing organizations ..................................................... 7,087,903 1,999,687
Deposits from clearing correspondent
brokers or dealers, net .................................................... 454,089 483,319
Current portion of long-term debt ............................................ 894,441 939,706
Notes payable to related parties ............................................. 467,900 548,900
Deferred revenue ............................................................. 330,550 639,184
Income taxes payable ......................................................... 75,893 207,643
Other current liabilities .................................................... 437,316 292,899
------------ ------------
Total current liabilities ............................................... 14,721,430 10,250,802
LONG-TERM DEBT, NET OF CURRENT PORTION ....................................... 904,051 1,974,226
DEFERRED RENT CONCESSIONS .................................................... 1,788,517 1,794,631
DEFERRED INCOME TAXES ........................................................ 1,085,590 1,085,590
------------ ------------
Total liabilities ....................................................... 18,499,588 15,105,249
MINORITY INTEREST IN SUBSIDIARY .............................................. 205,356 172,783
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STOCKHOLDERS' EQUITY:
Series A voting cumulative preferred stock, authorized 25,000,000 shares,
$0.10 par value, 87,500 shares issued and outstanding at September 30,
1995 (liquidation preference of $875,000) ............................... -- 875,000
Common stock; authorized 100,000,000
shares, $0.01 par value; 12,470,977 shares
issued and outstanding at September 30, 1995;
15,674,944 at June 30, 1996, net of shares held in treasury .............. 173,201 125,581
Subscribed common stock .................................................... 81,180 --
Additional paid-in capital ................................................. 11,058,091 6,431,343
Retained earnings (deficit) ................................................ (2,627,795) (1,560,100)
Treasury stock, 87,084 shares at cost at
September 30, 1995; 1,645,162 at June 30, 1996 ........................... (1,280,234) (80,234)
Unearned ESOP shares ....................................................... (350,000) (350,000)
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Total stockholders' equity .............................................. 7,054,443 5,441,590
------------ ------------
Total liabilities and
stockholders' equity .................................................. $ 25,759,387 20,719,622
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</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
FRONTEER FINANCIAL HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended Three Months Ended
June 30, June 30,
------------------- -----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C>
REVENUE:
Directory ......................... $ 4,500,000 2,018,808 2,115,086 2,018,808
Brokerage commissions ............. 9,480,095 6,780,455 3,439,481 2,932,442
Investment banking ................ 664,487 1,156,680 162,833 69,229
Trading profits, net .............. 725,798 685,470 131,049 373,677
Other broker dealer ............... 607,295 1,254,289 298,488 232,377
Computer hardware and
software operations ............. 4,379,324 3,370,421 1,532,988 940,915
Other ............................. 791,868 183,296 486,582 120,008
------------ ------------ ------------ ------------
21,148,867 15,449,419 8,166,507 6,687,456
------------ ------------ ------------ ------------
COST OF SALES AND OPERATING EXPENSES:
Directory cost of sales ........... 2,711,995 1,453,627 1,226,180 1,453,627
Broker dealer commissions ......... 6,065,732 4,337,446 2,142,839 1,810,028
Computer cost of sales ............ 4,506,110 3,468,142 1,612,664 1,010,781
General and administrative ........ 8,332,290 6,065,492 3,060,699 2,029,338
Depreciation and amortization ..... 694,160 401,711 263,304 174,354
------------ ------------ ------------ ------------
22,310,287 15,726,418 8,305,686 6,478,128
------------ ------------ ------------ ------------
Operating income (loss) ...... (1,161,420) (276,999) (139,179) 209,328
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income ................... 557,500 652,475 231,288 130,293
Interest expense .................. (347,332) (464,384) (108,530) (92,476)
------------ ------------ ------------ ------------
210,168 188,091 122,758 37,817
------------ ------------ ------------ ------------
Income (loss) before minority
interest and income taxes ..... (951,252) (88,908) (16,421) 247,145
Minority interest in (earnings)
loss .............................. (48,984) (97,817) 6,158 (19,495)
------------ ------------ ------------ ------------
Income (loss) before income taxes (1,000,236) (186,725) (10,263) 227,650
Income tax expense .................. 8,397 2,450 780 --
------------ ------------ ------------ ------------
Net income (loss) ............... (1,008,633) (189,175) (11,043) 227,650
Preferred stock dividend .......... (59,063) ( 2,154) (19,688) --
------------ ------------ ------------ ------------
Net income (loss) per common
shareholders .................... $ (1,067,696) (191,329) (30,731) 227,650
============ ============ ============ ============
Weighted average number of
common shares outstanding ....... 13,193,028 * 14,645,063 10,465,628
Income (loss) per common share .... $ (0.08) * $ (0.00) .02
</TABLE>
* Due to the limited number of shares outstanding during the nine months
ended June 30, 1995, presentation of earnings per share is not meaningful.
See accompanying notes to consolidated financial statements.
4
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<TABLE>
<CAPTION>
FRONTEER FINANCIAL HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
Nine Months Ended
June 30,
---------------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ........................................................................... $(1,008,633) (189,175)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation .................................................................... 397,120 379,093
Amortization of directory costs ................................................. 291,394 90,117
Amortization of acquisition costs ............................................... 5,645 1,018
Amortization of deferred rent ................................................... (6,114) (14,264)
Amortization of prepaid compensation ............................................ 174,006 120,750
Deferred income tax benefit ..................................................... -- 168,243
Vehicle paid in lieu of compensation ............................................ 5,564 --
Gain on sale of assets .......................................................... -- (91,760)
Minority interest in earnings ................................................... 48,984 97,817
Changes in operating assets and liabilities:
Decrease (increase) in broker dealer customer
receivables, net .............................................................. (5,117,596) 8,895,671
Decrease (increase) in receivables from brokers
or dealers and clearing organizations ......................................... (229,903) 3,052,521
Decrease (increase) in trade receivables ........................................ 511,306 (768,573)
Increase in other receivables ................................................... (742) (237,702)
Decrease (increase) in securities owned ......................................... (873,625) 449,911
Decrease (increase) in deferred directory costs ................................. (200,776) 127,809
Decrease (increase) in other assets ............................................. (119,273) 130,430
Increase (decrease) in accounts payable, accrued
expenses, and other liabilities ............................................... 152,388 (149,186)
Decrease in broker dealer customer payables ..................................... (324,326) (1,995,818)
Increase (decrease) in payables to brokers or
dealers and clearing organizations ............................................ 5,088,216 (8,056,708)
Decrease in deposits from clearing
correspondent brokers or dealers .............................................. (29,230) (2,527,247)
Decrease in deferred revenue .................................................... (308,634) --
Decrease in income taxes payable ................................................ (131,750) --
Increase in other current liabilities ........................................... 144,417 211,244
----------- -----------
Net cash used by operating activities ......................................... (1,531,562) (728,297)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal collected on notes receivable ............................................ 448,441 3,266
Proceeds from sale of assets ....................................................... 7,465 264,243
Issuance of notes receivable ....................................................... (9,900) (7,626)
Proceeds from sale of directories .................................................. -- 1,099,063
Acquisition of assets .............................................................. (200,000) --
Cash acquired in business combination .............................................. (7,797) (180,822)
Purchase of property and equipment ................................................. (911,311) (455,790)
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Net cash provided (used) by investing activities .............................. (673,102) 722,334
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(continued)
5
<PAGE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings .......................................................... 115,000 (220,000)
Borrowings on long-term notes payable .............................................. 543,055 530,127
Net borrowings from related parties ................................................ (81,000) 483,000
Principal payments on long-term borrowings ......................................... (1,860,834) (329,848)
Dividends on preferred stock ....................................................... (59,063) (2,154)
Net proceeds from issuance of common stock ......................................... 4,674,916 100
Proceeds from subscribed common stock .............................................. 81,180 --
Repurchase of preferred stock ...................................................... (875,000) --
Repurchase of common stock ......................................................... (1,200,000) (3,000)
Purchase of minority shares in subsidiary .......................................... (16,958) --
----------- -----------
Net cash provided by financing activities ..................................... 1,321,296 458,225
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................................. (883,368) 452,262
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ....................................... 2,148,675 1,522,042
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............................................. $ 1,265,307 1,974,304
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
FRONTEER FINANCIAL HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED JUNE 30, 1996
Subscribed Additional Retained
Preferred Common Common Paid-in Earnings Unearned Treasury
Stock Stock Stock Capital (Deficit) ESOP Stock Stock Total
--------- ------- ---------- ---------- -------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at October 1, 1995 ..... $ 875,000 125,581 -- 6,431,343 (1,560,100) (350,000) (80,234) 5,441,590
Series A preferred stock dividend -- -- -- -- (59,063) -- -- (59,063)
Purchase of subsidiary shares ... -- -- -- (548) -- -- -- (548)
Net proceeds from issuance of
common stock .................. -- 47,620 -- 4,627,296 -- -- -- 4,674,916
Subscribed common stock ......... -- -- 81,180 -- -- -- -- 81,180
Repurchase and retirement of
preferred stock ............... (875,000) -- -- -- -- -- -- (875,000)
Repurchase of common stock ...... -- -- -- -- -- -- (1,200,000) (1,200,000)
Net loss ........................ -- -- -- -- (1,008,633) -- -- (1,008,633)
---------- ---------- ------- ---------- ---------- ------- ---------- ----------
Balances at June 30, 1996 ....... $ -- 173,201 81,180 11,058,091 (2,627,795) (350,000)(1,280,234) 7,054,443
========== ========== ======= ========== ========== ======= ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
FRONTEER FINANCIAL HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
NOTE 1 - UNAUDITED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements of Fronteer
Financial Holdings, Ltd. (formerly Fronteer Directory Company, Inc.) and
subsidiaries (Fronteer or the Company) have been prepared in accordance with the
instructions to Form 10-Q and, therefore, do not include all information and
disclosures necessary for a fair presentation of financial position, results of
operations, and cash flows in conformity with generally accepted accounting
principles. In the opinion of management, these financial statements reflect all
adjustments (which include only normal recurring adjustments) necessary for a
fair presentation of the results of operations and financial position for the
interim periods presented. These interim financial statements should be read in
conjunction with the Annual Report on Form 10-K as of and for the year ended
September 30, 1995. Operating results for the nine months ended June 30, 1996,
are not necessarily indicative of the results that may be expected for the year
ended September 30, 1996.
NOTE 2 - ORGANIZATION, BUSINESS COMBINATION, AND PRINCIPLES OF CONSOLIDATION
On April 26, 1995, 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 has dissolved as a corporation and has distributed Fronteer's
common and preferred stock to the shareholders of RAFCO. As a result of the
transaction, the former shareholders of RAFCO acquired a 55% interest in
Fronteer. Accordingly, the transaction was accounted for as a "reverse
acquisition" of Fronteer by RAFCO using the purchase method of accounting and
Fronteer's assets and liabilities have been adjusted to their market value as of
the date of the business combination. The adjustment to market value resulted in
an intangible asset, directory publishing rights, which was recorded at
$6,972,468. Fronteer's operations have been included in the accompanying
consolidated financial statements beginning May 1, 1995, the effective date of
the transaction. As a result of the reverse acquisition accounting, historical
financial statements presented for periods prior to the business combination
date include the consolidated assets, liabilities, equity, revenues, and
expenses of RAFCO only. In addition, RAFCO's former subsidiaries, RAF and
Secutron, have changed their fiscal year ends to September 30 from December 31
and are now subsidiaries of Fronteer.
The consolidated financial statements include Fronteer and its wholly-owned
subsidiaries, Fronteer Personnel Services, Inc. (FPS), Fronteer Marketing Group,
Inc. (FMG), and RAF Financial Corporation (RAF). They also include a
majority-owned subsidiary, Secutron Corporation (Secutron). All significant
intercompany accounts and transactions have been eliminated in the preparation
of the consolidated financial statements.
Fronteer Directory Company, a trade name of Fronteer, is engaged in the
publishing and distribution of telephone directories, while FPS is engaged in
employee leasing, and FMG is engaged in the telemarketing business. RAF operates
as a registered securities broker dealer. Secutron is engaged in industry
specific software development and provides consulting services.
8
<PAGE>
NOTE 3 - PRIVATE PLACEMENT
On February 16, 1996, the Company commenced a private placement of 6,000,000
shares of its $.01 par value Common Stock at $1.00 per share, as well as
6,000,000 Class A Redeemable Common Stock Purchase Warrants at a price of $.10
per warrant. These warrants entitle the holder to purchase one share of Common
Stock at $1.50 per share at any time until May 1, 2000.
If all securities offered are sold, net proceeds of approximately $5,890,000 are
expected from the private placement. If all of the securities offered are sold,
the proceeds will be used for the following purposes: working capital for RAF -
$2,490,000, repurchase of 1,558,078 shares of Common Stock - $1,200,000,
repayment of debt - $1,325,000, repurchase of 87,500 shares of Preferred Stock -
$875,000.
At August 12, 1996, 4,889,045 shares had been issued. During the quarter ended
June 30, 1996, the Company used a portion of the proceeds of the offering as
follows: repurchased 1,558,078 shares of Common Stock for $1,200,000, paid off
debt of $1,325,000, and repurchased 87,500 shares of Preferred Stock for
$875,000.
NOTE 4 - SUBSEQUENT EVENT
On July 23, 1996, (the Closing Date) RAF closed the transfer of its securities
brokerage clearing operation (Clearing Operation) to a new firm, MultiSource
Services, Inc. (MSI). The purchase price was $3.0 million plus the net book
value of the financial assets of the Clearing Operation as of the Closing Date,
which totalled approximately $.5 million. MSI paid $1.5 million of the purchase
price in the form of a forgivable loan, which will be forgiven in whole or in
part based on MSI's revenues during the 28 months following the Closing Date.
The sale price was the result of arms-length negotiations between unrelated
parties. Fronteer owns 20% of the outstanding common stock of MSI and
Oppenheimer Funds, Inc. owns the remaining 80%. RAF has become a fully disclosed
clearing correspondent of MSI.
Assuming the transfer of the Clearing Operation had occurred October 1, 1995,
pro forma operating revenues and operating expenses for the nine months ended
June 30, 1996 would have resulted in decreases of approximately $1.2 million and
$1.7 million, respectively. Pro forma loss per common share for the nine months
ended June 30, 1996 would be $0.4. This pro forma information may not
necessarily be indicative of the results of operations that would have occurred
had the transfer of the Clearing Operation occurred on October 1, 1995.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
Financial Condition
At June 30, 1996, shareholders' equity was $7,054,443, up $1,612,853 from
year end September 30, 1995. The ratio of current assets to current liabilities
at June 30, 1996, was 1.29 to 1, a decrease from the 1.40 to 1 at September 30,
1995.
9
<PAGE>
Results of Operations
Nine Months Ended June 30, 1996 vs. Nine Months Ended June 30, 1995
The Company's acquisition of RAFCO under the terms of the RAFCO Agreement
dated April 26, 1995, has been accounted for as a reverse acquisition of
Fronteer Financial Holdings, Ltd. by RAFCO using the purchase method of
accounting. This resulted in Fronteer adjusting its assets and liabilities to
their fair market value at the effective date of the acquisition, or May 1,
1995. The enclosed financial statements for the nine months ended June 30, 1995
include RAFCO and its subsidiaries for the entire nine month period, as well as
the former Fronteer Directory and its subsidiaries from May 1, 1995 to June 30,
1995. The Company and subsidiaries are consolidated from October 1, 1995 to June
30, 1996, in accordance with the purchase method of accounting.
Net loss for the nine months ended June 30, 1996, totalled $1,008,633,
which compares to a net loss of $189,175 for the nine months ended June 30,
1995.
Revenues for the nine months ended June 30, 1996, totalled $21,148,867, an
increase of $5,699,448 over the nine months ended June 30, 1995. The revenues
for 1995 include directory revenues of $2,018,808, which cover the period
following the reverse acquisition. Directory revenues for all nine months of
1996 totalled $4,500,000. Computer revenues from Secutron for the first nine
months of fiscal 1996 totalled $4,379,324, an increase of $1,008,903, or 30%,
from the first nine months of last year.
Broker commissions for the first nine months of fiscal 1996 totalled
$9,480,095, an increase of $2,699,640, or 40%, over the first nine months of
1995. This increase is primarily attributable to the opening of new offices in
Chicago and New Orleans, as well as increased productivity in the Company's
other offices, including newer offices in Reston, VA and Atlanta, GA.
Various changes in the way the Company, through R A F, evaluates its
business opportunities has taken place over the last year. R A F's bank services
division, which had revenues of over $466,000 for the nine months ended June 30,
1995, was sold to Sheshunoff Information Services, Inc. during 1995. This
completely eliminated bank services as a revenue source for the first three
quarters of 1996. Subsequent to June 30, 1996, the Company transferred its
clearing business to MultiSource Services, Inc. (MSI) for approximately $3.5
million, of which $1.5 million was in the form of a forgivable loan to be
forgiven in whole or in part based on MSI's revenues during the 28 months
following July 23, 1996, the effective date of the transfer.
The Company's investment banking revenues for the nine months ended June
30, 1996 declined sharply when compared to the nine months ended June 30, 1995.
Revenues this year totalled $664,487 as compared to $1,156,680 last year, a
$492,193, or 43% decline. The Company's investment banking department has
devoted a great deal of its resources to the completion of the transfer of the
clearing business and on the Company's own private placement. Although these
projects generated no direct revenue for the Company, they are expected to
greatly benefit the Company over the long-term.
During this year's first three quarters, the Company recognized trading
profits of $725,798 as compared to a trading profit of $685,470 for the same
period last year, an increase of $40,328, or 6%. During the period, a large gain
of $484,000 was recognized on the exercise of warrants, which had been
previously received as compensation by the investment banking division of the
Company.
Other revenues increased from $183,296 last year to $791,868 for the first
three quarters of 1996. A $250,000 payment resulting from the sale of RAF's bank
services division has been recognized as income during the period. Revenues of
$222,177 and $89,846 for Fronteer Marketing Group (FMG) and Fronteer Personnel
Services (FPS), respectively, are included in this amount for the nine months
ended June 30, 1996, while $95,842 and $17,075, respectively, were recognized
for the same period last year.
10
<PAGE>
The Company recognized directory cost of sales for the nine months ended
June 30, 1996 of $2,711,995. Due to the purchase method of accounting, cost of
sales were recognized for only a portion of the year last year and totalled
$1,453,627. Directory cost of sales of $2,711,995 compares favorably to
directory revenues of $4,500,000.
Broker dealer commissions increased by $1,728,286 over last year's first
three quarters, a 40% increase. This compares well with an increase of
$2,699,640 in commission revenues for the same period, also a 40% increase.
During this year's first three quarters, the Company amortized as prepaid
compensation notes receivable from retail brokers in the amount of $174,000.
These notes receivable were made in the form of advances in order to attract and
retain retail brokers for R A F Financial's two new offices in Reston, VA and
Atlanta, GA during 1994. As the salespeople meet certain length of employment
and sales goals, the loans are forgiven.
General and administrative expenses (G & A) totalled $8,332,290 for the
nine months ended June 30, 1996. This compares to $6,065,492 for the same period
last year, an increase of $2,266,798. G & A expenses for 1995 for Fronteer
Directory are included only from May 1 through June 30 and totalled $372,589,
while 1996 includes nine months and totalled $1,403,025. The opening of new RAF
sales offices as well as the expansion of the Company's telemarketing company
have also contributed to this increase. G & A for FMG increased from $107,801
for the two months included for 1995 to $502,916 for the nine months ended June
30, 1996.
Interest income for the first nine months of 1996 totalled $557,500, a
decline of $94,975 from the nine months ended June 30, 1995. This decline is
attributable to a large decline in the Company's margin debit interest, which is
associated with the decline in the Company's clearing business and revenues over
the past year.
Interest expense declined $117,052 when compared to the nine months ended
June 30, 1995. This decline is also attributable to the decline in the Company's
clearing business and the subsequent decline in the margin debit interest.
Pursuant to the purchase method of accounting, the Company adjusted the
value of its telephone directories to their fair market value at April 26, 1995.
The directories which the Company still publishes were valued at $4,792,769.
This amount is being amortized over ten years with amortization totalling
$291,394 for the nine months ended June 30, 1996.
The minority interest in the financial statements relates to the percentage
of Secutron stock not owned by the Company. In January of 1996, the Company
increased its percentage ownership of Secutron from 47.5% to 60.4%.
Three Months Ended June 30, 1996 vs. Three Months Ended June 30, 1995
Net loss for the three months ended June 30, 1996, totalled $11,043, which
compares to a gain of $227,650 for the three months ended June 30, 1995.
Revenues for the three months ended June 30, 1996 totalled $8,166,507, an
increase of $1,479,051, or 22%, over the three months ended June 30, 1995.
Directory revenues totalled $2,115,086 as compared to $2,018,808 for the same
quarter of 1995, a $96,278 increase. Computer revenues from Secutron for the
third quarter of fiscal 1996 totalled $1,532,988, an increase of $592,073, or
63%, from last year.
Broker commissions for the third quarter of 1996 totalled $3,439,481, an
increase of $507,039, or 17%, from last year. This increase is attributable to
the opening of new offices and increased productivity in RAF's newer offices.
11
<PAGE>
The Company's investment banking revenues increased by $93,604 to $162,833,
when compared to the three months ended June 30, 1995. Revenues recognized last
year were down due to the investment banking department devoting its time to
completing the Fronteer-RAFCO merger. This year, the Company's investment
banking department has devoted a great deal of its resources to the completion
of the transfer of the clearing business and on the Company's own private
placement. Although these projects generated no direct revenue for the Company,
they are expected to greatly benefit the Company over the long-term. The Company
anticipates that investment banking revenues will increase during the fourth
quarter as these two projects are nearly complete.
During the quarter, the Company recognized trading profits of $131,049 as
compared to a trading profit of $373,677 for the same period last year, a
decline of 65%.
Other revenues jumped from $120,008 last year to $486,582 for the third
quarter of 1996. A $250,000 payment resulting from the sale of RAF's bank
services division was recognized as income during the quarter. Revenues of
$113,360 and $31,042 for Fronteer Marketing Group and Fronteer Personnel
Services, respectively, are included in the 1996 total.
The Company recognized directory cost of sales for the three months ended
June 30, 1996, of $1,226,180, as compared to $1,453,627 for the same period last
year. This decline of $227,447, or 16%, compares favorably to the $96,278
increase in directory revenues over last year's third quarter.
Broker dealer commissions totalled $2,142,839, an increase of $332,811, or
18%, over last year's third quarter. This compares to the increase of $507,039
in commission revenues for the quarter, a 17% increase. During this year's third
quarter, the Company amortized as prepaid compensation notes receivable from
retail brokers in the amount of $58,000, as noted previously.
General and administrative expenses (G & A) totalled $3,060,699 for the
third quarter of 1996. This compares to $2,029,338 for the same period last
year, an increase of $1,031,361, or 51%. This increase is attributable to a
number of factors. In 1995, only two months of G & A were recognized for the
former Fronteer Directory and its subsidiaries due to the reverse acquisition.
In addition, since last year, RAF has opened two new sales offices and the
Company has expanded the operations of Fronteer Marketing Group, a telemarketing
subsidiary. A decline to G & A is expected, beginning in the fourth quarter, due
to the sale of the clearing business.
Interest income for the third quarter of 1996 totalled $231,288, an
increase of $100,995, or 78%, over the three months ended June 30, 1995. A
portion of this increase is attributable to the holding of private placement
proceeds in interest bearing accounts.
Interest expense increased $16,054 when compared to the three months ended
June 30, 1995. The Company expects interest expense to decline during the fourth
quarter due to the recent payoff of $1,325,000 in debentures from the Company's
private placement proceeds.
Noncash amortization of directories totalled $97,131 for the three months
ended June 30, 1996.
Liquidity and Capital Resources
At June 30, 1996, the Company had working capital of $4,333,550, up
$203,192 from the $4,130,358 at September 30, 1995.
12
<PAGE>
During February of 1996, the Company initiated a private placement, as
described in Note 3 to the Company's consolidated financial statements. At June
30, 1996, the Company had received net proceeds from the yet-to-be-completed
offering in the amount of $4,756,096. The Company has used a portion of the
proceeds from the offering as follows: repurchased 1,558,078 shares of Common
Stock for $1,200,000, paid off debt of $1,325,000, and repurchased 87,500 shares
of Preferred Stock for $875,000. The private placement is expected to be
completed in the fourth quarter, with the additional proceeds to be used as
working capital for RAF.
The recently completed sale of the clearing business will provide the
Company with approximately $3.5 million in working capital.
The Company currently has a line of credit with its primary lender whereby
the Company may borrow up to 75% of its billed directory accounts receivable
under 60 days old. The Company currently has nearly $500,000 available on this
line. Liquidity is expected to be adequate in fiscal 1996.
Inflation
The effects of inflation on the Company's operations is not material and
inflation is not anticipated to have any material effect in the future.
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 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.*
2.3 Option Agreement dated April 27, 1995, with Exhibits A, B, and D.*
3.0 Articles of Incorporation of Registrant.**
3.0(i) Articles of Amendment to the Registrant's Articles of Incorporation dated
April 28, 1995.*
3.2 Bylaws of Registrant.**
10.l Agreement for Sale and Purchase of Certain of the Business and Assets of
RAF Financial Corporation dated January 29, 1996 by and among Fronteer
Directory Company, Inc., RAF Financial Corporation and MultiSource
Services, Inc.***
10.2 Stock Subscription Agreement dated January 29, 1996 by and among Fronteer
Directory Company, Inc., Oppenheimer Funds, Inc. and MultiSource
Services, Inc.***
- -------------------
* Incorporated by reference to Registrant's 8-K dated May 9, 1995.
** Incorporated by reference to Registrant's 10-K dated September 30,
1995.
*** Incorporated by reference to Registrant's 8-K dated July 23, 1996.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed with the SEC for the quarter ended June
30, 1996, but the Registrant filed one report on Form 8-K dated July 23,
1996.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: August 14, 1996 FRONTEER FINANCIAL HOLDINGS, LTD.
a Colorado corporation
By: /s/ R. A. Fitzner, Jr.
-----------------------------------------
R. A. Fitzner, Jr., Chairman of the Board
By: /s/ Lance Olson
----------------------------------------
Lance Olson, Principal Accounting Officer
14
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<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 1,265,307
<SECURITIES> 2,248,350
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0
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<INCOME-PRETAX> (16,421)
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