FORM 10-K/A1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________.
Commission file Number: 17637
Fronteer Directory Company, Inc.
(Exact Name of Registrant as Specified in its Charter)
Colorado 45-0411501
------------------------------ ------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
216 North 23rd Street
Bismarck, North Dakota 58501
--------------------------------------
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (701) 258-4970
Securities registered pursuant to Section 12(g) of the Act:
$0.01 Par Value Common Stock
(Title of Class)
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 and, (2) has been subject to such filing requirements
for the past 90 days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
[ ]
As of December 1, 1995, the aggregate market value of the Registrant's
voting stock held by nonaffiliates was $2,696,853.
As of December 1, 1995, Registrant had 12,537,227 shares of its $0.01
par value common stock issued and outstanding.
The information required by Part III is contained herein and will not
be incorporated by reference to Registrant's definitive proxy statement.
Total Pages __
<PAGE>
Independent Auditors' Report
The Board of Directors
Fronteer Directory Company, Inc.:
We have audited the accompanying consolidated balance sheets of Fronteer
Directory Company, Inc. and subsidiaries as of September 30, 1995 and December
31, 1994, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the nine months ended September 30, 1995 and for each
of the years in the two-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 Fronteer Directory
Company, Inc. and subsidiaries as of September 30, 1995 and December 31, 1994,
and the results of their operations and their cash flows for the nine months
ended September 30, 1995 and for each of the years in the two-year period ended
December 31, 1994, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Denver, Colorado
November 17, 1995
<PAGE>
<TABLE>
FRONTEER DIRECTORY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30, December 31,
1995 1994
------------- -----------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ...................... $ 2,148,675 2,276,654
Broker dealer customer receivables, net ........ 5,004,686 13,705,027
Receivables from brokers or dealers and
clearing organizations ....................... 340,995 746,260
Trade receivables, net ......................... 3,323,071 465,420
Other receivables .............................. 237,489 426,390
Securities owned, at market value .............. 1,374,725 1,406,214
Current portion of long-term notes receivable .. 731,766 589,598
Deferred directory costs ....................... 438,412 --
Deferred income taxes .......................... 368,374 109,000
Other assets ................................... 412,967 525,185
----------- -----------
Total current assets ...................... 14,381,160 20,249,748
PROPERTY, FURNITURE AND EQUIPMENT, net
of accumulated depreciation .................. 1,698,488 1,424,689
LONG-TERM NOTES RECEIVABLE, net of
current portion .............................. 109,091 --
DEFERRED INCOME TAXES .......................... -- 651,521
INTANGIBLE ASSET:
Directory publishing rights, net of
accumulated amortization of $161,886 ....... 4,530,883 --
----------- -----------
Total assets .............................. $20,719,622 22,325,958
=========== ===========
............................................ (Continued)
<PAGE>
FRONTEER DIRECTORY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
<CAPTION>
September 30, December 31,
1995 1994
------------- -----------
ASSETS
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable, accrued expenses,
and other liabilities ........................ $ 2,958,180 1,693,286
Broker dealer customer payables .............. 2,181,284 2,767,761
Payables to brokers or dealers and
clearing organizations ....................... 1,999,687 11,698,061
Deposits from clearing correspondent
brokers or dealers, net ...................... 483,319 1,067,338
Current portion of long-term debt .............. 939,706 555,675
Notes payable to related parties ............... 548,900 --
Deferred revenue ............................... 639,184 --
Income taxes payable ........................... 207,643 --
Other current liabilities ...................... 292,899 25,344
----------- -----------
Total current liabilities ................. 10,250,802 17,807,465
LONG-TERM DEBT, NET OF CURRENT PORTION ......... 1,974,226 1,363,156
DEFERRED RENT CONCESSIONS ...................... 1,794,631 1,800,744
DEFERRED INCOME TAXES .......................... 1,085,590 --
----------- -----------
Total liabilities ......................... 15,105,249 20,971,365
----------- -----------
MINORITY INTEREST IN SUBSIDIARY ................ 172,783 166,158
----------- -----------
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 --
Series A cumulative participating preferred
stock, authorized 600,000 shares, $.03 par
value, 87,500 shares issued and outstanding
at December 31, 1994; cancelled in 1995 .. -- 823,750
Common stock; authorized 100,000,000
shares, $0.01 par value; 12,558,061 shares
issued at September 30, 1995 ......... 125,581 --
Class A common stock, authorized 10,000,000 shares,
$0.01 par value; 13 shares issued and outstanding
at December 31, 1994; cancelled in 1995 -- 1
Class B common stock, authorized 10,000,000 shares,
$0.02 par value; no shares issued -- --
Additional paid-in capital ................... 6,431,343 99
Retained earnings (deficit) .................. (1,560,100) 364,585
Treasury stock, 87,084 shares at cost ........ (80,234) --
Unearned ESOP shares ......................... (350,000) --
----------- -----------
Total stockholders' equity ................ 5,441,590 1,188,435
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 5, 14, and 17)
Total liabilities and ..................... $20,719,622 22,325,958
stockholders' equity .................... =========== ===========
</TABLE>
See accompanying notes to consolidated financial stateme
<PAGE>
<TABLE>
FRONTEER DIRECTORY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
YEARS ENDED DECEMBER 31, 1994 AND 1993
<CAPTION>
Year Ended
Nine Months Ended December 31,
REVENUE: September 30, 1995 1994 1993
------------------ ---- ----
<S> <C> <C> <C>
Directory .................................... $ 3,625,038 -- --
Brokerage commissions ........................ 7,051,366 5,792,268 6,527,515
Investment banking ........................... 1,340,573 3,032,968 1,955,234
Trading profits, net ......................... 830,551 696,814 2,224,732
Other broker dealer .......................... 506,733 3,191,406 3,336,984
Computer hardware and
software operations ........................ 3,236,156 3,515,230 4,041,575
Other ........................................ 579,337 30,214 70,570
--------- ----------- ----------
17,169,754 16,258,900 18,156,610
----------- ----------- ----------
COST OF SALES AND OPERATING
EXPENSES:
Directory cost of sales ...................... 3,454,454 -- --
Broker dealer commissions .................... 5,049,208 4,263,665 4,696,299
Computer cost of sales ....................... 3,538,652 3,739,649 3,837,293
General and administrative ................... 6,550,305 8,829,454 9,782,370
Depreciation and amortization ................ 564,411 395,572 493,772
----------- ----------- ----------
19,157,030 17,228,340 18,809,734
----------- ----------- ----------
Operating loss .......................... (1,987,276) ( 969,440) ( 653,124)
----------- ----------- ----------
OTHER INCOME (EXPENSE):
Interest income .............................. 496,316 1,082,576 860,492
Interest expense ............................. ( 395,777) ( 567,901) ( 415,175)
----------- ----------- ----------
100,539 514,675 445,317
----------- ----------- ----------
Loss before minority interest,
income taxes and cumulative
effect of change in accounting (1,886,737) ( 454,765) ( 207,807)
Minority interest in loss
(earnings) ................................. ( 5,136) 101,339 (89,883)
----------- ----------- ----------
Loss before income taxes and
cumulative effect of change
in accounting ............................ (1,891,873) ( 353,426) (297,690)
Income tax benefit ........................... -- -- 133,569
---------- ----------- ----------
Loss before cumulative effect
of change in accounting
for income taxes ......................... (1,891,873) (353,426) (164,121)
Cumulative effect of change in
accounting for income taxes ................ -- -- 141,080
----------- ----------- ----------
Net loss ............................. $ (1,891,873) (353,426) (23,041)
========== ============
Preferred stock dividend ..................... (32,812) * *
----------
Net loss per common shareholders $ (1,859,061) * *
==========
Weighted average number of
common shares outstanding .................. 9,408,431 * *
Loss per common share ........................ $ (0.20) * *
<FN>
* Due to the limited number of shares outstanding during 1994 and 1993,
presentation of loss per share is not meaningful.
</FN>
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
FRONTEER DIRECTORY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
YEARS ENDED DECEMBER 31, 1994 AND 1993
<CAPTION>
Additional Retained
Preferred Common Paid-in Earnings Unearned Treasury
Stock* Stock Capital (Deficit) ESOP Stock Stock Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1993 .......................... $ -- 1 99 804,531 -- -- 804,631
Proceeds from 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
Cancellation of RAFCO preferred
and common stock ................................... (823,750) (1) (99) -- -- -- (823,850)
Shares issued in business
combination ........................................ 875,000 125,581 6,431,343 -- (350,000) (80,234) 7,001,690
Series A preferred stock dividend .................... -- -- -- (32,812) -- -- (32,812)
Net loss ............................................. -- -- -- (1,891,873) -- -- (1,891,873)
--------- -- --- ---------- --------- -- ----------
Balances at September 30, 1995 ....................... $ 875,000 125,581 6,431,343 (1,560,100) (350,000) (80,234) 5,441,590
========= == === ========== ========= == ==========
<FN>
*Includes both outstanding preferred shares issued in connection with the
RAFCO, Ltd. business combination discussed in note 1 and the previously issued
RAFCO, Ltd. preferred shares cancelled in connection with the transaction.
</FN>
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
FRONTEER DIRECTORY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
YEARS ENDED DECEMBER 31, 1994 AND 1993
<CAPTION>
Year Ended
Nine Months Ended December 31,
CASH FLOW FROM OPERATING ACTIVITIES: September 30, 1995 1994 1993
------------------ ---- ----
<S> <C> <C> <C>
Net Loss .............................................................................. $(1,891,873) (353,426) (23,041)
Adjustments to reconcile net loss to net cash provided (used) by operating
activities:
-- -- (141,080)
Cumulative effect of change in accounting for income taxes
Depreciation ........................................................................ 402,625 395,572 493,772
Amortization of directory costs ..................................................... 161,886 -- --
Amortization of deferred rent ....................................................... 6,113 112,730 187,078
Provision for bad debts ............................................................. 598,132 3,550 10,982
Deferred income tax benefit ......................................................... -- -- (118,305)
(Gain) Loss on sale of assets ....................................................... (49,965) -- 30,357
Minority interest in loss (earnings) ................................................ 5,136 (101,339) 89,883
Changes in operating assets and liabilities:
8,684,925 (1,914,718) (511,730)
Decrease (increase) in broker dealer customer receivables, net
Decrease (increase) in receivables from brokers or dealers
and clearing organizations ........................................................ 405,265 1,006,131 (1,422,404)
Decrease (increase) in trade receivables ............................................ 635,732 (31,074) (272,808)
Decrease (increase) in other receivables ............................................ 358,369 205,345 (205,345)
Decrease (increase) in securities owned ............................................. 31,489 (430,305) (220,489)
Decrease in deferred directory costs ................................................ 191,850 -- --
Increase in other assets ............................................................ (112,938) (624,434) (47,330)
Increase (decrease) in accounts payable, accrued expenses,
and other liabilities ............................................................. 207,323 (328,432) 392,601
Increase (decrease) in broker dealer customer payables .............................. (586,477) (2,671,095) 2,517,821
Increase (decrease) in payables to brokers or dealers
and clearing organizations ........................................................ (9,698,374) 7,206,342 (2,037,698)
Increase (decrease) in deposits from clearing correspondent
brokers or dealers ................................................................ (584,019) (3,829,190) 1,930,434
Increase in deferred revenue ........................................................ 315,620 -- --
Decrease in income taxes payable .................................................... (85,060) -- --
Increase (decrease) in other current liabilities .................................... (27,110) 1,598 (66,103)
----------- ----------- -----------
Net cash provided (used) by operating activities .................. (1,031,451) (1,352,745) 586,595
----------- ---------- ----------
<PAGE>
<CAPTION>
Year Ended
Nine Months Ended December 31,
September 30, 1995 1994 1993
------------------ ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal collected on notes receivable .............................. 444,500 -- --
Proceeds from sale of assets ......................................... 331,991 -- --
Issuance of notes receivable ......................................... (792,425) -- --
Purchase of property and equipment ................................... (278,977) (387,105) (211,100)
Cash received from sale of directories and other assets .............. 1,619,622 -- --
Net cash received in business combination ............................ 17,741 -- --
---------- ---------- ----------
Net cash provided (used) by investing activities .................. 1,342,452 (387,105) (211,100)
---------- ---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES:
Net payments on short-term borrowings ................................ (675,000) -- --
Borrowings on long-term notes payable ................................ 529,800 243,542 1,325,000
Net borrowings from related parties .................................. 483,000 -- --
Principal payments on long-term borrowings ........................... (564,853) (156,103) (1,138,801)
Proceeds from sale of preferred stock, net ........................... -- -- 823,750
Dividends on preferred stock ......................................... (32,812) (52,500) --
Cash overdrafts ...................................................... (176,215) -- --
Other financing activities ........................................... (2,900) -- --
---------- ---------- ----------
Net cash provided (used) by financing activities .................. (438,980) 34,939 1,009,949
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ............................................................ (127,979) (1,704,911) 1,385,444
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD ................................................................. 2,276,654 3,981,565 2,596,121
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............................... 2,148,675 2,276,654 3,981,565
========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
FRONTEER DIRECTORY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. ORGANIZATION, BUSINESS COMBINATION, AND PRINCIPLES OF CONSOLIDATION -
On April 26, 1995, Fronteer Directory Company, Inc. (Fronteer or the
Company) 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 has been 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 (see note 6).
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.
The following unaudited condensed pro forma information presents the
unaudited results of operations of the Company as if the business
combination had occurred on January 1, 1994:
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
Ended September 30, December 31,
1995 1994
------------------ -----------
<S> <C> <C>
Revenue $21,136,000 $ 26,345,000
---------- -----------
Net Loss $(1,658,000) $ (28,000)
---------- -----------
Loss per common share $ (.13) $ (.01)
---------- -----------
</TABLE>
The pro forma information does not necessarily represent the results
which would have occurred if the business combination had taken place
on January 1, 1994, nor are they necessarily indicative of the results
of future operation.
The consolidated financial statements include the Company and the
accounts of Fronteer Directory (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 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.
B. CASH EQUIVALENTS - For purposes of reporting cash flows, the
Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
C. ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS - Fronteer
grants credit to customers throughout the directory market, primarily in
North Dakota. Although Fronteer has a diversified customer base, a
substantial portion of its debtors' ability to honor their contract is
dependent upon the economic conditions in North Dakota. Broker dealer
customer receivables include amounts due on cash transactions and margin
accounts.
Amounts due to or from directors or officers of the Company, related to
normal cash accounts, are not classified as customer related in
accordance with the rules of the Securities and Exchange Commission.
The allowance for doubtful accounts is maintained at a level
adequate to absorb probable losses and credit losses inherent in the
business based upon Fronteer's prior history of credit losses.
Management determines the adequacy of the allowance based upon reviews
of individual accounts, recent loss experience, current economic
conditions, the risk characteristics of the various categories of
accounts and other pertinent factors. Fronteer establishes payment
terms with customers ranging from a single payment due upon
publication of the directory to twelve equal monthly payments
commencing upon publication of the directory. Any accounts remaining
on Fronteer's books fifteen months following publication of the
directory, due to additional payment arrangements made with Fronteer
outside of the original contract, are charged to the allowance for
doubtful accounts.
Securities owned by customers are held as collateral for substantially
all of the broker dealer customer receivables. An allowance for doubtful
accounts has been established for all unsecured broker dealer customer
receivables.
D. SECURITIES - Securities transactions are recorded on a settlement-date
basis, usually the third business day following the trade date. The
effect of using settlement date rather than trade date for the recording
of securities transactions is not significant.
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" requires that trading
securities be recorded at market value. In accordance with financial
reporting requirements for broker/dealers, the Company's financial
instruments, including securities, are all recorded at market value.
Securities without a readily available market value 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.
In October 1994, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (FASB) No. 119, "Disclosure
about Derivative Financial Instruments and Fair Value of Financial
Instruments" which prescribes disclosure requirements for transactions
in certain derivative financial instruments including futures, forward,
swap, and option contracts, and other financial instruments with similar
characteristics. Although RAF is authorized to enter into such
transactions in the ordinary course of business, and may do so in the
future, no such transactions were consummated during the nine months
ended September 30, 1995.
E. REVENUE AND COST RECOGNITION - Revenues from advertising sales
are recognized at the point individual directories are published.
Costs of selling and production are recorded as deferred directory
costs when incurred and charged to cost of sales in the period during
which the related directory is published. Deferred directory costs are
allocated to incomplete directories based upon the relative percentage
of contracts sold as of year-end on incomplete directories to total
current year earned revenues. Printing costs are charged to cost of
sales in the period during which the related directory is published.
Costs of distribution are charged to cost of sales as incurred.
General administrative costs are charged to expenses as incurred.
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.
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, or 1993.
F. PROPERTY, FURNITURE, AND EQUIPMENT - Property and equipment are stated
at cost. Additions, renewals and betterments are capitalized, whereas
expenditures for maintenance and repairs are charged to expense. The
cost and related accumulated depreciation of assets retired or sold are
removed from the appropriate asset and depreciation accounts, and the
resulting gain or loss is reflected in income.
It is the policy of the Company to provide depreciation using the
accelerated and straight-line methods based on the estimated useful
lives of the assets as follows:
Estimated
Description Useful Life
----------- -----------
Building 40 years
Vehicles & Furniture 3-5 years
Equipment 5-10 years
G. AMORTIZATION - Directory publishing rights are amortized over ten years
using the straight-line method.
H. INCOME TAXES - The Company accounts for income taxes under the
provisions of Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes", which prescribes the use of
the asset and liability method of accounting for income taxes.
I. DESCRIPTION OF LEASING ARRANGEMENTS - The Company leases office space
under operating leases from which its business is conducted in certain
branches under short-term leasing arrangements. In addition, the Company
leases equipment under leases classified as capital leases. All leases
expire over the next year.
J. LOSS PER COMMON SHARE - Loss per common share has been calculated based
upon the net loss available to common shareholders divided by the
weighted average number of common shares outstanding during the period.
Common stock equivalents, including outstanding options and warrants,
are considered in determining the weighted average number of common
shares outstanding during the period unless antidilutive.
NOTE 2 - STOCKHOLDERS' EQUITY
In conjunction with the Agreement, the Company issued 87,500 shares of $.10 par
value per share, Series A Voting Cumulative Preferred Stock ("Series A
Preferred"). The stated value of the Series A Preferred is $10 per share and has
a liquidation preference of $10 per share plus accrued and unpaid dividends.
Regular dividends are 9% per annum payable quarterly. 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, 1995, and at December 31
or each year thereafter at $11 per share plus unpaid dividends.
NOTE 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 September 30, 1995, RAF
had balances in such accounts of approximately $296,000. All of this amount is
in excess of the reserve requirement.
NOTE 4 - SECURITIES OWNED
Securities owned by the Company as of September 30, 1995 and December 31, 1994,
consist of the following:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Corporate securities ...... $1,302,025 1,232,718
U.S. government obligations 53,600 116,270
Municipal obligations ..... ___19,100 ___57,226
---------- ----------
$1,374,725 1,406,214
========== ==========
</TABLE>
NOTE 5 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
As a securities broker and dealer, RAF is engaged in various securities trading
and brokerage activities. A portion of RAF's transactions are collaterized 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 cash and
securities collateral in customers' accounts, 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 it obligations, RAF may be required
to purchase or sell financial instruments at prevailing market prices in order
to fulfill the customer's obligations.
NOTE 6 - INTANGIBLE ASSET AND SALE OF DIRECTORIES
In connection with the business combination discussed in note 1, Fronteer 's
assets were adjusted to their fair market value pursuant to the purchase method
of accounting, which resulted in an intangible asset, directory publishing
rights, which was recorded at $6,972,468. Immediately thereafter, Fronteer sold
ten of its directories to Telecom*USA Publishing. As a result of the purchase
price allocation to the sold directories of $2,279,699, no gain or loss was
recorded on the sale.
NOTE 7 - LONG-TERM NOTES RECEIVABLE
Notes receivable consist of the following:
<TABLE>
<CAPTION>
Maturity Interest
Payor Date Rate 1995 1994
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Telecom* USA Publishing
Company ........... 12/31/95 (1) $ 289,846 --
Phone Directories
Company, Inc. ..... 11/1/96 (2) 10.0% 208,265 --
Affiliate ........... 7/1/99 6.46% 113,242 85,787
Former employee, net demand 0% 160,000 454,411
Other notes receivable various various 69,504 49,400
--------- ---------
840,857 589,598
Less current portion (731,766) (589,598)
--------- ---------
$ 109,091 --
========= =========
<FN>
(1) The promissory note states that the note is interest free. This note
receivable results from the sale of the Company's directories in Idaho,
Montana, South Dakota, and Wyoming. The agreement requires final payment
prior to December 31, 1995. The note was paid in full subsequent to
September 30, 1995.
(2) The note receivable from Phone Directories, Inc. is secured by the
directory and publishing rights to certain Arizona directories sold in
1993.
</FN>
</TABLE>
NOTE 8 - DEFERRED REVENUE
Sales contracts for advertising in directories not published totaled
approximately $2,200,000 as of September 30, 1995. This amount will be recorded
as revenue upon publication of the directories. The deferred revenue balance of
$639,184 as of September 30, 1995, represents advance payments received on these
contracts. These amounts together with the balances of the contracts will be
recognized as revenue when the directories are published.
NOTE 9 - PROPERTY, FURNITURE AND EQUIPMENT
Property, furniture and equipment is comprised of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------ ------------
<S> <C> <C>
Cost:
Building ............. $ 239,609 --
Vehicles ............. 173,443 --
Furniture & Equipment 3,458,172 2,808,149
Leasehold improvements 286,572 255,867
Condominium .......... 74,439 133,725
----------- -----------
4,232,235 3,197,741
Accumulated depreciation ..... (2,533,747) (1,773,052)
----------- -----------
$ 1,698,488 1,424,689
=========== ===========
</TABLE>
Depreciation expense totaled $402,525 for the nine months ended September 30,
1995, and $395,572 and $493,772 for the years ended December 31, 1994 and 1993,
respectively.
NOTE 10 - NOTES PAYABLE TO RELATED PARTIES
The Company has various notes payable to related parties in the amount of
$548,900 at September 30, 1995. Such notes payable are unsecured, payable on
demand, and bear interest at a variable rate not to exceed the interest rate on
the Company's line of credit with BNC National Bank. At September 30, 1995, the
interest rate was 11.5%.
NOTE 11 - LONG-TERM DEBT
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
Balance Balance
Maturity Interest September 30, December 31,
Payee Collateral Date Rate 1995 1994
----- ---------- ---- ---- ------------ ------------
<S> <C> <C> <C> <C> <C>
Chesak Properties .................. Building 9-20-96 11.50% $ 28,571 --
Telecom*USA ........................ (1) 6-15-99 (1) 500,000 --
Upper Valley
Phone Book, Inc. ................. Directories 6-30-96 (2) 172,039 --
GMAC ............................... Vehicles 2-28-96 Various 4,333 --
Kirkwood Bank & Trust .............. Vehicle 12-6-97 9.0% 14,984 --
BNC National Bank (3).............. ESOP Stock 4-7-96 11.5% 350,000 --
Stearns County (4)
National Bank .................... Equipment 6-1-96 11.75% 57,172 --
Debentures payable (5).............. Unsecured 12-31-03 10.0% 1,325,000 1,325,000
Guaranty Bank ...................... Unsecured 3-1-96 9.5% 100,000 180,000
IBM ................................ Equipment 7-1-96 12.0% 14,237 --
Key Bank ........................... Vehicle 10-1-00 9.65% 29,800 --
Guaranty Bank ...................... Equipment 10-1-96 8.75% 11,012 20,000
Equipment 7-30-97 8.75% 206,928 290,761
Other Notes ........................ Unsecured -- -- 99,856 103,070
----------- -----------
Total ................. 2,913,932 1,918,831
Less current portion .. (939,706) (555,675)
----------- -----------
$ 1,974,226 $ 1,363,156
=========== ===========
<FN>
(1) This note results from an Option Agreement between the Company and
Telecom*USA Publishing Company. Telecom*USA made a noninterest bearing
and nonrecourse loan to the Company as consideration for the Option
Agreement. Telecom*USA has the right to purchase nine North Dakota
directories between June 1, 1997 and June 1, 1999. The amount of the
loan will be applied against the sales price of the directories. If the
option is not excercised, the full amount of the loan will be forgiven
on June 1, 1999.
(2) The promissory note states that the note is interest free. Interest has
been imputed at 12.75%.
(3) The Company has guaranteed its ESOP's note payable, which is secured by
the shares of Fronteer Directory stock owned by the ESOP.
(4) See note 14 regarding capital leases.
(5) Debentures payable represent $1,325,000 of 10% Senior Subordinated
promissory notes which were assumed by the Company in conjunction with
the business combination. 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.
</FN>
</TABLE>
A line of credit agreement has been executed with BNC National Bank providing
the Company with loans in the total amount of $1,300,000 on a revolving basis.
The line of credit is due April 7, 1996 at which time all unpaid principal is
due and payable. Interest on unpaid principal is payable monthly at the Wall
Street Journal Prime Rate plus 2.75%. At September 30, 1995, no balances were
outstanding under the line of credit.
The BNC National Bank loan agreement includes various restrictions affecting the
conduct of Fronteer's business while the agreement is in force, including
limited expansion. It also requires maintenance of net income of 2.5% of sales,
equity to total assets of not less than 35%, and cash flow coverage of at least
100% of all debt service, and limiting the outstanding line of credit to 75% of
accounts receivable less than 60 days old. Fronteer was in compliance with all
provisions of the loan agreement as of September 30, 1995.
Minimum principal payments required on long-term debt during the next five years
are as follows: 1996 -$589,706; 1997 - $128,556; 1998 - $7,075; 1999 - $506,501;
2000 - $7,094; thereafter -$1,325,000.
NOTE 12 - BROKER DEALER PAYABLES
Broker dealer payables includes amounts due on customer margin debits
collateralized by customer securities. Such amounts bear interest at a
fluctuating rate that generally corresponds to the broker call money rate (7.5%
at September 30, 1995).
NOTE 13 - INCOME TAXES
Income tax benefit for the year ended December 31, 1993, consisted of the
following:
Current $ 15,264
Deferred 118,305
--------
$ 133,569
========
Income tax benefit in 1993 differs from the amount computed by applying the
federal statutory tax rate to loss before income taxes and cumulative effect of
change in accounting for income taxes primarily due to state income taxes.
Temporary differences between financial statement carrying amounts and the tax
bases of assets and liabilities that result in significant deferred tax assets
and liabilities at September 30, 1995 and December 31, 1994, are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ----------
<S> <C> <C>
Deferred tax assets:
Deferred rent concessions .................. $ 685,000 705,000
Deferred revenue on directory sales ........ 243,000 --
Accrued expenses ........................... 137,000 69,000
Allowance for doubtful accounts ............ 60,000 40,000
Contribution and operating loss carryforwards 122,693 57,794
----------- -----------
Gross deferred tax assets ................ 1,247,693 871,794
Valuation allowance ........................ (91,915) (91,915)
----------- -----------
Deferred tax assets after valuation allowance 1,155,778 779,879
Deferred tax liabilities:
Directory acquisition costs ................ (1,722,000) --
Property and equipment ..................... (80,000) (19,000)
Installment sales on directories ........... (61,000) --
Deferred directory costs and other ......... ( 9,994) ( 358)
----------- -----------
Gross deferred tax liabilities ........... (1,872,994) (19,358)
----------- -----------
Net deferred tax asset (liability) ....... $ (717,216) 760,521
=========== ===========
</TABLE>
The net deferred tax liability is presented in the accompanying consolidated
balance sheets as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Net current deferred tax asset ............. $ 368,374 109,000
Net long-term deferred tax asset (liability) (1,085,590) 651,521
----------- -------
Net deferred tax asset (liability) .... $ (717,216) 760,521
=========== =======
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that the deferred tax asset will be realized.
The ultimate realization of the deferred tax asset is dependent on the
generation of future taxable income in the period in which the temporary
differences become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income and tax planning
strategies in making this assessment. Based on these considerations, management
believes it is more likely than not that the Company will realize the benefits
of these deductible differences, net of the existing valuation allowance at
September 30, 1995. In 1994, the change in the valuation allowance was an
increase of $91,915.
Net operating loss carryforwards for income tax purposes of approximately
$165,000 will be available to offset future taxable income through 2010.
Contribution carryforwards of approximately $158,000 expire in varying amounts
through 2000.
Effective January 1, 1993, the Company adopted the provisions of SFAS No. 109 on
a prospective basis. The cumulative effect of this change in the method of
accounting for income taxes was to decrease the net loss by $141,080. The
adoption of SFAS No. 109 did not have a significant impact on the Company's 1993
provision for income taxes.
NOTE 14 - LEASES
OPERATING LEASES:
Fronteer and RAF lease office space 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 required by such leases are
as follows:
Year ending September 30,
1996 $ 921,442
1997 940,593
1998 1,015,652
1999 990,649
2000 869,803
Thereafter 5,920,044
Rental expense included in the statement of operations totaled $917,963 for the
nine months ended September 30, 1995, and $1,018,131 and $1,140,248 for the
years ended December 31, 1994 and 1993, respectively.
CAPITAL LEASES:
The Company has leased equipment under leases classified as capital leases. The
following is a schedule of future minimum lease payments under the capital
leases, as well as the present value of the net minimum lease payments as of
September 30, 1995:
Year ending September 30, 1996 $ 60,407
Less amount representing interest (3,235)
--------
Present value of net minimum lease payments $ 57,172
=========
NOTE 15 - EMPLOYEE STOCK OWNERSHIP AND EMPLOYEE BENEFIT PLANS
The Company has adopted an employee stock ownership plan (ESOP) for its
employees. Contributions to the plan are at the discretion of the Company. All
employees as of October 1, 1989 are eligible to participate in the plan and new
employees after that date become eligible on April 1 or October 1 which follows
the completion of one year of employment. The plan provides that more than half
of the assets in the plan must consist of the Company's common stock. The plan
has certain debt of $350,000 which has been used to purchase the Company's
common stock. Such debt is guaranteed by the Company and accordingly has been
recorded in the accompanying consolidated financial statements. During the nine
months ended September 30, 1995, the Company contributed $10,000 to the plan.
The Company has a retirement savings plan covering all employees who are over 21
years of age and have completed one year of eligibility service. Persons
employed as of April 1, 1991, the inception date of the plan, were included. The
plan meets the qualifications of Section 401(k) of the Internal Revenue Code.
Under this plan, eligible employees can contribute through payroll deductions up
to 15% of their base compensation. The Company will make a discretionary
matching contribution equal to a percentage of the employee's contribution. The
Company contributed $44,934 during the nine months ended September 30, 1995.
The Company does not provide any post employment benefits to retired or
terminated employees.
NOTE 16 - STOCK OPTIONS
At September 30, 1995, the Company had 420,000 stock options outstanding, which
were granted to certain officers and an outside public relations firm during
1992 and 1993. The exercise prices range from $.70 to $.95 per share. Of the
total number of options outstanding, 80,000 expire March 6, 1996, and 340,000
expire August 26, 1997.
The Company has 156,250 warrants outstanding at September 30, 1995. Each warrant
allows the holder to purchase one share of common stock at $.96 per share. The
warrants can be exercised between June 26, 1993 and June 26, 1997.
NOTE 17 - MINIMUM NET CAPITAL REQUIREMENTS
The Company, as a registered securities broker/dealer, is subject to the
Securities and Exchange Commission Uniform Net Capital Rule (Rule 15c3-1) (the
Rule). The Company has elected to operate pursuant to the alternative
computation provided by the Rule.
Under the alternative computation, the Company 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
September 30, 1995, the Company had a ratio of net capital to aggregate debits
of 41%, a "net capital" requirement of $250,000, and actual "net capital" of
$1,988,915.
NOTE 18 - OFFICER LIFE INSURANCE
As of September 30, 1995, the Company is the owner-beneficiary of term life
insurance policies on the lives of two officers:
Name Face Amount of Policy
Dennis Olson $ 1,000,000
Robert A. Fitzner 2,500,000
NOTE 19 - SUPPLEMENTAL DISCLOSURES RELATED TO STATEMENTS OF
CASH FLOWS
Supplemental disclosures of cash flow
information:
<TABLE>
<CAPTION>
Year ended
Nine months ended December 31,
September 30, 1995 1994 1993
------------------ ---- ----
<S> <C> <C> <C>
Cash payments for:
Interest ....... $398,161 574,827 434,719
Income taxes ... 135,060 -- --
Non-cash investing and financing activities:
The Company acquired all of the assets of RAFCO, Ltd. in
exchange for the assumption by Fronteer of the liabilities
of RAFCO and the issuance of common and preferred stock
outlined as follows:
Cash and cash equivalents ............ $ 17,741
Trade and notes receivable, net ...... 3,711,148
Other assets ............ ............ 1,153,784
Property, furniture, and equipment,
net of accumulated depreciation .... 679,373
Directory publishing rights .......... 7,109,378
Accounts payable, accrued expenses,
and other liabilities .............. (1,153,875)
Other current liabilities ................ (1,181,758)
Notes payable ............ ........... (1,664,462)
Deferred income taxes ................... (2,493,489)
Cancel RAFCO common and preferred
stock ............ ............ ..... 823,850
Issuance of common and preferred
stock ............ ............ ..... (7,001,690)
----------
$ --
==========
</TABLE>
NOTE 20 - SEGMENT REPORTING
Information regarding business segments is summarized below. Operations for
Fronteer are for the period from the date of the business combination, May 1,
1995, to September 30, 1995. Operations for RAF and Secutron are for the nine
months ended September 30, 1995.
<TABLE>
<CAPTION>
Adj. and
Elimi- Consoli-
Fronteer RAF Secutron Others nations dated
-------- -------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Revenues from
Unaffiliated Customers................................ 3,702,849 9,854,160 3,236,156 376,589 17,169,754
Intersegment Revenues ................................... 6,852 392,208 15,562 (414,622)
---------- --------- --------- --------- --------- ----------
Total revenues ................................. 3,709,701 9,854,160 3,628,364 392,151 (414,622) 17,169,754
========== ========= ========= ========= ========= ==========
Operating profit (loss) ............................... $ (389,559) (575,277) 30,723 26,075 (5,136) (913,174)
========== ========= ========= ========= =========
General corporate expenses .............................. (582,922)
Interest expense ........................................ (395,777)
----------
Income from continuing operations
before income taxes ................................. $(1,891,873)
==========
Identifiable assets
at September 30, 1995.................................. 10,268,418 13,787,104 711,883 190,049 (4,237,832) $20,719,622
========== ========== ========= ======= ========= ==========
</TABLE>
Identifiable assets by industry are those assets that are used in the Company's
operations in each industry.
NOTE 21 - COMMITMENTS AND CONTINGENCIES
The Company has guaranteed a promissory note of the Fronteer Directory Company,
Inc. Employee Stock Ownership Plan. The unpaid balance on this note totalled
$350,000 as of September 30, 1995.
The Company is a defendant in certain arbitration and litigation matters arising
from its activities as a broker/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.
<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: February 2, 1996 FRONTEER DIRECTORY COMPANY, INC.
a Colorado corporation
By: /s/ Dennis W. Olson
-----------------------------------
Dennis W. Olson, President and Chief
Executive Officer
By: /s/ Lance Olson
------------------------------------
Lance Olson, Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Date Name and Title Signature
- ---- -------------- ---------
February 2, 1996 Dennis W. Olson, Director /s/ Dennis. W. Olson
------------------------
February 2, 1996 Robert A. Fitzner, Jr. /s/ Robert A. Fitzner, Jr.
Director -------------------------
February 2, 1996 Robert L. Long, Director /s/ Robert L. Long
------------------------
