FORM 10-Q/A
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 March 31, 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 Directory Company, Inc.
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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)
One Norwest Center, 1700 Lincoln Street, 32nd Floor, 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 16,558,606 shares of its $.01 par value common stock
outstanding as of May 8, 1996.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
<CAPTION>
FRONTEER DIRECTORY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, September 30,
1996 1995
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ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .............................................. $ 1,790,820 2,148,675
Broker dealer customer receivables, net ................................ 9,275,035 5,004,686
Receivables from brokers or dealers and
clearing organizations ............................................... 299,254 340,995
Trade receivables, net ................................................. 2,522,707 3,323,071
Other receivables ...................................................... 259,277 237,489
Securities owned, at market value ...................................... 1,864,241 1,374,725
Current portion of long-term notes receivable .......................... 414,916 731,766
Deferred directory costs ............................................... 620,396 438,412
Deferred income taxes .................................................. 368,374 368,374
Other assets ........................................................... 402,999 412,967
----------- -----------
Total current assets .............................................. 17,818,019 14,381,160
PROPERTY, FURNITURE AND EQUIPMENT, net
of accumulated depreciation .......................................... 1,871,227 1,698,488
LONG-TERM NOTES RECEIVABLE, net of
current portion ...................................................... -- 109,091
INTANGIBLE ASSET:
Directory publishing rights, net of
accumulated amortization of $356,148 ............................... 4,336,621 4,530,883
at 3/31/96 and $161,885 at 9/30/95
Total assets ...................................................... $24,025,867 20,719,622
=========== ===========
(Continued)
2
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<CAPTION>
FRONTEER DIRECTORY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
March 31, September 30,
1996 1995
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LIABILITIES AND STOCKHOLDERS' EQUITY: (Unaudited)
<S> <C> <C>
Accounts payable, accrued expenses,
and other liabilities ...................................................... $ 3,308,155 2,958,180
Broker dealer customer payables .............................................. 1,618,488 2,181,284
Payables to brokers or dealers and
clearing organizations ..................................................... 5,683,790 1,999,687
Deposits from clearing correspondent
brokers or dealers, net .................................................... 547,530 483,319
Current portion of long-term debt ............................................ 1,007,558 939,706
Notes payable to related parties ............................................. 488,400 548,900
Deferred revenue ............................................................. 640,703 639,184
Income taxes payable ......................................................... 70,436 207,643
Other current liabilities .................................................... 316,045 292,899
------------ ------------
Total current liabilities ............................................... 13,681,105 10,250,802
LONG-TERM DEBT, NET OF CURRENT PORTION ....................................... 1,829,859 1,974,226
DEFERRED RENT CONCESSIONS .................................................... 1,790,555 1,794,631
DEFERRED INCOME TAXES ........................................................ 1,085,590 1,085,590
------------ ------------
Total liabilities ....................................................... 18,387,109 15,105,249
MINORITY INTEREST IN SUBSIDIARY .............................................. 211,515 172,783
------------ ------------
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) ................................................. 875,000 875,000
Common stock; authorized 100,000,000
shares, $0.01 par value; 12,558,061 shares
issued at September 30, 1995 ............................................ 125,581 125,581
Subscribed capital stock ................................................... 1,023,165 --
Additional paid-in capital ................................................. 6,430,795 6,431,343
Retained earnings (deficit) ................................................ (2,597,064) (1,560,100)
Treasury stock, 87,084 shares at cost ...................................... (80,234) (80,234)
Unearned ESOP shares ....................................................... (350,000) (350,000)
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Total stockholders' equity .............................................. 5,427,243 5,441,590
------------ ------------
Total liabilities and ................................................... $ 24,025,867 20,719,622
stockholders' equity .................................................. =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
FRONTEER DIRECTORY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended Three Months Ended
March 31, March 31,
------------------- -----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C>
REVENUE:
Directory ......................... $ 2,384,914 -- 883,438 --
Brokerage commissions ............. 6,040,614 3,848,013 3,570,997 1,654,658
Investment banking ................ 501,654 1,087,451 175,759 540,951
Trading profits, net .............. 594,749 311,793 858,595 102,006
Other broker dealer ............... 308,807 1,021,912 159,906 206,262
Computer hardware and
software operations ............. 2,846,336 2,429,506 1,450,276 1,220,973
Other ............................. 305,286 63,288 136,914 48,426
------------ ------------ ------------ ------------
12,982,360 8,761,963 7,235,885 3,773,276
------------ ------------ ------------ ------------
COST OF SALES AND OPERATING EXPENSES:
Directory cost of sales ........... 1,485,815 -- 507,050 --
Broker dealer commissions ......... 3,922,893 2,527,418 2,293,651 1,234,253
Computer cost of sales ............ 2,893,446 2,457,361 1,420,803 1,229,916
General and administrative ........ 5,271,591 4,036,154 2,654,804 1,726,893
Depreciation and amortization ..... 430,856 227,357 205,578 108,970
------------ ------------ ------------ ------------
14,004,601 9,248,290 7,081,886 4,300,032
------------ ------------ ------------ ------------
Operating income (loss) ...... (1,022,241) (486,327) 153,999 (526,756)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income ................... 326,212 522,182 163,945 223,985
Interest expense .................. (238,802) (371,908) (107,681) (200,947)
------------ ------------ ------------ ------------
87,410 150,274 56,264 23,038
------------ ------------ ------------ ------------
Income (loss) before minority
interest and income taxes ..... (934,831) (336,053) 210,263 (503,718)
Minority interest in earnings ....... (55,142) (78,322) (50,135) (40,185)
------------ ------------ ------------ ------------
Income (loss) before income taxes (989,973) (414,375) 160,128 (543,903)
Income tax expense .................. ( 7,617) ( 2,450) ( 5,917) ( 2,450)
------------ ------------ ------------ ------------
Net income (loss) ............... (997,590) (416,825) 154,211 (546,353)
Preferred stock dividend .......... (39,375) ( 2,154) (19,688) --
------------ ------------ ------------ ------------
Net income (loss) per common
shareholders .................... $ (1,036,965) (418,979) 134,523 (546,353)
============ ============ ============ ============
Weighted average number of
common shares outstanding ....... 12,558,061 * 12,558,061 *
Income (loss) per common share .... $ (0.08) * $ 0.01 *
</TABLE>
* Due to the limited number of shares outstanding during 1995, presentation of
earnings per share is not meaningful.
See accompanying notes to consolidated financial statements.
4
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<TABLE>
<CAPTION>
FRONTEER DIRECTORY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
Six Months Ended
March 31,
---------------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ........................................................................... $ (997,590) (416,825)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation .................................................................... 236,594 227,357
Amortization of directory costs ................................................. 194,262 --
Amortization of deferred rent ................................................... ( 4,076) ( 4,076)
Amortization of prepaid compensation ............................................ 116,004 --
Deferred income tax benefit ..................................................... -- 98,243
Vehicle paid in lieu of compensation ............................................ 5,565 --
Gain on sale of assets .......................................................... -- ( 490)
Minority interest in earnings ................................................... 55,142 78,322
Changes in operating assets and liabilities:
Decrease (increase) in broker dealer customer
receivables, net .............................................................. (4,270,349) 7,836,020
Decrease in receivables from brokers or dealers
and clearing organizations .................................................... 41,741 2,640,845
Decrease (increase) in trade receivables ........................................ 800,364 (256,664)
Decrease (increase) in other receivables ........................................ (21,788) 188,688
Decrease (increase) in securities owned ......................................... (489,516) 268,522
Increase in deferred directory costs ............................................ (181,984) --
Decrease (increase) in other assets ............................................. (106,036) 3,098
Increase (decrease) in accounts payable, accrued
expenses, and other liabilities ............................................... 349,975 (1,809,067)
Decrease in broker dealer customer payables ..................................... (562,796) (1,991,591)
Increase (decrease) in payables to brokers or
dealers and clearing organizations ............................................ 3,684,103 (4,919,513)
Increase (decrease) in deposits from clearing
correspondent brokers or dealers .............................................. 64,211 (2,305,344)
Increase in deferred revenue .................................................... 1,519 --
Decrease in income taxes payable ................................................ (137,207) --
Increase in other current liabilities ........................................... 23,146 211,480
----------- -----------
Net cash used by operating activities ......................................... (1,198,716) (150,995)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal collected on notes receivable ............................................ 435,841 --
Proceeds from sale of assets ....................................................... 7,465 565
Issuance of notes receivable ....................................................... ( 9,900) ( 7,626)
Purchase of property and equipment ................................................. (422,363) (388,200)
----------- -----------
Net cash provided (used) by investing activities .............................. 11,043 (395,261)
----------- -----------
(continued)
5
<PAGE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings .......................................................... 195,000 --
Borrowings on long-term notes payable .............................................. -- 104,767
Net borrowings from related parties ................................................ (60,500) --
Principal payments on long-term borrowings ......................................... (271,515) (87,079)
Dividends on preferred stock ....................................................... (39,375) ( 2,154)
Proceeds from subscribed capital stock ............................................. 1,023,165 --
Purchase of minority shares in subsidiary .......................................... (16,958) ( 1,500)
----------- -----------
Net cash provided by financing activities ..................................... 829,817 14,034
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS ............................................ (357,856) (532,222)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ....................................... 2,148,675 1,522,042
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............................................. $ 1,790,819 989,820
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
FRONTEER DIRECTORY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED MARCH 31, 1996
Subscribed Additional Retained
Preferred Common Capital 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 -- -- -- -- ( 39,375) -- -- (39,375)
Purchase of subsidiary shares ... -- -- -- ( 548) -- -- -- (548)
Subscribed capital stock ........ -- -- 1,023,165 -- -- -- -- 1,023,165
Net loss ........................ -- -- -- -- 997,590) -- -- (997,590)
---------- ---------- ---------- ---------- ---------- ------- ---------- ----------
Balances at March 31, 1996 ...... $ 875,000 125,581 1,023,165 6,430,795 (2,597,064) (350,000) (80,234) 5,427,243
========== ========== ========== ========== ========== ======= ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
FRONTEER DIRECTORY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(Unaudited)
NOTE 1 - UNAUDITED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements of Fronteer
Directory Company, Inc. and subsidiaries 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 six months ended March 31, 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 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 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 Directory Company, Inc.
(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.
8
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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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
Financial Condition
At March 31, 1996, shareholders' equity was $5,427,243, down $14,347 from
year end September 30, 1995. The ratio of current assets to current liabilities
at March 31, 1996, was 1.30 to 1, a decrease from the 1.40 to 1 at September 30,
1995.
Results of Operations
Six Months Ended March 31, 1996 vs. Six Months Ended March 31, 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 Directory Company, Inc. 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 show RAFCO and its subsidiaries for the
six months ended March 31, 1995, while the Company and subsidiaries, including
RAFCO, are consolidated from October 1, 1995 to March 31, 1996, in accordance
with the purchase method of accounting.
Net loss for the six months ended March 31, 1996, totalled $997,590, which
compares to a net loss of $416,825 for the six months ended March 31, 1995, for
the former RAFCO.
Revenues for the six months ended March 31, 1996, totalled $12,982,360, an
increase of $4,220,397 over the six months ended March 31, 1995. The revenues
for 1995 include no directory revenues, which totalled $2,384,914 for 1996.
Computer revenues from Secutron for the first six months of fiscal 1996 totalled
$2,846,336, an increase of $416,830, or 17%, from the first six months of last
year.
Broker commissions for the first six months of fiscal 1996 totalled
$6,040,614, a large increase of $2,192,601, or 57%, over the first six 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 nearly $400,000 for the six months ended March
31, 1995, was sold to Sheshunoff Information Services, Inc. during 1995. This
completely eliminated bank services as a revenue source for the first two
quarters of 1996. Revenues from clearing operations also declined significantly
from last year, from $329,000 for the six months ended March 31, 1995, to
$235,000 for the same period this year. This decline resulted from the Company
positioning its clearing business for its eventual sale.
In February of 1996, the Company signed an agreement to effect the transfer
of its clearing operations and associated personnel into a separate new clearing
9
<PAGE>
firm, MultiSource Services, Inc. ("MSI"). MSI is a subsidiary of
OppenheimerFunds, Inc. Principal officers of MSI (currently OppenheimerFunds,
Inc. employees) have indicated that the closing is scheduled to take place
during the Company's third quarter, with the Company then receiving a 20%
interest in the new clearing firm - MSI.
The Company's investment banking revenues for the six months ended March
31, 1996, declined sharply when compared to the six months ended March 31, 1995.
Revenues for the period ended March 31, 1996, totalled $501,654 as compared to
$1,087,451 last year, a $585,797, or 54% decline. The Company's investment
banking department has devoted a great deal of its resources to the completion
of the MultiSource Services deal and also 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-haul.
During this year's first two quarters, the Company recognized trading
profits of $594,749 as compared to a trading profit of $311,793 for the same
period last year, an increase of $282,956, or 91%. 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 $63,288 last year to $305,286 for the first
two quarters of 1996. Revenues of $108,817 and $80,570 for Fronteer Marketing
Group and Fronteer Personnel Services, respectively, are included in this amount
for the six months ended March 31, 1996.
The Company recognized directory cost of sales for the six months ended
March 31, 1996, of $1,485,815. Due to the purchase method of accounting, no cost
of sales were recognized in the previous year. Directory cost of sales of
$1,485,815 compares favorably to directory revenues of $2,384,914.
Broker dealer commissions increased by $1,395,475 over last year's first
two quarters, which compares very well with an increase of $2,192,601 in
commission revenues for the same period. During this year's first two quarters,
the Company amortized as prepaid compensation notes receivable from retail
brokers in the amount of $116,000. 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 $5,271,591 for the six
months ended March 31, 1996. This compares to $4,036,154 for the same period
last year, an increase of $1,235,437. A total of approximately $100,000 in
expenses related to the Fronteer Directory/ RAFCO reorganization, including the
year-end audit and reporting, was incurred during the quarter and is found in G
& A. No expenses for the directory business are included for the six months
ended March 31, 1995. Fixed operating expenses for both R A F and Fronteer are
in a state of decline due to reorganization and the sale of directories by
Fronteer. A decline is expected following the transfer of R A F's clearing
division to MSI during the third quarter.
Interest income for the first six months of 1996 totalled $326,212, a
decline of $195,970 from the six months ended March 31, 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 $133,106 when compared to the six months ended
March 31, 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 $4,692,769.
This amount is being amortized over ten years with amortization totalling
$194,262 for the six months ended March 31, 1996.
10
<PAGE>
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 March 31, 1996 vs. Three Months Ended March 31, 1995
Net income for the three months ended March 31, 1996, totalled $154,211,
which compares to a loss of $546,353 for the three months ended March 31, 1995,
for the former RAFCO, an increase of $700,564.
Revenues for the three months ended March 31, 1996, totalled $7,235,885, an
increase of $3,462,609, or 92%, over the three months ended March 31, 1995. The
revenues for 1995 include no directory revenues, which totalled $883,438 for
1996. Computer revenues from Secutron for the first three months of fiscal 1996
totalled $1,450,276, an increase of $229,303, or 19%, from last year.
Broker commissions for the first three months of fiscal 1996 totalled
$3,570,997, an increase of $1,916,339, or 116%, from last year. This increase is
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.
The Company's investment banking revenues declined sharply when compared to
the three months ended March 31, 1995. Revenues for the quarter ended March 31,
1996, totalled $175,759 as compared to $540,951 last year, a $365,192, or 68%
decline. The Company's investment banking department has devoted a great deal of
its resources to the completion of the MultiSource Services deal and also 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-haul.
During the quarter, the Company recognized trading profits of $858,595 as
compared to a trading profit of $102,006 for the same period last year, an
increase of 742%. 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 jumped from $48,426 last year to $136,914 for the second
quarter of 1996. Revenues of $46,035 and $56,472 for Fronteer Marketing Group
and Fronteer Personnel Services, respectively, are included in this amount.
The Company recognized directory cost of sales for the three months ended
March 31, 1996, of $507,050. Due to the purchase method of accounting, no cost
of sales were recognized in the previous year. Directory cost of sales of
$507,050 compares favorably to directory revenues of $883,438.
Broker dealer commissions totalled $2,293,651, an increase of $1,059,398
over last year's first quarter, up 86%. This compares very well with the
increase of $1,916,339 in commission revenues, a 116% increase. During this
year's second quarter, the Company amortized as prepaid compensation notes
receivable from retail brokers in the amount of $58,000. 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 $2,654,804 for the
second quarter of 1996. This compares to $1,726,893 for the same period last
year, an increase of $927,911. No expenses for the directory business are
included for the three months ended March 31, 1995. Fixed operating expenses for
both R A F and Fronteer are in a state of decline due to reorganization and the
sale of directories by Fronteer. A decline is expected following the transfer of
R A F's clearing division to MSI during the third quarter.
Interest income for the second three month period of 1996 totalled
$163,945, a decline of $60,040 from the three months ended March 31, 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.
11
<PAGE>
Interest expense declined $93,266 when compared to the three months ended
March 31, 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 $4,692,769.
This noncash amount is being amortized over ten years with amortization
totalling $97,131 for the three months ended March 31, 1996.
Liquidity and Capital Resources
At March 31, 1996, the Company had working capital of $4,136,914, up $6,556
from the $4,130,358 at September 30, 1995.
During the quarter ended March 31, 1996, the Company initiated a private
placement, as found in Note 3. At March 31, 1996, the Company had received
proceeds from the yet-to-be- completed offering in the amount of $1,023,165. The
private placement is expected to be completed by the end of the third quarter
and is estimated to provide the Company with additional working capital of
$2,490,000.
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 over $300,000 available on this
line. The Company also has credit agreements with the Pershing Division of
Donaldson, Lufkin & Jenrette, which include a broker loan line of finance
securities owned, securities held for correspondent accounts, and receivables in
customer margin accounts. This line may also be used to release pledged
collateral against day loans. Outstanding balances under these credit
arrangements are adequate to meet the short-term operating needs of RAF.
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 5. OTHER INFORMATION
Clearing Operations Agreement
In February of 1996, the Company signed an agreement to effect the transfer
of its clearing operations and associated personnel into a separate new clearing
firm, MultiSource Services, Inc. ("MSI"). MSI is a subsidiary of
OppenheimerFunds, Inc. Principal officers of MSI (currently OppenheimerFunds,
Inc. employees) have indicated that the closing is scheduled to take place
during the Company's third quarter, with the Company then receiving a 20%
interest in the new clearing firm - MSI.
When all required regulatory approvals are obtained, R A F Financial
Corporation will become a fully disclosed clearing correspondent of the new
firm.
12
<PAGE>
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. **
* Incorporated by reference to Registrant's 8-K dated May 9, 1995.
** Incorporated by reference to Registrant's 10-K dated September
30, 1995.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed with the SEC for the quarter ended March
31, 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: May 14, 1996 FRONTEER DIRECTORY COMPANY, INC.
a Colorado corporation
By: /s/ Dennis W. Olson
----------------------------
Dennis W. Olson, President
By: /s/ Lance Olson
---------------------------
Lance Olson, CPA, 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
- ------------ --------------- ----------
/s/ Dennis W. Olson
May 14, 1996 Dennis W. Olson, Director --------------------------
/s/ R. A. Fitzner, Jr.
May 14, 1996 R. A. Fitzner, Jr., Director --------------------------
/s/ Robert L. Long
May 14, 1996 Robert L. Long, Director --------------------------
14
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<PERIOD-START> OCT-01-1995
<PERIOD-END> MAR-31-1996
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