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, 1997
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 of other jurisdiction of (IRS Employer Identification 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 16,871,557 shares of its $.01 par value common stock
outstanding as of August 8, 1997.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
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FRONTEER FINANCIAL HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS June 30, 1997 September 30, 1996
------ ------------- ------------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ........................................... $ 1,349,632 2,070,320
Receivables from brokers or dealers and clearing
organizations:
Affiliate ..................................................... 2,061,632 1,444,091
Other ......................................................... 5,000 166,347
Trade receivables, net .............................................. 2,732,189 3,330,194
Receivables from sales of directories ............................... 1,875,000 --
Receivable from affiliate ........................................... -- 1,048,075
Other receivables ................................................... 279,375 177,120
Securities owned, at market value ................................... 1,291,985 1,882,049
Current portion of long-term notes receivable ....................... 172,587 389,843
Deferred directory costs ............................................ 209,908 431,436
Deferred income taxes ............................................... 196,846 196,846
Other current assets ................................................ 913,608 450,830
----------- -----------
Total current assets ........................................... 11,087,762 11,587,151
PROPERTY, FURNITURE AND EQUIPMENT, net
of accumulated depreciation ..................................... 2,025,205 2,270,311
DIRECTORY PUBLISHING RIGHTS AND OTHER
net of accumulated amortization of $693,090 as of
September 30, 1996 ............................................... -- 4,271,789
DEFERRED INCOME TAXES ............................................... 708,938 --
OTHER LONG TERM ASSETS .............................................. 9,184 55,428
----------- -----------
Total assets ................................................... 13,831,089 18,184,679
=========== ===========
(Continued)
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<CAPTION>
FRONTEER FINANCIAL HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------ June 30, 1997 September 30, 1996
------------- ------------------
(Unaudited)
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LIABILITIES:
Accounts payable, accrued expenses, and other liabilities ........... $ 2,843,689 3,405,723
Current portion of long-term debt ................................... 1,939,626 1,435,208
Notes payable to related parties .................................... 449,985 367,900
Income taxes payable ................................................ 113,629 96,284
Deferred revenue .................................................... 344,130 623,058
Other current liabilities ........................................... 325,743 668,107
----------- -----------
Total current liabilities ...................................... 6,016,802 6,596,280
LONG-TERM DEBT, NET OF CURRENT PORTION .............................. 969,865 2,575,967
DEFERRED RENT CONCESSIONS ........................................... 1,683,282 1,768,827
DEFERRED INCOME TAXES ............................................... -- 914,062
----------- -----------
Total liabilities .............................................. 8,669,949 11,855,136
----------- -----------
MINORITY INTEREST IN SUBSIDIARY ..................................... 254,635 243,997
----------- -----------
STOCKHOLDERS' EQUITY:
Series A voting cumulative preferred stock, authorized
25,000,000 shares, $0.10 par value, no shares outstanding ....... -- --
Common stock authorized 100,000,000 shares, $0.01 par
value; 16,871,557 shares issued and outstanding as of
June 30, 1997 and 16,141,944 as of September 30,
1996, net of shares held in treasury ............................ 185,067 177,871
Additional paid-in capital .......................................... 12,230,872 11,515,751
Accumulated deficit ................................................. (5,879,200) (3,977,842)
Unearned ESOP shares ................................................ (350,000) (350,000)
Treasury stock, 1,645,162 shares at cost as of June 30, 1997
and September 30, 1996 ............................................. (1,280,234) (1,280,234)
----------- -----------
Total stockholders' equity ..................................... 4,906,505 6,085,546
----------- -----------
Total liabilities and stockholders' equity ..................... $ 13,831,089 18,184,679
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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<TABLE>
<CAPTION>
FRONTEER FINANCIAL HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine months ended June 30, Three months ended June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE:
Brokerage commissions .......................... $ 10,814,872 9,480,095 3,623,070 3,439,481
Investment banking ............................. 1,130,594 664,487 130,895 162,833
Trading profits, net ........................... 129,078 725,798 23,383 131,049
Other broker/dealer ............................ 861,498 607,295 403,497 298,488
Computer hardware and software operations ...... 5,630,246 4,379,324 1,635,068 1,532,988
Directory ...................................... 3,586,196 4,500,000 1,444,269 2,115,086
Telemarketing .................................. 335,319 222,176 88,978 113,360
Other .......................................... 169,180 569,692 15,495 373,222
------------ ----------- ----------- -----------
22,656,983 21,148,867 7,364,655 8,166,507
------------ ----------- ----------- -----------
COST OF SALES AND OPERATING
EXPENSES:
Broker/dealer commissions ...................... 7,271,341 6,065,732 2,451,082 2,142,839
Computer cost of sales ......................... 4,323,744 3,815,075 1,212,524 1,341,341
Directory cost of sales ........................ 2,211,319 2,711,995 921,398 1,226,180
Telemarketing cost of sales .................... 713,842 376,677 198,918 143,432
General and administrative ..................... 9,630,283 8,646,648 3,200,671 3,188,590
Depreciation and amortization .................. 807,348 694,160 255,185 263,304
------------ ----------- ----------- -----------
24,957,877 22,310,287 8,239,778 8,305,686
------------ ----------- ----------- -----------
Operating loss ............................... (2,300,894) (1,161,420) (875,123) (139,179)
OTHER INCOME (EXPENSE):
Net loss on dispositions of assets ............. (988,829) -- (270,957) --
Interest income ................................ 117,123 557,500 25,516 231,288
Interest expense ............................... (156,704) (347,332) (46,639) (108,530)
Equity in loss of affiliate .................... (58,697) -- (6,929) --
------------ ----------- ----------- -----------
(1,087,107 210,168 (299,009) 122,758
------------ ----------- ----------- -----------
Loss before minority interest and
income taxes .................................. (3,388,001) (951,252) (1,174,132) (16,421)
Minority interest in (earnings) losses ............ (10,638) (48,984) (3,546) 6,158
------------ ----------- ----------- -----------
Loss before income taxes .......................... (3,398,639) (1,000,236) (1,177,678) (10,263)
Income tax benefit (expense) ...................... 1,497,281 (8,397) 536,760 (780)
------------ ----------- ----------- -----------
Net loss .......................................... (1,901,358) (1,008,633) (640,918) (11,043)
Preferred stock dividends ......................... -- (59,063) -- (19,688)
------------ ----------- ----------- -----------
Net loss applicable to common
shareholders .................................. $ (1,901,358) (1,067,696) (640,918) (30,731)
============ =========== =========== ===========
Weighted average number of common shares
outstanding ................................... 16,723,340 13,193,028 16,871,557 14,645,063
Loss per common share ............................. (.11) (.08) (.04) (.00)
============ =========== =========== ===========
</TABLE>
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
(Unaudited)
Nine months ended June 30,
1997 1996
---- ----
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................................... $(1,901,358) (1,008,633)
Adjustments to reconcile net loss to net cash used by
operating activities:
Net loss on dispositions of assets ................................. 988,829 --
Deferred taxes ....................................................... (1,623,000) --
Depreciation and amortization ...................................... 807,348 694,160
Amortization of prepaid compensation ................................. 110,285 174,006
Equity in loss of affiliate .......................................... 58,697 --
Minority interest in earnings ........................................ 10,638 48,984
Other ................................................................ (75,545) (551)
Changes in operating assets and liabilities:
Increase in broker/dealer customer receivables, net .............. -- (5,117,596)
Increase in receivables from brokers or dealers and
clearing organizations ....................................... (456,194) (229,903)
Decrease in trade receivables .................................... 598,005 511,306
Increase in other receivables .................................... (103,755) (742)
Decrease (increase) in securities owned, net of securities
sold but not yet purchased ................................... 340,907 (873,625)
Decrease (increase) in deferred directory costs .................. 221,528 (200,776)
Increase in other current assets ................................. (573,063) (119,273)
Increase (decrease) in accounts payable, accrued expenses,
and other liabilities ........................................ (294,614) 152,388
Decrease in broker/dealer customer payables ...................... -- (324,326)
Increase in payables to brokers or dealers and clearing
organizations ................................................ -- 5,088,216
Decrease in deposits from clearing correspondent
brokers or dealers .......................................... -- (29,230)
Decrease in deferred revenue ..................................... (278,928) (308,634)
Increase (decrease) in income taxes payable ...................... 17,345 (131,750)
Increase (decrease) in other current liabilities ................. (342,364) 144,417
----------- -----------
Net cash used by operating activities .................................. (2,495,239) (1,531,562)
----------- -----------
(Continued)
5
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<CAPTION>
FRONTEER FINANCIAL HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(Unaudited)
Nine months ended June 30,
1997 1996
---- ----
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CASH FLOWS FROM INVESTING ACTIVITIES:
Principal collected on notes receivable ............................. 217,256 448,441
Purchase of property, furniture and equipment ....................... (380,394) (1,111,311)
Proceeds from receivable from affiliate ............................. 1,048,075 --
Proceeds from dispositions of assets ................................ 702,222 7,465
Other investing activities .......................................... (15,326) (17,697)
----------- -----------
Net cash provided by investing activities .............................. 1,571,833 (673,102)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal loans from (payments to) related parties .................. 82,085 (81,000)
Principal payments on borrowings .................................... (601,684) (1,860,834)
Proceeds from borrowings ............................................ -- 658,055
Net proceeds from issuance of common stock .......................... 722,317 4,674,916
Proceeds from subscribed common stock ............................... -- 81,180
Repurchase of common stock .......................................... -- (1,200,000)
Repurchase of preferred stock ....................................... -- (875,000)
Dividends on preferred stock ........................................ -- (59,063)
Other financing activities .......................................... -- (16,958)
----------- -----------
Net cash provided by financing activities .............................. 202,718 1,321,296
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS .............................. (720,688) (883,368)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD ............................................................. 2,070,320 2,148,675
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............................... 1,349,632 $ 1,265,307
=========== ===========
<CAPTION>
SUPPLEMENTAL DISCLOSURES RELATED TO STATEMENTS OF CASH FLOWS
Nine months ended June 30,
1997 1996
---- ----
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Cash payments for:
Interest ............................................................ 156,704 347,332
Income taxes ........................................................ 129,831 144,824
</TABLE>
See accompanying notes to consolidated financial statements.
6
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<TABLE>
<CAPTION>
FRONTEER FINANCIAL HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Additional Unearned
Preferred Common paid-in Accumulated ESOP Treasury
stock stock capital deficit shares stock Total
--------- ------- ---------- ----------- --------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances as of
Sept. 30,
1996 ..................... -- 177,871 11,515,751 (3,977,842) (350,000) (1,280,234) 6,085,546
Net proceeds
from
issuance of
common
stock .................... -- 7,196 715,121 -- -- -- 722,317
Net loss ..................... -- -- -- (1,901,358) -- -- (1,901,358)
---------- --------- ---------- --------- ---------- ---------- ----------
Balances as of
June 30,
1997 ..................... -- 185,067 12,230,872 (5,879,200) (350,000) (1,280,234) 4,906,505
========== ========= ========== ========= ========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
FRONTEER FINANCIAL HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
(Unaudited)
NOTE 1 - UNAUDITED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements of Fronteer
Financial Holdings, Ltd. 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.
The preparation of interim financial statements required management to make
estimates and assumptions that effect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
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, 1996. Operating
results for the nine or three months ended June 30, 1997, are not necessarily
indicative of the results that may be expected for the year ended September 30,
1997.
NOTE 2 - ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
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 was engaged in
employee leasing (sold effective April 1, 1997), 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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FRONTEER FINANCIAL HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Unaudited)
NOTE 3 - DISPOSITIONS OF ASSETS
On February 25, 1997 McLeod USA Publishing Company (McLeod, formerly known as
Telecom USA Publishing Company) purchased six yellow page directories located in
North Dakota from the Company for approximately $2,800,000. The purchase price
was pursuant to an existing option agreement (Option Agreement) between McLeod
and the Company and was based on related directory revenues. Of the proceeds,
$1,000,000 was paid March 1, 1997 of which $500,000 was in the form of a payoff
of the loan given to the Company pursuant to the Option Agreement. The remainder
was to be paid by upon publication of the related directories. As of August 8,
1997, all but approximately $300,000 has been paid.
On February 25, 1997 Classified Directories, Inc. (Classified) purchased a
directory from the Company for approximately $202,000. The purchase price was
based on related directory revenues and was paid upon certification of the
particular publication of the 1997 directory in June 1997.
In conjunction with these purchases, Dennis Olson, currently president and a
director of the Company, and certain other employees of the Company entered into
noncompetition agreements with McLeod and Classified and were paid additional
amounts in consideration for such noncompetition agreements. Consideration for
these agreements was $1,070,000 of which Mr. Olson received approximately
$334,000.
A summary of the loss and certain cash flow information relating to the sales of
directories is as follows:
Loss on sales of directories:
Estimated sales price $ 3,002,222
Net assets of directories 3,920,094
----------
Loss on sales of directories $ (917,872)
==========
Cash flow information:
Estimated sales price $ 3,002,222
Less:
Loan payoff from McLeod (500,000)
Receivables from sales of
directories (1,800,000)
----------
Cash proceeds from sales of directories $ 702,222
==========
On June 30, 1997, the Company sold a directory publishing contract and certain
related fixed assets to a former employee of the Company for $75,000. The sales
price was based primarily on third party estimates and is to be received in
cash. A gain of approximately $50,000 was recognized on this sale and is
included in net loss on dispositions of assets in the consolidated statements of
operations for the three and nine months ended June 30, 1997.
9
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NOTE 4 - 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 (Private Placement). These warrants entitle the holder to purchase
one share of Common Stock at $1.50 per share at any time until May, 1, 2000. The
Private Placement was completed in December 1996. During the nine months ended
June 30, 1997, 729,613 shares of Common Stock, and warrants were issued for
proceeds of $722,317, net of issuance costs. In accordance with the Private
Placement Memorandum, the Company issued 595,865 warrants to RAF, the selling
agent, which allows the holder to purchase one share of Common Stock at a price
of $1.50 per warrant.
NOTE 5 - CONTINGENCIES
RAF is a defendant in certain arbitration and litigation matters arising from
its activities as a broker/dealer. In the opinion of management these matters
have been adequately provided for in the accompanying consolidated financial
statements and the ultimate resolution of the arbitration and litigation will
not have a significant adverse effect on the consolidated results of operations
or the consolidated financial position of the Company.
In June 1997, RAF was notified by MultiSource Services, Inc. (MSI), in which the
Company holds a 20% equity interest, that MSI had chosen to not remain in the
securities clearing business on a long-term basis. The Company has no recorded
book value for its equity interest in MSI and is currently evaluating the
effects of MSI's actions on the Company and RAF.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS
Nine months ended June 30, 1997 compared to nine months ended June 30, 1996.
Revenues for the nine months ended June 30, 1997 were $22,656,983, an increase
of $1,508,116 or 7.1% over the $21,148,867 for the nine months ended June 30,
1996. The increase is primarily due to increases in brokerage commissions and
computer hardware and software revenues.
Brokerage commissions were $10,814,872, an increase of $1,334,777 or 14.0% over
the $9,480,095 for the nine months ended June 30, 1996. The increase is due
primarily to the opening of new branch offices in Chicago, Illinois; Metairie,
Louisiana; Dallas, Texas; and Las Vegas, Nevada. The Company is currently
opening a new branch office in West Palm Beach, Florida which is expected to be
fully operational during the three months ended September 30, 1997.
Computer hardware and software revenues for the nine months ended June 30, 1997
were $5,630,246 up $1,250,922 or 28.6% over the $4,379,324 for the nine months
ended June 30, 1996. This increase is a result of Secutron's aggressiveness in
securing new work through two new divisions. These divisions involve
international work and services on the Internet. During the three months ended
December 31, 1996, Secutron initiated a project in Central America providing
hardware and software services to a company involved in the stock brokerage
industry. During this same three month period Secutron became an Internet
Service Provider (ISP) providing Internet services.
Directory revenues for the nine months ended June 30, 1997 of $3,586,196 are
down by $913,804 or 20.3% from the $4,500,000 for the three months ended June
30, 1996. The decrease is due to the sales of directories.
Broker/dealer commissions expense for the nine months ended June 30, 1997 was
$7,271,341, up $1,205,609 or 19.9% over the $6,065,732 for the nine months ended
June 30, 1996. This increase primarily correlates to the increase in brokerage
10
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commissions as a result of the new branch office openings. It also is due to
accelerated payouts given to attract and bring on new branch offices and
producing brokers. These accelerated payouts are phased out over certain time
frames and are used as enticements to bring on producing brokers.
Computer cost of sales for the nine months ended June 30, 1997 were $4,323,744,
up $508,669 or 13.3% over the $3,815,075 for the nine months ended June 30,
1996. The increase corresponds to the increase in computer hardware and software
revenue although Secutron has increased its emphasis on cost of sales for its
computer hardware and software activity and as a result has improved its gross
margin in this area.
Directory cost of sales for the nine months ended June 30, 1997 of $2,211,319
decreased $500,676 or 18.5% compared to $2,711,995 for the nine months ended
June 30, 1996 due to the sales of directories.
General and administrative expenses for the nine months ended June 30, 1997 were
$9,630,283, up $983,635 or 11.4% from the $8,646,648 for the nine months ended
June 30, 1996. This increase results from RAF's opening of new branch offices in
Chicago, Illinois; Metairie, Louisiana; Dallas, Texas; and Las Vegas, Nevada,
and increases related to the Company's telemarketing division offset partially
by a decrease from the sale in July of 1996 of the clearing business.
Depreciation and amortization for the nine months ended June 30, 1997 was
$807,348 up $113,188 or 16.3% over the $694,160 for the nine months ended June
30, 1996. This increase relates to the opening of new branch offices and the
capital expenditures for the telemarketing division.
Net loss on dispositions of assets of $988,829 primarily resulted from the sales
of six directories to McLeod and one directory to Classified on February 25,
1997 offset by the sale of the production contract and related fixed assets as
described in Note 3 to the consolidated financial statements.
Interest income and expense for the nine months ended June 30, 1997 were
$117,123 and $156,704, respectively. These amounts represent decreases from
prior year amounts resulting from the sale of RAF's clearing operation in July
1996.
Equity in loss of affiliate of $58,697 for the nine months ended June 30, 1997
relates to the Company's 20% interest in MultiSource Services, Inc., RAF's
clearing operation that was sold in July 1996. The minority interest in earnings
of $10,638 represents the minority shareholders' interest in earnings of
Secutron for the nine months ended June 30, 1997.
Benefit from income taxes primarily relates to the reversal of approximately
$1.6 million of deferred tax liability resulting from the sale of the
directories described in Note 3 to the consolidated financial statements. The
deferred tax liability was originally recorded as a result of a business
combination in May of 1995 in accordance with Financial Accounting Standards
Board Statement No.
109.
Three months ended June 30, 1997 compared to three months ended June 30, 1996
Revenues for the three months ended June 30, 1997 were $7,364,655, a decrease of
$801,852 or 9.8% over the $8,166,507 for the three months ended June 30, 1996.
The decrease is primarily a result of a decrease in directory revenues.
Directory revenues were $1,444,269 for the three months ended June 30, 1997 down
$670,817 or 31.7% from the $2,115,086 for the three months ended June 30, 1997.
The decrease is due to the sales of directories.
11
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Brokerage commissions were $3,623,070, an increase of $183,589 or 5.3% over the
$3,439,481 for the three months ended March 31, 1996 The increase is due
primarily to the opening of new branch offices in Chicago, Illinois; Metairie,
Louisiana; Dallas, Texas; and Las Vegas, Nevada.
Computer hardware and software revenues for the three months ended June 30, 1997
were $1,635,068, up $102,080 or 6.7% from the $1,532,988 for the three months
ended March 31, 1996. This increase is a result of Secutron's aggressiveness in
securing new work through two new divisions. These divisions involve
international work and services on the Internet. During the three months ended
December 31, 1997, Secutron initiated a project in Central America providing
hardware and software services to a company involved in the stock brokerage
industry. During this same three month period Secutron became an Internet
Service Provider (ISP) providing Internet services.
Broker/dealer commissions expense for the three months ended June 30, 1997 was
$2,451,082, up $308,243 or 14.4% from $2,142,839 for the three months ended June
30, 1996. Part of the increase correlates to the new branch openings and the
increase in the commission revenues. The remainder of the increase relates to
the accelerated payouts given to attract and bring on new branch offices and
producing brokers. These accelerated payouts are phased out over certain time
frames and are used as enticements to bring on producing brokers.
Computer cost of sales for the three months ended June 30, 1997, were
$1,212,524, down $128,817 or 9.6% compared to $1,341,341 for the three months
ended June 30, 1996. Although revenues have increased slightly compared to the
three months ended June 30, 1996 gross margins have improved at Secutron as
management has made it a point of emphasis.
General and administrative expenses for the three months ended June 30, 1997
were $3,200,671, comparable to the $3,188,590 for the three months ended June
30, 1996. There have been increases in general and administrative expenses
resulting from RAF's opening of new branch offices in Chicago, Illinois,
Metairie, Louisiana, Dallas, Texas and Las Vegas, Nevada and increases related
to the Company's telemarketing division. These increases have been partially
offset by a decrease from the sale in July 1996 of the clearing business.
Depreciation and amortization for the three months ended June 30, 1997 was
$255,185, comparable to the $263,304 for the three months ended June 30, 1996.
Net loss on dispositions of assets of $270,957 largely resulted from an
adjustment of $200,000 to the estimated sales price for the sale of six
directories to McLeod on February 25, 1997 offset by the sale of the production
contract and related fixed assets as described in Note 3 to the consolidated
financial statements. The sales prices for the directory sales were based on
related directory revenues.
Interest income and interest expense for the three months ended June 30, 1997
were $25,516 and $46,639, respectively. These amounts represent decreases from
prior year amounts resulting from the sale of the RAF's clearing operation in
July 1996.
Equity in loss of affiliate of $6,929 for the three months ended June 30, 1997
relates to the Company's 20% interest in MultiSource Services, Inc., RAF's
clearing operation that was sold in July 1996. The minority interest in losses
of $3,546 represents the minority shareholders' interest in losses of Secutron
for the three months ended June 30, 1997.
Benefit from income taxes primarily relates to the reversal of approximately $.5
million of deferred tax liability resulting from the sale of the directories
described in Note 3 to the consolidated financial statements. The deferred tax
liability was originally recorded as a result of a business combination in May
of 1995 in accordance with Financial Accounting Standards Board Statement No.
109.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company, as of June 30, 1997, had $1,349,632 in cash and cash equivalents
and $5,070,960 in working capital. Its current ratio is 1.84:1. Working capital
and the current ratio increased from that as of September 30, 1996 due to the
sale of the directories described in Note 3 to the consolidated financial
statements. Proceeds from the issuance of common stock of $722,317, from
borrowings from related parties of $82,085, from collections on notes receivable
of $217,256, from collections from a receivable from an affiliate of $1,048,075
and from cash received from dispositions of assets of $702,222 were used to fund
operating activities of $2,495,239, for principal payments on borrowings of
$601,684, and to acquire property, furniture and equipment of $380,394.
Management believes that with the opening of new branch offices in the
securities brokerage division, its cash flows from operations and cash on hand
are sufficient to fund its debt service, expected capital expenditures and other
liquidity requirements for the foreseeable future.
Inflation
The effect of inflation on the Company's operations is not material and is not
anticipated to have any material effect in the future.
Item 4. Submission of Matters to a Vote of Security Holders.
At the Company's Annual Meeting of Stockholders held on April 4, 1997, the
following members were elected to the Board of Directors:
For Withhold
--- --------
Robert A. Fitzner, Jr. 11,618,780 54,000
Dennis W. Olson 11,618,780 54,000
Robert L. Long 11,618,780 54,000
The following proposals were approved at the Company's Annual Meeting:
Approval of the September 1996 Incentive
and Nonstatutory Stock Option Plan
For Against Abstain Not Voted
--- ------- ------- ---------
11,278,042 327,917 42,683 24,138
Authorization of the Board of Directors of the Company to adopt an
amendment to the Company's Articles of Incorporation at such time as
the Board of Directors deems it appropriate to effectuate a reverse
split of the Company's outstanding common stock in such manner as is
deemed necessary by the Board of Directors of the Company in order for
the Company to maintain its listing on the Nasdaq small cap market or
to obtain a listing on another trading system of the National
Association of Securities Dealers, Inc., a National Securities Exchange
of another securities trading market as selected by the Board of
Directors of the Company in its sole discretion.
For Against Abstain Not Voted
--- ------- ------- ---------
11,368,930 248,950 39,150 15,750
13
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) List of Exhibits:
27.0 Financial Data Schedule
(b) Reports on Form 8-K:
During the quarter ended June 30, 1997, the Company filed an
amendment dated April 29, 1997 to its Current Report on Form 8-K
dated February 25, 1997 to add the pro forma financial
information required by Item 7.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: August 13, 1997 FRONTEER FINANCIAL HOLDINGS, LTD
a Colorado Corporation
By: /s/ R. A. Fitzner, Jr.
------------------------------------------
R. A. Fitzner, Jr., Chairman of the Board
By: /s/ Gary Cook
------------------------------------------
Gary L. Cook
Principal Financial Officer
15
<PAGE>
Exhibit Index
Exhibit Description
- ------- -----------
27.0 Financial Data Schedule
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<CASH> 1,349,632
<SECURITIES> 1,291,985
<RECEIVABLES> 6,953,196
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,087,762
<PP&E> 5,303,716
<DEPRECIATION> 3,278,511
<TOTAL-ASSETS> 13,831,089
<CURRENT-LIABILITIES> 6,016,802
<BONDS> 969,865
0
0
<COMMON> 185,067
<OTHER-SE> 4,721,438
<TOTAL-LIABILITY-AND-EQUITY> 13,831,089
<SALES> 0
<TOTAL-REVENUES> 7,364,655
<CGS> 0
<TOTAL-COSTS> 8,239,778
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 112,973
<INTEREST-EXPENSE> 46,639
<INCOME-PRETAX> (1,177,678)
<INCOME-TAX> 536,760
<INCOME-CONTINUING> (640,918)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (640,918)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
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