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 March 31, 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 May 9, 1997.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
<CAPTION>
FRONTEER FINANCIAL HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1997 September 30, 1996
-------------- ------------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ........................................... $ 2,088,963 2,070,320
Receivables from brokers or dealers and clearing
organizations:
Affiliate ..................................................... 984,563 1,444,091
Other ......................................................... 109,885 166,347
Trade receivables, net .............................................. 3,082,443 3,330,194
Receivables from sales of directories ............................... 2,202,222 --
Receivable from affiliate ........................................... -- 1,048,075
Other receivables ................................................... 302,535 177,120
Securities owned, at market value ................................... 1,872,431 1,882,049
Current portion of long-term notes receivable ....................... 172,587 389,843
Deferred directory costs ............................................ 459,251 431,436
Deferred income taxes ............................................... 196,846 196,846
Other assets ........................................................ 955,641 450,830
----------- -----------
Total current assets ........................................... 12,427,367 11,587,151
PROPERTY, FURNITURE AND EQUIPMENT, net
of accumulated depreciation ...................................... 2,133,743 2,270,311
DIRECTORY PUBLISHING RIGHTS AND OTHER
net of accumulated amortization of $31,050 and $693,090
as of March 31, 1997 and September 30, 1996, respectively ....... 141,059 4,271,789
DEFERRED INCOME TAXES ............................................... 293,938 --
OTHER LONG TERM ASSETS .............................................. 15,903 55,428
----------- -----------
Total assets ................................................... 15,012,010 18,184,679
=========== ===========
(Continued)
2
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<CAPTION>
FRONTEER FINANCIAL HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, 1997 September 30, 1996
-------------- ------------------
(Unaudited)
<S> <C> <C>
LIABILITIES:
Accounts payable, accrued expenses, and other liabilities ............ $ 2,731,045 3,405,723
Current portion of long-term debt .................................... 1,642,741 1,435,208
Notes payable to related parties ..................................... 595,057 367,900
Income taxes payable ................................................. 108,606 96,284
Deferred revenue ..................................................... 676,649 623,058
Other current liabilities ............................................ 435,170 668,107
------------ ------------
Total current liabilities ....................................... 6,189,268 6,596,280
LONG-TERM DEBT, NET OF CURRENT PORTION ............................... 1,312,433 2,575,967
DEFERRED RENT CONCESSIONS ............................................ 1,711,797 1,768,827
DEFERRED INCOME TAXES ................................................ -- 914,062
------------ ------------
Total liabilities ............................................... 9,213,498 11,855,136
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MINORITY INTEREST IN SUBSIDIARY ...................................... 251,089 243,997
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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
March 31, 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 .................................................. (5,238,282) (3,977,842)
Unearned ESOP shares ................................................. (350,000) (350,000)
Treasury stock, 1,645,162 shares at cost as of March 31, 1997
and September 30, 1996
(1,280,234) (1,280,234)
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Total stockholders' equity ...................................... 5,547,423 6,085,546
------------ ------------
Total liabilities and stockholders' equity ...................... $ 15,012,010 18,184,679
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
FRONTEER FINANCIAL HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six months ended March 31, Three months ended March 31,
-------------------------- ----------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE:
Brokerage commissions ........................................... $ 7,191,802 6,040,614 3,684,082 3,570,997
Investment banking .............................................. 999,699 501,654 432,485 175,759
Trading profits, net ............................................ 105,695 594,749 (27,548) 858,595
Other broker/dealer ............................................. 458,001 308,807 248,040 159,906
Computer hardware and software operations ....................... 3,995,178 2,846,336 1,835,854 1,450,276
Directory ....................................................... 2,141,927 2,384,914 517,300 883,438
Telemarketing ................................................... 246,341 108,817 113,406 108,817
Other ........................................................... 153,685 196,469 60,746 28,097
------------ ------------ ------------ ------------
15,292,328 12,982,360 6,864,365 7,235,885
------------ ------------ ------------ ------------
COST OF SALES AND OPERATING
EXPENSES:
Broker/dealer commissions ....................................... 4,820,259 3,922,893 2,552,938 2,293,651
Computer cost of sales .......................................... 3,111,220 2,893,446 1,553,336 1,420,803
Directory cost of sales ......................................... 1,289,921 1,485,815 329,346 507,050
Telemarketing cost of sales ..................................... 514,924 144,463 244,904 144,463
General and administrative ...................................... 6,429,612 5,127,128 3,244,304 2,510,341
Depreciation and amortization ................................... 552,163 430,856 262,717 205,578
------------ ------------ ------------ ------------
16,718,099 14,004,601 8,187,545 7,081,886
------------ ------------ ------------ ------------
Operating income (loss) ....................................... (1,425,771) (1,022,241) (1,323,180) 153,999
OTHER INCOME (EXPENSE):
Loss on sales of directories .................................... (717,872) -- (717,872) --
Interest income ................................................. 91,607 326,212 37,197 163,945
Interest expense ................................................ (110,065) (238,802) (48,336) (107,681)
Equity in loss of affiliate ..................................... (51,768) -- (43,877) --
------------ ------------ ------------ ------------
(788,098) 87,410 (772,888) 56,264
------------ ------------ ------------ ------------
Income (loss) before minority interest and
income taxes .................................................... (2,213,869) (934,831) (2,096,068) 210,263
Minority interest in (earnings) losses ............................. (7,092) (55,142) 41,672 (50,135)
------------ ------------ ------------ ------------
Income (loss) before income taxes .................................. (2,220,961) (989,973) (2,054,396) 160,128
Income tax benefit (expense) ....................................... 960,521 (7,617) 1,049,481 (5,917)
------------ ------------ ------------ ------------
Net income (loss) .................................................. (1,260,440) (997,590) (1,004,915) 154,211
Preferred stock dividends .......................................... -- (39,375) -- (19,688)
------------ ------------ ------------ ------------
Net income (loss) applicable to common
shareholders .................................................... $ (1,260,440) (1,036,965) (1,004,915) 134,523
============ ============ ============ ============
Weighted average number of common shares
outstanding ..................................................... 16,648,417 12,558,061 16,871,557 12,558,061
Income (loss) per common share ..................................... $ (.08) (.08) (.06) .01
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
FRONTEER FINANCIAL HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended March 31,
--------------------------
1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .......................................................................... (1,260,440) (997,590)
Adjustments to reconcile net loss to net cash used by
operating activities:
Loss on sales of directories ................................................... 717,872 --
Deferred taxes ................................................................. (1,208,000) --
Depreciation and amortization .................................................. 552,163 430,856
Equity in loss of affiliate .................................................... 51,768 --
Minority interest in earnings .................................................. 7,092 55,142
Other .......................................................................... (54,050) 117,493
Changes in operating assets and liabilities:
Increase in broker/dealer customer receivables, net ......................... -- (4,270,349)
Decrease in receivables from brokers or dealers and
clearing organizations ................................................... 515,990 41,741
Decrease in trade receivables ............................................... 247,751 800,364
Increase in other receivables ............................................... (126,915) (21,788)
Increase in securities owned, net of securities sold but not
yet purchased ............................................................ (283,636) (489,516)
Increase in deferred directory costs ........................................ (27,815) (181,984)
Increase in other current assets ............................................ (504,811) (106,036)
Increase (decrease) in accounts payable, accrued expenses,
and other liabilities .................................................... (363,161) 349,975
Decrease in broker/dealer customer payables ................................. -- (562,796)
Increase in payables to brokers or dealers and clearing
organizations ............................................................ -- 3,684,103
Increase in deposits from clearing correspondent brokers
or dealers ............................................................... -- 64,211
Increase in deferred revenue ................................................ 53,591 1,519
Increase (decrease) in income taxes payable ................................. 12,322 (137,207)
Increase (decrease) in other current liabilities ............................ (232,937) 23,146
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Net cash used by operating activities ............................................. (1,903,216) (1,198,716)
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(Continued)
5
<PAGE>
<CAPTION>
FRONTEER FINANCIAL HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(Unaudited)
Six months ended March 31,
--------------------------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal collected on notes receivable ........................................ 217,256 435,841
Purchase of property, furniture and equipment .................................. (212,939) (422,363)
Proceeds from receivable from affiliate ........................................ 1,048,075 --
Proceeds from sales of directories ............................................. 500,000 --
Other investing activities ..................................................... (24,006) (2,435)
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Net cash provided by investing activities ......................................... 1,528,386 11,043
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal loans from (payments to) related parties ............................. 227,157 (60,500)
Principal payments on long-term borrowings ..................................... (556,001) (271,515)
Proceeds from borrowings ....................................................... -- 195,000
Net proceeds from issuance of common stock ..................................... 722,317 1,023,165
Dividends on preferred stock ................................................... -- (39,375)
Other financing activities ..................................................... -- (16,958)
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Net cash provided by financing activities ......................................... 393,473 829,817
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NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS .................................................................... 18,643 (357,856)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD ......................................................................... 2,070,320 2,148,675
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CASH AND CASH EQUIVALENTS, END OF PERIOD .......................................... 2,088,963 1,790,819
========== ==========
SUPPLEMENTAL DISCLOSURES RELATED TO STATEMENTS OF CASH FLOWS
<CAPTION>
Six months ended March 31,
--------------------------
1997 1996
---- ----
<S> <C> <C>
Cash payments for:
Interest ....................................................................... 94,514 371,908
Income taxes ................................................................... 129,831 144,824
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
<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 stock stock Total
--------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances as of
September
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 ......... -- -- -- (1,260,440) -- -- (1,260,440)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balances as of
March 31,
1997 .......... -- 185,067 12,230,872 (5,238,282) (350,000) (1,280,234) 5,547,423
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
FRONTEER FINANCIAL HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 six or three months ended March 31, 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 is engaged in
employee leasing, and FMG is engaged in the telemarketing business. RAF operates
as a registered securities broker/dealer. Secutron is engaged in industry
specific software development and provides consulting services.
8
<PAGE>
FRONTEER FINANCIAL HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Unaudited)
NOTE 3 - DISPOSITION 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 $3 million. 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
million was paid March 1, 1997 of which $.5 million was in the form of a payoff
of the loan given to the Company pursuant to the Option Agreement. The remainder
is expected to be paid by August 1, 1997 upon publication of the related
directories.
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 is payable upon certification of the
particular publication of the 1997 directory which is expected no later than
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
noncompete agreements with McLeod and Classified and were paid additional
amounts in consideration for such noncompetition agreements. Consideration for
these agreements was $1.07 million 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:
Sales price ........................... $ 3,202,222
Net assets of directories ............. 3,920,094
-----------
Loss on sales of directories .......... $ (717,872)
===========
Cash flow information:
Sales price ........................... $ 3,202,222
Less:
Loan payoff from McLeod ......... (500,000)
Receivables from sales of
directories .................. (2,202,222)
-----------
Cash proceeds from sales of directories $ 500,000
===========
9
<PAGE>
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 six months ended
March 31, 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.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS
Six months ended March 31, 1997 compared to six months ended March 31, 1996.
Revenues for the six months ended March 31, 1997 were $15,292,328, an increase
of $2,309,968 or 17.8% over the $12,982,360 for the six months ended March 31,
1996. The increase is primarily due to increases in brokerage commissions and
computer hardware and software revenues.
Brokerage commissions were $7,191,802, an increase of $1,151,188 or 19.1% over
the $6,040,614 for the six 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 six months ended March 31, 1997
were $3,995,178, up $1,148,842 or 40.4% over the $2,846,336 for the six 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, 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.
Broker/dealer commissions expense for the six months ended March 31, 1997 was
$4,820,259, up $897,366 or 22.9% over the $3,922,893 for the six months ended
March 31, 1996. This increase correlates to the increase in brokerage
commissions as a result of the new branch office openings.
Computer cost of sales increased to $3,111,220 for the six months ended March
31, 1997. This represents a slight increase of $217,774 or 7.5% over the
$2,893,446 for the six months ended March 31, 1996. 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.
General and administrative expenses for the six months ended March 31, 1997 were
$6,429,612, up $1,302,484 or 25.4% from the $5,127,128 for the six months ended
March 31, 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.
Depreciation and amortization for the six months ended March 31, 1997 was
$552,163 up $121,307 or 28.2% over the $430,856 for the six months ended March
31, 1996. This increase relates to the opening of new branch offices and the
capital expenditures for the telemarketing division.
10
<PAGE>
Loss on sale of directories of $717,872 resulted from the sales of six
directories to McLeod and one directory to Classified on February 25, 1997 as
described in Note 3 to the consolidated financial statements.
Interest income and expense for the six months ended March 31, 1997 were $91,607
and $110,065, 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 $51,768 for the six months ended March 31, 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 $7,092 represents the minority shareholders' interest in earnings of Secutron
for the six months ended March 31, 1997.
Benefit from income taxes primarily relates to the reversal of approximately
$1.0 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 March 31, 1997 compared to three months ended March 31, 1996
Revenues for the three months ended March 31, 1997 were $6,864,365, a decrease
of $371,520 or 5.1% over the $7,235,885 for the three months ended March 31,
1996. The decrease is primarily a result of a decrease in net trading profits
for RAF. The decrease correlates with a decrease in the stock market in general
during the end of the three months ended March 31, 1997.
Brokerage commissions were $3,684,082, an increase of $113,085 or 3.2% over the
$3,570,997 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 March 31,
1997 were $1,835,854, up $385,578 or 26.6% from the $1,450,276 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 March 31, 1997 was
$2,552,938, up $259,287 or 11.3% from $2,293,651 for the three months ended
March 31, 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.
11
<PAGE>
Computer cost of sales increased to $1,553,336 for the three months ended March
31, 1997. This represents an increase of $132,533 or 9.3% over the $1,420,803
for the three months ended March 31, 1996. This increase correlates to the
increase in computer hardware and software revenues described above. Gross
margins have improved at Secutron as management has made it a point of emphasis.
General and administrative expenses for the three months ended March 31, 1997
were $3,244,304, up $733,963 or 29.2% from the $2,510,341 for the three months
ended March 31, 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.
Depreciation and amortization for the three months ended March 31, 1997 was
$262,717, up $57,139 or 27.8% over the $205,578 for the three months ended March
31, 1996. This increase relates to the opening of RAF's new branch offices and
the capital expenditures for the telemarketing division.
Loss on sale of directories of $717,872 resulted from the sale of six
directories to McLeod and one directory to Classified on February 25, 1997 as
described in Note 3 to the consolidated financial statements.
Interest income and interest expense for the three months ended March 31, 1997
were $37,197 and $48,336, 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 $43,877 for the three months ended March 31, 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 $41,672 represents the minority shareholders' interest in losses of Secutron
for the three months ended March 31, 1997.
Benefit from income taxes primarily relates to the reversal of approximately
$1.0 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company, as of March 31, 1997, had $2,088,963 in cash and cash equivalents
and $6,238,099 in working capital. Its current ratio is 2:1. 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 $227,157, 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 sales of directories of $500,000 were used to fund operating
activities of $1,903,216, for principal payments on borrowings of $556,001, and
to acquire property, furniture and equipment of $212,939.
The Company currently has a $1,300,000 revolving 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. As of March 31, 1997, $200,000 was outstanding on
this line. The Company failed to meet a covenant associated with the line of
credit requiring net income to be at least 2.5% of sales for the year September
30, 1996. The Company's lender waived the event of default subject to agreement
that proceeds from sales of assets of the directory division be applied to the
line of credit until paid in full. $500,000 was paid on the line from proceeds
from sales of directories during the three months ended March 31, 1997.
Availability of additional amounts on the line of credit may be limited.
Additionally, the line may not be available as the Company's directories are
sold and the accounts receivable are collected. The outstanding balance of
$200,000 on the line of credit is classified as current in the consolidated
balance sheet.
12
<PAGE>
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 costs 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.
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:
There was one current report on Form 8-K dated February 25, 1997 filed
during the quarter ended March 31, 1997 that reported under Item 2 the
sales of six of the yellow page directories owned by the Company and
that filed the Sale and Purchase Agreement relating thereto under Item
7. Also, during the quarter the Company filed an amendment to its
Current Report on Form 8-K dated July 23, 1996 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: May 14, 1997 FRONTEER FINANCIAL HOLDINGS, LTD.
------------ a Colorado Corporation
By: /s/ R. A. Fitzner
------------------------------------------
R. A. Fitzner, Jr., Chairman of the Board
By: /s/ Gary L. Cook
------------------------------------------
Gary L. Cook
Principal Accounting Officer
15
<PAGE>
Exhibit Index
Exhibit Description
- ------- -----------
27.0 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 2,088,963
<SECURITIES> 1,872,431
<RECEIVABLES> 6,681,648
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,427,367
<PP&E> 4,830,010
<DEPRECIATION> 2,696,267
<TOTAL-ASSETS> 15,012,010
<CURRENT-LIABILITIES> 6,189,268
<BONDS> 1,312,433
0
0
<COMMON> 185,067
<OTHER-SE> 5,362,356
<TOTAL-LIABILITY-AND-EQUITY> 15,012,010
<SALES> 0
<TOTAL-REVENUES> 6,864,365
<CGS> 0
<TOTAL-COSTS> 8,187,545
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48,336
<INCOME-PRETAX> (2,096,068)
<INCOME-TAX> (1,049,481)
<INCOME-CONTINUING> (1,004,915)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,004,915)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
