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 December 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 February 6, 1998.
1
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
<CAPTION>
FRONTEER FINANCIAL HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS December 31, 1997 September 30, 1997
------ ----------------- ------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ....................................................... $ 6,428,001 2,080,722
Receivables from brokers or dealers and clearing
organizations ................................................................ 736,201 2,045,134
Trade receivables ............................................................... 1,097,286 786,971
Other receivables ............................................................... 409,996 382,208
Securities owned, at market value ............................................... 701,732 871,322
Current portion of long-term notes receivable ................................... 36,000 30,000
Other assets .................................................................... 322,796 824,056
Net current assets of discontinued operations ................................... 831,354 1,238,286
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Total current assets ....................................................... 10,563,366 8,258,699
PROPERTY, FURNITURE AND EQUIPMENT, net
of accumulated depreciation .................................................. 1,541,428 1,466,814
DEFERRED INCOME TAXES ........................................................... 613,784 613,784
LONG-TERM NOTES RECEIVABLE ...................................................... 241,000 250,000
OTHER LONG TERM ASSETS .......................................................... 433,603 247,241
NET LONG TERM ASSETS OF DISCONTINUED
OPERATIONS ................................................................... 75,191 166,544
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Total assets ............................................................... $ 13,468,372 11,003,082
=========== ==========
(Continued)
2
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<CAPTION>
FRONTEER FINANCIAL HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, 1997 September 30, 1997
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<S> <C> <C>
LIABILITIES:
Accounts payable, accrued expenses, and other liabilities ....................... $ 2,082,724 3,373,672
Current portion of long-term debt ............................................... 188,809 863,164
Deferred revenue ................................................................ 252,750 --
Income taxes payable ............................................................ 158,697 --
Notes payable to related parties ................................................ -- 177,000
Other current liabilities ....................................................... 333,869 249,555
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Total current liabilities .................................................. 3,016,849 4,663,391
LONG-TERM DEBT, NET OF CURRENT PORTION .......................................... 287,411 927,843
CONVERTIBLE DEBENTURE ........................................................... 4,000,000 --
DEFERRED RENT CONCESSIONS ....................................................... 1,688,014 1,716,529
OTHER LIABILITIES ............................................................... 84,526 88,000
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Total liabilities .......................................................... 9,076,800 7,395,763
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MINORITY INTEREST IN SUBSIDIARY ................................................. 401,009 255,328
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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 shares, $0.01 par value;
16,871,557 shares issued and outstanding as of December
31, 1997 and September 30, 1997 .............................................. 185,167 185,167
Additional paid-in capital ...................................................... 12,230,772 12,230,772
Accumulated deficit ............................................................. (6,795,142) (7,433,714)
Unearned ESOP shares ............................................................ (350,000) (350,000)
Treasury stock, 1,645,162 shares at cost as of December 31,
1997 and September 30, 1997 .................................................. (1,280,234) (1,280,234)
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Total stockholders' equity ................................................. 3,990,563 3,351,991
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Total liabilities and stockholders' equity ................................. $ 13,468,372 11,003,082
=========== ==========
</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
Three months ended December 31,
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1997 1996
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<S> <C> <C>
REVENUE:
Brokerage commissions ....................................................... $ 3,288,534 3,507,720
Investment banking .......................................................... 356,504 567,214
Trading profits, net ........................................................ 77,852 133,243
Other broker/dealer ......................................................... 233,286 209,961
Computer hardware and software operations ................................... 3,269,715 2,159,324
Other ....................................................................... -- 41,912
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7,225,891 6,619,374
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COST OF SALES AND OPERATING EXPENSES:
Broker/dealer commissions ................................................... 2,338,863 2,267,321
Computer cost of sales ...................................................... 2,392,274 1,557,884
General and administrative .................................................. 2,880,902 2,774,490
Depreciation and amortization ............................................... 87,471 222,887
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7,699,510 6,822,582
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Operating loss ............................................................ (473,619) (203,208)
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OTHER INCOME (EXPENSE):
Interest income ............................................................. 72,241 54,003
Interest expense ............................................................ (9,466) (23,627)
Equity in loss of affiliate ................................................. -- (7,891)
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62,775 22,485
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Loss before minority interest and income taxes ................................. (410,844) (180,723)
Minority interest in earnings .................................................. (145,681) (48,764)
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Loss from continuing operations before income taxes ............................ (556,525) (229,487)
Income tax expense ............................................................. (213,199) (88,960)
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Loss from continuing operations ................................................ (769,724) (318,447)
Net income (loss) from discontinued operations ................................ (91,704) 62,922
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Net loss before extraordinary item, net ........................................ (861,428) (255,525)
Extraordinary item, net ........................................................ 1,500,000 --
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Net income ..................................................................... $ 638,572 (255,525)
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Weighted average number of common shares outstanding ........................... 16,871,557 16,430,129
========== ==========
Basic and diluted earnings (loss) per common share:
Continuing operations ....................................................... $ (.01) (.03)
Discontinued operations ..................................................... (.01) .01
Extraordinary item .......................................................... .06 --
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Total .......................................................................... $ .04 (.02)
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</TABLE>
See accompanying notes to consolidated financial statements.
4
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<TABLE>
<CAPTION>
FRONTEER FINANCIAL HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS 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, 1997 ................... -- 185,167 12,230,772 (7,433,714) (350,000) (1,280,234) 3,351,991
Net income .................... -- -- -- 638,572 -- -- 638,572
-------- -------- ---------- ---------- -------- ---------- ---------
Balances as of
December
31, 1997 ................... -- 185,167 12,230,772 (6,795,142) (350,000) (1,280,234) 3,990,563
======== ======== ========== ========== ======== ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
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<TABLE>
<CAPTION>
FRONTEER FINANCIAL HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
Three months ended December 31,
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1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss from continuing operations ...................................................... $ (769,724) (318,447)
Adjustments to reconcile net loss from continuing operations
to net cash provided (used) in by continuing operations:
Depreciation and amortization ..................................................... 87,471 222,887
Amortization of deferred rent ..................................................... (28,515) (2,037)
Change in deferred taxes .......................................................... -- (246,000)
Minority interest in earnings ..................................................... 145,681 48,764
Other ............................................................................. (2,001) --
Changes in operating assets and liabilities:
Decrease (increase) in receivables from brokers or dealers
and clearing organizations .................................................. 1,308,933 (489,802)
Increase in trade receivables .................................................. (310,315) (423,789)
Increase in other receivables .................................................. (283,208) (368,434)
Decrease in securities owned, net of securities
sold but not yet purchased .................................................. 90,107 109,031
Decrease (increase) in other assets ............................................ 501,260 (370,572)
Increase (decrease) in accounts payable, accrued expenses,
and other liabilities .......................................................... (1,290,948) 355,398
Increase (decrease) in deferred revenue ........................................ 252,750 (24,400)
Increase in income taxes payable ............................................... 158,697 42,363
Increase (decrease) in other current liabilities ............................... 163,797 (6,038)
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Net cash provided (used) in continuing operations .............................. 23,985 (1,471,076)
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Net cash provided (used) in discontinued operations ............................ 570,648 (6,634)
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Net cash provided (used) in operating activities ............................... 594,633 (1,477,710)
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(Continued)
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<CAPTION>
FRONTEER FINANCIAL HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
Three months ended December 31,
-------------------------------
1997 1996
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<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, furniture and equipment ..................................... (162,085) (378,947)
Proceeds from sale of Clearing Operation, net ..................................... -- 1,048,075
Other investing activities ........................................................ (183,361) 120,807
Net cash provided by discontinued operations ...................................... 93,353 101,134
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Net cash provided (used) by investing activities .................................. (252,093) 891,069
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CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on debt ................................................................ 260,113 937,447
Principal payments on borrowings .................................................. (74,900) (309,044)
Net payments to related parties ................................................... (177,000) (22,843)
Net proceeds from issuance of convertible debenture ............................... 4,000,000 --
Net proceeds from issuance of common stock ........................................ -- 722,317
Other financing activities ........................................................ (3,474) --
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Net cash provided by financing activities ......................................... 4,004,739 1,327,877
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NET INCREASE IN CASH AND CASH EQUIVALENTS ............................................ 4,347,279 741,236
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD ............................................................................ 2,080,722 2,017,489
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CASH AND CASH EQUIVALENTS, END OF PERIOD ............................................. $ 6,428,001 2,758,725
========== ==========
7
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<CAPTION>
FRONTEER FINANCIAL HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
SUPPLEMENTAL DISCLOSURES RELATED TO STATEMENTS OF CASH FLOWS
Three months ended December 31,
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1997 1996
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<S> <C> <C>
Cash payments for:
Interest:
Continued operations ........................................................... 9,466 23,627
Discontinued operations ........................................................ 4,063 38,102
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13,529 61,729
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Income taxes:
Continued operations ........................................................... 7,047 46,597
Discontinued operations ........................................................ -- --
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7,047 46,597
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Other investing and financing activities:
Forgivable loan recognized as extraordinary item, net ............................. $1,500,000 --
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
8
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FRONTEER FINANCIAL HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 principals. In the opinion of management, these
financial statements reflect all adjustment (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 affect 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, 1997. Operating
results for the three months ended December 31, 1997, are not necessarily
indicative of the results that may be expected for the year ended September 30,
1998.
NOTE 2 - ORGANIZATION AND PRINCIPALS OF CONSOLIDATION
The consolidated financial statements include Fronteer and its wholly-owned
subsidiaries, RAF Financial Corporation (RAF), RAF Services Inc. of Texas, RAF
Services Inc. of Louisiana, RAF Services Inc. (collectively, RAF Services) and
Fronteer Capital, Inc. 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.
RAF operates as a registered securities broker/dealer. RAF Services are
subsidiaries established in order to participate in insurance brokerage
activities in certain states. Fronteer Capital, Inc. was formed to effectuate
the transactions described below in Note 4 relating to Possible Change in
Control. Secutron is engaged in industry specific software development and
provides consulting services.
NOTE 3 - EARNINGS PER SHARE
Basic earnings (loss) per common share has been calculated based upon the net
loss available to common shareholders divided by the weighted average number of
common shares outstanding during the period. Diluted earnings (loss) per common
share would not be different than basic earnings (loss) per common share due to
the fact that including the potential common shares would result in antidilution
as a result of the loss from continuing operations.
9
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FRONTEER FINANCIAL HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, CONTINUED
NOTE 4 - STOCKHOLDERS' EQUITY
In December 1997, Heng Fung Capital [S] Private Limited (Heng Fung Private), a
wholly owned subsidiary of Heng Fung Holdings Company Limited (Heng Fung
Holdings), a public company traded on the Hong Kong Stock Exchange, purchased
1,136,364 shares of the Company's outstanding Common Stock from Robert A.
Fitzner, Jr. and Robert L. Long, officers and directors of the Company, and from
two other employees of RAF. In December 1997, Robert A. Fitzner, Jr. and Heng
Fung Private agreed that, upon the regulatory approval of the National
Association of Securities Dealers, Inc. (NASD) of a change in the beneficial
ownership of 25% or more of RAF, Heng Fung Private would purchase an additional
3,556,777 shares of Fronteer's outstanding Common Stock from Mr. Fitzner. In
conjunction with the transaction, Fronteer entered into an agreement
(Convertible Debenture Agreement) with Heng Fung Finance Company Limited (Heng
Fung Finance), a wholly owned subsidiary of Heng Fung Private, pursuant to which
Fronteer agreed to sell Heng Fung Finance a ten year $4,000,000 10% Convertible
Debenture that is convertible at $.53125 per share into 7,529,411 shares of
Fronteer Common Stock. The purchase of the $4,000,000 Convertible Debenture was
completed on December 30, 1997. As of December 31, 1997, these funds are in
Fronteer Capital, Inc. The directors of Fronteer Capital, Inc. are appointed by
Heng Fung Finance and all of the outstanding stock of Fronteer Capital, Inc. is
pledged as collateral for the convertible debenture. Therefore, the $4,000,000
is not yet available for general use by the Company. On December 26, 1997, the
Board of Directors of Fronteer, at the request of Heng Fung Finance made
pursuant to the terms of the Convertible Debenture Agreement, appointed Mr. Fai
Chan and Mr. Robert Trapp as selected by Heng Fung Finance, to the Board of
Directors of Fronteer.
On January 29, 1998, the NASD approved (subject to certain restrictions that
must be agreed to by RAF) the change in the beneficial ownership of 25% or more
of RAF, and Heng Fung Private has advised Fronteer that Heng Fung Private
intends to purchase the additional 3,556,777 shares of Fronteer's outstanding
Common Stock from Mr. Fitzner on or about February 18, 1998. Contemporaneously
with that purchase, Mr. Fitzner, Mr. Long and Mr. Dennis Olson, will resign as
directors of Fronteer and Mr. Chan and Mr. Trapp, the two remaining directors
appointed at the request of Heng Fung Finance, will reduce the number of
directors to three and fill the remaining vacancy. It is anticipated that
Messrs. Chan and Trapp will appoint Mr. Kwok Jen Fong, a practicing solicitor in
Singapore as a director of Fronteer, and it is further anticipated that the
directors will appoint new officers for Fronteer. After giving effect to the
transactions described above, Heng Fung Holdings, through Heng Fung Private and
Heng Fung Finance, will own approximately 27.8% of Fronteer's outstanding Common
Stock, will own the $4,000,000 Convertible Debenture that is convertible at
$.53125 per share into 7,529,411 of Fronteer's Common Stock and will have the
option to purchase an additional ten year $11,000,000 10% Convertible Debenture
that will be convertible at $.61 per share into 18,032,786 shares of Fronteer's
Common Stock.
NOTE 5 - EXTRAORDINARY ITEM
On July 23, 1996, the Company sold RAF's securities brokerage clearing division
(Clearing Operation) to MultiSource Services, Inc. (MSI), a new broker/dealer,
for a purchase price of $3,000,000, including a $1,500,000 contingency in the
form of a forgivable loan, plus the net assets of the Clearing Operation. MSI
was formed by Oppenheimer Finds, Inc. (OFI) for the purpose of acquiring the
Clearing Operation, and OFI was to retain 80% of the outstanding common stock of
MSI. Fronteer received 20% of the outstanding common stock of MSI. As a result
10
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FRONTEER FINANCIAL HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, CONTINUED
of this transaction, RAF became a fully disclosed clearing correspondent of MSI.
The loan of $1,500,000 was recorded as a loan payable to MSI and is forgivable
based on MSI's revenues during the 28 months following the closing date. If
MSI's revenues exceed $1,250,000 during the 5th through the 16th month following
the closing, $750,000 of the loan will be forgiven. If MSI's revenues exceed
$1,750,000 during the 17th through the 28th month following the closing, the
remaining $750,000 will be forgiven. To the extent that such revenue targets are
not met by MSI, the subject portion of the loan or accrued interest will not be
forgiven. The loan is payable by the Company on the 30th day after the last day
of the 16th and the 28th months following the closing date of the revenue
targets are not achieved by MSI. The loan is non-interest bearing if no
principal payments are in default. Interest on any amount past due will accrue
at the rate of 10% per annum.
During the year ended September 30, 1997, Fronteer and RAF were notified by OFI
that a decision had been reached by OFI that MSI and its business were not
consistent with the long term business plans of OFI. Subsequently, a new
clearing firm was selected for the customer business of RAF, and the customer
business previously cleared by MSI was moved to the new clearing firm in October
1997. MSI reached its revenue targets for the first portion of the forgivable
loan by October 1997. As a result, the first $750,000 of the $1,500,000
forgivable loan was recognized as income during the three months ended December
31, 1997. The second and final portion of the loan plus accrued interest payable
was canceled in accordance with provisions in the forgivable loan agreement
relating to MSI's decision to cease being engaged in the clearing business. The
remaining $750,000 was also recognized as income during the three months ended
December 31, 1997.
NOTE 6 - 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.
11
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS
Revenues for the three months ended December 31, 1997 were $7,225,891, an
increase of $606,517 or 9.2% over the $6,619,374 for the three months ended
December 31, 1996. The increase is primarily a result of an increase in computer
hardware and software revenues.
Computer hardware and software revenues were $3,269,715 for the three months
ended December 31, 1997, an increase of $1,110,391 or 51.4% over $2,159,324 for
the prior period. The increase is attributable to new contracts secured by
Secutron for software development and an increase in computer equipment sales.
Computer hardware and software costs increased 53.5% or $834,390 to $2,392,274
for the three months ended December 31, 1997. The increase correlates to the
increase described above relating to revenues.
The minority interest in earnings is up $96,917 from the prior period. The
increase correlates to the increase in revenues for Secutron as described above.
The loss from discontinued operations for the three months ended December 31,
1997 of $91,704 and the net earnings of $62,922 for the three months ended
December 31, 1996 represent the net operating activity of the Company's
marketing and directory business for which all of the primary operating assets
were sold during the year ended September 30, 1997.
The extraordinary item represents the recognition of the forgivable loan with
MSI in accordance with terms and conditions of the forgivable loan agreement.
These terms and conditions included the forgiveness of the loan based on revenue
targets for MSI. MSI reached the target for forgiveness of $750,000 and thus it
was recognized as income. The remaining $750,000 was recognized as income as MSI
discontinued operating as a clearing firm in the securities industry which
allowed the Company to recognize the remainder in accordance with the agreement.
Liquidity and Capital Resources
The Company, as of September 30, 1997, had $6,428,001 in cash and cash
equivalents and $7,546,517 in working capital. The issuance of the convertible
debenture provided proceeds of $4,000,000 in December 1997, although the
proceeds are held by Fronteer Capital, Inc., a wholly-owned subsidiary of the
Company. The directors of Fronteer Capital, Inc. are appointed by Heng Fung
Finance and all of the outstanding stock of Fronteer Capital Inc. is pledged as
collateral for the convertible debenture. Therefore, the $4,000,000 is not yet
available for general use by the Company. Proceeds from discontinued operations
of $664,001 and borrowings on debt of $260,113 were used to fund the purchase of
property and equipment of $162,085, repay long-term borrowings of $74,900 and
related party borrowings of $177,000 and for other investing activities of
$183,361.
Most of the Company's assets are highly liquid, consisting mainly of assets that
are readily convertible into cash. These assets are financed by the Company's
equity capital, long-term debt and accounts payable. Changes in the amount of
securities owned by the Company and receivables from brokers or dealers and
clearing organizations directly affect the amount of the Company's financing
requirements.
A possible change in control could occur in February 1998 as discussed in Item 4
to the consolidated financial statements. As discussed above, $4,000,000 in
working capital has already been provided to the Company in conjunction with
this possible change in control. Another $11,000,000 is anticipated if the
change in control occurs.
12
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Management believes that the Company's 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
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no pending material legal proceedings or claims against the Company or
subsidiaries except that on December 24, 1997 NevStar Gaming & Entertainment
Corporation (NevStar) gave written notice to RAF of its claim for damages
relating to RAF's not underwriting NevStar's initial public offering. NevStar
alleges that it suffered in excess of $1,000,000 in damages as a result of RAF's
alleged breach of its alleged agreement with NevStar, as well as RAF's violation
of applicable Securities and Exchange Commission and NASD regulations, and
common law. It is the opinion of the management of RAF that the claims have no
merit and are not justifiable and RAF intends to vigorously defend them.
Items 2. Changes in Securities
(c) Recent Sales of Unregistered Securities
In December 1997, the Company sold Heng Fung Finance a ten year $4,000,000 10%
Convertible Debenture that is convertible into shares of Common Stock of the
Company at a price of $.53125 per share until December 15, 2007, unless sooner
paid. The proceeds from the $4,000,000 10% Convertible Debenture were advanced
to Fronteer Capital, Inc. The directors of Fronteer Capital, Inc. are appointed
by Heng Fung Finance and all of the outstanding stock of Fronteer Capital, Inc.
is pledged as collateral for the convertible debenture. Therefore, the
$4,000,000 is not yet available for general use by the Company. The sale of the
$4,000,000 10% Convertible Debenture was made in reliance upon the exemption
from registration provided by Section 4(2) of the Securities Act of 1933, as
amended (Act). The purchaser had access to full information concerning the
Company and represented that it purchased the $4,000,000 10% Convertible
Debenture for the purchaser's own account and not for the purpose of
distribution. The $4,000,000 10% Convertible Debenture contains a restrictive
legend advising that the securities represented by the $4,000,000 10%
Convertible Debenture may not be offered for sale, sold or otherwise transferred
without having first been registered under the Act or pursuant to an exemption
from registration under the Act. No underwriters were involved in the
transaction.
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 were no reports on Form 8-K filed during the quarter ended
December 31, 1997.
14
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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: February 11, 1998 FRONTEER FINANCIAL HOLDINGS, LTD.
----------------- a Colorado Corporation
By: /s/ R. A. Fitzner, Jr.
------------------------------------------
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 Page
- ------- ----------- ----
27.0 Financial Data Schedule 17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 6,428,001
<SECURITIES> 701,732
<RECEIVABLES> 2,213,483
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,563,366
<PP&E> 3,599,471
<DEPRECIATION> (2,058,043)
<TOTAL-ASSETS> 13,468,372
<CURRENT-LIABILITIES> 3,016,849
<BONDS> 4,287,411
0
0
<COMMON> 185,167
<OTHER-SE> 3,805,396
<TOTAL-LIABILITY-AND-EQUITY> 13,468,372
<SALES> 0
<TOTAL-REVENUES> 7,225,891
<CGS> 0
<TOTAL-COSTS> 7,699,510
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,466
<INCOME-PRETAX> (556,525)
<INCOME-TAX> (213,199)
<INCOME-CONTINUING> (769,724)
<DISCONTINUED> (91,704)
<EXTRAORDINARY> 1,500,000
<CHANGES> 0
<NET-INCOME> 638,572
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
