U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1996
Commission File No. 0-23444
FROST HANNA MERGERS GROUP, INC.
(Exact name of small business issuer as specified in its charter)
FLORIDA 65-0450311
- - ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
7700 WEST CAMINO REAL, SUITE 222, BOCA RATON, FL 33431
------------------------------------------------------------
(Address of principal executive offices)
(407) 367-1085
------------------
(Issuer's telephone number, including area code)
Check whether the issuer: (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 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.
Yes [X] No [ ]
Number of shares outstanding of each of the issuer's classes of common equity:
As of May 10, 1996, the Company had a total of 3,344,000 shares (the
"Shares") of Common Stock, par value $.0001 per share (the "Common Stock")
outstanding. Additionally, as of such date, Underwriter Options to purchase
170,000 shares of Common Stock (the "Underwriter Options") remain outstanding
and unexercised. Each Underwriter Option entitles the holder thereof to purchase
one share of Common Stock at a purchase price of $8.10 per share commencing
March 21, 1995 and for a period of four years thereafter.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
<PAGE>
FROST HANNA MERGERS GROUP, INC.
FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 1995
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements............................................... 2
Item 2. Management's Discussion and Analysis or Plan of Operation.......... 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.................................................. 11
Item 6. Exhibits and Reports on Form 8-K................................... 11
<PAGE>
<TABLE>
<CAPTION>
FROST HANNA MERGERS GROUP, INC.
(A Development Stage Corporation)
CONDENSED BALANCE SHEETS
March 31, December 31,
ASSETS 1996 1995
------ --------------- ---------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,283,481 $ 1,509,428
Prepaid expenses 2,178 2,178
Restricted short-term investments 8,889,298 8,789,268
Income taxes receivable 30,980 -
-------------- --------------
Total current assets 10,205,937 10,300,874
PROPERTY AND EQUIPMENT, net 4,980 5,280
-------------- --------------
Total assets $ 10,210,917 $ 10,306,154
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued expenses $ 67,575 $ 22,200
Income taxes payable - 64,009
-------------- --------------
Total current liabilities 67,575 86,209
-------------- --------------
COMMITMENTS AND CONTINGENCIES (Notes 1, 3 and 4)
REDEEMABLE COMMON STOCK (Note 3) 3,041,988 3,064,962
-------------- --------------
STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value, 100,000,000
shares authorized, 3,344,000 shares issued
and outstanding 335 335
Additional paid-in capital 7,137,774 7,114,800
Retained earnings (deficit) accumulated during
the development stage (36,755) 39,848
--------------- --------------
Total stockholders' equity 7,101,354 7,154,983
-------------- --------------
Total liabilities and stockholders' equity $ 10,210,917 $ 10,306,154
============== ==============
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
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<PAGE>
<TABLE>
<CAPTION>
FROST HANNA MERGERS GROUP, INC.
(A Development Stage Corporation)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended For the Period
March 31, From Inception
-------------------------- October 4, 1993) to
1996 1995 March 31, 1996
----------- ------------ ---------------------
<S> <C> <C> <C>
REVENUES $ -- $ -- $ --
EXPENSES:
Salaries to officers 54,000 54,000 537,677
General and administrative 195,466 40,309 486,955
----------- ----------- -----------
Loss from operations (249,466) (94,309) (1,024,632)
INTEREST INCOME 127,874 136,500 1,007,605
----------- ----------- -----------
Income (loss) before provision (benefit)
for income taxes (121,592) 42,191 (17,027)
PROVISION (BENEFIT) FOR INCOME TAXES (44,989) -- 19,728
----------- ----------- -----------
Net income (loss) $ (76,603) $ 42,191 $ (36,755)
=========== =========== ===========
NET INCOME (LOSS) PER COMMON SHARE $ (.02) $ .01 $ (.01)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 3,344,000 3,344,000 2,961,593
=========== =========== ===========
</TABLE>
The accompanying notes to condensed financial statements are an
integral part of these statements.
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<PAGE>
<TABLE>
<CAPTION>
FROST HANNA MERGERS GROUP, INC.
(A Development Stage Corporation)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended For the Period
March 31, From Inception
---------------------------------- (October 4, 1993) to
1996 1995 March 31, 1996
---------- -------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (76,603) $ 42,191 $ (36,755)
Adjustments to reconcile net income (loss) to
net cash used in operating activities-
Depreciation 300 250 1,591
Interest on restricted short-term investments (101,578) (102,454) (775,927)
Change in certain assets and liabilities-
Prepaid expenses -- 2,500 (2,178)
Income taxes receivable (30,980) -- (30,980)
Accrued expenses 45,375 (6,487) 67,575
Accrued officer payroll -- 2,240 --
Income taxes payable (64,009) -- --
------------ ------------ ------------
Net cash used in operating activities (227,495) (61,760) (776,674)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales and maturities of restricted short-term investments 8,114,919 8,122,719 56,792,689
Purchases of restricted short-term investments (8,113,371) (8,122,719) (64,906,060)
Purchase of property and equipment -- -- (6,571)
------------ ------------ ------------
Net cash provided by (used in) investing activities 1,548 -- (8,119,942)
------------ ------------ -------------
</TABLE>
(Continued)
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<PAGE>
<TABLE>
<CAPTION>
FROST HANNA MERGERS GROUP, INC.
(A Development Stage Corporation)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued)
For the Three Months Ended For the Period
March 31, From Inception
------------------------------------- (October 4, 1993) to
1996 1995 March 31, 1996
-------------- -------------- --------------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock $ - $ - $ 10,180,097
-------------- -------------- ---------------
Net increase in cash and cash equivalents (225,947) (61,760) 1,283,481
CASH AND CASH EQUIVALENTS, beginning of period 1,509,428 1,758,800 -
-------------- -------------- ---------------
CASH AND CASH EQUIVALENTS, end of period $ 1,283,481 $ 1,697,040 $ 1,283,481
============== ============== ===============
SUPPLEMENTAL SCHEDULE OF CASH FLOW ACTIVITY:
Income taxes paid $ 50,000 $ - $ 50,708
============== ============== ===============
</TABLE>
The accompanying notes to condensed financial statements are an
integral part of these statements.
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<PAGE>
FROST HANNA MERGERS GROUP, INC.
(A Development Stage Corporation)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(1) GENERAL:
Frost Hanna Mergers Group, Inc. (the "Company") was formed in October 1993 to
seek to effect a merger, exchange of capital stock, asset acquisition or similar
business combination (a "Business Combination") with an acquired business. In
connection with its initial capitalization, the Company issued 1,389,000 shares
of its Common Stock to its officers, directors and other shareholders for an
aggregate sum of $37,920. On March 21, 1994, the Company's registration
statement on Form SB-2 (the "Registration statement") was declared effective by
the U.S. Securities and Exchange Commission. Pursuant to the Registration
statement, the Company, in its initial public offering of securities, offered
and sold 1,955,000 shares of Common Stock, par value $.0001 per share, at a
purchase price of $6.00 per share (the "Offering") and received net proceeds of
approximately $10,142,177, after the payment of all expenses of the Offering
(the "Net Proceeds"). In addition, the Company issued underwriter options to
purchase 170,000 shares of Common Stock. Each underwriter option entitles the
holder thereof to purchase one share of common stock at a purchase price of
$8.10 per share commencing March 21, 1995 and for a period of four years
thereafter. The Offering was a "blank check" offering. The Company's year-end is
December 31.
The Company is in the development stage, has had no revenues to date and is
entirely dependent upon the proceeds of the Offering to commence operations
relating to selection of a prospective acquired business. The Company will not
receive any revenues, other than interest income, until, at the earliest, the
consummation of a Business Combination. In the event that the Net Proceeds of
the Offering prove to be insufficient for purposes of effecting a Business
Combination, the Company will be required to seek additional financing. In the
event no Business Combination is identified, negotiations are incomplete or no
Business Combination has been consummated, and all of the Net Proceeds other
than the Escrow Fund (see Note 2) have been expended, the Company currently has
no plans or arrangements with respect to the possible acquisition of additional
financing which may be required to continue the operations of the Company.
Furthermore, there is no assurance that the Company will be able to successfully
effect a Business Combination.
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<PAGE>
In the opinion of the management of the Company, the accompanying unaudited
condensed financial statements of the Company contain all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
the financial position of the Company as of March 31, 1996, and the results of
its operations for the three months ended March 31, 1996 and 1995 and the
cumulative period from October 4, 1993 (date of inception) to March 31, 1996.
The results of operations and cash flows for the three months ended March 31,
1996 are not necessarily indicative of the results of operations or cash flows
which may be reported for the remainder of 1996.
The accompanying unaudited interim financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
for reporting on Form 10-QSB. Pursuant to such rules and regulations, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. The accompanying unaudited interim financial statements
should be read in conjunction with the Company's December 31, 1995 financial
statements and the notes included in the Company's Form 10-KSB.
The accounting policies followed for quarterly financial reporting are the same
as those disclosed in the December 31, 1995 Notes to Financial Statements
included in the Company's Form 10-KSB.
(2) RESTRICTED SHORT-TERM INVESTMENTS:
Eighty percent of the Net Proceeds of the Offering were delivered to an escrow
agent and are being held in escrow (the "Escrow Fund") by such firm, until the
earlier of (i) written notification by the Company of its need for all or
substantially all of the Escrow Fund for the purpose of implementing a Business
Combination or (ii) the exercise by certain shareholders of redemption rights
which will be offered at the time the Company seeks shareholder approval of any
potential Business Combination. As of March 31, 1996 and December 31, 1995,
there was $8,889,298 (unaudited) and $8,789,268, respectively, in the Escrow
Fund. The Escrow Fund is currently invested in United States government-backed
short-term securities.
(3) REDEEMABLE COMMON STOCK:
The Company may be required to redeem up to 29.99% of the Common Stock held by
certain stockholders. Such shares have been classified in the accompanying
balance sheets as "Redeemable Common Stock." Periodic changes in the redemption
price are reflected as increases/decreases to additional paid-in capital.
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<PAGE>
(4) TRANSACTION BETWEEN THE COMPANY AND
PAN AMERICAN WORLD AIRWAYS, INC.:
On January 29, 1996, the Company entered into a letter of intent with Pan
American World Airways, Inc., a Florida corporation ("Pan Am"), outlining the
basic terms of a proposed transaction between the Company and Pan Am. On March
13, 1996, the Company, Pan Am and PA Acquisition Corporation, a Florida
corporation and wholly owned subsidiary of the Company ("FH Sub"), entered into
a definitive agreement (the "Acquisition Agreement"), providing for, among other
things, the merger of FH Sub with and into Pan Am as outlined in the letter of
intent. Pan Am is a newly organized corporation established to operate a new low
fare, full service airline under the "Pan Am" name, which will serve selected
long-haul routes between major United States cities. Upon consummation of the
merger, each outstanding share of Pan Am common stock will be converted into the
right to receive one share of the Company's common stock. Approximately
7,561,191 shares of Pan Am common stock along with warrants and options to
acquire an additional 1,587,739 shares of Pan Am common stock were outstanding
as of April 30, 1996. Accordingly, assuming the exercise or conversion of all
outstanding Pan Am options and warrants and the exercise of the warrants held by
the underwriter of the Company's initial public offering (170,000 shares), the
shareholders of Pan Am would, upon consummation of the merger own approximately
seventy-two percent (72%) of the shares of the Company's common stock.
The consummation of the merger is subject to the satisfaction of a number of
conditions, including: (i) the merger shall have been approved and adopted by
the shareholders of the Company and Pan Am, and no more than 30% of the shares
of the Company Common Stock held by Public Stockholders shall have voted against
the merger; (ii) Pan Am shall be in material compliance with all material
business plans, budgets or projections submitted in connection with any
applications made to the United States Federal Aviation Administration (the
"FAA") and the United States Department of Transportation (the "DOT"); and (iii)
all licenses required to be procured from, among other persons and entities, the
FAA and the DOT, in order for Pan Am to commence operations as an air carrier in
a manner substantially in accordance with the applications made to the FAA and
the DOT, shall have been procured without imposition of unduly burdensome
conditions or restrictions.
In the event the merger is not consummated because of the failure of the
shareholders of Pan Am to approve the merger and if any of the existing
shareholders or their affiliates do not vote in favor of the merger, then Pan Am
is obligated to pay to the Company a termination fee of $1 million plus all
costs and expenses incurred by the Company in connection with the proposed
merger.
The foregoing description of the Acquisition Agreement is qualified in its
entirety to the full text of the Agreement, a copy of which is included in
Exhibit 2 to the Company's Annual Report on Form 10-K. The merger is expected
to be consummated during the third quarter of 1996. There can be no assurance,
however, that the merger will be consummated, or, if consummated, that it will
be on the same terms described above and in the Acquisition Agreement.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Frost Hanna Mergers Group, Inc. (the "Company") was formed in October,
1993 to seek to effect a merger, exchange of capital stock, asset acquisition or
similar business combination (a "Business Combination") with an acquired
business (an "Acquired Business").
In connection with its initial capitalization, the Company issued 1,389,000
shares of its Common Stock to its officers, directors, and other shareholders
for an aggregate sum of $37,920. On March 21, 1994, the Company's Registration
Statement on Form SB-2 (the "Registration Statement") was declared effective by
the U.S. Securities and Exchange Commission (the "SEC"). Pursuant to the
Registration Statement, the Company, in its initial public offering of
securities, offered and sold 1,955,000 shares of Common Stock, par value $.0001
per share, at a purchase price of $6.00 per share (the "Offering") and received
net proceeds of approximately $10,142,177, after the payment of all expenses of
the Offering (the "Net Proceeds"). In addition, the Company issued Underwriter
Options to purchase 170,000 shares of Common Stock. The Offering was a "blank
check" offering.
LIQUIDITY AND CAPITAL RESOURCES/PLAN OF OPERATION
As of March 31, 1996 and December 31, 1995, respectively, the Company
had cash and cash equivalents of $1,283,481 and $1,509,428, restricted
short-term investments of $8,889,298 and $8,789,268, property and equipment of
$4,980 and $5,280 and prepaid expenses of $2,178 and $2,178. As of March 31,
1996 and December 31, 1995, respectively, the Company had total liabilities of
$67,575 and $86,209, and total stockholders' equity of $7,101,354 and
$7,154,983. Of the Net Proceeds, 80% ($8,113,741) (the "Escrow Fund") were
delivered to Fiduciary Trust International of the South, as Escrow Agent, to be
held in escrow by such firm, until the earlier of (i) written notification by
the Company of its need for all or substantially all of the Escrow Fund for the
purpose of facilitating a Business Combination; or (ii) the exercise by certain
shareholders of redemption rights which will be offered (the "Redemption Offer")
at the time the Company seeks shareholder approval of any potential Business
Combination. As of March 31, 1996, there was $8,889,298 in the Escrow Fund. The
Escrow Fund is currently invested in United States government-backed short-term
securities.
Other than the Escrow Fund, the Company, as of March 31, 1996 and
December 31, 1995, respectively, had $1,283,481 and $1,509,428 in cash and cash
equivalents, all of which was received from the Offering (other than interest
income earned thereon).
The Company's objective is to seek to effect a Business Combination
with an Acquired Business which the Company believes has growth potential. On
March 13, 1996, the Company entered into an Acquisition Agreement (the
"Acquisition Agreement") with Pan American World Airways, Inc., a Florida
corporation ("Pan Am"), providing for the merger of PA Acquisition Corporation,
a Florida corporation and wholly-owned subsidiary of the Company, with and into
Pan Am. Pan Am is a newly organized corporation established to operate a new low
fare, full service airline under the "Pan Am" name, which will serve selected
long-haul routes between major United States cities. Upon consummation of the
merger, each outstanding share of Pan Am common stock will be converted into the
right to receive one share of the Company's Common Stock. Approximately
7,561,191 shares of Pan Am common stock, along with warrants and options to
acquire an additional 1,587,739 shares of Pan Am common stock, were outstanding
as of May 6, 1996 which would, upon
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<PAGE>
consummation of the merger and issuance of the Company's Common Stock in
exchange therefore (assuming the exercise or conversion of all outstanding Pan
Am options and warrants and the exercise of the Underwriter Options to purchase
170,000 shares of Common Stock held by the Underwriter of the Company's initial
public offering), represent approximately seventy-two percent (72%) of the
shares of the Company's Common Stock outstanding after giving effect to the
merger.
The obligations of both parties to consummate the merger are subject to
the following conditions, among others: (1) the effectiveness of the
registration statement relating to the Company Common Stock to be issued in the
merger; (2) the approval of the shareholders of each of the Company and Pan Am;
(3) the receipt by the Company of an opinion or other advice from an investment
banking firm or other advisor or consultant to the effect that the exchange
ratio in the merger is fair from a financial point of view to the Company and
its shareholders, which opinion or advice shall not have been withdrawn or
modified prior to the confirmation of the merger; (4) the merger and other
transactions relating to the formation of Pan Am shall have been approved by the
Bankruptcy Court for the Southern District of New York; and (5) receipt by Pan
Am of all licenses (or commitments to unconditionally grant such licenses upon
consummation of the merger) required by the United States Federal Aviation
Administration, the United States Department of Transportation and others for
Pan Am to commence operations as an air carrier.
In the event the merger is not consummated because of the failure of
the shareholders of Pan Am to approve the merger and if any of the existing
shareholders or their affiliates do not vote in favor of the merger, then Pan Am
is obligated to pay to the Company a termination fee of $1 million plus all
costs and expenses incurred by the Company in connection with the proposed
merger.
The foregoing description of the Acquisition Agreement is qualified in
its entirety to the full text of the Agreement, a copy of which is included in
Exhibit 2 to the Company's Annual Report on Form 10-K. The merger is expected to
be consummated during the third quarter of 1996. There can be no assurance,
however, that the merger will be consummated, or, if consummated, that it will
be on the same terms described above and in the Acquisition Agreement.
Although the Company has, prior to the execution of the letter of
intent with Pan Am, had preliminary discussions with Acquired Business
candidates regarding a possible Business Combination, the Company had not
entered into any agreements, agreements in principle or understandings regarding
a Business Combination other than the Acquisition Agreement.
The expenses required to consummate the merger with Pan Am cannot be
presently ascertained with any degree of certainty. For the quarters ended March
31, 1996, and March 31, 1995, respectively, the Company incurred $249,466 and
$94,309 of operating expenses, which primarily consisted of professional
expenses and salaries. Pursuant to employment agreements, the Company currently
pays to each of Messrs. Frost and Hanna $8,000 monthly for salary plus $1,000
monthly each for Messrs. Frost's and Hanna's non- accountable expense allowance.
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<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not presently a party to any material litigation, nor,
to the knowledge of management, is any such litigation presently threatened.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
None.
(b) CURRENT REPORTS ON FORM 8-K
None.
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<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FROST HANNA MERGERS
GROUP, INC.
Date: May 15, 1996
By: /s/ MARK J. HANNA
------------------
Mark J. Hanna,
President
Date: May 15, 1996 By: /s/ MARSHAL E. ROSENBERG
-------------------------
Marshal E. Rosenberg, Ph.D.
Principal Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM FROST HANNA MERGERS
GROUP INC.'S FORM 10-QSB FOR THE QUARTERLY PERIOD
ENDED MARCH 31, 1996, AND IS QUALIFIED IN ITS
ENTIRETY BE REFERNCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,283,481
<SECURITIES> 8,889,298
<RECEIVABLES> 30,980
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,205,937
<PP&E> 4,980
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,210,917
<CURRENT-LIABILITIES> 67,575
<BONDS> 0
0
0
<COMMON> 335
<OTHER-SE> 7,101,019
<TOTAL-LIABILITY-AND-EQUITY> 10,210,917
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 249,466
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (121,592)
<INCOME-TAX> (44,989)
<INCOME-CONTINUING> (76,603)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (76,603)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
