UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Period Ended September 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FROST HANNA CAPITAL GROUP, INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
FLORIDA 65-0701248
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
327 Plaza Real, Suite 319
Boca Raton, FL 33432
----------------------------------------
(Address of principal executive offices)
(561) 367-1079
----------------------------------------------------
(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.
Yes No X
---- ----
As of November 13, 1997, the Company had a total of 2,657,202 shares of
Common Stock, par value $.0001 per share (the "Common Stock"), outstanding.
Additionally, as of such date an Underwriter Option to purchase 110,020 shares
of Common Stock (the "Underwriter Options") remained outstanding and
unexercised. Each Underwriter Warrant entitles the holder thereof to purchase
one share of Common Stock at a purchase price of $9.90 per share commencing
October 16, 1998 and for a period of four years thereafter.
FROST HANNA CAPITAL GROUP, INC.
FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 1997
INDEX
PAGE NO.
--------
PART I
Item 1. Financial Information..................................................... 1
Item 2. Management's Discussion and Analysis or Plan of Operation................. 1
PART II
Item 1. Legal Proceedings......................................................... 4
Item 2. Changes in Securities..................................................... 4
Item 3. Defaults Upon Senior Securities........................................... 4
Item 4. Submission of Matters to Vote of Security Holders......................... 4
Item 5. Other Information......................................................... 4
Item 6. Exhibits and Reports on Form 8-K.......................................... 4
SIGNATURES......................................................................... 6
FINANCIAL STATEMENTS............................................................... F-1
-ii-
PART I
ITEM 1. FINANCIAL STATEMENTS
The unaudited, condensed financial statements included herein,
commencing at page F-1, have been prepared in accordance with the requirements
of Regulation S-B and supplementary financial information included herein, if
any, has been prepared in accordance with Item 310(b) of Regulation S-B and,
therefore, omit or condense certain footnotes and other information normally
included in financial statements prepared in accordance with generally accepted
accounting principles. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) necessary for a fair presentation of the
financial information for the interim periods reported have been made. Results
of operations for the three months and nine months ended September 30, 1997 are
not necessarily indicative of the results for the year ending December 31, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Frost Hanna Capital Group, Inc. (the "Company") was formed in February
1996 to seek to effect a merger, exchange of capital stock, asset acquisition or
similar business combination (a "Business Combination") with an operating or
development stage business (an "Acquired Business"). In connection with its
initial capitalization, the Company issued 1,557,000 shares of its Common Stock
to its officers, directors, and other shareholders for an aggregate sum of
$216,613. On September 22, 1997, 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 1,100,202 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 $5,875,079 (which amount less estimated expenses of the Offering,
is referred to herein as the "Net Proceeds"). In addition, the Company issued
Underwriter Options to purchase 110,020 shares of Common Stock. The Offering was
a "blank check" offering.
LIQUIDITY AND CAPITAL RESOURCES/PLAN OF OPERATION
As of September 30, 1997, the Company had cash of $9,866 and prepaid
expenses of $15,526. As of September 30, 1997, the Company had total liabilities
of $479,928 and total shareholders' deficit of $149,081. Following the
consummation of the Offering, eighty percent (80%) of the Net Proceeds
($4,560,063) (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 implementing a Business
Combination; or (ii) the exercise by certain shareholders of a redemption offer.
Other than the Escrow Fund, the Company, as of October 17, 1997 had
$1,319,023 in cash, substantially all of which was received from the Offering
(other than interest income earned thereon) (the "Operating Funds"). The Company
believes the Operating Funds will be sufficient for its cash requirements for at
least the next twelve months.
The expenses required to select and evaluate an Acquired Business
candidate (including conducting a due diligence review) and to structure and
consummate a Business Combination (including the negotiation of relevant
agreements and the preparation of requisite documents for filing pursuant to
applicable securities laws and state corporation laws) cannot be presently
ascertained with any degree of certainty. Pursuant to employment agreements, the
Company pays to each of Messrs. Frost and Hanna $10,000 monthly for salary and
$1,000 monthly each for Messrs. Frost's and Hanna's non-accountable expense
allowance.
-1-
The Company anticipates that it will make contact with business
prospects primarily through the efforts of its officers, who will meet
personally with existing management and key personnel, visit and inspect
material facilities, assets, products and services belonging to such prospects
and undertake such further reasonable investigation as management deems
appropriate, to the extent of its limited financial resources. The Company
anticipates that certain Acquired Business candidates may be brought to its
attention from various unaffiliated sources, including securities
broker-dealers, investment bankers, venture capitalists, bankers, other members
of the financial community, and affiliated sources. While the Company does not
presently anticipate engaging the services of professional firms that specialize
in business acquisitions on any formula basis, the Company may engage such firms
in the future, in which event the Company may pay a finder's fee or other
compensation. In no event, however, will the Company pay a finder's fee or
commission to officers or directors of the Company or any entity with which they
are affiliated for such services.
As part of the Company's investigation of prospective enterprises,
products and services, management intends to request that current owners of a
prospective Acquired Business provide, among other things, written materials
regarding the current owner's business, product or service, available market
studies, as well as the assumptions upon which they are made, appropriate title
documentation with respect to the assets, products and services of the potential
Acquired Business, detailed written descriptions of any transactions between the
potential Acquired Business and any of its affiliates, copies of pleadings and
material litigation, if any, copies of material contracts and any and all other
information deemed relevant. Additionally, the Company may verify such
information, if possible, by interviewing competitors, certified public
accountants and other persons in a position to have independent knowledge
regarding the product or service as well as the financial condition of the
potential Acquired Business.
KEY MAN INSURANCE
The Company has obtained $1,000,000 "key man" term policies insuring
each of the lives of Messrs. Frost and Hanna. There can be no assurances that
such "key man" insurance will be maintained at reasonable rates, if at all. The
loss, incapacity or unavailability of any of Messrs. Frost or Hanna at the
present time or in the foreseeable future, before a qualified replacement was
obtained, could have a material, adverse effect on the Company's operations. In
connection with the purchase by the Company of such policies, The Marshal E.
Rosenberg Organization, Inc., a firm in which Dr. Rosenberg, a director of the
Company, is an officer, director and sole shareholder, received a commission of
approximately $2,700 in 1996 and $4,464 in 1997. No further commissions are
contemplated to be earned in connection with the purchase of such key man life
insurance policies.
CONFLICTS OF INTEREST
None of the Company's key personnel are required to commit their full
time to the affairs of the Company and, accordingly, such personnel may have
conflicts of interest in allocating management time among various business
activities. Certain of these key personnel may in the future become affiliated
with entities, including other "blank check" companies, engaged in business
activities similar to those intended to be conducted by the Company. Messrs.
Frost and Hanna are each currently directors of Continucare Corporation, a
Florida corporation ("Continucare"), engaged in the development and management
of mental and physical rehabilitation health care programs. Dr. Rosenberg is an
investor in numerous private enterprises, engaged in, among other things, real
estate development and retail sales, which business interests may conflict with
those of an Acquired Business. Mr. Donald Baxter, a director of the Company, is
the President of Baxter Financial Corporation, an investment advisory firm, and
the President and Chairman of the Philadelphia Fund and Eagle Growth Shares,
mutual funds registered under the Investment Company Act of 1940. Mr. Charles
Fernandez, a director of the Company, is currently the Chairman of the Board,
President and Chief Executive Officer of Continucare. Certain activities which
-2-
may be performed by such individuals in connection with their other business
affiliations may be deemed competitive with the business of the Company.
In the course of their other business activities, including private
investment activities, Messrs. Frost, Hanna, Baxter, Rosenberg and Fernandez may
become aware of investment and business opportunities which may be appropriate
for presentation to the Company as well as the other entities with which they
are affiliated. Such persons may have conflicts of interest in determining to
which entity a particular business opportunity should be presented. In general,
officers and directors of corporations incorporated under the laws of the State
of Florida are required to present certain business opportunities to such
corporations. Accordingly, as a result of multiple business affiliations,
Messrs. Frost, Hanna, Baxter, Rosenberg and Fernandez may have similar legal
obligations relating to presenting certain business opportunities to the various
entities upon which they serve as directors. In addition, conflicts of interest
may arise in connection with evaluations of a particular business opportunity by
the Board of Directors with respect to the foregoing criteria. There can be no
assurances that any of the foregoing conflicts will be resolved in favor of the
Company. In order to minimize potential conflicts of interest which may arise
from multiple corporate affiliations, each of Messrs. Frost, Hanna, Baxter,
Rosenberg and Fernandez have agreed to present to the Company for its
consideration, prior to presentation to any other entity, any prospective
Acquired Business which is appropriate for the Company to consider and which
prospective Acquired Business participates in an industry dissimilar to any of
the industries to which such individuals have corporate affiliations. It should
be further noted, that the Company shall not consider Business Combinations with
entities owned or controlled by officers, directors, greater than 10%
shareholders of the Company or any person who directly or indirectly controls,
is controlled by or is under common control with the Company. The Company may
consider Business Combinations with entities owned or controlled by persons
other than those persons described above. There can be no assurances that any of
the foregoing conflicts will be resolved in favor of the Company.
Pursuant to an agreement among each of Messrs. Frost, Hanna, Baxter,
Rosenberg and Fernandez and the Company, such persons will not (i) actively
negotiate for or otherwise consent to the disposition of any portion of their
Common Stock at a per share price different than that offered with respect to
the Public Shares as a condition to or in connection with a Business Combination
or (ii) cause any securities of the Company to be sold by any officers,
directors, greater than 10% shareholders or persons who may be deemed promoters
of the Company except as may otherwise be made in permitted market transactions
without affording all shareholders of the Company a similar opportunity.
Further, the Company shall not borrow funds to be used directly or indirectly to
(i) purchase any shares of the Company's Common Stock owned by management of the
Company; or (ii) make payments to the Company's promoters, management or their
affiliates or associates.
-3-
PART II
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 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
During the quarter ended September 30, 1997, no matters were
submitted to a vote of security holders of the Company,
through the solicitation of proxies or otherwise.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
1. Financial Statements - Reference is made to the Index
of Financial Statements, page F-1.
2. Exhibits:
NO. DESCRIPTION
--- -----------
4.4 Underwriter's Warrant Agreement, dated
September 22, 1997, by and between the
Company and Community Investment Services,
Inc.
10.1 Escrow Agreement, dated October 16, 1997 by
and between the Company and Fiduciary Trust
International of the South.
10.2 Escrow Agreement, dated October 16, 1997 by
and among the Company, Richard B. Frost,
Mark J. Hanna, Marshal E. Rosenberg, Ph.D.,
Donald H. Baxter, Charles Fernandez and
American Stock Transfer & Trust Company.
10.3 Letter Agreements concerning conflicts of
interest, finder's fees, negotiation for
sale of management shares and relating to
the vote by certain present shareholders of
the Company on a Business Combination.
-4-
10.4 Employment Agreement, dated as of September
13, 1996 by and between the Company and
Richard B. Frost (incorporated by reference
to the Company's Registration Statement on
Form SB-2 (File No. 333-31001)).
10.5 Employment Agreement, dated as of September
13, 1996 by and between the Company and Mark
J. Hanna (incorporated by reference to the
Company's Registration Statement on Form
SB-2 (File No. 333-31001)).
27 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K.
During the quarter ended September 30, 1997, the Company did not file
any reports on Form 8-K. On October 24, 1997, the Company filed a report
on Form 8-K, dated October 16, 1997, relating to the consummation of the
Offering.
-5-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amended report to be signed on its behalf by
the undersigned thereunto duly authorized.
FROST HANNA CAPITAL GROUP, INC.
Dated: November 12, 1997 By:/s/ Mark J. Hanna
----------------- ----------------------------
Mark J. Hanna, President
-6-