U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-17018
STRATFORD AMERICAN CORPORATION
(Exact name of small business issuer as specified in its charter)
Arizona 86-0608035
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2400 E. Arizona Biltmore Circle, Building 2, Suite 1270, Phoenix, Arizona 85016
(Address of principal executive offices)
Issuer's telephone number, including area code: (602) 956-7809
(Former name, former address and former fiscal year,
if changed since last report.)
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 [ ]
At July 31, 2001 7,141,768 shares of the issuer's common stock were issued and
outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
STRATFORD AMERICAN CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet as of June 30, 2001 3
Condensed Consolidated Statements of Operations for the three
and six months ended June 30, 2001 and 2000 4
Condensed Consolidated Statements of Cash Flows for the six
months ended June 30, 2001 and 2000 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 7
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10
Signatures 11
2
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2001
(UNAUDITED)
ASSETS
Cash and cash equivalents $ 1,433,000
Receivables:
Mortgage 40,000
Other 85,000
Investment in LLC 500,000
Oil and gas interests, net 806,000
Other assets 39,000
------------
$ 2,903,000
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 58,000
Notes payable and other debt 945,000
Accrued liabilities 24,000
------------
Total liabilities 1,027,000
Shareholders' equity:
Nonredeemable preferred stock, par value $.01 per share;
authorized 50,000,000 shares, none issued
Common stock, par value $.01 per share; authorized 100,000,000
shares; issued and outstanding 7,141,768 shares 71,000
Additional paid-in capital 27,327,000
Retained earnings (deficit) (25,511,000)
Treasury stock, 1,967 shares at cost (11,000)
------------
1,876,000
------------
$ 2,903,000
============
See accompanying notes to condensed consolidated financial statements.
3
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the three months ended For the six months ended
June 30 June 30
---------------------- ----------------------
2001 2000 2001 2000
--------- --------- --------- ---------
REVENUES:
Oil & gas revenue $ 88,000 $ 1,000 $ 93,000 $ 3,000
Interest and other income 18,000 28,000 43,000 67,000
--------- --------- --------- ---------
106,000 29,000 136,000 70,000
EXPENSES:
General and administrative 106,000 169,000 201,000 353,000
Depreciation, depletion and amortization 37,000 5,000 43,000 11,000
Oil & gas operations 45,000 1,000 46,000 1,000
Interest 12,000 2,000 13,000 4,000
--------- --------- --------- ---------
200,000 177,000 303,000 369,000
--------- --------- --------- ---------
NET LOSS $ (94,000) $(148,000) $(167,000) $(299,000)
========= ========= ========= =========
Basic and diluted net loss per share $ (0.01) $ (0.02) $ (0.02) $ (0.05)
========= ========= ========= =========
See accompanying notes to condensed consolidated financial statements.
4
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the six months ended June 30
--------------------------------
2001 2000
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (167,000) $ (299,000)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation, depletion and amortization 43,000 11,000
Changes in assets and liabilities:
Decrease in accounts and mortgage receivable 7,000 87,000
Decrease (increase) in other assets (34,000) 16,000
Increase (decrease) in accounts payable 17,000 (30,000)
Decrease in accrued liabilities (8,000) (2,000)
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (142,000) (217,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired in connection with the acquisition of
SA Oil & Gas Corporation 71,000
Redemption of minority interest (459,000)
Purchases of property and equipment (11,000)
----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 71,000 (470,000)
----------- -----------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Payments on notes payable and other debt (6,000) (6,000)
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (6,000) (6,000)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (77,000) (693,000)
CASH AND CASH EQUIVALENTS, beginning of period 1,510,000 2,890,000
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 1,433,000 $ 2,197,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid during the period $ 8,000 $ 3,000
=========== ===========
Taxes paid during the period $ 0 $ 0
=========== ===========
Acquisition of assets and liabilities
through issuance of common stock:
Accounts receivable $ 82,000 $ 0
=========== ===========
Oil and gas interests $ 765,000 $ 0
=========== ===========
Accounts payable $ 15,000 $ 0
=========== ===========
Note payable $ 903,000 $ 0
=========== ===========
See accompanying notes to condensed consolidated financial statements.
5
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(unaudited)
1. In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments, consisting only
of normal recurring adjustments, necessary to present fairly the financial
position as of June 30, 2001, the results of operations for the three and
six months ended June 30, 2001 and 2000 and cash flows for the six months
ended June 30, 2001 and 2000. The accompanying condensed consolidated
financial statements and notes do not include all disclosures considered
necessary for a fair presentation in conformity with accounting principles
generally accepted in the United States of America. The results of
operations for the six-month period ended June 30, 2001 are not necessarily
indicative of the results expected for fiscal 2001. Therefore, it is
recommended that these accompanying statements be read in conjunction with
the notes to consolidated financial statements appearing in the Company's
Form 10-KSB for the year ended December 31, 2000.
2. On October 27, 2000, the Company entered into an agreement with two
additional parties to acquire real property in Scottsdale, Arizona for
office development. The acquisition price of the real property,
approximately 10 acres, was $3,600,000. Under terms of the Agreement, the
Company will receive a priority payout of its investment and then share in
17.5 percent of the profits from the total project. The Company has no
other significant real estate operations.
3. On February 14, 2000, the Company paid all minority interest holders of
Stratford American Car Rental Systems, Inc. ("SCRS"), 100% of their
proportionate share of the outstanding minority interest liability as of
December 31, 1999, in exchange for 100% redemption of their stock held in
SCRS.
4. The Company calculates basic and diluted net income (loss) per share in
accordance with the provisions of Statement of Financial Accounting
Standards No. 128 "Earnings Per Share." Basic net income (loss) per share
is computed using the weighted average number of common shares outstanding
during each period (6,998,978 and 6,690,705 shares for the three and six
month periods ended June 30, 2001 respectively and 6,371,787 shares for the
three and six month periods ended June 30, 2000). Diluted net loss per
share is the same as basic net loss per share for the three and six month
periods ended June 30, 2001 and 2000 due to the antidilutive effect of
common stock equivalents on net loss.
5. On April 19, 2001, the Company purchased 100 percent of the capital stock
of SA Oil and Gas Corporation ("SA Oil"), from the shareholders of SA Oil,
in exchange for 755,948 shares of common stock of the Company. The fair
value of the Company's common shares on the date of acquisition was $0.28
per share. The purchase was pursuant to the terms of the Stock Purchase
Agreement by and among the Company, SA Oil and the shareholders of SA Oil.
SA Oil owns working interests and/or royalty interests in 87 oil and gas
properties located in Oklahoma and Texas. The acquisition has been
accounted for using the purchase method of accounting.
Had the acquisition been completed as of January 1, 2000, the Company would
have reported the following:
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Total revenues $ 131,000 $ 157,000 $ 306,000 $ 331,000
Net loss $ (88,000) $(131,000) $ (96,000) $(191,000)
Net loss per share $ (0.01) $ (0.02) $ (0.01) $ (0.03)
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company incurred a consolidated net loss of $94,000 for the second
quarter of 2001. Other than the real property acquisition made on October 27,
2000 and the purchase of SA Oil and Gas Corporation ("SA Oil") on April 19,
2001, as discussed below and in Note 2 and Note 5 of the unaudited condensed
consolidated financial statements as of June 30, 2001, the Company presently has
no significant operations, and expects such losses to continue unless and until
the Company is able to make profitable acquisitions. There can be no assurance
that the Company will be able to make such acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
On April 19, 2001, the Company purchased 100 percent of the capital stock
of SA Oil, from the shareholders of SA Oil, in exchange for 755,948 shares of
common stock of the Company. SA Oil owns working interests and/or royalty
interests in 87 oil and gas properties located in Oklahoma and Texas. SA Oil's
audited financial statements for the fiscal year ended December 31, 2000
reflected revenues of $561,000 and net income of $155,000.
On October 27, 2000, the Company through its membership in Triway Land
Investors, L.L.C. ("Triway"), a newly formed limited liability company with two
additional members, entered into an operating agreement to acquire real property
in Scottsdale, Arizona for office development. The acquisition price of the real
property acquired by Triway, approximately 10 acres, was $3,600,000. On
September 29, 2000, the Company advanced $775,000 through a promissory note to
one of the participating parties to assist in securing the acquisition of the
real property. On October 27, 2000 the entire promissory note, plus accrued
interest, was paid in full. Additionally, the Company made a $500,000 equity
investment in Triway. Under the terms of the operating agreement, the Company
may be required to contribute up to an additional $212,500 at a future date to
be specified by a majority interest member of Triway. The Company is to receive
a priority payout of its $500,000 investment and then share in 17.5 percent of
the results from the total project. Colonial Raintree, LLC, one of the members
of Triway, is managing Triway.
On February 14, 2000, the Company paid all minority interest holders of
Stratford American Car Rental Systems ("SCRS") 100% of their proportionate share
of the outstanding minority interest liability, totaling $459,000 as of December
31, 1999, in exchange for 100% redemption of their stock held in SCRS.
7
The Company anticipates that with its current cash position due to the sale
of a car rental business in 1998, the related sale of real estate property in
December 1999, the sale of Company shares in March 1999, its investment in the
real estate project described above, and its recent acquisition of SA Oil
described above, it should meet its operational cash flow needs for the
remainder of 2001. However, due to any unforeseen circumstances that could occur
outside the Company's control, there can be no assurance that adequate cash
flows from the Company's present cash position and current activity will be
achieved.
The Company continues to aggressively seek additional potential
acquisitions in establishing its future direction. There can be no assurance
that it will be able to locate suitable acquisition candidates or make any such
acquisitions, or that any acquisitions that are made will be profitable for the
Company.
RESULTS OF OPERATIONS - THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2001,
COMPARED WITH THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2000.
The Company reported a net loss of $94,000 and $167,000 during the three
and six month periods ended June 30, 2001 compared to a net loss of $148,000 and
$299,000 for the three and six month periods ended June 30, 2000. Oil and gas
revenue increased from $1,000 and $3,000 for the three and six month periods
ended June 30, 2000 to $88,000 and $93,000 for the three and six month periods
ended June 30, 2001 due to the April 19, 2001 acquisition of SA Oil and Gas
Corporation, including working interest and royalty interest revenue from
additional oil and gas properties. Interest and other income decreased from
$28,000 and $67,000 for the three and six month periods ended June 30, 2000 to
$18,000 and $43,000 for the three and six month periods ended June 30, 2001 due
to reduced interest income earned on lower cash balances from 2000 to 2001.
General and administrative expenses decreased from $169,000 and $353,000
for the three and six month periods ended June 30, 2000 to $106,000 and $201,000
for the three and six month periods ended June 30, 2001 due to reduced officer
salaries and decreased rent and other general and administrative expenses which
occurred in 2001. Depreciation, depletion and amortization expense increased
from $5,000 and $11,000 for the three and six month periods ended June 30,2000
to $37,000 and $43,000 for the three and six month periods ended June 30, 2001
due to additional depletion related to the 87 oil and gas well interests
acquired through SA Oil and Gas Corporation. Oil and gas operation expense
increased from $1,000 for each of the three and six month periods ended June 30,
2000 to $45,000 and $46,000 for the three and six month periods ended June 30,
2001 also due to the oil and gas properties acquired through SA Oil and Gas
Corporation.
REAL ESTATE ACTIVITIES
The Company entered into an agreement and made an investment in a limited
liability company acquiring real property for office development in Scottsdale,
Arizona in October 2000, as discussed above. Plans are being formulated for the
development of office condominium buildings totaling 100,000 sq. ft. The Company
anticipates that the buildings will be offered for sale in late 2001. See
"Liquidity and Capital Resources."
8
OIL AND GAS ACTIVITIES
The Company acquired SA Oil through a stock exchange transaction in April
2001 as discussed above. SA Oil owns working and/or royalty interests in 87 oil
and gas properties located in Oklahoma and Texas. The acquisition has been
accounted for as a purchase and, therefore, the results of the business acquired
from SA Oil has been combined with the Company from April 19, 2001. See
"Liquidity and Capital Resources."
The Company also owns a nominal interest in four oil and gas wells in
Arkansas and Oklahoma that generate insignificant revenues.
CAPITAL REQUIREMENTS
The Company does not have any material plans for future capital
expenditures at the present time.
IMPACT OF INFLATION
Inflation has not had a significant impact on the Company's results of
operations.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements contained in this report, including statements
containing the words "believes," "anticipates," "intends," "expects" and words
of similar import, constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995 and are subject to the safe
harbors created thereby. Such forward-looking statements involve known and
unknown risks, uncertainties and other important factors that may cause the
actual results to be materially different from the forward-looking statements.
Such factors include, among others, the following: the fact that the Company,
following the sale of assets to Dollar, has no significant operations; the risk
that the Company will not be able to complete any profitable acquisitions to
re-establish significant operations; the risk that Triway may not be able to
begin offering office condominium buildings for sale in late 2001 as presently
scheduled and the risk that the Company's investment in Triway may not be
profitable; the risk that the operations of the newly acquired SA Oil & Gas
Corporation may not be profitable, the risk that the Company will continue to
recognize losses from continuing operations unless and until the Company is able
to make profitable acquisitions; the risk that all of the foregoing factors or
other factors could cause fluctuations in the Company's operating results and
the price of the Company's common stock; and other risks detailed in this report
and from time to time in the Company's other filings with the Securities and
Exchange Commission. Given these uncertainties, readers should not place undue
reliance on such forward-looking statements.
9
PART II. OTHER INFORMATION
Responses to Items 1 through 5 are omitted since these items are either
inapplicable or the response thereto would be negative.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
See index beginning on page 12
(b) REPORTS ON FORM 8-K
The following reports on Form 8-K were filed for the three months
ended June 30, 2001.
8-K Acquisition of SA Oil & Gas Corporation filed May 2, 2001
8-K/A Amendment to May 2, 2001 filing including required financial
information, filed June 29, 2001
10
SIGNATURES
In accordance with the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
STRATFORD AMERICAN CORPORATION
Registrant
Date: August 14, 2001 By /s/ Mel L. Shultz
------------------------------------------
Mel L. Shultz, President and Director
Date: August 14, 2001 By /s/ Timothy A. Laos
------------------------------------------
Timothy A. Laos, Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
11
EXHIBITS INDEX
There are no exhibits originally filed with this report. The Company hereby
incorporates all other exhibits by reference pursuant to Rule 12b-32, each of
which (except Exhibit 2.1, 3.3 and 10.1) was filed as an exhibit to the
Company's Registration on Form 10 which was filed July 22, 1988, and amended on
October 7, 1988, and December 8, 1988. Exhibit 2.1 was filed with the Company's
Form 8-K filed with the Security and Exchange Commission on May 2, 2001. Exhibit
3.3 was filed with the Company's Registration Statement on Form S-1 on June 12,
1989. Exhibit 10.1 was filed as Exhibit 10.14 to the Company's Form 10-KSB for
the year ended December 31, 2000 which was filed with the Securities and
Exchange Commission on April 2, 2001.
Number Description Page
- ------ ----------- ----
2.1 Stock Purchase Agreement, dated March 22, 2001 by and
among SA Oil, the shareholders of SA Oil, and the Company N/A
3.1 Articles of Incorporation N/A
3.2 By-laws N/A
3.3 Articles of Amendment to Articles of Incorporation N/A
4.1 Form of Common Stock Certificate N/A
4.2 Form of Series "A" Preferred Stock Certificate N/A
4.3 Article IV of the Articles of Incorporation N/A
4.4 Article III of the Bylaws N/A
10.1 Operating Agreement between DVI Raintree, LLC, Stratford
American Corporation and Colonial Raintree, LLC, dated
October 26, 2000 N/A
12