SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
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 0-17018
STRATFORD AMERICAN CORPORATION
(Exact name of small business issue 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) (Zip Code)
Registrant's telephone number, including area code: (602)956-7809
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Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark 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
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At March 31, 1995, 84,076,806 shares of the issuer's common stock were issued
and outstanding.
Index to Exhibits is located at page 12 hereof.
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
INDEX
Page
Consolidated Balance Sheet 3
Consolidated Statement of Operations 4
Consolidated Statement of Changes in Shareholders' Equity 5
Consolidated Statement of Cash Flows 6
Notes to Consolidated Financial Statements 7
STRATFORD AMERICAN CORPORATION
CONSOLIDATED BALANCE SHEET
ASSETS LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, December 31, March 31, December 31,
1995 1994 1995 1994
(unaudited) (unaudited)
----------- ----------- ----------- -----------
Current assets: Current liabilities:
Cash $1,920,000 $ 505,000 Current portion of notes payable $ 365,000 $ 364,000
Accounts payable 1,796,000 1,288,000
Accounts receivable, net 454,000 318,000 Accrued interest 170,000 172,000
Accrued vehicle damage 91,000 129,000
Other current assets 35,000 40,000 Other accrued liabilities 351,000 350,000
--------- --------- --------- ---------
Total current assets 2,409,000 863,000 Total current liabilities 2,773,000 2,303,000
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Notes Payable 3,503,000 3,528,000
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Restricted cash 631,000 601,000 Investment in joint ventures and
affiliated companies 2,091,000
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Minority interest in consolidated
subsidiaries 13,000 7,000
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Mining interests 375,000 375,000
Shareholders' equity:
Nonredeemable preferred stock,
$.01 par value; shares authorized -
Mortgages receivable 133,000 134,000 50,000,000 shares
Common stock, $.01 par value; shares
authorized - 100,000,000 shares 841,000 841,000
Other assets 385,000 380,000 Capital in excess of par 25,780,000 25,780,000
Retained earnings (deficit) (26,820,000) (30,012,000)
Less - 29,500 shares of common
stock in treasury, at cost (11,000) (11,000)
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Franchise rights, net 2,146,000 2,174,000 (210,000) (3,402,000)
--------- --------- ----------- -----------
Commitments and contingent
$6,079,000 $4,527,000 liabilities $ 6,079,000 $ 4,527,000
========== ========== =========== ===========
The accompanying notes are an integral part of these financial statements.
STRATFORD AMERICAN CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
For the three months
ended March 31,
1995 1994
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REVENUES:
Vehicle rental activities $ 3,515,000
Sports activities 222,000 $ 229,000
Rental property activities 38,000 47,000
Oil and gas production 4,000 34,000
Interest and other income 15,000 6,000
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3,794,000 316,000
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EXPENSES:
Vehicle rental operations 3,348,000
Sports operations 241,000 236,000
Rental property operations 33,000
Production costs and taxes 1,000 21,000
General and administrative 276,000 109,000
Depreciation, depletion and amortization 43,000 16,000
Interest 89,000 22,000
Equity in net loss of unconsolidated
joint venture 145,000
Minority interest in consolidated subsidiary 6,000 (5,000)
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4,004,000 577,000
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LOSS BEFORE INCOME TAXES (210,000) (261,000)
INCOME TAX BENEFIT
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LOSS FROM CONTINUING OPERATIONS (210,000) (261,000)
EXTRAORDINARY GAIN ON DEBT EXTINGUISHMENT 3,402,000
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NET INCOME (LOSS) $ 3,192,000 $ (261,000)
=========== ===========
Income (loss) per common share:
Loss from continuing operations $ (0.00) $ (0.00)
Extraordinary gain on debt extinguishment 0.04
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Net income (loss) per common share $ 0.04 $ (0.00)
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The accompanying notes are an integral part of these financial statements.
STRATFORD AMERICAN CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(unaudited)
Common Capital Retained Treasury Total
in excess earnings shareholders'
Shares Amount of par (deficit) Shares Amount equity
------------------- -------- --------- ---------------- ------------
Balance,
December 31, 1994 84,076,806 $841,000 $25,780,000 $(30,012,000) 29,500 $(11,000) $(3,402,000)
Net income 3,192,000 3,192,000
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Balance,
March 31, 1995 84,076,806 $841,000 $25,780,000 $(26,820,000) 29,500 $(11,000) $ (210,000)
========== ======== =========== =========== ====== ======== ===========
Balance,
December 31, 1993 80,713,734 $807,000 $25,780,000 $(29,172,000) 29,500 $(11,000) $(2,596,000)
Net loss (261,000) (261,000)
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Balance,
March 31, 1994 80,713,734 $807,000 $25,780,000 $(29,433,000) 29,500 $(11,000) $(2,857,000)
========== ======== =========== =========== ====== ======== ===========
The accompanying notes are an integral part of these financial statements.
STRATFORD AMERICAN CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
For the three months ended
March 31,
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1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 3,192,000 $ (261,000)
Adjustments to reconcile net income
(loss) to net cash provided by
(used for) operating activities -
Depreciation, depletion, and amortization 43,000 16,000
Equity in net loss of unconsolidated
joint venture 145,000
Minority interest in consolidated
subsidiaries 6,000 (5,000)
Extraordinary gain on debt
extinguishment (3,402,000)
Other 1,000 14,000
Changes in assets and liabilities:
Increase in accounts and notes receivable (183,000) (90,000)
Decrease in other assets 5,000
Increase in accounts payable and
accrued liabilities 516,000 127,000
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NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES 178,000 (54,000)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to restricted cash (30,000)
Proceeds from sale of rental property 1,311,000 265,000
Additions to property and equipment (20,000) (1,000)
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NET CASH PROVIDED BY (USED FOR)
INVESTING ACTIVITIES 1,261,000 264,000
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable (24,000) (281,000)
NET CASH USED FOR FINANCING ACTIVITIES (24,000) (281,000)
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NET INCREASE (DECREASE) IN CASH 1,415,000 (71,000)
CASH, beginning of period 505,000 82,000
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CASH, end of period 1,920,000 11,000
============ ============
SUPPLEMENTAL SCHEDULE OF CASH FLOW
INFORMATION:
Interest paid $ 92,000 $ 4,000
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The accompanying notes are an integral part of these financial statements.
STRATFORD AMERICAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial position
as of March 31, 1995, and the results of operations and cash flows for the
three month period ended March 31, 1995 and 1994. The accompanying
statements do not include all disclosures considered necessary for a fair
presentation in conformity with generally accepted accounting principles.
Therefore, it is recommended that these accompanying statements be read in
conjunction with the notes to financial statements appearing in the
Company's Form 10-KSB for the year ended December 31, 1994.
2. The results of operations for the three months ended March 31, 1995 are
not necessarily indicative of the results to be expected for the full year.
The vehicle rental business in Phoenix is seasonal. Historically, the
months of February through May have had the highest revenues.
3. Earnings per share are based on 84,047,306 and 80,684,234 shares for the
three months ended March 31, 1995 and 1994, respectively, excluding shares
owned by the Company. Common stock equivalents have been excluded from the
computation as the effect of their inclusion would be anti-dilutive.
4. Effective March 27, 1995, the Company, through a 50% owned joint venture,
sold its interest in the University Center property, located in Tempe,
Arizona. This sale culminated in the Company's successful efforts to
dispose of its real estate holdings and eliminate all related debt. As a
result of the sale, the underlying indebtedness, totaling $17,553,000 in
principal and accrued interest, was completely retired through payments and
reductions based on terms of a debt extinguishment agreement with First
Interstate Bank of Arizona, N.A. In addition, past due management fees
written off by the Company from previous years, totaling $296,000, were
collected and a loss of $1,065,000 was recognized as a result of the joint
venture termination. The net effect of the above related transactions
resulted in a gain of $3,402,000 which has been recorded as an
extraordinary item in the accompanying Consolidated Statement of
Operations.
5. Effective June 1, 1994, the Company, through an 80% owned subsidiary,
acquired the franchise rights to substantially all of the Arizona
operations of Dollar Rent A Car. This transaction was consummated in
accordance with a May 19, 1994 Sale and Purchase Agreement between
Stratford American Car Rental Systems, Inc. ("SCRS") and The John Douglas
Corporation ("JDC"), Douglas F. and Bette Jane Mitchell and John Rector,
Jr. A License Agreement dated May 31, 1994 was also entered into between
SCRS and Dollar Systems, Inc., the Dollar Rent A Car franchisor. In
addition to the franchise rights, the acquisition included cash, accounts
receivable, equipment and other assets relating to the Arizona operations
of JDC as of May 31, 1994. SCRS also assumed the May 31, 1994 JDC accounts
payable, accrued expenses and other current liabilities. A $1.9 million
note payable to Dollar Systems, Inc. was executed by SCRS which requires
monthly payments of $18,000 including principal and interest at 8% and
matures in June 2000. The fair value of the related assets and liabilities,
in accordance with purchase accounting, are as follows:
Accounts receivable $ 389,000
Other current assets 19,000
Equipment 108,000
Other assets 70,000
Franchise rights 2,239,000
Accounts payable (965,000)
Other accrued liabilities (252,000)
Note payable - Dollar Systems, Inc. (1,900,000)
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Net Cash Acquired $ 292,000
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During 1994, $1,275,000 in proceeds from 12% subordinated notes were
received to provide working capital, to pay for closing costs and to
provide cash, reflected as restricted cash in the accompanying Consolidated
Balance Sheet, to secure a $750,000 letter of credit issued on behalf of
Dollar Systems, Inc. These notes require quarterly payments of interest
only and mature on May 31, 1997. The note holders own the outstanding
common stock of SCRS not owned by the Company.
On April 25, 1995, SCRS and Dollar Systems, Inc. executed a letter of
intent to modify the terms of the existing License Agreement. Management
anticipates that an executed agreement, formalizing the adjusted terms,
should be consummated during May 1995.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Liquidity and Capital Resources.
In March 1995, the Company sold its interest in University Center.
The net cash proceeds received by the Company after payment of all related
liabilities amounted to $1,311,000. See Note 4 to the Consolidated Financial
Statements for additional information. This sale culminates the Company's
successful efforts to dispose of its real estate holdings and eliminate the
related indebtedness.
The Company recognized a quarterly profit from its Dollar Rent A
Car operations for the three months ended March 31, 1995. The Dollar Rent A Car
operations and franchise rights, as previously disclosed, were acquired in June
1994. The vehicle rental business is seasonal with the months of February
through May typically representing the highest revenue months. The profit from
operations generated for the first three months of the year reflect this
seasonality. The vehicle rental business is also highly competitive and subject
to the pressures of both the rental rates and fleet sizes of competitors as well
as the availability of a reasonably priced fleet. Efforts are in place to reduce
fleet and other operational costs in order to attain continued profitability.
The Company anticipates meeting its cash flow needs from the
proceeds of University Center as previously discussed and from continued
improved Dollar Rent A Car operations. However, as discussed above, this is in
part dependent on various factors outside the Company's control and,
accordingly, there can be no assurance that either profitability or adequate
cash flows from operations will be achieved.
RESULTS OF OPERATIONS - QUARTER ENDED MARCH 31, 1995, COMPARED WITH QUARTER
ENDED MARCH 31, 1994
The Company reported net income of $3,192,000 for the quarter
ended March 31, 1995 compared to a net loss of $261,000 during the first quarter
of 1994. The 1995 results reflect an extraordinary gain of $3,402,000 related to
debt forgiveness. The increase in general and administrative expenses from 1994
to 1995 of $167,000 is attributable primarily to the increased activity related
to the rental car operations. The increase in interest expense from 1994 to 1995
of $67,000 relates to the indebtedness associated with the Dollar Rent A Car
acquisition. The elimination of rental property operations expense and equity in
net loss of unconsolidated joint venture from 1994 to 1995, totaling $178,000
less in expense, is due to the divestiture of real estate holdings experienced
by the Company during the first quarter of 1995. See Note 4 to the Consolidated
Financial Statements.
Vehicle Rental Activities. Revenues from rental car activities
accounted for 93% of total revenues in 1995 and continues to represent the most
significant revenue source for the Company from the time the Dollar Rent A Car
operations were acquired in June 1994. A net operating profit relating to these
operations was recognized during the first quarter of 1995, partially
attributable to the seasonality of the business as previously discussed.
Sports Activities. Sports Careers accounted for 6% of total
revenue in 1995 compared to 73% during 1994. Revenues include $123,000 and
$114,000 associated with the sale of membership programs during the first
quarters of 1995 and 1994, respectively. All other significant Sports Careers
revenues relate to Sports Marketplace products.
Other Activities. Real estate management and oil and gas
activities continue to be an insignificant part of the Company's ongoing
operations, representing 1% of total revenue in the first quarter of 1995
compared to 26% during the first quarter of 1994. The Company anticipates that
these activities will eventually cease and currently has no plans in the near
future to participate in any additional such activities.
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 - Report dated March 27, 1995
with respect to the March 27, 1995 sale of the
University Center property through the Company's 50%
owned joint venture, University Center Developers,
report including Sale and Purchase Agreement, and
Registrant's Press Release.
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.
STRATFORD AMERICAN CORPORATION
Registrant
Date: May 15, 1995 By /s/ Mel L. Shultz
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Mel L. Shultz, President and Director
Date: May 15, 1995 By /s/ Timothy A. Laos
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Timothy A. Laos, Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer) for the quarter subject
to this report
EXHIBITS INDEX
The only exhibit originally filed with this report is Exhibit 27.1. The Company
hereby incorporates all other exhibits by reference pursuant to Rule 12b-32,
each of which (except Exhibits 22.1, 23.1 and 28.1) 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 22.1 was filed as Exhibit 22.1
to the Company's Form 10-QSB for the Quarterly Period ended June 30, 1994, which
was filed with the Securities and Exchange Commission on August 12, 1994.
Exhibit 23.1 references the 1995 Proxy Statement which was filed with the
Securities and Exchange Commission on May 1, 1995. Exhibit 28.1 references the
December 31, 1994 Form 10-KSB, which was filed with the Securities and Exchange
Commission on April 14, 1995.
Number Description Page
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
22.1 Subsidiaries N/A
23.1 Notice of the 1995 Annual Shareholders' Meeting,
Proxy Statement and Form of Proxy N/A
27.1 Financial Data Schedule 13
28.1 Form 10-KSB for the year ended December 31, 1994 N/A