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 June 30, 1995
OR
( ) TRANSITION REPORT PURSUANT TO 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) (Zip Code)
Registrant's telephone number, including area code: (602)956-7809
--------------------------------------------------------------------------------
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
--- ---
At June 30, 1995, 84,076,806 shares of the issuer's common stock were issued and
outstanding.
Index to Exhibits is located at page 13 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
June 30, December 31, June 30, December 31,
1995 1994 1995 1994
---------- ---------- ----------- -----------
(unaudited) (unaudited)
Current assets: Current liabilities:
Cash $1,168,000 $ 505,000 Current portion of notes payable $ 290,000 $ 364,000
Accounts payable 1,029,000 1,288,000
Accounts receivable, net 196,000 318,000 Accrued interest 200,000 172,000
Accrued vehicle damage 66,000 129,000
Other current assets 188,000 40,000 Other accrued liabilities 281,000 350,000
----------- ---------- ----------- -----------
Total current assets 1,552,000 863,000 Total current liabilities 1,866,000 2,303,000
Notes Payable 1,665,000 3,528,000
----------- -----------
Restricted cash 530,000 601,000 Investment in joint ventures and
affiliated companies 2,091,000
----------- -----------
Minority interest in consolidated
subsidiaries 74,000 7,000
----------- -----------
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 619,000 380,000 Capital in excess of par 25,780,000 25,780,000
Retained earnings (deficit) (26,690,000) (30,012,000)
Less - 29,500 shares of common stock
in treasury, at cost (11,000) (11,000)
----------- -----------
Franchise rights, net 316,000 2,174,000 (80,000) (3,402,000)
---------- ---------- ----------- -----------
Commitments and contingent liabilities
$3,525,000 $4,527,000 $ 3,525,000 $ 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 For the six months
ended June 30, ended June 30,
1995 1994 1995 1994
---------- ---------- ---------- ----------
REVENUES:
Vehicle rental activities $2,932,000 $ 684,000 $6,447,000 $ 684,000
Sports activities 346,000 333,000 568,000 562,000
Rental property activities 6,000 34,000 44,000 81,000
Oil and gas production 12,000 36,000 16,000 70,000
Interest and other income 31,000 5,000 46,000 11,000
---------- ---------- ---------- ----------
3,327,000 1,092,000 7,121,000 1,408,000
---------- ---------- ---------- ----------
EXPENSES:
Vehicle rental operations 2,671,000 785,000 6,019,000 785,000
Sports operations 315,000 368,000 556,000 604,000
Rental property operations 5,000 38,000
Production costs and taxes 1,000 19,000 2,000 40,000
General and administrative 133,000 119,000 409,000 228,000
Depreciation, depletion and amortization (9,000) 26,000 34,000 42,000
Interest 25,000 48,000 114,000 70,000
Equity in net loss of unconsolidated joint venture 69,000 214,000
Minority interest in consolidated subsidiary 61,000 (46,000) 67,000 (51,000)
---------- ---------- ---------- ----------
3,197,000 1,393,000 7,201,000 1,970,000
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 130,000 (301,000) (80,000) (562,000)
INCOME TAX BENEFIT
---------- ---------- ---------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS 130,000 (301,000) (80,000) (562,000)
EXTRAORDINARY GAIN ON DEBT
EXTINGUISHMENT 3,402,000
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ 130,000 $ (301,000) $3,322,000 $ (562,000)
========== ========== ========== ==========
Income (loss) per common share:
Income (loss) from continuing operations $ 0.00 $ (0.00) $ (0.00) $ (0.01)
Extraordinary gain on debt extinguishment 0.04
---------- ---------- ---------- ----------
Net income (loss) per common share $ 0.00 $ (0.00) $ 0.04 $ (0.01)
========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
STRATFORD AMERICAN CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 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 3,322,000 3,322,000
---------- -------- ----------- ------------ ------ -------- -----------
Balance,
June 30, 1995 84,076,806 $841,000 $25,780,000 $(26,690,000) 29,500 $(11,000) $ (80,000)
========== ======== =========== ============ ====== ======== ===========
Balance,
December 31, 1993 80,713,734 $807,000 $25,780,000 $(29,172,000) 29,500 $(11,000) $(2,596,000)
Net loss (562,000) (562,000)
---------- -------- ----------- ------------ ------ -------- -----------
Balance,
June 30, 1994 80,713,734 $807,000 $25,780,000 $(29,734,000) 29,500 $(11,000) $(3,158,000)
========== ======== =========== ============ ====== ======== ===========
The accompanying notes are an integral part of these financial statements.
STRATFORD AMERICAN CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
For the six months ended
June 30,
---------------------------
1995 1994
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $3,322,000 $ (562,000)
Adjustments to reconcile net income (loss) to net cash provided by
(used for) operating activities -
Depreciation, depletion, and amortization 34,000 42,000
Equity in net loss of unconsolidated joint venture 214,000
Minority interest in consolidated subsidiaries 67,000 (52,000)
Extraordinary gain on debt extinguishment (3,402,000)
Other 1,000 15,000
Changes in assets and liabilities:
Decrease in accounts and notes receivable 197,000 70,000
Increase in other current assets (147,000) (24,000)
Increase in other assets, excluding property and equipment (158,000)
Increase (decrease) in accounts payable and accrued liabilities (438,000) 254,000
---------- ----------
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES (524,000) (43,000)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Reduction (Addition) to restricted cash 71,000 (541,000)
Proceeds from sale of rental property 265,000
Proceeds from sale of joint venture property 1,311,000
Additions to property and equipment (116,000) (2,000)
Acquisition costs (114,000)
Net cash acquired in connection with Dollar Rent A Car purchase 292,000
---------- ----------
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES 1,266,000 (100,000)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 1,125,000
Repayment of notes payable (79,000) (297,000)
---------- ----------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (79,000) 828,000
---------- ----------
NET INCREASE IN CASH 663,000 685,000
CASH, beginning of period 505,000 82,000
---------- ----------
CASH, end of period 1,168,000 767,000
========== ==========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Interest paid $ 74,000 $ 19,000
---------- ----------
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 June 30, 1995, and the results of operations and cash flows for the six
month period ended June 30, 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 six months ended June 30, 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 84,076,806 and 80,684,234 shares for the six
months ended June 30, 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 required monthly payments of $18,000
including principal and interest at 8% and matured in June 2000. On May 16,
1995 an Assistance Agreement between SCRS and Dollar Systems, Inc. was
executed which served to readjust the value of the franchise acquisition
previously set. Along with other license concessions, the remaining note
payable balance to Dollar Systems, Inc., totaling $1,858,000, was eliminated,
provided that the Company does not default on any obligations due to Dollar
Systems, Inc. through the end of 1996, in which case half of the balance
would become due in June 2000. As such, the restated 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 381,000
Accounts payable (965,000)
Other accrued liabilities (252,000)
Note payable - Dollar Systems, Inc. (42,000)
-----------
Net Cash Acquired $ 292,000
===========
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.
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 each of the three month periods ended March 31 and June 30,
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 half 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. Management is in the process of acquiring risk
fleet financing from various lenders in order to complement the Company's
existing fleet leasing arrangement with Dollar Systems, Inc.
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 - Six Months Ended June 30, 1995, Compared with Six Months
--------------------------------------------------------------------------------
Ended June 30, 1994
-------------------
The Company reported net income of $130,000 and $3,322,000 and a
net loss of $301,000 and $562,000 during the three and six month periods ended
June 30, 1995 and 1994, respectively. The 1995 results reflect an extraordinary
gain of $3,402,000 related to debt forgiveness. The increase in general and
administrative expenses for the three and six month periods from 1994 to 1995 of
$14,000 and $181,000, respectively, is attributable primarily to the increased
activity related to the rental car operations. The decrease in interest expense
for the three month period ended June 30, 1994 to 1995 of $23,000 is due to the
recent elimination of the $1.9 million note payable to Dollar Systems, Inc. See
Note 5 to the Consolidated Financial Statements. The increase in interest
expense for the six month period ended June 30, 1994 to 1995 of $44,000 is
attributable primarily to the increased activity related to the rental car
operations. The elimination of rental property operations expense and equity in
net loss of unconsolidated joint venture from 1994 to 1995, totaling $252,000
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.
The $122,000 decrease in accounts receivables, net from December
31, 1994 to June 30, 1995 is primarily due to the recognition of advertising
reimbursement and vehicle lease retention bonuses received from Dollar Systems,
Inc. The $148,000 increase in other current assets from December 31, 1994 to
June 30, 1995 includes $144,000 of prepaid auto license expense recognized
during the six month period. The $239,000 increase in other assets from December
31, 1994 to June 30, 1995 includes $102,000 in used risk vehicles purchased, a
$125,000 deposit to be applied against the potential purchase of a leased Dollar
Rent A Car premises in Phoenix, Arizona, and a $33,000 deposit to the State of
Arizona to be applied against June 1995 sales tax.
Vehicle Rental Activities. Revenues from rental car activities
accounted for 91% 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 and second quarters of 1995,
partially attributable to the seasonality of the business as previously
discussed.
Sports Activities. Sports Careers accounted for 8% of total
revenue in 1995 compared to 40% during 1994. Revenues include $259,000 and
$237,000 associated with the sale of membership programs during the first half
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 half of 1995 compared
to 11% during the first half 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 3 and 5 are omitted since these items are either
inapplicable or the response thereto would be negative.
Item 4. Submission of Matters to a Vote of Security Holders
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(a) The 1995 Annual Meeting was held on July 12, 1995.
(b) The following directors were elected:
1) Gerald J. Colangelo
2) David H. Eaton
3) Mel L. Shultz
4) William G. Was, Jr.
(c)i. The votes for the election of directors were cast, as
follows:
Director For Withhold Authority
-------- --- ------------------
Gerald J. Colangelo 59,001,619 127,355
David H. Eaton 59,001,619 127,355
Mel L. Shultz 59,001,619 127,355
William G. Was, Jr. 59,002,569 125,455
(c)ii. Price Waterhouse was appointed as the Company's 1995
auditors with 59,081,774 shares cast for, 39,900 shares cast
against and 6,350 shares abstaining.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
See index beginning on page 13
(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
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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: August 14, 1995 By Mel L. Shultz
-------------------------------------------
Mel L. Shultz, President and Director
Date: August 14, 1995 By Timothy A. Laos
-------------------------------------------
Timothy A. Laos, Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer) for the quarter subject
to this report
EXHIBITS INDEX
Exhibits 10.1 and 27.1 are the only exhibits originally filed with this report.
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
10.1 Assistance Agreement between Stratford American Car Rental
Systems, Inc. and Dollar Systems, Inc. dated May 16, 1995. 14
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 22
28.1 Form 10-KSB for the year ended December 31, 1994 N/A