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 September 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
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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
---- ----
At September 30, 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
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INDEX
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Page
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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
------
September 30, December 31,
1995 1994
---- ----
(unaudited)
Current assets:
Cash $ 434,000 $ 505,000
Accounts receivable, net 260,000 318,000
Other current assets 145,000 40,000
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Total current assets 839,000 863,000
Restricted cash 735,000 601,000
Revenue earning vehicles, net 316,000 --
Property and equipment, net 217,000 222,000
Mining interests 375,000 375,000
Mortgages receivable 132,000 134,000
Other assets 266,000 158,000
Franchise rights, net 316 ,000 2,174,000
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$ 3,196,000 $ 4,527,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of notes payable $ 518,000 $ 364,000
Accounts payable 847,000 1,288,000
Accrued interest 244,000 172,000
Accrued vehicle damage 1,000 129,000
Other accrued liabilities 237,000 350,000
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Total current liabilities 1,847,000 2,303,000
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Notes Payable 1,659,000 3,528,000
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Investment in joint ventures and
affiliated companies -- 2,091,000
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Minority interest in consolidated
subsidiaries 34,000 7,000
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Shareholders' equity:
Nonredeemable preferred stock,
$.01 par value; shares authorized -
50,000,000 shares
Common stock, $.01 par value; shares
authorized - 100,000,000 shares 841,000 841,000
Capital in excess of par 25,780,000 25,780,000
Retained earnings (deficit) (26,954,000) (30,012,000)
Less - 29,500 shares of common stock
in treasury, at cost (11,000) (11,000)
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(344,000) (3,402,000)
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Commitments and contingent liabilities
$ 3,196,000 $ 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 nine months
ended September 30, ended September 30,
1995 1994 1995 1994
---- ---- ---- ----
REVENUES:
Vehicle rental activities $ 2,148,000 $ 2,182,000 $ 8,595,000 $ 2,866,000
Sports activities 233,000 261,000 801,000 823,000
Rental property activities 8,000 32,000 52,000 113,000
Oil and gas production 5,000 35,000 21,000 105,000
Interest and other income 21,000 57,000 67,000 68,000
------------ ------------ ------------ ------------
2,415,000 2,567,000 9,536,000 3,975,000
------------ ------------ ------------ ------------
EXPENSES:
Vehicle rental operations 2,271,000 2,331,000 8,290,000 3,116,000
Sports operations 251,000 274,000 807,000 878,000
Rental property operations -- 4,000 -- 42,000
Production costs and taxes 1,000 6,000 3,000 46,000
General and administrative 121,000 121,000 530,000 349,000
Depreciation, depletion and amortization 25,000 42,000 59,000 84,000
Interest 50,000 93,000 164,000 163,000
Equity in net loss of unconsolidated joint venture -- 71,000 -- 285,000
Minority interest in consolidated subsidiaries (40,000) (59,000) 27,0000 (110,000)
------------ ------------ ------------ ------------
2,679,000 2,883,000 9,880,000 4,853,000
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (264,000) (316,000) (344,000) (878,000)
-- -- -- --
INCOME TAX BENEFIT ------------ ------------ ------------ ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS (264,000) (316,000) (344,000) (878,000)
EXTRAORDINARY GAIN ON DEBT
EXTINGUISHMENT -- 477,000 3,402,000 477,000
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (264,000) $ 161,000 $ 3,058,000 $ (401,000)
============ ============ ============ ============
Income (loss) per common share:
Income (loss) from continuing operations $ (0.00) $ (0.00) $ (0.00) $ (0.00)
Extraordinary gain on debt extinguishment 0.00 0.00 0.04 0.00
------------ ------------ ------------ ------------
Net income (loss) per common share $ (0.00) $ 0.00 $ 0.04 $ (0.00)
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
STRATFORD AMERICAN CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 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 -- -- -- 3,058,000 -- -- 3,058,000
---------- -------- ----------- ------------ ------ -------- -----------
Balance,
September 30, 1995 84,076,806 $841,000 $25,780,000 $(26,954,000) 29,500 $(11,000) $ (344,000)
========== ======== =========== ============ ====== ======== ===========
Balance,
December 31, 1993 80,713,734 $807,000 $25,780,000 $(29,172,000) 29,500 $(11,000) $(2,596,000)
Net loss -- -- -- (401,000) -- -- (401,000)
---------- -------- ----------- ------------ ------ -------- -----------
Balance,
September 30, 1994 80,713,734 $807,000 $25,780,000 $(29,573,000) 29,500 $(11,000) $(2,997,000)
========== ======== =========== ============ ====== ======== ===========
The accompanying notes are an integral part of these financial statements.
STRATFORD AMERICAN CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
For the nine months ended
September 30,
1995 1994
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 3,058,000 $ (401,000)
Adjustments to reconcile net income (loss) to net cash provided by
(used for) operating activities -
Depreciation, depletion, and amortization 59,000 84,000
Equity in net loss of unconsolidated joint venture -- 285,000
Minority interest in consolidated subsidiaries 27,000 (110,000)
Extraordinary gain on debt extinguishment (3,402,000) (477,000)
Other 2,000 16,000
Changes in assets and liabilities:
Decrease in accounts and notes receivable 133,000 33,000
Increase in other current assets (105,000) (9,000)
Increase in other assets, excluding property and equipment (124,000) --
Increase (decrease) in accounts payable and accrued liabilities (684,000) 109,000
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NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES (1,036,000) (470,000)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Reduction (Addition) to restricted cash (133,000) (571,000)
Proceeds from sale of rental property -- 265,000
Proceeds from sale of joint venture property 1,311,000 --
Additions to property and equipment (355,000) (34,000)
Acquisition costs -- (121,000)
Net cash acquired in connection with Dollar Rent A Car purchase -- 292,000
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NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES 823,000 (169,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 227,000 1,253,000
Repayment of notes payable (85,000) (336,000)
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 142,000 917,000
----------- -----------
NET INCREASE (DECREASE) IN CASH (71,000) 278,000
CASH, beginning of period 505,000 82,000
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CASH, end of period 434,000 360,000
=========== ===========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Interest paid $ 80,000 $ 102,000
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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 September 30, 1995, and the results of operations and cash flows for the
nine month period ended September 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 nine months ended September 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 84,047,306 and 80,684,234 shares for the
nine months ended September 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)
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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
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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,
and a subsequent loss for the three month period ended September 30, 1995,
resulting in a net profit for the nine month period ended September 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. As of September 30, 1995,
the Company has acquired fifteen risk vehicles through fleet financing from
General Motors Acceptance Corporation.
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 - Nine Months Ended September 30, 1995, Compared with Nine
- --------------------------------------------------------------------------------
Months Ended September 30, 1994
- -------------------------------
The Company reported a net loss of $264,000 and net income of
$3,058,000 and net income of $161,000 and a net loss of $401,000 during the
three and nine month periods ended September 30, 1995 and 1994, respectively.
The 1995 results reflect an extraordinary gain of $3,402,000, primarily related
to debt forgiveness as discussed in Note 4 to the Consolidated Financial
Statements. The increase in general and administrative expenses for the nine
month period from 1994 to 1995 of $181,000, is attributable primarily to the
increased activity related to the rental car operations. The decrease in
interest expense for the three month period ended September 30, 1994 to 1995 of
$43,000 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
elimination of rental property operations expense and equity in net loss of
unconsolidated joint venture from 1994 to 1995, totaling $327,000 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 $58,000 decrease in accounts receivables, net from December 31,
1994 to September 30, 1995 is primarily due to the recognition of advertising
reimbursement and vehicle lease retention bonuses received from Dollar Systems,
Inc. The $105,000 increase in other current assets from December 31, 1994 to
September 30, 1995 includes $100,000 of prepaid auto license expense recognized
during the nine month period. The $108,000 net increase in other assets from
December 31, 1994 to September 30, 1995 includes a $125,000 deposit to be
applied against the potential purchase of a leased Dollar Rent A Car premises in
Phoenix, Arizona. The $154,000 net increase in current portion of notes payable
from December 31, 1994 to September 30, 1995 includes $227,000 in vehicle
obligations acquired from General Motors Acceptance Corporation. The $441,000
decrease in accounts payable and the $113,000 decrease in other accrued
liabilities from December 31, 1994 to September 30, 1995 is primarily due to the
successful reduction of aged payables and other liabilities during the current
nine month period. The $72,000 increase in accrued interest from December 31,
1994 to September 30, 1995 is due primarily to accumulated interest due on
subordinated notes held by SCRS. The $128,000 decrease in accrued vehicle damage
from December 31, 1994 to September 30, 1995 is due to the effective disposition
of damaged vehicles leased from Dollar Systems, Inc. during the nine month
period ended September 30, 1995.
Vehicle Rental Activities. Revenues from rental car activities
---------------------------
accounted for 90% 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, with a
net operating loss occurring during the third quarter of 1995, resulting in a
net operating profit for the current nine month period. This is partially
attributable to the seasonality of the business as previously discussed.
Sports Activities. Sports Careers accounted for 9% of total revenue
------------------
in 1995 compared to 21% during 1994. Revenues include $385,000 and $375,000
associated with the sale of membership programs during the nine months 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 nine months of 1995 compared to 11% during
the first nine months 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
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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: November 14, 1995 By /s/ Mel L. Shultz
-------------------------------------
Mel L. Shultz, President and Director
Date: November 14, 1995 By /s/ 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
Exhibit 27.1 is the only exhibit originally filed with this report. The Company
hereby incorporates all other exhibits by reference pursuant to Rule 12b-32,
each of which (except Exhibits 10.1, 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 10.1 was filed as
Exhibit 10.1 to the Company's Form 10-QSB for the Quarterly Period ended June
30, 1995, which was filed with the Securities and Exchange Commission on August
14, 1995. 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
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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. 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