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, 1996
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 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
- ------------------------------------------------------------------------
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 March 31, 1996, 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 Statements of Operations 4
Consolidated Statements of Changes in Shareholders' Equity (Deficiency) 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
2
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31, 1996
(unaudited)
ASSETS
Cash and cash equivalents $1,050,000
Receivables:
Trade, less allowance for doubtful accounts of $9,000 433,000
Mortgages 131,000
---------
564,000
---------
Restricted cash 746,000
Revenue earning vehicles, net 4,810,000
Property and equipment, net 363,000
Mining interests 375,000
Other assets 416,000
Franchise rights, less accumulated amortization of $90,000 292,000
---------
$8,616,000
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable, secured by revenue earning vehicles $4,819,000
Accounts payable 1,121,000
Notes payable and other debt 2,057,000
Accrued interest 373,000
Other accrued liabilities 409,000
---------
Total liabilities 8,779,000
---------
Minority interest in consolidated subsidiaries 117,000
Shareholders' equity:
Nonredeemable preferred stock, par value $.01 per share;
authorized 50,000,000 shares
Common stock, par value $.01 per share; authorized
100,000,000 shares; issued and outstanding 84,076,806 shares 841,000
Additional paid-in capital 25,780,000
Retained earnings (deficit) (26,890,000)
Treasury stock, 29,500 shares at cost (11,000)
---------
(280,000)
---------
Commitments and contingencies
---------
$8,616,000
=========
See accompanying notes to consolidated financial statements.
3
STRATFORD AMERICAN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended March 31, 1996 and 1995
(unaudited)
1996 1995
REVENUES:
Vehicle rental activities $4,173,000 $3,515,000
Sports activities 272,000 222,000
Rental property activities 7,000 38,000
Interest and other income 22,000 19,000
--------- ---------
4,474,000 3,794,000
--------- ---------
EXPENSES:
Vehicle rental operations 3,094,000 3,348,000
Sports operations 277,000 242,000
General and administrative 151,000 276,000
Depreciation, depletion and amortization 371,000 43,000
Interest 173,000 89,000
Minority interest in consolidated subsidiaries 112,000 6,000
--------- ---------
4,178,000 4,004,000
--------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 296,000 (210,000)
EXTRAORDINARY ITEM - GAIN ON EARLY
EXTINGUISHMENT OF DEBT
3,402,000
--------- ---------
NET INCOME $ 296,000 $3,192,000
========= =========
Income (loss) per common share:
Income (loss) before extraordinary item $ 0.00 $ (0.00)
Extraordinary item 0.04
--------- ---------
Net income per common share $ 0.00 $ 0.04
========= =========
See accompanying notes to consolidated financial statements.
4
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
For the three months ended March 31, 1996 and 1995
(unaudited)
Total
Common Stock Additional Retained Treasury Stock shareholders'
------------------ paid-in earnings ------------------ equity
Shares Amount capital (deficit) Shares Amount (deficiency)
------ ------ ---------- --------- ------ ------ -----------
Balance,
December 31, 1995 84,076,806 $841,000 $25,780,000 $(27,186,000) 29,500 $(11,000) $ (576,000)
Net income 296,000 296,000
---------- -------- ----------- ------------ ------ -------- ------------
Balance,
March 31, 1996 84,076,806 $841,000 $25,780,000 $(26,890,000) 29,500 $(11,000) $ (280,000)
========== ======== =========== ============ ====== ======== ============
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
---------- -------- ----------- ------------ ------ -------- ------------
Balance,
March 31, 1995 84,076,806 $841,000 $25,780,000 $(26,820,000) 29,500 $(11,000) $ (210,000)
========== ======== =========== ============ ====== ======== ============
See accompanying notes to consolidated financial statements.
STRATFORD AMERICAN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 1996 and 1995
(unaudited)
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 296,000 $3,192,000
Adjustments to reconcile net income to net cash provided by
operating activities -
Depreciation, depletion, and amortization 371,000 43,000
Minority interest in consolidated subsidiaries 112,000 6,000
Extraordinary item (3,402,000)
Other 1,000
Changes in assets and liabilities:
(Increase) decrease in accounts and mortgages receivable 1,000 (183,000)
(Increase) decrease in other assets (116,000) 5,000
Increase in accounts payable and accrued liabilities 357,000 516,000
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,021,000 178,000
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Addition to restricted cash (7,000) (30,000)
Proceeds from sale of rental property 1,311,000
Purchases of property and equipment (25,000) (20,000)
Purchases of revenue earning vehicles (893,000)
--------- ---------
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES (925,000) 1,261,000
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revenue earning vehicle financing 989,000
Payments on revenue earning vehicle financing (399,000)
Payment on other debt (17,000) (24,000)
--------- ---------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 573,000 (24,000)
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 669,000 1,415,000
CASH AND CASH EQUIVALENTS, beginning of period 381,000 505,000
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $1,050,000 1,920,000
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 126,000 $ 92,000
========= =========
See accompanying notes to consolidated 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, 1996, and the results of operations and cash flows for the
three month periods ended March 31, 1996 and 1995. 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, 1995.
2. The results of operations for the three months ended March 31, 1996 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 shares for the three months
ended March 31, 1996 and 1995, excluding shares owned by the Company.
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. 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 a bank. The net effect of the above 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, Stratford American Corporation, 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. 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. As
such, the adjusted fair value of the related assets and liabilities, are as
follows:
7
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
=======
Separately, a License Agreement dated May 31, 1994 was also entered into
between SCRS and Dollar Systems, Inc., the Dollar Rent A Car franchisor. A
$1,900,000 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 agreement between SCRS and
Dollar Systems, Inc. was executed which served to adjust the previously set
cost of the license agreement. 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.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Liquidity and Capital Resources.
The Company recognized a quarterly profit from its Dollar Rent A
Car operations for the three months ended March 31, 1996. This allowed the
Company to recognize a consolidated profit from operations for the first quarter
of 1996 as well. 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 that with improved Dollar Rent A Car
operations as discussed above, it should meet its operational cash flow needs
for the remainder of 1996. However, due to the factors described above, which
are outside the Company's control , there are no assurances that either
profitability or adequate cash flows from operations will be achieved.
Results of Operations - Quarter Ended March 31, 1996, Compared with Quarter
Ended March 31, 1995
The Company reported net income of $296,000 for the quarter ended
March 31, 1996 compared to net income of $3,192,000 during the first quarter of
1995. The 1995 results reflect an extraordinary gain of $3,402,000 related to
debt forgiveness. The increase in revenues from 1995 to 1996 of $680,000 is
primarily a result of increased rental business related to Super Bowl and Major
League Baseball spring training activities not experienced in the previous year,
as well as overall growth experienced in the Phoenix area. The decrease in
vehicle rental operations expense from 1995 to 1996 of $254,000 is due to a
negotiated reduction in system fees to Dollar Systems, Inc. and a partial
reclassification of vehicle expense recorded as depreciation expense and
interest expense on financed revenue earning vehicles. General and
administrative expense decreased $125,000 primarily due to consulting fees and
other related expenses incurred related to the sale of the University Center
project in March 1995. Depreciation, depletion and amortization expense
increased $328,000 from 1995 to 1996 primarily due to the added depreciation of
revenue earning vehicles in 1996. The increase in interest expense from 1995 to
1996 of $84,000 is due to the added interest expense on financed revenue earning
vehicles. Minority interest in consolidated subsidiaries increased $106,000 from
1995 to 1996 due to the increased quarterly profit recognized by Stratford
American Car Rental Systems, Inc. in 1996.
9
Vehicle Rental Activities. Revenues from rental car activities
accounted for 93% of total revenues in 1996 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 1996, partially
attributable to the seasonality of the business as previously discussed.
Sports Activities. Sports Careers accounted for 6% of total
revenue in 1996 and 1995. Revenues include $141,000 and $123,000 associated with
the sale of membership programs during the first quarters of 1996 and 1995,
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 less than 1% of total revenue in the first quarter of
1996 compared to 1% during the first quarter of 1995. 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.
Safe Harbor Statement under the Private Securities Litigation
Reform Act of 1995. This report contains forward looking statements that involve
risks and uncertainties, including but not limited to, risks associated with
seasonality of operations, competition, and other risks detailed herein and in
the Company's Annual Report on Form 10-KSB for the year ended December 31, 1995.
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 February 14, 1996 with respect to the change in
independent auditors from Price Waterhouse LLP to KPMG Peat
Marwick LLP, report including a letter from Price Waterhouse
LLP.
10
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, 1996 By /s/ Mel L. Shultz
------------------------------------------
Mel L. Shultz, President and Director
Date: May 15, 1996 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
11
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 1996 Proxy Statement which was filed with the
Securities and Exchange Commission on April 29, 1996. Exhibit 28.1 references
the December 31, 1995 Form 10-KSB, which was filed with the Securities and
Exchange Commission on April 15, 1996.
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 1996 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, 1995 N/A
12