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, 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 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 June 30, 1996, 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
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INDEX
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Page
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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
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 1996
(unaudited)
ASSETS
Cash and cash equivalents $ 662,000
Receivables:
Trade, less allowance for doubtful accounts of $9,000 397,000
Mortgages 130,000
------------
527,000
------------
Restricted cash 751,000
Revenue earning vehicles, net 1,221,000
Property and equipment, net 395,000
Mining interests 375,000
Other assets 476,000
Franchise rights, less accumulated amortization of $95,000 287,000
------------
$ 4,694,000
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable, secured by revenue earning vehicles $ 1,221,000
Accounts payable 1,006,000
Notes payable and other debt 2,067,000
Accrued interest 383,000
Other accrued liabilities 320,000
------------
Total liabilities 4,997,000
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Minority interest in consolidated subsidiaries 124,000
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) (27,037,000)
Treasury stock, 29,500 shares at cost (11,000)
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(427,000)
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Commitments and contingencies ------------
$ 4,694,000
============
See accompanying notes to consolidated financial statements.
STRATFORD AMERICAN CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
For the three months For the six months
ended June 30, ended June 30,
1996 1995 1996 1995
---- ---- ---- ----
REVENUES:
Vehicle rental activities $ 3,225,000 $ 2,932,000 $ 7,398,000 $ 6,447,000
Sports activities 265,000 346,000 537,000 568,000
Rental property activities 7,000 6,000 15,000 44,000
Interest and other income 22,000 43,000 43,000 62,000
----------- ----------- ----------- -----------
3,519,000 3,327,000 7,993,000 7,121,000
----------- ----------- ----------- -----------
EXPENSES:
Vehicle rental operations 2,899,000 2,671,000 5,992,000 6,019,000
Sports operations 237,000 315,000 514,000 556,000
General and administrative 164,000 134,000 316,000 411,000
Depreciation, depletion and amortization 239,000 (9,000) 610,000 34,000
Interest 121,000 25,000 294,000 114,000
Minority interest in consolidated subsidiaries 6,000 61,000 118,000 67,000
----------- ----------- ----------- -----------
3,666,000 3,197,000 7,844,000 7,201,000
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (147,000) 130,000 149,000 (80,000)
EXTRAORDINARY ITEM-GAIN ON EARLY
EXTINGUISHMENT OF DEBT 3,402,000
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (147,000) $ 130,000 $ 149,000 $ 3,322,000
=========== =========== =========== ===========
Income (loss) per common share:
Income (loss) before extraordinary item $ (0.00) $ 0.00 $ 0.00 $ (0.00)
Extraordinary item 0.04
----------- ----------- ----------- -----------
Net income (loss) per common share $ (0.00) $ 0.00 $ 0.00 $ 0.04
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
For the six months ended June 30, 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 149,000 149,000
----------- --------- ------------ --------------- ------ -------- -------------
Balance,
June 30, 1996 84,076,806 $841,000 $25,780,000 $(27,037,000) 29,500 $(11,000) $ (427,000)
========== ======== =========== ============ ====== ======== ============
Balance,
December 31, 1994 84,076,806 $841,000 $25,780,000 $(30,012,000) 29,500 $(11,000) $(3,402,000)
Net income 3,322,000 3,322,000
----------- --------- ------------ -------------- ------ -------- ------------
Balance,
June 30, 1995 84,076,806 $841,000 $25,780,000 $(26,690,000) 29,500 $(11,000) $ (80,000)
========== ======== =========== ============ ====== ======== ===========
See accompanying notes to consolidated financial statements.
STRATFORD AMERICAN CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
For the six months ended June 30, 1996
(unaudited)
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 149,000 $ 3,322,000
Adjustments to reconcile net income to net cash provided by
operating activities -
Depreciation, depletion, and amortization 610,000 34,000
Minority interest in consolidated subsidiaries 118,000 67,000
Extraordinary item (3,402,000)
Other 1,000
Changes in assets and liabilities:
Decrease in accounts and mortgages receivable 2,000 197,000
Decrease in revenue earning vehicles 3,607,000
Increase in other assets (124,000) (305,000)
Increase(Decrease) in accounts payable and accrued liabilities 164,000 (438,000)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,526,000 (524,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Reduction (Addition) to restricted cash (12,000) 71,000
Proceeds from sale of rental property 1,311,000
Purchases of property and equipment (84,000) (116,000)
Purchases of revenue earning vehicles (1,134,000)
----------- -----------
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES (1,230,000) 1,266,000
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revenue earning vehicle financing 1,231,000
Proceeds from property and equipment financing 30,000
Payments on revenue earning vehicle financing (4,238,000)
Payment on other debt (38,000) (79,000)
----------- -----------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES
(3,015,000) (79,000)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 281,000 663,000
CASH AND CASH EQUIVALENTS, beginning of period 381,000 505,000
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 662,000 $ 1,168,000
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 236,000 $ 74,000
=========== ===========
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, 1996, and the results of operations and cash flows for the
six month periods ended June 30, 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 six months ended June 30, 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 six months ended
June 30, 1996, 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:
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. The Company is not in default as of the date of this report.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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Liquidity and Capital Resources.
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Although a small second quarter profit from Dollar Rent A Car
operations was generated before corporate overhead expenses, the Company did
experience a consolidated loss for the quarter, primarily due to the expected
seasonal decline in rental business during the end of May and June of this year.
The vehicle rental business in Arizona 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 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.
The Company continues to meet its revenue earning vehicle
financing requirements through three major sources. At present, revenue earning
vehicles account for approximately 20% of the Company's average rental fleet,
with the remaining fleet consisting of leased units.
Results of Operations - Six Months Ended June 30, 1996, Compared with Six Months
Ended June 30, 1995
The Company reported a net loss of $147,000 and net income of
$149,000 during the three and six month periods ended June 30, 1996, and net
income of $130,000 and $3,322,000 for the three and six month periods ended June
30, 1995. The 1995 results reflect on an extraordinary gain of $3,402,000
related to debt forgiveness. The increase in revenues of $192,000 and $872,000
for the three and six month periods from 1995 to 1996 respectively is primarily
a result of improved rental business related to the 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 increase in vehicle
rental operations expense from the three month period ended June 30, 1995 to
June 30, 1996 of 228,000 is primarily due to increased average fleet and other
variable costs required to support the higher revenues attained during 1996.
General and administrative expenses decreased $95,000 from the six month period
ended June 30, 1995 to June 30, 1996 primarily due to consulting fees and other
expenses related to the sale of the University Center project in March 1995.
Depreciation, depletion and amortization expense increased by $248,000 and
$576,000 for the three and six month periods from 1995 to 1996 respectively
primarily due to the added depreciation of revenue earning vehicles during 1996.
The increase in interest expense of $96,000 and $180,000 for the three and six
month periods from 1995 to 1996 respectively is due to the added interest
expense on financed revenue earning vehicles. Minority interest in consolidated
subsidiaries increased $51,000 from the six month period ended June 30, 1995 to
June 30, 1996 due to the increased six month profit recognized by Stratford
American Car Rental Systems, Inc. in 1996.
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 half 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. Revenues include $254,000 and $259,000 associated with the sale
of membership programs during the first half 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 half of
1996. 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 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 1996 Annual Meeting was held on July 10, 1996.
(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 51,296,571 34,405
David H. Eaton 51,296,571 34,405
Mel L. Shultz 51,296,571 34,405
William G. Was, Jr. 51,296,571 34,405
(c)ii.KPMG Peat Marwick LLP was appointed as the Company's 1996
auditors with 49,777,278 shares cast for, 16,600 shares cast
against and 1,537,098 shares abstaining.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
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See index beginning on page 13
(b) Reports on Form 8-K
-------------------
There were no reports on Form 8-K filed for the three months
ended June 30, 1996.
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, 1996 By /s/ Mel L. Shultz
--------------------------------------
Mel L. Shultz, President and Director
Date: August 14, 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
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 22.1) 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.
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
22.1 Subsidiaries N/A