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, 1997
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, 1997, 87,076,806 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
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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
2
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 1997
(unaudited)
ASSETS
Cash and cash equivalents $ 544,000
Receivables:
Trade, less allowance for doubtful accounts of $32,000 774,000
Mortgages 126,000
------------
900,000
------------
Restricted cash 203,000
Revenue earning vehicles, net 3,260,000
Property and equipment, net 432,000
Mining interests 375,000
Other assets 616,000
Franchise rights, less accumulated amortization of $113,000 269,000
------------
$ 6,599,000
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable, secured by revenue earning vehicles $ 3,189,000
Accounts payable 936,000
Notes payable and other debt 2,085,000
Accrued interest 535,000
Other accrued liabilities 487,000
------------
Total liabilities 7,232,000
------------
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 87,076,806 shares 871,000
Additional paid-in capital 25,941,000
Retained earnings (deficit) (27,434,000)
Treasury stock, 29,500 shares at cost (11,000)
------------
(633,000)
------------
Commitments and contingencies
------------
$ 6,599,000
============
See accompanying notes to consolidated financial statements.
3
STRATFORD AMERICAN CORPORATION AND SUBSIDIARES
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
For the three months For the six months
ended June 30, ended June 30,
1997 1996 1997 1996
---- ---- ---- ----
REVENUES:
Vehicle rental activities $ 3,735,000 $ 3,225,000 $ 8,124,000 $ 7,398,000
Rental property activities 9,000 7,000 20,000 15,000
Interest and other income 25,000 22,000 41,000 44,000
----------- ----------- ----------- -----------
3,769,000 3,254,000 8,185,000 7,457,000
----------- ----------- ----------- -----------
EXPENSES:
Vehicle rental operations 3,327,000 2,899,000 6,606,000 5,992,000
General and administrative 90,000 164,000 292,000 431,000
Depreciation and amortization 367,000 235,000 853,000 602,000
Interest 183,000 119,000 414,000 290,000
----------- ----------- ----------- -----------
3,967,000 3,417,000 8,165,000 7,315,000
----------- ----------- ----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS (198,000) (163,000) 20,000 142,000
DISCONTINUED OPERATIONS:
Income from operations of Sports Careers 16,000 7,000
----------- ----------- ----------- -----------
Net income from discontinued operations 16,000 7,000
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (198,000) $ (147,000) $ 20,000 $ 149,000
=========== =========== =========== ===========
Income (loss) per common share:
Income (loss) from continuing operations $ (0.00) $ (0.00) $ 0.00 $ 0.00
Income from discontinued operations 0.00 0.00
----------- ----------- ----------- -----------
Net income (loss) per common share $ (0.00) $ (0.00) $ 0.00 $ 0.00
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
4
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
For the six months ended June 30, 1997 and 1996
(unaudited)
Total
Common Stock Additional Retained Treasury Stock shareholders'
---------------------- paid-in earnings ----------------- equity
Shares Amount capital (deficit) Shares Amount (deficiency)
------ ------ ------- --------- ------ ------ ------------
Balance,
December 31, 1996 84,076,806 $841,000 $25,941,000 $(27,454,000) 29,500 $(11,000) $ (683,000)
Stock issued 3,000,000 30,000 30,000
Net income 20,000 20,000
----------- --------- ------------ ------------ ------ -------- -------------
Balance,
June 30, 1997 87,076,806 $871,000 $25,941,000 $(27,434,000) 29,500 $(11,000) $ (633,000)
========== ======== =========== ============ ====== ======== ============
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)
========== ======== =========== ============ ====== ======== ============
See accompanying notes to consolidated financial statements.
5
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the six months ended June 30, 1997 and 1996
(unaudited)
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 20,000 $ 149,000
Adjustments to reconcile net income to net cash provided by
operating activities -
Depreciation and amortization (continuing operations) 853,000 602,000
Depreciation and amortization (discontinued operations) 8,000
Loss (Gain) on sale of revenue earning vehicles 128,000 (35,000)
Changes in assets and liabilities:
Decrease (Increase) in accounts and mortgages receivable (85,000) 2,000
Increase in other assets (24,000) (6,000)
Increase (Decrease) in accounts payable (39,000) 96,000
Increase in accrued liabilities 133,000 68,000
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 986,000 884,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Reduction (Addition) to restricted cash 558,000 (12,000)
Proceeds from sale of revenue earning vehicles 3,422,000 3,642,000
Purchases of property and equipment (38,000) (84,000)
Purchases of revenue earning vehicles (572,000) (1,134,000)
----------- -----------
NET CASH PROVIDED BY INVESTING ACTIVITIES 3,370,000 2,412,000
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revenue earning vehicle financing 528,000 1,231,000
Proceeds from property and equipment financing 30,000
Payments on revenue earning vehicle financing (4,437,000) (4,238,000)
Proceeds from other debt 395,000
Payment on other debt (501,000) (38,000)
Proceeds from issuance of common stock 30,000
----------- -----------
NET CASH USED FOR FINANCING ACTIVITIES (3,985,000) (3,015,000)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 371,000 281,000
CASH AND CASH EQUIVALENTS, beginning of period 173,000 381,000
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 544,000 $ 662,000
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the year $ 401,000 $ 236,000
=========== ===========
See accompanying notes to consolidated financial statements.
6
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 1997 and 1996
(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, 1997, and the results of operations and cash flows for the
six month periods ended June 30, 1997 and 1996. 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 consolidated financial statements appearing in the
Company's Form 10-KSB for the year ended December 31, 1996.
2. The results of operations for the six months ended June 30, 1997 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. Income (loss) per common share is computed using the weighted average
number of common shares of stock outstanding during the periods presented
excluding common shares of stock acquired by the Company. Net income per
common share is based on 86,003,107 shares for the six month period ended
June 30, 1997 and 84,047,306 shares for the six month period ended June 30,
1996.
4. A License Agreement dated May 31, 1994 was entered into between Stratford
American Car Rental Systems, Inc. ("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. Effective January 1, 1997, the Company successfully met its
requirement for completing the terms and conditions of debt elimination.
5. In the fourth quarter of 1996, the Company sold its interest in Stratford
American Sports Corp. ("SASC"). The liquidation was finalized on December
30, 1996. SASC had been accounted for as a discontinued operation and,
accordingly, its results of operations are segregated for the six month
period ended June 30, 1996 as presented in the consolidated financial
statements. Revenue associated with the discontinued operations during the
six month period ended June 30, 1996 was $537,000.
6. An option to purchase 3,000,000 shares of the Company's common stock was
granted to an officer of the Company in 1994. In March 1997, before the
date of expiration, the option to purchase all 3,000,000 shares was
exercised for an aggregated exercise price of $30,000. As of June 30, 1997,
options to purchase 3,500,000 shares of the Company's common stock remain
outstanding.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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General
- -------
The Company experienced a consolidated loss for the second
quarter, primarily due to the expected seasonal decline in the vehicle rental
business during the end of May and June, along with the negative impact
experienced on the disposition of risk units due to a weak vehicle wholesale
market. The vehicle rental business in Arizona is seasonal with the months of
February through May typically representing the highest revenue months. The
profit from vehicle rental operations generated for the first half of the year
reflects 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.
Liquidity and Capital Resources
- -------------------------------
In December 1996, the Company, through SCRS, was able to secure a
$3,000,000 credit line from a major bank, including a $2,000,000 line available
for general operational use, and a $1,000,000 line to purchase revenue earning
vehicles. In addition, the Company continues to maintain already existing
vehicle lines of credit from three other major sources.
The Company anticipates that with its recently completed financing
and with the continuation of efforts to improve Dollar Rent A Car operating
results as discussed above, it should meet its operational cash flow needs for
the remainder of 1997. However, due to, among other things, 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 - Six Months Ended June 30, 1997, Compared with Six Months
- --------------------------------------------------------------------------------
Ended June 30, 1996
- -------------------
The Company reported a net loss of $198,000 and net income of
$20,000 during the three and six month periods ended June 30, 1997, compared to
a net loss of $147,000 and net income of $149,000 for the three and six month
periods ended June 30, 1996. Revenues increased by $515,000 and $728,000 for the
three and six month periods respectively, primarily as a result of stronger
rental demand and increased rental rates, especially during the peak months of
February and March. The increase in vehicle rental operations expense from
$2,899,000 and $5,992,000 for the three and six month periods ended June 30,
1996 to $3,327,000 and $6,606,000 for the three and six month periods ended June
30, 1997 is primarily due to an increase in system fees paid to Dollar Systems,
Inc. compared to reduced system fees negotiated with Dollar Systems, Inc. during
1996, as well as losses recognized on the sale of risk units in a weak vehicle
wholesale market during 1997, and also increased reservation and travel agent
activity resulting in greater reservation and travel agent fees during 1997.
General and administrative expense decreased from $164,000 and $431,000 for the
three and six month periods ended June 30, 1996 to $90,000 and $292,000 for the
three and six month periods ended June 30, 1997 primarily due to a reduced
minority interest allocation expense included in this expense category as
compared to the minority interest allocation expense reclassified into this
expense category last year. Depreciation and amortization increased from
$235,000 and $602,000 for the three and six month periods ended June 30,1996 to
$367,000 and $853,000 for the three and six month periods ended June 30, 1997
due to additional revenue earning vehicles included in the rental fleet and
depreciated in 1997. The increase in interest expense from $119,000 and $290,000
for the three and six month periods
8
ended June 30, 1996 to $183,000 and $414,000 for the three and six month periods
ended June 30, 1997 is due to financing the additional revenue earning vehicles
included in the fleet.
Vehicle Rental Activities. Revenues from rental car activities
accounted for over 99% of total revenues in 1997 and are presently the most
significant revenue source for the Company. A net operating profit relating to
these operations was recognized during the first six months of 1997, partially
attributable to the seasonality of the business as previously discussed.
Sports Activities. Sports Careers was sold during 1996. The
results from discontinued operations includes a $7,000 gain for the first six
months of 1996.
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 six months
of 1997 and 1996.
Recent Accounting Pronouncement
-------------------------------
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (Statement 128).
This Statement establishes standards for computing and presenting earnings per
share ("EPS") and supersedes APB Opinion No. 15. The Statement replaces primary
EPS with basic EPS and requires dual presentation of basic and diluted EPS. The
Statement is effective for both interim and annual periods ending after December
15, 1997. Earlier adoption is not permitted. After adoption, all prior-period
EPS data shall be restated to conform to Statement 128. Basic and diluted EPS,
as calculated under Statement 128 would have been the same as primary and fully
diluted for the six months ended June 30, 1997.
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, 1996, and in the
Company's other reports filed from time to time with the Securities and Exchange
Commission.
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
---------------------------------------------------
(a) The 1997 Annual Meeting was held on July 9, 1997.
(b) The following directors were elected:
1) Gerald J. Colangelo
2) David H. Eaton
3) Mel L. Shultz
4) William G. Was, Jr.
9
(c)i. The votes for the election of directors were cast, as
follows:
Director For Withhold Authority
-------- --- ------------------
Gerald J. Colangelo 48,132,163 12,850
David H. Eaton 48,132,163 12,850
Mel L. Shultz 48,132,163 12,850
William G. Was, Jr. 48,132,163 12,850
(c)ii.KPMG Peat Marwick LLP was appointed as the Company's 1997
auditors with 48,035,913 shares cast for, 102,700 shares
cast against and 6,400 shares abstaining.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
See index beginning on page 12
(b) Reports on Form 8-K
-------------------
There were no reports on Form 8-K filed for the three months
ended June 30, 1997.
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: August 14, 1997 By /s/ Mel L. Shultz
-------------------------------------------
Mel L. Shultz, President and Director
Date: August 14, 1997 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 3.3, 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 3.3 was filed with
the Company's Registration Statement on Form S-1 on June 12, 1989, with the
Securities and Exchange Commission. Exhibit 22.1 was filed as Exhibit 22.1 to
the Company's Form 10-KSB for the year ended December 31, 1996, which was filed
with the Securities and Exchange Commission on March 31, 1997. Exhibit 23.1
references the 1997 Proxy which was filed with the Securities and Exchange
Commission on April 30, 1997. Exhibit 28.1 references the December 31, 1996 Form
10-KSB, which was filed with the Securities and Exchange Commission on March 31,
1997.
Number Description Page
- ------ ----------- ----
3.1 Articles of Incorporation N/A
3.2 By-laws N/A
3.3 Articles of Amendment to Articles of Incorporation N/A
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 1997 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, 1996 N/A
12