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, 1998
( ) 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.
Check 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
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At March 31, 1998, 88,076,806 shares of the issuer's common stock were issued
and outstanding.
STRATFORD AMERICAN CORPORATION
INDEX
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet as of March 31, 1998 3
Condensed Consolidated Statements of Operations for the three months
ended March 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 8
Signatures 9
2
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 1998
(unaudited)
ASSETS
Cash and cash equivalents $ 528,000
Receivables:
Trade, less allowance for doubtful accounts of $167,000 638,000
Mortgages 62,000
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700,000
Prepaid expenses 261,000
Revenue earning vehicles, net 337,000
Property and equipment, net 345,000
Deposits 193,000
Other assets 192,000
Franchise rights, less accumulated amortization of $121,000 257,000
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Total assets $ 2,813,000
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LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable, secured by revenue earning vehicles $ 252,000
Accounts payable 1,370,000
Notes payable and other debt 1,524,000
Accrued interest 164,000
Accrued liabilities 427,000
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Total liabilities 3,737,000
Shareholders' equity (deficiency):
Nonredeemable preferred stock, par value $.01 per share;
authorized 50,000,000 shares, none issued
Common stock, par value $.01 per share; authorized 100,000,000 shares;
Issued and outstanding 88,076,806 shares 881,000
Additional paid-in capital 25,981,000
Retained earnings (deficit) (27,775,000)
Treasury stock, 29,500 shares at cost (11,000)
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Total shareholders' equity (deficiency) (924,000)
Total liabilities and shareholders' equity (deficiency) $ 2,813,000
============
See accompanying notes to condensed consolidated financial statements.
3
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three months ended March 31,
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1998 1997
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REVENUES:
Vehicle rental activities $3,942,000 $4,390,000
Interest and other income 25,000 26,000
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3,967,000 4,416,000
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EXPENSES:
Vehicle rental operations 2,896,000 3,278,000
General and administrative 57,000 203,000
Depreciation and amortization 74,000 486,000
Interest 62,000 232,000
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3,089,000 4,199,000
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NET INCOME $ 878,000 $ 217,000
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Basic net income per share $ 0.01 $ 0.00
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Weighted average number of common
shares outstanding 88,076,806 84,957,418
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Diluted net income per share $ 0.01 $ 0.00
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Weighted average number of common and
common equivalent shares outstanding 88,576,806 88,457,418
========== ==========
See accompanying notes to condensed consolidated financial statements.
4
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three months ended March 31,
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1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 878,000 $ 217,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 74,000 486,000
Loss (gain) on sale of revenue earning vehicles (14,000) 6,000
Changes in assets and liabilities:
Decrease in accounts and mortgages receivable 11,000 44,000
Decrease in other assets 56,000
Increase in accounts payable 311,000 171,000
Increase (decrease) in accrued liabilities (194,000) 254,000
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NET CASH PROVIDED BY OPERATING ACTIVITIES 1,066,000 1,234,000
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CASH FLOWS FROM INVESTING ACTIVITIES:
Reduction to restricted cash (5,000)
Proceeds from sales of revenue earning vehicles 34,000 249,000
Purchases of property and equipment (5,000) (18,000)
Purchases of revenue earning vehicles (572,000)
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NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES 29,000 (346,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revenue earning vehicle financing 528,000
Payments on revenue earning vehicle financing (117,000) (819,000)
Payments on other debt (618,000) (226,000)
Proceeds from issuance of common stock 30,000
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NET CASH USED FOR FINANCING ACTIVITIES (735,000) (487,000)
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NET INCREASE IN CASH AND CASH EQUIVALENTS 360,000 401,000
CASH AND CASH EQUIVALENTS, beginning of period 168,000 173,000
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CASH AND CASH EQUIVALENTS, end of period $ 528,000 $ 574,000
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the period $ 299,000 $ 189,000
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See accompanying notes to condensed consolidated financial statements.
5
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 1998 and 1997
(unaudited)
1. In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments, consisting only
of normal recurring adjustments, necessary to present fairly the financial
position as of March 31, 1998, and the results of operations and cash flows
for the three months ended March 31, 1998 and 1997. The accompanying
condensed consolidated financial statements and notes 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, 1997.
2. The results of operations for the three months ended March 31, 1998 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 higher revenues.
3. On April 17, 1998, the Company's Board of Directors approved, subject to
shareholder approval, a fifteen-to-one reverse stock split of the Company's
common stock for shareholders to become effective immediately following the
filing of an amendment to the Company's Articles of Incorporation subequent
to shareholder approval. Assuming the reverse stock split was effective for
the first quarter of 1998, net income per share amounts would have been
adjusted to reflect the reverse split. For the three months ended March 31,
1998, basic and diluted net income per share would have both been $0.15 per
share based on weighted average shares outstanding of 5,871,787 for basic
and 5,905,120 for diluted. For the three months ended March 31, 1997, basic
and diluted net income per share would have both been $0.04 per share based
on weighted average shares outstanding of 5,663,828 for basic and 5,987,161
for diluted.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS
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General
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The Company recognized a quarterly profit from its Dollar Rent A
Car operations for the three months ended March 31, 1998. This allowed the
Company to recognize a consolidated profit from operations for the first quarter
of 1998 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 reflects
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.
Liquidity and Capital Resources
- -------------------------------
The Company, through Stratford American Car Rental Systems, Inc.
(SCRS), has access to 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 other major sources.
SCRS incurs a minimum of $1,150,000 in airport access charges
yearly based on the level of car rental business recognized at all three airport
terminal locations. Effective June 1997, SCRS began passing through most of its
airport access charges to car rental customers with no significant impact on its
level of business activity. SCRS collected $373,000 in airport access charges
during the first quarter of 1998 compared to no collections during the same
period last year. Collections are based on a percentage of airport revenues
recognized and are therefore higher during the first quarter busy season,
compared to the remaining three quarters of the year. The Company estimates that
with continued success in implementing this policy, it will collect
approximately 98% of its airport access charges for the year.
The Company anticipates that with its available financing and with
the continuation of efforts to improve Dollar Rent A Car operating results, it
should meet its operational cash flow needs for the remainder of 1998. 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 - Quarter Ended March 31, 1998, Compared with Quarter
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Ended March 31, 1997.
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The Company reported net income of $878,000 for the quarter ended
March 31, 1998 compared to net income of $217,000 during the first quarter of
1997. The decrease in revenues from $4,416,000 in 1997 to $3,967,000 in 1998 is
primarily due to the September 1997 closure of four off airport locations
determined to be unprofitable. The decrease in vehicle rental operations expense
from $3,278,000 in 1997 to $2,896,000 in 1998 is primarily due to the Company's
ability to bill and collect airport access charges from its customers which was
not done during the first quarter of 1997. General and administrative expenses
decreased from $203,000 to $57,000 in 1998 primarily due to the agreed upon
elimination of certain legal and professional fees accrued several years ago
along with the difference in the minority interest allocation expense for the
first quarter of 1998 as compared to the first quarter of 1997 which is included
in this category. Depreciation and amortization expense decreased from $486,000
in 1997 to $74,000 in 1998
7
primarily due to the significant reduction of revenue earning vehicles included
in the rental fleet and depreciated in 1998 as compared to 1997. The decrease in
interest expense from $232,000 in 1997 to $62,000 in 1998 is due to the
significant decrease in the number of financed revenue earning vehicles in 1998
as compared to 1997.
Vehicle Rental Activities. Revenues from rental car activities
accounted for over 99% of total revenues in the first quarter of 1998 and is
presently the most significant revenue source for the Company. A net operating
profit relating to these operations was recognized during the first quarter of
1998 partially attributable to the seasonality of the business as previously
discussed.
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
1998 and 1997.
Safe Harbor Statement Under the Private Securities Litigation
Reform Act of 1995.
Certain statements contained in this report, including statements
containing the words "believes," "anticipates," "intends," "expects" and words
of similar import, constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995 and are subject to the safe
harbors created thereby. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual results
to be materially different from the forward-looking statements. Such factors
include, among others, the following: SCRS's ability to maintain the Dollar Rent
A Car franchise, the Company's ability to compete successfully, the risk of
disruption of air travel patterns, the fact that the Company's operating results
are seasonal, the risk that all of the foregoing factors or other factors could
cause fluctuations in the price of the Company's common stock, and other risks
detailed in this report and from time to time in the Company's other filings
with the Securities and Exchange Commission. Given these uncertainties, readers
should not place undue reliance on such forward-looking statements.
PART II. OTHER INFORMATION
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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
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(a) Exhibits
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See index beginning on page 10
(b) Reports on Form 8-K
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There were no reports on Form 8-K filed for the three months
ended March 31, 1998.
8
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: May 15, 1998 By /s/ Mel L. Shultz
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Mel L. Shultz, President and Director
Date: May 15, 1998 By /s/ Timothy A. Laos
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Timothy A. Laos, Chief Financial
Officer (Principal Financial Officer
and Principal Accounting Officer) for
the quarter subject to this report
9
EXHIBITS INDEX
Exhibits 27.1 and 27.2 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 Exhibit 3.3) 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.
Number Description Page
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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
27.1 Financial Data Schedule - March 31, 1998 11
27.2 Financial Data Schedule - March 31, 1997 12
10