<PAGE>
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended December 31, 1995
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Commission file number 0-15399
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StratAmerica Corporation
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(Exact name of registrant as specified in its charter)
Utah 87-0368170
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
42-620 Caroline Court, Palm Desert, California 92211
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(Address of principal executive offices) (Zip Code)
(619) 776-1010
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(Registrant's Telephone Number, including area code)
N/A
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Former Address from Previous Form 10-Q
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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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10,000,000(1) Common Shares, $0.05 par value, were issued and outstanding
as of February 1, 1996.
Transitional Small Business Disclosure Format.
Yes No X
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____________________
(1) Calculated without reference to Regulation 240.13d-3.
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS
STRATAMERICA CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
(unaudited)
<TABLE>
<CAPTION>
December 31, March 31,
ASSETS 1995 1995
------ ------------ ----------
<S> <C> <C>
Current assets:
Cash $ 1 $ 237
Restricted cash - 35
Trade accounts receivable 63 23
Interest receivable - related party - 15
Inventories 175 161
Prepaid expenses 345 75
-------- --------
Total current assets 584 546
Notes receivable - related party - 611
Property and equipment, net 1,005 1,204
Goodwill, net 303 550
Other assets 81 80
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$ 1,973 $ 2,991
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 911 $ 765
Accrued liabilities 3,776 3,338
Current portion of long-term debt and
capital lease obligations 1,200 1,872
Notes payable 2,673 2,193
Deferred franchise fees 85 120
Deposit 246 246
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Total current liabilities 8,891 8,534
Long-term debt and capital lease obliga-
tions, less current portion 252 417
Accumulated losses in excess of investment
in unconsolidated subsidiary 121 121
Deferred revenue 378 378
Minority interest in consolidated susidiary 350 350
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9,992 9,800
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Shareholders' equity:
Common stock, $.05 par value -
authorized 10,000,000 shares;
10,000,000 shares issued and outstanding 500 500
Capital in excess of par value 7,936 7,936
Accumulated deficit (16,455) (15,245)
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(8,019) (6,809)
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$ 1,973 $ 2,991
-------- --------
-------- --------
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
STRATAMERICA CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in Thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
1995 1994
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<S> <C> <C>
Revenues:
Restaurant $ 2,719 $ 3,051
Retail 47 106
Franchise fees and royalties 196 152
Other - 4
Interest - -
Equity in gain of unconsolidated
subsidiary - 9
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2,962 3,322
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Expenses:
Restaurant cost of sales,
excluding depreciation 1,786 1,936
Restaurant rent 304 318
Other restaurant occupancy
and operating expense 443 647
Retail cost of sales 32 16
Retail operating expense 60 31
General and administrative
expense 382 277
Depreciation and amortization 139 182
Interest 106 149
Loss on restaurant closure - -
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3,252 3,556
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Net loss $ (290) $ (234)
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------- -------
Net loss per share $ (0.03) $ (0.02)
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</TABLE>
See notes to consolidated financial statements.
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<PAGE>
STRATAMERICA CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in Thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
1995 1994
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<S> <C> <C>
Revenues:
Restaurant $ 9,227 $10,468
Retail 191 186
Franchise fees and royalties 399 439
Other 1 40
Interest 63 136
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9,881 11,269
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Expenses:
Restaurant cost of sales,
excluding depreciation 6,136 6,634
Restaurant rent 1,032 1,092
Other restaurant occupancy
and operating expense 1,641 2,136
Retail cost of sales 128 40
Retail operating expense 153 70
General and administrative
expense 1,174 1,077
Depreciation and amortization 468 595
Interest 359 511
Equity in loss of
unconsolidated subsidiary - 11
Loss on restaurant closure - 641
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11,091 12,807
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Net loss $(1,210) $(1,538)
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------- -------
Net loss per share $ (0.12) $ (0.15)
------- -------
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</TABLE>
See notes to consolidated financial statements.
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<PAGE>
STRATAMERICA CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
1995 1994
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<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 9,758 $11,194
Cash paid to suppliers and employees (9,928) (11,355)
Interest received 63 579
Interest paid (359) (770)
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Net cash used by operating
activities (466) (352)
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Cash flows from investing activities:
Purchase of property and equipment (22) (45)
Collection on notes receivable - 1,738
Other (2) (5)
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Net cash (used in) provided by
investing activities (24) 1,688
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Cash flows from financing activities:
Principal payments on long-term debt
and capital lease obligation (226) (2,128)
Proceeds from borrowings 480 695
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Net cash provided by (used in)
financing activities 254 (1,433)
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Net decrease in cash (236) (97)
Cash at the beginning of period 237 117
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Cash at end of period $ 1 $ 20
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</TABLE>
(continued)
See notes to consolidated financial statements.
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<PAGE>
STRATAMERICA CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
(unaudited)
(continued)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
1995 1994
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<S> <C> <C>
Net loss $(1,210) $(1,538)
Adjustments to reconcile net loss
to net cash used by operating
activities:
Depreciation and amortization 468 595
Equity in losses of subsidiary - 9
Change in assets and liabilities:
Increase in receivables (40) (54)
Increase in other receivables 15 443
Increase in inventories (14) (8)
Increase in prepaid expenses (270) (177)
Increase in accounts payable
and accrued liabilities 584 384
Change in deferred revenue,
deposits and other 1 (6)
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Net cash used by operating activities $ (466) $ (352)
------- -------
------- -------
</TABLE>
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
None.
See notes to consolidated financial statements.
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<PAGE>
STRATAMERICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - UNAUDITED FINANCIAL STATEMENTS:
Information as of December 31, 1995 and for the three months and nine months
ended December 31, 1995 and 1994 is unaudited. The information in the unaudited
financial statements reflects all adjustments which are, in the opinion of
management, necessary to a fair presentation of the financial statements so as
not to be misleading. These adjustments are of a normal recurring nature.
These financial statements are prepared in accordance with the requirements of
Form 10-Q and consequently may not include all the disclosures normally required
by generally accepted accounting principles or those normally made in the annual
Form 10-K filing. Any required information omitted is either insignificant or
is not applicable.
NOTE 2 - LOSS PER SHARE:
Loss per share amounts are based on the weighted average shares outstanding of
10,000,000 for the three months and nine months ended December 31, 1995 and
1994, respectively.
NOTE 3 - INVENTORY:
Inventory consists primarily of food and beverage inventories sold through its
restaurant business.
NOTE 4 - SALE OF SUBSIDIARY:
During June 1995, the Company entered into a letter of intent to sell Shari's
Franchise Corporation, a wholly-owned subsidiary, to Shari's Management
Corporation. This transaction is subject to obtaining shareholder approval.
NOTE 5 - COMMITMENTS AND CONTINGENCIES:
The Company has guaranteed five store lease obligations of third party and
former employee franchisees of Dreams Franchise Corporation, which are in
default at December 31, 1995. The total future minimum lease payments related
to the leases in default is approximately $750 at December 31, 1995. The
Company has accrued for the estimated cost of settling these guarantees.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Total revenues for the nine months ended December 31, 1995 were $9,881,000
compared to $11,269,000 for the nine months ended December 31, 1994,
representing a decrease of $1,388,000. This decrease is due primarily to a
decrease in restaurant revenues of $1,241,000, resulting from a decrease in
restaurant revenues at B.B. O'Briens, Inc. of $808,000 and a decrease in
restaurant revenues at Shari's Franchise Corporation of $434,000 during the nine
months ended December 31, 1995 compared to the nine months ended December 31,
1994. The decrease at Shari's Franchise Corporation is due to the October 1994
closure of a Shari's restaurant located in Palm Springs, California of $181,000
and the remaining decrease is due to overall sales decreases at existing
restaurants. The decrease in restaurant revenues at B.B. O'Briens, Inc. is due
to closure of this restaurant during July 1995. Franchise fees at Dreams
Franchise Corporation were $55,000 less during the nine months ended December
31, 1995 compared to the nine months ended December 31, 1994 due to fewer
franchise sales in 1995. Royalties during the nine months ended December 31,
1995 were $15,000 higher than the nine months ended December 31, 1994 due to
increasing franchisee sales in 1995. Interest income during the nine months
ended December 31, 1995 was $73,000 less than interest income during the nine
months ended December 31, 1994 due to a decrease in related party loans
receivable.
Total expenses for the nine months ended December 31, 1995 were $11,091,000
compared to $12,807,000 for the nine months ended December 31, 1994,
representing a decrease of $1,716,000. Restaurant cost of sales decreased by
$498,000 during the nine months ended December 31, 1995 compared to the nine
months ended December 31, 1994 due to the closure of the Shari's Franchise
Corporation restaurant in Palm Springs, California and the B.B. O'Briens
restaurant in Palm Desert, California, as well as decreases due to lower overall
sales in the existing restaurants. The percentage of cost of goods sold has
increased during the nine months ended December 31, 1995 to 66.5 percent from
63.4 percent during the same period in 1994 due to the non-variable labor costs
included in cost of goods sold which do not decrease in the same ratio as
decreases in sales. Occupancy costs decreased $90,000 as a result the
restaurants which were closed, offset by an increase in occupancy costs of
$30,000 in the existing restaurants caused by scheduled rent increases.
Restaurant operating costs decreased $397,000 during the nine months ended
December 31, 1995 when compared to the same period in 1994 due to the closure of
the two restaurants and $84,000 due to a workers compensation premium refund
received during 1995. Additionally, there was a loss on restaurant closure of
$641,000 during the nine months ended December 31, 1994 and no similar
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<PAGE>
loss during the nine months ended December 31, 1995.
The changes in revenues and expenses for the three months ended December 31,
1995 as compared to the three months ended December 31, 1994, reflect
differences similar to the differences described above for the nine months ended
December 31, 1995 and 1994.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995, the Company had a working capital deficit of $8,307,000
compared to a working capital deficit of $7,988,000 at March 31, 1995. This
increase in the working capital deficit of $319,000 is due primarily to the
losses from operations for the nine months ended December 31, 1995. Management
has relied primarily on borrowings from related parties to finance ongoing
losses from operations but the Company cannot predict what additional financing,
related party or other financing, may be available in the future, nor can it
predict whether it can substantially improve its future results of operations.
The failure of the Company to obtain additional sources of working capital
and/or to substantially improve its results of operations will have a
significant negative impact on the liquidity and capital resources of the
Company and be detrimental to the Company's ongoing future operations.
The Registrant has entered into a letter of intent to sell Shari's Franchise
Corporation and the Registrant has closed the operations of B.B. O'Briens, Inc.
While these transactions will improve working capital, they alone are
insufficient to significantly impact the current working capital deficit. In
the event that the Company is unable to sell Shari's Franchise Corporation,
Shari's Franchise Corporation may file bankruptcy in an attempt to discharge its
obligations under leases of poorly performing or closed restaurant locations and
eliminate royalties payable to Shari's Management Corporation on Shari's
restaurants. This process could result in significant cash requirements to
settle damage claims and pay other costs of bankruptcy.
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<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
On November 15, 1995, sixteen plaintiffs brought an action in the
Superior Court in the State of California for the County of Sacramento against
Shari's of Sacramento, Inc., a wholly owned subsidiary of Shari's Franchise
Corporation, which is a wholly owned subsidiary of Registrant. The plaintiffs
allege racial, color and/or age based discrimination at the restaurant located
in Sacramento, California. The plaintiffs seek injunctive and declaratory
relief, general damages in the amount of $1,000,000, statutory damages, punitive
damages, attorney's fees and costs. Shari's of Sacramento denies liability and
intends to defend the action.
Item 2. CHANGES IN SECURITIES.
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
Item 5. OTHER INFORMATION.
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
None.
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<PAGE>
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.
SIGNATURES
StratAmerica Corporation
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Date President
Sam Battistone
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Date Principal Financial Officer
Dale E. Larsson
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 1
<SECURITIES> 0
<RECEIVABLES> 63
<ALLOWANCES> 0
<INVENTORY> 175
<CURRENT-ASSETS> 584
<PP&E> 3,088
<DEPRECIATION> 2,083
<TOTAL-ASSETS> 1,973
<CURRENT-LIABILITIES> 9,091
<BONDS> 52
0
0
<COMMON> 500
<OTHER-SE> 7,936
<TOTAL-LIABILITY-AND-EQUITY> 1,973
<SALES> 9,418
<TOTAL-REVENUES> 7,881
<CGS> 6,264
<TOTAL-COSTS> 11,091
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 359
<INCOME-PRETAX> (1,210)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,210)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,210)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> 0
</TABLE>
