SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
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 September 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
- --------------------------------------------------------------------------------
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 September 30, 1996, 84,076,806 shares of the issuer's common stock were
issued and outstanding.
Index to Exhibits is located at page 12 hereof.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
----------------------------
INDEX
-----
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
<PAGE>
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, 1996
(unaudited)
<TABLE>
ASSETS
<S> <C>
Cash and cash equivalents $ 268,000
Receivables:
Trade, less allowance for doubtful accounts of $15,000 373,000
Mortgages 129,000
------------
502,000
------------
Restricted cash 756,000
Revenue earning vehicles, net 1,112,000
Property and equipment, net 385,000
Mining interests 375,000
Other assets 415,000
Franchise rights, less accumulated amortization of $100,000 282,000
------------
$ 4,095,000
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable, secured by revenue earning vehicles $ 1,112,000
Accounts payable 898,000
Notes payable and other debt 2,047,000
Accrued interest 423,000
Other accrued liabilities 380,000
------------
Total liabilities 4,860,000
------------
Minority interest in consolidated subsidiaries 49,000
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) (27,424,000)
Treasury stock, 29,500 shares at cost (11,000)
------------
(814,000)
------------
Commitments and contingencies
------------
$ 4,095,000
============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Vehicle rental activities $ 2,328,000 $ 2,148,000 $ 9,726,000 $ 8,595,000
Sports activities 299,000 233,000 835,000 801,000
Rental property activities 9,000 8,000 24,000 52,000
Interest and other income 71,000 26,000 115,000 88,000
------------ ------------ ------------ ------------
2,707,000 2,415,000 10,700,000 9,536,000
------------ ------------ ------------ ------------
EXPENSES:
Vehicle rental operations 2,539,000 2,271,000 8,531,000 8,290,000
Sports operations 314,000 251,000 828,000 807,000
General and administrative 148,000 122,000 464,000 533,000
Depreciation and amortization 92,000 25,000 702,000 59,000
Interest 75,000 50,000 369,000 164,000
Minority interest in consolidated subsidiaries (74,000) (40,000) 44,000 27,000
------------ ------------ ------------ ------------
3,094,000 2,679,000 10,938,000 9,880,000
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (387,000) (264,000) (238,000) (344,000)
EXTRAORDINARY ITEM - GAIN ON EARLY
EXTINGUISHMENT OF DEBT 3,402,000
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (387,000) $ (264,000) $ (238,000) $ 3,058,000
============ ============ ============ ============
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
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
For the nine months ended September 30, 1996 and 1995
(unaudited)
<TABLE>
<CAPTION>
Total
Common Stock Additional Retained Treasury Stock shareholders'
---------------------- paid-in earnings ------------------ equity
Shares Amount capital (deficit) Shares Amount (deficiency)
------ ------ ------- --------- ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1995 84,076,806 $841,000 $25,780,000 $(27,186,000) 29,500 $(11,000) $ (576,000)
Net income (loss) (238,000) (238,000)
---------- -------- ----------- ------------ ------ -------- -----------
Balance,
September 30, 1996 84,076,806 $841,000 $25,780,000 $(27,424,000) 29,500 $(11,000) $ (814,000)
========== ======== =========== ============ ====== ======== ===========
Balance,
December 31, 1994 84,076,806 $841,000 $25,780,000 $(30,012,000) 29,500 $(11,000) $(3,402,000)
Net income 3,058,000 3,058,000
---------- -------- ----------- ------------ ------ -------- -----------
Balance,
September 30, 1995 84,076,806 $841,000 $25,780,000 $(26,954,000) 29,500 $(11,000) $ (344,000)
========== ======== =========== ============ ====== ======== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the nine months ended September 30, 1996 and 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (238,000) $ 3,058,000
Adjustments to reconcile net income to net cash provided by (used for)
operating activities -
Depreciation and amortization 702,000 59,000
Minority interest in consolidated subsidiaries 44,000 27,000
Extraordinary item (3,402,000)
Other 2,000
Changes in assets and liabilities:
Decrease (increase) in accounts and mortgages receivable (19,000) 133,000
Decrease in revenue earning vehicles 4,475,000
Increase in other assets (14,000) (229,000)
Increase (decrease) in accounts payable and accrued liabilities 154,000 (684,000)
----------- -----------
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES 5,104,000 (1,036,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Addition to restricted cash (16,000) (133,000)
Proceeds from sale of rental property 1,311,000
Purchases of property and equipment (103,000) (355,000)
Purchases of revenue earning vehicles (1,955,000)
----------- -----------
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES (2,074,000) 823,000
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revenue earning vehicle financing 2,041,000 227,000
Proceeds from property and equipment financing 30,000
Payments on revenue earning vehicle financing (5,156,000)
Payment on other debt (58,000) (85,000)
----------- -----------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (3,143,000) 142,000
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (113,000) (71,000)
CASH AND CASH EQUIVALENTS, beginning of period 381,000 505,000
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 268,000 $ 434,000
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 272,000 $ 80,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
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 September 30, 1996, and the results of operations and cash flows for
the nine month periods ended September 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 nine months ended September 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 nine months ended
September 30, 1996. This number excludes 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 Statements 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, is as
follows:
7
<PAGE>
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.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
- -------------
Liquidity and Capital Resources.
- --------------------------------
The Company recognized a quarterly profit from its Dollar Rent A
Car operations, before corporate overhead expenses, for each of the quarters
ended March 31 and June 30, 1996, and a subsequent loss for the quarter ended
September 30, 1996, resulting in a net profit, before corporate overhead
expenses, for the nine month period ended September 30, 1996. Although the
Company reported a consolidated profit through the six month period ended June
30, 1996, the quarter and nine month period ended September 30, 1996 resulted in
a consolidated loss due to an expected seasonal decline in rental business from
May through September. The vehicle rental business in Arizona is seasonal with
the months February through the first half of May typically representing the
highest revenue months. The vehicle rental business is 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 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 can be no assurance 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 34% of the Company's average rental fleet, an
increase of 14% from the previous year, with the remaining fleet consisting of
leased units.
Results of Operations - Nine Months Ended September 30, 1996, Compared with Nine
Months Ended September 30, 1995
The Company reported a net loss of $387,000 and $238,000, and a
net loss of $264,000 and net income of $3,058,000 during the three and nine
month periods ended September 30, 1996 and 1995, respectively. The results for
the nine months ended September 30, 1995 reflect an extraordinary gain of
$3,402,000 related to debt forgiveness. The increase in vehicle rental revenues
of $180,000 and $1,131,000 for the three and nine 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 quarter
ended September 30, 1995 to the quarter ended September 30, 1996 of $268,000 is
primarily due to increased average fleet and other variable costs required to
support the higher revenues attained during 1996 in addition to increased
occupancy costs incurred in 1996. General and administrative expenses increased
$26,000 from the quarter ended September 30, 1995 to the quarter ended September
30, 1996 primarily due to officers' compensation not taken in the previous year,
and decreased $69,000 from the nine month period ended September 30, 1995 to the
nine month period ended September 30, 1996 in part due to consulting fees and
other expenses related to the sale of the University Center project in March
1995. Depreciation,
9
<PAGE>
and amortization expense increased by $67,000 and $643,000 for the three and
nine 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 $25,000 and $205,000 for the three and nine month periods from 1995
to 1996, respectively, is due to the added interest expense on financed revenue
earning vehicles.
Vehicle Rental Activities. Revenues from rental car activities
accounted for 91% of total revenues during the nine months ended September 30,
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, before corporate overhead expenses, relating to
these operations was recognized during the first nine months of 1996, partially
attributable to the seasonality of the business and improved operations as
previously discussed.
Sports Activities. Sports Careers accounted for 8% of total
revenue during the nine months ended September 30, 1996. Revenues include
$353,000 and $385,000 associated with the sale of membership programs during the
first nine months 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 nine months
of 1996. The Company anticipates that these activities will eventually cease and
currently has no plans to participate in any additional such activities.
Safe Harbor Statement Under the Private Securities Litigation
Reform Act of 1995.
The statements contained in this report which are not historical
facts may constitute "forward-looking statements" within the meaning of Section
27A of the Securities Exchange Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, and are subject to the safe harbors
created thereby. These forward-looking statements involve risks and
uncertainties, including, but not limited to, risks associated with seasonality
of operations, competition, the availability of a reasonably priced rental
fleet, the availability of financing, and the Company's ability to reduce fleet
and operational costs. In addition, the Company's business, operations and
financial condition are subject to substantial risks which are described in the
Company's reports and statements filed from time to time with the Securities and
Exchange Commission. These reports and statements include the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1995.
10
<PAGE>
PART II. OTHER INFORMATION
--------------------------
Responses to Items 1 through 5 are omitted because 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
-------------------
There were no reports on Form 8-K filed for the three months
ended September 30, 1996.
Signatures
----------
In accordance with the requirements of the Securities Exchange Act
of 1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
STRATFORD AMERICAN CORPORATION
Date: November 14, 1996 By /s/ Mel L. Shultz
-------------------------------------------
Mel L. Shultz, President and Director
Date: November 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
11
<PAGE>
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 21.1) 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 21.1 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
- ------ ----------- ----
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
21.1 Subsidiaries N/A
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEET AT SEPTEMBER 30, 1996 AND THE
RELATED CONSOLIDATED STATEMENTS OF OPERATIONS AND
OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1996 OF STRATFORD AMERICAN CORPORATION AND
ITS SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 1,024,000
<SECURITIES> 0
<RECEIVABLES> 502,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 909,000
<PP&E> 575,000
<DEPRECIATION> 190,000
<TOTAL-ASSETS> 4,095,000
<CURRENT-LIABILITIES> 4,168,000
<BONDS> 0
841,000
0
<COMMON> 0
<OTHER-SE> (1,655,000)
<TOTAL-LIABILITY-AND-EQUITY> 4,694,000
<SALES> 696,000
<TOTAL-REVENUES> 10,700,000
<CGS> 518,000
<TOTAL-COSTS> 10,064,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 369,000
<INCOME-PRETAX> (238,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (238,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (238,000)
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
