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 March 31, 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 issue 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 March 31, 1997, 87,076,806 shares of the issuer's common stock were issued
and outstanding.
Index to Exhibits is located at page 11 hereof.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
----------------------------
INDEX
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Page
----
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
March 31, 1997
(unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash and cash equivalents $ 574,000
Receivables:
Trade, less allowance for doubtful accounts of $26,000 644,000
Mortgages 127,000
------------
771,000
------------
Restricted cash 765,000
Revenue earning vehicles, net 6,918,000
Property and equipment, net 446,000
Mining interests 375,000
Other assets 503,000
Franchise rights, less accumulated amortization of $109,000 273,000
------------
$ 10,625,000
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable, secured by revenue earning vehicles $ 6,779,000
Accounts payable 1,146,000
Notes payable and other debt 1,993,000
Accrued interest 564,000
Other accrued liabilities 579,000
------------
Total liabilities 11,061,000
------------
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) (27,237,000)
Treasury stock, 29,500 shares at cost (11,000)
------------
(436,000)
------------
------------
Commitments and contingencies
$ 10,625,000
============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
STRATFORD AMERICAN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended March 31, 1997 and 1996
(unaudited)
1997 1996
---- ----
REVENUES:
Vehicle rental activities $ 4,390,000 $ 4,173,000
Rental property activities 10,000 7,000
Interest and other income 16,000 22,000
----------- -----------
4,416,000 4,202,000
----------- -----------
EXPENSES:
Vehicle rental operations 3,278,000 3,094,000
General and administrative 203,000 266,000
Depreciation and amortization 486,000 367,000
Interest 232,000 171,000
----------- -----------
4,199,000 3,898,000
----------- -----------
INCOME FROM CONTINUING OPERATIONS 217,000 304,000
DISCONTINUED OPERATIONS:
Loss from operations of Sports Careers (8,000)
----------- -----------
Net loss from discontinued operations (8,000)
----------- -----------
NET INCOME $ 217,000 $ 296,000
=========== ===========
Income per common share:
Income from continuing operations $ 0.00 $ 0.00
Loss from discontinued operations (0.00)
----------- -----------
Net income per common share $ 0.00 $ 0.00
=========== ===========
See accompanying notes to consolidated financial statements.
4
<PAGE>
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
For the three months ended March 31, 1997 and 1996
(unaudited)
<TABLE>
<CAPTION>
Total
Additional Retained shareholders'
Common Stock paid-in earnings Treasury Stock equity
Shares Amount capital (deficit) Shares Amount (deficiency)
---------- --------- ----------- ------------ ------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
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 217,000 217,000
---------- --------- ----------- ------------ ------ -------- -----------
Balance,
March 31, 1997 87,076,806 $871,000 $25,941,000 $(27,237,000) 29,500 $(11,000) $ (436,000)
---------- -------- ----------- ------------ ------ --------- -----------
Balance,
December 31, 1995 84,076,806 $841,000 $25,780,000 $(27,186,000) 29,500 $(11,000) $ (576,000)
Net income 296,000 296,000
---------- -------- ------------ ------------ ------ -------- -----------
Balance,
March 31, 1996 84,076,806 $841,000 $25,780,000 $(26,890,000) 29,500 $(11,000) $ (280,000)
========== ======== =========== ============ ====== ======== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
STRATFORD AMERICAN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 1997 and 1996
(unaudited)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 217,000 $ 296,000
Adjustments to reconcile net income to net cash provided by
operating activities -
Depreciation and amortization (continuing operations) 486,000 367,000
Depreciation and amortization (discontinued operations) 4,000
Gain on sale of revenue earning vehicles 6,000
Changes in assets and liabilities:
Decrease in accounts and mortgages receivable 44,000 1,000
Decrease (increase) in other assets 56,000 (4,000)
Increase in accounts payable 171,000 211,000
Increase in accrued liabilities 254,000 146,000
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,234,000 1,021,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Addition to restricted cash (5,000) (7,000)
Proceeds from sale of revenue earning vehicles 249,000
Proceeds from issuance of common stock 30,000
Purchases of property and equipment (18,000) (25,000)
Purchases of revenue earning vehicles (572,000) (893,000)
----------- -----------
NET CASH USED FOR INVESTING ACTIVITIES (316,000) (925,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revenue earning vehicle financing 528,000 989,000
Payments on revenue earning vehicle financing (819,000) (399,000)
Payment on other debt (226,000) (17,000)
----------- -----------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (517,000) 573,000
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 401,000 669,000
CASH AND CASH EQUIVALENTS, beginning of period 173,000 381,000
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 574,000 $ 1,050,000
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the year $ 189,000 $ 126,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
STRATFORD AMERICAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 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 March 31, 1997, and the results of operations and cash flows for the
three month periods ended March 31, 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 three months ended March 31, 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 84,947,305 shares for the three month period ended
March 31, 1997 and 84,047,306 shares for the three month period ended March
31,1996.
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 three month
period ended March 31, 1996 as presented in the consolidated financial
statements. Revenue associated with the discontinued operations during the
three month period ended March 31, 1996 was $272,000.
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 aggregate exercise price of $30,000. As of March 31, 1997,
options to purchase 3,500,000 shares of the Company's common stock remain
outstanding.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- -----------------------------------------------------------------------
General
- -------
The Company recognized a quarterly profit from its Dollar Rent A
Car operations for the three months ended March 31, 1997. This allowed the
Company to recognize a consolidated profit from operations for the first quarter
of 1997 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. 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 renewed and increased its vehicle financing
from already existing lines of credit from three other major sources.
The Company anticipates that with its recently completed financing
and with continuation of improved 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 - Quarter Ended March 31, 1997, Compared with Quarter
- --------------------------------------------------------------------------------
Ended March 31, 1996
- --------------------
The Company reported net income of $217,000 for the quarter ended
March 31, 1997 compared to net income of $296,000 during the first quarter of
1996. The 1996 results reflect an $8,000 loss from discontinued operations. The
increase in revenues from $4,202,000 in 1996 to $4,416,000 in 1997 is primarily
a result of stronger rental demand and increased rental rates during the months
of February and March 1997. This increase is net of 12% higher revenue reported
in January of 1996 compared to January of 1997 due to increased rental business
related to the National Championship Fiesta Bowl and the NFL Superbowl
experienced during that year, both of which were one time and isolated events in
Phoenix. The increase in vehicle rental operations expense from $3,094,000 in
1996 to $3,278,000 in 1997 is primarily due to an increase in system fees paid
to Dollar Systems, Inc. compared to reduced systems fees negotiated with Dollar
Systems, Inc. during 1996. General and administrative expense decreased from
$266,000 in 1996 to $203,000 in 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 expense increased from $367,000 in 1996
to $486,000 in 1997 primarily due to additional revenue earning vehicles
included in the rental fleet and depreciated in 1997. The increase in interest
expense from $171,000 in 1996 to $232,000 in 1997 is due to the added interest
expense on an increased number of financed revenue earning vehicles in 1997.
8
<PAGE>
Vehicle Rental Activities. Revenues from rental car activities
accounted for over 99% of total revenues in 1997 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 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 an $8,000 loss for the first three
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 quarter 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 Statment
128. Basic and diluted EPS, as calculated under Statement 128 would have been
the same as primary and fully diluted for the three months ended March 31, 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, 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 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
--------------------------------
(a) Exhibits
--------
See index beginning on page 11
(b) Reports on Form 8-K
-------------------
There were no reports on Form 8-K filed for the three months
ended March 31, 1997.
9
<PAGE>
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: May 15, 1997 By /s/ Mel L. Shultz
---------------------------------------------
Mel L. Shultz, President and Director
Date: May 15, 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
10
<PAGE>
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 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 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 Statement 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
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 12
28.1 Form 10-KSB for the year ended December 31, 1996 N/A
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEET AT MARCH 31, 1997 AND THE RELATED
CONSOLIDATED STATEMENTS OF OPERATIONS AND OF CASH
FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1997
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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,339,000
<SECURITIES> 0
<RECEIVABLES> 771,000
<ALLOWANCES> 26,000
<INVENTORY> 0
<CURRENT-ASSETS> 2,254,000
<PP&E> 649,000
<DEPRECIATION> 203,000
<TOTAL-ASSETS> 10,625,000
<CURRENT-LIABILITIES> 7,163,000
<BONDS> 0
0
0
<COMMON> 871,000
<OTHER-SE> (1,307,000)
<TOTAL-LIABILITY-AND-EQUITY> 10,625,000
<SALES> 1,000
<TOTAL-REVENUES> 4,416,000
<CGS> 1,000
<TOTAL-COSTS> 3,765,000
<OTHER-EXPENSES> 202,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 231,000
<INCOME-PRETAX> 217,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 217,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 217,000
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
