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, 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 September 30, 1997, 88,076,806 shares of the issuer's common stock were
issued and outstanding.
<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, 1997
(unaudited)
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents $ 216,000
Receivables:
Trade, less allowance for doubtful accounts of $38,000 928,000
Mortgages 125,000
------------
1,053,000
------------
Revenue earning vehicles, net 512,000
Property and equipment, net 412,000
Mining interests 375,000
Other assets 696,000
Franchise rights, less accumulated amortization of $117,000 265,000
------------
$ 3,529,000
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable, secured by revenue earning vehicles $ 420,000
Accounts payable 900,000
Notes payable and other debt 2,297,000
Accrued interest 537,000
Other accrued liabilities 380,000
------------
Total liabilities 4,534,000
------------
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 88,076,806 shares 881,000
Additional paid-in capital 25,981,000
Retained earnings (deficit) (27,856,000)
Treasury stock, 29,500 shares at cost (11,000)
------------
(1,005,000)
------------
Commitments and contingencies
$ 3,529,000
============
</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,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Vehicle rental activities $ 2,330,000 $ 2,328,000 $ 10,455,000 $ 9,726,000
Rental property activities 9,000 9,000 29,000 24,000
Interest and other income 16,000 71,000 56,000 115,000
------------ ------------ ------------ ------------
2,355,000 2,408,000 10,540,000 9,865,000
------------ ------------ ------------ ------------
EXPENSES:
Vehicle rental operations 2,522,000 2,539,000 9,128,000 8,531,000
General and administrative 43,000 80,000 336,000 511,000
Depreciation and amortization 118,000 88,000 971,000 690,000
Interest 93,000 72,000 507,000 362,000
------------ ------------ ------------ ------------
2,776,000 2,779,000 10,942,000 10,094,000
------------ ------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS (421,000) (371,000) (402,000) (229,000)
DISCONTINUED OPERATIONS:
Loss from operations of Sports Careers (16,000) (9,000)
------------ ------------ ------------ ------------
Net loss from discontinued operations (16,000) (9,000)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (421,000) $ (387,000) $ (402,000) $ (238,000)
============ ============ ============ ============
Income (loss) per common share
Income (loss) from continuing operations $ (0.00) $ (0.00) $ (0.00) $ (0.00)
Income (loss) from discontinued operations (0.00) (0.00)
------------ ------------ ------------ ------------
Net income (loss) per common share $ (0.00) $ (0.00) $ (0.00) $ (0.00)
============ ============ ============ ============
</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, 1997 and 1996
(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, 1996 84,076,806 $ 841,000 $ 25,941,000 $(27,454,000) 29,500 $ (11,000) $ (683,000)
Stock issued 4,000,000 40,000 40,000 80,000
Net loss (402,000) (402,000)
---------- ------------ ------------ ------------ ------ ------------ ------------
Balance,
September 30, 1997 88,076,806 $ 881,000 $ 25,981,000 $(27,856,000) 29,500 $ (11,000) $ (1,005,000)
========== ============ ============ ============ ====== ============ ============
Balance,
December 31, 1995 84,076,806 $ 841,000 $ 25,780,000 $(27,186,000) 29,500 $ (11,000) $ (576,000)
Net 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)
========== ============ ============ ============ ====== ============ ============
</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, 1997 and 1996
(unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (402,000) $ (238,000)
Adjustments to reconcile net loss to net cash provided by
operating activities -
Depreciation and amortization (continuing operations) 971,000 690,000
Depreciation and amortization (discontinued operations) 12,000
Loss (Gain) on sale of revenue earning vehicles 280,000 (23,000)
Changes in assets and liabilities:
Increase in accounts and mortgages receivable (237,000) (19,000)
Decrease (Increase) in other assets (101,000) 30,000
Decrease in accounts payable (75,000) (13,000)
Increase in accrued liabilities 28,000 167,000
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 464,000 606,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Reduction (Addition) to restricted cash 760,000 (16,000)
Proceeds from sale of revenue earning vehicles 6,252,000 4,498,000
Purchases of property and equipment (54,000) (103,000)
Purchases of revenue earning vehicles (888,000) (1,955,000)
----------- -----------
NET CASH PROVIDED BY INVESTING ACTIVITIES 6,070,000 2,424,000
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revenue earning vehicle financing 843,000 2,041,000
Proceeds from property and equipment financing 30,000
Payments on revenue earning vehicle financing (7,493,000) (5,156,000)
Proceeds from other debt 625,000
Payment on other debt (546,000) (58,000)
Proceeds from issuance of common stock 80,000
----------- -----------
NET CASH USED FOR FINANCING ACTIVITIES (6,491,000) (3,143,000)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 43,000 (113,000)
CASH AND CASH EQUIVALENTS, beginning of period 173,000 381,000
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 216,000 $ 268,000
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the year $ 492,000 $ 272,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the nine months ended September 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 September 30, 1997, and the results of operations and cash flows for
the nine month periods ended September 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 nine months ended September 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 higher 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 86,472,214 shares for the nine month period ended
September 30, 1997 and 84,047,306 shares for the nine month period ended
September 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 nine month
period ended September 30, 1996 as presented in the consolidated financial
statements. Revenue associated with the discontinued operations during the
nine month period ended September 30, 1996 was $835,000.
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.
Options to purchase 3,500,000 shares were granted to certain Advisory
Committee members in 1992. In September 1997, before the date of
expiration, options to purchase 1,000,000 of the 3,500,000 shares were
exercised for an aggregated exercise price of $50,000. As of September 30,
1997, options to purchase 500,000 shares of the Company's common stock
remain outstanding.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- -------------------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
General
- -------
The Company recognized a consolidated loss for the third quarter
of 1997, due in part to an expected seasonal decline in the vehicle rental
business along with the continued negative effect experienced on the final
disposition of risk units in a weak vehicle wholesale market. The vehicle rental
business in Arizona is seasonal with the months of February through May
typically representing the higher revenue months. 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 achieve 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 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 a major
portion of airport access charges to its car rental customers with no
significant impact on its level of business activity. With continued success in
implementing this policy, the Company should achieve significant future cost
savings.
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 - Nine Months Ended September 30, 1997, Compared with Nine
- --------------------------------------------------------------------------------
Months Ended September 30, 1996
- -------------------------------
The Company reported a net loss of $421,000 and $402,000 during
the three and nine month periods ended September 30, 1997, compared to a net
loss of $387,000 and $238,000 for the three and nine month periods ended
September 30, 1996. Vehicle rental revenues increased only $2,000 from the three
month period ended September 30, 1996 to the three month period ended September
30, 1997, due to the August closure of four off airport locations determined to
be non profitable. Other income decreased $55,000 from the three month period
ended September 30, 1996 to the three month period ended September 30, 1997
primarily due to an additional $50,000 of revenue recognized in 1996 related to
the earlier disposition of the University Center. Vehicle rental revenues
increased $729,000 from the nine month period ended September 30, 1996 to the
nine month period ended September 30, 1997, primarily due to stronger rental
demand and increased rental rates, especially during the peak months of February
and March. Vehicle rental expenses decreased $17,000 from the three month period
ended September 30, 1996 to the three month period ended September 30, 1997 due
in part to the previously mentioned August closure of four off airport
locations. The increase in vehicle rental operations expense from
8
<PAGE>
$8,531,000 for the nine month period ended September 30, 1996 to $9,128,000 for
the nine month period ended September 30, 1997 is primarily due to an increase
in system fees paid to Dollar Systems, Inc. during 1997, 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. Depreciation and
amortization increased from $88,000 and $690,000 for the three and nine month
periods ended September 30,1996 to $118,000 and $971,000 for the three and nine
month periods ended September 30, 1997 due to additional revenue earning
vehicles included in the rental fleet and depreciated in 1997. The increase in
interest expense from $72,000 and $362,000 for the three and nine month periods
ended September 30, 1996 to $93,000 and $507,000 for the three and nine month
periods ended September 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.
Sports Activities. Sports Careers was sold during 1996. The
results from discontinued operations includes a $9,000 loss for the first nine
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 nine 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 nine months ended September 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 5 are omitted since these items are either
inapplicable or the response thereto would be negative.
9
<PAGE>
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, 1997.
10
<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: November 14, 1997 By /s/ Mel L. Shultz
------------------
Mel L. Shultz, President and Director
Date: November 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
<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 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
- ------ ----------- ----
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 13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEET AT SEPTEMBER 30, 1997 AND THE
RELATED CONSOLIDATED STATEMENTS OF OPERATIONS AND
OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1997 OF STRATFORD AMERICAN CORPORATION AND
ITS SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 216,000
<SECURITIES> 0
<RECEIVABLES> 1,053,000
<ALLOWANCES> 38,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,368,000
<PP&E> 683,000
<DEPRECIATION> 271,000
<TOTAL-ASSETS> 3,529,000
<CURRENT-LIABILITIES> 3,212,000
<BONDS> 0
0
0
<COMMON> 881,000
<OTHER-SE> (1,886,000)
<TOTAL-LIABILITY-AND-EQUITY> 3,529,000
<SALES> 12,000
<TOTAL-REVENUES> 10,540,000
<CGS> 2,000
<TOTAL-COSTS> 10,099,000
<OTHER-EXPENSES> 333,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 507,000
<INCOME-PRETAX> (402,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (402,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (402,000)
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
