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 June 30, 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
(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
--- ---
At June 30, 1998, 5,871,787 shares of the issuer's common stock were issued and
outstanding.
<PAGE>
STRATFORD AMERICAN CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet as of June 30, 1998 3
Condensed Consolidated Statements of Operations for the three and six months
ended June 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows for the six months
ended June 30, 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
<PAGE>
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
(unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash and cash equivalents $ 447,000
Receivables:
Trade, less allowance for doubtful accounts of $118,000 402,000
Mortgages 61,000
------------
463,000
------------
Prepaid expenses 288,000
Revenue earning vehicles, net 48,000
Property and equipment, net 339,000
Deposits 193,000
Other assets 195,000
Franchise rights, less accumulated amortization of $129,000 253,000
------------
Total assets $ 2,226,000
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable, secured by revenue earning vehicles $ 44,000
Accounts payable 913,000
Notes payable and other debt 1,505,000
Accrued interest 194,000
Accrued liabilities 333,000
------------
Total liabilities 2,989,000
------------
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 5,871,787 shares 59,000
Additional paid-in capital 26,803,000
Retained earnings (deficit) (27,614,000)
Treasury stock, 29,500 shares at cost (11,000)
------------
Total shareholders' equity (deficiency) (763,000)
------------
Total liabilities and shareholders' equity (deficiency) $ 2,226,000
============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Vehicle rental activities $ 3,275,000 $ 3,735,000 $ 7,217,000 $ 8,124,000
Interest and other income 20,000 34,000 45,000 61,000
----------- ----------- ----------- -----------
3,295,000 3,769,000 7,262,000 8,185,000
----------- ----------- ----------- -----------
EXPENSES:
Vehicle rental operations 2,863,000 3,327,000 5,759,000 6,606,000
General and administrative 166,000 90,000 223,000 292,000
Depreciation and amortization 54,000 367,000 128,000 853,000
Interest 51,000 183,000 113,000 414,000
----------- ----------- ----------- -----------
3,134,000 3,967,000 6,223,000 8,165,000
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 161,000 $ (198,000) $ 1,039,000 $ 20,000
=========== =========== =========== ===========
Basic net income (loss) per share $ 0.03 $ (0.03) $ 0.18 $ 0.00
=========== =========== =========== ===========
Weighted average number of common shares outstanding 5,871,787 5,805,120 5,871,787 5,736,612
=========== =========== =========== ===========
Diluted net income (loss) per share $ 0.03 $ (0.03) $ 0.18 $ 0.00
=========== =========== =========== ===========
Weighted average number of common and
common equivalent shares outstanding 5,905,120 5,805,120 5,905,120 5,969,945
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,039,000 $ 20,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 128,000 853,000
Loss (Gain) on sale of revenue earning vehicles (25,000) 128,000
Changes in assets and liabilities:
Decrease (Increase) in accounts and mortgages receivable 248,000 (85,000)
Increase in other assets (35,000) (24,000)
Decrease in accounts payable (146,000) (39,000)
Increase (Decrease) in accrued liabilities (257,000) 133,000
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 952,000 986,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Reduction to restricted cash 558,000
Proceeds from sales of revenue earning vehicles 327,000 3,422,000
Purchases of property and equipment (36,000) (38,000)
Purchases of revenue earning vehicles (572,000)
----------- -----------
NET CASH PROVIDED BY INVESTING ACTIVITIES 291,000 3,370,000
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revenue earning vehicle financing 528,000
Payments on revenue earning vehicle financing (326,000) (4,437,000)
Proceeds from other debt 395,000
Payments on other debt (638,000) (501,000)
Proceeds from issuance of common stock 30,000
----------- -----------
NET CASH USED FOR FINANCING ACTIVITIES (964,000) (3,985,000)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 279,000 371,000
CASH AND CASH EQUIVALENTS, beginning of period 168,000 173,000
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 447,000 $ 544,000
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the period $ 320,000 $ 401,000
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 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 its financial
position as of June 30, 1998, and the results of its operations and cash
flows for the six months ended June 30, 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 six months ended June 30, 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. Upon shareholder approval on July 8, 1998, the reverse stock
split became effective on July 20, 1998. All share amounts, share prices
and net income (loss) per share have been retroactively adjusted to reflect
this fifteen-to-one reverse stock split.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- -------------------------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
GENERAL
- -------
The Company was able to recognize a consolidated profit for the
second quarter of 1998, primarily due to its continued ability to pass through
airport access charges to its car rental customers. As a result, the Company has
experienced improved consolidated profitability for the six month period ended
June 30, 1998. 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 six 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 $684,000 in airport access charges
during the first six months of 1998 compared to $22,000 collected during the
same period last year. Collections are based on a percentage of airport revenues
recognized and are therefore higher during the first half of the year, compared
to the remaining six months 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 current profitability and
available financing, 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 - SIX MONTHS ENDED JUNE 30, 1998, COMPARED WITH SIX MONTHS
- --------------------------------------------------------------------------------
ENDED JUNE 30, 1997
- -------------------
The Company reported net income of $161,000 and $1,039,000 during the three and
six month periods ended June 30, 1998, respectively, compared to a net loss of
$198,000 and net income of $20,000 during the three and six month periods ended
June 30, 1997, respectively. Revenues decreased by $474,000 and $923,000 for the
three and six month periods, respectively, due to the September 1997 closure of
four off airport locations determined to be unprofitable. Vehicle rental
operations expenses decreased by $464,000 and $847,000 for the three and six
month periods, respectively, primarily due to the Company's ability to bill and
collect airport access charges from its customers which was not done during the
first five months of 1997. General and administrative expenses increased by
$76,000 for the three month period primarily due to a minority interest
7
<PAGE>
allocation expense included in this expense category last year compared to none
made in the current year. General and administrative expenses decreased by
$69,000 for the six month period primarily due to the agreed upon elimination of
certain legal and professional fees accrued several years ago. Depreciation and
amortization expense decreased by $313,000 and $725,000 for the three and six
month periods, respectively, due to the significant reduction of revenue earning
vehicles included in the rental fleet and depreciated in 1998 as compared to
1997. Interest expense decreased by $132,000 and $301,000 for the three and six
month periods, respectively, due to the significant decrease in the number of
financed revenue earning vehicles in 1998 compared to 1997.
VEHICLE RENTAL ACTIVITIES. Revenues from rental car activities
accounted for over 99% of total revenues in the first six months of 1998 and are
presently the most significant revenue source for the Company. A net operating
profit relating to these operations was recognized during the first six months
of 1998, partially due to the seasonality of the business as previously
discussed.
OTHER ACTIVITIES. Real estate management activities continue to be
an insignificant part of the Company's ongoing operations, representing less
than 1% of total revenues in the first six months of 1998.
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 Company's operating results and
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
--------------------------
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 10
(b) REPORTS ON FORM 8-K
-------------------
There were no reports on Form 8-K filed for the three months
ended June 30, 1998.
8
<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: August 14, 1998 By /s/ MEL L. SHULTZ
------------------
Mel L. Shultz, President and Director
Date: August 14, 1998 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
9
<PAGE>
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 Statement 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.
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 - June 30, 1998 11
27.2 Financial Data Schedule - June 30, 1997 12
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEET AT JUNE 30, 1998 AND THE RELATED
CONSOLIDATED STATEMENTS OF OPERATIONS AND OF CASH
FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1998 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 447,000
<SECURITIES> 0
<RECEIVABLES> 581,000
<ALLOWANCES> 118,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,154,000
<PP&E> 716,000
<DEPRECIATION> 377,000
<TOTAL-ASSETS> 2,226,000
<CURRENT-LIABILITIES> 1,543,000
<BONDS> 0
0
0
<COMMON> 59,000
<OTHER-SE> (822,000)
<TOTAL-LIABILITY-AND-EQUITY> 2,226,000
<SALES> 2,000
<TOTAL-REVENUES> 7,262,000
<CGS> 0
<TOTAL-COSTS> 5,887,000
<OTHER-EXPENSES> 223,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 113,000
<INCOME-PRETAX> 1,039,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,039,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,039,000
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEET AT JUNE 30, 1997 AND THE RELATED
CONSOLIDATED STATEMENTS OF OPERATIONS AND OF CASH
FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1997 OF
STRATFORD AMERICAN CORPORATION AND ITS
SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<RESTATED>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 746,000
<SECURITIES> 0
<RECEIVABLES> 900,000
<ALLOWANCES> 32,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,854,000
<PP&E> 670,000
<DEPRECIATION> 238,000
<TOTAL-ASSETS> 6,599,000
<CURRENT-LIABILITIES> 4,687,000
<BONDS> 0
0
0
<COMMON> 58,000
<OTHER-SE> (691,000)
<TOTAL-LIABILITY-AND-EQUITY> 6,599,000
<SALES> 9,000
<TOTAL-REVENUES> 8,185,000
<CGS> 1,000
<TOTAL-COSTS> 7,459,000
<OTHER-EXPENSES> 291,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 414,000
<INCOME-PRETAX> 20,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 20,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,000
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
<FN>
EPS - Primary and EPS - Diluted have been restated to reflect the adoption of
Financial Accounting Standards Board Statement No. 128, Earnings Per Share and
the effect of the 15 to 1 reverse stock split.
</FN>
</TABLE>
