FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED AUGUST 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
____________ .
STRATFORD ACQUISITION CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota 0-26112 41-1759882
(State of Jurisdiction) (Commission (IRS Employer
File Number) Identification No.)
1775 Broadway, Suite 1410
New York, New York 10019
(Address of Principal Executive offices) (Zip Code)
Registrant's telephone number, including area code 905-566-0716
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 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 filing requirements for the
past 90 days. Yes X No .
The Company had 11,429,472 shares of its $.001 par value common stock issued and
outstanding on August 31, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Location in Form 10-Q Incorporated Document
Part II
Item 6 - Exhibits and Reports Form 8-K filed on
on Form 8-K August 28, 1997
<PAGE>
STRATFORD ACQUISITION CORPORATION
Index
Page No.
--------
Part I Financial Information
Item 1. Financial Statements
Balance Sheet - dated
August 31, 1997 and May 31, 1997 ............................... F-1
Statement of Operations - for the
three months ended August 31, 1997 and
August 31, 1996 ................................................ F-2
Statement of Cash Flows - for the
three months ended August 31, 1997 and
August 31, 1996 ................................................ F-3
Statement of Changes in Shareholders'
Equity ......................................................... F-4
Notes to Financial Statements....................................F-5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .............................. 1
Part II Other Information
Item 1. Legal Proceedings ................................................ 2
Item 2. Changes in Securities ............................................ 3
Item 3. Defaults Upon Senior Securities .................................. 3
Item 4. Submission of Matters to a Vote of Security Holders .............. 3
Item 5. Other Information ................................................ 3
Item 6. Exhibits and Reports on Form 8-K ................................. 4
ii
<PAGE>
PART I
Item 1. Financial Statements Page
----
Balance Sheet - dated
August 31, 1997 and May 31, 1997 ................................. F-1
Statement of Operations - for the
three months ended August 31, 1997 and
August 31, 1996 .................................................. F-2
Statement of Cash Flows - for the
three months ended August 31, 1997 and
August 31, 1996 .................................................. F-3
Statement of Changes in Shareholders'
Equity ........................................................... F-4
Notes to Financial Statements .................................... F-5
<PAGE>
STRATFORD ACQUISITION CORP. AND SUBSIDIARY
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
August 31, May 31,
1997 1997
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 43,257 $ 10,098
Other receivables 11,512 40,579
Inventory 143,799 143,313
Marketable securities -- 13,250
----------- -----------
Total Current Assets 198,568 207,240
PROPERTY, PLANT, AND EQUIPMENT, net of
accumulated depreciation and amortization 3,174 2,158
OTHER ASSETS:
Organization costs, net of accumulated
amortization 826 741
Security deposits 11,739 9,394
----------- -----------
12,565 10,135
----------- -----------
$ 214,307 $ 219,533
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 116,589 $ 110,385
Payroll taxes payable 3,344 2,833
----------- -----------
Total Current Liabilities 119,933 113,218
DUE TO SHAREHOLDERS: -- 315,000
COMMITMENTS AND CONTINGENCIES: -- --
SHAREHOLDERS' EQUITY:
Common stock - $0.001 par value
50,000,000 shares authorized
11,429,472 and 7,867,000 shares
issued and outstanding, respectively 9,304 7,813
Additional paid-in capital 1,848,723 1,327,324
Deficit accumulated during the
development stage (1,763,653) (1,543,822)
----------- -----------
Shareholders' Equity 94,374 (208,685)
----------- -----------
$ 214,307 $ 219,533
=========== ===========
SEE NOTES TO FINANCIAL STATEMENTS
F-1
<PAGE>
STRATFORD ACQUISITION CORP. AND SUBSIDIARY
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
August 31,
------------------------
1997 1996
--------- ---------
Revenues
Technology license fees $ -- $ --
--------- ---------
-- --
--------- ---------
Operating Expenses
Compensation and related costs
legal, accounting, consulting fees and
other general and administrative costs 220,871 176,264
--------- ---------
Total operating expenses 220,871 176,264
--------- ---------
Loss from operations (220,871) (176,264)
--------- ---------
Other Income
Interest income 34 43
Foreign exchange gain (loss) 1,007 517
--------- ---------
1,041 560
Net Loss $(219,831) $(175,704)
========= =========
Net loss per weighted-average share of
common stock outstanding $ (0.02) $ (0.02)
========= =========
SEE NOTES TO FINANCIAL STATEMENTS
F-2
<PAGE>
STRATFORD ACQUISITION CORP. AND SUBSIDIARY
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
August 31,
--------- ---------
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(219,831) $(175,704)
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 438 --
Common stock issued as payment for services 47,700 4
CHANGES IN OPERATING ASSETS AND LIABILITIES:
(Increase) decrease in other receivables 29,067 (16,658)
(Increase) decrease in inventory (486) --
(Increase) decrease in organization costs (85) --
(Increase) decrease in security deposits (2,345) --
Increase (decrease) in accounts payable and accrued expenses 48,894 --
Increase (decrease) in accounts payroll taxes payable (511) --
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (97,159) (192,358)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (1,013) --
Proceeds from sale of marketable securities 13,831 --
--------- ---------
NET CASH PROVIDED BY INVESTING ACTIVITIES 12,818 --
CASH FLOWS FROM FINANCING ACTIVITIES:
(Increase) decrease in loan to shareholder -- 54,702
Proceeds from sale of common stock 117,500 23,506
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 117,500 78,208
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 33,159 (114,150)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 10,098 155,194
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 43,257 $ 41,044
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 7 $ --
========= =========
Income taxes $ -- $ --
========= =========
Cash received during the period for:
Interest $ 34 $ 43
========= =========
DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
In July 1997, certain stockholders converted a total of $315,000 of
stockholder loans including accrued interest of $11,440 into 907,150
shares of common stock.
In July 1997, the Company issued 97,656 shares of common stock to its
president in lieu of payment for his remaining unpaid compensation of
$31,250
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
F-3
<PAGE>
STRATFORD ACQUISITION CORP. AND SUBSIDIARY
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
----------------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, May 31, 1997 10,113,381 $ 7,813 $ 1,327,324 $(1,543,822) $ (208,685)
Sale of common stock 350,000 350 117,150 -- 117,500
Cancellation of common stock (175,000) -- -- -- --
Issuance of common stock
for services 64,857 65 22,635 -- 22,700
Issuance of common stock
for compensation 71,428 71 24,929 -- 25,000
Conversion of stockholders'
loans to equity 1,004,806 1,005 356,685 -- 357,690
Net loss -- -- -- (219,831) (219,831)
----------- ----------- ----------- ----------- -----------
BALANCE, August 31, 1997 11,429,472 $ 9,304 $ 1,848,723 $(1,763,653) $ 94,374
=========== =========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
F-4
<PAGE>
STRATFORD ACQUISITION CORP. AND SUBSIDIARY
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997
(Unaudited)
Reference is made to the financial statements included in the Company's
Annual Report (Form 10-K) filed with the Securities and Exchange Commission for
the year ended May 31, 1997.
The financial statements for the periods ended August 31, 1997 are
unaudited and include all adjustments which, in the opinion of management, are
necessary to a fair statement of the results of operations for the periods then
ended. All such adjustments are of a normal recurring nature. The results of the
Company's operations for any interim period are not necessarily indicative of
the results of the Company's operations for a full fiscal year.
F-5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and operating
results during the periods included in the accompanying consolidated financial
statements.
The Financial Statements for the period ended August 31, 1997 included in this
Form 10-Q are unaudited; however, such information reflects all adjustments
(consists solely of normal recurring adjustments), which are, in the opinion of
management, necessary to present a fair statement of the results for the interim
period.
Results of Operations
Three months ending August 31, 1997 vs. August 31, 1996.
Sales for the three months ended August 31, 1997, were $0. In the same period in
1996, sales were also $0. The Company's inability to generate sales in this
period is attributable to the complete management and operational turnaround
that the Company undertook in November, 1996. Operating expenses for the three
months ended August 31, 1997, increased 25% to $220,871 when compared to the
same period in 1996. The increase was attributable to the legal, auditing and
administrative expenses incurred by the Company to complete the turnaround of
its operations. The Company also recorded other income of $1,007 which consisted
primarily of financial gains from currency fluctuations. The net result of the
Company's operations for the three month period was a loss of $219,831. Thus,
the Company's business operations in the three months ended August 31, 1997,
were nominal and are not expected to become profitable for the next nine months.
On August 31, 1997, the Company had $214,307 in assets, of which $198,568 were
current assets: $143,799 of inventory; $43,257 in cash and cash equivalents and
$11,512 was in accounts and advances receivable. In addition, the Company had
$3,174 of equipment (net of depreciation), organizational cost of $826 and
security deposits of $11,739. Based on the Company's average monthly operating
expenses of $73,623 during the three month period ending August 31, 1997, the
Company has less than one month of current assets to operate its business,
assuming no revenues are earned and that the Company does not raise capital from
third-party sources.
In the three month period, the Company had total liabilities of $119,933 and
$94,374 in shareholders' equity. However, the Company had an accumulated deficit
of $1,763,653.
Liquidity and Financial Resources at August 31, 1997
On August 31, 1997, the Company, due to the lack of internally generated cash
flow from operations had a weak financial position and without generating
working capital from third-party sources is
1
<PAGE>
not likely to continue as a going concern. The Company, is planning to raise
additional working capital through the sale of debt and equity and believes it
will raise a sufficient amount of capital to sustain the Company's operations.
The Company's management originally anticipated selling the Company's products
in the Spring of 1997, however its reorganization plan was delayed by litigation
brought by the Company and the additional time necessary to complete its year
end audit for May 31, 1997.
Part II Other Information
Item 1. Legal Proceedings
On June 26, 1997, the Company commenced an action against Mr. Jan Sulkiewicz and
certain persons he controls for breach of contract and to secure certain
equipment and intellectual property that is owned by the Company, but is
allegedly being wrongfully withheld by Mr. Sulkiewicz. Since the filing of the
lawsuit, Mr. Sulkiewicz has returned some equipment, however the remaining
issues are still being litigated. The Company believes that this lawsuit will be
adjudicated in its favor. Stratford Acquisition Corporation v. Jan Sulkiewicz,
et. al., Ontario Court (General Division), Index No. 97- CV-126925.
On August 12, 1997, a shareholder, Mel Greenspoon, commenced an action against
the Company and its current President, Mr. A. Roy MacMillan, to enjoin the
Company and Mr. MacMillan from taking any action that would restrict the sale of
common stock that he allegedly owns. Mr. Greenspoon is one of the shareholders
that are subject to the following lawsuit. The Company has raised several
defenses to this action and believes the lawsuit is without merit. Mel
Greenspoon vs. Stratford Acquisition Corporation, et. al., Ontario Court
(General Division), Index No. 97-CV-126814.
On August 27, 1997, the Company commenced an action against 46 separate
shareholders seeking, principally, to cancel approximately 1,800,000 shares of
common stock and certain stock option which it believes were unlawfully issued.
In addition, the Company has asserted additional claims in this litigation
against certain defendants, who were former directors and officers of the
Company, for breach of their fiduciary duties of care and loyalty to the
Company. The Company believes that this lawsuit will be adjudicated in its
favor. Stratford Acquisition Corporation v. 10222 Investments, et. al., United
States District Court, District of Minnesota, Index No. 97-1954.
The SEC has made inquiries of the Company relating to certain accounting and
financial reporting issues arising from the Company's quarterly filings in 1996
and 1995. The SEC's investigation is believed to be directed at the actions and
omissions of former
2
<PAGE>
directors, officers, employees and advisors of the Company that were employed
by, or associated with, the Company prior to November 29, 1996.
Item 2. Changes in Securities
In the period ended August 31, 1996, the Company issued 1,316,091 shares of its
$.001 par value common stock. Of the 1,316,091 shares that were issued, 350,000
restricted shares were sold at market prices pursuant to Regulation D and
Regulation S. The Company also canceled 175,000 shares that it believes were
unlawfully issued. The Company issued 64,857 shares of common stock to one of
its directors, Daniel W. Dowe, in exchange for legal services rendered to the
Company and an additional 71,428 shares to another director and President, A.
Roy MacMillan, for unpaid wages. In addition 1,004,806 shares were issued to
three separate entities controlled by the Company's third director, Douglas
Friedenberg (hereinafter "the Friedenberg Entities"), in exchange for the
Friedenberg Entities' agreement to convert $315,000 of debentures owned by them
in the aggregate into equity. As part of the Friedenberg Entities purchase of an
unsecured debenture from the Company, they were issued a warrant to purchase
common stock at the exercise price of $.50 per share and having a termination
date of February 1, 2002, for every $1.00 of principal amount of the debenture
purchased. This resulted in the issuance of 304,000 warrants. (See Liquidity and
Financial Resources at August 31, 1997).
On June 25, 1997, the Company issued to each of its three directors, Messrs,
MacMillan, Dowe and Friedenberg, an option to purchase 575,924 shares of common
stock, at the exercise price of $.37 and having a termination date of June 25,
2002, which in the aggregate resulted in the issuance of 1,727,772 stock
options. In addition, two employees were granted 1,000 and 2,000 warrants,
respectively, to purchase common stock at the exercise price of $.50 and having
a termination date of February 1, 2000. As part of his compensation, Mr.
MacMillan also received a warrant to purchase 91,504 shares of common stock at
the exercise price of $.35 and having a termination date of February 1, 2000.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
Item 5. Other Information
Not Applicable.
3
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
On August 27, 1997, the Company sold 200,000 restricted shares of its common
stock at $.35 per share to two offshore investors pursuant to Regulation S. All
other information relating to this Form 8-K filing is incorporated by reference
to the Form 8-K filed on August 28, 1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, Stratford Acquisition Corporation has duly caused this
report to be signed on its behalf by the undersigned thereunto duly authorized:
STRATFORD ACQUISITION CORPORATION
By:
-------------------------------
A. Roy MacMillan
President
By:
-------------------------------
Douglas Friedenberg
Treasurer
By:
-------------------------------
Daniel W. Dowe
Secretary
Date: October 15, 1997
4
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> May-31-1997
<PERIOD-START> Jun-01-1997
<PERIOD-END> Aug-31-1997
<CASH> 43,257
<SECURITIES> 12,565
<RECEIVABLES> 11,512
<ALLOWANCES> 0
<INVENTORY> 143,799
<CURRENT-ASSETS> 198,568
<PP&E> 3,174
<DEPRECIATION> 0
<TOTAL-ASSETS> 214,307
<CURRENT-LIABILITIES> 119,933
<BONDS> 0
0
0
<COMMON> 94,374
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 214,307
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 220,871
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (219,831)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> .02
<EPS-DILUTED> 0
</TABLE>
