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 NOVEMBER 30, 1998
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.)
67 Wall Street, Suite 2001, c/o Daniel W. Dowe, President
New York, New York 10005
(Address of Principal Executive offices) (Zip Code)
Registrant's telephone number, including area code 212-825-9292
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 15,036,607 shares of its $.001 par value common stock issued and
outstanding on November 30, 1998. On a fully diluted basis, assuming all
outstanding stock options and warrants to purchase common are exercised, the
Company would have 20,358,883 shares of common stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Location in Form 10-Q Incorporated Document
Part II
Item 6 - Exhibits and Reports Form 8-K filed on
on Forms 8-K and 8-K/A October 2, 1998
Form 8-K/A filed on
November 30, 1998
<PAGE>
STRATFORD ACQUISITION CORPORATION
Index
Page No.
--------
Part I Financial Information
Item 1. Financial Statements (Unaudited)
Balance Sheet - dated
November 30, 1998 and May 31, 1998.................................. F-1
Statements of Operations - for the three months ended November
30, 1998 and November 30, 1997 and for the six months ended
November 30, 1998 and November 30, 1997............................. F-2
Statements of Cash Flows - for the six
months ended November 30, 1998 and
November 30, 1997................................................... F-3
Statements 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................................................... 3
Item 2. Changes in Securities............................................... 3
Item 3. Defaults Upon Senior Securities..................................... 3
Item 4. Submission of Matters to a Vote of Security Holders................. 4
Item 5. Other Information................................................... 4
Item 6. Exhibits and Reports on Forms 8-K and 8-K/A......................... 4
ii
<PAGE>
PART I
Item 1. Financial Statements Page
Balance Sheet - dated
November 30, 1998 and May 31, 1998.................................. F-1
Statements of Operations - for the three months ended November
30, 1998 and November 30, 1997 and for the six months ended
November 30, 1998 and November 30, 1997............................. F-2
Statements of Cash Flows - for the six
months ended November 30, 1998 and
November 30, 1997................................................... F-3
Statements 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
November 30, May 31,
1998 1998
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ 66,146 $ 49,108
Accounts receivable 77,509 9,250
Other receivables 2,245 17,367
Inventory 235,288 122,134
Prepaid assets 16,331 2,801
----------- -----------
Total Current Assets 397,519 200,660
PROPERTY, PLANT, AND EQUIPMENT, net of
accumulated depreciation and amortization 91,296 106,598
GOODWILL, net of accumulated amortization 290,229 --
OTHER ASSETS 13,122 11,282
----------- -----------
$ 792,166 $ 318,540
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 200,652 $ 162,115
Advances from shareholder -- 37,000
Notes payable 925,000 520,470
----------- -----------
Total Current Liabilities 1,125,652 719,585
SHAREHOLDERS' DEFICIT:
Common stock - $0.001 par value
50,000,000 shares authorized
14,996,607 and 11,965,646 shares
issued and outstanding, respectively 14,996 11,966
Additional paid-in capital 4,224,218 3,519,673
Deficit accumulated during the
development stage (4,572,700) (3,932,684)
----------- -----------
Shareholders' Deficit (333,486) (401,045)
----------- -----------
$ 792,166 $ 318,540
=========== ===========
See notes to financial statements.
F-1
<PAGE>
STRATFORD ACQUISITION CORP. AND SUBSIDIARY
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
November 30, November 30,
---------------------------- ---------------------------
1998 1997 1998 1997
------------ ------------- ------------ -----------
<S> <C> <C> <C> <C>
REVENUE
Sale of cementitious products $ 118,599 $ -- $ 128,276 $ --
Technology license fees -- -- -- --
------------ ------------ ------------ ------------
118,599 -- 128,276 --
OPERATING EXPENSES
Cost of goods sold 26,418 -- 30,573 --
General and administrative costs 302,844 147,963 561,588 368,835
Non-Cash imputed stock compensation 7,500 -- 26,250 --
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 336,762 147,963 618,411 368,835
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (218,163) (147,963) (490,135) (368,835)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSES)
Interest income 330 6 330 39
Interest expense (29,913) -- (45,177) --
Amortization of debt discount (43,455) -- (69,529) --
Foreign exchange gain (loss) (22,823) 7,679 (35,505) 8,686
------------ ------------ ------------ ------------
(95,861) 7,685 (149,881) 8,725
------------ ------------ ------------ ------------
NET LOSS $ (314,024) $ (140,278) $ (640,016) $ (360,110)
============ ============ ============ ============
Basic loss per weighted-average share of
common stock outstanding $ (0.03) $ (0.01) $ (0.05) $ (0.03)
============ ============ ============ ============
Weighted-average share of common stock outstanding 12,471,506 10,655,092 12,310,302 10,807,266
============ ============ ============ ============
</TABLE>
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>
Six Months Ended
November 30,
------------------------
1998 1997
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $(640,016) $(360,110)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 9,624 524
Common stock issued as payment for services and compensation 44,400 47,700
Common stock issued as payment for interest 15,175 --
Amortization of debt discount 69,529 --
Amortization of goodwill 6,089 --
CHANGES IN OPERATING ASSETS AND LIABILITIES:
(Increase) decrease in accounts receivables (68,259) --
(Increase) decrease in other receivables 15,122 23,126
(Increase) decrease in inventory (113,154) (55,652)
(Increase) decrease in prepaid assets (13,530) --
(Increase) decrease in other assets (1,840) (2,874)
Increase (decrease) in accounts payable and accrued expenses 38,538 93,515
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (638,322) (253,771)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment 5,678 (1,541)
Proceeds from sale of marketable securities -- 13,250
Acquisition of business, net of cash acquired (296,318) --
--------- ---------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (290,640) 11,709
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Increase) in loan to shareholder -- (315,000)
Decrease in advance from shareholder (37,000) --
Proceeds from bridge financing 800,000 --
Proceeds from issuance of notes payable 85,000 --
Proceeds from sale of common stock 98,000 562,450
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 946,000 247,450
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 17,038 5,388
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 49,108 10,098
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 66,146 $ 15,486
========= =========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
STRATFORD ACQUISITION CORP. AND SUBSIDIARY
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
------------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, May 31, 1998 11,965,646 $ 11,966 $ 3,519,673 $(3,932,684) $ (401,045)
Sale of common stock 300,000 300 97,700 -- 98,000
Issuance of common stock for compensation 97,499 97 36,803 -- 36,900
Redemption of common stock (120,000) (120) 120 -- --
Net loss -- -- -- (325,992) (325,992)
----------- ----------- ----------- ----------- -----------
BALANCE, August 31, 1998 12,243,145 12,243 3,654,296 (4,258,676) (592,137)
Issuance of common stock for compensation 22,725 23 7,477 -- 7,500
Conversion of notes payable to common stock 2,730,737 2,730 562,445 -- 565,175
Net loss -- -- -- (314,024) (314,024)
----------- ----------- ----------- ----------- -----------
BALANCE, November 30, 1998 14,996,607 $ 14,996 $ 4,224,218 $(4,572,700) $ (333,486)
=========== =========== =========== =========== ===========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
STRATFORD ACQUISITION CORP. AND SUBSIDIARY
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998
(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, 1998.
The financial statements for the period ended November 30, 1998 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.
1. ACQUISITION
On September 16, 1998 the Company acquired Armpro, Inc. in a purchase
business acquisition for approximately $592,000. This purchase was
facilitated by the issuance of $800,000 of debt with warrants attached.
2. NOTES PAYABLE
a. On September 4, 1998 the Company issued $800,000 of debt with stock
warrants attached, in order to facilitate the acquisition previously
mentioned. The debentures bear interest at 9% and mature on September
4, 2000. A total of 1,500,000 warrants were issued and are exercisable
at $ .45 per share of common stock. These warrants expire two years
from the date of issuance.
b. In November 1998 the Company converted the February 1998 debentures of
$550,000 at 10% interest, plus accrued interest of $15,175 into
2,730,737 shares of common stock.
F-5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following financial information should be read in conjunction with the
Company's financial statements and footnotes, which are annexed hereto. Forward
looking statements made in this section are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
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 November 30, 1998, 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
Six months ending November 30, 1998 vs. November 30, 1997.
Sales for the six month periods ending November 30, 1998 and November 30, 1997,
were $128,276 and $0, respectively. The increase in sales was attributable to
two major changes in the Company's business operations. First, the Company sold
$30,760 of its Novacrete concrete repair products. Secondly, on September 16,
1998 the Company's wholly-owned subsidiary, Novex Systems International, Ltd.
(formerly named Novacrete Technology (Canada) Inc.) purchased all the issued and
outstanding common stock of Arm Pro, Inc. Arm Pro, Inc. is in the business of
manufacturing a line of synthetic fibers for the concrete industry that are
marketed under the tradename Fiberforce. From the date of acquisition through
November 30, 1998, the Company sold $97,516 of the Fiberforce products.
Operating expenses for the six month period ending on November 30, 1998,
increased approximately 68% to $618,411 when compared to the same period in
1997. The increase was primarily attributable to the addition of twelve new
employees, four of which were recruited in the Arm Pro acquisition, that have
assumed responsibility in sales, product research, operations and
administration.
In the six month period ending on November 30, 1998, losses from operations were
$490,135 which are not comparable to the losses incurred in the same period
ending on November 30, 1997 due to the substantial operational changes that were
made in the Company in 1998.
Although the Company's business operations improved during the six month period
ended November 30, 1998, the Company is still in the post-development stage and
will need to dedicate substantial resources to increase sales of the Company's
products and
<PAGE>
anticipates that it will continue to generate losses over the next several
months.
A substantial component of the Company's business plan is to expand its product
line through research and development and by acquiring existing companies and
products that would be compatible with the Company's marketing strategy. The
Company now has a full-time cement chemist on staff that oversees all research
and development and independent testing conducted through outside laboratories.
The Company paid for the acquisition of Arm Pro, Inc. which was $891,000 (CDN)
or $574,838 (USD) by selling a two year 9% $800,000 (USD) Debenture and Warrants
to purchase 1,500,000 shares of common stock that expire on September 4, 2000 to
the largest purchaser of the 10% $550,000 Debenture that the Company issued in
February, 1998. The purchasers of the 10% $550,000 Debenture that the Company
issued in February, 1998 agreed to convert the full principal amount of the
Debenture, plus all unpaid accrued interest, into common stock at an average per
share price of $.20. This debt-to-equity conversion resulted in the Company
issuing 2,730,737 shares of its common stock in total satisfaction for repayment
of the Debenture. By doing so the Company has also eliminated an annual interest
payment of $55,000.
Liquidity and Financial Resources at November 30, 1998
On November 30, 1998, the Company had $792,166 in assets, of which $397,519 were
current assets which include $235,288 of inventory, $66,146 in cash and cash
equivalents and $77,509 in accounts and advances receivable. In addition, the
Company had $91,296 of equipment (net of depreciation), organizational costs of
$82 and security deposits of $5,936.
In the six month period, the Company had total liabilities of $1,125,652 and
$333,486 in shareholders' deficit. However, the Company had an accumulated
deficit of $4,572,700.
By selling the 9% $800,000 Debenture and using only $574,838 of the proceeds on
the acquisition of Arm Pro, Inc. the Company was able to allocate the remaining
balance of the funds toward working capital. In addition, on the closing of the
Arm Pro, Inc. transaction Arm Pro had $158,275 in cash; $90,131 in accounts
receivable and $65,000 in inventory. The combination of the current assets owned
by the Company and Arm Pro, Inc. and the funds from the Debenture that were
allocated to working capital have allowed the Company to sustain its operations
during this period.
However, due to the fact that the construction product season in Canada and the
northeastern portion of the United States substantially slows during the period
from December through February, the Company may have to seek additional
financing to
2
<PAGE>
sustain its operations by using its assets as collateral or by selling debt or
equity securities to third parties.
Part II Other Information
Item 1. Legal Proceedings
On August 12, 1997, a shareholder commenced an action against the Company and
its former President, to enjoin any action that would restrict the sale of
common stock that the shareholder allegedly owns. 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.
Item 2. Changes in Securities
In the three month period ended November 30, 1998, the Company issued 2,730,737
shares of its common stock in exchange for the outstanding principal and unpaid
accrued interest on the 10% $550,000 Debenture that the Company sold in
February, 1998. (See Results of Operations).
In accordance with its compensation policy for non-employee directors the
Company issued an aggregate of 22,725 common shares to its three directors
(7,575 shares each) in payment for each directors' quarterly compensation of
$2,500.
In addition, the Company sold a 9% $800,000 Debenture and Warrants to purchase
1,500,000 shares of the Company's common stock at $.45 per share for a period
commencing on September 4, 1998 and ending on September 4, 2000. The Company has
the right to redeem the Warrants by paying the holder $.001 per share if the
closing bid price for the Company's common stock is equal to or exceeds $1.50
per share for twenty consecutive trading days prior to the expiration period.
On November 16, 1998, the Company granted a newly hired employee an option to
purchase 12,500 shares of its common stock at the exercise price of $.30 per
share for a period commencing on issuance and ending on November 16, 2001.
The Company also granted two individuals that provided services and capital to
the Company a total of 100,000 stock options to purchase the Company's common
stock at $.45 per share for a period commencing on September 4, 1998 and ending
on September 4, 2000.
Item 3. Defaults Upon Senior Securities
Not Applicable.
3
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
The Company is planning to hold its next annual meeting of shareholders in
March or April, 1999.
Item 5. Other Information
Not Applicable.
Item 6. Exhibits and Reports on Forms 8-K and 8-K/A
Exhibits
None.
Reports on Forms 8-K and 8-K/A
Form 8-K filed on Incorporated by reference
October 2, 1998 to the Form 8-K Report
Form 8-K/A filed on Incorporated by reference
November 30, 1998 to the Form 8-K/A Report
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 person who is duly
authorized to sign on behalf of the Registrant and as chief accounting officer.
STRATFORD ACQUISITION CORPORATION
By:
---------------------------------
Daniel W. Dowe
President
Date: January 19, 1999
4
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-END> NOV-30-1998
<CASH> 66,146
<SECURITIES> 0
<RECEIVABLES> 77,509
<ALLOWANCES> 0
<INVENTORY> 235,288
<CURRENT-ASSETS> 397,519
<PP&E> 91,296
<DEPRECIATION> 0
<TOTAL-ASSETS> 792,166
<CURRENT-LIABILITIES> 1,125,652
<BONDS> 0
0
0
<COMMON> 14,996
<OTHER-SE> (348,482)
<TOTAL-LIABILITY-AND-EQUITY> 792,166
<SALES> 118,599
<TOTAL-REVENUES> (118,599)
<CGS> (26,418)
<TOTAL-COSTS> (336,762)
<OTHER-EXPENSES> (95,861)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (29,913)
<INCOME-PRETAX> (314,024)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (314,024)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
