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 FEBRUARY 28, 1999
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, 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 .
On February 28, 1999 the Company had 15,081,607 shares of its $.001 par value
common stock issued and outstanding. On a fully diluted basis, assuming all
outstanding stock options and warrants to purchase common are exercised, the
Company would have 20,408,883 shares of common stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Location in Form 10-Q Incorporated Document
Part II, Item 4. Definitive Proxy Statement
filed on Form 14A on
March 24, 1999
<PAGE>
STRATFORD ACQUISITION CORPORATION
Index
Page No.
Part I Financial Information
Item 1. Financial Statements (Unaudited)
Balance Sheet - dated
February 28, 1999 and May 31, 1998................................F-1
Statement of Operations - for the three months ended February
28, 1999 and February 28, 1998 and for the nine months ended
February 28, 1999 and February 28, 1998...........................F-2
Statement of Cash Flows - for the nine
months ended February 28, 1999 and
February 28, 1998.................................................F-3
Notes to Financial Statements.....................................F-4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................1
Part II Other Information
Item 1. Legal Proceedings...................................................5
Item 2. Changes in Securities...............................................5
Item 3. Defaults Upon Senior Securities.....................................6
Item 4. Submission of Matters to a Vote of Security Holders.................6
Item 5. Other Information...................................................6
Item 6. Exhibits and Reports on Form 8-K....................................7
ii
<PAGE>
PART I
Page No.
Part I Financial Information
Item 1. Financial Statements (Unaudited)
Balance Sheet - dated
February 28, 1999 and May 31, 1998................................F-1
Statement of Operations - for the three months ended February
28, 1999 and February 28, 1998 and for the nine months ended
February 28, 1999 and February 28, 1998...........................F-2
Statement of Cash Flows - for the nine
months ended February 28, 1999 and
February 28, 1998.................................................F-3
Notes to Financial Statements.....................................F-4
<PAGE>
STRATFORD ACQUISITION CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
February 28, May 31,
1999 1998
----------------- ---------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 127,405 $ 49,108
Accounts receivable 21,882 9,250
Other receivables 13,499 17,367
Inventory 263,447 122,134
Prepaid assets 14,709 2,801
----------------- ---------------
Total Current Assets 440,942 200,660
PROPERTY, PLANT, AND EQUIPMENT, net of
accumulated depreciation and amortization 86,087 106,598
GOODWILL, net of accumulated amortization 284,162 -
OTHER ASSETS 7,982 11,282
----------------- ---------------
$ 819,173 $ 318,540
================= ===============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 237,196 $ 162,115
Advances from shareholder - 37,000
Loan Payable 65,866 -
Notes payable 1,180,000 520,470
----------------- ---------------
Total Current Liabilities 1,483,062 719,585
SHAREHOLDERS' DEFICIT:
Common stock - $0.001 par value
50,000,000 shares authorized.
15,081,607 and 11,965,646 shares
issued and outstanding, respectively 15,082 11,966
Additional paid-in capital 4,252,182 3,519,673
Deficit accumulated during the
development stage (4,931,153) (3,932,684)
----------------- ---------------
Shareholders' Deficit (663,889) (401,045)
----------------- ---------------
$ 819,173 $ 318,540
================= ===============
</TABLE>
See notes to financial statements.
F-1
<PAGE>
STRATFORD ACQUISITION CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
February 28, February 28,
------------------------------------ -----------------------------------
1999 1998 1999 1998
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
REVENUE
Sale of cementitious products $ 92,566 $ - $ 220,842 $ -
Technology license fees - - - -
---------------- ---------------- ---------------- ----------------
92,566 - 220,842 -
OPERATING EXPENSES
Cost of goods sold 50,356 - 80,929 -
General and administrative costs 394,075 225,809 955,663 594,643
Non-Cash imputed stock compensation 28,050 - 54,300 -
---------------- ---------------- ---------------- ----------------
TOTAL OPERATING EXPENSES 472,481 225,809 1,090,892 594,643
---------------- ---------------- ---------------- ----------------
LOSS FROM OPERATIONS (379,915) (225,809) (870,050) (594,643)
---------------- ---------------- ---------------- ----------------
OTHER INCOME (EXPENSES)
Interest income 3 6 333 39
Interest expense (30,197) - (75,374) -
Amortization of debt discount - - (69,529) -
Foreign exchange gain (loss) 51,656 (22,281) 16,151 (13,595)
---------------- ---------------- ---------------- ----------------
21,462 (22,275) (128,419) (13,556)
---------------- ---------------- ---------------- ----------------
NET LOSS $ (358,453) $ (248,084)$ (998,469)$ (608,199)
================ ================ ================ ================
Basic loss per weighted-average share of
common stock outstanding $ (0.02) $ (0.02) $ (0.08) $ (0.05)
================ ================ ================ ================
Weighted-average share of common stock outstanding 15,063,607 11,741,396 13,194,542 11,400,884
================ ================ ================ ================
</TABLE>
See notes to financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
STRATFORD ACQUISITION CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
February 28,
------------------------------------------
1999 1998
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (998,469) $ (608,200)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 14,833 2,319
Common stock issued as payment for services and compensation 72,450 61,350
Common stock issued as payment for interest 15,175 -
Amortization of debt discount 69,529 -
Amortization of goodwill 12,156 -
CHANGES IN OPERATING ASSETS AND LIABILITIES:
(Increase) decrease in accounts receivables (12,632) -
(Increase) decrease in other receivables 3,868 28,315
(Increase) decrease in inventory (141,313) 19,286
(Increase) decrease in prepaid assets (11,908) -
(Increase) decrease in other assets 3,300 (493)
Increase (decrease) in accounts payable and accrued expenses 75,082 (40,323)
----------------- -----------------
NET CASH USED IN OPERATING ACTIVITIES (897,929) (537,746)
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment 5,678 (112,568)
Proceeds from sale of marketable securities - 13,250
Acquisition of business, net of cash aquired (296,318) -
----------------- -----------------
NET CASH USED IN INVESTING ACTIVITIES (290,640) (99,318)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loans from (to) shareholder 5,000 (315,000)
Decrease in advance from shareholder (37,000) -
Proceeds from loan payable 65,866 -
Proceeds from bridge finanncing 1,050,000 550,000
Proceeds from issuance of notes payable 85,000 -
Proceeds from sale of common stock 98,000 601,335
----------------- -----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,266,866 836,335
----------------- -----------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 78,297 199,271
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 49,108 10,098
----------------- -----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 127,405 $ 209,369
================= =================
</TABLE>
See notes to financial statements.
F-3
<PAGE>
STRATFORD ACQUISITION CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1999
(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 February 28, 1999 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-4
<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 February 28, 1999 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 February 28, 1999 vs. February 28, 1998.
On account of the Company having emerged from the development stage in the
Spring of 1998, it experienced the first winter season slowdown period that
begins in mid-November and continues through early March. Until such time as the
Company can develop a sales organization that can effectively service the
southern regions of the United States it expects to experience a significant
reduction in sales in the months of December, January and February.
Since the Company currently has a limited sales staff that services primarily
the Eastern Canada provinces and the northeastern region of the United States,
it did not have the capability of selling products in the southern region of the
United States or in international markets, except in limited circumstances.
As part of the Company's overall plan to consolidate the operations of acquired
companies to realize greater operating efficiencies and enable the Company to
achieve its targeted pre-tax profit margin range of 25%-30%, in December, 1998
the Company merged the operations of its first acquisition, Arm Pro, Inc. into
its Mississauga, Ontario operating facility and closed Arm Pro's
1
<PAGE>
Teeswater, Ontario plant. This merger resulted in the elimination of two people
that were full-time employees of the Company, three plant personnel and
approximately $3,500 in monthly rent and utilities. The Company also eliminated
a third sales position in the United States and replaced this person with two
manufacturers' representatives that are compensated solely on commissions
derived from sales. The annual future cost savings from these changes is
estimated to be $200,000, although in the three month period ending February 28,
1999, the Company had incurred approximately $30,000 in costs associated with
the Teeswater,Ontario plant closing.
In the three month period ending February 28, 1999, and despite the seasonal
slowdown period, the Company generated revenues of $92,566 and had a net
operating loss of $358,453. Sales in this period were derived primarily from the
Fiberforce line of polypropylene fibers that the Company acquired from Arm Pro,
Inc.
Nine months ending February 28, 1999 vs. February 28, 1998.
The nine month period ending February 28, 1999 was materially different than the
nine month period ending February 28, 1998, principally on account of the
Company having been in the development stage up at March, 1998. In April, 1998
the Company's operating facility in Mississauga, Ontario was brought on-line and
the Company began selling its Novacrete line of pre-packaged concrete repair
products commercially. In addition, in September, 1998, the Company acquired Arm
Pro, Inc. Arm Pro, Inc. was in business since 1998 and had been marketing its
Fiberforce products to ready-mix concrete producers located in Eastern Canada,
and in limited quantities in the United States. Historically, Arm Pro generated
approximately $500,000 in annual sales.
In the nine month period ending February, 1999 (although the Company can only
account for sales of Fiberforce fibers beginning on September 16, 1998), the
Company generated $220,842 in sales of its products. Although the Company had
anticipated generating a higher level of sales in this period the Company
believes that its narrow product line of concrete repair products and its new
entry into the building materials industry were the major obstacles to achieving
a higher level of sales in the quarter ended Feburary 28, 1999.
Operating expenses for the nine month period ending on February 28, 1999,
increased approximately 80% to $1,090,892 when compared to the same period in
1998. This increase was directly attributable to the cost of operating a
manufacturing concern, versus a development stage company. In the nine month
period ending February 28, 1999 the Company posted a net loss of $870,050.
Starting with the acquisition of Arm Pro, Inc., the Company has embarked upon
its business plan to acquire companies or products lines that will expand and
diversify the Company's current product line. If the product line is
diversified, end-users will be more inclined to use the Company's products and,
equally important distributors of building materials, which prefer to stock
complete product lines, will be less resistant to stocking and distributing the
Company's products.
2
<PAGE>
Liquidity and Financial Resources at February 28, 1998
On February 28, 1999, the Company had $819,173 in assets, of which $440,942 were
current assets consisting of: $127,403 in cash and cash equivalents, $263,447 of
inventory and $14,709 in prepaid assets. The Company has $86,087 of equipment
(net of depreciation), goodwill of $284,162 attributable to the acquisition of
Arm Pro, Inc. and other assets of $7,982.
Based on the Company's average monthly operating expenses of $110,000, the
Company has 1.5 months of current liquid assets to operate its business,
assuming no revenues are generated in the near future and that the Company is
unable to raise capital from third-party sources.
In the three month period ending on February 28, 1999, the Company raised
$255,000 for working capital through the sale of short-term promissory notes
that mature on May 31, 1999 and also received $65,866 from an equipment-based
lender that has received a security interest on the Company's assets in exchange
for the equipment loan and for providing the Company with factor financing. The
Company entered into the factor financing arrangement to shorten the turnover
period for accounts receivables which increases cash flow.
Starting in March 1999 the Company believes it will begin to emerge from the
winter slowdown period and begin selling its products at volume levels that will
enable the Company to be self-sustaining from internally generated revenues.
In the period from March 1999 through
3
<PAGE>
October, 1998 sales of Fiberforce polypropylene fibers on a historical basis
were approximately $50,000 per month. On account of the additional sales
personnel and manufacturer's representatives that the Company has marketing
Fiberforce fibers in the United States, the Company believes it will generate a
much higher level of fiber sales in the March 1999 to October 1999 period
and that sales in the southern region of the United States should be higher in
the coming year.
In the third quarter the Company has also provided price quotes on five
construction projects that will require a range of $3,500 to $32,000 per project
in certain Novacrete concrete repair and flooring products. The Company is
expecting these jobs to be completed in April or early May. The Company believes
it will achieve greater success this year with its Novacrete product line, on
account of the products having been used in commercial quantities last year
which provides contractors (end-users) with confidence that the products will
perform in accordance with the Company's representations. In addition, the
Company is now in its second year of marketing the Novacrete product line and
expects that awareness of the merits of the Novacrete concrete repair products
will increase each year.
In the nine month period, the Company had total liabilities of $1,483,062 and an
accumulated shareholders' deficit of $663,889 in shareholders' equity. Of the
total liabilities, $1,245,866 represents the principal amount of the Debentures
outstanding and the remaining balances consists of $237,196 in accounts payable.
However,the Company has an accumulated deficit of $4,933,280 relating primarily
to the Company's research and development efforts and will be used for tax
purposes a net operating loss against future income to minimize corporate taxes.
Subsequent Events
On March 25, 1999, the Company announced that it entered into a definitive
agreement with The Sherwin Williams Company to purchase all the assets of its
Allied Composition/Por-Rok Division ("Por- Rok") which are located in Clifton,
New Jersey. Por-Rok manufacturers a well-known line of grouting and concrete
patching products that are distributed throughout the eastern region of the
United States, and are currently available in over 300 outlets that stock
Por-Rok's products.
4
<PAGE>
The Company believes that the Por-Rok product line will be a natural extension
of the Company's line of eight concrete repair products that it markets under
the Novacrete name. By diversifying the array of products that the Company can
offer to end-users and to distributors of building materials it will increase
sales of all products since end-users prefer to use one manufacturer's products
in any given construction project and that distributors are generally more
reluctant to stock a limited product line.
Upon the Closing of the transaction which is scheduled for late May, 1999 the
Company will release financial information on the historical operating
performance of Por-Rok which was a profitable division in calendar year 1998 for
the Sherwin Williams Company.
In addition, the Company has engaged in discussions with two other manufacturers
of specialized building materials about the prospects of acquiring these
two companies and merging their two operations into Por-Rok's New Jersey
facility. At the time of this filing the discussions were ongoing and no
material terms were being considered. The Company anticipates that it will
close at least two more transactions this year to expand the array of products
that the Company offers and to increase its market share in the United States
and in Canada.
Part II Other Information
Item 1. Legal Proceedings
On August 12, 1997, a shareholder, Mel Greenspoon, commenced an action against
the Company and its former 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 filed an amended complaint
in April, 1999 and joined Daniel W. Dowe in the lawsuit. The Company and Mr.
Dowe believe the lawsuit is without merit and will raise several counterclaims
and defenses to the action. Mel Greenspoon v. Stratford Acquisition Corporation,
et. al., Ontario Court (General
Division), Index No. 97-CV-126814.
Item 2. Changes in Securities
In the three month period ending on February 28, 1999, the Company issued 95,000
shares of its $.001 par value common stock. Of the
5
<PAGE>
95,000 shares, 45,000 shares we issued to three employees as performance-based
compensation and the remaining 40,000 shares were issued to a company that
performed investor relations services and agreed to accept 40,000 shares of
restricted common stock in exchange for cancelling 85,000 stock options.
In February, the Company sold three month 15% $255,000 Debentures that mature on
May 31, 1999 (the "Debentures"). The proceeds from the Debentures were used as
bridge financing to cover the cash shortfall that was attributable primarily to
the seasonal slowdown in sales. The Company plans to repay the Debenture with
proceeds raised in a subsequent private placement of a 9% $3,250,000 debenture
that the Company is undertaking principally to pay the purchase price for the
Allid Composition/Por-Rok assets.
As further consideration for the Debenture, the Company issued warrants to
purchase 155,000 shares of the Company's common stock, each warrant having an
expiration date of February 25, 2001 and an exercise price of $.45 per share of
common stock issuable upon exercise of the warrant.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of shareholders in the
three month period ending February 28, 1999. However, the Company has scheduled
the next annual meeting of shareholders on April 29, 1999 and hereby
incorporates by reference the proxy statement and all related documents with
respect to any and all matters to be submitted to a vote of shareholders at the
next annual meeting of shareholders.
Item 5. Other Information
Not Applicable.
6
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
Exhibits
None.
Reports on Form 8-K
None.
7
<PAGE>
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: /S/Daniel W. Dowe
__________________
Daniel W. Dowe
President and Chief Executive
Officer
Date: April 19, 1999
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000945634
<NAME> STRATFORD AQUISITION CORP. AND SUBSIDIARY
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> FEB-28-1999
<EXCHANGE-RATE> 1
<CASH> 127,405
<SECURITIES> 0
<RECEIVABLES> 22,415
<ALLOWANCES> 533
<INVENTORY> 263,447
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<PP&E> 241,681
<DEPRECIATION> 155,594
<TOTAL-ASSETS> 819,173
<CURRENT-LIABILITIES> 1,485,189
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0
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<COMMON> 15,082
<OTHER-SE> 678,971
<TOTAL-LIABILITY-AND-EQUITY> 819,173
<SALES> 220,842
<TOTAL-REVENUES> 220,842
<CGS> 80,929
<TOTAL-COSTS> 80,929
<OTHER-EXPENSES> 1,009,963
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 144,903
<INCOME-PRETAX> (998,469)
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