SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORTS UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1996
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 0-21662
Strategia Corporation
(formerly Dataguard Recovery Services, Inc.)
(Exact name of registrant as specified in its charter)
Kentucky 61-1064606
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10301 Linn Station Road, P.O. Box 37144, Louisville, KY 40233-7144
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 502-426-3434
Former name, former address, and former fiscal year, if changed since last
report.
Dataguard Recovery Services, Inc.
Indicate by check [X] whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange 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 such filing
requirements for the past 90 days. Yes [X] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date - 5,045,770.
STRATEGIA CORPORATION AND SUBSIDIARY
<TABLE>
Condensed Consolidated Balance Sheets
<CAPTION>
June 30, December 31,
1996 1995
(Unaudited)
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,102,039 $ 170,636
Accounts receivable, net 1,115,026 1,128,407
Other current assets 340,783 490,124
Total current assets 2,557,848 1,789,167
Property and equipment 18,558,370 16,138,011
Less accumulated depreciation and amortization 8,621,353 7,376,653
9,937,017 8,761,358
Other assets 462,699 237,222
$12,957,564 $10,787,747
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt $ 414,734 $ 304,139
Current installments of obligations under
capital leases 2,397,345 1,858,755
Notes payable to stockholders 800,027 991,176
Accounts payable 1,070,881 941,812
Accrued income taxes 128,011 133,630
Accrued expenses and other current liabilities 960,104 854,862
Total current liabilities 5,771,102 5,084,374
Long-term debt, excluding current installments 1,001,465 1,024,356
Obligations under capital leases,
excluding current installments 2,602,641 2,179,412
Customers' deposits 56,176 58,253
Deferred revenue 1,984,607 852,146
Deferred income taxes 314,721 309,938
Total liabilities 11,730,710 9,508,479
Stockholders' equity:
Preferred stock -- authorized 2,000,000 shares:
Series A Convertible Preferred ($10 stated value);
authorized 100,000 shares; issued and
outstanding 0 shares at June 30, 1996 and
34,167 shares at December 31, 1995 341,670
Series AA Convertible Preferred ($10 stated value);
authorized 100,000 shares; issued and
outstanding 64,546 shares at June 30, 1996
and 0 shares at December 31, 1995 645,460
Common stock without par value. Authorized
15,000,000 shares; issued and outstanding
2,522,885 shares at June 30, 1996 and
2,506,885 shares at December 31, 1995 3,045,833 3,029,833
Accumulated deficit (2,449,613) (2,119,092)
Foreign currency translation (14,826) 26,857
Total stockholders' equity 1,226,854 1,279,268
$12,957,564 $10,787,747
</TABLE>
See notes to unaudited condensed consolidated financial statements.
STRATEGIA CORPORATION AND SUBSIDIARY
<TABLE>
Condensed Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Service revenues $2,375,601 $2,224,475 $4,719,718 $4,228,284
Operating expenses:
Cost of services 1,866,200 1,139,888 3,372,685 2,520,068
Selling, general and
administrative expenses 539,952 669,270 1,128,062 1,111,162
2,406,152 1,809,158 4,500,747 3,631,230
Operating income (loss) (30,551) 415,317 218,971 597,054
Other income (expense):
Interest expense (202,232) (185,962) (363,939) (317,025)
Other 4,963 (4,792) 6,760 21,594
(197,269) (190,754) (357,179) (295,431)
Income (loss) before
income taxes $ (227,820) $ 224,563 $ (138,208) $ 301,623
Provision for income taxes $ 23,636 $ 176,600 $ 122,761 $ 294,300
Net income (loss) $ (251,456) $ 47,963 $ (260,969) $ 7,323
Net income (loss) per share
of common stock $ (.10) $ .02 $ (.10) $ -
Weighted average number
of common shares
outstanding 2,522,006 2,489,478 2,517,962 2,485,449
</TABLE>
See notes to unaudited condensed consolidated financial statements.
STRATEGIA CORPORATION AND SUBSIDIARY
<TABLE>
Condensed Consolidated Statement of Stockholders' Equity
(Unaudited)
<CAPTION>
Series A Series AA Foreign
Preferred Preferred Common Accumulated Currency
Stock Stock Stock Deficit Translation Total
<S> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1995 $ 341,670 $ - $3,029,833 $(2,119,092) $ 26,857 $1,279,268
Issuance of 8,000
shares of Common
Stock - - 8,000 - - 8,000
Net loss for three
months ended March
31, 1996 - - - (9,513) - (9,513)
Translation adjustment
at March 31, 1996 - - - - (18,168) (18,168)
Balance at March 31,
1996 341,670 - 3,037,833 (2,128,605) 8,689 1,259,587
Issuance of 8,000
shares of Common
Stock - - 8,000 - - 8,000
Conversion of Series A
Preferred to Series
AA Preferred (341,670) 341,670 - - - -
Conversion of Series A
Preferred dividends
in arrears to Series
AA Preferred - 69,552 - (69,552) - -
Conversion of stockholders'
notes and interest
to Series AA Preferred - 234,238 - - - 234,238
Net loss for three
months ended June
30, 1996 - - - (251,456) - (251,456)
Translation adjustment
at June 30, 1996 - - - - (23,515) (23,515)
Balance at June 30,
1996 $ - $ 645,460 $3,045,833 $(2,449,613) $ (14,826) $1,226,854
</TABLE>
See notes to unaudited condensed consolidated financial statements.
STRATEGIA CORPORATION AND SUBSIDIARY
<TABLE>
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Six Months Ended
June 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (260,969) $ 7,323
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 1,325,479 956,147
Deferred income taxes 8,870 206,020
Other (20,908) (48,947)
Change in operating assets and liabilities:
Accounts receivable (36,220) (2,020,431)
Other current assets 128,670 (38,485)
Accounts payable 182,335 585,266
Accrued expenses (308,647) 660,707
Accrued income taxes 435,042 88,280
Other current liabilities 54 (25,851)
Increase in other assets (47,233) (22,486)
Increase in deferred revenue 1,172,233 1,156,638
Increase (decrease) in customers' deposits 14,207 2,586
Net cash provided by operating activities 2,592,913 1,506,767
Cash flows from investing activities:
Acquisition of property and equipment (282,684) (345,868)
Investment in subsidiary - (203,856)
Net cash used in investing activities (282,684) (549,724)
Cash flows from financing activities:
Proceeds from note payable to stockholder - 500,000
Proceeds from bank line of credit 250,000 -
Principal payments on long-term debt and
obligations under capital leases (1,628,826) (766,075)
Payment of dividends - (27,598)
Net cash used in financing
activities (1,378,826) (293,673)
Net increase (decrease) in cash and cash equivalents 931,403 663,370
Cash and cash equivalents at beginning of period 170,636 108,603
Cash and cash equivalents at end of period $ 1,102,039 $ 771,973
</TABLE>
See notes to unaudited condensed consolidated financial statements.
STRATEGIA CORPORATION AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
(Unaudited)
June 30, 1996
(1) In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial position
as of June 30, 1996 and the results of operations for the three and six months
then ended and cash flows for the six months then ended.
Certain reclassifications of amounts in the condensed consolidated
financial statements have been made to reflect comparability.
(2) This financial information should be read in conjunction with the
financial statements and the notes thereto included in the Company's Annual
Report on Form 10-KSB for the period ended December 31, 1995.
(3) On February 3, 1995, the Company purchased certain operating assets and
assumed certain liabilities of Twinsys, S.A., a Paris, France-based provider
of disaster recovery services in Europe. Strategia financed the purchase
with funds borrowed from EPI Corporation, Strategia's largest stockholder,
under an amendment to an existing loan agreement. John P. Snyder, EPI's
President and Chairman, is a director of Strategia. Strategia also issued
8,000 shares of its common stock to EPI in connection with the loan.
Summarized below are the proforma combined results of operations for the
six months ended June 30, 1995, as though the acquisition had occurred on
January 1, 1995.
<TABLE>
<CAPTION>
Six months
ended June 30, 1995
<S> <C>
Revenues $4,888,000
Net income 100,000
Net income per share
of common stock $ .04
</TABLE>
(4) For financial reporting purposes, income (loss) before income taxes for
the three and six months ended June 30, 1996 and 1995, includes the following
components:
<TABLE>
<CAPTION>
Three months Six months
ended June 30, ended June 30,
Pretax income (loss): 1996 1995 1996 1995
<S> <C> <C> <C> <C>
United States $ (292,277) $ (252,861) $ (472,981) $ (493,953)
Foreign 64,457 447,424 334,773 795,576
$ (227,820) $ 224,563 $ (138,208) $ 301,623
</TABLE>
The provision for income tax expense is attributable to earnings from foreign
operations.
(5) Income per share is based on net income less preferred dividends divided
by the weighted average number of common and equivalent shares outstanding
during the period. Common stock equivalents outstanding are calculated for
stock options and warrants using the treasury stock method. Fully diluted per
share amounts are not materially different from primary per share amounts.
On Monday, July 29, 1996 the Company announced that the 1-for-2 reverse stock
split of its Common Stock and its change of name from Dataguard Recovery
Services, Inc. to Strategia Corporation had taken effect before the opening
of business that day. As a result of the 1-for-2 reverse stock split, every
two of the Company's common shares outstanding at the effective time were
automatically converted into one new common share of Strategia Corporation.
The Company's name change and reverse stock split was approved by the
stockholders at the Company's 1996 annual meeting on July 12, 1996. All
share and per share amounts have been restated for the reverse stock split.
(6) On May 30, 1996, the Company's Board of Directors authorized the
issuance of Series AA Convertible Preferred Stock (Series AA Preferred).
The Series AA Preferred provides for an annual dividend of 8%, compared to
11.5% on the Series A Convertible Preferred Stock (Series A Preferred). The
Series AA Preferred, like the Series A Preferred, is convertible into 4 shares
of Common Stock for 5 years after issuance through June 30, 2001. The
limitations, preferences, and relative rights of the Series AA Preferred are
otherwise identical to those of the Series A Preferred.
On June 30, 1996, all holders of Series A Preferred exchanged their shares
(34,167 shares) for the same number of Series AA Preferred Shares. In
addition, all dividends in arrears ($69,552) due to the original holders of
Series A Preferred at June 30, 1996 were converted to Series AA Preferred.
The Company had notes payable ($191,176) and accrued interest payable
($43,062) to certain stockholders at June 30, 1996. These amounts were
also converted to Series AA Preferred as of June 30, 1996. (See "Part II,
Item 5 -- Other Events" for additional discussion.)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
The Company reported revenue of $2,375,601 and $4,719,718 for the three and
six months ended June 30, 1996, respectively. This compares to revenue of
$2,224,475 and $4,228,284 for the comparable periods in 1995. The Company
reported net losses of $251,456 and $260,969 for the three and six months
ended June 30, 1996 after reporting net income of $47,963 and $7,323 for the
same periods in 1995. The increase in revenue in 1996 is attributable
entirely to the Company's subsidiary, Twinsys Dataguard S.A. (hereinafter
referred to as "Twinsys"). On February 3, 1995, Strategia acquired certain
operating assets and assumed certain liabilities of Twinsys S.A. ("Seller"),
a Paris, France-based provider of disaster recovery services in Europe.
Consolidated service revenue increased $151,126 and $491,434 for the three
and six month periods ended June 30, 1996 when compared to the same periods
in 1995. Twinsys accounted for approximately 72% of consolidated service
revenue for these periods in 1996. Twinsys revenues increased approximately
27% for the three months ended June 30, 1996 when compared to the actual
results for the comparable period in 1995 and approximately 8% for the six
months ended June 30, 1996 when compared to the proforma results for the six
months ended June 30, 1995. Twinsys has entered into new agreements with
former customers of Seller and added several new customers since the asset
purchase in February 1995. Partially offsetting the increase in service
revenue at Twinsys was a decrease in backup service revenue for the
Company's North American operations. This revenue decreased approximately
29% and 28% during the three and six month periods ended June 30, 1996,
respectively, when compared to the same periods in 1995. Bull backup
service revenue decreased significantly due to the expiration of the
Company's then largest contract effective June 1, 1995, and to increased
competition. The expired contract generated approximately 12% of the Company's
consolidated revenue during the first six months in 1995. The Company entered
into a new contract with this customer for significantly lower revenue due to
the customer's reduced backup service requirements. See "Liquidity and
Capital Resources." IBM backup service revenue grew by 20% and 23% for the
three and six months ended June 30, 1996, respectively when compared to the
same periods in 1995, but was more than offset by the decrease in Bull backup
service revenue. Consulting service revenue for the three and six month periods
ended June 30, 1996 decreased by 75% and 59% over the comparable periods in
1995. The Company's consulting services are not recurring, and therefore
significant changes in these revenues can occur from year to year. The Company
began offering outsourcing data processing services in December 1995.
Outsourcing services are expected to provide an additional source of revenue
throughout 1996.
The Company's operating expenses increased to $2,406,152 from $1,809,158 and
$4,500,747 from $3,631,230 for the three and six months ended June 30, 1996
when compared to the same periods in 1995, respectively. This increase is
principally attributable to higher cost of services at Twinsys. Twinsys' cost
of services increased to $1,141,823 for the three months ended June 30, 1996
from $482,026 for the same period last year. This increase was due to
higher maintenance and depreciation expenses that began in April 1996. These
expenses are associated with computer equipment upgrades needed for backup
requirements for some of Twinsys' largest customers. The additional expenses
related to the computer equipment upgrades in France reduced gross profit
margins recorded by Twinsys beginning in the second quarter of 1996 and
can be expected to remain at these levels for the reminder of the year. The
Company expects to at least partially offset these expenses and the related
reduction in gross profit margins through service revenue growth in Europe.
The cost of services for North American operations increased slightly to
$724,377 for the three months ended June 30, 1996 from $657,862 for the same
period last year. This increase is attributable to software licensing fees
required for outsourcing services that began in 1996, partially offset by
reductions in Bull computer equipment lease and maintenance costs. Selling,
general and administrative expenses decreased to $539,952 for the three months
ended June 30, 1996 from $669,270 in 1995. These expenses had increased
throughout 1995 due primarily from the addition of expenses for Twinsys, which
relate largely to personnel and marketing expenses. However, these expenses,
which had remained stable for several years prior to 1995, are expected to be
lower during the remainder of 1996 as the costs for establishing and
coordinating Twinsys' technical, sales and administrative procedures begin to
decrease. Professional fees attributable to Twinsys are also expected to be
lower in 1996, but legal fees may increase in connection with ongoing
litigation in the United States. (See "Part II, Item 1 -- Legal Proceedings").
Interest expense totaled $202,232 and $363,939 for the three and six months
ended June 30, 1996, respectively, as compared to $185,962 and $317,025 for
the same periods last year. The increase was caused by the new capital lease
for computer equipment which began on April 1, 1996 as noted above. Interest
expense for Twinsys totaled $111,118 and $173,544 for the three and six
months ended June 30, 1996, and is related mainly to capital leases for
computer equipment. Interest costs at Strategia were comparable to last
year's results for the quarter and year-to-date, and are principally related
to capital leases for computer equipment and debt incurred in connection with
the commencement of operations by Twinsys.
The provision for income taxes totaled $122,761 and $294,300 for the six
month periods ended June 30, 1996 and 1995, respectively, due to French
income taxes resulting from income of Twinsys. No income tax benefits can be
recognized currently for U.S. operating losses, but these losses are
available to offset any future U.S. taxable income.
Liquidity and Capital Resources
At June 30, 1996, the Company's consolidated current liabilities exceeded
current assets by $3,213,254. The principal resources available to reduce
the Company's liquidity deficiency are monthly revenues payable under its
backup service contracts. Backup services revenue for the Company's
customers are generated in most cases under multi-year contracts that will
provide a predictable revenue stream over the next several years. These
contractual revenues, though not recorded on the Company's balance sheet,
will be available to help meet the Company's liabilities as recorded at
June 30, 1996.
Income from Twinsys has provided a significant, positive impact upon the
consolidated cash flow of the Company. However, the timing and amount of
cash transfers between Twinsys and Strategia are subject to rules governing
dividend payments by French subsidiaries of multi-national corporations, as
well as practical considerations. The Company will continue to assess the
working capital needs of its North American and European operations on a
periodic basis and will determine appropriate allocations of cash throughout
the year. The Company expects to meet its other cash flow needs in 1996
through payments of consulting revenues by existing customers, the addition
of new customers for backup, consulting, outsourcing and millennium services,
as well as the extension of payment terms on certain monthly expenses and other
debt. In addition, cash flow from operations in 1996 is being positively
affected by the more favorable terms of new computer leases, which replaced
leases that expired during the last quarter of 1995. The Company will
continue to seek more favorable terms for its remaining lease and maintenance
agreements as the Company's present agreements expire. The Company's domestic
computer equipment will meet the technological requirements of the Company's
current and prospective customers without the need for any material capital
expenditure during 1996. Twinsys acquired computer equipment needed for the
backup requirements of some of its largest customers on April 1, 1996. The
acquisition was financed through a capital lease obligation totaling
approximately $2,000,000. The Company's objective is to finance capital
needs with the smallest possible adverse impact on the Company's liquidity
position.
The Company has not generated new revenue in North America to offset the loss
of revenue upon the expiration of one of its largest contracts in 1995 and
cannot currently predict when or if sufficient new revenues will be generated
to offset the loss. The Company's equipment costs associated with the new
backup services agreement for one of these customers significantly decreased
during the last quarter of 1995, partially offsetting the decrease in
revenues.
During 1994, an affiliate of Bull HN began offering backup services to Bull
computer users. Previously, the Company had not had a significant competitor
in the Bull back-up services business. The increased competition to procure
backup service contracts adversely affected the Company's revenues in 1995,
and is expected to adversely affect the Company's revenues in the future,
pending the outcome of litigation between the Company and Bull relating to
competitive practices. See Part II, Item 1 - Legal Proceedings.
The Company has announced plans to expand its computer service business to
include "outsourcing" data processing services and consulting, conversion and
testing services in connection with Year 2000 conversion projects. Although
the Company does not believe entry costs for these businesses will be
significant, additional financing be required. Most of the costs of these
services are expected to be incurred to meet the requirements of contracts
and are expected to be funded principally from contract revenues. Initial
costs of providing outsourcing service relate principally to marketing expenses
and cost of any computer equipment needed to meet a customer's requirements.
The Company expects to meet customer requirements initially by utilizing
available computer capacity at its data center, and subsequently by adding
equipment as needed. Additional computer equipment is generally available
and can be acquired and installed at relatively little cost. Initial costs
of providing millennium services relate principally to marketing expenses and
some additional personnel. The Company is actively considering several
alternative sources of financing to meet the initial costs of its business
expansion, including the private and/or public offering of debt or equity
securities. The availability, cost, and timing of financing will affect the
Company's success in implementing its planned expansion, and in particular
its ability to offer millennium services when prospective customers are
initiating conversion projects in anticipation of the year 2000.
The preceding discussion of the Company's financial condition and results of
operations contains forward-looking statements relating to, among other things,
(i) the Company's strategy for expanding its business by offering outsourcing
and millennium services, (ii) expenses relating to equipment, facilities,
personnel, marketing, professional fees, and new service offerings; (iii) the
availability of internal and external sources of financing; (iv) cash flow
requirements and sources of funding therefor, and (v) competitive factors.
These forward-looking statements are based largely on the Company's current
expectations and are subject to a number of risks and uncertainties. Actual
results could differ materially from these forward-looking statements.
Important factors to consider in evaluating such forward-looking statements
include (i) changes in the Company's business strategy or an inability to
execute its strategy due to unanticipated changes in the disaster recovery,
outsourcing or millennium services markets; (ii) unanticipated working capital
or other cash requirements or priorities; (iii) the availability of financing
on reasonable terms; (iv) changes in external competitive market factors or in
the Company's internal budgeting process that might affect trends in the
Company's results of operations; and (v) various competitive factors that may
prevent the Company from competing successfully in the computer services
market. In light of these factors and uncertainties, there can be no assurance
that the forward-looking statements contained in this discussion will in fact
transpire.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
See "Item 3. Legal Proceedings" in the Company's Annual Report on
10-KSB for the year ended December 31, 1995.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security-Holders
The 1996 Annual Meeting of the Company's shareholders was held on July
12, 1996. The Company currently has four directors who are elected to a
one-year term at each annual meeting. John A. Brenzel, James P. Buren,
Richard W. Smith, and John P. Snyder were each elected to a one-year term
as directors at the 1996 Annual Meeting. In addition, three other proposals
were approved by the Company's shareholders at the 1996 Annual Meeting.
Voting information with respect to the matters submitted to shareholders it
set forth below.
1. Election of Directors.
For Against Abstain Broker Nonvote
Mr. Brenzel: 3,263,468 2,500 0 0
Mr. Buren: 3,263,468 2,500 0 0
Mr. Smith: 3,263,468 2,500 0 0
Mr. Snyder: 3,263,468 2,500 0 0
2. Proposal to change the Corporation's name from Dataguard Recovery
Services to Strategia Corporation.
For Against Abstain Broker Nonvote
3,263,468 1,000 41,000 0
3. Proposal to increase number of authorized shares of Common Stock to
15 million shares.
For Against Abstain Broker Nonvote
3,246,968 17,500 1,500 0
4. Proposal of effect a 1-for-2 reverse stock split of the Corporation's
Common Stock.
For Against Abstain Broker Nonvote
3,261,668 2,800 1,500 0
Item 5. Other Events.
On July 29, 1996 the Company announced that the 1-for-2 reverse
stock split of its Common Stock and its change of name from Dataguard
Recovery Services, Inc. to Strategia Corporation had taken effect before the
opening of business that day. As a result of the 1-for-2 reverse stock split,
every two of the Company's common shares outstanding at the effective time
were automatically converted into one new common share of Strategia
Corporation. The Company's name change and reverse stock split had been
approved by the shareholders at the Company's 1996 annual meeting on July
12, 1996.
On June 30, 1996, the Company issued a total of 64,546 shares of newly
authorized Series AA Preferred Stock and a warrant to purchase one share of
Common Stock ("New Preferred Warrants") in connection with a plan to
restructure certain of its current obligations to founding shareholders
and preferred shareholders, who include directors of the Corporation, EPI
Corporation, and certain of EPI's directors. The Company issued one share
of Series AA Preferred and a New Preferred Warrant in payment of each $10.00
in outstanding principal and interest due on loans made in 1985 by founding
shareholders, or a total of 23,424 shares in payment of $234,238 in principal
and interest on the shareholder loans. The interest rate on the retired
shareholder loans was 10% per year. The Company also issued one share of
Series AA Preferred and a New Warrant to its current Series A Preferred
shareholders in payment of each $10.00 of accrued, unpaid dividends payable
on the Series A Preferred, or a total of 6,955 shares in payment of dividend
obligations totaling $69,552 as of June 30, 1996. In addition, the Corporation
issued one share of Series AA Preferred and one New Preferred Warrant in
exchange for each of the 34,167 shares of Series A Preferred outstanding as of
June 30, 1996 and the warrant to purchase one share of Common Stock that was
originally issued with each Series A Preferred share (an "Old Preferred
Warrant").
By restructuring its preferred stock and shareholder loans, the Company
eliminated its outstanding obligations for accrued, unpaid dividends, reduced
the principal balance of loans from shareholders, and reduced the rate of
dividends and interest payable to shareholders in the future. As a result of
these transactions, the Company's preferred shareholders, who have provided
capital necessary for the expansion of the Company's business in past years,
effectively extended the period for converting their Preferred Stock and
exercising their Warrants, and reduced the current exercise price per share
on their Warrants. The Series AA provides for an annual dividend of 8%,
compared to 11.5% on the Series A Preferred. The Series AA Preferred,
like the current Series A Preferred, is convertible into 4 shares of Common
Stock for 5 years after issuance. However, the conversion rights of the Series
A Preferred would have expired during December 1996 and January 1997, while
the conversion rights of the Series AA Preferred continue until June 30, 2001.
The limitations, preferences, and relative rights of the Series AA Preferred
are otherwise identical to those of Series A Preferred. The New Warrant
issued with each share of Series AA Preferred, like the Old Warrant
accompanying the Series A Preferred, has an initial exercise price of $2.50 per
share of Common Stock, which increases by $.50 per year to $4.50 per share
during the fifth year after issuance. However, the Old Warrants would have
expired at December 31, 1996, compared to the June 30, 1996 expiration date
of the New Warrant, and the current exercise price was effectively reduced from
$4.50 to $2.50 per share.
On June 10, 1996, the Company announced that it had commenced offering
millennium consulting, conversion, and testing services to users of mid-range
and large computer systems in both North America and Europe. The Company's
millennium services are designed to enable computer users to modify their
software so their data processing systems function properly in the year 2000
and beyond. The so-called "Year 2000 problem" arises because computer
programs commonly rely on two-digit date codes (MM-DD-YY) for calculations
and decision making functions. Many of these computer programs will fail due
to an inability to properly interpret dates past 1999. Computer industry
analysts have estimated that computer users will expend as much as $300-$600
billion worldwide to address the Year 2000 problem.
A computer disaster recovery specialist for over a decade, the Company
believes that offering millennium services is a logical extension of its
historic business. The Company assists clients to prepare for and avert the
potentially disastrous consequences of the unknown, unplanned interruptions
in data processing. The Year 2000 problem differs only in the that the
problem and the time it will occur are already known. Having provided
disaster recovery as well as outsourcing services, Strategia both can assess
the magnitude of a customer's Year 2000 problem, and has the operational
capability to implement code conversion and testing. Strategia's services
include identification and analysis of the magnitude of a client's potential
problem, conversion of software date codes, and testing the performance of
the converted software at Company data centers. The Company will offer these
services separately or together for organizations that prefer a turnkey
solution for their entire 2000 project. The Company has conducted customer
pilot programs to test its methodology for Year 2000 conversions.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.2 - Amended and Restated Articles of Incorporation
27 - Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act of 1934, the registrant
has caused this amendment to its quarterly report to be signed on its behalf by
the undersigned, hereunto duly authorized.
STRATEGIA CORPORATION
Date: August 14, 1996 By: \s\ Richard W. Smith
Richard W. Smith, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
\s\ Richard W. Smith President and Director August 14, 1996
Richard W. Smith (Chief Executive Officer)
(Chief Financial Officer)
(Chief Accounting Officer)
</TABLE>
ARTICLES OF AMENDMENT AND RESTATEMENT
TO THE
ARTICLES OF INCORPORATION
OF
DATAGUARD RECOVERY SERVICES, INC.
Certificate
I hereby certify that:
I. I am the duly elected and acting President of Dataguard
Recovery Services, Inc. (the "Corporation"). As noted in IV(A)
below, when these Amended and Restated Articles of Incorporation
(the "Restated Articles") take effect, the Corporation's name will
be changed to Strategia Corporation.
II. These Restated Articles contain amendments to the
Corporation's Articles of Incorporation requiring shareholder
approval.
III. These Restated Articles shall take effect at 12:01 a.m.
on July 29, 1996 (the "Effective Time").
IV. As contemplated by KRS 271B.10-070(4)(b), the information
required by KRS 271B.10-060 is as follows:
(A) The name of the Corporation is currently Dataguard
Recovery Services, Inc. At the Effective Time, the name of the
Corporation will become Strategia Corporation.
(B) The Restated Articles:
(1) Amend Articles 1 and 2; and
(2) Effect a 1-for-2 reverse stock split ("Reverse
Stock Split") in which (i) each of the Corporation's shares of
common stock ("Common Stock") issued and outstanding immediately
before the Effective Time ("Pre-Split Common Shares") will be
automatically changed into one-half share of Common Stock as of the
Effective Time ("Post-Split Common Shares"); and (ii) cash will be
paid in lieu of any fractional Post-Split Common Share in an amount
equal to such fraction multiplied by two times the average of the
bid and asked prices of the Pre-Split Common Shares reported by the
National Quotation Bureau, Inc. at the close of business on the
five trading days immediately preceding the Effective Time.
The texts of Articles 1 and 2, as hereby amended and restated, are
set forth in Annex A to these Restated Articles.
(C) The Reverse Stock Split shall be implemented as
follows: (i) each Pre-Split Common Share issued and outstanding
immediately before the Effective Time will be automatically changed
into one-half Post-Split Common Share as of the Effective Time; and
(ii) cash will be paid in lieu of any fractional Post-Split Common
Share in an amount equal to such fraction multiplied by two times
the average of the bid and asked prices of the Pre-Split Common
Shares reported by the National Quotation Bureau, Inc. at the close
of business on the five trading days immediately preceding the
Effective Time.
(D) The amendments were adopted by holders of the Common
Stock at the Corporation's 1996 Annual Meeting of Shareholders (the
"1996 Annual Meeting") which occurred on July 12, 1996. There were
5,045,770 shares of Common Stock issued, outstanding and entitled
to vote at the 1996 Annual Meeting, of which 3,265,968 shares were
indisputably represented at the 1996 Annual Meeting.
(1) The amendment to Article 1, which changes the
name of the Corporation, was approved by a vote of 3,223,968 shares
of Common Stock cast in favor of, and 1,000 shares of Common Stock
cast against, the amendment.
(2) The amendment to Article 2, which increases the
number of shares of Common Stock the Corporation is authorized to
issue, was approved by a vote of 3,246,968 shares of Common Stock
cast in favor of, and 17,500 shares of Common Stock cast against,
the amendment.
(3) The Reverse Stock Split was approved by a vote
of 3,261,668 shares of Common Stock cast in favor of, and 2,800
shares of Common Stock cast against, the Reverse Stock Split.
IN WITNESS WHEREOF, I have signed this certificate on July 16,
1996.
________________________________
Richard W. Smith, President
<PAGE>
Annex A
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
STRATEGIA CORPORATION
1. Name and Principal Office. The Corporation's name shall
be Strategia Corporation. The mailing address of the Corporation's
principal office shall be P.O. Box 37144, Louisville, Kentucky
40232-7144.
2. Authorized Capital Stock. The aggregate number of shares
the Corporation shall have authority to issue shall be seventeen
million (17,000,000) shares divided into (a) one million eight
hundred thousand (1,800,000) shares of preferred stock ("Preferred
Stock") with such preferences, limitations and relative rights as
may be determined by the Board of Directors pursuant to
Article 3(a) and which may be divided into and issued in series;
(b) one hundred thousand (100,000) shares of Preferred Stock,
Series A ("Series A Preferred"), (c) one hundred thousand
(100,000) shares of Preferred Stock, Series AA ("Series AA
Preferred") and (d) fifteen million (15,000,000) shares of common
stock ("Common Stock").
3. Relative Rights and Preferences. A description of the
preferences, limitations, and relative rights of the shares of
Preferred Stock and the shares of Common Stock is as follows:
(a) Preferred Stock. The Board of Directors of the
Corporation is expressly vested with authority to determine, in
whole or part, the preferences, limitations, and relative rights of
the shares of Preferred Stock, or shares of any series of Preferred
Stock, before the issuance of any shares of such class or series.
All shares of a series of Preferred Stock shall have preferences,
limitations, and relative rights identical with those of other
shares of the same series, and, except to the extent provided in
the description of the series, with those of other series of
Preferred Stock. The preferences, limitations, and relative rights
of the shares of Preferred Stock or any series of Preferred Stock
may include, without limitation:
(1) Special, conditional, or limited voting
rights, or no right to vote, except to the extent prohibited by
Chapter 271B of the Kentucky Revised Statutes, or any successor
codification;
(2) Shares of Preferred Stock that are redeemable
or convertible (i) at the option of the Corporation, the
shareholder, or another person or upon the occurrence of a
designated event; (ii) for cash, indebtedness, securities, or other
property; or (iii) in a designated amount or in an amount deter-
mined in accordance with a designated formula or by reference to
extrinsic data or events;
(3) Provisions entitling the holders to distribu-
tions calculated in any manner, including dividends that may be
cumulative, noncumulative, or partially cumulative;
(4) Preferences over any other class of shares with
respect to distributions, including dividends and distributions
upon the dissolution of the Corporation.
(b) Series A Preferred.
(1) Dividends. The Series A Preferred shall pro-
vide a cumulative preferred annual dividend of 11.5% (the "Divi-
dend"), payable on a quarterly basis and before any contemporaneous
payment of dividends of the Common Stock. If the shares of
Series A Preferred are converted before the record date for any
quarterly payment, all accrued interest shall belong to the
Corporation.
(2) Conversion. Each share of Series A Preferred
is convertible into eight (8) shares of Common Stock (the
"Conversion Stock"), an effective conversion price of $1.25 per
share of Common Stock, for a period of five (5) years following the
date of issuance of the Series A Preferred. The number of shares
of Conversion Stock into which each share of Series A Preferred
shall be converted shall be proportionately adjusted for any
increase or decrease in the number of shares of Common Stock out-
standing arising from any division or consolidation of shares,
stock dividend, reverse stock split, or other similar increase or
decrease in the number of shares of Common Stock outstanding
without receipt of consideration by the Corporation. If the Cor-
poration shall at any time merge with or into another corporation
or association, holders of Series A Preferred (the "Holders") will
thereafter receive, upon the conversion of each share thereof, the
securities or property to which a Holder of the number of shares of
Conversion Stock then deliverable upon the conversion of the Series
A Preferred would have been entitled upon such merger, and the
Corporation shall take such steps in connection with such merger as
may be necessary to assure that the provisions of this
subparagraph (2) of Article (b) shall thereafter be applicable, as
nearly as is reasonably possible, in relation to any securities or
property thereafter deliverable upon the conversion of the Series
A Preferred. A share exchange or sale of all or substantially all
the assets of the Corporation for a consideration (apart from the
assumption of obligations) consisting primarily of securities
shall be deemed a merger for the purposes of this subparagraph.
(3) Redemption. The Corporation may redeem any or
all of the shares of Series A Preferred at any time, provided that
the shares of Series A Preferred shall not be redeemed by the
Corporation before January 1, 1997, unless the average of the bid
and asked price of the Common Stock exceeds 150% of the
then-effective conversion price for the Series A Preferred for
twenty (20) of thirty (30) consecutive trading days. The
redemption price per share in effect during each calendar year
shall be as follows:
Calendar Year Redemption Price
1991 and 1992 $11.15
1993 11.035
1994 10.92
1995 10.805
1996 10.69
1997 10.575
1998 10.46
1999 10.345
2000 10.23
2001 10.115
2002 on 10.00
(4) Registration Rights. Holders shall have the
right, one time, upon the demand of Holders of at least 25% of the
Series A Preferred, to cause the Corporation to register ("Demand
Registration") the Series A Preferred and the Conversion Stock
(collectively, the "Registrable Securities") under the Securities
Act of 1933, as amended (the "Act"). In addition, for a period of
five (5) years following the date of issuance of the Series A
Preferred, if the Corporation registers any of its securities under
the Act (other than pursuant to a registration solely covering
shares issued pursuant to a benefit plan, for acquisitions by the
Corporation or for similar corporate purposes), and the
registration form to be used may be used for registration of the
Registrable Securities, the Corporation shall, upon the request of
the Holders, register the Registrable Securities (the "Piggyback
Registration"). The Corporation shall give written notice to the
Holders of its intention to affect the Piggyback Registration and
shall include in such Piggyback Registration all of the Registrable
Securities with respect to which the Corporation has received a
written request for inclusion therein within fifteen (15) days
after delivery of the Corporation's notice, provided, however, that
if the inclusion of such Registrable Securities would, in the
opinion of the underwriters, adversely affect the ability of the
underwriters of a public offering of the Corporation's securities
to market all of the securities to be registered, then the
Corporation shall not be required to make the Piggyback
Registration. The Corporation shall pay the expenses of the Demand
and Piggyback Registrations, except for fees of legal counsel and
other advisors engaged by the Holders and the Holders' prorated
share of any underwriters' discount or commissions. In any Demand
or Piggyback Registration, the participating Holders shall
cooperate in furnishing any required information to the Corporation
and shall indemnify the Corporation against all claims, damages,
losses, expenses, etc., arising out of any material untrue
statement or omissions made on the basis of information furnished
by the Holders.
(5) Liquidation Rights. Upon the liquidation,
dissolution or winding up of the affairs of the Corporation, the
Holders are entitled to receive from the assets of the Corporation
$12.50 per share of Series A Preferred, plus any accrued but unpaid
Dividends. Holders of Series A Preferred shall have a right to
payment of this amount before any payment to Common Stock
shareholders and such amount shall be paid to all Holders prior to
the distribution of any assets to the holders of Common Stock or of
any other securities junior to the Series A Preferred. If, upon
liquidation, dissolution or winding up, the assets distributable to
the Holders are insufficient to permit payment in full of the
preferential amounts, then those assets are to be distributed, pro
rata, first among the holders of Series A Preferred until they
receive full payment of the preferential amounts, and then among
the other shareholders of the Corporation. After payment of the
preferential amounts to the Holders, or after sufficient assets to
effect such payments have been deposited by the Corporation in an
appropriate bank or trust company, the remaining assets may be paid
to the Common Stock shareholders or to holders of junior
securities.<PAGE>
(6) Voting Rights. Holders of Series A Preferred
shall have no voting rights except upon the occurrence of an Event
of Default, as defined in subparagraph 8 of this Article 3(b).
Upon the occurrence of an Event of Default, the Holders shall,
voting as a separate voting group, have the right to elect one
director to the Corporation's Board of Directors at a special
meeting of all shareholders called upon notice signed by Holders of
at least 10% of the Series A Preferred. Holders of Series A
Preferred shall have no other voting rights and the voting rights
of the Series A Preferred shall expire upon the Corporation's cure
of any such default.
(7) Restrictions on Future Issuances. The Corpo-
ration shall not issue shares with a preference superior to the
Series A Preferred as to dividend rights, conversion rights,
redemption rights, or liquidation rights without the prior approval
by the Holders of two-thirds (2/3) of the Series A Preferred.
(8) Events of Default. An Event of Default, for
which Holders may elect a director to the Corporation's Board of
Directors pursuant to subparagraph (6) of this Article 3(b), shall
be deemed to have occurred if:
(a) the accrued but unpaid Dividends on the
Series A Preferred total an amount equal to or exceeding $1.15
multiplied by the number of shares of Series A Preferred then
outstanding;
(b) the Corporation or any subsidiary of the
Corporation ("Subsidiary") makes an assignment for the benefit of
creditors or admits in writing its inability to pay its debts
generally as they become due; an order, judgment or decree is
entered adjudicating the Corporation or any Subsidiary bankrupt or
insolvent; any order for relief with respect to the Corporation or
any Subsidiary is entered under the Bankruptcy Act; the Corporation
or any Subsidiary petitions or applies to any tribunal for the
appointment of a trustee, receiver or liquidator of the Corporation
or any Subsidiary, or of any substantial part of the assets of the
Corporation or any Subsidiary, or commences any proceedings (other
than proceedings for the voluntary liquidation and dissolution of
a Subsidiary) relating to the Corporation of any Subsidiary under
any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of any
jurisdiction, whether now or hereafter in effect; any such petition
or application is filed, or any such proceedings are commenced
against the Corporation or any Subsidiary and the Corporation or
any such Subsidiary by any act indicates its approval thereof,
consent thereto or acquiescence therein, or an order, judgment or
decree is entered appointing any such trustee, receiver or
liquidator, or approving the petition in any such proceedings, and
such order, judgment or decree remains unstayed and in effect for
more than sixty days; any involuntary case is commenced under the
Bankruptcy Code with respect to the Corporation or any Subsidiary
and is not dismissed within sixty days; any order, judgment or
decree is entered in any proceedings against the Corporation or any
Subsidiary decreeing the dissolution of the Corporation or such
Subsidiary and such order, judgment or decree remains unstayed and
in effect for more than sixty days; any order, judgment or decree
is entered in any proceedings against the Corporation or any
Subsidiary decreeing a split-up of the Corporation or such
Subsidiary and such order, judgment or decree remains unstayed and
in effect for more than sixty days; or<PAGE>
(c) the Corporation or any Subsidiary defaults
in any payment of principal of or interest on any obligation
exceeding $100,000 for money borrowed or received (or any
obligation under conditional sale or other title retention agree-
ment or any obligation issued or assumed as full or partial
payment for property whether or not secured by purchase money
mortgage or any obligation under notes payable or draft accepted
representing extensions of credit) beyond any period of grace
provided with respect thereto, or defaults in the performance of
any other agreement, term or condition contained in any agreement
under which any such obligation is created (or if any other default
under any such agreement shall occur and be continuing) if the
effect of such default is to cause, or to permit the holder or
holders of such obligation (or a trustee on behalf of such holder
or holders) to cause, such obligation to become due prior to its
stated maturity.
(c) Series AA Preferred.
(1) Dividends. The Series AA Preferred shall pro-
vide a cumulative preferred annual dividend of 8% (the "Dividend"),
payable on a quarterly basis and before any contemporaneous payment
of dividends of the Common Stock. If the shares of Series AA
Preferred are converted before the record date for any quarterly
payment, all accrued interest shall belong to the Corporation.
(2) Conversion. Each share of Series AA Preferred
is convertible into eight (8) shares of Common Stock (the "Con-
version Stock"), an effective conversion price of $1.25 per share
of Common Stock, for a period of five (5) years following the date
of issuance of the Series AA Preferred. The number of shares of
Conversion Stock into which each share of Series AA Preferred shall
be converted shall be proportionately adjusted for any increase or
decrease in the number of shares of Common Stock outstanding
arising from any division or consolidation of shares, stock
dividend, reverse stock split, or other similar increase or
decrease in the number of shares of Common Stock outstanding
without receipt of consideration by the Corporation. If the Cor-
poration shall at any time merge with or into another corporation
or association, holders of Series AA Preferred (the "Holders") will
thereafter receive, upon the conversion of each share thereof, the
securities or property to which a Holder of the number of shares of
Conversion Stock then deliverable upon the conversion of the Series
AA Preferred would have been entitled upon such merger, and the
Corporation shall take such steps in connection with such merger as
may be necessary to assure that the provisions of this
subparagraph (2) of Article 3(c) shall thereafter be applicable, as
nearly as is reasonably possible, in relation to any securities or
property thereafter deliverable upon the conversion of the Series
AA Preferred. A share exchange or sale of all or substantially all
the assets of the Corporation for a consideration (apart from the
assumption of obligations) consisting primarily of securities
shall be deemed a merger for the purposes of this subparagraph.
(3) Redemption. The Corporation may redeem any or
all of the shares of Series AA Preferred at any time, provided that
the shares of Series AA Preferred shall not be redeemed by the
Corporation before January 1, 1997, unless the average of the bid
and asked price of the Common Stock exceeds 150% of the
then-effective conversion price for the Series AA Preferred for
twenty (20) of thirty (30) consecutive trading days. The
redemption price per share in effect during each calendar year
shall be as follows:
Calendar Year Redemption Price
1996 10.69
1997 10.575
1998 10.46
1999 10.345
2000 10.23
2001 10.115
2002 on 10.00
(4) Registration Rights. Holders shall have the
right, one time, upon the demand of Holders of at least 25% of the
Series AA Preferred, to cause the Corporation to register ("Demand
Registration") the Series AA Preferred and the Conversion Stock
(collectively, the "Registrable Securities") under the Securities
Act of 1933, as amended (the "Act"). In addition, for a period of
five (5) years following the date of issuance of the Series AA
Preferred, if the Corporation registers any of its securities under
the Act (other than pursuant to a registration solely covering
shares issued pursuant to a benefit plan, for acquisitions by the
Corporation or for similar corporate purposes), and the
registration form to be used may be used for registration of the
Registrable Securities, the Corporation shall, upon the request of
the Holders, register the Registrable Securities (the "Piggyback
Registration"). The Corporation shall give written notice to the
Holders of its intention to affect the Piggyback Registration and
shall include in such Piggyback Registration all of the Registrable
Securities with respect to which the Corporation has received a
written request for inclusion therein within fifteen (15) days
after delivery of the Corporation's notice, provided, however, that
if the inclusion of such Registrable Securities would, in the
opinion of the underwriters, adversely affect the ability of the
underwriters of a public offering of the Corporation's securities
to market all of the securities to be registered, then the
Corporation shall not be required to make the Piggyback
Registration. The Corporation shall pay the expenses of the Demand
and Piggyback Registrations, except for fees of legal counsel and
other advisors engaged by the Holders and the Holders' prorated
share of any underwriters' discount or commissions. In any Demand
or Piggyback Registration, the participating Holders shall
cooperate in furnishing any required information to the Corporation
and shall indemnify the Corporation against all claims, damages,
losses, expenses, etc., arising out of any material untrue
statement or omissions made on the basis of information furnished
by the Holders.
(5) Liquidation Rights. Upon the liquidation,
dissolution or winding up of the affairs of the Corporation, the
Holders are entitled to receive from the assets of the Corporation
$12.50 per share of Series AA Preferred, plus any accrued but
unpaid Dividends. Holders of Series AA Preferred shall have a
right to payment of this amount before any payment to Common Stock
shareholders and such amount shall be paid to all Holders prior to
the distribution of any assets to the holders of Common Stock or of
any other securities junior to the Series AA Preferred. If, upon
liquidation, dissolution or winding up, the assets distributable to
the Holders are insufficient to permit payment in full of the
preferential amounts, then those assets are to be distributed, pro
rata, first among the holders of Series AA Preferred until they
receive full payment of the preferential amounts, and then among
the other shareholders of the Corporation. After payment of the
preferential amounts to the Holders, or after sufficient assets to
effect such payments have been deposited by the Corporation in an
appropriate bank or trust company, the remaining assets may be paid
to the Common Stock shareholders or to holders of junior
securities.
(6) Voting Rights. Holders of Series AA Preferred
shall have no voting rights except upon the occurrence of an Event
of Default, as defined in subparagraph 8 of this Article 3(c).
Upon the occurrence of an Event of Default, the Holders shall,
voting as a separate voting group, have the right to elect one
director to the Corporation's Board of Directors at a special
meeting of all shareholders called upon notice signed by Holders of
at least 10% of the Series AA Preferred. Holders of Series AA
Preferred shall have no other voting rights and the voting rights
of the Series AA Preferred shall expire upon the Corporation's cure
of any such default.
(7) Restrictions on Future Issuances. The Corpo-
ration shall not issue shares with a preference superior to the
Series AA Preferred as to dividend rights, conversion rights,
redemption rights, or liquidation rights without the prior approval
by the Holders of two-thirds (2/3) of the Series AA Preferred.
(8) Events of Default. An Event of Default, for
which Holders may elect a director to the Corporation's Board of
Directors pursuant to subparagraph (6) of this Article 3(c), shall
be deemed to have occurred if:
(a) the accrued but unpaid Dividends on the
Series AA Preferred total an amount equal to or exceeding $1.15
multiplied by the number of shares of Series AA Preferred then
outstanding;
(b) the Corporation or any subsidiary of the
Corporation ("Subsidiary") makes an assignment for the benefit of
creditors or admits in writing its inability to pay its debts
generally as they become due; an order, judgment or decree is
entered adjudicating the Corporation or any Subsidiary bankrupt or
insolvent; any order for relief with respect to the Corporation or
any Subsidiary is entered under the Bankruptcy Act; the Corporation
or any Subsidiary petitions or applies to any tribunal for the
appointment of a trustee, receiver or liquidator of the Corporation
or any Subsidiary, or of any substantial part of the assets of the
Corporation or any Subsidiary, or commences any proceedings (other
than proceedings for the voluntary liquidation and dissolution of
a Subsidiary) relating to the Corporation of any Subsidiary under
any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of any
jurisdiction, whether now or hereafter in effect; any such petition
or application is filed, or any such proceedings are commenced
against the Corporation or any Subsidiary and the Corporation or
any such Subsidiary by any act indicates its approval thereof,
consent thereto or acquiescence therein, or an order, judgment or
decree is entered appointing any such trustee, receiver or
liquidator, or approving the petition in any such proceedings, and
such order, judgment or decree remains unstayed and in effect for
more than sixty days; any involuntary case is commenced under the
Bankruptcy Code with respect to the Corporation or any Subsidiary
and is not dismissed within sixty days; any order, judgment or
decree is entered in any proceedings against the Corporation or any
Subsidiary decreeing the dissolution of the Corporation or such
Subsidiary and such order, judgment or decree remains unstayed and
in effect for more than sixty days; any order, judgment or decree
is entered in any proceedings against the Corporation or any
Subsidiary decreeing a split-up of the Corporation or such
Subsidiary and such order, judgment or decree remains unstayed and
in effect for more than sixty days; or
(c) the Corporation or any Subsidiary defaults
in any payment of principal of or interest on any obligation
exceeding $100,000 for money borrowed or received (or any
obligation under conditional sale or other title retention agree-
ment or any obligation issued or assumed as full or partial
payment for property whether or not secured by purchase money
mortgage or any obligation under notes payable or draft accepted
representing extensions of credit) beyond any period of grace
provided with respect thereto, or defaults in the performance of
any other agreement, term or condition contained in any agreement
under which any such obligation is created (or if any other default
under any such agreement shall occur and be continuing) if the
effect of such default is to cause, or to permit the holder or
holders of such obligation (or a trustee on behalf of such holder
or holders) to cause, such obligation to become due prior to its
stated maturity.
(d) Common Stock. Each outstanding share of Common
Stock shall be entitled to one vote on each matter submitted to a
vote at a meeting of shareholders and receive the net assets of the
Corporation upon dissolution. The Common Stock shall be subject to
the provisions of Articles 2 and 3 and the provisions of any
resolution or resolutions validly adopted by the Board of Directors
in exercise of the authority expressly vested in the Board of
Directors by Article 3(a).
4. Directors. The number of directors of the Corporation
shall be not less than 4 nor more than 9, the exact number to be
fixed from time to time within that range by the shareholders or
the Board of Directors. Only the shareholders may change the range
for the size of the Board of Directors. In a interval between
meetings of the shareholders held for the election of directors,
the Board of Directors, by the affirmative vote of a majority of
the directors then in office, whether or not a quorum of the Board
of Directors, may fill any vacancy in the Board of Directors,
whether resulting from an increase in the authorized number of
directors or otherwise. Any directorship filled by the Board of
Directors shall expire at the next shareholders meeting at which
directors are elected.
5. Business Combination. The Corporation shall not be
governed by the provisions of Section 271B.12-210 of the Kentucky
Revised Statutes.
6. No Preemptive Rights. No shareholder shall have any
preemptive right to acquire unissued or treasury shares or secu-
rities convertible into such shares or carrying a right to sub-
scribe to or acquire shares.
7. Limitation on Director Liability. A director of the
Corporation shall not be personally liable to the Corporation or
its shareholders for monetary damages for breach of duty as a
director, except for liability (i) for any transaction in which the
director's personal financial interest is in conflict with the
financial interest of the Corporation or its shareholders; (ii) for
acts or omissions not in good faith or which involve intentional
misconduct or are known to the director to be a violation of law;
(iii) under KRS 271B.8-330; (iv) for any transaction from which the
director derived an improper personal benefit. If the Kentucky
Business Corporation Act is amended after approval of this Article
by the shareholders to authorize corporate action further
eliminating or limiting the personal liability of directors, then
the liability of a director of the Corporation shall be eliminated
to the full extent permitted by the Kentucky Business Corporation
Act, as so amended. Any repeal or modification of this Article by
the shareholders of the Corporation shall not adversely affect any
limitation on the liability of a director of the Corporation from
matters arising before the time of such repeal or modification.
* * * * *
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> $ 1,102,039
<SECURITIES> 0
<RECEIVABLES> 1,115,026
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,557,848
<PP&E> 18,558,370
<DEPRECIATION> 8,621,353
<TOTAL-ASSETS> 12,957,564
<CURRENT-LIABILITIES> 5,771,102
<BONDS> 1,001,465
<COMMON> 3,045,833
0
645,460
<OTHER-SE> (2,449,613)
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<INCOME-PRETAX> (138,208)
<INCOME-TAX> 122,761
<INCOME-CONTINUING> (260,969)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (260,969)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
