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, 1997
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
(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.
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 - 4,666,819.
STRATEGIA CORPORATION AND SUBSIDIARIES
<TABLE>
Condensed Consolidated Balance Sheets
<CAPTION>
June 30, December 31,
1997 1996
(Unaudited)
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,438,780 $ 338,436
Accounts receivable, net 2,070,203 1,099,636
Other current assets 284,175 57,738
Total current assets 9,793,158 1,495,810
Property and equipment 18,359,042 18,335,606
Less accumulated depreciation and amortization 10,680,223 9,851,977
7,678,819 8,483,629
Other assets 483,177 765,971
$17,955,154 $10,745,410
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt $ 226,181 $ 63,008
Current installments of obligations under
capital leases 1,657,284 1,973,729
Note payable to stockholder - 800,000
Accounts payable 570,069 695,079
Accrued income taxes 28,663 55,196
Accrued expenses and other current liabilities 1,014,993 896,865
Total current liabilities 3,497,190 4,483,877
Long-term debt, excluding current installments 1,080,537 978,598
Obligations under capital leases,
excluding current installments 844,435 1,705,724
Customers' deposits 60,926 54,117
Deferred revenue 1,640,058 1,072,469
Deferred income taxes 333,524 378,312
Total liabilities 7,456,670 8,673,097
Stockholders' equity:
Preferred stock -- authorized 2,000,000 shares:
Series AA Convertible Preferred ($10 stated value);
authorized 100,000 shares; issued and
outstanding 0 shares at June 30, 1997
and 64,546 shares at December 31, 1996 - 645,460
Common stock without par value. Authorized
15,000,000 shares; issued and outstanding
4,666,819 shares at June 30, 1997 and
3,038,885 shares at December 31, 1996 13,615,550 4,386,834
Accumulated deficit (2,968,740) (2,938,423)
Foreign currency translation (148,326) (21,558)
Total stockholders' equity 10,498,484 2,072,313
$17,955,154 $10,745,410
</TABLE>
See notes to unaudited condensed consolidated financial statements.
STRATEGIA CORPORATION AND SUBSIDIARIES
<TABLE>
Condensed Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Service revenues 2,771,850 $2,375,601 $5,473,698 $4,719,718
Operating expenses:
Cost of services 1,958,808 1,866,200 3,908,411 3,372,685
Selling, general and
administrative expenses 800,059 539,952 1,294,194 1,128,062
2,758,867 2,406,152 5,202,605 4,500,747
Operating income (loss) 12,983 (30,551) 271,093 218,971
Other income (expense):
Interest expense (104,269) (202,232) (276,283) (363,939)
Other 99,876 4,963 84,278 6,760
(4,393) (197,269) (192,005) (357,179)
Income (loss) before
income taxes $ 8,590 $(227,820) $ 79,088 $ (138,208)
Provision for income taxes 31,993 23,636 84,001 122,761
Net loss $ (23,403) $(251,456) $ (4,913) $ (260,969)
Net loss per share
of common stock $ (.01) $ (.10) $ (.01) $ (.10)
Weighted average number
of common shares
outstanding 4,407,722 2,522,006 3,068,356 2,517,962
</TABLE>
See notes to unaudited condensed consolidated financial statements.
STRATEGIA CORPORATION AND SUBSIDIARIES
<TABLE>
Condensed Consolidated Statement of Stockholders' Equity
(Unaudited)
<CAPTION>
Series AA Foreign
Preferred Common Accumulated Currency
Stock Stock Deficit Translation Total
<S> <C> <C> <C> <C> <C>
Balance at
December 31,
1996 $ 645,460 $ 4,386,834 $(2,938,423) $ (21,558) $ 2,072,313
Issuance of
1,366,000
shares of
Common Stock,
Net of
offering costs - 8,583,256 - - 8,583,256
Net income for
three months
ended March
31, 1997 - - 18,490 - 18,490
Payments of
dividends - - (12,731) - (12,731)
Translation
adjustment at
March 31, 1997 - - - (84,005) (84,005)
Balance at March
31, 1997 645,460 12,970,090 (2,932,664) (105,563) 10,557,323
Conversion of
Series AA
Preferred Stock (645,460) 645,460 - - -
Net loss for
Three months ended
June 30, 1997 - - (23,403) - (23,403)
Payments of
Dividends - - (12,673) - (12,673)
Translation
adjustment at
June 30, 1997 - - - (42,763) (42,763)
Balance at June
30, 1997 $ - $13,615,550 $(2,968,740) $(148,326) $10,498,484
</TABLE>
See notes to unaudited condensed consolidated financial statements.
STRATEGIA CORPORATION AND SUBSIDIARIES
<TABLE>
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Six Months Ended
June 30,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (4,913) $ (260,969)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 1,280,290 1,343,969
Deferred income taxes - 8,870
Other 1,048 (3,105)
Change in operating assets and liabilities:
Accounts receivable (1,107,151) (38,139)
Other current assets (229,647) 131,246
Accounts payable (110,571) 181,575
Accrued expenses 206,057 131,462
Accrued income taxes (18,755) (143,837)
Increase in other assets 200,468 (50,620)
Increase in deferred revenue 736,816 1,330,803
Increase (decrease) in customers' deposits 7,442 14,207
Net cash provided by operating activities 961,084 2,645,462
Cash flows from investing activities:
Acquisition of property and equipment (527,192) (282,684)
Net cash used in investing activities (527,192) (282,684)
Cash flows from financing activities:
Proceeds from sale of common stock, net 8,528,256 -
Proceeds from bank line of credit 100,000 250,000
Payment of note payable to stockholder (800,000) -
Principal payments on long-term debt and
obligations under capital leases (1,077,653) (1,653,826)
Payment of dividends on preferred stock 25,404) -
Net cash used in financing
activities 6,725,199 (1,403,826)
Effect of exchange rate changes on cash (58,747) (27,549)
Net increase (decrease) in cash and cash equivalents 7,100,344 931,402
Cash and cash equivalents at beginning of period 338,436 170,636
Cash and cash equivalents at end of period $7,438,780 $1,102,039
</TABLE>
See notes to unaudited condensed consolidated financial statements.
STRATEGIA CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
June 30, 1997
(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, 1997 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, 1996.
(3) For financial reporting purposes, income (loss) before income taxes for
the three and six months ended June 30, 1997 and 1996, includes the following
components:
<TABLE>
<CAPTION>
Three months Six months
ended June 30, ended June 30,
Pretax income (loss): 1997 1996 1997 1996
<S> <C> <C> <C> <C>
United States $ (78,654) $ (292,277) $(149,987) $ (472,981)
Foreign 87,244 64,457 229,075 334,773
$ 8,590 (227,820) $ 79,088 $ (138,208)
</TABLE>
The provision for income tax expense is attributable to earnings from foreign
operations.
(1) Income (loss) per share is based on net income (loss) 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.
(1) The Company called its Series AA Preferred Stock on June 30, 1997. All
preferred shares were converted to Common Stock.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
The Company reported revenue of $2,771,850 and $5,473,698 for the three and
six months ended June 30, 1997, respectively. This compares to revenue of
$2,375,601 and $4,719,718 for the comparable periods in 1996. The Company
reported net losses of $23,403 and $4,913 for the three and six months
ended June 30, 1997 after reporting net losses of $251,456 and $260,969 for the
same periods in 1996. The increase in revenue in 1997 is attributable mainly
to additional computer services revenues generated in North America associated
with millennium consulting. Revenue recorded for the three and six months
ended June 30, 1997 by the Company's subsidiary, Twinsys Dataguard S.A.
(hereinafter referred to as "Twinsys") was comparable to the revenue recorded
for the same periods in 1996.
Consolidated service revenue increased $396,249 and $753,980 for the three
and six month periods ended June 30, 1997 when compared to the same periods
in 1996. Twinsys accounted for approximately 65% and 60% of consolidated
service revenue, respectively, for these periods in 1997. It is expected that
the percentage of the Company's consolidated service revenue generated by
Twinsys will continue to decrease during 1997 due to the anticipated continued
growth of revenues from millennium and outsourcing services in North America.
The overall development of the millennium services market in Europe is slower
than in North America. Revenue from millennium service contracts totaled
approximately 50% of the Company's North American revenues recorded for the
three month period ended June 30, 1997. The Company currently has both
outsourcing and millennium service contracts in process in North America.
The Company's operating expenses increased to $2,758,867 from $2,406,152 and
$5,202,605 from $4,500,747 for the three and six months ended June 30, 1997
when compared to the same periods in 1996, respectively. Operating expenses
for North American operations increased approximately 52% for the three months
ended June 30, 1997 and 37% for the six months ended June 30, 1997 when
compared to the same periods in 1996. These increases reflect (i) significant
growth in the Company's technical and direct marketing staffs in anticipation
of increased demand for millennium and outsourcing services, (ii) expenditures
associated with the Company's new compliance testing center that was
established in April, and (iii) increases in expenditures for advertising,
promotions, and trade shows both in North America and Europe regarding Year
2000 and other computer services offerings. Operating expenses as a percentage
of total revenues are expected to increase over the last half of 1997 as the
Company continues to add key personnel, facilities and equipment to meet the
expected demand for millennium services.
The Company's selling, general and administrative expenses for the three and
six month periods ended June 30, 1997 increased approximately 48% and 15%,
respectively, when compared to the same periods last year. Following the
completion of its public offering of Common Stock on March 31, 1997, the
Company incurred increases in professional fees and other expenses related to
investor relations services, stock market listing, and similar post-offering
matters.
Interest expense totaled $104,269 and $276,283 for the three and six months
ended June 30, 1997, respectively, as compared to $202,232 and $363,939 for
the same periods last year. Interest expense is related mainly to capital
leases for computer equipment. The reduction is attributable to a pay down in
capital lease obligations and the repayment of a stockholder loan from the
offering proceeds received during the first quarter of 1997.
The provision for income taxes totaled $84,001 and $122,761 for the six month
periods ended June 30, 1997 and 1996, respectively. These amounts reflect
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, 1997, the Company had working capital totaling $6,295,968. In
March 1997, the Company completed a public offering of its Common Stock that
raised $8,528,256, net of offering expenses. The Company has used a portion of
these offering proceeds to repay an $800,000 stockholder loan and to pay
certain accounts payable, accrued expenses, and other current liabilities. The
Company has also used offering proceeds to add marketing staff, project
managers, and technical personnel in anticipation of the increased demand for
millennium services during the next several months. In addition, the Company
plans to use offering proceeds to establish and equip regional testing
facilities as Year 2000 conversion projects enter the implementation phase. The
Company established one such facility in North America during April 1997. The
Company has plans to assist in the initial capitalization and financing of
efforts to establish a presence in Europe for millennium services as well as
Euro currency conversion services.
Pending use for working capital needs, the Company has converted a portion of
the net offering proceeds in short-term, investment-grade, interest-bearing
securities.
The Company called its Series AA Preferred Stock at June 30, 1997. The holders
of all preferred shares elected to convert their Preferred to Common Stock.
Therefore, no cash outlay was required in the call of these shares.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
On June 9, 1997, the Company called for redemption effective June 30, 1997, all
64,546 outstanding shares of its Series AA Preferred Stock ("Series AA
Shares"). In lieu of redemption, all of the holders of the Series AA Shares
elected to convert each of their Series AA Shares into 4 shares of Common
Stock. In the conversion, the Company issued 258,184 shares of Common Stock as
of June 30, 1997, and relied upon the exemption from registration pursuant to
Section 3(a)(9) of the Securities Act of 1933.
The Company engaged Innovative Research Associates, Inc. ("IRA") as of April 1,
1997, to provide certain consulting services in connection with Strategia's
efforts to disseminate information about the Company and its business to the
United States public securities markets. The compensation for services to be
rendered by IRA includes an option to purchase 25,000 shares of Common Stock at
a price of $8.90 per share, exercisable at any time through April 1, 1998. The
price of the Common Stock at the close of business on April 1, 1997 was $8.75.
The option contains customary provisions to prevent dilution in the event of
stock splits, stock dividends and other changes to the Common Stock. The
option was issued in reliance upon the exemption from registration pursuant to
Section 4(2) of the Securities Act of 1933.
The Company engaged RAIFINANZ AG, Zurich, Switzerland ("RAI"), as of May 1,
1997, to provide certain consulting services in connection with Strategia's
efforts to disseminate information about the Company and its business to
current shareholders and other interested parties in Europe. The compensation
for services to be rendered by RAI includes an option to purchase 90,000 shares
of Common Stock at a price of $8.30 per share, exercisable at any time through
January 1, 1998. The price of the Common Stock at the close of business on May
1, 1997 was $7.50. The option contains customary provisions to prevent
dilution in the event of stock splits, stock dividends and other changes to the
Common Stock. The option was issued in reliance upon the exemption from
registration pursuant to Section 4(2) of the Securities Act of 1933.
During the second quarter, the Company granted employee stock options to
purchase a total of 115,000 shares of Common Stock to eight employees under the
terms of its 1988 Stock Option Plan. The exercise price of the options granted
under the Plan is the market price of the Common Stock on the date of the
grant, and ranged from $8.00 to $15.625 per share for the options granted
during the quarter. Options to purchase 10,000 shares at an exercise price of
$7.25 were issued to one employee during the first quarter. The Plan also
provided for an automatic grant of options to purchase 500 shares at $12.50 per
share as of May 15, 1997, to each of the Company's two nonemployee directors.
The options are subject to vesting and certain other conditions set forth in
the Plan. The options granted under the Plan were issued in reliance upon the
exemption from registration pursuant to Section 4(2) of the Securities Act of
1933.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security-Holders
None.
Item 5. Other Events.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
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 13, 1997 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 13, 1997
Richard W. Smith (Chief Executive Officer)
(Chief Financial Officer)
(Chief Accounting Officer)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> $ 7,438,780
<SECURITIES> 0
<RECEIVABLES> 2,070,203
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,793,158
<PP&E> 18,359,042
<DEPRECIATION> 10,680,223
<TOTAL-ASSETS> 17,995,154
<CURRENT-LIABILITIES> 3,497,190
<BONDS> 1,080,537
<COMMON> 13,615,550
0
0
<OTHER-SE> (3,117,066)
<TOTAL-LIABILITY-AND-EQUITY> 17,995,154
<SALES> 0
<TOTAL-REVENUES> 5,473,698
<CGS> 0
<TOTAL-COSTS> 5,202,605
<OTHER-EXPENSES> 192,005
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 79,088
<INCOME-TAX> 84,001
<INCOME-CONTINUING> (4,913)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,913)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
