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 March 31, 1997
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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 - 4,404,885 as of May 13, 1997.
STRATEGIA CORPORATION AND SUBSIDIARIES
<TABLE>
Condensed Consolidated Balance Sheets
<CAPTION>
March 31, December 31,
1997 1996
(Unaudited) (Audited)
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,405,528 $ 338,436
Accounts receivable, net 2,454,889 1,099,636
Other current assets 227,642 57,738
Total current assets 11,088,059 1,495,810
Property and equipment 17,910,040 18,335,606
Less accumulated depreciation and amortization 10,239,028 9,851,977
7,671,012 8,483,629
Other assets 510,732 765,971
$19,269,803 $10,745,410
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt $ 161,704 $ 63,008
Current installments of obligations
under capital leases 1,855,362 1,973,729
Note payable to stockholder - 800,000
Accounts payable 855,339 695,079
Accrued income taxes 80,842 55,196
Accrued expenses and other current liabilities 1,156,088 896,865
Total current liabilities 4,109,335 4,483,877
Long-term debt, excluding current installments 967,695 978,598
Obligations under capital leases,
excluding current installments 1,120,670 1,705,724
Customers' deposits 59,981 54,117
Deferred revenue 2,087,075 1,072,469
Deferred income taxes 347,724 378,312
Total liabilities 8,692,480 8,673,097
Stockholders' equity:
Preferred stock -- authorized 2,000,000 shares:
Series AA Convertible Preferred Stock
($10 stated value); authorized 100,000 shares;
issued and outstanding 64,546 645,460 645,460
Common stock without par value. Authorized
15,000,000 shares; issued and outstanding
4,404,885 shares 12,970,090 4,386,834
Accumulated deficit (2,932,664) (2,938,423)
Foreign currency translation adjustment (105,563) (21,558)
Total stockholders' equity 10,577,323 2,072,313
$19,269,803 $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
March 31,
1997 1996
<S> <C> <C>
Service revenues $ 2,701,848 $ 2,344,117
Operating expenses:
Cost of services 1,949,603 1,506,485
Selling, general and administrative expenses 494,135 588,109
2,443,738 2,094,594
Operating income 258,110 249,522
Other income (expense):
Interest expense (172,014) (161,707)
Other income (expense) (15,598) 1,797
(187,612) (159,910)
Income before income taxes 70,498 89,612
Income taxes 52,008 99,125
Net income (loss) $ 18,490 $ (9,513)
Net income (loss) per common and common
equivalent share $ - $ -
Weighted average number of common and
common equivalent shares outstanding 3,840,353 2,513,918
</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) $10,577,323
</TABLE>
See notes to unaudited condensed consolidated financial statements.
STRATEGIA CORPORATION AND SUBSIDIARIES
<TABLE>
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 18,490 $ (9,513)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 689,724 578,702
Other (626) 2,852
Change in operating assets and liabilities:
Accounts receivable (1,487,253) (2,447,660)
Other current assets (173,370) 73,685
Accounts payable 169,046 62,035
Accrued expenses and other current
liabilities 269,403 180,750
Accrued income taxes 33,908 99,125
Increase in other assets 224,805 (150,470)
Increase in deferred revenue 1,146,036 2,023,361
Increase in customers' deposits 43,142 13,543
Net cash provided by operating
activities 932,621 426,410
Cash flows from investing activities:
Acquisition of property and equipment (171,721) (97,312)
Net cash used in investing
activities (171,721) (97,312)
Cash flows from financing activities:
Proceeds from sale of common stock, net 8,528,256 -
Proceeds from bank line of credit 100,000 -
Proceeds from long-term debt - 215,000
Payment of note payable to stockholder (800,000) -
Principal payments on long-term debt and
obligations under capital leases (478,860) (572,737)
Payments of dividends on preferred stock (12,731) -
Net cash provided by (used in)
financing activities 7,336,665 (357,737)
Effect of exchange rate changes on cash (30,473) (5,501)
Net increase (decrease) in cash and cash
equivalents 8,067,092 (34,140)
Cash and cash equivalents at beginning of
period 338,436 170,636
Cash and cash equivalents at end of period $ 8,405,528 $ 136,496
</TABLE>
See notes to unaudited condensed consolidated financial statements.
STRATEGIA CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 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 March 31, 1997 and the results of operations and cash flows for the
three months then ended.
(2) This financial information should be read in conjunction with the
consolidated 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 ended March 31, 1997 and 1996, includes the following components:
<TABLE>
<CAPTION>
Three months
ended March 31,
Pretax income (loss): 1997 1996
<S> <C> <C>
United States $ (71,329) $ (180,704)
Foreign 141,827 270,316
$ 70,498 $ 89,612
</TABLE>
The provision for income tax expense is attributable to earnings from foreign
operations.
(4) In March 1997, the Company completed a public offering of its Common Stock
that raised $8,528,256, net of offering expenses. A portion of the offering
proceeds were used to repay an $800,000 loan and related accrued interest from
a shareholder.
(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.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Preliminary Note Regarding Forward Looking Information
The information set forth in "Management's Discussion and Analysis of Results
of Operations and Financial Condition" includes forward-looking statements.
Factors that could cause results to differ materially from those projected in
the forward-looking statements are included in the following discussion and
are described in greater detail in the Company's Form 10-KSB Annual Report
for the year ended December 31, 1996 under "Item 1 Business -- Risk Factors."
Results of Operations
The Company reported revenue of $2,701,848 for the three months ended March 31,
1997. This compares to revenue of $2,344,117 for the comparable period in 1996.
The Company reported net income of $18,490 for the three months ended March
31, 1997 compared to a net loss of $9,513 for the same period in 1996. The
increase in revenue in 1997 is attributable almost entirely to additional
computer services revenue generated in North America associated with
outsourcing, millennium and disaster recovery consulting. An approximate 4.7%
increase in backup service revenue was provided by the Company's foreign
subsidiary, Twinsys Dataguard S.A. (hereinafter referred to as "Twinsys").
Twinsys accounted for approximately 65% of consolidated service revenue for the
three month period ending March 31, 1997 compared to approximately 73% for
the full year of 1996. It is expected that Twinsys' percentage of total
consolidated service revenue of the Company will continue to decrease during
1997 due to the additional revenues that are expected to be generated in North
America associated with millennium and outsourcing services. The Company
currently has both outsourcing and millennium service contracts in process.
The Company's operating expenses increased to $2,443,738 from $2,094,594 for
the three months ended March 31, 1997 when compared to the same period in 1996.
In April 1996, Twinsys was obligated to obtain additional computer equipment to
meet the backup requirements of some of its largest customers, resulting in
higher depreciation and maintenance expenses and consequently, smaller margins.
Maintenance and depreciation expenses for Twinsys are not expected to increase
significantly through 1997. The cost of services for North American operations
increased approximately 27% to $786,138 for the three months ended March 31,
1997 from $618,442 for the same period last year. This increase reflects
growth in the Company's technical and direct marketing staffs in anticipation
of increased demand for millennium and outsourcing services. In addition,
advertising, promotion, and trade show expenditures have also increased as the
Company increased marketing of its Year 2000 and other computer services
offerings.
Interest expense was comparable for the three month periods ended March 31,
1997 and 1996. These expenses totaled $172,014 and $161,707 for the three
months ended March 31, 1997 and 1996, respectively. Interest expense for
Twinsys is related mainly to capital leases for computer equipment. Interest
expense for North America is principally related to capital leases and debt
incurred to establish and provide working capital for Twinsys. The debt
incurred to purchase assets for and capitalize Twinsys was paid off in March
1997.
The provision for income taxes totaled $56,195 and $99,125 for the three month
period ended March 31, 1997 and 1996, 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 March 31, 1997, the Company had working capital totaling $6,978,724.
In March 1997, the Company completed a public offering of its Common Stock
that raised $8,528,256, net of offering expenses. A portion of the offering
proceeds were used to repay an $800,000 loan and related accrued interest
from a shareholder. The Company also plans use offering proceeds to pay
certain accounts payable, accrued expenses, and other current liabilities,
to increase marketing staff, project managers, and technical personnel in
anticipation of increased demand for millennium services during the next
several months, and to establish and equip regional testing facilities as
Year 2000 conversion projects enter the implementation phase. Pending use
for working capital needs, the Company expects to invest a portion of the
net offering proceeds in short-term, investment-grade, interest-bearing
securities.
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 continually assesses the
working capital needs of its North American and European operations and
determines appropriate allocations of cash throughout the year.
The Company's computer equipment is expected to meet the technological
requirements of current and prospective backup services customers in North
America and Europe without the need for any additional material capital
expenditure during the first half of 1997. The Company plans to finance the
acquisition of additional computer equipment when needed for the backup
requirements of its largest customers through capital lease obligations.
To the extent that additional computer hardware is required to meet the terms
of future contracts for data center outsourcing and millennium testing
services, the Company intends to finance the acquisition of readily available
used equipment from contract revenues whenever possible, and the proceeds of
its public offering of Common Stock.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
During the first quarter of 1997, the Company acquired substantially all
of the assets of SafeGround, Inc., a Louisville, Kentucky-based provider of
remote computer data backup and related services. Under the terms of an asset
purchase agreement and a stock option agreement dated as of January 1, 1997,
the Company acquired the contracts, equipment, good will, inventory,
intellectual property and other assets of SafeGround in consideration of the
issuance of an option to purchase 7,500 shares of Strategia's common stock at
an exercise price of $7.125, the market price of the common stock at the close
of business on December 31, 1996. The Company assumed only specified
liabilities of SafeGround, principally prospective obligations under
SafeGround's contracts. The Company relied on the exemption provided by
Section 4(2) of the Securities Act of 1933 for the issuance of the option to
SafeGround.
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, the registrant has
caused its quarterly report to be signed on its behalf by the undersigned,
hereunto duly authorized.
STRATEGIA CORPORATION
Date: May 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 May 13, 1997
Richard W. Smith (Chief Executive Officer)
(Chief Financial Officer)
(Chief Accounting Officer)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> $ 8,405,528
<SECURITIES> 0
<RECEIVABLES> 2,454,889
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,088,059
<PP&E> 17,910,040
<DEPRECIATION> 10,239,028
<TOTAL-ASSETS> 19,269,803
<CURRENT-LIABILITIES> 4,109,335
<BONDS> 1,120,670
<COMMON> 12,970,090
0
645,460
<OTHER-SE> (2,932,664)
<TOTAL-LIABILITY-AND-EQUITY> 19,269,803
<SALES> 0
<TOTAL-REVENUES> 2,701,848
<CGS> 0
<TOTAL-COSTS> 2,443,738
<OTHER-EXPENSES> 187,612
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 70,498
<INCOME-TAX> 52,008
<INCOME-CONTINUING> 18,490
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,490
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
