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 September 30, 2000
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.)
9707 Shelbyville Road, Louisville, KY 40223
(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 - 4,483,802 as of September
30, 2000.
STRATEGIA CORPORATION
<TABLE>
CONDENSED BALANCE SHEETS
<CAPTION>
September 30, December 31,
2000 1999
(Unaudited) (Audited)
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,041,071 $ 7,256,092
Funds held in escrow 667,358 1,283,500
Receivable from Guardian iT plc - 866,055
Accounts receivable, net - 468,568
Unbilled revenues - 253,808
Other current assets 1,417 161,837
Total current assets 9,709,846 10,289,860
Property and equipment - 11,743,834
Less accumulated depreciation - 9,345,518
Net property and equipment - 2,398,316
Other assets - 8,360
$9,709,846 $12,696,536
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt $ - $ 56,596
Current installments of obligations
under capital leases 122 78,920
Accounts payable 6,800 222,160
Accrued expenses and other current liabilities 588,585 2,004,491
Accrued income taxes 4,120 28,550
Total current liabilities 599,627 2,390,717
Long-term debt, excluding current installments - 825,811
Obligations under capital leases,
excluding current installments - 3,733
Total liabilities 599,627 3,220,261
Stockholders' equity:
Common stock without par value. Authorized
15,000,000 shares; issued and outstanding
4,475,742 shares at September 30, 2000, and
4,631,677 at December 31, 1999 13,631,263 13,849,658
Accumulated deficit (4,521,044) (4,373,383)
Total stockholders' equity 9,110,219 9,476,275
$9,709,846 $12,696,536
</TABLE>
See notes to unaudited condensed financial statements.
STRATEGIA CORPORATION
<TABLE>
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended Nine months ended
September 30, September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Discontinued operations,
net of income taxes:
Income (loss) from
operations $ (35,676) $ 627,590 $ (452,847) $ 1,468,041
Gain (loss)on disposal
of discontinued
operations (59,205) - 305,186 -
Income (loss) from
discontinued
operations (94,881) 627,590 (147,661) 1,468,041
Net income (loss) $ (94,881) $ 627,590 $ (147,661) $1,468,041
Net income (loss) per share
of common stock:
Basic $ (0.02) $ 0.13 $ (0.03) $ 0.31
Diluted $ (0.02) $ 0.13 $ (0.03) $ 0.31
Weighted average number
of common shares
outstanding 4,475,742 4,667,677 4,520,631 4,667,677
</TABLE>
See notes to unaudited condensed financial statements.
STRATEGIA CORPORATION
<TABLE>
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
<CAPTION>
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net income (loss) $ (94,881) $ 627,590 $ (147,661) $ 1,468,041
Other comprehensive income
(loss), net of tax:
Foreign currency
translation
adjustments - 72,705 - (193,290)
Comprehensive
income (loss) $ (94,881) $ 700,295 $ (147,661) $ 1,274,751
</TABLE>
See notes to unaudited condensed financial statements.
STRATEGIA CORPORATION
<TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (147,661) $ 1,468,041
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 113,440 1,878,628
Gain on sale of French subsidiaries (85,545) -
Provisions for closing operations and
other noncash items (393,412) 203,246
Change in operating assets
and liabilities:
Accounts receivable 468,568 (1,172,002)
Unbilled revenues 253,808 (954,334)
Other current assets 160,420 105,427
Accounts payable (215,360) (680,349)
Accrued expenses and other current
liabilities (1,412,046) 1,191,844
Accrued income taxes (24,430) 157,333
Other assets 8,360 57,042
Deferred revenue - (236,832)
Net cash provided by (used in)
operating activities (1,273,858) 2,018,044
Cash flows from investing activities:
Proceeds from sale of French
subsidiaries; release of funds
held in escrow and purchase price
adjustment 1,679,168 -
Payments to minority shareholders of
French subsidiaries (111,426) -
Proceeds from sale of property and 1,829,799 -
equipment
Purchases of property and equipment - (319,380)
Net cash provided by (used in)
investing activities 3,397,541 (319,380)
Cash flows from financing activities:
Principal payments on long-term debt and
obligations under capital leases, net (110,027) (423,662)
Stock options exercised 2,910 -
Purchases of common stock (221,306) -
Net cash used in financing
activities (328,423) (423,662)
Effect of exchange rate on changes in cash (10,281) (51,125)
Net increase in cash and cash
equivalents 1,784,979 1,223,877
Cash and cash equivalents at beginning of
year 7,256,092 761,650
Cash and cash equivalents at end of period $9,041,071 $1,985,527
</TABLE>
See notes to unaudited condensed financial statements.
STRATEGIA CORPORATION
<TABLE>
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
<CAPTION>
(Unaudited)
Common Accumulated
Stock Deficit Total
<S> <C> <C> <C>
Balance at December 31, 1999 $13,849,658 $(4,373,383) $ 9,476,275
Net income for three months
ended March 31 - 14,978 14,978
Shares repurchased (133,300) - (133,300)
Stock options exercised 1,660 - 1,660
Balance at March 31, 2000 $13,718,018 $(4,358,405) $ 9,359,613
Net loss for
three months ended June 30 - (67,758) (67,758)
Shares repurchased (88,005) - (88,005)
Stock options exercised 1,250 - 1,250
Balance at June 30, 2000 $13,631,263 $(4,426,163) $ 9,205,100
Net loss for three
months ended September 30 - (94,881) (94,881)
Balance at September 30, 2000 $13,631,263 $(4,521,044) 9,110,219
</TABLE>
See notes to unaudited condensed financial statements.
STRATEGIA CORPORATION
Notes to September 30, 2000 Condensed Financial Statements (Unaudited)
(1) This financial information should be read in conjunction with the
consolidated financial statements, and the notes thereto, included in the
Company's December 31, 1999, Annual Report on Form 10-KSB. In the opinion
of the Company, the accompanying unaudited condensed financial statements
contain all adjustments necessary to present fairly the financial position
as of September 30, 2000, and the results of operations and cash flows for the
periods then ended. All financial information for the three months and nine
months ended September 30, 2000, and the balance sheets as of September 30,
2000, and December 31, 1999, are for Strategia Corporation only due to the
sale of the Company's French subsidiaries in November 1999 (see below).
The financial information for the three months and nine months ended September
30, 1999, is presented on a consolidated basis. Certain prior year data has
been reclassified to conform to current year presentation.
Strategia Corporation ("Strategia") and its subsidiaries (together referred
to herein as the "Company") provided a variety of information technology
services to businesses, governments and other organizations in 1999 and prior
years. On August 10, 1999, the Company entered into a definitive agreement
to sell its three French subsidiaries to a subsidiary of Guardian iT plc
("Guardian"), a United Kingdom based disaster recovery company. These three
French companies comprised the entirety of the Company's international
business segment. In November 1999, the Company completed the sale of its
French subsidiaries to Guardian and in December 1999 the Board of Directors
of Strategia approved a plan to exit all existing revenue generating lines
of business in the United States. The accompanying financial statements
reflect all activities of the Company in 2000 and 1999 as discontinued
operations.
The Company announced on October 6, 2000, that it had declared a cash
distribution of $1.95 per share of common stock to holders of record as of
October 20, 2000, payable on October 27, 2000. The distribution totaled
$8,743,464. The Board of Directors had planned to dissolve the Company
and had approved a plan of dissolution, which will require approval of the
shareholders. However, the Company has been approached by a number of parties
concerning a possible transaction to preserve the public shell. Although
the Board of Directors is likely to consider one or more such transactions,
there can be no assurance that such a transaction can be consummated. Even
if a transaction can be consummated, the value that the existing shareholders
will realize from the transaction will be small and will likely be in the form
of illiquid stock and with little public float in a company that is speculative
and dominated by a parent company that would likely own well more than ninety
percent of the outstanding stock.
Because the Company will be left with almost no net worth after the $1.95 per
share distribution, the Company also announced that it would withdraw its
appeal from the delisting procedure at the American Stock Exchange. If the
Company cannot promptly effect a transaction as described above, the Board
of Directors intends to proceed with the dissolution process, including
making appropriate filings with the Securities and Exchange Commission to
discontinue its registration and future filing obligations. The Company
believes that the distribution will leave the Company with sufficient funds
to wind down the Company. If there are any amounts remaining afterward,
they will be distributed to shareholders. If the Company can consummate a
shell transaction, it may similarly make a distribution of any remaining net
worth to shareholders of record immediately prior to closing such transaction.
In the United States, the Company primarily provided Year 2000 services and
disaster recovery services. As of December 31, 1999, all Year 2000 Services
contracts had been completed or were substantially complete; revenues from
Year 2000 Services related contracts approximated $30 thousand in the three
months ended March 31, 2000. All Disaster Recovery back-up services
contracts related to Bull computer systems were terminated as of
December 31, 1999; Disaster Recovery services contracts related to IBM
computer systems were transferred to another supplier February 1, 2000. There
were no revenues earned from the provision of services of any kind in the
six months ended September 30, 2000.
Net proceeds to the Company from the sale of the French subsidiaries were
$7.1 million and resulted in a gain of approximately $4.0 million.
Substantially all of this gain was recorded in the fiscal year ended
December 31, 1999. In the three months ended March 31, 2000, a favorable
adjustment of approximately $85 thousand was made to the purchase price,
based on the change in the French subsidiaries combined net asset value
between December 31, 1998, and the closing date. Of the total cash
consideration, $1.275 million was paid into an escrow account at closing to
support any potential warranty claims that the purchaser may subsequently
have against the Company. On March 31, 2000, $637.5 thousand was released
from the escrow account and the remaining $637.5 thousand was received by the
Company in October 2000.
Results of operations of the discontinued operations are shown below:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenues $ - $6,596,867 $ 60,040 $19,171,183
---------- ---------- ---------- -----------
Income (loss) before
income taxes (74,986) 741,115 (127,766) 1,684,122
Income tax provision 19,895 113,525 19,895 216,081
---------- ---------- ---------- -----------
Income (loss) from
operations $ (94,881) $ 627,590 $ (147,661) $ 1,468,041
---------- ---------- ---------- -----------
</TABLE>
The income tax provision(s) for the discontinued operations does not
approximate the Federal statutory rate because of net operating loss
carryforwards available in the U.S. in both 2000 and 1999 and in France in
1999.
(2) During the nine months ended September 30, 1999, approximately 68% of the
$19.2 million consolidated revenues were generated by Year 2000 services.
(3) Revenues from fixed-price Year 2000 and other consulting engagements
were recognized on the percentage-of-completion method. Actual costs
incurred to date, as a percentage of estimated total contract costs, were
used to determine the percentage-of-completion, since management considered
expended costs to be the best available measure of progress on these
contracts. Contract costs included all direct costs and those indirect
costs related to contract performance. Provisions for estimated losses on
uncompleted contracts were made in the period in which such losses were
determined. Revenues from non-fixed-price contracts were recognized as
services were provided and costs were incurred. Selling, general and
administrative costs were charged to expense as incurred.
(4) In May 2000, the Company and the landlord of the Shelbyville, Kentucky
data center agreed to terminate the lease due to expire March 31, 2002.
As a result, the Company recorded a favorable adjustment of approximately
$279 thousand in the three months ended March 31, 2000 for this and other
adjustments to the accruals made in December 1999 for closure of the
Company's U.S. business operations.
(5) The Company had U.S. net operating loss carry-forwards of approximately
$2.2 million and $8.1 million at December 31, 1999 and 1998, respectively,
which virtually eliminated the requirement for a Federal income tax
provision in 2000 and 1999.
(6) Net property and equipment at December 31, 1999, was $2.4 million
and was primarily composed of land, building and
improvements at the Louisville, Kentucky data center facility. In February
2000, the Company entered into a definitive lease agreement effective
March 11, 2000, to lease this facility on terms that exceed ongoing
financing and operating costs. In July 2000 the Company sold the Louisville,
Kentucky facility and equipment for $2.75 million. Net cash to the Company,
after commissions, miscellaneous expenses and pay-off of the mortgage loan,
was $1.7 million and resulted in a pretax gain of approximately $430
thousand.
(7) Basic and diluted income per share is based on the net income divided
by the weighted average number of common and equivalent shares outstanding
during the period.
STRATEGIA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
Preliminary Note Regarding Forward Looking Information
The information set forth below in "Management's Discussion and Analysis" as
well as other sections of this report includes forward-looking statements.
For this purpose, the words "believes," "anticipates," "plans," "expects,"
and similar expressions are intended to identify forward-looking statements.
Factors that could cause the Company's actual results to differ materially
from those indicated by the forward-looking statements include the factors
set forth below in "Management's Discussion and Analysis" and those described
in greater detail in the Company's annual report on Form 10-KSB for the year
ended December 31, 1999, under the heading "Certain Factors that May Affect
Future Results."
Results of Operations
All operations of the Company have been reflected as discontinued operations
in the accompanying financial statements due to the sale of the foreign
business segment in November 1999 and the decision by the Board of Directors
of Strategia in December 1999 to exit all other lines of business. As
described in Note (1) of the Notes to September 30, 2000 Condensed Financial
Statements above, the Board of Directors has approved a plan to dissolve the
Company.
Revenues from discontinued operations in the three months ended March 31,
2000, were generated in the completion of Year 2000 Services related
contracts and one month of Disaster Recovery services prior to transfer of
the IBM systems contracts to another unrelated vendor. The Company incurred
a negative gross margin of $23 thousand on these revenues. There were no
revenues generated from the discontinued operations during the six months
ended September 30, 2000.
General and administrative costs totaled $405 thousand for the three months
ended March 31, 2000, $274 thousand in the three months ended June 30,
2000, and $188 thousand in the three months ended September 30, 2000.
The "gain on disposal of discontinued operations" of $364 thousand recorded in
the March 31, 2000, quarter, resulted from a $279 thousand favorable
adjustment to the December 31, 1999, provision for closing operations and a
favorable adjustment of $85 thousand to the proceeds from the sale of the
Company's French subsidiaries. During the September 30, 2000, quarter, a gain
of approximately $430 thousand was recorded on the sale of the Louisville,
Kentucky data center and equipment and provisions made for estimated closure
costs totaling approximately $490 thousand.
The Company has substantial net operating loss carry-forwards that virtually
eliminate the need for a Federal income tax provision.
Financial Condition, Liquidity and Capital Resources
The Company had working capital totaling $9.1 million at September 30, 2000, as
compared to $7.9 million at both March 31, 2000, and December 31, 1999. Cash
and equivalents increased to $9.0 million from $7.3
million at December 31, 1999. This increase was principally attributable
to the receipt of fifty percent of the funds held in escrow at March 31, 2000,
the receipt of the receivable due from Guardian (see Note 1 of the Notes to
September 30, 2000 Condensed Financial Statements), and the sale of the
Louisville, Kentucky data center in July 2000, partially offset by the nine
months "loss from operations" and the liquidation of liabilities on the
December 31, 1999 balance sheet.
Net property and equipment at December 31, 1999 was $2.4 million at
September 30, 2000, and was primarily composed of land,
building and improvements at the Louisville, Kentucky data center facility.
In February 2000, the Company entered into a definitive lease agreement
effective March 11, 2000, to lease this facility on terms that exceed ongoing
financing and operating costs.
In July 2000, the Company sold the Louisville, Kentucky facility and
equipment for $2.75 million. Net cash to the Company, after commissions,
miscellaneous expenses and pay-off of the mortgage loan, was $1.7 million.
The Company invests its excess cash balances in short-term,
investment-grade, interest-bearing securities.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
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
(c) Report filed October 6, 2000, disclosing under Item 5. Other
Events that the registrant had announced a cash distribution
of $1.95 per share of common stock as a first step in a plan
to dissolve the company.
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: November 14, 2000 By: /s/ Robert H. Loeffler
Robert H. Loeffler, Chairman and
Interim Chief Executive Officer
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/ Robert H. Loeffler Chairman and Director November 14, 2000
Robert H. Loeffler (Principal Executive Officer
and Principal Accounting Officer)
</TABLE>
