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, 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.)
10301 Linn Station 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 - 4,532,442 as of March 31,
2000.
STRATEGIA CORPORATION
<TABLE>
CONDENSED BALANCE SHEETS
<CAPTION>
March 31, December 31,
2000 1999
(Unaudited) (Audited)
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,031,298 $ 7,256,092
Funds held in escrow 648,358 1,283,500
Receivable from Guardian iT plc 951,600 866,055
Accounts receivable, net 70,599 468,568
Unbilled revenues - 253,808
Other current assets 112,832 161,837
Total current assets 8,814,687 10,289,860
Property and equipment 3,781,617 11,743,834
Less accumulated depreciation 1,546,078 9,345,518
Net property and equipment 2,235,539 2,398,316
Other assets 8,360 8,360
$11,058,586 $12,696,536
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt $ 58,167 $ 56,596
Current installments of obligations
under capital leases 73,721 78,920
Accounts payable 139,029 222,160
Accrued expenses and other current liabilities 592,415 2,004,491
Accrued income taxes 22,350 28,550
Total current liabilities 885,682 2,390,717
Long-term debt, excluding current installments 810,667 825,811
Obligations under capital leases,
excluding current installments 2,624 3,733
Total liabilities 1,698,973 3,220,261
Stockholders' equity:
Common stock without par value. Authorized
15,000,000 shares; issued and outstanding
4,532,442 shares at March 31, 2000, and
4,631,677 at December 31, 1999 13,718,018 13,849,658
Accumulated deficit (4,358,405) (4,373,383)
Total stockholders' equity 9,359,613 9,476,275
$11,058,586 $12,696,536
</TABLE>
See notes to unaudited condensed financial statements.
STRATEGIA CORPORATION
<TABLE>
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
2000 1999
<S> <C> <C>
Discontinued operations, net of income taxes:
Income (loss) from operations $ (349,413) $ 605,035
Gain on disposal of discontinued operations 364,391 -
Income from discontinued operations 14,978 605,035
Net income $ 14,978 605,035
Net income per share of common stock:
Basic $ 0.00 $ 0.13
Diluted $ 0.00 $ 0.13
Weighted average number of common
shares outstanding 4,582,060 4,667,677
</TABLE>
See notes to unaudited condensed financial statements.
STRATEGIA CORPORATION
<TABLE>
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
<CAPTION>
(Unaudited)
Three months ended
March 31,
2000 1999
<S> <C> <C>
Net income $ 14,978 $ 605,035
Other comprehensive loss, net of tax:
Foreign currency translation adjustments - (171,100)
Comprehensive income $ 14,978 $ 433,935
</TABLE>
See notes to unaudited condensed financial statements.
STRATEGIA CORPORATION
<TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net income $ 14,978 $ 605,035
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 51,745 728,695
Gain on sale of French subsidiaries (85,545) -
Provisions for closing operations and
other noncash items (278,846) (43,457)
Change in operating assets
and liabilities:
Accounts receivable 397,969 (914,420)
Unbilled revenues 253,808 (771,371)
Other current assets 49,005 (71,358)
Accounts payable (72,850) 46,702
Accrued expenses and other current
liabilities (1,086,078) 370,130
Accrued income taxes (6,200) 98,445
Other assets - 40,777
Deferred revenue - 371,515
Net cash provided by (used in)
operating activities (762,014) 460,693
Cash flows from investing activities:
Proceeds from sale of French
subsidiaries; release of funds
held in escrow 635,142 -
Proceeds from sale of equipment 78,880 -
Purchases of property and equipment - (183,553)
Net cash provided by (used in)
investing activities 714,022 (183,553)
Cash flows from financing activities:
Principal payments on long-term debt and
obligations under capital leases, net (34,881) (170,504)
Stock options exercised 1,660 -
Purchases of common stock (133,300) -
Net cash used in financing
activities (166,521) (170,504)
Effect of exchange rate on changes in cash (10,281) (63,425)
Net increase (decrease) in cash and cash
equivalents (224,794) 43,211
Cash and cash equivalents at beginning of
year 7,256,092 761,650
Cash and cash equivalents at end of period $7,031,298 $ 804,861
</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
</TABLE>
See notes to unaudited condensed financial statements.
STRATEGIA CORPORATION
Notes to March 31, 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 March 31, 2000 and the results of operations and cash flows for the
period then ended. All financial information for the three months ended
March 31, 2000, and the balance sheets as of March 31, 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 ended March 31, 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 Board of Directors and management continue to investigate
strategic alternatives for the future direction of the Company. The
long-term profitability and financial condition of the Company will be
determined by the Company's ability to successfully re-deploy its assets and
transition to another business or businesses.
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.
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, subject to deductions, the remaining $637.5
thousand will be released on September 30, 2000.
Results of operations of the discontinued operations are shown below:
<TABLE>
<CAPTION>
Three months ended
March 31
2000 1999
<S> <C> <C>
Revenues $ 60,040 $6,421,937
---------- ----------
Income (loss) before income taxes (349,413) 662,296
Income tax provision - 57,261
---------- ----------
Income (loss) from operations $ (349,413) $ 605,035
---------- ----------
</TABLE>
General and administrative costs totaled $405 thousand for the three months
ended March 31, 2000. Ongoing general and administrative costs are expected
to be less than $100 thousand a month beginning in April 2000.
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 three months ended March 31, 1999, approximately 65% of the
$6.4 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
$2.9 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 was $2.2 million as compared to $2.4 million
at December 31, 1999, 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 March 2000, the Company entered into a
Purchase and Sale Agreement to sell the Louisville facility and certain
equipment for $2.7 million. Completion of the sale is contingent upon
satisfactory property inspections and the purchaser obtaining appropriate
financing for the transaction.
(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.
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.
General and administrative costs totaled $405 thousand for the three months
ended March 31, 2000. Ongoing general and administrative costs are expected
to be less than $100 thousand a month beginning in April 2000. As of May 1,
2000, the Company has two employees.
The March 31, 2000, "gain on disposal of discontinued operations" of $364
thousand results 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.
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 $7.9 million at March 31, 2000 and
December 31, 1999. Cash and equivalents decreased to $7.0 million from $7.3
million at December 31, 1999. This decrease was principally attributable
to the "loss from operations" incurred in the three months ended March 31,
2000.
Net property and equipment was $2.2 million as compared to $2.4 million at
December 31, 1999, 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 March 2000, the Company entered into a
Purchase and Sale Agreement to sell the Louisville facility and certain
equipment for $2.7 million. Completion of the sale is contingent upon
satisfactory property inspections and the purchaser obtaining appropriate
financing for the transaction.
The Company invests its excess cash balances in short-term,
investment-grade, interest-bearing securities.
As noted, the long-term profitability and financial condition of the Company
will be determined by the Company's ability to successfully re-deploy its
assets and transition to another business or businesses. The Board of
Directors and management continue to investigate strategic alternatives for
the future direction of the Company.
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
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 15, 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 May 15, 2000
Robert H. Loeffler (Principal Executive Officer
and Principal Accounting Officer)
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> $ 7,031,298
<SECURITIES> 0
<RECEIVABLES> 1,670,557
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT ASSETS> 8,814,687
<PP&E> 3,781,617
<DEPRECIATION> 1,546,078
<TOTAL-ASSETS> 11,058,586
<CURRENT-LIABILITIES> 885,682
<BONDS> 0
<COMMON> 13,718,018
0
0
<OTHER-SE> (4,358,405)
<TOTAL-LIABILITY-AND-EQUITY> 11,058,586
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 14,978
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,978
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00
</TABLE>
