SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
COMMISSION FILE NUMBER 0-15353
----------------------------
SAZTEC INTERNATIONAL, INC.
CALIFORNIA 33-0178457
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
43 MANNING ROAD, BILLERICA, MASSACHUSETTS 01821
(Address of Principal Executive Office)
508-262-9600
(Registrant's Telephone Number)
---------------
Indicate by check mark 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 and (2) has been subject to such filing requirements for
the past 90 days. Yes X No ___
The number of shares outstanding of registrant's Common Stock at Novermber 12,
1996, was 14,297,651 shares.
SAZTEC INTERNATIONAL, INC.
FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 1996
CONTENTS
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Operations --
Three months ended September 30, 1996 and 1995 3
Consolidated Balance Sheets -- September 30, 1996 and
June 30, 1996 4
Consolidated Statements of Cash Flows --
Three months ended September 30, 1996 and 1995 5 - 6
Notes to Consolidated Financial Statements -- September 30,
1996 and 1995 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8 - 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
2
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
1996 1995
---- ----
REVENUES $2,375,142 $2,359,115
Cost of services 1,835,518 1,868,369
-------------------- -------------------
GROSS PROFIT 539,624 490,746
Selling, general & administrative expense 511,444 916,907
-------------------- -------------------
PROFIT (LOSS) FROM OPERATIONS 28,180 (426,161)
Gain on sale of division 231,154
Interest expense (24,270) (38,987)
-------------------- -------------------
PROFIT (LOSS) BEFORE PROVISION FOR INCOME TAXES 3,910 (233,994)
Provision for income taxes ---- ----
-------------------- -------------------
NET PROFIT (LOSS) $3,910 $ (233,994)
==================== ===================
INCOME (LOSS) PER SHARE OF COMMON STOCK:
Net income (loss) applicable to common stockholders $.0003 $(.02)
==================== ===================
Weighted average number of shares 13,567,216 12,533,851
==================== ===================
See accompanying notes.
3
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND JUNE 30, 1996
ASSETS
SEPTEMBER 30, JUNE 30,
1996 1996
---- ----
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $325,197 $ 222,023
Restricted cash 84,986 60,869
Accounts receivable, less allowance for doubtful accounts 1,778,557 1,973,192
Costs and estimated earnings in excess of billings 3,627 21,490
Work in process 615,064 570,651
Prepaid expenses and other current assets 173,721 476,664
-------------------- ------------------
TOTAL CURRENT ASSETS 2,981,152 3,324,889
PROPERTY AND EQUIPMENT, NET 518,978 598,415
OTHER ASSETS
Goodwill and other intangible assets, less accumulated amortization 170,850 173,931
Deposits and other assets 108,378 122,070
-------------------- ------------------
TOTAL ASSETS $3,779,358 $4,219,305
==================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
SEPTEMBER 30, JUNE 30,
1996 1996
---- ----
(Unaudited)
CURRENT LIABILITIES
Notes payable $336,848 $389,703
Current portion of long-term debt and capital lease obligations 203,777 199,650
Common stock subject to repurchase 58,110 54,000
Income taxes payable 33,050 54,320
Accounts payable 810,958 885,692
Accrued liabilities 337,659 544,318
Customer deposits 693,060 744,278
--------------------- --------------------
TOTAL CURRENT LIABILITIES 2,473,462 2,871,961
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 201,832 241,257
ACCRUED EXPENSES, NON-CURRENT 43,876 34,385
COMMON STOCK SUBJECT TO REPURCHASE 37,000 46,000
STOCKHOLDERS' EQUITY
Common stock-no par value; 20,000,000 shares authorized;
14,297,651 shares issued at September 30, 1996, and
13,097,651 shares issued at June 30, 1996 11,570,811 11,270,811
Common stock subscribed 300,000
Contributed capital 14,498 14,498
Accumulated deficit (10,412,720) (10,416,633)
Cumulative translation adjustment (149,401) (142,974)
--------------------- --------------------
TOTAL STOCKHOLDERS' EQUITY 1,023,188 1,025,702
--------------------- --------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,779,358 $4,219,305
===================== ====================
See accompanying notes.
4
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $3,910 $(233,994)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 102,249 183,971
Provision for bad debts (4,674) 4,732
Gain on sale of assets (25,439)
Gain on sale of assets of divisions sold (231,154)
Reversal of excess income tax accrual (21,666)
Other (6,763) 928
Changes in assets and liabilities:
Accounts receivable 176,117 498,489
Work in process 9,276 (51,562)
Prepaid expenses and other current assets 14,345 7,434
Deposits and other assets 1,572
Accounts payable (78,871) 204,884
Accrued liabilities (194,735) (598,196)
Customer deposits and non-current accrued expenses (57,316) 32,527
----------------- -----------------
NET CASH USED IN OPERATING ACTIVITIES (58,128) (205,808)
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (8,232) (29,718)
Proceeds from the sale of property and equipment 17,169
Payments received on notes receivable 4,514 4,127
(Increase) decrease in restricted cash (24,118) 5,037
----------------- -----------------
NET CASH USED IN INVESTING ACTIVITIES (27,836) (3,385)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt and capital lease
obligations (49,709) (41,182)
Borrowings on notes payable 986,879 1,023,533
Payments on notes payable (1,039,733) (1,032,987)
Net proceeds from issuance of common stock 300,000
---------------- -----------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 197,437 (50,636)
---------------- -----------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (8,299) (374)
---------------- -----------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 103,174 (260,203)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 222,023 644,101
---------------- -----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $325,197 $383,898
================ =================
See accompanying notes.
5
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
1996 1995
---- ----
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Purchase of property and equipment through issuance of notes payable and
capital lease obligations $8,910 $83,631
============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the
period for:
Interest $24,212 $38,987
============== ================
See accompanying notes.
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995
NOTE 1. ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements include all
adjustments (consisting only of normal recurring accruals) which, in the opinion
of management, are necessary for a fair presentation of financial position,
results of operations and cash flows. Results of operations for interim periods
are not necessarily indicative of results to be expected for a full year.
Certain reclassifications have been made to the fiscal 1995 financial statements
to conform with the current year's presentation.
NOTE 2. COMMON STOCK
In connection with the Company's acquisition of the outstanding minority
interest of Saztec Europe, Ltd. in 1991, the Company granted a put option to the
selling shareholders to repurchase 120,000 shares at $2.00 per share. The put
option is exerciseable at 10,000 shares ($20,000) per quarter through April,
1996. During the quarter ended September 30, 1995 10,000 shares of common stock
at $20,000 were repurchased by the Company in each quarter pursuant to the terms
of the put option. Of the stock repurchased through April, 1996 $95,110 remained
payable to the selling shareholders at September 30, 1996.
NOTE 3. SALE OF DIVISIONS
In June 1995, management agreed to sell the assets of the Knightswade Microfilm
Division, based in Winchester, England and in August 1995, the Marketing
Fulfillment Division based in Billerica, Massachusetts. The sales of both
divisions were completed on September 1, 1995. Operating results for both
divisions for the three months ended September 30, 1995 were as follows:
3 MONTHS SEPTEMBER 30,
1995
----------------------
Revenue $ 312,965
Gross profit (loss) (13,102)
Operating profit (loss) $ (45,173)
Gain on sale of division $ 231,154
Gain on sale of division includes gains and losses on sales of assets, severance
costs, and related closedown costs. A loss provision of $145,000 for the sale of
the Knightswade Microfilm Division was recognized in the quarter ended June 30,
1995.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenue for the three months ended September 30, 1996 increased to $2,375,142
from $2,359,114 for the quarter ended September 30, 1995. Excluding the revenue
of the divisions sold during September, 1995 (see Note 3), revenue for the three
months ended increased $328,993, or 16%.
U.S. revenue for the quarter ended September 30, 1996, excluding the division
sold, showed an improvement over the same period in the prior year, increasing
$117,770 to $1,044,706 from $926,935. European revenue, excluding the division
sold, held steady, showing an increase of $211,221 over the three month period
in the prior year, to $1,330,436. The sales mix in the United States and Europe
was relatively unchanged from the prior year period. Revenue from foreign
sources comprised 56% of consolidated revenues, net of divisions sold, for the
first three months of the current year as compared with 54.7% in the prior year.
Management expects revenue in both Europe and the United States to improve in
the second quarter of the current fiscal year.
Gross margin of 22.7% of sales was achieved at $539,624 of gross profit for the
three months ended September 30, 1996 compared to gross margin of 20.8% for the
quarter ended September 30, 1995. Net of the sale of the Fulfillment Services
division, gross margin declined from 24.6% at $503,848 of gross profit for the
same quarter of the prior year due to several projects producing lower than
expected gross profit.
As a dollar amount, selling and administrative (S&A) expenses for the quarter
ended September 30, 1996 decreased $405,463 to $511,444 from $916,907 for the
same period in the prior year. S&A expense as a percentage of sales net of
one-time charges associated with the sale of divisions decreased to 21.5% from
38.9% in the prior year.
Selling expenses per quarter leveled off during the third quarter of the year
ended June 30, 1996. Selling expenses for the last three quarters ended
September 30, June 30, and March 31, 1996 were $211,737, $229,142 and $218,702,
respectively. Selling expense for the quarter ended September 30, 1996 decreased
$146,079 from the same period in the prior year.
Administrative expense of $299,707 for the quarter ended September 30, 1996
declined $259,384 from expense of $599,091 for the first quarter of the prior
year. Administrative expense for the quarters ended June 30 and March 31, 1996
were $275,764, and $472,490, respectively.
Included in administrative expense for the quarter ended September 30, 1996 is
other income from the reversal of excess estimated income tax payable of $21,666
which was accrued at June 30, 1996. Other income for the prior year period of
$52,199 consists mainly of gain on the disposition of assets in the ordinary
course of business of $25,439, with the balance being favorable adjustments to
prior-period accruals for relocation costs from Dayton, Ohio and Kansas City,
Missouri to Billerica, Massachusetts, and estimated legal fees.
Income from operations of $28,180 for the quarter increased $454,341 compared to
a loss from operations of $426,161 for the first quarter of the prior year.
These more favorable results are due to the reductions in operating expenses
noted above, which were planned to restore the Company to profitability.
Net loss for the three months ended September 30, 1995, includes the benefit of
a $231,154 gain on the sale of the Marketing Fulfillment division . The division
was sold as it was not in line with the Company's mission to service customer
needs for electronic data conversion.
8
Cash flow from operating activities continued to be applied to pay down current
trade payables, accrued liabilities and notes, assisted by the proceeds from the
sale of common stock. Cash generated from operations adjusted for non-cash
amounts and excluding changes in asset and liability accounts for the current
period of $73,056 is improved from the first quarter of the prior year shortfall
of $(301,884).
CAPITAL RESOURCES AND LIQUIDITY
The Company's revolving credit agreement is secured by accounts receivable, work
in process, property and equipment and other assets, bearing interest at the
lender's prime rate plus 4.0%. Available borrowings were 80% of domestic trade
receivables less than 90 days old, with an aggregate maximum borrowing level
that declined in steps from $650,000 on August 15, 1995, to $450,000 on November
30, 1995. The credit line was payable in full on December 31, 1995 and was
renewed January 1996. Maximum borrowings under the new agreement decline $10,000
per month beginning February 1, 1996 from $450,000. Unpaid principal amounts are
due July 1, 1997. Available borrowing is unchanged from the above matured note.
The new agreement contains covenants which require a minimum consolidated net
stockholders' equity of $500,000 and a ratio of consolidated total indebtedness
to consolidated net worth not to exceed 8:1. The Company was in compliance with
all covenants contained in the new agreement at September 30, 1996. Outstanding
borrowings on September 30, 1996 and 1995 were $336,848 and $597,843,
respectively.
The Company's unrestricted cash balance of $325,197 on September 30, 1996 has
increased by $103,174 over the $222,023 balance from June 30, 1996. Working
capital increased $54,762 to $507,690 at September 30, 1996 compared to $452,928
at June 30, 1996. The improvement in working capital is due to the results of
operations, which is net of $102,249 of depreciation and amortization and the
reversal of $21,666 of estimated income tax payable which was accrued at June
30, 1996.
9
SAZTEC INTERNATIONAL, INC.
SEPTEMBER 30, 1996 FORM 10-QSB
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
The following Exhibit is filed by attachment to this Form 10-QSB:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------- ---------------------- ----
27 Financial Data Schedule 13
(B) REPORTS ON FORM 8-K:
None.
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: November 12, 1996
SAZTEC INTERNATIONAL, INC.
--------------------------
(Registrant)
By: /s/ THOMAS K. O'LOUGHLIN
--------------------------
Thomas K. O'Loughlin
Treasurer
11