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, 1997
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)
508-901-9600
(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 November 14,
1997, was 3,901,129 shares.
SAZTEC INTERNATIONAL, INC.
FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 1997
CONTENTS
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PAGE
----
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements:
Consolidated Statements of Operations -
Three months ended September 30, 1997 and 1996 3
Consolidated Balance Sheets - September 30, 1997 and June 30, 1997 4
Consolidated Statement of Changes in Stockholders' Equity -
September 30, 1997 5
Consolidated Statements of Cash Flows -
Three months ended September 30, 1997 and 1996 6 - 7
Notes to Consolidated Financial Statements -- September 30, 1997 and
1996 8 - 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
2
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
1997 1996
------------------ ------------------
REVENUES $1,613,471 $2,375,142
Cost of services 1,316,242 1,835,518
------------------ ------------------
GROSS PROFIT 297,229 539,624
Selling and administrative expense 496,228 533,110
------------------ ------------------
(LOSS) PROFIT FROM OPERATIONS (198,999) 6,514
Interest expense (12,562) (24,270)
------------------ ------------------
(LOSS) BEFORE PROVISION FOR INCOME TAXES (211,561) (17,756)
Income tax provision (benefit) ---- (21,666)
------------------ ------------------
NET (LOSS) PROFIT $(211,561) $3,910
================== ==================
(LOSS) INCOME PER SHARE OF COMMON STOCK:
Net (loss) income applicable to common
stockholders (Note 2) $(.058) $.001
================== ==================
Weighted average number of shares (Note 2) 3,637,180 3,391,804
================== ==================
See accompanying notes.
3
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND JUNE 30, 1997
ASSETS
SEPTEMBER 30, 1997 JUNE 30, 1997
------------------ ---------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 352,417 $ 386,785
Restricted cash 99,801 192,643
Accounts receivable, less allowance for doubtful accounts of $44,380
at September 30 and $45,070 at June 30 1,201,914 1,342,831
Work in process 286,783 217,518
Prepaid expenses and other current assets 183,027 134,803
Notes receivable for stock subscribed 560,000 860,000
---------------- ---------------
TOTAL CURRENT ASSETS 2,683,942 3,134,580
PROPERTY AND EQUIPMENT, NET 326,736 364,040
OTHER ASSETS
Goodwill and other intangible assets, less accumulated amortization
of $66,632 at September 30 and $63,602 at June 30 158,730 161,760
Deposits and other assets 163,884 170,068
================ ===============
TOTAL ASSETS $ 3,333,292 $ 3,830,448
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank note payable $59,055 $274,512
Current portion of long-term debt and capital lease obligations 204,129 199,460
Common stock subject to repurchase 33,342 33,342
Accounts payable 576,615 569,716
Accrued liabilities 400,951 429,396
Customer deposits 443,093 456,989
Excess of billings over costs and estimated earnings 223,633 223,633
---------------- ---------------
TOTAL CURRENT LIABILITIES 1,940,818 2,187,048
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 127,173 151,980
ACCRUED EXPENSES, NON-CURRENT 35,369 39,546
STOCKHOLDERS' EQUITY
COMMON STOCK-NO PAR VALUE; 10,000,000 SHARES AUTHORIZED;
3,871,963 SHARES ISSUED AT SEPTEMBER 30 AND 3,571,963
SHARES ISSUED AT JUNE 30, 1997 11,870,811 11,570,811
Common stock subscribed 560,000 860,000
Contributed capital 14,498 14,498
Accumulated deficit (11,090,081) (10,878,520)
Cumulative translation adjustment (125,296) (114,915)
---------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 1,229,932 1,451,874
---------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,333,292 $ 3,830,448
================ ===============
See accompanying notes.
4
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
SEPTEMBER 30, 1997
COMMON STOCK COMMON STOCK
SUBSCRIBED
CUMULATIVE
-----------
NUMBER OF NUMBER OF CONTRIBUTED ACCUMULATED TRANSLATION
------------ ---------- ------------ ------------ -----------
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT
------ ------ ---------- ------ ------------ ------------ -----------
June 30, 1997 3,571,963 $11,570,811 860,000 $860,000 $14,498 $(10,878,520) $(114,915)
(1) Sept. 10, 1997 300,000 300,000 (300,000) (300,000)
Net loss (211,561)
Translation
adjustment
(10,381)
--------- ----------- ---------- --------- --------- ------------ -----------
3,871,963 $11,870,811 $ 560,000 $ 560,000 $ 14,498 $(11,090,081) $ (125,296)
(1) Shares issued per amendment to an escrow agreement connected with a private
placement (Note 2).
See accompanying notes.
5
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
1997 1996
INCREASE (DECREASE) IN CASH ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (211,561) $ 3,910
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 62,130 102,249
Provision for bad debts (4,674)
Reversal of excess income tax accrual (21,666)
Other 21 (6,763)
Changes in assets and liabilities:
Accounts receivable 112,350 176,117
Work in process (64,246) 9,276
Prepaid expenses and other current assets (49,034) 14,345
Deposits and other assets (1,506)
Accounts payable 14,733 (78,871)
Accrued liabilities (26,481) (194,735)
Customer deposits and non-current accrued expenses (1,332) (57,316)
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (164,926) (58,128)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (27,034) (8,232)
Payments received on notes receivable 4,937 4,514
Decrease (Increase) in restricted cash 92,842 (24,118)
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 70,745 (27,836)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt and capital lease
obligations (18,042) (49,709)
Borrowings on revolving credit line 537,049 986,879
Payments on revolving credit line (752,506) (1,039,733)
Proceeds from common stock issue 300,000 300,000
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 66,501 197,437
------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (6,688) (8,299)
------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (34,368) 103,174
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 386,785 222,023
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 352,417 $ 325,197
============ ============
See accompanying notes.
6
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
1997 1996
------------ ------------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Financed purchases of property and equipment through notes payable $ 8,910
============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 11,600 $ 24,212
============ ============
See accompanying notes.
7
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
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.
The Company's shareholders approved a one for four reverse stock split which was
effective November 7, 1997. All share and per share amounts have been restated
to account for the reverse split.
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 30,000 shares (on a pre-reverse split basis)
at $8.00 per share. The put option was exerciseable at 2,500 shares ($20,000)
per quarter through April, 1996. The options were exercised in their entirety
and at September 30, 1997, $33,342, and at September 30, 1996, $95,110 remained
payable to the selling shareholders.
Subsequent to one of the three private placements of common stock completed
during the quarter ended March 31, 1994 management agreed to issue 91,666
additional shares to the participants of one of the placements. At June 30,
1995, 62,500 of the shares had been issued. On September 30, 1997 and November
6, 1997 the remaining participants filed the required agreements and on October
22 and November 6, 1997 3,333 and 20,833 shares were issued, respectively.
On June 29, 1997 the Company and several current shareholders and
shareholder/directors agreed to a private placement of 860,000 shares of common
stock and warrants to purchase 860,000 additional shares of common stock. The
cost of the shares and warrants of $860,000 was placed in escrow. The placement
was contingent on the Company's shareholders consent to a one for four reverse
stock split and an amendment to the Company's Restated Articles of
Incorporation, which amendment increases from 5,000,000 to 10,000,000 the number
of shares of common stock (on a post-reverse split basis) the Company is
authorized to issue. In September, the Company and one of the participants
agreed to the release of $300,000 from the participant's escrow account and
300,000 shares and warrants were issued September 10, 1997.
On October 31, 1997 the Company's shareholders consented to the reverse split
and the amendment, effective November 7, 1997. The remaining 560,000 shares were
issued November 14, 1997.
8
NOTE 3. FOREIGN OPERATIONS AND MAJOR CUSTOMERS-SEGMENTS
Revenues, income (loss) before taxes, and identifiable assets by geographic area
are shown below. United Kingdom amounts relate solely to Saztec Europe, Ltd. and
its subsidiaries, whose customers are located in England, Scotland, Germany,
Italy, Spain, and Belgium.
Identifiable assets of Saztec Europe Ltd. located outside of Ardrossan, Scotland
are immaterial.
QUARTER ENDED SEPTEMBER 30,
1997 1996
---- ----
Revenue
United States $818,662 $1,044,706
United Kingdom/Western Europe 794,809 1,330,436
--------------------------------------
$1,613,471 $2,375,142
======================================
Income (loss) before income taxes
United States $(148,309) $21,492
United Kingdom/Western Europe (63,252) (39,248)
--------------------------------------
$ (211,561) $(17,756)
======================================
Depreciation
United States $24,682 $48,255
United Kingdom/Western Europe 34,418 50,913
Amortization-U.S. only 3,030 3,081
======================================
$62,130 $102,249
======================================
Identifiable Assets SEPTEMBER 30, 1997 JUNE 30, 1997
United States $1,927,326 $2,415,816
United Kingdom 1,405,966 1,414,632
--------------------------------------
$3,333,292 $3,830,448
======================================
NOTE 4. EARNINGS (LOSS) PER SHARE
Earnings (loss) per common share is computed by dividing net income (loss)
applicable to common stockholders by the weighted average number of shares of
common stock outstanding during each year which totaled 3,637,180 and 3,391,804
for the quarters ended September 30, 1997, and 1996, respectively. The inclusion
of common stock equivalents would have been antidilutive and were not included
for the quarter ended September 30, 1997.
Effective for periods ending after December 15, 1997, the Financial Accounting
Standards Board has issued Statement of Financial Accounting Standards No. 128,
EARNINGS PER SHARE. The standard amends the computation of earnings per share to
provide for two measures, Basic Earnings Per Share and Dilutive Earnings Per
Share. Under this standard, the Company would have reported the following for
the quarters ended September 30:
BASIC EPS DILUTIVE EPS
1997 $(.058) $(.058)
1996 $.001 $.001
9
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenue for the three months ended September 30, 1997 decreased to $1,613,471
from $2,375,142 for the quarter ended September 30, 1996, a drop of 32%. U.S.
revenue for the quarter decreased 21.6% and European revenue was off 40%. The
sales mix in the United States and Europe was relatively unchanged from the
prior year period. Revenue from foreign sources comprised 49% of consolidated
revenues for the first three months of the current year as compared with 56% 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 18.4% with a gross profit of $297,229 is 4.3% lower than the
22.7% margin and $539,624 of gross profit for the first quarter of the prior
year due to continued underutilized capacity and competitive pricing pressure.
Selling and administrative (S&A) expenses for the current year quarter decreased
$36,882 to $496,228 from $533,110 for the same period in the prior year. S&A
expense as a percentage of sales increased to 30.7% from 22.4% in the prior
year.
Net cash of $(164,926) was used in operating activities primarily to cover the
net loss of $(211,561). Proceeds from a portion of the private placement
received September 10, 1997 reduced the Company's dependency on the revolving
line of credit.
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 of
$270,000. The note, which was due July 1, 1997 was renewed through October 1,
1997, then renewed through April 1, 1998. Maximum borrowings under the new
agreement decline $10,000 per month beginning November 1, 1997 from $270,000.
Available borrowing is restricted to 70% of eligible receivables. The Company
was in compliance with the agreement's covenants at September 30, 1997.
Outstanding borrowings on that date were $59,055 and $274,512 at June 30, 1997.
The Company's unrestricted cash balance of $352,417 on September 30, 1997
decreased by $34,368 from the balance at June 30, 1997. Working capital
decreased $204,408 during the quarter, which approximates the operating loss for
the period.
The Company and one shareholder participating in the Company's private placement
of common stock amended the escrow and subscription agreement with respect to
that shareholder/participant which authorized the release of $300,000 from
escrow on September 10, 1997 in payment for 300,000 units consisting of 300,000
shares of common stock and 300,000 warrants to purchase common shares. The
balance of the proceeds from the private stock placement of $560,000 to purchase
560,000 units were released from escrow and received by the Company on November
14, 1997.
10
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 3. DEFAULTS UPON SENIOR SECURITIES.
NONE.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company filed a Schedule 14A with the Security and Exchange Commission to
solicit shareholder consent to a one for four reverse stock split and an
amendment to the Company's Restated Articles of Incorporation to increase the
number of shares of common stock the Company is authorized to issue from
5,000,000 to 10,000,000, after giving effect to the reverse stock split. On
October 31, 1997 the Company's shareholders approved the measures with a
majority of shares voted in consent of 54.63%, or 8,460,700 shares.
As a result of the reverse stock split, four outstanding shares of common stock
of the Company will be combined into one share of common stock, effective the
close of business on Friday, November 7, 1997. Cash will be paid for fractional
shares at the $.125 per pre-reverse split share, the closing price of the stock
at the close of business on November 7, 1997. The respective ownership of the
Company by each shareholder is not affected by the one for four reverse stock
split. The CUSIP number for the Company's common stock on a post reverse split
basis is 805842 20 0.
The Company's Certificate of Amendment of Articles of Incorporation is filed as
an exhibit to this report.
ITEM 5. OTHER INFORMATION
NONE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following Exhibits are filed by attachment to this Form 10-QSB:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
3.(i) Certificate of Amendment of Articles of Incorporation
of Saztec International, Inc.
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K:
NONE.
11
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 14, 1997
SAZTEC INTERNATIONAL, INC.
--------------------------
(Registrant)
By: /s/ THOMAS K. O'LOUGHLIN
------------------------
Thomas K. O'Loughlin
Treasurer
12
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
3.(i) Certificate of Amendment of Articles of Incorporation
of Saztec International, Inc.
27 Financial Data Schedule