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 DECEMBER 31, 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)
508-262-9600
(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 January 29,
1998, was 4,461,129 shares.
SAZTEC INTERNATIONAL, INC.
FORM 10-QSB
FOR THE
QUARTER ENDED DECEMBER 31, 1997
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Operations --
Three months ended December 31, 1997 and 1996 3
Consolidated Statements of Operations -- 4
Six months ended December 31, 1997 and 1996
Consolidated Balance Sheets -- December 31, 1997 and June 30, 1997 5
Consolidated Statement of Changes in Stockholders' Equity 6
Consolidated Statements of Cash Flows --
Six months ended December 31, 1997 and 1996 7 - 8
Notes to Consolidated Financial Statements - December 31, 1997 9 - 11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders Not Applicable
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
2
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
(Unaudited)
1997 1996
---- ----
REVENUES $1,964,749 $2,641,965
Cost of services 1,583,791 2,084,648
-------------------- -------------------
GROSS PROFIT 380,958 557,317
Selling and administrative expense 510,245 609,079
-------------------- -------------------
LOSS FROM OPERATIONS (129,287) (51,762)
Interest expense (11,698) (22,658)
-------------------- -------------------
NET LOSS $(140,985) $(74,420)
==================== ===================
LOSS PER SHARE OF COMMON STOCK:
Net loss applicable to common stockholders $(.03) $(.02)
==================== ===================
Weighted average number of shares 4,176,845 3,574,413
==================== ===================
See accompanying notes.
3
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996
(Unaudited)
1997 1996
---- ----
REVENUES $3,578,220 $5,017,108
Cost of services 2,900,033 3,920,166
-------------------- -------------------
GROSS PROFIT 678,187 1,096,942
Selling and administrative expense 1,006,473 1,142,190
-------------------- -------------------
LOSS FROM OPERATIONS (328,286) (45,248)
Interest expense (24,260) (46,928)
-------------------- -------------------
Loss before benefit for income tax $(352,546) (92,176)
Benefit for income tax (21,666)
-------------------- -------------------
NET LOSS $(352,546) $(70,510)
==================== ===================
LOSS PER SHARE OF COMMON STOCK:
Net loss applicable to common stockholders $(.09) $.(02)
==================== ===================
Weighted average number of shares 3,907,013 3,481,478
==================== ===================
See accompanying notes.
4
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND JUNE 30, 1997
ASSETS
DEC. 31, JUNE 30,
1997 1997
---- ----
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $581,138 $386,785
Restricted cash 73,703 192,643
Accounts receivable, less allowance for doubtful accounts of $44,164
at December 31, 1997 and $45,070 at June 30, 1997 1,600,351 1,342,831
Work in process 370,643 217,518
Prepaid expenses and other current assets 120,112 134,803
Note receivable for stock subscribed 860,000
--------------- --------------------
TOTAL CURRENT ASSETS 2,745,947 3,134,580
EQUIPMENT, NET 353,475 364,040
OTHER ASSETS
Goodwill and other intangible assets, less accumulated amortization
of $57,542 at December 31, 1997 and $51,482 at June 30, 1997 155,700 161,760
Deposits and other assets 135,978 170,068
--------------- --------------------
TOTAL ASSETS $3,391,100 $3,830,448
=============== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $132,936 $274,512
Current portion long-term debt and capital lease obligations 264,147 199,460
Common stock subject to repurchase 33,342 33,342
Accounts payable 479,320 569,716
Accrued liabilities 477,791 429,396
Customer deposits 607,254 456,989
Excess of billings over costs and estimated earnings 223,633 223,633
--------------- --------------------
Total current liabilities 2,218,423 2,187,048
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, LESS CURRENT PORTION 43,905 151,980
ACCRUED EXPENSE 32,930 39,546
STOCKHOLDERS' EQUITY
Preferred stock-no par value; 1,000,000 shares authorized; no shares
issued
Common stock-no par value; 10,000,000 shares authorized;
4,461,129 shares issued at December 31, 1997, and 3,571,963
shares issued at June 30, 1997 12,430,811 11,570,811
Common stock subscribed 860,000
Contributed capital 14,498 14,498
Accumulated deficit (11,231,066) (10,878,520)
Cumulative translation adjustment (118,401) (114,915)
--------------- --------------------
Total stockholders' equity 1,095,842 1,451,874
--------------- --------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,391,100 $3,830,448
=============== ====================
See accompanying notes.
5
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
DECEMBER 31, 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) September 10, 1997 300,000 300,000 (300,000) (300,000)
(2) October 22, 1997 8,333 -
(2) November 6, 1997 20,833 -
(1) November 14, 1997 560,000 560,000 (560,000) (560,000)
Net loss (352,546)
Translation adjustment (3,486)
--------- ----------- -------- -------- ------- ----------- ---------
4,461,129 $12,430,811 0 $0 $14,498 $(11,231,066) $(118,401)
<FN>
(1) Shares issued pursuant to a private placement completed November 14, 1997
(Note2).
(2) Shares issued pursuant to an amendment to a private placement completed
March 31, 1994 (Note 2).
</FN>
See accompanying notes.
6
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996
(Unaudited)
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(352,546) $(70,514)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 121,432 198,061
Provision for bad debts (699) (4,674)
Other 17 (8,308)
Changes in assets and liabilities:
Accounts receivable (115,127) 127,859
Work in process (305,501) 213,721
Prepaid expenses and other current assets (5,254) 54,498
Deposits and other assets 46,079
Accounts payable (90,286) (210,499)
Accrued liabilities 44,547 (153,171)
Customer deposits and non-current accrued expenses 155,964 (276,332)
Income taxes payable (21,666)
--------------------------------
NET CASH USED IN OPERATING ACTIVITIES (501,374) (151,025)
--------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to equipment (106,463) (9,320)
Payments received on notes receivable 8,380 9,130
Decrease in restricted cash 118,940 (185)
--------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 20,857 (375)
--------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt and capital lease obligations (42,714) (97,116)
Borrowings on revolving credit line 1,325,114 1,885,842
Payments on revolving credit line (1,466,689) (1,995,551)
Proceeds from common stock issue 860,000 300,000
--------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 675,711 93,175
--------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (841) 18,996
--------------------------------
NET INCREASE (DECREASE) IN CASH 194,353 (39,229)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 386,785 222,023
--------------------------------
CASH AND EQUIVALENTS AT END OF PERIOD $581,138 $182,794
================================
See accompanying notes.
7
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996
(Unaudited)
1997 1996
---- ----
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $16,567 $42,866
================== =================
See accompanying notes.
8
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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.
Effective for interim and annual 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. The effect of this standard is
reflected in the financial statements.
The Company's shareholders approved a one for four reverse stock split which
became 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 at $8.00 per share. The put
option was exercisable at 2,500 shares ($20,000) per quarter through April,
1996. The options were exercised in their entirety and at December 31, 1997 and
1996, $33,342 and $95,110 remained payable to the selling shareholders,
respectively.
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 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.
9
NOTE 3. FOREIGN OPERATIONS AND MAJOR CUSTOMERS-SEGMENTS
United Kingdom/Western Europe amounts in the following tables 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.
SEPTEMBER 30, 1997 DECEMBER 31, 1997 TOTAL
------------------ ----------------- -----
Revenue
United States $818,662 $982,126 $1,800,788
United Kingdom/Western Europe 794,809 982,623 1,777,432
-------------------------------------------------------------------------
$1,613,471 $1,964,749 $3,578,220
=========================================================================
Income (loss) before income taxes
United States $(148,309) $(34,704) $(183,013)
United Kingdom/Western Europe (63,252) (106,281) (169,533)
-------------------------------------------------------------------------
$(211,561) $(140,985) $(352,546)
=========================================================================
Depreciation
United States $24,682 $23,730 $48,412
United Kingdom/Western Europe 34,418 32,542 66,960
Amortization-U.S. only 3,030 3,030 6,060
-------------------------------------------------------------------------
$62,130 $59,302 $121,432
=========================================================================
SEPTEMBER 30, 1996 DECEMBER 31, 1996 TOTAL
------------------ ----------------- -----
Revenue
United States $1,044,706 $1,030,578 $2,075,284
United Kingdom/Western Europe 1,330,436 1,611,388 2,941,824
-------------------------------------------------------------------------
$2,375,142 $2,641,966 $5,017,108
=========================================================================
Income (loss) before income taxes
United States $21,492 $(57,541) $(36,049)
United Kingdom/Western Europe (39,248) (16,879) (56,127)
-------------------------------------------------------------------------
$(17,756) $(74,420) $(92,176)
=========================================================================
Depreciation
United States $48,255 $45,710 $93,965
United Kingdom/Western Europe 50,913 47,072 97,985
Amortization-U.S. only 3,081 3,030 6,111
-------------------------------------------------------------------------
$102,249 $95,812 $198,061
=========================================================================
DECEMBER 31, 1997 JUNE 30, 1997
----------------- -------------
Identifiable Assets
United States $1,842,760 $2,415,816
United Kingdom 1,548,340 1,414,632
-------------------------------------------------
$3,391,100 $3,830,448
=================================================
10
NOTE 4. EARNINGS (LOSS) PER SHARE
During the six month periods ended December 31, 1997 and 1996 the following
potentially dilutive securities were outstanding:
1997 1996
NUMBER PRICE RANGE NUMBER PRICE RANGE
$ $
Employee options 155,500 .68 - 4.13 149,250 .68 - 4.13
Other options 106,250 .68 - 4.13 91,250 1.00 - 4.13
Warrants 1,641,000 2.00 446,000 2.00 - 6.00
11
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenue for the six months ended December 31, 1997, declined to $3,578,220 from
$5,017,108 for the six months ended December 31, 1996, a decrease of $1,438,888
or (28.7%). Revenue for the quarter ended December 31, 1997, of $1,964,749 was
down $677,217 from the $2,641,965 earned for the quarter ended December 31,
1996. The decline is due to reduced volume of retrospective conversion projects
at Saztec Europe Ltd.. Revenue for the current year six month period for Saztec
Europe Ltd. declined $1,164,392 as compared to the six months ended December 31,
1996.
Gross profit for the quarter ended December 31, 1997 of $380,958 improved
$83,729 over the quarter ended September 30, 1997, but is $176,359 less than the
prior year second quarter. Current year to date gross profit is $418,755 less
than the prior year six month figure. The decline in gross profit follows from
lower revenues. Gross margin for the three and six month periods ended December
31, 1997 is 1.7% and 2.9% less than that achieved in the same periods of the
prior year. This is due to the effect of spreading fixed costs over a reduced
volume and downward pressure on pricing due to competition.
Some savings were achieved in selling and administrative expense for the first
two quarters of the current year over the prior year amounts. Selling expenses
recorded of $398,334 for the first two quarters of the current year are $54,044
less than the $452,378 spent in the prior year expense six month period. The
savings were realized at a consistent rate over the two quarters. Administrative
expense for the first two quarters of the current year of $608,139 is $81,673
less than the prior year period figure of $689,812.
Loss from operations for the first two quarters through December 31, 1997
increased to $328,286 from the loss for the first six months of the prior year
of $45,248 as a result of the reduced gross profit.
Cash used in operating activities for the six month period of $501,374 reflects
the net loss of $352,546 and increases in accounts receivable and work in
process over June 30, 1997 balances. Funding was provided by the private
placement completed November 14, 1997 which resulted in $860,000. $106,463 of
this was used to purchase production equipment.
CAPITAL RESOURCES AND LIQUIDITY
The Company has a revolving credit agreement 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 are 70% of domestic
trade receivables less than 90 days old, with an aggregate maximum borrowing
level that declines $10,000 per month from $270,000 at October 1, 1997 until
maturity on April 1, 1998. The Company is in compliance with the restrictive
covenants contained in the agreement at December 31, 1997 and at June 30, 1997
was in compliance with the covenants contained in the agreement which expired
October 1, 1997. Aggregate borrowings were $132,936 and $274,512 on December 31,
1997 and June 30, 1997, respectively.
The Company's unrestricted cash balance increased to $581,138 at December 31,
1997 from $386,785 at June 30, 1997. Working capital decreased $420,008, to
$527,524, at December 31, 1997 from $947,532 at June 30, 1997. The decrease
reflects the net loss for the six months net of depreciation and amortization,
equipment purchases, and the increase in the principal amounts of notes payable
due within twelve months of December 31, 1997, during the period.
12
SAZTEC INTERNATIONAL, INC.
DECEMBER 31, 1997 FORM 10-QSB
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K
(A) EXHIBITS
The following Exhibit is filed by attachment to this Form 10-QSB/A:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------- ---------------------- ----
27 Financial Data Schedule 15
(B) REPORTS ON FORM 8-K:
None.
13
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: January 29, 1998
SAZTEC INTERNATIONAL, INC.
--------------------------
(Registrant)
By: /s/ THOMAS K. O'LOUGHLIN
------------------------
Thomas K. O'Loughlin
Treasurer
14
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule