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 March 31, 1998
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)
978-901-9600
-------------------------------
(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 April 27, 1998,
was 4,461,129 shares.
SAZTEC INTERNATIONAL, INC.
FORM 10-QSB
QUARTER ENDED MARCH 31, 1998
CONTENTS
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Operations for the
three months ended March 31, 1998 and 1997 3
Consolidated Statements of Operations for the 4
nine months ended March 31, 1998 and 1997
Consolidated Balance Sheets -- March 31, 1998
and June 30, 1997 5
Consolidated Statement of Changes in Stockholders'
Equity for the nine months ended March 31, 1998 6
Consolidated Statements of Cash Flows for the
nine months ended March 31, 1998 and 1997 7 - 8
Notes to Consolidated Financial Statements --
March 31, 1998 and 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 13
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 MARCH 31, 1998 AND 1997
(UNAUDITED)
1998 1997
----------- -----------
REVENUES $ 2,271,910 $ 2,374,030
Cost of services 1,716,596 1,963,917
----------- -----------
Gross profit 555,314 410,113
Selling and administrative expense 477,079 498,362
----------- -----------
Income (Loss) from operations 78,235 (88,249)
Interest expense 11,281 16,091
----------- -----------
Income (Loss) before provision for income taxes 66,954 (104,340)
Provision (benefit) for income taxes 14,368 (16,894)
----------- -----------
Net income (loss) $ 52,586 $ (87,446)
=========== ===========
Income (Loss) per share of common stock (Note 4):
Basic and diluted net income (loss) per share $ .01 $ (.02)
=========== ===========
Net income (loss) per share- assuming dilution $ .01
===========
Weighted average number of shares-basic 4,461,129 3,574,413
=========== ===========
Weighted average number of shares- diluted 4,543,927
===========
See accompanying notes.
3
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
1998 1997
----------- -----------
REVENUES $ 5,850,130 $ 7,391,138
Cost of services 4,616,629 5,884,083
----------- -----------
Gross profiT 1,233,501 1,507,055
Selling and administrative expense 1,483,552 1,640,552
----------- -----------
Loss from operations (250,051) (133,497)
Interest expense 35,541 63,019
----------- -----------
Loss before provision for income taxes (285,592) (196,516)
Provision (benefit) for income taxes 14,368 (38,560)
----------- -----------
Net loss $ (299,960) $ (157,956)
=========== ===========
LOSS PER SHARE OF COMMON STOCK:
Basic net loss applicable to common stockholders $ (.07) $ (.04)
=========== ===========
Weighted average number of shares 4,089,022 3,512,004
=========== ===========
See accompanying notes.
4
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND JUNE 30, 1997
ASSETS
MARCH 31, 1998 JUNE 30, 1997
-------------- ------------
(UNAUDITED)
Current assets
Cash and cash equivalents $ 550,734 $ 386,785
Restricted cash 50,338 192,643
Accounts receivable, less allowance for doubtful accounts of $57,223 and $45,070
at March 31, 1998 and June 30, 1997 1,980,198 1,342,831
Work in process 249,283 217,518
Prepaid expenses and other current assets 133,514 134,803
Note receivable for stock subscribed (Note 2) 860,000
------------ ------------
Total current assets 2,964,067 3,134,580
Equipment, net 433,845 364,040
Other assets
Goodwill and other intangible assets, less accumulated amortization of $72,692
and $63,602 at March 31, 1998 and June 30, 1997 152,670 161,760
Deposits and other assets 118,895 170,068
------------ ------------
Total assets $ 3,669,477 $ 3,830,448
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable $ 179,108 $ 274,512
Current portion of long-term debt and capital lease obligations 260,279 199,460
Common stock subject to repurchase (Note 2) 33,342
Accounts payable 455,297 569,716
Accrued liabilities 709,863 429,396
Customer deposits 785,760 456,989
Excess of billings over costs and estimated earnings 56,200 223,633
------------ ------------
Total current liabilities 2,446,507 2,187,048
Long-term debt and capital lease obligations 36,508 151,980
Accrued expenses, non-current 30,155 39,546
Stockholders' equity
Common stock-no par value; 10,000,000 shares authorized; 4,461,129 shares
issued at March 31, 1998, and 3,571,963 shares issued at June 30, 1997 12,430,811 11,570,811
Common stock subscribed (Note 2) 860,000
Contributed capital 14,498 14,498
Accumulated deficit (11,178,480) (10,878,520)
Cumulative translation adjustment (110,522) (114,915)
------------ ------------
Total stockholders' equity 1,156,307 1,451,874
------------ ------------
Total liabilities and stockholders' equity $ 3,669,477 $ 3,830,448
============ ============
See accompanying notes.
5
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 1998
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 (299,960)
Translation
adjustment 4,393
--------- ----------- -------- --------- ------- ------------ ---------
4,461,129 $12,430,811 0 $0 $14,498 $(11,178,480) $(110,522)
<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 NINE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
1998 1997
----------- -----------
Cash flows from operating activities:
Net loss $ (299,960) $ (157,956)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 179,366 287,510
Provision for bad debts 12,062 (4,448)
Loss on sale of assets 2,333
Other 17 (17,054)
Changes in assets and liabilities:
Accounts receivable (681,434) 298,003
Work in process (165,389) 208,408
Prepaid expenses and other current assets (17,657) 32,994
Deposits and other assets 59,316 975
Accounts payable (116,871) (312,437)
Accrued liabilities 268,829 (26,775)
Customer deposits and non-current accrued expenses 327,067 (288,318)
Income taxes payable (38,560)
----------- -----------
Net cash used in operating activities (434,654) (15,325)
----------- -----------
Cash flows from investing activities:
Additions to equipment (226,714) (18,239)
Payments received on note receivable 11,937 14,113
(Increase) decrease in restricted cash 142,305 (7,433)
----------- -----------
Net cash used in investing activities (72,470) (11,559)
----------- -----------
Cash flows from financing activities:
Principal payments on debt and capital lease
obligations (101,410) (156,359)
Borrowings on revolving credit agreement 2,098,554 2,675,154
Payments on revolving credit agreement (2,193,958) (2,832,936)
Net proceeds from issuance of common stock 860,000 300,000
----------- -----------
Net cash provided by (used in) financing activities 663,186 (14,141)
----------- -----------
Effect of exchange rate changes on cash 7,887 11,766
----------- -----------
Net increase (decrease) in cash 163,949 (29,259)
Cash and cash equivalents at beginning of period 386,785 222,023
----------- -----------
Cash and cash equivalents at end of period $ 550,734 $ 192,764
=========== ===========
See accompanying notes.
7
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
1998 1997
------- -------
Supplemental schedule of non-cash investing and financing activities:
Purchase of equipment through issuance of notes payable and capital
lease obligations $13,624 $ 8,910
======= =======
Partial settlement of Common Stock Repurchase obligation $14,110
=======
Supplemental disclosures of cash flow information: Cash paid during the
period for:
Interest $24,221 $60,109
======= =======
Income taxes $14,368
=======
See accompanying notes.
8
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
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 1997 financial statements
to conform with the current year's presentation.
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 120,000 shares at $2.00 per share. The put
option was exercisable at 10,000 shares ($20,000) per quarter through April,
1996. The options were exercised in their entirety and at June 30, 1997 $33,342
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 8,333 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
cash for 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 1997,
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.
SEP 30, 1997 DEC 31, 1997 MAR 31, 1998 TOTAL
------------ ------------ ------------ -----------
Revenue
United States $ 818,662 $ 982,126 $ 1,168,268 $ 2,969,056
United Kingdom/Western Europe 794,809 982,623 1,103,642 2,881,074
----------- ----------- ----------- -----------
$ 1,613,471 $ 1,964,749 $ 2,271,910 $ 5,850,130
=========== =========== =========== ===========
Income (loss) before income taxes
United States $ (148,309) $ (34,704) $ 70,080 $ (112,933)
United Kingdom/Western Europe (63,252) (106,281) (3,126) (172,659)
----------- ----------- ----------- -----------
$ (211,561) $ (140,985) $ 66,954 $ (285,592)
=========== =========== =========== ===========
Depreciation
United States $ 24,682 $ 23,730 $ 23,457 $ 71,869
United Kingdom/Western Europe 34,418 32,542 31,447 98,407
Amortization-U.S. only 3,030 3,030 3,030 9,090
=========== =========== =========== ===========
$ 62,130 $ 59,302 $ 57,934 $ 179,366
=========== =========== =========== ===========
SEP 30, 1996 DEC 31, 1996 MAR 31, 1997 TOTAL
------------ ------------ ------------ -----------
Revenue
United States $ 1,044,706 $ 1,030,578 $ 1,043,130 $ 3,118,414
United Kingdom/Western Europe 1,330,436 1,611,388 1,330,900 4,272,724
=========== =========== =========== ===========
$ 2,375,142 $ 2,641,966 $ 2,374,030 $ 7,391,138
=========== =========== =========== ===========
Income (loss) before income taxes
United States $ 21,492 $ (57,541) $ (87,834) $ (123,883)
United Kingdom/Western Europe (39,248) (16,879) (16,506) (72,633)
=========== =========== =========== ===========
$ (17,756) $ (74,420) $ (104,340) $ (196,516)
=========== =========== =========== ===========
Depreciation
United States $ 48,255 $ 45,710 $ 44,390 $ 138,355
United Kingdom/Western Europe 50,913 47,072 42,029 140,014
Amortization-U.S. only 3,081 3,030 3,030 9,141
=========== =========== =========== ===========
$ 102,249 $ 95,812 $ 89,449 $ 287,510
=========== =========== =========== ===========
MAR 31, 1998 JUN 30, 1997
------------ ------------
Identifiable Assets
United States $ 1,887,536 $ 2,415,816
United Kingdom 1,781,941 1,414,632
=========== ===========
$ 3,669,477 $ 3,830,448
=========== ===========
10
NOTE 4. EARNINGS (LOSS) PER SHARE
During the nine month periods ended March 31, 1998 and 1997 the following
potentially dilutive securities were outstanding:
1998 1997
NUMBER PRICE RANGE NUMBER PRICE RANGE
$ $
Employee options 394,500 .315 - 4.13 155,500 .68 - 4.13
Other options 358,750 .315 - 4.13 106,250 .68 - 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 nine months ended March 31, 1998, declined to $5,850,130 from
$7,391,138 for the nine months ended March 31, 1997, a decrease of $1,541,008 or
(20.8%). The decrease is due mainly to lower revenue from library conversion
projects in the U.K. and Western Europe. This decline has been partially offset
by sales of British Library card catalogue sets on CD/ROM. Revenue from projects
utilizing scanning services in the United States in the current year was
$215,476 higher than earned in the prior year.
Revenue for the quarter ended March 31, 1998 was $102,120 (4.3%) short of the
same quarter in the prior year. U.S. revenue for the quarter ended March 31,
1998 was $125,138 higher than the figure for the same period in the prior year,
but European revenue was $227,258 lower than the figure posted in the same
quarter of the prior year.
Gross margin for the quarter ended March 31, 1998 of 24.4% compares favorably
with the prior year quarter margin of 17.3% of sales. The prior year margin
reflected one-time workforce training costs and pricing pressures on projects
which have been completed.
Selling and administrative expenses of $477,079 for the quarter was $21,283 less
than the same period in the prior year. Selling expense for the quarter ended
March 31, 1998 of $199,194 was consistent with selling expense incurred in the
first two quarters of the current year, which averaged $199,167 per quarter.
Administrative expense of $277,885 for the current quarter is $26,184 less than
the per quarter average expensed in the first six months of the current year.
Cash contributed by operations for the quarter amounted to $66,720, despite
increases in current asset balances which exceeded increases in current
liability balances by $56,561. However, cash purchases during the quarter of
$120,251 for operating equipment and net payments on notes and capital lease
obligations of $12,525 offset the increase from operating activities and other
adjustments by $30,405, the net decrease in cash for the quarter's activities.
CAPITAL RESOURCES AND LIQUIDITY
At June 30, 1997, the Company had 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% (12.5% at June 30, 1997).
Available borrowings were 70% of domestic trade receivables less than 90 days
old, with an aggregate maximum borrowing level that declined $10,000 per month
to $280,000 on June 30, 1997. The credit line was renewed on July 1 and October
1, 1997 and April 1, 1998. The current renewal incorporates the same terms as
the prior agreements, with the exception that the maximum borrowings decline
$10,000 per month from $210,000 on April 1, 1998. The current and prior
agreements contain covenants that require, among other things, 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 agreements at April 1, 1998.
Outstanding borrowings at March 31, 1998 were $179,108 with $30,892 available.
The Company's unrestricted cash balance of $550,734 on March 31, 1998 is
$163,949 more than the $386,785 figure of June 30, 1997. Working capital at
March 31, 1998 of $517,560 is $429,972 less than the June 30, 1997 working
capital amount of $947,532, but $45,816 higher than the March 31, 1997 balance.
The decrease in working capital results mainly from the year to date net loss of
$299,960 and purchases of equipment in the first three quarters of $226,714.
12
SAZTEC INTERNATIONAL, INC.
MARCH 31, 1998 FORM 10-QSB
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
On November 7, 1997 the shareholders of the Company approved a four for one
reverse stock split. The reverse stock split does not change the rights or
ownership interests of any of the stockholders. On April 1, 1998 the Company
executed a new note to its prime lender to replace its revolving line of credit
agreement. The new agreement does not change the rights of any holders of its
securities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders was held February 19, 1998. All directors
were re-elected for one year. Tallard B.V. nominated two directors, Robert W.
Forsyth and Hans Lindroth, to fill the two seats which were vacated by the prior
representatives in June, 1995. Both nominees were elected. There was no
solicitation in opposition to management nominees. One other proposal was
presented for shareholder vote:
1. Proposal to ratify appointment of Grant Thornton LLP as independent
certifying accountants for the year ended June 30, 1998:
For: 4,027,979
Against: 5,263
Abstain: 2,900
ITEM 5. OTHER INFORMATION
Christopher Parker joined the Company as Chief Executive Officer of the Company.
He was elected to the Board of Directors at the Board's regular quarterly
meeting on February 19, 1998. The Board elected Gary N. Abernathy to the
positions of President and Chief Operating Officer-U.S. Division.
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 PAGE
- -------------- ---------------------- -------
2.1 Amendment to By-Laws of Saztec International, Inc. 15 - 16
10.15 Employment Contract, Christopher Parker 17 - 22
10.16 Renewal of Revolving Credit Agreement dated
April 1, 1998 23 - 31
27 Financial Data Schedule 32
(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: April 27, 1998
SAZTEC INTERNATIONAL, INC.
--------------------------
(Registrant)
By: /s/ THOMAS K. O'LOUGHLIN
------------------------
Thomas K. O'Loughlin
Treasurer
14
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
2.1 Amendment to By-Laws of Saztec International, Inc.
10.15 Employment Contract, Christopher Parker
10.16 Renewal of Revolving Credit Agreement dated April 1, 1998
27 Financial Data Schedule