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, 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 February 12,
1999, was 4,461,121 shares.
SAZTEC INTERNATIONAL, INC.
FORM 10-QSB/A
FOR THE
QUARTER ENDED DECEMBER 31, 1998
PAGE
-----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Operations --
Three months ended December 31, 1998 and 1997 3
Consolidated Statements of Operations -- 4
Six months ended December 31, 1998 and 1997
Consolidated Balance Sheets -- December 31, 1998 and
June 30, 199 5
Consolidated Statement of Changes in Stockholders' Equity -- 6
December 31, 1998
Consolidated Statements of Cash Flows -- 7 - 8
Six months ended December 31, 1998 and 1997
Notes to Consolidated Financial Statements --
December 31, 1998 9 - 10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11 - 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, 1998 AND 1997
(Unaudited)
1998 1997
---- ----
REVENUES $1,835,031 $1,964,749
Cost of services 1,519,303 1,583,791
--------------------------
GROSS PROFIT 315,728 380,958
Selling, general & administrative expense 532,612 510,245
--------------------------
LOSS FROM OPERATIONS (216,884) (129,287)
Interest expense (6,623) (11,698)
--------------------------
LOSS BEFORE PROVISION FOR INCOME TAXES (223,507) (140,985)
Provision for income taxes 403
--------------------------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS $ (223,910) $(140,985)
==========================
LOSS PER SHARE OF COMMON STOCK:
Basic and diluted net loss applicable to common $(.05) $(.03)
stockholders
==========================
Weighted average number of shares 4,461,121 4,176,845
==========================
See accompanying notes.
3
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
(Unaudited)
1998 1997
---- ----
REVENUES $3,601,715 $3,578,220
Cost of services 3,022,512 2,900,033
-------------- ------------
GROSS PROFIT 579,203 678,187
Selling and administrative expense 1,041,814 1,006,473
-------------- ------------
LOSS FROM OPERATIONS (462,611) (328,286)
Interest expense (14,778) (24,260)
-------------- ------------
(477,389) (352,546)
LOSS BEFORE PROVISION FOR INCOME TAXES
Provision for income taxes (76,198)
-------------- ------------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS $ (401,191) $(352,546)
============== ============
LOSS PER SHARE OF COMMON STOCK:
Basic and diluted net loss applicable to common $(.09) $(.09)
stockholders
============== ============
Weighted average number of shares 4,461,121 3,907,013
============== ============
See accompanying notes.
4
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND JUNE 30, 1998
ASSETS
DEC. 31, JUNE 30,
1998 1998
---- ----
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $682,443 $ 513,192
Restricted cash 59,767 172,452
Accounts receivable, less allowance for doubtful accounts of $10,204
at December 31 and $40,494 at June 30, 1998 1,429,988 1,658,274
Costs and estimated earnings in excess of billings 15,764
Work in process 115,782 176,539
Prepaid expenses and other current assets 90,463 92,833
Note receivable 23,373
----------- ----------
TOTAL CURRENT ASSETS 2,417,580 2,613,290
PROPERTY AND EQUIPMENT, NET 430,367 443,083
OTHER ASSETS
Goodwill and other intangible assets, less accumulated amortization
of $81,782 at December 31 and $75,722 at June 30, 1998 143,580 149,640
Deposits and other assets 93,558 111,856
----------- ----------
TOTAL ASSETS $3,085,085 $3,317,869
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $112,648 $29,682
Current portion long-term debt and capital lease obligations 193,427 182,599
Accounts payable 360,679 472,132
Accrued liabilities 569,533 699,455
Customer deposits 981,469 646,544
---------- ---------
TOTAL CURRENT LIABILITIES 2,217,756 2,030,412
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS LESS CURRENT PORTION 136,001 146,675
ACCRUED EXPENSE 14,371 22,362
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;
4,461,121 shares issued at December 31,1998 and
4,461,121 shares issued at June 30, 1998 12,430,811 12,430,811
Contributed capital 14,498 14,498
Accumulated deficit (11,614,404) 11,213,217)
Cumulative translation adjustment (113,948) (113,672)
========== =========
TOTAL STOCKHOLDERS' EQUITY 716,957 1,118,420
---------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,085,085 $3,317,869
========== =========
See accompanying notes.
5
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
DECEMBER 31, 1998
COMMON STOCK COMMON STOCK
SUBSCRIBED
CUMULATIVE
NUMBER OF NUMBER OF CONTRIBUTED ACCUMULATED TRANSLATION
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT
----------- ------ ---------- ------ ------------ ------------ ------------
June 30, 1998 4,461,129 $12,430,811 $14,498 $(11,213,217) $(113,672)
Net loss (401,187)
Translation
adjustment (276)
------------- ---------- ----------- ------- --------- ----------- -----------
4,461,129 $12,430,811 $14,498 $(11,614,404) $(113,948)
See accompanying notes.
6
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
(Unaudited)
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(401,191) $(352,546)
Adjustments to reconcile net loss to net cash (used
in) provided by operating activities:
Depreciation and amortization 110,260 121,432
Provision for bad debts (21,791) (699)
Other 17
Changes in assets and liabilities:
Accounts receivable 235,115 (115,127)
Work in process 59,810 (305,501)
Prepaid expenses and other current assets (22,229) (5,254)
Deposits and other assets (16,539) 46,079
Accounts payable (110,503) (90,286)
Accrued liabilities (137,023) 44,547
Customer deposits and non-current accrued expenses 337,734 155,964
--------------------
NET CASH (PROVIDED BY) USED IN OPERATING ACTIVITIES 33,643 (501,374)
--------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (38,978) (106,463)
Payments received on notes receivable 35,540 8,380
Decrease in restricted cash 112,685 118,940
--------------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 109,247 20,857
--------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable 1,421,462 1,325,114
Payments on notes payable (1,338,496) ,466,689)
Principal payments on debt and capital lease (52,889) (42,714)
obligations
Proceeds from issuance of common stock, net of 860,000
issuance costs
--------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 30,077 675,711
--------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (3,725) (841)
--------------------
NET INCREASE IN CASH 169,242 194,353
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 513,194 386,785
--------------------
CASH AND EQUIVALENTS AT END OF PERIOD $682,43 $581,138
=====================
See accompanying notes.
7
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
(Unaudited)
1998 1997
---- ----
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $12,210 $16,567
======== =======
Income taxes $5,283
========
See accompanying notes.
8
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 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.
NOTE 2. 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.
6 MONTHS ENDED DECEMBER 31,
1998 1997
---- ----
Revenue
United States $2,412,924 $1,800,788
United Kingdom/Western Europe 1,188,791 1,777,432
---------------- -------------
$3,601,715 $3,578,220
---------------- -------------
Income (loss) before income taxes
United States $(26,525) $(183,013)
United Kingdom/Western Europe (450,864) (169,533)
---------------- -------------
$(477,389) $(352,546)
---------------- -------------
Depreciation
United States $61,301 $48,412
United Kingdom/Western Europe 42,899 66,960
Amortization-U.S. only 6,060 6,060
---------------- -------------
$110,260 $121,432
---------------- -------------
Identifiable Assets DECEMBER 31 1998 JUNE 30, 1998
---------------- -------------
United States $1,549,959 $1,851,102
United Kingdom 1,535,126 1,466,767
---------------- -------------
$3,085,085 $3,317,869
---------------- -------------
9
NOTE 3. LOSS PER SHARE
Loss per common share is computed by dividing net loss applicable to common
stockholders by the weighted average number of shares of common stock
outstanding during each year which totaled 4,461,121 and 4,176,845 for the
quarters ended December 31, 1998, and 1997, respectively. The inclusion of
common stock equivalents would have been antidilutive and were not included for
the quarter ended December 31, 1998.
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 December 31:
BASIC LOSS PER SHARE DILUTIVE LOSS PER SHARE
1998 $(.05) $(.05)
1997 $(.03) $(.03)
10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenue for the six months ended December 31, 1998, increased to $3,601,715 from
$3,578,220 for the six months ended December 31, 1997, an increase of $23,495 or
(0.7%). Revenue for the Quarter ended December 31,1998 at $1,835,031 was down
$129,781 from the $1,964,749 earned for the quarter ended December 31, 1997.
U.S. revenue for the six months ended December 31, 1998 of $2,412,924 increased
$612,136 compared with the six month period the prior year of $1,800,788. U.S.
revenue for the second quarter of the current year $1,205,013 was $449,019
higher compared to $755,994 for the quarter ended December 31, 1997. European
revenue for the six months ended December 31, 1998 of $1,188,791 decreased
$588,641 compared with the six month period in the prior year of $1,777,432.
European revenue for the second quarter of the current year at $630,019 was
$352,604 less compared to $982,623 for the quarter ended December 31, 1997.
U.S. revenue has increased as a result of continued growth in scanning services
revenue and the improved growth in data entry conversion revenue. European
revenue is down compared to last year as a result in the decline in library
retrospective conversion project revenue. As a result of a new contract with the
University Cattolica del Sacro Cuore of Milan received in November 1998, and
increased activity with existing customers management expect revenue to increase
in Europe during the second half of the year.
Gross profit for the six months ended December 31, 1998 decreased $98,984 from
the prior year period to 16% of sales, compared to 19% of sales for the same
period of 1997. Gross profit for the quarter ended December 31, 1998 was 17.2%
of sales compared to 19.4% in the same period of 1997. Gross profit for U.S.
operations increased $167,749 for the six months ended December 31, 1998 to 21%
of sales compared to 18.8% for the same period last year. European gross profit
decreased $266,733 for the 6 month period ended December 31,1998 to 6% of sales
compared to 19% for the same period last year. The operation in Europe continues
to be underutilized causing the significant reduction in gross profit margin.
Selling, and administrative expenses (S&A) for the six month period increased
$69,883 to $1,076,356 (30% of sales) from $1,006,473 (28% of sales) for the same
period in the prior year. For the quarter ended December 31,1998 S&A increased
$543,493 (29.6% of sales) from $510,245 (26% of sales) in the prior year
quarter. The increase in S&A for the 6 months ended December 31, 1998 is a
result of increased expense in the U.S. of $100,229 (15.5%) and a decrease in
Europe of $30,346 (8.5%).
Loss from operations was $497,153 for the six months ended December 31, 1998
compared to $328,286 for the six months ended December 31, 1997. Loss from
operations for the three months ended December 31, 1998 was $227,765 compared to
$129,287 for the same period the prior year. The decline in revenue and the
lower gross profit margin in Europe has resulted in a larger than expected loss
in the first half of the year.
Management has initiated changes throughout it's operations in the U.S. and
Europe to improve efficiencies and increase operating results. Gary Abernathy,
the COO and President of the U.S. operations has left the company to pursue
other business interests effective December 1998. Christopher Parker who joined
the company in February of 1998 as CEO of Saztec International has also taken
over the responsibility of President of the U.S. operation. John Kerr, Treasurer
of Saztec Europe and Thomas O'Loughlin, Treasurer of Saztec International have
also left the company and their position will be consolidated into Vice
President of Finance and Administration operating from the corporate offices in
the U.S.
11
Mike Dale has been appointed Managing Director of Saztec Europe Ltd., effective
January 1999. Chris Dowd, the former Director of Business Development and Roland
Wolf, Sales Manager of Saztec Germany have left the company to pursue other
business interests. A plan has been initiated in Germany that will reduce
selling and administrative overheads while continuing to serve our clients
efficiently.
Cash Flow increased $169,242 for the six months ended December 31, 1998 compared
to an increase of $194,353 for the same period the prior year. Net cash from
operating activities increased $33,643 net cash from investing activities
increased $109,247 mainly as a result in a decrease in restricted cash of
$112,685. Cash flow from financing activities of $30,077 and effect of exchange
rate changes of ($3,725) make up the balance of the change.
The Company has analyzed its exposure to potential data processing "Year 2000"
problems and formulated a plan to ensure its systems are in compliance by June
30, 1999. This will be effected through replacement of PC-level hardware and an
upgrade to a third-party software package which has been certified Year 2000
compliant. Total planned cost through the balance of the current year is
expected to be less than $50,000 beyond continuing systems upgrades to increase
production performance. The Company is also in the process of compiling
certifications of Y2K compliance from its vendors. No external consulting
resource requirements are expected. The company believes that all actions and
implementation of new software should mitigate the effect of the year 2000
issue. However, if such modifications are not made or completed timely the year
2000 issue could have an effect on operations and financial condition of the
company.
The Company's operations may be affected by the introduction of the Euro on
January 1, 1999. A material amount of revenue generated by the sales and
production facilities in the United Kingdom is derived from customers located in
countries adopting the common currency. The Company will continue to be subject
to exchange rate risk as a result of the pound sterling's fluctuations against
the new currency and may encounter pricing pressure from competitors located in
countries participating in its adoption.
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% (11.75% and 12.5% at December 31, 1998 and
1997, respectively). Available borrowings are 70% of domestic trade receivables
less than 90 days old (80% at December 31, 1998), with an aggregate maximum
borrowing level that declines $10,000 per month from $120,000 at January 1, 1999
until maturity on April 1, 1999. The company is in the process of negotiating an
extension of this agreement as well as reviewing financing options with local
banks. Aggregate borrowings were $112,468 on December 31, 1998. On December
31,1997, the company had advances of $132,936 outstanding on the credit line.
The company was in compliance with the convenants contained in the agreement
throughout the six month period ended December 31, 1998.
The foregoing information may contain forward-looking statements under the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements are subject to known and unknown risks, uncertainties, and other
factors that may cause actual results to be materially different from those
contemplated by the forward-looking statements. Readers are cautioned not to
place undo reliance on these forward-looking statements, which speak only as of
the date of this report. The Company undertakes no obligation to publicly
release any revision to these forward-looking statements to reflect events or
circumstances after the date of this report.
12
SAZTEC INTERNATIONAL, INC.
DECEMBER 31, 1998 FORM 10-QSB/A
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
- ------- ----------------------
27 Financial Data Schedule
(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: February 12, 1999
SAZTEC INTERNATIONAL, INC.
(Registrant)
By: /s/ CHISTOPHER PARKER
----------------------
Christopher Parker
CEO
14
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule