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, 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 May 2, 1997,
was 14,297,651 shares.
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<CAPTION>
SAZTEC INTERNATIONAL, INC.
FORM 10-QSB
QUARTER ENDED MARCH 31, 1997
CONTENTS
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Operations --
Three months ended March 31, 1997 and 1996 3
Consolidated Statements of Operations -- 4
Nine months ended March 31, 1997 and 1996
Consolidated Balance Sheets -- March 31, 1997 and June 30, 1996 5
Consolidated Statements of Cash Flows -- 6 - 7
Nine months ended March 31, 1997 and 1996
Notes to Consolidated Financial Statements -- March 31, 1997 and 1996 8 - 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10 - 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
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2
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<TABLE>
<CAPTION>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
1997 1996
---- ----
<S> <C> <C>
REVENUES $2,374,030 $2,685,100
Cost of services 1,963,917 1,852,622
-------------------- -------------------
GROSS PROFIT 410,113 832,478
Selling and administrative expense 498,362 691,192
-------------------- -------------------
PROFIT (LOSS) FROM OPERATIONS (88,249) 141,286
Interest expense (16,091) (25,628)
-------------------- -------------------
PROFIT (LOSS) BEFORE PROVISION FOR INCOME TAXES (104,340) 115,658
Benefit for income taxes (16,894) (84)
-------------------- -------------------
NET PROFIT (LOSS) $(87,446) $115,742
==================== ===================
INCOME (LOSS) PER SHARE OF COMMON STOCK:
Net income (loss) applicable to common stockholders
$(.01) $.01
==================== ===================
Weighted average number of shares 14,297,651 12,652,319
==================== ===================
</TABLE>
See accompanying notes.
3
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<TABLE>
<CAPTION>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
1997 1996
---- ----
<S> <C> <C>
REVENUES $7,391,138 $ 8,041,397
Cost of services 5,884,083 5,791,798
-------------------- -------------------
GROSS PROFIT 1,507,055 2,249,599
Selling and administrative expense 1,640,552 2,474,932
-------------------- -------------------
LOSS FROM OPERATIONS (133,497) (225,333)
Gain on disposal of division 231,154
Interest expense (63,019) (101,176)
-------------------- -------------------
LOSS BEFORE PROVISION FOR INCOME TAXES (196,516) (95,355)
(Benefit) provision for income taxes (38,560) 9,010
-------------------- -------------------
NET LOSS $(157,956) $(104,365)
==================== ===================
LOSS PER SHARE OF COMMON STOCK:
Net loss applicable to common stockholders $(.01) $(.01)
==================== ===================
Weighted average number of shares 14,048,016 12,523,070
==================== ===================
</TABLE>
See accompanying notes.
4
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<TABLE>
<CAPTION>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND JUNE 30, 1996
ASSETS
MARCH 31, 1997 JUNE 30, 1996
-------------- -------------
<S> <C> <C>
CURRENT ASSETS (Unaudited)
Cash and cash equivalents $192,764 $222,023
Restricted cash 68,302 60,869
Accounts receivable, less allowance for doubtful accounts of $44,581
and $47,755 at March 31, 1997 and June 30, 1996 1,790,427 1,973,192
Costs and estimated earnings in excess of billings 21,490
Work in process 330,409 570,651
Prepaid expenses and other current assets 164,376 176,664
Note receivable for stock subscribed (Note 2) 300,000
-------------------- ------------------
TOTAL CURRENT ASSETS 2,546,278 3,324,889
PROPERTY AND EQUIPMENT, NET 361,011 598,415
OTHER ASSETS
Goodwill and other intangible assets, less accumulated amortization
of $60,572 and $51,482 at March 31, 1997 and June 30, 1996 164,790 173,931
Deposits and other assets 92,495 122,070
--------------------- ------------------
TOTAL ASSETS $3,164,574 $4,219,305
==================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $231,921 $389,703
Current portion of long-term debt and capital lease obligations 180,732 199,650
Common stock subject to repurchase (Note 2) 47,840 54,000
Income taxes payable 18,320 54,320
Accounts payable 587,444 885,692
Accrued liabilities 518,341 544,318
Customer deposits 489,936 744,278
--------------------- -------------------
TOTAL CURRENT LIABILITIES 2,074,534 2,871,961
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 148,717 241,257
COMMON STOCK SUBJECT TO REPURCHASE (NOTE 2) 8,160 46,000
ACCRUED EXPENSES, NON-CURRENT 39,718 34,385
STOCKHOLDERS' EQUITY
Commonstock-no par value; 20,000,000 shares authorized;
12,513,651 shares issued at March 31, 1997, and 12,543,851
shares issued at June 30, 1996 11,570,811 11,270,811
Common stock subscribed (Note 2) 300,000
Contributed capital 14,498 14,498
Accumulated deficit (10,574,589) (10,416,633)
Cumulative translation adjustment (117,275) (142,974)
--------------------- -------------------
Total stockholders' equity 893,445 1,025,702
--------------------- -------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,164,574 $4,219,305
===================== ===================
</TABLE>
See accompanying notes.
5
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<TABLE>
<CAPTION>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(157,956) $(104,365)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 287,510 428,794
Provision for bad debts (4,448) 16,186
Loss (gain) on sale of assets 2,333 (26,751)
Gain on sale of assets of division sold (Note 3) (231,154)
Write-off of work in process related to litigation 139,839
Other (17,054) 13,299
Changes in assets and liabilities:
Accounts receivable 298,003 (36,449)
Work in process 208,408 (370,665)
Prepaid expenses and other current assets 32,994 (22,914)
Deposits and other assets 975 6,845
Accounts payable (312,437) 425,689
Accrued liabilities (26,775) (565,087)
Customer deposits and non-current accrued expenses (288,318) 265,663
Income taxes payable (38,560) (26,879)
----------------- -----------------
NET CASH USED IN OPERATING ACTIVITIES (15,325) (87,949)
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (18,239) (49,917)
Proceeds from the sale of property and equipment 74,905
Payments received on notes receivable 14,113 12,663
(Increase) decrease in restricted cash (7,433) (7,826)
----------------- -----------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (11,559) 29,825
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt and capital lease
obligations (156,359) (146,709)
Borrowings on notes payable 2,675,154 2,621,001
Payments on notes payable (2,832,936) (2,879,478)
Net proceeds from issuance of common stock 300,000
---------------- -----------------
NET CASH USED IN FINANCING ACTIVITIES (14,141) (405,186)
---------------- -----------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 11,766 (40,505)
---------------- -----------------
NET DECREASE IN CASH (29,259) (503,815)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 222,023 644,101
---------------- -----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $192,764 $140,286
================ =================
</TABLE>
See accompanying notes.
6
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<TABLE>
<CAPTION>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
1997 1996
---- ----
<S> <C> <C>
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
==============
Partial settlement of Common Stock Repurchase obligation $14,110
==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $60,019 $112,160
============== ================
Income taxes $38,758
================
</TABLE>
See accompanying notes.
7
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SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 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.
Certain reclassifications have been made to the fiscal 1996 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 exercisable at 10,000 shares ($20,000) per quarter through April,
1996. During the quarters ended September 30 and December 31, 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. For the quarter ended March 31, 1996
5,100 shares at $10,200 were repurchased. Of the stock repurchased during the
periods and in prior periods, $56,000 and $90,200 remained payable to the
selling shareholders at March 31, 1997 and 1996, respectively. The figure at
March 31, 1997 is reduced by a discount negotiated of $14,110.
A common stock subscription was received for 1,200,000 shares during the quarter
ended June 30, 1996. Consideration was received in August and September, 1996.
NOTE 3. SALE OF DIVISION
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 were completed
on September 1, 1995. Operating results for the divisions for the nine months
ended March 31, 1996 were:
3 MONTHS ENDED
--------------
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 of $145,000 for the sale of
Knightswade was recognized in the quarter ended June 30, 1995.
8
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SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
NOTE 4. LITIGATION
On December 14, 1995, an order was entered granting the Summary Judgment motion
of Digital Equipment Corporation ("DEC") in the case in which the Company had
sued DEC in connection with a contract that had been terminated by DEC in 1993.
The decision effectively terminated the Company's claim against DEC. While the
Company believes that its case was meritorious, it determined during the period
for appeal, that it would be an imprudent use of the Company's resources to
pursue an appeal. The loss of the claim resulted in the Company's writing off of
the $139,839 work in process reserve maintained in connection with the contract
in the nine months ended March 31, 1996.
9
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenue for the nine months ended March 31, 1997, declined to $7,391,138 from
$8,041,397 for the nine months ended March 31, 1996, a decrease of $650,259 or
(8.1%). Excluding the revenue of the divisions sold (see Note 3), revenue for
the nine months ended March 31, 1997, was $337,294 below prior year amounts, a
decrease of (4.4%). Revenue for the quarter ended March 31, 1997 was $311,073
(11.6%) short of the same quarter in the prior year.
U.S. revenue for the nine months ended March 31, 1997 was off $406,789 from the
$3,525,204 figure for the same period in the prior year, excluding revenue from
the division sold. European revenue, excluding the division sold, held steady,
increasing $69,528 over the nine month period in the prior year, to $4,272,723.
The sales mix in the United States and Europe was relatively unchanged from the
prior year period. Foreign revenue comprises 58% of consolidated revenues, a
slight increase from the prior year, due to the domestic decrease and foreign
increase.
Gross margin for the quarter ended March 31, 1997 decreased 13.7%, from 31% to
17.3% of sales compared to the prior year quarter, net of divisions sold. This
decline is due to increased training costs, domestic competitive pressure on
pricing, and increased subcontract costs.
Selling and administrative expenses of $1,640,552 for the nine month period
ended March 31, 1997 decreased $834,380 as compared to the same period in the
prior year. The decrease is $746,740 net of the write-off of work in process in
the prior year connected with the DEC litigation and other income, at 31.3%.
Selling and administrative expenses for the current year quarter ended March 31
of $498,362 is $198,230 less than those for the same quarter in the prior year,
a decrease of 27.9%.
Selling expense for the quarter ended March 31, 1997 increased to $243,117 from
the $240,641 spent in the quarter ended December 31, 1996 and is $24,415 higher
than the quarter ended March 31, 1996. Year to date selling expense of $695,495
is $131,642 less than the nine months of the prior year. Administrative expense,
excluding the write-off in the prior year and other income, decreased $615,098
(39.4%) from the prior year period. $217,245 of the savings is attributable to
the decrease from last year's third quarter to the current year third quarter.
S&A as a Percent of Revenue
QUARTER ENDED: CURRENT YEAR PRIOR YEAR
- -------------- ------------ ----------
September 30 21.5% 38.9%
December 31 23% 28.9%
March 31 21% 24.2%
Other income for the prior year of $52,199 consists largely of gain on the
disposition of assets in the ordinary course of business of $25,439 and
favorable adjustments to prior-period accruals for estimated legal fees and
relocation costs from Dayton, Ohio and Kansas City, Missouri to Billerica,
Massachusetts.
Loss from operations of $(88,249) for the quarter ended March 31, 1997 is
$229,535 less than the prior year quarterly income from operations of $141,286.
Loss from operations for the nine month period, net of divisions sold and the
write-off related to the DEC litigation, for the current year decreased to
$(133,497) from the $(225,333) loss recognized in the prior year.
10
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Net loss for the nine months ended March 31, 1997, of $(157,956) is $53,591
higher than the prior year figure of $(104,365). Adjusted for the benefit of the
$231,154 gain on the sale of divisions reported in the quarter ended September
30, 1995, and a charge of $(139,839) against work in process related to
litigation in the second quarter, the current year net loss to date is $37,724
less than the prior year.
Operations fell $15,325 short of contributing cash during the first nine months
of the current year. This is an improvement of $72,624 over the prior year
period, when operations consumed $87,949. The purchase of $18,239 of equipment
more than offset the receipts on the note receivable, and combined with a small
increase in restricted cash, resulted in a net decrease in cash from investing
activities. Proceeds from the sale of common stock was effectively applied to
payments on debt and capital lease obligations. These items combined to use
$29,259, net, more cash than was received during the period, for all activities.
CAPITAL RESOURCES AND LIQUIDITY
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%. 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. The
credit agreement contained restrictive covenants that required, among other
things, the maintenance of a minimum level of stockholders' equity. Due to the
losses incurred through December 31, 1995, the Company was not in compliance
with that level and was technically in default of the agreement. However, the
lender continued to extend borrowings to the Company under the credit agreement.
The Company entered into a new revolving credit agreement with the lender to
borrow $450,000 to replace the matured note at the lender's prime rate plus 4%.
Maximum borrowings under the new agreement decline $10,000 per month beginning
February 1, 1996. 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 March 31, 1997 and 1996. Outstanding
borrowings at March 31, 1997 are $231,921 with $78,079 available.
The Company's unrestricted cash balance of $192,764 on March 31, 1997 has
decreased by $29,259 compared to $222,023 on June 30, 1996. At March 31, 1997,
the Company's working capital was $471,744, an increase of $18,816 over working
capital at June 30, 1996, and an increase of $58,332 over the amount at March
31, 1996.
11
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SAZTEC INTERNATIONAL, INC.
MARCH 31, 1997 FORM 10-QSB
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
Subsequent to December 31, 1995 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 20, 1997. All directors
were re-elected for one year. Tallard B.V. nominated two directors, Claus H.
Stenbaek and Timothy E. Mahoney, 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. The results of other actions
at the meeting are as follows:
1. Proposal to ratify appointment of Grant Thornton LLP as independent
certifying accountants for the year ended June 30, 1997:
For: 7,332,656
Against: 237,000
Abstain: 10,420
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
- ------ ----------------------
27 Financial Data Schedule
(B) REPORTS ON FORM 8-K:
None.
12
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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: May 2, 1997
SAZTEC INTERNATIONAL, INC.
--------------------------
(Registrant)
By: /S/ THOMAS K. O'LOUGHLIN
------------------------
Thomas K. O'Loughlin
Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 192,764
<SECURITIES> 0
<RECEIVABLES> 1,835,008
<ALLOWANCES> 44,581
<INVENTORY> 330,409
<CURRENT-ASSETS> 2,546,278
<PP&E> 3,650,354
<DEPRECIATION> 3,289,343
<TOTAL-ASSETS> 3,164,574
<CURRENT-LIABILITIES> 2,074,534
<BONDS> 148,717
0
0
<COMMON> 11,570,811
<OTHER-SE> (102,777)
<TOTAL-LIABILITY-AND-EQUITY> 3,164,574
<SALES> 0
<TOTAL-REVENUES> 7,391,138
<CGS> 0
<TOTAL-COSTS> 5,884,083
<OTHER-EXPENSES> 1,641,935
<LOSS-PROVISION> (1,383)
<INTEREST-EXPENSE> 63,019
<INCOME-PRETAX> (196,516)
<INCOME-TAX> (38,560)
<INCOME-CONTINUING> (157,956)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (157,956)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
