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, 1996
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 21,
1997, was 14,297,651 shares.
<PAGE>
<TABLE>
<CAPTION>
SAZTEC INTERNATIONAL, INC.
FORM 10-QSB/A
FOR THE
QUARTER ENDED DECEMBER 31, 1996
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Operations --
Three months ended December 31, 1996 and 1995 3
Consolidated Statements of Operations -- 4
Six months ended December 31, 1996 and 1995
Consolidated Balance Sheets -- December 31, 1996 and June 30, 1996 5
Consolidated Statements of Cash Flows -- 6 - 7
Six months ended December 31, 1996 and 1995
Notes to Consolidated Financial Statements -- December 31, 1996 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9 - 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
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 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(Unaudited)
1996 1995
---- ----
<S> <C> <C>
Revenues $2,641,965 $ 2,997,179
Cost of services 2,084,648 2,070,807
-------------------- -------------------
Gross Profit 557,317 926,372
Selling, general & administrative expense 609,079 866,833
-------------------- -------------------
Profit (Loss) From Operations (51,762) 59,539
Interest expense (22,658) (36,560)
-------------------- -------------------
Profit (Loss) Before Provision For Income Taxes (74,420) 22,979
Provision for income taxes 9,094
-------------------- -------------------
Net Profit (Loss) $(74,420) $ 13,885
==================== ===================
Income (Loss) Per Share Of Common Stock:
Net income (loss) applicable to common stockholders
$(.005) $.001
==================== ===================
Weighted average number of shares 14,297,651 12,522,321
==================== ===================
</TABLE>
See accompanying notes.
3
<PAGE>
<TABLE>
<CAPTION>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
(Unaudited)
1996 1995
---- ----
<S> <C> <C>
Revenues $5,017,108 $ 5,356,294
Cost of services 3,920,166 3,939,176
-------------------- -------------------
Gross Profit 1,096,942 1,417,118
Selling, general & administrative expense 1,120,524 1,783,740
-------------------- -------------------
Loss From Operations (23,582) (366,622)
Interest expense (46,928) (75,547)
Gain on sale of division (Note 3) 231,154
-------------------- -------------------
Loss Before Provision For Income Taxes (70,510) (211,015)
Provision for income taxes 9,094
-------------------- -------------------
Net Loss $(70,510) $ (220,109)
==================== ===================
Loss Per Share Of Common Stock:
Net loss applicable to common stockholders $.(005) $.(02)
==================== ===================
Weighted average number of shares 13,925,912 12,527,321
==================== ===================
</TABLE>
See accompanying notes.
4
<PAGE>
<TABLE>
<CAPTION>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND JUNE 30, 1996
ASSETS
DEC. 31, JUNE 30,
1996 1996
---- ----
(Unaudited)
<S> <C> <C>
Current Assets
Cash and cash equivalents $182,794 $222,023
Restricted cash 61,054 60,869
Accounts receivable, less allowance for doubtful accounts of $45,450
at December 31 and $47,755 at June 30, 1996 1,919,513 1,973,192
Costs and estimated earnings in excess of billings 21,490
Work in process 455,776 570,651
Prepaid expenses and other current assets 139,862 176,664
Note receivable for stock subscribed 300,000
----------------- ------------------
Total Current Assets 2,758,999 3,324,889
Property And Equipment, Net 452,095 598,415
Other Assets
Goodwill and other intangible assets, less accumulated amortization
of $57,542 at December 31 and $51,482 at June 30, 1996 167,820 173,931
Deposits and other assets 103,771 122,070
----------------- ------------------
Total Assets $3,482,685 $4,219,305
================= ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable $279,994 $389,703
Current portion long-term debt and capital lease obligations 201,181 199,650
Common stock subject to repurchase 67,110 54,000
Income taxes payable 36,164 54,320
Accounts payable 729,295 885,692
Accrued liabilities 398,417 544,318
Customer deposits 524,295 744,278
--------------- --------------------
Total current liabilities 2,236,456 2,871,961
Long-term Debt And Capital Lease Obligations, Less Current Portion 166,551 241,257
Common Stock Subject To Repurchase 28,000 46,000
Accrued Expense 44,749 34,385
Stockholders' Equity
Preferred stock-no par value; 1,000,000 shares authorized; no shares
issued
Commonstock-no par value; 20,000,000 shares authorized; 14,297,651 shares
issued at December 31, 1996, and 13,097,651 shares
issued at June 30, 1996 11,570,811 11,270,811
Common stock subscribed 300,000
Contributed capital 14,498 14,498
Accumulated deficit (10,487,138) (10,416,633)
Cumulative translation adjustment (91,242) (142,974)
--------------- --------------------
Total stockholders' equity 1,006,929 1,025,702
=============== ====================
Total Liabilities And Stockholders' Equity $3,482,685 $4,219,305
=============== ====================
</TABLE>
See accompanying notes.
5
<PAGE>
<TABLE>
<CAPTION>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
(Unaudited)
1996 1995
---- ----
<S> <C> <C>
Cash Flows From Operating Activities
Net loss $(70,514) $(220,109)
Adjustments to reconcile net loss to net cash (used
in) provided by operating activities:
Depreciation and amortization 198,061 313,965
Provision for bad debts (4,674) 9,389
Gain on sale of assets (25,238)
Gain on sale of assets of divisions sold (231,154)
Write-off of work in process related to 139,839
litigation
Reversal of excess income tax accrual (21,666)
Other (8,308) 928
Changes in assets and liabilities:
Accounts receivable 127,859 (341,295)
Work in process 213,721 (100,391)
Prepaid expenses and other current assets 54,498 19,523
Deposits and other assets 1,996
Accounts payable (210,499) 611,600
Accrued liabilities (153,171) (624,132)
Customer deposits and non-current accrued expenses
(276,332) 347,541
Income taxes payable (24,553)
------------------- --------------------
Net Cash Used In Operating Activities (151,025) (122,091)
------------------- --------------------
Cash Flows From Investing Activities:
Additions to property and equipment (9,320) (35,204)
Proceeds from the sale of property and equipment 53,210
Payments received on notes receivable 9,130 8,347
Decrease in restricted cash (185) (20,240)
------------------- --------------------
Net Cash (Used In) Provided By Investing Activities (375) 6,113
------------------- --------------------
Cash Flows From Financing Activities:
Principal payments on debt and capital lease
obligations (97,116) (86,848)
Borrowings on notes payable 1,885,842 1,645,500
Payments on notes payable (1,995,551) (1,841,704)
Payments on common stock repurchase obligation
Proceeds from issuance of common stock, net of
issuance costs 300,000
------------------- --------------------
Net Cash Provided By (Used In) Financing Activities
93,175 (283,052)
------------------- --------------------
Effect Of Exchange Rate Changes On Cash 18,996 (41,491)
-------------------
--------------------
Net (Decrease) In Cash (39,229) (440,521)
Cash And Equivalents At Beginning Of Period 222,023 644,101
------------------- --------------------
Cash And Equivalents At End Of Period $182,794 $203,580
=================== ====================
</TABLE>
See accompanying notes.
6
<PAGE>
<TABLE>
<CAPTION>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
(Unaudited)
1996 1995
---- ----
<S> <C> <C>
Supplemental Schedule Of Non-cash Investing And
Financing Activities:
Note payable issued in exchange for trade payables $139,317
====================
Supplemental Disclosures Of Cash Flow Information:
Cash paid during the period for:
Interest $42,866 $90,580
==================== ====================
Income taxes $38,758
====================
</TABLE>
See accompanying notes.
7
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
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 in the fiscal 1995 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. Of the stock repurchased during
the periods and in prior periods, $95,110 and $80,000 remained payable to the
selling shareholders at December 31, 1996 and 1995, respectively.
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 of the
divisions were completed on September 1, 1995. The operating results for the six
months ended December 31, 1995 were as follows:
6 MONTHS 1995
Revenue $312,965
Gross profit (loss) (13,102)
Operating loss $(45,173)
Gain on sale of division 231,154
The gain on sale of the Marketing Fulfillment Division includes gains and losses
on sales of assets, severance costs, and related closedown costs. A loss
provision of $145,000 for the sale of the Knightswade Microfilm Division was
recognized in the quarter ended June 30, 1995.
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.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenue for the six months ended December 31, 1996, declined to $5,017,108 from
$5,356,294 from the six months ended December 31, 1995, a decrease of $355,214
or (6.6%). Excluding the revenue of divisions sold (see Note 3), revenue
declined $26,221 for the six month period. Revenue for the quarter ended
December 31, 1996, at $2,641,965 was down $355,214 from the $2,997,179 earned
for the quarter ended December 31, 1995, due in large part to longer than
expected project setup times and late vendor deliveries on European commercial
projects.
U.S. revenue for the six months ended December 31, 1996 of $2,075,284, excluding
the divisions sold, declined $103,571 compared with the six month period in the
prior year of $2,178,855. U.S. revenue for the second quarter of the current
year was $221,344 less than the $1,251,921 for the quarter ended December 31,
1995. European revenue, excluding divisions sold, although $133,871 less for the
quarter ended December 31, 1996 than the prior year quarter ended, increased
$78,802 for the six month period to $2,941,824 over the prior year six-month
figure of $2,863,022. European library retrospective conversion projects made up
a 10% larger share of European revenue in the first two quarters of the current
year than the prior year six months. Management expects revenue in both Europe
and the United States to be higher than earned in the first half of the year.
Gross profit for the six months ended December 31, 1996 decreased $320,176 from
the prior year period to 21.8% of sales, from 28.5% of sales for the prior year.
Gross margin for the six months ended December 31, 1994 was 22%. The decline in
margins is due to lower revenues, higher subcontracting costs, and competitive
pressure on project pricing.
Selling, and administrative expenses (S&A) for the six month period decreased
$663,216 to $1,120,524 (22.3% of sales) from $1,783,740 (33.3% of sales) for the
same period in the prior year. Net of the adjustment to work in process of
$139,839 in December, 1995, the decrease was $523,377, to 30.7% of sales for the
prior year period. For the quarter ended December 31, 1996 S&A decreased to
$609,079 (23% of sales) from $726,994 (24.2% of sales) in the prior year
quarter, net of the adjustment to work in process.
Selling expense declined to $452,378 (9% of sales) for the current year six
month period as compared to the prior year period expense of $608,435. Net of
divisions sold in the prior year, year to date selling expense decreased
$134,468 from the prior year's 11.6% of sales. Selling expense for the quarter
ended December 31, 1996 of $240,641 is $9,978 lower than the prior year second
quarter of $250,619, but is $28,904 higher than for the current year first
quarter of $211,737. Management expects further increases in selling expense
over the next two quarters.
Administrative expense, net of other income of $21,666 for reversal of excess
income tax accrued, declined in the first two quarters of the current year as
compared to the period in the prior year, net of $52,199 of other income and
adjustment for work in process, from $1,087,655 to $689,812 (21.6% to 13.3% of
sales, net of divisions sold in the prior year). Other income for the prior year
six month period consisted mainly of amounts reported for the quarter ended
September 30, 1995, of gain on the disposition of assets in the ordinary course
of business of $25,439 and the balance primarily favorable adjustments to
prior-period accruals for relocation costs from Dayton, Ohio and Kansas City,
Missouri to Billerica, Massachusetts, and estimated legal fees.
Loss from operations year to date decreased to $23,582 from $181,610 for the
prior year six months, excluding the operating loss from the divisions sold and
the adjustment to work in process in the prior year.
9
<PAGE>
Net loss for the six months ended December 31, 1996, was $70,510, a decrease of
$240,914 from the prior year figure of $311,424, which is net of the benefit of
a $231,154 gain on the sale of divisions reported in the quarter ended September
30, 1995, as well as a charge of $139,839 against work in process related to
litigation. Net loss for the quarter ended December 31, 1996 was $74,420.
Although cash flow used in operating activities increased as a result of
collections on accounts receivable and a decrease in work in process, this was
more than offset by the application of customer deposits and payments on
accounts payable and other liabilities. Cash position was further hampered by
cash used in financing activities to meet required payments on equipment notes
payable and to reduce the amount outstanding on the line of credit,
notwithstanding the capital infusion in the first quarter from collection on
notes receivable related to the private stock placement.
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 80% of domestic
trade receivables less than 90 days old, with an aggregate maximum borrowing
level that declines $10,000 per month from $450,000 at January 1, 1996 until
maturity on July 1, 1997. Aggregate borrowings were $279,994 on December 31,
1996. On December 31, 1995, the Company had borrowed $453,887 under the credit
line that matured on that date.
The credit agreement contained various 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 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 the covenants at December 31, 1996.
The Company's unrestricted cash balance was $182,794 at December 31, 1996,
$222,023 at June 30, 1996 and $203,580 on December 31, 1995. Working capital has
improved by $69,615 from June 30, 1996 to December 31, 1996, from $452,928 to
$522,543. The improvement in working capital may be credited to cash generated
from the net loss of $70,514 adjusted for non-cash items, which yielded cash of
$92,899 before changes in other current accounts. Working capital is improved
$14,853 from the September 30, 1996 figure of $507,690.
10
<PAGE>
SAZTEC INTERNATIONAL, INC.
DECEMBER 31, 1996 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 PAGE
- ------ ---------------------- ----
27 Financial Data Schedule 13
(B) REPORTS ON FORM 8-K:
None.
11
<PAGE>
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 10, 1997
SAZTEC INTERNATIONAL, INC.
--------------------------
(Registrant)
By: /s/ Thomas K. O'Loughlin
----------------------------
Thomas K. O'Loughlin
Treasurer
12
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 182,794
<SECURITIES> 0
<RECEIVABLES> 1,964,963
<ALLOWANCES> 45,450
<INVENTORY> 455,776
<CURRENT-ASSETS> 2,758,999
<PP&E> 3,715,208
<DEPRECIATION> 3,263,113
<TOTAL-ASSETS> 3,482,685
<CURRENT-LIABILITIES> 2,236,456
<BONDS> 166,551
0
0
<COMMON> 11,570,811
<OTHER-SE> (76,744)
<TOTAL-LIABILITY-AND-EQUITY> 3,482,685
<SALES> 0
<TOTAL-REVENUES> 5,017,108
<CGS> 0
<TOTAL-COSTS> 3,920,166
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,928
<INCOME-PRETAX> (70,510)
<INCOME-TAX> 0
<INCOME-CONTINUING> (70,510)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (70,510)
<EPS-PRIMARY> (.005)
<EPS-DILUTED> (.005)
</TABLE>
