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 SEPTEMBER 30, 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 November 4,
1998, was 4,461,121 shares.
<PAGE>
SAZTEC INTERNATIONAL, INC.
FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 1998
CONTENTS
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Operations -
Three months ended September 30, 1998 and 1997 3
Consolidated Balance Sheets - September 30, 1998
and June 30, 1998 4
Consolidated Statement of Changes in Stockholders'
Equity - September 30, 1998 5
Consolidated Statements of Cash Flows -
Three months ended September 30, 1998 and 1997 6 - 7
Notes to Consolidated Financial Statements -- September 30,
1998 and 1997 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 12
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
2
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
REVENUE $ 1,766,685 $ 1,613,471
Cost of services 1,503,209 1,316,242
----------- -----------
GROSS PROFIT 263,476 297,229
Selling and administrative expense 509,203 496,228
----------- -----------
LOSS FROM OPERATIONS (245,727) (198,999)
Interest expense (8,156) (12,562)
----------- -----------
LOSS BEFORE PROVISION FOR INCOME TAXES (253,88 (211,561)
Income tax benefit (76,601)
----------- -----------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS $ (177,282) $ (211,561)
=========== ===========
(LOSS) PER SHARE OF COMMON STOCK:
Basic and diluted net loss applicable to
common stockholders $ (.04) $ (.058)
=========== ===========
Weighted average number of shares 4,461,121 3,637,180
=========== ===========
</TABLE>
See accompanying notes.
3
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND JUNE 30, 1998
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 JUNE 30, 1998
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 536,058 $ 513,192
Restricted cash 31,094 172,452
Accounts receivable, less allowance for doubtful
accounts of $46,953 at September 30 and
$40,494 at June 30 1,355,688 1,658,274
Work in process 120,329 176,539
Prepaid expenses and other current assets 99,721 92,833
------------ ------------
TOTAL CURRENT ASSETS 2,142,890 2,613,290
PROPERTY AND EQUIPMENT, NET 422,410 443,083
OTHER ASSETS
Goodwill and other intangible assets, less
accumulated amortization of $78,752 at
September 30 and $75,722 at June 30 146,610 149,640
Deposits and other assets 127,768 111,856
============ ============
TOTAL ASSETS $ 2,839,678 $ 3,317,869
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank note payable $ 29,682
Current portion of long-term debt and capital
lease obligations $ 188,034 182,599
Accounts payable 461,684 472,132
Accrued liabilities 534,001 699,455
Customer deposits 572,253 646,544
------------ ------------
TOTAL CURRENT LIABILITIES 1,755,972 2,030,412
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 121,815 146,675
ACCRUED EXPENSES, NON-CURRENT 18,119 22,362
STOCKHOLDERS' EQUITY
Preferred stock-no par value; 1,000,000 authorized;
no shares issued Common stock-no par value; 10,000,000
shares authorized; 4,461,121 shares issued at
September 30 and June 30 12,430,811 12,430,811
Contributed capital 14,498 14,498
Accumulated deficit (11,390,499) (11,213,217)
Cumulative translation adjustment (111,038) (113,672)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 943,772 1,118,420
============ ============
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,839,678 $ 3,317,869
============ ============
</TABLE>
See accompanying notes
4
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
COMMON STOCK
CUMULATIVE
NUMBER OF CONTRIBUTED ACCUMULATED TRANSLATION
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT
--------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1998 4,461,121 $12,430,811 $14,498 $(11,213,217) $(114,915)
Net loss (177,282)
Translation adjustment 3,877
======================================================================
Balance at September 30, 1998 4,461,121 $12,430,811 $14,498 $(11,390,499) $(111,038)
======================================================================
</TABLE>
See accompanying notes.
5
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
<S>
1998 1997
--------- --------
INCREASE (DECREASE) IN CASH <C> <C>
FLOWS FROM OPERATING ACTIVITIES:
Net loss $(177,282) $(211,561)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 53,398 62,130
Provision for bad debts (3,555)
Other 21
Changes in assets and liabilities:
Accounts receivable 316,366 112,350
Work in process 57,257 (64,246)
Prepaid expenses and other current assets (7,391) (49,034)
Deposits and other assets (19,458) (1,506)
Accounts payable (13,364) 14,733
Accrued liabilities (174,445) (26,481)
Customer deposits and non-current accrued expenses (85,074) (1,332)
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (53,548) (164,926)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (23,317) (27,034)
Payments received on notes receivable 5,567 4,937
Decrease (Increase) in restricted cash 141,358 92,842
--------- ---------
NET CASH PROVIDED BY INVESTING ACTIVITIES 123,608 70,745
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt and capital lease
Obligations (23,663) (18,042)
Borrowings on revolving credit line 785,995 537,049
Payments on revolving credit line (815,677) (752,506)
Proceeds from common stock issue 300,000
-------- ---------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (53,345) 66,501
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 6,151 (6,688)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 22,866 (34,368)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 513,192 386,785
-------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 536,058 $ 352,417
========= =======--
</TABLE>
See accompanying notes.
6
<PAGE>
<TABLE>
<CAPTION>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
1998 1997
-------- ------
<S> <C> <C>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Financed purchases of property and equipment
through notes payable $ 3,310
=======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 7,948 $11,600
======== =======
Income taxes $ 4,483
=======
</TABLE>
See accompanying notes.
7
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 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. COMMON STOCK
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 (on a post-reverse split basis) 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.
8
<PAGE>
NOTE 3. FOREIGN OPERATIONS AND MAJOR CUSTOMERS-SEGMENTS
Revenue, 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.
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30,
1998 1997
------------------ --------------
<S> <C> <C>
Revenue
United States $ 1,207,910 $ 818,662
United Kingdom/Western Europe 558,775 794,809
------------------ --------------
$ 1,766,685 $ 1,613,471
================== ==============
Income (loss) before income taxes
United States $ 16,441 $ (148,309)
United Kingdom/Western Europe (270,324) (63,252)
------------------ -------------
$ (253,883) $ (211,561)
================== ==============
Depreciation
United States $ 30,274 $ 24,682
United Kingdom/Western Europe 20,094 34,418
Amortization-U.S. only 3,030 3,030
================== ==============
$ 53,398 $ 62,130
================== ==============
Identifiable Assets SEPTEMBER 30, 1998 JUNE 30, 1998
------------------ -------------
United States $ 1,627,744 $ 1,851,102
United Kingdom 1,211,934 1,466,767
------------------ -------------
$ 2,839,678 $ 3,317,869
================== ==============
</TABLE>
NOTE 4. EARNINGS (LOSS) PER SHARE
At September 30, 1998 and 1997 the following potentially dilutive securities
were outstanding:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C> <C> <C>
NUMBER PRICE RANGE NUMBER PRICE RANGE
Employee options 237,250 .315 - 4.13 155,500 .68 - 4.13
Other options 418,750 .315 - 1.00 106,250 .68 - 4.13
Warrants 860,000 2.00 721,000 2.00
</TABLE>
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenue for the three months ended September 30, 1998 increased 9.4% to
$1,766,685 from $1,613,471 for the quarter ended September 30, 1997. U.S.
revenue for the quarter increased 47.5% and European revenue decreased 30%
compared to the prior year first quarter. The sales mix in the United States
continued to change in favor of increased scanning projects; revenue from Europe
was relatively unchanged from the prior year period. Revenue from foreign
sources comprised 31.6% of consolidated revenues for the first three months of
the current year as compared with 49.2% in the prior year. Management expects
revenue in both Europe and the United States to improve in the second quarter of
the current fiscal year.
Gross profit for the quarter of $263,476 was $33,753 lower and gross margin of
14.9% was 3.5% lower than results from the first quarter of the prior year, due
to continued underutilized capacity.
Selling and administrative (S&A) expenses for the current year quarter increased
$12,975 to $509,203 from $496,228 for the same period in the prior year. As a
percentage of sales, S&A decreased to 28.8% from the 30.7% ratio of the prior
year.
Revenue earned for the quarter ended September 30, 1998 was $635,459 lower than
for the quarter ended June 30, 1998. As a result, collections on accounts
receivable produced an increase in cash on the cash flows statement for the
quarter. This more than offset the effect of paying down accrued liabilites,
reducing the cash decrease from the net operating loss of $177,282 to a figure
of $53,548 of net cash used in operating activities. The release of restricted
cash to operations exceeded both the net cash used in operating activities and
the amount needed to make required payments on notes payable and repay all
advances on the line of credit. The combined effect resulted in a net increase
in cash of $22,866.
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 as Year 2000
compliant. Total planned cost is $125,000, and is a subset of ongoing 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's operations will 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's revolving credit agreement is 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 September 30, 1998). The note maturing
on July 1, 1997 was renewed through October 1, 1997, April 1 and October 1,
1998, and April 1, 1999. Maximum borrowings under the agreements decline $10,000
per month from $270,000 on November 1, 1997. Available borrowing is restricted
to 70% of domestic trade receivables less than 90 days old. This restriction has
not reduced the borrowing ceiling during the periods. The Company was in
compliance with the covenants contained in the agreement throughout the periods
and at September 30, 1998. Outstanding borrowings were $29,682 at June 30, 1998.
There were no advances against the
10
<PAGE>
agreement outstanding at September 30, 1998. Available borrowings were $160,000
at September 30 and $150,000 beginning October 1, 1998 and for the month of
October.
The Company's unrestricted cash balance of $513,192 at June 30 increased $22,866
to $536,058 at September 30, 1998. Working capital decreased $195,960 during the
quarter, primarily due to the operating loss for the period.
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.
11
<PAGE>
SAZTEC INTERNATIONAL, INC.
SEPTEMBER 30, 1998 FORM 10-QSB
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
The following Exhibits are filed by attachment to this Form 10-QSB:
<TABLE>
<CAPTION>
<S> <C> <C>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------- ---------------------- -----
27 Financial Data Schedule 14
</TABLE>
(B) REPORTS ON FORM 8-K:
None.
12
<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: November 4, 1998
SAZTEC INTERNATIONAL, INC.
--------------------------------
(Registrant)
By:/s/ THOMAS K. O'LOUGHLIN
-----------------------------
Thomas K. O'Loughlin
Treasurer
13
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-1-1998
<PERIOD-END> SEP-30-1998
<CASH> 536,058
<SECURITIES> 0
<RECEIVABLES> 1,402,641
<ALLOWANCES> 46,953
<INVENTORY> 120,329
<CURRENT-ASSETS> 2,142,890
<PP&E> 3,562,692
<DEPRECIATION> 3,140,282
<TOTAL-ASSETS> 2,839,678
<CURRENT-LIABILITIES> 1,755,972
<BONDS> 121,815
0
0
<COMMON> 12,430,811
<OTHER-SE> (96,540)
<TOTAL-LIABILITY-AND-EQUITY> 2,839,678
<SALES> 0
<TOTAL-REVENUES> 1,766,685
<CGS> 0
<TOTAL-COSTS> 1,503,209
<OTHER-EXPENSES> 509,203
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,156
<INCOME-PRETAX> (253,883)
<INCOME-TAX> (76,601)
<INCOME-CONTINUING> (177,282)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (177,282)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
