<PAGE>
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, 1995
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
November 10, 1995, was 12,533,851 shares.
<PAGE>
SAZTEC INTERNATIONAL, INC.
FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 1995
CONTENTS
--------
Page
----
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements:
Consolidated Statements of Operations --
Three months ended September 30, 1995 and 1994 3
Consolidated Balance Sheets -- September 30, 1995
and June 30, 1995 4
Consolidated Statements of Cash Flows --
Three months ended September 30, 1995 and 1994 5 - 6
Notes to Consolidated Financial Statements --
September 30, 1995 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 9
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings Not Applicable
Item 2. Changes in Securities Not Applicable
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders Not Applicable
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
2
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(Unaudited)
<TABLE>
1995 1994
---- ----
<S> <C> <C>
REVENUES $2,359,115 $3,446,796
Cost of services 1,868,369 2,993,874
---------- -----------
GROSS PROFIT 490,746 452,922
Selling, general & administrative
expense 916,907 942,173
---------- -----------
LOSS FROM OPERATIONS (426,161) (489,251)
Interest expense (38,987) (42,284)
Gain on sale of divisions 231,154 --
---------- -----------
LOSS BEFORE PROVISION FOR
INCOME TAXES (233,994) (531,535)
Provision (benefit) for income
taxes -- (10,626)
---------- -----------
NET LOSS $ (233,994) $(520,909)
---------- -----------
---------- -----------
LOSS PER SHARE OF COMMON STOCK:
Net loss applicable to common
stockholders $(.02) $(.05)
---------- -----------
---------- -----------
Weighted average number
of shares 12,533,851 10,680,464
---------- -----------
---------- -----------
See accompanying notes.
</TABLE>
3
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND JUNE 30, 1995
<TABLE>
<CAPTION>
ASSETS
SEPT.30, JUNE 30,
1995 1995
------------- ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 383,898 $ 644,101
Restricted cash 32,973 38,010
Accounts receivable, less allowance for
doubtful accounts 1,704,061 2,215,771
Work in process 586,133 580,842
Prepaid expenses and other current assets 148,184 160,076
------------- ------------
Total current assets 2,855,249 3,638,800
PROPERTY AND EQUIPMENT, NET 895,179 1,164,048
OTHER ASSETS
Goodwill and other intangible assets,
less accumulated amortization 193,468 208,182
Deposits and other assets 143,060 144,632
------------- ------------
Total assets $ 4,086,956 $ 5,155,662
------------- ------------
------------- ------------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
SEPT. 30, JUNE 30,
1995 1995
------------- ------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Notes payable $ 649,876 $ 650,091
Common stock subject to repurchase 100,000 100,000
Accounts payable 1,233,592 1,028,708
Accrued liabilities 571,082 1,350,596
Customer deposits 642,678 1,085,479
Current portion long-term debt and capital
lease obligations 170,428 193,320
------------- ------------
Total current liabilities 3,367,656 4,408,194
CUSTOMER DEPOSITS, NON-CURRENT 145,897 --
ACCRUED EXPENSES, NON-CURRENT 59,904 --
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS 99,197 105,686
STOCKHOLDERS' EQUITY
Preferred stock-no par value; 1,000,000
shares authorized; no shares issued -- --
Common stock-no par value; 20,000,000
shares authorized; 12,533,851 shares
issued at September 30, 1995, and
12,543,851 shares issued at June 30, 1995 11,134,811 11,134,811
Contributed capital 14,498 14,498
Accumulated deficit (10,607,195) (10,373,201)
Cumulative translation adjustment (127,812) (134,326)
------------- ------------
Total stockholders' equity 414,302 641,782
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,086,956 $ 5,155,662
------------- ------------
------------- ------------
</TABLE>
See accompanying notes.
4
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (233,994) $ (520,909)
Adjustments to reconcile net loss to net
cash (used in) provided by operating
activities:
Depreciation and amortization 183,971 266,739
Provision for bad debts 4,732 --
Gain on sale of assets (25,439) --
Gain on sale of assets of divisions sold (231,154) --
Other 928 82,912
Changes in assets and liabilities:
Accounts receivable 498,489 529,596
Work in process (51,562) 5,464
Prepaid expenses and other
current assets 7,434 (82,724)
Deposits and other assets 1,572 (1,039)
Accounts payable 204,884 (140,775)
Accrued liabilities (598,196) (51,951)
Customer deposits and non-current
accrued expenses 32,527 29,282
Income taxes payable -- (11,826)
------------ -----------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (205,808) 104,769
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (29,718) (71,092)
Proceeds from the sale of property
and equipment 17,169 --
Decrease in restricted cash 5,037 131,608
------------ -----------
NET CASH (USED IN) PROVIDED BY INVESTING
ACTIVITIES (7,512) 60,516
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment received on notes receivable 4,127 13,247
Principal payments on debt and capital
lease obligations (41,182) (92,168)
Borrowings on notes payable 1,023,533 1,218,650
Payments on notes payable (1,032,987) (1,551,861)
Proceeds from issuance of common stock,
net of issuance costs -- 150,000
------------ -----------
NET CASH USED IN FINANCING ACTIVITIES (46,509) (262,132)
------------ -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (374) (10,977)
------------ -----------
NET DECREASE IN CASH (260,203) (107,824)
CASH AT BEGINNING OF PERIOD 644,101 386,263
------------ -----------
CASH AT END OF PERIOD $ 383,898 $ 278,439
------------ -----------
------------ -----------
</TABLE>
See accompanying notes.
Certain amounts in the prior year have been reclassified to permit comparison.
5
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
------- --------
<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 $83,631 $ 77,794
------- --------
------- --------
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid (received) during the
period for:
Interest $38,987 $ 31,246
------- --------
------- --------
Income taxes $ -- $ --
------- --------
------- --------
Common stock subscription
receivable $ -- $600,000
------- --------
------- --------
</TABLE>
See accompanying notes.
6
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1994
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 exerciseable at 10,000 shares ($20,000) per
quarter through April, 1996. During the quarter ended September 30,
1995, 10,000 shares of common stock totaling $20,000 were repurchased
by the Company pursuant to the terms of the put option. Of the stock
repurchased this period and in prior periods, $40,000 remained payable to
the selling shareholders at September 30, 1995.
NOTE 3. SALE OF DIVISIONS
In August 1995, management agreed to sell the assets of the
Knightswade Microfilm Division, based in Winchester, England, and the
Marketing Fulfillment Division based in Billerica, Massachusetts.
The sales of both divisions were completed on August 31, 1995. The
operating results of both divisions for the three months ended September 30,
1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Revenue $312,965 $650,288
Gross profit (loss) (13,102) 101,194
Operating loss (45,173) (1,424)
Gain on sale of divisions 231,154 --
</TABLE>
Gain on sale of divisions 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
previously recognized in the year ended June 30, 1995.
In June, 1995, the Company completed the sale of the U.K.-based Financial
Transaction Processing Division. For the period of three months ending
September 30, 1994, the division generated revenue of $409,259, gross loss
of $(20,841), and operating loss of $(42,680).
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenue for the quarter ended September 30, 1995, declined to $2,359,115
from $3,446,796 for the quarter ended September 30, 1994, a decrease
of $1,087,681, or (31.6%). Excluding the revenue of divisions sold since
September 30, 1994 (see Note 3), revenue for the quarter ended September
30, 1995, was $2,046,150, compared to $2,387,249 for the quarter ended
September 30, 1994, a decrease of $341,099, or (14.3%).
U.S. revenue, excluding the divisions sold, declined to $926,935 in the
quarter ending September 30, 1995, from $1,150,060 in the prior year
quarter, a decrease of $223,125, or (19.4%). European revenue, excluding
the divisions sold, declined to $1,119,215 in the quarter ending September
30, 1995, from $1,237,189 in the prior year quarter, a decrease of
$117,974, or (9.5%). The decline in U.S. revenue was due primarily to
reduced sales of off-shore, brokered data conversion services. The decline
of revenue in Europe was primarily due to the completion in early calendar
1995 of certain large library retrospective conversion projects. The
volume of library projects in Europe is now starting to recover, with
major new projects beginning in Switzerland, Germany, and the U.K.
Management expects revenue in Europe to improve gradually through the
second quarter, with larger gains appearing during the first half of
calendar 1996. In the U.S. data conversion market, management anticipates
an improvement in revenues through the second and third quarter of the 1996
fiscal year.
Gross profit for the three months ending June 30, 1995, increased to
$490,746 from $452,922 for the same period in the prior year, an increase
of 8.3%. For the quarter ended September 30, 1995, the gross profit
percentage was 20.8% as compared to 13.1% for the same period in the prior
year. The improvement in gross profit percentage was primarily due to
consolidations in operations and disposals of unprofitable divisions that
have taken place since September 30, 1994.
As a dollar amount, selling, general and administrative (SG&A) expenses
decreased to $916,907 from $942,173 for the same period in the prior
year, a decline of $25,266, or (2.7%). As a percentage of revenue, SG&A
increased to 38.9% of revenues in the quarter ended September 30, 1995, from
27.3% in the same period of the prior year. Selling expenses declined
(6.0%) to $357,816 for the quarter ended September 30, 1995, compared to
$380,618 for the period in the prior year. Administrative expenses
declined (5.8%) to $611,290 for the quarter ended September 30, 1995,
compared to $648,835 for the period in the prior year. The decreases in
both selling and administrative expenses were primarily the result of
disposals of divisions since the prior year period. Other income for the
quarter ended September 30, 1995, was $52,199, consisting primarily of
favorable adjustments to prior-period accruals. Other income for the same
period in the prior year was $87,280, consisting primarily of a reduction in
a bonus accrual for nonperformance.
Operating loss decreased to $426,161 for the quarter ended September
30, 1995, compared to a loss of $489,251 for the same period in the prior
year. Excluding the divisions sold, the operating loss for the quarter
ended September 30, 1995, was $380,988 compared to $445,147 for the same
quarter in the prior year.
Net loss for the quarter ended September 30, 1995, was $233,994, which
included the benefit of a $231,154 gain on the sale of divisions. Net
loss for the same period in the prior year was $520,909.
8
<PAGE>
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 determined by a specified percentage of
qualified domestic trade receivables, with an aggregate maximum
borrowing level that declines in steps from $650,000 on August 15,
1995, to $450,000 on November 30, 1995. On September 30, 1995,
the Company had borrowed $597,843 under the credit line. The
credit line will be payable in full on December 31, 1995, unless
an additional renewal is obtained. The credit agreement at
September 30, 1995, contains various restrictive covenants that
require, among other things, the maintenance of a minimum level of
stockholders' equity. Due to the losses incurred through
September 30, 1995, the Company is not in compliance with that
level and is technically in default of the agreement. However,
the lender is continuing to extend borrowings to the Company under
the credit agreement.
The Company's unrestricted cash balance was $383,898 on September
30, 1995, compared to $644,101 on June 30, 1995. As of September
30, 1995, the Company's working capital deficit was $512,407,
compared to a deficit of $769,394 at June 30, 1995. The
improvement in working capital on September 30, 1995, was
primarily due to the reclassification from current to non-current
liabilities of certain customer deposits and accrued expenses,
totaling $205,801, that relate to revenue or transactions to be
realized more than one year beyond September 30, 1995. The
Company's working capital deficit at June 30, 1995, reflected a
decrease of $1,387,253 from the positive level of $617,859 on
June 30, 1994, primarily due to net operating losses.
The Company's working capital deficit could be further adversely
affected in fiscal 1996 by (i) the failure to eliminate losses in the
second quarter of fiscal 1996, (ii) the scheduled maturity of the
revolving credit facility on December 31, 1995, and (iii) additional
working capital requirements to support projected revenue increases
during the remainder of fiscal 1996.
The Company's continued existence is dependent upon resolving its
liquidity problem in the near future. The Company is exploring
opportunities to alleviate the liquidity pressures, including
further extension of the maturity of the revolving credit
facility, additional private placements, the sale or closedown of
unprofitable business activities, and the sale of profitable
business operations that are not in line with the long-term
strategy of the Company. There can be no assurance that the
Company will be successful in these or any other efforts. The
failure of the Company to solve its short-term liquidity pressures
could directly affect the ability of the Company to operate as a
going concern.
9
<PAGE>
SAZTEC INTERNATIONAL, INC.
SEPTEMBER 30, 1995 FORM 10-QSB
PART II - OTHER INFORMATION
ITEM 3. DEFAULT UPON SENIOR SECURITIES
The Company has a revolving credit agreement that contains various
restrictive covenants which require, among other things, the maintenance of a
minimum level of stockholders' equity. Due to the losses incurred through
September 30, 1995, the Company is not in compliance with that level and is
technically in default of the agreement.
ITEM 5. OTHER INFORMATION
As of November 10, 1995, the Company was not in compliance with the NASDAQ
SmallCap Market capital and surplus requirements. The Company has been
granted a hearing before an NASD panel on November 10, 1995, to present a
plan for achieving compliance. If the Company does not obtain an exception to
the continuing inclusion criteria, the Company's common stock will be
delisted from the NASDAQ SmallCap Market. However, the Company's stock may
continue to be listed in the OTC Bulletin Board.
Donald J. Campbell, Chief Financial Officer, Vice President, Secretary, and
Treasurer of the Company will leave the Company after November 17, 1995, for
personal reasons.
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 Page
- ------ ----------------------- ----
27 Financial Data Schedule 12
(b) REPORTS ON FORM 8-K:
None
10
<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 10, 1995
SAZTEC INTERNATIONAL, INC.
--------------------------
(Registrant)
By: /s/ Donald J. Campbell
----------------------
Donald J. Campbell
Chief Financial Officer,
Vice President, Secretary, Treasurer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 383,898
<SECURITIES> 0
<RECEIVABLES> 1,792,119
<ALLOWANCES> 88,058
<INVENTORY> 586,133
<CURRENT-ASSETS> 2,855,249
<PP&E> 4,107,267
<DEPRECIATION> 3,212,088
<TOTAL-ASSETS> 4,086,956
<CURRENT-LIABILITIES> 3,367,656
<BONDS> 99,197
<COMMON> 11,134,811
0
0
<OTHER-SE> (113,314)
<TOTAL-LIABILITY-AND-EQUITY> 4,086,956
<SALES> 0
<TOTAL-REVENUES> 2,359,115
<CGS> 0
<TOTAL-COSTS> 1,868,369
<OTHER-EXPENSES> (231,154)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,987
<INCOME-PRETAX> (233,994)
<INCOME-TAX> 0
<INCOME-CONTINUING> (233,994)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (233,994)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
