SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
Amendment No. 1
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended December 31, 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)
---------------
Total number of pages in this filing: 15
<PAGE>
SAZTEC INTERNATIONAL, INC.
FORM 10-QSB/A
Amendment No. 1
to
Form 10-QSB
for the
Quarter Ended December 31, 1995
The Quarterly Report on Form 10-QSB for the quarter ended December 31, 1995 (the
"Form 10-QSB") for Saztec International, Inc. (the "Company") is hereby
supplemented and amended as follows:
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Operations --
Three months ended December 31, 1995 and 1994 3
Consolidated Statements of Operations --
Six months ended December 31, 1995 and 1994 4
Consolidated Balance Sheets -- December 31, 1995
and June 30, 1995 5
Consolidated Statements of Cash Flows --
Six months ended December 31, 1995 and 1994 6 - 7
Notes to Consolidated Financial Statements --
December 31, 1995 8 - 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10 - 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibits 13
Signatures 14
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Revenues $2,997,179 $3,720,648
Cost of services 2,070,807 2,905,168
---------- ----------
Gross profit 926,372 815,480
Selling, general & administrative expense 866,833 1,137,047
---------- ----------
Profit (Loss) from operations 59,539 (321,567)
Interest expense (36,560) (42,239)
---------- ----------
Profit (Loss) before provision for income taxes 22,979 (363,806)
Provision for income taxes 9,094 14,981
---------- ----------
Net profit (loss) $ 13,885 $ (378,787)
========== ==========
Income (Loss) per share of common stock:
Net income (loss) applicable to common
stockholders $.001 $(.03)
========== ==========
Weighted average number of shares 12,522,321 11,344,792
========== ==========
</TABLE>
See accompanying notes.
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Revenues $5,356,294 $7,167,444
Cost of services 3,939,176 5,899,042
---------- ----------
Gross profit 1,417,118 1,268,402
Selling, general & administrative expense 1,783,740 2,079,220
---------- ----------
Loss from operations (366,622) (810,818)
Interest expense (75,547) (84,523)
Gain on sale of divisions 231,154 --
---------- ----------
Loss before provision for income taxes (211,015) (895,341)
Provision for income taxes 9,094 4,355
---------- ----------
Net loss $ (220,109) $ (899,696)
========== ==========
Loss per share of common stock:
Net loss applicable to common stockholders $.(02) $(.08)
========== ==========
Weighted average number of shares 12,527,321 11,012,629
========== ==========
</TABLE>
See accompanying notes.
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND JUNE 30, 1995
<TABLE>
<CAPTION>
ASSETS
Dec. 31, June 30,
Current assets 1995 1995
---- ----
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 203,580 $ 644,101
Restricted cash 58,250 38,010
Accounts receivable, less allowance for doubtful accounts 2,506,946 2,215,771
Work in process 486,611 580,842
Prepaid expenses and other current assets 131,248 160,076
---------- ----------
Total current assets 3,386,635 3,638,800
Property and equipment, net 768,984 1,164,048
Other assets
Goodwill and other intangible assets, less accumulated amortization 184,241 208,182
Deposits and other assets 142,317 144,632
---------- ----------
Total assets $4,482,177 $5,155,662
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Dec. 31, June 30,
Current liabilities 1995 1995
---- ----
(Unaudited)
Notes payable -- $ 650,091
Current portion long-term debt and capital lease obligations $ 303,885 193,320
Common stock subject to repurchase 36,000 100,000
Accounts payable 1,482,921 1,028,708
Accrued liabilities 521,891 1,350,596
Customer deposits 1,081,933 1,085,479
---------- ----------
Total current liabilities 3,426,630 4,408,194
Long-term debt and capital lease obligations 514,550 105,686
Accrued expenses, non-current 62,652 --
Common stock subject to repurchase 64,000
Stockholders' equity
Preferred stock-no par value; 1,000,000 shares authorized;
no shares issued -- --
Commonstock-no par value; 20,000,000 shares authorized;
12,523,851 shares issued at December 31, 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 (10,593,310) (10,373,201)
Cumulative translation adjustment (141,654) (134,326)
---------- ----------
Total stockholders' equity 414,345 641,782
---------- ----------
Total liabilities and stockholders' equity $4,482,177 $5,155,662
========== ==========
</TABLE>
See accompanying notes.
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
---- ----
Cash flows from operating activities
<S> <C> <C>
Net loss $(220,109) $(899,696)
Adjustments to reconcile net loss to net cash (used
in) provided by operating activities:
Depreciation and amortization 313,965 516,210
Provision for bad debts 9,389 24,415
Gain on sale of assets (25,238) 45,268
Gain on sale of assets of divisions sold (231,154) --
Write-off of work in process related to litigation 139,839 --
Other 928 16,286
Changes in assets and liabilities:
Accounts receivable (341,295) 1,033,234
Work in process (100,391) 5,716
Prepaid expenses and other current assets 19,523 (102,698)
Deposits and other assets 1,996 (2,546)
Accounts payable 611,600 (361,381)
Accrued liabilities (624,132) (19,136)
Customer deposits and non-current accrued expenses
347,541 60,872
Income taxes payable (24,553) 2,203
--------- --------
Net cash (used in) provided by operating activities (122,091) 318,747
--------- --------
Cash flows from investing activities:
Additions to property and equipment (35,204) (161,808)
Proceeds from the sale of property and equipment 53,210 15,692
Payments received on notes receivable 8,347 23,260
Decrease in restricted cash (20,240) 107,224
--------- --------
Net cash (used in) provided by investing activities 6,113 (15,632)
--------- --------
Cash flows from financing activities:
Principal payments on debt and capital lease
obligations (86,848) (299,794)
Borrowings on notes payable 1,645,500 2,551,250
Payments on notes payable (1,841,704) (2,851,565)
Payments on common stock repurchase obligation -- (20,000)
Proceeds from issuance of common stock, net of
issuance costs -- 729,668
--------- --------
Net cash (used in) provided by financing activities (283,052) 109,579
--------- --------
Effect of exchange rate changes on cash (41,491) (2,955)
--------- --------
Net (decrease) increase in cash (440,521) 409,739
Cash at beginning of period 644,101 386,263
--------- --------
Cash at end of period $ 203,580 $796,002
========= ========
</TABLE>
See accompanying notes.
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994
(Unaudited)
1995 1994
---- ----
Supplemental schedule of non-cash investing and
financing activities:
Purchase of property and equipment through issuance
of notes payable and capital lease obligations $134,887
========
Note payable issued in exchange for trade payables $139,317
========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 90,580 $ 55,561
======== ========
Income taxes $ 38,758
========
See accompanying notes.
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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 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, $60,000 and $80,000 remained payable to the
selling shareholders at September 30 and December 31, 1995, respectively.
Note 3. Sale of Divisions
-----------------
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 both
divisions were completed on September 1, 1995. The operating results of both
divisions for the three and six months ended December 31, 1995 and 1994 were as
follows:
3 MONTHS 6 MONTHS 3 MONTHS 6 MONTHS
1995 1995 1994 1994
-------- -------- -------- --------
Revenue $312,965 $312,965 $713,356 $1,363,644
Gross profit (loss) (13,102) (13,102) 56,069 157,263
Operating loss $(45,173) $(45,173) $(21,943) $ (18,790)
Gain on sale of divisions $231,154 $231,154
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 three and six month periods ending
December 31, 1994, division performance follows:
3 months ended December 31, 6 months ended December 31,
1994 1994
--------------------------- ---------------------------
Revenue $372,931 $782,190
Gross profit 21,190 349
Operating loss $(54,360) $(97,280)
Note 4. Litigation
----------
On December 14, 1995, an order was entered granting the Summary Judgement 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.
The action was taken in the third quarter of the fiscal year, as a prior period
adjustment to the quarter in which the decision was rendered.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Revenue for the six months ended December 31, 1995, declined to $5,356,294 from
$7,167,444 for the six months ended December 31, 1994, a decrease of $1,811,150,
or (25.3%). Excluding the revenue of divisions sold since September 30, 1994
(see Note 3), revenue for the quarter ended December 31, 1995, was $2,997,179,
compared to $2,634,361 for the quarter ended December 31, 1994, an increase of
$362,818, or 13.7%.
U.S. revenue for the six months ended December 31, 1995, excluding the divisions
sold, compares with the six month period in the prior year, declining $10,000
from $2,190,020. The decline in U.S. revenue experienced in the first quarter as
compared to the prior year first quarter was recovered in the second quarter.
European revenue, excluding divisions sold, also held steady, showing an
increase of $31,000 over the six month period in the prior year, to $2,863,022.
The sales mix in the United States and Europe was relatively unchanged from the
prior year six month period. As reported for the quarter ended September 30,
1995, the volume of library projects in Europe is starting to recover, with
major new projects beginning in Switzerland, Germany, and the U.K. Management
expects revenue in both Europe and the United States to improve gradually
through the second half of fiscal year 1996 over the six months ended December
31, 1995.
Gross profit for the six months ended December 31, 1995, net of divisions sold,
increased $326,000 to 28.5% of sales from 22% for the six month period in the
prior year. In particular, employee related cost of sales, net of divisions
sold, decreased 22.5% for the current six months ended from the prior year six
month period, with the largest reduction being realized in U.S. operations. This
improvement was effected through consolidations in operations, increased
efficiency of equipment put into production through June 30, 1995, compensation
rate reductions and management restructuring efforts.
As a dollar amount, selling, general and administrative (SG&A) expenses for the
six month period decreased $295,480 to $1,783,740 from $2,079,220 for the same
period in the prior year. For the quarter ended December 31, 1995 SG&A decreased
to $866,833 from $916,907 in the quarter ended September 30. The increase in
SG&A in the first quarter of fiscal 1996 to 38.9% of revenues as compared to
27.3% in the same period of the prior year has been reduced, net of the
adjustment to work in process of $139,839 related to litigation, to 30.6% of
sales for the six month period as compared to 29% for the prior year six month
period. The increase in the first quarter as a percentage of sales is primarily
the result of lower total revenues during the current year, the time lag between
enacting cost reduction measures and receiving the benefits therefrom, and the
fixed nature of many costs of operating the Company. A small decline in total
dollars of selling expenses realized in the first quarter as compared to the
first quarter of the prior year continued through December 31, 1995. The
decrease in selling expense for the current year six month period amounted to
$177,221 to a total of $608,435 as compared to $785,656 for the prior year
period. Administrative expenses declined 34.92% in the second quarter, excluding
the effect of the write-off of work in process related to litigation, to
$476,375 from $732,009 for the second quarter of the prior year. Administrative
expenses for the current six month period, excluding the write-off of $139,839
noted above, of $1,035,466 are down 21.2% from the same 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 six month period consists mainly of amounts reported for the quarter
ended September 30, 1995, of $52,199. Gain on the disposition of assets in the
ordinary course of business accounted for $25,439 of this amount, with the
balance being primarily favorable adjustments to prior-period accruals for
relocation costs from Dayton, Ohio and Kansas City, Missouri to Billerica,
Massachusetts, and estimated legal fees. Other income for the same period in the
prior year was $87,280, consisting primarily of reversal of annual reserves
accrued over a five year period pursuant to employment contracts with four
individuals. The additional compensation was contingent upon attainment of
certain performance goals which were not met.
Loss from operations decreased to $366,622 for the six months as compared to
$810,818 for the same period in the prior year. Excluding the divisions sold,
the operating loss was $321,449 compared to $708,680 for the same period in the
prior year.
Net loss for the six months ended December 31, 1995, was $220,109, which
includes the benefit of a $231,154 gain on the sale of divisions reported in the
quarter ended Septermber 30, 1995, as well as a charge of $139,839 against work
in process related to litigation. Net loss for the six month period in the prior
year was $899,696.
Cash flow from operating activities suffered primarily from the loss for the six
months and increases in accounts receivable and work in process over June 30,
1995 amounts. 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. These payments, however were
crucial to negotiation of a new agreement with the Company's primary lender.
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 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 was payable in full on December 31, 1995.
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 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 not in compliance with the minimum
equity covenant at December 31, 1995.
The Company's unrestricted cash balance was $203,580 on December 31, 1995,
compared to $644,101 on June 30, 1995. As of December 31, 1995, the Company's
working capital deficit was $39,995, compared to a deficit of $769,394 at June
30, 1995. The improvement in working capital was primarily due to the
reclassification from current to non-current liabilities of the $340,000
long-term portion of the note payable to the bank; a note given for trade
payables of $136,317 at 8% interest, with payments of $4,000 per month through
February 28, 1999, of which $97,831 is classified as long-term; and an agreement
entered into to repay amounts owed on the common stock repurchase over 31 months
at 8% interest, of which $64,000 is classified as long-term. 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 ability to continue as a going concern is dependent upon its
ability to achieve its fiscal year 1996 operating plan. This plan includes the
disposition of unprofitable operations, disposition of profitable operations not
included in the Company's long-term business mission, renewal or replacement of
the line of credit, decreases in production and administration costs, and
increasing imaging revenues.
As described in Note 3, the Company has sold its Financial Transaction
Processing and Knightswade Microfilm Divisions. The Marketing Fulfillment
Division was also sold, because the division was not in line with the Company's
long-term business mission. As reported above, a new borrowing facility is in
place through July, 1997. As noted in the "Results of Operations" section above,
decreases in production costs have been realized and are expected to continue.
Administrative cost reductions are expected to be realized through the
consolidation of operations in Billerica, Massachusetts in the United States and
Ardrossan, Scotland in the United Kingdom. In December, 1995 the Company
completed a realignment and integration of its sales force, which is expected to
result in larger reductions in selling costs in the second half of fiscal year
1996. Imaging revenues increased $44,000 to $546,000 in the six month period
ending December 31, 1995 over the prior year six month period. Management
expects further improvement in revenues over the prior year period through the
second half of fiscal year 1996.
The Company's continued existence is also dependent upon improving its liquidity
in the near future. Working capital could be adversely affected by the failure
to eliminate losses in the final two quarters of fiscal 1996. The Company is
exploring opportunities for additional private placements. There can be no
assurance that the Company will be successful in these efforts. The failure of
the Company to solve its liquidity pressures could directly affect the ability
of the Company to operate as a going concern.
<PAGE>
SAZTEC INTERNATIONAL, INC.
DECEMBER 31, 1995 FORM 10-QSB
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
-----------------
On December 14, 1995, an order was entered granting the Summary Judgement 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.
The action was taken in the third quarter of the fiscal year, as a prior period
adjustment to the quarter in which the decision was rendered
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 15
<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: May 14, 1996
SAZTEC INTERNATIONAL, INC.
--------------------------
(Registrant)
By: /s/ Thomas K. O'Loughlin
-----------------------------
Thomas K. O'Loughlin
Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
SAZTEC INTERNATIONAL, INC.
FORM 10-QSB/A FOR DECEMBER 31, 1995 - EXHIBIT 27
FINANCIAL DATA SCHEDULE
UNDER ARTICLE 5 OF REGULATION S-X
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 203,580
<SECURITIES> 0
<RECEIVABLES> 2,546,089
<ALLOWANCES> 39,143
<INVENTORY> 486,611
<CURRENT-ASSETS> 3,386,635
<PP&E> 4,074,815
<DEPRECIATION> 3,305,831
<TOTAL-ASSETS> 4,482,177
<CURRENT-LIABILITIES> 3,426,630
<BONDS> 514,550
0
0
<COMMON> 11,134,811
<OTHER-SE> (127,156)
<TOTAL-LIABILITY-AND-EQUITY> 4,482,177
<SALES> 0
<TOTAL-REVENUES> 5,356,294
<CGS> 0
<TOTAL-COSTS> 3,939,176
<OTHER-EXPENSES> (231,154)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 75,547
<INCOME-PRETAX> (211,015)
<INCOME-TAX> 9,094
<INCOME-CONTINUING> (220,109)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (220,109)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
