SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended June 30, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
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)
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, Without Par Value
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 ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X ]
Revenues for the fiscal year ended June 30, 1996, are $10,851,555.
The aggregate market value of the Common Stock held by non-affiliates (based
upon the last reported price on the bid-ask average on the OTC bulletin board)
on November 22, 1996 was approximately $1,965,927. As of November 22, 1996,
there were 14,297,651 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Page 1 of 40
PART I
ITEM 1. Description of Business
General
Saztec International, Inc. (the "Company" or "Saztec") is a provider of
information management services. The Company specializes in a broad range of
services that help customers manage the conversion of information (data, text,
graphics) from traditional media (paper, microform) to computer usable formats
and media.
Saztec has extensive experience in creating and maintaining text and image
databases, and has been actively involved in providing these services to
customers since the Company"s inception.
The Company also offers services that provide customers with an alternative to
in-house data entry for a wide range of computer processing applications. The
Company provides such services in the U.S. and the U.K. and also relies on
technology and contractual arrangements that permit the Company to have
portions of certain data processing projects completed offshore at
substantially lower labor costs than in the U.S. or Europe.
The Company was incorporated in California in 1976. The Company's executive
offices are located at 43 Manning Road, Billerica, Massachusetts 01821, and its
telephone number is (508) 262-9600. The principal wholly-owned subsidiaries
are Advanced Automation Associates, Inc. ("AAA"), incorporated in the state of
Missouri and Saztec Europe, Ltd., registered in Scotland. Saztec Europe, Ltd.
has three wholly owned subsidiaries; Saztec Services, Ltd., registered in
England, Knightswade, Ltd., registered in England and Saztec Datenverabeitung
GmbH, registered in Germany.
Description of Business
Saztec provides a complete range of services for the information conversion
market. The Company offers the following services which are integrated and
customized as required by the customer's application:
Data Entry: Information can be captured from any format or source material,
including paper, microfilm, or microfiche. Original data capture can be
performed by traditional keyed data entry or by using one of the following
techniques, depending upon the application: Optical Character Recognition
(OCR), Intelligent Character Recognition (ICR), or Optical Mark Recognition
(OMR).
A variety of quality control procedures are used to assure character accuracy.
These procedures include key verification, sight verification, complex table
and range checking, and post-capture editing software.
Text Conversions: Several services are available to assist customers
converting text information from one media to another. Input is accepted in a
variety of formats including paper, microform, and magnetic tape or cartridge,
floppy disks, CD-ROM, electronic media or cards. Clerical coding resources are
available to assign tags, photocomposition codes, or complex document
definition notations such as Standard Generalized Markup Language (SGML), a
standard growing in popularity for commercial text databases; Hyperlink Text
Markup Language (HTML), the document standard in use on the Internet; or
Machine Readable Cataloguing (MARC), the standard for library catalog records.
Original text capture can be accomplished via traditional key entry or by OCR
techniques. Image Conversions: A broad family of services are available to
capture and convert document images for use in image based storage and
retrieval systems. Equipment is used to create images at resolutions between
100 dots per inch (dpi) and 1200 dpi ranges, with variable light/dark
thresholding available to match the quality of the documents. Up to 64 levels
of gray or color may be captured for projects requiring these capabilities.
Simple and compound documents can be accommodated in a variety of formats.
Internally developed editing software provides the capability to carve images,
add or delete data from an image, rotate and scale images and change text
within an image.
The output can be provided in an uncompressed or defined compressed image
format. File headers and tape formats can be matched to the image storage and
retrieval system used in the specific application.
Documents may be indexed in a variety of ways, depending on the application.
Indexes ranging from simple identification numbers to complex key word
abstracts can be accommodated.
Services can be provided either off-site, partially on-site or completely
on-site depending upon the specialized needs of each individual customer.
Post Capture Computer Processing: Captured data generally is processed before
being output to provide for edit checks, special formatting, code explosions,
reblocking, labeling and quality control. The output can be provided on
magnetic tape, diskette, optical disk, CD-ROM, over the Internet, or via
telecommunications.
Custom software packages are developed as required for the manipulation of
captured information to a specialized output format. Computer processing is
used to simplify the capture of complex information, restructure existing
databases for migration to a new system, link indexes for image storage and
retrieval applications, update information or combine files from a variety of
sources into a unified format.
Project Management: The key to managing complex conversion processes is
project management. At Saztec the following elements are made integral parts
of all projects.
Project Plan -- A formal project plan is developed to provide information for
the client and for the appropriate Saztec support and production personnel.
The plan includes items such as: a project specification to detail the
requirements of the project; a document analysis; an identification of
resources and timescales; and a definition of the responsibilities of all
involved with the project. This plan includes detailed conversion
instructions which are agreed to in advance by both Saztec and the customer.
Document Management -- All documents are tracked and logged throughout the
conversion process. From batching and sorting to combining converted data and
images for final output, the progress of each document is tracked at each step
of the production process. Adherence to pre-defined quality control
standards is strictly maintained.
Quality Control -- Saztec uses proven quality control procedures developed over
a wide range of information conversion projects over the last ten years.
Quality control processes are specifically developed for each project and are
custom tailored to meet the unique requirements of each client. Whatever the
specific measure of quality may be, care is taken to track and improve quality
at each step of the conversion process. Prior to delivery, all work is
certified by final inspection that quality control objectives have been
achieved.
Offshore Resources: The Company has entered into a priority Production
Agreement, renewed in April 1991 for five years, with Saztec Philippines, Inc.
("Saztec Philippines") providing for a first priority to the Company on all of
its production resources. In addition, Saztec Philippines has the "Right of
First Refusal" on all data entry and clerical coding for the Company's United
States clients that can be performed internationally, provided that Saztec
Philippines can meet the requirements of quality, expertise, turnaround and
pricing acceptable to the Company and its clients.
The Company anticipates Saztec Philippines will continue to be a primary sub-
contractor of data entry and clerical coding services and is currently
negotiationg a new agreement. However, where it has been necessary, the
Company has utilized additional offshore vendors. Since September, 1991,
Saztec Philippines has not been affiliated in an ownership capacity with the
Company.
Sale of Divisions: The Company"s plan to improve financial performance includes
the sale or closedown of unprofitable operations and the sale of profitable
operations that are not in line with the Company"s long-term mission to service
customer needs for electronic data conversion. As a result, the Company has
sold the three operating divisions described below:
1. On June 8, 1995, the Company reached an agreement to sell the Financial
Transaction Processing (FTP) Division to Lloyd"s Bank. The division was
based in Swindon, U.K., and provided remittance processing services to U.K.
customers utilizing OCR and key entry processes.
2. On September 1, 1995, the Company sold its Marketing Fulfillment Division to
a management group. The division was based in Billerica, Massachusetts, and
provided direct mail, rebate, and subscription services to customers in the New
England area.
3. On September 1, 1995, the Company sold its Knightswade, Ltd. Microfilm
Division to a management group. The division was based in Winchester, U.K.,
and provided a range of microfilming services to U.K. customers.
Financial information about the sale of these divisions is presented in Note 7
of the Notes to Consolidated Financial Statements.
Markets and Marketing
A major challenge for the Company is the project-oriented nature of its
business. Although the Company may perform services for a client over many
years, such services may relate to one major project or to many smaller
projects. The Company is dependent on its ability to attract new projects from
new and existing clients to replace completed projects. The project-oriented
nature of the Company's business creates difficulties in planning for staffing
and equipment (principally computer) requirements, scheduling, facilities
requirements and availability of offshore resources.
During the past several years, the Company has experienced a decline in the
demand for traditional data entry and text conversion services. Management
believes the demand for image conversions will increase, based on its
discussions with hardware and software suppliers, potential clients, other
companies providing services similar to the Company, and market analysts.
However, the overall image conversion marketplace is still in the developmental
stage and, therefore, it is difficult to predict the timing and volume of the
anticipated increase in image conversion services.
The Company provides services to the electronic publishing industry consisting
of publishers, libraries, on-line information vendors, and trademark and market
research companies. The Company has performed the following specific services:
(a) for European libraries, retrospective conversion of card catalog data to a
local system, and conversion of hand printed worksheets for loading to a
national computer network for research libraries; (b) the conversion for on
line vendors, of archival files of abstracts and indexes with monthly additions
to the database from newly published material; (c) for market researchers,
ongoing capture and processing of client billings and data for analysis and
publication; (d) CD-ROM reformatting and pre-mastering services for
publishers; and (e) image capture of graphic material imbedded in text.
Other specific services the Company has provided are: (a) database maintenance
consisting of updates, changes, additions and deletions of (1) name and address
information for market researchers, and (2) data capture of claim forms for
medical insurance companies; and (b) data entry of individual, corporate and
partnership state income tax returns upon filing.
Competition
The Company competes against many companies with respect to one or more of
the various services provided by the Company. Some of these competitors have
substantially greater financial and other resources than the Company and
compete aggressively with respect to all or some of the services provided by
the Company. Such firms compete on a price and geographic basis, charging, in
some instances, lower rates for particular services provided by the Company,
and in other instances, providing quicker turnaround to clients in a particular
area. The Company may also be considered in competition with "in-house"
personnel who may duplicate the Company's services.
The Company primarily competes on the basis of service. The Company believes
that it has developed an effective methodology for document control for
projects involving the conversion of a large number of documents. The Company
emphasizes this aspect of its service, among other components of service
(such as timeliness and accuracy) in competing for new business.
Employees
At June 30, 1996, the Company employed 172 full-time and 88 part-time
employees.
Dependence Upon Major Customers
Financial information about major customers is presented in Note 11 of the
Notes to Consolidated Financial Statements. At June 30, 1996, the Company was
conducting business with approximately 130 customers in the United States and
Europe.
Financial Information About Foreign Operations
Financial information about foreign operations is presented in Note 11 of the
Notes to Consolidated Financial Statements.
ITEM 2. PROPERTIES
The Company occupies its principal executive offices, approximately 21,500
square feet, located in Billerica, Massachusetts, pursuant to a lease expiring
in August, 1999.
In addition, the company leases an aggregate of 29,853 square feet of office
space in South Weymouth, Massachusetts; Vernon, Connecticut; Kansas City,
Missouri; Ardrossan, Scotland; and Regensburg, Germany, pursuant to individual
leases expiring between 1998 and 2001.
Management believes the current facilities are adequate to conduct the
Company's operations.
ITEM 3. LEGAL PROCEEDINGS
Information about legal proceedings is presented in Note 9 of the Notes to
Consolidated Financial Statements, under "Litigation".
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED SHAREHOLDER MATTERS
The Company's common stock is traded in the over-the-counter market and was
quoted on the NASDAQ system (small cap market) under the trading symbol
SAZZ through November 14, 1995. On September 26, 1996, the Company had
256 stockholders of record. For the period of July 1 to September 21, 1996,
the high and low closing price as reported by the NASD was 3/8 and $.15,
respectively. The table below sets forth high and low bid information by
fiscal quarter as reported by the NASD and NASDAQ Research Department.
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Bid Prices
Fiscal Quarter Ended; High Low
September 30, 1994 1- 1/8 1/2
December 31, 1994 3/4 1/2
March 31, 1995 1- 1/16 1/2
June 30, 1995 11/16 3/16
September 30, 1995 3/8 1/8
December 31, 1995 1/4 1/50
March 31, 1996 11/32 1/40
June 30, 1996 9/16 1/8
</TABLE>
The above mentioned over-the-counter quotations reflect inter-dealer prices,
without retail markup, mark-down or commission and may not necessarily
represent actual transactions. The Company has not paid dividends on its
Common Stock and has no present intention to pay any cash dividends.
The Company was not in compliance with NASDAQ's Small-Cap Market capital
and surplus requirements and was deleted from the NASDAQ Stock Market at the
close of business on November 14, 1995. It continues to be listed in the OTC
Bulletin Board.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Revenues for the year ended June 30, 1996 were $10,851,555 compared to
$13,596,848 for the year ended June 30, 1995, a decrease of $2,745,293, or
(20.2%). Net of divisions sold, revenues increased 8.76%, or $856,507 over
the prior year.
Revenues from U.S. operations declined from $6,543,384 in 1995 to $4,923,900
in the current year, a decline of $1,619,484, or (24.7%). Revenues for the
Company's European operations declined from $7,053,464 in fiscal year 1995 to
$5,927,655, a decline of $1,125,809, or (16%). Net of divisions sold, however,
revenue increased $349,944 and $506,563 over the prior year for U.S. and U.K.
operations, respectively. The increase in U.S. based revenue was due to
improvement in Data Capture Operations, as Imaging revenues decreased
$124,000 from the prior year. The decrease in Imaging revenue is attributable
to a reduction in brokered projects sold during the year, which can in turn be
traced to a reduction in the selling expense attributable to the Imaging
Division of $57,000 during the current year. The revenue increase for the
U.K. based operations was the result of an anticipated recovery in the
volume of library projects.
Gross profit increased from $2,403,452 in fiscal year 1995 to $2,893,478 in
1996, an increase of $490,026, or 20.4%, due partly to the sale of
unprofitable divisions. Net of divisions sold, gross profit increased
$832,908 in fiscal year 1996 over the prior year. Included in this
improvement is an increase in the gross profit of the Imaging Division in the
current year due to reduced brokered sales and reductions in depreciation and
facilities expense associated with the consolidation of operations in
Billerica, Massachusetts. Gross margin increased from 17.7% in fiscal 1995
to 26.6% in 1996; net of divisions sold, gross margin increased 6.1% over the
prior year to 27.3% in fiscal year 1996.
Selling and administrative (S&A) expense of $2,979,839 in fiscal year 1996
includes a charge of $139,839 related to litigation. S&A expense of $5,160,706
in fiscal 1995 included a restructuring charge for Europe, as reported in the
Company's Form 10-QSB for the period ending March 31, 1995, of $411,134 for
accelerated amortization of goodwill for the Knightswade microfilm acquisition,
and for lease abandonment and severance costs in the U.K. In April 1995, the
Company incurred a $187,500 charge related to issuance of stock pursuant to the
1992 purchase of Scanning America, Inc. The Scanning America division was
divested by the Company in October 1993. Also, in December 1994, the
Company incurred a $72,671 charge for relocation of its Dayton, Ohio,
production activity and its Kansas City, Missouri headquarters to Billerica,
Massachusetts. Excluding these one-time charges, S&A expense was $2,840,000
in fiscal year 1996 compared to $4,489,401 in fiscal 1995, a decrease of
36.7%. This reduction is comprised of a decrease in selling expense of
$542,401 and decreased administrative expense of $1,107,000 over the
adjusted figure from the prior year. Management believes it has largely
achieved its goal of refocusing efforts on the Company's core business.
Capital Resources and Liquidity
During the quarter ended March 31, 1994, management completed three separate
private placements generating $1,051,729, net of issuance costs of $49,271, in
exchange for 1,100,000 shares of common stock and warrants to issue an
additional 1,287,500 shares of common stock, exerciseable for a five year
period at $1.375 per share. One of the private placements of 750,000 shares
was with a group of individuals unrelated to the Company ("the Meyerson
Group"). Another transaction, representing 250,000 shares, was with Tallard
B.V., a Netherlands Corporation ("Tallard"), and the remaining transaction
for 100,000 shares was transacted with a then-member of the Company's Board
of Directors. Subsequent to the completion of these transactions, certain
members of the Meyerson Group alleged certain disclosure violations by the
Company in the offering documents. The Company denied the allegations and
believes they were without merit. However, to avoid the potential cost of
litigation, the Company agreed to issue 366,666 additional shares of
unregistered common stock to the private placement participants and agreed to
decrease the warrant price for all of the underlying warrants from $1.375 to
$1.125. At June 30, 1996 and 1995, 250,000 of the additional shares had
been issued. In exchange for these modifications, the participants have
agreed to release the Company from all claims arising out of the three
private placements.
In October 1994, the Company agreed to sell 1,226,052 shares of common stock
to Tallard pursuant to a stock purchase agreement for $729,687, net of expenses
of $20,213. The proceeds of the sale were received in installments through
December 1994.
In May 1996, the Company completed a private placement of 584,000 shares for
$136,000 to employees, members of management, directors, and a nonemployee
shareholder. In June 1996 an agreement was reached with two unrelated parties
to purchase 1,200,000 shares of common stock for $300,000. Proceeds from the
June agreement were received in August and September, 1996. Warrants were
also issued in the above two placements for 484,000 and 1,200,000 shares,
respectively.
At June 30, 1996, the Company had borrowed $389,703 under its revolving credit
agreement and qualified for additional borrowings of $10,297. At June 30,
1995, the Company had borrowed $650,091 and had qualified for additional
borrowings of $25,176. The revolving credit agreement provides for interest
at the lender's prime rate plus 4.0% (12.25% and 13.0% at June 30, 1996 and
1995, respectively). The credit agreement is secured by substantially all
domestic assets of the Company, including the stock of subsidiaries, and is
scheduled to expire on July 1, 1997. The Company is in compliance with
covenants contained in the current agreement; at June 30, 1995 the agreement
contained various restrictive covenants which required, among other things,
the maintenance of a minimum level of stockholders' equity. Due to the
losses incurred in fiscal 1994 and 1995, the Company was not in compliance
with that minimum level. However, the lender waived compliance with that
covenant. Under the agreement that expired December 31, 1995, the maximum
borrowing limit declined in steps from $650,000 on August 15, 1995, to
$450,000 on November 30, 1995. Maximum borrowing under the renewed agreement
which expires July 1, 1997 declines $10,000 per month from $450,000 beginning
February 1, 1996.
In January 1995, the Company established a revolving credit agreement with a
U.K. lender, secured by U.K.-generated export trade receivables, bearing
interest at the lender's base rate plus 2.0% (7.938% in aggregate at June 30,
1995). The agreement expired in December 1995. The maximum aggregate
borrowings under the agreement were approximately $795,000. Available
borrowings were determined by a specified percentage of qualified export
trade receivables. At June 30, 1995, the Company had available borrowings of
approximately $248,235 and had no borrowings outstanding. The expired
agreement was not replaced.
At June 30, 1996 the Company's unrestricted cash balance was $222,023
compared to $644,101 at June 30, 1995. However, the Company's working
capital increased to $452,928 from a working capital deficit of $769,394 at
June 30, 1995. Working capital has been improved by the Company's private
placements, cash flow from operations which was used to reduce current
liabilities, the conversion of accounts payable into notes payable with terms
in excess of one year, and more favorable repayment terms on the Common Stock
Repurchase (see Note 2 of Notes to Consolidated Financial Statements ).
Management believes these actions will result in sufficient resources to meet
the Company's cash needs.
ITEM 7. FINANCIAL STATEMENTS
Financial statements of the Company meeting the requirements of Regulation S-B
are filed on the succeeding pages as listed below:
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Page
Reports of Independent Auditors 11 - 12
Consolidated Statements of Operations for the Years Ended
June 30, 1996 and 1995 13
Consolidated Balance Sheets as of June 30, 1996 and 1995 14
Consolidated Statements of Changes in Stockholders'
Equity for the Years Ended June 30, 1996 and 1995 15
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1996 and 1995 16 - 17
Notes to Consolidated Financial Statements 18 - 31
</TABLE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
SAZTEC International, Inc. and Subsidiaries
Billerica, Massachusetts
We have audited the accompanying consolidated balance sheet of SAZTEC
International, Inc. and Subsidiaries as of June 30, 1996, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of SAZTEC
International, Inc. and Subsidiaries at June 30, 1996, and the consolidated
results of their operations and their cash flows for the year then ended, in
conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Kansas City, Missouri
August 15, 1996
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
SAZTEC International, Inc. and Subsidiaries
Billerica, Massachusetts
We have audited the accompanying consolidated balance sheet of SAZTEC
International, Inc. and Subsidiaries as of June 30, 1995, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of SAZTEC
International, Inc., and Subsidiaries at June 30, 1995, and the consolidated
results of their operations and their cash flows for the year then ended, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
SAZTEC International, Inc. will continue as a going concern. As more fully
described in Note 1, the Company has incurred significant recurring operating
losses and has a working capital deficiency at June 30, 1995. In addition,
at June 30, 1995, the Company has not complied with certain covenants of loan
agreements with banks. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in
regard to this matter are also described in Note 1. The financial statements
do not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification
of liabilities that may result from the possible inability of the Company to
continue as a going concern.
ERNST & YOUNG LLP
Boston, Massachusetts
September 1, 1995
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30,
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1996 1995
Revenues $10,851,555 $ 13,596,848
Cost of services 7,958,077 11,193,396
Gross profit 2,893,478 2,403,452
Selling, general & administrative expense 2,979,839 5,160,706
Loss from operations (86,361) (2,757,254)
Interest expense (125,086) (201,394)
Gain (loss) on sale of divisions 231,154 (302,500)
Income (loss) before provision
for income taxes 19,707 (3,261,148)
Provision for income taxes 63,139
Net loss $(43,432) $ (3,261,148)
Loss per share of common stock:
Net loss $(.003) $(.28)
Weighted average number of shares 12,700,609 11,637,481
</TABLE>
See accompanying notes.
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30,
ASSETS
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1996 1995
Current assets
Cash and cash equivalents $222,023 $ 644,101
Restricted cash 60,869 38,010
Accounts receivable, less allowance for
doubtful accounts of $47,755 in 1996 and
$83,326 in 1995 1,973,192 2,215,771
Costs and estimated earnings in excess of
billings (Note 8) 21,490
Work in process 570,651 580,842
Prepaid expenses and other current assets 176,664 160,076
Note receivable for stock subscribed (Note 2) 300,000 -
Total current assets 3,324,889 3,638,800
Property and equipment, net (Notes 3 and 4) 598,415 1,164,048
Other assets
Goodwill and other intangible assets, less
accumulated amortization of $51,482 in 1996
and $819,610 in 1995 173,931 208,182
Deposits and other assets 122,070 144,632
Total assets $4,219,305 $5,155,662
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable (Note 4) $389,703 $650,091
Current portion long-term debt and capital
lease obligations (Notes 4 and 9) 199,650 193,320
Common stock subject to repurchase (Note 2) 54,000 100,000
Income taxes payable 54,320
Accounts payable 885,692 1,028,708
Accrued liabilities 544,318 1,350,596
Customer deposits 744,278 1,085,479
Total current liabilities 2,871,961 4,408,194
Long-term debt and capital lease obligations,
less current portion (Notes 2, 4 and 9) 241,257 105,686
Common stock subject to repurchase (Note 2) 46,000
Accrued expense 34,385
Stockholders' equity (Notes 2 and 5)
Preferred stock-no par value; 1,000,000 shares
authorized; no shares issued
Common stock-no par value; 20,000,000 shares
authorized; 13,097,651 shares issued at June
30, 1996, and 12,543,851 shares issued at
June 30, 1995 11,270,811 11,134,811
Common stock subscribed (Note 2) 300,000
Contributed capital 14,498 14,498
Accumulated deficit (10,416,633) (10,373,201)
Cumulative translation adjustment (142,974) (134,326)
Total stockholders' equity 1,025,702 641,782
Total liabilities and stockholders' equity $4,219,305 $5,155,662
</TABLE>
See accompanying notes.
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<S> <C> <C> <C> <C>
Common Stock Common Stock Subscribed
Number of Amount Number of Amount
Share Shares
Balance at
July 1, 1994 10,687,799 $10,163,998
Shares canceled
pursuant to
repurchase
obligation
(Note 2) (40,000)
Shares issued
pursuant to a
market value
guarantee 300,000 187,500
Shares issued
pursuant to
private
placements
(Note 2) 1,226,052 729,687
Shares issued
pursuant to
renegotiation
of private
placements
(Note 2) 250,000
Shares issued
pursuant to
the achievement
of earn-out
targets
(Note 2) 120,000 53,626
Translation
adjustment
Net loss
Balance at
June 30, 1995 12,543,851 $11,134,81
Shares canceled
pursuant to
repurchase
obligation
(Note 2) (30,200)
Shares issued
pursuant to
private
placements
(Note 2) 584,000 136,000
Stock subscribed 1,200,000 $300,000
Translation
adjustment
Net loss
Balance at
June 30, 1996 13,097,651 $11,270,811 1,200,000 $300,000
</TABLE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY, CONTINUED
YEARS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<S> <C> <C> <C>
Contributed Accumulated Cumulative
Capital Deficit Translation
Balance at
July 1, 1994 $14,498 $(7,112,053) $(201,750)
Shares canceled
pursuant to
repurchase
obligation
(Note 2)
Shares issued
pursuant to a
market value
guarantee
Shares issued
pursuant to
private
placements
(Note 2)
Shares issued
pursuant to
renegotiation
of private
placements
(Note 2)
Shares issued
pursuant to
the achievement
of earn-out
targets
(Note 2)
Translation
adjustment 67,424
Net loss (3,261,148)
Balance at
June 30, 1995 $ 14,498 $ (10,373,201) $ (134,326)
Shares canceled
pursuant to
repurchase
obligation
(Note 2)
Shares issued
pursuant to
private
placements
(Note 2)
Stock subscribed
Translation
adjustment (8,648)
Net loss (43,432)
Balance at
June 30, 1996 $14,498 $(10,416,633) $ (142,974)
</TABLE>
See accompanying notes.
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30,
<TABLE>
<S> <C> <C>
1996 1995
Cash flows from operating activities
Net loss $ (43,432) $ (3,261,148)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 537,052 1,288,299
Provision for bad debts (35,053) 97,213
(Gain) loss on sale of assets (30,320) 54,122
(Gain) loss on sale of assets of divisions
sold (231,154) 33,545
Write-off of work in process related to
litigation 139,839
Issuance of common stock pursuant to a
market value guarantee 187,500
Other (18,135)
Changes in assets and liabilities:
Accounts receivable 159,363 1,178,842
Work in process (219,915) 2,928
Prepaid expenses and other current assets (44,485) 207,486
Deposits and other assets 6,845 (35,589)
Accounts payable 143,568 (287,068)
Accrued liabilities (513,438) 305,036
Customer deposits and non-current accrued
expenses 64,546 567,956
Income taxes payable 27,075
Net cash (used in) provided by operating
activities (57,644) 339,122
Cash flows from investing activities:
Payment received on notes receivable 17,077
Additions to property and equipment (59,017) (378,783)
Proceeds from the sale of property and
equipment 38,254 90,561
(Increase) decrease in restricted cash (22,846) 98,443
Proceeds from sale of divisions 292,818
Net cash (used in) provided by investing
activities (26,532) 103,039
Cash flows from financing activities:
Principal payments on debt and capital
lease obligations (188,320) (873,035)
Borrowings on notes payable 3,770,406
Payments on notes payable (4,030,793)
Payments on stock repurchase obligation (60,000)
Proceeds from issuance of common stock,
net of issuance costs 121,000 729,687
Net cash used in financing activities (327,707) (203,348)
Effect of exchange rate changes on cash (10,195) 19,025
Net (decrease) increase in cash (422,078) 257,838
Cash and cash equivalents at beginning of year 644,101 386,263
Cash and cash equivalents at end of year $ 222,023 $ 644,101
</TABLE>
See accompanying notes.
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
YEARS ENDED JUNE 30,
<TABLE>
<S> <C> <C>
1996 1995
Supplemental schedule of non-cash investing
and financing activities:
Purchase of property and equipment through
issuance of notes payable and capital
lease obligations $98,767 $160,147
Conversion of accounts payable into notes
payable $258,730
Issuance of common stock pursuant to the
achievement of earn-out targets (Note 2):
Increase in goodwill $53,626
Issuance of common stock pursuant to a
market value guarantee (Note 2) $187,500
Common stock issued for notes receivable $15,000
Notes receivable in exchange for common stock
subscribed $300,000
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest $132,820 $201,394
Income taxes $38,758
</TABLE>
See accompanying notes.
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements follows:
Basis of Presentation
For the year ended June 30, 1995, the Company's consolidated financial
statements are presented on the basis that it is a going concern, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. The Company incurred a net loss of $3,261,148
in 1995 and, at June 30, 1995, had a working capital deficiency of $769,394.
In addition, the Company was not in compliance with certain covenants of a
loan agreement with its bank. These conditions raised substantial doubt about
the Company's ability to continue as a going concern. The consolidated
financial statements for the year ended June 30, 1995 do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.
During the year ended June 30, 1996, the Company completed sales of its
Marketing Fulfillment Services and Knightswade Microfilm Divisions, renewed
its line of credit, negotiated conversion of several short-term liabilities to
term notes payable, and completed a private placement of its common stock.
Production costs were reduced, resulting in improved gross profit over the
prior year, and selling and administrative expenses were decreased.
Nature of Business
The Company provides services for database construction and information
conversion utilizing computer processing, electronic imaging, optical character
recognition, data entry and related technologies.
Principles of Consolidation
The consolidated financial statements include the accounts of Saztec
International, Inc., and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated.
Cash and Cash Equivalents
The Company considers all highly liquid financial instruments purchased with an
original maturity of three months or less to be cash equivalents.
Restricted Cash
The restricted cash balance at June 30, 1996 includes a certificate of deposit
of $28,052 held as collateral pursuant to a performance bond and $32,817 held
in a collateral account for repayment of a revolving credit agreement. At
June 30, 1995 these balances were $26,210 and $11,800, respectively.
Work in Process
Work in process consists of labor and certain other costs incurred for
uncompleted and unbilled projects.
Concentration of Credit Risk
The Company grants credit to customers who meet the Company's preestablished
credit requirements. Security is not required when trade credit is granted to
customers. Credit losses are provided for in the consolidated financial
statements and consistently have been within management's expectations. The
Company does not believe it is subject to market or geographic risk based on
the industries or location of its customers (see Note 11).
Property and Equipment
Property and equipment are recorded at cost and depreciation is provided using
straight-line or accelerated methods over estimated useful lives ranging from
three to five years. Leasehold improvements are amortized over the shorter
of the useful life of the asset or the lease term. Amortization of assets
recorded under capitalized leases is included in depreciation expense.
Expenditures for maintenance and repairs which do not increase the productive
capacity or extend the useful lives of property and equipment are charged to
expense as incurred; otherwise, such expenditures are capitalized and
depreciated over the remaining estimated useful life of the property. Upon
disposition of properties, the cost and accumulated depreciation thereon are
eliminated from the accounts, and the gain or loss on disposition is credited
or charged to income. Internally developed software is materially related to
specific contracts, is identified and deferred as work in process of those
projects and charged to expense as revenue is recognized. Management monitors
the carrying value of assets and recognizes an impairment loss in the period
the recoverability declines.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets relate to businesses acquired and consist
principally of acquisition costs, non-compete agreements and customer lists.
All intangible assets are stated at cost net of accumulated amortization.
Goodwill is being amortized using the straight-line method over 5 to 20 years.
On a continuing basis, management reviews the carrying value and period of
amortization of goodwill. During this review process, the Company reevaluates
the assumptions used in determining the original cost of acquired businesses
and related goodwill. Although the assumptions may vary from transaction to
transaction, they generally include revenue growth, operating results, cash
flows, and other indicators of value.
Foreign Currency Translation
Assets and liabilities of foreign operations are translated into United
States dollars at exchange rates in effect on reporting dates, and income and
expenses are translated at rates which approximate those in effect on
transaction dates. The resulting differences due to changing exchange rates
are charged or credited directly to the "Cumulative translation adjustment"
account included as part of Stockholders' equity.
Income Taxes
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes". Under Statement No. 109, the liability method is used to account for
income taxes. Under the liability method, deferred tax assets and liabilities
are determined based on differences between financial reporting and tax bases
of assets and liabilities and are measured using the enacted tax rates and
laws that are expected to be in effect when the differences are expected to
reverse. Valuation allowances are established, if necessary, to reduce the
deferred tax asset to the amount that will, more likely than not, be realized.
Revenue Recognition
The Company has entered into certain long-term contracts. The terms of most of
these contracts allow for billing as work on records is completed.
Infrequently, the Company enters into a contract with terms that specify
billing at intervals not coincident with the completion of work and revenue
recognition Revenue on these long-term contracts is recognized using the
percentage of completion (units of delivery method), measured by the units of
output. Contract costs include all direct material and labor costs and those
indirect costs related to contract performance, such as indirect labor,
supplies, and depreciation costs. Selling, and administrative costs are
expensed as incurred. Provision for estimated losses on uncompleted contracts
are made in the earliest period in which such losses can be estimated.
Revenue on most contracts (which are short term) is recognized upon completion
of identifiable batches of records and shipment of the product.
Loss Per Share
Loss per common share is computed by dividing the net loss applicable to common
stockholders by the weighted average number of shares of common stock
outstanding during each year which totaled 12,700,609 and 11,637,481, for the
years ended June 30, 1996, and 1995, respectively. For each of the named
years, common stock equivalents would have been antidilutive and, therefore,
were not included.
Financial Instruments
The carrying value of long-term debt approximates fair value.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 2. STOCKHOLDERS' EQUITY
Common Stock
During the quarter ended March 31, 1994, management completed three separate
private placements generating $1,051,729, net of issuance costs of $49,271, in
exchange for 1,100,000 shares of common stock and warrants to issue an
additional 1,287,500 shares of common stock, exerciseable for a five year
period at $1.375 per share. One of the private placements of 750,000 shares
was with a group of individuals unrelated to the Company ("the Meyerson
Group"). Another transaction representing 250,000 shares was with Tallard B.
V. ("Tallard"), a greater than 5% shareholder of the Company. The remaining
transaction for 100,000 shares shares was transacted with a then-member of
the Company's Board of Directors.
Subsequent to the completion of these transactions, certain members of the
Meyerson Group alleged certain disclosure violations by the Company in the
offering documents. The Company denied the allegations and believes they were
without merit. However, to avoid the potential cost of litigation, the
Company agreed to issue 366,666 additional shares of unregistered common
stock to the private placement participants and agreed to decrease the
warrant price for all of the underlying warrants from $1.375 to $1.125. At
June 30, 1996 and 1995, 250,000 of the additional shares had been issued.
In exchange for these modifications, the participants have agreed to release
the Company from all claims arising out of the three private placements.
Additionally, the Company granted certain demand registration rights to the
Meyerson Group on the 1,000,000 shares that they now own. On February 1,
1995, the Meyerson Group exercised this right and the Company filed a Form S-3
registration statement with the Securities and Exchange Commission. The
registration was under review and comment by the Commission through July 21,
1995, when the Company requested suspension of the registration process. The
Company has asked that the registration statement not be withdrawn so that the
option to proceed in the future is preserved. The Meyerson Group has not
waived the obligation of the Company to cause the registration statement to
be filed.
On October 5, 1994, the Company agreed to sell 1,226,052 shares of common
stock to Tallard pursuant to a stock purchase agreement. The proceeds from the
sale were received in installments through December 1994, and totalled
$729,687, net of expenses of $20,213.
Effective December 31, 1993, Tallard exercised its right to convert a
$1,750,000 note payable into preferred stock. Tallard immediately exercised
its right to convert the preferred stock into 2,334,500 shares of common
stock. The Company also issued 18,812 shares of common stock as payment of
$18,812 of interest accrued through December 31, 1993.
Pursuant to the conversion of the Tallard debt described above, Tallard has
certain Board representation rights for so long as Tallard maintains certain
ownership levels in the Company. Also pursuant to the conversion, the
Company is prohibited from entering into any merger or consolidation, sale of
substantially all of its assets, or sale of any series of stock senior to
common stock without the approval of 66.6%, or more of the outstanding voting
shares.
Additionally, as part of the conversion, Tallard and the Preferred Stockholders
received certain demand and piggyback registration rights which would enable
them to publicly trade the common shares received. The demand registration
rights may be exercised after September 30, 1994. The Company is not required
to effect more than one demand registration statement in any 12 month period,
or two demand registrations in the aggregate. The registration rights expire
on December 21, 2003.
In connection with the Company's acquisition of the outstanding minority
interest of Saztec Europe, Ltd. in 1991, the selling shareholders may receive
up to 560,000 additional shares if the combined operations of Saztec Europe,
Ltd. earn net income of 2,480,000 pounds, in aggregate, for the period ending
June 30, 1996. The agreement provides for annual earnings measurements
during these years. A total of 120,000 additional shares were earned during
the year ended June 30, 1995. The fair value of these shares, $53,626, has
been applied to goodwill. Amounts earned relating to 1996 operations are
considered immaterial to the consolidated financial statements.
The Company has also 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. The related
liability was recorded at the time of the grant of the put option and the
shares are cancelled when repurchased. During the fiscal year ended June 30,
1996, 30,200 shares of common stock totalling $60,400 were repurchased by the
Company and for the fiscal year ended June 30, 1995, 40,000 shares of common
stock totaling $80,000 were repurchased by the Company, pursuant to the terms
of the put option. Of the stock repurchased, $80,400 remained payable to the
selling shareholders at June 30, 1996 and $20,000 remained payable at June 30,
1995. In December 1995, the payable was restructured at no interest to a
series of 31 monthly payments: 24 payments of $3,000 principal plus 8% accrued
interest followed by seven payments of $4,000 principal plus 8% accrued
interest, with the final payment due July 1, 1998. Of the
remaining repurchase obligation payable or scheduled to
come due, $54,000 at June 30, 1996 and $100,000 at June 30, 1995 has been
classified as current in the accompanying consolidated financial statements.
In April 1995, the Company issued 300,000 shares of common stock to a
stockholder pursuant to the acquisition of the Scanning America, Inc.
operations in April 1992. The acquisition agreement provided for additional
shares to be issued to the seller contingent upon the market value of Saztec's
stock three years from the original acquisition date. Based on the April
1995 market value of the stock, the seller was entitled to claim 300,000
shares of unregistered common stock at a value of $187,500, which has been
included as a charge to earnings because the Scanning America division was
divested by the Company in October 1993.
In May and June of 1996 the Company conducted private placements of its
common stock. Officers and directors purchased 464,000 shares and a current
shareholder purchased 120,000 shares. A common stock subscription was
received for 1,200,000 shares of common stock and warrants to purchase an
additional 1,200,000 shares. The warrants are exercisable at $0.50 per share.
Consideration was received in August and September 1996.
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment consists of:
<TABLE>
<S> <C> <C>
1996 1995
Computer and other equipment $3,212,454 $4,483,294
Computer and other equipment under
capitalized leases 104,487 151,105
Software 264,211 728,307
3,581,152 5,362,706
Accumulated depreciation and
amortization 2,982,737 4,198,658
$598,415 $1,164,048
</TABLE>
Accumulated amortization of assets under capitalized leases amounted to
$99,055 and $40,000, at June 30, 1996, and 1995, respectively.
NOTE 4. NOTES PAYABLE, LONG-TERM DEBT, AND CAPITAL
LEASE OBLIGATIONS
The Company has a revolving credit agreement secured by accounts receivable,
work in process, property and equipment and other assets. The agreement bears
interest at the lender's prime rate plus 4.0% (12.25% and 13.0% in aggregate at
June 30, 1996 and 1995, respectively). Available borrowings are determined by a
specified percentage of qualified domestic trade receivables. Repayments of
the line of credit are taken directly from a collateral account established
by the lender which contained $32,817 and $11,800 as of June 30, 1996 and
1995, respectively. At June 30, 1996 the company had total available
borrowings of $400,000 and had borrowed $389,703. At June 30, 1995, the
Company had total available borrowings of $675,267 and had borrowed $650,091.
The credit agreement at June 30, 1995 contained various restrictive covenants
which required, among other things, the maintenance of a minimum level of
stockholders' equity. Due to the loss incurred in fiscal 1995, the Company
was not in compliance with that level. However, the lender waived compliance
with that covenant.
The agreement was renewed in January 1996, establishing a maximum borrowing
of $450,000 which declines $10,000 per month beginning February 1, 1996.
Unpaid principal amounts are due July 1, 1997. Security and maximum
borrowing (subject to the declining ceiling) are unchanged from the matured
note. The new agreement contains covenants requiring 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 this new agreement at June 30, 1996.
In January 1995, the Company established a revolving credit agreement with a
U.K. lender secured by U.K. accounts receivable bearing interest at the
lender's base rate plus 2.0% (7.938% in aggregate at June 30, 1995) expiring in
December 1995. The maximum aggregate borrowings under the agreement were
approximately $795,000. Available borrowings are determined by a specified
percentage of qualified export trade receivables. At June 30, 1995, the
Company had available borrowings of approximately $248,235 and had no
borrowings outstanding. The agreement was not renewed after expiration.
Long-term debt and capital lease obligations consist of:
<TABLE>
<S> <C> <C>
1996 1995
Notes payable, secured by equipment, bearing
interest at rates ranging from 8.52% to 13.69%,
payable in monthly installments through 1997 . $122,383 $ 165,439
Unsecured notes 265,627
Capital lease obligations, bearing interest at rates
ranging from 12.75% to 16.0% payable monthly
through 1998. (Note 9) 52,897 133,567
440,907 299,006
Current portion 199,650 193,320
Noncurrent portion $241,257 $ 105,686
</TABLE>
Maturities of long-term debt and capital lease obligations for years ending
June 30 are:
<TABLE>
<S> <C>
1997 $199,650
1998 120,901
1999 116,569
2000 3,787
$440,907
</TABLE>
NOTE 5. EMPLOYEE BENEFIT PLANS
Stock Option Plan
The Company has in effect a stock option plan (the Plan) under which stock
options have been discretionarily granted to officers and key employees at
prices equal to or less than the market price at the date of grant. Options
expire four to five years after the date of grant. Total options which were
exercisable under the Plan at June 30, 1996, amounted to 141,200 shares. The
number of shares reserved for the Plan is 1,000,000. On June 30, 1996, options
for 321,200 shares remained available for grants under the Plan. Information
with respect to options granted under the Plan follows:
<TABLE>
<S> <C> <C>
Number of Range of
Shares Option Prices
Outstanding at June 30, 1994 805,800 $1.03-2.00
Granted
Exercised
Canceled 97,850 1.03-1.88
Expired 60,000 1.75
Outstanding at June 30, 1995 647,950 1.03-2.00
Granted 430,000 .25
Exercised
Canceled 519,950 1.03-1.88
Expired 36,000 1.88
Outstanding at June 30, 1996 522,000 $.25-1.03
</TABLE>
Other Options
The following are not included in the Plan:
stock options granted to the Company's President for 150,000 shares in
aggregate expiring in fiscal years 1999 and 2000. These options were
issued at the fair market value on the date of grant. Options which
were exercisable at June 30, 1996 amounted to 70,000 shares and were
exercisable at prices ranging from $.63 to $1.03 per share;
stock options granted to the Company's Chairman for 225,000 shares in
aggregate expiring in fiscal year 1999. These options were issued at the
fair market value on the date of grant. Options which were exercisable
at June 30, 1996 amounted to 215,000 shares and were exercisable at
prices ranging from $.75 to $1.03 per share;
stock options granted to outside members of the Board of Directors for
90,000 shares in the aggregate expiring in fiscal years 1999, 2000, and
2001. These options were issued at fair market value on the date of
grant at prices ranging from $.25 to $1.03 per share. Options for
21,000 shares were exercisable at June 30, 1996.
Employee Savings Plan
The Company has in effect an employee savings plan under which substantially
all U.S. employees may contribute a percentage of their annual compensation,
subject to annual Internal Revenue Code maximum limitations. The Company has
contributed 1% of the annual compensation for all participating employees who
are contributing a minimum of 2% of their compensation. In the United Kingdom,
the Company's subsidiary, Saztec Europe, Ltd. maintains a defined contribution
pension plan for employees in Scotland and England. The Company contributes a
matching amount for all participating U.K. employees who are contributing 2.5%
to 4.5% of their compensation. For the years ended June 30, 1996, and 1995,
expense related to the savings and pension plans was not significant. In July
1995, the Company suspended the discretionary 1% employer match contribution
to the U.S. savings plan. The match was reinstated October 1, 1995.
NOTE 6. INCOME TAXES
At June 30, 1996 and 1995, respectively, the Company had net operating loss
carryforwards of approximately $6,200,000 and $6,000,000, respectively, for
income tax purposes that expire in varying amounts through 2010. These
operating losses may be used to offset future taxable income in the United
States. For financial reporting purposes, a valuation allowance has been
recognized to offset the deferred tax assets related to those carryforwards
due to the uncertainty of their realization. At June 30, 1996 and 1995, net
operating loss carryforwards relating to the operations of Saztec Europe, Ltd.
were immaterial due to the non-deductibility of certain operating expenses
incurred during fiscal 1996 and 1995.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<S> <C> <C>
1996 1995
Deferred tax assets:
Accrued vacation $49,908 $ 88,900
Net operating loss carryforwards 2,488,330 2,430,300
Other - net 30,596 33,400
Total deferred tax assets 2,568,834 2,552,600
Valuation allowance (2,485,834) (2,500,200)
Net deferred tax assets 83,000 52,400
Deferred tax liability:
Book basis in excess of tax basis of
intangible assets 69,552 9,200
Other - net 13,448 43,200
Total deferred tax liabilities 83,000 52,400
Net deferred tax asset $0 $ 0
</TABLE>
The sources of the Company's consolidated income (loss) before income taxes for
the years ended June 30 consist of:
<TABLE>
<S> <C> <C>
1996 1995
United States $(115,249) $ (1,998,362)
Foreign 134,956 (1,262,786)
Income (Loss) before income tax expense $19,707 $ (3,261,148)
</TABLE>
A reconciliation of the Company's income tax provision for fiscal 1996 and 1995
and the amount computed by applying the statutory United States income tax rate
of 34% consists of:
<TABLE>
<S> <C> <C>
1996 1995
Federal income taxes at statutory rate $4,000 $ (679,400)
Foreign income taxes 63,139 -
Change in valuation allowance (14,400) 667,400
Officers life insurance 6,800 6,800
Goodwill and other non-deductible amortization 1,800 2,200
Other items 1,800 3,000
Total income taxes $ 63,139 $ 0
</TABLE>
The provision for income taxes for fiscal 1996 consists of the following:
<TABLE>
<S> <C> <C> <C>
Current Deferred Total
Federal ---- ---- ----
State ---- ---- ----
Foreign $63,139 ---- $63,139
$63,139 ---- $63,139
</TABLE>
NOTE 7. SALES OF DIVISIONS
In June of 1995, management completed the sale of the assets of the Financial
Transaction Processing Division ("FTP"). On September 1, 1995, the Company
completed the sale of the Knightswade Microfilm Division ("KM") based in
Winchester, U.K., and the Marketing Fulfillment Division ("FS") based in
Billerica, Massachusetts. The operating results for the years ended June 30,
1996, and 1995 were as follows:
<TABLE>
<S> <C> <C> <C> <C>
FTP KM FS
1995 1995 1996 (1) 1995
Revenue $ 1,113,360 $519,012 $217,535 $2,186,963
Gross profit (loss) (92,635) 51,580 (12,505) 371,432
Operating profit (loss) $ (296,110) (284,357) (22,152) $208,932
Gain (loss) on sale of
division (2)(3) $(157,500) (3)$(145,000) $231,154
Net assets at June 30 $297,273 $236,100
</TABLE>
(1) To date of sale of September 1, 1995
(2) Includes lease abandonment and severance costs and the gain (loss)
on sale of assets
(3) Recognized in the results of operations for the year ended
June 30, 1995
NOTE 8. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED
CONTRACTS
The following relates to two contracts being accounted for using the
percentage of completion, units of output method, which use resulted in an
excess of costs and estimated earnings over billings:
<TABLE>
<S> <C>
June 30, 1996
Costs incurred on uncompleted contracts $308,895
Estimated earnings 112,595
421,490
Less: Billings to date 400,000
Amount shown as Costs and estimated earnings in
excess of billings on the accompanying consolidated
balance sheet $21,490
</TABLE>
There were no such contracts at June 30, 1995.
NOTE 9. COMMITMENTS AND CONTINGENCIES
Litigation
In July 1995, an action against the Company in connection with the employment
of an individual was decided in favor of the Company by the State Court. At
present, management and counsel believe that the future effect of this action
on the Company will be immaterial.
In August 1994, the Company filed suit against Digital Equipment Company
(DEC) based upon termination by DEC of a contractual agreement between the
companies. On December 14, 1995, an order was entered granting the Summary
Judgement motion of DEC. The decision effectively terminated the Company's
claim. 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 $139,839 of work in process in connection with the
contract.
Lease Commitments
Rent expense charged to operations under operating leases for office space,
computer equipment and software for the years ended June 30, 1996 and 1995
was $622,322 and $716,959, respectively.
At June 30, 1996, the Company had capital and operating lease obligations for
office space and equipment used in operations that mature during the fiscal
years ending June 30 as follows:
<TABLE>
<S> <C> <C> <C> <C>
Capital Operating Leases Total
Leases Property Equipment Commitments
1997 $46,585 $535,929 $19,397 $601,911
1998 9,709 468,645 6,553 484,907
1999 419,494 3,291 422,785
2000 354,801 354,801
2001 291,209 291,209
$56,294 $2,070,078 $29,241 $2,155,613
Less amount
representing
interest 3,397
Net obligations
under capital
leases (Note 4) $52,897
</TABLE>
NOTE 10. QUARTERLY FINANCIAL DATA (UNAUDITED)
The results of operations by quarter for the years ended June 30, 1996 and 1995
were as follows:
<TABLE>
<S> <C> <C> <C>
Earnings
Net income (loss)
Revenues (loss) Per Share
Year ended June 30, 1996
Quarter ended-
September 30, 1995 $2,359,115 $(233,994) $(.02)
December 31, 1995 2,997,179 13,885 .001
March 31, 1996 2,685,100 115,742 .01
June 30, 1996 2,810,161 60,935 .006
$10,851,555 $(43,432) $(.003)
Year ended June 30, 1995
Quarter ended --
September 30, 1994 $ 3,446,796 $(520,909) $(.05)
December 31, 1994 3,720,648 (378,787) (.03)
March 31, 1995 3,501,719 (1,304,863) (.11)
June 30, 1995 2,927,685 (1,056,589) (.08)
Total $13,596,848 $(3,261,148) $(.28)
</TABLE>
The above quarterly financial data is unaudited, but in the opinion of
management, all adjustments necessary for a fair presentation of the selected
data for these interim periods presented have been included.
Included in the first quarter of fiscal 1996 is a gain of $231,154 on sale of
the Fulfillment Marketing Division. Included in the second quarter is a
write-off of $139,839 of work in process related to litigation.
Included in the fourth quarter of fiscal 1995 are charges of $187,500 for the
issuance of stock pursuant to a market value guarantee related to a 1992
acquisition agreement and $145,000 to provide for a loss on the sale of assets
of the Knightsbridge Microfilm Division on September 1, 1995.
NOTE 11. FOREIGN OPERATIONS AND MAJOR CUSTOMERS
Revenues, income (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 the United Kingdom
and Western Europe. Countries included are England, Scotland, Germany, Italy,
Spain, and Belgium. Identifiable assets of Saztec Europe Ltd located outside
of Ardrossan, Scotland are immaterial.
<TABLE>
<S> <C> <C>
1996 1995
Total Revenues
United States $4,923,900 $6,543,384
United Kingdom/Western Europe 5,927,655 7,053,464
$10,851,555 $13,596,848
Income (loss) before income taxes
United States $(115,248) $(1,998,362)
United Kingdom/Western Europe 134,955 (1,262,786)
$19,707 $ (3,261,148)
Identifiable Assets
United States $1,937,421 $ 2,681,426
United Kingdom 2,281,884 2,474,236
$4,219,305 $ 5,155,662
</TABLE>
Major Customers
For the year ended June 30, 1996 the Company had one customer in the United
Kingdom that accounted for 13% of consolidated revenue. The next three largest
customers together accounted for 12.8% of consolidated revenue. For the year
ended June 30, 1995, the Company had two customers in the United Kingdom that
accounted for 15% and 9% respectively, of consolidated revenue.
NOTE 12. NEW ACCOUNTING STANDARD
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation. The Statement encourages companies to account for
stock compensation awards using a fair value method. Fair value is determined
based on the stock price at the date the awards are granted. The resulting
compensation cost would be recognized as an expense in the statement of
operations over the service period.
Companies can choose not to apply the new accounting method and continue to
apply the current accounting requirements, which generally will result in no
compensation cost for most fixed stock option plans. Those that do so;
however, will be required to disclose in notes to the financial statements
what net income and earnings per share would have been if they had followed
the accounting in SFAS No. 123.
Statement 123 also applies to equity instruments issued for goods or services
provided by persons other than employees. Those transactions would be
accounted for based on the fair value of the goods or services received or
the fair value of the equity instrument issued, whichever is more reliably
measurable.
SFAS No. 123 is effective for the financial statements of the Company for the
fiscal year beginning July 1, 1996. The Company has not completed the process
of evaluating the impact that will result from adopting SFAS No. 123, and is
therefore unable to determine the impact that adopting this statement will
have on the financial statements. The Company plans to adopt this statement
in its fiscal year ending June 30, 1997.
ITEM 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND
CONTROL PERSONS, COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT
Officers and Directors
The officers and directors of the Company are as follows:
<TABLE>
<S> <C> <C>
Name Age Position with Company
Robert P. Dunne 67 Chairman of the Board of Directors, Director
Gary N. Abernathy 56 President, Director, Chief Executive Officer
Tom W. Olofson 55 Director
Lee R. Petillon 67 Director
Pradeep Barthakur 48 Director
Kent L. Meyer 52 Vice President, Sales and Secretary
Thomas K. O'Loughlin 44 Vice President and Treasurer
Sean J. O'Regan 34 Vice President, Data Capture Operations
</TABLE>
Mr. Dunne has been a director of the Company since March 1985. On November
8, 1990, Mr. Dunne was appointed Chairman of the Board. Since 1974 Mr.
Dunne has also been President and Chief Executive Officer, a director and the
principal shareholder of Robertson Corporation. Mr. Dunne is a Certified
Public Accountant.
Mr. Abernathy was Group Vice President of the Company from May 1, 1987 to
February 1, 1988; President and Chief Operating Officer from February 1, 1988,
until May 1990, when he became Vice Chairman and Chief International Officer.
On December 9, 1994, Mr. Abernathy was appointed Chief Executive Officer.
Mr. Abernathy was elected as a Director of the Company in March, 1985. From
1985 to April 1994, Mr. Abernathy was an officer, director and a principal
shareholder of Robertson Corporation, which is also a shareholder of the
Company.
Mr. Olofson was elected to the Company's Board of Directors in November 1991.
Mr. Olofson has been Chairman and Chief Executive Officer of Electronic
Processing, Inc. since July 1988. Mr. Olofson also serves as a member of the
Board of Directors of various private companies in which he is an investor.
Mr. Petillon was elected to the Company's Board of Directors in August 1988.
Since 1978 Mr. Petillon has been in private law practice, dealing primarily in
the areas of business, corporation, securities, mergers and acquisitions and
corporate finance. Mr. Petillon served as the Company's legal counsel from
June 1983 to June 1988.
Mr. Barthakur was elected director at the regular meeting of the Board of
Directors on September 12, 1996. Mr. Barthakur is Executive Vice President &
Secretary of Datamatics (America) Inc., where he has been employed since 1992.
Datamatics (America) Inc. is a part of the Datamatics Group of Companies.
Mr. Meyer has been a Vice President of the Company since 1987 and served as a
director from November 1983 through January 1995.
Mr. O'Loughlin, a Certified Public Accountant, joined the Company in July
1995. He practiced as an independent certified public accountant in
California and Massachusetts.
Mr. O'Regan was promoted to Vice President, Data Capture Operations in
September 1995. He has been employed in the Sales Department since 1986 with
Advanced Automation Associates, Inc., a wholly owned subsidiary.
All directors hold office until the next annual meeting of shareholders and
until their successors are duly elected and qualified. Officers are elected
on an annual basis by the Board of Directors and serve at the discretion of
the Board.
Compliance with Section 16(a) of the Exchange Act
The Company believes that during the fiscal year ended June 30, 1996, all
Section 16(a) filing requirements applicable to its officers, directors, and
greater than 10% beneficial owners were satisfied.
ITEM 10. EXECUTIVE COMPENSATION
Executive Compensation
The following tables set forth, for the fiscal year ended June 30, 1996 the
compensation received by the Company's Chief Executive Officer and each of the
most highly compensated executive officers whose compensation exceeded
$100,000 for services rendered to the Company, or would have exceeded
$100,000 if they had been employed by the Company for the entire year.
<TABLE>
<S> <C> <C> <C> <C> <C>
Annual Long Term
Compensation Compensation
Award
Name and Securities
Underlying All other
Principal Position Year Salary($) Bonus($) Options(#) Compensation($)(1)
Gary N. Abernathy 1996 110,881 50,000
President and Chief 1995 115,375 100,000 55,000 (2)
Executive Officer 1994 109,000 50,000 4,990 (1)
Elvin E. Smith 1996 81,080
Senior Vice President 1995 106,093
Sales 1994 97,156 18,937 25,000
</TABLE>
(1) Comprised of the taxable portion of split dollar life insurance premiums
for the named executives.
(2) Market value of 80,000 shares of common stock given to Mr. Abernathy in
an employment agreement with the Company dated January 1, 1995,
and authorized to be issued as of September 21, 1995.
Stock Options Issued
As shown in the above table, Mr. Abernathy was granted options for 50,000
shares of common stock during the year ended June 30, 1996:
Option/SAR Grants in Last Fiscal Year
Individual Grants
<TABLE>
<S> <C> <C> <C> <C>
Number of
Securities % of Total
Underlying Options/SARs
Options/ Granted to Exercise or
Employees Base Expiration
Name SARs Granted in Fiscal Year Price ($/sh) Date
Gary N. Abernathy 50,000 11.6 .25 May 14, 2001
</TABLE>
Stock Options Exercised
During the year ended June 30, 1996 no stock options were exercised by the
named executives. For the fiscal year ended June 30, 1996 no stock options
previously awarded to any of the named executives were repriced. The following
table sets forth, as of June 30, 1996 the exercisable and unexercisable
portions of stock options held by the named executives.
<TABLE>
<S> <C> <C> <C> <C>
Number of Securities Underlying
Unexercised Options at
Shares Acquired Value Fiscal Year End (#)
Name on Exercise($) Realized Exerciseable Unexerciseable
Gary N. Abernathy -0- -0- 80,000 120,000
</TABLE>
As of June 30, 1996 there was no unrealized value with respect to the
exercisable or unexercisable portions of the options held by the above-named
executives.
Long-Term Incentive Plan Awards
The Company has no Long-term Incentive Plan Awards currently in effect.
Compensation of Directors
Outside directors receive compensation of $2,000 per quarter plus actual
expenses to attend regular quarterly meetings. For the quarters ended
September 30 and December 31, 1995 the Compensation Committee voted to reduce
the quarterly compensation to $1,000 per quarter. The Chairman of the Board
of Directors receives $6,000 per quarter plus actual expenses to attend
regular meetings.
Employment Contracts
Mr. Abernathy has an employment contract entered into with the Company on
January 1, 1995 under which he will perform the duties of the office to which
he is elected by the Board of Directors. The contract is for a three year
term ending December 31, 1997.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth, as of September 25, 1996 information concerning
the beneficial ownership of the Common Stock of the Company by (i) each person
who is known by the Company to own beneficially more than 5% of the
Company's Common Stock, (ii) each director of the Company, and (iii) all
directors and executive officers of the Company as a group.
<TABLE>
<S> <C> <C>
NAME AND ADDRESS NO. OF SHARES PERCENT OWNED (1)
Gary N. Abernathy (2)
43 Manning Road
Billerica, MA 01821 195,159 1.1
Robert P. Dunne (3)
928 Southwest Tenth Street
Miami, FL 33130 752,067 4.2
Lee R. Petillon
21515 Hawthorne Blvd., #1260
Torrance, CA 90503 109,000 *
Tom W. Olofson (4)
501 Kansas Ave
Kansas City, KS 66105 384,000 2.1
Richard P. Kiphart (5)
222 West Adams
Chicago, IL 60603 1,565,786 8.7
Tallard B.V. (6)
c/o Peder G. Wallenberg
Amsteldijk 166 Rivierstaete
1079 LH Amsterdam 4,562,697 25.4
Datamatics Technologies PVT. LTD. (7)
c/o Dr. Lalit S. Kanodia, Chairman
Unit #118-120, SDF 4,
SEEPZ Andheri (East)
Bombay 400 096, India 1,600,000 8.9
Pradeep Barthakur (8)
26 Derby Lane
Tyngsboro, MA 01879 800,000 4.4
All Directors and Officers
as a Group (8 persons) 2,459,226 13.7
* Less than one percent (1%)
</TABLE>
(1) Based on 14,297,651 shares outstanding on September 28, 1996, 116,666
shares authorized to be issued, 456,200 exercisable options and warrants to
issue an additional 3,071,500 shares, in aggregate, at such date, for a total
of 17,942,017.
(2) The shares beneficially owned by Mr. Abernathy are issued in the following
manner: 10,759 shares in the name of Information Control, Inc. which is
wholly-owned by Mr. Abernathy, a vested right to acquire 80,000 shares
pursuant to stock options, 64,400 shares owned directly, and warrants for
40,000 shares.
(3) The shares beneficially owned by Mr. Dunne consist of: 94,565 shares in
the name of Robertson Corporation (of which Mr. Dunne is the sole owner), a
vested right to acquire 228,000 shares pursuant to stock options, warrants to
purchase 120,000 shares, 300 shares held by the Amy Schneeberger Trust, of
which Mr. Dunne is a trustee, 400 shares held by Mrs. Dunne's Individual
Retirement Account, and 308,802 shares owned directly.
(4) The shares beneficially owned by Mr. Olofson consist of 226,000 shares
owned directly, vested options to purchase 18,000 shares, and warrants to
purchase 140,000 shares.
(5) The shares beneficially owned by Mr. Kiphart are issued in the following
manner: 1,302,746 shares owned directly, warrants to purchase 120,000 shares,
and 143,040 shares in the aggregate, held by three trusts for Mr. Kiphart's
children, of which Mrs. Kiphart is the trustee.
(6) The shares beneficially owned by Tallard B.V. are held in the following
manner: 4,129,364 shares owned directly by Tallard B.V., 83,333 shares
authorized to be issued, and a right to acquire 350,000 shares pursuant to
stock warrants held by Tallard B.V. Tallard B.V. is wholly owned by Mr.
Wallenberg, and he may be deemed to be the beneficial owner of all shares
held by Tallard B.V.
(7) The shares beneficially owned by Datamatics Technologies PVT. LTD. consist
of 800,000 shares owned directly and warrants to purchase 800,000 shares.
Datamatics Technologies PVT. LTD. is wholly owned by Dr. Lalit S. Kanodia, and
he may be deemed to be the beneficial owner of these shares.
(8) The shares held by Mr. Barthakur consist of 400,000 shares owned directly
and warrants to purchase 400,000 shares.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 5, 1994, the Company agreed to sell 1,226,052 shares of unregistered
Common Stock of the Company for $750,000 to Tallard B.V. ("Tallard")
pursuant to a Stock Purchase Agreement. The transaction was consummated at
a price approximating then current quoted market prices.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following Exhibits are filed by attachment to this Annual Report on
Form 10-KSB:
Exhibit
Number
10.12 Renewal of Revolving Credit Agreement dated January 29, 1996 (page
41 of this 10-KSB)
22 Subsidiaries of the registrant (disclosed on page 2 in Item 1 of
this 10-KSB)
27 Financial Data Schedule (page 40 of this 10-KSB)
In addition to those Exhibits shown above, the Company incorporates the
following Exhibits by reference to the filings set forth below:
Exhibit No. Description Filed as Exhibit:
2 Plan of Recapitalization 2 to Form 8-K dated
February 19, 1993
3 Articles of Incorporation and
By-Laws 3 to Form 10-K for the year
ended June 30, 1990
4 Instruments defining the
rights of security
holders including indentures. 4 to Form 10-K for the year
ended June 30, 1990
4.1 Ten Year Convertible Debenture
Note Agreement 4 to Form 10-K for the year
ended June 30, 1992
4.2 Certificate of Determination
for the establishment of
the Series A Cumulative
Preferred Stock 4 to Form 8-K dated
February 19, 1993
4.3 Registration Rights Agreement
dated December 31, 1993
among Saztec International,
Inc., Tallard B.V., Barry
Craig, and the Preferred
Shareholders 4 to Form 8-K dated
December 31, 1993
10.1 Stock Purchase Agreement between
Saztec International, Inc.,
and Tallard B.V. 10 to Form 8-K dated
October 5, 1994
10.2 Agreement dated January 9, 1995
between Saztec International,
Inc., the Meyerson Group and
the Placement Warrant Holders 10 to Form 10-Q for the
Quarter ended December 31,
1994
10.3 The rescission of the purchase
of CFL, Ltd. common stock 2 to Form 8-K dated
February 17, 1993
10.4 Loan Agreement between Tallard
B.V. and Saztec Europe, Ltd. 10 to Form 8-K dated
February 19, 1993
10.5 Conversion Agreement dated
December 31, 1993 among
Saztec International, Inc.,
Tallard B.V., and the
Preferred Shareholders 10 to Form 8-K dated
December 31, 1993
10.6 Renewal of Revolving
Credit Agreement 10 to Form 8-K dated
June 2, 1995
10.7 Renewal of Revolving Credit
Agreement 10 to Form 8-K dated
June 19, 1995
10.8 1995 Employee Stock Option
Plan 10.8 to Form 10K-SB,
dated September 22, 1995
10.9 1995 Non-Employee Directors
Stock Option Plan 10.9 to Form 10K-SB,
dated September 22, 1995
10.10 Employment Agreement for Gary
N. Abernathy of January 1,
1995 10.10 to Form 10K-SB,
dated September 22, 1995
10.11 Renewal of Revolving Credit
Agreement dated August 12,
1995 10.11 to Form 10K-SB,
dated September 22, 1995
16 Change in certifying public
accountants 1 to Form 8-K dated
January 26,1996
99 Delisting of common stock by
NASDAQ Stock Market, Inc. 1 to Form 8-K dated
November 21, 1995
(b) Reports on Form 8-K:
None.
Exhibit 10.12
United Missouri Bank
January 29, 1996
Mr. Gary Abernathy, President
Saztec International, Inc.
6700 Corporate Drive
Kansas City, Missouri 64120
Dear Mr. Abernathy:
As you know, the Authority to Loan previously extended to Saztec International,
Inc. and all of its subsidiaries ("Saztec") by this bank expired on December
31, 1995. In that connection, you had requested that this bank's Discount
Committee consider continuing to extend a decreasing revolving credit facility
to Saztec.
In consideration of your expressed desire to solidify a merger; specifically
with Scangraphics, Inc., the Discount Committee of UMB Bank, n.a. has favorably
considered your request and approved an Authority to Loan (the "Authority to
Loan") on the terms and conditions set forth in this letter.
1 . UMB Bank, n.a. hereby extends to Saztec an Authority to Loan in the
initial amount of $450,000. Furthermore, the Authority to Loan will decrease
$10,000 on the first of each month beginning February 1, 1996.
Any remaining outstanding balance is payable in full on July 1, 1997. The
above listed amounts will be available provided that the outstanding principal
amount of all advances under such Authority to Loan at no time exceeds an
amount equal to 80% of Saztec's qualified accounts receivable. Qualified
accounts receivable shall have the meaning as set forth in a Security
Agreement previously executed by Saztec.
2. All advances under the Authority to Loan will be evidenced by a Master
Revolving Note on this bank's standard form. Such Note shall be payable not
later than July 1, 1997. Accrued interest will be due and payable monthly.
3. All advances under the authority to Loan are subject to Saztec being in
full and complete compliance with all terms and conditions stated in this
letter at the time of each such advance and the continuation of extensions of
credit are subject to Saztec being in full compliance with all terms hereof at
all times.
4. All advances under the Authority to Loan will be secured by all
accounts receivables of Saztec, now owned or hereafter existing,
notwithstanding the 80% of qualified accounts receivable basis for making
advances, and by all inventory, machinery, equipment, furniture, fixtures and
all common stock of all subsidiaries of Saztec now owned or hereafter acquired
or created.
5. Saztec will continue to maintain a lockbox for the receipt of all
accounts receivable payments over which this bank has sole access and also a
cash collateral account with this bank into which all accounts receivable
payments will be deposited.
6. All advances under the Authority to Loan shall bear interest per annum
at 4% over this bank's prime rate of interest adjusted daily. For purposes
hereof, this bank's prime rate of interest shall be that rate of interest
which it states from time to time, to be its prime rate of interest.
7. Each extension of credit under the Authority to Loan shall be subject
in the sole discretion of this bank, to the occurrence of no adverse material
change in (1) the financial condition of Saztec or (ii) the aging or
collectability of its accounts receivables.
8. This bank must at all times have a first priority perfected security
interest in all personal property of Saztec and all proceeds of all the
foregoing and all common stock of all subsidiaries of Saztec.
9. At all times, the consolidated net worth of Saztec must be at least
equal to $500,000, the calculation of such to be performed in accordance with
generally accepted accounting principals, consistently applied.
10. At all times, the ratio of consolidated total indebtedness to
consolidated net worth shall not exceed 8.00:1, the calculation of such to be
performed in accordance with generally accepted accounting principals
consistently applied.
11. Saztec must provide this bank with monthly financial statements and
accounts receivable listing and agings and a borrowing base certificate in form
and substance acceptable to this bank not later than twenty (20) days
following the end of each month certified by borrower. Such financial
statements to include, at a minimum, a balance sheet and an income statement.
Year end statements are to be prepared by a certified public accounting firm
acceptable to the Bank and be of an audit quality.
12. Should the terms of this letter and any terms of any Promissory Note or
Security Agreement executed or continued in conjunction herewith be in
conflict, then the terms of any such Note or Security Agreement shall prevail.
13. All documentation evidencing the Authority to Loan and any collateral
therefore shall be on this bank's standard forms and must be satisfactory in
all respects to this bank and its attorneys.
14. All costs incurred by this bank in extending credit under the Authority
to Loan must be paid by Saztec.
15. This letter supersedes any and all prior agreements, whether written or
verbal, between Saztec and this bank relating to the subject matter hereof
except existing Promissory Notes, Security Agreements and financing
statements. By signing below, you and this bank agree that there are no
unwritten agreements between us relating to the transactions proposed hereunder.
16. STATUTORY STATEMENT MADE PURSUANT TO MO. REV. STAT.
432.045. Oral agreements or commitments to loan money, extend credit or to
forebear from enforcing payment of a debt, including promises to extend or
renew such debt, are not enforceable. To protect Saztec International, Inc.
and to protect UMB Bank, n.a. from misunderstanding or disappointment, any
agreements we reach concerning such matters are contained in this letter and
the documents referred to herein, which are the complete and exclusive
statements of the agreement between us, except as we may later agree in
writing to modify it.
If you agree to the above terms and conditions, kindly acknowledge the same by
signing in the space provided for that purpose below and return the original
of this letter to the undersigned not later than January 31, 1996.
Sincerely,
UMB Bank, n.a.
UMB
By:
Ned C. Voth, Community Bank President
The undersigned hereby acknowledges and agrees to all the terms and conditions
stated in the foregoing letter.
SAZTEC, INTERNATIONAL, INC.
By:
Gary Abernathy, President
Dated:
ADVANCED AUTOMATION ASSOCIATES, INC.
By:
Gary Abernathy, President
Dated:
UMB B02000 (R 9/89)
MASTER REVOLVING NOTE
$ 450,000.00** and Interest
DECEMBER 31, 1995
PAYMENTS, DISBURSEMENTS AND INTEREST
FOR VALUE RECEIVED, the undersigned (the "undersigned means each maker
and each endorser and, if more than one, each jointly and severally agrees to
all the provisions hereunder) promise(s) to pay to the order of the UMB Bank,
n.a. hereinafter called Bank"), at its main office,
on JULY 1,1997 .the principal sum of FOUR HUNDRED FIFTY
THOUSAND DOLLARS AND NO/100 DOLLARS
or such other lesser amount as shall be noted on the Schedule of Disbursements
and Payments of Principal included herein or attached hereto pursuant to the
authority set forth herein, together with interest on the unpaid principal
balance hereof from time to time outstanding from date(s) of disbursement(s)
until paid, at the rate of 4.00 percent
per annum above the prime interest rate of Bank, adjusted Daily ,
with all accrued interest payable
Monthly . Interest hereunder shall be computed on the
basis of days elapsed and assuming a 360-day
year consisting of twelve 30-day months. Unless Bank, in its sole discretion,
may from time to time otherwise direct, all payments shall be applied first
to payment of accrued interest, and then to reduction of the principal sum due
hereunder. This note shall bear interest after maturity, whether by reason of
acceleration or otherwise, at a rate of interest equal to two percent (2%) in
excess of the rate stated above until paid in full, and such interest shall be
compounded annually if not paid annually. Any part of the outstanding
principal balance hereof may be paid prior to maturity and if less than the
full amount due hereunder is paid, the undersigned, or any of them, may from
time to time until maturity receive, but the Bank has no commitment to make,
further disbursements hereunder; provided, however, the aggregate amount of
all principal amounts outstanding hereunder shall at no time exceed the face
amount of this note; and provided further, that each and every
disbursement made under this MASTER REVOLVING NOTE shall be at the
Bank's sole discretion. In the event the undersigned pays any part of the
principal balance hereof prior to maturity or, in accordance with the terms
hereof, receives any additional disbursements of principal hereunder, the
principal amount due hereunder shall be the last amount stated to be the
Unpaid Principal Balance of Note on the Schedule of Disbursements and Payments
of Principal and the undersigned hereby authorize(s) any officer of the Bank
to make notations on the Schedule of Disbursements and Payments of Principal
from time to time to evidence payments and disbursements hereunder. The Bank
is hereby directed by the undersigned to credit all future advances under this
note to account number carried on the books of Bank in the name of Saztec
International, Inc., Advanced Automation
Associates, Inc. and the undersigned agrees that the Bank
or holder hereof may make advances, at its
discretion, upon oral or written instructions of any of the undersigned, or
any other person(s) duly authorized by the undersigned.
COLLATERAL ** See Attached Addendum
The term "Collateral" as used herein includes (but without limitation) all of
the property listed below now owned and hereafter acquired, all proceeds and
products thereof, and all accessions thereto together with (1) all accruals
thereto and dividends, rights, payments, shares and property received in
respect thereof, including those by way of corporate reorganization,
liquidation, split or change in capital structure-all of which will be
promptly delivered to the holder hereof duly endorsed, if endorsement is
required, and in proper form for transfer, (2) all indebtedness, including
(without limitation) any credit balance, due from or standing on deposit with,
the holder which belongs to, is in the name of, or is subject to withdrawal
by, any party liable hereon, whether now existing or hereafter arising or
deposited, and (3) all personal property of or in the name of any person
liable hereon, now or hereafter in the possession or control of the holder
hereof for any purpose and in any capacity. The undersigned makers each
represent that the proceeds of this note are to be used exclusively for
business or agricultural purposes and are not for the personal, family or
household purposes of any of them. If this note is secured by a mortgage or
deed of trust, such mortgage or deed of trust dated N/A is governed by
Section 443.055 R.S. Mo., if such mortgage or deed of trust is
recorded in the State of Missouri.
Description of Collateral:
All Accounts Receivable, Inventory, Machinery, Equipment, Furniture and
Fixtures as described in Security Agreements dated April 7, 1992, September
25, 1992 and February 15, 1993. All stock certificates, bonds, receipts,
confirmation and similar documents as described in Security Agreements dated
September 25, 1992 and December 15, 1994. All commission receivables as
described in Security Agreement dated October 8, 1993.
GRANT OF SECURITY INTEREST
The undersigned hereby grants to Bank a security interest in the Collateral for
the payment of all amounts due under this note, and all renewals and extensions
thereof, and for the payment of all other present and future obligations to the
holder, direct or contingent, secured or unsecured, whether or not due, of
any party liable hereon (all of which amounts and obligations are hereinafter
referred to as "Secured Obligations"), and Bank may accordingly retain the
Collateral or any part thereof as security after the payment of all amounts
due under this note. The undersigned agree(s) to give to Bank upon Bank's
request, from time to time, such other and further security as Bank, in its
sole discretion, may deem necessary or appropriate, such additional security
to become "Collateral" under the provisions hereof.
RIGHTS RESPECTING COLLATERAL
Before or after maturity, the holder may (1) transfer all or any part of the
Collateral into the name of the holder hereof or its nominee, with or without
disclosing that such Collateral is subject to the lien and security interest
hereunder; (2) notify the parties obligated on any of the Collateral to make
payment to the holder hereof of any amounts due or to become due thereunder;
(3) enforce collection of any of the Collateral by suit or otherwise and
surrender, release or exchange all or any part thereof, or compromise, extend
or renew for any period (whether or not longer than the original period) any
indebtedness secured thereby; (4) take control of any proceeds of the
Collateral; (5) endorse any Collateral in the name of any person
liable hereon, whenever, in the opinion of the holder, such endorsement may
facilitate the handling of, or realization upon, the Collateral, and an
irrevocable power of attorney therefor is hereby granted to the holder hereof;
(6) in addition to its security interest therein, apply balances, credits,
deposits, accounts, or monies of any person liable hereon held by the holder
in any capacity, whether or not the same are due, applying them toward the
payment of such of the Secured Obligations, and in such order of application,
as the holder elects; (7) vote, use, transfer or repledge
any or all of the Collateral; (8) exercise such additional rights, powers or
remedies, if any, with respect to any security for or guaranty of any of the
Secured Obligations as may be provided in any written instrument other than
this note. No liability shall arise against the holder from any act, or the
omission of any act, pertaining to the collection or failure to collect any
Collateral securing this or any other obligation of
any party liable hereon. The undersigned hereby agree(s) to take any and all
steps necessary to preserve any rights in the Collateral against prior parties
and the holder hereof shall not be bound to take any such steps.
Notwithstanding any other provision herein, the undersigned shall not give,
transfer, sell, encumber or otherwise dispose of any of the Collateral, or
any interest therein, without Bank's advance written consent.
ACCELERATION AND EVENTS OF DEFAULT
Without limitation on the demand maturity of this note, the holder may, without
demand or notice of any kind, declare this note and any other of the Secured
Obligations immediately due and payable in full at any time that the holder
deems itself insecure for any reason whatsoever in respect of any Secured
Obligation. Upon the occurrence of any of the following events of default:
(1) failure of the undersigned to pay or perform any other obligation of any of
the undersigned to the holder hereof; (2) the death or dissolution of, or
termination of existence of, any of the undersigned; (3) the failure of any of
the undersigned to pay debts as they mature; (4) appointment of a receiver of
or for any part of the property of any of the undersigned, an assignment for
the benefit of creditors by any of the undersigned; or the commencement of any
proceedings under bankruptcy or insolvency laws by or against any of the
undersigned, then this note and all other obligations of each of
the undersigned to the holder hereof shall immediately become due and payable
in full without notice or demand.
MISSOURI LAW
The interpretation of this instrument and the rights and remedies of the
parties hereto shall be governed by the laws of the State of Missouri.
COLLECTION EXPENSES
To the extent permitted by applicable law, the undersigned agrees to pay all
expenses of the holder in collecting this note and enforcing rights respecting
and realizing upon any of the Collateral, including reasonable attorneys' fees.
DEMAND, NOTICE, ENDORSERS, GUARANTORS AND SURETIES
Demand for payment, notice of nonpayment, protest, dishonor, diligence and such
are hereby waived by all parties liable hereon. All endorsers, guarantors and
sureties, by endorsing or guaranteeing this note (1) agree to all of the terms
and conditions herein contained, and (2) without limitation of the foregoing,
and without affecting their liabilities hereunder, agree and consent to all
renewals, extensions, and modifications hereof including (a) the impairment,
substitution, exchange or release at any time or times of all or any part of
any property securing payment of this note and all other obligations of each
of the undersigned to the holder hereof, without notice; (b) the release of,
or impairment of right of recourse against, any other endorser, guarantor or
surety, without notice; and (c) the substitution of renewal or extension
notes for this note, without notice or demand.
NO WAIVERS
Any failure by the holder hereof to exercise any right hereunder shall not be
construed as a waiver of the right to exercise the same or any other right at
any other time and from time to time thereafter.
HEADINGS
All headings or titles appearing in this note are used as a matter of
convenience only and shall not affect the interpretation of the provisions
hereof.
Mailing Address:
6700 Corporate Drive
Kansas City, MO 64120
Customer ID: 3904321
New Loan:
Saztec International, Inc.
By:
ADVANCED AUTOMATION ASSOCIATES, INC.
By:
Title:
ADDENDUM
It is hereby agreed by UMB Bank, n.a. and Saztec International, Inc. and
Advanced Automation Associates, Inc. that the dollar availability of this
Master Note shall decrease Ten Thousand Dollars on the first business day of
each month beginning February 1, 1996, until maturity at July 1, 1997.
UMB BANK, n.a.
By:
SAZTEC INTERNATIONAL, INC.
By:
ADVANCED AUTOMATION ASSOCIATES, INC.
By:
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) 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: December 9, 1996
SAZTEC INTERNATIONAL, INC.
By: /s/ Robert P. Dunne
Robert P. Dunne
Chairman of the Board and Director
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on December 9, 1996.
Signature Capacity
/s/ Robert P. Dunne Chairman of the Board and Director
Robert P. Dunne
/s/ Gary N. Abernathy President, Chief Executive
Gary N. Abernathy Officer and Director
/s/ Thomas K. O'Loughlin Vice President and Treasurer
Thomas K. O'Loughlin
/s/ Kent L. Meyer Secretary
Kent L. Meyer
/s/ Tom W. Olofson Director
Tom W. Olofson
/s/ Lee R. Petillon Director
Lee R. Petillon
/s/ Pradeep Barthakur Director
Pradeep Barthakur
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 282,892
<SECURITIES> 0
<RECEIVABLES> 2,010,946
<ALLOWANCES> 37,754
<INVENTORY> 570,651
<CURRENT-ASSETS> 3,324,889
<PP&E> 3,581,152
<DEPRECIATION> 2,982,737
<TOTAL-ASSETS> 4,219,305
<CURRENT-LIABILITIES> 2,871,961
<BONDS> 241,257
<COMMON> 11,270,811
0
0
<OTHER-SE> (128,476)
<TOTAL-LIABILITY-AND-EQUITY> 4,219,305
<SALES> 0
<TOTAL-REVENUES> 10,851,555
<CGS> 0
<TOTAL-COSTS> 7,958,077
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<INCOME-TAX> 63,139
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