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, 1998
[ ] 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)
(978) 901-9600
-------------------------------
(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, 1998 are $8,252,274.
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 September 23, 1998, was approximately $3,067,021. As of September 23, 1998,
there were 4,461,121 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
<PAGE>
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 now located at 43 Manning Road, Billerica, Massachusetts 01821, and
its telephone number is (978) 901-9600. The principal wholly-owned subsidiaries
are Advanced Automation Associates, Inc., incorporated in Missouri and Saztec
Europe, Ltd., registered in Scotland. Saztec Europe, Ltd. has a wholly owned
subsidiary registered in Germany, Saztec Datenverarbeitung GmbH.
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 Hyperlink Text Markup Language (HTML), the document standard
in use on the Internet; Standard Generalized Markup Language (SGML), a standard
growing in popularity for commercial text databases; 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 grey scale 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 crop images,
add or delete data from an image, rotate and scale images and change text within
an image.
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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 over the
Internet, via telecommunications, or on CD-ROM, optical disk, diskette, or
magnetic tape.
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.
Pilot-- The plan typically calls for the delivery of a test database to the
client to ensure that the production specification is accurate and complete and
that the deliverable satisfies the customer's requirements. The customer
formally accepts the test database before actual production begins.
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 has over twenty years' experience developing proven
quality control procedures for a wide range of information conversion projects.
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 contracts with organizations in Europe, East
Asia, the Caribbean, and the Philippines to provide data entry and clerical
coding services. Saztec Philippines, Inc. has been a primary offshore vendor.
Since 1991, they have not been affiliated in an ownership capacity with the
Company. Datamatics Technologies PVT. Ltd.("Datamatics"), has production
facilities in Bombay, India. Datamatics' ownership position in the Company was
7.4% on a fully diluted basis at June 30, 1998. Other vendors have no known
ownership position with the Company.
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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. This creates
difficulties in planning for staffing and equipment (principally computer),
scheduling, facilities requirements and availability of offshore subcontract
resources.
During the past several years, the Company has experienced a decline in the
demand for key-only data entry and text conversion services. However, these
services continue to be offered for their stand-alone value to customers and
also because they are an integral component of providing full-service solutions
to customer compound document conversion projects. Management expects increases
in compound document conversion revenues to eclipse key-only services in total
revenues.
The Company provides services to the electronic publishing industry consisting
of publishers, libraries, on-line information vendors, 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; (e) image
capture of graphic material imbedded in text; (f) text capture, indexing and
imaging of resumes for the human resources department of a number of companies
utilizing automated employee recruitment applications; (g) data capture and
imaging of case report forms for new drug applications for the pharmaceutical
industry and (h) facilities data capture and graphics conversion for graphical
information systems.
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 government income tax returns from paper filings.
COMPETITION
The Company competes against many companies with respect to one or more of its
service offerings. Some of these competitors have substantially greater
financial and other resources than the Company and aggressively compete with
respect to all or some of the same services. Such firms compete on a price and
geographic basis, charging, in some instances, lower rates for particular
services due to lower freight charges stemming from physical proximity to the
customer. In-house personnel at potential customer companies may also duplicate
the Company's services.
The Company primarily competes on the basis of service and to a lesser extent on
cost. The Company believes that it has developed an effective methodology for
document control for projects involving the conversion of a large number of
documents. Emphasis of this aspect of its service coupled with timeliness,
accuracy, and flexibility in satisfying customer needs, together with
competitive pricing, form a successful package for new contracts.
EMPLOYEES
At June 30, 1998, the Company employed 168 full-time and 100 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, 1998, the Company was
providing business services to approximately 80 customers in the United States
and Europe.
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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 including production space, located in Billerica, Massachusetts,
pursuant to a lease expiring in November, 1999.
In addition, the company leases an aggregate of 26,809 square feet of office and
production space in South Weymouth, Massachusetts; Vernon, Connecticut;
Ardrossan, Scotland; and Regensburg, Germany, pursuant to individual leases
expiring between 2001 and 2002. In September, 1998 the Company renewed its lease
in Vernon, Connecticut through February, 2001.
Management believes the current facilities are adequate to conduct the Company's
operations.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
On October 31, 1997, a simple majority of shareholder votes were received
consenting to the Company's proposed four to one reverse stock split and
amendments to its Restated Articles of Incorporation. This is discussed in the
Capital Resources and Liquidity section of Management's Discussion and Analysis.
5
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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 under the
trading symbol SAZZ. On September 23, 1998, the Company had 224 stockholders of
record. For the period of July 1 to September 23, 1998, the high and low closing
price as reported by the NASD was $.76 and $.5625, respectively. The table below
sets forth high and low bid information by fiscal quarter as reported by the OTC
Bulletin Board.
BID PRICES
FISCAL QUARTER ENDED; HIGH LOW
- --------------------- ---- ---
September 30, 1996 .375 .15
December 31, 1996 .23 .075
March 31, 1997 .20 .13
June 30, 1997 .27 .12
September 30, 1997 .22 .125
December 31, 1997 .75 .115
March 31, 1998 .75 .1875
June 30, 1998 .96875 .6875
The above mentioned over-the-counter quotations reflect inter-dealer prices,
without retail markup, mark-down or commission and may not represent actual
transactions. The Company has not paid dividends on its Common Stock and has no
present intention to pay any cash dividends.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Revenues for the year ended June 30, 1998 were $8,252,274 compared to $9,471,200
for the year ended June 30, 1997, a decrease of $1,218,926, or (12.8%). Revenue
from U.S. operations increased $169,336, or 3.7%, from $4,553,796 in the year
ended June 30, 1997 to $4,723,132 in the current year. Current year revenue for
the Company's European operations declined to $3,529,142 from the prior year
figure of $4,917,404, a reduction of $1,388,262 or (28.2%). The increase in U.S.
based revenue is attributable to an increase in scanning-related projects
including resume processing. These projects increasingly contain a data entry
component, which redirects resources from domestic text conversion services only
projects.
Gross profit increased $74,028, from $1,715,736 to $1,789,764 in the current
year, with an improvement in gross margin to 21.7% from the prior year margin of
18.1%. Margin on domestic projects improved, while the margin on European
operations decreased two points compared to the prior year owing to reduced
economies of scale.
Selling and administrative (S&A) expense of $2,054,604 is $80,808 less than
expense for the year ended June 30, 1997 of $2,135,412. Selling expense
decreased $64,086 from the prior year number. Management expects its focus on
marketing and selling in the new fiscal year 1998-99 to result in higher selling
expense than in the year ended June 30, 1998 or 1997.
The Company has analyzed its exposure to potential data processing "Year 2000"
problems and formulated a plan to ensure its systems are in compliance by June
30, 1999. This will be effected through replacement of PC-level hardware and an
upgrade to a third-party software package which has been certified as Year 2000
compliant. Total planned cost is $125,000, and is a subset of ongoing systems
upgrades to increase production
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performance. The Company is also in the process of compiling certifications of
Y2K compliance from its vendors. No external consulting resource requirements
are expected.
The Company's operations will be affected by the introduction of the euro on
January 1, 1999. A material amount of revenue generated by the sales and
production facilities in the United Kingdom is derived from customers located in
countries adopting the common currency. The Company will continue to be subject
to exchange rate risk as a result of the pound sterling's fluctuations against
the new currency and may encounter pricing pressure from competitors located in
countries participating in its adoption.
CAPITAL RESOURCES AND LIQUIDITY
In May, 1996 the Company completed a private placement of 146,000 shares and
warrants to purchase 21,000 additional 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
300,000 shares of common stock and warrants to purchase 300,000 additional
shares for $300,000. Proceeds were received in August and September, 1996. The
shares and warrants issued were issued in September, 1996.
In June, 1997 subscription agreements for 860,000 units consisting of one share
of common stock and one warrant to purchase one share of common stock were
received from current shareholders. $860,000 was placed in escrow to cover the
subscription price. The units were to be issued on a post-reverse split basis,
so the agreements were subject to shareholder approval of a reverse stock split
whereby four (4) shares of currently issued common stock would be converted to
one (1) share of common stock. The reverse stock split approved by the
shareholders on October 31, 1997 reduced the number of each shareholder's shares
by a 1 to 4 ratio while retaining their current percentage ownership. The
shareholders also approved an amendment to the Company's Restated Articles of
Incorporation to increase the number of authorized shares of Common Stock of the
Company from 5,000,000 to 10,000,000 on a post split basis. This amendment was
necessary to have sufficient shares authorized to issue to complete the
placement. The effective date of the reverse split was November 7, 1997.
On August 25, 1997 the subscription and escrow agreement were amended with
regard to a single subscriber. Pursuant to the amendment $300,000 was paid to
the Company out of that subscriber's escrow account to purchase 1,200,000
pre-reverse split common shares. The shares were issued September 15, 1997. The
Company received the balance of the escrow amounts of $560,000 on November 14,
1977 and issued the certificates.
At June 30, 1998 the Company had borrowed $29,682 under its revolving credit
agreement and qualified for additional borrowings of $160,318. At June 30, 1997
the Company had borrowed $274,512 and qualified for additional borrowings of
$5,488. The revolving credit agreement provides for interest at the lender's
prime rate plus 4.0% (12.5 % at June 30, 1998 and 1997, respectively). The
credit agreement is secured by substantially all domestic assets of the Company,
including the stock of subsidiaries, and expires on October 1, 1998. Maximum
borrowing under the agreement declines $10,000 per month from $210,000 on April
1, 1998 being further limited to 70% of outstanding domestic accounts receivable
less than ninety days old. Advances on the line have not been reduced below the
ceiling as a result of insufficient qualifying receivables. The Company is in
compliance with covenants contained in the current agreement and was in
compliance at all times with the covenants contained in the agreements that
expired July 1 and October 1, 1997, and April 1, 1998.
At June 30, 1998 the Company's unrestricted cash balance was $513,192; at June
30, 1997 the balance was $386,785. The Company's working capital decrease to
$582,878 at June 30, 1998 from $947,532 at June 30, 1997 approximates the net
loss for the year of $334,697.
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Operations used $161,376 net of changes in other current accounts. The effect of
the net loss on cash from operations was reduced by the timing of the non-cash
charges for depreciation and amortization.
Net cash used in investing activities of $241,585 is primarily the result of
purchases of operating equipment necessary to fulfill customer contracts for new
services and prepare for anticipated increased volumes in certain markets.
Cash proceeds of $860,000 from the private placement completed in November,
1997, reduced by payments on notes payable and the line of credit, provided the
cash increase from financing activities of $524,787 used to finance the purchase
of new equipment and sustain the Company through its loss from operations.
The foregoing information may contain forward-looking statements under the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements are subject to known and unknown risks, uncertainties, and other
factors that may cause actual results to be materially different from those
contemplated by the forward-looking statements. Readers are cautioned not to
place undo reliance on these forward-looking statements, which speak only as of
the date of this report. The Company undertakes no obligation to publicly
release any revision to these forward-looking statements to reflect events or
circumstances after the date of this report.
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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:
PAGE
----
Report of Independent Certified Public Accountants 10
Consolidated Statements of Operations for the Years Ended
June 30, 1998 and 1997 11
Consolidated Balance Sheets as of June 30, 1998 and 1997 12
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended June 30, 1998 and 1997 13
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1998 and 1997 14 - 15
Notes to Consolidated Financial Statements 16 - 28
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
SAZTEC International, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of SAZTEC
International, Inc. and subsidiaries as of June 30, 1998 and 1997, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the years 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 audits.
We conducted our audits 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 audits provide 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, 1998 and 1997, and the
consolidated results of their operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Boston, Massachusetts
August 28,1998
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SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30,
1998 1997
----------- -----------
REVENUES $ 8,252,274 $9,471,200
Cost of services 6,462,510 7,755,464
----------- -----------
GROSS PROFIT 1,789,764 1,715,736
Selling and administrative expense 2,054,604 2,135,412
----------- -----------
LOSS FROM OPERATIONS (264,840) (419,676)
Interest expense (47,251) (80,899)
----------- -----------
(LOSS) BEFORE PROVISION FOR INCOME TAXES (312,091) (500,575)
Income tax expense (benefit) 22,606 (38,688)
----------- -----------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS $ (334,697) $ (461,887)
=========== ===========
LOSS PER SHARE OF COMMON STOCK:
Basic and diluted net loss applicable to common
stockholders $ (.08) $ (.13)
=========== ===========
Weighted average number of shares 4,181,794 3,175,152
=========== ===========
See accompanying notes.
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<TABLE>
<CAPTION>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30,
ASSETS
1998 1997
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 513,192 $ 386,785
Restricted cash 172,452 192,643
Accounts receivable, less allowance for doubtful accounts of $40,494 in
1998 and $45,070 in 1997 1,658,274 1,342,831
Work in process 176,539 217,518
Prepaid expenses and other current assets 92,833 134,803
Note receivable for stock subscribed 860,000
------------ ------------
TOTAL CURRENT ASSETS 2,613,290 3,134,580
PROPERTY AND EQUIPMENT, NET 443,083 364,040
OTHER ASSETS
Goodwill and other intangible assets, less accumulated amortization of
$75,722 in 1998 and $63,602 in 1997 149,640 161,760
Deposits and other assets 111,856 170,068
------------ ------------
TOTAL ASSETS $ 3,317,869 $ 3,830,448
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 29,682 $ 274,512
Current portion of long-term debt and capital lease obligations 182,599 199,460
Common stock subject to repurchase 33,342
Accounts payable 472,132 569,716
Accrued liabilities 699,455 429,396
Customer deposits 646,544 456,989
Excess of billings over costs and estimated earnings 223,633
------------ ------------
TOTAL CURRENT LIABILITIES 2,030,412 2,187,048
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS LESS CURRENT PORTION 146,675 151,980
ACCRUED EXPENSE 22,362 39,546
STOCKHOLDERS' EQUITY
Preferred stock-no par value; 1,000,000 shares authorized; no shares issued
Common stock-no par value; 10,000,000 shares authorized; 4,461,121 and
3,571,955 shares issued at June 30, 1998 and 1997 12,430,811 11,570,811
Common stock subscribed 860,000
Contributed capital 14,498 14,498
Accumulated deficit (11,213,217) (10,878,520)
Cumulative translation adjustment (113,672) (114,915)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 1,118,420 1,451,874
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,317,869 $ 3,830,448
============ ============
</TABLE>
See accompanying notes.
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<TABLE>
<CAPTION>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1998 AND 1997
COMMON STOCK COMMON STOCK SUBSCRIBED CUMULATIVE
NUMBER OF NUMBER OF CONTRIBUTED ACCUMULATED TRANSLATION
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT
---------- ------------ ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1996 3,274,405 $ 11,270,811 300,000 $ 300,000 $ 14,498 $(10,416,633) $ (142,974)
Stock issued pursuant to
private placement (Note 3) 300,000 $ 300,000 (300,000) (300,000)
Stock canceled pursuant to
repurchase (Note 3) (2,450)
Common stock subscribed
(Note 3) 860,000 860,000
Net loss (461,887)
Translation adjustment 28,059
------------ ------------ ------------ ------------ ------------ ------------ ------------
BALANCE AT JUNE 3O, 1997 3,571,955 $ 11,570,811 860,000 $ 860,000 $ 14,498 $(10,878,520) $ (114,915)
Stock issued pursuant to a
private placement completed
during the quarter ended
March 31, 1994 29,166
Stock issued pursuant to
private placement (Note 3) 860,000 860,000 (860,000) (860,000)
Net loss (334,697)
Translation adjustment 1,243
------------ ------------ ------------ ------------ ------------ ------------ ------------
BALANCE AT JUNE 30, 1998 4,461,121 $ 12,430,811 $ 14,498 $(11,213,217) $ (113,672)
============ ============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes.
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<TABLE>
<CAPTION>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30,
1998 1997
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN CASH
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(334,697) $(461,887)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization 244,029 373,609
Provision for bad debts 5,121 (4,335)
Loss (gain) on sale of assets (400) 4,626
Changes in assets and liabilities:
Accounts receivable (355,125) 695,276
Work in process 74,400 356,829
Prepaid expenses and other current assets 25,343 55,689
Deposits and other assets 62,123 (81,282)
Accounts payable (99,516) (333,582)
Accrued liabilities 251,067 (119,053)
Customer deposits and non-current accrued expenses (33,715) (104,470)
Income taxes payable (54,320)
----------- -----------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (161,376) 327,100
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments received on notes receivable 13,837 33,679
Additions to property and equipment (276,013) (52,955)
Proceeds from the sale of property and equipment 400
Increase in restricted cash 20,191 (131,774)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (241,585) (151,050)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on debt and capital lease obligations (90,383) (208,931)
Borrowings on revolving credit agreement 2,878,417 3,538,030
Payments on revolving credit agreement (3,123,247) (3,653,222)
Proceeds from issuance of common stock, net of
issuance costs 860,000 300,000
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 524,787 (24,123)
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 4,581 12,835
----------- -----------
NET INCREASE IN CASH 126,407 164,762
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 386,785 222,023
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 513,192 $ 386,785
=========== ===========
</TABLE>
See accompanying notes.
14
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
YEARS ENDED JUNE 30,
1998 1997
-------- --------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Purchase of equipment through issuance of notes payable
and capital lease obligations $ 73,050 $ 58,560
======== ========
Net reductions in current liabilities negotiated $ 15,982 $ 8,586
======== ========
Notes receivable accepted for common stock subscriptions -- $860,000
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 35,898 $ 79,165
======== ========
Income taxes $ 22,606 --
======== ========
See accompanying notes.
15
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
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:
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.
WORK IN PROCESS
Work in process consists of labor and certain other costs incurred for
uncompleted and unbilled projects.
EQUIPMENT
Equipment is recorded at cost and depreciation 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.
16
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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
method. 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.
INCOME TAXES
The Company provides for U.S. Federal, state, and foreign income taxes,
currently payable and deferred, using the asset and liability method. Deferred
tax assets and liabilities are determined based on temporary differences between
financial reporting and tax bases of assets and liabilities that will result in
taxable or deductible amounts in future years. Valuation allowances are
established, if necessary, to reduce the deferred tax asset to the amount that
will, more likely than not, be realized.
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 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.
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.
NEW ACCOUNTING PRONOUNCEMENTS
The financial statements and related notes include the application of Financial
Accounting Standards No. 128, EARNINGS PER SHARE and No. 131, DISCLOSURE ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION issued by the Financial
Accounting Standards Board. The Company will adopt Standard No. 130, REPORTING
COMPREHENSIVE INCOME, for the year ended June 30, 1999.
17
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
NOTE 2. RESTRICTED CASH
The restricted cash balance at June 30, 1998 includes a certificate of deposit
of $30,755 held as collateral pursuant to a performance bond and $141,697 held
in a collateral account for repayment of a revolving credit agreement. At June
30, 1997 these balances were $29,446 and $163,197, respectively.
NOTE 3. STOCKHOLDERS' EQUITY
The Company's shareholders consented to a one for four reverse stock split,
effective November 7, 1997. All of the share and per share amounts reflect the
reverse split.
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 275,000 shares of common stock and warrants to issue an additional
321,875 shares of common stock, exerciseable for a five year period at $5.50 per
share. One of the private placements of 187,500 shares was with a group of
individuals unrelated to the Company ("the Meyerson Group"). Another transaction
representing 62,500 shares was with Tallard B.V. ("Tallard"), a greater than 5%
shareholder of the Company. The remaining transaction for 25,000 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 91,666 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 $5.50 to $4.50. At June 30, 1996 and 1995,
62,500 of the additional shares had been issued. During the year ended June 30,
1998, the remaining 29,166 shares were 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 250,000
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 December 31, 1993, Tallard and the other holders of the Company's preferred
stock exercised their rights to convert the preferred stock into 1,150,575
shares of common stock. The Company also issued 25,953 shares of common stock in
payment of $18,812 of interest and $85,000 of preferred dividends accrued
through December 31, 1993. Pursuant to the conversion, Tallard has certain Board
representation rights for so long as Tallard maintains certain ownership levels
in the Company. The conversion agreement prohibits the Company 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. Tallard and the other former
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 between October 1, 1994 and December 21,
2003. 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.
18
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
NOTE 3. STOCKHOLDERS' EQUITY (Continued)
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 140,000 additional shares if the combined operations of Saztec Europe, Ltd.
earn net income of 2,480,000 pounds sterling, in aggregate, for the period
ending June 30, 1996. The agreement provided for annual earnings measurements
during these years. Amounts earned relating to 1996 operations were immaterial.
The Company also granted a put option to the selling shareholders to repurchase
30,000 shares at $8.00 per share. The related liability was recorded at the time
of the grant of the put option and the shares were canceled when put. At June
30, 1997 all of the shares had been put, and $33,342 was payable to the selling
shareholders.
In May and June of 1996 the Company conducted private placements of its common
stock. Officers and directors purchased 116,000 shares and a current shareholder
purchased 30,000 shares. A common stock subscription of $300,000 was received
for 300,000 shares of common stock and warrants to purchase an additional
300,000 shares. Consideration was received in August and September, 1996 and the
shares and warrants issued.
On June 29, 1997 subscriptions for 860,000 units consisting of one share of
common stock and one warrant to purchase one share of common stock were
received. The warrants are exercisable at $2.00 per share. $860,000 was placed
in escrow by the subscribers to cover the issuance. On August 25, 1997 the
subscription and escrow agreement were amended with regard to a single
subscriber whereby $300,000 was paid to the Company from the subscriber's escrow
account to purchase 300,000 common shares. The shares were issued September 15,
1997. The Company solicited shareholder approval of a one for four reverse stock
split and an amendment to the Company's restated Articles of Incorporation to
increase the number of authorized shares of Common Stock of the Company to
10,000,000 from 5,000,000 post-reverse split shares. The common stock
subscription agreements were subject to shareholder consent to the amendment, as
the Company had insufficient shares authorized to issue to complete the
placement. Shareholders approved the measures, which became effective November
7, 1997 and the remaining $560,000 was released from escrow.
19
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
NOTE 4. EQUIPMENT
Equipment consists of:
1998 1997
---------- ----------
Computer and other equipment $3,161,387 $2,854,885
Computer and other equipment under
capitalized leases 64,386 473,304
Software 288,616 206,847
---------- ----------
3,514,389 3,535,036
Accumulated depreciation 3,071,306 3,170,996
---------- ----------
$ 443,083 $ 364,040
========== ==========
Accumulated amortization of assets under capitalized leases amounted to $15,228
and $245,516 at June 30, 1998, and 1997, respectively. During fiscal year 1998,
$324,077 of fully depreciated assets were retired and the cost and related
accumulated depreciation were removed from the ledgers.
NOTE 5. NOTES PAYABLE, LONG-TERM DEBT, AND CAPITAL LEASE OBLIGATIONS
The Company has a revolving credit agreement with a U.S. bank secured by
accounts receivable, work in process, equipment and other assets. The agreement
bears interest at the lender's prime rate plus 4.0% (12.5% at June 30, 1998 and
1997, respectively). Available borrowings are 70% of domestic trade accounts
receivable less than 90 days old and are subject to a maximum borrowing ceiling
which declines $10,000 per month from $210,000 at April 1, 1998. The line of
credit is repaid directly from a collateral account established by the lender.
At June 30, 1998 the Company had total available borrowings of $190,000 and had
borrowed $29,682. At June 30, 1997 the Company had total available borrowings of
$280,000 and had borrowed $274,512. The Company was in compliance with the
covenants contained in the credit agreements at June 30, 1998 and 1997. The
current agreement expires October 1, 1998.
The agreement in place on June 30, 1996 expired July 1, 1997 and was renewed
October 1, 1997 and April 1, 1998. Security was unchanged from the matured note.
The October 1, 1997 agreement provided for a maximum borrowing ceiling of
$270,000 which declined $10,000 per month.
20
<PAGE>
<TABLE>
<CAPTION>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
NOTE 5. NOTES PAYABLE, LONG-TERM DEBT, AND CAPITAL LEASE OBLIGATIONS
(CONTINUED)
Long-term debt and capital lease obligations consist of:
1998 1997
-------- --------
<S> <C> <C>
Notes payable, secured by equipment, bearing interest at rates
ranging from 8.52% to 13.69%, payable in monthly
installments through 2002 $ 60,183 $ 82,786
Unsecured notes bearing interest at rates ranging from 7.0% to
8.0%, payable in monthly installments through 1999 217,340 231,560
Capital lease obligations, bearing interest at rates ranging from
12.75% to 16.0% payable monthly through 2001 51,751 37,094
-------- --------
329,274 351,440
Less: Current portion 182,599 199,460
-------- --------
Noncurrent portion $146,675 $151,980
======== ========
</TABLE>
Maturities of long-term debt and capital lease obligations for years ending June
30 are:
2000 $129,892
2001 13,797
2002 2,986
--------
$146,675
========
21
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
NOTE 6. EMPLOYEE BENEFIT PLANS
STOCK OPTION PLAN
Effective November 7, 1997 the Company's shareholders consented to a one for
four reverse stock split. All of the share and per share amounts have been
restated to reflect the reverse stock split.
The Company has in effect a stock option plan (the Plan) under which stock
options have been granted to officers and key employees at prices equal to or
greater than the market price at the date of grant. Options expire five years
after the date of grant. Total options which were exercisable under the Plan at
June 30, 1998 amounted to 91,600 shares at a weighted average exercise price of
$.88. On November 7, 1997 shareholders voted to increase the number of shares
reserved for the Plan to 500,000 from 250,000 on a post-reverse split basis. At
June 30, 1998 223,550 shares remained available for grants under the Plan. At
June 30, 1997 55,300 shares were available for grants. Information with respect
to options granted under the Plan follows:
<TABLE>
<CAPTION>
WEIGHTED
RANGE OF WEIGHTED AVERAGE
NUMBER OPTION AVERAGE EXERCISE CONTRACTUAL
OF SHARES PRICES PRICE LIFE
--------- -------- ---------------- -----------
<S> <C> <C> <C> <C>
Outstanding at June 30, 1996 130,500 1.00-4.12 1.55
Granted 51,250 .68-1.00 .87
Exercised
Canceled 26,250 1.00-4.12 2.48
Expired
Outstanding at June 30, 1997 155,500 .68-4.12 1.20 3.18
Granted 103,000 .315 .315
Exercised
Canceled 21,250 1.00-4.12 2.47
Expired
Outstanding at June 30, 1998 237,250 .315-4.12 .88 3.07
</TABLE>
OTHER OPTIONS NOT INCLUDED IN THE PLAN
Stock options were granted to the Company's Chairman in 1998 for 65,000 shares
expiring in fiscal year 2003. These options were issued at the fair market value
of $.315 on the date of grant. Options which were exercisable at August 10, 1998
amounted to 13,000 shares.
Stock options were granted to outside members of the Board of Directors in
fiscal years 1994-1998 for 213,750 shares in the aggregate expiring in fiscal
years 1999 to 2004. These options were issued at fair market value on the date
of grant at prices ranging from $.315 to $4.12 per share. Options for 12,750
shares were exercisable at June 30, 1998 at a weighted average exercise price of
$.85.
Stock options were granted to the Chief Executive Officer in fiscal year 1998,
at the fair market value of $.315 per share on the date of the grant, for
140,000 shares, expiring in fiscal year 2003. No options vest until February 1,
1999.
22
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
NOTE 6. EMPLOYEE BENEFIT PLANS (Continued)
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company's financial statements reflect the application of APB 25 and related
guidance. Applying the provisions of Statement of Financial Accounting Standards
(SFAS) No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, result in a
weighted-average grant-date fair value of options granted during the year ended
June 30, 1998 of $2,625. For the year ended June 30, 1997 the amount was $5,951.
The Black-Scholes option pricing model was used to develop the fair value of
options granted. Assumptions applied include a risk-free interest rate of 7.8%,
an expected life of the option equal to the five year vesting period, an
expected volatility of 80%, and no dividends paid.
Additional compensation cost (benefit) calculated under SFAS 123 for the year
ended June 30, 1998 is $(12,188), which is net of forfeitures of $20,595
expensed in prior years. Comparable compensation cost for the prior year is
$14,695, net of forfeitures of $6,129 from canceled options. These amounts would
affect loss per share ("EPS") as follows:
YEAR ENDED JUNE 30, BASIC EPS AS REPORTED BASIC EPS AS ADJUSTED
- ------------------- --------------------- ---------------------
1998 $(.08) $(.08)
1997 $(.13) $(.13)
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. The
Company did not enter into any transactions whereby equity instruments were
issued for goods or services in the years ended June 30, 1998 and 1997.
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. Plan expense for the years ended June 30, 1998
and 1997 amount to $54,406 and $65,263, respectively.
NOTE 7. INCOME TAXES
At June 30, 1998, the Company had U.S. net operating loss carryforwards of
approximately $5,700,000 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, 1998, net
operating loss carryforwards relating to the operations of Saztec Europe, Ltd.
were immaterial.
23
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
NOTE 7. INCOME TAXES(Continued)
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:
1998 1997
----------- -----------
Deferred tax assets:
Accrued vacation $ 48,953 $ 51,316
Net operating loss carryforwards 2,256,661 2,294,612
Other - net 69,605 126,068
----------- -----------
Total deferred tax assets 2,375,219 2,471,996
Valuation allowance (2,301,170) (2,397,761)
----------- -----------
Net deferred tax assets 74,049 74,235
Deferred tax liability:
Book basis in excess of tax basis of
intangible assets 72,212 70,714
Other - net 1,837 3,521
----------- -----------
Total deferred tax liabilities 74,049 74,235
----------- -----------
Net deferred tax asset $ 0 $ 0
=========== ===========
The sources of the Company's consolidated loss before income taxes for the years
ended June 30 consist of:
1998 1997
----------- -----------
United States $ 32,675 $ (53,409)
Foreign (344,766) (447,166)
----------- -----------
Loss before income tax expense $ (312,091) $ (500,575)
=========== ===========
24
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
NOTE 7. INCOME TAXES(Continued)
A reconciliation of the Company's income tax provision for fiscal 1998 and 1997
and the amount computed by applying the statutory United States income tax rate
of 34% consists of:
1998 1997
--------- ---------
Federal income taxes at statutory rate $(106,111) $(170,196)
Foreign and state income taxes 22,606 113,348
Change in valuation allowance 96,591 88,073
Officers life insurance 2,185 6,800
Goodwill and other non-deductible amortization 11,221 1,285
Other items (3,886) (77,998)
--------- ---------
Total income taxes $ 22,606 $ (38,688)
========= =========
The provision for income taxes for fiscal 1998 and 1997 consists of the
following:
CURRENT DEFERRED TOTAL
-------- -------- --------
1998
-------
Federal -- -- --
State $ 22,606 -- $ 22,606
Foreign -- -- --
-------- -------- --------
$ 22,606 -- $ 22,606
======== ======== ========
1997
-------
Federal -- -- --
State -- -- --
Foreign $(38,688) -- $(38,688)
-------- -------- --------
$(38,688) -- $(38,688)
======== ======== ========
25
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
NOTE 8. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
Rent expense charged to operations under operating leases for office space,
computer equipment and software for the years ended June 30, 1998 and 1997 is
$254,066 and $282,501, respectively.
The table below sets forth the Company's capital and operating lease obligations
for office space and equipment used in operations payable during the fiscal
years ending June 30. Included are monthly rentals for production space through
a lease which was renewed in September, 1998:
CAPITAL OPERATING LEASES TOTAL
LEASES PROPERTY EQUIPMENT COMMITMENTS
------- -------- --------- -----------
1999 $25,984 $251,735 $41,641 $319,360
2000 24,033 184,196 5,699 213,928
2001 10,710 112,636 4,376 127,722
2002 35,439 4,376 39,815
2003 -- -- -- --
------- -------- ------- -------
$60,727 $584,006 $56,092 $700,825
======== ======= ========
Less amount
representing
interest 8,976
-------
Net obligations
under capital
leases $51,751
=======
LITIGATION
None.
26
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
NOTE 9. EARNINGS (LOSS) PER SHARE
At June 30, 1998 and 1997 the following potentially dilutive securities were
outstanding:
1998 1997
NUMBER PRICE RANGE NUMBER PRICE RANGE
$ $
Employee options 237,250 .315 - 4.13 155,500 .68 - 4.13
Other options 418,750 .315 - 1.00 106,250 .68 - 4.13
Warrants 860,000 2.00 446,000 2.00 - 6.00
NOTE 10. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following quarterly financial data is unaudited. In the opinion of
management, all adjustments necessary for a fair presentation of the selected
data have been included.
EARNINGS
NET INCOME (LOSS)
REVENUES GROSS PROFIT (LOSS) PER SHARE
---------- ------------ ----------- ---------
Year ended June 30, 1998
Quarter ended
September 30,1997 $1,613,471 $ 297,229 $(211,561) $(.058)
December 31, 1997 1,964,749 380,957 (140,985) (.03)
March 31, 1998 2,271,910 555,315 52,586 .01
June 30,1998 2,402,144 556,263 (34,737) .008
---------- ---------- --------- -------
$8,252,274 $1,789,764 $(334,697) $ (.08)
========== ========== ========= =======
Year ended June 30, 1997
Quarter ended
September 30, 1996 $2,375,142 $ 539,624 $ 3,910 $ .001
December 31, 1996 2,641,966 557,317 (74,420) (.021)
March 31, 1997 2,374,030 410,113 (87,446) (.025)
June 30, 1997 2,080,062 208,682 (303,931) (.085)
---------- ---------- --------- -------
$9,471,200 $1,715,736 $ (461,887) $ (.13)
========== ========== ========= =======
27
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
NOTE 11. FOREIGN OPERATIONS AND MAJOR CUSTOMERS- SEGMENTS
Revenues, income (loss) before taxes, depreciation, and identifiable assets by
geographic area are shown below. United Kingdom amounts relate solely to Saztec
Europe, Ltd. and its subsidiaries, whose customers are located in England,
Scotland, Germany, Italy, Spain, and Belgium. Identifiable assets of Saztec
Europe Ltd. located outside of Ardrossan, Scotland are immaterial.
<TABLE>
<CAPTION>
SEP 30, 1997 DEC 31, 1997 MAR 31, 1998 JUNE 30, 1998 TOTAL
------------ ------------ ------------ ------------- ----------
<S> <C> <C> <C> <C> <C>
Revenue
United States $818,662 $982,126 $1,168,268 $1,754,076 $4,723,132
United Kingdom/West.Europe 794,809 982,623 1,103,642 648,068 3,529,142
------------ ------------ ------------ ------------- ----------
$1,613,471 $1,964,749 $2,271,910 $2,402,144 $8,252,274
============ ============ ============ ============= ==========
Income (loss) before income tax
United States $(148,309) $(34,704) $70,080 $145,608 $32,675
United Kingdom/West. Europe (63,252) (106,281) (3,126) (172,107) (344,766)
------------ ------------ ------------ ------------- ----------
$(211,561) $(140,985) $66,954 $(26,499) $(312,091)
============ ============ ============ ============= ==========
Depreciation
United States $24,682 $23,730 $23,457 $30,185 $102,054
United Kingdom/West. Europe 34,418 32,542 31,447 31,448 129,855
Amortization-U.S. only 3,030 3,030 3,030 3,030 12,120
------------ ------------ ------------ ------------- ----------
$62,130 $59,302 $57,934 $64,663 $244,029
============ ============ ============ ============= ==========
SEP 30, 1996 DEC 31, 1996 MAR 31, 1997 JUNE 30, 1997 TOTAL
------------ ------------ ------------ ------------- ----------
Revenue
United States $1,044,706 $1,030,578 $1,043,130 $1,435,382 $4,553,796
United Kingdom/West. Europe 1,330,436 1,611,388 1,330,900 644,680 4,917,404
------------ ------------ ------------ ------------- ----------
$2,375,142 $2,641,966 $2,374,030 $2,080,062 $9,471,200
============ ============ ============ ============= ==========
Income (loss) before income tax
United States $21,492 $(57,541) $(87,834) $70,474 $(53,409)
United Kingdom/West. Europe (39,248) (16,879) (16,506) (374,533) (447,166)
------------ ------------ ------------ ------------- ----------
$(17,756) $(74,420) $(104,340) $(304,059) $(500,575)
============ ============ ============ ============= ==========
Depreciation
United States $48,255 $45,710 $44,390 $44,470 $182,825
United Kingdom/West. Europe 50,913 47,072 42,029 38,650 178,664
Amortization-U.S. only 3,081 3,030 3,030 2,979 12,120
------------ ------------ ------------ ------------- ----------
$102,249 $95,812 $89,449 $86,099 $373,609
============ ============ ============ ============= ==========
</TABLE>
Identifiable Assets June 30, 1998 June 30, 1997
------------- -------------
United States $ 1,851,102 $ 2,415,816
United Kingdom/West. Europe 1,466,767 1,414,632
------------ -----------
$ 3,317,869 $ 3,830,448
============ ===========
MAJOR CUSTOMERS
One customer in Germany accounted for 18% and 16% of fiscal year 1998 and 1997
consolidated revenue, respectively.
28
<PAGE>
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:
NAME AGE POSITION WITH COMPANY
- ---- --- ---------------------
Robert P. Dunne 69 Chairman of the Board
of Directors
Christopher Parker 43 Chief Executive
Officer and Director
Gary N. Abernathy 58 President, Chief
Operating Officer,
and Director
Tom W. Olofson 57 Director
Lee R. Petillon 69 Director
Pradeep Barthakur 50 Director
Robert W. Forsyth 58 Director
Hans Lindroth 40 Director
Kent L. Meyer 54 Vice President and
Secretary
Thomas K. O'Loughlin 46 Vice President and
Treasurer
Sean J. O'Regan 36 Vice President
Robert J. Cornelius 58 Vice President
Mr. Dunne has been a director of the Company since March 1985. On November 8,
1990, Mr. Dunne was appointed Chairman of the Board of Directors. 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. Parker has over sixteen years of international marketing, sales and
management experience, including Vice President positions with Convergent Group
in Cambridge, England and Synercom Technology, Inc., in Houston, Texas.
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.
29
<PAGE>
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. Lindroth was elected director at the regular meeting of the Board of
Directors on February 19, 1998. He lectures frequently on the publishing
industry and has been instrumental in developing internet-based systems and
electronic publishing, notably for Dagens Nyheter in Sweden.
Mr. Forsyth has been a director since June 5, 1997. He is President and CEO of
Travelogix, a travel technology company located in Houston, Texas, since October
1995. Travelogix is a wholly owned subsidiary of Tallard Infologix, N.V. Prior
to joining Technologix, he was President of the Outsourcing Marketing Division
of Computer Sciences Corporation, from 1992 and Group Vice President of Program
Development, from 1975 to 1987. Mr. Forsyth was President of Synercom Technology
in Houston from 1987 to 1992.
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 is Regional Vice President, Sales. He was Vice President, Data
Capture Operations from September 1995 until July, 1998. He was employed in the
Sales Department from 1986 to 1995 with Advanced Automation Associates, Inc., a
wholly owned subsidiary.
Mr. Cornelius joined the Company in March, 1997 as Vice President, North
American Sales. He has held Vice President, Sales positions with several
corporations engaged in providing information handling solutions to industry and
the Federal government.
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, 1998, 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, 1998 the
compensation received by the Company's Chief Executive Officer and each of the
most highly compensated executive officers whose
30
<PAGE>
compensation exceeded $100,000 for services rendered to the Company, or would
have exceeded $100,000 if they had been employed by the Company for the entire
year.
<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION COMPENSATION AWARD
------------------ ------------------
SECURITIES
NAME AND PRINCIPAL UNDERLYING ALL OTHER
POSITION YEAR SALARY($) BONUS($) OPTIONS (#) COMPENSATION($)
- ------------------ ---- -------- ------- ---------- --------------
<S> <C> <C> <C> <C> <C>
CHRISTOPHER PARKER
Chief Executive Officer 1998 54,885 140,000
GARY N. ABERNATHY 1998 133,423 70,000
President and Chief 1997 142,339 10,000 20,000
Operating Officer 1996 110,881 12,500
KENT L. MEYER
Vice President and
Secretary 1998 91,545 10,896 7,000
</TABLE>
STOCK OPTIONS ISSUED
Mr. Parker was issued 140,000 options in connection with his employment
agreement; Mr. Abernathy and Mr. Meyer were granted options as part of the
employee stock option plan.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
NUMBER OF SECURITIES % OF TOTAL OPTIONS/SARs EXERCISE OR
UNDERLYING OPTIONS/ GRANTED TO EMPLOYEES BASE
NAME SARs GRANTED IN FISCAL YEAR PRICE ($/SH) EXPIRATION DATE
- ---------------- -------------------- ------------------------ -------------- ---------------
<S> <C> <C> <C> <C>
Christopher Parker 140,000 57.6 .315 Feb. 8, 2003
Gary N. Abernathy 70,000 28.8 .315 Feb. 8, 2003
Kent L. Meyer 7,000 2.8 .315 Feb. 8, 2003
</TABLE>
STOCK OPTIONS EXERCISED
During the year ended June 30, 1998 no stock options were exercised by the named
executives and no stock options previously awarded were repriced. The following
table sets forth, as of June 30, 1998 the exercisable and unexercisable portions
of stock options held by the named executives.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING
UNEXERCISED OPTIONS AT FISCAL YEAR END(#)
SHARES ACQUIRED VALUE -----------------------------------------
NAME ON EXERCISE($) REALIZED($) EXERCISEABLE UNEXERCISABLE
- ---- --------------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Christopher Parker -- -- 0 140,000
Gary N. Abernathy -- -- 39,500 88,000
Kent L. Meyer -- -- 8,900 10,600
</TABLE>
As of June 30, 1998 there was no unrealized value with respect to the
exercisable or unexercisable portions of the options held by the above-named
executives.
31
<PAGE>
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 $1,000 per quarter plus $750 per day
and actual expenses to attend regular quarterly meetings. The Chairman of the
Board of Directors receives $9,000 per quarter, plus actual expenses to attend
regular meetings.
EMPLOYMENT CONTRACTS
The Company has entered into an agreement with Mr. Parker to serve the Company
as Chief Executive Officer. The contract expires June 30, 2001. Mr. Abernathy
has an employment contract entered into with the Company under which he will
perform the duties of President and Chief Operating Officer. The contract is for
a one year term ending December 31, 1998.
32
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of September 23, 1998 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.
NAME AND ADDRESS NO. OF SHARES PERCENT OWNED(1)
- ---------------- ------------- ----------------
Gary N. Abernathy (2)
43 Manning Road
Billerica, MA 01821 78,292 1.4
Robert P. Dunne (3)
928 Southwest Tenth Street
Miami, FL 33130 178,582 3.3
Lee R. Petillon
21515 Hawthorne Blvd., #1260
Torrance, CA 90503 45,750 *
Tom W. Olofson (4)
501 Kansas Ave
Kansas City, KS 66105 165,250 3.1
Richard P. Kiphart (5)
222 West Adams
Chicago, IL 60603 441,446 8.1
Tallard B.V. (6)
c/o Peder G. Wallenberg
Amsteldijk 166 Rivierstaete
1079 LH Amsterdam 2,453,174 45.2
Datamatics Technologies PVT. LTD. (7)
c/o Dr. Lalit S. Kanodia, Chairman
Unit #118-120, SDF 4,
SEEPZ Andheri (East)
Bombay 400 096, India 400,000 7.4
Pradeep Barthakur (8)
26 Derby Lane
Tyngsboro, MA 01879 356,500 6.6
All Directors and Officers
as a Group (10 persons) 871,124 16.1
* Less than one percent (1%)
(1) Based on 4,461,121 shares outstanding on September 23, 1998, 104,350
exercisable options and warrants to issue an additional 860,000 shares, in
aggregate, on such date, for a total of 5,425,471.
33
<PAGE>
(2) The shares beneficially owned by Mr. Abernathy are issued in the following
manner: 2,689 shares in the name of Information Control, Inc. which is
wholly-owned by Mr. Abernathy, a vested right to acquire 39,500 shares pursuant
to stock options, 21,100 shares owned directly, and warrants for 15,000 shares.
(3) The shares beneficially owned by Mr. Dunne consist of: 23,641 shares in the
name of Robertson Financial Corporation (of which Mr. Dunne is the sole owner),
a vested right to acquire 3,750 shares pursuant to stock options, warrants to
purchase 40,000 shares, 75 shares held by the Amy Schneeberger Trust, of which
Mr. Dunne is a trustee, 100 shares held by Mrs. Dunne's Individual Retirement
Account, and 111,016 shares owned directly.
(4) The shares beneficially owned by Mr. Olofson consist of 91,500 shares owned
directly, vested options to purchase 3,750 shares, and warrants to purchase
70,000 shares.
(5) The shares beneficially owned by Mr. Kiphart are issued in the following
manner: 350,686 shares owned directly, warrants to purchase 55,000 shares, and
35,760 shares held in total 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: 1,753,174 shares owned directly by Tallard Infologix, N.V., a wholly
owned subsidiary of Tallard, B.V., and warrants to purchase 700,000 shares in
the name of Tallard Infologix, N.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. and Tallard Infologix N.V.
(7) The shares beneficially owned by Datamatics Technologies PVT. LTD. consist
of 200,000 shares owned directly and warrants to purchase 200,000 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 180,000 shares owned directly,
vested rights to purchase 1,500 shares pursuant to stock options and warrants to
purchase 175,000 shares.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
34
<PAGE>
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
10.17 Employment agreement with Gary N. Abernathy dated January 1, 1998
21 Subsidiaries of the registrant (also disclosed on page 2 in Item 1
of this 10-KSB)
27 Financial Data Schedule (page 45 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:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION FILED AS EXHIBIT:
- ----------- ----------- -----------------
<S> <C> <C>
2 Plan of Recapitalization 2 to Form 8-K dated
February 19, 1993
2.1 Amendment to By-Laws of Saztec 2.1 to Form 10-QSB for
International, Inc. the quarter ended March
31, 1998
3 Articles of Incorporation and By-Laws 3 to Form 10-K for the
year ended June 30,
1990
3(i) Certificate of Amendment of Articles 3(i) to Form 10-QSB for
of Incorporation of Saztec International, the quarter ended
Inc. September 30, 1997
4 Instruments defining the rights of 4 to Form 10-K for the year ended
security holders including indentures. June 30, 1990
4.1 Ten Year Convertible Debenture Note 4 to Form 10-K for the
Agreement year ended June 30, 1992
4.2 Certificate of Determination for the 4 to Form 8-K dated February 19,
establishment of the Series A Cumulative 1993
Preferred Stock
4.3 Registration Rights Agreement dated 4 to Form 8-K dated December 31,
December 31, 1993 among Saztec 1993
International, Inc., Tallard B.V.,
Barry Craig, and the Preferred Shareholders
10.1 Stock Purchase Agreement between Saztec 10 to Form 8-K dated October 5,
International, Inc., and Tallard B.V. 1999
10.2 Agreement dated January 9, 1995 between 10 to Form 10-Q for the Quarter
Saztec International, Inc., the Meyerson ended December 31, 1994
Group and the Placement Warrant Holders
10.3 The rescission of the purchase of CFL, 2 to Form 8-K dated February 17,
Ltd. common stock 1993
10.4 Loan Agreement between Tallard B.V. 10 to Form 8-K dated February 19,
and Saztec Europe, Ltd. 1993
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10.5 Conversion Agreement dated December 31, 10 to Form 8-K dated December 31,
1993 among Saztec International, Inc., 1993
Tallard B.V., and the Preferred Shareholders
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, for the year ended
June 30, 1995
10.9 1995 Non-Employee Directors Stock Option 10.9 to Form 10K-SB, for the year ended
Plan June 30, 1995
10.10 Employment Agreement for Gary N. Abernathy 10.10 to Form 10K-SB, for the year ended
of January 1, 1995 June 30, 1995
10.11 Renewal of Revolving Credit Agreement 10.11 to Form 10K-SB, for the year
dated August 12, 1995 ended June 30, 1995
10.12 Renewal of Revolving Credit Agreement 10.12 to Form 10K-SB, for the year
dated January 29, 1996 ended June 30, 1996
10.13 Renewal of credit agreement dated 10.13 to Form 10K-SB for the year ended
July 1, 1997 June 30, 1997
10.14 Renewal of credit agreement dated 10.14 to Form 10K-SB for the year
October 7, 1997 ended June 30, 1997
10.15 Employment contract, Christopher Parker 10.15 to Form 10-QSB for the quarter
ended March 31, 1998
10.16 Renewal of revolving credit agreement 10.16 to Form 10-QSB for the quarter
dated April 1, 1998 ended March 31, 1998
16 Change in certifying public accountants 1 to Form 8-K dated January 26, 1996
99 Delisting of common stock by NASDAQ 1 to Form 8-K dated November 21,
Stock Market, Inc. 1995
</TABLE>
(b) REPORTS ON FORM 8-K:
None.
36
<PAGE>
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: September 23, 1998
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 September 23, 1998.
SIGNATURE CAPACITY
- --------- --------
/s/ ROBERT P. DUNNE Chairman of the Board and Director
- ------------------------
Robert P. Dunne
/s/ CHRISTOPHER PARKER Chief Executive Officer
- ------------------------
Christopher Parker
/s/ GARY N. ABERNATHY President, Chief Operating Officer
- ------------------------ and Director
Gary N. Abernathy
/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
/s/ HANS LINDROTH Director
- -------------------------
Hans Lindroth
/s/ ROBERT W. FORSYTH Director
- -------------------------
Robert W. Forsyth
37
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
10.17 Employment Agreement with Gary N. Abernathy
21 List of Subsidiaries
27 Financial Data Schedule
38
EXHIBIT 10.17
EMPLOYMENT AGREEMENT
THIS AGREEMENT dated as of the 1st day of January, 1998, by and between GARY N.
ABERNATHY ("Employee") and SAZTEC INTERNATIONAL, INC., a California corporation
(the "Company").
1. Employment. Company agrees to employ Employee and Employee agrees to
serve the Company as President and Chief Operating Officer, United States for a
one (1) year term commencing on the day and year first set forth above and
ending December 31, 1998. This Employment Agreement shall be extended for
additional terms of ninety (90) days each, unless notice is given at least
ninety (90) days prior to the end of the original or any extended term hereof.
2. Duties. Employee will perform all the usual and customary duties of a
President and Chief Operating Officer for the United States Division of the
Company, and other duties that may be assigned from time to time. Employee shall
report to, and be responsible to, the Chairman of the Company until such time as
a Chief Executive Officer of the Company may be appointed, at which time
Employee shall report to the Chief Executive Officer. Employee will perform all
of his work to his highest standards of skill, competence, and efficiency;
Employee will devote his full business time, attention and energy to the Company
exclusively (other :than as specifically allowed in writing by the Company); and
Employee will give his best efforts and skill to further the best interests of
the Company.
3. Compensation.
(a) Base Salary. Employee's Base Salary will be at the rate of One
Hundred Twenty Thousand Dollars ($120,000) per annum for the term of this
Agreement, which Base Salary shall be payable every two (2) weeks in arrears.
(b) Incentive Compensation. It is the intent of the Company that an
incentive compensation program shall be established with respect to Employee,
which shall provide performance criteria, pursuant to which, upon achieving such
criteria, or defined components thereof, Employee shall be entitled to incentive
compensation. Said incentive compensation shall be based upon fulfillment, by
the U.S. Division of the Company, of its component of the Company's Business
Plan as specifically approved by the Board of Directors of the Company, with
respect to the Company's Fiscal Year ending June 30, 1998, and the portion of
the Fiscal Year ending December 31, 1998. In the event that no such Business
Plan shall be approved by the Board of Directors, then said incentive
compensation shall be at the discretion of the Board of Directors. Said
incentive compensation shall not exceed one-third (1/3) of Employee's annual
base salary as set forth herein, unless the Board of Directors shall make a
special bonus award.
(c) Automobile Expense. Employee will use an automobile in the
discharge of his duties under this Agreement and shall be entitled to a Five
Hundred Dollar ($500) per month car allowance to be paid to Employee in addition
to the Base Salary.
(d) Stock Options. The Company may, from time to time, at its sole
discretion, grant to Employee options to purchase shares of common stock of
Company pursuant to and in accordance with the terms of, the Company's 1995
Stock Option Plan adopted by the Company's Board of Directors by resolution
dated December 9, 1994.
<PAGE>
(e) Expenses. The duties of employment may require that Employee incur
expenses for meals, lodging, travel and entertainment in the interest of the
business. Accordingly, the Company will reimburse Employee for all reasonable
expenses incurred by Employee in connection with the performance of Employee's
duties under this Agreement.
4. Termination of Employment. The Company may terminate this Agreement
immediately only for good cause in which case all of Employee's compensation
rights as set forth herein which have not vested, shall be terminated, and shall
be null and void, and of no further force or effect. Termination of this
Agreement by the Company for any reason other than good cause shall be a breach
hereof by the Company and Employee shall be entitled to all applicable rights
and remedies in connection therewith. For the purposes of this Agreement, good
cause shall be deemed to include, but shall not in any manner be limited to, the
following acts of Employee:
(a) recurring absence from work without cause acceptable to the Board
of Directors of the Company;
(b) material breach of any provision of this Agreement;
(c) repeated, material and willful failure to communicate with the
Board of Directors of Company regarding the business of the Company;
(d) material, willful failure to properly respond to and implement
appropriate, express directives of the Board of Directors of the Company;
(e) any act of deceit, misrepresentation or dishonesty in the
discharge of Employee's duties;
(f) improper use or diversion of Company funds to personal use;
(g) indictment for a felony or involvement in any other act of moral
turpitude; and
(h) improper use of drugs and/or alcohol.
Prior to any termination hereunder, Employee shall have reasonable notice
and right to cure, except for instances involving moral turpitude.
5. Severance. If, and in the event that, Employee's employment hereunder
shall be terminated for any reason other than good cause as defined above,
including termination without good cause, or expiration of the term hereof or of
any extended term, Employee shall be entitled to severance payments equal to six
(6) months of his base salary payable in equal monthly installments over the six
months following the termination of his employment hereunder.
6. Fringe Benefit and Health Care Plans. Employee shall be entitled to
participate in various incentive or "fringe benefit" plans offered by the
Company to its executive employees pursuant to the normal policies of the
Company, including vacation benefits, disability, life and other insurance
benefits and such participation shall not be deemed to reduce or affect the
compensation payable to Employee under this Agreement. Specifically, but not in
limitation of the foregoing, the Company shall pay the full premium on
Employee's behalf for family coverage for Employee and Employee's family under
the Company's Health Care Plan. In addition to such other fringe benefits,
Employee's current life insurance plan shall remain in place.
2
<PAGE>
7. Death or Incapacity. Employee's death shall result in automatic
termination of his employment hereunder. In the event of termination of
Employee's employment hereunder due to death, illness or incapacity, the Company
shall forgive the relocation loan made to Employees pursuant to the terms of the
Employment Agreement by and between Employee and the Company, effective as of
January 1, 1995, and any stock options or grants earned pursuant said Employment
Agreement, as of such date shall be considered to have fully vested as of the
date, of termination.
8. Business Conduct. During Employee's employment by the Company,
Employee will not:
(a) willfully act contrary to the best interests of the Company, its
parent, subsidiary, or affiliated companies, or its employees, in a manner that
has a direct, material, adverse impact upon the Company;
(b) (other than as specifically allowed in writing by the Company)
engage in, or have any financial or other interest in, or render any service in
any capacity to any competitor, customer, or supplier of the Company;
(c) solicit or encourage a customer of the Company to take its
business elsewhere; or
(d) (other than as specifically allowed in writing by the Company)
solicit or encourage a Company employee to work elsewhere.
9. Employee Not to Compete with Company. Employee agrees that:
(a) if the Company terminates Employee for good cause at any time
during the term of this Agreement; or
(b) if Employee terminates employment with the Company for any reason
during the term of this Agreement,
then for a period of one (1) year immediately following termination, Employee
will not engage or participate, directly or indirectly, in any business which is
in competition with the business conducted by the Company on the date of
termination within the United States of America or the United Kingdom.
10. Agreement of Non-Solicitation. Employee further agrees that for a
period of one (1) year immediately following the termination described in
Paragraph 8, Employee will not, directly or indirectly, or in concert with any
other person or persons, firm, corporation or other entity or in any other
manner, solicit, divert or handle or attempt to solicit, divert or handle any of
the past or present customers of the Company regardless of where such customers
might be located or whether such customers are persons being placed for
temporary employment or companies requesting temporary personnel, with respect
to any business that consists of or relates or pertains in any way to the
business conducted by the Company.
11. Agreement of Non-Disclosure. Employee agrees that he will not at any
time impart to any competitor of the Company or otherwise use for the purpose of
competing with the Company any customer lists or other customer information or
any confidential information which he may have acquired as an officer, director
or shareholder of the Company unless the same shall have otherwise become known
to competitors of the Company.
3
<PAGE>
12. Equitable Remedies. It is recognized by the parties hereto that
irreparable damage will result to Company from any violation of Paragraphs 8, 9
or 10 hereof by Employee. Therefore, Employee agrees that, in addition to any
and all other remedies available to the Company, it shall have the remedy of
restraining order, injunction, and other equitable relief as may be declared or
issued by a court to enforce the provisions of said Paragraphs, and Employee in
any such equitable proceeding agrees not to claim that a remedy at law is
available to the Company.
13. Construction. It is agreed that the terms and provisions hereof are
severable, and that should any clause or provisions hereof be unenforceable or
be declared invalid for any reason whatsoever, this Agreement shall be construed
and read as if such invalid or unenforceable clause or provisions were omitted.
14. Savings Clause. Notwithstanding anything to the contrary herein
contained and if, and only if, provisions of the type contained in this
Paragraph 13 are enforceable in the jurisdiction in question, if any one or more
of the provisions contained in Sections 8 or 9 of this Agreement shall for any
reason be held to be excessively broad as to time, duration, geographical scope,
activity or subject, said provisions shall be construed by limiting and reducing
them so as to be enforceable to the extent compatible with the applicable law as
it should then be determined.
15. Company Policies. Employee will be subject to and will adhere to all
of the Company's policies applicable to the Company's employees generally
including, but not limited to, all policies relating to standards of conduct,
conflicts of interest, and compliance with the Company's rules and obligations.
Employee represents that he has no agreements with or obligations to others that
in any way conflict with any of his obligations contained in this Agreement.
16. Recovery of Expenses. In the event a dispute arises with respect to
this Agreement, the party prevailing in such dispute shall be entitled to
recover all expenses including, without limitation, reasonable attorneys' fees
and expenses incurred in ascertaining such party's rights, in preparing to
enforce, or in enforcing such party's rights under this Agreement, whether or
not it was necessary for such party to institute suit.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Massachusetts. Any claim arising
hereunder shall be heard in a court of competent jurisdiction in the State of
Massachusetts.
18. Entire Agreement; Amendments. This Agreement is intended to be a
complete and exclusive statement of the terms of the Agreement between the
parties, superseding all prior agreements, and may not be changed or terminated
orally. Specifically, the Employment Agreement by and between Employee and the
Company, effective as of the 1' day of January, 1995, shall, subject to the
execution hereof, have expired on December 31, 1997, by its terms, and shall be
of no further force or effect. Subject to applicable law, this Agreement may be
amended only by a writing executed by all parties hereto. Waiver of any part of
this Agreement shall not constitute a waiver of any other part of this Agreement
and shall not operate as any future waiver of the same part.
19. Counterparts. This Agreement may be executed in any number of
counterparts, all of which, taken together, shall constitute one Agreement.
4
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the day and year first set forth above.
COMPANY:
SAZTEC INTERNATIONAL, INC.,
a California corporation
By-/s/Robert P. Dunne
Robert P. Dunne, Chairman
EMPLOYEE:
/s/Gary N. Abernathy
Gary N. Abernathy
5
EXHIBIT 21
SUBSIDIARY NAME AND TRADE NAME JURISDICTION OF INCORPORATION OR
REGISTRATION
- ------------------------------ --------------------------------
Advanced Automation Associates, Inc. Missouri
Saztec Europe, Ltd. Scotland
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<PERIOD-END> JUN-30-1998
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<RECEIVABLES> 1,698,768
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0
0
<COMMON> 12,430,811
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<TOTAL-LIABILITY-AND-EQUITY> 3,317,869
<SALES> 0
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<INCOME-PRETAX> (312,091)
<INCOME-TAX> 22,606
<INCOME-CONTINUING> (334,697)
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<EXTRAORDINARY> 0
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<NET-INCOME> (334,697)
<EPS-PRIMARY> (.08)
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