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, 1999
[ ] 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, 1999 are $8,713,335.
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 14, 1999, was approximately $2,788,201. As of September 14, 1999,
there were 4,461,121 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
1
<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.
Saztec has established outsource partnerships with Datamatics Technologies PVT.
Ltd. in India and other service companies. Through these relationships Saztec
can provide access to a much larger skill base for data conversion and data
management thereby providing an extensive and flexible service for its clients.
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 subsidiary is
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:
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 gray 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.
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.
2
<PAGE>
Services can be provided either off-site, partially on-site or completely
on-site depending upon the specialized needs of each individual customer.
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.
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.
Preliminary Phase -- 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.
OUTSOURCE RESOURCES: The Company contracts with organizations in Europe, East
Asia, the Caribbean, and the Philippines to provide data entry and clerical
coding services. Datamatics Technologies PVT. Ltd.("DTPL"), has production
facilities in Bombay, India. DTPLs' ownership position in the Company was 3.7%
on a fully diluted basis at June 30, 1999. Other vendors have no known ownership
position with the Company.
3
<PAGE>
MARKETS AND MARKETING
Information management services, predominately data conversion is a very broad
and fragmented market. Saztec has historically provided services to many
corporations and government organizations. During 1998/1999 Saztec began the
process of focusing on vertical markets to enhance the service we provide to our
clients through a better understanding of their market conditions.
The Company has performed the following specific services:
(a) European libraries, retrospective conversion of card catalog data to a
local system, and conversion of handprinted worksheets for loading to a
national computer network for research libraries
(b) Conversion for on-line vendors, of archival files of abstracts and indexes
with monthly additions to the database from newly published material
(c) 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
(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
(b) Data entry of individual, corporate and partnership state government income
tax returns from paper filings.
COMPETITION
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, 1999, the Company employed 164 full-time and 75 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, 1999, the Company was
providing business services to approximately 80 customers in the United States
and Europe.
FINANCIAL INFORMATION ABOUT FOREIGN OPERATIONS
Financial information about foreign operations is presented in Note 11 of the
Notes to Consolidated Financial Statements.
4
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:
INTEREST RATE EXPOSURE AND CURRENCY RATE EXPOSURE
The Company's interest rate exposure primarily relates to its revolving credit
facility, which contains interest rates based on the prime rate. The Company has
locked in the majority of its interest rates for outstanding borrowings for six
months, and therefore concludes that any near-term change in interest rates
comparable to historical interest rate movements would not materially affect the
consolidated results of operations or financial position for fiscal 1999.
The Company's UK and German subsidiaries use the local currency as the
functional currency, and therefore foreign currency translation adjustments are
reflected as a component of stockholders' equity. In addition, these
subsidiaries purchase the majority of their inventory from the US entity in US
dollars, and thus there is foreign currency risk in that fluctuations in the US
dollar versus the local currency could result in increases in cost of goods sold
for the UK and German subsidiaries. To the extent that the Company expands its
international operations, the Company will be exposed to increased risk of
currency fluctuation.
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. Management is in the process of
securing a new lease either in the existing facility or similar for the period
beyond 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.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
None.
5
<PAGE>
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 14, 1998, the Company had 209 stockholders of
record. For the period of July 1 to September 14, 1998, the high and low closing
price as reported by the NASD was $.72 and $.38, 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, 1997 .22 .125
December 31, 1997 .75 .115
March 31, 1998 .75 .19
June 30, 1998 .97 .69
September 30, 1998 .77 .50
December 31, 1998 .53 .19
March 31, 1999 .35 .21
June 30, 1999 .50 .16
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, 1999 were $8,713,335 compared to $8,252,274
for the year ended June 30, 1998, an increase of $461,061, or 5.6%. Revenue from
U.S. operations increased $1,088,574, or 23.0%, from $4,723,132 in the year
ended June 30, 1998 to $5,811,706 in the current year. Current year revenue for
the Company's European operations declined to $2,901,629 from the prior year
figure of $3,529,142, a reduction of $627,513 or 17.8%. The increase in U.S.
based revenue is attributable to an increase in scanning-related projects
including resume processing.
Gross profit increased $130,391, from $1,789,764 to $1,920,155 in the current
year, with an improvement in gross margin to 22.0% from the prior year margin of
21.7%.
Selling and administrative (S&A) expense of $2,281,253 is $226,649 greater than
for the year ended June 30, 1998 of $2,054,604. Selling expense increased due to
management's increased focus on marketing and selling in the current fiscal
year.
The Company has analyzed its exposure to potential data processing "Year 2000"
problems and formulated a plan to ensure its systems were in compliance by June
30, 1999. This has been 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 cost is under $100,000, and is a subset of ongoing systems
upgrades to increase production.
6
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
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, 1999 the Company had no money borrowed under its revolving credit
agreement which allows for borrowings of $500,000. The revolving credit
agreement provides for interest at the lender's prime rate plus 2.5% (10.25 % at
June 30, 1999). The credit agreement is secured by substantially all domestic
assets of the Company, including the stock of subsidiaries. The revolving credit
agreement is intended to be a continuing agreement and shall remain in full
effect for an initial term of one year and for any renewal term of one year
unless terminated by either party within 30 days prior to the end of any such
period. The initial term of the revolving credit agreement is from June 22, 1999
to June 21, 2000. Maximum borrowing under the agreement is limited to 80% of
outstanding domestic accounts receivable less than ninety days old, up to
$500,000. 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 of it's previous revolving credit agreements that expired July 1 and
October 1, 1997, and April 1, 1998.
At June 30, 1999 the Company's unrestricted cash balance was $338,088; at June
30, 1998 the balance was $513,192. The Company's working capital decrease to
$301,760 at June 30, 1999 from $582,878 at June 30, 1998 approximates the net
loss for the year of $296,585.
Operations used $88,904 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 provided by investing activities of $4,590 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 which
is offset by a decrease in the restricted cash balances of $146,242. Cash flow
from financing used $82,542 as a result of payments made against debt and
capital lease obligations and the payments made against the revolving credit
agreement.
The company believes that the existing cash, unused borrowing facilities, and
cash flow from opertions will provide sufficient liquidity and enable it to meet
it current and foreseeable working capital requirements.
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.
7
<PAGE>
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:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants 9
Consolidated Statements of Operations for the Years Ended
June 30, 1999 and 1998 10
Consolidated Balance Sheets as of June 30, 1999 and 1998 11
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended June 30, 1999 and 1998 12
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1999 and 1998 13 - 14
Notes to Consolidated Financial Statements 15 - 27
</TABLE>
8
<PAGE>
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, 1999 and 1998, 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 presents fairly, in
all material respects, the consolidated financial position of SAZTEC
International, Inc. and subsidiaries at June 30, 1999 and 1998, 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 6, 1999
9
<PAGE>
<TABLE>
<CAPTION>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30,
1999 1998
---- ----
<S> <C> <C>
REVENUES $8,713,335 $8,252,274
Cost of services 6,793,180 6,462,510
----------------------- ------------------------
GROSS PROFIT 1,920,155 1,789,764
Selling and administrative expense 2,281,253 2,054,604
----------------------- ------------------------
LOSS FROM OPERATIONS (361,098) (264,840)
Interest expense (13,606) (47,251)
----------------------- ------------------------
(LOSS) BEFORE PROVISION FOR INCOME TAXES (374,704) (312,091)
Income tax (benefit) expense (78,119) 22,606
----------------------- ------------------------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS $(296,585) $(334,697)
======================= ========================
LOSS PER SHARE OF COMMON STOCK:
Basic loss per common share
Diluted loss per common share $(.07) $(.08)
$(.07) $(.08)
======================= ========================
Weighted average number of shares 4,461,121 4,181,794
======================= ========================
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30,
ASSETS
1999 1998
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $338,088 $513,192
Restricted cash 26,210 172,452
Accounts receivable, less allowance for doubtful accounts of $28,155 in
1999 and $40,494 in 1998 1,612,573 1,658,274
Work in process 118,720 176,539
Prepaid expenses and other current assets 112,601 92,833
-----------------------------------
TOTAL CURRENT ASSETS 2,208,192 2,613,290
PROPERTY AND EQUIPMENT, NET 422,076 443,083
OTHER ASSETS
Goodwill and other intangible assets, less accumulated amortization of
$87,842 in 1999 and $75,722 in 1998 137,520 149,640
Deposits and other assets 63,626 111,856
-----------------------------------
TOTAL ASSETS $2,831,414 $3,317,869
===================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $0 $29,682
Current portion of long-term debt and capital lease obligations 172,375 182,599
Accounts payable 620,366 472,132
Accrued liabilities 728,230 699,455
Customer deposits 385,461 646,544
------------------------------------
TOTAL CURRENT LIABILITIES 1,906,432 2,030,412
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS LESS CURRENT PORTION 104,039 146,675
OTHER LIABILITIES 7,355 22,362
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 shares
issued and outstanding at both June 30, 1999 and 1998 12,430,811 12,430,811
Contributed capital 14,498 14,498
Accumulated deficit (11,509,802) (11,213,217)
Other comprehensive income (121,919) (113,672)
------------------------------------
TOTAL STOCKHOLDERS' EQUITY 813,588 1,118,420
------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,831,414 $3,317,869
====================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
<TABLE>
<CAPTION>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1999 AND 1998
Common Stock Common Stock Subscribed
----------------------------- ----------------------- Other
Number of Number of Contributed Accumulated Comprehensive
Shares Amount Shares Amount Capital Deficit Income
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 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)
-----------------------------------------------------------------------------------------------------
Net loss (296,585)
Translation adjustment (8,247)
-----------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1999 4,461,121 $12,430,811 $14,498 $ (11,509,802) $(121,919)
=====================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
<TABLE>
<CAPTION>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30,
1999 1998
---- ----
<S> <C> <C>
INCREASE (DECREASE) IN CASH
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(296,585) $(334,697)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization 174,779 244,023
(Recovery of) provision for bad debts (12,339) 5,121
Gain on sale of assets (400)
Changes in assets and liabilities:
Accounts receivable 58,041 (355,125)
Work in process 57,819 74,400
Prepaid expenses and other current assets (19,768) 25,343
Deposits and other assets 48,230 62,123
Accounts payable 148,234 (99,516)
Accrued liabilities 13,768 251,067
Customer deposits (261,083) (33,715)
--------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (88,904) (161,376)
--------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments received on notes receivable 13,837
Additions to property and equipment (141,652) (276,013)
Proceeds from the sale of property and equipment 400
Decrease in restricted cash 146,242 20,191
--------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 4,590 (241,585)
--------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on debt and capital lease obligations (52,860) (90,383)
Borrowings on revolving credit agreement 2,501,238 2,878,417
Payments on revolving credit agreement (2,530,920) (3,123,247)
Proceeds from issuance of common stock, net of
issuance costs 860,000
--------------------------------------------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (82,542) 524,787
--------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (8,248) 4,581
--------------------------------------------------
NET (DECREASE) INCREASE IN CASH (175,104) 126,407
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 513,192 386,785
--------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $338,088 $513,192
==================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
<TABLE>
<CAPTION>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
YEARS ENDED JUNE 30,
1999 1998
---- ----
<S> <C> <C>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Purchase of equipment through issuance of notes payable and
capital lease obligations $65,047 $73,050
=================== ===================
Net reductions in current liabilities negotiated $0 $15,982
=================== ===================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $27,598 $35,898
=================== ===================
Income taxes $2,625 $22,606
=================== ===================
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
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 re-evaluates
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 "Other comprehensive income" account included as part of
Stockholders' equity.
15
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
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 pre-established
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 Standard No. 130, REPORTING COMPREHENSIVE INCOME, issued by the
Financial Accounting Standards Board.
16
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
NOTE 2. RESTRICTED CASH
The restricted cash balance at June 30, 1999 includes a certificate of deposit
of $26,210 held as collateral pursuant to a performance bond. 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.
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.
17
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
NOTE 3. STOCKHOLDERS' EQUITY (CONTINUED)
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.
18
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
NOTE 4. EQUIPMENT
Equipment consists of:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Computer and other equipment $3,092,000 $3,161,387
Computer and other equipment under
capitalized leases 248,016 64,386
Software 316,026 288,616
------------------- ----------------------
3,656,042 3,514,389
Accumulated depreciation 3,233,966 3,071,306
------------------- ----------------------
$422,076 $443,083
=================== ======================
</TABLE>
During fiscal year 1998, $324,077 of fully depreciated assets were retired and
the cost and related accumulated depreciation were removed from the ledgers.
Accumulated amortization of assets under capitalized leases amounted to $15,228
at June 30 , 1998
NOTE 5. NOTES PAYABLE, LONG-TERM DEBT, AND CAPITAL LEASE OBLIGATIONS
The Company has negotiated a revolving credit agreement with a U.S. finance
company secured by substantially all the assets of the Company, effective June
22, 1999. The agreement bears interest at the lender's prime rate plus 2.5%
(10.5% at June 30, 1999). Available borrowings are 80% of domestic trade
accounts receivable less than 90 days old and are subject to a maximum borrowing
ceiling of $500,000. The line of credit is repaid directly from a collateral
account established by the lender, through a lockbox at the Company's bank. At
June 30, 1999 the Company had total available borrowings of $500,000 and had
borrowed $0. At June 30, 1998 the Company had total available borrowings of
$190,000 against a previous line of credit, and had borrowed $29,682. The
Company was in compliance with the covenants contained in each of the credit
agreements at June 30, 1999 and 1998. The existing revolving credit agreement is
intended to be a continuing agreement and shall remain in full effect for an
initial term of one year and for any renewal term of one year unless terminated
by either party within 30 days prior to the end of any such period. The initial
term of the revolving credit agreement is from June 22, 1999 to June 21, 2000.
19
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
NOTE 5. NOTES PAYABLE, LONG-TERM DEBT, AND CAPITAL LEASE OBLIGATIONS
(CONTINUED)
Long-term debt and capital lease obligations consist of:
<TABLE>
<CAPTION>
1999 1998
---- ----
<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 $47,759 $60,183
Unsecured notes bearing interest at rates ranging from 7.0% to
8.0%, payable in monthly installments through 1999 95,243 217,340
Capital lease obligations, bearing interest at rates ranging from
12.17% to 16.0% payable monthly through September
2004 133,412 51,751
------------------- ---------------
276,414 329,274
Less: Current portion 172,375 182,599
------------------- ---------------
Noncurrent portion $104,039 $146,675
=================== ===============
</TABLE>
Maturities of long-term debt and capital lease obligations for years ending June
30 are:
2000 $172,375
2001 60,964
2002 34,617
2003 5,187
2004 3,271
-------------------
$276,414
===================
20
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
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, 1999 amounted to 61,350 shares at a weighted average exercise price of
$.8364. 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, 1999 351,800 shares remained available for grants under the Plan. At
June 30, 1998 223,550 shares were available for grants. Information with respect
to options granted under the Plan follows:
<TABLE>
<CAPTION>
WEIGHTED
RANGE OF WEIGHTED AVERAGE
NUMBER OF OPTION AVERAGE EXERCISE CONTRACTUAL
SHARES PRICES PRICE LIFE
-------- -------- ---------------- -----------
<S> <C> <C> <C> <C>
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 237,350 .315-4.12 .88 3.07
Granted 25,000 .26-.50 .308
Exercised
Canceled 151,500 .315-1.00 .6006
Expired 1,750 4.125 4.125
Outstanding at June 30, 1999 109,000 .26-1.00 .6905 2.99
</TABLE>
OTHER OPTIONS NOT INCLUDED IN THE PLAN
Stock options were granted to the Company's former 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. At June 30, 1999,
exercisable options 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 57,400 shares were exercisable at June 30, 1999 at a weighted
average exercise price of $.68.
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. At June 30,
1999, exercisable options amounted to 35,000 shares.
21
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
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, 1999 of $5,385. For the year ended June 30, 1998 the amount was $2,625.
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, 1999 is $(4,338), which is net of forfeitures of $10,107 expensed
in prior years. Comparable compensation cost for the prior year is $(12,188),
net of forfeitures of $20,595 from canceled options. These amounts would affect
loss per share ("EPS") as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, BASIC EPS AS REPORTED DILUTED EPS AS ADJUSTED
------------------- --------------------- -----------------------
<S> <C> <C>
1999 $(.07) $(.07)
1998 $(.08) $(.08)
</TABLE>
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, 1999 and 1998.
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, 1999
and 1998 amount to $39,472 and $54,406, respectively.
22
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
NOTE 7. INCOME TAXES
At June 30, 1999, the Company had U.S. net operating loss carryforwards of
approximately $5,600,000 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, 1999, net
operating loss carryforwards relating to the operations of Saztec Europe, Ltd.
were approximately $1,200,000.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Accrued vacation $50,204 $48,953
Net operating loss carryforwards 2,154,015 2,256,661
Other - net 109,308 69,605
-----------------------------------------
Total deferred tax assets 2,313,527 2,375,219
Valuation allowance (2,239,809) (2,301,170)
-----------------------------------------
Net deferred tax assets 73,718 74,049
Deferred tax liability:
Book basis in excess of tax basis of
intangible assets 73,718 72,212
Other - net 0 1,837
-----------------------------------------
Total deferred tax liabilities 73,718 74,049
-----------------------------------------
Net deferred tax asset $0 $0
=========================================
</TABLE>
The sources of the Company's consolidated loss before income taxes for the years
ended June 30 consist of:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
United States $124,654 $32,675
Foreign (499,358) (344,766)
------------------------------------------
Loss before income tax expense $(374,704) $(312,091)
==========================================
</TABLE>
23
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
NOTE 7. INCOME TAXES(CONTINUED)
A reconciliation of the Company's income tax provision for fiscal 1999 and 1998
and the amount computed by applying the statutory United States income tax rate
of 34% consists of:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Federal income taxes at statutory rate $(127,899) $(106,111)
Foreign and state income taxes (78,119) 22,606
Change in valuation allowance 61,361 96,591
Officers life insurance - 2,185
Goodwill and other non-deductible amortization 32,346 11,221
Other items 34,192 (3,886)
-------------------------------------
Total income taxes $(78,119) $22,606
=====================================
</TABLE>
The provision for income taxes for fiscal 1999 and 1998 consists of the
following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
1999
----
Federal - - -
State $2,625 - $2,625
Foreign (80,744) (80,744)
------------- -------------- ---------------
$(78,119) - $(78,119)
============= ============== ===============
1998
----
Federal - - -
State $22,606 - $22,606
Foreign - - -
------------- -------------- ---------------
$22,606 - $22,606
============= ============== ===============
</TABLE>
24
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
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, 1999 and 1998 is
$220,545 and $254,066, 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:
<TABLE>
<CAPTION>
Capital Operating Leases Total
Leases Property Equipment Commitments
--------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
2000 $66,466 $229,680 $47,684 $343,830
2001 52,575 110,301 20,065 182,941
2002 30,072 67,035 18,451 115,558
2003 5,933 33,518 9,950 49,401
2004 3,849 0 1,389 5,238
--------------- ----------------- ----------------- ------------------
$158,895 $440,534 $97,539 $696,968
================= ================= ==================
Less amount
representing
interest 25,483
---------------
Net obligations
under capital
leases $133,412
===============
</TABLE>
25
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
NOTE 9. EARNINGS (LOSS) PER SHARE
At June 30, 1999 and 1998 the following potentially dilutive securities were
outstanding:
<TABLE>
<CAPTION>
1999 1998
NUMBER PRICE RANGE NUMBER PRICE RANGE
$ $
<S> <C> <C> <C> <C>
Employee options 109,000 .26 - 1.00 237,250 .315 - 4.12
Other options 418,750 .315 - 4.12 418,750 .315 - 4.12
Warrants 560,000 2.00 860,000 2.00
</TABLE>
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.
<TABLE>
<CAPTION>
Earnings
Net income (loss)
Revenues Gross profit (loss) Per Share
-------- ------------ ---------- ---------
<S> <C> <C> <C> <C>
Year ended June 30, 1999
Quarter ended
September 30, 1998 $1,761223 $263,786 $(174,283) $(.04)
December 31, 1998 1,839,329 316,827 (225,004) (.05)
March 31, 1999 2,521,444 639,233 13,012 .004
June 30, 1999 2,591,339 700,309 89,690 .02
---------------------------------------------------------------------
$8,713,335 $1,920,155 $(296,585) $(.07)
=====================================================================
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)
=====================================================================
</TABLE>
26
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
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, 1998 DEC 31, 1998 MAR 31, 1999 JUNE 30, 1999 TOTAL
------------ ------------ ------------ ------------- -----
<S> <C> <C> <C> <C> <C>
Revenue
United States $1,207,911 $1,205,013 $1,642,518 $1,756,267 $5,811,709
United Kingdom/West. Europe 558,774 630,018 868,880 843,974 2,901,648
----------------------------------------------------------------------------------------
$1,765,685 $1,835,031 $2,511,398 $2,600,241 $8,713,335
========================================================================================
Income (loss) before income tax
United States $16,439 $(42,966) $61,292 $89,889 $124,654
United Kingdom/West. Europe (270,322) (180,944) (44,985) (3,107) (499,358)
----------------------------------------------------------------------------------------
$(253,883) $(223,910) $16,307 $86,782 $(374,704)
========================================================================================
Depreciation
United States $30,285 $31,027 $34,840 $34,745 $130,897
United Kingdom/West. Europe 7,263 8,321 8,196 7,982 31,762
Amortization-U.S. only 3,030 3,030 3,030 3,030 12,120
----------------------------------------------------------------------------------------
$40,578 $42,378 $46,066 $45,757 $174,779
========================================================================================
</TABLE>
<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
========================================================================================
</TABLE>
<TABLE>
<CAPTION>
Identifiable Assets JUNE 30, 1999 JUNE 30, 1998
------------- -------------
<S> <C> <C>
United States $1,746,463 $1,851,102
United Kingdom/West. Europe 1,084,951 1,466,767
----------------------------------
$2,831,414 $3,317,869
==================================
</TABLE>
MAJOR CUSTOMERS
No customer in the United Stated or Europe accounted for more than 10% of
consolidated revenue in 1999. One customer in Germany accounted for 18% of
consolidated revenue for fiscal year 1998.
27
<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:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
---- --- ---------------------
<S> <C> <C>
Robert W. Forsyth 60 Chairman of the Board of Directors
Christopher Parker 44 Chief Executive Officer and Director
Tom W. Olofson 58 Director
Lee R. Petillon 70 Director
Pradeep Barthakur 51 Director
Hans Lindroth 41 Director
Paul F. Parshley 42 Vice President and Secretary
</TABLE>
Mr. Forsyth has been a director since June 5, 1997. In January 1999, he was
elected Chairman of the Board of Directors. He has extensive experience in
systems integration, software development and e-commerce markets. Mr. Forsyth
was President and CEO of Travelogix, a travel technology company located in
Houston, Texas, from 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. Parker joined the company as CEO in February 1998. In January, 1999 he
became President & CEO. He has over sixteen years of international marketing,
sales and management experience. He was Vice President of Business Development
with Convergent Group in Cambridge, England Vice President for International
Sales with Logica Inc, (formerly Synercom Technology, Inc.) in Houston, Texas
from 1988 to 1996.
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.
28
<PAGE>
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. Parshley joined the company in March 1999 as Vice President Finance and
Administration. In May 1999 Mr. Parshley was elected Secretary of the
corporation. Mr. Parshley has more than 20 years experience in finance,
administration and operations in high tech companies. Mr. Parshley was Vice
President and General Manager of Wayne Kerr Electronics from 1992 to 1998 and
previously was CFO and General Manager of General Eastern Instrumnets
Corporation where he was employed for 14 years.
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.
During the Fiscal year ending June 30, 1999 there were changes to the Board and
the management team. On January 25, 1999 Mr. Robert Dunne retired from his
position of Chairman of the Board and Mr. Robert Forsyth was elected as
Chairman. Mr. Gary Abernathy, President, and Mr. Thomas O'Loughlin, Vice
President of Finance resigned to pursue other business interest on December 17,
1998 and December 31, 1998 respectively. Mr. Christopher Parker, CEO, took on
the responsibility of President & CEO and Mr. Paul Parshley joined the company
in March 22, 1999 as Vice President, Finance & Administration, and was elected
Secretary in May, 1999. Mr. Kent Meyer, Vice President, Client Services and
Company Secretary resigned effective April 30, 1999 to pursue other business
interests and continues to work in partnership.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The Company believes that during the fiscal year ended June 30, 1999, 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, 1999 the
compensation received by the Company's Chief Executive Officer and each of the
most highly compensated executive officers whose compensation exceeded $100,000
for services rendered to the Company, or would have exceeded $100,000 if they
had been employed by the Company for the entire year.
<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION COMPENSATION AWARD
------------ ------------------
SECURITIES
NAME AND PRINCIPAL UNDERLYING ALL OTHER
POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)
- -------- ---- --------- -------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
CHRISTOPHER PARKER
Chief Executive Officer 1999 144,385 140,000 11,514
----
1998 54,885 140,000
----
</TABLE>
29
<PAGE>
STOCK OPTIONS ISSUED
Mr. Parshley was issued 20,000 options in connection with his employment
agreement in connection with 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 ($/SH) EXPIRATION DATE
- -------------------------- ------------ -------------- ------------ ---------------
<S> <C> <C> <C> <C>
Paul F. Parshley 20,000 80.0 .26 Mar. 21, 2004
</TABLE>
STOCK OPTIONS EXERCISED
During the year ended June 30, 1999 no stock options were exercised by the named
executives and no stock options previously awarded were repriced. The following
table sets forth, as of June 30, 1999 the exercisable and unexercisable portions
of stock options held by the named executives.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING
SHARES ACQUIRED VALUE UNEXERCISED OPTIONS AT FISCAL YEAR END (#)
NAME ON EXERCISE ($) REALIZED ($) EXERCISEABLE UNEXERCISABLE
- ---- --------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Christopher Parker - - 56,000 84,000
Paul F. Parshley - - 4,000 16,000
</TABLE>
As of June 30, 1999 there was no unrealized value with respect to the
exercisable or unexercisable portions of the options held by the above-named
executives.
LONG-TERM INCENTIVE PLAN AWARDS
The Company has no Long-term Incentive Plan Awards currently in effect.
COMPENSATION OF DIRECTORS
Outside directors receive compensation of $1,000 per quarter plus $500 per day
and actual expenses to attend regular 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.
30
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth, as of September 14, 1999 information concerning
the beneficial ownership of the Common Stock of the Company by (i) each person
who is known by the Company to own beneficially more than 5% of the Company's
Common Stock, (ii) each director of the Company, and (iii) all directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS NO. OF SHARES PERCENT OWNED(1)
---------------- ------------- ----------------
<S> <C> <C>
Robert W. Forsyth (2)
10370 Richmond Ave. Suite 750
Houston, TX 77042 20,000 *
Christopher Parker (3) 58,000 1.1
1338 Sundial Drive
Reston, VA 20194
Lee R. Petillon (4)
21515 Hawthorne Blvd., #1260
Torrance, CA 90503 51,750 1.0
Tom W. Olofson (5)
501 Kansas Ave
Kansas City, KS 66105 247,750 4.6
Richard P. Kiphart (6)
222 West Adams
Chicago, IL 60603 441,446 7.6
Tallard B.V. (7)
c/o Peder G. Wallenberg
Amsteldijk 166 Rivierstaete
1079 LH Amsterdam 2,153,174 39.7
Pradeep Barthakur (8)
26 Derby Lane
Tyngsboro, MA 01879 273,750 5.0
Hans Lindroth (9)
Odelbergs V9 10,000 *
134 40 GUSTAVBERG
Sweden
All Directors and Officers
as a Group (9 persons) 674,250 12.4
* Less than one percent (1%)
</TABLE>
(1) Based on 4,461,121 shares outstanding on September 14, 1999, 400,350
exercisable options and warrants to issue an additional 560,000 shares, in
aggregate, on such date, for a total of 5,421,471.
31
<PAGE>
(2) The shares beneficially owned by Mr.Forsyth consist of 10,000 shares
pursuant to stock options and 10,000 shares owned directly.
(3) The shares held by Mr. Parker consist of 2,000 shares owned directly and
vested options to purchase 56,000 shares.
(4) The shares beneficially owned by Mr. Petillon consist of 19,750 shares
pursuant to stock options, warrants to purchase 10,000 shares held by Petillon &
Hansen, of which Mr. Petillon is a partner, 12,000 shares owned directly by Mr.
Petillon and 10,000 shares owned by Petillon & Hansen.
(5) The shares beneficially owned by Mr. Olofson consist of 191,500 shares owned
directly, vested options to purchase 21,250 shares, and warrants to purchase
35,000 shares.
(6) The shares beneficially owned by Mr. Kiphart are issued in the following
manner: 350,686 shares owned directly, warrants to purchase 25,000 shares, and
35,760 shares held in total by three trusts for Mr. Kiphart's children, of which
Mrs. Kiphart is the trustee.
(7) 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 400,000 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.
(8) The shares held by Mr. Barthakur consist of 180,000 shares owned directly,
vested rights to purchase 13,750 shares pursuant to stock options and warrants
to purchase 75,000 shares.
(9) The shares held by Mr. Lindroth consist of vested options to purchase 10,000
shares.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
32
<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:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
------
<S> <C>
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)
</TABLE>
In addition to those Exhibits shown above, the Company incorporates the
following Exhibits by reference to the filings set forth below:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION FILED AS EXHIBIT:
NO. ----------- -----------------
---
<S> <C> <C>
2 Plan of Recapitalization 2 to Form 8-K dated February 19, 1993
2.1 Amendment to By-Laws of Saztec International, 2.1 to Form 10-QSB for the quarter
Inc. 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 of 3(i) to Form 10-QSB for the quarter
Incorporation of Saztec International, Inc. ended September 30, 1997
4 Instruments defining the rights of security 4 to Form 10-K for the year ended
holders including indentures. June 30, 1990
4.1 Ten Year Convertible Debenture Note Agreement 4 to Form 10-K for the year ended
June 30, 1992
4.2 Certificate of Determination for the 4 to Form 8-K dated February 19, 1993
establishment of the Series A Cumulative
Preferred Stock
4.3 Registration Rights Agreement dated December 4 to Form 8-K dated December 31, 1993
31, 1993 among Saztec 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, 1994
International, Inc., and Tallard B.V.
10.2 Agreement dated January 9, 1995 between Saztec 10 to Form 10-Q for the Quarter ended
International, Inc., the Meyerson December 31, 1994
Group and the Placement Warrant Holders
10.3 The rescission of the purchase of CFL, Ltd. 2 to Form 8-K dated February 17, 1993
common stock
10.4 Loan Agreement between Tallard B.V. and Saztec 10 to Form 8-K dated February 19,
Europe, Ltd. 1993
10.5 Conversion Agreement dated December 31, 10 to Form 8-K dated December 31,
1993 among Saztec International, Inc., Tallard 1993
B.V., and the Preferred Shareholders
</TABLE>
33
<PAGE>
<TABLE>
<S> <C> <C>
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 Plan 10.9 to Form 10K-SB, for the year
ended June 30, 1995
10.10 Employment Agreement for Gary N. Abernathy of 10.10 to Form 10K-SB, for the year
January 1, 1995 ended June 30, 1995
10.11 Renewal of Revolving Credit Agreement dated 10.11 to Form 10K-SB, for the year
August 12, 1995 ended June 30, 1995
10.12 Renewal of Revolving Credit Agreement dated 10.12 to Form 10K-SB, for the year
January 29, 1996 ended June 30, 1996
10.13 Renewal of credit agreement dated July 1, 1997 10.13 to Form 10K-SB for the year
ended 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 Stock 1 to Form 8-K dated November 21, 1995
Market, Inc.
</TABLE>
(B) REPORTS ON FORM 8-K:
None.
34
<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 28, 1999
SAZTEC INTERNATIONAL, INC.
By: /S/ ROBERT W. FORSYTH
--------------------------------------
Robert W. Forsyth
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 28, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C>
/S/ ROBERT W. FORSYTH Chairman of the Board and Director
---------------------
Robert W. Forsyth
/S/CHRISTOPHER PARKER Chief Executive Officer and Director
---------------------
Christopher Parker
/S/ PAUL F. PARSHLEY Vice President of Finance and Secretary
---------------------
Paul F. Parshley
/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
</TABLE>
35
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------------------ -------------------------------------------------------
21 List of Subsidiaries
27 Financial Data Schedule
36
EXHIBIT 21
<TABLE>
<CAPTION>
Subsidiary Name and Trade Name Jurisdiction of Incorporation or Registration
- --------------------------------------------------- --------------------------------------------------------
<S> <C>
Saztec Europe, Ltd. Scotland, United Kingdom
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 338,088
<SECURITIES> 0
<RECEIVABLES> 1,640,728
<ALLOWANCES> (28,155)
<INVENTORY> 118,720
<CURRENT-ASSETS> 2,208,192
<PP&E> 3,656,042
<DEPRECIATION> (3,233,966)
<TOTAL-ASSETS> 2,831,414
<CURRENT-LIABILITIES> 1,906,432
<BONDS> 0
0
0
<COMMON> 12,430,811
<OTHER-SE> (11,617,223)
<TOTAL-LIABILITY-AND-EQUITY> 2,831,414
<SALES> 8,713,335
<TOTAL-REVENUES> 8,713,335
<CGS> 6,793,180
<TOTAL-COSTS> 6,793,180
<OTHER-EXPENSES> 2,281,253
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,606
<INCOME-PRETAX> (374,704)
<INCOME-TAX> (78,119)
<INCOME-CONTINUING> (296,585)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (296,585)
<EPS-BASIC> (.07)
<EPS-DILUTED> (.07)
</TABLE>
