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, 2000
[ ] 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, 2000 $8,915,435.
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 8, 2000, was approximately $1,411,170. As of September 8, 2000,
there were 4,515,747 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.
Saztec has established outsource partnerships with Datamatics Technologies Ltd.
in India and other service companies. Through these relationships Saztec can
provide a broad range of services 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.
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
2
<PAGE>
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 Ltd.("DTL"), has production facilities
in Bombay, India. DTL's ownership position in the Company was 4.2% on a fully
diluted basis at June 30, 2000. Other vendors have no known ownership position
with the Company.
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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. Saztec has been 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) Resume Processing - Text capture, indexing and imaging of resumes for
the human resources department of a number of companies utilizing
automated employee recruitment applications
(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) Data capture and imaging of case report forms for new drug applications
for the pharmaceutical industry
(g) Facilities data capture and graphics conversion for graphical
information systems.
(h) 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
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, 2000, the Company employed 119 full-time and 31 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, 2000, the Company was
providing business services to approximately 70 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
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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 and a convertible note, both of which contains interest rates based on
the prime rate. The Company has not locked in its interest rates for outstanding
borrowings, however the company believes 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
2001.
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 12,068
square feet including production space, located in Billerica, Massachusetts,
pursuant to a lease expiring in August 2000. Management has secured a new lease
in Billerica, Massachusetts for 9027 square feet for the period beyond August
2000 for 5 years until September 2005.
In addition, the Company leases an aggregate of 26,809 square feet of office and
production space in South Weymouth, Massachusetts; Vernon, Connecticut; and
Ardrossan, Scotland; pursuant to individual leases expiring between 2001 and
2002.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
None.
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 8, 2000, the Company had 203 stockholders of
record. For the period of July 1, 2000 to September 8, 2000, the high and low
closing price as reported by the NASD was $.41 and $.25, 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, 1998 .77 .50
December 31, 1998 .53 .19
March 31, 1999 .35 .21
June 30, 1999 .50 .16
September 30, 1999 .72 .38
December 31, 1999 .72 .28
March 31, 2000 1.44 .28
June 30, 2000 .68 .27
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, 2000 were $8,915,435 compared to $8,713,335
for the year ended June 30, 1999, an increase of $202,100, or 2.3%. Revenue from
U.S. operations increased $980,585, or 16.9%, from $5,811,706 in the year ended
June 30, 1999 to $6,792,291 in the current year. Current year revenue for the
Company's European operations declined to $2,206,024 from the prior year figure
of $2,901,629, a reduction of $695,605 or 23.97%. The increase in U.S. based
revenue is attributable to an increase in scanning-related projects including
resume processing. The operation in Europe continues to decline due to the
decrease in projects from the library retrospective conversion market.
Gross profit decreased $437,087 from $1,920,155 to $1,483,062 in the current
year, with a decline in gross margin to 16.6% from the prior year margin of
22.0%. The margin was lower as a result of the decrease in revenue volume in the
European operation and a change in product mix for the U.S. revenue to higher
volume processing work.
Selling and administrative (S&A) expense of $2,457,324 is $176,071 greater than
for the year ended June 30, 1999 of $2,281,253. Selling expense increased due to
management's increased focus on marketing and selling in the current fiscal
year.
6
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Capital Resources and Liquidity
At June 30, 2000 the Company had borrowed $545,998 under its revolving credit
agreement which allows for borrowings of $800,000. 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 collateralized 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 was from
June 22, 1999 to June 21, 2000, and was renewed for a one year period until June
21 ,2001. Maximum borrowing under the agreement is limited to 80% of outstanding
domestic accounts receivable less than ninety days old, up to $800,000. The
Company is in compliance with covenants contained in the renewed agreement.
On June 30, 2000 the Company executed a convertible promissory note agreement
with Maida Vale Ltd, a subsidiary owned indirectly by Domain Foundation, a major
shareholder , in the amount of $500,000 payable with interest due on June 29,
2001. The note agreement provides for simple interest at the prime lending rate
plus 2.0%. The note may be converted to shares of Saztec common stock at the
holders request at any time during the term of the note at an exchange rate
calculated at $.50 per share for the outstanding principle and interest at the
time of the conversion. The Company cannot prepay the note without the consent
of the holder. During September 2000 the company was notified that the
noteholder intends to convert this note to common stock during fiscal year 2001.
At June 30, 2000 the Company's unrestricted cash balance was $484,294; at June
30, 1999 the balance was $338,088. The Company's working capital decreased to
$(714,225), not considering the above mentioned conversion of $500,000, at June
30, 2000 from $301,760 at June 30, 1999.
Operations used $738,323 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 by investing activities of $54,096 is primarily the result of
purchases of operating equipment necessary to fulfill customer requirements for
services. An increase in restricted cash balances of $1,020 is a result of
interest earned on accounts. Cash flow provided by financing activities $921,034
is the result of borrowing made against the revolving credit agreement and note
payable issued.
In September, 2000, the Company entered into an agreement with two related
parties whereby it is loaned $900,000 which will provide necessary working
capital and make available funds for future business development . The company
believes that this cash along with unused borrowing facilities, and cash flow
from operations will provide sufficient liquidity and enable it to meet its
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
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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 9
Consolidated Statements of Operations for the Years Ended
June 30, 200 and 1999 10
Consolidated Balance Sheets as of June 30, 2000 and 1999 11
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended June 30, 2000 and 1999 12
Consolidated Statements of Cash Flows for the Years Ended
June 30, 2000 and 1999 13 - 14
Notes to Consolidated Financial Statements 15 - 26
8
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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, 2000 and 1999, 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 auditing standards generally accepted
in the United States. 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, 2000 and 1999, and the
consolidated results of their operations and their cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United
States.
GRANT THORNTON LLP
Boston, Massachusetts
September 8, 2000
Except for Note 12,
dated September 25, 2000
9
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SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 2000 AND 1999
2000 1999
---- ----
Revenues $ 8,915,435 $ 8,713,335
Cost of services 7,432,367 6,793,180
----------- -----------
Gross profit 1,483,068 1,920,155
Selling and administrative expense 2,457,324 2,281,253
----------- -----------
Loss from operations (974,256) (361,098)
Interest Expense 73,619 27,597
Other (income) expense 69,996 (13,991)
----------- -----------
(Loss) before provision for income taxes (1,117,871) (374,704)
Income tax (benefit) expense 11,530 (78,119)
----------- -----------
Net loss applicable to common stockholders $(1,129,401) $ (296,585)
=========== ===========
Loss per share of common stock:
Basic and Diluted loss per common share $(.25) $(.07)
Weighted average number of shares 4,463,183 4,461,121
=========== ===========
The accompanying notes are an integral part of these financial statements.
10
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SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
ASSETS
2000 1999
---- - ---
<S> <C> <C>
Current assets
Cash and cash equivalents $ 484,294 $ 338,088
Restricted cash 27,230 26,210
Accounts receivable, less allowance for doubtful accounts of $42,911 in
2000 and $28,155 in 1999 1,442,136 1,612,573
Work in process 6,909 118,720
Prepaid expenses and other current assets 119,765 112,601
---------------------------------
Total current assets 2,080,334 2,208,192
Property and equipment, net 306,440 422,076
Other assets
Goodwill and other intangible assets, less accumulated amortization of
$99,962 in 2000 and $87,842 in 1999 125,400 137,520
Deposits and other assets 46,515 63,626
---------------------------------
Total assets $ 2,558,689 $ 2,831,414
=================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Line of Credit $ 545,998 $ 0
Convertible note payable 500,000 0
Current portion of long-term debt and capital lease obligations 89,102 172,375
Accounts payable 1,065,817 620,366
Accrued liabilities 517,990 728,230
Customer deposits 75,653 385,461
---------------------------------
Total current liabilities 2,794,560 1,906,432
Long-term debt and capital lease obligations less current portion 57,186 104,039
Other liabilities 0 7,355
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; 4,469,371 and 4,461,121
shares issued and outstanding at June 30, 2000 and 1999 12,435,975 12,430,811
Contributed capital 14,498 14,498
Accumulated deficit (12,639,287) (11,509,886)
Other comprehensive income (104,243) (121,835)
---------------------------------
Total stockholders' equity (293,057) 813,588
---------------------------------
Total liabilities and stockholders' equity $ 2,558,689 $ 2,831,414
=================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
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SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
---------------------------
Common Stock Accumulated
--------------------------- Other
Number Contributed Accumulated Comprehensive Comprehensive
of Shares Amount Capital Deficit Income Total Income
-------------------------------------------------------------------------------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1998 4,461,121 $12,430,811 $14,498 $(11,213,301) $(113,588) $1,118,420
Net loss (296,585) (296,585) $(296,585)
Translation adjustment (8,247) (8,247) (8,247)
-------------------------------------------------------------------------------------- -------------
Balance at June 30, 1999 4,461,121 $12,430,811 $14,498 $(11,509,886) $(121,835) $813,588 $(304,832)
-------------------------------------------------------------------------------------- =============
Stock issued pursuant to
Employees options and
grants 8,250 5,164 5,164
Net loss (1,129,401) (1,129,401) $(1,129,401)
Translation adjustment 17,592 17,592 17,592
-------------------------------------------------------------------------------------- -------------
Balance at June 30, 2000 4,469,371 $12,435,975 $14,498 $(12,639,287) $(104,243) $(293,057) $(1,118,809)
====================================================================================== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
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SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Increase (decrease) in cash
Cash flows from operating activities
Net loss $(1,129,401) $ (296,585)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization 205,278 174,779
Provision for (recovery of) bad debts 14,756 (12,339)
Changes in assets and liabilities:
Accounts receivable 155,681 58,041
Work in process 111,810 57,819
Prepaid expenses and other current assets (16,303) (19,768)
Deposits and other assets 1,806 48,230
Accounts payable 445,452 148,234
Accrued liabilities (224,994) 13,768
Customer deposits (309,808) (261,083)
Income Taxes payable 7,400
-------------------------
Net cash used in operating activities (738,323) (88,904)
-------------------------
Cash flows from investing activities
Payments received on notes receivable 24,444 0
Additions to property and equipment (77,520) (141,652)
(Increase) decrease in restricted cash (1,020) 146,242
-------------------------
Net cash (used in) provided by investing activities (54,096) 4,590
-------------------------
Cash flows from financing activities
Proceeds from borrowings 512,000
Principal payments on debt and capital lease obligations (142,129) (52,860)
Borrowings on revolving credit agreement 7,591,276 2,501,238
Payments on revolving credit agreement (7,045,278) (2,530,920)
Proceeds from issuance of common stock, net of issuance
costs 5,165
-------------------------
Net cash (used in) provided by financing activities 921,034 (82,542)
-------------------------
Effect of exchange rate changes on cash 17,591 (8,248)
-------------------------
Net increase (decrease) in cash 146,206 (175,104)
Cash and cash equivalents at beginning of year 338,088 513,192
-------------------------
Cash and cash equivalents at end of year $ 484,294 $ 338,088
=========================
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
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SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
YEARS ENDED JUNE 30, 2000 AND 1999
1999 1999
---- ----
Supplemental schedule of non-cash investing and financing
activities:
Purchase of equipment through issuance of notes payable and
capital lease obligations $15,136 $65,047
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $69,419 $27,598
======= =======
Income taxes $ 3,300 $22,606
======= =======
The accompanying notes are an integral part of these financial statements.
14
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SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
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, 2000 AND 1999
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 the Company's debt instruments 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
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement established accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities on its
balance sheet and measure those instruments at fair value. The accounting for
these changes in the fair value of a derivative depends on the intended use of
the derivative and the resulting designation. The Company anticipates that due
to its limited use of derivative instruments, the adoption of SFAS No. 133 will
not have a material impact on the Company's financial position or results of
operations.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements." This
bulletin summarizes certain views of the staff on applying generally accepted
accounting principles to revenue recognition in financial statements. The staff
believes that revenue is realized or realizable and earned when all of the
following criteria are met: persuasive evidence of an arrangement exists;
delivery has occurred or services have been rendered; the seller's price to the
buyer is fixed or determinable; and collectibility is reasonably assured. The
Company does not expect the application of this bulletin to have material impact
on the Company's financial position or results of operation.
16
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
NOTE 2. RESTRICTED CASH
The restricted cash balance at June 30, 2000 includes a certificate of deposit
of $27,230 held as collateral pursuant to a performance bond. The restricted
cash balance at June 30, 1999 includes a certificate of deposit of $26,210 held
as collateral pursuant to a performance bond.
NOTE 3. STOCKHOLDERS' EQUITY
During the year the company issued 8,250 shares of common stock. There were
2,000 shares excersied under the Employee Stock Option Plan and there were 6,250
shares granted to an employee per an agreement under employment contract.
Compensation expense related to the employee shares is not significant.
NOTE 4. EQUIPMENT
Equipment consists of:
JUNE 30, JUNE 30,
-------- --------
2000 1999
---- ----
Computer and other equipment $3,098,656 $3,092,000
Computer and other equipment under
capitalized leases 262,217 248,016
Software 330,719 316,026
--------- ----------
3,691,592 3,656,042
Accumulated depreciation 3,385,152 3,233,966
---------- ----------
$ 306,440 $ 422,076
========== ==========
17
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
NOTE 5. NOTES PAYABLE, LONG-TERM DEBT, AND CAPITAL LEASE OBLIGATIONS
The Company has a revolving credit agreement with a U.S. finance company
colleralized by substantially all the assets of the Company, effective June 22,
1999, and renewed on June 22, 2000. The agreement bears interest at the lender's
prime rate plus 2.5% (12.0% at June 30, 2000). Available borrowings are 80% of
domestic trade accounts receivable less than 90 days old and are subject to a
maximum borrowing ceiling of $800,000 (subject to formula limitations relating
to receivable and inventory balances). 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, 2000 the Company had total available borrowings of
$800,000 and had borrowed $545,998. The Company was in compliance with the
covenants contained in credit agreement at June 30, 2000 and 1999. The revolving
credit agreement is intended to be a continuing agreement and shall remain in
full effect for the initial term of one year and for additional renewal terms 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 has been
renewed from June 22, 2000 to June 21, 2001.
On June 30, 2000 the Company executed a convertible promissory note agreement
with Maida Vale Ltd., a subsidiary owned indirectly by Domain Foundation, a
major shareholder , in the amount of $500,000 payable with interest due on June
29, 2001. The note agreement provides for simple interest at the prime lending
rate plus 2.0%. The note may be converted to shares of Saztec common stock at
the holders request at any time during the term of the note at an exchange rate
calculated at $.50 per share for the outstanding principal and interest at the
time of the conversion. The Company cannot prepay the note without the consent
of the holder. During September 2000 the Company was notified that the
noteholder intends to convert this note to common stock during fiscal 2001.
Long-term debt and capital lease obligations consist of:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Notes payable, collateralized by equipment, bearing interest at
rates ranging from 8.52% to 13.69%, payable in monthly
installments through 2002 $ 42,702 $ 47,759
Unsecured notes bearing interest at rates ranging from 7.0% to
8.0%, payable in monthly installments through 2001 11,646 95,243
Capital lease obligations, bearing interest at rates ranging from
12.17% to 16.0% payable monthly through September 2004 91,940 133,412
-------- --------
146,288 276,414
Less: Current portion 89,102 172,375
-------- --------
Noncurrent portion $ 57,186 $104,039
======== ========
</TABLE>
Maturities of long-term debt and capital lease obligations for years ending June
30 are:
2001 $89,102
2002 39,836
2003 10,052
2004 7,298
--------
$146,288
========
18
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
NOTE 6. EMPLOYEE BENEFIT PLANS
Stock Option Plan
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 are vested at a rate
of 20% per year and expire five years after the date of grant. Total options
which were exercisable under the Plan at June 30, 2000 amounted to 101,800
shares at a weighted average exercise price of $.4023. At June 30, 2000, 37,550
shares remained available for grants under the Plan. At June 30, 1999 351,800
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, 1998 237,250 $.315-4.12 $.70 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
Granted 375,500 .313-.531 .32
Exercised 2,000 .315 .315
Canceled 61,250 .315-1.00 .832
Expired
Outstanding at June 30, 2000 421,250 .26-1.00 .342 4.70
</TABLE>
Other Options not included in the Plan
Stock options were granted to outside members of the Board of Directors
in fiscal years 1994-1998 for 173,750 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 $1.00 per share.
Options for 109,500 shares were exercisable at June 30, 2000 at a
weighted average exercise price of $.392. All options are vested at a
rate of 20% per year and expire five years after the date of grant.
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. The options are
vested as follows: 35,000 shares in year 1, 45,000 shares in year 2 and
60,000 shares in year 3. At June 30, 2000, exercisable options amounted
to 80,000 shares.
19
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
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 at various times
during the year ended June 30, 2000 of $120,522. For the year ended June 30,
1999 the amount was $5,385. The Black-Scholes option pricing model was used to
develop the fair value of options granted. Assumptions applied include a
risk-free interest rates of 6.03% to 6.30%, an expected life of the option equal
to the five year vesting period, an expected volatility of 182% to 189% and no
dividends paid.
Additional compensation cost (benefit) calculated under SFAS 123 for the year
ended June 30, 2000 is $33,229 which is net of forfeitures of $1,003 expensed in
prior years. Comparable compensation cost for the prior year is $(4,338), net of
forfeitures of $10,107 from canceled options. These amounts would affect loss
per share ("EPS") as follows:
Year Ended June 30, Basic and Diluted EPS Basic and Diluted EPS
------------------- --------------------- ---------------------
as Reported as Adjusted
----------- -----------
2000 $(.25) $(.25)
1999 $(.07) $(.07)
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 year ended June 30, 1999. The Company issued
6250 shares valued at $3,913 to an employee under employee contract agreement
for year ended June 30, 2000.
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 contributes 1%
to 2% of the annual compensation for all participating employees who are
contributing 2% to 5% 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, 2000
and 1999 amount to $65,337 and $39,472, respectively.
20
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
NOTE 7. INCOME TAXES
At June 30, 2000, the Company had U.S. net operating loss carryforwards of
approximately $6,100,000 for income tax purposes that expire in varying amounts
through 2011. These operating losses may be used to offset future taxable income
in the United States. At June 30, 2000, net operating loss carry forwards
relating to the operations of Saztec Europe, Ltd. were approximately $1,700,000.
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.
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:
2000 1999
---- ----
Deferred tax assets:
Accrued vacation $ 29,727 $ 50,204
Net operating loss carry forwards-US 2,456,283 2,154,015
Other - net 79,458 109,308
-------------------------
Total deferred tax assets 2,565,468 2,313,527
Valuation allowance (2,486,175) (2,239,809)
-------------------------
Net deferred tax assets 79,293 73,718
Deferred tax liability:
Book basis in excess of tax basis of
intangible assets 79,293 73,718
-------------------------
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:
2000 1999
---- ----
United States $ (450,821) $ 124,654
Foreign (667,050) (499,358)
-------------------------
Loss before income tax expense $(1,117,871) $ (374,704)
=========================
21
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
NOTE 7. INCOME TAXES(Continued)
A reconciliation of the Company's income tax provision for fiscal 2000 and 1999
and the amount computed by applying the statutory United States income tax rate
of 34% consists of:
2000 1999
---- ----
Federal income taxes at statutory rate $(161,823) $(127,899)
Foreign and state income taxes 11,530 (78,119)
Change in valuation allowance 246,366 61,361
Goodwill and other non-deductible amortization (5,109) 32,346
Other items (79,434) 34,192
---------------------
Total income taxes $ 11,530 $ (78,119)
=====================
The provision for income taxes for fiscal 2000 and 1999 consists of the
following:
Current Deferred Total
------- -------- -----
2000
----
Federal -- -- --
State $ 11,530 -- $ 11,530
Foreign -- -- --
-------- -------- --------
$ 11,530 -- $ 11,530
======== ======== ========
1999
----
Federal -- -- --
State $ 2,625 -- $ 2,625
Foreign (80,744) -- (80,744)
-------- -------- --------
$(78,119) -- $(78,119)
======== -------- ========
22
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
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, 2000 and 1999 is
$219,544 and $220,545 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
<TABLE>
<CAPTION>
Capital Operating Leases Total
Leases Property Equipment Commitments
--------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
2001 $56,670 $263,835 $27,764 $339,257
2002 38,235 209,172 18,830 258,769
2003 13,927 176,929 13,191 196,053
2004 8,019 176.929 3,996 184,774
2005 -- 29,488 1,495 30,983
-------- -------- ------- ---------
$116,851 $856,353 $65,276 $1,009,836
======== ======== ======= ==========
Less amount
representing
interest 24,911
--------
Net obligations under
capital leases $91,940
=======
</TABLE>
23
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
NOTE 9. EARNINGS (LOSS) PER SHARE
At June 30, 2000 and 1999 the following potentially dilutive securities were
outstanding:
<TABLE>
<CAPTION>
2000 1999
Number Price Range Number Price Range
$ $
<S> <C> <C> <C> <C>
Employee options 421,250 .26 - 1.00 109,000 .26 - 1.00
Other options 313,750 .315 - 1.00 418,750 .315 - 4.12
Warrants 0 0 560,000 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, 2000
Quarter ended
September 30, 1999 $2,181,781 $546,098 $(44,274) $(.01)
December 31, 1999 2,049,174 379,041 (285,032) (.06)
March 31, 2000 2,364,338 393,650 (327,618) (.07)
June 30, 2000 2,320,142 (59,312) (472,477) (.11)
--------------------------------------------------------------
$8,915,435 $1,259,477 $(1,129,401) $(.25)
==============================================================
Year ended June 30, 1999
Quarter ended
September 30, 1998 $1,761,223 $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)
==============================================================
</TABLE>
24
<PAGE>
SAZTEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
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. Identifiable assets of Saztec Europe Ltd. located
outside of Ardrossan, Scotland are immaterial.
<TABLE>
<CAPTION>
Revenue Sep 30, 1999 Dec 31, 1999 Mar 31, 2000 June 30, 2000 Total
------------ ------------ ------------ ------------- -----
<S> <C> <C> <C> <C> <C>
United States $ 1,704,516 $ 1,547,835 $ 1,764,366 $ 1,775,574 $ 6,792,291
United Kingdom/West. Europe 477,265 501,340 599,974 627,445 2,206,024
-------------------------------------------------------------------------------
$ 2,181,781 $ 2,049,175 $ 2,364,340 $ 2,403,019 $ 8,998,315
===============================================================================
Income (loss) before income tax
United States $ 57,204 $ (141,844) $ (174,524) $ (191,657) $ (450,821)
United Kingdom/West. Europe (101,478) (139,320) (149,254) (276,998) (677,050)
-------------------------------------------------------------------------------
$ (44,274) $ (281,164) $ (323,778) $ (468,655) $(1,117,871)
===============================================================================
Depreciation
United States $ 36,415 $ 36,977 $ 29,860 $ 37,452 $ 140,704
United Kingdom/West. Europe 19,672 20,943 17,109 (5,271) 52,453
Amortization-U.S. only 3,030 3,030 3,030 3,030 12,120
-------------------------------------------------------------------------------
$ 59,117 $ 60,590 $ 49,999 $ (6,758) $ 205,277
===============================================================================
<CAPTION>
Revenue Sep 30, 1998 Dec 31, 1998 Mar 31, 1999 June 30, 1999 Total
------------ ------------ ------------ ------------- -----
<S> <C> <C> <C> <C> <C>
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 2,901,646
-------------------------------------------------------------------------------
$ 1,766,685 $ 1,835,031 $ 2,511,398 $ 2,600,241 $ 8,713,355
===============================================================================
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
===============================================================================
<CAPTION>
Identifiable Assets June 30, 2000 June 30, 1999
------------- -------------
United States $ 2,047,825 $ 1,746,463
United Kingdom/West. Europe 510,864 1,084,951
-----------------------------
$ 2,558,689 $ 2,831,414
=============================
</TABLE>
Major Customers
One customer in the United States accounted for 13% of consolidated revenue for
fiscal year 2000. No customer in the United Stated or Europe accounted for more
than 10% of consolidated revenue in 1999.
25
<PAGE>
NOTE 12: SUBSEQUENT EVENTS:
In September, 2000 Company entered into a one year note payable with a related
party for $350,000 due Septmber, 2001. Interest accrues at Prime plus 2% and is
due upon maturity.
In September, 2000 Company also entered into a one year convertible note payable
with a second related party (Datamatics Technology Ltd.) for $550,000 due
September, 2001. Interest at Prime plus 2% and is due upon maturity. The note
may be converted into common stock at the conversion price of $.036 / share.
During fiscal 2000 and 1999, the Company had purchases from and amounts due to
this related party in the approximate amounts of $475,000 and $231,000 and
$182,000 and $67,760 respectively.
26
<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 W. Forsyth 61 Chairman of the Board of Directors
Christopher Parker 45 Chief Executive Officer and Director
Tom W. Olofson 59 Director
Lee R. Petillon 71 Director
Pradeep Barthakur 52 Director
Hans Lindroth 42 Director
Paul F. Parshley 43 Vice President and Secretary
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 EPIQ Systems, 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.
27
<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.
Compliance with Section 16(a) of the Exchange Act
The Company believes that during the fiscal year ended June 30, 2000, 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, 2000 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 $100,000 if they
had been employed by the Company for the entire year.
<TABLE>
<CAPTION>
Annual Long Term
Compensation Compensation Award
------------ ------------------
Securities
Underlying All Other
Name and Principal Position Year Salary($) Bonus($) Options (#) Compensation($)
--------------------------- ---- --------- -------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Christopher Parker
Chief Executive Officer 2000 148,404 250,000 11,514
----
1999 144,385 190,000
----
Paul Parshley
Chief Financial Officer 2000 109,361 100,000
----
1999 14,350 20,000
----
</TABLE>
Stock Options Issued
Mr. Parker was issued 110,000 options and Mr. Parshley was issued 80,000 shares
in connection with the Company's Employee Stock Option Plan.
28
<PAGE>
Option/SAR Grants in Last Fiscal Year
Individual Grants
<TABLE>
<CAPTION>
Number of Securities % of Total Options/SARs Exercise or
Underlying Options/ Granted to Employees Base
Name SARs Granted in Fiscal Year Price ($/sh) Expiration Date
----------------------- ------------ -------------- ------------ ---------------
<S> <C> <C> <C> <C>
Christopher Parker 110,000 29.3 .313 Jun. 13, 2005
Paul F. Parshley 80,000 21.3 .313 Jun. 13, 2005
</TABLE>
Stock Options Exercised
During the year ended June 30, 2000 no stock options were exercised by the named
executives and no stock options previously awarded were repriced. The following
table sets forth, as of June 30, 2000 the exercisable and unexercisable portions
of stock options held by the named executives.
<TABLE>
<CAPTION>
Number of Securities Underlying
Unexercised Options at Fiscal Year End (#)
Shares Acquired Value ------------------------------------------
Name on Exercise ($) Realized ($) Exercisable Unexercisable
---- --------------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Christopher Parker - - 102,000 148,000
Paul F. Parshley - - 24,000 76,000
</TABLE>
As of June 30, 2000 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 $750 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.
29
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth, as of September 12, 2000 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)
3568 Fair Oaks Way
Longboat Key, FL 34228 25,000 *
Christopher Parker (3) 120,563 2.6
1338 Sundial Drive
Reston, VA 20194
Lee R. Petillon (4)
21515 Hawthorne Blvd., #1260
Torrance, CA 90503 52,500 1.2
Tom W. Olofson (5)
501 Kansas Ave
Kansas City, KS 66105 222,250 4.9
Richard P. Kiphart (6)
222 West Adams
Chicago, IL 60603 386,446 8.6
Domain Foundation (7)
Heiligbreug 6
PostBach 484, Flando Vadug
Lichtenstein 3,039,896 54.9
Pradeep Barthakur (8)
26 Derby Lane
Tyngsboro, MA 01879 205,250 4.5
Hans Lindroth (9)
Odelbergs V9 15,000 *
134 40 GUSTAVBERG
Sweden
All Directors and Officers 684,802 14.4
as a Group (7 persons)
* Less than one percent (1%)
</TABLE>
(1) Based on 4,515,747 shares outstanding on September 8, 2000.
30
<PAGE>
(2) The shares beneficially owned by Mr.Forsyth consist of 15,000 shares
pursuant to vested stock options and 10,000 shares owned directly.
(3) The shares held by Mr. Parker consist of 18,563 shares owned directly and
vested options to purchase 102,000 shares.
(4) The shares beneficially owned by Mr. Petillon consist of 28,500 shares
pursuant to vested stock options, 14,000 shares owned directly by Mr. Petillon
and 10,000 shares owned by Petillon & Hansen , of which Mr. Petillon is a
partner.
(5) The shares beneficially owned by Mr. Olofson consist of 191,500 shares owned
directly and vested options to purchase 30,750 shares.
(6) The shares beneficially owned by Mr. Kiphart are issued in the following
manner: 350,686 shares owned directly and 35,760 shares held in total by three
trusts for Mr. Kiphart's children, of which Mrs. Kiphart is the trustee.
(7) In a Schedule 13D dated September 25, 2000, Domain Foundation, an enterprise
foundation created under the laws of Lichtenstein ("Domain"), and certain
subsidiaries of Domain, reported sole dispositive and voting power over
2,972,139 shares of common stock and shared dispositive and voting power over
69,035 shares of common stock. Includes 1,753,174 shares of common stock held by
Tallard Infologix N. V. ("Tallard"), 265,000 shares of common stock held by
Maida Vale Limited ("Maida Vale") and 1,021,722 shares of common stock issuable
upon the conversion of a convertible promissory note and its accrued interest
thereon through September 12, 2000 held by Maida Vale. Tallard and Maida Vale
are indirect subsidiaries of Domain.
(8) The shares held by Mr. Barthakur consist of 185,000 shares owned directly
and vested rights to purchase 20,250 shares pursuant to stock options.
(9) The shares held by Mr. Lindroth consist of vested options to purchase 15,000
shares.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
31
<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
-------
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 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
International, Inc., the Meyerson Group and ended December 31, 1994
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, 1993 10 to Form 8-K dated December 31,
among Saztec International, Inc., Tallard 1993
B.V., and the Preferred Shareholders
</TABLE>
32
<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.
33
<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, 2000
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.
Signature Capacity
--------- --------
/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
34
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
------------------ -------------------------
21 List of Subsidiaries
27 Financial Data Schedule
