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Previous: CYPRESS ASSET MANAGEMENT INC/TX, 13F-HR, 2000-05-15 |
Next: SENTRY TECHNOLOGY CORP, 10-Q, 2000-05-15 |
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarter ended March 31, 2000
OR
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to __________
| Commission File Number | 1-12727 |
SENTRY TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware (State or other jurisdiction of incorporation or organization) |
96-11-3349733 (I.R.S. Employer Identification No.) |
|
350 Wireless Boulevard, Hauppauge, New York (Address of principal executive offices) |
11788 (Zip Code) |
631-232-2100
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
As of May 12, 2000, there were 9,750,760 shares of Common Stock and 5,333,334 shares of Class A Preferred Stock outstanding.
SENTRY TECHNOLOGY CORPORATION
INDEX
| Page No. |
| PART I. FINANCIAL INFORMATION |
| Item 1. | Financial Statements (Unaudited) |
| Consolidated Balance Sheets -- March 31, 2000 and December 31, 1999 |
3 |
| Condensed Consolidated Statements of Operations -- Three Months Ended March 31, 2000 and 1999 |
4 |
| Condensed Consolidated Statements of Cash Flows -- Three Months Ended March 31, 2000 and 1999 |
5 |
| Notes to Condensed Consolidated Financial Statements -- March 31, 2000 |
6-7 |
| Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
8 - 9 |
| PART II. OTHER INFORMATION |
| Item 6. | Exhibits and Reports on Form 8-K | 10 |
Signatures
SENTRY TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, December 31,
2000 1999
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 990 $ 951
Accounts receivable, less allowance for doubtful
accounts of $684 and $683, respectively 4,798 6,838
Net investment in sales-type leases -
current portion 267 393
Inventories 5,937 5,258
Prepaid expenses and other current assets 425 166
------ -------
Total current assets 12,417 13,606
NET INVESTMENT IN SALES-TYPE LEASES -
non-current portion 85 108
SECURITY DEVICES ON LEASE, net 76 66
PROPERTY, PLANT AND EQUIPMENT, net 3,793 3,934
GOODWILL AND OTHER INTANGIBLES, net 3,980 4,227
OTHER ASSETS 39 66
------ -------
$ 20,390 $ 22,007
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Revolving line of credit $ 3,146 $ 3,075
Accounts payable 1,365 1,088
Accrued liabilities 2,280 2,769
Obligations under capital leases -
current portion 154 165
Deferred income 202 219
--------- ---------
Total current liabilities 7,147 7,316
OBLIGATIONS UNDER CAPITAL LEASES -
non-current portion 2,849 2,893
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY 288 290
--------- ---------
Total liabilities 10,284 10,499
REDEEMABLE CUMULATIVE PREFERRED STOCK 28,175 27,843
COMMON SHAREHOLDERS' EQUITY (DEFICIT)
Common stock 10 10
Additional paid-in capital 13,864 14,196
Accumulated deficit (31,943) (30,541)
--------- ---------
(18,069) (16,335)
--------- ---------
$ 20,390 $ 22,007
========= =========
See notes to the condensed consolidated financial statements.
SENTRY TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three Months Ended
March 31,
------------------
2000 1999
---- ----
REVENUES $ 4,872 $ 5,390
COSTS AND EXPENSES:
Cost of sales 2,659 2,773
Customer service expenses 1,157 1,700
Selling, general and administrative expenses 1,773 2,289
Research and development 226 313
Interest expense 158 137
--------- ---------
5,973 7,212
--------- ---------
OPERATING LOSS (1,101) (1,822)
OTHER INCOME - Gain on sale of assets (Note E) --- 503
--------- ---------
LOSS BEFORE INCOME TAXES (1,101) (1,319)
--------- ---------
INCOME TAXES --- ---
--------- ---------
NET LOSS BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE (1,101) (1,319)
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 301 ---
--------- ---------
NET LOSS (1,402) (1,319)
PREFERRED STOCK DIVIDENDS 332 321
--------- ---------
NET LOSS ATTRIBUTED TO COMMON SHAREHOLDERS $ (1,734) $ (1,640)
========= =========
NET LOSS PER COMMON SHARE BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE:
Basic $ (.15) $ (.17)
=========== ===========
Diluted $ (.15) $ (.17)
=========== ===========
NET LOSS PER COMMON SHARE
Basic $ (.18) $ (.17)
=========== ===========
Diluted $ (.18) $ (.17)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES
Basic 9,751 9,751
========= ===========
Diluted 9,751 9,751
========= ===========
See notes to the condensed consolidated financial statements.
SENTRY TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended
March 31,
------------------
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
-------------------------------------
Net loss $ (1,402) $ (1,319)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization of security
devices and property, plant and equipment 157 203
Amortization of goodwill and intangibles 249 398
Provision for bad debts 11 ---
Gain on sale of assets --- (503)
Changes in operating assets and liabilities:
Accounts receivable 2,029 261
Net investment in sales-type leases 149 120
Inventories (679) (342)
Accounts payable 277 870
Accrued liabilities (489) 113
Other, net (251) (126)
--------- ---------
Net cash provided by (used in) operating activities 51 (325)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of facilities --- 2,194
Purchase of property, plant and equipment, net (13) (37)
Security devices on lease (13) (1)
Intangibles (2) (3)
--------- ---------
Net cash provided by (used in) investing activities (28) 2,153
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in borrowings under the revolving line of credit 71 (1,052)
Repayment of obligations under capital leases (55) (46)
--------- ---------
Net cash provided by (used in) financing activities 16 (1,098)
--------- ---------
INCREASE (DECREASE) IN CASH (39) 730
CASH, at beginning of period 990 873
--------- ---------
CASH, at end of period $ 951 $ 1,603
========= =========
See notes to the condensed consolidated financial statements.
SENTRY TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE A -- Basis of Presentation - Knogo North America Inc. and Video Sentry Corporation MergerSentry (“Sentry”), a Delaware Corporation, was established to effect the merger of Knogo North America Inc. (“Knogo N.A.”) and Video Sentry Corporation (“Video Sentry”) which was consummated on February 12, 1997 (the “Effective Date”). The merger resulted in Knogo N.A. and Video Sentry becoming wholly owned subsidiaries of Sentry. The consolidated financial statements include the accounts of Sentry and its majority-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
The consolidated financial statements are unaudited. In the opinion of management, all adjustments, consisting of normal recurring adjustments necessary for a fair presentation of the financial information for the periods indicated, have been included. Interim results are not necessarily indicative of results for a full year.
NOTE B -- Net Investment in Sales-Type Leases
The Company is the lessor of security devices under agreements expiring in
various years through 2003. The net investment in sales-type leases consists
of:
March 31, 2000 December 31, 1999
-------------- -----------------
(in thousands)
Minimum lease payments receivable $ 399 $ 570
Allowance for uncollectible minimum lease payments (20) (29)
Unearned income (27) (40)
Unguaranteed residual value --- ---
--------- ---------
Net investment 352 501
Less current portion 267 393
--------- ---------
Non-current portion $ 85 $ 108
========= =========
NOTE C -- Inventories
Inventories consist of the following:
March 31, 2000 December 31, 1999
-------------- -----------------
(in thousands)
Raw materials $ 2,578 $ 2,333
Work-in-process 1,747 1,482
Finished goods 1,612 1,443
--------- ---------
$ 5,937 $ 5,258
========= =========
Reserves for excess and obsolete inventory totaled $3,343,000 and $3,404,000 as of March 31, 2000 and December 31, 1999, respectively and have been included as a component of the above amounts.
NOTE D -- Supply Agreement
Knogo N.A. had a supply agreement under which Sensormatic Electronics
Corporation (“Sensormatic”) was obligated to purchase products from
Knogo N.A. through June 30, 1997. Such products were priced to yield Knogo N.A.
a 35% gross margin. Although the supply agreement officially expired and minimum
purchase obligations ended, Sensormatic continued to purchase certain products
at similar margins. Sales to Sensormatic were $597,000 and $309,000 in the
quarters ended March 31, 2000 and 1999, respectively. Included in accounts
receivable as of March 31, 2000 and December 31, 1999 are amounts due from
Sensormatic of $424,000 and $269,000, respectively.
SENTRY TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE E -- Other Income – Gain on Sale of Assets
In February 1999, the Company sold its Puerto Rico manufacturing facility and
Illinois CCTV design center and related land for net proceeds of approximately
$2.2 million. A gain representing the excess of the net proceeds over the
carrying value of these properties of $503,000 was recognized in the first
quarter of 1999.
NOTE F -- Change in Accounting Principle
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 (SAB 101), Revenue Recognition in Financial Statements. The SAB
summarizes certain of the staff’s views in applying generally accepted
accounting principles to revenue recognition in the financial statements.
In accordance with SAB 101, the Company has changed its accounting method for recognizing revenue on the sale of equipment where post-shipment obligations exist. Previously, the Company recognized revenue for equipment when title transferred, generally upon shipment. Beginning with the first quarter of year 2000, the Company began recognizing revenue when installation is complete or other post-shipment obligations have been satisfied. The cumulative effect of the change in accounting method is a non-cash reduction in net earnings of $301,000, or $0.03 per share.
NOTE G -- Earnings Per Share
Basic earnings per share is determined by using the weighted average number of
common shares outstanding during each period. Diluted earnings per share further
assumes the issuance of common shares for all dilutive potential common shares
outstanding. The calculations for earnings per share are as follows:
2000 1999
---- ----
(in thousands, except
per share amounts)
Net Loss per Share:
Net loss before cumulative effect of accounting change $ (1,101) $ (1,319)
Preferred stock dividends (332) (321)
--------- ---------
(1,433) (1,640)
Cumulative effect of accounting change (301) ---
--------- ---------
Net loss attributable to common shareholders $ (1,734) $ (1,640)
========= =========
Weighted Average Common Shares 9,751 9,751
========= =========
Basic and Diluted Earnings per Common Share:
Before cumulative effect of accounting change $ (.15) $ (.17)
Cumulative effect of accounting change (.03) ---
----------- ----------
Basic and Diluted earnings per Common Share $ (.18) $ (.17)
=========== ===========
Since the Company has a net loss for all years presented, the effect of common stock options and warrants would be antidilutive.
SENTRY TECHNOLOGY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward Looking Statements
This report may include information that could constitute forward-looking statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements may involve risk and uncertainties that could cause actual results to differ materially from any future results encompassed within forward-looking statements.
Results of Operations:
Consolidated revenues were 10% lower in the quarter ended March 31, 2000 than in the quarter ended March 31, 1999. Revenues from third party customers, other than Sensormatic, in the current periods were $4,269,000 or 88% of total revenues, as compared to $5,081,000 or 94% of total revenues in the prior year period. Total revenues for the periods presented are broken out as follows:
Q-1 Q-1 % Change
2000 1999 Incr (Decr)
---- ---- -----------
(in thousands)
EAS $ 2,165 $ 1,927 12
CCTV 1,427 2,395 (40)
SentryVision(R) 287 295 (3)
3M library products 373 237 57
-------- --------- ---------
4,252 4,854 (12)
Service revenues and other 620 536 16
-------- --------- ---------
Total revenues $ 4,872 $ 5,390 (10)
======== ========= =========
The decrease in CCTV revenues during the current period is primarily related to a decrease in sales to one of the Company’s major customers.
Cost of sales were 55% of total revenues in the three months ended March 31, 2000 compared to 51% in the same period in the previous year. The increase in the percentage in the current year is primarily due to lower margins on sales of EAS products due to competitive pressures and higher sales to Sensormatic on an OEM basis which carry lower margins than normal sales to customers.
Customer service expenses were 32% lower in the first quarter of 2000 than in the first quarter of 1999 due to a reduction in the number of customer service representatives as a result of the Company’s restructuring of operations which took place in the fourth quarter of 1999.
Selling, general and administrative expenses were 23% lower when compared to last year’s first quarter primarily as a result of the savings from a reduced infrastructure, lower sales promotion expenses and lower amortization of goodwill. As a percentage of revenues, these expenses decreased by 6% from 42% to 36%.
Research and development costs were 28% lower when compared to the previous year’s period due to a 50% reduction in headcount.
Net interest expense for the first quarter of 2000 increased by $21,000 over the first quarter of 1999 due to higher average borrowings under the Company’s revolving credit agreement and higher interest rates.
During the quarter ended March 31, 1999, the Company sold its Puerto Rico manufacturing facility and Illinois design center for net cash proceeds of approximately $2.2 million which resulted in a net gain on the sale of $503,000.
SENTRY TECHNOLOGY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Due to net losses, Sentry has not provided for income taxes in either period presented.
In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial Statements. The SAB summarizes certain of the staff’s views in applying generally accepted accounting principles to revenue recognition in the financial statements. In accordance with SAB 101, the Company has changed its accounting method for recognizing revenue on the sale of equipment where post-shipment obligations exist. Previously, the Company recognized revenue for equipment when title transferred, generally upon shipment. Beginning with the first quarter of year 2000, the Company began recognizing revenue when installation is complete or other post-shipment obligations have been satisfied. The cumulative effect of the change in accounting method is a non-cash reduction in net earnings of $301,000, or $0.03 per share.
As a result of the foregoing, Sentry had a net loss of $1,402,000 in the quarter ended March 31, 2000 as compared to a net loss of $1,319,000 in the quarter ended March 31, 1999.
Preferred stock dividends of $332,000 and $321,000 were recorded in the first quarters of 2000 and 1999, respectively. Dividends accrued through February 12, 1999 were paid-in-kind as of that date. In connection with certain financial covenants under the Company’s agreement with its commercial lender, the Company is restricted from paying cash dividends, including the cash dividend on its Class A Preferred Stock which would otherwise have been payable in August 1999 and February 2000. Under the terms of the Class A Preferred Stock, the dividend will cumulate and Class A Preferred Stockholders, voting as a class, are entitled to elect two additional directors to the Company’s Board.
Liquidity and Capital Resources as of March 31, 2000
During the quarter the Company funded its operations and capital expenditures through borrowings under its revolving credit facility and use of existing cash.
The Company anticipates that current cash reserves, cash generated by operations and financing arrangements should be sufficient to meet the Company’s working capital requirements as well as future capital expenditure requirements for the next twelve months. In addition, on May 11, 2000, G.E. Capital Corporation amended the borrowing base formula providing for increased availability under the revolving credit facility by up to $500,000 through September 1, 2000.
Year 2000 Update
As of the date of this filing, the Company has not experienced any Year 2000 issues arising from its systems or those of its material vendors or suppliers. Failure by these third parties to be Year 2000 compliant may adversely affect, among other things, the Company’s production, revenue and the timing of cash receipts. The Company continues to maintain contact with its critical suppliers, financial institutions and other entities to determine the Year 2000 readiness of its material business relationships. If there are ongoing Year 2000 issues that arise at a later date, the Company has contingency plans in place to address these issues.
In light of the Company’s efforts, the Year 2000 issue has had no material adverse effect to date on the business or results of operations and is not expected to have a material impact on the Company’s financial condition. There are no unbudgeted expenditures expected to occur in the future. However, there can be no assurances that the Company or any third parties will not have ongoing Year 2000 issues that may arise in the future which could affect the financial statement results.
SENTRY TECHNOLOGY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
| Item 6. | Exhibits and Reports on Form 8-K |
| (a) | List of Exhibits: |
| 10.19 | Fourth Amendment to the Loan and Security Agreement between the Company and General Electric Capital Corporation dated May 11, 2000. |
| 27. | Financial Data Schedule (For SEC use only) |
| (b) | Reports on Form 8-K - There were no reports on Form 8-K filed for the three months ended March 31, 2000. |
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant had duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| SENTRY TECHNOLOGY CORPORATION |
| Date: May 12, 2000 | By: /s/ PETER J. MUNDY Peter J. Mundy, Vice President - Finance and Chief Financial Officer (Principal Financial and Accounting Officer) |
|
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