UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 06425
SENTO TECHNICAL INNOVATIONS CORPORATION
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(Exact name of registrant as specified in its charter)
Utah 87-0284979
------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
311 North State Street
Orem, Utah 84057
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(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (801)226-3355
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
------- -----
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
Class Outstanding at September 30, 1996
------------------------------ ---------------------------------
Common capital stock, 4,347,914
$.25 par value
Transitional Small Business Disclosure Format (check one):
Yes No X
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<PAGE>
SENTO TECHNICAL INNOVATIONS CORPORATION
Quarterly Report on Form 10-QSB
for the Quarter Ended September 30, 1996
INDEX
Part I - Financial Information
ITEM 1.
Condensed Consolidated Balance Sheets -
December 31, 1996 and April 30, 1996
Condensed Consolidated Statements of Operations -
Three and Nine Months Ended December 31, 1996 and 1995
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended December 31, 1996 and 1995
Notes To Financial Statements
ITEM 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II
ITEM 1
Legal Proceedings
ITEM 2
Change in Securities
ITEM 3
Defaults on Senior Securities
ITEM 4
Submissions of Matters to Vote of Security Holders
ITEM 5
Other Information
ITEM 6
Exhibits and Reports on Form 8-K
Signatures
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
SENTO TECHNICAL INNOVATIONS CORPORATION
Consolidated Balance Sheets
Decebmer 31, April 30,
1996 1996
---------------- -----------
ASSETS (Unaudited)
------
Current assets:
Cash $2,141,638 $1,552,806
Accounts receivable, net 3,098,741 2,176,642
Other current assets 92,170 7,806
Inventory 33,836 --
Work-In-Process 114,689 --
Deferred tax asset 42,723 42,723
----------- ------------
Total current assets 5,523,797 3,779,977
Fixed assets (Note B)
Land 36,021 36,021
Buildings 250,489 250,489
Furniture and equipment 739,656 526,005
Transportation equipment 11,516 11,516
Accumulated depreciation (319,866) (256,183)
----------- ------------
Net fixed assets 717,816 567,848
Interest in oil and gas properties -- 197,000
Other assets (Note C) 586,000 --
----------- ------------
$ 6,827,613 $ 4,544,825
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt $ 8,521 $ 7,721
Accounts payable 1,848,649 1,050,535
Accrued liabilities 459,811 488,660
Income taxes payable 147,025 52,715
Deferred maintenance revenue 1,089,926 1,017,364
Other deferred revenue 100,480 219,650
---------- ----------
Total current liabilities 3,654,412 2,836,645
---------- ----------
Long-term liabilities:
Long-term debt, excluding current portion (Note D) 208,999 215,691
Deferred tax liability 11,582 11,582
---------- ----------
Total long-term liabilities 220,581 227,273
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Stockholders' equity:
Common stock, $.25 par value. Authorized
8,000,000 shares; issued and outstanding
4,347,914 at December 31, 1996 and
3,891,325 shares at April 30, 1996 (Note E) 1,086,979 972,832
Additional paid-in capital 1,478,644 --
Retained earnings 386,997 508,075
---------- ----------
Total stockholders' equity 2,952,620 1,480,907
---------- ----------
$ 6,827,613 $ 4,544,825
=========== ===========
See accompanying notes to Condensed, Consolidated Financial Statements.
<PAGE>
SENTO TECHNICAL INNOVATIONS CORPORATION
Condensed Consolidated Statement of Operations
(Unaudited)
Three Months Ended Dec. 31, Nine Months Ended Dec 31,
1996 1995 1996 1995
---------------------------- -------------------------
NET SALES $4,131,652 $3,493,775 $13,932,238 $9,830,479
COST OF GOODS SOLD 2,627,380 2,148,121 9,074,420 5,734,932
---------- ---------- ----------- ----------
GROSS PROFIT 1,504,272 1,345,654 4,857,818 4,095,547
EXPENSES:
Selling, General, and Admin 1,515,683 1,584,246 4,543,864 3,883,022
Exp. Research and Development 189,570 114,986 463,563 254,012
--------- --------- --------- ---------
OPERATING INCOME (LOSS) (200,981) (353,578) (149,609) (41,487)
OTHER REVENUE AND (EXPENSES) (28,157) (6,847) 52,491 (11,411)
--------- --------- --------- --------
INCOME BEFORE INCOME TAXES (229,138) (360,425) (97,118) (52,898)
PROVISION FOR INCOME TAXES 0 0 (33,400) 0
NET LOSS $(229,138) $(360,425) $(130,518) $(52,898)
========== ========== ========== =========
NET LOSS PER SHARE $ (0.05) $ (0.09) $ (0.03) $ (0.01)
========== ========== ========= =========
Weighted Average Number of Common
and Common Equivalent Shares
Outstanding 4,347,914 3,949,750 4,314,991 3,949,750
========== ========== ========== ==========
See accompanying notes to Condensed Consolidated Financial Statements.
<PAGE>
Sento Technical Innovations Corporation
Statements of Cash Flows
(Unaudited)
Nine months ended December 31,
1996 1995
-------------------------------
Cash flows from operating activities:
Net loss (130,518) (52,898)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Adjustment from fiscal year end change 9,443 --
Depreciation 63,683 34,064
Decrease (increase) in assets:
Accounts receivable (922,099) (807,482)
Other current assets (84,364) (22,717)
Inventory and Work in Process (148,525) --
Increase (decrease) in liabilities:
Accounts payable 798,114 735,319
Accrued liabilities (28,849) (10,570)
Income taxes payable 94,310 990,559
Deferred maintenance revenue 72,558 137,079
Other deferred revenue (119,170) --
--------- -------
Net cash provided by (used in)
operating activities (395,416) 1,003,354
--------- ---------
Cash flows from investing activities:
Capital expenditures (602,651) (45,454)
Net cash used in investing
activities (602,651) (45,454)
--------- --------
Cash flows from financing activities:
Proceeds from issuance of stock 1,592,791 --
Principal payments of long-term debt (5,892) (94,013)
Net cash provided by (used in)
financing activities 1,586,899 (94,013)
--------- --------
Net increase in cash 588,832 863,887
Cash at beginning of year 1,552,806 766,247
--------- -------
Cash at end of year $2,141,638 $1,630,134
========== ==========
Supplemental Disclosures of Cash Flow Information
- -------------------------------------------------
Cash paid for interest $25,935 $26,999
Cash paid for income taxes $0 $0
See accompanying notes to financial statements.
<PAGE>
SENTO TECHNICAL INNOVATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(Unaudited)
A. BASIS OF PRESENTATION
---------------------
The balance sheet as of December 31, 1996, the statements of operations for
the three and nine month periods ended December 31, 1996 and December 31,
1995, and the statements of cash flows for the nine month periods ended
December 31, 1996 and December 31, 1995 have been prepared by the Company
without audit. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included.
Operating results for the nine months ended December 31, 1996 are not
necessarily indicative of the results that may be expected for the
Company's fiscal year ending March 31, 1997. The unaudited condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-KSB/A for the year ended April 30, 1996.
Management has determined that commencing in fiscal year 1997, a new fiscal
year end of March 31 will be adopted to coincide with the calendar quarter
end. On June 18, 1996, the Company filed a Current Report on Form 8-K to
report this change. The Company has reported the transition to March 31
fiscal year end by filing a Transition Report on Form 10-QSB for the
transition period from May 1, 1996 to June 30, 1996.
B. FIXED ASSETS
------------
Fixed assets are stated at cost. Depreciation of fixed assets is computed
on the straight-line method over the estimated useful lives of individual
classes of assets. The estimated useful lives of the individual classes of
assets are as follows:
Buildings 40 years
Furniture and equipment 3-10 years
Transportation equipment 5 years
C. OTHERS
------
Other assets are comprised as follows:
Licensed Technology $504,000
Option to purchase Australian
Software Innovations Pty. Ltd. 82,000
--------
Total Other Assets $586,000
<PAGE>
D. NOTES PAYABLE
-------------
Long-term debt at December 31, 1996 consisted of the following:
8.25% first mortgage of $118,344 payable in monthly installments of
$1,173, including interest, with final payment of $107,417 due July
15, 1999, secured by the Company's land and building with a book value
of $255,831 at April 30, 1996
8.70% SBA loan of $99,176 payable in monthly installments of $1,078,
including interest, secured by the Company's land and building with a
book value of $255,831 at April 30, 1996
E. COMMON STOCK
------------
On September 30, 1996, the Company sold 10,541 shares of its Common Stock
to its employees pursuant to the Company's Employee Stock Purchase Plan,
from which the Company received proceeds of $31,623. The Company's
adoption of the Employee Stock Purchase Plan was ratified by the Company's
shareholders at the Company's Annual Meeting of Shareholders held on
September 10, 1996.
In June, 1996 the Company completed a private offering to sell unregistered
shares of its common stock to certain accredited investors. The shares
were offered in units, at $7.00 per unit, with each unit consisting of two
shares of common stock plus one warrant to buy one share of common stock
for $3.50 before April 30, 1998. A total of 223,024 units were sold from
which $1,561,168 of cash proceeds were received. The Company intends to
use the proceeds to acquire additional software licenses and technology, to
fund additional research and development, and for additional working
capital.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
Sento Technical Innovations Corporation ("Sento" or the "Company") develops,
configures, markets and distributes industry-leading hardware and software
computing solutions, combined with consulting, training and support services, to
business, government and educational organizations world-wide through direct
sales and marketing, channel distribution, and industry partners.
The Company, through its four wholly-owned subsidiaries, Spire Technologies,
Inc. ("Spire Technologies"), Spire Systems Incorporated ("Spire Systems"),
DewPoint Distributed Solutions Incorporated ("DewPoint") and Centerpost
Innovations Pty. Ltd., develops and implements system management and office
automation solutions for open and proprietary computing environments, acts as a
"service and value-added reseller" and distributor of software developed by
third parties, resells Digital Equipment Corporation ("Digital") network
computer systems and components on value-added basis and manages value-added
reseller and distribution channels in the Americas, Europe, and Southeast Asia.
The Company offers a wide range of desktop, workstation, client/server and
centralized computing software, systems and peripheral equipment, as well as
channel management and support services for both domestic and international
clientele in a wide variety of industries and computing environments, including
UNIX, Windows NT and Digital Open VMS.
In September 1996, the Company obtained an option to acquire the assets
(including all intellectual property) of Australian Software Innovations
(Services) Pty. Ltd. ("ASI"), a developer of UNIX-based management and
performance monitoring software and provider of software education and
consulting services based in Sydney, Australia. ASI develops and markets
performance monitoring software and provides related technical consulting
services to customers located in Asia, Europe, the United Kingdom and the Unit
of Operations
Three Months Ended December 31, 1996 Compared to Three Months Ended
- -------------------------------------------------------------------
December 31, 1995
- -----------------
Net sales for the three months ended December 31, 1996 were $4,131,652, compared
to $3,493,775 for the three months ended December 31, 1995, an increase of 18%.
The increase in net sales resulted from increases in both software product sales
and computer hardware sales. New versions of existing software, expansion of
product lines, and the release of software for new operating platforms being
sold by an expanded sales staff have contributed to the increase in order rates
for the Company's software products. Increasing acceptance of Digital's Alpha
hardware system contributed substantially to the increase in hardware sales,
which represented 40% and 43% of the Company's net sales for the quarters ended
December 31, 1996 and 1995, respectively.
Gross margin for the three months ended December 31, 1996 was 36% of net sales
compared to 39% of net sales for the comparable period in 1995. The decrease in
gross margin was the result of several new software products added to the
Company's existing software line which require higher royalties to be paid the
respective manufacturers than the Company's historical line of software
products.
Research and Development expenses for the three months ended December 31, 1996
were $189,570, compared to $114,986 for the three months ended December 31,1995,
an increase of 65%. This increase represents the expansion into new
software product lines and development costs relating to new products expected
to be introduced to the market in the future.
Selling, general and administrative expenses for the three months ended December
31, 1996 were $1,515,683 compared to $1,584,246 for the three months ended
December 31, 1995.
Nine Months Ended December 31, 1996 Compared to Nine Months Ended
- -------------------------------------------------------------------
December 31, 1995
- -----------------
Net sales for the nine months ended December 31, 1996 were $13,932,238, compared
to $9,830,479 for the nine months ended December 31, 1995, an increase of 42%.
The increase in net sales resulted from increases in both software product sales
and computer hardware sales. New versions of existing software, expansion of
product lines, and the release of software for new operating platforms being
sold by an expanded sales staff contributed to the increase in order rates for
the Company's software products. Increasing acceptance of Digital's Alpha
hardware system contributed substantially to the increase in hardware revenues
which represented 48% and 40% of the Company's net sales for the nine-month
periods ended December 31, 1996 and 1995, respectively.
Gross margin for the nine months ended December 31, 1996 was 35% of sales,
compared to 42% of sales for the comparable period in 1995. The decrease in
gross margin was the result of two primary factors: The Company's hardware sales
increased as a percentage of net sales faster than did the Company's software
sales which carry a higher gross margin, and several of the new software
products added to the Company's existing software line require higher royalties
to be paid the respective manufacturers than the Company's historical line of
software products.
Research and development expenses for the nine months ended December 31, 1996
were $463,563, compared to $254,012 for the nine months ended December 31, 1995,
an increase of 82%. The Company recently licensed several software products and
is therefore responsible for the continued development and support of these
products. This increase in expense represents the expansion into new software
product lines and development costs relating to new products which will be
introduced into the market in the future.
Selling, general and administrative expenses for the nine months ended December
31, 1996 were $4,543,864 compared to $3,883,022 for the nine months ended
December 31, 1995, an increase of 17%in selling expenses resulted primarily from
the Company's formation of DewPoint Distributed Solutions, Inc., the expansion
of the Company's direct sales force, and increased marketing efforts. General
and administrative expenses increased due to the Company's expanded operations,
legal and accounting expenses relating to the Company's new public reporting
responsibilities, and acquisition activities.
Other income consists primarily of interest received from the investments of
excess cash provided by the issuance of common stock in a private equity
transaction completed in June 1996 (see Liquidity and Capital Resources).
<PAGE>
Liquidity and Capital Resources
The Company has financed its operations and capital requirements primarily
through cash flow generated from operations, equipment lease financing
facilities, and sales of equity securities. Long term borrowings have been kept
to a minimum and used primarily for the purchase of a building to house a
portion of the Company's operations. In June 1996 the Company acquired
additional cash through completion of a private placement of units consisting of
446,048 shares of common stock and warrants to purchase 223,024 shares of common
stock, resulting in proceeds to the Company of $1,561,168, which is reflected in
the unaudited financial information.
Effective June 1, 1996, the Company established two lines of credit with a
commercial bank, one for $1,000,000, secured by trade receivables, at prime plus
two percent, expiring June 1, 1997; the other for $350,000, secured by
equipment, at prime plus two percent, expiring May 1, 1999. As of January 31,
1997, none of the $1,000,000 line of credit had been used and none of the
$350,000 line had been used for purchase of equipment.
At December 31, 1996, the cash balance was $2,141,638, compared to $1,552,806 as
of April 30, 1996. Working capital increased from $943,332 at April 30, 1996 to
$1,869,382 at December 31, 1996. The Company's current ratio increased from
1.33 at April 1996 to 1.996. This increase was due primarily to the cash
received from the proceeds of the private placement described above.
The Company increased its investment in equipment during the nine months ended
December 31, 1996 by $213,651 in order to expand its capacity. The Company also
increased its investment in licensed technology by $586,000 during the
nine-month period.
Based on anticipated working capital requirements, the Company believes that
existing cash, cash generated from operations, and debt financing and borrowings
under the Company's existing lines of credit will be sufficient to finance the
operations of the Company in the near term. The Company continues to evaluate
opportunities for the license or acquisition of additional software products as
well as the possible acquisition of, or development of strategic alliances with,
other companies which may have products or distribution channels that are
compatible with the business objectives of the Company. The Company has
obtained an option, which is exercisable until September 10, 1997, to acquire
certain assets of ASI. If the Company exercises the ASI option or identifies
and proceeds with any other acquisition or alliance opportunity, additional
capital, in the form of debt or equity financing, may be required.
Factors Affecting Future Results
This Quarterly Report on Form 10-QSB contains forward-looking statements with
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Statements in
this report regarding the expansion of the Company's operations and any future
acquisition activities are forward-looking statements. Words such as "expects",
"intends", "believes", "anticipates", and "likely" also identify forward-looking
statements. Actual results could differ materially from those anticipated for a
number of reasons, including, among others, increased competition, a downturn in
the market for hardware and software products, increases in interest rates, and
other unanticipated factors. Risk factors, cautionary statements, and other
conditions that could cause actual results to differ are contained in the
Company's filings with the Securities and Exchange Commission, including the
Company's Annual Report on Form 10-KSB/A.
<PAGE>
PART II: OTHER INFORMATION
- ---------------------------
ITEM 1. Legal Proceedings
a. None
ITEM 2. Changes in Securities
a. None
ITEM 3. Defaults on Senior Securities
a. None
ITEM 4. Submission of Matters to Vote of Security Holders
a. None
Item 5. Other Information
a. None
Item 6. Exhibits and Reports on Form 8K
a. None
SIGNATURES
----------
Pursuant to the requirements 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.
SENTO TECHNICAL INNOVATIONS CORPORATION
---------------------------------------
(Registrant)
Date: 02-13-97 \s\ Robert K. Bench
--------- ---------------------------------------
Robert K. Bench
President and Chief Financial Officer
<PAGE>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SENTO
TECHNICAL INNOVATIONS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET AND
STATEMENT OF OPERATIONS AS OF AND FOR THE NINE MONTHS ENDED DECEMBER 31, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
Appendix A to Item 601(c) of Regulation S-B
Commercial and Industrial companies
Article 5 of Regulation S-X
Tag Amount Item Number Item Description
10) CASH 2,141,638 5-02(1) Cash and cash items
11) SECURITIES 0 5-02(2) Marketable securities
12) RECEIVABLES 3,371,497 5-02(3)(a)(1) Notes and accounts
receivable--trade
13) ALLOWANCES (272,756) 5-02(4) Allowance for doubtful
accounts
14) INVENTORY 33,836 5-02(6) Inventory
15) CURRENT ASSETS 5,523,797 5-02(9) Total current assets
16) PP&E 1,037,682 5-02(13) Property, plant, and
equipment
17) DEPRECIATION (319,866) 5-02(14) Accumulated depreciation
18) TOTAL ASSETS 6,827,613 5-02(18) Total assets
19) CURRENT LIABS 3,654,412 5-02(21) Total current liabilities
20) BONDS 0 5-02(22) Bonds, mortgages, and
similar debt
21) PREFERRED-MANDATORY 0 5-02(28) Preferred stock--mandatory
22) PREFERRED 0 5-02(29) Preferred stock--no
mandatory
23) COMMON 1,086,979 5-02(30) Common stock
24) OTHER SE 1,865,641 5-02(31) Other stockholders' equity
25) TOT LIAB & EQUITY 6,827,613 5-02(32) Total liabs and
stockholders' equity
26) SALES 13,932,238 5-03(b)1(a) Net sales of tangible
products
27) TOTAL REVENUES 13,932,238 5-03(b)1 Total revenues
28) CGS 9,074,420 5-03(b)2(a) Cost of tangible goods sold
29) TOTAL COSTS 5,007,427 5-03(b)2 Total costs and expenses
30) OTHER EXPENSES 48,000 5-03(b)3 Other costs and expenses
31) LOSS PROVISION 0 5-03(b)5 Provision for doubt accts
and notes
32) INTEREST EXPENSE 7,739 5-03(b)(8) Interest and amort. of debt
discount
33) INCOME PRETAX -97,118 5-03(b)(10) Income before taxes and
other items
34) INCOME TAX 33,400 5-03(b)(11) Income tax expense
35) INCOME-CONTINUING 0 5-03(b)(14) Income/loss continuing
operations
36) DISCONTINUED 0 5-03(b)(15) Discontinued operations
37) EXTRAORDINARY 0 5-03(b)(17) Extraordinary items
38) CHANGES 0 5-03(b)(18) Cumulative effect--changes
prin.
39) NET INCOME -130,518 5-03(b)(19) Net income or loss
40) EPS-PRIMARY 5-03(b)(20) EPS--primary.
41) EPS-DILUTED 5-03(b)(20) EPS--fully diluted.
<PAGE>
