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: June 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 06425
SENTO CORPORATION
-----------------
(Exact name of small business issuer as specified in its charter)
Utah 87-0284979
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
808 East Utah Valley Drive
American Fork, Utah 84003
--------------------------
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (801)492-2900
Sento Technical Innovations Corporation
311 North State, Orem Utah 84057
---------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 June 30, 1998
--------------------- ----------------------------
Common capital stock, 5,825,664
$.25 par value
Transitional Small Business Disclosure Format (check one):
Yes No X <PAGE>
<PAGE>
Sento Corporation
Quarterly Report on Form 10-QSB
for the Quarter ended June 30, 1998
INDEX
Part I - Financial Information
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets -
June 30, 1998 and March 31, 1998
Condensed Consolidated Statements of Operations -
Three Months Ended June 30, 1998 and 1997
Condensed Consolidated Statements of Cash Flows -
Three Months Ended June 30, 1998 and 1997
Notes To Financial Statements
ITEM 2.
Management's Discussion and Analysis or Plan of Operation
Part II - OTHER INFORMATION
ITEM 2
Changes in Securities
ITEM 5
Other Information
ITEM 6
Exhibits and Reports on Form 8-K
Signatures
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
SENTO CORPORATION
AND SUBSIDIARIES
Consolidated Condensed Balance Sheet<PAGE>
June 30, March 31,
1998 1998
Assets (Unaudited)
------- ------------ ------------
Current assets:
Cash $5,209,826 $5,807,014
Accounts receivable (net) 3,030,308 4,076,715
Inventories 303,909 302,172
Other current assets 1,634,689 2,015,059
----------- -----------
Total current assets 10,178,732 12,200,960
Property and equipment (net) 1,304,815 1,274,902
Intangible assets (net) 1,386,992 1,513,758
Other assets 1,065,724 871,032
------------ -----------
Total Assets 13,936,263 $15,860,652
============ ===========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $199,260 $131,774
Accounts payable 1,684,482 2,720,562
Accrued liabilities 1,200,360 1,399,197
Deferred revenue 2,236,704 2,280,510
---------- -----------
Total current liabilities 5,320,806 6,532,043
Long-term liabilities:
Deferred revenue 0 175,000
Convertible bonds 944,533 944,533
Long-term debt, excluding current portion 414,622 362,959
Deferred tax liability 271,539 271,539<PAGE>
---------- -----------
Total long-term liabilities 1,630,694 1,754,031
Stockholders' equity :
Common stock 1,453,742 1,435,268
Additional paid-in capital 6,190,445 5,950,290
Cumulative effect of foreign currency (52,956) (49,889)
translation
Deferred compensation (306,012) (338,357)
Retained earnings (deficit) (300,456) 577,266
---------- -----------
Total stockholders' equity 6,984,763 7,574,578
----------- -----------
$13,936,263 $15,860,652
=========== ===========
<PAGE>
SENTO CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
Three months Three months
ended ended
June 30, 1998 June 30, 1997
------------ ------------
Revenues:
Product sales and maintenance $3,346,934 $2,753,315
Training 766,223 0
Consulting 849,165 615,600
Technical services 694,644 615,599
----------- -----------
Total revenues 5,656,966 3,984,514
Cost of sales 3,808,827 2,651,706
----------- -----------<PAGE>
Gross profit 1,848,139 1,332,808
Costs and expenses:
Selling and marketing 2,238,223 1,000,927
General and administrative 777,613 753,486
Amortization 126,766 0
------------ ------------
Total costs and expenses 3,142,602 1,754,413
Operating income (loss) (1,294,463) (421,605)
Other income (expense) 466,653 26,274
------------ ------------
Income (loss) before taxes (827,810) (395,331)
Income tax expense 49,912 250
------------ ------------
Net loss $(877,722) $(395,581)
Basic net loss per share $(.15) (.09)
Diluted net loss per share N/A N/A
Shares used in per share calculation:
Basic 5,790,109 4,351,247
Diluted 6,290,536 4,704,367
<PAGE>
SENTO CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three months Three months
ended ended
June 30, 1998 June 30, 1997
------------ -----------
OPERATING ACTIVITIES
Cash flows from operating activities:
Net loss $(877,722) $(395,581)<PAGE>
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation & amortization 231,802 47,409
Decrease (increase) in assets:
Accounts receivable 1,046,407 (590,983)
Other assets 183,942 (199,136)
Increase (decrease) in liabilities:
Accounts payable (1,036,080) 264,013
Accrued liabilities (198,837) 268,323
Other deferred revenue (218,806) 147,603
------------ -----------
Net cash provided by (used in) operating (869,294) (458,352)
activities:
INVESTING ACTIVITIES
Cash flows from investing activities:
Proceeds from the sale of an asset 0 1,400
Purchase of furniture and equipment (102,605) (24,131)
------------ ------------
Net cash proved by (used in) investing (102,605) (22,731)
activities
FINANCING ACTIVITIES
Cash flows from financing activities:
Proceeds from issuance of stock 258,629 2,236
Subscriptions 0 762,500
Issuance of long-term debt 146,219 0
Foreign currency translation (3,067) 0
Principal payments of long-term debt (27,070) (2,010)
------------ ------------
Net cash provided by (used in) financing 374,711 762,726
activities
Net decrease in cash (597,188) 281,643
Cash at beginning of period 5,807,014 2,225,338<PAGE>
Cash at end of period 5,209,826 $2,506,981
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid for interest $25,720 $4,722
Cash paid for income taxes $3,615 $ 250
<PAGE>
SENTO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(Unaudited)
A. BASIS OF PRESENTATION
The balance sheet as of June 30, 1998, the statements of operations for
the three month periods ended June 30, 1998 and June 30, 1997, and the
statements of cash flows for the three month periods ended June 30, 1998 and
June 30, 1997 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 three months ended June 30, 1998 are not
necessarily indicative of the results that may be expected for the Company's
fiscal year ending March 31, 1999. 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 for the year ended March 31, 1998.
B. INVENTORIES
Inventories at June 30, 1998 and March 31, 1998 consist primarily of
computer hardware and software available for resale.
C. COMPREHENSIVE LOSS
The Company adopted Statement of Financial Accounting Standards No. 130
(SFAS 130), "Reporting Comprehensive Income," effective April 1, 1998. SFAS
130 establishes standards for reporting and displaying comprehensive earnings
(loss) and its components in financial statements. The components of the
Company's comprehensive earnings (loss) are as follows:
Three months Three months
ended ended
June 30, 1998 June 30, 1997<PAGE>
---------------- --------------
Net loss (877,722) (395,581)
Foreign currency translation (3,067) 0
adjustment, net of income taxes
Comprehensive loss (880,789) (395,581)
D. COMMON STOCK
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. In the first quarter of 1998, 73,894
warrants were exercised for proceeds of $258,629.
E. LOSS PER COMMON SHARE
Earnings (loss) per common share is computed based on the weighted-
average number of common shares and, as appropriate, dilutive common stock
equivalents outstanding during the period. Stock options are considered to
be common stock equivalents.
Basic earnings (loss) per common share is the amount of earnings (loss)
for the period available to each share of common stock outstanding during the
reporting period. Diluted earnings (loss) per share is the amount of
earnings (loss) for the period available to each share of common stock
outstanding during the reporting period and to each share that would have
been outstanding assuming the issuance of common shares for all dilutive
potential common shares outstanding during the period.
In calculating earnings (loss) per common share, the earnings (loss)
were the same for both the basic and diluted calculation. For the three
months ended June 30, 1998, there were outstanding common stock equivalents
to purchase 4,021,191 shares of common stock that were not included in the
computation of the net loss per common share as the effect would have been
anti-dilutive, thereby decreasing the net loss per common share.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Sento Corporation ("Sento") provides integrated information technology ("IT")
solutions for Windows NT, UNIX, Open VMS, Internet/Intranet, and networked
computing environments. Through its wholly-owned subsidiaries, Sento<PAGE>
delivers outsourced training, consulting, technical support services,
hardware and software solutions.
Sento Training Corporation ("Sento Training") provides classroom training
courses, seminar training workshops, customized corporate training programs,
and multi-media presentations, all of which are designed to teach and
reinforce skills required to make IT systems work effectively. Sento
Consulting Corporation delivers customized IT consulting services intended to
help Sento clients realize the benefits of advanced IT solutions in the areas
of network, systems, and financial information consulting. Sento Technical
Services Corporation offers a range of IT outsourcing services consisting of
"call center,""helpdesk," and technical support services. DewPoint
Distributed Solutions Corporation provides distribution, reseller, and
channel management for leading software and hardware manufacturers.
In addition, the Company conducts substantially all of its foreign operations
through Sento Australia Pty. Ltd. based in Sydney, Australia and Sento
Limited, located near London, England.
Historically, Sento operated as a Value Added Reseller generating revenues
from its sales and distribution of third party hardware and software
products. As a reseller, the Company is dependent on third-party suppliers,
with over forty-five percent of the Company's revenues derived from products
it obtained from two suppliers. During the past year, the Company began a
strategic transition using its technical core competencies to offer IT
outsourcing services such as help desk, systems and network consulting, and
IT training.
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO
THREE MONTHS ENDED June 30, 1998.
Total Revenue
Total revenue increased $1,672,452 to $5,656,966 for the quarter ended June
30, 1998 from $3,984,514 for the quarter ended June 30, 1997, representing a
42% increase. Revenues reflected represent the Company's four lines of
business:
Products and maintenance revenues, which include both computer hardware and
software, increased 21% or $593,618 from $2,753,316 for the quarter ended
June 30, 1997 to $3,346,934 for the quarter ended June 30, 1998.
Approximately $1,246,323 of the revenues generated for the quarter ended June
30, 1998 were generated from the following acquisitions completed during the
Company's fiscal year ended March 31, 1998: Australian Software Innovations
Pty. Ltd., acquired in July 1997, CDG Technologies, acquired in July 1997, PC
Business Solutions, acquired in August 1997, and Software Innovations Ltd.,
acquired in October 1997.
Training, which represents revenues generated by Sento Training through its
acquisition, on December 31, 1997, of Astron Incorporated. Revenues were
$766,223 for the quarter ended June 30, 1998 compared to no revenues for the
quarter ended June 30, 1997.<PAGE>
Consulting revenues, increased 38% or $233,565 from $615,600 for the quarter
ended June 30, 1997 to $849,165 for the quarter ended June 30, 1998.
Technical Services revenues increased 13% or $79,045 from $615,599 for the
quarter ended June 30, 1997 to $694,644 for the quarter ended June 30, 1998.
Cost of Sales
Cost of sales consists primarily of salaries and employee benefits for the
Company's full and part-time consultants, engineers, agents, and instructors;
travel expenses relating to consulting and training activities; the costs to
third party manufacturers for software and hardware products, and
depreciation of office equipment used in the technical support services.
Cost of sales increased $1,157,121 to $3,808,827 for the quarter ended June
30, 1998 from $2,651,706 for the quarter ended June 30, 1997. The increase
in cost of sales is a reflection of both the increase in sales and an
increase in the cost of third party hardware and software. Cost of sales as
a percentage of sales increased from 66% for the quarter ended June 30, 1997
to 67% for the quarter ended June 30, 1998. This reflects the continuing
deterioration of profit margins associated with reselling third party
manufacturer's hardware and software products. This continuing decrease in
profit margins was one of the factors that prompted the Company's initiative
to expand its product offerings to include additional IT services such as
training and technical support services.
Selling and Marketing Expenses
Selling and marketing expenses consist of salaries, commissions, and employee
benefits for sales executives, managers, and sales personnel associated with
the Company's direct sales force which operates from four geographical
locations in the United States, two locations in Australia, and one location
in England; it also includes marketing, travel and business development costs
directly associated to the sales function.
Sales and marketing costs increased $1,364,062 to $2,364,989 for the quarter
ended June 30, 1998, compared to $1,000,927 for the quarter ended June 30,
1997. This represents an increase of 136% . Sales and marketing expenses as
a percent of total revenues increased from 25% for the period ended June 30,
1997 to 41% for the period ended June 30, 1998. These increases relate to
increased sales activities in the Company's legacy product lines and also the
expansion of the Company's sales and marketing activities to launch its two
new lines of IT training and IT technical support services.
General and Administrative Expenses
General and administrative expenses increased $24,127 to $777,613 for the
quarter ended June 30, 1998, compared to $753,486 for the quarter ended June
30, 1997.<PAGE>
Operating loss increased $872,858 to $1,294,463 for the quarter ended June
30, 1998, compared to a loss of $421,605 for the quarter ended June 30, 1997.
This increased loss resulting principally from decreased gross margins for
the Company's legacy business as a reseller of third party hardware and
software products and the Company's increased activities relating to its
launch of its two new service lines, IT training and technical services.
Other income for the quarter ending June 30, 1998 consisted of interest
income, amortization of deferred revenue relating to the Company's sale of
its Open Aviator product to BMC in July of 1997, and a gain on sale of assets
during the quarter.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998 the Company had approximately $5,209,826 of cash and cash
equivalents, compared to $5,807,014 at March 31, 1998. The Company's primary
sources of liquidity have been cash from operations, cash received from sale
of assets and cash provided through equity offerings. In addition the
company has financed most of the equipment utilized in its business through
long term leasing arrangements.
Operating activities used net cash of $869,294 for the quarter ended June 30,
1998 and $458,352 for the quarter ended June 30, 1997. The Company used
$102,605 and $24,131 for the purchase of furniture and equipment for the
quarters ended June 30, 1998 and 1997 respectively. The Company received
$258,629 and $2,236 from proceeds of stock issued pursuant to the exercise of
stock options and warrants during the quarters ending June 30, 1998 and 1997
respectively. The Company anticipates its existing sources of liquidity,
expected lease lines, and funds generated from operations, will provide
adequate cash to fund its operations through the third quarter of fiscal
1999. As part of its growth strategy, the Company is actively looking for
acquisition opportunities. Acquisitions will require the Company to find
alternate sources of funding.
Year 2000
The Company believes that the effect of the Year 2000 on its internal
information systems will have an immaterial impact on the Company. Year 2000
compliance is creating significant demand for IT products and services such
as those provided by the Company. There can be no assurance that the passage
of the Year 2000 will not have a material adverse effect on the demand for
the Company's services. In addition, while the Company is not aware of any
existing or potential claims, the occurrence of Year 2000 related system
failures in the information systems of clients of the Company could have a
material adverse effect on the Company's business, financial condition and
results of operation, whether or not the Company bears any responsibility,
legal or otherwise, for the occurrence of those problems.
Recently Issued Financial Accounting Standards<PAGE>
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes new standards
for reporting information about operating segments in interim and annual
financial statements. This statement is effective for fiscal years beginning
after December 15, 1997. The Company does not believe that SFAS No. 131 will
have a significant impact on its financial statements.
Safe Harbor Provision
This Form 10-QSB contains certain forward-looking statements (as defined in
Section 21E of the Securities Exchange Act of 1934, as amended) that involve
substantial risks and uncertainties. When used in this Form 10-QSB, the
words "anticipate" and "expect" and similar expressions as they relate to the
Company or its management are intended to identify such forward-looking
statements. The Company's actual results, performance or achievements could
differ materially from the results, performance or achievements expressed in,
or implied by, these forward-looking statements. Risks and uncertainties and
other factors that could cause or contribute to such differences include, but
are not limited to, difficulties in attracting and retaining highly skilled
employees; the Company's ability to manage rapid growth and expansion into
new geographic areas and service lines; the Company's ability to manage the
risks associated with client projects and risks related to recently completed
and potential future acquisitions; The Company's ability to develop IT
solutions that keep pace with continuing changes in technology, evolving
industry standards and changing client preferences; and risks related to Year
2000 failures in client's information systems. These and other risks,
uncertainties and other factors are more fully described in the Company's
10-KSB.
PART II: OTHER INFORMATION
Item 2. Changes in Securities
a. 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. In the first quarter of 1998, 73,894 warrants were exercised
for proceeds of $258,629.
The sale of the units was effected in reliance upon exemptions for
sales of securities not involving any public offering, as set forth
in Section 4(2) of the Securities Act. The Company's reliance upon
such exemptions was based upon representations and warranties of
the purchasers contained in subscription documents submitted to the
Company by each purchaser, as well as the Company's review of
purchaser questionnaires submitted by each purchaser.
Item 3. Defaults on Senior Securities
a. None
Item 4. Submission of Matters to Vote of Security Holders<PAGE>
a. None
Item 5. Other Information
a. In connection with recent revisions to Rule 14a-8 and related rules
promulgated under the Securities Exchange Act of 1934, as amended,
the Company has elected to provide the following information
regarding discretionary proxy voting at the Company's 1999 annual
meeting of shareholders (the "1999 Meeting"). If a shareholder
desiring to advance a proposal for consideration at the Company's
1999 Meeting fails to notify the Company of the proposal at least
45 days prior to the month and day of mailing the Company's proxy
statement relating to the 1998 annual meeting of shareholders (July
7), then management proxies will be allowed to use their
discretionary voting authority when the proposal is raised at the
1999 meeting, without any discussion of the matter in the Company's
proxy statement.
Item 6. Exhibits and Reports on Form 8K
a. Exhibits - Exhibit No. 27 Financial Data Schedule (EDGAR)
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 CORPORATION
(Registrant)
/s/ Kieth E. Sorenson
By: ---------------------
Kieth E. Sorenson
President and Chief Executive Officer
/s/ Robert K. Bench
By: -------------------
Robert K. Bench
Executive Vice President and
Chief Financial Officer<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> JUN-30-1998
<CASH> 5,209,826
<SECURITIES> 0
<RECEIVABLES> 3,030,308
<ALLOWANCES> 0
<INVENTORY> 303,909
<CURRENT-ASSETS> 1,634,689
<PP&E> 1,304,815
<DEPRECIATION> 0
<TOTAL-ASSETS> 13,936,263
<CURRENT-LIABILITIES> 5,320,806
<BONDS> 0
0
0
<COMMON> 1,453,742
<OTHER-SE> 5,531,021
<TOTAL-LIABILITY-AND-EQUITY> 13,936,263
<SALES> 5,656,966
<TOTAL-REVENUES> 5,656,966
<CGS> 3,808,827
<TOTAL-COSTS> 3,142,602
<OTHER-EXPENSES> 466,653
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (827,810)
<INCOME-TAX> 49,912
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (877,722)
<EPS-PRIMARY> (.15)
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