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UNITED STATES
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarter Ended September 30, 1998
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
COMMISSION FILE NUMBER 06425
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UTAH SENTO CORPORATION 87-0284979
Exact Name of Small Business Issuer
(State or other Jurisdiction of as Specified in its Charter (I.R.S. Employer
Incorporation or Organization) (Address of Principal Executive Offices) Identification No.)
808 East Utah Valley Drive
American Fork, Utah 84003
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Issuers telephone number, including area code: (801) 492-2900
Indicate by check mark whether the issuer (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 issuer 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, 1998
- -------------------- --------------------
Common capital stock 5,812,512
$.25 par value
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
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SENTO CORPORATION
Quarterly Report on Form 10-QSB
Quarter ended September 30, 1998
INDEX
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PART I. FINANCIAL INFORMATION Page
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Item 1. Financial Statements
Condensed Consolidated Balance Sheets
September 30, 1998 and March 31, 1998 3
Condensed Consolidated Statements of
Operations Three Months and Six Months
ended September 30, 1998 and 1997 4
Condensed Consolidated Statements of
Cash Flows Six Months ended September 30,
1998 and 1997 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis
Financial conditions and results of Operation 8
PART II. OTHER INFORMATION
Item 2. Changes in Securities 14
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
SENTO CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
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SEPT. 30, 1998 MARCH 31, 1998
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(UNAUDITED)
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Current assets:
Cash $ 3,989,371 $ 5,807,014
Accounts receivable (net) 2,994,174 4,076,715
Inventories 229,564 302,172
Other current assets 1,886,813 2,015,059
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Total current assets 9,099,922 12,200,960
Property and equipment (net) 2,931,480 1,274,902
Intangible assets (net) 1,830,311 1,513,758
Other assets 268,195 871,032
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Total Assets $ 14,129,908 $ 15,860,652
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 505,961 $ 131,774
Accounts payable 2,474,393 2,720,562
Accrued liabilities 1,705,340 1,399,197
Deferred revenue 1,519,238 2,280,510
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Total current liabilities 6,204,932 6,532,043
Long-term liabilities:
Deferred revenue -- 175,000
Convertible bonds 827,517 944,533
Long-term debt, excluding current portion 1,187,193 362,959
Deferred tax liability 271,539 271,539
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Total long-term liabilities 2,286,249 1,754,031
Minority interest 31,919 --
Stockholders' equity:
Common stock 1,467,631 1,435,268
Additional paid-in capital 6,367,010 5,950,290
Treasury stock (174,000) --
Cumulative effect of foreign currency translation (61,811) (49,889)
Deferred compensation (273,667) (338,357)
Retained earnings (deficit) (1,718,355) 577,266
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Total stockholders' equity 5,606,808 7,574,578
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Total liabilities and stockholders' equity $ 14,129,908 $ 15,860,652
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SENTO CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
SEPT. 30, 1998 SEPT. 30 1997 SEPT. 30, 1998 SEPT. 30, 1997
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Revenues:
Product sales and maintenance $ 2,303,562 $ 3,576,117 $ 5,521,197 $ 6,329,425
Training 791,483 -- 1,579,552 --
Consulting 1,204,025 640,370 2,182,007 1,255,970
Technical services 803,435 465,886 1,468,372 1,081,485
------------ ------------ ------------ ------------
Total revenues 5,102,505 4,682,373 10,751,128 8,666,880
Cost of sales 3,503,918 3,205,617 7,312,695 5,857,317
------------ ------------ ------------ ------------
Gross profit 1,598,587 1,476,756 3,438,433 2,809,563
------------ ------------ ------------ ------------
Costs and expenses:
Selling and marketing 2,148,277 895,423 3,881,870 1,525,003
General and administrative 1,220,875 1,215,710 2,555,189 2,261,793
Research and development -- 78 -- 78,828
Depreciation and amortization 308,388 47,409 504,221 57,505
------------ ------------ ------------ ------------
Total costs and expenses 3,677,540 2,158,620 6,941,280 3,923,129
------------ ------------ ------------ ------------
Operating loss (2,078,953) (681,864) (3,502,847) (1,113,566)
Other income (net) 331,411 2,611,940 907,226 2,648,311
------------ ------------ ------------ ------------
Income (loss) before taxes (1,747,542) 1,930,076 (2,595,621) 1,534,745
Income tax (expense) benefit 349,912 (800,000) 300,000 (800,250)
------------ ------------ ------------ ------------
Net income (loss) $ (1,397,630) $ 1,130,076 $ (2,295,621) $ 734,495
============ ============ ============ ============
Basic net income (loss) per share $ (0.24) $ 0.24 $ (0.40) $ 0.16
Diluted net loss per share $ (0.24) $ 0.23 $ (0.40) $ 0.15
Weighted average number of common
and common equivalent shares outstanding:
Basic 5,737,233 4,658,285 5,716,783 4,505,605
Diluted 5,737,233 4,942,167 5,716,783 4,789,000
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SENTO CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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SIX MONTHS SIX MONTHS
ENDED ENDED
SEPT. 30, 1998 SEPT. 30, 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(2,295,621) $ 734,495
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Gain on sale of assets (127,640) (2,655,110)
Minority interest 9,366 --
Depreciation & amortization 568,911 82,505
Decrease (increase) in assets:
Accounts receivable 1,082,541 29,089
Other assets 784,959 (1,551,711)
Increase (decrease) in liabilities:
Accounts payable (246,169) 452,367
Accrued liabilities 341,892 1,287,127
Other deferred revenue (936,272) 1,524,659
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Net cash used in operating activities (818,033) (96,579)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions, net of cash (100,000) (2,311,168)
Proceeds from sale of assets -- 5,601,400
Purchase of furniture and equipment (1,228,349) (74,366)
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Net cash provided by (used in) investing activities (1,328,349) 3,215,866
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock 296,318 2,926,743
Issuance of long-term debt 146,219 164,589
Principal payments of long-term debt (101,876) (138,193)
Proceeds from issuance of convertible bonds -- 1,000,000
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Net cash provided by financing activities 340,661 3,953,139
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Effect of foreign exchange rates on cash (11,922) --
----------- -----------
Net increase (decrease) in cash (1,817,643) 7,072,426
Cash at beginning of period 5,807,014 2,225,338
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Cash at end of period $ 3,989,371 $ 9,297,764
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest $ 45,496 $ 14,461
Cash paid for income taxes $ 3,615 $ 250
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SENTO CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
A. BASIS OF PRESENTATION
Accompanying unaudited condensed consolidated financial statements
are stated in accordance with the instructions to Form 10QSB and 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 and six months ended September 30,
1998 are not necessarily indicative of the results that may be
expected for the full year. 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 September 30, 1998 and March 31, 1998 consist
primarily of computer hardware and software available for sale.
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:
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SIX MONTHS ENDED SIX MONTHS ENDED
SEPT. 30, 1998 SEPT. 30, 1997
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Net income (loss) ($2,295,621) $ 734,495
Foreign currency translation
adjustment, net of income taxes (11,922) 0
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Comprehensive income (loss) ($2,307,543) $ 734,495
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THREE MONTHS ENDED THREE MONTHS ENDED
SEPT. 30, 1998 SEPT. 30, 1997
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Net income (loss) ($1,397,630) $ 1,139,076
Foreign currency translation
adjustment, net of income taxes (8,855) 0
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Comprehensive income (loss) ($1,406,485) $ 1,139,076
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D. COMMON STOCK
In the quarter ending June 30, 1998, 73,894 warrants issued in
June of 1996, 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 loss per common share for the three and six months
ended September 30, 1998, the loss was the same for both the basic
and diluted calculation. For the three and six months ended September
30, 1998, there were outstanding common stock equivalents to purchase
768,365 and 751,522 shares of common stock respectively, 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. For the three and six months ended September
30, 1997, there were outstanding common stock equivalents to purchase
283,882 and 274,395 shares of common stock, respectively.
A reconciliation between the basic and diluted weighted-average
number of common shares for the three months and nine months ended
September 31, 1998 and September 30, 1997, is summarized as follows:
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Three Months Ended Three Months Ended
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Sept. 30 Sept. 30 Sept. 30 Sept. 30
1998 1997 1998 1997
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Basic weighted-average number of common shares
outstanding during the period 5,737,233 4,658,285 5,716,783 4,505,605
Weighted-average number of common stock options
outstanding during the period 0 283,882 0 274,395
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Diluted weighted-average number of common
shares outstanding during the period 5,737,233 4,942,167 5,716,783 4,780,000
========= ========= ========= =========
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F. BUSINESS ACQUISITION
In August of 1998 the Company acquired all marketing rights to
certain IT training courses from Educational Systems, Inc. for
$100,000 cash and $500,000 in future royalties to be paid out over a
33 month period. The acquisition has been accounted for by the
purchase method and, accordingly, the results of operations of
Educational Systems, Inc. have been included in the Company's
consolidated financial statements from August of 1998. The
intellectual property and marketing rights are being amortized on a
straight-line basis over 33 months. The purchase agreement also
provides for additional payments over the next four years contingent
on future sales of certain IT training courses. The additional
payments, if any, will be accounted for as goodwill.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
Sento Corporation ("Sento" or the "Company") provides integrated information
technology ("IT") solutions for Windows NT, UNIX, Open VMS, Internet/Intranet,
and networked computing environments. Through its wholly owned subsidiaries,
Sento 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 ("Sento Consulting") delivers customized IT consulting services
intended to help Sento customers realize the benefits of advanced IT solutions
in the areas of network, systems and financial information. Sento Technical
Services Corporation ("Sento Technical Services") offers a range of IT
outsourcing services consisting of "call center", "helpdesk", and technical
support services. 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. DewPoint Distributed Solutions
Corporation, a majority owned (67%) subsidiary, provides distribution, reseller,
and channel management for leading software and hardware manufacturers.
Three Months Ended September 30, 1998 Compared to Three Months Ended September
30, 1997.
Revenues
Revenues increased 9% or $420,132; from $4,682,373 for the three months ended
September 30, 1997 to $5,102,505 for the three months ended September 30, 1998.
These revenues were generated from the following four areas:
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Product sales and maintenance, which include both computer hardware and
software. Revenues from this product line decreased 36% or $1,272,555; from
$3,576,117 for the three months ended September 30, 1997 to $2,303,562 for the
same period in 1998. This decrease is representative of the company's strategic
transition from reselling third party products to marketing the Company's own
product line of IT outsourced services. In addition, two of the Company's major
suppliers experienced significant market share deterioration during the quarter
ended September 30, 1998. The Company expects that revenues from product sales
and maintenance ill represent a smaller percentage of the Company's revenues in
the future as the Company continues to focus on its other sources of revenue.
Training revenues of $791,483 were generated through Sento Training, which was
acquired in January 1998. The Company had no training revenues for the quarter
ended September 30, 1997.
Consulting revenues increased 88% or $563,655; from $640,370 for the three
months ended September 30, 1997 to $1,204,025 for the same period in 1998. This
increase reflects of the company's strategic focus on providing IT services.
Technical services increased 72% or $337,549; from $465,886 for the three months
ended September 30, 1997 to $803,435 for the same period in 1998. This increase
reflects of the company's strategic focus on providing IT services. During the
three months ended September 30, 1998 the company completed and moved into a new
technical support call center.
Cost of Sales
Costs 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 providing technical support services.
Cost of sales increased by $298,301 from $3,205,617 for the three months ended
September 30, 1997 to $3,503,918 for the same period in 1998. This increase
related primarily to the increase in corresponding revenues. Cost of sales, as a
percent of revenues, remained constant at 69% for both periods.
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 with the sales function.
Sales and marketing costs increased 140% or $1,252,854; from $895,423 for the
three months ended September 30, 1997 to $2,148,277 for the three months ended
September 30, 1998. This large increase relates primarily to the "start-up"
activities
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associated with the company's two new services divisions, Sento Training and
Sento Technical Services. In addition, during the three months ended September
1998, Sento acquired Educational Systems Inc., a third party marketing company
which had exclusive marketing rights relating to the Company's training
operations acquired in January of 1998. The Company recognized additional sales
and marketing expenses associated with its integration of the marketing and
sales functions of Educational Systems, Inc. during the three-month transition.
General and Administrative Expenses
General and administrative expenses remained relatively constant at $1,215,710
and $1,220,875 for the two periods ended September 30, 1997 and 1998,
respectively.
Other income decreased $2,280,529, from $2,611,940 to $331,411 for the
three-month periods ended September 30, 1997 and 1998 respectively. Other income
for the three months ended September 30, 1997 related to a one-time sale of the
company's Open Aviator software product to BMC Software, Inc. in July 1997.
Other income during the quarter ended September 30, 1998 consisted primarily of
amortization of deferred revenue related to that sale, gain on sale of assets
and interest income.
Six Months Ended September 30, 1997 Compared to Six Months Ended September 30,
1998.
Revenue
Revenue increased 24% or $2,084,248; from $8,666,880 for the six months ended
September 30, 1997 to $10,751,128 for the six months ended September 30, 1998.
These revenues were generated from the following four areas:
Product sales and maintenance, which include both computer hardware and
software. Revenues from this product line decreased 13% or $808,228; from
$6,329,425 in 1997 to $5,521,197 for the same six-month period in 1998. This
decrease is representative of the Company's strategic transition from reselling
third party products to the Company's own product line of IT outsourced
services. In addition two of the Company's major suppliers experienced
significant market share deterioration during the six months ended September 30,
1998. Sento's management intends to continue to focus on providing IT
outsourcing activities.
Training revenues of $1,579,552 were generated during the six months ended
September 30, 1998, primarily through Sento Training, which was acquired in
January 1998. The Company had no training revenues for the six months ended
September 30, 1997.
Consulting revenues increased 74% or $926,037; from $1,255,970 for the six
months ended September 30, 1997 to $2,182,007 for the same six-month period in
1998. This increase is reflects of the Company's strategic focus on providing IT
services.
Technical services revenues increased 36% or $386,887; from $1,081,485 for the
six months ended September 30, 1997 to $1,468,372 for the same six-month period
in 1998. This increase is reflects of the Company's strategic focus on providing
IT
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services. In August 1998 the Company completed and moved into a new technical
support call center.
Cost of Sales
Cost of sales increased by $1,455,378 from $5,857,317 for the six months ended
September 30, 1997 to $7,312,695 for the corresponding six-month period in 1998.
This increase related primarily to the increase in revenues. Cost of sales, as a
percentage of revenues, remained constant at 68% for both periods.
Selling and Marketing Expenses
Sales and marketing expenses increased 155% or $2,356,867; from $1,525,003 for
the six month period ended September 30, 1997 to $3,881,870 for the six months
ended September 30, 1998. This large increase related primarily to the
"start-up" activities associated with the company's two new services divisions,
Sento Training and Sento Technical Services. In addition, in August 1998, Sento
acquired Educational Systems Inc., a third party marketing company which had
exclusive marketing rights relating to the Company's training operations
acquired in January of 1998. The Company recognized additional sales and
marketing expenses associated with its integration of the marketing and sales
functions of Educational Systems, Inc., during the three-month transition.
General and Administrative Expenses
General and administrative expenses increased $239,396, from $2,261,793 for the
six months ended September 30, 1997 to $2,555,189 for the corresponding
six-month period in 1998. This increase was primarily due to the associated
costs of hiring several additional managers and additional start-up costs of two
newly formed operating divisions during the six months ended September 30, 1998.
Other income decreased $1,741,085; from $2,648,311 to $907,226 for the six-month
periods ended September 30, 1997 and 1998 respectively. Other income for the
six-month period ended September 30, 1997 related to a one-time sale of the
Company's Open Aviator software product to BMC Software, Inc. in July of 1997.
Other income during the six-month period ended September 30, 1998 consisted
primarily of amortization of deferred revenue related to that sale, gain on the
sale of assets, and interest income.
Liquidity and Capital Resources
At September 30, 1998, the Company had $3,989,371 of cash compared to $5,807,814
at March 31, 1998. The Company's primary sources of liquidity have been cash
received from sales of assets and cash provided through private sales of equity
. In addition, the Company has financed some of its equipment utilized in its
business through long-term leasing arrangements.
Operating activities used net cash of $818,033 for the six months ended
September 30, 1998 and $96,579 for the six months ended September 30, 1997. The
Company used $1,228,349 for the purchase of furniture and equipment during the
six months ended
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September 30, 1998. The Company's aggressive expansion and anticipated continued
acquisition strategy will require the Company to find alternate sources of
funding in addition to cash provided from operations during future periods. In
the event the Company is not able to find such alternate sources of funding, its
ability to pursue its business and acquisition strategy may be limited. There
can be no assurance that the Company will be able to obtain necessary capital
funding or terms favorable to the Company, if at all.
Year 2000
Sento Corporation has organized a Year 2000 oversight committee that is
conducting an analysis of the Company's internal compliance and implementing
necessary changes to ensure compliance. An overall five-phase plan has been
implemented to coordinate the efforts of all offices worldwide.
The five-phase plan is outlined below:
- Discovery: Creation of Year 2000 Project Plan, Organization of
Oversight Committee consisting of Site Coordinators for each of
the Sento Sites, Members of IT Management and Sr. Management,
and Project Manager. Communication with Board of Directors.
- Risk Assessment: Identify and document critical path items for
all departments throughout Sento worldwide. Assess risk on each
item. Determine current Year 2000 Compliance Status for each at
risk item.
- Equipment & Products: Inventory of internal systems and software
and embedded logic equipment. Contacting all suppliers and
manufacturers of equipment and products for Year 2000 status on
products as well as their internal company Year 2000 readiness.
- Testing: Conduct internal testing on all mission critical
systems to assure no disruption of service or date-logic
concerns.
- Reporting & Contingency Plans: Reporting of results of above
phases and proposed contingency plans for all high risk items.
To date, the Company has completed the Discovery Phase and is conducting the
Risk Assessment and the Equipment and Products phases. Sento Corporation's
mission critical systems primarily consist of newly purchased computers with
Intel processors running Microsoft NT/Windows software. The Company's primary
mission critical applications have been purchased with documented Year 2000
compliance. The phone system and security system for the Corporate office are
newly purchased and Year 2000 certification verification is underway.
While the costs to address the Company's Year 2000 issues cannot readily be
determined until the above five phases have been completed the nature of the
systems and software that are implemented in the Company's critical path
processes, the Company does not anticipate the costs associated with any
corrective procedures will be material. The preceding statements regarding the
Company's anticipated costs are
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forward-looking. Actual results could differ materially from those identified in
the forward-looking statements. Factors affecting these results include the
timing and cost of completing the Company's year 2000 assessment, the costs of
any required remedial measures, the costs of failing to anticipate year 2000
issues that arise and the existence of any liability to third parties for
failure by the Company to have adequately addressed its year 2000 issues.
In the near term, 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 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
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. This statement expands disclosure requirements and,
accordingly, will have no impact on the Company's reported financial condition,
results of operations, or cash flows.
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, the
Company's ability to obtain capital funding necessary to pursue its business and
acquisition strategy; 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 Annual Report on
Form 10-KSB.
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PART II. OTHER INFORMATION
Item 2. Changes in Securities
a. Pursuant to a Convertible Bond and Warrant Purchase Agreement
dated as of July 8, 1997, between Canadian Imperial Holdings,
Inc. ("CIHI") and the Company, the Company sold to CIHI a
Convertible Bond with an "issue price" of $1,000,000 and bearing
interest at the rate of six percent (the "Convertible Bond").
The Convertible Bond, including interest on the principal
thereof, is convertible by CIHI into shares of the Company's
Common Stock (the "Common Stock") in accordance with the
conversion rate set forth in the Convertible Bond upon the
earlier of (a) at any time after October 6, 1997 in the
discretion of CIHI or (b) automatically on July 8, 1999.
On September 16, 1998, CIHI elected to convert $100,000
principal value of the Convertible Bond, together with accrued
interest thereon, into shares of Common Stock. In exchange for
the cancellation of the converted portion of the Convertible
Bond, on the Company issued to CIHI 33,393 shares of Common
Stock.
The sale of the convertible bonds and the issuance of the shares
of common stock upon the conversion thereof, were effected in
reliance upon an exemption for sales of securities not involving
any public offering, as set forth in Section 4(2) of the
Securities Act of 1993, as amended (the "Securities Act"). The
Company's reliance upon such exemption was based upon
representations and warranties of CIHI contained in transaction
documents submitted to the Company by CIHI.
On July 10, 1998, 10,707 shares of Common Stocks were issued
upon the satisfaction of performance criteria outlined in
employment agreements between the Company and two of its
employees, Jim Rogers and Saiid Ghobadian. The value of the
shares of Common Stock ($35,750 in the aggregate) issued
pursuant to the employment agreements was recorded, for
financial accounting purposes, as of March 31, 1998 and, prior
to the issuance of such shares of Common Stock, was reflected as
an accrual liability on the Company's financial statements.
The issuance of shares of Common Stock contemplated by the
foregoing employment agreements was effected in reliance upon an
exemption 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 exemption was based, in part,
upon the employment relationship between the Company and its
employees, the access of such employees to material information
regarding the Company and its business and financial condition
and certain representations and warranties delivered to the
Company by such employees.
14
<PAGE> 15
Item 3. Defaults on Senior Securities
a. None
Item 4. Submission of Matters to Vote of Security Holders
a. On August 11, 1998, the Company held its Annual Meeting of
Shareholders (the "Annual Meeting"). At the Annual Meeting, four
matters were submitted to the Company's shareholders for
consideration and approval. Those matters, together with the
voting results for each matter, are described in the following
paragraphs.
(a) Five directors of the Company were elected to serve
until the 1999 Annual Meeting of Shareholders of the Company.
The directors, together with votes received are: Kieth E.
Sorenson 3,709,879 votes; Gary B. Godfrey 2,093,652 votes;
Walter W. Bregman 3,709,879 votes; Gary B. Filler 3,709,879
votes; and Craig Thomas 3,709,879 votes.
(b) The Company's shareholders approved a series of
proposals to amend and restate the Company's Articles of
Incorporation. The specific proposals and the voting results
with respect to each proposal were: (i) a proposal to change the
name of the Company to "Sento Corporation;" 3,678,927 votes cast
in favor of the proposal, no votes cast against the proposal,
and 48,357 votes abstained; (ii) a proposal to increase the
number of shares of Common Stock that the Company is authorized
to issue from 15,000,000 shares to 50,000,000 shares; 3,641,460
votes cast in favor of the proposal, 43,352 votes cast against
the proposal and 42,472 votes abstained; (iii) a proposal to
adopt limitations on the personal liability of directors;
3,597,358 votes cast in favor of the proposal, 61,040 votes cast
against the proposal, and 68,886 votes abstained; (iv) a
proposal to require the Company to indemnify directors,
officers, employees and agents of the Company to the fullest
extent permitted by Utah corporation law; 3,587,033 votes cast
in favor of the proposal, 59,291 votes cast against the
proposal, and 80,960 votes abstained; (v) a proposal to
eliminate an outdated requirement that the Company maintain its
principal place of business in Salt Lake County, Utah; 3,654,065
votes cast in favor of the proposal, 569 votes cast against the
proposal, and 72,650 votes abstained; and (vi) a proposal to
make certain ministerial and conforming revisions to the
Company's Articles of Incorporation in connection with the
preparation of the Company's Amended and Restated Articles of
Incorporation; 3,637,704 votes cast in favor of the proposal,
25,878 votes cast against the proposal, and 63,702 votes
abstained.
15
<PAGE> 16
(c) The Company's shareholders approved a proposal to
amend the Sento Technical Innovations Corporation Stock
Incentive Plan to increase the number of shares of Common Stock
available for issuance thereunder from 1, 500,000 shares to
2,500,000 shares and to change the name of such plan to the
"Sento Corporation Stock Incentive Plan." With respect to such
proposal, there were 3,629,640 votes cast in favor of the
proposal, 32,747 votes cast against the proposal, and 64,897
votes abstained.
(d) The Company's shareholders approved a proposal to
ratify the appointment of KPMG Peat Marwick LLP as independent
auditor of the Company for the fiscal year ending March 31,
1999. With respect to such proposal, there were 3,673,999 votes
cast in favor of the proposal, no votes cast against the
proposal, and 53,285 votes abstained.
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 8-K
a. See Exhibit Index attached hereto.
16
<PAGE> 17
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)
By: /s/ KIETH E. SORENSON
-----------------------------------------
Kieth E. Sorenson
President and Chief Executive Officer
By: /s/ ROBERT K. BENCH
-----------------------------------------
Robert K. Bench
Executive Vice President and
Chief Financial Officer
17
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
Reg. S-K Item Exhibit Exhibit No.
------------- ---------------------------------------------- -----------
<S> <C> <C>
3.1 Amended and Restated Articles of Incorporation 1
27 Financial Data Schedule 3
</TABLE>
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF AMENDMENT AND RESTATEMENT
OF THE
ARTICLES OF INCORPORATION
OF
SENTO TECHNICAL INNOVATIONS CORPORATION
(HEREAFTER SENTO CORPORATION)
Pursuant to the provisions of the Utah Revised Business Corporation
Act, the undersigned corporation (the "Corporation") hereby adopts the following
Articles of Amendment and Restatement of its Articles of Incorporation with the
intent that this amendment constitutes a restatement of such Articles of
Incorporation and supersedes the existing Articles of Incorporation as
previously amended:
I.
The name of the corporation is Sento Technical Innovations
Corporation.
II.
The following Amended and Restated Articles of Incorporation were
adopted by the shareholders of the corporation at a meeting of shareholders held
on August 11, 1998 in the manner prescribed by the Utah Revised Business
Corporation Act:
The Articles of Incorporation of the corporation, as previously
amended, are hereby amended and restated in their entirety as follows:
<PAGE> 2
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
SENTO CORPORATION
ARTICLE I - NAME
The name of the corporation is Sento Corporation.
ARTICLE II - PURPOSES AND POWERS
The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the Utah Revised Business
Corporation Act. The corporation shall have all of the rights, powers and
privileges now or hereafter conferred upon corporations organized under the Utah
Revised Business Corporation Act. The corporation may do everything necessary,
suitable or proper for the accomplishment of any of its corporate purposes.
ARTICLE III - SHARES
The total number of shares of capital stock which the corporation
shall have authority to issue is fifty five million (55,000,000) of which five
million (5,000,000) shall be shares of preferred stock, no par value
(hereinafter called the "Preferred Stock"), and fifty million (50,000,000) shall
be shares of common stock, $.25 par value (hereinafter called the "Common
Stock").
The designation, powers, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof, of each class of stock, and the express grant of authority
to the board of directors to amend these Articles of Incorporation to fix the
designation, powers, preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions thereof, of each
share of the Preferred Stock which are not fixed by these Articles of
Incorporation, are as follows:
A. PREFERRED STOCK
2
<PAGE> 3
1. Number; Series. The Preferred Stock may be issued in one or more
series, from time to time, with each such series to have such designation,
powers, preferences and relative, participating, optional or other special
rights and qualifications, limitations or restrictions thereof, as shall be
stated and expressed in an amendment to these Articles of Incorporation
providing for the issue of such series. The board of directors of the
corporation is hereby expressly vested with authority to amend the Articles of
Incorporation, without shareholder action or approval, to: (a) create one or
more series of the Preferred Stock, fix the number of shares of each such series
(within the total number of authorized shares of the Preferred Stock available
for designation as a part of such series), and designate and determine, in whole
or part, the preferences, limitations, and relative rights of each series of the
Preferred Stock; (b) alter or revoke the preferences, limitations and relative
rights granted to or imposed upon any wholly unissued series of the Preferred
Stock; or (c) increase or decrease the number of shares constituting any series
of the Preferred Stock (the number of shares of which was originally fixed by
the board of directors) either before or after the issuance of shares of the
series, provided that the number may not be decreased below the number of shares
of such series then outstanding, or increased above the total number of
authorized shares of the Preferred Stock available for designation as a part of
such series. Without limiting the foregoing, the authority of the board of
directors with respect to each such series shall include, but not be limited to,
the determination or fixing of the following:
(i) The distinctive designation and number of shares
comprising such series, which number may (except where otherwise provided by the
board of directors in creating such series) be increased or decreased (but not
below the number of shares then outstanding) from time to time by like action of
the board of directors;
(ii) The dividend rate of such series, the conditions and
times upon which such dividends shall be payable, the relation which such
dividends shall bear to the dividends payable on any other class or classes of
stock or series thereof, or on the other series of the same class, and whether
dividends shall be cumulative or noncumulative;
(iii) The conditions upon which the shares of such series
shall be subject to redemption by the corporation and the times, prices and
other terms and provisions upon which the shares of the series may be redeemed;
(iv) Whether or not the shares of the series shall be
subject to the operation of retirement or sinking fund provisions to be applied
to the purchase or redemption of such shares and, if such retirement or sinking
fund be established, the annual amount thereof and the terms and provisions
relative to the operation thereof;
(v) Whether or not the shares of the series shall be
convertible into or exchangeable for shares of any other class or classes, with
or without par value, or of any other series of the same class and, if provision
is made for conversion or exchange, the times, prices, rates, adjustments and
other terms and conditions of such conversion or exchange;
(vi) Whether or not the shares of the series shall have
voting rights, in addition to the voting rights provided by law, and, if so,
subject to the limitations hereinafter set forth, the terms of such voting
rights;
(vii) The rights of the shares of the series in the event
of voluntary or involuntary liquidation, dissolution or upon distribution of
assets of the corporation;
3
<PAGE> 4
(viii) Any other powers, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, of the shares of such series, as the board of directors
may deem advisable.
2. Dividends. The holders of the shares of the Preferred Stock of
each series shall be entitled to receive, when and as declared by the board of
directors, out of the funds legally available for the payment of dividends,
dividends at the rate fixed by the board of directors for such series for the
current period and, if cumulative, for all prior periods for which such
dividends are cumulative.
Whenever, at any time, dividends on the then outstanding Preferred
Stock as may be required with respect to any series outstanding shall have been
paid or declared and set apart for payment on the then outstanding Preferred
Stock, and after complying with respect to any retirement or sinking fund or
funds for all applicable series of the Preferred Stock, the board of directors
may, subject to the provisions of the resolution or resolutions creating the
series of the Preferred Stock, declare and pay dividends on the Common Stock as
provided in paragraph B.1. of this Article III, and the holders of shares of the
Preferred Stock shall not be entitled to share therein, except as otherwise
provided in the amendment creating any series.
3. Liquidation; Dissolution. The holders of the Preferred Stock of
each series shall be entitled upon liquidation or dissolution of the corporation
to such preferences as are provided in the amendment creating such series of the
Preferred Stock, and no more, before any distribution of the assets of the
corporation shall be made to the holders of shares of the Common Stock. Whenever
the holders of shares of the Preferred Stock shall have been paid the full
amounts to which they shall be entitled, the holders of shares of the Common
Stock shall be entitled to share in all assets of the corporation remaining as
provided in paragraph B.2. of this Article III. If, upon such liquidation,
dissolution or winding up, the assets of the corporation distributable as
aforesaid among the holders of the Preferred Stock of all series shall be
insufficient to permit full payment to them of said preferential amounts, then
such assets shall be distributed ratably among such holders in proportion to the
respective total amounts which they shall be entitled to receive as provided in
this paragraph A.3.
4. Voting. Except as otherwise provided by an amendment to the
Articles of Incorporation creating any series of the Preferred Stock or by the
general corporation law of Utah, the Common Stock issued and outstanding shall
have and possess the exclusive power to vote for the election of directors and
for all other purposes as provided in paragraph B.3. of this Article III.
5. Preemptive Rights. Except as otherwise provided by an amendment to
the Articles of Incorporation providing for the issuance of any series of the
Preferred Stock, no holder of shares of the Preferred Stock shall, as such
holder, be entitled as of right to subscribe for, purchase or receive any part
of any new or additional issue of stock of any class, whether now or hereafter
authorized, or of bonds, debentures or other securities convertible into or
exchangeable for stock, but all such additional shares of stock of any class, or
bonds, debentures or other securities convertible into or exchangeable for
stock, may be issued and disposed of by the board of directors on such terms and
for such consideration, so far as may be permitted by law, and to such persons,
as the board of directors in its absolute discretion may deem advisable.
B. COMMON STOCK
1. Dividends. Subject to the rights of the holders of the Preferred
Stock, and subject to any other provisions of the Articles of Incorporation,
holders of the Common Stock shall be entitled to receive such dividends and
other distributions in cash, stock or property of the corporation as may be
declared thereon by the board of directors from time to time out of assets or
funds of the corporation legally available therefor.
4
<PAGE> 5
2. Liquidation; Dissolution. In the event of any liquidation,
dissolution or winding up of the affairs of the corporation, whether voluntary
or involuntary, after payment or provision for payment of the debts and other
liabilities of the corporation and after payment or provision for payment to the
holders of each series of the Preferred Stock of all amounts required in
accordance with paragraph A.3. of this Article III, the remaining assets and
funds of the corporation shall be divided among and paid to the holders of the
Common Stock.
3. Voting.
(a) At every meeting of the shareholders of the
corporation, every holder of the Common Stock shall be entitled to one vote in
person or by proxy for each share of such Common Stock standing in his name on
the stock transfer records of the corporation.
(b) No shareholder shall have the right to cumulate votes
in the election of directors.
4. Preemptive Rights. No holder of shares of the Common Stock of the
corporation shall, as such holder, be entitled as of right to subscribe for,
purchase or receive any part of any new or additional issue of stock of any
class, whether now or hereafter authorized, or of bonds, debentures or other
securities convertible into or exchangeable for stock, but all such additional
shares of stock of any class, or bonds, debentures or other securities
convertible into or exchangeable for stock, may be issued and disposed of by the
board of directors on such terms and for such consideration, so far as may be
permitted by law, and to such persons, as the board of directors in its absolute
discretion may deem advisable.
ARTICLE IV - DIRECTORS
The number of directors of the corporation shall be as determined by
resolution of the board of directors, but shall not be less than three (3) nor
more than nine (9).
The personal liability of any director to the corporation or to its
shareholders for monetary damages for any action taken or any failure to take
any action, as a director, is hereby eliminated to the fullest extent permitted
by Utah laws. In the event the applicable Utah law or this Article IV is
repealed or amended to decrease or limit in any manner the protection or rights
available to directors hereunder, such repeal or amendment shall not be
retroactively applied in determining the personal liability of a director
pursuant to this Article IV prior to the enactment of such amendment.
ARTICLE V - REGISTERED OFFICE AND AGENT
The street address of the corporation's registered office and the
name and signature of the corporation's registered agent at that office are:
311 North State Street, P.O. Box 1970
Orem, Utah 84059
---------------------------------------
Robert K. Bench
ARTICLE VI - INDEMNIFICATION OF OFFICERS AND DIRECTORS
5
<PAGE> 6
The corporation shall indemnify any person who is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise to the fullest extent permitted by the Utah Revised Business
Corporation Act, as the same may hereafter be amended, or as otherwise permitted
by law.
ARTICLE VI - EFFECT OF AMENDED AND RESTATED ARTICLES OF INCORPORATION
These amended and restated Articles of Incorporation supersede the
original Articles of Incorporation of the corporation and all amendments and
revisions thereto and restatements thereof.
END OF TEXT OF AMENDMENT AND RESTATEMENT
(Remainder of this page intentionally left blank)
6
<PAGE> 7
III.
The number of shares of the capital stock of the corporation
outstanding as of the date the foregoing amendment and restatement was approved
by the shareholders of the corporation was _____________ shares of Common Stock,
par value $.25 per share, and the number of shares entitled to vote thereon was
_________________. No other class of shares was issued and outstanding.
IV.
The number of shares of Common Stock voted for the foregoing
amendment and restatement was _______________ shares; the number of shares of
Common Stock voted against such amendment and restatement was _______________
shares; and the number of shares of Common Stock abstaining from voting was
________________.
DATED this 11th day of August, 1998.
Sento Corporation,
a Utah corporation
By: /s/ KIETH E. SORENSON
------------------------------------
Kieth E. Sorenson,
President and Chief Executive Officer
ATTEST:
/s/ ROBERT K BENCH
- -----------------------------
Robert K. Bench, Secretary
7
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<PERIOD-START> JUL-01-1998
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