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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 June 30, 1999
/ / 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)
808 East Utah Valley Drive
American Fork, Utah 84003
(Address of Principal Executive Offices)
UTAH 87-0284979
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
Issuers telephone number, including area code: (801) 492-2000
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:
<TABLE>
<CAPTION>
Class Outstanding at
June 30, 1999
------------------------- -------------
<S> <C>
Common capital stock 7,767,312
$.25 par value per share
</TABLE>
Transitional Small Business Disclosure Format (check one):
Yes / / No /X/
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SENTO CORPORATION
Quarterly Report on Form 10-QSB
Quarter ended June 30, 1999
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1999 and March 31, 1999 3
Condensed Consolidated Statements of
Operations Three Months ended June 30, 4
1999 and 1998
Condensed Consolidated Statements of
Cash Flows Three Months ended June 30,
1999 and 1998 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 13
</TABLE>
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
SENTO CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, 1999 MARCH 31, 1999
------------- --------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash $ 579,536 $ 275,893
Accounts receivable (net) 2,612,507 3,075,460
Income taxes receivable 50,018 375,148
Other current assets 77,236 391,882
----------- -----------
Total current assets 3,319,297 4,118,383
Property and equipment (net) 2,812,191 2,907,897
Other assets 346,733 274,891
----------- -----------
Total Assets $ 6,478,221 $ 7,301,171
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit $ - $ 1,000,000
Current portion of long-term debt 409,215 409,923
Accounts payable 1,848,814 2,197,129
Accrued liabilities 705,234 1,548,779
Deferred revenue 185,314 500,321
----------- -----------
Total current liabilities 3,148,577 5,656,152
----------- -----------
Long-term liabilities:
Convertible bonds - 472,266
Long-term debt, net of current portion 232,593 286,317
----------- -----------
Total long-term liabilities 232,593 758,583
----------- -----------
Stockholders' equity:
Common stock 1,992,268 1,580,607
Additional paid-in capital 9,153,963 7,247,143
Deferred compensation (42,394) (204,814)
Accumulated deficit (7,593,869) (7,327,537)
Accumulated other comprehensive loss - foreign (26,354) (22,400)
currency translation
Treasury stock (386,563) (386,563)
----------- -----------
Total stockholders' equity 3,097,051 886,436
----------- -----------
Total liabilities and stockholders' equity $ 6,478,221 $ 7,301,171
----------- -----------
----------- -----------
</TABLE>
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SENTO CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, 1999 JUNE 30, 1998
--------------------- ---------------------
<S> <C> <C>
Revenue $ 3,301,721 $ 1,486,365
Cost of sales 2,341,010 684,023
--------------------- ---------------------
Gross profit 960,711 802,342
--------------------- ---------------------
Costs and expenses:
Selling general and administrative 1,165,501 1,815,831
Amortization of intangible assets - 71,366
Research and development 27,356 62,314
--------------------- ---------------------
Total costs and expenses 1,192,857 1,949,511
--------------------- ---------------------
Operating loss (232,146) (1,147,169)
Other income (loss), net (49,076) 518,800
--------------------- ---------------------
Loss before taxes (281,222) (628,369)
Income tax benefit 66,279 -
--------------------- ---------------------
Net loss from continuing operations (214,943) (628,369)
--------------------- ---------------------
Loss from discontinued operations, net of
income taxes (51,389) (269,622)
--------------------- ---------------------
Net loss $ (266,332) $ (897,991)
--------------------- ---------------------
--------------------- ---------------------
Basic and diluted earnings per share:
Loss from continuing operations (0.03) (0.11)
Loss from discontinued operations (0.01) (0.05)
--------------------- ---------------------
Net loss per common share $ (0.04) $ (0.16)
--------------------- ---------------------
--------------------- ---------------------
Weighted average number of common and
Common equivalent shares outstanding:
Basic 6,267,069 5,790,109
Diluted 6,267,069 5,790,109
</TABLE>
4
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SENTO CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, 1999 JUNE 30, 1998
-------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(266,332) $ (897,991)
Adjustments to reconcile net loss to net
Cash used by operating activities:
Depreciation and amortization 280,557 213,436
Loss on disposal of assets 8,053 -
Amortization of deferred compensation 11,850 32,345
Changes in operating assets and liabilities:
Accounts receivable 772,956 1,046,407
Prepaid taxes 325,130 -
Other assets 24,102 183,942
Accounts payable (348,315) (1,029,790)
Accrued liabilities (779,453) (198,837)
Deferred revenue (108,007) (218,806)
---------- -----------
Net cash used in operating activities (79,459) (869,294)
---------- -----------
Cash flows used in investing activities:
Purchase of furniture and equipment (222,904) (102,605)
---------- -----------
Cash flows from financing activities:
Proceeds from issuance of stock 1,659,997 258,629
Issuance of long-term debt - 146,219
Net payments on line of credit (1,000,000) -
Proceeds from stock options exercised 4,395 -
Principal payments of long-term debt (54,432) (27,070)
Foreign currency translation (3,954) (3,067)
---------- -----------
Net cash provided by financing activities 606,006 374,711
---------- -----------
Net increase (decrease) in cash 303,643 (597,188)
Cash at beginning of period 275,893 5,807,014
---------- -----------
Cash at end of period $ 579,536 $ 5,209,826
---------- -----------
---------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest $ 22,195 $ 4,722
Income taxes - 250
</TABLE>
5
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SENTO CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
A. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
are stated in accordance with the instructions to Form 10-QSB 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 months ended June 30, 1999 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 condensed consolidated financial
statements and footnotes thereto included in the Company's Annual
Report on Form 10-KSB for the year ended March 31, 1999.
Certain balances in the financial statements for the three-month period
ended June 30, 1998 have been reclassified to conform to the current
presentation.
B. 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 loss and its components in financial statements. The
components of the Company's comprehensive loss are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1998
-----------------------------------------------------------
<S> <C> <C>
Net loss $(266,332) $ (897,991)
Foreign currency translation
adjustment (3,954) (3,067)
--------- ----------
Comprehensive income loss $(270,286) $ (901,058)
--------- ----------
--------- ----------
</TABLE>
6
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C. COMMON STOCK
THREE MONTHS ENDED JUNE 30, 1999
During the three months ended June 30, 1999, all outstanding
convertible bonds including accrued interest were converted into
401,264 shares of the Company's common stock. The Company also
completed a private placement of common stock in June of 1999, whereby
600,000 units, consisting of two shares of common stock and a warrant
to purchase one share of common stock, were sold. The units were sold
at a price of $3.20 per unit for total proceeds of $1,880,522 (net of
$39,478 in offering costs). Of the total proceeds, cash from
subscriptions totaling $260,003 was received in July of 1999. The
warrants are exercisable for a three-year period at $2.50 per share.
In addition to the above transactions, options to purchase 45,377
shares of the Company's common stock were exercised during the three
months ended June 30, 1999.
THREE MONTHS ENDED JUNE 30, 1998
During the three months ended June 30, 1998, warrants to purchase
73,894 shares of the Company's common stock were exercised for proceeds
of $258,629.
D. LOSS PER SHARE
Loss per share is computed in accordance with Financial Accounting
Standards Board Standard No. 128, "Earnings Per Share". Basic loss per
share is computed as net loss divided by the weighted average number of
common shares outstanding for the period. Diluted loss per share
reflects the potential dilution that could occur from common shares
issuable through stock options, warrants and other convertible
securities. The computation of diluted loss per share for the three
months ended June 30, 1999 excludes the assumed conversion of $500,000
in convertible bonds prior to the conversion to common stock on June
16, 1999 and June 20, 1999, because the impact of the conversion would
be anti-dilutive. The computation of diluted earnings per share for the
three months ended June 30, 1998 excludes the assumed conversion of
$1,000,000 in convertible bonds because the impact of the conversion
would be anti-dilutive. Employee stock options of 1,999,125 and
1,966,601, and warrants of 1,087,500 and 560,000 to purchase common
stock that were outstanding during the three months ended June 20, 1999
and 1998, respectively, were not included in the computation of diluted
loss per share because to do so would be anti-dilutive.
E. DISCONTINUED OPERATIONS
In June of 1999, the Company completed the sale of its VAR business and
certain related assets. The Orem VAR business was sold effective June
30, 1999. The Company received cash of $50,000 and future contingent
earn-out payments of up to $350,000 to be received over 36 months. The
Company recognized a gain on the sale before income taxes of
approximately $5,000 that has been included in the loss from
discontinued operations for the three months ended June 30, 1999.
The VAR business has been accounted for as discontinued operations, and
accordingly, the results of operations are segregated from continuing
operations in the accompanying statements of operations. Revenue,
operating costs and expenses, other income and expenses, and income
taxes of this business have been reclassified to discontinued
operations for the three months ended June 30, 1999 and 1998. No
allocation of general corporate overhead has been made to discontinued
operations relating to this business. The assets and liabilities
related to discontinued operations as of March 31, 1999 are
approximately $240,000 and $210,000, respectively.
F. SEGMENT REPORTING
The Company has adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION. The Company's two reportable
business segments have separate management teams. The segments
include Technical Services and Training Services.
TECHNICAL SERVICES: This segment offers a range of IT outsourcing
services consisting of "call center," "help desk," and technical
support services provided through the Company's "E-customer Contact
Center."
7
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TRAINING SERVICES: This segment provides 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.
The "Other" column includes corporate related items and results of
insignificant operations.
Summarized financial information concerning the Company's reportable
segments for the three months ended June 30, 1999 and 1998 is shown in
the following table:
<TABLE>
<CAPTION>
TECHNICAL TRAINING
1999 SERVICES SERVICES OTHER TOTAL
---------------------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Revenues $ 2,128,492 895,742 277,487 3,301,721
Cost of sales 1,744,338 488,708 107,964 2,341,010
Depreciation 226,061 6,900 40,767 273,728
Segment operating income
(loss) (121,126) (123,909) 12,889 (232,146)
Total assets as of June
30, 1999 3,503,745 601,456 2,373,020 6,478,221
</TABLE>
<TABLE>
<CAPTION>
TECHNICAL TRAINING
1998 SERVICES SERVICES OTHER TOTAL
---------------------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Revenues $ 287,454 776,103 422,808 1,486,365
Cost of sales 48,560 497,238 138,225 684,023
Depreciation 5,863 15,015 17,604 38,482
Amortization of intangible
assets - 57,386 13,980 71,366
Segment operating loss (47,514) (774,446) (325,209) (1,147,169)
Total assets as of June
30, 1998 2,253,973 1,449,938 10,232,352 13,936,263
</TABLE>
8
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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 and
technical support services.
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
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. ("Sento Australia")
based in Sydney, Australia.
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998.
Revenues
Revenues increased 122%, or $1,815,356, from $1,486,365 for the three months
ended June 30, 1998 to $3,301,721 for the three months ended June 30, 1999.
These revenues were generated primarily from the following two areas:
Technical services revenues increased 640%, or $1,841,038, from $287,454 for
the three months ended June 30, 1998 to $2,128,492 for the three months ended
June 30, 1999. The Company began this operation during the quarter ended
March 31, 1998, and this significant increase reflects the Company's
strategic focus on providing IT services.
Training revenues increased 15%, or $119,639, from $776,103 for the three
months ended June 30, 1998 to $895,742 for the same period in 1999. This
increase represents the Company's transition from primarily providing
classroom-based training to providing custom corporate and other forms of IT
training.
Cost of Sales
Costs of sales consists primarily of salaries and employee benefits for the
Company's full and part-time employees, consultants, engineers, agents, and
instructors; travel expenses relating to consulting and training activities;
facilities costs; and depreciation on property and equipment used in
providing technical support services.
Cost of sales increased 242%, or $1,656,987, from $684,023 for the three
months ended June 30, 1998 to $2,341,010 for the same period in 1999. Gross
profit as a percentage of revenues decreased by 25%, from 54% of revenues
during the three months ended June 30, 1998 to 29% of revenues for the same
three-month period in 1999. The decline in gross margin is primarily the
result of a shift in the Company's revenue mix towards technical services,
which generate lower gross profit margins. Generally, the lower gross profit
margins are offset by lower sales and marketing expenses needed to generate
technical services.
Selling General and Administrative Expenses
Selling general and administrative expenses decreased 36%, or $650,330, from
$1,815,831 for the three months ended June 30, 1998 to $1,165,501 for same
three-month period in 1999. The decrease was due to management's focus on
cost reduction and a shift to less expensive marketing methods. Start-up
activities associated with the Company's training and technical services
divisions also contributed to higher general and administrative expenses
during the three-month period ended June 30, 1998.
The Company recorded $71,366 of amortization expense relating to intangible
assets during the three months ended June 30, 1998. The intangible assets
that were amortized in 1998 were subsequently disposed of or written off due
to impairment. Therefore, there is no amortization expense for the three
months ended June 30, 1999.
Other Income (Expense)
During the three months ended June 30, 1999, the Company recorded other
expense (net) of $49,076, as compared to other income (net) of $ 518,800, for
the three months ended June 30, 1998. The decrease of $ 567,876 was
9
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primarily due to the realization of income during the three months ended June
30, 1998 from the sale of assets.
Management does not expect other income to be significant in future periods.
Discontinued Operations
The Company sold all of its VAR business and related assets as of June 30,
1999. The loss from continuing operations reflected in the Statement of
Operations for the three months ended June 30, 1999 excludes the VAR
business' revenues and expenses. Loss from this discontinued operation was
$51,389 for the three months ended June 30, 1999 and $269,622 for the three
months ended June 30, 1998.
Liquidity and Capital Resources
At June 30, 1999, the Company had working capital of $170,720, and cash
balances had increased 210% or $303,643 from $275,893 at March 31, 1999 to
$579,536 at June 30, 1999. The improved liquidity was primarily due to
proceeds received from the Company's private placement of common stock in
June of 1999.
On June 29, 1999, the Company completed a private placement of common stock
and warrants resulting in total consideration received (net of offering
costs) of $1,880,000. This private placement was in the form of 600,000 units
consisting of two shares of common stock and a warrant to purchase one share
of common stock. The units were sold at a price of $3.20 per unit. The stock
purchase warrants are exercisable at $2.50 per share. With this new
financing, management believes the Company will be able to continue its
operations and fund part of its expected growth.
This new financing also made it possible for the Company to restructure its
loan with a bank, which provides up to $2,000,000 of financing. The amount
available under the bank loan is based on Sento's outstanding accounts
receivable. As of June 30, 1999 there were no borrowings outstanding under
this bank line of credit.
The Company's primary sources of liquidity have been cash received from sales
of assets and cash provided through private sales of equity as well as
borrowings under a bank line of credit. In addition, the Company has financed
some of its equipment utilized in its business through long-term leasing
arrangements. The Company's expansion and continuing operating losses will
require the Company to find additional sources of funding in future periods.
In the event the Company is not able to find such alternate sources of
funding, its ability to pursue its planned business strategy will be limited
and it may be forced to reduce operations. There can be no assurance that the
Company will be able to obtain necessary capital funding on 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 and Products: Inventory of internal systems and software and
embedded logic equipment. Contacting all suppliers and manufacturers of
equipment and products regarding 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.
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- - Reporting and 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, Risk Assessment, Equipment
and Products, and Testing phases. The Company is currently accumulating
information for the Reporting and Contingency Plan phase. The Company'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 telephone and security systems for the Company's 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 are such that 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 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. The passage of
the Year 2000 may have a material adverse effect on the demand for these
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 March 1998, the Accounting Standards Executive Committee (AcSEC) issued
Statement of Position (SOP) 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER
SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE. SOP 98-1 identifies the
characteristics of internal-use software and provides examples to assist in
determining when computer software is for internal use. SOP 98-1 is effective
for financial statements for fiscal years beginning after December 15, 1998.
Management does not expect that adoption of SOP 98-1 will have a material
impact on the Company's consolidated financial position, results of
operations, or liquidity.
Factors Affecting Future Results
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 is intended to identify such forward-looking
statements. The Company's actual results, performance or achievements will
differ, and 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 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 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.
11
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
a. As of the date of this Report, the Company is not a party to any legal
proceedings that are required to be reported under this Item. The
Company believes that on June 9, 1999 Educational Systems Inc. ("ESI")
filed suit against Sento and Sento Training in the Fourth Judicial
District court of Utah County, State of Utah, requesting payment of
amounts allegedly payable under an acquisition agreement executed by
Sento, Sento Training and ESI, together with an accounting and
reconciliation of amounts payable under the agreement and damages
based on alleged misrepresentations and interference with economic
relations. The Company was never served with papers filed by ESI. In
July 1999, the Company, Sento Training and ESI entered into a
Settlement and Release Agreement pursuant to which the Company agreed
to issue to ESI 169,097 shares of Common Stock in full satisfaction of
the obligations of the Company and Sento Training to ESI. In addition,
the parties released and discharged any claims they had against each
other, whether arising under the original agreement or otherwise.
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, was convertible by CIHI into shares of 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 June 16, 1999 and June 22, 1999, CIHI elected to convert $200,000
and $300,000, respectively, of 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, and the Company issued to CIHI 401,264 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 a 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 May 11, 1999 and on June 2, 1999, the Company issued 41,829 and
3,548 shares of Common Stock, respectively, upon the exercise of
options granted pursuant to the Company's stock option plan.
On June 29, 1999, the Company completed a private placement of its
common stock whereby 600,000 units consisting of two shares of the
Company's common stock and one warrant to purchase one share of the
Company's common stock were sold. The units were sold at a price of
$3.20 per unit and the stock purchase warrants are exercisable for a
three-year period at $2.50 per share. The private placement of the
units was effected in reliance upon an exemption for sales of
securities not involving a public offering, as set forth in Section
4(2) of the Securities Act and Regulation D promulgated thereunder.
The Company's reliance on such exemptions was based upon
representations and warranties of the purchasers contained in purchase
documents delivered to the Company by each purchaser.
Item 3. Defaults on Senior Securities
12
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a. None
Item 4. Submission of Matters to Vote of Security Holders
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 1999 annual meeting of shareholders,
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. See Exhibit Index attached hereto.
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)
August 13, 1999 By: /s/ Arthur F. Coombs, III
-------------------------------------
Arthur F. Coombs, III
President and Chief Executive Officer
August 13, 1999 By: /s/ Gary B. Filler
-------------------------------------
Gary B. Filler
Acting Executive Vice President and
Chief Financial Officer
13
<PAGE>
EXHIBIT INDEX
ITEM
10.1 Consulting Agreement with Kieth Sorenson
10.2 Employment Agreement for Arthur F. Coombs, III
<PAGE>
April 22, 1999
Mr. Kieth Sorenson
1387 N. 430 E.
Orem, UT 84097
Dear Kieth:
Upon your exit as President and Chief Executive Officer of Sento Corporation,
effective April 23, 1999, we agree to the following:
- - Your employment agreement with Sento Corporation is canceled.
- - All of your stock options previously granted you are canceled.
- - You are granted 100,000 options, with an exercise price of $1.75 fully
exercisable currently, with an exercise term that expires April 23, 2001.
- - You are to receive the standard Board of Directors option package
available to non- employee directors.
- - You will receive $10,000.00 a month for 12 months as a "consultant" to Art
Coombs as needed. If Sento is acquired between April 23, 1999 and April 23,
2000, you will receive the remainder of your consulting fees, such that the
total amount paid you, including the monthly fees you received up to the
date Sento is acquired, totals $120,000.
- - The amount (originally $100,000) you agreed to pay Sento in case you did
not remain an employee is hereby forgiven, and you need not repay it. Such
forgiveness of debt is ordinary income to you and will be reported on form
1099 or on your W-2. You will be responsible for including such income in
you personal income tax return for the year ended December 31, 1999.
- - Your Health and Dental benefits will continue for 12 months.
- - Your home to Sento communications link will remain for 12 months.
As an independent contractor, Sento will not be responsible for any of your
payroll taxes or federal insurance. You will be responsible for completing a
W-9 form and returning it to Human Resources with this signed contract. Your
consulting fees will be reported on form 1099.
Please let me know if there are any issues I have not addressed to your
satisfaction, or if you have any other questions.
Sincerely,
Arthur F. Coombs /s/ Kieth Sorenson
President / CEO ------------------------
Sento Corporation Kieth Sorenson
<PAGE>
April 23, 1999
Mr. Arthur F. Coombs
22 North Wind River Lane
Linden, UT 84042
Dear Art:
On behalf of the Board of Directors of Sento Corporation, I am pleased to
confirm your position as President and Chief Executive Officer of Sento
Corporation, effective April 23, 1999.
Outlined below is a summary of the compensation plan for your position, and a
description of your stock options.
COMPENSATION
We feel that the opportunity is significant and that the compensation should
be commensurately meaningful. We are, therefore, offering you an annual base
salary of $120,000.00. You will also be eligible for an executive bonus to be
determined in 30 days. You will be employed as an "at-will" employee and your
compensation will be based upon the period of your employment with Sento. You
will not be separately compensated for your service as a director of Sento.
If your employment with Sento is terminated by Sento's Board of Directors for
any reason other than for "cause" (as defined below) or as a direct result of
a "change in control" (as defined below), you will receive a severance
payment equal to 12 months' salary, based on your salary at the time of
termination. "Cause" means any dishonest act that has a material adverse
effect on Sento, any conviction for a felony offense or any willful disregard
for the instructions of Sento's Board of Directors which has a material
adverse effect on Sento. "Change in Control" means any sale of all or
substantially all of Sento's assets or the acquisition by any party of shares
of Sento's common stock which results in such party owning more than 50% of
the outstanding shares of Sento's common stock, but only if such sale or
acquisition results in the termination of your employment, a substantial and
material reduction in your responsibilities or the relocation of your
permanent residence to a location that is more than 50 miles from Sento's
current office.
The note payable to Sento Corporation in the amount of $110,000 (included as
part of your drafted employment agreement) is hereby forgiven, and you need
not repay it. In addition, Sento will compensate you an additional amount
sufficient to cover federal and state income taxes, computed on your
incremental tax rate. Such forgiveness of debt is ordinary income to you and
will be reported on form 1099 or on your W-2. You will be responsible for
including such income in your personal income tax return for the year ended
December 31, 1999.
<PAGE>
OWNERSHIP
It is our desire that our relationship be long-term. We would like to provide
you with a meaningful reward for your successes and incentive to help us
continue to grow. We are prepared to provide you an option to purchase
400,000 shares of Sento with an exercise price of $1.75. This option will
vest over three years. These options will vest 1/36 per month.
PREVIOUS AGREEMENTS, WRITTEN OR ORAL, WITH SENTO
In a Board Meeting held July 8, 1998 the Board of Directors offered you an
option to purchase 400,000 shares in connection with an employment agreement
with Sento. However, you and Sento management were never able to reach
agreement on the employment agreement, and as a result no option agreement
was ever issued, and you were an "at will employee" of Sento. In addition
there were other oral and written agreements between you and Sento which were
never finalized and therefore never became effective. By signing this letter,
you and we both agree that all former agreements written or oral, have no
current effectiveness and are null and void.
CONCLUSION
Given the unique skills you will bring to Sento, much of what we have offered
you is exceptional in nature and has the potential to negatively impact the
motivation of our other employees. We, therefore, ask that you will hold all
details of your compensation program in the strictest confidence.
It is an exciting opportunity to welcome you as a the President and Chief
Executive Officer of Sento and as member of our Board of Directors and hope
that our association will be a very long, valuable, and rewarding one. Please
sign below as an indication of acceptance for the above position and
conditions of employment.
Please let me know if there are any issues that I have not addressed to your
satisfaction, or if you have any other questions.
Sincerely,
Kieth Sorenson /s/ Arthur F. Coombs
Chairman of the Board of Directors -------------------------------
Sento Corporation Arthur F. Coombs
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THREE MONTHS
ENDED JUNE 30, 1999 AND 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> MAR-31-2000 MAR-31-1999
<PERIOD-START> APR-01-1999 APR-01-1998
<PERIOD-END> JUN-30-1999 JUN-30-1998
<CASH> 579,536 275,893
<SECURITIES> 0 0
<RECEIVABLES> 2,693,381 3,378,490
<ALLOWANCES> 80,874 303,030
<INVENTORY> 0 0
<CURRENT-ASSETS> 3,319,297 4,118,383
<PP&E> 3,994,208 3,563,676
<DEPRECIATION> 1,182,017 655,779
<TOTAL-ASSETS> 6,478,221 7,301,171
<CURRENT-LIABILITIES> 3,148,577 5,656,152
<BONDS> 641,808 1,168,506
0 0
0 0
<COMMON> 1,992,268 1,580,607
<OTHER-SE> 1,104,783 (694,171)
<TOTAL-LIABILITY-AND-EQUITY> 6,478,221 7,301,171
<SALES> 0 0
<TOTAL-REVENUES> 3,301,721 1,486,365
<CGS> 2,341,010 684,023
<TOTAL-COSTS> 1,192,857 1,949,511
<OTHER-EXPENSES> 49,076 (518,800)
<LOSS-PROVISION> 10,088 13,799
<INTEREST-EXPENSE> 22,195 4,722
<INCOME-PRETAX> (281,222) (628,369)
<INCOME-TAX> (66,279) 0
<INCOME-CONTINUING> (214,943) (628,369)
<DISCONTINUED> (51,389) (269,622)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (266,332) (897,991)
<EPS-BASIC> (0.04) (0.16)
<EPS-DILUTED> (0.04) (0.16)
</TABLE>
